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Finance and Economics

Updated: 2017-02-19T10:25:02.014-05:00


Demographics and GDP


Two years ago I wrote: Demographics and GDP: 2% is the new 4%. As I noted, "One simple way to look at the change in GDP is as the change in the labor force, times the change in productivity. If the labor force is growing quickly, GDP will be higher with the same gains in productivity. And the opposite is true."

Obviously demographics are important for GDP.

Last week, Goldman Sachs economist Daan Struyven wrote: Immigration Restrictions: A Downside Risk to the Economy's Speed Limit. Here are few excerpts from his note:
The contribution from net immigration to total population growth has risen from 30% in the 1990s to 40-50% recently as the natural increase in population has slowed. The effect of immigration on growth of the labor force is even more pronounced as immigrants tend to be younger and therefore more likely to participate in the labor force than the native-born population. As a result, net immigration currently accounts for virtually all of the 0.5% trend increase in the labor force.

Reduced immigration would result in slower labor force growth and therefore slower growth in potential GDP—the economy’s “speed limit”. In addition, academic studies suggest there could be negative knock-on effects on productivity growth. As a result, we see immigration restrictions as an important source of downside risk to our 1.75% estimate of potential growth.
As Struyven notes, immigrations restrictions will lower potenetial GDP.

And yesterday, Professor Krugman wrote: Trump’s Rosy Scenario
The claimed returns to Trumpnomics are close to the highest growth rates we’ve seen under any modern administration. Real GDP grew 3.4 percent annually under Reagan; it grew 3.7 percent annually under Clinton ... But there are fundamental reasons to believe that such growth is unlikely to happen now.

First, demography: Reagan took office with baby boomers — and women — still entering the work force; these days baby boomers are leaving. ... Just on demography alone, then, you’d expect growth to be around a percentage point lower than it was under Reagan.
CR Note: It seems very unlikely that growth will pick up sharply, especially if there are severe immigration restrictions.(image)

Schedule for Week of Feb 19, 2017


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

----- Monday, Feb 20th -----

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

----- Tuesday, Feb 21st-----

No major economic releases scheduled.

----- Wednesday, Feb 22nd -----

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

(image) 10:00 AM: Existing Home Sales for January from the National Association of Realtors (NAR). The consensus is for 5.55 million SAAR, up from 5.49 million in December.

Housing economist Tom Lawler expects the NAR to report sales of 5.60 million SAAR in January.

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

2:00 PM: FOMC Minutes for the Meeting of January 31-February 1, 2017

----- Thursday, Feb 23rd -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 240 thousand initial claims, up from 239 thousand the previous week.

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

9:00 AM: FHFA House Price Index for December 2016. This was originally a GSE only repeat sales, however there is also an expanded index.

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

----- Friday, Feb 24th -----

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

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

The consensus is for a increase in sales to 573 thousand Seasonally Adjusted Annual Rate (SAAR) in January from 536 thousand in December.

10:00 AM: University of Michigan's Consumer sentiment index (final for February). The consensus is for a reading of 96.0, up from the preliminary reading 95.7.(image)

Lawler: Early Read on Existing Home Sales in January


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

Based on publicly-available state and/or local realtor/MLS reports 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 5.60 million, up 2.0% from December’s preliminary pace and up 2.4% from last January’s seasonally-adjusted pace. Unadjusted sales should show a larger YOY gain, reflecting the higher business day count this January compared to last January. Remember that in the January report the NAR will update its seasonal factors (and as a result its seasonally adjusted sales figures) both for last year and for the previous several years.

Realtor data suggest that the YOY decline in existing homes for sale was larger in January than in December, and I project that the NAR’s inventory estimate will be 1,650, unchanged from the preliminary December estimate and down 9.3% from last January. Finally, realtor data suggest that the median existing SF home sales price in January was up about 6.1% from last January.

CR Note: The NAR is scheduled to release January existing home sales on Wednesday, February 22nd. The consensus is the NAR will report sales of 5.55 million SAAR. (image)

AAR: Rail Traffic increased in January


From the Association of American Railroads (AAR) Rail Time Indicators. Graphs and excerpts reprinted with permission.
January 2017 wasn’t a great start of the year for U.S. rail traffic, but it wasn’t terrible either. Total carloads were up 2.9% (28,341) over last January, thanks mainly to a 35,798 (11.9%) increase in carloads of coal. ... Intermodal was down 1.8% on U.S. railroads in January 2017, but it was still the second-best January for intermodal on record.
(image) Click on graph for larger image.

