by Calculated Risk on 8/21/2019 02:07:00 PM

From the Fed: Minutes of the Federal Open Market Committee, July 30–31, 2019. A few excerpts:

In their discussion of monetary policy decisions at this meeting, those participants who favored a reduction in the target range for the federal funds rate pointed to three broad categories of reasons for supporting that action.

• First, while the overall outlook remained favorable, there had been signs of deceleration in economic activity in recent quarters, particularly in business fixed investment and manufacturing. A pronounced slowing in economic growth in overseas economies—perhaps related in part to developments in, and uncertainties surrounding, international trade—appeared to be an important factor in this deceleration. More generally, such developments were among those that had led most participants over recent quarters to revise down their estimates of the policy rate path that would be appropriate to promote maximum employment and stable prices.

• Second, a policy easing at this meeting would be a prudent step from a risk-management perspective. Despite some encouraging signs over the intermeeting period, many of the risks and uncertainties surrounding the economic outlook that had been a source of concern in June had remained elevated, particularly those associated with the global economic outlook and international trade. On this point, a number of participants observed that policy authorities in many foreign countries had only limited policy space to support aggregate demand should the downside risks to global economic growth be realized.

• Third, there were concerns about the outlook for inflation. A number of participants observed that overall inflation had continued to run below the Committee's 2 percent objective, as had inflation for items other than food and energy. Several of these participants commented that the fact that wage pressures had remained only moderate despite the low unemployment rate could be a sign that the longer-run normal level of the unemployment rate is appreciably lower than often assumed. Participants discussed indicators for longer-term inflation expectations and inflation compensation. A number of them concluded that the modest increase in market-based measures of inflation compensation over the intermeeting period likely reflected market participants' expectation of more accommodative monetary policy in the near future; others observed that, while survey measures of inflation expectations were little changed from June, the level of expectations by at least some measures was low. Most participants judged that long-term inflation expectations either were already below the Committee's 2 percent goal or could decline below the level consistent with that goal should there be a continuation of the pattern of inflation coming in persistently below 2 percent.

A couple of participants indicated that they would have preferred a 50 basis point cut in the federal funds rate at this meeting rather than a 25 basis point reduction. They favored a stronger action to better address the stubbornly low inflation rates of the past several years, recognizing that the apparent low sensitivity of inflation to levels of resource utilization meant that a notably stronger real economy might be required to speed the return of inflation to the Committee's inflation objective.

Several participants favored maintaining the same target range at this meeting, judging that the real economy continued to be in a good place, bolstered by confident consumers, a strong job market, and a low rate of unemployment. These participants acknowledged that there were lingering risks and uncertainties about the global economy in general, and about international trade in particular, but they viewed those risks as having diminished over the intermeeting period. In addition, they viewed the news on inflation over the intermeeting period as consistent with their forecasts that inflation would move up to the Committee's 2 percent objective at an acceptable pace without an adjustment in policy at this meeting. Finally, a few participants expressed concerns that further monetary accommodation presented a risk to financial stability in certain sectors of the economy or that a reduction in the target range for the federal funds rate at this meeting could be misinterpreted as a negative signal about the state of the economy.

In their discussion of the outlook for monetary policy beyond this meeting, participants generally favored an approach in which policy would be guided by incoming information and its implications for the economic outlook and that avoided any appearance of following a preset course. Most participants viewed a proposed quarter-point policy easing at this meeting as part of a recalibration of the stance of policy, or mid-cycle adjustment, in response to the evolution of the economic outlook over recent months. A number of participants suggested that the nature of many of the risks they judged to be weighing on the economy, and the absence of clarity regarding when those risks might be resolved, highlighted the need for policymakers to remain flexible and focused on the implications of incoming data for the outlook.
emphasis added

by Calculated Risk on 8/21/2019 01:19:00 PM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architecture Billings Index Continues Its Streak of Soft Readings

Demand for design services in July remained essentially flat in comparison to the previous month, according to a new report released today from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score of 50.1 in July showed a small increase in design services since June, which was a score of 49.1. Any score above 50 indicates an increase in billings. In July, the design contracts score dipped into negative territory for the first time in almost a year. Additionally, July billings softened in all regions except the West, and at firms of all specializations except multifamily residential.

“The data is not the same as what we saw leading up to the last economic downturn but the continued, slowing across the board will undoubtedly impact architecture firms and the broader construction industry in the coming months,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “A growing number of architecture firms are reporting that the ongoing volatility in the trade situation, the stock market, and interest rates are causing some of their clients to proceed more cautiously on current projects.”
...
• Regional averages: West (51.2); Midwest (48.9); South (48.3); Northeast (48.3)

• Sector index breakdown: multi-family residential (50.6); institutional (49.8); commercial/industrial (49.2); mixed practice (48.9)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.1 in July, up from 49.1 in June. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index has been positive for 10 of the previous 12 months, suggesting some further increase in CRE investment in 2019 - but this is the weakest five month stretch since 2012.

by Calculated Risk on 8/21/2019 10:53:00 AM

Earlier: NAR: Existing-Home Sales Increased to 5.42 million in July

A few key points:

1) Existing home sales were up 0.6% year-over-year (YoY) in July.  This was the first YoY increase since early 2018.

