by Calculated Risk on 5/01/2014 12:17:00 PM

M.D.C. Holdings reported that net home orders in the quarter ended March 31, 2014 totaled 1,236, down 4.9% from the comparable quarter of 2013. Net orders per active community were down 9.6% from a year ago. The company’s sales cancellation rate, expressed as a % of gross orders, was 19% last quarter, up slightly from 18% a year earlier. Home deliveries last quarter totaled 873, down 14.2% from the comparable quarter of 2013, at an average sale price of $377,000, up 11.1% from a year ago. The company’s order backlog at the end of March was 1,625, down 15.7% from last March. M.D.C. owned or controlled 16,043 lots at the end of March, up 25.9% from a year ago, and the company’s active community count at the end of March was 157, up 13% from last March.

M.D.C. attributed the increase in its average sales price both to price appreciation in “many” of its markets and to a shift in the mix of homes closed. The biggest YOY declines in net orders per active community were in Nevada, Virginia, Maryland, and Arizona.

Beazer Homes reported that net home orders in the quarter ended March 31, 2014 totaled 1,390, down 8.6% from the comparable quarter of 2013. Beazer’s net orders per community last quarter were down 2.9% from a year earlier. The company’s sales cancellation rate, expressed as a % of gross orders, was 19.4% last quarter, up slightly from 18.7% a year ago. Home deliveries totaled 977 last quarter, down 13.3% from the comparable quarter of 2013, at an average sales price of $272,400, up 7.5% from a year ago. The company’s order backlog at the end of March was 2,163, down 2.2% from last March. Beazer owned or controlled 29,331 lots at the end of March, up 18.8% from last March.

Below are some summary stats for 8 large publicly-traded home builders.

As the table indicates, net orders at these eight builders combined last quarter were virtually flat from the comparable quarter of last year. While not all of these builders released active community count numbers, based on conference call comments I estimate that net orders per community for the eight builders as a whole last quarter were down about 6% from a year ago.

	Net Orders			Settlements			Average Closing Price
Qtr. Ended:	3/14	3/13	% Chg	3/14	3/13	% Chg	3/14	3/13	% Chg
D.R. Horton	8,569	7,879	8.8%	6,194	5,463	13.4%	$271,230	$242,548	11.8%
Pulte Group	4,863	5,200	-6.5%	3,436	3,833	-10.4%	$317,000	$287,000	10.5%
NVR	3,325	3,510	-5.3%	2,211	2,272	-2.7%	$361,400	$330,400	9.4%
The Ryland Group	2,186	2,052	6.5%	1,470	1,315	11.8%	$327,000	$277,000	18.1%
Meritage Homes	1,525	1,547	-1.4%	1,109	1,052	5.4%	$365,896	$314,363	16.4%
M/I Homes	982	1,047	-6.2%	737	627	17.5%	$299,000	$284,000	5.3%
Total	21,450	21,235	1.0%	15,157	14,562	4.1%	$308,445	$278,040	10.9%

by Calculated Risk on 5/01/2014 10:29:00 AM

The Census Bureau reported that overall construction spending increased in March:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during March 2014 was estimated at a seasonally adjusted annual rate of $942.5 billion, 0.2 percent above the revised February estimate of $940.8 billion. The March figure is 8.4 percent above the March 2013 estimate of $869.2 billion.

Private spending increased and public spending decreased in March:

Spending on private construction was at a seasonally adjusted annual rate of $679.6 billion, 0.5 percent above the revised February estimate of $676.3 billion. ...

In March, the estimated seasonally adjusted annual rate of public construction spending was $262.9 billion, 0.6 percent below the revised February estimate of $264.5 billion.
emphasis added

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 45% below the peak in early 2006, and up 62% from the post-bubble low.

Non-residential spending is 25% below the peak in January 2008, and up about 38% from the recent low.

Public construction spending is now 19% below the peak in March 2009 and at a new post-recession low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 16%. Non-residential spending is up 8 year-over-year. Public spending is down 1% year-over-year.


Looking forward, all categories of construction spending should increase in 2014. Residential spending is still very low, non-residential is starting to pickup, and public spending is probably near a bottom. 

Note: Public construction spending is at the lowest level since 2006 (lowest since 2001 adjusted for inflation).  Not investing more in infrastructure is probably one of the major policy failures of the last 5+ years. 

by Calculated Risk on 5/01/2014 10:00:00 AM

The ISM manufacturing index suggests faster expansion in April than in March. The PMI was at 54.9% in April, up from 53.7% in March. The employment index was at 54.7%, up from 51.1% in March, and the new orders index was at 55.1%, unchanged from 55.1% in March.

From the Institute for Supply Management: April 2014 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in April for the 11th consecutive month, and the overall economy grew for the 59th consecutive month, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. "The April PMI® registered 54.9 percent, an increase of 1.2 percentage points from March's reading of 53.7 percent, indicating expansion in manufacturing for the 11th consecutive month. The New Orders Index registered 55.1 percent, equal to the reading in March, indicating growth in new orders for the 11th consecutive month. The Production Index registered 55.7 percent, slightly below the March reading of 55.9 percent. Employment grew for the 10th consecutive month, registering 54.7 percent, an increase of 3.6 percentage points over March's reading of 51.1 percent. Comments from the panel generally remain positive; however, some expressed concern about international economic and political issues potentially impacting demand."
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 54.2%.

by Calculated Risk on 5/01/2014 08:34:00 AM

The DOL reports:

In the week ending April 26, the advance figure for seasonally adjusted initial claims was 344,000, an increase of 14,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 329,000 to 330,000. The 4-week moving average was 320,000, an increase of 3,000 from the previous week's revised average. The previous week's average was revised up by 250 from 316,750 to 317,000.

