by Calculated Risk on 6/25/2014 02:09:00 PM

From Merrill Lynch:

In the final release of 1Q GDP, growth was revised down significantly to -2.9% qoq saar from -1.0% previously. This was a big disappointment ...

The downward revision owed to two primary factors: weaker consumer spending on healthcare and a wider trade deficit. Updated data on healthcare spending contributed to a 1.2pp downward revision to GDP growth ... The large change to healthcare spending was due to the BEA significantly overestimating the impact of the Affordable Care Act (ACA).

The other major moving part was in net exports, largely due to a wider services trade deficit. ... This equates to an additional 0.6pp drag on GDP growth.
...
We caution against reading too much into the weakness, as it is clear that special factors during the quarter distorted growth. The severe winter weather weighed heavily on consumption, fixed investment and trade. Furthermore, there was a notable inventory drawdown that amounted to a 1.7pp drag on growth, following two strong quarters of inventory build in 3Q and 4Q of 2013. Despite the deeper contraction in this final release, we are not revising 2Q GDP growth. We continue to expect a 4.0% rebound in the second quarter, and the recent data suggest that we are headed in that direction. However, uncertainty around this number remains elevated: there could continue to be special factors at play stemming from the weakness in 1Q. Moreover, benchmark GDP revisions, released with the first estimate of 2Q GDP in July, could alter the trajectory.

Assuming 4.0% growth in 2Q and solid 3.0% growth in 2H, growth will still only average 1.7% this year. It certainly was not the start of the year we were hoping for.
emphasis added

by Calculated Risk on 6/25/2014 11:17:00 AM

The Department of Transportation (DOT) reported:

Travel on all roads and streets changed by 1.8% (4.6 billion vehicle miles) for April 2014 as compared with April 2013.

Travel for the month is estimated to be 254.9 billion vehicle miles.

Cumulative Travel for 2014 changed by 0.0% (0.3 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is still mostly moving sideways ...


Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 77 months - 6+ years - and still counting.  Currently miles driven (rolling 12 months) are about 2.3% below the previous peak.

The second graph shows the year-over-year change from the same month in the previous year.

 In April 2014, gasoline averaged of $3.74 per gallon according to the EIA.  That was up from April 2013 when prices averaged $3.64 per gallon.

Of course gasoline prices are just part of the story.  The lack of growth in miles driven over the last 6+ years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

With all these factors, it might take a few more years before we see a new peak in miles driven.

by Calculated Risk on 6/25/2014 08:35:00 AM

From the BEA: Gross Domestic Product: First Quarter 2014 (Third Estimate)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 2.9 percent in the first quarter of 2014 according to the "third" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2013, real GDP increased 2.6 percent....

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, real GDP was estimated to have decreased 1.0 percent. With the third estimate for the first quarter, the increase in personal consumption expenditures (PCE) was smaller than previously estimated, and the decline in exports was larger than previously estimated ...

The decrease in real GDP in the first quarter primarily reflected negative contributions from private inventory investment, exports, state and local government spending, nonresidential fixed investment, and residential fixed investment that were partly offset by a positive contribution from PCE. Imports, which are a subtraction in the calculation of GDP, increased.

Here is a Comparison of Third and Second Estimates. PCE growth was revised down from 3.1% to 1.0%. Ouch!

by Calculated Risk on 6/25/2014 07:01:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 1.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 20, 2014. ...

The Refinance Index decreased 1 percent from the previous week to the lowest level since May 2014. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier to the lowest level since May 2014. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.33 percent from 4.36 percent, with points decreasing to 0.18 from 0.24 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

The refinance index is down 75% from the levels in May 2013.

As expected, refinance activity is very low this year.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is down about 18% from a year ago.

by Calculated Risk on 6/24/2014 08:33:00 PM

From Neil Irwin at The Upshot (NY Times): Rise in Home Prices Is Slowing, and That’s a Good Thing

Home price numbers tend to move in more steady, gradual waves than other economic data. They also come out with long delays; the April Case-Shiller numbers are actually based on transactions that closed from February through April — and those home sales generally went under contract a month or two before they closed.

So the latest home price readings are very much a look in the rearview mirror, and it’s a look that suggests a deceleration is underway. ... The healthiest thing for the housing market would be home price rises that thread the needle: high enough that homeowners are building equity and homebuilders have incentive to start new construction, but low enough that they don’t significantly outpace wage growth and result in unaffordable housing and a painful correction. The April home price numbers suggest we may be heading there.

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM, Q1 GDP (third estimate). This is the third estimate of Q1 GDP from the BEA. The consensus is that real GDP decreased 1.8% annualized in Q1, revised down from the second estimate of a 1.0% decrease.

• Also at 8:30 AM, Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.4% increase in durable goods orders.