by Calculated Risk on 10/25/2014 02:31:00 PM

The key report this week is Q3 GDP on Thursday.

There will be an FOMC meeting on Tuesday and Wednesday, and the FOMC is expected to announce the end of QE3 on Wednesday.

----- Monday, October 27th -----
10:00 AM ET: Pending Home Sales Index for September. The consensus is for a 0.8% increase in the index.

10:30 AM: Dallas Fed Manufacturing Survey for October.

During the day (Monday or Tuesday): Q3 NMHC Apartment Tightness Index.

----- Tuesday, October 28th -----
8:30 AM: Durable Goods Orders for September from the Census Bureau. The consensus is for a 0.9% increase in durable goods orders.

9:00 AM: S&P/Case-Shiller House Price Index for August. Although this is the August report, it is really a 3 month average of June, July and August prices.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the July 2014 report (the Composite 20 was started in January 2000).

The consensus is for a 4.9% year-over-year increase in the National Index for August , down from 5.7% in July (consensus 5.8% increase in Comp 20). The Zillow forecast is for the Composite 20 to increase 5.7% year-over-year in August, and for prices to increase 0.1% month-to-month seasonally adjusted.

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

10:00 AM: Conference Board's consumer confidence index for October. The consensus is for the index to increase to 87.2 from 86.0.

10:00 AM: Q3 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track with other measures (like the decennial Census and the ACS).

----- Wednesday, October 29th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

2:00 PM: FOMC Meeting Statement.  The FOMC is expected to announce the end of QE3 asset purchases at this meeting.

----- Thursday, October 30th -----
8:30 AM: Gross Domestic Product, 3rd quarter 2014 (advance estimate). The consensus is that real GDP increased 2.8% annualized in Q3.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 280 thousand from 283 thousand.

----- Friday, October 31st -----
8:30 AM: Personal Income and Outlays for September. The consensus is for a 0.3% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.1%.

9:45 AM: Chicago Purchasing Managers Index for October. The consensus is for a reading of 60.0, down from 60.5 in September.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for October). The consensus is for a reading of 86.4, unchanged from the preliminary reading of 86.4, and up from the September reading of 84.6.

by Calculated Risk on 10/25/2014 11:01:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Oct 24, 2014.

Changes and comments from surferdude808:

It was the fourth time in 2014 for the FDIC to close a bank on back-to-back weeks. Other than the failure, two other removals pushed the Unofficial Problem Bank List count down to 423 institutions with assets of $133.4 billion. A year ago, the list held 670 institutions with assets of $234 billion.

Northwestern Bank, Traverse City, MI ($849 million) and The First National Bank of Wyoming, Wyoming, DE ($302 million) found their way off the list through unassisted mergers.

The National Republic Bank of Chicago, Chicago, IL ($994 million) failed after operating under a formal action since April 2010 and a Prompt Corrective Action order since July 2014. This is the fifth bank headquartered in Illinois to fail this year and the 61st failure in the state since the onset of the Great Recession. Acquiring the bank in the assisted transaction was State Bank of Texas, Dallas, Texas, with has assets of $413 million. Usually the FDIC does not like an acquirer to be so much smaller than and this far away geographically from the failed bank. So it looks like these issues were deemed not as important as maintaining the minority ownership status of the failed assets.

Next week, we anticipate the FDIC to release an update on its enforcement action activities through September 2014.

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 423.

by Calculated Risk on 10/25/2014 08:11:00 AM

Excerpts from a research piece by economist Kris Dawsey at Goldman Sachs:

US data have generally been solid since the last FOMC meeting, with a few exceptions. However, concern about downside risks to global growth increased—echoed by Fed communications—while financial market volatility rose considerably. The market-implied date of the first rate hike shifted out by roughly a quarter to 2015 Q4.

