by Calculated Risk on 3/13/2015 07:51:00 PM

Another heat wave in California this weekend (the high was 90 where I live). This is the fourth year in a row with little rain or snow in the mountains (the statewide snowpack is about 17% of normal for this date). California is the largest agricultural state, and an ongoing drought could have an impact on food prices - and on the economy.

An Op-Ed in the LA Times: California has about one year of water left. Will you ration now?

January was the driest in California since record-keeping began in 1895. Groundwater and snowpack levels are at all-time lows. We're not just up a creek without a paddle in California, we're losing the creek too.

Data from NASA satellites show that the total amount of water stored in the Sacramento and San Joaquin river basins — that is, all of the snow, river and reservoir water, water in soils and groundwater combined — was 34 million acre-feet below normal in 2014. That loss is nearly 1.5 times the capacity of Lake Mead, America's largest reservoir.

Statewide, we've been dropping more than 12 million acre-feet of total water yearly since 2011. Roughly two-thirds of these losses are attributable to groundwater pumping for agricultural irrigation in the Central Valley. ... Wells are running dry. In some areas of the Central Valley, the land is sinking by one foot or more per year.

As difficult as it may be to face, the simple fact is that California is running out of water.

Maybe it is time to revisit the Alaska-California Undersea Aqueduct proposal.

by Calculated Risk on 3/13/2015 04:06:00 PM

Here is a graph of expenditures on energy goods and services as a percent of total personal consumption expenditures through January 2015.

This is one of the measures that Professor Hamilton at Econbrowser looks at to evaluate any drag on GDP from energy prices.


Click on graph for larger image.

Data source: BEA Table 2.3.5U.

The huge spikes in energy prices during the oil crisis of 1973 and 1979 are obvious. As is the increase in energy prices during the 2001 through 2008 period.

With some further declines - WTI oil futures fell 4% today to $45.09 per barrel - we might see energy expenditures as a percent of PCE at new lows and resume the long term down trend.

by Calculated Risk on 3/13/2015 11:18:00 AM

Here is a price index for commercial real estate that I follow. 

From CoStar: CRE Price Indices Start 2015 on a Strong Note with Solid Gains in January

COMPOSITE PRICE INDICES POST SOLID GAINS IN JANUARY 2015. Following a strong 2014, prices for commercial real estate (CRE) continued to climb in January 2015, supported by an expanding economy, strengthening market fundamentals and continued low interest rates. The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—each increased by 1.2% in January 2015, contributing to annual gains of more than 12% in each index.

VALUE-WEIGHTED COMPOSITE INDEX REACHES NEW HIGH. Thanks to steady gains in recent months, the value-weighted U.S. Composite Index reached a record high in January 2015, and now stands 7.5% above its prerecession peak in 2007, reflecting strong competition among investors for large, high-quality commercial properties.

EQUAL-WEIGHTED COMPOSITE INDEX RISES TO WITHIN 13.4% OF PRERECESSION HIGH. After beginning its recovery later in the current cycle, the equal-weighted U.S. Composite Index has continued to grow steadily in the 12 months since January 2014, although it remains 13.4% below its 2007 prerecession peak. The increase in the equal-weighted U.S. Composite Index, which is influenced by smaller deals, reflects the general movement of capital into secondary markets and property types, as investors search for higher yields after property pricing has escalated in core U.S. coastal markets.
emphasis added

Click on graph for larger image.

This graph from CoStar shows the the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index indexes.

 The value weighted index is at a record high, but the equal weighted is still 13.4% below the pre-recession peak.

There are indexes by sector and region too.

The second graph shows the percent of distressed "pairs".

The distressed share is down from over 35% at the peak, but still a little elevated.

Note: These are repeat sales indexes - like Case-Shiller for residential - but this is based on far fewer pairs.

by Calculated Risk on 3/13/2015 10:02:00 AM

Click on graph for larger image.

The preliminary University of Michigan consumer sentiment index for March was at 91.2, down from 95.4 in February.

This was below the consensus forecast of 95.5. Higher gasoline prices are probably the reason for the decline in March.

by Calculated Risk on 3/12/2015 07:51:00 PM

On mortgage rates from Matthew Graham at Mortgage News Daily: Mortgage Rates Steady Near March Lows

Mortgage rates were mixed today depending on the lender, but moved just slightly lower on average. This wasn't the case this morning as essentially all lenders came out with noticeably lower rates following the weaker-than-expected Retail Sales report. As the day progressed, early gains in bond markets faded, especially after the afternoon's 30yr Bond auction. While that refers to 30yr Treasuries, the goings-on in the Treasury market always have some effect on the mortgage-backed-securities that dictate mortgage rates. Today was no exception, and as prices fell into the afternoon, most lenders 'repriced' to higher rates. ...

