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Updated: 2017-09-19T10:53:03.758-04:00

 



Comments on August Housing Starts

2017-09-19T10:53:03.767-04:00

Earlier: Housing Starts decreased to 1.180 Million Annual Rate in AugustThe housing starts report released this morning showed starts were down 0.8% in August compared to July (July was revised up), and starts were up 1.4% year-over-year compared to August 2016.  This was a decent report and was above the consensus forecast. Also permits were solid for August.This first graph shows the month to month comparison between 2016 (blue) and 2017 (red).Click on graph for larger image.Starts were up 1.4% in August 2017 compared to August 2016, and starts are up only 2.7% year-to-date. Note that single family starts are up 8.9% year-to-date, and the weakness (as expected) has been in multi-family starts.My guess is starts will increase around 3% to 7% in 2017.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 - but completions have almost caught up to starts (more deliveries).  Completions lag starts by about 12 months.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 exceptionally 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 years of increasing single family starts and completions.[...]



Housing Starts decreased to 1.180 Million Annual Rate in August

2017-09-19T08:38:41.048-04:00

From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,180,000. This is 0.8 percent below the revised July estimate of 1,190,000, but is 1.4 percent above the August 2016 rate of 1,164,000. Single-family housing starts in August were at a rate of 851,000; this is 1.6 percent above the revised July figure of 838,000. The August rate for units in buildings with five units or more was 323,000.

Building Permits:
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,300,000. This is 5.7 percent above the revised July rate of 1,230,000 and is 8.3 percent above the August 2016 rate of 1,200,000. Single-family authorizations in August were at a rate of 800,000; this is 1.5 percent below the revised July figure of 812,000. Authorizations of units in buildings with five units or more were at a rate of 464,000 in August.
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) decreased in August compared to July.  Multi-family starts are down 23% year-over-year.

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

Single-family starts (blue) increased in August, and are up 17.1% 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 low),

Total housing starts in August were above expectations, And starts for June and July were revised up.    Also permits were strong in August.  I'll have more later ...(image)



Tuesday: Housing Starts

2017-09-18T18:30:04.794-04:00

From Matthew Graham at Mortgage News Daily: Mortgage Rates Continue Pushing Recent Highs
Mortgage rates resumed their recent uptrend today, after taking a quick break to end the week last Friday.  The result is another push up to the highest levels in just over 3 weeks.  The average scenario is being quoted rates that are about an eighth of a point higher compared to the lows seen in early September.  The most prevalent top-tier conventional 30yr fixed rates still range from 3.875% to 4.0%, but the latter is increasingly in the spotlight.  
Tuesday:
• At 8:30 AM ET, Housing Starts for August. The consensus is for 1.173 million SAAR, up from the July rate of 1.155 million.(image)



Lawler: Early Read on Existing Home Sales in August

2017-09-18T14:32:18.138-04:00

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

Based on publicly-available state and local realtor reports from across the country released through today, I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.39 million in August, down 0.9% from July’s estimated pace and up 0.9% from last August’s seasonally adjusted pace. Local realtor data suggest that the inventory of existing homes for sale was down from July to August but that the YOY decline was slightly less than that seen in July, and I project that the NAR’s estimate of the inventory of existing homes for sale at the end of August will be 1.86 million, down 3.1% from July’s preliminary estimate and down 7.5% from last August. Finally, local realtor data suggest that the NAR’s estimate of the median existing SF home sales price last month will by up by about 6.0% from a year earlier.

Hurricane Harvey hit Houston in the latter part of August, and home sales in Houston were down by about 25% from last August’s pace. The impact on September sales will be greater. Hurricane Irma was a September event, and did not appear to impact August closings in Florida at all. The impact on September closings, however, could be considerable.

CR Note: The NAR is scheduled to release August existing home sales on Wednesday. The consensus is for 5.48 million SAAR, so take the under. (image)



Hotel Occupancy Rate increases following Hurricanes Harvey and Irma

2017-09-18T13:06:06.550-04:00

From HotelNewsNow.com: STR: Hurricane Irma’s initial impact on hotel markets
STR data shows Florida hotel markets that were evacuated before the arrival of Hurricane Irma experienced significant performance decreases, but the destinations evacuees flocked to saw significant growth.
From HotelNewsNow.com: STR: US hotel results for week ending 9 September
The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 3-9 September 2017, according to data from STR.

