Monday, February 24, 2014

The Chicago Fed National Activity Index: January 2014

The latest release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that the national economic activity worsened in January with the index falling to a very weak level of -0.39 from a level of -0.03 in December while the three month moving average declined to a level of -0.10.

The CFNAI is a weighted average of 85 indicators of national economic activity collected into four overall categories of “production and income”, “employment, unemployment and income”, “personal consumption and housing” and “sales, orders and inventories”.

The Chicago Fed regards a value of zero for the total index as indicating that the national economy is expanding at its historical trend rate while a negative value indicates below average growth.

A value at or below -0.70 for the three month moving average of the national activity index (CFNAI-MA3) indicates that the national economy has either just entered or continues in recession.

Existing Home Sales Report: January 2014

On Friday, the National Association of Realtors (NAR) released their Existing Home Sales Report for January showing plunging sales with total home sales falling 5.1% since December and falling 5.1% below the level seen in January 2013.

Single family home sales also crashed dropping 5.8% from December falling a notable 6% below the level seen in January 2013 while the median selling price increased 10.4% above the level seen a year earlier.

Inventory of single family homes increased from December to 1.69 million units and climbed 7% above the level seen in January 2013 which, along with the sales pace, resulted in a monthly supply of 5.0 months.

The following charts (click for full-screen dynamic version) shows national existing single family home sales, median home prices, inventory and months of supply since 2005.



Wednesday, February 19, 2014

New Residential Construction Report: January 2014

Today’s New Residential Construction Report showed a notable declines to both total permit activity and total start activity with starts dropping a whopping 16% from December.

Single family housing permits, the most leading of indicators, declined 1.3% from December to 602K single family units (SAAR), and  increased 2.4% above the level seen in January 2013 but still remained well below levels seen at the peak in September 2005.


Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings February 2014

Yesterday, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing that assessments of housing activity worsened significantly in February with the composite HMI index falling to 46 while the "buyer traffic" index declined to a level of 31.

This pullback is severe and while many are suggesting that inclement weather is responsible, only time will tell if this is the beginning of an ongoing downtrend for new construction or just a momentary pause.

Looking at the data, it is fairly clear that the last year of results indicate a major change in builder sentiment likely coming as a result of improvements in confidence given the notable rise in buyer traffic, reduced inventory and a more balanced monthly supply.




Reading Rates: MBA Application Survey – February 19 2014

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) increased 4 basis point to 4.37% since last week while the purchase application volume declined 6% and the refinance application volume declined 3% over the same period.

Now that the Federal Reserve has announced additional taper of their bond purchasing by another $10 billion per month ($20 billion taper), it will be interesting to watch the trend for mortgage rates.

Any significant move up in lending rates has the potential to do serious damage to home purchase activity and home prices.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).




Friday, February 14, 2014

Production Pullback: Industrial Production January 2014

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing a decrease in January with total industrial production falling 0.33% since December but rose 2.91% above the level seen in January 2013.

Capacity utilization also declined falling 0.52% from December but rising 1.02% above the level seen in January 2013 to stand at 78.48%


Thursday, February 13, 2014

Conspicuous Correlation: Retail Sales January 2014

Today, the U.S. Census Bureau released its latest nominal read of retail sales for January showing a decrease of 0.4% from December, and a gain of 2.6% on a year-over-year basis on an aggregate of all items including food, fuel and healthcare services.

Nominal "discretionary" retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales climbed slightly, rising 0.02% from December but declining 1.06% below the level seen in January 2013 while, adjusting for inflation, “real” discretionary retail sales declined 0.28% on the month and falling 2.77% since January 2013.

On a “nominal” basis, there had appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following chart shows the year-over-year change to nominal discretionary retail sales and the year-over-year change to nominal the S&P/Case-Shiller Composite home price index since 1993 and since 2000.

As you can see there is, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

Looking at the chart below (click for full-screen dynamic version), adjusted for inflation (CPI for retail sales, CPI “less shelter” for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

Wednesday, February 12, 2014

Reading Rates: MBA Application Survey – February 12 2014

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) declined 1 basis point to 4.33% since last week while the purchase application volume declined 5% and the refinance application volume increased 0.2% over the same period.

Now that the Federal Reserve has announced additional taper of their bond purchasing by another $10 billion per month ($20 billion taper), it will be interesting to watch the trend for mortgage rates.

Any significant move up in lending rates has the potential to do serious damage to home purchase activity and home prices.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).




