Sunday, January 31, 2016

Monday: Personal Income and Outlays, ISM Mfg Survey, Construction Spending

by Calculated Risk on 1/31/2016 08:12:00 PM

Weekend:
Schedule for Week of January 31, 2016

January 2016: Unofficial Problem Bank list declines to 238 Institutions

Monday:
• At 8:30 AM ET, Personal Income and Outlays for December. The consensus is for a 0.3% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 10:00 AM, ISM Manufacturing Index for January. The consensus is for the ISM to be at 48.3, up from 48.2 in December.

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

• At 1:00 PM, Discussion, Fed Vice Chairman Stanley Fischer, Recent Monetary Policy, Council on Foreign Relations Event: C. Peter McColough Series on International Economics, New York, N.Y.

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are down 7 and DOW futures are down 60 (fair value).

Oil prices were up over the last week with WTI futures at $33.29 per barrel and Brent at $35.56 per barrel.  A year ago, WTI was at $45, and Brent was at $47 - so prices are down about 30% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $1.79 per gallon (down over $0.20 per gallon from a year ago).

Hotel Occupancy: Solid Start for 2016

by Calculated Risk on 1/31/2016 11:13:00 AM

Here is an update on hotel occupancy from HotelNewsNow.com: STR: US results for week ending 23 January

The U.S. hotel industry reported mixed results in the three key performance measurements during the week of 17-23 January 2016, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy decreased 1.9% to 56.2%. Average daily rate for the week rose 2.5% to US$116.51, and revenue per available room increased 0.5% to US$65.51.
emphasis added
The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  Hotels are currently in the weakest part of the year; December and January.

Hotel Occupancy RateThe red line is for 2016, dashed orange is 2015, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.

2015 was the best year on record for hotels.

So far 2016 is tracking close to 2015. A solid start to the year.

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

Saturday, January 30, 2016

January 2016: Unofficial Problem Bank list declines to 238 Institutions

by Calculated Risk on 1/30/2016 08:08:00 PM

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

Here is the unofficial problem bank list for January 2016.

Changes and comments from surferdude808:

Update on the Unofficial Problem Bank List for January 2016. During the month, the list dropped from 250 institutions to 238 after 12 removals. Assets dropped by $5.52 billion to an aggregate $69.5 billion. This is the largest monthly asset decline since $5.9 billion back in July 2015. A year ago, the list held 388 institutions with assets of $122.5 billion.

Actions have been terminated against Sun National Bank, Vineland, NJ ($2.3b Ticker: SNBC); Bridgeview Bank Group, Bridgeview, IL ($1.1b); Malvern Federal Savings Bank, Paoli, PA ($649m); Village Bank, Midlothian, VA ($420m Ticker: VBFC); Heritage Bank, Jonesboro, GA ($395m Ticker: CCFH); Community Shores Bank, Muskegon, MI ($190m); Securant Bank & Trust, Menomonee Falls, WI ($178m); Prairie Community Bank, Marengo, IL ($105m); Auburn Savings Bank, FSB, Auburn, ME ($72m Ticker: ABBB); and The Citizens State Bank and Trust Company, Woodbine, KS ($17m).

Two banks found their way off the list by finding merger partners including Mother Lode Bank, Sonora, CA ($70m Ticker: MOLB); and Home Federal Savings and Loan Association of Nebraska, Lexington, NE ($54m).

Schedule for Week of January 31, 2016

by Calculated Risk on 1/30/2016 08:11:00 AM

The key report this week is the January employment report on Friday.

Other key indicators include January vehicle sales, the January ISM manufacturing and non-manufacturing indexes, and the December trade deficit.

----- Monday, February 1st -----

8:30 AM ET: Personal Income and Outlays for December. The consensus is for a 0.3% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.1%.

ISM PMI10:00 AM: ISM Manufacturing Index for January. The consensus is for the ISM to be at 48.3, up from 48.2 in December.

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

The ISM manufacturing index indicated contraction at 48.2% in December. The employment index was at 48.3%, and the new orders index was at 49.2%.

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

1:00 PM: Discussion, Fed Vice Chairman Stanley Fischer, Recent Monetary Policy, Council on Foreign Relations Event: C. Peter McColough Series on International Economics, New York, N.Y.

----- Tuesday, February 2nd -----

Vehicle SalesAll day: Light vehicle sales for January. The consensus is for light vehicle sales to increase to 17.5 million SAAR in January from 17.2 million in December (Seasonally Adjusted Annual Rate).

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

----- Wednesday, February 3rd -----

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

8:15 AM: The ADP Employment Report for January. This report is for private payrolls only (no government). The consensus is for 190,000 payroll jobs added in January, down from 257,000 in December.

10:00 AM: the ISM non-Manufacturing Index for January. The consensus is for index to be increased to 55.5 in January from 55.3 in December.

----- Thursday, February 4th -----

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 280 thousand initial claims, up from 278 thousand the previous week.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for December. The consensus is a 2.8% decrease in orders.

----- Friday, February 5th -----

8:30 AM: Employment Report for January. The consensus is for an increase of 188,000 non-farm payroll jobs added in January, down from the 292,000 non-farm payroll jobs added in December.

The consensus is for the unemployment rate to be unchanged at 5.0%.

Year-over-year change employmentThis graph shows the year-over-year change in total non-farm employment since 1968.

In December, the year-over-year change was 2.65 million jobs.

A key will be the change in real wages - and as the unemployment rate falls, wage growth should pickup.

U.S. Trade Deficit8:30 AM: Trade Balance report for December from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through October. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is for the U.S. trade deficit to be at $43.0 billion in December from $42.4 billion in November.

3:00 PM: Consumer Credit for December from the Federal Reserve. The consensus is for an increase of $16.5 billion in credit.

