Fed's Beige Book
"This report was prepared at the Federal Reserve Bank of Boston based on information collected on or before January 9, 2017."
Reports from the twelve Federal Reserve Districts indicated that the economy continued to expand at a modest pace across most regions from late November through the end of the year. Manufacturers in most Districts reported increased sales with several citing a turnaround versus earlier in 2016. Growth in the energy industry was mixed; two Districts reported weakness in coal production but others reported improvements in coal, oil, or gas activity. Most Districts said that non-auto retail sales had expanded, but several noted that sales over the holiday season were disappointing and reports in more than one District suggested that growth in e-commerce had come at the expense of bricks-and-mortar retailers. All Districts reported varying degrees of growth in employment and a majority described their labor markets as tight. Residential construction and sales were generally mixed, although San Francisco reported strong real estate market activity throughout the 12th District. Financial conditions were stable. Firms across the country and industries were said to be optimistic about growth in 2017.
And on residential real estate for Boston:
Continuing recent trends, residential real estate markets in the First District showed robust increases in sales and prices relative to last year. ... Home prices also rose year-over-year. For single-family homes, the median sales price increased in every reporting region. ... Overall, contacts were optimistic about the outlook for the end of the year and into 2017.
Real estate is solid.
The Cleveland Fed released
the median CPI and the trimmed-mean CPI this morning:
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.5% annualized rate) in December. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.5% 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.
Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.3% (3.4% annualized rate) in December. The CPI less food and energy rose 0.2% (2.8% annualized rate) on a seasonally adjusted basis.
Note: The Cleveland Fed released the median CPI details for December here
. Motor fuel was up 42% annualized in December. Click on graph for larger image.
This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.6%, the trimmed-mean CPI rose 2.2%, and the CPI less food and energy rose 2.2%. Core PCE is for November and increased 1.7% year-over-year.
On a monthly basis, median CPI was at 2.5% annualized, trimmed-mean CPI was at 2.5% annualized, and core CPI was at 2.8% annualized.
Using these measures, inflation has generally been moving up, and most of these measures are above the Fed's 2% target (Core PCE is still below).
Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.
From the AIA: Architecture Billings Index ends year on positive note
The Architecture Billings Index (ABI) concluded the year in positive terrain, with the December reading capping off three straight months of growth in design billings. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the December ABI score was 55.9, up sharply from 50.6 in the previous month. This score reflects the largest increase in design services in 2016 (any score above 50 indicates an increase in billings). The new projects inquiry index was 57.2, down from a reading of 59.5 the previous month. Click on graph for larger image.
“The sharp upturn in design activity as we wind down the year is certainly encouraging. This bodes well for the design and construction sector as we enter the new year”,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “However, December is an atypical month for interpreting trends, so the coming months will tell us a lot more about conditions that the industry is likely to see in 2017.”
• Regional averages: Midwest (54.4), Northeast (54.0), South (53.8), West (48.8)
• Sector index breakdown: commercial / industrial (54.3), institutional (53.3), mixed practice (51.9), multi-family residential (50.6)
This graph shows the Architecture Billings Index since 1996. The index was at 55.9 in December, up from 50.6 in November. Anything above 50 indicates expansion in demand for architects' services.
Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.
According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This index was positive in 9 of the last 12 months, suggesting a further increase in CRE investment in 2017.
The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 67 in January, down from 69 in December. Any number above 50 indicates that more builders view sales conditions as good than poor.
From CNBC: Homebuilder confidence pulls back by 2 points in January after election euphoria
A monthly sentiment index retreated 2 points in January, and December's seven-point jump was revised down by one. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) now stands at 67. Click on graph for larger image.
"NAHB expects solid 10 percent growth in single-family construction in 2017, adding to the gains of 2016," said NAHB Chief Economist Robert Dietz. "Concerns going into the year include rising mortgage interest rates as well as a lack of lots and access to labor."
Regionally, on a three-month moving average, sentiment in the Northeast rose two points to 52 and rose three point in the Midwest to 64. The South and West each held steady at 67 and 79, respectively.
This graph show the NAHB index since Jan 1985.
This was below the consensus forecast of 69, but still another solid reading.
From the Fed: Industrial production and Capacity Utilization
Industrial production rose 0.8 percent in December after falling 0.7 percent in November. For the fourth quarter as a whole, the index slipped 0.6 percent at an annual rate. In December, manufacturing output moved up 0.2 percent and mining output was unchanged. The index for utilities jumped 6.6 percent, largely because of a return to more normal temperatures following unseasonably warm weather in November; the gain last month was the largest since December 1989. At 104.6 percent of its 2012 average, total industrial production in December was 0.5 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.6 percentage point in December to 75.5 percent, a rate that is 4.5 percentage points below its long-run (1972–2015) average. Click on graph for larger image.
This graph shows Capacity Utilization. This series is up 8.8 percentage points from the record low set in June 2009 (the series starts in 1967).