This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Dark blue is 2017.

Rail carloads have been weak over the last decade due to the decline in coal shipments.
U.S. railroads originated 996,573 total carloads in the four weeks of January 2017, up 2.9% (28,341 carloads) over January 2016. ...

Coal carloads were up 11.9% (35,798 carloads) in January 2017. Coal carloads had fallen so low last year there didn’t seem to be anywhere to go but up.
(image) The second graph is for intermodal traffic (using intermodal or shipping containers):
U.S. intermodal volume in January 2017 was down 1.8% from January 2016, as a 1.7% decline in containers joined a 3.0% decline in trailers. Still, weekly average volume of 255,267 containers and trailers in January 2017 was the second highest (behind last year) for January in history.

Quarterly Housing Starts by Intent


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

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

The quarterly report released last week showed there were 138,000 single family starts, built for sale, in Q4 2016, and that was above the 126,000 new homes sold for the same quarter, so inventory increased in Q4 (Using Not Seasonally Adjusted data for both starts and sales).

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

(image) Click on graph for larger image.

Single family starts built for sale were up about 17% compared to Q4 2015.

Owner built starts were unchanged year-over-year. And condos built for sale not far above the record low.

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

Phoenix Real Estate in January: Sales up 16%, Inventory down 8%


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 January were up 15.9% year-over-year.

2) Cash Sales (frequently investors) were down to 27.1% of total sales.

3) Active inventory is now down 7.7% 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 third consecutive month with a YoY decrease in inventory following eight months with YoY increases.  This might be a change in trend - something to watch.

January Residential Sales and Inventory, Greater Phoenix Area, ARMLS
1 January 2008 probably included pending listings

Comments on January Housing Starts


Earlier: Housing Starts at 1.246 Million Annual Rate in JanuaryThe housing starts report released this morning showed starts were down in January compared to December 2016, however starts in December (and November) were revised up sharply.  Starts in January were actually somewhat above consensus - and above the preliminary release for December.Note that multi-family is frequently volatile month-to-month, and has seen especially wild swings over the last five months.  Single family starts were solid in January.This first graph shows the month to month comparison between 2016 (blue) and 2017 (red).Click on graph for larger image.Starts were up 10.5% in January 2017 compared to January 2016. My guess is starts will increase around 3% to 7% in 2017.This is a solid start to 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 started to decline.  Completions (red line) have lagged behind - but completions have been generally catching up (more deliveries, although this has dipped lately).  Completions lag starts by about 12 months.I think most of the growth in multi-family starts is probably 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 several years ago, and now I expect a few years of increasing single family starts and completions.[...]

NY Fed: Household Debt Increases Substantially, Approaching Previous Peak


The Q4 report was released today: Household Debt and Credit Report.From the NY Fed: Household Debt Increases Substantially, Approaching Previous Peakhe Federal Reserve Bank of New York today issued its Quarterly Report on Household Debt and Credit, which reported that total household debt increased substantially by $226 billion (a 1.8% increase) to $12.58 trillion during the fourth quarter of 2016. This marked the largest quarterly increase in total household debt since the fourth quarter of 2013, and debt today is now just 0.8% below its peak of $12.68 trillion reached in the third quarter of 2008. Every type of debt increased since the previous quarter, with a 1.6% increase in mortgage debt, 1.9% increase in auto loan balances, a 4.3% increase in credit card balances, and a 2.4% percent increase in student loan balances. This boost in balances was in part driven by new extensions of credit, with a large increase in the volume of mortgage originations and a continuation in the strong recent trend in auto loan originations. This report is based on data from the New York Fed's Consumer Credit Panel, a nationally representative sample of individual- and household-level debt and credit records drawn from anonymized Equifax credit data.... Mortgage balances increased and mortgage originations reached the highest level seen since the beginning of the Great Recession.Mortgage delinquencies remained mostly unchanged and the delinquency transition rates for current mortgage accounts improved slightly.New foreclosure notations reached another new low for the 18-year history of this series....Overall delinquency rates were roughly stable this quarter.This quarter saw the lowest number of bankruptcy notations in the 18-year history of this series, continuing an overall downward trend since the financial crisis.emphasis added Click on graph for larger image.Here are two graphs from the report:The first graph shows aggregate consumer debt increased in Q4.  Household debt peaked in 2008, and bottomed in Q2 2013.Mortgage debt increased in Q4, from the NY Fed:Mortgage balances, the largest component of household debt, increased during the fourth quarter. Mortgage balances shown on consumer credit reports on December 31 stood at $8.48 trillion, an increase of $130 billion from the third quarter of 2016. The second graph shows the percent of debt in delinquency. There is still a larger than normal percent of debt 90+ days delinquent (Yellow, orange and red).The overall delinquency rate was mostly unchanged in Q4.  From the NY Fed: Delinquency rates were roughly stable in the last quarter of 2016, with a small uptick in severely derogatory balances offset by a modest improvement in 30 days delinquent balances. As of December 31st, 4.8% of outstanding debt was in some stage of delinquency. Of the $607 billion of debt that is delinquent, $412 billion is seriously delinquent (at least 90 days late or “severely derogatory”).[...]

