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Finance and Economics

Updated: 2017-03-24T20:21:17.679-04:00


Oil: "Incredible strength in rig additions"


A few comments from Steven Kopits of Princeton Energy Advisors LLC on Mar 24, 2017:
• US oil rig count was up an eye-popping 21 this week to 652

• US horizontal oil rigs were up by 13 to 543
• Despite a major correction in oil prices, rig additions continue at a rapid pace.
(image) Click on graph for larger image.

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

CoreLogic: "Between 2007–2016, Nearly 7.8 Million Homes Lost to Foreclosure"


Here is a report from CoreLogic: US Residential Foreclosure Crisis: 10 Years Later. There are several interesting graphs in the report, including foreclosures completed by year.

This graph for CoreLogic the Ten States with the highest peak foreclosure rate during the crisis, and the current foreclosure rate.

(image) Some states like Nevada and Florida have improved significantly. Other states, like New Jersey and New York, have only recovered slowly.

Here is a table based on data from the CoreLogic report showing completed foreclosure per year.

Completed foreclosure by Year
Source: CoreLogic
YearCompleted Foreclosures

Vehicle Sales Forecast: Sales Over 17 Million SAAR in March


The automakers will report March vehicle sales on Tuesday, April 4th.

Note: There were 27 selling days in March 2017, unchanged from 27 in March 2016.

From WardsAuto: Forecast: U.S. March Sales to Reach 17-Year High
A WardsAuto forecast calls for U.S. automakers to deliver 1.61 million light vehicles in March, a 17-year high for the month. The forecasted daily sales rate of 59,776 over 27 days is a best-ever March result. This DSR represents a 2.6% improvement from like-2016 (also 27 days). March is anticipated to be the first month in 2017 to outpace prior-year.

The report puts the seasonally adjusted annual rate of sales for the month at 17.2 million units, below the 17.4 million SAAR from the first two months of 2017 combined, but well above the 16.6 million from same-month year-ago. ...
emphasis added
From J.D. Power: March U.S. auto sales seen up nearly 1.9 pct -JD Power and LMC
U.S. auto sales in March will increase almost 1.9 percent from a year earlier, even as consumer discounts continue to remain at record levels, industry consultants J.D. Power and LMC Automotive said on Friday.

March U.S. new vehicle sales will be about 1.62 million units, up about 1.9 percent from 1.59 million units a year earlier, the consultancies said. The forecast was based on the first 16 selling days of the month.

The seasonally adjusted annualized rate for the month will be 17.3 million vehicles, up from 16.8 million a year earlier.
Looks like another strong month for vehicle sales, but incentives are at record levels and inventories are high.(image)

U.S. Heavy Truck Sales increasing following Oil Price Related Slump


The following graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the February 2017 seasonally adjusted annual sales rate (SAAR).

Heavy truck sales really collapsed during the great recession, falling to a low of 181 thousand in April and May 2009, on a seasonally adjusted annual rate basis (SAAR). Then sales increased more than 2 1/2 times, and hit 479 thousand SAAR in June 2015.

Heavy truck sales declined again - probably mostly due to the weakness in the oil sector - and bottomed at 352 thousand SAAR in October of last year.

Click on graph for larger image.

With the increase in oil prices over the last year, heavy truck sales have been increasing too.

Heavy truck sales were at 400 thousand SAAR in February 2017.(image)

BLS: Unemployment Rates "significantly lower in February in 10 states", Arkansas and Oregon at New Lows


From the BLS: Regional and State Employment and Unemployment Summary
Unemployment rates were significantly lower in February in 10 states, higher in 1 state, and stable in 39 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Nine states had notable jobless rate decreases from a year earlier, and 41 states and the District had no significant change. The national unemployment rate, at 4.7 percent, was little changed from January but 0.2 percentage point lower than in February 2016.
New Hampshire had the lowest unemployment rate in February, 2.7 percent, closely followed by Hawaii and South Dakota, 2.8 percent each, and Colorado and North Dakota, 2.9 percent each. The rates in both Arkansas (3.7 percent) and Oregon (4.0 percent) set new series lows. ... New Mexico had the highest jobless rate, 6.8 percent, followed by Alaska and Alabama, 6.4 percent and 6.2 percent, respectively.
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.

