Thursday, January 31, 2019

Friday: Employment Report, ISM Manufacturing, Construction Spending, Auto Sales

by Bill McBride on 1/31/2019 09:17:00 PM

My January Employment Preview

Goldman: January Payrolls Preview

Friday:
• At 8:30 AM ET, Employment Report for January.   The consensus is for 158,000 jobs added, and for the unemployment rate to be unchanged at 3.9%.

• At 10:00 AM, ISM Manufacturing Index for January. The consensus is for the ISM to be at 54.0, down from 54.1 in December.

• At 10:00 AM, Construction Spending for November. The consensus is for a 0.2% increase in construction spending (The December release hasn't been scheduled).

• All day, Light vehicle sales for January. The consensus is for light vehicle sales to be 17.2 million SAAR in January, unchanged from 17.2 million in December (Seasonally Adjusted Annual Rate).

Fannie Mae: Mortgage Serious Delinquency Rate unchanged in December

by Bill McBride on 1/31/2019 04:11:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate was unchanged at 0.76% in December, from 0.76% in November. The serious delinquency rate is down from 1.24% in December 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%.

This matches last month ass the lowest serious delinquency rate for Fannie Mae since August 2007.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

By vintage, for loans made in 2004 or earlier (3% of portfolio), 2.69% are seriously delinquent. For loans made in 2005 through 2008 (5% of portfolio), 4.61% are seriously delinquent, For recent loans, originated in 2009 through 2018 (92% of portfolio), only 0.34% are seriously delinquent. So Fannie is still working through poor performing loans from the bubble years.

The increase late last year in the delinquency rate was due to the hurricanes - there were no worries about the overall market.

I expect the serious delinquency rate will probably decline to 0.5 to 0.7 percent or so to a cycle bottom.

Note: Freddie Mac reported earlier.

Goldman: January Payrolls Preview

by Bill McBride on 1/31/2019 04:06:00 PM

A few brief excerpts from a note by Goldman Sachs economists Choi and Hill:

We estimate nonfarm payrolls increased 180k in January, somewhat above consensus of +165k. … while weather likely contributed to last month’s blockbuster report, January was also relatively warm and dry during the reference week. The BLS has also clarified that furloughed and unpaid government workers will be included in tomorrow’s payroll counts (though contractor layoffs could weigh in some industries).

We estimate the unemployment rate increased one tenth to 4.0% in January (vs. consensus of 3.9%), mostly reflecting the furlough of nearly 400k federal workers that the BLS plans to classify as “unemployed on temporary layoff.” ... Finally, we expect average hourly earnings will increase 0.2% month-over-month and 3.1% year-over-year in tomorrow’s report...
emphasis added

January Employment Preview

by Bill McBride on 1/31/2019 02:50:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for January. The consensus is for an increase of 158,000 non-farm payroll jobs in January (with a range of estimates between 140,000 to 183,000), and for the unemployment rate to be unchanged at 3.9%.

Last month, the BLS reported 312,000 jobs added in December.

Note on the government shutdown:  the Federal jobs will all be counted in the establishment report (headline jobs number), since the employees will be receiving back pay.   However, the furloughed employees will be counted as unemployed (on temporary layoff), so the unemployment rate will probably increase.

Note on Revisions: With the January release, the BLS will introduce revisions to nonfarm payroll employment to reflect the annual benchmark adjustment. The preliminary annual benchmark revision showed an upward adjustment of 43,000 jobs, and the preliminary estimate is usually pretty close.

Here is a summary of recent data:

• The ADP employment report showed an increase of 213,000 private sector payroll jobs in December. This was well above consensus expectations of 167,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth above expectations.

• The ISM manufacturing and ISM non-manufacturing employment indexes have not yet been released..

Initial weekly unemployment claims averaged 220,000 in January, up slightly from 219,000 in December. For the BLS reference week (includes the 12th of the month), initial claims were at 212,000, down from 217,000 during the reference week the previous month.

In general, the unemployment claims suggest a solid employment report.

• The final January University of Michigan consumer sentiment index decreased to 90.7 from the December reading of 98.3. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics. The decline in January is probably related to the government shutdown.

• Looking back at the three previous years:

In January 2017, the consensus was for 175,000 jobs, ADP reported 234,000 private sector jobs added, and the BLS reported 200,000 jobs added.

In January 2016, the consensus was for 175,000 jobs, ADP reported 246,000 private sector jobs added, and the BLS reported 227,000 jobs added.

In January 2015, the consensus was for 188,000 jobs, ADP reported 205,000 private sector jobs added, and the BLS reported 151,000 jobs added.

It appears the ADP report is usually too high for January.

• Conclusion:  In general these reports suggest a solid employment report, although I expect the unemployment rate to increase due to the government shutdown.  My guess is the report will be at or below the consensus, due to good weather in December (some payback in January), and possibly some private sector impact from the government shutdown.

A few Comments on November New Home Sales

by Bill McBride on 1/31/2019 11:45:00 AM

First, this report was for November (it was almost ready to release when the government shutdown began in December). The December report will probably be released soon, but no release date has been announced yet. Based on other data, I'd expect sales to be weak in December, but talking to builders, I expect a rebound in January.

New home sales for November were reported at 657,000 on a seasonally adjusted annual rate basis (SAAR). This was well above the consensus forecast, and the three previous months were revised up.

Sales in November were down 7.2% year-over-year compared to November 2017.

On Inventory: Months of inventory is now at the top of the normal range, however the number of units completed and under construction is still somewhat low.   Inventory will be something to watch very closely.