Philly Fed: Manufacturing Conditions Continued to Improve in February


Earlier from the Philly Fed: Manufacturing Conditions Continued to Improve in February
Results from the February Manufacturing Business Outlook Survey suggest that growth in regional manufacturing is broadening. The diffusion indexes for general activity, new orders, and shipments were all positive this month and increased notably from their readings last month. The surveyed firms continued to report growth in employment and work hours. Although they moderated from last month, the future indexes for growth over the next six months continued to reflect a high degree of optimism.
The index for current manufacturing activity in the region increased from a reading of 23.6 in January to 43.3 this month and has remained positive for seven consecutive months. ...
Firms continued to report overall increases in manufacturing employment this month. ... The current employment index fell 2 points but has now registered its third consecutive positive reading. Firms reported an increase in work hours this month: The average workweek index increased 7 points and has now been positive for four consecutive months.
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

(image) Click on graph for larger image.

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

It seems likely the ISM manufacturing index will show faster expansion again in February.(image)

Weekly Initial Unemployment Claims increase to 239,000


The DOL reported:
In the week ending February 11, the advance figure for seasonally adjusted initial claims was 239,000, an increase of 5,000 from the previous week's unrevised level of 234,000. The 4-week moving average was 245,250, an increase of 500 from the previous week's revised average. The previous week's average was revised up by 500 from 244,250 to 244,750.
emphasis added
The previous week was unrevised.

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

(image) Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 245,250.

This was below the consensus forecast.

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

Housing Starts at 1.246 Million Annual Rate in January


From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately-owned housing starts in January were at a seasonally adjusted annual rate of 1,246,000. This is 2.6 percent below the revised December estimate of 1,279,000, but is 10.5 percent above the January 2016 rate of 1,128,000. Single-family housing starts in January were at a rate of 823,000; this is 1.9 percent above the revised December figure of 808,000. The January rate for units in buildings with five units or more was 421,000.

Building Permits:
Privately-owned housing units authorized by building permits in January were at a seasonally adjusted annual rate of 1,285,000. This is 4.6 percent above the revised December rate of 1,228,000 and is 8.2 percent above the January 2016 rate of 1,188,000. Single-family authorizations in January were at a rate of 808,000; this is 2.7 percent below the revised December figure of 830,000. Authorizations of units in buildings with five units or more were at a rate of 446,000 in January.
emphasis added
(image) Click on graph for larger image.

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

Multi-family starts (red, 2+ units) decreased in January compared to December.  Multi-family starts are up year-over-year.

Multi-family is volatile, and the swings have been huge over the last five months.

Single-family starts (blue) increased in January, and are up 6% year-over-year.

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

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

Total housing starts in January were above expectations.  Also November and December were revised up sharply.  Another solid report.  I'll have more later ...(image)

Thursday: Housing Starts, Philly Fed Mfg, Q4 Household Debt and Credit


From Matthew Graham at Mortgage News Daily: Mortgage Rates Approach 3-Week Highs
Mortgage rates rose for the 5th day in a row following a higher reading in this morning's inflation data and an upbeat Retail Sales report. ... Today's increase brings mortgage rates close to their highest level in 3 weeks. You'd have to go back to January 25th to see worse. That said, "worse" is a relative term. Both then and now, a top tier scenario would result in a conventional 30yr fixed rate of 4.25%. Today's upfront costs would be just slightly lower. Only a few lenders remain at 4.125% on comparable scenarios and several have moved up to 4.375%.
emphasis added
• At 8:30 AM, 8:30 AM: Housing Starts for January. The consensus is for 1.232 million, up from the December rate of 1.226 million.

