Monday, January 31, 2011

Restaurant Performance Index Shows Expansion in December

by Calculated Risk on 1/31/2011 11:54:00 PM

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

Restaurant Performance Index Click on graph for larger image in graph gallery.

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 Entering 2011 on Positive Note, as Restaurant Performance Index Posted Strong Gain in December

Driven by expanding same-store sales and customer traffic levels as well as growing optimism among restaurant operators, the outlook for the restaurant industry improved in December. The National Restaurant 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 101.0 in December, up a strong 1.1 percent from its November level.
...
For the third time in the last four months, restaurant operators reported a net increase in same-store sales. ... Restaurant operators also reported a net increase in customer traffic levels in December.

Auto Sales to Disappoint?

by Calculated Risk on 1/31/2011 09:13:00 PM

Light vehicle sales for January - to be announced tomorrow - are expected to increase to 12.6 million (Seasonally Adjusted Annual Rate), from 12.5 million in December.

There were a couple of articles out today suggesting sales slowed at the end of the month.

From Bloomberg (ht jb):

Ford Motor Co. said the U.S. industrywide auto sales rate may be lower in January than December ...
From Reuters: Auto sales seen losing momentum in January
U.S. auto sales lost momentum in the final weeks of January, auto executives and a leading analyst cautioned on Monday ... J.D. Power forecast a January sales rate of between 11.5 million and 12 million vehicles, down sharply from the outlook for 12.2 million it had given just 10 days before.

... on Monday Chrysler Chief Executive Sergio Marchionne said that industry-wide sales had fallen off in the final weeks of the month, which typically account for the bulk of sales.

"We've seen a softening of the U.S. market in the last couple of weeks," Marchionne told reporters ...
We will know tomorrow. Blame it on the snow?

QE2 Speculation and Summary

by Calculated Risk on 1/31/2011 04:40:00 PM

Some random thoughts ...

• QE2 Changes: I'm hearing speculation that the Fed might taper off the QE2 purchases of treasury securities to "promote a smooth transition in markets". Currently the plan is to purchase $600 billion in Treasury securities by the end of Q2 or about $75 billion per month. The speculation is that the size will remain the same ($600 billion), but that the Fed will taper off the purchases through the end of Q3 or so.

That is what the Fed did with previous purchase programs. In August 2009 for Treasury securities:

To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.
And the same decision in September 2009 for MBS:
Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.
• Egypt. I continue to read the Al Jazeera Egypt live blog (the link changes for each day Egypt time). Hopefully there will be a positive and peaceful outcome for the Egyptian people.

A common email question is about the impact on the U.S. economy. My view is this could impact the U.S. by pushing up oil prices, especially if 1) protests spreads to larger oil producers in the Middle East, or 2) the Suez canal is closed. Both seem unlikely in the short term, although my view could change with events. Oil prices have already risen, also from the WSJ: Brent Crude Tops $100. Here is some analysis from Professor Hamilton at Econbrowser: Geopolitical unrest and world oil markets

Q4 2010: Homeownership Rate Falls to 1998 Levels

This is based on the Housing Vacancies and Homeownership survey. What is important about this survey is the trends for the homeownership rate, and homeowner and rental vacancy rates. This shows a sharp drop in the rental vacancy rate as many households move from owning to renting and also suggests the excess housing inventory is being absorbed.

In the Graph Gallery: Homeownership rate, Homeowner vacancy rate, Rental vacancy rate.

• The Chicago PMI was Strong, the Dallas Fed Index was Weak. The Chicago PMI is far more useful as an indicator for the economy the the Dallas Fed index, and the Chicago PMI was very strong (including for employment). I expect the ISM manufacturing index tomorrow to show strong expansion in January (similar to December).

Personal Income and Outlays Report for December. Includes graph for Real PCE, Personal Saving and Real Personal Income less Transfer Payments. Personal consumption has been increasing faster than personal income - that probably isn't sustainable.

• From the Federal Reserve The January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices. In general banks have stopped tightening standards (they are already very tight), and demand has stopped falling (there is little demand for loans) - and a special question showed banks are more "upbeat" on delinquencies and charge-offs in 2011 ...

• Some research from the San Francisco Fed: Estimating the Macroeconomic Effects of the Fed's Asset Purchases

• Some research from the Cleveland Fed: High Unemployment after the Recession: Mostly Cyclical, but Adjusting Slowly

And from the weekend:
Summary for Week ending January 29th
Schedule for Week of January 30th
BLS Employment Revisions on Feb 4th

Fed: Little Change in Lending Standards in January Loan Officer Survey, Outlook "more upbeat"

by Calculated Risk on 1/31/2011 02:00:00 PM

In general banks have stopped tightening standards (they are already very tight), and demand has stopped falling (there is little demand for loans) - and a special question showed banks are more "upbeat" on delinquencies and charge-offs ...

From the Federal Reserve The January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices

Overall, the January survey indicated that a modest net fraction of banks continued to ease standards and terms for commercial and industrial (C&I) loans over the fourth quarter while banks reported small mixed changes in their lending policies for other types of loans to businesses and households. Similarly, the respondents reported a moderate increase in demand for C&I loans but little change, on balance, in demand for other types of loans.
And here is a special question "on banks' outlook for asset quality in 2011":
The January survey included a set of special questions that asked banks about their outlook for delinquencies and charge-offs across major loan categories in the current year, assuming that economic activity progresses in line with consensus forecasts. This special question has been asked once each year during the past five years. In the January survey, expectations were significantly more upbeat than in past years. Moderate to large net fractions of banks reported that they expected improvements in delinquency and charge-off rates during 2011 in every major loan category.

The responses indicated that banks were least likely to expect improvement in the quality of residential real estate loans this year. About 20 percent of banks, on net, reportedly expect improvement in nontraditional closed-end loans, and about 35 percent of banks indicated they expect improvement in HELOCs. Almost 40 percent of respondents expected improvement for prime closed-end loans. Large banks were somewhat more likely than small banks to report expectations of improvement in the quality of residential real estate loans.

The survey also found that about 50 percent of banks, on net, expected improvement this year in the quality of consumer loans, including both credit card loans and other consumer loans. Similarly, about 55 percent of banks, particularly large banks, expected improvement in the quality of CRE loans.
Here is the full report.

Chicago PMI Strong, Dallas Fed Index Weak

by Calculated Risk on 1/31/2011 12:05:00 PM

From earlier this morning ...

