by Calculated Risk on 9/06/2016 08:01:00 AM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for July today. According to BKFS, 4.51% of mortgages were delinquent in July, down from 4.67% in July 2015. BKFS also reported that 1.09% of mortgages were in the foreclosure process, down from 1.52% a year ago.

This gives a total of 5.60% delinquent or in foreclosure.

Press Release: Black Knight’s Mortgage Monitor: Q2 Originations Hit Three-Year High; Purchase Lending Highest Since 2007, Refinance Volume Still Lags 2015

Today, the Data & Analytics division of Black Knight Financial Services, Inc. (NYSE: BKFS) released its latest Mortgage Monitor Report, based on data as of the end of July 2016. This month, Black Knight looked at first-lien mortgage originations through Q2 2016. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, the data showed significant growth in origination volume; however, refinance volume was not as strong as the current low interest rate environment might suggest.

“Mortgage originations posted their strongest quarter in three years in Q2 2016,” said Graboske. “In total, we saw $518 billion in first-lien mortgage originations in Q2, driven by a combination of continued purchase origination growth and refinance activity spurred by low interest rates. Interestingly however, with interest rates 15 basis points lower than in Q1, and even lower than in early 2015, refinance activity wasn’t nearly as strong as one might have expected. While purchase originations jumped more than 50 percent from Q1, refinances saw only an eight percent increase over that period, and were actually down from the same time last year, despite the number of potential refinance candidates outpacing 2015 by over one million in every month since March. That said, refinance lending has risen for three consecutive quarters and accounted for $221 billion in originations in Q2.

“It was a particularly strong month for purchase originations, which made up 57 percent of all first-lien lending in the quarter,” Graboske continued. “At $297 billion, Q2 purchase originations marked the highest level – in terms of both volume and dollar amount – seen since 2007. Although the purchase lending credit box remains tight, there is increasing participation among ‘moderate’ credit borrowers as well. Two-thirds of Q2 purchase loans went to borrowers with credit scores of 740 or higher – on par with what we saw during the same period last year – but there was a 13 percent year-over-year increase in lending to borrowers with credit scores between 700 and 739. This segment has seen the highest rate of growth over the last three quarters, and now makes up 19 percent of all purchase originations. On the other end of the spectrum, sub-700 score borrowers now account for only 15 percent of originations, with less than five percent going to borrowers with scores of 660 or below. Both of these mark the lowest share of low credit purchase lending seen dating back to at least 2000.”
emphasis added

Click on graph for larger image.

This graph from Black Knight shows first lien mortgage originations.

From Black Knight:

• At $518 billion, first lien mortgage originations marked the highest volume seen in a single quarter since Q2 2013, driven by a combination of continued purchase origination growth and refinance activity spurred by low interest rates

• It was a particularly strong month for purchase originations, which made up 57 percent of all first lien lending in the quarter

• At $297 billion, purchase loan originations saw a 52 percent ($102 billion) seasonal increase from Q1 and hit their highest level in terms of both volume and dollar amount since 2007

• We are seeing a deceleration in purchase market growth on an annual basis at approximately six percent growth over Q2 last year, but down from over 20 percent growth for most of 2015

• Refinance originations rose by 8 percent from Q1, but fell slightly below last year’s levels

The second graph shows the number and percent of distressed sales. From Black Knight:

• Distressed sales accounted for seven percent of all residential real estate transactions in Q2 2016, the lowest such share since Q2 2007, but still more than twice what would be seen in a ‘normal’ market

• At the peak (Q2 2011), there were over 350,000 distressed sales in a single quarter, and distressed sales had accounted for nearly 40 percent of all transactions in Q1 2011; there are now less than 100,000 distressed sales per quarter

• The makeup of the distressed market has been roughly 2/3 REO to 1/3 short sales for roughly two years; at the bottom of the market in 2012, short sales accounted for more than half of all distressed transactions

• Nearly one out of every five distressed sales nationwide still occurs in Florida, but that share is waning as the state’s severely delinquent and active foreclosure inventories continue to improve

• The backlog and slower reduction of troubled inventories in New York and New Jersey has led to more sustained levels of distressed activity in those states

Distressed sales are getting closer to normal.  There is much more in the mortgage monitor.

by Calculated Risk on 9/05/2016 07:59:00 PM

Tuesday:
• At 10:00 AM ET, the ISM non-Manufacturing Index for August. The consensus is for the index to decrease to 55.0 from 55.5 in July.

