by Calculated Risk on 9/12/2015 02:41:00 PM

A few excerpts from a research note by Goldman Sachs chief economist Jan Hatzius and economist Zach Pandl: FOMC Preview: September and Beyond

We adopted a December liftoff forecast following the June FOMC meeting, largely because this seemed to be Chair Yellen’s own baseline. Recent events have further strengthened our conviction that next week is too early for a rate hike.

Even if we focus only on the economic data, it is hard to argue that developments have beaten expectations on net. Although the growth data have been quite good and the labor market has improved further, both wage and price inflation have fallen short of expectations.

Once we broaden the perspective to include financial conditions, developments have been worse than almost anyone expected. ... This has led us to shave our growth forecasts over the next three quarters by ¼ point, with risks that still tilt to the downside.

Fed officials have made it clear that “data dependent” policy refers not only to data releases but also to factors that could impinge on the outlook, including changes in financial conditions. ...

We expect the message from the committee as a whole—including the “dot plot” and the post-meeting statement—to signal a December liftoff. ...

However, we will listen closely for any hints in Chair Yellen’s press conference that she is now leaning toward a 2016 liftoff. Although most standard Taylor rules suggest that rates should rise soon, we find the arguments for a further delay—the asymmetric risk of moving too early vs. too late and the recent tightening of financial conditions—quite compelling and think they may resonate with her as well.
emphasis added

CR note: I will post an FOMC preview tomorrow.

by Calculated Risk on 9/12/2015 08:11:00 AM

The focus this week will be on the FOMC announcement and press conference on Thursday.

The key economic reports this week are August housing starts on Wednesday, and August retail sales on Tuesday.

For manufacturing, August Industrial Production will be released on Tuesday, and the September NY and Philly Fed manufacturing surveys will be released this week.

For prices, CPI will be released on Wednesday.

Also the preliminary annual benchmark revision for the employment report will be released on Wednesday, and the Fed's Q2 Flow of Funds report on Friday.

----- Monday, September 14th -----
No economic released scheduled.

----- Tuesday, September 15th -----
8:30 AM ET: Retail sales for August will be released.

This graph shows retail sales since 1992 through July 2015. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). On a monthly basis, retail sales were up 0.6% from June to July (seasonally adjusted), and sales were up 2.4% from July 2014.

The consensus is for retail sales to increase 0.3% in August, and to increase 0.2% ex-autos.

8:30 AM: NY Fed Empire State Manufacturing Survey for September. The consensus is for a reading of -0.5, up from -14.9.

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for August.

This graph shows industrial production since 1967.

The consensus is for a 0.2% decrease in Industrial Production, and for Capacity Utilization to decrease to 77.8%.

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

----- Wednesday, September 16th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: The Consumer Price Index for August from the BLS. The consensus is for a 0.1% decrease in CPI, and a 0.2% increase in core CPI.

10:00 AM: The September NAHB homebuilder survey. The consensus is for a reading of 61, unchanged from August.  Any number above 50 indicates that more builders view sales conditions as good than poor.

----- Thursday, September 17th -----
8:30 AM: Housing Starts for August.

Total housing starts increased to 1.206 million (SAAR) in July. Single family starts increased to 782 thousand SAAR in July.

The consensus for 1.168, down from July.

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 275 thousand initial claims, unchanged from 275 thousand the previous week.

10:00 AM: the Philly Fed manufacturing survey for September. The consensus is for a reading of 6.3, down from 8.3.

10:00 AM: 2015 Current Employment Statistics (CES) Preliminary Benchmark Revision. From the BLS:

"Each year, the Current Employment Statistics (CES) survey estimates are benchmarked to comprehensive counts of employment from the Quarterly Census of Employment and Wages (QCEW) for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. ... The final benchmark revision will be issued with the publication of the January 2016 Employment Situation news release in February."

2:00 PM: FOMC Meeting Announcement.  The FOMC might raise the Fed Funds rate at this meeting.

2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

2:30 PM: Fed Chair Janet Yellen holds a press briefing following the FOMC announcement.

----- Friday, September 18th -----
10:00 AM ET: Regional and State Employment and Unemployment for August.

12:00 PM: Q2 Flow of Funds Accounts of the United States from the Federal Reserve.

by Calculated Risk on 9/11/2015 06:38:00 PM

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For a few years, not much changed. But in 2012 and 2013, we saw some significant changes with a dramatic shift from distressed sales to more normal equity sales.

This data suggests healing in the Sacramento market and other distressed markets are showing similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In August, total sales were up 16.2% from August 2014, and conventional equity sales were up 21.3% compared to the same month last year.

In August, 7.8% of all resales were distressed sales. This was down from 9.1% last month, and down from 11.7% in August 2014.  This is the lowest percentage of distressed sales since they started breaking out distressed sales).

The percentage of REOs was at 3.5% in August, and the percentage of short sales was 4.3%.

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes decreased 14.9% year-over-year (YoY) in August.  This was the fourth consecutive monthly YoY decrease in inventory in Sacramento (a big recent change).

Cash buyers accounted for 15.8% of all sales (frequently investors).

