by Calculated Risk on 3/17/2016 03:55:00 PM

From housing economist Tom Lawler:

Based on publicly-available local 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 5.2 million in February, down 4.9% from January’s preliminary pace and up 4.6% from last January’s seasonally adjusted pace. On an unadjusted basis I project that the year-over-year % increase in home sales in February was pretty close to January’s YOY gain. However, while this January had one fewer business day than last January, this February (in a Leap Year) had one more business day than last February. As a result, while the YOY increase in seasonally adjusted sales in January (11.5%) was well above the YOY gain in unadjusted sales (7.5%), the opposite should be the case in February.

On the inventory front, local realtor/MLS reports suggest that the NAR’s estimate of the number of existing homes for sale at the end of February should be about 1.84 million, up 1.1% from January and down 3.2% from a year earlier.

Finally, local realtor/MLS data suggest that the NAR’s estimate of the median existing single-family home sales price in February should be about 5.8% higher than last February.

CR Note: The NAR is scheduled to release February existing home sales on Monday, March 21st. The early consensus is for sales of 5.30 million SAAR.

by Calculated Risk on 3/17/2016 12:01:00 PM

This is from Metrostudy chief economist Brad Hunter:

When I forecast housing starts, I find that it is vital to check on the supply of vacant developed lots in each market. Some markets have severe shortages, and others have excess, at least in certain submarkets. One metric that is informative is the pace of “lot deliveries,” meaning the number of lots that reach the stage of development just before the builder begins pouring the foundation (the “start”).

There has been a fascinating dynamic lately, with regard to lot deliveries. Nationwide, the pace of lot deliveries has stayed far below the pace of housing starts through this entire recovery. Lot deliveries increased by 37% over the past two years, while starts (lot absorption) rose by 23%. Even with that increase, the lot production pace has yet to catch up with the pace of home building in many markets. In the nation as a whole, lot production has just caught up with the pace of new home construction.

In some markets, we now are seeing an important new trend: the lines have crossed. The pace of lot development began leading the pace of starts in 2015 in some markets. When that happens, we know that an increased level of home construction is planned. We can then confidently forecast a higher level of housing starts in those areas.

Click on graph for larger image.


There are several markets are showing this strongly-bullish indicator. I see it most pronounced in Austin, Southern California, Indianapolis, Las Vegas (yes, Las Vegas), Naples/Ft. Myers, and Houston.

In Austin, the pace of lot development has gone from being half of the pace of starts to 36% HIGHER than the pace of starts. In Naples/Ft. Myers, the pace of lot development has gone 20% above starts. This is a relatively small market, but it is growing rapidly.

In Southern California, we see a different pattern: lot development shot up above the pace of starts back in 2014, and then fell back to the same level as starts by the end of 2015. In 2013, the lines crossed, and lot development started to rise in Southern California, exceeding the rate of absorption of lots by an ever-larger margin until the fourth quarter of 2014, when lot deliveries were running 42% higher than starts. After that peak, lot development slowed, and by the end of 2015, was running lower than the pace of new home construction.

We saw the same pattern in Dallas and Jacksonville, with lot development surging in 2014, and then falling throughout 2015.

We will be watching these markets with great interest over the next few months to see if this trend accelerates, or if it more markets join the ranks of those with recent slowdowns. Homebuilder executives are telling me that they are finally starting to say “no” to land deals, now that land and lot prices are back to, or above, the price levels of the previous peak in many markets. This new discipline in land buying could feed into a lower pace of lot development, but then again, increased price resistance by builders may force land sellers to get more reasonable with prices and terms, and that would allow lot development and starts to rise further (and at a nice clip) for the next several years.

CR Note: This was from Metrostudy chief economist Brad Hunter.

by Calculated Risk on 3/17/2016 11:59:00 AM

Earlier from the Philly Fed: March 2016 Manufacturing Business Outlook Survey

Firms responding to the Manufacturing Business Outlook Survey reported an improvement in business conditions this month. The indicator for general activity rose sharply in March to its first positive reading in seven months. Other broad indicators offered similar signals of growth: The indexes for shipments and new orders also rose notably. Firms continued to report overall weak employment. With respect to the manufacturers’ forecasts, the survey’s future indicators also showed significant improvement this month.
...
The diffusion index for current activity increased from a reading of -2.8 in February to 12.4 this month, its first positive reading in seven months ...

The survey’s indicators of employment improved but suggest continued weakness. The employment index increased 4 points but remained slightly negative at -1.1.
emphasis added

This was above the consensus forecast of a reading of -1.4 for March.

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 March. The ISM and total Fed surveys are through February.

The average of the Empire State and Philly Fed surveys increased sharply in March (yellow).  This suggests the ISM survey might be above 50 this month.

by Calculated Risk on 3/17/2016 10:15:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings rose to 5.5 million on the last business day of January, the U.S. Bureau of Labor Statistics reported today. Hires declined to 5.0 million while separations edged down to 4.9 million. Within separations, the quits rate was 2.0 percent, and the layoffs and discharges rate was 1.2 percent. ...
...
The number of quits fell to 2.8 million (-284,000) in January. The quits rate was 2.0 percent.
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 January, the most recent employment report was for February.

