Monday, May 31, 2010

In Foreclosure and ... happy?

by Bill McBride on 5/31/2010 10:09:00 PM

From David Streitfeld at the NY Times: Owners Stop Paying Mortgages, and Stop Fretting. A few excerpts:

Foreclosure procedures have been initiated against 1.7 million of the nation’s households.
...
The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.
...
More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property ...
Streitfeld provides a few examples. One lady said "The longer I’m in foreclosure, the better."

This isn't for everyone. Streitfeld quotes Kyle Lundstedt, managing director of Lender Processing Service’s analytics group:
“These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure.”

Few Jobs for Students this Summer

by Bill McBride on 5/31/2010 08:54:00 PM

Note: Here is the Weekly Summary and a Look Ahead (it will be a busy week).

From Mickey Meese at the NY Times: Fading Summer Jobs

State and local governments, traditionally among the biggest seasonal employers, are knee-deep in budget woes, and the stimulus money that helped cushion some government job programs last summer is running out. Private employers are also reluctant to hire until the economy shows more solid signs of recovery.

So expect fewer lifeguards on duty at public beaches this summer in California, fewer workers at some Massachusetts state parks and camping grounds and taller grass outside state buildings in Kentucky.
Personal Consumption Expenditures Click on graph for large image.

For summer jobs, this will probably be the worst year since the Great Depression.

This graph shows the unemployment rate for workers 16 to 24 years old (from the BLS), and the headline unemployment rate (blue). The unemployment rate hit a record 19.6% in April for this group.

This probably ties into the recent NY Times article on overwhelming student debt. When I was in college, I was able to find summer jobs that helped me pay my way through college (of course I walked 10 miles through the snow and all that too). Times have really changed ...

ECB reports on financial stability, warns of "contagion"

by Bill McBride on 5/31/2010 04:02:00 PM

The ECB released the twice yearly Finanical Stability Review report today. Here are couple of articles about the report:

From the Financial Times: ECB warns of ‘hazardous contagion’

The eurozone’s financial sector and economy are facing “hazardous contagion” effects from the region’s debt crisis, according to the European Central Bank ... Taking into account writedowns already reported and loan loss provisions, some €90bn of writedowns have yet to feed through, it said. For 2011, it expected banks would have to make additional loan-loss provisions of about €105.
except with permission
There is also a video discussion with Martin Wolf and Richard Haass, president of the Council on Foreign Relations.

From the NY Times: Europe’s Banks at Risk From Slower Growth, Report Says
... the E.C.B. expressed particular concern about banks’ need to refinance some €800 billion, or $980 billion, in long-term debt by the end of 2012. Borrowing costs could rise as the banks compete with governments in the bond market “making it challenging to roll over a sizeable amount of maturing bonds by the end of 2012,” the report said.

Chicago: Shadow Condo Inventory

by Bill McBride on 5/31/2010 12:39:00 PM

Just continuing a theme ...

From Eddie Baeb at Crain's Chicago Business: Nearly vacant condo tower goes back to lender

The 35-story Lexington Park, near Michigan Avenue and Cermak Road, was surrendered last week by its Irish developer through a deed-in-lieu of foreclosure. The private-equity venture that now owns the property acquired Corus Bank’s the distressed condo loans after the Chicago-based lender failed last fall.

Just three buyers have closed on Lexington Park’s 333 units, according to property records. The tower, 2138 S. Indiana Ave., was supposed to be ready for occupancy in 2008.
Hey, they closed on 1% percent of the units!

Note that the developer just "walked away" (deed-in-lieu) and the original lender was Corus, the "Condo King". Unless listed for sale, these units are not included in the new or existing home inventory reports - real shadow inventory!

Real PCE Growth in Q2

by Bill McBride on 5/31/2010 09:13:00 AM

Note: Here is the Weekly Summary and a Look Ahead (it will be a busy week).

On Friday, the BEA released the Personal Income and Outlays report for April. The report showed that Real PCE increased less than 0.1 percent in April (compared to March).

Even though the month-to-month increase was small, this was fairly large increase from January (comparing the first month of Q2 to the first month of Q1).

In calculating PCE for the GDP report, the quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

The following graph illustrates how this is calculated. Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for large image.

The blue columns show real PCE by month, and the dashed red lines are the quarterly average.

PCE didn't increase much in January compared to December either, but there was strong growth in February and March. This resulted in PCE growing at an annualized rate of 3.5% for Q1.

Even if PCE was flat in May and June compared to April (preliminary reports suggest growth in May), real PCE would grow at 2.0% in Q2. More likely - with some growth in May and June - PCE will grow closer to 3% in Q2.

This is just a reminder that PCE growth (and GDP growth) is pretty much already baked into Q2.

Best to all.

Sunday, May 30, 2010

Condo Shadow Inventory

by Bill McBride on 5/30/2010 10:13:00 PM

From Buck Wargo at the Las Vegas Sun: CityCenter condo closings slow in down economy

Through the end of April, MGM Mirage and Dubai World, the owners of the project, have closed on 78 of 1,543 units at the Vdara condo-hotel, according to SalesTraq.

... Houston-based Metrostudy reported that Las Vegas has more than 8,200 condominium units that are sitting empty, including those still vacant in CityCenter.
This is a reminder that unless these condos are listed, they do not show up as either existing or new home inventory (the new home report doesn't include high rise condos).

There are some areas - like Las Vegas and Miami - that have a huge number of vacant high rise condos. But there are also many smaller buildings that are mostly vacant in a number of cities (like in New York, Raliegh, N.C. and Irvine, Ca). This is part of the shadow inventory ...

Percent Job Losses During Recessions, aligned at Bottom

by Bill McBride on 5/30/2010 05:17:00 PM

By request ... here is an update through April with the impact of Census hiring added.

Percent Job Losses During RecessionsClick on graph for larger image.

This graph shows the job losses from the start of the employment recession, in percentage terms - but this time aligned at the bottom of the recession. This assumes that the 2007 recession has reached bottom.

The current recession has been bouncing along the bottom for a few months - so the choice of bottom is a little arbitrary (plus or minus a month or two).

Notice that the 1990 and 2001 recessions were followed by jobless recoveries - and the eventual job recovery was gradual. In earlier recessions the recovery was somewhat similar and a little faster than the decline (somewhat symmetrical).

The dotted line shows the impact of Census hiring.

In April, there were 154,000 temporary 2010 Census workers on the payroll. This barely shows up on the graph.

The number of temporary workers will jump to around 573,000 in May - and the dotted line will be well below the red line. Starting in June, the number of Census workers will decline - and the two lines will meet later this year.

Weekly Summary and a Look Ahead

by Bill McBride on 5/30/2010 12:01:00 PM

The key economic report this week will be the May Employment Report to be released on Friday. Note: U.S. and U.K. stock markets will be closed on Monday.

On Tuesday, at 10 AM, the ISM Manufacturing index for May will be released (expectations are for a decrease to 59.5 from 60.4 in April) and Construction Spending for April (consensus is for private spending to be flat).

