by Calculated Risk on 9/20/2013 09:04:00 AM

A quick note: Currently the BLS is scheduled to release the September employment report on Friday October 4th.  However, if there is a partial shut down of the government by Congressional Republicans, the employment report will be delayed.

Back in 1996, following the partial government shutdown from December 16, 1995 through January 6, 1996, the BLS finally released the December 1995 employment report on January 19, 1996. A similar delay would happen this time if the government is shutdown on October 1st (the fiscal year begins on October 1st).

During a "government shutdown", most of the government keeps running and a shutdown doesn't save any money (it is a political stunt). The impact on the economy would probably be minor, but it would be disruptive - and extremely annoying for those of us who use and follow government economic data.  Private data would still be released (ISM surveys, ADP employment report, etc), but all government data would stop (employment, GDP, housing starts, etc.).

Note: If the government stopped paying the bills in mid-October (doesn't raise the "debt ceiling"), the consequences would be serious - but I doubt anyone is that crazy.  The good news is these threats and stunts only happen in off years to give voters time to forget before the next election!

by Calculated Risk on 9/19/2013 08:59:00 PM

From the Association of American Railroads (AAR): AAR Reports Increased Intermodal, Carload Rail Traffic for August

The Association of American Railroads (AAR) ... reported increased total U.S. rail traffic for the month of August 2013, with intermodal setting a new record and carload volume increasing overall compared with August 2012.

Intermodal traffic in August 2013 totaled 1,031,179 containers and trailers, up 4.4 percent (43,398 units) compared with August 2012. The weekly average of 257,795 units in August 2013 was the highest weekly average for any month in history. Carloads originated in August totaled 1,178,619, up 0.5 percent or 5,285 carloads compared with the same month last year.
...
“In terms of average weekly volumes, August was the best intermodal month in history for both U.S. and Canadian railroads,” said AAR Senior Vice President John T. Gray. “Because the fall is typically the peak season for intermodal traffic, it wouldn’t be surprising to see new records set in September and October. Intermodal’s strength is a testament to the massive private investments railroads have made in their intermodal operations and the tremendous effort they’ve put forth in improving the reliability, responsiveness, and cost effectiveness of their intermodal service.”
emphasis added

Click on graph for larger image.

This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Green is 2013.

U.S. railroads averaged 294,655 carloads per week in August 2013, up 0.5% over August 2012 and the highest weekly average for any month since November 2011. August is just the second month in 2013 in which year-over-year total carloads were higher than in 2012. For the past seven months, carloads have deviated only very slightly from the same periods in 2012 ...

The commodity category with the largest year-over-year increase in August 2013 was petroleum and petroleum products, with carloads up 18.5% (8,148 carloads) over August 2012 ...  [C]oal and grain led the way for carload declines in August 2013, just as they have for many months now. Coal carloads were down 9,915 (2.0%) in August 2013 compared with August 2012, while grain carloads were down 6,570 (9.0%).

Note that lumber was up only up 2.7% from a year ago.

Graphs and excerpts reprinted with permission.

The second graph is for intermodal traffic (using intermodal or shipping containers):

Intermodal traffic is on track for a record year in 2013.

Intermodal volume on U.S. railroads averaged 257,795 containers and trailers per week in August 2013, easily the highest weekly average for any month in history. The old record was 252,347 units per week, set in June of this year; before that, the record was 251,703 in October 2006. The four weeks of August 2013 were the second, fourth, sixth, and seventh highest volume intermodal weeks in history for U.S. railroads. Moreover, because the fall is typically the peak season for intermodal traffic, it wouldn’t be surprising to see new records set in September and/or October. August 2013 was the 45th-straight year-over-year monthly increase for U.S. rail intermodal traffic.

by Calculated Risk on 9/19/2013 05:24:00 PM

Economist Tom Lawler sent me the updated table below of short sales, foreclosures and cash buyers for several selected cities in August. 

From CR:  Look at the two columns in the table for Total "Distressed" Share. In every area that has reported distressed sales so far, the share of distressed sales is down  year-over-year. 

Also there has been a decline in foreclosure sales in all of these cities.  

And now short sales are declining year-over-year too.  This is a recent change - short sales had been increasing year-over-year, but it looks like both categories of distressed sales are now declining.

The All Cash Share is mostly declining.  When investors pull back in markets like Phoenix (already declining), the share of all cash buyers will probably decline.

