Sunday, July 31, 2011

Sunday Night Futures

by Bill McBride on 7/31/2011 10:39:00 PM

Although the debt ceiling deal has been announced, we still need to see the details to evaluate the drag on the economy. And the bill still needs to pass the House and Senate.

Hopefully the focus can be back on the economy (instead of D.C.) Unfortunately the economic data for July will be weak. The economy is still sluggish, and the "debate" itself was negatively impacting the economy over the last few weeks as some people feared the U.S. government would not pay its bills. Although that fear was unfounded, it is pretty clear there will be no additional stimulus, no further help for the unemployed, and no extension of the payroll tax cut.

Here is the economic schedule for coming week. The key report for this week will be the July employment report to be released on Friday, August 5th.

The Asian markets are green tonight with the Nikkei up almost 2%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 is up about 15 points, and Dow futures are up about 175 points.

Oil: WTI futures are up to $97.41 and Brent is up to $118.23.

Yesterday:
Summary for Week ending July 29th

Another Debt Ceiling Update

by Bill McBride on 7/31/2011 06:58:00 PM

The details are still murky ...

UPDATE2: WSJ: Obama Says Congressional Leaders Have Agreed to a Debt Deal

Update: The WSJ reports:

House Republican leaders have agreed to a “tentative deal” ... House leaders have scheduled a briefing for their caucus at 8:30, aides say.
From the WSJ:
* $900 billion in the first stage of deficit reduction.

* $1.5 trillion in second stage of deficit reduction to be defined by a bipartisan special committee of lawmakers appointed by leaders of the House and Senate.

* If the special committee fails to deliver a deficit-cutting package that would trigger $1.2 trillion in cuts, half would be Defense cuts and the other half would be non-Defense cuts, exempting low-income programs Social Security and Medicaid, and only impacting providers in Medicare.

* The debt ceiling increase would be done in three phases: $400 billion initially; another $500 billion later this year would be subject to a vote of disapproval; a third increase of $1.5 to get the rest through 2012 and would also be subject to vote of disapproval.

* There is also a provision to have Congress vote on balanced budget amendment.
From the WaPo: Reid hopes for vote on deal Sunday night

From the NY Times: Reid Backs Debt Deal; Defense Cuts Still in Debate

Apparently Boehner is balking at the defense cuts. The idea behind the triggers is to make people take the recommendations of the special committee seriously. Unless the triggers are unpalatable to both sides, the commission will fail (I suspect it is already doomed).

The multiple votes are for more posing (shameful, but typical politics).

Yesterday:
Summary for Week ending July 29th
Schedule for Week of July 31st

Problem Banks: Comparing Official and Unofficial Counts

by Bill McBride on 7/31/2011 03:41:00 PM

The following graph compares the weekly count of banks on the "unofficial problem bank list" with the number from the FDIC's Quarterly Banking Profile.

We started posting the Unofficial Problem Bank list in early August 2009 (credit: surferdude808).

The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public (just the number of banks and assets every quarter). Note: Bank CAMELS ratings are also not made public.

CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

Problem Banks
The red dots are the number of banks on the official problem bank list as announced in the FDIC quarterly banking profile for Q1 2009 through Q1 2011. The dots are lagged one month because of the delay in announcing formal actions. Here is a graph from the FDIC back to Q1 2006.

On August 7, 2009, we listed 389 institutions with $276 billion in assets, and the list now has 995 institutions and $415 billion in assets.

For Q1 2011, the FDIC listed 888 institutions and $390 billion in assets (somewhat less than the unofficial list a month later). The FDIC Q2 2011 Quarterly Banking Profile will be released in a few weeks.

The unofficial count is close, but is somewhat higher than the official count.

Yesterday:
Summary for Week ending July 29th
Schedule for Week of July 31st

Debt Ceiling Update

by Bill McBride on 7/31/2011 12:18:00 PM

The final vote will probably be on Tuesday to maximize camera time ...

From the WSJ:

The White House and negotiators for congressional leaders of both parties are pushing for a deal that would raise the nation’s borrowing limit in tandem with deficit reduction in a two-stage process that could result in as much as $3 trillion in spending cuts over the next decade, lawmakers said Sunday.

The terms of the second phase – which would link further borrowing leeway to a potentially far-reaching overhaul of the tax code, defense spending and the major old-age safety net programs – are still not decided, leaders of both parties said in appearances on Sunday morning news programs.
The details sketchy are still sketchy, so it is difficult to tell how much of a drag this plan will be on the economy.

On a personal note, I think most Americans (and most politicians) do not understand the U.S. budget. This reminds me of the housing bubble - it seemed obvious to many of us, but most Americans (and most politicians) missed it completely. As an example, the "Balanced Budget Amendment" is obviously bad policy, yet politicians aren't ridiculed for supporting it. Immediate cuts with a 9.2% unemployment rate are bad policy, but that appears to be what is going to happen. I wish I was a better writer ... but I'll try to explain why these are policy mistakes in the months ahead.

Update: here is what I wrote in the comments:
I get really frustrated with politicians comparing the Federal budget to a family budget. The government does not have a capital budget, so if they spend money on R&D or roads, that is just included in the budget.

If a family buys a car with 5 year financing, they usually just budget the monthly payments. If they budgeted like the government, they'd have to include the entire purchase of the car the year it was bought (same with a house - they'd have to enough to pay cash to buy the house).

Some people compare to the states too. Hey the states are supposed to have balanced budgets. But states have separate capital and operating budgets. I think people just don't understand.
...
A politician can say "We should have a balanced budget". It sounds good, but why aren't they challenged about operating vs. capital budgets? And about business cycle spending (obviously revenue falls during a recession - and spending increases)?

