by Calculated Risk on 11/18/2014 09:02:00 PM

An excerpt from a research piece by Goldman Sachs economist Alec Phillips: Fiscal Effects on Growth Should Be Neutral over the Coming Year

• As 2015 approaches, we take a look at our fiscal policy assumptions for the coming year. Overall, we estimate the effect of federal fiscal policy on growth to be very slightly positive in 2014, at about +0.1pp, and roughly neutral in 2015.

• Tax policy looks fairly stable. We do not expect any significant changes in tax policy, assuming Congress extends a number of tax benefits that expired at the start of 2014.

• On the spending side, we see modest downside risk to our projection of federal spending, offset to some extent by the possibility that federal funding, particularly for defense, could be increased by Congress in 2015. Spending on subsidies under the Affordable Care Act (ACA) poses modest downside risk: enrollment estimates for 2015 have been reduced, and an upcoming Supreme Court decision could reduce them further.

Less fiscal drag in 2015 will be a positive for the economy!

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

• At 8:30 AM ET, Housing Starts for October. The consensus is for total housing starts to increase to 1.025 million (SAAR) in October.

• During the day: The AIA's Architecture Billings Index for October (a leading indicator for commercial real estate).

• At 2:00 PM, the the FOMC Minutes for the Meeting of October 28-29, 2014

by Calculated Risk on 11/18/2014 06:25:00 PM

I used to post a graph of the NAHB homebuilder confidence index and single family housing starts. However I stopped posting the graph when I realized that many readers misunderstood the graph.

First, here is the graph through the November builder confidence report released this morning and housing starts for September (October starts will be released tomorrow).

Click on graph for larger image.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale).

This chart shows that confidence and single family starts generally move in the same direction, but the graph doesn't tell us anything about the expected level of single family starts.

From the NAHB:

[T]he NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores from each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

How builders respond to this survey is dependent on the recent past. After a few years of sales around 450 thousand, annual sales of 600+ thousand seem "fair" or "good" to many builders - and the NAHB index increased significantly.

But, as a counter example, in 1995 many builders thought single family sales of 1 million were "poor" (the index fell to 40). But that decline in confidence was because sales were declining from a recent peak of 1.3 million.

It should be no surprise that confidence is currently at 58 with single family starts currently at 650 thousand, but that confidence in 1995 was at 40 with single family starts at 1 million! Confidence is relative to the recent past!

With confidence at 58 for November, no one should expect a specific level of starts (or look at the gap between the two lines), however we can probably expect starts to increase some from recent levels. At that is why I used to post this graph (Several times I cautioned not to expect starts to increase in step with confidence, but some readers missed that warning).

by Calculated Risk on 11/18/2014 02:21:00 PM

Here is an indicator that I follow on trucking, from the ATA: ATA Truck Tonnage Index Increased 0.5% in October

American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index rose 0.5% in October, following a revised decline of 0.8% during the previous month. In October, the index equaled 132.1 (2000=100), which was the second highest level on record after August.

Compared with October 2013, the SA index increased 4.5%, up from September’s 2.9% year-over-year gain. Year-to-date, compared with the same period last year, tonnage is up 3.2%. ...

“Tonnage made a nice comeback after declining in September,” said ATA Chief Economist Bob Costello. “The gain fits with the increases in retail sales and factory output during October, as well as with good anecdotal reports about the fall freight season.”

“The solid month-to-month gain, coupled with the acceleration in the year-over-year growth rate, is a good sign for the fourth quarter,” Costello said. “In addition, I’m expecting a solid fall freight season as holiday sales are forecasted to see the largest increase since 2011.”

Trucking serves as a barometer of the U.S. economy, representing 69.1% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.7 billion tons of freight in 2013. Motor carriers collected $681.7 billion, or 81.2% of total revenue earned by all transport modes.
emphasis added

Click on graph for larger image.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index.

The index is now up 4.5% year-over-year.

by Calculated Risk on 11/18/2014 12:34:00 PM

Note: There is a trucker strike in LA that might impact port traffic in November. From the LA Times: L.A.-area port truckers expand strike to three new companies

A port truck driver strike at the twin ports of Los Angeles and Long Beach grew Monday, as protest organizers targeted three more companies that they accuse of wage theft. ... The expanded strike comes as tension at the nation’s busiest port complex is high. A powerful dockworkers union and multinational shipping lines are negotiating a new contract for about 20,000 workers on the West Coast.

Dockworkers have been without a contract since July ...

Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for October since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 0.5% compared to the rolling 12 months ending in September.   Outbound traffic was down 0.9% compared to 12 months ending in September.

Inbound traffic has been increasing, and outbound traffic has been mostly moving sideways.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

This was the 3rd highest level for imports in October, only behind October 2006 and 2007.

Imports were up 5.7% year-over-year in October, exports were down 10.4% year-over-year.

This might suggest U.S. retailers are expecting a happy holiday season - but exports suggest a slowdown in Asia.

by Calculated Risk on 11/18/2014 10:00:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 58 in November, up from 54 in October. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Rises Four Points in November

Builder confidence in the market for newly built single-family homes rose four points to a level of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.

“Growing confidence among consumers is what’s fueling this optimism among builders,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “Members in many areas of the country continue to see increasing buyer traffic and signed contracts.”

“Low interest rates, affordable home prices and solid job creation are contributing to a steady housing recovery,” said NAHB Chief Economist David Crowe. “After a slow start to the year, the HMI has remained above the 50-point benchmark for five consecutive months, and we expect the momentum to continue into 2015.”
...
All three HMI components increased in November. The index gauging current sales conditions rose five points to 62, while the index measuring expectations for future sales moved up two points to 66 and the index gauging traffic of prospective buyers increased four points to 45.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose three points to 44, the South posted a four-point gain to 62, and the West edged up one point to 58. The Midwest registered a two-point loss to 57.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was above the consensus forecast of 55.