by Calculated Risk on 10/16/2015 04:42:00 PM

From housing economist Tom Lawler:

Based on publicly-released realtor/MLS reports from across the country released through today, I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of about 5.56 million in September, up about 4.7% from August’s preliminary pace and up 9.0% from last September’s seasonally-adjusted pace. I expect the NAR’s estimate of the inventory of existing homes for sale at the end of September to be down about 1.7% from August’s preliminary estimate, and down about 1.3% from last September. Finally, I expect the NAR’s median existing home sales price estimate for September to be up about 5.5% from last September.

Post-Mortem on August’s Existing Home Sales Report: NAR’s Estimate of the YOY % Change in Unadjusted Sales Seems Reasonable

On September 21st the NAR estimated that US existing home sales ran at a seasonally adjusted annual rate of 5.31 million in August – far below both the “consensus” forecast and my projection based on realtor/MLS reports available as of September 15th. As I acknowledged following the NAR EHS report for August, part of my “miss” reflected a “misread” of the likely seasonal factor used to adjust the “raw” sales data. However, my projection was also off because the “sample” of local realtor/MLS reports I had available as of September 15th proved to be a poor representation of the larger sample of local realtor/MLS reports for August that include reports subsequently released. Based on this larger sample, the NAR’s estimate of the YOY % change in existing home sales in August seems broadly consistent with local realtor/MLS reports.

If, in fact, my September projection for existing home sales is correct, then one might ask: why have there been such large month swings in seasonally-adjusted home sales over the past several months? My gut is that some of these swings have been less related to volatile markets, and more related to difficulties in accurately estimating the true “seasonal” component of existing home sales. Statistical estimates of this seasonal pattern of home sales have changed considerably over the past 10-15 years, and it is quite possible that some of the observed change in the “seasonal” pattern may actually be related to other forces (witness, e.g., the huge increase in the amplitude of “seasonal” swings in home prices since the housing collapse, which most analyst attribute to the combination of the surge in distressed sales and the seasonal pattern of the distressed-sales share of total home sales).

CR Note: The NAR is scheduled to release September Existing Home Sales on Thursday, Oct 22nd.  The consensus forecast is for 5.36 million (this will move up after this is posted).  Take the over!

by Calculated Risk on 10/16/2015 03:30:00 PM

From the U.S. Treasury: There is Only One Solution to the Debt Limit

Some commentators have suggested that the President could invoke the Fourteenth Amendment of the Constitution as a justification for issuing debt in excess of the debt limit. Others have suggested that Treasury could mint and issue a large-denomination platinum coin to obtain cash without exceeding the debt limit. But as we’ve said before, the Fourteenth Amendment does not give the President the power to ignore the debt ceiling. And neither the Treasury nor the Federal Reserve believes that the law can or should be used to produce platinum coins for the purpose of avoiding an increase in the debt limit.

As the Chair of the Council of the Inspectors General on Financial Oversight (CIGFO) explained in 2012, Treasury found no option that could reasonably protect the full faith and credit of the United States and the American people from very serious harm. Additionally, CIGFO noted that Treasury viewed the option of delaying payments as the least harmful among these options. But this option would still be default. Fortunately, because Congress ultimately took action, no final decision was needed.

With some in Congress again suggesting that we prioritize principal and interest while missing payments on other obligations, it’s worth considering again why this is such an unacceptable outcome. It is simply default by another name.
...
Principal and interest on the debt are only part of our obligations. Prioritizing principal and interest would mean paying some of our creditors – many of whom are foreign institutions – while defaulting on across-the-board payments everywhere else. That would include payments to members of the military, veterans, and senior citizens. It would include payments on infrastructure projects. In this scenario that America defaults on its obligations, there would be no way to prevent significant disruptions and hardship for millions of Americans. Default would undermine confidence in the creditworthiness of the United States.
...
For 226 years, we have been a country that pays all our bills. We can’t break that trust with our creditors and investors and put the full faith and credit of the United States in question. And we can’t break that trust with our citizens.
emphasis added

It is the responsibility of Congress - and Congress alone - to pay the bills. Default is not an option.  They have less than 3 weeks to act ...

by Calculated Risk on 10/16/2015 12:09:00 PM

The preliminary University of Michigan consumer sentiment index for October was at 92.1, up from 87.2 in September.