Friday, January 29, 2016

Philly Fed: State Coincident Indexes increased in 39 states in December

by Calculated Risk on 1/29/2016 04:45:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for December 2015. In the past month, the indexes increased in 39 states, decreased in seven, and remained stable in four, for a one-month diffusion index of 64. Over the past three months, the indexes increased in 41 states, decreased in seven, and remained stable in two, for a three-month diffusion index of 68.
Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Philly Fed Number of States with Increasing ActivityClick on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In December, 41 states had increasing activity (including minor increases).

Five states have seen declines over the last 6 months, in order they are Wyoming (worst), North Dakota, Alaska, Montana, and Louisiana - mostly due to the decline in oil prices.

Philly Fed State Conincident Map Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and is mostly green now.

Source: Philly Fed.

Q4 GDP: Investment

by Calculated Risk on 1/29/2016 01:01:00 PM

The graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing 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.

In the 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.

Note: This can't be used blindly.  Residential investment is so low as a percent of the economy that the small decline early last year was not  a concern.

Investment ContributionsClick on graph for larger image.

Residential investment (RI) increased at a 8.1% annual rate in Q4.  Equipment investment decreased at a 2.5% annual rate, and investment in non-residential structures decreased at a 5.3% annual rate.   On a 3 quarter trailing average basis, RI (red) and equipment (green) are both positive, and nonresidential structures (blue) is slightly negative.

Note: Nonresidential investment in structures typically lags the recovery, however investment in energy and power provided a boost early in this recovery - and is now causing a slight decline.  Other areas of nonresidential are now increasing significantly.  I'll post more on the components of non-residential investment once the supplemental data is released.

I expect investment to be solid going forward (except for energy and power), and for the economy to continue to grow at a steady pace.

Residential Investment
The second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP has been increasing, but is only just above the bottom of the previous recessions - and I expect RI to continue to increase for the next few years.

I'll break down Residential Investment into components after the GDP details are released.

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".  Investment in equipment - as a percent of GDP - has been moving sideways.  Other investment is generally trending up as a percent of GDP, except for nonresidential structures due to less investment in energy and power.

Chicago PMI increases Sharply, Final January Consumer Sentiment at 92.0

by Calculated Risk on 1/29/2016 10:04:00 AM

Chicago PMI: Jan Chicago Business Barometer Jumps 12.7 Points to 55.6

The Chicago Business Barometer bounced back sharply in January, increasing 12.7 points to 55.6 from 42.9 in December, the highest pace of growth in a year.
...
Chief Economist of MNI Indicators Philip Uglow said, “While the surge in activity in January marks a positive start to the year, it follows significant weakness in the previous two months, with the latest rise not sufficient to offset the previous falls in output and orders. Previously, surges of such magnitude have not been maintained so we would expect to see some easing in February. Still, even if activity does moderate somewhat next month, the latest increase supports the view that GDP will bounce back in Q1 following the expected slowdown in Q4.”
emphasis added
This was well above the consensus forecast of 45.5.

Consumer Sentiment
Click on graph for larger image.

The final University of Michigan consumer sentiment index for January was at 92.0, down from 92.6 in December:
"Consumer confidence has remained largely unchanged, as the January reading was just 0.6% below last month's level. The small downward revisions were due to stock market declines that were reflected in the erosion of household wealth, as well as weakened prospects for the national economy. The interviews conducted from last Friday until early this week provide no evidence that the East Coast blizzard influenced the data."
emphasis added

BEA: Real GDP increased at 0.7% Annualized Rate in Q4

by Calculated Risk on 1/29/2016 08:37:00 AM

From the BEA: Gross Domestic Product: Fourth Quarter and Annual 2015 (Advance Estimate)

Real gross domestic product -- the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 0.7 percent in the fourth quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.0 percent.
...
The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and federal government spending that were partly offset by negative contributions from private inventory investment, exports, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the fourth quarter primarily reflected a deceleration in PCE and downturns in nonresidential fixed investment, in exports, and in state and local government spending that were partly offset by a smaller decrease in private inventory investment, a deceleration in imports, and an acceleration in federal government spending.
emphasis added
The advance Q4 GDP report, with 0.7% annualized growth, was below expectations of a 0.9% increase.

Personal consumption expenditures (PCE) increased at a 2.2% annualized ratein Q4, down from 3.0% in Q3.   Residential investment (RI) increased at a 8.1% pace. However equipment investment decreased at a 2.5% annualized rate, and investment in non-residential structures decreased at a 5.3% pace (due to the decline in oil prices).

The key negatives were investment in inventories (subtracted 0.45 percentage point), trade (subtracted 0.47 percentage point) and investment in nonresidential structures (subtracted 0.15 percentage points).

I'll have more later ...

Thursday, January 28, 2016

Friday: GDP, Chicago PMI

by Calculated Risk on 1/28/2016 06:58:00 PM

From the Atlanta Fed GDPNow:

The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 1.0 percent on January 28, up from 0.7 percent on January 20. The forecast for fourth-quarter real residential investment growth, currently 3.4 percent, increased more than 4 percentage points after last Friday's existing home sales report from the National Association of Realtors. The advance estimate for fourth-quarter GDP growth will be released Friday, January 29 by the U.S. Bureau of Economic Analysis
The headline GDP number will not be great.

Friday:
• At 8:30 AM ET, Gross Domestic Product, 4th quarter 2015 (Advance estimate). The consensus is that real GDP increased 0.9% annualized in Q4.

• At 9:45 AM, Chicago Purchasing Managers Index for January. The consensus is for a reading of 45.5, up from 42.9 in December.

