by Calculated Risk on 9/27/2013 08:30:00 AM

The BEA released the Personal Income and Outlays report for August:

Personal income increased $57.2 billion, or 0.4 percent ... in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $34.5 billion, or 0.3 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in August, compared with an increase of 0.1 percent in July. ... The price index for PCE increased 0.1 percent in August, the same increase as in July. The PCE price index, excluding food and energy, increased 0.2 percent in August, compared with an increase of 0.1 percent in July.

On inflation, the PCE price index increased at a 1.7% annual rate in August, and core PCE prices increased at a 1.9% annual rate.

The following graph shows real Personal Consumption Expenditures (PCE) through August (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

Using the two-month method to estimate Q3 PCE growth (first two months of the quarter), PCE was increasing at a 1.5% annual rate in Q3 2013 (using mid-month method, PCE was increasing at 1.6% rate).   This suggests sluggish PCE (and GDP) growth in Q3.

by Calculated Risk on 9/26/2013 09:49:00 PM

From the LA Times: Downtown San Diego condo market's long drought may be ending

The Great Recession slammed the door on condominium construction in the 2.2-square-mile area. Projects were scrapped or converted to rentals. From 2001 through 2009, builders finished nearly 8,300 units, according to Civic San Diego, which oversees new construction planning downtown.

They haven't finished one since.

[Canadian developer Nat] Bosa's ritzy project, which he plans to break ground on during the first half of next year, would change that.

Downtown San Diego was one of the areas that was crushed during the downturn.

Along the same lines, I drove by "Central Park West" in Irvine today. That was the project that was built by Lennar and mothballed in 2007. There are several new buildings going up right now!

Friday:
• 8:30 AM ET, the Personal Income and Outlays for August. 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 0.1%.

• At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (final for September). The consensus is for a reading of 78.0, up from the preliminary reading of 76.8, but down from the August reading of 82.1.

by Calculated Risk on 9/26/2013 05:09:00 PM

It seems more and more likely that there will be a partial government shutdown starting next Tuesday. This is expensive, dumb and inconvenient (for me, the delayed data releases will be frustrating). But the scary issue is the so-called "debt ceiling". Unfortunately "debt ceiling" sounds virtuous, but it isn't - it is actually a question of "paying the bills".

Sometimes we see articles like this in the NY Times: House G.O.P. Leaders List Conditions for Raising Debt Ceiling

[B]ehind closed doors in the Capitol, House Republican leaders laid out their demands for a debt-ceiling increase to the Republican rank and file.

They include a one-year delay of the president’s health care law, fast-track authority to overhaul the tax code, construction of the Keystone XL oil pipeline, offshore oil and gas production, more permitting of energy exploration on federal lands, a rollback of regulations on coal ash, blocking new Environmental Protection Agency regulations on greenhouse gas production, eliminating a $23 billion fund to ensure the orderly dissolution of failed major banks, eliminating mandatory contributions to the new Consumer Financial Protection Bureau, limits on medical malpractice lawsuits and an increase in means testing for Medicare, among other provisions.

That is foolish. Just tell the "rank and file" the truth - it has to be a clean bill (as Reagan, Greenspan and many other Republicans have said before).  As I pointed out in early January, a poker analogy is that the GOP is bluffing into the best possible hand - and everyone knows it.  They will have to fold, and everything they say is just political posturing.

As Republican Senator Mitch McConnell said in 2011, if the debt ceiling isn't raised the "Republican brand" would become toxic and synonymous with fiscal irresponsibility. Analysts are debating what will happen in the next election if Congress shuts down the government; I think the impact on the election will be minimal if the shutdown doesn't last very long. But if Congress stopped paying the bills - for the first time in 237 years (except some minor glitches) - people will remember. So it won't happen; Congress will pay the bills.

Now if we could just avoid a shutdown ...

Note: I said the thing in 2011, and again at the end of last year. The goods news is the eventual agreement will take the government through 2014 (so it will not be an election issue).

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.