Wednesday, April 30, 2014

Thursday: ISM Mfg Survey, Unemployment Claims, Personal Income and Outlays, Construction Spending, and Yellen

by Calculated Risk on 4/30/2014 08:53:00 PM

A very busy day ...

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 320 thousand from 329 thousand.

• Also at 8:30 AM, Personal Income and Outlays for March. The consensus is for a 0.4% increase in personal income, and for a 0.6% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• Also at 8:30 AM, Speech by Fed Chair Janet Yellen, Community Bank Supervision, At the Independent Community Bankers of America 2014 Washington Policy Summit, Washington, D.C.

• At 9:00 AM, the Markit US PMI Manufacturing Index for April.

• At 10:00 AM, the ISM Manufacturing Index for April. The consensus is for an increase to 54.2 from 53.7 in March. The ISM employment index was at 51.1% in March, and the new orders index was at 55.1%.

• At 10:00 AM, Construction Spending for March. The consensus is for a 0.6% increase in construction spending.

Fannie Mae and Freddie Mac: Mortgage Serious Delinquency rate declined in March

by Calculated Risk on 4/30/2014 05:43:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in March to 2.19% from 2.27% in February. The serious delinquency rate is down from 3.02% in  March 2013, and this is the lowest level since November 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Earlier Freddie Mac reported that the Single-Family serious delinquency rate declined in March to 2.20% from 2.29% in February. Freddie's rate is down from 3.03% in March 2013, and is at the lowest level since February 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Both Fannie Mae and Freddie Mac serious delinquency rates have fallen 0.83 percentage points over the last year, and at that pace the serious delinquency rates will probably be below 2% mid-year 2014 - and will be under 1% in late 2015.

Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be back to normal in late 2015 or 2016.

FOMC Statement: More Taper, Economic Growth "picked up recently"

by Calculated Risk on 4/30/2014 02:00:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in March indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending appears to be rising more quickly. Business fixed investment edged down, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in May, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $20 billion per month rather than $25 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $25 billion per month rather than $30 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.
emphasis added

Q1 GDP: Investment Contributions

by Calculated Risk on 4/30/2014 11:41:00 AM

Private investment in Q1 was very weak.

The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Investment ContributionsClick on graph for larger image.

Residential Investment (RI) made a negative contribution to GDP in Q1 for the second consecutive quarter (red).

Residential investment is so low - as a percent of the economy - that this 2 quarter decline is not much of a concern.  However, for the rate of economic growth to increase, RI will probably have to make positive contributions.
  
Equipment and software investment also made a negative contribution in Q1, and the three quarter average is barely positive.

The contribution from nonresidential investment in structures was zero in Q1.  Nonresidential investment in structures typically lags the recovery, however investment in energy and power provided a boost early in the recovery. 

I expect to see investment to increase over the next few quarters - and that is key for stronger GDP growth.

BEA: Real GDP increased at 0.1% Annualized Rate in Q1

by Calculated Risk on 4/30/2014 08:30:00 AM

From the BEA: Gross Domestic Product: First Quarter 2014 (advance estimate)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.1 percent in the first quarter (that is, from the fourth quarter of 2013 to the first quarter of 2014), according to the "advance" estimate released by the Bureau of Economic Analysis.
...
The increase in real GDP in the first quarter primarily reflected a positive contribution from personal consumption expenditures (PCE) that was partly offset by negative contributions from exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
The advance Q1 GDP report, with 0.1% annualized growth, was below expectations of a 1.1% increase.  Personal consumption expenditures (PCE) increased at a 3.0% annualized rate - a solid pace.

However the the change in inventories subtracted 0.57 percentage points from growth in Q1, exports subtracted 0.83 percentage points, and both non-residential and residential investment were negative.  
The first graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005. 

State and Local Government Residential Investment GDPClick on graph for larger image.

The drag from state and local governments (red) appeared to have ended last year after an unprecedented period of state and local austerity (not seen since the Depression).  However State and local governments subtracted from GDP in Q1.

Overall I expect state and local governments to continue to make a small positive contributions to GDP in 2014.

The blue bars are for residential investment (RI).  RI added to GDP growth for 12 consecutive quarters, before subtracting in Q4 2013 and Q1 2014.  However since RI is still very low, I expect RI to make a positive contribution to GDP in 2014.

Residential InvestmentResidential Investment as a percent of GDP has bottomed, but it still below the levels of previous recessions.

I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

non-Residential InvestmentThe third graph shows non-residential investment in structures, equipment and "intellectual property products".

I'll add details for investment in offices, malls and hotels next week.


Overall this was a weak report, although PCE growth was decent.   Private investment (even excluding the change in inventories) was negative, and that is the key to more growth going forward.

ADP: Private Employment increased 220,000 in April

by Calculated Risk on 4/30/2014 08:19:00 AM

From ADP:

Private sector employment increased by 220,000 jobs from March to April according to the April ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
Mark Zandi, chief economist of Moody’s Analytics, said, "The job market is gaining strength. After a tough winter employers are expanding payrolls across nearly all industries and company sizes. The recent pickup in job growth at mid-sized companies may signal better business confidence. Job market prospects are steadily improving.”
This was above the consensus forecast for 210,000 private sector jobs added in the ADP report. 

Note: ADP hasn't been very useful in directly predicting the BLS report on a monthly basis, but it might provide a hint. The BLS report for April will be released on Friday.

MBA: Mortgage Applications Decrease in Latest Survey, Refinance Activity Lowest Since 2008

by Calculated Risk on 4/30/2014 07:00:00 AM

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

Mortgage applications decreased 5.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 25, 2014. ...

The Refinance Index decreased 7 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. ...

“Both purchase and refinance application activity fell last week, and the market composite index is at its lowest level since December 2000,” said Mike Fratantoni, MBA’s Chief Economist. “Purchase applications decreased 4 percent over the week, and were 21 percent lower than a year ago. Refinance activity also continued to slide despite a 30-year fixed rate that was unchanged from the previous week. The refinance index dropped 7 percent to the lowest level since 2008, continuing the declining trend that we have seen since May 2013.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.49 percent, with points decreasing to 0.38 from 0.50 (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.

The refinance index is down 76% from the levels in May 2013 (almost one year ago).

With the mortgage rate increases, refinance activity will be very low this year.


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

The 4-week average of the purchase index is now down about 19% from a year ago.

The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index.

Tuesday, April 29, 2014

Wednesday: FOMC Announcement, Q1 GDP and more

by Calculated Risk on 4/29/2014 06:54:00 PM

From Goldman Sachs economist Kris Dawsey: FOMC Preview: A Bit Brighter

The April FOMC meeting will probably be a quiet one compared with the March meeting, with no press conference or Summary of Economic Projections (SEP) to be released. We anticipate that the Fed will want to make relatively few changes to the statement, especially in the monetary policy paragraphs. The largest changes will probably occur in the first paragraph on economic activity, reflecting the passing drag from adverse weather.
...
Regarding the FOMC's policy decision, a further $10bn/month tapering of asset purchases is almost a foregone conclusion, split equally between Treasuries and MBS. This would bring the monthly purchase amount down to $45bn ($25bn Treasuries and $20bn MBS), to take effect in May. ...

