by Calculated Risk on 12/17/2020 11:05:00 AM

From the Philly Fed: December 2020 Manufacturing Business Outlook Survey

Manufacturing activity in the region continued to grow, but growth was less widespread, according to firms responding to the December Manufacturing Business Outlook Survey. The survey’s current indicators for general activity, new orders, and shipments remained positive for the seventh consecutive month but fell notably from their readings in November. Some future indexes also moderated this month but continue to indicate that firms expect growth over the next six months.

The diffusion index for current activity fell 15 points to 11.1 in December, its lowest positive reading following its fall to long-term lows in April and May... On balance, fewer firms reported increases in manufacturing employment this month. The current employment index has remained positive for six consecutive months but decreased 19 points to 8.5 in December.
emphasis added

This was lower than the consensus forecast.

And from the Kansas City Fed: Tenth District Manufacturing Activity Expanded Further

The Federal Reserve Bank of Kansas City released the December 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 expanded further in December. Manufacturing activity was still below year ago levels, but expectations for future activity were positive.

“Regional factories reported another month of solid growth, but activity continues to lag preCOVID levels,” said Wilkerson. “The recent wave of COVID-19 has negatively affected manufacturers, but many firms still indicated significant capital spending plans for the coming year.”
...
The month-over-month composite index was 14 in December, up from 11 in November and 13 in October

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (blue, through December), and five Fed surveys are averaged (yellow, through November) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through November (right axis).

These early reports suggest the ISM manufacturing index will show expansion in December, but will likely decrease from the November level.

by Calculated Risk on 12/17/2020 08:48:00 AM

The DOL reported:

In the week ending December 12, the advance figure for seasonally adjusted initial claims was 885,000, an increase of 23,000 from the previous week's revised level. The previous week's level was revised up by 9,000 from 853,000 to 862,000. The 4-week moving average was 812,500, an increase of 34,250 from the previous week's revised average. The previous week's average was revised up by 2,250 from 776,000 to 778,250.
emphasis added

This does not include the 455,037 initial claims for Pandemic Unemployment Assistance (PUA) that was up from 415,037 the previous week.

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 812,500.

The previous week was revised up.

The second graph shows seasonally adjust continued claims since 1967 (lags initial by one week).

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

Continued claims decreased to 5,508,000 (SA) from 5,781,000 (SA) last week and will likely stay at a high level until the crisis abates.

Note: There are an additional 9,244,556 receiving Pandemic Unemployment Assistance (PUA) that increased from 8,555,763 the previous week (there are questions about these numbers). This is a special program for business owners, self-employed, independent contractors or gig workers not receiving other unemployment insurance. 

An additional 4,801,408 are receiving Pandemic Emergency Unemployment Compensation (PEUC) that increased from 4,532,876 the previous week. These last two programs are set to expire on December 26th.

This was much higher than expected, and this was for the BLS reference week for the December employment report.

by Calculated Risk on 12/17/2020 08:38:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,547,000. This is 1.2 percent above the revised October estimate of 1,528,000 and is 12.8 percent above the November 2019 rate of 1,371,000. Single-family housing starts in November were at a rate of 1,186,000; this is 0.4 percent above the revised October figure of 1,181,000. The November rate for units in buildings with five units or more was 352,000.

Building Permits:
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,639,000. This is 6.2 percent above the revised October rate of 1,544,000 and is 8.5 percent above the November 2019 rate of 1,510,000. Single-family authorizations in November were at a rate of 1,143,000; this is 1.3 percent above the revised October figure of 1,128,000. Authorizations of units in buildings with five units or more were at a rate of 441,000 in November.
emphasis added

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) increased slightly in November compared to October.   Multi-family starts were down 18% year-over-year in November.

Single-family starts (blue) increased in November, and were up 27% year-over-year.   This is the highest level for single family starts since 2007.

The second graph shows total and single unit starts since 1968.

The second graph shows the huge collapse following the housing bubble, and then eventual recovery (but still historically low).

Total housing starts in November were slightly above expectations, however starts in September and October were revised down, combined.

I'll have more later …

by Calculated Risk on 12/16/2020 09:16:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 815,000 initial claims, down from 853,000 last week.

• Also at 8:30 AM, Housing Starts for November. The consensus is for 1.530 million SAAR, unchanged from 1.530 million SAAR.

• Also at 8:30 AM, the Philly Fed manufacturing survey for December. The consensus is for a reading of 19.0, down from 26.3.

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

by Calculated Risk on 12/16/2020 07:10:00 PM

Note: The week-over-week growth in positive cases has slowed.  Hopefully that continues.

I'm looking forward to not posting this data in a few months. Please stay healthy!

The US is now averaging well over 1 million tests per day. Based on the experience of other countries, for adequate test-and-trace (and isolation) to reduce infections, the percent positive needs to be under 5% (probably close to 1%), so the US has far too many daily cases - and percent positive - to do effective test-and-trace.

There were 1,407,648 test results reported over the last 24 hours.

There were 230,728 positive tests.

Over 39,000 US deaths have been reported so far in December. 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 16.4% (red line is 7 day average).  The percent positive is calculated by dividing positive results by the sum of negative and positive results (I don't include pending).

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

The second graph shows the 7 day average of positive tests reported and daily hospitalizations.

• Record Hospitalizations (Over 113,000)

• Record 7 Day Average Deaths

by Calculated Risk on 12/16/2020 02:08:00 PM

Statement here.

Fed Chair Powell press conference video here starting at 2:30 PM ET.

Here are the projections.

Note that GDP decreased at a 5.0% annual rate in Q1, decreased at a 31.4% annual rate in Q2, and increased at 33.1% annual rate in Q3. This leaves real GDP down 3.5% from Q4 2019.

