by Calculated Risk on 8/10/2018 08:32:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in July on a seasonally adjusted basis after rising 0.1 percent in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.9 percent before seasonal adjustment.

The index for shelter rose 0.3 percent in July and accounted for nearly 60 percent of the seasonally adjusted monthly increase in the all items index. The food index rose slightly in July, with major grocery store food group indexes mixed. The energy index fell 0.5 percent, as all the major component indexes declined.

The index for all items less food and energy rose 0.2 percent in July, the same increase as in May and June. … The all items index rose 2.9 percent for the 12 months ending July, the same increase as for the period ending June. The index for all items less food and energy rose 2.4 percent for the 12 months ending July; this was the largest 12-month increase since the period ending September 2008.
emphasis added

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was at the consensus forecast.

by Calculated Risk on 8/09/2018 06:22:00 PM

From Matthew Graham at Mortgage News Daily: Lowest Mortgage Rates in Several Weeks

Before most lenders published their first rate sheet of the day, bonds improved even more thanks to weaker inflation data. This allowed the average lender to move rates to their lowest levels in several weeks. As nice as that might sound, the range has been narrow recently, so we're not talking about huge improvements. [30YR FIXED - 4.625% - 4.75%]
emphasis added

Tuesday:
• At 8:30 AM ET, The Consumer Price Index for July from the BLS. The consensus is for a 0.2% increase in CPI, and a 0.2% increase in core CPI.

by Calculated Risk on 8/09/2018 01:50:00 PM

A few excerpts from a Merrill Lynch research note:

Political Business Cycle (PBC) models were a hot topic in the 1980s. In the standard "opportunist" PBC model incumbent politicians have an incentive to stimulate the economy going into elections because the benefits-low unemployment-materialize quickly and the costs-high inflation-occur with a lag. ...

After playing a small role in the business cycle in recent years, the political business cycle seems to be making a comeback. The double dose of tax cuts and spending increases at the start of this year marked the first major pro-cyclical policy shift since the 1960s. Coming into the year the US economy was already accelerating, the unemployment rate was steadily dropping further below most estimates of "NAIRU" and the Fed was attempting to reduce monetary accommodation. Despite the strong economy ... the new policies have helped boost the budget deficit, from 3.2% of GDP in 2016 to an estimated 4.7% of GDP in 2019. This would be the largest deficit for an economy at full employment since World War II. The Trump Administration has also rejected its predecessors' hands-off approach to the Fed ...
…
The market implications of all of this are fairly straightforward. Growing budget deficits combined with Fed attempts to cool the potential serious overheating of the economy means higher interest rates, a stronger dollar and an up-down pattern for the equity market as growth first surges then slows. Much bigger challenges loom in the longer term. At some point the budget deficit will start having a significant impact on capital investment and trend growth in the economy.
emphasis added

by Calculated Risk on 8/09/2018 11:46:00 AM

From HotelNewsNow.com: STR: US hotel results for week ending 4 August

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 29 July through 4 August 2018, according to data from STR.

In comparison with the week of 30 July through 5 August 2017, the industry recorded the following:

• Occupancy: +1.0% to 75.3%
• Average daily rate (ADR): +3.1% to US$132.88
• Revenue per available room (RevPAR): +4.1% to US$100.07
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 close to the record year in 2017.  Note: 2017 finished strong due to the impact of the hurricanes.

On a seasonal basis, the 4-week average of the occupancy rate is now at the peak of the summer travel season.

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 8/09/2018 08:42:00 AM

The DOL reported:

In the week ending August 4, the advance figure for seasonally adjusted initial claims was 213,000, a decrease of 6,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 218,000 to 219,000. The 4-week moving average was 214,250, a decrease of 500 from the previous week's revised average. The previous week's average was revised up by 250 from 214,500 to 214,750.
emphasis added

The previous week was revised up.

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 214,250.

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

by Calculated Risk on 8/08/2018 08:27:00 PM

Thursday:
• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 220 thousand initial claims, up from 218 thousand the previous week.

• Also at 8:30 AM, The Producer Price Index for July from the BLS. The consensus is a 0.3% increase in PPI, and a 0.3% increase in core PPI.

Note: This index is possibly a leading indicator for new non-residential Commercial Real Estate (CRE) investment, except manufacturing.

