by Calculated Risk on 11/20/2013 04:29:00 PM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From AIA: Architecture Billings Index Slows Down

Following three months of accelerating demand for design services, the Architecture Billings Index (ABI) reflected a somewhat slower pace of growth in October. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the October ABI score was 51.6, down from a mark of 54.3 in September. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.5, up from the reading of 58.6 the previous month.

“There continues to be a lot of uncertainty surrounding the overall U.S. economic outlook and therefore in the demand for nonresidential facilities, which often translates into slower progress on new building projects,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “That is particularly true when you factor in the federal government shutdown that delayed many projects that were in the planning or design phases.”
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 51.6 in October, down from 54.3 in September. Anything above 50 indicates expansion in demand for architects' services.  This index has indicated expansion in 13 of the last 14 months.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index is not as strong as during the '90s - or during the bubble years of 2004 through 2006 - but the increases in this index over the past year suggest some increase in CRE investment in 2014.

by Calculated Risk on 11/20/2013 02:00:00 PM

There was a policy planning discussion on how best to communicate that rates would be low for a long time.

From the Fed: Minutes of the Federal Open Market Committee, October 29-30, 2013. First an excerpt on fiscal policy: 

Participants generally saw the direct economic effects of the partial shutdown of the federal government as temporary and limited, but a number of them expressed concern about the possible economic effects of repeated fiscal impasses on business and consumer confidence. More broadly, fiscal policy, which has been exerting significant restraint on economic growth, was expected to become somewhat less restrictive over the forecast period. Nonetheless, it was noted that the stance of fiscal policy was likely to remain one of the most important headwinds restraining growth over the medium term.

On asset purchases (taper in "coming months"):

During this general discussion of policy strategy and tactics, participants reviewed issues specific to the Committee's asset purchase program. They generally expected that the data would prove consistent with the Committee's outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.

On forward guidance:

As part of the planning discussion, participants also examined several possibilities for clarifying or strengthening the forward guidance for the federal funds rate, including by providing additional information about the likely path of the rate either after one of the economic thresholds in the current guidance was reached or after the funds rate target was eventually raised from its current, exceptionally low level. A couple of participants favored simply reducing the 6-1/2 percent unemployment rate threshold, but others noted that such a change might raise concerns about the durability of the Committee's commitment to the thresholds. Participants also weighed the merits of stating that, even after the unemployment rate dropped below 6-1/2 percent, the target for the federal funds rate would not be raised so long as the inflation rate was projected to run below a given level. In general, the benefits of adding this kind of quantitative floor for inflation were viewed as uncertain and likely to be rather modest, and communicating it could present challenges, but a few participants remained favorably inclined toward it. Several participants concluded that providing additional qualitative information on the Committee's intentions regarding the federal funds rate after the unemployment threshold was reached could be more helpful. Such guidance could indicate the range of information that the Committee would consider in evaluating when it would be appropriate to raise the federal funds rate. Alternatively, the policy statement could indicate that even after the first increase in the federal funds rate target, the Committee anticipated keeping the rate below its longer-run equilibrium value for some time, as economic headwinds were likely to diminish only slowly. Other factors besides those headwinds were also mentioned as possibly providing a rationale for maintaining a low trajectory for the federal funds rate, including following through on a commitment to support the economy by maintaining more-accommodative policy for longer. These or other modifications to the forward guidance for the federal funds rate could be implemented in the future, either to improve clarity or to add to policy accommodation, perhaps in conjunction with a reduction in the pace of asset purchases as part of a rebalancing of the Committee's tools.

Participants also discussed a range of possible actions that could be considered if the Committee wished to signal its intention to keep short-term rates low or reinforce the forward guidance on the federal funds rate. For example, most participants thought that a reduction by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage, although the benefits of such a step were generally seen as likely to be small except possibly as a signal of policy intentions. By contrast, participants expressed a range of concerns about using open market operations aimed at affecting the expected path of short-term interest rates, such as a standing purchase facility for shorter-term Treasury securities or the provision of term funding through repurchase agreements. Among the concerns voiced was that such operations would inhibit price discovery and remove valuable sources of market information; in addition, such operations might be difficult to explain to the public, complicate the Committee's communications, and appear inconsistent with the economic thresholds for the federal funds rate. Nevertheless, a number of participants noted that such operations were worthy of further study or saw them as potentially helpful in some circumstances.
emphasis added

by Calculated Risk on 11/20/2013 11:52:00 AM

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 0.1% (1.4% annualized rate) in October. The 16% trimmed-mean Consumer Price Index also increased 0.1% (1.1% 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 fell 0.1% (-0.7% annualized rate) in October. The CPI less food and energy increased 0.1% (1.5% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for October here.

