by Calculated Risk on 12/30/2014 07:01:00 AM

According to Black Knight's First Look report for November, the percent of loans delinquent increased 12% in November compared to October, and declined 6% year-over-year.

The percent of loans in the foreclosure process declined further in November and were down 35% over the last year.  Foreclosure inventory was at the lowest level since January 2008.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 6.08% in November, up from 5.44% in October. Some of the increase was seasonal (the delinquency rate usually increases in November).  The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 1.63% in November from 1.69% in October.

The number of delinquent properties, but not in foreclosure, is down 329,000 properties year-over-year, and the number of properties in the foreclosure process is down 427,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for November in early January.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Nov 2014	Oct 2014	Nov 2013	Nov 2012
Delinquent	6.08%	5.44%	6.45%	7.03%
In Foreclosure	1.63%	1.69%	2.50%	3.61%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,925,000	1,658,000	1,958,000	1,999,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,163,000	1,101,000	1,283,000	1,584,000
Number of properties in foreclosure pre-sale inventory:	829,000	858,000	1,256,000	1,767,000
Total Properties	3,917,000	3,617,000	4,497,000	5,350,000

by Calculated Risk on 12/29/2014 07:08:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

6) Real Wage Growth: Last month I listed a few economic "words of the year" for the last decade. I finished with: "2015: Wages (Just being hopeful - maybe 2015 will be the year that real wages start to increase)". Will real wages increase in 2015?

Jared Bernstein wrote an excellent article today on the labor market at the NY Times The Upshot: Signs of a Tightening Labor Market, but Still Room for Improvement. He mentioned wages:

For all the actual tightening in the 2014 job market, what is perhaps the most important indicator from the perspective of working families — wage growth — has hardly budged. Though commentators made a big deal out of the bump in pay from the last jobs report, the yearly trend in nominal hourly wage growth remains at about 2 percent, where it has been since 2010.

Bernstein is referring to “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report, .

Click on graph for larger image.

The blue line shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  As Bernstein noted, nominal wage growth has been running close to 2% since 2010.

The red line is real wage growth (adjusted using headline CPI).  Real wages increased during the crisis because CPI declined sharply.   CPI has been running under 2%, so there has been some real wage growth - and some of the recent increase in real wages is due to falling oil prices (CPI declined in November).

There are two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. All three data series are different, and most of the focus recently has been the CES series (used in the graph above).


The second graph shows the year-over-year change using the quarterly wage data from the Employment Cost Index (data starts in 2001). Once again this shows nominal wages have increasing about 2% per year, and real wages have been mostly unchanged. In the future I'll post a graph including benefits (benefits generally have risen faster than wages).

For this post the key point is that nominal wages have been only increasing about 2% per year. As the labor market tightens, we should start seeing some wage pressure as companies have to compete more for employees. Whether real wages start to pickup in 2015 - or not until 2016 or later - is a key question. I expect to see some increase in both real and nominal wage increases this year. I doubt we will see a significant pickup, but maybe another 0.5 percentage points for both, year-over-year.

Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?

by Calculated Risk on 12/29/2014 01:49:00 PM

A few related articles on oil  ...

From Bloomberg: Oil Falls to 5-Year Low as Supply Glut Seen Lingering

Oil fell to the lowest level in more than five years amid speculation that a global supply glut that’s driven crude into a bear market will continue through the first half of 2015.
...
WTI for February delivery fell 96 cents, or 1.8 percent, to $53.77 a barrel at 12:25 p.m. on the New York Mercantile Exchange.

Currently WTI is at $53.21, and Brent futures are at $57.79.

From Bloomberg: Oil Rigs in U.S. Drop by 37 to Lowest Level Since April

Rigs targeting oil declined by 37 to 1,499 in the week ended Dec. 26, Baker Hughes Inc. (BHI) said on its website today. The number of oil rigs has slipped by 76 in three weeks. ... The number of rigs targeting U.S. oil is down from a record 1,609 following a $55-a-barrel drop in global prices since June, threatening to slow the shale-drilling boom that’s propelled domestic production to the highest in three decades.
...
While the U.S. rig count has dropped, domestic production continues to surge, with the yield from new wells in shale formations including North Dakota’s Bakken and Texas’s Eagle Ford projected to reach records next month, Energy Information Administration data show.

Although new exploration will slow sharply, I expect domestic producers to continue to produce at most existing wells at current prices.

