by Calculated Risk on 11/04/2019 09:27:00 AM

CR Note: Early-stage delinquencies are still historically very low, but have been increasing (see second graph).

Black Knight released their Mortgage Monitor report for September today. According to Black Knight, 3.53% of mortgages were delinquent in September, down from 3.97% in September 2018. Black Knight also reported that 0.48% of mortgages were in the foreclosure process, down from 0.52% a year ago.

This gives a total of 4.05% delinquent or in foreclosure.

Press Release: Black Knight’s September 2019 Mortgage Monitor: First-Time Homebuyers Under Pressure as Early-Stage Delinquencies Continue to Rise Among Purchase Loans

Today, the Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage performance, housing and public records datasets. This month, Black Knight looked at the current trend of rising early-stage delinquencies, particularly among purchase loans. As Black Knight Data & Analytics President Ben Graboske explained, the number of loans that were delinquent six months following origination has been increasing over the past 24 months, with first-time homebuyers being impacted most heavily.

“We’ve seen early-stage delinquencies rise over the last several years, with the increase being driven primarily by purchase loans,” said Graboske. “About 1% of loans originated in Q1 2019 were delinquent six months after origination. While that’s less than one-third of the 2000-2005 average of 2.95%, it represents a more than 60% increase over the last two years and is the highest it’s been since late 2010. Early-stage GSE delinquencies currently stand at 0.6%, up two tenths of a percentage point over the past 24 months, but still 40% below the market average and 60% below their own 2000-2005 average of 1.3%. Though there has been some softening in GSE purchase loan performance, it hasn’t been to the extent seen among entry-level buyers. All in all, first-time homebuyer originations combined between the GSEs and GNMA increased by nearly 50% between 2014 and 2018. However, whereas first-time homebuyers represent just over 40% of GSE purchase loans, they make up 70% of the GNMA purchase market.

“That concentration is contributing to a more significant increase in early-stage delinquencies among GNMA loans, which saw 3.3% of loans delinquent six months after origination. That’s up 1.2 percentage points from two years ago, and though still roughly half the 2000-2005 pre-crisis average, it represents the sharpest increase we’ve seen in the market in recent years. However, performance among repeat purchasers with GNMA-securitized loans has remained relatively steady overall, with the rise more pronounced among first-time homebuyers. Rising debt-to-income ratios due to tight affordability and declining first-time homebuyer credit scores stand out as likely drivers here. With a growing population of first-time homebuyers poised to enter the market, this is a trend Black Knight will continue to monitor.”
emphasis added

Click on graph for larger image.

Here is a graph from the Mortgage Monitor that shows the Foreclosure Sales over time.

From Black Knight:

• Foreclosure sales (completions) are down 14% year-over-year, and have now set new record lows in each of the past five quarters

• The 35.7K foreclosure sales in Q3 are nearly 50% below the pre-recession (2000-2005) average

• Florida, New York and Illinois led all states with 3.2K, 2.5K and 2.4K foreclosure completions respectively in Q3

• Despite having the largest number of foreclosure sales, Florida's sale activity declined by 19% from the year prior, while in New York, sales actually edged slightly upward year-over-year (+4% Y/Y)

The second graph shows early stage delinquencies:

• Early-stage delinquencies among recent originations continue to trend upward

• Nearly 1% of Q1 2019 originations were delinquent six months post-origination; though less than a third of 2000-2005 average of 2.93%, that’s up more than 60% over the past 24 months and the highest since 2010

• This increase has primarily been driven by a rise in early-stage delinquencies among purchase loans, and to a lesser degree by cash-out refinances

• While performance of rate/term refinances has remained relatively flat, early-stage delinquencies among cash-out refis – though lower than the market as a whole – have also moved upward in recent years

• Should the rise in delinquencies among more recent originations continue, we may ultimately see an increase in overall delinquency rates

There is much more in the mortgage monitor.

by Calculated Risk on 11/03/2019 07:40:00 PM

Weekend:
• Schedule for Week of November 3, 2019

Monday:
• All day, Light vehicle sales for October.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are up 3 and DOW futures are up 25 (fair value).