• Also at 10:00 AM, The Fed will release the monthly Labor Market Conditions Index (LMCI).

Weekend:
• Schedule for Week of Sept 4, 2016

• Update: Prime Working-Age Population Growing Again

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

Oil prices were down over the last week with WTI futures at $45.05 per barrel and Brent at $47.63 per barrel.  A year ago, WTI was at $46, and Brent was at $49 - so prices are down slightly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.20 per gallon (down over $0.20 per gallon from a year ago).

by Calculated Risk on 9/05/2016 11:24:00 AM

Two years ago, in 2014, the BLS initially reported job gains in August at 142,000. Douglas Holtz-Eakin wrote "Disaster!". I couldn't help myself and made fun of Holtz-Eakin.

Not only wasn't the initial August 2014 report a "disaster", but it has since been revised up to 218,000.  And 2014 was the best year for employment gains since the '90s.  Some "disaster"!

Here is a table of revisions for August since 2005.  Note that most of the revisions have been up.   This doesn't mean that the August 2016 revision will be up, but it does seem likely.   I'm not sure why the BLS has underestimated job growth in August (possibly because of the timing of seasonal teacher hiring and the end of the summer jobs).

Overall I think the August 2016 employment report was decent and indicates further improvement in the labor market.

August Employment Report (000s)
Year	Initial	Revised	Revision
2005	169	194	+25
2006	128	181	53
2007	-4	-24	-20
2008	-84	-266	-182
2009	-216	-212	4
2010	-54	-34	20
2011	0	107	107
2012	96	190	94
2013	169	269	100
2014	142	218	76
2015	173	150	-23
2016	151	---	---

Note: In 2008, the BLS significantly under reported job losses. That wasn't surprising since the initial models the BLS used missed turning points (something I wrote about in 2007). The BLS has since improved this model.

by Calculated Risk on 9/04/2016 07:48:00 PM

Some good news for those sitting in a traffic jam on Labor Day, from the EIA: Gasoline prices prior to Labor Day lowest in 12 years

The U.S. average retail price for regular gasoline was $2.24/gallon (gal) on August 29, the lowest price on the Monday before Labor Day since 2004, and 27¢/gal lower than the same time last year. Lower crude oil prices are the main factor behind falling U.S. gasoline prices. Lower crude oil prices reflect continued high global crude oil and petroleum product inventories and increased drilling activity in the United States.
...
As fall approaches and U.S. driving decreases, lower gasoline demand, shifts to less costly winter fuel specifications, and reduced crude oil purchases by refineries undergoing seasonal maintenance have the potential to put downward pressure on crude oil and gasoline prices. In the August Short-Term Energy Outlook, EIA forecasts U.S. regular gasoline prices will decline to an average of $1.95/gal during the fourth quarter of 2016 and will average $2.06/gal for 2016.

Weekend:
• Schedule for Week of Sept 4, 2016

• Update: Prime Working-Age Population Growing Again

Oil prices were down over the last week with WTI futures at $44.13 per barrel and Brent at $46.63 per barrel.  A year ago, WTI was at $46, and Brent was at $49 - so prices are down slightly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.20 per gallon (down over $0.20 per gallon from a year ago).

by Calculated Risk on 9/04/2016 11:25:00 AM

The prime working age population peaked in 2007, and bottomed at the end of 2012. As of August 2016, there are still fewer people in the 25 to 54 age group than in 2007!

However the prime working age (25 to 54) will probably hit a new peak in a couple of months.

An update: in 2014, 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, Decline in the Labor Force Participation Rate: Mostly Demographics and Long Term Trends, and The Future's so 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. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through August 2016.

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).

