by Calculated Risk on 7/26/2013 11:59:00 AM

Note: The automakers will report July vehicle sales on Thursday, August 1st. 

According the Bureau of Economic Analysis (BEA), light vehicle sales in June were at a 15.9 million rate, on a seasonally adjusted annual rate (SAAR) basis.  It looks like July sales will be in the same range.

Here are a few forecasts:

From Kelley Blue Book: Pickup Trucks, Compact Cars And Crossovers Drive July New-Car Sales Up 16 Percent

In July 2013, new light-vehicle sales, including fleet, are expected to be 1,340,000 units, up 16.1 percent from July 2012 and down 4.4 percent from June 2013. The seasonally adjusted annual rate (SAAR) for July 2013 is estimated to be 15.8 million, up from 14.0 million in July 2012 and down from 15.9 million in June 2013.
...
While the overall economy continues to improve at a slow pace, demand for new vehicles is rapidly approaching pre-recession levels. Due to economic improvement during the first half of the year, Kelley Blue Book is raising its sales forecast from 15.3 million to 15.6 million for 2013.

Press Release: J.D. Power and LMC Automotive Report: July New-Vehicle Retail Sales -- Let the Good Times Roll

Total light-vehicle sales in July 2013 are expected to grow to 1,336,700, an 11 percent increase from July 2012 [15.9 million SAAR] ...

LMC Automotive is raising its forecast for both retail and total light-vehicle sales in 2013. The outlook for total light-vehicles is now at 15.6 million units—previously 15.4 million units—while the retail light-vehicle sales forecast increases to 12.8 million units from 12.6 million units.

From TrueCar: July 2013 New Car Sales Expected to Be Up 15.3 Percent According to TrueCar; July 2013 SAAR at 15.8M, Highest July SAAR since 2006

For July 2013, new light vehicle sales in the U.S. (including fleet) is expected to be 1,326,035 units, up 15.3 percent from July 2012 and down 5.1% percent from June 2013 (on an unadjusted basis).

The [July] 2013 forecast translates into a Seasonally Adjusted Annualized Rate ("SAAR") of 15.8 million new car sales, [down] from 15.9 million in June 2013 and up from 14.1 million in July 2012.

"July delivered the highest year-over-year increase so far in 2013," said [Jesse Toprak, senior analyst for TrueCar.com]

Two key points: 1) sales growth will slow in 2013, and 2) it appears auto sales were solid in July.

Analysts are upping their 2013 projections, but it appears sales will not increase at a double digit rate like the last few years - but this will be another strong growth year for auto sales.

Light Vehicle Sales
	Sales (millions)	Annual Change
2005	16.9	0.5%
2006	16.5	-2.6%
2007	16.1	-2.5%
2008	13.2	-18.0%
2009	10.4	-21.2%
2010	11.6	11.1%
2011	12.7	10.2%
2012	14.4	13.4%
20131	15.6	8.3%
1Projections from Kelley Blue Book and J.D. Power / LMC .

by Calculated Risk on 7/26/2013 10:01:00 AM

Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for July increased to 85.1, up from the June reading of 84.1, and up from the preliminary July reading of 83.9.

This was above the consensus forecast of 84.0 and is the highest since July 2007 (pre-recession). Sentiment has generally been improving following the recession - with plenty of ups and downs - and one big spike down when Congress threatened to "not pay the bills" in 2011. 

by Calculated Risk on 7/25/2013 09:02:00 PM

Next week the BEA will release comprehensive revisions to GDP for prior years. From Merrill Lynch on the GDP revisions next week:

The release of 2Q GDP on July 31 will be anything but a typical report. The Bureau of Economic Analysis (BEA) will be announcing the results of its comprehensive benchmark revision which we believe will reveal significant adjustments to GDP, personal income, the savings rate and corporate profits. Here are the main takeaways ...