In comparison with the week of 4-10 September 2016, the industry recorded the following:

Occupancy: +2.1% to 64.0%
• Average daily rate (ADR): +1.6% to US$120.78
• Revenue per available room (RevPAR): +3.7% to US$77.31

Among the Top 25 Markets, Houston, Texas, reported the largest year-over-year increases in each of the three key performance metrics. Amid the aftermath of Hurricane Harvey, occupancy rose 66.1% to 86.6%, ADR was up 23.9% to US$114.27 and RevPAR surged 105.9% to US$98.91. STR analysts note that hotels in the market filled up with displaced residents, FEMA workers and other demand related to recovery efforts.
...
Ahead of Hurricane Irma landfall, Miami/Hialeah, Florida, saw the week’s largest drop in occupancy (-20.2% to 50.9%) and the largest decrease in RevPAR (-25.5% to US$65.55).
emphasis added
The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

(image) The red line is for 2017, dash light blue is 2016, dashed orange is 2015 (best year on record), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate to date is ahead of last year, and just behind the record year in 2015.  The hurricanes might push the annual occupancy rate to a new record.

Seasonally, the occupancy rate will increase into the Fall business travel season.

Data Source: STR, Courtesy of HotelNewsNow.com(image)



NAHB: Builder Confidence idecreased to 64 in September

2017-09-18T10:07:12.014-04:00

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 64 in September, down from 67 in August. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Drops Three Points As Hurricanes Add Uncertainty
Builder confidence in the market for newly-built single-family homes fell three points to a level of 64 in September from a downwardly revised August reading of 67 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“The recent hurricanes have intensified our members’ concerns about the availability of labor and the cost of building materials,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “Once the rebuilding process is underway, I expect builder confidence will return to the high levels we saw this spring.”

“Despite this month’s drop, builder confidence is still on very firm ground,” said NAHB Chief Economist Robert Dietz. “With ongoing job creation, economic growth and rising consumer confidence, we should see the housing market continue to recover at a gradual, steady pace throughout the rest of the year.”
...
All three HMI components posted losses in September but remain at healthy levels. The component gauging current sales conditions fell four points to 70 and the index charting sales expectations in the next six months dropped four points to 74. Meanwhile, the component measuring buyer traffic slipped a single point to 47.

Looking at the three-month moving averages for regional HMI scores, the West increased three points to 77 and the Northeast rose one point to 49. The South dropped a single point to 66 and the Midwest fell three points to 63.
emphasis added
(image) Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was below the consensus forecast, but still a solid reading.(image)



Black Knight: Preliminary Assessment Shows Over 3.1 Million Mortgaged Properties in Hurricane Irma Disaster Areas  

2017-09-18T09:19:54.837-04:00

From Black Knight: Black Knight: Hurricane Preliminary Assessment Shows Over 3.1 Million Mortgaged Properties in Hurricane Irma Disaster Areas
• Florida FEMA-designated disaster areas related to Hurricane Irma include over 3.1 million mortgaged properties

• Irma-related disaster areas contain nearly three times as many mortgaged properties as those connected to Hurricane Harvey, and nearly seven times as many as those connected to Hurricane Katrina in 2005

• The $517 billion in unpaid principal balances in Irma-related disaster areas is nearly three times the amount as in those related to Harvey and more than 11 times of those connected to Katrina

• Irma-related disaster areas now include more than 90 percent of all mortgaged properties in Florida

Today, the Data & Analytics division of Black Knight Financial Services, Inc. released a preliminary assessment of the potential mortgage-related impact from Hurricane Irma. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, both the number of mortgages and the unpaid principal balances of those mortgages in FEMA-designated Irma disaster areas are significantly larger than in the areas impacted recently by Hurricane Harvey.

“While the total extent of the damage from Hurricane Irma is still being determined, it is clear that the size and scope of the disaster is immense,” said Graboske. “Indeed, in terms of the number of mortgaged properties and their associated unpaid principal balances, Irma significantly outpaces even the number of borrowers impacted by Hurricane Harvey. With FEMA expanding the number of Irma-related designated disaster areas late Wednesday, Sept. 13, to a total of 37 Florida counties, more than 90 percent of all mortgaged properties in the state now fall into such areas. More than 3.1 million properties are now included in FEMA-designated Irma disaster areas, representing approximately $517 billion in unpaid principal balances. In comparison, Harvey-related disaster areas held 1.18 million properties – more than twice as many as with Hurricane Katrina in 2005 – with a combined unpaid principal balance of $179 billion. Irma-related disaster areas now contain nearly seven times as many mortgaged properties as those connected to Katrina, with more than 11 times the principal balances.

