Calculated Risk

Schedule for Week of August 25, 2019

The key report this week is second estimate of Q2 GDP.

Other key reports include Personal Income and Outlays for July and Case-Shiller house prices for June.

For manufacturing, the August Richmond and Dallas Fed surveys will be released.

----- Monday, Aug 26th -----
8:30 AM ET: Chicago Fed National Activity Index for July. This is a composite index of other data.

8:30 AM: Durable Goods Orders for July from the Census Bureau. The consensus is for a 1.1% increase in durable goods orders.

10:30 AM: Dallas Fed Survey of Manufacturing Activity for August.

----- Tuesday, Aug 27th -----
Case-Shiller House Prices Indices9:00 AM: S&P/Case-Shiller House Price Index for June.

This graph shows the year-over-year change in the seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the most recent report (the Composite 20 was started in January 2000).

The consensus is for a 2.3% year-over-year increase in the Comp 20 index for June.

9:00 AM: FHFA House Price Index for May 2019. This was originally a GSE only repeat sales, however there is also an expanded index.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for August. This is the last of the regional surveys for August.

----- Wednesday, Aug 28th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

----- Thursday, Aug 29th -----
8:30 AM: Gross Domestic Product, 2nd quarter 2019 (second estimate). The consensus is that real GDP increased 2.0% annualized in Q2, down from the advance estimate of 2.1% in Q2.

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 213 thousand initial claims, up from 209 thousand last week.

10:00 AM: Pending Home Sales Index for July. The consensus is for a 0.3% decrease in the index.

----- Friday, Aug 30th -----
8:30 AM ET: Personal Income and Outlays, July 2019. The consensus is for a 0.3% increase in personal income, and for a 0.5% increase in personal spending. And for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for August.

10:00 AM: University of Michigan's Consumer sentiment index (Final for August). The consensus is for a reading of 92.3.

Lawler: Updated “Demographic” Outlook Using Recent Population Estimates by Age

From housing economist Tom Lawler: Updated “Demographic” Outlook Using Recent Population Estimates by Age

Executive Summary: Analysts who use intermediate or long term population projections to forecast key economic variables such as labor force growth, household growth, etc. should recognize that the latest official Census intermediate and long term population projections (produced in 2017 and referred to as “Census 2017”) are out of date. Specifically, Census 2017 materially over-predicted births, materially under-predicted deaths (mainly for non-elderly adults), and somewhat over-predicted net international migration (NIM) for each of the last several years. In addition, the assumptions in Census 2017 projections over the next several years (and more) are almost certainly too high for births, too low for deaths, and too high for NIM. As a result, population growth, household growth, and labor force growth over the next few years will be lower than forecasts based on the Census 2017 population projections. How much lower depends critically on net international migration, which in the current environment is a big unknown.

Using more realistic assumptions on births and deaths by age, I have developed updated population projections by age through 2021 assuming (1) net international migration in each year is the same as in 2018; and (2) there is no international migration in 2020 or 2021. I did the latter scenario to highlight the importance of net international migration assumptions on population projections.


Earlier this year the Census Bureau released its latest (“Vintage 2018) estimates of the US resident population by single year of age for July 1, 2018, as well as for July of each of the previous 8 years. These latest estimates give analysts a new starting point that can be used to update population projections by age using assumptions about births, deaths by age, and net international migration by age. These population projections are key inputs into forecasts of other key economic variables such as the labor force and US households.

While many analysts prefer to use “official” Census population projections in forecasting other key economic variables, there are several reasons why this is often not a good idea. First, official Census population projections are only released every couple of years, and may be out of date. And second, such projections may have assumptions about the key drivers of population growth that may not be viewed as “reasonable.”

The latest official Census population projections were done in late 2017 and released to the public in early 2018. The “starting point” for these projections was the “Vintage 2016” population estimates, and population estimates for 2016 have since been revised. In addition, current estimates of births, deaths, and net international migration from 2016 to 2018 are significantly different from the “Census 2017” projections. And finally, the assumptions in the “Census 2017” projections for the key drivers of population changes, especially death rates by age, are not realistic or consistent with recent actual death rates by age.

The latest estimate of the US resident population on July 1, 2018 was 327,167,434, which is 724,477 lower than the Census 2017 projection for that date. Fewer births, more deaths, and lower international migration all contributed to the projection shortfall. Below is a table showing the differences between the latest July 1 2018 population estimate and the July 1, 2018 forecast from the Census 2017 projection by key component.

