by Calculated Risk on 12/28/2018 02:18:00 PM

From Goldman Sachs:

We also lowered our Q4 GDP tracking estimate by one tenth to +2.6% (qoq ar). [Dec 28 estimate)

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at 2.5% for 2018:Q4 and 2.1% for 2019:Q1. [Dec 28 estimate]
emphasis added

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2018 is 2.7 percent on December 21, down from 2.9 percent on December 18 [Dec 21 estimate]

CR Note: These estimates suggest GDP in the mid-2s for Q4.

by Calculated Risk on 12/28/2018 11:36:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2019. I'm adding some thoughts, and maybe some predictions for each question.

9) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up around 5% in 2018.  What will happen with house prices in 2019?

The following graph shows the year-over-year change through October 2018, in the seasonally adjusted Case-Shiller Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

Click on graph for larger image.

The Composite 10 SA was up 4.7% compared to October 2017, the Composite 20 SA was up 5.1% and the National index SA was up 5.5% year-over-year.  Other house price indexes have indicated similar gains (see table below).

The price increases in 2018 were lower than in 2017, and YoY price growth slowed towards the end of 2018.

Although I mostly use Case-Shiller, I also follow several other price indexes. The following table shows the year-over-year change for several house prices indexes.

Year-over-year Change for Various House Price Indexes
Index	Through	Increase
Case-Shiller Comp 20	Oct-18	5.1%
Case-Shiller National	Oct-18	5.5%
CoreLogic	Oct-18	5.4%
FHFA Purchase Only	Oct-18	5.6%

Inventories will probably increase further in 2019, but will probably still be somewhat low historically.   Even though the housing market has slowed recently (fewer sales), and inventory has increased, there will be little panic selling because lending standards have been decent over the last several years.    There are always people that have to sell because of the 3-Ds: Divorce, Death and Disease, but solid lending means there is no current need to sell because of a fourth D: Debt (like happened during the housing bust).

Low inventories, and a decent economy suggests further price increases in 2019.

Last year I wrote:

"Perhaps higher mortgage rates will slow price appreciation.  If we look back at the "taper tantrum" in 2013, price appreciation slowed somewhat over the next year - but that was from a high level.  In June 2013, the Case-Shiller National index was up 9.3% year-over-year.  By June 2014, the index was up 6.3% year-over-year."

That happened in 2018, and we might see more drag from the higher mortgage rates in 2019.

If inventory increases further year-over-year as I expect by December 2019, it seems likely that price appreciation will slow to the low single digits - maybe around 3%.

Here are the Ten Economic Questions for 2019 and a few predictions:

• Question #1 for 2019: Will Mr. Trump negatively impact the economy in 2019?
• Question #2 for 2019: How much will the economy grow in 2019?
• Question #3 for 2019: Will job creation in 2019 be as strong as in 2018?
• Question #3 for 2019: Will job creation in 2019 be as strong as in 2018?
• Question #4 for 2019: What will the unemployment rate be in December 2019?
• Question #5 for 2019: Will the core inflation rate rise in 2019? Will too much inflation be a concern in 2019?
• Question #6 for 2019: Will the Fed raise rates in 2019, and if so, by how much?
• Question #7 for 2019: How much will wages increase in 2019?
• Question #8 for 2019: How much will Residential Investment increase?
• Question #9 for 2019: What will happen with house prices in 2019?
• Question #10 for 2019: Will housing inventory increase or decrease in 2019?

by Calculated Risk on 12/28/2018 10:29:00 AM

From the Chicago PMI: Chicago Business Barometer Moderates to 65.4 in December

The MNI Chicago Business Barometer eased to 65.4 in December, down 1.0 point from November’s 66.4.
...
After two consecutive months of higher readings, the Employment indicator receded in December, hitting a three-month low, although did remain above the neutral-50 mark.
…
“The MNI Chicago Business Barometer saw 2018 out in good health, assisted by a firm uptick in Production, cementing the best calendar quarter outturn in a year,” said Jai Lakhani, Economist at MNI Indicators.

“Encouragingly, inflationary pressures subsided for a fifth consecutive month and should this continue, it will ease the burden on firms‘ productive capacities. Still, concerns over tariffs continue to linger in the background and stir uncertainty,” he added.
emphasis added

This was above the consensus forecast of 62.4.

by Calculated Risk on 12/28/2018 10:03:00 AM

From the NAR: Pending Home Sales See 0.7 Percent Drop in November

Pending home sales overall slipped in November, but saw minor increases in the Northeast and the West, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.7 percent to 101.4 in November, down from 102.1 in October. However, year-over-year contract signings dropped 7.7 percent, making this the eleventh straight month of annual decreases.
...
The PHSI in the Northeast rose 2.7 percent to 95.1 in November, and is now 3.5 percent below a year ago. In the Midwest, the index fell 2.3 percent to 98.1 in November and is 7.0 percent lower than November 2017.

Pending home sales in the South fell 2.7 percent to an index of 115.7 in November, which is 7.4 percent lower than a year ago. The index in the West increased 2.8 percent in November to 87.2 and fell 12.2 percent below a year ago.
emphasis added

This was below expectations for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in December and January.

by Calculated Risk on 12/27/2018 07:29:00 PM

Friday:
• At 9:45 AM ET, Chicago Purchasing Managers Index for December. The consensus is for a reading of 62.4, down from 66.4 in November.

