by Calculated Risk on 9/22/2021 02:11:00 PM

Statement here.

Fed Chair Powell press conference video here starting at 2:30 PM ET.

Here are the projections. In June, most participants expected around two rate hikes in 2023.  Now, about half of participants expect one rates hike in 2022.

Wall Street forecasts were for GDP to increase at a 8.6% annual rate in Q2 (came in at 6.6%) and forecasts for Q3 have been downgraded recently.  

So GDP was revised down for 2021.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2021	2022	2023	2024
Sept 2021	5.8 to 6.0	3.4 to 4.5	2.2 to 2.5	2.0 to 2.2
June 2021	6.8 to 7.3	2.8 to 3.8	2.0 to 2.5

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 5.2% in August.

Note that the unemployment rate doesn't capture the economic damage to the labor market.  Not only are there 2.7 million more people currently unemployed than prior to the pandemic, over 2.9 million people have left the labor force since February 2020.  And millions more were being supported by various provisions of the disaster relief acts.

The unemployment rate was revised up slightly for 2021.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2021	2022	2023	2024
Sept 2021	4.6 to 4.8	3.6 to 4.0	3.3 to 3.7	3.3 to 3.6
June 2021	4.4 to 4.8	3.5 to 4.0	3.2 to 3.8

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of July 2021, PCE inflation was up 4.2% from July 2020.

The projections for inflation were revised up and the FOMC sees inflation solidly above target in 2021.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2021	2022	2023	2024
Sept 2021	4.0 to 4.3	2.0 to 2.5	2.0 to 2.3	2.0 to 2.2
June 2021	3.1 to 3.5	1.9 to 2.3	2.0 to 2.2

PCE core inflation was up 3.6% in July year-over-year.

Projections for core inflation were revised up.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2021	2022	2023	2024
Sept 2021	3.6 to 3.8	2.0 to 2.5	2.0 to 2.3	2.0 to 2.2
June 2021	2.9 to 3.1	1.9 to 2.3	2.0 to 2.2

by Calculated Risk on 9/22/2021 02:04:00 PM

FOMC Statement:

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery. Inflation is elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy continues to depend on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals. If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.
emphasis added

by Calculated Risk on 9/22/2021 12:14:00 PM

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

From the AIA: Architecture billings continue to increase

The Architecture Billings Index (ABI) recorded its seventh consecutive positive month, according to a new report today from The American Institute of Architects (AIA).

The ABI score for August was 55.6, up from July’s score of 54.6. Any score above 50 indicates an increase in billings from the prior month. During August, scoring for both the new project inquiries and design contracts moderated slightly but remained in positive territory, posting scores of 64.7 and 56.6 respectively.

“The surge in design activity continued in August, signifying an expected upturn in construction activity in the fourth quarter and continuing into 2022,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “This expected expansion will magnify the already serious problems of price inflation and availability of many construction products and materials, as well as the emerging labor shortages in the industry.”
...
• Regional averages: West (57.2); Midwest (55.2); South (52.5); Northeast (51.7)

• Sector index breakdown: mixed practice (56.0); commercial/industrial (54.7); institutional (54.4); multi-family residential (54.3)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 55.6 in August, up from 54.6 in July. Anything above 50 indicates expansion 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 had been below 50 for eleven consecutive months, but has been solidly positive for the last seven months.  

The eleven months of decline represented a significant decrease in design services, and suggests a decline in CRE investment through most of 2021 (This index usually leads CRE investment by 9 to 12 months), however we might see a pickup in CRE investment towards the end of the 2021 and into 2022.

by Calculated Risk on 9/22/2021 10:40:00 AM

In the Newsletter I have additional comments on August existing home sales.

This was the first month this year with sales down year-over-year. This should continue through the rest of the year, since sales averaged 6.6 million SAAR over the last four months of 2020.

by Calculated Risk on 9/22/2021 10:11:00 AM

From the NAR: Existing-Home Sales Recede 2.0% in August

Existing-home sales retreated in August, breaking two straight months of increases, according to the National Association of Realtors®. Each of the four major U.S. regions experienced declines on both a month-over-month and a year-over-year perspective.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 2.0% from July to a seasonally adjusted annual rate of 5.88 million in August. Year-over-year, sales dropped 1.5% from a year ago (5.97 million in August 2020).
...
Total housing inventory at the end of August totaled 1.29 million units, down 1.5% from July's supply and down 13.4% from one year ago (1.49 million). Unsold inventory sits at a 2.6-month supply at the current sales pace, unchanged from July but down from 3.0 months in August 2020.
emphasis added

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in August (5.88 million SAAR) were down 2.0% from last month, and were 1.5% below the August 2020 sales rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 1.29 million in August from 1.31 million in July.

Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory was down 13.4% year-over-year in August compared to August 2020.

Months of supply was unchanged at 2.6 months in August from 2.6 months in July.

