by Calculated Risk on 1/11/2024 08:30:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in December on a seasonally adjusted basis, after rising 0.1 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment.

The index for shelter continued to rise in December, contributing over half of the monthly all items increase. The energy index rose 0.4 percent over the month as increases in the electricity index and the gasoline index more than offset a decrease in the natural gas index. The food index increased 0.2 percent in December, as it did in November. The index for food at home increased 0.1 percent over the month and the index for food away from home rose 0.3 percent.

The index for all items less food and energy rose 0.3 percent in December, the same monthly increase as in November. Indexes which increased in December include shelter, motor vehicle insurance, and medical care. The index for household furnishings and operations and the index for personal care were among those that decreased over the month.

The all items index rose 3.4 percent for the 12 months ending December, a larger increase than the 3.1-percent increase for the 12 months ending November. The all items less food and energy index rose 3.9 percent over the last 12 months, after rising 4.0 percent over the 12 months ending November. The energy index decreased 2.0 percent for the 12 months ending December, while the food index increased 2.7 percent over the last year.
emphasis added

The change in CPI was slightly above expectations and core CPI was at expectations. I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.

by Calculated Risk on 1/10/2024 07:30:00 PM

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

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 215 thousand, up from 202 thousand.

• Also at 8:30 AM, The Consumer Price Index for December from the BLS. The consensus is for 0.2% increase in CPI, and a 0.3% increase in core CPI.  The consensus is for CPI to be up 3.2% year-over-year and core CPI to be up 3.9% YoY.

by Calculated Risk on 1/10/2024 03:48:00 PM

Earlier I posted some questions on my blog for this year: Ten Economic Questions for 2024. Some of those questions concerned real estate (inventory, house prices, housing starts, new home sales), and I posted thoughts on those in the newsletter (others like GDP and employment are on this blog).

I've added some thoughts and made some predictions for each question.

1) Economic growth: Economic growth was probably close to 2.6% in 2023.  The FOMC is expecting growth of 1.2% to 1.7% Q4-over-Q4 in 2024. How much will the economy grow in 2024?  Will there be a recession in 2024?

A year ago, I argued that "the economy will avoid recession" in 2023, even though some key indicators suggested a possible recession, the FOMC was forecasting an employment recession, and many Wall Street analysts were forecasting an economic recession. 

It is satisfying to make an out of consensus forecast, and get it mostly correct.  But we are not out of the woods yet.   Recessions can be the result of exogenous events, like the pandemic or the oil shocks due to geopolitical issues in the 1970s, the bursting of speculative bubbles like in 2001 (stock) or 2007 (housing), or - most frequently - the Fed tightening monetary policy to slow inflation.

Exogenous events are always a threat, and there are several geopolitical issues that could lead to recession - in Ukraine, the Middle East, and even with China.   However, none of those risks appear likely to cause a U.S. recession this year.

But there is a risk that the Fed will be overly tight in 2024.  The "Art of the Soft Landing" requires that the Fed reduce rates quick enough to keep economic growth positive, and slow enough not to reignite inflation.   That seems very possible.

My view is a soft landing is achieved if growth stays positive, inflation returns to target, and the yield curve flattens or reverts to normal (long yields higher than short yields.

Here is a graph of 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity from FRED since 1976.  

Note that recessions usually happen after the yield curve reverts.  However, this time, inflation was driven by pandemic economics (supply shocks, etc), and it seems likely the yield curve will revert without a recession.

Click here for interactive graph at FRED.

One of my favorite models for business cycle forecasting uses new home sales (also housing starts and residential investment).  The purpose of the next 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.

The arrows point to some of the earlier peaks and troughs for these three measures - and the most recent likely bottom.

New home sales and single-family starts turned down in 2022 in response to higher mortgage rates.  However, all three measures appear to have bottomed without a recession.

The third graph shows the YoY change in New Home Sales from the Census Bureau.  Currently new home sales (based on 3-month average) are up 5% year-over-year.

Usually when the YoY change in New Home Sales falls about 20%, a recession will follow.  An exception for this data series was the mid '60s when the Vietnam buildup kept the economy out of recession.   Another exception was in late 2021 - we saw a significant YoY decline in new home sales related to the pandemic and the surge in new home sales in the second half of 2020.  I ignored that pandemic distortion.  Also note that the sharp decline in 2010 was related to the housing tax credit policy in 2009 - and was just a continuation of the housing bust.

IMPORTANT: These business cycle models (yield curve, housing) are very useful, but I'm not a slave to any model!

