by Calculated Risk on 3/20/2017 10:33:00 AM

In a note today, Merrill Lynch economist Michelle Meyer notes a few upside and downside risks for housing. A few excerpts:

The housing market is being hit by several cross currents. On the upside, the warmer than-normal weather in the winter likely boosted housing activity over the past few months. The risk, however, is that this could be pulling activity forward from the spring. In addition, the general improvement in the economy and gain in consumer confidence could be underpinning housing activity. The NAHB homebuilder confidence index has climbed higher, reaching a new cyclical high of 71 in March. Clearly builders are optimistic. However, on the downside, interest rates have increased which weighs on affordability.

There are also a variety of potential policy changes which can impact the outlook for the housing market. High on the list is financial market deregulation and its impact on the flow of credit. In addition, there seems to be renewed focus on reforming the mortgage finance system and bringing Fannie Mae and Freddie Mac out of conservatorship. In addition, immigration reform could have significant impacts on the housing market over the medium term.
emphasis added

CR note: If, later this year, the Fed starts to reduce their balance sheet, that might push up longer rates (and pushing up mortgage rates a little more). Another downside risk for housing is reduced foreign buying due to the strong dollar, U.S. political concerns, and capital controls in China.

by Calculated Risk on 3/20/2017 08:44:00 AM

From the Chicago Fed: Economic Growth Increased in February

Led by improvements in employment-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to +0.34 in February from –0.02 in January. All four broad categories of indicators that make up the index increased from January, and only one of the four categories made a negative contribution to the index in February.

The index’s three-month moving average, CFNAI-MA3, improved to +0.25 in February from +0.07 in January, reaching its highest level since December 2014. February’s CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.
emphasis added

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests economic activity was somewhat above the historical trend in February (using the three-month average).

According to the Chicago Fed:

What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 3/19/2017 07:35:00 PM

Weekend:
• Schedule for Week of Mar 19, 2017

• Existing Home Sales: Take the Under

• Goldman on Fed Balance Sheet Runoff

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures and DOW futures are down slightly (fair value).

Oil prices were up over the last week with WTI futures at $48.68 per barrel and Brent at $51.74 per barrel.  A year ago, WTI was at $40, and Brent was at $40 - so oil prices are up about 25% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.29 per gallon - a year ago prices were at $2.00 per gallon - so gasoline prices are up about 30 cents a gallon year-over-year.

by Calculated Risk on 3/19/2017 02:05:00 PM

The NAR will report February Existing Home Sales on Wednesday, March 22nd at 10:00 AM ET.

The consensus, according to Bloomberg, is that the NAR will report sales of 5.55 million. Housing economist Tom Lawler estimates the NAR will report sales of 5.41 million on a seasonally adjusted annual rate (SAAR) basis, down from 5.69 million SAAR in January.

Housing economist Tom Lawler has been sending me his predictions of what the NAR will report for almost 7 years.  The table below shows the consensus for each month, Lawler's predictions, and the NAR's initial reported level of sales. 

Lawler hasn't always been closer than the consensus, but usually when there has been a fairly large spread between Lawler's estimate and the "consensus", Lawler has been closer.

NOTE: There have been times when Lawler "missed", but then he pointed out an apparent error in the NAR data - and the subsequent revision corrected that error.  As an example, see: The “Curious Case” of Existing Home Sales in the South in April

Over the last seven years, the consensus average miss was 150 thousand, and  Lawler's average miss was 70 thousand.

Many analysts now change their "forecast" after Lawler's estimate is posted, so the consensus has improved a little recently!

