by Calculated Risk on 12/20/2016 11:07:00 AM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Ends Year on Strong Note; Suggests Expanded Business Growth in Early 2017

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), ended the year on a strong note, posting a monthly gain of 0.3 percent and a year-over-year gain of 4.4 percent, a significant improvement over the first half of the year, and a pace not seen since September 2010. All data is measured on a three-month moving average (3MMA). On an unadjusted basis the CAB climbed 0.6 percent in December, and 4.8 percent for the year.
...
In December all of the four core categories for the CAB improved. Production-related indicators were positive, despite last week’s announcement that housing starts tumbled. “Housing starts were at a nine-year high,” noted ACC Chief Economist Kevin Swift. “The foundation remains strong. Overall trends in construction-related resins, pigments, and related performance chemistry were positive and suggest further gains in housing next year,” he added. Other indicators, including equity prices, product prices, and inventory were also positive.
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added

Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

Currently CAB has increased solidly over the last several months, and this suggests an increase in Industrial Production over the next year.

by Calculated Risk on 12/20/2016 09:47:00 AM

A few excerpts from a piece by Professor Hamilton at Econbrowser: Back to normal?

A year ago, the Federal Reserve decided to raise its target for the fed funds rate by 25 basis points above the floor of 0-0.25% at which we’d been stuck for 7 years. FOMC members indicated at the time that they were expecting to end 2016 at 1.4%, or four rate hikes during the last year. We started this December at 0.41%, and the first hike of 2016 didn’t come until last week. Now FOMC members say they are expecting to end 2017 at 1.4%, or three more hikes from here during the next year. The January 2018 fed funds futures contract is currently priced at 1.23%, suggesting that the market is buying into two, not three hikes during 2017.
...
I like the visual device that Federal Reserve Bank of Chicago President Charles Evans proposed, which summarizes the Fed’s inflation and unemployment objectives in terms of a target with a bull’s-eye. I’ve centered the bull’s-eye below assuming a long-run inflation target of 2% and a natural unemployment rate of 4.8%. We’d like to be as close to the center of the target as possible. The U.S. has been moving steadily toward that objective since 2009, though up until the November employment report both the inflation and the unemployment data were arguing for more stimulus. This month for the first time the inflation number calls for more stimulus while the unemployment number suggests we may need less.

Horizontal axis: civilian unemployment rate. Vertical axis: inflation rate as measured by year-over-year percent change in implicit price deflator for personal consumption expenditures. 2017 entry represents FOMC projections. Crosses denote values for October unemployment and October year-over-year inflation for indicated year, with exception that 2016 unemployment number is for Nov 2016 and 2017 projection is for end of year. Adapted from Evans (2014).

If you took the bulls-eye literally, on net you’d still want to see some additional stimulus today, bringing unemployment even lower until inflation is closer to target. And in fact the Fed sees enough underlying strength in the economy that it thinks that, even with the rate hike last week and additional hikes planned for next year, on balance they’re still providing a modest stimulus and expect that by the end of 2017 we’ll end up very close to target ...

But the elephant in the room is of course the possibility that fiscal stimulus may soon be a factor pushing us in a northwest direction on that target. And that may soon come to play a bigger role in U.S. monetary policy determination.

by Calculated Risk on 12/19/2016 05:48:00 PM

From Matthew Graham at Mortgage News Daily: Rates Stay Near Highs Despite Market Improvement

Mortgage rates stayed close to the highest levels in more than 2 years today, even though underlying bond markets left plenty of room for improvement.  Typically, when bond markets improve as much as they did today, rates would be noticeably lower.  The inconsistency has to do with more conservative lender pricing strategies surrounding the holiday season.
...
  All this having been said, a few lenders did update rates this afternoon, offering slight improvements.  The average effective rate (which adjusts for closing costs) fell just slightly, but the average contract rate for a conventional 30yr fixed loan remained at 4.375% for a top tier scenario, with several lenders still up at 4.5%
emphasis added

CR Note: We should see a further drop in refinance activity, and I expect some slowdown in housing (still thinking about this).

