by Calculated Risk on 7/07/2015 08:41:00 AM

The Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $41.9 billion in May, up $1.2 billion from $40.7 billion in April, revised. May exports were $188.6 billion, $1.5 billion less than April exports. May imports were $230.5 billion, $0.3 billion less than April imports.

The trade deficit was close to the consensus forecast of $42.0 billion.

The first graph shows the monthly U.S. exports and imports in dollars through May 2015.

Click on graph for larger image.

Imports decreased and exports also decreased in May.

Exports are 14% above the pre-recession peak and down 4% compared to May 2014; imports are at the pre-recession peak, and down 4% compared to May 2014. 

The second graph shows the U.S. trade deficit, with and without petroleum.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products (wild swings over earlier this year were due to port slowdown.

Oil imports averaged $50.76 in May, up from $46.52 in April, and down from $96.12 in May 2014.  The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012.

The trade deficit with China decreased to $28.8 billion in May, from $30.4 billion in May 2014. The deficit with China is a large portion of the overall deficit.

by Calculated Risk on 7/06/2015 07:31:00 PM

A sharp decline in oil prices, from the WSJ: Oil Prices Tumble Nearly 8%

Oil prices on Monday skidded to their biggest single-day declines in more than three months, as gyrations in Chinese stocks and the prospect of more crude from the U.S. and Iran revived worries about the global supply glut.
...
The U.S. benchmark oil price slid for the third session in a row, closing down $4.38, or 7.7%, to $52.53 a barrel on the New York Mercantile Exchange. ...
...
Brent crude, the global benchmark, closed down $3.78, or 6.3%, to $56.54 a barrel on ICE Futures Europe.

Tuesday:
• Early: Reis Q2 2015 Mall Survey of rents and vacancy rates.

• At 8:30 AM ET, the Trade Balance report for May from the Census Bureau. The consensus is for the U.S. trade deficit to be at $42.0 billion in May from $40.9 billion in April.

• At 10:00 AM, Job Openings and Labor Turnover Survey for May from the BLS. Jobs openings increased in April to 5.376 million from 5.109 million in March. The number of job openings were up 22% year-over-year compared to April 2014, and Quits were up 11% year-over-year.

• At 3:00 PM, Consumer Credit for May from the Federal Reserve. The consensus is for an increase of $18.5 billion in credit.

by Calculated Risk on 7/06/2015 02:38:00 PM

At the end of each year, I post Ten Economic Questions for the coming year. I followed up with a brief post on each question. The goal was to provide an overview of what I expected in 2015 (I don't have a crystal ball, but I think it helps to outline what I think will happen - and understand - and change my mind, when the outlook is wrong).

By request, here is a quick Q2 review. I've linked to my posts from the beginning of the year, with a brief excerpt and a few comments:

10) Question #10 for 2015: How much will housing inventory increase in 2015?

Right now my guess is active inventory will increase further in 2015 (inventory will decline seasonally in December and January, but I expect to see inventory up again year-over-year in 2015). I expect active inventory to move closer to 6 months supply this summer.

According to the May NAR report on existing home sales, inventory was up 1.8% year-over-year in May, and the months-of-supply was at 5.1 months.  I still expect inventory to increase in 2015, and for supply to be close to 6 months sometime this summer.

9) Question #9 for 2015: What will happen with house prices in 2015?

In 2015, inventories will probably remain low, but I expect inventories to continue to increase on a year-over-year basis. Low inventories, and a better economy (with more consumer confidence) suggests further price increases in 2015. I expect we will see prices up mid single digits (percentage) in 2015 as measured by these house price indexes.

If is still early, but the Case Shiller data for April showed prices up 4.2% year-over-year. The year-over-year change seems to be moving mostly sideways recently.

8) Question #8 for 2015: How much will Residential Investment increase?

My guess is growth of around 8% to 12% for new home sales, and about the same percentage growth for housing starts. Also I think the mix between multi-family and single family starts might shift a little more towards single family in 2015.

Through May, even with a weak start to the year, starts were up 6% year-over-year compared to the same period in 2014.  As expected, multi-family has been weaker than single family this year.  New home sales were up 24% year-over-year in May, but that was an easy comparison.

7) Question #7 for 2015: What about oil prices in 2015?

It is impossible to predict an international supply disruption - if a significant disruption happens, then prices will obviously move higher. Continued weakness in Europe and China does seem likely - and I expect the frackers to slow down with exploration and drilling, but to continue to produce at most existing wells at current prices (WTI at $55 per barrel). This suggests in the short run (2015) that prices will stay well below $100 per barrel (perhaps in the $50 to $75 range) - and that is a positive for the US economy.

As of this morning, WTI futures are just over $53 per barrel.

6) Question #6 for 2015: Will real wages increase in 2015?

As the labor market tightens, we should start seeing some wage pressure as companies have to compete more for employees. Whether real wages start to pickup in 2015 - or not until 2016 or later - is a key question. I expect to see some increase in both real and nominal wage increases this year. I doubt we will see a significant pickup, but maybe another 0.5 percentage points for both, year-over-year.

