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Finance and Economics



Updated: 2017-01-17T21:50:09.034-05:00

 



Wednesday: CPI, Industrial Production, Homebuilder Survey, Beige Book, Yellen Speech

2017-01-17T17:28:02.942-05:00

From Matthew Graham at Mortgage News Daily: Mortgage Rates Back Near 2-Month Lows
Mortgage rates moved lower today, generally recovering the losses seen last Friday. This brings many lenders back in line with the lowest levels since November 17th, although last Wednesday (Jan 11) was slightly better on average. There hasn't been enough volatility to unseat 4.125% as the most prevalent 30yr fixed "note rate" on top tier scenarios. As such, today's improvement is limited to "effective rates" (which take closing costs into consideration)..
emphasis added
Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

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

• At 9:15 AM: The Fed will release Industrial Production and Capacity Utilization for December. The consensus is for a 0.6% increase in Industrial Production, and for Capacity Utilization to increase to 75.4%.

• At 10:00 AM, The January NAHB homebuilder survey. The consensus is for a reading of  69, down from 70 in December. Any number above 50 indicates that more builders view sales conditions as good than poor.

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

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

• At 3:00 PM, Speech, Fed Chair Janet Yellen, The Goals of Monetary Policy and How We Pursue Them, At the Commonwealth Club, San Francisco, California(image)



LA area Port Traffic increases Year-over-year in December

2017-01-17T11:43:25.890-05:00

From the Port of Long Beach: Port Trade Dips to 6.8 Million TEUs in 2016
Slowed by industry headwinds and challenges that included a major customer declaring bankruptcy, the Port of Long Beach still moved almost 6.8 million containers in 2016, its fifth best year ever.

Overall cargo declined 5.8 percent in 2016 compared to 2015, as the Port was impacted by new ocean carrier alliances and the August bankruptcy of Hanjin Shipping, a South Korean company and former majority stakeholder at the 381-acre Pier T container terminal — Long Beach’s largest.

By year’s end, the Harbor Commission had approved an agreement for a subsidiary of Mediterranean Shipping Co., one of the world’s largest container ship operators, to take sole control of the long-term lease at Pier T.
Although port traffic decreased in Long Beach, traffic was up in Los Angeles.

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 0.6% compared to the rolling 12 months ending in November.   Outbound traffic was up 0.9% compared to 12 months ending in November.

The downturn in exports in 2015 was probably due to the slowdown in China and the stronger dollar.  Now exports are picking up a little - but the stronger dollar might impact exports once again.

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 exports have started increasing, and imports have been gradually increasing.(image)



NY Fed: Manufacturing Activity Continues to Expand in New York Region

2017-01-17T10:21:17.498-05:00

From the NY Fed: Empire State Manufacturing Survey
Manufacturing firms in New York State reported that business activity grew in January. The general business conditions index was little changed at 6.5, its third consecutive positive reading. The new orders index fell seven points to 3.1, indicating that orders increased at a slower clip than last month, and the shipments index held steady at 7.3, pointing to an ongoing increase in shipments. ...
...
The index for number of employees rose but held below zero at -1.7, a sign that employment levels edged slightly lower; the average workweek index, at -4.2, pointed to a small decline in hours worked.
...
Indexes for the six-month outlook suggested that respondents remained very optimistic about future conditions. The index for future business conditions was unchanged at 49.7, matching last month’s multiyear high.
emphasis added
This was close to expectations, and suggests manufacturing activity expanded further in January. (image)



Monday Night Futures

2017-01-16T19:37:43.244-05:00

Weekend:
Schedule for Week of Jan 15, 2017

Tuesday:
• At 8:30 AM ET,The New York Fed Empire State manufacturing survey for January. The consensus is for a reading of 8.0, down from 9.0.

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures are down 3, and DOW futures are down 28 (fair value).

Oil prices were down over the last week with WTI futures at $52.49 per barrel and Brent at $55.86 per barrel.  A year ago, WTI was at $28, and Brent was at $28 - so oil prices are up sharply year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.34 per gallon - a year ago prices were at $1.92 per gallon - so gasoline prices are up 40 cents a gallon year-over-year. (image)



Bank Failures by Year

2017-01-16T11:28:47.730-05:00

In 2016, five FDIC insured banks failed. This was the lowest level since 2007.

Most of the great recession / housing bust / financial crisis related failures are behind us.

The first graph shows the number of bank failures per year since the FDIC was founded in 1933.

(image) Click on graph for larger image.

Typically about 7 banks fail per year, so the 5 failures in 2015 was close to normal.

