by Calculated Risk on 1/22/2018 11:54:00 AM

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 December were up 0.7% year-over-year (including homes, condos and manufactured homes).

2) Active inventory is now down 12.6% year-over-year. 

More inventory (a theme in most of 2014) - and less investor buying - suggested price increases would slow 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 fourteenth consecutive month with a YoY decrease in inventory, and prices are rising a little faster in 2017 (4.9% through October or 5.9% annual rate).

December Residential Sales and Inventory, Greater Phoenix Area, ARMLS
	Sales	YoY Change Sales	Cash Sales	Percent Cash	Active Inventory	YoY Change Inventory
Dec-08	5,524	---	1,665	30.1%	53,7921	---
Dec-09	7,661	38.7%	3,008	39.3%	39,709	-26.2%1
Dec-10	8,401	9.7%	3,939	46.9%	42,463	6.9%
Dec-11	7,843	-6.6%	3,635	46.3%	24,712	-41.8%
Dec-12	7,071	-9.8%	3,211	45.4%	21,095	-14.6%
Dec-13	5,930	-16.1%	2,053	34.6%	25,511	20.9%
Dec-14	6,475	9.2%	1,893	29.2%	25,052	-1.8%
Dec-15	6,756	4.3%	1,617	23.9%	23,053	-8.0%
Dec-16	7,154	5.9%	1,655	23.1%	22,388	-2.9%
Dec-17	7,204	0.7%	1,626	22.6%	19,570	-12.6%
1 December 2008 probably includes pending listings

by Calculated Risk on 1/22/2018 09:53:00 AM

From the Chicago Fed: Index Points to a Pickup in Economic Growth in December

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) moved up to +0.27 in December from +0.11 in November. Two of the four broad categories of indicators that make up the index increased from November, and three of the four categories made positive contributions to the index in December. The index’s three-month moving average, CFNAI-MA3, ticked down to +0.42 in December from +0.43 in November.
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 above the historical trend in December (using the three-month average).

According to the Chicago Fed:

The index is a weighted average of 85 indicators of growth in 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 monthly index has been associated with the national economy expanding at its historical trend (average) rate of growth; negative values with below-average growth (in standard deviation units); and positive values with above-average growth.

by Calculated Risk on 1/21/2018 08:58:00 PM

We might see a short term continuing resolution tonight to end the government shutdown.

Weekend:
• Schedule for Week of Jan 21, 2018

Monday:
• At 8:30 AM ET, Chicago Fed National Activity Index for December. This is a composite index of other data.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 3, and DOW futures are down 50 (fair value).

Oil prices were up over the last week with WTI futures at $63.47 per barrel and Brent at $68.70 per barrel.  A year ago, WTI was at $52, and Brent was at $54 - so oil prices are up solidly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.53 per gallon. A year ago prices were at $2.31 per gallon - so gasoline prices are up 22 cents per gallon year-over-year.

by Calculated Risk on 1/21/2018 12:11:00 PM

If the shutdown doesn't end quickly, several agencies will probably not release regular government reports. For the coming week, the December new home sales, the durable goods, and advance Q4 GDP reports will probably be delayed.

If the shutdown continues, the following week the January employment report will be delayed (fortunately the data has already been gathered).

Private data - like the existing home sales report this week - will still be released. All Federal Reserve data will continue to be released (separate funding).

Also, the DOL will continue to process unemployment claims and release the weekly initial unemployment claims report.

If the shutdown lasts through this week, we should a spike in claims in the report released the following week.

The following graph shows the 4-week moving average of weekly claims since January 2000 with various event driven spikes labeled.

Click on graph for larger image.

Note the spike related to the 2013 government shutdown. Weekly claims jumped 66,000 in the week following the shutdown in 2013. We will probably see a similar spike in the report released the week of January 28th (if the shutdown does not end quickly).

Another impact from the shutdown will be on mortgage lending.

In 2013, the IRS stopped processing 4506-T forms (the required two years of tax returns for mortgage lending). For loans ready to close, this will not be a problem. And lenders can still accept applications, but this could slow closings a few weeks depending on the duration of the shutdown.

There are many other impacts from the shutdown, and hopefully it will be resolved soon.

by Calculated Risk on 1/20/2018 08:09:00 AM

Note: If the government is shut down, some of these releases will probably be delayed (Q4 GDP, New Home sales, etc.) 

The key economic reports this week are the advance estimate of Q4 GDP, and December new home sales and existing home sales.

For manufacturing, the January Richmond Fed and Kansas City Fed manufacturing surveys will be released this week.

----- Monday, Jan 22nd -----
8:30 AM ET: Chicago Fed National Activity Index for December. This is a composite index of other data.

----- Tuesday, Jan 23rd-----
10:00 AM ET: Richmond Fed Survey of Manufacturing Activity for January.

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

----- Wednesday, Jan 24th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

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

10:00 AM: Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for 5.75 million SAAR, down from 5.81 million in November.

The graph shows existing home sales from 1994 through the report last month.

Housing economist Tom Lawler expects the NAR to report sales of 5.66 million SAAR for December.

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

----- Thursday, Jan 25th -----
8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 240 thousand initial claims, up from 220 thousand the previous week.

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

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

The consensus is for 683 thousand SAAR, down from 733 thousand in November.

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

----- Friday, Jan 26th -----
8:30 AM: Gross Domestic Product, 4th quarter 2017 (Advance estimate). The consensus is that real GDP increased 2.9% annualized in Q4, down from 3.2% in Q3.

