by Calculated Risk on 7/03/2024 02:00:00 PM

From the Fed: Minutes of the Federal Open Market Committee June 11–12, 2024. Excerpt:

With regard to the outlook for inflation, participants emphasized that they were strongly committed to their 2 percent objective and that they remained concerned that elevated inflation continued to harm the purchasing power of households, especially those least able to meet the higher costs of essentials like food, housing, and transportation. Participants highlighted a variety of factors that were likely to help contribute to continued disinflation in the period ahead. The factors included continued easing of demand–supply pressures in product and labor markets, lagged effects on wages and prices of past monetary policy tightening, the delayed response of measured shelter prices to rental market developments, or the prospect of additional supply-side improvements. The latter prospect included the possibility of a boost to productivity associated with businesses' deployment of artificial intelligence–related technology. Participants observed that longer-term inflation expectations had remained well anchored and viewed this anchoring as underpinning the disinflation process. Participants affirmed that additional favorable data were required to give them greater confidence that inflation was moving sustainably toward 2 percent.
...
In discussing the outlook for monetary policy, participants noted that progress in reducing inflation had been slower this year than they had expected last December. They emphasized that they did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward the Committee's 2 percent objective. In discussing their individual outlooks for the target range for the federal funds rate, participants emphasized the importance of conditioning future policy decisions on incoming data, the evolving economic outlook, and the balance of risks. Several participants noted that financial market reactions to data and feedback received from contacts suggested that the Committee's policy approach was generally well understood. Some participants suggested that further clarity about the FOMC's reaction function might be provided by communications that emphasized the Committee's data-dependent approach, with monetary policy decisions being conditional on the evolution of the economy rather than being on a preset path. A couple of participants remarked that providing more information about the Committee's views on the economic outlook and the risks around the outlook would improve the public's understanding of the Committee's decisions.
emphasis added

by Calculated Risk on 7/03/2024 11:50:00 AM

Today, in the Real Estate Newsletter: ICE Mortgage Monitor: Existing Home Inventory Surges in Florida and Texas

Brief excerpt:

The local data I track is indicating that Florida and Texas inventory is above normal, whereas inventory is still low in most of the country.

• While the new inflow of listings nationally has averaged a 23% deficit from pre-pandemic levels over the past three months, most Texas and Florida markets are seeing new listing volumes near or above pre-pandemic averages

• In fact, of the 19 markets with new listings volumes within 10% of their 2017-2019 same-month average, 14 are in Texas or Florida, including seven of the nine markets with surpluses

There is much more in the article.

by Calculated Risk on 7/03/2024 10:00:00 AM

(Posted with permission). The ISM® Services index was at 48.8%, down from 53.8% last month. The employment index decreased to 46.1%, from 47.1%. Note: Above 50 indicates expansion, below 50 in contraction.

From the Institute for Supply Management: Services PMI® at 48.8% June 2024 Services ISM® Report On Business®

Economic activity in the services sector contracted in June for the second time in the last three months, say the nation's purchasing and supply executives in the latest Services ISM® Report On Business®. The Services PMI® registered 48.8 percent, indicating sector contraction for the third time in 49 months.

The report was issued today by Steve Miller, CPSM, CSCP, Chair of the Institute for Supply Management® (ISM®) Services Business Survey Committee: “In June, the Services PMI® registered 48.8 percent, 5 percentage points lower than May’s figure of 53.8 percent. The reading in June was a reversal compared to May and the second in contraction territory in the last three months. Before April, the services sector grew for 15 straight months following a composite index reading of 49 percent in December 2022; the last contraction before that was in May 2020 (45.4 percent). The Business Activity Index registered 49.6 percent in June, which is 11.6 percentage points lower than the 61.2 percent recorded in May and the first month of contraction since May 2020. The New Orders Index contracted in June for the first time since December 2022; the figure of 47.3 percent is 6.8 percentage points lower than the May reading of 54.1 percent. The Employment Index contracted for the sixth time in seven months and at a faster rate in June; the reading of 46.1 percent is a 1-percentage point decrease compared to the 47.1 percent recorded in May.
emphasis added

The PMI was below expectations.

by Calculated Risk on 7/03/2024 08:48:00 AM

The Census Bureau and the Bureau of Economic Analysis reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $75.1 billion in May, up $0.6 billion from $74.5 billion in April, revised.

May exports were $261.7 billion, $1.8 billion less than April exports. May imports were $336.7 billion, $1.2 billion less than April imports.
emphasis added

Click on graph for larger image.

Both exports and imports decreased in May.

Exports are up 4.3% year-over-year; imports are up 6.2% year-over-year.

Both imports and exports decreased sharply due to COVID-19 and then bounced back - imports and exports have generally increased recently.

The second graph shows the U.S. trade deficit, with and without petroleum.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Note that net, exports of petroleum products are positive and have been increasing.

The trade deficit with China decreased to $24.0 billion from $25.2 billion a year ago.

by Calculated Risk on 7/03/2024 08:30:00 AM

The DOL reported:

n the week ending June 29, the advance figure for seasonally adjusted initial claims was 238,000, an increase of 4,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 233,000 to 234,000. The 4-week moving average was 238,500, an increase of 2,250 from the previous week's revised average. The previous week's average was revised up by 250 from 236,000 to 236,250.
emphasis added

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 238,500.