• Also at 8:30 AM, the Philly Fed manufacturing survey for February. The consensus is for a reading of 23.6, up from 19.3.

• At 11:00 AM, The New York Fed will release their Q4 2016 Household Debt and Credit Report(image)

MBA: Mortgage Delinquencies Increased in Q4, Foreclosures Decreased


From the MBA: Delinquencies Increase in Fourth Quarter from Ten-Year Lows, Foreclosure Starts Continue Decline in Latest MBA Mortgage Delinquency SurveyThe delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 4.80 percent of all loans outstanding at the end of the fourth quarter of 2016. The delinquency rate was up 28 basis points from the previous quarter, and was three basis points higher than one year ago, according to the Mortgage Bankers Association's (MBA) National Delinquency Survey.The percentage of loans on which foreclosure actions were started during the fourth quarter was 0.28 percent, a decrease of two basis points from the previous quarter, and eight basis points lower than one year ago. This is the lowest rate of new foreclosures started since the fourth quarter of 1988.The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the fourth quarter was 1.53 percent, down two basis points from the third quarter and 24 basis points lower than one year ago. This was the lowest foreclosure inventory rate since the second quarter of 2007.The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 3.13 percent, an increase of 17 basis points from last quarter, and a decrease of 31 basis points from last year.Marina Walsh, MBA's Vice President of Industry Analysis, offered the following commentary on the survey: "We saw a mixed set of results in the most recent survey. Mortgage delinquencies increased in the fourth quarter for the first time since 2013, while both new foreclosure starts and the percentage of loans in foreclosure continued to decline. "The overall delinquency rate in the fourth quarter increased across all loan types - FHA, VA and conventional - as compared to the third quarter. However, it should be noted that last quarter's overall delinquency rate was at its lowest level since 2006. It is not unexpected that delinquencies could eventually increase off such a low base. We continue to see strong fundamentals in the overall economy, such as rising home values and increased employment, which bodes well for the future performance of FHA, VA and conventional loans.emphasis added Click on graph for larger image.This graph shows the percent of loans delinquent by days past due.Note that the total percent delinquencies and foreclosures is below the 2002 level.The percent of loans 30 and 60 days delinquent increased in Q4, but is below the normal historical level.The 90 day bucket increased in Q4, and remains a little elevated.The percent of loans in the foreclosure process continues to decline, but is still above the historical average.The 90 day bucket and foreclosure inventory are still elevated, but should be close to normal in 2017.   Most other mortgage measures are already back to normal, but the lenders are still working through the backlog of bubble legacy loans.[...]

Key Measures Show Inflation close to 2% in January


The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% (3.3% annualized rate) in January. The 16% trimmed-mean Consumer Price Index also rose 0.3% (3.7% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.6% (6.8% annualized rate) in January. The CPI less food and energy rose 0.3% (3.8% annualized rate) on a seasonally adjusted basis.
Note: The Cleveland Fed released the median CPI details for January here. Motor fuel was up 149% annualized in January!

(image) Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.5%, the trimmed-mean CPI rose 2.2%, and the CPI less food and energy rose 2.3%. Core PCE is for December and increased 1.7% year-over-year.

On a monthly basis, median CPI was at 3.3% annualized, trimmed-mean CPI was at 3.7% annualized, and core CPI was at 3.8% annualized.

Using these measures, inflation has generally been moving up, and most of these measures are above the Fed's 2% target (Core PCE is still below).(image)

NAHB: Builder Confidence decreased to 65 in February


The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 65 in February, down from 67 in January. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Continues to Settle Back to Sustainable Levels in February
Builder confidence in the market for newly-built single-family homes declined two points in February to a level of 65 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).
“With much of the decline this month resulting from a decrease in buyer traffic, builders continue to struggle to minimize costs while dealing with supply side challenges such as a lack of developed lots and labor shortages,” said NAHB Chief Economist Robert Dietz. “Despite these constraints, the overall housing market fundamentals remain strong and we expect to see continued growth this year as some of these concerns are addressed.”