8:30 AM: Durable Goods Orders for November from the Census Bureau. The consensus is for a 0.8% increase in durable goods orders.

by Calculated Risk on 1/19/2018 04:15:00 PM

From housing economist Tom Lawler:

Based on publicly-available state and local realtor/MLS reports from across the country released through today, I predict that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.66 million in December, down 2.6% from November’s preliminary pace and up 2.7% from last month’s seasonally adjusted pace. Unadjusted sales last month should be down slightly from a year ago, with the “SA/NSA” gap reflecting this year’s lower business day count compared to last year’s.

On the inventory front, realtor/MLS data suggest that inventories in December were down YOY by about a little more than was the case in November, and my “best guess” is that the NAR’s inventory estimate for December will be 1.48 million, down 11.4% from November’s estimate and down 10.3% from last December.

Finally, realtor/MLS data suggest the the NAR’s estimate for the median existing home sales price in November will be up by about 6.5% from last December.

CR Note: Existing home sales for December are scheduled to be released on Wednesday, January 24th. The consensus is for sales of 5.68 million SAAR.

by Calculated Risk on 1/19/2018 12:46:00 PM

In previous shutdowns, Government data from the BLS, BEA and Census Bureau were delayed. Data from the Federal Reserve was released on time.

As an example, if the government shuts down, I expect New Home sales, durable goods and Q4 GDP to all be delayed next week. Unemployment claims will probably be released on time (and increase the following week due to the shutdown).

The following week, the key report that will probably be delayed is the employment report for January.

In addition, any shutdown will be expensive and impact Q1 GDP. From Goldman Sachs:

A shutdown would have a modest economic impact, provided it does not last very long. We estimate that each week of shutdown would reduce real GDP growth in Q1 by 0.2pp, qoq annualized. The effects would be reversed the next quarter however.

Hopefully the shutdown will be avoided.

by Calculated Risk on 1/19/2018 11:57:00 AM

Note: This is a repeat of a June post with updated statistics and graph.

There are a number of observers who think the stock market is the key barometer of policy success.  My view is there are many measures of success - and that the economy needs to work well for a majority of the people - not just stock investors.

However, for example, Treasury Secretary Steven Mnuchin was on CNBC on Feb 22, 2017, and was asked if the stock market rally was a vote of confidence in the new administration, he replied: "Absolutely, this is a mark-to-market business, and you see what the market thinks."

And Larry Kudlow wrote in 2007: A Stock Market Vote of Confidence for Bush: "I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today's stock market message is an unmistakable vote of confidence for the president."

Note: Kudlow's comments were made a few months before the market started selling off in the Great Recession. For more on Kudlow, see: Larry Kudlow is usually wrong

For fun, here is a graph comparing S&P500 returns (ex-dividends) under Presidents Trump and Obama:

Click on graph for larger image.

Blue is for Mr. Obama, Orange is for Mr. Trump.

At this point, the S&P500 is up 23.2% under Mr. Trump compared to up 41.1% under Mr. Obama for the same number of market days.

by Calculated Risk on 1/19/2018 09:49:00 AM

A few excerpts from an article by Merrill Lynch economist Joseph Song: Are the stars aligning for wage growth?

One of the puzzles and disappointments of 2017 was the lack of better wage growth. Average hourly earnings started the year growing around 2.5% yoy but ended the year where it started, despite the unemployment rate falling 0.6pp over the course of the year. While we have yet to receive the 4Q reading for ECI, the same story played out through the first three quarters.

There is growing optimism that 2018 will tell a different story. With the passage of the Tax Cuts and Jobs Act, major corporations are doling out one-time bonus checks and announcing pay raises for many of its hourly workers. Plus, some minimum wage workers will see a bigger paycheck as several states and local municipalities raised their minimum wage laws on January 1st. We argue that these factors will underpin wage growth at the start of the year. Thereafter, we should expect a continued gradual trend higher in wage growth as the unemployment rate falls further.
...
Wage increases by companies and higher state and local minimum wages should provide a slight bump to wage growth in the next few months. ... Once the initial boost to wage growth fades, we think the trajectory for wage growth should be a function of the degree of tightening in the labor market. The descent in the unemployment rate should be able to boost wages to a high-2% pace by year-end and to 3% by the middle of 2019.

CR note: Mostly due to the tightening labor market, I'm also expecting to see more wage growth this year.

by Calculated Risk on 1/18/2018 05:21:00 PM

From Matthew Graham at Mortgage News Daily: Be Careful With News on Mortgage Rates Today

Rates spiked more than normal yesterday and then repeated the feat today. Combine that with weakness in underlying bond markets (which drive mortgage rates) that began on Tuesday afternoon, and the average lender is roughly an eighth of a percentage point higher in rate today. Freddie's headline of 4.04% is the stuff of dreams as far as most borrowers are concerned. While rates near 4.0% are available in some of the best cases, the average top-tier quote is now easily 4.125% and many lenders are up to 4.25%. If you're not putting 20% down or have less than perfect qualifications, it would be even higher. [30YR FIXED - 4.125%-4.25%]

Like yesterday, these are the highest rates in more than 9 months.
emphasis added

Friday:
• At 10:00 AM ET, University of Michigan's Consumer sentiment index (Preliminary for January). The consensus is for a reading of 97.0, up from 95.9.