by Calculated Risk on 7/15/2016 08:33:00 PM

The preliminary University of Michigan consumer sentiment index for July was at 89.5, down from 93.5 in June:

"The early July decline in consumer sentiment was due to increased concerns about prospects for the national economy that were mainly voiced by high income households. Prior to the Brexit vote, virtually no consumer thought the issue would have the slightest impact on the U.S. economy. Following the Brexit vote, it was mentioned by record numbers of consumers, especially high income consumers. Nearly one-in-four (24%) households with incomes in the top third mentioned Brexit when asked to identify any recent economic news that they had heard. For these households, the initial impact on domestic stock prices translated Brexit into personal wealth losses. While stock prices quickly rebounded, an underlying sense of uncertainty about global prospects as well as the outlook for the domestic economy have not faded. To be sure, the overall decline in the Sentiment Index was rather minor, and could be anticipated to recover some of those losses in late July or early August. Importantly, the least affected components have been personal finances and buying plans."
emphasis added

Click on graph for larger image.

by Calculated Risk on 7/15/2016 02:21:00 PM

The BLS reported this morning:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.6 percent over the last 12 months to an index level of 235.308 (1982-84=100).

CPI-W is the index that is used to calculate the 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).

• In 2014, the Q3 average of CPI-W was 234.242. In the previous year, 2013, the average in Q3 of CPI-W was 230.327. That gave an increase of 1.7% for COLA for 2015.

• In 2015, the Q3 average of CPI-W was 233.278. That was a decline of 0.4% from 2014, however, by law, the adjustment is never negative so the benefits remained the same this year (in 2016).

Since the previous highest Q3 average was in 2014 (not 2015), at 234.242, we have to compare Q3 this year to two years ago. 

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).

CPI-W was up 0.6% year-over-year in June, and although this is very early - we need the data for July, August and September - my current guess is COLA will be positive this year, and will probably be around 1% this year.

Contribution and Benefit Base

The law prohibits an increase in the contribution and benefit base if COLA is not greater than zero, so there was no change in the contribution and benefit base for 2016. However if the there is even a small increase in COLA (seems likely this year), the contribution base will be adjusted using the National Average Wage Index (and catch up for last year).

From Social Security: Cost-of-Living Adjustment Must Be Greater Than Zero

... ... any amount that is directly dependent for its value on the COLA would not increase. For example, the maximum Supplemental Security Income (SSI) payment amounts would not increase if there were no COLA.

... if there were no COLA, section 230(a) of the Social Security Act prohibits an increase in the contribution and benefit base (Social Security's maximum taxable earnings), which normally increases with increases in the national average wage index. Similarly, the retirement test exempt amounts would not increase ...

The contribution base will be adjusted using the National Average Wage Index. This is based on a one year lag. The National Average Wage Index is not available for 2015 yet, but wages probably increased again in 2015. If wages increased the same as last year, then the contribution base next year will increase to around $127,000 from the current $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 7/15/2016 11:00:00 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% (2.2% annualized rate) in June. 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.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.6% annualized rate) in June. The CPI less food and energy rose 0.2% (2.1% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for June here. Motor fuel was up 48% annualized in June.

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 2.0%, and the CPI less food and energy also rose 2.3%. Core PCE is for May and increased 1.6% year-over-year.

On a monthly basis, median CPI was at 2.2% annualized, trimmed-mean CPI was at 1.9% annualized, and core CPI was at 2.1% annualized.

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

by Calculated Risk on 7/15/2016 09:23:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.6 percent in June after declining 0.3 percent in May. For the second quarter as a whole, industrial production fell at an annual rate of 1.0 percent, its third consecutive quarterly decline. Manufacturing output moved up 0.4 percent in June, a gain largely due to an increase in motor vehicle assemblies. The output of manufactured goods other than motor vehicles and parts was unchanged. The index for utilities rose 2.4 percent as a result of warmer weather than is typical for June boosting demand for air conditioning. The output of mining moved up 0.2 percent for its second consecutive small monthly increase following eight straight months of decline. At 104.1 percent of its 2012 average, total industrial production in June was 0.7 percent lower than its year-earlier level. Capacity utilization for the industrial sector increased 0.5 percentage point in June to 75.4 percent, a rate that is 4.6 percentage points below its long-run (1972–2015) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 8.7 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 75.4% is 4.6% below the average from 1972 to 2015 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 increased 0.6% in June to 104.1. This is 19.1% above the recession low, and 1.5% below the pre-recession peak.

This was above expectations of a 0.4% increase.

by Calculated Risk on 7/15/2016 08:41:00 AM

On a monthly basis, retail sales were up 0.6% from May to June (seasonally adjusted), and sales were up 2.7% from June 2015.

