by Calculated Risk on 5/18/2015 07:06:00 PM

From the SF Fed: The Puzzle of Weak First-Quarter GDP Growth

In late April, the Bureau of Economic Analysis (BEA) released its initial estimate of U.S. economic growth for the first three months of 2015. The report was very disappointing, as inflation-adjusted, or real, gross domestic product (GDP) edged up a mere 0.2% at an annual rate in the first quarter. This estimate was far weaker than many economists had forecast, and it raised concerns that the underlying economic recovery may have stalled. Such anemic growth is of particular concern to Federal Reserve policymakers considering when to begin normalizing monetary policy.

However, a number of analysts have suggested that the reported weakness in first-quarter growth may have been exaggerated by a statistical anomaly (see, for example, Liesman 2015 and Wolfers 2015). Indeed, an unusual pattern has prevailed for some time in which first-quarter real GDP growth is generally lower than growth later in the year. This regular, calendar-based statistical pattern is a puzzle because the BEA seasonally adjusts the GDP data to remove such fluctuations. First-quarter seasonally adjusted real GDP growth should not be consistently higher or lower than growth in any other quarter. Accordingly, the anomalous pattern of generally weak first-quarter growth suggests that the BEA’s estimate of GDP growth for the first three months of 2015 may understate the true strength of the economy.
...
The application of second-round seasonal adjustment increases real GDP growth in the first quarter of 2015 from its initial published value of 0.2% to 1.8%. Taking this correction at face value, real GDP growth in the first quarter was stronger and much closer to the economy’s sustainable rate of trend growth.
...
The very weak initial estimate of first-quarter real GDP growth this year surprised many forecasters, in part because it was at odds with other fairly positive data, including solid employment gains over the past six months. We show that, although the BEA adjusts for seasonal movements at a disaggregated level, the published real GDP data still exhibit calendar-based fluctuations—that is, residual seasonality. After we apply a second round of seasonal adjustment directly to the published aggregate data, we estimate much faster real GDP growth in the first quarter of this year. We conclude that there is a good chance that underlying economic growth so far this year was substantially stronger than reported.

Q1 will probably be revised down to a negative reading, but ... no worries!

Tuesday:
• At 8:30 AM ET, Housing Starts for April. Total housing starts increased to 926 thousand (SAAR) in March. Single family starts increased to 618 thousand SAAR in March. The consensus is for total housing starts to increase to 1.029 million (SAAR) in April.

by Calculated Risk on 5/18/2015 02:42:00 PM

Note: LA area ports were impacted by labor negotiations that were settled on February 21st. Port traffic surged in March as the waiting ships were unloaded (the trade deficit increased in March too), and port traffic declined in April.

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report 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 March.   Outbound traffic was down 1.1% compared to 12 months ending in March.

Inbound traffic had been increasing, and outbound traffic had been moving down recently.  The recent downturn in exports might be due to the strong dollar and weakness in China.

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 April; exports were down 11% year-over-year.

The labor issues are now resolved - the ships have disappeared from the outer harbor - and the distortions from the labor issues are behind us.  This data suggests a smaller trade deficit in April.

by Calculated Risk on 5/18/2015 12:50:00 PM

Time flies! It was five 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: This is an update to a post I wrote a year ago).

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

Demographics are still favorable, but my sense is the move "from owning to renting" has slowed. And more supply has been coming online.

On demographics, a large cohort has been 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 are 20 to 24 years old, and 25 to 29 years old (the largest cohorts are 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 five years - and I expect new apartment construction to stay strong for a few more years.

And on supply, the table below shows the number of 5+ units started and completed per year since 1990 (Completions matter for supply).  New supply will probably increase by 250,000 to 260,000 units this year - and increase further in 2015 since it can take over a year from start to completion for large complexes.  Note: This doesn't include houses converted to rentals - and that is a substantial number in recent years.

This suggests new supply will probably balance demand soon, and that means vacancy rates have likely bottomed.

5+ Units, Starts and Completions (000s)1
Year	Completions	Starts
1990	297.3	260.4
1991	216.6	137.9
1992	158.0	139.0
1993	127.1	132.6
1994	154.9	223.5
1995	212.4	244.1
1996	251.3	270.8
1997	247.1	295.8
1998	273.9	302.9
1999	299.3	306.6
2000	304.7	299.1
2001	281.0	292.8
2002	288.2	307.9
2003	260.8	315.2
2004	286.9	303.0
2005	258.0	311.4
2006	284.2	292.8
2007	253.0	277.3
2008	277.2	266.0
2009	259.8	97.3
2010	146.5	104.3
2011	129.9	167.3
2012	157.6	233.9
2013	186.2	293.7
2014	255.6	341.7
20152	265.0	350.0
1 5+ units is close to the number of units built for rent each year.
2 Pace through March 2015, completions will probably be above 270,000 for 2015

by Calculated Risk on 5/18/2015 10:04:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 54 in May, down from 56 in April. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Falls Two Points in May

Builder confidence in the market for newly built, single-family homes in May dropped two points to a level of 54 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. It is a nine-point increase from the May 2014 reading of 45.
...
“Consumers are exhibiting caution, and want to be on more stable financial footing before purchasing a home,” said NAHB Chief Economist David Crowe. “On the bright side, the HMI component measuring future sales expectations has been tracking upward all year, mortgage rates remain low, and house prices are affordable. These factors should spur the release of pent-up demand moving forward.”
...
The index’s components were mixed in May. The component charting sales expectations in the next six months rose one point to 64, the index measuring buyer traffic dropped a single point to 39, and the component gauging current sales conditions decreased two points to 59.