This was slightly above the consensus forecast. I'll have more later.

by Calculated Risk on 9/22/2021 07:00:00 AM

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

Mortgage applications increased 4.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 17, 2021. The previous week’s results included an adjustment for the Labor Day holiday.

... The Refinance Index increased 7 percent from the previous week and was 5 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index increased 12 percent compared with the previous week and was 13 percent lower than the same week one year ago.

“There was a resurgence in mortgage applications the week after Labor Day, with activity overall at its highest level in over a month, and purchase applications jumping to a high last seen in April 2021,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Housing demand is strong heading into the fall, despite fast-rising home prices and low inventory. The inventory situation is improving, with more new homes under construction and more homeowners listing their home for sale. Despite this week’s increase, purchase applications were still 13 percent lower than the same week a year ago.”

Added Kan, “Homeowners acted while rates remained low at 3.03 percent. This week’s refinance gain of 7 percent was driven heavily by an increase in FHA and VA applications.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) remained unchanged at 3.03 percent, with points decreasing to 0.30 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.

With low rates, the index remains elevated.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 13% year-over-year unadjusted.

Note: The year ago comparisons for the unadjusted purchase index are now difficult since purchase activity picked up in late May 2020.

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

by Calculated Risk on 9/21/2021 09:00:00 PM

Wednesday:
• 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 August (a leading indicator for commercial real estate).

• At 10:00 AM, Existing Home Sales for August from the National Association of Realtors (NAR). The consensus is for 5.81 million SAAR, down from 5.99 million in July.

• At 2:00 PM, FOMC Meeting Announcement. See FOMC Preview: Tapering "Advance Notice" Likely

• At 2:00 PM, FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

by Calculated Risk on 9/21/2021 05:23:00 PM

The CDC is the source for all data.

The 7-day average deaths is the highest since February 27th.

According to the CDC, on Vaccinations.  Total doses administered: 386,780,816, as of a week ago 381,453,265, or 0.76 million doses per day.

COVID Metrics
	Today	Week Ago	Goal
Percent fully Vaccinated	54.8%	54.0%	≥70.0%1
Fully Vaccinated (millions)	182.0	179.3	≥2321
New Cases per Day3	130,916	141,314	≤5,0002
Hospitalized3	83,998	91,810	≤3,0002
Deaths per Day3🚩	1,533	1,361	≤502
1 Minimum to achieve "herd immunity" (estimated between 70% and 85%). 2my goals to stop daily posts, 37 day average for Cases, Currently Hospitalized, and Deaths 🚩 Increasing 7 day average week-over-week for Cases, Hospitalized, and Deaths ✅ Goal met.

IMPORTANT: For "herd immunity" most experts believe we need 70% to 85% of the total population fully vaccinated (or already had COVID).  

KUDOS to the residents of the 12 states that have achieved 60% of total population fully vaccinated: Vermont at 69.0%, Massachusetts, Maine, Connecticut, Rhode Island, Maryland. New Jersey, Washington, New York, New Mexico, New Hampshire and Oregon at 60.0%.

The following 19 states and D.C. have between 50% and 59.9% fully vaccinated: Virginia at 59.8%, District of Columbia, Colorado, California, Minnesota, Hawaii, Delaware, Pennsylvania, Wisconsin, Florida, Nebraska, Iowa, Illinois, Michigan, South Dakota, Kentucky, Arizona, Kansas and Texas, and Nevada at 50.0%.

Next up (total population, fully vaccinated according to CDC) are Utah at 49.8%, Ohio at 49.7%, Alaska at 49.3%, North Carolina 48.8% and Montana at 47.9%.

Click on graph for larger image.

This graph shows the daily (columns) and 7 day average (line) of positive tests reported.

by Calculated Risk on 9/21/2021 03:22:00 PM

Here is an initial look at the prime age (25 to 54) participation rate.

The first graph shows the prime age participation rate since 1948.

Click on graph for larger image.

There are two clear long term trends:

1. The participation rate for prime age women increased significantly from around 34% in the '40s to around 77% in 2000 (and then started declining).

2. The participation rate for prime age men has gradually been decreasing, from close to 97% in the '40s to around 88% in 2014.

The second graphs show the trend since 2010.

The participation rate for both men and women appears to have bottomed around 2014, and then were impacted significantly by the pandemic in 2020.

Currently the participation rate for prime age women is 75.4%, and 88.4% for prime age men.

Some of increase in the second half of the last decade was probably due to a large cohort aging out of the "prime age".   Even in the prime age (25 to 54), different cohorts have different participation rates, with the group in the 50 to 54 having the lowest participation rate.    I'll look at an age adjusted graph soon.

by Calculated Risk on 9/21/2021 11:24:00 AM

In the Newsletter I have additional comments on August housing starts

Currently there are also 702 thousand multi-family units under construction. This is the highest level since 1974! For multi-family, construction delays are a factor. The completion of these units should help with rent pressure.