by Calculated Risk on 9/26/2013 12:52:00 PM

From the Kansas City Fed: Tenth District Manufacturing Survey Moderated Somewhat

According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity moderated somewhat but remained positive, and producers’ expectations for future activity increased markedly.

“We saw slightly slower growth this month, but firms were much more optimistic about industry activity in early 2014” said Wilkerson. “Worker shortages remained a problem at many firms.”
...
The month-over-month composite index was 2 in September, down from 8 in August and 6 in July ... The employment index eased after rising last month
emphasis added

On Tuesday, the Richmond Fed reported:

The composite index of manufacturing activity was flat in September, at a reading of 0 following last month's 14, as the component indexes cooled this month. ... The index for the number of employees fell twelve points from last month to settle at −6.

The overall outlook of producers for the next six months was for stronger business conditions. The gauge for expected shipments added three points to end at 39, and the index for the volume of new orders rose two points to 35 this month.

In aggregate the regional surveys have suggested moderate growth in September. The last of the regional Fed manufacturing surveys for September will be released on Monday (Dallas Fed).

by Calculated Risk on 9/26/2013 10:22:00 AM

This morning the BLS released the preliminary annual benchmark revision showing an additional 345,000 payroll jobs as of March 2013. The final revision will be published next February when the January 2014 employment report is released in February 2014. Usually the preliminary estimate is pretty close to the final benchmark estimate.

The annual revision is benchmarked to state tax records. From the BLS:

In accordance with usual practice, the Bureau of Labor Statistics (BLS) is announcing the preliminary estimate of the upcoming annual benchmark revision to the establishment survey employment series. The final benchmark revision will be issued in February 2014, with the publication of the January 2014 Employment Situation news release.

Each year, employment estimates from the Current Employment Statistics (CES) survey are benchmarked to comprehensive counts of employment for the month of March. These counts are derived from State Unemployment Insurance (UI) tax records that nearly all employers are required to file. For National CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus three-tenths of one percent of Total nonfarm employment. The preliminary estimate of the benchmark revision indicates an upward adjustment to March 2013 Total nonfarm employment of 345,000 (0.3 percent). This revision is impacted by a large non-economic code change in the Quarterly Census of Employment and Wages (QCEW) that moves approximately 469,000 in employment from Private households, which is out-of-scope for CES, to the Education and health care services industry, which is in scope. After accounting for this movement, the estimate of the revision to the over-the-year change in CES from March 2012 to March 2013 is a downward revision of 124,000. ...

Using the preliminary benchmark estimate, this means that payroll employment in March 2013 was 345,000 higher than originally estimated. In February 2014, the payroll numbers will be revised up to reflect this estimate. The number is then "wedged back" to the previous revision (March 2012).

This preliminary estimate showed an additional 333,000 private sector jobs, and 12,000 government jobs (as of March 2013).  Note: The revision would have been negative except for the reclassification of certain jobs (that weren't previously included in the payroll report).

by Calculated Risk on 9/26/2013 10:00:00 AM

From the NAR: Pending Home Sales Decline in August

The Pending Home Sales Index, a forward-looking indicator based on contract signings, eased 1.6 percent to 107.7 in August from a downwardly revised 109.4 in July, but remains 5.8 percent above August 2012 when it was 101.8; the data reflect contracts but not closings. Pending sales have been above year-ago levels for the past 28 months.
...
The PHSI in the Northeast rose 4.0 percent to 84.8 in August, and is 5.1 percent above a year ago. In the Midwest the index declined 1.4 percent to 111.6 in August, but is 13.8 percent higher than August 2012. Pending home sales in the South fell 3.5 percent to an index of 116.9 in August, but are 3.7 percent above a year ago. The index in the West declined 1.6 percent in August to 106.9, but is 1.7 percent higher than August 2012.

Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in September and October.

by Calculated Risk on 9/26/2013 08:30:00 AM

The DOL reports:

In the week ending September 21, the advance figure for seasonally adjusted initial claims was 305,000, a decrease of 5,000 from the previous week's revised figure of 310,000. The 4-week moving average was 308,000, a decrease of 7,000 from the previous week's revised average of 315,000.

The previous week was revised up from 309,000.

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 308,000.

The 4-week average is at the lowest level since June 2007 (before the recession started).  Claims were below the 330,000 consensus forecast.

