by Calculated Risk on 2/04/2015 10:09:00 AM

The January ISM Non-manufacturing index was at 56.7%, up from 56.5% in December. The employment index decreased in January to 51.6%, down from 55.7% in December. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: January 2015 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in January for the 60th 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 56.7 percent in January, 0.2 percentage point higher than the December reading of 56.5 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased to 61.5 percent, which is 2.9 percentage points higher than the December reading of 58.6 percent, reflecting growth for the 66th consecutive month at a faster rate. The New Orders Index registered 59.5 percent, 0.3 percentage point higher than the reading of 59.2 percent registered in December. The Employment Index decreased 4.1 percentage points to 51.6 percent from the December reading of 55.7 percent and indicates growth for the eleventh consecutive month. The Prices Index decreased 4.3 percentage points from the December reading of 49.8 percent to 45.5 percent, indicating prices contracted in January when compared to December. According to the NMI®, eight non-manufacturing industries reported growth in January. Comments from respondents vary by industry and company; however, they are mostly positive and/or reflect stability about 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 close to the consensus forecast of 56.5% and suggests slightly faster expansion in January than in December.  The sharp decline in the employment index is a little concerning.

by Calculated Risk on 2/04/2015 08:20:00 AM

From ADP:

Private sector employment increased by 213,000 jobs from December to January according to the January ADP National Employment Report®. ... The 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.
...
Goods-producing employment rose by 31,000 jobs in January, down from 47,000 jobs gained in December. The construction industry added 18,000 jobs, down from last month’s gain of 26,000. Meanwhile, manufacturing added 14,000 jobs in January, below December’s 23,000.

Service-providing employment rose by 183,000 jobs in January, down from 207,000 in December. ...

Mark Zandi, chief economist of Moody’s Analytics, said, “Employment posted another solid gain in January, although the pace of growth is slower than in recent months. Businesses in the energy and supplying industries are already scaling back payrolls in reaction to the collapse in oil prices, while industries benefiting from the lower prices have been slower to increase their hiring. All indications are that the job market will continue to improve in 2015.”

This was below the consensus forecast for 220,000 private sector jobs added in the ADP report. 

The BLS report for January will be released on Friday and the consensus is for 230,000 non-farm payroll jobs added in December.

by Calculated Risk on 2/04/2015 07:01:00 AM

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

Mortgage applications increased 1.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 30, 2015. ...

The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier.
...
“Following several weeks of already elevated refinance activity due to falling interest rates, FHA refinance applications increased 76.5 percent in response to a reduction in annual mortgage insurance premiums which took effect January 26,” said Lynn Fisher, MBA’s Vice President of Research and Economics. “Conventional refinance volume was up only 0.5 percent for the week while VA refinance volume was down 24.3 percent. FHA purchase applications were also up 12.4 percent over the week prior, despite a decrease in purchase applications in the rest of the market.” ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.79 percent, the lowest level since May 2013, from 3.83 percent, with points increasing to 0.29 from 0.26 (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.

2014 was the lowest year for refinance activity since year 2000.

It looks like 2015 will see more refinance activity than in 2014, especially from FHA loans!

The second graph shows the MBA mortgage purchase index.  

According to the MBA, the purchase index is up 3% from a year ago.

by Calculated Risk on 2/03/2015 09:00:00 PM

From the WSJ: Oil Prices Surge 7% to One-Month High

U.S. oil futures notched a fourth consecutive gain, their longest winning streak since August. Prices have risen 19% in that time. The benchmark crude-oil contract on the New York Mercantile Exchange settled up $3.48, or 7%, at $53.05 a barrel, the highest settlement price since Dec. 31, 2014.

Still down almost 50% from a year ago.  A wild ride!

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 January. This report is for private payrolls only (no government). The consensus is for 220,000 payroll jobs added in January, down from 241,000 in December.

• At 10:00 AM, the ISM non-Manufacturing Index for January. The consensus is for a reading of 56.5, up from 56.2 in December. Note: Above 50 indicates expansion.

by Calculated Risk on 2/03/2015 05:51:00 PM

Here is some interesting data (just for background) from housing economist Tom Lawler:

Note: Manufactured housing placements prior to 1974 and for 2014 based on shipments. Census stopped releasing estimates for MH placements this summer.

Note that while the total number of new housing units completed/put in place from 2003 to 2007 was almost identical to that for 1983 to 1987, single-family production was 41% higher.

Since the end of 2007, the number of single-family (attached and detached) homes occupied by renters has probably increased by over 4 million.

Housing Put in Place by Type (Annual Average, Thousands of Units)
	Single Family	Multi- family	Manufactured Housing	Total
1968-72	928	641	435	2,004
1973-77	1,061	575	324	1,960
1978-82	1,016	487	251	1,754
1983-87	1,053	581	269	1,903
1988-92	976	326	202	1,504
1993-07	1,102	231	305	1,638
1998-02	1,251	324	273	1,848
2003-07	1,485	301	119	1,905
2008-12	553	207	57	817
2013	569	195	56	820
2014	630	264	60	953

by Calculated Risk on 2/03/2015 02:27:00 PM

Based on a WardsAuto estimate, light vehicle sales were at a 16.55 million SAAR in January. That is up 8.9% from January 2013, and down 1.5% from the 16.80 million annual sales rate last month.  The comparison to January 2014 was easy (sales were impacted by the severe weather last year).

From John Sousanis at Wards Auto: January 2015 U.S. LV Sales Thread: Trucks Spur Strong January Sales

Led by strong gains in truck sales, U.S. automakers sold 1.149 million light vehicles in January, a 9.3% increase in daily sales (over 26 days) compared with year-ago (25 days). The resultant seasonally adjusted annual rate - roughly 16.55 million - was the industry's highest January SAAR since 2006.