And less exploration will lead to layoffs.  From the WSJ: Oil Jobs Squeezed as Prices Plummet

Tom Runiewicz, a U.S. industry economist at IHS Global Insight, forecasts companies providing support services to oil and gas companies could lose 40,000 jobs by the end of 2015, about 9% of the category’s total, if oil stays around $56 a barrel through the second quarter of next year. Equipment manufacturers could shed 5,000 to 6,000 jobs, or about 6% of total employment for such companies.

There will be winners and losers with the decline in oil prices, however, since the US is a large net importer of oil (despite the myth reported by some in the media), overall the decline in oil prices should be a positive for the economy.

by Calculated Risk on 12/29/2014 10:35:00 AM

From the Dallas Fed: Texas Manufacturing Activity Picks Up Pace

Texas factory activity increased again in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose strongly from 6 to 15.8, indicating output grew at a faster pace in December.

Other measures of current manufacturing activity reflected continued growth during the month. The capacity utilization index rose from 9.8 to 12.4, due to a higher share of respondents noting an increase in December than in November. The shipments index climbed to 19.6, its highest reading in five months. The new orders index moved down from 5.6 to 1.3, suggesting moderating demand growth, but more than a quarter of firms noted increases in new orders over November levels.

Perceptions of broader economic conditions remained positive this month. The general business activity index fell from 10.5 to 4.1. The company outlook index was almost unchanged at 8.4, with 21 percent of respondents noting an improved outlook.

Labor market indicators reflected unchanged workweeks but continued employment increases. The December employment index held steady at a solid reading of 9.2
emphasis added

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through December), and five Fed surveys are averaged (blue, through December) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through November (right axis).

It seems likely the ISM index will be solid, but show slower expansion in December. The ISM Manufacturing Index for December will be released on Friday, January 2nd, and the consensus is for a decrease to 57.5 from 58.7 in November.

by Calculated Risk on 12/29/2014 08:33:00 AM

Note: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight, Zillow, FHFA, FNC and more). The timing of different house prices indexes; Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From Black Knight: U.S. Home Prices Up 0.1 for the Month; Up 4.5 Percent Year-Over-Year

Today, the Data and Analytics division of Black Knight Financial Services​ released its latest Home Price Index (HPI) report, based on October 2014 residential real estate transactions. The Black Knight HPI combines the Company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.

The Black Knight HPI increased 0.1% percent in October, and is off 10.2% from the peak in June 2006 (not adjusted for inflation).

The year-over-year increases have been getting steadily smaller for the last year - as shown in the table below:

Month	YoY House Price Increase
Jan-13	6.7%
Feb-13	7.3%
Mar-13	7.6%
Apr-13	8.1%
May-13	7.9%
Jun-13	8.4%
Jul-13	8.7%
Aug-13	9.0%
Sep-13	9.0%
Oct-13	8.8%
Nov-13	8.5%
Dec-13	8.4%
Jan-14	8.0%
Feb-14	7.6%
Mar-14	7.0%
Apr-14	6.4%
May-14	5.9%
June-14	5.5%
July-14	5.1%
Aug-14	4.9%
Sep-14	4.6%
Oct-14	4.5%

The press release has data for the 20 largest states, and 40 MSAs.

Black Knight shows prices off 41.0% from the peak in Las Vegas, off 34.0% in Orlando, and 31.7% off from the peak in Riverside-San Bernardino, CA (Inland Empire). Prices are at new highs in Colorado and Texas (Denver, Austin, Dallas, Houston and San Antonio metros). Prices are also at new highs in Honolulu, HI, and Nashville, TN.

Note: Case-Shiller for October will be released tomorrow.

by Calculated Risk on 12/28/2014 08:25:00 PM

From the WSJ: Need a Raise in 2015? Try Changing Jobs

In an economic recovery weighed down by subdued income growth for most Americans, a Kansas City Fed paper suggests those who are moving on to new jobs are better able to negotiate pay increases.

By focusing on job “switchers,” Kansas City Fed economist José Mustre-del-Río says he is able to get a better sense of present wage conditions.

“Unlike wages of stayers, wages of switchers are much more cyclically sensitive, as contracts signed with new employers are more likely to reflect current economic conditions,” he writes in a research note. “We find that switchers’ wage growth has been quite strong the past several quarters as the labor market continues to tighten.”

For instance, job switchers’ average wage growth rose from around 4.3% per quarter in the first quarter of 2013 to 5.6% in the third quarter of 2014, the study found. Those changing jobs in leisure and hospitality experienced average wage growth of 7.7%, well above a the 2% experience by the average worker last year and that has kept consumers barely keeping pace with inflation.

Monday:
• At 10:30 AM ET, the Dallas Fed Manufacturing Survey for December. This is the last of the regional Fed surveys for December.