Oil prices were down over the last week with WTI futures at $56.11 per barrel and Brent at $61.59 barrel.  A year ago, WTI was at $63, and Brent was at $73 - so oil prices are down about 15% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.59 per gallon. A year ago prices were at $2.73 per gallon, so gasoline prices are down 14 cents year-over-year.

by Calculated Risk on 11/03/2019 10:37:00 AM

From Jan Freitag at HotelNewsNow.com: US hotels post RevPAR losses for second month in 2019

The RevPAR upcycle is now in its 115th month, and 112 of those months had positive RevPAR change. So, I wonder if it’s time to retire the term “upcycle” if RevPAR is declining, as it did in September. The long-run monthly RevPAR growth chart now looks like this, but the header needs a qualifier (“three small interruptions”) and so it may be time to come up with a better descriptor.

From HotelNewsNow.com: STR: US hotel results for week ending 26 October

The U.S. hotel industry reported overall flat year-over-year results in the three key performance metrics during the week of 20-26 October 2019, according to data from STR.

In comparison with the week of 21-27 October 2018, the industry recorded the following:

• Occupancy: -0.2% to 70.5%
• Average daily rate (ADR): +0.2% to US$135.00
• Revenue per available room (RevPAR): flat at US$95.15
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 2019, dash light blue is 2018 (record year), blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

Occupancy has been solid in 2019, and close to-date compared to the previous 4 years.

However occupancy will be lower this year than in 2018 (the record year).

Seasonally, the 4-week average of the occupancy rate will now start to decline into the winter.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 11/02/2019 08:11:00 AM

The key reports this week are October vehicle sales, and the September trade deficit.

----- Monday, Nov 4th -----
All day: Light vehicle sales for October.

The consensus is for sales of 17.0 million SAAR, down from 17.2 million SAAR in September (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the current sales rate.

----- Tuesday, Nov 5th -----
8:30 AM: Trade Balance report for September from the Census Bureau.  The consensus is for the deficit to be $52.5 billion in September, from $54.9 billion in August.

This graph shows the U.S. trade deficit, with and without petroleum, through the most recent report. 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.

10:00 AM: the ISM non-Manufacturing Index for October.  The consensus is for an increase to 53.5 from 52.6.

10:00 AM ET: Job Openings and Labor Turnover Survey for September from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings decreased in August to 7.051 million from 7.174 million in July.

----- Wednesday, Nov 6th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

----- Thursday, Nov 7th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 215,000 initial claims, down from 218,000 last week.

----- Friday, Nov 8th -----
10:00 AM: University of Michigan's Consumer sentiment index (Preliminary for November).

by Calculated Risk on 11/01/2019 01:31:00 PM

The headline jobs number at 148 thousand for October ex-Census (128K total including temp Census hires and layoffs) was above consensus expectations of 93 thousand, and the previous two months were revised up 95 thousand, combined. The unemployment rate increased to 3.6%.

Earlier: October Employment Report: 148,000 Jobs Added ex-Census, 3.6% Unemployment Rate

In October, the year-over-year employment change was 2.093 million jobs including Census hires (note: this will be revised down in February with the benchmark revision).

Seasonal Retail Hiring

Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.

Click on graph for larger image.

This graph really shows the collapse in retail hiring in 2008. Since then seasonal hiring has increased back close to more normal levels. Note: I expect the long term trend will be down with more and more internet holiday shopping.

Retailers hired 137 thousand workers (NSA) net in October.   Note: this is NSA (Not Seasonally Adjusted).

This is more than last year in October.

Average Hourly Earnings

Wage growth was below expectations. From the BLS:

"In October, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $28.18. Over the past 12 months, average hourly earnings have increased by 3.0 percent."

This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth was at 3.0% YoY in October.

Wage growth had been generally trending up, but has weakened recently.

Prime (25 to 54 Years Old) Participation

Since the overall participation rate has declined due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle.

The 25 to 54 participation rate was increase in October to 82.8% from September at 82.6%, and the 25 to 54 employment population ratio was increased to 80.3% from 80.1%.