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 2.0%, the trimmed-mean CPI rose 1.7%, the CPI rose 1.0%, and the CPI less food and energy rose 1.7%. Core PCE is for September and increased just 1.2% year-over-year.

On a monthly basis, median CPI was at 1.4% annualized, trimmed-mean CPI was at 1.1% annualized, and core CPI increased 1.5% annualized.

These measures indicate inflation remains below the Fed's target.

by Calculated Risk on 11/20/2013 10:00:00 AM

The NAR reports: October Existing-Home Sales Cool but Low Inventory Drives Prices

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 3.2 percent to a seasonally adjusted annual rate of 5.12 million in October from 5.29 million in September, but are 6.0 percent higher than the 4.83 million-unit level in October 2012.

Total housing inventory at the end of October declined 1.8 percent to 2.13 million existing homes available for sale, which represents a 5.0-month supply at the current sales pace; the relative supply was 4.9 months in September. Unsold inventory is 0.9 percent above a year ago, when there was a 5.2-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 October 2013 (5.12 million SAAR) were 3.2% lower than last month, and were 6.0% above the October 2012 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory was declined to 2.13 million in October from 2.17 million in September.   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 increased 0.9% year-over-year in October compared to October 2012.   The year-over-year change for September was revised down to unchanged, so this is the year-over-year increase in inventory since early 2011 and indicates inventory bottomed earlier this year.

Months of supply was at 5.0 months in October.

This was close to expectations of sales of 5.13 million.  For existing home sales, the key number is inventory - and inventory is still low, but up year-over-year.    I'll have more later ...

by Calculated Risk on 11/20/2013 08:43:00 AM

On a monthly basis, retail sales increased 0.4% from September to October (seasonally adjusted), and sales were up 3.9% from October 2012. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $428.1 billion, an increase of 0.4 percent from the previous month, and 3.9 percent above October 2012. ...The August to September 2013 percent change was revised from -0.1 percent to virtually unchanged.

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales are up 29.1% from the bottom, and now 13.2% above the pre-recession peak (not inflation adjusted)

Retail sales ex-autos increased 0.2%. 

Excluding gasoline, retail sales are up 26.5% from the bottom, and now 13.8% above the pre-recession peak (not inflation adjusted).

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 5.4% on a YoY basis (3.9% for all retail sales).

This was above the consensus forecast of no change for retail sales.

by Calculated Risk on 11/20/2013 07:01:00 AM

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

Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 15, 2013. This week’s results include an adjustment to account for the Veteran’s Day holiday. ...

The Refinance Index decreased 7 percent from the previous week. The seasonally adjusted Purchase Index increased 6 percent from one week earlier. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.46 percent from 4.44 percent, with points decreasing to 0.38 from 0.44 (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 declined 7% last week.

The refinance index is down 62% from the levels in early May.


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index has fallen since early May, and the 4-week average of the purchase index is now down about 3% from a year ago.

by Calculated Risk on 11/20/2013 12:46:00 AM

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• During the day, the AIA's Architecture Billings Index for October (a leading indicator for commercial real estate).

• At 8:30 AM, the Consumer Price Index for October. The consensus is for no change in CPI in October and for core CPI to increase 0.2%.

• Also at 8:30 AM, Retail sales for October will be released. The consensus is for retail sales to be unchanged in October, and to increase 0.1% ex-autos..

• At 10:00 AM, Existing Home Sales for October from the National Association of Realtors (NAR). The consensus is for sales of 5.13 million on seasonally adjusted annual rate (SAAR) basis. Sales in September were at a 5.29 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 5.08 million.

• Also at 10:00 AM, the Manufacturing and Trade: Inventories and Sales (business inventories) report for September. The consensus is for a 0.3% increase in inventories.

