by Calculated Risk on 2/02/2015 05:33:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in December to 1.89% from 1.91% in November. The serious delinquency rate is down from 2.38% in December 2013, and this is the lowest level since October 2008 (also at 1.89%).

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Last week, Freddie Mac reported that the Single-Family serious delinquency rate was declined in December to 1.88%. Freddie's rate is down from 2.39% in December 2013, and is at the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

The Fannie Mae serious delinquency rate has fallen 0.48 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in late 2016 - although the rate of decline has slowed recently.

Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be close to normal in late 2016.

by Calculated Risk on 2/02/2015 02:11:00 PM

The BEA has released the underlying details for the Q4 advance GDP report today.

Investment in single family structures is now back to being the top category for residential investment (see first graph).  Home improvement was the top category for twenty consecutive quarters following the housing bust ... but now investment in single family structures has been back on top for the last 5 quarters.

However - even though investment in single family structures has increased from the bottom - single family investment is still very low, and still below the bottom for previous recessions as a percent of GDP. I expect further increases over the next few years.

Click on graph for larger image.

The first graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes).

Investment in single family structures was $202 billion (SAAR) (over 1.1% of GDP).

Investment in home improvement was at a $178 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (just over 1.0% of GDP).   

The second graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased recently, but from a very low level.

Investment in offices is down about 44% from the recent peak (as a percent of GDP) and increasing from a very low level - and is still below the lows for previous recessions (as percent of GDP).  With the high office vacancy rate, office investment will only increase slowly.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 59% from the peak.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment peaked at 0.31% of GDP in Q3 2008 and is down about 63%.   With the hotel occupancy rate near record levels, it is likely that hotel investment will probably continue to increase.

These graphs show investment is generally increasing, but from a very low level.

by Calculated Risk on 2/02/2015 11:07:00 AM

The Census Bureau reported that overall construction spending increased in December:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during December 2014 was estimated at a seasonally adjusted annual rate of $982.1 billion, 0.4 percent above the revised November estimate of $978.6 billion. The December figure is 2.2 percent above the December 2013 estimate of $961.2 billion. ... The value of construction in 2014 was $961.4 billion, 5.6 percent above the $910.8 billion spent in 2013.

Both private and public spending increased in December:

Spending on private construction was at a seasonally adjusted annual rate of $698.6 billion, 0.1 percent above the revised November estimate of $698.2 billion. ...

In December, the estimated seasonally adjusted annual rate of public construction spending was $283.5 billion, 1.1 percent above the revised November estimate of $280.4 billion.
emphasis added

Note: Non-residential for offices and hotels is increasing, but spending for oil and gas is generally declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.

As an example, construction spending for lodging is up 18% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014 and is down 8% year-over-year (and will fall further in the coming months).

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 48% below the peak in early 2006 - but up 53% from the post-bubble low.

Non-residential spending is 16% below the peak in January 2008, and up about 55% from the recent low.

Public construction spending is now 13% below the peak in March 2009 and about 9% above the post-recession low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is down 4%. Non-residential spending is up 5% year-over-year. Public spending is up 7% year-over-year.

Looking forward, all categories of construction spending should increase in 2015. Residential spending is still very low, non-residential is starting to pickup (except oil and gas), and public spending has probably hit bottom after several years of austerity.

This was below the consensus forecast of a 0.6% increase, however there were some minor upward revisions to spending in October and November.

by Calculated Risk on 2/02/2015 10:00:00 AM

The ISM manufacturing index suggests slower expansion in January than in December. The PMI was at 53.5% in January, down from 55.1% in December. The employment index was at 54.1%, down from 56.0% in December, and the new orders index was at 52.9%, down from 57.8%.

From the Institute for Supply Management: January 2015 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in January for the 20th consecutive month, and the overall economy grew for the 68th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. "The January PMI® registered 53.5 percent, a decrease of 1.6 percentage points from December’s seasonally adjusted reading of 55.1 percent. The New Orders Index registered 52.9 percent, a decrease of 4.9 percentage points from the seasonally adjusted reading of 57.8 percent in December. The Production Index registered 56.5 percent, 1.2 percentage points below the seasonally adjusted December reading of 57.7 percent. The Employment Index registered 54.1 percent, a decrease of 1.9 percentage points below the seasonally adjusted December reading of 56 percent. Inventories of raw materials registered 51 percent, an increase of 5.5 percentage points above the December reading of 45.5 percent. The Prices Index registered 35 percent, down 3.5 percentage points from the December reading of 38.5 percent, indicating lower raw materials prices in January relative to December. Comments from the panel indicate that most industries, but not all, are experiencing strong demand as 2015 kicks off. The West Coast dock slowdown continues to be a problem, negatively impacting both exports and imports as well as inventories.""
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was below expectations of 54.5%, but still indicates expansion in January.

by Calculated Risk on 2/02/2015 08:30:00 AM

The BEA released the Personal Income and Outlays report for December:

Personal income increased $41.3 billion, or 0.3 percent ... in December, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $40.0 billion, or 0.3 percent.
...
Real PCE -- PCE adjusted to remove price changes -- decreased 0.1 percent in December, in contrast to an increase of 0.7 percent in November. ... The price index for PCE decreased 0.2 percent in December, the same decrease as in November. The PCE price index, excluding food and energy, increased less than 0.1percent in December; the price index increased less than 0.1 percent in November.

The December price index for PCE increased 0.7 percent from December a year ago. The December PCE price index, excluding food and energy, increased 1.3 percent from December a year ago.
...
Personal saving -- DPI less personal outlays -- was $643.2 billion in December, compared with $568.2 billion in November. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 4.9 percent in December, compared with 4.3 percent in November.

A key point is that the PCE price index was only up 0.7% year-over-year (1.3% for core PCE). This is way below the Fed's 2% target.