by Calculated Risk on 8/15/2024 10:00:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 39, down from 41 last month. Any number below 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Moves Lower as Market Waits for Rate Cuts

A lack of affordability and buyer hesitation stemming from elevated interest rates and high home prices contributed to a decline in builder sentiment in August.

Builder confidence in the market for newly built single-family homes was 39 in August, down two points from a downwardly revised reading of 41 in July, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today. This is the lowest reading since December 2023.

“Challenging housing affordability conditions remain the top concern for prospective home buyers in the current reading of the HMI, as both present sales and traffic readings showed weakness,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable, affordable housing.”

Almost three-quarters of the responses to the August HMI were collected during the first week of the month when interest rates averaged 6.73%, according to Freddie Mac. Mortgage rates declined notably the following week to 6.47%, the lowest reading since May 2023.

“With current inflation data pointing to interest rate cuts from the Federal Reserve and mortgage rates down markedly in the second week of August, buyer interest and builder sentiment should improve in the months ahead,” said NAHB Chief Economist Robert Dietz.

The August HMI survey also revealed that 33% of builders cut home prices to bolster sales in August, above the July rate of 31% and the highest share in all of 2024. However, the average price reduction in August held steady at 6% for the 14th straight month. Meanwhile, the use of sales incentives increased to 64% in August from 61% in July, and this was the highest level since April 2019.
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The HMI index charting current sales conditions in August fell two points to 44 and the gauge charting traffic of prospective buyers also declined by two points to 25. The component measuring sales expectations in the next six months increased one point to 49.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell four points to 52, the Midwest dropped four points to 39, the South decreased two points to 42 and the West held steady at 37.
emphasis added

Click on graph for larger image.

This graph shows the NAHB index since Jan 1985.

This was below the consensus forecast.

by Calculated Risk on 8/15/2024 09:15:00 AM

From the Fed: Industrial Production and Capacity Utilization

Industrial production fell 0.6 percent in July after increasing 0.3 percent in June. Early July shutdowns concentrated in the petrochemical and related industries due to Hurricane Beryl held down the growth of industrial production by an estimated 0.3 percentage point. Manufacturing output stepped down 0.3 percent as the index for motor vehicles and parts fell nearly 8 percent; manufacturing excluding motor vehicles and parts rose 0.3 percent. The index for mining moved sideways while the index for utilities decreased 3.7 percent. At 102.9 percent of its 2017 average, total industrial production in July was 0.2 percent below its year-earlier level. Capacity utilization moved down to 77.8 percent in July, a rate that is 1.9 percentage points below its long-run (1972–2023) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up from the record low set in April 2020, and above the level in February 2020 (pre-pandemic).

Capacity utilization at 77.8% is 1.9% below the average from 1972 to 2022.  This was below consensus expectations.

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

The second graph shows industrial production since 1967.

Industrial production decreased to 102.9. This is above the pre-pandemic level.

Industrial production was below consensus expectations.

by Calculated Risk on 8/15/2024 08:40:00 AM

On a monthly basis, retail sales increased 1.0% from June to July (seasonally adjusted), and sales were up 2.7 percent from July 2023.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for July 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $709.7 billion, an increase of 1.0% from the previous month, and up 2.7 percent from July 2023. ... The May 2024 to June 2024 percent change was revised from virtually unchanged to down 0.2 percent.
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Click on graph for larger image.

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

Retail sales ex-gasoline were up 1.0% in July.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales, ex-gasoline, increased by 2.9% on a YoY basis.

The change in sales in July was above expectations, however sales in May and June were revised down.

by Calculated Risk on 8/15/2024 08:30:00 AM

The DOL reported:

In the week ending August 10, the advance figure for seasonally adjusted initial claims was 227,000, a decrease of 7,000 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 236,500, a decrease of 4,500 from the previous week's revised average. The previous week's average was revised up by 250 from 240,750 to 241,000.
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 decreased to 236,500.

The previous week was revised up.

Weekly claims were lower than the consensus forecast.

by Calculated Risk on 8/14/2024 07:22:00 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 238 thousand initial claims, up from 233 thousand last week.

• Also at 8:30 AM, Retail sales for July is scheduled to be released.  The consensus is for 0.3% increase in retail sales.

• Also at 8:30 AM, The New York Fed Empire State manufacturing survey for August. The consensus is for a reading of -6.0, up from -6.6.

• Also at 8:30 AM, the Philly Fed manufacturing survey for August. The consensus is for a reading of 6.5, down from 14.0.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for July. The consensus is for a 0.1% increase in Industrial Production, and for Capacity Utilization to decrease to 78.7%.

• At 10:00 AM, The August NAHB homebuilder survey. The consensus is for a reading of 42, unchanged from 42. Any number below 50 indicates that more builders view sales conditions as poor than good.

by Calculated Risk on 8/14/2024 02:58:00 PM

The Cleveland Fed released the median CPI and the trimmed-mean CPI.

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% in July. The 16% trimmed-mean Consumer Price Index increased 0.2%. "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".

