by Calculated Risk on 4/02/2018 10:04:00 AM

The ISM manufacturing index indicated expansion in March. The PMI was at 59.3% in March, down from 60.8% in February. The employment index was at 57.3%, down from 59.7% last month, and the new orders index was at 61.9%, down from 64.2%.

From the Institute for Supply Management: March 2018 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in March, and the overall economy grew for the 107th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The March PMI® registered 59.3 percent, a decrease of 1.5 percentage points from the February reading of 60.8 percent. The New Orders Index registered 61.9 percent, a decrease of 2.3 percentage points from the February reading of 64.2 percent. The Production Index registered 61 percent, a 1 percentage point decrease compared to the February reading of 62 percent. The Employment Index registered 57.3 percent, a decrease of 2.4 percentage points from the February reading of 59.7 percent. The Supplier Deliveries Index registered 60.6 percent, a 0.5 percentage point decrease from the February reading of 61.1 percent. The Inventories Index registered 55.5 percent, a decrease of 1.2 percentage points from the February reading of 56.7 percent. The Prices Index registered 78.1 percent in March, a 3.9 percentage point increase from the February reading of 74.2 percent, indicating higher raw materials prices for the 25th consecutive month. Comments from the panel reflect continued expanding business strength. Demand remains robust, with the New Orders Index at 60 or above for the 11th straight month, and the Customers’ Inventories Index at its lowest level since July 2011. The Backlog of Orders Index continued a 14-month expansion with its highest reading since May 2004, when it registered 63 percent. Consumption, described as production and employment, continues to expand, with indications that labor and skill shortages are affecting production output. Inputs, expressed as supplier deliveries, inventories and imports, were negatively impacted by weather conditions; Asian holidays; lead time extensions; steel and aluminum disruptions across many industries; supplier labor issues; and transportation difficulties due to driver and equipment shortages. Export orders remained strong, supported by a weaker U.S. currency. The Prices Index is at its highest level since April 2011, when it registered 82.6 percent. In March, price increases occurred across 17 of 18 industry sectors. Demand remains robust, but the nation’s employment resources and supply chains are still struggling to keep up.”
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was below expectations of 60.0%, and suggests manufacturing expanded at a slower pace in March than in February.

Still a solid report.

by Calculated Risk on 4/02/2018 01:41:00 AM

Weekend:
• Schedule for Week of Apr 1, 2018

Monday:
• At 10:00 AM ET ISM Manufacturing Index for March. The consensus is for the ISM to be at 60.0, down from 60.8 in February. The PMI was at 60.8% in February, the employment index was at 59.7%, and the new orders index was at 64.2%.

• Also at 10:00 AM, Construction Spending for February. The consensus is for a 0.5% increase in construction spending.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down slightly, and DOW futures are up slightly (fair value).

Oil prices were down over the last week with WTI futures at $65.17 per barrel and Brent at $69.67 per barrel.  A year ago, WTI was at $48, and Brent was at $51 - so oil prices are up solidly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.66 per gallon. A year ago prices were at $2.33 per gallon - so gasoline prices are up 33 cents per gallon year-over-year.

by Calculated Risk on 4/01/2018 08:19:00 AM

Note: Surferdude808 compiles an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for March 2018.

Here are the monthly changes and a few comments from surferdude808:

Update on the Unofficial Problem Bank List for March 2018. During the month, the list fell by three institutions to 98 after four removals and one addition. Assets declined to $19.9 billion from $20.5 billion a month earlier. A year ago, the list held 151 institutions with assets of $41.3 billion.

This month, actions were terminated against The National Capital Bank of Washington, Washington, DC, ($430 million); First Bank and Trust Company of Illinois, Palatine, IL ($192 million); Grand Mountain Bank, FSB, Granby, CO ($109 million); and State Bank of Nauvoo, Nauvoo, IL ($31 million). Added this month was The Citizens State Bank, Okemah, OK ($126 million).

With it being the end of the first quarter, we bring an updated transition matrix to detail how banks are moving off the Unofficial Problem Bank List. Since the Unofficial Problem Bank List was first published on August 7, 2009 with 389 institutions, a total of 1,727 institutions have appeared on a weekly or monthly list at some point. Only 5.7 percent of the banks that have appeared on a list remain today. In all, there have been 1,629 institutions that have transitioned through the list. Departure methods include 952 action terminations, 406 failures, 254 mergers, and 17 voluntary liquidations. Of the 389 institutions on the first published list, only 9 or 2.3 percent still remain in a designated troubled status more than eight years later. The 406 failures represent 23.5 percent of the 1,727 institutions that have made an appearance on the list. This failure rate is well above the 10-12 percent rate frequently cited in media reports on the failure rate of banks on the FDIC's official list.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	178	(65,500,762)
	Unassisted Merger	40	(9,818,439)
	Voluntary Liquidation	4	(10,584,114)
	Failures	158	(186,397,337)
	Asset Change		(310,473)
Still on List at 3/31/2018		9	3,702,304
Additions after 8/7/2009		89	16,170,780
End (3/31/2018)		98	19,873,084
Intraperiod Removals1
	Action Terminated	774	319,115,959
	Unassisted Merger	214	81,811,303
	Voluntary Liquidation	13	2,515,855
	Failures	248	125,152,210
	Total	1,249	528,595,327
1Institution not on 8/7/2009 or 3/31/2018 list but appeared on a weekly list.

