by Calculated Risk on 6/25/2012 02:52:00 PM

Here is a bit of an outlier this month ... earlier from the Dallas Fed: Texas Manufacturing Activity Surges but Outlook Largely Unchanged

Texas factory activity surged in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 5.5 to 15.5, posting its strongest reading in 15 months.

Other measures of current manufacturing conditions also indicated strengthening activity in June. The new orders index rose to 7.9, following three readings around zero, suggesting demand finally grew after staying flat since February. ... The general business activity index had been negative in April and May but increased to 5.8 this month.
...
Labor market indicators reflected stronger labor demand growth and steady workweeks. Employment grew at a faster pace in June, with the index rising from 8.5 to 13.7. Twenty-one percent of firms reported hiring new workers, while 8 percent reported layoffs. The hours worked index was 1, suggesting little change in workweek length.

This was above expectations of a zero reading for the general business activity index.

There are two more regional surveys to be released this week, and the ISM index for June will be released Monday, July 2nd.

Earlier on New Home Sales:
• New Home Sales increase in May to 369,000 Annual Rate
• Home Sales Reports: What Matters
• New Home Sales graphs

by Calculated Risk on 6/25/2012 12:18:00 PM

After the existing home sales report for May was released last week, I saw several cautionary comments focused on the decline in sales in May (from 4.62 million in April to 4.55 million in May). The key number in the existing home sales report is not sales, but inventory. It is visible inventory that impacts prices (although the "shadow" inventory will keep prices from rising).

When we look at sales for existing homes, the focus should be on the composition between conventional and distressed. Total sales are probably close to the normal level of turnover, but the composition of sales is far from normal - sales are still heavily distressed sales. Over time, existing home sales will probably settle around 5 million per year, but the percentage of distressed sales will eventually decline. Those looking at the number of existing home sales for a recovery in housing are looking at the wrong number. Look at inventory and the percent of conventional sales.

However, for the new home sales report, the key number is sales! An increase in sales adds to both GDP and employment (completed inventory is at record lows, so any increase in sales will translate to more single family starts).

It might be hard to believe, but earlier this year there was a debate on whether housing had bottomed. That debate is over - clearly new home sales have bottomed – and the debate is now about the strength of the recovery. Although sales are still historically very weak, sales are up 35% from the low, and up about 24% from the May 2010 through September 2011 average.

Some people think housing will recover rapidly to the 1.2+ million rate we saw in 2004 and 2005. I think that is incorrect for two reasons. First, I think the recovery will be sluggish - 2012 will probably be the third worst year ever. Second, the 1.2 million in annual sales was due to an increasing homeownership rate and speculative buying. With a stable homeownerhip rate, and little speculative buying, sales will probably only rise to around 800 thousand at full recovery.

With existing home sales around 5 million per year, and new home sales around 800 thousand per year, the “distressing gap” in the graph below will be closed.

Click on graph for larger image in graph gallery.

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

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

This gap will eventually close, but it will probably take a number of 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.

Earlier:
• New Home Sales increase in May to 369,000 Annual Rate
• New Home Sales graphs

by Calculated Risk on 6/25/2012 10:00:00 AM

The Census Bureau reports New Home Sales in May were at a seasonally adjusted annual rate (SAAR) of 369 thousand. This was up from 343 thousand SAAR in April. Sales in February and March were revised up.

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

Sales of new single-family houses in May 2012 were at a seasonally adjusted annual rate of 369,000 ... 7.6 percent above the revised April rate of 343,000 and is 19.8 percent above the May 2011 estimate of 308,000.

Click on graph for larger image in graph gallery.

The second graph shows New Home Months of Supply.

Months of supply decreased to 4.7 in May from 5.0 in April.

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

This is now in the normal range (less than 6 months supply is normal).

The seasonally adjusted estimate of new houses for sale at the end of May was 145,000. This represents a supply of 4.7 months at the current sales rate.

On 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.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale was at a record low 43,000 units in May. The combined total of completed and under construction is at the lowest level since this series started.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In May 2012 (red column), 35 thousand new homes were sold (NSA). Last year only 28 thousand homes were sold in May. This was the fourth weakest May since this data has been tracked. The high for May was 120 thousand in 2005.

Even though sales are still very low, new home sales have clearly bottomed. New home sales have averaged 353 thousand SAAR over the first 5 months of 2012, after averaging under 300 thousand for the previous 18 months. All of the recent revisions have been up too. This was a very solid report and above the consensus forecast.

by Calculated Risk on 6/25/2012 08:40:00 AM

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

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to –0.45 in May from +0.08 in April. ...

The index’s three-month moving average, CFNAI-MA3, decreased from –0.13 in April to –0.34 in May—its third consecutive reading below zero and its lowest value since June 2011. May’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests growth was below trend in May.

