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Saturday, July 02, 2011

Greece Update: Loan Approved

by Calculated Risk on 7/02/2011 05:18:00 PM

From the WSJ: Euro-Zone Ministers Release Greek Aid

The [euro-zone finance] signed off their portion of the €12 billion ($17.39 billion) loan tranche in an evening conference call. The International Monetary Fund is expected to approve its part of the loan next week.
From Bloomberg on the next aid package: Euro Area Backs Greek Payment, Shifts Focus to New Bailout
“The precise modalities and scale of private-sector involvement and additional funding from official sources will be determined in the coming weeks.” [the 17 euro-area finance chiefs said in an e-mailed statement today]
The next key dates aren't clear yet, but this €12 billion tranche will not last long. Greece will be back in the news very quickly.

Earlier:
Summary for Week Ending July 1st
Unofficial Problem Bank list at 1,003 Institutions and State Stress Level

Summary for Week Ending July 1st

by Calculated Risk on 7/02/2011 11:11:00 AM

We were looking for “hints of improvement” last week, and although the data was mixed, we found more than “hints”!

There were several regional manufacturing reports that came in stronger than expected (Dallas, Richmond, Kansas City and Chicago PMI), and by Friday everyone expected a somewhat decent ISM manufacturing report – and the report still surprised to the upside.

On housing, both the Case-Shiller (April) and the CoreLogic (May) house price indexes showed seasonal increases. Although prices will probably fall seasonally later this year, this suggests the pace of declines might have slowed. Also the Pending Home Sales index rebounded in May, and mortgage delinquencies declined a little.

There was some more weak news too: auto sales fell further in June (although it appears sales will pick up in July and August), personal consumption was especially weak in May, and consumer sentiment decreased in June.

Over in Europe, the Greek parliament approved another round of austerity, and the euro zone Finance ministers are expected to approve the disbursement of the next tranche of aid (€12 billion) this weekend. This doesn’t solve the problem, but it buys a little more time.

I expect economic activity to increase in the second half of 2011 (although I expect activity to be sluggish relative to the slack in the system), and it appears that the pickup is starting now.

Below is a summary of economic data last week mostly in graphs:

Case Shiller: Home Prices increase in April

From S&P:April Seasonal Boost in Home Prices

Data through April 2011 ... show a monthly increase in prices for the 10- and 20-City Composites for the first time in eight months. The 10- and 20-City Composites were up 0.8% and 0.7%, respectively, in April versus March. Both indices are lower than a year ago; the 10-City Composite fell 3.1% and the 20-City Composite is down 4.0% from April 2010 levels.
Case-Shiller House Prices Indices Click on graph for larger image in graph gallery.

This 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 31.8% from the peak, and up slightly in April (SA). The Composite 10 is still 1.6% above the May 2009 post-bubble bottom (Seasonally adjusted).

The Composite 20 index is off 31.8% from the peak, and down slightly in April (SA). The Composite 20 is slightly below the May 2009 post-bubble bottom seasonally adjusted.

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

Prices increased (SA) in 9 of the 20 Case-Shiller cities in April seasonally adjusted. Prices in Las Vegas are off 58.6% from the peak, and prices in Dallas only off 8.8% from the peak.

Real Prices: The next graph shows the Case-Shiller Composite 20 index, the Case-Shiller National Index (through Q1) and the CoreLogic index (May) in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

Real House PricesIn real terms, the National index is back to Q4 1999 levels, the Composite 20 index is back to September 2000, and the CoreLogic index back to January 2000.

In real terms, all appreciation in the last decade is gone.

Price-to-rent: In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Price-to-Rent RatioHere is a similar graph using the Case-Shiller Composite 20 and CoreLogic House Price Index (through March).

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Composite 20 index is back to October 2000 levels, and the CoreLogic index is back to February 2000.

ISM Manufacturing index increases in June

From the Institute for Supply Management: June 2011 Manufacturing ISM Report On Business®

ISM PMIPMI was at 55.3% in June, up from 53.5% in May. The employment index was at 59.9%, up from 58.2% and new orders increased to 51.6%, up from 51.0%. All better than in May.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 51.7%. Earlier in the month it looked like the ISM was going to be weak, but recent regional reports indicated improvement towards the end of June.

U.S. Light Vehicle Sales 11.45 million Annual Rate in June

Vehicle Sales Based on an estimate from Autodata Corp, light vehicle sales were at a 11.45 million SAAR in June. That is up 2.8% from June 2010, and down 2.6% from the sales rate last month (May 2011).

This graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

This was well below the consensus estimate of 12 million SAAR. However I expect a bounce back in sales over the next couple of months.

CoreLogic: Home Price Index increased 0.8% in May

CoreLogic is now reporting almost a month ahead of Case-Shiller!

From CoreLogic: CoreLogic® Home Price Index Shows Second Consecutive Month-Over-Month Increase

CoreLogic House Price IndexThis graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 0.8% in May, and is down 7.4% over the last year, and off 32.7% from the peak.

This is the tenth straight month of year-over-year declines, and the index is still 2.4% below the March 2009 low (the previous post-bubble low).

Some of this increase is seasonal (the CoreLogic index is NSA) and the index is still off 7.4% from last May (the largest year-over-year decline since Sept 2009).

Personal Income increased 0.3% in May, PCE increased less than 0.1%

Personal Consumption ExpendituresThis graph shows real Personal Consumption Expenditures (PCE) through April (2005 dollars).

PCE increased less than 0.1% in May, but real PCE decreased 0.1% as the price index for PCE increased 0.2 percent in May. The graph shows that real PCE declined in the first two month of Q2.

This puts real PCE growth in Q2 on pace for only about 1% (an average of Q2 over Q1) - the slowest pace since Q4 2009.

Construction Spending declined in May

The Census Bureau reported:
[Private] Residential construction was at a seasonally adjusted annual rate of $228.9 billion in May, 2.1 percent (±1.3%) below the revised April estimate of $233.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $248.3 billion in May, 1.2 percent (±1.4%)* above the revised April estimate of $245.4 billion.
Private Construction SpendingThis graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Residential spending is 66% below the peak in early 2006, and non-residential spending is 40% below the peak in January 2008.

The small increase in non-residential in May was mostly due to power.

Construction spending is still mostly moving sideways (and a little down). I expect some pickup in residential construction spending as more multi-family units are started.

Consumer Sentiment declines in June

Consumer SentimentThe final June Reuters / University of Michigan consumer sentiment index decreased to 71.5 from the preliminary reading of 71.8. This is down from 74.3 in May.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices. However, even with gasoline prices falling, consumer sentiment is mostly moving sideways at a low level.

This was below the consensus forecast of 72.0.

LPS: Mortgage Delinquency Rates decreased slightly in May

According to LPS, 7.96% of mortgages were delinquent in May, down slightly from 7.97% in April, and down from 9.74% in May 2010.

LPS reports that 4.11% of mortgages were in the foreclosure process, down from 4.14% in April. This gives a total of 12.07% delinquent or in foreclosure. It breaks down as:

• 2.27 million loans less than 90 days delinquent.
• 1.92 million loans 90+ days delinquent.
• 2.16 million loans in foreclosure process.

For a total of 6.35 million loans delinquent or in foreclosure in May.

Delinquency Rate This graph shows the total delinquent and in-foreclosure rates since 1995.

The total delinquent rate has fallen to 7.96% from the peak in January 2010 of 10.97%. A normal rate is probably in the 4% to 5% range, so there is still a long way to go.

However the in-foreclosure rate at 4.11% is barely below the peak rate of 4.21% in March 2011. There are still a large number of loans in this category (about 2.16 million).

Fannie Mae and Freddie Mac Serious Delinquency Rates decline in May

Fannie Freddie Seriously Delinquent RateFannie Mae reported that the serious delinquency rate decreased to 4.14% in May, down from 4.19% in April. This is down from 5.15% in May of 2010. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate decreased to 3.53% in May from 3.57% in April. This is down from 4.06% in May 2010. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

The serious delinquency rate is falling as Fannie and Freddie work through the backlog of loans and either modify the loan, foreclose, short sale, or the loan cures.

Other Economic Stories ...
ATA Trucking index decreased 2.3% in May
Texas Manufacturing survey shows slower expansion in June
Richmond Fed: Manufacturing Activity Stabilized in June
• Kansas City Manufacturing Survey: Manufacturing activity rebounded solidly in June
Chicago PMI indicated a rebound in June
Restaurant Performance Index decreases in May
• From the NAR: Pending Home Sales Turn Around in May

Best wishes to all!

