Thursday, September 30, 2010

Video: Economist / Comedian Bauman at the American Economic Association humor session

by Bill McBride on 9/30/2010 11:49:00 PM

A little economics humor ...

Hotel Occupancy Rate: Slightly below 2008 Levels

by Bill McBride on 9/30/2010 09:04:00 PM

Hotel occupancy is one of several industry specific indicators I follow ...

From HotelNewsNow.com: STR: Chain scales report strong RevPAR gains

Overall, the U.S. hotel industry rose 7.5% in occupancy to 64.2%, average daily rate was up 2.6% to US$103.09, and RevPAR ended the week up 10.3% to US$66.15.
The following graph shows the four week moving average for the occupancy rate by week for 2008, 2009 and 2010 (and a median for 2000 through 2007).

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 4-week average, not the weekly occupancy rate.

On a 4-week basis, occupancy is up 6.0% compared to last year (the worst year since the Great Depression) and 5.2% below the median for 2000 through 2007.

The occupancy rate is slightly below the levels of 2008 - and 2008 was a tough year for the hotel industry!

Important: Even though the occupancy rate is close to 2008 levels, 2010 is a much more difficult year. The average daily rate (ADR) is off close to 8% from 2008 levels - so even with the similar occupancy rates, hotel room revenue is off sharply compared to two years ago.

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

Existing Home Inventory declines slightly in September, Up year-over-year

by Bill McBride on 9/30/2010 06:00:00 PM

Tom Lawler reports that at the end of September, listings on Realtor.com totaled 3,960,417, down 1.2% from 4,007,860 at the end of August. This is 1.7% higher than in September 2009.

The NAR reported inventory at 3.98 million at the end of August, and at 3.71 million in September 2009. So they will probably report inventory at around 3.85 million for September 2010. (NAR does not seasonally adjust inventory and this appears to be a normal seasonal decline. The months-of-supply metric uses seasonally adjusted sales, but NSA inventory.).

Since sales probably only increased slightly in September, the months-of-supply metric will probably still be well into double digits again.

Note: there is a seasonal pattern for existing home inventory. Usually inventory peaks in July and declines slightly through October - and then declines sharply at the end of the year as sellers take their homes off the market for the holidays.

Restaurant Index shows contraction in August

by Bill McBride on 9/30/2010 03:31:00 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 declined again in August (on a year-over-year basis). 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 Cautious as Restaurant Performance Index Was Essentially Flat in August

As a result of continued soft sales and traffic levels, the National Restaurant Association’s comprehensive index of restaurant activity remained below 100 for the fourth consecutive month in August. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 99.5 in August, essentially unchanged from the previous three months. In addition, the RPI stood below 100 for the fourth consecutive month, which signifies contraction in the index of key industry indicators.
...
Restaurant operators reported a net decline in same-store sales for the fifth consecutive month in August ... Restaurant operators also continued to report a net decline in customer traffic levels in August..
emphasis added
Restaurants are a discretionary expense, and this contraction could be because of the sluggish recovery or might suggest further weakness in consumer spending in the months ahead.

The Economist: Expanding household Size

by Bill McBride on 9/30/2010 01:34:00 PM

From The Economist: Cramped quarters: As children postpone their departure, households get larger

Household Size Image credit: The Economist

[A]fter shrinking for decades, households have started to grow. Last year the average household had 2.59 people, up from 2.56 two years earlier, marking the first increase since 1993.
...
Much of this is almost certainly a response to the recession and the surge in unemployment. For young people who have lost their job or cannot find their first one, living with their parents becomes more attractive.
Note: This data comes from the 2009 American Community Survey, and many caveats apply.

As Greg Ip noted, the overall U.S. population is still growing, and at the current growth rate that would usually mean the demand for over 1 million additional housing units per year. However since many people are doubling up (or as we always joke - have moved into their parent's basement), this keeps the demand for housing units down.

This might seem like a small increase in the number of people per household (from 2.56 to 2.59), however that has a significant impact on the number of housing units needed.

Some rough numbers: If we assume a population of 300 million, the slight increase in household size would suggest about 1.3 million fewer housing units were needed. (300 million divided 2.56) minus (300 million divided by 2.59) equals about 1.3 million. This is more than offset by the growing population over this two year period, but this shows why the excess inventory has remained very high even with a series low number of new housing units being completed.

We all expected this during the recession, but it will be important to watch if the household size starts to decline again.

Kansas City Fed: Regional Manufacturing Activity rebounded in September

by Bill McBride on 9/30/2010 11:13:00 AM

Usually I don't post all the regional manufacturing surveys, but it appears manufacturing is slowing right now - and the regional surveys provide early clues ...

From the Kansas City Fed:

Tenth District manufacturing activity rebounded in September, and producers’ expectations for future activity also improved.
...
The net percentage of firms reporting month-over-month increases in production in September was 14, up from 0 in August and equal to 14 in July ... The shipments, new orders, and order backlog indexes jumped back into positive territory.
...
The employment index was unchanged [at -2].
Here is an update to the graph comparing the regional Fed surveys with the ISM manufacturing survey, including the Kansas City survey released this morning:

Fed Manufacturing Surveys and ISM PMI Click on graph for larger image in new window.

For this graph I averaged the New York and Philly Fed surveys (dashed green, through September), and averaged five surveys including New York, Philly, Richmond, Dallas and Kansas City (blue).

The Institute for Supply Management (ISM) PMI (red) is through August (right axis).

The ISM Manufacturing index will be released tomorrow and the consensus is for a decline to 54.5 in September from 56.3 in August.

Chicago PMI increases in September

by Bill McBride on 9/30/2010 09:45:00 AM

From the Institute for Supply Management – Chicago:

The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER improved in September to chalk up a full twelve months of expansion.
The overall index increased to 60.4 vs. 56.7. Note: any number above 50 shows expansion.

Employment index declined to 53.4 from 55.5 in August.

The new orders index increased to 61.4 from 55.0.

Overall this was a positive report. The national ISM manufacturing index will be released tomorrow.

Weekly Initial Unemployment Claims decrease

by Bill McBride on 9/30/2010 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Sept. 25, the advance figure for seasonally adjusted initial claims was 453,000, a decrease of 16,000 from the previous week's revised figure of 469,000. The 4-week moving average was 458,000, a decrease of 6,250 from the previous week's revised average of 464,250.
Weekly Unemployment Claims Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week by 6,250 to 458,000.

The 4-week moving average has been moving sideways at an elevated level for about 10 months - and that suggests a weak job market.

Wednesday, September 29, 2010

Two Stories: JPMorgan halts some foreclosures, Fed to release crisis transaction details

by Bill McBride on 9/29/2010 09:26:00 PM

Here are two stories we've been discussing in the comments ...

From David Streitfeld at the NY Times: JPMorgan Suspending Foreclosures

JPMorgan Chase, said it was halting 56,000 foreclosures because some of its employees might have improperly signed court documents. All of the suspensions are in the 23 states where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.
It is amazing that the servicers haven't reviewed all their procedures already ...

