by Calculated Risk on 1/14/2015 08:30:00 AM

On a monthly basis, retail sales decreased 0.9% from November to December (seasonally adjusted), and sales were up 3.2% from December 2013. Sales in November were revised down from an increase of +0.7% to +0.4%.

From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $442.9 billion, a decrease of 0.9 percent from the previous month, but up 3.2 percent above December 2013. ... The October to November 2014 percent change was revised from +0.7 percent to +0.4 percent.

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline decreased 0.3%.

Retail sales ex-autos decreased 1.0%. 

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales ex-gasoline increased by 5.5% on a YoY basis (3.2% for all retail sales).

The decrease in December was well below consensus expectations of a 0.1% decrease.  Both October and November were revised down.

This was a weak report even after removing the impact of lower gasoline prices.

by Calculated Risk on 1/14/2015 07:01:00 AM

From the MBA: Mortgage Applications Increase by 49 Percent, Largest Weekly Gain Since November 2008

Mortgage applications increased 49.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 9, 2015....

The Refinance Index increased 66 percent from the previous week to the highest level since July 2013. The seasonally adjusted Purchase Index increased 24 percent from one week earlier to the highest level since September 2013.
...
“The US economy and job market continued to show signs of strength, but weakness abroad and tumbling oil prices have led to further declines in longer-term interest rates,” said Mike Fratantoni, MBA’s Chief Economist.

“Mortgage rates reached their lowest level since May of 2013, and refinance application volume soared, more than doubling on an unadjusted basis, and up 66 percent after adjusting for the fact that the previous week included the New Year’s holiday. ... In addition to the drop in rates, and news of improvement in the job market, there was additional positive news for prospective homebuyers with evidence that credit availability has increased somewhat, and with FHA’s announcement of a decrease in their mortgage insurance premiums. Purchase application volume increased by almost 24 percent, with stronger growth for conventional applications than for government loans. Purchase application volume was at its highest level since September 2013, increased on a year over year basis in the aggregate, and notably increased across most loan size categories, particularly for the conforming, middle of the market loan segments that had been weak for much of the past year. FHA purchase application volume was up by 17 percent for the week on a seasonally adjusted basis.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.89 percent, the lowest level since May 2013, from 4.01 percent, with points decreasing to 0.23 from 0.28 (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.

2014 was the lowest year for refinance activity since year 2000.

Even with the recent sharp decline in rates, mortgage rates would have to decline further for there to be a really large refinance boom.  But it looks like 2015 will see more activity than in 2014, especially from FHA loans after January 26th.

The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is up 2% from a year ago.

Note: Seasonal adjustments are difficult early in the year for all data, so this might be overstating the increase in activity.

by Calculated Risk on 1/13/2015 07:53:00 PM

The West Coast port labor discussions are ongoing ... and this could negatively impact the economy.

From the LA Times: Night shifts at L.A.-area ports to be cut, in latest move during talks

Employers at the ports of Los Angeles and Long Beach will no longer order dockworkers to unload ships at night, a move they contend will help relieve crushing congestion on the waterfront.

The labor cut, scheduled to begin Tuesday, is intended to put fewer new containers on docks that are near capacity, allowing night-shift workers to focus on clearing the cargo boxes already there, said Steve Getzug, a spokesman for the Pacific Maritime Assn., which represents shipping lines and terminal operators.
...
But the union representing West Coast dockworkers said the work reduction would increase port congestion and is intended to pressure union negotiators who have been attempting to reach a new labor agreement for eight months.
...
Last week, tensions between the sides appeared to ease when employers and the union asked for federal mediation to help reach a new contract for about 20,000 West Coast dockworkers.

Still a mess!

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

• At 8:30 AM, Retail sales for December will be released. The consensus is for retail sales to decrease 0.1% in December, and to decrease 0.1% ex-autos.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for November. The consensus is for a 0.2% increase in inventories.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 1/13/2015 02:34:00 PM

The Fed's Household Debt Service ratio through Q3 2014 was released two weeks ago: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.

These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013.

The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income.

The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.

This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:

The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only an approximation of the debt service ratio faced by households. Nonetheless, this approximation is useful to the extent that, by using the same method and data series over time, it generates a time series that captures the important changes in the household debt service burden.

Click on graph for larger image.

The graph shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio decreased in Q3, and is near the record low set in Q4 2012.  Note: The financial obligation ratio (FOR) is also near a record low  (not shown)

Also the DSR for mortgages (blue) are near the low for the last 30 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

This data suggests household cash flow is in much better shape than a few years ago.

by Calculated Risk on 1/13/2015 12:32:00 PM

Quick post: I keep hearing how oil is now "cheap" with Brent futures at $46 per barrel. Maybe oil is "cheap" relative to the price of oil over the last few years, but longer term, oil prices have outpaced inflation for some time.

Here is a table comparing the change in headline CPI, Brent oil prices, Food, and Case-Shiller house prices since 1990 and 2000.

CPI is up 40.0% since 2000, but Brent is up 80.4%.

Since 1990, CPI is up 85.9% and Brent is up 116.5%.

Change Since	2000	1990
CPI	40.0%	85.9%
Brent Oil	80.4%	116.5%
Food	47.7%	89.6%
Case-Shiller House Prices	65.7%	116.7%

I also hear how house prices are now "expensive". Since 1990, oil and house prices have increased the same, and oil is up more than house prices since 2000.

 I'd rather own a house than the equivalent number of barrels of oil sitting in storage - a house would provide either rental income or shelter (historically there is a real return to house prices).

So, compared to 1990 and 2000 prices, oil isn't "cheap".