by Calculated Risk on 12/22/2014 08:38:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth accelerated in November

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.73 in November from +0.31 in October. Two of the four broad categories of indicators that make up the index increased from October, and only one of the four categories made a negative contribution to the index in November.

The index’s three-month moving average, CFNAI-MA3, rose to +0.48 in November from +0.09 in October, reaching its highest level since May 2010. November’s CFNAI-MA3 suggests that growth in national economic activity was above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests modest inflationary pressure from economic activity over the coming year.
emphasis added

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests economic activity was above the historical trend in November (using the three-month average).

According to the Chicago Fed:

What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 12/21/2014 07:01:00 PM

From James Hamilton at Econbrowser: Do falling oil prices raise the threat of deflation?

If gasoline prices stay where they are and if we buy the same number of gallons of gasoline this year as last, that leaves us with an additional $160 billion to spend over the course of the year on other items. If we restate the total savings for U.S. consumers and businesses in terms of the 116 million U.S. households, that works out to almost $1400 per household.

It’s a particularly big deal for the lower-income households, who spend a much higher fraction of their income on energy.

Historically consumers have responded to windfalls like this by becoming more open to the big-ticket purchases that play a huge role in cyclical economic swings.

Monday:
• At 8:30 AM ET, the Chicago Fed National Activity Index for November. This is a composite index of other data.

• At 10:00 AM, the Existing Home Sales for November from the National Association of Realtors (NAR). The consensus is for sales of 5.20 million on seasonally adjusted annual rate (SAAR) basis. Sales in October were at a 5.26 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 4.90 million SAAR.

Weekend:
• Schedule for Week of December 21st

• Existing Home Sales: A Likely "Miss"

From CNBC: Pre-Market Data and Bloomberg futures.

Oil prices were up over the last week with WTI futures at $57.13 per barrel and Brent at $61.38 per barrel.  A year ago, WTI was at $99, and Brent was at $111 - so prices are down 42% and 45% year-over-year respectively.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $2.41 per gallon (down about 80 cents from a year ago).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 12/21/2014 09:59:00 AM

To understand what the general public is hearing about oil, I watched a Yahoo video yesterday with Katie Couric explaining the decline in oil prices.

In general the piece was very good. Couric started by explaining that the decline in oil prices could be explained in two words: Supply and Demand.  She discussed reasons for more supply and softening demand.

Note: from Professor Hamilton "[In October] I discussed the three main factors in the recent fall in oil prices: (1) signs of a return of Libyan production to historical levels, (2) surging production from the U.S., and (3) growing indications of weakness in the world economy."

I'd add to the discussion that the short run supply and demand curves are both very steep for oil, so small changes in supply and / or demand can cause a large change in price (see A Comment on Oil Prices).

But then Couric mentioned a myth I've heard several times recently. She said:

In fact, [the U.S.] is now the world’s largest producer of petroleum, and for the last two years, it has been selling more to other countries than it’s been buying. Who knew?

"Who knew?"  No one, because it is not true. Yes, the U.S. is the largest producer this year (ahead of Saudi Arabia and Russia), but the U.S. is NOT "selling more to other countries than it's been buying".

The source of this error is that the U.S. is a net exporter of refined petroleum products, such as refined gasoline. Here is the EIA data on Weekly Imports & Exports of crude oil and petroleum products.  The U.S. is importing around 9 million barrels per day of crude oil and products, and exporting around 4 million per day (mostly refined products). The U.S. is a large net importer!

Note: Here is some data on natural gas (the U.S. is net importer).

Another data source is the monthly trade balance report from the Department of Commerce that shows about a net petroleum trade deficit of about $15 to $20 billion per month this year. The good news is the petroleum contribution to the trade deficit has been declining, but it is still very large.

Couric was correct about supply and demand, but it is important to note the U.S. is still a large importer of oil.

by Calculated Risk on 12/20/2014 04:51:00 PM

The NAR will report November Existing Home Sales on Monday, December 22nd. The consensus is the NAR will report sales at 5.20 million seasonally adjusted annual rate (SAAR), however economist Tom Lawler estimates the NAR will report sales of 4.90 million on a SAAR basis.

Housing economist Tom Lawler has been sending me his predictions of what the NAR will report for over 4 years.  The table below shows the consensus for each month, Lawler's predictions, and the NAR's initial reported level of sales. 

Lawler hasn't always been closer than the consensus, but usually when there has been a fairly large spread between Lawler's estimate and the "consensus", Lawler has been closer.

Over the last four years, the consensus average miss was 150 thousand with a standard deviation of 160 thousand.  Lawler's average miss was 70 thousand with a standard deviation of 45 thousand.

