by Calculated Risk on 4/11/2014 09:55:00 AM

Click on graph for larger image.

The preliminary Reuters / University of Michigan consumer sentiment index for April was at 82.6, up from 80.0 in March.

This was above the consensus forecast of 81.0. Sentiment has generally been improving following the recession - with plenty of ups and downs - and a big spike down when Congress threatened to "not pay the bills" in 2011, and another smaller spike down last October and November due to the government shutdown.

I expect to see sentiment at post-recession highs very soon.

by Calculated Risk on 4/10/2014 08:56:00 PM

For amusement: Years ago, whenever there was a market sell-off, my friend Tak Hallus (Stephen Robinett) would shout at his TV tuned to CNBC "Bring out the bears!".

This was because CNBC would usually bring on the bears whenever there was a sell-off, and bulls whenever the market rallied.

Today was no exception with Marc Faber on CNBC:

"This year, for sure—maybe from a higher diving board—the S&P will drop 20 percent," Faber said, adding: "I think, rather, 30 percent"

And Faber from August 8, 2013:

Faber expect to see stocks end the year "maybe 20 percent [lower], maybe more!"

And from October 24, 2012:

"I believe globally we are faced with slowing economies and disappointing corporate profits, and I will not be surprised to see the Dow Jones, the S&P, the major indices, down from the recent highs by say, 20 percent," Faber said...

Since the market is up 30% since his 2012 prediction, shouldn't he be expecting a 50% decline now?

Friday:
• At 8:30 AM ET, the Producer Price Index for March from the BLS. The consensus is for a 0.1% increase in prices.

• At 9:55 AM, the Reuter's/University of Michigan's Consumer sentiment index (preliminary for April). The consensus is for a reading of 81.0, up from 80.0 in March.

by Calculated Risk on 4/10/2014 06:29:00 PM

First an error ...

From the NY Times: Tax Revenue Soars, Decreasing Deficit, U.S. says

Over all, the deficit is expected to equal 4.1 percent of gross domestic product in 2014, down from nearly 10 percent in 2009, during the depths of the recession.

Actually in February the CBO projected the deficit to be 3.0% of GDP in fiscal 2014 (4.1% was for fiscal 2013). Next week the CBO will update their projections, and I expect the deficit projection for 2014 to be revised down again.

NY Times:

The deficits in the next few years are expected to stay at 2 to 3 percent of gross domestic product, before widening sharply again toward the end of the decade.

It depends on what "widening sharply" means, but the CBO is projecting 3.4% in 2019 and 3.7% in 2020.

And this is a key point:

“It is the fastest four-year reduction in deficits since the demobilization after World War II,” [said Ernie Tedeschi, head of fiscal analysis at ISI], “but it has come in the middle of an economy that is not yet healed from the worst recession since the Great Depression.”

The economy would probably be better off (more employment, faster GDP growth) if the deficit hadn't been reduced so quickly.

by Calculated Risk on 4/10/2014 04:25:00 PM

This is a follow-up to a previous post: A Closer Look at Post-2007 Labor Force Participation Trends

From Melinda Pitts, John Robertson, and Ellyn Terry at Marcoblog: Reasons for the Decline in Prime-Age Labor Force Participation. They focus on prime working-age population (25 to 54 years old).  They discuss a number of topics with several graphs. Here is their conclusion:

The health of the labor market clearly affects the decision of prime-age individuals to enroll in school or training, apply for disability insurance, or stay home and take care of family. Discouragement over job prospects rose during the Great Recession, causing many unemployed people to drop out of the labor force. The rise in the number of prime-age marginally attached workers reflects this trend and can account for some of the decline in participation between 2007 and 2009.

But most of the postrecession rise in prime-age nonparticipation is from the people who say they don't currently want a job. How much does that increase reflect trends established well before the recession, and how much can be attributed to the recession and slow recovery? It's hard to say with much certainty. For example, participation by prime-age men has been on a secular decline for decades, but the pace accelerated after 2007—see here for more discussion.