On Wednesday, the automakers will report vehicle sales for May. Expectations are for about a 11.2 million SAAR for light vehicles in May – or about the same rate as in April. The NAR will release April Pending Home Sales at 10 AM (expect a tax credit related increase). And the American Bankruptcy Institute will probably report personal bankruptcy filings for May on Wednesday too. This will probably show another "surge" in filings.

On Thursday, the closely watched initial weekly unemployment claims will be released. Consensus is for a decline to 450K from 460K last week. Also on Thursday, the ADP employment report will be released (consensus is for an increase of 60K private sector jobs, up from 32K in April). Also on Thursday, the May ISM non-manufacturing report will be released. Consensus is for a slight increase to 55.9 from 55.4 in the service sector. Factory Orders for April will also be released.

And on Friday, the BLS will release the May Employment report at 8:30 AM. The consensus is for a gain of 540K payroll jobs in May, and for the unemployment rate to decline slightly to 9.8% (from 9.9%). Of course the 540K includes a substantial number of temporary hires for Census 2010 (May is the peak month). It will be important to remove the Census hiring to try to determine the underlying trend.

We can estimate the Census hiring using this data from the Census bureau (ht Bob_in_MA). If we subtract the number of Temporary 2010 Census Workers in the 2nd week of May from the number in the second week of April, this suggests the Census boost will be around 417K in May. The Census Bureau will release the actual number with the employment report.

Here are two ex-Census forecasts from MarketWatch: Job growth seen a little less robust in May

David Greenlaw, economist at Morgan Stanley, expects a downshift to 105,000 jobs in May excluding the census workers.

Economists at Credit Suisse expect private sector job creation around 130,000 in May.
This is down from 224,000 ex-Census in April.

Also on Friday the FDIC will probably have another busy Friday afternoon ... plus there will be several Fed speeches this week.

And a summary of last week:

  • Existing Home Sales increase in April

    Existing Home Sales Click on graph for larger image in new window.

    This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

    Sales in April 2010 (5.77 million SAAR) were 7% higher than last month, and were 22.8% higher than April 2009 (4.61 million SAAR).

    Sales surged last November when many first-time homebuyers rushed to beat the initial expiration of the tax credit. There will probably be a further increase in May and June this year. Note: existing home sales are counted at closing, so even though contracts must be signed in April to qualify for the tax credit, buyers have until June 30th to close.

    Existing Home InventoryThe second graph shows nationwide inventory for existing homes.

    According to the NAR, inventory increased to 4.04 million in April from 3.63 million in March. The all time record high was 4.57 million homes for sale in July 2008.

    The next graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

    Year-over-year Inventory Inventory increased 2.7% YoY in April, the first YoY increase since 2008.

    This increase in the inventory is especially concerning because the reported inventory is already historically very high, and the 8.4 months of supply in April is well above normal. The months of supply will probably decline over the next two months because of the increase in sales due to the tax credit (reported at closing), but this will be something to watch this summer and later this year.

  • Case-Shiller House Prices "Weakening"

    Case-Shiller House Prices Indices This graph shows the nominal not seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

    The Composite 10 index is off 29.8% from the peak, and up slightly in March (SA).

    The Composite 20 index is off 29.3% from the peak, and down slightly in March (SA).

    Case-Shiller Price Declines This graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

    Prices decreased (SA) in 11 of the 20 Case-Shiller cities in March (SA).

    Prices in Las Vegas are off 56% from the peak, and prices in Dallas only off 5.8% from the peak.

  • New Home Sales increase to 504K Annual Rate in April

    The Census Bureau reports New Home Sales in April were at a seasonally adjusted annual rate (SAAR) of 504 thousand. This is an increase from the revised rate of 439 thousand in March (revised from 411 thousand).

    New Home Sales Monthly Not Seasonally Adjusted The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted).

    Note the Red columns for 2010. In April 2010, 48 thousand new homes were sold (NSA).

    The record low for the month of April was 32 thousand in 1982 and 2009; the record high was 116 thousand in 2005.

    New Home Sales and Recessions The second graph shows New Home Sales vs. recessions for the last 45 years.
    Sales of new one-family houses in April 2010 were at a seasonally adjusted annual rate of 504,000 ... This is 14.8 percent (±19.5%)* above the revised March rate of 439,000 and is 47.8 percent (±26.0%) above the April 2009 estimate of 341,000.
    New home sales are counted when the contract is signed, so this pickup in activity is related to the tax credit.

    For new home sales, the tax credit selling ended in April and sales will probably decline sharply in May.

  • Other Economic Stories ...

  • April Personal Income up 0.4%, Spending Increases Slightly

  • The Department of Transportation (DOT) reported that vehicle miles driven in March were up 2.3% from March 2009.

  • From the Institute for Supply Management – ChicagoChicago PMI shows expansion, Employment declines

  • The MBA reports: Mortgage Purchase Applications at 13 Year Low

  • From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Positive as the Restaurant Performance Index Stood Above 100 in April

  • From the American Trucking Association: ATA Truck Tonnage Index Increased 0.9 Percent in April

  • Unofficial Problem Bank List increases to 762 Institutions

    Best wishes to all.
  • Europe Update

    by Bill McBride on 5/30/2010 09:07:00 AM

    NY Times editorial: The Transatlantic Crisis: Europe’s Endangered Banks

    ... Several [European countries] have weak governments that may not be able to carry through the prescribed fixes. Even if they do, the budget cuts are likely to make them even weaker.
    ...
    This is a recipe for economic stagnation. It also may not avert a debt rescheduling by some of the weaker European countries, which would force European banks to take a cut on their holdings. Sitting on slim cushions of capital reserves, European banks are in no shape for a sharp drop in the value of their assets.

    It would be best to recognize that debt restructuring is inevitable.
    ...
    American banks ended 2009 with $1.2 trillion worth of total European debt. ... It would be foolhardy to assume this problem is far away.
    From The Times: Spain races to avert banking crisis as euro faces slide
    One of Spain’s biggest banks was this weekend negotiating a merger with five smaller rivals as part of a desperate government effort to restore confidence in the faltering economy, which threatens to drag down the rest of the eurozone.

    Caja Madrid, the country’s second-largest savings bank, opened talks in the hope of beating the June 30 deadline to tap a €99 billion (£84 billion) government bank rescue fund.
    And also from The Times: Greece urged to give up euro
    THE Greek government has been advised by [private] British economists to leave the euro and default on its €300 billion (£255 billion) debt to save its economy.

    Saturday, May 29, 2010

    Bank Failures per Week

    by Bill McBride on 5/29/2010 09:41:00 PM

    I haven't updated this graph for some time ...

    There have been 246 bank failures in this cycle (starting in 2007):

    FDIC Bank Failures by Year
    20073
    200825
    2009140
    201078
    Total246

    FDIC Bank Failures Click on graph for larger image in new window.

    This graph shows bank failures by week in 2008, 2009 and 2010.

    The 140 bank failures last year was the highest total since 1992 (181 bank failures).

    As the previous post noted, banks are being added to the unofficial problem bank list much faster than they are being removed ... and it looks like there will be something close to 200 failures this year. That is more than in 1992, but probably less than the 271 in 1991. Bank failures peaked at 534 in 1989 during the S&L crisis.