Note: There were a large number of failures in the '80s and early '90s. Many of these failures were related to loose lending, especially for commercial real estate.  A large number of the failures in the '80s and '90s were in Texas with loose regulation.

Even though there were more failures in the '80s and early '90s then during the recent crisis, the recent financial crisis was much worse (large banks failed and were bailed out).

(image) The second graph includes pre-FDIC failures. In a typical year - before the Depression - 500 banks would fail and the depositors would lose a large portion of their savings.

Then, during the Depression, thousands of banks failed. Note that the S&L crisis and recent financial crisis look small on this graph.(image)



Krugman: "Infrastructure Delusions"

2017-01-15T12:14:25.066-05:00

From Professor Krugman: Infrastructure Delusions
Ben Bernanke has a longish post about fiscal policy ... Notably, Bernanke, like yours truly, argues that the fiscal-stimulus case for deficit spending has gotten much weaker, but there’s still a case for borrowing to build infrastructure:
When I was Fed chair, I argued on a number of occasions against fiscal austerity (tax increases, spending cuts). The economy at the time was suffering from high unemployment, and with monetary policy operating close to its limits, I pushed (unsuccessfully) for fiscal policies to increase aggregate demand and job creation. Today, with the economy approaching full employment, the need for demand-side stimulus, while perhaps not entirely gone, is surely much less than it was three or four years ago. There is still a case for fiscal policy action today, but to increase output without unduly increasing inflation the focus should be on improving productivity and aggregate supply—for example, through improved public infrastructure that makes our economy more efficient or tax reforms that promote private capital investment.
But he gently expresses doubt that this kind of thing is actually going to happen:
In particular, will Republicans be willing to support big increases in spending, including infrastructure spending? Alternatively, if Congress opts to reduce the deficit impact of an infrastructure program by financing it through tax credits and public-private partnerships, as candidate Trump proposed, the program might turn out to be relatively small.
Let me be less gentle: there will be no significant public investment program, for two reasons.
CR Note: Just after the election, I noted that members of Mr. Trump's team had been talking about a $1 trillion infrastructure plan. However the infrastructure proposal really was a proposal for about $100 billion in tax credits to spur private investment in infrastructure. The $1 trillion in infrastructure investment was the projected size of the private investment, not the proposed government spending. This proposal is actually very modest in terms of a fiscal boost. Also, if this becomes a privatization scheme, then there might be a modest short term boost, but the long term impact would be negative.(image)



Schedule for Week of Jan 15th

2017-01-14T08:09:04.537-05:00

The key economic reports this week are Housing Starts, and the Consumer Price Index (CPI).For manufacturing, December industrial production, and the January New York, and Philly Fed manufacturing surveys, will be released this week.Speeches by Fed Chair Janet Yellen are scheduled on Wednesday and Thursday.----- Monday, Jan 16th -----All US markets will be closed in observance of Martin Luther King Jr. Day----- Tuesday, Jan 17th-----8:30 AM ET: The New York Fed Empire State manufacturing survey for January. The consensus is for a reading of 8.0, down from 9.0.----- Wednesday, Jan 18th -----7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.8:30 AM: The Consumer Price Index for December from the BLS. The consensus is for 0.3% increase in CPI, and a 0.2% increase in core CPI.9:15 AM: The Fed will release Industrial Production and Capacity Utilization for December.This graph shows industrial production since 1967.The consensus is for a 0.6% increase in Industrial Production, and for Capacity Utilization to increase to 75.4%.10:00 AM: The January NAHB homebuilder survey. The consensus is for a reading of  69, down from 70 in December. Any number above 50 indicates that more builders view sales conditions as good than poor.During the day: The AIA's Architecture Billings Index for December (a leading indicator for commercial real estate).2:00 PM: the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.3:00 PM: Speech, Fed Chair Janet Yellen, The Goals of Monetary Policy and How We Pursue Them, At the Commonwealth Club, San Francisco, California----- Thursday, Jan 19th -----8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 255 thousand initial claims, up from 247 thousand the previous week.8:30 AM: Housing Starts for December. Total housing starts decreased to 1.090 Million (SAAR) in November. Single family starts decreased to 828 thousand SAAR in November.The consensus is for 1.200 million, up from the November rate.8:30 AM: the Philly Fed manufacturing survey for January. The consensus is for a reading of 16.0, down from 19.7.8:00 PM: Speech, Fed Chair Janet Yellen, The Economic Outlook and the Conduct of Monetary Policy, At the Stanford Institute for Economic Policy Research, San Francisco, California----- Friday, Jan 20th -----No economic releases scheduled.[...]



