by Calculated Risk on 8/27/2015 09:01:00 PM

A couple of excerpts from a Merrill Lynch research note, first on the possibility of a September rate hike, and second their forecast for August NFP:

Markets are now pricing a fairly slim chance that the Fed will hike in September, taking to heart the remarks by New York Fed President Bill Dudley midweek that liftoff in September looks “less compelling.” We think a more careful reading of Dudley’s comments suggests that September has not been ruled out. Meanwhile, Vice Chair Stanley Fischer speaks at Jackson Hole this weekend. His comments on inflation and the markets will be most noteworthy, and we expect him to suggest that September remains viable provided the data continue to cooperate and market volatility fades.

CR Note: a September rate hike is still on the table, and Fischer's talk on Saturday will be important.

Note: Saturday at 12:25 PM ET, Speech by Fed Vice Chairman Stanley Fischer, U.S. Inflation Developments, At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming

And from Merrill on August NFP:

Payrolls likely grew by a healthy 200,000 in August, not far from the 6-month moving average of 210,000. A pick-up in hiring in the household survey could also nudge the jobless rate down to 5.2% from 5.3% — a sign that labor market slack continues to diminish. Average hourly earnings should rise by a steady 0.2% mom, but softer base-year effects will take the yoy rate down a tenth of a percent to 2.0%.

Friday:
• At 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%.

• At 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 8/27/2015 05:29:00 PM

The Mortgage Bankers Association released a new report this week: Demographics and the Numbers Behind the Coming Multi-Million increase in Households by Lynn Fisher and Jamie Woodwell.

The report has some great section titles such as "Demographics is Destiny" and "35 is the new 25". These are two topics I've written about extensively.  See: Demographics and Behavior and Are Multi-Family Housing Starts near a peak?

The MBA estimates the number of households will increase by between 13.8 million and 15.8 million over the next decade. Add in some demolitions and some second home buying, and that would suggest housing starts of well over 1.5 million per year. Housing starts are running at about 1.1 million so far this year (1.2 million SAAR in July). This would suggest a further increase in starts.

The MBA presents two scenarios (both seem plausible although I haven't checked the numbers).

Under these conditions, the U.S. will see 15.9 million additional households — 12.7 million owner households (versus 10.3 million in scenario 1) and 3.1 million renter households (versus 5.6 million in scenario 1) — over the next ten years.

Both scenarios suggest a shift to more owner built units (and more new home sales).

Note: For a current look at household formation, economist Jed Kolko wrote last week: Who Is Actually Forming New Households?

by Calculated Risk on 8/27/2015 01:01:00 PM

The BLS reported this last week:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) decreased 0.3 percent over the last 12 months to an index level of 233.806 (1982-84=100). For the month, the index was essentially unchanged prior to seasonal adjustment.

CPI-W is the index that is used to calculate Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).

Since the highest Q3 average was last year (Q3 2014), at 234.242, we only have to compare to last year. 

Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

By law, COLA can't be negative, so if the average for CPI-W is down year-over-year, COLA is set to zero (no adjustment).

CPI-W was down 0.3% year-over-year in July.  This is early - we need the data for August and September - but if gasoline prices continue to decline, COLA could be zero this year.

Contribution and Benefit Base

The law prohibits an increase in the contribution and benefit base if COLA is not greater than zero. However if the there is even a small increase in COLA, the contribution base will be adjusted using the National Average Wage Index.

From Social Security: Method for determining the base

The formula for determining the OASDI contribution and benefit base is set by law. The formula is applicable only if a cost-of-living increase becomes effective for December of the year in which a determination of the base would ordinarily be made. ...

This is based on a one year lag. The National Average Wage Index is not available for 2014 yet, but wages probably increased again in 2014. If wages increased the same as last year, then the contribution base next year will be increased to around $120,000 from the current $118,500.  However, if COLA is zero, the contribution base will remain at $118,500.

Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).

by Calculated Risk on 8/27/2015 10:22:00 AM

From the NAR: Pending Home Sales Inch Forward in July

The Pending Home Sales Index, a forward-looking indicator based on contract signings, marginally increased 0.5 percent to 110.9 in July from an upwardly revised 110.4 in June and is now 7.4 percent above July 2014 (103.3). The index has increased year-over-year for 11 consecutive months and is the third highest reading of 2015, behind April (111.6) and May (112.3).

This was below expectations of a 1.0% increase.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in August and September.

by Calculated Risk on 8/27/2015 08:37:00 AM

From the BEA: Gross Domestic Product: First Quarter 2015 (Third Estimate)

Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 3.7 percent in the second quarter of 2015, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.6 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.3 percent. With the second estimate for the second quarter, nonresidential fixed investment and private inventory investment increased. ...
emphasis added

Here is a Comparison of Advance and Second Estimates. PCE growth was revised up from 2.9% to 3.1%. Residential investment was revised up from 6.6% to 7.8%.

Solid growth. And above the consensus of 3.2%.

The DOL reported:

In the week ending August 22, the advance figure for seasonally adjusted initial claims was 271,000, a decrease of 6,000 from the previous week's unrevised level of 277,000. The 4-week moving average was 272,500, an increase of 1,000 from the previous week's unrevised average of 271,500.

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

The previous week was unrevised at 277,000.

The following graph shows the 4-week moving average of weekly claims since 1971.

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 decreased to 272,500.

This was sligthly higher than the consensus forecast of 270,000, and the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 8/26/2015 09:16:00 PM

From Tim Duy: Dudley Puts The Kibosh On September

Monday's action on Wall Street was too much for the Fed. That day, Atlanta Federal Reserve President Dennis Lockhart pulled back his previous dedication to a September rate hike earlier, reverting to only an expectation that rates rise sometimes this year. But today New York Federal Reserve President William Dudley explicitly called September into question. ...
...
Bottom Line: The Fed has long argued that the timing of the first rate hike does not matter. I had thought so as well, but that is clearly no longer the case. A rate hike during a period of substantial financial market turmoil would matter a great deal. It looks like the Fed's plans to raise rate will once again be overtaken by events.

I think the Fed is still data dependent, and the key will be if inflation picks up. This model is interesting, and suggests a slight pickup in inflation later this year and into 2016.

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

• At 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.

• At 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.

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

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

by Calculated Risk on 8/26/2015 06:01:00 PM

While I was on vacation, there were several key economic releases. Here is the CPI release ...

Last week the Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

ccording to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (1.8% annualized rate) in July. The 16% trimmed-mean Consumer Price Index also rose 0.2% (1.9% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.

[Last week], the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.6% annualized rate) in July. The CPI less food and energy also rose 0.1% (1.6% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for July here. Motor fuel was down sharply in July.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 1.7%, and the CPI less food and energy rose 1.8%. Core PCE is for June and increased 1.3% year-over-year.

On a monthly basis, median CPI was at 1.8% annualized, trimmed-mean CPI was at 1.9% annualized, and core CPI was at 1.6% annualized.

On a year-over-year basis these measures suggest inflation remains below the Fed's target of 2% (median CPI is above 2%).

Inflation is still low.

by Calculated Risk on 8/26/2015 03:01:00 PM

Economist Tom Lawler sent me an updated table below of short sales, foreclosures and cash buyers for selected cities in July.

On distressed: Total "distressed" share is down in most of these markets.  Distressed sales are up in the Mid-Atlantic due to an increase in foreclosures.

Short sales are down in all of these areas.