The states are ranked by the highest current unemployment rate. New Mexico, at 6.8%, 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 no state has an unemployment rate at or above 7% (light blue); Only three states are at or above 6% (dark blue). The states are New Mexico (6.8%), Alaska (6.4%), and Alabama (6.2%).(image)

A few Comments on February New Home Sales


New home sales for February were reported at 592,000 on a seasonally adjusted annual rate basis (SAAR).  This was well above the consensus forecast, however the three previous months combined were revised down slightly.  Overall this was a solid report.

Note: February 2017 was warmer than normal in most of the country, and since new home sales are counted when the contract is signed, the nice weather might have had a positive impact on sales in February.

Sales were up 12.8% year-over-year in February.  However, January and February were the weakest months last year on a seasonally adjusted annual rate basis - so this was an easy comparison.

It will take several months of data to see the impact of higher mortgage rates - and this is the seasonally weak period - so we might have to wait for the March and April data to see if there was any impact.

Earlier: New Home Sales increase to 592,000 Annual Rate in February.

(image) Click on graph for larger image.

This graph shows new home sales for 2016 and 2017 by month (Seasonally Adjusted Annual Rate).  Sales were up 12.8% year-over-year in January.

For the first two months of 2017, new home sales are up 7.1% compared to the same period in 2016.

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next several years.

(image) The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through February 2017. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.(image)

Kansas City Fed: Regional Manufacturing Activity "Strengthened Further" in March


From the Kansas City Fed: Tenth District Manufacturing Activity Strengthened Further
The Federal Reserve Bank of Kansas City released the March Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity strengthened further with strong expectations for future activity.

Our composite index accelerated again, and has only been higher one time in the last 15 years,” said Wilkerson.  “The future employment index was the strongest in the 23-year history of the survey."
The month-over-month composite index was 20 in March, its highest reading since March 2011, up from 14 in February and 9 in March.  The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.  Activity in both durable and nondurable goods plants increased, particularly for metals, computer, electronic, and aircraft products.  Most month-over-month indexes rose further in March.  The production and shipments indexes increased considerably, while the new orders and order backlog indexes rose more moderately but remained high.  The employment index moderated slightly from 17 to 13, and the new orders for exports index also eased.  Both inventory indexes increased for the second straight month.
emphasis added
The Kansas City region was hit hard by the decline in oil prices, but activity is expanding solidly again. The regional Fed surveys released so far suggest another strong reading for the ISM manufacturing index for March.(image)

New Home Sales increase to 592,000 Annual Rate in February


The Census Bureau reports New Home Sales in February were at a seasonally adjusted annual rate (SAAR) of 592 thousand. The previous three months combined were revised down slightly."Sales of new single-family houses in February 2017 were at a seasonally adjusted annual rate of 592,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 6.1 percent above the revised January rate of 558,000 and is 12.8 percent above the February 2016 estimate of 525,000."emphasis addedClick on graph for larger image.The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.Even with the increase in sales over the last several years, new home sales are still fairly low historically.The second graph shows New Home Months of Supply.The months of supply declined in February to 5.4 months. The all time record was 12.1 months of supply in January 2009.This is now in the normal range (less than 6 months supply is normal)."The seasonally-adjusted estimate of new houses for sale at the end of February was 266,000. This represents a supply of 5.4 months at the current sales rate."On inventory, according to the Census Bureau: "A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.The third graph shows the three categories of inventory starting in 1973.The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).In February 2017 (red column), 49 thousand new homes were sold (NSA). Last year, 45 thousand homes were sold in February. The all time high for February was 109 thousand in 2005, and the all time low for February was 22 thousand in 2011.This was above expectations of 565,000 sales SAAR.   I'll have more later today.[...]

Weekly Initial Unemployment Claims increase to 258,000


The DOL reported:
In the week ending March 18, the advance figure for seasonally adjusted initial claims was 258,000, an increase of 15,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 241,000 to 243,000. The 4-week moving average was 240,000, an increase of 1,000 from the previous week's revised average. The previous week's average was revised up by 1,750 from 237,250 to 239,000.
emphasis added
The previous week was revised up.