Unofficial Problem Bank list at 1,003 Institutions and State Stress Level

by Calculated Risk on 7/02/2011 08:15:00 AM

Note: this is an unofficial list of Problem Banks compiled only from public sources. This post includes an update to stress rates at the state level (see comments and sortable table at bottom).

Here is the unofficial problem bank list for July 1, 2011.

Changes and comments from surferdude808:

This week there were two additions to the Unofficial Problem Bank List, which pushed the number of institutions on the list to 1,003 and assets to $419.9 billion. The additions were The Coastal Bank, Savannah, GA ($442 million); and Virginia Community Bank, Louisa, VA ($226 million Ticker: VCBS).

With it being a relatively quiet week, we thought it would be a good time to update the analysis of examining which banking markets have been under the greatest stress since the on-set of the crisis. At year-end 2007, there were 8,536 insured institutions headquartered in the 50 states, D.C., and Puerto Rico. Since then through June 30, 2011, 1,644 or 19.3 percent have either failed or made an appearance on the Unofficial Problem Bank List (see table).

When ranking markets with a minimum of 15 institutions at year-end 2007, Arizona has experienced the most stress with nearly 58 percent of its institutions having failed or being identified as a problem. The state of Washington is second at 54.6 percent. The other stressed banking states ranked in the top ten include Nevada (52 percent), Florida (52 percent), Oregon (45 percent), Georgia (44 percent), California (40 percent), Utah (42 percent), South Carolina (33 percent), and Idaho (32 percent). Since year-end 2010, Arizona, Florida, Georgia, Nevada, South Carolina, and Washington saw their share of stressed banks rise nearly ten percentage points. The leader, Arizona had their share rise more than 12 percentage points to 58 percent from 46 percent. Thus, the most stressed markets continued to deteriorate over the past six months.

The common theme among banks in these markets is overexposure to commercial real estate lending, particularly residential construction & development loans, and the collapse of real estate markets. At the other end of the spectrum with comparatively little stress include Iowa (4.3 percent), New Hampshire (4.2 percent), and West Virginia (1.5 percent), whose shares have not changed since year-end. Vermont is the only state that has not experienced a failed institution or one appearing on the Unofficial Problem Bank List.

Here are the totals ...
 2007 CountUnofficial Problem Bank List June 2011Unofficial Problem Bank List Removals (ex-Failures)Failures (2008-June 2011)Total Failures, UPBL, & UPBL Removals (ex-Failures)Percentage1
Totals 8,536 1,001 272 371 1,644 19.3%
1Total failures, UBPL, and UPBL ex-failures to 2007 count (a percentage for states with less than 15 institutions is not determined because of possible skew to ranking).

Friday, July 01, 2011

Lawler: Do Housing “Experts” Actually Look At All Available Data?

by Calculated Risk on 7/01/2011 08:24:00 PM

CR Note: I think this is pretty funny ...

Economist Tom Lawler writes: “Consensus” Home Price Expectations from MacroMarkets; Do the “Experts” Actually Look At All Available Data?

MacroMarkets reported two weeks ago that the average forecast for the growth rate in the S&P/Case-Shiller national home price from Q4/2010 to Q4/2011 of the 108 “economists, real estate experts, investment and market strategists” in its June survey was -3.52%, down significantly from -1.38% in March and -0.17% in December. The median forecast called for a 3.1% decline. In addition, the average forecast for the SPCS HPI from Q4/2011 to Q1/2012 fell to +0.46% in the June survey from 1.26% in March and 3.07% in June.

MacroMarkets Survey Results, Projections for the S&P/Case-Shiller "National" Home Price Index
% Change, Q4/2009 - Q4/2010% Change, Q4/2010 - Q4/2011% Change, Q4/2011 - Q4/2012
AverageMedianSDEVAverageMedianSDEVAverageMedianSDEV
10-Jun-1.36%-0.70%3.03%1.33%2.00%2.56%2.70%3.00%2.33%
10-Jul1.68%-1.00%3.00%1.05%1.20%2.72%2.55%2.50%2.19%
10-Aug-2.08%-2.00%2.98%0.78%1.00%2.82%2.43%2.50%2.53%
10-Sep-0.82%-0.18%2.96%0.77%1.10%2.84%2.54%2.50%2.10%
10-Oct-0.59%-0.30%2.22%0.20%1.00%3.11%2.17%2.50%2.23%
10-Nov-0.54%-0.20%2.10%0.05%1.00%3.07%2.10%2.50%2.28%
10-Dec-0.17%0.65%3.07%1.94%2.23%2.01%
11-Mar-1.38%-0.50%3.00%1.26%1.80%2.20%
11-Jun-3.52%-3.10%3.15%0.46%1.00%2.50%
Actual-3.79%

Obviously the “surprising” weakness in the SPCS HPI in the first three months of 2011 was the major catalyst for the substantial reduction in the average and median projection for 2011, and I’m guessing that some of the weak economy numbers over the last few months contributed to the drop in the 2012 projections as well. In the June survey participants did not have the April SPCS “composite-20” report yet, but other HPIs showing a bounce up in April were available – though I’m guessing many of the “expert” participants don’t look at all of the data available.

