by Calculated Risk on 1/14/2016 07:52:00 PM

Friday:
• At 8:30 AM ET, the Producer Price Index for December from the BLS. The consensus is for a 0.2% decrease in prices, and a 0.1% increase in core PPI.

• Also at 8:30 AM, Retail sales for December will be released. The consensus is for retail sales to be unchanged in December.

• Also at 8:30 AM, the NY Fed Empire State Manufacturing Survey for January. The consensus is for a reading of -4.0, up from -4.6.

• At 9:15 AM, the Fed will release Industrial Production and Capacity Utilization for December. The consensus is for a 0.2% decrease in Industrial Production, and for Capacity Utilization to decrease to 76.8%.

• At 10:00 AM, the University of Michigan's Consumer sentiment index (preliminary for January). The consensus is for a reading of 93.0, up from 92.6 in December.

• Also at 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for November. The consensus is for a 0.1% increase in inventories.

Note: There were some large swings in LA area port traffic early last year due to labor issues that were settled in late February. Port traffic surged in March as the waiting ships were unloaded (the trade deficit increased in March too), and port traffic declined in April.  This will impact the YoY changes soon.

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 0.1% compared to the rolling 12 months ending in November.   Outbound traffic was down 0.8% compared to 12 months ending in November.

The recent downturn in exports might be due to the strong dollar and weakness in China.

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 slightly year-over-year in December; exports were down 9% year-over-year.  This suggests a larger trade deficit with the Far East in December.

by Calculated Risk on 1/14/2016 05:29:00 PM

Mortgage rates are nears the lows of the last two months ...

From Matthew Graham at Mortgage News Daily: Mortgage Rates Lower as Markets Grow Anxious Ahead of Fed

Yesterday was best described as 'unchanged,' and today's rate sheets were almost imperceptibly weaker. In other words, we've spent the last few days bouncing along the lowest levels in more than 2 months. Lenders are back to quoting conventional 30yr fixed rates in a range of 3.875% to 4.0%.
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 1/14/2016 12:36:00 PM

From the National Multifamily Housing Council (NMHC): Apartment Markets Recede in the January NMHC Quarterly Survey

All four indexes in the January 2015 National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions fell below the breakeven level of 50, indicating a decline over the past quarter. The last time Market Tightness (47), Sales Volume (46), Equity Financing (46) and Debt Financing (37) all landed below 50 was in October 2013.

“After an incredible year for the apartment industry, some weakening has appeared reflecting seasonal patterns along with additional pullback in some markets,” said Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist.

“2015 was one for the record books. Construction of new apartments rose to the highest level in almost 30 years, while the occupancy rate continued to climb and rent growth accelerated,” said Obrinsky. “All signs point to continued strong demand for apartment residences. With new supply finally approaching the level needed to meet new demand, we may well see some moderation in both occupancy and rent growth.”

Consumer demand for apartments declined slightly, with the Market Tightness Index coming in at 47 from 53 last quarter. This marks the first time in two years that the index showed a contraction from the previous quarter.

Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading below 50 indicates looser conditions from the previous quarter. This indicates market conditions were looser over the last quarter.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010.

There is a seasonal pattern for "tightness", and January is typically weaker for apartments - but it does appear supply is catching up with demand (the vacancy rate is also starting to increase slightly).

by Calculated Risk on 1/14/2016 10:51:00 AM

From Tim Duy: So You Think A Recession Is Imminent, Employment Edition

The recession drumbeat grows louder. This is not unexpected. Most forecasters have an asymmetric loss function; the cost of being wrong by missing a recession exceeds the cost of being wrong on a recession call. Hence economists tend to over-predict recessions. Eight of the last four recessions or so the joke goes [1]. And while I don't believe a recession is imminent, there are perfectly good reasons to be wary that a recession will bear down on the economy in the not-so-distant future. Historically, when the Fed begins a tightening cycle, the clock is ticking for the expansion. By that time, the economy is typically in a late-mid to late-stage expansion, and you are looking at two to three years before the cycle turns, four at the outside.

Of course there are some not so good reasons for worrying about a recession. Like listening to an investor talking their book. Or someone who needs to whip up a never ending stream of apocalyptic visions to hawk gold.

So what I am looking for when it comes to a recession? It's not a recession until you see it economy wide in the labor markets. When it's there, you will see it everywhere. Clearly, we weren't seeing it in the final quarter of last year. But, you say, employment is a lagging indicator, so last quarter tells you nothing. Not nothing, I would say, but a fair point nonetheless. One would need to look for the leading indicators within the employment data.
...
Bottom Line: From a labor market perspective, I am not seeing conclusive evidence of an impending recession in manufacturing, let alone the overall economy. Might be at the tip of one, but even that will take a year to evolve. I have more sympathy for the view that the economy has evolved into a mid-late to late stage of the cycle, and the transition and associated uncertainty results in some not-surprising volatility in financial markets.

Dr. Duy is looking at labor indicators. My favorite leading indicators for a possible recession are housing starts and new home sales. No worries right now - I'm not even on recession watch.

[1] Duy added:

Greg Ip calls me out on the direction of forecast accuracy ... if you were to tell me that these recession callers were not on average "economists" I would concede the point. And forecasts from official agencies such as the IMF and the Federal Reserve always miss recessions (a point Larry Summers makes with regard to the IMF here.) So Ip's point is well taken.

by Calculated Risk on 1/14/2016 08:33:00 AM

The DOL reported:

In the week ending January 9, the advance figure for seasonally adjusted initial claims was 284,000, an increase of 7,000 from the previous week's unrevised level of 277,000. The 4-week moving average was 278,750, an increase of 3,000 from the previous week's unrevised average of 275,750.