Census 2017 ProjectionsVintage 2018 EstimatesDifference7/1/2016323,127,513 323,071,342 (56,171)Births: 7/1/2016 - 6/30/20188,129,169 7,757,482 (371,687)Deaths: 7/1/2016 - 6/30/20185,363,099 5,593,449 230,350 Net Int'l Migration: 7/1/2016 - 6/30/20181,998,328 1,932,059 (66,269)7/1/2018327,891,911 327,167,434 (724,477)
Births from 7/1/2016 to 6/30/2018 were significantly below projected levels from Census 2017. In addition, the National Center for Health Statistics (NCHS) recently estimated that US births in 2018 (calendar year) totaled just 3,788,235, the lowest annual number of births in 32 years, and a whopping 306,730 below the Census 2017 projection for the 12 month period ending June 2019.

Deaths from 7/1/2016 to 6/30/2018 were significantly above projected levels from Census 2017. While the Census Bureau did not release estimates of deaths (or net international migration) by age in its “Vintage 2018” release, Census does use data from the NCHS on deaths by age, and these data indicate that most of the higher than projected deaths from Census 2017 were in the 20-74 year old age groups.

The Census 2017 population projections were based on a dated “death rate” table, as well as on projections that death rates for most age groups would decline each year. In fact, however, death rates for many age groups have increased over the past few years. The assumptions on deaths from Census 2017 over the next several years are almost certainly way too low, especially for the 20-74 year old age groups.

Finally the latest Census estimates of net international migration (NIM) from 7/1/2016 to 6/30/2018 are somewhat below the Census 2017 projections. Moreover, updated estimates for NIM (which are, unfortunately, subject to considerable error) suggest a materially different age distribution than that assumed in the Census 2017 projections.

Below is a table comparing the latest Census estimates of the US resident population for 2018 with the projections from Census 2017 for 2018 by 5-year ago groups.

US Resident Population, 7/1/2018Vintage 2018 EstimateCensus 2017 ProjectionDifferenceTotal327,167,434327,891,911-724,4770-419,810,27520,172,617-362,3425-920,195,64220,166,27029,37210-1420,879,52720,866,30013,22715-1921,097,22121,084,45112,77020-2421,873,57921,966,919-93,34025-2923,561,75623,601,976-40,22030-3422,136,01822,125,39510,62335-3921,563,58721,556,7726,81540-4419,714,30119,728,816-14,51545-4920,747,13520,786,395-39,26050-5420,884,56420,923,227-38,66355-5921,940,98522,012,901-71,91660-6420,331,65120,408,221-76,57065-6917,086,89317,127,778-40,88570-7413,405,42313,418,850-13,42775-799,267,0669,274,592-7,52680-846,127,3086,131,125-3,81785+6,544,5036,539,3065,197
As the table shows, there are significant differences between the “Vintage 2018” population estimates and the projections from Census 2017, not just in the total but also in the age distribution.

In “Vintage 2018” Census also provided updated population projections for 2019, which are used (among other things) as “controls” for the household employment estimates for 2019. Below is a table comparing the Vintage 2018 population projections for 2019 with the Census 2017 projections for 2019.

Resident Population Projections for 7/1/2019Vintage 2018Census 2017DifferenceTotal327,167,434327,891,911-724,4770-419,810,27520,172,617-362,3425-920,195,64220,166,27029,37210-1420,879,52720,866,30013,22715-1921,097,22121,084,45112,77020-2421,873,57921,966,919-93,34025-2923,561,75623,601,976-40,22030-3422,136,01822,125,39510,62335-3921,563,58721,556,7726,81540-4419,714,30119,728,816-14,51545-4920,747,13520,786,395-39,26050-5420,884,56420,923,227-38,66355-5921,940,98522,012,901-71,91660-6420,331,65120,408,221-76,57065-6917,086,89317,127,778-40,88570-7413,405,42313,418,850-13,42775-799,267,0669,274,592-7,52680-846,127,3086,131,125-3,81785+6,544,5036,539,3065,197
(Note: The Vintage 2018 projection for 2019 appears to have assumed the same number as births as for 2018, though recent data suggest that births were lower.)

If analysts had used the Census 2017 population projections to forecast the US labor force and the number of US households, and had been accurate in their forecasts of labor force participation rates and headship rates, they would have over-predicted the size of the labor force in mid-2019 by about 400,000, and over-predicted the number of households in mid-2019 by about 260,000.

Obviously, Census 2017 population projections have not tracked recent estimates and projections very well. In addition, Census 2017 assumptions for births, deaths, and net international migration are likely to be considerable off from likely “actuals” for the years ahead.

For analysts who use intermediate and long term population projections to forecast other key economic or social variables such as household growth, labor force growth, social security/medicare enrollment/payments, college enrollment, etc., it seems clear that it would not be appropriate to use the Census 2017 population projections. However, these are the latest “official” projections that have been released, and many analysts prefer to use “official” projections. Moreover, formulating one’s own population projections by age requires one to make assumptions not just on total births, deaths, and NIM, but also deaths and NIM by single year of age, and there aren’t timely publicly-released data on either of the latter.