    Unofficial Problem Bank List increases to 762 Institutions

    by Bill McBride on 5/29/2010 03:52:00 PM

    This is an unofficial list of Problem Banks compiled only from public sources.

    Here is the unofficial problem bank list for May 28, 2010.

    Changes and comments from surferdude808:

    The Unofficial Problem Bank List underwent major changes this week from closings and with the FDIC releasing its enforcement actions for April 2010. The list includes 762 institutions with aggregate assets of $369.2 billion, up from 737 institutions and assets of $363.5 billion last week.

    There were 31 additions this week. Notable additions include Citizens Bank & Trust Company, Chillicothe, MO ($1.1 billion); Park Cities Bank, Dallas, TX ($1.0 billion); and Magyar Bank, New Brunswick, NJ ($550 million Ticker: MGYR).

    Removals include the five failures this week -- Bank of Florida - Southeast, Bank of Florida - Southwest, Bank of Florida - Tampa Bay, Granite Community Bank, NA, and Sun West Bank; and action termination against Indiana Community Bank. Other changes for banks already on the list include Prompt Corrective Action orders issued against two Seattle-based institutions -- First Sound Bank and Washington First International Bank.
    CR note: The FDIC reported there were 775 institutions with assets of $431 billion on the official problem bank list at the end of Q1. There are some timing issues, but the overall number of institutions on the unofficial list is very close to the official list. However the assets on the unofficial list are far short of the assets on the official list. This suggests the possibility that a large regional bank may be on the official problem bank list.

    The Oil Gusher

    by Bill McBride on 5/29/2010 02:37:00 PM

    I know everyone want to discusss this in the comments ...

    Here is the live feed from BP.

    Here is a discussion of the "top kill" and "junk shot" from the Oil Drum.

    I wonder if there is a chemical solution, like a two-part glue. Maybe they could inject a resin down one tube and an accelerator down another tube (both liquids) - and gunk up the Blowout preventer (a "gunk shot"). It would have to be a very fast reaction ...

    Pretty grim ...

    Key Economic Index suggests Tough Times

    by Bill McBride on 5/29/2010 10:45:00 AM

    Just for fun ... in 1926, economist George Taylor suggested the "Hemline Index"; he observed that hemlines moved with stock prices.

    And from the NY Times: A Long, Lean Backlash to the Mini. Here is the hot new look:


    Does that mean stocks are at a bottom, or that stocks are about to crash?

    ATA Truck Tonnage index increases in April

    by Bill McBride on 5/29/2010 08:49:00 AM

    From the American Trucking Association: ATA Truck Tonnage Index Increased 0.9 Percent in April

    The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased for the sixth time in the last seven months, gaining another 0.9 percent in April. This followed a 0.4 percent increase in March. The latest improvement put the SA index at 110.2 (2000=100), which is the highest level since September 2008. Over the last seven months, the tonnage index grew a total of 6.5 percent.

    The not seasonally adjusted index, which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment, equaled 111.3 in April, down 4.4 percent from the previous month.

    Compared with April 2009, SA tonnage surged 9.4 percent, which was the fifth consecutive year-over-year gain and the largest increase since January 2005. Year-to-date, tonnage is up 6 percent compared with the same period in 2009.
    ...
    Tonnage is being boosted by robust manufacturing output and stronger retail sales.” [ATA Chief Economist Bob Costello said] “For most fleets, freight volumes feel better than reported tonnage because the supply situation, particularly in the truckload sector, is turning quickly.”
    This is the opposite of the report from Ceridian-UCLA that showed diesel fuel consumption down in April, although it might be a difference in the seasonal adjustment factors (NSA this report showed a 4.4% decline). Rail traffic was also up in April.

    Friday, May 28, 2010

    Friday Night Summary

    by Bill McBride on 5/28/2010 11:55:00 PM

    From Bloomberg: Spain Loses AAA Rating at Fitch as Europe Battles Debt Crisis

    The euro declined to 1.2274 dollars on the news. The TED spread increased to 38.11. This is still fairly low, but has been increasing ... Note: This is the difference between the interbank rate for three month loans and the three month Treasury and is considered a measure of credit stress. The peak was 463 on Oct 10th and a normal spread is below 50 bps.

    The BEA reported April Personal Income up 0.4%, Spending up slightly.

    The Institute for Supply Management – Chicago reported the "CHICAGO BUSINESS BAROMETER eased" and "EMPLOYMENT slipped below neutral". New orders were softer, and it appears the inventory adjustment is over.

    The National Restaurant Association index decreased slightly, but still showed some expansion. Same store sales and customer traffic both showed declines in April.

    And a few interesting articles:

  • From Bloomberg: New Home Sales Set to Plunge in Former Bubble Markets

  • From David Bracken at the Newobserver.com: Sales stop for Raleigh condo project

  • From the NY Times: Placing the Blame as Students Are Buried in Debt

  • And from the NY Times: BP Engineers Making Little Headway on Leaking Well

    Best to all.

  • Bank Failure #78: Sun West Bank, Las Vegas, Nevada

    by Bill McBride on 5/28/2010 09:09:00 PM

    Fiery twilight
    Crepuscular Sun West Bank
    Radiant, now dark

    by Soylent Green is People

    From the FDIC: City National Bank, Los Angeles, California, Assumes All of the Deposits of Sun West Bank, Las Vegas, Nevada
    Sun West Bank, Las Vegas, Nevada, was closed today by the Nevada Financial Institutions Division, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

    As of March 31, 2010, Sun West Bank had approximately $360.7 million in total assets and $353.9 million in total deposits....

    The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $96.7 million. ... Sun West Bank is the 78th FDIC-insured institution to fail in the nation this year, and the second in Nevada. The last FDIC-insured institution closed in the state was Carson River Community Bank, Carson City, on February 26, 2010.
    That makes five today ...

    Bank Failure #77: Granite Community Bank, N.A., Granite Bay, California

    by Bill McBride on 5/28/2010 08:13:00 PM

    Sisyphean task
    Reinflating Granite Bank
    Too much crushing debt.

    by Soylent Green is People

    From the FDIC:
    Granite Community Bank, N.A., Granite Bay, California, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

    As of March 31, 2010, Granite Community Bank, N.A. had approximately $102.9 million in total assets and $94.2 million in total deposits....

    The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $17.3 million. ... Granite Community Bank, N.A. is the 77th FDIC-insured institution to fail in the nation this year, and the sixth in California. The last FDIC-insured institution closed in the state was 1st Pacific Bank of California, San Diego, on May 7, 2010.
    Financed too many granite countertops?

    Bank Failures #74 to #76: Florida

    by Bill McBride on 5/28/2010 05:38:00 PM

    Bank of Florida
    Reckless lending aftermath
    Condo kingdom crash

    by Soylent Green is People

    From the FDIC: Everbank, Jacksonville, Florida, Acquires All the Deposits of Three Affiliated Florida Institutions
    Bank of Florida – Southeast, Fort Lauderdale, Florida; Bank of Florida – Southwest, Naples, Florida; and Bank of Florida – Tampa Bay, Tampa, Florida, were all closed today by the Florida Office of Financial Regulation, which appointed the FDIC as receiver. The three failed banks were owned by the same holding company, Bank of Florida Corporation, which was not part of this transaction.
    ...
    As of March 31, 2010, Bank of Florida - Southeast had total assets of $595.3 million and total deposits of $531.7 million; Bank of Florida - Southwest had total assets of $640.9 million and total deposits of $559.9 million; and Bank of Florida – Tampa Bay had total assets of $245.2 million and total deposits of $224.0 million. ...

