by Calculated Risk on 8/05/2014 10:07:00 AM

The July ISM Non-manufacturing index was at 58.7%, up from 56.0% in June. The employment index increased in July to 56.0%, up from 54.4% in June. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: July 2014 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in July for the 54th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 58.7 percent in July, 2.7 percentage points higher than the June reading of 56 percent. This represents continued growth in the Non-Manufacturing sector. This month's NMI® is the highest reading for the index since its inception in January 2008. The Non-Manufacturing Business Activity Index increased to 62.4 percent, which is 4.9 percentage points higher than the June reading of 57.5 percent, reflecting growth for the 60th consecutive month at a faster rate. This is the highest reading for the index since February 2011 when the index registered 63.3 percent. The New Orders Index registered 64.9 percent, 3.7 percentage points higher than the reading of 61.2 percent registered in June. This represents the highest reading for the New Orders Index since August 2005 when it registered 65.3 percent. The Employment Index increased 1.6 percentage points to 56 percent from the June reading of 54.4 percent and indicates growth for the fifth consecutive month. The Prices Index decreased 0.3 percentage point from the June reading of 61.2 percent to 60.9 percent, indicating prices increased at a slightly slower rate in July when compared to June. According to the NMI®, 16 non-manufacturing industries reported growth in July. Respondents' comments indicate that stabilization and/or improving market conditions have positively affected the majority of the respective industries and businesses."
emphasis added

Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was solidly above the consensus forecast of 56.5% and suggests faster expansion in July than in June.

The NMI was at the highest level since its inception.  New orders was very strong - and employment was up solidly.

by Calculated Risk on 8/05/2014 09:41:00 AM

Notes: This CoreLogic House Price Index report is for June. The recent Case-Shiller index release was for May. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic Reports Home Prices Rose by 7.5 Percent Year Over Year in June

Home prices nationwide, including distressed sales, increased 7.5 percent in June 2014 compared to June 2013. This change represents 28 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased 1.0 percent in June 2014 compared to May 2014.
...
Excluding distressed sales, home prices nationally increased 6.9 percent in June 2014 compared to June 2013 and 0.9 percent month over month compared to May 2014. Also excluding distressed sales, all 50 states and the District of Columbia showed year-over-year home price appreciation in June. Distressed sales include short sales and real estate owned (REO) transactions.

“Home price appreciation continued moderating in June with its slight month-over-month increase,” said Mark Fleming, chief economist for CoreLogic. “This reversion to normality that we are finally experiencing is expected to continue across the country and should further alleviate concern over diminishing affordability and the risk of another asset bubble.”
emphasis added

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 1.0 in June, and is up 7.5% over the last year.

This index is not seasonally adjusted, so a solid month-to-month gain was expected for June.


The second graph is from CoreLogic. The year-over-year comparison has been positive for twenty eight consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

However this was the smallest year-over-year gain since late 2012, and I expect the year-over-year increases to continue to slow.

by Calculated Risk on 8/04/2014 08:52:00 PM

First a note on housing inventory and more ...

I think it is a positive that existing home inventory is increasing. Sometimes rising inventory is a sign of trouble (I was pointing to increasing inventory in 2005 as a sign that the bubble was ending), but now inventory is so low that an increase is probably a positive.

This increase in inventory will also slow house price increases - the recent rate of increase in some areas was unsustainable - and getting inventory back to normal levels is another step towards a healthier market.

Also - another step towards normal is the continuing decline in the number of properties in foreclosure and the downward trend for mortgage delinquencies.   (See Black Knight releases Mortgage Monitor for June that was released this morning for details).

And it even appears, according to the Fed Senior Loan Officer survey that lending standards might be easing a little (too loose is bad, but that isn't the problem right now).  

Tuesday:
• At 10:00 AM, the ISM non-Manufacturing Index for July. The consensus is for a reading of 56.5, up from 56.0 in June. Note: Above 50 indicates expansion.

• Also at 10:00 AM, the Manufacturers' Shipments, Inventories and Orders (Factory Orders) for June. The consensus is for a 0.6% increase in June orders.

by Calculated Risk on 8/04/2014 05:23:00 PM

Here is another weekly update on housing inventory ...

There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer.

The Realtor (NAR) data is monthly and released with a lag (the most recent data released was for June and indicated inventory was up 6.5% year-over-year).  

Fortunately Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data, for 54 metro areas, for the last several years.

Click on graph for larger image.

This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.

In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays.  

Inventory in 2014 (Red) is now 13.6% above the same week in 2013.  (Note: There might be an issue with the Housing Tracker data over the last few weeks - Ben is checking - but inventory is still up significantly).

Inventory is also about 2.4% above the same week in 2012.  According to several of the house price indexes, house prices bottomed in early 2012, and low inventories were a key reason for the subsequent price increases.  Now that inventory is back above 2012 levels, I expect house price increases to slow (and possibly decline in some areas).