And from Fed Chairman Ben Bernanke: Regulatory Reform Implementation

A final element of the Federal Reserve's efforts to implement the Dodd-Frank Act relates to the transparency of our balance sheet and liquidity programs. Well before enactment, we were providing a great deal of relevant information on our website, in statistical releases, and in regular reports to the Congress. Under a framework established by the act, the Federal Reserve will, by December 1, provide detailed information regarding individual transactions conducted across a range of credit and liquidity programs over the period from December 1, 2007, to July 20, 2010. This information will include the names of counterparties, the date and dollar value of individual transactions, the terms of repayment, and other relevant information. On an ongoing basis, subject to lags specified by the Congress to protect the efficacy of the programs, the Federal Reserve also will routinely provide information regarding the identities of counterparties, amounts financed or purchased and collateral pledged for transactions under the discount window, open market operations, and emergency lending facilities.
Apparently disclosure isn't a problem now.

Fannie Mae and Freddie Mac: Serious Delinquent Rates decline

by Bill McBride on 9/29/2010 05:01:00 PM

Fannie Mae Seriously Delinquent Rate
Click on graph for larger image in new window.

Fannie Mae reported today that the rate of serious delinquencies - at least 90 days behind - for conventional loans in its single-family guarantee business decreased to 4.82% in July, down from 4.99% in June - and up from 4.17% in July 2009.

"Includes seriously delinquent conventional single-family loans as a percent of the total number of conventional single-family loans."

Freddie Mac Seriously Delinquent RateThe second graph is for the delinquency rate for Freddie Mac. The rate declined to 3.83% in August (Freddie reports a month quicker than Fannie), from 3.89% in July.

Some of the rapid increase last year was probably because of foreclosure moratoriums, and distortions from modification programs because loans in trial mods were considered delinquent until the modifications were made permanent.

More modifications have become permanent and no longer counted as delinquent, and Fannie Mae and Freddie Mac are foreclosing again (they have a record number of REOs) - so there has been a decline in the delinquency rate.

Fed's Rosengren: Fed must respond "vigorously, creatively, thoughtfully, and persistently"

by Bill McBride on 9/29/2010 01:31:00 PM

I cautioned that today was Fed speech day! Boston Fed president Eric Rosengren is currently a voting member of the FOMC ...

From Rosengren: How Should Monetary Policy Respond to a Slow Recovery?

I’ve called this talk “How Should Monetary Policy Respond to a Slow Recovery?” My answer to that question is: vigorously, creatively, thoughtfully, and persistently, as long as we have options at our disposal. And we do have options, despite having pushed short-term rates to the zero lower bound.
On unemployment:
[T]he most recent recession is far less a reflection of dislocation in a few industries but rather reflects a general decline in almost all industries. ... in this recession there has been a peak to trough loss of employment of 5 percent or greater in construction, manufacturing, retail trade, wholesale trade, transportation, information technology, financial activities, and professional and business services. To me, this does not suggest that the driver is structural change in the economy increasing job mismatches – although no doubt some of that exists – but instead I see here a widespread decline in demand across most industries.
And on QE2:
Now I’d like to make a few observations on Fed purchases of Treasury securities.

First, the positives: Purchases of long-term Treasury securities are likely to push down long-term interest rates on Treasury bonds, but also are likely to reduce rates on other long-term securities. Some have argued that it would be difficult to reduce Treasury rates further, but Figure 13 highlights, importantly, that U.S. Treasury rates are still well above the zero bound, roughly equivalent to rates in Germany, and well above long-term rates in Japan.

Now some concerns: While purchases of Treasury securities have the advantage of not directly “allocating credit” to a particular industry, they have the disadvantage of only indirectly affecting the private borrowing rates that more directly affect private investment spending. In addition, Treasury purchases raise for some a concern that the Fed intends to monetize the federal debt, using monetary policy to accommodate the financing of fiscal policy. I can assure you that we have no desire or intention whatsoever to do so.

While lower long-term rates are likely the primary channel through which asset purchases would influence the economy, purchases of Treasury or mortgage-backed securities also expand the Federal Reserve’s balance sheet and increase the amount of reserves in the financial system. This expansion of reserves might serve as an effective signal that highlights the determination of the Federal Reserve to reduce disinflationary pressures.

Certainly, views on securities purchases differ within the ranks of policymakers and all manner of observers. I would just reiterate that it is important to keep firmly in mind the goal of such purchases: to stimulate the economy by reducing long-term interest rates to a level that is more consistent with where they would be, were we able to further reduce the federal funds rate.
And his conclusion:
While the economy is growing, it is currently growing too slowly to significantly reduce the unemployment rate or stem disinflationary pressures created by the high degree of slack in the economy. While fiscal policies may be the most effective way to stimulate the economy when short-term interest rates approach the zero bound, unconventional monetary policies provide additional policy options. Of course, policymakers need to carefully weigh the benefits and costs of unconventional monetary policy – some of which I have tried to share with you today. Yet all in all, my firm view is that it is important that policymakers be open to implementing policies consistent with achieving full employment, and an appropriate level of inflation, within a reasonable time frame.
There is much more in this speech.

Fed's Plosser opposes QE2

by Bill McBride on 9/29/2010 12:49:00 PM

With QE2 arriving on November 3rd - barring an upside surprise in the economic data - it is interesting to hear the views of the Fed presidents.

From Philadelphia Fed President Charles Plosser: Economic Outlook. On QE2:

[I]t is difficult, in my view, to see how additional asset purchases by the Fed, even if they move interest rates on long-term bonds down by 10 or 20 basis points, will have much impact on the near-term outlook for employment. Sending a signal that monetary policymakers are taking actions in an attempt to directly affect the near-term path of the unemployment rate, and then for those actions to have no demonstrable effects, would hurt the Fed’s credibility and possibly erode the effectiveness of our future actions to ensure price stability. It also risks leading the public to believe that the Fed is seeking to monetize the deficit and make it more difficult to return to normal policy when the time comes.
And on the outlook:
While the near-term outlook has softened a bit, I expect growth in the national economy to be around 3 to 3½ percent over the next two years, with stronger business spending on equipment and software, moderate growth of consumer spending, and gradual improvement in household balance sheets.

The unemployment rate continues to be one of the biggest challenges our economy faces. Although unemployment will begin to decline gradually, it will take some time for it to return to its long-run level. As the economy strengthens and firms become convinced that the recovery is sustainable, hiring will pick up over the rest of this year and in 2011. But it may take even longer to address the sectoral, geographic, and skill imbalances that seem to plague the labor markets.

I expect inflation to remain subdued. As long as inflation expectations remain well anchored, I see little risk of a period of sustained deflation.
Although I agree that there will be some geographic and skill mismatches going forward because of the housing bubble - I don't think that is the main problem impacting the labor markets right now. There are many highly skilled people currently unemployed in many sectors - so Plosser's view appears incorrect.

I'm surprised that Plosser is sticking with his optimistic (so far wrong) economic outlook. Right now Plosser is an alternate member of the FOMC and next year he will be a voting member (along with several other Fed presidents with similar views).

Fed's Kocherlakota revises down forecast

by Bill McBride on 9/29/2010 10:31:00 AM

Minneapolis Federal Reserve President Narayana Kocherlakota spoke in London today. He has been one of more optimistic Fed presidents, and he revised down his forecast today ...

From Kocherlakota: Economic Outlook and the Current Tools of Monetary Policy

Our September estimates are distinctly lower than our August estimates. I now expect GDP growth to be around 2.4 percent in the second half of 2010 and around 2.5 percent in 2011.
...
From the fourth quarter of 2009 through the second quarter of 2010, the change in the PCE price level was just over 0.5 percent, which works out to an annual rate of just over 1 percent. ... I expect inflation to remain at about this level during the rest of this year. However, our Minneapolis forecasting model predicts that it will rise back into the more desirable 1.5-2 percent range in 2011.
...
To summarize: GDP is growing, but more slowly than I expected or than we would like. Inflation is a little low, but only temporarily. The behavior of unemployment is deeply troubling.
This still seems too optimistic, but he is moving in the right direction.

