by Calculated Risk on 5/29/2015 02:53:00 PM

Excuse this pet peeve, but for some reason, when a business executive is interviewed on CNBC (and elsewhere), they are asked about economics in addition to their assumed areas of expertise. News flash: Business executives are NOT experts in economics (This should be called the "Jack Welch rule").

An example today: Richard Kovacevich, former chairman and CEO at Wells Fargo was on CNBC today, and said:

"We should be growing at 3 percent, given the difficulty of this last recession," he told CNBC's "Squawk Box." "We always get a higher and faster recovery from a tough recession, and this is the slowest ever, and I think it's the policies that are coming out of Washington DC that are causing this."

Wrong.

Imagine an economy with an unchanging labor force, and no innovation (everyone just does things they way they've always been done). How much should GDP grow? Zero.

Now imagine a second economy with a labor force growing 5% per year, no resource constraints, a short learning curve, and no innovation. How much should GDP grow? About 5% per year.

That is why I wrote Demographics and GDP: 2% is the new 4% earlier this year.

Two lessons: 1) Experts in one field are not necessarily experts in another, and 2) demographics matter - and right now 2% is the new 4%.

by Calculated Risk on 5/29/2015 12:51:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for April 2015. In the past month, the indexes increased in 40 states, decreased in six, and remained stable in four, for a one-month diffusion index of 68. Over the past three months, the indexes increased in 45 states, decreased in three, and remained stable in two, for a three-month diffusion index of 84.

Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In April, 43 states had increasing activity (including minor increases).

It appears we are seeing weakness in several oil producing states including Alaska, North Dakota and Oklahoma. It wouldn't be surprising if Texas and other oil producing states also turned red sometime this year.


Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and is almost all green again.

Note: Blue added for Red/Green issues.

by Calculated Risk on 5/29/2015 10:03:00 AM

Click on graph for larger image.

The final University of Michigan consumer sentiment index for May was at 90.7, up from the preliminary reading of 88.6, and down from 95.9 in April.

This was close to the consensus forecast of 90.0.

Chicago PMI May 2015: Chicago Business Barometer Back into Contraction in May

The Barometer fell 6.1 points to 46.2 in May from 52.3 in April. All five components of the Barometer weakened with three dropping by more than 10% and all of them now below the 50 breakeven mark.

April’s positive move had suggested that the first quarter slowdown was transitory and had been impacted by the cold snap and port strikes. May’s weakness points to a more fundamental slowdown with the Barometer running only slightly above February’s 5½-year low of 45.8.
...
Chief Economist of MNI Indicators Philip Uglow said, “We had thought that the April bounce was consistent with a partial return to normal following the weather and port related slowdown in the first quarter. The latest data for May, however, suggest that this was a false dawn and that sluggish activity has carried through to the second quarter.”
emphasis added

This was well below the consensus forecast of 53.0.

by Calculated Risk on 5/29/2015 08:37:00 AM

From the BEA: Gross Domestic Product: First Quarter 2015 (Second Estimate)

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- decreased at an annual rate of 0.7 percent in the first quarter of 2015, according to the "second" estimate released by the Bureau of Economic Analysis. ...

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, real GDP increased 0.2 percent. With the second estimate for the first quarter, imports increased more and private inventory investment increased less than previously estimated ...
emphasis added

Here is a Comparison of Second and Advance Estimates. PCE growth was revised down from 1.9% to 1.8%. Residential investment was revised up from 1.3% to 5.0%.

Net exports was revised down, private inventory investment was revised down, and government was revised down (from -0.8% to -1.1%).

by Calculated Risk on 5/28/2015 06:52:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Microscopically Lower

Mortgage rates barely budged today. Those that budged moved almost imperceptibly lower from yesterday's latest rate sheets. In general, there was simply very little movement in underlying markets and lenders' rate sheets matched the tone. [Rates at 4.0%]

Ironically, Freddie Mac's weekly rate survey results came out this morning indicating higher rates. Keep in mind that the Freddie survey receives most of it's responses early in the week and then reports on Thursday mornings. That means that any changes in rates over the intervening days are not captured in the data. In the current case, it's not that rates have moved significantly lower in the past few days, but more to do with the fact that last week's Freddie survey didn't capture the brunt of the rise in rates that occurred on Tuesday.
emphasis added

Friday:
• At 8:30 AM ET, Gross Domestic Product, 1st quarter 2015 (second estimate). The consensus is that real GDP decreased 0.9% annualized in Q1, revised down from the 0.2% advance estimate.