From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for June, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $457.0 billion, an increase of 0.6 percent from the previous month, and 2.7 percent above June 2015. ... The April 2016 to May 2016 percent change was revised from up 0.5 percent to up 0.2 percent.

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 were up 0.5%.

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 3.9% on a YoY basis.

The increase in June was way above expectations for the month, however retail sales for April and May were revised down. Overall a decent report.

by Calculated Risk on 7/14/2016 06:46:00 PM

Friday:
• At 8:30 AM ET, The Consumer Price Index for June from the BLS. The consensus is for a 0.3% increase in CPI, and a 0.2% increase in core CPI.

• Also at 8:30 AM, Retail sales for June will be released.  The consensus is for retail sales to increase 0.1% in June.

• Also at 8:30 AM, the New York Fed Empire State manufacturing survey for July. The consensus is for a reading of 5.0, down from 6.0.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for June. The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 75.0%.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for May.  The consensus is for a 0.1% increase in inventories.

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for July). The consensus is for a reading of 93.5, unchanged from 93.5 in June.

by Calculated Risk on 7/14/2016 01:31:00 PM

Note: This is the 12th year I've been writing this blog.  Sometimes it is fun to look back, especially at turning points.  Starting in January 2005, I was very bearish on housing - and in early 2007, I predicted a recession.

However in 2009 I became more optimistic.  Here are a couple of posts I wrote 7 years ago on July 15, 2009:

Is the Recession Over?

Show me the Engines of Growth

Back in February I pointed out that I expected to see some economic rays of sunshine this year. But I never expected an immaculate recovery forecast from the FOMC.

Although I've argued repeatedly that a "Great Depression 2" was extremely unlikely, I think the other extreme - an immaculate recovery - is also unlikely.

I also noted - because the recovery would be sluggish, and jobless at first - that I'd expect the NBER to wait some time before dating the recession. The NBER finally dated the end of the recession in September 2010:

CAMBRIDGE September 20, 2010 - The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II.

Currently I'm still positive on the economy, and - as I noted in The Endless Parade of Recession Calls last year:

Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in my view). Someday I'll make another recession call, but I'm not even on recession watch now.

I'm still not a recession watch.

by Calculated Risk on 7/14/2016 11:21:00 AM

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For a few years, not much changed. But in 2012 and 2013, we saw some significant changes with a dramatic shift from distressed sales to more normal equity sales.

This data suggests healing in the Sacramento market and other distressed markets are showing similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In June, total sales were up 1.8% from June 2015, and conventional equity sales were up 6.2% compared to the same month last year.

In June, 5.0% of all resales were distressed sales. This was down from 7.0% last month, and down from 10.6% in June 2015, and the lowest level since Sacramento started tracking distressed sales.

The percentage of REOs was at 2.5% in June, and the percentage of short sales was 2.5%.

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes decreased 12.1% year-over-year (YoY) in June.  This was the fourteenth consecutive monthly YoY decrease in inventory in Sacramento.

Cash buyers accounted for 13.9% of all sales (frequently investors).

Summary: This data suggests a more normal market with fewer distressed sales, more equity sales, and less investor buying - but limited inventory.

by Calculated Risk on 7/14/2016 08:33:00 AM

The DOL reported:

In the week ending July 9, the advance figure for seasonally adjusted initial claims was 254,000, unchanged from the previous week's unrevised level of 254,000. The 4-week moving average was 259,000, a decrease of 5,750 from the previous week's unrevised average of 264,750.

There were no special factors impacting this week's initial claims. This marks 71 consecutive weeks of initial claims below 300,000, the longest streak since 1973.

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 declined to 259,000.

This was lower than the consensus forecast. The low level of claims suggests relatively few layoffs.

by Calculated Risk on 7/13/2016 06:31:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 265 thousand initial claims, up from 254 thousand the previous week.

• Also at 8:30 AM, The Producer Price Index for June from the BLS. The consensus is for a 0.3% increase in prices, and a 0.2% increase in core PPI.

During and following the 2007 recession, every month I posted a graph showing the percent jobs lost during the recession compared to previous post-WWII recessions.

Some people started calling this the "scariest jobs chart ever".  In 2009 it was pretty scary!

I retired the graph in May 2014 when employment finally exceeded the pre-recession peak.

I was asked if I could post an update to the graph, and here it is through the June 2016 report.


This graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions.  Since exceeding the pre-recession peak in May 2014, employment is now 4.1% above the previous peak.

Note: I ended the lines for most previous recessions when employment reached a new peak, although I continued the 2001 recession too on this graph.  The downturn at the end of the 2001 recession is the beginning of the 2007 recession.  I don't expect a downturn for employment any time soon (unlike in 2007 when I was forecasting a recession).