by Calculated Risk on 8/24/2015 09:55:00 AM

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

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.34 in July from –0.07 in June. Two of the four broad categories of indicators that make up the index increased from June, and three of the four categories made positive contributions to the index in July.

The index’s three-month moving average, CFNAI-MA3, edged up to a neutral reading in July from –0.08 in June. July’s CFNAI-MA3 suggests that growth in national economic activity was at its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited 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 close to the historical trend in July (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 8/24/2015 07:01:00 AM

From Black Knight: Black Knight Financial Services' First Look at July Mortgage Data: Foreclosure Inventory Down 24 Percent Year-Over-Year; Lowest Level Since 2007

According to Black Knight's First Look report for July, the percent of loans delinquent decreased 2% in July compared to June, and declined 16.5% year-over-year.

The percent of loans in the foreclosure process declined 4% in July and were down 24% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.71% in July, down from 4.82% in June.

The percent of loans in the foreclosure process declined in July to 1.40%.  This was the lowest level of foreclosure inventory since 2007.

The number of delinquent properties, but not in foreclosure, is down 460,000 properties year-over-year, and the number of properties in the foreclosure process is down 224,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for July in early September.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	July 2015	June 2015	July 2014	July 2013
Delinquent	4.71%	4.82%	5.64%	6.41%
In Foreclosure	1.40%	1.46%	1.85%	2.82%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,503,000	1,549,000	1,713000	1,846,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	886,000	895,000	1,136,000	1,347,000
Number of properties in foreclosure pre-sale inventory:	711,000	739,000	935,000	1,406,000
Total Properties	3,100,000	3,183,000	3,785,000	4,599,000

by Calculated Risk on 8/23/2015 11:32:00 PM

I take a one week vacation, and the market turns ugly.  Oh well ...

From the WSJ: Refinery Woes Stall Gasoline Price Drops

U.S. oil prices briefly dropped below $40 a barrel on Friday—hitting a six-year low that adds to pressure on pump prices for Labor Day road trips. But cheap gasoline isn’t a sure bet everywhere.

Even as most drivers around the country are spending 25% less on fuel than they did a year ago, California drivers have missed out on the gasoline price windfall because of refinery outages. ... Production woes are spreading to other parts of the country, including the Midwest. ...

“Gas prices are not as low as they should be because of unexpected problems at major refineries and strong demand from drivers,” said Michael Green, a AAA spokesman. The group says the nationwide average could fall to $2 a gallon this year, but only if there are no more production hiccups.

Weekend:
• Schedule for Week of August 23, 2015

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

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are down 46 and DOW futures are down 400 (fair value).

Oil prices were down over the last week with WTI futures at $39.43 per barrel and Brent at $44.52 per barrel.  A year ago, WTI was at $94, and Brent was at $100 - so prices are down over 50% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.60 per gallon (down about $0.84 per gallon from a year ago).  Gasoline prices should follow oil prices down - once the refinery issues are resolved.

by Calculated Risk on 8/23/2015 07:29:00 PM

I'm back from vacation and starting to catch up!

The key reports this week are July New Home sales on Tuesday, the second estimate of Q2 GDP on Thursday, and Case-Shiller house prices on Tuesday.

----- Monday, August 24th -----
8:30 AM ET: Chicago Fed National Activity Index for July. This is a composite index of other data.

----- Tuesday, August 25th -----
9:00 AM: S&P/Case-Shiller House Price Index for June. Although this is the June report, it is really a 3 month average of April, May and June prices.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the May 2015 report (the Composite 20 was started in January 2000).

The consensus is for a 5.2% year-over-year increase in the Comp 20 index for June. The Zillow forecast is for the National Index to increase 4.3% year-over-year in June.

9:00 AM: FHFA House Price Index for June 2015. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.4% month-to-month increase for this index.

10:00 AM: New Home Sales for July from the Census Bureau.

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

The consensus is for an increase in sales to 516 thousand Seasonally Adjusted Annual Rate (SAAR) in July from 482 thousand in June.

