by Calculated Risk on 10/21/2020 02:15:00 PM

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of St. Louis based on information collected on or before October 9, 2020."

Economic activity continued to increase across all Districts, with the pace of growth characterized as slight to modest in most Districts. Changes in activity varied greatly by sector. Manufacturing activity generally increased at a moderate pace. Residential housing markets continued to experience steady demand for new and existing homes, with activity constrained by low inventories. Banking contacts also cited increased demand for mortgages as the key driver of overall loan demand. Conversely, commercial real estate conditions continued to deteriorate in many Districts, with the exception being warehouse and industrial space where construction and leasing activity remained steady. Consumer spending growth remained positive, but some Districts reported a leveling off of retail sales and a slight uptick in tourism activity. Demand for autos remained steady, but low inventories have constrained sales to varying degrees. Reports on agriculture conditions were mixed, as some Districts are experiencing drought conditions. Districts characterized the outlooks of contacts as generally optimistic or positive, but with a considerable degree of uncertainty. Restaurateurs in many Districts expressed concern that cooler weather would slow sales, as they have relied on outdoor dining. Banking contacts in many Districts expressed concern that delinquency rates may rise in coming months, citing various reasons; however, delinquency rates have remained stable.
...
Employment increased in almost all Districts, though growth remained slow. Employment gains were reported most consistently for manufacturing firms, although firms continued to report new furloughs and layoffs. Most Districts continued reporting tight labor markets, attributing it to workers' health and childcare concerns, with many firms consequently offering increased schedule flexibility; a few Districts, however, noted some firms were finding it easier to hire workers. Wages increased slightly in most Districts, often tied to firms' difficulty finding workers, especially for low-wage or high-demand jobs. Some firms reported returning wages (and raises) to normal levels, but many reported more stable wages.
emphasis added

CR Note: This suggests economic growth has slowed recently.

by Calculated Risk on 10/21/2020 12:44:00 PM

Note: The expansion to the Panama Canal was completed in 2016 (As I noted a few years ago), and some of the traffic that used the ports of Los Angeles and Long Beach is probably going through the canal. This might be impacting TEUs on the West Coast.

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 1.5% in September compared to the rolling 12 months ending in August.   Outbound traffic was down 0.4% compared to the rolling 12 months ending the previous month.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March depending on the timing of the Chinese New Year.

Imports were up 16% YoY in September, and exports were down 4% YoY.

by Calculated Risk on 10/21/2020 10:33:00 AM

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

From the AIA: Architectural billings slowdown moderated in September

A slight improvement in business conditions has led to fewer architecture firms reporting declining billings, according to a new report today from The American Institute of Architects (AIA).

AIA’s ABI score for September was 47.0 compared to 40.0 in August (any score below 50 indicates a decline in firm billings). Last month’s score indicates overall revenue at U.S architecture firms continued to decline from August to September, however, the pace of decline slowed significantly. Inquiries into new projects during September grew for the second time since February, with a score of 57.2 compared to 51.6 in August. The value of new design contracts moderated to a score of 48.9 in September from 46.0 the previous month.

“Despite the multi-family residential sector showing signs of improvement, overall business conditions are recovering at a disappointingly slow pace,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Other sectors may begin to stabilize in the coming months, but across the board improvement shouldn’t be expected until the economic impact of the pandemic subsides significantly.”
...
• Regional averages: Midwest (45.6); West (45.6); South (43.7); Northeast (41.5)

• Sector index breakdown: multi-family residential (54.0); mixed practice (47.3); commercial/industrial (43.3); institutional (40.5)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 47.0 in September, up from 40.0 in August. Anything below 50 indicates contraction 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.

This index has been below 50 for seven consecutive months.  This represents a significant decrease in design services, and suggests a decline in CRE investment through the first half of 2021 (This usually leads CRE investment by 9 to 12 months).

This weakness is not surprising since certain segments of CRE are struggling, especially offices and retail.

by Calculated Risk on 10/21/2020 07:00:00 AM

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

Mortgage applications decreased 0.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 16, 2020.

... The Refinance Index increased 0.2 percent from the previous week and was 74 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 26 percent higher than the same week one year ago.

“Mortgage rates increased last week, with the 30-year fixed rate climbing 2 basis points to 3.02 percent – the highest since late September. Despite the uptick in rates, refinance activity held steady, with FHA refinance applications posting a 17.6 percent increase, helping to offset declines in the other loan types,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Homebuyer demand remains strong this fall, but purchase applications did decrease 2 percent, with both conventional and government purchase activity taking a step back. Given the ongoing housing market recovery and low rate environment, both purchase and refinance applications remained robust compared to a year ago, rising 26 percent and 74 percent, respectively.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.02 percent from 3.00 percent, with points increasing to 0.36 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.

The refinance index has been very volatile recently depending on rates and liquidity.

But with record low rates, the index remains up significantly from last year.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 26% year-over-year unadjusted.

