by Calculated Risk on 6/06/2019 12:24:00 PM

The Federal Reserve released the Q1 2019 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q1 2019 to $108.6 trillion, from $104.0 trillion in Q4 2018.

The Fed estimated that the value of household real estate increased to $26.1 trillion in Q1. The value of household real estate is now above the bubble peak in early 2006 - but not adjusted for inflation, and this also includes new construction.

Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q1 2019, household percent equity (of household real estate) was at 60.4% - up from Q4, and the highest since 2002. This was because of an increase in house prices in Q1 (the Fed uses CoreLogic).

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 60.4% equity - and about 2 million homeowners still have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt increased by $25 billion in Q1.

Mortgage debt has declined by $0.34 trillion from the peak, and, as a percent of GDP is at 49.2%, down from a peak of 73.5% of GDP during the housing bubble.

The value of real estate, as a percent of GDP, increased slightly in Q1, and is above the average of the last 30 years (excluding bubble).  However, mortgage debt as a percent of GDP, continues to decline.

by Calculated Risk on 6/06/2019 10:18:00 AM

This is a key former distressed market to follow since Las Vegas saw the largest price decline, following the housing bubble, of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Local home prices stuck at $300,000, with more homes on the market, GLVAR housing statistics for May 2019

For the third straight month, the Greater Las Vegas Association of REALTORS® (GLVAR) reported that local home prices are hovering at $300,000 while the number of homes on the market continues to increase.
...
The total number of existing local homes, condos and townhomes sold during May was 4,045. Compared to one year ago, May sales were up 4.5% for homes and up 1.9% for condos and townhomes.
...
At the current sales pace, Carpenter said Southern Nevada still has less than a three-month supply of homes available for sale. The housing supply is up from one year ago, but still below what would normally be considered a balanced market.

By the end of May, GLVAR reported 7,855 single-family homes listed for sale without any sort of offer. That’s up 90.7% from one year ago. For condos and townhomes, the 1,876 properties listed without offers in May represented a 134.8% jump from one year ago.
...
The number of so-called distressed sales remains near historically low levels. GLVAR reported that short sales and foreclosures combined accounted for just 2.0% of all existing local property sales in May. That compares to 2.6% of all sales one year ago and 6.8% two years ago.
emphasis added

1) Overall sales were up 4.0% year-over-year from 3,890 in May 2018 to 4,045 in May 2019.

2) Active inventory (single-family and condos) is up sharply from a year ago, from a total of 4,917 in May 2018 to 9,731 in May 2019. Note: Total inventory was up 98% year-over-year.   This is a significant increase in inventory, although months-of-supply is still somewhat low.

3) Low level of distressed sales.

by Calculated Risk on 6/06/2019 08:50:00 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 $50.8 billion in April, down $1.1 billion from $51.9 billion in March, revised.

April exports were $206.8 billion, $4.6 billion less than March exports. April imports were $257.6 billion, $5.7 billion less than March imports.

Click on graph for larger image.

Exports and imports decreased in April.

Exports are 25% above the pre-recession peak and down 1% compared to April 2018; imports are 11% above the pre-recession peak, and up slightly compared to April 2018.

In general, trade had been picking up, although both imports and exports have weakened recently.

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 $57.16 per barrel in April, up from $53.10 in March, and up from $54.50 in April 2018.

The trade deficit with China decreased to $26.9 billion in April, from $27.8 billion in April 2018.

by Calculated Risk on 6/06/2019 08:33:00 AM

The DOL reported:

In the week ending June 1, the advance figure for seasonally adjusted initial claims was 218,000, unchanged from the previous week's revised level. The previous week's level was revised up by 3,000 from 215,000 to 218,000. The 4-week moving average was 215,000, a decrease of 2,500 from the previous week's revised average. The previous week's average was revised up by 750 from 216,750 to 217,500.
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 215,000.

This was above the consensus forecast.

by Calculated Risk on 6/05/2019 07:03:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 215 thousand initial claims, unchanged from 215 thousand last week.

• At 8:30 AM, Trade Balance report for April from the Census Bureau. The consensus is the trade deficit to be $50.7 billion.  The U.S. trade deficit was at $50.0 Billion the previous month.

• At 12:00 PM, Q1 Flow of Funds Accounts of the United States from the Federal Reserve.

by Calculated Risk on 6/05/2019 02:26:00 PM

The ADP employment report was weak this month with just 27,000 jobs added. In general, the ADP report hasn't been very useful in predicting the BLS report for any one month, but this does suggest some downside risk to the May employment report to be released on Friday.

However, the ISM non-manufacturing report suggested solid employment growth in May. So I thought I'd look back at the three previous years and compare the ADP and ISM reports to the BLS report.

In May 2018, the BLS reported 223,000 jobs added (218,000 private sector jobs added).  The ADP report showed 178,000 jobs added, the ISM non-manufacturing employment index was at 54.1.