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

(image) Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 240,000.

This was above the consensus forecast.

The low level of claims suggests relatively few layoffs. (image)

Black Knight: Mortgage Delinquencies Declined in February


From Black Knight: Black Knight Financial Services’ First Look at February Mortgage Data: Prepayment Activity Continues to Decline, Down 40 Percent So Far in 2017
• Prepayment speeds (historically a good indicator of refinance activity) declined 15 percent in February, marking a 40 percent overall year-to-date decline and the lowest monthly rate in three years

  • Delinquencies continued their seasonal decline, ticking down .98 percent from January

  • Foreclosure starts fell 18 percent from last month to 31 percent below last year’s levels

  • Active foreclosure inventory now stands at 470,000, the lowest such level since June 2007
According to Black Knight's First Look report for February, the percent of loans delinquent decreased 1.0% in February compared to January, and declined 5.5% year-over-year.

The percent of loans in the foreclosure process declined 1.9% in February and were down 28.5% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.21% in February, down from 4.25% in January.

The percent of loans in the foreclosure process declined in February to 0.93%.

The number of delinquent properties, but not in foreclosure, is down 117,000 properties year-over-year, and the number of properties in the foreclosure process is down 185,000 properties year-over-year.

Still improving, but the improvement has slowed.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
In Foreclosure0.93%0.94%1.30%1.72%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:2,135,0002,162,0002,252,0002,671,000
Number of properties in foreclosure pre-sale inventory:470,000481,000655,000866,000
Total Properties2,605,0002,643,0002,907,0003,537,000

Thursday: New Home Sales, Unemployment Claims


The warmer weather probably didn't impact February existing home sales, because existing home sales are counted when the contract closes. However the warm February may have boosted New Home sales since new home sales are counted when contracts are signed - and there were probably more people out looking in some parts of the country with the warmer weather.

• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, down from 241 thousand the previous week.

• At 8:45 AM, Speech by Fed Chair Janet L. Yellen, Opening Remarks, At the 2017 Federal Reserve System Community Development Research Conference, Washington, D.C.

• At 10:00 AM, New Home Sales for February from the Census Bureau. The consensus is for an increase in sales to 565 thousand Seasonally Adjusted Annual Rate (SAAR) in February from 555 thousand in January.

• At 11:00 AM, the Kansas City Fed manufacturing survey for March.(image)

A Few Comments on February Existing Home Sales


Earlier: NAR: "Existing-Home Sales Stumble in February"

A few key points:

1) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the consensus.  See: Existing Home Sales: Take the Under

2) The warmer weather probably had no impact on February sales (existing home sales are reported at closing).  Warmer weather in February might have boosted sales for March and early April.

3) The contracts for February existing home sales were entered after the recent increase in mortgage rates (rates started increasing after the election).

With the recent increase in rates, I'd expect some decline in sales volume as happened following the "taper tantrum" in 2013.   This is the first month with softer sales (and it is just one month), so maybe sales will hold up.

4) Inventory is still very low and falling year-over-year (down 6.4% year-over-year in January). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

To repeat: Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. In 2015, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.

I expect inventory will be increasing year-over-year by the end of 2017.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

(image) Click on graph for larger image.

Sales NSA in February (red column) were the highest for February since 2007 (NSA).

Note that sales NSA are in the slow seasonal period, and will increase sharply (NSA) in March.(image)

AIA: Architecture Billings Index increased in February


Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Architecture Billings Index rebounds into positive territory
The Architecture Billings Index (ABI) returned to growth mode in February, after a weak showing in January. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the February ABI score was 50.7, up from a score of 49.5 in the previous month. This score reflects a minor increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.5, up from a reading of 60.0 the previous month, while the new design contracts index climbed from 52.1 to 54.7.