Note: Many analysts now change their "forecast" after Lawler's estimate is posted, so the consensus has been doing a little better recently!  Looking at the consensus for November, maybe some of the analysts took an early vacation this week.

Existing Home Sales, Forecasts and NAR Report millions, seasonally adjusted annual rate basis (SAAR)
Month	Consensus	Lawler	NAR reported1
May-10	6.20	5.83	5.66
Jun-10	5.30	5.30	5.37
Jul-10	4.66	3.95	3.83
Aug-10	4.10	4.10	4.13
Sep-10	4.30	4.50	4.53
Oct-10	4.50	4.46	4.43
Nov-10	4.85	4.61	4.68
Dec-10	4.90	5.13	5.28
Jan-11	5.20	5.17	5.36
Feb-11	5.15	5.00	4.88
Mar-11	5.00	5.08	5.10
Apr-11	5.20	NA	5.05
May-11	4.75	4.80	4.81
Jun-11	4.90	4.71	4.77
Jul-11	4.92	4.69	4.67
Aug-11	4.75	4.92	5.03
Sep-11	4.93	4.83	4.91
Oct-11	4.80	4.86	4.97
Nov-11	5.08	4.40	4.42
Dec-11	4.60	4.64	4.61
Jan-12	4.69	4.66	4.57
Feb-12	4.61	4.63	4.59
Mar-12	4.62	4.59	4.48
Apr-12	4.66	4.53	4.62
May-12	4.57	4.66	4.55
Jun-12	4.65	4.56	4.37
Jul-12	4.50	4.47	4.47
Aug-12	4.55	4.87	4.82
Sep-12	4.75	4.70	4.75
Oct-12	4.74	4.84	4.79
Nov-12	4.90	5.10	5.04
Dec-12	5.10	4.97	4.94
Jan-13	4.90	4.94	4.92
Feb-13	5.01	4.87	4.98
Mar-13	5.03	4.89	4.92
Apr-13	4.92	5.03	4.97
May-13	5.00	5.20	5.18
Jun-13	5.27	4.99	5.08
Jul-13	5.13	5.33	5.39
Aug-13	5.25	5.35	5.48
Sep-13	5.30	5.26	5.29
Oct-13	5.13	5.08	5.12
Nov-13	5.02	4.98	4.90
Dec-13	4.90	4.96	4.87
Jan-14	4.70	4.67	4.62
Feb-14	4.64	4.60	4.60
Mar-14	4.56	4.64	4.59
Apr-14	4.67	4.70	4.65
May-14	4.75	4.81	4.89
Jun-14	4.99	4.96	5.04
Jul-14	5.00	5.09	5.15
Aug-14	5.18	5.12	5.05
Sep-14	5.09	5.14	5.17
Oct-14	5.15	5.28	5.26
Nov-14	5.20	4.90	---
1NAR initially reported before revisions.

by Calculated Risk on 12/20/2014 12:19:00 PM

The key reports this week are November Existing Home Sales on Monday, November Personal Income and Outlays on Tuesday, November New Home Sales on Tuesday, and the third estimate of Q3 GDP also on Tuesday.

Merry Christmas and Happy Holidays to All!

----- Monday, December 22nd -----
8:30 AM ET: Chicago Fed National Activity Index for November. This is a composite index of other data.

10:00 AM: Existing Home Sales for November from the National Association of Realtors (NAR).

The consensus is for sales of 5.20 million on seasonally adjusted annual rate (SAAR) basis. Sales in October were at a 5.26 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 4.90 million SAAR.

A key will be the reported year-over-year increase in inventory of homes for sale.

----- Tuesday, December 23rd -----
8:30 AM: Durable Goods Orders for November from the Census Bureau. The consensus is for a 2.9% increase in durable goods orders.

8:30 AM: Gross Domestic Product, 3rd quarter 2014 (third estimate). The consensus is that real GDP increased 4.3% annualized in Q3, revised up from the second estimate of 3.9%.

9:00 AM: FHFA House Price Index for October 2014. This was originally a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.2% increase.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for December). The consensus is for a reading of 93.0, down from the preliminary reading of 93.8, and up from the November reading of 88.8.
10:00 AM: New Home Sales for November from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the September sales rate.

The consensus is for an increase in sales to 460 thousand Seasonally Adjusted Annual Rate (SAAR) in November from 458 thousand in October.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for December.

10:00 AM: Personal Income and Outlays for November. The consensus is for a 0.5% increase in personal income, and for a 0.5% increase in personal spending. And for the Core PCE price index to increase 0.1%.

----- Wednesday, December 24th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 290 thousand from 289 thousand.

The NYSE and the NASDAQ will close at 1:00 PM ET.

----- Thursday, December 25th -----
All US markets will be closed in observance of the Christmas Holiday.

----- Friday, December 26th -----
No economic releases scheduled.