Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings December 2011

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing that all measures increased in December with the composite HMI index climbing to 21 while the "buyer traffic" index climbed from record lows to 19, the highest level seen since May 2008, as home builders continue to plod through the weakest activity seen in generations.

While all indicators made notable increases in November, it's important to note that conditions still remain epically distressed by historic standards.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

Index of Stress: December 2011

The Federal Reserve Bank of St. Louis recently began publishing a new weekly index that seeks to track the general level of financial stress.

As periods of financial stress come and go a whole host of fundamental economic indicators immediately adjust to meet the near and long term expectations of market participants

Interest rates, yields spreads, popular market volatility indices all move in real time giving observers unequivocal evidence of changes general sentiment.

The St. Louis Fed has devised a method of crunching eighteen of these sensitive indices down into one convenient index it calls the St. Louis Fed Financial Stress Index (STLFSI).

The latest results of the STLFSI indicate that the level of financial stress remains elevated with December's results near the highest level seen in since 2009 at .83.

Philadelphia Feeling: Federal Reserve Bank of Philadelphia Business Outlook Survey December 2011

The latest release of the Federal Reserve Bank of Philadelphia Business Outlook Survey (BOS) for December indicated a notable improvement in the regions manufacturing activity with the current activity index climbing to a level of 10.3 while the future activity index improved to a level of 44.1.

The following chart shows the current and future activity indexes both with their corresponding 3-month moving averages. The red line marks the threshold between contraction and expansion for these diffusion indexes.

Production Pullback: Industrial Production November 2011

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing a pullback with total industrial production declining 0.22% from October and rising 3.74% above the level seen in November 2010.

Capacity utilization declined 0.30% from October climbing just 2.63% above the level seen in November of 2010 to stand at 77.79%

It's important to recognize that though the "recovery" is well over two years old, both industrial production and capacity utilization are notably below the peaks set in late 2007.

The Empire State Manufacturing Survey: December 2011

The Empire State Manufacturing Survey consists of a series of diffusion indices distilled from a monthly survey of New York regional manufacturing executives and seeks to identify trends across 22 different current and future manufacturing related activities.

Today’s report showed a notable improvement for both current and future assessments of manufacturing activity with the current activity index climbing to 9.53 while future activity jumped to just 52.33.

Current prices paid increased to 24.42 while current new orders improved 5.1 and assessments of future new orders improved to 54.65.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims December 15 2011

Today’s jobless claims report showed a notable decline to initial unemployment claims and a slight increase to continued unemployment claims as a slight rising trend was firmly called into question for initial claims.

Seasonally adjusted “initial” unemployment declined 19,000 to 366,000 claims from last week’s revised 385,000 claims while seasonally adjusted “continued” claims increased by 4,000 resulting in an “insured” unemployment rate of 2.9%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 3.64 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.69 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.33 million people on state and federal unemployment rolls.

Reading Rates: MBA Application Survey – December 14 30 2011

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 yet again, dropping 5 basis points to 4.03% since last week while the purchase application volume declined 8.2% and the refinance application climbed 9.3% over the same period.

With rates trending ever lower, the economy seemingly near recession and the FOMC members becoming more dovish by the day, it will be interesting to see how far rates on the long end can decline.  All things being equal, falling home prices, declining purchase applications and record low long lending rates all appear to indicate a deflationary for the macro-economy.

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).

Economic Jolt: Job Openings and Labor Turnover October 2011

Today, the Bureau of Labor Statistics released their latest monthly read of job availability and labor turnover (JOLT) showing that private non-farm job “openings” declined 3.20% since September climbing 13.55% above the level seen in October 2010 while private non-farm job “hires” declined 2.65% from September and rose 5.64% above the level seen in October 2010

Job “layoffs and discharges” declined 6.92% from September falling 2.61% below the level seen last year while quitting activity declined 3.56% from September remaining 9.85% above the level seen in October 2010.

It’s important to understand that job “quits” are included as a component of the “separations” data series as “quitting” is a valid means of workers “separating” from employers but their inclusion tends to create an overall procyclical trend in what would otherwise be logically thought of as a countercyclical process (i.e. downturn leads to increase in separations not decrease).