• At 10:00 AM, the University of Michigan's Consumer sentiment index (final for January). The consensus is for a reading of 93.0, down from the preliminary reading 93.3.

Freddie Mac: Mortgage Serious Delinquency rate declined in December, Lowest since September 2008

by Calculated Risk on 1/28/2016 03:56:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in December to 1.32%, down from 1.36% in November. Freddie's rate is down from 1.88% in December 2014, and the rate in December was the lowest level since September 2008.

Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Note: Fannie Mae is expected to report early next week.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although the rate is declining, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.56 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until the second half of 2016.

So even though delinquencies and distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

HVS: Q4 2015 Homeownership and Vacancy Rates

by Calculated Risk on 1/28/2016 01:40:00 PM

The Census Bureau released the Residential Vacancies and Homeownership report for Q4 2015.

This report is frequently mentioned by analysts and the media to track household formation, 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 increased to 63.8% in Q4, from 63.7% in Q3.

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 was unchanged at 1.9% in Q4. 

This has been mostly moving sideways for the last 2+ years.

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

Rental Vacancy RateThe rental vacancy rate decreased in Q4 to 7.0% from 7.3% in Q3.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate, but this does suggest the rental vacancy rate might have bottomed.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey.

Kansas City Fed: Regional Manufacturing Activity Declined Further in January

by Calculated Risk on 1/28/2016 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Fell Again

The Federal Reserve Bank of Kansas City released the January Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity fell again in January.

We saw another moderate drop in regional factory activity in January, marking the eleventh straight month of slight to moderate declines,” said Wilkerson. “However, firms remained optimistic that conditions would improve slightly in coming months.”
...
The month-over-month composite index was -9 in January, unchanged from -9 in December but down from -1 in November.
...
The employment index was largely unchanged at -15. ...

Most future factory indexes were somewhat lower, but on net positive overall. The future composite index was basically unchanged at 5, while the shipments, employment, and new orders for exports indexes increased somewhat.
emphasis added
This was the last of the regional Fed surveys for January. Four our of five of the regional surveys indicated contraction in January, especially in the Dallas region (oil prices).

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

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

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

It seems likely the ISM index will be weak in January, and will probably show contraction again.  The early consensus is the ISM index will decline to 47.9% from 48.2% in December (below 50 is contraction).

NAR: Pending Home Sales Index increased 0.1% in December, up 4.2% year-over-year

by Calculated Risk on 1/28/2016 10:02:00 AM

From the NAR: Pending Home Sales Tick Up in December

The Pending Home Sales Index, a forward-looking indicator based on contract signings, crawled 0.1 percent to 106.8 in December from a downwardly revised 106.7 in November and is now 4.2 percent above December 2014 (102.5). The index has increased year-over-year for 16 consecutive months.
...
The PHSI in the Northeast increased 6.1 percent to 97.8 in December, and is now 15.3 percent above a year ago. In the Midwest the index decreased 1.1 percent to 103.6 in December, but is still 3.6 percent above December 2014.

Pending home sales in the South declined 0.5 percent to an index of 119.3 in December but are 1.0 percent higher than last December. The index in the West decreased 2.1 percent in December to 97.5, but remains 3.4 percent above a year ago.
emphasis added
This was below expectations of a 0.8% increase for this index.  Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in January and February.

Weekly Initial Unemployment Claims decrease to 278,000

by Calculated Risk on 1/28/2016 08:38:00 AM

The DOL reported:

In the week ending January 23, the advance figure for seasonally adjusted initial claims was 278,000, a decrease of 16,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 293,000 to 294,000. The 4-week moving average was 283,000, a decrease of 2,250 from the previous week's revised average. The previous week's average was revised up by 250 from 285,000 to 285,250.

There were no special factors impacting this week's initial claims.
The previous week was revised up to 293,000.

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 283,000.

This was close to the consensus forecast of 275,000. Although initial claims have increased recently, this is still a very low level and the 4-week average suggests few layoffs.

Wednesday, January 27, 2016

Thursday: Unemployment Claims, Durable Goods, Pending Home Sales and More

by Calculated Risk on 1/27/2016 06:21:00 PM

From former Minneapolis Fed President Narayana Kocherlakota: Monetary Policy is Not About Interest Rates

Both the inflation situation and (perhaps more arguably) the employment situation seem to call for more monetary stimulus, not less. But the FOMC is set on gradual normalization of interest rates. This framework seems grounded in a troubling aversion to both low interest rates and interest rate volatility.
If Kocherlakota was on the FOMC, he would have dissented.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released.  The consensus is for 285 thousand initial claims, down from 293 thousand the previous week.

• Also at 8:30 AM, Durable Goods Orders for December from the Census Bureau. The consensus is for a 0.2% increase in durable goods orders.

• At 10:00 AM, Pending Home Sales Index for December. The consensus is for a 0.8% increase in the index.

• Also at 10:00 AM, the Q4 Housing Vacancies and Homeownership from the Census Bureau.

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

FOMC Statement: No Change to Policy, Uncertain about rise in inflation

by Calculated Risk on 1/27/2016 02:03:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in December suggests that labor market conditions improved further even as economic growth slowed late last year. Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined further; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.

Given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to 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 and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

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, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Esther L. George; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo.
emphasis added

Comments on December New Home Sales

by Calculated Risk on 1/27/2016 11:59:00 AM

The new home sales report for December was above expectations, and sales for September, October and November were revised up. Sales were up 9.9% year-over-year in December (SA).

Earlier: New Home Sales increased to 544,000 Annual Rate in December.

The Census Bureau reported that new home sales in 2015 were 501,000. That is up 14.5% from 437,000 sales in 2014. That is a strong year-over-year gain for 2015.