“As Irma forged its path of destruction through the Caribbean, one relatively positive development was that Puerto Rico escaped the direct hit many had predicted. From a mortgage performance perspective, this was particularly good news, as delinquencies there were already quite high leading up to the storm. At more than 10 percent, Puerto Rico’s delinquency rate is nearly three times that of the U.S. average, as is its 5.8 percent serious delinquency rate. In contrast, the disaster areas declared in Florida have starting delinquency rates below the national average, providing more than a glimmer of optimism as we move forward.”
CR Note: Delinquencies will rise in both Texas and Florida in the next few months. Unfortunately it looks like Puerto Rico will take a direct hit from Hurricane Maria this week. (image)



Sunday Night Futures

2017-09-17T19:52:26.863-04:00

Weekend:
Schedule for Week of Sept 17, 2017

Monday:
• At 10:00 AM ET, The September NAHB homebuilder survey. The consensus is for a reading of 65, down from 68 in August. Any number above 50 indicates that more builders view sales conditions as good than poor.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 and DOW futures are up slightly (fair value).

Oil prices were up over the last week with WTI futures at $49.79 per barrel and Brent at $55.53 per barrel.  A year ago, WTI was at $43, and Brent was at $46 - so oil prices are up 15% to 20% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.61 per gallon - up sharply due to Hurricane Harvey, but starting to decline - a year ago prices were at $2.20 per gallon - so gasoline prices are up 41 cents per gallon year-over-year.(image)



FOMC Preview

2017-09-17T08:11:10.369-04:00

The consensus is that the Fed will not change the Fed Funds Rate at the meeting this coming week.  However the Fed is expected to start the process of balance sheet normalization.Assuming the expected happens - no rate hike and the start of balance sheet normalization - the focus will be on the wording of the statement, the projections, and Fed Chair Janet Yellen's press conference to try to determine if there will be a 3rd rate hike in 2017 at the December meeting.Here are the June FOMC projections.The projection for GDP in 2017 will likely be either unchanged or revised down slightly.  GDP in Q1 was at 1.2% annualized, and Q2 at 3.0%.  Currently projections put Q3 GDP at around 1.3% to 2.2% (the hurricanes probably pushed down Q3 GDP, and some bounce back is likely in Q4).My guess is, as far as the impact of any fiscal stimulus, the Fed will continue to wait and see what the actual proposals will be.GDP projections of Federal Reserve Governors and Reserve Bank presidentsChange inReal GDP1201720182019June 2017 2.1 to 2.21.8 to 2.21.8 to 2.0Mar 20172.0 to 2.21.8 to 2.31.8 to 2.01 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 4.4% in August. So the unemployment rate for Q4 2017 will probably be unchanged.Unemployment projections of Federal Reserve Governors and Reserve Bank presidentsUnemploymentRate2201720182019June 2017 4.2 to 4.34.0 to 4.34.1 to 4.4Mar 2017 4.5 to 4.64.3 to 4.64.3 to 4.72 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. As of July, PCE inflation was up 1.4% from July 2016.  It appears inflation might be revised down for 2017.Inflation projections of Federal Reserve Governors and Reserve Bank presidentsPCEInflation1201720182019June 2017 1.6 to 1.71.8 to 2.02.0 to 2.1Mar 2017 1.8 to 2.01.9 to 2.02.0 to 2.1PCE core inflation was up 1.4% in July year-over-year.  Core PCE inflation will probably be revised down for 2017.Core Inflation projections of Federal Reserve Governors and Reserve Bank presidentsCoreInflation1201720182019June 2017 1.6 to 1.71.8 to 2.02.0 to 2.1Mar 2017 1.8 to 1.91.9 to 2.02.0 to 2.1In general, it appears GDP and inflation might be revised down (GDP slightly), and the unemployment rate will be unchanged.  The inflation outlook will be key for a Fed rate hike in December.[...]



Goldman: FOMC Preview

2017-09-16T17:32:31.068-04:00

CR Note: The FOMC is scheduled to meet on Tuesday and Wednesday. No change to rates is expected at this meeting, but the FOMC is expected to announce the beginning of the process to reduce the Fed's balance sheet.