Weekend:
• Schedule for Week of December 28th

• Question #7 for 2015: What about oil prices in 2015?

• Question #8 for 2015: How much will Residential Investment increase?

• Question #9 for 2015: What will happen with house prices in 2015?

• Question #10 for 2015: How much will housing inventory increase in 2015?

From CNBC: Pre-Market Data and Bloomberg futures: currently the S&P futures are up 3 and DOW futures are up 30 (fair value).

Oil prices were down over the last week with WTI futures at $55.48 per barrel and Brent at $60.01 per barrel.  A year ago, WTI was at $99, and Brent was at $112 - so prices are down 44% and 46% year-over-year respectively.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $2.29 per gallon (down about $1.00 per gallon 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 12/28/2014 06:29:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

7) Oil Prices: Declining oil prices and falling bond yields were two of the biggest stories of 2014. Will oil prices continue to decline in 2015?

The reason prices have fallen sharply is supply and demand. It is important to remember that the short term supply and demand curves for oil are very steep. 

In the long run, supply and demand will adjust to price changes.  But if someone asks why prices have fallen so sharply recently, the answer is "supply and demand" and that the short term supply and demand curves are steep for oil.

The keys on the short term demand side have been the ongoing weakness in Europe and the slowdown in China.   Professor Hamilton estimates that about 45% of the recent decline in oil prices was due to weakness in the global economy. Will Europe recovery in 2015? Will China's growth increase? Right now it looks like more of the same, so I expect the demand side to stay weak in 2015.

For supply, some of the increase has been due to increased shipments from Libya, but most of the supply increase has been due to increased tight oil production.  The questions on the supply side are: 1) will be there be a 2015 supply disruption in Libya, Iraq, Nigeria, or some other oil exporting country, and 2) what price will lead to less fracking production?

Professor Hamilton posted some thoughts today: Supply, demand and the price of oil

At what price would supply and demand be back in balance? I won’t even make an attempt to predict short-run developments for the wild cards like Libya, Iraq, and China. But in principle, the U.S. supply situation should be simpler. At current prices, some of the higher-cost producers will be forced out. It should be a textbook problem of finding the point on the marginal cost curve at which there’s an incentive for the marginal producer to meet desired demand; given a quantity Q demanded on the horizontal axis, find the price P associated with that Q from the height of the vertical axis on the marginal cost curve. The problem is, nobody knows for sure exactly what that marginal cost curve looks like, and sunk costs for existing wells make it hard (and painful for the oil producers) to find out.

It is impossible to predict an international supply disruption - if a significant disruption happens, then prices will obviously move higher. Continued weakness in Europe and China does seem likely - and I expect the frackers to slow down with exploration and drilling, but to continue to produce at most existing wells at current prices (WTI at $55 per barrel). This suggests in the short run (2015) that prices will stay well below $100 per barrel (perhaps in the $50 to $75 range) - and that is a positive for the US economy (Note: the US is a large importer of oil - see: Katie Couric and the Net Petroleum Exporter Myth

Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?

by Calculated Risk on 12/28/2014 12:15:00 PM

A few comments on an article that was posted at CNBC on Saturday "2015: The year jobs surge in the US". It was really a video with a few predictions.

First, I think the title was wrong. 2014 was the year jobs surged in the US.

Second, those expecting 300+ thousand jobs per month in 2015 will probably be disappointed.  Too many people compare to the '80s and '90s, without thinking about changing demographics.

The prime working age population (25 to 54 years old) was growing 2.2% per year in the '80s, and 1.3% per year in the '90s.  The prime working age population has actually declined slightly this decade.  Note: The prime working age population is now growing slowly again, and growth will pick up the '10s.  The future is bright!

It was much easier in the '80s and '90s to see a job boom than with the current demographics.

Another reason not to expect a "Job Surge" in 2015, is that usually the best years of an expansion are early (as the Fed reduces interest rates).  "Early" doesn't apply to the current recovery from the Great Recession because the causes of the recession were different (Housing bust, financial crisis, over-leveraged households, Fed at zero bound).

Also, with the unemployment rate down to 5.8%, more companies will have difficulty finding qualified candidates in 2015.

I'll be posting my expectations on employment for 2015 this coming week, but my initial view is that there will be fewer jobs added in 2015 than in 2014 (hopefully close to the same number).

Hopefully the economic word of the year in 2015 will be wages!

by Calculated Risk on 12/27/2014 08:07:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

8) Residential Investment: Residential investment (RI) picked was up solidly in 2012 and 2013 - up 13.5% and 11.9% respectively - but RI was only up 1.6% through Q3 2014.   Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  How much will RI increase in 2015?  How about housing starts and new home sales in 2015?