There were no special factors impacting this week's initial claims.

The previous week was revised up from 329,000.

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 increased to 320,000.

This was above the consensus forecast of 320,000.  Even with the increase, the 4-week average is close to normal levels for an expansion.

by Calculated Risk on 4/30/2014 08:53:00 PM

A very busy day ...

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 329 thousand.

• Also at 8:30 AM, Personal Income and Outlays for March. The consensus is for a 0.4% increase in personal income, and for a 0.6% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• Also at 8:30 AM, Speech by Fed Chair Janet Yellen, Community Bank Supervision, At the Independent Community Bankers of America 2014 Washington Policy Summit, Washington, D.C.

• At 9:00 AM, the Markit US PMI Manufacturing Index for April.

• At 10:00 AM, the ISM Manufacturing Index for April. The consensus is for an increase to 54.2 from 53.7 in March. The ISM employment index was at 51.1% in March, and the new orders index was at 55.1%.

• At 10:00 AM, Construction Spending for March. The consensus is for a 0.6% increase in construction spending.

by Calculated Risk on 4/30/2014 05:43:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in March to 2.19% from 2.27% in February. The serious delinquency rate is down from 3.02% in  March 2013, and this is the lowest level since November 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Earlier Freddie Mac reported that the Single-Family serious delinquency rate declined in March to 2.20% from 2.29% in February. Freddie's rate is down from 3.03% in March 2013, and is at the lowest level since February 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

Both Fannie Mae and Freddie Mac serious delinquency rates have fallen 0.83 percentage points over the last year, and at that pace the serious delinquency rates will probably be below 2% mid-year 2014 - and will be under 1% in late 2015.

Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be back to normal in late 2015 or 2016.

by Calculated Risk on 4/30/2014 02:00:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in March indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending appears to be rising more quickly. Business fixed investment edged down, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in May, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $20 billion per month rather than $25 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $25 billion per month rather than $30 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. 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.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.
emphasis added

by Calculated Risk on 4/30/2014 11:41:00 AM

Private investment in Q1 was very weak.

The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential Investment (RI) made a negative contribution to GDP in Q1 for the second consecutive quarter (red).

Residential investment is so low - as a percent of the economy - that this 2 quarter decline is not much of a concern.  However, for the rate of economic growth to increase, RI will probably have to make positive contributions.
  
Equipment and software investment also made a negative contribution in Q1, and the three quarter average is barely positive.

The contribution from nonresidential investment in structures was zero in Q1.  Nonresidential investment in structures typically lags the recovery, however investment in energy and power provided a boost early in the recovery. 

I expect to see investment to increase over the next few quarters - and that is key for stronger GDP growth.

by Calculated Risk on 4/30/2014 08:30:00 AM

From the BEA: Gross Domestic Product: First Quarter 2014 (advance estimate)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.1 percent in the first quarter (that is, from the fourth quarter of 2013 to the first quarter of 2014), according to the "advance" estimate released by the Bureau of Economic Analysis.
...
The increase in real GDP in the first quarter primarily reflected a positive contribution from personal consumption expenditures (PCE) that was partly offset by negative contributions from exports, private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

The advance Q1 GDP report, with 0.1% annualized growth, was below expectations of a 1.1% increase.  Personal consumption expenditures (PCE) increased at a 3.0% annualized rate - a solid pace.

However the the change in inventories subtracted 0.57 percentage points from growth in Q1, exports subtracted 0.83 percentage points, and both non-residential and residential investment were negative.  
The first graph shows the contribution to percent change in GDP for residential investment and state and local governments since 2005. 

Click on graph for larger image.

The drag from state and local governments (red) appeared to have ended last year after an unprecedented period of state and local austerity (not seen since the Depression).  However State and local governments subtracted from GDP in Q1.

Overall I expect state and local governments to continue to make a small positive contributions to GDP in 2014.

The blue bars are for residential investment (RI).  RI added to GDP growth for 12 consecutive quarters, before subtracting in Q4 2013 and Q1 2014.  However since RI is still very low, I expect RI to make a positive contribution to GDP in 2014.

Residential Investment as a percent of GDP has bottomed, but it still below the levels of previous recessions.

I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The third graph shows non-residential investment in structures, equipment and "intellectual property products".

I'll add details for investment in offices, malls and hotels next week.


Overall this was a weak report, although PCE growth was decent.   Private investment (even excluding the change in inventories) was negative, and that is the key to more growth going forward.

by Calculated Risk on 4/30/2014 08:19:00 AM

From ADP:

Private sector employment increased by 220,000 jobs from March to April according to the April ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
Mark Zandi, chief economist of Moody’s Analytics, said, "The job market is gaining strength. After a tough winter employers are expanding payrolls across nearly all industries and company sizes. The recent pickup in job growth at mid-sized companies may signal better business confidence. Job market prospects are steadily improving.”

This was above the consensus forecast for 210,000 private sector jobs added in the ADP report. 

Note: ADP hasn't been very useful in directly predicting the BLS report on a monthly basis, but it might provide a hint. The BLS report for April will be released on Friday.