by Calculated Risk on 7/16/2019 01:29:00 PM

From Fed Chair Jerome Powell: Monetary Policy in the Post-Crisis Era. Excerpt:

In our baseline outlook, we expect growth in the United States to remain solid, labor markets to stay strong, and inflation to move back up and run near 2 percent. Uncertainties about this outlook have increased, however, particularly regarding trade developments and global growth. In addition, issues such as the U.S. federal debt ceiling and Brexit remain unresolved. FOMC participants have also raised concerns about a more prolonged shortfall in inflation below our 2 percent target. Market-based measures of inflation compensation have shifted down, and some survey-based expectations measures are near the bottom of their historical ranges.

Many FOMC participants judged at the time of our most recent meeting in June that the combination of these factors strengthens the case for a somewhat more accommodative stance of policy. We are carefully monitoring these developments and assessing their implications for the U.S economic outlook and inflation, and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.
emphasis added

by Calculated Risk on 7/16/2019 10:04:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 65 in July, up from 64 in June. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Holds Firm in July

Builder confidence in the market for newly-built single-family homes rose one point to 65 in July, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. This marks the sixth consecutive month that sentiment levels have held at a steady range in the low- to mid-60s.

“Builders report solid demand for single-family homes. However, they continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points relative to buyer incomes,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn.

“Even as builders try to rein in costs, home prices continue to outpace incomes,” said NAHB Chief Economist Robert Dietz. “The current low mortgage interest rate environment should be getting more buyers off the sidelines, but they remain hesitant due to affordability concerns. Still, attractive rates should help spur new home purchases in large metro suburban markets, where approximately one-third of new construction takes place.”
…
All the HMI indices inched higher in July. The index measuring current sales conditions rose one point to 72, the component gauging expectations in the next six months moved a single point higher to 71 and the metric charting buyer traffic increased one point to 48. Looking at the three-month moving averages for regional HMI scores, the South moved one point higher to 68 and the West was also up one point to 72. The Northeast remained unchanged at 60 while the Midwest fell a single point to 56.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was at the consensus forecast.

by Calculated Risk on 7/16/2019 09:22:00 AM

From the Fed: Industrial Production and Capacity Utilization

Industrial production was unchanged in June, as increases for both manufacturing and mining offset a decline for utilities. For the second quarter as a whole, industrial production declined at an annual rate of 1.2 percent, its second consecutive quarterly decrease. In June, manufacturing output advanced 0.4 percent. An increase of nearly 3 percent for motor vehicles and parts contributed significantly to the gain in factory production; excluding motor vehicles and parts, manufacturing output moved up 0.2 percent. The output of utilities fell 3.6 percent as milder-than-usual temperatures in June reduced the demand for air conditioning. The index for mining rose 0.2 percent. At 109.6 percent of its 2012 average, total industrial production was 1.3 percent higher in June than it was a year earlier. Capacity utilization for the industrial sector decreased 0.2 percentage point in June to 77.9 percent, a rate that is 1.9 percentage points below its long-run (1972–2018) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 11.4 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.9% is 1.9% below the average from 1972 to 2017 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production was unchanged in June at 109.2. This is 26% above the recession low, and 4.0% above the pre-recession peak.

The change in industrial production and decrease in capacity utilization were below consensus.

by Calculated Risk on 7/16/2019 08:45:00 AM

On a monthly basis, retail sales increased 0.4 percent from May to June (seasonally adjusted), and sales were up 3.4 percent from June 2018.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for June 2019, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $519.9 billion, an increase of 0.4 percent from the previous month, and 3.4 percent above June 2018. … The April 2019 to May 2019 percent change was revised from up 0.5 percent to up 0.4 percent.
emphasis added

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 0.7% in June.

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 3.9% on a YoY basis.