What they really want is a balanced operating budget over the business cycle. You can't put that in the Constitution. It requires effective government and constant vigilance.

Of course in 2001, when the politicians were concerned about paying off the debt too soon, that nonsense went mostly unchallenged too. Very frustrating.

I need to think about how to explain it. "Balanced budget" sounds so good, and is so wrong.

Restaurant Performance Index increases in June

by Bill McBride on 7/31/2011 08:15:00 AM

From the National Restaurant Association: Restaurant Industry Outlook Strengthened in June as Restaurant Performance Index Rose Above 100

Driven by stronger same-store sales and traffic levels and a more optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) rose above 100 in June. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.6 in June, up 0.8 percent from May’s level of 99.9. In addition, June represented the sixth time in the last seven months that the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“The RPI’s solid improvement in June was due in large part to stronger same-store sales and customer traffic performances, which bounced back from their May declines,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “In addition, restaurant operators are optimistic that their sales environment will improve in the months ahead, while their outlook for capital spending also remains strong.”
...
Restaurant operators reported stronger same-store sales results in June. ... Restaurant operators also reported improving customer traffic levels in June.
Restaurant Performance Index Click on graph for larger image in graph gallery.

The index increased to 100.6 in June (above 100 indicates expansion).

Unfortunately the data for this index only goes back to 2002.

This is a minor report (barely "D-List" data), but I'd expect discretionary spending to slow sharply if consumers become really worried - and that doesn't seem to be happening.

Next Senate Vote at 1 PM ET Sunday

by Bill McBride on 7/31/2011 12:17:00 AM

From the NY Times: Amid New Talks, Some Optimism on Debt Crisis

Senator Harry Reid ... said he would convene the Senate at noon on Sunday for a vote an hour later.
The vote will probably be delayed some more ... and then maybe fail in the House on the first vote. But eventually the debt ceiling will be raised.

Earlier:
Summary for Week ending July 29th
Schedule for Week of July 31st

Saturday, July 30, 2011

Random Thoughts

by Bill McBride on 7/30/2011 09:14:00 PM

• I remain confident that Congress will raise the debt ceiling; however the circus in D.C. is clearly impacting the economy. This morning I spoke to a business owner who is negotiating a new lease to expand. His lawyer told him not to sign the lease until the debt ceiling issue is resolved. I believe similar caution has gripped business owners and consumers in many places - and impacting consumer and business confidence.

• Some people have asked why Q2 GDP growth was higher than Q1 GDP growth given the supply chain disruptions hit in Q2. The answer is both quarters were weak, but there was slightly more investment in Q2, less drag from government spending in Q2, and a positive contribution from trade. Inflation was lower in Q2 too, so the adjustment to real GDP was less.

The supply chain disruptions really showed up in Personal Consumption Expenditures (PCE) in Q2. PCE contributed almost nothing to Q2 growth; PCE increased at a 0.1% annualized real rate in Q2, after increasing at an anemic 2.1% in Q1. PCE should bounce back in Q3 - so real GDP growth will probably pick up. Well, if the politicians stop hurting the already fragile economy.

• I'm trying to ignore the debt ceiling nonsense, but it will probably be front page news for the next few days - so it will be difficult to avoid. Ezra Klein at the WaPo is providing excellent coverage, and the Capital Gains and Games blog has some great insights. (I expect Ezra will be working Sunday).

If you think Congress will fail to raise the debt ceiling, I'd suggest Tar and Feather futures!

Earlier:
Summary for Week ending July 29th
Schedule for Week of July 31st

Schedule for Week of July 31st

by Bill McBride on 7/30/2011 04:58:00 PM

Earlier:
Summary for Week ending July 29th

The key report for this week will be the July employment report to be released on Friday, August 5th. The ISM manufacturing report will be released on Monday, and the ISM non-manufacturing report on Wednesday. Also the automakers report July vehicle sales on Tuesday.

Note: It is unclear if the employment report will be delayed if Congress fails to raise the debt ceiling (government employees could continue working without pay).

----- Monday, Aug 1st -----

10:00 AM ET: ISM Manufacturing Index for July. The consensus is for a decrease to 54.3 from 55.3 in June.

10:00 AM: Construction Spending for June. The consensus is for no change in construction spending.

----- Tuesday, Aug 2nd -----

8:30 AM: Personal Income and Outlays for June. The consensus is for a 0.2% increase in personal income in June, and a 0.1% increase in personal spending, and for the Core PCE price index to increase 0.2%. The revisions will show significantly lower consumption earlier this year.

All day: Light vehicle sales for July. Light vehicle sales are expected to increase to 11.9 million (Seasonally Adjusted Annual Rate), from 11.4 million in June.

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

Edmunds is forecasting: "Toyota appears to be well on its way toward recovery following its new car sales and inventory struggles over the past few months, according to Edmunds.com’s July 2011 U.S. automotive sales forecast.
...
Edmunds.com estimates ... a Seasonally Adjusted Annualized Rate (SAAR) of 12.3 million light vehicles, nearly one million more than the 11.4 million SAAR reported in June."

----- Wednesday, Aug 3rd -----

7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been very weak over the last couple months suggesting weak home sales through summer (not counting all cash purchases).

8:15 AM: The ADP Employment Report for July. This report is for private payrolls only (no government). The consensus is for +100,000 payroll jobs in July, down from the +157,000 reported in June.

