by Calculated Risk on 8/10/2018 04:57:00 PM

It's early in the quarter, but here are a few forecasts:

From Merrill Lynch:

We continue to track 4.1% for 2Q GDP. Growth should ebb to a still-robust 3.4% in 3Q. [Aug 10 estimate].
emphasis added

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2018 is 4.3 percent on August 9, down from 4.4 percent on August 3. [Aug 9 estimate]

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast for 2018:Q3 stands at 2.6%. [Aug 10 estimate]

CR Note: Since it is early, the range of estimates is wide.  These estimates suggest real annualized GDP in the 2.6% to 4.3% range in Q3.

by Calculated Risk on 8/10/2018 02:13:00 PM

From SacRealtor.org: Sales, median sales price drop, inventory creeps upward

July closed with 1,598 sales, a 9.6% decrease from the 1,767 sales of June. Compared to July last year (1,634), the figure is a 2.2% decrease. Of the 1,598 sales this month, 214 (13.4%) used cash financing, 975 (61%) used conventional, 291 (18.2%) used FHA, 81 (5.1%) used VA and 37 (2.3%) used Other types of financing.

Active Listing Inventory increased 8.1% from 2,660 to 2,875 units [inventory is up 20.0% YoY from 2,395 in July 2017]. The Months of Inventory increased from 1.5 to 1.8 Months. This figure represents the amount of time (in months) it would take for the current rate of sales to deplete the total active listing inventory.

The Average DOM (days on market) increased from 21 to 22 from June to July and the Median DOM increased from 10 to 12. “Days on market” represents the days between the initial listing of the home as “active” and the day it goes “pending.” Of the 1,598 sales this month, 77.3% (1,235) were on the market for 30 days or less and 93.3% (1,491) were on the market for 60 days or less.
emphasis added

CR Note: Inventory is still low, but up significantly year-over-year in Sacramento.

by Calculated Risk on 8/10/2018 11:11:00 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 0.2% (2.7% annualized rate) in July. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.3% 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 rose 0.2% (2.1% annualized rate) in July. The CPI less food and energy rose 0.2% (3.0% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed released the median CPI details for July here.

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 2.8%, the trimmed-mean CPI rose 2.2%, and the CPI less food and energy rose 2.4%. Core PCE is for June and increased 1.9% year-over-year.

On a monthly basis, median CPI was at 2.7% annualized, trimmed-mean CPI was at 2.3% annualized, and core CPI was at 3.0% annualized.

Using these measures, inflation increased year-over-year in July.  Overall, these measures are mostly above the Fed's 2% target (Core PCE is close).

by Calculated Risk on 8/10/2018 09:00:00 AM

The BLS reported this morning:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 3.2 percent over the last 12 months to an index level of 246.155 (1982-84=100). For the month, the index was unchanged prior to seasonal adjustment.

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).

• In 2017, the Q3 average of CPI-W was 239.668.

Last year was the highest Q3 average, so we have to compare Q3 this year to last year.

Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

CPI-W was up 3.2% year-over-year in July, and although this is very early - we need the data for August and September - my current guess is COLA will probably be close to 3% this year, the largest annual increase since 2012.

Contribution and Benefit Base

The contribution base will be adjusted using the National Average Wage Index. This is based on a one year lag. The National Average Wage Index is not available for 2017 yet, but wages probably increased again in 2017. If wages increased the average of the last three years, then the contribution base next year will increase to around $132,000 in 2019, from the current $128,400.

Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).

by Calculated Risk on 8/10/2018 08:32:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in July on a seasonally adjusted basis after rising 0.1 percent in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.9 percent before seasonal adjustment.

The index for shelter rose 0.3 percent in July and accounted for nearly 60 percent of the seasonally adjusted monthly increase in the all items index. The food index rose slightly in July, with major grocery store food group indexes mixed. The energy index fell 0.5 percent, as all the major component indexes declined.

