by Calculated Risk on 1/04/2016 11:54:00 AM

The Census Bureau reported that overall construction spending decreased in November compared to October:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during November 2015 was estimated at a seasonally adjusted annual rate of $1,122.5 billion, 0.4 percent below the revised October estimate of $1,127.0 billion. The November figure is 10.5 percent above the November 2014 estimate of $1,016.1 billion.

During the first 11 months of this year, construction spending amounted to $1,011.9 billion, 10.7 percent (±1.2%) above the $913.9 billion for the same period in 2014.

Both private spending and public spending decreased:

Spending on private construction was at a seasonally adjusted annual rate of $828.2 billion, 0.2 percent below the revised October estimate of $829.7 billion. ...

n November, the estimated seasonally adjusted annual rate of public construction spending was $294.3 billion, 1.0 percent below the revised October estimate of $297.3 billion.
emphasis added

Note: There were substantial upward revisions to private residential construction spending for the last few years.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending has been increasing, but is 37% below the bubble peak.

Non-residential spending is only 3% below the peak in January 2008 (nominal dollars).

Public construction spending is now 10% below the peak in March 2009 and about 11% above the post-recession low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 11%. Non-residential spending is up 14% year-over-year. Public spending is up 6% year-over-year.

Looking forward, all categories of construction spending should increase in 2016. Residential spending is still very low, non-residential is increasing (except oil and gas), and public spending has also increasing after several years of austerity.

This well below the consensus forecast of a 0.7% increase, however spending for prior months was revised up sharply.

by Calculated Risk on 1/04/2016 10:00:00 AM

The ISM manufacturing index indicated contraction in December. The PMI was at 48.2% in December, down from 48.6% in November. The employment index was at 48.3%, down from 51.3% in November, and the new orders index was at 49.2%, up from 48.9%.

From the Institute for Supply Management: December 2015 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector contracted in December for the second consecutive month, while the overall economy grew for the 79th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. "The December PMI® registered 48.2 percent, a decrease of 0.4 percentage point from the November reading of 48.6 percent. The New Orders Index registered 49.2 percent, an increase of 0.3 percentage point from the reading of 48.9 percent in November. The Production Index registered 49.8 percent, 0.6 percentage point higher than the November reading of 49.2 percent. The Employment Index registered 48.1 percent, 3.2 percentage points below the November reading of 51.3 percent. The Prices Index registered 33.5 percent, a decrease of 2 percentage points from the November reading of 35.5 percent, indicating lower raw materials prices for the 14th consecutive month. The New Export Orders Index registered 51 percent, up 3.5 percentage points from the November reading of 47.5 percent and the Imports Index registered 45.5 percent, down 3.5 percentage points from the November reading of 49 percent. As was the case in November, 10 out of 18 manufacturing industries reported contraction in December. Contraction in new orders, production, employment and raw materials inventories accounted for the overall softness in December."
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was below expectations of 49.2%, and indicates manufacturing contracted in December.

by Calculated Risk on 1/04/2016 08:25:00 AM

Note: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight, Zillow, FHFA, FNC and more). Note: Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From Black Knight: U.S. Home Prices Up 0.2 Percent for the Month; Up 5.5 Percent Year-Over-Year

» U.S. home prices were up 0.2 percent for the month, and have gained 5.5 percent from one year ago

» At $254K, the national level HPI is now just 5.3 percent off its June 2006 peak of $268K, and up 26.9 percent from the market’s bottom in January 2012

» New York led gains among the states for the fourth consecutive month, seeing 1.1 percent month-over-month appreciation, followed by Nevada and Utah, both of which rose 0.8 percent from September » Connecticut once again saw the most negative movement among the states in October, with home prices there falling by 0.6 percent month-over-month

» New York, NY and Reno, NV led the nation’s metro areas, with home prices there rising 1.2 percent from September

» All five California metro areas ranked among the nation’s 40 largest saw home prices decline in October, as did the state as a whole

» Home prices in New York, Tennessee and Texas all hit new peaks again in October

» Of the nation’s 40 largest metros, 7 hit new peaks in October – Austin, TX; Dallas, TX; Denver, CO; Houston, TX; Nashville, TN; Portland OR and San Antonio, TX

The Black Knight HPI increased 0.2% percent in October, and is off 5.3% from the peak in June 2006 (not adjusted for inflation).

The year-over-year increase in the index has been about the same for the last year.

