by Calculated Risk on 7/15/2018 08:19:00 AM

According to NBER, the four longest expansions in U.S. history are:

1) From a trough in March 1991 to a peak in March 2001 (120 months).

2) From a trough in June 2009 to today, July 2018 (109 months and counting).

3) From a trough in February 1961 to a peak in December 1969 (106 months).

4) From a trough in November 1982 to a peak in July 1990 (92 months).

So the current expansion is the second longest, and it seems very likely that the current expansion will surpass the '90s expansion in the Summer of 2019.

As I noted last year in Is a Recession Imminent? (one of the five questions I'm frequently asked)

Expansions don't die of old age! There is a very good chance this will become the longest expansion in history.

A key reason the current expansion has been so long is that housing didn't contribute for the first few years of the expansion.  Also the housing recovery was sluggish for a few more years after the bottom in 2011.  This was because of the huge overhang of foreclosed properties coming on the market. Single family housing starts and new home sales both bottomed in 2011 - so this is just the seventh year of expansion - and I expect further increases in starts and sales over the next couple of years.

Unfortunately we only have new home sales data back to 1963, and the housing cycles aren't as clear as the overall business cycle (dates are approximate).  But here are the housing expansions since 1963:

1) From a trough in January 1991 to a peak in November 1998 (94 months).  Note: This could be considered all the way until July 2005 (a total of 175 months!)

2) From a trough in February 2011 to today, July 2018 (89 months and counting).

3) From a trough in June 2000 to a peak in July 2005 (61 months).

4) From a trough in September 1981 to a peak in March 1986 (54 months).

5) From a trough in January 1975 to a peak in October 1978 (45 months).

6) From a trough in February 1970 to a peak in October 1972 (32 months).

Usually housing bottoms a few months before the economy bottoms, but peaks a year or more before the economy peaks (this is why housing is a good leading indicator).   In general the housing cycle is shorter than the business cycle.   By the end of this year, the current housing expansion will be the longest since at least 1963 (unless we consider the previous two cycles as just one - then there is a long way to go!).  

Given the number of housing starts and new home sales, there is still room for further expansion.

by Calculated Risk on 7/14/2018 08:11:00 AM

The key economic reports this week are June Housing Starts and Retail Sales.

For manufacturing, June industrial production, and the July New York and Philly Fed surveys, will be released this week.

Fed Chair Jerome Powell will testify on the semiannual Monetary Policy Report to the Congress

----- Monday, July 16th -----
8:30 AM ET: Retail sales for June will be released.  The consensus is for a 0.6% increase in retail sales.

This 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 4.9% on a YoY basis.

8:30 AM ET: The New York Fed Empire State manufacturing survey for July. The consensus is for a reading of 21.0, down from 25.0.

----- Tuesday, July 17th -----
9:15 AM: The Fed will release Industrial Production and Capacity Utilization for June.

This graph shows industrial production since 1967.

The consensus is for a 0.6% increase in Industrial Production, and for Capacity Utilization to increase to 78.3%.

10:00 AM: The July NAHB homebuilder survey. The consensus is for a reading of  69, up from 68 in June. Any number above 50 indicates that more builders view sales conditions as good than poor.

10:00 AM: Testimony, Fed Chair Jerome Powell, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate

----- Wednesday, July 18th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Housing Starts for June.

This graph shows single and total housing starts since 1968.

The consensus is for 1.320 million SAAR, down from 1.350 million SAAR in May.

During the day: The AIA's Architecture Billings Index for June (a leading indicator for commercial real estate).

10:00 AM: Testimony, Fed Chair Jerome Powell, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives

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

----- Thursday, July 19th -----
8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 220 thousand initial claims, up from 214 thousand the previous week.

8:30 AM: the Philly Fed manufacturing survey for July. The consensus is for a reading of 22.0, up from 19.9.

----- Friday, July 20th -----
10:00 AM: State Employment and Unemployment (Monthly) for June 2018

by Calculated Risk on 7/13/2018 05:50:00 PM

From the Port of Long Beach: Port of Long Beach Sees Busiest Month Ever

Container cargo volumes reached record heights at the Port of Long Beach last month, surging past the previous mark and distinguishing June 2018 as the Port’s best month ever.

