by Calculated Risk on 3/29/2018 01:59:00 PM

From the Chicago PMI: March Chicago Business Barometer Eases to 57.4

The MNI Chicago Business Barometer fell 4.5 points to 57.4 in March, down from 61.9 in February, hitting the lowest level in exactly one year.

Firms’ operations continued to expand in March, but the pace of expansion moderated for a third straight month. Three of the five Barometer components receded on the month, with only Employment and Supplier Deliveries expanding.
...
“The Chicago Business Barometer calendar quarter average had increased for six straight quarters until Q1 2018, with the halt largely due to the recent downward trajectory of orders and output,” said Jamie Satchi, Economist at MNI Indicators.

“Troubles higher up in firms’ supply chains are restraining their productive capacity and higher prices are being passed on to consumers. On a more positive note, firms remain keen to expand their workforce,” he added.
emphasis added

This was well below the consensus forecast of 63.2, but still a decent reading.

by Calculated Risk on 3/29/2018 11:25:00 AM

Reis released their Q1 2018 Office Vacancy survey this morning. Reis reported that the office vacancy rate increased to 16.5% in Q1, from 16.4% in Q4 2017. This is up from 16.3% in Q1 2017, and down from the cycle peak of 17.6%.

From Reis Economist Barbara Denham:

Defying a healthy job market, the office vacancy rate increased in the first quarter to 16.5%, up from 16.4% at year-end 2017 and 16.3% in the first quarter of 2017. The vacancy rate has increased 30 basis points from a low of 16.2% in Q4 2016.

The national average asking rent increased 0.8% in the first quarter while effective rents, which net out landlord concessions, increased 0.9%. At $32.87 and $26.67 per square foot, respectively, the average market and effective rents have both increased 2.2% from the first quarter of 2017.

Net absorption was 6.2 million square feet, which was above the average quarterly absorption level of 2017: 5.9 million square feet. Construction was also higher than average: 10.9 million square feet, above 10.6 million square feet per quarter in 2017. Moreover, the first quarter tends to see the lowest activity; thus, this was a relatively strong quarter given the Nor’easters that plagued the Northeast.
...
Moreover, the market seemed to have stagnated in 2017 as companies had put off making office leasing decisions until a fiscal stimulus was passed. The passing of the Tax Reform and Jobs Act should deliver higher profits and stronger business confidence which should spur stronger office leasing this year.

Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis reported the vacancy rate was at 16.5% in Q1.  The office vacancy rate has been mostly moving sideways at an elevated level, but has increased a little recently.

Office vacancy data courtesy of Reis.

by Calculated Risk on 3/29/2018 08:48:00 AM

The BEA released the Personal Income and Outlays report for February:

Personal income increased $67.3 billion (0.4 percent) in February according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $53.9 billion (0.4 percent) and personal consumption expenditures (PCE) increased $27.7 billion (0.2 percent).

Real DPI increased 0.2 percent in February and Real PCE increased less than 0.1 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.2 percent.

The February PCE price index increased 1.8 percent year-over-year (up from 1.7 percent YoY in January) and the February PCE price index, excluding food and energy, increased 1.6 percent year-over-year (up from 1.5 percent YoY in January).

The following graph shows real Personal Consumption Expenditures (PCE) through February 2018 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was slightly below expectations,  and the increase in PCE was slightly above expectations.

Using the two-month method to estimate Q4 PCE growth, PCE was increasing at a 1.4% annual rate in Q1 2018. (using the mid-month method, PCE was increasing 0.4%). This suggests weak PCE growth in Q1.

by Calculated Risk on 3/29/2018 08:34:00 AM

The DOL reported:

In the week ending March 24, the advance figure for seasonally adjusted initial claims was 215,000, a decrease of 12,000 from the previous week's revised level. This is the lowest level for initial claims since January 27, 1973 when it was 214,000. The previous week's level was revised down by 2,000 from 229,000 to 227,000. The 4-week moving average was 224,500, a decrease of 500 from the previous week's revised average. The previous week's average was revised up by 1,250 from 223,750 to 225,000.

Claims taking procedures in Puerto Rico and in the Virgin Islands have still not returned to normal.
emphasis added

The previous week was revised down.

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 224,500.

This was lower than the consensus forecast. The low level of claims suggest relatively few layoffs.

by Calculated Risk on 3/28/2018 08:12:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 228 thousand initial claims, down from 229 thousand the previous week.

• Also at 8:30 AM, Personal Income and Outlays for February. The consensus is for a 0.4% increase in personal income, and for a 0.2% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:45 AM, Chicago Purchasing Managers Index for March. The consensus is for a reading of 63.2, up from 61.9 in February.

• During the Day, Reis Q1 2018 Office Survey of rents and vacancy rates.

