by Calculated Risk on 12/22/2014 07:56:00 PM

First, from Tim Duy: Fed Watch: Looking Backward to See the Future

[In 20004] Patient" lasted for two meetings before being replaced by "measured." This is fairly consistent with my expectations. My baseline scenario is that the Fed drops "considerable" entirely in January, retains "patient" in March, drops "patient" in April, and raise rates in June.
...
Bottom Line: Assuming the data holds, maybe history will repeat itself.

Tuesday:
• At 8:30 AM ET, Durable Goods Orders for November from the Census Bureau. The consensus is for a 2.9% increase in durable goods orders.

• Also at 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%.

• At 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.

• At 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.

• At 10:00 AM, New Home Sales for November from the Census Bureau. The consensus is for an increase in sales to 460 thousand Seasonally Adjusted Annual Rate (SAAR) in November from 458 thousand in October.

• Also at 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%.

• Also at 10:00 AM, Richmond Fed Survey of Manufacturing Activity for December.

by Calculated Risk on 12/22/2014 03:41:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for November 2014. In the past month, the indexes increased in 44 states, decreased in two, and remained stable in four, for a one-month diffusion index of 84. Over the past three months, the indexes increased in 48 states and decreased in two, for a three-month diffusion index of 92.

Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In November, 47 states had increasing activity (including minor increases). This measure declined sharply during the winter, but is close to normal for a recovery.


Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and is mostly green again.  In will be interesting to see if several oil producing states - such as Texas, North Dakota, Alaska and Oklahoma - turn read in 2015.

by Calculated Risk on 12/22/2014 12:41:00 PM

• Once again housing economist Tom Lawler's forecast of 4.90 million SAAR was closer than the consensus (5.20 million) to the NAR reported sales (4.93 million).

• The most important number in the NAR report each month is inventory.   This morning the NAR reported that inventory was up 2.0% year-over-year in November.   It is important to note that the NAR inventory data is "noisy" and difficult to forecast based on other data.  Also it isn't always clear what is included in "inventory" (some areas report "active" listings, others all listings including pending short sales).   Also, some sources are reporting more inventory, as an example, Zillow's data shows inventory was up 12% year-over-year in November.  That is a big difference!

The headline NAR inventory number is not seasonally adjusted, even though there is a clear seasonal pattern. Trulia chief economist Jed Kolko has sent me the seasonally adjusted inventory. NOTE: The NAR does provide a seasonally adjusted months-of-supply, although that is in the supplemental data.

Click on graph for larger image.

This shows that inventory bottomed in January 2013 (on a seasonally adjusted basis), and inventory is now up about 9.1% from the bottom. On a seasonally adjusted basis, inventory was down 2.5% in November compared to October.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, many "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

And another key point: The NAR reported total sales were up 2.1% from November 2013, however normal equity sales were up even more, and distressed sales down sharply.  From the NAR (from a survey that is far from perfect):

Distressed sales – foreclosures and short sales – were unchanged in November from October (9 percent) and remained in the single digits for the fourth month this year; they were 14 percent a year ago. Six percent of November sales were foreclosures and 3 percent were short sales.

Last year in November the NAR reported that 14% of sales were distressed sales.

A rough estimate: Sales in November 2013 were reported at 4.83 million SAAR with 14% distressed.  That gives 676 thousand distressed (annual rate), and 4.15 million equity / non-distressed.  In November 2014, sales were 4.93 million SAAR, with 9% distressed.  That gives 444 thousand distressed - a decline of about 34% from November 2013 - and 4.49 million equity.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up around 8%.. 

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in November (red column) were below the levels for November in 2012 and 2013.

Earlier:
• Existing Home Sales in November: 4.93 million SAAR, Inventory up 2.0% Year-over-year

by Calculated Risk on 12/22/2014 10:00:00 AM

The NAR reports: Existing-Home Sales Lose Momentum in November as Inventory Slightly Tightens

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 6.1 percent to a seasonally adjusted annual rate of 4.93 million in November from a downwardly-revised 5.25 million in October. Sales dropped to their lowest annual pace since May (4.91 million) but are above year-over-year levels (up 2.1 percent from last November) for the second straight month. ...

Total housing inventory at the end of November fell 6.7 percent to 2.09 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace – unchanged from last month. Despite the tightening in supply, unsold inventory remains 2.0 percent higher than a year ago, when there were 2.05 million existing homes available for sale.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in November (4.93 million SAAR) were 6.1% lower than last month, and were 2.1% above the November 2013 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 2.09 million in November from 2.24 million in October.   Headline inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory increased 2.0% year-over-year in November compared to November 2013.  

Months of supply was at 5.1 months in November.

This was below expectations of sales of 5.20 million (but you were warned).  For existing home sales, the key number is inventory - and inventory is still low, but up year-over-year.    I'll have more later ...

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.