According to the Chicago Fed:

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

by Calculated Risk on 6/24/2012 10:25:00 PM

The key report tomorrow will be new home sales.

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

• At 10:00 AM, The Census Bureau will release New Home Sales for May. The consensus is for an increase in sales to 350 thousand Seasonally Adjusted Annual Rate (SAAR) in May from 343 thousand in April.

• At the 10:30 AM, the Dallas Fed Manufacturing Survey for June will be released. The consensus is for 0.0 for the general business activity index, up from -5.1 in May. The regional surveys have been disappointing in June.

The Asian markets are mostly red tonight. The Nikkei is down slightly, and the Shanghai Composite is down 0.5%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 futures are down about 8, and Dow futures are down 50.

Oil: WTI futures are up to $80.09 (this is down from $109.77 in February) and Brent is up to $91.90 per barrel.

Yesterday:
• Summary for Week ending June 22nd
• Schedule for Week of June 24th For the monthly economic question contest (four more questions for June):

by Calculated Risk on 6/24/2012 07:21:00 PM

The Department of Transportation (DOT) reported last week:

Travel on all roads and streets changed by -0.4% (-1.0 billion vehicle miles) for April 2012 as compared with April 2011. Travel for the month is estimated to be 247.2 billion vehicle miles.

The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is mostly moving sideways.

Click on graph for larger image.

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

Currently miles driven has been below the previous peak for 53 months - and still counting.

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

Gasoline prices peaked in April at close to $4.00 per gallon, and that was higher than the $3.85 per gallon drivers paid in April 2011 - so it makes sense that driving was off a little year-over-year.

Gasoline prices were down in May to an average of $3.79 per gallon according to the EIA. Last year, prices in May averaged $3.96 per gallon, so I'd expect miles driven to up year-over-year in May.

However gasoline prices is just part of the story. The lack of growth in miles driven over the last 4+ years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), and also the aging of the overall population. Census data shows that gasoline demand peaks around age 50, and then starts to decline - so many "baby boomers" are probably driving less now.

Yesterday:
• Summary for Week ending June 22nd
• Schedule for Week of June 24th

by Calculated Risk on 6/24/2012 01:49:00 PM

From Carolyn Said at the San Francisco Chronicle: Refis on underwater jumbo loans nearly impossible

The four-bedroom split-level they bought for $799,000 has plunged in value to $566,000 - and they owe $648,000. ... The couple, who have perfect credit, don't want to blemish it by walking away from the house or doing a short sale.

... they're trapped in a mortgage with a 6.375 interest rate - sky-high compared with current rates, which average 3.7 percent - and they can't refinance because their house is underwater and their jumbo mortgage is excluded from government plans for underwater refis. ... "It makes me sick when I think about it. We could save between $800 and $1,200 a month," said Pieralde ...

Since their loan is from a private lender, their only options are 1) Walk away (they can afford the payments and don't want to walk away), 2) try to talk the lender into refinancing (good luck), 3) pay down the loan in one lump sum enough to refinance, or 4) try to pay more each month and get the loan balance down.

Said gives an example of option 3:

[A] Half Moon Bay couple who ... bought their seaside home in 2005 for slightly more than $1 million with a seven-year adjustable-rate mortgage. Late last year, when they went to refinance, the home appraised at $730,000 - and they still owed $834,000.

So they took $140,000 out of their retirement and savings to pay down the mortgage enough to refinance into a 30-year fixed at 4.25 percent.

"We felt we were up against the wall," the woman said. Refinancing "would bring our interest rate down and save a lot of money over the life of the loan. It was a hard decision but we made the financial calculation that it was worth it."

This is a reasonable option for those with the resources ... but most people probably don't have the resources to make a large lump sum payment.

Yesterday:
• Summary for Week ending June 22nd
• Schedule for Week of June 24th

by Calculated Risk on 6/24/2012 08:58:00 AM

The roller-coaster ride for gasoline prices continue ... remember when some forecasters were predicting $5 per gallon? Now we are seeing prediction of $3 per gallon.

From the Atlantic Journal Constitution: Expect gas prices to fall below $3

Is it possible the average price at the pump could be below $3 a gallon by the time leaves begin to change?

Absolutely, according to experts who follow fuel price trends, and some areas of Georgia have already broken the barrier. At one station in Macon on Friday, unleaded regular was selling for $2.90, and in Duluth and Suwanee prices were as low as $3.04 and $3.05, respectively.

Barring any unforeseen calamity that might disrupt production or distribution ... the price trend should continue, even with the arrival of summer and more vehicles on the road for vacations.

“[T]he market is suggesting gas below $3 by Halloween, and certainly by Thanksgiving,” Tom Kloza of the Oil Price Information Service ...

