by Calculated Risk on 6/04/2014 02:07:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of New York and based on information collected on or before May 23, 2014."

All twelve Federal Reserve Districts report that economic activity expanded during the current reporting period. The pace of growth was characterized as moderate in the Boston, New York, Richmond, Chicago, Minneapolis, Dallas, and San Francisco Districts, and modest in the remaining regions. Compared with the previous report, the pace of growth picked up in the Cleveland and St. Louis Districts but slowed slightly in the Kansas City District.

And on real estate:

Residential real estate activity has been mixed since the last report, with a lack of inventory at times cited as a constraining factor. Boston, New York, and Kansas City indicated that existing home sales were being held back due to low or dwindling inventories. Sales rose modestly in the Cleveland, Richmond, Atlanta, Chicago, and Dallas Districts, with inventories described as low in Richmond and Chicago and declining in Cleveland. Sales activity, however, softened in the Philadelphia, St. Louis, Minneapolis, and San Francisco Districts, though Philadelphia did note some signs of improvement in May. San Francisco attributed some of the weakness to severe weather. Home prices continued to increase across most of the Districts; Boston reported some pullback in prices of single-family homes, though condo prices in that District, as well as in New York, rose. New York, Chicago, and Dallas reported strengthening demand for apartment rentals, whereas Boston noted some slackening in demand.

Homebuilders gave mixed reports on new home sales and construction in recent weeks: Residential construction strengthened, to varying degrees in the New York, Richmond, Atlanta, Chicago, Kansas City, and Dallas Districts. However, Philadelphia, St. Louis, and Minneapolis indicated some weakening in new home sales and construction. Overall residential construction activity was mixed across the San Francisco District, though contacts there expect activity will increase over the next year. Both Boston and New York reported a good deal of recent multi-family development at the high end of the market, while Cleveland, Richmond, Atlanta, Chicago, and Dallas noted strength in multi-family construction more generally.

Non-residential construction activity was steady to stronger in most Districts over the latest reporting period, with strengthening reported in the Boston, St. Louis, and Kansas City Districts. Cleveland described pipeline activity as strong, and San Francisco noted that a number of public and commercial high rise projects have been announced or are underway. In contrast, Minneapolis reported a decline in non-residential construction activity, and Philadelphia characterized it as steady at a low level; Chicago described activity as mixed--with office construction weak but industrial and some segments of retail fairly strong. The commercial real estate market was mostly stronger since the last report. Leasing activity and vacancy rates improved in the Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco Districts, and were generally steady in the Boston, New York, Philadelphia, and St. Louis Districts. Dallas described market conditions as robust.
emphasis added

Some more positive comments on commercial real estate.  Residential is mixed.

by Calculated Risk on 6/04/2014 10:00:00 AM

The May ISM Non-manufacturing index was at 56.3%, up from 55.5% in April. The employment index increased in May to 52.4%, up from 51.3% in April. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: May 2014 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in May for the 52nd 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® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 56.3 percent in May, 1.1 percentage points higher than April are reading of 55.2 percent. This represents continued growth at a faster rate in the Non-Manufacturing sector and is the highest reading for the index since August 2013, when the index registered 57.9 percent. The Non-Manufacturing Business Activity Index increased to 62.1 percent, which is 1.2 percentage points higher than the April reading of 60.9 percent, reflecting growth for the 58th consecutive month at a faster rate. The New Orders Index registered 60.5 percent, 2.3 percentage points higher than the reading of 58.2 percent registered in April. The Employment Index increased 1.1 percentage points to 52.4 percent from the April reading of 51.3 percent and indicates growth for the third consecutive month and at a faster rate. The Prices Index increased 0.6 percentage point from the April reading of 60.8 percent to 61.4 percent, indicating prices increased at a faster rate in May when compared to April. According to the NMI®, 17 non-manufacturing industries reported growth in May. The majority of respondents' comments indicate that that there is steady incremental growth and project a positive outlook on business conditions."
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 55.3% and suggests faster expansion in May than in April.

by Calculated Risk on 6/04/2014 08:30:00 AM

The Department of Commerce reported this morning:

[T]otal April exports of $193.3 billion and imports of $240.6 billion resulted in a goods and services deficit of $47.2 billion, up from $44.2 billion in March, revised. April exports were $0.3 billion less than March exports of $193.7 billion. April imports were $2.7 billion more than March imports of $237.8 billion.

The trade deficit was much larger than the consensus forecast of $41.0 billion.

The first graph shows the monthly U.S. exports and imports in dollars through April 2014.

Click on graph for larger image.

Both imports and exports increased in April.  

Exports are 17% above the pre-recession peak and up 3% compared to April 2013; imports are about 4% above the pre-recession peak, and up about 5% compared to April 2013. 

The second graph shows the U.S. trade deficit, with and without petroleum, through April.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil imports averaged $95.48 in April, up from $93.91 in March, and down from $97.74 in April 2013.  The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012.

The trade deficit with China increased to $27.3 billion in April, from $24.2 billion in April 2013.  More than half of the trade deficit is related to China.

Overall it appears trade is picking up slightly.

by Calculated Risk on 6/04/2014 08:21:00 AM

From ADP:

Private sector employment increased by 179,000 jobs from April to May according to the May ADP National Employment Report®. ... he 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, "Job growth moderated in May. The slowing in growth was concentrated in Professional/Business Services and companies with 50-999 employees. The job market has yet to break out from the pace of growth that has prevailed over the last three years.”

This was below 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 May will be released on Friday.

by Calculated Risk on 6/04/2014 07:01:00 AM

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

Mortgage applications decreased 3.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 30, 2014. This week’s results include an adjustment for the Memorial Day holiday. ...

