Calculated Risk

Q3 GDP Forecasts: Under 2%

From Merrill Lynch:
Weak inventories data edged down 3Q GDP tracking by a tenth to 1.5% qoq saar. [Oct 18 estimate]
emphasis added
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 1.9% for 2019:Q3 and 1.1% for 2019:Q4. [Oct 18 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 1.8 percent on October 17, unchanged from October 16. [Oct 17 estimate]
CR Note: These estimates suggest real GDP growth will be under 2.0% annualized in Q3.

BLS: September Unemployment rates at New Series Lows in Alabama, California, Illinois, New Jersey and South Carolina

From the BLS: Regional and State Employment and Unemployment Summary
Unemployment rates were lower in September in 7 states, higher in 4 states, and stable in 39 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Seven states had jobless rate decreases from a year earlier, 2 states had increases, and 41 states and the District had little or no change.
...
Vermont had the lowest unemployment rate in September, 2.2 percent. The rates in Alabama (3.0 percent), California (4.0 percent), Illinois (3.9 percent), New Jersey (3.1 percent), and South Carolina (2.9 percent) set new series lows. (All state series begin in 1976.) Alaska had the highest jobless rate, 6.2 percent.
emphasis added
State UnemploymentClick on graph for larger image.

This graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 1976.

At the worst of the great recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently only one state, Alaska, has an unemployment rate at or above 6% (dark blue).  Note that Alaska is at a new series low (since 1976).  Two states and the D.C. have unemployment rates above 5%; Alaska and Mississippi.

A total of eight states are at a series low: Alabama, Alaska, California, Illinois, Maine, New Jersey, South Carolina, and Texas.

Lawler: Early Read on Existing Home Sales in September

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

Based on publicly-available local realtor/MLS reports released across the country through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.36 million in September, down 2.4% from August’s preliminary estimate but up 3.5% from last September’s weak seasonally adjusted pace. Unadjusted sales should show a higher YoY increase, with the SA/NSA gap reflecting this September’s higher business day count relative to last September.

On the inventory front, local realtor/MLS data, as well as data from other inventory trackers, suggest that the inventory of existing homes for sale at the end of September should be down about 3.2% from a year earlier.

Finally, local realtor/MLS data suggest that the median US existing single-family home sales price last month was up by about 5.6% from last September.

CR Note: The National Association of Realtors (NAR) is scheduled to released September existing home sales on Tuesday, October 22nd at 10:00 AM ET. The consensus is for 5.45 million SAAR.

LA area Port Traffic Down Year-over-year in September

Special note: The expansion to the Panama Canal was completed in 2016 (As I noted a few years ago), and some of the traffic that used the ports of Los Angeles and Long Beach is probably going through the canal. This might be impacting TEUs on the West Coast.

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.

LA Area Port TrafficClick on graph for larger image.

On a rolling 12 month basis, inbound traffic was down 0.2% in September compared to the rolling 12 months ending in August.   Outbound traffic was down 0.4% compared to the rolling 12 months ending the previous month.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

LA Area Port TrafficUsually 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 (February 5th in 2019).

In general imports have been increasing (although down slightly this year), and exports have mostly moved sideways over the last 8 years - and also have moved down recently.

Comments on September Housing Starts

Earlier: Housing Starts decreased to 1.256 Million Annual Rate in September

Total housing starts in September were below expectations, however starts for July and August were revised up combined.

The housing starts report showed starts were down 9.4% in September compared to August, and starts were up 1.6% year-over-year compared to September 2018.

Single family starts were up 4.3% year-over-year, and multi-family starts were down 5.8% YoY.   Much of the weakness this month was in the volatile multi-family sector, still - overall - this was a decent report.

This first graph shows the month to month comparison for total starts between 2018 (blue) and 2019 (red).

Starts Housing 2018 and 2019Click on graph for larger image.

Starts were up 1.6% in September compared to September 2018.

Year-to-date, starts are down 1.3% compared to the same period in 2018.

Last year, in 2018, starts were strong early in the year, and then fell off in the 2nd half - so the Q4 comparisons will be easier.

My guess was starts would be down slightly year-over-year in 2019 compared to 2018, but nothing like the YoY declines we saw in February and March. Now it seems likely starts will be up in 2019 compared to 2018.

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.

Multifamily Starts and completionsThe 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 for several years following the great recession - but turned down, and has moved sideways recently.  Completions (red line) had lagged behind - then completions caught up with starts.

As I've been noting for several years, the significant growth in multi-family starts is behind us - multi-family starts peaked in June 2015 (at 510 thousand SAAR).

Single family Starts and completionsThe 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 relatively low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect some further increases in single family starts and completions.

