by Calculated Risk on 7/14/2017 11:10:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.1% annualized rate) in June. The 16% trimmed-mean Consumer Price Index also rose 0.1% (0.9% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers was unchanged (-0.3% annualized rate) in June. The CPI less food and energy rose 0.1% (1.4% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed released the median CPI details for June here. Motor fuel declined 29% in June annualized.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.2%, the trimmed-mean CPI rose 1.9%, and the CPI less food and energy rose 1.7%. Core PCE is for May and increased 1.4% year-over-year.

On a monthly basis, median CPI was at 1.1% annualized, trimmed-mean CPI was at 0.9% annualized, and core CPI was at 1.4% annualized.

Using these measures, inflation was soft again in June.  Overall these measures are mostly below the Fed's 2% target  (Median CPI is slightly above).

by Calculated Risk on 7/14/2017 09:25:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production rose 0.4 percent in June for its fifth consecutive monthly increase. Manufacturing output moved up 0.2 percent; although factory output has gone up and down in recent months, its level in June was little different from February. The index for mining posted a gain of 1.6 percent in June, just slightly below its pace in May. The index for utilities, however, remained unchanged. For the second quarter as a whole, industrial production advanced at an annual rate of 4.7 percent, primarily as a result of strong increases for mining and utilities. Manufacturing output rose at an annual rate of 1.4 percent, a slightly slower increase than in the first quarter. At 105.2 percent of its 2012 average, total industrial production in June was 2.0 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.2 percentage point in June to 76.6 percent, a rate that is 3.3 percentage points below its long-run (1972–2016) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 9.9 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 76.6% is 3.3% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production increased in June to 105.2. This is 20.8% above the recession low, and is close to the pre-recession peak.

The increase was close to expectations, however the previous months were revised down.

by Calculated Risk on 7/14/2017 08:38:00 AM

On a monthly basis, retail sales decreased 0.3 percent from May to June (seasonally adjusted), and sales were up 2.8 percent from June 2016.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for June 2017, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $473.5 billion, a decrease of 0.2 percent from the previous month, and 2.8 percent above June 2016. ... The April 2017 to May 2017 percent change was revised from down 0.3 percent to down 0.1 percent.

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline were down 0.1% in June.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales, ex-gasoline, increased by3.2% on a YoY basis.

The decrease in June was below expectations, although sales in May were revised up.  A disappointing report.

by Calculated Risk on 7/13/2017 06:13:00 PM

Note: I will be interviewed by Prashant Kothari of String on July 20th. Here is the registration information. It should be fun.

Friday:
• At 8:30 AM ET: Retail sales for June will be released.  The consensus is for a 0.1% increase in retail sales.

• Also at 8:30 AM, The Consumer Price Index for June from the BLS. The consensus is for a 0.1% increase in CPI, and a 0.2% increase in core CPI.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for June. The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 76.8%.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for May.  The consensus is for a 0.3% increase in inventories.

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for July). The consensus is for a reading of 95.1, unchanged from 95.1 in June.

by Calculated Risk on 7/13/2017 11:50:00 AM

From HotelNewsNow.com: STR: US hotel results for week ending 8 July

The U.S. hotel industry reported mixed year-over-year results in the three key performance metrics during the week of 2-8 July 2017, according to data from STR.

In comparison with the week of 3-9 July 2016, the industry recorded the following:

• Occupancy: -3.0% to 65.3%
• Average daily rate (ADR): +1.1% to US$122.73
• Revenue per available room (RevPAR): -2.0% to US$80.11
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

The red line is for 2017, dash light blue is 2016, dashed orange is 2015 (best year on record), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate is tracking close to last year, and slightly behind the record year in 2015.

For hotels, occupancy will be strong over the next couple of months.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 7/13/2017 08:56:00 AM

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

From Dodge Data Analytics: Dodge Momentum Index Moves Higher in June

The Dodge Momentum Index took another step forward in June, increasing 1.1% to 141.1 (2000=100) from its revised May reading of 139.6. 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. June’s lift was due to a 4.8% advance by the institutional component of the Momentum Index, while the commercial component fell 1.3%. The Momentum Index has exhibited substantial strength since mid-2016, with the institutional and commercial components trading off as the driver of growth almost on a month-to-month basis. Although the commercial component of the Momentum Index declined in the latest month it is 11.8% higher than it was in June 2016, while the institutional component is 9.5% above a year ago. The overall rising trend for both sectors continues to suggest that construction activity will remain healthy through the end of the year.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 141.1 in June, up from 139.6 in May.

The index is up solidly year-over-year.

