by Calculated Risk on 7/13/2017 06:13:00 PM

Note: I will be interviewed by Prashant Kothari of String on July 20th. Here is the registration information. It should be fun.

Friday:
• At 8:30 AM ET: Retail sales for June will be released.  The consensus is for a 0.1% increase in retail sales.

• Also at 8:30 AM, The Consumer Price Index for June from the BLS. The consensus is for a 0.1% increase in CPI, and a 0.2% increase in core CPI.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for June. The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 76.8%.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for May.  The consensus is for a 0.3% increase in inventories.

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for July). The consensus is for a reading of 95.1, unchanged from 95.1 in June.

by Calculated Risk on 7/13/2017 11:50:00 AM

From HotelNewsNow.com: STR: US hotel results for week ending 8 July

The U.S. hotel industry reported mixed year-over-year results in the three key performance metrics during the week of 2-8 July 2017, according to data from STR.

In comparison with the week of 3-9 July 2016, the industry recorded the following:

• Occupancy: -3.0% to 65.3%
• Average daily rate (ADR): +1.1% to US$122.73
• Revenue per available room (RevPAR): -2.0% to US$80.11
emphasis added

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

The red line is for 2017, dash light blue is 2016, dashed orange is 2015 (best year on record), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate is tracking close to last year, and slightly behind the record year in 2015.

For hotels, occupancy will be strong over the next couple of months.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 7/13/2017 08:56:00 AM

Note: This index is possibly a leading indicator for new non-residential Commercial Real Estate (CRE) investment, except manufacturing.

From Dodge Data Analytics: Dodge Momentum Index Moves Higher in June

The Dodge Momentum Index took another step forward in June, increasing 1.1% to 141.1 (2000=100) from its revised May reading of 139.6. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. June’s lift was due to a 4.8% advance by the institutional component of the Momentum Index, while the commercial component fell 1.3%. The Momentum Index has exhibited substantial strength since mid-2016, with the institutional and commercial components trading off as the driver of growth almost on a month-to-month basis. Although the commercial component of the Momentum Index declined in the latest month it is 11.8% higher than it was in June 2016, while the institutional component is 9.5% above a year ago. The overall rising trend for both sectors continues to suggest that construction activity will remain healthy through the end of the year.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 141.1 in June, up from 139.6 in May.

The index is up solidly year-over-year.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year". This suggests further increases in CRE spending over the next year.

by Calculated Risk on 7/13/2017 08:33:00 AM

The DOL reported:

In the week ending July 8, the advance figure for seasonally adjusted initial claims was 247,000, a decrease of 3,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 248,000 to 250,000. The 4-week moving average was 245,750, an increase of 2,250 from the previous week's revised average. The previous week's average was revised up by 500 from 243,000 to 243,500.
emphasis added

The previous week was revised up.

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 increased to 245,750.

This was higher than the consensus forecast.

The low level of claims suggests relatively few layoffs.

by Calculated Risk on 7/12/2017 05:48:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates at 2-Week Lows After Yellen

Mortgage rates had been holding in a narrow range near their highest levels in roughly 3 months over the past few days.  Despite some stability in underlying bond markets, lenders had hesitated to make meaningful adjustments to rate sheets (in their defense, there wasn't much to work with).  That all changed today after Fed Chair Yellen's congressional testimony.

In fact, it was the prepared remarks for the testimony, released at 8:30am ET this morning that did the trick for bond markets (which underlie interest rate movement).  Market participants were eager to see if Yellen would strike a similarly soft tone to some of the recent speeches from other members of the Fed.  Indeed, that was the case as Yellen said the Fed doesn't need to hike much more in order to reach a neutral Fed Funds Rate. [30YR FIXED - 4.125%]

Thursday:
• At 8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 245 thousand initial claims, down from 248 thousand the previous week.

• At 8:30 AM, The Producer Price Index for June from the BLS. The consensus is for no change in PPI, and a 0.2% increase in core PPI.

• At 10:00 AM, Testimony from Fed Chair Janet L. Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.

by Calculated Risk on 7/12/2017 02:04:00 PM

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of Kansas City based on information collected on or before June 30, 2017."

