by Calculated Risk on 9/06/2018 10:04:00 AM

The August ISM Non-manufacturing index was at 58.5%, up from 55.7% in July. The employment index increased in August to 56.7%, from 56.1%. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: August 2018 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in August for the 103rd consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee: “The NMI® registered 58.5 percent, which is 2.8 percentage points higher than the July reading of 55.7 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased to 60.7 percent, 4.2 percentage points higher than the July reading of 56.5 percent, reflecting growth for the 109th consecutive month, at a faster rate in August. The New Orders Index registered 60.4 percent, 3.4 percentage points higher than the reading of 57 percent in July. The Employment Index increased 0.6 percentage point in August to 56.7 percent from the July reading of 56.1 percent. The Prices Index decreased by 0.6 percentage point from the July reading of 63.4 percent to 62.8 percent, indicating that prices increased in August for the 30th consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. There was a strong rebound for the non-manufacturing sector in August after growth ‘cooled off’ in July. Logistics, tariffs and employment resources continue to have an impact on many of the respective industries. Overall, the respondents remain positive about business conditions and the economy.”
emphasis added

Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This suggests faster expansion in August than in July.

by Calculated Risk on 9/06/2018 08:33:00 AM

The DOL reported:

In the week ending September 1, the advance figure for seasonally adjusted initial claims was 203,000, a decrease of 10,000 from the previous week's unrevised level of 213,000. This is the lowest level for initial claims since December 6, 1969 when it was 202,000. The 4-week moving average was 209,500, a decrease of 2,750 from the previous week's unrevised average of 212,250. This is the lowest level for this average since December 6, 1969 when it was 204,500.
emphasis added

The previous week was unrevised.

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 209,500.

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

by Calculated Risk on 9/06/2018 08:19:00 AM

From ADP:

Private sector employment increased by 163,000 jobs from July to August according to the August ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
“Although we saw a small slowdown in job growth the market remains incredibly dynamic,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Midsized businesses continue to be the engine of growth, adding nearly 70 percent of all jobs this month, and remain resiliant in the current economic climate.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is hot. Employers are aggressively competing to hold onto their existing workers and to find new ones. Small businesses are struggling the most in this competition, as they increasingly can’t fill open positions.”

This was below the consensus forecast for 182,000 private sector jobs added in the ADP report. 

The BLS report for August will be released Friday, and the consensus is for 198,000 non-farm payroll jobs added in August.

by Calculated Risk on 9/05/2018 05:55:00 PM

From Goldman Sachs:

The details of the trade balance report were similar to our previous assumptions, and we left our Q3 GDP tracking estimate unchanged on a rounded basis at +3.0% (qoq ar).

Thursday:
• At 8:15 AM ET, The ADP Employment Report for August. This report is for private payrolls only (no government). The consensus is for 182,000 payroll jobs added in August, down from 219,000 added in July.

• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 213 thousand initial claims, unchanged from 213 thousand the previous week.

• At 10:00 AM, the ISM non-Manufacturing Index for August. The consensus is for index to increase to 56.8 from 55.7 in July.

by Calculated Risk on 9/05/2018 12:50:00 PM

The BEA released their estimate of August vehicle sales. The BEA estimated sales of 16.596 million SAAR in August 2018 (Seasonally Adjusted Annual Rate), down 0.6% from the July sales rate, and up 0.9% from August 2017 (August was the weakest sales month last year due to the impact of the hurricanes).

Through August, light vehicle sales are on pace to be down slightly in 2018 compared to 2017.

This would make 2018 the sixth best year on record after 2016, 2015, 2000, 2017 and 2001.

My guess is vehicle sales will finish the year with sales lower than in 2017 (sales in late 2017 were boosted by buying following the hurricanes), and will probably be below 17 million for the year (the lowest since 2014).

A small decline in sales this year isn't a concern - I think sales will move mostly sideways at near record levels.

As I noted last year, this means the economic boost from increasing auto sales is over (from the bottom in 2009, auto sales boosted growth every year through 2016).


Click on graph for larger image.

This graph shows annual light vehicle sales since 1976.   Source: BEA.

Sales for 2018 are estimated based on the pace of sales during the first eight months.

The second graph below shows the mix of sales since 1976 (Blue is cars, Red is light trucks and SUVs).

The mix has changed significantly. Back in 1976, most light vehicles were passenger cars - however car sales have trended down over time.

Note that the big dips in sales are related to economic recessions (early '80s, early '90s, and the Great Recession of 2007 through mid-2009).

The second graph shows the percent of light vehicle sales between passenger cars and trucks / SUVs.

Over time the mix has changed toward more and more light trucks and SUVs.

Only when oil prices are high, does the trend slow or reverse.

Recently oil prices have been fairly low (now increasing), and the percent of light trucks and SUVs is just over 70% for the first time ever.

by Calculated Risk on 9/05/2018 10:56:00 AM

Based on a preliminary estimate from AutoData, light vehicle sales were at a 16.7 million SAAR in August.

Note: All other data from the BEA (the BEA will report this month's sales soon).

That is up 1.5% year-over-year from August 2017, and unchanged from last month.

Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for August (red, light vehicle sales of 16.7 million SAAR  from AutoData).

Note that this was an easy comparison to last August, since sales in August 2017 were negatively impacted by hurricanes.  The increase in sales at the end of 2017 was due to buying following the hurricanes.

Sales will probably decline in 2018 after setting new sales records in both 2015 and 2016.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

This was below the consensus forecast for August.

by Calculated Risk on 9/05/2018 08:42:00 AM

From the Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $50.1 billion in July, up $4.3 billion from $45.7 billion in June, revised. … July exports were $211.1 billion, $2.1 billion less than June exports. July imports were $261.2 billion, $2.2 billion more than June imports.

Click on graph for larger image.

Exports decreased and imports increased in July.

Exports are 28% above the pre-recession peak and up 8% compared to July 2017; imports are 12% above the pre-recession peak, and up 9% compared to July 2017.

In general, trade has been picking up.

The second graph shows the U.S. trade deficit, with and without petroleum.

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.

Oil imports averaged $64.63 in July, up from $62.42 in June, and up from $43.13 in July 2017.

The trade deficit with China increased to $36.8 billion in July, from $33.6 billion in July 2017.

by Calculated Risk on 9/05/2018 07:00:00 AM

From the MBA: Mortgage Applications Slightly Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 31, 2018.

... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 2 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 4.80 percent from 4.78 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 2% year-over-year.

by Calculated Risk on 9/04/2018 07:31:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Snap Back to Recent Highs

Mortgage rates moved higher today, reversing the improvement seen last Friday. The average lender is now back in line with their highest levels of the past few weeks, although that statement requires some qualification. During that time, mortgage rates have been in such a narrow range that we can only measure day-to-day changes in terms of upfront closing costs/credits. Actual interest rates haven't moved, but "effective rates" are back at recent highs. [30YR FIXED - 4.625% - 4.75%]
emphasis added

Wednesday:
• At 7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM: Trade Balance report for July from the Census Bureau. The consensus is for the U.S. trade deficit to be at $50.2 billion in July from $46.3 billion in June.

by Calculated Risk on 9/04/2018 04:50:00 PM

Here is another monthly update on framing lumber prices.   Lumber prices declined in August from the recent record highs, but are still up year-over-year.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through August 24, 2018 (via NAHB), and 2) CME framing futures.

Click on graph for larger image in graph gallery.

Right now Random Lengths prices are up 11% from a year ago, and CME futures are up about 19% year-over-year.

There is a seasonal pattern for lumber prices. Prices frequently peak around May, and bottom around October or November - although there is quite a bit of seasonal variability.