by Calculated Risk on 8/27/2015 05:29:00 PM

The Mortgage Bankers Association released a new report this week: Demographics and the Numbers Behind the Coming Multi-Million increase in Households by Lynn Fisher and Jamie Woodwell.

The report has some great section titles such as "Demographics is Destiny" and "35 is the new 25". These are two topics I've written about extensively.  See: Demographics and Behavior and Are Multi-Family Housing Starts near a peak?

The MBA estimates the number of households will increase by between 13.8 million and 15.8 million over the next decade. Add in some demolitions and some second home buying, and that would suggest housing starts of well over 1.5 million per year. Housing starts are running at about 1.1 million so far this year (1.2 million SAAR in July). This would suggest a further increase in starts.

The MBA presents two scenarios (both seem plausible although I haven't checked the numbers).

Under these conditions, the U.S. will see 15.9 million additional households — 12.7 million owner households (versus 10.3 million in scenario 1) and 3.1 million renter households (versus 5.6 million in scenario 1) — over the next ten years.

Both scenarios suggest a shift to more owner built units (and more new home sales).

Note: For a current look at household formation, economist Jed Kolko wrote last week: Who Is Actually Forming New Households?

by Calculated Risk on 8/27/2015 01:01:00 PM

The BLS reported this last week:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) decreased 0.3 percent over the last 12 months to an index level of 233.806 (1982-84=100). For the month, the index was essentially unchanged prior to seasonal adjustment.

CPI-W is the index that is used to calculate Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).

Since the highest Q3 average was last year (Q3 2014), at 234.242, we only have to compare to last year. 

Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

By law, COLA can't be negative, so if the average for CPI-W is down year-over-year, COLA is set to zero (no adjustment).

CPI-W was down 0.3% year-over-year in July.  This is early - we need the data for August and September - but if gasoline prices continue to decline, COLA could be zero this year.

Contribution and Benefit Base

The law prohibits an increase in the contribution and benefit base if COLA is not greater than zero. However if the there is even a small increase in COLA, the contribution base will be adjusted using the National Average Wage Index.

From Social Security: Method for determining the base

The formula for determining the OASDI contribution and benefit base is set by law. The formula is applicable only if a cost-of-living increase becomes effective for December of the year in which a determination of the base would ordinarily be made. ...

This is based on a one year lag. The National Average Wage Index is not available for 2014 yet, but wages probably increased again in 2014. If wages increased the same as last year, then the contribution base next year will be increased to around $120,000 from the current $118,500.  However, if COLA is zero, the contribution base will remain at $118,500.

Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).

by Calculated Risk on 8/27/2015 10:22:00 AM

From the NAR: Pending Home Sales Inch Forward in July

The Pending Home Sales Index, a forward-looking indicator based on contract signings, marginally increased 0.5 percent to 110.9 in July from an upwardly revised 110.4 in June and is now 7.4 percent above July 2014 (103.3). The index has increased year-over-year for 11 consecutive months and is the third highest reading of 2015, behind April (111.6) and May (112.3).

This was below expectations of a 1.0% increase.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in August and September.

by Calculated Risk on 8/27/2015 08:37:00 AM

From the BEA: Gross Domestic Product: First Quarter 2015 (Third Estimate)

Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 3.7 percent in the second quarter of 2015, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.6 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.3 percent. With the second estimate for the second quarter, nonresidential fixed investment and private inventory investment increased. ...
emphasis added

Here is a Comparison of Advance and Second Estimates. PCE growth was revised up from 2.9% to 3.1%. Residential investment was revised up from 6.6% to 7.8%.

Solid growth. And above the consensus of 3.2%.

The DOL reported:

In the week ending August 22, the advance figure for seasonally adjusted initial claims was 271,000, a decrease of 6,000 from the previous week's unrevised level of 277,000. The 4-week moving average was 272,500, an increase of 1,000 from the previous week's unrevised average of 271,500.

There were no special factors impacting this week's initial claims.

The previous week was unrevised at 277,000.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 272,500.

This was sligthly higher than the consensus forecast of 270,000, and the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 8/26/2015 09:16:00 PM

From Tim Duy: Dudley Puts The Kibosh On September

Monday's action on Wall Street was too much for the Fed. That day, Atlanta Federal Reserve President Dennis Lockhart pulled back his previous dedication to a September rate hike earlier, reverting to only an expectation that rates rise sometimes this year. But today New York Federal Reserve President William Dudley explicitly called September into question. ...
...
Bottom Line: The Fed has long argued that the timing of the first rate hike does not matter. I had thought so as well, but that is clearly no longer the case. A rate hike during a period of substantial financial market turmoil would matter a great deal. It looks like the Fed's plans to raise rate will once again be overtaken by events.

I think the Fed is still data dependent, and the key will be if inflation picks up. This model is interesting, and suggests a slight pickup in inflation later this year and into 2016.

Thursday:
• All day: the Kansas City Fed Hosts Symposium in Jackson Hole, Wyoming (Thursday, Friday, and Saturday).

• At 8:30 AM, Gross Domestic Product, 2nd quarter 2015 (second estimate). The consensus is that real GDP increased 3.2% annualized in Q2, revised up from 2.3% in the advance estimate.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for 270 thousand initial claims, down from 277 thousand the previous week.

• At 10:00 AM, Pending Home Sales Index for July. The consensus is for a 1.0% increase in the index.

• At 11:00 AM, the Kansas City Fed manufacturing survey for August.