The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. ...
...
Interest rates for most products fell to their lowest levels in close to a year.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.26 percent from 4.31 percent, with points decreasing to 0.13 from 0.15 (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 is down 73% from the levels in May 2013 (one year ago).

As expected, refinance activity is very low this year.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down about 17% from a year ago.

Note: It appears mortgage rates will be down year-over-year in a few weeks.

by Calculated Risk on 6/03/2014 06:45:00 PM

From Jon Hilsenrath at the WSJ: Fed Officials Growing Wary of Market Complacency

[M]easures of risk aversion and market volatility show an especially striking sense of investor calm. The VIX, which tracks expected stock-market fluctuations based on options trading, has gone 74 straight weeks below its long-run average—a run of steadiness not seen since 2006 and 2007.
...
New York Fed President William Dudley warned in a question-and-answer session after a speech last month that he was nervous that unusually low volatility in markets was breeding too much risk-taking.

"Complacency" may be a problem, but this isn't 2006 and 2007. In January 2007 I predicted a recession would start that year as a result of the housing bust (made it by one month since the recession started in December 2007!).  Now - I don't see a recession any time soon.

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

• At 8:15 AM, the ADP Employment Report for May. This report is for private payrolls only (no government). The consensus is for 210,000 payroll jobs added in May, down from 220,000 in April.

• At 8:30 AM, the Trade Balance report for April from the Census Bureau. The consensus is for the U.S. trade deficit to be at $41.0 billion in April from $40.4 billion in March.

• At 10:00 AM, the ISM non-Manufacturing Index for May. The consensus is for a reading of 55.3, up from 55.2 in April. Note: Above 50 indicates expansion.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 6/03/2014 02:42:00 PM

Based on an AutoData estimate, light vehicle sales were at a 16.77 million SAAR in May. That is up 9% from May 2013, and up 5% from the sales rate last month.

This is the highest sales rate since February 2007.

Note: WardsAuto is currently estimating 16.70 million SAAR (updated final), see:  May 2014 Sales Thread: Late-Month Sales Send SAAR Soaring

This was above the consensus forecast of 16.1 million SAAR (seasonally adjusted annual rate).

Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for May (red, light vehicle sales of 16.77 million SAAR from AutoData).

Severe weather clearly impacted sales in January and February.  Since then vehicle sales have been solid.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

Unlike residential investment, auto sales bounced back fairly quickly following the recession and were a key driver of the recovery.   

Looking forward, the growth rate will slow for auto sales.

by Calculated Risk on 6/03/2014 12:15:00 PM

I'll post a graph of monthly vehicle sales when after all the automakers report (usually between 3 and 4 PM ET). The consensus is for light vehicle sales to increase to 16.1 million SAAR in May from just under 16.0 million in April (Seasonally Adjusted Annual Rate).

Here are a few articles that suggest sales were solid in May (there was one more selling day in May 2014 compared to May 2013).

From MarketWatch: General Motors U.S. sales jump 13% in May

GM said it sold 284,694 total vehicles in May, up from 252,894 a year earlier. ... GM called the results its best total monthly sales figure since August 2008.

From MarketWatch: Chrysler's U.S. sales jump 17% in May

Chrysler, a unit of Fiat Chrysler Automobiles, sold 194,421 vehicles in May, up from 166,596 a year earlier. The company said it enjoyed its best May sales since 2007.

From MarketWatch: Ford sales rise 3% in May

Ford Motor Co. reported Tuesday it sold 254,084 cars and pickup-truck in the United States in May, up 3% from a year ago. ... It was Ford's best May in 10 years

by Calculated Risk on 6/03/2014 09:14:00 AM

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

From CoreLogic: CoreLogic Reports Home Prices Rise by 10.5 Percent Year Over Year in April

Home prices nationwide, including distressed sales, increased 10.5 percent in April 2014 compared to April 2013. This change represents 26 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased 2.1 percent in April 2014 compared to March 2014.

Excluding distressed sales, home prices nationally increased 8.3 percent in April 2014 compared to April 2013 and 1.1 percent month over month compared to March 2014. Distressed sales include short sales and real estate owned (REO) transactions.

“The weakness in home sales that began a few months ago is clearly signaling a slowdown in price appreciation,” said Sam Khater, deputy chief economist for CoreLogic. “The 10.5 percent increase in April, compared to a year earlier, was the slowest rate of appreciation in 14 months.”
emphasis added

Click on graph for larger image.

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

The index was up 2.1% in April, and is up 10.5% over the last year.

This index is not seasonally adjusted, so a strong month-to-month gain was expected for April.


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

I expect the year-over-year increases to continue to slow.

by Calculated Risk on 6/02/2014 08:25:00 PM

From Emily Badger at the WaPo:

Census data released Monday on the characteristics of new single-family housing construction confirms that the median size of a new pad in America is bigger than it's ever been ... In 2013, the median size of a new single-family home completed in the United States was 2,384 square feet (the average, not surprisingly, was tugged even higher by the mega-mega home: 2,598 square feet). That median is above the pre-crash peak of 2,277 square feet in 2007, and it dwarfs the size of homes we were building back in 1973 (median size then: 1,525 square feet)....

What, then, do we want all of this room for? What's particularly striking in the Census Bureau's historic data on new housing characteristics is the growth of what would be luxuries for many households: fourth bedrooms, third bathrooms, three-car garages.

Looks like extra bathrooms are very popular.

Tuesday:
• All day: Light vehicle sales for May. The consensus is for light vehicle sales to increase to 16.1 million SAAR in May from 16.0 million in April (Seasonally Adjusted Annual Rate).

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for April. The consensus is for a 0.5% increase in April orders.