To help some of these analysts, I have, using some unpublished data on recent trends, produced US resident population projections through 2021 using the following assumptions:
1. Annual births from 2019 through 2021 are the same as those in calendar year 2018 (3,788,235);
2. Deaths rates by age are similar to those in 2018 (though somewhat lower for age groups that saw a sizable increase over the last few years); and
3. Net International Migration by age is the same each year as the Census estimates for 2018.

Note that the biggest “wild card” in assumptions is NIM; not only are recent estimates subject to much higher uncertainty than the other two key drivers of population growth, but it is also virtually impossible in the current political environment to make a reasonable projection for NIM. For example, recent actions by the Administration set to take effect in mid-October would, if implemented, have a significantly negative impact on immigration over the next few years.

I also have produced population projections by age assuming no international migration (this is not necessarily the same as no immigration, as a lot of people leave the country for abroad each year). I did this to highlight the importance of NIM on the outlook for the population.

Note that I did not use the Vintage 2018 projections for 2019, but instead used the assumptions discussed above.

These alternative projections are shown on the next page for select age groups.

US Resident Population: Alternative ProjectionsCensus 2017 Projections7/1/20187/1/20197/1/20207/1/2021Total327,891,911330,268,840332,639,102334,998,3980-1461,205,18761,298,82161,408,92661,510,60315-2443,051,37042,962,35842,937,83143,004,86725-3445,727,37146,215,97346,491,40346,716,39035-4441,285,58841,801,67242,351,79543,006,43745-5441,709,62241,050,69540,615,03740,324,02255-6442,421,12242,713,83642,782,54442,593,65765-7430,546,62831,620,38132,789,43733,953,05075+21,945,02322,605,10423,262,12923,889,372Flat Births, More Realistic Death Rates, Flat NIM7/1/20187/1/20197/1/20207/1/2021Total327,167,434329,072,705330,917,403332,700,7530-1460,885,44460,698,57160,507,16760,290,58815-2442,970,80042,861,55742,822,73842,882,73025-3445,697,77446,128,83646,337,49646,484,66035-4441,277,88841,786,37042,323,93742,961,91945-5441,631,69940,958,39740,507,00140,198,33755-6442,272,63642,516,25242,534,06842,293,99365-7430,492,31631,537,86832,667,88333,780,93075+21,938,87722,584,85423,217,11323,807,596Flat Births, More Realistic Death Rates, No International Migration7/1/20187/1/20197/1/20207/1/2021Total327,167,434329,072,705329,940,031330,747,5240-1460,885,44460,698,57160,284,35559,860,56915-2442,970,80042,861,55742,537,45842,330,31725-3445,697,77446,128,83646,069,15545,934,11735-4441,277,88841,786,37042,209,18042,720,39945-5441,631,69940,958,39740,468,71440,117,46155-6442,272,63642,516,25242,507,58842,241,27665-7430,492,31631,537,86832,649,22533,742,24475+21,938,87722,584,85423,214,35623,801,141
Below are tables showing the differences between the latter two scenarios and the Census 2017 population projections.

Alternate Population Projections vs. Census 2017 ProjectionsFlat Births, More Realistic Death Rates, Flat NIMTotal-724,477-1,196,135-1,721,699-2,297,6450-14-319,743-600,250-901,759-1,220,01515-24-80,570-100,801-115,093-122,13725-34-29,597-87,137-153,907-231,73035-44-7,700-15,302-27,858-44,51845-54-77,923-92,298-108,036-125,68555-64-148,486-197,584-248,476-299,66465-74-54,312-82,513-121,554-172,12075+-6,146-20,250-45,016-81,776Flat Births, More Realistic Death Rates, No International Migration7/1/20187/1/20197/1/20207/1/2021Total-724,477-1,196,135-2,699,071-4,250,8740-14-319,743-600,250-1,124,571-1,650,03415-24-80,570-100,801-400,373-674,55025-34-29,597-87,137-422,248-782,27335-44-7,700-15,302-142,615-286,03845-54-77,923-92,298-146,323-206,56155-64-148,486-197,584-274,956-352,38165-74-54,312-82,513-140,212-210,80675+-6,146-20,250-47,773-88,231
Obviously, the outlook for population growth, labor force growth, household formations, and other economic variables over the next few years depends critically on one’s assumptions about net international migration. The “flat births/flat NIM” scenario is probably a “high” forecast, given, recent Trump administration actions/policies, while the “no international migration” scenario is more designed to show what population growth would look like without international migration. In the “flat births/flat NIM” scenarios growth in the labor force over the next two years would be about 0.1% lower per year than forecasts based on Census 2017, while household growth would be about 120,000 lower per year. In the no international migration scenario labor force growth over the next two years would be 0.4% lower per year, and household growth would be about 370,000 per year lower per year, than Census 2017-based forecasts.