Sacramento Housing in December: Sales down 2%, Active Inventory down 17% YoY

2017-01-13T19:39:37.420-05:00

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For several years, not much changed. But in 2012 and 2013, we saw some significant changes with a dramatic shift from distressed sales to more normal equity sales.

This data suggests healing in the Sacramento market and other distressed markets are showing similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In December, total sales were down 2.6% from December 2015, and conventional equity sales were down 0.6% compared to the same month last year.

In December, 4.4% of all resales were distressed sales. This was up from 4.4% last month, and down from 8.3% in November 2015.

The percentage of REOs was at 2.5%, and the percentage of short sales was 2.3%.

Here are the statistics.

(image) Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes decreased 16.6% year-over-year (YoY) in December.  This was the 20th consecutive monthly YoY decrease in inventory in Sacramento.

Cash buyers accounted for 13.1% of all sales - this has been steadily declining (frequently investors).

Summary: This data suggests a normal market with few distressed sales, and less investor buying - but with limited inventory.(image)



Question #1 for 2017: What about fiscal and regulatory policy in 2017?

2017-01-13T14:32:41.777-05:00

Late last year I posted some questions for 2017: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.1) US Policy: There is significant uncertainty as to fiscal and regulatory policy in 2017. This is probably the biggest risk for the US economy this coming year. I assume some sort of tax cuts will be passed, possibly some additional infrastructure spending, and possibly some deregulation.These is the potential for significant policy mistakes - like defaulting on the debt (seems unlikely) - or the start of a trade war. Usually at this point in the transition process, there is a pretty clear understanding of the new administration's policy proposals, but not this time.Goldman Sachs economists David Mericle and Ben Snider recently looked at equity prices and concluded that investors expect the following policy changes: We draw three conclusions. First, on the spending side, the equity market appears to expect large health care cutbacks, but has moderated its initial post-election expectations for increased infrastructure spending. Second, on the tax side, the equity market seems to expect meaningful corporate tax cuts, though the evidence that the market has even partially priced a switch to destination-based taxation with border adjustment is only mixed. Third, we see little evidence that the equity market expects major financial or energy-sector deregulation that meaningfully affects profits.Back in November I wrote: Some early Thoughts on the Impact of the Trump Economic Policies.  Here are some excerpts:"First, in broad brushes, the Trump economic plan seems to be:1) Renegotiate trade deals and / or impose tariffs.2) Stricter enforcement and control on immigration, and the deportation of illegal immigrants.3) Significant Infrastructure spending.4) Tax cuts mostly for high income earners and corporations.5) No changes to Social Security and Medicare.6) Deregulation....Most analysts think there will be fiscal stimulus in 2017 and 2018, with a combination of tax cuts and some increase in infrastructure spending.  In general, analysts believe that any changes to trade agreements will take time, and that deportations will not increase significantly.  The bottom line for analysts is that the portions of the program that will boost the economy in the short term will be enacted, and the portions that won't (trade deals, deportations) and changes to the ACA (Obamacare) will be delayed.This is why analysts have been somewhat positive on the impact of the Trump economic proposals for 2017.  However no one knows what will actually be proposed.  What matters is the details....Members of Mr. Trump's team have been talking about a $1 trillion infrastructure plan. However the infrastructure proposal is really a proposal for about $100+ billion in tax credits to spur private investment in infrastructure.  The $1 trillion in infrastructure investment is the projected size of the private investment, not the proposed government spending.  This proposal is actually very modest in terms of a fiscal boost.  If this is a privatization scheme, then there might be a modest short term boost, but the long term impact will be negative."We are still waiting for the details. As far as the impact on 2017, my expectation is there will be both individual and corporate tax cuts - and some sort of infrastructure program. I expect that something will happen with the ACA (those that have insurance for 2017 will keep their insurance, but they might not have insurance in 2018 - and that impact would be in 2018). I think the negative proposals (immigration, trade) will impact the economy in 2018 or later - overall there will be a small boost to GDP in 2017.A final comment:  The words of a President matter. Mr Trump has been impulsive, rec[...]



Preliminary January Consumer Sentiment at 98.1

2017-01-13T10:13:48.067-05:00

The preliminary University of Michigan consumer sentiment index for January was at 98.1, down slightly from 98.2 in December.
Consumer confidence remained unchanged at the cyclical peak levels recorded in December. The Current Conditions Index rose 0.6 points to reach its highest level since 2004, and the Expectations Index fell 0.6 points which was lower than only the 2015 peak during the past dozen years. The post-election surge in optimism was accompanied by an unprecedented degree of both positive and negative concerns about the incoming administration spontaneously mentioned when asked about economic news. The importance of government policies and partisanship has sharply risen over the past half century. From 1960 to 2000, the combined average of positive and negative references to government policies was just 6%; during the past six years, this proportion averaged 20%, and rose to new peaks in early January, with positive and negative references totaling 44%. This extraordinary level of partisanship has had a dramatic impact on economic expectations. In early January, the partisan divide on the Expectations Index was a stunning 42.7 points (108.9 among those who favorably mentioned government policies, and 66.2 among those who made unfavorable references). Needless to say, these extreme differences would imply either strong growth or a recession. Since neither is likely, one would anticipate that both extreme views will be tempered in the months ahead.
emphasis added
(image)
Click on graph for larger image.