Capacity utilization at 75.5% is 4.5% below the average from 1972 to 2015 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 in December to 104.6. This is 19.7% above the recession low, and is close to the pre-recession peak.
This was above expectations of a 0.6% increase.
From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey
Mortgage applications increased 0.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 13, 2017. The previous week’s results included an adjustment for the New Year’s holiday. Click on graph for larger image.
... The Refinance Index increased 7 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. The unadjusted Purchase Index increased 25 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 ($424,000 or less) decreased to its lowest level since December 2016, 4.27 percent, from 4.32 percent, with points decreasing to 0.39 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The first graph shows the refinance index since 1990.
It would take a substantial decrease in mortgage rates to see a significant increase in refinance activity - although we might see more cash-out refis.
The second graph shows the MBA mortgage purchase index.
Even with the increase in mortgage rates, purchase activity is still holding up. However refinance activity has declined significantly.
From Matthew Graham at Mortgage News Daily: Mortgage Rates Back Near 2-Month Lows
Mortgage rates moved lower today, generally recovering the losses seen last Friday. This brings many lenders back in line with the lowest levels since November 17th, although last Wednesday (Jan 11) was slightly better on average. There hasn't been enough volatility to unseat 4.125% as the most prevalent 30yr fixed "note rate" on top tier scenarios. As such, today's improvement is limited to "effective rates" (which take closing costs into consideration)..
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index
• 8:30 AM, the Consumer Price Index for December
from the BLS. The consensus is for 0.3% increase in CPI, and a 0.2% increase in core CPI.
• At 9:15 AM: The Fed will release Industrial Production and Capacity Utilization
for December. The consensus is for a 0.6% increase in Industrial Production, and for Capacity Utilization to increase to 75.4%.
• At 10:00 AM, The January NAHB homebuilder survey
. The consensus is for a reading of 69, down from 70 in December. Any number above 50 indicates that more builders view sales conditions as good than poor.
• During the day, The AIA's Architecture Billings Index
for December (a leading indicator for commercial real estate).
• At 2:00 PM, the Federal Reserve Beige Book
, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.
• At 3:00 PM, Speech, Fed Chair Janet Yellen
, The Goals of Monetary Policy and How We Pursue Them
, At the Commonwealth Club, San Francisco, California
From the Port of Long Beach: Port Trade Dips to 6.8 Million TEUs in 2016
Slowed by industry headwinds and challenges that included a major customer declaring bankruptcy, the Port of Long Beach still moved almost 6.8 million containers in 2016, its fifth best year ever.
Overall cargo declined 5.8 percent in 2016 compared to 2015, as the Port was impacted by new ocean carrier alliances and the August bankruptcy of Hanjin Shipping, a South Korean company and former majority stakeholder at the 381-acre Pier T container terminal — Long Beach’s largest.
By year’s end, the Harbor Commission had approved an agreement for a subsidiary of Mediterranean Shipping Co., one of the world’s largest container ship operators, to take sole control of the long-term lease at Pier T.
Although port traffic decreased in Long Beach, traffic was up in Los Angeles.
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. Click on graph for larger image.
On a rolling 12 month basis, inbound traffic was up 0.6% compared to the rolling 12 months ending in November. Outbound traffic was up 0.9% compared to 12 months ending in November.
The downturn in exports in 2015 was probably due to the slowdown in China and the stronger dollar. Now exports are picking up a little - but the stronger dollar might impact exports once again.
The 2nd graph is the monthly data (with a strong seasonal pattern for imports).
Usually 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).
In general exports have started increasing, and imports have been gradually increasing.
From the NY Fed: Empire State Manufacturing Survey
Manufacturing firms in New York State reported that business activity grew in January. The general business conditions index was little changed at 6.5, its third consecutive positive reading. The new orders index fell seven points to 3.1, indicating that orders increased at a slower clip than last month, and the shipments index held steady at 7.3, pointing to an ongoing increase in shipments. ...
The index for number of employees rose but held below zero at -1.7, a sign that employment levels edged slightly lower; the average workweek index, at -4.2, pointed to a small decline in hours worked.
Indexes for the six-month outlook suggested that respondents remained very optimistic about future conditions. The index for future business conditions was unchanged at 49.7, matching last month’s multiyear high.
This was close to expectations, and suggests manufacturing activity expanded further in January.
• Schedule for Week of Jan 15, 2017
• At 8:30 AM ET,The New York Fed Empire State manufacturing survey for January. The consensus is for a reading of 8.0, down from 9.0.
From CNBC: Pre-Market Data
and Bloomberg futures
: S&P futures are down 3, and DOW futures are down 28 (fair value).
Oil prices were down over the last week with WTI futures
at $52.49 per barrel and Brent at $55.86 per barrel. A year ago, WTI was at $28, and Brent was at $28 - so oil prices are up sharply year-over-year
.Here is a graph
from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.34 per gallon - a year ago prices were at $1.92 per gallon - so gasoline prices are up 40 cents a gallon year-over-year.