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Calculated Risk

Finance and Economics

Updated: 2017-07-23T21:27:17.897-04:00


Sunday Night Futures


Schedule for Week of July 23, 2017

• At 10:00 AM ET, Existing Home Sales for June from the National Association of Realtors (NAR). The consensus is for 5.58 million SAAR, down from 5.62 million in May. Housing economist Tom Lawler expects the NAR to report sales of 5.59 million SAAR for June.

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures are down 3, and DOW futures are down 25 (fair value).

Oil prices were down over the last week with WTI futures at $45.72 per barrel and Brent at $48.00 per barrel.  A year ago, WTI was at $43, and Brent was at $44 - so oil prices are up 5% to 10% year-over-year.

Here is a graph from for nationwide gasoline prices. Nationally prices are at $2.28 per gallon - a year ago prices were at $2.16 per gallon - so gasoline prices are up 12 cents per gallon year-over-year.(image)

Hotels: Occupancy Rate Down Slightly Year-over-Year


From STR: US hotel results for week ending 15 July
The U.S. hotel industry reported mostly positive year-over-year results in the three key performance metrics during the week of 9-15 July 2017, according to data from STR.

In comparison with the week of 10-16 July 2016, the industry recorded the following:

Occupancy: -0.1% to 77.4%
• Average daily rate (ADR): +1.7% to US$130.76
• Revenue per available room (RevPAR): +1.6% to US$101.15
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 is tracking close to last year, and slightly behind the record year in 2015.

For hotels, occupancy will be strong over the summer.

Data Source: STR, Courtesy of

Schedule for Week of July 23, 2017


The key economic reports this week are the advance estimate of Q1 GDP, New and Existing Home sales for June, and Case-Shiller house prices.The FOMC meets on Tuesday and Wednesday, and no change to policy is expected.----- Monday, July 24th -----10:00 AM: Existing Home Sales for June from the National Association of Realtors (NAR). The consensus is for 5.58 million SAAR, down from 5.62 million in May.The graph shows existing home sales from 1994 through the report last month.Housing economist Tom Lawler expects the NAR to report sales of 5.59 million SAAR for June.----- Tuesday, July 25th -----9:00 AM: FHFA House Price Index for May 2017. This was originally a GSE only repeat sales, however there is also an expanded index.9:00 AM ET: S&P/Case-Shiller House Price Index for May.This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the April 2017 report (the Composite 20 was started in January 2000).The consensus is for a 5.8% year-over-year increase in the Comp 20 index for May.10:00 AM: Richmond Fed Survey of Manufacturing Activity for July.----- Wednesday, July 26th -----7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.10:00 AM ET: New Home Sales for June from the Census Bureau. This graph shows New Home Sales since 1963. The dashed line is the May sales rate.The consensus is for 612 thousand SAAR, up from 610 thousand in May.2:00 PM: FOMC Meeting Announcement. No change to policy is expected at this meeting.----- Thursday, July 27th -----8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, up from 233 thousand the previous week.8:30 AM: Durable Goods Orders for June from the Census Bureau. The consensus is for a 3.2% increase in durable goods orders.8:30 AM: Chicago Fed National Activity Index for June. This is a composite index of other data.10:00 AM: the Q2 Housing Vacancies and Homeownership from the Census Bureau.11:00 AM: the Kansas City Fed manufacturing survey for July. ----- Friday, July 27th -----8:30 AM: Gross Domestic Product, 2nd quarter 2017 (Advance estimate). The consensus is that real GDP increased 2.6% annualized in Q2, up from 1.4% in Q1.10:00 AM: University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 93.1, unchanged from the preliminary reading 93.1.[...]