Through June, nominal hourly wages were up 2.0 year-over-year. I still expect a little pick up later this year.

5) Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?

The FOMC will not want to immediately reverse course, so the might wait a little longer than expected. Right now my guess is the first rate hike will happen at either the June, July or September meetings. 

June didn't happen, but September still seems possible.  It could even be later in the year, or even next year.

4) Question #4 for 2015: Will too much inflation be a concern in 2015?

Due to the slack in the labor market (elevated unemployment rate, part time workers for economic reasons), and even with some real wage growth in 2015, I expect these measures of inflation will stay mostly at or below the Fed's target in 2015. If the unemployment rate continues to decline - and wage growth picks up - maybe inflation will be an issue in 2016.

So currently I think core inflation (year-over-year) will increase in 2015, but too much inflation will not be a serious concern this year.

It is still early, but inflation was still low through May.

3) Question #3 for 2015: What will the unemployment rate be in December 2015?

Depending on the estimate for the participation rate and job growth (next question), it appears the unemployment rate will decline to close to 5% by December 2015. My guess is based on the participation rate staying relatively steady in 2015 - before declining again over the next decade. If the participation rate increases a little, then I'd expect unemployment in the low-to-mid 5% range.

The participation rate has mostly moved sideways this year, and the unemployment rate was 5.3% in June.  This is on track for close to 5% in December.

2) Question #2 for 2015: How many payroll jobs will be added in 2015?

Energy related construction hiring will decline in 2015, but I expect other areas of construction to be solid.

As I mentioned above, in addition to layoffs in the energy sector, exporters will have a difficult year - and more companies will have difficulty finding qualified candidates. Even with the overall boost from lower oil prices - and some additional public hiring, I expect total jobs added to be lower in 2015 than in 2014.

So my forecast is for gains of about 200,000 to 225,000 payroll jobs per month in 2015. Lower than 2014, but another solid year for employment gains given current demographics.

Through June 2015, the economy has added 1,250,000 jobs, or 208,000 per month.  I still expect employment gains to average 200,000 to 225,000 per month in 2015 (lower than 2014, but still solid).

1) Question #1 for 2015: How much will the economy grow in 2015?

Lower gasoline prices suggest an increase in personal consumption expenditures (PCE) excluding gasoline. And it seems likely PCE growth will be above 3% in 2015. Add in some more business investment, the ongoing housing recovery, some further increase in state and local government spending, and 2015 should be the best year of the recovery with GDP growth at or above 3%.

Once again the first quarter was disappointing due to the weather, cutbacks in the oil sector, the West Coast port slowdown and the strong dollar, but there was some bounce back in Q2.  It looks like GDP will be in the 2s again this year.

Overall, so far, 2015 is unfolding about as expected.

by Calculated Risk on 7/06/2015 11:55:00 AM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for May today. According to BKFS, 4.96% of mortgages were delinquent in May, up from 4.77% in April. BKFS reported that 1.49% of mortgages were in the foreclosure process, down from 1.91% in May 2014.

This gives a total of 6.45% delinquent or in foreclosure. It breaks down as:

• 1,591,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 922,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 754,000 loans in foreclosure process.

For a total of ​​3,268,000 loans delinquent or in foreclosure in May. This is down from 3,805,000 in May 2014.

And here is a look at homeowners who could still refinance.

Click on graph for larger image.

From Black Knight:

Looking at current interest rates on existing 30-year mortgages and applying broad-based underwriting criteria, we see approximately 6.1 million potential refinance candidates – borrowers that likely could qualify for and benefit from refinancing

Given that HARP has been extended through 2016, we find there are an additional 450K borrowers that meet HARP eligibility guidelines and could benefit from refinancing through the program

There are 1.6 million more refinanceable borrowers today than one year ago, due in part to home price appreciation, but primarily due to interest rate reductions

This is down by 1 million borrowers from just last month, due to minor fluctuations in interest rates, illustrating just how rate sensitive a population this is

If rates were to rise by just half a percentage point, 42 percent of borrowers (2.6 million people) fall out of that refinanceable population

There is much more in the mortgage monitor.

by Calculated Risk on 7/06/2015 10:04:00 AM

The June ISM Non-manufacturing index was at 56.0%, up from 55.7% in May. The employment index decreased in June to 52.7%, down from 55.3% in May. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: June 2015 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in June for the 65th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 56 percent in June, 0.3 percentage point higher than the May reading of 55.7 percent. This represents continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 61.5 percent, which is 2 percentage points higher than the May reading of 59.5 percent, reflecting growth for the 71st consecutive month at a faster rate. The New Orders Index registered 58.3 percent, 0.4 percentage point higher than the reading of 57.9 percent registered in May. The Employment Index decreased 2.6 percentage points to 52.7 percent from the May reading of 55.3 percent and indicates growth for the 16th consecutive month. The Prices Index decreased 2.9 percentage points from the May reading of 55.9 percent to 53 percent, indicating prices increased in June for the fourth consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth in June. The majority of respondents’ comments are positive about business conditions and the economy."
emphasis added

Click on graph for larger image.

