by Calculated Risk on 11/05/2013 10:00:00 AM

The October ISM Non-manufacturing index was at 55.4%, up from 54.4% in September. The employment index increased in October to 56.2%, down from 52.7% in September. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: October 2013 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in October for the 46th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. "The NMI® registered 55.4 percent in October, 1 percentage point higher than September's reading of 54.4 percent. This indicates continued growth at a faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased to 59.7 percent, which is 4.6 percentage points higher than the 55.1 percent reported in September, reflecting growth for the 51st consecutive month. The New Orders Index decreased by 2.8 percentage points to 56.8 percent, and the Employment Index increased 3.5 percentage points to 56.2 percent, indicating growth in employment for the 15th consecutive month. The Prices Index decreased 1.1 percentage points to 56.1 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI®, 10 non-manufacturing industries reported growth in October. Respondents' comments are mixed with the majority reflecting an uptick in business. A number of respondents indicate that they are negatively impacted by the government shutdown."
emphasis added

Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was above the consensus forecast of 54.5% and indicates faster expansion in October than in September.

by Calculated Risk on 11/05/2013 08:59:00 AM

Notes: This CoreLogic House Price Index report is for September. The recent Case-Shiller index release was for August. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic Reports Home Prices Rise by 12 Percent Year Over Year in September

Home prices nationwide, including distressed sales, increased 12 percent on a year-over-year basis in September 2013 compared to September 2012. This change represents the 19th consecutive monthly year-over-year increase in home prices nationally. On a month-over-month basis, including distressed sales, home prices increased by 0.2 percent in September 2013 compared to August 2013.

Excluding distressed sales, home prices increased on a year-over-year basis by 10.8 percent in September 2013 compared to September 2012. On a month-over-month basis, excluding distressed sales, home prices increased 0.3 percent in September 2013 compared to August 2013. Distressed sales include short sales and real estate owned (REO) transactions.

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 0.2% in September, and is up 12.0% over the last year.  This index is not seasonally adjusted, and the month-to-month changes will be smaller for next several months.

The index is off 17.5% from the peak - and is up 22.8% from the post-bubble low set in February 2012.

The second graph is from CoreLogic. The year-over-year comparison has been positive for nineteen consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

This is the largest year-over-year increase since 2006.

I expect the year-over-year price increases to slow in the coming months.

by Calculated Risk on 11/04/2013 10:01:00 PM

Tuesday:
• At 10:0 AM ET, the ISM non-Manufacturing Index for October. The consensus is for a reading of 54.5, up slightly from 54.4 in September. Note: Above 50 indicates expansion, below 50 contraction.

• Also at 10:00 AM, the Trulia Price Rent Monitors for October. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

• Also at 10:00 AM, the Q3 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track with other measures (like the decennial Census and the ACS).

by Calculated Risk on 11/04/2013 06:49:00 PM

Here is another weekly update on housing inventory ... for the third consecutive week, housing inventory is up year-over-year.  This suggests inventory bottomed early this year.

There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data was for September).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years.

Click on graph for larger image.

This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012 and 2013.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.

Inventory in 2013 is now above the same week in 2012 (red is 2013, blue is 2012).

We can be pretty confident that inventory bottomed early this year, and I expect the seasonal decline to be less than usual at the end of the year - so the year-over-year change will continue to increase. 

Inventory is still very low, but this increase in inventory should slow house price increases.

by Calculated Risk on 11/04/2013 02:00:00 PM

From the Federal Reserve: The October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices

The October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months. Domestic banks, on balance, reported having eased their lending standards and having experienced little change in loan demand, on average, over the past three months. The survey contained two sets of special questions. Motivated by the increase in long-term interest rates since the spring, the first set of questions asked banks to describe whether they had experienced changes in the volume of applications for residential mortgages and whether they had changed lending policies for new home-purchase loans. The second set of questions examined the standards and terms on subprime auto loans over the past 12 months. This summary is based on the responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.

Regarding loans to businesses, the October survey results generally indicated that banks eased their lending policies for commercial and industrial (C&I) loans and experienced little change in demand for such loans over the past three months.2 All domestic banks that eased their C&I lending policies cited increased competition for such loans as an important reason for having done so. ...