Oil Rigs decline slightly


A few comments from Steven Kopits of Princeton Energy Advisors LLC on July 21, 2017:
• Total US oil rigs were down 1 to 764

• Horizontal oil rigs were down 2 to 653
• $45 WTI seems sufficient to restrain US oil rig count growth

• However, shale well productivity yoy continues to surge based on early data.   If the numbers continue to hold up, $45 will soon be a ceiling, not a floor, and oil prices could fall to $39-42 / barrel WTI by this time next year
(image) Click on graph for larger image.

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

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

Q2 GDP Forecasts


From Merrill Lynch:
Next week is the annual 2017 revision to the NIPAs, which will update real GDP growth and PCE inflation since 2014. ... Updates to the underlying source data and methodology are likely to result in only slight changes to past GDP growth. The story for inflation is less clear.

More important will be 2Q GDP growth, which we expect will accelerate to 2.1%.
From Goldman Sachs:
Our Q2 GDP tracking has declined [to 1.9%]
From the Altanta Fed: GDPNow
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 is 2.5 percent on July 19, up from 2.4 percent on July 14.
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 2.0% for 2017:Q2 and 2.0% for 2017:Q3.
CR Note: Looks like real GDP growth will be around 2% in Q2.(image)

Goldman: FOMC Preview


The FOMC will meet on Tuesday and Wednesday next week, and no change to policy is expected.

Here are a few brief excerpts from a note by Goldman Sachs economist David Mericle: FOMC Preview
We do not expect any policy changes at the July FOMC meeting and expect only limited changes to the post-meeting statement. The statement is likely to upgrade the description of job growth, but might also recognize that inflation has declined further. We think the statement is also likely to acknowledge that the balance sheet announcement is now closer at hand.

Looking ahead, we continue to expect the FOMC to announce the start of balance sheet normalization in September. We see a 5% probability that the next rate hike will come in September, a 5% probability that it will come in November, and a 50% probability that it will come in December, for a 60% cumulative probability of at least three hikes this year.

BLS: Unemployment Rates Lower in 10 states in June, Two States at New Series Lows


From the BLS: Regional and State Employment and Unemployment Summary
Unemployment rates were lower in June in 10 states, higher in 2 states, and stable in 38 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Twenty-seven states had jobless rate decreases from a year earlier and 23 states and the District had little or no change. The national unemployment rate, 4.4 percent, was little changed from May but was 0.5 percentage point lower than in June 2016.
Colorado and North Dakota had the lowest unemployment rates in June, 2.3 percent each. The rates in North Dakota (2.3 percent) and Tennessee (3.6 percent) set new series lows. ... Alaska had the highest jobless rate, 6.8 percent, followed by New Mexico, 6.4 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.

Note: The larger yellow markers indicate the states that reached the all time low since the end of the 2007 recession.  These ten states are: Arkansas, California, Colorado, Maine, Mississippi, North Dakota, Oregon, Tennessee, Washington, and Wisconsin.

The states are ranked by the highest current unemployment rate. Alaska, 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 two states and D.C. are at or above 6% (dark blue). The states are Alaska (6.8%) and New Mexico (6.4%).  D.C. is at 6.2%.(image)

Lawler: Early Read on Existing Home Sales in June


From housing economist Tom Lawler:

Based on publicly-available local realtor/MLS 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 5.59 million in June, down 0.5% from May’s preliminary pace and up 2.0% from last May’s seasonally adjusted pace. On the inventory front, local realtor/MLS data suggest that there was a smaller YOY decline in the number of homes for sale in June compared to May, and I project that the NAR’s estimate of the number of existing homes for sale in June will be 1.97 million, up 0.5% from May’s preliminary estimate and down 6.6% from last May’s estimate. Finally, I project that the NAR’s estimate of the median existing single-family home sales price in June will be up 6.1% from last June.

In terms of inventories, there are sizable differences in trends across markets. As an example, the California Association of Realtors’ tabulation is that active listings of existing SF homes in California last month were down 13.5% from a year earlier, compared to a YOY decline of 12.4% in May. For Texas, in contrast, the Real Estate Center at Texas A&M University reported that active residential listings in Texas last month were up 13.0% from last June, compared to a YOY increase of 10.2% in May.

