by Calculated Risk on 12/29/2019 06:29:00 PM

Weekend:
• Schedule for Week of December 29, 2019

Monday:
• At 9:45 AM ET, Chicago Purchasing Managers Index for December.

• At 10:00 AM, Pending Home Sales Index for November. The consensus is for a 1.1% increase in the index.

• At 10:30 AM, Dallas Fed Survey of Manufacturing Activity for December. This is the last of regional manufacturing surveys for December.

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

Oil prices were up over the last week with WTI futures at $61.71 per barrel and Brent at $68.16 barrel.  A year ago, WTI was at $46, and Brent was at $51 - so oil prices are up over 30% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.57 per gallon. A year ago prices were at $2.26 per gallon, so gasoline prices are up 31 cents year-over-year.

by Calculated Risk on 12/29/2019 11:19:00 AM

Note: Surferdude808 compiles an unofficial list of Problem Banks compiled only from public sources. DISCLAIMER: This is an unofficial list, the information is from public sources and while deemed to be reliable is not guaranteed. No warranty or representation, expressed or implied, is made as to the accuracy of the information contained herein and same is subject to errors and omissions. This is not intended as investment advice. Please contact CR with any errors.

Here is the unofficial problem bank list for December 2019.

Here are the monthly changes and a few comments from surferdude808:

Update on the Unofficial Problem Bank List for December2019. During the month, the list increased by two to 67 institutions after one removal and three additions. Assets increased by $104 million to $51.1 billion. A year ago, the list held 78 institutions with assets of $53.9 billion.

This month, the action against The First National Bank of Scott City, Scott City, KS ($116 million) was terminated. Added this month was First National Bank in Fairfield, Fairfield, IA ($145 million); KansasLand Bank, Quinter, KS ($53 million); and The First National Bank of Fleming, Fleming, CO ($22 million). The FDIC issued a Prompt Corrective Action order against The Farmers Bank, Carnegie, OK ($91 million).

With the conclusion of the fourth quarter, we bring an updated transition matrix to detail how banks are transitioning off the Unofficial Problem Bank List. Since the Unofficial Problem Bank List was first published on August 7, 2009 with 389 institutions, 1,757 institutions have appeared on a weekly or monthly list since the start of publication. Only 3.8 percent of the banks that have appeared on a list remain today as 1,690 institutions have transitioned through the list. Departure methods include 996 action terminations, 409 failures, 266 mergers, and 19 voluntary liquidations. Of the 389 institutions on the first published list, only 5 or 1.3 percent, are still designated as being in a troubled status more than ten years later. The 409 failures represent 23.3 percent of the 1,757 institutions that have made an appearance on the list. This failure rate is well above the 10-12 percent rate frequently cited in media reports on the failure rate of banks on the FDIC's official list.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	180	(68,469,804)
	Unassisted Merger	41	(10,072,112)
	Voluntary Liquidation	5	(10,672,586)
	Failures	158	(186,397,337)
	Asset Change		587,539
Still on List at 12/31/2019		5	1,289,129
Additions after 8/7/2009		62	49,858,328
End (12/31/2019)		67	51,147,457
Intraperiod Removals1
	Action Terminated	816	326,978,159
	Unassisted Merger	225	84,625,963
	Voluntary Liquidation	14	2,558,186
	Failures	251	125,351,580
	Total	1,306	539,513,888
1Institution not on 8/7/2009 or 12/31/2019 list but appeared on a weekly list.

by Calculated Risk on 12/28/2019 08:11:00 AM

Happy New Year! Wishing you all the best in 2020.

The key indicators include this week are Case-Shiller House Prices for October and the December ISM manufacturing index.

----- Monday, Dec 30th -----
9:45 AM: Chicago Purchasing Managers Index for December.

10:00 AM: Pending Home Sales Index for November. The consensus is for a 1.1% increase in the index.

10:30 AM: Dallas Fed Survey of Manufacturing Activity for December. This is the last of regional manufacturing surveys for December.

----- Tuesday, Dec 31st -----
9:00 AM: FHFA House Price Index for October 2019. This was originally a GSE only repeat sales, however there is also an expanded index.

9:00 AM ET: S&P/Case-Shiller House Price Index for October.

This graph shows graph shows the Year over year change in the seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the most recent report (the Composite 20 was started in January 2000).

The consensus is for a 3.2% year-over-year increase in the National index for October.

----- Wednesday, Jan 1st -----
All US markets will be closed in observance of the New Year's Day Holiday.

----- Thursday, Jan 2nd -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 227,000 initial claims, up from 222,000 last week.

----- Friday, Jan 3rd -----
10:00 AM: ISM Manufacturing Index for December. The consensus is for the ISM to be at 49.0, up from 48.1 in November.

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

The PMI was at 48.1% in November, the employment index was at 46.6%, and the new orders index was at 47.2%.