It appears likely that Minneapolis Fed President Kocherlakota—who lodged a dovish dissent at the March meeting—will not dissent to the April statement, based on a recent interview.
Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:15 AM, the ADP Employment Report for April. This report is for private payrolls only (no government). The consensus is for 210,000 payroll jobs added in April, up from 191,000 in March.

• At 8:30 AM, Q1 GDP (advance estimate). This is the advance estimate of Q1 GDP from the BEA. The consensus is that real GDP increased 1.1% annualized in Q1.

• At 9:45 AM, the Chicago Purchasing Managers Index for April. The consensus is for an increase to 56.9, up from 55.9 in March.

• At 2:00 PM, the FOMC Meeting Announcement. No change in interest rates is expected (for a long time). However the FOMC is expected to reduce QE3 asset purchases by $10 billion per month at this meeting.

An exciting time for the Data Tribe

by Calculated Risk on 4/29/2014 03:12:00 PM

This is an exciting time to be a member of the "data tribe" (those who follow data closely and are willing to change their views based on the data). There are two new internet sites worth following: The Upshot at the NY Times, and Vox (both feeds added to right sidebar).

Here is fun piece from Neil Irwin at The Upshot: No One Cares About Economic Data Anymore. That’s Good News.

If people in your office seem to be tingling with excitement this week, it is probably because of all the big economic news on the way. The two biggest regular United States economic reports are scheduled to come out, with first-quarter gross domestic product on tap for Wednesday and April jobs numbers out on Friday. Federal Reserve policy makers are meeting Tuesday and Wednesday for one of their regular sessions to set the nation’s monetary policy. And a variety of other important data releases are coming, including personal income and spending, manufacturing and home prices.

What, no tingling? You’re not alone. Because as important as all that stuff is, it is substantially less important, and less interesting, than it has been any time in the last seven years. The economy has gotten boring, and that’s fantastic news — even if it would be even better news if that underlying growth path were a bit stronger.
Personally I'm excited about all the data to be released this week, but Irwin makes an excellent point. Most people don't feel the need to pay close attention any more.

P.S. A suggestion for The Upshot - drop the "The", just Upshot, it is cleaner.

NMHC Survey: Apartment Market Conditions Tighter in April 2014

by Calculated Risk on 4/29/2014 12:04:00 PM

From the National Multi Housing Council (NMHC): Overbuilding Overblown? Apartment Markets Expand in April NMHC Quarterly Survey

Apartment markets rebounded from a soft January, with all four indexes above the breakeven level of 50 in the latest National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. Last year’s concerns of overbuilding or lack of capital have largely eased, reflected in market tightness (56), sales volume (52), equity financing (53) and debt financing (63) all above 50 for the first time since April 2013.

“Supply appears to have ramped up enough to meet approximate ongoing demand with few, if any, signs of irrational exuberance,” said NMHC Senior Vice President of Research and Chief Economist Mark Obrinsky. “A handful of submarkets are facing a temporary surge in new deliveries that may put downward pressure on occupancy rates or rent growth. However, increased development costs could well keep a lid on new supply.”
...
The Market Tightness Index rose from 41 to 56. Almost half (47 percent) of respondents reported unchanged conditions, and approximately one-third (32 percent) saw conditions as tighter than three months ago, in contrast with January’s survey, where almost one-third saw conditions as looser than three months ago. This is the first time the index has indicated overall improving conditions since July 2013.
emphasis added
Apartment Tightness Index
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tighter conditions from the previous quarter. The quarterly increase was small, but indicates tighter market conditions.  

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010. This survey has been bouncing around 50 - and now suggests vacancy rates might be close to a bottom.

HVS: Q1 2014 Homeownership and Vacancy Rates

by Calculated Risk on 4/29/2014 10:17:00 AM

The Census Bureau released the Housing Vacancies and Homeownership report for Q1 2014 this morning.

This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate,except as a guide to the trend.

Homeownership Rate Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate decreased to 64.8% in Q1, from 65.2% in Q4.

I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate is probably close to a bottom.

Homeowner Vacancy RateThe HVS homeowner vacancy decreased to 2.0% in Q1. 

It isn't really clear what this means. Are these homes becoming rentals?

Once again - this probably shows that the general trend is down, but I wouldn't rely on the absolute numbers.

Rental Vacancy RateThe rental vacancy rate increased slightly in Q1 to 8.3% from 8.2% in Q4.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate - and Reis reported that the rental vacancy rate is at the lowest level since 2001 - and might be close to a bottom.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey. Unfortunately many analysts still use this survey to estimate the excess vacant supply. However this does suggest that most of the bubble excess is behind us.

Case-Shiller: Comp 20 House Prices increased 12.9% year-over-year in February

by Calculated Risk on 4/29/2014 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for February ("February" is a 3 month average of December, January and February prices).

This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities).

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: Home Prices Defy Weak Sales Numbers According to the S&P/Case-Shiller Home Price Indices

Data through February 2014, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the annual rates of gain slowed for the 10-City and 20-City Composites. The Composites posted 13.1% and 12.9% in the twelve months ending February 2014.

Both Composites remained relatively unchanged month-over-month. Thirteen of the twenty cities declined in February. Cleveland had the largest decline of 1.6% followed by Chicago and Minneapolis at -0.9%. Las Vegas posted -0.1%, marking its first decline in almost two years. Tampa showed its largest decline of 0.7% since January 2012.

“Prices remained steady from January to February for the two Composite indices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The annual rates cooled the most we’ve seen in some time. The three California cities and Las Vegas have the strongest increases over the last 12 months as the West continues to lead. Denver and Dallas remain the only cities which have reached new post-crisis price peaks. The Northeast with New York, Washington and Boston are seeing some of the slowest year-over-year gains. However, even there prices are above their levels of early 2013. On a month-to-month basis, there is clear weakness. Seasonally adjusted data show prices rose in 19 cities, but a majority at a slower pace than in January.
Case-Shiller House Prices Indices Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 18.9% from the peak, and up 0.9% in February (SA). The Composite 10 is up 22.8% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 18.1% from the peak, and up 0.8% (SA) in February. The Composite 20 is up 23.4% from the post-bubble low set in Jan 2012 (SA).

Case-Shiller House Prices Indices The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 13.1% compared to February 2013.

The Composite 20 SA is up 12.9% compared to February 2013.

Prices increased (SA) in 19 of the 20 Case-Shiller cities in February seasonally adjusted.  (Prices increased in 7 of the 20 cities NSA) Prices in Las Vegas are off 44.5% from the peak, and prices in Denver and Dallas are at new highs (SA).