And on the coming QE2:
My own guess is that further uses of QE would have a more muted effect on Treasury term premia. Financial markets are functioning much better in late 2010 than they were in early 2009. As a result, the relevant spreads are lower, and I suspect that it will be somewhat more challenging for the Fed to impact them.
Kocherlakota is currently an alternate member of the FOMC and will be a voting member next year. It is interesting that certain Fed presidents are now revising down their overly optimistic forecasts - all but guaranteeing QE2 (even if he thinks it will have little impact).

Estimate of Decennial Census impact on September payroll employment: minus 78,000

by Bill McBride on 9/29/2010 10:02:00 AM

The Census Bureau released the weekly payroll data for the week ending September 18th today (ht Bob_in_MA).

If we subtract the number of temporary 2010 Census workers in the week containing the 12th of the month, from the same week for the previous month - this provides a close estimate for the impact of the Census hiring on payroll employment.

The Census Bureau releases the actual number with the employment report.

Census workers per week Click on graph for larger image in new window.

This graph shows the number of Census workers paid each week. The red labels are the weeks of the BLS payroll survey.

The Census payroll decreased from 83,955 for the week ending August 14th to 6,038 for the week ending September 18th.

So my estimate for the impact of the Census on September payroll employment is minus 78 thousand (this will probably be close). The employment report will be released on October 8th, and the headline number for September - including Census numbers - will probably be close to zero. But a key number will be the hiring ex-Census (so we will add back the Census workers again this month).

The following table compares the weekly payroll report estimate to the monthly BLS report on Census hiring - this shows the estimate is usually very close:

Payroll, Weekly Pay PeriodPayroll, Monthly BLSChange based on weekly reportActual Change (monthly)
Jan2524
Feb41391615
Mar96875548
Apr1561546167
May574564418410
Jun344339-230-225
Jul200196-144-143
Aug8482-116-114
Sep6-78
All thousands

There are very few temporary decennial workers left on the payroll, and this month marks the end of the weekly payroll report from the Census Bureau: "These data will continue through the end of September with the last release of data being the week of Sept. 26-Oct. 2."

I'll have more on the September employment report (due Oct 8th) this Sunday in the weekly schedule.

MBA: Mortgage Applications Purchase Index increases slightly

by Bill McBride on 9/29/2010 07:34:00 AM

The MBA reports: Mortgage Refinance Applications Decrease Despite Decline in Rates in Latest MBA Weekly Survey

The Refinance Index decreased 1.6 percent from the previous week, which is the fourth straight weekly decrease. The seasonally adjusted Purchase Index increased 2.4 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.38 percent from 4.44 percent, with points increasing to 1.01 from 0.81 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The 30-year contract rate is a new low for this survey. The previous low was 4.43 percent for the week ending August 27, 2010.
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.

Purchase applications have increased slightly from the lows in July and are at about the same level is in 1996 or 1997. This suggests existing home sales (closed transactions) in September, October, and even November will not be much above the August sales rate.

Tuesday, September 28, 2010

ATA: Truck Tonnage Index "Plunged" 2.7 Percent in August

by Bill McBride on 9/28/2010 07:56:00 PM

From the American Trucking Association: ATA Truck Tonnage Index Plunged 2.7 Percent in August

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 2.7 percent in August, which was the largest month-to-month decrease since March 2009. The latest drop lowered the SA index from 110 (2000=100) in July to 106.9 in August.
...
Compared with August 2009, SA tonnage climbed 2.9 percent, which was well below July’s 7.4 percent year-over-year gain. Year-to-date, tonnage is up 6.2 percent compared with the same period in 2009.

ATA Chief Economist Bob Costello said that August’s data highlights that the economy, while still growing, is slowing. “We fully anticipate sluggish economic growth for the remainder of this year and the latest tonnage numbers are reflecting that slowdown.”
Truck Tonnage Index
This graph from the ATA shows the Truck Tonnage Index since Jan 2006 (no larger image).

Fed's Lockhart: The Approaching Monetary Policy Decision Dilemma

by Bill McBride on 9/28/2010 05:44:00 PM

From Atlanta Fed President Dennis Lockhart: The Approaching Monetary Policy Decision Dilemma

In the coming weeks monetary policymakers must come to grips with the question of whether there is anything they can do to improve the situation in the economy and, if so, what that action should be. The circumstances of weak recovery, persistent unemployment, dangerously low inflation, and the policy interest rate (the primary tool of modern monetary policy) at the zero lower bound present a tough analytical challenge.
...
If action is taken by the Fed, a clear option is to grow the size of the balance sheet since the policy interest rate, for all practical purposes, cannot go any lower. Growth of the balance sheet would be accomplished by a second round of asset purchases (probably Treasury bills and notes) paid for by newly created money. The technical term for this policy is "quantitative easing," and the prospect of more of this approach is being referred to as QE2.

Will it work? And, how much would be needed to make a difference? In my view, a consensus on these pivotal questions remains to come together, and I will not take a position here today. In the weeks ahead my staff and I will be tackling these and related questions to prepare for the important decisions coming.
...
I cannot tell you how the economic policy story will play out. I can assure you, however, that the Fed has scope for further action to influence the course of recovery. And, importantly, I believe the Fed and the committee have the will to act—or not—as demanded by economic conditions in the near term.
Lockhart is not a voting member of the FOMC this year, but I think a consensus is building for QE2 in early November.

Meredith Whitney on state budget crisis

by Bill McBride on 9/28/2010 04:22:00 PM

From Jeff Cox at CNBC: States Are Poised to Be Next Credit Crisis for US: Whitney

"The similarities between the states and the banks are extreme to the extent that states have been spending dramatically and are leveraged dramatically," [Meredith Whitney] said. "Municipal debt has doubled since 2000, spending has grown way faster than revenues."
...
"You have to look at the states and the risk that the states pose, because the crisis with the states will result in an attempt at least for the third near-trillion-dollar bailout."
...
[On banks] "We think October, after the banks report, you'll see a really ugly Case-Shiller number, which means the fourth quarter is going to be very tough for banks."
Many states have serious budget and debt issues, but I doubt it will result in a "near-trillion-dollar bailout" (note that Whitney is saying an "attempt" at a bailout). More likely the states will raise some taxes and cut more services - and this will be a drag on growth for some time.

I think Whitney is correct on the timing of the Case-Shiller numbers, but I don't think the numbers will be anywhere near as "ugly" as earlier price declines.

Misc: Case-Shiller, Manufacturing Surveys, QE2 and Europe

by Bill McBride on 9/28/2010 12:26:00 PM

  • Case-Shiller Headlines

    The headlines on Case-Shiller seemed contradictory this morning. Here are a few examples:

    From the Financial Times: US home prices slip in July

    From the WSJ: Home Prices Rose in July

    From CNBC: US Home Prices Slipped In July And May Stabilize Near Lows

    From MarketWatch: Home price growth slows in July

    From HousingWire: S&P/Case-Shiller 20-city composite index rose 0.6% for July

    The reason for the confusion is S&P Case-Shiller reports both seasonally adjusted (SA), and not seasonally adjusted (NSA) data. Because of concerns about the impact of foreclosures and government programs on prices, S&P switched to reporting NSA numbers in their press release, but many analysts are still using the SA numbers (I reported the SA numbers - see this post for the SA graphs from earlier this morning).

