Author Archives: WARREN MOSLER

Housing and CPI

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Reinforces the mainstream narrative of the moment:
The Fed will keep rates low, getting ‘behind the curve’ and causing a run away economy.

My narrative remains that the 0 rate policy is deflationary and also keeps a lid on growth.

The ‘surge’ in total starts, which remain pretty much at the lows of prior recessions (see charts which are not population adjusted), was in multi family, which is ok, but units tend to be smaller and a lot less expensive than single family, and total expense is what counts for GDP/employement/etc. And it all remains a much lower % of GDP than in prior cycles:

Housing Starts


Highlights
Housing may be making a comeback with the labor market improving and awareness that the Fed is cutting back on mortgage-backed securities-meaning a pending rise in mortgage rates.

Housing starts for July jumped to an annualized pace of 1.093 million units-up from 0.945 million units the prior month. The latest number well topped expectations for 0.963 million units. July was up a sharp 15.7 percent (monthly), after dipping 4.0 percent in June.

Strength was led by the multifamily component which surged 28.9 percent after a 3.1 percent decline in June. But the single-family component showed health with an 8.3 percent rebound after falling 4.4 percent in June.

According to building permits, momentum is building-but largely for the multifamily component. Permits jumped a monthly 8.1 percent to an annualized pace of 1.052 million units. For July, the multifamily component gained 21.5 percent while the single-family component edged up 0.9 percent.


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Consumer Price Index

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Fed policy comment

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So the theme is ‘the Fed is getting behind the curve’

That is, Yellen keeps rates ‘too low’ causing the economy to overheat.

Complete nonsense, of course, but it drives markets until it doesn’t.

Much like QE.

The 0 rate policy, including QE, remains no way supportive of growth and employment, but instead deflationary and contractionary, as evidenced by the anemic private sector credit expansion, low income growth, and ‘low inflation’. And the gaping output gap…

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Housing market index

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Above expectations on a bounce from ‘cold winter’ lows that still leaves it relatively low, and lower than this time last year.

And note that mortgage finance has flattened out as well.

The regional breakdown is led by the Midwest which surged 13 points to 65 followed by the West which dipped 1 point to 57. Continuing to lag way back is the Northeast, a region already fully developed, with the South, which is by far the largest region for new home sales, down 2 points to a soft 51 which doesn’t point to much strength for the new home sales report. Watch for housing starts tomorrow and the new home sales report next Monday. The Dow is moving to opening highs following today’s report.

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Bank lending weekly update

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What was touted as an acceleration of growth seems to have leveled off over the last few weeks, and is looking more like a dip in growth (cold winter?) followed by a recovery that’s leveled off.

More troubling, however, is the late cycle pattern of a slowdown in the growth of lending followed by borrowing to fund cash shortfalls that turns into negative growth, but in this case seems the recent growth is coming from the smaller banks:

At the same time, net interest margins for banks continues to fall:

(August 7 release)

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retail sales, mtg purchase apps, global highlights

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Growth decelerating for 3 consecutive months:


Highlights
Retail sales disappointed for a second month in a row. Retail sales were flat in July, following a 0.2 percent gain the month before (originally up 0.2 percent). Analysts forecast for a 0.2 percent rise in July.

Motor vehicles slipped 0.2 percent, following a decrease of 0.3 percent in June. Excluding motor vehicles, sales edged up 0.1 percent, following an increase of 0.4 percent in June. Forecasts were for 0.4 percent. Excluding motor vehicles and gasoline, sales nudged up 0.1 percent in July after jumping 0.6 percent the prior month. The median market forecast for July was for 0.3 percent.

While consumer spending was healthy in the second quarter, that does not appear to be the case for the third quarter based on July data.


Mtg purchase apps down for the week and down 10% year over year:

MBA Purchase Applications


Demand for purchase applications remained flat in the August 8 week, down 1.0 percent for the second straight week. Year-on-year, purchase applications are down 10.0 percent. Demand for refinancing is also weak, down 4.0 percent in the week. The declines come despite a dip in mortgage rates where the average 30-year mortgage rate for conforming loans ($417,500 or higher) fell 2 basis points to 4.24 percent.

Home Price Growth Slowdown a Mixed Trend for Economy (WSJ) Single-family housing prices rose 4.4% in the year that ended in the second quarter, the slowest annual pace since 2012, according to a report released Tuesday by National Association of Realtors. The association found that median prices for existing single-family homes grew year-over-year in 122 of 173 metropolitan areas it tracked, while prices declined in 47 metro areas. Only 19 areas showed double-digit year-over-year price increases, a substantial drop from the 37 cities that showed such increases in the first quarter.While the median existing single-family home price between the second quarters of 2013 and 2014 rose 7.3% in the West to $297,400, home prices in the Northeast fell 0.9% to $255,500, the report said.

Japan GDP shrinks sharper than after 1997 tax hike (Nikkei) The Cabinet Office said in a preliminary report Wednesday that real gross domestic product for April-June contracted at an annualized rate of 6.8% from the previous quarter. The decline was steeper than in the same quarter of 1997, after sales tax was raised from 3% to 5%. At that time, the economy shrank 3.5%. Economic and Fiscal Policy Minister Akira Amari was unfazed by the big contraction. “The backlash will ease down the road,” he said at a news conference after the GDP results were announced. He said the economy will return to a mild recovery path after summer. “Production shifts to overseas are well underway,” said Amari, indicating that the export decline this time is a long-term structural trend.

China July property investment slows, sales drop sharply (Reuters) Property investment grew 13.7 percent in the first seven months from a year ago, down from an annual rise of 14.1 percent in the first half. Newly started property construction dropped 12.8 percent in the January to July period from the same time a year ago, though the decline easing from an annual drop of 16.4 percent in the first six months. Meanwhile, property sales dropped 16.3 percent in July in terms of floor space, according to Reuters calculations based on official data. That compared with a 0.2 annual drop in June. The NBS data showed mortgage loans fell 3.7 percent in the first seven months of 2014, unchanged from the first half.


Surprisingly weak China July money data cast doubts on recovery’s durability (Reuters) China’s total social financing (TSF) aggregate fell to 273.1 billion yuan ($44.34 billion) in July, about one seventh of that in June. The People’s Bank of China took the unusual step of issuing a statement immediately after the data, reassuring markets that credit and financing growth was still reasonable and that it had not changed its monetary policy. Non-performing loans have now risen for 11 straight quarters, the central bank’s statement said. Chinese banks made 385.2 billion yuan ($62.53 billion) worth of new yuan loans in July, down sharply from 1.08 trillion yuan in June and well below expectations of 727.5 billion yuan, central bank data showed on Wednesday.–

Overly tight fiscal globally continues to put the squeeze on output and employment.

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Kudlow on year end benefit expiration driving H1 employment gains

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The question is whether this front loaded 2014 hiring.

If it did, H2 employment gains could be materially lower.

Kudlow: Jobs are the best kind of welfare

“To be sure, there are signs that employment in the country is rising more rapidly these days. The February to July period was the first six-month stretch of consistent employment gains above 200,000 since 1997. And that came without any new programs from the federal government to “create jobs.” Even more surprising, those gains overlapped a quarter in which GDP actually contracted.

So what drove the increase? University of Chicago professor Casey Mulligan put his finger on it: “Major subsidies and regulations intended to help the poor and unemployed . . . reduce incentives for people to work and for businesses to hire.” And guess what happened when federal emergency job assistance ended? Job increases were the best in 17 years.”

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