by Calculated Risk on 1/27/2017 05:47:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC:

• Another huge week, total US oil rigs up 15 to 566

• Horizontal oil rig counts up +17 to 463
...
• Widespread gains: Permian, EF, Bakken, Cana Woodford – the shale sector as a whole has turned back on

• Another month of this will torpedo the OPEC deal

Click on graph for larger image.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.

by Calculated Risk on 1/27/2017 02:58:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in December was at 1.00%, down from 1.03% in November.  Freddie's rate is down from 1.32% in December 2015.

Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

This is the lowest serious delinquency rate since June 2008.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

Click on graph for larger image

Although the rate is declining, the "normal" serious delinquency rate is under 1%.

Maybe the rate will decline another 0.25 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Fannie Mae will report soon.

by Calculated Risk on 1/27/2017 12:58:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for December 2016. In the past month, the indexes increased in 41 states, decreased in two, and remained stable in seven, for a one-month diffusion index of 78. Over the past three months, the indexes increased in 47 states, decreased in two, and remained stable in one, for a three-month diffusion index of 90.

Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Philly Fed.Click on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In December 46 states had increasing activity (including minor increases).

The downturn in 2015 and 2016, in the number of states increasing, was mostly related to the decline in oil prices. Now that oil prices have recovered somewhat, most states are increasing again.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and almost all green now.

Source: Philly Fed. Note: For complaints about red / green issues, please contact the Philly Fed.

by Calculated Risk on 1/27/2017 09:58:00 AM

The first graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential investment (RI) increased at a 10.2% annual rate in Q4.  Equipment investment increased at a 3.1% annual rate, and investment in non-residential structures decreased at a 5.0% annual rate.

On a 3 quarter trailing average basis, RI (red) is unchanged,  equipment (green) is also unchanged, and nonresidential structures (blue) is slightly positive.

I'll post more on the components of non-residential investment once the supplemental data is released.

I expect investment to pick up going forward, and for the economy to continue to grow.


The second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP has generally been increasing, but is only just above the bottom of the previous recessions - and I expect RI to continue to increase for the next few years.

I'll break down Residential Investment into components after the GDP details are released.

Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The third graph shows non-residential investment in structures, equipment and "intellectual property products".  Investment in equipment - as a percent of GDP - has declined a little recently..  Investment in nonresidential structures - as a percent of GDP - had been moving down due to less investment in energy and power, and is now moving sideways.

Still no worries - residential investment will pickup (still very low), and oil and related non-residential will also pickup.

by Calculated Risk on 1/27/2017 08:36:00 AM

From the BEA: Gross Domestic Product: Fourth Quarter and Annual 2016 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the fourth quarter of 2016, according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.5 percent.
...
The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by negative contributions from exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the fourth quarter reflected a downturn in exports, an acceleration in imports, a deceleration in PCE, and a downturn in federal government spending that were partly offset by an upturn in residential fixed investment, an acceleration in private inventory investment, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment.
emphasis added

The advance Q4 GDP report, with 1.9% annualized growth, was below expectations of a 2.2% increase.

Personal consumption expenditures (PCE) increased at a 2.5% annualized rate in Q4, down from 3.0% in Q3.   Residential investment (RI) increased at a 10.2% pace. Equipment investment increased at a 3.1% annualized rate, and investment in non-residential structures decreased at a 5.0% pace.

I'll have more later ...

by Calculated Risk on 1/26/2017 06:39:00 PM

From the Atlanta Fed: GDPNow

The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2016 is 2.9 percent on January 26, up from 2.8 percent on January 19. After this morning's advance economic indicators release from the U.S. Census Bureau, the forecast of the contribution of inventory investment to fourth-quarter growth increased from 0.74 percentage points to 0.94 percentage points and the forecast of the contribution of net exports to growth decreased from -0.55 percentage points to -0.64 percentage points.

From the NY Fed NowCast

The FRBNY Staff Nowcast stands at 2.1% for 2016:Q4 and at 2.7% for 2017:Q1.

From Merrill Lynch:

The advance goods trade deficit narrowed to $65.0bn in December from $65.3bn, which was better than our expectations of $65.5bn. Exports in particular surged 3.0% mom, while imports also gained a solid 1.8%. Advance wholesale and retail inventories were also included in this report, with the former surging 1.0% mom and the latter coming in flat. On balance, these data bumped up our 4Q GDP tracking model by 0.2pp to 2.6% qoq saar, which is our updated forecast heading into tomorrow's advance GDP release.

Friday:
• At 8:30 AM ET, Gross Domestic Product, 4th quarter 2016 (advance estimate). The consensus is that real GDP increased 2.2% annualized in Q4, down from 3.5% in Q3.

