by Calculated Risk on 12/01/2014 04:57:00 PM

Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Registered Gain in October

Driven by stronger sales and traffic and a more optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) posted a solid gain in October. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.8 in October, up 1.8 percent from its September level. In addition, the RPI stood above 100 for the 20th consecutive month, which signifies expansion in the index of key industry indicators.

“The positive same-store sales and customer traffic results suggest that restaurants are the beneficiaries of falling gas prices, which were down $0.88 since the end of June,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Elevated food costs continue to top the list of challenges reported by restaurant operators, but overall they remain generally optimistic that business conditions will improve in the months ahead.”
emphasis added

Click on graph for larger image.

The index increased to 102.8 in October, up from 101.0 in September. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. This is a strong reading - and as Riehle noted - it appears restaurants are benefiting from lower gasoline prices.

by Calculated Risk on 12/01/2014 01:36:00 PM

It was over four years ago that we started discussing the turnaround for apartments. Then, in January 2011, I attended the NMHC Apartment Strategies Conference in Palm Springs, and the atmosphere was very positive. (note: the beginning of this post is from an earlier post on apartment supply and demand).

The drivers were 1) very low new supply, and 2) strong demand (favorable demographics, and people moving from owning to renting).

The demographics are still favorable for apartments, since  a large cohort is still moving into the 20 to 34 year old age group (a key age group for renters). Also, in 2015, based on Census Bureau projections, the two largest 5 year cohorts will be 20 to 24 years old, and 25 to 29 years old (the largest cohorts will no longer be the "boomers").  Note: Household formation would be a better measure than population, but reliable data for households is released with a long lag.

Click on graph for larger image.

This graph shows the population in the 20 to 34 year age group has been increasing.  This is actual data from the Census Bureau for 1985 through 2010, and current projections from the Census Bureau from 2015 through 2035.

The circled area shows the recent and projected increase for this group.

From 2020 to 2030, the population for this key rental age group is expected to remain mostly unchanged.

This favorable demographic is a key reason I've been positive on the apartment sector for the last several years - and I expect new apartment construction to stay strong for several more years.

The second graph shows the longer term trend for several key age groups: 20 to 29, 25 to 34, and 30 to 39 (the groups overlap).

This graph is from 1990 to 2060 (all data from BLS: 1990 to 2013 is actual, 2014 to 2060 is projected).

We can see the surge in the 20 to 29 age group (red).  Once this group exceeded the peak in earlier periods, there was an increase in apartment construction.  This age group will peak in 2018 (until the 2030s), and the 25 to 34 age group (orange, dashed) will peak in 2023.  This suggests demand for apartments will soften starting around 2020 +/-.

For buying, the 30 to 39 age group (blue) is important (note: see Demographics and Behavior for some reasons for changing behavior).  The population in this age group is increasing, and will increase significantly over the next 10+ years.  

This demographics is positive for home buying, and this is a key reason I expect single family housing starts to continue to increase in coming years.

by Calculated Risk on 12/01/2014 10:00:00 AM

The ISM manufacturing index suggests slightly slower expansion in November than in October. The PMI was at 58.7% in November, down from 59.0% in October. The employment index was at 54.9%, down from 55.5% in October, and the new orders index was at 66.0%, up from 65.8%.

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

Economic activity in the manufacturing sector expanded in November for the 18th consecutive month, and the overall economy grew for the 66th 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 November PMI® registered 58.7 percent, a decrease of 0.3 percentage point from October’s reading of 59 percent, indicating continued expansion in manufacturing. The New Orders Index registered 66 percent, an increase of 0.2 percentage point from the reading of 65.8 percent in October. The Production Index registered 64.4 percent, 0.4 percentage point below the October reading of 64.8 percent. The Employment Index grew for the 17th consecutive month, registering 54.9 percent, a decrease of 0.6 percentage point below the October reading of 55.5 percent. Inventories of raw materials registered 51.5 percent, a decrease of 1 percentage point from the October reading of 52.5 percent. The Prices Index registered 44.5 percent, down 9 percentage points from the October reading of 53.5 percent, indicating lower raw materials prices in November relative to October. Comments from the panel are upbeat about strong demand and new orders, with some expressing concerns about West Coast port slowdowns and the threat of a potential dock strike."
emphasis added

Click on graph for larger image.

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

This was above expectations of 58.2%, and indicates solid expansion in November.

by Calculated Risk on 11/30/2014 08:27:00 PM

From Professor Hamilton at Econbrowser: A glut of oil?

The world is awash in oil, I’m hearing. The problem is, it’s fairly expensive oil.
...
[C]onsider the United States, where production has grown 2 mb/d since 2004. More than 3 mb/d of that growth has come from fracking of oil trapped in tight geologic formations. Without tight oil, U.S. production would be down more than a million barrels a day over the last ten years and down 5-1/2 mb/d from its peak in 1970.
...
So here’s the basic picture. The current surplus of oil was brought about primarily by the success of unconventional oil production in North America, most new investments in which are not sustainable at current prices. Without that production, the price of oil could not remain at current levels. It’s just a matter of how long it takes for the high-cost North American producers to cut back in response to current incentives. And when they do, the price has to go back up.

