by Calculated Risk on 9/12/2016 01:19:00 PM

Live Stream for Speech by Fed Governor Lael Brainard: The Economic Outlook and Monetary Policy Implications

From Fed Governor Lael Brainard: The "New Normal" and What It Means for Monetary Policy

In today's new normal, the costs to the economy of greater-than-expected strength in demand are likely to be lower than the costs of significant unexpected weakness. In the case of unexpected strength, we have well-tried and tested tools and ample policy space in which to react. Moreover, because of Phillips curve flattening, the possibility of remaining labor market slack, the likely substantial response of the exchange rate and its depressing effect on inflation, the low neutral rate, and the fact that inflation expectations are well anchored to the upside, the response of inflation to unexpected strength in demand will likely be modest and gradual, requiring a correspondingly moderate policy response and implying relatively slight costs to the economy. In the face of an adverse shock, however, our conventional policy toolkit is more limited, and thus the risk of being unable to adequately respond to unexpected weakness is greater. The experience of the Japanese and euro-area economies suggest that prolonged weakness in demand is very difficult to correct, leading to economic costs that can be considerable.

This asymmetry in risk management in today's new normal counsels prudence in the removal of policy accommodation. I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation. I look forward to assessing the evolution of the data in the months ahead for signs of further progress toward our goals, bearing in mind these considerations.
emphasis added

Those expecting Brainard to signal a rate increase were incorrect.

by Calculated Risk on 9/12/2016 08:56:00 AM

The following graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the August 2016 seasonally adjusted annual sales rate (SAAR).

Heavy truck sales really collapsed during the recession, falling to a low of 181 thousand in April and May 2009, on a seasonally adjusted annual rate basis (SAAR). Then sales increased more than 2 1/2 times, and hit 479 thousand SAAR in June 2015.

Heavy truck sales have since declined - probably mostly due to the weakness in the oil sector - and were at 331 thousand SAAR in August.

Even with the recent oil related decline, heavy truck sales are only about 10% below the average (and median) of the last 20 years.


Click on graph for larger image.

by Calculated Risk on 9/11/2016 07:37:00 PM

Weekend:
• Schedule for Week of Sept 11, 2016

Monday:
• At 1:15 PM ET: Speech by Fed Governor Lael Brainard, The Economic Outlook and Monetary Policy Implications, At the Chicago Council on Global Affairs: Global Economic Series, Chicago, Illinois. Watch live here.

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

Oil prices were up over the last week with WTI futures at $45.37 per barrel and Brent at $47.60 per barrel.  A year ago, WTI was at $45, and Brent was at $47 - so prices are mostly unchanged year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.17 per gallon (down almost $0.30 per gallon from a year ago).

by Calculated Risk on 9/11/2016 09:07:00 AM

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 8.4% from August 2015, and conventional equity sales were up 8.8% compared to the same month last year.

In August, 5.7% of all resales were distressed sales. This was up from 4.9% last month, and down from 7.8% in August 2015.

The percentage of REOs was at 3.0% in August, and the percentage of short sales was 2.7%.

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 1.8% year-over-year (YoY) in August.  This was the sixteenth consecutive monthly YoY decrease in inventory in Sacramento.

Cash buyers accounted for 13.8% of all sales (frequently investors).

Summary: This data suggests a normal market with few distressed sales, and less investor buying - but with limited inventory.

by Calculated Risk on 9/10/2016 08:09:00 AM

The key economic reports this week are August Retail Sales and the August Consumer Price Index (CPI).

For manufacturing, August industrial production, and the September New York Fed manufacturing surveys, will be released this week.

----- Monday, Sept 12th -----
1:15 PM: Speech by Fed Governor Lael Brainard, The Economic Outlook and Monetary Policy Implications, At the Chicago Council on Global Affairs: Global Economic Series, Chicago, Illinois. Watch live here.

----- Tuesday, Sept 13th -----
9:00 AM ET: NFIB Small Business Optimism Index for August.

----- Wednesday, Sept 14th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

----- Thursday, Sept 15th -----
8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 265 thousand initial claims, up from 259 thousand the previous week.

8:30 AM ET: Retail sales for August will be released.  The consensus is for no change in retail sales in August.

This graph shows retail sales since 1992 through July 2016.