    The important points are:
    1) this is a three month average of May, June, and July. Seasonally this is the strongest time of the year for house prices.
    2) sales collapsed in July, so the next report (for June, July and August) will probably show falling prices.

  • Regional Fed Manufacturing Surveys

    Here is an update to the graph comparing the regional Fed surveys with the ISM manufacturing survey, including the Richmond survey released this morning (Kansas City will be released Thursday):

    Fed Manufacturing Surveys and ISM PMI Click on graph for larger image in new window.

    For this graph I averaged the New York and Philly Fed surveys (dashed green, through September), and averaged five surveys including New York, Philly, Richmond, Dallas and Kansas City (blue, through September - KC through August).

    The Institute for Supply Management (ISM) PMI (red) is through August (right axis).

    Last month, when the ISM survey came in slightly better than expected, I wrote: "Based on this graph, I'd expect either the Fed surveys to bounce back in September - or the ISM to decline." So far there has been little "bounce back" in the Fed surveys - so I expect a decline in the ISM survey.

    The consensus is for a decline in ISM Manufacturing Index to 54.5 in September from 56.3 in August.

  • Quantitative Easing (QE2) from the Federal Reserve

    There was a very important article from Jon Hilsenrath at the WSJ yesterday: Fed Weighs New Tactics to Bolster Recovery (note: many people think that Hilsenrath has taken over Greg Ip's role (now at the Economist) and leaks to Hilsenrath might be part of the Fed's communication strategy).

    I reviewed the article here, but the key points are the Fed is debating between announcing "massive bond purchases with a finite end" and a "smaller-scale program that they could adjust" over time. Based on the article, it appears the Fed is leaning towards the latter (small-scale program).

    Although QE2 isn't a done deal, the odds are very high that the next round will be announced on November 3rd at 2:15 PM ET.

  • European Issues

    The crisis is not over in Europe.

    From Reuters: Ireland Faces Threat of New Downgrades
    Two more credit rating agencies warned Ireland on Tuesday that its debt was at risk of being downgraded further, setting off another leap in borrowing costs and heaping pressure on the government to accelerate the planned late-October release of a budget preview.
    The Ireland and Portugal to Germany bond spreads have hit new highs again today.

  • Richmond Fed: Regional manufacturing activity contracted after seven months of expansion

    by Bill McBride on 9/28/2010 10:00:00 AM

    Note: Usually I don't post all the regional manufacturing surveys, however with the inventory adjustment over, export growth slowing, and domestic consumer demand sluggish, these surveys provide an early look at weakness in the manufacturing sector.

    From the Richmond Fed: Manufacturing Activity Pulled Back in September, But Expectations Upbeat

    Manufacturing activity in the central Atlantic region pulled back in September after expanding during the previous seven months, according to the Richmond Fed's latest survey. The index of overall activity was pushed lower as shipments and employment edged into negative territory. Other indicators also suggested softer activity. District contacts reported that the volume of new orders flattened, order backlogs turned negative, and delivery times held steady. Furthermore, manufacturers reported growth in capacity utilization flat lined, while inventories grew at a slightly quicker pace.
    ...
    In September, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — turned negative, losing thirteen points to −2 from August's reading of 11. Among the index's components, shipments fell fifteen points to −4, new orders lost ten points to finish at 0, and the jobs index declined fifteen points to −3.

    Other indicators also suggested weaker activity. The backlogs of orders measure turned negative losing eleven points to −11, and the index for capacity utilization flattened declining fourteen points to 0. The delivery times index held steady at 8, while our gauges for inventories were somewhat higher in September.
    ...
    Labor market activity also weakened in September. The manufacturing employment index registered a −3 versus August's reading of 12, and the average workweek measure lost fourteen points to 0. In addition, wage growth posted a five-point loss to 8.
    This is further evidence of the slowdown in manufacturing.

    Also, from CNBC: Consumer Confidence Falls to Lowest Level Since February
    The Conference Board, an industry group, said its index of consumer attitudes fell to 48.5 in September from a revised 53.2 in August.

    Case-Shiller: "Home Prices Stable in July"

    by Bill McBride on 9/28/2010 09:00:00 AM

    S&P/Case-Shiller released the monthly Home Price Indices for July (actually a 3 month average of May, June and July).

    This includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities).

    Note: Case-Shiller reports NSA, I use the SA data.

    From S&P: Home Prices Remain Stable Around Recent Lows According to the S&P/Case-Shiller Home Price Indices

    Data through July 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the annual growth rates in 16 of the 20 MSAs and the 10- and 20-City Composites slowed in July compared to June 2010. The 10-City Composite is up 4.1% and the 20-City Composite is up 3.2% from where they were in July 2009. For June they were reported as +5.0% and +4.2%, respectively. Although home prices increased in most markets in July versus June, 15 MSAs and both Composites saw these monthly rates moderate in July.
    Case-Shiller House Prices Indices Click on graph for larger image in new window.

    The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

    The Composite 10 index is off 29.0% from the peak, and flat in July (SA).

    The Composite 20 index is off 28.6% from the peak, and down 0.1% in July (SA).

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

    The Composite 10 is up 4.0% compared to July 2009.

    The Composite 20 is up 3.1% compared to July 2009.

    The year-over-year changes appear to be rolling over - and will probably be negative later this year.

    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 increased (SA) in only 4 of the 20 Case-Shiller cities in July seasonally adjusted.

    Prices in Las Vegas are off 57.2% from the peak, and prices in Dallas only off 5.7% from the peak.

    Prices probably declined just about everywhere in July, but this will not be evident in the Case-Shiller index until next month since the Case-Shiller index is an average of three months.

    Monday, September 27, 2010

    Bank of England official to savers: 'Start spending'

    by Bill McBride on 9/27/2010 10:28:00 PM

    From the Telegraph: Savers told to stop moaning and start spending

    [Bank of England deputy governor Charles Bean said] "Savers shouldn't necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit."
    ...
    Mr Bean said that encouraging Britons to spend was one reason why the Bank had cut interest rates.
    In the U.K., savers are receiving about £18 billion a year less in interest. In the U.S., using the monthly personal interest income data from the BEA, interest income is off about $143 billion from the peak - and falling ...

    WSJ: Fed Weighs new QE Approach

    by Bill McBride on 9/27/2010 06:20:00 PM

    From Jon Hilsenrath at the WSJ: Fed Weighs New Tactics to Bolster Recovery

    Rather than announcing massive bond purchases with a finite end, as they did in 2009 to shock the U.S. financial system back to life, Fed officials are weighing a more open-ended, smaller-scale program that they could adjust as the recovery unfolds.
    Although QE2 isn't a done deal, I think it is very likely.

    This article suggests two approaches: 1) a large scale purchase program ( longer-term Treasury securities), or 2) a smaller-scale program with the amounts set at each FOMC meeting.

    In Fed Chairman Ben Bernanke's speech at Jackson Hole on Aug 27th, he seemed to favor the first approach:
    The channels through which the Fed's purchases affect longer-term interest rates and financial conditions more generally have been subject to debate. I see the evidence as most favorable to the view that such purchases work primarily through the so-called portfolio balance channel, which holds that once short-term interest rates have reached zero, the Federal Reserve's purchases of longer-term securities affect financial conditions by changing the quantity and mix of financial assets held by the public. ...