Note: Case-Shiller for October was released last week.

by Calculated Risk on 1/03/2016 09:53:00 PM

Weekend:
• Schedule for Week of January 3, 2016

• Question #6 for 2016: Will real wages increase in 2016?

• December 2015: Unofficial Problem Bank list declines to 250 Institutions, Q4 2015 Transition Matrix

Monday:
• At 10:00 AM ET, ISM Manufacturing Index for December. The consensus is for the ISM to be at 49.2, up from 48.6 in November. The ISM manufacturing index indicated contraction at 48.6% in November. The employment index was at 51.3%, and the new orders index was at 48.9%.

• Also at 10:00 AM, Construction Spending for November. The consensus is for a 0.7% increase in construction spending.

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are down 7 and DOW futures are down 55 (fair value).

Oil prices were mixed over the last week with WTI futures at $37.50 per barrel and Brent at $37.87 per barrel.  A year ago, WTI was at $53, and Brent was at $55 - so prices are down over 30% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at close to $1.99 per gallon (down about $0.20 per gallon from a year ago).

by Calculated Risk on 1/03/2016 12:41:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2016. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2015.

6) Real Wage Growth: Last year I was one of the most pessimistic forecasters on wage growth. That was unfortunately correct (on nominal wages). Hopefully 2016 will be better for wages! How much will wages increase in 2016?

Note: Last year I was correct on nominal wages, but real wages increased (because of falling oil prices).

The most followed wage indicator is the  “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report.

Click on graph for larger image.

The blue line shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth had been running close to 2% since 2010, and picked up a little in 2015.

The red line is real wage growth (adjusted using headline CPI).  Real wages increased during the crisis because CPI declined sharply.   CPI was very low in 2015 - due to the decline in oil prices - so real wage growth picked up significantly last year.  Sustained 2% real wage growth would be great, but most of the recent increase in real wages was due to falling oil prices - and that is not sustainable.

There are two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. All three data series are different, and most of the focus recently has been the CES series (used in the graph above).


The second graph shows the year-over-year change using the quarterly wage data from the Employment Cost Index (data starts in 2001). Once again this shows nominal wages have increasing a little over 2% in 2015, and real wages increased (due to lower oil prices).

For this post the key point is that nominal wages have been only increasing about 2% per year with some pickup in 2015. As the labor market continues to tighten, we should start see more wage pressure as companies have to compete more for employees. I expect to see some further increase in nominal wage increases in 2016 (perhaps over 3% later in the year).  The year-over-year change in real wages will depend on inflation, and I expect headline CPI to pickup some this year as the impact on headline inflation of declining oil prices fades.

Here are the Ten Economic Questions for 2016 and a few predictions:

• Question #1 for 2016: How much will the economy grow in 2016?
• Question #2 for 2016: How many payroll jobs will be added in 2016?
• Question #3 for 2016: What will the unemployment rate be in December 2016?
• Question #4 for 2016: Will the core inflation rate rise in 2016? Will too much inflation be a concern in 2016?
• Question #5 for 2016: Will the Fed raise rates in 2016, and if so, by how much?
• Question #6 for 2016: Will real wages increase in 2016?
• Question #7 for 2016: What about oil prices in 2016?
• Question #8 for 2016: How much will Residential Investment increase?
• Question #9 for 2016: What will happen with house prices in 2016?
• Question #10 for 2016: How much will housing inventory increase in 2016?

by Calculated Risk on 1/02/2016 08:11:00 AM

The key report this week is the December employment report on Friday.

Other key indicators include December vehicle sales, the December ISM manufacturing and non-manufacturing indexes, and the November trade deficit.

----- Monday, January 4th -----
10:00 AM: ISM Manufacturing Index for December. The consensus is for the ISM to be at 49.2, up from 48.6 in November.

Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated contraction at 48.6% in November. The employment index was at 51.3%, and the new orders index was at 48.9%.

10:00 AM: Construction Spending for November. The consensus is for a 0.7% increase in construction spending.

----- Tuesday, January 5th -----
All day: Light vehicle sales for December. The consensus is for light vehicle sales to decrease to 18.1 million SAAR in December from 18.2 million in November (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the November sales rate.

----- Wednesday, January 6th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for December. This report is for private payrolls only (no government). The consensus is for 190,000 payroll jobs added in December, down from 217,000 in November.

8:30 AM: Trade Balance report for November from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through October. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is for the U.S. trade deficit to be at $44.4 billion in November from $43.9 billion in October.

