by Calculated Risk on 10/19/2012 08:36:00 AM

Each year I track seasonal retail hiring during October, November and December. This usually provides an early clue on holiday retail sales. Currently the NRF is forecasting about the same level of seasonal hiring as last year.

From the National Retail Federation: Expect Solid Growth This Holiday Season

Tempered by political and fiscal uncertainties but supported by signs of improvement in consumer confidence, holiday sales this year will increase 4.1 percent to $586.1 billion. NRF’s 2012 holiday forecast is higher than the 10-year average holiday sales increase of 3.5 percent.
...
According to NRF, retailers are expected to hire between 585,000 and 625,000 seasonal workers this holiday season, which is comparable to the 607,500 seasonal employees they hired last year.

Last year was the highest level of seasonal hiring since 2007 (seasonal hiring was especially weak in 2008, and then improved some in 2009). There is also a shift towards online buying that is keeping down seasonal hiring.

by Calculated Risk on 10/18/2012 08:37:00 PM

The most important numbers in the existing home sales report, to be released Friday morning, are inventory and percent conventional sales - not total sales (although that will be the focus of most of the media).

Inventory is important because this is "visible inventory" (as opposed to "shadow inventory"), and visible inventory that has the largest impact on prices. The percent of conventional sales is important because this gives a hint as to the health of the overall market.

Imagine if sales move mostly sideways for the next few years, but the number of distressed sales steadily declines. That would be a sign of an improving market.

Unfortunately I'm not very confident in the NAR methodology for estimating the percent of distressed sales. This data comes from a monthly survey for the Realtors® Confidence Index and is an unscientific sample. However the regional data Tom Lawler and I have been tracking suggests the percent of conventional sales is increasing.

In August 2012, the NAR reported "Distressed homes ... accounted for 22 percent of August sales (12 percent were foreclosures and 10 percent were short sales), down from 24 percent in July and 31 percent in August 2011" and last year, the NAR reported "Distressed homes ... accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from ... 35 percent in September 2010." 

So it appears the percent of distressed sales is declining (the percent of conventional sales is increasing), and I'd expect the NAR to report distressed sales in the low 20 percent range.

Housing economist Tom Lawler estimates the NAR will report sales of 4.70 million and a monthly decline in the inventory of existing homes for sale of about 3.2% in September.

On Friday:
• At 10:00 AM, the National Association of Realtors (NAR) will releases Existing Home Sales for September. The consensus is for sales of 4.75 million on seasonally adjusted annual rate (SAAR) basis. Sales in August 2012 were 4.82 million SAAR.

• Also at 10:00 AM, the BLS will release the Regional and State Employment and Unemployment report for September 2012.


Another question for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 10/18/2012 03:18:00 PM

Freddie Mac reported earlier today: Mortgage Rates Near Record Lows As Home Construction Builds Up Steam

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed mortgage rates edging slightly lower with the 30-year fixed averaging 3.37 percent, just above its all-time record low of 3.36 percent, and the average 15-year fixed dipping to a new all-time record low at 2.66 percent.

And the MBA reported yesterday that refinance activity decreased last week, but is still near the highest level since early 2009.

Here is a graph comparing mortgage rates from the Freddie Mac Primary Mortgage Market Survey® (PMMS®) and the refinance index from the Mortgage Bankers Association (MBA).

UPDATE: left axis is MBA refinance index, 1990=100.

Click on graph for larger image.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a huge refinance boom - and that is what we are seeing!

There has also been an increase in refinance activity from borrowers with negative equity and loans owned or guaranteed by Fannie or Freddie (see The HARP Refinance Boom Continued in August) .

The second graph shows the 15 and 30 year fixed rates from the Freddie Mac survey.

The Primary Mortgage Market Survey® started in 1971 (15 year in 1991). The 30 year rate is near a record low for the Freddie Mac survey, and rates for 15 year fixed loans is at a now low this week.

by Calculated Risk on 10/18/2012 12:12:00 PM

Occasionally, over the last several years, I've posted a list of downside risks to economic growth - and here is another one. Currently my forecast is still for sluggish and choppy growth, but I think there are reasons to expect US economic growth to pickup in the next year or two, perhaps to trend growth. As I noted last month in Two Reasons to expect Economic Growth to Increase, residential investment is now a tailwind for the economy, and the drag from state and local government cutbacks is mostly behind us.