• At 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for February). The consensus is for a reading of 102.0, unchanged from 102.0 in February.

by Calculated Risk on 3/28/2018 04:07:00 PM

The Case-Shiller house price indexes for January were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Aaron Terrazas at Zillow: January Case-Shiller Results and February Forecast: Prelude to Home Buying Season Already Hot

The continuing inventory pinch helped boost the U.S. national Case Shiller index 6.2 percent in January from a year earlier, down from a 6.3 percent gain in December. Case-Shiller’s 10-City Composite rose 6 percent, while the 20-City Composite climbed 6.4 percent year-over-year.
...
Spring home shopping season will be in full swing soon, and with it we can expect the usual seasonal bump of would-be home buyers competing over a shrinking pool of homes. But in a twist, this year’s buyers may be competing against some buyers who have been unsuccessful in recent months.

Increasingly, the traditional seasonal boundaries around home shopping season – which generally heats up in early spring and cools off by late summer, in time for back-to-school season – are becoming less pronounced.

Limited supply, fierce competition and rising prices are forcing many buyers to stay on the market longer in hopes of finding the right home at the right price. More inventory is really the only cure for those pressures right now, especially for people at the entry-level end of the market, but it has proven frustratingly slow in coming.
...
Right now, the market can barely absorb what current demand there is. It remains to be seen how it adapts to even more buyers, and presumably less inventory, in the months to come.

Zillow predicts the February S&P/Case-Shiller U.S. national index, released April 24, will climb 6 percent year-over year.

The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be slightly less in February than in January.

by Calculated Risk on 3/28/2018 12:25:00 PM

Reis reported that the apartment vacancy rate was at 4.7% in Q1 2018, up from 4.6% in Q4, and up from 4.3% in Q1 2017.  This is the highest vacancy rate since Q3 2012. The vacancy rate peaked at 8.0% at the end of 2009, and bottomed at 4.1% in 2016.

From Reis:

Continuing on its upward path, the apartment vacancy rate increased to 4.7% from 4.6% at year-end 2017 and 4.3% in the first quarter of 2017. The vacancy rate has increased 60 basis points from a low of 4.1% in Q3 2016.

The national average asking rent increased 0.9% in the first quarter while effective rents, which net out landlord concessions, increased 0.8%. At $1,382 (market) and $1,318 (effective) per unit, the average rents have increased 4.4% and 3.9%, respectively, from the first quarter of 2017.

Net absorption was 27,875 units, well below the average quarterly absorption of 2017 of 44,707 units. Construction was also low at 39,917 units, trailing the 2017 quarterly average of 58,824 units. We caution that the first quarter tends to see the lowest activity, but this was particularly low given the construction pipeline.
...
Although many metros are expected to see considerably higher levels of completions in 2018 – including Dallas, New York, Los Angeles, Denver and Atlanta – the expected increase in vacancy is not expected to exceed 2.5% in any market as job growth is expected to remain healthy in most metros fueling the demand for apartments.
emphasis added

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

The vacancy rate had been mostly moving sideways for the last few years.  However, the vacancy rate has bottomed and is starting to increase.  With more supply coming on line - and less favorable demographics - the vacancy rate will probably continue to increase in 2018.

Apartment vacancy data courtesy of Reis.

by Calculated Risk on 3/28/2018 10:04:00 AM

From the NAR: Pending Home Sales Reverse Course in February, Rise 3.1 Percent

Pending home sales snapped back in much of the country in February, but weakening affordability and not enough inventory on the market restricted overall activity compared to a year ago, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, grew 3.1 percent to 107.5 in February from a downwardly revised 104.3 in January. Even with last month’s increase in activity, the index is 4.1 percent below a year ago.
...
The PHSI in the Northeast surged 10.3 percent to 96.0 in February, but is still 5.1 percent below a year ago. In the Midwest the index inched forward 0.7 percent to 98.9 in February, but is 9.5 percent lower than February 2017.

Pending home sales in the South rose 3.0 percent to an index of 125.7 in February, but are 1.5 percent lower than last February. The index in the West climbed 0.4 percent in February to 96.9, but is 2.2 percent below a year ago.
emphasis added

This was above expectations of a 2.7% 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 March and April.

by Calculated Risk on 3/28/2018 08:38:00 AM

From the BEA: Gross Domestic Product: Fourth Quarter and Annual 2017 (Third Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.9 percent in the fourth quarter of 2017, according to the "third" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.2 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.5 percent. With this third estimate for the fourth quarter, the general picture of economic growth remains the same; personal consumption expenditures (PCE) and private inventory investment were revised up.
emphasis added

Here is a Comparison of Third and Second Estimates. PCE growth was up to 4.0% from 3.8%. Residential investment was revised down from 13.0% to 2.8%. This was above the consensus forecast.

by Calculated Risk on 3/28/2018 07:00:00 AM

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

Mortgage applications increased 4.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 23, 2018.

... The Refinance Index increased 7 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier. The unadjusted Purchase Index increased 4 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 ($453,100 or less) increased to 4.69 percent from 4.68 percent, with points decreasing to 0.43 from 0.46 (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 will not pick up significantly unless mortgage rates fall 50 bps or more from the recent level.



The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 8% year-over-year.