Philly Fed Manufacturing shows slow Growth in October

From the Philly Fed: Current Manufacturing Indexes Suggest Growth in October
Manufacturing activity in the region continued to grow, according to results from the October Manufacturing Business Outlook Survey. The survey's broad indicators remained positive, although their movements were mixed this month: The general activity and shipments indicators decreased from their readings last month, but the indicators for new orders and employment increased. The survey’s future activity indexes remained positive, suggesting continued optimism about growth for the next six months.

The diffusion index for current general activity fell 6 points this month to 5.6, after decreasing 5 points in September.
emphasis added
This was at the consensus forecast. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Fed Manufacturing Surveys and ISM PMI Click on graph for larger image.

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

These early reports suggest the ISM manufacturing index will probably be weak again in October.

Industrial Production Decreased in September

From the Fed: Industrial Production and Capacity Utilization
Industrial production fell back 0.4 percent in September after advancing 0.8 percent in August. For the third quarter, industrial production rose at an annual rate of 1.2 percent following declines of about 2 percent in both the first and the second quarters.

Manufacturing production decreased 0.5 percent in September, with output reduced by a strike at a major manufacturer of motor vehicles. Excluding motor vehicles and parts, the overall index and the manufacturing index each moved down 0.2 percent. Mining production fell 1.3 percent, while utilities output rose 1.4 percent.

At 109.5 percent of its 2012 average, total industrial production was 0.1 percent lower in September than it was a year earlier. Capacity utilization for the industrial sector decreased 0.4 percentage point in September to 77.5 percent, a rate that is 2.3 percentage points below its long-run (1972–2018) average.
emphasis added
Capacity Utilization Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 10.8 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.5% is 2.3% below the average from 1972 to 2017 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.

Industrial ProductionThe second graph shows industrial production since 1967.

Industrial production decreased in September to  109.5. This is 26% above the recession low, and 3.9% above the pre-recession peak.

The change in industrial production and increase in capacity utilization were below consensus expectations.

Housing Starts decreased to 1.256 Million Annual Rate in September

From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately‐owned housing starts in September were at a seasonally adjusted annual rate of 1,256,000. This is 9.4 percent below the revised August estimate of 1,386,000, but is 1.6 percent above the September 2018 rate of 1,236,000. Single‐family housing starts in September were at a rate of 918,000; this is 0.3 percent above the revised August figure of 915,000. The September rate for units in buildings with five units or more was 327,000.

Building Permits:
Privately‐owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,387,000. This is 2.7 percent below the revised August rate of 1,425,000, but is 7.7 percent above the September 2018 rate of 1,288,000. Single‐family authorizations in September were at a rate of 882,000; this is 0.8 percent above the revised August figure of 875,000. Authorizations of units in buildings with five units or more were at a rate of 470,000 in September.
emphasis added
Total Housing Starts and Single Family Housing Starts 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) were down in September compared to August.   Multi-family starts were down 5.1% year-over-year in September.

Multi-family is volatile month-to-month, and  has been mostly moving sideways the last several years.

Single-family starts (blue) increased in September, and were up 4.3% year-over-year.

Total Housing Starts and Single Family Housing StartsThe second graph shows total and single unit starts since 1968.

The second graph shows the huge collapse following the housing bubble, and then eventual recovery (but still historically low).

Total housing starts in September were below expectations - mostly due to a decline in the volatile multi-family sector - however starts for July and August were revised up combined.

I'll have more later …

Weekly Initial Unemployment Claims increased to 214,000

The DOL reported:
In the week ending October 12, the advance figure for seasonally adjusted initial claims was 214,000, an increase of 4,000 from the previous week's unrevised level of 210,000. The 4-week moving average was 214,750, an increase of 1,000 from the previous week's unrevised average of 213,750.
emphasis added
The previous week was unrevised.

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 214,750.

This was close to the consensus forecast.

Thursday: Housing Starts, Unemployment Claims, Philly Fed Mfg, Industrial Production

Thursday:
• At 8:30 AM, Housing Starts for September. The consensus is for 1.300 million SAAR, down from 1.364 million SAAR.

• Also at 8:30 AM, The initial weekly unemployment claims report will be released. The consensus is for 215,000 initial claims, up from 210,000 last week.

• Also at 8:30 AM, the Philly Fed manufacturing survey for October. The consensus is for a reading of 7.1, down from 12.0.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for September. The consensus is for a 0.2% decrease in Industrial Production, and for Capacity Utilization to decline to 77.8%.

CAR on California Housing: Low Rates "Bolster" Sales in September

The CAR reported: Greater buying power amid historically low rates bolsters September home sales, C.A.R. reports
Amid the most favorable mortgage interest rates in nearly three years, California’s housing market recorded a third consecutive year-over-year sales increase as month-over-month sales remained essentially flat, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 404,030 units in September, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2019 if sales maintained the September pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

September’s sales figure was down 0.5 percent from the 406,100 level in August and up 5.8 percent from home sales in September 2018 of a revised 382,040. The year-over-year sales increase was the largest in two-and-a-half years.

