by Calculated Risk on 3/19/2015 08:33:00 AM

The DOL reported:

In the week ending March 14, the advance figure for seasonally adjusted initial claims was 291,000, an increase of 1,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 289,000 to 290,000. The 4-week moving average was 304,750, an increase of 2,250 from the previous week's revised average. The previous week's average was revised up by 250 from 302,250 to 302,500.

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

The previous week was revised up to 290,000.

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 increased to 304,750.

This was slightly below the consensus forecast of 293,000, and the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 3/18/2015 07:01:00 PM

From Tim Duy: Yellen Strikes a Dovish Tone

The FOMC concluded its two-day meeting today, and the results were largely as I had anticipated. The Fed took note of the recent data, downgrading the pace of activity from "solid" to "moderated." They continue to expect inflation weakness to be transitory. The risks to the outlook are balanced. And "patient" was dropped; April is still off the table for a rate hike, but data dependence rules from that point on.

Growth, inflation and unemployment forecasts all came down. Especially important was the decrease in longer-run unemployment projections. The Fed's estimates of NAIRU are falling, something almost impossible to avoid given the stickiness of wage growth in the face of falling unemployment. The forecast changes yielded a downward revision to the Fed's interest rate projections. In addition, the strong dollar was clearly on the Fed's mind. Federal Reserve Chair Janet Yellen often referred to the dollar and its impact on growth in the press conference, much more than I expected.
...
Bottom Line: Yellen does it again - she moves the Fed both closer to and further from the first rate hike of this cycle. By moving toward the markets on the path of rate hikes, the Fed acknowledges that they are eager to let this recovery run on. Moreover, they proved that they are in fact data dependent by moving policy in the direction of the data. Overall, Yellen has managed the transition away from what the Fed came to see as excessive forward guidance just about as well as could be expected.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 293 thousand from 289 thousand.

• At 10:00 AM, the Philly Fed manufacturing survey for February. The consensus is for a reading of 7.0, up from 5.2 last month (above zero indicates expansion).

by Calculated Risk on 3/18/2015 04:00:00 PM

From housing economist Tom Lawler:

Based on local realtor/MLS reports from across the country, I project that existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of 4.87 million in February, up 1.0% from January’s pace and up 4.5% from last February’s pace.

On the inventory front, local realtor/MLS reports suggest that the inventory of existing homes for sale at the end of February was little changed From January, which if true would mean that this inventory was down 1.6% from last February. Finally, local realtor/MLS suggest that the NAR’s median existing SF home sales price last month was up about 6.7% from a year earlier.

While not enough local realtors/MLS either report data on new pending sales or report accurate/consistent data on new pending sales for me to produce a “national” estimate, most or the realtors/MLS that do report such data showed significantly faster YOY growth in pending sales in February compared to January.

CR Note: The NAR is scheduled to release February existing home sales on Monday, March 23, 2015, at 10 AM ET.

by Calculated Risk on 3/18/2015 02:19:00 PM

Statement here "Patient" was removed, unlikely rate hike in April, "growth has moderated".

As far as the "Appropriate timing of policy firming",  participant views were unchanged (15 participants expect the first rate hike in 2015, and 2 in 2016), but "dots" moved down (fewer rate hikes).

The FOMC projections for inflation are still on the low side through 2017.

Yellen press conference here.

On the projections, GDP for 2015 was revised down, the unemployment rate was revised down again, and inflation projections were revised down (include core inflation).

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2015	2016	2017
Mar 2015 Meeting Projections	2.3 to 2.7	2.3 to 2.7	2.0 to 2.5
Dec 2014 Meeting Projections	2.6 to 3.0	2.5 to 3.0	2.3 to 2.5
Sept 2014 Meeting Projections	2.6 to 3.0	2.6 to 2.9	2.3 to 2.5

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 5.5% in February, so the unemployment rate projection for Q4 2015 was revised lower. 

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2015	2016	2017
Mar 2015 Meeting Projections	5.0 to 5.2	4.9 to 5.1	4.8 to 5.1
Dec 2014 Meeting Projections	5.2 to 5.3	5.0 to 5.2	4.9 to 5.3
Sept 2014 Meeting Projections	5.4 to 5.6	5.1 to 5.4	4.9 to 5.3

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

As of January, PCE inflation was up only 0.2% from January 2014, and core inflation was up 1.3%.   PCE inflation wa revised down for 2015, and will be well below the FOMC's 2% target.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2015	2016	2017
Mar 2015 Meeting Projections	0.6 to 0.8	1.7 to 1.9	1.9 to 2.0
Dec 2014 Meeting Projections	1.0 to 1.6	1.7 to 2.0	1.8 to 2.0
Sept 2014 Meeting Projections	1.6 to 1.9	1.7 to 2.0	1.9 to 2.0

PCE core inflation was up only 1.3% in January.  Core PCE inflation was revised down for 2015 and 2016.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2015	2016	2017
Mar 2015 Meeting Projections	1.3 to 1.4	1.5 to 1.9	1.8 to 2.0
Dec 2014 Meeting Projections	1.5 to 1.8	1.7 to 2.0	1.8 to 2.0
Sept 2014 Meeting Projections	1.6 to 1.9	1.8 to 2.0	1.9 to 2.0

by Calculated Risk on 3/18/2015 02:00:00 PM

Dropped "patient", "economic growth has moderated", unlikely to hike rates in April.

