by Calculated Risk on 3/26/2020 11:16:00 AM

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

Showing further effects of the COVID-19 pandemic, the U.S. hotel industry reported significant year-over-year declines in the three key performance metrics during the week of 15-21 March 2020, according to data from STR.

In comparison with the week of 17-23 March 2019, the industry recorded the following:

• Occupancy: -56.4% to 30.3%
• Average daily rate (ADR): -30.2% to US$93.41
• Revenue per available room (RevPAR): -69.5% to US$28.32

“RevPAR decreases are at unprecedented levels—worse than those seen during 9/11 and the financial crisis,” said Jan Freitag, STR’s senior VP of lodging insights. “Seven of 10 rooms were empty around the country. That average is staggering on its own, but it’s tougher to process when you consider that occupancy will likely fall further. With most events cancelled around the nation, group occupancy was down to one percent with a year-over-year RevPAR decline of 96.6%. The industry is no doubt facing a situation that will take a concerted effort by brands, owners and the government to overcome.”
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 2020, dash light blue is 2019, blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

2020 was off to a solid start, however, COVID-19 has crushed hotel occupancy.

This is the lowest weekly occupancy on record, even considering seasonality, and STR expects occupancy rates to fall further.  Note the graph is a 4-week average.

by Calculated Risk on 3/26/2020 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Declined Sharply

The Federal Reserve Bank of Kansas City released the March 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 declined sharply from a month ago, and expectations for future activity fell to levels last seen in early 2009.

“Regional factory activity contracted sharply in March as firms were negatively impacted by COVID-19,” said Wilkerson. “Many firms indicated overall demand and sales have slowed dramatically, with capital investments being put on hold. Around 60 percent of manufacturers faced delayed payments from customers and 54 percent had concerns about cash availability.”
...
The month-over-month composite index was -17 in March, the lowest composite reading since April 2009, and down considerably from 5 in February and -1 in January. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.
emphasis added

The last of the regional surveys for March will be released on Monday (Dallas Fed), and I expect the Texas region will be hit hard.

by Calculated Risk on 3/26/2020 08:47:00 AM

From the BEA: Gross Domestic Product, Fourth Quarter and Year 2019 (Third Estimate); Corporate Profits, Fourth Quarter and Year 2019

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the fourth quarter of 2019, according to the "third" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP also increased 2.1 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 2.1 percent. In the third estimate, an upward revision to personal consumption expenditures (PCE) was largely offset by downward revisions to federal government spending and nonresidential fixed investment.
emphasis added

PCE growth was revised up to 1.8% from 1.7% in the second estimate. Residential investment was revised up to 6.5% from 6.2%.

Here is a Comparison of Third and Second Estimates.

by Calculated Risk on 3/26/2020 08:35:00 AM

The DOL reported:

In the week ending March 21, the advance figure for seasonally adjusted initial claims was 3,283,000, an increase of 3,001,000 from the previous week's revised level. This marks the highest level of seasonally adjusted initial claims in the history of the seasonally adjusted series. The previous high was 695,000 in October of 1982. The previous week's level was revised up by 1,000 from 281,000 to 282,000. The 4-week moving average was 998,250, an increase of 765,750 from the previous week's revised average. The previous week's average was revised up by 250 from 232,250 to 232,500.
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 increased to 998,250.

This was much higher than the consensus forecast.

This week initial claims skyrocketed, and next week continued claims will follow.

The second graph shows seasonally adjust continued claims since 1967.

At the worst of the Great Recession, continued claims peaked at 6.635 million, but then steadily declined.

Over the next few weeks, continued claims will increase rapidly to a new record high, and then will likely stay at that high level until the crisis abates.

by Calculated Risk on 3/25/2020 08:49:00 PM

With the sudden stop in the economy, initial weekly unemployment claims will set an all time record this week, and will be huge next week too.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for a huge number of initial claims, up from 281 thousand the previous week.