General Motors led all automakers, accounting for 17.7% of the month's LV sales, followed by Ford (15.2%) and Toyota (14.8%).

Subaru recorded the largest year-over-year growth with a 28.3% increase in daily sales, while Volvo and Volkswagen registered industry-worst 3.8% DSR declines.

Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for January (red, light vehicle sales of 16.55 million SAAR from WardsAuto).

This was at the consensus forecast of 16.6 million SAAR (seasonally adjusted annual rate).

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

Note: dashed line is current estimated sales rate.

This was another strong month for vehicle sales - the ninth consecutive month with a sales rate over 16 million.

by Calculated Risk on 2/03/2015 12:38:00 PM

A key question right now is how low the unemployment rate can fall before inflation picks up. Right now core inflation is falling, but some of that is probably due to bleed through from falling energy prices. So we have to be careful reading too much into the low core inflation numbers.

Last year, many of the "hawks" at the Fed were arguing inflation would pick up when the unemployment rate fell to 6%. They were clearly wrong since the unemployment rate was at 5.6% in December!

Professor Krugman wrote this morning: Tough Fedding

[M]y point is that recent data are perfectly consistent with the view that full employment requires an unemployment rate below 5 percent; the most recent data would suggest an even lower rate. This might or might not be right; I don’t know. But the Fed doesn’t know either.

And in the face of that uncertainty, the crucial question is what happens if you’re wrong. And the risks still seem hugely asymmetric.

Although monetary policy works with a lag, as Krugman notes, no one knows when inflation will pick up - and the risks of raising too soon far outweigh the risks of waiting too long.

I'd like to add on inflation that there might be a demographics component, as I noted early this year:

On inflation, I've been looking at this from a demographics perspective. If we look at the annual change in the prime working age population, there is one other period similar to the current situation - the early-to-mid 60s.
...
In the 1960s, inflation didn't pickup until the unemployment rate had fallen close to 4%. There could be several demographics reasons for the low inflation (in addition to policy reasons). As an example, maybe older workers were being replaced by younger workers who made less (just like today), and maybe the slow increase in the prime working age population put less pressure on resources.

Ignoring for the moment monetary and fiscal policy differences between the periods ... maybe the unemployment rate will have to fall below 5% before inflation picks up.

I expect the FOMC will wait until core inflation is clearly moving back towards their 2% target - and hopefully wait until wage growth is increasing.

by Calculated Risk on 2/03/2015 09:14:00 AM

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

From CoreLogic: Home Prices Up 5 Percent Year Over Year for December 2014

CoreLogic® ... today released its December 2014 CoreLogic Home Price Index (HPI®) which shows that home prices nationwide, including distressed sales, increased 5 percent in December 2014 compared to December 2013. This change represents 34 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, fell by 0.1 percent in December 2014 compared to November 2014.

Twenty-seven states and the District of Columbia are at or within 10 percent of their peak. Three states showed year-over-year home price depreciation, including distressed sales, in December; these states were Maryland (-0.7 percent), Vermont (-0.9 percent) and Connecticut (-2.2 percent).

Excluding distressed sales, home prices increased 4.9 percent in December 2014 compared to December 2013 and increased 0.1 percent month over month compared to November 2014. Distressed sales include short sales and real estate owned (REO) transactions....

“For the full year of 2014, home prices increased 7.4 percent, down from an 11.1-percent increase in 2013,” said Sam Khater, deputy chief economist at CoreLogic. “Nationally, home price growth moderated and stabilized at 5 percent the last four months of the year. The moderation can be clearly seen at the state level, with Colorado, Texas and New York at the high end of appreciation, ending the year with increases of about 8 percent. This contrasts with previous appreciation rates in the double digits—for instance, Nevada and California which experienced increases of more than 20 percent earlier in 2014.”
emphasis added

Click on graph for larger image.

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

The index was down 0.1% in November, and is up 5.0% over the last year.

This index is not seasonally adjusted, and this small month-to-month decrease was during the seasonally weak period.


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

The YoY increases had been slowing, but has mostly moved sideways over the last four months.

by Calculated Risk on 2/02/2015 08:12:00 PM

Two quick observations ...

First, the December construction spending report probably means a slight upward revision to Q4 GDP.

The advance Q2 report showed 4.0% annualized real GDP growth, and that was eventually revised up to 4.6%.  And the advance Q3 report showed 3.5%, and that was revised up to 5.0%.  Maybe we will eventually get to 3%+ for Q4 ...

Second, on mortgage rates from Matthew Graham at Mortgage News Daily:

Mortgage rates were just slightly higher today, but generally did a good job of holding on to recent gains. For perspective, last Friday was the only day in the past 21 months with lower rates, and many borrowers may find their quotes unchanged over the weekend. Almost everyone else would simply see minor increases in upfront costs as opposed to changes in the contract rate itself. Those remain steady with conforming 30yr fixed rates of 3.625% widely available for top tier scenarios and 3.5% not far behind.

Tuesday:
• All day: Light vehicle sales for January. The consensus is for light vehicle sales to decrease to 16.6 million SAAR in January from 16.8 million in December (Seasonally Adjusted Annual Rate).

• At 10:00 AM ET, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for December. The consensus is for a 2.0 decrease in December orders.

by Calculated Risk on 2/02/2015 05:33:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in December to 1.89% from 1.91% in November. The serious delinquency rate is down from 2.38% in December 2013, and this is the lowest level since October 2008 (also at 1.89%).

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Last week, Freddie Mac reported that the Single-Family serious delinquency rate was declined in December to 1.88%. Freddie's rate is down from 2.39% in December 2013, and is at the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

The Fannie Mae serious delinquency rate has fallen 0.48 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in late 2016 - although the rate of decline has slowed recently.

Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be close to normal in late 2016.