by Calculated Risk on 8/23/2020 11:36:00 AM

We all remember the promises for the 2017 Tax Cuts and Jobs Act (TCJA):

1) "Boost growth to 3.5 percent per year on average, with the potential to reach a 4 percent growth rate."

2) Boost business investment

3) Pay for itself (No increase in the deficit)

4) Give the typical American household around a $4,000 pay raise

Here are a few quotes from 2017:
"This change, along with a lower business tax rate, would likely give the typical American household around a $4,000 pay raise." Donald Trump, October 19, 2017

“Not only will this tax plan pay for itself, but it will pay down debt,” Treasury Secretary Steve Mnuchin, Sept 2017

“I think this tax bill is going to reduce the size of our deficits going forward,” Sen. Pat Toomey (R-PA), November 2017

First, on that $4,000 pay raise, from Motley Fool: Want a Tax Cut? Here's How Much Typical Americans Saved in 2018. The analysis suggests around $1,600 to $1,900, not $4,000.

And from the Heritage Foundation: The Truth About How Much Americans Are Paying in Taxes.

"the average American household paid about $1,400 less in taxes"

And on GDP, the following table shows quarterly real GDP growth (annualized) from the BEA since the TCJA was signed.   The average growth in the first eight quarters was 2.4% - nothing special - and definitely not the promised "3.5 percent per year on average".   And basically the same growth rate prior to Trump taking office.

Note: There was some pickup in early 2018 (as expected), but growth slowed in 2019.   This does not include the economic collapse in the first half of 2020.

Quarter	Real GDP Growth Annualized
Q1 2018	3.8%
Q2 2018	2.7%
Q3 2018	2.1%
Q4 2018	1.3%
Q1 2019	2.9%
Q2 2019	1.5%
Q3 2019	2.6%
Q4 2019	2.4%

What about investment?

Click on graph for larger image.

This graph shows a 4 quarter average growth in Gross private domestic investment (Blue) and Nonresidential Private Investment (Red).

There was a slump in investment in 2015 and 2016 due to the collapse in oil prices, but there has been no discernible pickup in investment growth since the passage of the TCJA.

In fact, Gross private domestic investment had turned negative prior to the impact of the pandemic!

And what about the deficit?

The deficit has increased sharply during the pandemic, but the deficit had already increased significantly prior to the impact of COVID-19.

From the CBO December 2019 monthly budget review:

The federal budget deficit was $358 billion in the first quarter of fiscal year 2020, the Congressional Budget Office estimates, $39 billion more than the deficit recorded during the same period last year.

Compare that to December 2017 (before the TCJA):

The federal budget deficit was $228 billion in the first quarter of fiscal year 2018

So the TCJA didn't pay for itself and caused a significant increase in the deficit.

In summary, there was no discernible boost in investment (investment actually fell). No sustained increase in GDP growth. No $4,000 pay raise. And the TCJA didn't pay for itself.

by Calculated Risk on 8/22/2020 05:48:00 PM

The US is now mostly reporting over 700,000 tests per day (fewer recently). Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections, so the US still needs to increase the number of tests per day significantly (or take actions to push down the number of new infections).

There were 745,384 test results reported over the last 24 hours.

There were 46,295 positive tests.

There have been 22,886 COVID reported deaths in the first 22 days of August. See the graph on US Daily Deaths here.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 6.2% (red line).

For the status of contact tracing by state, check out testandtrace.com.

And check out COVID Exit Strategy to see how each state is doing.

by Calculated Risk on 8/22/2020 09:35:00 AM

From Merrill Lynch:

2Q GDP is likely to be revised up to -32% qoq saar in the second release. We are tracking 17% for 3Q GDP. [August 17 estimate]
emphasis added

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at 14.6% for 2020:Q3. [August 21 estimate]

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2020 is 25.6 percent on August 18, down from 26.2 percent on August 14. [August 18 estimate]

It is important to note that GDP is reported at a seasonally adjusted annual rate (SAAR). A 15% annualized increase in GDP is about 3.6% quarter-over-quarter (QoQ). Also, a 15% annualized increase would leave real GDP down about 7.5% from Q4 2019.

A 25% annualized increase in Q3 GDP, is about 5.7% QoQ, and would leave real GDP down about 5.5% from Q4 2019.

The following graph illustrates these declines.

Click on graph for larger image.

This graph shows the percent decline in real GDP from the previous peak (currently the previous peak was in Q4 2019).

This graph is through Q2 2020, and real GDP is currently off 10.6% from the previous peak.  For comparison, at the depth of the Great Recession, real GDP was down 4.0% from the previous peak.

The two black arrows show what a 15% or 25% annualized increase in real GDP would look like in Q3.

Even with a 25% annualized increase (about 5.7% QoQ), real GDP will be down about 5.5% from Q4 2019; a larger decline in real GDP than at the depth of the Great Recession.

by Calculated Risk on 8/22/2020 08:11:00 AM

The key reports this week are the second estimate of Q2 GDP and July New Home sales.