Note: One of the key questions for 2014 will be: How much will inventory increase?  My guess was inventory would be up 10% to 15% year-over-year at the end of 2014 based on the NAR report.  Right now it looks like inventory might increase more than I expected.

by Calculated Risk on 8/04/2014 02:00:00 PM

From the Federal Reserve: The July 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices

The July survey results showed a continued easing of lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand. Domestic banks generally continued to ease their lending standards and various terms for commercial and industrial (C&I) loans. In contrast, foreign banks reported little change in standards and in most of the surveyed terms for C&I loans on net. Domestic respondents, meanwhile, also reported having eased standards on most types of commercial real estate (CRE) loans on balance. Although many banks reported having eased standards for prime residential real estate (RRE) loans, respondents generally indicated little change in standards and terms for other types of loans to households. However, a few large banks had eased standards, increased credit limits, and reduced the minimum required credit score for credit card loans. Banks also reported having experienced stronger demand over the past three months, on net, for many more loan categories than on the April survey.
emphasis added

Click on graph for larger image.

Here are some charts from the Fed.

This graph shows the change in lending standards and for CRE (commercial real estate) loans.

Banks are loosening their standards for CRE loans, and for various categories of CRE (right half of graph).

The second graph shows the change in demand for CRE loans.

Banks are seeing a solid pickup in demand for all categories of CRE.

This suggests (along with the Architecture Billing Index) that we will see an increase in commercial real estate development.

by Calculated Risk on 8/04/2014 01:03:00 PM

A few excerpts from some analysis by Goldman's Hui Shan: "Are investors getting too pessimistic about US housing"

This month’s housing data showed weakness in both price and activity measures. On the price side, market consensus expected 0.3% month-over-month growth in the S&P Case-Shiller 20-City Composite. The actual print was -0.3%, the first decline since January 2012 when house prices bottomed. ...

In our previous research, we showed that seasonal adjustments have become a tricky business for housing owing to heightened distressed sales over the past few years (see “Enough about the weather: Let’s talk seasonal adjustments”, Mortgage Analyst, February 28, 2014). In the US housing market, more people buy and sell homes in the summer than in the winter because of the school calendar. A thinner market in the winter implies that sellers typically accept lower prices to close transactions. As a result, seasonal factors would nudge prices up in the winter and down in the summer to arrive at the seasonally adjusted series. Normally, such adjustments are within the range of plus/minus one percentage point.

The recent housing downturn is the most severe in US history since the Great Depression, featuring a wave of distressed sales. According to the National Association of Realtors, at the worst of the crisis, nearly half of home sales were distressed. Because distressed sales take place throughout the year while non-distressed sales are more concentrated in the summer, distressed sales account for a larger share of total sales in the winter than in the summer. Also, because distressed properties tend to transact at a significant discount relative to non-distressed properties, they drag down observed transaction prices and the effect is more pronounced in the winter (when the distressed share is high) than in the summer (when the distressed share is low). This amplifies the normal seasonal pattern. In recent years, seasonal adjustments have expanded from the normal “plus/minus one percentage point” to “plus/minus three percentage points”.

As the housing market recovers and the share of distressed sales drops, the true underlying seasonal pattern is normalizing. However, seasonal factors are usually derived using data from the past 5-7 years. In other words, we are using the amplified seasonal factors to adjust more muted seasonal patterns, meaning pushing up house prices too much in the winter and also pushing down house prices too much in the summer. This is consistent with what we have seen over the past year: the S&P Case-Shiller house price index beat consensus expectations at the beginning of the year and it was surprisingly weak for the May reading. This seasonal adjustment problem is likely to persist in coming months, causing the next few months’ house price prints to appear softer than they really are.
emphasis added

CR Note: This is similar to the argument I made last week A few comments on the Seasonal Pattern for House Prices. The seasonal adjustment should normalize over the next few years.

by Calculated Risk on 8/04/2014 09:05:00 AM

Black Knight Financial Services (BKFS, formerly the LPS Data & Analytics division) released their Mortgage Monitor report for June today. According to BKFS, 5.70% of mortgages were delinquent in June, up from 5.62% in May. BKFS reports that 1.88% of mortgages were in the foreclosure process, down from 2.93% in June 2013.

This gives a total of 7.58% delinquent or in foreclosure. It breaks down as:

• 1,728,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,155,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 951,000 loans in foreclosure process.

For a total of ​​3,834,000 loans delinquent or in foreclosure in June. This is down from 4,785,000 in May 2013.

Click on graph for larger image.

This graph from BKFS shows percent of loans delinquent and in the foreclosure process over time.

Delinquencies and foreclosures are moving down - and might be back to normal levels in a couple of years. 

The second graph from BKFS shows foreclosure inventory by foreclosure process .

From Black Knight:

An analysis of the month’s mortgage performance data showed that the nation’s inventory of loans in foreclosure is disproportionately distributed in states with judicial foreclosure processes. According to Kostya Gradushy, Black Knight’s manager of Research and Analytics, while foreclosure inventories have been declining nationwide, judicial states’ foreclosure inventories are 3.5 times that of their non-judicial counterparts.