A few Comments on July New Home Sales

New home sales for July were reported at 635,000 on a seasonally adjusted annual rate basis (SAAR). Sales for the previous three months were revised up, combined.

Sales for June were revised up to a new cycle high.

Annual sales in 2019 should be the best year for new home sales since 2007.

Earlier: New Home Sales decreased to 635,000 Annual Rate in July, Sales in June revised up to New Cycle High.

New Home Sales 2017 2018Click on graph for larger image.

This graph shows new home sales for 2018 and 2019 by month (Seasonally Adjusted Annual Rate).

Sales in July were up 4.3% year-over-year compared to July 2018.

Year-to-date (through July), sales are up 4.1% compared to the same period in 2018.

The second half comparisons will be easier, so sales should be higher in 2019 than in 2018.

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.

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through June 2019. 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.

Even though distressed sales are down significantly, following the bust, new home builders focused on more expensive homes - so the gap has only closed slowly.

I still expect this gap to close.   However, this assumes that the builders will offer some smaller, less expensive homes.

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.

Q3 GDP Forecasts: Around 2%

From Merrill Lynch:
We continue to track 2.1% qoq saar for 3Q. 2Q GDP growth is likely to be revised modestly lower in the second release to 1.8% from the advance estimate of 2.1%. [Aug 23 estimate]
emphasis added
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 1.8% for 2019:Q3. [Aug 23 estimate].
And from the Altanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2019 is 2.2 percent on August 16, unchanged from August 15 after rounding. [Aug 16 estimate] (next update on Aug 26th)
CR Note: These early estimates suggest real GDP growth will be around 2% annualized in Q3.

Fed Chair Powell: "Challenges for Monetary Policy"

From Fed Chair Powell: Challenges for Monetary Policy A few excerpts:
Through the FOMC's setting of the federal funds rate target range and our communications about the likely path forward for policy and the economy, we seek to influence broader financial conditions to promote maximum employment and price stability. In forming judgments about the appropriate stance of policy, the Committee digests a broad range of data and other information to assess the current state of the economy, the most likely outlook for the future, and meaningful risks to that outlook. Because the most important effects of monetary policy are felt with uncertain lags of a year or more, the Committee must attempt to look through what may be passing developments and focus on things that seem likely to affect the outlook over time or that pose a material risk of doing so. Risk management enters our decision making because of both the uncertainty about the effects of recent developments and the uncertainty we face regarding structural aspects of the economy, including the natural rate of unemployment and the neutral rate of interest. It will at times be appropriate for us to tilt policy one way or the other because of prominent risks. Finally, we have a responsibility to explain what we are doing and why we are doing it so the American people and their elected representatives in Congress can provide oversight and hold us accountable.

We have much experience in addressing typical macroeconomic developments under this framework. But fitting trade policy uncertainty into this framework is a new challenge. Setting trade policy is the business of Congress and the Administration, not that of the Fed. Our assignment is to use monetary policy to foster our statutory goals. In principle, anything that affects the outlook for employment and inflation could also affect the appropriate stance of monetary policy, and that could include uncertainty about trade policy. There are, however, no recent precedents to guide any policy response to the current situation. Moreover, while monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade. We can, however, try to look through what may be passing events, focus on how trade developments are affecting the outlook, and adjust policy to promote our objectives.

This approach is illustrated by the way incoming data have shaped the likely path of policy this year. The outlook for the U.S. economy since the start of the year has continued to be a favorable one. Business investment and manufacturing have weakened, but solid job growth and rising wages have been driving robust consumption and supporting moderate growth overall.

As the year has progressed, we have been monitoring three factors that are weighing on this favorable outlook: slowing global growth, trade policy uncertainty, and muted inflation. The global growth outlook has been deteriorating since the middle of last year. Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States. Inflation fell below our objective at the start of the year. It appears to be moving back up closer to our symmetric 2 percent objective, but there are concerns about a more prolonged shortfall.

Committee participants have generally reacted to these developments and the risks they pose by shifting down their projections of the appropriate federal funds rate path. Along with July's rate cut, the shifts in the anticipated path of policy have eased financial conditions and help explain why the outlook for inflation and employment remains largely favorable.

Turning to the current context, we are carefully watching developments as we assess their implications for the U.S. outlook and the path of monetary policy. The three weeks since our July FOMC meeting have been eventful, beginning with the announcement of new tariffs on imports from China. We have seen further evidence of a global slowdown, notably in Germany and China. Geopolitical events have been much in the news, including the growing possibility of a hard Brexit, rising tensions in Hong Kong, and the dissolution of the Italian government. Financial markets have reacted strongly to this complex, turbulent picture. Equity markets have been volatile. Long-term bond rates around the world have moved down sharply to near post-crisis lows. Meanwhile, the U.S. economy has continued to perform well overall, driven by consumer spending. Job creation has slowed from last year's pace but is still above overall labor force growth. Inflation seems to be moving up closer to 2 percent. Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.
emphasis added

New Home Sales decreased to 635,000 Annual Rate in July, Sales in June revised up to New Cycle High

The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 635 thousand.

