by Calculated Risk on 10/14/2016 10:08:00 AM

The preliminary University of Michigan consumer sentiment index for October was at 87.9, down from 91.2 in September.

he Sentiment Index slipped in early October to its lowest level since last September and the second lowest level in the past two years. The early October loss was concentrated among households with incomes below $75,000, whose Index fell to its lowest level since August of 2014. In contrast, confidence among upper income households remained unchanged in early October from last month, and more importantly, at a level that was nearly identical to its average in the prior twenty-four months (98.3 vs. 98.2). Perhaps the most concerning figure was a decline in the Expectations Index, which fell to its lowest level in the past two years, again mainly due to declines among households with incomes below $75,000. It is likely that the uncertainty surrounding the presidential election had a negative impact, especially among lower income consumers, and without that added uncertainty, the confidence measures may not have weakened.
emphasis added

Click on graph for larger image.

by Calculated Risk on 10/14/2016 08:38:00 AM

On a monthly basis, retail sales increased 0.6 percent from August to September (seasonally adjusted), and sales were up 2.7% from September 2015.

From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $459.8 billion, an increase of 0.6 percent from the previous month, and 2.7 percent above September 2015. ... The July 2016 to August 2016 percent change was revised from down 0.3 percent to down 0.2 percent.

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline were up 0.5% in September.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales ex-gasoline increased by 3.3% on a YoY basis.

The increase in September was at expectations and the previous two months were revised up; a solid report.

by Calculated Risk on 10/13/2016 07:11:00 PM

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

• Also at 8:30 AM, Retail sales for September will be released.  The consensus is for 0.6% increase in retail sales in September.

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

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for October). The consensus is for a reading of 92.0, up from 91.2 in August.

• At 1:30 PM, Speech by Fed Chair Janet Yellen, Macroeconomic Research After the Crisis, At the Federal Reserve Bank of Boston’s Annual Research Conference: The Elusive "Great" Recovery: Causes and Implications for Future Business Cycle Dynamics, Boston, Massachusetts

by Calculated Risk on 10/13/2016 03:34:00 PM

Here is an excerpt from Merrill Lynch research piece today on September CPI to be released next week:

Consumer prices likely rose by 0.3% mom in September, lifting the year-on-year rate to 1.5%. We see a healthy gain in energy prices (up 2.6% mom), although food prices were likely once again weak. Excluding food and energy, we see a mere 0.1% mom increase: the previous months’ gain looks outsized, particularly for medical care commodities prices and we could get some payback. In this scenario, the year-on-year rate for core CPI could slow slightly to 2.2%

This probably means that CPI-W will be positive year-over-year, and the Cost-of-Living-Adjustment (COLA) will be positive for next year (although small). But even with a small increase in COLA, the contribution base will increase significantly.

by Calculated Risk on 10/13/2016 11:33:00 AM

The WSJ surveyed 59 "academic, business and financial economists" about the possibility of a recession in the next four years: Economists Believe a Recession Is Likely Within Next Four Years

The U.S. must face one of two scenarios: Either the next president will face a recession in office, or the U.S. will have the longest economic expansion in its history.

... Economists in The Wall Street Journal’s latest monthly survey of economists put the odds of the next downturn happening within the next four years at nearly 60%.

That is ... a recognition that throughout its history the American economy has never grown for more than a decade without a recession. Over the course of the next four years, something—whether exhaustion of the economy’s cyclical momentum, a policy mistake from the Federal Reserve or some outside shock—could knock the economy off course.

“We do not think expansions die of ‘old age’ but there’s more probability that a shock will hit the U.S. economy further out in the horizon,” said Lewis Alexander, chief U.S. economist at investment bank Nomura.

Four years seems like forever and  I usually only forecast out a year or a little more.

Looking back to 2005, I argued the housing bubble - and coming bust - would probably take the economy into recession. However it wasn't until January 2007 that I predicted a recession (and the recession started in December 2007).  

That was a pretty obvious reason for a recession, and it took almost two years after the housing bust started for the recession to materialize.  I don't currently see anything that will cause a recession.

I don't know about the odds in the next four years, but I doubt there will be a recession in 2017 (and 2018 seems unlikely too - but that is still a long time from now).

by Calculated Risk on 10/13/2016 08:33:00 AM

The DOL reported:

In the week ending October 8, the advance figure for seasonally adjusted initial claims was 246,000, unchanged from the previous week's revised level. The previous week's level was revised down by 3,000 from 249,000 to 246,000. The 4-week moving average was 249,250, a decrease of 3,500 from the previous week's revised average. This is the lowest level for this average since November 3, 1973 when it was 244,000. The previous week's average was revised down by 750 from 253,500 to 252,750.