This was at the consensus forecast for a 13.0% YoY increase. I'll have more on prices later.

Monday, April 28, 2014

Tuesday: Case-Shiller House Prices

by Calculated Risk on 4/28/2014 07:15:00 PM

Here is another graphic of changing demographics: The Next America. Some people look at this graphic and see the need to support an aging population - I look at this graphic, and I see one of the wonders of the 20th Century (increased life expectancy) - I also see that soon (by 2020) all of the largest cohorts will be under 40!

For Tuesday ... just wondering ... Will S&P post the press release online on a timely basis? And will the S&P website crash again?

Tuesday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for February. Although this is the February report, it is really a 3 month average of December, January and February. The consensus is for a 13.0% year-over-year increase in the Composite 20 index (NSA) for February. The Zillow forecast is for the Composite 20 to increase 12.8% year-over-year, and for prices to increase 0.6% month-to-month seasonally adjusted.

• At 10:00 AM, Conference Board's consumer confidence index for April. The consensus is for the index to increase to 83.0 from 82.3.

• Also at 10:00 AM, the Q1 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track with other measures (like the decennial Census and the ACS).

Weekly Update: Housing Tracker Existing Home Inventory up 8.2% year-over-year on April 28th

by Calculated Risk on 4/28/2014 04:08:00 PM

Here is another weekly update on housing inventory ...

There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data was for March).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years.

Existing Home Sales Weekly data Click on graph for larger image.

This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.

In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays.  Inventory in 2013 finished up 2.7% YoY compared to 2012.

Inventory in 2014 (Red) is now 8.2% above the same week in 2013.

Inventory is still very low - still below the level in 2012 (yellow) when prices started increasing - but this increase in inventory should slow house price increases. 

Note: One of the key questions for 2014 will be: How much will inventory increase?  My guess is inventory will be up 10% to 15% year-over-year by the end of 2014 (inventory would still be below normal).

A comment on the New Home Sales report

by Calculated Risk on 4/28/2014 12:12:00 PM

After a nice weekend of hiking, I'm ready to comment on the disappointing new home sales report for March.  See last week: New Home Sales decline to 384,000 Annual Rate in March

New home sales is one of the key reports each month (see: Ranking Economic Data).   However - as always - we shouldn't read too much into any one report.  

The Census Bureau reported that new home sales in Q1 combined were 107,000 not seasonally adjusted (NSA). This is down slightly from 109,000 in Q1 2012 (NSA) - so essentially there was little change when comparing Q1 2014 to Q1 2013.    This is what the public builders have been reporting too.

Weather probably played a small role in the disappointing year-over-year change, however higher mortgage rates and higher prices were probably larger factors. Also there were probably supply constraints in some areas and credit remains difficult for many potential borrowers.

In a way this reminds me of 1994/1995.  30 year fixed mortgage rates increased from around 7% in 1993 to over 9% at the end of 1994 (the Fed had raised the Fed Funds rate from 3% to 5 1/2% during that period).  A number of analysts thought the economy was going into recession based on slightly higher taxes, a higher Fed Funds rate - and they were pointing to the slight decline in new home sales as an indicator.  I disagreed.

I was one of the most optimistic people around at the end of 1994 and I was arguing that new home sales had bottomed in 1991, sales were still very low, housing was a slow moving market, and the demographics supported a higher sales rate over the next several years (new home sales were only 666 thousand in 1993, 670 thousand in 1994, and 667 thousand in 1995 - basically flat for a few years - and then increased to over 800 thousand in 1997).

Mortgage rates are up again - this time from 3.6% a year ago to over 4.3% now (and people are concerned about Fed "tapering").  However sales are even lower (only 429 thousand in 2013), demographics are once again favorable, and I still expect new home sales to increase to 750 thousand to 800 over the next several years.  That will be a significant increase from the  384 thousand sales rate in March!

Maybe sales will move sideways for a little longer, but remember Q1 was a difficult comparison period. Sales in 2013 were up 16.6% from 2012, but sales in Q1 2013 were up over 25% from Q1 of the previous year! The comparisons to last year will be a little easier in a few months - and I still expect to see solid year-over-year growth later this year.  

On revisions: Once again revisions were positive.  December sales were revised down slightly, but sales in January were revised up by 15 thousand, and sales in February were revised up 9 thousand (a combined upward revision of 20 thousand) - so overall revisions were positive.


And here is another update to the "distressing gap" graph that I first started posting over four years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

Distressing GapClick on graph for larger image.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through March 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The flood of distressed sales kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties.

I expect existing home sales to decline some more or move sideways (distressed sales will slowly decline and be partially offset by more conventional / equity sales).  And I expect this gap to close, mostly from an increase in new home sales.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

Dallas Fed: "Texas Manufacturing Picks Up and Outlook Improves Notably"

by Calculated Risk on 4/28/2014 10:40:00 AM

Another solid regional manufacturing survey, this one from the Dallas Fed: Texas Manufacturing Picks Up and Outlook Improves Notably

Texas factory activity increased for the 12th month in a row in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 17.1 to 24.7, reaching its highest level in four years and indicating stronger output growth.

Some other measures of current manufacturing activity also reflected more robust growth. The new orders index posted a four-year high, rising to 21.3. The capacity utilization index rose to a multiyear high as well, climbing from 13.1 to 18.7, with a third of manufacturers noting an increase. The shipments index fell 7 points to 12.4, indicating the volume of shipments grew but at a slower pace than in March.

Perceptions of broader business conditions were markedly more optimistic in April. The general business activity index rose for a second consecutive month, increasing from 4.9 to 11.7. The company outlook index jumped nearly 15 points to a four-year high of 23.4, reflecting a sharp rise in optimism among manufacturers.

Labor market indicators reflected stronger employment growth and longer workweeks. The April employment index rose to 19.7, its highest reading in more than two years.
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 (dashed green, through April), 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 March (right axis).

All of the regional surveys showed expansion in April, and it appears the ISM index will be stronger for the month.  The ISM index for April will be released Thursday, May 1st and the consensus is for an increase to 54.2 from 53.7 in March.

NAR: Pending Home Sales Index increases 3.4% in March, down 7.9% year-over-year

by Calculated Risk on 4/28/2014 10:00:00 AM

From the NAR: Pending Home Sales Increase in March

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 3.4 percent to 97.4 from an upwardly revised 94.2 in February, but is 7.9 percent below March 2013 when it was 105.7.
...
The PHSI in the Northeast increased 1.4 percent to 78.8 in March, but is 5.9 percent below a year ago. In the Midwest the index slipped 0.8 percent to 94.5 in March, and is 10.1 percent below March 2013. Pending home sales in the South rose 5.6 percent to an index of 112.7 in March, but are 5.3 percent below a year ago. The index in the West increased 5.7 percent in March to 91.0, but is 11.1 percent below March 2013.
Mr Yun's once again lowered his forecast for 2014, and is now down to 4.9 million "Existing-home sales are expected to total just over 4.9 million this year, below the nearly 5.1 million in 2013." This is down from his earlier forecast of 5.1 million existing home sales this year. I'll once again take the under on his current forecast - but I think that it would be a positive sign if sales were under 5 million in 2014 as long as distressed sales continue to decline and conventional sales increase.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in April and May.