ISM Non-Manufacturing Index10:00 AM: ISM non-Manufacturing Index for July. The consensus is for a slight increase to 54.0 in July.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. The June ISM Non-manufacturing index was at 53.3%, down from 54.6% in May. The employment index increased in June to 54.1%, up from 54.0% in May. Note: Above 50 indicates expansion, below 50 contraction.

10:00 AM: Manufacturers' Shipments, Inventories and Orders for June (Factory Orders). The consensus is for a 1.0% decrease in orders.

----- Thursday, Aug 4th -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 403,000 from 398,000 last week.

----- Friday, Aug 5th -----

8:30 AM: Employment Report for July.

Payroll Jobs per Month The consensus is for an increase of 75,000 non-farm payroll jobs in July, up from the 18,000 jobs added in June. I'll take the under.

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

The consensus is for the unemployment rate to hold steady at 9.2% in July.

Percent Job Losses During RecessionsThis second employment graph shows the percentage of payroll jobs lost during post WWII recessions. This shows the severe job losses during the recent recession.

Through the first six months of 2011, the economy has added 757,000 total non-farm jobs or just 126 thousand per month. There have been 945,000 private sector jobs added, or about 158 thousand per month. This is a better pace of payroll job creation than last year, but the economy still has 6.98 million fewer payroll jobs than at the beginning of the 2007 recession.

3:00 PM: Consumer Credit for June. The consensus is for a $5.1 billion increase in consumer credit.

Summary for Week ending July 29th

by Bill McBride on 7/30/2011 10:45:00 AM

The big economic story of the week was the Q2 GDP release. The Bureau of Economic Analysis (BEA) reported that real GDP growth increased a sluggish 1.3% annualized in Q2, and that growth was revised down to just 0.4% in Q1. Also the revisions indicated the recession was significantly worse than in earlier estimates.

On the political front, the U.S. government is still working towards raising the debt ceiling by this coming Tuesday. There are clear indications that the discussions in Washington have negatively impacted the economy over the last couple of weeks. Goldman Sachs economists write last night that their forecasts for ‘growth in Q4 and 2012 are under review for probably downgrade’. They argued the dysfunction in Washington is impacting confidence: “The inability of policymakers to agree on a measure to lift the federal debt ceiling has damaged consumer confidence, not to mention our own confidence ..."

In other news, sales of new homes are still moving sideways – and house prices, according to Case-Shiller, increased seasonally in May. The regional manufacturing surveys were slightly stronger in July than in June – but that isn’t saying much. Overall the economy remains very sluggish.

Here is a summary in graphs:

New Home Sales in June at 312,000 Annual Rate

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

The Census Bureau reported New Home Sales in June were at a seasonally adjusted annual rate (SAAR) of 312 thousand. This was down from a revised 315 thousand in May (revised from 319 thousand).

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

New Home Sales, NSAThis graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In June 2011 (red column), 29 thousand new homes were sold (NSA). The record low for June was 28 thousand in 2010 (following the expiration of the homebuyer tax credit). The high for June was 115 thousand in 2005.

This was below the consensus forecast of 321 thousand, and was just above the record low for the month of June - and new home sales have averaged only 300 thousand SAAR over the 14 months since the expiration of the tax credit ... moving sideways at a very low level.

Case Shiller: Home Prices increase in May

Case-Shiller House Prices Indices From S&P: Some More Seasonal Improvement in Home Prices

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

The Composite 10 index is off 31.8% from the peak, and up slightly in May (SA). The Composite 10 is 1.7% above the May 2009 post-bubble bottom (Seasonally adjusted).

The Composite 20 index is off 31.8% from the peak, and down slightly in May (SA). The Composite 20 is slightly above the March 2011 post-bubble bottom seasonally adjusted.

Case-Shiller Price Declines Here are the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 9 of the 20 Case-Shiller cities in May seasonally adjusted. Prices in Las Vegas are off 59% from the peak, and prices in Dallas only off 9.5% from the peak.

From S&P (NSA):

As of May 2011, 16 of the 20 MSAs and both Composites posted positive monthly changes. Phoenix was flat. Detroit, Las Vegas and Tampa were the markets where levels fell in May versus April, with Detroit down by 2.8% and Las Vegas posting its eighth consecutive monthly decline. These three cities also posted new index level lows in May 2011. They are now 51.2%, 59.3% and 47.5% below their 2005-6 peak levels, respectively.
Real House Prices and Price-to-Rent

Case-Shiller, CoreLogic and others report nominal house prices. However it is also useful to look at house prices in real terms (adjusted for inflation), as a price-to-rent ratio, and also price-to-income (not shown here).

Real House PricesThis graph shows the quarterly Case-Shiller National Index SA (through Q1 2011), and the monthly Case-Shiller Composite 20 SA (through May) and CoreLogic House Price Indexes (through May) in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q4 1999 levels, the Composite 20 index is back to August 2000, and the CoreLogic index back to March 2000. In real terms, all appreciation in the last decade is gone.

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

Here is a similar graph using the Case-Shiller Composite 20 and CoreLogic House Price Index (through May). This graph shows the price to rent ratio (January 1998 = 1.0). On a price-to-rent basis, the Composite 20 index is back to October 2000 levels, and the CoreLogic index is back to March 2000.

For more on home sales and house prices, here are the previous posts:
On June Home Sales:
New Home Sales in June at 312,000 Annual Rate
Existing Home Sales in June: 4.77 million SAAR, 9.5 months of supply
Home Sales: Distressing Gap
• Graph Galleries: New Home Sales and Existing Home Sales

On House Prices:
Case Shiller: Home Prices increase in May
Real House Prices and Price-to-Rent
• Graph Galleries: Home Prices

Advance Estimate: Real Annualized GDP Grew at 1.3% in Q2

Note: This release contained a number of revisions. The recession was significantly worse than in earlier estimates. Last quarter (Q1) was revised down to just 0.4% real GDP growth.