Note: Red is a four-week average (blue is weekly).

by Calculated Risk on 10/20/2020 09:00:00 PM

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

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

• 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 10/20/2020 06:44:00 PM

The US is now mostly reporting 700 thousand to 1 million tests per day. Based on the experience of other countries, the percent positive needs to be well under 5% to really push down new infections (probably close to 1%), so the US still needs to increase the number of tests per day significantly (or take actions to push down the number of new infections).

There were 814,179 test results reported over the last 24 hours.

There were 60,582 positive tests.

Over 13,700 Americans deaths from COVID have been reported in October. See the graph on US Daily Deaths here.

Click on graph for larger image.

This data is from the COVID Tracking Project.

The percent positive over the last 24 hours was 7.4% (red line is 7 day average).

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

And check out COVID Exit Strategy to see how each state is doing.

The second graph shows the 7 day average of positive tests reported.

The dashed line is the July high.

Note that there were very few tests available in March and April, and many cases were missed (the percent positive was very high - see first graph). By June, the percent positive had dropped below 5%.

Everyone needs to be vigilant or we might see record high 7-day average cases before the end of October.

by Calculated Risk on 10/20/2020 04:08:00 PM

Josh Lehner, at the Oregon Office of Economic Analysis, has an interesting post today: COVID’s Impact on State and Local Governments

This started with a seemingly basic question: “Why is public sector employment down so much this year?” The normal pattern we see is that the public sector is more of a stabilizing force in the economy. Job losses and budget cuts come with a delay as it usually takes time for lower levels of economic activity to translate into fewer tax collections. Those impacts usually hit the budget the fiscal year after the recession starts. However, so far in 2020 local governments have shed nearly as many jobs as the private sector. Both the size of the losses and swiftness with which they came is highly unusual.

Click on graph for larger image.

After digging into the data it is quite clear that the local government job losses are not a result of your standard budget cuts. That traditional recessionary dynamic is likely to come, but will hit next year, not this. The losses today are directly related to the pandemic and social distancing ...

In terms of higher education, the impacts of the pandemic, social distancing, and online schooling are clear. ... Besides education, the public sector does a lot of things. Employment here is down largely due to zoos, convention centers, recreation facilities, public pools, libraries and the like being limited during the pandemic. The losses in public administration are relatively small to date.

All of that said, there is still the traditional recessionary dynamic at play. Those impacts will largely come next year, not this.
emphasis added

Without fiscal relief from the Federal Government, we will probably see significant state and local government layoffs next year. There is much more in the post.

by Calculated Risk on 10/20/2020 12:57:00 PM

The Arizona Regional Multiple Listing Service (ARMLS) reports ("Stats Report"):

1) Overall sales were at 9,305 in September, up from 8,878 in August, and up from 7,850 in September 2019. Sales were up 4.8% from August 2020 (last month), and up 18.5% from September 2019.

2) Active inventory was at 8,400, down from 13,936 in September 2019. That is down 40% year-over-year.

3) Months of supply decreased to 1.48 in September, down from 1.52 in August. This is very low.

Sales are reported at the close of escrow, so these sales were mostly signed in July and August.

by Calculated Risk on 10/20/2020 11:01:00 AM

The CAR reported: California housing market outperforms expectations, breaking record high median price for fourth straight month, C.A.R. reports

California’s home-buying season extended further into September as home sales climbed to their highest level in more than a decade, and the median home price set another high for the fourth straight month, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 489,590 units in September, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2020 if sales maintained the September pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

September’s sales total climbed above the 400,000 level for the third straight month since the COVID-19 crisis depressed the housing market earlier this year and was the highest sales level recorded since February 2009. September sales rose 5.2 percent from 465,400 in August and were up 21.2 percent from a year ago, when 404,030 homes were sold on an annualized basis.
...
For-sale properties continued to be added to the market at a pace slower than normal, and housing supply remained significantly below last year’s level. The year-over-year decline of 48.4 percent in September was the fourth consecutive month with active listings falling more than 40 percent from the prior year.
emphasis added

CR Note: Existing home sales are reported when the transaction closes, so this was mostly for contracts signed in July and August. Sales-to-date, through September, are down 3.7% compared to the same period in 2019.

by Calculated Risk on 10/20/2020 10:51:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Unemployment rates were lower in September in 30 states, higher in 8 states, and stable in 12 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. All 50 states and the District had jobless rate increases from a year earlier. The national unemployment rate declined by 0.5 percentage point over the month to 7.9 percent but was 4.4 points higher than in September 2019.

Nonfarm payroll employment increased in 30 states, decreased in 3 states, and was essentially unchanged in 17 states and the District of Columbia in September 2020.
...
Hawaii had the highest unemployment rate in September, 15.1 percent, followed by Nevada, 12.6 percent. Nebraska had the lowest rate, 3.5 percent, followed by South Dakota, 4.1 percent, and Vermont, 4.2 percent.

Hawaii and Nevada are being impacted by the lack of tourism.