by Calculated Risk on 10/14/2015 06:21:00 PM

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for 270 thousand initial claims, up from 263 thousand the previous week.

• Also at 8:30 AM, the Consumer Price Index for September from the BLS. The consensus is for a 0.2% decrease in CPI, and a 0.1% increase in core CPI.

• Also at 8:30 AM,NY Fed Empire State Manufacturing Survey for October. The consensus is for a reading of -7.0, up from -14.7.

• At 10:00 AM, the Philly Fed manufacturing survey for October. The consensus is for a reading of -1.0, up from -6.0.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Drop After Weak Economic Data

Mortgage rates dropped quickly today, getting them much of the way back to lows seen at the beginning of the month. For context, there has only been one day in the past 5 months with better rates (Friday October 2nd, immediately following the weak jobs data). That means the average lender is quoting conventional 30yr fixed rates between 3.75 and 3.875% on top tier scenarios. A few of the more aggressive lenders are already back down to 3.625%

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 10/14/2015 02:03:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of New York and based on information collected on or before October 5, 2015."

Reports from the twelve Federal Reserve Districts point to continued modest expansion in economic activity during the reporting period from mid-August through early October. The pace of growth was characterized as modest in the New York, Philadelphia, Cleveland, Atlanta, Chicago, and St. Louis Districts, while the Minneapolis, Dallas, and San Francisco Districts described growth as moderate. Boston and Richmond reported that activity increased. Kansas City, on the other hand, noted a slight decline in economic activity. Compared with the previous report, the pace of growth is said to have slowed in the Richmond and Chicago Districts. A number of Districts cite the strong dollar as restraining manufacturing activity as well as tourism spending. Business contacts across the nation were generally optimistic about the near-term outlook.

And on real estate:

Residential real estate activity has generally improved since the last report, with almost all Districts reporting rising prices and sales volume. One exception was the Chicago District, where prices and sales volume were generally steady. A number of Districts noted that the market for lower or moderately priced homes has outperformed the high end of the market. The inventory of available homes was reported to be low in the Boston, New York, Richmond, and St. Louis Districts; and San Francisco reported a shortage of available land in some areas. On the other hand, Philadelphia reported adequate inventories, and Dallas noted a fair amount of supply in the pipeline. Boston, New York, and Chicago indicated rising residential rents, while Minneapolis reported sharp declines in rents in energy-producing areas of North Dakota. Residential construction has been mixed but generally stronger in the latest reporting period, with multi-family outpacing single-family construction. Strong multi-family construction was highlighted in the New York, Cleveland, Richmond, and San Francisco Districts, while Atlanta reported strong residential construction generally. However, Minneapolis and Kansas City reported declines in new home construction. Philadelphia mentioned a lack of new construction, while Dallas reported that new construction has been restrained by labor shortages; Chicago indicated little change.

Commercial real estate markets have shown signs of strengthening in all twelve Districts. Most Districts noted improvement across all major segments, though New York and St. Louis noted some increased slack in the market for retail space. Commercial construction was also stronger in most Districts. Boston and St. Louis noted brisk construction in the health sector, including senior care facilities, and Cleveland also indicated strong demand for senior living structures. New York, on the other hand, noted some pullback in new commercial construction, though activity remained fairly brisk.
emphasis added

Positive in real estate.

by Calculated Risk on 10/14/2015 12:08:00 PM

From the Atlanta Fed: Latest forecast — October 14, 2015

The GDPNow model nowcast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 0.9 percent on October 14, down from 1.0 percent on October 9. The model's nowcast for real consumer spending growth in the third quarter fell from 3.6 percent to 3.2 percent after this morning's retail sales report from the U.S. Census Bureau. This was partly offset by an 0.1 percentage point increase in the nowcast for the contribution of inventory investment to third-quarter real GDP growth following this morning's update on retail inventories from the Census Bureau.

Note that consumer spending is expected to be solid (probably in the mid 3s).

Sometimes GDPNow has been very close - other times they've missed (In June, GDPNow was forecasting Q2 at 1.1% and the first BEA report was 2.3% - since revised up to 3.9%).

by Calculated Risk on 10/14/2015 08:41:00 AM

On a monthly basis, retail sales were up 0.1% from August to September (seasonally adjusted), and sales were up 2.4% from September 2014.

From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $447.7 billion, an increase of 0.1 percent from the previous month, and 2.4 percent above September 2014. ... The July 2015 to August 2015 percent change was revised from +0.2 percent to virtually unchanged.

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline increased 0.4%.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales ex-gasoline increased by 4.8% on a YoY basis (2.4% for all retail sales including gasoline).

The increase in September was at the consensus expectations of a 0.1% increase, however sales in August were revised down - gasoline sales were revised down - and retail sales for July were revised up.

by Calculated Risk on 10/14/2015 07:01:00 AM

Last week I noted that the surge was related to applications being filed before the TILA-RESPA regulatory change, and that I expected applications to decline significant in the survey this week since demand was pulled forward. So the decline is not a surprise - just a reverse of the previous week.

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

Mortgage applications decreased 27.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 9, 2015.
...
The Refinance Index decreased 23 percent from the previous week. The seasonally adjusted Purchase Index decreased 34 percent from one week earlier. The unadjusted Purchase Index decreased 34 percent compared with the previous week and was 1 percent lower than the same week one year ago.