Trade increased 14.2 percent in June, compared to the same month in 2017. The Port’s terminals moved 752,188 twenty-foot equivalent units (TEUs), 4.4 percent higher than the previous “best month” record set in July 2017.

And from Reuters: China's imports to U.S. ports start peaking early amid tariff threat

Chinese imports to U.S. ports rose more than expected in June, suggesting that some retailers moved up orders to insulate themselves from an intensifying trade war that threatens to send up costs on a growing number of consumer products.

Retailers such as Walmart Inc and Amazon.com (face uncertainty due to U.S. President Donald Trump’s threat to impose more tariffs on Chinese goods, and the jump in imports from the country was likely because of “pre-emptive buying in anticipation of the tariffs”, said Ben Hackett, founder of international maritime consultancy Hackett Associates.

“This is a bump that isn’t quite normal,” he said.

It appears port traffic is picking up early this year in an attempt to beat the tariffs. I'll post a graph once the Port of Los Angeles reports June traffic.

by Calculated Risk on 7/13/2018 01:03:00 PM

Note: This is the 14th year I've been writing this blog.  Sometimes it is fun to look back, especially at turning points.  Starting in January 2005, I was very bearish on housing - and in early 2007, I predicted a recession.

However in 2009 I became more optimistic. For example, in February 2009, I wrote: Looking for the Sun (Note: that post shocked many readers since I had been very bearish).

And here are a couple of posts I wrote almost exactly 9 years ago on July 15, 2009:

Is the Recession Over?

Show me the Engines of Growth

Back in February I pointed out that I expected to see some economic rays of sunshine this year. But I never expected an immaculate recovery forecast from the FOMC.

Although I've argued repeatedly that a "Great Depression 2" was extremely unlikely, I think the other extreme - an immaculate recovery - is also unlikely.

I also noted - because the recovery would be sluggish, and jobless at first - that I'd expect the NBER to wait some time before dating the recession. The NBER finally dated the end of the recession in September 2010:

CAMBRIDGE September 20, 2010 - The Business Cycle Dating Committee of the National Bureau of Economic Research met yesterday by conference call. At its meeting, the committee determined that a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion. The recession lasted 18 months, which makes it the longest of any recession since World War II.

Along the way, in February 2012, I called the bottom for housing: The Housing Bottom is Here

Currently I'm still mostly positive on the economy. Of course I'm concerned about policy, as I noted earlier this year: When the Story Changes, Be Alert

So I'm currently more concerned, but I'm still not on recession watch. For example this week I wrote Investment and Recessions concluding "there is no recession in sight".

by Calculated Risk on 7/13/2018 11:17:00 AM

From Merrill Lynch:

We continue to track 3.8% qoq saar for 2Q. [July 13 estimate].
emphasis added

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2018 is 3.9 percent on July 11, up from 3.8 percent on July 6. [July 11 estimate]

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at 2.8% for 2018:Q2 and 2.6% for 2018:Q3. [July 13 estimate]

CR Note: These estimates suggest real annualized GDP in the 2.8% to 3.9% range in Q2.

by Calculated Risk on 7/13/2018 08:05:00 AM

Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

The graph below shows the year-over-year (YoY) change for non-contingent inventory in Houston, Las Vegas and Sacramento (all through June 2018), and also Phoenix (through May) and total existing home inventory as reported by the NAR (through May 2018).

Click on graph for larger image.

This shows the YoY change in inventory for Houston, Las Vegas, Phoenix, and Sacramento.  The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory in Sacramento was up 26% year-over-year in June (inventory was still very low), and has increased YoY for nine consecutive months. 

Also note that inventory is still down 11% YoY in Las Vegas (red), but the YoY decline has been getting smaller - and inventory in Vegas will probably be up YoY very soon.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY recently as oil prices increased.

Inventory is a key for the housing market, and I will be watching inventory for the impact of the new tax law and higher mortgage rates on housing.   Currently I expect national inventory to be up YoY by the end of 2018 (but still be low).

