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Finance and Economics



Updated: 2018-02-17T08:11:30.684-05:00

 



Schedule for Week of Feb 18, 2018

2018-02-17T08:11:30.766-05:00

The key economic report this week is January existing home sales.

----- Monday, Feb 12th -----

All US markets are closed in observance of the Presidents' Day holiday.

----- Tuesday, Feb 13th -----

No major economic releases scheduled.

----- Wednesday, Feb 14th -----

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

(image) 10:00 AM: Existing Home Sales for January from the National Association of Realtors (NAR). The consensus is for 5.65 million SAAR, up from 5.57 million in December.

The graph shows existing home sales from 1994 through the report last month.

Housing economist Tom Lawler expects the NAR to report sales of 5.48 million SAAR for January.

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

2:00 PM: FOMC Minutes, Meeting of January 30-31, 2018

----- Thursday, Feb 15th -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 230 thousand initial claims, unchanged from 230 thousand the previous week.

11:00 AM: the Kansas City Fed manufacturing survey for February.

----- Friday, Feb 16th -----

No major economic releases scheduled.(image)



Oil Rigs "Continued gains in rig counts"

2018-02-16T19:42:29.878-05:00

A few comments from Steven Kopits of Princeton Energy Advisors LLC on Feb 16, 2018:
• Total US oil rigs saw another solid week, +7 to 798

• Horizontal oil rigs were up even better, +10 to 696
...
• All the action was in the inscrutable ‘Other’ plays, which added 12 horizontal oil rigs, compared to a loss of 2 across the major plays

• The oil price stabilized this past week, and the Brent spread has recovered a bit to about $3.30 / barrel
(image) Click on graph for larger image.

CR note: This graph shows the US horizontal rig count by basin.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.(image)



Lawler: Early Read on Existing Home Sales in January

2018-02-16T15:35:04.633-05:00

From housing economist Tom Lawler:

Based on publicly-available local realtor/MLS reports from across the country released through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.48 million in January, down 1.6% from December’s preliminary estimate and down 3.7% from last January’s seasonally-adjusted pace. Unadjusted sales should show a much smaller YOY decline, reflecting the higher business day count this January compared to last January.

(Note that the January EHS report will include updated seasonal factors which will result in revisions to the seasonally-adjusted data for the past several years. I have attempted to incorporate seasonal factor revisions in my forecast).

On the inventory front, realtor/MLS data suggest that home listings showed a smaller YOY decline last month compared to December, and my “best guess” is that the NAR’s estimate of the inventory of existing homes for sale in January will be 1.54 million, up 4.1% from the December estimate and down 8.3% from a year ago.

Finally, local realtor/MLS data would be consistent with a YOY increase in the NAR’s estimate of the median existing SF home sales price of about 6.5%.

CR Note: Existing home sales for December are scheduled to be released on Wednesday, February 21st. The consensus is for sales of 5.60 million SAAR.(image)



Quarterly Housing Starts by Intent, Q4 2017

2018-02-16T13:23:01.520-05:00

In addition to housing starts for January, the Census Bureau also released the Q4 "Started and Completed by Purpose of Construction" report today.

It is important to remember that we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction
We are often asked why the numbers of new single-family housing units started and completed each month are larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series.
However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis.

The quarterly report released today showed there were 149,000 single family starts, built for sale, in Q4 2017, and that was above the 139,000 new homes sold for the same quarter, so inventory increased in Q4 (Using Not Seasonally Adjusted data for both starts and sales).

This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

(image) Click on graph for larger image.

Single family starts built for sale were up about 8% compared to Q4 2016.

Owner built starts were mostly unchanged year-over-year. And condos built for sale not far above the record low. (this is curious).