The previous week was revised up.

Weekly claims were higher than the consensus forecast.

by Calculated Risk on 7/03/2024 08:15:00 AM

From ADP: ADP National Employment Report: Private Sector Employment Increased by 152,000 Jobs in May; Annual Pay was Up 5.0%

Private sector employment increased by 150,000 jobs in June and annual pay was up 4.9 percent year-over-year, according to the June ADP® National Employment ReportTM produced by the ADP Research Institute® in collaboration with the Stanford Digital Economy Lab (“Stanford Lab”). ...

"Job growth has been solid, but not broad-based,” said Nela Richardson, chief economist, ADP. “Had it not been for a rebound in hiring in leisure and hospitality, June would have been a downbeat month.”
emphasis added

This was below the consensus forecast of 170,000. The BLS report will be released Friday, and the consensus is for 180,000 non-farm payroll jobs added in June.

by Calculated Risk on 7/03/2024 07:00:00 AM

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

Mortgage applications decreased 2.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending June 28, 2024.

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 8 percent compared with the previous week. The Refinance Index decreased 2 percent from the previous week and was 29 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 12 percent lower than the same week one year ago.

“Mortgage rates moved higher last week, crossing the 7 percent mark, even as the latest inflation data has kept market expectations alive for a rate cut from the Fed later this year,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Purchase applications decreased the final full week of June, even as both new and existing inventories have increased over the past few months. Refinance activity also remains subdued – although there was a slight increase in applications for conventional refinance loans.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.03 percent from 6.93 percent, with points increasing to 0.62 from 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 12% year-over-year unadjusted.  

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

Purchase application activity is up slightly from the lows in late October 2023, 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 mostly flat lined since then with a slight increase recently.

by Calculated Risk on 7/02/2024 07:53:00 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.

• At 8:15 AM, The ADP Employment Report for June. This report is for private payrolls only (no government). The consensus is for 170,000 payroll jobs added in June, up from 152,000 in May.

• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 228 thousand initial claims, down from 233 thousand last week.

• Also at 8:30 AM, Trade Balance report for May from the Census Bureau. The consensus is the trade deficit to be $72.2 billion.  The U.S. trade deficit was at $74.6 billion the previous month.

• At 10:00 AM, the ISM Services Index for June.   The consensus is for a reading of 52.5, down from 53.8.

• At 2:00 PM, FOMC Minutes, Meeting of June 11-12, 2024

US markets will close at 1:00 PM ET prior to the Independence Day Holiday.

by Calculated Risk on 7/02/2024 05:11:00 PM

Wards Auto released their estimate of light vehicle sales for May: Cyberattack Puts Dent in June U.S. Light-Vehicle Sales (pay site).

An initial estimate indicates the cyberattack cost the industry 50,000 unit-sales in June and knocked 600,000 off the month’s seasonally adjusted annual rate, which totaled 15.3 million. The disruptions caused quarterly sales to decline year-over-year for the first time since Q3-2022, as deliveries totaled 4.075 million units, down 0.4% from April-June 2023. The Q2 SAAR of 15.7 million was flat with the year-ago total but higher than Q1’s 15.3 million.

Click on graph for larger image.

This graph shows light vehicle sales since 2006 from the BEA (blue) and Wards Auto's estimate for June (red).

Sales in June (15.29 million SAAR) were down 3.8% from May, and down 4.8% from June 2023.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Sales in June were below the consensus forecast.

There should be some bounce back from the cyberattack in July.

by Calculated Risk on 7/02/2024 12:45:00 PM

Today, in the Real Estate Newsletter: Asking Rents Mostly Unchanged Year-over-year

Brief excerpt:

Tracking rents is important for understanding the dynamics of the housing market. For example, the sharp increase in rents helped me deduce that there was a surge in household formation in 2021 (See from September 2021: Household Formation Drives Housing Demand). Now that household formation has slowed, and multi-family completions have increased, rents are under pressure.

From ApartmentList.com: Apartment List National Rent Report

Welcome to the July 2024 Apartment List National Rent Report. Rent prices ticked up for the fifth straight month, but rent growth over the course of 2024 as a whole remains modest, signaling ongoing sluggishness in the market. The national median rent increased by 0.4% in June and now stands at $1,411, but the pace of growth slowed slightly this month. This is typically the time of year when rent growth is accelerating amid the busy moving season, so sluggish growth this month indicates that the market is headed for another slow summer.

Since the second half of 2022, seasonal declines in rent prices have been steeper than usual and seasonal increases have been more mild. As a result, apartments are on average slightly cheaper today than they were one year ago. Year-over-year rent growth nationally currently stands at -0.7 percent and has now been in negative territory since last summer. But despite this cooldown, the national median rent is still more than $200 per month higher than it was just a few years ago.

Realtor.com: Tenth Consecutive Month with Year-over-year Decline in Rents

In May 2024, the U.S. median rent continued to decline year over year for the 10th month in a row, down 0.7% for 0-2 bedroom properties across the top 50 metros, on par with the rate seen in April 2024.

There is much more in the article.