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

----- Wednesday, August 26th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Durable Goods Orders for July from the Census Bureau. The consensus is for a 0.4% decrease in durable goods orders.

----- Thursday, August 27th -----
All day: the Kansas City Fed Hosts Symposium in Jackson Hole, Wyoming (Thursday, Friday, and Saturday).

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 270 thousand initial claims, down from 277 thousand the previous week.

8:30 AM: Gross Domestic Product, 2nd quarter 2015 (second estimate). The consensus is that real GDP increased 3.2% annualized in Q2, revised up from 2.3%  in the advance estimate.

10:00 AM: Pending Home Sales Index for July. The consensus is for a 1.0% increase in the index.

11:00 AM: the Kansas City Fed manufacturing survey for August.

----- Friday, August 28th -----
8:30 AM ET: Personal Income and Outlays for July. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

10:00 AM: University of Michigan's Consumer sentiment index (final for August). The consensus is for a reading of 93.3, up from the preliminary reading of 92.9.

by Calculated Risk on 8/22/2015 09:41:00 AM

Note: CR is on vacation, and I will return on Sunday, August 23rd.

No one is perfect, although in January 2007 I did forecast a recession starting in 2007. And I was able to call the bottom in 2009.

Here are some recent posts on recessions:

From January 2015: Predicting the Next Recession

Recently there has been some discussion of a recession in 2015. That seems very unlikely to me - I'm not even on "recession watch".

From March 2013: Business Cycles and Markets

I've been asked several times about the recent ECRI recession call (obviously I disagreed with their incorrect recession call in 2011 - I wasn't even on recession watch then and I'm not on recession watch now - and I also think ECRI is wrong about a recession starting in mid-2012). ...

It seems to me ECRI is trying to make this an academic exercise and hoping for some significant downward revisions. Right now the data doesn't indicate a recession in 2012, but, as Menzie Chinn notes, "all of these series will be revised, so one wouldn’t want to state definitively we are not in a recession – therein lies the path to embarrassment. But the case still has to be made for recession."

But why do we care? ...

Why is there so much focus on the business cycle? For companies, especially cyclical companies, the reason is obvious – it helps with planning, staffing and investment.

But why are investors so focused on the business cycle? Obviously earnings decline in a recession, and stock prices fall too. The following graph shows the year-over-year (YoY) change in the S&P 500 (using average monthly prices) since 1970. Notice that the market usually declines YoY in a recession.
...
So calling a recession isn’t just an academic exercise, there is some opportunity to preserve capital.

Note: From June 2015: ECRI Admits Incorrect Recession Call

CR Note: I will be returning tomorrow (unless I change my mind), and I should start posting Sunday evening or Monday morning. Best to all!

by Calculated Risk on 8/21/2015 09:21:00 AM

Note: CR is on vacation, and I will return on Sunday, August 23rd.

In 2005 and 2006, I was researching previous housing bubble / busts to try to predict what would happen following the bursting of the housing bubble.

So, in April 2008, when many pundits were calling the housing bottom, I wrote: Housing Bust Duration

After another year (or two) of rapidly falling prices, it's very likely that real prices will continue to fall - but at a slower pace. During the last few years of the bust, real prices will be flat or decline slowly - and the conventional wisdom will be that homes are a poor investment.

The Los Angeles bust took 86 months in real terms from peak to trough (about 7 years) using the Case-Shiller index. If the Composite 20 bust takes a similar amount of time, the real price bottom will happen in early 2013 or so.

And then in February 2012 I wrote: The Housing Bottom is Here

There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices (especially if prices fall another 4% to 5% NSA between the November Case-Shiller report and the March report). Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales (the probable mortgage settlement, the HARP refinance program, and more).

And in March 2013, I wrote about the two bottoms - one for activity and the other for prices: Housing: The Two Bottoms

I pointed out there are usually two bottoms for housing: the first for new home sales, housing starts and residential investment, and the second bottom is for house prices.
...
[I]t appears activity bottomed in 2009 through 2011 (depending on the measure) and house prices bottomed in early 2012.

by Calculated Risk on 8/20/2015 09:27:00 AM

Note: CR is on vacation, and I will return on Sunday, August 23rd.