10:00 AM: Construction Spending for November. The consensus is for a 0.3% increase in construction spending.

All day: Light vehicle sales for December. The consensus is for light vehicle sales to be 17.0 million SAAR in December, down from 17.1 million in November (Seasonally Adjusted Annual Rate).

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

by Calculated Risk on 12/27/2019 05:46:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 21 Decembe

he U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 15-21 December 2019, according to data from STR.

In comparison with the week of 16-22 December 2018, the industry recorded the following:

• Occupancy: +5.9% to 50.1%
• Average daily rate (ADR): +1.8% to US$108.96
• Revenue per available room (RevPAR): +7.8% to US$54.55
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).

A solid finish to the year puts the average occupancy rate in 2019 just behind the record rate in 2018.   Another strong year for hotels.

Seasonally, the 4-week average of the occupancy rate will decline into January.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 12/27/2019 12:57:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for November 2019. Over the past three months, the indexes increased in 42 states, decreased in five states, and remained stable in three, for a three-month diffusion index of 74. In the past month, the indexes increased in 39 states, decreased in nine states, and remained stable in two, for a one-month diffusion index of 60
emphasis added

Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and all or mostly green during most of the recent expansion.

The map is mostly green on a three month basis, but there are some red and gray states.

Source: Philly Fed.

Note: For complaints about red / green issues, please contact the Philly Fed.

And here is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In November, 40 states had increasing activity including states with minor increases.

by Calculated Risk on 12/27/2019 11:54:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2020. I'm adding some thoughts, and maybe some predictions for each question.

6) Inflation: By some measures, inflation rate has increased and is now slightly above the Fed's 2% target. However core PCE was only up 1.6% YoY through November. Will the core inflation rate rise in 2020? Will too much inflation be a concern in 2020?

Although there are different measure for inflation (including some private measures) they mostly show inflation slightly above the Fed's 2% inflation target.  Core PCE was below the target at 1.6% YoY in November.

Note:  I follow several measures of inflation, median CPI and trimmed-mean CPI from the Cleveland Fed.  Core PCE prices (monthly from the BEA) and core CPI (from the BLS).

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 2.9%, the trimmed-mean CPI rose 2.4%, and the CPI less food and energy rose 2.3%. Core PCE is for October and increased 1.6% year-over-year.

On a monthly basis, median CPI was at 2.9% annualized and trimmed-mean CPI was at 3.1% annualized.

The Fed is projecting core PCE inflation will increase to 1.9% to 2.0% by Q4 2020.  There are risks for higher inflation with the labor market near full employment, however I do think there are structural reasons for low inflation (demographics, few employment agreements that lead to wage-price-spiral, etc).

So, although I think core PCE inflation (year-over-year) will increase a little in 2020 (from the current 1.6%), I think too much inflation will still not be a serious concern in 2020.

Here are the Ten Economic Questions for 2020 and a few predictions:

• Question #1 for 2020: How much will the economy grow in 2020?
• Question #2 for 2020: Will job creation in 2020 be as strong as in 2019?
• Question #3 for 2020: What will the unemployment rate be in December 2020?
• Question #4 for 2020: Will the overall participation rate start declining in 2020, or will it move more sideways (or slightly up) in 2020?
• Question #5 for 2020: How much will wages increase in 2020?
• Question #6 for 2020: Will the core inflation rate rise in 2020? Will too much inflation be a concern in 2020?
• Question #7 for 2020: Will the Fed cut or raise rates in 2020, and if so, by how much?
• Question #8 for 2020: How much will RI increase in 2020? How about housing starts and new home sales in 2020?
• Question #9 for 2020: What will happen with house prices in 2020?
• Question #10 for 2020: Will housing inventory increase or decrease in 2020?

by Calculated Risk on 12/27/2019 09:30:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2020. I'm adding some thoughts, and maybe some predictions for each question.

7) Monetary Policy:  The Fed cut rates three times in 2019.  Currently the Fed is forecasting a long pause in 2020 (no change to policy).   Will the Fed cut or raise rates in 2020, and if so, by how much?

The Fed raised rates once in 2015, once again in 2016, three times in 2017, and four times in 2018.   And then the Fed cut rates three times in 2019.  Currently the target range for the federal funds rate is 1‑1/2 to 1-3/4 percent.

There is a narrow range of views on the FOMC.  As of December, looking at the "dot plot", the FOMC participants see the following number of rate cuts or hikes in 2020:

25bp Rate Hikes or Cuts in 2020	FOMC Members
One Rate Cut	0
No Change	13
One Rate Hike	4

Clearly the main view of the FOMC is no change in policy in 2020.

With core PCE inflation below the Fed's target, and around 2% GDP growth - the Fed will likely stay on hold in the first half of the year.   Then, if there is a change in policy, it will likely happen after the election at the December meeting (as happened in 2016).