“The sluggish start to the year in architecture firm billings should give way to stronger design activity as the year progresses,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “New project inquiries have been very strong through the first two months of the year, and in February new design contracts at architecture firms posted their largest  monthly gain in over two years.”  
• Regional averages: Midwest (52.4), South (50.5), Northeast (50.0), West (47.5)

• Sector index breakdown: institutional (51.8), multi-family residential (49.3), mixed practice (49.2), commercial / industrial (48.9)
emphasis added
(image) Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.7 in February, up from 49.5 in January. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index was positive in 9 of the last 12 months, suggesting a further increase in CRE investment in 2017.(image)

NAR: "Existing-Home Sales Stumble in February"


From the NAR: Existing-Home Sales Stumble in February
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, retreated 3.7 percent to a seasonally adjusted annual rate of 5.48 million in February from 5.69 million in January. Despite last month's decline, February's sales pace is still 5.4 percent above a year ago.

Total housing inventory 3 at the end of February increased 4.2 percent to 1.75 million existing homes available for sale, but is still 6.4 percent lower than a year ago (1.87 million) and has fallen year-over-year for 21 straight months. Unsold inventory is at a 3.8-month supply at the current sales pace (3.5 months in January).
emphasis added
(image) Click on graph for larger image.

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

Sales in January (5.48 million SAAR) were 3.7% lower than last month, but were 5.4% above the February 2016 rate.

The second graph shows nationwide inventory for existing homes.

(image) According to the NAR, inventory increased to 1.75 million in February from 1.68 million in January.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

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

(image) Inventory decreased 6.4% year-over-year in February compared to February 2016.  

Months of supply was at 3.8 months in February.

This was below consensus expectations. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...(image)

MBA: Mortgage Applications Decrease in Latest Weekly Survey


From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
Mortgage applications decreased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 17, 2017.

... The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 5 percent higher than the same week one year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) remained unchanged at 4.46 percent, with points increasing to 0.41 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
(image) Click on graph for larger image.

The first graph shows the refinance index since 1990.

Refinance activity remains low - and would not increase significantly unless rates fall sharply.

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

Even with the increase in mortgage rates over the last few months, purchase activity is still holding up.

However refinance activity has declined significantly since rates increased.(image)

Wednesday: Existing Home Sales


First, I expect existing home sales to be below consensus tomorrow. See: Existing Home Sales: Take the Under

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

• At 9:00 AM, FHFA House Price Index for January 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

• At 10:00 AM, Existing Home Sales for February from the National Association of Realtors (NAR). The consensus is for 5.55 million SAAR, down from 5.69 million in January. Housing economist Tom Lawler expects the NAR to report sales of 5.41 million SAAR in February.

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


Here is a graph (click on graph for larger image) from Doug Short and shows the S&P 500 since the 2007 high.  Today is that little blip at the end.

More graphs here: S&P 500 Snapshot: Biggest Loss in Five Months(image)

Chemical Activity Barometer increases in March


Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Consumer, Business Confidence Reach Levels Not Seen in Decades; Optimism Reflected in Increased Chemical Industry Activity
The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), posted its strongest year-over-year gain in nearly seven years. The 5.5 percent increase over this time last year reflects elevated consumer and business confidence and an overall rising optimism in the U.S. economy. Speaking last week, Federal Reserve Chairwoman Janet Yellen also referenced a “confidence in the robustness of the economy” as a reason to move forward with an interest rate hike.

The barometer posted a 0.5 percent gain in March, following a 0.5 percent gain in February and 0.4 percent gain in January. All data is measured on a three-month moving average (3MMA). Coupled with consecutive monthly gains in the fourth quarter of 2016, the pattern shows consistent, accelerating activity. On an unadjusted basis the CAB climbed 0.4 percent in March, following a 0.4 percent gain in February and a 0.6 percent increase in January.
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added
(image) Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

CAB has increased solidly over the last several months, and this suggests an increase in Industrial Production in 2017.(image)

"Mortgage Rates at 2 Week Lows"


From Matthew Graham at Mortgage News Daily: Mortgage Rates at 2 Week Lows Amid Political Uncertainty
Mortgage rates were steady-to-slightly lower today, keeping them in line with the lowest levels in 2 weeks and very close to the lowest levels of the month.  For most lenders, that means conventional 30yr fixed rate quotes of 4.25% on top tier scenarios.  Some lenders are still up at 4.375% and an aggressive few are back down to 4.125%.

