by Calculated Risk on 9/26/2019 02:23:00 PM

A few excerpt from a Merrill Lynch research report:

We expect next Friday's Bureau of Labor Statistics (BLS) employment situation report to show that nonfarm payrolls grew by 145k in September following an increase of 130k in August. ... For private payrolls which exclude government workers, we look for an increase of 125k …

Since the last employment report, labor market indicators on balance have been reading softer and portend to tepid hiring activity. … Elsewhere, we expect the unemployment rate to hold at 3.7% for the 4th consecutive month

CR note: I expect temporary Decennial Census Hiring of about 15,000 in September (following 25,000 hires in August).  

by Calculated Risk on 9/26/2019 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Edged Down in September

The Federal Reserve Bank of Kansas City released the September Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity edged down in September, and expectations for future activity moderated but remained positive.

“Regional factory activity continued to decline in September, though not as much as last month,” said Wilkerson. “Although the employment index dropped further this month, firms as a whole indicated 2019 employment expectations have increased slightly since the beginning of the year.”
...
The month-over-month composite index was -2 in September, up slightly from -6 in August and similar to -1 in July. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The dip in manufacturing activity was driven by continued declines at durable goods plants, especially from decreases in nonmetallic mineral products, primary metal, computer and electronic products, and transportation equipment manufacturing. While the month-over-month employment index dropped further in September, the production and shipments indexes rebounded considerably. Year-over-year factory indexes were somewhat mixed in September, but the composite index was unchanged at -1. The future composite index remained positive, but slowed from 9 to 5, the lowest future composite index since May 2016.
emphasis added

Another weak regional manufacturing report.

by Calculated Risk on 9/26/2019 10:04:00 AM

From the NAR: Pending Home Sales Grow 1.6% in August

Pending home sales increased in August, a welcome rebound after a prior month of declines, according to the National Association of Realtors®. Each of the four major regions reported both month-over-month growth and year-over-year gains in contract activity.

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, climbed 1.6% to 107.3 in August, reversing the prior month’s decrease. Year-over-year contract signings jumped 2.5%. An index of 100 is equal to the average level of contract activity.
...
All regional indices are up from July, with the highest gain in the West region. The PHSI in the Northeast rose 1.4% to 94.3 in August and is now 0.7% higher than a year ago. In the Midwest, the index increased 0.6% to 101.7 in August, 0.2% higher than August 2018.

Pending home sales in the South increased 1.4% to an index of 124.4 in August, a 1.8% bump from last August. The index in the West grew 3.1% in August 2019 to 96.4, an increase of 8.0% from a year ago.
emphasis added

This was above expectations of a 0.6% increase for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in September and October.

by Calculated Risk on 9/26/2019 08:38:00 AM

The DOL reported:

In the week ending September 21, the advance figure for seasonally adjusted initial claims was 213,000, an increase of 3,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 208,000 to 210,000. The 4-week moving average was 212,000, a decrease of 750 from the previous week's revised average. The previous week's average was revised up by 500 from 212,250 to 212,750.
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 212,000.

This was close to the consensus forecast.

by Calculated Risk on 9/26/2019 08:34:00 AM

From the BEA: Gross Domestic Product, Second Quarter 2019 (Second Estimate); Corporate Profits, Second Quarter 2019 (Preliminary Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the second quarter of 2019, according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.1 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was also 2.0 percent. Downward revisions to personal consumption expenditures (PCE) and nonresidential fixed investment were primarily offset by upward revisions to state and local government spending and exports. Imports, which are a subtraction in the calculation of GDP, were revised down
emphasis added

PCE growth was revised down from 4.7% to 4.6%. Residential investment was revised down from -2.9% to -3.0%. This was at the consensus forecast.

Here is a Comparison of Third and Second Estimates.

by Calculated Risk on 9/25/2019 07:15:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 211 thousand initial claims, up from 208 thousand the previous week.

• At 8:30 AM, Gross Domestic Product, 2nd quarter 2018 (Third estimate). The consensus is that real GDP increased 2.0% annualized in Q2, unchanged from the second estimate of 2.0%.

