Saturday, June 30, 2018

Schedule for Week of July 1, 2018

by Bill McBride on 6/30/2018 08:11:00 AM

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

Other key indicators include the June ISM manufacturing and non-manufacturing indexes, June auto sales, and the May trade deficit.

----- Monday, July 2nd -----

ISM PMI10:00 AM: ISM Manufacturing Index for June. The consensus is for the ISM to be at 58.3, down from 58.7 in May.

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

The PMI was at 58.7% in May, the employment index was at 56.3%, and the new orders index was at 63.7%.

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

----- Tuesday, July 3rd -----

Early: Reis Q2 2018 Mall Survey of rents and vacancy rates.

Vehicle SalesAll day: Light vehicle sales for June. The consensus is for light vehicle sales to be 17.0 million SAAR in June, up from 16.8 million in May (Seasonally Adjusted Annual Rate).

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

8:00 AM: Corelogic House Price index for May.

----- Wednesday, July 4th -----

All US markets will be closed in observance of Independence Day.

----- Thursday, July 5th -----

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 June. This report is for private payrolls only (no government). The consensus is for 188,000 payroll jobs added in June, up from 178,000 added in May.

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 223 thousand initial claims, down from 227 thousand the previous week.

Early: Reis Q2 2018 Office Survey of rents and vacancy rates.

10:00 AM: the ISM non-Manufacturing Index for June. The consensus is for index to decrease to 58.3 from 58.6 in May.

2:00 PM: FOMC Minutes for the Meeting of June 12-13, 2018

----- Friday, July 6th -----

Year-over-year change employment8:30 AM: Employment Report for June. The consensus is for an increase of 190,000 non-farm payroll jobs added in June, down from the 223,000 non-farm payroll jobs added in May.

The consensus is for the unemployment rate to be unchanged at 3.8%.

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

In May the year-over-year change was 2.363 million jobs.

A key will be the change in wages.

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

This graph shows the U.S. trade deficit, with and without petroleum, through April. 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 $43.5 billion in May from $46.2 billion in April.

Friday, June 29, 2018

Fannie Mae: Mortgage Serious Delinquency rate decreased in May

by Bill McBride on 6/29/2018 04:49:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate decreased to 1.03% in May, down from 1.09% in April. The serious delinquency rate is down from 1.04% in May 2017.

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

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

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

By vintage, for loans made in 2004 or earlier (3% of portfolio), 3.07% are seriously delinquent. For loans made in 2005 through 2008 (6% of portfolio), 5.72% are seriously delinquent, For recent loans, originated in 2009 through 2018 (91% of portfolio), only 0.44% are seriously delinquent. So Fannie is still working through poor performing loans from the bubble years.

The recent increase in the delinquency rate was due to the hurricanes - no worries about the overall market (These are serious delinquencies, so it took three months late to be counted).

Following the hurricane bump, the rate will probably decline to 0.5 to 0.7 percent or so to a cycle bottom.

Note: Freddie Mac reported earlier.

Oil Rigs: "A lousy week for rigs"

by Bill McBride on 6/29/2018 02:49:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on June 29, 2018:

• Total oil rigs fell, -4 to 858

• Horizontal oil rigs were down, -2 to 765
...
• Rig count changes follow WTI with a lag of 9 weeks. Nine weeks ago, WTI stood at $68 / barrel, which does not seem enough to keep the rig count moving up at present

• Outside the Permian, rig counts tell a grim story of plays losing resilience
Oil Rig CountClick on graph for larger image.

CR note: This graph shows the US horizontal rig count by basin.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.

Earlier: Chicago PMI Increased in June

by Bill McBride on 6/29/2018 01:02:00 PM

From the Chicago PMI: Chicago Business Barometer Rises to 64.1 in June

The MNI Chicago Business Barometer rose 1.4 points to 64.1 in June, up from 62.7 in May, hitting the highest level since January.

Business activity expanded at a faster pace in June, with firms’ operations up for a third consecutive month. Four of the five Barometer components strengthened on the month, leaving the Barometer up 0.8% on the year.
...
This month, two special questions were posed to firms. The first asked whether ongoing trade talks were having an impact on short-term purchasing decisions. Just under a quarter said that they were having a significant impact on business while an additional 39.2% said yes but only to a minimal extent up until now. Just 17.7% said they had been immune to any disruptions, with the remaining 19.6% unsure.

The second question asked firms if they had increased starting salaries to attract and secure prospective employees. The majority of firms, at 61.4%, said that had yet to resort to this measure but a fairly sizeable 38.6% said that this was a strategy which they had turned to.

“Stronger outturns in May and June left the MNI Chicago Business Barometer broadly unchanged in Q2, running at a pace similar to that seen throughout 2017. While impressive, supply-side frustrations are undermining firms’ productive capacity,” said Jamie Satchi, Economist at MNI Indicators.

Confusion surrounding the trade landscape continues to breed uncertainty among businesses and their suppliers and has led to many firms’ altering their immediate purchasing decisions,” he added.
emphasis added
This was above the consensus forecast of 60.1, and a strong reading.

Q2 GDP Forecasts

by Bill McBride on 6/29/2018 11:18:00 AM

From Merrill Lynch:

The data sliced 0.4pp from 2Q GDP tracking, bringing our estimate down to 3.6% qoq saar. [June 29 estimate].
emphasis added
And from the Altanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2018 is 3.8 percent on June 29, down from 4.5 percent on June 27. [June 29 estimate]
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 2.8% for 2018:Q2 and 2.5% for 2018:Q3. [June 29 estimate]
CR Note: These estimates suggest real annualized GDP in the 2.8% to 3.8% range in Q2.

Personal Income increased 0.4% in May, Spending increased 0.2%

by Bill McBride on 6/29/2018 08:36:00 AM

The BEA released the Personal Income and Outlays report for May:

Personal income increased $60.0 billion (0.4 percent) in May according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $63.2 billion (0.4 percent) and personal consumption expenditures (PCE) increased $27.8 billion (0.2 percent).

