by Calculated Risk on 10/02/2012 03:47:00 PM

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.96 million SAAR in September. That is up 14% from September 2011, and up 3% from the sales rate last month.

This was above the consensus forecast of 14.5 million SAAR (seasonally adjusted annual rate).

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for September (red, light vehicle sales of 14.96 million SAAR from Autodata Corp).

Click on graph for larger image.

Sales have averaged a 14.25 million annual sales rate through the first nine months of 2012, up from 12.5 million rate for the same period of 2011. Last year sales were depressed for several months (May through August) due to supply chain issues related to the tsunami in Japan. By September 2011, the supply chain issues were mostly resolved, and this year-over-year increase for September is significant.

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

Note: dashed line is current estimated sales rate.

This shows the huge collapse in sales in the 2007 recession.

It looks like auto sales were up about 2.7% in Q3 compared to Q2, and auto sales will make another small positive contribution to GDP. However it appears there is a shift to smaller cars, so total revenue might not increase much.

by Calculated Risk on 10/02/2012 02:03:00 PM

Note: I'll post an estimate of the total sales rate around 4 PM ET after all the results are reported. It looks like consumers are responding to high gasoline prices and buying smaller cars ...

From MarketWatch: Chrysler’s September sales soar; GM, Ford flat

It was a mixed bag for U.S. auto makers in September as Chrysler Group LLC reported Tuesday some of its best sales increases in years, while results for Ford Motor Co. and General Motors Co. were largely flat.

Foreign car makers were pretty much up across the board, with Toyota’s sales surging 42% and Volkswagen’s jumping 34%.

Overall, sales have been “slightly better than expected,” said Jesse Toprak, analyst at Truecar.com.
...
The pace of sales wasn’t so brisk for Ford ... One bright spot for the company however, was in small cars.
...
Sales of GM’s mini, small and compact cars rose a combined 97%, the company said.

by Calculated Risk on 10/02/2012 12:23:00 PM

I've been writing about real estate for years, and I've received several emails over the years saying "Sam Zell disagrees with you, and he knows!". Hmmm ... well, one of us has been wrong.

Sam Zell was on CNBC today arguing the US economy is heading back into recession:

"Nobody wants to make commitments beyond tomorrow," Zell said during a"Squawk Box" interview. "One of these (recession) triggers is when enterprise projects start getting delayed. We're heading for a recession and that's exactly what you're looking at now. You're looking at capital expenditures across the board being deferred for a reason: There's no confidence."

Actually a recession is unlikely right now. Of course Zell's economic forecasting track record is very poor. A few examples ...

Sam Zell in April 2005 at the Milken Institute Global Conference:

"The housing bubble has been created more by the business press than reality," said Sam Zell, chairman of Equity Office Properties Trust and Equity Group Investments LLC. "You can't have a crash without oversupply."

According to Sam Zell there was no housing bubble, and there would be no crash.  How did that work out?

And from my notes at the April 2008 Milken conference:

Commercial [real estate] will be fine in his view (not my view). Also Zell thinks losses are overstated for investment banks and CDOs.

Actually losses for investment banks were understated (ask Lehman) and commercial real estate was about to be hit hard (look at the office vacancy rate released this morning).

And here is Sam Zell calling the price bottom for houses in 2009:

[T]he residential real estate market has reached an equilibrium where prices will stop falling, said Sam Zell, founder and chairman of Equity Group Investments.

According to Case-Shiller house prices declined another 5% in nominal terms and about 11% adjusted for inflation.

Obviously Zell was a very successful commercial real estate investor, but I rarely agree with him on the economy.

by Calculated Risk on 10/02/2012 09:58:00 AM

Notes: This CoreLogic House Price Index report is for August. The Case-Shiller index released last week was for July. Case-Shiller is currently the most followed house price index, however CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic® August Home Price Index Rises 4.6 Percent Year-Over-Year

Home prices nationwide, including distressed sales, increased on a year-over-year basis by 4.6 percent in August 2012 compared to August 2011. This change represents the biggest year-over-year increase since July 2006. On a month-over-month basis, including distressed sales, home prices increased by 0.3 percent in August 2012 compared to July 2012. The August 2012 figures mark the sixth consecutive increase in home prices nationally on both a year-over-year and month-over-month basis. The HPI analysis from CoreLogic shows that all but six states are experiencing price gains.

Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 4.9 percent in August 2012 compared to August 2011. On a month-over-month basis excluding distressed sales, home prices increased 1 percent in August 2012 compared to July 2012, also the sixth consecutive month-over-month increase. Distressed sales include short sales and real estate owned (REO) transactions.

The CoreLogic Pending HPI indicates that September 2012 home prices, including distressed sales, are expected to rise by 5 percent on a year-over-year basis from September 2011 and fall by 0.3 percent on a month-over-month basis from August 2012 as the summer buying season closes out. Excluding distressed sales, September 2012 house prices are poised to rise 6.3 percent year-over-year from September 2011 and by 0.6 percent month-over-month from August 2012

“Again this month prices rose on a year-over-year basis and our expectation is for that to continue in September based on our pending HPI forecast,” said Mark Fleming, chief economist for CoreLogic. “The housing markets gains are increasingly geographically diverse with only six states continuing to show declining prices.”

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 0.3% in August, and is up 4.6% over the last year.

The index is off 26.7% from the peak - and is up 10.1% from the post-bubble low set in February (the index is NSA, so some of the increase is seasonal).

The second graph is from CoreLogic. The year-over-year comparison has been positive for six consecutive months suggesting house prices bottomed earlier this year on a national basis.

Excluding the tax credit bump in 2010, these are the first year-over-year increases since 2006 - and this is the largest year-over-year increase since 2006.

On a month-to-month basis, this index will probably turn negative in September (normal seasonal decline); the key will be the year-over-year change.

by Calculated Risk on 10/02/2012 08:36:00 AM

From Reuters: U.S. office market barely gains in third quarter

[T]he vacancy rate dipped in the third quarter by a scant 0.1 percentage point to 17.2 percent from the second quarter. The vacancy rate declined by just 0.30 percentage points compared with a year earlier.
...
[T]he average asking rent for U.S. office space rose only 1.4 percent over the past 12 months and just 0.2 percent to $28.23 per square foot from the second quarter.

Effective rent, which takes into account months of free rent and other perks landlords offer to lure or keep tenants, rose 0.3 percent to $22.78 per square foot.
...
"We're stuck," said Ryan Severino, senior economist for Reis Inc, which released its third-quarter office report on Tuesday.

Reis also sees no significant improvement for the rest of the year.

"The office market is not going to move in the right direction until the labor market starts to move in the right direction," Severino said. "Nobody is going to lease space until they're hiring, and nobody is going to hire until they feel more confident about the direction of the economy."

Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis is reporting the vacancy rate declined in Q3 to 17.1%, down slightly from 17.2% in Q2, and down from 17.4% in Q3 2011. The vacancy rate peaked in this cycle at 17.6% in Q3 and Q4 2010.

This is a sluggish recovery for office space.

by Calculated Risk on 10/01/2012 07:38:00 PM

First, from Reuters: JPMorgan Sued for Fraud by NY Attorney General

New York Attorney General Eric Schneiderman on Monday filed a lawsuit against JPMorgan Chase for fraud over faulty mortgage-backed securities packaged and sold by the former Bear Stearns.

The Residential Mortgage-Backed Securities Working Group was formed to probe the pooling and sale of risky mortgages in the run-up to the 2008 financial crisis.

Some of those Bear Stearns deals were really ugly. I remember an Ambac presentation about a Bear Stearns deal in 2008 with "100 people in the round ... 82 have walked out and not paid you a whole lot back". Ouch.  It probably ended up with close to 100 out of 100 walking ...

On Tuesday:
• Early: Reis Q3 2012 Office vacancy rates. Last quarter Reis reported that the office vacancy rate was unchanged at 17.2%.

• All day: Light vehicle sales for September. The consensus is for light vehicle sales to be unchanged at 14.5 million SAAR in September (Seasonally Adjusted Annual Rate).


