by Calculated Risk on 7/17/2013 12:25:00 PM

A few comments:

• Overall the housing starts report was disappointing with total starts at a 836 thousand rate on a seasonally adjusted annual rate basis (SAAR) in June. This was well below the consensus forecast of 951 thousand SAAR.   Most of the decline was related to the volatile multi-family sector.

• Single family permits were at the highest level since May 2008, and it appears single family starts will increase over the next few months.

• Also housing starts are up significantly from the same period last year. Over the first half of 2013, multi-family starts are up close to 34% from the same period in 2012, and single family starts are up 20%. Those are significant increases in activity. 

• Even with this significant year-over-year increase, housing starts are still very low. Starts averaged 1.5 million per year from 1959 through 2000, and demographics and household formation suggests starts will return to close to that level over the next few years. This suggests significantly more growth in housing starts over the next few years.

Here is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Click on graph for larger image.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) are lagging behind. It is interesting that completions have lagged so far behind starts, and this suggests completions will increase significantly later this year and into 2014 (completions lag starts by about 12 months).

However the level of multi-family starts over the last 12 months - almost to the level in late '90s and early 00's - suggests that future growth in starts will mostly come from single family starts.

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Starts are moving up and completions are following.  Usually single family starts bounce back quickly after a recession, but not this time because of the large overhang of existing housing units. 

Note the low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

by Calculated Risk on 7/17/2013 09:29:00 AM

Federal Reserve Chairman Ben Bernanke testimony "Semiannual Monetary Policy Report to the Congress" Before the Committee on Financial Services, U.S. House of Representatives (starts at 10 AM ET):

I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course. On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly. On the other hand, if the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions--which have tightened recently--were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer. Indeed, if needed, the Committee would be prepared to employ all of its tools, including an increase the pace of purchases for a time, to promote a return to maximum employment in a context of price stability.
emphasis added

Here is the C-Span Link

Here is the Bloomberg TV link.

by Calculated Risk on 7/17/2013 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 836,000. This is 9.9 percent below the revised May estimate of 928,000, but is 10.4 percent above the June 2012 rate of 757,000.

Single-family housing starts in June were at a rate of 591,000; this is 0.8 percent below the revised May figure of 596,000. The June rate for units in buildings with five units or more was 236,000.

Building Permits:
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 911,000. This is 7.5 percent below the revised May rate of 985,000, but is 16.1 percent above the June 2012 estimate of 785,000.

Single-family authorizations in June were at a rate of 624,000; this is 0.6 percent above the revised May figure of 620,000. Authorizations of units in buildings with five units or more were at a rate of 261,000 in June.

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) decreased in June (Multi-family is volatile month-to-month).

Single-family starts (blue) decreased slightly to 591,000 SAAR in June (Note: May was revised down from 599 thousand to 596 thousand).

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

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

This was well below expectations of 951 thousand starts in June and the lowest level for starts since August 2012.  Total starts in June were up 10.4% from June 2012; single family starts were only up 11.5% year-over-year.  I'll have more later ...

by Calculated Risk on 7/17/2013 07:01:00 AM

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

The Refinance Index decreased 4 percent from the previous week and is at its lowest level since July 2011. The seasonally adjusted Purchase Index increased 1 percent from one week earlier.
...
The refinance share of mortgage activity decreased to 63 percent of total applications from 64 percent the previous week and is at its lowest level since April 2011.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) was unchanged at 4.68 percent, with points decreasing to 0.42 from 0.46 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.

The first graph shows the refinance index.

With 30 year mortgage rates above 4.5%, refinance activity has fallen sharply, decreasing in 9 of the last 10 weeks.

This index is down 55% over the last ten weeks.

The second graph shows the MBA mortgage purchase index.  The 4-week average of the purchase index has generally been trending up over the last year, and the 4-week average of the purchase index is up almost 10% from a year ago.

by Calculated Risk on 7/16/2013 08:45:00 PM

Oops ... from Mort Zuckerman writing in the WSJ:

That brings us to a stunning fact about the jobless recovery: The measure of those adults who can work and have jobs, known as the civilian workforce-participation rate, is currently 63.5%—a drop of 2.2% since the recession ended. Such a decline amid a supposedly expanding economy has never happened after previous recessions. Another statistic that underscores why this is such a dysfunctional labor market is that the number of people leaving the workforce during this economic recovery has actually outpaced the number of people finding a new job by a factor of nearly three.

