by Calculated Risk on 4/28/2017 01:33:00 PM

Earlier, the Chicago PMI: April Chicago Business Barometer at 58.3 vs 57.7 in March

The MNI Chicago Business Barometer increased to 58.3 in April from 57.7 in March, the highest level since January 2015.

“The April Chicago report showcased another impressive month, with firms reporting solid growth. Rising demand and firm production led to a pick-up in hiring by firms. Although the employment indicator has been bumpy, in and out of contraction, if the current month’s rise is sustained, it could provide a boost to the labor market,” said Shaily Mittal, senior economist at MNI Indicators.
emphasis added

This was above the consensus forecast of 56.5.

by Calculated Risk on 4/28/2017 09:59:00 AM

First, the soft Q1 GDP data is part of a recent trend of weak first quarters, and was mostly due to weak PCE and inventory adjustment - no worries. It was pretty clear that PCE would be weak in Q1 (see two-month method). However investment was solid.

The first graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential investment (RI) increased at a 13.7% annual rate in Q1.  Equipment investment increased at a 9.1% annual rate, and investment in non-residential structures increased at a 22.1% annual rate.

On a 3 quarter trailing average basis, RI (red) is unchanged,  equipment (green) is also unchanged, and nonresidential structures (blue) is slightly positive.

I'll post more on the components of non-residential investment once the supplemental data is released.

I expect investment to be solid going forward, and for the economy to continue to grow.

The second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP has generally been increasing, but is only just above the bottom of the previous recessions - and I expect RI to continue to increase for the next few years.

I'll break down Residential Investment into components after the GDP details are released.

Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The third graph shows non-residential investment in structures, equipment and "intellectual property products".  Investment in equipment - as a percent of GDP - picked up a little.  Investment in nonresidential structures - as a percent of GDP - had been moving down due to less investment in energy and power, and is now picking up again.

Still no worries.

by Calculated Risk on 4/28/2017 08:34:00 AM

From the BEA: Gross Domestic Product: First Quarter 2017 (Advance Estimate)

Real gross domestic product (GDP) increased at an annual rate of 0.7 percent in the first quarter of 2017, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2016, real GDP increased 2.1 percent.
...
The increase in real GDP in the first quarter reflected positive contributions from nonresidential fixed investment, exports, residential fixed investment, and personal consumption expenditures (PCE), that were offset by negative contributions from private inventory investment, state and local government spending, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased

The deceleration in real GDP in the first quarter reflected a deceleration in PCE and downturns in private inventory investment and in state and local government spending that were partly offset by an upturn in exports and accelerations in both nonresidential and residential fixed investment.
emphasis added

The advance Q1 GDP report, with 0.7% annualized growth, was below expectations of a 1.1% increase.

Personal consumption expenditures (PCE) only increased at a 0.3% annualized rate in Q1, down from 3.5% in Q4.   Residential investment (RI) increased at a 13.7% pace. Equipment investment increased at a 9.1% annualized rate, and investment in non-residential structures decreased at a 22.1% pace.

I'll have more later ...

by Calculated Risk on 4/27/2017 08:23:00 PM

From the Altanta Fed: GDPNow

The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2017 is 0.2 percent on April 27, down from 0.5 percent on April 18. The forecast of first-quarter real consumer spending growth fell from 0.3 percent to 0.1 percent after yesterday's annual retail trade revision by the U.S. Census Bureau. The forecast of the contribution of inventory investment to first-quarter growth declined from -0.76 percentage points to -1.11 percentage points after this morning's advance reports on durable manufacturing and wholesale and retail inventories from the Census Bureau. The forecast of real equipment investment growth increased from 5.5 percent to 6.6 percent after the durable manufacturing report and the incorporation of previously published data on light truck sales to businesses from the U.S. Bureau of Economic Analysis.
emphasis added

From the NY Fed Nowcasting Report

The FRBNY Staff Nowcast stands at 2.7% for 2017:Q1 and 2.1% for 2017:Q2.