GDP Growth RateThis graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The dashed line is the current growth rate. Growth in Q2 at 1.3% annualized was below trend growth (around 3.1%) - and very weak for a recovery, especially with all the slack in the system.

Not only has growth slowed, but the recession was significantly worse than earlier estimates suggested.

The following graph is constructed as a percent of the previous peak. This shows when GDP has bottomed - and when GDP has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

GDP Percent Previous Peak This graph is for real GDP through Q2 2011 and shows real GDP is still 0.4% below the previous pre-recession peak. At the worst point, real GDP was off 5.1% from the 2007 peak. Since the most common definition of a depression is a 10%+ decline in real GDP, the 2007 recession was not a depression. Note: There is no formal definition of a depression. Some people use other definitions such as the duration below the previous peak. By that definition, using both GDP and employment, this seems like the "Lesser depression", but not by the common definition.

Investment Contributions This 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.

Note: 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.

For more on GDP, here are the posts:
Advance Estimate: Real Annualized GDP Grew at 1.3% in Q2
Real GDP still below Pre-Recession Peak, Chicago PMI declines, Consumer Sentiment Weak
GDP: Investment Contributions (several graphs)

ATA Trucking index increased 2.8% in June

Pulse of Commerce Index From ATA Trucking: ATA Truck Tonnage Index Jumped 2.8% in June
The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.8% in June after decreasing a revised 2.0% in May 2011. May’s drop was slightly less than the 2.3% ATA reported on June 27, 2011. The latest gain put the SA index at 115.8 (2000=100) in June, up from the May level of 112.6 and the highest since January 2011.
Here is a long term graph that shows ATA's Fore-Hire Truck Tonnage index.

The dashed line is the current level of the index.

Regional Manufacturing Surveys and the ISM index

This graph compares the regional manufacturing surveys and the ISM manufacturing index:

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

The regional surveys were slightly better in July than in June. The ISM index for July will be released Monday, August 1st.

Other Economic Stories ...
• From the Chicago Fed: Index shows economic growth again below average in June
• From the Dallas Fed: Texas Manufacturing Activity Picks Up
• From the Kansas City Fed: Manufacturing Sector Slows After Solid Rebound in June
• The Chicago Purchasing Managers reported activity stabilized in July
• Fed's Beige Book: "Pace of economic growth has moderated"
Rumor: NAR Considering Introducing Repeat Sales Index
• From the NAR: Pending Home Sales Rise in June
• HVS: Q2 Homeownership and Vacancy Rates

Have a great weekend!

Unofficial Problem Bank list increases to 995 Institutions

by Bill McBride on 7/30/2011 08:36:00 AM

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

Here is the unofficial problem bank list for July 29, 2011.

Changes and comments from surferdude808:

After eight additions and six removals this week, the Unofficial Problem Bank List includes 995 institutions with assets of $415.4 billion. Last week the list had 993 institutions with assets of $415.7 billion. For the month, the list experienced a net decline of six institutions and an asset drop of $3.9 billion.

The removals this week include the three failures and three cures. The removals from failure were Integra Bank National Association, Evansville, IN ($2.2 billion Ticker: IBNK); BankMeridian, N.A., Columbia, SC ($240 million); and Virginia Business Bank, Richmond, VA ($96 million). The action terminations were Heartland Bank, Leawood, KS ($131 million); The Hicksville Bank, Hicksville, OH ($119 million); and State Bank of Paw Paw, Paw Paw, IL ($23 million).

Among the eight additions are U. S. Century Bank, Doral, FL ($1.7 billion); First Bank, Clewiston, FL ($249 million); Community Trust & Banking Company, Ooltewah, TN ($147 million); and Flagship Bank Minnesota, Wayzata, MN ($122 million).
Yesterday ...
Advance Estimate: Real Annualized GDP Grew at 1.3% in Q2
Real GDP still below Pre-Recession Peak, Chicago PMI declines, Consumer Sentiment Weak
GDP: Investment Contributions (several graphs)
HVS: Q2 Homeownership and Vacancy Rates

Friday, July 29, 2011

Fannie Mae and Freddie Mac Serious Delinquency Rates decline in June

by Bill McBride on 7/29/2011 09:25:00 PM

Fannie Mae reported that the serious delinquency rate decreased to 4.08% in June, down from 4.14% in May. This is down from 4.99% in June of 2010. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate decreased to 3.50% in June from 3.53% in May. This is down from 3.96% in May 2010. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are loans that are "three monthly payments or more past due or in foreclosure".

Fannie Freddie Seriously Delinquent RateClick on graph for larger image in graph gallery.

Some of the rapid increase in 2009 was probably because of foreclosure moratoriums, and also because loans in trial mods were considered delinquent until the modifications were made permanent.

Now the serious delinquency rate is falling as Fannie and Freddie work through the backlog of loans and either modify the loan, foreclose, short sale, or the loan cures. But there is a long way to go ...

The normal serious delinquency rate is under 1%. At the current rate of decline, Fannie will be back to "normal" in 2014, and Freddie will be back to "normal" in 2017 or so!