In May 2017, the BLS reported 138,000 jobs added (147,000 private sector jobs added).  The ADP report showed 253,000 jobs added, the ISM non-manufacturing employment index was at 57.8.

In May 2016, the BLS reported 38,000 jobs added (25,000 private sector jobs added).  The ADP report showed 173,000 jobs added, the ISM non-manufacturing employment index was at 49.7.

This is a very small sample, but neither the ADP or the ISM non-Mfg employment index correlates well with the BLS report, but the ISM report has probably been a little more useful.  For the previous three years, the ADP and the ISM non-Mfg employment index moved somewhat together - but this month the readings were very different.

by Calculated Risk on 6/05/2019 02:04:00 PM

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of Minneapolis based on information collected on or before May 24, 2019."

Economic activity expanded at a modest pace overall from April through mid-May, a slight improvement over the previous period. Almost all Districts reported some growth, and a few saw moderate gains in activity. Manufacturing reports were generally positive, but some Districts noted signs of slowing activity and a more uncertain outlook among contacts. Residential construction and real estate both showed overall growth, but both sectors saw wide variation in sentiment across Districts. Reports on consumer spending were generally positive but tempered. Tourism activity was stronger, especially in the Southeast, but vehicle sales were lower, according to reporting Districts. Loan demand was mixed but indicated growth. Agricultural conditions remained weak overall, but a few Districts reported some improvements. The outlook for the coming months was solidly positive but modest, with little variation among reporting Districts.
...
Employment continued to increase nationwide, with most Districts reporting modest or moderate job growth and others reporting slight growth, an assessment similar to the previous reporting period. Solid hiring demand was noted for retail, business services, technical, manufacturing, and construction jobs and by staffing agencies in general. However, stronger employment growth continued to be constrained by tight labor markets, with Districts citing shortages of both high- and low-skill workers. Competition for workers reportedly applied some wage pressures across a wide range of occupations and induced improvements in benefits to attract more workers and to improve retention of existing employees, according to several Districts. However, overall wage pressures remained relatively subdued given low unemployment rates; a majority of Districts reported modest or moderate wage growth.
emphasis added

by Calculated Risk on 6/05/2019 10:04:00 AM

The May ISM Non-manufacturing index was at 56.9%, up from 55.5% in April. The employment index increased to 58.1%, from 53.7%. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: May 2019 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in May for the 112th 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 56.9 percent, which is 1.4 percentage points higher than the April reading of 55.5 percent. This represents continued growth in the non-manufacturing sector, at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 61.2 percent, 1.7 percentage points higher than the April reading of 59.5 percent, reflecting growth for the 118th consecutive month, at a faster rate in May. The New Orders Index registered 58.6 percent; 0.5 percentage point higher than the reading of 58.1 percent in April. The Employment Index increased 4.4 percentage points in May to 58.1 percent from the April reading of 53.7 percent. The Prices Index decreased 0.3 percentage point from the April reading of 55.7 percent to 55.4 percent, indicating that prices increased in May for the 24th consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. The non-manufacturing sector continues to experience a slight uptick in business activity, but it is still leveling off overall. Respondents are mostly optimistic about overall business conditions, but concerns remain about tariffs and employment resources.”
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 May than in April.

by Calculated Risk on 6/05/2019 08:19:00 AM

From ADP:

Private sector employment increased by 27,000 jobs from April to May according to the May 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.
...
“Following an overly strong April, May marked the smallest gain since the expansion began,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Large companies continue to remain strong as they are better equipped to compete for labor in a tight labor market.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is moderating. Labor shortages are impeding job growth, particularly at small companies, and layoffs at brick-and-mortar retailers are hurting.”

This was well below the consensus forecast for 175,000 private sector jobs added in the ADP report. 

The BLS report will be released Friday, and the consensus is for 180,000 non-farm payroll jobs added in May.

by Calculated Risk on 6/05/2019 07:00:00 AM

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

Mortgage applications increased 1.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 31, 2019. This week’s results included an adjustment for the Memorial Day holiday.

... The Refinance Index increased 6 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 14 percent compared with the previous week and was 0.5 percent higher than the same week one year ago.
...
“Mortgage rates dropped to their lowest level since the first week of 2018, driven by increasing concerns regarding the ongoing trade tensions with China and Mexico,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Some borrowers, particularly those with larger loans, jumped on the opportunity to refinance, bringing the index and average refinance loan size to their highest levels since early April. Additionally, refinances for FHA and VA loans jumped by 11 percent.”

Added Fratantoni, “Coming out of the Memorial Day holiday, and likely impacted by the financial market volatility caused by the trade tensions, purchase application volume declined for the week. Potential homebuyers may be more cautious given the heightened economic uncertainty.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 4.23 percent from 4.33 percent, with points decreasing to 0.33 from 0.42 (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.

Once mortgage rates fell more than 50 bps from the highs of last year, a number of recent buyers were able to refinance.  But it would take a further decrease in rates to see a further increase in refinance activity.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 0.5% year-over-year.