“The housing market has been performing better so far in the second half of 2019, with both sales and prices up as mortgage rates remain near their three-year lows,” said C.A.R. President Jared Martin. “Additionally, pending sales have been on an upward trend with a near-10 percent increase over a year ago, making it the largest gain in three years. The solid improvement in pending sales suggests that the market may see more sales gains in the coming months.”
...
After 15 straight months of year-over-year increases, active listing fell for the third straight month, dropping 11.8 percent from year ago. The decline was the largest since December 2017.

The Unsold Inventory Index (UII), which is a ratio of inventory over sales, was 3.5 months in September, up from 3.2 in August and down from 4.2 months in September 2018. The index measures the number of months it would take to sell the supply of homes on the market at the current sales rate.
emphasis added
Here is some inventory data from the NAR and CAR (ht Tom Lawler).   Note that this is the third consecutive YoY decrease in inventory in California since early 2018.

YOY % Change, Existing SF Homes for Sale  NAR
(National)CAR
(California)Sep-17-8.4%-11.2%Oct-17-10.4%-11.5%Nov-17-9.7%-11.5%Dec-17-11.5%-12.0%Jan-18-9.5%-6.6%Feb-18-8.6%-1.3%Mar-18-7.2%-1.0%Apr-18-6.3%1.9%May-18-5.18.3%Jun-18-0.5%8.1%Jul-180.0%11.9%Aug-182.1%17.2%Sep-181.1%20.4%Oct-182.8%28%Nov-184.2%31%Dec-184.8%30.6%Jan-194.6%27%Feb-193.2%19.2%Mar-191.8%13.4%Apr-191.7%10.8%May-192.1%7.4%Jun-19-0.05%2.4%Jul-19-1.0-2.1%Aug-19-2.6-8.9%Sep-19NA-11.8%

NAHB: "Builder Confidence Hits 20-Month High"

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 71 in October, up from 68 in September. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Hits 20-Month High
Builder confidence in the market for newly-built single-family homes rose three points to 71 in October, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. Sentiment levels are at their highest point since February 2018.

“The housing rebound that began in the spring continues, supported by low mortgage rates, solid job growth and a reduction in new home inventory,” said NAHB Chairman Greg Ugalde, a home builder and developer from Torrington, Conn.

“The second half of 2019 has seen steady gains in single-family construction, and this is mirrored by the gradual uptick in builder sentiment over the past few months,” said NAHB Chief Economist Robert Dietz. “However, builders continue to remain cautious due to ongoing supply side constraints and concerns about a slowing economy.”

All the HMI indices posted gains in October. The HMI index gauging current sales conditions increased three points to 78, the component measuring sales expectations in the next six months jumped six points to 76 and the measure charting traffic of prospective buyers rose four points to 54.

Looking at the three-month moving averages for regional HMI scores, the Northeast posted a one-point gain to 60, the Midwest was up a single point to 58, the South registered a three-point increase to 73 and the West was also up three points to 78.
emphasis added
NAHB HMI Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was above the consensus forecast.

Retail Sales decreased 0.3% in September

On a monthly basis, retail sales decreased 0.3 percent from August to September (seasonally adjusted), and sales were up 4.1 percent from September 2018.

From the Census Bureau report:
Advance estimates of U.S. retail and food services sales for September 2019, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $525.6 billion, a decrease of 0.3 percent from the previous month, but 4.1 percent above September 2018.
emphasis added
Retail Sales 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 down 0.2% in September.

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

Year-over-year change in Retail Sales Retail and Food service sales, ex-gasoline, increased by 4.7% on a YoY basis.

The increase in September was below expectations, however sales in August were revised up.

MBA: Mortgage Applications Increased in Latest Weekly Survey

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey
Mortgage applications increased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 11, 2019.

... The Refinance Index increased 4 percent from the previous week and was 199 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 4 percent compared with the previous week and was 12 percent higher than the same week one year ago.
...
“The ongoing interest rate volatility is impacting a borrowers’ ability to lock in the lowest rate possible. Despite a slight rise in mortgage rates last week, refinance applications increased 4 percent and were 199 percent higher than a year ago,” said Joel Kan, Associate Vice President of Economic and Industry Forecasting. “Purchase applications slowed for the second week in a row. While near term economic uncertainty is still a factor, other fundamental issues, such as a lack of housing inventory in many markets, is preventing purchase activity from meaningfully rising. However, purchase applications were still much higher than a year ago. This is a reminder that the purchase environment in 2019 continues to be stronger than in 2018.””
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 3.92 percent from 3.90 percent, with points decreasing to 0.35 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance IndexClick on graph for larger image.


The first graph shows the refinance index since 1990.

