by Calculated Risk on 1/24/2013 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Survey Contracted Modestly

The Federal Reserve Bank of Kansas City released the January Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity contracted modestly again in January, but factories’ production expectations remained relatively optimistic for the months ahead.

“Regional factory activity has now edged down for four straight months, as fiscal policy uncertainty continues to weigh on firms’ plans, said Wilkerson. On the positive side, expectations for new orders rose quite a bit in January, but hiring and capital spending plans were only modestly positive.”

The month-over-month composite index was -2 in January, largely unchanged from readings of -1 in December and -3 in November. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Manufacturing activity declined at most durable goods-producing plants, while nondurable producers noted a slight increase overall. Most other month-over-month indexes were below zero but higher than in December. The production index inched higher from -5 to -3, and the shipments, new orders, and order backlog indexes also rose somewhat but stayed in negative territory. In contrast, the employment index fell from -1 to -8, its lowest level since mid-2009, and the new orders for exports index also declined.
emphasis added

This follows contraction in the Richmond Fed survey earlier this week:

In January, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — lost seventeen points to settle at −12 from December's reading of 5. Among the index's components, shipments fell seventeen points to −11, the gauge for new orders moved down twenty-seven points to end at −17, and the jobs index slipped two points to −5.

The NY Fed (Empire state) and Philly Fed surveys showed contraction last week.

However, the Markit Flash PMI was positive for January: Strongest manufacturing expansion since March 2011

The expansion of the U.S. manufacturing sector gained further momentum at the start of 2013, with the Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) rising to 56.1 in January. Up from 54.0 in December, the ‘flash’ PMI reading, which is based on around 85% of usual monthly replies, signalled.

Manufacturing employment also rose strongly during January, with new jobs being created at the fastest rate for nine months. Firms generally linked job creation to fuller order books.

The Markit Flash PMI is the opposite of the regional surveys. Go figure.

by Calculated Risk on 1/24/2013 08:40:00 AM

The DOL reports:

In the week ending January 19, the advance figure for seasonally adjusted initial claims was 330,000, a decrease of 5,000 from the previous week's unrevised figure of 335,000. The 4-week moving average was 351,750, a decrease of 8,250 from the previous week's revised average of 360,000.

The previous week was unrevised.

The following graph shows the 4-week moving average of weekly claims since January 2000.


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 351,750.

This is the lowest level for the 4-week average since early 2008. Note: Data for January has large seasonal adjustments - and can be very volatile, but this is still good news.

Weekly claims were below the 360,000 consensus forecast.

by Calculated Risk on 1/23/2013 08:00:00 PM

From Alejandro Lazo and Andrew Khouri at the LA Times: Number of homes entering foreclosure drops 22.1% to six-year low

California's foreclosure crisis eased considerably during the final quarter of last year, with the number of homes entering foreclosure dropping to a six-year low.

The real estate research firm DataQuick reported a 22.1% decline in default notices during the final three months of 2012 compared with the previous quarter — and a 37.9% drop from a year earlier. A total of 38,212 default notices were logged on California houses and condominiums last quarter, the lowest number since the final quarter of 2006. A default notice is the first formal step in the state's foreclosure process.

Here is the DataQuick release: California: Foreclosure Starts Lowest Since 2006

Note: California is a non-judicial foreclosure state, and the non-judicial states are recovering quicker than many judicial states (the courts take time).

Thursday economic releases:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 360 thousand from 335 thousand last week.

• At 9:00 AM, The Markit US PMI Manufacturing Index Flash. This release might provide hints about the ISM PMI for January. This consensus is for a decrease to 54.0 from 54.2 in December. All of the regional surveys have been week so far, so this may decline more than the consensus.

• At 10:00 AM, the Conference Board Leading Indicators for December. The consensus is for a 0.4% increase in this index.

• At 11:00 AM, the Kansas City Fed regional Manufacturing Survey for January will be released. The consensus is for a reading of 2, up from -2 in December (below zero is contraction).

by Calculated Risk on 1/23/2013 03:52:00 PM

Economist Tom Lawler sent me the table below of short sales and foreclosures for several selected cities in December. This shows distressed sales are down just about everywhere, and there are more short sales than foreclosures in most areas (Minneapolis and Colorado are exceptions.