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 12/19/2016 02:02:00 PM

From Fed Chair Janet Yellen: Commencement Remarks

The short version of what I have to say is that while I expect workers will continue to face some challenges in the coming years, I believe, for two reasons, that the job prospects and career opportunities for new graduates at this time are very good. First, after years of a slow economic recovery, you are entering the strongest job market in nearly a decade. The unemployment rate, at 4.6 percent, is near what it was before the recession. This is a level that has been associated with good job opportunities. Job creation is continuing at a steady pace; the layoff rate is low; and job openings are up over the past couple years, which is another sign of a healthy job market. There are also indications that wage growth is picking up, and weekly earnings for younger workers have made strong gains over the past couple of years. That is probably one reason why younger workers reported feeling significantly more optimistic about the job market compared with 2013, according to a survey published just today by the Federal Reserve.

Challenges do remain. The economy is growing more slowly than in past recoveries, and productivity growth, which is a major influence on wages, has been disappointing.

But it also looks like the economic gains of the past few years are finally raising living standards for most people.
emphasis added

by Calculated Risk on 12/19/2016 10:02:00 AM

Special note: Now that the expansion to the Panama Canal has been completed, some of the traffic that used the ports of Los Angeles and Long Beach will eventually go through the canal. This could impact TEUs on the West Coast in the future.

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 up 0.5% compared to the rolling 12 months ending in October.   Outbound traffic was up 1.1% compared to 12 months ending in October.

The downturn in exports last year was probably due to the slowdown in China and the stronger dollar.  Now exports are picking up a little.

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).

In general exports have started increasing, and imports have been gradually increasing.

by Calculated Risk on 12/18/2016 06:40:00 PM

Weekend:
• Schedule for Week of Dec 18, 2016

Monday:
• 1:30 PM ET, Speech by Fed Chair Janet Yellen, The State of the Job Market, At the University of Baltimore 2016 Midyear Commencement, Baltimore, Maryland

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures are up 6, and DOW futures are up 40 (fair value).

Oil prices were down over the last week with WTI futures at $51.90 per barrel and Brent at $55.21 per barrel.  A year ago, WTI was at $35, and Brent was at $37 - so oil prices are up about 50% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.25 per gallon - a year ago prices were at $2.00 per gallon - so gasoline prices are up about 25 cents per gallon year-over-year.

by Calculated Risk on 12/18/2016 08:11:00 AM

From HotelNewsNow.com: STR: US hotel results for week ending 10 December

The U.S. hotel industry reported positive results in the three key performance metrics during the week of 4-10 December 2016, according to data from STR.

In year-over-year comparisons, the industry’s occupancy increased 1.7% to 59.2%, and average daily rate (ADR) was up 3.9% to US$120.12. As a result, revenue per available room (RevPAR) grew 5.7% to US$71.08.

STR analysts note that the week’s performance was helped by a comparison to a 2015 week that included the first day of Hanukkah.
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

The red line is for 2016, dashed orange is 2015, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.

2015 was the best year on record for hotels.

So far 2016 is tracking 2015, and well ahead of the median rate.    With a solid finish over the remaining weeks, 2016 could be the best year on record.

Year-to-date, the three best years are:
1) 2016: 66.69% average occupancy.
2) 2015: 66.68% average.
3) 2000: 65.5% average.

For hotels, the Fall business travel season is over and the occupancy rate will decline during the holiday season.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 12/17/2016 08:09:00 AM

The key economic reports this week are November New and Existing Home sales.

Happy Holidays and Merry Christmas!

----- Monday, Dec 19th -----
1:30 PM ET, Speech by Fed Chair Janet Yellen, The State of the Job Market, At the University of Baltimore 2016 Midyear Commencement, Baltimore, Maryland

----- Tuesday, Dec 20th-----
No economic releases are scheduled.

----- Wednesday, Dec 21st -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: Existing Home Sales for November from the National Association of Realtors (NAR). The consensus is for 5.53 million SAAR, down from 5.60 million in October.

Housing economist Tom Lawler expects the NAR to report sales of 5.60 million SAAR in November, unchanged from October's preliminary pace.

During the day: The AIA's Architecture Billings Index for November (a leading indicator for commercial real estate).

----- Thursday, Dec 22nd -----
8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 256 thousand initial claims, up from 254 thousand the previous week.

8:30 AM: Gross Domestic Product, 3rd quarter 2016 (third estimate). The consensus is that real GDP increased 3.3% annualized in Q3, revised from 3.2% in the second estimate.