Economic activity expanded across all twelve Federal Reserve Districts in June, with the pace of growth ranging from slight to moderate. In addition, the majority of Districts expected modest to moderate gains in the months ahead. Consumer spending appears to be rising across a majority of Districts, led by increases in nonauto retail sales and tourism. However, many Districts noted some softening in consumer spending, particularly in auto sales which declined in half of the Districts. Manufacturing and nonfinancial services activity continued to grow, with most Districts reporting modest to moderate gains since the last report. Loan demand was steady to increasing in most Districts. Residential and nonresidential construction activity was flat to expanding in most Districts. Most Districts cited low home inventory levels in certain market segments which were constraining home sales in many areas.
...
Employment across most of the nation maintained a modest to moderate pace of expansion, although the Atlanta and St. Louis Districts noted flat employment levels. Labor markets tightened further for both low- and high-skilled positions, particularly in the construction and IT sectors. Contacts across a broad range of industries reported a shortage of qualified workers which had limited hiring. Wages continued to grow at a modest to moderate pace in most Districts, and many firms attributed these wage gains to tighter labor market conditions. Wage pressures generally trended with employment conditions, and rising wage pressures were noted among both low- and high-skilled positions. A few Districts also reported rising costs of benefits and variable pay.
emphasis added

And a few excerpts on real estate:

New York: Housing markets across the District have strengthened somewhat. Sales volume has picked up throughout the New York City area--particularly for moderately-priced, single-family homes in outlying areas. In contrast, sales activity has slowed a bit in parts of upstate New York, restrained by a lack of homes on the market.

A real estate contact in upstate New York State reported continued escalation in home prices, with homes in more sought-after areas often selling for above the list price. ...

San Franciso:

by Calculated Risk on 7/12/2017 09:09:00 AM

Excerpts from prepared statement from Fed Chair Janet Yellen: Semiannual Monetary Policy Report to the Congress

The Committee continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and stable prices. That expectation is based on our view that the federal funds rate remains somewhat below its neutral level--that is, the level of the federal funds rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel. Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance. But because we also anticipate that the factors that are currently holding down the neutral rate will diminish somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2 percent goal. Even so, the Committee continues to anticipate that the longer-run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades.
emphasis added

And on the balance sheet:

Let me now turn to our balance sheet. Last month the FOMC augmented its Policy Normalization Principles and Plans by providing additional details on the process that we will follow in normalizing the size of our balance sheet. The Committee intends to gradually reduce the Federal Reserve's securities holdings by decreasing its reinvestment of the principal payments it receives from the securities held in the System Open Market Account. Specifically, such payments will be reinvested only to the extent that they exceed gradually rising caps. Initially, these caps will be set at relatively low levels to limit the volume of securities that private investors will have to absorb. The Committee currently expects that, provided the economy evolves broadly as anticipated, it will likely begin to implement the program this year.

by Calculated Risk on 7/12/2017 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 7.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 7, 2017. This week’s results include an adjustment for the Fourth of July holiday.

... The Refinance Index decreased 13 percent from the previous week to the lowest level since January 2017. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 22 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) increased to its highest level since May 2017, 4.20 percent, from 4.13 percent, with points decreasing to 0.31 from 0.32 (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 is near the low in January, and will not pick up significantly unless mortgage rates fall well below 4%.


The second graph shows the MBA mortgage purchase index.

According to the MBA, purchase activity is up 3% year-over-year.

by Calculated Risk on 7/11/2017 09:47:00 PM

Wednesday:
• At 7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 10:00 AM, Testimony from Fed Chair Janet L. Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 7/11/2017 06:27:00 PM

This is a key housing market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in June were up 6.5% year-over-year.

2) Active inventory is now down 10.2% year-over-year. 

More inventory (a theme in most of 2014) - and less investor buying - suggested price increases would slow sharply in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

In 2015, with falling inventory, prices increased a little faster.  Prices were up 6.3% in 2015 according to Case-Shiller.

With flat inventory in 2016, prices were up 4.8%.

This is the eighth consecutive month with a YoY decrease in inventory, and prices are rising a little faster this year (2.2% through April or 6.7% annual rate).

June Residential Sales and Inventory, Greater Phoenix Area, ARMLS
	Sales	YoY Change Sales	Cash Sales	Percent Cash	Active Inventory	YoY Change Inventory
June 2008	5,748	---	1,093	19.0%	53,8262	---
June 2009	9,325	62.2%	3,443	36.9%	38,358	---2
June 2010	9,278	-0.5%	3,498	37.7%	41,869	9.2%
June 2011	11,134	20.0%	5,001	44.9%	29,203	-30.3%
June 2012	9,133	-18.0%	4,272	46.8%	19,857	-32.0%
June 2013	8,150	-10.8%	3,055	37.5%	19,541	-1.6%
June 2014	7,239	-11.2%	1,854	25.6%	27,954	43.1%
June 2015	8,273	20.5%	2,005	23.0%	23,377	-16.4%
June 2016	8,986	8.6%	1,875	20.9%	24,898	6.5%
June 2017	9,571	6.5%	1,930	20.2%	22,358	-10.2%
1 June 2008 does not include manufactured homes, ~100 more 2 June 2008 Inventory includes pending