by Calculated Risk on 12/23/2015 08:30:00 AM

Note: Some of this data was inadvertently released early. The BEA released the Personal Income and Outlays report for November:

Personal income increased $44.4 billion, or 0.3 percent, ... according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $40.1 billion, or 0.3 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in November, in contrast to a decrease of less than 0.1 percent in October. ... The price index for PCE increased less than 0.1 percent in November, compared with an increase of 0.1 percent in October. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of less than 0.1 percent.

The November PCE price index increased 0.4 percent from November a year ago. The November PCE price index, excluding food and energy, increased 1.3 percent from November a year ago.

The following graph shows real Personal Consumption Expenditures (PCE) through November 2015 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was larger than expected.  And the increase in PCE was at the 0.3% increase consensus.

On inflation: The PCE price index increased 0.4 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.3 percent year-over-year in November.

Using the two-month method to estimate Q3 PCE growth, PCE was increasing at a 2.1% annual rate in Q3 2015 (using the mid-month method, PCE was increasing 2.0%). This suggests PCE growth will slow in Q4.

by Calculated Risk on 12/23/2015 07:01:00 AM

From the MBA: Refinance, Purchase Applications Both Up in Latest MBA Weekly Survey

Mortgage applications increased 7.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 18, 2015.
...
The Refinance Index increased 11 percent from the previous week. The seasonally adjusted Purchase Index increased 4 percent from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 37 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.16 percent from 4.14 percent, with points increasing to 0.47 from 0.45 (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.

Refinance activity remains low.

2014 was the lowest year for refinance activity since year 2000, and 2015 was low too.  Refinance activity will probably stay low in 2016.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 37% higher than a year ago.

by Calculated Risk on 12/22/2015 07:24:00 PM

From Matt Busigin at Macrofugue: US Recession Callers Are Embarrassing Themselves

Through a combination of quackery, charlatanism, and inadequate utilisation of mathematics, callers for US recession in 2016 are embarrassing themselves. Again.

The most prominent reason for recession calling may well be the Institute of Supply Management’s Manufacturing Purchasing Manager Index. The problem with this recession forecasting methodology is that it doesn’t work.

CR Note: Usually there is a reason for a recession such as a bursting bubble or the Fed tightening quickly to fight inflation. Currently the recession callers seem to focus mostly on global weakness and the strong dollar. That has pushed U.S. manufacturing into contraction (along with low oil prices), but I don't think it will push the US economy into recession. Oh well, someone is always predicting a recession and they are usually wrong (I did forecast a recession in 2007, but I was on recession watch because of the housing bubble).  Right now I'm not even on recession watch.

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, Durable Goods Orders for November from the Census Bureau. The consensus is for a 0.5% decrease in durable goods orders.

• Also at 8:30 AM, Personal Income and Outlays for November. The consensus is for a 0.2% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 10:00 AM, New Home Sales for November from the Census Bureau. The consensus is for a increase in sales to 503 thousand Seasonally Adjusted Annual Rate (SAAR) in November from 495 thousand in October.

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (final for December). The consensus is for a reading of 91.9, up from the preliminary reading 91.8.

by Calculated Risk on 12/22/2015 03:12:00 PM

Here is an indicator that I'm following that appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Ends Year with Modest Uptick

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), strengthened slightly in December, rising 0.2 percent following a similar gain in November. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.5 percent over this time last year, a marked deceleration of activity since the second quarter....
...
Applying the CAB back to 1919, it has been shown to provide a lead of two to 14 months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added

Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

This suggests that industrial production might have stabilized.

by Calculated Risk on 12/22/2015 11:55:00 AM

First, the decline in existing home sales was not a surprise, see: Existing Home Sales: Take the Under Tomorrow

Second, a key reason for the decline was the new TILA-RESPA Integrated Disclosure (TRID). In early October, this new disclosure rule pushed down mortgage applications sharply - however applications have since bounced back. Note: TILA: Truth in Lending Act, and RESPA: the Real Estate Settlement Procedures Act of 1974.  The impact from TRID will sort out over a few months.

Third, there are probably some economic reasons too for the decline (not just a change in disclosures).  Low inventory is probably holding down sales in many areas, and weakness in some oil producing areas (see: Houston has a problem) are also impacting sales.

