by Calculated Risk on 6/12/2022 09:41:00 AM

Update: From Goldman Sachs chief economist Jan Hatzius

"We have revised our forecast to include 75bp hikes in June and July. This would quickly reset the level of the funds rate at 2.25-2.5%, the FOMC’s median estimate of the neutral rate."
emphasis added

Expectations are the FOMC will announce a 50bp rate increase in the federal funds rate at the meeting this week.

From Merrill Lynch:

"We don’t expect major fireworks at the June FOMC meeting. Chair Powell and the Fed has communicated that they are likely to hike by 50bp at this meeting (as well as at the next meeting in July) and we expect them to deliver. What will be of interest will be the updated Summary of Economic Projections (SEP) and dot plot.
...
In the press conference, we expect Chair Powell to reiterate that labor market momentum is still too strong, inflation remains a big problem, and that the Fed is committed to restoring price stability. We don’t expect any concrete forward guidance beyond the next meeting, with Powell noting a reassessment in the path of hikes in September dependent on convincing signs that inflation is slowing. If asked about a pause in September, he is likely to outright dismiss the idea."

Update: From Goldman Sachs:

The FOMC is likely to respond to the firmer inflation print and the rise in long-term inflation expectations with a resolutely hawkish message at the June meeting, in addition to the 50bp rate hike it is set to deliver. This should come across clearly in the statement, the economic projections, and the dots.

We expect the FOMC to revise the policy guidance in its statement to say that the Committee “anticipates that raising the target range expeditiously will be appropriate until it sees clear and convincing evidence that inflation is moderating,” implying a high bar for reverting to 25bp hikes.

Analysts will be looking for comments on the size of future rate hikes.

Projections will be released at this meeting. For review, here are the March projections. In March, most participants expected seven rate hikes in 2022.  It appears the FOMC will reach seven 25bp hikes by July, and still have three more meetings to go.

Wall Street forecasts are being revised down for 2022 due to the ongoing negative impacts from the pandemic and the war in Ukraine.  So, GDP for 2022 will likely be revised down.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2022	2023	2024
Mar 2022	2.5 to 3.0	2.1 to 2.5	1.8 to 2.0

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 3.6% in May. The question is: Will the slowdown in economic growth push up the unemployment rate?  Or will the rate continue to decline? The projections for the unemployment rate will likely be mostly unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2022	2023	2024
Mar 2022	3.4 to 3.6	3.3 to 3.6	3.2 to 3.7

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of April 2022, PCE inflation was up 6.3% from April 2021. This was below the cycle high of 6.6%. Based on recent readings, inflation might stay elevated longer than expected.  PCE inflation will likely be revised up for 2022.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2022	2023	2024
Mar 2022	4.1 to 4.7	2.3 to 3.0	2.1 to 2.4

PCE core inflation was up 4.9% in April year-over-year. This was below the cycle high of 5.3%.  Core PCE inflation will also likely be revised up.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2022	2023	2024
Mar 2022	3.9 to 4.4	2.4 to 3.0	2.1 to 2.4

by Calculated Risk on 6/11/2022 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

• 1st Look at Local Housing Markets in May, Inventory up Sharply

• Current State of the Housing Market

• Homebuilder Comments in May: “Builder metrics quickly deteriorating"

• The Home ATM Still Open in Q1 2022; Closing Soon

• 30-Year Mortgage Rates increase to 5.85%

• Black Knight Mortgage Monitor: "Housing costs to current income levels within a whisper of all time high in 2006"


This is usually published 4 to 6 times a week and provides more in-depth analysis of the housing market.

You can subscribe at https://calculatedrisk.substack.com/

Most content is available for free (and no Ads), but please subscribe!

by Calculated Risk on 6/11/2022 08:11:00 AM

The key reports this week are May Retail sales and Housing Starts.

For manufacturing, Industrial Production, and the NY and Philly Fed manufacturing surveys, will be released this week.

The FOMC meets this week, and they are expected to raise rates 50bp.

----- Monday, June 13th -----
No major economic releases scheduled.

----- Tuesday, June 14th -----
6:00 AM ET: NFIB Small Business Optimism Index for May.

8:30 AM: The Producer Price Index for May from the BLS. The consensus is for a 0.8% increase in PPI, and a 0.6% increase in core PPI.

----- Wednesday, June 15th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Retail sales for May is scheduled to be released.  The consensus is for a 0.2% increase in retail sales.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). 

8:30 AM: The New York Fed Empire State manufacturing survey for June. The consensus is for a reading of 4.5, up from -11.6.

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

2:00 PM: FOMC Meeting Announcement. The FOMC is expected to raise the Fed Funds rate by 50bp at this meeting.

2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

2:30 PM: Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

----- Thursday, June 16th -----
8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 215 thousand down from 229 thousand last week.

8:30 AM ET: Housing Starts for May.

This graph shows single and total housing starts since 1968.

The consensus is for 1.700 million SAAR, down from 1.724 million SAAR in April.

8:30 AM: the Philly Fed manufacturing survey for June. The consensus is for a reading of 5.3, up from 2.6.

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

This graph shows industrial production since 1967.

The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 79.2%.

10:00 AM: State Employment and Unemployment (Monthly) for May 2022

by Calculated Risk on 6/10/2022 09:12:00 PM

On COVID (focus on hospitalizations and deaths):

COVID Metrics
	Now	Week Ago	Goal
Percent fully Vaccinated	66.7%	---	≥70.0%1
Fully Vaccinated (millions)	221.6	---	≥2321
New Cases per Day3🚩	106,874	99,715	≤5,0002
Hospitalized3🚩	23,292	22,043	≤3,0002
Deaths per Day3🚩	291	262	≤502
1 Minimum to achieve "herd immunity" (estimated between 70% and 85%). 2my goals to stop daily posts, 37-day average for Cases, Currently Hospitalized, and Deaths 🚩 Increasing 7-day average week-over-week for Cases, Hospitalized, and Deaths ✅ Goal met.