“Application volume plummeted last week in the wake of the implementation of the new TILA-RESPA integrated disclosures, which caused lenders to significantly revamp their business processes, and as a result dramatically slowed the pace of activity. The prior week’s results evidently pulled forward much of the volume that would have more naturally taken place into this week. Purchase volume for the week was below last year’s pace, the first year over year decrease since February 2015, while refinance volume dropped sharply even with little change in mortgage rates,” said Mike Fratantoni, MBA’s Chief Economist.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 3.99 percent, with points increasing to 0.53 from 0.46 (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.

Refinance activity remains low.

This week was just the reverse of last week.

2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015 (after the increase earlier this year).


The second graph shows the MBA mortgage purchase index.  

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

The surge last week was related to applications being filed before the TILA-RESPA regulatory change, and the decline this week was the inverse.   The wild swings should resolve fairly quickly.

by Calculated Risk on 10/13/2015 06:58:00 PM

Ht to Nick Timiraos for link to the paper.

An NBER paper from Kristopher Gerardi, Kyle F. Herkenhoff, Lee E. Ohanian, and Paul S. Willen Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default

On the flip side we find that less than 1 percent of “can pay” households, which we define to be households that are employed and have at least 6 months worth of mortgage payments in stock, bonds, or liquid assets (net of unsecured debt) are in default. Conditioning on negative equity does not have much effect as only 5 percent of “can pay” borrowers with negative equity are in default. Thus, the vast majority of borrowers in positions of negative equity continue paying their mortgages, which suggests that strategic default rarely occurs.

Not a surprise. The researchers also found the opposite - that most people with few assets, negative equity and unemployed - still finds ways to make their mortgage payments.

Suppose we define “can’t pay” to be households without a job and with less than one month of mortgage payments in stock, bonds, or liquid assets (net of unsecured debt). The data show that approximately 19 percent of these “can’t pay households” are in default as compared to only 4 percent in the population as a whole. What is surprising though is the flip side of that 19 percent: 81 percent of “can’t pay” households are current on their loans. In other words, despite no income and no savings, most households in this group continue to pay their mortgages. Furthermore, we show that these striking patterns remain even when conditioning on negative equity.

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 Producer Price Index for September from the BLS. The consensus is for a 0.2% decrease in prices, and a 0.1% increase in core PPI.

• Also at 8:30 AM, Retail sales for September will be released. The consensus is for retail sales to increase 0.1% in September, and to decrease 0.1% ex-autos.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for August. The consensus is for no change in inventories.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 10/13/2015 02:34:00 PM

Fed Governor Daniel Tarullo was on CNBC today: Fed's Tarullo: Not appropriate to hike rates based on current environment

The U.S. economy likely would not support an interest rate hike this year without signs inflation and wages are increasing, a top Federal Reserve official told CNBC on Tuesday.

"I wouldn't expect it would be appropriate to raise rates," Fed Governor Daniel Tarullo said.

Another quote via Neil Irwin: "Probably wise to not be counting too much on past correlations, things like the Phillips Curve"

This is the second Fed Governor in two days to argue it is appropriate to wait until next year, see Tim Duy's Brainard Drops A Policy Bomb

The Fed governors almost always vote with the Fed Chair, so this either suggests a sharp disagreement, or Fed Chair Janet Yellen is changing her mind.  Either is a significant story.

by Calculated Risk on 10/13/2015 10:29:00 AM

In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.

FNC released their August 2015 index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.2% from July to August (Composite 100 index, not seasonally adjusted). 

The 10 city MSA increased 0.2% (NSA), the 20-MSA RPI increased 0.2%, and the 30-MSA RPI also increased 0.2% in August. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.

The year-over-year (YoY) change was smaller in August than in July, with the 100-MSA composite up 5.5% compared to August 2014.

The index is still down 14.5% from the peak in 2006 (not inflation adjusted).

Click on graph for larger image.

This graph shows the year-over-year change based on the FNC index (four composites) through August 2015. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

Most of the other indexes are also showing the year-over-year change in the 5% range. For example, Case-Shiller was up 4.7% in July, CoreLogic was up 6.9% in August.

Note: The August Case-Shiller index will be released on Tuesday, October 27th.

by Calculated Risk on 10/13/2015 09:00:00 AM

From the National Federation of Independent Business (NFIB): NFIB Small Business Optimism Index increased only 0.2 points last month

The Index of Small Business Optimism was basically unchanged in September, rising only 0.2 points, this after an August gain of only 0.5 points. ...

Overall, a solid improvement in hiring activity. There was no evidence in the NFIB data that job creation slacked off sharply from June and July, each with 245,000 jobs. Reported job creation returned to its best level of the year, with owners adding a net 0.18 workers per firm in recent months, up 0.05 from August.
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 96.1 in September from 95.9 in August.

by Calculated Risk on 10/12/2015 08:38:00 PM

A couple of excellent articles ...

From Binyamin Appelbaum at the NY Times: Nobel in Economics Given to Angus Deaton for Studies of Consumption

The economist Angus Deaton has devoted his career to improving the data that shape public policy, including measures of wealth and poverty, savings and consumption, health and happiness.
...
“To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices,” the Royal Swedish Academy of Sciences said in announcing the economics prize, the last of this year’s Nobels. “More than anyone else, Angus Deaton has enhanced this understanding.”

From economist Justin Wolfers in the NY Times: Why Angus Deaton Deserved the Economics Nobel Prize

The central contribution of Angus Deaton, the latest winner of the Nobel Memorial Prize in economics, has been to shift the gaze of his fellow economists beyond measures of income, to broader measures of well-being.

Much of his research has focused on consumption — measures of the food people eat, the condition of their housing, and the services they consume. And he has been a trailblazer in shifting the attention of economists away from the behavior of economywide aggregates such as gross domestic product, and toward the analysis of individual households.