Bank Failure #61: Integra Bank, National Association, Evansville, Indiana

by Bill McBride on 7/29/2011 07:16:00 PM

Failing Integra
An integrity failure.
From low integers

by Soylent Green is People

From the FDIC: Old National Bank, Evansville, Indiana, Assumes All of the Deposits of Integra Bank, National Association, Evansville, Indiana
As of March 31, 2011, Integra Bank, National Association had approximately $2.2 billion in total assets and $1.9 billion in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $170.7 million. ... Integra Bank, National Association is the 61st FDIC-insured institution to fail in the nation this year, and the first in Indiana.
A pretty big failure ...

Bank Failures #59 & 60 in 2011: Virginia and South Carolina

by Bill McBride on 7/29/2011 05:39:00 PM

Meridian breach
A Business Bank in retreat
Crumbled capital.

by Soylent Green is People

From the FDIC: Xenith Bank, Richmond, Virginia, Assumes All of the Deposits of Virginia Business Bank, Richmond, Virginia
As of March 31, 2011, Virginia Business Bank had approximately $95.8 million in total assets and $85.0 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $17.3 million. ... Virginia Business Bank is the 59th FDIC-insured institution to fail in the nation this year, and the first in Virginia.
From the FDIC: SCBT, National Association, Orangeburg, South Carolina, Assumes All of the Deposits of BankMeridian, N.A., Columbia, South Carolina
As of March 31, 2011, BankMeridian, N.A. had approximately $239.8 million in total assets and $215.5 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $65.4 million. ... BankMeridian, N.A. is the 60th FDIC-insured institution to fail in the nation this year, and the third in South Carolina.

HVS: Q2 Homeownership and Vacancy Rates

by Bill McBride on 7/29/2011 02:53:00 PM

The Census Bureau released the Housing Vacancies and Homeownership report for Q2 this morning.

As Tom Lawler has been discussing (see posts at bottom), this is from a fairly small sample, and the homeownership and vacancy rates are higher than estimated in other reports (like Census 2010). This report is commonly used by analysts to estimate the excess vacant supply for housing, but it doesn't appear to be useful for that purpose.

It does show the trend, but I wouldn't rely on the absolute numbers.

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

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate declined to 65.9%, down from 66.4% in Q1 2010.

From Tom Lawler:

The HVS has consistently overstated overall US housing vacancy rates, and consistently understated the number of US households – mainly “missing” millions of renter households – for over a decade. Census 2010 “found” 116,716,292 US households for April 1, 2010, 75,986,074 of which were owner-occupied households, and 40,730,218 of which were renter-occupied households.

While the HVS numbers don’t “correlate” all that well, a decent “best guess” for the US homeownership rate last quarter would probably be around 64.2%, or about the same as in 1990. Given the substantial aging of the population over the last two decades, that would imply that homeownership rates for most age groups last quarter were the lowest since the 1980’s.
CR note: we will get the Census 2010 age group homeownership rates soon.

Homeowner Vacancy RateThe HVS homeowner vacancy rate declined to 2.5% from 2.6% in Q1.

From Lawler:
The “homeowner vacancy rate” from the HVS last quarter was 2.5%, down from 2.6% in the previous quarter but unchanged from a year ago. The HVS homeowner vacancy rate in the first half of 2010 was 2.55%, compared to the decennial Census estimate as of April 1, 2010 of 2.4%.
Rental Vacancy RateLawler:
This survey also produced an estimated rental vacancy rate last quarter of 9.2%, down from 9.7% in the previous quarter and 10.6% in the second quarter of last year. The HVS estimate of the US rental vacancy rate for the first half of 2010 was 10.6%, compared to the decennial Census estimates as of Apri1 1, 2010 of 9.2%. Last quarter’s HVS rental vacancy rate was the lowest since the third quarter of 2002.
This report does suggest that the homeownership rate and vacancy rates are falling.

Here are some previous posts about some of the HVS issues by economist Tom Lawler:
Census Bureau on Homeownership Rate: We've got “Some 'Splainin' to Do”
Be careful with the Housing Vacancies and Homeownership report
Lawler: Census 2010 and the US Homeownership Rate
Lawler: Census 2010 Demographic Profile: Highlights, Excess Housing Supply Estimate, and Comparison to HVS
Lawler: The “Excess Supply of Housing” War
Lawler: Census Releases Demographic Profile of 12 States and DC: Confirms Bias of HVS
Lawler: Census 2010 and Excess Vacant Housing Units
Lawler: On Census Housing Stock/Household Data
Lawler: Housing Vacancy Survey appears to massively overstate number of vacant housing units
Lawler: US Households: Why Researchers / Analysts are “Confused”

GDP: Investment Contributions

by Bill McBride on 7/29/2011 11:35:00 AM

According to the Bureau of Economic Analysis (BEA), real GDP is still below the pre-recession peak. The estimate for real GDP in Q2 (2005 dollars) is $13,270.1 billion, still 0.4% below the $13,326 billion in Q4 2007.

The following graph is constructed as a percent of the previous peak. This shows when GDP has bottomed - and when GDP has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

At the worst point, real GDP was off 5.1% from the 2007 peak. Since the most common definition of a depression is a 10%+ decline in real GDP, the 2007 recession was not a depression. Note: There is no formal definition of a depression. Some people use other definitions such as the duration below the previous peak. By that definition, using both GDP and employment, this seems like the "Lesser depression", but not by the common definition.

GDP Percent Previous Peak Click on graph for larger image in graph gallery.

This graph is for real GDP through Q2 2011 and shows real GDP is still 0.4% below the previous pre-recession peak.

Note: There are really two measures of GDP: 1) real GDP, and 2) real Gross Domestic Income (GDI). The BEA will release GDI with the 2nd GDP estimate.

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 positive contribution to GDP in Q2 2011, however the four quarter rolling average is still negative. The rolling four quarter average for RI will probably turn positive in Q3.