CR Note: The NAR is scheduled to release existing home sales for June on Monday, July 24th. The consensus forecast is for sales of 5.62 million SAAR.(image)

NMHC: Apartment Market Tightness Index remained negative in July Survey


From the National Multifamily Housing Council (NMHC): Apartment Markets Decline Slightly in the July NMHC Quarterly Survey
All four indexes of the National Multifamily Housing Council’s (NMHC) July Quarterly Survey of Apartment Market Conditions remained slightly below the breakeven level of 50, the fourth consecutive quarter indicating softening conditions. The Market Tightness (43), Sales Volume (47), Equity Financing (46), and Debt Financing (47) Indexes all improved from April, but still hovered just below 50.

“All four indexes are below 50 but rising, suggesting that the softening is less wide-spread than in previous quarters,” said Mark Obrinsky, NMHC’s SVP of Research and Chief Economist. “Despite some softness at the high end of the apartment market—due to construction having finally ramped up to the level needed—demand for apartments will continue to be substantial for years to come.”
The Market Tightness Index edged up from 41 to 43, as almost half of respondents (48 percent) reported unchanged conditions. One-third (33 percent) of respondents saw conditions as looser than three months ago, while the remaining 19 percent reported tighter conditions. This marks the seventh consecutive quarter of overall declining conditions.
emphasis added
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading below 50 indicates looser conditions from the previous quarter. This indicates market conditions were looser over the last quarter.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010.

This is the seventh consecutive quarterly survey indicating looser conditions - it appears supply has caught up with demand - and I expect rent growth to continue to slow.(image)

Black Knight: Mortgage Delinquencies mostly unchanged in June


From Black Knight: Black Knight’ First Look at June 2017 Mortgage Data: Delinquencies Hold Steady Despite Seasonal Pressure; Low Interest Rates Help Prepayments Continue to Climb
• Despite upward seasonal pressure, mortgage delinquencies held steady at 3.8 percent in June

• While total non-current inventory saw a three percent seasonal rise over Q2 2017, the inventory of serious delinquencies (loans 90 or more days past due) and active foreclosures fell by seven percent

• In total, serious delinquencies and active foreclosures have declined by 17 percent (nearly 200,000 loans) this year

• Low interest rates helped push prepayment activity up another 5.3 percent in June, following May’s 23 percent rise
According to Black Knight's First Look report for June, the percent of loans delinquent increased slightly in June compared to May, and declined 11.8% year-over-year.

The percent of loans in the foreclosure process declined 2.7% in June and were down 27.0% 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 3.80% in June, up from 3.79% in May.

The percent of loans in the foreclosure process declined in June to 0.81%.

The number of delinquent properties, but not in foreclosure, is down 246,000 properties year-over-year, and the number of properties in the foreclosure process is down 148,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
In Foreclosure0.81%0.83%1.10%1.56%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:1,932,0001,927,0002,178,0002,415,000
Number of properties in foreclosure pre-sale inventory:410,000421,000558,000789,000
Total Properties2,342,0002,348,0002,736,0003,204,000

Earlier: Philly Fed Manufacturing Survey "Region continues to grow but at a slower pace" in July


Earlier from the Philly Fed: July 2017 Manufacturing Business Outlook Survey
Manufacturing activity in the region continues to grow but at a slower pace, according to results from the July Manufacturing Business Outlook Survey. The diffusion indexes for general activity, new orders, shipments, employment, and work hours remained positive but fell from their readings in June. Respondents also reported a moderation of price pressures this month. Firms remained generally optimistic about future growth. More than one-third of the manufacturers expect to add to their payrolls over the next six months.

The index for current manufacturing activity in the region decreased from a reading of 27.6 in June to 19.5 this month. The index has been positive for 12 consecutive months, but July’s reading is the lowest since November. ... Firms reported overall increases in manufacturing employment this month, but the current employment index fell 5 points. The index has been positive for eight consecutive months.
emphasis added
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

(image) Click on graph for larger image.

