by Calculated Risk on 5/25/2017 01:48:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for April 2017. Over the past three months, the indexes increased in 46 states and decreased in four, for a three-month diffusion index of 84. In the past month, the indexes increased in 41 states and decreased in nine, for a one-month diffusion index of 64.

Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In April, 41 states had increasing activity (including minor increases).

The downturn in 2015 and 2016, in the number of states increasing, was mostly related to the decline in oil prices.   The reason for the recent decrease in the number of states with increasing activity is unclear - and might be revised away.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and almost all green now.

Source: Philly Fed. Note: For complaints about red / green issues, please contact the Philly Fed.

by Calculated Risk on 5/25/2017 11:00:00 AM

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

The Federal Reserve Bank of Kansas City released the May 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 moderately with strong expectations for future activity.

“After slowing from a rapid rate of growth in February and March, we’ve seen more moderate growth the past two months,” said Wilkerson.  “But firms are about as optimistic about future growth as they’ve ever been.”
...
The month-over-month composite index was 8 in May, up from 7 in April but down from 20 in March.  The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.  Activity at durable manufacturing plants eased slightly but remained positive, while nondurable activity improved, particularly for plastics and chemicals.  Month-over-month indexes were mixed with little change overall.  The production and shipments indexes edged slightly lower, while the employment and order backlog indexes inched higher.  The new orders and new orders for exports indexes were both basically unchanged.  The finished goods inventory index fell from 8 to 0, while the raw materials inventory index was stable. 
emphasis added

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

by Calculated Risk on 5/25/2017 08:34:00 AM

The DOL reported:

In the week ending May 20, the advance figure for seasonally adjusted initial claims was 234,000, an increase of 1,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 232,000 to 233,000. The 4-week moving average was 235,250, a decrease of 5,750 from the previous week's revised average. This is the lowest level for this average since April 14, 1973 when it was 232,750. The previous week's average was revised up by 250 from 240,750 to 241,000.
emphasis added

The previous week was revised up by 1,000.

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 235,250 - the lowest since 1973.

This was lower than the consensus forecast.

The low level of claims suggests relatively few layoffs.

by Calculated Risk on 5/24/2017 07:14:00 PM

Some interesting analysis from Josh Lehner at the Oregon Office of Economic Analysis: States at Full Employment, A Prime-Age EPOP Story

The key economic question economists are trying to answer today is whether or not the U.S. economy is at full employment. Given it is more a concept then a hard calculation, you look for signs in the data that suggest the economy is there. In terms of jobs and the unemployment rate, there is no question the data do suggest this. However, at least nationally, wage growth is still relatively slow, albeit picking up some, and inflation remains consistently below target.

Here in Oregon we’re checking more of the boxes than the U.S. overall. Not only have we seen stronger wage gains, but we got the labor force response in terms of rising participation rates. Furthermore, now that the labor market is tight, we are seeing slower job growth which is also expected. Again, I don’t think we’re quite there just yet, but in looking across the nation it’s clear that Oregon is closer than most states.
...
Specifically, when it comes the share of the prime working-age population that actually has a job, those between 25 and 54 years old, just two — two! — states are back to where they were last decade, let alone the late 1990s.

The decline in the prime working age EPOP is a long term trend, and I suspect that after adjusted for the long term trend, and maybe a little for population (the 50 to 54 age cohort has a lower participation rate than most other prime cohorts), more states would be back to the levels of a decade ago.

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 237 thousand initial claims, up from 232 thousand the previous week.

• At 11:00 AM, the Kansas City Fed manufacturing survey for May.

by Calculated Risk on 5/24/2017 03:07:00 PM

From Black Knight: Black Knight Financial Services’ First Look at April 2017 Mortgage Data

• First-lien mortgage delinquencies rose by 13 percent, the largest monthly increase since November 2008

• Month-over-month, the number of borrowers past due on mortgage payments increased by 241,000

• April’s delinquency rate increase was primarily calendar-driven (due to both the month ending on a Sunday and March being the typical calendar-year low) and largely isolated to early-stage delinquencies

• The inventory of loans in active foreclosure continues to decline, hitting a 10-year low in April

• At just 52,800, April saw the fewest monthly foreclosure starts since January 2005

According to Black Knight's First Look report for April, the percent of loans delinquent increased 12.9% in April compared to March, and declined 3.6% year-over-year.

The percent of loans in the foreclosure process declined 3.5% in April and were down 27.3% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.08% in April, up from 3.62% in March.

The percent of loans in the foreclosure process declined in April to 0.85%.

The number of delinquent properties, but not in foreclosure, is down 74,000 properties year-over-year, and the number of properties in the foreclosure process is down 162,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Apr 2017	Mar 2017	Apr 2016	Apr 2015
Delinquent	4.08%	3.62%	4.24%	4.72%
In Foreclosure	0.85%	0.88%	1.17%	1.63%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:	2,072,000	1,831,000	2,146,000	2,381,000
Number of properties in foreclosure pre-sale inventory:	433,000	448,000	820,000	1,064,000
Total Properties	2,505,000	2,279,000	2,741,000	3,201,000

by Calculated Risk on 5/24/2017 02:05:00 PM

From the Fed: Minutes of the Federal Open Market Committee, May 2-3, 2017. Excerpts:

Participants continued their discussion of issues related to potential changes to the Committee's policy of reinvesting principal payments from securities held in the SOMA. The staff provided a briefing that summarized a possible operational approach to reducing the System's securities holdings in a gradual and predictable manner. Under the proposed approach, the Committee would announce a set of gradually increasing caps, or limits, on the dollar amounts of Treasury and agency securities that would be allowed to run off each month, and only the amounts of securities repayments that exceeded the caps would be reinvested each month. As the caps increased, reinvestments would decline, and the monthly reductions in the Federal Reserve's securities holdings would become larger. The caps would initially be set at low levels and then be raised every three months, over a set period of time, to their fully phased-in levels. The final values of the caps would then be maintained until the size of the balance sheet was normalized.

