by Calculated Risk on 11/15/2019 09:22:00 AM

From the Fed: Industrial Production and Capacity Utilization

Industrial production fell 0.8 percent in October after declining 0.3 percent in September. Manufacturing production decreased 0.6 percent in October. Much of this decline was due to a drop of 7.1 percent in the output of motor vehicles and parts that resulted from a strike at a major manufacturer of motor vehicles. The decreases for total industrial production, manufacturing, and motor vehicles and parts were their largest since May 2018, April 2019, and January 2019, respectively.

Excluding motor vehicles and parts, the index for total industrial production moved down 0.5 percent, and the index for manufacturing edged down 0.1 percent. Mining production decreased 0.7 percent, while utilities output fell 2.6 percent.

At 108.7 percent of its 2012 average, total industrial production was 1.1 percent lower in October than it was a year earlier. Capacity utilization for the industrial sector decreased 0.8 percentage point in October to 76.7 percent, a rate that is 3.1 percentage points below its long-run (1972–2018) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 10.0 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 76.7% is 3.1% below the average from 1972 to 2017 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production decreased in October to  108.7. This is 25% above the recession low, and 3.2% above the pre-recession peak.

The change in industrial production and increase in capacity utilization were below consensus expectations.

by Calculated Risk on 11/15/2019 08:50:00 AM

On a monthly basis, retail sales increased 0.3 percent from September to October (seasonally adjusted), and sales were up 3.1 percent from October 2018.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for October 2019, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $526.5 billion, an increase of 0.3 percent from the previous month, and 3.1 percent above October 2018.
emphasis added

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline were up 0.2% in October.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales, ex-gasoline, increased by 3.9% on a YoY basis.

The increase in October was slightly above expectations, however sales in August and September were revised down.

by Calculated Risk on 11/14/2019 05:12:00 PM

Friday:
• At 8:30 AM ET, Retail sales for October will be released.  The consensus is for a 0.2% increase in retail sales.

• Also at 8:30 AM, The New York Fed Empire State manufacturing survey for November. The consensus is for a reading of 5.0, up from 4.0.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for October. The consensus is for a 0.4% decrease in Industrial Production, and for Capacity Utilization to decrease to 77.2%.

by Calculated Risk on 11/14/2019 02:09:00 PM

Three years ago I wrote The Cupboard is Full

"The bottom line is the cupboard is full. The expansion should continue for some time."

This is one in a series of post in late 2016 - post election - explaining why I thought the expansion should continue, even though I was extremely disappointed about the outcome of the election.

I'm still not on recession watch, but the cupboard isn't quite as full (I'll have more to say on this in the coming weeks).

by Calculated Risk on 11/14/2019 10:34:00 AM

From the MBA: Mortgage Delinquencies Fall to Lowest Level in Nearly 25 Years

The delinquency rate for mortgage loans on one-to-four unit residential properties decreased to a seasonally adjusted rate of 3.97 percent of all loans outstanding at the end of the third quarter of 2019, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey.

The delinquency rate was down 56 basis points from the second quarter of 2019 and down 50 basis points from one year ago. The percentage of loans on which foreclosure actions were started in the third quarter fell by four basis points to 0.21 percent.

"Mortgage delinquencies decreased in the third quarter across all loan types - conventional, VA, and in particular, FHA," said Marina Walsh, MBA's Vice President of Industry Analysis. "The FHA delinquency rate dropped 100 basis points, as weather-related disruptions from the spring waned. The labor market remains healthy and economic growth has been stronger than anticipated. These two factors have contributed to the lowest level of overall delinquencies in almost 25 years."

Added Walsh, "Looking ahead, we do continue to monitor the credit profile of new FHA loans, as changes to this profile can have a noticeable impact on future delinquency rates."
...
Compared to last quarter, the seasonally adjusted mortgage delinquency rate decreased for all loans outstanding to the lowest level since the first quarter of 1995. By stage, the 30-day delinquency rate decreased 42 basis points to 2.20 percent, the 60-day delinquency rate decreased six basis points to 0.75 percent, and the 90-day delinquency bucket decreased 8 basis points to 1.02 percent.
...
The delinquency rate includes loans that are at least one payment past due, but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the third quarter was 0.84 percent, down six basis points from the second quarter of 2019 and 15 basis points lower than one year ago. This is the lowest foreclosure inventory rate since the fourth quarter of 1985.
...
The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 1.81 percent - a decrease of 14 basis points from last quarter - and a decrease of 32 basis points from last year. This the lowest seriously delinquent rate since the third quarter of 2000.
emphasis added

Click on graph for larger image.

This graph shows the percent of loans delinquent by days past due.  Delinquencies decreased in Q3.

The percent of loans in the foreclosure process continues to decline, and is now at the lowest level since 1985.

by Calculated Risk on 11/14/2019 08:36:00 AM

The DOL reported:

In the week ending November 9, the advance figure for seasonally adjusted initial claims was 225,000, an increase of 14,000 from the previous week's unrevised level of 211,000. The 4-week moving average was 217,000, an increase of 1,750 from the previous week's unrevised average of 215,250.
emphasis added

The previous week was unrevised.

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 increased to 217,000.

This was above the consensus forecast.

by Calculated Risk on 11/13/2019 06:48:00 PM

Thursday:
• At 8:30 AM, The initial weekly unemployment claims report will be released. The consensus is for 215,000 initial claims, up from 211,000 last week.