Summary: This data suggests a more normal market with fewer distressed sales, more equity sales, and less investor buying.

by Calculated Risk on 9/11/2015 03:01:00 PM

From Nomura:

"We believe that the FOMC will wait until December to increase short-term interest rates. This judgment is primarily due to the uncertainty surrounding the inflation outlook and the evolution of financial conditions going forward. The possible impact of recent financial market movements on the economy is not yet clear, but should become clearer by the December FOMC meeting. That said, a September liftoff is still on the table as economic data have been more solid and some FOMC participants still seem confident that inflation will evolve in line with their outlook. In addition to the FOMC statement, we will also receive the Committee’s summary of economic projections and Chair Yellen will hold a press conference. How Chair Yellen addresses the recent global and financial market developments and her view of their impact on the economic and inflation outlook will be important for our expectation of the path of policy."

CR note: I will post an FOMC preview this weekend.

by Calculated Risk on 9/11/2015 11:41:00 AM

Note: Some of the year-over-year improvement last week was due to the shift in timing of Labor Day.

From HotelNewsNow.com: STR: US results for week ending 5 September

The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 30 August through 5 September 2015, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy increased 7.5% to 63.6%. Average daily rate for the week was up 6.6% to US$115.73. Revenue per available room increased 14.6% to finish the week at US$73.58.
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  The occupancy rate is now declining following the summer travel season.

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.

Special Note: I added 2001 (yellow) to show the impact of 9/11/2001 on hotel occupancy.  Occupancy was already down in 2001 due to the recession, and really collapsed following 9/11.

For 2015, the 4-week average of the occupancy rate is solidly above the median for 2000-2007, and above last year.

Right now 2015 is above 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 9/11/2015 10:02:00 AM

The preliminary University of Michigan consumer sentiment index for September was at 85.7, down from 91.9 in August.

This was below the consensus forecast of 91.0.


Click on graph for larger image.

by Calculated Risk on 9/10/2015 07:33:00 PM

Merrill Lynch expects Q2 GDP to be revised up from 3.7% SAAR:

The Census Bureau released the 2Q Quarterly Services Survey, revealing a stronger trend for healthcare services spending. Feeding this into our tracking model added 0.2pp to 2Q GDP tracking, leaving us at 3.9% qoq saar. Meanwhile, 3Q tracking was unchanged at 2.9%.

Friday:
• At 8:30 AM ET, the Producer Price Index for August from the BLS. The consensus is for a 0.2% decrease in prices, and a 0.1% increase in core PPI.

• At 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for September). The consensus is for a reading of 91.0, down from 91.9 in August.

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

by Calculated Risk on 9/10/2015 02:58:00 PM

A brief excerpt from a research note by Goldman Sachs economist Alec Phillips:

[T]he political environment at the moment seems ripe for fiscal conflict. We are still closer to the last election than the next one, and it is not a coincidence that recent major fiscal disruptions occurred in 2011 and 2013—odd years—when upcoming elections were still more than a year off. In the 2013 experience, public sentiment toward Republicans dropped sharply during and after the shutdown (Gallup’s Republican favorability measure hit a 20-year low), but a year later Republicans won the majorities in the House and Senate. Some lawmakers may conclude from this that voters’ memories are short and the political price for a shutdown more than a year before the next election is low.

As we've discussed, these stunts happen in odd years, and then the voters forget by the next election.

[W]hile the probability of a shutdown of some kind seems to us to be approaching 50%, we think the probability of a shutdown that has a significant effect on the financial markets or real economy is much lower, for two reasons. First, unlike the 2013 shutdown, which coincided with the deadline to raise the debt limit, the next deadline to raise the debt limit is unlikely to be reached until at least mid-November. ... shutdowns that overlapped with debt limit deadlines—the 1990 and 2013 shutdowns—have tended to result in a stronger reaction in financial markets than other shutdowns where the debt limit deadline was not about to be reached.
emphasis added

This possible shutdown isn't related to the "debt ceiling" (incorrectly named - actually about paying the bills), so hopefully this will be resolved. If not, some data releases will probably be delayed (September employment report, etc).

by Calculated Risk on 9/10/2015 11:15:00 AM

In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.

FNC released their July 2015 index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.2% from June to July (Composite 100 index, not seasonally adjusted). 

The 10 city MSA was unchanged in July (NSA), the 20-MSA RPI increased 0.1%, and the 30-MSA RPI was unchanged. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.

The year-over-year (YoY) change was smaller in July than in June, with the 100-MSA composite up 5.5% compared to July 2014.

The index is still down 15.2% from the peak in 2006 (not inflation adjusted).

Click on graph for larger image.

This graph shows the year-over-year change based on the FNC index (four composites) through July 2015. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

Most of the other indexes are also showing the year-over-year change in the 5% range. For example, Case-Shiller was up 4.5% in June, CoreLogic was up 6.9% in July.

Note: The July Case-Shiller index will be released on Tuesday, September 29th.

by Calculated Risk on 9/10/2015 08:33:00 AM

The DOL reported:

In the week ending September 5, the advance figure for seasonally adjusted initial claims was 275,000, a decrease of 6,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 282,000 to 281,000. The 4-week moving average was 275,750, an increase of 500 from the previous week's revised average. The previous week's average was revised down by 250 from 275,500 to 275,250.

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

The previous week was revised down to 281,000.

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 275,750.

This was at the consensus forecast of 275,000, and the low level of the 4-week average suggests few layoffs.