Real DPI increased 0.2 percent in May and Real PCE decreased less than 0.1 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.2 percent.
The May PCE price index increased 2.3 percent year-over-year (up from 2.0 percent YoY in April) and the May PCE price index, excluding food and energy, increased 2.0 percent year-over-year (up from 1.8 percent YoY in April).

The following graph shows real Personal Consumption Expenditures (PCE) through May 2018 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was at expectations,  and the increase in PCE was below expectations.

Using the two-month method to estimate Q2 PCE growth, PCE was increasing at a 3.0% annual rate in Q2 2018. (using the mid-month method, PCE was increasing 3.4%). This suggests decent PCE growth in Q2, but below expectations.   (Estimates for Q2 GDP will be revised down).

Thursday, June 28, 2018

Friday: Personal Income and Outlays, Chicago PMI

by Bill McBride on 6/28/2018 07:03:00 PM

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

• At 9:45 AM, Chicago Purchasing Managers Index for June. The consensus is for a reading of 60.1, down from 62.7 in May.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Final for June). The consensus is for a reading of 99.2, down from 99.3.

Zillow Case-Shiller Forecast: Slower House Price Gains in May

by Bill McBride on 6/28/2018 04:11:00 PM

The Case-Shiller house price indexes for April were released Tuesday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Aaron Terrazas at Zillow: April Case-Shiller Results and May Forecast: The New Normal

In a normal housing market, there is almost always a decently balanced pool of winners and losers. But as severely limited inventory continues to help push up home prices at a rapid clip, it’s clear that current housing trends are far from normal – and that there are a lot more losers right now than winners.

The U.S. National Case-Shiller Index rose 6.4 percent in April from a year ago, largely in line with expectations. April was the eighth straight month of annual appreciation of 6 percent or higher, and the longest such streak since a stretch of 19 months of breakneck appreciation that began in December 2012 as the housing market began to bounce back in earnest from the depths of the recession. Over the past 30-plus years, dating to January 1988, annual U.S. home price growth as measured by the Case Shiller National Index has averaged 3.8 percent.
...
Looking ahead, rapid home value growth may slow somewhat, although not likely by much to make a difference in the underlying trends of high demand and low supply that are driving the market right now. Zillow expects the U.S. National Index to grow by 6.3 percent in May from a year ago, down only slightly from April. The 10- and 20-city indices are likely to slow down further. Full Case-Shiller data for May is scheduled for release Tuesday, July 31.
The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be larger in March than in February.
Zillow forecast for Case-Shiller

Kansas City Fed: Regional Manufacturing Activity "Continued to Expand at a Rapid Pace" in June, Concern about Tariffs

by Bill McBride on 6/28/2018 11:17:00 AM

Note the comments on tariffs.

From the Kansas City Fed: Tenth District Manufacturing Activity Continued to Expand at a Rapid Pace

The Federal Reserve Bank of Kansas City released the June 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 continued to expand at a rapid pace, and expectations for future growth increased moderately.

“The composite index remained strong for the third consecutive month, and many firms reported difficulties finding qualified workers,” said Wilkerson. “Prices indexes remained at high levels.”
...
The month-over-month composite index was 28 in June, similar to the reading of 29 in May and higher than 26 in April. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Factory activity increased at durable and nondurable goods plants, particularly for computer, electronics, and food products. Most month-over-month indexes were slightly lower than the previous month, but all indexes remained at high levels. The production index edged down from 41 to 38, and the volume of shipments and new orders for exports indexes eased slightly. The employment index was unchanged, while the new orders and order backlog indexes saw a modest decline. The raw materials inventory index improved from 19 to 27, and the finished goods inventory index also increased.

Selected comments:
“Business is strong right now, but tariffs and wage inflation may impact margins going forward.”

The steel tariffs are not helpful. Material prices are rising and these costs have to be passed along to the consumer.”

Bracing for the worst concerning China tariffs. We will move the last of manufacturing off shore. Loss of business due to tariffs will have a larger impact than interest rates.”

“Working on a record year, but we are closely monitoring price increases from suppliers due to new tariffs.”
emphasis added
This was the last of the regional Fed surveys for June.

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

Based on these regional surveys, it is possible the ISM manufacturing index will be close to 60 in June (to be released on Monday, July 2nd).

Q1 GDP Revised down to 2.0% Annual Rate

by Bill McBride on 6/28/2018 08:38:00 AM

From the BEA: National Income and Product Accounts Gross Domestic Product: First Quarter 2018 (Third Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the first quarter of 2018, according to the "third" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.9 percent.

TThe GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.2 percent. With this third estimate for the first quarter, the general picture of economic growth remains the same; private inventory investment and personal consumption expenditures (PCE) were revised down.
emphasis added
Here is a Comparison of Third and Second Estimates. PCE growth was revised down from 1.0% to 0.9%. Residential investment was revised up from -2.0% to -1.1%. Most revisions were small. This was below the consensus forecast.

Weekly Initial Unemployment Claims increased to 227,000

by Bill McBride on 6/28/2018 08:33:00 AM

The DOL reported:

In the week ending June 23, the advance figure for seasonally adjusted initial claims was 227,000, an increase of 9,000 from the previous week's unrevised level of 218,000. The 4-week moving average was 222,000, an increase of 1,000 from the previous week's unrevised average of 221,000.
emphasis added
The previous week was unrevised.

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

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 222,000.

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

Wednesday, June 27, 2018

Thursday: GDP, Unemployment Claims

by Bill McBride on 6/27/2018 08:27:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 220 thousand initial claims, up from 218 thousand the previous week.

• At 8:30 AM, Gross Domestic Product, 1st quarter 2018 (Third estimate). The consensus is that real GDP increased 2.2% annualized in Q1, unchanged from the second estimate of 2.2% in Q1.

• At 11:00 AM, the Kansas City Fed manufacturing survey for June. This is the last of the regional surveys for June.