Earlier: New Home Sales increased to 657,000 Annual Rate in November.

New Home Sales 2017 2018Click on graph for larger image.

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

Sales are only up 2.7% through November compared to the same period in 2017.

The comparison for November was difficult (sales in November 2017 were very strong).  And the comparison in December will also be somewhat difficult.  Overall sales might finish the year down from 2017, but it should be close.

This is below my forecast for 2018 for an increase of about 6% over 2017. As I noted early this year, there were downside risks to that forecast, primarily higher mortgage rates, but also higher costs (labor and material), the impact of the new tax law, and other 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) through December and new home sales (right axis) through November 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 still expect this gap to slowly close.   However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

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 657,000 Annual Rate in November

by Bill McBride on 1/31/2019 10:14:00 AM

Note: This release is for November (this was delayed due to the government shutdown). The December report is not yet rescheduled, but will probably be released soon.

The Census Bureau reports New Home Sales in November were at a seasonally adjusted annual rate (SAAR) of 657 thousand.

The previous three months were revised up significantly.

"Sales of new single‐family houses in November 2018 were at a seasonally adjusted annual rate of 657,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 16.9 percent above the revised October rate of 562,000, but is 7.7 percent below the November 2017 estimate of 712,000."
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 November to 6.0 months from 7.0 months in October.

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

This is above the normal range (less than 6 months supply is normal).
"The seasonally‐adjusted estimate of new houses for sale at the end of November was 330,000. This represents a supply of 6.0 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 a little low.

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

In November 2018 (red column), 48 thousand new homes were sold (NSA). Last year, 50 thousand homes were sold in November.

The all time high for November was 86 thousand in 2005, and the all time low for November was 20 thousand in 2010.

This was well above expectations of 560,000 sales SAAR, and the previous months were revised up. I'll have more later today.

Weekly Initial Unemployment Claims increased to 253,000

by Bill McBride on 1/31/2019 08:34:00 AM

The DOL reported:

In the week ending January 26, the advance figure for seasonally adjusted initial claims was 253,000, an increase of 53,000 from the previous week's revised level. This is the highest level for initial claims since September 30, 2017 when it was 254,000. The previous week's level was revised up by 1,000 from 199,000 to 200,000. The 4-week moving average was 220,250, an increase of 5,000 from the previous week's revised average. The previous week's average was revised up by 250 from 215,000 to 215,250.
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 increased to 220,250.

This was much higher than the consensus forecast - and is probably related to the government shutdown.

Wednesday, January 30, 2019

Thursday: New Home Sales (Yes!), Unemployment Claims, Chicago PMI

by Bill McBride on 1/30/2019 08:54:00 PM

The BEA and Census have set some dates for delayed economic releases. For example, New Home sales for November will be released Thursday (the December release is not scheduled yet). There is no release date yet for Q4 GDP or December Personal Income and Outlays.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 217 thousand initial claims, up from 213 thousand the previous week.

• Also at 8:30 AM, POSTPONED Personal Income and Outlays for December. The consensus is for a 0.4% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:45 AM, Chicago Purchasing Managers Index for January. The consensus is for a reading of 62.5, down from 65.4 in December.

• At 10:00 AM, New Home Sales for November from the Census Bureau. The consensus was for 560 thousand SAAR, up from 544 thousand in October.

Freddie Mac: Mortgage Serious Delinquency Rate Decreased in December, Lowest since 2007

by Bill McBride on 1/30/2019 03:42:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in December was 0.69%, down from 0.70% in November. Freddie's rate is down from 1.08% in December 2017.

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

This is the lowest serious delinquency rate for Freddie Mac since December 2007.

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 (These are serious delinquencies, so it took three months late to be counted).

I expect the delinquency rate to decline to a cycle bottom in the 0.5% to 0.7% range - but this is close to a bottom.

Note: Fannie Mae will report for December soon.

FOMC Statement: No Change to Policy

by Bill McBride on 1/30/2019 02:01:00 PM

Powell press conference video here.

FOMC Statement:

Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier last year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Although market-based measures of inflation compensation have moved lower in recent months, survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

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 maximum employment objective and its symmetric 2 percent inflation objective. 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.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.
emphasis added

Zillow Case-Shiller Forecast: Smaller House Price Gains in December YoY

by Bill McBride on 1/30/2019 11:59:00 AM

The Case-Shiller house price indexes for November were released yesterday. 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: November Case-Shiller Results and December Forecast: San Francisco Falls Out of Top Three Home-Price Gainers

The U.S. National S&P CoreLogic Case-Shiller Home Price Index — which tracks home prices — rose 5.2 percent in November from a year earlier, below Zillow’s forecast last month.

The S&P CoreLogic Case-Shiller 20-city index climbed 4.7 percent annually in November, while the 10-city index rose 4.3 percent.

Zillow forecasts a steady 5.1 percent annual gain for December (results due Feb. 26).
The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be slightly less in December than in November.
Zillow forecast for Case-Shiller

NAR: Pending Home Sales Index Decreased 2.2% in December

by Bill McBride on 1/30/2019 10:05:00 AM

From the NAR: Pending Home Sales Dip 2.2 Percent in December

Pending home sales declined as a whole in December, but for the second straight month the Western region experienced a slight increase, according to the National Association of Realtors®.

he Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 2.2 percent to 99.0 in December, down from 101.2 in November. Additionally, year-over-year contract signings fell 9.8 percent, making this the twelfth straight month of annual decreases.
...
The PHSI in the Northeast rose 2.0 percent to 93.2 in December, and is now 2.5 percent below a year ago. In the Midwest, the index fell 0.6 percent to 97.5 in December, 7.2 percent lower than December 2017.