• Also at 8:30 AM, Gross Domestic Product, 4th quarter 2019 (Third estimate). The consensus is that real GDP increased 2.1% annualized in Q4, the same as the second estimate of 2.1%.

• At 11:00 AM, the Kansas City Fed manufacturing survey for March.

by Calculated Risk on 3/25/2020 04:53:00 PM

Tests per day is a key number to track (along with actual cases and, sadly, deaths). But total tests were a key for South Korea slowing the spread of COVID-19. South Korea has been conducting 15,000 to 20,000 tests per day with a 51 million population, so the US needs to test around 130,000 per day.

Note: NYC and LA have stopped testing mild cases due to resource constraints. Hopefully testing will continue to improve, and we can test more people - this is important for test-and-trace.

The US conducted 74,384 tests in the last 24 hours.

Note: About 16% of tests were positive in the most recent report (some are still pending). The high percentage of positives indicates limited testing.   For Test-and-trace to be effective, the percent positive would probably be at 5% or less.

Click on graph for larger image.

This data is from the COVID Tracking Project. Some states could do a better job of reporting the number of tests - so this is probably low.

Testing is improving, but needs to still increase significantly from here to be sufficient for test-and-trace.

Test. Test. Test. But protect our healthcare workers first!

by Calculated Risk on 3/25/2020 11:31:00 AM

Based on the experiences of other countries, it appears the number of cases per day (and deaths per day) will peak about 2 to 3 weeks after well observed shelter-in-place orders are issued (some areas are reporting less than 2 weeks - that would be great).

In some areas of the United States, shelter-in-place orders were issued a week or more ago. In some states and communities, orders have still not been issued.

Based on the experience in China, it appears the recovery can start in about 40 days after a national shelter-in-place - if certain rules are in place.

So here is a suggested 40-day plan to start recovery:

Today:

1. The Federal Government should ask all states to order Shelter-in-place (except for essential workers and businesses).  This starts the clock across the country.

2. Use the Defense Production Act to increase supply of Personal Protection Equipment (PPE).   We must protect our healthcare workers.  This includes masks, gowns, face shields, and other protective equipment - and also medical equipment, primarily ventilators and ICU beds.

3. Sign Disaster relief fiscal policy into law.   This will help Americans impacted by this national disaster.

4. Name a head of a national Test-and-Trace-and-Quarantine task force.   Start putting in place the necessary manpower and tools to conduct test-and-trace when testing capacity (and sufficient PPE) allows for testing all contacts of anyone who has tested positive.   We can't do this surveillance testing today due to lack of testing capacity and insufficient PPE (the priority for PPE is our healthcare workers and first responders) - but we should be able to do test-and-trace a couple of weeks after the cases-per-day peak.  We must be ready!   We will need people in the field, and software to track contacts, and also software (and manpower) to call those in quarantine twice a day until they test negative twice.

Every day:
1. Remind people about shelter-in-place, hygiene, and minimizing contact with others.

2. Ask people to keep a record of where they go, and the people they have contact with.   This will be important once test-and-trace starts.

After Cases-per-day peak:

1. Continue to manufacture PPE, especially surgical masks - there will be another need for these masks.

2. Start test-and-trace and quarantine program as soon as possible after cases-per-day peak.   This will identify asymptomatic people that will need to self-quarantine.

About 40 days from now (maybe sooner in some areas).  Note: This will require an operational test-and-trace program, and sufficient masks for anyone who needs one.
1. Start easing shelter-in-place rules.

2. Require anyone in close contact with others to wear a mask (this is why surgical mask production must continue at high levels, even after the number of cases slows0.  People need to wear masks, not to protect themselves, but to protect other people.  This will help slow the spread.

3. Remind everyone daily about hygiene and minimizing contacts and staying home when sick (even as restrictions ease).

4. Anyone with even mild symptoms should be tested.   Wide spread testing - and following up with test-and-trace will keep the spread minimal.

