by Calculated Risk on 9/17/2015 06:03:00 PM

From the Philly Fed: September Manufacturing Survey

Manufacturing conditions in the region were mixed in September, according to firms responding to this month’s Manufacturing Business Outlook Survey. The indicator for general activity fell into negative territory, but indicators for new orders, shipments, and employment remained positive.
...
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 8.3 in August to -6.0 this month. This is the first negative reading in the index since February 2014 ...

Firms’ responses suggest some improvement in employment conditions in September despite the reported lull in overall activity. The percentage of firms reporting an increase in employees in September (21 percent) was higher than the percentage reporting a decrease (11 percent). The current employment index increased 5 points, its highest reading in five months. Firms also reported, on balance, a modest increase in the workweek similar to August.
emphasis added

This was below the consensus forecast of a reading of 6.3 for September.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The yellow line is an average of the NY Fed (Empire State) and Philly Fed surveys through September. The ISM and total Fed surveys are through August.

The average of the Empire State and Philly Fed surveys decreased in September, and this suggests a weak reading for the ISM survey.

by Calculated Risk on 9/17/2015 02:11:00 PM

Statement here. No rate hike.

As far as the "Appropriate timing of policy firming",  participant views moved out a little on the timing of the first rate hike (13 participants expect the first rate hike in 2015, down from 15 in June, 3 in 2016, up from 2, and 1 in 2017), and the "dots" moved down (fewer rate hikes this year and next).

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 up, the unemployment rate was revised down, and core PCE inflation projections were mostly unrevised.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2015	2016	2017
Sept 2015	2.0 to 2.3	2.2 to 2.6	2.0 to 2.4
Jun 2015	1.8 to 2.0	2.4 to 2.7	2.1 to 2.5
Mar 2015	2.3 to 2.7	2.3 to 2.7	2.0 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 5.1% in August, 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
Sept 2015	5.0 to 5.1	4.7 to 4.9	4.7 to 4.9
Jun 2015	5.2 to 5.3	4.9 to 5.1	4.9 to 5.1
Mar 2015	5.0 to 5.2	4.9 to 5.1	4.8 to 5.1

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

As of July, PCE inflation was up only 0.3% from July 2014, so the FOMC revised down PCE inflation.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2015	2016	2017
Sept 2015	0.3 to 0.5	1.5 to 1.8	1.8 to 2.0
Jun 2015	0.6 to 0.8	1.6 to 1.9	1.9 to 2.0
Mar 2015	0.6 to 0.8	1.7 to 1.9	1.9 to 2.0

PCE core inflation was up only 1.2% in July year-over-year.  However core PCE inflation has been running at a 1.7% annualized rate over the last 6 months.

Core PCE inflation projection was unchanged for Q4 2015, but revised down slightly for 2016 and 2017.

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

by Calculated Risk on 9/17/2015 02:00:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further; however, net exports have been soft. The labor market continued to improve, with solid job gains and declining unemployment. On balance, labor market indicators show that underutilization of labor resources has diminished since early this year. Inflation has continued to run below the Committee's longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation moved lower; 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. Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. Nonetheless, 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 but is monitoring developments abroad. 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 declines in energy and import prices 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. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

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; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.

by Calculated Risk on 9/17/2015 11:59:00 AM

Total housing starts in August were below expectations, and, including the downward revisions to June and July, starts were a little disappointing.

However permits were up in August.

Earlier: Housing Starts decreased to 1.126 Million Annual Rate in August

This first graph shows the month to month comparison between 2014 (blue) and 2015 (red).

Even with weak housing starts early in the year, total starts are still running 11.3% ahead of 2014 through August.

Single family starts are running 11.1% ahead of 2014 through August, and single family starts were up 14.9% year-over-year in August.

Starts for 5+ units are up 12.7% for the first eight months compared to last year.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months).

Multi-family completions are increasing sharply.

I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts might have peaked - although I expect solid multi-family starts for a few more years (based on demographics).

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

A somewhat weak report, but I expect the recovery for single family starts to continue.

by Calculated Risk on 9/17/2015 10:05:00 AM

The BLS released the preliminary annual benchmark revision showing 208,000 fewer payroll jobs as of March 2015. The final revision will be published when the January 2016 employment report is released in February 2016. Usually the preliminary estimate is pretty close to the final benchmark estimate.

