by Calculated Risk on 1/10/2018 07:32:00 PM

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 250 thousand the previous week.

• Also at 8:30 AM, The Producer Price Index for December from the BLS. The consensus is a 0.2% increase in PPI, and a 0.2% increase in core PPI.

by Calculated Risk on 1/10/2018 03:35:00 PM

From Jordan Rappaport, Senior Economist at the Kansas City Fed: Pent-Up Demand and Continuing Price Increases: The Outlook for Housing in 2018 An excerpt on inventory:

The low rate of residential construction has been contributing to the tight supply of existing homes listed for sale. New construction provides liquidity to local housing markets, where households are often both buyers and sellers. With fewer new homes from which to choose, many homeowners considering upgrading have instead chosen to remain in their current homes and so have not listed them for sale. As a result, the number of existing homes for sale has decreased as well, dissuading other homeowners from upgrading and further dampening sales listings. This “vicious circle” has limited the efficacy of rising sales prices in eliciting more listings. Since early 2015, the number of single-family homes listed for sale has steadily declined (Chart 2, blue line). Correspondingly, the ratio of listed homes to monthly sales, also known as “months supply,” fell to 3.8 in November, its lowest value since 1982, the earliest date for which data are available (green line).

Click on graph for larger image.

Limited new construction and sales listings of low-end single-family homes have similarly dissuaded many younger households from leaving their apartments to purchase homes, thereby depressing the number of vacant apartments available for potential new households.

There is much more in the Fed article.

CR Note: Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. In 2015, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we have seen a surge in home improvement spending, and this is also limiting supply.

by Calculated Risk on 1/10/2018 12:18:00 PM

Heavy truck sales increased 3% in 2017 compared to 2016, and heavy truck sales were up 18% year-over-year in December.

First, here is a table of heavy truck sales since 2000 (source: BEA).

Note that sales peaked during the housing bubble, and really collapsed during the great recession. The decline in 2016 was probably related to oil prices.

Heavy Truck Sales (000s)
Year	Sales
2000	461.9
2001	350.1
2002	322.4
2003	328.4
2004	431.6
2005	496.5
2006	544.4
2007	371.1
2008	298.5
2009	199.8
2010	217.6
2011	306.6
2012	346.3
2013	352.6
2014	407.7
2015	449.3
2016	401.0
2017	412.5

Click on graph for larger image.

This graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the December 2017 seasonally adjusted annual sales rate (SAAR).

Heavy truck sales really collapsed during the great recession, falling to a low of 181 thousand in April and May 2009, on a seasonally adjusted annual rate basis (SAAR).

Truck sales softened with the decline in oil prices, however with the increase in oil prices over the last year, heavy truck sales increased too.

Heavy truck sales were at 447 thousand SAAR in December 2017, down slightly from 451 thousand in November, and up from 379 thousand in December 2016.  With solid construction and rising oil prices, heavy truck sales will probably increase in 2018.

by Calculated Risk on 1/10/2018 10:09:00 AM

Way back in 2006 I disagreed with some analysts on the outlook for the Inland Empire in California. I wrote:

As the housing bubble unwinds, housing related employment will fall; and fall dramatically in areas like the Inland Empire. The more an area is dependent on housing, the larger the negative impact on the local economy will be.

So I think some pundits have it backwards: Instead of a strong local economy keeping housing afloat, I think the bursting housing bubble will significantly impact housing dependent local economies.

And sure enough, the economies of housing dependent areas like the Inland Empire were devastated during the housing bust. The good news is the Inland Empire is expanding solidly now.

Click on graph for larger image.

This graph shows the unemployment rate for the Inland Empire (using MSA: Riverside, San Bernardino, Ontario), and also the number of construction jobs as a percent of total employment.

The unemployment rate is falling, and is down to 4.1% (down from 14.4% in 2010). And construction employment is up from the lows (as a percent of total employment), but still well below the bubble years.

So the unemployment rate has fallen to a record low, but the economy isn't as heavily depending on construction. Overall the Inland Empire economy is in much better shape today.

The second graph shows the number of construction jobs as a percent of total employment for the Inland Empire, all of California, and the entire U.S..

Clearly the Inland Empire is more dependent on construction than most areas. Construction has picked up as a percent of total employment, but the economy in California and the U.S. is not as dependent on construction as during the bubble years.

by Calculated Risk on 1/10/2018 07:00:00 AM

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

Mortgage applications increased 8.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 5, 2018. This week’s results included an adjustment for the New Year’s holiday. Results for the previous week ending 12/29/17 were revised.

... The Refinance Index increased 11 percent from the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 44 percent compared with the previous week and was 1 percent lower than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.23 percent from 4.22 percent, with points decreasing to 0.35 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 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 down 1% year-over-year.

by Calculated Risk on 1/09/2018 06:40:00 PM

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

Earlier from the National Federation of Independent Business (NFIB): Average Monthly Optimism Sets All-Time Record in 2017

The Index of Small Business Optimism lost 2.6 points in December, falling to 104.9, still one of the strongest readings in the 45-year history of the NFIB surveys. The highest reading of 108.0 was reached in July 1983, only slightly above November’s 107.5. The lowest reading of 79.7 occurred in April 1980. Two of the 10 Index components posted a gain, five declined, and three were unchanged. The decline left the Index historically strong and maintained a string of exceptional readings that started the day after the 2016 election results were announced. Following the election announcement, the Index rose from 95.0 (a below average reading) for October and pre-election November, to 102.0 in the November weeks after the election, and then to 105.0 in January. This surge in optimism has led to 2017 achieving the highest yearly average Index reading in the survey’s history. The average monthly Index for 2017 was 104.8. The previous record was 104.6, set in 2004.