Indeed, the “abysmal” track record of the “consensus” forecast for 2010 highlights how many of these “experts” just don’t follow the markets and incoming data. While in June of last year the average projection called for a 1.36% drop in the SPCS HPI from Q4/09 to Q4/10, in November the “consensus” had improved to show a 0.54% decline. More shockingly, of the 95 survey participants who allowed their forecasts to be published (some don’t), an astounding 32 of them were still projecting a Q4/09 – Q4/10 increase in the SPCS HPI last November – which just seemed inane based on all of the data available at that time. In the November 2010 survey, 55 of the 95 participants with disclosed forecasts missed the “actual” 3.79% decline (Q4/09 – Q4/10) in the SPCS national HPI by over three percentage points – 54 were too high, and one was too low! And this was in November!!!!! (I was off by 0.79 percentage point, which I viewed as a disturbingly high miss, yet only 5 survey participants -- of which I am one -- were closer than me!)

CR note: This was from Tom Lawler. Obviously the "consensus" is suspect. We've seen this several times in recent weeks. As an example, this week Lawler correctly predicted a significant rebound in the Pending Home Sales index, and the "consensus" was for a 2% decline!

Back in May I pointed out the "consensus" for employment, auto sales, and the ISM manufacturing index all seemed "too high" (I was being polite) - and the misses were signficant. Just something to remember when looking at the consensus ...

Earlier:
ISM Manufacturing index increases in June
U.S. Light Vehicle Sales 11.45 million Annual Rate in June

U.S. Light Vehicle Sales 11.45 million Annual Rate in June

by Calculated Risk on 7/01/2011 03:18:00 PM

A few comments:
• Obviously the Japanese supply chain disruption impacted auto sales significantly in May and June. This has also negatively impacted manufacturing overall.

• The good news is the supply issues are being resolved ahead of schedule and the automakers expect sales to be back up over 13 million Seasonally Adjusted Annual Rate (SAAR) by August.

• The automakers lowered their incentives again in June, and this also impacted sales. From TrueCar.com:

“The upside to a lack of inventory on some vehicles is that incentives decreased and transaction prices soared to the highest levels ever recorded ...” said Jesse Toprak, VP of Industry Trends and Insights for TrueCar.com.
Larger incentives will return soon, especially for cars that haven't been selling well.

• The California sales tax was reduced 1% starting on July 1st. This probably delayed some purchases in California from June to July.

Vehicle Sales Click on graph for larger image in graph gallery.

Based on an estimate from Autodata Corp, light vehicle sales were at a 11.45 million SAAR in June. That is up 2.8% from June 2010, and down 2.6% from the sales rate last month (May 2011).

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for June (red, light vehicle sales of 11.45 million SAAR from Autodata Corp).

Vehicle Sales The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

This was well below the consensus estimate of 12 million SAAR. However I expect a bounce back in sales over the next couple of months.

Goldman Sachs: Five Hopeful Signs for the Second Half

by Calculated Risk on 7/01/2011 02:40:00 PM

Note: I'll post a graph of June vehicle sales, probably around 4 PM ET (after all the data is released).

In a research note released today, Goldman Sachs economist Andrew Tilton listed five hopeful signs for the 2nd half of 2011:

First, commodity prices have eased. Using a standard seasonal adjustment procedure, retail gasoline prices are back to end-2010 levels.
...
Second, despite the increase in interest rates this week, financial conditions are easier than at any point in 2010. Bank lending standards remain tight, but these too are easing on the margin.
...
Third, the decline in house prices may be abating.
...
Fourth, vehicle production has rebounded following large disruptions due to the Japanese earthquake and tsunami.
...
Fifth, labor market indicators seem to have stabilized after some worrying readings in late April and May, although we’ll have to wait until next Friday’s June employment report for a more definitive assessment. ... We expect an increase of 125,000 payroll jobs, with the unemployment rate dropping back to 9.0%.
CR note: The recent increase in house prices is mostly seasonal, and I expect house prices to decline NSA (Not Seasonally Adjusted) late this year. But it does appear the pace of house price declines has slowed.