• At 9:45 AM, Chicago Purchasing Managers Index for May. The consensus is for a reading of 53.0, up from 52.3 in April.

• At 10:00 AM, University of Michigan's Consumer sentiment index (final for May). The consensus is for a reading of 90.0, up from the preliminary reading of 88.6, and down from the April reading of 95.9.

by Calculated Risk on 5/28/2015 03:04:00 PM

The automakers will report May vehicle sales on Tuesday, June 2nd. Sales in April were at 16.5 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales will be strong in May too.

Note:  There were 26 selling days in May, one less than in May 2014.  Here are a few forecasts:

From Edmunds.com: Nearly 1.6 Million New Cars Sold in May Push Seasonally Adjusted Annual Rate (SAAR) to Impressive 17.4 Million, says Edmunds.com

Edmunds.com ... forecasts that 1,591,221 new cars and trucks will be sold in the U.S. in May for an estimated Seasonally Adjusted Annual Rate (SAAR) of 17.4 million.

From J.D. Power: New-Vehicle Retail Sales SAAR in May to Hit 14.1M Units, Highest Level So Far in 2015

Total light-vehicle sales in May 2015 are projected to reach 1,591,100, a 3 percent increase on a selling day adjusted basis compared with May 2014. [Total forecast 17.3 million SAAR]

From Kelley Blue Book: New-Car Sales to Reach 17.3 Million SAAR in May 2015, According to Kelley Blue Book

New-vehicle sales are expected to decline 1 percent year-over-year to a total of 1.59 million units in May 2015, resulting in an estimated 17.3 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book ...
...
"May sales will reach the highest total year-to-date, and could remain the highest until December of this year," said Alec Gutierrez, senior analyst for Kelley Blue Book. "While we expect an overall decline in volume versus last year, the difference is the result of one fewer sales day from May 2014, and total SAAR will reflect year-over-year improvement."

Another strong month for auto sales.  Good times!

by Calculated Risk on 5/28/2015 01:02:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in April to 1.66%, down from 1.73% in March. Freddie's rate is down from 2.15% in April 2014, and the rate in March was the lowest level since November 2008.

Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for April in a few days.

Click on graph for larger image

Although the rate is declining, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.49 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until late 2016.

So even though delinquencies and distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

by Calculated Risk on 5/28/2015 10:02:00 AM

From the NAR: Pending Home Sales Climb in April to Highest Level since May 2006

Pending home sales rose in April for the fourth straight month and reached their highest level in nine years, according to the National Association of Realtors®. Led by the Northeast and Midwest, all four major regions saw increases in April.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 3.4 percent to 112.4 in April from a slight upward revision of 108.7 in March and is now 14.0 percent above April 2014 (98.6) — the largest annual increase since September 2012 (15.1 percent). The index has now increased year-over-year for eight consecutive months and is at its highest level since May 2006 (112.5).

This was abpve expectations of a 0.8% increase.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in May and June.

by Calculated Risk on 5/28/2015 08:34:00 AM

The DOL reported:

In the week ending May 23, the advance figure for seasonally adjusted initial claims was 282,000, an increase of 7,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 274,000 to 275,000. The 4-week moving average was 271,500, an increase of 5,000 from the previous week's revised average. The previous week's average was revised up by 250 from 266,250 to 266,500.

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

The previous week was revised to 275,000.

The following graph shows the 4-week moving average of weekly claims since 1971.

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 increased to 271,500.

This was above the consensus forecast of 270,000, and the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 5/27/2015 08:06:00 PM

From Reuters: EU officials dismiss Greek statement on aid agreement being drafted

Greece's government on Wednesday said it is starting to draft an agreement with creditors that would pave the way for aid, but European officials quickly dismissed that as wishful thinking.
...
But European Commission Vice President Valdis Dombrovskis said the two sides still had some way to go before any agreement could be drawn up.

"We are working very intensively to ensure a staff-level agreement," he said. "We are still not there yet."

Other officials in the euro zone, speaking to Reuters on condition of anonymity, were more blunt. One called the Greek remarks "nonsense". Another said: "I wish it were true."

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 270 thousand from 274 thousand.

• At 10:00 AM, the Pending Home Sales Index for April. The consensus is for a 0.8% increase in the index.