by Calculated Risk on 12/31/2016 08:11:00 AM

Happy New Year!

The key report this week is the December employment report on Friday.

Other key indicators include the December ISM manufacturing and non-manufacturing indexes, the November trade deficit, and December auto sales.

Also the Q4 quarterly Reis surveys for office, apartment and malls will be released this week.

----- Monday, Jan 2nd -----
All US markets will be closed in observance of the New Year's Day Holiday.

----- Tuesday, Jan 3rd-----
10:00 AM: ISM Manufacturing Index for December. The consensus is for the ISM to be at 53.8, up from 53.2 in November.

Here is a long term graph of the ISM manufacturing index.

The ISM manufacturing index indicated expansion at 53.2% in November. The employment index was at 52.3%, and the new orders index was at 53.0%.

10:00 AM: Construction Spending for November. The consensus is for a 0.6% increase in construction spending.

----- Wednesday, Jan 4th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

Early: Reis Q4 2016 Office Survey of rents and vacancy rates.

All day: Light vehicle sales for December. The consensus is for light vehicle sales to decrease to 17.7 million SAAR in December, from 17.9 million in  November (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the November sales rate.

2:00 PM: The Fed will release the FOMC minutes for the December meeting.

----- Thursday, Jan 5th -----
8:15 AM: The ADP Employment Report for December. This report is for private payrolls only (no government). The consensus is for 172,000 payroll jobs added in December, down from 216,000 added in November.

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 260 thousand initial claims, down from 265 thousand the previous week.

Early: Reis Q4 2016 Apartment Survey of rents and vacancy rates.

10:00 AM: the ISM non-Manufacturing Index for December. The consensus is for index to decrease to 56.8 from 57.2 in November.

----- Friday, Jan 6th -----
8:30 AM: Employment Report for December. The consensus is for an increase of 175,000 non-farm payroll jobs added in December, down from the 178,000 non-farm payroll jobs added in November.

The consensus is for the unemployment rate to increase to 4.7%.

This graph shows the year-over-year change in total non-farm employment since 1968.

In November, the year-over-year change was 2.25 million jobs.

A key will be the change in wages.

8:30 AM: Trade Balance report for November from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through October. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is for the U.S. trade deficit to be at $44.5 billion in November from $42.6 billion in October.

Early: Reis Q4 2016 Mall Survey of rents and vacancy rates.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for November. The consensus is a 2.5% decrease in orders.

by Calculated Risk on 12/30/2016 04:18:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Slightly Lower to End 2016

Mortgage rates moved lower for a 3rd consecutive day to end 2016, bringing them to the lowest levels in more than 3 weeks for many lenders. December 8th was the last time rates were lower. As of yesterday, 4.25% regained the status of the "most prevalent" conventional 30yr fixed quote on top tier scenarios. Quite a few lenders remain at 4.375% and a scant few are down to 4.125%.

While this is all good news in the context of the past few weeks, 2016 nonetheless ends with one of the worst 2-month losing streaks in the history of mortgage rates. Specifically, the 5 weeks following the election were the worst 5 weeks on record, going back to the Spring of 1987.
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 12/30/2016 11:41:00 AM

Here are a few graphs for 2016.

The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes).

Total payrolls increased by 178 thousand in November (private payrolls increased 156 thousand).

Click on graph for larger image.

Job growth has averaged 180,000 per month this year.

The peak year for job growth in this cycle was 2014 with just over 3 million jobs added.  Job growth was at 2.74 million in 2015, and job growth was probably around 2.2 million in 2016.

The second graph shows the employment population ratio and the participation rate.


A key story in 2016 was that the labor force participation rate (blue) increased slightly - from 62.6% in December 2015 to 62.7%.

Correction: Earlier I posted the participation rates for the 25 to 54 year old age group, not 16+.

Based on demographics, the participation rate will start declining again as more baby boomers retire - and continue declining for the next decade.

The increase in the participation rate this year suggests the labor market was strong enough to attract enough workers to overcome the demographic trend.

The third graph shows the unemployment rate.

The unemployment rate decreased in November to 4.6%.

The unemployment rate was down from 5.0% in December 2015.  The unemployment rate would have fallen further if not for the increase in the labor force participation rate.

Note the low for the unemployment rate in the previous cycles was 4.4% in 2006, and 3.8% in 2000.  It wouldn't take much to be below the 2006 low.

And now to housing ...

This graph shows existing home sales (left axis) and new home sales (right axis) through November.  This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Both existing home and home sales have been increasing, and the gap is closing.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.


This graph shows the year-over-year change in inventory and the months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

Inventory decreased 9.3% year-over-year in November compared to November 2015.  

Months of supply was at 4.0 months in November.

The low level of existing home inventory continues to be a key story.


This graph shows the huge collapse in housing starts following the housing bubble, and that housing starts then mostly moved sideways for two years.

