by Calculated Risk on 10/30/2023 01:34:00 PM

A few excerpts from a note by Goldman Sachs economists Spencer Hill and Manuel Abecasis: 2024 Inflation Outlook: Approaching the Target

"We are lowering our December 2024 core CPI forecast by two tenths to 2.7% year-on-year, and we continue to expect a significant decline in core PCE inflation from 3.7% currently to 2.4% in December 2024. We expect the backdrop of falling but above-target inflation to validate the Fed’s decision to hold the fed funds rate at its current level until 2024Q4."

Currently the FOMC is projecting core PCE inflation to decline to 2.5% to 2.8% year-over-year (YoY) in Q4 2024. The Goldman Sachs projection is 2.4% by December 2024. Two of the key reasons that YoY inflation will likely continue to decline is wage growth has slowed (and appears likely to continue to slow), and shelter inflation will decline sharply in 2024. 

And here is a graph of the year-over-year change in shelter from the CPI report and housing from the PCE report through September 2023.

CPI Shelter was up 7.1% year-over-year in September, down from 7.2% in August, and down from the cycle peak of 8.2% in March 2023.

Housing (PCE) was up 7.2% YoY in September, down from 7.4% in August, and down from the cycle peak of 8.3% in April 2023.

Since asking rents are slightly negative year-over-year, these measures will continue to slow over coming months.  

Note that core CPI ex-shelter was up 1.9% YoY in September, down from 2.3% in August. And over the last 4 months, core CPI ex-shelter has increased at a 0.8% annual rate.

by Calculated Risk on 10/30/2023 08:17:00 AM

Altos reports that active single-family inventory was up 1.5% week-over-week.

Click on graph for larger image.

This inventory graph is courtesy of Altos Research.

As of October 27th, inventory was at 563 thousand (7-day average), compared to 554 thousand the prior week.   

Year-to-date, inventory is up 14.6%.  And inventory is up 38.5% from the seasonal bottom 28 weeks ago.

The second graph shows the seasonal pattern for active single-family inventory since 2015.

The red line is for 2023.  The black line is for 2019.  Note that inventory is up from the record low for the same week in 2021, but below last year and still well below normal levels.

Inventory was down 2.7% compared to the same week in 2022 (last week it was down 3.2%), and down 39.4% compared to the same week in 2019 (last week down 40.7%). 

In 2022, inventory peaked the same week one year ago (the latest in the year inventory has peaked), and it is possible inventory will peak even later this year!   I now expect inventory to be up YoY soon.

Inventory is now 2.4% above the same week in 2020 levels (dark blue line).

Mike Simonsen discusses this data regularly on Youtube.

by Calculated Risk on 10/29/2023 07:30:00 PM

Weekend:
• Schedule for Week of October 29, 2023

• FOMC Preview: No Change to Policy Expected

Monday:
• At 10:30 AM ET, Dallas Fed Survey of Manufacturing Activity for October.  This is the last regional Fed survey for October.

From CNBC: Pre-Market Data and Bloomberg futures S&P 500 futures are up 10 and DOW futures are up 30 (fair value).

Oil prices were down over the last week with WTI futures at $84.46 per barrel and Brent at $89.39 per barrel. A year ago, WTI was at $88, and Brent was at $95 - so WTI oil prices were down 5% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $3.44 per gallon. A year ago, prices were at $3.72 per gallon, so gasoline prices are down $0.28 year-over-year.

by Calculated Risk on 10/29/2023 12:17:00 PM

From STR: U.S. hotel results for week ending 21 October

U.S. hotel performance increased from the previous week and showed improved year-over-year comparisons, according to CoStar’s latest data through 21 October.

15-21 October 2023 (percentage change from comparable week in 2022):

• Occupancy: 69.0% (-0.8%)
• Average daily rate (ADR): US$165.32 (+3.8%)
• Revenue per available room (RevPAR): US$114.04 (+2.9%)
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 2023, black is 2020, blue is the median, and dashed light blue is for 2022.  Dashed purple is for 2018, the record year for hotel occupancy. 