The 'units built for rent' (blue) has increased significantly in recent years, but is now moving more sideways.(image)



Comments on January Housing Starts

2018-02-16T10:50:17.338-05:00

Earlier: Housing Starts increased to 1.326 Million Annual Rate in JanuaryThe housing starts report released this morning showed starts were up 9.7% in January compared to December, and starts were up 7.3% year-over-year compared to January 2017.   This first graph shows the month to month comparison between 2017 (blue) and 2017 (red).Click on graph for larger image.Starts were up 7.3% in January compared to January 2017.Total starts are up 18.1% compared to January 2016 (two years ago).  That is solid growth.Single family starts were up 7.6% year-over-year, and up 3.6% compared to December.Multi-family starts were up 6.7% year-over-year, and up 23.7% compared to December (multi-family is volatile month-to-month).Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).These graphs use a 12 month rolling total for NSA starts and completions. The blue line is for multifamily starts and the red line is for multifamily completions. The rolling 12 month total for starts (blue line) increased steadily over the last few years - but has turned down recently.  Completions (red line) have lagged behind - and completions have caught up to starts (more deliveries).  Completions lag starts by about 12 months, so completions will probably turn down in a year or so.As I've been noting for a couple of years, the growth in multi-family starts is behind us - multi-family starts peaked in June 2015 (at 510 thousand SAAR).The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.Note the low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect a few more years of increasing single family starts and completions.[...]



Housing Starts increased to 1.326 Million Annual Rate in January

2018-02-16T08:39:37.804-05:00

From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately-owned housing starts in January were at a seasonally adjusted annual rate of 1,326,000. This is 9.7 percent above the revised December estimate of 1,209,000 and is 7.3 percent above the January 2017 rate of 1,236,000. Single-family housing starts in January were at a rate of 877,000; this is 3.7 percent above the revised December figure of 846,000. The January rate for units in buildings with five units or more was 431,000.

Building Permits:
Privately-owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 1,396,000. This is 7.4 percent above the revised December rate of 1,300,000 and is 7.4 percent above the January 2017 rate of 1,300,000. Single-family authorizations in January were at a rate of 866,000; this is 1.7 percent below the revised December figure of 881,000. Authorizations of units in buildings with five units or more were at a rate of 479,000 in January.
emphasis added
(image) Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) increased sharply in January compared to December.   Multi-family starts were up 6.7% year-over-year in January.

Multi-family is volatile month-to-month, but has been mostly moving sideways the last few years.

Single-family starts (blue) increased in January, and are still up 7.6% year-over-year.

(image) The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically fairly low).

Total housing starts in January were above expectations, mostly due to a sharp increase in multi-family starts.  However starts for November were revised down, and December revised up slightly.

I'll have more later ...(image)



Friday: Housing Starts

2018-02-15T20:43:06.596-05:00

Friday:
• At 8:30 AM ET, Housing Starts for January. The consensus is for 1.230 million SAAR, up from 1.192 million SAAR.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Preliminary for February). The consensus is for a reading of 95.5, down from 95.7.(image)



Fannie and Freddie: REO inventory declined in Q4, Down 30% Year-over-year

2018-02-15T14:35:04.587-05:00

Fannie and Freddie reported results this week. Here is some information on Real Estate Owned (REOs).

Freddie Mac reported the number of REO declined to 8,299 at the end of Q4 2017 compared to 11,418 at the end of Q4 2016.

For Freddie, this is down 89% from the 74,897 peak number of REOs in Q3 2010. For Freddie, this is the lowest since at least 2007.

Fannie Mae reported the number of REO declined to 26,311 at the end of Q4 2017 compared to 38,093 at the end of Q4 2016.

For Fannie, this is down 84% from the 166,787 peak number of REOs in Q3 2010. For Fannie, this is the lowest since at least 2007.

(image) Click on graph for larger image.

Here is a graph of Fannie and Freddie Real Estate Owned (REO).

REO inventory decreased in Q4 for both Fannie and Freddie, and combined inventory is down 30% year-over-year.

There are still a number of properties in the foreclosure process with long time lines in judicial foreclosure states - but this is close to normal levels of REOs.(image)



Earlier: Philly and NY Fed Manufacturing Surveys Showed Growth in February

2018-02-15T11:59:12.200-05:00

Earlier from the NY Fed: Empire State Manufacturing Survey
Business activity continued to expand in New York State, according to firms responding to the February 2018 Empire State Manufacturing Survey. The headline general business conditions index fell five points to 13.1, suggesting a somewhat slower pace of growth than in January. ... Labor market conditions pointed to a modest increase in employment and hours worked.
And from the Philly Fed: February 2018 Manufacturing Business Outlook Survey
Results from the Manufacturing Business Outlook Survey suggest that the region’s manufacturing sector continues to expand in February. ... The index for current manufacturing activity increased 4 points in February to a reading of 25.8. ... The survey’s indicators for labor market conditions suggest a pickup in hiring this month. Over 30 percent of the firms reported increases in employment this month, up from 24 percent in January. The employment index increased 8 points. The firms also reported overall higher average work hours in February, although the workweek index fell 3 points to 13.7.
emphasis added
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

(image) Click on graph for larger image.