• From the Chicago Business Barometer™ Gained: The overall index increased to 68.8 from 66.8 in December. This was above consensus expectations of 65.0. Note: any number above 50 shows expansion.

"EMPLOYMENT strengthened to a height not seen since May 1984". The employment index increased sharply to 64.1 from 58.4.

"NEW ORDERS increased to the highest point since December 1983". The new orders index increased to 75.7 from 71.3.

This was a strong report.

• From the Dallas Fed: Texas Manufacturing Activity Flat but Six-Month Outlook Improves

Texas factory activity held steady in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, came in at zero, suggesting output was unchanged from December.
...
Labor market indicators continued to reflect expansion, although increases in employment and hours worked abated. The employment index came in at a reading of 9 [down from 16.1 in December], with 21 percent of firms reporting hiring compared with 12 percent reporting layoffs. The hours worked index fell from 14 to 4, while the wages and benefits index rose.
This is the last of the regional Fed surveys for January. The regional surveys provide a hint about the ISM manufacturing index, as the following graph shows.

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

The New York and Philly Fed surveys are averaged together (dashed green, through January), and averaged five Fed surveys (blue, through January) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through December (right axis).

The regional surveys suggest the ISM manufacturing index will in the mid-to-high 50s (fairly strong expansion). The ISM index for January will released tomorrow, Feb 1st. The consensus is for an increase to 57.9 from 57.0 in December.

Q4 2010: Homeownership Rate Falls to 1998 Levels

by Calculated Risk on 1/31/2011 10:00:00 AM

The Census Bureau reported the homeownership and vacancy rates for Q4 2010 this morning.

Homeownership Rate Click on graph for larger image in graph gallery.

The homeownership rate was at 66.5%, down from 66.9% in Q3. This is at about the level as 1998.

Note: graph starts at 60% to better show the change.

The homeownership rate increased in the '90s and early '00s because of changes in demographics and "innovations" in mortgage lending. Some of the increase due to demographics (older population) will probably stick, so I've been expecting the rate to decline to around 66%, and probably not all the way back to 64%.

Homeowner Vacancy RateThe homeowner vacancy rate increased to 2.7% in Q4 2010 from 2.5% in Q3 2010. This has been bouncing around in the 2.5% to 2.7% range for two years, and is slightly below the peak of 2.9% in 2008.

A normal rate for recent years appears to be about 1.7%.

This leaves the homeowner vacancy rate about 1.0% above normal. This data is not perfect, but based on the approximately 75 million homeowner occupied homes, we can estimate that there are close to 750 thousand excess vacant homes.

The rental vacancy rate declined sharply to 9.4% in Q4 2010, from 10.3% in Q3 2010.

Rental Vacancy RateThis decline fits with the Reis apartment vacancy data and the NMHC apartment survey. This report is nationwide and includes homes for rent.

It's hard to define a "normal" rental vacancy rate based on the historical series, but we can probably expect the rate to trend back towards 8%. According to the Census Bureau there are close to 42 million rental units in the U.S. If the rental vacancy rate declined from 9.4% to 8%, then 1.4% X 42 million units or about 600 thousand excess units would have to be absorbed.

This suggests there are still about 1.35 million excess housing units. This number has been steadily declining over the last few quarters, but there is still a long way to go.

Note: Some analysts also add in the increase in "held off market, other" units to track the excess housing units - and that has increased from 2.6 million units at the end of 2005 to 3.6 million units at the end of 2010.

Personal Income and Outlays Report for December

by Calculated Risk on 1/31/2011 08:30:00 AM

The BEA released the Personal Income and Outlays report for December this morning.

Personal income increased $54.5 billion, or 0.4 percent ... Personal consumption expenditures (PCE) increased $69.5 billion, or 0.7 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.4 percent in December, compared with an increase of 0.2 percent in November.
The following graph shows real Personal Consumption Expenditures (PCE) through December (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image in graph gallery.

The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter. Consumption picked up sharply in Q4.

Also personal income less transfer payments increased again in December. This increased to $9,327 billion (SAAR, 2005 dollars) from $9,310 billion in November.

Personal Income less Transfer This graph shows real personal income less transfer payments as a percent of the previous peak. This has been slow to recover - and is still 4.3% below the previous peak - but personal income less transfer payments is growing again.

Some of the increase in spending came from a decline in the personal saving rate that fell to 5.3% in December.
Personal saving as a percentage of disposable personal income was 5.3 percent in December, compared with 5.5 percent in November.
Personal Saving rate This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the December Personal Income report.

When the recession began, I expected the saving rate to rise to 8% or more. With a rising saving rate, consumption growth would be below income growth. But that 8% rate was just a guess. It is possible the saving rate has peaked, or it might rise a little further, but either way most of the adjustment has already happened.

There is still a long way to go. I'd like to see personal income less transfer payments above the pre-recession peak, and I'd like to see personal consumption not growing faster than personal income.

Weekend on U.S. economy:
Summary for Week ending January 29th
Schedule for Week of January 30th
BLS Employment Revisions on Feb 4th

Sunday, January 30, 2011

Inflation in China

by Calculated Risk on 1/30/2011 11:31:00 PM

On inflation in China ...
• From Keith Bradsher at the NY Times: Inflation in China May Limit U.S. Trade Deficit

Inflation is starting to slow China’s mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific.
• And from Paul Krugman: A Cross of Rubber
While recovery in advanced nations has been sluggish, developing countries — China in particular — have come roaring back from the 2008 slump. This has created inflation pressures within many of these countries; it has also led to sharply rising global demand for raw materials.

... inflation in China is China’s problem, not ours. It’s true that right now China’s currency is pegged to the dollar. But that’s China’s choice; if China doesn’t like U.S. monetary policy, it’s free to let its currency rise. Neither China nor anyone else has the right to demand that America strangle its nascent economic recovery just because Chinese exporters want to keep the renminbi undervalued.
Egypt and U.S. Futures: Here is the Al Jazeera live Egypt blog for January 31st. The Asian markets are mostly off about 1% to 1.5% tonight.

CNBC's Pre-Market Data shows the S&P 500 and Dow futures flat. Not much of a reaction.