2) Inventory is still low, and was down 1.6% year-over-year (YoY) in July.

3) As usual, housing economist Tom Lawler's forecast was closer (barely this month) to the NAR report than the consensus. See: Lawler: Early Read on Existing Home Sales in July.   The consensus was for sales of 5.39 million SAAR.  Lawler estimated the NAR would report 5.40 million SAAR in July, and the NAR actually reported 5.42 million SAAR.

Click on graph for larger image.

4) Year-to-date sales are down about 2.9% compared to the same period in 2018.   On an annual basis, that would put sales around 5.20 million in 2019.  Sales slumped at the end of 2018 and in January 2019 due to higher mortgage rates, the stock market selloff, and fears of an economic slowdown.

The comparisons will be easier towards the end of this year, and with lower mortgage rates, sales might even finish the year unchanged or even up from 2018.

The second graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA in July (540,000, red column) were above sales in July 2018 (528,000, NSA), and were the highest sales for July since 2015.

by Calculated Risk on 8/21/2019 10:19:00 AM

The BLS released the preliminary annual benchmark revision showing 501,000 fewer payroll jobs as of March 2019. The final revision will be published when the January 2019 employment report is released in February 2020. Usually the preliminary estimate is pretty close to the final benchmark estimate.

The annual revision is benchmarked to state tax records. From the BLS:

In accordance with usual practice, the Bureau of Labor Statistics (BLS) is announcing the preliminary estimate of the upcoming annual benchmark revision to the establishment survey employment series. The final benchmark revision will be issued in February 2020 with the publication of the January 2020 Employment Situation news release.

Each year, the Current Employment Statistics (CES) survey employment estimates are benchmarked to comprehensive counts of employment for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. For national CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus two-tenths of one percent of total nonfarm employment. The preliminary estimate of the benchmark revision indicates a downward adjustment to March 2019 total nonfarm employment of -501,000 (-0.3 percent).
emphasis added

Using the preliminary benchmark estimate, this means that payroll employment in March 2019 was 501,000 lower than originally estimated. In February 2020, the payroll numbers will be revised down to reflect the final estimate. The number is then "wedged back" to the previous revision (March 2018).

Construction was revised down by 9,000 jobs, and manufacturing revised down by 3,000 jobs.

This preliminary estimate showed 514,000 fewer private sector jobs, and 13,000 more government jobs (as of March 2019).

by Calculated Risk on 8/21/2019 10:11:00 AM

From the NAR: Existing-Home Sales Climb 2.5% in July

Existing-home sales strengthened in July, a positive reversal after total sales were down slightly in the previous month, according to the National Association of Realtors®. Although Northeast transactions declined, the other three major U.S. regions recorded sales increases, including vast growth in the West last month.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.5% from June to a seasonally adjusted annual rate of 5.42 million in July. Overall sales are up 0.6% from a year ago (5.39 million in July 2018).
...
Total housing inventory at the end of July decreased to 1.89 million, down from 1.92 million existing-homes available for sale in June, and a 1.6% decrease from 1.92 million one year ago. Unsold inventory is at a 4.2-month supply at the current sales pace, down from the 4.4 month-supply recorded in June and down from the 4.3-month supply recorded in July of 2018.
emphasis added

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in July (5.42 million SAAR) were up 2.5% from last month, and were 0.6% above the July 2018 sales rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 1.89 million in July from 1.92 million in June.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory was down 1.6% year-over-year in July compared to July 2018.

Months of supply decreased to 4.2 months in July.

This was at the consensus forecast.  For existing home sales, a key number is inventory - and inventory is still low. I'll have more later …

by Calculated Risk on 8/21/2019 07:00:00 AM

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

Mortgage applications decreased 0.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 16, 2019.

... The Refinance Index increased 0.4 percent from the previous week and was 180 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 5 percent higher than the same week one year ago.
...
“In a week where worries over global economic growth drove U.S. Treasury yields 13 basis points lower, the 30-year fixed mortgage rate decreased just three basis points. As a result, the refinance index saw only a slight increase but remained at its highest level since July 2016,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The small moves in rates and refinancing are potentially signs that lenders may be approaching capacity constraints as they continue to deal with the largest wave of refinance activity in three years. The refinance share of applications, at almost 63 percent, was also at its highest level since September 2016.”

