by Calculated Risk on 10/14/2015 12:08:00 PM

From the Atlanta Fed: Latest forecast — October 14, 2015

The GDPNow model nowcast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 0.9 percent on October 14, down from 1.0 percent on October 9. The model's nowcast for real consumer spending growth in the third quarter fell from 3.6 percent to 3.2 percent after this morning's retail sales report from the U.S. Census Bureau. This was partly offset by an 0.1 percentage point increase in the nowcast for the contribution of inventory investment to third-quarter real GDP growth following this morning's update on retail inventories from the Census Bureau.

Note that consumer spending is expected to be solid (probably in the mid 3s).

Sometimes GDPNow has been very close - other times they've missed (In June, GDPNow was forecasting Q2 at 1.1% and the first BEA report was 2.3% - since revised up to 3.9%).

by Calculated Risk on 10/14/2015 08:41:00 AM

On a monthly basis, retail sales were up 0.1% from August to September (seasonally adjusted), and sales were up 2.4% from September 2014.

From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $447.7 billion, an increase of 0.1 percent from the previous month, and 2.4 percent above September 2014. ... The July 2015 to August 2015 percent change was revised from +0.2 percent to virtually unchanged.

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 increased 0.4%.

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 4.8% on a YoY basis (2.4% for all retail sales including gasoline).

The increase in September was at the consensus expectations of a 0.1% increase, however sales in August were revised down - gasoline sales were revised down - and retail sales for July were revised up.

by Calculated Risk on 10/14/2015 07:01:00 AM

Last week I noted that the surge was related to applications being filed before the TILA-RESPA regulatory change, and that I expected applications to decline significant in the survey this week since demand was pulled forward. So the decline is not a surprise - just a reverse of the previous week.

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

Mortgage applications decreased 27.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 9, 2015.
...
The Refinance Index decreased 23 percent from the previous week. The seasonally adjusted Purchase Index decreased 34 percent from one week earlier. The unadjusted Purchase Index decreased 34 percent compared with the previous week and was 1 percent lower than the same week one year ago.

“Application volume plummeted last week in the wake of the implementation of the new TILA-RESPA integrated disclosures, which caused lenders to significantly revamp their business processes, and as a result dramatically slowed the pace of activity. The prior week’s results evidently pulled forward much of the volume that would have more naturally taken place into this week. Purchase volume for the week was below last year’s pace, the first year over year decrease since February 2015, while refinance volume dropped sharply even with little change in mortgage rates,” said Mike Fratantoni, MBA’s Chief Economist.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 3.99 percent, with points increasing to 0.53 from 0.46 (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.

Refinance activity remains low.

This week was just the reverse of last week.

2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015 (after the increase earlier this year).


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 1% lower than a year ago.

The surge last week was related to applications being filed before the TILA-RESPA regulatory change, and the decline this week was the inverse.   The wild swings should resolve fairly quickly.

by Calculated Risk on 10/13/2015 06:58:00 PM

Ht to Nick Timiraos for link to the paper.

An NBER paper from Kristopher Gerardi, Kyle F. Herkenhoff, Lee E. Ohanian, and Paul S. Willen Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default

On the flip side we find that less than 1 percent of “can pay” households, which we define to be households that are employed and have at least 6 months worth of mortgage payments in stock, bonds, or liquid assets (net of unsecured debt) are in default. Conditioning on negative equity does not have much effect as only 5 percent of “can pay” borrowers with negative equity are in default. Thus, the vast majority of borrowers in positions of negative equity continue paying their mortgages, which suggests that strategic default rarely occurs.

Not a surprise. The researchers also found the opposite - that most people with few assets, negative equity and unemployed - still finds ways to make their mortgage payments.

Suppose we define “can’t pay” to be households without a job and with less than one month of mortgage payments in stock, bonds, or liquid assets (net of unsecured debt). The data show that approximately 19 percent of these “can’t pay households” are in default as compared to only 4 percent in the population as a whole. What is surprising though is the flip side of that 19 percent: 81 percent of “can’t pay” households are current on their loans. In other words, despite no income and no savings, most households in this group continue to pay their mortgages. Furthermore, we show that these striking patterns remain even when conditioning on negative equity.

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

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

• Also at 8:30 AM, Retail sales for September will be released. The consensus is for retail sales to increase 0.1% in September, and to decrease 0.1% ex-autos.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for August. The consensus is for no change in inventories.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 10/13/2015 02:34:00 PM

Fed Governor Daniel Tarullo was on CNBC today: Fed's Tarullo: Not appropriate to hike rates based on current environment

The U.S. economy likely would not support an interest rate hike this year without signs inflation and wages are increasing, a top Federal Reserve official told CNBC on Tuesday.

"I wouldn't expect it would be appropriate to raise rates," Fed Governor Daniel Tarullo said.

Another quote via Neil Irwin: "Probably wise to not be counting too much on past correlations, things like the Phillips Curve"

This is the second Fed Governor in two days to argue it is appropriate to wait until next year, see Tim Duy's Brainard Drops A Policy Bomb

The Fed governors almost always vote with the Fed Chair, so this either suggests a sharp disagreement, or Fed Chair Janet Yellen is changing her mind.  Either is a significant story.

by Calculated Risk on 10/13/2015 10:29:00 AM

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

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

The 10 city MSA increased 0.2% (NSA), the 20-MSA RPI increased 0.2%, and the 30-MSA RPI also increased 0.2% in August. 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 August than in July, with the 100-MSA composite up 5.5% compared to August 2014.

