by Calculated Risk on 9/14/2016 06:45:00 PM

Thursday:
• At 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.

• Also at 8:30 AM, Retail sales for August will be released.  The consensus is for no change in retail sales in August.

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

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for August. The consensus is for a 0.2% decrease in Industrial Production, and for Capacity Utilization to decrease to 75.7%.

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

by Calculated Risk on 9/14/2016 02:49:00 PM

Almost all analysts are expecting no change in Fed policy at the September FOMC meeting next week.

So the focus this month will probably be on the wording of the statement, any changes to the projections, and on the press conference.

Here are the June FOMC projections.  Since the release of those projections, Q2 GDP was reported at a 1.1% annual rate, after increasing 0.8% in Q1.

Currently GDP is tracking around 3.3% annualized in Q3.  It seems likely the FOMC will revise down GDP for 2016.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2016	2017	2018
Jun 2016	1.9 to 2.0	1.9 to 2.2	1.8 to 2.1
Mar 2016	2.1 to 2.3	2.0 to 2.3	1.8 to 2.1

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 4.9% in August, so the unemployment rate projection for Q4 2016 will probably be mostly unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2016	2017	2018
Jun 2016	4.6 to 4.8	4.5 to 4.7	4.4 to 4.8
Mar 2016	4.6 to 4.8	4.5 to 4.7	4.5 to 5.0

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of July, PCE inflation was up only 0.8% from July 2015.  

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2016	2017	2018
Jun 2016	1.3 to 1.7	1.7 to 2.0	1.9 to 2.0
Mar 2016	1.0 to 1.6	1.7 to 2.0	1.9 to 2.0

PCE core inflation was up 1.6% in July year-over-year.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2016	2017	2018
Jun 2016	1.6 to 1.8	1.7 to 2.0	1.9 to 2.0
Mar 2016	1.4 to 1.7	1.7 to 2.0	1.9 to 2.0

With the recent stabilization in oil prices, PCE inflation might pick up a little.  But overall PCE core inflation is still below the FOMC target.

The FOMC will probably take no action at the meeting next week, and wait to see if employment gains continue - and inflation picks up.

by Calculated Risk on 9/14/2016 10:07:00 AM

Another update ... during the recession, I wrote about the troubles in Las Vegas and included a chart of visitor and convention attendance: Lost Vegas.

Since then Las Vegas visitor traffic has recovered to new record highs.

As of July, visitor traffic is running 1.7% above the record set in 2015 and on pace to be 10% above the pre-recession peak.

And convention attendance has returned too. Here is the data from the Las Vegas Convention and Visitors Authority.  

Click on graph for larger image.

The blue bars are annual visitor traffic (left scale), and the red line is convention attendance (right scale). 

Convention attendance is up 14.4% from the same period in 2015, after being up 14.0% in 2015 compared to 2014.

At this pace, convention attendance will set a new record in 2016, and be close to 7% above the pre-recession peak set in 2006.

There were many housing related conventions during the housing bubble, so it has taken some time for convention attendance to recover.  But attendance has really picked up over the last two years.

by Calculated Risk on 9/14/2016 07:00:00 AM

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

Mortgage applications increased 4.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 9, 2016. This week’s results included an adjustment for the Labor Day holiday.

... The Refinance Index increased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 9 percent from one week earlier. The unadjusted Purchase Index decreased 15 percent compared with the previous week and was 8 percent higher than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 3.68 percent from 3.67 percent, with points increasing to 0.37 from 0.33 (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 since 1990.

Refinance activity has increased this year since rates have declined.

However it would take another significant move down in mortgage rates to see a large increase in refinance activity.

Based on the increase in mortgage rates over the last few days, I'd expect refinance activity to decline soon.

The second graph shows the MBA mortgage purchase index.

The purchase index is "8 percent higher than the same week one year ago".

by Calculated Risk on 9/13/2016 06:58:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Still Pushing Into Post-Brexit Highs

Mortgage Rates were only slightly higher today, and in some cases were right in line with yesterday's. In fact, if you caught a lenders' rate sheet earlier this morning, chances are it was in better shape than yesterday. That stood to reason, considering bond markets (which drive mortgage rates) were also in slightly better shape to start. But bonds tanked in the afternoon (meaning prices fell, and yields rose), thus implying higher rates.

When bond markets move enough during the day, lenders often 'reprice' and send out updated rate sheets. That was indeed the case today, but the changes didn't leave us in significantly worse shape than yesterday. That's the positive way to look at it. The negative way is to observe that rates moved just a little bit more into the highest levels in more than 2 months (before Brexit).

During the best moments of the range over that time, conventional 30yr fixed rates on top tier scenarios have been as low as 3.25%. The most prevalent rate was 3.375%. While that's still available today for a few of the most aggressive lenders, you're more likely to see 3.5%-3.625%. Bottom line, the past few business days have solidified a shift higher of roughly an eighth of a percentage point.
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

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.