Black Knight (formerly LPS): House Price Index up 0.7% in February, Up 7.6% year-over-year

by Calculated Risk on 4/28/2014 09:10:00 AM

Notes: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight (formerly LPS), Zillow, FHFA, FNC and more). The timing of different house prices indexes can be a little confusing. Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From LPS: U.S. Home Prices Up 0.7 Percent for the Month; Up 7.6 Percent Year-Over-Year

Today, the Data and Analytics division of Black Knight Financial Services (formerly the LPS Data & Analytics division) released its latest Home Price Index (HPI) report, based on February 2014 residential real estate transactions. ... The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.
The year-over-year increase was less in February (7.6% YoY increase) than in January (8.0%), December (8.4%), November (8.5%) and October (8.8%), so this suggests price increases might be slowing.

The LPS HPI is off 13.5% from the peak in June 2006.

Note: The press release has data for the 20 largest states, and 40 MSAs. Prices increased in 19 of the  20 largest states in February and were unchanged in Ohio.

LPS shows prices off 43.7% from the peak in Las Vegas, off 36.7% in Orlando, and 34.1% off from the peak in Riverside-San Bernardino, CA (Inland Empire). Prices are at new highs in Colorado and Texas (Denver, Austin, Dallas, Houston and San Antonio metros). Prices are also at new highs in Honolulu.

Note: Case-Shiller for February will be released tomorrow.

Sunday, April 27, 2014

Monday: Pending Home Sales, Dallas Fed Mfg Survey

by Calculated Risk on 4/27/2014 08:30:00 PM

This will be a busy week ... Tim Duy has a preview of the FOMC meeting: FOMC Week

The FOMC will wrap up a two-day meeting this Wednesday. I suspect the subsequent statement will be met with little fanfare. There simply has been little in the way of data to prompt any new policy path. Steady as she goes.

To be sure, the Fed will be greeted by the Q1 GDP report Wednesday morning, and it is widely expected to be very weak. But incoming data (retail sales, auto sales, industrial production, and employment, for example) suggests that much of this weakness was weather related while the underlying pace of activity, albeit arguably unexciting, remains unchanged. In short, the economy is evolving largely according to the Fed's script, and thus we should expect no major policy change. I anticipate the statement will reflect a greater confidence that the first quarter growth hiccup was a weather effect, that low inflation remains a concern, and a reiteration of the Fed's commitment to a low-rate policy path as long as inflation remains a concern. And another $10 billion cut in asset purchases to push the taper further along.

The Fed may identify housing as an area of concern.
CR: I expect the FOMC to announce a $10 billion decrease in asset purchases, to blame the early year weakness mostly on the weather, and to express some concern about housing and also concern that inflation is too low.  More of the same ...

And Jim Hamilton has a discussion of the recent increase in gasoline prices: Oil and gasoline prices: many still missing the big picture
The international price of crude oil ultimately determines the price Americans pay for gasoline at the pump. Seasonal factors can bring the price temporarily below the long-run relation, and this accounted for the temporarily low gasoline prices that we saw last fall and winter. Movements in gasoline prices back up this spring are basically a return to normal.

And crude oil prices have remained stable despite impressive gains in U.S. production of shale oil, referring to oil produced from tight geological formations using horizontal fracturing methods. These new drilling techniques have added 2.5 million barrels of daily U.S. oil production since 2010. Why hasn’t that new oil brought lower prices?
...
For the next several years, the world should be able to continue to increase field production of crude oil, as long as the price stays at current levels. The real message from the new technology is this: oil prices have been remarkably steady over the last several years because of– not in spite of– the important added contribution of tight oil.
Monday:
• At 10:00 AM ET, Pending Home Sales Index for March. The consensus is for a 0.6% increase in the index.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for April. This is the last of the regional Fed manufacturing surveys for April.

Weekend:
Schedule for Week of April 20th

Ranking Economic Data

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up 3 and DOW futures are up 23 (fair value).

Oil prices are mixed with WTI futures at $100.79 per barrel and Brent at $109.58 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.66 per gallon (up sharply over the last three months and more than 10 cents above the level of a year ago).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.



Orange County Historical Gas Price Charts Provided by GasBuddy.com

Ranking Economic Data

by Calculated Risk on 4/27/2014 10:38:00 AM

Here is an update to a list I posted several years ago with my ranking of economic data releases.

These lists are not exhaustive (I'm sure I left a few off), and the rankings are not static. As an example, a few years ago I ranked initial weekly unemployment claims as ‘B List’ data, but now that claims are close to normal levels, I've moved weekly claims down to the 'C List'.  Currently I'm watching measures of household debt a little closer and I've moved up the NY Fed's quarterly "Household Debt and Credit Report" to the C-list.

Note: There has been some research by Wall Street analysts about how "surprises" for many of these indicators impact the stock market. In general the ranking is similar with the employment situation report being #1.

The NAR existing home sales report is difficult to rank.  'For sale' inventory is important - almost "B-List"  - but the headline sales number is more "C-List". 

For each indicator I've included a link to the source and a recent post with graphs (in parenthesis).

Some of the lower ranked data is useful as leading indicators. As an example, the Architecture Billings Index is a leading indicator for investment in commercial real estate. And the NMHC apartment survey leads changes in apartment rents and vacancy rates. Also some of the lower ranked data helps forecast some of the more important data.

Both A-List reports (employment and GDP) will be released this week.

A-List
• BLS: Employment Situation Report, (March Employment Report: 192,000 Jobs, 6.7% Unemployment Rate and Comments on Employment Report)
• BEA: GDP Report (quarterly) (Q4 GDP Revised up to 2.6%)

B-List
• Census: New Home Sales (New Home Sales decline to 384,000 Annual Rate in March)
• Census: Housing Starts (Housing Starts at 946 Thousand Annual Rate in March and A comment on Housing Starts)
• ISM Manufacturing Index (ISM Manufacturing index increased in March to 53.7)
• Census: Retail Sales (Retail Sales increased 1.1% in March)
• BEA: Personal Income and Outlays (Personal Income increased 0.3% in February, Spending increased 0.3%)
• Fed: Industrial Production (Fed: Industrial Production increased 0.7% in March)
• BLS: Core CPI (Key Inflation Measures Shows Slight Increase, but still Low in March)

