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Schedule for Week of Mar 18, 2018

Goldman: FOMC Preview

• No major economic releases scheduled.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 2, and DOW futures are down 20 (fair value).

Oil prices were mixed over the last week with WTI futures at $62.16 per barrel and Brent at $66.02 per barrel.  A year ago, WTI was at $48, and Brent was at $51 - so oil prices are up solidly year-over-year.

Here is a graph from for nationwide gasoline prices. Nationally prices are at $2.54 per gallon. A year ago prices were at $2.29 per gallon - so gasoline prices are up 25 cents per gallon year-over-year.
A few brief excerpts from a note by Goldman Sachs economists Jan Hatzius and Spencer Hill: FOMC Preview: A Fast Start for the Powell Fed
The FOMC looks very likely to raise rates at next week’s meeting, the first with Chairman Powell at the helm ... we expect a slightly hawkish tone to next week’s meeting.
[We] expect the post-meeting statement to retain January’s upbeat tone ... but we expect the Committee’s optimism to come across more clearly in the SEP and the dots ... we do think the statement will acknowledge recent housing weakness.
The SEP is likely to show higher GDP growth projections for 2018, 2019, and longer-run, as well as a lower unemployment path and a modest inflation overshoot in 2020.
Public remarks by Fed officials suggest a broad shift in the committee’s outlook towards a potentially faster pace of tightening, and we expect the median dot to show four hikes in 2018, up from three at the December meeting.
From STR: US hotel results for week ending 10 March
The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 4-10 March 2018, according to data from STR.

In comparison with the week of 5-11 March 2017, the industry recorded the following:

Occupancy: +1.1 at 68.1%
• Average daily rate (ADR): +2.0% to US$131.46
• Revenue per available room (RevPAR): +3.1% to US$89.53
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The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Click on graph for larger image.

The red line is for 2018, dash light blue is 2017 (record year due to hurricanes), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate, to date, is fifth overall - and slightly ahead of the record year in 2017 (2017 finished strong due to the impact of the hurricanes).

Data Source: STR, Courtesy of
The key economic reports this week are February new home sales and existing home sales.

The FOMC meets this week and is expected to announce a 25bps increase in the Fed Funds rate.

----- Monday, Mar 19th -----

No major economic releases scheduled.

----- Tuesday, Mar 20th -----

No major economic releases scheduled.

----- Wednesday, Mar 21st -----

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

10:00 AM: Existing Home Sales for February from the National Association of Realtors (NAR). The consensus is for 5.42 million SAAR, up from 5.38 million in January.

The graph shows existing home sales from 1994 through the report last month.

Housing economist Tom Lawler will probably release his estimate on Monday. His preliminary estimate is 5.43 million SAAR for February.

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

2:00 PM: FOMC Meeting Announcement. The FOMC is expected to increase the Fed Funds rate 25 bps at this meeting.

2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

2:30 PM: Fed Chair Jerome Powell holds a press briefing following the...
From Flat February: median sales price, sales volume stagnant
February closed with 1,131 sales, up just .2% from January’s 1,129 sales. Compared with one year ago (1,028), the current figure is a 10% increase. Of the 1,131 sales this month, 171 (15.1%) cash financing, 651 (57.6%) used conventional, 203 (17.9%) used FHA, 59 (5.2%) used VA and 47 (4.2%) used Other types of financing.

Active Listing Inventory increased 2.8% from 1,677 to 1,724. The Months of Inventory, however, remained at 1.5 Months. A year ago the Months of inventory was 1.4 and Active Listing Inventory stood at 1,469 listings (17.4% below the current figure).

The Average DOM (days on market) remained at 31 from month to month. The Median DOM dropped from 17 to 13.

“Days on market” represents the days between the initial listing of the home as “active” and the day it goes “pending.” 66.9% of all homes sold this month (757) were on the market for 30 days or less and 81.8% (925) of all homes sold in 60 days or less. Compare this to February 2016 where 78.8% of all homes sold (1,082) sold in 60 days or less.
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CR Note: Inventory is still low, but now increasing year-over-year in Sacramento.