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

The contribution from nonresidential investment in structures was positive in Q2. Nonresidential investment in structures typically lags the recovery, however investment in energy and power is masking weakness in office, mall and hotel investment (the underlying details will be released next week).

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.

Residential InvestmentResidential Investment (RI) increased slightly in Q2, and as a percent of GDP, RI is just above the record low set last quarter.

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 (even with the weak first half, this appears correct).

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

Equipment and software investment has been increasing sharply, however investment growth only increased in Q2 at a 5.7% annualized rate - the slowest rate since investment declined in Q2 2009.

Non-residential investment in structures increased in Q2, and is just above the record low. I'll add details for investment in offices, malls and hotels next week.

Earlier ...
Advance Estimate: Real Annualized GDP Grew at 1.3% in Q2
Real GDP still below Pre-Recession Peak, Chicago PMI declines, Consumer Sentiment Weak

Real GDP still below Pre-Recession Peak, Chicago PMI declines, Consumer Sentiment Weak

by Bill McBride on 7/29/2011 09:55:00 AM

• From the Chicago Business Barometer™: The overall index decreased to 58.8 in July from 61.1 in June. This was below consensus expectations of 60.2. Note: any number above 50 shows expansion.

The employment index decreased to 51.5 from 58.7.

• GDP: Not only has growth slowed, but the recession was significantly worse than earlier estimates suggested. Real GDP is still not back to the pre-recession peak.

The following graph shows the current estimate of real GDP and the pre-revision estimate (blue). I'll have more later on GDP.

Real GDP

Consumer Sentiment• The final July Reuters / University of Michigan consumer sentiment index declined slightly to 63.7 from the preliminary reading of 63.8 - and down sharply from 71.5 in June.

Click on graph for larger image in graphic gallery.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices. However, even with lower gasoline prices, consumer sentiment declined sharply - possible because of the heavy coverage of the debt ceiling charade.

Earlier ...
Advance Estimate: Real Annualized GDP Grew at 1.3% in Q2

Advance Estimate: Real Annualized GDP Grew at 1.3% in Q2

by Bill McBride on 7/29/2011 08:30:00 AM

Note: This release contains a number of revisions. The recession was significantly worse than in earlier estimates. Last quarter (Q1) was revised down to just 0.4% real GDP growth.

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 1.3 percent in the second quarter of 2011, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 percent.
The following graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The dashed line is the current growth rate. Growth in Q2 at 1.3% annualized was below trend growth (around 3.1%) - and very weak for a recovery, especially with all the slack in the system.

GDP Growth Rate Click on graph for larger image in graph gallery.

A few key numbers:
• Real personal consumption expenditures increased 0.1 percent in the second quarter, compared with an increase of 2.1 percent in the first.

• Investment: "Real nonresidential fixed investment increased 6.3 percent in the second quarter, compared with an increase of 2.1 percent in the first. Nonresidential structures increased 8.1 percent, in contrast to a decrease of 14.3 percent. Equipment and software increased 5.7 percent, compared with an increase of 8.7 percent. Real residential fixed investment increased 3.8 percent, in contrast to a decrease of 2.4 percent."

• Real federal government consumption expenditures and gross investment increased 2.2 percent in the second quarter, in contrast to a decrease of 9.4 percent in the first.

I'll have much more ...

Thursday, July 28, 2011

Debt Ceiling Charade impacting Short-Term Credit Markets

by Bill McBride on 7/28/2011 10:36:00 PM

From the NY Times DealBook: Debt Ceiling Impasse Rattles Short-Term Credit Markets

Over the last week, big banks and companies have withdrawn $37.5 billion from money market funds that invest in Treasury debt and other ultra-safe securities, the biggest weekly drop this year. Meanwhile, in the vast market for repurchase agreements, in which many financial firms make short-term loans to one another, borrowers are beginning to demand higher yields.
From the WSJ: Default Worries Dry Up Lending
Banks ... are scrambling to design emergency plans to avoid a trading logjam in the huge markets for Treasurys and short-term funding facilities if Congress fails to raise the U.S. borrowing limits by next Tuesday's deadline.
...
Trading executives from the largest Wall Street dealers agreed on a Wednesday conference call, conducted by the industry trade group the Securities Industry Financial Markets Association, to a number of procedures to trade Treasury bonds if the U.S. misses a payment on its debt.
From CNBC: Will Debt Feud Clip Future Economic Growth?
Washington's political feuding over the deficit has damaged business and consumer sentiment in an already weak economy ...
I've heard comments from several executives this week that business has slowed sharply over the last week. People are getting nervous.

I've been trying to ignore the charade - obviously Congress will agree to raise the debt ceiling and pay the bills - but it is now impacting the economy.

Housing Starts: Impact of Changes in Household Size

by Bill McBride on 7/28/2011 06:26:00 PM

I've seen several people compare total housing starts with previous decades and ask: "Why is there still excess supply?"

Below is the long term graph of both total housing starts and single unit starts. If we look at the graph, we notice that there were more starts at the peak in the '70s than during the recent housing bubble.

Obviously there were many more multi-unit housing starts in the '70s - and that is a clue.

Total Housing Starts and Single Family Housing StartsClick on graph for larger image in new window.

The key to the number of housing starts is household formation.

Household formation is a function of changes in population, and also of changes in household size. During the '70s, the baby boomers started moving out of their parents' homes, and there was a dramatic decrease in the number of persons per household. And that led to a huge demand for apartments (the surge in total starts).

