by Calculated Risk on 7/29/2016 08:37:00 AM

From the BEA: Gross Domestic Product: Second Quarter 2016 (Advance Estimate)

Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent (revised).
...
The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE) and exports that were partly offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP growth in the second quarter reflected an acceleration in PCE, an upturn in exports, and smaller decreases in nonresidential fixed investment and in federal government spending. These were partly offset by a larger decrease in private inventory investment, and downturns in residential fixed investment and in state and local government spending.
emphasis added

The advance Q1 GDP report, with 1.2% annualized growth, was below expectations of a 2.6% increase.

Personal consumption expenditures (PCE) increased at a 4.2% annualized rate in Q2, up from 1.6% in Q1.   Residential investment (RI) decreased at a 6.1% pace. Equipment investment decreased at a 3.5% annualized rate, and investment in non-residential structures decreased at a 7.9% pace (due to the recent decline in oil prices).

The key negatives were investment in inventories (subtracted 1.16 percentage points), fixed investment (subtracted 0.52 percentage point), and government spending (subtracted 0.16 percentage points).

I'll have more later ...

by Calculated Risk on 7/28/2016 08:14:00 PM

Note: As part of the GDP release tomorrow, the BEA will also release the annual revision. From the BEA:

The annual revision of the national income and product accounts, covering the first quarter of 2013 through the first quarter of 2016, will be released along with the "advance" estimate of GDP for the second quarter of 2016 on July 29. For more information, see “Preview of the Upcoming Annual NIPA Revision” included in the May Survey of Current Business article on “GDP and the Economy”.

Friday:
• At 8:30 AM ET, Gross Domestic Product, 2nd quarter 2016 (Advance estimate). The consensus is that real GDP increased 2.6% annualized in Q2. The annual revision will also be released.

• At 9:45 AM, Chicago Purchasing Managers Index for July. The consensus is for a reading of 54.0, down from 56.8 in June.

• At 10:00 AM, University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 90.6, up from the preliminary reading 89.5, and down from 93.5 in June.

by Calculated Risk on 7/28/2016 05:04:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in June to 1.32%, down from 1.38% in May. The serious delinquency rate is down from 1.66% in June 2015.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

This is the lowest rate since May 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Click on graph for larger image

Although the rate is generally declining, the "normal" serious delinquency rate is under 1%. 

The Fannie Mae serious delinquency rate has fallen 0.34 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until the second half of 2017.

Note: Freddie Mac reported yesterday.

by Calculated Risk on 7/28/2016 03:51:00 PM

The Case-Shiller house price indexes for May were released Tuesday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Zillow: June Case-Shiller Forecast: Expect a Third Straight Monthly Decline in 10- and 20-City Indices

May Case-Shiller data showed modestly slower growth largely in line with expectations, with seasonally adjusted home prices falling for two months in a row on the 10- and 20-city indices – a rare occurrence since the recovery began in earnest. Looking ahead, Zillow’s June Case-Shiller forecast calls for more of the same, with seasonally adjusted prices in the 10- and 20-city indices set to fall for a third straight month, while annual growth stays largely flat.

The June Case-Shiller National Index is expected to grow 5.1 percent year-over-year and 0.2 percent month-to-month (seasonally adjusted). We expect the 10-City Index to grow 4.1 percent year-over-year and to fall 0.2 percent (SA) from May. The 20-City Index is expected to grow 5 percent between June 2015 and June 2016, and fall 0.1 percent (SA) from May.

Zillow’s June Case-Shiller forecast is shown in the table below. These forecasts are based on today’s May Case-Shiller data release and the June 2016 Zillow Home Value Index (ZHVI). The June Case-Shiller Composite Home Price Indices will not be officially released until Tuesday, August 30.

The year-over-year change for the 20-city index will probably be slightly lower in the June report than in the May report.  The change for the National index will probably be about the same.

by Calculated Risk on 7/28/2016 11:21:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Declined Modestly

The Federal Reserve Bank of Kansas City released the July Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined modestly.

“Factories in our region reported a slight pullback in July following modest expansion in June,” said Wilkerson. “However, their expectations for future activity continued to increase.”
...
The month-over-month composite index was -6 in July, down from 2 in June and -5 in May ... The employment index inched down to -5 ...
emphasis added

This was the last of the regional Fed surveys for July.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through July), and five Fed surveys are averaged (blue, through July) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through June (right axis).

It seems likely the ISM manufacturing index will show expansion again in July.

by Calculated Risk on 7/28/2016 10:10:00 AM

The Census Bureau released the Residential Vacancies and Homeownership report for Q2 2016.

This report is frequently mentioned by analysts and the media to track household formation, the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend.

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate decreased to 63.1% in Q2, from 63.5% in Q1.

I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate is probably close to a bottom.

The HVS homeowner vacancy was unchanged at 1.7% in Q2. 

Once again - this probably shows the general trend, but I wouldn't rely on the absolute numbers.

The rental vacancy rate declined to 6.7% in Q2.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate - and the Reis survey is showing rental vacancy rates have started to increase.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey.

Overall this suggests that vacancies have declined significantly, and my guess is the homeownership rate is probably close to the bottom.

by Calculated Risk on 7/28/2016 08:35:00 AM

The DOL reported:

In the week ending July 23, the advance figure for seasonally adjusted initial claims was 266,000, an increase of 14,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 253,000 to 252,000. The 4-week moving average was 256,500, a decrease of 1,000 from the previous week's revised average. The previous week's average was revised down by 250 from 257,750 to 257,500.

There were no special factors impacting this week's initial claims. This marks 73 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 declined to 256,500.

This was close to the consensus forecast. The low level of claims suggests relatively few layoffs.

by Calculated Risk on 7/27/2016 07:13:00 PM

Based on the FOMC statement, the likelihood of a rate hike in September (or November or December) has increased. Most analysts talk about possible rate hikes in September or December (ignoring November) because of the scheduled press conferences. However Fed Chair Janet Yellen has made it clear that all meetings are "live", so November is possible too. Some people think the Fed will wait until after the election, but I doubt that is a factor being considered.

Back to the FOMC statement: The first paragraph was about as upbeat as back in April when many analysts thought a rate hike in June was possible. So now the key is the data (the minutes will also be interesting). There are two employment reports (the July and August reports) between now and the meeting on September 20th and 21st.  Also the advance and second estimate of Q2 GDP will be released, and PCE for June and July, and CPI for July and August will be released before the September meeting.  If the data is solid, the FOMC might raise rates in September.

If the data is disappointing - as has happened so many times before - the FOMC will wait.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 264 thousand initial claims, up from 253 thousand the previous week.

• At 10:00 AM, the Q2 Housing Vacancies and Homeownership from the Census Bureau.

• At 11:00 AM, Kansas City Fed Survey of Manufacturing Activity for July.  This is the last of the regional Fed surveys for July.

by Calculated Risk on 7/27/2016 03:47:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate decreased in June to 1.08% from 1.11% in May.  Freddie's rate is down from 1.53% in June 2015.

This is the lowest rate since July 2008.

Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

Click on graph for larger image

Although the rate is generally declining, the "normal" serious delinquency rate is under 1%. 

The Freddie Mac serious delinquency rate has fallen 0.45 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will be below 1% in two or three months.

Note: Fannie Mae will report in the next few days.

by Calculated Risk on 7/27/2016 02:02:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in June indicates that the labor market strengthened and that economic activity has been expanding at a moderate rate. Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months. Household spending has been growing strongly but business fixed investment has been soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most 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 strengthen. 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 past declines in energy and import prices dissipate and the labor market strengthens further. Near-term risks to the economic outlook have diminished. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

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