Chemical Activity Barometer Increased in June

by Bill McBride on 6/27/2018 04:52:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Continues Upward Climb Into Third Quarter

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), rose 0.1 percent on a three-month moving average (3MMA) basis in June to 122.27. This marked the barometer’s tenth consecutive gain, following revisions. The barometer is up 4.1 percent on a 3MMA compared to a year earlier. The unadjusted CAB also increased, notching a 0.3 percent gain, pushing it to a 4.3 percent gain year-over-year. The March, April, and May readings were all adjusted upward. June readings indicate a continued expansion of U.S. commercial and industrial activity into early 2019.
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen 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).

The year-over-year increase in the CAB has been solid over the last year, suggesting further gains in industrial production in 2018 and early 2019.

Philly Fed: State Coincident Indexes increased in 45 states in May

by Bill McBride on 6/27/2018 02:26:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for May 2018. Over the past three months, the indexes increased in all 50 states, for a three-month diffusion index of 100. In the past month, the indexes increased in 45 states, decreased in one, and remained stable in four, for a one-month diffusion index of 88.
emphasis added
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 by production workers, 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 State Conincident Map Click on map for larger image.

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 all or mostly green during most of the recent expansion.

Once again, the map is all green on a three month basis.

Source: Philly Fed.

Note: For complaints about red / green issues, please contact the Philly Fed.

Philly Fed Number of States with Increasing ActivityAnd here 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 Map, 45 states had increasing activity (including minor increases).

The downturn in 2015 and 2016, in the number of states increasing, was mostly related to the decline in oil prices.

Reis: Apartment Vacancy Rate increased in Q2 to 4.8%

by Bill McBride on 6/27/2018 11:28:00 AM

Reis reported that the apartment vacancy rate was at 4.8% in Q2 2018, up from 4.7% in Q1, and up from 4.3% in Q2 2017.  This is the highest vacancy rate since Q3 2012. The vacancy rate peaked at 8.0% at the end of 2009, and bottomed at 4.1% in 2016.

From Reis:

Once again, the apartment vacancy rate increased in the quarter to 4.8% from 4.7% last quarter and 4.3% in the second quarter of 2017. The vacancy rate has now increased 70 basis points from a low of 4.1% in Q3 2016.

The national average asking rent increased 1.3% in the first quarter while effective rents, which net out landlord concessions, increased 1.2%. At $1,404 per unit (market) and $1,337 per unit (effective), the average rents have increased 4.4% and 4.0%, respectively, from the second quarter of 2017.

Net absorption was 37,265 units, slightly above last quarter’s absorption of 36,124 units but below the average quarterly absorption of 2017 of 46,031 units. Construction was 50,360 units, higher than the first quarter’s 50,244 units but below the 2017 quarterly average of 60,514 units. We still expect total construction for 2018 to surpass that of 2017.
...
The apartment market had slowed at the end of 2017 and early 2018 as the housing market started to accelerate. Momentum in the housing market, however, recently slowed as indicated by recent existing home sales results. These shifts are likely due to the Tax Reform and Jobs Act that doubled the standard deduction and cut the deductibility of state, local and property taxes which lowered the incentive to buy a home.

We expect construction to remain robust for the rest of 2018 and in early 2019 before completions drop off in subsequent periods. Occupancy is expected to remain positive, although vacancy rates are expected to continue to increase as new supply will outpace demand growth. Still, as long as job growth remains positive, we expect rent growth to remain positive over the next few quarters.
emphasis added
Apartment Vacancy Rate Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

The vacancy rate had mostly moved sideways for the last several years.  However, the vacancy rate has bottomed and is now increasing.  With more supply coming on line - and less favorable demographics - the vacancy rate will probably continue to increase over the next year.

Apartment vacancy data courtesy of Reis.

NAR: Pending Home Sales Index Decreased 0.5% in May

by Bill McBride on 6/27/2018 10:03:00 AM

From the NAR: Pending Home Sales Inch Back 0.5 Percent in May

Pending home sales decreased modestly in May and have now fallen on an annualized basis for the fifth straight month, according to the National Association of Realtors®. A larger decline in contract activity in the South offset gains in the Northeast, Midwest and West.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.5 percent to 105.9 in May from 106.4 in April.
...
The PHSI in the Northeast increased 2.0 percent to 92.4 in May, but is still 4.8 percent below a year ago. In the Midwest the index rose 2.9 percent to 101.4 in May, but is still 2.5 percent lower than May 2017.

Pending home sales in the South declined 3.5 percent to an index of 122.9 in May (unchanged from a year ago). The index in the West inched forward 0.6 percent in May to 94.7, but is 4.1 percent below a year ago.
emphasis added
This was well below expectations of a 0.7% 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 June and July.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 6/27/2018 07:00:00 AM

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

Mortgage applications decreased 4.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 22, 2018.

... The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index decreased 7 percent compared with the previous week and was 1 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.84 percent from 4.83 percent, with points decreasing to 0.42 from 0.48 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity will not pick up significantly unless mortgage rates fall 50 bps or more from the recent level.

Mortgage Purchase IndexThe second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 1% year-over-year.

Tuesday, June 26, 2018

Wednesday: Durable Goods, Pending Home Sales, Q2 Apartment Vacancy Survey

by Bill McBride on 6/26/2018 09:01:00 PM

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

• Early, Reis Q2 2018 Apartment Survey of rents and vacancy rates.

• At 8:30 AM, Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.6% decrease in durable goods orders.

• At 10:00 AM, Pending Home Sales Index for May. The consensus is for a 0.7% increase in the index.

Freddie Mac: Mortgage Serious Delinquency Rate Decreased in May

by Bill McBride on 6/26/2018 05:43:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in May was 0.87%, down from 0.94% in April. Freddie's rate is unchanged from 0.87% in May 2017.

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". 

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

The increase in the delinquency rate late last year was due to the hurricanes - no worries about the overall market (These are serious delinquencies, so it took three months late to be counted).

After the hurricane bump, maybe the rate will decline to a cycle bottom in the 0.5% to 0.8% range.

Note: Fannie Mae will report for May soon.

