by Calculated Risk on 10/07/2014 01:22:00 PM

A few excerpts from a research note by Goldman Sachs economist David Mericle Housing: The Recovery Resumes

Overall, the message from the broad housing data flow is consistent with the national accounts data. Real residential investment grew at an 8.8% rate in Q2 and is tracking at nearly 15% in Q3. But how confident can we be that the recent turnaround will be sustained?

We continue to see substantial upside for the housing sector in the long run. This view is driven by the large gap between the current annual run rate of housing starts, which have averaged about 1 million over the last three months, and our housing analysts' projection of a long-run equilibrium demand for new homes of about 1.5-1.6 million per year, estimated as the sum of trend household formation and demolition of existing homes.

The question in the near term is how quickly and reliably that gap will close. Two factors are essential for the outlook:

1. Housing affordability. The first key factor is potential homeowners' ability to finance a mortgage. ... The index worsened last year as mortgage rates rose, but continues to point to a modestly higher level of affordability than usual. In addition, the recent data are encouraging ...

2. Mortgage credit availability. The second key factor is mortgage lending standards ... tight mortgage lending standards have been an obstacle to the housing sector's recovery, a concern frequently highlighted by Fed Chair Janet Yellen. But lending standards have shown some gradual easing in recent years, and the sudden easing in standards on prime mortgages reported in the Fed's Q3 Senior Loan Officer Opinion Survey is an encouraging sign.

On mortgage credit, an interesting article from Trey Garrison at HousingWire: Is mortgage credit loosening or not?

The Federal Reserve Board's Quarterly Senior Loan Officer Survey of credit conditions indicates that mortgage credit loosened in Q2 2014.

BofA Merrill Lynch Global Research score trends of actual purchase mortgages closed on a monthly basis, and they find the opposite is true: aggregate FICO scores for purchase mortgages continue to move higher.

“We think the explanation of the difference is that while FICO trends are lower in all financing channels (such as conventional or government), the highest quality channels are increasing share of mortgages closed, hence the aggregate score is rising,” BAML analysts say.

CR Note: Eventually mortgage credit will loosen, and that will be a positive for housing.

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

From the BLS: Job Openings and Labor Turnover Summary

There were 4.8 million job openings on the last business day of August, up from 4.6 million in July, the U.S. Bureau of Labor Statistics reported today. ...
...
Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... The number of quits was little changed in August at 2.5 million.

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for August, the most recent employment report was for September.

Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased in August to 4.835 million from 4.605 million in July.

The number of job openings (yellow) are up 23% year-over-year compared to August 2013 and the highest since January 2001.

Quits are up 5% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

It is a good sign that job openings are over 4 million for the seventh consecutive month - and the highest since January 2001 - and that quits are increasing year-over-year.

by Calculated Risk on 10/07/2014 08:49:00 AM

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

From CoreLogic: CoreLogic Reports Home Prices Rose by 6.4 Percent Year Over Year in August 2014

Home prices nationwide, including distressed sales, increased 6.4 percent in August 2014 compared to August 2013. This change represents 30 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased 0.3 percent in August 2014 compared to July 2014.
...
Excluding distressed sales, home prices nationally increased 5.9 percent in August 2014 compared to August 2013 and 0.3 percent month over month compared to July 2014. Also excluding distressed sales, 49 states and the District of Columbia showed year-over-year home price appreciation in August, with Mississippi being the only state to experience a year-over-year decline. ...

“The pace of year-over-year appreciation continues to slow down as real estate markets find more balance. Home price appreciation reached a peak of almost 12 percent year-over-year in October 2013 and has since subsided to the current pace of 6 percent,” said Mark Fleming, chief economist at CoreLogic. “Continued moderation of home price appreciation is a welcomed sign of more balanced real estate markets and less pressure on affordability for potential home buyers in the near future.”
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 0.3% in August, and is up 6.4% over the last year.

This index is not seasonally adjusted, and the index will probably turn negative month-to-month in September.


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

The YoY increases continue to slow.

This index was up 8.2% YoY in May, 7.2% in June, 6.8% in July, and now 6.4% in August.

by Calculated Risk on 10/06/2014 08:42:00 PM

An international economic overview from Bonddad: International Week in Review: The Sky Is Not Falling, But the Calculus Has Changed. Excerpt:

At times like this, gloom and doom commentary begins to take center stage as “sky is falling” headlines become click bait for various websites. Unfortunately for the bearish crowd a careful analysis indicates we are not near a major, cataclysmic market or economic event. However, it is clear that the underlying calculus regarding macro-economic analysis has changed, caused by a combination of increased geopolitical conflict, potentially higher interest rates in the US and UK and the ripple effects from this development, and growing economic concern regarding the EU, Japan and, to a lesser extent Australia.

Tuesday:
• At 10:00 AM ET, the Job Openings and Labor Turnover Survey for August from the BLS. Jobs openings decreased slightly in July to 4.673 million from 4.675 million in June.

• At 3:00 PM, Consumer Credit for August from the Federal Reserve. The consensus is for credit to increase $20.5 billion.

by Calculated Risk on 10/06/2014 04:45:00 PM

My view is most people are busy with other aspects of their lives, but these results are still pretty disappointing ...

From Jim Puzzanghera at the LA Times: Less than 1 in 4 Americans in survey know Janet Yellen is Fed chair

Janet L. Yellen made history this year when she became the first woman to lead the Federal Reserve, but most Americans apparently didn't notice.

Just 24% correctly identified her as the central bank's chair in results of a nationwide poll released Monday.

Nearly half of the respondents -- 48% -- in the Pew Research Center's News IQ survey said they didn't know who was the Fed's current chair after being read a list that included Yellen and three other names.