Undoubtedly, some people will reenter the labor market as it strengthens further, especially those who left to undertake additional training. But for others, the prospect of not finding a satisfactory job will cause them to continue to stay out of the labor market. The increased incidence of disability reported among prime-age individuals suggests permanent detachment from the labor market and will put continued downward pressure on participation if the trend continues. The Bureau of Labor Statistics projects that the prime-age participation rate will stabilize around its 2013 level. Given all the contradictory factors in play, we think this projection should have a pretty wide confidence interval around it.

CR note: I think this is an important graph ...

Click on graph for larger image.

This graph shows the population distribution of the 25 to 54 age group over time. In 2013, the largest group is the tail end of the "boomers" - and this is a key reason why disability has increased in the prime working-age population.    This also probably explains the slight pickup in retirement for prime-age workers.

A very interesting post.

by Calculated Risk on 4/10/2014 12:26:00 PM

From Freddie Mac today: Fixed Mortgage Rates Tick Down

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates moving down slightly as we head into the spring homebuying season. ...

30-year fixed-rate mortgage (FRM) averaged 4.34 percent with an average 0.7 point for the week ending April 10, 2014, down from last week when it averaged 4.41 percent. A year ago at this time, the 30-year FRM averaged 3.43 percent.

15-year FRM this week averaged 3.38 percent with an average 0.6 point, down from last week when it averaged 3.47 percent. A year ago at this time, the 15-year FRM averaged 2.65 percent.

Click on graph for larger image.

This graph shows the 30 and 15 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey®. 

After increasing last June, mortgage rates have mostly moved sideways for the last 9 or 10 months.

by Calculated Risk on 4/10/2014 10:16:00 AM

From Trulia chief economist Jed Kolko: Home Prices and Population Growth: Cities vs. Suburbs

Despite declining investor purchases and more inventory coming onto the market, asking home prices continued to rise at the start of the spring housing season. Month-over-month, asking prices rose 1.2% nationally in March 2014, seasonally adjusted. Quarter-over-quarter, asking prices rose 2.9% in March 2014, seasonally adjusted, reflecting three straight months of solid month-over-month gains.

Year-over-year, asking prices are up 10% nationally and up in 97 of the 100 largest metros. Albany, NY, Hartford, CT, and New Haven, CT, are the only three large metros where prices fell year-over-year, albeit slightly.
...
In March, rents rose 3.9% year-over-year nationally. Rent increases were higher for apartments (4.4% year-over-year) than for single-family homes (1.9% year-over-year).
emphasis added

In November 2013, year-over-year asking prices were up 12.2%. In December, the year-over-year increase in asking home prices slowed slightly to 11.9%. In January, the year-over-year increase was 11.4%, in February, the increase was 10.4% - and now the increase is 10.0%.

This suggests prices are still increasing, but at a slightly slower pace.

Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases, but at a slower rate, over the next few months on a seasonally adjusted basis.

by Calculated Risk on 4/10/2014 08:35:00 AM

The DOL reports:

In the week ending April 5, the advance figure for seasonally adjusted initial claims was 300,000, a decrease of 32,000 from the previous week's revised level. The last time intial claims were this low was May 12, 2007 when they were 297,000. The previous week's level was revised up by 6,000 from 326,000 to 332,000. The 4-week moving average was 316,250, a decrease of 4,750 from the previous week's revised average.

The previous week was revised up from 326,000.

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 316,250.

This was lower than the consensus forecast of 320,000.  The 4-week average is close to normal levels during an expansion.

by Calculated Risk on 4/09/2014 08:16:00 PM

An interesting post on the stock market from Joshua Brown: The Most Important Difference Between 2007 and 2014

Of course, in 2007, it was clear the country was headed into recession and that house prices would decline much further. Now there is no recession in sight ... and in addition to corporate balance sheets being in much better shape (as Brown notes), household balance sheets are much stronger too.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 320 thousand from 326 thousand.

• Early, the Trulia Price Rent Monitors for March. 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.

• At 2:00 PM, the Monthly Treasury Budget Statement for March.

by Calculated Risk on 4/09/2014 05:16:00 PM

From housing economist Tom Lawler:

Below are my “best guess” estimates of the number of US households – total and by tenure – from 2006 to 2013. The numbers for 2000 and 2010 are the “official” decennial Census numbers, while the numbers for other years from 2006 to 2012 are yearly averages derived from ACS data, adjusted (1) to reflect differences between ACS and decennial Census results; and (2) to reflect updated population estimates (total and by age group) for each year. Numbers for 2013 are “guesstimates” based on population estimates and headship/homeownership rates.