by Calculated Risk on 3/31/2018 08:11:00 AM

The key report this week is the March employment report on Friday.

Other key indicators include the February Trade deficit, March ISM manufacturing and non-manufacturing indexes, March auto sales, and the March ADP employment report.

Fed Chair, Jerome Powell, will speak on the Economic Outlook on Friday.

----- Monday, Apr 2nd -----
10:00 AM: ISM Manufacturing Index for March. The consensus is for the ISM to be at 60.0, down from 60.8 in February.

Here is a long term graph of the ISM manufacturing index.

The PMI was at 60.8% in February, the employment index was at 59.7%, and the new orders index was at 64.2%.

10:00 AM: Construction Spending for February. The consensus is for a 0.5% increase in construction spending.

----- Tuesday, Apr 3rd -----
All day: Light vehicle sales for March. The consensus is for light vehicle sales to be 17.0 million SAAR in March, down from 17.1 million in February (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the February sales rate.

10:00 AM: Corelogic House Price index for February.

----- Wednesday, Apr 4th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for March. This report is for private payrolls only (no government). The consensus is for 180,000 payroll jobs added in March, down from 235,000 added in February.

10:00 AM: the ISM non-Manufacturing Index for March. The consensus is for index to decrease to 59.0 from 59.5 in February.

----- Thursday, Apr 5th -----
8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 226 thousand initial claims, up from 215 thousand the previous week.

8:30 AM: Trade Balance report for February from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through December. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is for the U.S. trade deficit to be at $56.8 billion in February from $56.8 billion in January.

----- Friday, Apr 6th -----
8:30 AM: Employment Report for March. The consensus is for an increase of 167,000 non-farm payroll jobs added in March, down from the 313,000 non-farm payroll jobs added in February.

The consensus is for the unemployment rate to decrease to 4.0%.

This graph shows the year-over-year change in total non-farm employment since 1968.

In February the year-over-year change was 2.281 million jobs.

A key will be the change in wages.

1:30 PM: Speech by Fed Chair Jerome Powell, Economic Outlook, At the Economic Club of Chicago, Chicago, Illinois

3:00 PM: Consumer Credit from the Federal Reserve. The consensus is for consumer credit to increase $15.0 billion in February.

by Calculated Risk on 3/30/2018 04:23:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate decreased to 1.22% in February, down from 1.23% in January. The serious delinquency rate is up from 1.19% in February 2017.

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

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Click on graph for larger image

By vintage, for loans made in 2004 or earlier (3% of portfolio), 3.35% are seriously delinquent. For loans made in 2005 through 2008 (6% of portfolio), 6.49% are seriously delinquent, For recent loans, originated in 2009 through 2017 (91% of portfolio), only 0.53% are seriously delinquent. So Fannie is still working through poor performing loans from the bubble years.

The recent increase in the delinquency rate was due to the hurricanes - no worries about the overall market (These are serious delinquencies, so it took three months late to be counted).

After the hurricane bump, maybe the rate will decline to 0.5 to 0.7 percent or so to a cycle bottom.

Note: Freddie Mac reported earlier.

by Calculated Risk on 3/30/2018 03:32:00 PM

Here are few Q1 GDP forecast.

From Merrill Lynch:

The data sliced 0.3pp from 1Q GDP tracking, bringing it down to 1.6%. [March 29 estimate].

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 2.4 percent on March 29, up from 1.8 percent on March 23. The forecast of the contribution of inventory investment to first-quarter real GDP growth increased from 0.66 percentage points to 1.21 percentage points after yesterday’s advance releases of wholesale and retail inventories by the U.S. Census Bureau, yesterday's GDP release by the U.S. Bureau of Economic Analysis (BEA), and this morning's release of the revised underlying detail tables for the National Income and Product Accounts by the BEA.

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at 2.7% for 2018:Q1 and 2.9% for 2018:Q2. [March 30 estimate]

CR Note: It looks like another quarter around 2% or so, although there might still be some residual seasonality in the first quarter.

by Calculated Risk on 3/30/2018 12:53:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 24 March

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 18-24 March 2018, according to data from STR.