There are always many downside risks (meteor strikes, major terrorist attack, war somewhere - possibly with Iran), but I think these are the most probable downside risks:

• The European financial crisis. The European crisis has been threatening to spill over into the US for several years. Looking back, I was writing about Greece, Ireland and Spain sovereign debt issues in 2009. This year the recession in Europe is hitting US exports, but so far there is little financial contagion.

The European situation could spin out of control at any time. Currently the unemployment rate is 25.1% in both Spain and Greece, and that is political unsustainable. There are decisions to made soon regarding Greece (another round of financial help) and Spain (when will they ask for a bailout?) - and also about fiscal union and easing back on austerity.

• The economic slowdown in China. The recession in Europe has spilled over into China, and has led to fears of a sharp slowdown. From the WSJ: China's Growth Continues to Slow

Growth in China's gross domestic product fell to 7.4% in the third quarter compared with a year earlier, China's National Bureau of Statistics said Thursday, down from 7.6% in the second quarter and the weakest since the beginning of 2009. The seventh consecutive deceleration reflected a combination of weak demand from abroad, flagging investment at home, and insufficient spending by China's households to pick up the slack.

Data for September showed some signs of stabilization. Industrial output growth rose to 9.2% year-over-year, from 8.9% in August. Exports also bounced back, up 9.9% year-over-year in September, after 2.7% in the previous month. And Chinese refineries processed a record high amount of crude oil, 7% more than a year earlier.

China reports GDP on a year-over-year basis (the US reports an annualized rate quarterly). A sharp slowdown in China might lead to a higher trade deficit with the US - and also might reveal some financial issues in China. As Warren Buffett said "It's only when the tide goes out that you learn who's been swimming naked."

Of course a slowdown in China might lead to lower commodity prices, and that would help many sectors in the US.

• The Fiscal Slope. This is commonly called the "fiscal cliff", but it is more of a slope. This refers to several federal tax increases and spending cuts that are scheduled to happen at the beginning of 2013. This includes ending the Bush-era tax cuts, ending the temporary payroll tax reduction, ending extended unemployment benefits, and some large budget cuts mostly for defense spending. No one expect this to be resolved before the election, but after the election this could become a significant issue. This doesn't have to be resolved immediately - policymakers could wait a few months - but this probably has to be resolved fairly early next year.

My assumption is that some sort of reasonable agreement will be reached and the fiscal slope will only have a minor impact on economic growth in 2012. My guess could be wrong, and policymakers might not be able to reach a deal.

Note: There is also the possibility of stronger than expected growth next year. This could lead to the Federal Reserve slowing or even stopping QE3 - but I think that would be considered a strong positive. Right now, sluggish growth with some pickup in 2013, seems most likely.

by Calculated Risk on 10/18/2012 10:00:00 AM

The Philly Fed manufacturing index showed expansion in October after five consecutive months of contraction. From the Philly Fed: October Manufacturing Survey

Firms responding to the October Business Outlook Survey reported a modest improvement in business activity this month. The survey’s indicators for general activity returned to positive territory, while new orders and shipments recorded levels near zero. But firms reported continuing declines in employment and hours worked. Indicators for the firms’ expectations over the next six months remained positive.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased 8 points, to 5.7, marking the first positive reading since April.

Labor market conditions at the reporting firms remained weak this month. The current employment index dipped 3 points, to ‐10.7, its lowest reading since September 2009.
emphasis added

Earlier in the week, the NY Fed reported:

The October Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to decline for a third consecutive month. The general business conditions index increased four points but remained negative at -6.2.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through October. The ISM and total Fed surveys are through September.

The average of the Empire State and Philly Fed surveys increased in October but was still slightly negative.  This suggests another weak reading for the ISM manufacturing index.