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

This suggests the ISM manufacturing index night decrease slightly in February, but still show solid expansion again.(image)



NAHB: Builder Confidence unchanged at 72 in February

2018-02-15T10:09:17.241-05:00

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 72 in February, unchanged from 72 in January. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Stays at Strong Level in February
Builder confidence in the market for newly-built single-family homes remained unchanged at a healthy 72 level in February on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“Builders are excited about the pro-business political climate that will strengthen the housing market and support overall economic growth,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “However, they need to manage supply-side construction hurdles, such as shortages of labor and lots and building material price increases.”

“The HMI gauge of future sales expectations has reached a post-recession high, an indicator that consumer demand for housing should grow in the months ahead,” said NAHB Chief Economist Robert Dietz. “With ongoing job creation, increasing owner-occupied household formation, and a tight supply of existing home inventory, the single-family housing sector should continue to strengthen at a gradual but consistent pace.”
...
The HMI component charting sales expectations in the next six months rose two points to 80, the index measuring buyer traffic held steady at 54, and the component gauging current sales conditions dropped one point to 78.

Looking at the three-month moving averages for regional HMI scores, the Midwest rose two points to 72, the South increased one point to 74, the West remained unchanged at 81, and Northeast fell two points to 56.
emphasis added
(image) Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was at the consensus forecast, and another strong reading.(image)



Industrial Production Decreased 0.1% in January

2018-02-15T09:31:30.639-05:00

From the Fed: Industrial Production and Capacity Utilization
Industrial production edged down 0.1 percent in January following four consecutive monthly increases. Manufacturing production was unchanged in January. Mining output fell 1.0 percent, with all of its major component industries recording declines, while the index for utilities moved up 0.6 percent. At 107.2 percent of its 2012 average, total industrial production was 3.7 percent higher in January than it was a year earlier. Capacity utilization for the industrial sector fell 0.2 percentage point in January to 77.5 percent, a rate that is 2.3 percentage points below its long-run (1972–2017) average.
(image) Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 11.2 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.5% is 2.3% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.

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

(image) The second graph shows industrial production since 1967.

Industrial production decreased in January to 107.2. This is 23% above the recession low, and 2% above the pre-recession peak.(image)



Weekly Initial Unemployment Claims increase to 230,000

2018-02-15T08:33:37.997-05:00

The DOL reported:
In the week ending February 10, the advance figure for seasonally adjusted initial claims was 230,000, an increase of 7,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 221,000 to 223,000. The 4-week moving average was 228,500, an increase of 3,500 from the previous week's revised average. The previous week's average was revised up by 500 from 224,500 to 225,000.

Claims taking procedures in Puerto Rico and in the Virgin Islands have still not returned to normal.
emphasis added
The previous week was revised up.

The following graph shows the 4-week moving average of weekly claims since 1971.

(image) 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 228,500.

This was close to the consensus forecast. The low level of claims suggest relatively few layoffs.(image)



Thursday: Unemployment Claims, PPI, NY and Philly Fed Mfg, Industrial Production, Homebuilder Confidence

2018-02-14T19:29:19.026-05:00

From Matthew Graham at Mortgage News Daily: Things Just Keep Getting Worse For Mortgage Rates
Mortgage rates surged higher today, moving easily to new 4-year highs. Today's average conventional 30yr fixed rate is roughly one eighth of a percentage point higher than Wednesday of last week and more than half a point higher than the best rates seen in January. [30YR FIXED - 4.625%]
emphasis added
Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 229 thousand initial claims, up from 221 thousand the previous week.

• Also at 8:30 AM, the Philly Fed manufacturing survey for February. The consensus is for a reading of 21.5, down from 22.2.

• Also at 8:30 AM, The Producer Price Index for January from the BLS. The consensus is a 0.4% increase in PPI, and a 0.2% increase in core PPI.

• Also at 8:30 AM, The New York Fed Empire State manufacturing survey for February. The consensus is for a reading of 17.5, down from 17.7.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for January. The consensus is for a 0.2% increase in Industrial Production, and for Capacity Utilization to increase to 78.0%.