10:00 AM: the ISM non-Manufacturing Index for December. The consensus is for index to increase to 56.5 from 55.9 in November.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for November. The consensus is a 0.2% decrease in orders.

2:00 PM: The Fed will release the FOMC Minutes for the Meeting of December 15-16, 2015

----- Thursday, January 7th -----
8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 270 thousand initial claims, down from 287 thousand the previous week.

----- Friday, January 8th -----
8:30 AM: Employment Report for December. The consensus is for an increase of 200,000 non-farm payroll jobs added in December, down from the 211,000 non-farm payroll jobs added in November.

The consensus is for the unemployment rate to be unchanged at 5.0%.

This graph shows the year-over-year change in total non-farm employment since 1968.

In November, the year-over-year change was 2.64 million jobs.

A key will be the change in real wages - and as the unemployment rate falls, wage growth should pickup.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for November. The consensus is for a no change in inventories.

3:00 PM: Consumer Credit for November from the Federal Reserve. The consensus is for an increase of $19 billion in credit.

by Calculated Risk on 1/01/2016 11:20:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for December 2015.

Changes and comments from surferdude808:

Update on the Unofficial Problem Bank List for December 2015. During the month, the list fell from 264 institutions to 250 after eight removals and three additions. Assets dropped by $2.0 billion to an aggregate $74.97 billion. A year ago, the list held 401 institutions with assets of $125.1 billion.

This month, actions have been terminated against Fieldpoint Private Bank & Trust, Greenwich, CT ($786 million); Broadway Federal Bank, f.s.b., Los Angeles, CA ($404 million); Lifestore Bank, West Jefferson, NC ($256 million); American National Bank of Minnesota, Baxter, MN ($251 million); Fidelity Bank of Florida, National Association, Merritt Island, FL ($229 million); Mid-Southern Savings Bank, FSB, Salem, IN ($188 million); State Bank of Herscher, Herscher, IL ($146 million); and Cornerstone Bank, Wilson, NC ($107 million).

The additions this month were The First State Bank, Barboursville, WV ($241 million); Calumet County Bank, Brillion, WI ($91 million); and State Bank of Nauvoo, Nauvoo, IL ($32 million).

With it being the end of the fourth quarter, we bring an updated transition matrix to identify how banks are moving off the Unofficial Problem Bank List. Since the Unofficial Problem Bank List was first published on August 7, 2009 with 389 institutions, a total of 1,701 institutions have appeared on a weekly or monthly list at some point. There have been 1,451 institutions that have transitioned through the list. Departure methods include 809 action terminations, 395 failures, 233 mergers, and 14 voluntary liquidations. The fourth quarter of 2015 started with 276 institutions on the list, so the 24 action terminations during the quarter reduced the list by 8.7 percent. Of the 389 institutions on the first published list, 28 or 7.2 percent still remain more than six years later. The 395 failures represent 23.2 percent of the 1,701 institutions that have made an appearance on the list. This failure rate is well above the 10-12 percent rate frequently cited in media reports on the failure rate of banks on the FDIC's official list.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	161	(61,047,816)
	Unassisted Merger	39	(9,713,878)
	Voluntary Liquidation	4	(10,584,114)
	Failures	157	(184,803,449)
	Asset Change		(2,684,126)
Still on List at 12/31/2015		28	7,480,046
Additions after 8/7/2009		222	67,491,915
End (12/31//2015)		250	74,971,961
Intraperiod Deletions1
	Action Terminated	648	265,149,840
	Unassisted Merger	194	78,301,665
	Voluntary Liquidation	10	2,324,142
	Failures	238	119,574,853
	Total	1,090	465,350,500
1Institution not on 8/7/2009 or 12/31/2015 list but appeared on a weekly list.

by Calculated Risk on 12/31/2015 05:31:00 PM

Here is an update on hotel occupancy from HotelNewsNow.com: STR: US results for week ending 26 December

The U.S. hotel industry reported negative results in the three key performance measurements during the week of 20-26 December 2015, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy decreased 4.0% to 42.8%. Average daily rate for the week was down 1.7% to US$108.34. Revenue per available room fell 5.6% to US$46.37.
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  Hotels are currently in the weakest part of the year; December and January.

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.

2015 is the best year on record for hotels.