The statistics for February are here.
Earlier: Housing Starts decreased to 1.236 Million Annual Rate in February

The housing starts report released this morning showed starts were down 7.0% in February compared to January, and starts were down 4.0% year-over-year compared to February 2017.  

The decline in starts was due to the volatile multi-family sector.  Single family starts were up 2.9% year.

This first graph shows the month to month comparison between 2017 (blue) and 2017 (red).

Click on graph for larger image.

Starts were down 4.0% in February compared to February 2017.

Note that February 2016 was a pretty strong month for housing starts, so this was a difficult comparison.  The next three months will be easier.  

Through two months, starts are up 1.6% year-to-date compared to the same period in 2017.

Single family starts were up 2.9% year-over-year, and also up 2.9% compared to January.

Multi-family starts were down 18.7% year-over-year, and down 26.1% compared to January (multi-family is volatile month-to-month).

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...
CR Note: I've written extensively about the Labor Force Participation Rate (LFPR). This is a very detailed analysis and model from the CBO.

Here is the new paper from Joshua Montes at the Congressional Budget Office: CBO’s Projection of Labor Force Participation Rates

From the Conclusion:
This paper details CBO’s methodology for estimating and projecting labor force participation rates. CBO constructs a birth-year cohort model of the labor force participation rate that estimates labor force participation rates by age-sex-education-race subgroups. Using the estimated model to project rates over the next decade, CBO expects the overall rate to decline by 2.7 percentage points, reaching 60.1 percent by 2028.

Most (2.5 percentage points, or about 80 percent) of the 3.2 percentage-point decline since the 2007–2009 recession in the labor force participation rate for the population at least 16 years old is the result of aging. That decline continued a trend that began in the late 1990s and early 2000s as the early baby-boom cohorts began to turn 50 years old, the age at which individuals tend to start reducing their participation in the labor force. CBO projects that the continued aging of the population will further reduce the overall participation rate over the next 11 years by an additional 2.8 percentage points, as most baby boomers age into retirement.

Although aging is the primary driver of the falling labor force participation rate, it is not the only driver, as other structural factors are...
From the BLS: Job Openings and Labor Turnover Summary
The number of job openings increased to 6.3 million on the last business day of January, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were little changed at 5.6 million and 5.4 million, respectively. Within separations, the quits rate and the layoffs and discharges rate were little changed at 2.2 percent and 1.2 percent, respectively. ...

The number of quits was little changed at 3.3 million in January. The quits rate was little changed at 2.2 percent. Over the month, the number of quits was little changed for total private and for government.
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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.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for January, the most recent employment report was for February.

Click on graph for larger image.

Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover. ...
From the Fed: Industrial Production and Capacity Utilization
Industrial production rose 1.1 percent in February following a decline of 0.3 percent in January. Manufacturing production increased 1.2 percent in February, its largest gain since October. Mining output jumped 4.3 percent, mostly reflecting strong gains in oil and gas extraction. The index for utilities fell 4.7 percent, as warmer-than-normal temperatures last month reduced the demand for heating. At 108.2 percent of its 2012 average, total industrial production in February was 4.4 percent higher than it was a year earlier. Capacity utilization for the industrial sector climbed 0.7 percentage point in February to 78.1 percent, its highest reading since January 2015 but still 1.7 percentage points below its long-run (1972–2017) average.
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Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 11.4 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 78.1% is 1.7% 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.

The second graph shows industrial production since 1967.

Industrial production increased...
From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately-owned housing starts in February were at a seasonally adjusted annual rate of 1,236,000. This is 7.0 percent below the revised January estimate of 1,329,000 and is 4.0 percent below the February 2017 rate of 1,288,000. Single-family housing starts in February were at a rate of 902,000; this is 2.9 percent above the revised January figure of 877,000. The February rate for units in buildings with five units or more was 317,000.