    The logic of the portfolio balance channel implies that the degree of accommodation delivered by the Federal Reserve's securities purchase program is determined primarily by the quantity and mix of securities the central bank holds or is anticipated to hold at a point in time (the "stock view"), rather than by the current pace of new purchases (the "flow view").
    It is possible that they could do the smaller-scale program as a compromise (note: Hilsenrath clearly has great sources at the Fed). As I noted yesterday in Bernanke and QE2, there will be plenty of economic data between now and the two day meeting on November 2nd and 3rd, but the two key releases are the September employment report (to be released on October 8th) and the Q3 GDP advance estimate (to be released on October 29th). Barring a significant upside surprise in one or both of those reports, it appears likely that QE2 will arrive in November.

    Now the question is how will they do QE2.

    Report: Morgan Stanley Freezes Investment-Bank Hiring

    by Bill McBride on 9/27/2010 04:03:00 PM

    Another sign of weaker Wall Street earnings ...

    From Bloomberg: Morgan Stanley Said to Freeze Investment-Bank Hiring for 2010 (ht Brian)

    Morgan Stanley, the sixth-largest U.S. bank by assets, froze hiring at its investment-banking division for the rest of 2010 ... The freeze, which includes the New York-based firm’s sales and trading units, comes as weak trading and equity underwriting volume may lead the five largest Wall Street banks to post their lowest revenue from investment banking and trading since the fourth quarter of 2008.
    This follows the weak results at Jefferies last week, from the Financial Times: Trading slump hits Jefferies earnings
    In a preview of what might loom for investment banks, a sharp slowdown in trading activity led Jefferies to report its worst quarter since the market hit bottom last year.

    Brazil’s finance minister: World in “international currency war”

    by Bill McBride on 9/27/2010 01:27:00 PM

    From the Financial Times: Brazil warns of ‘currency war’

    Guido Mantega, Brazil’s finance minister, said on Monday the world was in an “international currency war” ... Mr Mantega, who has made increasingly aggressive comments recently about the need to control Brazil’s currency, said governments around the world were trying to weaken their currencies to promote competitiveness.

    "We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” he said ...
    excerpt with permission
    It seems everyone wants to devalue to export more.

    As a reminder, Bernanke touched on devaluation in his well known 2002 speech: Deflation: Making Sure "It" Doesn't Happen Here
    Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.
    Bernanke also said in 2002:
    I want to be absolutely clear that I am today neither forecasting nor recommending any attempt by U.S. policymakers to target the international value of the dollar.
    Of course a lower dollar only helps U.S. competitiveness with countries not pegged to the dollar - and not intervening in their currency. It sounds like Brazil might be intervening soon.

    Dallas Fed: Manufacturing activity rose slightly in September

    by Bill McBride on 9/27/2010 10:30:00 AM

    From the Dallas Fed: Texas Manufacturing Picks Up and Six-Month Outlook Improves

    Texas factory activity rose slightly in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, edged back into positive territory following a reading near zero in August.

    Other factory activity indicators also improved in September. The new orders and shipments indexes remained negative for the fourth month in a row but moved up from their August levels. The growth rate of orders index jumped from –13 to zero, suggesting the pace of incoming orders may be stabilizing. Meanwhile, the September capacity utilization index climbed back into positive territory ...

    Measures of general business conditions continued to worsen. The general business activity index pushed further negative this month, falling to –18. The company outlook index dipped back into negative territory, with 25 percent of firms reporting a worsened outlook, the highest share in more than a year.

    Labor market indicators improved slightly in September. The employment index turned positive, up from a negative reading in August. Nineteen percent of respondents said they hired additional employees, while 17 percent noted layoffs. Hours worked were largely unchanged, while wages and benefits rose modestly.
    This report is at best mixed, especially with new orders down again.

    The Richmond Fed survey will be released tomorrow and the Kansas City Fed survey on Thursday.  Earlier this month, the Philly Fed survey showed contraction, the NY Fed survey showed manufacturing growth slowing.

    The national ISM manufacturing survey will be released on Friday.

    Chicago Fed: Economic activity weakened in August

    by Bill McBride on 9/27/2010 08:43:00 AM

    Note: This is a composite index based on a number of economic releases.

    From the Chicago Fed: Index shows economic activity weakened in August

    Led by declines in production- and employment-related indicators, the Chicago Fed National Activity Index decreased to –0.53 in August from –0.11 in July. None of the four broad categories of indicators that make up the index made a positive contribution in August.

    The index’s three-month moving average, CFNAI-MA3, declined to –0.42 in August from –0.27 in July. August’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
    Chicago Fed National Activity Index Click on graph for larger image in new window.

    This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. According to the Chicago Fed:
    A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

    Sunday, September 26, 2010

    WSJ: 'Mr. Euro' Is Forced to Act

    by Bill McBride on 9/26/2010 11:07:00 PM

    A 2nd part in the interesting back story on the European crisis: Currency Union Teetering, 'Mr. Euro' Is Forced to Act

    [A] senior commission official, debating with the German delegation, tried to persuade [German Finance Minister Wolfgang Schäuble's deputy Jörg] Asmussen to let Brussels run the stabilization fund.

    "Why don't you let us handle this," he said.

    "Because we do not trust you," Mr. Asmussen replied.
    And the article concludes:
    The deal allowed the ECB to press ahead with its bond-buying plan, and the package of EU measures has helped quell the panic. ... In the past month, financial markets have turned their sights on Ireland and Portugal. Doubts remain over the solvency of banks on Europe's stricken fringe. That leaves them dependent on Mr. Trichet's largesse, in the form of "temporary" lending facilities introduced by the ECB when the crisis first hit.

    Despite Mr. Trichet's assurances that the bond-buying program is a stop-gap, it not only continues but has also increased in recent weeks—with no end in sight.
    Here was the first part: On the Secret Committee to Save the Euro, a Dangerous Divide

    Clearly Germany was calling the shots.

    Earlier:
  • Summary for last Week ending Sept 25th (with plenty of graphs)

  • Weekly Schedule for coming week
  • Bernanke and QE2

    by Bill McBride on 9/26/2010 06:15:00 PM

    On August 27th, Fed Chairman Bernanke gave a speech at the Jackson Hole symposium that might be worth reviewing. Note: I posted an analysis of the speech in August: Analysis: Bernanke paves the way to QE2

    Although Bernanke pretty much stuck to the official forecast in his speech: "Despite the weaker data seen recently, the preconditions for a pickup in growth in 2011 appear to remain in place", he also outlined the requirements for further Fed policy action:

    Under what conditions would the FOMC make further use of these or related policy tools? At this juncture, the Committee has not agreed on specific criteria or triggers for further action, but I can make two general observations.

    First, the FOMC will strongly resist deviations from price stability in the downward direction. ... It is worthwhile to note that, if deflation risks were to increase, the benefit-cost tradeoffs of some of our policy tools could become significantly more favorable.

    Second, regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery. Consistent with our mandate, the Federal Reserve is committed to promoting growth in employment and reducing resource slack more generally. Because a further significant weakening in the economic outlook would likely be associated with further disinflation, in the current environment there is little or no potential conflict between the goals of supporting growth and employment and of maintaining price stability.
    Now fast forward to the recent FOMC statement (see Sept 21 FOMC statement and Paving the way for QE2):
    "Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability."
    ...
    [The FOMC] "is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."
    Remember, on August 27th, Bernanke said the FOMC would "strongly resist deviations from price stability in the downward direction". The above change to the FOMC strongly suggests additional policy action is coming.

