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Thursday, January 18, 2018

Earlier: Philly Fed Manufacturing Survey showed "Growth Continued" in January

by Calculated Risk on 1/18/2018 02:13:00 PM

Earlier from the Philly Fed: January 2018 Manufacturing Business Outlook Survey

Economic growth continued in January, according to the firms responding to this month’s Manufacturing Business Outlook Survey. The broadest measures of current conditions remained positive this month, although indexes for general activity, new orders, and employment declined from their readings in December. The firms reported higher prices for both inputs and their own manufactured goods this month. The future indexes reflecting expected growth over the next six months remained at high levels, although the indexes fell from their readings in December.
...
The index for current manufacturing activity in the region decreased from a revised reading of 27.9 in December to 22.2 this month. Although now at its lowest reading in five months, the index has stayed within a relatively narrow range over the past eight months ... The current employment index, while still positive, fell 3 points to 16.8. The percentage of firms reporting an increase in employment (24 percent) exceeded the percentage reporting a decrease (8 percent). The firms reported a slight increase in work hours this month: The average workweek index increased 4 points to 16.7.
emphasis added
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Fed Manufacturing Surveys and ISM PMI Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through January), and five Fed surveys are averaged (blue, through December) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through December (right axis).

This suggests the ISM manufacturing index night decrease slightly in January, but still show solid expansion again.

Comments on December Housing Starts

by Calculated Risk on 1/18/2018 11:30:00 AM

Earlier: Housing Starts decreased to 1.192 Million Annual Rate in December

The housing starts report released this morning showed starts were down 8.2% in December compared to November, and starts were down 6.0% year-over-year compared to December 2016.

On a yearly basis, starts in 2017 were up 2.4% to 1.202 million compared to 1.174 million in 2016.  Single family starts were up 8.5% in 2017 (compared to 2016) and multi-family starts were down 10.1%.

This was the highest level for total housing starts and single family starts since 2007.

Here is a table of housing starts since the bubble peak in 2005.

Housing Starts (000s)
Total
Housing
Starts
ChangeSingle
Family
Starts
Change
20052,068---1,716---
20061,801-12.9%1,465-14.6%
20071,355-24.8%1,046-28.6%
2008906-33.2%622-40.5%
2009554-38.8%445-28.4%
20105875.9%4715.9%
20116093.7%431-8.6%
201278128.2%53524.3%
201392518.5%61815.4%
20141,0038.5%6484.9%
20151,11210.9%71510.3%
20161,1745.6%7829.4%
20171,2022.4%8488.5%

This first graph shows the month to month comparison between 2016 (blue) and 2017 (red).

Starts Housing 2016 and 2017Click on graph for larger image.

Starts were down 6.0% in December 2017 compared to December 2016, and starts were only up 2.4% for the year

Note that single family starts were up 8.5% in 2017, and the weakness (as expected) was in multi-family starts.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Multifamily Starts and completionsThe blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily over the last few years - but has turned down recently.  Completions (red line) have lagged behind - and completions have caught up to starts (more deliveries). 

Completions lag starts by about 12 months, so completions will probably turn down in about a year.

As I've been noting for a couple of years, the growth in multi-family starts is behind us - multi-family starts peaked in June 2015 (at 510 thousand SAAR).

Single family Starts and completionsThe second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect a few more years of increasing single family starts and completions.

Housing Starts decreased to 1.192 Million Annual Rate in December

by Calculated Risk on 1/18/2018 08:44:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in December were at a seasonally adjusted annual rate of 1,192,000. This is 8.2 percent below the revised November estimate of 1,299,000 and is 6.0 percent below the December 2016 rate of 1,268,000. Single-family housing starts in December were at a rate of 836,000; this is 11.8 percent below the revised November figure of 948,000. The December rate for units in buildings with five units or more was 352,000.

An estimated 1,202,100 housing units were started in 2017. This is 2.4 percent above the 2016 figure of 1,173,800.

Building Permits:
Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 1,302,000. This is 0.1 percent below the revised November rate of 1,303,000, but is 2.8 percent above the December 2016 rate of 1,266,000. Single-family authorizations in December were at a rate of 881,000; this is 1.8 percent above the revised November figure of 865,000. Authorizations of units in buildings with five units or more were at a rate of 382,000 in December.
emphasis added
Total Housing Starts and Single Family Housing Starts Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) increased slightly in December compared to November.   However Multi-family starts were down sharply year-over-year.

Multi-family is volatile month-to-month, but has been mostly moving sideways to down recently.

Single-family starts (blue) decreased in December, but are still up year-over-year.

Total Housing Starts and Single Family Housing Starts The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically fairly low).

Total housing starts in December were below expectations.  However starts for October and November were revised up slightly.

I'll have more later ...

Weekly Initial Unemployment Claims decrease to 220,000

by Calculated Risk on 1/18/2018 08:34:00 AM

The DOL reported:

In the week ending January 13, the advance figure for seasonally adjusted initial claims was 220,000, a decrease of 41,000 from the previous week's unrevised level of 261,000. This is the lowest level for initial claims since February 24, 1973 when it was 218,000. The 4-week moving average was 244,500, a decrease of 6,250 from the previous week's unrevised average of 250,750.