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

This suggests the ISM manufacturing index will show slower, but still solid expansion, in July.(image)

Weekly Initial Unemployment Claims decrease to 233,000


The DOL reported:
In the week ending July 15, the advance figure for seasonally adjusted initial claims was 233,000, a decrease of 15,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 247,000 to 248,000. The 4-week moving average was 243,750, a decrease of 2,250 from the previous week's revised average. The previous week's average was revised up by 250 from 245,750 to 246,000.
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 decreased to 243,750.

This was lower than the consensus forecast.

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

Thursday: Unemployment Claims, Philly Fed Mfg


From Matthew Graham at Mortgage News Daily: Mortgage Rates at 3-Week Lows
Although today's rates aren't appreciably lower than yesterday's, they're technically the best we've seen since June 28th.  More lenders are quoting top tier conventional 30yr fixed rates of 4.0% instead of 4.125%, and some of the aggressive lenders are back down to 3.875%.
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 245 thousand initial claims, down from 247 thousand the previous week.

• Also at 8:30 AM, the Philly Fed manufacturing survey for July. The consensus is for a reading of 23.5, down from 27.6.(image)

Comments on June Housing Starts


Earlier: Housing Starts increased to 1.215 Million Annual Rate in JuneThe housing starts report released this morning showed starts were up 8.3% in June compared to May, and were up 2.1% year-over-year compared to June 2016.  This was a solid report and was above the consensus forecast.Note that multi-family starts are volatile month-to-month, and has seen wild swings over the last year.This first graph shows the month to month comparison between 2016 (blue) and 2017 (red).Click on graph for larger image.Starts were up 2.1% in June 2017 compared to June 2016, and starts are up 6.0% year-to-date. Note that single family starts are up 10.7% 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 been generally catching up (more deliveries).  Completions lag starts by about 12 months.I think the growth in multi-family starts is behind us - in fact, multi-family starts probably peaked in June 2015 (at 510 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics).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. [...]

AIA: Architecture Billings Index positive in June


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

From the AIA: Architecture firms end second quarter on a strong note
For the fifth consecutive month, architecture firms recorded increasing demand for design services as reflected in the June Architecture Billings Index (ABI). 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 June ABI score was 54.2, up from a score of 53.0 in the previous month. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 58.6, down from a reading of 62.4 the previous month, while the new design contracts index decreased from 54.8 to 53.7.

“So far this year, new activity coming into architecture firms has generally exceeded their ability to complete ongoing projects,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Now, firms seem to be ramping up enough to manage these growing workloads.”
• Regional averages: South (54.8), West (53.1), Midwest (51.9), Northeast (51.5)

• Sector index breakdown: multi-family residential (57.1), mixed practice (53.8), institutional (52.6), commercial / industrial (52.1)
emphasis added
(image) Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 54.2 in June, up from 53.0 the previous month. 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 and early 2018.(image)

Housing Starts increased to 1.215 Million Annual Rate in June


From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,215,000. This is 8.3 percent above the revised May estimate of 1,122,000 and is 2.1 percent above the June 2016 rate of 1,190,000. Single-family housing starts in June were at a rate of 849,000; this is 6.3 percent above the revised May figure of 799,000. The June rate for units in buildings with five units or more was 359,000.

Building Permits:
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,254,000. This is 7.4 percent above the revised May rate of 1,168,000 and is 5.1 percent above the June 2016 rate of 1,193,000. Single-family authorizations in June were at a rate of 811,000; this is 4.1 percent above the revised May figure of 779,000. Authorizations of units in buildings with five units or more were at a rate of 409,000 in June.
emphasis added
(image) Click on graph for larger image.

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

Multi-family starts (red, 2+ units) increased in June compared to May.  Multi-family starts are down 13% year-over-year.