In early 2009, many analysts were predicting the 2nd Great Depression. However I started seeing some positive signs ... and I was able to call the end of the recession in mid-2009.

From January 2009: Vehicle Sales

David Rosenberg at Merrill Lynch wrote a research piece last week: "Not Your Father’s Recession ...(But Maybe Your Grandfather’s)" (no link)

Needless to say, the piece wasn't too upbeat.

But I was intrigued by some of the comments on vehicle sales.
...
Currently this ratio is at 23.9 years, the highest ever. This is an unsustainable level (I doubt most vehicles will last 24 years!), and the ratio will probably decline over the next few years. This could happen with vehicles being removed from the fleet, but more likely because of a sales increase.
...
Sales won't increase right away (look at the depressed sales during the early '80s), but this does suggest that auto sales are closer to the bottom than the top, and that auto sales will increase significantly in the future - although sales in 2009 will probably be dismal.

And from February 2009: Looking for the Sun

2009 will be a grim economic year. The unemployment rate will rise all year, house prices will fall, commercial real estate (CRE) will get crushed ... but there might be a few rays of sunshine too.
...
Even though most of the economic news will be ugly in 2009, my guess is all three of these series will find a bottom (or at least the pace of decline will slow significantly). This means that the drag on employment in these industries, and the drag on GDP, will slow or stop.

These will be rays of sunshine in a very dark season. That doesn't mean a thaw, but it will be a beginning ...

CR Note: I do not have a crystal ball, but I was looking past the horrible day-to-day numbers and starting to see the end of the recession.

by Calculated Risk on 8/19/2015 09:01:00 PM

NOTE: CR is on vacation this week and will return on Sunday, August 23rd.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.

• At 10:00 AM, the Philly Fed manufacturing survey for August. The consensus is for a reading of 7.0, up from 5.7.

• Also at 10:00 AM, Existing Home Sales for July from the National Association of Realtors (NAR). Sales in June were at a 5.49 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 5.64 million SAAR. The consensus is for 5.41 million SAAR, down from 5.49 million in June.

Take the over on existing home sales!

by Calculated Risk on 8/19/2015 09:58:00 AM

Note: CR is on vacation, and I will return on Sunday, August 23rd.

In December 2007, most analysts were still dramitically underestimating the probably losses for lenders and financial institutions.

Here is an article from the WSJ quoting a crazy blogger: How High Will Subprime Losses Go?

The global race is on to find the best phrase to describe the housing and credit mess. The U.K.’s Telegraph quotes an economist who says it “could make 1929 look like a walk in the park” if central banks don’t solve the crisis in a matter of weeks.

The report cites the recent prediction from Barclays Capital that losses from the subprime-mortgage meltdown could hit $700 billion. That would top Merrill Lynch’s recent estimate of $500 billion. The Australian newspaper notes that a $700 billion “bloodbath” — potentially leading the U.S. economy into “the blackest year since the Great Depression” — would top the GDPs of all but 15 nations.

Back in the U.S., the Calculated Risk blog sidestepped the colorful language and went straight for the big number: “The losses for the lenders and investors might well be over $1 trillion.”

Many people thought I was crazy. But losses for lenders and financial institutions ended up over $1 Trillion.

And if you look at the post the WSJ referenced, the first paragraph starts: "Within the next couple of years, probably somewhere between 10 million and 20 million U.S. homeowners will owe more on their homes, than their homes are worth."

I was a grizzly bear!

by Calculated Risk on 8/18/2015 09:05:00 PM

NOTE: CR is on vacation this week and will return on Sunday, August 23rd.

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

• At 8:30 AM, the Consumer Price Index for July from the BLS. The consensus is for a 0.2% increase in CPI, and a 0.2% increase in core CPI.

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

• 2:00 PM: FOMC Minutes, Meeting of July 28-29, 2015