A brief excerpt from a research note by Goldman Sachs economists:
We expect the FOMC to officially announce next week that balance sheet runoff will begin in October. As the Fed has already communicated extensively about its plan for a gradual and predictable runoff, we expect markets to focus instead on the outlook for the federal funds rate. The key question is whether the committee’s expectations for the federal funds rate have declined in light of the surprising deceleration in the inflation data since the start of the year.
(image)



Schedule for Week of Sept 17, 2017

2017-09-16T08:09:10.369-04:00

The key economic reports this week are August housing starts and existing home sales.For manufacturing, the Philly Fed manufacturing survey will be released this week.The FOMC meets this week and is expected to announce the reduction of the Fed's balance sheet.----- Monday, Sept 18th -----10:00 AM: The September NAHB homebuilder survey. The consensus is for a reading of 65, down from 68 in August. Any number above 50 indicates that more builders view sales conditions as good than poor.----- Tuesday, Sept 19th -----8:30 AM: Housing Starts for August. The consensus is for 1.173 million SAAR, up from the July rate of 1.155 million.This graph shows total and single unit starts since 1968. The graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering.----- Wednesday, Sept 20th -----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 August (a leading indicator for commercial real estate).10:00 AM: Existing Home Sales for August from the National Association of Realtors (NAR). The consensus is for 5.48 million SAAR, up from 5.44 million in July.The graph shows existing home sales from 1994 through the report last month.2:00 PM: FOMC Meeting Announcement. The FOMC is expected to announce the beginning of the process to reduce the Fed's balance sheet at this meeting.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. 2:30 PM: Fed Chair Janet Yellen holds a press briefing following the FOMC announcement. ----- Thursday, Sept 21st -----8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 303 thousand initial claims, up from 284 thousand the previous week.8:30 AM: the Philly Fed manufacturing survey for September. The consensus is for a reading of 18.0, down from 18.9.9:00 AM ET: FHFA House Price Index for June 2017. This was originally a GSE only repeat sales, however there is also an expanded index.12:00 PM: Q2 Flow of Funds Accounts of the United States from the Federal Reserve.----- Friday, Sept 22nd -----No major economic releases scheduled. [...]



Lawler: ACS-Based Household Growth Slowed Last Year: Homeownership Rate Estimate Up, But Barely

2017-09-15T14:28:54.344-04:00

From housing economist Tom Lawler: ACS-Based Household Growth Slowed Last Year: Homeownership Rate Estimate Up, But BarelyThe Census Bureau released the results of its 2016 American Community Survey, which provides a wide range of estimated statistics about people and housing. On the housing front, the ACS-based estimate of the number of occupied housing units (or households) for 2016 (yearly average) was 118,860,065, up just 651,815 from the estimate from the 2015 ACS. The ACS-based homeownership rate for 2016 was 63.1%, up just a tad from the 63.0% in 2015.The growth rate of nonfamily households outpaced the growth in family households last year, with the fastest growth coming in nonfamily households with two or more people. This growth in part reflected a sharp jump in roomers and boarders.ACS-Based Household Estimates20162015Change% ChangeTotal118,860,065118,208,250651,8150.55%Family77,785,96277,530,756255,2060.33%Nonfamily41,074,10340,677,494396,6090.98%  1-person33,254,19232,962,990291,2020.88%  2+-person7,819,9117,714,504105,4071.37%In terms of the composition of people in “family” households, last year there were relatively big gains in (1) the number of “adult” (18+ years old) children living with their parent(s); (2) the number of “other relatives;” and (3) the number of “nonrelatives” excluding the householder’s unmarried partner.Number of People in Family Householdsby Relationship to Householder, ACS20162015Change% ChangeTotal261,765,779260,613,7601,152,0190.44%Householder:77,785,96277,530,756255,2060.33%Spouse56,952,25356,681,711270,5420.48%Child:95,553,25195,198,175355,0760.37%  Under 1864,448,63864,499,542-50,904-0.08%  18+31,104,61330,698,633405,9801.32%Other Relatives23,949,69023,665,436284,2541.20%Nonrelatives:7,524,6237,537,682-13,059-0.17%  Unmarried Partner3,092,3573,205,347-112,990-3.53%  Other Nonrelatives4,432,2664,332,33599,9312.31%Before going further, I do need to qualify the table above. The 2015 ACS results did not incorporate the late 2016 downward revisions in population estimates, but the 2016 ACS results do reflect these revisions. As a result, the 2015 ACS results overstate the total resident US population by about 522 thousand. The 2015 ACS estimates for the number of households, however, would not have been impacted by the downward population revisions (if they had been known at the time), because ACS household estimates are (effectively) controlled to independent housing unit estimates. If the 2015 ACS results were adjusted to reflect the updated lower population estimates for that year, the result would be that both the average household size and the average family size (as estimated by the ACS) would be lowered for 2015. As a result, both the average household size and the average family size adjusted to reflect population revisions for 2015 increased last year.For “young” adults (18-34 years old), the % of young adults living with parents increased to 34.25% in 2016 from 34.11% in 2015, while the % of young adults living with other relatives rose to 13.30% in 2016 from 13.20% in 2015.The % of young adults who were either (1) a householder, (2) the spouse of a household, or (3) the unmarried partner of a householder declined to 32.95% in 2016 from 33.46% in 2015.As readers know, there are numerous and conflicting estimates of the number of and the growth of US households based on various surveys, and this “household conundrum,” while identified and for a brief bit “prioritized” by Census earlier this decade, has not gone away. However, the “latest” data from the CPS/ASEC, the CPS/HVS, and now the ACS all suggest that household growth as decelerated, for reasons that are not crystal clea[...]