Consumer sentiment is a concurrent indicator (not a leading indicator). The survey shows some people are now much more positive than prior to the U.S. election - and others are much more negative. (image)



Retail Sales increased 0.6% in December

2017-01-13T09:12:27.529-05:00

On a monthly basis, retail sales increased 0.6 percent from November to December (seasonally adjusted), and sales were up 4.1 percent from December 2015.

From the Census Bureau report:
Advance estimates of U.S. retail and food services sales for December 2016, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $469.1 billion, an increase of 0.6 percent from the previous month, and 4.1 percent above December 2015. Total sales for the 12 months of 2016 were up 3.3 percent from 2015. ... The October 2016 to November 2016 percent change was revised from up 0.1 percent to up 0.2 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 up 0.5% in December.

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 4.0% on a YoY basis.

The increase in December was below expectations, however sales for October and November were revised up. A solid report. (image)



Friday: Retail Sales, PPI, Consumer Sentiment

2017-01-12T19:39:34.919-05:00

From Matthew Graham at Mortgage News Daily: Mixed Bag For Mortgage Rates Amid Market Volatility
Mortgage rates were mixed today, depending on the lender.
...
4.125% is still the most prevalent conventional 30yr fixed rate on top tier scenarios, with today's losses seen in the form of higher upfront costs.
emphasis added
Friday:
• At 8:30 AM ET, Retail sales for December will be released.  The consensus is for 0.7% increase in retail sales in December.

• At 8:30 AM, The Producer Price Index for December from the BLS. The consensus is for a 0.3% increase in prices, and a 0.1% increase in core PPI.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for November.  The consensus is for a 0.6% increase in inventories.

• At 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for January). The consensus is for a reading of 98.6, up from 98.2 in November.(image)



Question #2 for 2017: How much will the economy grow in 2017?

2017-01-13T14:32:50.308-05:00

Late last year I posted some questions for 2017: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.2) Economic growth: Heading into 2017, most analysts are pretty sanguine and expecting some pickup in growth due to tax cuts and infrastructure spending.   How much will the economy grow in 2017?Here is a table of the annual change in real GDP since 2007.  Economic activity has mostly been in the 2% range since 2010.  Given current demographics, that is about what we'd expect: See: 2% is the new 4%.Annual Real GDP GrowthYearGDP20053.3%20062.7%20071.8%2008-0.3%2009-2.8%20102.5%20111.6%20122.2%20131.7%20142.4%20152.6%201611.7%1 2016 estimate.It is possible that there will be a pickup in growth in 2017 due to a combination of factors. The new administration's policy proposals are unclear, but it appears there will be tax cuts, possibly more government spending on infrastructure, and possibly less regulation (easier borrowing).   There will probably be some economic boost from oil sector investment in 2017 since oil prices have increased (this was a drag last year).The housing recovery is ongoing, however auto sales might have peaked.And demographics are improving (the prime working age population is growing about 0.5% per year, compared to declining a few years ago).All these factors combined will probably push GDP growth into the mid-to-high 2% range in 2017, but this will depend somewhat on which policies are enacted.Here are the Ten Economic Questions for 2017 and a few predictions:• Question #1 for 2017: What about fiscal and regulatory policy in 2017?• Question #2 for 2017: How much will the economy grow in 2017?• Question #3 for 2017: Will job creation slow further in 2017?• Question #4 for 2017: What will the unemployment rate be in December 2017?• Question #5 for 2017: Will the core inflation rate rise in 2017? Will too much inflation be a concern in 2017?• Question #6 for 2017: Will the Fed raise rates in 2017, and if so, by how much?• Question #7 for 2017: How much will wages increase in 2017?• Question #8 for 2017: How much will Residential Investment increase?• Question #9 for 2017: What will happen with house prices in 2017?• Question #10 for 2017: Will housing inventory increase or decrease in 2017?[...]