Part Time for Economic Reasons

From the BLS report:

"The number of persons employed part time for economic reasons, at 4.4 million, changed little in October. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs."

The number of persons working part time for economic reasons increased in October to 4.438 million from 4.350 million in September.   The number of persons working part time for economic reason has been generally trending down.

These workers are included in the alternate measure of labor underutilization (U-6) that increased to 7.0% in October.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 1.264 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 1.314 million in September.

Summary:

The headline jobs number was above expectations, and the previous two months were revised up.  The headline unemployment rate increased to 3.6%; and, wage growth was below expectations. Factoring in the temporary Census fires, the GM strike, and the upward revisions to prior months, this was a solid report.

In 2019, the economy has added 1.662 million jobs through October 2019 ex-Census, down from 2.256 million jobs during the same period of 2018 (although 2018 will be revised down with benchmark revision to be released in February 2020).   So job growth has slowed.

by Calculated Risk on 11/01/2019 11:20:00 AM

From the Census Bureau reported that overall construction spending increased slightly in August:

Construction spending during September 2019 was estimated at a seasonally adjusted annual rate of $1,293.6 billion, 0.5 percent above the revised August estimate of $1,287.1 billion. The September figure is 2.0 percent below the September 2018 estimate of $1,319.7 billion.
emphasis added

Both private and public spending increased:

Spending on private construction was at a seasonally adjusted annual rate of $961.7 billion, 0.2 percent above the revised August estimate of $959.9 billion. ...

In September, the estimated seasonally adjusted annual rate of public construction spending was $331.9 billion, 1.5 percent above the revised August estimate of $327.2 billion.
emphasis added

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending had been increasing - but turned down in the 2nd half of 2018 - and is now 25% below the bubble peak.

Non-residential spending is 9% above the previous peak in January 2008 (nominal dollars).

Public construction spending is 2% above the previous peak in March 2009, and 27% above the austerity low in February 2014.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is down 4%. Non-residential spending is down 6% year-over-year. Public spending is up 7% year-over-year.

This was above consensus expectations.

by Calculated Risk on 11/01/2019 10:05:00 AM

The ISM manufacturing index indicated contraction in October. The PMI was at 48.3% in October, up from 47.8% in September. The employment index was at 47.7%, up from 46.3% last month, and the new orders index was at 49.1%, up from 47.3%.

From the Institute for Supply Management: October 2019 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector contracted in October, and the overall economy grew for the 126th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The October PMI® registered 48.3 percent, an increase of 0.5 percentage point from the September reading of 47.8 percent. The New Orders Index registered 49.1 percent, an increase of 1.8 percentage points from the September reading of 47.3 percent. The Production Index registered 46.2 percent, down 1.1 percentage points compared to the September reading of 47.3 percent. The Backlog of Orders Index registered 44.1 percent, down 1 percentage point compared to the September reading of 45.1 percent. The Employment Index registered 47.7 percent, a 1.4-percentage point increase from the September reading of 46.3 percent. The Supplier Deliveries Index registered 49.5 percent, a 1.6-percentage point decrease from the September reading of 51.1 percent. The Inventories Index registered 48.9 percent, an increase of 2 percentage points from the September reading of 46.9 percent. The Prices Index registered 45.5 percent, a 4.2-percentage point decrease from the September reading of 49.7 percent. The New Export Orders Index registered 50.4 percent, a 9.4-percentage point increase from the September reading of 41 percent. The Imports Index registered 45.3 percent, a 2.8-percentage point decrease from the September reading of 48.1 percent.

“Comments from the panel reflect an improvement from the prior month, but sentiment remains more cautious than optimistic. October was the third consecutive month of PMI® contraction, at a slower rate compared to September. Demand contracted, with the New Orders Index contracting marginally, the Customers’ Inventories Index moving into ‘about right’ territory and the Backlog of Orders Index contracting for the sixth straight month (and at a faster rate). The New Export Orders Index surged into expansion territory, likely contributing to the slowing contraction of the New Orders Index. Consumption (measured by the Production and Employment indexes) contracted, due primarily to lack of demand, but contributed positively (a combined +0.3-percentage point increase) to the PMI® calculation. Inputs — expressed as supplier deliveries, inventories and imports — were again lower in October, due primarily to supplier delivery contraction offset by improvements in inventories. This resulted in a combined 0.4-percentage point net improvement in the Supplier Deliveries and Inventories indexes. Imports contraction quickened. Overall, inputs indicate (1) supply chains are meeting demand and (2) companies are more confident that materials received will be consumed in a reasonable time period. Prices decreased for the fifth consecutive month, at a faster rate.”