Pending home sales in the South fell 5 percent to an index of 109.7 in December, which is 13.5 percent lower than a year ago. The index in the West increased 1.7 percent in December to 88.4 and fell 10.8 percent below a year ago.
emphasis added
This was well below expectations 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.

ADP: Private Employment increased 213,000 in January

by Bill McBride on 1/30/2019 08:47:00 AM

From ADP:

Private sector employment increased by 213,000 jobs from December to January according to the January according to the December ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
“The labor market has continued its pattern of strong growth with little sign of a slowdown in sight,“ said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “We saw significant growth in nearly all industries, with manufacturing adding the most jobs in more than four years. Midsized businesses continue to lead job creation, however the share of jobs was spread a bit more evenly across all company sizes this month.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market weathered the government shutdown well. Despite the severe disruptions, businesses continued to add aggressively to their payrolls. As long as businesses hire strongly the economic expansion will continue on.”
This was well above the consensus forecast for 167,000 private sector jobs added in the ADP report. 

The BLS report for January will be released Friday, and the consensus is for 158,000 non-farm payroll jobs added in January.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 1/30/2019 07:00:00 AM

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

Mortgage applications decreased 3.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 25, 2019. This week’s results include an adjustment for the Martin Luther King Jr. Day holiday.

... The Refinance Index decreased 6 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 7 percent lower than the same week one year ago.
...
“Mortgage applications for purchase and refinances were lower over the past week, as rates nudged higher,” said Joel Kan, MBA’s Associate Vice President of Industry Surveys and Forecasts. “After two weeks of decreases, the purchase index still remained roughly 6 percent above its long-run average, which is good news with the spring buying and selling season almost underway. Despite ongoing supply and affordability constraints, the healthy job market and underlying demographic fundamentals both point to gradual purchase growth in the coming months.”

Added Kan, “Refinance activity had seen a small resurgence in the past few weeks, but there still remains only a small share of borrowers left to gain from rates at the current levels.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 4.76 percent from 4.75 percent, with points increasing to 0.47 from 0.44 (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.

Rates would have to fall further for a significant increase in refinance activity.

Mortgage Purchase IndexThe second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 7% year-over-year (this was a holiday week).

Tuesday, January 29, 2019

Wednesday: FOMC Announcement, ADP Employment, Pending Home Sales, GDP (Postponed)

by Bill McBride on 1/29/2019 07:00:00 PM

Note: The BEA and Census will have a new release schedule soon (getting back on track following the government shutdown).

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

• At 8:15 AM, The ADP Employment Report for January. This report is for private payrolls only (no government). The consensus is for 167,000 payroll jobs added in January, down from 271,000 added in December.

• At 8:30 AM, POSTPONED Gross Domestic Product, 4th quarter 2018 (Advance estimate). The consensus is that real GDP increased 2.6% annualized in Q4, down from 3.4% in Q3.

• At 10:00 AM, Pending Home Sales Index for December. The consensus is for a 0.1% increase in the index.

• At 2:00 PM, FOMC Meeting Announcement. No change to policy is expected at this meeting.

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

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

by Bill McBride on 1/29/2019 03:51:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.2% year-over-year in November

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 11.7% above the previous bubble peak. However, in real terms, the National index (SA) is still about 8.6% below the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 15.0% below the bubble peak.

The year-over-year increase in prices has slowed to 5.2% nationally, and will probably slow more as inventory picks up.

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 $286,000 today adjusted for inflation (43%).  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 October) 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 January 2005 levels, and the Composite 20 index is back to June 2004.

In real terms, house prices are at 2004/2005 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 November 2003 levels.

In real terms, prices are back to late 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 1/29/2019 11:18:00 AM

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 November 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 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 5.2% year-over-year in November

by Bill McBride on 1/29/2019 09:12:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for November ("October" 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: Southwest Region Leads in Annual Gains According to the 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 5.2% annual gain in November, down from 5.3% in the previous month. The 10City Composite annual increase came in at 4.3%, down from 4.7% in the previous month. The 20-City Composite posted a 4.7% year-over-year gain, down from 5.0% in the previous month.

Las Vegas, Phoenix and Seattle reported the highest year-over-year gains among the 20 cities. In November, Las Vegas led the way with a 12.0% year-over-year price increase, followed by Phoenix with an 8.1% increase and Seattle with a 6.3% increase. Seven of the 20 cities reported greater price increases in the year ending November 2018 versus the year ending October 2018.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.1% in November. The 10-City and 20-City Composites both reported a 0.1% decrease for the month. After seasonal adjustment, the National Index recorded a 0.4% month-over-month increase in November. The 10-City Composite and the 20-City Composite both posted 0.3% month-over-month increases. In November, eight of 20 cities reported increases before seasonal adjustment, while 15 of 20 cities reported increases after seasonal adjustment.

“Home prices are still rising, but more slowly than in recent months,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The pace of price increases are being dampened by declining sales of existing homes and weaker affordability. Sales peaked in November 2017 and drifted down through 2018. Affordability reflects higher prices and increased mortgage rates through much of last year. Following a shift in Fed policy in December, mortgage rates backed off to about 4.45% from 4.95%.

“Housing market conditions are mixed while analysts’ comments express concerns that housing is weakening and could affect the broader economy. Current low inventories of homes for sale – about a four-month supply – are supporting home prices. New home construction trends, like sales of existing homes, peaked in late 2017 and are flat to down since then. Stable 2% inflation, continued employment growth, and rising wages are all favorable. Measures of consumer debt and debt service do not suggest any immediate problems.”
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 up slightly from the bubble peak, and up 0.3% in November (SA).