Last week, we discussed the motivations for the rate improvements in detail.  To recap: longer-term rates like mortgages had already risen in anticipation of the Fed rate hike.  It wasn't a surprise.  Instead, markets were focused on the Fed's forward-looking rate hike forecasts, which came out slightly slower than markets expected.  Thus, rates were overly-prepared for a fast rate hike timeline and had some room to return to early March levels.

From there, attention has turned to fiscal uncertainty as several policy objectives of the Trump administration have run into roadblocks.  Specifically, investors are concerned that tax cuts will be significantly delayed as the health care debate seems to be front and center.  The expectation of tax cuts (and other fiscal measures) was a major contributor to the move higher in rates and stocks after the election.  To whatever extent those measures are delayed, investors can easily question if rates and stocks are higher than they should be. 
emphasis added
Here is a table from Mortgage News Daily:


Hotels: Hotel Occupancy Solid in early March


Hotel occupancy has picked up in recent weeks and is now close to the record year (2015 was the record).

From STR: US hotel results for week ending 11 March
The U.S. hotel industry reported positive results in the three key performance metrics during the week of 5-11 March 2017, according to data from STR.

In a year-over-year comparison with the week of 6-12 March 2016:
Occupancy: +0.8% to 67.4%
• Average daily rate (ADR): +3.9% to US$128.61
• Revenue per available room (RevPAR): +4.8% to US$86.72
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, dashed is 2015, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.

2015 was the best year on record for hotels.

For hotels, occupancy will now move mostly sideways until the summer travel season.

Data Source: STR, Courtesy of

Housing: Upside and Downside Risks


In a note today, Merrill Lynch economist Michelle Meyer notes a few upside and downside risks for housing. A few excerpts:
The housing market is being hit by several cross currents. On the upside, the warmer than-normal weather in the winter likely boosted housing activity over the past few months. The risk, however, is that this could be pulling activity forward from the spring. In addition, the general improvement in the economy and gain in consumer confidence could be underpinning housing activity. The NAHB homebuilder confidence index has climbed higher, reaching a new cyclical high of 71 in March. Clearly builders are optimistic. However, on the downside, interest rates have increased which weighs on affordability.

There are also a variety of potential policy changes which can impact the outlook for the housing market. High on the list is financial market deregulation and its impact on the flow of credit. In addition, there seems to be renewed focus on reforming the mortgage finance system and bringing Fannie Mae and Freddie Mac out of conservatorship. In addition, immigration reform could have significant impacts on the housing market over the medium term.
emphasis added
CR note: If, later this year, the Fed starts to reduce their balance sheet, that might push up longer rates (and pushing up mortgage rates a little more). Another downside risk for housing is reduced foreign buying due to the strong dollar, U.S. political concerns, and capital controls in China.(image)

Chicago Fed "Economic Growth Increased in February"


From the Chicago Fed: Economic Growth Increased in February
Led by improvements in employment-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to +0.34 in February from –0.02 in January. All four broad categories of indicators that make up the index increased from January, and only one of the four categories made a negative contribution to the index in February.

The index’s three-month moving average, CFNAI-MA3, improved to +0.25 in February from +0.07 in January, reaching its highest level since December 2014. February’s CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.
emphasis added
This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

(image) Click on graph for larger image.

This suggests economic activity was somewhat above the historical trend in February (using the three-month average).

According to the Chicago Fed:
What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

Sunday Night Futures


Schedule for Week of Mar 19, 2017

Existing Home Sales: Take the Under

Goldman on Fed Balance Sheet Runoff

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

Oil prices were up over the last week with WTI futures at $48.68 per barrel and Brent at $51.74 per barrel.  A year ago, WTI was at $40, and Brent was at $40 - so oil prices are up about 25% year-over-year.