Update: Graph corrected.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was at the consensus forecast of 56.0% and suggests slightly faster expansion in June than in May.

by Calculated Risk on 7/05/2015 07:58:00 PM

From Bloomberg: Tsipras Triumphs as Greece Votes Against Austerity

Sixty-one percent of voters backed Prime Minister Alexis Tsipras’s rejection of further spending cuts and tax increases in an unprecedented referendum that’s also taken the country to the brink of financial collapse.

Years ago we discussed how endless austerity and depression would eventually be rejected in a democracy. No one knows what will happen next. The best policy would be to ease up on austerity - let Greece start growing again - and write down some of the debt. Unfortunately the best policy seems unlikely since many of the creditors will not admit their policies have failed.

If the creditors want more austerity, they should make some guarantees. If Greece does X, Y and Z, then the creditors will guarantee the debt-to-GDP ratio will decline to some number in 3 years.  If the economy grows, great. If not the creditors would take a large write-down.

Monday:
• At 10:00 AM ET, the Fed will release the monthly Labor Market Conditions Index (LMCI).

• Also at 10:00 AM, the ISM non-Manufacturing Index for June. The consensus is for index to increase to 56.0 from 55.7 in May.

Weekend:
• Schedule for Week of July 5, 2015

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are down 26 and DOW futures are down 206 (fair value).

Oil prices were down over the last week with WTI futures at $54.81 per barrel and Brent at $59.70 per barrel.  A year ago, WTI was at $106, and Brent was at $111 - so prices are down almost 50% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.76 per gallon (down about $0.90 per gallon from a year ago).

by Calculated Risk on 7/05/2015 02:38:00 PM

The Financial Times reports: Early results suggest Greece heads for No With about a third of the vote counted, "No" had 61% of the vote and was leading in every region of Greece.

And from the WSJ: First Official Projection Says at Least 61% of Greeks Voted ‘No’ in Referendum

A first official projection of Greece’s referendum outcome, based on early counting, said that at least 61% of Greeks voted “no” to creditors’ demands on Sunday ... 

by Calculated Risk on 7/05/2015 11:45:00 AM

Note: The polls in Greece close at noon ET, and early results might be available around 2:30 PM ET.

The WSJ has a running discussion: Greek Referendum — Live

Paul Krugman wrote this morning: Meanwhile In China

I am, of course, anxiously awaiting the results of Greferendum, although the next few days in Greece will be terrible whoever wins. But we shouldn’t lose sight of other risks facing the world. ... in the past month, mainly in the past few days, the Shanghai stock index has fallen almost 30 percent.

This graph shows the Shanghai SSE Composite Index and the S&P 500 (in blue).

Click on graph for larger image.

The SSE Composite index is at 3,686.92, down almost 6% on Friday, and down close to 30% from the recent peak.

by Calculated Risk on 7/04/2015 07:09:00 PM

δίλημμα: Dilemma. There is no good choice on Sunday.

Poor fiscal policies led to the need for a bailout. And the poorly designed bailout program has crushed the Greek economy. Now the creditors want more of the same, expecting a different result;  so voting "Yes" seems like the definition of insanity. But a "No" vote will mean complete chaos.

From the WSJ: On Bailout Referendum’s Eve, Greeks Are Deeply Divided on Which Course to Take

Polls have the two sides evenly balanced. There are no public data that break down the demographics and the inclinations of “yes” and “no,” but conversations around this city depict a populace that is split in two: Haves and have-nots, young and old, those bitten by austerity and those less exposed, those with money in the closed banks and those without.

From Reuters: Greece's 'yes' voters eye razor thin margin ahead of crucial referendum

The opinion poll by the respected ALCO institute, published in the Ethnos newspaper on Friday, put the "Yes" camp on 44.8 percent against 43.4 percent for the No" vote. But the lead was within the pollster's 3.1 percentage point margin of error, with 11.8 percent saying they are still undecided.

From Bloomberg: D-Day for Greek Banks Looms Following Austerity Referendum

Without a fresh injection from the European Central Bank -- or a reduced ceiling on withdrawals -- ATMs will start running dry within hours of the vote, according to Louka Katseli, chairwoman of the National Bank of Greece.

“Liquidity is adequate through the end of the bank holiday” that’s due to end Monday night, Katseli told reporters Friday as she left meetings at the Finance Ministry. Asked whether developments depend on the ECB, Katseli said “yes.”

Grim.

by Calculated Risk on 7/04/2015 12:23:00 PM

An update: Last year, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group, Decline in the Labor Force Participation Rate: Mostly Demographics and Long Term Trends, and The Future's so Bright ...

I pointed out that "even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon."

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through June 2015.

Click on graph for larger image.

There was a huge surge in the prime working age population in the '70s, '80s and '90s - and the prime age population has been mostly flat recently (even declined a little).

The prime working age labor force grew even quicker than the population in the '70s and '80s due to the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s!

So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply).

See: Demographics and GDP: 2% is the new 4%

The prime working age population peaked in 2007, and appears to have bottomed at the end of 2012.  The good news is the prime working age group has started to grow again, and is now growing close to 0.5% per year - and this should boost economic activity.