Earlier on U.S. economy:
Summary for Week ending January 29th
Schedule for Week of January 30th
BLS Employment Revisions on Feb 4th

Egypt Updates

by Calculated Risk on 1/30/2011 06:12:00 PM

Here is the Monday live Egypt blog from Al Jazeera. Other resources: The Lede at the NY Times and the Guardian

From the WSJ: Egypt Opposition Picks a Leader

The Egyptian government, with newly appointed military generals in top positions, struggled to impose order and present a show of unified strength on Sunday, but it showed no signs of bending to demands that President Hosni Mubarak resign.
From the NY Times: Opposition Rallies to ElBaradei as Military Reinforces in Cairo
The Egyptian uprising, which emerged as a disparate and spontaneous grass-roots movement, began to coalesce Sunday, as the largest opposition group, the Muslim Brotherhood, threw its support behind a leading secular opposition figure, Mohamed ElBaradei, to negotiate on behalf of the forces seeking the fall of President Hosni Mubarak.

BLS Employment Revisions on Feb 4th

by Calculated Risk on 1/30/2011 02:05:00 PM

Earlier:
Summary for Week ending January 29th
Schedule for Week of January 30th

On Feb 4th, with the release of the January employment report, the BLS will make the following three changes / revisions:

1) Annual Benchmark revision to the Establishment Survey Data

With the release of January 2011 data on February 4, 2011, the Current Employment Statistics survey will introduce revisions to nonfarm payroll employment, hours, and earnings data to reflect the annual benchmark adjustments for March 2010 and updated seasonal adjustment factors. Not seasonally adjusted data beginning with April 2009 and seasonally adjusted data beginning with January 2006 are subject to revision.
Last October the BLS released the preliminary annual benchmark revision of minus 366,000 payroll jobs. Usually the preliminary estimate is pretty close to the final benchmark estimate.

Percent Job Losses During RecessionsClick on graph for larger image in graph gallery.

This graph shows the impact of the preliminary benchmark revision on job losses in percentage terms from the start of the employment recession.

The red line on the graph is the current payroll estimate, and the dotted line shows the impact using the preliminary benchmark estimate. This means that payroll employment in March 2010 was 366,000 lower than originally estimated (using the preliminary estimate). The number is then "wedged back" to the previous revision (March 2009). This is slightly larger than a normal adjustment (see table in the post from last October).

2) Birth/death adjustment factors will be estimated on a quarterly basis
Effective with the release of January 2011 data on February 4, 2011, the establishment survey will begin estimating net business birth/death adjustment factors on a quarterly basis, replacing the current practice of estimating the factors annually. This will allow the establishment survey to incorporate information from the Quarterly Census of Employment and Wages into the birth/death adjustment factors as soon as it becomes available and thereby improve the factors. Additional information on this change is available at www.bls.gov/ces/ces_quarterly_birthdeath.pdf.
This should improve the accuracy of the model at turning points.

3) Changes in Population Controls for Household Survey
Effective with the release of data for January 2011 on February 4, 2011, revisions will be introduced into the population controls for the household survey. These changes reflect the routine annual updating of intercensal population estimates by the U.S. Census Bureau.

Summary for Week ending January 29th

by Calculated Risk on 1/30/2011 09:43:00 AM

Note: here is the economic schedule for the coming week.

• The Financial Crisis Inquiry Commission report was released. Here are the conclusions.
• Protest in Egypt: Ongoing. Link for Al Jazeera English version and Live blog 30/1 - Egypt protests

Below is a summary of the previous week, mostly in graphs.

New Home Sales increased in December

New Home Sales and RecessionsClick on graphs for larger image in graph gallery.

The Census Bureau reported New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 329 thousand. This is up from a revised 280 thousand in November.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Distressing Gap The second graph shows existing home sales (left axis) and new home sales (right axis) through December.

This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Then along came the housing bubble and bust, and the "distressing gap" appeared (due mostly to distressed sales).

Case-Shiller: U.S. Home Prices Keep Weakening as Eight Cities Reach New Lows in November

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

Case-Shiller House Prices Indices 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 31.0% from the peak, and down 0.4% in November(SA).

The Composite 20 index is off 30.9% from the peak, and down 0.5% in November (SA).

The next 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 3 of the 20 Case-Shiller cities in November seasonally adjusted.

Prices in Las Vegas are off 57.8% from the peak, and prices in Dallas only off 8.9% from the peak.

Prices are now falling - and falling just about everywhere. As S&P noted "eight markets – Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices peaked in 2006 and 2007". Both composite indices are still slightly above the post-bubble low.

Advance Report: Real Annualized GDP Grew at 3.2% in Q4

GDP Growth RateThis graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The dashed line is the median growth rate of 3.05%. Growth in Q4 at 3.2% annualized was slightly above trend growth - weak for a recovery, especially with all the slack in the system.

The following graph shows the rolling 4 quarter contribution to GDP from residential investment, equipment and software, and nonresidential structures. This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

Investment Contributions For this graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, blue.

The key leading sector - residential investment - has lagged this recovery because of the huge overhang of existing inventory. Usually RI is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and this is a key reason why the recovery has been sluggish so far.

Moody's: Commercial Real Estate Prices increased 0.6% in November

Moody's reported that the Moody’s/REAL All Property Type Aggregate Index increased 0.6% in November.

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

CRE 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).

According to Moody's, CRE prices are up 2.8% from a year ago and down about 42% from the peak in 2007.

Other Economic Stories ...
• From the Telegraph: UK economy shrinks 0.5pc
• From the BLS: Regional and State Employment and Unemployment Summary
• From the Federal Reserve: No Change in policy.
• From the NAR: Pending Home Sales Continue Uptrend
• From Bloomberg: Mortgage Rates on 30-Year U.S. Loans Increase for the Second Straight Week
• From RealtyTrac: 2010 Foreclosure Activity Down in Hardest Hit Markets But Increases in 72 Percent of Major Metros
• From the Richmond Fed: Manufacturing Activity Continues to Expand in January; Expectations Remain Upbeat
• From the Kansas City Fed: Survey of Tenth District Manufacturing
ATA Truck Tonnage Index increased in December
• The Department of Transportation (DOT) reported that vehicle miles driven in November were up 1.1% compared to November 2009
Unofficial Problem Bank list increases to 949 Institutions

Best wishes to all!

Saturday, January 29, 2011

Some misc links: Egypt, Oil, China GDP

by Calculated Risk on 1/29/2011 10:45:00 PM

• Some analysis from Professor Hamilton at Econbrowser: Geopolitical unrest and world oil markets

• From the WSJ: Chaos, Looting Spread as Mubarak Names Key Deputies

• From the WaPo: More Egyptian protesters demand that White House condemn Mubarak

• Link for Al Jazeera English version and Live blog 30/1 - Egypt protests

And on other topics:
• From Professor Michael Pettis: How big is Chinese GDP?