    The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for Bank of Florida - Southeast will be $71.4 million; for Bank of Florida - Southwest, $91.3 million; and for Bank of Florida – Tampa Bay, $40.3 million. ...The three closings bring the total number of failed banks in the nation so far this year to 76 and the total in Florida to 13. Prior to today, the last bank closed in the state was Bank of Bonifay, Bonifay, on May 7, 2010.
    A quick three-fer ...

    Decline in Small Business Lending: Supply or Demand problem?

    by Bill McBride on 5/28/2010 05:20:00 PM

    There have been numerous reports of less small business lending. But it is unclear if this is because a lack of credit, or if the lower level of lending is because of less demand. A survey by the Atlanta Fed suggests that it is mostly a demand problem (especially excluding construction and real estate industries).

    From Atlanta Fed senior economist Paula Tkac: How "discouraged" are small businesses? Insights from an Atlanta Fed small business lending survey

    We at the Federal Reserve Bank of Atlanta have ... begun a series of small business credit surveys. Leveraging the contacts in our Regional Economic Information Network (REIN), we polled 311 small businesses in the states of the Sixth District (Alabama, Florida, Georgia, Louisiana, Mississippi and Tennessee) on their credit experiences and future plans. While the survey is not a stratified random sample and so should not be viewed as a statistical representation of small business firms in the Sixth District, we believe the results are informative.

    Indeed, the results of our April 2010 survey suggest that demand-side factors may be the driving force behind lower levels of small business credit. To be sure, when asked about the recent obstacles to accessing credit, some firms (34 firms, or 11 percent of our sample) cited banks' unwillingness to lend, but many more firms cited factors that may reflect low credit quality on the part of prospective borrowers. For example, 32 percent of firms cited a decline in sales over the past two years as an obstacle, 19 percent cited a high level of outstanding business or personal debt, 10 percent cited a less than stellar credit score, and 112 firms (32 percent) report no recent obstacles to credit. Perhaps not surprisingly, outside of the troubled construction and real estate industries, close to half the firms polled (46 percent) do not believe there are any obstacles while only 9 percent report unwillingness on the part of banks.
    This fits with comments from the National Federation of Independent Businesses that cited "poor sales" as the number one problem for small businesses.

    Sales halted on Condo Project, None Sold

    by Bill McBride on 5/28/2010 03:32:00 PM

    This sounds so 2007 ... but it is today.

    From David Bracken at the Newobserver.com: Sales stop for Raleigh condo project (ht dshort)

    Hue, the multicolor building that is the largest condo project ever attempted in downtown Raleigh, closed its sales office without ever selling a unit.

    Signs posted on the building's doors, as well as a message left on the sales office's answering machine, say Hue will be closed until further notice.
    ...
    With its royal blue and mustard exterior, the 208-unit ... seven-story building across from the city administration building downtown replaced a parking lot and was considered a bold symbol of downtown Raleigh's revitalization.
    So much for the "revitalization". This is part of the shadow inventory ...

    Restaurant Index: Same store sales and customer traffic off in April

    by Bill McBride on 5/28/2010 12:41:00 PM

    This is one of several industry specific indexes I track each month.

    Restaurant Performance Index Click on graph for larger image in new window.

    Same store sales and customer traffic both showed declines in April. This was more than offset by a postive outlook in the "expectations index" and the overall index showed expansion in April.

    Unfortunately the data for this index only goes back to 2002.

    Note: Any reading above 100 shows expansion for this index.

    From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Positive as the Restaurant Performance Index Stood Above 100 in April

    [T]the National Restaurant Association’s Restaurant Performance Index (RPI) ... was essentially unchanged from its previous month’s level; the RPI stood at 100.4 in April, down slightly from its March level of 100.5. RPI levels above 100 indicate expansion of key industry indicators.

    Although the sales and traffic indicators softened somewhat from their March performance, restaurant operators remain optimistic that business conditions will improve in the months ahead,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “In addition, restaurant operators reported a positive outlook for staffing gains, as well as continued plans for capital expenditures in the coming months.”
    ...
    After reporting net positive same-store sales in March for the first time in 22 months, restaurant operators reported softer sales results in April.
    ...
    Similarly, restaurant operators reported a net decline in customer traffic levels in April, after posting positive traffic results in March.
    emphasis added
    Restaurants are a discretionary expense, and they tend to be 'first in, last out' of a recession for consumer spending (as opposed to housing that is usually first in and first out). So far the recovery for restaurants has been sluggish, and operators will only stay optimistic if sales and traffic picks up.

    Chicago PMI shows expansion, Employment declines

    by Bill McBride on 5/28/2010 09:51:00 AM

    From the Institute for Supply Management – Chicago:

    The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER eased again, tempering the pace of its expansion while marking its eighth month of growth. All Business Activity indexes except EMPLOYMENT signaled expansion. ... EMPLOYMENT slipped below neutral for the first time in 2010.
    The new orders index declined from April (65.2 to 62.7), and inventories increased sharply. Note: any number above 50 shows expansion.

    This is similar to other regional reports: continued expansion, but at a slower pace. New orders are softer, and the inventory adjustment is over.

    Especially concerning is the sharp decline in the employment index (from 57.2 to 49.2). The national ISM manufacturing index will be released next Tuesday.

    April Personal Income up 0.4%, Spending Increases Slightly

    by Bill McBride on 5/28/2010 08:30:00 AM

    From the BEA: Personal Income and Outlays, April 2010

    Personal income increased $54.4 billion, or 0.4 percent ... Personal consumption expenditures (PCE) increased $4.0 billion, or less than 0.1 percent.
    ...
    Real PCE -- PCE adjusted to remove price changes -- increased less than 0.1 percent in April
    ...
    Personal saving as a percentage of disposable personal income was 3.6 percent in April, compared with 3.1 percent in March.
    The following graph shows real Personal Consumption Expenditures (PCE) through April (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

    Personal Consumption Expenditures Click on graph for large image.

    The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

    The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

    Spending only increased slightly in April compared to March.

    The National Bureau of Economic Research (NBER) uses several measures to determine if the economy is in recession. One of the measures is real personal income less transfer payments (see NBER memo). This increased in April to $9,059 billion (SAAR) and is barely above the low of October 2009 ($8,987 billion).

    Personal Income less Transfer This graph shows real personal income less transfer payments since 1969.

    This measure of economic activity is moving sideways - similar to what happened following the 2001 recession.

    This month income increased faster than spending ... meaning the saving rate increased.

    Personal Saving rate This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the April Personal Income report. The saving rate increased to 3.6% in April (decreased slightly using a three month average).

    I still expect the saving rate to rise over the next couple of years slowing the growth in PCE.