• At 8:30 AM, The Producer Price Index for October from the BLS. The consensus is for a 0.3% increase in PPI, and a 0.2% increase in core PPI.

• At 10:00 AM, Testimony, Fed Chair Jerome Powell, The Economic Outlook, Before the House Budget Committee, Washington, D.C.

by Calculated Risk on 11/13/2019 01:33:00 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 0.2% (2.3% annualized rate) in October. The 16% trimmed-mean Consumer Price Index rose 0.3% (3.6% 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 0.4% (4.4% annualized rate) in October. The CPI less food and energy rose 0.2% (1.9% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed released the median CPI details for October here. Motor fuel was up 53% annualized.

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 3.0%, the trimmed-mean CPI rose 2.4%, and the CPI less food and energy rose 2.3%. Core PCE is for September and increased 1.7% year-over-year.

On a monthly basis, median CPI was at 2.3% annualized and trimmed-mean CPI was at 3.6% annualized.

Overall, these measures are mostly above the Fed's 2% target (Core PCE is below 2%).

by Calculated Risk on 11/13/2019 11:16:00 AM

From the NY Fed: Household Debt Continues to Climb in Third Quarter as Mortgage and Auto Loan Originations Grow

he Federal Reserve Bank of New York’s Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit, which shows that total household debt increased by $92 billion (0.7%) to $13.95 trillion in the third quarter of 2019. This marks the 21st consecutive quarter with an increase, and the total is now $1.3 trillion higher, in nominal terms, than the previous peak of $12.68 trillion in the third quarter of 2008. The Report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data.
…
“New credit extensions were strong in the third quarter of 2019, with auto loan originations reaching near-record highs and mortgage originations increasing significantly year-over-year,” said Donghoon Lee, research officer at the New York Fed. “The data suggest that households are taking advantage of a low-interest rate environment to secure credit.”
emphasis added

Click on graph for larger image.

Here are two graphs from the report:

The first graph shows aggregate consumer debt increased in Q3.  Household debt previously peaked in 2008, and bottomed in Q2 2013.

From the NY Fed:

Mortgage balances shown on consumer credit reports on September 30 stood at $9.44 trillion, a $31 billion increase from 2019Q2. Balances on home equity lines of credit (HELOC) have been declining since 2009, and this quarter’s decline of $3 billion brings the outstanding balance to $396 billion. Non-housing balances increased by 64 billion in the third quarter, with increases across the board, including $18 billion in auto loans, $13 billion in credit card balances, and $20 billion in student loans.

New extensions of credit were strong for the third quarter. Auto loan originations, which include both newly opened loans and leases, remained high in the third quarter, at $159 billion, a small increase from the last quarter’s volume but the second highest ever observed. Mortgage originations, which we measure as appearances of new mortgage balances on consumer credit reports and which include refinances, were at $528 billion, a notable jump from the $445 billion seen in the same quarter last year. Aggregate credit limits on credit cards also increased, by $27 billion, continuing a 10-year upward trend

The second graph shows the percent of debt in delinquency.

The overall delinquency rate increased in Q3.  From the NY Fed:

Aggregate delinquency rates worsened in the third quarter of 2019. As of September 30, 4.8% of outstanding debt was in some stage of delinquency, a 0.4 percentage point increase from the second quarter due primarily to increases in early delinquency buckets. Of the $667 billion of debt that is delinquent, $424 billion is seriously delinquent (at least 90 days late or “severely derogatory”, which includes some debts that have previously been charged off that the lenders continue to attempt collection).

There is much more in the report.

by Calculated Risk on 11/13/2019 10:54:00 AM

Testimony from Fed Chair Jerome Powell Before the Joint Economic Committee, U.S. Congress, Washington, D.C.: The Economic Outlook. Excerpts:

The U.S. economy is now in the 11th year of this expansion, and the baseline outlook remains favorable. Gross domestic product increased at an annual pace of 1.9 percent in the third quarter of this year after rising at around a 2.5 percent rate last year and in the first half of this year. The moderate third-quarter reading is partly due to the transitory effect of the United Auto Workers strike at General Motors. But it also reflects weakness in business investment, which is being restrained by sluggish growth abroad and trade developments. These factors have also weighed on exports and manufacturing this year. In contrast, household consumption has continued to rise solidly, supported by a healthy job market, rising incomes, and favorable levels of consumer confidence. And reflecting the decline in mortgage rates since late 2018, residential investment turned up in the third quarter following an extended period of weakness.
…
Inflation continues to run below the Federal Open Market Committee's (FOMC) symmetric 2 percent objective. The total price index for personal consumption expenditures (PCE) increased 1.3 percent over the 12 months ending in September, held down by declines in energy prices. Core PCE inflation, which excludes food and energy prices and tends to be a better indicator of future inflation, was 1.7 percent over the same period.

Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2 percent objective as most likely. This favorable baseline partly reflects the policy adjustments that we have made to provide support for the economy. However, noteworthy risks to this outlook remain. In particular, sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks. Moreover, inflation pressures remain muted, and indicators of longer-term inflation expectations are at the lower end of their historical ranges. Persistent below-target inflation could lead to an unwelcome downward slide in longer-term inflation expectations. We will continue to monitor these developments and assess their implications for U.S. economic activity and inflation.
emphasis added