On The Pulse: Ceridian-UCLA Pulse of Commerce Index November 2011

The latest release of the Ceridian-UCLA Pulse of Commerce Index™ (PCI) suggests that economic activity improved slightly in November with the seasonally adjusted index climbing 0.13% from October and climbing 0.92% above the level seen in November 2010.

Currently, the PCI appears to be slowing overall joining a host of other sensitive indicators that currently appear to be signaling notable economic weakness and possible looming recession.  

The three month moving average of the PCI increased slightly from October indicating that the November (released this week) Industrial Production data will likely show a similar trend.

Conspicuous Correlation: Retail Sales November 2011

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing a 0.2% increase from October and an increase of 6.7% 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 increased 0.34% from October and increased 3.68% above the level seen in November 2010 while, adjusting for inflation, “real” discretionary retail sales declined 0.08% over the same period.

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.

Hong Kong Bubble?: Hong Kong Residential Property Prices October 2011

Today, the University of Hong Kong released their Hong Kong Residential Real Estate Series (HKU-REIS) indicating that, in October, the price of residential properties declined 0.26% since September but still climbed 13.43% above the level seen in October 2010.

It appears that after a stunning run of monthly increases that saw prices increase dramatically, prices are beginning to show a notable pullback with all measures declining on the month.

The HKU-REIS is a set of property price indices constructed monthly using a “modified” repeat-sale methodology similar to that of the S&P/Case-Shiller indices yet suited to the Hong Kong property market.

Radar Watching: October 2011

As I have noted in the past, since the home price index data provided by Radar Logic is more timely, unadjusted and un-smoothed it is particularly useful for gaining deeper visibility over our housing markets.

As for the latest trends, it’s important to note that the 25-MSA Composite is continuing to show significant year-over-year declines and, after having broken well below the low set in March of 2009 (double-dipping) earlier this year and then rising throughout the spring/summer selling season, is now clearly in decline as the data moves into the period of the year with the least number of transactions.

The latest data shows that as of October, prices have declined 4.33% below the level seen in October 2010 while continuing to turn down from a seasonal peak reached in mid-June.

With the spring/summer selling season now complete and declining prices now registering with regularity, there is nowhere for prices to go but down. Look for a declining trend to continue to materialize and likely run into March or April of 2012.

University of Michigan Survey of Consumers December 2011 (Early)

Today's early release of the Reuters/University of Michigan Survey of Consumers for December indicated improvement in consumer sentiment with a reading of 67.7 but falling 9.13% below the level seen last year while one year inflation expectations declined slightly at 3.1%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) rose to 61.1, and the Current Economic Conditions Index climbed to 77.9.

It's important to recognize that consumer sentiment has seriously eroded over the past few months with the current results remaining near levels not seen since 1980, a major indication that consumers are in the process of tightening even further on spending.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims December 08 2011

Today’s jobless claims report showed notable declines to both initial and continued unemployment claims as a slight rising trend was firmly called into question for initial claims.

Seasonally adjusted “initial” unemployment declined 23,000 to 381,000 claims from last week’s revised 404,000 claims while seasonally adjusted “continued” claims declined by 174,000 resulting in an “insured” unemployment rate of 2.8%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 3.30 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.16 million people that are currently counted as receiving traditional continued unemployment benefits, there are 6.47 million people on state and federal unemployment rolls.

Index of Stress: November 2011

The Federal Reserve Bank of St. Louis recently began publishing a new weekly index that seeks to track the general level of financial stress.

As periods of financial stress come and go a whole host of fundamental economic indicators immediately adjust to meet the near and long term expectations of market participants

Interest rates, yields spreads, popular market volatility indices all move in real time giving observers unequivocal evidence of changes general sentiment.

The St. Louis Fed has devised a method of crunching eighteen of these sensitive indices down into one convenient index it calls the St. Louis Fed Financial Stress Index (STLFSI).

The latest results of the STLFSI indicate that the level of financial stress appears to be trending up with November's results remaining near the highest level seen in since 2009 at 1.0.