Here is a table of the annual change in real GDP since 2005.  Prior to the pandemic, economic activity was mostly in the 2% range since 2010.  Given current demographics, that is about what we'd expect: See: 2% is the new 4%..

Note: This table includes both annual change and q4 over the previous q4 (two slightly different measures).   For 2023, I used a 2.6% growth rate Q4 over Q4.  (this gives 2.4% real annual growth).  

Real GDP Growth
Year	Annual GDP	Q4 / Q4
2005	3.5%	3.0%
2006	2.8%	2.6%
2007	2.0%	2.1%
2008	0.1%	-2.5%
2009	-2.6%	0.1%
2010	2.7%	2.8%
2011	1.6%	1.5%
2012	2.3%	1.6%
2013	2.1%	3.0%
2014	2.5%	2.7%
2015	2.9%	2.1%
2016	1.8%	2.2%
2017	2.5%	3.0%
2018	3.0%	2.1%
2019	2.5%	3.2%
2020	-2.2%	-1.1%
2021	5.8%	5.4%
2022	1.9%	0.7%
20231	2.4%	2.6%
1 2023 estimate based on 2.6% Q4 SAAR annualized real growth rate.

My sense is growth will be sluggish in 2024, and the economy will avoid recession.   Monetary policy is restrictive, but the Fed is expected to cut rates this year.   Vehicle sales will probably pick up in 2024, and so will new home sales.   

So, my guess is that real GDP growth will be positive in the 1% to 2% range in 2024.

Here are the Ten Economic Questions for 2024 and a few predictions:

• Question #1 for 2024: How much will the economy grow in 2024? Will there be a recession in 2024?
• Question #2 for 2024: How much will job growth slow in 2024? Or will the economy lose jobs?
• Question #3 for 2024: What will the unemployment rate be in December 2024?
• Question #4 for 2024: What will the participation rate be in December 2024?
• Question #5 for 2024: What will the YoY core inflation rate be in December 2024?
• Question #6 for 2024: What will the Fed Funds rate be in December 2024?
• Question #7 for 2024: How much will wages increase in 2024?
• Question #8 for 2024: How much will Residential investment change in 2024? How about housing starts and new home sales in 2024?
• Question #9 for 2024: What will happen with house prices in 2024?
• Question #10 for 2024: Will inventory increase further in 2024?

by Calculated Risk on 1/10/2024 12:32:00 PM

Today, in the Calculated Risk Real Estate Newsletter: Part 1: Current State of the Housing Market; Overview for mid-January 2024

A brief excerpt:

This 2-part overview for mid-January provides a snapshot of the current housing market. This includes sales, house prices, inventory, mortgage rates, rents and more.

I always like to start with inventory, since inventory usually tells the tale!
...
Here is a graph of new listing from Realtor.com’s December 2023 Monthly Housing Market Trends Report showing new listings were up 9.1% year-over-year in December. New listings finished 2023 up year-over-year mostly because new listings collapsed in the 2nd half of 2022. From Realtor.com:

Providing a boost to overall inventory, sellers turned out in higher numbers this December as newly listed homes were 9.1% above last year’s levels. This marked the second month of increasing listing activity after a 17-month streak of decline.

Note the seasonality for new listings. December and January are seasonally the weakest months of the year for new listings. It seems very likely that new listings will be up year-over-year in 2024, but we will have to wait for the March data to see how close new listings are to normal levels.

There is much more in the article.

by Calculated Risk on 1/10/2024 11:52:00 AM

From Dodge Data Analytics: Dodge Momentum Index Improves 3% in December

The Dodge Momentum Index (DMI), issued by Dodge Construction Network (DCN), rose 3% in December to 186.6 (2000=100) from the revised November reading of 181.5. Over the month, commercial planning grew 1.0% and institutional planning improved 6.1%.

“The Momentum Index ended the year 11% below the November 2022 peak, ultimately stabilizing as the year progressed. Regardless, the DMI averaged a reading of 184.3 in 2023, hitting levels of activity that haven’t been recorded since 2008,” stated Sarah Martin, associate director of forecasting for DCN. “While ongoing labor and construction cost issues will persist in 2024, a substantive amount of projects are sitting in the planning queue and will support construction spending going into 2025.”
...
The DMI is a monthly measure of the value of nonresidential building projects going into planning, shown to lead construction spending for nonresidential buildings by a full year.
emphasis added

Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 186.6 in December, up from 181.5 the previous month.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year".  This index suggests some slowdown in 2024.  

