by Calculated Risk on 7/14/2020 08:50:00 PM

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

• At 8:30 AM, The New York Fed Empire State manufacturing survey for July. The consensus is for a reading of 7.9, up from -0.2.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for June. The consensus is for a 4.6% increase in Industrial Production, and for Capacity Utilization to increase to 68.1%.

• 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 7/14/2020 05:47:00 PM

The US is now conducting over 700,000 tests per day, and that might be enough to allow test-and-trace in some areas. Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections, so the US still needs to increase the number of tests per day significantly.

There were 760,282 test results reported over the last 24 hours.

There were 62,879 positive tests.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 8.3% (red line).

For the status of contact tracing by state, check out testandtrace.com.

by Calculated Risk on 7/14/2020 02:04:00 PM

From Dodge Data Analytics: Dodge Momentum Index Loses Ground in June

The Dodge Momentum Index dropped 6.6% in June to 121.5 (2000=100) from the revised May reading of 130.1. The Momentum Index, issued by Dodge Data & Analytics, 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. The institutional component of the Momentum Index fell 11.7% while the commercial component declined by 3.5%.

The Momentum Index has shifted noticeably lower as the fallout from recession continues to hold its grip on the construction sector. The overall Momentum Index fell 13% in the second quarter from the first three months of the year, with the commercial component 14% lower and the institutional component down 11%. While the recession has ended and recovery underway, the return from one of the steepest downturns in U.S. history will be slow and fraught with risk. This holds true for the construction sector as well. While projects continue to enter planning, the slower pace suggests that recovery in the construction sector will be modest in coming months.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 121.5 in June, down from 130.1 in May.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year".  This suggests a decline in Commercial Real Estate construction in 2020 and early 2021.

by Calculated Risk on 7/14/2020 12:08:00 PM

The BLS reported this morning:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.5 percent over the last 12 months to an index level of 251.054 (1982-84=100). For the month, the index rose 0.6 percent prior to seasonal adjustment.

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).

• In 2019, the Q3 average of CPI-W was 250.200.

The 2019 Q3 average was the highest Q3 average, so we only have to compare Q3 this year to last year.

Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

CPI-W was up 0.5% year-over-year in June, and although this is very early - we need the data for July, August and September - my current guess is COLA will probably be under 1% this year, the smallest increase since 2016.

Contribution and Benefit Base

The contribution base will be adjusted using the National Average Wage Index. This is based on a one year lag. The National Average Wage Index is not available for 2019 yet, but wages probably increased again in 2019. If wages increased the same as in 2018, then the contribution base next year will increase to around $142,700 in 2020, from the current $137,700.

The law - as currently written - prohibits an increase in the contribution and benefit base if COLA is not greater than zero (this is possible this year). However if the there is even a small increase in CPI-W, the contribution base will be adjusted using the National Average Wage Index.

Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).

by Calculated Risk on 7/14/2020 11:17:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% June. The 16% trimmed-mean Consumer Price Index rose 0.2% in June. "The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report".

Note: The Cleveland Fed released the median CPI details for June here. Motor fuel increased at a 290% annualized rate in June!

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.6%, the trimmed-mean CPI rose 2.3%, and the CPI less food and energy rose 1.2%. Core PCE is for May and increased 1.0% year-over-year.

Inflation will not be a concern during the crisis.

by Calculated Risk on 7/14/2020 08:32:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in June on a seasonally adjusted basis after falling 0.1 percent in May, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 0.6 percent before seasonal adjustment.

The gasoline index rose sharply in June after recent declines and accounted for over half of the monthly increase in the seasonally adjusted all items index. The energy index increased 5.1 percent in June as the gasoline index rose 12.3 percent. The food index also rose in June, increasing 0.6 percent as the index for food at home continued to rise.

The index for all items less food and energy rose 0.2 percent in June, its first monthly increase since February. The index for motor vehicle insurance increased sharply in June after recent declines. The indexes for apparel, shelter, and medical care also increased in June, while the indexes for used cars and trucks, recreation, and communication all declined.

