by Calculated Risk on 5/17/2018 01:12:00 PM

From the Philly Fed: May 2018 Manufacturing Business Outlook Survey

Results from the May Manufacturing Business Outlook Survey suggest a pickup in growth of the region’s manufacturing sector. The survey’s indexes for general activity, new orders, shipments, and employment increased from their readings in April. A notable share of firms also reported higher prices for their own manufactured goods this month. The survey’s future indexes, measuring expectations for the next six months, reflected continued optimism.

The diffusion index for current general activity increased 11 points, from 23.2 in April to 34.4 this month. Over 43 percent of the manufacturers reported increases in overall activity this month, while 9 percent reported decreases. ... The firms continued to report overall increases in employment. Nearly 37 percent of the responding firms reported increases in employment, while 6 percent reported decreases this month. The current employment index edged 3 points higher to 30.2, its highest reading in seven months.
emphasis added

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

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

This suggests the ISM manufacturing index will show solid expansion again in May, and probably stronger than in April.

by Calculated Risk on 5/17/2018 10:43:00 AM

From the NY Fed: Total Household Debt Rises for 15th Straight Quarter, Led by Mortgages, Student Loans

The Federal Reserve Bank of New York’s Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit, which shows that total household debt increased by $63 billion (0.5%) to $13.21 trillion in the first quarter of 2018. It was the 15th consecutive quarter with an increase, and the total is now $536 billion higher than the previous peak of $12.68 trillion, from the third quarter of 2008. Further, overall household debt is now 18.5% above the post-financial-crisis trough reached during the second quarter of 2013. The Report is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data.

Mortgage balances—the largest component of household debt—rose by $57 billion during the first quarter, to $8.94 trillion. Balances on home equity lines of credit (HELOC) continued their downward trend, declining by $8 billion, to $436 billion. The median credit score of newly originating mortgage borrowers increased from 755 to 761.

"While housing wealth is at an all-time high, it has shifted into the hands of older and more creditworthy borrowers, in part because of tight mortgage lending standards," said Andrew Haughwout, senior vice president at the New York Fed. "An increased amount of available home equity should make the household balance sheet more resilient in the event of a financial shock, though that may not be an option for lower-credit-score borrowers."
emphasis added

Click on graph for larger image.

Here are two graphs from the report:

The first graph shows aggregate consumer debt increased in Q1.  Household debt previously peaked in 2008, and bottomed in Q2 2013.

From the NY Fed:

Aggregate household debt balances increased in the first quarter of 2018, for the 15th consecutive quarter, and are now $536 billion higher than the previous (2008Q3) peak of $12.68 trillion. As of March 31, 2018, total household indebtedness was $13.21 trillion, a $63 billion (0.5%) increase from the fourth quarter of 2017. Overall household debt is now 18.5% above the 2013Q2 trough.

Mortgage balances, the largest component of household debt, increased somewhat during the first quarter. Mortgage balances shown on consumer credit reports on March 31 stood at $8.94 trillion, an increase of $57 billion from the fourth quarter of 2017. Balances on home equity lines of credit (HELOC) continued their downward trend, declining by $8 billion, and are now at $436 billion. Non-housing balances saw a $14 billion increase in the first quarter. Auto loans grew by $8 billion. Student loan balances increased by $29 billion and credit cards declined by $19 billion.

The second graph shows the percent of debt in delinquency. There is still a larger than normal percent of debt 90+ days delinquent (Yellow, orange and red).

The overall delinquency rate decreased in Q1.  From the NY Fed:

Aggregate delinquency rates improved in the first quarter of 2018. As of March 31, 4.6% of outstanding debt was in some stage of delinquency. Of the $605 billion of debt that is delinquent, $407 billion is seriously delinquent (at least 90 days late or “severely derogatory”). The flow into 90+ day delinquency for credit card balances has been increasing notably for the last year, while the flow into 90+ day delinquency for auto loan balances has been slowly trending upward since 2012.

About 192,000 consumers had a bankruptcy notation added to their credit reports in 2018Q1, the lowest observed in the 19 year history of the data.

There is much more in the report.

by Calculated Risk on 5/17/2018 08:33:00 AM

The DOL reported:

In the week ending May 12, the advance figure for seasonally adjusted initial claims was 222,000, an increase of 11,000 from the previous week's unrevised level of 211,000. The 4-week moving average was 213,250, a decrease of 2,750 from the previous week's unrevised average of 216,000. This is the lowest level for this average since December 13, 1969 when it was 210,750.

Claims taking procedures in Puerto Rico and in the Virgin Islands have 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 213,250.

This was higher than the consensus forecast. The low level of claims suggest few layoffs.

by Calculated Risk on 5/16/2018 06:51:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 217 thousand initial claims, up from 211 thousand the previous week.

• At 8:30 AM, the Philly Fed manufacturing survey for May. The consensus is for a reading of 22.0, down from 23.2.

• At 11:00 AM, The New York Fed will release their Q1 2018 Household Debt and Credit Report

by Calculated Risk on 5/16/2018 04:03:00 PM

Yesterday I reported that sales in Phoenix were down 9% in April compared to April 2017. This was based on the monthly ARMLS Market Report.

Housing economist Tom Lawler pointed out that the Stat report, also from the ARMLS, shows April sales were up 3.7% year-over-year! Quite a difference.

On inventory, the Market report showed inventory down 25.7% year-over-year, and the Stat report showed inventory only down 9.9% year-over-year. Another huge difference.

I'm trying to understand why the two reports are so different (I've always used the Market Report).