The improvement in vehicle production will probably show up as an increase in sales in July and August. Yesterday, from Edmunds.com: Ford: Industry Car Sales to Rise after June "[Ford Motor Co.’s chief sales analyst George] Pipas said July should be improved but it won’t be until at least August before the U.S. industry returns to a 13 million or more SAAR."

I'll post the June auto sales numbers soon, but the real pickup should be in Q3.

I was expecting employment to pickup in July, but Goldman thinks there will be an increase in June to 125,000 payroll jobs added compared to only 54,000 in May. That would be great news.

Earlier:
ISM Manufacturing index increases in June

Construction Spending declined in May

by Calculated Risk on 7/01/2011 11:40:00 AM

Catching up ... this morning from the Census Bureau reported that overall construction spending decreased in May:

[C]onstruction spending during May 2011 was estimated at a seasonally adjusted annual rate of $753.5 billion, 0.6 percent (±1.6%)* below the revised April estimate of $757.9 billion. The May figure is 7.1 percent (±1.8%) below the May 2010 estimate of $811.2 billion.
Private construction spending also decreased in May:
Spending on private construction was at a seasonally adjusted annual rate of $477.2 billion, 0.4 percent (±1.4%)* below the revised April estimate of $479.3 billion. Residential construction was at a seasonally adjusted annual rate of $228.9 billion in May, 2.1 percent (±1.3%) below the revised April estimate of $233.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $248.3 billion in May, 1.2 percent (±1.4%)* above the revised April estimate of $245.4 billion.
Private Construction Spending Click on graph for larger image in graph gallery.

This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Residential spending is 66% below the peak in early 2006, and non-residential spending is 40% below the peak in January 2008.

The small increase in non-residential in May was mostly due to power.

Construction spending is still mostly moving sideways (and a little down). I expect some pickup in residential construction spending as more multi-family units are started.

ISM Manufacturing index increases in June

by Calculated Risk on 7/01/2011 10:15:00 AM

PMI was at 55.3% in June, up from 53.5% in May. The employment index was at 59.9%, up from 58.2% and new orders increased to 51.6%, up from 51.0%. All better than in May.

From the Institute for Supply Management: June 2011 Manufacturing ISM Report On Business®

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. “The PMI registered 55.3 percent, an increase of 1.8 percentage points from May, indicating expansion in the manufacturing sector for the 23rd consecutive month. New orders and production were both modestly up from last month, and employment showed continued strength with an increase of 1.7 percentage points to 59.9 percent. The rate of increase in prices slowed for the second consecutive month, dropping 8.5 percentage points in June to 68 percent. This follows a similar reduction of 9 percentage points in the Prices Index in May, and is the lowest figure since August 2010 when the index registered 61.5 percent. While the rate of price increases has slowed and the list of commodities up in price has shortened, commodity and input prices continue to be a concern across several industries.”
ISM PMIClick on graph for larger image in new window.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 51.7%. Earlier in the month it looked like the ISM was going to be weak, but recent regional reports indicated improvement towards the end of June.

Consumer Sentiment declines in June

by Calculated Risk on 7/01/2011 09:55:00 AM

The final June Reuters / University of Michigan consumer sentiment index decreased to 71.5 from the preliminary reading of 71.8. This is down from 74.3 in May.

Consumer Sentiment
Click on graph for larger image in graphic gallery.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices. However, even with gasoline prices falling, consumer sentiment is mostly moving sideways at a low level.

This was below the consensus forecast of 72.0.

Greece: Next Tranche of Aid expected to be approved tomorrow

by Calculated Risk on 7/01/2011 08:31:00 AM

From the WSJ: Eurogroup to Approve Greek Aid on Saturday. The WSJ reports the euro zone Finance ministers will hold a conference call tomorrow and are expected to approve the disbursement of the next tranche of aid (€12 billion). They are also expected to discuss the next bailout.

The yield for Greek 2 year bonds is down to 26.4%, and the 10 year yield is down to 16.3%. Portuguese and Irish 10 year yields are down too (11.6% for Ireland, 10.8% for Portugal).