by Calculated Risk on 10/27/2017 03:55:00 PM

Here are five questions that people ask me all the time.

1. Are house prices in a bubble? Short answer: No.

2. Is a recession imminent (within the next 12 months)? No.

3. Is the stock market a bubble? I rarely comment on the stock market directly ...

4. Can investors use macro analysis? Yes, but not frequently.

5. Will Mr. Trump have a negative impact on the economy? Maybe.

I'll post some thoughts on each of these topics over the next couple of weeks.

by Calculated Risk on 10/27/2017 02:37:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 21 October

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 15-21 October 2017, according to data from STR.

In comparison with the week of 16-22 October 2016, the industry recorded the following:

• Occupancy: +0.9% to 72.8%
• Average daily rate (ADR): +1.7% to US$131.58
• Revenue per available room (RevPAR): +2.6% to US$95.82

Among the Top 25 Markets, Houston, Texas, reported the largest year-over-year increases in occupancy (+23.7% to 86.6%) and RevPAR (+25.9% to US$103.34). Post-Hurricane Harvey demand continues to drive performance levels in the market.
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, to date, is ahead of last year, and tied with the record year in 2015.  The hurricanes will probably push the annual occupancy rate to a new record in 2017.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 10/27/2017 11:11:00 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) decreased at a 6.0% annual rate in Q3.  Equipment investment increased at a 8.6% annual rate, and investment in non-residential structures decreased at a 5.2% annual rate.

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

The slight dip in RI isn't concerning - as long as it doesn't continue!

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

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

Residential Investment as a percent of GDP decreased in Q3, but has generally been increasing.  RI as a percent of GDP is only just above the bottom of the previous recessions - and I expect RI to continue to increase for the next couple of 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 - picked up.

Investment in residential structures declined slightly in Q3.

by Calculated Risk on 10/27/2017 08:33:00 AM

From the BEA: Gross Domestic Product: Third Quarter 2017 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the third quarter of 2017, according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.1 percent.
...
The increase in real GDP in the third quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, nonresidential fixed investment, exports, and federal government spending. These increases were partly offset by negative contributions from residential fixed investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased .

The deceleration in real GDP growth in the third quarter primarily reflected decelerations in PCE, in nonresidential fixed investment, and in exports that were partly offset by an acceleration in private inventory investment and a downturn in imports.
emphasis added

The advance Q3 GDP report, with 3.0% annualized growth, was slightly above expectations.

Personal consumption expenditures (PCE) increased at 2.4% annualized rate in Q3, down from 3.3% in Q2.   Residential investment (RI) decreased at a 6.0% pace. Equipment investment increased at a 8.6% annualized rate, and investment in non-residential structures decreased at a 5.2% pace.

I'll have more later ...

by Calculated Risk on 10/26/2017 05:44:00 PM

From the Altanta Fed: GDPNow (as of Oct 26th)

The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2017 is 2.5 percent on October 26, down from 2.7 percent on October 25. The forecast of the contribution of inventory investment to third-quarter GDP growth declined from 1.01 percentage points to 0.80 percentage points after this morning's Advance Economic Indicators report from the U.S. Census Bureau.
emphasis added

From the NY Fed Nowcasting Report (as of Oct 20th)

The New York Fed Staff Nowcast stands at 1.5% for 2017:Q3 and 2.6% for 2017:Q4.

From Merrill Lynch: (as of Oct 26th)

the decline in inventories more than offset, lowering our 3Q GDP tracking estimate back down to 3.0% from 3.2%.

Friday:
• At 8:30 AM ET, Gross Domestic Product, 3rd quarter 2017 (Advance estimate). The consensus is that real GDP increased 2.5% annualized in Q3.

• At 10:00 AM, University of Michigan's Consumer sentiment index (final for October). The consensus is for a reading of 101.1, unchanged from the preliminary reading 101.1.

by Calculated Risk on 10/26/2017 01:46:00 PM

CR Note: The FOMC meets next week, and no change to policy is expected. However it appears another rate hike is coming at the December meeting.