All three HMI components fell in February. The component gauging current sales conditions dipped one point to 71, and the index charting sales expectations in the next six months registered a three-point decline to 73. The component measuring buyer traffic dropped five points to 46.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell two points to 50 and the Midwest rose one point to 65. The South dipped one point to 67 and the West held steady at 79 for the third month in a row.
emphasis added
(image) Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was below the consensus forecast of 68, but still another solid reading.(image)

Industrial Production decreased 0.3% in January


From the Fed: Industrial production and Capacity Utilization
Industrial production decreased 0.3 percent in January following a 0.6 percent increase in December. In January, manufacturing output moved up 0.2 percent, and mining output jumped 2.8 percent. The index for utilities fell 5.7 percent, largely because unseasonably warm weather reduced the demand for heating. At 104.6 percent of its 2012 average, total industrial production in January was at about the same level as it was a year earlier. Capacity utilization for the industrial sector fell 0.3 percentage point in January to 75.3 percent, a rate that is 4.6 percentage points below its long-run (1972–2016) average.
emphasis added
(image) Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 8.8 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 75.3% is 4.6% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.

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

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

Industrial production decreased in January to 104.6. This is 19.7% above the recession low, and is close to the pre-recession peak.

This was below expectations of no change, but December was revised up.(image)

Retail Sales increased 0.4% in January


On a monthly basis, retail sales increased 0.4 percent from December to January (seasonally adjusted), and sales were up 5.6 percent from January 2016.

From the Census Bureau report:
Advance estimates of U.S. retail and food services sales for January 2017, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $472.1 billion, an increase of 0.4 percent from the previous month, and 5.6 percent above January 2016. ... The November 2016 to December 2016 percent change was revised from up 0.6 percent to up 1.0 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 0.2% in January.

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

(image) Retail and Food service sales, ex-gasoline, increased by 4.7% on a YoY basis.

The increase in January was above expectations, and sales for December were revised up. A solid report.(image)

MBA: Mortgage Applications Decrease in Latest Weekly Survey


From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
Mortgage applications decreased 3.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 10, 2017.

... The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 3 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) decreased to 4.32 percent from 4.35 percent, with points remaining unchanged at 0.34 (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 decrease 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 recent increase in mortgage rates, purchase activity is still holding up - and up 3 percent from the same week one year ago.

However refinance activity has declined significantly.(image)

Wednesday: Yellen, Retail Sales, CPI, Industrial Production, Homebuilder Confidence, Empire State Mfg


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

• At 8:30 AM, Retail sales for January will be released.  The consensus is for 0.1% increase in retail sales in January.

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

• Also at 8:30 AM, The New York Fed Empire State manufacturing survey for February. The consensus is for a reading of 7.5, up from 6.5.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for January. The consensus is for no change in Industrial Production, and for Capacity Utilization to be unchanged at 75.5%.

• At 10:00 AM, Testimony by Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

• Also at 10:00 AM, The February NAHB homebuilder survey. The consensus is for a reading of  68, up from 67 in January. Any number above 50 indicates that more builders view sales conditions as good than poor.

• Also at 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for December.  The consensus is for a 0.4% increase in inventories.(image)

LA area Port Traffic "Surges" in January


From the Port of Long Beach: Port Traffic Surges In JanuaryRenewed activity at the Port of Long Beach’s largest terminal and extra ships calling ahead of the Lunar New Year pushed cargo 8.7 percent higher in January compared to the same month a year ago....The month’s total container traffic growth was notable since TEU traffic in January 2016 jumped 25 percent from the same month in 2015.“It was a tough benchmark, so we’re very happy with the way the new year is starting in Long Beach,” said Board of Harbor Commissioners President Lori Ann Guzmán.From the Port of Los Angeles: Port of Los Angeles Records Busiest January in Port's 110-Year HistoryThe Port of Los Angeles handled 826,640 Twenty-Foot Equivalent Units (TEUs) in January 2017, an increase of 17.4 percent compared to January 2016. It was the busiest January in the port’s 110-year history, outpacing last January, which was the previous record for the first month of the year. It was also the second-best month overall for the Port, eclipsed only by last November’s 877,564 TEUs."Coming off our best year ever in 2016, it’s very encouraging to keep the momentum going into 2017,” said Port of Los Angeles Executive Director Gene Seroka. ...The January surge is due in part to retail stores replenishing inventories after the holidays, a trend of increased U.S. exports and cargo ships calling ahead of the Lunar New Year, when goods from Asia slow down considerably. 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. Click on graph for larger image.On a rolling 12 month basis, inbound traffic was up 0.9% compared to the rolling 12 months ending in December.   Outbound traffic was up 1.4% compared to 12 months ending in December.The downturn in exports in 2015 was probably due to the slowdown in China and the stronger dollar.  Now exports are picking up again, The 2nd graph is the monthly data (with a strong seasonal pattern for imports).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.[...]