In general it appears the housing market is slowly moving back to normal.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Aug-13	Aug-12	Aug-13	Aug-12	Aug-13	Aug-12	Aug-13	Aug-12
Las Vegas	25.0%	43.7%	8.0%	16.9%	33.0%	60.6%	52.5%	52.5%
Reno	21.0%	38.0%	7.0%	15.0%	28.0%	53.0%
Phoenix	10.3%	29.4%	8.9%	14.0%	19.3%	43.4%	34.1%	44.7%
Sacramento	14.6%	35.4%	4.8%	16.6%	19.4%	52.0%	25.4%	33.1%
Minneapolis	5.5%	10.7%	15.1%	25.2%	20.6%	35.9%
Mid-Atlantic	7.6%	11.8%	7.0%	8.7%	14.6%	20.6%	17.5%	17.9%
Orlando	16.8%	28.7%	16.7%	23.4%	33.5%	52.1%	45.9%	53.0%
California *	13.2%	26.4%	7.8%	20.0%	21.0%	46.4%
Bay Area CA *	10.0%	23.6%	4.6%	14.5%	14.6%	38.1%	22.4%	27.9%
So. California *	13.6%	26.6%	7.1%	19.2%	20.7%	45.8%	27.6%	32.3%
Florida SF	12.4%	22.2%	17.1%	17.2%	29.5%	39.4%	41.6%	42.5%
Florida C/TH	9.9%	19.8%	15.7%	16.5%	25.5%	36.3%	68.1%	73.4%
Hampton Roads					21.0%	24.4%
Northeast Florida					35.7%	40.7%
Toledo							30.1%	35.9%
Des Moines							16.6%	21.9%
Tucson							29.1%	33.3%
Peoria							20.8%	20.5%
Pensacola							33.7%	30.7%
Akron							33.0%	29.7%
Houston			7.7%	16.8%
Memphis*			16.4%	28.8%
Birmingham AL			21.2%	27.8%
Springfield IL			10.4%	12.5%
*share of existing home sales, based on property records

by Calculated Risk on 9/19/2013 02:27:00 PM

First, the higher than consensus headline sales number was not surprising, although this was even above Lawler's estimate (see Lawler: Early Look at Existing Home Sales in August).

Second, the strong sales rate in August is not a sign that higher mortgage rates have had no impact on sales.  The NAR reports CLOSED sales, and the usual escrow period is 45 to 60 days.  Mortgage rates didn't start increasing until the 2nd half of May, and were still below 4% in mid-June (see Freddie Mac Weekly Primary Mortgage Market Survey®), so buyers could have locked in rates in early June - and pushed to close in August.

I expect sales to decline in September, and a further decline in a couple of months. From CNBC:

"We are getting early signals from lock boxes that show a significant change in direction in August," said Lawrence Yun, chief economist for the National Association of Realtors, referring to the small key boxes that hang on the doors of for-sale homes. The number of times they were opened in August dropped dramatically, signaling a big drop in potential buyer traffic.

But that doesn't mean the housing recovery is over. What matters for jobs and the economy are new home sales, not existing home sales.  And I expect the housing recovery to continue.

The key number in the existing home sales report is inventory (not sales), and the NAR reported that inventory increased slightly in August from July, and is only down 6.3% from August 2012.  This is the smallest year-over-year decline since March 2011.

The key points are: 1) inventory is very low, but 2) the year-over-year inventory decline will probably end soon. With the low level of inventory, there is still upward pressure on prices - but as inventory starts to increase, buyer urgency will wane, and price increases will slow.

When will the NAR report a year-over-year increase in inventory?   Soon.  Inventory usually declines seasonally in September from August, but I think the decline will be less than usual this year.   Last year, the NAR reported September inventory at 2.17 million.  For August 2013, the NAR reported  2.25 million.  So inventory could decline a little in September and still be up year-over-year.  I'm guessing inventory will be up year-over-year in the September report (or maybe October).

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Another key point: The NAR reported total sales were up 13.2% from August 2012, but conventional sales are probably up close to 30% from August 2012, and distressed sales down.  The NAR reported (from a survey):

Distressed homes – foreclosures and short sales – accounted for 12 percent of August sales, down from 15 percent in July, and is the lowest share since monthly tracking began in October 2008; they were 23 percent in August 2012.

Although this survey isn't perfect, if total sales were up 13.2% from August 2012, and distressed sales declined to 12% of total sales (12% of 5.48 million) from 23% (23% of 4.84 million in August 2012), this suggests conventional sales were up sharply year-over-year - a good sign. 

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

Click on graph for larger image.

Sales NSA in August (red column) are above the sales for 2007 through 2012, however sales are well below the bubble years of 2005 and 2006.