That puts us very close to the lowest levels in March, seen on the first two days of the month. Most lenders are quoting conventional 30yr fixed rates of 3.875% to top tier borrowers. A few of the stronger lenders are at 3.75% and fewer still remain at 4.0%.

CR Note: The Ten Year yield decreased slightly to 2.10% today from 2.11% on Wednesday.

Friday:
• 8:30 AM ET, the Producer Price Index for February from the BLS. The consensus is for a 0.3% increase in prices, and a 0.1% increase in core PPI.

• At 10:00 AM, the University of Michigan's Consumer sentiment index (preliminary for March). The consensus is for a reading of 95.5, up from 95.4 in February.

by Calculated Risk on 3/12/2015 04:35:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 7 March

The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 1-7 March 2015, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy rose 0.5 percent to 64.5 percent. Average daily rate increased 2.0 percent to finish the week at US$116.74. Revenue per available room for the week was up 2.5 percent to finish at US$75.27.
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 in the Spring travel period and business travel will increase over the next couple of months.

Click on graph for larger image.

The red line is for 2015, dashed orange is 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 solidly above 2014.

So far 2015 is at about the same level as 2000 (best year for hotels) - and 2015 will probably be the best year ever for hotels.

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

by Calculated Risk on 3/12/2015 12:00:00 PM

The Federal Reserve released the Q4 2014 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q4 compared to Q3:

The net worth of households and nonprofits rose to $82.9 trillion during the fourth quarter of 2014. The value of directly and indirectly held corporate equities increased $742 billion and the value of real estate rose $356 billion.

Prior to the recession, net worth peaked at $67.9 trillion in Q2 2007, and then net worth fell to $54.9 trillion in Q1 2009 (a loss of $13.0 trillion). Household net worth was at $82.9 trillion in Q4 2014 (up $28.0 trillion from the trough in Q1 2009).

The Fed estimated that the value of household real estate increased to $20.6 trillion in Q4 2014. The value of household real estate is still $1.9 trillion below the peak in early 2006.

Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is close to the peak in 2006 (housing bubble), and above the stock bubble peak.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This ratio was increasing gradually since the mid-70s, and then we saw the stock market and housing bubbles. The ratio has been trending up but has moved sideways over the last year.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q4 2014, household percent equity (of household real estate) was at 54.5% - up from Q3, and the highest since Q1 2007. This was because of an increase in house prices in Q4 (the Fed uses CoreLogic).

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 54.5% equity - and millions still have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt increased by $5 billion in Q4.

Mortgage debt has declined by $1.26 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The value of real estate, as a percent of GDP, was up slightly in Q4, and somewhat above the average of the last 30 years (excluding bubble).

by Calculated Risk on 3/12/2015 09:25:00 AM

Catching up: The DOL reported:

In the week ending March 7, the advance figure for seasonally adjusted initial claims was 289,000, a decrease of 36,000 from the previous week's revised level. The previous week's level was revised up by 5,000 from 320,000 to 325,000. The 4-week moving average was 302,250, a decrease of 3,750 from the previous week's revised average. The previous week's average was revised up by 1,250 from 304,750 to 306,000.

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

The previous week was revised up to 325,000.

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 302,250.

This was below the consensus forecast of 300,000, and the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 3/12/2015 08:42:00 AM

On a monthly basis, retail sales decreased 0.6% from January to February (seasonally adjusted), and sales were up 1.7% from February 2014. Sales in December were unrevised at a 0.8% decrease.

From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $437.0 billion, a decrease of 0.6 percent from the previous month, but up 1.7 percent above February 2014. ... The December 2014 to January 2015 percent change was unrevised from -0.8 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-gasoline decreased 0.8%.

Retail sales ex-autos decreased 0.1%. 

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales ex-gasoline increased by 5.1% on a YoY basis (1.7% for all retail sales).

The decrease in February was below consensus expectations of a 0.3% increase.  This was a weak report.

by Calculated Risk on 3/11/2015 08:11:00 PM

Thursday:
• 8:30 AM ET, Retail sales for February will be released. On a monthly basis, retail sales decreased 0.8% from December to January (seasonally adjusted), and sales were up 3.3% from January 2014. The consensus is for retail sales to increase 0.3% in February, and to increase 0.5% ex-autos.

• Also at 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 309 thousand from 320 thousand.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for January. The consensus is for a 0.1% increase in inventories.

• At 12:00 PM, the Q4 Flow of Funds Accounts of the United States from the Federal Reserve.

• At 2:00 PM ET, the Monthly Treasury Budget Statement for February.