Here is a table showing new home sales and the year-over-year changes since 2005:

New Home Sales (000s)
  New Home
Sales
Year-over-Year
Change
20051,2836.7%
20061,051-18.1%
2007776-26.2%
2008485-37.5%
2009375-22.7%
2010323-13.9%
2011306-5.3%
201236820.3%
201342916.6%
20144371.9%
201550114.5%

New Home Sales 2013 2014Click on graph for larger image.

This graph shows new home sales for 2014 and 2015 by month (Seasonally Adjusted Annual Rate).

The year-over-year gains were stronger earlier in 2015.

The comparisons in early 2016 will be more difficult.  And I expect lower growth this year.

Overall 2015 was a solid year for new home sales.

And here is another update to the "distressing gap" graph that I first started posting a number of 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 GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through December 2015. 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.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes.

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.

New Home Sales increased to 544,000 Annual Rate in December

by Calculated Risk on 1/27/2016 10:14:00 AM

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 544 thousand.

The previous three months were revised up by a total of 28 thousand (SAAR).

"Sales of new single-family houses in December 2015 were at a seasonally adjusted annual rate of 544,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.8 percent above the revised November rate of 491,000 and is 9.9 percent above the December 2014 estimate of 495,000.
...
An estimated 501,000 new homes were sold in 2015. This is 14.5 percent above the 2014 figure of 437,000."

emphasis added
New Home SalesClick on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Even with the increase in sales since the bottom, new home sales are still fairly low historically.

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply decreased in December to 5.2 months.

The all time record was 12.1 months of supply in January 2009.

This is now in the normal range (less than 6 months supply is normal).
"The seasonally adjusted estimate of new houses for sale at the end of December was 237,000. This represents a supply of 5.2 months at the current sales rate."
New Home Sales, InventoryOn inventory, according to the Census Bureau:
"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

New Home Sales, NSAThe last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In December 2015 (red column), 38 thousand new homes were sold (NSA). Last year 35 thousand homes were sold in December.

The all time high for December was 87 thousand in 2005, and the all time low for December was 23 thousand in both 1966 and 2010.

This was above expectations of 500,000 sales SAAR in December, and prior months were revised up - a solid report.  I'll have more later today.

MBA: Mortgage Applications Increased in Latest Weekly Survey, Purchase Applications up 22% YoY

by Calculated Risk on 1/27/2016 07:00:00 AM

From the MBA: Mortgage Applications Increase as Rates Continue to Drop in Latest MBA Weekly Survey

Mortgage applications increased 8.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 22, 2016. This week’s results include an adjustment to account for the Martin Luther King holiday.
...
The Refinance Index increased 11 percent from the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 0.4 percent compared with the previous week and was 22 percent higher than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to its lowest level since October 2015, 4.02 percent, from 4.06 percent, with points decreasing to 0.40 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000.

Refinance activity will probably stay low in 2016.



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

According to the MBA, the unadjusted purchase index is 22% higher than a year ago.

Tuesday, January 26, 2016

Wednesday: FOMC Announcement, New Home Sales

by Calculated Risk on 1/26/2016 09:15:00 PM

From Tim Duy at Bloomberg: The Five Scenarios Now Facing the Federal Reserve

Bottom Line: If there was ever any doubt about the “about” of this week’s FOMC meeting, it has long since been eliminated. The Fed will hold policy steady and affirm the faith in its underlying forecast while acknowledging the global and financial risks. This will be interpreted dovishly, probably more so than the policymakers at the central bank would like. Given that I’m in the “no recession” camp, I am wary that the Fed falls into risk management mode now, but at the cost of a faster pace of hikes later. Of course, if you’re in the “recession now” camp, then the game is already over.
Wednesday:
• 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• 10:00 AM, New Home Sales for December from the Census Bureau. The consensus is for a increase in sales to 500 thousand Seasonally Adjusted Annual Rate (SAAR) in December from 490 thousand in November.

• 2:00 PM, FOMC Meeting Announcement.  The FOMC is expected to make no change to policy at this meeting.

Chemical Activity Barometer "Notches Slight Gain " in January

by Calculated Risk on 1/26/2016 03:49:00 PM

Here is an indicator that I'm following that appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Notches Slight Gain As Signs of Slowing Growth Mount

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), ticked up slightly in January, rising 0.1 percent following a downward adjustment of 0.1 percent in December. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.6 percent over this time last year, a marked deceleration of activity from one year ago when the barometer logged a 3.2 percent year-over-year gain from 2014. On an unadjusted basis the CAB fell 0.1 percent and 0.2 percent in December and January, respectively, raising concerns about the pace of future business activity through the second quarter of 2016. ...
...
Applying the CAB back to 1919, it has been shown to provide a lead of two to 14 months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added
Chemical Activity Barometer Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

Real Prices and Price-to-Rent Ratio in November

by Calculated Risk on 1/26/2016 12:41:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.3% year-over-year in November

The year-over-year increase in prices is mostly moving sideways now around 5%. In November 2015, the index was up 5.3% YoY.

In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $274,000 today adjusted for inflation (37%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 4.3% below the bubble peak.   However, in real terms, the National index is still about 18% below the bubble peak.

Nominal House Prices


Nominal House PricesThe first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through September) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to September 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to May 2005 levels, and the CoreLogic index (NSA) is back to June 2005.

Real House Prices

Real House PricesThe second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to November 2003 levels, the Composite 20 index is back to July 2003, and the CoreLogic index back to January 2004.

In real terms, house prices are back to 2003 levels.

Note: CPI less Shelter is down 0.8% year-over-year, so this has been pushing up real prices recently.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to July 2003 levels, the Composite 20 index is back to March 2003 levels, and the CoreLogic index is back to August 2003.