Real House Prices and Price-to-Rent Ratio in April

by Bill McBride on 6/26/2018 02:31:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 6.4% year-over-year in April

It has been over eleven years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being 9.1% above the previous bubble peak. However, in real terms, the National index (SA) is still about 9.9% below the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 15.8% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now around 6%. In April, the index was up 6.4% YoY.

Usually people graph nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller 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 $284,000 today adjusted for inflation (42%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

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

In nominal terms, the Case-Shiller National index (SA)and the Case-Shiller Composite 20 Index (SA) are both at new all times highs (above the bubble peak).



Real House Prices

Real House PricesThe second graph shows the same two 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 December 2004 levels, and the Composite 20 index is back to June 2004.

In real terms, house prices are at 2004 levels.

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 and Composite 20 House Price Indexes.

This graph shows the price to rent ratio (January 2000 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to February 2004 levels, and the Composite 20 index is back to December 2003 levels.

In real terms, prices are back to mid 2004 levels, and the price-to-rent ratio is back to late 2003, early 2004.

Update: A few comments on the Seasonal Pattern for House Prices

by Bill McBride on 6/26/2018 12:09:00 PM

CR Note: This is a repeat of earlier posts with updated graphs.

A few key points:
1) There is a clear seasonal pattern for house prices.
2) The surge in distressed sales during the housing bust distorted the seasonal pattern.
3) Even though distressed sales are down significantly, the seasonal factor is based on several years of data - and the factor is now overstating the seasonal change (second graph below).
4) Still the seasonal index is probably a better indicator of actual price movements than the Not Seasonally Adjusted (NSA) index.

For in depth description of these issues, see former Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).  I still use the seasonal factor (I think it is better than using the NSA data).

House Prices month-to-month change NSA Click on graph for larger image.

This graph shows the month-to-month change in the NSA Case-Shiller National index since 1987 (through April 2018).   The seasonal pattern was smaller back in the '90s and early '00s, and increased once the bubble burst.

The seasonal swings have declined since the bubble.

Case Shiller Seasonal FactorsThe second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

The swings in the seasonal factors has started to decrease, and I expect that over the next several years - as the percent of distressed sales declines further and recent history is included in the factors - the seasonal factors will move back towards more normal levels.

However, as Kolko noted, there will be a lag with the seasonal factor since it is based on several years of recent data.

Case-Shiller: National House Price Index increased 6.4% year-over-year in April

by Bill McBride on 6/26/2018 09:24:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for April ("April" is a 3 month average of February, March and April 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: Home Prices Continue Their Upward Trend According to S&P CoreLogic Case-Shiller Index

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 6.4% annual gain in April, down from 6.5% in the previous month. The 10-City Composite annual increase came in at 6.2%, down from 6.4% in the previous month. The 20-City Composite posted a 6.6% year-over-year gain, down from 6.7% in the previous month.

Seattle, Las Vegas, and San Francisco continue to report the highest year-over-year gains among the 20 cities. In April, Seattle led the way with a 13.1% year-over-year price increase, followed by Las Vegas with a 12.7% increase and San Francisco with a 10.9% increase. Nine of the 20 cities reported greater price increases in the year ending April 2018 versus the year ending March 2018
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 1.0% in April. The 10-City and 20-City Composites reported increases of 0.6% and 0.8%, respectively. After seasonal adjustment, the National Index recorded a 0.3% month-over-month increase in April. The 10-City and 20-City Composites posted 0.1% and 0.2% month-over-month increases, respectively. Nineteen of 20 cities reported increases in April before seasonal adjustment, while 17 of 20 cities reported increases after seasonal adjustment.

“Home prices continued their climb with the S&P CoreLogic Case-Shiller National Index up 6.4% in the past 12 months,” says David M. Blitzer Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Cities west of the Rocky Mountains continue to lead price increases with Seattle, Las Vegas and San Francisco ranking 1-2-3 based on price movements in the trailing 12 months. The favorable economy and moderate mortgage rates both support recent gains in housing. One factor pushing prices up is the continued low supply of homes for sale. The months-supply is currently 4.3 months, up from levels below 4 months earlier in the year, but still low.

“Looking back to the peak of the boom in 2006, 10 of the 20 cities tracked by the indices are higher than their peaks; the other ten are below their high points. The National Index is also above its previous all-time high, the 20-city index slightly up versus its peak, and the 10-city is a bit below. However, if one adjusts the price movements for inflation since 2006, a very different picture emerges. Only three cities – Dallas, Denver and Seattle – are ahead in real, or inflation-adjusted, terms. The National Index is 14% below its boom-time peak and Las Vegas, the city with the longest road to a new high, is 47% below its peak when inflation is factored in.”
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 1.1% from the peak, and up 0.1% in April (SA).

The Composite 20 index is 1.9% above the bubble peak, and up 0.2% (SA) in April.

The National index is 9.1% above the bubble peak (SA), and up 0.3% (SA) in April.  The National index is up 47.5% 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 6.2% compared to April 2017.  The Composite 20 SA is up 6.5% year-over-year.

The National index SA is up 6.4% year-over-year.

Note: According to the data, prices increased in 17 of 20 cities month-over-month seasonally adjusted.

I'll have more later.

Monday, June 25, 2018

Tuesday: Case-Shiller House Prices

by Bill McBride on 6/25/2018 07:01:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Relatively Unchanged Despite Stock Losses

Conventional wisdom holds that interest rates tend to move in the same direction as stocks. This makes logical sense from a classical investment portfolio standpoint. If investors are selling stocks to buy bonds, the prices of stocks would fall and the price of bonds would rise. When bond prices rise, rates fall. But even with today's heavy losses in stocks, mortgage rates barely budged today. [30YR FIXED - 4.625% - 4.75%]
emphasis added
Tuesday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for April. The consensus is for a 6.8% year-over-year increase in the Comp 20 index for April.

• At 10:00 AM, Richmond Fed Survey of Manufacturing Activity for June.

Oil Rigs: Total US oil rigs fell 1 to 862 last week

by Bill McBride on 6/25/2018 05:10:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on June 22, 2018:

• Total US oil rigs fell 1 to 862 last week

• Horizontal oil rigs added 2 to 767
...
• The appetite to add rigs seems to be waning, as we noted last week, and a new interim peak may be forming.