There are always threats to the oil supply - Iran, a storm in the GOM, a strike in Norway, but right now it looks like prices will continue to decline with adequate supply and week demand growth.

Oil prices are still moving down. Brent is down to $90.98 per barrel, down another 10% over the last two weeks, and WTI is down to $79.76. The lower oil prices will not only lead to lower gasoline prices, but also a lower trade deficit and lower headline inflation (CPI).

The following graph shows the decline in gasoline prices. Gasoline prices are down significantly from the peak in early April. Gasoline prices in the west had been impacted by refinery issues, but prices are now falling there too.

Note: If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 6/23/2012 11:56:00 AM

In a reversal of fortune, the only recent good news has been from the housing sector. Housing starts were down slightly in May, but that was because of the volatile multi-family sector. The details were better: single family starts were up, revisions to previous reports were up, and permits were up sharply.

The headline number for existing home sales was a little weak, but the key number – inventory – was down in May, and down over 20% from May 2011. However away from housing, the economic data was very weak.

For manufacturing, the Philly Fed index declined sharply to the lowest level since last August. The previous week, the Empire State manufacturing index also declined sharply – and this suggests that manufacturing slowed in June. Three more regional surveys will be released this coming week.

Other indicators were also weak: the four week average for initial weekly unemployment claims is at the highest level for the year, and the Architectural Billings Index declined sharply (mostly a leading indicator for commercial real estate).

The Fed met last week, and decided to “continue through the end of the year its program to extend the average maturity of its holdings of securities” (aka Operation Twist). The bigger story was the sharp downward revision in the FOMC projections – mostly below the levels of the January projections when it appeared the FOMC was moving towards QE3 (before the stronger payroll reports for January and February). The FOMC projections show the unemployment rate well above the Fed’s target for years, and the inflation rate below the Fed’s target rate.

Here is a summary of last week in graphs:

• Housing Starts at 708 thousand in May, Single Family starts increase to 516 thousand

Click on graph for larger image.

Total housing starts were at 708 thousand (SAAR) in May, down 4.8% from the revised April rate of 744 thousand (SAAR). Note that April was revised up from 717 thousand. March was revised up too.  

Single-family starts increased 3.2% to 516 thousand in May. April was revised up to 500 thousand from 492 thousand.

The second graph shows total and single unit starts since 1968.

This shows the huge collapse following the housing bubble, and that total housing starts have been increasing lately after moving sideways for about two years and a half years.

Total starts are up 55% from the bottom start rate, and single family starts are up 41% from the low.

This was below expectations of 720 thousand starts in May, but the decline was because of the volatile multi-family sector. Single family starts were up, and building permits were up sharply. And previous months were revised up. This was a fairly strong report.

All Housing Investment and Construction Graphs
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply

The NAR reports: Existing-Home Sales Constrained by Tight Supply in May, Prices Continue to Gain

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

Sales in May 2012 (4.55 million SAAR) were 1.5% lower than last month, and were 9.6% above the May 2011 rate.

The next 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.

Inventory decreased 20.4% year-over-year in May from May 2011. This is the fifteenth consecutive month with a YoY decrease in inventory.

Months of supply increased slightly to 6.6 months in May.

This was at expectations of sales of 4.57 million, but the big story is the decline in inventory - inventory (not including "contingent" sales) is below the level for the same month in 2005.

All current Existing Home Sales graphs
• NY and Philly Manufacturing indexes decline

From the Philly Fed: June 2012 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of -5.8 in May to -16.6, its second consecutive negative reading ...

And from the NY Fed: Empire State Manufacturing Survey

The June Empire State Manufacturing Survey indicates that manufacturing activity expanded slightly over the month. The general business conditions index fell fifteen points, but remained positive at 2.3.

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

The average of the Empire State and Philly Fed surveys declined in May, and is at the lowest level since last summer.

• Weekly Initial Unemployment Claims mostly unchanged, Four week average highest this year

The DOL reports:

In the week ending June 16, the advance figure for seasonally adjusted initial claims was 387,000, a decrease of 2,000 from the previous week's revised figure of 389,000. The 4-week moving average was 386,250, an increase of 3,500 from the previous week's revised average of 382,750.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 386,250.

The average had been between 363,000 and 384,000 all year, so this is a new high for the year.

All current Employment Graphs
• FOMC Projections

Here are the updated projections from the FOMC meeting.

On the projections, GDP was revised down, unemployment rate up, and inflation down. Compare the current projections released this week, not just with the April projections, but with the January projections. GDP is below the projections in January, and inflation is also below the January projections.