C-List
• NAR: Existing Home Sales (Existing Home Sales in March: 4.59 million SAAR, Inventory up 3.1% Year-over-year)
• DOL: Weekly Initial Unemployment Claims (Weekly Initial Unemployment Claims at 329,000)
• Manufacturers: Light Vehicle Sales (U.S. Light Vehicle Sales increase to 16.4 million annual rate in March, Highest since 2007)
• Philly Fed: Philly Fed Index (Philly Fed Manufacturing Survey indicated Faster Expansion in April)
• NY Fed Empire State Manufacturing Index (NY Fed: Empire State Manufacturing Survey indicates "business activity was flat" in April)
• Chicago ISM: Chicago PMI (Chicago PMI declines to 55.9)
• Census: Durable Goods
• ISM Non-Manufacturing Index (ISM Non-Manufacturing Index increases to 53.1 in March)
• House Prices: Case-Shiller and CoreLogic (CoreLogic: House Prices up 12.2% Year-over-year in February and Comment on House Prices: Graphs, Real Prices, Price-to-Rent Ratio, Cities)
• BLS: Job Openings and Labor Turnover Survey (BLS: Jobs Openings increase to 4.2 million in February)
• Census: Construction Spending (Construction Spending increased slightly in February)
• Census: Trade Balance (Trade Deficit increased in February to $42.3 Billion)
• MBA: Mortgage Delinquency Data (Quarterly) (MBA: Mortgage "Delinquency and Foreclosure Rates Decline to Lowest Level in Six Years" in Q4)
• LPS: Mortgage Delinquency Data (Black Knight: Mortgage delinquency rate in March lowest since October 2007)
• CoreLogic and Zillow: Negative Equity Report and Zillow (quarterly) (CoreLogic: 4 Million Residential Properties Returned to Positive Equity in 2013 and Zillow: Negative Equity declines further in Q4 2013)
• AIA: Architecture Billings Index (AIA: Architecture Billings Index indicated contraction in March)
• NY Fed: Household Debt and Credit Report (Quarterly) (NY Fed: Household Debt increased in Q4, Delinquency Rates Improve)

D-List
• Fed: Household Debt Service and Financial Obligations Ratios (Quarterly) (Fed: Q4 Household Debt Service Ratio near 30 year low)
• Fed: Flow of Funds (Quarterly) (Mortgage Equity Withdrawal Still Negative in Q4)
• Richmond Fed: Richmond Fed Manufacturing Index
• Kansas City Fed: Kansas City Fed Manufacturing Index
• Dallas Fed: Dallas Fed Manufacturing Index
• Reis: Office, Mall, Apartment Vacancy Rates (Quarterly) (Reis: Office Vacancy Rate declined slightly in Q1 to 16.8% and Reis: Apartment Vacancy Rate declined to 4.0% in Q1 2014 and Reis: Mall Vacancy Rates unchanged in Q1)
• NMHC Apartment Survey (Quarterly) (NMHC Survey: Apartment Market Conditions Softer in Q4)
• Reuters / Univ. of Michigan Consumer Sentiment Index (Final April Consumer Sentiment at 84.1)
• MBA: Mortgage Purchase Applications Index (MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey)
• NAHB: Housing Market Index (NAHB: Builder Confidence increased slightly in April to 47)
• Census: Housing Vacancy Survey (Quarterly) (HVS: Q4 2013 Homeownership and Vacancy Rates)
• Fed: Senior Loan Officer Survey (Quarterly) (Fed Survey: Banks eased lending standards, Experienced increased demand)
• ATA: Trucking (ATA Trucking Index increased in February)
• NFIB: Small Business Survey (NFIB: Small Business Optimism Index increases in March)
• STR: Hotel Occupancy (Hotels: Occupancy Rate, RevPAR decrease in latest weekly survey)
• NRA: Restaurant Performance Index
• Fed: Consumer Credit
• DOT: Vehicle Miles Driven (DOT: Vehicle Miles Driven decreased 0.8% year-over-year in February)
LA and Long Beach Port Traffic: LA area Port Traffic: Up year-over-year in March, Exports at New High)
• BLS: Producer Price Index
• ADP Employment Report
• Conference Board Confidence Index
• NAR: Pending Home Sales

Sources (Government):
BEA: Bureau of Economic Analysis
BLS: Bureau of Labor Statistics
Census: Census Bureau
DOL: Dept of Labor
DOT: Dept. of Transportation
Fed: Federal Reserve

Sources (Industry):

AIA: American Institute of Architects
ISM: Institute for Supply Management
LPS: Black Knight
MBA: Mortgage Bankers Association
NAHB: National Association of Homebuilders
NAR: National Association of Realtors
NFIB: National Federation of Independent Business
NRA: National Restaurant Association
STR: Smith Travel Research

Saturday, April 26, 2014

Schedule for Week of April 27th

by Calculated Risk on 4/26/2014 01:11:00 PM

This will be a busy week for economic data with several key reports including the April employment report on Friday and the advance Q1 GDP report on Wednesday.

Other key reports include the ISM manufacturing index on Thursday, April vehicle sales, also on Thursday, and the February Case-Shiller house price index on Tuesday.

There will a two-day FOMC meeting on Tuesday and Wednesday, and the Fed is expected to announce on Wednesday a decrease in asset purchases from $55 billion per month to $45 billion per month.

----- Monday, April 28th -----

10:00 AM ET: Pending Home Sales Index for March. The consensus is for a 0.6% increase in the index.

10:30 AM: Dallas Fed Manufacturing Survey for April. This is the last of the regional Fed manufacturing surveys for April.

----- Tuesday, April 29th -----

Case-Shiller House Prices Indices9:00 AM: S&P/Case-Shiller House Price Index for February. Although this is the February report, it is really a 3 month average of December, January and February.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through January 2014 (the Composite 20 was started in January 2000).

The consensus is for a 13.0% year-over-year increase in the Composite 20 index (NSA) for February. The Zillow forecast is for the Composite 20 to increase 12.8% year-over-year, and for prices to increase 0.6% month-to-month seasonally adjusted.

10:00 AM: Conference Board's consumer confidence index for April. The consensus is for the index to increase to 83.0 from 82.3.

10:00 AM: Q1 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track with other measures (like the decennial Census and the ACS).

----- Wednesday, April 30th -----

7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for April. This report is for private payrolls only (no government). The consensus is for 210,000 payroll jobs added in April, up from 191,000 in March.  

8:30 AM: Q1 GDP (advance estimate). This is the advance estimate of Q1 GDP from the BEA. The consensus is that real GDP increased 1.1% annualized in Q1.

9:45 AM: Chicago Purchasing Managers Index for April. The consensus is for an increase to 56.9, up from 55.9 in March.

2:00 PM: FOMC Meeting Announcement.  No change in interest rates is expected (for a long time). However the FOMC is expected to reduce QE3 asset purchases by $10 billion per month at this meeting.

----- Thursday, May 1st -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 320 thousand from 329 thousand.