• This in turn suggests the breakeven price to add oil rigs is rising to about $60 / barrel WTI, up from around $48 / barrel a year ago.

• Oil prices recovered on the OPEC deal – no surprise – but seem weak again today.
Oil Rig CountClick on graph for larger image.

CR note: This graph shows the US horizontal rig count by basin.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.

Earlier from Dallas Fed: "Texas Manufacturing Continues to Expand, Outlook Improves"

by Bill McBride on 6/25/2018 03:33:00 PM

From the Dallas Fed: Texas Manufacturing Continues to Expand, Outlook Improves

The expansion in Texas factory activity continued in June, albeit at a slower pace than in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, declined 12 points to 23.3, signaling a deceleration in output growth.

Some other indexes of manufacturing activity also indicated slower growth in June. The capacity utilization and shipments indexes posted double-digit declines, falling to 21.7 and 25.5, respectively. However, demand improved further in June as the new orders index edged up to 29.6, its highest level this year.

Perceptions of broader business conditions were even more positive in June than in May. The general business activity index rose 10 points to 36.5, and the company outlook index rose five points to 33.2, its highest reading since 2006.

Labor market measures suggested robust growth in employment and longer work hours in June. The employment index stayed near last month’s six-year high at 23.9. Thirty-one percent of firms noted net hiring, compared with 7 percent noting net layoffs. The hours worked index remained highly positive but edged down to 20.2.
emphasis added

A few Comments on May New Home Sales

by Bill McBride on 6/25/2018 12:34:00 PM

New home sales for May were reported at 689,000 on a seasonally adjusted annual rate basis (SAAR). This was above the consensus forecast, however the three previous months. combined, were revised down.

Sales in May were up 14.1% year-over-year compared to May 2017.   This was strong YoY growth, however, this was also a fairly easy comparison since new home sales were soft in mid-year 2017.

Earlier: New Home Sales increase to 689,000 Annual Rate in May.

New Home Sales 2016 2017Click on graph for larger image.

This graph shows new home sales for 2017 and 2018 by month (Seasonally Adjusted Annual Rate).

Sales are up 8.8% through May compared to the same period in 2017. Decent growth so far, and the next three months will also be an easy comparison to 2017.

This is on track to be close to my forecast for 2018 of 650 thousand new home sales for the year; an increase of about 6% over 2017.   There are downside risks to that forecast, such as higher mortgage rates, higher costs (labor and material), and possible policy errors.

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 several years.

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through May 2018. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

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. If not, then the gap will persist.

Distressing GapAnother way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down since the housing bust, and this ratio will probably continue to trend down over the next several years.

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 increase to 689,000 Annual Rate in May

by Bill McBride on 6/25/2018 10:12:00 AM

The Census Bureau reports New Home Sales in May were at a seasonally adjusted annual rate (SAAR) of 689 thousand.

The previous three months were revised down, combined.

"Sales of new single-family houses in May 2018 were at a seasonally adjusted annual rate of 689,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 6.7 percent above the revised April rate of 646,000 and is 14.1 percent above the May 2017 estimate of 604,000. "
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 over the last several years, new home sales are still somewhat low historically.

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply decreased in May to 5.2 months from 5.5 months in April.

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

This is in the normal range (less than 6 months supply is normal).
"The seasonally-adjusted estimate of new houses for sale at the end of May was 299,000. 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 somewhat low, and the combined total of completed and under construction is also somewhat low.

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

In May 2018 (red column), 64 thousand new homes were sold (NSA). Last year, 57 thousand homes were sold in May.

The all time high for May was 120 thousand in 2005, and the all time low for May was 26 thousand in 2010.

This was above expectations of 665,000 sales SAAR, however the previous months were revised down, combined. I'll have more later today.

Chicago Fed "Index Points to Slower Economic Growth in May "

by Bill McBride on 6/25/2018 08:37:00 AM

From the Chicago Fed: Index Points to Slower Economic Growth in May

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) fell to –0.15 in May from +0.42 in April. Two of the four broad categories of indicators that make up the index decreased from April, and two of the four categories made negative contributions to the index in May. The index’s three-month moving average, CFNAI-MA3, decreased to +0.18 in May from +0.48 in April.
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 above the historical trend in May (using the three-month average).

According to the Chicago Fed:
The index is a weighted average of 85 indicators of growth in 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 monthly index has been associated with the national economy expanding at its historical trend (average) rate of growth; negative values with below-average growth (in standard deviation units); and positive values with above-average growth.

Sunday, June 24, 2018

Monday: New Home Sales

by Bill McBride on 6/24/2018 08:47:00 PM

Weekend:
Schedule for Week of June 24, 2018

Monday:
• At 8:30 AM ET, Chicago Fed National Activity Index for May. This is a composite index of other data.

• At 10:00 AM, New Home Sales for May from the Census Bureau. The consensus is for 665 thousand SAAR, up from 662 thousand in April.

• At 10:30 AM, Dallas Fed Survey of Manufacturing Activity for June.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 10, and DOW futures are down 82 (fair value).

Oil prices were up over the last week with WTI futures at $68.43 per barrel and Brent at $73.95 per barrel.  A year ago, WTI was at $45, and Brent was at $46 - so oil prices are up about 50% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.83 per gallon. A year ago prices were at $2.25 per gallon - so gasoline prices are up 58 cents per gallon year-over-year.

Update: For Fun, Stock Market as Barometer of Policy Success

by Bill McBride on 6/24/2018 10:03:00 AM

By request, here is an update to the chart showing market performance under Presidents Trump and Obama.

Note: I don't think the stock market is a great measure of policy performance, but some people do - and I'm having a little fun with them.

There are some observers who think the stock market is the key barometer of policy success.  My view is there are many measures of success - and that the economy needs to work well for a majority of the people - not just stock investors.