Click on graph for larger image.

This graph shows the daily (columns) and 7-day average (line) of deaths reported.

New cases have quadrupled from the recent low.  Hospitalizations and deaths are now increasing.

Average daily deaths bottomed in July 2021 at 214 per day.

by Calculated Risk on 6/10/2022 03:42:00 PM

Today, in the Calculated Risk Real Estate Newsletter: 30-Year Mortgage Rates increase to 5.85%

A brief excerpt:

Mortgagenewsdaily.com reports that as of today, average 30-year fixed mortgage rates are at 5.85% for top tier scenarios. Rates increased today as a result of the inflation report released this morning. Here is a graph from Mortgagenewsdaily.com that shows the 30-year mortgage rate over the last 5 years.

It is the sharp increase in monthly payments - due to sharply higher mortgage rates - that is impacting the housing market.
...
Yesterday, Sam Ro tweeted some analysis from Goldman Sachs on the median monthly payment. This analysis was before the sharp jump in rates today.

"The median monthly payment of a 30-year mortgage is up 56% year-over-year"

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 6/10/2022 02:29:00 PM

From BofA:

We revised down our 2Q qoq saar growth from 3.0% to 2.5%. [June 10 estimate]
emphasis added

From Goldman:

We left our Q2 GDP tracking estimate unchanged at +3.0% (qoq ar). [June 7 estimate]

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is 0.9 percent on June 8, unchanged from June 7 after rounding. [June 8 estimate]

by Calculated Risk on 6/10/2022 12:13:00 PM

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 0.6% in May. The 16% trimmed-mean Consumer Price Index increased 0.8% in May. "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".

Note: The Cleveland Fed released the median CPI details here: "Fuel oil and other fuels" increased at 339% annualized rate in May!

Note that Owners' Equivalent Rent and Rent of Primary Residence account for almost 1/3 of median CPI, and these measures were up around 7% annualized in May.

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 5.5%, the trimmed-mean CPI rose 6.5%, and the CPI less food and energy rose 6.0%. Core PCE is for April and increased 4.9% year-over-year.

by Calculated Risk on 6/10/2022 09:43:00 AM

Realtor.com has monthly and weekly data on the existing home market. Here is their weekly report released yesterday from Chief Economist Danielle Hale: Weekly Housing Trends View — Data Week Ending June 4, 2022. Note: They have data on list prices, new listings and more, but this focus is on inventory.

• Active inventory continued to grow, rising 13% above one year ago. The turnaround in the number of homes for sale continues and year over year growth signals that this is more than just a seasonal improvement. Inventory was roughly on par with last year’s levels at the beginning of May and is now up 13% at the beginning of June. Nevertheless, our May Housing Trends Report showed that the active listings count remained nearly 50 percent below its level at the beginning of the pandemic. In other words, we’re starting to add more options, but home shoppers continue to see a relatively low number of homes for sale.

Here is a graph of the year-over-year change in inventory according to realtor.com. Note: I corrected a sign error in the data for Feb 26, 2022.

Note the rapid increase in the YoY change, from down 30% at the beginning of the year, to up 13% YoY now. It will be important to watch if that trend continues.

by Calculated Risk on 6/10/2022 08:32:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.0 percent in May on a seasonally adjusted basis after rising 0.3 percent in April, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.6 percent before seasonal adjustment.

The increase was broad-based, with the indexes for shelter, gasoline, and food being the largest contributors. After declining in April, the energy index rose 3.9 percent over the month with the gasoline index rising 4.1 percent and the other major component indexes also increasing. The food index rose 1.2 percent in May as the food at home index increased 1.4 percent.

The index for all items less food and energy rose 0.6 percent in May, the same increase as in April. While almost all major components increased over the month, the largest contributors were the indexes for shelter, airline fares, used cars and trucks, and new vehicles. The indexes for medical care, household furnishings and operations, recreation, and apparel also increased in May.

The all items index increased 8.6 percent for the 12 months ending May, the largest 12-month increase since the period ending December 1981. The all items less food and energy index rose 6.0 percent over the last 12 months. The energy index rose 34.6 percent over the last year, the largest 12-month increase since the period ending September 2005. The food index increased 10.1 percent for the 12-months ending May, the first increase of 10 percent or more since the period ending March 1981.
emphasis added

The consensus was for 0.7% increase in CPI, and a 0.5% increase in core CPI. Both were above expectations. I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.

by Calculated Risk on 6/09/2022 09:11:00 PM

Friday:
• At 8:30 AM ET, The Consumer Price Index for May from the BLS. The consensus is for 0.7% increase in CPI, and a 0.5% increase in core CPI.

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

On COVID (focus on hospitalizations and deaths):

COVID Metrics
	Now	Week Ago	Goal
Percent fully Vaccinated	66.7%	---	≥70.0%1
Fully Vaccinated (millions)	221.6	---	≥2321
New Cases per Day3🚩	109,032	100,915	≤5,0002
Hospitalized3🚩	23,341	21,693	≤3,0002
Deaths per Day3🚩	306	258	≤502
1 Minimum to achieve "herd immunity" (estimated between 70% and 85%). 2my goals to stop daily posts, 37-day average for Cases, Currently Hospitalized, and Deaths 🚩 Increasing 7-day average week-over-week for Cases, Hospitalized, and Deaths ✅ Goal met.

Click on graph for larger image.

This graph shows the daily (columns) and 7-day average (line) of deaths reported.

New cases have quadrupled from the recent low.  Hospitalizations and deaths are now increasing.

Average daily deaths bottomed in July 2021 at 214 per day.