The Composite 20 index is 3.7% above the bubble peak, and up 0.3% (SA) in November.

The National index is 11.7% above the bubble peak (SA), and up 0.4% (SA) in November.  The National index is up 51.1% 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 4.3% compared to November 2017.  The Composite 20 SA is up 4.7% year-over-year.

The National index SA is up 5.2% year-over-year.

Note: According to the data, prices increased in 15 of 20 cities month-over-month seasonally adjusted.

I'll have more later.

Monday, January 28, 2019

Tuesday: Case-Shiller House Prices

by Bill McBride on 1/28/2019 06:52:00 PM

Note: The BEA has announced that the Q4 GDP report, along with the Personal Income and Outlays and Trade reports, will not be released this week as scheduled. A new schedule will be published soon.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Unchanged at Start of Hectic Week

Mortgage rates didn't move at all today, on average, but that's likely to change throughout the course of the week--possibly several times. Interest rates are driven by bond market trading which, in turn, takes its cues from all manner of inputs. Two of the biggest inputs are economic data and the Federal Reserve (aka "The Fed"). There is plenty to consider on both accounts in the coming days.

The Fed will release one of its periodic policy announcements on Wednesday. No one expects them to raise rates at this meeting, but there are broad-based expectations for the verbiage of the Fed's statement to soften (i.e. to become more friendly toward rates and financial markets in general). Traders are already betting on some softening (which is helping rates stay lower than they otherwise might be over the past few trading days), but there's still plenty of room left for surprises. [30YR FIXED - 4.5%]
emphasis added
Tuesday:
• At 9:00 AM ET: S&P/Case-Shiller House Price Index for November. The consensus is for a 4.9% year-over-year increase in the Comp 20 index for November.

• At 10:00 AM: POSTPONED the Q4 2018 Housing Vacancies and Homeownership from the Census Bureau.

Merrill on NFP

by Bill McBride on 1/28/2019 12:59:00 PM

Here is Merrill Lynch economists forecast for the January non-farm payroll report:

We look for nonfarm payrolls to grow by 185k in January following a strong gain of 312k in December. We expect private payrolls, which excludes government workers to increase by 185k, implying no change in government payrolls in January.

Our private payrolls tracker based on internal BAC data is looking for somewhat stronger employment growth of 232k but we see a few reasons to fade the strength this month.
...
We also see some downside risk to private payroll employment growth due to the partial federal government shutdown. According to news reports, some government contractors have furloughed or laid off private workers while others employers have paused hiring activity during the shutdown. These disruptions may not be fully captured by our internal data as our data present a degree of selection bias, including but not limited to, income levels and geographies (Note that the BLS will count Federal Government workers that are currently furloughed as on payrolls since they will receive backpay).

Elsewhere, we estimate that the unemployment rate should be unchanged at 3.9% in January with a risk of it rising to 4% as furloughed workers will be counted as “unemployed on temporary layoff” in the household survey.
This mentions two key points: Government jobs on furlough will be counted in the establishment report since the workers will receive backpay, however those on furlough will be counted as unemployed (on temporary layoff) in the household report - so the unemployment rate might increase a little in January (perhaps to 4.1%).

Dallas Fed: "Growth in Texas Manufacturing Activity Accelerates"

by Bill McBride on 1/28/2019 10:35:00 AM

From the Dallas Fed: Growth in Texas Manufacturing Activity Accelerates

Texas factory activity continued to expand in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 7.3 to 14.5, indicating an acceleration in output growth.

Other measures of manufacturing activity also suggested continued expansion in January, although the pace of demand growth slowed a bit. The capacity utilization index rose seven points to 14.8, and the shipments index rose five points to 11.4. Meanwhile, the new orders index edged down to 11.6 and the growth rate of new orders index fell from 5.8 to 1.2.

Perceptions of broader business conditions improved in January. The general business activity index rebounded from a multiyear low of -5.1 in December to 1.0 in January. This near-zero reading suggests manufacturers were fairly balanced in their assessment of whether activity had improved or worsened from last month. The company outlook index also rebounded from negative territory this month, rising more than 10 points to 7.1.

Labor market measures suggested slower growth in employment and workweek length in January. The employment index retreated four points to 6.6, a two-year low. Sixteen percent of firms noted net hiring, compared with 10 percent noting net layoffs. The hours worked index edged down to 3.6.
emphasis added
This was the last of the regional Fed surveys for December.

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).

Based on these regional surveys, it seems likely the ISM manufacturing index will be at about the same level in January as in December. The consensus forecast is for a reading of 54.0 (to be released on Friday, February 1st).

Chicago Fed "Index Points to a Slight Increase in Economic Growth in December"

by Bill McBride on 1/28/2019 09:00:00 AM

From the Chicago Fed: Index Points to a Slight Increase in Economic Growth in December

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) moved up slightly to +0.27 in December from +0.21 in November. Two of the four broad categories of indicators that make up the index increased from November, and two of the four categories made positive contributions to the index in December. The index’s three-month moving average, CFNAI-MA3, edged up to +0.16 in December from +0.12 in November.
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 slightly above the historical trend in December (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, January 27, 2019

Sunday Night Futures

by Bill McBride on 1/27/2019 07:09:00 PM

Weekend:
Schedule for Week of January 27, 2019

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

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

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 5 and DOW futures are down 35 (fair value).

