by Calculated Risk on 9/17/2014 08:55:00 PM

On Scotland, from the NY Times: Scottish Independence Vote Balances Politics and Economics

On Thursday, Scotland will vote on a referendum that could establish a Scottish state separate from Britain for the first time since 1707. If it passes, the Scottish and British economic and political landscape will change drastically.

Registered voters in Scotland can vote on the referendum at their neighborhood polling station from 7 a.m. to 10 p.m. Votes will be counted immediately after the polls close; results are expected to be announced early Friday morning.

Thursday:
• At 8:30 AM ET, Housing Starts for August. Total housing starts were at 1.093 million (SAAR) in July. Single family starts were at 656 thousand SAAR in July. The consensus is for total housing starts to decrease to 1.040 million (SAAR) in August.

• Also at 8:30 AM, initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 305 thousand from 315 thousand.

• At 8:45 AM, Speech by Fed Chair Janet Yellen, The Importance of Asset Building for Low and Middle Income Households, At the Corporation for Enterprise Development's 2014 Assets Learning Conference, Washington, D.C. (via prerecorded video)

• At 10:00 AM, 2014 Current Employment Statistics (CES) Preliminary Benchmark Revision. From the BLS:

"Each year, the Current Employment Statistics (CES) survey estimates are benchmarked to comprehensive counts of employment from the Quarterly Census of Employment and Wages (QCEW) for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. ... The final benchmark revision will be issued with the publication of the January 2015 Employment Situation news release in February."

• Also at 10:00 AM, the Philly Fed manufacturing survey for September. The consensus is for a reading of 22.0, down from 28.0 last month (above zero indicates expansion).

• At 12:00 PM, the Q2 Flow of Funds Accounts of the United States from the Federal Reserve.

by Calculated Risk on 9/17/2014 05:31:00 PM

Several years ago I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales).  For a long time, not much changed. But over the last 2+ years we've seen some significant changes with a dramatic shift from foreclosures (REO: lender Real Estate Owned) to short sales, and the percentage of total distressed sales declining sharply.

This data suggests healing in the Sacramento market and other distressed markets are showing similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In August 2014, 11.7% of all resales were distressed sales. This was down from 12.3% last month, and down from 19.0% in August 2013. This is the post-bubble low.

The percentage of REOs was at 5.3%, and the percentage of short sales was 6.4%.

Here are the statistics for August.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes increased 60.6% year-over-year in August. 

Cash buyers accounted for 20.2% of all sales, down from 25.4% in August 2013, and down from 20.9% last month (frequently investors).  This has been trending down, and it appears investors are becoming much less of a factor in Sacramento.

Total sales were down 13% from August 2013, but conventional equity sales were only down 5.1% compared to the same month last year.

Summary: Distressed sales down sharply (at post bubble low), cash buyers down significantly, and inventory up significantly.  So price increases should slow, and builders will slow too (with more inventory), and we might see lower land prices in some of these areas. 

As I've noted before, we are seeing a similar pattern in other distressed areas.

by Calculated Risk on 9/17/2014 02:16:00 PM

Statement here ($10 billion in additional tapering as expected).  QE3 expected to end in October.

Here are the Policy Normalization Principles and Plans

As far as the "Appropriate timing of policy firming",  participant views were mostly unchanged (14 participants expect the first rate hike in 2015, and 2 in 2016 - so one participant moved from 2016 to 2015).

The FOMC projections for inflation are still on the low side through 2016.

Yellen press conference here.

On the projections, GDP for 2014 was revised down slightly, the unemployment rate was revised down again, and inflation projections were mostly unchanged.  Note: These projections were submitted before the CPI report this morning.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2014	2015	2016	2017
Sept 2014 Meeting Projections	2.0 to 2.2	2.6 to 3.0	2.6 to 2.9	2.3 to 2.5
June 2014 Meeting Projections	2.1 to 2.3	3.0 to 3.2	2.5 to 3.0	n.a.

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 6.1% in August, so the unemployment rate projection for Q4 2014 will probably be lowered slightly. 

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2014	2015	2016	2017
Sept 2014 Meeting Projections	5.9 to 6.0	5.4 to 5.6	5.1 to 5.4	4.9 to 5.3
June 2014 Meeting Projections	6.0 to 6.1	5.4 to 5.7	5.1 to 5.5	n.a.

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of July, PCE inflation was up 1.6% from July 2013, and core inflation was up 1.5%. The FOMC expects inflation to increase in 2015, but remain below their 2% target (Note: the FOMC target is symmetrical around 2%). 

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2014	2015	2016	2017
Sept 2014 Meeting Projections	1.5 to 1.7	1.6 to 1.9	1.7 to 2.0	1.9 to 2.0
June 2014 Meeting Projections	1.5 to 1.7	1.5 to 2.0	1.6 to 2.0	n.a.

Here are the FOMC's recent core inflation projections:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2014	2015	2016	2017
Sept 2014 Meeting Projections	1.5 to 1.6	1.6 to 1.9	1.8 to 2.0	1.9 to 2.0
June 2014 Meeting Projections	1.5 to 1.6	1.6 to 2.0	1.7 to 2.0	n.a.

by Calculated Risk on 9/17/2014 02:00:00 PM

A little more concerned about low inflation ...

FOMC Statement:

Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in October, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $5 billion per month rather than $10 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $10 billion per month rather than $15 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will end its current program of asset purchases at its next meeting. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Narayana Kocherlakota; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action were Richard W. Fisher and Charles I. Plosser. President Fisher believed that the continued strengthening of the real economy, improved outlook for labor utilization and for general price stability, and continued signs of financial market excess, will likely warrant an earlier reduction in monetary accommodation than is suggested by the Committee's stated forward guidance. President Plosser objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for "a considerable time after the asset purchase program ends," because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee's goals.
emphasis added

by Calculated Risk on 9/17/2014 11:08:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.5% annualized rate) in August. The 16% trimmed-mean Consumer Price Index was essentially unchanged (0.3% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.2% (-2.4% annualized rate) in August. The CPI less food and energy was essentially unchanged (0.2% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for August here. Note that motor fuel prices declined at a 39% annual rate in August, and "Meats, Poultry, Fish & Eggs" increased at a 20% annual rate.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.2%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy rose 1.7%. Core PCE is for June and increased just 1.5% year-over-year.

On a monthly basis, median CPI was at 1.5% annualized, trimmed-mean CPI was at 0.3% annualized, and core CPI increased 0.2% annualized.

On a year-over-year basis these measures suggest inflation remains at or below the Fed's target of 2%.