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

From MarketWatch:

A government official said Labor has been told by California that the state eliminated a backlog of claims that built up after computer-related processing delays.

by Calculated Risk on 9/26/2013 12:04:00 AM

According to the First Look report for August to be released today by Lender Processing Services (LPS), the percent of loans delinquent decreased in August compared to July, and declined about 10% year-over-year. Also the percent of loans in the foreclosure process declined further in August and were down 34% over the last year.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.20% from 6.41% in July. The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 2.66% in August from 2.82% in July.   The is the lowest level in 4 1/2 years.

The number of delinquent properties, but not in foreclosure, is down 306,000 properties year-over-year, and the number of properties in the foreclosure process is down 679,000 properties year-over-year.

LPS will release the complete mortgage monitor for August in early October.

LPS: Percent Loans Delinquent and in Foreclosure Process
	August 2013	July 2013	August 2012
Delinquent	6.20%	6.41%	6.87%
In Foreclosure	2.66%	2.82%	4.04%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,836,000	1,846,000	1,910,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,288,000	1,347,000	1,520,000
Number of properties in foreclosure pre-sale inventory:	1,341,000	1,406,000	2,020,000
Total Properties	4,465,000	4,599,000	5,450,000

by Calculated Risk on 9/25/2013 07:37:00 PM

The preliminary annual employment benchmark revision will be released Thursday.  On Sunday I wrote a post with a summary of previous revisions, and some details on how the revisions is estimated, See: Preliminary annual Employment benchmark revision.  Some analysts expect a negative revisions, others a positive  revision.  My guess is the revision will be small this year.

Thursday:
• Early: LPS First Look at Mortgage Delinquencies in August.

• 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 330 thousand from 309 thousand last week.

• Also at 8:30 AM, the Q2 GDP (third estimate) from the BEA. This is the second estimate of Q2 GDP from the BEA. The consensus is that real GDP increased 2.6% annualized in Q2, revised up from the second estimate of 2.5% in Q2.

• At 10:00 AM, the Pending Home Sales Index for August. The consensus is for a 1.0% decrease in the index. Economist Tom Lawler is estimating the NAR will report a decline of "about 5%" in this index.

• Also at 10:00 AM, the 2013 Current Employment Statistics (CES) Preliminary Benchmark Revision. From the BLS: "[T]he Current Employment Statistics (CES) survey estimates are benchmarked to comprehensive counts of employment from the Quarterly Census of Employment and Wages (QCEW) for the month of March. ... The final benchmark revision will be issued with the publication of the January 2014 Employment Situation news release in February."

• At 10:00 AM, the Kansas City Fed Survey of Manufacturing Activity for August. The consensus is for a reading of 9 for this survey, up from 8 in August (Above zero is expansion).

by Calculated Risk on 9/25/2013 03:21:00 PM

Earlier: New Home Sales increased to 421,000 Annual Rate in August

Looking at the first eight months of 2013, there has been a significant increase in new home sales this year.  The Census Bureau reported that there were 304 new homes sold during the first eight months of 2013, up 19.7% from the 254 thousand sold during the same period in 2012. 

The year-over-year increases have slowed - August only saw a year-over-year increase of 12.6%, but I still expect new home sales to be up 15% to 20% for the year.  That follows an annual increase of 21% in 2012.

And even though there has been a large increase in the sales rate, sales are close to the lows for previous recessions. This suggests significant upside over the next few years.  Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years - substantially higher than the current 421 thousand sales rate.

The housing recovery has slowed, but it is ongoing - and I expect the recovery to continue for some time.

Note: As I mentioned last month, any impact from rising mortgage rates would show up in the New Home sales report before the existing home sales report. New home sales are counted when contracts are signed, and existing home sales when the transactions are closed - so the timing is different. For existing home sales, I think there was a push to close before the mortgage interest rate lock expired - so closed existing home sales in July and August were strong - and I expect a decline in existing home sales soon.

And here is another update to the "distressing gap" graph that I first started posting over four years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

Click on graph for larger image.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through August 2013. 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 kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties.

I expect existing home sales to decline some (distressed sales will slowly decline and be partially offset by more conventional sales).  And I expect this gap to continue to close - mostly from an increase in new home sales.

