by Calculated Risk on 9/12/2018 07:37:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 210 thousand initial claims, up from 203 thousand the previous week.

• Also at 8:30 AM, The Consumer Price Index for August from the BLS. The consensus is for a 0.3% increase in CPI, and a 0.2% increase in core CPI.

by Calculated Risk on 9/12/2018 03:55:00 PM

Here are some Bay Area stats from Pacific Union chief economist Selma Hepp: Rising Housing Costs Hit the Bay Area’s Most-Affordable Communities the Hardest

• Bay Area home sales decreased by 11 percent year over year in August, the second-largest decline following June’s 10 percent drop, dragging year-to-date sales down by 2 percent.

• Inventory continued to improve, up by 5 percent from August 2017 after 16 consecutive months of year-over-year declines.

• Eighty percent of the supply increase came from more inventory in Santa Clara County, followed by Sonoma and Alameda counties.

• Most of the increase in inventory was for homes priced between $1 million and $2 million.

• Affordability concerns are impacting budget-constrained buyers, especially in Sonoma County.

by Calculated Risk on 9/12/2018 02:05:00 PM

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of New York based on information collected on or before August 31, 2018"

Reports from the Federal Reserve Districts suggested that the economy expanded at a moderate pace through the end of August. Dallas reported relatively brisk growth, while Philadelphia, St. Louis, and Kansas City indicated somewhat below average growth. Consumer spending continued to grow at a modest pace since the last report, and tourism activity expanded, to varying degrees, across the nation. Manufacturing activity grew at a moderate rate in most Districts, though St. Louis described business as little changed and Richmond reported a decline in activity. Transportation activity expanded, with a few Districts characterizing growth as robust. Home construction activity was mixed but up modestly, on balance. However, home sales were somewhat softer, on balance--in some cases due to reduced demand, in others due more to low inventories. Commercial real estate construction was also mixed, while both sales and leasing activity expanded modestly. Lending activity grew throughout the nation. Some Districts noted weakness in agricultural conditions. Businesses generally remained optimistic about the near-term outlook, though most Districts noted concern and uncertainty about trade tensions--particularly though not only among manufacturers. A number of Districts noted that such concerns had prompted some businesses to scale back or postpone capital investment.
...
Labor markets continued to be characterized as tight throughout the country, with most Districts reporting widespread shortages. While construction workers, truck drivers, engineers, and other high-skill workers remained in short supply, a number of Districts also noted shortages of lower-skill workers at restaurants, retailers, and other types of firms. Employment grew modestly or moderately across most of the nation, though Dallas noted robust job growth, while three Districts reported little change that partly reflected a dearth of applicants. Six of the twelve Districts cited instances in which labor shortages were constraining sales or delaying projects. Wage growth was mostly characterized as modest or moderate, though a number of Districts cited steep wage hikes for construction workers. Some Districts indicated that businesses were increasingly using benefits--such as vacation time, flexible schedules, and bonuses--to attract and retain workers, as well as putting more resources into training.
emphasis added

by Calculated Risk on 9/12/2018 01:40:00 PM

From the HAR: Hurricane Harvey Distorts Houston Housing Analysis

Thousands of people are still haunted by Hurricane Harvey’s devastating effects as they continue to rebuild their homes and lives. Even now, the storm is affecting the way housing numbers compare August 2018 to August 2017. The traditional year-over-year measurements that the Houston Association of Realtors® (HAR) uses to track market trends have been thrown out of whack because Harvey halted most real estate activity across the greater Houston market during the final week of August 2017 and beyond. …

According to the traditional, full-month numbers, Houston single-family home sales rose 37.2 percent year-over-year, with 8,358 homes sold in August versus 6,090 one year earlier when Harvey struck the region. HAR isolated single-family home sales for the period of August 1 - 24 since Harvey’s effects began to take a toll on the market on August 25, 2017. That analysis showed sales up 7.6 percent in August 2018, with 5,844 homes sold through August 24 of this year compared to 5,433 during the same time frame last year.
...
Total active listings, or the total number of available properties, were up 0.3 percent to 41,991.
emphasis added

Sales were impacted significantly by Hurricane Harvey. The impact on active listings was probably less significant.

by Calculated Risk on 9/12/2018 10:45:00 AM

Note: Changes to health insurance policy will probably start showing up in the 2018 report.

From the Census Bureau: Income, Poverty and Health Insurance Coverage in the United States: 2017

The U.S. Census Bureau announced today that real median household income increased by 1.8 percent between 2016 and 2017, while the official poverty rate decreased 0.4 percentage points. At the same time, the number of people without health insurance coverage and the uninsured rate were not statistically different from 2016.

Median household income in the United States in 2017 was $61,372, an increase in real terms of 1.8 percent from the 2016 median income of $60,309. This is the third consecutive annual increase in median household income.