The previous three months were revised up combined.  June was revised up to a new cycle high.
"Sales of new single‐family houses in July 2019 were at a seasonally adjusted annual rate of 635,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.8 percent below the revised June rate of 728,000, but is 4.3 percent above the July 2018 estimate of 609,000."
emphasis added
New Home SalesClick 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 somewhat low historically.

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply increased in July to 6.4 months from 5.5 months in June.

The all time record was 12.1 months of supply in January 2009.

This is at the top of the normal range (less than 6 months supply is normal).
"The seasonally‐adjusted estimate of new houses for sale at the end of July was 337,000. This represents a supply of 6.4 months at the current sales rate."
New Home Sales, InventoryOn 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 somewhat low, and the combined total of completed and under construction is close to normal.

New Home Sales, NSAThe last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In July 2019 (red column), 53 thousand new homes were sold (NSA). Last year, 52 thousand homes were sold in July.

The all time high for July was 117 thousand in 2005, and the all time low for July was 26 thousand in 2010.

This was slightly below expectations of 645 thousand sales SAAR, however sales in the three previous months were revised up, combined.  I'll have more later today.

Friday: New Home Sales, Fed Chair Powell

• At 10:00 AM ET, New Home Sales for July from the Census Bureau. The consensus is for 645 thousand SAAR, down from 646 thousand in June.

• Also at 10:00 AM, Speech, Fed Chair Jerome Powell, Challenges for Monetary Policy, At the Jackson Hole Economic Policy Symposium: Challenges for Monetary Policy, Jackson Hole, Wyo.

Philly Fed: State Coincident Indexes increased in 37 states in July

From the Philly Fed:
The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for July 2019. Over the past three months, the indexes increased in 44 states, decreased in four states, and remained stable in two, for a three-month diffusion index of 80. In the past month, the indexes increased in 37 states, decreased in nine states, and remained stable in four, for a one-month diffusion index of 56.
emphasis added
Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Philly Fed State Conincident MapClick on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and all or mostly green during most of the recent expansion.

The map is mostly green on a three month basis, but there are some grey and red states.

Source: Philly Fed.

Note: For complaints about red / green issues, please contact the Philly Fed.

Philly Fed Number of States with Increasing ActivityAnd here is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In July, 37 states had increasing activity (graph includes minor increases).

Kansas City Fed: "Tenth District Manufacturing Declined in August"

From the Kansas City Fed: Tenth District Manufacturing Declined in August
The Federal Reserve Bank of Kansas City released the August 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 declined in August, while expectations for future activity edged higher.

Regional factory activity had its largest monthly drop in over three years, and over 55 percent of firms expect negative impacts from the latest round of U.S. tariffs on Chinese goods,” said Wilkerson. “However, even though many firms expect trade tensions to persist, expectations for future shipments and exports expanded slightly.”
The month-over-month composite index was -6 in August, down from -1 in July and 0 in June, and the lowest reading since March 2016. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The drop in manufacturing activity was driven by declines at both durable and nondurable plants, but especially from decreases in primary metal, electrical equipment, appliances, paper, printing, and chemical manufacturing. Most month-over-month indexes decreased in August, and the shipments and supplier delivery time indexes also turned negative. All of the year-over-year factory indexes decreased in August, and the composite index fell from 11 to -1. On the other hand, the future composite index edged higher from 9 to 11, as expectations for shipments, order backlog, employment, and new orders for exports grew slightly.
emphasis added
Another weak report.

Black Knight: "Mortgage Delinquencies See Strong Recovery from June Spike"

From Black Knight: Black Knight’s First Look: July Prepayment Activity Hits Highest Level Since 2016; Mortgage Delinquencies See Strong Recovery from June Spike
• Prepayment activity jumped 26% from June to its highest level in nearly three years and 58% above this time last year as falling interest rates continue to fuel refinance incentive

• The national delinquency rate fell by 7% in July, offsetting the bulk of June’s calendar-related spike

• At 3.46%, July 2019’s delinquency rate is the lowest of any July on record (dating back to 2000)

• Both serious delinquencies (-11,000) and active foreclosure inventory (-1,000) fell as well

• Serious delinquencies (all loans 90 or more days delinquent but not in active foreclosure) fell below 445,000 for the first time since June 2006
According to Black Knight's First Look report for July, the percent of loans delinquent decreased 7.3% in July compared to June, and decreased 4.3% year-over-year.