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 7/13/2017 08:33:00 AM

The DOL reported:

In the week ending July 8, the advance figure for seasonally adjusted initial claims was 247,000, a decrease of 3,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 248,000 to 250,000. The 4-week moving average was 245,750, an increase of 2,250 from the previous week's revised average. The previous week's average was revised up by 500 from 243,000 to 243,500.
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 increased to 245,750.

This was higher than the consensus forecast.

The low level of claims suggests relatively few layoffs.

by Calculated Risk on 7/12/2017 05:48:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates at 2-Week Lows After Yellen

Mortgage rates had been holding in a narrow range near their highest levels in roughly 3 months over the past few days.  Despite some stability in underlying bond markets, lenders had hesitated to make meaningful adjustments to rate sheets (in their defense, there wasn't much to work with).  That all changed today after Fed Chair Yellen's congressional testimony.

In fact, it was the prepared remarks for the testimony, released at 8:30am ET this morning that did the trick for bond markets (which underlie interest rate movement).  Market participants were eager to see if Yellen would strike a similarly soft tone to some of the recent speeches from other members of the Fed.  Indeed, that was the case as Yellen said the Fed doesn't need to hike much more in order to reach a neutral Fed Funds Rate. [30YR FIXED - 4.125%]

Thursday:
• At 8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 245 thousand initial claims, down from 248 thousand the previous week.

• At 8:30 AM, The Producer Price Index for June from the BLS. The consensus is for no change in PPI, and a 0.2% increase in core PPI.

• At 10:00 AM, Testimony from Fed Chair Janet L. Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.

by Calculated Risk on 7/12/2017 02:04:00 PM

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of Kansas City based on information collected on or before June 30, 2017."

Economic activity expanded across all twelve Federal Reserve Districts in June, with the pace of growth ranging from slight to moderate. In addition, the majority of Districts expected modest to moderate gains in the months ahead. Consumer spending appears to be rising across a majority of Districts, led by increases in nonauto retail sales and tourism. However, many Districts noted some softening in consumer spending, particularly in auto sales which declined in half of the Districts. Manufacturing and nonfinancial services activity continued to grow, with most Districts reporting modest to moderate gains since the last report. Loan demand was steady to increasing in most Districts. Residential and nonresidential construction activity was flat to expanding in most Districts. Most Districts cited low home inventory levels in certain market segments which were constraining home sales in many areas.
...
Employment across most of the nation maintained a modest to moderate pace of expansion, although the Atlanta and St. Louis Districts noted flat employment levels. Labor markets tightened further for both low- and high-skilled positions, particularly in the construction and IT sectors. Contacts across a broad range of industries reported a shortage of qualified workers which had limited hiring. Wages continued to grow at a modest to moderate pace in most Districts, and many firms attributed these wage gains to tighter labor market conditions. Wage pressures generally trended with employment conditions, and rising wage pressures were noted among both low- and high-skilled positions. A few Districts also reported rising costs of benefits and variable pay.
emphasis added

And a few excerpts on real estate:

New York: Housing markets across the District have strengthened somewhat. Sales volume has picked up throughout the New York City area--particularly for moderately-priced, single-family homes in outlying areas. In contrast, sales activity has slowed a bit in parts of upstate New York, restrained by a lack of homes on the market.

A real estate contact in upstate New York State reported continued escalation in home prices, with homes in more sought-after areas often selling for above the list price. ...

San Franciso:

by Calculated Risk on 7/12/2017 09:09:00 AM

Excerpts from prepared statement from Fed Chair Janet Yellen: Semiannual Monetary Policy Report to the Congress

The Committee continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and stable prices. That expectation is based on our view that the federal funds rate remains somewhat below its neutral level--that is, the level of the federal funds rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel. Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance. But because we also anticipate that the factors that are currently holding down the neutral rate will diminish somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2 percent goal. Even so, the Committee continues to anticipate that the longer-run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades.
emphasis added

And on the balance sheet:

Let me now turn to our balance sheet. Last month the FOMC augmented its Policy Normalization Principles and Plans by providing additional details on the process that we will follow in normalizing the size of our balance sheet. The Committee intends to gradually reduce the Federal Reserve's securities holdings by decreasing its reinvestment of the principal payments it receives from the securities held in the System Open Market Account. Specifically, such payments will be reinvested only to the extent that they exceed gradually rising caps. Initially, these caps will be set at relatively low levels to limit the volume of securities that private investors will have to absorb. The Committee currently expects that, provided the economy evolves broadly as anticipated, it will likely begin to implement the program this year.