In real terms, and as a price-to-rent ratio, prices are back to 2003 levels - and the price-to-rent ratio maybe moving a little sideways now.

BLS: Unemployment Rate decreased in 25 States in December

by Calculated Risk on 1/26/2016 10:11:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were little changed in December. Twenty-five states had unemployment rate decreases from November, 14 states had increases, and 11 states and the District of Columbia had no change, the U.S. Bureau of Labor Statistics reported today.
...
North Dakota had the lowest jobless rate in December, 2.7 percent, followed by Nebraska and South Dakota, 2.9 percent each. New Mexico had the highest rate, 6.7 percent.
State Unemployment Click on graph for larger image.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.

The states are ranked by the highest current unemployment rate. New Mexico, at 6.7%, had the highest state unemployment rate.

State UnemploymentThe second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently no state has an unemployment rate at or above 7% (light blue); Only eight states are at or above 6% (dark blue).

Case-Shiller: National House Price Index increased 5.3% year-over-year in November

by Calculated Risk on 1/26/2016 09:15:00 AM

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

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

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

From S&P: Continued Increases in Home Prices for October According to the S&P/Case-Shiller Home Price Indices

The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 5.3% annual increase in November 2015 versus a 5.1% increase in October 2015. The 10-City Composite increased 5.3% in the year to November compared to 5.0% previously. The 20-City Composite’s year-over-year gain was 5.8% versus 5.5% reported in October.
...
Before seasonal adjustment, the National Index posted a gain of 0.1% month-over-month in November. The 10- City Composite was unchanged and the 20-City Composite reported gains of 0.1% month-over-month in November. After seasonal adjustment, the National Index, along with the 10-City and 20-City Composites, all increased 0.9% month-over-month in November. Fourteen of 20 cities reported increases in November before seasonal adjustment; after seasonal adjustment, all 20 cities increased for the month.
emphasis added
Case-Shiller House Prices Indices Click on graph for larger image.

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

The Composite 10 index is off 12.9% from the peak, and up 0.9% in November (SA).

The Composite 20 index is off 11.5% from the peak, and up 0.9% (SA) in November.

The National index is off 4.3% from the peak, and up 0.9% (SA) in November.  The National index is up 29.2% from the post-bubble low set in December 2011 (SA).

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

The Composite 10 SA is up 5.4% compared to November 2014.

The Composite 20 SA is up 5.8% year-over-year..

The National index SA is up 5.3% year-over-year.

Prices increased (SA) in 20 of the 20 Case-Shiller cities in November seasonally adjusted.  (Prices increased in 14 of the 20 cities NSA)  Prices in Las Vegas are off 39.0% from the peak.

Case-Shiller CitiesThe last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

As an example, at the peak, prices in Phoenix were 127% above the January 2000 level. Then prices in Phoenix fell slightly below the January 2000 level, and are now up 55% above January 2000 (55% nominal gain in almost 16 years).

These are nominal prices, and real prices (adjusted for inflation) are up about 40% since January 2000 - so the increase in Phoenix from January 2000 until now is about 15% above the change in overall prices due to inflation.

Six cities - Charlotte, Boston, Dallas, Denver, Portland and San Francisco - are above the bubble highs (Seattle is close).    Detroit prices are barely above the January 2000 level.

I'll have more on house prices later.

Monday, January 25, 2016

Tuesday: Case-Shiller House Prices

by Calculated Risk on 1/25/2016 06:27:00 PM

Tuesday:
• 9:00 AM: FHFA House Price Index for November 2015. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.5% month-to-month increase for this index.

• 9:00 AM: S&P/Case-Shiller House Price Index for November. Although this is the November report, it is really a 3 month average of September, October and November prices.  The consensus is for a 5.7% year-over-year increase in the Comp 20 index for November. The Zillow forecast is for the National Index to increase 5.3% year-over-year in November.

• 10:00 AM: Richmond Fed Survey of Manufacturing Activity for January.

• 10:00 AM ET: Regional and State Employment and Unemployment for December.

From Diana Olick at CNBC: Homebuilder DR Horton's Bet on Entry-Level Houses Paying Off Big

... Texas-based DR Horton's CEO David Auld said on the company's quarterly earnings call. "The Express (brand) has been the driver of market share gains."

Express launched in early 2014, touting no-option, no-frills homes in exchange for prices between $120,000 and $150,000. Prices are now slightly higher, moving with the broader market gains, but still below the nation's median price. The brand has solid footing in Texas, the Carolinas and Florida, but it is now expanding strongly into Southern California. ...

"They are doing the best job of any of the large builders executing at entry level, and I think you have to have that as you go through '16," homebuilding analyst Stephen East of Evercore ISI said on CNBC's "Squawk on the Street."
As we've discussed, future growth for new home sales is partially dependent on more affordable homes.

Vehicle Sales Forecast: Sales to Reach 10-Year High for a January

by Calculated Risk on 1/25/2016 12:55:00 PM

The automakers will report January vehicle sales on Tuesday, February 2nd.

Note:  There were 24 selling days in January, down from 26 in January 2015.

From WardsAuto: Forecast: January SAAR Set to Reach 10-Year High

A WardsAuto forecast calls for U.S. automakers to deliver 1.13 million light vehicles in January.

The resulting daily sales rate (DSR) of 47,126 units, a 10-year high for the month, over 24 days represents a 6.8% improvement from like-2015 (26 days) and a 19.2% month-to-month decline from December (28 days).

The 5-year average December-to-January decline is 26%, but the traditional pull-ahead of sales in December was not as strong as expected this time. Lighter deliveries allowed dealers to remain well-stocked with vehicles highest in demand going into January.

The report puts the seasonally adjusted annual rate of sales for the month at 17.3 million units, compared with a year-ago’s 16.6 million and December’s 17.2 million.
Looks like another solid month for car sales.