The percent of loans in the foreclosure process decreased 0.5% in July and were down 13.2% 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 3.46% in July, down from 3.73% in June.

The percent of loans in the foreclosure process decreased in July to 0.49% from 0.50% in June.

The number of delinquent properties, but not in foreclosure, is down 54,000 properties year-over-year, and the number of properties in the foreclosure process is down 35,000 properties year-over-year.

Note: The "spike" in delinquencies in June was due to timing and seasonal factors. No worries.

Black Knight: Percent Loans Delinquent and in Foreclosure Process  Jul
2017Delinquent3.46%3.73%3.61%3.90%In Foreclosure0.49%0.50%0.57%0.87%Number of properties:Number of properties that are delinquent, but not in foreclosure:1,807,0001,950,0001,861,0001,986,000Number of properties in foreclosure pre-sale inventory:258,000259,000293,000398,000Total Properties2,065,0002,209,0002,154,0002,384,000

Weekly Initial Unemployment Claims decreased to 209,000

The DOL reported:
In the week ending August 17, the advance figure for seasonally adjusted initial claims was 209,000, a decrease of 12,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 220,000 to 221,000. The 4-week moving average was 214,500, an increase of 500 from the previous week's revised average. The previous week's average was revised up by 250 from 213,750 to 214,000.
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The previous week was revised up.

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

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 214,500.

This was lower than the consensus forecast.

Thursday: Unemployment Claims

From Matthew Graham at Mortgage News Daily: Mortgage Rates Pop Higher
Mortgage rates moved higher today, and it had nothing to do with any of the day's events or news headlines. Quite simply put, the bond market (which dictates the rates that can offered by lenders) had already begun to weaken as of yesterday afternoon. Weakness continued overnight as global financial markets dialed back their demand for safe havens. … Safe haven demand has been waxing and waning as the broader market settles in to a new range following the big shake-up in early August. Today was just another minor fluctuation in that regard, but the timing issue (bond market weakness yesterday afternoon followed by more this morning) made for a noticeable adjustment from mortgage lenders. [Most Prevalent Rates 30YR FIXED - 3.5% - 3.625%]
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• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 215 thousand initial claims, down from 220 thousand last week.

• At 11:00 AM, the Kansas City Fed manufacturing survey for August.

FOMC Minutes: A Wide Range of Views

From the Fed: Minutes of the Federal Open Market Committee, July 30–31, 2019. A few excerpts:
In their discussion of monetary policy decisions at this meeting, those participants who favored a reduction in the target range for the federal funds rate pointed to three broad categories of reasons for supporting that action.
• First, while the overall outlook remained favorable, there had been signs of deceleration in economic activity in recent quarters, particularly in business fixed investment and manufacturing. A pronounced slowing in economic growth in overseas economies—perhaps related in part to developments in, and uncertainties surrounding, international trade—appeared to be an important factor in this deceleration. More generally, such developments were among those that had led most participants over recent quarters to revise down their estimates of the policy rate path that would be appropriate to promote maximum employment and stable prices.

• Second, a policy easing at this meeting would be a prudent step from a risk-management perspective. Despite some encouraging signs over the intermeeting period, many of the risks and uncertainties surrounding the economic outlook that had been a source of concern in June had remained elevated, particularly those associated with the global economic outlook and international trade. On this point, a number of participants observed that policy authorities in many foreign countries had only limited policy space to support aggregate demand should the downside risks to global economic growth be realized.

• Third, there were concerns about the outlook for inflation. A number of participants observed that overall inflation had continued to run below the Committee's 2 percent objective, as had inflation for items other than food and energy. Several of these participants commented that the fact that wage pressures had remained only moderate despite the low unemployment rate could be a sign that the longer-run normal level of the unemployment rate is appreciably lower than often assumed. Participants discussed indicators for longer-term inflation expectations and inflation compensation. A number of them concluded that the modest increase in market-based measures of inflation compensation over the intermeeting period likely reflected market participants' expectation of more accommodative monetary policy in the near future; others observed that, while survey measures of inflation expectations were little changed from June, the level of expectations by at least some measures was low. Most participants judged that long-term inflation expectations either were already below the Committee's 2 percent goal or could decline below the level consistent with that goal should there be a continuation of the pattern of inflation coming in persistently below 2 percent.
A couple of participants indicated that they would have preferred a 50 basis point cut in the federal funds rate at this meeting rather than a 25 basis point reduction. They favored a stronger action to better address the stubbornly low inflation rates of the past several years, recognizing that the apparent low sensitivity of inflation to levels of resource utilization meant that a notably stronger real economy might be required to speed the return of inflation to the Committee's inflation objective.