From Dodge Data Analytics: Dodge Momentum Index Increases in July

The Dodge Momentum Index moved 1.4% higher in July to 169.8 (2000=100) from the revised June reading of 167.3. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. In July, the commercial component of the Momentum Index grew by 3.3%, while the institutional component fell 1.5%. The headline Momentum Index has risen steadily since its slippage during the third quarter of 2017. Stronger economic growth and the support from still-healthy real estate market fundamentals (occupancies and rents) have contributed to these gains for construction projects at the planning stage, which have yet to be restrained by the uncertainty arising from higher material costs and higher interest rates.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 169.8 in July, up from 167.3 in June.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year". This suggests further growth into 2019.

by Calculated Risk on 8/08/2018 02:10:00 PM

With the ten year yield getting close to 3%, there has been some discussion about whether mortgage rates would hit 5% soon. Based on an historical relationship, 30-year rates should currently be around 4.7%.

As of yesterday, Mortgage News Daily reported: Mortgage Rates Mostly Steady Today

Mortgage rates were roughly unchanged today. That would make this the 4th day in a row without any move higher in rates, and it would leave us at the lowest levels in roughly 2 weeks. [30YR FIXED - 4.625% - 4.75%]
emphasis added

The graph shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey.

Currently the 10 year Treasury yield is just under 3%, and 30 year mortgage rates were at 4.60% according to the Freddie Mac survey last week.

To reach 5% (on the Freddie Mac survey), based on the historical relationship, the Ten Year yield would have to increase to about 3.3%.

by Calculated Risk on 8/08/2018 09:47:00 AM

This is a key former distressed market to follow since Las Vegas saw the largest price decline, following the housing bubble, of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Southern Nevada home prices leveling off this summer, GLVAR housing statistics for July 2018

Local home prices are leveling off this summer as the housing supply has stopped shrinking but still remains tight. That’s according to a report released today by the Greater Las Vegas Association of REALTORS® (GLVAR).
...
The total number of existing local homes, condos and townhomes sold during July was 3,955. Compared to one year ago, July sales were up 1.4 percent for homes and up 17.2 percent for condos and townhomes.
...
Southern Nevada now has less than a two-month supply of existing homes available for sale when a six-month supply is considered a balanced market. By the end of July, GLVAR reported 4,787 single-family homes listed for sale without any sort of offer. That’s up from June but still down 4.2 percent from one year ago. For condos and townhomes, the 878 properties listed without offers in July represented a hefty 40.5 percent increase from one year ago.
...
At the same time, the number of so-called distressed sales continues to drop. GLVAR reported that short sales and foreclosures combined accounted for 2.9 percent of all existing local home sales in July, down from 6.4 percent of all sales one year ago.
emphasis added

1) Overall sales were up 4.1% year-over-year from 3,798 in July 2017 to 3,955 in July 2018.

2) Active inventory (single-family and condos) is up slightly from a year ago, from a total of 5,620 in July 2017 to 5,665 in July 2018. Note: Total inventory was up 0.8% year-over-year - the first year-over-year increase since May 2016.

3) Fewer distressed sales.

by Calculated Risk on 8/08/2018 07:00:00 AM

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

Mortgage applications decreased 3.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 3, 2018.

... The Refinance Index decreased 5 percent from the previous week to its lowest level since December 2000. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 2 percent lower than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) remained unchanged at 4.84 percent, with points remaining unchanged at 0.45 (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.

This is the lowest level since December 2000.

Refinance activity will not pick up significantly unless mortgage rates fall 50 bps or more from the recent level.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 2% year-over-year.

by Calculated Risk on 8/07/2018 06:28:00 PM

As expected, the deficit is increasing significantly.

From the CBO: Monthly Budget Review for July 2018

The federal budget deficit was $682 billion for the first 10 months of fiscal year 2018, CBO estimates, $116 billion more than the shortfall recorded during the same period last year. Revenues and outlays were 1 percent and 4 percent higher, respectively, than in the same period in fiscal year 2017.

As was the case last year, this year’s outlays were affected by shifts in the timing of certain payments that otherwise would have been due on a weekend. If not for those shifts, outlays and the deficit through July would have been larger, by roughly $40 billion, both this year and last year—but the year-to-year changes would not have been very different.

CBO expects that the deficit, receipts, and outlays for fiscal year 2018 will be largely consistent with amounts in its adjusted April baseline, which were reported in An Analysis of the President’s 2019 Budget in May 2018. At that time, CBO projected a deficit of $793 billion, outlays of $4,131 billion, and receipts of $3,339 billion.

Next year the deficit will probably be close to $1 Trillion (about 4.6% of GDP).