Our analysis suggests that recent developments should have a limited effect on the Fed’s baseline expectation for growth in the near-term, although downside risks to inflation are more pronounced. The FOMC will probably acknowledge recent foreign developments in the October statement, but an explicit shift in the balance of risks for the US outlook to the downside would be a dovish surprise. Other changes to the statement will likely include a slight upgrade to the language on the labor market.

St. Louis Fed President Bullard’s suggestion that QE could be extended past the October meeting garnered a lot of attention, but this seems unlikely to us. ...

We think the “considerable time” forward guidance will only be adjusted slightly at the October meeting, removing the reference to the end of asset purchases. The September meeting minutes suggested that any major changes are most likely at a meeting with a press conference, such as December. ...
emphasis added

by Calculated Risk on 10/24/2014 08:50:00 PM

From Merrill Lynch:

The October FOMC meeting is likely to see the end of QE3 buying, as the Fed tapers the final $15bn in asset purchases. ... Tapering has been largely contingent on an improving labor market, and that has generally continued. The FOMC also has indicated multiple times that they are likely to end QE3 in October. Thus, it would take a significant adverse shock to change that plan, in our view.

As for the statement language, we expect the “significant underutilization” language to once again remain in place — although we see a modest chance that is downgraded, say to “elevated underutilization.” Meanwhile, the likelihood of changing the “considerable time” language is much more evenly split. Our base case remains no change in October, largely because there is no urgent need to revise, especially with the increase in downside risks to the outlook and heightened market volatility since the last meeting. However, there is general dissatisfaction on the FOMC with this phrase, and Fed officials have had another month and a half to consider alternatives. With no press conference scheduled after this meeting, the Committee may opt for re-examining the forward guidance language more comprehensively at their December meeting.

Perhaps most notable at this meeting may be the number and nature of dissents. We see a high probability of hawkish dissents from Dallas’s Fisher and Philadelphia’s Plosser. In our view, there is some chance the FOMC statement will note a bit more concern about downside risks to inflation — a reflection of recent data, the drop in breakevens, the strong US dollar, and disinflationary forces abroad. Should the Committee opt not to add such language, a dovish dissent from Minneapolis’s Kocherlakota becomes a risk. ... We continue to recommend focusing on the statement language and prepared remarks from Chair Yellen and other key Fed officials to understand the views of the majority of voters, who favor a patient and gradual exit process.

I'll post a preview this weekend, but it seems QE3 will end ... and the FOMC statement will be shorter!

by Calculated Risk on 10/24/2014 06:41:00 PM

From the FDIC: State Bank of Texas, Dallas, Texas, Assumes All of the Deposits of the National Republic Bank of Chicago, Chicago, Illinois

As of June 30, 2014, The National Republic Bank of Chicago had approximately $954.4 million in total assets and $915.3 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $111.6 million. ... The National Republic Bank of Chicago is the 16th FDIC-insured institution to fail in the nation this year, and the fifth in Illinois.

Bank failure friday two weeks in a row!

by Calculated Risk on 10/24/2014 03:30:00 PM

From housing economist Tom Lawler:

Census “guesstimated” that new SF home sales ran at a seasonally adjusted annual rate of 467,000 in September, up 0.2% from August’s downwardly-revised (by 7.5% to 466,000) pace. Sales estimates for June and July were also revised downward (by 2.4% and 5.4%, respectively). Not surprisingly (see LEHC, 9/24/2014), the biggest downward revision in sales for August was in the West region, where sales were revised downward by almost 20%.

Census also estimated that the inventory of new SF homes for sale at the end of September was 207,000 on a seasonally adjusted basis, up 1.5% from August’s upwardly revised (to 204,000 from 203,000) level and up 13.1% from a year ago. Census estimated that the median new SF home sales price last month was $259,000, down 4% from last September.

Census Estimates of New SF Home Sales in August (SAAR)
	Preliminary	First Revision	% Difference
US	504,000	466,000	-7.5%
Northeast	31,000	30,000	-3.2%
Midwest	58,000	57,000	-1.7%
South	262,000	256,000	-2.3%
West	153,000	123,000	-19.6%

Here are Census’ estimates of new SF home sales for the first nine months of 2014 compared to the first nine months of 2013 (not seasonally adjusted).