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 increased in January to 5.541 million from 5.281 million in December.

The number of job openings (yellow) are up 11% year-over-year compared to January 2015.

Quits are up 1% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

This is another solid report, and job openings are just below the record high set in July 2015.

by Calculated Risk on 3/17/2016 08:36:00 AM

The DOL reported:

In the week ending March 12, the advance figure for seasonally adjusted initial claims was 265,000, an increase of 7,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 259,000 to 258,000. The 4-week moving average was 268,000, an increase of 750 from the previous week's revised average. The previous week's average was revised down by 250 from 267,500 to 267,250.

There were no special factors impacting this week's initial claims. This marks 54 consecutive weeks of initial claims below 300,000, the longest streak since 1973.

The previous week was revised down.

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 increased to 268,000.

This was below the consensus forecast of 270,000. The low level of the 4-week average suggests few layoffs.

by Calculated Risk on 3/16/2016 09:20:00 PM

Thursday:
• At 8:30 AM,The initial weekly unemployment claims report will be released.  The consensus is for 270 thousand initial claims, up from 259 thousand the previous week.

• Also at 8:30 AM, The Philly Fed manufacturing survey for March. The consensus is for a reading of -1.4, up from -2.8.

• At 10:00 AM, Job Openings and Labor Turnover Survey for January from the BLS. Jobs openings increased in December to 5.607 million from 5.346 million in November.

by Calculated Risk on 3/16/2016 04:30:00 PM

Earlier: Housing Starts increased to 1.178 Million Annual Rate in February

The housing starts report this morning was above consensus, and there were upward revisions to the prior two months - a strong report.  Starts were up 30.9% from February 2015, but February was especially weak last year (see the first graph).

The key take away from the report is that multi-family growth is slowing, and single family growth is ongoing.

This graph shows the month to month comparison between 2015 (blue) and 2016 (red).

The comparison for February was easy, and the year-over-year comparison will be easy in March too.

After March, I expect much less growth year-over-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 year-over-year.

I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts might have peaked in June 2015 (at 510 thousand SAAR) - 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.

The housing recovery continues, but I expect less growth from multi-family going forward.

by Calculated Risk on 3/16/2016 02:09:00 PM

Statement here. No change to policy.

As far as the "Appropriate timing of policy firming",  participants generally think there will be two, maybe three, rate hikes in 2016 (down from three to four in December).

The FOMC projections for inflation are still on the low side through 2018.

Yellen press conference here.

On the projections, GDP was revised down for 2016.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2016	2017	2018
Mar 2016	2.1 to 2.3	2.0 to 2.3	1.8 to 2.1
Dec 2015	2.3 to 2.5	2.0 to 2.3	1.8 to 2.2

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 4.9% in February, so the unemployment rate projections for Q4 2016 were lowered slightly.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2016	2017	2018
Mar 2016	4.6 to 4.8	4.5 to 4.7	4.5 to 5.0
Dec 2015	4.6 to 4.8	4.6 to 4.8	4.6 to 5.0

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

As of January, PCE inflation was up only 1.3% from January 2015. and the projections for Q4 were lowered.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2016	2017	2018
Mar 2016	1.0 to 1.6	1.7 to 2.0	1.9 to 2.0
Dec 2015	1.2 to 1.7	1.8 to 2.0	1.9 to 2.0

PCE core inflation was up 1.7% in January year-over-year.  The Fed sees little pickup in inflation going forward.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2016	2017	2018
Mar 2016	1.4 to 1.7	1.7 to 2.0	1.9 to 2.0
Dec 2015	1.5 to 1.7	1.7 to 2.0	1.9 to 2.0

by Calculated Risk on 3/16/2016 02:02:00 PM

Note: Fewer rate hikes expected.

FOMC Statement:

Information received since the Federal Open Market Committee met in January suggests that economic activity has been expanding at a moderate pace despite the global economic and financial developments of recent months. Household spending has been increasing at a moderate rate, and the housing sector has improved further; however, business fixed investment and net exports have been soft. A range of recent indicators, including strong job gains, points to additional strengthening of the labor market. Inflation picked up in recent months; however, it continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. However, global economic and financial developments continue to pose risks. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely.

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to 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. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

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, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; James Bullard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; Eric Rosengren; and Daniel K. Tarullo. Voting against the action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate to 1/2 to 3/4 percent.
emphasis added

by Calculated Risk on 3/16/2016 11:16:00 AM

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% (2.8% annualized rate) in February. The 16% trimmed-mean Consumer Price Index also 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% (-2.0% annualized rate) in February. The CPI less food and energy rose 0.3% (3.4% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for February here. Motor fuel was down 81% annualized in February.

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 2.4%, the trimmed-mean CPI rose 2.0%, and the CPI less food and energy also rose 2.3%. Core PCE is for January and increased 1.7% year-over-year.

On a monthly basis, median CPI was at 2.8% annualized, trimmed-mean CPI was at 2.6% annualized, and core CPI was at 3.4% annualized.

On a year-over-year basis, three of these measures are at or above 2%.

Using these measures, inflation has been moving up, and three of the measures are at or above the Fed's target (Core PCE is still below).