by Calculated Risk on 12/27/2013 07:37:00 PM

Goldman Sachs chief economist Jan Hatzius writes: 10 Questions for 2014 (Here are the 10 questions at Business Insider: Goldman's Top Economists Just Answered The Most Important Questions For 2014 — And Boy Are His Answers Bullish)

A few excerpts from the research note:

We expect the US economy to accelerate to an above-trend growth pace in 2014, as the fiscal drag diminishes sharply but the private sector impulse remains positive. The acceleration is likely to be led by faster growth in personal consumption and business capital spending, with continued support from housing.

The unemployment rate is likely to fall about as fast as in 2013, with faster job growth offset by a flattening in labor force participation. But we expect the slack in the labor market to remain large enough in 2014 to keep wage growth subdued, profit margins high, and inflation well below the Fed’s 2% target.

The Federal Reserve is likely to conclude its QE3 program in late 2014. But we still see no hikes in short-term interest rates until early 2016 ...

Goldman is projecting around 3% GDP growth in 2014. A similar drop in the unemployment rate next year as in 2013 would put the rate in the low 6% range.

And on housing:

Barring another sharp increase in mortgage rates, we think that the upward trend should continue in 2014 because the longer-term fundamentals for housing activity remain very favorable. ... We are a bit less optimistic about house prices. ... we would expect somewhat slower growth of 5%-6% in 2014—still decent but no longer nearly as rapid as the double-digit rates seen over the past 12-18 months.

by Calculated Risk on 12/27/2013 02:55:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in November to 2.43% from 2.48% in October. Freddie's rate is down from 3.25% in November 2012, and this is the lowest level since March 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for November next week.

Click on graph for larger image

Although this indicates progress, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen from 0.82 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until mid-to-late 2015. 

Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of distressed sales for another 2+ years (mostly in judicial states).

by Calculated Risk on 12/27/2013 11:23:00 AM

Towards the end of each year I collect some housing forecasts for the following year.

Here was a summary of forecasts for 2013. Right now it looks like new home sales will be around 433 thousand this year, and total starts around 935 thousand or so.  David Crowe (NAHB) was very close on New Home sales for 2013.  Fannie Mae was the closest on housing starts.

The table below shows a few forecasts for 2014.

From Fannie Mae: Housing Forecast: December 2013

From NAHB: Housing and Interest Rate Forecast, 12/7/2013 (excel)

I haven't worked up a forecast yet for 2014.

Housing Forecasts for 2014
	New Home Sales (000s)	Single Family Starts (000s)	Total Starts (000s)	House Prices1
NAHB	607	825	1,147
Fannie Mae	518	768	1,106	5.9%2
Merrill Lynch	517		1,100	6.3%
Wells Fargo	535	800	1,140	2.7%
Zillow				4.6%3
1Case-Shiller unless indicated otherwise 2FHFA Purchase-Only Index 3Zillow Home Value Index

by Calculated Risk on 12/27/2013 09:55:00 AM

I'd like to repeat something I wrote 2 1/2 years ago:

[I]t really isn't much of a secret that Wall Street and corporate America like the unemployment rate to be a little high. But it is "dirty" in the sense that it is unspoken. Higher unemployment keeps wage growth down, and helps with margins and earnings - and higher unemployment also keeps the Fed on the sidelines. Yes, corporations like to see job growth, so people have enough confidence to spend (and they can have a few more customers). And they definitely don't want to see Depression era unemployment - but a slowly declining unemployment rate (even at 9%) with some job growth is considered OK.

Not much has changed (the unemployment rate is still high at 7%).  And I still think unemployment should be the #1 political issue.

For more, see Paul Krugman's The Plight of the Employed and Why Corporations Might Not Mind Moderate Depression and The Fear Economy

[M]ay I suggest that employers, although they’ll never say so in public, like this situation? That is, there’s a significant upside to them from the still-weak economy. I don’t think I’d go so far as to say that there’s a deliberate effort to keep the economy weak; but corporate America certainly isn’t feeling much pain, and the plight of workers is actually a plus from their point of view.

A high unemployment rate keeps wages down for most working Americans - and the recent income growth has flowed mostly to the owners of corporations and not to labor.   This is not an ideal economic situation for most Americans (but ideal for a few).   Enough rant - and I hope I don't repeat this again in another 2 years.

best to all

 

by Calculated Risk on 12/26/2013 07:32:00 PM

The Department of Transportation (DOT) reported:

◦ Travel on all roads and streets changed by 2.3% (5.8 billion vehicle miles) for October 2013 as compared with October 2012.

◦ Travel for the month is estimated to be 258.7 billion vehicle miles.

◦ ◦Cumulative Travel for 2013 changed by 0.6% (15.6 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is still mostly moving sideways but has started to increase a little recently.


Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 71 months - almost 6 years - and still counting.  Currently miles driven (rolling 12 months) are about 2.3% below the previous peak.

The second graph shows the year-over-year change from the same month in the previous year.

 In October 2013, gasoline averaged of $3.42 per gallon according to the EIA.  that was down sharply from 2012 when prices in October averaged $3.81 per gallon.

Gasoline prices were down sharply year-over-year in November too, so I expect miles driven to be up in November too.  

As we've discussed, gasoline prices are just part of the story.  The lack of growth in miles driven over the last 6 years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

With all these factors, it might take a few more years before we see a new peak in miles driven - but it appears miles driven are increasing again.