The all items index increased 0.6 percent for the 12 months ending June; this compares to a 0.1-percent increase for the 12 months ending May. The index for all items less food and energy increased 1.2 percent over the last 12 months. The food index increased 4.5 percent over the last 12 months, with the index for food at home rising 5.6 percent. Despite increasing in June, the energy index fell 12.6 percent over the last 12 months.
emphasis added

Overall inflation was at expectations in June. I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.

by Calculated Risk on 7/13/2020 07:34:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Have Moved Up From Last Week's Lows

Mortgage rates definitely hit the lowest all-time lows of all-time last week, at least for conventional 30yr fixed scenarios without many risk-based adjustments. The most recently available Freddie Mac rate survey (which drives a majority of mortgage rate headlines) reported all-time lows as of last Thursday. Indeed, that was still true as of Thursday, but things have changed since then. ... Context is important here. We're not even talking about an eighth of a percentage point in interest on average (though some lenders/programs have moved by as much as .25%.) [Top Tier Scenarios 30YR FIXED - 2.93%]
emphasis added

Tuesday:
• At 6:00 AM ET, NFIB Small Business Optimism Index for June.

• At 8:30 AM, The Consumer Price Index for June from the BLS. The consensus is for a 0.6% increase in CPI, and a 0.1% increase in core CPI.

by Calculated Risk on 7/13/2020 05:49:00 PM

The US is now conducting over 600,000 tests per day, and that might be enough to allow test-and-trace in some areas. Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections, so the US still needs to increase the number of tests per day significantly.

There were 720,700 test results reported over the last 24 hours.

There were 58,357 positive tests.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 8.0% (red line).

For the status of contact tracing by state, check out testandtrace.com.

by Calculated Risk on 7/13/2020 04:00:00 PM

Note: To put these numbers in perspective, the MBA notes "For the week of March 2, only 0.25% of all loans were in forbearance."

From the MBA: Share of Mortgage Loans in Forbearance Decreases for Fourth Straight Week to 8.18%

The Mortgage Bankers Association’s (MBA) latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance decreased by 21 basis points from 8.39% of servicers’ portfolio volume in the prior week to 8.18% as of July 5, 2020. According to MBA’s estimate, 4.1 million homeowners are in forbearance plans.
...
“The share of loans in forbearance continues to decrease, as more workers are brought back from temporary layoffs. However, our survey reveals a notable shift in the location of many FHA and VA loans, which have been bought out of Ginnie Mae pools – predominantly by bank servicers – and moved onto bank balance sheets,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “As a result, there was a sharp drop in the share of Ginnie Mae loans in forbearance, and an offsetting increase in the share of portfolio loans in forbearance. These buyouts enable servicers to stop advancing principal and interest payments, and to work with borrowers in the hope that they can begin paying again before they are re-securitized into Ginnie Mae pools.”

Added Fratantoni, “Forty-three percent of loans in forbearance are now in an extension following their initial forbearance term, while more than 10 percent of borrowers entered into a deferral plan to exit forbearance – down from 16 percent the week prior. For those exiting forbearance over the next several months, we expect to see many of the borrowers with GSE loans to utilize the deferral option.”
emphasis added

Click on graph for larger image.

This graph shows the percent of portfolio in forbearance by investor type over time.  Most of the increase was in late March and early April.

The MBA notes: "Weekly forbearance requests as a percent of servicing portfolio volume (#) increased to 0.13 percent from 0.12 percent the previous week."

by Calculated Risk on 7/13/2020 11:05:00 AM

Note: I'll have more on LA area port traffic once the Port of Los Angeles releases June statistics.

From the Port of Long Beach: Cargo Declines at Port of Long Beach in June

The COVID-19 pandemic continued to drive down demand for goods in the second quarter of 2020, leading to an increase in canceled sailings and a decline in cargo containers shipped through the Port of Long Beach in June.

Dockworkers and terminal operators moved 602,180 twenty-foot equivalent units (TEUs) last month, an 11.1% decline compared to June 2019. Imports shrank 9.3% to 300,714 TEUs and exports dropped 12.2% to 117,538 TEUs. Empty containers shipped overseas to Asia were down 13.1% to 183,928 TEUs.

Economic uncertainty brought by decreased consumer spending and ongoing health concerns amid the COVID-19 epidemic contributed to a drop during the first half of 2020, with cargo shipments at 3,433,035 TEUs, 6.9% less than the same period last year.

“Canceled sailings continued to rise at a rapid rate in the second quarter as ocean carriers adjusted their voyages to a decline in demand for imports during the national COVID-19 outbreak,” said Mario Cordero, Executive Director of the Port of Long Beach. “The economic challenges may persist for some time, but the Port of Long Beach continues to invest in infrastructure projects that will meet the needs of our customers.”

The San Pedro Bay ports complex – Long Beach and L.A. combined – had 41 canceled sailings in the first half of 2019. This year it was 104 – 37 of which were destined for the Port of Long Beach.
emphasis added