Lawler: New “Household” Numbers, Same Old Conundrum

2017-01-12T11:17:43.317-05:00

From housing economist Tom Lawler: New “Household” Numbers, Same Old ConundrumHousing Survey (AHS) for 2015, and the “Families and Living Arrangements” data from the Annual Social and Economic Supplement to the Current Population Survey (or CPS/ASEC) for 2016. Both surveys produce estimates (wildly different, of course) of – among other things – the number of US households and the homeownership rate.Starting with the American Housing Survey, 2015 marked the first time since 1985 that the AHS was based on new national and metropolitan area “longitudinal” samples based on the latest available Master Address File. From 1985 through 2013 the AHS sample was mainly based on housing units selected from the 1980 Census as well as samples of housing units subsequently constructed in areas requiring building permits. Not surprisingly, the previous methodology was subject to sizable “sampling” issues. The 2015 “national’ estimates are based on (1) a “national case” sample of 34,769 representative of the US and nine divisions; (2) a 45,270 “over-sample” of top 15 metropolitan areas; (3) a 30,111 over-sample of 10 additional metropolitan areas; and (4) a 5,248 oversample of subsidized renter units.The AHS household estimates are “controlled” to independent estimates of the US housing stock in much the same was as are the household estimates from the Housing Vacancy Survey, a supplement to the Current Population Survey. And while the AHS-based US household estimates for 2015 in aggregate aren’t massively different from that of the HVS, the characteristics of the AHS-based households for 2015 are vastly different, and are more in synch with those of the 2015 American Community Survey, as shown in the table below.2015 US Household Estimates by Age Group, Various Census Surveys  AHSHVSACSTotal118,290117,397118,20915-24 4,3476,1254,44125-3418,09619,10617,88535-4420,44119,91720,57645-5423,53422,02123,23855-6423,63822,06823,06965-7416,29215,99616,52475+11,94212,16412,476What is especially striking are the rather sizable differences in the shares of US households by age group between the the HVS estimates and the ACS or AHS estimates, with the HVS estimates suggesting a much larger “young-adult’ share of total households.Even more striking are the differences in the homeowner estimates by age group.2015 US Homeowner Estimates by Age Group, Various Census Surveys  AHSHVSACSTotal74,36074,74174,50615-24 5011,33657725-346,4857,4936,58235-4411,74311,64511,59945-5415,96815,41315,85355-6417,67416,64517,28565-7412,91712,81913,16075+9,0729,3909,450As this table indicates, the HVS estimates for young-adult homeowners are vastly higher than the AHS and ACS estimates.Census also produces household estimates based on the CPS Annual Social and Economic Supplement (CPS./ASEC) which are not controlled to independent housing stock estimates, but instead to independent estimates of the civilian non-institutionalized population. Since (1) CPS-based surveys overstate housing vacancy rates; and (2) housing stock estimates appear to be understated, CPS/ASEC household estimates are higher than CPS/HVS estimates.While AHS, HVS, and ACS estimates are more or less annual averages, CPS/ASEC estimates are for March, and the last two estimates for the latter are shown below.US Household Estimates by Age Group, Various Census SurveysAHS (2015)HVS (2015)ACS (2015)CPS/ASEC (Mar 2015)CPS/ASEC (Mar 2016)Total118,290117,397118,209124,587125,81915-244,3476,1254,4416,3706,36125-3418,09619,10617,88520,07520,04735-4420,44119,91720,57621,12121,22245-5423,53422,02123,23823,56623,29555-6423,63822,06823,06923,50923,89665-7416,29215,99616,52416,88617,55175+11,94212,16412,47613,0[...]



Weekly Initial Unemployment Claims increase to 247,000

2017-01-12T08:54:48.869-05:00

The DOL reported:
In the week ending January 7, the advance figure for seasonally adjusted initial claims was 247,000, an increase of 10,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 235,000 to 237,000. The 4-week moving average was 256,500, a decrease of 1,750 from the previous week's revised average. The previous week's average was revised up by 1,500 from 256,750 to 258,250.

There were no special factors impacting this week's initial claims. This marks 97 consecutive weeks of initial claims below 300,000, the longest streak since 1970.
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 decreased to 256,500.

This was below the consensus forecast (it is difficult to seasonally adjusted during the holidays). The low level of claims suggests relatively few layoffs.(image)



CNBC's Liesman: Trump's colossal error on jobs during his press conference

2017-01-12T00:38:33.273-05:00

From CNBC's Steve Liesman: Donald Trump's colossal error on jobs during his press conference
Trump said that there "are 96 million wanting a job and they can't get (one). You know that story. The real number. That's the real number."