Other key reports include Personal Income and Outlays for July and Case-Shiller house prices for June.

For manufacturing, the August Richmond and Kansas City Fed surveys will be released.

In widely anticipated speech, Fed Chair Jerome Powell will discuss the Monetary Policy Framework Review at the Jackson Hole Symposium on Thursday.

----- Monday, August 24th -----
8:30 AM ET: Chicago Fed National Activity Index for July. This is a composite index of other data.

----- Tuesday, August 25th -----
9:00 AM: S&P/Case-Shiller House Price Index for June.

This 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 3.6% year-over-year increase in the Comp 20 index for June.

9:00 AM: FHFA House Price Index for June 2019. This was originally a GSE only repeat sales, however there is also an expanded index.

10:00 AM: New Home Sales for July from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the sales rate for last month.

The consensus is for 786 thousand SAAR, down from 776 thousand in June.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for August.


----- Wednesday, August 26th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Durable Goods Orders for July from the Census Bureau. The consensus is for a 4.3% increase in durable goods orders.

----- Thursday, August 27th -----
8:30 AM: Gross Domestic Product, 2nd quarter 2020 (second estimate). The consensus is that real GDP decreased 32.6% annualized in Q2, up from the advance estimate of -32.9% in Q2.

8:30 AM: The initial weekly unemployment claims report will be released. The early consensus is for a 1.100 million initial claims, down from 1.106 million the previous week.

9:10 AM: Speech, Fed Chair Jerome Powell, Monetary Policy Framework Review, At the Jackson Hole Economic Policy Symposium - Navigating the Decade Ahead: Implications for Monetary Policy

10:00 AM: Pending Home Sales Index for July. The consensus is for a 4.5% increase in the index.

11:00 AM: the Kansas City Fed manufacturing survey for August.

----- Friday, August 28th -----
8:30 AM ET: Personal Income and Outlays, July 2020. The consensus is for a 0.2% decrease in personal income, and for a 1.5% increase in personal spending. And for the Core PCE price index to increase 0.5%.

9:45 AM: Chicago Purchasing Managers Index for August.

10:00 AM: University of Michigan's Consumer sentiment index (Final for August). The consensus is for a reading of 72.8.

by Calculated Risk on 8/21/2020 05:59:00 PM

The US is now mostly reporting over 700,000 tests per day (fewer recently). Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections, so the US still needs to increase the number of tests per day significantly (or take actions to push down the number of new infections).

There were 731,920 test results reported over the last 24 hours.

There were 46,821 positive tests.

There have been 21,851 COVID reported deaths in the first 21 days of August. See the graph on US Daily Deaths here.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 6.4% (red line).

For the status of contact tracing by state, check out testandtrace.com.

And check out COVID Exit Strategy to see how each state is doing.

by Calculated Risk on 8/21/2020 02:47:00 PM

The Department of Transportation (DOT) reported:

Travel on all roads and streets changed by -13.0% (-36.5 billion vehicle miles) for June 2020 as compared with June 2019. Travel for the month is estimated to be 244.7 billion vehicle miles.

The seasonally adjusted vehicle miles traveled for June 2020 is 231.3 billion miles, a -14.5% (-39.2 billion vehicle miles) decline from June 2019. It also represents 15.6% increase (31.3 billion vehicle miles) compared with May 2020.

Cumulative Travel for 2020 changed by -16.6% (-264.2 billion vehicle miles). The cumulative estimate for the year is 1,331.2 billion vehicle miles of travel.
emphasis added

Click on graph for larger image.

This graph shows the rolling 12 month total vehicle miles driven to remove the seasonal factors.

Miles driven declined during the great recession, and the rolling 12 months stayed below the previous peak for a record 85 months.

Miles driven declined sharply in March, and really collapsed in April.   Miles driven rebounded in May and June, but is still down 14.5% YoY (seasonally adjusted).

This graph shows the YoY change in vehicle miles driven.

Miles driven were down 14.5% year-over-year in June.  Based on gasoline consumption, I expect vehicle miles rebounded further in July.

by Calculated Risk on 8/21/2020 02:06:00 PM

From the BLS: Regional and State Employment and Unemployment Summary

Unemployment rates were lower in July in 30 states, higher in 9 states, and stable in 11 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. All 50 states and the District had jobless rate increases from a year earlier. The national unemployment rate fell by 0.9 percentage point over the month to 10.2 percent but was 6.5 points higher than in July 2019.
...
Massachusetts had the highest unemployment rate in July, 16.1 percent, followed by New York, 15.9 percent. The rates in Connecticut (10.2 percent), New Mexico (12.7 percent), and New York (15.9 percent) set new series highs. (All state series begin in 1976.) Utah had the lowest unemployment rate, 4.5 percent, followed by Nebraska, 4.8 percent, and Idaho, 5.0 percent.
emphasis added

Click on graph for larger image.