Dallas Fed: "Texas Manufacturing Activity Falls Sharply" in January

by Calculated Risk on 1/25/2016 10:35:00 AM

From the Dallas Fed: Texas Manufacturing Activity Falls Sharply

Texas factory activity fell sharply in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index—a key measure of state manufacturing conditions—dropped 23 points, from 12.7 to -10.2, suggesting output declined this month after growing throughout fourth quarter 2015.

Other indexes of current manufacturing activity also indicated contraction in January. The survey’s demand measures—the new orders index and the growth rate of orders index—led the falloff in production with negative readings last month, and these indexes pushed further negative in January. The new orders index edged down to -9.2, and the growth rate of orders index fell to -17.5, its lowest level in a year. The capacity utilization index fell 15 points from 8.1 to -7, and the shipments index also posted a double-digit decline into negative territory, coming in at -11.

Perceptions of broader business conditions weakened markedly in January. The general business activity and company outlook indexes fell to their lowest readings since April 2009, when Texas was in recession. The general business activity index fell 13 points to -34.6, and the company outlook index slipped to -19.5.

Labor market indicators reflected a decline in January after exhibiting strength in November and December 2015. The employment index dropped from 10.9 to -4.2, with 17 percent of firms noting net hiring and 21 percent noting net layoffs. The hours worked index plummeted 23 points to -9.2, suggesting a sharp pullback in employee hours.
emphasis added
Texas manufacturing is in a recession - no surprise with the sharp decline in oil prices.

Black Knight: House Price Index up 0.1% in November, Up 5.5% year-over-year

by Calculated Risk on 1/25/2016 08:11:00 AM

Note: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight, Zillow, FHFA, FNC and more). Note: 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 Black Knight: U.S. home prices rose 0.1% from October, and were up 5.5% on a year-over-year basis

• U.S. home prices rose 0.1% from October, and were up 5.5% on a year-over- year basis

• This puts national home prices up 27% since the bottom of the market at the start of 2012 and just 5.3% off its June 2006 peak

• For the fifth straight month, New York led gains among the states, seeing 1.2% month-over-month appreciation

• Ohio and Connecticut topped the list of 10 most negative price movements among the states, with home prices falling by 0.4% from October in each state

• California home prices declined for the second straight month, though seasonally adjusted numbers suggest continued but slowing growth for the state
The Black Knight HPI increased 0.1% percent in November, and is off 5.3% from the peak in June 2006 (not adjusted for inflation).

The year-over-year increase in the index has been about the same for the last year.

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

Sunday, January 24, 2016

Sunday Night Futures

by Calculated Risk on 1/24/2016 08:51:00 PM

From James Hamilton at Econbrowser: Can lower oil prices cause a recession?. An excerpt:

There are thus some reasons why a decrease in oil prices would be a boost to the U.S. economy and other reasons why it could even be a drag. A number of studies have looked at the effects of oil price decreases and concluded that these have little or no net positive effect on U.S. real GDP growth; see for example this survey. The price of oil fell from $30/barrel in November 1985 to $12 by July of 1986. U.S. real GDP continued growing throughout, logging a 2.9% increase overall for 1986, neither significantly faster nor slower than normal.

But 1986 was a bad time for Texas and the other oil-producing states. Here’s a graph from some analysis I did with Michael Owyang of the Federal Reserve Bank of St. Louis. We estimated for each state’s employment growth a recession-dating algorithm like the one that Econbrowser updates each quarter for the overall U.S. economy (by the way, a new update will be posted this Friday). In the gif [at Econbrowser] you can watch the energy-producing states and their neighbors develop their own regional recession during the mid-1980’s even while national U.S. employment and GDP continued to grow.
...
[R]egardless of whether it’s oil prices that are moving stock prices or the other way around, folks in Texas and North Dakota have plenty of reason to be concerned.
Weekend:
Schedule for Week of January 24, 2016

Monday:
• At 10:30 AM, the Dallas Fed Manufacturing Survey for January.

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are down 3 and DOW futures are down 33 (fair value).

Oil prices were up sharply over the last week with WTI futures at $32.24 per barrel and Brent at $32.33 per barrel.  A year ago, WTI was at $46, and Brent was at $47 - so prices are down about 30% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $1.82 per gallon (down about $0.20 per gallon from a year ago).

Gasoline Prices and Exurbia

by Calculated Risk on 1/24/2016 10:46:00 AM

Here is a quote from an NPR article this morning: $1.22 A Gallon: Cheap Gas Raises Fears Of Urban Sprawl

"With the fall of gas prices, in a place like Columbus and most Midwestern cities, it really is going to encourage more sprawl," [Cleve Ricksecker, directs two Downtown Columbus Special Improvement Districts] says.

Sprawl can mean more traffic jams and air pollution. But he says only a spike in the price of gas would change the equation when people are making decisions about where to live and work.
Lower gasoline prices make exurbia more attractive (people have short memories), and we might see a shift to people buying homes with longer commutes.

In 2008, I wrote a post: Temecula: 15% of homes REO or in Foreclosure. I noted that Temecula was being hit hard by both the housing bust and high gasoline prices:
I remember visiting a friend in Temecula about 3 years ago. We were standing in his front yard, and he started telling me what his neighbors did for a living. "A mortgage broker lives there. A real estate agent there. That guy is in construction. Another mortgage broker there" ... and on and on. Over half of the households on his block were dependent on the housing market in way or another.

So it is no surprise that the housing bust is hitting Temecula hard.