• This will be a busy week for U.S. data: Schedule for Week of January 30th

Update: Revisions to Existing Home Sales

by Calculated Risk on 1/29/2011 06:56:00 PM

More clarification:
• On February 23rd, the National Association of Realtors (NAR) will release revisions for the past three years (2008 through 2010) along with the January existing home sales report. This is the ordinary annual revision, and the revisions will probably be minor.

• The NAR is working on benchmarking existing home sales for previous years with other industry data. There is no planned release date for these possible revisions - if any are announced. The process is expected to be completed sometime after mid-year, and I expect this effort will lead to significant downward revisions to previously reported sales.

Schedule for Week of January 30th

by Calculated Risk on 1/29/2011 02:18:00 PM

NOTE: The current weekly schedule is available all week in the menu bar above.

The key report for this week will be the January employment report to be released on Friday, Feb 4th.

Other key reports include the quarterly Housing Vacancies and Homeownership report to be released on Monday, the ISM manufacturing index on Tuesday, vehicle sales on Tuesday, and the ISM non-manufacturing (service) index on Thursday. Fed Chairman Ben Bernanke will speak on Thursday.

----- Monday, Jan 31st -----

8:30 AM: Personal Income and Outlays for December. The consensus is for a 0.4% increase in personal income and a 0.5% increase in personal spending, and for the Core PCE price index to increase 0.1%.

9:45 AM: Chicago Purchasing Managers Index for January. The consensus is for a decrease to a still strong 65.0 (down from 66.8 in December).

10:00 AM: Housing Vacancies and Homeownership report for Q4. This report contains an estimate for the homeownership rate, and for the homeowner and rental vacancy rates.

Homeownership Rate Click on graphs for larger image in graph gallery.

The Q3 2010 homeownership rate was at 66.9% - about the level of early 1999.

For this report, the homeowner vacancy rate was at 2.5% in Q3 2010 (down from a peak of 2.9%) and the rental vacancy rate was at 10.3% in Q3 2010, down from a peak of 11.1%. Both vacancy rates probably fell further in Q4.

10:30 AM: Dallas Fed Manufacturing Survey for January. The Texas production index showed expansion last month (at 12.8), and is expected to show expansion again in January.

12:00 PM: Atlanta Fed President Dennis Lockhart speaks at Miami Dade College

2:00 PM: The January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve. The October survey showed banks have stopped tightening standards (they are already very tight), and demand has stopped falling (there is little demand for loans).

----- Tuesday, Feb 1st -----

10:00 AM: ISM Manufacturing Index for January. The consensus is for an increase to 57.9 from 57.0 in December.

10:00 AM: Construction Spending for December. The consensus is for a 0.1% increase in construction spending.

All day: Light vehicle sales for January. Light vehicle sales are expected to increase to 12.6 million (Seasonally Adjusted Annual Rate), from 12.5 million in December.

Vehicle Sales This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the December sales rate.

Edmunds is forecasting:
"Edmunds.com analysts predict that January's Seasonally Adjusted Annualized Rate (SAAR) will be 12.57 million, up from 12.48 in December 2010."

----- Wednesday, Feb 2nd -----

7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has declined over the last few weeks suggesting weak home sales through the first few months of 2011.

8:15 AM: The ADP Employment Report for January. This report is for private payrolls only (no government). The consensus is for +150,000 payroll jobs in January, down from the stunning +297,000 jobs reported in December.

5:30 PM: Fed Governor Elizabeth Duke speaks at the University of North Carolina "My Journey from Community Banker to Central Banker"

----- Thursday, Feb 3rd -----

8:30 AM: The initial weekly unemployment claims report will be released. The number of initial claims had been trending down over the last couple of months, although claims increased sharply last week to 454,000. The consensus is for a decline to 420,000.

10:00 AM: Manufacturers' Shipments, Inventories and Orders for December. The consensus is for a 1.0% increase in orders.

10:00 AM: ISM non-Manufacturing Index for December. The consensus is for a slight decrease to 57.0 from 57.1 in December.

12:30 PM: Fed Chairman Ben Bernanke will speak at the National Press Club Luncheon in Washington, D.C. "The Economic Outlook and Macroeconomic Policies"

8:00 PM: Minneapolis Fed President Narayana Kocherlakota speaks at the University of Minnesota.

----- Friday, Feb 4th -----

8:30 AM: Employment Report for January.

Payroll Jobs per Month The consensus is for an increase of 150,000 non-farm payroll jobs in January, after the disappointing 103,000 jobs added in December.

This graph shows the net payroll jobs per month (excluding temporary Census jobs) since the beginning of the recession. The estimate for January is in blue.

The consensus is for the unemployment rate to increase to 9.5% from 9.4% in December. Note: The annual benchmark revision will be released with this report, and the preliminary estimate "indicates a downward adjustment to March 2010 total nonfarm employment of 366,000."

Unofficial Problem Bank list increases to 949 Institutions

by Calculated Risk on 1/29/2011 10:26:00 AM

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

Here is the unofficial problem bank list for Jan 28, 2011.

Changes and comments from surferdude808:

Not the safest week in banking as the FDIC released its formal enforcement actions for December 2010 and closed four institutions including the largest bank headquartered in New Mexico. This week there were 15 additions and three removals. The changes leave the Unofficial Problem Bank list at 949 institutions with assets of $410.9 billion, up from 937 institutions with assets of $409.4 billion.

The removals include three of the four failures -- First Community Bank, Taos, NM ($2.3 billion Ticker: FSNM); Firstier Bank, Louisville, CO ($782 million); and Evergreen State Bank, Stoughton, WI ($246 million). The other failure this week -- The First State Bank, Camargo, OK was only placed under enforcement action in December 2010 (35 days before it failed) by the FDIC so it never made an appearance on the Unofficial Problem Bank List.

Among the 13 additions are First Federal Savings Bank of Elizabethtown, Elizabethtown, KY ($1.2 billion Ticker: FFKY); The Heritage Bank, Hinesville, GA ($952 million); First American International Bank, Brooklyn, NY ($604 million); Park Federal Savings Bank, Chicago, IL ($216 million Ticker: PFED); and Premier Service Bank, Riverside, CA ($157 million Ticker: PSBK).

Other changes include the issuance of Prompt Corrective Action orders by the FDIC against The Bank of Commerce, Wood Dale, Il ($174 million) and the Federal Reserve against Virginia Business Bank, Richmond, VA ($129 million). Positively, the FDIC terminated the PCA order against AmericanWest Bank, Spokane, WA ($1.5 billion Ticker: AWBCQ).