    The increase in income was good news, but personal income less transfer payments are still barely above the low of last year.

    Thursday, May 27, 2010

    Late Night Thread

    by Bill McBride on 5/27/2010 11:59:00 PM

    I was out for some time ... the euro is back under 1.23 dollars again ... futures are off slightly (Dow off about 45).

    On Friday the BEA will release the Personal Income and Outlay report for April - and that will provide some hints for PCE for Q2. Also the Chicago Purchasing Managers Index for May will be released. Another fun day!

    Best to all

    "Housing Production Credit Crisis"?

    by Bill McBride on 5/27/2010 06:49:00 PM

    I thought this was from The Onion ... unfortunately it is not.

    From the NAHB: Legislation Addresses Housing Production Credit Crisis

    Legislation introduced yesterday by Reps. Brad Miller (D-N.C.) and original co-sponsors Carolyn Maloney (D-N.Y.) and Joe Baca (D-Calif.) would help alleviate the severe lack of credit for acquisition, development and construction (AD&C) financing that threatens to end the budding housing recovery before it has time to take root, according to the National Association of Home Builders (NAHB).

    “We applaud these lawmakers for taking the lead to address the housing production credit crisis that is jeopardizing the housing and economic recovery now under way,” said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich.

    H.R. 5409, the Residential Construction Lending Act, would create a new residential construction loan guarantee program within the Department of Treasury to provide loans to builders with viable construction projects. Designed to unfreeze credit for small home building firms, the measure would expand the flow of credit to residential builders on competitive terms.

    Under intense pressure from their bank examiners to reduce their exposure to development and construction loans to builders and curtail their outstanding portfolios of real estate loans, many lenders are refusing to make loans for viable new housing projects and cutting off the funding for performing loans, or calling them. This is causing unnecessary foreclosures and losses on these loans. Performing loans are also being reappraised, reducing the value of the collateral and forcing borrowers to come up with large amounts of cash to keep their loans current.

    “H.R. 5409 will help restore the flow of credit to housing, provide jobs and give a meaningful lift to the economy,” said Jones. “We urge Congress to act quickly on this bill.”
    There is still a large overhang of existing housing units (at the current price). The last thing we need is more production - and then sticking the U.S. taxpayers with more bad loans.

    Gross Domestic Income shows more sluggish recovery

    by Bill McBride on 5/27/2010 03:49:00 PM

    Most of the revisions in the "Second Estimate" GDP report this morning were small; the headline GDP number was revised down to 3.0% from 3.2% (annualized real growth rate).

    There are really two measures of GDP: 1) real GDP, and 2) real Gross Domestic Income (GDI). The BEA also released GDI today. Recent research suggests that GDI is often more accurate than GDP.

    For a discussion on GDI, see from Fed economist Jeremy Nalewaik, “Income and Product Side Estimates of US Output Growth,” Brookings Papers on Economic Activity. An excerpt:

    The U.S. produces two conceptually identical official measures of its economic output, currently called Gross Domestic Product (GDP) and Gross Domestic Income (GDI). These two measures have shown markedly different business cycle fluctuations over the past twenty five years, with GDI showing a more-pronounced cycle than GDP. These differences have become particularly glaring over the latest cyclical downturn, which appears considerably worse along several dimensions when looking at GDI. ...

    In discussing the information content of these two sets of estimates, the confusion often starts with the nomenclature. GDP can mean either the true output variable of interest, or an estimate of that output variable based on the expenditure approach. Since these are two very different things, using “GDP” for both is confusing. Furthermore, since GDI has a different name than GDP, it may not be initially clear that GDI measures the same concept as GDP, using the equally valid income approach.
    The NBER uses both real GDP and real GDI to date recessions.

    The following graph is constructed as a percent of the previous peak in both GDP and GDI. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%. The recent recession is marked as ending in Q3 2009 - this is preliminary and NOT an NBER determination.

    Recession Measure GDP Click on graph for larger image in new window.

    It appears that GDP bottomed in Q2 2009 and GDI in Q3 2009. Real GDP is only 1.2% below the pre-recession peak - but real GDI is still 2.3% below the previous peak.

    GDI suggests the recovery has been more sluggish than the headline GDP report and better explains the weakness in the labor market.

    Also "Personal income excluding current transfer receipts (billions of chained 2005 dollars)" was revised down for the last two quarters, and now shows essentially no growth in real personal income since the bottom of the recession.

    Hotel Occupancy increases 4% compared to same week in 2009

    by Bill McBride on 5/27/2010 01:46:00 PM

    From HotelNewsNow.com: STR: Urban hotels top weekly performance

    Overall, the industry’s occupancy increased 4.0 percent to 61.6 percent, ADR ended the week virtually flat with a 0.3-percent decrease to US$98.15, and RevPAR rose 3.7 percent to US$60.49.
    The occupancy rate has been running about 3% to 4% above 2009 for the last three months. The following graph shows the occupancy rate by week and the 52 week rolling average since 2000.

    Hotel Occupancy Rate Click on graph for larger image in new window.

    Notes: the scale doesn't start at zero to better show the change.

    The graph shows the distinct seasonal pattern for the occupancy rate; higher in the summer because of leisure/vacation travel, and lower on certain holidays.

    The occupancy rate is running above 2009 - the worst year since the Depression - but still well below the normal level of close to 67% for this week.

    Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

    Next Stimulus Package Scaled Back

    by Bill McBride on 5/27/2010 11:21:00 AM

    From Lori Montgomery at the WaPo: Bill on jobless benefits, state financial help scaled back

    [C]ongressional leaders reached a tentative agreement Wednesday to scale back a package that would have devoted nearly $200 billion to jobless benefits and other economic provisions ...

    Under Wednesday's agreement, the overall cost of the package would drop from more than $190 billion to about $145 billion ... Unemployment benefits would be extended through the end of November, instead of through the end of the year ... $32 billion in expiring tax credits and deductions for businesses and individuals and $24 billion to help cash-strapped state governments.
    The "extension" of the unemployment benefits doesn't add more weeks; it extends the eligibility for the previously expanded benefits.

    The spending from the American Recovery and Reinvestment Act (ARRA) starts to decline in Q3, and that will be a drag on GDP growth. However the additional spending (including this proposed package) will probably keep the overall contribution to GDP growth slightly positive in Q3, but will be a drag on GDP growth starting in Q4 as spending declines.

    Weekly Initial Unemployment Claims at 460,000

    by Bill McBride on 5/27/2010 08:30:00 AM

    The DOL reports on weekly unemployment insurance claims:

    In the week ending May 22, the advance figure for seasonally adjusted initial claims was 460,000, a decrease of 14,000 from the previous week's revised figure of 474,000. The 4-week moving average was 456,500, an increase of 2,250 from the previous week's revised average of 454,250.
    ...
    The advance number for seasonally adjusted insured unemployment during the week ending May 15 was 4,607,000, a decrease of 49,000 from the preceding week's revised level of 4,656,000.
    Weekly Unemployment Claims Click on graph for larger image in new window.

    This graph shows the 4-week moving average of weekly claims since 1971.

    The four-week average of weekly unemployment claims increased this week by 2,250 to 456,500.