So my guess is the Fed will stay on hold in 2020 and the FOMC will keep the federal funds rate at 1‑1/2 to 1-3/4 percent.   If there is a change in policy, it will likely happen in December.

Here are the Ten Economic Questions for 2020 and a few predictions:

• Question #1 for 2020: How much will the economy grow in 2020?
• Question #2 for 2020: Will job creation in 2020 be as strong as in 2019?
• Question #3 for 2020: What will the unemployment rate be in December 2020?
• Question #4 for 2020: Will the overall participation rate start declining in 2020, or will it move more sideways (or slightly up) in 2020?
• Question #5 for 2020: How much will wages increase in 2020?
• Question #6 for 2020: Will the core inflation rate rise in 2020? Will too much inflation be a concern in 2020?
• Question #7 for 2020: Will the Fed cut or raise rates in 2020, and if so, by how much?
• Question #8 for 2020: How much will RI increase in 2020? How about housing starts and new home sales in 2020?
• Question #9 for 2020: What will happen with house prices in 2020?
• Question #10 for 2020: Will housing inventory increase or decrease in 2020?

by Calculated Risk on 12/26/2019 04:05:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2020. I'm adding some thoughts, and maybe some predictions for each question.

8) Residential Investment: Residential investment (RI) picked up in the second half of 2019, and new home sales were up about 10% in 2019 compared to 2018.  Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales.  How much will RI increase in 2020?  How about housing starts and new home sales in 2020?

First a graph of RI as a percent of Gross Domestic Product (GDP) through Q3 2019:

Click on graph for larger image.

Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the start of the recovery was sluggish.

Residential investment finally turned positive during 2011 and made a solid positive contribution to GDP every year through 2017.  However RI as a percent of GDP declined in late 2018 and early 2019.

We don't have the data yet for Q4 2019 yet, but it appears RI will make only a small contribution to GDP (probably slightly negative) in 2019.

Note that RI as a percent of GDP is still low and close to the lows of previous recessions.

The second graph shows total and single family housing starts through November 2019.

Housing starts are up 0.6% through November 2019 compared to the same period in 2018, and are on pace to increase just over 1% in 2019.

Even after the significant increase over the last several years, the approximately 1.27 million housing starts in 2019 will still be the 20th lowest on an annual basis since the Census Bureau started tracking starts in 1959  (61 total years).  The seven lowest years were 2008 through 2014, and the other lower years were the bottoms of previous recessions.

The third graph shows New Home Sales since 1963 through November 2019. The dashed line is the November sales rate.

New home sales in 2019, through November, were up 9.8% compared to the same period in 2018.   Sales will probably finish up more than 10% year-over-year.

Here is a table showing housing starts and new home sales since 2005. No one should expect an increase to 2005 levels, however demographics and household formation suggest starts will increase further this cycle.

Housing Starts and New Home Sales (000s)
	Housing Starts	Change	New Home Sales	Change
2005	2,068	---	1,283	---
2006	1,801	-12.9%	1,051	-18.1%
2007	1,355	-24.8%	776	-26.2%
2008	906	-33.2%	485	-37.5%
2009	554	-38.8%	375	-22.7%
2010	587	5.9%	323	-13.9%
2011	609	3.7%	306	-5.3%
2012	781	28.2%	368	20.3%
2013	925	18.5%	429	16.6%
2014	1,003	8.5%	437	1.9%
2015	1,112	10.9%	501	14.7%
2016	1,174	5.6%	561	12.0%
2017	1,203	2.5%	613	9.3%
2018	1,250	3.9%	617	0.7%
20191	1,266	1.3%	679	10.0%
12019 estimated

Most analysts are looking for starts and new home sales to increase further in 2020. For example,  Fannie Mae is forecasting an increase in starts to 1.351 million, and for new home sales to increase to 725 thousand in 2020.

Note that New Home sales have averaged 717 thousand over the last four months on seasonally adjust annual rate (SAAR) basis.   So an increase to 725 thousand for 2020 isn't a large increase over the recent sales rate.  And housing starts have average 1.332 million over the same period.

My sense is the pickup that happened in the second half of 2019 will continue, and my guess is starts will be up year-over-year in 2020 by mid-to-high single digits.  My guess is new home sales will be over 700 thousand in 2020 (for the first time since 2007) and will also be up mid-to-high single digits.