See: Demographics and GDP: 2% is the new 4%

The good news is the prime working age group has started to grow again, and is now growing at 0.5% per year - and this should boost economic activity.  And it appears the prime working age group will exceed the previous peak later this year.

Note: If we expand the prime working age to 25 to 64, the story is a little different.  The 55 to 64 age group is still expanding, but that will change in a few years - and that will slow growth in the 25 to 64 total age group.

Demographics are now improving in the U.S.!

by Calculated Risk on 9/03/2016 08:12:00 AM

This will be light week for economic data.

The preliminary annual benchmark revision for the employment report will be released on Wednesday.

----- Monday, Sept 5th -----
All US markets will be closed in observance of the Labor Day holiday.

----- Tuesday, Sept 6th -----
10:00 AM: the ISM non-Manufacturing Index for August. The consensus is for the index to decrease to 55.0 from 55.5 in July.

10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

----- Wednesday, Sept 7th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: Job Openings and Labor Turnover Survey for July from the BLS.

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

Jobs openings increased in June to 5.624 million from 5.514 million in May.

The number of job openings (yellow) were up 9% year-over-year, and Quits were up 6% year-over-year.

10:00 AM: 2016 Current Employment Statistics (CES) Preliminary Benchmark Revision. From the BLS:

"Each year, the Current Employment Statistics (CES) survey estimates are benchmarked to comprehensive counts of employment from the Quarterly Census of Employment and Wages (QCEW) for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. On September 7, 2016 at 10:00 a.m. (EST) the Bureau of Labor Statistics (BLS) will release the preliminary estimate of the annual benchmark revision to the establishment survey employment series. ... The final benchmark revision will be issued with the publication of the January 2017 Employment Situation news release in February."

2:00 PM: the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

----- Thursday, Sept 8th -----
8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 264 thousand initial claims, up from 263 thousand the previous week.

10:00 AM: The Q2 Quarterly Services Report from the Census Bureau.

3:00 PM: Consumer Credit for July from the Federal Reserve.  The consensus is for credit to increase $15.6 billion.

----- Friday, Sept 9th -----
10:00 AM: Monthly Wholesale Trade: Sales and Inventories for July. The consensus is for no change in inventories.

by Calculated Risk on 9/02/2016 08:19:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 27 August

The U.S. hotel industry recorded positive results in the three key performance metrics during the week of 21-27 August 2016, according to data from STR.

In year-over-year comparisons, the industry’s occupancy grew 4.3% to 67.5%. Average daily rate increased 4.2% to US$121.22. Revenue per available room rose 8.7% to US$81.85.
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

The red line is for 2016, dashed orange is 2015, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.

2015 was the best year on record for hotels.

So far 2016 is tracking just behind 2015, and well ahead of the median rate.

Also 2016 is tracking just ahead of 2000 (the previous 2nd best year).

The Summer travel period is ending, and the occupancy rate will decline seasonally over the next month.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 9/02/2016 03:59:00 PM

By request, here is another update of an earlier post through the August 2016 employment report including all revisions.

NOTE: Several readers have asked if I could add a lag to these graphs (obviously a new President has zero impact on employment for the month they are elected). But that would open a debate on the proper length of the lag, so I'll just stick to the beginning of each term.

Note: We frequently use Presidential terms as time markers - we could use Speaker of the House, or any other marker.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, however 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	10,884
Clinton 2	10,082
GW Bush 1	-811
GW Bush 2	415
Obama 1	1,921
Obama 2	8,9901
143 months into 2nd term: 10,035 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). Presidents Carter and George H.W. Bush only served one term, and President Obama is in the final months 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 811,000 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 396,000 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 20,966,000 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 1,921,000 more private sector jobs at the end of Mr. Obama's first term.  Forty three months into Mr. Obama's second term, there are now 10,911,000 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 366,000 jobs). 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	-708
Obama 2	3421
143 months into 2nd term, 382 pace

Looking forward, I expect the economy to continue to expand through 2016 (at least), 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 down turn due to the bursting of the housing bubble - and I predicted a recession in 2007).