However, for example, Treasury Secretary Steven Mnuchin was on CNBC on Feb 22, 2017, and was asked if the stock market rally was a vote of confidence in the new administration, he replied: "Absolutely, this is a mark-to-market business, and you see what the market thinks."

And Larry Kudlow wrote in 2007: A Stock Market Vote of Confidence for Bush: "I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today's stock market message is an unmistakable vote of confidence for the president."

Note: Kudlow's comments were made a few months before the market started selling off in the Great Recession. For more on Kudlow, see: Larry Kudlow is usually wrong

Update: And from White House chief economic advisor Gary Cohn on December 20, 2017:

"I think there is a lot more momentum in the stock market. ... "The stock market is reflecting the reality of what's going in the business environment today," said Cohn, director of the National Economic Council. "There is going to be a continuation [of the] rally in the equity markets based on real underlying fundamentals of the U.S. economy ... as well as companies having more earnings power because of lower tax rates."
For fun, here is a graph comparing S&P500 returns (ex-dividends) under Presidents Trump and Obama:

Stock Market Performance Click on graph for larger image.

Blue is for Mr. Obama, Orange is for Mr. Trump.

At this point, the S&P500 is up 21.3% under Mr. Trump - compared to up 36.0% under Mr. Obama for the same number of market days.

Saturday, June 23, 2018

Schedule for Week of June 24, 2018

by Bill McBride on 6/23/2018 08:11:00 AM

The key economic reports this week are May New Home Sales and the third estimate of Q1 GDP.

Other key indicators include Personal Income and Outlays for May, and Case-Shiller house prices for April.

For manufacturing, the Dallas, Richmond, and Kansas City Fed manufacturing surveys will be released this week.

----- Monday, June 25th -----

8:30 AM ET: Chicago Fed National Activity Index for May. This is a composite index of other data.

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

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

The consensus is for 665 thousand SAAR, up from 662 thousand in April.

10:30 AM: Dallas Fed Survey of Manufacturing Activity for June.

----- Tuesday, June 26h -----

Case-Shiller House Prices Indices9:00 AM ET: S&P/Case-Shiller House Price Index for April.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the January 2018 report (the Composite 20 was started in January 2000).

The consensus is for a 6.8% year-over-year increase in the Comp 20 index for April.

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

----- Wednesday, June 27th -----

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

Early: Reis Q2 2018 Apartment Survey of rents and vacancy rates.

8:30 AM: Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.6% decrease in durable goods orders.

10:00 AM: Pending Home Sales Index for May. The consensus is for a 0.7% increase in the index.

----- Thursday, June 28th -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 220 thousand initial claims, up from 218 thousand the previous week.

8:30 AM: Gross Domestic Product, 1st quarter 2018 (Third estimate). The consensus is that real GDP increased 2.2% annualized in Q1, unchanged from the second estimate of 2.2% in Q1.

11:00 AM: the Kansas City Fed manufacturing survey for June. This is the last of the regional surveys for June.

----- Friday, June 29th -----

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

9:45 AM: Chicago Purchasing Managers Index for June. The consensus is for a reading of 60.1, down from 62.7 in May.

10:00 AM: University of Michigan's Consumer sentiment index (Final for June). The consensus is for a reading of 99.2, down from 99.3.

Friday, June 22, 2018

Duy: "No, A Recession Is Not Likely In The Next Twelve Months"

by Bill McBride on 6/22/2018 12:33:00 PM

A few excerpts from Professor Tim Duy at Fed Watch: No, A Recession Is Not Likely In The Next Twelve Months. Why Do You Ask?

Headlines blared the latest recession warning today, this time from David Rosenberg of Gluskin Sheff & Associates. The culprit will be the Fed:
“Cycles die, and you know how they die?” Rosenberg told the Inside ETFs Canada conference in Montreal on Thursday. “Because the Fed puts a bullet in its forehead.”
I get this. I buy the story that the Fed is likely to have a large role in causing the next recession. Either via overtightening or failing to loosen quickly enough in response to a negative shock.

And I truly get the frustration of being a business cycle economist in the midst of what will almost certainly be a record-breaking expansion. Imagine a business cycle economist going year after year without a recession to ride. It’s like Tinkerbell without her wings.

But the timeline here is wrong. And timing is everything when it comes to the recession call. Recessions don’t happen out of thin air. Data starts shifting ahead of a recession. Manufacturing activity sags. Housing starts tumble. Jobless claims start rising. You know the drill, and we are seeing any of it yet.

For a recession to start in the next twelve months, the data has to make a hard turn now. Maybe yesterday. And you would have to believe that turn would be happening in the midst of a substantial fiscal stimulus adding a tailwind to the economy through 2019. I just don’t see it happening.
...
Bottom Line: The business cycle is not dead. The future holds another recession. But many, many things have to start going wrong in fairly short order to bring about a recession in the next twelve months. It would probably have to be an extraordinary set of events outside of the typical business cycle dynamics. A much better bet is to expect this expansion will be a record breaker.
CR Notes: I agree completely with Duy. I don't see a recession starting any time soon.

According to NBER, the four longest expansions in U.S. history are:

1) From a trough in March 1991 to a peak in March 2001 (120 months).

2) From a trough in June 2009 to today, June 2018 (108 months and counting).

3) From a trough in February 1961 to a peak in December 1969 (106 months).

4) From a trough in November 1982 to a peak in July 1990 (92 months).

So the current expansion is the second longest in U.S. history, and it seems very likely that the current expansion will surpass the '90s expansion in the Summer of 2019.

As I noted last year in Is a Recession Imminent? (one of the five questions I'm frequently asked)
Expansions don't die of old age! There is a very good chance this will become the longest expansion in history.
A key reason the current expansion has been so long is that housing didn't contribute for the first few years of the expansion.  Also the housing recovery was sluggish for a few more years after the bottom in 2011.  This was because of the huge overhang of foreclosed properties coming on the market. Single family housing starts and new home sales both bottomed in 2011 - so this is just the seventh year of expansion - and I expect further increases in starts and sales over the next couple of years.

Recently the story has changed, but I still think the current expansion will end up being the longest in U.S. history.