    Also - the FOMC and staff forecasts will be presented this coming month, and these forecasts will probably be revised down again. That will probably meet the "significant weakening of the outlook" criteria.

    In Bernanke's Jackson Hole speech he made his preference clear if the FOMC decided on additional monetary accommodation:
    A first option for providing additional monetary accommodation, if necessary, is to expand the Federal Reserve's holdings of longer-term securities. As I noted earlier, the evidence suggests that the Fed's earlier program of purchases was effective in bringing down term premiums and lowering the costs of borrowing in a number of private credit markets. I regard the program (which was significantly expanded in March 2009) as having made an important contribution to the economic stabilization and recovery that began in the spring of 2009. Likewise, the FOMC's recent decision to stabilize the Federal Reserve's securities holdings should promote financial conditions supportive of recovery.

    I believe that additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions.
    And what does Bernanke think this will accomplish?
    The channels through which the Fed's purchases affect longer-term interest rates and financial conditions more generally have been subject to debate. I see the evidence as most favorable to the view that such purchases work primarily through the so-called portfolio balance channel, which holds that once short-term interest rates have reached zero, the Federal Reserve's purchases of longer-term securities affect financial conditions by changing the quantity and mix of financial assets held by the public. Specifically, the Fed's strategy relies on the presumption that different financial assets are not perfect substitutes in investors' portfolios, so that changes in the net supply of an asset available to investors affect its yield and those of broadly similar assets. Thus, our purchases of Treasury, agency debt, and agency MBS likely both reduced the yields on those securities and also pushed investors into holding other assets with similar characteristics, such as credit risk and duration. For example, some investors who sold MBS to the Fed may have replaced them in their portfolios with longer-term, high-quality corporate bonds, depressing the yields on those assets as well.
    This probably pushes some investors into other assets as well, and historically quantitative easing has led to increases in asset prices in the short term. This is why I've been noting in the comments that "bad economic news" is perhaps "good stock market news" - since investors are now anticipating QE2 to be announced as early as November 3rd barring a sudden improvement in the news flow.

    Although there will be plenty of economic data between now and the two day meeting on November 2nd and 3rd, the two key releases are the September employment report (to be released on October 8th) and the Q3 GDP advance estimate (to be released on October 29th). Barring a significant upside surprise in one or both of those reports, it appears QE2 might arrive as early as November.

    Note:
  • Summary for last Week ending Sept 25th (with plenty of graphs)
  • Weekly Schedule for coming week

  • Weekly Schedule for September 26th

    by Bill McBride on 9/26/2010 02:02:00 PM

    The previous post is the Summary for Week ending Sept 25th

    The key economic releases this week are the ISM Manufacturing index on Friday (and the regional releases earlier in the week), and the personal income and spending report for August (also on Friday). For housing, the key economic release is the S&P/Case-Shiller Home price index on Tuesday. There will be several Fed speeches this week to review for possible hints on QE2.

    ----- Monday, Sept 27th -----

    8:30 AM ET: Chicago Fed National Activity Index (August). This is a composite index of other data.

    10:30 AM: Dallas Fed Manufacturing Survey for September.  The Texas survey showed a slight contraction last month (at -0.1%), and is expected to show contraction again in September.  These regional surveys are important now since it appears manufacturing is slowing (or contracting like the Philly Fed survey showed on Sept 16th).

    ----- Tuesday, Sept 28th -----

    9:00 AM: S&P/Case-Shiller Home Price Index for July.  Although this is the July report, it is really a 3 month average of May, June and July.  Prices probably started falling again in July, but the price declines might not show up in this report.  The consensus is for flat prices month-over-month in July.

    10:00 AM: Richmond Fed Survey of Manufacturing Activity for September. The consensus is for a decrease in the index to +6 (still expanding) from 11 last month.

    10:00 AM: Conference Board's consumer confidence index for September.  The consensus is for a decrease to 52 from 53.5 last month.  This is down sharply from May, and at about the same level as a year ago.

    5:30 PM: Atlanta Fed President Dennis Lockhart speaks on the economic outlook.

    ----- Wednesday, Sept 29th -----

    7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index declined sharply following the expiration of the tax credit, and the index has only recovered slightly over the last couple months - suggesting reported home sales through at least October will be very weak.

    Fed Speeches: Minneapolis Fed President Narayana Kocherlakota, Philly Fed President Charles Plosser and Boston Fed President Eric Rosengren are all scheduled to speak.  With QE2 clearly on the radar, these speeches will be closely watched.

    ----- Thursday, Sept 30th -----

    8:30 AM: The initial weekly unemployment claims report will be released. Consensus is for a decline to 459,000 from 465,000 last week.

    8:30 AM: Q2 GDP (third estimate).  The consensus is for no change from the previous report (1.6% real annualized GDP growth in Q2).

    9:45 AM: Chicago Purchasing Managers Index for September.  The consensus is for a decline to 56.0 from 56.7 in August.

    10:00 AM: Fed Chairman Ben Bernanke testifies on the Implementation of the Dodd-Frank Act before the Senate Committee on Banking, Housing, and Urban Affairs, U.S. Sentate

    11:00 AM: Kansas City Fed regional Manufacturing Survey for September. The index declined sharply in August to 0 from 14 in July.

    ----- Friday, Oct 1st -----

    8:30 AM: Personal Income and Outlays for August.  The concensus is for a 0.3% increase in personal income and a 0.4% increase in personal spending.  Using this data we can obtain an early estimate for Q3 real PCE growth (annualized) using the two-month method (usually pretty close). 

    8:30 AM: New York Fed President William Dudley speaks at the SABEW conference in New York.

    9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for September).  Consensus is for a slight increase 67.0 from the mid-month reading of 66.6.

    10:00 AM: ISM Manufacturing Index for September.  The consensus is for a decline to 54.5 from 56.3 in August. 

    10:00 AM: Construction Spending for August.  The consensus is for a 0.4% decline in construction spending.

    All day: Light vehicle sales for September.  The manufacturers will report vehicle sales for September.  Light vehicle sales are expected to increase slightly in September to around 11.6 million (Seasonally Adjusted Annual Rate), from 11.44 million in August.

    After 4:00 PM: The FDIC might have another busy Friday afternoon ...

    Summary for Week ending Sept 25th

    by Bill McBride on 9/26/2010 09:27:00 AM

    A summary of last week - mostly in graphs.

    There were a few key non-graphical stories this week: Fed Chairman Ben Bernanke expressed concern about the recovery, suggesting to many that QE2 will arrive in early November, Larry Summers is leaving the Obama Administration, the NBER announced the end date for the recent recession (June 2009), and the corporate credit union bailout was announced (coming for some time).

    There are links for all of these stories and more at the bottom of this post.

  • New Home Sales: Unchanged from July, Worst August on Record

    The Census Bureau reported New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 288 thousand. This was unchanged from July.

    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 or annualized).

    Note the Red columns for 2010. In August 2010, 25 thousand new homes were sold (NSA). This is a new record low for August.

    The previous record low for the month of August was 34 thousand in 1981; the record high was 110 thousand in August 2005.

    New Home Sales and Recessions The second graph shows New Home Sales vs. recessions for the last 47 years. The dashed line is the current sales rate.

    Sales of new single-family houses in August 2010 were at a seasonally adjusted annual rate of 288,000.