Mixed news from this week's data releases left the nowcast for Q1 and Q2 essentially unchanged.

Friday:
• At 8:30 AM ET, Gross Domestic Product, 1st quarter 2017 (Advance estimate). The consensus is that real GDP increased 1.1% annualized in Q1.

• At 9:45 AM, Chicago Purchasing Managers Index for April. The consensus is for a reading of 56.5, down from 57.7 in March.

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

by Calculated Risk on 4/27/2017 01:40:00 PM

The Census Bureau released the Residential Vacancies and Homeownership report for Q1 2017.

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 63.6% in Q1, from 63.7% in Q4.

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 declined to 1.7% in Q1. 

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

The rental vacancy rate increased to 7.0% in Q1.

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 4/27/2017 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Expanded at a Slower Pace

The Federal Reserve Bank of Kansas City released the April 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 expanded at a slower pace with solid expectations for future activity.

“We came down a bit from the rapid growth rate of the past two months,” said Wilkerson.  “But firms still reported a good increase in activity and expected this to continue.”
...
The month-over-month composite index was 7 in April, down from the very strong readings of 20 in March and 14 in February.  The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.  Activity in both durable and nondurable goods plants eased slightly, particularly for metals, machinery, food, and plastic products.  Most month-over-month indexes expanded at a slower pace in April.  The production, shipments, and new orders indexes fell but remained positive, and the employment index edged lower from 13 to 9.  In contrast, the new orders for exports index increased from 2 to 4.  Both inventory indexes fell moderately after rising the past two months.
emphasis added

The Kansas City region was hit hard by the decline in oil prices, but activity is expanding again.

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

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

It seems likely the ISM manufacturing index will decline in April, but still show solid expansion (to be released next week).

by Calculated Risk on 4/27/2017 10:00:00 AM

From the NAR: Pending Home Sale Dip 0.8% in March

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 0.8 percent to 111.4 in March from 112.3 in February. Despite last month's decrease, the index is 0.8 percent above a year ago.
...
The PHSI in the Northeast decreased 2.9 percent to 99.1 in March, but is still 1.8 percent above a year ago. In the Midwest the index declined 1.2 percent to 109.6 in March, and is now 2.4 percent lower than March 2016.

Pending home sales in the South rose 1.2 percent to an index of 129.4 in March and are now 3.9 percent above last March. The index in the West fell 2.9 percent in March to 94.5, and is now 2.7 percent below a year ago.
emphasis added

This was below expectations of a 0.4% decrease for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in April and May.

by Calculated Risk on 4/27/2017 08:33:00 AM

The DOL reported:

In the week ending April 22, the advance figure for seasonally adjusted initial claims was 257,000, an increase of 14,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 244,000 to 243,000. The 4-week moving average was 242,250, a decrease of 500 from the previous week's revised average. The previous week's average was revised down by 250 from 243,000 to 242,750.
emphasis added

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 decreased to 242,250.

This was above the consensus forecast.

The low level of claims suggests relatively few layoffs.

by Calculated Risk on 4/26/2017 08:59:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 243 thousand initial claims, down from 244 thousand the previous week.

• Also at 8:30 AM, Durable Goods Orders for February from the Census Bureau. The consensus is for a 1.1% increase in durable goods orders.

• At 10:00 AM, Pending Home Sales Index for March. The consensus is for a 0.4% decrease in the index.

• Also at 10:00 AM, the Q1 2017 Housing Vacancies and Homeownership from the Census Bureau.

• At 11:00 AM, the Kansas City Fed manufacturing survey for April. This is the last of the regional Fed surveys for April.

by Calculated Risk on 4/26/2017 05:14:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in March was at 0.92%, down from 0.98% in February.  Freddie's rate is down from 1.20% in March 2016.

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

This is the lowest serious delinquency rate since May 2008.

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 still declining, the rate of decline has slowed.

Maybe the rate will decline another 0.2 to 0.4 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Fannie Mae will report soon.