Added Kan, “Lower mortgage rates have yet to lead to a notable rise in homebuyer demand. Purchase applications fell more than 3 percent, but were still 5 percent higher than a year ago.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 3.90 percent from 3.93 percent, with points remaining unchanged at 0.35 (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.

Mortgage rates have declined from close to 5% late last year to under 4%.

With lower rates, we saw a recent sharp increase in refinance activity.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 5% year-over-year.

by Calculated Risk on 8/20/2019 06:34:00 PM

Wednesday:
• At 7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 10:00 AM: Existing Home Sales for July from the National Association of Realtors (NAR). The consensus is for 5.39 million SAAR, up from 5.27 million last month. Housing economist Tom Lawler expects the NAR to report 5.40 million SAAR.

• At 10:00 AM: the Bureau of Labor Statistics (BLS) will release the preliminary estimate of the upcoming annual benchmark revision.

• At 11:00 AM: CBO to Release Updated Budget and Economic Projections

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

• At 2:00 PM: FOMC Minutes, Meeting of July 30-31, 2019

by Calculated Risk on 8/20/2019 04:02:00 PM

CR Note: I've heard reports that trucking has been soft, but this index is solid.

From the ATA: ATA Truck Tonnage Index Surged 6.6% in July

American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 6.6% in July after falling 1.2% in June. In July, the index equaled 122.7 (2015=100) compared with 115.1 in June.

“Tonnage in 2019 has been on a rollercoaster ride, plagued with large monthly swings, which continued in July as tonnage surged after falling significantly in May and June,” said ATA Chief Economist Bob Costello. “However, take out the month-to-month noise, and you see that truck tonnage is still on a nice upward path. It is important to note that ATA’s tonnage data is dominated by contract freight, which is performing significantly better than the plunge in spot market freight this year.”

Click on graph for larger image.

June’s reading was revised down compared with our July press release. Compared with July 2018, the SA index surged 7.3%, the largest year-over-year gain since April.
…
Trucking serves as a barometer of the U.S. economy, representing 70.2% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 10.77 billion tons of freight in 2017. Motor carriers collected $700.1 billion, or 79.3% of total revenue earned by all transport modes.
emphasis added

by Calculated Risk on 8/20/2019 12:30:00 PM

Yesterday I wrote: The Failed Promises of the 2017 Tax Cuts and Jobs Act (TCJA)

I included this quote:
"This change, along with a lower business tax rate, would likely give the typical American household around a $4,000 pay raise." Donald Trump, October 19, 2017

However I didn't provide any analysis of the $4,000 number.

Here are two articles with analysis (ht JF)

From Motley Fool: Want a Tax Cut? Here's How Much Typical Americans Saved in 2018. The analysis suggests around $1,600 to $1,900, not $4,000.

And from the Heritage Foundation: The Truth About How Much Americans Are Paying in Taxes.

"the average American household paid about $1,400 less in taxes"

by Calculated Risk on 8/20/2019 09:51:00 AM

The NAR is scheduled to release Existing Home Sales for July at 10:00 AM tomorrow (Wednesday, Aug 20th).

The consensus is for 5.39 million SAAR, up from 5.27 million in June. Housing economist Tom Lawler estimates the NAR will report sales of 5.40 million SAAR and that inventory will be down 1.6% year-over-year. Based on Lawler's estimate, I expect existing home sales to be close to the consensus.

Housing economist Tom Lawler has been sending me his predictions of what the NAR will report for over 9 years.  The table below shows the consensus for each month, Lawler's predictions, and the NAR's initially reported level of sales. 

Lawler hasn't always been closer than the consensus, but usually when there has been a fairly large spread between Lawler's estimate and the "consensus", Lawler has been closer.

Last month the consensus was for sales of 5.34 million on a seasonally adjusted annual rate (SAAR) basis. Lawler estimated the NAR would report 5.25 million, and the NAR reported 5.27 million (as usual Lawler was closer than the consensus).

NOTE: There have been times when Lawler "missed", but then he pointed out an apparent error in the NAR data - and the subsequent revision corrected that error.  As an example, see: The “Curious Case” of Existing Home Sales in the South in April

Over the last 9 years, the consensus average miss was 145 thousand, and  Lawler's average miss was 68 thousand.