Average Weekly Occupancy Rate by Year:
1) 2015 65.9%
2) 2000 64.8%
3) 2014 64.8%

And the worst:
2009 55.0%

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

by Calculated Risk on 12/31/2015 02:51:00 PM

Here are a few excerpts from a piece by Goldman Sachs economists Jan Hatzius and Zach Pandl: "8 Questions for 2016"

On GDP Growth:

We forecast that growth will improve only slightly from its current pace, averaging 2.25% next year.

On Housing:

[W]e see a strong case for a continued recovery in housing starts from about 1.2 million currently to 1.4-1.5 million over the next few years—even without a major easing in lending standards or a rebound in the headship rate of young adults ... we expect that 2016 will mark the end of the post-crisis housing market in several respects. We forecast that the rebound in house prices will slow, that single-family construction will account for a rising share of new housing starts, and that the homeownership rate will finally stabilize.

On Fed hikes:

[A] standard policy rule coupled with the Fed's economic projections (or our own) calls for a roughly 125bp increase in the funds rate by end-2016. While the FOMC's preference for a "gradual" path of hikes suggests that four is most likely, the economic case for the full 100bp implied by the Summary of Economic Projections (SEP) is strong.

by Calculated Risk on 12/31/2015 12:05:00 PM

Over the weekend, I posted some questions for next year: Ten Economic Questions for 2016. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2015.

7) Oil Prices: The decline in oil prices was a huge story at the end of 2014, and prices have declined sharply again at the end of 2015.  Will oil prices stabilize here (WTI is at $38 per barrel)?  Or will prices decline further?  Or will prices increase in 2016?

First, Josh Zumbrun at the WSJ has a review of 2015 forecasts compared to what actually happened: What Economic Forecasters Got Right, and Wrong, in 2015

Crude Oil

Average forecast for December 2015: $63/barrel
Actual as of December 29: about $38/barrel

None of the forecasters in the survey saw the price of oil being below $40 this month. Throughout the year, economists have continued to forecast that oil prices would regain some of their lost ground and have been continually disappointed.

Forecasters did a poor job on oil prices (including me).  Oil prices are difficult to predict with all the supply and demand factors.

The reason prices have fallen sharply is supply and demand. It is important to remember that the short term supply and demand curves for oil are very steep. 

In the long run, supply and demand will adjust to price changes.  But if someone asks why prices have fallen so sharply recently, the answer is "supply and demand" and that the short term supply and demand curves are steep for oil.

As I noted last year, the keys on the short term demand side have been the ongoing weakness in Europe and the slowdown in China.   There has been an increase in demand in the US, but that has been more than offset by global weakness.  Will Europe recovery in 2016? Will China's growth increase? Right now it looks like more of the same, so I expect the demand side to stay weak again in 2016.

The supply side is even more difficult.  There are volatile regions that have increased supply, such as from Libya and Iraq.  And there will be more supply from Iran in 2016.  Will be there be a 2016 supply disruption in Libya, Iraq, Iran, Nigeria, or some other oil exporting country?  That is a key geopolitical question.

And what about tight oil production in 2016?   At the current price, it would seem fracking would be uneconomical for new wells (existing wells will continue to produce).  We've seen some decline in US oil production, but the decline in supply has been fairly small.  As an example, production in North Dakota peaked at 38.1 million barrels in December 2015, and is only down to 34.6 million barrels in September.

It is impossible to predict an international supply disruption, however if a significant disruption happens, then prices will move higher. Continued weakness in Europe and China seems likely, however sluggish demand will be somewhat offset by less tight oil production.  It seems like the key oil producers (Saudi, etc) will continue production at current levels.  This suggests in the short run (2016) that prices will stay low, but probably move up a little in 2016.  I'll guess WTI will be up from the current price by December 2016 (but still under $50 per barrel).

Here are the Ten Economic Questions for 2016 and a few predictions:

• Question #1 for 2016: How much will the economy grow in 2016?
• Question #2 for 2016: How many payroll jobs will be added in 2016?
• Question #3 for 2016: What will the unemployment rate be in December 2016?
• Question #4 for 2016: Will the core inflation rate rise in 2016? Will too much inflation be a concern in 2016?
• Question #5 for 2016: Will the Fed raise rates in 2016, and if so, by how much?
• Question #6 for 2016: Will real wages increase in 2016?
• Question #7 for 2016: What about oil prices in 2016?
• Question #8 for 2016: How much will Residential Investment increase?
• Question #9 for 2016: What will happen with house prices in 2016?
• Question #10 for 2016: How much will housing inventory increase in 2016?