by Calculated Risk on 11/29/2019 11:21:00 AM

From Jan Freitag at HotelNewsNow: Consecutive RevPAR dips make it official: Upcycle over

Let’s look at what we know: RevPAR has now declined two months in a row—three months in the last year, and four months in the prior 13 months. Because everyone likes a record, we keep counting RevPAR growth months and are now at 112 out of the last 116 months.

That 112 months count is the record we had wanted and deserved, right? But of course it is fuzzy math since it was already back in the golden days of September 2018 that RevPAR declined for the first time—102 months since the RevPAR rocket took off in March 2010. Then RevPAR declined again in June (positive months counter: 110), September (112) and now October (112, still).

Is the upcycle over? Yes, it is. Two consecutive months of RevPAR decline are proof. But the other reality is this: annualized RevPAR will likely not decline at all in this cycle. So maybe, if you judge by year-end results, this cycle is not over at all. Our friends from Tourism Economics are clear about their conviction that GDP growth will continue to be positive, with no recession in sight, and this then fuels positive RevPAR growth. Our new 2020 RevPAR growth forecast isn’t pretty, but it’s realistic and realistically positive at +0.5%.

To get to that number, though, I would expect gyrations around the 0% point, meaning we will see plenty more months of mild RevPAR declines balanced by months with tepid RevPAR gains. That is the future we face, and the reality we already live in.

I guess the takeaway from this latest RevPAR decline is simply to heed Douglas Adams’ warning in The Hitchhiker’s Guide to the Galaxy: “Don’t Panic,” inscribed in large friendly letters on its cover.
emphasis added

by Calculated Risk on 11/28/2019 08:11:00 AM

With a Hat Tip to Neil Irwin (he started doing this several years ago) ... here are five economic reasons to be thankful this Thanksgiving ...

1) Low unemployment rate.

The unemployment rate was at 3.6% in October. The unemployment rate is down from 3.8% in October 2018 (a year ago), and is down from the cycle peak of 10.0% in October 2009.

Click on graph for larger image.

This is almost the lowest level for the unemployment rate since 1969 (the unemployment rate was at 3.5% in September)!

Also, this is the largest decline in the unemployment rate, from cycle peak-to-trough, since the BLS started tracking the unemployment rate in 1948.  (In the early '80s, the unemployment rate declined from 10.8% to 5.0%; a decline of 5.8 percentage points.  The current decline from 10.0% to 3.5% in September is 6.5 percentage points!)

2) Low unemployment claims.

The number of new claims for unemployment insurance benefits is close to the lowest level since the 1960s (with a much smaller population back then).  The four week average of new unemployment has fallen to 220,000, about the same as a year ago, and down from the peak of 660,000 during the great recession.

Here is a graph of initial weekly unemployment claims.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims is at 219,750.

The low level of claims suggests relatively few layoffs.

3) Job Openings Near Series High.

There were 7.0 million job openings in September. This is still solid, but down from 7.6 million in September 2018.

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

For the nineteenth consecutive month, there were more job openings than people unemployed. Also note that the number of job openings has exceeded the number of hires since January 2015 (almost 5 years).

Also Quits are up 3% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

A large number of job openings, and rising quits, are positive signs for the labor market.

4) New Home sales are at a Cycle High.

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

New home sales were at 733 thousand SAAR (Seasonally Adjusted Annual Rate) in October, and 738 thousand SAAR in September (highest since July 2007).

Sales were up from 557 thousand SAAR in October 2017, and up from the cycle low of 270 thousand SAAR in February 2011.

Since New Home sales are an excellent leading indicator for the economy, the new cycle high suggests no recession in the next year.

5) Household Debt burdens are near record lows.

Household debt burdens have declined sharply since the great recession.

The Household debt service ratio was at 13.2% in 2007, and has fallen to a series low of 9.69% in Q2 2019 (most recent data).

The graph, based on data from the Federal Reserve, shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio decreased in Q2 2018, and has been mostly moving sideways and is at a series low.  Note: The financial obligation ratio (FOR) declined in Q2 and is also near a series low (not shown).

The DSR for mortgages (blue) is also at a series low (since at least 1980).  This ratio increased rapidly during the housing bubble, and continued to increase until 2007.

This data suggests aggregate household cash flow has improved.

Happy Thanksgiving to All!

by Calculated Risk on 11/27/2019 04:28:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency decreased slightly to 0.67% in October, from 0.68% in September. The serious delinquency rate is down from 0.79% in October 2018.

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

This matches the delinquency rate in July and August of this year, as the lowest serious delinquency rate for Fannie Mae since June 2007.

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), 2.51% are seriously delinquent. For loans made in 2005 through 2008 (4% of portfolio), 4.25% 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.

