by Calculated Risk on 1/02/2013 08:49:00 PM

Thursday economic releases:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the mortgage purchase and refinance applications index.

• At 8:15 AM, The ADP Employment Report for December will be released. This report is for private payrolls only (no government). The consensus is for 150,000 payroll jobs added in December. This is the third report using the new methodology, and the report last month (118,000) was somewhat close to the BLS report for private employment (the BLS reported 147,000 private sector jobs added in November).

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 363 thousand from 350 thousand last week.

• At 10:00 AM, the Trulia Price Rent Monitors for December. This is the index from Trulia that uses asking prices adjusted both for the mix of homes listed for sale and for seasonal factors.

• At 2:00 PM, the FOMC Minutes for Meeting of December 11-12, 2012. This will provide a little more details on the decision of the Fed to set thresholds for inflation and the unemployment rate.

• All day: Light vehicle sales for December. The consensus is for light vehicle sales to decrease to 15.1 million SAAR in December (Seasonally Adjusted Annual Rate) from 15.5 million in November.

by Calculated Risk on 1/02/2013 04:28:00 PM

Since most people are complaining about the fiscal agreement, I'll point out a few positives ... first, remember the "fiscal cliff" was about too much austerity too quickly. The "fiscal cliff" included expiring tax cuts (income, payroll), expiring spending (unemployment insurance, etc.) and the "sequester" (mostly defense spending cuts). The sequester has been delayed for two months, so we don't know the size of the cuts yet, but ...

1) There was an agreement, and earlier in January than I expected!

2) It appears the amount of austerity will not drag the economy into a new recession. I would argue for a different mix of policies, but reducing the amount of austerity was achieved - and this was a key goal for the fiscal agreement.

3) Although long term debt sustainability is still an issue, the deficit is declining right now - and will decline further in 2013. David Wessel at the WSJ wrote about the declining deficit a few weeks ago: Putting the Brakes on Cutting the Deficit

The deficit—the difference between government revenue and spending—is shrinking even before the year-end fiscal cliff or a last-minute compromise to avoid it. In the depths of the most recent recession, the fiscal year that ended Sept. 30, 2009, the deficit was 10.1% of gross domestic product, the value of all the goods and services produced. Since then, the deficit has declined to 9% of GDP in 2010, 8.7% in 2011 and 7.0% in fiscal 2012. Private analysts predict the deficit will be between 5.5% and 6.0% of GDP in fiscal 2013, depending on the outcome of the budget talks.

We still don't know the details of the sequester, but I expect the deficit to be close to 5.5% of GDP this year. Still high, but improving. Unfortunately there are some longer term issues, especially with health care, but in the short term the deficit is moving in the right direction - and will decline further as the economy improves.

4) We don't have to look at those dumb countdown timers for a couple of months.

by Calculated Risk on 1/02/2013 01:30:00 PM

From CoreLogic: CoreLogic® Reports Shadow Inventory Continues Decline in October 2012

CoreLogic ... reported today that the current residential shadow inventory as of October 2012 fell to 2.3 million units, representing a supply of seven months. The October inventory level represents a 12.3 percent drop from October 2011, when shadow inventory stood at 2.6 million units.

CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of properties that are seriously delinquent, in foreclosure and held as real estate owned (REO) by mortgage servicers but not currently listed on multiple listing services (MLSs). Transition rates of “delinquency to foreclosure” and “foreclosure to REO” are used to identify the currently distressed unlisted properties most likely to become REO properties. Properties that are not yet delinquent but may become delinquent in the future are not included in the estimate of the current shadow inventory. Shadow inventory is typically not included in the official reporting measurements of unsold inventory.
...
“Almost half of the properties in the shadow are delinquent and not yet foreclosed,” said Mark Fleming, chief economist for CoreLogic. “Given the long foreclosure timelines in many states, the current shadow inventory stock represents little immediate threat to a significant swing in housing market supply. Investor demand will help to absorb the already foreclosed and REO properties in the shadow inventory in 2013.”
...
Of the 2.3 million properties currently in the shadow inventory, 1.04 million units are seriously delinquent (3.3 months’ supply), 903,000 are in some stage of foreclosure (2.8 months’ supply) and 354,000 are already in REO (1.1 months’ supply).

Click on graph for larger image.

This graph from CoreLogic shows the breakdown of "shadow inventory" by category.