• The level of GDP will be revised higher over the history of the sample, likely in the order of 3.0pp. We believe the revision will be pro-cyclical and therefore make the recessions look modestly deeper and the recoveries appear stronger. In particular, already-released revisions to source data imply an upward revision to 2012.

• Personal income will also be revised higher. However, it will likely be adjusted to be less volatile, likely smoothing the most recent business cycles.

• The saving rate will be revised higher, likely in the order of 2 to 3pp. This could boost the current rate from 3.2% to as high as 6%. We think the revision will be notable over the past cycle, showing greater precautionary saving in response to the financial crisis. The revisions will make the data more comparable to the Flow of Funds (FOF) accounts and help to align the savings rate measured by the FOF and NIPA.

• An upward revision to GDP growth will bring the trend in GDP more in line with the recovery in jobs. It therefore implies an upward revision to the level of productivity, but in particular we look for an upward revision to productivity growth in 2012.

• Corporate profits are likely to be little changed (with a risk of a small downward revision), but the revised series should be less volatile.

• The PCE deflator will be subject to revisions as well, but we have little information regarding the direction or the magnitude. In past benchmarks, the revisions to the deflator have been marginal.

Overall, the revisions will reveal a stronger household sector, which is wealthier and thriftier than previously believed. It will also show that the economy fared better over the past year than was initially reported, implying greater momentum heading into this year.

Friday:
• At 9:55 AM ET, the Reuter's/University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 84.0, up from the preliminary reading of 83.9, but down from the June reading of 84.1.

by Calculated Risk on 7/25/2013 05:43:00 PM

Just a thought, I haven't seen any discussion on this ... the pivot to austerity in early 2010 is widely viewed as a major mistake (as opposed to staying focused on employment). Larry Summers was the Director of the National Economic Council until December 2010, so he probably played a key role in the austerity pivot.

In 2010, Fed Chairman Ben Bernanke was already warning about premature tightening:

"Economic conditions provide little scope for reducing deficits significantly further over the next year or two; indeed, premature fiscal tightening could put the recovery at risk. Over the medium- and long-term, however, the story is quite different."

This has been a familiar comment from Bernanke over the last few years: less austerity now, and put the long run deficit on a sustainable path.  Unfortunately this advice has fallen on deaf ears.

A key question for Mr. Summers is what role he played in the premature pivot to austerity.

Also, from FT Alphaville: Larry Summers on QE

Lawrence Summers made dismissive remarks about the effectiveness of quantitative easing at a conference in April, raising the possibility of a big shift in US monetary policy if he becomes chairman of the Federal Reserve.

... the people who have discussed policy with him say Mr Summers regards fiscal policy as a more effective tool than monetary policy. “More of what will determine things going forward will have to do with fiscal policy and that there is less efficacy from quantitative easing than is supposed,” he said in his Santa Monica remarks.

by Calculated Risk on 7/25/2013 02:21:00 PM

From Freddie Mac today: Mortgage Rates Calm Further

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates easing for the second consecutive week helping to alleviate concerns over a slowdown in the housing market and amid recent strong homes sales data for June. ...

30-year fixed-rate mortgage (FRM) averaged 4.31 percent with an average 0.8 point for the week ending July 25, 2013, down from last week when it averaged 4.37 percent. Last year at this time, the 30-year FRM averaged 3.49 percent.

15-year FRM this week averaged 3.39 percent with an average 0.8 point, down from last week when it averaged 3.41 percent. A year ago at this time, the 15-year FRM averaged 2.80 percent.

The 30 year mortgage rate hit 4.51% in the Freddie Mac survey two weeks ago, and is now down to 4.31%. This is still up sharply from 3.35% in early May.

by Calculated Risk on 7/25/2013 11:05:00 AM

From the Kansas City Fed: Tenth District Manufacturing Survey Rose Moderately

The Federal Reserve Bank of Kansas City released the July 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 rose moderately, although producers' expectations for future activity eased somewhat.

