by Calculated Risk on 8/13/2014 01:33:00 PM

From DataQuick: Southland Home Sales Fall Yr/Yr Again; Prices Rise at Slower Pace

Southern California home sales fell to a three-year low for the month of July as supply continued to fall short of demand, some buyers struggled with higher prices, and investor activity fell. Cash deals declined to the lowest level in more than four years ...

A total of 20,369 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 1.4 percent from 20,654 sales in June, and down 12.4 percent from 23,253 sales in July 2013, according to Irvine-based CoreLogic DataQuick. ...

On average, sales have declined 6.3 percent between June and July since 1988, when CoreLogic DataQuick statistics begin. Southland sales have fallen on a year-over-year basis for 10 consecutive months. Sales during the month of July have ranged from a low of 16,225 in July 1995 to a high of 38,996 in July 2003. Last month’s sales were 19.4 percent below the July average of 25,269 sales.
...
Foreclosure resales – homes foreclosed on in the prior 12 months – accounted for 5.2 percent of the Southland resale market last month. That was down from a revised 5.3 percent the prior month and down from 7.7 percent a year earlier. In recent months the foreclosure resale rate has been the lowest since early 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 5.9 percent of Southland resales last month. That was down from a revised 6.0 percent the prior month and down from 12.7 percent a year earlier.

Absentee buyers – mostly investors and some second-home purchasers – bought 23.6 percent of the Southland homes sold last month. That was the lowest share since December 2010, when 23.4 percent of homes sold to absentee buyers. Last month’s 23.6 percent absentee share was down from a revised 23.9 percent in June and down from 27.4 percent a year earlier. ...
emphasis added

Both distressed sales and investor buying is declining - and this has been dragging down overall sales.  Even though total sales are down 12.4% year-over-year, the percent of non-distressed sales was only down about 2% year-over-year. 

The NAR is scheduled to release existing home sales for July on Thursday, August 21st.

by Calculated Risk on 8/13/2014 11:44:00 AM

Here are two posts from August in 2011 and 2013.

First, from August 14, 2011: Event Driven Declines in Consumer Sentiment.

Consumer sentiment had plunged to the lowest level in 30 years. This (and other data) led many analysts to predict the US was headed into a recession. As an example, from the WSJ in September 2011: Recession Is a ‘Done Deal,’ Per ECRI

“We are going into a recession,” ECRI director Lakshman Achuthan told CNBC this morning. “Last week we announced to our clients we are slipping into a recession. This is the first time I’m saying it publicly.”

I disagreed.  In the above post I argued that the plunge in sentiment was due to the threat by Congress not to pay the bills (event driven), and that sentiment would bounce quickly.  I wrote:

My feeling is the debt ceiling decline - assuming the decline was due to the insanity in D.C. - is most similar to the 1987 stock market crash (that scared everyone, but had little impact on the economy) and to Hurricane Katrina (although Katrina led to higher oil prices and a direct impact on consumption in several gulf states).

If I'm correct, then sentiment should bounce back fairly quickly - but only to an already low level. And the impact on consumption should be minimal.

Second, from August 12, 2013: Comment: The Key Downside Economic Risk

At the beginning of every year I post Ten Economic Questions for the year. Since 2013 (like 2011) was an off-year for elections, I expected Congress to act up again and ranked fiscal policy as the #1 downside risk in 2013. I wrote in August 2013:

Unfortunately we live in the real world, and politics trump reality. ...

Still - even in the insane world of politics - the debt ceiling is a fake issue (the House will cave again - they have no choice). And hopefully we will not see a government shutdown, but I expect the negotiations will go down to the wire. My guess is we will see another "continuing resolution", but you never know with politics.

The good news is these showdowns mostly happen in odd years with the hope that the voters will forget the congressional shenanigans by the next election. So IF we can get through the fall, fiscal policy will probably not be a big downside risk in 2014. Unfortunately that is a big "if".

I was correct about the Debt Ceiling (this is a fake issue and should be eliminated), but I was too optimistic about the government shutdown. And I was correct fiscal policy is not a big downside risk this year, but this does remind us about 2015!