There were no special factors impacting this week's initial claims.

The previous week was unrevised at 277,000.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 278,750.

This was above the consensus forecast of 275,000, however the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 1/13/2016 07:53:00 PM

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for 275 thousand initial claims, down from 277 thousand the previous week.



Here is a graph (click on graph for larger image) from Doug Short and shows the S&P 500 since the 2007 high ... more graphs from Doug here: S&P 500 Snapshot: Down 2.50% for the Day and 11.29% Off Its Record Close

by Calculated Risk on 1/13/2016 03:32:00 PM

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For a few years, not much changed. But in 2012 and 2013, we saw some significant changes with a dramatic shift from distressed sales to more normal equity sales.

This data suggests healing in the Sacramento market and other distressed markets are showing similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In December, total sales were up  19.6% from December 2014, and conventional equity sales were up 24.7% compared to the same month last year.  A very strong year-over-year increase.

In December, 7.6% of all resales were distressed sales. This was down from 8.3% last month, and down from 12.8% in December 2014.

The percentage of REOs was at 3.7% in December, and the percentage of short sales was 3.9%.

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes decreased 27.9% year-over-year (YoY) in December.  This was the eighth consecutive monthly YoY decrease in inventory in Sacramento (a big recent change).

Cash buyers accounted for 14.3% of all sales (frequently investors).

Summary: This data suggests a more normal market with fewer distressed sales, more equity sales, and less investor buying.

by Calculated Risk on 1/13/2016 02:03:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of Philadelphia and based on information collected on or before January 4, 2016."

Reports from the twelve Federal Reserve Districts indicated that economic activity has expanded in nine of the Districts since the previous Beige Book report and contacts in Boston were described as upbeat. Meanwhile, New York and Kansas City described economic activity in their Districts as essentially flat. Atlanta and San Francisco characterized the growth in their Districts as moderate; Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, and Dallas described their Districts' growth as modest. Contacts' outlooks for future growth remained mostly positive in Boston, Philadelphia, Atlanta, Chicago, Kansas City, and Dallas.

And on real estate:

Residential real estate activity as measured in sales was generally positive in New York, Cleveland, Chicago, and St. Louis. Richmond experienced steady sales with pockets of strength, and Kansas City reported declines. Prices rose slightly to modestly overall in all reporting Districts, and inventories remained low in Boston, Richmond, and Minneapolis, and some parts of the New York District; however, New York City's rental vacancy rate increased. Though Boston contacts expected the market to perform well in 2016, contacts in Cleveland and Kansas City expressed concerns that higher interest rates may slow activity. Residential construction activity was described as modest or moderate in most Districts but was more subdued in New York, Atlanta, and Dallas overall. Multifamily construction continued to be strong in New York, Richmond, Minneapolis, and San Francisco and showed improvement in Chicago.

Most reporting Districts characterized nonresidential real estate activity as modest to moderate; Boston and New York indicated little change. Rental rates rose in more than half of the reporting Districts, and vacancy rates were mixed. Most Districts reported modest or moderate growth in commercial construction, and the Dallas District noted high levels of industrial construction in Dallas-Fort Worth. Contacts in the Atlanta District expect construction activity to increase slightly, while contacts in the Philadelphia, St. Louis, Minneapolis, and Richmond Districts expect overall commercial real estate activity to continue to strengthen at least modestly.
emphasis added

Real Estate growth was modest to moderate ...

by Calculated Risk on 1/13/2016 10:46:00 AM

One year ago today, I wrote Is Oil "Cheap"? Some people were arguing oil was "cheap" with Brent futures at $46 per barrel.

I pointed out that oil prices had still increased more than other key items since 1990 and 2000.

Below is an update to that table I posted comparing the change in headline CPI, Brent oil prices, Food, and Case-Shiller house prices since 1990 and 2000.

Things have changed now with Brent futures under $32 per barrel.

CPI is up 87% since 1990, but Brent is only up 51%.

Since 2000, CPI is up 41% and Brent is up 25%.

Change Since	1990	2000
CPI	87%	41%
Brent Oil	51%	25%
Food	91%	50%
Case-Shiller House Prices	127%	74%

So, compared to 1990 and 2000 prices, maybe oil is now "cheap".

Note: This is another way of saying that in real terms - inflation adjusted - oil prices are now below prices in 1990 and 2000.

by Calculated Risk on 1/13/2016 07:01:00 AM

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

Mortgage applications increased 21.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 8, 2016. The previous week’s results included an adjustment for the New Year’s holiday.
...
The Refinance Index increased 24 percent from the previous week. The seasonally adjusted Purchase Index increased 18 percent from one week earlier. The unadjusted Purchase Index increased 74 percent compared with the previous week and was 19 percent higher than the same week one year ago
...
“MBA’s purchase mortgage application index reached its second highest level since May 2010 on a seasonally adjusted basis last week, second only to the week prior to the implementation of the Know Before You Owe rules,” said Lynn Fisher, MBA’s Vice President of Research and Economics.

“Bolstered by strong fourth quarter growth in jobs and continuing low rates, the results are similar to levels we saw in early December, suggesting that the purchase market’s strong finish to 2015 may be continuing. While refinances also increased on a holiday-adjusted basis, refinance activity was down 38 percent relative to a year ago when rates dove below 4 percent,” Fisher continued.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.12 percent from 4.20 percent, with points decreasing to 0.38 from 0.42 (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.

Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000.

Refinance activity will probably stay low in 2016, and will probably be lower than in 2014 and 2015.



The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is  19% higher than a year ago.