It is unfortunately very far from the real number. There are in fact 96 million Americans age 16 and older who are not in the labor force. Of this, just 5.4 million, or 91 million fewer than the number cited by Trump, say they want a job. The rest are retired, sick, disabled, running their households or going to school.
This is a serious problem. Trump is at war with the data. There is a concern that Trump (and Congress) will defund the BLS and other data gathering agencies if he doesn't like what they report.(image)



Phoenix Real Estate in December: Sales up 6%, Inventory down 3%

2017-01-11T14:31:01.851-05:00

This is a key housing market to follow since Phoenix saw a large bubble and bust, followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in December were up 5.9% year-over-year.

2) Cash Sales (frequently investors) were down to 23.1% of total sales.

3) Active inventory is now down 2.9% 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.

This is the second consecutive month with a YoY decrease in inventory following eight months with YoY increases.  This might be a change in trend - something to watch.

December Residential Sales and Inventory, Greater Phoenix Area, ARMLS
  SalesYoY
Change
Sales
Cash
Sales
Percent
Cash
Active
Inventory
YoY
Change
Inventory
Dec-085,524---1,66530.1%53,7921---
Dec-097,66138.7%3,00839.3%39,709-26.2%1
Dec-108,4019.7%3,93946.9%42,4636.9%
Dec-117,843-6.6%3,63546.3%24,712-41.8%
Dec-127,071-9.8%3,21145.4%21,095-14.6%
Dec-135,930-16.1%2,05334.6%25,51120.9%
Dec-146,4759.2%1,89329.2%25,052-1.8%
Dec-156,7564.3%1,61723.9%23,053-8.0%
Dec-167,1545.9%1,65523.1%22,388-2.9%
1 December 2008 probably includes pending listings
(image)



Question #3 for 2017: Will job creation slow further in 2017?

2017-01-13T14:33:03.465-05:00

Late last year I posted some questions for 2017: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.3) Employment: Through November1, the economy has added almost 2,000,000 jobs this year, or 180,000 per month. As expected, this was down from the 230 thousand per month in 2015. Will job creation in 2017 be as strong as in 2016? Or will job creation be even stronger, like in 2014 or 2015? Or will job creation slow further in 2017? 1Note: The December jobs report was released after I wrote this question. For 2017, the economy added 2.157 million jobs, or 180,000 per month.For review, here is a table of the annual change in total nonfarm, private and public sector payrolls jobs since 1997.  For total and private employment gains, 2014 and 2015 were the best years since the '90s, however it appears job growth peaked in 2014.Change in Payroll Jobs per Year (000s)Total, NonfarmPrivatePublic19973,4073,21219519983,0472,73431319993,1792,71846120001,9511,6872642001-1,726-2,2775512002-500-7332332003113155-4220042,0421,89514720052,5142,32818620062,0921,88320920071,1478592882008-3,569-3,7491802009-5,070-4,996-7420101,0661,282-21620112,0872,399-31220122,1492,219-7020132,3112,378-6720143,0152,88513020152,7442,6519320162,1571,974183The good news is the economy still has solid momentum heading into the new year.The bad news - for job growth - is that a combination of demographics and a labor market nearing full employment suggests fewer jobs will be added in 2017.  Of course that should be good news for wages.Note: Too many people compare to the '80s and '90s, without thinking about changing demographics. The prime working age population (25 to 54 years old) was growing 2.2% per year in the '80s, and 1.3% per year in the '90s. The prime working age population has actually declined slightly this decade. Note: The prime working age population is now growing slowly again, and growth will pick up the '20s.In 2016, public employment added to total employment for the third consecutive year, but still at a fairly low level. Public hiring in 2017 will probably be similar to 2016.The second table shows the change in construction and manufacturing payrolls starting in 2006.Construction Jobs (000s)Manufacturing (000s)2006152-1782007-195-2692008-789-8962009-1,047-1,3752010-18712020111442072012117158201321112620143622082015296262016102-45Energy related construction hiring declined in 2016, but will probably rebound a little in 2017 since oil prices have increased.  For manufacturing, there will probably be little or no growth in the auto sector in 2017, and there will be an additional drag on manufacturing employment from the strong dollar. So my forecast is for gains of 125,000 to 150,000 payroll jobs per month in 2017.  Lower than in 2016, but another solid year for employment gains given current demographics.Here are the Ten Economic Questions for 2017 and a few predictions:• Question #1 for 2017: What about fiscal and regulatory policy in 2017?• Question #2 for 2017: How much will the economy grow in 2017?• Question #3 for 2017: Will job creation slow further in 2017?• Question #4 for 2017: What will the unemployment rate be in December 2017?• Question #5 for 2017: Will the core inflation rate rise in 2017? Will too much inflation be a concern in 2017?• Question #6 for 2017: Will the Fed raise rates in 2017, and if so, by how much?• Question #7 for 2017: How much will wages increase in 2017?• Question #8 for 2017: How much will Residential Investment increase?• Question #9 for 20[...]