The annual revision is benchmarked to state tax records. From the BLS:

In accordance with usual practice, the Bureau of Labor Statistics (BLS) is announcing the preliminary estimate of the upcoming annual benchmark revision to the establishment survey employment series. The final benchmark revision will be issued on February 5, 2016, with the publication of the January 2016 Employment Situation news release.

Each year, the Current Employment Statistics (CES) survey employment estimates are benchmarked to comprehensive counts of employment for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. For National CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus three-tenths of one percent of total nonfarm employment. The preliminary estimate of the benchmark revision indicates a downward adjustment to March 2015 total nonfarm employment of -208,000 (-0.1 percent). ...

Using the preliminary benchmark estimate, this means that payroll employment in March 2015 was 208,000 lower than originally estimated. In February 2016, the payroll numbers will be revised down to reflect the final estimate. The number is then "wedged back" to the previous revision (March 2014).

There are 33,000 more construction jobs than originally estimated.

This preliminary estimate showed 255,000 fewer private sector jobs, and 47,000 additional government jobs (as of March 2015).

by Calculated Risk on 9/17/2015 08:45:00 AM

The DOL reported:

In the week ending September 12, the advance figure for seasonally adjusted initial claims was 264,000, a decrease of 11,000 from the previous week's unrevised level of 275,000. The 4-week moving average was 272,500, a decrease of 3,250 from the previous week's unrevised average of 275,750.

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

The previous week was unrevised.

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 below the consensus forecast of 275,000, and the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 9/17/2015 08:40:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,126,000. This is 3.0 percent below the revised July estimate of 1,161,000, but is 16.6 percent above the August 2014 rate of 966,000.

Single-family housing starts in August were at a rate of 739,000; this is 3.0 percent below the revised July figure of 762,000. The August rate for units in buildings with five units or more was 381,000.

Building Permits:
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,170,000. This is 3.5 percent above the revised July rate of 1,130,000 and is 12.5 percent above the August 2014 estimate of 1,040,000.

Single-family authorizations in August were at a rate of 699,000; this is 2.8 percent above the revised July figure of 680,000. Authorizations of units in buildings with five units or more were at a rate of 440,000 in August.
emphasis added

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) decreased in August.  Multi-family starts were up year-over-year.

Single-family starts (blue)  decreased in August and are up about 15% year-over-year.

The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low),

Total housing starts in August were below expectations, and starts were revised down for June and July.   I'll have more later ...

by Calculated Risk on 9/16/2015 06:18:00 PM

The focus tomorrow will be on the FOMC announcement, but there is some important data that will be released too ... such as August housing starts and the preliminary annual employment bench mark revision (that is usually very close to final revision).

Thursday:
• At 8:30 AM ET, Housing Starts for August. Total housing starts increased to 1.206 million (SAAR) in July. Single family starts increased to 782 thousand SAAR in July. The consensus for 1.168, down from July.

• Also at 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for 275 thousand initial claims, unchanged from 275 thousand the previous week.

• At 10:00 AM, the Philly Fed manufacturing survey for September. The consensus is for a reading of 6.3, down from 8.3.

• Also at 10:00 AM, the 2015 Current Employment Statistics (CES) Preliminary Benchmark Revision. From the BLS:

"Each year, the Current Employment Statistics (CES) survey estimates are benchmarked to comprehensive counts of employment from the Quarterly Census of Employment and Wages (QCEW) for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. ... The final benchmark revision will be issued with the publication of the January 2016 Employment Situation news release in February."

• 2:00 PM: FOMC Meeting Announcement. The FOMC might raise the Fed Funds rate at this meeting.

• 2:00 PM: 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.

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

by Calculated Risk on 9/16/2015 02:31:00 PM

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

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in August. The 16% trimmed-mean Consumer Price Index rose 0.1% (1.2% 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.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.1% (-0.8% annualized rate) in August. The CPI less food and energy rose 0.1% (0.9% annualized rate) on a seasonally adjusted basis.

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

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 July and increased 1.2% year-over-year.

On a monthly basis, median CPI was at 2.1% annualized, trimmed-mean CPI was at 1.2% annualized, and core CPI was at 0.9% 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 9/16/2015 11:21:00 AM

The BLS reported this morning:

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 233.366 (1982-84=100). For the month, the index declined 0.2 percent 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 August.  We still need the data for September too, but it looks like COLA will 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 would be increased to around $120,000 from the current $118,500.  However, if COLA is zero, the contribution base will remain at $118,500.

This is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).  Based on data for July and August, it appears COLA will be zero.