For the public sector, the cutbacks are clearly over.  Right now I'm expecting some further increase in public employment during the remainder of Obama's 2nd term, but nothing like what happened during Reagan's second term.

Below is a table of the top four presidential terms for private job creation (they also happen to be the four best terms for total non-farm job creation).

Clinton's two terms were the best for both private and total non-farm job creation, followed by Reagan's 2nd term.

Currently Obama's 2nd term is on pace to be the 3rd best ever for private job creation.  However, with very few public sector jobs added, Obama's 2nd term is only on pace to be the fourth best for total job creation.

Note: Only 342 thousand public sector jobs have been added during the first forty three months of Obama's 2nd term (following a record loss of 708 thousand public sector jobs during Obama's 1st term).  This is about 25% of the public sector jobs added during Reagan's 2nd term!

Top Employment Gains per Presidential Terms (000s)
Rank	Term	Private	Public	Total Non-Farm
1	Clinton 1	10,884	692	11,576
2	Clinton 2	10,082	1,242	11,312
3	Reagan 2	9,357	1,438	10,795
4	Carter	9,041	1,304	10,345
	Obama 21	8,990	342	9,332
	Pace2	10,035	382	10,417
143 Months into 2nd Term 2Current Pace for Obama's 2nd Term

The last table shows the jobs needed per month for Obama's 2nd term to be in the top four presidential terms. Right now it looks like Obama's 2nd term will be 2nd or 3rd for private employment, and either 4th or 5th for total employment.

Average Jobs needed per month (000s) for remainder of Obama's 2nd Term
to Rank	Private	Total
#1	379	449
#2	218	398
#3	73	293
#4	10	203

by Calculated Risk on 9/02/2016 12:51:00 PM

Earlier from the Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $39.5 billion in July, down $5.2 billion from $44.7 billion in June, revised. July exports were $186.3 billion, $3.4 billion more than June exports. July imports were $225.8 billion, $1.8 billion less than June imports.

The trade deficit was smaller than the consensus forecast of $41.3 billion.

The first graph shows the monthly U.S. exports and imports in dollars through July 2016.

Click on graph for larger image.

Imports decreased and exports increased in July.

Exports are 13% above the pre-recession peak and down 2% compared to July 2015; imports are also down 2% compared to July 2015. 

It appears trade might be picking up a little.

The second graph shows the U.S. trade deficit, with and without petroleum.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil imports averaged $41.02 in July, up from $39.38 in June, and down from $54.20 in July 2015.  The petroleum deficit has generally been declining and is the major reason the overall deficit has declined a little since early 2012.

The trade deficit with China decreased to $30.3 billion in July, from $31.7 billion in July 2015. The deficit with China is a substantial portion of the overall deficit.

by Calculated Risk on 9/02/2016 09:55:00 AM

The headline jobs number was decent.  Job growth averaged 232,000 over the last three months, and both the participation rate and employment-population ratio were unchanged.  Wages increased slightly.

Earlier: August Employment Report: 151,000 Jobs, 4.9% Unemployment Rate

In August, the year-over-year change was 2.45 million jobs - a solid gain.

Average Hourly Earnings

This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth was at 2.4% YoY in August.  This series is noisy, however overall wage growth is trending up.

Note: CPI has been running around 2%, so there has been real wage growth.

Employment-Population Ratio, 25 to 54 years old

Since the overall participation rate has declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle.

The 25 to 54 participation rate increased in August to 81.3%, and the 25 to 54 employment population ratio decreased to 77.7%.

The participation rate for this group might increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s.

Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 6.1 million in August. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of persons working part time for economic reasons increased slightly in August. This level suggests slack still in the labor market.

These workers are included in the alternate measure of labor underutilization (U-6) that was unchanged at 9.7% in August.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 2.006 million workers who have been unemployed for more than 26 weeks and still want a job. This was down slightly from 2.020 million in July.

This is generally trending down, but is still high.

There are still signs of slack (as example, elevated level of part time workers for economic reasons and U-6), but there also signs the labor market is tightening.

Overall this was a decent report.  Job growth averaged 232,000 over the last three months, and 182,000 per month this year.