Q2 GDP Forecasts

by Bill McBride on 6/22/2018 11:19:00 AM

From Merrill Lynch:

We continue to track 3.7% for 2Q GDP growth [June 22 estimate].
emphasis added
And from the Altanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2018 is 4.7 percent on June 19, down from 4.8 percent on June 14. [June 19 estimate]
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 2.9% for 2018:Q2 and 2.6% for 2018:Q3. [June 22 estimate]
CR Note: This is still quite a range.   These estimates suggest real annualized GDP in the 2.9% to 4.7% range in Q2.

Merrill: "The cost of a trade war"

by Bill McBride on 6/22/2018 08:53:00 AM

A few excerpts from a research note by Merrill Lynch economists: The cost of a trade war

Early this week, trade tensions ratcheted up another notch. President Trump announced that he has directed the US Trade Representative to prepare another round of tariffs on $200bn in Chinese imports at a tax rate of 10%. This comes after China announced that it would retaliate dollar for dollar against the initial round of tariffs that are set to go into effect on July 6. While the actual amount of tariffs that have been imposed by the US to date remain modest at just over $100bn worth of goods imports (only 4.2% of total goods imports), the latest announcement shows that trade tensions are likely to get worse before it gets better. Although we remain of the view that the likelihood of a full blown global trade war remains low, below we try to put some numbers on how a major trade confrontation could potentially impact the US economy.

The good news is that we are still many steps away from a full blown global trade war. The bad news is that the tail risks are rising and our work and the literature suggest a major global trade confrontation would likely push the US and the rest of the world to the brink of a recession. So far, the trade actions taken by the Trump White House and trading partners have been relatively modest and in turn have had a limited impact on the economy and financial markets. The next round of $100-$200bn of tariff between US and China may prove more substantial. Further escalation like auto tariffs would lead us to reassess the US economic outlook.

Thursday, June 21, 2018

Housing Inventory Tracking

by Bill McBride on 6/21/2018 03:06:00 PM

It appears existing home inventory has bottomed in some areas, and might be close to bottoming nationally. For example, in May, inventory was up 8.3% year-over-year (YoY) in California.   However inventory nationally was still down 6.1% YoY in May.

But this isn't like in late 2005, when inventory started increasing sharply indicating the end of the housing bubble. Currently lending standards have been reasonably solid (some loosening with FHA standards), and in some areas inventory is increasing - but from a very low level. As example, inventory was up almost 30% YoY in Sacramento in May, but the months-of-supply was just 1.5 months. Inventory in Sacramento could double or even triple, and house prices wouldn't decline (months-of-supply in the 5 to 6 month range is somewhat normal).

If inventory starts to increase, then house price growth will probably slow.   But it would take a significant increase in inventory to see price declines.

The graph below shows the year-over-year (YoY) change for non-contingent inventory in Houston, Las Vegas, Phoenix and Sacramento (through May 2018), and total existing home inventory as reported by the NAR (also through May 2018).

Click on graph for larger image.

This shows the YoY change in inventory for Houston, Las Vegas, Phoenix, and Sacramento.  The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory in Sacramento was up 30% year-over-year in May (inventory was still very low), and has increased YoY for eight consecutive months. 

Also note that inventory is still down 12% YoY in Las Vegas (red), but the YoY decline has been getting smaller - and inventory in Vegas will probably be up YoY very soon.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY recently as oil prices increased.

Inventory is a key for the housing market, and I will be watching inventory for the impact of the new tax law and higher mortgage rates on housing.   Currently I expect national inventory to be up YoY by the end of 2018 (but still be low).

This is not comparable to late 2005 when inventory increased sharply signaling the end of the housing bubble, but it does appear that inventory is bottoming nationally (and has already bottomed in some areas like California).

Hotels: Occupancy Rate decreased Year-over-Year

by Bill McBride on 6/21/2018 01:41:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 16 June

The U.S. hotel industry reported mixed year-over-year results in the three key performance metrics during the week of 10-16 June 2018, according to data from STR.

In comparison with the week of 11-17 June 2017, the industry recorded the following:

Occupancy: -0.3% to 74.2%
• Average daily rate (ADR): +2.0% to US$131.72
• Revenue per available room (RevPAR): +1.8% to US$97.70
emphasis added
The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotel Occupancy RateClick on graph for larger image.

The red line is for 2018, dash light blue is 2017 (record year due to hurricanes), blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

The occupancy rate, to date, is slightly ahead of the record year in 2017.  Note: 2017 finished strong due to the impact of the hurricanes.

On a seasonal basis, the occupancy rate will be solid for the next couple of months during the summer travel season.

Data Source: STR, Courtesy of HotelNewsNow.com

Earlier: Philly Fed Manufacturing Survey "Suggest Continuing Growth" in June

by Bill McBride on 6/21/2018 10:21:00 AM

From the Philly Fed: June 2018 Manufacturing Business Outlook Survey

Results from the June Manufacturing Business Outlook Survey suggest continued expansion of the region’s manufacturing sector. All the broad indicators remained positive, although the indicators for general activity and new orders fell notably. The firms continued to report higher prices for purchased inputs and their own manufactured goods. Expectations for the next six months continued to moderate but remain positive overall.

The diffusion index for current general activity remained positive but decreased 15 points this month. Almost 37 percent of the manufacturers reported increases in overall activity this month, while 17 percent reported decreases. ... The firms continued to report overall increases in employment. Nearly 34 percent of the responding firms reported increases in employment this month, while 3 percent reported decreases. The current employment index, at 30.4, was virtually unchanged from May. The current average workweek index, however, decreased 10 points.
emphasis added
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

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

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

This suggests the ISM manufacturing index will show solid expansion again in June, but probably weaker than in May.

Weekly Initial Unemployment Claims at 218,000

by Bill McBride on 6/21/2018 08:33:00 AM

The DOL reported:

In the week ending June 16, the advance figure for seasonally adjusted initial claims was 218,000, a decrease of 3,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 218,000 to 221,000. The 4-week moving average was 221,000, a decrease of 4,000 from the previous week's revised average. The previous week's average was revised up by 750 from 224,250 to 225,000.
emphasis added
The previous week was revised up.