Look at the right two columns in the table below (Total "Distressed" Share for Dec 2012 compared to Dec 2011). In every area that reports distressed sales, the share of distressed sales is down year-over-year - and down significantly in most areas. 

Also there has been a decline in foreclosure sales just about everywhere. Look at the middle two columns comparing foreclosure sales for Dec 2012 to Dec 2011. Foreclosure sales have declined in all these areas, and some of the declines have been stunning (the Nevada sales were impacted by a new foreclosure law).  There will probably be an increase in foreclosure sales in some judicial states in 2013, but overall foreclosures will probably be down this year.

Also there has been a shift from foreclosures to short sales. In most areas, short sales now far out number foreclosures.

As a follow-up to the previous post, imagine that the number of total existing home sales doesn't change over the next year - some people would argue that is "bad" news and the housing market isn't recovering. But also imagine that the share of distressed sales declines 20%, and conventional sales increase to make up the difference. That would be a positive sign - and that is what appears to be happening.

Comments from Tom Lawler: Below is an updated “distressed sales” share report for December (or, for Colorado and Columbus, Ohio, Q4).  Data are based on releases by realtor associations/MLS, save for California and Memphis, which are based on property records (and for California, Dataquick’s estimates for short sales).

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Dec	11-Dec	12-Dec	11-Dec	12-Dec	11-Dec
Las Vegas	45.8%	26.6%	9.5%	46.0%	55.3%	72.6%
Reno	47.0%	35.0%	10.0%	24.0%	57.0%	59.0%
Phoenix	27.2%	32.2%	12.2%	27.6%	39.4%	59.8%
Sacramento	40.0%	30.2%	11.5%	33.9%	51.5%	64.1%
Minneapolis	12.3%	14.6%	26.6%	35.8%	38.9%	50.4%
Mid-Atlantic (MRIS)	13.0%	14.3%	9.7%	15.4%	22.7%	29.7%
Orlando	30.2%	36.6%	20.4%	22.2%	50.6%	58.8%
California (DQ)*	25.3%	25.5%	15.5%	33.9%	40.8%	59.4%
So. California (DQ)*	25.6%	26.0%	14.8%	32.4%	40.4%	58.4%
Lee County, FL***	18.9%	20.4%	17.2%	24.1%	36.1%	44.5%
Florida SF	21.6%	25.1%	16.9%	20.1%	38.6%	45.2%
Florida C/TH	16.6%	23.4%	14.7%	18.7%	31.3%	42.1%
Northeast Florida					43.0%	49.8%
Chicago					44.3%	45.8%
Charlotte					15.6%	17.7%
Colorado**	7.3%	7.6%	12.5%	20.6%	19.8%	28.2%
Columbus OH**					27.8%	38.7%
Atlanta			26.0%	47.0%
Houston			14.2%	20.5%
Memphis*			26.9%	30.2%
Birmingham AL			27.8%	34.0%
*share of existing home sales, based on property records
**Third Quarter
*** SF only

by Calculated Risk on 1/23/2013 02:01:00 PM

The reporting on the Existing Home sales report was pretty negative yesterday even though I thought it was a solid report. And some of the positive reports were about prices - the NAR reported "The national median existing-home price for all housing types was $180,800 in December, which is 11.5 percent above December 2011" - and I completely ignore the median price.  What gives?

First, on prices, the median is impacted by the mix, and the mix changed in 2012 with fewer low end foreclosures.  I think the median price should be ignored during periods when the mix is changing (with all the repeat sales indexes available, I mostly ignore median prices all the time).

And on sales, the lead for many articles was that seasonally adjusted sales declined in December compared to November, and that sales were below the consensus forecast.   There were some suggestions that this called into question the "housing recovery".   Nonsense.

What is a "housing recovery"?  There are really two recoveries: House prices and residential investment.  Most people - homeowners and potential buyers - focus on prices, and for prices we should use the repeat sales indexes, and not the NAR median price (repeat sales indexes include Case-Shiller, CoreLogic, etc).  What matters in the NAR report for prices is inventory and months-of-supply.  And inventory is at the lowest level since January 2001, and months-of-supply fell to 4.4 months - the lowest since May 2005.