The 4-week average of the occupancy rate is tracking close to last year, and just above the median rate for the period 2000 through 2022 (Blue).

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

The 4-week average of the occupancy rate will decline seasonally for the next couple of months. 

by Calculated Risk on 10/29/2023 08:21:00 AM

Most analysts expect there will be no change to FOMC policy at this meeting, keeping the target range for the federal funds rate at 5‑1/4 to 5-1/2 percent.

On the meeting this week from BofA:

"We still do not expect a hike in November, as the Fed is clearly worried about the extent of financial tightening. But today’s robust spending and inflation data keep a December hike on the table, as they are a reminder that the war on inflation has not yet been won."
emphasis added

And from Goldman Sachs economists:

"Fed officials appear to have signaled that they will not be hiking at their November meeting next week, and we interpret their recent comments to imply that most would prefer not to hike again, consistent with our forecast. ... the story of the year so far has been that economic reacceleration has not prevented further labor market rebalancing and progress in the inflation fight. We expect this to continue in coming months, with core PCE on track to undershoot the FOMC’s year-end projections."

Projections will not be released at this meeting. For review, here are the September projections.  Since the last projections were released, the economy has performed better than the FOMC expected, and inflation was slightly below expectations.

The BEA reported real GDP increased at a 4.9% annual rate in Q3. After three quarters, GDP has increased at a 3.1% annual rate in 2023, and to hit the high end of the FOMC projection for Q4, GDP would have to decrease 0.3% in Q4.  To hit the low end of the FOMC projection, GDP would have to decrease 1.5% in Q4.

The FOMC projection for year-over-year growth in Q4 2023 appears too low.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2023	2024	2025
Sept 2023	1.9 to 2.2	1.2 to 1.8	1.6 to 2.0
June 2023	0.7 to 1.2	0.9 to 1.5	1.6 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 3.8% in September. The FOMC's unemployment rate projection for Q4 is probably close.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2023	2024	2025
Sept 2023	3.7 to 3.9	3.9 to 4.4	3.9 to 4.3
June 2023	4.0 to 4.3	4.3 to 4.6	4.3 to 4.6

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

As of September 2023, PCE inflation increased 3.4 percent year-over-year (YoY), unchanged from 3.4 percent YoY in August, and down from the recent peak of 7.1 percent in June 2022.  It appears YoY PCE inflation will be close to the FOMC projection for Q4.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2023	2024	2025
Sept 2023	3.2 to 3.4	2.3 to 2.7	2.0 to 2.3
June 2023	3.0 to 3.5	2.3 to 2.8	2.0 to 2.4

PCE core inflation increased 3.7 percent YoY, down from 3.8 percent in August, and down from the recent peak of 5.6 percent in February 2022. This remains a concern for the FOMC, however this includes shelter that was up 7.2% YoY in September (even though asking rents are mostly unchanged YoY).  Also, core PCE inflation was fairly high in Q4 2022, and it seems likely YoY core PCE inflation will be at or below the low end of the FOMC Q4 projection.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2023	2024	2025
Sept 2023	3.6 to 3.9	2.5 to 2.8	2.0 to 2.4
June 2023	3.7 to 4.2	2.5 to 3.1	2.0 to 2.4

by Calculated Risk on 10/28/2023 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

• New Home Sales increase to 759,000 Annual Rate in September

• Total Housing Completions Will Likely Increase Slightly in 2023; The Mix will Change

• Final Look at Local Housing Markets in September

• Fannie and Freddie: Single-Family Mortgage Delinquency Rate Mostly Unchanged in September

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/

by Calculated Risk on 10/28/2023 08:11:00 AM

Boo!

The key report this week is the October employment report on Friday.

Other key indicators include the Case-Shiller house prices for August, October ISM manufacturing and services indexes, and October vehicle sales.

The FOMC meets this week and no change to policy is expected.

----- Monday, October 30th -----
10:30 AM: Dallas Fed Survey of Manufacturing Activity for October.  This is the last regional Fed survey for October.