While most of the media is focused on the 2014 election "horse race", I'm concerned about the downside risks in 2015 from more "shenanigans".   Unfortunately voters have short memories.

by Calculated Risk on 8/13/2014 08:40:00 AM

On a monthly basis, retail sales were unchanged from June to July (seasonally adjusted), and sales were up 3.7% from July 2013. Sales in June were unrevised at a 0.2%. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for July, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $439.8 billion, virtually unchanged from the previous month, and 3.7 percent above July 2013. ... The May to June 2014 percent change was unrevised from +0.2 percent.

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 ex-autos were up 0.1%. 

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 4.4% on a YoY basis (3.7% for all retail sales).

The increase in July was below consensus expectations of a 0.2% increase.

by Calculated Risk on 8/13/2014 07:02:00 AM

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

Mortgage applications decreased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 8, 2014. ...

The Refinance Index decreased 4 percent from the previous week to the lowest level since May 2014. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier to the lowest level since February 2014. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.35 percent, with points unchanged at 0.22 (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 75% from the levels in May 2013.

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 10% from a year ago.

by Calculated Risk on 8/12/2014 08:01:00 PM

A must read piece from Tim Duy: Heading Into Jackson Hole

Bottom Line: Anything other than a dovish message coming from the Jackson Hole conference will be a surprise. Tight labor markets alone will not justify an aggressive pace of tightening. An aggressive pace requires that those tight labor markets manifest themselves into higher wage growth and higher inflation. Yellen seems content to normalize slowly until she sees the white in the eyes of inflation.

CR Note: Yellen will be patient.

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

• At 8:30 AM, Retail sales for July will be released. On a monthly basis, retail sales increased 0.2% from May to June (seasonally adjusted), and sales were up 4.3% from June 2013. The consensus is for retail sales to increase 0.2% in July, and to increase 0.4% ex-autos.

• At 10:00 AM, the Manufacturing and Trade: Inventories and Sales (business inventories) report for June. The consensus is for a 0.4% increase in inventories.

by Calculated Risk on 8/12/2014 05:40:00 PM

It is difficult to forecast oil and gasoline prices due to world events, but currently the EIA expects gasoline prices to decline further this year according to the Short Term Energy Outlook released today:

• The market's perception of reduced risk to Iraqi oil exports and news regarding increasing Libyan oil exports contributed to a drop in the Brent crude oil spot price to an average of $107 per barrel (bbl) in July, $5/bbl lower than the June average. EIA projects Brent crude oil prices to average $107/bbl over the second half of 2014 and $105/bbl in 2015. ...

• Regular gasoline retail prices fell to an average of $3.61 per gallon (gal) in July, 8 cents/gal below the June average. Regular gasoline retail prices are projected to continue to decline to an average of $3.30/gal in December. EIA expects regular gasoline retail prices to average $3.50/gal in 2014 and $3.46/gal in 2015, compared with $3.51/gal in 2013.
emphasis added

Steady or declining gasoline prices would be a positive for the economy.  Right now gasoline prices are down to around $3.47 per gallon nationally according to the Gasbuddy.com.

The following graph is from Gasbuddy.com. Note: If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 8/12/2014 02:18:00 PM

The Treasury released the July Monthly Treasury Statement today. The Treasury reported a $94 billion deficit in July 2014, down from $97 billion in July 2013. For fiscal year 2014 through July, the deficit was $460 billion compared to $607 billion for the same period in fiscal 2013 (the fiscal year end in September).

In April, the Congressional Budget Office (CBO) released their new Updated Budget Projections: 2014 to 2024. The projected budget deficits were reduced for each of the next ten years, and the projected deficit for 2014 was revised down from 3.0% to 2.8%.  Based on the Treasury release today, I expect the deficit for fiscal 2014 to be close to the current CBO projection. The CBO will publish new budget projections this month.

Click on graph for larger image.

This graph shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next ten years based on estimates from the CBO.

The deficit should decline further next year and is projected to stay below 3% for the next 5 years.

The decline in the deficit, as a percent of GDP, from almost 10% to under 3% in 2014 is the fastest decline in the deficit since the demobilization following WWII (not shown on graph).