A question for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 10/01/2012 02:54:00 PM

From economist Tom Lawler:

Below is a table showing reported net home orders for the quarter ended August 31st, 2012 from the third, fifth, and seventh largest US home builders in 2012. Hovnanian Enterprises, of course, reported operating results for the quarter ended July 31st, 2012, but in its quarterly presentation it included net order results for August, 2012 as well.

Net Home Orders, Quarter Ended:
	8/31/2012	8/31/2011
Lennar Corporation	4,198	2,914
Hovnanian	1,419	1,180
KB Home	1,900	1,838
Total of above	7,517	5,932
% Chg	26.7%

For the quarter ended June 30th, 2012, nine publicly traded home builders reported combined net home orders of 20,375, up 27.3% from the comparable quarter of 2011.

Here are some excerpts from Lennar’s press release.

“Stuart Miller, Chief Executive Officer of Lennar Corporation, said, "The housing market has stabilized and the recovery is well underway."

“While materials and labor costs are moving higher, sales price increases and incentive reductions should continue to offset the impact of increasing costs. “The average sales price of homes delivered increased to $258,000 in the third quarter of 2012 from $247,000 in the same period last year. Sales incentives offered to homebuyers were $26,100 per home delivered in the third quarter of 2012, or 9.2% as a percentage of home sales revenue, compared to $33,600 per home delivered in the same period last year, or 12.0% as a percentage of home sales revenue, and $29,800 per home delivered in the second quarter of 2012, or 10.7% as a percentage of home sales revenue.”

And here are some excerpts from KB Home’s press release.

"We are pleased to report a profit for the third quarter," said Jeffrey Mezger, president and chief executive officer. "During the quarter, we continued to generate improvement in several key financial and operating metrics. The favorable year-over-year performance in our deliveries; revenues; operating income; net orders; and backlog were particularly encouraging as we operated with fewer communities. These trends illustrate that the strategic repositioning of our operations to restore profitability is starting to yield tangible results, as we also saw significant increases in our overall average selling price and gross profit margin, and substantial improvement in our selling, general and administrative expense ratio. At the same time, it is clear that the recovery in housing is gaining momentum across the country as inventory levels are declining and home prices are on the rise. In particular, we are seeing dramatic improvement in California, where we are the state's largest homebuilder, as the continued strengthening in the coastal markets is now spreading inland to Sacramento, the Central Valley and the Inland Empire."

Finally, here is an excerpt from Hovnanian’s press release (from early last month).

“Unlike the past few years, the market for new homes has been resilient through both the spring selling season and throughout the summer months this year. We believe the housing market's recent overall strength and our significantly improved sales pace this year indicates that the market for new homes has bounced off the bottom and is already in a period of gradual recovery.”

The “verbiage” from publicly-traded home builders was in general significant more upbeat in their latest quarterly releases than was the case last year and earlier this year. Moreover, several builders have recently raised capital for “general corporate purposes,” mainly because of the improved outlook. This suggests to me that the pace of SF home building is likely to pick up both during the remainder of this and into 2013.

by Calculated Risk on 10/01/2012 01:05:00 PM

From Fed Chairman Ben Bernanke: Five Questions about the Federal Reserve and Monetary Policy. Here are the five questions Bernanke tried to answer:

1. What are the Fed's objectives, and how is it trying to meet them?
2. What's the relationship between the Fed's monetary policy and the fiscal decisions of the Administration and the Congress?
3. What is the risk that the Fed's accommodative monetary policy will lead to inflation?
4. How does the Fed's monetary policy affect savers and investors?
5. How is the Federal Reserve held accountable in our democratic society?

An excerpt on inflation:

With monetary policy being so accommodative now, though, it is not unreasonable to ask whether we are sowing the seeds of future inflation. A related question I sometimes hear--which bears also on the relationship between monetary and fiscal policy, is this: By buying securities, are you "monetizing the debt"--printing money for the government to use--and will that inevitably lead to higher inflation? No, that's not what is happening, and that will not happen. Monetizing the debt means using money creation as a permanent source of financing for government spending. In contrast, we are acquiring Treasury securities on the open market and only on a temporary basis, with the goal of supporting the economic recovery through lower interest rates. At the appropriate time, the Federal Reserve will gradually sell these securities or let them mature, as needed, to return its balance sheet to a more normal size. Moreover, the way the Fed finances its securities purchases is by creating reserves in the banking system. Increased bank reserves held at the Fed don't necessarily translate into more money or cash in circulation, and, indeed, broad measures of the supply of money have not grown especially quickly, on balance, over the past few years.