Commercial construction is typically a lagging economic indicator.

by Calculated Risk on 1/10/2024 09:47:00 AM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2024. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I’ll post thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts, and maybe some predictions for each question.

2) Employment: Through November 2023, the economy added 2.6 million jobs in 2023.   This is down from 4.8 million jobs added in 2022, and 7.3 million in 2021 (the two best years ever), but still a solid year for employment gains. How much will job growth slow in 2024?  Or will the economy lose jobs? 

For review, here is a table of the annual change in total nonfarm, private and public sector payrolls jobs since 1997.  

Change in Payroll Jobs per Year (000s)
	Total, Nonfarm	Private	Public
1997	3,406	3,211	195
1998	3,048	2,735	313
1999	3,181	2,720	461
2000	1,938	1,674	264
2001	-1,733	-2,284	551
2002	-515	-748	233
2003	125	167	-42
2004	2,038	1,891	147
2005	2,528	2,342	186
2006	2,092	1,883	209
2007	1,145	857	288
2008	-3,549	-3,729	180
2009	-5,041	-4,967	-74
2010	1,027	1,243	-216
2011	2,066	2,378	-312
2012	2,174	2,241	-67
2013	2,293	2,360	-67
2014	2,998	2,871	127
2015	2,717	2,567	150
2016	2,325	2,118	207
2017	2,113	2,033	80
2018	2,284	2,157	127
2019	1,959	1,747	212
2020	-9,289	-8,237	-1,052
2021	7,267	6,882	385
2022	4,793	4,518	275
2023	2,697	2,025	672

The good news is job market still has momentum heading into 2024.

Click on graph for larger image.

The bad news - for job growth - is that a combination of a slowing economy, demographics and a labor market near full employment suggests fewer jobs will be added in 2024.

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

There was strong job growth in 2021 and 2022 as the economy bounced back from the pandemic recession.

Job growth slowed in 2023 but was still historically strong.

The second table shows the change in construction and manufacturing payrolls starting in 2006.

	Construction Jobs (000s)	Manufacturing (000s)
2006	152	-178
2007	-195	-269
2008	-789	-896
2009	-1,047	-1,375
2010	-187	120
2011	144	207
2012	113	158
2013	208	123
2014	361	209
2015	337	70
2016	188	-7
2017	273	178
2018	305	263
2019	132	5
2020	-173	-602
2021	239	385
2022	265	390
2023	197	12

For manufacturing, there will probably be some growth in the auto sector in 2024, and possibly in other manufacturing sectors.  However, for construction, multi-family construction will slow in 2024, and so will several commercial real estate sectors (based on both the Architecture Billings Index and the Dodge Momentum Index. 

So, my forecast is for gains of around 1.0 million to 1.5 million jobs in 2024.  This would be another solid year for employment gains given current demographics.

Here are the Ten Economic Questions for 2024 and a few predictions:

• Question #1 for 2024: How much will the economy grow in 2024? Will there be a recession in 2024?
• Question #2 for 2024: How much will job growth slow in 2024? Or will the economy lose jobs?
• Question #3 for 2024: What will the unemployment rate be in December 2024?
• Question #4 for 2024: What will the participation rate be in December 2024?
• Question #5 for 2024: What will the YoY core inflation rate be in December 2024?
• Question #6 for 2024: What will the Fed Funds rate be in December 2024?
• Question #7 for 2024: How much will wages increase in 2024?
• Question #8 for 2024: How much will Residential investment change in 2024? How about housing starts and new home sales in 2024?
• Question #9 for 2024: What will happen with house prices in 2024?
• Question #10 for 2024: Will inventory increase further in 2024?

by Calculated Risk on 1/10/2024 07:00:00 AM

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

Mortgage applications increased 9.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 5, 2024. The results include an adjustment to account for the New Year’s holiday.

The Market Composite Index, a measure of mortgage loan application volume, increased 9.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 45 percent compared with the previous week. The holiday adjusted Refinance Index increased 19 percent from the previous week and was 30 percent higher than the same week one year ago. The unadjusted Refinance Index increased 53 percent from the previous week and was 17 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 6 percent from one week earlier. The unadjusted Purchase Index increased 40 percent compared with the previous week and was 16 percent lower than the same week one year ago.

“Despite an uptick in mortgage rates to start 2024, applications increased after adjusting for the holiday,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The increase in purchase and refinance applications for both conventional and government loans is promising to start the year but was likely due to some catch-up in activity after the holiday season and year-end rate declines. Mortgage rates and applications have been volatile in recent weeks and overall activity remains low.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 6.81 percent from 6.76 percent, with points remaining unchanged at 0.61 (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 MBA mortgage purchase index.