But for GDP and jobs, the key is what the Bureau of Economic Analysis (BEA) calls "residential investment" (RI) .  For existing homes, only the broker's commission is part of GDP, but for new homes the entire sales price is part of GDP.  There are some spillover effects from home sales (furniture, landscapting, etc), but those aren't included in RI.

Click on graph for larger image.

This graph shows the components for RI as a percent of GDP. According to the BEA, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

Usually the most important components are investment in single family structures followed by home improvement.

Right now home improvement is the largest category, but new single family structures will be the largest component soon.  Broker's commissions is usually the third largest category and is relatively small compared to single family investment and home improvement.

So if existing home sales decline there is a minor impact on RI and GDP.  When we talk about the "housing recovery" for jobs and GDP, existing home sales are mostly irrelevant - the focus should be on new home sales, housing starts and home improvement.

On home improvement, from the NAHB: Remodeling Market Remains Strong in the Fourth Quarter

The Remodeling Market Index (RMI) reached 55 in the fourth quarter of 2012, increasing five points from the previous quarter, according to the National Association of Home Builders (NAHB). This is the highest reading since the first quarter 2004.

An RMI above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower. The overall RMI averages ratings of current remodeling activity with indicators of future remodeling activity.

“Remodelers are optimistic about the outlook for slow and steady market growth in the new year,” said 2013 NAHB Remodelers Chairman Bill Shaw, GMR, GMB, CGP, a remodeler from Houston. “Professional remodelers reported more work from large and small projects as well as overall home repair.”

Finally, as I mentioned yesterday, as the number of distressed sales decline, the number of total sales might decline too - but we need to look at the number of conventional sales - and conventional sales have been increasing.  That is probably a sign of a healing market.

I don't expect much of an increase in existing home sales in 2013, and I wouldn't be surprised by a decline depending on the number of foreclosures this year. But I think the housing recovery will remain fairly strong with new home sales and housing starts up sharply again this year.

by Calculated Risk on 1/23/2013 10:55:00 AM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From AIA: Fifth Consecutive Month of Gains in Architecture Billings Index

Business conditions at architecture firms continue to improve. As a leading economic indicator of construction activity, the Architecture Billings Index (ABI) reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the December ABI score was 52.0, down from the mark of 53.2 in November. This score reflects an increase in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 59.4, down slightly from the 59.6 mark of the previous month.

“While it’s not an across the board recovery, we are hearing a much more positive outlook in terms of demand for design services,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Moving into 2013 we are expecting this trend to continue and conditions improve at a slow and steady rate. That said, we remain concerned that continued uncertainty over the outcomes of budget sequestration and the debt ceiling could impact further economic growth.”

• Regional averages: Midwest (55.7), Northeast (53.1), South (51.2), West (49.6)

• Sector index breakdown: commercial / industrial (53.4), mixed practice (53.0), institutional (50.9), multi-family residential (50.5)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 52.0 in December, down from 53.2 in November. Anything above 50 indicates expansion in demand for architects' services.

Every building sector is now expanding and new project inquiries are strongly positive. Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests some increase in CRE investment in 2013.

by Calculated Risk on 1/23/2013 10:09:00 AM

From the Federal Housing Finance Agency (FHFA): FHFA House Price Index Up 0.6 Percent in November

U.S. house prices rose 0.6 percent on a seasonally adjusted basis from October to November, according to the Federal Housing Finance Agency’s monthly House Price Index (HPI). The previously reported 0.5 percent increase in October was revised upward to a 0.6 percent increase. For the 12 months ending in November, U.S. prices rose 5.6 percent.

This monthly index is for loans owned or guaranteed by Fannie or Freddie.

It appears price were up around 6% in 2012 on the repeat sales indexes (Case-Shiller, Corelogic, etc).   The Case-Shiller index for November will be released next Tuesday, January 29th.

by Calculated Risk on 1/23/2013 08:58:00 AM

LPS released their First Look report for December today. LPS reported that the percent of loans delinquent increased in December compared to November, and declined about 9% year-over-year. Also the percent of loans in the foreclosure process declined further in December and were down significantly in 2012.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) increased to 7.17% from 7.12% in November. Note: the normal rate for delinquencies is around 4.5% to 5%.