Oil prices were down over the last week with WTI futures at $53.32 per barrel and Brent at $61.26 per barrel.  A year ago, WTI was at $66, and Brent was at $70 - so oil prices are down about 15% to 20% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.26 per gallon. A year ago prices were at $2.56 per gallon, so gasoline prices are down 30 cents per gallon year-over-year.

January 2019: Unofficial Problem Bank list increased to 78 Institutions

by Bill McBride on 1/27/2019 11:55:00 AM

Note: Surferdude808 compiles an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for January 2019.

Here are the monthly changes and a few comments from surferdude808:

Update on the Unofficial Problem Bank List for January 2019. During the month, the list increased by a net of one institution to 78 banks after two removals and three additions. Aggregate assets increased slightly to $55.2 billion from $54.8 billion at year-end. A year ago, the list held 101 institutions with assets of $20.7 billion.

This month, actions were terminated against Northside Bank, Adairsville, GA ($126 million) and Millennial Bank, Leeds, AL ($66 million), which was previously known as Covenant Bank.

Additions this month include Southwest Capital Bank, Albuquerque, NM ($369 million) and Beacon Business Bank, National Association, San Francisco, CA ($140 million). In addition, the FDIC issued Gunnison Valley Bank, Gunnison, UT ($71 million) a Prompt Corrective Action in October 2018. Gunnison Valley Bank has the dubious distinction of making a return appearance on the list after being removed in September 2017.

Saturday, January 26, 2019

Schedule for Week of January 27th

by Bill McBride on 1/26/2019 08:11:00 AM

Special Note on Government Opening: Now that the Government is open, the data releases that were postponed will be released soon. The BEA and Census will probably provide an updated schedule early next week. Some releases on the weekly schedule below will probably be delayed (like Q4 GDP).

The key reports scheduled for this week are the January employment report and Q4 GDP.  Other key indicators include December Personal Income and Outlays, November Case-Shiller house prices, and January vehicle sales.

For manufacturing, the January ISM manufacturing survey, and the Dallas Fed manufacturing survey will be released.

The FOMC meets this week, and no change to policy is expected at this meeting.

----- Monday, Jan 28th -----

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

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

----- Tuesday, Jan 29th -----

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

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

The consensus is for a 4.9% year-over-year increase in the Comp 20 index for November.

10:00 AM: the Q4 2018 Housing Vacancies and Homeownership from the Census Bureau.

----- Wednesday, Jan 30th -----

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 167,000 payroll jobs added in January, down from 271,000 added in December.

8:30 AM: Gross Domestic Product, 4th quarter 2018 (Advance estimate). The consensus is that real GDP increased 2.6% annualized in Q4, down from 3.4% in Q3.

10:00 AM: Pending Home Sales Index for December. The consensus is for a 0.1% increase in the index.

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

2:30 PM: Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

----- Thursday, Jan 31st -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 217 thousand initial claims, up from 213 thousand the previous week.

8:30 AM ET: Personal Income and Outlays for December. The consensus is for a 0.4% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for January. The consensus is for a reading of 62.5, down from 65.4 in December.

----- Friday, Feb 1st -----

Year-over-year change employment8:30 AM: Employment Report for January.   The consensus is for 158,000 jobs added, and for the unemployment rate to be unchanged at 3.9%.

There were 213,000 jobs added in December, and the unemployment rate was at 3.9%.

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

In December the year-over-year change was 2.638 million jobs.

ISM PMI10:00 AM: ISM Manufacturing Index for January. The consensus is for the ISM to be at 54.0, down from 54.1 in December.

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

The PMI was at 54.1% in December, the employment index was at 56.2%, and the new orders index was at 51.1%.

10:00 AM: Construction Spending for December. The consensus is for a 0.2% increase in construction spending.

Vehicle SalesAll day: Light vehicle sales for January. The consensus is for light vehicle sales to be 17.2 million SAAR in January, unchanged 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 November sales rate (The BEA hasn't released December sales yet).

Friday, January 25, 2019

NMHC: Apartment Market Tightness Index remained negative for 13th Consecutive Quarter

by Bill McBride on 1/25/2019 03:53:00 PM

The National Multifamily Housing Council (NMHC) released their January report: January NMHC Quarterly Survey Shows Little Overall Change

Apartment market conditions were mixed in the National Multifamily Housing Council’s Quarterly Survey of Apartment Market Conditions for January. The Market Tightness (46) and Equity Financing (50) indexes showed little change in those conditions from October, while the Debt Financing Index (59) showed improving conditions. By contrast, the Sales Volume Index (33) showed further slowing in property sales.

Notably, a significant majority of respondents found that recent tariffs have driven up costs across the board and in a variety of markets throughout the country. "While the four indexes each changed somewhat over the last quarter, overall market conditions remained fairly static. Debt market financing conditions improved somewhat over the last three months," said NMHC Chief Economist Mark Obrinsky. "By contrast equity market financing conditions are little changed, as considerable capital continues to seek investment in the apartment sector."

The Market Tightness Index increased from 41 to 46. Less than one-quarter (22 percent) of respondents reported looser market conditions than three months prior, compared to 13 percent who reported tighter conditions. Nearly two-thirds (64 percent) of respondents felt that conditions were no different from last quarter.
This index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010. And it also helped me call the bottom in vacancy rate more recently.

Apartment Tightness Index
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading below 50 indicates looser conditions from the previous quarter. This indicates market conditions were looser over the last quarter.

This is the thirteenth consecutive quarterly survey indicating looser conditions - it appears supply has caught up with demand - and I expect rent growth to continue to slow.

Q4 GDP Forecasts: Mid-to-High 2s

by Bill McBride on 1/25/2019 11:44:00 AM

Update: GDPNow model has been updated.