According to the MBA, purchase activity is down 16% year-over-year unadjusted.  

Red is a four-week average (blue is weekly).  

Purchase application activity is up from the lows in late October and early November, but still below the lowest levels during the housing bust.

The second graph shows the refinance index since 1990.

With higher mortgage rates, the refinance index declined sharply in 2022, and even with some recent increases, activity is barely off the bottom.

by Calculated Risk on 1/09/2024 07:48:00 PM

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

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

by Calculated Risk on 1/09/2024 04:08:00 PM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2024. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I’ll post thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts, and maybe some predictions for each question.

3) Unemployment Rate: The unemployment rate was at 3.7% in November, up from 3.6% in November 2022.   Currently the FOMC is forecasting the unemployment rate will increase to the 4.0% to 4.2% range in Q4 2024.  What will the unemployment rate be in December 2024?

Six years ago - back when most analysts said the unemployment rate couldn't go much lower - I noted that current demographics shared some similarities to the '60s, and that the unemployment rate bottomed at 3.4% in the '60s - and that we might see the unemployment rate that low or lower in this cycle. That happened, and from a demographics perspective, an unemployment rate below 4% would probably not be inflationary.

Here is a graph of the unemployment rate over time.  Note the period in the late '60s when the unemployment rate was mostly below 4% for four consecutive years.

Click on graph for larger image.

The unemployment rate is from the household survey (CPS), and the rate was mostly flat in 2023. The unemployment rate increased in December to 3.7%, up from 3.5% in December 2022.  

Forecasting the unemployment rate includes forecasts for economic and payroll growth, and also for changes in the participation rate (previous question).

Here is a table of the participation rate and unemployment rate since 2008.

Unemployment and Participation Rate for December each Year
December of	Participation Rate	Change in Participation Rate (percentage points)	Unemployment Rate
2008	65.8%		7.3%
2009	64.6%	-1.2	9.9%
2010	64.3%	-0.3	9.3%
2011	64.0%	-0.3	8.5%
2012	63.7%	-0.3	7.9%
2013	62.9%	-0.8	6.7%
2014	62.8%	-0.1	5.6%
2015	62.7%	-0.1	5.0%
2016	62.7%	0.0	4.7%
2017	62.7%	0.0	4.1%
2018	63.0%	0.3	3.9%
2019	63.3%	0.3	3.6%
2020	61.5%	-1.8	6.7%
2021	62.0%	0.5	3.9%
2022	62.3%	0.3	3.5%
2023	62.5%	0.2	3.7%

Depending on the estimate for the participation rate and job growth (next question), my guess is the unemployment rate will remain in the mid-to-high 3% range in December 2024.  (Lower than the FOMC forecast of 4.0% to 4.2%).

Here are the Ten Economic Questions for 2024 and a few predictions:

• Question #1 for 2024: How much will the economy grow in 2024? Will there be a recession in 2024?
• Question #2 for 2024: How much will job growth slow in 2024? Or will the economy lose jobs?
• Question #3 for 2024: What will the unemployment rate be in December 2024?
• Question #4 for 2024: What will the participation rate be in December 2024?
• Question #5 for 2024: What will the YoY core inflation rate be in December 2024?
• Question #6 for 2024: What will the Fed Funds rate be in December 2024?
• Question #7 for 2024: How much will wages increase in 2024?
• Question #8 for 2024: How much will Residential investment change in 2024? How about housing starts and new home sales in 2024?
• Question #9 for 2024: What will happen with house prices in 2024?
• Question #10 for 2024: Will inventory increase further in 2024?

by Calculated Risk on 1/09/2024 02:21:00 PM

Today, in the Calculated Risk Real Estate Newsletter: 1st Look at Local Housing Markets in December

A brief excerpt:

NOTE: The tables for active listings, new listings and closed sales all include a comparison to December 2019 for each local market (some 2019 data is not available).

This is the first look at several early reporting local markets in December. I’m tracking about 40 local housing markets in the US. Some of the 40 markets are states, and some are metropolitan areas. I’ll update these tables throughout the month as additional data is released.

Closed sales in December were mostly for contracts signed in October and November.
...
And a table of December sales.

In December, sales in these markets were down 7.9%. In November, these same markets were down 11.3% YoY Not Seasonally Adjusted (NSA).

Sales in all of these markets are down sharply compared to December 2019.
...
This was just several early reporting markets. Many more local markets to come!

There is much more in the article.