There were no special factors impacting this week's initial claims. This marks 84 consecutive weeks of initial claims below 300,000, the longest streak since 1970.

The previous week was revised down.

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 decreased to 249,250.

This was lower than the consensus forecast of 254,000. The low level of claims suggests relatively few layoffs.

by Calculated Risk on 10/12/2016 08:05:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates at 4-Month Highs

In and of itself, today wasn't too bad of a day. Mortgage Rates were only slightly higher, and were generally unfazed by the release of the Minutes from the most recent Fed meeting. Market participants were concerned about the Minutes making a clearer case for a rate hike at the next meeting. Ultimately, the Minutes didn't tell us anything we didn't already know and bond markets (which dictate mortgage rates) improved.

Now for the unfortunate aspects of the day! When we consider today in the context of the past 9 days, we see that it prolongs a depressingly long losing streak. Mortgage rates haven't moved lower since September 27th. Moreover, they're roughly a quarter point higher since then! As for today's bond market improvements, they were merely enough to get bonds back near yesterday's latest levels, due to significant overnight weakness. In other words, bonds lost more ground overnight and this morning than they were able to gain back this afternoon.

3.625% is now the most prevalent conventional 30yr fixed quote on top tier scenarios, but several lenders remain at 3.5%.
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 10/12/2016 02:08:00 PM

Different views: Some FOMC members think that waiting might lead to later larger rate increases - and a recession. Other think "there could be greater scope for economic growth without putting undue pressure on labor markets". Most of the key FOMC members are in the second group.

From the Fed: Minutes of the Federal Open Market Committee, September 20-21, 2016 . Excerpts:

In their discussion of the outlook, participants considered the likelihood of, and the potential benefits and costs associated with, a more pronounced undershooting of the longer-run normal rate of unemployment than envisioned in their modal forecasts. A number of participants noted that they expected the unemployment rate to run somewhat below its longer-run normal rate and saw a firming of monetary policy over the next few years as likely to be appropriate. A few participants referred to historical episodes when the unemployment rate appeared to have fallen well below its estimated longer-run normal level. They observed that monetary tightening in those episodes typically had been followed by recession and a large increase in the unemployment rate. Several participants viewed this historical experience as relevant for the Committee's current decisionmaking and saw it as providing evidence that waiting too long to resume the process of policy firming could pose risks to the economic expansion, or noted that a significant increase in unemployment would have disproportionate effects on low-skilled workers and minority groups. Some others judged this historical experience to be of limited applicability in the present environment because the economy was growing only modestly above trend, inflation was below the Committee's 2 percent objective, and inflation expectations were low--circumstances that differed markedly from those earlier episodes. Moreover, the increase in labor force participation over the past year suggested that there could be greater scope for economic growth without putting undue pressure on labor markets; it was also noted that the longer-run normal rate of unemployment could be lower than previously thought, with a similar implication. Participants agreed that it would be useful to continue to analyze and discuss the dynamics of the adjustment of the economy and labor markets in circumstances when unemployment falls well below its estimated longer-run normal rate.
emphasis added

by Calculated Risk on 10/12/2016 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings decreased to 5.4 million on the last business day of August, the U.S. Bureau of Labor Statistics reported today. Hires and separations were little changed at 5.2 million and 5.0 million, respectively. ...
...
The number of quits was essentially unchanged in August at 3.0 million. The quits rate was 2.1 percent. Over the month, the number of quits was little changed for total private and for government.
emphasis added

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 decreased in August to 5.443 million from 5.831 million in July.

The number of job openings (yellow) are up 3% year-over-year.

Quits are up 4% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Even with the decline in Job Openings, this is another solid report.

by Calculated Risk on 10/12/2016 07:00:00 AM

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

Mortgage applications decreased 6.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 7, 2016.

... The Refinance Index decreased 8 percent from the previous week, to its lowest level since June 2016. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 27 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 its highest level since September 2016, 3.68 percent, from 3.62 percent, with points increasing to 0.35 from 0.32 (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.  Since rates are up a little recently, refinance activity has declined a little.


The second graph shows the MBA mortgage purchase index.

The purchase index was "27 percent higher than the same week one year ago".  Don't read too much into the year-over-year increase - remember last year there was a sharp increase in applications the week prior to the TILA-RESPA regulatory change, and the following week applications plunged 28%. Since this is a comparison to the week following the regulatory change, applications are up year-over-year. This will smooth out soon.