by Calculated Risk on 9/13/2018 06:44:00 PM

Friday:
• At 8:30 AM ET, Retail sales for August will be released.  The consensus is for a 0.4% increase in retail sales.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for August. The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 78.3%.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Preliminary for September).

by Calculated Risk on 9/13/2018 03:38:00 PM

Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

Inventory, on a national basis, was unchanged year-over-year (YoY) in July, this followed 37 consecutive months with a YoY decline.

The graph below shows the YoY change for non-contingent inventory in Houston, Las Vegas, Sacramento (through August) and also Phoenix (through July) and total existing home inventory as reported by the NAR (through July).

Click on graph for larger image.

This shows the YoY change in inventory for Houston, Las Vegas, Phoenix, and Sacramento.  The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory in Sacramento was up 22% year-over-year in July (inventory was still very low), and has increased YoY for eleven consecutive months. 

Also note that inventory was up 20% YoY in Las Vegas in August (red), the second consecutive month with a YoY increase.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY recently as oil prices increased.  Inventory was up slightly in Houston in August (but the YoY change might be distorted by Hurricane Harvey last year).

Inventory is a key for the housing market, and I am watching inventory for the impact of the new tax law and higher mortgage rates on housing.   I expect national inventory will be up YoY at the end of 2018 (but still be low).

This is not comparable to late 2005 when inventory increased sharply signaling the end of the housing bubble, but it does appear that inventory is bottoming nationally (but still very low).

by Calculated Risk on 9/13/2018 01:59:00 PM

From SacRealtor.org: Inventory continues upward trend, sales price stalls for 3rd month

August closed with 1,676 sales, a 4.9% increase from the 1,566 sales of July. Compared to August last year (1,734), the current figure is a 3.3% decrease.

The Active Listing Inventory increased 10.2% from July to August, up from 2,875 to 3,167 units. [inventory is up 22.1% YoY from 2,593 in August 2017]. The Months of Inventory increased from 1.8 to 1.9 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 22 to 24 from July to August and the Median DOM increased from 12 to 14. “Days on market” represents the days between the initial listing of the home as “active” and the day it goes “pending.” Of the 1,676 sales this month, 74.2% (1,244) were on the market for 30 days or less and 91% (1,526) 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 9/13/2018 12:20:00 PM

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 0.1% (1.7% annualized rate) in August. The 16% trimmed-mean Consumer Price Index rose 0.2% (1.9% 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% (2.7% annualized rate) in August. The CPI less food and energy rose 0.1% (1.0% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed released the median CPI details for August here. Motor fuel increased at a 42% annual rate in August.

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 2.2%. Core PCE is for July and increased 2.0% year-over-year.

On a monthly basis, median CPI was at 1.7% annualized, trimmed-mean CPI was at 1.9% annualized, and core CPI was at 1.0% annualized.

Using these measures, inflation decreased on a year-over-year basis in August. Overall, these measures are at or above the Fed's 2% target.

by Calculated Risk on 9/13/2018 09:11:00 AM

The BLS reported this morning:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.9 percent over the last 12 months to an index level of 246.336 (1982-84=100). For the month, the index increased 0.1 percent 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 2.9% year-over-year in August, and although this is very early - we need the data for September - my current guess is COLA will probably be just under 3% this year, the largest annual increase since 2011.

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 9/13/2018 08:39:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in August on a seasonally adjusted basis, the same increase as in July, the U.S. Bureau of Labor Statistics reported today. ...
...
The index for all items less food and energy rose 0.1 percent in August, the smallest monthly increase since April. … The all items index rose 2.7 percent for the 12 months ending August, a smaller increase than the 2.9 percent increase for the 12 months ending July. The index for all items less food and energy rose 2.2 percent for the 12 months ending August and the energy index increased 10.2 percent; these were both smaller increases than for the 12 months ending July.
emphasis added

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

by Calculated Risk on 9/13/2018 08:33:00 AM

The DOL reported:

In the week ending September 8, the advance figure for seasonally adjusted initial claims was 204,000, a decrease of 1,000 from the previous week's revised level. This is the lowest level for initial claims since December 6, 1969 when it was 202,000. The previous week's level was revised up by 2,000 from 203,000 to 205,000. The 4-week moving average was 208,000, a decrease of 2,000 from the previous week's revised average. This is the lowest level for this average since December 6, 1969 when it was 204,500. The previous week's average was revised up by 500 from 209,500 to 210,000
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 208000.

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

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