The Q4 advanced GDP release is scheduled for next Wednesday, but even if the government is opened this weekend, that release will probably be delayed.

From Merrill Lynch:

4Q GDP tracking remains at 2.8%. With the shutdown ongoing, we revise down 1Q GDP to 2.0% from 2.2% [Jan 25 estimate]
emphasis added
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 2.6% for 2018:Q4 and 2.2% for 2019:Q1. [Jan 25 estimate]
And from the Altanta Fed: GDPNow
The current GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2018 is 2.7 percent, down from 2.8 percent on January 18. The nowcast of fourth-quarter real residential investment growth declined from -2.6 percent to -4.3 after the existing-home sales release on Tuesday, January 22, from the National Association of Realtors. [Jan 25 estimate]
CR Note: These estimates suggest GDP in the mid-to-high 2s for Q4.

Flying Blind: Data Held Hostage

by Bill McBride on 1/25/2019 10:45:00 AM

Once again policy makers and analysts are flying blind without key economic data due to a government shutdown. As an example, the new home sales report for December wasn't released this morning (this is the second month in a row without a new home sales report).

I think the four most important releases are 1) the monthly employment report, 2) the quarterly GDP report, 3) the monthly housing starts report and 4) the monthly new home sales report.   Only the employment report is currently being released.   Of course many other reports flow into the quarterly GDP report - so those missing reports are also important.

All business people know that when there is a problem, a key first step is to measure the problem.    And everyone knows housing has been soft recently, so we need the housing starts and new home sales reports to understand how soft.

In the short term this is a minor inconvenience compared to the widespread suffering related to the shutdown, but these missing reports are important for understanding what is happening with the economy.

Thursday, January 24, 2019

Friday: Durable Goods, New Home Sales (Postponed)

by Bill McBride on 1/24/2019 07:14:00 PM

Probably the four most important data releases for tracking the economy are 1) the monthly employment report, 2) the quarterly GDP report, 3) the monthly housing starts report, and 4) the new home sales report.  Only the employment report is being released on time.

The government shutdown is delaying 3 out of 4 of these critical reports - so we are flying blind.

Friday:
• At 8:30 AM, Durable Goods Orders for December from the Census Bureau. The consensus is for a 1.8% increase in durable goods orders.

• At 10:00 AM, POSTPONED New Home Sales for December from the Census Bureau. The consensus is for 565 thousand SAAR.

Hotels: Occupancy Rate Increased Year-over-year

by Bill McBride on 1/24/2019 04:06:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 19 January

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 13-19 January 2019, according to data from STR.

In comparison with the week of 14-20 January 2018, the industry recorded the following:

Occupancy: +5.0% to 58.4%
• Average daily rate (ADR): +3.4% to US$124.32
• Revenue per available room (RevPAR): +8.5% to US$72.54

STR analysts partially attribute the week’s substantial growth figures to a calendar shift. Growth for Monday of the week was especially pronounced due to comparison with Martin Luther King, Jr. Day last year: 14 January 2019 (standard business day) vs. 15 January 2018 (MLK Day). Significant performance increases were also noticeable on Saturday of the week. That was likely due in part to the Women’s March as well as the long weekend that ended with this year’s MLK Day.
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 2019, dash light blue is 2018, blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

A solid start for 2019.

Seasonally, the occupancy rate will increase over the next couple of months.

Data Source: STR, Courtesy of HotelNewsNow.com

LA area Port Traffic in December; Imports Up YoY, Exports Down

by Bill McBride on 1/24/2019 12:13:00 PM

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

LA Area Port TrafficClick on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 1.3% compared in December to the rolling 12 months ending in November.   Outbound traffic was down 0.8% compared to the rolling 12 months ending in November.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

LA Area Port TrafficUsually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March depending on the timing of the Chinese New Year.

In general imports have been increasing, and exports have mostly moved sideways over the last 8 years.

Kansas City Fed: Regional Manufacturing Activity "Continued to Grow Modestly" in January, Negative Impact from Shutdown

by Bill McBride on 1/24/2019 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Continued to Grow Modestly

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 continued to grow modestly, and expectations for future growth remained solid.

“Regional factories had another month of sluggish growth in January,” said Wilkerson. “About one-sixth of the firms in the survey said the partial government shutdown had negatively affected their business.”
...
The month-over-month composite index was 5 in January, similar to 6 in December, and lower than 17 in November. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The slow and steady increase in factory activity was driven by durable goods producers, particularly wood products, fabricated metals, electrical equipment and appliances, and furniture manufacturing. Month-over-month indexes were somewhat mixed. The production index jumped back into positive territory, while the order backlog index turned negative for the first time since June 2017. Most year-over-year factory indexes eased from the previous month, and the composite index decreased from 38 to 31. Future factory activity expectations remained solid. The future composite index eased slightly from 22 to 18, while the future production index increased.

This month contacts were asked special questions about how the partial federal government shutdown has affected their business, and how credit conditions have changed over the past year. Nearly 17 percent of manufacturing contacts reported negative effects from the federal government shutdown on their business. Of the firms that reported negative effects from the shutdown, most noted permit delays or trade disruptions due to federal agencies being closed. Over the past year, more than 13 percent of firms reported that access to credit had increased while only seven percent of firms said access had decreased (Chart 4). However, 54 percent of contacts reported that the cost of credit increased over the past year.
emphasis added
So far, most of the regional surveys have indicated slower growth in January than in December (and December was the weakest month for the ISM index in over 2 years).