Building Permits:
Privately-owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 1,298,000. This is 5.7 percent below the revised January rate of 1,377,000, but is 6.5 percent above the February 2017 rate of 1,219,000. Single-family authorizations in February were at a rate of 872,000; this is 0.6 percent below the revised January figure of 877,000. Authorizations of units in buildings with five units or more were at a rate of 385,000 in February.
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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) decreased sharply in February compared to January.   Multi-family starts were down 18.7% year-over-year in February.
Cardiff Garcia interviewed me at NPR Planet Money: Calculated Risk, Calculated Caution. This was related to my post two weeks ago: When the Story Changes, Be Alert. Thanks to Cardiff for having me on!

• At 8:30 AM ET, Housing Starts for February. The consensus is for 1.284 million SAAR, down from 1.326 million SAAR.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for February. The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 77.7%.

• At 10:00 AM, Job Openings and Labor Turnover Survey for January from the BLS. Jobs openings decreased in December to 5.811 million from 5.978 in November. The number of job openings were up 4.9% year-over-year, and Quits were up 5.6% year-over-year.

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (Preliminary for March). The consensus is for a reading of 98.5, down from 99.7.
CR Note: A key takeaway from this excellent analysis by Tom Lawler is that annual household growth will be much lower than previously expected.

From housing economist Tom Lawler: Census: New Long-Term Population Projections Show Slower Growth than Previous Projections but Are Still Too High; Projections Overstate Growth in all Age Groups Save the Very Young and the Very Old

This week the Census Bureau released new projections of the US population, and to the surprise of no one reading this report the new projections show substantially slower population growth than the last set of projections, released at the end of 2014. Virtually all of the slower projected population growth stemmed from a sharp decline in projected net international migration. The new projections show average annual growth in the total US population from 2017 to 2020 (I’m only focusing on the short-term projections) of 2.355 million (compound annual growth rate (CAGR) of 0.72%), down by 271 thousand from the 2.626 million annual projected increase (CAGR of 0.80%) in the 2014 population projections. The latest projection shows average annual Net International Migration (NIM) from July 1, 2017 to July 1, 2020 of 1.006 million, compared to the unrealistically high 1.267 million per year in the 2014 projection. This reduced forecast for NIM reflected recent trends, and did not reflect any possible policy changes.

One of the biggest surprises to folks who follow various demographic data was the projection for deaths in the...
From CoreLogic: Homeowner Equity Q4 2017
CoreLogic analysis shows U.S. homeowners with mortgages (roughly 63 percent of all properties) have seen their equity increase by a total of $908.4 billion since the fourth quarter 2016, an increase of 12.2 percent, year over year.

In the fourth quarter 2017, the total number of mortgaged residential properties with negative equity decreased 1 percent from the third quarter 2017 to 2.5 million homes, or 4.9 percent of all mortgaged properties. Compared to the fourth quarter 2016, negative equity decreased 21percent from 3.2 million homes, or 6.3 percent of all mortgaged properties.
Negative equity peaked at 26 percent of mortgaged residential properties in the fourth quarter of 2009, based on the CoreLogic equity data analysis which began in the third quarter of 2009.
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CR Note: A year ago, in Q4 2016, there were 3.2 million properties with negative equity - now there are 2.5 million.  A significant change.
Earlier from the NY Fed: Empire State Manufacturing Survey
Business activity grew robustly in New York State, according to firms responding to the March 2018 Empire State Manufacturing Survey. The headline general business conditions index climbed nine points to 22.5. The new orders index rose to 16.8 and the shipments index advanced to 27.0—readings that pointed to strong growth in orders and shipments. Unfilled orders increased, delivery times lengthened, and inventories edged higher. Labor market indicators showed an increase in employment and hours worked. After reaching a multiyear high last month, the prices paid index moved up further, reflecting ongoing and widespread increases in input prices. The prices received index held steady and suggested moderate selling price increases. Firms remained optimistic about future business conditions, though less so than last month, and capital spending plans remained strong.
And from the Philly Fed: March 2018 Manufacturing Business Outlook Survey
Results from the March Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. ... The diffusion index for current general activity remained positive but declined, from 25.8 in February to 22.3 this month ... The firms continued to report increases in employment. Nearly 35 percent of the responding firms reported increases in employment, while 9 percent reported decreases this month. The current employment index edged slightly higher to 25.6, its highest reading in five months.
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Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:
The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 70 in March, down from 71 in February. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Remains on Solid Footing in March
Builder confidence in the market for newly-built single-family homes edged down one point to a level of 70 in March from a downwardly revised February reading on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) but remains in strong territory.