Q3 GDP Forecasts: Moving Down

2017-09-15T12:25:30.274-04:00

From Merrill Lynch:
The data [today] sliced 0.8pp from 3Q GDP tracking, down to 1.7%.
emphasis added
From the Altanta Fed: GDPNow
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2017 is 2.2 percent on September 15, down from 3.0 percent on September 8. The forecasts of real consumer spending growth and real private fixed investment growth fell from 2.7 percent and 2.6 percent, respectively, to 2.0 percent and 1.4 percent, respectively, after this morning's retail sales release from the U.S. Census Bureau and this morning's report on industrial production and capacity utilization from the Federal Reserve Board of Governors.
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 1.3% for 2017:Q3 and 1.8% for 2017:Q4.
CR Note: Looks like weak real GDP growth in Q3, some due to the impact of the hurricanes.(image)



BLS: Unemployment Rates Unchanged in 41 states in August, Tennessee at New Series Low

2017-09-15T10:28:16.209-04:00

From the BLS: Regional and State Employment and Unemployment Summary
Unemployment rates were higher in August in 8 states, lower in 1 state, and stable in 41 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Twenty-one states had jobless rate decreases from a year earlier, 1 state had an increase, and 28 states and the District had little or no change. The national unemployment rate, 4.4 percent, was little changed from July but was 0.5 percentage point lower than in August 2016.
...
North Dakota and Colorado had the lowest unemployment rates in August, 2.3 percent and 2.4 percent, respectively. The rate in Tennessee (3.3 percent) set a new series low. (All state series begin in 1976.) Alaska had the highest jobless rate, 7.2 percent.
emphasis added
(image) Click on graph for larger image.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.

Eleven states have reached new all time lows since the end of the 2007 recession.  These eleven states are: Arkansas, California, Colorado, Idaho, Maine, Mississippi, North Dakota, Oregon, Tennessee, Washington, and Wisconsin.

The states are ranked by the highest current unemployment rate. Alaska, at 7.2%, had the highest state unemployment rate.

(image) The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently one state has an unemployment rate at or above 7% (light blue); Only two states and D.C. are at or above 6% (dark blue). The states are Alaska (7.2%) and New Mexico (6.3%).  D.C. is at 6.4%.(image)



Industrial Production Decreased 0.9% in August

2017-09-15T09:23:25.963-04:00

From the Fed: Industrial production and Capacity Utilization
Industrial production declined 0.9 percent in August following six consecutive monthly gains. Hurricane Harvey, which hit the Gulf Coast of Texas in late August, is estimated to have reduced the rate of change in total output by roughly 3/4 percentage point. The index for manufacturing decreased 0.3 percent; storm-related effects appear to have reduced the rate of change in factory output in August about 3/4 percentage point. The manufacturing industries with the largest estimated storm-related effects were petroleum refining, organic chemicals, and plastics materials and resins.

