by Calculated Risk on 1/22/2020 08:37:00 AM

From the Chicago Fed: Chicago Fed National Activity Index points to slower economic growth in December

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) fell to –0.35 in December from +0.41 in November. Three of the four broad categories of indicators that make up the index decreased from November, and three of the four categories made negative contributions to the index in December. The index’s three-month moving average, CFNAI-MA3, moved up to –0.23 in December from –0.31 in November.
emphasis added

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests economic activity was below the historical trend in December (using the three-month average).

According to the Chicago Fed:

The index is a weighted average of 85 indicators of growth in national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.
...
A zero value for the monthly index has been associated with the national economy expanding at its historical trend (average) rate of growth; negative values with below-average growth (in standard deviation units); and positive values with above-average growth.

by Calculated Risk on 1/22/2020 07:00:00 AM

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

Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 17, 2020.

... The Refinance Index decreased 2 percent from the previous week and was 116 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index increased 4 percent compared with the previous week and was 8 percent higher than the same week one year ago.
...
“Mortgage applications dipped slightly last week after two weeks of healthy increases, but even with a slight decline, the total pace of applications remains at an elevated level. The purchase market has started 2020 on a strong note, running 8 percent higher than the same week a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Refinance applications remained near the highest level since October 2019, as the 30-year fixed rate was unchanged at 3.87 percent, while the 15-year fixed rate decreased to its lowest level since November 2016. Even with more positive developments surrounding the U.S. and China trade negotiations and healthy retail sales data, investors seemed cautious and maintained their demand for safer U.S. Treasuries, which kept yields lower. Our expectation is that rates will stay along this same narrow range.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) remained unchanged at 3.87 percent, with points decreasing to 0.27 from 0.32 (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.

With lower rates, we saw a sharp increase in refinance activity, but mortgage rates would have to decline further to see a huge refinance boom.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 8% year-over-year.

by Calculated Risk on 1/21/2020 06:36:00 PM

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

• At 8:30 AM, Chicago Fed National Activity Index for December. This is a composite index of other data.

• At 9:00 AM, FHFA House Price Index for November 2019. This was originally a GSE only repeat sales, however there is also an expanded index.

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

• At 10:00 AM, Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for 5.43 million SAAR, up from 5.35 million.

by Calculated Risk on 1/21/2020 03:20:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Rose in January

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), jumped 0.6 percent in January on a three-month moving average (3MMA) basis following a 0.1 percent gain in December. On a year-over-year (Y/Y) basis, the barometer rose 1.4 percent.
...
"The CAB signals gains in U.S. commerce into the third quarter of 2020,” said Kevin Swift, chief economist at ACC.
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added

Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

The year-over-year change in the CAB suggests that the YoY change in industrial production might have bottomed, and suggests some "gains in U.S. commerce into the third quarter of 2020".

by Calculated Risk on 1/21/2020 12:38:00 PM

I wrote this in July 2018 (see: Has Housing Market Activity Peaked? and Has the Housing Market Peaked? (Part 2)

First, I think it is likely that existing home sales will move more sideways going forward. However it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc. - but overall the economic impact is small compared to a new home sale.
...
For the economy, what we should be focused on are single family starts and new home sales. As I noted in Investment and Recessions "New Home Sales appears to be an excellent leading indicator, and currently new home sales (and housing starts) are up solidly year-over-year, and this suggests there is no recession in sight."

If new home sales and single family starts have peaked that would be a significant warning sign.   Although housing is under pressure from policy (negative impact from tax, immigration and trade policies), I do not think housing has peaked, and I think new home sales and single family starts will increase further over the next couple of years.

Since that post, existing home sales have mostly moved sideways, and both new home sales and single family starts have hit new cycle highs.

Here is the graph I like to use to track tops and bottoms for housing activity. This is a graph of Single family housing starts, New Home Sales, and  Residential Investment (RI) as a percent of GDP.

Click on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

RI as a percent of GDP has been sluggish recently, mostly due to softness in multi-family residential.   However, both single family starts and new home sales have set new cycle highs this year.