"The rebound in confidence signifies that consumers have concluded that the fears expressed on Wall Street did not extend to Main Street. Importantly, the renewed confidence did not simply represent a relief rally, but instead reflected renewed optimism. Personal financial expectations rose to their highest level since 2007, as did consumers' views toward purchases of durable goods. While consumers anticipate a continued economic expansion, many expected strong headwinds from falling commodity prices, weakened economies in China and elsewhere as well as continued stresses on European countries. Perhaps the most important finding is that low inflation and continued job growth have enabled consumers to adapt to a slower and more variable rate of economic growth by varying the pace of their spending without losing confidence that the expansion will continue. Overall, the data still indicate that consumption will expand at 2.9% during 2016."

This was above the consensus forecast of 89.5.


Click on graph for larger image.

by Calculated Risk on 10/16/2015 10:09:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings decreased to 5.4 million on the last business day of August, the U.S. Bureau of Labor Statistics reported today. The number of hires and separations was little changed at 5.1 million and 4.8 million, respectively. Within separations, the quits rate was 1.9 percent for the fifth month in a row, and the layoffs and discharges rate was unchanged at 1.2 percent. ...
...
Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... There were 2.7 million quits in August, little changed from July. The number of quits has held between 2.7 million and 2.8 million for the past 12 months after increasing steadily since the end of the recession.
emphasis added

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for August, the most recent employment report was for September.

Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings decreased in August to 5.370 million from 5.668 million in July.

The number of job openings (yellow) are up 9% year-over-year compared to August 2014.

Quits are up 9% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

This is a decent report.  Even though Job Openings decreased, this was from the record high in July - and Openings are still up 9% year-over-year.

by Calculated Risk on 10/16/2015 09:25:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production decreased 0.2 percent in September after edging down 0.1 percent in August. The decline in August is smaller than previously reported. In September, manufacturing output moved down 0.1 percent for a second consecutive monthly decrease; the index for mining fell 2.0 percent, while the index for utilities rose 1.3 percent. For the third quarter as a whole, total industrial production rose at an annual rate of 1.8 percent, and manufacturing output increased 2.5 percent. A strong gain for motor vehicles and parts contributed substantially to the quarterly increases. At 107.1 percent of its 2012 average, total industrial production in September was 0.4 percent above its year-earlier level. Capacity utilization for the industrial sector fell 0.3 percentage point in September to 77.5 percent, a rate that is 2.6 percentage points below its long-run (1972–2014) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 10.6 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.5% is 2.6% below the average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production decreased 0.2% in September to 107.1. This is 22.8% above the recession low, and 1.8% above the pre-recession peak.

This was above expectations of a 0.3% decrease and August was revised up. A decent report given the weakness in oil and the strong dollar.

by Calculated Risk on 10/15/2015 09:01:00 PM

Commercial real estate prices are increasing significantly, from CoStar: CCRSI: Commercial Property Price Growth Continued To Heat Up In August

While construction is rising in many markets, aggregate demand across the major property types continues to outstrip supply, resulting in tighter vacancy rates and rent growth, which in turn, continues to drive strong investor interest in commercial real estate. In August 2015, the two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index—increased by 1.3% and 1%, respectively, and 12.6% and 11.4%, respectively, in the 12 months ended August 2015.

These are repeat sales indexes - like Case-Shiller for residential - but this is based on far fewer pairs.