• At 10:00 AM, The February NAHB homebuilder survey. The consensus is for a reading of  72, unchanged from 72 in January. Any number above 50 indicates that more builders view sales conditions as good than poor.(image)



LA area Port Traffic Increases YoY in January

2018-02-14T17:02:07.687-05:00

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

(image) Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 0.4% compared to the rolling 12 months ending in December.   Outbound traffic was down 0.3% compared to the rolling 12 months ending in December.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

(image) Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March depending on the timing of the Chinese New Year.  

Trade has been strong - especially inbound - and setting record volumes most months recently.

In general imports have been increasing, and exports are mostly moving sideways to slightly down recently.(image)



Key Measures Show Inflation Increased in January

2018-02-14T11:12:31.643-05:00

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% (4.2% annualized rate) in January. The 16% trimmed-mean Consumer Price Index also rose 0.3% (3.5% annualized rate) during the month. 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.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.5% (6.7% annualized rate) in January. The CPI less food and energy rose 0.3% (4.3% annualized rate) on a seasonally adjusted basis.
Note: The Cleveland Fed released the median CPI details for January here.  Motor fuel was up sharply in January.

(image) 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 2.4%, the trimmed-mean CPI rose 1.9%, and the CPI less food and energy rose 1.8%. Core PCE is for December and increased 1.5% year-over-year.

On a monthly basis, median CPI was at 4.2% annualized, trimmed-mean CPI was at 3.5% annualized, and core CPI was at 4.3% annualized.

Using these measures, inflation picked up a little year-over-year in January.  Overall, these measures are close, but still mostly below, the Fed's 2% target  (Median CPI is slightly above).(image)



Retail Sales decreased 0.3% in January

2018-02-14T08:41:41.590-05:00

On a monthly basis, retail sales decreased 0.3 percent from December to January (seasonally adjusted), and sales were up 3.6 percent from January 2017.

From the Census Bureau report:
Advance estimates of U.S. retail and food services sales for January 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $492.0 billion, a decrease of 0.3 percent from the previous month, but 3.6 percent above January 2017. ... The November 2017 to December 2017 percent change was revised from up 0.4 percent to virtually unchanged.
(image) 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 down 0.4% in January.

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

(image) Retail and Food service sales, ex-gasoline, increased by 3.5% on a YoY basis.

The increase in January was well below expectations, and sales in November and December were revised down sharply. A disappointing report.(image)



MBA: Mortgage Applications Decrease in Latest Weekly Survey

2018-02-14T07:00:00.186-05:00

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
Mortgage applications decreased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 9, 2018.

... The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 4 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest rate since January 2014, 4.57 percent, from 4.50 percent, with points increasing to 0.59 from 0.57 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
(image) Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity will not pick up significantly unless mortgage rates fall well below 4%.



(image) The second graph shows the MBA mortgage purchase index

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



Wednesday: CPI, Retail Sales

2018-02-13T20:56:02.395-05:00

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

• At 8:30 AM, Retail sales for January will be released.  The consensus is for a 0.3% increase in retail sales.

• Also at 8:30 AM, The Consumer Price Index for January from the BLS. The consensus is for a 0.3% increase in CPI, and a 0.2% increase in core CPI.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for December.  The consensus is for a 0.2% increase in inventories.(image)



NY Fed Q4 Report: "Household Debt Increased, Fifth Consecutive Year Of Positive Annual Growth"