The nation’s official poverty rate in 2017 was 12.3 percent, with 39.7 million people in poverty. The number of people in poverty in 2017 was not statistically different from the number in poverty in 2016. The 0.4 percentage-point decrease in the poverty rate from 2016 (12.7 percent) to 2017 represents the third consecutive annual decline in poverty. Since 2014, the poverty rate has fallen 2.5 percentage points, from 14.8 percent to 12.3 percent.

The percentage of people without health insurance coverage for the entire 2017 calendar year was 8.8 percent, or 28.5 million, not statistically different from 2016 (8.8 percent or 28.1 million people). Between 2016 and 2017, the number of people with health insurance coverage increased by 2.3 million, up to 294.6 million.
emphasis added

by Calculated Risk on 9/12/2018 09:08:00 AM

Caroline Baum writes at MarketWatch: Opinion: An overlooked element of the financial crisis: To err is human

There’s a name for what happened. It’s called regulatory capture, and it means just what the name implies. Regulators become sympathetic to those they are supposed to be regulating, losing sight of their actual function.

Granted, some of the financial chicanery was going on in the accounting department, but regulators have access to the information they need to fulfill their supervisory and regulatory responsibilities. All they have to do is ask.

This happened, but not at the field level. Here is an excerpt I wrote from the WaMu hearing:

"My opinion is the OTS examiner in charge during the period of time I was there did an excellent job of finding and raising issues. Likewise, I found good performance from the FDIC examiner in charge. What I can't explain is why the superior in the agencies didn't take a tougher tone with banks, given the degree of negative findings. … seemed to be a tolerance there or political influence of senior management of those agencies that prevented them from taking more active stances …" James Vanasek, who was the former chief risk and credit officer of WaMu from 1999 to 2005.

I noted:

We have seen this over and over. Every time the inspector general's office issues a report on a failed bank, the field examiners had correctly identified the problems - usually going back to 2003 or so - but no further action was taken.

Vanasek is arguing this was possibly because of "political influence of senior management of those agencies" - the political appointees in charge. I've heard the same thing from examiners.

And from the Financial Crisis Inquiry Commission report Crisis

• We conclude this financial crisis was avoidable. …

Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. ... Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner.

The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not.

And I noted:

This is absolutely correct. In 2005 I was calling regulators and I was told they were very concerned - and several people told me confidentially that the political appointees were blocking all efforts to tighten standards - and one person told me "Greenspan is throwing his body in front of all efforts to tighten standards".

by Calculated Risk on 9/12/2018 07:00:00 AM

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

Mortgage applications decreased 1.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 7, 2018. This week’s results include an adjustment for the Labor Day holiday.

... The Refinance Index decreased 6 percent from the previous week to the lowest level since December 2000. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index decreased 11 percent compared with the previous week and was 4 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 4.84 percent from 4.80 percent, with points increasing to 0.46 from 0.43 (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 4% year-over-year.

by Calculated Risk on 9/11/2018 08:21:00 PM

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, The Producer Price Index for August from the BLS. The consensus is a 0.2% increase in PPI, and a 0.2% increase in core PPI.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 9/11/2018 04:25:00 PM

For everyone in North and South Carolina - stay safe!

Frequently there is a temporary slowdown in several major growth indicators following a large natural disaster.  And usually there is a pretty rapid bounce back following the disaster.

It seems likely Hurricane Florence will negatively impact Q3 GDP, September employment and housing.

On employment: This week is the BLS reference week (includes the 12th). Hurricane Irma made landfall during the BLS reference week last year, and the BLS noted:

Hurricane Irma made landfall in Florida on September 10--during the reference period for both the establishment and household surveys--causing severe damage in Florida and other parts of the Southeast. Hurricane Harvey made landfall in Texas on August 25--prior to the September reference periods--resulting in severe damage in Texas and other areas of the Gulf Coast.

Our analysis suggests that the net effect of these hurricanes was to reduce the estimate of total nonfarm payroll employment for September. There was no discernible effect on the national unemployment rate.

Initially the BLS reported 33,000 jobs lost in September 2017, however this was eventually revised up to a gain of 14,000 jobs - keeping the job streak alive.

Something similar might happen this year, with employment being depressed in September - then eventually being revised up, with a bounce back in October.

The first economic indicator to be impacted by the hurricane will probably be weekly unemployment claims.  Last year, weekly claims jumped from 238,000 to 293,000 following hurricane Harvey.    The size of the jump in claims for next week will give an idea of the impact on employment.

Another early indicator is usually car sales, with car sales falling to 16.45 million SAAR last August (the weakest month of 2017).   Since so many cars were damaged from the flooding in Texas last year, sales bounced back sharply.

Stay safe.   And expect any impacted indicator to rebound fairly quickly.

by Calculated Risk on 9/11/2018 01:44:00 PM

From Dodge Data Analytics: Dodge Momentum Index Falters in August

The Dodge Momentum Index fell 2.9% in August to 164.1 (2000=100) from the revised July reading of 169.0. 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.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 164.1 in August, down from 169.0 in July.

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