Existing Home Sales, Forecasts and NAR Report millions, seasonally adjusted annual rate basis (SAAR)
Month	Consensus	Lawler	NAR reported1
May-10	6.20	5.83	5.66
Jun-10	5.30	5.30	5.37
Jul-10	4.66	3.95	3.83
Aug-10	4.10	4.10	4.13
Sep-10	4.30	4.50	4.53
Oct-10	4.50	4.46	4.43
Nov-10	4.85	4.61	4.68
Dec-10	4.90	5.13	5.28
Jan-11	5.20	5.17	5.36
Feb-11	5.15	5.00	4.88
Mar-11	5.00	5.08	5.10
Apr-11	5.20	5.15	5.05
May-11	4.75	4.80	4.81
Jun-11	4.90	4.71	4.77
Jul-11	4.92	4.69	4.67
Aug-11	4.75	4.92	5.03
Sep-11	4.93	4.83	4.91
Oct-11	4.80	4.86	4.97
Nov-11	5.08	4.40	4.42
Dec-11	4.60	4.64	4.61
Jan-12	4.69	4.66	4.57
Feb-12	4.61	4.63	4.59
Mar-12	4.62	4.59	4.48
Apr-12	4.66	4.53	4.62
May-12	4.57	4.66	4.55
Jun-12	4.65	4.56	4.37
Jul-12	4.50	4.47	4.47
Aug-12	4.55	4.87	4.82
Sep-12	4.75	4.70	4.75
Oct-12	4.74	4.84	4.79
Nov-12	4.90	5.10	5.04
Dec-12	5.10	4.97	4.94
Jan-13	4.90	4.94	4.92
Feb-13	5.01	4.87	4.98
Mar-13	5.03	4.89	4.92
Apr-13	4.92	5.03	4.97
May-13	5.00	5.20	5.18
Jun-13	5.27	4.99	5.08
Jul-13	5.13	5.33	5.39
Aug-13	5.25	5.35	5.48
Sep-13	5.30	5.26	5.29
Oct-13	5.13	5.08	5.12
Nov-13	5.02	4.98	4.90
Dec-13	4.90	4.96	4.87
Jan-14	4.70	4.67	4.62
Feb-14	4.64	4.60	4.60
Mar-14	4.56	4.64	4.59
Apr-14	4.67	4.70	4.65
May-14	4.75	4.81	4.89
Jun-14	4.99	4.96	5.04
Jul-14	5.00	5.09	5.15
Aug-14	5.18	5.12	5.05
Sep-14	5.09	5.14	5.17
Oct-14	5.15	5.28	5.26
Nov-14	5.20	4.90	4.93
Dec-14	5.05	5.15	5.04
Jan-15	5.00	4.90	4.82
Feb-15	4.94	4.87	4.88
Mar-15	5.04	5.18	5.19
Apr-15	5.22	5.20	5.04
May-15	5.25	5.29	5.35
Jun-15	5.40	5.45	5.49
Jul-15	5.41	5.64	5.59
Aug-15	5.50	5.54	5.31
Sep-15	5.35	5.56	5.55
Oct-15	5.41	5.33	5.36
Nov-15	5.32	4.97	4.76
Dec-15	5.19	5.36	5.46
Jan-16	5.32	5.36	5.47
Feb-16	5.30	5.20	5.08
Mar-16	5.27	5.27	5.33
Apr-16	5.40	5.44	5.45
May-16	5.64	5.55	5.53
Jun-16	5.48	5.62	5.57
Jul-16	5.52	5.41	5.39
Aug-16	5.44	5.49	5.33
Sep-16	5.35	5.55	5.47
Oct-16	5.44	5.47	5.60
Nov-16	5.54	5.60	5.61
Dec-16	5.54	5.55	5.49
Jan-17	5.55	5.60	5.69
Feb-17	5.55	5.41	---
1NAR initially reported before revisions.

by Calculated Risk on 3/18/2017 07:04:00 PM

A few brief excerpts from a note today by Goldman Sachs economist Daan Struyven: Balance Sheet Runoff: Sooner, Slower, Safer

The debate within the FOMC about balance sheet normalization is now underway. Fed officials have two basic choices. They can rely exclusively on the funds rate for now and leave balance sheet decisions to the new leadership team in 2018, or they can combine ongoing funds rate hikes with a turn to balance sheet runoff later this year.
...
A ... practical case for early balance sheet normalization is based on the upcoming Fed leadership transition. If the new appointments—especially the new Chair—are thought to favor aggressive balance sheet normalization, perhaps even including asset sales ... financial markets might experience heightened uncertainty during the transition. ...

The current FOMC could reduce that uncertainty by establishing an early “baseline” path for very gradual balance sheet rundown. Committee decisions are subject to change, of course, but markets would probably take comfort from the fact that most FOMC members will remain in their positions and that it is harder for the new leadership to radically change a policy that is already in place than to devise a new one. We therefore expect the committee to announce gradual tapering of reinvestments in December 2017, while holding the funds rate unchanged at that meeting.