The table below shows the number of persons per household for every decade from 1950 through 2010 (based on the decennial census data). Also using the decennial census data we can calculate the number of households needed because of 1) population growth, and 2) changes in household size:

Decennial Census, Population and Households in Millions
CensusPopulationHouseholdsPersons per householdIncrease in Households over decadeIncrease in Households due to Population GrowthIncrease in Households due to change in Household Size
1950150.742.83.52 --- --- ---
1960179.353.03.3810.28.12.1
1970203.263.43.2110.47.13.3
1980226.580.42.8217.07.39.7
1990248.791.92.7111.57.93.6
2000281.4105.52.6713.612.11.5
2010308.7116.72.6511.210.21.0


Because of the changes in household size, the U.S. needed far more additional housing units in the '70s than in the '00s. In the decade ending in 1980, there were 17 million households added. A majority of those households were added because of the decrease in the number of persons per household (boomers moving out!).

Unfortunately it is difficult to estimate the number of housing units needed in a given time period, even if we know the number of new households being formed (and we don't have timely data on household formation!). We also have to account for scrappage (demolitions), mobile homes and second homes. And this assume no excess supply - and right now there is a significant excess supply.

A simple formula would be:

Housing Starts + mobile homes needed = Households formed + scrappage + second homes added.

So if 1 million households are formed in a year, 200 thousand homes demolished (probably close), and say 100 thousand 2nd homes added, then the total housing starts plus mobile homes added would be 1.3 million.

Note: this doesn't account for location (most homes are not transportable), and the desires of each household (a mobile home isn't a substitute for a 4,000 square foot home).

So we can't just compare housing starts in different decades without looking at household formation. I'll have more on this ...

Fed's Williams: The Economic Outlook

by Bill McBride on 7/28/2011 02:44:00 PM

From San Francisco Fed President John Williams: The Outlook for the Economy and Monetary Policy

Some excerpts on housing:

One of the most important currents holding back recovery has been housing. The collapse of the housing market touched off the financial crisis and recession. In most recessions, housing construction falls sharply, but then leads the economy back when growth resumes. As you well know, that snapback hasn’t occurred this time. Before the crisis, residential investment as a share of the economy was at its highest level since the Korean War. Today, housing construction remains moribund and residential investment as a share of the economy has fallen to its lowest level since World War II.

On one level, that’s not surprising. We simply built too many—in fact, millions too many—houses during the boom and we are still feeling the effects of this overhang. Consider housing prices. From their peak in 2006 until early 2009, home prices nationwide fell by nearly a third. When you exclude distressed sales, prices appeared to bottom out in 2009 and early 2010. New housing starts also appeared to stabilize in 2009, after plummeting some 75 percent during the housing crash. ...

The $64,000 question is when will the housing market finally recover? One daunting challenge for such a recovery is the huge number of homes in foreclosure. Almost 7 million homes have entered into foreclosure since the first quarter of 2008 and some 2 million are still in the foreclosure process. In addition, there is a shadow inventory of homes currently owned by delinquent borrowers. When you add up unsold new houses left over from the boom, homes for sale by owners, foreclosed residences for sale by lenders, and the shadow inventory of houses at risk of distressed sale, you come up with a massive supply overhang.

Over time, more reasonable prices and an improving economy ought to bring buyers off the sidelines and set the stage for recovery. But high unemployment and anemic wage gains are leaving people worried about their income prospects and cautious about buying homes. Also, the dramatic plunge in home valuations since 2006 has made some first-time homebuyers wary about entering the market because of worries that prices might fall further.
These are key points: Usually housing is a key engine of recovery, but not this time because of the massive supply overhang. And looking forward:
It’s only a matter of time before we work off the inventory overhang and construction picks up. How much time it takes will depend in part on what happens with foreclosed properties. If we begin making progress on working down the foreclosure inventory, then single-family housing starts could plausibly rise from their current level of about 400,000 per year to an average level of perhaps 1.1 million per year in three or four years, according to research at the San Francisco Fed.4 To put this in perspective, such an increase would boost real gross domestic product, or GDP, by at least 1 percent.

4 By contrast, if we can't work down the foreclosure inventory, then a return to normal construction levels could be delayed several more years. See Hedberg and Krainer (2011).
This is why I continue to focus on the excess supply. This is a key number for housing and the U.S. economy. See The “Excess Supply of Housing” War

Kansas City Manufacturing Survey: Manufacturing activity slows in July

by Bill McBride on 7/28/2011 11:00:00 AM

From the Kansas City Fed: Manufacturing Sector Slows After Solid Rebound in June

The Federal Reserve Bank of Kansas City released the July Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing slowed in July after a solid rebound in June, but producers remain generally upbeat about future activity.

“Factory activity in our region grew at a slower pace in July after rebounding solidly in June,” said Wilkerson. “Several firms blamed the slowdown on customers being cautious until the national debt ceiling debate is resolved. However, expectations for orders, hiring and capital spending, later in the year, generally remained as solid as in recent months.”
...
The month-over-month composite index was 3 in July, down from 14 in June but up from 1 in May. ... Most month-over-month indexes fell in July. The production index plunged from 25 to 0, and the shipments, new orders, and order backlog indexes also decreased. The employment index dropped from 17 to 4, and the new orders for exports index posted a negative reading for the first time since mid-2009.
This is the last of the regional Fed surveys for July. The regional surveys provide a hint about the ISM manufacturing index - and the regional surveys were fairly weak again this month, although slightly stronger than in June (in aggregate).

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

The regional surveys were slightly better in July than in June. The ISM index for July will be released Monday, August 1st.