Several participants favored maintaining the same target range at this meeting, judging that the real economy continued to be in a good place, bolstered by confident consumers, a strong job market, and a low rate of unemployment. These participants acknowledged that there were lingering risks and uncertainties about the global economy in general, and about international trade in particular, but they viewed those risks as having diminished over the intermeeting period. In addition, they viewed the news on inflation over the intermeeting period as consistent with their forecasts that inflation would move up to the Committee's 2 percent objective at an acceptable pace without an adjustment in policy at this meeting. Finally, a few participants expressed concerns that further monetary accommodation presented a risk to financial stability in certain sectors of the economy or that a reduction in the target range for the federal funds rate at this meeting could be misinterpreted as a negative signal about the state of the economy.

In their discussion of the outlook for monetary policy beyond this meeting, participants generally favored an approach in which policy would be guided by incoming information and its implications for the economic outlook and that avoided any appearance of following a preset course. Most participants viewed a proposed quarter-point policy easing at this meeting as part of a recalibration of the stance of policy, or mid-cycle adjustment, in response to the evolution of the economic outlook over recent months. A number of participants suggested that the nature of many of the risks they judged to be weighing on the economy, and the absence of clarity regarding when those risks might be resolved, highlighted the need for policymakers to remain flexible and focused on the implications of incoming data for the outlook.
emphasis added

AIA: "Architecture Billings Index Continues Its Streak of Soft Readings"

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

From the AIA: Architecture Billings Index Continues Its Streak of Soft Readings
Demand for design services in July remained essentially flat in comparison to the previous month, according to a new report released today from The American Institute of Architects (AIA).

AIA’s Architecture Billings Index (ABI) score of 50.1 in July showed a small increase in design services since June, which was a score of 49.1. Any score above 50 indicates an increase in billings. In July, the design contracts score dipped into negative territory for the first time in almost a year. Additionally, July billings softened in all regions except the West, and at firms of all specializations except multifamily residential.

“The data is not the same as what we saw leading up to the last economic downturn but the continued, slowing across the board will undoubtedly impact architecture firms and the broader construction industry in the coming months,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “A growing number of architecture firms are reporting that the ongoing volatility in the trade situation, the stock market, and interest rates are causing some of their clients to proceed more cautiously on current projects.”
• Regional averages: West (51.2); Midwest (48.9); South (48.3); Northeast (48.3)

• Sector index breakdown: multi-family residential (50.6); institutional (49.8); commercial/industrial (49.2); mixed practice (48.9)
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.1 in July, up from 49.1 in June. 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 has been positive for 10 of the previous 12 months, suggesting some further increase in CRE investment in 2019 - but this is the weakest five month stretch since 2012.

Comments on July Existing Home Sales

Earlier: NAR: Existing-Home Sales Increased to 5.42 million in July

A few key points:

1) Existing home sales were up 0.6% year-over-year (YoY) in July.  This was the first YoY increase since early 2018.

2) Inventory is still low, and was down 1.6% year-over-year (YoY) in July.

3) As usual, housing economist Tom Lawler's forecast was closer (barely this month) to the NAR report than the consensus. See: Lawler: Early Read on Existing Home Sales in July.   The consensus was for sales of 5.39 million SAAR.  Lawler estimated the NAR would report 5.40 million SAAR in July, and the NAR actually reported 5.42 million SAAR.

Existing Home Sales YoYClick on graph for larger image.

4) Year-to-date sales are down about 2.9% compared to the same period in 2018.   On an annual basis, that would put sales around 5.20 million in 2019.  Sales slumped at the end of 2018 and in January 2019 due to higher mortgage rates, the stock market selloff, and fears of an economic slowdown.

The comparisons will be easier towards the end of this year, and with lower mortgage rates, sales might even finish the year unchanged or even up from 2018.

Existing Home Sales NSAThe second graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA in July (540,000, red column) were above sales in July 2018 (528,000, NSA), and were the highest sales for July since 2015.

Employment: Preliminary annual benchmark revision shows downward adjustment of 501,000 jobs

The BLS released the preliminary annual benchmark revision showing 501,000 fewer payroll jobs as of March 2019. The final revision will be published when the January 2019 employment report is released in February 2020. Usually the preliminary estimate is pretty close to the final benchmark estimate.

The annual revision is benchmarked to state tax records. From the BLS:
In accordance with usual practice, the Bureau of Labor Statistics (BLS) is announcing the preliminary estimate of the upcoming annual benchmark revision to the establishment survey employment series. The final benchmark revision will be issued in February 2020 with the publication of the January 2020 Employment Situation news release.

Each year, the Current Employment Statistics (CES) survey employment estimates are benchmarked to comprehensive counts of employment for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. For national CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus two-tenths of one percent of total nonfarm employment. The preliminary estimate of the benchmark revision indicates a downward adjustment to March 2019 total nonfarm employment of -501,000 (-0.3 percent).
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Using the preliminary benchmark estimate, this means that payroll employment in March 2019 was 501,000 lower than originally estimated. In February 2020, the payroll numbers will be revised down to reflect the final estimate. The number is then "wedged back" to the previous revision (March 2018).