Census Estimates of New SF Home Sales, Jan - Sep (NSA)
	2014	2013	% Change*
US	337,000	331,000	1.7%
Northeast	21,000	24,000	-12.5%
Midwest	47,000	47,000	-1.2%
South	187,000	175,000	6.8%
West	82,000	85,000	-3.2%
*Note: Census only shows home sales rounded to the nearest thousand, but % changes are reported based on unrounded estimates

New SF home sales so far this year have fallen well short of consensus industry expectations at the beginning of the year. A major reason appears to be weakness sales to first-time home buyers, partly because of tight credit, partly because of financial “issues” for many younger adults, but also partly because many builders have trouble meeting their high return targets for communities with smaller, lower-price homes that would normally be targeted for first-time buyers.

As an example, home builder Pulte noted this morning that given its return targets “most” of its current land development was going to communities focused on the move-up and active adult markets, as in many areas there is not enough “pricing power” in the first-time buyer market for the company to meet its return targets.

by Calculated Risk on 10/24/2014 12:31:00 PM

The new home sales report for September was slightly above expectations at 467 thousand on a seasonally adjusted annual rate basis (SAAR).  With the downward revision to August sales, sales for September were at the the highest sales rate since July 2008.

Sales for the previous three months (June, July and August) were revised down.

Earlier: New Home Sales increased slightly to 467,000 Annual Rate in September

The Census Bureau reported that new home sales this year, through September, were 338,000, Not seasonally adjusted (NSA). That is up 2.4% from 330,000 during the same period of 2013 (NSA). Not much of a gain from last year.  Right now it looks like sales will barely be up this year (maybe 3% or so for the year).

Sales were up 17.0% year-over-year in September - however sales declined sharply in Q3 2013 as mortgage rates increased - so this was an easy comparison.  The comparisons for Q4 will be more difficult.

Click on graph for larger image.

This graph shows new home sales for 2013 and 2014 by month (Seasonally Adjusted Annual Rate).

The year-over-year gain will probably be smaller in Q4, but I expect sales to be up for the quarter and for the year.

And here is another update to the "distressing gap" graph that I first started posting several years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through September 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.

I expect existing home sales to mostly move sideways (distressed sales will continue to decline and be somewhat offset by more conventional / equity sales).  And I expect this gap to slowly close, mostly from an increase in new home sales.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

by Calculated Risk on 10/24/2014 10:00:00 AM

The Census Bureau reports New Home Sales in September were at a seasonally adjusted annual rate (SAAR) of 467 thousand.

August sales were revised down from 504 thousand to 466 thousand, and July sales were revised down from 427 thousand to 404 thousand.

"Sales of new single-family houses in September 2014 were at a seasonally adjusted annual rate of 467,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.2 percent above the revised August rate of 466,000 and is 17.0 percent above the September 2013 estimate of 399,000."

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Even with the increase in sales over the previous two years, new home sales are still close to the bottom for previous recessions.

The second graph shows New Home Months of Supply.

The months of supply was unchanged in September at 5.3 months.

The all time record was 12.1 months of supply in January 2009.

This is now in the normal range (less than 6 months supply is normal).

"The seasonally adjusted estimate of new houses for sale at the end of September was 207,000. This represents a supply of 5.3 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In September 2014 (red column), 38 thousand new homes were sold (NSA). Last year 31 thousand homes were sold in September.  This was the best September since 2007.

The high for September was 99 thousand in 2005, and the low for September was 24 thousand in 2011.

This was close to expectations of 460,000 sales in September, although there were downward revisions to sales in June, July and August.

I'll have more later today.

by Calculated Risk on 10/24/2014 08:01:00 AM

According to Black Knight's First Look report for September, the percent of loans delinquent decreased in September compared to August, and declined by 12% year-over-year.

Also the percent of loans in the foreclosure process declined further in September and were down 33% over the last year.  Foreclosure inventory was at the lowest level since February 2008.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.67% in September, down from 5.90% in August. The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 1.76% in September from 1.80% in August.  

The number of delinquent properties, but not in foreclosure, is down 388,000 properties year-over-year, and the number of properties in the foreclosure process is down 435,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for September in early November.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Sept 2014	Aug 2014	Sept 2013	Sept 2012
Delinquent	5.67%	5.90%	6.46%	7.40%
In Foreclosure	1.76%	1.80%	2.63%	3.87%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,760,000	1,852,000	1,935,000	2,170,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,118,000	1,143,000	1,331,000	1,530,000
Number of properties in foreclosure pre-sale inventory:	893,000	913,000	1,328,000	1,940,000
Total Properties	3,771,000	3,908,000	4,593,000	5,640,000

by Calculated Risk on 10/23/2014 09:01:00 PM

The Inland Empire comes full circle ... from the Chris Kirkham at the LA Times: Strong growth is forecast for Inland Empire

[T]he Inland Empire is now the fastest-growing region in Southern California — a trend predicted to continue over the next five years, according to an economic forecast released Thursday.

The availability of land for development, combined with proximity to ports and major transportation corridors, has given Riverside and San Bernardino counties a growth advantage over more built-out coastal areas over the last two years. Unlike the housing bubble of the mid-2000s — when much of the Inland Empire's job growth was tied to construction and real estate — the economic recovery has been spread across a wider range of industries, such as professional services and goods distribution.
emphasis added

I was very bearish on the Inland Empire during the housing bubble. Here is what I wrote in 2006: Housing: Inverted Reasoning?

As the housing bubble unwinds, housing related employment will fall; and fall dramatically in areas like the Inland Empire. The more an area is dependent on housing, the larger the negative impact on the local economy will be.

So I think some pundits have it backwards: Instead of a strong local economy keeping housing afloat, I think the bursting housing bubble will significantly impact housing dependent local economies.

This time construction is only a small part of the recovery in the Inland Empire - and that is good news!

Friday:
• Early, the Black Knight Financial Services' "First Look" at September Mortgage Data.

• At 10:00 AM ET, New Home Sales for September from the Census Bureau. The consensus is for a decrease in sales to 460 thousand Seasonally Adjusted Annual Rate (SAAR) in September from 504 thousand in August.

by Calculated Risk on 10/23/2014 06:00:00 PM

From the FDIC: FDIC Releases Economic Scenarios for 2015 Stress Testing

The Federal Deposit Insurance Corporation (FDIC) today released the economic scenarios that will be used by certain financial institutions with total consolidated assets of more than $10 billion for stress tests required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The baseline, adverse, and severely adverse scenarios include key variables that reflect economic activity, including unemployment, exchange rates, prices, income, interest rates, and other salient aspects of the economy and financial markets.

The baseline scenario represents expectations of private sector economic forecasters. The adverse and severely adverse scenarios are not forecasts, rather, they are hypothetical scenarios designed to assess the strength and resilience of financial institutions and their ability to continue to meet the credit needs of households and businesses under stressed economic conditions.

Here is an excel spreadsheet with the scenarios.

Note: I'm not even on "recession watch", and I think the baseline is the most likely scenario for the next couple of years.  However I think these regular stress tests are very helpful for regulators.

The first table is a summary of the baseline scenario (basically in line with most economic forecasts for GDP and unemployment).

Stress Test Baseline Scenario
	GDP1	Unemployment2	DOW3	House Prices3
2014	2.2%	5.9%	6.5%	4.1%
2015	2.9%	5.4%	5.1%	2.5%
2016	2.9%	5.3%	5.3%	3.0%
2017	2.7%	5.3%	5.3%	3.0%

¹ GDP is the average quarterly real change in real GDP.
² Unemployment is for Q4 of each year.
³ The change in the DOW and House Prices is from Q4 of the preceding year to Q4.

The second table is the adverse scenario. This is moderate recession, but a slow recovery. Under the adverse scenario, unemployment peaks at 8% in 2017. The DOW declines about 28% from peak to trough, and house prices fall 13%.

Stress Test Adverse Scenario
	GDP1	Unemployment2	DOW3	House Prices3
2014	1.3%	6.4%	0.0%	2.6%
2015	-0.3%	7.6%	-16.3%	-7.7%
2016	1.4%	8.0%	-7.8%	-5.6%
2017	2.0%	8.0%	0.1%	0.9%

The third table is the severely adverse scenario. This is a severe recession, but a fairly quick recovery. Under the severely adverse scenario, unemployment peaks at 10.1% in 2016. The DOW declines about 58% and house prices fall 25%.

Stress Test Severely Adverse Scenario
	GDP1	Unemployment2	DOW3	House Prices3
2014	0.4%	6.9%	-11.7%	1.9%
2015	-3.7%	9.9%	-49.8%	-14.9%
2016	2.1%	9.9%	33.9%	-11.0%
2017	3.9%	9.1%	43.1%	2.0%

by Calculated Risk on 10/23/2014 01:54:00 PM

A few comments on QE:

• The FOMC is expected to announce the end of QE3 on Wednesday October 29th, following the FOMC meeting next week.

• Most research shows that the primary impact of QE on interest rates is from the size of the Fed balance sheet ("stock") as opposed to the impact on supply and demand ("flow"). This means that interest rates will not spike when QE ends (something I've noted at the conclusion of previous QE purchases).

• The positive impact of QE on the economy was probably modest and was the result of lower interest rates. QE probably lowered interest rates 50 bps (maybe more or less).  However monetary policy has been the only game in town since fiscal policy has had a negative impact on the economy over the last 4 years (my view is the pivot to austerity was a mistake, and the actions of Congress for the last 3+ years have been negative for the economy).

• The possible negative impacts of QE (such as inflation, weak dollar) never materialized.  Inflation remains below the Fed's target, and the U.S. dollar has strengthened recently.   As I noted yesterday, without the recent increases in shelter (rent and OER), inflation would be close to 1% year-over-year.  Without QE, inflation might be dangerously low!

• At the end of the previous rounds of QE, the economy was still struggling from the effects of the housing bust and financial crisis. Households were still deleveraging in the aggregate. Now the economy is in much better shape, and the effects of the crisis are diminishing. Therefore I do not expect another round of QE during this recovery (although I think the first rate hike might be later than most people expect).

• On inflation: Some people are warning that inflation will pick up as the economy gains traction (because of the size of the Fed's balance sheet). That is possible, but I don't expect a rapid increase in inflation. Many of the factors that led to sharply rising inflation in the '70s are not currently present (like wages and contracts tied to CPI and different demographics).

• My view is QE was not a panacea, but overall QE was a success.  I was a frequent critic of the Fed prior to the financial crisis - I think the Fed was almost anti-regulation during the housing bubble, and initially the Fed was behind the curve when the crisis was looming - however once Bernanke became aware of the severity of the crisis, the Fed was aggressive and effective. Perhaps they were a little slow in implementing QE3 - and with low inflation an argument could be made now to extend QE - but overall I think QE was a success.

by Calculated Risk on 10/23/2014 12:13:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for September 2014. In the past month, the indexes increased in 43 states, decreased in four, and remained stable in three, for a one-month diffusion index of 78. Over the past three months, the indexes increased in 44 states, decreased in five, and remained stable in one, for a three-month diffusion index of 78

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, 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 graph for larger image.

This 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 September, 45 states had increasing activity (including minor increases). This measure declined sharply during the winter, but is close to normal for a recovery.


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 is mostly green again.

by Calculated Risk on 10/23/2014 09:10:00 AM

This house price index is only for houses with Fannie or Freddie mortgages.

From the FHFA: FHFA House Price Index Up 0.5 Percent in August

U.S. house prices rose in August, up 0.5 percent on a seasonally adjusted basis from the previous month, according to the Federal Housing Finance Agency (FHFA) monthly House Price Index (HPI). The previously reported 0.1 percent increase in July was revised to reflect a 0.2 percent increase.

The FHFA HPI is calculated using home sales price information from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac. From August 2013 to August 2014, house prices were up 4.8 percent. The U.S. index is 5.8 percent below its April 2007 peak and is roughly the same as the August 2005 index level. This is the ninth consecutive monthly house price increase.

For the nine census divisions, seasonally adjusted monthly price changes from July 2014 to August 2014 ranged from -0.6 percent in the New England and South Atlantic divisions to +1.2 percent in the Mountain division. The 12-month changes were all positive ranging from +1.9 percent in the Middle Atlantic division to +7.8 percent in the Pacific division.
emphasis added

by Calculated Risk on 10/23/2014 08:35:00 AM

The DOL reports:

In the week ending October 18, the advance figure for seasonally adjusted initial claims was 283,000, an increase of 17,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 264,000 to 266,000. The 4-week moving average was 281,000, a decrease of 3,000 from the previous week's revised average. This is the lowest level for this average since May 6, 2000 when it was 279,250. The previous week's average was revised up by 500 from 283,500 to 284,000.

There were no special factors impacting this week's initial claims.

The previous week was revised up to 266,000.

The following graph shows the 4-week moving average of weekly claims since January 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 decreased to 281,000.

This was slightly below the consensus forecast of 285,000 and suggests few layoffs.

by Calculated Risk on 10/22/2014 07:41:00 PM

From Kathleen Madigan at the WSJ: Why Rising Rents Haven’t Pumped Up Inflation

For the 12 months ended in September, [owners’ equivalent rent] OER is up 2.7%, up from 2.2% a year ago. (Actual rent paid by tenants is up a faster 3.3%.)

OER is the big gorilla in the inflation room. It accounts for 24% of the total CPI and 31% of the core. So why isn’t the accelerating OER rate pushing up the core? Because other factors are offsetting the upward push.

The biggest drag is the downward pressure on goods prices coming from overseas. ... On the service side, other major categories have seen a slowdown in markups.

Without OER, inflation would be even lower. If we look at shelter¹, All times less Shelter is up just 1.1% year-over-year, and All items less food, shelter, and energy is only up 0.9%.

Rents can't keep rising this quickly without rising wages. And without rising rents, inflation would be even lower.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 285 thousand from 264 thousand.

• Also at 8:30 AM, the Chicago Fed National Activity Index for September. This is a composite index of other data.

• At 9:00 AM, the FHFA House Price Index for August. This was originally a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.3% increase.

• At 9:00 AM, the Kansas City Fed manufacturing survey for October.

¹ From the BLS: "Rent of primary residence (rent) and Owners' equivalent rent of primary residence (rental equivalence) are the two main shelter components of the Consumer Price Index (CPI)."

by Calculated Risk on 10/22/2014 04:31:00 PM

With QE3 expected to end next week, by request, here is an updated timeline of QE (and Twist operations):

• November 25, 2008: Press Release: $100 Billion GSE direct obligations, $500 billion in MBS

• December 16, 2008 FOMC Statement: Evaluating benefits of purchasing longer-term Treasury Securities

• January 28, 2009: FOMC Statement: FOMC Stands Ready to expand program.

• March 18, 2009: FOMC Statement: Expand MBS program to $1.25 trillion, buy up to $300 billion of longer-term Treasury securities

• March 31, 2010: QE1 purchases were completed at the end of Q1 2010.

• August 27, 2010: Fed Chairman Ben Bernanke hints at QE2: Analysis: Bernanke paves the way for QE2

• November 3, 2010: FOMC Statement: $600 Billion QE2 announced.

• June 30, 2011: QE2 purchases were completed at the end of Q2 2011.

This graph show the S&P 500 and the Fed actions. Click on graph for larger image.

• September 21, 2011: "Operation Twist" announced. "The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less."

• June 20, 2012: "Operation Twist" extended. "The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities."

• August 31, 2012: Fed Chairman Ben Bernanke hints at QE3: Analysis: Bernanke Clears the way for QE3 in September

• September 13, 2012: FOMC Statement: $40 Billion per month QE3 announced.

• December 12, 2012: FOMC Statement: Announced completion of "Operation Twist", expanded QE3 to $85 Billion per month.

• May 22, 2013: In Testimony to Congress, The Economic Outlook, Fed Chairman Ben Bernanke said “If we see continued improvement and we have confidence that that is going to be sustained, then in the next few meetings, we could take a step down in our pace of purchases.” (aka "Taper Tantrum").

• June 19, 2013: In Chairman Bernanke’s Press Conference, Bernanke said "If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year."

• December 18, 2013: FOMC Statement: Announced "tapering" of QE3. Note: QE3 tapered $10 billion per month at each meeting of 2014.

• October 29, 2013: FOMC expected to complete QE3 (next week).

by Calculated Risk on 10/22/2014 01:25:00 PM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.8% annualized rate) in September. The 16% trimmed-mean Consumer Price Index also rose 0.1% (1.8% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.0% annualized rate) in September. The CPI less food and energy also rose 0.1% (1.7% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for September here.

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 2.2%, the trimmed-mean CPI rose 1.9%, and the CPI less food and energy rose 1.7%. Core PCE is for August and increased just 1.5% year-over-year.

On a monthly basis, median CPI was at 1.8% annualized, trimmed-mean CPI was at 1.8% annualized, and core CPI increased 1.7% annualized.

On a year-over-year basis these measures suggest inflation remains at or below the Fed's target of 2%.

by Calculated Risk on 10/22/2014 09:55:00 AM

With the release of the CPI report this morning, we now know the Cost of Living Adjustment (COLA), and the contribution base for 2015.

Currently CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is a discussion from Social Security on the current calculation (1.7% increase) and a list of previous Cost-of-Living Adjustments. Note: this is not the headline CPI-U.

The contribution and benefit base will be $118,500 in 2015.

The National Average Wage Index increased to $44,888.16 in 2013, up 1.28% from $44,321.67 in 2012 (used to calculated contribution base).  A very small increase ...

SPECIAL NOTE on CPI-chained: There has been some discussion of switching from CPI-W to CPI-chained for COLA. This will not happen this year, but could happen in the future, and the switch would impact future Cost-of-living adjustments, see: Cost of Living and CPI-Chained.

If CPI-chained was used instead of CPI-W, the COLA increase would be 1.6% instead of 1.7%. CPI-chained would have minimal impact on any one year, but would reduce benefits over time.

by Calculated Risk on 10/22/2014 09:01:00 AM

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

From AIA: Architecture Billings Index Shows Robust Conditions Ahead for Construction Industry

With all geographic regions and building project sectors showing positive conditions, there continues to be a heightened level of demand for design services signaled in the latest Architecture Billings Index (ABI). As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the September ABI score was 55.2, up from a mark of 53.0 in August. This score reflects an increase in design activity (any score above 50 indicates an increase in billings). The new projects inquiry index was 64.8, following a mark of 62.6 the previous month.

The AIA has added a new indicator measuring the trends in new design contracts at architecture firms that can provide a strong signal of the direction of future architecture billings. The score for design contracts in August was 56.8.

“Strong demand for apartment buildings and condominiums has been one of the main drivers in helping to keep the design and construction market afloat in recent years,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “There continues to be a healthy market for those types of design projects, but the recently resurgent Institutional sector is leading to broader growth for the entire construction industry.”

• Regional averages: South (55.3) , Midwest (55.1), West (54.2), Northeast (51.0) [three month average]
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 55.2 in September, up from 53.0 in August. Anything above 50 indicates expansion 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.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  So the readings over the last year suggest an increase in CRE investment this year and in 2015.