In comparison with the week of 19-25 March 2017, the industry recorded the following:

• Occupancy: +1.0 at 69.4%
• Average daily rate (ADR): +4.4% to US$133.42
• Revenue per available room (RevPAR): +5.4% to US$92.53

STR analysts note that performance in many major markets was boosted by strong group business, which moved out of the week of 25-31 March due to an earlier Easter.
emphasis added

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

Click on graph for larger image.

The red line is for 2018, dash light blue is 2017 (record year due to hurricanes), 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 third overall - and slightly ahead of the record year in 2017 (2017 finished strong due to the impact of the hurricanes).

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 3/30/2018 09:47:00 AM

Reis reported that the vacancy rate for regional malls was 8.4% in Q1 2018, up from 8.3% in Q4 2017, and up from 7.9% in Q1 2017. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate was 10.0% in Q1, unchanged from 10.0% in Q4, and up from 9.9% in Q1 2017. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis:

Despite continued announcements of store closures, the Neighborhood and Community Shopping Center vacancy rate remained at 10% for the fourth consecutive quarter, up from 9.9% in the first quarter of 2017. The vacancy rate has increased 20 basis points from a low of 9.8% in Q2 2016.

On the national level, both asking and effective rents increased 0.4% in the first quarter. At $20.96 and $18.34 per square foot, the average market and effective rents have increase 1.9% and 2.1% year-over-year, respectively.

Net absorption was 453,000 square feet, the lowest quarterly total in more than five years. Construction was also much lower than average: 712,000 square feet, well below the 3.1 million square feet quarterly average in 2017. The first quarter tends to see the lowest activity; however, this was an unusually slow quarter for retail leasing and construction.

The mall vacancy rate increased to 8.4% in the quarter, up 50 basis points from 7.9% in the first quarter of 2017. The quarterly rent increase of 0.5% shrouds the gap between the higher-end malls, which are thriving, and the increasingly vacant lower-end malls.
...
Although the retail real estate market survived the tsunami of closures in 2017, the closures expected in the second quarter from Toys “R” Us, BI-LO and others will be a true test of the retail sector’s ability to weather the ongoing storm.
emphasis added

Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

Recently both the strip mall and regional mall vacancy rates have increased from an already elevated level.

Mall vacancy data courtesy of Reis

by Calculated Risk on 3/29/2018 06:36:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Unchanged Despite Market Improvements

Mortgage rates were generally unchanged today, although a few lenders offered slight improvements. This stands in contrast to the noticeable improvements in underlying bond markets. As we discussed yesterday, Treasury yields are leading the charge toward lower rates, and while the bonds that underlie mortgages are definitely lagging that move, they're improving nonetheless. But again, you wouldn't really know it based on today's rate sheets. [30YR FIXED - 4.5%]
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 3/29/2018 04:06:00 PM

Here are some excepts from two research reports ... first from Merrill Lynch:

We expect nonfarm payrolls to increase by 195k and private payrolls to increase by 200k in March ...

We expect to see employment activity return back closer to trend after last month’s unexpected gain of 313k which was likely boosted by warmer weather conditions. As such, we could see some softening in goods-producing jobs, such as construction, which were particularly strong in February. Elsewhere, we expect negative payback in government payrolls in March after an outsized gain in February due to strong hiring activity in local government education payrolls. Therefore, we expect the gains in private payrolls to outpace the gains in nonfarm payrolls.

We look for the unemployment rate ... to remain unchanged at 4.1%, which would mark the sixth consecutive month at that level. ...

... note that while the inclement weather likely reduced hours worked in March, it’s unlikely to impact payrolls growth noticeably as the BLS counts the number workers on payroll during the pay period capturing the 12th of the month. The decline in hours worked should result in an upward bias to wage growth, leading us to forecast average hourly earnings to increase by 0.3% mom, pushing up the yoy comparison to 2.8% from 2.6%.

From Nomura:

We expect nonfarm payroll employment in March to increase by 115k, a below-trend reading primarily due to negative payback from February’s weather-related boost. ... According to the San Francisco Fed’s weather payroll model, warmer weather biased up February payroll employment by roughly 90k, largely accounting for the above-consensus print of 313k in February. ...

We forecast a 0.2% m-o-m increase in average hourly earnings (AHE), corresponding to 2.7% on a 12-month basis. ... Finally, we expect the unemployment rate to decline 0.1pp to 4.0% ... However, there is some risk that the unemployment rate declines below 4.0% given an unusual increase in labor force inflows in February

I'll write an employment report preview next week after more data for March is released.