But look at Temecula on this map. San Diego is far to the south - living in Escondido is a tough enough commute to work in San Diego. And Orange County is an even more difficult drive to the west. Imagine what $5 gasoline will do.
Here is that map. Now times are good in exurbia. The housing bust is over and gasoline prices are below $2 per gallon:


View Larger Map

Saturday, January 23, 2016

Schedule for Week of January 24, 2016

by Calculated Risk on 1/23/2016 08:11:00 AM

The key reports this week are the first estimate of Q4 GDP, December New Home sales, and the Case-Shiller House Price Index for November.

The FOMC is meeting on Tuesday and Wednesday, and no change in policy is expected at this meeting.

----- Monday, January 25th -----

10:30 AM: Dallas Fed Manufacturing Survey for January.

----- Tuesday, January 26th -----

9:00 AM: FHFA House Price Index for November 2015. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.5% month-to-month increase for this index.

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

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the October 2015 report (the Composite 20 was started in January 2000).

The consensus is for a 5.7% year-over-year increase in the Comp 20 index for November. The Zillow forecast is for the National Index to increase 5.3% year-over-year in November.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for January.

10:00 AM ET: Regional and State Employment and Unemployment for December.

----- Wednesday, January 27th -----

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

New Home Sales10:00 AM: New Home Sales for December from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the November sales rate.

The consensus is for a increase in sales to 500 thousand Seasonally Adjusted Annual Rate (SAAR) in December from 490 thousand in November.

2:00 PM: FOMC Meeting Announcement.  The FOMC is expected to make no change to policy at this meeting.

----- Thursday, January 28th -----

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 285 thousand initial claims, down from 293 thousand the previous week.

8:30 AM: Durable Goods Orders for December from the Census Bureau. The consensus is for a 0.2% increase in durable goods orders.

10:00 AM: Pending Home Sales Index for December. The consensus is for a 0.8% increase in the index.

10:00 AM: the Q4 Housing Vacancies and Homeownership from the Census Bureau.

11:00 AM: the Kansas City Fed manufacturing survey for January.

----- Friday, January 29th -----

8:30 AM ET: Gross Domestic Product, 4th quarter 2015 (Advance estimate). The consensus is that real GDP increased 0.9% annualized in Q4.

9:45 AM: Chicago Purchasing Managers Index for January. The consensus is for a reading of 45.5, up from 42.9 in December.

10:00 AM: University of Michigan's Consumer sentiment index (final for January). The consensus is for a reading of 93.0, down from the preliminary reading 93.3.

Friday, January 22, 2016

DOT: Vehicle Miles Driven increased 4.3% year-over-year in November

by Calculated Risk on 1/22/2016 04:57:00 PM

With lower gasoline prices, driving has really picked up!

The Department of Transportation (DOT) reported today:

Travel on all roads and streets changed by 4.3% (10.4 billion vehicle miles) for November 2015 as compared with November 2014.

Travel for the month is estimated to be 253.2 billion vehicle miles.

The seasonally adjusted vehicle miles traveled for November 2015 is 264.0 billion miles, a 3.4% (8.8 billion vehicle miles) increase over November 2014. It also represents less than a 0.1% increase (13 million vehicle miles) compared with October 2015.
The following graph shows the rolling 12 month total vehicle miles driven to remove the seasonal factors.

The rolling 12 month total is moving up - mostly due to lower gasoline prices - after moving sideways for several years.


Vehicle Miles Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Miles driven (rolling 12) had been below the previous peak for 85 months - an all time record - before reaching a new high for miles driven in January.

The second graph shows the year-over-year change from the same month in the previous year.

Vehicle Miles Driven YoY In November 2015, gasoline averaged $2.26 per gallon according to the EIA.  That was down significantly from November 2014 when prices averaged $3.00 per gallon.  Gasoline prices have continued to decline, and vehicle miles will probably up sharply year-over-year in December and January.

Gasoline prices aren't the only factor - demographics are also important. However, with lower gasoline prices, miles driven - on a rolling 12 month basis - is setting new highs each month.

Black Knight's First Look at December Mortgage Data

by Calculated Risk on 1/22/2016 03:11:00 PM

From Black Knight: Black Knight Financial Services’ “First Look” at December 2015 Mortgage Data, 2015 Ends with 22 Percent Improvement in Foreclosure Inventory, 15 Percent Decline in Delinquencies

According to Black Knight's First Look report for December, the percent of loans delinquent decreased 3% in December compared to November, and declined 15% year-over-year.

The percent of loans in the foreclosure process declined 1% in December and were down 22% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.78% in December, down from 4.92% in November.

The percent of loans in the foreclosure process declined in December to 1.37%.

The number of delinquent properties, but not in foreclosure, is down 425,000 properties year-over-year, and the number of properties in the foreclosure process is down 192,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for December in early February.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  Dec
2015
Nov
2015
Dec
2014
Dec
2013
Delinquent4.78%4.92%5.62%6.45%
In Foreclosure1.37%1.38%1.75%2.52%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:2,408,0002,491,0002,833,0003,252,000
Number of properties in foreclosure pre-sale inventory:689,000698,000881,0001,269,000
Total Properties3,097,0003,189,0003,715,0004,533,000

A Few Random Comments on December Existing Home Sales

by Calculated Risk on 1/22/2016 12:21:00 PM

Everyone expected a rebound in existing home sales in December. The key reason for the decline in November was the new TILA-RESPA Integrated Disclosure (TRID). In early October, this new disclosure rule pushed down mortgage applications sharply, however applications bounced back - and so did home sales in December. No surprise.  Note: TILA: Truth in Lending Act, and RESPA: the Real Estate Settlement Procedures Act of 1974.

However, most analysts underestimated the strength of the rebound. (Not CR readers who expected an above consensus report).