This is not comparable to late 2005 when inventory increased sharply signaling the end of the housing bubble, but it does appear that inventory is bottoming nationally (and has already bottomed in some areas like California).

by Calculated Risk on 7/12/2018 06:42:00 PM

Friday:
• At 10:00 AM ET, University of Michigan's Consumer sentiment index (Preliminary for July).

• At 11:00 AM, Federal Reserve Monetary Policy Report to Congress

From SacRealtor.org: June 2018 Statistics – Sacramento Housing Market – Single Family Homes

June closed with 1,767 sales, a 2.1% increase from May’s 1,730. Compared to June last year (1,824), the figure is a 3.1% decrease. Of the 1,767 sales this month, 225 (12.7%) used cash financing, 1,104 (62.5%) used conventional, 302 (17.1%) used FHA, 101 (5.7%) used VA and 35 (2%) used Other† types of financing.
...
Active Listing Inventory increased 6% from 2,509 to 2,660 units. The Months of Inventory, however, remained unchanged at 1.5 Months. This figure represents the amount of time (in months) it would take for the current rate of sales to deplete the total active listing inventory. [CR Note: Active inventory is up 26.4% year-over-year]

The Average DOM (days on market) increased from 20 to 21 from May to June and the Median DOM increased from 9 to 10. “Days on market” represents the days between the initial listing of the home as “active” and the day it goes “pending.” Of the 1,767 sales this month, 80.1% (1,415) were on the market for 30 days or less and 92.4% (1,632) were on the market for 60 days or less.
emphasis added

CR Note: Inventory is still low, but now increasing significantly year-over-year in Sacramento.

by Calculated Risk on 7/12/2018 04:08:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 7 July

The U.S. hotel industry reported mixed year-over-year results in the three key performance metrics during the week of 1-7 July 2018, according to data from STR.

In comparison with the week of 2-8 July 2017, the industry recorded the following:

• Occupancy: -3.1% to 63.5%
• Average daily rate (ADR): +1.1% to US$123.59
• Revenue per available room (RevPAR): -2.0% to US$78.47

STR analysts note that occupancy declines were mostly a result of the Fourth of July holiday, especially early in the week.
emphasis added

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

Click on graph for larger image.

The red line is for 2018, dash light blue is 2017 (record year due to hurricanes), blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

The occupancy rate, to date, is slightly ahead of the record year in 2017.  Note: 2017 finished strong due to the impact of the hurricanes.

On a seasonal basis, the occupancy rate will be solid through the summer travel season.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 7/12/2018 02:00:00 PM

The BLS reported this morning:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 3.1 percent over the last 12 months to an index level of 246.196 (1982-84=100). For the month, the index increased 0.2 percent prior to seasonal adjustment.

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).

• In 2017, the Q3 average of CPI-W was 239.668.

This was the highest Q3 average, so we have to compare Q3 this year to last year.

Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

CPI-W was up 3.1% year-over-year in June, and although this is very early - we need the data for July, August and September - my current guess is COLA will probably be over 3% this year, the largest annual increase since 2012.

Contribution and Benefit Base

The contribution base will be adjusted using the National Average Wage Index. This is based on a one year lag. The National Average Wage Index is not available for 2017 yet, but wages probably increased again in 2017. If wages increased the average of the last three years, then the contribution base next year will increase to around $132,000 in 2019, from the current $128,400.

Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).

by Calculated Risk on 7/12/2018 11:30:00 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% (2.8% annualized rate) in June. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.7% 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 0.1% (1.6% annualized rate) in June. The CPI less food and energy rose 0.2% (2.0% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed released the median CPI details for June here.  Motor fuel was up 7% annualized in June.

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 2.8%, the trimmed-mean CPI rose 2.2%, and the CPI less food and energy rose 2.3%. Core PCE is for May and increased 1.96% year-over-year.

On a monthly basis, median CPI was at 2.8% annualized, trimmed-mean CPI was at 2.7% annualized, and core CPI was at 1.6% annualized.

Using these measures, inflation increased year-over-year in June.  Overall, these measures are above the Fed's 2% target (Core PCE is close).