2018-02-13T15:11:28.636-05:00

From the NY Fed: Household Debt Jumps as 2017 Marks the Fifth Consecutive Year Of Positive Annual Growth Since Post-Recession DeleveragingThe Federal Reserve Bank of New York’s Center for Microeconomic Data today issued its Quarterly Report on Household Debt and Credit,which reported that total household debt increased by $193 billion (1.5%) to $13.15 trillion in the fourth quarter of 2017. This report marks the fifth consecutive year of positive annual household debt growth. There were increases in mortgage, student, auto, and credit card debt (increasing by 1.6%, 1.5%, 0.7% and 3.2% respectively) and another modest decline in home equity line of credit (HELOC) balances (decreasing by 0.9%). The Report is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data.Mortgages are the largest form of household debt and their increase of $139 billion was the most substantial increase seen in several quarters. Unlike overall debt balances, which last year surpassed their previous peak reached in the third quarter of 2008, mortgage balances remain 4.4% below it. The New York Fed issued an accompanying blog post to examine the regional differences in mortgage debt growth since the previous peak.... Bankruptcy notations decreased for the second consecutive quarter. ... Foreclosure notations remained essentially unchanged at the lowest levels observed in the New York Fed’s data. emphasis added Click on graph for larger image.Here are two graphs from the report:The first graph shows aggregate consumer debt increased in Q4.  Household debt previously peaked in 2008, and bottomed in Q2 2013.From the NY Fed:Mortgage balances, the largest component of household debt, increased substantially during the fourth quarter. Mortgage balances shown on consumer credit reports on December 31 stood at $8.88 trillion, an increase of $139 billion from the third quarter of 2017. Balances on home equity lines of credit (HELOC) declined again, by $4 billion and now stand at $444 billion. Non-housing balances, which have been increasing steadily for nearly 6 years overall, saw a $58 billion increase in the fourth quarter. Auto loans grew by $8 billion and credit card balances increased by $26 billion, while student loans saw a $21 billion increase. The second graph shows the percent of debt in delinquency. There is still a larger than normal percent of debt 90+ days delinquent (Yellow, orange and red).The overall delinquency rate decreased in Q4.  From the NY Fed: Aggregate delinquency rates improved in the fourth quarter of 2017. As of December 31, 4.7% of outstanding debt was in some stage of delinquency. Of the $619 billion of debt that is delinquent, $406 billion is seriously delinquent (at least 90 days late or “severely derogatory”). The flow into 90+ days delinquency for credit card balances has been increasing notably from the last year and the flow into 90+ days delinquency for auto loan balances has been slowly increasing since 2012. There is much more in the report. [...]



Demographics and GDP: 2% is the new 4%

2018-02-13T15:33:05.061-05:00

Three years ago, I wrote Demographics and GDP: 2% is the new 4%. In that post I pointed out that due to demographics, slower GDP growth should have been expected over the last decade (contrary to political nonsense).Yesterday, Greg Ip at the WSJ noted: Mulvaney: "People thought we were crazy" to forecast 2.3% 2017 growth. "We blew that out of the water." (Referring to John "Mick" Mulvaney, Director of the Office of Management and Budget).What was real GDP growth in 2017? 2.3% according to the BEA. Too funny.  (Maybe he meant Q4 over Q4, but that was only 2.5% - not exactly blown "out of the water".This give me an excuse to update my graphs from my post three years ago. Overall, we should have been expecting slower growth this decade due to demographics - even without the housing bubble-bust and financial crisis.One simple way to look at the change in GDP is as the change in the labor force, times the change in productivity. If the labor force is growing quickly, GDP will be higher with the same gains in productivity. And the opposite is true.So here is a graph of the year-over-year change in the labor force since 1950 (data from the BLS).Click on graph for larger imageThe data is noisy - because of changes in population controls and the business cycle - but the pattern is clear as indicated by the dashed red trend line. The labor force has been growing slowly after declining for some time.We could also look at just the prime working age population - I've pointed out before the that prime working age population has started growing again.Now here is a look at GDP for the same period.The GDP data (year-over-year quarterly) is also noisy, and the dashed blue line shows the trend. GDP was high in the early 50s - and early-to-mid 60s because of government spending (Korean and Vietnam wars).  As in example, in 1951, national defense added added 6.5 percentage points to GDP.  Of course we don't want another war ...Now lets put the two graphs together.It isn't a surprise. Other than the early period with a boost from military government spending, the growth in GDP has been tracking the growth in the labor force pretty well.  The difference in growth between the dashed blue and red lines is due to gains in productivity.The good news is that the working age population will be growing faster going forward.  The bad news is the political hacks will continue to ignore demographics.However, due to demographics, 2% GDP growth is the new 4%. (Note: with improving demographics, maybe 2.5% is the new 4% now) [...]