Looking at the three-month moving averages for regional HMI scores, the South and Midwest each rose one point to 57 and 55, respectively. The Northeast fell by one point to 41 and the West dropped three points to 55.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was below the consensus forecast of 57.

by Calculated Risk on 5/17/2015 08:58:00 PM

Monday:
• At 10:00 AM ET, the May NAHB homebuilder survey. The consensus is for a reading of 57, up from 56 last month. Any number above 50 indicates that more builders view sales conditions as good than poor.

Weekend:
• Schedule for Week of May 17, 2015

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures and DOW futures are mostly unchanged (fair value).

Oil prices were up over the last week with WTI futures at $59.79 per barrel and Brent at $66.90 per barrel.  A year ago, WTI was at $100, and Brent was at $108 - so, even with the recent increases, prices are down 40%+ year-over-year.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are up to $2.70 per gallon (down less than $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 5/17/2015 11:42:00 AM

Some excerpts from a research piece by Goldman Sachs chief economist Jan Hatzius: The Employment Gap Is Much Bigger than the FOMC's Current Estimate of the Unemployment Gap

The Fed's most "official" view of excess labor market slack is the gap between the unemployment rate (currently 5.4%) and the midpoint of the FOMC's central tendency range for the "longer-term" rate (currently 5.1%), which is usually taken to be an estimate of the structural unemployment rate. Taken at face value, this implies that the US economy can only create an additional 500,000 jobs before the labor market starts to overheat. ... If this is the right perspective, it would be entirely sensible, and perhaps urgent, to start normalizing monetary policy soon.

But we think it is a misleading perspective, for two reasons. First, the FOMC's current estimate of the structural unemployment rate is likely to continue falling ... This would not only be in keeping with the trend over the past two years, but also with a new study by the Chicago Fed which argues that population aging is likely to push structural unemployment significantly lower over time. ... If the Chicago Fed estimates are correct, the economy would be able to create about 800,000 jobs before the labor market starts to overheat in the short term, and as many as 1.4 million jobs in the longer term. This would already imply significantly less urgency to start normalizing monetary policy than the 500,000 jobs gap implied by the current FOMC estimate of the structural unemployment rate.

Second, there is probably significant labor market slack outside the unemployment gap because there is an important cyclical element in the decline of the labor force participation rate since 2007. This is consistent with Federal Reserve Research. For example, we can use updated estimates of the "demographically adjusted" employment/population ratio by Samuel Kapon and Joseph Tracy at the New York Fed to calculate another, broader version of the current jobs gap. Under the assumption that the labor market was at full employment in the third quarter of 2005--in line with the CBO estimate used in the Chicago Fed estimate above--the Kapon-Tracy numbers imply that the employment/population ratio is currently 1.2 percentage points below its equilibrium level. Multiplying this number by the over-16 population of about 250 million, the implied jobs gap is as large as 3 million. This implies much less urgency to start normalizing monetary policy than the unemployment-based numbers discussed above, and it is an important reason why we think it would be better for the FOMC to wait until 2016 before starting the normalization process.

CR Note: Here is the Chicago Fed Research Hatzius references: Changing labor force composition and the natural rate of unemployment. It is difficult to estimate the amount of slack in the labor market. However, because the risks are not symmetrical (normalizing monetary policy too soon is more risky than normalizing too late), this is an argument for waiting until there are signs of a pickup in wages and inflation.   However, as Yellen recently noted: "we need to keep in mind the well-established fact that the full effects of monetary policy are felt only after long lags. This means that policymakers cannot wait until they have achieved their objectives to begin adjusting policy."

by Calculated Risk on 5/16/2015 09:20:00 PM

Demand for gasoline has picked up significantly recently. In February, U.S. vehicle miles driven hit a new all time high.  Gasoline prices have increased too (although some of the increase was due to refinery problems).

From the LA Times: Four-dollar gasoline returns to the L.A. area

On Friday, the average for a gallon of regular in the Los Angeles area was higher than $4 for the first time since July, according to daily fuel price reports by AAA and GasBuddy.com. The recent surge in regional fuel prices has left local drivers paying more on average than motorists anywhere else in the U.S.

Analysts attributed the rise to a supply pinch caused by problems at the state's refineries, and predicted relief may not arrive in time for Memorial Day weekend road trips.

Click on graph for larger image

This graph shows WTI and Brent spot oil prices from the EIA. (Prices Friday added).  According to Bloomberg, WTI was at $59.69 per barrel on Friday, and Brent at $66.81

Prices have increased sharply off the recent bottom, but are still down 40%+ year-over-year.

by Calculated Risk on 5/16/2015 08:55:00 AM

The key economic reports this week are April Housing Starts on Tuesday and April Existing on Sales on Thursday.