The bottom line is sales in Phoenix on a year-over-year basis were either down 9% or up 3.7%. And inventory was either down 25.7% or down 9.9%.

by Calculated Risk on 5/16/2018 12:56:00 PM

From the MBA: Mortgage Delinquencies Down in 1st Quarter of 2018

The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally-adjusted rate of 4.63 percent of all loans outstanding at the end of the first quarter of 2018.

The delinquency rate was down 54 basis points from the previous quarter, and was eight basis points lower than one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The percentage of loans on which foreclosure actions were started during the first quarter was 0.28 percent, up three basis points from the last quarter, but down two basis points from one year ago.

“Mortgage delinquencies decreased from the previous quarter across all loan types – conventional, VA, and in particular, FHA – as the effects of the September hurricanes dissipated,” according to Marina Walsh, MBA’s Vice President of Industry Analysis.

“The strong economy, low unemployment rate, tax refunds and bonuses and home price appreciation were key factors that helped push delinquencies down in the first quarter. Of course, there are offsetting factors that may put upward pressure on delinquency rates in future quarters, including: a difficult recovery for some borrowers in hurricane-impacted states; the aging of loan portfolios; higher interest rates that limit a borrower’s rate-term refinance options; higher energy prices; stretching of housing affordability given limited supply; and the easing of credit overlays as mortgage market conditions have changed.”
...
Mortgage delinquencies dropped across all stages of delinquency in the first quarter of 2018 compared to the fourth quarter of 2017. The 30-day delinquency dropped 27 basis points from the previous quarter, while the 60-day and 90-day delinquency buckets dropped by 9 and 18 basis points respectively.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the first quarter was 1.16 percent, down 3 basis points from the fourth quarter of 2017 and 23 basis points lower than one year ago. This was the lowest foreclosure inventory rate since the third quarter of 2006. In addition to the strong economy and increasing home equity levels, extended storm-related foreclosure moratoria continue to play a factor in keeping foreclosure inventory at historic lows.

The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 2.61 percent in the first quarter of 2018, a decrease of 30 basis points from last quarter, and a decrease of 15 basis points from last year.
emphasis added

Click on graph for larger image.

This graph shows the percent of loans delinquent by days past due.

The percent of loans delinquent decreased in Q1, as "the effects of the September hurricanes dissipated".

The percent of loans in the foreclosure process continues to decline, and is close to normal levels.

by Calculated Risk on 5/16/2018 11:35:00 AM

Earlier: Housing Starts decreased to 1.287 Million Annual Rate in April

The housing starts report released this morning showed starts were down 3.7% in April compared to March, and starts were up 10.5% year-over-year compared to April 2017.

The decrease in starts was mostly due to the volatile multi-family sector.

This first graph shows the month to month comparison between 2018 (blue) and 2017 (red).

Click on graph for larger image.

Starts were up 10.5% in April compared to April 2017.

Note that starts in March, April and May of 2017 were weaker than other months, so this was a fairly easy comparison.

Through four months, starts are up 8.0% year-to-date compared to the same period in 2017.

Single family starts were up 7.2% year-over-year, and up 0.1% compared to March 2018.

Multi-family starts were up 18.7% year-over-year, and down 11.3% compared to March 2018 (multi-family is volatile month-to-month).

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.

The 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). 

It is likely that both starts and completions, on rolling 12 months basis, will now move mostly sideways.

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

The 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.

by Calculated Risk on 5/16/2018 09:25:00 AM

From the Fed: Industrial Production and Capacity Utilization

Industrial production rose 0.7 percent in April for its third consecutive monthly increase. The rates of change for industrial production for previous months were revised downward, on net; for the first quarter, output is now reported to have advanced 2.3 percent at an annual rate. After being unchanged in March, manufacturing output rose 0.5 percent in April. The indexes for mining and utilities moved up 1.1 percent and 1.9 percent, respectively. At 107.3 percent of its 2012 average, total industrial production in April was 3.5 percent higher than it was a year earlier. Capacity utilization for the industrial sector climbed 0.4 percentage point in April to 78.0 percent, a rate that is 1.8 percentage points below its long-run (1972–2017) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 11.3 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 78.0% is 1.8% below the average from 1972 to 2017 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.

The second graph shows industrial production since 1967.

Industrial production increased in April to 107.3. This is 23% above the recession low, and 2% above the pre-recession peak.

by Calculated Risk on 5/16/2018 08:39:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,287,000. This is 3.7 percent below the revised March estimate of 1,336,000, but is 10.5 percent above the April 2017 rate of 1,165,000. Single-family housing starts in April were at a rate of 894,000; this is 0.1 percent above the revised March figure of 893,000. The April rate for units in buildings with five units or more was 374,000.

Building Permits:
Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,352,000. This is 1.8 percent below the revised March rate of 1,377,000, but is 7.7 percent above the April 2017 rate of 1,255,000. Single-family authorizations in April were at a rate of 859,000; this is 0.9 percent above the revised March figure of 851,000. Authorizations of units in buildings with five units or more were at a rate of 450,000 in April.
emphasis added

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) decreased in April compared to March.   Multi-family starts were up 18.7% year-over-year in April.

Multi-family is volatile month-to-month, and  has been mostly moving sideways the last few years.

Single-family starts (blue) increased slightly in April, and are up 7.2% year-over-year.

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 April were below expectations, however starts for February and March were revised up (Combined).

I'll have more later ...

by Calculated Risk on 5/16/2018 07:00:00 AM

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

Mortgage applications decreased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 11, 2018.

... The Refinance Index decreased 4 percent from the previous week to its lowest level since August 2008. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 4 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) decreased to 4.77 percent from 4.78 percent, with points remaining unchanged at 0.50 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

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 50 bps or more from the recent level.



The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 4% year-over-year.