Housing is now recovering (but starts are still historically low) - so there is room to run.

Another piece of good news is mortgage delinquencies are almost back to normal.

This graph based on quarterly data from the MBA shows the percent of loans delinquent by days past due.

Note that the total percent delinquencies and foreclosures is below the 2002 level.

The percent of loans 30 and 60 days delinquent ticked down in Q3, and is below the normal historical level.

The 90 day bucket declined further in Q3, but remains a little elevated.

The percent of loans in the foreclosure process continues to decline, and is still above the historical average.

The 90 day bucket and foreclosure inventory are still elevated, but should be close to normal in 2017.   Most other mortgage measures are already back to normal, but the lenders are still working through the backlog of bubble legacy loans.

Some more good news for housing is that REO (Real Estate Owned) inventories at Fannie and Freddie are almost back to normal.

This graph shows the REO inventory for Fannie, Freddie and FHA through Q3 2016.

REO inventory decreased in Q3 for both Fannie and Freddie, and combined inventory is down 31% year-over-year.

Delinquencies are falling, but there are still a number of properties in the foreclosure process with long time lines in judicial foreclosure states - but this is getting close to normal levels of REOs.

Remember this is just a portion of the total REO inventory. Private label securities (the worst of the worst lending) and banks and thrifts also hold a number of REOs.

For manufacturing, this graph shows industrial production since 1967.

Industrial production is 18.9% above the recession low, and is close to the pre-recession peak.

The next graph shows real Personal Consumption Expenditures (PCE) through November (2009 dollars).

The recovery in consumer spending has been ongoing, and seem to have picked up in recent years.

Using the two-month method to estimate Q4 PCE growth, PCE was increasing at a 2.7% annual rate in Q4 2016. (using the mid-month method, PCE was increasing 3.2%). This suggests decent PCE growth in Q4.

So PCE had a solid year in 2016.

And the final graph is for commercial real estate.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index was positive in 9 of the last 12 months, suggesting a further increase in CRE investment through mid-2017.

Best to all

by Calculated Risk on 12/30/2016 09:58:00 AM

Chicago PMI: December Chicago Business Barometer Down 3.0 Points to 54.6

The MNI Chicago Business Barometer fell 3.0 points to 54.6 in December from 57.6 in November, led by declines in both New Orders and Order Backlogs.

After a disappointing start to the fourth quarter, the latest results suggest economic conditions have improved somewhat, with the Barometer averaging 54.3 in Q4, the highest in two years.

The December decline was led by a slowdown in New Orders, which fell 6.7 points to 56.5, giving up most of the November gain that had left it running at the fastest pace since June.
...
“The Chicago Business Barometer ended 2016 in a much healthier position than a year ago when it slipped into contraction. This is largely owed to stronger outturns in the second half of the year and is testament to the resilience of the US economy.

“Most respondents to our survey remain upbeat about the fate of their business as we head into 2017, buoyed by fresh hope of better things to come under the new administration. Hopefully, 2017 can build on the momentum generated in the latter stages of 2016.” said Jamie Satchithanantham, economist at MNI Indicators.
emphasis added

This was below the consensus forecast of 57.0.

by Calculated Risk on 12/29/2016 04:49:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate increased to 1.23% in November, up from 1.21% in October. The serious delinquency rate is down from 1.58% in November 2015.

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

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 0.35 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% for about 8 more months.

Note: Freddie Mac reported earlier.

by Calculated Risk on 12/29/2016 11:12:00 AM

Freddie Mac reported that the Single-Family serious delinquency rate in November was at 1.03%, unchanged from 1.03% in October.  Freddie's rate is down from 1.36% in November 2015.

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 0.33 percentage points over the last year, and at that rate of improvement, the serious delinquency rate could be below 1% in December or January.

Note: Fannie Mae will probably report tomorrow.

by Calculated Risk on 12/29/2016 08:34:00 AM

The DOL reported:

In the week ending December 24, the advance figure for seasonally adjusted initial claims was 265,000, a decrease of 10,000 from the previous week's unrevised level of 275,000. The 4-week moving average was 263,000, a decrease of 750 from the previous week's unrevised average of 263,750.

There were no special factors impacting this week's initial claims. This marks 95 consecutive weeks of initial claims below 300,000, the longest streak since 1970.
emphasis added

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 decreased to 263,000.

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

by Calculated Risk on 12/28/2016 06:05:00 PM

From Tim Duy at Fed Watch: Is The Fed About To Experience A Repeat of 2016?