• 2:00 PM, the Fed will release the FOMC Minutes for the Meeting of October 29-30, 2013.

by Calculated Risk on 11/19/2013 07:05:00 PM

From Fed Chairman Ben Bernanke: Communication and Monetary Policy. An excellent speech worth reading. Excerpts on current situation:

In coming meetings, in evaluating the outlook for the labor market, we will continue to consider both the cumulative progress since September 2012 and the prospect for continued gains. We have seen meaningful improvement in the labor market since the latest asset purchase program was announced in September 2012. At the time, the latest reading on the unemployment rate was 8.1 percent, and both we and most private-sector economists were projecting only slow reductions in unemployment in the coming quarters. Recent reports on payroll employment had also been somewhat disappointing. However, since the program was announced, the unemployment rate has fallen 0.8 percentage point, and about 2.6 million payroll jobs have been added. Looking forward, we will of course continue to monitor the incoming data. As reflected in the latest Summary of Economic Projections and the October FOMC statement, the FOMC still expects that labor market conditions will continue to improve and that inflation will move toward the 2 percent objective over the medium term. If these views are supported by incoming information, the FOMC will likely begin to moderate the pace of purchases. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's economic outlook. As before, the Committee will also continue to take into account its assessment of the likely efficacy and costs of the program.

When, ultimately, asset purchases do slow, it will likely be because the economy has progressed sufficiently for the Committee to rely more heavily on its rate policies, the associated forward guidance, and its substantial continued holdings of securities to maintain progress toward maximum employment and to achieve price stability. In particular, the target for the federal funds rate is likely to remain near zero for a considerable time after the asset purchases end, perhaps well after the unemployment threshold is crossed and at least until the preponderance of the data supports the beginning of the removal of policy accommodation.

Conclusion
I began my time as Chairman with the goal of increasing the transparency of the Federal Reserve, and of monetary policy in particular. In response to a financial crisis and a deep recession, the Fed's monetary policy communications have proved far more important and have evolved in different ways than I would have envisioned eight years ago.

The economy has made significant progress since the depths of the recession. However, we are still far from where we would like to be, and, consequently, it may be some time before monetary policy returns to more normal settings. I agree with the sentiment, expressed by my colleague Janet Yellen at her testimony last week, that the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery.  The FOMC remains committed to maintaining highly accommodative policies for as long as they are needed. Communication about policy is likely to remain a central element of the Federal Reserve's efforts to achieve its policy goals.
emphasis added

by Calculated Risk on 11/19/2013 04:06:00 PM

Way back in 2005, I posted a graph of the Real Estate Agent Boom. Here is another update to the long term graph of the number of real estate licensees in California through August 2013.

The number of agents peaked at the end of 2007 (housing activity peaked in 2005, and prices in 2006).

The number of salesperson's licenses is off 32.4% from the peak, and is down 3.3% year-over-year.  However, in August, licensees increased slightly month-to-month for the first time since early 2007.

Brokers' licenses are only off 8.4% from the peak, but are still slowly declining (down 1.1% year-over-year, and down slightly month-to-month).

Click on graph for larger image.

This might be the bottom (or near the bottom) for real estate licensees in California, but so far there is no sign of a new bubble in real estate agents!

by Calculated Risk on 11/19/2013 12:37:00 PM

Here is a minor indicator that I follow, from ATA: ATA Truck Tonnage Index Decreased 2.8% in October

The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index fell 2.8% in October, the first decrease since July. ... In October, the index equaled 124 (2000=100) versus 127.5 in September. October’s level was the lowest since April. Compared with October 2012, the SA index surged 8%, which is the largest year-over-year gain since December 2011.
...
“From May through September, the index surged 3.5%, including only one monthly decrease over that period,” said ATA Chief Economist Bob Costello. “It isn’t surprising for volumes to fall back some after such a good run.”

“Despite October’s month-to-month decrease, we saw a very robust year-over-year increase and I’m seeing some good signs out of the trucking industry that suggests the economy may be a little stronger than we think,” he said. “Specifically, the heavy freight sectors, like tank truck, have been helping tonnage this year. But in the third quarter, generic dry van truckload freight saw the best quarterly gains since 2010. I view this positively for the economy. I view it positively for trucking. Now, we have to see if it continues.”
emphasis added

Click on graph for larger image.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index.

The index is up solidly year-over-year. This monthly decline might have been related to the government shutdown.