The survey results also indicated that banks, on average, did not substantially change standards or terms on lending to households. Modest net fractions of respondents reported having eased standards on prime residential mortgage loans, with a few large banks indicating they had eased standards on those loans.
emphasis added

Click on graph for larger image.

Here are some charts from the Fed.

This graph shows the change in lending standards and for CRE (commercial real estate) loans.

Banks are loosening their standards for CRE loans, and for various categories of CRE (right half of graph).

The second graph shows the change in demand for CRE loans.

Banks are seeing a pickup in demand for all categories of CRE.

This suggests (along with the Architecture Billing Index) that we will see an increase in commercial real estate development in the near future.

by Calculated Risk on 11/04/2013 11:28:00 AM

St Louis Fed President James Bullard was on CNBC this morning. He made a few key points:

1) Inflation is too low, and Bullard would like to see "tangible evidence" that inflation is moving back towards the Fed's goal of 2%. (Note: This was one of the four points I mentioned yesterday for the Fed to start tapering in December).

2) Bullard thinks the Fed should mostly ignore the "bickering in Washington".  From MarketWatch:

“It looks like they will be bickering in Washington for a long time to come. So I don’t think we can afford to wait until the political waters are completely calm before we decide to make a decision,” Bullard said.

My view is the FOMC will be more inclined to taper if the budget conference committee reaches an agreement by December 13th.

3) Bullard says the October employment report will be "hard to interpret". I think we will see a sharp increase in the unemployment rate, but any increase related to the government shutdown should be unwound in the November report - so I don't think anyone will panic if the unemployment rate jumps from 7.2% to say 7.5% (since there was an obvious reason).    Payroll growth will probably be lower in October too.

by Calculated Risk on 11/04/2013 08:15:00 AM

LPS released their Mortgage Monitor report for September today. According to LPS, 6.46% of mortgages were delinquent in September, up from 6.20% in August. LPS reports that 2.63% of mortgages were in the foreclosure process, down from 3.86% in September 2012.

This gives a total of 9.03% delinquent or in foreclosure. It breaks down as:

• 1,935,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,331,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,328,000 loans in foreclosure process.

For a total of ​​4,593,000 loans delinquent or in foreclosure in September. This is down from 5,640,000 in September 2012.

Click on graph for larger image.

This graph from LPS shows percent of loans delinquent and in the foreclosure process over time.

From LPS:

• Delinquencies increased, but in-line with seasonal pattern

• Foreclosure inventories continue to improve with first time foreclosure starts at multi-year lows

Delinquencies and foreclosures are still high, but moving down - and might be back to normal levels in a couple of years.



The second graph from LPS shows new problem loans. There are seriously delinquent loans that were current 6 months ago. This is good news going forward (although the lenders are still working through the backlog, especially in judicial foreclosure states).

There is much more in the mortgage monitor.

by Calculated Risk on 11/03/2013 08:42:00 PM

Monday:
• Early, the LPS September Mortgage Monitor report. This is a monthly report of mortgage delinquencies and other mortgage data.

• At 10:00 AM, the Manufacturers' Shipments, Inventories and Orders (Factory Orders) for both August and September. The consensus is for a 0.3% increase in August orders, and a 1.7% increase in September orders.

• At 2:00 PM, the October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve. This might show some slight loosening in lending standards.

Weekend:
• Schedule for Week of November 3rd

• Will the Fed "Taper" in December?

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up slightly and DOW futures are up 15 (fair value).

Oil prices are down with WTI futures at $94.60 per barrel and Brent at $105.90 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.26 per gallon.  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 11/03/2013 05:40:00 PM

Every year I track seasonal retail hiring for hints about holiday retail sales.  At the bottom of this post is a graph showing the correlation between seasonal hiring and retail sales.

First, here is the NRF forecast for this year: NRF Forecasts Marginal Sales Gains This Holiday Season

NRF expects sales in the months of November and December to marginally increase 3.9 percent to $602.1 billion, over 2012’s actual 3.5 percent holiday season sales growth. The forecast is higher than the 10-year average holiday sales growth of 3.3 percent.