The index is still down 14.5% 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 August 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 4.7% in July, CoreLogic was up 6.9% in August.

Note: The August Case-Shiller index will be released on Tuesday, October 27th.

by Calculated Risk on 10/13/2015 09:00:00 AM

From the National Federation of Independent Business (NFIB): NFIB Small Business Optimism Index increased only 0.2 points last month

The Index of Small Business Optimism was basically unchanged in September, rising only 0.2 points, this after an August gain of only 0.5 points. ...

Overall, a solid improvement in hiring activity. There was no evidence in the NFIB data that job creation slacked off sharply from June and July, each with 245,000 jobs. Reported job creation returned to its best level of the year, with owners adding a net 0.18 workers per firm in recent months, up 0.05 from August.
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 96.1 in September from 95.9 in August.

by Calculated Risk on 10/12/2015 08:38:00 PM

A couple of excellent articles ...

From Binyamin Appelbaum at the NY Times: Nobel in Economics Given to Angus Deaton for Studies of Consumption

The economist Angus Deaton has devoted his career to improving the data that shape public policy, including measures of wealth and poverty, savings and consumption, health and happiness.
...
“To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices,” the Royal Swedish Academy of Sciences said in announcing the economics prize, the last of this year’s Nobels. “More than anyone else, Angus Deaton has enhanced this understanding.”

From economist Justin Wolfers in the NY Times: Why Angus Deaton Deserved the Economics Nobel Prize

The central contribution of Angus Deaton, the latest winner of the Nobel Memorial Prize in economics, has been to shift the gaze of his fellow economists beyond measures of income, to broader measures of well-being.

Much of his research has focused on consumption — measures of the food people eat, the condition of their housing, and the services they consume. And he has been a trailblazer in shifting the attention of economists away from the behavior of economywide aggregates such as gross domestic product, and toward the analysis of individual households.

by Calculated Risk on 10/12/2015 04:33:00 PM

Note: Fiscal 2015 ended on September 30, 2015.

From CBO: Monthly Budget Review for September 2015

The federal government ran a budget deficit of $435 billion fiscal year 2015, the Congressional Budget Office estimates—$48 billion less than the shortfall recorded in fiscal year 2014, and the smallest deficit recorded since 2007. Relative to the size of the economy, that deficit—at an estimated 2.4 percent of gross domestic product (GDP)—was slightly below the average experienced over the past 50 years, and 2015 was the sixth consecutive year in which the deficit declined as a percentage of GDP since peaking at 9.8 percent in 2009. By CBO’s estimate, revenues were about 8 percent higher and outlays were about 5 percent higher in 2015 than they were in the previous fiscal year.
emphasis added

And on September:

The federal government realized a surplus of $95 billion in September 2015, CBO estimates—$11 billion smaller than the surplus in September 2014. Because September 1, 2014, was the Labor Day holiday, certain payments that ordinarily would have been made in September were instead made in August. Without those shifts in the timing of payments, the surplus for September 2015 would have been $8 billion larger than last September’s.

As former Fed Chairman Ben Bernanke noted in February 2013, the deficit as a percent of GDP would actually be smaller now without the "sequester":

The CBO estimates that deficit-reduction policies in current law will slow the pace of real GDP growth by about 1-1/2 percentage points this year, relative to what it would have been otherwise.

A significant portion of this effect is related to the automatic spending sequestration that is scheduled to begin on March 1, which, according to the CBO's estimates, will contribute about 0.6 percentage point to the fiscal drag on economic growth this year. Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant.

Moreover, besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions.

The "know-nothings" in Congress didn't listen then, and they are not listening now.

The Treasury will report the actual figures tomorrow.

by Calculated Risk on 10/12/2015 01:38:00 PM

Here is an article today from economist Josh Lehner: Is 2015 Peak Renter?

There have been at least three primary drivers of the massive shift toward renting in the past decade: finances, demographics, and taste and preferences. Much of the discussion surrounding this overall shift has focuses on the finance issues — foreclosures, credit availability, ability to afford, lack of down payment, etc — and with good reason as this is the most visible aspect of the housing bust and impact of the Great Recession. However given the ongoing strength in multifamily housing today, key questions are being asked. Among them: how long can it last and how much, if at all, will ownership rebound in the future? In other words, when will the housing market hit peak renter? To answer, let’s examine those three underlying drivers.
...
All that said, our office remains skeptical that all of the shift into rental is permanent, even from a taste or preference stand point. When the Millennials do settle down, get married, have a couple of kids — at a later age than previous generations — we know single family with good schools looks a lot more attractive. Even so, it does look like most of the increase in rentals is likely to be permanent, particularly in light of the fact that no economist or housing expect I know is predicting a return to the pattern of development and growth seen during much of the past few decades. Even within the renter/owner calculus, as Bill talked about on TV, condos are likely to grow, which are, obviously, both owner and multifamily. Combine this with the possibility that retiring Boomers will actually want to downsize and live in the urban core (I think this is still an open question, not a done deal) and the outlook for multifamily remains strong.

Overall, the biggest takeaway I have from this work, is that in growing, popular areas like Portland, even if the market shifts back toward ownership somewhat, overall demand will increase for both. This is simply due to overall population growth. There will be more of all ages, and preferences a decade from now, look back at those first two graphs.

Thanks for the nice mention! There is much much more in the article.