Here are the Ten Economic Questions for 2020 and a few predictions:

• Question #1 for 2020: How much will the economy grow in 2020?
• Question #2 for 2020: Will job creation in 2020 be as strong as in 2019?
• Question #3 for 2020: What will the unemployment rate be in December 2020?
• Question #4 for 2020: Will the overall participation rate start declining in 2020, or will it move more sideways (or slightly up) in 2020?
• Question #5 for 2020: How much will wages increase in 2020?
• Question #6 for 2020: Will the core inflation rate rise in 2020? Will too much inflation be a concern in 2020?
• Question #7 for 2020: Will the Fed cut or raise rates in 2020, and if so, by how much?
• Question #8 for 2020: How much will RI increase in 2020? How about housing starts and new home sales in 2020?
• Question #9 for 2020: What will happen with house prices in 2020?
• Question #10 for 2020: Will housing inventory increase or decrease in 2020?

by Calculated Risk on 12/26/2019 01:53:00 PM

By request, here is an update to the chart showing market performance under Presidents Trump and Obama.

CR Note: I don't think the stock market is a great measure of policy performance, but some people do - and I'm having a little fun with them.

There are some observers who think the stock market is the key barometer of policy success.  My view is there are many measures of success - and that the economy needs to work well for a majority of the people - not just stock investors.

However, for example, Treasury Secretary Steven Mnuchin was on CNBC on Feb 22, 2017, and was asked if the stock market rally was a vote of confidence in the new administration, he replied: "Absolutely, this is a mark-to-market business, and you see what the market thinks."

And Larry Kudlow wrote in 2007: A Stock Market Vote of Confidence for Bush: "I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today's stock market message is an unmistakable vote of confidence for the president."

Note: Kudlow's comments were made a few months before the market started selling off in the Great Recession. For more on Kudlow, see: Larry Kudlow is usually wrong

And from White House chief economic advisor Gary Cohn on December 20, 2017:

"I think there is a lot more momentum in the stock market. ... "The stock market is reflecting the reality of what's going in the business environment today," said Cohn, director of the National Economic Council. "There is going to be a continuation [of the] rally in the equity markets based on real underlying fundamentals of the U.S. economy ... as well as companies having more earnings power because of lower tax rates."

For fun, here is a graph comparing S&P500 returns (ex-dividends) under Presidents Trump and Obama:

Click on graph for larger image.

Blue is for Mr. Obama, Orange is for Mr. Trump.

At this point, the S&P500 is up 42% under Mr. Trump - compared to up 54% under Mr. Obama for the same number of market days.

If the S&P returns 29.5% from today until the end of Mr. Trump's current term (in January 2021), that would match the gains under Mr. Obama's first term.

by Calculated Risk on 12/26/2019 10:50:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2020. I'm adding some thoughts, and maybe some predictions for each question.

9) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, CoreLogic) - will be up around 3.5% in 2019, down from close to 5% YoY in November 2018.  What will happen with house prices in 2020?

The following graph shows the year-over-year change through September 2018 (Prices for October 2019 will be released next week), in the seasonally adjusted Case-Shiller Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

Click on graph for larger image.

The Composite 10 SA was up 1.6% compared to September 2018, the Composite 20 SA was up 2.1% and the National index SA was up 3.2% year-over-year.  Other house price indexes have indicated similar gains (see table below).

The price increases in 2019 were lower than in 2018, however YoY price growth picked up slightly towards the end of 2019.

Although I mostly use Case-Shiller, I also follow several other price indexes. The following table shows the year-over-year change for several house prices indexes.

Year-over-year Change for Various House Price Indexes
Index	Through	Increase
Case-Shiller Comp 20	Sept-19	2.1%
Case-Shiller National	Sept-19	3.2%
CoreLogic	Oct-18	3.5%
FHFA Purchase Only, Freddie and Fannie	Sept-18	5.1%

Inventories will probably remain at about the same level in 2020, and will probably still be somewhat low historically.

Low inventories, and a decent economy suggests further price increases in 2020.

Last year I wrote:

"[I]t seems likely that price appreciation will slow [in 2019] to the low single digits - maybe around 3%."

That happened in 2019, however now I expect some pickup in price increases from the lower mortgage rates in 2020.

If inventory remains at close to the same level, it seems likely that price appreciation will increase from the 2019 pace to the mid-single digits.

Here are the Ten Economic Questions for 2020 and a few predictions:

• Question #1 for 2020: How much will the economy grow in 2020?
• Question #2 for 2020: Will job creation in 2020 be as strong as in 2019?
• Question #3 for 2020: What will the unemployment rate be in December 2020?
• Question #4 for 2020: Will the overall participation rate start declining in 2020, or will it move more sideways (or slightly up) in 2020?
• Question #5 for 2020: How much will wages increase in 2020?
• Question #6 for 2020: Will the core inflation rate rise in 2020? Will too much inflation be a concern in 2020?
• Question #7 for 2020: Will the Fed cut or raise rates in 2020, and if so, by how much?
• Question #8 for 2020: How much will RI increase in 2020? How about housing starts and new home sales in 2020?
• Question #9 for 2020: What will happen with house prices in 2020?
• Question #10 for 2020: Will housing inventory increase or decrease in 2020?