Note: The "shadow inventory" could be higher or lower using other numbers and methods; the key is that their estimate of the shadow inventory is declining.

by Calculated Risk on 1/02/2013 11:14:00 AM

In November 2012, private residential construction spending was the largest category for the first time since 2007 - but spending is still very low (at 1998 levels not adjusted for inflation). Note: Residential construction is usually the largest category for construction spending, but there was a huge collapse in spending following the housing bubble (as expected).

The Census Bureau reported that overall construction spending decreased in November:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during November 2012 was estimated at a seasonally adjusted annual rate of $866.0 billion, 0.3 percent below the revised October estimate of $868.2 billion. The November figure is 7.7 percent above the November 2011 estimate of $804.0 billion.

Private residential construction spending increased, but both private non-residential and public construction spending declined:

Spending on private construction was at a seasonally adjusted annual rate of $589.8 billion, 0.2 percent below the revised October estimate of $590.8 billion. Residential construction was at a seasonally adjusted annual rate of $295.3 billion in November, 0.4 percent above the revised October estimate of $294.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $294.5 billion in November, 0.7 percent below the revised October estimate of $296.5 billion. ... In November, the estimated seasonally adjusted annual rate of public construction spending was $276.2 billion, 0.4 percent below the revised October estimate of $277.4 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 56% below the peak in early 2006, and up 33% from the post-bubble low. Non-residential spending is 29% below the peak in January 2008, and up about 30% from the recent low.

Public construction spending is now 15% below the peak in March 2009 and just above 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 19%. Non-residential spending is up 8% year-over-year mostly due to energy spending (power and electric). Public spending is down 3% year-over-year.

All Housing Investment and Construction Graphs

by Calculated Risk on 1/02/2013 10:00:00 AM

The ISM manufacturing index indicated expansion in December. PMI was at 50.7% in December, up from 49.5% in November. The employment index was at 52.7%, up from 48.4%, and the new orders index was at 50.3%, unchanged from November.

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

Economic activity in the manufacturing sector expanded in December, following one month of contraction, and the overall economy grew for the 43rd 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 50.7 percent, an increase of 1.2 percentage points from November's reading of 49.5 percent, indicating expansion in manufacturing for only the third time in the last seven months. This month's PMI™ reading moved manufacturing off its low point for 2012 in November. The New Orders Index remained at 50.3 percent, the same rate as in November, indicating growth in new orders for the fourth consecutive month. The Production Index registered 52.6 percent, a decrease of 1.1 percentage points, indicating growth in production for the third consecutive month. The Employment Index registered 52.7 percent, an increase of 4.3 percentage points, indicating a resumption of growth in employment following only one month of contraction since September 2009. Both the Exports and Imports Indexes registered 51.5 percent, returning both indexes to growth territory following consecutive periods of contraction of six and four months, respectively. Comments from the panel this month are mixed, with some indicating a strengthening of demand and others indicating a continuing softness in demand. Additionally, many respondents express uncertainty about government regulations, taxes and global economics in general as we approach 2013."

Click on graph for larger image.

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

This was slightly above expectations of 50.5% and suggests manufacturing expanded in December.

by Calculated Risk on 1/02/2013 09:05:00 AM

Scheduling note: Both the FOMC minutes and the MBA Purchase index will be released on Thursday.

From MarkIt: PMI at seven-month high in December, signalling solid expansion of manufacturing sector

The final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) was 54.0 in December, down slightly from the flash estimate of 54.2, and signalled a further expansion of the U.S. manufacturing sector. Moreover, up from 52.8 in November, the headline PMI indicated the strongest rate of growth since May.
...
One-in-five companies reported an increase in new orders, with the overall rate of growth the fastest since April. Moreover, new export orders increased for the second month running and at the strongest pace since March.
...
“Firms are also taking on more staff, suggesting that the underlying improvement in demand pushed any worries about the ‘fiscal cliff’ to backs of manufacturers’ minds in the closing weeks of the year. [said Chris Williamson, Chief Economist at Markit]

“With recent indications that growth is also picking up in other key economies around the world, notably in emerging markets such as China and Brazil, and that the Eurozone’s economic crisis is easing, U.S. companies should benefit as stronger demand lifts exports in early 2013. While economic growth may disappoint in the fourth quarter compared to the 3.1% rate of expansion seen in the third quarter, the recent run of positive PMI surveys towards the end of 2012 suggests that prospects have begun to look a little brighter for the new year.”

