by Calculated Risk on 11/18/2016 11:15:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Expanded Slightly

The Federal Reserve Bank of Kansas City released the November Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity expanded slightly.

“Factory activity in our region rose for the third straight month in November, following a year and a half of near constant declines,” said Wilkerson. “Firms also remained optimistic about future activity.” 
...
The month-over-month composite index was 1 in November, down from 6 in October and September ... Most month-over-month indexes slowed somewhat in November.  The production index decreased from 18 to 9, and the shipments, new orders, and order backlog indexes also dropped.  The employment index eased from 7 to 1, still the second highest reading in over a year. ...
emphasis added

The Kansas City region was hit hard by the decline in oil prices, but activity is starting to expand again.

by Calculated Risk on 11/18/2016 10:24:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Unemployment rates were significantly lower in October in 7 states, higher in 2 states, and stable in 41 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Seven states had notable jobless rate decreases from a year earlier, 5 states had increases, and 38 states and the District had no significant change. The national unemployment rate was 4.9 percent in October, little changed from that of both September 2016 and October 2015.
...
New Hampshire and South Dakota had the lowest unemployment rates in October, 2.8 percent each. Alaska and New Mexico had the highest jobless rates, 6.8 percent and 6.7 percent, respectively.
emphasis added

Click on graph for larger image.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.

The states are ranked by the highest current unemployment rate. Alaska, at 6.8%, had the highest state unemployment rate.  Note that the lowest unemployment rate in Alaska was 6.3%, so this is pretty close to the all time low.

The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently no state has an unemployment rate at or above 7% (light blue); Only four states and D.C are at or above 6% (dark blue). The states are Alaska (6.8%), New Mexico (6.7%),  Louisiana (6.3%),  D.C. (6.1%), and West Virginia (6.0%).

by Calculated Risk on 11/18/2016 05:01:00 AM

From housing economist Tom Lawler:

Based on publicly-available local realtor/MLS reports from across the country released through today, I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.47 million in October, unchanged from September’s preliminary pace and up 3.4% from last October’s seasonally adjusted pace. I project that unadjusted sales last month were virtually unchanged from last October, with the difference between the YOY growth in adjusted vs. unadjusted sales reflecting calendar effects (one fewer business day, and one fewer Friday, this October compared to last October. Hurricane Matthew negatively impacted hone closings in some southeastern coastal markets, but the impact on the national sales numbers was fairly modest.

On the inventory front, local realtor/MLS data, as well as data compiled by realtor.com, suggest that the inventory of existing homes for sale in October fell by more on the month than last October. How that translates into the NAR’s estimate for October is not clear, however, because the NAR’s September inventory estimate looked too high relative either to local realtor/MLS reports or to realtor/com data. For September the NAR estimated that the inventory of existing homes for sale showed a “contra-seasonal” increase of 1.5% from August (NAR seasonal factors show a “typical” monthly drop in September of about 3.9%), and a 6.8% YOY decline. Realtor.com data, in contrast, showed a monthly drop of 1.7%, and a YOY decline of 9.4%. It should be noted that the NAR inventory numbers are estimates for the end of the month, while realtor.com numbers reflect average listings during the month. If anything, however, end of month numbers would be expected to show even bigger monthly declines that average listings in September (given the trend in listings at that time of the year).

If I had to “guess,” I’d guess that the NAR’s inventory estimate for October will be about 4.9% lower than September’s preliminary estimate (which should be revised downward), and 8.1% lower than a year ago.

Finally, local realtor/MLS data suggest that the NAR’s estimate of the median existing SF home sales price in October should be up about 7.0% from last October.

CR Note: The NAR is scheduled to release October existing home sales on Tuesday, November 22nd. The consensus is for 5.44 million SAAR in October.

by Calculated Risk on 11/17/2016 04:41:00 PM

A few brief excerpts from analysis by Goldman Sachs economist Alec Phillips: A Fiscal Boost in 2017: How Much, How Fast?

Tax reform has political momentum, which is likely to increase the budget deficit... In light of the election result, we assume that the deficit will increase by more than previously expected. Specifically, we assume that fiscal policy choices under the next Congress will increase the budget deficit by around 0.75% of GDP, or around $150bn, in 2018, and similar amounts over the next few years.

