by Calculated Risk on 6/20/2019 08:41:00 AM

From the Philly Fed: June 2019 Manufacturing Business Outlook Survey

Manufacturing conditions in the region weakened this month, according to firms responding to the June Manufacturing Business Outlook Survey. The current activity index declined to a reading just above zero this month. The survey’s indexes for new orders, shipments, and employment remained positive but also declined from their May readings. Most of the survey’s future activity indexes improved but continue to reflect muted optimism for the remainder of the year.

The diffusion index for current general activity decreased from 16.6 in May to 0.3 this month. This is the lowest reading since February, when the index fell below zero for one month.
...
On balance, the firms continued to report increases in employment. Nearly 25 percent of the responding firms reported increases in employment, while 9 percent reported decreases this month. The employment diffusion index, however, decreased 3 points to 15.4. The average workweek index fell 4 points this month, to 7.3.
emphasis added

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through June), and five Fed surveys are averaged (blue, through May) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through May (right axis).

These early reports suggest the ISM manufacturing index will be weak in June.

by Calculated Risk on 6/20/2019 08:32:00 AM

The DOL reported:

In the week ending June 15, the advance figure for seasonally adjusted initial claims was 216,000, a decrease of 6,000 from the previous week's unrevised level of 222,000. The 4-week moving average was 218,750, an increase of 1,000 from the previous week's unrevised average of 217,750.
emphasis added

The previous week was unrevised.

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 218,750.

This was close to the consensus forecast.

by Calculated Risk on 6/19/2019 08:43:00 PM

Thursday:
• At 8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 217 thousand initial claims, down from 222 thousand last week.

• At 8:30 AM: the Philly Fed manufacturing survey for June. The consensus is for a reading of 14.0, down from 16.6.

by Calculated Risk on 6/19/2019 02:08:00 PM

Statement here.

Fed Chair Powell press conference video here starting at 2:30 PM ET.

On the projections, growth was revised down, the unemployment rate revised up slightly, and inflation was softer.

Q1 real GDP growth was at 3.1% annualized, and most analysts are projecting around 2% in Q2.  So the GDP projections were revised up slightly.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2019	2020	2021
Jun 2019	2.0 to 2.2	1.8 to 2.0	1.8 to 2.0
Mar 2019	1.9 to 2.2	1.8 to 2.0	1.7 to 2.0
Dec 2018	2.3 to 2.5	1.8 to 2.0	1.5 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 unemployment rate projection for 2019 was revised down slightly.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2019	2020	2021
Jun 2019	3.6 to 3.7	3.6 to 3.9	3.7 to 4.1
Mar 2019	3.6 to 3.8	3.5 to 3.9	3.6 to 4.0
Dec 2018	3.5 to 3.7	3.5 to 3.8	3.6 to 3.9

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

As of April 2019, PCE inflation was up 1.5% from April 2018. So PCE inflation projections were revised down for 2019 and 2020.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2019	2020	2021
Jun 2019	1.5 to 1.6	1.9 to 2.0	2.0 to 2.1
Mar 2019	1.8 to 1.9	2.0 to 2.1	2.0 to 2.1
Dec 2018	1.8 to 2.1	2.0 to 2.1	2.0 to 2.1

PCE core inflation was up 1.6% in April year-over-year. So Core PCE inflation was revised down for 2019 and slightly for 2020.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2019	2020	2021
Jun 2019	1.7 to 1.8	1.9 to 2.0	2.0 to 2.1
Mar 2019	1.9 to 2.0	2.0 to 2.1	2.0 to 2.1
Dec 2018	2.0 to 2.1	2.0 to 2.1	2.0 to 2.1

by Calculated Risk on 6/19/2019 02:02:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in May indicates that the labor market remains strong and that economic activity is rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending appears to have picked up from earlier in the year, indicators of business fixed investment have been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation have declined; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren. Voting against the action was James Bullard, who preferred at this meeting to lower the target range for the federal funds rate by 25 basis points.
emphasis added

by Calculated Risk on 6/19/2019 12:53:00 PM

From housing economist Tom Lawler: Early Read on Existing Home Sales in May

I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.40 million in May, up 4.0% from April’s preliminary estimate and unchanged from last May’s seasonally adjusted pace.

CR Note: Existing home sales for May are scheduled to be released on Friday, June 21st. The consensus is the NAR will report sales of 5.29 million SAAR.

by Calculated Risk on 6/19/2019 10:16:00 AM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architecture billings remain flat

Demand for design services in May remained essentially flat in comparison to the previous month, according to a new report today from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score for May showed a small increase in design services at 50.2, which is slightly down from 50.5 in April. Any score above 50 indicates an increase in billings. Both the project inquiries index and the design contracts index softened in May but remained positive.

“The last four consecutive months, firm billings have either decreased or been flat, the longest period of that level of sustained softness since 2012,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “While both inquiries into new projects and the value of new design contracts remained positive, they both softened in May, another sign the amount of pending work in the pipeline at firms may be starting to stabilize.”
...
• Regional averages: Midwest (51.6); South (51.4); West (50.0); Northeast (47.5)

• Sector index breakdown: mixed practice (55.4); commercial/industrial (53.0); institutional (48.0); multi-family residential (46.0)
emphasis added

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.2 in May, down from 50.5 in April. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index has been positive for 11 of the previous 12 months, suggesting a some further increase in CRE investment in 2019 - but this is the weakest four month stretch since 2012.

by Calculated Risk on 6/19/2019 07:00:00 AM

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

Mortgage applications decreased 3.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 14, 2019.

... The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 4 percent higher than the same week one year ago.
...
“After seeing a six-week streak, mortgage rates for 30-year loans increased slightly, which led to a pullback in overall refinance activity,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Borrowers were sensitive to rising rates, but the refinance share of applications was still at its highest level since January 2018, and refinance activity was at its second highest level this year. Government refinances actually increased last week, led by a 17 percent in VA refinance applications, while conventional refinance applications decreased 7 percent.”

Added Kan, “Purchase applications decreased more than 3 percent last week, but were still up almost 4 percent from last year. Strong demand from
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 4.14 percent from 4.12 percent, with points increasing to 0.38 from 0.33 (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 refinance index since 1990.

Mortgage rates have declined from close to 5% late last year to around 4% now.

Just about anyone who bought or refinanced over the last year or so can refinance now.   But it would take another significant decline in rates for a further large increase in refinance activity.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 4% year-over-year.

by Calculated Risk on 6/18/2019 08:26:00 PM

Here is my FOMC preview. The consensus is that there will no change in policy at the FOMC meeting this week, but that the Fed might take a more dovish tone.

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

• During the day, The AIA's Architecture Billings Index for May (a leading indicator for commercial real estate).

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

• At 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.

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

by Calculated Risk on 6/18/2019 02:44:00 PM

This is a key housing market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports ("Stats Report"):

1) Overall sales increased to 10,341 in May, up from 9,913 in May 2018. Sales were up 8.9% from April 2019 (last month), and up 4.3% from May 2018.

2) Active inventory was at 16,260, up from 15,795 in May 2018. That is up 2.9% year-over-year.  This is the seventh consecutive month with a YoY increase in active inventory.

The last seven months - with a YoY increase - followed twenty-four consecutive months with a YoY decrease in inventory in Phoenix.

Months of supply decreased from 2.43 in April to 2.07 in May. This is low.