• Also at 8:30 AM, Durable Goods Orders for December from the Census Bureau. The consensus is for a 3.0% increase in durable goods orders.

• At 10:00 AM, <University of Michigan's Consumer sentiment index (final for January). The consensus is for a reading of 98.2, up from the preliminary reading 98.1.

by Calculated Risk on 1/26/2017 12:36:00 PM

New home sales for December were reported at 536,000 on a seasonally adjusted annual rate basis (SAAR).  This was well below the consensus forecast, however the previous months combined were revised up slightly.

Sales were down 0.4% year-over-year in December. And sales are up 12.2% in 2016 compared to 2015.  This was very solid annual sales growth.

Note that these sales (for December) mostly happened after mortgage rates increased following the election.  As I've noted before, interest rate changes impact new home sales before existing home sales because new home sales are counted when the contract is signed, and existing home sales at the close of escrow.

This is just one month of data, and overall sales growth was solid in 2016, but we might see a dip in sales due to higher interest rates.  If so, this will start impacting expecting existing home sales in January.

On Tuesday, after existing home sales for December were released, I wrote:

With the recent increase in rates, I'd expect some decline in sales volume as happened following the "taper tantrum" in 2013. So we might see sales fall to 5 million SAAR or below over the next 6 months. That would still be solid existing home sales. We might also see a little more inventory in the coming months, and therefore less price appreciation.

It will take several months of data to see the impact of higher mortgage rates - and this is the seasonally weak period - so we might have to wait for the March and April data.

Earlier: New Home Sales decrease to 536,000 Annual Rate in December.

Click on graph for larger image.

This graph shows new home sales for 2015 and 2016 by month (Seasonally Adjusted Annual Rate).  Sales were up 12.2% year-over-year.

Note that December 2015 was a strong month for 2015.

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next several years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through November 2016. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

by Calculated Risk on 1/26/2017 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Continued to Expand Moderately

The Federal Reserve Bank of Kansas City released the January Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity continued to expand moderately with strong expectations for future activity.

“We had another solid composite index reading in January, and firms’ expectations for future activity were the highest in more than twelve years,” said Wilkerson.
...
The month-over-month composite index was 9 in January, unchanged from 9 in December but up from 0 in November.  The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.  Activity in durable goods plants increased moderately, particularly for metals, electronics, and machinery, while nondurable goods plants expanded at a slower pace with food production falling considerably.  Most month-over-month indexes improved slightly in January.  The production index moved slightly higher from 18 to 20, and the shipments, new orders, and order backlog indexes also increased.  The employment index moderated somewhat from 8 to 6, and the new orders for exports index remained negative.  ...
emphasis added

The Kansas City region was hit hard by the decline in oil prices, but activity is expanding again.

by Calculated Risk on 1/26/2017 10:12:00 AM

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 536 thousand.

The previous three months were revised up combined.

"Sales of new single-family houses in December 2016 were at a seasonally adjusted annual rate of 536,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.4 percent below the revised November rate of 598,000 and is 0.4 percent below the December 2015 estimate of 538,000.

An estimated 563,000 new homes were sold in 2016. This is 12.2 percent above the 2015 figure of 501,000."
emphasis added

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Even with the increase in sales over the last several years, new home sales are still fairly low historically.

The second graph shows New Home Months of Supply.

The months of supply increased in December to 5.8 months.

The all time record was 12.1 months of supply in January 2009.

This is now in the normal range (less than 6 months supply is normal).

" The seasonally adjusted estimate of new houses for sale at the end of December was 259,000. This represents a supply of 5.8 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In December 2016 (red column), 38 thousand new homes were sold (NSA). Last year, 38 thousand homes were also sold in December.

The all time high for December was 87 thousand in 2005, and the all time low for December was 23 thousand in 1966 and 2010.

This was well below expectations of 590,000 sales SAAR.   I'll have more later today.

by Calculated Risk on 1/26/2017 08:37:00 AM

The DOL reported:

In the week ending January 21, the advance figure for seasonally adjusted initial claims was 259,000, an increase of 22,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 234,000 to 237,000. The 4-week moving average was 245,500, a decrease of 2,000 from the previous week's revised average. This is the lowest level for this average since November 3, 1973 when it was 244,000. The previous week's average was revised up by 750 from 246,750 to 247,500.
emphasis added

The previous week was revised up.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 245,500.

This was above the consensus forecast.  This is the lowest level for the four week average since 1973 (with a much larger population today).

The low level of claims suggests relatively few layoffs.