... but the market is more focused on fiscal “stimulus” than Congress is. There are risks in both directions to our fiscal assumptions, but we note that financial markets appear to be more focused on fiscal “stimulus” than lawmakers are. ...

Both sides support some type of infrastructure program, but neither side seems enthusiastic. Although President-elect Trump has highlighted infrastructure among the priorities he hopes to address, the reaction from Congressional Republicans has been tepid. While some believe the inclusion of an infrastructure plan in the tax legislation that Congress is expected to consider in 2017 could increase Democratic support for the combined package, others are wary of proposals to use the proceeds from taxing the unrepatriated profits of US multinationals to pay for it. Instead, Republican lawmakers appear more inclined to use the bulk of the proceeds from taxing those overseas earnings to offset the budgetary effects of reducing statutory tax rates.

Obamacare “repeal” seems unlikely to change the fiscal picture for 2017 or even 2018. Congress will face a number of challenges in reforming the ACA in 2017, and we would expect that the process to devise a replacement plan will take until late 2017, if not 2018. We would also expect whatever replaces the current system to take effect after the midterm congressional elections, in 2019. This could lead to uncertainty regarding the changes that might be made, but we expect that whatever changes to the ACA might ultimately occur, they would probably not take effect until 2018 at the earliest and more likely 2019.

CR Note: The "infrastructure" proposal that many investors are focusing on is really a proposal for about $100+ billion in tax credits to spur private investment in infrastructure (I've seen some people talking about $1 trillion in infrastructure investment - but that is the projected size of the private investment, not the proposed government spending).  This proposal is actually very modest in terms of a fiscal boost.   More analysis to come when we see the actual proposals, but I think analysts might be overestimating the boost from government spending in 2017.

by Calculated Risk on 11/17/2016 01:45:00 PM

Earlier: Housing Starts increased to 1.323 Million Annual Rate in October

There was a sharp decline in multi-family starts in the previous month (September), and multi-family bounced back in October.

But the big story is single family starts were up again, and there were upward revisions to the prior two months combined.  As always, I wouldn't put too much emphasis on any one report, but the trend is positive!

This first graph shows the month to month comparison between 2015 (blue) and 2016 (red).

Click on graph for larger image.

Year-to-date starts are up 5.9% compared to the same period in 2015.  My guess was starts would increase 4% to 8% in 2016, and that still looks about right.

Multi-family starts are down 1.8% year-to-date, and single-family starts are up 10.1% year-to-date.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries, although this has dipped lately).  Completions lag starts by about 12 months.

I think most of the growth in multi-family starts is probably behind us - in fact multi-family starts probably peaked in June 2015 (at 510 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics).   I also expect completions to move up some more (closer to starts).

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

A strong housing report.

by Calculated Risk on 11/17/2016 11:19:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in October. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.2% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.4% (4.4% annualized rate) in October. The CPI less food and energy rose 0.1% (1.8% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed released the median CPI details for October here. Motor fuel was up 122% annualized in October!

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.5%, the trimmed-mean CPI rose 2.0%, and the CPI less food and energy rose 2.1%. Core PCE is for September and increased 1.7% year-over-year.

On a monthly basis, median CPI was at 2.1% annualized, trimmed-mean CPI was at 2.2% annualized, and core CPI was at 1.8% annualized.

Using these measures, inflation has generally been moving up, and most of these measures are close to the Fed's 2% target (Core PCE is still below).

by Calculated Risk on 11/17/2016 09:26:00 AM

From Fed Chair Janet Yellen's testimony before the Joint Economic Committee, U.S. Congress, Washington, D.C.: The Economic Outlook

I will turn now to the implications of recent economic developments and the economic outlook for monetary policy. The stance of monetary policy has supported improvement in the labor market this year, along with a return of inflation toward the FOMC's 2 percent objective. In September, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent and stated that, while the case for an increase in the target range had strengthened, it would, for the time being, wait for further evidence of continued progress toward its objectives.