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

Single-family starts (blue) increased in May, and are up 10.3% 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 June were above expectations, and starts for May were revised up.    This was a solid report.  I'll have more later ...(image)

MBA: Mortgage Applications Increase in Latest Weekly Survey


From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey
Mortgage applications increased 6.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 14, 2017. Last week’s results included an adjustment for the Fourth of July holiday.

... The Refinance Index increased 13 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 27 percent compared with the previous week and was 7 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 4.22 percent, with points decreasing to 0.31 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
(image) Click on graph for larger image.

The first graph shows the refinance index since 1990.

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

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

According to the MBA, purchase activity is up 7% year-over-year.(image)

Wednesday: Housing Starts


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

• At 8:30 AM, Housing Starts for June. The consensus is for 1.170 million SAAR, up from the May rate of 1.092 million.

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

Housing and Policy


The NAHB Builder confidence survey declined this morning (although still solid), and the NAHB blamed the rising prices, especially for lumber. As Diana Olick noted on CNBC: Builder confidence jumped 6 points from November to December (63 to 69) and then jumped again to 71 in March, following the administration's repeal of certain environmental regulations specifically involving water.Now, new tariffs on Canadian lumber of up to 24 percent announced by the Trump administration in May, as well as the expectation of additional tariffs on other homebuilding materials imported from overseas, are overtaking the benefits of deregulation. The cost of framing lumber has spiked in recent months and continues to rise today, which only exacerbates already rising prices for land and skilled labor.Those tariffs are impacting lumber prices.Click on graph for larger image in graph gallery.This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through June 2017 (via NAHB), and 2) CME framing futures.Right now Random Lengths prices are up 14% from a year ago, and CME futures are up about 18% year-over-year.And immigration policy will likely slow household formation. Housing economist Tom Lawler wrote an excellent article last month: Lawler: Reasonable Population Projections Are Important!. Here are some excepts (look at the table and see how important immigration is for household formation).From Tom Lawler:[B]elow is a table of what labor force growth and US household formations would be under each scenario if (1) labor force participation rates by age remained constant at 2016 levels; and (2) household headship rates by age remain constant at my “best guess” rates for 2016 (there are no good, reliable data on households since 2010, but that is a different story!). I realize, of course, that holding labor force participation rates and headship rates by age constant is not a “best guess” projection, but I’m just trying to show sensitivities to different population assumptions.Annual Growth Rate in the US Labor Force Assuming Constant Labor Force Participation Rates by Age201820192020Zero Net International Migration0.04%0.02%-0.01%NIM of 700,000/year0.28%0.27%0.24%Census 2014 Projections0.50%0.50%0.48%US Household Growth Assuming Constant Headship Rates by Age201820192020Zero Net International Migration1,026,077966,155924,937NIM of 700,000/year1,231,9951,180,9161,148,645Census 2014 Projections1,485,2781,455,6151,442,362As the table suggests, analysts using the extremely dated Census 2014 population projections would conclude that the US would have “decent” labor force growth and quite strong US household growth over the next three years. Contrary to what some analysts suggest, however, that strong growth is not in the main the result of the current “demographics” of the population, but rather is mainly the result of what are now clearly unrealistically high assumptions about net international migration. If instead the US had zero net international migration of the next three years, the US labor force would show no growth unless labor force participation rates increased, and US household growth would average less than one million per year unless headship rates increased. Not surprisingly, a “sorta Trumpy” scenario of net international migration of 700,000 a year – probably the closest there is a a “base case” scenario” produces projections about half way in between these two extremes.From a policy perspective, it is possible that deregulation could give a boost to housing (and also changes in [...]

NAHB: Builder Confidence decreased to 64 in July


The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 64 in July, down from 66 in June. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Slips Two Points in July, Remains Solid
Builder confidence in the market for newly-built single-family homes slipped two points in July to a level of 64 from a downwardly revised June reading on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). It is the lowest reading since November 2016.