For manufacturing, the April Philly and Kansas City Fed surveys will be released this week.

For prices, April CPI will be released on Friday.

Also on Friday, Fed Chair Janet Yellen will speak on the U.S. economic outlook.

----- Monday, May 18th -----
10:00 AM: The May NAHB homebuilder survey. The consensus is for a reading of 57, up from 56 last month.  Any number above 50 indicates that more builders view sales conditions as good than poor.

----- Tuesday, May 19th -----
8:30 AM: Housing Starts for April.

Total housing starts increased to 926 thousand (SAAR) in March. Single family starts increased to 618 thousand SAAR in March.

The consensus is for total housing starts to increase to 1.029 million (SAAR) in April.

----- Wednesday, May 20th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

During the day: The AIA's Architecture Billings Index for April (a leading indicator for commercial real estate).

2:00 PM: the Fed will release the FOMC Minutes for the Meeting of April 28-29, 2015.

----- Thursday, May 21st -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 270 thousand from 264 thousand.

8:30 AM ET: Chicago Fed National Activity Index for April. This is a composite index of other data.

10:00 AM: the Philly Fed manufacturing survey for May. The consensus is for a reading of 8.0, up from 7.5 last month (above zero indicates expansion).

10:00 AM: Existing Home Sales for April from the National Association of Realtors (NAR).

The consensus is for sales of 5.22 million on seasonally adjusted annual rate (SAAR) basis. Sales in March were at a 5.19 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 5.20 million SAAR.

A key will be the reported year-over-year change in inventory of homes for sale.

11:00 AM: the Kansas City Fed manufacturing survey for May.

1:30 PM: Speech by Fed Vice Chairman Stanley Fischer, Past, Present, and Future Challenges for the Euro Area, At the ECB Forum on Central Banking, Linho Sintra, Portugal

----- Friday, May 22nd -----
8:30 AM: The Consumer Price Index for April from the BLS. The consensus is for a 0.1% increase in prices, and a 0.1% increase in core CPI.

1:00 PM: Speech by Fed Chair Janet L. Yellen, U.S. Economic Outlook, At the Greater Providence Chamber of Commerce Economic Outlook Luncheon, Providence, Rhode Island

by Calculated Risk on 5/15/2015 06:27:00 PM

Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for a few selected cities in April.

On distressed: Total "distressed" share is down in most of these markets mostly due to a decline in short sales (Mid-Atlantic is up year-over-year because of an increase in foreclosures in Baltimore).

Short sales are down in these areas.

The All Cash Share (last two columns) is declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

From Lawler: Note: The Baltimore Metro area is included in the overall Mid-Atlantic region (covered by MRIS). I am showing it separately because a large portion of the YOY increase in the foreclosure share of home sales in the Mid-Atlantic region was attributable to the almost 85% YOY increase in foreclosure sales in the Baltimore Metro area.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Apr-15	Apr-14	Apr-15	Apr-14	Apr-15	Apr-14	Apr-15	Apr-14
Las Vegas	7.2%	12.4%	8.3%	11.4%	15.5%	23.8%	30.4%	41.4%
Reno**	6.0%	15.0%	5.0%	6.0%	11.0%	21.0%
Phoenix	2.5%	4.0%	3.8%	6.5%	6.3%	10.5%	25.3%	32.2%
Minneapolis	2.9%	5.1%	9.2%	16.0%	12.0%	21.1%
Mid-Atlantic	4.5%	5.9%	12.9%	10.0%	17.3%	15.9%	17.2%	19.5%
Baltimore Metro	4.3%	5.8%	20.7%	13.8%	25.0%	19.6%
Orlando	4.8%	9.1%	24.7%	23.7%	29.5%	32.8%	37.4%	42.4%
Chicago (city)					20.3%	27.3%
Hampton Roads					22.2%	24.4%
Chicago (city)					20.3%	27.3%
Northeast Florida					28.9%	38.0%
Toledo							30.2%	33.4%
Tucson							27.1%	30.5%
Des Moines							13.8%	17.1%
Peoria							17.3%	21.2%
Georgia***							21.6%	34.3%
Omaha							16.4%	19.7%
Richmond VA MSA			11.5%	15.4%			18.2%	22.5%
Memphis			16.1%	17.3%
Springfield IL**			10.3%	13.2%			17.9%	N/A
*share of existing home sales, based on property records **Single Family Only ***GAMLS

by Calculated Risk on 5/15/2015 03:51:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 9 May

The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 3-9 May 2015, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy increased 1.3 percent to 67.0 percent. Average daily rate increased 4.8 percent to finish the week at US$120.59. Revenue per available room for the week was up 6.1 percent to finish at US$80.85.
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 is solid.

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 last year.

Right now 2015 is even above 2000 (best year for hotels) - and 2015 will probably be the best year on record for hotels.  Note the solid gains for RevPAR too.

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