At our meeting earlier this month, the Committee judged that the case for an increase in the target range had continued to strengthen and that such an increase could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee's objectives. This judgment recognized that progress in the labor market has continued and that economic activity has picked up from the modest pace seen in the first half of this year. And inflation, while still below the Committee's 2 percent objective, has increased somewhat since earlier this year. Furthermore, the Committee judged that near-term risks to the outlook were roughly balanced.

Waiting for further evidence does not reflect a lack of confidence in the economy. Rather, with the unemployment rate remaining steady this year despite above-trend job gains, and with inflation continuing to run below its target, the Committee judged that there was somewhat more room for the labor market to improve on a sustainable basis than the Committee had anticipated at the beginning of the year. Nonetheless, the Committee must remain forward looking in setting monetary policy. Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the Committee's longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability.

The FOMC continues to expect that the evolution of the economy will warrant only gradual increases in the federal funds rate over time to achieve and maintain maximum employment and price stability. This assessment is based on the view that the neutral federal funds rate--meaning the rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel--appears to be currently quite low by historical standards. Consistent with this view, growth in aggregate spending has been moderate in recent years despite support from the low level of the federal funds rate and the Federal Reserve's large holdings of longer-term securities. With the federal funds rate currently only somewhat below estimates of the neutral rate, the stance of monetary policy is likely moderately accommodative, which is appropriate to foster further progress toward the FOMC's objectives. But because monetary policy is only moderately accommodative, the risk of falling behind the curve in the near future appears limited, and gradual increases in the federal funds rate will likely be sufficient to get to a neutral policy stance over the next few years.
emphasis added

A rate hike in December is very likely.  The incoming data has been strong (see housing starts and unemployment claims today that were released after her comments were prepared).

by Calculated Risk on 11/17/2016 08:55:00 AM

The DOL reported:

In the week ending November 12, the advance figure for seasonally adjusted initial claims was 235,000, a decrease of 19,000 from the previous week's unrevised level of 254,000. This is the lowest level for initial claims since November 24, 1973 when it was 233,000. The 4-week moving average was 253,500, a decrease of 6,500 from the previous week's revised average. The previous week's average was revised up by 250 from 259,750 to 260,000.

There were no special factors impacting this week's initial claims. This marks 89 consecutive weeks of initial claims below 300,000, the longest streak since 1970.
emphasis added

The previous week was unrevised.

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 253,500.

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

by Calculated Risk on 11/17/2016 08:40:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in October were at a seasonally adjusted annual rate of 1,323,000. This is 25.5 percent above the revised September estimate of 1,054,000 and is 23.3 percent above the October 2015 rate of 1,073,000.

Single-family housing starts in October were at a rate of 869,000; this is 10.7 percent above the revised September figure of 785,000. The October rate for units in buildings with five units or more was 445,000.

Building Permits:
Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,229,000. This is 0.3 percent above the revised September rate of 1,225,000 and is 4.6 percent above the October 2015 estimate of 1,175,000.

Single-family authorizations in October were at a rate of 762,000; this is 2.7 percent above the revised September figure of 742,000. Authorizations of units in buildings with five units or more were at a rate of 439,000 in October.
emphasis added

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) increased significantly in October compared to September.  Multi-family starts are up sharply year-over-year.

Multi-family is volatile, and this was a bounce back from the decline last month.

Single-family starts (blue) increased in October, and are up 22% year-over-year.  This is the highest level for single family starts since 2007.

The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low),

Total housing starts in October were above expectations - and at the highest level since 2007 - and August and September were revised up.  A strong report. I'll have more later ...

by Calculated Risk on 11/16/2016 08:38:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 257 thousand initial claims, up from 254 thousand the previous week.

• Also at 8:30 AM, The Consumer Price Index for October from the BLS. The consensus is for 0.4% increase in CPI, and a 0.2% increase in core CPI.

• Also at 8:30 AM, Housing Starts for October. The consensus is for 1.168 million, up from the September rate.

• Also at 8:30 AM, the Philly Fed manufacturing survey for November. The consensus is for a reading of 8.0, down from 9.7.

• At 10:00 AM, Testimony by Fed Chair Janet Yellen, The Economic Outlook, Before the Joint Economic Committee of Congress, U.S. Congress, Washington, D.C.