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

8:30 AM ET: The New York Fed Empire State manufacturing survey for September. The consensus is for a reading of -1.0, up from -4.2.

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 75.7%.

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

----- Friday, Sept 16th -----
8:30 AM: The Consumer Price Index for August from the BLS. The consensus is for 0.1% increase in CPI, and a 0.2% increase in core CPI.

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for September). The consensus is for a reading of 90.8, up from 89.8 in July.

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

by Calculated Risk on 9/09/2016 07:18:00 PM

Note: This index is a leading indicator for new non-residential Commercial Real Estate (CRE) investment, except manufacturing.

From Dodge Data & Analytics: Dodge Momentum Index Continues Ascent in August

The Dodge Momentum Index grew 1.3% in August to 134.9 (2000=100), from its revised July reading of 133.2. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The move higher in August was the result of a 1.7% increase from July for institutional planning as well as a 1.0% gain for commercial planning. August is the fifth consecutive month that the Momentum Index has increased, marking the longest such streak since the end of 2012 into 2013. The Momentum Index is currently 16% above the same month a year ago, reflecting this growth by major sector – institutional planning up 22% and commercial planning up 11%. That both sectors are showing such improvement suggests that developers are shrugging off sluggish economic data and the uncertainty surrounding the November elections, and moving ahead with plans for new projects.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 134.9 in August, up from 133.2 in July.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year". This suggests further increases in CRE spending over the next year.

by Calculated Risk on 9/09/2016 03:58:00 PM

CR Note: I'm asked this question frequently, so here is a repost ...

Some information from mortgage broker Solyent Green is People:

For people with foreclosures or short sales on their record, the waiting period depends on if there are "Extenuating Circumstances" EC ( death in family, company relocation/shut down - about 5/10% of cases) or if the foreclosure or short sale was due to "Financial Mismanagement" FM (the majority of cases).

Jumbo loans, Foreclosure: 7 years (FM and EC)
Jumbo loans, Short Sale: 7 years FM, only 4 years EC
Fannie/Freddie, Foreclosure: 7 years FM, 3 years EC
Fannie/Freddie, Short Sale: 4 years FM, 2 years EC
FHA Foreclosure/Short Sale: 3 years (FM and EC)

A large number of the foreclosures were in 2009 and 2010, so those people will be eligible to borrow soon.

CR Note: Even though people are eligible to borrow, doesn't mean they will. They will have to saved enough for a downpayment, and many of these people are psychological scarred (and will wait longer to buy again).

by Calculated Risk on 9/09/2016 11:58:00 AM

From the Altanta Fed: GDPNow

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2016 is 3.5 percent on September 2, up from 3.2 percent on September 1.

From the NY Fed Nowcasting Report

The FRBNY Staff Nowcast stands at 2.8% for 2016:Q3, unchanged from last week.

From Merrill Lynch:

We revise up our 3Q GDP forecast to 3% from 2.4% to reflect the recent tracking.

CR Note: Looks like real GDP growth around 3% in Q3 (and a probably little upward revision to Q2).

by Calculated Risk on 9/09/2016 09:50:00 AM

Here is another update on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs.

The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).

Prices didn't increase as much early in 2014 (more supply, smaller "surge" in demand).

In 2015, even with the pickup in U.S. housing starts, prices were down year-over-year.  Note: Multifamily starts do not use as much lumber as single family starts, and there was a surge in multi-family starts.  This decline in 2015 was also probably related to weakness in China.

Prices in 2016 are now up year-over-year.

Click on graph for larger image in graph gallery.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through early September 2016 (via NAHB), and 2) CME framing futures.

Right now Random Lengths prices are up 11% from a year ago, and CME futures are up about 26% year-over-year.

by Calculated Risk on 9/08/2016 05:58:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Rise Thanks to Europe

Mortgage Rates bounced higher today, bringing them back in line with the pervasive range of the past several weeks. As of yesterday, rates were technically at 2-week lows.

The ultra-narrow range continues to be an important caveat for any discussion of rate movement. Simply put, there is such a small gap between 2-week highs and 2-week lows that it could be easily traversed on an average day of movement. Most lenders continue to offer conventional 30yr fixed quotes around 3.375% on top tier scenarios.
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates