by Calculated Risk on 7/01/2011 08:24:00 PM

CR Note: I think this is pretty funny ...

Economist Tom Lawler writes: “Consensus” Home Price Expectations from MacroMarkets; Do the “Experts” Actually Look At All Available Data?

MacroMarkets reported two weeks ago that the average forecast for the growth rate in the S&P/Case-Shiller national home price from Q4/2010 to Q4/2011 of the 108 “economists, real estate experts, investment and market strategists” in its June survey was -3.52%, down significantly from -1.38% in March and -0.17% in December. The median forecast called for a 3.1% decline. In addition, the average forecast for the SPCS HPI from Q4/2011 to Q1/2012 fell to +0.46% in the June survey from 1.26% in March and 3.07% in June.

MacroMarkets Survey Results, Projections for the S&P/Case-Shiller "National" Home Price Index
	% Change, Q4/2009 - Q4/2010			% Change, Q4/2010 - Q4/2011			% Change, Q4/2011 - Q4/2012
	Average	Median	SDEV	Average	Median	SDEV	Average	Median	SDEV
10-Jun	-1.36%	-0.70%	3.03%	1.33%	2.00%	2.56%	2.70%	3.00%	2.33%
10-Jul	1.68%	-1.00%	3.00%	1.05%	1.20%	2.72%	2.55%	2.50%	2.19%
10-Aug	-2.08%	-2.00%	2.98%	0.78%	1.00%	2.82%	2.43%	2.50%	2.53%
10-Sep	-0.82%	-0.18%	2.96%	0.77%	1.10%	2.84%	2.54%	2.50%	2.10%
10-Oct	-0.59%	-0.30%	2.22%	0.20%	1.00%	3.11%	2.17%	2.50%	2.23%
10-Nov	-0.54%	-0.20%	2.10%	0.05%	1.00%	3.07%	2.10%	2.50%	2.28%
10-Dec				-0.17%	0.65%	3.07%	1.94%	2.23%	2.01%
11-Mar				-1.38%	-0.50%	3.00%	1.26%	1.80%	2.20%
11-Jun				-3.52%	-3.10%	3.15%	0.46%	1.00%	2.50%
Actual	-3.79%

Obviously the “surprising” weakness in the SPCS HPI in the first three months of 2011 was the major catalyst for the substantial reduction in the average and median projection for 2011, and I’m guessing that some of the weak economy numbers over the last few months contributed to the drop in the 2012 projections as well. In the June survey participants did not have the April SPCS “composite-20” report yet, but other HPIs showing a bounce up in April were available – though I’m guessing many of the “expert” participants don’t look at all of the data available.

Indeed, the “abysmal” track record of the “consensus” forecast for 2010 highlights how many of these “experts” just don’t follow the markets and incoming data. While in June of last year the average projection called for a 1.36% drop in the SPCS HPI from Q4/09 to Q4/10, in November the “consensus” had improved to show a 0.54% decline. More shockingly, of the 95 survey participants who allowed their forecasts to be published (some don’t), an astounding 32 of them were still projecting a Q4/09 – Q4/10 increase in the SPCS HPI last November – which just seemed inane based on all of the data available at that time. In the November 2010 survey, 55 of the 95 participants with disclosed forecasts missed the “actual” 3.79% decline (Q4/09 – Q4/10) in the SPCS national HPI by over three percentage points – 54 were too high, and one was too low! And this was in November!!!!! (I was off by 0.79 percentage point, which I viewed as a disturbingly high miss, yet only 5 survey participants -- of which I am one -- were closer than me!)

CR note: This was from Tom Lawler. Obviously the "consensus" is suspect. We've seen this several times in recent weeks. As an example, this week Lawler correctly predicted a significant rebound in the Pending Home Sales index, and the "consensus" was for a 2% decline!

Back in May I pointed out the "consensus" for employment, auto sales, and the ISM manufacturing index all seemed "too high" (I was being polite) - and the misses were signficant. Just something to remember when looking at the consensus ...

Earlier:
• ISM Manufacturing index increases in June
• U.S. Light Vehicle Sales 11.45 million Annual Rate in June

by Calculated Risk on 7/01/2011 03:18:00 PM

A few comments:
• Obviously the Japanese supply chain disruption impacted auto sales significantly in May and June. This has also negatively impacted manufacturing overall.

• The good news is the supply issues are being resolved ahead of schedule and the automakers expect sales to be back up over 13 million Seasonally Adjusted Annual Rate (SAAR) by August.

• The automakers lowered their incentives again in June, and this also impacted sales. From TrueCar.com:

“The upside to a lack of inventory on some vehicles is that incentives decreased and transaction prices soared to the highest levels ever recorded ...” said Jesse Toprak, VP of Industry Trends and Insights for TrueCar.com.

Larger incentives will return soon, especially for cars that haven't been selling well.

• The California sales tax was reduced 1% starting on July 1st. This probably delayed some purchases in California from June to July.

Click on graph for larger image in graph gallery.

Based on an estimate from Autodata Corp, light vehicle sales were at a 11.45 million SAAR in June. That is up 2.8% from June 2010, and down 2.6% from the sales rate last month (May 2011).

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for June (red, light vehicle sales of 11.45 million SAAR from Autodata Corp).

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

This was well below the consensus estimate of 12 million SAAR. However I expect a bounce back in sales over the next couple of months.

by Calculated Risk on 7/01/2011 02:40:00 PM

Note: I'll post a graph of June vehicle sales, probably around 4 PM ET (after all the data is released).

In a research note released today, Goldman Sachs economist Andrew Tilton listed five hopeful signs for the 2nd half of 2011:

First, commodity prices have eased. Using a standard seasonal adjustment procedure, retail gasoline prices are back to end-2010 levels.
...
Second, despite the increase in interest rates this week, financial conditions are easier than at any point in 2010. Bank lending standards remain tight, but these too are easing on the margin.
...
Third, the decline in house prices may be abating.
...
Fourth, vehicle production has rebounded following large disruptions due to the Japanese earthquake and tsunami.
...
Fifth, labor market indicators seem to have stabilized after some worrying readings in late April and May, although we’ll have to wait until next Friday’s June employment report for a more definitive assessment. ... We expect an increase of 125,000 payroll jobs, with the unemployment rate dropping back to 9.0%.

CR note: The recent increase in house prices is mostly seasonal, and I expect house prices to decline NSA (Not Seasonally Adjusted) late this year. But it does appear the pace of house price declines has slowed.

The improvement in vehicle production will probably show up as an increase in sales in July and August. Yesterday, from Edmunds.com: Ford: Industry Car Sales to Rise after June "[Ford Motor Co.’s chief sales analyst George] Pipas said July should be improved but it won’t be until at least August before the U.S. industry returns to a 13 million or more SAAR."

I'll post the June auto sales numbers soon, but the real pickup should be in Q3.

I was expecting employment to pickup in July, but Goldman thinks there will be an increase in June to 125,000 payroll jobs added compared to only 54,000 in May. That would be great news.

Earlier:
• ISM Manufacturing index increases in June

by Calculated Risk on 7/01/2011 11:40:00 AM

Catching up ... this morning from the Census Bureau reported that overall construction spending decreased in May:

[C]onstruction spending during May 2011 was estimated at a seasonally adjusted annual rate of $753.5 billion, 0.6 percent (±1.6%)* below the revised April estimate of $757.9 billion. The May figure is 7.1 percent (±1.8%) below the May 2010 estimate of $811.2 billion.

Private construction spending also decreased in May:

Spending on private construction was at a seasonally adjusted annual rate of $477.2 billion, 0.4 percent (±1.4%)* below the revised April estimate of $479.3 billion. Residential construction was at a seasonally adjusted annual rate of $228.9 billion in May, 2.1 percent (±1.3%) below the revised April estimate of $233.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $248.3 billion in May, 1.2 percent (±1.4%)* above the revised April estimate of $245.4 billion.

Click on graph for larger image in graph gallery.

This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Residential spending is 66% below the peak in early 2006, and non-residential spending is 40% below the peak in January 2008.

The small increase in non-residential in May was mostly due to power.

Construction spending is still mostly moving sideways (and a little down). I expect some pickup in residential construction spending as more multi-family units are started.

by Calculated Risk on 7/01/2011 10:15:00 AM

PMI was at 55.3% in June, up from 53.5% in May. The employment index was at 59.9%, up from 58.2% and new orders increased to 51.6%, up from 51.0%. All better than in May.

From the Institute for Supply Management: June 2011 Manufacturing ISM Report On Business®

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The PMI registered 55.3 percent, an increase of 1.8 percentage points from May, indicating expansion in the manufacturing sector for the 23rd consecutive month. New orders and production were both modestly up from last month, and employment showed continued strength with an increase of 1.7 percentage points to 59.9 percent. The rate of increase in prices slowed for the second consecutive month, dropping 8.5 percentage points in June to 68 percent. This follows a similar reduction of 9 percentage points in the Prices Index in May, and is the lowest figure since August 2010 when the index registered 61.5 percent. While the rate of price increases has slowed and the list of commodities up in price has shortened, commodity and input prices continue to be a concern across several industries.”

Click on graph for larger image in new window.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 51.7%. Earlier in the month it looked like the ISM was going to be weak, but recent regional reports indicated improvement towards the end of June.