Also shown are homeownership rates. These homeownership rates are lower than the ones shown in the more widely followed Housing Vacancy Survey, as the HVS homeownership rates, both total and by age group, were “way off” from Decennial Census results for 2010.

US Household Estimates (000's)
	Owners	Renters	Total	Homeownership Rate
2000 (Census)	69,816	35,664	105,480	66.2%
2006	76,126	37,356	113,482	67.1%
2007	76,706	37,799	114,505	67.0%
2008	76,656	38,748	115,404	66.4%
2009	76,409	39,811	116,220	65.7%
2010 (Census)	75,986	40,730	116,716	65.1%
2011	75,600	41,843	117,443	64.4%
2012	75,481	43,006	118,487	63.7%
2013	75,683	43,814	119,497	63.3%

One of the most striking statistics is the number of US home owners: There were fewer US home owners in 2013 than there were in 2006, despite a 7% increase in the 15+ year old population!

While the number of SF (detached and attached) homes occupied by owners in 2013 appears to be about the same as in 2006, the number occupied by renters appears to have increased by about 3 1/2 million.

by Calculated Risk on 4/09/2014 02:00:00 PM

From the Fed: Minutes of the Federal Open Market Committee, March 18-19, 2014 . Excerpt:

In their discussion of monetary policy going forward, participants focused primarily on possible changes to the Committee's forward guidance for the federal funds rate. Almost all participants agreed that it was appropriate at this meeting to update the forward guidance, in part because the unemployment rate was seen as likely to fall below its 6-1/2 percent threshold value before long. Most participants preferred replacing the numerical thresholds with a qualitative description of the factors that would influence the Committee's decision to begin raising the federal funds rate. One participant, however, favored retaining the existing threshold language on the grounds that removing it before the unemployment rate reached 6-1/2 percent could be misinterpreted as a signal that the path of policy going forward would be less accommodative. Another participant favored introducing new quantitative thresholds of 5-1/2 percent for the unemployment rate and 2-1/4 percent for projected inflation. A few participants proposed adding new language in which the Committee would indicate its willingness to keep rates low if projected inflation remained persistently below the Committee's 2 percent longer-run objective; these participants suggested that the inclusion of this quantitative element in the forward guidance would demonstrate the Committee's commitment to defend its inflation objective from below as well as from above. Other participants, however, judged that it was already well understood that the Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance. Most participants therefore did not favor adding new quantitative language, preferring to shift to qualitative language that would describe the Committee's likely reaction to the state of the economy.

Most participants also believed that, as part of the process of clarifying the Committee's future policy intentions, it would be appropriate at this time for the Committee to provide additional guidance in its postmeeting statement regarding the likely behavior of the federal funds rate after its first increase. For example, the statement could indicate that the Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. Participants observed that a number of factors were likely to have contributed to a persistent decline in the level of interest rates consistent with attaining and maintaining the Committee's objectives. In particular, participants cited higher precautionary savings by U.S. households following the financial crisis, higher global levels of savings, demographic changes, slower growth in potential output, and continued restraint on the availability of credit. A few participants suggested that new language along these lines could instead be introduced when the first increase in the federal funds rate had drawn closer or after the Committee had further discussed the reasons for anticipating a relatively low federal funds rate during the period of policy firming. A number of participants noted the overall upward shift since December in participants' projections of the federal funds rate included in the March SEP, with some expressing concern that this component of the SEP could be misconstrued as indicating a move by the Committee to a less accommodative reaction function. However, several participants noted that the increase in the median projection overstated the shift in the projections. In addition, a number of participants observed that an upward shift was arguably warranted by the improvement in participants' outlooks for the labor market since December and therefore need not be viewed as signifying a less accommodative reaction function. Most participants favored providing an explicit indication in the statement that the new forward guidance, taken as a whole, did not imply a change in the Committee's policy intentions, on the grounds that such an indication could help forestall misinterpretation of the new forward guidance.
emphasis added

Rates will be low for a long time.  Note: SEP: "Summary of Economic Projections"