Weekly Initial Unemployment Claims decreased to 199,000, Lowest since 1969

by Bill McBride on 1/24/2019 08:33:00 AM

The DOL reported:

In the week ending January 19, the advance figure for seasonally adjusted initial claims was 199,000, a decrease of 13,000 from the previous week's revised level. This is the lowest level for initial claims since November 15, 1969 when it was 197,000. The previous week's level was revised down by 1,000 from 213,000 to 212,000. The 4-week moving average was 215,000, a decrease of 5,500 from the previous week's revised average. The previous week's average was revised down by 250 from 220,750 to 220,500.
emphasis added
The previous week was revised down.

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 215,000.

This was lower than the consensus forecast.

Wednesday, January 23, 2019

Thursday: Unemployment Claims, Kansas City Fed Mfg Survey

by Bill McBride on 1/23/2019 08:52:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 217 thousand initial claims, up from 213 thousand the previous week.

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

Chemical Activity Barometer Declines in January

by Bill McBride on 1/23/2019 02:11:00 PM

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

From the American Chemistry Council: Chemical Activity Barometer Shows Signs of Slower Growth in U.S. Economy

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), posted a 0.3 percent decline in January on a three-month moving average (3MMA) basis. This marks the barometer’s third consecutive month-over-month drop and suggests a slower rate of U.S. economic growth. On a year-over-year (Y/Y) basis, the barometer is up 0.8 percent (3MMA), a pronounced slowdown in the pace of growth as compared with late last year.
...
“The CAB continues to signal gains in U.S. commercial and industrial activity through mid-2019, but at a much slower pace as growth (as measured by year-earlier comparisons) has turned over,” said Kevin Swift, chief economist at ACC. “Despite three straight months of decline in the barometer, the cumulative decline is 1.0 percent – well below the 3.0 percent that would signal negative growth in the U.S. economy.”

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 softened recently, suggesting further gains in industrial production into 2019, but at a slower pace.

AIA: "Architecture billings slow, but close 2018 with growing demand"

by Bill McBride on 1/23/2019 11:30:00 AM

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

From the AIA: Architecture billings slow, but close 2018 with growing demand

Architecture firm billings growth softened in December but remained positive for the fifteenth consecutive month, according to a new report released today from The American Institute of Architects (AIA). AIA’s Architecture Billings Index (ABI) score for December was 50.4 compared to 54.7 in November. Despite the positive billings, a softening in growth was seen across several regions and sectors, as well as in project inquiries and design contracts.

“Given the concerns over the ongoing tariff situation, it is not surprising to see a bit of a slowdown in progress on current projects,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “Growing anxiety over unstable business conditions and the partial shutdown of the government may lead to further softening in the coming months.”
...
• Regional averages: Midwest (56.3), Northeast (51.6), South (49.4), West (49.2)

• Sector index breakdown: institutional (53.1), commercial/industrial (51.2), mixed practice (50.2), multi-family residential (49.8
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 50.4 in December, down from 54.7 in November. 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 has been positive for 15 consecutive months, suggesting a further increase in CRE investment in 2019.

Richmond Fed: "Fifth District Manufacturing Activity Was Soft in January"

by Bill McBride on 1/23/2019 10:04:00 AM

From the Richmond Fed: Fifth District Manufacturing Activity Was Soft in January

Fifth District manufacturing activity was soft in January, according to the latest survey from the Richmond Fed. The composite index rose from −8 in December to −2 in January but continued to indicate weak growth. The rise from December came from increases in the component indexes of employment and shipments, although the shipments index remained negative. The third component, new orders, dropped to −11, its lowest reading since June 2016. Meanwhile, the index for backlog of orders fell to −21, its lowest reading since May 2009. However, manufacturers remained optimistic that conditions would improve in the coming months.

Survey results indicated continued growth in employment and wages in January, but firms still struggled to find workers with the skills they need. Respondents expected this struggle to continue, along with employment and wage growth, in the near future.
emphasis added
This was another weak regional manufacturing reading for January.

Black Knight: National Mortgage Delinquency Rate Increased Seasonally in December, Lowest Year-End this Century

by Bill McBride on 1/23/2019 09:00:00 AM

From Black Knight: Black Knight’s First Look: Delinquency Rate Entering 2019 Lowest of Any Year Since the Turn of the Century

• Despite rising seasonally in recent months, only 3.9 percent of mortgages were delinquent as of December month-end, the lowest year-end total since Black Knight began reporting the figure in 2000

• The national foreclosure rate, while also edging seasonally upward in December, posted the lowest year-end figure since 2005, with just 0.52 percent of mortgages in active foreclosure

• Foreclosure starts edged slightly upward with 46,300 starts reported for the month, a 2.4 percent uptick over November

• Foreclosure starts were also up 4 percent year-over-year in December, though this increase was primarily driven by suppressed foreclosure start volumes in late 2017 due to hurricane-related moratoriums
According to Black Knight's First Look report for December, the percent of loans delinquent increased 4.7% in December compared to November, and decreased 17.6% year-over-year.

The percent of loans in the foreclosure process increased 1.2% in December and were down 19.2% 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 3.88% in December, up from 3.71% in November.

The percent of loans in the foreclosure process increased slightly in December to 0.52% from 0.52% in November.

The number of delinquent properties, but not in foreclosure, is down 399,000 properties year-over-year, and the number of properties in the foreclosure process is down 60,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  Dec
2018
Nov
2018
Dec
2017
Dec
2016
Delinquent3.88%3.71%4.71%4.42%
In Foreclosure0.52%0.52%0.65%0.95%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:2,013,0001,925,0002,412,0002,248,000
Number of properties in foreclosure pre-sale inventory:271,000268,000331,000483,000
Total Properties2,283,0002,193,0002,743,0002,731,000

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 1/23/2019 07:00:00 AM

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

Mortgage applications decreased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 18, 2019.