After the monthly release of actions by the FDIC, it would not be unusual for the Unofficial Problem Bank List to trend down until the middle of next month as closings tend to outpace new order issuance during this part of the month. Overall, if trends persist, the list could hit CR's anticipated [1000] mark by the end of May 2011.

ATA Truck Tonnage Index increased in December

by Calculated Risk on 1/29/2011 08:55:00 AM

From the American Trucking Association: ATA Truck Tonnage Index Jumped 2.2 Percent in December

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.2 percent in December after falling a revised 0.6 percent in November. The latest improvement put the SA index at 111.6 (2000=100) in December, which was the highest level since September 2008. In November, the SA index equaled 109.2.
...
ATA Chief Economist Bob Costello said that December’s improvement fits well with the see-saw pattern that many carriers are reporting. “Fleets continue to tell me that freight volumes are very choppy – up one week, but down the next. That is a trend that is likely to continue this year as the economy is not growing across the board yet.” Still, Costello said it was a positive sign for the economy that SA tonnage reached the highest level in 27 months. “I continue to expect truck freight tonnage to grow modestly during the first half of 2011 and accelerate in the later half of the year into 2012.”
ATA Truck Tonnage Index Click on map for graph gallery.

This graph from the ATA shows the Truck Tonnage Index since Jan 2006.

This is the highest level since September 2008 - and it appears truck tonnage is increasing again after stalling out last spring and summer.

Late Night: Egypt

by Calculated Risk on 1/29/2011 01:47:00 AM

From Al Jazeera English (All times are local in Egypt.). Latest entries ...

6:38 am Internet and mobile phone networks are still down in Egypt.

6:30 am The headquarters of the ruling National Democratic Party in Cairo are still on fire.

A couple of stories ...

From the WaPo: Cairo in near-anarchy as protesters push to oust president

From the NY Times: Mubarak Orders Crackdown, With Revolt Sweeping Egypt

Friday, January 28, 2011

Bank Failure #11 for 2011: First Community Bank, Taos, New Mexico

by Calculated Risk on 1/28/2011 08:38:00 PM

Taos bank demise
The high price of low living
Malfeasance results

by Soylent Green is People

From the FDIC: U.S. Bank, National Association, Minneapolis, Minnesota, Assumes All of the Deposits of First Community Bank, Taos, New Mexico
As of September 30, 2010, First Community Bank had approximately $2.31 billion in total assets and $1.94 billion in total deposits ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $260.0 million. ... First Community Bank is the eleventh FDIC-insured institution to fail in the nation this year, and the first in New Mexico.
A billion here, a billion there ...

Bank Failure #10 for 2011: FirsTier Bank, Louisville, Colorado

by Calculated Risk on 1/28/2011 07:42:00 PM

Tier 1 capital.
Without it, which banks might fail?
Today: First Tier Bank.

by Soylent Green is People

From the FDIC: FDIC Creates the Deposit Insurance National Bank of Louisville to Protect Insured Depositors of FirsTier Bank, Louisville, Colorado
As of September 30, 2010, FirsTier Bank had $781.5 million in total assets and $722.8 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $242.6 million. FirsTier Bank is the tenth FDIC-insured institution to fail in the nation this year, and the second in Colorado.
That makes three today - and another one with no buyer.

Report: Mubarak announces he is dismissing the government

by Calculated Risk on 1/28/2011 05:45:00 PM

From Al Jazeera English Mubarak announces he is dismissing the government

Update: From the NY Times: Mubarak Orders Ministers to Resign but Backs Armed Response to Egypt Protests

Bank Failure #8 in 2011: First State Bank, Camargo, Oklahoma

As of September 30, 2010, The First State Bank had approximately $43.5 million in total assets and $40.3 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $20.1 million. ... The First State Bank is the eighth FDIC-insured institution to fail in the nation this year, and the first in Oklahoma.
Billions vanishing
Innumerable losses
When will perp walks start?

by Soylent Green is People


Update: Bank Failure #9 in 2011: Evergreen State Bank, Stoughton, Wisconsin
As of September 30, 2010, Evergreen State Bank had approximately $246.5 million in total assets and $195.2 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $22.8 million. ... Evergreen State Bank is the ninth FDIC-insured institution to fail in the nation this year, and the first in Wisconsin.
Shoots crisp to stubble
Evergreen's gone never green
Roots dead from red ink

by Soylent Green is People

Lawler: Downward Revisions Coming to Existing Home Sales?

by Calculated Risk on 1/28/2011 03:45:00 PM

This is from housing economist Tom Lawler (CR Note: I probably jumped the gun on the timing of the major revisions, but I believe they are coming):

As many readers may recall, over the last year and a half I have noted numerous times that the NAR’s estimates for existing home sales appear to have understated the decline in existing home sales since 2006, with the “gap” increasing from 2007 through 2009. The basis for that assertion was that existing home sales based on property records in some key states declined materially more than did the NAR’s estimate of existing home sales in those states. In addition, CoreLogic’s estimates of existing home sales based on property records in its database (which covers “over 80%”of the US housing market) show materially larger declines since 2006 than do the NAR’s estimates.

The NAR is aware of these “discrepancies” and has been since at least 2009, but changing its methodology is not a trivial task. However, reportedly the NAR (working with others) has been looking into this issue, and is exploring whether it needs to change its methodology to get better estimates of “actual” existing home sales.

Late last evening CalculatedRisk wrote that

‘The NAR is planning on releasing revisions for the past three years (2008 through 2010) on February 23rd along with the January existing home sales report. Many housing analysts expect these revisions to be significant - and to be down. Assuming the revisions are down, this will also reduce the "distressing gap" between existing and new home sales.’

Now it is true that the NAR plans to release revisions to it monthly existing home sales data for the past three years on February 23rd. However, it ALWAYS revises its monthly data at that time of year each year to reflect annual changes in seasonal factors. I’m not at all sure that the NAR will also be ready next month to revise its existing homes sales data based on a new methodology – though ultimately I expect it will do so.

To give one an idea of what such a revision might ultimately look like, below is a table showing the NAR’s estimate for existing home sales from 2006 to 2009 versus CoreLogic’s count of existing home sales from its property records database. Full year 2010 data from CL are not yet available; in addition, CL’s data for the past several months (through October) will be revised upward as new data from county recorders become available. (The CL data include “normal” existing home sales, REO sales, and short sales). Also shown are “grossed-up” CL estimates assuming that the NAR’s existing home sales estimate were “correct,” [in 2006] which would imply that CL’s database covers about 84.25% of total existing home transactions. That assumption, of course, may not be correct, but I’m showing the data that way anyway.