    The dashed line on the graph is the current 4-week average. The current level of 460,000 (and 4-week average of 456,500) is still high, and suggests ongoing weakness in the labor market.

    Still disappointing ... the 4-week average has been moving sideways for almost five months.

    Wednesday, May 26, 2010

    Mortgage Refinance Activity

    by Bill McBride on 5/26/2010 11:33:00 PM

    With the recent decline in mortgage rates, the Mortgage Bankers Association (MBA) has reported an increase in refinance activity. But so far the activity is far below the levels of early 2009 even though mortgage rates are at about the same level.

    This is because most people who could refinance already did last year ...

    Refinance Activity and 10 Year Treasury Yield Click on graph for larger image in new window.

    This graph shows the weekly MBA refinance activity, and the Ten Year Treasury yield (Note: Using the 10 year to approximate moves in mortgage rates).

    Every time the 10 year yield drops sharply, refinance activity picks up. But notice what happened at the end of 1995. The Ten Year yield dropped, but the increase in refinance activity was muted. This was because mortgage rates didn't fall below the rates of a couple years earlier - and many people had already refinanced at those lower rates.

    The same thing is happening now, and although activity has increased, there will only be a huge surge in refinance activity if mortgage rates fall below the rates of 2009.

    Toll Brothers: Orders Up, Cancellation Rates Way Down, Toll buying Lots Again (Uh, Oh!)

    by Bill McBride on 5/26/2010 06:28:00 PM

    This post is from housing economist Tom Lawler:

    Toll Brothers, the self-proclaimed “leading builder of luxury homes,” reported that net home contracts totaled 866 in the quarter ended April 30th, up 40.9% from the comparable quarter of 2009. Gross orders were up 16.6% from a year ago, while sales cancellations were down 71.4%. The company’s sales cancellation rate expressed as a % of gross orders was 5.3%, the lowest rate since the third quarter of FY 2005, and close to the time that Toll CEO Robert Toll made his infamous comment in the summer of 2005 that “(w)e’ve got the supply, and the market has got the demand; it’s a match made in heaven” right before housing demand started to fall. Home deliveries last quarter totaled 543, down 16.2% from the comparable quarter of last year, while the company’s order backlog as of 4/30/10 was 1,738, up 9.9% from a year ago. The company’s increase in orders came despite a 21% drop in Toll’s community count from last year.

    In its press release, new Toll CEO-designate Doug Yearley, Jr. noted that “with demand increasing in many areas, we are now focused on growth,” and said the company increased its lot count for the first time in four years – scaring more than a few folks.

    Toll Brothers Land Click on graph for larger image in new window.

    [This graph], by the way, is some history of Toll’s land/lot position from one of its presentations, with one of the most misleading headlines known to man.

    This chart, as well as Bob Toll’s statements, highlights how Toll completely and totally misread the housing markets during the middle of last decade, accelerating land/lot acquisitions right near the peak – a move that eviscerated shareholders, though the company’s relative low leverage saved it from extinction.

    What scared folks is that the company’s new push to growth was based on an assessment, echoed by Bob Toll in the press release, that the rebound in orders/demand was not simply the result of the home buyer tax credit, but was also driven “by an increase in confidence among our buyers in their job security, their ability to sell their existing homes, and general trends in home prices." He based this assessment in part on the fact that “(i)n the three weeks since the start of our third quarter on May 1st, which coincided with the expiration of the homebuyer tax credit, our per community deposits and traffic were up 23% and 11%, respectively, over last year's comparable period.”

    Note, though that (1) he referenced activity per community, and the company’s community count was down 21% from a year ago, and last quarter’s YOY increase in gross orders per community were up 47.2% YOY (and net orders 78%!); and (2) a year ago wasn’t exactly a strong housing market!!!! But…you know Bob!!!!

    An amusing thing in today’s press release that actually suggests the company is highly uncertain about housing demand for the rest of this year was CFO’s Joel Rassman’s “limited” guidance he offered for the company’s home deliveries in FY 2010 (which is half over). He said the company estimates that it will deliver “between 2,200 and 2,275” homes in FY2010. Given the 1,139 homes already delivered in the first half of FY 2010, that means the company’s “guidance” is that it expects to deliver between 1,061 and 1,611 homes from May 1st through October 31st !!!! Now THAT’S a huge range, and one consistent with a view that “well, I think demand may have rebounded, but BOY, maybe it really WAS the tax credit!!!”

    Of course, the tax credit probably was NOT as much of a factor for buyer’s of Toll’s homes relative to other builders – after all, Toll’s average price is in the $560,000 - $570,000, and the federal tax credit was capped at $8,000. And, in fact, there IS some anecdotal evidence that in some markets the demand for “Toll-like” homes has improved a bit. However, given Bob Toll’s track record of reading the housing market since the turn of the millennium ...

    Bob Toll, by the way, will step down as Toll’s CEO effective June 16th, though he will “remain active” as Executive Chairman of the Board.

    CR Note: this was from economist Tom Lawler.

    Market Update: More Euro

    by Bill McBride on 5/26/2010 03:40:00 PM

    The euro was down under 1.22 dollars as investors apparently reacted to a story in the Financial Times: China reviews eurozone bond holdings

    China ... is reviewing its holdings of eurozone debt ...

    Representatives of China’s State Administration of Foreign Exchange, or Safe ... has been meeting with foreign bankers in Beijing in recent days to discuss the issue.

    Safe, which holds an estimated $630bn of eurozone bonds in its reserves ...
    excerpts with permission
    And this brought out the Dow 10K hats with the Dow closing at 9.974. Party likes it's 1998!

    Stock Market S&P 500Click on graph for larger image in new window.

    The first graph shows the S&P 500 since 1990.

    The dashed line is the close today. The first time the S&P 500 was at this level was March 11, 1998 - over 12 years ago.

    For investors this has already been a "lost decade" and more ...

    Stock Market Crashes
    This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

    Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

    New Home Prices: Median Lowest since 2003

    by Bill McBride on 5/26/2010 12:40:00 PM

    As part of the new home sales report, the Census Bureau reported that the median price for new homes fell to the lowest level since 2003.

    New Home Prices Click on graph for larger image in new window.

    This graph shows the median and average new home price. It appears the builders sold at a lower price point in April, and that helped boost sales.

    This makes sense since many of the buyers were trying to take advantage of the housing tax credit (and probably using FHA insurance). Since the modification programs and the delays in foreclosure limited the number of distressed sales - many buyers at the low end found buying a new home easier than buying an existing home.

    New Home Sales by Price The second graph shows the percent of new home sales by price.

    Half of all home sales were under $200K in April - tying Jan 2009 as the highest level since 2003 (there was panic selling in Jan 2009).

    And excluding Jan 2009, this is the highest percentage under $300K since May 2003 - and the highest under 400K since April 2003.

    To summarize: the homebuilders sold 16,000 more units in April 2010 than in April 2009 - probably because of the tax credit, and at lower prices - and now sales will decline sharply in May probably close to the 34,000 units sold in May 2009.