With lower rates, we saw a sharp increase in refinance activity.   Mortgage rates would have to decline further to see a huge refinance boom.

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

According to the MBA, purchase activity is up 12% year-over-year.

Wednesday: Retail Sales, Homebuilder Survey

Wednesday:
• 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 September will be released.  The consensus is for a 0.3% increase in retail sales.

• At 10:00 AM, The October NAHB homebuilder survey. The consensus is for a reading of  68, unchanged from 68 in September. Any number above 50 indicates that more builders view sales conditions as good than poor.

Housing and Recessions

Now that new home sales have reached a new cycle high (in June), I'd like to update a couple of graphs in a previous post (most of this from an earlier post).

For the economy, what we should be focused on are single family starts and new home sales. As I noted in Investment and Recessions "New Home Sales appears to be an excellent leading indicator, and currently new home sales (and housing starts) are up solidly year-over-year, and this suggests there is no recession in sight."

For the bottoms and troughs for key housing activity, here is a graph of Single family housing starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

Starts, new home sales, residential Investment Click on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

RI as a percent of GDP has been sluggish recently.

Also, look at the relatively low level of RI as a percent of GDP, new home sales and single family starts compared to previous peaks.   To have a significant downturn from these levels would be surprising.

BKFSThe second graph shows the YoY change in New Home Sales from the Census Bureau.

Note: the New Home Sales data is smoothed using a three month centered average before calculating the YoY change. The Census Bureau data starts in 1963.

Some observations:

1) When the YoY change in New Home Sales falls about 20%, usually a recession will follow. The one exception for this data series was the mid '60s when the Vietnam buildup kept the economy out of recession.   Note that the sharp decline in 2010 was related to the housing tax credit policy in 2009 - and was just a continuation of the housing bust.

2) It is also interesting to look at the '86/'87 and the mid '90s periods. New Home sales fell in both of these periods, although not quite 20%. As I noted in earlier posts, the mid '80s saw a surge in defense spending and MEW that more than offset the decline in New Home sales. In the mid '90s, nonresidential investment remained strong.

Although new home sales were down towards the end of 2018, the decline wasn't that large historically.  As I noted last Fall, I wasn't even on recession watch.   Now new home sales are up solidly year-over-year.  No worries.

NY Fed: Manufacturing "Business activity grew slightly in New York State"

From the NY Fed: Empire State Manufacturing Survey
Business activity grew slightly in New York State, according to firms responding to the October 2019 Empire State Manufacturing Survey. The headline general business conditions index edged up two points to 4.0. There was only a small increase in new orders, but shipments picked up. Delivery times decreased slightly, while inventories were little changed. Employment levels and hours worked both increased modestly.
...
The index for number of employees came in at 7.6, pointing to ongoing modest employment gains, and the average workweek index rose seven points to 8.3, indicating that hours worked also increased.

Indexes assessing the six-month outlook suggested that optimism about future conditions improved somewhat but remained subdued. The index for future business conditions edged up three points to 17.1 but remained well below the levels seen for much of the past few years.
emphasis added
This was higher than the consensus forecast.

Tuesday: NY Fed Mfg

Tuesday:
• At 8:30 AM ET, The New York Fed Empire State manufacturing survey for October. The consensus is for a reading of 0.8, down from 2.0.

Update: Real Estate Agent Boom and Bust

Way back in 2005, I posted a graph of the Real Estate Agent Boom. Here is another update to the graph.

The graph shows the number of real estate licensees in California.

The number of agents peaked at the end of 2007 (housing activity peaked in 2005, and prices in 2006).

The number of salesperson's licenses is off 26% from the peak, and is increasing again (up 11% from low). The number of salesperson's licenses has increased to November 2004 levels.

Brokers' licenses are off 14.2% from the peak and have fallen to December 2005 levels, and may be bottoming..

California Real Estate Licensees Click on graph for larger image.

We are seeing a pickup in Real Estate licensees in California, although the number of Brokers is mostly flat.

Oil Prices

From Reuters: Oil falls due to caution over first phase of U.S.-China trade deal
Oil prices fell more than 2% on Monday as scant details about the first phase of a trade deal between the United States and China undercut optimism over a U.S.-Sino thaw that had helped lift crude markets by 2% at the end of last week.
Oil PricesClick on graph for larger image

The first graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).

According to Bloomberg, WTI is at $53.44 per barrel today, and Brent is at $59.13.

Prices collapsed in 2008 due to the financial crisis, and then increased as the economy recovered.   Oil prices collapsed again in 2014 and 2015, mostly due to oversupply.

Oil PricesThe second graph shows the year-over-year change in WTI based on data from the EIA.

Six times since 1987, oil prices have increased 100% or more YoY.  And several times prices have almost fallen in half YoY.

Currently WTI is down 28% year-over-year.

Just a reminder that oil prices are volatile!

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