Monday:
• At 10:00 AM ET, the ISM Manufacturing Index for November. The consensus is for a decrease to 58.2 from 59.0 in October. The ISM manufacturing index indicated solid expansion in October at 59.0%. The employment index was at 55.5%, and the new orders index was at 65.8%.

Weekend:
• Schedule for Week of November 30th

From CNBC: Pre-Market Data and Bloomberg futures: currently the S&P futures are down 4 and DOW futures are down 25 (fair value).

Oil prices were down sharply over the last week with WTI futures at $64.37 per barrel and Brent at $68.50 per barrel.  A year ago, WTI was at $93 and Brent was at $111 per barrel - so prices are down more 30% to 40% year-over-year.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $2.77 per gallon (down about 50 cents from a year ago).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 11/30/2014 10:16:00 AM

These are the changes (mostly to reps and warrants) that FHFA Director Melvin Watt discussed in October: Prepared Remarks of Melvin L. Watt, Director, FHFA, At the Mortgage Bankers Association Annual Convention

From Joe Light at the WSJ: Mortgage Lenders Set to Relax Standards

Some of the largest U.S. mortgage lenders are preparing to further ease standards for borrowers after the release of new guidelines this month from mortgage giants Fannie Mae and Freddie Mac.
...
Some lenders, including Wells Fargo & Co. and SunTrust Banks Inc., said borrowers should begin to see initial changes in a few weeks, including faster turnaround times for mortgage applications to be processed.
...
After the financial crisis, Fannie and Freddie made banks repurchase tens of billions of dollars in loans that the companies said didn’t meet their standards. In turn, many lenders stopped making loans to all but the most pristine of borrowers.

In many cases, they required borrowers to have substantially higher credit scores and put in place other measures—so-called credit overlays—that were more stringent than what Fannie and Freddie required.

With the new agreement, “I’ve been told with absolute confidence that some lenders are lifting almost all of their overlays,” said David Stevens, president of the Mortgage Bankers Association.

This should make mortgages available to more people, but I expect the overall impact will be small.

by Calculated Risk on 11/29/2014 01:21:00 PM

The key report this week is the November employment report on Friday.

Other key reports include the November ISM manufacturing index on Monday, November vehicle sales on Tuesday, the November ISM non-manufacturing index on Wednesday, and the October Trade Deficit on Friday.

----- Monday, December 1st -----
10:00 AM: ISM Manufacturing Index for November. The consensus is for a decrease to 58.2 from 59.0 in October.

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

The ISM manufacturing index indicated solid expansion in October at 59.0%. The employment index was at 55.5%, and the new orders index was at 65.8%.

----- Tuesday, December 2nd -----
All day: Light vehicle sales for November. The consensus is for light vehicle sales to increase to 16.5 million SAAR in November from 16.3 million in October (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the September sales rate.

10:00 AM: Construction Spending for October. The consensus is for a 0.5% increase in construction spending.

----- Wednesday, December 3rd -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for November. This report is for private payrolls only (no government). The consensus is for 226,000 payroll jobs added in November, down from 230,000 in October.

10:00 AM: ISM non-Manufacturing Index for November. The consensus is for a reading of 57.7, up from 57.1 in October. Note: Above 50 indicates expansion.

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

----- Thursday, December 4th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 300 thousand from 313 thousand.

----- Friday, December 5th -----
8:30 AM: Employment Report for November. The consensus is for an increase of 225,000 non-farm payroll jobs added in November, up from the 214,000 non-farm payroll jobs added in October.

The consensus is for the unemployment rate to decline to 5.7% in November.

This graph shows the year-over-year change in total non-farm employment since 1968.

In October, the year-over-year change was 2.64 million jobs, and it appears the pace of hiring is increasing.  Right now it looks like 2014 will be the best year since 1999 for both total nonfarm and private sector employment growth.

As always, a key will be the change in real wages - and as the unemployment rate falls, wage growth should eventually start to pickup.

8:30 AM: Trade Balance report for October from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through August. 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.

The consensus is for the U.S. trade deficit to be at $41.5 billion in October from $43.0 billion in September.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for October. The consensus is for a 0.1 decrease in October orders.

3:00 PM: Consumer Credit for October from the Federal Reserve.  The consensus is for credit to increase $16.3 billion.

by Calculated Risk on 11/29/2014 08:15:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Nov 28, 2014.