The output of mining fell 0.8 percent in August, as Hurricane Harvey temporarily curtailed drilling, servicing, and extraction activity for oil and natural gas. The output of utilities dropped 5.5 percent, as unseasonably mild temperatures, particularly on the East Coast, reduced the demand for air conditioning.

At 104.7 percent of its 2012 average, total industrial production in August was 1.5 percent above its year-earlier level. Capacity utilization for the industrial sector decreased 0.8 percentage point in August to 76.1 percent, a rate that is 3.8 percentage points below its long-run (1972–2016) average.
emphasis added
(image) Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 9.4 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 76.1% is 3.8% 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 August to 104.7. This is 20.2% above the recession low, and close to the pre-recession peak.

The decrease was below expectations, largely due to Hurricane Harvey.(image)



Retail Sales decreased 0.2% in August

2017-09-15T09:08:40.509-04:00

On a monthly basis, retail sales decreased 0.2 percent from July to August (seasonally adjusted), and sales were up 3.2 percent from August 2016.

From the Census Bureau report:
Advance estimates of U.S. retail and food services sales for August 2017, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $474.8 billion, a decrease of 0.2 percent from the previous month, and 3.2 percent above August 2016. ... The June 2017 to July 2017 percent change was revised from up 0.6 percent to up 0.3 percent.
(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 August.

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 3.1% on a YoY basis.

The increase in August was below expectations, and sales in June and July were revised down.

Note: Hurricane Harvey impacted sales in August.(image)



Friday: Retail Sales, Industrial Production, NY Fed Mfg Survey

2017-09-14T21:07:05.985-04:00

From housing economist Tom Lawler:
Hurricane Harvey Hit Houston in the latter part of August, but that was enough to have a significant impact on home sales stats in the metro region.  According to the Houston Association of Realtors, single family home sales by realtors this August were down 25.4% from last August (to 5,917 from 7,927), while condo/townhome sales were down 31.4% from a year ago to 443.  September sales should be impacted even more.
Friday:
• At 8:30 AM ET, Retail sales for August be released.  The consensus is for a 0.1% increase in retail sales.

• Also at 8:30 AM, The New York Fed Empire State manufacturing survey for September. The consensus is for a reading of 19.0, down from 25.2.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for August. The consensus is for a 0.1% increase in Industrial Production, and for Capacity Utilization to increase to 76.8%.

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

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for September). The consensus is for a reading of 96.0, down from 96.8 in August.

• Also at 10:00 AM, Regional and State Employment and Unemployment (Monthly) for August 2017 (image)



Phoenix Real Estate in August: Sales up slightly, Inventory down 7% YoY

2017-09-14T16:41:46.158-04:00

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 (table below):

1) Overall sales in August were up 0.4% year-over-year.

2) Active inventory is now down 7.4% year-over-year. 

More inventory (a theme in most of 2014) - and less investor buying - suggested price increases would slow sharply in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

In 2015, with falling inventory, prices increased a little faster.  Prices were up 6.3% in 2015 according to Case-Shiller.

With flat inventory in 2016, prices were up 4.8%.

This is the tenth consecutive month with a YoY decrease in inventory, and prices are rising a little faster this year (2.8% through June or 5.7% annual rate).

August Residential Sales and Inventory, Greater Phoenix Area, ARMLS
  SalesYoY
Change
Sales
Cash
Sales
Percent
Cash
Active
Inventory
YoY
Change
Inventory
Aug-085,660---1,00417.7%53,5691---
Aug-098,00841.5%2,84935.6%38,085-28.9%
Aug-107,358-8.1%3,12942.5%44,30716.3%
Aug-118,71218.4%3,95345.4%26,983-39.1%
Aug-127,574-13.1%3,38244.7%20,934-22.4%
Aug-137,055-6.9%2,40934.1%21,4442.4%
Aug-146,431-8.8%1,62125.2%26,13821.9%
Aug-157,0239.2%1,58822.6%22,554-13.7%
Aug-167,97513.6%1,61620.3%23,3183.4%
Aug-178,0100.4%1,54119.2%21,590-7.4%
1 August 2008 probably includes pending listings
(image)



Key Measures Show Inflation mostly below 2% in August

2017-09-14T13:18:49.392-04:00

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 0.2% (3.0% annualized rate) in August. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.3% 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 0.4% (4.9% annualized rate) in August. The CPI less food and energy rose 0.2% (3.0% annualized rate) on a seasonally adjusted basis.
Note: The Cleveland Fed released the median CPI details for August here. Motor fuel increased 107% in August, annualized.