Also, look at the relatively low level of RI as a percent of GDP, new home sales and single family starts compared to previous peaks. To have a significant downturn from these levels would be surprising.

by Calculated Risk on 1/21/2020 09:08:00 AM

In December I wrote Ten Economic Questions for 2020. I noted that I expect the overall participation rate to start declining again in 2020, pushing down the unemployment rate.

Note: Every month, with the employment report, I focus on the prime participation rate because of changing demographics - but this post is about the overall participation rate.

Here is a graph of the annual change in Retired workers and dependent receiving Old-Age Social Security benefits and the annual Labor Force Participation Rate since 1970.  This doesn't mean these people are actually retiring (they may still be working), but this gives us an idea of how many people are retiring per year.

Click on graph for larger image.

The number of people retiring per year was declining until the late '90s, and then started increasing.

The annual overall (16+ years old) participation rate peaked around 2000, and has generally been decreasing as more people retire.

Note: There are other factors involved in the decline in the overall participation rate - such as more people staying in school - but retiring workers is a key.

A few years ago, I predicted the overall participation rate would move mostly sideways or increase slightly as solid employment growth offset the large number of retirements. Now, given demographics, I expect to see a downward trend for the overall participation rate over the next decade, even with a healthy job market.

by Calculated Risk on 1/20/2020 06:28:00 PM

Weekend:
• Schedule for Week of January 19, 2020

Tuesday:
• No major economic releases scheduled.

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

Oil prices were up slightly over the last week with WTI futures at $58.82 per barrel and Brent at $65.20 barrel.  A year ago, WTI was at $53, and Brent was at $62 - so oil prices are up 5% to 10% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.55 per gallon. A year ago prices were at $2.24 per gallon, so gasoline prices are up 31 cents per gallon year-over-year.

by Calculated Risk on 1/20/2020 09:46:00 AM

The NAR is scheduled to release Existing Home Sales for December at 10:00 AM, Wednesday, Jan 22nd.

The consensus is for 5.43 million SAAR, up from 5.35 million in November. Housing economist Tom Lawler estimates the NAR will report sales of 5.40 million SAAR and that inventory will be down 11.1% 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 almost 10 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 5.45 million on a seasonally adjusted annual rate (SAAR) basis. Lawler estimated the NAR would report 5.43 million, and the NAR reported 5.35 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 10 years, the consensus average miss was 141 thousand, and  Lawler's average miss was 67 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	5.42
Aug-19	5.38	5.42	5.49
Sep-19	5.45	5.36	5.38
Oct-19	5.49	5.36	5.46
Nov-19	5.45	5.43	5.35
Dec-19	5.43	5.40	---
1NAR initially reported before revisions.

by Calculated Risk on 1/19/2020 09:51:00 AM

This is a key housing market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports ("Stats Report"):

1) Overall sales were at 7,585 in December, up from 6,974 in November, and up from 6,403 in December 2018. Sales were up 8.8%% from November 2019 (last month), and up 18.5% from December 2018.

2) Active inventory was at 12,425, down from 18,089 in December 2018. That is down 31.2% year-over-year.

3) Months of supply decreased to 2.05 in December from 2.49 months in November. This remains relatively low.

This is another market with increasing sales and falling inventory.

by Calculated Risk on 1/18/2020 08:11:00 AM

The key report scheduled for this week is December Existing Home sales.

For manufacturing, the January Kansas City Fed manufacturing survey will be released.

----- Monday, Jan 20th -----
All US markets will be closed in observance of Martin Luther King Jr. Day

----- Tuesday, Jan 21st -----
No major economic releases scheduled.

----- Wednesday, Jan 22nd -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM ET: Chicago Fed National Activity Index for December. This is a composite index of other data.

9:00 AM: FHFA House Price Index for November 2019. This was originally a GSE only repeat sales, however there is also an expanded index.

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

10:00 AM: Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for 5.43 million SAAR, up from 5.35 million.

The graph shows existing home sales from 1994 through the report last month.

Housing economist Tom Lawler expects the NAR to report 5.40 million SAAR.

----- Thursday, Jan 23rd -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 216,000 initial claims, up from 214,000 last week.

11:00 AM: the Kansas City Fed manufacturing survey for December.

----- Friday, Jan 24th -----
10:00 AM: State Employment and Unemployment (Monthly) for December 2019