Monday, February 10, 2014

SNAP Food Stamp Participation: November 2013

As a logical consequence of the prolonged economic downturn, participation in the federal food stamp program is continuing to rise.

The latest data released by the Department of Agriculture indicated that in November, a whopping 379,910 individual recipients were removed from the food stamps program with the current total declining 1.36% on a year-over-year basis.

Individuals receiving food stamp benefits declined to 47.03 million which, as a ratio of the overall civilian non-institutional population now stands at a whopping 19.07% of the population.

Households receiving food stamps benefits declined by 150,238 to 22.9 million households with the current total falling 0.49% below the level seen a year earlier

Total nominal benefit cost declined 8.41% on a year-over-year basis to $5.92 billion for the month.

Friday, February 07, 2014

Envisioning Employment: Employment Situation January 2014

The latest Employment Situation Report indicated that in January, net non-farm payrolls increased by 113,000 jobs overall with the private non-farm payrolls sub-component adding 142,000 jobs while the civilian unemployment rate declined to 6.6% over the same period.

Net private sector jobs increased 0.12% since last month climbing 2.02% above the level seen a year ago and climbing 0.02% above the peak level of employment seen in December 2007 prior to the Great Recession.

Recovery-less Recovery: Unemployment Duration January 2014


The latest employment situation report showed that conditions for the long term unemployed improved in January while still remaining distressed by historic standards.

Workers unemployed 27 weeks or more declined to 3.646 million or 35.8% of all unemployed workers while the median term of unemployment declined increased to 16.0 weeks and the average stay on unemployment went flat at 35.4 weeks.

Looking at the charts below (click for super interactive versions) you can see that today’s sorry situation far exceeds even the conditions seen during the double-dip recessionary period of the early 1980s, long considered by economists to be the worst period of unemployment since the Great Depression.



On The Margin: Total Unemployment January 2014

The latest Employment Situation report showed that in January “total unemployment” including all marginally attached workers declined to 12.7% while the traditionally reported unemployment rate declined to 6.6%.

The traditional unemployment rate is calculated from the monthly household survey results using a fairly explicit definition of “unemployed” (essentially unemployed and currently looking for full time employment) leaving many workers to be considered effectively “on the margin” either employed in part time work when full time is preferred or simply unemployed and no longer looking for work.

The Bureau of Labor Statistics considers “marginally attached” workers (including discouraged workers) and persons who have settled for part time employment to be “underutilized” labor.

The broadest view of unemployment would include both traditionally unemployed workers and all other underutilized workers.

To calculate the “total” rate of unemployment we would simply use this larger group rather than the smaller and more restrictive “unemployed” group used in the traditional unemployment rate calculation.

Wednesday, February 05, 2014

ADP National Employment Report: January 2014

Today, private staffing and business services firm ADP released the latest installment of their National Employment Report indicating that the situation for private employment in the U.S. improved in January as private employers added 175,000 jobs in the month bringing the total employment level 1.95% above the level seen in January 2013.

Look for Friday’s (possibly postponed) BLS Employment Situation Report to likely show somewhat similar trends.

Reading Rates: MBA Application Survey – February 05 2014

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) declined 5 basis points to 4.34% since last week while the purchase application volume declined 4% and the refinance application volume increased 3% over the same period.

Now that the Federal Reserve has announced additional taper of their bond purchasing by another $10 billion per month ($20 billion taper), it will be interesting to watch the trend for mortgage rates.

Any significant move up in lending rates has the potential to do serious damage to home purchase activity and home prices.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).




Monday, February 03, 2014

Construction Spending: December 2013

Today, the U.S. Census Bureau released their latest read of construction spending showing improvement in December with total private construction spending and single family construction spending rising since November while non-residential construction spending declined over the same period.

On a month-to-month basis, total residential spending increased 2.57% from November climbing 18.67% above the level seen in December 2012 and remaining well below the peak level seen in 2006.

Single family construction spending increased 3.42% from November rising 24.19% since December 2012 remaining well below it's peak level reached in 2006.

Non-residential construction spending declined 0.66% from November falling 4.95% below the level seen in December 2012 and remaining a well below the peak level reached in October 2008.

The following charts (click for larger dynamic versions) show private residential construction spending, private residential single family construction spending and private non-residential construction spending broken out and plotted since 1993 along with the year-over-year, month-to-month and peak percent change to each since 1994 and 2000 – 2005.