CR Note: This might depend on who is the next Fed Chair.  Fed Chair Janet Yellen's term expires in Feb 2018 and the smart choice would be to reappoint her to another term (Like Reagan reappointing Democrat Volcker in 1983, Clinton reappointing Republican Greenspan, and Obama reappointing Republican Bernanke).  

by Calculated Risk on 3/18/2017 08:11:00 AM

The key economic report this week are February New and Existing Home sales.

----- Monday, Mar 20th -----
8:30 AM: Chicago Fed National Activity Index for February. This is a composite index of other data.

----- Tuesday, Mar 21st-----
No economic releases scheduled.

----- Wednesday, Mar 22nd -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

9:00 AM: FHFA House Price Index for January 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

10:00 AM: Existing Home Sales for February from the National Association of Realtors (NAR). The consensus is for 5.55 million SAAR, down from 5.69 million in January.

Housing economist Tom Lawler expects the NAR to report sales of 5.41 million SAAR in February.

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

----- Thursday, Mar 23rd -----
8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 240 thousand initial claims, down from 241 thousand the previous week.

8:45 AM, Speech by Fed Chair Janet L. Yellen, Opening Remarks, At the 2017 Federal Reserve System Community Development Research Conference, Washington, D.C.

10:00 AM ET: New Home Sales for February from the Census Bureau.

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

The consensus is for a increase in sales to 565 thousand Seasonally Adjusted Annual Rate (SAAR) in February from 555 thousand in January.

11:00 AM: the Kansas City Fed manufacturing survey for March.

----- Friday, Mar 24th -----
8:30 AM: Durable Goods Orders for January from the Census Bureau. The consensus is for a 1.5% increase in durable goods orders.

10:00 AM: Regional and State Employment and Unemployment (Monthly) for February 2017

by Calculated Risk on 3/17/2017 02:47:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on Mar 17, 2017:

• The US oil rig count was up by 14 this week to 631

• US horizontal oil rigs were up by 14 to 530
...
• This was another very aggressive rig add, but curiously came from outside the major plays.  This suggests that either the business is spreading beyond its historical boundaries, or that some technical and non-recurring issues may be at play.

• Decidedly bearish on the face of it.

Click on graph for larger image.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.

by Calculated Risk on 3/17/2017 11:20:00 AM

The advance GDP report for Q1 GDP will be released in April.  Here are a few early forecasts ...

From the Altanta Fed: GDPNow

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.9 percent on March 16, unchanged from March 15.
emphasis added

From the NY Fed Nowcasting Report

The FRBNY Staff Nowcast stands at 2.8% for 2017:Q1 and 2.5% for 2017:Q2.

From Merrill Lynch:

We revised down our 1Q GDP forecast to 1.5%, reflecting a mark-to-market with tracking. However, we expect a payback over the next two quarters and upgraded growth to 2.3% from 2.0%. This leaves 2017 growth unchanged at 2.1%.

by Calculated Risk on 3/17/2017 09:24:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production was unchanged in February following a 0.1 percent decrease in January. In February, manufacturing output moved up 0.5 percent for its sixth consecutive monthly increase. Mining output jumped 2.7 percent, but the index for utilities fell 5.7 percent, as continued unseasonably warm weather further reduced demand for heating. At 104.7 percent of its 2012 average, total industrial production in February was 0.3 percent above its level of a year earlier. Capacity utilization for the industrial sector declined 0.1 percentage point in February to 75.4 percent, a rate that is 4.5 percentage points below its long-run (1972–2016) 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 4.5% 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 was unchanged in February at 104.7. This is 19.8% above the recession low, and is close to the pre-recession peak.

This was below expectations of a 0.2% increase, but January was revised up.

by Calculated Risk on 3/16/2017 04:09:00 PM

LA area port traffic was down in February due to the timing of the Chinese New Year.

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 down 1.5% compared to the rolling 12 months ending in January.   Outbound traffic was up 0.2% compared to 12 months ending in January.

The downturn in exports in 2015 was probably due to the slowdown in China and the stronger dollar.  Now exports are picking up again,

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).  

The Chinese New Year was early this year, so imports declined in February.

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