The crisis will not end completely until a vaccine and effective treatments are available, but the economic recovery could start in 40 days (or less time in some areas), if the Federal government takes action today.

by Calculated Risk on 3/25/2020 09:59:00 AM

From Edmunds.com: New Vehicle Sales Drop in March to Close a Down First Quarter in 2020, Edmunds Forecasts

The car shopping experts at Edmunds say that March will be a down month for the auto industry due to the coronavirus (COVID-19) pandemic, forecasting that 1,044,805 new cars and trucks will be sold in the U.S. for an estimated seasonally adjusted annual rate (SAAR) of 11.9 million. This reflects a 35.5% decrease in sales from March 2019 and a 23.4% decrease from February 2020.
…
"The first two months of the year started off at a healthy sales pace, but the market took a dramatic turn in mid-March as more cities and states began to implement stay-at-home policies due to the coronavirus crisis, and consumers understandably shifted their focus to other things," said Jessica Caldwell, Edmunds' executive director of insights. "The whole world is turned upside down right now, and the auto industry is unfortunately not immune to the wide-ranging economic impacts of this unprecedented pandemic."

Click on graph for larger image.

This graph shows actual sales from the BEA (Blue), and Edmunds forecast for March (Red).

Note that the low during the great recession was 9.02 million SAAR in February 2009.

With the sudden stop in activity, this forecast may be high - and sales will probably be lower in April.

by Calculated Risk on 3/25/2020 09:35:00 AM

From the FHFA: FHFA House Price Index Up 0.3 Percent in January; Up 5.2 Percent from Last Year

U.S. house prices rose in January, up 0.3 percent from the previous month, according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). House prices rose 5.2 percent from January 2019 to January 2020. The previously reported 0.6 percent increase for December 2019 was revised upward to 0.7 percent.
…
“U.S. house prices continued to increase at a moderate pace in January,” according to Dr. Lynn Fisher, Deputy Director of the Division of Research and Statistics at FHFA. “Transactions in January were unlikely to reflect much, if any, influence from the COVID-19 outbreak. House prices in the Pacific and South Atlantic regions grew somewhat faster over the year ending in January 2020 than observed the same time a year ago.”

This is pre-crisis.

by Calculated Risk on 3/25/2020 07:00:00 AM

The MBA noted that purchase applications were off 35% in New York not seasonally adjusted (following a 24% decline the previous week), and off 23% in California.

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 29.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 20, 2020.

... The Refinance Index decreased 34 percent from the previous week and was 195 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 15 percent from one week earlier. The unadjusted Purchase Index decreased 14 percent compared with the previous week and was 11 percent lower than the same week one year ago.
...
“The 30-year fixed mortgage rate reached its highest level since mid-January last week, even as Treasury yields remained at relatively low levels. Several factors pushed rates higher, including increased secondary market volatility, lenders grappling with capacity issues and backlogs in their pipelines, and remote work staffing challenges,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “With these higher rates, refinance activity fell 34 percent, and both the conventional and government indices dropped to their lowest level in a month. Looking ahead, this week’s additional actions taken by the Federal Reserve to restore liquidity and stabilize the mortgage-backed securities market could put downward pressure on mortgage rates, allowing more homeowners the opportunity to refinance.”

Added Kan, “Home purchase applications were notably impacted by rising rates and the widespread economic disruption and uncertainty over household employment and incomes. Last week’s purchase index fell 15 percent to its lowest level since August 2019. Compared to a year ago, purchase applications were down 11 percent – the first year-over-year decline in over three months. Potential homebuyers might continue to hold off on buying until there is a slowdown in the spread of the coronavirus and more clarity on the economic outlook.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.82 percent from 3.74 percent, with points decreasing to 0.35 from 0.37 (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 record lower rates, we saw a huge increase in refinance activity in the survey over the last two weeks.   Now, with higher rates last week - due to issues in the MBS market - refinance activity declined sharply.  Note the Fed has stepped up buying of MBS this week.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is DOWN 11% year-over-year.

It appears purchase activity is falling sharply.