by Calculated Risk on 9/13/2016 01:57:00 PM

The Census Bureau released the Income, Poverty and Health Insurance Coverage in the United States: 2015 this morning. The report showed a significant increase in the real median household income and a decline in poverty.  For an overview, see from Nick Timiraos and Janet Adamy at the WSJ: U.S. Household Incomes Surged 5.2% in 2015, First Gain Since 2007 and from Jason Furman, Sandra Black, and Matt Fiedler at the CEA: Income, Poverty, and Health Insurance in the United States in 2015

One of the metrics to follow is a ratio of house prices to incomes.   The following graphs use annual averages of house prices indexes - Case-Shiller and CoreLogic - and the nominal median household income (and the mean for the fourth fifth income) through 2015.

Note: Most reporting today is on the REAL median household income (adjusted for inflation over time).  These graphs use nominal income since we are comparing to nominal house prices.

Click on graph for larger image.

This graph shows the ratio of house price indexes divided by the Median Household Income through 2015 (the HPI is first multiplied by 1000).

This uses the annual average CoreLogic and the National Case-Shiller index since 1976.

As of 2015, house prices were above the median historical ratio - but far below the bubble peak.

The second graph is similar but uses the mean of the fourth fifth household income (if we separate households into fifths, this is the second highest income group).

These are key households since they are more likely to be homeowners (and home buyers).

Using this group, prices are well below the bubble peak.

Going forward, I think it would be a positive if incomes outpaced house prices, or at least kept pace with house prices increases for a few years.

by Calculated Risk on 9/13/2016 10:07:00 AM

From the National Federation of Independent Business (NFIB): Political Climate as Negative Factor Hits Record High in Monthly NFIB Index of Small Business Optimism

The Index of Small Business Optimism declined two-tenths of a point in August to 94.4, with owners refusing to expand; expecting worse business conditions; and unable to fill open positions, according to the National Federation of Independent Business (NFIB).

Another major problem for small business owners is finding qualified workers to fill open positions. According to the survey, 15 percent said that finding qualified workers was their biggest problem. Thirty percent said they had job openings that they couldn’t fill. That’s the highest level since the recovery.
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index decreased to 94.4 in August.

by Calculated Risk on 9/13/2016 08:19:00 AM

A few excerpts from an article by Jon Hilsenrath at the WSJ: Divided Federal Reserve Is Inclined to Stand Pat

Federal Reserve officials, lacking a strong consensus for action a week before their next policy meeting, are leaning toward waiting until late in the year before raising short-term interest rates.
...
Officials release updated projections next week, and those could come down as officials coalesce around a view that rates will rise at an exceptionally gradual pace in the months ahead. Two rate increases in 2016 look especially unlikely.

At the same time, the Fed could present a more optimistic view about risks to the economic outlook. Early in the year, officials worried that a range of issues could derail growth and hiring. That included market turbulence tied to worries about China’s economy and to Britain’s decision to leave the European Union. Those worries have dissipated.

After flagging their worries for several months about risks to the economic outlook, officials could revert to calling these risks “balanced,” meaning the central bankers have become more open to raising rates later this year, as long as the economy doesn’t stumble in the weeks ahead.

And from Goldman Sachs chief economist Jan Hatzius: Lack of a Clear Signal from the FOMC Lowers Odds of a September Hike

A series of speeches by Fed officials concluded today with remarks by Governor Brainard. A common theme was the absence of a clear signal that the FOMC is likely to hike in September. The lack of a signal is meaningful because if action were likely, the committee would normally make an effort to nudge the market toward anticipating a hike.

Goldman sees a 65% change of a rate hike by December.

by Calculated Risk on 9/12/2016 08:46:00 PM

A short rant - I always find this irritating.

If I interviewed Jack Welch (former GE CEO), I'd ask about company finance, marketing, manufacturing, product development, hiring and training and more. That would be a wonderful learning experience.

But I wouldn't ask if he could solve a three dimensional differential equation in real time on TV!

However business channel talking heads always ask about the economy and economic policy. Welch would give a more coherent answer if you asked about 3-D differential equation than economics: he would probably just say "I don't know". That should be his answer to economic questions.

Today's example is former Home Depot CEO Bernie Marcus. I'd enjoy asking Mr. Marcus about subjects he knows - how he financed the growth of Home Depot, marketing, customer service, and hiring and training. That would be fascinating.

I wouldn't ask Mr. Marcus about differential equations or economic policy.

I think CNBC and Fox News are doing a disservice to their viewers and to the interviewee. They have business experts on their shows and then ask them about topics they know nothing about. Frustrating.

by Calculated Risk on 9/12/2016 04:22:00 PM

Fed Governor Lael Brainard mentioned oil prices earlier today:

The stabilization of the dollar and oil prices should lead inflation to move back toward our target in coming quarters.

Click on graph for larger image

This graph shows the year-over-year change in WTI based on data from the EIA.  Currently WTI is down about 1% year-over-year.

Five times since 1987, oil prices have increased 100% or more YoY.  And several times prices have almost fallen in half YoY.

WTI oil prices are mostly unchanged year-over-year.

The second graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).

According to Bloomberg, WTI is at $46.05 per barrel today, and Brent is at $48.15.

Prices really collapsed at the end of 2014 - and then rebounded a little - and then collapsed again at the end of 2015 and in early 2016.

Unless prices fall sharply again like happened at the end of 2015, oil (and gasoline prices) will be up year-over-year soon and no longer a drag on inflation.

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.