by Calculated Risk on 1/28/2013 11:38:00 AM

From the Dallas Fed: Texas Manufacturing Activity Strengthens in January

Texas factory activity rose sharply in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 3.5 to 12.9, which is consistent with faster growth.

Other measures of current manufacturing activity also indicated stronger growth in January. The new orders index jumped 13 points to 12.2, its highest reading since March 2011. The capacity utilization index shot up from 2.1 to 14.0, implying utilization rates increased faster than last month. The shipments index rose 9 points to 21.9, indicating shipments quickened in January.

Perceptions of broader business conditions were more positive in January. The general business activity index increased from 2.5 to 5.5, its best reading since March. The company outlook index also rose sharply to 12.6, largely due to a drop in the share of firms reporting a worsened outlook from 10 percent in December to 6 percent in January.

Labor market indicators reflected a sharp increase in hiring but flat workweeks.

This was the strongest regional manufacturing report for January and above expectations of a reading of 4.0 for the general business activity index.

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

The average of the five regional surveys turned negative again.

The ISM index for January will be released Friday, Feb 1st, and these surveys suggest another weak reading - and probably indicating contraction (below 50). Note: The Markit Flash index was surprisingly strong in January.

by Calculated Risk on 1/28/2013 10:00:00 AM

From the NAR: Pending Home Sales Down in December but Remain on Uptrend

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, fell 4.3 percent to 101.7 in December from 106.3 in November but is 6.9 percent higher than December 2011 when it was 95.1. The data reflect contracts but not closings.
...
Lawrence Yun , NAR chief economist, said there is an uneven uptrend. "The supply limitation appears to be the main factor holding back contract signings in the past month. Still, contract activity has risen for 20 straight months on a year-over-year basis," he said. "Buyer interest remains solid, as evidenced by a separate Realtor® survey which shows that buyer foot traffic is easily outpacing seller traffic."

Yun said shortages of available inventory are limiting sales in some areas. "Supplies of homes costing less than $100,000 are tight in much of the country, especially in the West, so first-time buyers have fewer options," he said ...

The PHSI in the Northeast fell 5.4 percent to 78.8 in December but is 8.4 percent higher than December 2011. In the Midwest the index rose 0.9 percent to 104.8 in December and is 14.4 percent above a year ago. Pending home sales in the South declined 4.5 percent to an index of 111.5 in December but are 10.1 percent higher December 2011. In the West the index fell 8.2 percent in December to 101.0 and is 5.3 percent below a year ago.

Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in January and February.

As I've noted several times, with limited inventory at the low end and fewer foreclosures, we might see flat or even declining existing home sales. The key for sales is that the number of conventional sales is increasing while foreclosure and short sales decline.

by Calculated Risk on 1/28/2013 09:04:00 AM

People frequently ask how a sector that currently accounts for 2.5% of the US economy can be so important. First, residential investment has large swings during the business cycle, and will probably increase sharply over the next few years. Second, there are spillover effects from housing - meaning housing has a much larger impact on overall economic activity than just "residential investment".

We are starting to see some signs of spillover from Kate Linebaugh and James Hagerty at the WSJ: From Power Tools to Carpets, Housing Recovery Signs Mount

Companies that sell power tools, air conditioners, carpet fibers, furniture and cement mixers are reporting stronger sales for the fourth quarter, providing further evidence that a turnaround in the housing market is taking hold.

... executives at companies exposed to housing are growing more optimistic. Improvement in the sector could help broad tracts of the economy by creating jobs, improving consumer confidence and boosting property-tax receipts for municipalities. Construction typically is a big job creator during expansions, though the industry has been slow to staff up during the current recovery.

"The housing recovery will help lift businesses that have long been dormant," said Mark Vitner, senior economist at Wells Fargo. "People will be fixing up homes to put them up for sale—buying new air conditioners, painting, fixing roofs. As the new-home market picks up, that really feeds into [gross domestic product]."

Weekend:
• Summary for Week Ending Jan 25th
• Schedule for Week of Jan 27th
• Thresholds for QE
• Me, Me, Me

by Calculated Risk on 1/27/2013 09:16:00 PM

This is related to my earlier post on Thresholds for QE, from Binyamin Appelbaum at the NY Times: At Fed, Nascent Debate on When to Slow Asset Buying

The looming question is how much longer the asset purchases will continue.

... the discussion already has begun to swing toward informal thresholds.

Mr. Rosengren said last year that the Fed should certainly continue the purchases until the unemployment rate declines at least below 7.25 percent.

James Bullard, president of the Federal Reserve Bank of St. Louis ... [told] CNBC that he expected the unemployment rate to drop to near 7 percent by the end of the year and that it would then be appropriate for the Fed to consider suspending its program of asset purchases.

This discussion is just starting, and I don't expect any significant announcements after the FOMC meeting this week.

The Asian markets are mostly green tonight; the Shanghai Composite index is up 1%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures and DOW are flat (fair value).

Oil prices have moved up a little recently with WTI futures at $95.97 per barrel and Brent at $113.27 per barrel. Gasoline prices are up about 5 cents over the last 10 days.

Monday:
• At 8:30 AM ET, Durable Goods Orders for December from the Census Bureau. The consensus is for a 1.6% increase in durable goods orders.

• At 10:00 AM, the NAR will release their Pending Home Sales Index for December. The consensus is for a 0.3% decrease in the index.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for January will be released. This is the last of the regional surveys for January. The consensus is a decrease to 4.0 from 6.8 in December (above zero is expansion).

Weekend:
• Summary for Week Ending Jan 25th
• Schedule for Week of Jan 27th
• Thresholds for QE
• Me, Me, Me

by Calculated Risk on 1/27/2013 05:35:00 PM

Fun on a Sunday with a hat tip to reader Jeff for suggesting this post.

Last year I posted a photo of the early construction phase of the PIMCO Taj Mahal. Now they are working on the interior of the building (building on the left).

The question is: Does completion of the PIMCO building mark the top for bond prices?


Earlier:
• Summary for Week Ending Jan 25th
• Schedule for Week of Jan 27th
• Thresholds for QE
• Me, Me, Me