Saturday, August 20, 2011

Summary for Week ending August 19th

by Calculated Risk on 8/20/2011 08:15:00 AM

Once again the two key concerns last week were the weaker economic outlook and the European financial crisis. As I noted last night, a number of analysts have revised down their GDP forecasts for the next few quarters and the debate of a “double dip” recession has really picked up.

In the U.S., some of the high frequency data have been exceptionally weak, especially the NY and Philadelphia Fed manufacturing surveys and consumer sentiment (previous week). That fits with a number of anecdotal reports of the economy freezing for almost two weeks during the debt ceiling debate. There is a growing concern that that debate induced freeze is leading to a "self-reinforcing downward spiral" for the economy. Of the major high frequency data, only weekly initial unemployment claims was relatively benign last week.

The monthly data was mixed. July industrial production and capacity utilization was fairly strong, housing starts are still moving sideways and existing home sales were down.

Here is a summary in graphs:

Housing Starts declined slightly in July

Total Housing Starts and Single Family Housing StartsClick on graph for larger image in graph gallery.

This shows the huge collapse following the housing bubble, and that housing starts have been mostly moving sideways for over two years - with slight ups and downs due to the home buyer tax credit.

Total housing starts were at 604 thousand (SAAR) in July, down 1.5% from the revised June rate of 613 thousand.

Single-family starts declined 4.9% to 425 thousand in July. This was slightly above expectations of 600 thousand starts in July. Multi-family starts are increasing in 2011 - although from a very low level.

Existing Home Sales in July: 4.67 million SAAR, 9.4 months of supply

Existing Home SalesThe NAR reports: Existing-Home Sales Down in July but Up Strongly From a Year Ago

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in July 2011 (4.67 million SAAR) were 3.5% lower than last month, and were 21% above the July 2010 rate.

Year-over-year Inventory According to the NAR, inventory decreased to 3.65 million in July from 3.72 million in June.

This graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, so it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 8.9% year-over-year in July from July 2010. This is the sixth consecutive month with a YoY decrease in inventory.

Months of supply increased to 9.4 months in July, up from 9.2 months in June. This is much higher than normal.

Existing Home Sales NSAThis graph shows existing home sales Not Seasonally Adjusted (NSA). The red columns are for 2011.

Sales NSA are above last July - of course sales declined sharply last year following the expiration of the tax credit in June 2010.

These sales numbers were below the consensus, but right at Lawler's forecast of 4.69 million using the NAR method

Industrial Production increased 0.9% in July, Capacity Utilization increases

Industrial ProductionThis graph shows industrial production since 1967.

Industrial production advanced 0.9 percent in July and the capacity utilization rate for total industry climbed to 77.5 percent.

Both industrial production and capacity utilization had been moving sideways for a few months. This was a fairly strong increase, although partially related to the extreme heat (and an increase in utilities). This was above the consensus forecast of a 0.5% increase in Industrial Production, and an increase to 77.0% for Capacity Utilization.

Empire State and Philly Fed Manufacturing Surveys show contraction

ISM PMIFrom the NY Fed: Empire State Survey indicates contraction

From the Philly Fed: Regional manufacturing activity has dipped significantly

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through August. The ISM and total Fed surveys are through July.

The averaged Empire State and Philly Fed surveys are well below zero suggesting a further decline in the ISM index.

AIA: Architecture Billings Index Drops for Fifth Straight Month

AIA Architecture Billing IndexThis graph shows the Architecture Billings Index since 1996. The index decreased in in July to 45.1 from 46.3 in June. Anything below 50 indicates a contraction in demand for architects' services.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions. Some of the recent decline is because the American Recovery and Reinvestment Act of 2009 is winding down, and state and local governments are still cutting back.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So this suggests further declines in CRE investment in 2012.

Key Measures of Inflation in July

Inflation Measures"According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.9% annualized rate) in July. The 16% trimmed-mean Consumer Price Index increased 0.3% (3.3% annualized rate) during the month."

On a year-over-year basis, these measures of inflation are increasing, and near the Fed's target. "Over the last 12 months, the median CPI rose 1.8%, the trimmed-mean CPI rose 2.1%, the CPI rose 3.6%, and the CPI less food and energy rose 1.8%."

With the slack in the system - and falling gasoline prices, the year-over-year measures will probably stay near or be below 2% by the end of this year.

Weekly Initial Unemployment Claims increased to 408,000

Weekly Unemployment Claims This graph shows the 4-week moving average of weekly claims since January 2000 (longer term graph in graph gallery).

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 402,500.

This is the lowest level for the 4-week average since early April. The 4-week average is still elevated, but has been moving down since mid-May.

Other Economic Stories ...
NAHB Builder Confidence index unchanged in August, Still Depressed
NY Fed Q2 Report on Household Debt and Credit
Residential Remodeling Index at new high in June
State Unemployment Rates "little changed" in July

Have a great weekend!