“Our members are telling us they are growing increasingly concerned over rising material prices, particularly lumber,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “This is hurting housing affordability even as consumer interest in the new-home market remains strong.”

“The HMI measure of current sales conditions has been at 70 or higher for eight straight months, indicating strong demand for new homes,” said NAHB Chief Economist Robert Dietz. “However, builders will need to manage some increasing supply-side costs to keep home prices competitive.”
All three HMI components registered losses in July but are still in solid territory. The components gauging current sales conditions fell two points to 70 while the index charting sales expectations in the next six months dropped two points to 73. Meanwhile, the component measuring buyer traffic slipped one point to 48.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 47. The West and Midwest each edged one point lower to 75 and 66, respectively. The South dropped three points to 67.
emphasis added
(image) Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

Note: Both Trump's trade and immigration policies are bad for housing.

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

Tuesday: Homebuilder Survey


From Matthew Graham at Mortgage News Daily: Mortgage Rates Higher Despite Friendly Market Movement
Mortgage rates are largely dictated by movements in bond markets--specifically mortgage-backed securities (MBS).  When bonds improve, prices rise and investors are willing to pay more to buy loans.  This results in rates moving lower.  In other words, bond market improvement = lower rates.

With all of that in mind, today is a bit of a paradox as the average lender is quoting slightly higher rates today, despite general improvements in bond markets.  Nothing too terribly mysterious is at work here though.  The inconsistency has more to do with the timing of Friday's market movements and the generally narrow range over the past four days.  Specifically, bonds weakened progressively into Friday afternoon and most lenders never fully adjusted rate sheets to account for that weakness.   This left the average lender at a disadvantage to begin the new week and today's gains in bond markets weren't enough to offset it.

The most prevalently-quoted conventional 30yr fixed rates remain in a range from 4.0%-4.125% on top tier scenarios.  Most clients will not see any change in the "rate" side of the equation compared to Friday, thus implying moderately higher upfront costs.  
• At 10:00 AM ET, The July NAHB homebuilder survey. The consensus is for a reading of 68, up from 67 in June. Any number above 50 indicates that more builders view sales conditions as good than poor.(image)

LA area Port Traffic increased in June


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 0.5% compared to the rolling 12 months ending in May.   Outbound traffic was down 0.1% compared to the rolling 12 months ending in May.

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 moving sideways.(image)

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


The following graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the June 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 2016.

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 402 thousand SAAR in June 2017.>(image)

NY Fed: Manufacturing Activity "grew modestly" in July


From the NY Fed: Empire State Manufacturing Survey
Business activity grew modestly in New York State, according to firms responding to the July 2017 Empire State Manufacturing Survey. The headline general business conditions index fell ten points to 9.8. The new orders index moved down to 13.3, and the shipments index fell to 10.5, suggesting that orders and shipments continued to grow, though at a somewhat slower pace than in June. ...
The index for number of employees fell for a third consecutive month, though it remained positive at 3.9 — a sign that employment was growing, but not as rapidly as in earlier months. The average workweek index fell to zero, indicating that hours worked remained the same. ...

Indexes assessing the six-month outlook remained favorable, though firms were somewhat less optimistic about future conditions than in June.
emphasis added
This was below the consensus forecast of a reading of 15.0.(image)

Sunday Night Futures


Schedule for Week of July 16, 2017

• At 8:30 AM ET, The New York Fed Empire State manufacturing survey for July. The consensus is for a reading of 15.0, down from 19.8.

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

Oil prices were up over the last week with WTI futures at $46.61 per barrel and Brent at $48.91 per barrel.  A year ago, WTI was at $46, and Brent was at $46 - so oil prices are up slightly year-over-year.

Here is a graph from for nationwide gasoline prices. Nationally prices are at $2.24 per gallon - a year ago prices were at $2.22 per gallon - so gasoline prices are up slightly year-over-year.(image)