MBA: Mortgage Applications Increase in Latest Weekly Survey

2017-01-11T07:00:01.967-05:00

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey
Mortgage applications increased 5.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 6, 2017. The most recent week’s results include an adjustment to account for the New Year’s Day holiday, while the previous week’s results were adjusted for the Christmas holiday.

... The Refinance Index increased 4 percent from the previous week. The seasonally adjusted Purchase Index increased 6 percent from one week earlier. The unadjusted Purchase Index increased 45 percent compared with the previous week and was 18 percent lower than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.32 percent from 4.39 percent, with points decreasing to 0.41 from 0.43 (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.

It would take a substantial increase in mortgage rates to see a significant increase in refinance activity - although we might see more cash-out refis.


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

Even with the increase in mortgage rates, purchase activity is still holding up.  However refinance activity has declined significantly.(image)



Thoma: "Here's what really caused the housing crisis"

2017-01-10T17:31:07.074-05:00

An excellent overview from Professor Mark Thoma: Here's what really caused the housing crisis. Excerpt:
As the author of the research, Antoinette Schoar, explained in an interview:

“A lot of the narrative of the financial crisis has been that this [loan] origination process was broken, and therefore a lot of marginal and unsustainable borrowers got access to funding. In our opinion, the facts don’t line up with this narrative. … Calling this crisis a subprime crisis is a misnomer. In fact, it was a prime crisis.”
When analysts were calling it a "subprime crisis", my former co-blogger Tanta wrote "We are all subprime now!"  Subprime was just the first area of stress - this was a widespread crisis.

From Thoma:
As noted in a study by McClatchy from 2008, “Federal Reserve Board data show that more than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions;” “private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year;” and “only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.”
Those who blame the CRA or Fannie and Freddie don't understand what happened.

There were many causes to the crisis, but I believe the three keys were:

1) the change in lending practices and standards for private sector lending. As an example, the lenders used to use the three Cs: Credit, Capacity, and Collateral. At Tanta explained:
Does the borrower’s history establish creditworthiness, or the willingness to repay debt? Does the borrower’s current income and expense situation (and likely future prospects) establish the capacity or ability to repay the debt? Does the house itself, the collateral for the loan, have sufficient value and marketability to protect the lender in the event that the debt is not repaid?
Instead of using the three Cs, the private lenders innovated and just used FICO scores, and then eventually little or nothing to underwrite the loan.  There were other innovative changes in lending practices that didn't work out very well.

2) The rating agencies models were based on prior lending methods, and weren't adjusted sufficiently to account for the new (non-existent) underwriting standards.  This meant the private label MBS was rated to highly.

3) The regulators turned a blind eye to the loose lending and excessive concentrations.  I was talking with field regulators in 2005 and 2006, and they were all terrified.  I was told the appointees at the top of the agencies were blocking any effort to tighten standards.

There were many causes to the crisis, and Mark Thoma does a good job of debunking a few false narratives.(image)



Question #4 for 2017: What will the unemployment rate be in December 2017?

2017-01-13T14:33:21.785-05:00

Late last year I posted some questions for 2017: Ten Economic Questions for 2017. I'll try to add some thoughts, and maybe some predictions for each question.4) Unemployment Rate: The unemployment rate was at 4.6% in November, down 0.4 percentage points year-over-year.  Currently the FOMC is forecasting the unemployment rate will be in the 4.5% to 4.6% range in Q4 2017.  What will the unemployment rate be in December 2017?Note: The unemployment rate was 4.7% in December 2016.Forecasting the unemployment rate includes forecasts for economic and payroll growth, and also for changes in the participation rate. Note: The participation rate is the percent of the working age population (16 and over) that is in the labor force.On participation: We can be pretty certain that the participation rate will decline over the next couple of decades based on demographic trends.   However, over the last several years, the participation rate has been fairly steady as the stronger labor market offset the long term trend.Here is a table of the participation rate and unemployment rate since 2008.Unemployment and Participation Rate for December each YearDecember ofParticipation RateChange in Participation Rate (percentage points)Unemployment Rate200865.8%7.3%200964.6% -1.29.9%201064.3% -0.39.3%201164.0% -0.38.5%201263.7% -0.37.9%201362.9%-0.86.7%201462.7%-0.25.6%201562.7%0.05.0%201662.7%0.04.7%Depending on the estimate for the participation rate and job growth (next question), it appears the unemployment rate will declining slightly by December 2017 from the current 4.7%.   My guess is based on the participation rate declining slightly in 2017 - as the long term trends continue - and for decent job growth in 2017, but less than in 2016.Here are the Ten Economic Questions for 2017 and a few predictions:• Question #1 for 2017: What about fiscal and regulatory policy in 2017?• Question #2 for 2017: How much will the economy grow in 2017?• Question #3 for 2017: Will job creation slow further in 2017?• Question #4 for 2017: What will the unemployment rate be in December 2017?• Question #5 for 2017: Will the core inflation rate rise in 2017? Will too much inflation be a concern in 2017?• Question #6 for 2017: Will the Fed raise rates in 2017, and if so, by how much?• Question #7 for 2017: How much will wages increase in 2017?• Question #8 for 2017: How much will Residential Investment increase?• Question #9 for 2017: What will happen with house prices in 2017?• Question #10 for 2017: Will housing inventory increase or decrease in 2017?[...]