For controlling inflation, the key question is whether the Federal Reserve has the policy tools to tighten monetary conditions at the appropriate time so as to prevent the emergence of inflationary pressures down the road. I'm confident that we have the necessary tools to withdraw policy accommodation when needed, and that we can do so in a way that allows us to shrink our balance sheet in a deliberate and orderly way. For example, the Fed can tighten policy, even if our balance sheet remains large, by increasing the interest rate we pay banks on reserve balances they deposit at the Fed. Because banks will not lend at rates lower than what they can earn at the Fed, such an action should serve to raise rates and tighten credit conditions more generally, preventing any tendency toward overheating in the economy.

Of course, having effective tools is one thing; using them in a timely way, neither too early nor too late, is another. Determining precisely the right time to "take away the punch bowl" is always a challenge for central bankers, but that is true whether they are using traditional or nontraditional policy tools. I can assure you that my colleagues and I will carefully consider how best to foster both of our mandated objectives, maximum employment and price stability, when the time comes to make these decisions.

by Calculated Risk on 10/01/2012 11:36:00 AM

Note: There were upward revisions to construction spending for June and July (especially for residential investment). Without the upward revisions, construction spending would have increased in August compared to July.

This morning the Census Bureau reported that overall construction spending decreased in August:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during August 2012 was estimated at a seasonally adjusted annual rate of $837.1 billion, 0.6 percent below the revised July estimate of $842.0 billion. The August figure is 6.5 percent above the August 2011 estimate of $786.3 billion.

Both private construction spending and public spending declined:

Spending on private construction was at a seasonally adjusted annual rate of $562.2 billion, 0.5 percent below the revised July estimate of $564.8 billion. ... In August, the estimated seasonally adjusted annual rate of public construction spending was $274.9 billion, 0.8 percent below the revised July estimate of $277.2 billion.

Click on graph for larger image.

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

Private residential spending is 60% below the peak in early 2006, and up 23% from the post-bubble low. Non-residential spending is 30% below the peak in January 2008, and up about 27% from the recent low.

Public construction spending is now 16% below the peak in March 2009 and near the post-bubble low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 18%. Non-residential spending is also up 7% year-over-year mostly due to energy spending (power and electric). Public spending is down 3% year-over-year.

UPDATE: Apparently I wasn't clear - spending in August would have been up compared to July without the upward revision to July spending. With both June and July revised up, this report was decent. Residential construction spending was up in August, and the solid year-over-year increase in private residential investment is a positive for the economy (the increase in 2010 was related to the tax credit).
All Housing Investment and Construction Graphs

by Calculated Risk on 10/01/2012 10:00:00 AM

The ISM index indicated expansion after three consecutive months of contraction. PMI was at 51.5% in September, up from 49.6% in August. The employment index was at 54.7%, up from 51.6%, and the new orders index was at 52.3%, up from 47.1%.

From the Institute for Supply Management: September 2012 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in September following three consecutive months of slight contraction, and the overall economy grew for the 40th consecutive month, say the nation's supply executives in the latest 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 51.5 percent, an increase of 1.9 percentage points from August's reading of 49.6 percent, indicating a return to expansion after contracting for three consecutive months. The New Orders Index registered 52.3 percent, an increase of 5.2 percentage points from August, indicating growth in new orders after three consecutive months of contraction. The Production Index registered 49.5 percent, an increase of 2.3 percentage points and indicating contraction in production for the second time since May 2009. The Employment Index increased by 3.1 percentage points, registering 54.7 percent. The Prices Index increased 4 percentage points from its August reading to 58 percent. Comments from the panel reflect a mix of optimism over new orders beginning to pick up, and continued concern over soft global business conditions and an unsettled political environment."

Click on graph for larger image.

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

This was above expectations of 49.7% and suggests manufacturing expanded in September. The internals were positive too with new orders and employment increasing.