The bottom line is this was a solid report, but it is still too early to tell about the impact of higher mortgage rates on sales.  Inventory is still low, but the year-over-year decline in inventory is decreasing - and will turn positive soon (indicating inventory bottomed earlier this year).

Earlier:
• Existing Home Sales in August: 5.48 million SAAR, 4.9 months of supply

by Calculated Risk on 9/19/2013 12:05:00 PM

Note: I'll have more on existing home sales later. This was released earlier this morning ...

From the Philly Fed: September Manufacturing Survey

Manufacturing activity picked up in September, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment were all positive and higher than in August. The survey's indicators of future activity were significantly higher, suggesting improved optimism about growth over the next six months.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 9.3 in August to 22.3 this month. The index has now been positive for four consecutive months and is at its highest reading since March 2011. ... The demand for manufactured goods, as measured by the current new orders index, increased 16 points, to 21.2.

Labor market indicators showed improvement this month. The current employment index increased 7 points, to 10.3, its highest reading since April of last year.
emphasis added

This was above the consensus forecast of a reading of 10.0 for September.
Click on graph for larger image.

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 September. The ISM and total Fed surveys are through August.

The average of the Empire State and Philly Fed surveys has been positive for four consecutive months and near the high for the last 2+ years.  This suggests further solid expansion in the ISM report for September.

by Calculated Risk on 9/19/2013 10:00:00 AM

The NAR reports: August Existing-Home Sales Rise, Limited Inventory Continues to Push Prices

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.7 percent to a seasonally adjusted annual rate of 5.48 million in August from 5.39 million in July, and are 13.2 percent higher than the 4.84 million-unit level in August 2012.

Total housing inventory at the end of August increased 0.4 percent to 2.25 million existing homes available for sale, which represents a 4.9-month supply at the current sales pace, down from a 5.0-month supply in July. Unsold inventory is 6.3 percent below a year ago, when there was a 6.0-month supply.

Click on graph for larger image.

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

Sales in August 2013 (5.48 million SAAR) were 1.7% higher than last month, and were 13.2% above the August 2012 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 2.25 million in August up from 2.24 million in July.   Inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 6.25% year-over-year in August compared to August 2012. This is the 30th consecutive month with a YoY decrease in inventory, and the smallest YoY decrease since early 2011 (I expect the YoY change in inventory to turn positive soon).

Months of supply was at 4.9 months in August.

This was above expectations of sales of 5.25 million (economist Tom Lawler's forecast was closer than the consensus).  For existing home sales, the key number is inventory - and inventory is still down year-over-year, although the declines are slowing.   This was another solid report.  I'll have more later ...

by Calculated Risk on 9/19/2013 08:30:00 AM

The DOL reports:

In the week ending September 14, the advance figure for seasonally adjusted initial claims was 309,000, an increase of 15,000 from the previous week's revised figure of 294,000. The 4-week moving average was 314,750, a decrease of 7,000 from the previous week's revised average of 321,750.

The previous week was revised up from 292,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

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 314,750.

The 4-week average is at the lowest level since October 2007 (before the recession started).  Claims were below the 341,000 consensus forecast.

Here is a long term graph of the 4-week average of weekly unemployment claims back to 1971.

by Calculated Risk on 9/18/2013 08:29:00 PM

From Mark Thoma at Economist'sView: Why Didn't the Fed Begin Tapering?

Here's why I think they delayed: ... 1. Fiscal policy. ... 2. Inflation and unemployment. ... 3. The Fed is gun shy. ...4. Capital flight from developing markets.

From Tim Duy at Economist'sView: No Taper - Yet

Two significant factors that held the FOMC in check were fiscal policy and higher interest rates.

And from Binyamin Appelbaum at the NY Times: In Surprise, Fed Decides Not to Curtail Stimulus Effort

[T]he Fed said Wednesday that it would postpone any retreat from its monetary stimulus campaign for at least another month and quite possibly until next year. The Fed’s chairman, Ben S. Bernanke, emphasized that economic conditions were improving. But he said the Fed still feared a turn for the worse.

He noted that Congressional Republicans and the White House were hurtling toward an impasse over government spending.  ... And the Fed undermined its own efforts when it declared in June that it intended to begin a retreat by the end of the year, causing investors to begin immediately demanding higher interest rates on mortgage loans and other financial products, a trend that the Fed said Wednesday was threatening to slow the economy.

The fiscal policy deadlines will have passed - and the issues probably resolved - by the time the Fed meets in late October.

Thursday:
• 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 341 thousand from 292 thousand last week.

