by Calculated Risk on 10/05/2016 10:16:00 AM

The September ISM Non-manufacturing index was at 57.1%, up from 51.4% in August. The employment index increased in September to 57.2%, up from 50.7% in August. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management:September 2016 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in September for the 80th 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 57.1 percent in September, 5.7 percentage points higher than the August reading of 51.4 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased substantially to 60.3 percent, 8.5 percentage points higher than the August reading of 51.8 percent, reflecting growth for the 86th consecutive month, at a noticeably faster rate in September. The New Orders Index registered 60 percent, 8.6 percentage points higher than the reading of 51.4 percent in August. The Employment Index increased 6.5 percentage points in September to 57.2 percent from the August reading of 50.7 percent. The Prices Index increased 2.2 percentage points from the August reading of 51.8 percent to 54 percent, indicating prices increased in September for the sixth consecutive month. According to the NMI®, 14 non-manufacturing industries reported growth in September. The comments from the respondents are mostly positive about business conditions and the overall economy. A degree of uncertainty does exist due to geopolitical conditions coupled with the upcoming U.S. presidential election."
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 well above the consensus forecast of 52.9, and suggests faster expansion in September than in August.

by Calculated Risk on 10/05/2016 08:42:00 AM

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 $40.7 billion in August, up $1.2 billion from $39.5 billion in July, revised. August exports were $187.9 billion, $1.5 billion more than July exports. August imports were $228.6 billion, $2.6 billion more than July imports.

The trade deficit was larger than the consensus forecast of $39.0 billion.

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

Click on graph for larger image.

Imports and exports both increased in August.

Exports are 14% above the pre-recession peak and up 1% compared to August 2015; imports are down 1% compared to August 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 $39.38 in August, down from $41.02 in July, and down from $49.33 in August 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 $33.9 billion in August, from $35.0 billion in August 2015. The deficit with China is a substantial portion of the overall deficit, but the deficit with China has been declining.

by Calculated Risk on 10/05/2016 08:19:00 AM

From ADP:

Private sector employment increased by 154,000 jobs from August to September according to the September ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
Goods-producing employment was up by 3,000 jobs in September, following August losses of 9,000. The construction industry added 11,000 jobs, following August losses of 2,000 jobs. Meanwhile, manufacturing jobs were down 6,000 in September, after losing 4,000 in the previous month.

Service-providing employment rose by 151,000 jobs in September.
...
Mark Zandi, chief economist of Moody’s Analytics, said, “The current record of consecutive monthly job gains continued in September. With job openings at all-time highs and layoffs near all-time lows, the job market remains in full-swing. Job growth has moderated in recent months, but only because the economy is finally returning to full-employment.”

This was below the consensus forecast for 170,000 private sector jobs added in the ADP report. 

The BLS report for September will be released Friday, and the consensus is for 168,000 non-farm payroll jobs added in September.

by Calculated Risk on 10/05/2016 07:00:00 AM

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

Mortgage applications increased 2.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 30, 2016.

... The Refinance Index increased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.1 percent from one week earlier. The unadjusted Purchase Index decreased 0.2 percent compared with the previous week and was 14 percent lower 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) decreased to 3.62 percent, the lowest level since July 2016, from 3.66 percent, with points decreasing to 0.32 from 0.33 (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 has increased this year since rates have declined.


The second graph shows the MBA mortgage purchase index.

The purchase index was "14 percent lower than the same week one year ago".  Don't read too much into the year-over-year decline - remember last year there was a 27% jump in applications the week prior to the TILA-RESPA regulatory change.  Next week applications will be up year-over-year.

by Calculated Risk on 10/04/2016 06:55:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Rise Quickly on Overseas Concerns

Mortgage Rates moved significantly higher today, relative to recently narrow ranges. It's enough to bring the most prevalent conventional 30yr fixed quote back up to 3.5% (from 3.375%) on top tier scenarios. ... The source of today's panic is speculation that Europe is getting closer to its own version of "tapering." This refers to the gradual reduction in the amount of bonds being purchased by central banks. In the US, the "taper tantrum" in mid 2013 was the result.
emphasis added

Wednesday:
• Early, Reis Q3 2016 Mall Survey of rents and vacancy rates.

• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:15 AM, The ADP Employment Report for September. This report is for private payrolls only (no government). The consensus is for 170,000 payroll jobs added in September, down from 177,000 added in August.

• At 8:30 AM, Trade Balance report for August from the Census Bureau. The consensus is for the U.S. trade deficit to be at $39.0 billion in August from $39.5 billion in July.

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for August. The consensus is a 0.2% decrease in orders.

• Also at 10:00 AM, the ISM non-Manufacturing Index for September. The consensus is for index to increase to 52.9 from 51.4 in August.

by Calculated Risk on 10/04/2016 02:52:00 PM

The Fed's Household Debt Service ratio through Q2 2016 was released last week: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.

These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013.

The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income.

The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.

This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:

The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only an approximation of the debt service ratio faced by households. Nonetheless, this approximation is useful to the extent that, by using the same method and data series over time, it generates a time series that captures the important changes in the household debt service burden.

Click on graph for larger image.

The graph shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio increased slightly in Q2, and has been moving sideways and is near a record low.  Note: The financial obligation ratio (FOR) was unchanged in Q2 and is also near a record low (not shown)

The DSR for mortgages (blue) are near the low for the last 35 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

The consumer debt DSR (yellow) has been increasing for the last three years.