----- Tuesday, October 31st -----
9:00 AM ET: S&P/Case-Shiller House Price Index for August.  The consensus is for the Composite 20 index to be up 0.1% year-over-year.

This graph shows the year-over-year change in the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the most recent report (the Composite 20 was started in January 2000).

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

9:45 AM: Chicago Purchasing Managers Index for October. The consensus is for a reading of 44.8, up from 44.1 in September.

10:00 AM: The Q3 Housing Vacancies and Homeownership report from the Census Bureau.

----- Wednesday, November 1st -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for October. This report is for private payrolls only (no government).  The consensus is for 135,000 jobs added, up from 89,000 in September.

10:00 AM: Job Openings and Labor Turnover Survey for August from the BLS.

This graph shows job openings (black line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings increased in August to 9.61 million from 8.92 million in July.

The number of job openings (black) were down 6% year-over-year. Quits were down 14% year-over-year.

10:00 AM: ISM Manufacturing Index for October.  The consensus is for 49.0, unchanged from 49.0. 

10:00 AM: Construction Spending for September.  The consensus is for 0.4% increase in spending.

2:00 PM: FOMC Meeting Announcement. No change to FOMC policy is expected at this meeting.

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

All day: Light vehicle sales for October.

The consensus is for sales of 15.1 million SAAR, down from 15.7 million SAAR in September (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the current sales rate.

----- Thursday, November 2nd -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 214 thousand initial claims, up from 210 thousand last week.

----- Friday, November 3rd -----
8:30 AM: Employment Report for October.   The consensus is for 168,000 jobs added, and for the unemployment rate to be unchanged at 3.8%.

There were 336,000 jobs added in September, and the unemployment rate was at 3.8%.

This graph shows the jobs added per month since January 2021.

10:00 AM: the ISM Services Index for October.  The consensus is for a decrease to 53.0 from 53.6.

by Calculated Risk on 10/27/2023 07:53:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Due to changes at the CDC, weekly cases are no longer updated.

For deaths, I'm currently using 3 weeks ago for "now", since the most recent two weeks will be revised significantly.

Recently hospitalizations have more than doubled from a low of 5,150 in June 2023, but have declined over the last few weeks.

Hospitalizations are far below the peak of 150,000 in January 2022.

COVID Metrics
	Now	Week Ago	Goal
Hospitalized2	13,036	13,652	≤3,0001
Deaths per Week2	1,182	1,339	≤3501
1my goals to stop weekly posts, 2Weekly for Currently Hospitalized, and Deaths 🚩 Increasing number weekly for Hospitalized and Deaths ✅ Goal met.

Click on graph for larger image.

This graph shows the weekly (columns) number of deaths reported.

Weekly deaths have more than doubled from a low of 469 in early July.  Weekly deaths are far below the weekly peak of 26,000 in January 2021.

by Calculated Risk on 10/27/2023 11:34:00 AM

Here is the CES Strike report for October released this morning:

This shows a total of 48,100 workers on strike in October, 30,400 new (mostly UAW), and no strikers that returned to work for the October reference period (contains the 12th of the month).

This will reduce employment gains in October.

by Calculated Risk on 10/27/2023 10:17:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Fannie and Freddie: Single-Family Mortgage Delinquency Rate Mostly Unchanged in September

Brief excerpt:

I’ve argued that there would not be a huge wave of single-family foreclosures this cycle since lending standards have been solid and most homeowners have substantial equity. That means we will not see cascading price declines like following the housing bubble. Delinquencies are a trailing indicator but are something to watch.

However, there is some concern about some multi-family properties.
...
Freddie Mac reports that multi-family delinquencies decreased to 0.24% in September, down from 0.25% in August. This was up from 0.13% in September 2022.

This graph shows the Freddie multi-family serious delinquency rate since 2012. Delinquency rates were still high in 2012 following the housing bust and financial crisis.

The multi-family delinquency rate increased following the pandemic and has increased recently as rent growth has stalled, vacancy rates have increased, lending has tightened, and interest rates have increased sharply. This will be something to watch as rents soften.

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