Friday:
• At 9:15 AM ET, the Fed will release Industrial Production and Capacity Utilization for September. The consensus is for a 0.3% decrease in Industrial Production, and for Capacity Utilization to decrease to 77.4%.

• At 10:00 AM, Job Openings and Labor Turnover Survey for August from the BLS. Jobs openings increased in July to 5.753 million from 5.323 million in June. The number of job openings were up 22% year-over-year, and Quits were up 6% year-over-year.

• Also at 10:00 AM, the University of Michigan's Consumer sentiment index (preliminary for October). The consensus is for a reading of 89.5, up from 87.2 in September.

by Calculated Risk on 10/15/2015 06:00:00 PM

Note: There were some large swings in LA area port traffic earlier this year due to labor issues that were settled in late February. Port traffic surged in March as the waiting ships were unloaded (the trade deficit increased in March too), and port traffic declined in April.

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was down 0.6% compared to the rolling 12 months ending in August.   Outbound traffic was down 0.6% compared to 12 months ending in August.

The recent downturn in exports might be due to the strong dollar and weakness in China.

For imports, August was the all time inbound record, so some of September probably arrived in August (might be related to timing of Labor Day).

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

Imports were down 6% year-over-year in September; exports were down 7% year-over-year.

For the July through September period, imports were up 3.5% year-over-year.

This data suggests a slightly smaller trade deficit with Asia in September than in August.

by Calculated Risk on 10/15/2015 03:19:00 PM

From the Philly Fed: October Manufacturing Survey

Manufacturing conditions in the region continued to weaken in October, according to firms responding to this month’s Manufacturing Business Outlook Survey. The indicator for general activity remained negative, while the new orders and shipments indexes turned negative this month. Labor market indicators also weakened.
...
he diffusion index for current activity remained negative for the second consecutive month, although it edged slightly higher from -6.0 in September to -4.5...

The survey’s indicators for labor market conditions suggest slightly weaker employment. The percentage of firms reporting declines in employment (15 percent) was slightly greater than the percentage reporting increases (13 percent). The employment index declined nearly 12 points, from 10.2 to -1.7.
emphasis added

This was below the consensus forecast of a reading of -1.0 for October.

From the NY Fed: October 2015 Empire State Manufacturing Survey

Business activity declined for a third consecutive month for New York manufacturers, according to the October 2015 survey. The general business conditions index edged up three points to -11.4, marking three straight months of readings below -10, the first such occurrence since 2009.

The index for number of employees fell for a fourth consecutive month, slipping two points to -8.5 in a sign that employment levels were lower. The average workweek index remained negative at -7.6, pointing to shorter workweeks.

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 October. The ISM and total Fed surveys are through September.

The average of the Empire State and Philly Fed surveys increased in September, but was still negative.  This suggests another weak reading for the ISM survey.

by Calculated Risk on 10/15/2015 12:06:00 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 0.3% (3.4% annualized rate) in September. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.6% 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 0.2% (-1.8% annualized rate) in September. The CPI less food and energy rose 0.2% (2.6% annualized rate) on a seasonally adjusted basis.

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

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 2.5%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy rose 1.9%. Core PCE is for August and increased 1.2% year-over-year.

On a monthly basis, median CPI was at 3.4% annualized, trimmed-mean CPI was at 2.6% annualized, and core CPI was at 2.6% 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, but mostly moving up a little.

by Calculated Risk on 10/15/2015 09:10:00 AM

With the release of the CPI report this morning, we now know the Cost of Living Adjustment (COLA), and the contribution base for 2016.

Currently CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is a discussion from Social Security on the current calculation (no increase) and a list of previous Cost-of-Living Adjustments. Note: this is not the headline CPI-U.

The contribution and benefit base will be unchanged at $118,500 in 2016.

The National Average Wage Index increased to $46,481.52 in 2014, up 3.55% from $44,888.16 in 2013 (used to calculate contribution base).  However, by law, since COLA was unchanged, the contribution base will be unchanged in 2016.