This data suggests aggregate household cash flow has improved.

by Calculated Risk on 10/04/2016 11:59:00 AM

Reis reported that the apartment vacancy rate was at 4.4% in Q3 2016, unchanged from Q2, and up from 4.3% in Q3 2015. The vacancy rate peaked at 8.0% at the end of 2009, and bottomed at 4.2% in 2014 and early 2015.

A few comments from Reis Economist Barbara Denham:

For the sixth quarter in a row, new construction exceeded net absorption in the apartment market but only by a slim margin: 37,744 in completed units to 37,693 absorbed units. ... While there is a chance that the vacancy rate for the third quarter could still increase once the data is finalized, we had anticipated this and do not fear that rent growth will slow dramatically. In fact, rent growth in the third quarter, 0.9%, was in line with our forecasts and demonstrates the health of the apartment market. New construction should continue to exceed net absorption in most of the coming quarters ...
...
Asking and effective rents both grew by 0.9% during the third quarter, slightly below last quarter's growth of 1.1% and well short of the post-recovery high of 1.7% quarterly growth rate seen in Q3 2015. We had expected rent growth to slow so do not view this deceleration as cause for alarm. In fact, the gap between asking rents and effective rents - that net out concessions such as free rent - has not widened in the last few quarters which suggests that landlords generally remain confident that conditions will continue to improve in the wake of stronger job growth, although rents have declined in a few of the top submarkets.

The deceleration in rent growth is seen in the year-over-year growth rates. Since Q3 2015, asking and effective rents have grown 3.8%, a decline from the 4.6% year-over-year growth in asking rents and 4.5% growth rate in effective rents.
...
Market conditions in the apartment market softened a bit in the third quarter, a period they generally see the highest activity and strongest rent growth. We had expected this deceleration given the robust construction underway throughout the U.S. Evidence that recent multifamily permits have slowed considerably suggests that developers, and likely lenders, are concerned about leasing the plethora of units expected to come online in the coming year or so.
emphasis added

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

The vacancy rate had been mostly moving sideways for the last few years.  Now that completions are catching up with starts, the vacancy rate has started to increase a little.

This suggests rent growth - and multi-family starts - will slow a little.

Apartment vacancy data courtesy of Reis.

by Calculated Risk on 10/04/2016 09:47:00 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 US Home Price Report Shows Prices Up 6.2 Percent Year Over Year in August 2016

Home prices nationwide, including distressed sales, increased year over year by 6.2 percent in August 2016 compared with August 2015 and increased month over month by 1.1 percent in August 2016 compared with July 2016, according to the CoreLogic HPI.
...
“Home prices are now just 6 percent below the nominal peak reached in April 2006,” said Dr. Frank Nothaft, chief economist for CoreLogic. “With prices forecasted to increase by 5 percent over the next year, prices will be back to their peak level in 2017.”

“Housing values continue to rise briskly on stronger fundamental and investor-fueled demand, as well as lack of adequate supply,” said Anand Nallathambi, president and CEO of CoreLogic. “This continued price appreciation is contributing to a growing affordability crisis in many markets around the country.”
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 1.1% in August (NSA), and is up 6.2% over the last year.

This index is not seasonally adjusted, and this was another solid month-to-month increase.

The index is still 6.0% below the bubble peak in nominal terms (not inflation adjusted).

The second graph shows the YoY change in nominal terms (not adjusted for inflation).

The YoY increase had been moving sideways over the last two years.

The year-over-year comparison has been positive for fifty five consecutive months since turning positive year-over-year in February 2012.

by Calculated Risk on 10/03/2016 05:46:00 PM

Based on a preliminary estimate from WardsAuto, light vehicle sales were at a 17.65 million SAAR in September.

That is down about 2% from September 2015, and up 4.3% from the 16.92 million annual sales rate last month.


Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for September (red, light vehicle sales of 17.65 million SAAR from WardsAuto).

This was above the consensus forecast of 17.4 million SAAR (seasonally adjusted annual rate).

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

Sales for 2016 - through the first nine months - are up slightly from the comparable period last year.

After increasing significantly for several years following the financial crisis, auto sales are now moving mostly sideways ...

by Calculated Risk on 10/03/2016 01:01:00 PM

Earlier today, the Census Bureau reported that overall construction spending declined in August:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during August 2016 was estimated at a seasonally adjusted annual rate of $1,142.2 billion, 0.7 percent below the revised July estimate of $1,150.6 billion. The August figure is 0.3 percent below the August 2015 estimate of $1,145.2 billion.

Private spending and public spending decreased in August:

Spending on private construction was at a seasonally adjusted annual rate of $871.6 billion, 0.3 percent below the revised July estimate of $874.6 billion. ...

In August, the estimated seasonally adjusted annual rate of public construction spending was $270.5 billion, 2.0 percent below the revised July estimate of $276.0 billion.
emphasis added

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Residential and public spending have slumped a little recently.

Private residential spending has been generally increasing, but is 34% below the bubble peak.

Non-residential spending is now 2.0% above the previous peak in January 2008 (nominal dollars).

Public construction spending is now 17% below the peak in March 2009, and only 3% above the austerity low in February 2014.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 1%. Non-residential spending is up 4% year-over-year. Public spending is down 9% year-over-year.

Looking forward, all categories of construction spending should increase in 2016. Residential spending is still fairly low, non-residential is increasing - although there has been a recent decline in public spending.

This was well below the consensus forecast of a 0.3% increase for August.