The All Cash Share (last two columns) is declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Jul- 2015	Jul- 2014	Jul- 2015	Jul- 2014	Jul- 2015	Jul- 2014	Jul- 2015	Jul- 2014
Las Vegas	7.0%	11.5%	7.7%	9.1%	14.7%	20.6%	27.1%	35.6%
Reno**	3.0%	4.0%	2.0%	8.0%	5.0%	12.0%
Phoenix	2.8%	3.7%	3.5%	5.9%	6.3%	9.6%	23.4%	24.8%
Sacramento	4.7%	5.7%	4.6%	6.3%	9.3%	12.1%	18.1%	20.9%
Minneapolis	1.9%	3.1%	5.4%	9.3%	7.3%	12.4%
Mid-Atlantic	3.4%	4.3%	9.4%	7.7%	12.8%	12.1%	15.8%	17.1%
Orlando	3.7%	8.3%	20.1%	24.4%	23.8%	32.7%	34.5%	39.3%
Bay Area CA*	2.4%	2.8%	2.4%	2.6%	4.8%	5.4%	20.1%	20.7%
So. California*	3.2%	4.3%	3.9%	4.6%	7.1%	8.9%	21.7%	25.1%
Florida SF	3.3%	5.9%	16.3%	20.7%	19.6%	26.6%	32.8%	37.7%
Florida C/TH	2.4%	19.1%	15.2%	19.1%	17.6%	38.1%	59.2%	64.3%
Chicago (city)					13.5%	17.7%
Hampton Roads					15.1%	17.2%
Spokane					9.0%	12.2%
Northeast Florida					26.4%	31.0%
Toledo							27.0%	32.9%
Tucson							23.7%	26.2%
Peoria							15.6%	18.4%
Georgia***							20.3%	24.1%
Omaha							13.9%	17.0%
Knoxville							21.8%	25.5%
Richmond VA MSA			8.4%	12.1%			18.1%	18.4%
Memphis			12.6%	13.3%
Springfield IL**			5.6%	7.2%
*share of existing home sales, based on property records **Single Family Only ***GAMLS

by Calculated Risk on 8/26/2015 11:59:00 AM

The Case-Shiller house price indexes for June were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Zillow: July Case-Shiller: Expect a Slight Uptick in Appreciation

The June S&P/Case-Shiller (SPCS) data published today showed home prices continuing to rise at an annual rate of five percent for the 20-city composite and 4.6 percent for the 10-city composite. The national index has risen 4.5 percent since June 2014.

The non-seasonally adjusted (NSA) 10- and 20-city indices were both down 0.1 percent from May to June. We expect the change in the July SPCS to show increases of 0.8 percent for the 20-city index and 0.7 percent for the 10-City Index.

All Case-Shiller forecasts are shown in the table below. These forecasts are based on today’s June SPCS data release and the July 2015 Zillow Home Value Index (ZHVI), release August 24. The SPCS Composite Home Price Indices for July will not be officially released until Tuesday, September 28.

This suggests the year-over-year change for the July Case-Shiller National index will be slightly higher than in the June report.

Zillow Case-Shiller Forecast
	Case-Shiller Composite 10		Case-Shiller Composite 20		Case-Shiller National
	NSA	SA	NSA	SA	NSA	SA
June Actual YoY	4.6%	4.6%	5.0%	5.0%	4.5%	4.5%
July Forecast YoY	4.8%	4.8%	5.2%	5.2%	4.6%	4.6%
July Forecast MoM	0.7%	0.1%	0.8%	0.1%	0.7%	0.3%

by Calculated Risk on 8/26/2015 09:31:00 AM

This was released last week while I was on vacation.

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

From the AIA: Architecture Firm Billings Continued to Rise in July

Business conditions at U.S. architecture firms continued to improve in July. While the pace of growth of architecture firm billings decreased modestly from June, the ABI score of 54.7 for the month indicates that firm billings remain on the upswing overall. In addition, there continues to be plenty of work in the pipeline, with firms reporting strong inquiries into new projects as well as the highest design contracts score since the end of 2014.
...
By firm specialization, firms with an institutional focus are still reporting some of the strongest business conditions they have ever experienced, and firms with a commercial/industrial specialization continue to recover from some softness earlier in the year. In addition, firms with a residential specialization are coming close to emerging from the slump that they have experienced for the last six months, which came on the heels of several years of strong growth. Scores for this segment have been ticking up for the last two months and will hopefully return to positive territory before the end of the summer.
...
Sector index breakdown: institutional (57.3), commercial / industrial (53.4) multi-family residential (49.8)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 54.7 in July, down from 55.7 in June. 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 market was negative for the sixth consecutive month - and this might be indicating a slowdown for apartments - or at least less growth.

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 positive in 10 of the last 12 months, suggesting a further increase in CRE investment over the next 12 months.