The increase in June was above expectations, however sales in April and May were revised down.  Overall a solid report.

by Calculated Risk on 7/15/2019 07:28:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Little-Changed Despite Bond Market Gains

Mortgage rates were mostly flat to begin the new week, even though underlying bond markets were in stronger territory. … Mortgage-backed bonds have improved somewhat throughout the day. At face value, that seems like it should help mortgage rates and indeed it might. The issue is that there hasn't been quite enough improvement for the average lender to go to the trouble of adjusting rates in the middle of the business day. [Most Prevalent Rates 30YR FIXED - 4.0%]
emphasis added

Tuesday:
• At 8:30 AM, Retail sales for June is scheduled to be released.  The consensus is for 0.1% increase in retail sales.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for June. The consensus is for a 0.1% increase in Industrial Production, and for Capacity Utilization to increase to 78.2%.

• At 10:00 AM, The July NAHB homebuilder survey. The consensus is for a reading of 65, up from 64. Any number above 50 indicates that more builders view sales conditions as good than poor.

• At 1:00 PM, Speech, Fed Chair Jerome Powell, Aspects of Monetary Policy in the Post-Crisis Era, At the French G7 Presidency 2019 – Bretton Woods: 75 Years Later, Thinking About the Next 75, Paris, France

by Calculated Risk on 7/15/2019 05:17:00 PM

One of the metrics we'd like to follow is a ratio of house prices to incomes. Unfortunately most income data is released with a significantly lag, and there are always questions about which income data to use (the average total income is skewed by the income of a few people).

And for key measures of house prices - like Case-Shiller - we have indexes, not actually prices.

But we can construct a ratio of the house price indexes to some measure of income.

Last week I posted House Prices to National Average Wage Index. I mentioned another measure - house prices to the Median Household income.

This graph uses an annual average of the Case-Shiller house price index - and the nominal median household income through 2017 (from the Census Bureau).

Click on graph for larger image.

This graph shows the ratio of house price indexes divided by the Median Household Income through 2017 (the HPI is first multiplied by 1000).

This uses the annual average National Case-Shiller index since 1976.

As of 2017, house prices were above the median historical ratio - but far below the bubble peak.

by Calculated Risk on 7/15/2019 10:16:00 AM

Note: This is the 15th 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 exactly 10 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 and still not on recession watch. Of course I'm concerned about policy (trade, immigration, etc).

by Calculated Risk on 7/15/2019 08:35:00 AM

From the NY Fed: Empire State Manufacturing Survey

Manufacturing firms in New York State reported that business activity grew modestly in July. After declining substantially last month, the general business conditions index returned to positive territory, rising thirteen points to 4.3.

After falling below zero last month, the index for number of employees slid further, dropping six points to -9.6, pointing to a decline in employment levels. The average workweek index, at 3.8, signaled somewhat longer workweeks.
emphasis added

This was slightly above the consensus forecast.

by Calculated Risk on 7/14/2019 07:41:00 PM

Weekend:
• Schedule for Week of July 14, 2019

Monday:
• At 8:30 AM, The New York Fed Empire State manufacturing survey for July. The consensus is for a reading of 0.5, up from -8.6.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 and DOW futures are down slightly (fair value).

Oil prices were up over the last week with WTI futures at $60.25 per barrel and Brent at $66.76 barrel.  A year ago, WTI was at $68, and Brent was at $71 - so oil prices are down about 10% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.79 per gallon. A year ago prices were at $2.88 per gallon, so gasoline prices are down about 3% year-over-year.

by Calculated Risk on 7/14/2019 09:13:00 AM

From Matthew Graham at Mortgage News Daily: Highest Mortgage Rates in More Than 3 Weeks

Mortgage rates moved decisively higher this week as the underlying bond market finally began shifting gears. After the Fed meeting in June, rates moved to the lowest levels in more than 2 years and had been holding in a narrow range since then. [30YR FIXED - 4.0%]
emphasis added

Click on graph for larger image.

This is a graph from Mortgage News Daily (MND) showing 30 year fixed rates from three sources (MND, MBA, Freddie Mac).   Go to MND and you can adjust the graph for different time periods.