As an aside, the states are doing better too. In California: Controller Releases July Cash Update

State Controller John Chiang today released his monthly report covering California's cash balance, receipts and disbursements in July 2014. Total revenues for the first month of Fiscal Year 2014-15 totaled $5.4 billion, beating estimates in the Budget Act by $231.9 million, or 4.5 percent.

"Even though July is usually a weak revenue collection month, the new fiscal year is off to a strong start," Chiang said. "While the State plans to borrow operating funds through revenue anticipation notes, the $2.8 billion needed solely for smoothing out the timing of revenues is at the lowest level since the 2006-07 fiscal year. If we can continue to reduce short- and long-term debts, we can continue to improve our fiscal condition."
emphasis added

by Calculated Risk on 8/12/2014 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

There were 4.7 million job openings on the last business day of June, little changed from 4.6 million in May, the U.S. Bureau of Labor Statistics reported today. ...
...
Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits (not seasonally adjusted) increased over the 12 months ending in June for total nonfarm and total private. The number of quits was little changed for government.

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for June, the most recent employment report was for July.

Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased in June to 4.671 million from 4.577 million in May.   This is the highest level since February 2001.

The number of job openings (yellow) are up 18% year-over-year compared to June 2013.

Quits are up 15% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

It is a good sign that job openings are over 4 million for the fifth consecutive month, and that quits are increasing.

by Calculated Risk on 8/12/2014 08:51:00 AM

From the National Federation of Independent Business (NFIB): Small Business Optimism Ticks Up Slightly

July’s Optimism Index technically rose 0.7 points to a reading of 95.7. ...

Labor Markets. NFIB owners increased employment by an average of 0.01 workers per firm in July (seasonally adjusted), the tenth positive month in a row and the best string of gains since 2006.
emphasis added

Hiring plans increased to 13, the highest since 2007.

And in another good sign, the percent of firms reporting "poor sales" as the single most important problem has fallen to 13, down from 16 last year - and "taxes" and "regulations" are the top problems at 22 (taxes are usually reported as the top problem during good times).

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 95.7 in July from 95.0 in June.

Note: There is high percentage of real estate related businesses in the "small business" survey - and this has held down over all optimism.

by Calculated Risk on 8/11/2014 08:01:00 PM

The Job Openings and Labor Turnover Survey (JOLTS) is a key monthly report used by the Federal Reserve. The June survey results will be released tomorrow.

The Atlanta Fed has a great graphic on the labor market that uses three parameters from JOLTS (See: Labor Market Spider Chart©).

Dave Altig includes the spider chart in a post at the Atlanta Fed's Macroblog: Getting There?

Regarding labor markets, here is our favorite type of snapshot, courtesy of the Atlanta Fed’s Labor Market Spider Chart:

There is a lot to like in that picture. Leading indicators, payroll employment, vacancies posted by employers, and small business confidence are fully recovered relative to their levels at the end of the Great Recession.

On the less positive side, the numbers of people who are marginally attached or who are working part-time while desiring full-time hours remain elevated, and the overall job-finding rate is still well below prerecession levels. Even so, these indicators are noticeably better than they were at this time last year.

That year-over-year improvement is an important observation: the period from mid-2012 to mid-2013 showed little progress in the broader measures of labor-market performance that we place in the resource “utilization” category. During the past year, these broad measures have improved at the same relative pace as the standard unemployment statistic.

See this link Labor Market Spider Chart© for a larger interactive version of the spider chart. Note that Job Vacancies, Hires and Quits are all from JOLTS - and we will get an update Tuesday.

And a post from John Robertson at Macroblog: Are We There Yet?

Tuesday:
• At 7:30 AM ET, the NFIB Small Business Optimism Index for July.

• At 10:00 AM, the Job Openings and Labor Turnover Survey for June from the BLS. In May, the number of job openings (yellow) were up 19% year-over-year compared to May 2013, and Quits were up 15% year-over-year.

• At 2:00 PM, the Monthly Treasury Budget Statement for July. Note: The CBO's estimate is the deficit through July in fiscal 2014 was $462 billion, compared to $607 billion for the same period in fiscal 2013.