Construction was revised down by 9,000 jobs, and manufacturing revised down by 3,000 jobs.

This preliminary estimate showed 514,000 fewer private sector jobs, and 13,000 more government jobs (as of March 2019).

NAR: Existing-Home Sales Increased to 5.42 million in July

From the NAR: Existing-Home Sales Climb 2.5% in July
Existing-home sales strengthened in July, a positive reversal after total sales were down slightly in the previous month, according to the National Association of Realtors®. Although Northeast transactions declined, the other three major U.S. regions recorded sales increases, including vast growth in the West last month.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.5% from June to a seasonally adjusted annual rate of 5.42 million in July. Overall sales are up 0.6% from a year ago (5.39 million in July 2018).
Total housing inventory at the end of July decreased to 1.89 million, down from 1.92 million existing-homes available for sale in June, and a 1.6% decrease from 1.92 million one year ago. Unsold inventory is at a 4.2-month supply at the current sales pace, down from the 4.4 month-supply recorded in June and down from the 4.3-month supply recorded in July of 2018.
emphasis added
Existing Home SalesClick on graph for larger image.

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

Sales in July (5.42 million SAAR) were up 2.5% from last month, and were 0.6% above the July 2018 sales rate.

The second graph shows nationwide inventory for existing homes.

Existing Home InventoryAccording to the NAR, inventory decreased to 1.89 million in July from 1.92 million in June.   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.

Year-over-year Inventory Inventory was down 1.6% year-over-year in July compared to July 2018.

Months of supply decreased to 4.2 months in July.

This was at the consensus forecast.  For existing home sales, a key number is inventory - and inventory is still low. I'll have more later …

MBA: Mortgage Applications Decreased in Latest Weekly Survey

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
Mortgage applications decreased 0.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 16, 2019.

... The Refinance Index increased 0.4 percent from the previous week and was 180 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 5 percent higher than the same week one year ago.
“In a week where worries over global economic growth drove U.S. Treasury yields 13 basis points lower, the 30-year fixed mortgage rate decreased just three basis points. As a result, the refinance index saw only a slight increase but remained at its highest level since July 2016,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The small moves in rates and refinancing are potentially signs that lenders may be approaching capacity constraints as they continue to deal with the largest wave of refinance activity in three years. The refinance share of applications, at almost 63 percent, was also at its highest level since September 2016.”

Added Kan, “Lower mortgage rates have yet to lead to a notable rise in homebuyer demand. Purchase applications fell more than 3 percent, but were still 5 percent higher than a year ago.”
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 3.90 percent from 3.93 percent, with points remaining unchanged at 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
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Mortgage Refinance IndexClick on graph for larger image.

The first graph shows the refinance index since 1990.

Mortgage rates have declined from close to 5% late last year to under 4%.

With lower rates, we saw a recent sharp increase in refinance activity.

Mortgage Purchase Index The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 5% year-over-year.

Wednesday: Existing Home Sales, FOMC Minutes, BLS Preliminary Benchmark Revision and More

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

• At 10:00 AM: Existing Home Sales for July from the National Association of Realtors (NAR). The consensus is for 5.39 million SAAR, up from 5.27 million last month. Housing economist Tom Lawler expects the NAR to report 5.40 million SAAR.

• At 10:00 AM: the Bureau of Labor Statistics (BLS) will release the preliminary estimate of the upcoming annual benchmark revision.

• At 11:00 AM: CBO to Release Updated Budget and Economic Projections

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

• At 2:00 PM: FOMC Minutes, Meeting of July 30-31, 2019

"ATA Truck Tonnage Index Surged 6.6% in July"

CR Note: I've heard reports that trucking has been soft, but this index is solid.

From the ATA: ATA Truck Tonnage Index Surged 6.6% in July
American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 6.6% in July after falling 1.2% in June. In July, the index equaled 122.7 (2015=100) compared with 115.1 in June.

“Tonnage in 2019 has been on a rollercoaster ride, plagued with large monthly swings, which continued in July as tonnage surged after falling significantly in May and June,” said ATA Chief Economist Bob Costello. “However, take out the month-to-month noise, and you see that truck tonnage is still on a nice upward path. It is important to note that ATA’s tonnage data is dominated by contract freight, which is performing significantly better than the plunge in spot market freight this year.”
Click on graph for larger image.

June’s reading was revised down compared with our July press release. Compared with July 2018, the SA index surged 7.3%, the largest year-over-year gain since April.

Trucking serves as a barometer of the U.S. economy, representing 70.2% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 10.77 billion tons of freight in 2017. Motor carriers collected $700.1 billion, or 79.3% of total revenue earned by all transport modes.
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