This graph compares the unemployment rate in two lockdown states (New York and New Jersey), and two early open states (Florida and Texas).

This will be interesting to track.   New York and New Jersey locked down, and then waited to reopen. Florida and Texas reopened sooner.

Currently New York and New Jersey are averaging about 900 new positive cases per day, combined.

Florida and Texas are averaging about 11,500 cases per day.

by Calculated Risk on 8/21/2020 11:53:00 AM

Note: Loans in forbearance are counted as delinquent in this survey, but those loans are not reported as delinquent to the credit bureaus.

From Black Knight: Total Number of Past Due Mortgages Improves in July While Serious Delinquencies Climb; Monthly Prepayment Activity Hits 16-Year High

• Mortgage delinquencies continued to improve in July, falling 9% from June, with more than 340,000 fewer past due mortgages than in the month prior

• Early-stage delinquencies – loans with a single missed payment – have fallen below pre-pandemic levels, suggesting that the initial inflow of new COVID-19-related delinquencies has subsided

• However, serious delinquencies – those 90 or more days past due – rose by 376,000 and are now up more than 1.8 million from their pre-pandemic levels

• Foreclosure activity continues to remain muted due to widespread moratoriums; though starts rose for the month, overall activity remains near record lows

• Prepayment activity edged slightly higher in July, hitting its highest monthly mark since early 2004, as low rates continue to drive both refinance and purchase activity
emphasis added

According to Black Knight's First Look report, the percent of loans delinquent decreased 8.9% in July compared to June, and increased 100% year-over-year.

The percent of loans in the foreclosure process decreased 1.8% in July and were down 28% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 6.91% in July, down from 7.59% in June.

The percent of loans in the foreclosure process decreased slightly in July to 0.36% from 0.36% in June.

The number of delinquent properties, but not in foreclosure, is up 1,885,000 properties year-over-year, and the number of properties in the foreclosure process is down 68,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	July 2020	June 2020	July 2019	July 2018
Delinquent	6.91%	7.59%	3.46%	3.61%
In Foreclosure	0.36%	0.36%	0.49%	0.57%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:	3,692,000	4,034,000	1,807,000	1,861,000
Number of properties in foreclosure pre-sale inventory:	190,000	192,000	258,000	293,000
Total Properties	3,881,000	4,226,000	2,065,000	2,154,000

by Calculated Risk on 8/21/2020 10:24:00 AM

Earlier: NAR: Existing-Home Sales Increased to 5.86 million in July

A few key points:

1) This was the highest sales rate since 2006.  Existing home sales are counted at the close of escrow, so the July report was mostly for contracts signed in May and June - when the economy was much more open than in the previous months.  Some of the increase over the last two months was probably related to pent up demand from the shutdowns in March and April.   However, with the high unemployment rate, the high rate of COVID infections, the increase in mortgage rates (still low, but up from recent lows) housing might be under some pressure later this year.  That is difficult to predict and depends on the course of the pandemic.

2) Inventory is very low, and was down 21.1% year-over-year (YoY) in July. This is the lowest level of inventory for July since at least the early 1990s.

3) As usual, housing economist Tom Lawler was much closer to the actual NAR report than the consensus forecast. For July, Lawler forecast the NAR would report 5.85 million, and the NAR reported 5.86 million (almost exact). The consensus was 5.39 million.

Click on graph for larger image.

This graph shows existing home sales by month for 2019 and 2020.

Note that existing home sales picked up somewhat in the second half of 2019 as interest rates declined.

Even with weak sales in April, May, and June, sales to date are only down about 5% compared to the same period in 2019.

The second graph shows existing home sales Not Seasonally Adjusted (NSA) by month (Red dashes are 2020), and the minimum and maximum for 2005 through 2019.

Sales NSA in July (597,000) were 10.6% above sales last year in July (540,000).

by Calculated Risk on 8/21/2020 10:10:00 AM

From the NAR: Existing-Home Sales Continue Record Pace, Soar 24.7% in July

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 24.7% from June to a seasonally-adjusted annual rate of 5.86 million in July. The previous record monthly increase in sales was 20.7% in June of this year. Sales as a whole rose year-over-year, up 8.7% from a year ago (5.39 million in July 2019).
...
Total housing inventory at the end of July totaled 1.50 million units, down from both 2.6% in June and 21.1% from one year ago (1.90 million). Unsold inventory sits at a 3.1-month supply at the current sales pace, down from 3.9 months in June and down from the 4.2-month figure recorded in July 2019.
emphasis added

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in July (5.86 million SAAR) were up 24.7% from last month, and were 8.7% above the July 2019 sales rate.

This was the highest sales rate since 2006.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 1.50 million in July from 1.57 million in June.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory was down 21.1% year-over-year in July compared to July 2019.

Months of supply decreased to 3.1 months in July.

This was above the consensus forecast (as expected). I'll have more later.