Not So Fast, Fed! Atlanta Fed Q4 GDP Growth Drops To 1.8% (As Core PCE Growth Drops As Well)

Not so fast there, Federal Reserve. Your December rate hike optimism might be premature.

According to The Atlanta Fed’s GDPNOW tracker, Q4 GDP has slumped to 1.8%.


This comes after core PCE YoY fell again, below The Fed’s 2% target rate.


And with Mortgage Purchase Applications, M1 Money Multiplier and M2 Money Velocity in a slump, is it wise for The Fed to raise rates in December?


Go ask the witch doctor!


New Home Sales Rise 10.74% In October As Median Price Falls -5.2%

Good news for homebuilders! New home sales rose 10.74% in October.


However, median prices for a new home sale fell -5.2%.


The growing new home sales are look different than the flat-lined mortgage purchase applications index.


The Northeast saw a 135% increase in new home sales while The West saw a 1% decline. I admit, homebuilding in San Francisco and Los Angeles remains a chore when housing is unaffordable in terms of rising home prices and falling family incomes.



Core Personal Consumption Expenditures YoY Fall To 1.28%, Below Fed’s Target Inflation Rate

Today’s report on the economy concerning personal income, spending and durable goods orders is the last one before The Fed decides to raise rates in December.


If The Fed is using their 2% inflation rate target a guidance, they should look at today’s core personal consumption expenditures YoY. It fell to 1.28%, well below The Fed’s target inflation rate.


And then there is the durable goods orders. Specifically, Capital Goods New Orders Nondefense Ex Aircraft & Parts YoY NSA fell -1.2% YoY. That is the 7th month in a row that capital goods new orders have fallen.


Yes, real GDP growth is above 2% and personal income rose 0.4% in October and unemployment is down to 5%. On the other hand, U6 underemployment is at 9.8%, 94.2 million are NOT in the labor force, and The Fed can’t generate inflation to save its life.

So what will Janet Yellen (with cigar) and Stanley Fischer do at the next meeting of the Open Market Committee?


The New Low Multiplier: Mortgage Purchase Applications Down 56% Since 2004 (The Subprime Effect)

The US residential mortgage market hasn’t been the same since subprime lending (and other assorted innovative mortgage financing products) peaked during the 2004-2007 period. October 2004 was the peak of the mortgage purchase applications index which now dwells at 211.70, nearly a 56% decline.

Here is a chart of mortgage purchase applications since 2000. Note the crash in the M1 Money Multiplier as The Fed massively intervened in the financial markets and subprime lending mostly disappeared. Nothing has been the same since.


But back to the current state of the mortgage applications.

Mortgage applications decreased 3.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 20, 2015. The previous week’s results included an adjustment for the Veteran’s Day holiday.

The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 5 percent compared with the previous week and was 24 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.14 percent from 4.18 percent, with points increasing to 0.49 from 0.45 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

So, there you have it turkey day fans! A listless economic recovery combined with mortgage regulations have produced a genuine turkey of a mortgage market.


Will Fed Raise Rates With Zero Inflation? The Zero Velocity Economy

The Federal Reserve has a target inflation rate of 2%. Whether we use CPI YoY or Personal Consumption Expenditures YoY, the US economy is no where near 2%. Currently, the core personal consumption expenditures YoY are growing at only 1.31%, no where near The Fed’s target rate for inflation.


How can this be, you ask? Look back in 2008 (left hand side of chart) where core inflation was about 2.4% and excess reserves were low. The problem is in 2013-2015. Excess deposits have been growing faster than the funds can be loaned out. This translates into declining inflation.

True, auto and student loans have been growing in recent years, but these are not enough to generate inflation. The excess reserves remain trapped in the Federal Reserve System. This is another reason why mortgage purchase applications are low.


Then there is the CRB Foodstuffs index.


Inflation? What inflation??


Case-Shiller Home Prices Rise 5.45% YoY, Over Twice Wage Growth (Miami Fast Rising City MoM)

With US GDP growth at 2.3% for Q4, it looks like The Fed will raise rates in December. In the meantime, housing still remains unaffordable for thousand of households.

What about home prices?

The Case-Shiller 20 metro home price index rose 5.45% in September. Unfortunately, that is over 2x average wage growth.


Of course, CoreLogic’s Loan Performance Index came out earlier and said the same thing.


The big winner for September MoM? Miami/. The biggest loser? Chicago. On a YoY basis, San Francisco reigns supreme in terms of home price growth. In last place? Chicago.


Both Case-Shiller and Loan Performance are at odds with the National Association of Realtors Median price index.


What effect will an increase in the Fed Funds Target Rate have on home prices? Stay tuned!

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Blastoff? Q4 GDP At 2.3% (Auto Sales And Housing Fueling The Break Past 2%)

Ralph Nader, consumer advocate, asked Janet Yellen why The Federal Reserve kept interest rate so low for so long hurting savers.

Nader may be getting his wish for higher interest rates, given that The Atlanta Fed’s GDPNOW real-time tracker has the US economy growing at 2.3% in Q4 2015.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 2.3 percent on November 18, unchanged from November 13. The forecast of real growth has remained at 2.3 percent after Tuesday’s releases for October data on industrial production from the Federal Reserve Board, consumer prices (CPI) from the U.S. Bureau of Labor Statistics, and this morning’s release of October housing starts from the U.S. Census Bureau.

There was a large change in the reported economic number on November 5 and 6th that jolted the GDP numbers upwards, There were increases in equipment and residential investment (both 1 unit and multifamily construction).


A different view of GDP reporting:


The relative good news on auto sales and residential construction are leading investors to give a 72% probability of a December blastoff.


We shall see if the improved auto sales and housing construction is enough to give the “LAUNCH” command.