Existing Home Sales (thousands)
YearNARCoreLogicGrossed-up CoreLogic
20066,4785,4586,478
20075,6524,4655,299
20084,9133,7204,415
20095,1563,6414,321

One reason for the NAR/property records sales estimates gaps appears to be that since 2006 there was a cyclical increase in the share of home sales through local MLS. This reflects both the greater difficulty sellers had in selling homes, as well as the increased use of the internet by buyers in their home search.

CR Note: This was from housing economist Tom Lawler.

Egypt Update

by Calculated Risk on 1/28/2011 02:07:00 PM

Update: Al Jazeera English (ht km4)

The Telegraph is providing updates on events in Egypt.

Oil prices have surged.

From the Financial Times: Oil price spikes towards $100 and from Dow Jones: Egypt Unrest Sends Oil Prices Surging

Light, sweet crude for March delivery rose $3.61, or 4.2%, at $89.25 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange gained $1.63, or $1.7%, at $99.02 a barrel. It earlier touched a 16-month high of $99.63 a barrel.
I usually track the West Texas Intermediate price (just under $90). The divergence between the two, according to the Financial Times, is due to rising inventories at a key hub in Oklahoma.

Comments from Secretary of State Clinton: Egypt must respect citizen rights, reform
"We are deeply concerned about the use of violence by Egyptian police and security forces against protesters, and we call on the Egyptian government to do everything in its power to restrain the security forces," Clinton told reporters at the State Department. "At the same time, protesters should also refrain from violence and express themselves peacefully."

"We urge the Egyptian authorities to allow peaceful protests and to reverse the unprecedented steps it has taken to cut off communication," she said. "These protests underscore that there are deep grievances within Egyptian society, and the Egyptian government needs to understand that violence will not make these grievances go away."

Residential Investment near record low as Percent of GDP

by Calculated Risk on 1/28/2011 11:52:00 AM

A couple more graphs from the GDP report, and the final consumer sentiment for January ...

Residential Investment Click on graph for larger image in graph gallery.

Residential Investment (RI) increased slightly in Q4, but as a percent of GDP, RI is near a post-war low at 2.24% - essentially unchanged from Q3.

Some people have asked how a sector that only accounts for 2.2% of GDP could be so important? The answer is that usually RI accounts for a large percentage of the employment and GDP growth in the first year or so of a recovery (and increases in RI have a positive impact on other areas like furniture, etc). Not this time because of the huge overhang of existing vacant units.

I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

I expect RI to increase in 2011 and add to both GDP and employment growth - for the first time since 2005!

non-Residential InvestmentThe second graph shows non-residential investment in structures and equipment and software.

Equipment and software investment has been increasing sharply, although investment growth slowed in Q4 to a 5.8% annualized rate.

Non-residential investment in structures is near a record low and will probably stayed depressed for some time. I expect non-residential investment in structures to bottom later this year, but the recovery will be very sluggish for some time with the high vacancy rates for offices and malls.

Consumer Sentiment The final Reuters / University of Michigan consumer sentiment index for January was at 74.2. This was up from the preliminary report of 72.7, and down from 75.2 in December.

This was slightly above the consensus forecast of 71.3, but the level is very low and well below the pre-recession levels.

Advance Report: Real Annualized GDP Grew at 3.2% in Q4

by Calculated Risk on 1/28/2011 08:30:00 AM

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.2 percent in the fourth quarter of 2010, (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis.
GDP Growth Rate Click on graph for larger image in graph gallery.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The dashed line is the median growth rate of 3.05%. Growth in Q4 at 3.2% annualized was slightly above trend growth - weak for a recovery, especially with all the slack in the system.

A few key numbers:
• The change in real private inventories subtracted 3.70 percentage points from the fourth-quarter change in real GDP after adding 1.61 percentage points to the third-quarter change.

GDP would have been very strong without this change in private inventories. This was offset by a postive contribution from Net exports of goods and services of 3.44 percentage points.

• Real personal consumption expenditures increased 4.4 percent in the fourth quarter, compared with an increase of 2.4 percent in the third.

• Investment: Nonresidential structures increased 0.8 percent, equipment and software increased 5.8 percent and real residential fixed investment increased 3.4 percent.

The following graph shows the rolling 4 quarter contribution to GDP from residential investment, equipment and software, and nonresidential structures. This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, blue.

Investment Contributions Residential Investment (RI) made a small positive contribution to GDP in Q4 2010, and the four quarter rolling average is negative again following the slight boost from the tax credit early in 2010.

Equipment and software investment has made a significant positive contribution to GDP for six straight quarters (it is coincident).

The contribution from nonresidential investment in structures was slightly positive in Q4, although this will probably be revised down.

The key leading sector - residential investment - has lagged this recovery because of the huge overhang of existing inventory. Usually RI is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and this is a key reason why the recovery has been sluggish so far.

Thursday, January 27, 2011

Update: Coming Existing Home Sales Revisions

by Calculated Risk on 1/27/2011 11:32:00 PM

UPDATE:
• On February 23rd, the National Association of Realtors (NAR) will release revisions for the past three years (2008 through 2010) along with the January existing home sales report. This is the ordinary annual revision, and the revisions will probably be minor.

• The NAR is working on benchmarking existing home sales for previous years with other industry data. There is no planned release date for these possible revisions - if any are announced. The process is expected to be completed sometime after mid-year, and I expect this effort will lead to significant downward revisions to previously reported sales.

Original post:

This morning I noted:

I've been discussing the National Association of Realtors (NAR) existing home sales data with several analysts. ... I think the NAR started over estimating sales in 2006 or 2007 ... and the errors have increased since then ... I expect the NAR will revise down sales for these years in the not too distant future ...
The NAR is planning on releasing revisions for the past three years (2008 through 2010) on February 23rd along with the January existing home sales report. Many housing analysts expect these revisions to be significant - and to be down. Assuming the revisions are down, this will also reduce the "distressing gap" between existing and new home sales.

Distressing Gap Click on graph for larger image in new window.

Here is a repeat of the graph showing existing home sales (left axis) and new home sales (right axis) through December. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

After the housing bubble and bust, the "distressing gap" appeared due mostly to distressed sales. Even with a significant downward revision to existing home sales (say 10% or even 15%) that will only reduce the "distressing gap" a little.