Goldman: "The 2018 Inflation Rebound"

2018-02-13T10:58:01.458-05:00

A few brief excerpts from a note by Goldman Sachs economist Daan Struyven: The 2018 Inflation Rebound
Using our top-down and bottom-up core PCE models, we project that both macroeconomic fundamentals as well as sector-specific factors are likely to push core inflation meaningfully higher this year.
...
We highlight three key drivers of the core PCE acceleration to 1.8% by end-2018 in our forecast: a 0.15pp boost from the pass-through from higher energy prices and a weaker dollar, a 0.1-0.15pp lift from a tighter labor market, and a 0.1pp jump from the Verizon effect dropping out.
...
We ... now see the risks to our core PCE forecast of 1.8% by end-2018 as moderately tilted to the upside.
emphasis added
CR Note: The central tendency for core inflation in the December FOMC projections was 1.7% to 1.9%. So this is in line with current FOMC projections, and still below the Fed target of 2%. (image)



Small Business Optimism Index Increased in January, "Difficulty of finding qualified workers" is Top Problem

2018-02-13T08:57:29.784-05:00

From the National Federation of Independent Business (NFIB): Record Number of Small Business Owners Say ‘Now is Good Time to Expand’
The Index of Small Business Optimism gained 2.0 points in January, rising to 106.9, again one of the strongest readings in the 45-year history of the NFIB surveys. The highest reading of 108.0 was reached in July 1983 and the lowest reading of 79.7 occurred in April 1980.

Job creation was solid in the small-business sector as owners reported a seasonally adjusted average employment change per firm of 0.23 workers, a strong showing. The lack of “qualified” workers is impeding growth in employment. ... Twenty-two percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up 3 points), exceeding the percentage citing taxes or the cost of regulation as their top business problem.
emphasis added
(image) Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 106.9 in December.

Note: Usually small business owners complain about taxes and regulations.  However, during the recession, "poor sales" was the top problem.

Now the difficulty of finding qualified workers is the top problem.(image)



"Mortgage Rates Steady at 4-Year Highs Despite Warning Shots"

2018-02-12T19:14:08.637-05:00

From Matthew Graham at Mortgage News Daily: Mortgage Rates Steady at 4-Year Highs Despite Warning Shots
Mortgage rates were generally in line with Friday's latest levels today. Unfortunately, those happened to be the highest in more than 4 years.
...
Although bond markets received another warning shot with respect to increased supply today due to the unveiling of Trumps's new budget, market participants didn't do much with that information. Bonds were mostly unchanged as they wait for bigger, more important news like Wednesday morning's Consumer Price Index (inflation data). [30YR FIXED - 4.5%]
emphasis added
Tuesday:
• At 6:00 AM ET, NFIB Small Business Optimism Index for January.(image)



AIA Forecast: 4% increase in Nonresidential Construction in 2018

2018-02-12T16:21:42.647-05:00

Note: This does not include spending for oil and gas.

From the AIA: Pace of construction activity projected to accelerate through 2019
Despite labor shortages and rising material costs that continue to impact the construction sector, construction spending for nonresidential buildings is projected to increase 4% this year and continue at that pace of growth through 2019. The American Institute of Architects (AIA) semi-annual Consensus Construction Forecast indicates the commercial construction sectors will generate much of the expected gains this year, and by 2019 the industrial and institutional sectors will dominate the projected construction growth.

Rebuilding after the record-breaking losses from natural disasters last year, the recently enacted tax reform bill, and the prospects of an infrastructure package are expected to provide opportunities for even more robust levels of activity within the industry,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “The Architecture Billings Index (ABI) and other major leading indicators for the industry also point to an upturn in construction activity over the coming year.”
(image)



Port of Long Beach: Record Port Traffic in January 2018

2018-02-12T13:12:30.586-05:00

From the Port of Long Beach: Year Begins With Records in Long Beach
The new year brought a raft of records to the Port of Long Beach, where January container volumes reached an all-time high for the month.

Workers moved 657,830 twenty-foot equivalent units (TEUs) through the harbor in January, 12.9 percent more than the same month last year. The total marks the first time Long Beach has surpassed 600,000 containers in the month of January. The quick start to 2018 comes after officials recently announced that 2017 was the busiest year in the Port’s 107-year history, reaching 7.54 million TEUs.

“The pre-Lunar New Year surge is definitely here,” said Port of Long Beach Executive Director Mario Cordero, taking note of the upcoming two-week holiday period in Asia, the Port’s primary trading partner. “Since this year’s holiday begins Feb. 16, we anticipated a busy January and February, as cargo owners seek to get goods shipped ahead of the festivities.”
CR Notes: The timing of the Chinese New Year always impacts traffic I'll have more on the LA area port traffic once Los Angeles releases their January statistics.(image)