As I've noted before, there are some economic reasons to expect some softness in existing home sales in 2016. Low inventory is probably holding down sales in many areas, and there will be weakness in some oil producing areas (see: Houston has a problem).

Earlier: Existing Home Sales increased in December to 5.46 million SAAR

I expected some increase in inventory in 2015, but that didn't happened.  Inventory is still very low and falling year-over-year (down 3.8% year-over-year in December). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in December (red column) were the highest since December 2006 (NSA).

Existing Home Sales increased in December to 5.46 million SAAR

by Calculated Risk on 1/22/2016 10:11:00 AM

From the NAR: Existing-Home Sales Surge Back in December

Existing-home sales snapped back solidly in December as more buyers reached the market before the end of the year, and the delayed closings resulting from the rollout of the Know Before You Owe initiative pushed a portion of November's would-be transactions into last month's figure, according to the National Association of Realtors®. ...

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, ascended 14.7 percent to a seasonally adjusted annual rate of 5.46 million in December from 4.76 million in November. After last month's turnaround (the largest monthly increase ever recorded), sales are now 7.7 percent above a year ago. ...

Total housing inventory at the end of December dropped 12.3 percent to 1.79 million existing homes available for sale, and is now 3.8 percent lower than a year ago (1.86 million). Unsold inventory is at a 3.9-month supply at the current sales pace, down from 5.1 months in November and the lowest since January 2005 (3.6 months).
Existing Home SalesClick on graph for larger image.

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

Sales in December (5.46 million SAAR) were 14.7% higher than last month, and were 7.7% above the December 2014 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory decreased to 1.79 million in December from 2.04 million in November.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, 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.

Year-over-year Inventory Inventory decreased 3.8% year-over-year in December compared to December 2014.  

Months of supply was at 3.9 months in December.

This was above consensus expectations of sales of 5.19 million (but not a surprise for CR readers). For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...

Chicago Fed: "Index shows economic growth below average in December"

by Calculated Risk on 1/22/2016 08:36:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth below average in December

The Chicago Fed National Activity Index (CFNAI) moved up to –0.22 in December from –0.36 in November. Two of the four broad categories of indicators that make up the index increased from November, but three of the four categories made negative contributions to the index in December.

The index’s three-month moving average, CFNAI-MA3, decreased to –0.24 in December from –0.19 in November. December’s CFNAI-MA3 suggests that growth in national economic activity was somewhat below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
emphasis added
This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed National Activity Index Click on graph for larger image.

This suggests economic activity was somewhat below the historical trend in December (using the three-month average).

According to the Chicago Fed:
What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

Thursday, January 21, 2016

Friday: Existing Home Sales

by Calculated Risk on 1/21/2016 05:27:00 PM

Housing economist Tom Lawler estimates the NAR will report December sales of 5.36 million on a seasonally adjusted annual rate (SAAR) basis, up from 4.76 million SAAR in November.

Based on Lawler's estimate, I'd take the "over" tomorrow.  Note:  Lawler is not always right on, but he is usually pretty close.  See this post for a review of Lawler's track record.

Friday:
• At 8:30 AM, the Chicago Fed National Activity Index for December. This is a composite index of other data.

• At 10:00 AM, Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for 5.19 million SAAR, up from 4.76 million in November.

Private Investment and the Business Cycle

by Calculated Risk on 1/21/2016 03:20:00 PM

The following is an update to a few graphs and analysis that I started posting in 2005.  In 2005 I was bearish on residential investment, and I used these graphs to argue that the then coming housing bust would lead the economy into a recession. Now this analysis is suggesting more growth ... (note: Some of this discussion is updated from previous posts).

Discussions of the business cycle frequently focus on consumer spending (PCE: Personal consumption expenditures), but the key is to watch private domestic investment, especially residential investment. Even though private investment usually only accounts for around 15% of GDP, the swings for private investment are significantly larger than for PCE during the business cycle, so private investment has an outsized impact on GDP at transitions in the business cycle.

The first graph shows the real annualized change in GDP and private investment since 1976 through Q3 2016 (this is a 3 quarter centered average to smooth the graph).

GDP has fairly small annualized changes compared to the huge swings in investment, especially during and just following a recession. This is why investment is one of the keys to the business cycle.

GDP and Investment real annualized changeClick on graph for larger image.

Note that during the recent recession, the largest decline for GDP was in Q4 2008 (a 8.2% annualized rate of decline).  On a three quarter center averaged basis (as presented on graph), the largest decline was 5.2% annualized.

However the largest decline for private investment was a 39% annualized rate!  On a three quarter average basis (on graph), private investment declined at a 31% annualized rate.

The second graph shows the contribution to GDP from the five categories of private investment: residential investment, equipment and software, nonresidential structures, intellectual property and "Change in private inventories". Note: this is a 3 quarter centered average of the contribution to GDP.

This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment lags the business cycle. Red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, and blue.

Investment Contributions The dashed grey line is the "Change in private inventories". This category has significant ups and downs, but is always negative during a recession, and provides a boost to GDP just after a recession. 

The key leading sector - residential investment - lagged the recent recovery because of the huge overhang of existing inventory. Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the recovery was sluggish.

Residential investment turned positive in 2011, and made a positive contribution to GDP through 2015.

Residential InvestmentWhat does this mean for the business cycle? Usually residential investment would turn down before a recession, and that isn't happening right now. Instead residential investment is starting to increase.

The third graph shows residential investment as a percent of GDP. Residential investment as a percent of GDP is still very low, and it seems likely that residential investment as a percent of GDP will increase further in 2016.

Nothing is perfect, but residential investment suggests further growth. Add in the improvement in household balance sheets, some contribution from Federal, state and local governments, and a further increase in non-residential structures in 2016 (ex-energy) - and the economy should continue to grow.