    And another long term graph - this one for New Home Months of Supply.

    New Home Months of Supply and RecessionsMonths of supply decreased to 8.6 in August from 8.7 in July. The all time record was 12.4 months of supply in January 2009. This is still very high (less than 6 months supply is normal).

    The 288 thousand annual sales rate for August is just above the all time record low in May (282 thousand). This was another very weak report. New home sales are important for the economy and jobs - and this indicates that residential investment will be a sharp drag on GDP in Q3.

  • Existing Home Sales at 4.1 million SAAR, 11.6 months of supply

    The NAR reported: Existing-Home Sales Move Up in August

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

    Sales in August 2010 (4.13 million SAAR) were 7.6% higher than last month, and were 19.0% lower than August 2009 (5.1 million SAAR).

    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 Although inventory decreased slightly from July 2010 to August 2010, inventory increased 1.5% YoY in August.

    Note: Usually July is the peak month for inventory.

    The year-over-year increase in inventory is especially bad news because the reported inventory is already historically very high (around 4 million), and the 11.6 months of supply in August is far above normal.

  • NAHB Builder Confidence stuck at low level in September

    The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 13 in September. This is the same low level as in August and below expectations. The record low was 8 set in January 2009, and 13 is very low ...

    Note: any number under 50 indicates that more builders view sales conditions as poor than good.

    HMI and Starts Correlation This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the September release for the HMI and the July data for starts (August starts were released after this report).

    This shows that the HMI and single family starts mostly move in the same direction - although there is plenty of noise month-to-month.

    Press release from the NAHB: Builder Confidence Unchanged in September

  • Single Family Housing Starts increase slightly in August

    Total Housing Starts and Single Family Housing Starts Total housing starts were at 598 thousand (SAAR) in August, up 10.5% from the revised July rate of 541 thousand (revised down from 546 thousand), and up 25% from the all time record low in April 2009 of 477 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).

    Single-family starts increased 4.3% to 438 thousand in August. This is 22% above the record low in January 2009 (360 thousand).

    Total Housing Starts and Single Family Housing StartsThe second graph shows total and single unit starts since 1968. This shows the huge collapse following the housing bubble, and that housing starts have mostly been moving sideways for over a year - with a slight up and down over the last several months due to the home buyer tax credit.

    Here is the Census Bureau report on housing Permits, Starts and Completions.

    This was above expectations of 550 thousand, mostly because of the volatile multi-family starts. This low level of starts is good news for the housing market longer term (there are too many housing units already), but bad news for the economy and employment short term.

  • AIA: Architecture Billings Index shows contraction in August

    Note: This index is a leading indicator for new Commercial Real Estate (CRE) investment.

    Reuters reports that the American Institute of Architects’ Architecture Billings Index increased to 48.2 in August from 47.9 in July. Any reading below 50 indicates contraction.

    AIA Architecture Billing Index This graph shows the Architecture Billings Index since 1996. The index has remained below 50, indicating falling demand, since January 2008.

    According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So there will probably be further declines in CRE investment into 2011.

  • Moody's: Commercial Real Estate Price Index declined 3.1% in July

    Moody's reported today that the Moody’s/REAL All Property Type Aggregate Index declined 3.1% in July. This is a repeat sales measure of commercial real estate prices.

    Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index.

    Notes: Beware of the "Real" in the title - this index is not inflation adjusted. Moody's CRE price index is a repeat sales index like Case-Shiller - but there are far fewer commercial sales - and that can impact prices.

    CRE and Residential Price indexesCRE prices only go back to December 2000.

    The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

    It is important to remember that the number of transactions is very low and there are a large percentage of distressed sales.

    The index is now down 43.2% from the peak in October 2007. And the index is only 0.9% above the October 2009 low.

  • Other Economic Stories ...

  • Press Release: NCUA Adopts Reforms for Corporate Credit Union System, Protects Consumers

  • From the WSJ: On the Secret Committee to Save the Euro, a Dangerous Divide

  • From the WSJ: Bernanke: Efforts Failed to Produce Recovery With 'Sufficient Vigor'

  • From David Streitfeld at the NY Times: GMAC’s Errors Leave Foreclosures in Question

  • From NPR Planet Money: Toxie, Planet Money's pet toxic asset, died this week.

  • DOT: Vehicle Miles driven increase slightly in July

  • From the White House: Dr. Lawrence H. Summers, Director of the National Economic Council, to Return to Harvard University at the End of the Year

  • From NBER: NBER Business Cycle Dating Committee Announces Trough Date

  • Unofficial Problem Bank List increases to 872 institutions
    Best wishes to all.
  • Saturday, September 25, 2010

    2010: The Year of the Short Sale

    by Bill McBride on 9/25/2010 10:58:00 PM

    From Dina ElBoghdady and Dan Keating at the WaPo: Walking away with less. First some stats:

    Completed short sales have more than tripled since 2008, and 400,000 of these deals are projected to close this year, according to mortgage research firm CoreLogic. ... Fannie Mae approved short sales on 36,534 home loans it owned in the first half of the year, nearly triple the number in 2007 and 2008 combined. Freddie Mac ... approved 22,117 in the first half of 2010, up from a mere 94 in the first half of 2007.
    The article has an interesting anecdote about a short sale buyer who bought in 2008, and is now selling ... as a short sale:
    The original owner bought the home for $400,714 in 2006; Harris and her husband ... paid what seemed to be a bargain price, $289,000, in 2008. ... they have fallen behind on their mortgage payments ... Now they have a $246,000 offer for the home, and the balance on their mortgage is more than that.
    Knife catchers. Ouch.

    New Home Sales: Lowest Median Price since 2003

    by Bill McBride on 9/25/2010 06:46:00 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.

    Some analysts pointed to the slight recovery in the median and average new home prices last year and into 2010 as evidence of the beginning of a recovery.

    However in August, new home prices fell to the lowest level since 2003.

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

    Over 52% of all home sales were under $200K in August - the highest percentage since 2003. (update: nemo notes the the median is over $200K in the first graph - this is an issue with rounding).

    And 82.6% of new home sales were under $300K - the highest percentage under $300K since August 2002. Only 17.4% of new homes sales were over $300K in August.

    To summarize: Not only are new home sales near record lows (slightly above the record in May 2010 on a seasonally adjusted annual rate basis), but the median prices are back to 2003 levels. And there are very few homes being sold above $300K.

    Dubai: See-through office buildings are still being completed

    by Bill McBride on 9/25/2010 02:45:00 PM

    Just a Saturday visit to Dubai ...

    From Richard Spencer at the Telegraph: Dubai may have to knock down buildings constructed during boom (ht Eyal)

    The report [from property firm Jones Lang LaSalle] said that between the end of 2007 and the first half of 2010, the amount of office space available in the city grew by 140 per cent – more than double – to 48 million square feet. But the increase in the space occupied was only 70 per cent.

    There were still new tenants moving in, but with 19 million square feet coming available this year, and more in 2011 and 2012, the vacancy rate would increase further, from 38 per cent now to over 50 per cent outside the central business district.
    Talk about over building! Demolishing completed buildings probably doesn't make sense (it is the desert and the buildings will last a long time with little maintenance). Maybe they can convert the buildings to other uses, but they already have too many high rise condos too.

    Just imagine the impact on unemployment as these buildings are completed over the next couple of years. (update: most construction related jobs are held by immigrants - and I was referring to the unemployment of those workers).