A year ago, several builders told me they were optimistic for 2014 (yes, builders are almost always optimistic), and they said the 2013 problem of not enough finished lots was mostly resolved.   Still 2014 was a disappointing year with new home sales up slightly and housing starts only up about 8% (single family up 4%).  There were a number of reasons for the weak year: a severe winter, higher mortgage rates at the beginning of the year, ongoing competition from distressed sales (although that is declining), and - the main reason - higher price points (the builders really increased prices in 2013).

Once again the builders are telling me 2015 will be a good year and that the lot issue is mostly resolved ... I'm a little more skeptical this year! Also there might be some weakness in oil producing states in 2015.  Still I expect growth for both starts and new home sales in 2015.

First a graph of RI as a percent of Gross Domestic Product (GDP) through Q3 2014.

Click on graph for larger image.

Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the recovery was sluggish. Residential investment finally turned positive during 2011 and made a solid positive contribution to GDP in both 2012 and 2013.  However RI only increased slightly in 2014.

But even with recent increases, RI as a percent of GDP is still very low - and still below the lows of previous recessions - and it seems likely that residential investment as a percent of GDP will increase further in 2015.

The second graph shows total and single family housing starts through November 2014.

Housing starts are on pace to increase close to 8% in 2014. And even after the significant increase over the last three years, the approximately 997 thousand housing starts in 2014 will still be the 7th lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the six lowest years were 2008 through 2013).

Here is a table showing housing starts over the last few years. No one should expect an increase to 2005 levels, however demographics and household formation suggest starts will return to close to the 1.5 million per year average from 1959 through 2000. That means starts will come close to increasing 50% over the next few years from the 2014 level.

Housing Starts (000s)
	Total	Change	Single Family	Change
2005	2,068.3	---	1,715.8	---
2006	1,800.9	-12.9%	1,465.4	-14.6%
2007	1,355.0	-24.8%	1,046.0	-28.6%
2008	905.5	-33.2%	622.0	-40.5%
2009	554.0	-38.8%	445.1	-28.4%
2010	586.9	5.9%	471.2	5.9%
2011	608.8	3.7%	430.6	-8.6%
2012	780.6	28.2%	535.3	24.3%
2013	924.9	18.5%	617.6	15.4%
20141	997.0	7.8%	645.0	4.4%
12014 estimated

The third graph shows New Home Sales since 1963 through November 2014. The dashed line is the current sales rate.

New home sales were up less than 1% in 2014 at around 433 thousand, following increases of 20.3% in 2012, and 16.6% in 2013.

New home sales will still be competing with distressed sales (short sales and foreclosures) in  some judicial foreclosure states in 2015.    And there will be some weakness in oil producing states.

Here are some recent forecasts for housing in 2014.  My guess is growth of around 8% to 12% for new home sales, and about the same percentage growth for housing starts.  Also I think the mix between multi-family and single family starts might shift a little more towards single family in 2015.

Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?

by Calculated Risk on 12/27/2014 11:01:00 AM

The key reports this week are the December ISM manufacturing survey on Friday, and the Case-Shiller house price index on Tuesday.

Happy New Year to All!

----- Monday, December 29th -----
10:30 AM: Dallas Fed Manufacturing Survey for December. This is the last of the regional Fed surveys for December.

----- Tuesday, December 30th -----
9:00 AM: S&P/Case-Shiller House Price Index for October. Although this is the October report, it is really a 3 month average of August, September and October prices.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the September 2014 report (the Composite 20 was started in January 2000).

The consensus is for a 4.9% year-over-year increase in the Composite 20 index for October.  The Zillow forecast is for the National Index to increase 4.8% year-over-year in October.

10:00 AM: Conference Board's consumer confidence index for December. The consensus is for the index to increase to 93.0 from 88.7.

----- Wednesday, December 31st -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 286 thousand from 280 thousand.

9:45 AM: Chicago Purchasing Managers Index for December. The consensus is for a reading of 59.0, down from 60.8 in November.

10:00 AM ET: Pending Home Sales Index for November. The consensus is for a 0.5% increase in the index.

----- Thursday, January 1st -----
All US markets will be closed in observance of New Year's Day Holiday.

----- Friday, January 2nd -----
10:00 AM: ISM Manufacturing Index for December. The consensus is for a decrease to 57.5 from 58.7 in November.

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

The ISM manufacturing index indicated solid expansion in November at 58.7%. The employment index was at 54.9%, and the new orders index was at 66.0%.

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