“Builders’ optimism continues to be fueled by growing consumer demand for housing and confidence in the market,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “However, builders are reporting challenges in finding buildable lots, which could limit their ability to meet this demand.”

“A strong labor market, rising incomes and a growing economy are boosting demand for homeownership even as interest rates rise,” said NAHB Chief Economist Robert Dietz. “With these economic fundamentals in place, the single-family sector should continue to make gains at a gradual pace in the months ahead.”
The HMI component gauging current sales conditions held steady at 77, the chart measuring sales expectations in the next six months dropped two points to 78, and the index gauging buyer traffic fell three points to 51.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 57, the...
The DOL reported:
In the week ending March 10, the advance figure for seasonally adjusted initial claims was 226,000, a decrease of 4,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 231,000 to 230,000. The 4-week moving average was 221,500, a decrease of 750 from the previous week's revised average. The previous week's average was revised down by 250 from 222,500 to 222,250.

Claims taking procedures in Puerto Rico and in the Virgin Islands have still not returned to normal.
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The previous week was revised down.

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 decreased to 221,500.

This was slightly lower than the consensus forecast. The low level of claims suggest relatively few layoffs.
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 230 thousand initial claims, down from 231 thousand the previous week.

• Also at 8:30 AM, the Philly Fed manufacturing survey for March. The consensus is for a reading of 23.3, down from 25.8.

• Also at 8:30 AM, The New York Fed Empire State manufacturing survey for March. The consensus is for a reading of 14.6, up from 13.1.

• At 10:00 AM, The March NAHB homebuilder survey. The consensus is for a reading of  72, unchanged from 72 in February. Any number above 50 indicates that more builders view sales conditions as good than poor.
From Matthew Graham at Mortgage News Daily: Mortgage Rates Match 2-Week Lows
Mortgage rates fell again today as several economic updates painted a slightly gloomier picture. In general, weaker economic data coincides with lower rates. First up were Retail Sales numbers, which moved into negative territory in February. Analysts expected a modest improvement. Later in the morning, several widely-followed sources of GDP tracking adjusted Q1 estimates significantly lower. For instance, the Federal Reserve Bank of Atlanta keeps a running tally of where GDP would come out today given the incoming data. Today's reading fell to 1.9% from 2.5% last week.
The average borrower is likely to see the same interest rate at the top of the page (i.e. same NOTE rate) but with slightly lower upfront costs today (i.e. lower EFFECTIVE rate). With these gains, the average lender has inched down to the same rates seen on March 1st. [30YR FIXED - 4.5-4.625%]
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Here is a table from Mortgage News Daily:

Home Loan RatesView More Refinance Rates
From the Atlanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 1.9 percent on March 14, down from 2.5 percent on March 9. After yesterday's Consumer Price Index release from the U.S. Bureau of Labor Statistics and this morning's retail sales report from the U.S. Census Bureau, the nowcast of first-quarter real personal consumption expenditures growth fell from 2.2 percent to 1.4 percent.
On a monthly basis, retail sales decreased 0.1 percent from January to February (seasonally adjusted), and sales were up 4.0 percent from February 2017.

From the Census Bureau report:
Advance estimates of U.S. retail and food services sales for February 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $492.0 billion, a decrease of 0.1 percent from the previous month, but 4.0 percent above February 2017. ... The December 2017 to January 2018 percent change was revised from down 0.3 percent to down 0.1 percent.
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 unchanged in February.

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

Retail and Food service sales, ex-gasoline, increased by 3.9% on a YoY basis.

The increase in February was well below expectations, however sales in January were revised up (although sales in December were revised down). A disappointing report.