Existing Home Sales, Forecasts and NAR Report millions, seasonally adjusted annual rate basis (SAAR)
Month	Consensus	Lawler	NAR reported1
May-10	6.20	5.83	5.66
Jun-10	5.30	5.30	5.37
Jul-10	4.66	3.95	3.83
Aug-10	4.10	4.10	4.13
Sep-10	4.30	4.50	4.53
Oct-10	4.50	4.46	4.43
Nov-10	4.85	4.61	4.68
Dec-10	4.90	5.13	5.28
Jan-11	5.20	5.17	5.36
Feb-11	5.15	5.00	4.88
Mar-11	5.00	5.08	5.10
Apr-11	5.20	5.15	5.05
May-11	4.75	4.80	4.81
Jun-11	4.90	4.71	4.77
Jul-11	4.92	4.69	4.67
Aug-11	4.75	4.92	5.03
Sep-11	4.93	4.83	4.91
Oct-11	4.80	4.86	4.97
Nov-11	5.08	4.40	4.42
Dec-11	4.60	4.64	4.61
Jan-12	4.69	4.66	4.57
Feb-12	4.61	4.63	4.59
Mar-12	4.62	4.59	4.48
Apr-12	4.66	4.53	4.62
May-12	4.57	4.66	4.55
Jun-12	4.65	4.56	4.37
Jul-12	4.50	4.47	4.47
Aug-12	4.55	4.87	4.82
Sep-12	4.75	4.70	4.75
Oct-12	4.74	4.84	4.79
Nov-12	4.90	5.10	5.04
Dec-12	5.10	4.97	4.94
Jan-13	4.90	4.94	4.92
Feb-13	5.01	4.87	4.98
Mar-13	5.03	4.89	4.92
Apr-13	4.92	5.03	4.97
May-13	5.00	5.20	5.18
Jun-13	5.27	4.99	5.08
Jul-13	5.13	5.33	5.39
Aug-13	5.25	5.35	5.48
Sep-13	5.30	5.26	5.29
Oct-13	5.13	5.08	5.12
Nov-13	5.02	4.98	4.90
Dec-13	4.90	4.96	4.87
Jan-14	4.70	4.67	4.62
Feb-14	4.64	4.60	4.60
Mar-14	4.56	4.64	4.59
Apr-14	4.67	4.70	4.65
May-14	4.75	4.81	4.89
Jun-14	4.99	4.96	5.04
Jul-14	5.00	5.09	5.15
Aug-14	5.18	5.12	5.05
Sep-14	5.09	5.14	5.17
Oct-14	5.15	5.28	5.26
Nov-14	5.20	4.90	4.93
Dec-14	5.05	5.15	5.04
Jan-15	5.00	4.90	4.82
Feb-15	4.94	4.87	4.88
Mar-15	5.04	5.18	5.19
Apr-15	5.22	5.20	5.04
May-15	5.25	5.29	5.35
Jun-15	5.40	5.45	5.49
Jul-15	5.41	5.64	5.59
Aug-15	5.50	5.54	5.31
Sep-15	5.35	5.56	5.55
Oct-15	5.41	5.33	5.36
Nov-15	5.32	4.97	4.76
Dec-15	5.19	5.36	5.46
Jan-16	5.32	5.36	5.47
Feb-16	5.30	5.20	5.08
Mar-16	5.27	5.27	5.33
Apr-16	5.40	5.44	5.45
May-16	5.64	5.55	5.53
Jun-16	5.48	5.62	5.57
Jul-16	5.52	5.41	5.39
Aug-16	5.44	5.49	5.33
Sep-16	5.35	5.55	5.47
Oct-16	5.44	5.47	5.60
Nov-16	5.54	5.60	5.61
Dec-16	5.54	5.55	5.49
Jan-17	5.55	5.60	5.69
Feb-17	5.55	5.41	5.48
Mar-17	5.61	5.74	5.71
Apr-17	5.67	5.56	5.57
May-17	5.55	5.65	5.62
Jun-17	5.58	5.59	5.52
Jul-17	5.57	5.38	5.44
Aug-17	5.48	5.39	5.35
Sep-17	5.30	5.38	5.39
Oct-17	5.30	5.60	5.48
Nov-17	5.52	5.77	5.81
Dec-17	5.75	5.66	5.57
Jan-18	5.65	5.48	5.38
Feb-18	5.42	5.44	5.54
Mar-18	5.28	5.51	5.60
Apr-18	5.60	5.48	5.46
May-18	5.56	5.47	5.43
Jun-18	5.45	5.35	5.38
Jul-18	5.43	5.40	5.34
Aug-18	5.36	5.36	5.34
Sep-18	5.30	5.20	5.15
Oct-18	5.20	5.31	5.22
Nov-18	5.19	5.23	5.32
Dec-18	5.24	4.97	4.99
Jan-19	5.05	4.92	4.94
Feb-19	5.08	5.46	5.51
Mar-19	5.30	5.40	5.21
Apr-19	5.36	5.31	5.19
May-19	5.29	5.40	5.34
Jun-19	5.34	5.25	5.27
Jul-19	5.39	5.40	---
1NAR initially reported before revisions.