Here is a graph from for nationwide gasoline prices. Nationally prices are at $2.29 per gallon - a year ago prices were at $2.00 per gallon - so gasoline prices are up about 30 cents a gallon year-over-year.(image)

Existing Home Sales: Take the Under


The NAR will report February Existing Home Sales on Wednesday, March 22nd at 10:00 AM ET.The consensus, according to Bloomberg, is that the NAR will report sales of 5.55 million. Housing economist Tom Lawler estimates the NAR will report sales of 5.41 million on a seasonally adjusted annual rate (SAAR) basis, down from 5.69 million SAAR in January.Housing economist Tom Lawler has been sending me his predictions of what the NAR will report for almost 7 years.  The table below shows the consensus for each month, Lawler's predictions, and the NAR's initial reported level of sales.  Lawler hasn't always been closer than the consensus, but usually when there has been a fairly large spread between Lawler's estimate and the "consensus", Lawler has been closer.NOTE: There have been times when Lawler "missed", but then he pointed out an apparent error in the NAR data - and the subsequent revision corrected that error.  As an example, see: The “Curious Case” of Existing Home Sales in the South in AprilOver the last seven years, the consensus average miss was 150 thousand, and  Lawler's average miss was 70 thousand.Many analysts now change their "forecast" after Lawler's estimate is posted, so the consensus has improved a little recently!Existing Home Sales, Forecasts and NAR Reportmillions, seasonally adjusted annual rate basis (SAAR)MonthConsensusLawlerNAR reported1May-106.205.835.66Jun-105.305.305.37Jul-104.663.953.83Aug- initially reported before revisions.[...]

Goldman on Fed Balance Sheet Runoff


A few brief excerpts from a note today by Goldman Sachs economist Daan Struyven: Balance Sheet Runoff: Sooner, Slower, Safer
The debate within the FOMC about balance sheet normalization is now underway. Fed officials have two basic choices. They can rely exclusively on the funds rate for now and leave balance sheet decisions to the new leadership team in 2018, or they can combine ongoing funds rate hikes with a turn to balance sheet runoff later this year.
A ... practical case for early balance sheet normalization is based on the upcoming Fed leadership transition. If the new appointments—especially the new Chair—are thought to favor aggressive balance sheet normalization, perhaps even including asset sales ... financial markets might experience heightened uncertainty during the transition. ...

The current FOMC could reduce that uncertainty by establishing an early “baseline” path for very gradual balance sheet rundown. Committee decisions are subject to change, of course, but markets would probably take comfort from the fact that most FOMC members will remain in their positions and that it is harder for the new leadership to radically change a policy that is already in place than to devise a new one. We therefore expect the committee to announce gradual tapering of reinvestments in December 2017, while holding the funds rate unchanged at that meeting.
CR Note: This might depend on who is the next Fed Chair.  Fed Chair Janet Yellen's term expires in Feb 2018 and the smart choice would be to reappoint her to another term (Like Reagan reappointing Democrat Volcker in 1983, Clinton reappointing Republican Greenspan, and Obama reappointing Republican Bernanke).   (image)

Schedule for Week of Mar 19, 2017


The key economic report this week are February New and Existing Home sales.

----- Monday, Mar 20th -----

8:30 AM: Chicago Fed National Activity Index for February. This is a composite index of other data.

----- Tuesday, Mar 21st-----

No economic releases scheduled.

----- Wednesday, Mar 22nd -----

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

9:00 AM: FHFA House Price Index for January 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

(image) 10:00 AM: Existing Home Sales for February from the National Association of Realtors (NAR). The consensus is for 5.55 million SAAR, down from 5.69 million in January.

Housing economist Tom Lawler expects the NAR to report sales of 5.41 million SAAR in February.

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

----- Thursday, Mar 23rd -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 240 thousand initial claims, down from 241 thousand the previous week.

8:45 AM, Speech by Fed Chair Janet L. Yellen, Opening Remarks, At the 2017 Federal Reserve System Community Development Research Conference, Washington, D.C.

(image) 10:00 AM ET: New Home Sales for February from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the January sales rate.

The consensus is for a increase in sales to 565 thousand Seasonally Adjusted Annual Rate (SAAR) in February from 555 thousand in January.

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

----- Friday, Mar 24th -----

8:30 AM: Durable Goods Orders for January from the Census Bureau. The consensus is for a 1.5% increase in durable goods orders.

10:00 AM: Regional and State Employment and Unemployment (Monthly) for February 2017