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 4.3% (up from 4.2% in June), the trimmed-mean CPI rose 3.2% (down from 3.3%), and the CPI less food and energy rose 3.3% (unchanged from 3.3%). 

Core PCE is for July was up 2.6% YoY, unchanged from 2.6% in June.

Note: The Cleveland Fed released the median CPI details. Fuel oil and other fuels increased at a 25% annual rate in July.

Rent and Owner's equivalent rent are still high, and if we exclude rent, median CPI would be around 1.5% month-over-month, annualized. 

by Calculated Risk on 8/14/2024 01:37:00 PM

The BLS reported this morning:

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.9 percent over the last 12 months to an index level of 308.501 (1982-84=100). For the month, the index increased 0.1 percent prior to seasonal adjustment.

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U and is not seasonally adjusted (NSA).

• In 2023, the Q3 average of CPI-W was 301.236.

The 2023 Q3 average was the highest Q3 average, so we only have to compare Q3 this year to last year.

Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Note: The year labeled is for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

CPI-W was up 2.9% year-over-year in July, and although this is early - we need the data for July, August and September - my early guess is COLA will probably be around 2.4% this year, the smallest increase since 1.3% in 2021.

Contribution and Benefit Base

The contribution base will be adjusted using the National Average Wage Index. This is based on a one-year lag. The National Average Wage Index is not available for 2023 yet, although we know wages increased solidly in 2023. If wages increased 5% in 2023, then the contribution base next year will increase to around $177,000 in 2025, from the current $168,600.

Remember - this is an early look. What matters is average CPI-W, NSA, for all three months in Q3 (July, August and September).

by Calculated Risk on 8/14/2024 10:21:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Part 2: Current State of the Housing Market; Overview for mid-August 2024

A brief excerpt:

Yesterday, in Part 1: Current State of the Housing Market; Overview for mid-August 2024 I reviewed home inventory, housing starts and sales.

In Part 2, I will look at house prices, mortgage rates, rents and more.
...
Other measures of house prices suggest prices will be up less YoY in the June Case-Shiller index than in the May report. The NAR reported median prices were up 4.1% YoY in June, down from 5.2% YoY in May.

ICE reported prices were up 4.1% YoY in June, down from 4.7% YoY in May, and Freddie Mac reported house prices were up 5.2% YoY in June, down from 5.7% YoY in May.

Here is a comparison of year-over-year change in the FMHPI, median house prices from the NAR, and the Case-Shiller National index.

The FMHPI and the NAR median prices appear to be leading indicators for Case-Shiller. Based on recent monthly data, and the FMHPI, the YoY change in the Case-Shiller index will likely be lower YoY in June compared to May.

There is much more in the article.

by Calculated Risk on 8/14/2024 08:49:00 AM

Here are a few measures of inflation:

The first graph is the one Fed Chair Powell had mentioned when services less rent of shelter was up around 8% year-over-year.  This declined and is now up 4.6% YoY.

Click on graph for larger image.

This graph shows the YoY price change for Services and Services less rent of shelter through July 2024.

Services were up 4.9% YoY as of July 2024, down from 5.0% YoY in June.

Services less rent of shelter was up 4.6% YoY in July, down from 4.8% YoY in June.

The second graph shows that goods prices started to increase year-over-year (YoY) in 2020 and accelerated in 2021 due to both strong demand and supply chain disruptions.

Durables were at -4.1% YoY as of July 2024, down from -4.1% YoY in June.

Commodities less food and energy commodities were at -1.7% YoY in July, unchanged from -1.7% YoY in June.

Here is a graph of the year-over-year change in shelter from the CPI report (through July) and housing from the PCE report (through June)

Shelter was up 5.0% year-over-year in July, down from 5.1% in June. Housing (PCE) was up 5.3% YoY in June, down from 5.5% in May.

The BLS noted: "The index for shelter rose 0.4 percent in July, accounting for nearly 90 percent of the monthly increase in the all items index."

This is still catching up with private data.

Core CPI ex-shelter was up 1.8% YoY in July, unchanged from 1.8% in June.

by Calculated Risk on 8/14/2024 08:30:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent on a seasonally adjusted basis, after declining 0.1 percent in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment.

The index for shelter rose 0.4 percent in July, accounting for nearly 90 percent of the monthly increase in the all items index. The energy index was unchanged over the month, after declining in the two preceding months. The index for food increased 0.2 percent in July, as it did in June. The food away from home index rose 0.2 percent over the month, and the food at home index increased 0.1 percent.

The index for all items less food and energy rose 0.2 percent in July, after rising 0.1 percent the preceding month. Indexes which increased in July include shelter, motor vehicle insurance, household furnishings and operations, education, recreation, and personal care. The indexes for used cars and trucks, medical care, airline fares, and apparel were among those that decreased over the month.

The all items index rose 2.9 percent for the 12 months ending July, the smallest 12-month increase since March 2021. The all items less food and energy index rose 3.2 percent over the last 12 months and was the smallest 12-month increase in that index since April 2021. The energy index increased 1.1 percent for the 12 months ending July. The food index increased 2.2 percent over the last year.
emphasis added

The change in both CPI and core CPI were close to expectations. I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.