NFIB: Small Business Optimism Index increases in December

2017-01-10T12:10:00.160-05:00

Earlier from the National Federation of Independent Business (NFIB): Small Business Optimism Skyrocketed in December
Small business optimism rocketed to its highest level since 2004, with a stratospheric 38-point jump in the number of owners who expect better business conditions, according to the monthly National Federation of Independent Business (NFIB) Index of Small Business Optimism, released today.
...
The Index reached 105.8, an increase of 7.4 points. Leading the charge was “Expect Better Business Conditions,” which shot up from a net 12 percent in November to a net 50 percent last month.
...
Despite sharply higher optimism, hiring activity remained flat in December. Job creation increased by 0.01 workers per firm and job openings dropped two points. According to the NFIB Jobs report, released last week, finding qualified workers remains a persistent problem for small business owners.
emphasis added
(image) Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 105.8 in December.

This is the highest level since 2004.(image)



BLS: Job Openings "little changed" in November

2017-01-10T10:07:29.593-05:00

From the BLS: Job Openings and Labor Turnover Summary
The number of job openings was little changed at 5.5 million on the last business day of November, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were also little changed at 5.2 million and 5.0 million, respectively.....
...
The number of quits was little changed in November at 3.1 million. The quits rate was 2.1 percent. Over the month, the number of quits was little changed for total private and for government.
emphasis added
The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for November, the most recent employment report was for December.

(image) Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased in November to 5.522 million from 5.451 million in October.  Job openings are mostly moving sideways at a high level.

The number of job openings (yellow) are up 6% year-over-year.

Quits are up 7% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

This is another solid report.(image)



Tuesday: Job Openings, Small Business Survey

2017-01-09T19:44:36.685-05:00

From Matthew Graham at Mortgage News Daily: Mortgage Rates Recover Most of Friday's Losses
Mortgage rates recovered much of Friday's losses today, moving back near the lowest levels in more than a month. To be fair, that's a claim they could have made on Friday, which was still the 2nd best day in a month despite the deterioration vs Thursday. 2017 has consequently been "so far, so good" for rates. When combined with the 2nd half of December, rates are a quarter of a point lower on average, and as much as a half point lower at certain lenders.

The most prevalent conventional 30yr fixed rate remains 4.125% on top tier scenarios.
emphasis added
Tuesday:
• At 6:00 AM, NFIB Small Business Optimism Index for December.

• At 10:00 AM, Job Openings and Labor Turnover Survey for November from the BLS. Jobs openings decreased in October to 5.534 million from 5.631 million in September.(image)



It DOES Rains in California!

2017-01-09T13:44:05.164-05:00

California has been enduring a five year drought, but it is raining in SoCal and snowing in the mountains this year.

Here are a few resources to track the rain and snow.

These tables show the snowpack in the North, Central and South Sierra. Currently the snowpack is about 101% of normal for this date in the North, 118% of normal in the Central Sierra, and 167% of normal in the Southern Sierra.  A great start to the season.

And here are some plots comparing the current and previous years to the average, a very dry year ('14-'15) and a wet year ('82-'83). This winter is above normal so far.

And for Los Angeles, here is a historical table of annual rainfall. After five years of significantly below average rainfall, this year is above normal (and the rain is still falling).

It is too early to declare the five-year drought over, but this is good news for the state and the state economy. It will be interesting to see how much the reservoirs fill up in the Spring.

(image) For Pacific Crest Trail and John Muir Trail hikers, I recommend using the Upper Tyndall Creek sensor to track the snow conditions. This graph shows the snow water content for Upper Tyndall Creek for the last 40 years. Note: I hiked the trail in September 1998 - a very wet year - and there was snow all year on Mt. Whitney.

There were four very dry years in a row, and then last winter was a little better - but still below normal.

There is already as much snow this year as last year.(image)