Claims taking procedures continue to be disrupted in the Virgin Islands. The claims taking process in Puerto Rico has still not returned to normal.
emphasis added
The previous week was unrevised.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 244,500.

This was much lower than the consensus forecast. The low level of claims suggest relatively few layoffs.

Wednesday, January 17, 2018

Thursday: Housing Starts, Unemployment Claims, Philly Fed Mfg

by Calculated Risk on 1/17/2018 06:46:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 250 thousand initial claims, up from 261 thousand the previous week.

• Also at 8:30 AM, Housing Starts for December. The consensus is for 1.280 million SAAR, down from 1.297 million SAAR in November.

• Also at 8:30 AM, the Philly Fed manufacturing survey for January. The consensus is for a reading of 25.0, down from 26.2.

Fed's Beige Book: "Modest to moderate"expansion, "on-going labor market tightness"

by Calculated Risk on 1/17/2018 02:06:00 PM

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of Atlanta based on information collected on or before January 8, 2018."

Reports from the 12 Federal Reserve Districts indicated that the economy continued to expand from late November through the end of the year, with 11 Districts reporting modest to moderate gains and Dallas recording a robust increase. The outlook for 2018 remains optimistic for a majority of contacts across the country.
...
On balance, employment continued to grow at a modest pace since the previous report. Most Districts cited on-going labor market tightness and challenges finding qualified workers across skills and sectors, which, in some instances, was described as constraining growth. Several Districts noted elevated demand for manufacturing and construction labor. Most Districts said that wages increased at a modest pace. A few Districts observed that firms were raising wages in a broader range of industries and positions since the previous report. Some Districts reported that firms expect wages to increase in the months ahead.
emphasis added

NAHB: Builder Confidence decreased to 72 in January

by Calculated Risk on 1/17/2018 10:04:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 72 in January, down from 74 in December. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Remains Strong as New Year Starts

Builder confidence in the market for newly-built single-family homes dropped two points to a level of 72 in January on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) after reaching an 18-year high in December 2017.

“Builders are confident that changes to the tax code will promote the small business sector and boost broader economic growth,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “Our members are excited about the year ahead, even as they continue to face building material price increases and shortages of labor and lots.”

“The HMI gauge of future sales expectations has remained in the 70s, a sign that housing demand should continue to grow in 2018,” said NAHB Chief Economist Robert Dietz. “As the overall economy strengthens, owner-occupied household formation increases and the supply of existing home inventory tightens, we can expect the single-family housing market to make further gains this year.”
...
The three HMI components registered relatively minor losses in January. The index gauging current sales conditions dropped one point to 79, the component charting sales expectations in the next six months fell a single point to 78, and the index measuring buyer traffic fell four points to 54.

Looking at the three-month moving averages for regional HMI scores, the West rose two points to 81, the South increased one point to 73, the Midwest inched up a single point to 70 and Northeast climbed five points to 59.
emphasis added
NAHB HMI Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was slightly below the consensus forecast, and a strong reading.

Industrial Production Increased 0.9% in December

by Calculated Risk on 1/17/2018 09:26:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production rose 0.9 percent in December even though manufacturing output only edged up 0.1 percent. Revisions to mining and utilities altered the pattern of growth for October and November, but the level of the overall index in November was little changed. For the fourth quarter as a whole, total industrial production jumped 8.2 percent at an annual rate after being held down in the third quarter by Hurricanes Harvey and Irma. At 107.5 percent of its 2012 average, the index has increased 3.6 percent since December 2016 for its largest calendar-year gain since 2010.

The gain in manufacturing output in December was its fourth consecutive monthly increase. The output of utilities advanced 5.6 percent for the month, while the index for mining moved up 1.6 percent. Capacity utilization for the industrial sector was 77.9 percent, a rate that is 2.0 percentage points below its long-run (1972–2016) average.
emphasis added
Capacity Utilization Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 11.2 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.9% is 2.0% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

Industrial Production The second graph shows industrial production since 1967.

Industrial production increased in December to 107.5. This is 23% above the recession low, and 2% above the pre-recession peak.

MBA: Mortgage Applications Increase in Latest Weekly Survey

by Calculated Risk on 1/17/2018 07:00:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage applications increased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 12, 2018.

... The Refinance Index increased 4 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier. The unadjusted Purchase Index increased 35 percent compared with the previous week and was 7 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest level since March 2017, 4.33 percent, from 4.23 percent, with points increasing to 0.54 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity will not pick up significantly unless mortgage rates fall well below 4%.



Mortgage Purchase Index The second graph shows the MBA mortgage purchase index.

According to the MBA, purchase activity is up 7% year-over-year.

Tuesday, January 16, 2018

Wednesday: Industrial Produciton, Homebuilder Survey, Beige Book

by Calculated Risk on 1/16/2018 06:58:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Still Working on That Ceiling

Mortgage rates didn't move much today. Most lenders were just slightly lower/better this morning, but mid-day market weakness prompted several of them to reissue higher rates. In the bigger picture, however, the past several days represent a welcome stint of relative calm. The general trend had been toward higher rates beginning in mid-December. [30YR FIXED - 4.125%]
emphasis added
Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for December. The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 77.3%.

• At 10:00 AM, The January NAHB homebuilder survey. The consensus is for a reading of  73, down from 74 in December. Any number above 50 indicates that more builders view sales conditions as good than poor.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.