by Calculated Risk on 12/26/2013 02:14:00 PM

Note: The automakers will report December vehicle sales on January 3rd.

Here are two forecasts:

From Edmunds.com: Strong December Car Deals Give Car Shoppers More Reason to Celebrate this Holiday Season, Says Edmunds.com

Edmunds.com forecasts shoppers will snatch up 1,425,818 new cars and trucks in the U.S. in December for an estimated Seasonally Adjusted Annual Rate (SAAR) of 16.1 million. This will be ... about a five percent increase from December 2012. Edmunds projects that 2013 will see 15.66 million total new car sales, which would be a strong eight percent increase over 2012.

From Kelley Blue Book: New-Car Sales To Improve Nearly 5 Percent From Last Year; Kelley Blue Book Projects 16.3 Million New Car Sales In 2014

New-vehicle sales are expected to improve 4.7 percent year-over-year in December to a total of 1.42 million units, and an estimated 16 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book ...

Looking forward to 2014, sales will continue to improve and Kelley Blue Book anticipates the industry to surpass 16 million SAAR for the first year since 2007. Growth will slow from recent years; however, the initial estimate from Kelley Blue Book for 2014 is 16.3 million units, up 4.3 percent from 2013.

It appears sales in December will be solid.

Most forecasts were for auto sales growth to slow in 2013 to around 4% growth or 15.0 million units.  However it now appears sales growth was closer to 8% - and expectations are for another 4% growth in 2014. 

Light Vehicle Sales
	Sales (millions)	Annual Change
2000	17.4	2.7%
2001	17.1	-1.3%
2002	16.8	-1.8%
2003	16.6	-1.1%
2004	16.9	1.4%
2005	16.9	0.5%
2006	16.5	-2.6%
2007	16.1	-2.5%
2008	13.2	-18.0%
2009	10.4	-21.2%
2010	11.6	11.1%
2011	12.7	10.2%
2012	14.4	13.4%
20131	15.7	8.4%
1Edmunds Forecast (based on actual through November)

by Calculated Risk on 12/26/2013 11:38:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2013.

9) Housing Inventory: It appears housing inventory bottomed in early 2013.  Will inventory increase in 2014, and, if so, by how much?

Tracking housing inventory is very helpful.  The plunge in inventory in 2011 helped me call the bottom for house prices in early 2012 (The Housing Bottom is Here).  And the increase in inventory in late 2005 (see first graph below) helped me call the top for house prices in 2006.

Now an increase in inventory would probably mean smaller price increases in 2014.

This graph shows nationwide inventory for existing homes through November 2013.

Click on graph for larger image.

According to the NAR, inventory declined to 2.09 million in November from 2.11 million in October.   Inventory is up year-over-year from 1.99 million in November 2012.

Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January as sellers take their homes off the market for the holidays. Trulia chief economist Jed Kolko sent me the seasonally adjusted inventory and this shows that inventory bottomed in January, and is now up about 8.4% from the bottom on a seasonally adjusted basis.

The second graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory increased 5.0% year-over-year in November from November 2012 (blue line).

Months of supply increased to 5.1 months in November, up from 4.9 months in October, and up from 4.8 months in November 2012.   Even with the increase, the current supply is still very low.

Whenever I talk with real estate agents, I ask why they think inventory is so low. Last year, a common answer was that people didn't want to sell at the bottom. In a market with falling prices, sellers rush to list their homes, and inventory increases. But if sellers think prices have bottomed, then they believe they can be patient, and inventory declines.  

Now - a more common reason for low inventory - is that potential sellers can't find homes to buy (because inventory is so low).   In this case, a little more inventory will lead to more inventory.

Another reason for low inventory is that many homeowners are still "underwater" on their mortgage and can't sell.  This is less of a problem now than a year ago.

With the recent price increases, some potential sellers will probably come off the fence, and more of these formerly underwater homeowners will be able to sell.

Right now my guess is active inventory will increase 10% to 15% in 2014 (inventory will decline seasonally in December and January, but I expect to see inventory up 10% to 15% year-over-year toward the end of 2014).  This will put active inventory close to 6 months supply this summer.   If correct, this will slow house price increases in 2014.