Only the unemployment rate is slightly improved from the January projections - and then only for 2012 - 2013 and 2014 are now worse.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
June 2012 Projections	1.9 to 2.4	2.2 to 2.8	3.0 to 3.5
April 2012 Projections	2.4 to 2.9	2.7 to 3.1	3.1 to 3.6
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

GDP projections have been revised down for 2012, and revised down for 2013 and 2014.

The unemployment rate increased to 8.2% in April, and the projection for 2012 has been revised up.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
June 2012 Projections	8.0 to 8.2	7.5 to 8.0	7.0 to 7.7
April 2012 Projections	7.8 to 8.0	7.3 to 7.7	6.7 to 7.4
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

The forecasts for overall and core inflation were revised down to reflect the recent decrease in inflation.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
June 2012 Projections	1.2 to 1.7	1.5 to 2.0	1.5 to 2.0
April 2012 Projections	1.9 to 2.0	1.6 to 2.0	1.7 to 2.0
January 2012 Projections	1.4 to 1.8	1.4 to 2.0	1.6 to 2.0

• AIA: Architecture Billings Index declines sharply in May

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

This graph shows the Architecture Billings Index since 1996. The index was at 45.8 in May, the lowest since July of last year. Anything below 50 indicates contraction 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 suggests further weakness in CRE investment (it will be some time before investment in offices and malls increases).
All current Commercial Real Estate graphs
• BLS: Job Openings declined in April

Jobs openings declined in April to 3.416 million, down from 3.741 million in March. However the number of job openings (yellow) has generally been trending up, and openings are up about 13% year-over-year compared to April 2011.

Quits declined slightly in April, and quits are now up about 10% year-over-year. These are voluntary separations and more quits might indicate some improvement in the labor market. (see light blue columns at bottom of graph for trend for "quits").
All current employment graphs
• Other Economic Stories ...
• At Yahoo: McBride: Total Housing Starts Decline in May, but the Trend Is Positive
• NAHB Builder Confidence increases slightly in June, Highest since May 2007
• FNC: Residential Property Values increase 0.6% in April
• ATA Trucking index declined 0.7% in May
• LPS: Mortgage delinquencies increased in May
• Census: Number of Shared Households increased 2.25 million from 2007 to 2010
• FOMC Statement: Continue Twist through end of Year

by Calculated Risk on 6/23/2012 08:01:00 AM

The key US economic reports this week are May New Home Sales on Monday, April Case-Shiller house prices on Tuesday, and the May Personal Income and Outlays report on Friday.

With the recent economic weakness, the high frequency manufacturing reports (Richmond, Dallas and Kansas City Fed surveys), the Chicago PMI, weekly initial unemployment claims, and consumer sentiment will be closely watched.

In Europe, there is a summit in Brussels on Thursday and Friday.

----- Monday, June 25th -----
8:30 AM: Chicago Fed National Activity Index (May). This is a composite index of other data.

10:00 AM ET: 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 an increase in sales to 350 thousand Seasonally Adjusted Annual Rate (SAAR) in May from 343 thousand in April.

10:30 AM: Dallas Fed Manufacturing Survey for June. The consensus is for 0.0 for the general business activity index, up from -5.1 in May.

----- Tuesday, June 26th -----
9:00 AM: S&P/Case-Shiller House Price Index for April. Although this is the April report, it is really a 3 month average of February, March and April.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through Marchy 2012 (the Composite 20 was started in January 2000).

The consensus is for a 2.3% decrease year-over-year in Composite 20 prices (NSA) in April. The Zillow forecast is for the Composite 20 to decline 1.9% year-over-year, and for prices to increase 0.5% month-to-month seasonally adjusted. The CoreLogic index increased 2.6% in April (NSA).

10:00 AM: Conference Board's consumer confidence index for June. The consensus is for a decrease to 63.5 from 64.9 last month.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for June. The consensus is for an increase to 5 for this survey from 4 in May (above zero is expansion).
----- Wednesday, June 27th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. Refinance activity has been increasing sharply, and it appears purchase activity is increasing a little too.

8:30 AM: Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.4% increase in durable goods orders.

10:00 AM ET: Pending Home Sales Index for May. The consensus is for a 1.2% increase in the index.

----- Thursday, June 28th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decline to 385 thousand from 387 thousand last week.

8:30 AM: Q1 GDP (third estimate). This is the third estimate from the BEA. The consensus is that real GDP increased 1.9% annualized in Q1; no change from the 2nd estimate.

11:00 AM: Kansas City Fed regional Manufacturing Survey for June. The consensus is for a decrease to 4 from 9 in May (above zero is expansion). This is the last of the regional Fed manufacturing surveys for June.

----- Friday, June 29th -----
8:30 AM ET: Personal Income and Outlays for May. The consensus is for a 0.3% increase in personal income in May, and for no change 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 an increase to 53.1, up from 52.7 in May.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for June). The consensus is for no change from the preliminary reading of 74.1.