    Unofficial Problem Bank List increases to 872 institutions

    by Bill McBride on 9/25/2010 11:31:00 AM

    Note: this is an unofficial list of Problem Banks compiled only from public sources.

    Here is the unofficial problem bank list for September 24, 2010.

    Changes and comments from surferdude808:

    The Unofficial Problem Bank List underwent significant changes this week from failures and the FDIC releasing its enforcement actions for August 2010. The list finished the week at 872 institutions with assets of $422.4 billion, up from 854 institutions with assets of $416 billion last week.

    Changes this week include three removals and 21 additions. The removals are the two failures -- Haven Trust Bank Florida ($149 million) and North County Bank ($289 million) and one from an unassisted merger -- Sunrise Bank of Atlanta ($50 million).

    Most notable among the additions are Lydian Private Bank, Palm Beach, FL ($1.96 billion); Universal Bank, West Covina, CA ($537 million); TruPoint Bank, Grundy, VA ($484 million); First Guaranty Bank and Trust Company of Jacksonville, Jacksonville, FL ($460 million); and First South Bank, Spartanburg, SC ($456 million Ticker: FSBS).

    Other changes include Prompt Corrective Action Orders issued against Peoples State Bank ($445 million), LandMark Bank of Florida ($320 million), First Arizona Savings, a FSB ($272 million), American Patriot Bank ($108 million), and Idaho First Bank ($82 million).
    The list just keeps growing.

    WSJ: Committee to Save the Euro

    by Bill McBride on 9/25/2010 08:41:00 AM

    An interesting back story in the WSJ: On the Secret Committee to Save the Euro, a Dangerous Divide

    Two months after Lehman Brothers collapsed in the fall of 2008, a small group of European leaders set up a secret task force ... Its mission: Devise a plan to head off a default by a country in the 16-nation euro zone.
    And a year later - when Greece was near default - the committee hadn't agreed on a strategy. And that lead to the frantic last minute scramble to piece together a bailout for Greece - with Germany calling the shots.

    Friday, September 24, 2010

    Misc: Bernanke, "Toxie", GMAC, Credit Card debt and Housing

    by Bill McBride on 9/24/2010 10:46:00 PM

    A few stories:

  • From the WSJ: Bernanke: Efforts Failed to Produce Recovery With 'Sufficient Vigor'. CR Note: unless there are upside surprises in the employment report (to be released on Oct 8th) or the advance Q3 GDP report (released on Oct 29th), I think Bernanke has prepared the way to QE2.

  • From David Streitfeld at the NY Times: GMAC’s Errors Leave Foreclosures in Question

  • From Christine Hauser at the NY Times: Bank Losses Lead to Drop in Credit Card Debt

  • From NPR Planet Money: Toxie, Planet Money's pet toxic asset, died this week.
    When we bought Toxie , in January of this year, she seemed like a great deal. We paid $1,000. That was 99 percent less than she cost dring the housing boom.

    Every month, when homeowners paid their mortgages, we got a check. We thought we'd make back our investment before she died. But in the end, we collected only $449.
    And on the four housing reports this week: "Been down so long it looks like up to me", (book by Richard Fariña)

  • New Home Sales: Unchanged from July, Worst August on Record

  • Existing Home Sales at 4.1 million SAAR, 11.6 months of supply

  • Single Family Housing Starts increase slightly in August

  • NAHB Builder Confidence stuck at low level in September

  • I'll have a weekly summary on Sunday.

    Bank Failure #127: North County Bank, Arlington, Washington

    by Bill McBride on 9/24/2010 09:07:00 PM

    From the FDIC: Whidbey Island Bank, Coupeville, Washington, Assumes All of the Deposits of North County Bank, Arlington, Washington

    As of June 30, 2010, North County Bank had approximately $288.8 million in total assets and $276.1 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $72.8 million. ... North County Bank is the 127th FDIC-insured institution to fail in the nation this year, and the ninth in Washington.
    Just 2 this week? The unofficial problem bank list will be increasing ...

    Bank Failure #126: Haven Trust Bank Florida, Ponte Vedra Beach, Florida

    by Bill McBride on 9/24/2010 05:29:00 PM

    Sweet slice of Haven
    Too big of a bite was had
    Indigestible

    by Soylent Green is People

    From the FDIC: First Southern Bank, Boca Raton, Florida, Assumes All of the Deposits of Haven Trust Bank Florida, Ponte Vedra Beach, Florida
    As of June 30, 2010, Haven Trust Bank Florida had approximately $148.6 million in total assets and $133.6 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $31.9 million. ... Haven Trust Bank Florida is the 126th FDIC-insured institution to fail in the nation this year, and the twenty-fourth in Florida. The last FDIC-insured institution closed in the state was Horizon Bank, Bradenton, on September 10, 2010..

    National Credit Union Administration announces plan to manage $50 billion in impaired assets

    by Bill McBride on 9/24/2010 04:51:00 PM

    Press Release: NCUA Adopts Reforms for Corporate Credit Union System, Protects Consumers

    The National Credit Union Administration today assumed control of three undercapitalized corporate credit unions, announced a plan to isolate the impaired assets in the corporate credit union system, and finalized a set of stronger regulations - key elements in its efforts to resolve the financial challenges facing corporate credit unions without disrupting consumer service.
    ...
    Setting the plan into motion required conservatorship today of three additional corporate credit unions that are not viable: Members United Corporate Federal Credit Union of Warrenville, Illinois; Southwest Corporate Federal Credit Union of Plano, Texas; and Constitution Corporate Federal Credit Union of Wallingford, Connecticut. In 2009, U.S. Central Corporate Federal Credit Union of Lenexa, Kansas, and Western Corporate Federal Credit Union of San Dimas, California, were also placed into conservatorship.
    The WSJ reports:
    Friday's moves include the seizure of three wholesale credit unions and an unusual plan by government officials to manage $50 billion of troubled assets inherited from failed institutions. To help fund the rescue, the National Credit Union Administration plans to issue $30 billion to $35 billion in government-guaranteed bonds, backed by the shaky mortgage-related assets.
    These "corporate credit unions" don't serve the general public - they are owned by the "natural person" credit unions - and all the "natural person" money held at these corporate credit unions was guaranteed early last year. But this is another $50 billion in "troubled" assets that will need to be worked through.

    DOT: Vehicle Miles driven increase slightly in July

    by Bill McBride on 9/24/2010 03:23:00 PM

    The Department of Transportation (DOT) reported that vehicle miles driven in June were up 0.8% compared to July 2009:

    Travel on all roads and streets changed by 0.8% (2.2 billion vehicle miles) for July 2010 as compared with July 2009.

    Cumulative Travel for 2010 changed by 0.2% (2.9 billion vehicle miles).
    Vehicle MilesClick on graph for larger image in new window.

    This graph shows the rolling 12 month total vehicle miles driven.

    On a rolling 12 month basis, vehicle miles driven are mostly moving sideways. Miles driven are still 1.8% below the peak in 2007.

    Back in 2008, vehicle miles turned strongly negative on a "month over the same month of the prior year" basis, and that was one of the pieces of data that helped me correctly predict oil prices would decline sharply in the 2nd half of 2008. So far we haven't seen a sharp decline in vehicle miles - but we also haven't seen a strong increase.

    Early next year this will be the longest period with the rolling 12-months miles driven below the previous peak since the DOT started tracking this series. The current longest slump followed the 1979 oil crisis and lasted for 40 months (starting in 1979 and lasting through the recession of the early '80s).