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.

by Calculated Risk on 11/27/2019 03:21:00 PM

The Case-Shiller house price indexes for September 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: September Case-Shiller Results and October Forecast: Steady as She Goes

The S&P CoreLogic Case-Shiller U.S. National Home Price Index® rose 3.2% year-over-year in September (non-seasonally adjusted), up from 3.1% in August. Annual growth in the smaller 10-city index was unchanged from August, and was up slightly in the 20-city index (to 2.1%, from 2% in August).
…
In the meantime, annual growth in October as reported by Case-Shiller is expected to stay steady in all three major indices. S&P Dow Jones Indices is expected to release data for the October S&P CoreLogic Case-Shiller Indices on Tuesday, Dec. 31.

The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be at 3.2% in October, the same as 3.2% in September.

The Zillow forecast is for the 20-City index to be unchanged at 2.1% YoY in October from 2.1% in September, and for the 10-City index to decline to 1.5% YoY compared to 1.5% YoY in September.

by Calculated Risk on 11/27/2019 10:12:00 AM

The BEA released the Personal Income and Outlays report for October:

Personal income increased $3.3 billion (less than 0.1 percent) in October according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) decreased $12.6 billion (-0.1 percent) and personal consumption expenditures (PCE) increased $39.7 billion (0.3 percent).

Real DPI decreased 0.3 percent in October and Real PCE increased 0.1 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.

The October PCE price index increased 1.3 percent year-over-year and the October PCE price index, excluding food and energy, increased 1.6 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through October 2019 (2012 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was below expectations,  and the increase in PCE was at expectations.

Note that core PCE inflation was below expectations.

by Calculated Risk on 11/27/2019 10:04:00 AM

From the NAR: Pending Home Sales Decline 1.7% in October

Pending home sales retreated in October, taking a slight step back after two prior months of increases, according to the National Association of Realtors®. The Northeast experienced a minor uptick last month, but the other three major U.S. regions reported declines in month-over-month contract activity. However, pending home sales were up nationally and up in all regions compared to a year ago.

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, fell 1.7% to 106.7 in October. Year-over-year contract signings jumped 4.4%. An index of 100 is equal to the level of contract activity in 2001.
...
With the exception of the Northeast, all regional indices saw declines in October. The PHSI in the Northeast rose 1.9% to 95.7 in October, 3.0% higher than a year ago. In the Midwest, the index slid 2.7% to 101.4 last month, 1.8% higher than in October 2018.

Pending home sales in the South decreased 1.7% to an index of 125.3 in October, a 5.1% increase from last October. The index in the West declined 3.4% in October 2019 to 91.9, which is an increase of 7.5% from 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 November and December.

by Calculated Risk on 11/27/2019 08:41:00 AM

The DOL reported:

In the week ending November 23, the advance figure for seasonally adjusted initial claims was 213,000, a decrease of 15,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 227,000 to 228,000. The 4-week moving average was 219,750, a decrease of 1,500 from the previous week's revised average. The previous week's average was revised up by 250 from 221,000 to 221,250.
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 219,750.

This was lower than the consensus forecast.

by Calculated Risk on 11/27/2019 08:36:00 AM

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

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the third quarter of 2019, according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.0 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 1.9 percent. With the second estimate for the third quarter, upward revisions to private inventory investment, nonresidential fixed investment, and personal consumption expenditures (PCE) were partially offset by a downward revision to state and local government spending.
emphasis added

PCE growth was unrevised at 2.9%. Residential investment was unrevised at 5.1%.

Here is a Comparison of Second and Advance Estimates.

by Calculated Risk on 11/27/2019 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 November 22, 2019. This week’s results are being compared to the week of Thanksgiving 2018.

... The Refinance Index increased 4 percent from the previous week and was 314 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 4 percent compared with the previous week and was 55 percent higher than the same week one year ago.
...
“Mortgage rates stayed below 4 percent for the second straight week and borrowers responded positively, with mortgage applications rising 1.5 percent on the back of increases in both refinance and purchase activity,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Refinances have been strong this month, but we are starting to see the average pace slow compared to the peak experienced in August through October.”

Added Kan, “The annual increase in refinance and purchase activity was even more prominent in this report because Thanksgiving was a week earlier last year. However, with roughly five weeks of reporting data left in 2019, the mortgage market is on track for its best year for originations since 2007.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 3.97 percent from 3.99 percent, with points decreasing to 0.30 from 0.33 (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.

With lower rates, we saw a sharp increase in refinance activity, but mortgage rates would have to decline further to see a huge refinance boom.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 55% year-over-year unadjusted for the Thanksgiving holiday.

by Calculated Risk on 11/26/2019 07:46:00 PM

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

• At 8:30 AM, The initial weekly unemployment claims report will be released. The consensus is for 219,000 initial claims, down from 227,000 last week.

• At 8:30 AM, Gross Domestic Product, 3nd quarter 2018 (Second estimate). The consensus is that real GDP increased 1.9% annualized in Q3, unchanged from the advance estimate of GDP.

• At 8:30 AM, Durable Goods Orders for October from the Census Bureau. The consensus is for a 0.7% decrease in durable goods orders.

• At 9:45 AM, Chicago Purchasing Managers Index for November.

• At 10:00 AM, Personal Income and Outlays for October. The consensus is for a 0.3% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 10:00 AM, Pending Home Sales Index for October. The consensus is for a 0.2% increase in the index.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.