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.

by Calculated Risk on 9/25/2013 12:20:00 PM

The Federal Reserve released the Q2 2013 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q2 compared to Q1, and is at a new record. Net worth peaked at $69.0 trillion in Q3 2007, and then net worth fell to $55.6 trillion in Q1 2009 (a loss of $13.4 trillion). Household net worth was at $74.8 trillion in Q2 2013 (up $19.2 trillion from the trough in Q1 2009).

The Fed estimated that the value of household real estate increased to $18.6 trillion in Q2 2013. The value of household real estate is still $4.0 trillion below the peak in early 2006.

Click on graph for larger image.

This is the Households and Nonprofit net worth as a percent of GDP.  Although household net worth is at a record high, as a percent of GDP it is still below the peaks in 2000 (stock bubble) and 2006 (housing bubble).

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This ratio was increasing gradually since the mid-70s, and then we saw the stock market and housing bubbles. The ratio has been trending up and increased again in Q2 with both stock and real estate prices increasing.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q2 2013, household percent equity (of household real estate) was at 49.8% - up from Q1, and the highest since Q3 2007. This was because of both an increase in house prices in Q2 (the Fed uses CoreLogic) and a reduction in mortgage debt.

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 52+ million households with mortgages have far less than 49.8% equity - and millions have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt declined by $41.8 billion in Q2. Mortgage debt has now declined by $1.32 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The value of real estate, as a percent of GDP, was up in Q2 (as house prices increased), but still close to the average of the last 30 years (excluding bubble). However household mortgage debt, as a percent of GDP, is still historically high, suggesting still more deleveraging ahead for certain households.

by Calculated Risk on 9/25/2013 10:00:00 AM

The Census Bureau reports New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 421 thousand. This was up from 390 thousand SAAR in July (July sales were revised down from 394 thousand).

May sales were revised down from 439 thousand to 429 thousand, and June sales were revised down from 455 thousand to 454 thousand. 

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 August 2013 were at a seasonally adjusted annual rate of 421,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.9 percent above the revised July rate of 390,000 and is 12.6 percent above the August 2012 estimate of 374,000."

Click on graph for larger image in graph gallery.

The second graph shows New Home Months of Supply.

The months of supply decreased in August to 5.0 months from 5.2 months in July.

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 August was 175,000. This represents a supply of 5.0 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 is near the record low. The combined total of completed and under construction is increasing, but still very low.

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

In August 2013 (red column), 35 thousand new homes were sold (NSA). Last year 31 thousand homes were sold in August. The high for August was 110 thousand in 2005, and the low for August was 23 thousand in 2010.



This was slightly below expectations of 425,000 sales in August, and a weak report including the minor downward revisions to prior months.  I'll have more later today.

by Calculated Risk on 9/25/2013 07:01:00 AM

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

Mortgage applications increased 5.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 20, 2013....

The Refinance Index increased 5 percent from the previous week. The seasonally adjusted Purchase Index increased 7 percent from one week earlier. ... The Purchase Index was at its highest level since July 2013.
...
The HARP share of refinance applications increased to 41 percent from 40 percent the week before, and is the highest since MBA started tracking this measure in early 2012.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.62 percent from 4.75 percent, with points increasing to 0.41 from 0.39 (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.

The refinance index increased partially because of more HARP refinance activity. I expect to see even more HARP activity soon. From Mortgage News Daily: HARP is a "No Brainer" -FHFA

Feeling that they may have reached only about half of the families who could benefit from the program, the Federal Housing Finance Agency (FHFA) launched a campaign today to inform homeowners about the Home Affordable Refinance Program (HARP). ...

Acting FHFA Director Edward J. DeMarco said that 2.8 million homeowners have refinanced through HARP but with mortgage rates still historically low and HARP eligibility requirements expanded, other qualified homeowners could reduce their monthly mortgage payments or build their equity faster with a shorter term mortgage through the program.

DeMarco told Bloomberg News in an interview this weekend that FHFA used focus groups to find out why borrowers with high rates hadn't yet tried to refinance through HARP. They found many didn't realize they were eligible. They thought they had to be delinquent on their mortgages before the government would help them. DeMarco said he hoped the educational outreach would bring in an additional 2 million HARP borrowers.

The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index was generally been trending up over the last year (but down over the last few months), and the 4-week average of the purchase index is at the highest level since July and up over 3% from a year ago.