Yellen: Semiannual Monetary Policy Report to the Congress


Federal Reserve Chair Janet Yellen testimony "Semiannual Monetary Policy Report to the Congress" Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.. A few excepts:Since my appearance before this Committee last June, the economy has continued to make progress toward our dual-mandate objectives of maximum employment and price stability. In the labor market, job gains averaged 190,000 per month over the second half of 2016, and the number of jobs rose an additional 227,000 in January. Those gains bring the total increase in employment since its trough in early 2010 to nearly 16 million. In addition, the unemployment rate, which stood at 4.8 percent in January, is more than 5 percentage points lower than where it stood at its peak in 2010 and is now in line with the median of the Federal Open Market Committee (FOMC) participants' estimates of its longer-run normal level. A broader measure of labor underutilization, which includes those marginally attached to the labor force and people who are working part time but would like a full-time job, has also continued to improve over the past year. In addition, the pace of wage growth has picked up relative to its pace of a few years ago, a further indication that the job market is tightening. Importantly, improvements in the labor market in recent years have been widespread, with large declines in the unemployment rates for all major demographic groups, including African Americans and Hispanics. Even so, it is discouraging that jobless rates for those minorities remain significantly higher than the rate for the nation overall.Ongoing gains in the labor market have been accompanied by a further moderate expansion in economic activity. U.S. real gross domestic product is estimated to have risen 1.9 percent last year, the same as in 2015. Consumer spending has continued to rise at a healthy pace, supported by steady income gains, increases in the value of households' financial assets and homes, favorable levels of consumer sentiment, and low interest rates. Last year's sales of automobiles and light trucks were the highest annual total on record. In contrast, business investment was relatively soft for much of last year, though it posted some larger gains toward the end of the year in part reflecting an apparent end to the sharp declines in spending on drilling and mining structures; moreover, business sentiment has noticeably improved in the past few months. In addition, weak foreign growth and the appreciation of the dollar over the past two years have restrained manufacturing output. Meanwhile, housing construction has continued to trend up at only a modest pace in recent quarters. And, while the lean stock of homes for sale and ongoing labor market gains should provide some support to housing construction going forward, the recent increases in mortgage rates may impart some restraint.Inflation moved up over the past year, mainly because of the diminishing effects of the earlier declines in energy prices and import prices. Total consumer prices as measured by the personal consumption expenditures (PCE) index rose 1.6 percent in the 12 months ending in December, still below the FOMC's 2 percent objective but up 1 percentage point from its pace in 2015. Core PCE inflation, which excludes the volatile energy and food prices, moved up to about 1-3/4 percent.My colleagues on the FOMC and I expect the economy to continue to expand at a moderate pace, with the job market strengthening somewhat further and inflat[...]

NFIB: Small Business Optimism Index increased slightly in January


Earlier from the National Federation of Independent Business (NFIB): National Federation of Independent Business Monthly Survey Shows Another Gain in Small Business Optimism
Small business optimism rose again in January to its highest level since December 2004, suggesting that the post-election surge has staying power, according to the monthly National Federation of Independent Business (NFIB) Index of Small Business Optimism, released today.
The Index reached 105.9 in January, an increase of 0.1 points. The uptick follows the largest month-over-month increase in the survey’s history. Five of the Index components increased and five decreased, but many held near their record high.
[T]he seasonally adjusted average employment change per firm posting a gain of 0.15 workers per firm, the best reading since September 2015 and historically, a strong showing. ... Fifty-three percent reported hiring or trying to hire (up 2 points), but 47 percent reported few or no qualified applicants for the positions they were trying to fill. Fifteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem (up 3 points).
emphasis added
(image) Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 105.9 in January.