Vehicle SalesAll day: Light vehicle sales for April. The consensus is for light vehicle sales to decrease to 16.2 million SAAR in April (Seasonally Adjusted Annual Rate) from 16.3 million SAAR in March.

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the March sales rate.

8:30 AM: Personal Income and Outlays for March. The consensus is for a 0.4% increase in personal income, and for a 0.6% increase in personal spending. And for the Core PCE price index to increase 0.2%.

8:30 AM: Speech by Fed Chair Janet Yellen, Community Bank Supervision, At the Independent Community Bankers of America 2014 Washington Policy Summit, Washington, D.C.

9:00 AM ET: The Markit US PMI Manufacturing Index for April. 

ISM PMI10:00 AM ET: ISM Manufacturing Index for April. The consensus is for an increase to 54.2 from 53.7 in March.

Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated expansion in March at 53.7%. The employment index was at 51.1%, and the new orders index was at 55.1%.

10:00 AM: Construction Spending for March. The consensus is for a 0.6% increase in construction spending.

----- Friday, May 2nd -----

8:30 AM: Employment Report for April. The consensus is for an increase of 215,000 non-farm payroll jobs in April, up from the 192,000 non-farm payroll jobs added in  March.

The consensus is for the unemployment rate to decline to 6.6% in April. 

Percent Job Losses During RecessionsThis graph shows the percentage of payroll jobs lost during post WWII recessions through March.

The economy has added 8.9 million private sector jobs since employment bottomed in February 2010 (8.3 million total jobs added including all the public sector layoffs).

There are 110 thousand more private sector jobs now than when the recession started in 2007, but total employment is still 437 thousand below the pre-recession peak.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for March. The consensus is for a 1.3% increase in March orders.

Unofficial Problem Bank list declines to 513 Institutions

by Calculated Risk on 4/26/2014 07:53:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for April 25, 2014.

Changes and comments from surferdude808:

Today, the FDIC released an update on its enforcement action activities through March 2013 that contributed to many changes to the Unofficial Problem Bank List. For the week, there were nine removals and one addition that leave the list at 513 institutions with assets of $167.3 billion. A year ago, the list held 775 institutions with assets of $285.3 billion. During the month, the list declined from 538 to 513 institutions after 21 action terminations, five mergers, one failure, and two additions. Assets fell by $7.0 billion this month.

Actions were terminated against Finance Factors, Ltd., Honolulu, HI ($482 million); Oxford Bank & Trust, Oak Brook, IL ($446 million); Mohave State Bank Lake, Havasu City, AZ ($288 million Ticker: SBAZ); Mariners Bank, Edgewater, NJ ($249 million); Coast National Bank, San Luis Obispo, CA ($120 million Ticker: CTBP); State Central Bank, Bonaparte, IA ($71 million); The Home Building and Loan Company, Greenfield, OH ($38 million); and The First State Bank, Ryan, OK ($29 million).

Allendale County Bank, Fairfax, SC ($55 million) left the list by being the sixth failure of the year. With an initial loss estimate of 31.4 percent of assets, this is the most costly failure this year when measured as a share of assets. Since the on-set of the Great Recession, there have been 10 failures in South Carolina, which ranks 13th highest across all states. Moreover, failures in the FDIC Southeast's office based in Atlanta now total 187 across seven states with a loss estimate of $31.8 billion or nearly 29 percent of failed bank assets. Guess the high number of costly failures is what happens when warnings about the developing real estate bubble went unheeded. Many of us are waiting for the FDIC to publish a comprehensive post-mortem analysis on the regulatory failures of the last decade similar to what they published after the 1980s (see History of the 80s). Instead all they chose to publish is research on the state of community banking.

Added this week was New Jersey Community Bank, Freehold, NJ ($144 million). Also, the FDIC issued a Prompt Corrective Action order against Columbia Savings Bank, Cincinnati, OH ($38 million), which has been operating under a Cease & Desist order since February 2011.

Friday, April 25, 2014

Bank Failure #6 in 2014: Allendale County Bank, Fairfax, South Carolina

by Calculated Risk on 4/25/2014 05:35:00 PM

From the FDIC: Palmetto State Bank, Hampton, South Carolina, Assumes All of the Deposits of Allendale County Bank, Fairfax, South Carolina

As of December 31, 2013, Allendale County Bank had approximately $54.5 million in total assets and $51.0 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $17.1 million. ... Allendale County Bank is the sixth FDIC-insured institution to fail in the nation this year, and the first in South Carolina.
Does anyone remember bank failures? (this is the first failure since February!)

Vehicle Sales Forecasts: Solid in April

by Calculated Risk on 4/25/2014 01:52:00 PM

Auto sales were clearly impacted by the harsh winter weather in January and February, and then rebounded sharply in March. The rebound in March was predicted by Atif Mian and Amir Sufi Weakening Economy or Just Bad Winter?

Note: The automakers will report April vehicle sales on Thursday, May 1st.  Sales in March were at a 16.3 million seasonally adjusted annual rate (SAAR), and it appears sales in April will be above 16 million (SAAR) too.

Here are a few forecasts:

From J.D. Power: April New-Vehicle Retail Sales Showing Growth, With Consumer Spending at Record-Level Pace

New light-vehicle retail sales are expected to reach their highest levels for the month of April since 2005, according to a monthly sales forecast developed jointly by J.D. Power and LMC Automotive. ... Total light-vehicle sales in April 2014 are expected to reach 1.4 million units, a 4 percent increase from April 2013. [16.1 million SAAR]
Note: In April 2014, there was one more selling day than in April 2013 (26 days vs. 25 last year).

From Edmunds.com: Car Sales Settle into a Groove in April, Says Edmunds.com
Edmunds.com ... forecasts that 1,401,606 new cars and trucks will be sold in the U.S. in April for an estimated Seasonally Adjusted Annual Rate (SAAR) of 16.2 million. ... The forecast anticipates that the auto industry will enjoy its best April performance since dealers sold 1,444,587 vehicles in April 2006.
From TrueCar: April SAAR to Hit 16.2 Million Vehicles, According to TrueCar; 2014 New Vehicle Sales Expected to be up 8 Percent Year-Over-Year
New light vehicle sales in the U.S. (including fleet) are expected to reach 1,382,000 units, up 7.5 percent from April 2013 and down 10.0 percent from March 2014. ... Seasonally Adjusted Annualized Rate ("SAAR") of 16.2 million new vehicle sales is up 9.2 percent from April 2013 and down 0.5 percent over March 2014.

