by Calculated Risk on 12/18/2014 01:03:00 PM

Note: West coast ports were impacted by a trucker strike in November, and ongoing labor negotiations (and some slowdown). The trucker strike ended after 9 days on November 22nd.

Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for November since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was down 0.2% compared to the rolling 12 months ending in Octrober.   Outbound traffic was down 1.4% compared to 12 months ending in October.

Inbound traffic has been increasing, and outbound traffic has been mostly moving sideways.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

Imports were down 2% year-over-year in November, exports were down 15% year-over-year.

Exports suggest a slowdown in Asia, but import traffic was decent considering the strike and labor negotiations.

by Calculated Risk on 12/18/2014 10:00:00 AM

From the Philly Fed: December Manufacturing Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased 16 points, from a reading of 40.8 in November to 24.5 this month ... The new orders [to 19.7] and current shipments indexes also weakened significantly.
...
The current employment index fell 15 points [to 9.7] ...

The diffusion index for future activity edged down 6 points, to 51.9, in December ...
emphasis added

This was at the consensus forecast of a reading of 25.0 for December.  Note: These declines were from the extremely high readings in November - usually a reading of 24.5 would be considered robust (above zero indicates expansion).

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through December. The ISM and total Fed surveys are through November.

The average of the Empire State and Philly Fed surveys declined in December (the Empire State was negative), but this still suggests another decent ISM report for December.

by Calculated Risk on 12/18/2014 08:33:00 AM

From the DOL reported:

In the week ending December 13, the advance figure for seasonally adjusted initial claims was 289,000, a decrease of 6,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 294,000 to 295,000. The 4-week moving average was 298,750, a decrease of 750 from the previous week's revised average. The previous week's average was revised up by 250 from 299,250 to 299,500.

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

The previous week was revised up to 295,000.

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 298,750.

This was lower than the consensus forecast of 295,000, and the level suggests few layoffs.

by Calculated Risk on 12/17/2014 07:55:00 PM

A few key takeaways:
• There has been no change in FOMC policy. Replacing "considerable time" with "patient" was because we are moving further in time from the end of QE3 .  The first rate hike will be a "considerable time" from October.

• "Patient" means it is unlikely the FOMC will raise rates at the next two meetings (not impossible, but very unlikely). Here is the sentence in the statement: "Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy". Based on Dr. Yellen's comments, it sounded to me like the FOMC will remove "patient" about two meetings before the first rate hike.

• Yellen was not very concerned about the financial crisis in Russia spilling over into the U.S. She said "spillovers to the United States, both through trade and financial channels, would be small."

• Yellen thought the impact of the decline in oil prices on inflation would be transitory, and that core inflation would move towards the Fed's 2% target.

• Yellen made it clear that a policy change could happen at any meeting (not just meetings followed by a scheduled press conference). She said: “Every meeting that we have is a live meeting at which the committee could make a policy decision and we will feel free to do so. I would really like to strongly discourage the expectation that policy moves can only occur when there’s a scheduled press conference.”

• Yellen reminded everyone that monetary policy works with a lag, and that the FOMC has to forecast when a better labor market will lead to higher inflation (not yet, obviously).

• Yellen argued that it is important that the Fed stay independent. She opposes auditing the Fed's policy decisions (the Fed is already audited financially). Of course the people pushing the policy audits have been wrong about everything ... so we are lucky they are not in charge!

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 295 thousand from 294 thousand.

• At 10:00 AM, the Philly Fed manufacturing survey for December. The consensus is for a reading of 25.0, down from 40.8 last month (above zero indicates expansion).

by Calculated Risk on 12/17/2014 04:48:00 PM

From Zillow: Negative Equity Down By Almost Half Since 2012 Peak, But There’s Still a Ways to Go

The national negative equity rate continued to decline in the third quarter, falling to 16.9 percent, according to the third quarter Zillow Negative Equity Report, down almost half from its 31.4 percent peak in the first quarter of 2012. More than 7 million previously underwater homeowners, those homeowners owing more on their home than it is worth, have been freed from negative equity since its peak.

Negative equity fell from 21 percent in the third quarter of 2013 and 17.9 percent in the second quarter.
emphasis added

The following graph from Zillow shows negative equity by Loan-to-Value (LTV) in Q3 2014.

Click on graph for larger image.

From Zillow:

Nationally, of the homeowners who are underwater, around half are only underwater by 20 percent or less, which is to say they are close to escaping negative equity. (Figure 3) On the other hand, 1.9 percent of owners with a mortgage remain deeply underwater, owing at least twice what their home is worth.

Almost half of the borrowers with negative equity have a LTV of 100% to 120% (8.2% in Q3 2014). Most of these borrowers are current on their mortgages - and they have probably either refinanced with HARP or their loans are well seasoned (most of these properties were purchased in the 2004 through 2006 period, so borrowers have been current for eight to ten years or so). In a few years, these borrowers will have positive equity.

The key concern is all those borrowers with LTVs above 140% (about 5.2% of properties with a mortgage according to Zillow). It will take many years to return to positive equity ... and a large percentage of these properties will eventually be distressed sales (short sales or foreclosures).

Note: CoreLogic will release their Q3 negative equity report in the next couple of weeks. For Q2, CoreLogic reported there were 5.3 million properties with negative equity, and that will be down further in Q3 2014.

by Calculated Risk on 12/17/2014 02:18:00 PM

Statement here "Considerable time" replaced with "patient" - viewed as consistent with previous statement.

