by Calculated Risk on 3/20/2014 10:00:00 AM

The NAR reports: February Existing-Home Sales Remain Subdued

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 0.4 percent to a seasonally adjusted annual rate of 4.60 million in February from 4.62 million in January, and 7.1 percent below the 4.95 million-unit level in February 2013. February’s pace of sales was the lowest since July 2012, when it stood at 4.59 million.
...
Total housing inventory at the end of February rose 6.4 percent to 2.00 million existing homes available for sale, which represents a 5.2-month supply at the current sales pace, up from 4.9 months in January. Unsold inventory is 5.3 percent above a year ago, when there was a 4.6-month supply.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in February (4.60 million SAAR) were slightly lower than last month, and were 7.1% below the February 2013 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 2.00 million in February from 1.88 million in January.   Inventory is not seasonally adjusted, and inventory usually increases from the seasonal lows in December and January, and peaks in mid-to-late summer.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory increased 5.3% year-over-year in February compared to February 2013.   This year-over-year increase in inventory suggests inventory bottomed early last year.

Months of supply was at 5.2 months in February.

This was slightly below expectations of sales of 4.64 million.  For existing home sales, the key number is inventory - and the key story is inventory is still low, but up year-over-year.    I'll have more later ...

by Calculated Risk on 3/20/2014 08:30:00 AM

The DOL reports:

In the week ending March 15, the advance figure for seasonally adjusted initial claims was 320,000, an increase of 5,000 from the previous week's unrevised figure of 315,000. The 4-week moving average was 327,000, a decrease of 3,500 from the previous week's unrevised average of 330,500.

The previous week was unrevised at 315,000.

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 declined to 327,000.

This was below the consensus forecast of 325,000.  The 4-week average is moving down slightly and is close to normal levels during an expansion.

by Calculated Risk on 3/19/2014 08:10:00 PM

On Fed Chair Janet Yellen's press conference ...

From Jon Hilsenrath and Victoria McGrane at the WSJ: Yellen Debut Rattles Markets

In a press conference after the meeting, Ms. Yellen suggested that interest-rate increases might come about six months after the bond-buying program ends—a conclusion that could come this fall. She offered that projection with many caveats, but some investors took it as a sign that the Fed could start raising interest rates sooner than expected.

As I noted earlier, I don't think QE3 will not end until January 2015 (that is the current path of a $10 billion reduction per meeting). That puts the first rate hike mid-year 2015 - if all goes well.

And from Binymin Appelbaum at the NY Times: Fed Cuts Bond Purchases by Another $10 Billion

The Federal Reserve further curtailed its economic stimulus campaign on Wednesday, announcing as expected that it would further reduce its monthly bond purchases because of the progress of the economic recovery.

The Fed ... policy-making committee said in a statement released after a two-day meeting that rates would remain at the current level, near zero, “for a considerable time” after it stops adding to its bond holdings, particularly if inflation remains sluggish.
...
The loose guidance about short-term rates replaced the Fed’s specific assertion ... that it would keep rates near zero at least as long as the official unemployment rate remained above 6.5 percent. ... “The purpose of this change is simply to provide more information than we have in the past, even though it is qualitative information, as the unemployment rate declines below 6.5 percent,” Janet L. Yellen, the Fed’s new chairwoman, said ...

With the unemployment rate at 6.7%, the 6.5% wording was no longer useful. Now the Fed will watch a number of employment and inflation indicators. According to the FOMC statement:

In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. 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 developments.

Using several indicators keeps the options open.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 325 thousand from 315 thousand.

• At 10:00 AM, the Existing Home Sales report for February from the National Association of Realtors (NAR). The consensus is for sales of 4.64 million on seasonally adjusted annual rate (SAAR) basis. Sales in January were at a 4.62 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 4.60 million SAAR. As always, a key will be inventory of homes for sale.

• Also at 10:00 AM, the Philly Fed manufacturing survey for March. The consensus is for a reading of 4.0, up from -6.3 last month (above zero indicates expansion).

by Calculated Risk on 3/19/2014 04:40:00 PM

During the Q&A today, Fed Chair Janet Yellen said:

"[T]he language that we used in the statement is considerable period. So I, you know, this is the kind of term it’s hard to define. But, you know, probably means something on the order of around six months, that type of thing.”

She was referring to the sentence in the FOMC statement:

The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.
emphasis added

This raises several questions:
1) When does six months end?
2) Is this data dependent?
3) Is this new news?

Here is a table of actual and projected FOMC tapering (Note: this is not preset, but it would take a substantial change in the forecast to deviate from this schedule):

Meeting	Taper to	Effective
12/18/13	$75 billion	Jan-14
1/29/14	$65 billion	Feb-14
3/19/14	$55 billion	Apr-14
4/30/14	$45 billion1	May-14
6/18/14	$35 billion1	Jul-14
7/30/14	$25 billion1	Aug-14
9/17/14	$15 billion1	Oct-14
10/29/14	$5 billion1	Nov-14
12/17/14	01	Jan-15
1Current Forecast

Based on this schedule, the FOMC will conclude tapering as of January 1, 2015. So six months would be around July 1, 2015.

And to question #2, of course this is data dependent - on both employment and inflation.

And on question #3, is this new news? 

Here is the chart today from the FOMC projections showing when participants expect the first rate hike (this was mostly unchanged from the December meeting). Thirteen of sixteen participants expect a rate hike in 2015. So saying "around six months" or mid-year isn't much "new" news (maybe a few months earlier than some expect).

Maybe it surprise some participants, but Yellen's comment fit previously released projections, so it really shouldn't be too shocking.

My guess is, if the first rate hike happens in mid-year 2015, it will be perceived as good news. 

by Calculated Risk on 3/19/2014 02:15:00 PM

The key sentence in the announcement was: "The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

Rates will be low for a long long time ...

As far as the "Appropriate timing of policy firming",  participant views were mostly unchanged (almost all participants expect the first rate increase in 2015).

Yellen press conference here.

On the projections, GDP was revised down slightly, the unemployment rate was revised down again, and inflation projections were mostly unchanged. 

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2014	2015	2016
Mar 2014 Meeting Projections	2.8 to 3.0	3.0 to 3.2	2.5 to 3.0
Dec 2013 Meeting Projections	2.8 to 3.2	3.0 to 3.4	2.5 to 3.2

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 6.7% in February. 

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2014	2015	2016
Mar 2014 Meeting Projections	6.1 to 6.3	5.6 to 5.9	5.2 to 5.6
Dec 2013 Meeting Projections	6.3 to 6.6	5.8 to 6.1	5.3 to 5.8

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

As of January, PCE inflation was up 1.2% from January 2012, and core inflation was up 1.1%.  The FOMC expects inflation to increase in 2014, but remain below their 2% target (Note: the FOMC target is symmetrical around 2%, so this is about the same miss as 2.9% inflation). 

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2014	2015	2016
Mar 2014 Meeting Projections	1.5 to 1.6	1.5 to 2.0	1.7 to 2.0
Dec 2013 Meeting Projections	1.4 to 1.6	1.5 to 2.0	1.7 to 2.0

Here are the FOMC's recent core inflation projections:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2014	2015	2016
Mar 2014 Meeting Projections	1.4 to 1.6	1.7 to 2.0	1.8 to 2.0
Dec 2013 Meeting Projections	1.4 to 1.6	1.6 to 2.0	1.8 to 2.0