A Few Q1 GDP Forecasts

by Calculated Risk on 4/25/2014 11:01:00 AM

The BEA is scheduled to release the advance estimate for Q1 Gross Domestic Product (GDP) next week on Wednesday, April 30th. The consensus forecast is for real GDP to increase 1.1% in Q1 (from Q4, annualized). Here are a few forecasts:

From Kris Dawsey at Goldman Sachs:

Despite GDP likely growing at an anemic rate of around 1.0% in Q1, we remain optimistic about the rest of 2014. The core narrative for a pickup in growth this year has not changed. The fiscal drag is still lower, consumer spending should still strengthen, and business investment seems poised for a comeback. We see the weakness in Q1 as mainly driven by temporary factors, including a large drag from weather and inventories. The recent encouraging dataflow—with the exception of some of the housing numbers—appears consistent with our forecast for a near-term pickup. For the remainder of 2014, 3%+growth remains our baseline. ...

We forecast 1.8% growth in real final sales in Q1 (GDP growth excluding the effects of the volatile inventories category). ... Inventory investment was a significant positive contributor to growth in 2013, adding 3/4 percentage point to growth over the four quarters of the year. ... In Q1, the rate of real inventory accumulation appears to have moderated based on the incoming data on manufacturing, wholesale, and retail inventories, which will be a drag on Q1 GDP growth.
emphasis added
From Merrill Lynch:
We think the first estimate of 1Q GDP will show sluggish growth of only 1.2% qoq saar. A large part of the weakness owes to the cold weather which held back economic activity in the beginning of the year. Inventories are also being drawn down, albeit gradually, as businesses were caught with excess stockpiles. We estimate that inventories will slice 0.6pp from growth, matching the drag to the economy from a wider trade deficit. Residential investment is also likely to contract, reflecting the decline in home sales and sluggish housing starts. ... We think momentum will improve in the spring, setting the stage for a rebound in 2Q with growth above 3.0%.

For the first release of 1Q GDP, we are looking for relatively soft readings on key inflation metrics in this report. Specifically, we expect both the GDP deflator and the core PCE deflator to rise 1.3% qoq saar for 1Q.
From Nomura:
Disregard the backward-looking Q1 GDP, April data should show the recovery taking off. ... Weather weighed on economic activity early in the year. This should be reflected in a markedly slower pace of GDP growth in Q1. We expect GDP to grow at an annualized rate of 0.9% in Q1, compared with 2.6% in Q4.
And on the April employment report to be released next Friday, the consensus is for 210 thousand payroll jobs added with Merrill forecasting 215 thousand and Nomura forecasting 225 thousand.

Final April Consumer Sentiment at 84.1

by Calculated Risk on 4/25/2014 09:58:00 AM

Consumer Sentiment
Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for April increased to 84.1 from the March reading of 80.0, and was up from the preliminary April reading of 82.6.

This was above the consensus forecast of 82.5. Sentiment has generally been improving following the recession - with plenty of ups and downs - and a big spike down when Congress threatened to "not pay the bills" in 2011, and another smaller spike down last October and November due to the government shutdown.

I expect to see sentiment at post-recession highs very soon.

Thursday, April 24, 2014

Friday: Consumer Sentiment

by Calculated Risk on 4/24/2014 08:08:00 PM

From Nick Timiraos at the WSJ: Demand for Home Loans Plunges

Lenders originated $235 billion in mortgage loans during the January-March quarter, down 58% from the same period a year ago and down 23% from the fourth quarter of 2013, according to industry newsletter Inside Mortgage Finance.
...
The decline in mortgage lending last quarter stemmed almost entirely from the slide in refinancing. Loans for home purchases were basically flat from a year earlier and down from the fourth quarter.
...
The top 25 lenders accounted for 63.9% of all originations in the first quarter, also a 14-year low. That is down from 65.3% at the end of last year and a high of 90.9% in 2008, according to Inside Mortgage Finance.
Note: Many of the smaller lenders focus on the home purchase market and many of these small lenders are not included in the weekly MBA index. That is why the MBA purchase index is down about 18% year-over-year, but actual purchase activity is flat (according to Inside Mortgage Finance).

Friday:
• At 9:55 AM ET, the Reuter's/University of Michigan's Consumer sentiment index (final for April). The consensus is for a reading of 82.5, down from the preliminary reading of 82.6, but up from the March reading of 80.0.

Lawler: More Builder Results, Summary of Q1 Results so far

by Calculated Risk on 4/24/2014 03:29:00 PM

D.R. Horton, the nation’s largest home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 8,569, up 8.8% from the comparable quarter of 2013. Horton’s average community count last quarter was up 11% from a year ago. The company’s sales cancellation rate, expressed as a % of gross orders, was 19%, unchanged from a year ago. Home deliveries totaled 6,194 last quarter, up 13.4% from the comparable quarter, at an average sales price of $271,230, up 11.8% from a year ago. The company’s order backlog at the end of March was 10,059, up 5.3% from last March.

In response to overall weak demand from first-time home buyer, partly attributable in home price increases over the past two years, Horton announced in its conference call that is initiating a new product line called “express homes,” which will be smaller and priced lower than its current product lines and will be targeted to first-time buyers. An official said that first-time home buyers represented 42% of the purchase mortgages handled by its mortgage subsidiary last quarter, down from 50% in the comparable quarter of 2013. An official also said that the company increased sales incentives “some, but not significantly,” last quarter.

D.R. Horton’s results were stronger than consensus.

PulteGroup, the nation’s second largest home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 4,863, down 6.5% from the comparable quarter of 2013. While net orders were down from a year ago, the company said that absorptions per community were up from last year. (Pulte has focused more on returns and less on expansion). Home deliveries last quarter totaled 3,436, down 10.4% from the comparable quarter of 2013, at an average sales price of $317,000, up 10.5% from a year ago. The company’s order backlog at the end of March was 7,199, down 8% from last March. Company officials noted that absorption rates per community were up significantly from a year ago in its lower-priced Centex division, but that this gain mainly reflected the strong Texas market, and not strength in first-time home buyer demand.

The Ryland Group, the nation’s eighth largest home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 2,186, up 6.5% from the comparable quarter of 2013. Ryland’s community count in March was up 18.8% from last March, and the company’s average sales absorption rate per community last quarter was down by over 10% from a year ago. The company’s sales cancellation rate, expressed as a % of gross orders, was 15.3%, little changed from 15.4% a year earlier. Home deliveries last quarter totaled 1,470, up 11.8% from the comparable quarter of 2013, at an average sales price of $327,000, up 18.1% from a year ago. The company’s order backlog at the end of March was 3,342, up 6.6% from last March, with an average order price of $330,000, up 14.2% from a year ago. Ryland owned or controlled 39,482 lots at the end of March, up 30.3% from last March and up 69.5% from two years ago.

M/I Homes, the nation’s 16th largest home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 982, down 6.2% from the comparable quarter of 2013. M/I’s average community count last quarter was 158, up 17.0% from the comparable quarter of 2013, and the company’s net sales per community last quarter were down 21% from a year ago. The company’s sales cancellation rate, expressed as a % of gross orders, was 16% last quarter up slightly from 15% a year earlier. Home deliveries last quarter totaled 737, up 17.5% from the comparable quarter of 2013, at an average sales price of $299,000, up 5.3% from a year ago. The company’s order backlog at the end of March was 1,525, up 10.1% from last March. M/I owned or controlled 20,965 lots at the end of March, up 28.2% from a year ago.