8:30 AM: Durable Goods Orders for November from the Census Bureau. The consensus is for a 4.0% decrease in durable goods orders.

8:30 AM: Chicago Fed National Activity Index for November. This is a composite index of other data.

9:00 AM: FHFA House Price Index for October 2016. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.5% month-to-month increase for this index.

10:00 AM: Personal Income and Outlays for November. The consensus is for a 0.3% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.1%.

11:00 AM: the Kansas City Fed manufacturing survey for December.
----- Friday, Dec 23rd -----
10:00 AM ET: New Home Sales for November from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the October sales rate.

The consensus is for an increase in sales to 580 thousand Seasonally Adjusted Annual Rate (SAAR) in November from 563 thousand in October.

10:00 AM: University of Michigan's Consumer sentiment index (final for December). The consensus is for a reading of 98.0, unchanged from the preliminary reading 98.0.

by Calculated Risk on 12/16/2016 03:13:00 PM

From housing economist Tom Lawler: Early Look at Existing Home Sales in November

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 5.60 million in November, unchanged from October’s preliminary pace and up 15.2% from last November’s surprisingly low seasonally adjusted pace. Unadjusted sales should show a higher YOY gain, reflecting the higher business-day count this November compared to last November.

If my projection is correct, this November would break a string of “unusually” large monthly changes in November home sales, as shown in the table below.

Monthly % Change in Existing Home Sales (SAAR)
	Nov. 2012	Nov. 2013	Nov. 2014	Nov. 2015**	Nov. 2016**
Preliminary	5.9%	-4.3%	-6.1%	-10.5%	0.0%
First Revision	4.8%	-5.9%	-6.3%	-10.5%
Latest*	3.5%	-2.4%	-4.1%	-8.1%
*Changes from "First Revision" to "Latest" reflect seasonal factor revisions **LEHC estimate

(Some analysts blamed the steep drop in seasonally-adjusted sales last November to the October implementation of the new “TRID” rules in October, which may have delayed some November closings. For November 2013, some analysts attributed the weak sales to the 16-day government shutdown in October of that year. I never saw an explanation for the November 2014 dip in home sales in November, though it was fully captured in my regional tracking.)

On the inventory front, both local realtor/MLS data and data from other listings trackers suggest that existing home listings fell by slightly more than the seasonal norm last month, and that the YOY decline in listings was greater in November than in October. How that will translate into NAR estimates, however, is not clear, as NAR inventory swings over the last few months have not synched up with publicly-available realtor data. For example, the NAR’s inventory estimates showed an unusually large monthly decline in August, followed by a contra-seasonal gain in September and a much smaller than normal decline in October. NAR’s October inventory estimate was above the August estimate -- implying a considerable two-month increase in “seasonally-adjusted” inventories. Realtor/listings data, in contrast, suggested that listings from July to October showed a more “normal” seasonal drop, with YOY declines accelerating from mid-year through October.

My “best guess” is that the NAR’s inventory estimate for November will be about 5.4% below October’s preliminary estimate and 6.4% lower than last November’s estimate.

Finally, local realtor data suggest that median existing SF home sales price in November will be up by about 6.5% from last November.

CR Note: Existing home sales for November will be released on Wednesday, December 21st. The consensus estimate is the NAR will report sales of 5.54 million SAAR.

by Calculated Risk on 12/16/2016 11:59:00 AM

Earlier: Housing Starts decreased to 1.090 Million Annual Rate in November

The housing starts report this morning was well below consensus because of the sharp decline in multi-family starts. However multi-family permits were decent in November, so multi-family starts will probably rebound in December.

Meanwhile single family starts were decent, and there were upward revisions to the prior two months combined.   Just remember that multi-family can be very volatile ... no worries.

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

Click on graph for larger image.

Year-to-date starts are up 4.8% compared to the same period in 2015.  My guess was starts would increase 4% to 8% in 2016, and that looks right.

Multi-family starts are down 4.1% year-to-date, and single-family starts are up 9.6% year-to-date.

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 - but has started to decline.  Completions (red line) have lagged behind - but completions have been generally catching up (more deliveries, although this has dipped lately).  Completions lag starts by about 12 months.

I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts probably 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.