“We saw several positive things in this month's survey. Production and shipments rebounded after being disrupted by storms last month," said Wilkerson. "And while some firms remain hesitant to expand, overall capital spending and hiring plans remain positive.”

The month-over-month composite index was 6 in July, up from -5 in June and 2 in May ... Most other month-over-month indexes also improved. The production index increased from -17 to 21, its highest level since June 2011, and the shipments and new orders indexes also rose markedly. ... In contrast, the order backlog index edged lower from -4 to -7, and the employment index also eased slightly

So far all of the regional surveys - except Richmond - showed improvement in July. The Dallas Fed regional survey will be released next Monday, and the ISM index for July will be released Thursday, August 1st.

Most of the regional surveys (and the Markit Flash PMI) suggest stronger expansion in the ISM index for July.

by Calculated Risk on 7/25/2013 10:15:00 AM

According to the First Look report for June to be released today by Lender Processing Services (LPS), the percent of loans delinquent increased in June compared to May, and declined about 8% year-over-year. Also the percent of loans in the foreclosure process declined further in June and were down 29%% over the last year.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) increased to 6.68% from 6.08% in May. Note: Some of the increase in short term delinquencies in June is seasonal, although the uptick this year was larger than normal.   The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 2.93% in June from 3.05% in May. 

The number of delinquent properties, but not in foreclosure, is down about 8% year-over-year (274,000 fewer properties delinquent), and the number of properties in the foreclosure process is down 29% or 903,000 properties year-over-year.

LPS will release the complete mortgage monitor for June in early August.

LPS: Percent Loans Delinquent and in Foreclosure Process
	June 2013	May 2013	June 2012
Delinquent	6.68%	6.08%	7.14%
In Foreclosure	2.93%	3.05%	4.09%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,983,000	1,708,000	2,012,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,345,000	1,335,000	1,590,000
Number of properties in foreclosure pre-sale inventory:	1,458,000	1,525,000	2,061,000
Total Properties	4,785,000	4,569,000	5,663,000

by Calculated Risk on 7/25/2013 08:34:00 AM

The DOL reports:

In the week ending July 20, the advance figure for seasonally adjusted initial claims was 343,000, an increase of 7,000 from the previous week's revised figure of 336,000. The 4-week moving average was 345,250, a decrease of 1,250 from the previous week's revised average of 346,500.

The previous week was revised up from 334,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

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 345,250.

The 4-week average has mostly moved sideways over the last few months.  Claims were close to the 341,000 consensus forecast.

by Calculated Risk on 7/24/2013 09:36:00 PM

All aboard the Janet Yellen express! There were several articles about Yellen (and Larry Summers) over the last couple of days, but what really stands out is Yellen's depth of knowledge on monetary policy and Federal Reserve regulatory issues. She has strong leadership skills, and is admired by just about everyone. She clearly follows the data, and was well ahead of most other FOMC members (and other candidates) on understanding the housing bust and possible consequences.

A few articles, from Cardiff Garcia at the Financial Times: Why Yellen should be the next Fed chair, from Professor Richard Green writing at Forbes: Janet Yellen Would Be A Better Pick For Fed Chair Than Larry Summers, Tim Duy Fed Watch: Shock and Awe(ful), Mike Konczal at Next New Deal: Yellen, Summers and Rebuilding After the Fire,  Felix Salmon at Reuters: Don’t send Summers to the Fed and Jon Hilsenrath at the WSJ: Fed Chief Choice Shapes Up as Race Between Summers, Yellen

And from former FDIC Chairwoman Sheila Bair writing at Fortune: Why Janet Yellen should succeed Ben Bernanke

[T]here is no better qualified candidate to fill Bernanke's shoes when he steps down in January. A noted economist, Yellen headed the Council of Economic Advisors for two years; led the San Francisco Federal Reserve Bank for six years; and has served ably as Bernanke's Vice Chairman since 2010. Unlike Larry Summers ... she was not part of the deregulatory cabal that got us into the 2008 financial crisis. In fact, she had a solid record as a bank regulator at the San Francisco Fed and was one of the few in the Fed system to sound the alarm on the risks of subprime mortgages in 2007.

