• We expect strong global growth this year, given firm current momentum, easing financial conditions, and supportive fiscal policy. But high asset valuations and the prospect of labor market overheating suggest that the recent strength might be “too much of a good thing” further down the road.CR Note: My view is recession risk is low this year, and I expect further growth in the US in 2018.
• Our model suggests that near-term recession risk is low. The probability of a downturn is also below normal over the next 2-3 years, but has been rising steadily in economies that are seeing unusually easy financial conditions and tightening labor markets. These include the US, Germany, the UK and a number of smaller G10 economies ...
• Although our model is subject to a number of caveats, it confirms that we need to worry little about recession risk this year. But our analysis suggests that we should pay attention to measures of imbalances that signal rising recession risk further down the road.
• Total US oil rigs were up 10 to 752 this weekClick on graph for larger image.
• Horizontal oil rigs were up 4 to 654
• We have expected rig counts to rise sharply in recent weeks, and we saw some – but still insufficient – vindication this week.
• Incredible price action again this week, with WTI breaching the $64 threshold, but with the Brent spread falling below $6.00.
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% (3.5% annualized rate) in December. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.8% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.Note: The Cleveland Fed released the median CPI details for December here.
Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.1% (1.8% annualized rate) in December. The CPI less food and energy rose 0.3% (3.4% annualized rate) on a seasonally adjusted basis.
Advance estimates of U.S. retail and food services sales for December 2017, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $495.4 billion, an increase of 0.4 percent from the previous month, and 5.4 percent above December 2016. ... The October 2017 to November 2017 percent change was revised from up 0.8 percent to up 0.9 percentClick on graph for larger image.
The bottom line: A 49 percent surge in benchmark North American crude futures since late June, putting prices at a three-year high.Click on graph for larger image
"We expect inventories are going to build this year -- slightly,” said Michael Cohen, Barclays Head of Oil Markets Research, in an interview on Bloomberg TV. "You’re going to see a bunch of new crude supply coming on to the market this year from the U.S. So all in all, on a balanced basis, we don’t see the kind of shortage to bring us to $80 for a sustainable basis."
December recorded 1,408 closed escrows, a .9% increase from November(1,396 sales) and an 8% decrease from last year (1,530 sales).Here are the statistics.
Active Listing Inventory decreased, dropping 28.9% from 2,216 to 1,575. The Months of Inventory also decreased, dropping 31.3% from 1.6 Months to 1.1. A year ago the Months of inventory was 1 and Active Listing Inventory stood at 1,458 listings (7.4% below the current figure).
In the week ending January 6, the advance figure for seasonally adjusted initial claims was 261,000, an increase of 11,000 from the previous week's unrevised level of 250,000. The 4-week moving average was 250,750, an increase of 9,000 from the previous week's unrevised average of 241,750.The previous week was unrevised.
Claims taking procedures continue to be disrupted in the Virgin Islands. The claims taking process in Puerto Rico has still not returned to normal.
The low rate of residential construction has been contributing to the tight supply of existing homes listed for sale. New construction provides liquidity to local housing markets, where households are often both buyers and sellers. With fewer new homes from which to choose, many homeowners considering upgrading have instead chosen to remain in their current homes and so have not listed them for sale. As a result, the number of existing homes for sale has decreased as well, dissuading other homeowners from upgrading and further dampening sales listings. This “vicious circle” has limited the efficacy of rising sales prices in eliciting more listings. Since early 2015, the number of single-family homes listed for sale has steadily declined (Chart 2, blue line). Correspondingly, the ratio of listed homes to monthly sales, also known as “months supply,” fell to 3.8 in November, its lowest value since 1982, the earliest date for which data are available (green line).
Limited new construction and sales listings of low-end single-family homes have similarly dissuaded many younger households from leaving their apartments to purchase homes, thereby depressing the number of vacant apartments available...
As the housing bubble unwinds, housing related employment will fall; and fall dramatically in areas like the Inland Empire. The more an area is dependent on housing, the larger the negative impact on the local economy will be.And sure enough, the economies of housing dependent areas like the Inland Empire were devastated during the housing bust. The good news is the Inland Empire is expanding solidly now.
So I think some pundits have it backwards: Instead of a strong local economy keeping housing afloat, I think the bursting housing bubble will significantly impact housing dependent local economies.
Mortgage applications increased 8.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 5, 2018. This week’s results included an adjustment for the New Year’s holiday. Results for the previous week ending 12/29/17 were revised.Click on graph for larger image.
... The Refinance Index increased 11 percent from the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 44 percent compared with the previous week and was 1 percent lower than the same week one year ago. ...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.23 percent from 4.22 percent, with points decreasing to 0.35 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The Index of Small Business Optimism lost 2.6 points in December, falling to 104.9, still one of the strongest readings in the 45-year history of the NFIB surveys. The highest reading of 108.0 was reached in July 1983, only slightly above November’s 107.5. The lowest reading of 79.7 occurred in April 1980. Two of the 10 Index components posted a gain, five declined, and three were unchanged. The decline left the Index historically strong and maintained a string of exceptional readings that started the day after the 2016 election results were announced. Following the election announcement, the Index rose from 95.0 (a below average reading) for October and pre-election November, to 102.0 in the November weeks after the election, and then to 105.0 in January. This surge in optimism has led to 2017 achieving the highest yearly average Index reading in the survey’s history. The average monthly Index for 2017 was 104.8. The previous record was 104.6, set in 2004.
Job creation was slow in the small-business sector as owners reported a seasonally adjusted average employment change per firm of 0.01 workers. Clearly, a lack of “qualified” workers is impeding the growth in employment. ... Nineteen percent of owners cited the difficulty of...
The Dodge Momentum Index grew 3.6% in December to 153.9 (2000=100) from the revised November reading of 148.6. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. December’s increase was due to an 8.6% jump in the institutional component of the Momentum Index, while the commercial component eked out a 0.7% gain. For the full year 2017, the Momentum Index averaged 132.3, up 10.7% from the full year average for 2016, with similar improvement for the commercial sector (up 11.4%) and the institutional sector (up 9.7%). After retreating during the third quarter of 2017, the Momentum Index regained its upward track in the fourth quarter, which enabled December’s reading for the Momentum Index to be up 20.9% compared to the same month a year ago. The continued strengthening by the Momentum Index in 2017 suggests that nonresidential building construction activity will advance further during 2018.Click on graph for larger image.
The number of job openings was little changed at 5.9 million on the last business day of November, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were little changed at 5.5 million and 5.2 million, respectively. Within separations, the quits rate was unchanged at 2.2 percent and the layoffs and discharges rate was little changed 1.1 percent. ...The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.
The number of quits was little changed at 3.2 million in November. The quits rate was 2.2 percent. The number of quits was little changed for total private and increased for government.
The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income.This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:
The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.
The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only an approximation of the debt service ratio faced by households. Nonetheless, this approximation is useful to the extent that, by using the same method...