(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 2.2%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy rose 1.7%. Core PCE is for July and increased 1.4% year-over-year.

On a monthly basis, median CPI was at 3.0% annualized, trimmed-mean CPI was at 2.3% annualized, and core CPI was at 3.0% annualized.

Using these measures, inflation was soft year-over-year again in August (although inflation picked up month-to-month).  Overall these measures are mostly below the Fed's 2% target  (Median CPI is slightly above).(image)



Early Look at 2018 Cost-Of-Living Adjustments and Maximum Contribution Base

2017-09-14T11:01:05.393-04:00

The BLS reported this morning:The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.9 percent over the last 12 months to an index level of 239.448 (1982-84=100). For the month, the index increased 0.3 percent prior to seasonal adjustment.CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).• In 2016, the Q3 average of CPI-W was 235.057. The 2016 Q3 average was the highest Q3 average, so we only have to compare Q3 this year to last year. (Sometimes we have to look back two years).For July and August 2017, the average is 239.0325 - or a 1.7% increase over the Q3 average last year.  Inflation probably picked up a little in September due to the increase in gasoline prices following Hurricane Harvey, so COLA will probably be close to 2%. Click on graph for larger image.This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).CPI-W was up 1.9% year-over-year in August, and although this is early - we still need the data for September - it appears COLA will be positive this year, and inflation probably picked up in September due to Hurricane Harvey and gasoline prices - so COLA will probably be close to 2% this year.Contribution and Benefit BaseThe law prohibits an increase in the contribution and benefit base if COLA is not greater than zero.  However if the there is even a small increase in COLA (seems likely this year), the contribution base will be adjusted using the National Average Wage Index.From Social Security: Cost-of-Living Adjustment Must Be Greater Than Zero ... ... any amount that is directly dependent for its value on the COLA would not increase. For example, the maximum Supplemental Security Income (SSI) payment amounts would not increase if there were no COLA.... if there were no COLA, section 230(a) of the Social Security Act prohibits an increase in the contribution and benefit base (Social Security's maximum taxable earnings), which normally increases with increases in the national average wage index. Similarly, the retirement test exempt amounts would not increase ... The contribution base will be adjusted using the National Average Wage Index. This is based on a one year lag. The National Average Wage Index is not available for 2016 yet, but wages probably increased again in 2016. If wages increased the same as last year, then the contribution base next year will increase to around $131,500 from the current $127,200.Remember - this is an early look. We still need the data for September, but it appears COLA will be close to 2%, and the contribution base will increase next year.[...]



Weekly Initial Unemployment Claims decrease to 284,000

2017-09-14T08:37:38.077-04:00

The DOL reported:
In the week ending September 9, the advance figure for seasonally adjusted initial claims was 284,000, a decrease of 14,000 from the previous week's unrevised level of 298,000. The 4-week moving average was 263,250, an increase of 13,000 from the previous week's unrevised average of 250,250. This is the highest level for this average since August 13, 2016 when it was 263,250.

Hurricanes Harvey and Irma impacted this week's initial claims.
emphasis added
The previous week was unrevised.

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 263,250.

This was below the consensus forecast.

The report next week will include the reference period (includes the 12th of the month) for the September employment report - and will provide a hint on the impact of the hurricanes on employment in September.(image)



Thursday: Unemployment Claims, CPI

2017-09-13T18:26:11.409-04:00

Goldman economists on inflation:
The next piece of inflation news is the August CPI report, to be released on Thursday. We expect a 0.20% increase on the core and a 0.36% increase on the headline. Two special factors—a rebound in hotel prices and a price increase by Verizon—account for about 0.05pp of our core forecast.

Looking further ahead with our bottom-up forecasting model, we expect core PCE to round to 1.5% by October, the last core PCE report before the December FOMC meeting, and to reach 1.6% by end-2017 and 1.9% by end-2018. The acceleration in our forecast is driven by (1) pass-through from energy prices and the dollar; (2) declining slack; and (3) the dropping out of earlier idiosyncratic declines that appear unlikely to be repeated next year.
Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 300 thousand initial claims, up from 298 thousand the previous week.