    New Home Sales increase to 504K Annual Rate in April

    by Bill McBride on 5/26/2010 10:00:00 AM

    The Census Bureau reports New Home Sales in April were at a seasonally adjusted annual rate (SAAR) of 504 thousand. This is an increase from the revised rate of 439 thousand in March (revised from 411 thousand).

    New Home Sales Monthly Not Seasonally Adjusted Click on graph for larger image in new window.

    The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted).

    Note the Red columns for 2010. In April 2010, 48 thousand new homes were sold (NSA).

    The record low for the month of April was 32 thousand in 1982 and 2009; the record high was 116 thousand in 2005.

    New Home Sales and Recessions The second graph shows New Home Sales vs. recessions for the last 45 years.

    Sales of new one-family houses in April 2010 were at a seasonally adjusted annual rate of 504,000 ... This is 14.8 percent (±19.5%)* above the revised March rate of 439,000 and is 47.8 percent (±26.0%) above the April 2009 estimate of 341,000.
    And another long term graph - this one for New Home Months of Supply.

    New Home Months of Supply and RecessionsMonths of supply declined to 5.0 in April from 6.2 in March. This is significantly below the all time record of 12.4 months of supply set in January 2009. This would be about normal, except the months of supply will increase next month when sales decline.
    The seasonally adjusted estimate of new houses for sale at the end of April was 211,000. This represents a supply of 5.0 months at the current sales rate.
    New Home Sales Inventory The final graph shows new home inventory.

    New home sales are counted when the contract is signed, so this pickup in activity is related to the tax credit.

    For new home sales, the tax credit selling ended in April and sales will probably decline sharply in May.

    MBA: Mortgage Purchase Applications at 13 Year Low

    by Bill McBride on 5/26/2010 08:07:00 AM

    The MBA reports: Mortgage Refinance Applications Continue to Increase, Purchase Applications Decline Further

    The Market Composite Index, a measure of mortgage loan application volume, increased 11.3 percent on a seasonally adjusted basis from one week earlier ...

    The Refinance Index increased 17.0 percent from the previous week. This third consecutive increase marks the highest Refinance Index recorded in the survey since October 2009. The seasonally adjusted Purchase Index decreased 3.3 percent from one week earlier and is the lowest Purchase Index observed in the survey since April 1997.
    ...
    “Refinance application volume jumped last week as continuing financial market turmoil related to the budget crises in Europe extended the opportunity for homeowners to lock in at historically low mortgage rates,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “In contrast, purchase applications fell further this week, following last week’s sharp decline, keeping the purchase index at 13-year lows.”
    ...
    The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.80 percent from 4.83 percent, with points remaining constant at 1.08 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year fixed-rate recorded in the survey since the week ending November 27, 2009.
    MBA Purchase Index Click on graph for larger image in new window.

    This graph shows the MBA Purchase Index and four week moving average since 1990.

    There was a spike in purchase applications in April, followed by a decline to a 13 year low last week. As Fratantoni noted last week: "The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season."

    Tuesday, May 25, 2010

    Large San Francisco Apartment Complex in Default

    by Bill McBride on 5/25/2010 11:59:00 PM

    From the San Francisco Chronicle: Parkmerced in default (ht David)

    The commercial real estate meltdown has caught up with one of the largest apartment complexes in the country -- San Francisco's Parkmerced.

    The complex's owner is due to announce that the loan on the property is in default.

    "Parkmerced and its lenders engaged a special servicer (a company that specializes in handling loans in default) to support the payments of the loan on the property," said Seth Mallen, an executive vice president of Stellar Management, a co-owner of Parkmerced, in a statement to be released Wednesday.
    ...
    The 116-acre complex, purchased by Stellar Management and another real estate investment firm, Rockpoint Group, has 1,683 rental units contained in 11 residential towers. Blocks of two-story garden townhouses account for an additional 1,538 apartments.
    The beat goes on ... just yesterday Bloomberg reported: Defaults on Apartment-Building Loans Set Record for U.S. Banks
    Defaults on apartment-building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter, almost twice the year-earlier level, as more borrowers failed to repay debt approved near the market peak, said Real Capital Analytics Inc. in a report.

    Defaults on so-called multifamily mortgages rose from 4.4 percent in the fourth quarter and from 2.4 percent during the same period in 2009 ...

    Summary of Housing News

    by Bill McBride on 5/25/2010 10:12:00 PM

    Just a summary of the housing news ...

    Tomorrow the New Home sales report will be released, and since new homes are reported when the contract is signed, April was most likely the peak month for tax credit related buying.

    For existing home sales, the sales are reported when the transaction is closed, and buyers have until June 30th to close - so reported sales will probably increase further. On existing home sales, please see Inventory increases Year-over-Year and Existing Home Sales increase in April

    On house prices, see: Case-Shiller House Prices "Weakening" and First American CoreLogic: House Prices Decline 0.3% in March

    And the MBA released the Q1 National Delinquency Survey last week showing record delinquencies:
    1) Press Release from the MBA: Delinquencies, Foreclosure Starts Fall in Latest MBA National Delinquency Survey
    2) Comments from MBA conference call.
    3) Two key graphs: Mortgage Delinquencies by Period and by State

    Best to all

    CBO: Stimulus raised GDP 1.7% to 4.2% in Q1

    by Bill McBride on 5/25/2010 06:30:00 PM

    From the Congressional Budget Office: Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from January 2010 Through March 2010

    CBO estimates that in the first quarter of calendar year
    2010, ARRA’s policies:

  • Raised the level of real (inflation-adjusted) gross domestic product (GDP) by between 1.7 percent and 4.2 percent,

  • Lowered the unemployment rate by between 0.7 percentage points and 1.5 percentage points,

  • Increased the number of people employed by between 1.2 million and 2.8 million, and

  • Increased the number of full-time-equivalent jobs by 1.8 million to 4.1 million compared with what those amounts would have been otherwise.

    The effects of ARRA on output and employment are expected to increase further during calendar year 2010 but then diminish in 2011 and fade away by the end of 2012.
  • Here is the CBO's estimate of the impact on GDP by quarter:

    Change Attributable to ARRA, GDP change (percent)
     Low EstimateHigh Estimate
    2009Q10.10.1
    2009Q20.91.5
    2009Q31.32.7
    2009Q41.53.5
    2010Q11.74.2
    2010Q21.74.6
    2010Q31.44.2
    2010Q41.13.6

    Note: the impact on GDP growth (the headline number reported each quarter by the BEA), is the change in spending from one quarter to the next. The ARRA impact on GDP peaks in Q2 2010 and is lower in Q3 2010 by both estimates. This change will show up as a drag on GDP growth in Q3.

    This is part of the reason I expect a slowdown in growth in the 2nd half of 2010. Other factors include: the inventory correction appears over, I expect households to save more (a drag on consumption growth), and I expect further weakness in housing.

    Market Update

    by Bill McBride on 5/25/2010 04:00:00 PM

    The euro recovered to 1.23 dollars and I had to put away my Dow 10K hat ...

    The S&P 500 actually finished up slightly.

    Stock Market CrashesClick on graph for larger image in new window.

    This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

    Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

    Real Case-Shiller National House Prices

    by Bill McBride on 5/25/2010 11:40:00 AM

    S&P/Case-Shiller also released the Q1 2010 National Index this morning.