• At 10:00 AM, Pending Home Sales Index for November. The consensus is for a 1.5% increase in the index.

by Calculated Risk on 12/27/2018 04:06:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 15 December

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 9-15 December 2018, according to data from STR.

In comparison with the week of 10-16 December 2017, the industry recorded the following:

• Occupancy: +1.3% to 57.3%
• Average daily rate (ADR): +3.2% to US$119.10
• Revenue per available room (RevPAR): +4.6% to US$68.25
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, blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

This is the fourth strong year in a row for hotel occupancy.  The occupancy rate, year-to-date, is just ahead of the record year in 2017.

Seasonally, the occupancy rate will be low through January.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 12/27/2018 12:50:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2019. I'm adding some thoughts, and maybe some predictions for each question.

10) Housing Inventory: Housing inventory increased in 2018 from very low levels.  Will inventory increase or decrease in 2019?

Tracking housing inventory is very helpful in understanding the housing market.  The plunge in inventory in 2011 helped me call the bottom for house prices in early 2012 (The Housing Bottom is Here).  And the increase in inventory in late 2005 (see red arrow on first graph below) helped me call the top for house prices in 2006.

This graph shows nationwide inventory for existing homes through November 2018.

Click on graph for larger image.

According to the NAR, inventory decreased seasonally to 1.74 million in November from 1.85 million in October. However inventory in November was up from 1.67 million in November 2017.

Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays.

Note that inventory is still 15% to 20% below the levels for November 2014 and 2015.

The second graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory increased 4.2% year-over-year in November compared to November 2017. Months of supply was at 3.9 months in November.

This increase followed several years of declining year-over-year inventory (see blue line).

A year ago I wrote: "The recent change in the tax law might lead to more inventory in certain areas, and I'll be tracking that over the course of the year."  And sure enough, in certain areas, inventory was up significantly year-over-year (but still relatively low).   For example, inventory in California was up 31% year-over-year.   However months-of-supply in California only increased to 3.7 months from 2.9 months a year earlier.   This is still on the low side.

I expect to see inventory up again year-over-year in December 2019.   My reasons for expecting more inventory are 1) inventory is still historically low (inventory in November 2018 was  the second lowest since 2000), 2) higher mortgage rates, and 3) further negative impact in certain areas from new tax law.

If correct, this will keep house price increases down in  2019 (probably lower than the 5% or so gains in 2018).

Here are the Ten Economic Questions for 2019 and a few predictions:

• Question #1 for 2019: Will Mr. Trump negatively impact the economy in 2019?
• Question #2 for 2019: How much will the economy grow in 2019?
• Question #3 for 2019: Will job creation in 2019 be as strong as in 2018?
• Question #4 for 2019: What will the unemployment rate be in December 2019?
• Question #5 for 2019: Will the core inflation rate rise in 2019? Will too much inflation be a concern in 2019?
• Question #6 for 2019: Will the Fed raise rates in 2019, and if so, by how much?
• Question #7 for 2019: How much will wages increase in 2019?
• Question #8 for 2019: How much will Residential Investment increase?
• Question #9 for 2019: What will happen with house prices in 2019?
• Question #10 for 2019: Will housing inventory increase or decrease in 2019?

by Calculated Risk on 12/27/2018 12:13:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for November 2018. Over the past three months, the indexes increased in 47 states and decreased in three states, for a three-month diffusion index of 88. In the past month, the indexes increased in 43 states, decreased in three states, and remained stable in four, for a one-month diffusion index of 80.
emphasis added

Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and all or mostly green during most of the recent expansion.

The map is mostly green on a three month basis, but there are some red states.

Source: Philly Fed.

Note: For complaints about red / green issues, please contact the Philly Fed.

And here is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In November, 45 states had increasing activity (including minor increases).

by Calculated Risk on 12/27/2018 10:00:00 AM

If the shutdown doesn't end quickly - the one in January 2018 lasted just two days - several agencies will not release regular government reports. For the current week, the November new home sales report will be delayed.

Update: The BLS is fully funded, and the December employment report will be released on time.

Private data - like the pending home sales report this week - will still be released. All Federal Reserve data will continue to be released (separate funding).

Also, the DOL will continue to process unemployment claims and release the weekly initial unemployment claims report.

If the shutdown lasts through this week, we should see a spike in claims in the report released the following week.

The following graph shows the 4-week moving average of weekly claims since January 2000 with various event driven spikes labeled.

Click on graph for larger image.

Note the spike related to the 2013 government shutdown. Weekly claims jumped 66,000 in the week following the shutdown in 2013. We will probably see a similar spike in the report released the week of December 31st (if the shutdown does not end quickly).

Another impact from the shutdown will be on mortgage lending.

In 2013, the IRS stopped processing 4506-T forms (the required two years of tax returns for mortgage lending). For loans ready to close, this will not be a problem. And lenders can still accept applications, but this could slow closings a few weeks depending on the duration of the shutdown.

There are many other impacts from the shutdown, and hopefully it will be resolved soon.

by Calculated Risk on 12/27/2018 08:34:00 AM

The DOL reported:

In the week ending December 22, the advance figure for seasonally adjusted initial claims was 216,000, a decrease of 1,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 214,000 to 217,000. The 4-week moving average was 218,000, a decrease of 4,750 from the previous week's revised average. The previous week's average was revised up by 750 from 222,000 to 222,750.
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 218,000.

This was close to the consensus forecast. The low level of claims suggest few layoffs.