Job creation was slow in the small-business sector as owners reported a seasonally adjusted average employment change per firm of 0.01 workers. Clearly, a lack of “qualified” workers is impeding the growth in employment. ... Nineteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up 1 point), second only to taxes. This is the top ranked problem for those in construction (30 percent) and manufacturing (27 percent).
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index decreased to 104.9 in December.

Note: Usually small business owners complain about taxes and regulations.  However, during the recession, "poor sales" was the top problem. Now labor shortages are moving to the top.

by Calculated Risk on 1/09/2018 05:13:00 PM

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 Ends Year on High Note

The Dodge Momentum Index grew 3.6% in December to 153.9 (2000=100) from the revised November reading of 148.6. 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. December’s increase was due to an 8.6% jump in the institutional component of the Momentum Index, while the commercial component eked out a 0.7% gain. For the full year 2017, the Momentum Index averaged 132.3, up 10.7% from the full year average for 2016, with similar improvement for the commercial sector (up 11.4%) and the institutional sector (up 9.7%). After retreating during the third quarter of 2017, the Momentum Index regained its upward track in the fourth quarter, which enabled December’s reading for the Momentum Index to be up 20.9% compared to the same month a year ago. The continued strengthening by the Momentum Index in 2017 suggests that nonresidential building construction activity will advance further during 2018.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 153.9 in December, up from 148.6 in November.

The index is up 21% year-over-year.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year". This suggests further growth in 2018.

by Calculated Risk on 1/09/2018 02:47:00 PM

The Fed's Household Debt Service ratio through Q3 2017 was released on today: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.

These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013.

The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income.

The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.

This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:

The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only an approximation of the debt service ratio faced by households. Nonetheless, this approximation is useful to the extent that, by using the same method and data series over time, it generates a time series that captures the important changes in the household debt service burden.

Click on graph for larger image.

The graph shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio increased in Q3, and has been moving up slowly from the recent record low.  Note: The financial obligation ratio (FOR) also increased in Q3.

The DSR for mortgages (blue) are near the low for the last 35 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

The consumer debt DSR (yellow) has been increasing for the last five years.

This data suggests aggregate household cash flow has improved significantly since the great recession, but has started to decline slightly recently.

by Calculated Risk on 1/09/2018 12:47:00 PM

This is a key distressed market to follow since Las Vegas saw the largest price decline, following the housing bubble, of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Even With Tight Housing Supply, 2017 Was a Strong Year for Local Home Sales; GLVAR Housing Statistics for December 2017

Despite a tight housing supply, the Greater Las Vegas Association of REALTORS® (GLVAR) reported today that 2017 was one of the best years on record for local home sales and that home prices continued to increase from the previous year.
...
By the end of December, GLVAR reported 3,827 single-family homes listed for sale without any sort of offer. That’s down 35.7 percent from one year ago. For condos and townhomes, the 656 properties listed without offers in December represented a 27.9 percent drop from one year ago.

The total number of existing local homes, condos and townhomes sold during December was 3,204. Compared to one year ago, December sales were down 3.5 percent for homes and down 14.8 percent for condos and townhomes.

According to GLVAR, the 46,598 total properties sold during 2017 make it the third best sales year on record and the best year for existing local home sales since 2011. The 2017 sales total exceeds the 41,720 such properties sold in 2016. Last year’s total ranks just below the 47,685 sales recorded in 2009 and the record of 48,798 existing local properties sold in 2011, when prices were bouncing along a post-recession bottom and investors were dominating the market.
...
GLVAR reported that 25.7 percent of all local properties sold in December were purchased with cash, compared to 28.7 percent one year ago. That’s less than half of the February 2013 peak of 59.5 percent, indicating that cash buyers and investors are still active, but playing a smaller role in the local housing market.

At the same time, the number of so-called distressed sales continues to decline. GLVAR said short sales and foreclosures combined accounted for 3.6 percent of all existing local home sales in December, compared to 11 percent of all sales one year ago.

“What a dramatic change from five or six years ago,” Bishop added. “Back then, foreclosures and short sales accounted for about three out of every four homes we sold here in Southern Nevada.”
emphasis added

1) Overall sales were down year-over-year.

2) Active inventory (single-family and condos) is down sharply from a year ago.

3) Fewer distressed sales.

by Calculated Risk on 1/09/2018 10:07:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings was little changed at 5.9 million on the last business day of November, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were little changed at 5.5 million and 5.2 million, respectively. Within separations, the quits rate was unchanged at 2.2 percent and the layoffs and discharges rate was little changed 1.1 percent. ...

The number of quits was little changed at 3.2 million in November. The quits rate was 2.2 percent. The number of quits was little changed for total private and increased for government.
emphasis added

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for November, the most recent employment report was for December.

Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings decreased in November to 5.879 million from 5.925 in October.

The number of job openings (yellow) are up 4.4% year-over-year.

Quits are up 3.1% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Job openings are mostly moving sideways at a high level, and quits are increasing year-over-year.  This is a solid report.