    By request, here is a graph that shows the national index in both nominal and real terms (adjusted with CPI less shelter).

    Case-Shiller Real National House Prices Index Click on graph for larger image in new window.

    In nominal terms (blue), the National Index declined 1.3% in Q1, and is 2.1% off the recent bottom in Q1 2009.

    Note: Case-Shiller reported the national index declined 3.2% in Q1 (Not Seasonally Adjusted, NSA) - however I'm using the SA data.

    In real terms (red), the National Index declined 1.9% in Q1, and is now at the lowest level since Q4 2000.

    Case-Shiller House Prices "Weakening"

    by Bill McBride on 5/25/2010 09:00:00 AM

    IMPORTANT: These graphs are Seasonally Adjusted (SA). S&P has cautioned that the seasonal adjustment is probably being distorted by irregular factors. These distortions could include distressed sales and the various government programs.

    S&P/Case-Shiller released the monthly Home Price Indices for March (actually a 3 month average), and the Q1 2010 National Index.

    The monthly data includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities).

    From S&P: The First Quarter of 2010 Indicates Some Weakening in Home Prices

    Data through March 2009, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices ... show that the U.S. National Home Price Index fell 3.2% in the first quarter of 2010, but remains above its year-earlier level. In March, 13 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down although the two composites and 10 MSAs showed year-over-year gains.

    Housing prices rebounded from crisis lows, but recently have seen renewed weakness as tax incentives are ending and foreclosures are climbing.
    Case-Shiller House Prices Indices Click on graph for larger image in new window.

    The first graph shows the nominal not seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

    The Composite 10 index is off 29.8% from the peak, and up slightly in March (SA).

    The Composite 20 index is off 29.3% from the peak, and down slightly in March (SA).

    Case-Shiller House Prices Indices The second graph shows the Year over year change in both indices.

    The Composite 10 is up 3.2% compared to March 2009.

    The Composite 20 is up 2.4% compared to March 2009.

    This is the second month with YoY price increases in a row.

    The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

    Case-Shiller Price Declines Prices decreased (SA) in 11 of the 20 Case-Shiller cities in March (SA).

    Prices in Las Vegas are off 56% from the peak, and prices in Dallas only off 5.8% from the peak.

    Case Shiller is reporting on the NSA data (13 cities down), and I'm using the SA data. I'm not sure why Case-Shiller is saying prices are weakening because the tax incentive is ending. This is Q1 and March 2010 data - and the tax incentive pulled forward demand and probably supported prices. Just wait until later this year ...

    Morning Market News

    by Bill McBride on 5/25/2010 08:12:00 AM

    From the NY Times: Concerns Over North Korea Shake Markets and Euro

    From the WSJ: Europe's Banks Hit by Rising Loan Costs

    On Monday, the London interbank offered rate, or Libor—the rate at which banks lend money to each other, and thus a vital sign of their mutual trust—rose to its highest level for the three-month dollar rate since last July. While the current Libor, at just above 0.5%, is far below the sky-high levels of 4.81875% reached at the height of the financial crisis in 2008, it is still a significant jump from 0.25% as recently as March.

    But Libor's jump is more pronounced at European banks. On Monday, German state-controlled lender WestLB AG said it cost 0.565% to borrow dollars for three months, up from 0.38% a month earlier. U.S.
    The three month Libor has moved even higher, and is now at 0.54.

    The TED spread is up to 38.61 (from 34.47). This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th -the spread is still low, but has been steadily rising.

    The European markets are off sharply. The German DAX off 2.76%, the FTSE 100 off 2.5%.

    From CNBC: Pre-Market Data shows the S&P 500 off about 25 or over 2.0%. Dow futures are off almost 200 points.

    The Euro is down to 1.22 dollars.

    Monday, May 24, 2010

    Futures Off Tonight

    by Bill McBride on 5/24/2010 11:56:00 PM

    The U.S. futures are off tonight:

    From CNBC: Pre-Market Data shows the S&P 500 off about 19 or almost 2.0%. Dow futures are off about 150 points.

    Get your Dow 10K hats ready ... I've heard the Libor is "going nutty" (no link).

    CBOT mini-sized Dow

    And the Asian markets are off about 2% ... and a graph of the Asian markets.

    The Euro is back down to 1.23 dollars. Some other sources for exchange rates and NetDania.

    And a couple of stories ...

    From Micheal Pettis at Bloomberg: China Falls Victim to Greek Deficit Contagion

    And from the Financial Times: Obama adviser calls for new ‘mini-stimulus’

    The Obama administration made a strong plea to Congress on Monday to grit its teeth and pass a new set of spending measures ... in order to help dig the economy “out of a deep valley”. ... Lawrence Summers ... urged Congress to pass up to $200bn (£138.9bn) in spending measures ... last year’s $787bn stimulus is wearing off.
    except with permission
    Could be an interesting day ...

    Best to all.

    DOT: Vehicle Miles Driven increase in March

    by Bill McBride on 5/24/2010 09:05:00 PM

    Note: On existing home sales, please see Inventory increases Year-over-Year and Existing Home Sales increase in April

    The Department of Transportation (DOT) reported earlier today that vehicle miles driven in March were up from March 2009:

    Travel on all roads and streets changed by +2.3% (5.8 billion vehicle miles) for March 2010 as compared with March 2009. Travel for the month is estimated to be 254.8 billion vehicle miles.

    Cumulative Travel for 2010 changed by -0.7% (-4.8 billion vehicle miles).
    So miles driven are still down for the year compared to 2009.

    Also miles driven in March were still 1.7% below March 2007.

    Vehicle Miles YoYClick on graph for larger image in new window.

    This graph shows the percent change from the same month of the previous year as reported by the DOT.

    As the DOT noted, miles driven in March 2010 were up 2.3% compared to March 2009.

    The YoY decline in February was blamed on the snow, and there might have been some extra driving in March once the weather improved. On a rolling 12 month basis, miles driven are still 2.1% below the peak - and only 0.5% above the recent low - suggesting a sluggish recovery.

    FHA Commissioner: Housing on "Life support", "very sick system"

    by Bill McBride on 5/24/2010 05:55:00 PM

    “This is a market purely on life support, sustained by the federal government. Having FHA do this much volume is a sign of a very sick system.”
    Federal Housing Commissioner David Stevens at Mortgage Bankers Association Government Housing Conference (see Bloomberg, the FHA was involved in more transactions in Q1 than Fannie and Freddie combined)

    No kidding ...

    Market Update

    by Bill McBride on 5/24/2010 04:04:00 PM

    Note: On existing home sales, please see Inventory increases Year-over-Year and Existing Home Sales increase in April

    The market sell-off continues with the Dow down 127. The S&P 500 off 14 (1.3%).

    Stock Market CrashesClick on graph for larger image in new window.

    This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

    Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

    The Euro is down to 1.2383 dollars (off slightly).

    The TED spread increased to 35.96 from 34.47. This is still fairly low, but has been increasing steadily. Note: This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th and a normal spread is below 50 bps.

    The three month dollar Libor edged up to 0.51.