• At 10:00 AM, Pending Home Sales Index for August. The consensus is 0.6% increase in the index.

• At 11:00 AM, the Kansas City Fed manufacturing survey for September. This is the last of the regional surveys for September.

by Calculated Risk on 9/25/2019 05:04:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Rises in September

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), was up 0.1 percent in September on a three-month moving average (3MMA) basis following a 0.1 percent decline in August and gains averaging 0.2 percent per month during the second quarter. On a year-over-year (Y/Y) basis, the barometer was flat at 0.0 percent (3MMA).
...
“Although one month does not make a trend, the positive September CAB reading and upward revisions in the data are encouraging signs,” said Kevin Swift, chief economist at ACC. “The barometer indicates gains in U.S. commerce into the second quarter of 2020, but at a slow pace.”
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added

Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

The year-over-year change in the CAB suggests that the YoY change in industrial production might be near a short term bottom.

by Calculated Risk on 9/25/2019 03:29:00 PM

The Case-Shiller house price indexes for July were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Matthew Speakman at Zillow: July Case-Shiller Results and August Forecast: Summer Turning Point?

Annual home price growth continued to cool in July, but more-recent data suggest the market may have begun to turn over the summer, showing modest acceleration in growth compared to earlier in the year.
…
The latest home sales and building data offer further proof that the recent bout of housing malaise may be nearing an end. August existing home sales, starts and permits all easily exceeded industry expectations and posted some of their strongest readings in years. This strength, teamed with steady home builder sentiment, growing home construction employment and still-low mortgage rates, show the housing market still has plenty of fight as summer turns to fall.

The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be at 3.2% in August, unchanged from 3.2% in July.

The Zillow forecast is for the 20-City index to decline to 1.8% YoY in August from 2.0% in July, and for the 10-City index to decline to 1.3% YoY compared to 1.6% YoY in July.

by Calculated Risk on 9/25/2019 11:08:00 AM

New home sales for August were reported at 713,000 on a seasonally adjusted annual rate basis (SAAR). Sales for the previous three months were revised up, combined.

Sales for June were revised up to a new cycle high.

Annual sales in 2019 should be the best year for new home sales since 2007.

Earlier: New Home Sales increased to 713,000 Annual Rate in August.

Click on graph for larger image.

This graph shows new home sales for 2018 and 2019 by month (Seasonally Adjusted Annual Rate).

Sales in August were up 18.0% year-over-year compared to August 2018.

Year-to-date (through August), sales are up 6.4% compared to the same period in 2018.

The comparisons for the next four months are easy, so sales should be solidly higher in 2019 than in 2018.

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through August 2019. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.

Even though distressed sales are down significantly, following the bust, new home builders focused on more expensive homes - so the gap has only closed slowly.

I still expect this gap to close.   However, this assumes that the builders will offer some smaller, less expensive homes.

Another way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down since the housing bust, and this ratio will probably continue to trend down a little more.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

by Calculated Risk on 9/25/2019 10:14:00 AM

The Census Bureau reports New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 713 thousand.

The previous three months were revised up combined.  June was again revised up to a new cycle high.

"Sales of new single‐family houses in August 2019 were at a seasonally adjusted annual rate of 713,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.1 percent above the revised July rate of 666,000 and is 18.0 percent above the August 2018 estimate of 604,000. "
emphasis added

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Even with the increase in sales over the last several years, new home sales are still somewhat low historically.

The second graph shows New Home Months of Supply.

The months of supply decreased in August to 5.5 months from 5.9 months in July.

The all time record was 12.1 months of supply in January 2009.

This is in the normal range (less than 6 months supply is normal).

"The seasonally‐adjusted estimate of new houses for sale at the end of August was 326,000. This represents a supply of 5.5 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still somewhat low, and the combined total of completed and under construction is close to normal.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In August 2019 (red column), 57 thousand new homes were sold (NSA). Last year, 47 thousand homes were sold in August.

The all time high for August was 110 thousand in 2005, and the all time low for August was 23 thousand in 2010.

This was above expectations of 665 thousand sales SAAR, and sales in the three previous months were revised up, combined.  I'll have more later today.