I guess Mr. Zuckerman hasn't been following the discussion of current demographic trends. A significant portion of the recent decline in the participation rate is due to baby boomers retiring and other demographic trends (like more younger Americans staying in school). 

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for their weekly mortgage applications survey. Expect a further decline in refinance activity.

• At 8:30 AM, the Census Bureau will release Housing Starts for June. The consensus is for total housing starts to increase to 951 thousand (SAAR) in June from 914 thousand in May.

• At 10:00 AM, Testimony by Fed Chairman Ben Bernanke, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives

• At 2:00 PM, the Federal Reserve Beige Book will be released. This is an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 7/16/2013 04:44:00 PM

Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for June 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.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 1% in June, and outbound traffic down 3%, compared to the rolling 12 months ending in May.

In general, inbound traffic has been increasing slightly, and outbound traffic has been declining slightly.

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

Usually 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).

This suggests an increase in the trade deficit with Asia for June. 

by Calculated Risk on 7/16/2013 12:29:00 PM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in June. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.2% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.5% (5.9% annualized rate) in June. The CPI less food and energy increased 0.2% (2.0% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for June here. Motor fuel increased at a 104% annualized rate in June.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.1%, the trimmed-mean CPI rose 1.7%, the CPI rose 1.8%, and the CPI less food and energy rose 1.6%. Core PCE is for May and increased just 1.1% year-over-year.

On a monthly basis, median CPI was at 2.0% annualized, trimmed-mean CPI was at 1.6% annualized, and core CPI increased 2.0% annualized. Also core PCE for May increased 1.3% annualized.

Inflation is mostly below the Fed's target, although the Fed expects inflation to pick up a little in the 2nd half of 2013. 

by Calculated Risk on 7/16/2013 10:00:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) increased 6 points in July to 57. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Rises Six Points in July

Builder confidence in the market for newly built, single-family homes rose six points to 57 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for July, released today. This is the index’s third consecutive monthly gain and its strongest reading since January of 2006.

“Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten,” noted NAHB Chief Economist David Crowe. “Meanwhile, as the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.”
...
All three HMI components posted gains in July. The component gauging current sales conditions rose five points to 60 – its highest level since early 2006. Meanwhile, the component gauging sales expectations in the next six months gained seven points to 67 and the component gauging traffic of prospective buyers rose five points to 45 – marking the strongest readings for each since late 2005.

All four regions also posted gains in their HMI scores’ three-month moving averages. The Northeast showed a four-point gain to 40 while the Midwest reported an eight-point gain to 54, the South posted a five-point gain to 50 and the West measured a three-point gain to 51.
emphasis added

Click on graph for larger image.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the July release for the HMI and the May data for starts (June housing starts will be released tomorrow). This was well above the consensus estimate of a reading of 52.

by Calculated Risk on 7/16/2013 09:15:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.3 percent in June after having been unchanged in May. For the second quarter as a whole, industrial production moved up at an annual rate of 0.6 percent. In June, manufacturing production rose 0.3 percent following an increase of 0.2 percent in May. The output at mines advanced 0.8 percent in June, while the output of utilities decreased 0.1 percent. At 99.1 percent of its 2007 average, total industrial production was 2.0 percent above its year-earlier level. The rate of capacity utilization for total industry edged up 0.1 percentage point to 77.8 percent, a rate that was 0.1 percentage point above its level of a year earlier but 2.4 percentage points below its long-run (1972–2012) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 10.9 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.8% is still 2.4 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production increase 0.3% in June to 99.1 . This is 18.2% above the recession low, but still 1.8% below the pre-recession peak.

The monthly change for both Industrial Production and Capacity Utilization were slightly above expectations. The consensus was for a 0.2% increase in Industrial Production in June, and for Capacity Utilization to increases to 77.7%.

by Calculated Risk on 7/16/2013 08:40:00 AM

From the Bureau of Labor Statistics (BLS): Consumer Price Index - June 2013

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.8 percent before seasonal adjustment. The gasoline index rose sharply in June and accounted for about two thirds of the seasonally adjusted all items change.
...
The index for all items less food and energy increased 0.2 percent in June, the same increase as in May.
emphasis added

On a year-over-year basis, CPI is up 1.8 percent, and core CPI is up also up 1.6 percent.  Both are below the Fed's target. This was close to the consensus forecast of a 0.4% increase for CPI (due to gasoline prices), and a 0.2% increase in core CPI.

Note: CPI-W (used for cost of living adjustment, COLA) is also up 1.8% year-over-year in June.  The COLA is calculated using the average Q3 data (July, August, and September).

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.