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 221,000.

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

Black Knight: National Mortgage Delinquency Rate Decreased in May, Foreclosure Inventory Close to Pre-Recession Average

by Bill McBride on 6/21/2018 07:00:00 AM

From Black Knight: Black Knight’s First Look: May 2018 Sees Second Fewest Foreclosure Starts in 17 Years; Active Foreclosure Inventory on Pace to Hit Pre-Recession Average in Early Q3 2018

• At 44,900, May 2018 saw the second lowest monthly foreclosure starts in more than 17 years

• Just 303,000 mortgages remain in active foreclosure; at 0.59 percent, the national foreclosure rate is now at its lowest point in 15 years

• At the current rate of decline, national foreclosure inventories are on pace to hit the pre-recession average (2000-2005) in early Q3 2018

• May marked five consecutive months of declining delinquencies, as post-hurricane improvement continues

• Delinquency improvements in hurricane-affected areas more than offset slight increases in non-impacted markets in May, dropping the national delinquency rate to its lowest level in 15 months
According to Black Knight's First Look report for May, the percent of loans delinquent decreased 0.8% in May compared to April, and decreased 4.1% year-over-year.

The percent of loans in the foreclosure process decreased 3.3% in May and were down 28.7% 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 3.64% in May, down from 3.67% in April.

The percent of loans in the foreclosure process decreased in May to 0.59%.

The number of delinquent properties, but not in foreclosure, is down 60,000 properties year-over-year, and the number of properties in the foreclosure process is down 118,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  May
2018
Apr
2018
May
2017
May
2016
Delinquent3.64%3.67%3.79%4.25%
In Foreclosure0.59%0.61%0.83%1.13%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:1,867,0001,885,0001,927,0002,153,000
Number of properties in foreclosure pre-sale inventory:303,000314,000421,000574,000
Total Properties2,171,0002,199,0002,348,0002,727,000

Wednesday, June 20, 2018

Thursday: Unemployment Claims, Philly Fed Mfg

by Bill McBride on 6/20/2018 07:05:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 220 thousand initial claims, up from 218 thousand the previous week.

• At 8:30 AM, the Philly Fed manufacturing survey for June. The consensus is for a reading of 26.0, down from 34.4.

• At 9:00 AM, FHFA House Price Index for April 2018. This was originally a GSE only repeat sales, however there is also an expanded index.

AIA: "Architecture firm billings strengthen in May"

by Bill McBride on 6/20/2018 02:31:00 PM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architecture firm billings strengthen in May

Architecture firm billings grew in May, marking the eighth consecutive month of solid growth, according to a new report today from The American Institute of Architects (AIA).

Overall, the AIA’s Architecture Billings Index (ABI) score for May was 52.8 (any score over 50 is billings growth), which shows that demand for services from architecture firms continues to be healthy. The ABI also indicated that business conditions remain strong at firms located in the South and West, while growth in billings was modest at firms in the Northeast and Midwest.

“Architecture firms continue to have plenty of work as they enter the busiest part of the design and construction season,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “This is especially true for firms serving the institutional building sector, which reported their strongest growth in billings in several years.”
...
• Regional averages: West (51.9), Midwest (50.2), South (55.0), Northeast (50.6)

• Sector index breakdown: multi-family residential (52.1), institutional (54.3), commercial/industrial (53.6), mixed practice (47.9)
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 52.8 in May, up from 52.0 in April. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index was positive in 11 of the last 12 months, suggesting a further increase in CRE investment in 2018.

A Few Comments on May Existing Home Sales

by Bill McBride on 6/20/2018 11:59:00 AM

Earlier: NAR: "Existing-Home Sales Backpedal, Decrease 0.4 Percent in May"

A few key points:

1) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the consensus. See: Lawler: Early Read on Existing Home Sales in April.   The consensus was for sales of 5.56 million SAAR, Lawler estimated the NAR would report 5.47 million SAAR in May, and the NAR actually reported 5.43 million.

2) Inventory is still very low and falling year-over-year (YoY) with inventory down 6.1% year-over-year in May. This was the 36th consecutive month with a year-over-year decline in inventory, however the YoY declines have been getting smaller.

And some areas of the country are now reporting YoY increases in inventory.  As an example, the CAR  reported yesterday that inventory in California was up 8.3% YoY in May. More inventory would probably mean smaller 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 May (536,000, red column) were  below sales in May 2017 (555,000, NSA).

Sales NSA through May(first five months) are down about 1.4% from the same period in 2017.

This is a small decline - and it is too early to tell if there is an impact from higher interest rates and / or the changes to the tax law on home sales.

NAR: "Existing-Home Sales Backpedal, Decrease 0.4 Percent in May"

by Bill McBride on 6/20/2018 10:10:00 AM

From the NAR: Existing-Home Sales Backpedal, Decrease 0.4 Percent in May

Existing-home sales fell back for the second straight month in May, as only the Northeast region saw an uptick in activity, 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, decreased 0.4 percent to a seasonally adjusted annual rate of 5.43 million in May from downwardly revised 5.45 million in April. With last month’s decline, sales are now 3.0 percent below a year ago and have fallen year-over-year for three straight months.
...
Total housing inventory at the end of May climbed 2.8 percent to 1.85 million existing homes available for sale, but is still 6.1 percent lower than a year ago (1.97 million) and has fallen year-over-year for 36 consecutive months. Unsold inventory is at a 4.1-month supply at the current sales pace (4.2 months a year ago).
emphasis added
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 May (5.43 million SAAR) were 0.4% lower than last month, and were 3.0% below the May 2017 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory increased to 1.85 million in May from 1.80 million in April.   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 last 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 6.1% year-over-year in May compared to May 2017.  

Months of supply was at 4.1 months in May.

Sales were below the consensus view. For existing home sales, a key number is inventory - and inventory is still low, but appears to be bottoming in some areas. I'll have more later ...