You can take the quiz here. All of the questions are pretty easy for those who follow the news. 

But I wonder how many people could find the countries mentioned on a map?

by Calculated Risk on 10/06/2014 01:41:00 PM

This is an update to a previous post through September.

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 August 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 to 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.

by Calculated Risk on 10/06/2014 10:37:00 AM

The Fed staff has developed a labor market indicator that they call the Labor Market Conditions Index (LMCI). From the Fed: Assessing the Change in Labor Market Conditions

This Note describes a dynamic factor model of labor market indicators that we have developed recently, which we call the labor market conditions index (LMCI). ...

A factor model is a statistical tool intended to extract a small number of unobserved factors that summarize the comovement among a larger set of correlated time series.2 In our model, these factors are assumed to summarize overall labor market conditions.3 What we call the LMCI is the primary source of common variation among 19 labor market indicators. One essential feature of our factor model is that its inference about labor market conditions places greater weight on indicators whose movements are highly correlated with each other. And, when indicators provide disparate signals, the model's assessment of overall labor market conditions reflects primarily those indicators that are in broad agreement.
...
In terms of the average monthly changes, then, the labor market improvement seen in the current expansion has been roughly in line with its typical pace. That said, the cumulative increase in the index since July 2009 ... is still smaller in magnitude than the extraordinarily large decline during the Great Recession (... from January 2008 to June 2009).

The Fed staff released the updated LMCI through September this morning.  This includes 19 indicators (see link above).

Click on graph for larger image.

This graph shows the cumulative change in the index. The Fed staff didn't release any commentary this morning, but the cumulative increase is still smaller than the decline during the Great Recession (suggesting slack in the labor market).

by Calculated Risk on 10/06/2014 07:15:00 AM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for August today. According to BKFS, 5.90% of mortgages were delinquent in August, up from 5.64% in July. BKFS reports that 1.80% of mortgages were in the foreclosure process, down from 2.66% in August 2013.

This gives a total of 7.70% delinquent or in foreclosure. It breaks down as:

• 1,852,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,143,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 913,000 loans in foreclosure process.

For a total of ​​3,908,000 loans delinquent or in foreclosure in August. This is down from 4,465,000 in August 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 generally moving down - and might be back to normal levels in a couple of years. 

The second graph from BKFS shows the mortgage performance by vintage.

From Black Knight:

Looking at the weighted average loan age among the active mortgage population, Black Knight found that while loan age varies among different credit score groups, in general the average loan age has been rising steadily. According to Kostya Gradushy, Black Knight’s manager of Research and Analytics, the weighted average loan age has reached its highest point ever.

“In terms of the entire active mortgage population, average loan age has been rising steadily for at least the last nine years,” said Gradushy. “The high volume of originations in 2013 resulted in a temporary slowdown. However, the average loan age since then has hit its highest level ever at 54 months. Reviewing the data at a more granular level, we see that the age of loans with credit scores of 750 and above has remained relatively constant for the last five years. However, lower credit score loans – particularly those with scores below 700 – have seen dramatic increases in average age.”

“We also looked again at mortgage performance and found delinquencies in 2012-2014 vintage loans lower than any of the prior seven years. In fact, even among borrowers with lower credit scores, these vintages are outperforming all previous vintages. This holds true for FHA mortgages as well, where we found that early-stage delinquencies were lower than in all pre-2012 vintages.”
emphasis added

There is much more in the mortgage monitor.

by Calculated Risk on 10/05/2014 08:50:00 PM

An interesting post from Tim Duy: Is There a Wage Growth Puzzle?

The unemployment and wage growth dynamics to date are actually very similar to what we have seen in the past. Low wage growth to date is not the "smoking gun" of proof of the importance of underemployment measures. There very well may have been much more labor market healing that many are willing to accept, even many FOMC members. The implications for monetary policy are straightforward - it suggests the risk leans toward tighter than anticipated policy.

My current view is that NAIRU (non-accelerating inflation rate of unemployment) is lower than most FOMC participants think.  My view is NAIRU is closer to 4% than 6%, whereas the central tendency for FOMC participants is in the 5.2% to 5.5% range with some thinking NAIRU is as high as 6%.

 I think there are demographic reasons for the low NAIRU (the last time we saw the working age population increase this slowly, inflation didn't start to increase until the unemployment rate fell to around 4%).  If I'm correct about NAIRU (and no one knows for sure), the unemployment rate could fall much further without a significant pickup in inflation. Also I think the risks for the FOMC of moving too quickly (inflation too low) far outweigh the risk of moving too slowly (too much inflation).

Monday:
• Early, Early: Black Knight Mortgage Monitor report for August.

• At 10:00 AM ET, the Fed will release the new monthly Labor Market Conditions Index (LMCI).

Weekend:
• Schedule for Week of October 5th

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up 3 and DOW futures are also up 17 (fair value).

Oil prices were down over the last week with WTI futures at $89.56 per barrel and Brent at $91.90 per barrel.  A year ago, WTI was at $103, and Brent was at $109 - so prices are down close to 15% year-over-year.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.30 per gallon (down about 5 cents 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 10/05/2014 11:54:00 AM

By request, here is an update on an earlier post through the September 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.  Currently Obama's 2nd term is on pace for the third best term for these Presidents.

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 2	4,1291
120 months into 2nd term: 9,910 pace.

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.  Twenty months into Mr. Obama's second term, there are now 6,127,000 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 668,000 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 2	451
120 months into 2nd term, 108 pace

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 if the public sector layoffs have ended.  The cutbacks are clearly over at the state and local levels in the aggregate, and it appears cutbacks at the Federal level have slowed.  Right now I'm expecting some increase in public employment during Obama's 2nd term, but nothing like what happened during Reagan's second term.