Wall Street forecasts are for GDP to increase at a 5% to 6% annual rate in Q4.  These forecasts would put the economy down around 2.1% to 2.3% Q4-over-Q4.  The FOMC revised up their GDP projections for 2020, 2021 and 2022.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2020	2021	2022	2023
Dec 2020	-2.5 to -2.2	3.7 to 5.0	3.0 to 3.5	2.2 to 2.7
Sept 2020	-4.0 to -3.0	3.6 to 4.7	2.5 to 3.3	2.4 to 3.0

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 6.7% in November, down from 6.9% in October, and might decrease more in December.  This will put the unemployment rate for Q4 below the lower end of the September projections.   

Note that the unemployment rate doesn't remotely capture the economic damage to the labor market.  Not only are there 10.7 million people unemployed, and 4.1 million people have left the labor force since January.  And millions more are being supported by various provisions of the CARES Act - that still hasn't been renewed and is schedule to expire on December 26th.

The unemployment rate was revised down for all years.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2020	2021	2022	2023
Dec 2020	6.7 to 6.8	4.7 to 5.4	3.8 to 4.6	3.5 to 4.3
Sept 2020	7.0 to 8.0	5.0 to 6.2	4.0 to 5.0	3.5 to 4.4

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of October 2020, PCE inflation was up 1.2% from October 2019.    The projections for inflation were revised up slightly.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2020	2021	2022	2023
Dec 2020	1.2	1.7 to 1.9	1.8 to 2.0	1.9 to 2.1
Sept 2020	1.1 to 1.3	1.6 to 1.9	1.7 to 1.9	1.9 to 2.0

PCE core inflation was up 1.4% in October year-over-year.  Projections for core inflation were revised up slightly.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2020	2021	2022	2023
Dec 2020	1.4	1.7 to 1.8	1.8 to 2.0	1.9 to 2.1
Sept 2020	1.3 to 1.5	1.6 to 1.8	1.7 to 1.9	1.9 to 2.0

by Calculated Risk on 12/16/2020 02:02:00 PM

Fed Chair Powell press conference video here starting at 2:30 PM ET.

FOMC Statement:

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee's maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

emphasis added

by Calculated Risk on 12/16/2020 10:59:00 AM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architecture billings lose ground in November

Architecture firm billing activity is contracting once again after two months of a slowing decline, according to a new report from the American Institute of Architects (AIA).

The pace of decline during November accelerated from October, posting an Architecture Billings Index (ABI) score of 46.3 from 47.5 (any score below 50 indicates a decline in firm billings). The pace of inquiries into new projects slowed, but remained positive with a score of 52.0, however the value of new design contracts dipped back into negative territory with a score 48.6.

“In previous design cycles, we typically haven’t seen a straight line back to growth after a downturn hits,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “The path to recovery is shaping up to be bumpier than we hoped for. While there are pockets of optimism in design services demand, the overall construction landscape remains depressed.”
...
• Regional averages: Midwest (50.1); West (48.3); South (46.7); Northeast (38.7)

• Sector index breakdown: multi-family residential (52.2); mixed practice (49.5); commercial/industrial (47.5); institutional (41.9)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 46.3 in November, down from 47.5 in October. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

This index has been below 50 for nine consecutive months.  This represents a significant decrease in design services, and suggests a decline in CRE investment through most of 2021 (This usually leads CRE investment by 9 to 12 months).

This weakness is not surprising since certain segments of CRE are struggling, especially offices and retail.

by Calculated Risk on 12/16/2020 10:04:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 86, down from 90 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Down from Record High, Still Strong

Ending a string of three successive months of record highs, builder confidence in the market for newly built single-family homes fell four points to 86 in December, according to the latest NAHB/Wells Fargo Housing Market Index (HMI) released today. Despite the decline, this is still the second-highest reading in the history of the series after last month’s mark of 90.

“Housing demand is strong entering 2021, however the coming year will see housing affordability challenges as inventory remains low and construction costs are rising,” said NAHB Chairman Chuck Fowke. “Policymakers should take note to avoid increasing regulatory costs associated with land development and residential construction.”

“Builder confidence fell back from historic levels in December, as housing remains a bright spot for a recovering economy,” said NAHB Chief Economist Robert Dietz. “The issues that have limited housing supply in recent years, including land and material availability and a persistent skilled labor shortage, will continue to place upward pressure on construction costs. As the economy improves with the deployment of a COVID-19 vaccine, interest rates will increase in 2021, further challenging housing affordability in the face of strong demand for single-family homes.”
...
The HMI index gauging current sales conditions dropped four points to 92, the component measuring sales expectations in the next six months fell four points to 85 and the gauge charting traffic of prospective buyers also decreased four points to 73.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 82, the Midwest was up one point to 81, the South rose one point to 87 and the West increased two points to 96.

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was close to the consensus forecast.

Housing and homebuilding have been one of the best performing sectors during the pandemic.

by Calculated Risk on 12/16/2020 08:39:00 AM

On a monthly basis, retail sales decreased 1.1 percent from October to November (seasonally adjusted), and sales were up 4.1 percent from November 2019.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for November 2020, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $546.5 billion, a decrease of 1.1 percent from the previous month, but 4.1 percent above November 2019. Total sales for the September 2020 through November 2020 period were up 5.2 percent from the same period a year ago. The September 2020 to October 2020 percent change was revised from up 0.3 percent to down 0.1 percent.
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 down 1.0% in November.


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 5.9% on a YoY basis.

The decrease in November was well below expectations, and sales in October were revised down (September was revised up).