“Global trade remains the most significant cross-industry issue. Food, Beverage & Tobacco Products remains the strongest industry sector and Transportation Equipment the weakest sector. Overall, sentiment this month remains cautious regarding near-term growth,” says Fiore.
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was slightly below expectations of 49.0%, and suggests manufacturing contracted further in October.

by Calculated Risk on 11/01/2019 08:44:00 AM

From the BLS:

Total nonfarm payroll employment rose by 128,000 in October, and the unemployment rate was little changed at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in food services and drinking places, social assistance, and financial activities. Within manufacturing, employment in motor vehicles and parts decreased due to strike activity. Federal government employment was down, reflecting a drop in the number of temporary jobs for the 2020 Census.
...
Federal government employment was down by 17,000 over the month, as 20,000 temporary workers who had been preparing for the 2020 Census completed their work.
...
The change in total nonfarm payroll employment for August was revised up by 51,000 from +168,000 to +219,000, and the change for September was revised up by 44,000 from +136,000 to +180,000. With these revisions, employment gains in August and September combined were 95,000 more than previously reported.
...
In October, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $28.18. Over the past 12 months, average hourly earnings have increased by 3.0 percent.
emphasis added

Click on graph for larger image.

The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes).

Total payrolls increased by 148 thousand in October ex-Census (private payrolls increased 131 thousand).

Payrolls for August and September were revised up 95 thousand combined.

This graph shows the year-over-year change in total non-farm employment since 1968.

In October, the year-over-year change was 2.093 million jobs.

The third graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate increased in October to 63.3%. This is the percentage of the working age population in the labor force.   A large portion of the recent decline in the participation rate is due to demographics and long term trends.

The Employment-Population ratio was unchanged at 61.0% (black line).

I'll post the 25 to 54 age group employment-population ratio graph later.

The fourth graph shows the unemployment rate.

The unemployment rate increased in October to 3.6%.

This was well above consensus expectations of 93,000 jobs added, and August and September  were revised up by 95,000 combined.   A strong report, especially considering the GM strike, Census layoffs, and the upward revisions.

I'll have much more later ...

by Calculated Risk on 10/31/2019 07:06:00 PM

Note: It appears temporary Census hiring will have little impact on the October employment report.

My October Employment Preview: Take the Under

Friday:
• At 8:30 AM ET, Employment Report for October.   The consensus is for 93,000 jobs added, and for the unemployment rate to increase to 3.6%.

Note: The GM strike and supplier cutbacks (now settled) will probably subtract close to 75,000 jobs in October.

• At 10:00 AM, ISM Manufacturing Index for October.  The consensus is for 49.0%, up from 47.8%.

• At 10:00 AM, Construction Spending for September.  The consensus is for 0.2% increase in spending.

by Calculated Risk on 10/31/2019 04:42:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency increased slightly to 0.68% in September, from 0.68% in August. The serious delinquency rate is down from 0.82% in September 2018.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Click on graph for larger image

By vintage, for loans made in 2004 or earlier (2% of portfolio), 2.53% are seriously delinquent. For loans made in 2005 through 2008 (4% of portfolio), 4.24% are seriously delinquent, For recent loans, originated in 2009 through 2018 (94% of portfolio), only 0.33% are seriously delinquent. So Fannie is still working through a few poor performing loans from the bubble years.

The increase in the delinquency rate in late 2017 was due to the hurricanes - there were no worries about the overall market.

I expect the serious delinquency rate will probably decline to 0.4 to 0.6 percent or so to a cycle bottom.

Note: Freddie Mac reported earlier.