The index for all items less food and energy rose 0.2 percent in July, the same increase as in May and June. … The all items index rose 2.9 percent for the 12 months ending July, the same increase as for the period ending June. The index for all items less food and energy rose 2.4 percent for the 12 months ending July; this was the largest 12-month increase since the period ending September 2008.
emphasis added

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was at the consensus forecast.

by Calculated Risk on 8/09/2018 06:22:00 PM

From Matthew Graham at Mortgage News Daily: Lowest Mortgage Rates in Several Weeks

Before most lenders published their first rate sheet of the day, bonds improved even more thanks to weaker inflation data. This allowed the average lender to move rates to their lowest levels in several weeks. As nice as that might sound, the range has been narrow recently, so we're not talking about huge improvements. [30YR FIXED - 4.625% - 4.75%]
emphasis added

Tuesday:
• At 8:30 AM ET, The Consumer Price Index for July from the BLS. The consensus is for a 0.2% increase in CPI, and a 0.2% increase in core CPI.

by Calculated Risk on 8/09/2018 01:50:00 PM

A few excerpts from a Merrill Lynch research note:

Political Business Cycle (PBC) models were a hot topic in the 1980s. In the standard "opportunist" PBC model incumbent politicians have an incentive to stimulate the economy going into elections because the benefits-low unemployment-materialize quickly and the costs-high inflation-occur with a lag. ...

After playing a small role in the business cycle in recent years, the political business cycle seems to be making a comeback. The double dose of tax cuts and spending increases at the start of this year marked the first major pro-cyclical policy shift since the 1960s. Coming into the year the US economy was already accelerating, the unemployment rate was steadily dropping further below most estimates of "NAIRU" and the Fed was attempting to reduce monetary accommodation. Despite the strong economy ... the new policies have helped boost the budget deficit, from 3.2% of GDP in 2016 to an estimated 4.7% of GDP in 2019. This would be the largest deficit for an economy at full employment since World War II. The Trump Administration has also rejected its predecessors' hands-off approach to the Fed ...
…
The market implications of all of this are fairly straightforward. Growing budget deficits combined with Fed attempts to cool the potential serious overheating of the economy means higher interest rates, a stronger dollar and an up-down pattern for the equity market as growth first surges then slows. Much bigger challenges loom in the longer term. At some point the budget deficit will start having a significant impact on capital investment and trend growth in the economy.
emphasis added

by Calculated Risk on 8/09/2018 11:46:00 AM

From HotelNewsNow.com: STR: US hotel results for week ending 4 August

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 29 July through 4 August 2018, according to data from STR.

In comparison with the week of 30 July through 5 August 2017, the industry recorded the following:

• Occupancy: +1.0% to 75.3%
• Average daily rate (ADR): +3.1% to US$132.88
• Revenue per available room (RevPAR): +4.1% to US$100.07
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 probably since the Great Depression for hotels).

The occupancy rate, to date, is close to the record year in 2017.  Note: 2017 finished strong due to the impact of the hurricanes.

On a seasonal basis, the 4-week average of the occupancy rate is now at the peak of the summer travel season.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 8/09/2018 08:42:00 AM

The DOL reported:

In the week ending August 4, the advance figure for seasonally adjusted initial claims was 213,000, a decrease of 6,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 218,000 to 219,000. The 4-week moving average was 214,250, a decrease of 500 from the previous week's revised average. The previous week's average was revised up by 250 from 214,500 to 214,750.
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 214,250.

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

by Calculated Risk on 8/08/2018 08:27:00 PM

Thursday:
• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 220 thousand initial claims, up from 218 thousand the previous week.

• Also at 8:30 AM, The Producer Price Index for July from the BLS. The consensus is a 0.3% increase in PPI, and a 0.3% increase in core PPI.

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 Increases in July

The Dodge Momentum Index moved 1.4% higher in July to 169.8 (2000=100) from the revised June reading of 167.3. 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. In July, the commercial component of the Momentum Index grew by 3.3%, while the institutional component fell 1.5%. The headline Momentum Index has risen steadily since its slippage during the third quarter of 2017. Stronger economic growth and the support from still-healthy real estate market fundamentals (occupancies and rents) have contributed to these gains for construction projects at the planning stage, which have yet to be restrained by the uncertainty arising from higher material costs and higher interest rates.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 169.8 in July, up from 167.3 in June.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year". This suggests further growth into 2019.