FOMC Statement:

Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow and export growth has weakened. Inflation has declined further below the Committee's longer-run objective, largely reflecting declines in energy prices. Market-based measures of inflation compensation remain low; survey-based measures of 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 continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of energy price declines and other factors dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, 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 and international developments. Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.

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. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

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; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.
emphasis added

by Calculated Risk on 3/18/2015 11:55:00 AM

Note: LA area ports were impacted by labor negotiations that were settled on February 21st.

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report for February since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was down 1.3% compared to the rolling 12 months ending in January.   Outbound traffic was down 1.4% compared to 12 months ending in January.

Inbound traffic had been increasing, and outbound traffic had been mostly moving sideways or slightly down.  The recent downturn was due to labor issues.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

Imports were down 18% year-over-year in February, exports were down 17% year-over-year.

The labor issues are now resolved - the ships are rapidly disappearing from the outer harbor - and I expect port traffic will be at record levels for March (catching up).

by Calculated Risk on 3/18/2015 09:54:00 AM

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

From the AIA: Architecture Billings Index Improves in February

After its first negative score in ten months, the Architecture Billings Index (ABI) showed a nominal increase in design activity in February, and has been positive ten out of the past twelve months. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the February ABI score was 50.4, up slightly from a mark of 49.9 in January. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 56.6, down from a reading of 58.7 the previous month.

“The health of the institutional market has been the key factor for positive business conditions for the design and construction industry in recent months, and it is encouraging to see that sector remain on solid footing,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “However, we’re seeing some slowing in the other major construction sectors. Design billings for residential projects had its first negative month in over three years, and commercial design billings have seen only modest growth in recent years.”
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.4 in February, up from 49.9 in January. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.  The multi-family residential was negative for the first time in over three years - and might be indicating a slowdown for apartments. (just one month)

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 index was mostly positive over the last year, suggesting an increase in CRE investment in 2015.

by Calculated Risk on 3/18/2015 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 3.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 13, 2015. ...

The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.99 percent from 4.01 percent, with points increasing to 0.40 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

2014 was the lowest year for refinance activity since year 2000.

2015 will probably see a little more refinance activity than in 2014, but not a large refinance boom.

The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 1% higher than a year ago.

by Calculated Risk on 3/17/2015 08:57:00 PM

From Jon Hilsenrath at the WSJ: Fed to Markets: No More Promises

Ahead of their policy meeting that ends Wednesday, Fed officials have signaled they want to drop the latest iteration in a succession of low-rate promises—a line in their policy statement pledging to be “patient” before deciding to raise rates.

The move could be a test for investors. In theory, less-clear-cut interest-rate guidance from the Fed should lead to more volatility in financial markets. That’s because investors will be left less certain about a key variable in every asset-valuation model: the cost of funds.

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

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

• At 2:00 PM, the FOMC Meeting Announcement. The FOMC is expected to make no change to policy, however the word "patient" will probably be removed from the statement opening the possibility of a rate hike as early as June.

• At 2:00 PM, the FOMC Forecasts. This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

• At 2:30 PM, Fed Chair Janet Yellen holds a press briefing following the FOMC announcement.

by Calculated Risk on 3/17/2015 05:24:00 PM

From DataQuick: Southern California Home Sales Dip Year Over Year Again; Median Price Edges Higher

CoreLogic® ... today released its February 2015 Southern California housing market report, which shows the number of homes sold rose slightly from January but hit the lowest level for a February in seven years. ... A total of 13,650 new and existing houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in February 2015. That was up 0.7 percent month over month from 13,560 sales in January 2015, and down 2.7 percent year over year from 14,027 sales in February 2014, according to CoreLogic DataQuick data.

"This feels a lot like early 2014, with home sales off to a slow start as many would-be home buyers struggle with inventory constraints, credit hurdles and reduced affordability," said Andrew LePage, data analyst for CoreLogic DataQuick. "And just like a year ago, one of the big questions hanging over the market is whether we'll see a sizeable jump in inventory this spring and summer. A nearly three-year stretch of price appreciation has given many more owners enough equity to sell their homes and buy another. Recent job growth has helped fuel housing demand and if that’s met with only a modest rise in the supply of homes for sale it will put upward pressure on prices. Of course, the direction of mortgage rates, among other factors, will also play a role in determining how the housing market shapes up this year."
...
Foreclosure resales represented 6.0 percent of the resale market in February. That was up from a revised 5.7 percent in January 2015 and down from 6.7 percent in February 2014. In recent months the foreclosure resale rate has been the lowest since early 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009. Foreclosure resales are purchased homes that have been previously foreclosed upon in the prior 12 months.

Short sales made up an estimated 6.1 percent of resales in February, down from a revised 6.6 in January 2015 and down from 9.0 percent in February 2014. Short sales are transactions in which the sale price fell short of what was owed on the property.
emphasis added

A couple of key points: 1) the percent of distress sales usually increases in the winter months, because traditional sales fall off sharply - so it is important to look at the year-over-year change in distressed sales (down to 12.1% from 15.7% a year ago), and 2) we might see more upward price pressure unless inventory increases.