According to NRF, retailers are expected to hire between 720,000 and 780,000 seasonal workers this holiday season, in line with the actual 720,500 they hired in 2012, which was a 13 percent year-over-year increase from 2011.

Note: NRF defines retail sales as including discounters, department stores, grocery stores, and specialty stores, and exclude sales at automotive dealers, gas stations, and restaurants.

Here is a graph of retail hiring for previous years based on the BLS employment report:

Click on graph for larger image.

This graph shows the historical net retail jobs added for October, November and December by year.

Retailers hired about 750 thousand seasonal workers last year (using BLS data, Not Seasonally Adjusted).  The NRF is expecting retail hiring at about the same rate this year.

The scatter graph is for the years 1993 through 2012 and compares October retail hiring with the real increase (inflation adjusted) for retail sales (Q4 over previous Q4).

In general October hiring is a pretty good indicator of seasonal sales. R-square is 0.72 for this small sample. Note: This uses retail sales in Q4, and excludes autos, gasoline and restaurants.

This suggests retailers would normally have hired around 150 thousand seasonal employees in October.  However this year, with the shutdown, this relationship might not be as useful (we might have to wait for the November data).

by Calculated Risk on 11/03/2013 09:05:00 AM

The consensus seems to be that the FOMC will wait until 2014 to start to taper QE purchases. As an example, from Michael Hanson at Merrill Lynch:

The thresholds to taper are not as high as some think, but we see a relatively low chance that the data will be strong enough to allow tapering in time for the holidays.
...
[T]he Fed needs to see the economy move toward the “tolerable twos” to taper: growth in the upper-2% range, closer to job gains of 200,000 per month, and inflation converging (even if slowly) toward the 2% target. That is a heavy burden by the December meeting, but if the post-shutdown data rebound, January remains possible — as do the next several meetings afterwards. And as we have said before, time will tell.

And analysts at Nomura have put the odds of a "taper" in December at just 15%, and they view March 2014 as the most likely meeting for the FOMC to start reducing asset purchases.

So what would it take for the FOMC to taper in December?

First we have to remember the FOMC was close to tapering in September. From the September FOMC statement:

Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.

Although not mentioned in the FOMC statement, at the September press conference Fed Chairman Ben Bernanke suggested that one of the reasons the Fed didn't taper was that they wanted to see the results of the budget negotiations.   Now those "negotiations" are behinds us (for now), and although the government shutdown was expensive and dumb, at least there wasn't any additional fiscal restraint added.

Here is what I think it would take to taper at the meeting of December 17th and 18th.

1) The unemployment rate probably increased sharply in October (due to the shutdown), but the impact of the shutdown will be reversed in the November report that will be released on Friday December 6th.  If the unemployment rate declines back to 7.2% or so in November (the September rate), then the FOMC might taper.

2) As Merrill's Hanson noted, the FOMC would probably also be looking to see employment growth close to 200,000 in the November report.   If the year-over-year change in employment is still around 2.2 million for November, the FOMC might taper.

3) The FOMC is also concerned that inflation is too low. From the October FOMC statement:

The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

The PCE price index for October will be released on December 5th (the September PCE index will be released this week).  If PCE prices are moving back towards 2%, the FOMC might taper.  Note: CPI for November will be released on December 17th and might influence the decision.

4) On fiscal policy, the budget conference committee is scheduled to present an agreement on December 13th (just before the FOMC meeting).  The committee is expected to play "small ball", so it is possible an agreement will be reached.  If a reasonable agreement is reached (hopefully reduce the impact of the sequester in 2014), then the FOMC might be more inclined to taper.  If it appears that the House might shutdown the government again, the FOMC will be inclined to wait.

There are many key releases right at the beginning of December, and we know the Fed is "data dependent".  So here is what the FOMC would like to see to start tapering: 1) the unemployment rate fall to 7.2% in the November report, 2) Employment up about 2.2 million year-over-year in November, 3) inflation increasing toward 2% target, and 4) some sort of fiscal agreement by Dec 13th.  All possible.