Here is a summary of some results from large, publicly-traded builders

 Net OrdersSettlementsAverage Closing Price
Qtr. Ended:3/143/13% Chg3/143/13% Chg3/143/13% Chg
D.R. Horton8,5697,8798.8%6,1945,46313.4%$271,230$242,54811.8%
Pulte
Group
4,8635,200-6.5%3,4363,833-10.4%$317,000$287,00010.5%
NVR3,3253,510-5.3%2,2112,272-2.7%$361,400$330,4009.4%
The Ryland Group2,1862,0526.5%1,4701,31511.8%$327,000$277,00018.1%
Meritage Homes1,5251,547-1.4%1,1091,0525.4%$365,896$314,36316.4%
M/I Homes9821,047-6.2%73762717.5%$299,000$284,0005.3%
Total21,45021,2351.0%15,15714,5624.1%$308,445$278,04010.9%

Hotels: Occupancy Rate, RevPAR decrease in latest weekly survey

by Calculated Risk on 4/24/2014 03:12:00 PM

From HotelNewsNow.com: US hotels report occupancy, RevPAR decreases

The U.S. hotel industry reported occupancy and revenue-per-available-room decreases during the week of 13-19 April 2014, according to data from STR, parent company of Hotel News Now.

Overall, in year-over-year measurements, the industry’s occupancy decreased 2.7% to 62.8%. RevPAR decreased 0.3% to $70.58. Average daily rate increased 2.5% to $112.37.
emphasis added
Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The weekly decline was probably related to the timing of Easter, however the 4-week average of the occupancy rate is solidly above the median for 2000-2007, and is at the highest level since 2000. 

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotel Occupancy Rate Click on graph for larger image.

The red line is for 2014 and black is for 2009 - the worst year since the Great Depression for hotels.

Through April 19th, the 4-week average of the occupancy rate is tracking higher than pre-recession levels.   


Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

Kansas City Fed: Regional Manufacturing "Activity Moderated Slightly" in April

by Calculated Risk on 4/24/2014 11:08:00 AM

From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Moderated Slightly

The Federal Reserve Bank of Kansas City released the April Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity moderated slightly after rising to a two-year high in March, but producers’ expectations for future factory activity climbed higher.

“Regional factory expansion was not quite as strong in April as in March, when better weather provided a boost”, said Wilkerson. “But April’s numbers were otherwise the best in nearly two years, and firms were generally optimistic.”

The month-over-month composite index was 7 in April, down from 10 in March but up from 4 in February. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ... the order backlog index moved into positive territory for the first time in four months, and the employment index rebounded after falling last month.
emphasis added
The last regional Fed manufacturing survey for April will be released on Monday, April 28th (Dallas Fed). In general the regional surveys have been positive in April and suggest further improvement in the ISM manufacturing index.

Weekly Initial Unemployment Claims at 329,000

by Calculated Risk on 4/24/2014 08:37:00 AM

The DOL reports:

In the week ending April 19, the advance figure for seasonally adjusted initial claims was 329,000, an increase of 24,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 304,000 to 305,000. The 4-week moving average was 316,750, an increase of 4,750 from the previous week's unrevised average of 312,000.

There were no special factors impacting this week's initial claims.
The previous week was revised up from 304,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

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 316,750.

This was above the consensus forecast of 313,000.  The 4-week average is close to normal levels for an expansion.

Wednesday, April 23, 2014

Thursday: Unemployment Claims, Durable Goods, Kansas City Mfg Survey

by Calculated Risk on 4/23/2014 06:56:00 PM

Nick Timiraos at the WSJ has some excerpts from a research note by Goldman Sachs economists: Why Credit Is Key for the Housing Recovery

The Goldman economists say they expect new home sales to reach 800,000 units by 2017, up from 430,000 last year, based on traditional drivers such as job growth and household formation. But sales will only rise to around 600,000 units in 2017 if lending standards remain at their current levels.
...
Nearly 40% of new borrowers last year had credit scores above 760, compared with just 25% before the housing bubble in 2001. Meanwhile, less than 0.2% of borrowers had credit scores below 620, compared to 13% in 2001.
Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 313 thousand from 304 thousand.

• Also at 8:30 AM, the Durable Goods Orders for March from the Census Bureau. The consensus is for a 2.0% increase in durable goods orders.

• At 11:00 AM, the Kansas City Fed manufacturing survey for April.

Lawler on Meritage Homes: Net Home Orders Down despite Higher Community Count, “Less Pricing Power” Suggests Relatively Flat Home Prices for Rest of Year

by Calculated Risk on 4/23/2014 01:36:00 PM

From housing economist Tom Lawler:

Meritage Homes, the ninth largest US home builder, reported that net home orders in the quarter ended March 31, 2014 totaled 1,525, down 1.4% from the comparable quarter of 2013. Orders were down despite a 16% YOY increase in the company’s average community count. The company’s sales cancellation rate, expressed as a % of gross orders, was 13% last quarter, up from 11% a year ago. Home closings totaled 1,109 last quarter, up 5.4% from the comparable quarter of 2013, at an average sales price of $366,000, up 16.4% from a year ago. The company’s order backlog at the end of March was 2,269, up 15.4% from last March, at an average order price of $368,400, up 8.3% from last March.

Meritage said that it owned or controlled 25,807 lots at the end of March, up 22.7% from last March and up about 50% from two years earlier.

Here are some excerpts from the company’s press release.

"The high-pitched pace of sales in our western region has slowed in recent quarters after experiencing very robust demand and significant increases in home prices since 2012," he explained. "Demand in Arizona has softened over the last several months and home prices there have moderated. On the other hand, demand in California and Colorado remains strong, though not as intense as a year ago. We continue to focus on maximizing profitability at a more normalized sales pace."

He concluded, "We remain committed to our forecast of approximately 210-220 active communities by year-end 2014 (versus 188 at year-end 2013). Based on the trends in sales pace and prices that we've experienced so far this year, we are projecting that our 2014 home closing gross margin may be relatively flat compared to 2013, due to less pricing power and higher land costs. With that in mind, we believe we will still achieve significant earnings growth in 2014, and that future years' earnings growth will be driven mainly by community count growth and operating leverage as we expand and grow our top line while managing our costs."
Meritage Home PricesClick on graph for larger image in graph gallery.

CR Note: This graph from Tom Lawler shows Meritage's net home order sales price.    Part of the reason for the slight price decline is because of fewer sales in the western region (more expensive). 

Lawler: In the quarter ended March 31, 2013, Meritage’s net orders per active community were up almost 27% from the comparable quarter of 2012. In the quarter ended March 31, 2014, net orders per active community were down about 15% from the comparable quarter of 2013, with the biggest decline coming in the West (down 32.8%).