As far as the "Appropriate timing of policy firming",  participant views were mostly unchanged (15 participants expect the first rate hike in 2015, and 2 in 2016).

The FOMC projections for inflation are still on the low side through 2017.

Yellen press conference here.

On the projections, GDP for 2014 was revised up, the unemployment rate was revised down again, and inflation projections were revised down (include core inflation).  Note: These projections were submitted before the CPI report this morning.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2014	2015	2016	2017
Dec 2014 Meeting Projections	2.3 to 2.4	2.6 to 3.0	2.5 to 3.0	2.3 to 2.5
Sept 2014 Meeting Projections	2.0 to 2.2	2.6 to 3.0	2.6 to 2.9	2.3 to 2.5
June 2014 Meeting Projections	2.1 to 2.3	3.0 to 3.2	2.5 to 3.0	n.a.

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 5.8% in October and November.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2014	2015	2016	2017
Dec 2014 Meeting Projections	5.8	5.2 to 5.3	5.0 to 5.2	4.9 to 5.3
Sept 2014 Meeting Projections	5.9 to 6.0	5.4 to 5.6	5.1 to 5.4	4.9 to 5.3
June 2014 Meeting Projections	6.0 to 6.1	5.4 to 5.7	5.1 to 5.5	n.a.

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of October, PCE inflation was up 1.4% from October 2013, and core inflation was up 1.6%. The FOMC expects inflation to remain below their 2% target in 2015 (Note: the FOMC target is symmetrical around 2%). 

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2014	2015	2016	2017
Dec 2014 Meeting Projections	1.2 to 1.3	1.0 to 1.6	1.7 to 2.0	1.9 to 2.0
Sept 2014 Meeting Projections	1.5 to 1.7	1.6 to 1.9	1.7 to 2.0	1.9 to 2.0
June 2014 Meeting Projections	1.5 to 1.7	1.5 to 2.0	1.6 to 2.0	n.a.

Here are the FOMC's recent core inflation projections:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2014	2015	2016	2017
Dec 2014 Meeting Projections	1.5 to 1.6	1.5 to 1.8	1.7 to 2.0	1.8 to 2.0
Sept 2014 Meeting Projections	1.5 to 1.6	1.6 to 1.9	1.8 to 2.0	1.9 to 2.0
June 2014 Meeting Projections	1.5 to 1.6	1.6 to 2.0	1.7 to 2.0	n.a.

by Calculated Risk on 12/17/2014 02:00:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace. Labor market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; survey-based measures of 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, with labor market indicators moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, 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. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, 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. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

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. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

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; Lael Brainard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo.

Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate; Narayana Kocherlakota, who believed that the Committee's decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target; and Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements.
emphasis added

by Calculated Risk on 12/17/2014 11:25:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.8% annualized rate) in November. The 16% trimmed-mean Consumer Price Index rose 0.1% (1.0% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.3% (-3.0% annualized rate) in November. The CPI less food and energy rose 0.1% (0.9% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for November here. Motor fuel declined at a 55% annualized rate in November following a 31% annualized rate decline in October! There will be another sharp decline in December too.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy rose 1.7%. Core PCE is for October and increased 1.6% year-over-year.

On a monthly basis, median CPI was at 1.8% annualized, trimmed-mean CPI was at 1.0% annualized, and core CPI increased 0.9% annualized.

On a year-over-year basis these measures suggest inflation remains at or below the Fed's target of 2%.

by Calculated Risk on 12/17/2014 09:34:00 AM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From AIA: Demand Softens, but Outlook for Architecture Billings Index Remains Positive

Buoyed by sustained demand for apartments and condominiums, coupled with state and local governments moving ahead with delayed public projects, the Architecture Billings Index (ABI) has been positive for seven consecutive months. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the November ABI score was 50.9, down from a mark of 53.7 in October. This score reflects a slight increase in design activity (any score above 50 indicates an increase in billings). The new projects inquiry index was 58.8, following a mark of 62.7 the previous month.

The AIA has added a new indicator measuring the trends in new design contracts at architecture firms that can provide a strong signal of the direction of future architecture billings. The score for design contracts in November was 54.9.

“Demand for design services has slowed somewhat from the torrid pace of the summer, but all project sectors are seeing at least modest growth,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Architecture firms are expecting solid mid-single digit gains in revenue for 2014, but heading into 2015, they are concerned with finding quality contractors for projects, coping with volatile construction materials costs and with finding qualified architecture staff for their firms.”

• Regional averages: South (57.9), West (52.7), Midwest (49.8), Northeast (46.7) [three month average]
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.9 in November, down from 53.7 in October. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  So the positive readings over the last seven months suggest an increase in CRE investment in 2015.

by Calculated Risk on 12/17/2014 08:33:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) declined 0.3 percent in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.3 percent before seasonal adjustment.
...
The gasoline index posted its sharpest decline since December 2008 and was the main cause of the decrease in the seasonally adjusted all items index. The indexes for fuel oil and natural gas also declined, and the energy index fell 3.8 percent. ...

The index for all items less food and energy increased 0.1 percent in November. ...

The all items index increased 1.3 percent over the last 12 months, a notable decline from the 1.7 percent figure from the 12 months ending October. The index for all items less food and energy has increased 1.7 percent over the last 12 months, compared to 1.8 percent for the 12 months ending October.
emphasis added

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was below the consensus forecast of a 0.1% decrease for CPI, and at the forecast of a 0.1% increase in core CPI.

Energy prices have also declined significantly in December, and CPI will fall further - but the key is to focus on the core measures.