If you read all those pieces - and ignore the criticism of Larry Summers - you'll understand why Janet Yellen is such an outstanding choice for Fed Chair. She has all the skills, leadership ability, communications skills (she won teaching accolades as a professor), and she pays attention to developing trends (data guys really respect Yellen).

None of the other candidates was paying attention in 2005 and 2006 like Yellen, as an example here is her '"ghost towns" of the West' comment in 2006:

According to some of our contacts elsewhere in this Federal Reserve District, data like these are actually "behind the curve," and they're willing to bet that things will get worse before they get better. For example, a major home builder has told me that the share of unsold homes has topped 80 percent in some of the new subdivisions around Phoenix and Las Vegas, which he labeled the new "ghost towns" of the West.

And Menzie Chinn points out a speech she gave in 2007 and writes:

Having coauthored an entire book on the financial crisis of 2008 (Lost Decades, with Jeffry Frieden) I think that one of the most important qualities for a policymaker is the ability to look forward, and assess potential dangers and understand why those dangers arise. ... Keeping in mind how carefully one must tread as a public official (as opposed to someone pontificating on a blog), [Yellen's] comments [in 2007] strike me as quite prescient, and with the benefit of hindsight, correct in diagnosis.

Yellen was correct, but she has no crystal ball - she just paid close attention to the data and drew the correct conclusions. Other candidates can only point to general warnings during that period.

The bottom line is on monetary policy experience, regulatory experience, leadership and communications skills, and the ability to analyze the data - and draw the correct conclusions - Yellen stands head and shoulders above all the other candidates.   She is the right person at the right time.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for an increase to 341 thousand from 334 thousand last week.

• Also at 8:30 AM, the Durable Goods Orders for June from the Census Bureau. The consensus is for a 1.5% increase in durable goods orders.

• At 11:00 AM, the Kansas City Fed Survey of Manufacturing Activity for July. The consensus is for a reading of 0 for this survey, up from minus 5 in June (Above zero is expansion).

by Calculated Risk on 7/24/2013 04:03:00 PM

From the National Multi Housing Council (NMHC): Second Quarter Apartment Markets Mixed in Latest NMHC Survey

While demand for apartment homes remained strong, rising interest rates exerted negative pressure on the industry’s ability to secure debt financing according to the National Multi Housing Council’s (NMHC) July Quarterly Survey of Apartment Market Conditions. Only the Market Tightness Index (55) remained above the breakeven line of 50 this quarter. Sales Volume (46) and Equity Financing (49) dipped, with Debt Financing dropping sharply to 20.

“Debt costs for apartment firms have been rising. In addition to the 90 basis point increase in interest rates from the April survey, spreads over Treasuries have also gone up, likely dampening transactions somewhat. Rates are still low by historical standards, however, and at current levels should not put too big a crimp in apartment activity going forward,” said Mark Obrinsky, NMHC’s Senior Vice President for Research and Chief Economist. “Underlying demand trends remain strong, and we are approaching the cusp of a meaningful increase in supply that will hopefully be enough to meet the current need for apartment homes.”
...
Market Tightness Index edged up to 55 from 54. Just 14 percent noted looser conditions in the markets they were familiar with. This represents the 13th time in the last 14 quarters in which the index was over 50.
emphasis added

Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading above 50 indicates tightening from the previous quarter. The quarterly increase was small, but indicates tighter market conditions.  

On supply: Even though multifamily starts have been increasing, completions lag starts by about a year - so the builders are still trying to catch up. There will be many more completions in 2013 and in 2014, than in 2012, increasing the supply.  As Obrinsky noted: "we are approaching the cusp of a meaningful increase in supply".

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010. This survey now suggests vacancy rates might be nearing a bottom, although apartment markets are still tight, so rents will probably continue to increase.