Update on Egypt, Yemen

by Calculated Risk on 1/27/2011 08:26:00 PM

From the Telegraph: Egypt protests: Mubarak rival flies to Egypt as the revolt gathers pace

For the past three days, the revolt against Mr Mubarak has been one of unadulterated people-power, galvanised by the internet and word of mouth and driven by the young.

Disgruntled Egyptians from different classes and different parts of the country have joined the cause, shedding a fear of authority that has become part of the country's collective psyche. It is this growing confidence of the masses, inspired by Tunisia's Jasmine Revolution, which has so unnerved the authorities.
From the Financial Times: ElBaradei return raises stakes in Egypt
The 68-year-old Mr ElBaradei, a former Egyptian diplomat and ex-chief of the International Atomic Energy Agency, told reporters in Cairo that he would take part in protests that opposition parties and a youth protest movement have called for following Friday prayers.

“The barrier of fear is broken and it will not come back,” he said.
excerpt with permission
From the NY Times: Thousands in Yemen Protest Against the Government
Yemen, one of the Middle East’s most impoverished countries and a haven for Al Qaeda militants, became the latest Arab state to witness mass protests on Thursday, as thousands of Yemenis took to the streets in the capital and other regions to demand a change in government.
This has a 1989 feel to it, but I fear the outcome will not be as successful - or as peaceful.

Merle Hazard on Germany

by Calculated Risk on 1/27/2011 05:04:00 PM

Another ditty from Merle - this one on Germany (short to fit the time slot on Paul Solman's Making $ense (Solman is discussing Europe this week).

Note:
There is a a European debt woes lyric contest with Merle here.

For an overview of the entire series, watch a web chat video between Paul Solman and Merle over on Making Sen$e.

Hotels: RevPAR up 9.3% compared to same week in 2010

by Calculated Risk on 1/27/2011 02:38:00 PM

This month has been tough for hotel occupancy with only a small increase over the very low levels for the same period a year ago (includes the holidays). Here is the weekly update on hotels from HotelNewsNow.com: San Francisco tops weekly hotel performance

Overall, the U.S. hotel industry’s occupancy increased 6.5% to 49.8%, ADR was up 2.6% to US$96.39, and RevPAR finished the week up 9.3% to US$47.99.
The following graph shows the four week moving average of the occupancy rate as a percent of the median occupancy rate from 2000 through 2007.

Hotel Occupancy Rate Click on graph for larger image in graph gallery.

Note: I've changed this graph. Since this is the percent of the median from 2000 to 2007, the percent can be greater than 100%.

The down spike in 2001 was due to 9/11. The up spike in late 2005 was hurricane related (Katrina and Rita). The dashed line is the current level.

This shows how deep the slump was in 2009 compared to the period following the 2001 recession. This also shows the occupancy rate improvement has slowed sharply over the last month (only about 92% of the median from 2000 to 2007).

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

Financial Crisis Inquiry Commission report

by Calculated Risk on 1/27/2011 01:05:00 PM

Here is the Financial Crisis Inquiry Commission report

Here are the conclusions.

• We conclude this financial crisis was avoidable. ...

Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. ... Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner.

The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not.
This is absolutely correct. In 2005 I was calling regulators and I was told they were very concerned - and several people told me confidentially that the political appointees were blocking all efforts to tighten standards - and one person told me "Greenspan is throwing his body in front of all efforts to tighten standards".

The dissenting views that discount this willful lack of regulation are absurd and an embarrassment for the authors.
• We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets. The sentries were not at their posts, in no small part due to the widely accepted faith in the selfcorrecting nature of the markets and the ability of financial institutions to effectively police themselves. ...

Yet we do not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it. To give just three examples: the Securities and Exchange Commission could have required more capital and halted risky practices at the big investment banks. It did not. The Federal Reserve Bank of New York and other regulators could have clamped down on Citigroup’s excesses in the run-up to the crisis. They did not. Policy makers and regulators could have stopped the runaway mortgage securitization train. They did not. In case after case after case, regulators continued to rate the institutions they oversaw as safe and sound even in the face of mounting troubles, often downgrading them just before their collapse. And where regulators lacked authority, they could have sought it. Too often, they lacked the political will—in a political and ideological environment that constrained it—as well as the fortitude to critically challenge the institutions and the entire system they were entrusted to oversee.
This is a key finding and absolutely correct.
• We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis. ...

• We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis. ...

• We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets. ...

• We conclude there was a systemic breakdown in accountability and ethics. ... For example, our examination found, according to one measure, that the percentage of borrowers who defaulted on their mortgages within just a matter of months after taking a loan nearly doubled from the summer of 2006 to late 2007. This data indicates they likely took out mortgages that they never had the capacity or intention to pay. You will read about mortgage brokers who were paid “yield spread premiums” by lenders to put borrowers into higher-cost loans so they would get bigger fees, often never disclosed to borrowers. The report catalogues the rising incidence of mortgage fraud, which flourished in an environment of collapsing lending standards and lax regulation. ...

• We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis. ... Many mortgage lenders set the bar so low that lenders simply took eager borrowers’ qualifications on faith, often with a willful disregard for a borrower’s ability to pay. ... These trends were not secret. As irresponsible lending, including predatory and fraudulent practices, became more prevalent, the Federal Reserve and other regulators and authorities heard warnings from many quarters. Yet the Federal Reserve neglected its mission “to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers.” ...

• We conclude over-the-counter derivatives contributed significantly to this crisis. ...

• We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction. The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies.
My view is the keys to the crisis are 1) the willful lack of regulators to do their jobs, combined with 2) the rapid "innovation" in the mortgage market, especially the agency problems associated with the originate-to-distribute model. I'm just starting to read the report, but just based on the conclusions, this report deserves praise.

Misc: Kansas City Fed Manufacturing, Foreclosures Spread, Japan Downgrade and more

by Calculated Risk on 1/27/2011 11:24:00 AM

• From the Kansas City Fed: Survey of Tenth District Manufacturing

Growth in Tenth District manufacturing activity moderated somewhat in January, but activity was stronger than a year ago and optimism
remained fairly high. Price indexes in the survey were still elevated, particularly for raw materials.

The month-over-month composite index was 7 in January, down from 14 in December and 11 in November ... The employment index edged down from 11 to 8.
Note: I've been using the production index from the Kansas City Fed, and they have now introduced a composite index. The last of the regional Fed surveys for January will be released on Monday (Dallas Fed).