The ISM PMI will be released at 10 AM today.

by Calculated Risk on 1/01/2013 11:36:00 PM

From the WaPo: House passes ‘fiscal cliff’ bill

The vote was 257 to 167, with 85 Republicans joining with nearly all of the chamber’s Democrats. President Obama, whose vice president, Joe Biden, crafted the deal with Senate Minority Leader Mitch McConnell (R-Ky.), was preparing to address the nation.

After the bill passed, President Obama spoke briefly. Mr. Obama said this bill was "just one step", that he is "open to compromise" on the deficit, but that the default ceiling (aka debt ceiling) was off the table (taking a page from Ronald Reagan).

by Calculated Risk on 1/01/2013 06:51:00 PM

Update: The FOMC Minutes and auto sales will be released on Thursday.

Here is the live feed for the U.S. House of Representatives. That might vote on something tonight.

Back to work ...

Wednesday economic releases:
• At 9:00 AM ET, The Markit US PMI Manufacturing Index Flash. The consensus is for an increase to 54.2, up from 52.8.

• At 10:00 AM, the ISM Manufacturing Index for December will be released. The consensus is for PMI to increase to 50.5 from 49.5 in November. (above 50 is expansion). The regional surveys suggest expansion in December.

• Also at 10:00 AM, Construction Spending for November. The consensus is for a 0.6% increase in construction spending.

Here are the winners for the December economic question contest:
1st: Matei Ripeanu
2nd tie: Walt Tucker, OpenID User, Bill Dawers, Joey Cordero

Here are the 2012 Overall winners:
1st: Bill (CR)
2nd: Bryant Dodson
3rd: Billy Forney
4th: Bill Dawers
5th: Walt Tucker

Congratulations all!

by Calculated Risk on 1/01/2013 12:07:00 PM

Taxprof has posted the Senate version of the bill: H. R. 8

It appears that the Mortgage Debt Relief Act of 2007 will be extended for one year. Usually cancelled debt is considered income, but a provision of the Debt Relief Act allowed borrowers "to exclude certain cancelled debt on [a] principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief." (excerpt from IRS).

Here is the text from H.R.8:

SEC. 202. EXTENSION OF EXCLUSION FROM GROSS INCOME OF DISCHARGE OF QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.

(a) IN GENERAL.—Subparagraph (E) of section 108(a)(1) is amended by striking ‘‘January 1, 2013’’ and inserting ‘‘January 1, 2014’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to indebtedness discharged after December 31, 2012.

This is helpful for foreclosures, mortgage modifications, and for short sales (so the seller can sell the house for less than is owed, and not have to pay taxes on the debt forgiveness). This provision had wide bipartisan support and was expected to be included.

by Calculated Risk on 1/01/2013 10:53:00 AM

From CBS: Fiscal cliff deal heads to House after Senate vote

Legislation to negate a fiscal cliff of across-the-board tax increases and sweeping spending cuts to the Pentagon and other government agencies is headed to the GOP-dominated House after bipartisan, middle-of-the-night approval in the Senate capped a New Year's Eve drama unlike any other in the annals of Congress.

CBS News correspondent Nancy Cordes reports from Capitol Hill that the House vote could come as early as 1 p.m. Tuesday.

Of course they are always late.

For details on the bill, see: Wonkbook: Everything you need to know about the fiscal cliff deal

Assuming the bill passes the House (seems likely given the large majority voting for the bill in the Senate), the next question is the size of the drag on the economy. The largest drag will come from the payroll tax cut - also there will be more drag in a couple of months because the sequester was delayed (scheduled budget cuts).

From Sudeep Reddy at the WSJ: Deal's Likely Impact: More Slow Growth

The biggest hit to 2013 growth appears likely to come from the payroll-tax holiday's expiration on Monday.
...
The workers' share of the Social Security payroll tax had been lowered by two percentage points for the past two years, to 4.2% from 6.2%, amounting to an annual income boost of $1,000 for a typical U.S. family earning $50,000 a year.
...
The rise in payroll taxes would amount to about $125 billion a year, or about 0.8% of the nation's overall output, according to J.P. Morgan Chase. According to many forecasters, that would slow the pace of U.S. economic growth by about half a percentage point next year, a sizable amount for an economy growing about 2% a year.