• Also at 8:30 AM, The Consumer Price Index for August from the BLS. The consensus is for a 0.4% increase in CPI, and a 0.2% increase in core CPI.(image)



LA area Port Traffic: Imports increased, Exports decreased in August

2017-09-13T15:21:08.201-04:00

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 0.7% compared to the rolling 12 months ending in July.   Outbound traffic was down 1.0% compared to the rolling 12 months ending in July.

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.  

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



Lawler: CPS-Based Household Growth Slowed Significantly in 2017, though Not as Much as Raw Numbers Suggest

2017-09-13T12:17:33.413-04:00

From housing economist Tom Lawler: CPS-Based Household Growth Slowed Significantly in 2017, though Not as Much as Raw Numbers SuggestThe Census Bureau yesterday released its “Income and Poverty in the United States” report for 2016, which is based on the results from the 2017 Current Population Survey (CPS) Annual Social and Economic (ASEC). While the report focuses mainly on household and individual incomes and poverty rates, it also shows estimates of the number of US households based on the CPS/ASEC results.According to the report, the CPS/ASEC-based estimates of the number of US households in March 2017 was 126.224 million, just 405,000 above the 125.819 million estimate from the previous year’s report. This meager gain, if “accurate,” would reflect a sharp slowdown in household growth.As folks who regularly read my report know, however, part of this sharp slowdown in growth reflects the substantial downward revisions in US population estimates that were released at the end of last year. The 2017 CPS/ASEC estimates reflect these downward revisions, but the 2016 estimates do not.To remind folks, late last year Census released its ‘2016 vintage” population estimates, which incorporated an improved methodology for estimating net international migration that resulted in material downward revisions of the US resident population, as shown in the table below.U.S. Resident Population, Vintage 2015 vs. Vintage 2016Vintage 2015Vintage 2016Change7/1/2010309,346,863309,348,1931,3307/1/2011311,718,857311,663,358-55,4997/1/2012314,102,623313,998,379-104,2447/1/2013316,427,395316,204,908-222,4877/1/2014318,907,401318,563,456-343,9457/1/2015321,418,820320,896,618-522,2027/1/2016323,889,854323,127,513-762,341Historical estimates of households from the CPS/ASEC do NOT reflect these downward revisions in population estimates. Indeed, the “time series” of CPS/ASEC household estimates available from various Census websites does not reflect the most up-to-date estimates of historical US population estimates, and as such is not a good time series. (There are other issues with CPS/ASEC household estimates, which I have discussed before).With respect to a comparison of the 2017 CPS/ASEC household estimate to the 2016 estimate, the US population estimate assumed in the March 2016 CPS/ASEC was about 700,000 high than the latest population estimate for that date. While it is a little tricky to “guesstimate” what the CPS/ASEC household estimate for March 2016 would have been if the latest population estimates for that date had been available (there were significant revisions in the characteristics of the population as well), my “best guess” is that the CPS/ASEC household estimate for March 2016 would have been about 300,000 lower. If that were the case, then an “adjusted” CPS/ASEC-based household increase from March 2016 to March 2017 would be about 705,000 – above that shown in the latest report, but well below what most analysts were expecting, and well below the average annual increase so far this decade.Another CPS-based household estimate, one derived on the Housing Vacancy Survey supplement, also showed a recent sharp slowdown in estimated household growth, though that slowdown showed up in the second quarter. According to the latest HVS-based results (which are “controlled” to housing unit estimates and assume that estimate vacancy rates are accurate), the number of US households[...]



Merrill: The Impact of Harvey on August Retail Sales

2017-09-13T09:52:07.409-04:00

A few excerpts from a note by Merrill Lynch economists:
A net drag from Harvey in August Retail sales ex-autos, as measured by BAC aggregated credit and debit card data, declined 0.1% mom seasonally adjusted in August. After controlling for the increase in gasoline spending, retail sales ex-autos and gasoline declined 0.4%. ... Bottom line: the weakness in retail sales in August is likely exaggerated by the hurricane and July prime-day. While Hurricane Irma may depress spending in September, we typically see retail sales bounce back after a natural disaster, suggesting upside into 4Q.
CR Note: We will see weakness in several indicators over the next couple of months due to the hurricanes, and then a bounce back later in the year. Retail sales for August will be released on Friday.  The consensus is for a 0.1% increase in retail sales. (image)