Here are the ten questions for 2014 and a few predictions:
• Question #1 for 2014: How much will the economy grow in 2014?
• Question #2 for 2014: How many payroll jobs will be added in 2014?
• Question #3 for 2014: What will the unemployment rate be in December 2014?
• Question #4 for 2014: Will too much inflation be a concern in 2014?
• Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
• Question #6 for 2014: How much will Residential Investment increase?
• Question #7 for 2014: What will happen with house prices in 2014?
• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
• Question #9 for 2014: How much will housing inventory increase in 2014?
• Question #10 for 2014: Downside Risks

by Calculated Risk on 12/26/2013 08:39:00 AM

The DOL reports:

In the week ending December 21, the advance figure for seasonally adjusted initial claims was 338,000, a decrease of 42,000 from the previous week's revised figure of 380,000. The 4-week moving average was 348,000, an increase of 4,250 from the previous week's revised average of 343,750.

The previous week was revised up from 379,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

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 348,000.

Weekly claims are frequently volatile during the holidays because of the seasonal adjustment.

by Calculated Risk on 12/25/2013 06:49:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2014. I'll try to add some thoughts, and maybe some predictions for each question (this one will be short).

For the last few years, "downside risks" were fairly high on my list of "questions" for the coming year. Europe has been an ongoing risk, and last year my top question was related to fiscal policy and the risks associated with the House of Representatives (with dumb policies like not cutting back on sequestration, and dumb stunts like shutting down the government).

Happily, looking forward, it seems the downside risks have diminished significantly. China remains a key risk with growth slowing and significant uncertainty around the large number of poor performing loans. That might be the #1 downside risk for 2014, although China remains opaque to outside observers - and the downside risks to the U.S. are probably small.

Europe appears to be growing again (although they haven't resolved the core issues with the Euro), and U.S. fiscal policy is settled with the recent budget agreement. Some politicians are making noises again about not paying the bills (aka the "debt ceiling"), but I'm confident they will fold their losing hand again.  Since 2014 is an election year, I don't think Congress will do anything really stupid (like in 2011 and 2013).

There are always potential geopolitical risks (war with Iran, North Korea, or turmoil in some oil producing country).  Right now those risks appear small, although it is always hard to tell.  And there are always the risks of natural disasters (hurricanes, tsunamis, major meteor strikes, super volcanoes, etc).  But those are low probability events and impossible to predict.

When I look around, I see few obvious downside risks for the U.S. economy in 2014.   No need to borrow trouble - diminished downside risks are a reason for cheer. 

Note: I'll discuss the possibility of inflation as a risk in question #4.

Here are the ten questions for 2014 and a few predictions:
• Question #1 for 2014: How much will the economy grow in 2014?
• Question #2 for 2014: How many payroll jobs will be added in 2014?
• Question #3 for 2014: What will the unemployment rate be in December 2014?
• Question #4 for 2014: Will too much inflation be a concern in 2014?
• Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?
• Question #6 for 2014: How much will Residential Investment increase?
• Question #7 for 2014: What will happen with house prices in 2014?
• Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?
• Question #9 for 2014: How much will housing inventory increase in 2014?
• Question #10 for 2014: Downside Risks

by Calculated Risk on 12/25/2013 10:53:00 AM

A little Christmas cheer ...

Via the WSJ:

Macroeconomic Advisers ... [raised] its estimate for fourth-quarter growth. It now forecasts gross domestic product to expand at an annualized rate of 2.6% in the final three months of the year, up three-tenths of a percentage point from an earlier estimate.

And Goldman Sachs has increased their Q4 GDP tracking to 2.4% annualized growth.

And based on the November Personal Income and Outlays report:

Using the two-month method to estimate Q4 PCE growth (first two months of the quarter), PCE was increasing at a 4.1% annual rate in Q4 2013. This suggests solid PCE growth in Q4.

Of course the contribution from private inventories will probably be negative in Q4, but final demand should be solid.

Happy Holidays and Merry Christmas to All!