A few brief excerpts from a piece by Goldman Sachs economist Spencer Hill: On Course for a December Hike

We expect the FOMC to keep policy unchanged next week and see few substantive changes to the statement.

We expect a slightly more upbeat tone on growth that acknowledges the disruptions from the hurricanes but characterizes them as temporary or in the past tense ... Despite the disappointing September CPI report, we do not expect a downgrade of the inflation assessment or outlook, reflecting broadly stable year-over-year inflation and the further decline in the unemployment rate.

We expect the statement to acknowledge that balance sheet normalization was “initiated” in October, but we do not expect further discussion of the topic, given the lack of adverse market reaction and the passive nature of the run-off. We also look for the characterization of current policy (“accommodative”) to remain unchanged.

by Calculated Risk on 10/26/2017 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Posts Strong Growth

The Federal Reserve Bank of Kansas City released the October 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 posted strong growth and expectations about future activity improved further.

“Factory activity accelerated further in our region this month, posting its highest composite reading since 2011,” said Wilkerson. 
...
The month-over-month composite index was 23 in October, the highest since March 2011, up from 17 in September and 16 in August.  The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.  Factory activity increased strongly at both durable and non-durable goods plants, particularly for food, plastics, computer and electronic products.  Month-over-month indexes were mostly higher.  The new orders index increased moderately, and the order backlog index increased to its highest reading since March 2011.  The employment and new orders for exports indexes increased slightly.  However, the shipments index was unchanged, and the production index eased somewhat but remained high.  The finished goods inventory index jumped back into positive territory, and the raw materials inventory index also increased moderately. 
emphasis added

All of the regional Fed surveys have been strong in October.

by Calculated Risk on 10/26/2017 10:06:00 AM

From the NAR: Pending Home Sales Flatten in September

Pending home sales were unchanged in September, but activity declined on an annual basis both nationally and in all major regions, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, was at 106.0 in September (unchanged from a downwardly revised August figure). The index is now at its lowest reading since January 2015 (104.7), is 3.5 percent below a year ago, and has fallen on an annual basis in five of the past six months
...
The PHSI in the Northeast rose 1.2 percent to 94.5 in September, but is still 2.4 percent below a year ago. In the Midwest the index climbed 1.4 percent to 102.9 in September, but remains 2.5 percent lower than September 2016.

Pending home sales in the South decreased 2.3 percent to an index of 115.9 in September and are now 5.0 percent below last September. The index in the West grew 1.9 percent in September to 102.7, but is 2.9 percent below a year ago.
emphasis added

This was below expectations of a 0.5% increase for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in October and November.

by Calculated Risk on 10/26/2017 08:34:00 AM

The DOL reported:

In the week ending October 21, the advance figure for seasonally adjusted initial claims was 233,000, an increase of 10,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 222,000 to 223,000. The 4-week moving average was 239,500, a decrease of 9,000 from the previous week's revised average. The previous week's average was revised up by 250 from 248,250 to 248,500.

Claims taking procedures continue to be severely disrupted in Puerto Rico and the Virgin Islands as a result of power outages and infrastructure damage caused by Hurricanes Irma and Maria.
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 239,500.

This was close to the consensus forecast.

by Calculated Risk on 10/25/2017 08:02:00 PM

From Matthew Graham at Mortgage News Daily: Rates Now Up an Eighth of a Point From Last Week

Mortgage rates continued higher at a relatively fast pace today, pushing farther into the highest levels since early July.  As of this afternoon, the average lender is right in line with those rate offerings from July.  Any higher and we'd have to go back another 2 months to see comparable rates.
...
In fact, for many lenders, the cost of offering a 30yr fixed rate of 3.875% last week now matches the cost of a 4.0% rate this week.  Clients who'd seen quotes of 4.0% are now seeing 4.125%.  The average is somewhere in between for top tier scenarios.
emphasis added

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 235 thousand initial claims, up from 222 thousand the previous week.

• At 10:00 AM, Pending Home Sales Index for September. The consensus is for a 0.5% increase in the index.