Earlier: Existing Home Sales declined in November to 4.76 million SAAR

I expected some increase in inventory this year, but that hasn't happened.  Inventory is still very low and falling year-over-year (down 1.9% year-over-year in November). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

Also, it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale.  So some slowing for existing home sales is not be a big deal for the economy.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in November (red column) were the same as last year, matching the lowest for November since 2011 (NSA).

by Calculated Risk on 12/22/2015 10:11:00 AM

From the NAR: Existing-Home Sales Suffer Setback in November, Fall to Slowest Pace Since April 2014

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 10.5 percent to a seasonally adjusted annual rate of 4.76 million in November (lowest since April 2014 at 4.75 million) from a downwardly revised 5.32 million in October. After last month's decline (largest since July 2010 at 22.5 percent), sales are now 3.8 percent below a year ago — the first year-over-year decrease since September 2014. ...

Total housing inventory at the end of November decreased 3.3 percent to 2.04 million existing homes available for sale, and is now 1.9 percent lower than a year ago (2.08 million). Unsold inventory is at a 5.1-month supply at the current sales pace, up from 4.8 months in October.

Click on graph for larger image.

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

Sales in November (4.76 million SAAR) were 10.5% lower than last month, and were 3.8% below the November 2014 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 2.04 million in November from 2.11 million in October.   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 third 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 decreased 1.9% year-over-year in November compared to November 2014.  

Months of supply was at 5.1 months in November.

This was below consensus expectations of sales of 5.32 million (but not a surprise for CR readers). For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...

by Calculated Risk on 12/22/2015 08:36:00 AM

From the BEA: Gross Domestic Product: Third Quarter 2015 (Third Estimate)

Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 2.0 percent in the third quarter of 2015, according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.9 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.1 percent. With the third estimate for the third quarter, the general picture of economic growth remains the same; private inventory investment decreased more than previously estimated ...
emphasis added

Here is a Comparison of Third and Second Estimates. PCE growth was unrevised at 3.0%. Residential investment was revised up from 7.3% to 8.2%.

by Calculated Risk on 12/21/2015 07:53:00 PM

From Joe Weisenthal at Bloomberg Odd Lots: How One Woman Tried To Warn Everyone About The Housing Crash

Or as Bloomberg's Tracy Alloway tweeted: "Big Short be damned. Listen to the conversation @TheStalwart and I had with @calculatedrisk about who saw it coming"

Tanta Vive!!!

Tuesday:
• At 8:30 AM ET, Gross Domestic Product, 3rd quarter 2015 (Third estimate). The consensus is that real GDP increased 2.0% annualized in Q3, revised down from the second estimate of 2.1%.

• At 9:00 AM, FHFA House Price Index for October 2015. This was originally a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.4% month-to-month increase for this index.

• At 10:00 AM, Existing Home Sales for November from the National Association of Realtors (NAR). The consensus is for 5.32 million SAAR, down from 5.36 million in October. Economist Tom Lawler estimates the NAR will report sales of 4.97 million SAAR.

• Also at 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for December.

by Calculated Risk on 12/21/2015 03:45:00 PM

CR Note: One of the criticisms of "The Big Short" is there are no women lead characters. That is a huge oversight, especially since Tanta was a key source for understanding the mortgage industry for many hedge fund managers!

From Joe Weisenthal at Bloomberg Odd Lots: How One Woman Tried To Warn Everyone About The Housing Crash

In the middle of the last decade, a blog called Calculated Risk became a must-read for its obsessive coverage of the economy and its warnings about the overheating housing market. During the 2006-08 period, Calculated Risk had two authors: One was the blog's founder, Bill McBride, and the other was "Tanta," a pseudonymous mortgage industry professional who was trying to blow the whistle on the problems she saw emanating from her industry.

Tanta's posts, which were extraordinarily detailed, good humored, and prescient, became must-reads for a host of bloggers, traditional journalists, and Wall Street professionals trying to get a handle on the crisis. Sadly, the world found out her name only in December 2008, when she died of cancer. But her influence remained enormous. And the world was fortunate that in the final two years of her life, she produced such an extraordinary wealth of information detailing exactly how the mortgage industry worked and produced the mess that was the housing bubble.

In the latest edition of Odd Lots, we spoke with Bill McBride, who still writes Calculated Risk, about her work.

by Calculated Risk on 12/21/2015 02:10:00 PM

I mentioned this over the weekend.

The NAR will report November Existing Home Sales on Tuesday, December 22nd at 10:00 AM.

The consensus, according to Bloomberg, is that the NAR will report sales of 5.32 million. Housing economist Tom Lawler estimates the NAR will report sales of 4.97 million on a seasonally adjusted annual rate (SAAR) basis, down from 5.36 million SAAR in October.

Based on Lawler's estimate, I expect a miss tomorrow.

Note:  Lawler is not always right on, but he is usually pretty close.  See this post for a review of Lawler's track record.