 The percent of loans in the foreclosure process declined to 3.44% in December from 3.51% in November. 

The number of delinquent properties, but not in foreclosure, is down about 11% year-over-year (465,000 fewer properties delinquent), and the number of properties in the foreclosure process is down 20% or 434,000 properties year-over-year.

The percent (and number) of loans 90+ days delinquent and in the foreclosure process is still very high, but the number of loans in the foreclosure process is now declining.

LPS will release the complete mortgage monitor for December in early February.

LPS: Percent Loans Delinquent and in Foreclosure Process
	Dec 2012	Nov 2012	Dec 2011
Delinquent	7.17%	7.12%	7.89%
In Foreclosure	3.44%	3.51%	4.20%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	2,031,000	1,999,000	2,250,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,545,000	1,584,000	1,791,000
Number of properties in foreclosure pre-sale inventory:	1,716,000	1,767,000	2,150,000
Total Properties	5,292,000	5,350,000	6,192,000

by Calculated Risk on 1/22/2013 09:07:00 PM

Earlier on Existing Home Sales:
• Existing Home Sales: Another Solid Report
• Existing Home Sales in December: 4.94 million SAAR, 4.4 months of supply
• Existing Home Sales graphs

And on apartments: NMHC Apartment Survey: Market Conditions Loosen Slightly

From CNBC: GOP Moves to Suspend Debt Ceiling Until May

House Speaker John Boehner indicated Tuesday that Republicans will vote on an extension of the federal debt ceiling to allow Treasury to borrow money until mid-May. ...

... the next moment of high political and market drama will occur when the so-called "sequester" or automatic across the board spending cuts, kicks in on March 1.

After the "sequester" comes the "continuing resolution" on March 27th. Note: Congress decided last September to extend spending authority for six months with a "continuing resolution".

I expect something will be worked out on the sequester, but there is a strong possibility the “continuing resolution" will lead to a government shutdown. A government shutdown would be disruptive, but probably not catastrophic since most of the government expenditures would continue.

Of course I think they should suspend the debt ceiling permanently (the debt ceiling is about paying the bills). From Ezra Klein: Suspending the debt ceiling is a great idea. Let’s do it forever!

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

• 8:45 AM, LPS will released their "First Look" report on December mortgage performance

• At 10:00 AM, FHFA House Price Index for November 2012. This was original a GSE only repeat sales, however there is also an expanded index that deserves more attention. The consensus is for a 0.7% increase in house prices.

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

by Calculated Risk on 1/22/2013 06:11:00 PM

This is a minor indicator that I follow.

From ATA: ATA Truck Tonnage Index Jumped 2.8% in December

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.8% in December after surging 3.9% in November. (The 3.9% gain in November was revised from a 3.7% increase ATA reported on December 18, 2012.) The back-to-back increases in November and December were by far the best of gains of 2012. As a result, the SA index equaled 121.6 (2000=100) in December versus 118.3 in November. Despite the solid monthly increase, compared with December 2011, the SA index was off 2.3%, the worst year-over-year result since November 2009. For all of 2012, tonnage was up 2.3%. In 2011, the index increased 5.8%.
...
“December was better than anticipated in light of the very difficult year-over-year comparison,” ATA Chief Economist Bob Costello said. In December 2011, the index surged 6.4% from the previous month. Costello anticipates more sluggishness in the index this year, especially early in the year, as the economy continues to face several headwinds.

“As paychecks shrink for all households due to higher taxes, I’m expecting a weak first quarter for tonnage and the broader economy” Costello said. “Since trucks account for the vast majority of deliveries in the retail supply chain, any reduction in consumer spending will have ramifications on truck tonnage levels.”
emphasis added

Note from ATA:

Trucking serves as a barometer of the U.S. economy, representing 67% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.2 billion tons of freight in 2011. Motor carriers collected $603.9 billion, or 80.9% of total revenue earned by all transport modes.

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.

Overall the index has been mostly moving sideways this year due to the slowdown in manufacturing. The spike down in October was related to Hurricane Sandy.