“Nationally, the foreclosure inventory rate has declined for 26 straight months, and is currently at its lowest point since April 2008, but this can obscure the stark difference that remains between judicial and non-judicial states,” said Gradushy. “Although judicial states account for about 42 percent of all active mortgages, some 70 percent of loans in foreclosure are in these states. Today, the share of loans in foreclosure in judicial states is 3.23 percent – a significant decline from its January 2012 high of 6.6 percent, but still more than four times higher than the pre-crisis ‘norm.’ Further, more than 60 percent of the foreclosure inventory in judicial states has been past due for two years or more. In fact, these loans have been delinquent an average of 1,084 days, as compared to just 775 days in non-judicial states. The states with the highest number of average days past due for loans in foreclosure are all judicial states: New York and Hawaii are each above 1,300 days, while New Jersey and Florida both top 1,200 days. emphasis added

There is much more in the mortgage monitor.

by Calculated Risk on 8/03/2014 08:35:00 PM

Monday:
• Early: Black Knight Mortgage Monitor report for June.

Weekend:
• Schedule for Week of Aug 3rd

• Demographics: Prime Working-Age Population Growing Again

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

Oil prices moved down over the last week with WTI futures at $97.70 per barrel and Brent at $105.73 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.50 per gallon (down more than a dime from a year ago).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 8/03/2014 03:25:00 PM

Earlier this year, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group and The Future is still Bright!

I pointed out that "even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon."

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through July 2014.

Click on graph for larger image.

There was a huge surge in the prime working age population in the '70s, '80s and '90s - and the prime age population has been mostly flat recently (even declined a little).

The prime working age labor force grew even quicker than the population in the '70s and '80s due the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s!

So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply).

The prime working age population peaked in 2007, and appears to have bottomed at the end of 2012.  The good news is the prime working age group has started to grow again, and should be growing solidly by 2020 - and this should boost economic activity in the years ahead.

The second shows prime and near-prime working age population in the U.S. since 1948 (this is population, not labor force).

The near-prime group has still been growing - especially the 55 to 64 age group.

The key points are:
1) A slowdown in the US was expected this decade just based on demographics (the housing bust, financial crisis were piled on top of weak demographics).

2) The prime working age population in the US will start growing solidly again soon.

by Calculated Risk on 8/03/2014 12:09:00 PM

By request, here is an update on an earlier post through the July employment report.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, so a different comparison might be to look at the percentage change.   Of course the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is generally declining now.  But these graphs give an overview of employment changes.

First, here is a table for private sector jobs. The top two private sector terms were both under President Clinton.  Reagan's 2nd term saw about the same job growth as during Carter's term. Note: There was a severe recession at the beginning of Reagan's first term (when Volcker raised rates to slow inflation) and a recession near the end of Carter's term (gas prices increased sharply and there was an oil embargo).

Term	Private Sector Jobs Added (000s)
Carter	9,041
Reagan 1	5,360
Reagan 2	9,357
GHW Bush	1,510
Clinton 1	10,885
Clinton 2	10,070
GW Bush 1	-841
GW Bush 2	379
Obama 1	1,998
Obama 21	3,687
1Eighteen months into 2nd term

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s). President George H.W. Bush only served one term, and President Obama is in the second year of his second term.

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble. Mr. Obama (blue) took office during the financial crisis and great recession. There was also a significant recession in the early '80s right after Mr. Reagan (yellow) took office.

There was a recession towards the end of President G.H.W. Bush (purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

The employment recovery during Mr. G.W. Bush's (red) first term was sluggish, and private employment was down 841,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 462,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,510,000 private sector jobs added.

Private sector employment increased by 20,955,000 under President Clinton (light blue), by 14,717,000 under President Reagan (yellow), and 9,041,000 under President Carter (dashed green).

There were only 1,998,000 more private sector jobs at the end of Mr. Obama's first term.  Eighteen months into Mr. Obama's second term, there are now 5,685,000 more private sector jobs than when he initially took office.

 A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1980, 1990, 2000, and 2010. 

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 657,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment.

And a table for public sector jobs. Public sector jobs declined the most during Obama's first term, and increased the most during Reagan's 2nd term.

Term	Public Sector Jobs Added (000s)
Carter	1,304
Reagan 1	-24
Reagan 2	1,438
GHW Bush	1,127
Clinton 1	692
Clinton 2	1,242
GW Bush 1	900
GW Bush 2	844
Obama 1	-713
Obama 21	56
1Seventeen months into 2nd term

Looking forward, I expect the economy to continue to expand for the next few years, so I don't expect a sharp decline in private employment as happened at the end of Mr. Bush's 2nd term (In 2005 and 2006 I was warning of a coming recession due to the bursting of the housing bubble).

A big question is when the public sector layoffs will end.  It appears the cutbacks are over at the state and local levels in the aggregate, but it appears cutbacks at the Federal level have slowed.  Right now I'm expecting some increase in public employment in 2014, but nothing like what happened during Reagan's second term.