• At 10:00 AM, Existing Home Sales for August from the National Association of Realtors (NAR). The consensus is for sales of 5.25 million on seasonally adjusted annual rate (SAAR) basis. Economist Tom Lawler estimates the NAR will report sales at a 5.35 million annual rate (SAAR).

• Also at 10:00 AM, the Philly Fed manufacturing survey for September will be released. The consensus is for a reading of 10.0, up from 9.3 last month (above zero indicates expansion).

by Calculated Risk on 9/18/2013 03:49:00 PM

• At the June FOMC press conference, Fed Chairman Ben Bernanke said (emphasis added):

"If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear. In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains, a substantial improvement from the 8.1% unemployment rate that prevailed when the committee announced this program."

• At the press conference today, Bernanke said the data was "close" to being consistent with their forecasts, but that the committee would like further confirmation before starting to reduce asset purchases. Bernanke said it is still “possible” to start reducing asset purchase this year, but that “there is no fixed calendar schedule". This seems a little less certain of starting to taper this year than Bernanke's comments in June.

• Bernanke made it clear that the committee considers all FOMC meetings important, not just meetings with a scheduled press conference. He said a conference call (or briefing) could be arranged if the press needed to ask questions following a meeting with no scheduled press briefing. Bernanke said: "We certainly could arrange a public, on-the-record conference call or some other way of answering the media's questions." This suggests that the FOMC could start to taper at the October meeting even though there is no scheduled press conference (Oct 29th and 30th), or wait until December - or even next year - depending on the incoming data.

• It seems one of the reasons the Fed didn't taper was because they wanted to see the results of the current budget negotiations. It is possible that Congress will shut down the government (not catastrophic if it lasts a few days). However, as Bernanke noted, "failing to pay the bills" could have "very serious consequences". Both of these fiscal issues should be resolved prior to the October FOMC meeting. Note: I'm not concerned about Congress not "paying the bills" (aka Debt Ceiling), because failure to pay the bills would be the end of the Republican party - so it won't happen (several leaders in the GOP have acknowledged this). However there is some possibility of shutting down the government (probably just a threat, but not impossible).

• Inflation below target remains a key issue, and it is possible the Fed will wait on tapering if inflation doesn't move up a little.

• Bernanke hopes to comment on his future soon. I expect Fed Vice Chair Janet Yellen to be nominated by President Obama for Fed Chair next week (asking Bernanke to stay is a remote possibility).

by Calculated Risk on 9/18/2013 02:13:00 PM

The key sentence in the announcement was: "the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases".

With the downgrade to GDP and inflation (for 2014), it makes sense that the Fed decided to wait for more data.

As far as the "Appropriate timing of policy firming", the participants moved out a little with two participants now seeing the first increase in 2016.

Bernanke press conference here or watch below. 



Free desktop streaming application by Ustream

On the projections, GDP was revised down for 2013 and 2014, the unemployment rate was revised down slightly, and inflation was revised down for 2014. 

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2013	2014	2015	2016
Sept 2013 Meeting Projections	2.0 to 2.3	2.9 to 3.1	3.0 to 3.5	2.5 to 3.3
June 2013 Meeting Projections	2.3 to 2.6	3.0 to 3.5	2.9 to 3.6
Mar 2013 Meeting Projections	2.3 to 2.8	2.9 to 3.4	2.9 to 3.7

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.

The unemployment rate was at 7.3% in August. 

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2013	2014	2015	2016
Sept 2013 Meeting Projections	7.1 to 7.3	6.4 to 6.8	5.9 to 6.2	5.4 to 5.9
June 2013 Meeting Projections	7.2 to 7.3	6.5 to 6.8	5.8 to 6.2
Mar 2013 Meeting Projections	7.3 to 7.5	6.7 to 7.0	6.0 to 6.5

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

The FOMC believes inflation will stay significantly below target.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2013	2014	2015	2016
Sept 2013 Meeting Projections	1.1. to 1.2	1.3 to 1.8	1.6 to 2.0	1.7 to 2.0
June 2013 Meeting Projections	0.8 to 1.2	1.4 to 2.0	1.6 to 2.0
Mar 2013 Meeting Projections	1.3 to 1.7	1.5 to 2.0	1.7 to 2.0

Here is core inflation:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2013	2014	2015	2016
Sept 2013 Meeting Projections	1.2 to 1.3	1.5 to 1.7	1.7 to 2.0	1.9 to 2.0
June 2013 Meeting Projections	1.2 to 1.3	1.5 to 1.8	1.7 to 2.0
Mar 2013 Meeting Projections	1.5 to 1.6	1.7 to 2.0	1.8 to 2.0