... The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index increased 4 percent compared with the previous week and was 13 percent higher than the same week one year ago.
...
“Mortgage application activity cooled off last week after two consecutive weeks of sizeable increases. Both purchase and refinance applications saw declines but remained at healthy levels, with the purchase index remaining close to a nine-year high, and the refinance index hovering near its highest level since last spring,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Reversing the recent downward trend, borrowers saw increasing rates for most loan types last week, as better-than-expected unemployment claims, easing trade tensions and stabilization in the equity markets ultimately led to a rise in Treasury rates.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 4.75 percent from 4.74 percent, with points decreasing to 0.44 from 0.45 (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 is close to the highest level since last Spring.

Mortgage Purchase IndexThe second graph shows the MBA mortgage purchase index

The purchase index is close to a 9 year high.

According to the MBA, purchase activity is up 13% year-over-year.

Tuesday, January 22, 2019

Wednesday: Richmond Fed, Architecture Billings Index

by Bill McBride on 1/22/2019 07:31:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Dodging Some Risk For Now

As it happened, bonds staged a somewhat impressive recovery with help from investor concern about global growth. Oftentimes, a big loss in equities markets can send money running to the bond market where it benefits interest rates. This was the case overnight with Chinese stocks leading the way. The strong start in bonds allowed lenders to keep rates roughly unchanged and--in some cases--slightly lower. [30YR FIXED - 4.5%]
emphasis added
Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

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

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

• During the day, The AIA's Architecture Billings Index for December (a leading indicator for commercial real estate).

Housing Inventory Tracking

by Bill McBride on 1/22/2019 04:31:00 PM

Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

Inventory, on a national basis, was up 6.2% year-over-year (YoY) in December, this was the fifth consecutive month with a YoY increase, following over three years of YoY declines.

The graph below shows the YoY change for non-contingent inventory in Houston, Las Vegas, Phoenix and Sacramento and total existing home inventory as reported by the NAR (through December).  (I'll be adding more areas).

Click on graph for larger image.

The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory was up 82% YoY in Las Vegas in December (red), the sixth consecutive month with a YoY increase.

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 was up 13% year-over-year in Houston in December.   With falling oil prices - along with higher mortgage rates - inventory will probably increase in Houston.

Inventory is a key for the housing market, and I am watching inventory for the impact of the new tax law and higher mortgage rates on housing.    I expect further increase in inventory in 2019.

Also note that inventory in Seattle was up 272% year-over-year in December, and Denver up 45% YoY (not graphed)!

Comments on December Existing Home Sales

by Bill McBride on 1/22/2019 11:59:00 AM

Earlier: NAR: Existing-Home Sales Decreased to 4.99 million in December

A few key points:

1) The key for housing - and the overall economy - is new home sales, single family housing starts and overall residential investment. Unfortunately this key data is not currently being released due to the government shutdown.  However, overall, this is still a somewhat reasonable level for existing home sales, and the weakness at the end of 2018 was no surprise given the increase in mortgage rates.

2) Inventory is still low, but was up 6.2% year-over-year (YoY) in December. This was the fifth consecutive month with a year-over-year increase in inventory, and the largest YoY increase since January 2014.

3) 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 December: Big Drop.   The consensus was for sales of 5.24 million SAAR, Lawler estimated the NAR would report 4.97 million SAAR in December, and the NAR actually reported 4.99 million SAAR.

Existing Home Inventory NSAClick on graph for larger image.

The current YoY increase in inventory is nothing like what happened in 2005 and 2006. In 2005 (see red arrow), inventory kept increasing all year, and that was a sign the bubble was ending.  In 2018 (light blue arrow), inventory followed the normal seasonal pattern.

Although I expected inventory to increase YoY in 2018, I also expected inventory to follow the normal seasonal pattern (not keep increasing all year).

Also inventory levels remains low, and could increase much more and still be at normal levels. No worries.

Existing Home Sales NSAThe second graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA in December (377,000, red column) were below sales in December 2017 (427,000, NSA), and sales were the lowest for December since 2012.

For the year, sales totaled 5.342 million, down 3.1% from 5.511 million in 2017.  This was also below sales in 2016 (5.452 million).

NAR: Existing-Home Sales Decreased to 4.99 million in December

by Bill McBride on 1/22/2019 10:12:00 AM

From the NAR: Existing-Home Sales See 6.4 Percent Drop in December

After two consecutive months of increases, existing-home sales declined in the month of December, according to the National Association of Realtors®. None of the four major U.S. regions saw a gain in sales activity last month.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 6.4 percent from November to a seasonally adjusted rate of 4.99 million in December. Sales are now down 10.3 percent from a year ago (5.56 million in December 2017).
...
Total housing inventory at the end of December decreased to 1.55 million, down from 1.74 million existing homes available for sale in November, but represents an increase from 1.46 million a year ago. Unsold inventory is at a 3.7-month supply at the current sales pace, down from 3.9 last month and up from 3.2 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 December (4.99 million SAAR) were down 6.4% from last month, and were 10.3% below the December 2017 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory decreased to 1.55 million in December from 1.74 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 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 was up 6.2% year-over-year in December compared to December 2017.  

Months of supply was at 3.7 months in December.

For existing home sales, a key number is inventory - and inventory is still low, but appears to have bottomed. I'll have more later ...