This is the highest level since 2004.(image)

Tuesday: Yellen, PPI


• At 6:00 AM ET, NFIB Small Business Optimism Index for January.

• At 8:30 AM, The Producer Price Index for January from the BLS. The consensus is for 0.3% increase in PPI, and a 0.2% increase in core PPI.

• At 10:00 AM, Testimony by Fed Chair Janet Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.(image)

Lawler: Some Data on Institutional Holdings of Single-Family Properties


From housing economist Tom Lawler: Some Data on Institutional Holdings of Single-Family PropertiesInvitation Homes, Blackstone Group’s single-family rental operator, recently went public, and its prospectus included some information on its portfolio of single-family rental properties. Other publicly-traded entities in the single-family rental business also provide such information, and I figured I’d compile some data.Here is a table showing the number of single-family homes owned by selected publicly-traded companies (or subsidiaries of such companies). These totals include homes held for sale.Single-Family Homes Owned by Selected Institutions, 9/30/2016  NumberAvg. Sq. Ft.Invitation Homes48,4311,844American Homes 4 Rent48,1581,959Colony Starwood Homes31,5571,849Silver Bay Realty Trust Corp.*8,9741,645Tricon American Homes8,0061,521Total145,1261,853*Silver Bay reported 8,837 SF homes, but the total excluded homes for sale, which I have estimatedAmerican Homes 4 Rent merged with American Residential Properties, Inc. in 2006, and that merger involved the “acquisition” of about 8,938 homes, bringing AH4R’s total property holdings to about the same as Invitation Homes.Below is a table showing the geographic distribution of single-family homes held by these institutions. Note that reporting by “geographic market” in some cases varies by institution. E.g., one institution combines Charlotte and Raleigh, NC into one market, while another breaks those markets out separately. Also, two institutions have an “other” category – American Homes 4 Rent (a significant number of homes owned are in this category) and Colony Starwood Homes.Single Family Property Holdings of Certain Institions by Market, 9/30/2016InvitationHomesAmericanHomes4 RentColonyStarwoodHomesSilverBayRealtyTrustTricomAmericanHomesTotalWest  Southern CA4,6332,7942807,707Northern CA2,8929723826314,877Seattle WA3,1773,177Phoenix AZ5,6362,7761,3751,42440911,620Tucson AZ0209209Las Vegas NV9401,0231,7132902954,261Reno NV0251251Salt Lake City UT01,0481,048Denver CO01,9811,981MidwestGr. Chicago ILIN2,9732,0475,020Minneapolis MN1,1831,183Indianapolis IN02,9013533,254Cincinnati OH01,9521,952Columbus OH01,5002841,784SouthSoutheast FL5,5883,69330860410,193Tampa FL4,9971,7293,7171,11150012,054Orlando FL3,7341,5571,9414917,723Jacksonville FL2,0181,6594514,128Atlanta GA7,5373,9505,5572,6941,20720,945Charlotte NC3,1232,8008926891,4128,916Raleigh NC01,8281,828Winston-Salem NC0761761Charleston SC0725725Columbia SC0426426Dallas TX04,3402,0435046147,501Houston TX03,1532,7268206,699San Antonio TX01,0032041,207Austin TX0695695Nashville TN02,3812402,621Not Specified 07,0879678,054TOTAL48,43146,91530,6118,8378,006142,800Note: AH4R, Colony, and Starwood totals exclude homes available for saleThere are a few striking things to note. First, none of the properties held by these companies are in either the Northeast of the Mid-Atlantic regions of the country. Second, the different entities have decidedly different geographic concentrations, though none would be classified as “geographically diverse” relative to the US as a whole. And finally, the entities’ single-family rental property holdings are especially large relative to the size of the overall housing market in Atlanta, Charlotte, Orlando, Tampa, and (to a lesser extent) Phoenix.[...]

Lawler: Selected Operating Statistics, Large Publicly-Traded Home Builders


From housing economist Tom Lawler.

Below is a table from Tom Lawler showing selected operating results of large publicly-traded builders for the quarter ended December 31, 2016.

  Net OrdersSettlementsAverage Closing
Price (000s)
Qtr. Ended:12/1612/15% Chg12/1612/15% Chg12/1612/15% Chg