Nearly all policymakers expressed a favorable view of this general approach. Policymakers noted that preannouncing a schedule of gradually increasing caps to limit the amounts of securities that could run off in any given month was consistent with the Committee's intention to reduce the Federal Reserve's securities holdings in a gradual and predictable manner as stated in the Committee's Policy Normalization Principles and Plans. Limiting the magnitude of the monthly reductions in the Federal Reserve's securities holdings on an ongoing basis could help mitigate the risk of adverse effects on market functioning or outsized effects on interest rates. The approach would also likely be fairly straightforward to communicate. Moreover, under this approach, the process of reducing the Federal Reserve's securities holdings, once begun, could likely proceed without a need for the Committee to make adjustments as long as there was no material deterioration in the economic outlook.

Policymakers agreed that the Committee's Policy Normalization Principles and Plans should be augmented soon to provide additional details about the operational plan to reduce the Federal Reserve's securities holdings over time. Nearly all policymakers indicated that as long as the economy and the path of the federal funds rate evolved as currently expected, it likely would be appropriate to begin reducing the Federal Reserve's securities holdings this year. Policymakers agreed to continue in June their discussion of plans for a change to the Committee's reinvestment policy.
emphasis added

by Calculated Risk on 5/24/2017 11:59:00 AM

Earlier: NAR: "Existing-Home Sales Slip 2.3 Percent in April"

Two key points:

1) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the consensus.  The NAR reported sales of  5.57 million SAAR, Lawler projected 5.56 million SAAR, and the consensus was 5.67 million SAAR.  See: Lawler: Early Read on Existing Home Sales in April

"I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.56 million in April, down 2.6% from March’s preliminary pace and up 1.5% from last April’s seasonally adjusted pace."

2) Inventory is still very low and falling year-over-year (down 9.0% year-over-year in April). More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.

I started the year expecting inventory would be increasing year-over-year by the end of 2017. That still seems possible, but inventory will have to start increasing a little pretty soon.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in April (red column) were below April 2016. (NSA).

Note that sales NSA are now in the seasonally strong period (March through September).

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next several years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through April 2017. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

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.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

by Calculated Risk on 5/24/2017 11:18:00 AM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Design billings increasing entering height of construction season

After beginning the year with a marginal decline, the Architecture Billings Index has posted three consecutive months of growth in design revenue at architecture firms. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the April ABI score was 50.9, down from a score of 54.3 in the previous month. This score still reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 60.2, up from a reading of 59.8 the previous month, while the new design contracts index increased from 52.3 to 53.2.

“Probably even better news for the construction outlook is that new project work coming into architecture firms has seen exceptionally strong growth so far this year,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “In fact, new project activity has pushed up project backlogs at architecture firm to their highest level since the design market began its recovery earlier this decade.”
...
• Regional averages: South (55.3), Midwest (53.3), West (50.9), Northeast (50.7)

• Sector index breakdown: institutional (54.0), mixed practice (53.4), commercial / industrial (52.4), multi-family residential (49.9)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.9 in April, down from 54.3 the previous month. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

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 in 2017 and early 2018.

by Calculated Risk on 5/24/2017 10:13:00 AM

From the NAR: Existing-Home Sales Slip 2.3 Percent in April; Days on Market Falls to Under a Month

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dipped 2.3 percent to a seasonally adjusted annual rate of 5.57 million in April from a downwardly revised 5.70 million in March. Despite last month's decline, sales are still 1.6 percent above a year ago and at the fourth highest pace over the past year.
...
Total housing inventory at the end of April climbed 7.2 percent to 1.93 million existing homes available for sale, but is still 9.0 percent lower than a year ago (2.12 million) and has fallen year-over-year for 23 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.6 months a year ago.
emphasis added

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in April (5.57 million SAAR) were 2.3% lower than last month, and were 1.6% above the April 2016 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 1.93 million in April from 1.80 million in March.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 9.0% year-over-year in April compared to April 2016.  

Months of supply was at 4.2 months in April.

This was below the consensus expectations. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...

by Calculated Risk on 5/24/2017 07:00:00 AM

From the MBA: Refis Apps Up, Purchase Apps Slightly Down in Latest MBA Weekly Survey

Mortgage applications increased 4.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 19, 2017.

... The Refinance Index increased 11 percent from the previous week to its highest level since March 2017. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 3 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to its lowest level since November 2016, 4.17 percent, from 4.23 percent, with points increasing to 0.39 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity picked up a little as rates declined - but remains historically low - and will not increase significantly unless rates fall sharply.


The second graph shows the MBA mortgage purchase index.

Even with the increase in mortgage rates late last year, purchase activity is still up 3% year-over-year.