In the most recent Summary of Economic Projections, Fed officials penciled in three 25bp rate hikes for 2017. The reality, however, could be very different. We all remember how “four” became “one” in 2016. The median dots are neither a promise nor an official forecast. As 2016 progressed, forecasts associated with a lower path of SEP “dots” evolved as the consensus view of policymakers. Will the same happen this year? I don’t think so; it is hard to see the Fed on pause for another twelve months.
...
Bottom Line: The economic situation on the ground is very different from December of last year. Whereas the decision to raise rates at that time looked ill-advised, this latest action appears more appropriate given the likely medium-term path of the US economy. Assuming the US economy is near full employment, that path likely contains enough upward pressure on activity to justify more than one more rate increase in 2017. Three I think is more likely than one. That said, the change in administrations and the path of fiscal policy creates uncertainties in both directions.

Three hikes may be more likely than one, but right now I think two hikes is the most likely - but it depends on the data and on fiscal policy (a great unknown).

by Calculated Risk on 12/28/2016 02:08:00 PM

Two days ago I posted some questions for next year: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.

8) Residential Investment: Residential investment (RI) was sluggish in 2016, although new home sales were up solidly. Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales. How much will RI increase in 2017? How about housing starts and new home sales in 2017?

First a graph of RI as a percent of Gross Domestic Product (GDP) through Q3 2016.

Click on graph for larger image.

Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the recovery was sluggish. Residential investment finally turned positive during 2011 and made a solid positive contribution to GDP every year since then.

RI as a percent of GDP is still very low - close to the lows of previous recessions - and was sluggish in 2016.

The second graph shows total and single family housing starts through November 2016.

Housing starts are on pace to increase close to 5% in 2016. And even after the significant increase over the last four years, the approximately 1.16 million housing starts in 2016 will still be the 13th lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the seven lowest years were 2008 through 2014).  The other lower years were the bottoms of previous recessions.

The third graph shows New Home Sales since 1963 through November 2016. The dashed line is the current sales rate.

New home sales in 2016 were up about 12% compared to 2015 at close to 560 thousand.

Here is a table showing housing starts and new home sales over the last decade. No one should expect an increase to 2005 levels, however demographics and household formation suggest starts will return to close to the 1.5 million per year average from 1959 through 2000. That would suggest starts would increase close to 30% over the next few years from the 2016 level.

Housing Starts and New Home Sales (000s)
	Housing Starts	Change	New Home Sales	Change
2005	2068	---	1,283	---
2006	1801	-12.9%	1,051	-18.1%
2007	1355	-24.8%	776	-26.2%
2008	906	-33.2%	485	-37.5%
2009	554	-38.8%	375	-22.7%
2010	587	5.9%	323	-13.9%
2011	609	3.7%	306	-5.3%
2012	781	28.2%	368	20.3%
2013	925	18.5%	429	16.6%
2014	1003	8.5%	437	1.9%
2015	1112	10.9%	501	14.7%
20161	1163	4.6%	562	12.2%
12016 estimated

Most analysts are looking for starts to increase to around 1.25 million in 2017, and for new home sales of around 600 to 650 thousand. This would be an increase of around 7% for starts and maybe 10% for new home sales.

I think there will be further growth in 2017, but I think a combination of higher mortgage rates, less multi-family starts, and not enough lots for low-to-mid range new homes will mean sluggish growth in 2017.

My guess is starts will increase to just over 1.2 million in 2017 and new home sales will be in the low 600 thousand range.

Here are the Ten Economic Questions for 2017 and a few predictions:

• Question #1 for 2017: What about fiscal and regulatory policy in 2017?
• Question #2 for 2017: How much will the economy grow in 2017?
• Question #3 for 2017: Will job creation slow further in 2017?
• Question #4 for 2017: What will the unemployment rate be in December 2017?
• Question #5 for 2017: Will the core inflation rate rise in 2017? Will too much inflation be a concern in 2017?
• Question #6 for 2017: Will the Fed raise rates in 2017, and if so, by how much?
• Question #7 for 2017: How much will wages increase in 2017?
• Question #8 for 2017: How much will Residential Investment increase?
• Question #9 for 2017: What will happen with house prices in 2017?
• Question #10 for 2017: Will housing inventory increase or decrease in 2017?

by Calculated Risk on 12/28/2016 10:06:00 AM

From the NAR: Pending Home Sales Backpedal in November

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 2.5 percent to 107.3 in November from 110.0 in October. After last month's decrease in activity, the index is now 0.4 percent below last November (107.7) and is at its lowest reading since January (105.4).
...
The PHSI in the Northeast nudged forward 0.6 percent to 97.5 in November, and is now 5.7 percent above a year ago. In the Midwest the index declined 2.5 percent to 103.5 in November, and is now 2.4 percent lower than November 2015.

Pending home sales in the South decreased 1.2 percent to an index of 118.7 in November and are now 1.3 percent lower than last November. The index in the West fell 6.7 percent in November to 101.0, and is now 1.0 percent below a year ago.
emphasis added

This was below expectations of a 0.5% increase for this index.  Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in December and January.