Changes and comments from surferdude808:

This week, the FDIC provided an update on its latest enforcement action activity and updated aggregate figures for their official problem banks. After four additions and seven removals, the Unofficial Problem Bank List holds 408 institutions with assets of $124.7 billion. A year ago, the list held 645 institutions with assets of $221.2 billion. During November, the list count dropped by 14 institutions after four additions, 13 action terminations, four mergers, and one failure. It was the most institutions added in a month since five were added back in October 2013.

The FDIC terminated actions against CNLBank, Orlando, FL ($1.3 billion); Chambers Bank, Danville, AR ($773 million); Pine River Valley Bank, Bayfield, CO ($142 million); Hanover Community Bank, Garden City Park, NY ($142 million); Heritage Bank & Trust, Columbia, TN ($102 million); Thayer County Bank, Hebron, NE ($55 million); and Riverland Bank, Jordan, MN ($44 million).

The FDIC issued actions against Noah Bank, Elkins Park, PA ($317 million); Pacific Valley Bank, Salinas, CA ($231 million Ticker: PVBK); Lafayette State Bank, Mayo, FL ($93 million); and Bison State Bank, Bison, KS ($9 million).

The FDIC reported its number of problem banks had fallen for 14 consecutive quarters to 329 institutions with assets of $102 billion. So the difference between the FDIC numbers and the Unofficial number is 79 institutions and $22.7 billion in assets, which is down from a difference of 85 institutions and $30 billion in assets last quarter.

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now back down to 408.  Almost a round trip ...

by Calculated Risk on 11/28/2014 09:11:00 PM

A few key points:
1) There is a clear seasonal pattern for house prices.
2) The surge in distressed sales during the housing bust distorted the seasonal pattern.
3) Even though distressed sales are down significantly, the seasonal factor is based on several years of data - and the factor is now overstating the seasonal change.
4) Still the seasonal index is probably a better indicator of actual price movements than the Not Seasonally Adjusted (NSA) index.

For in depth description of these issues, see Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).  I still use the seasonal factor (I think it is better than using the NSA data).

Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller National index since 1987 (both through September).   The seasonal pattern was smaller back in the '90s and early '00s, and increased since the bubble burst.

Both indexes were negative seasonally (NSA) in September and will probably stay slightly negative for a few months.

The second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

It appears the seasonal factor has started to decrease, and I expect that over the next several years - as the percent of distressed sales declines further and recent history is included in the factors - the seasonal factors will move back towards more normal levels.  However, as Kolko noted, there will be a lag with the seasonal factor since it is based on several years of recent data.

by Calculated Risk on 11/28/2014 03:05:00 PM

As of the October BLS report, the economy has added 2.225 million private sector jobs, and 2.285 million total jobs in 2014.

The consensus is the economy will add another 220 thousand jobs in November (215 thousand private sector jobs).   If that happens, 2014 will be the best year for private employment since 1999.

Here is a table showing the best years for nonfarm employment growth since 1995. To be the best year since the '90s, the economy needs to add an additional 222 thousand total nonfarm jobs. This could happen in the November report to be released next Friday, December 5th or in the December employment report to be released in early January.

This is happening with only 60 thousand public sector jobs added so far this year.  For comparison, there were 186 thousand public sector jobs added in 2005

Top Years Since 1995 Change in Nonfarm Payrolls per Year (000s)
Year	Total Nonfarm Employment
1997	3,408
1999	3,177
1998	3,047
1996	2,825
2005	2,506
2013	2,331
20141	2,285
2012	2,236
1995	2,159
1 2014 is through October.

For private employment, to be the best year since the '90s, the economy needs to add an additional 176 thousand private sector jobs (probably happen in the November report).

There is a small chance that 2014 will be the best year since 1998 for private employment.  However it would take an additional 491 thousand private sector jobs added in November and December (it would take 505 thousand additional jobs to be the best since 1997).  That would be a very strong finish to the year - unlikely, but not impossible.

Top Years Since 1995 Change in Private Payrolls per Year (000s)
Year	Private Employment
1997	3,213
1998	2,734
1996	2,720
1999	2,716
2011	2,400
2013	2,365
2005	2,320
2012	2,294
20141	2,225
1995	2,081
1 2014 is through October.

Right now it seems very likely that 2014 will be the best year since 1999 for both total nonfarm and private sector employment.

by Calculated Risk on 11/28/2014 10:41:00 AM

From HotelNewsNow.com: US hotel results for week ending 22 November

The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 16-22 November 2014, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy rose 5.5 percent to 60.7 percent. Average daily rate increased 4.1 percent to finish the week at US$112.52. Revenue per available room for the week was up 9.8 percent to finish at US$68.34.
emphasis added

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotels are now heading into the slow period of the year.

Click on graph for larger image.

The red line is for 2014, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.  Purple is for 2000.

The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and since mid-June, the 4-week average of the occupancy rate has been a little higher than for the same week in 2000.

Right now it looks like 2014 will be the best year since 2000 for hotels.  And since it takes some time to plan and build hotels, I expect 2015 will be even better for hotel occupancy.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com