The ISM manufacturing index will released on Tueday, Feb 1st, and the regional Fed surveys suggest the index will be in the mid to high 50s (same range as December).

• From RealtyTrac: 2010 Foreclosure Activity Down in Hardest Hit Markets But Increases in 72 Percent of Major Metros
“Foreclosure floodwaters receded somewhat in 2010 in the nation’s hardest-hit housing markets,” said James J. Saccacio, chief executive officer of RealtyTrac. “Even so, foreclosure levels remained five to 10 times higher than historic norms in most of those hard-hit markets, where deep faultlines of risk remain and could potentially trigger more waves of foreclosure activity in 2011 and beyond. Meanwhile foreclosures became more widespread in 2010 as high unemployment drove activity up in 72 percent of the nation’s metro areas — many of which were relatively insulated from the initial foreclosure tsunami.”
• From the NY Times: S.&P. Downgrades Japan as Debt Concerns Spread

• From Bloomberg: Mortgage Rates on 30-Year U.S. Loans Increase for the Second Straight Week
The average rate for 30-year fixed loans climbed to 4.80 percent for the week ended today from 4.74 percent, according to Freddie Mac.

Pending Home Sales index increases 2% in December

by Calculated Risk on 1/27/2011 10:00:00 AM

UPDATE:
• On February 23rd, the National Association of Realtors (NAR) will release revisions for the past three years (2008 through 2010) along with the January existing home sales report. This is the ordinary annual revision, and the revisions will probably be minor.

• The NAR is working on benchmarking existing home sales for previous years with other industry data. There is no planned release date for these possible revisions - if any are announced. The process is expected to be completed sometime after mid-year, and I expect this effort will lead to significant downward revisions to previously reported sales.

Original post:

Special Note: I've been discussing the National Association of Realtors (NAR) existing home sales data with several analysts. As an example, Keith Jurow has been sending me data from local areas, and also calculations based on data from Inside Mortgage Finance suggesting that the NAR existing home sales data is overstating sales. I've also looked at other sources, and I think the NAR started over estimating sales in 2006 or 2007 (perhaps by 5% or so in 2007), and the errors have increased since then (perhaps 10% or 15% or more in 2009 and 2010). I expect the NAR will revise down sales for these years in the not too distant future (I'm hearing whispers of coming revisions - but I haven't been able to confirm this with the NAR).

From the NAR: Pending Home Sales Continue Uptrend

The Pending Home Sales Index,* a forward-looking indicator, increased 2.0 percent to 93.7 based on contracts signed in December from a downwardly revised 91.9 in November [revised down from 92.2]. The index is 4.2 percent below the 97.8 mark in December 2009. The data reflects contracts and not closings, which normally occur with a lag time of one or two months.
This suggests existing home sales in January and February will be somewhat higher than in December, although - based on mortgage applications - I think we might see a slight decline in sales.

Weekly Initial Unemployment Claims increase sharply to 454,000

by Calculated Risk on 1/27/2011 08:42:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Jan. 22, the advance figure for seasonally adjusted initial claims was 454,000, an increase of 51,000 from the previous week's revised figure of 403,000. The 4-week moving average was 428,750, an increase of 15,750 from the previous week's revised average of 413,000.
Weekly Unemployment Claims Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims for the last 10 years. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week by 15,750 to 428,750.

This was much higher than consensus expectations. The recent decline in the four week average has been good news - and this large increase (just one week) is concerning. Blame it on the snow ...

Wednesday, January 26, 2011

Merle Hazard on Italy

by Calculated Risk on 1/26/2011 08:57:00 PM

A ditty from Merle on Italy (short to fit the time slot on Paul Solman's Making $ense (Solman is discussing Europe this week).

New Home Inventory by Stage of Construction

by Calculated Risk on 1/26/2011 05:16:00 PM

The Census Bureau reported that new home inventory declined to 190,000 new houses for sale at the end of December. A common questions is: What inventory is included?

According to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

Distressing Gap Click on graph for larger image in graph gallery.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale fell to 80,000 units in December. And the combined total of completed and under construction is at the lowest level since this series started.

In most areas the 'completed' and 'under construction' inventory of new homes is fairly lean. (Tom Lawler sent me a note just as I was finishing this post, he wrote: Currently new SF home inventories are “pretty lean,” which is good since new home sales are still “pretty soft.” )

Here are the New and Existing December home sales posts:
New Home Sales increase in December
December Existing Home Sales: 5.28 million SAAR, 8.1 months of supply
Existing Home Inventory increases 8.4% Year-over-Year in December
Home Sales: Distressing Gap
• Graph galleries for New Home and Existing Home sales

FOMC Statement: No change

by Calculated Risk on 1/26/2011 02:15:00 PM

• The target range for the federal funds rate remains at 0 to 1/4 percent
• The policy of reinvestment of principal payments remains
• no change to the plan to purchase an additional $600 billion of longer-term Treasury securities by the end of June 2011.
• the key sentence "likely to warrant exceptionally low levels for the federal funds rate for an extended period" remains

From the Federal Reserve:

Information received since the Federal Open Market Committee met in December confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions. Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, while investment in nonresidential structures is still weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Although commodity prices have risen, longer-term inflation expectations have remained stable, and measures of underlying inflation have been trending downward.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
No dissent. A mention of rising commodity prices, but not much change in the language.

Home Sales: Distressing Gap

by Calculated Risk on 1/26/2011 12:10:00 PM

Here is an update to a graph I've been posting for several years (most of the text is a repeat).

This graph shows existing home sales (left axis) and new home sales (right axis) through December. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Then along came the housing bubble and bust, and the "distressing gap" appeared (due mostly to distressed sales).

Distressing Gap Click on graph for larger image in new window.

Initially the gap was caused by the flood of distressed sales. This kept existing home sales elevated, and depressed new home sales since builders couldn't compete with the low prices of all the foreclosed properties.

The two spikes in existing home sales were due primarily to the homebuyer tax credits (the initial credit in 2009, followed by the 2nd credit in 2010). There were also two smaller bumps for new home sales related to the tax credits.

Note: it is important to note that existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

In a few years - when the excess housing inventory is absorbed and the number of distressed sales has declined significantly - I expect existing home-to-new home sales to return to something close to this historical relationship.

New and Existing December home sales posts:
New Home Sales increase in December
December Existing Home Sales: 5.28 million SAAR, 8.1 months of supply
Existing Home Inventory increases 8.4% Year-over-Year in December
• Graph galleries for New Home and Existing Home sales