Pending Home Sales increase in June

by Bill McBride on 7/28/2011 10:00:00 AM

From the NAR: Pending Home Sales Rise in June

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, rose 2.4 percent to 90.9 in June from 88.8 in May and is 19.8 percent above the 75.9 reading in June 2010, which was the low point immediately following expiration of the home buyer tax credit. The data reflects contracts but not closings.
...
The PHSI in the Northeast slipped 0.4 percent to 68.9 in June but is 19.4 percent higher than June 2010. In the Midwest the index fell 3.7 percent to 79.7 in June but is 26.4 percent above a year ago. Pending home sales in the South increased 4.4 percent to an index of 99.2 and are 19.1 percent higher than June 2010. In the West the index rose 6.4 percent to 107.0 in June and is 16.4 percent above a year ago.
This was very close to Tom Lawler's forecast of a 2.6% increase. This suggests an increase in reported existing home sales in July and August (depending on the number of cancellations).

Weekly Initial Unemployment Claims decline to 398,000

by Bill McBride on 7/28/2011 08:42:00 AM

The DOL reports:

In the week ending July 23, the advance figure for seasonally adjusted initial claims was 398,000, a decrease of 24,000 from the previous week's revised figure of 422,000. The 4-week moving average was 413,750, a decrease of 8,500 from the previous week's revised average of 422,250.
This is the first week with initial claims below 400,000 since early April.

The following graph shows the 4-week moving average of weekly claims since January 2000 (longer term graph in graph gallery).

Weekly Unemployment Claims Click on graph for larger image in graph gallery.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 413,750.

Wednesday, July 27, 2011

HousingTracker: Homes For Sale inventory down 11.1% Year-over-year in July

by Bill McBride on 7/27/2011 08:29:00 PM

Last month, Tom Lawler posted on how the NAR estimates existing home inventory. The NAR does NOT aggregate data from the local boards (see Tom's post for how the NAR estimates inventory). Sometime this fall, the NAR will revise down their estimates of inventory and sales for the last few years. Also the NAR methodology for estimating sales and inventory will likely (hopefully) be changed.

While we wait for the NAR revisions, I think the HousingTracker / DeptofNumbers data that Tom mentioned might be a better estimate of changes in inventory (and always more timely). Ben at deptofnumbers.com is tracking the aggregate monthly inventory for 54 metro areas.

NAR vs. HousingTracker.net Existing Home InventoryClick on graph for larger image in graph gallery.

This graph shows the NAR estimate of existing home inventory through June (left axis) and the HousingTracker data for the 54 metro areas through July. The HousingTracker data shows a steeper decline in inventory over the last few years (as mentioned above, the NAR will probably revise down their inventory estimates this fall).

Lawler wrote today:

The area covered by DON/HT does not necessarily track the nation as a whole. However, it’s listings have shown significantly larger YOY declines than has the NAR in its estimate of US existing homes for sale. Moreover, when I include areas I track that are not covered by DON/HT, I find that listings in June were down significantly more than the NAR shows. This may indicate that home sales this June were down more from a year ago than the NAR estimates suggest.
HousingTracker.net YoY Home InventoryThe second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the July listings - for the 54 metro areas - declined 11.1% from last year.

Of course there is a large percentage of distressed inventory, and various categories of "shadow inventory" too. But the decline in listed inventory will put less downward pressure on house prices and is something to watch carefully all year.

Here are the posts this month on June Home Sales and Prices:
New Home Sales in June at 312,000 Annual Rate
Existing Home Sales in June: 4.77 million SAAR, 9.5 months of supply
Home Sales: Distressing Gap
• Graph Galleries: New Home Sales and Existing Home Sales

On House Prices:
Case Shiller: Home Prices increase in May
Real House Prices and Price-to-Rent
• Graph Galleries: Home Prices

Rumor: NAR Considering Introducing Repeat Sales Index

by Bill McBride on 7/27/2011 04:51:00 PM

From economist Tom Lawler:

[T]he rumor mill has it that the NAR is considering developing a “repeat transactions” price index, presumably based on property level data from various MLS across the country. NAR analysts have noted that the impact of the “mix of homes” on its median sales price had become even more dramatic over the past few years than was the case in the past, and some apparently have become resigned to the fact that the median is “no longer the message” when in comes to tracking home price trends.
The median price is useful for tracking prices when the mix of homes sold is stable. But the mix hasn't been stable for some time, and now most people follow Case-Shiller, CoreLogic and a few other price indexes.

Fed's Beige Book: "Pace of economic growth has moderated"

by Bill McBride on 7/27/2011 02:00:00 PM

Fed's Beige Book:

Reports from the twelve Federal Reserve Districts indicated that economic activity continued to grow; however, the pace has moderated in many Districts. The six Districts nearest the Atlantic seaboard reported a slowdown in activity since the previous Beige Book report; activity was little changed in the Atlanta District and unchanged or slightly improved in the Richmond District. Of the other six Districts, the Minneapolis District reported political and weather-related disruptions that temporarily slowed growth, and the Dallas District slowed to a moderate pace of growth. The remaining four Districts continued to grow modestly.
...
Consumer spending increased overall, with modest growth of nonauto retail sales in a majority of Districts. Falling gasoline prices throughout most of this reporting period may have encouraged a pickup in shopping trips and some additional spending since the previous Beige Book.
...
Manufacturing activity was reported as continuing to increase since the last report in all but two districts, although many noted that the pace of growth had slowed.
...
Labor market conditions remained soft in most Federal Reserve Districts. Employment, especially among temporary hiring agencies, improved in the Richmond District in recent weeks. Modest hiring increases, often within specific sectors such as advertising in the Boston District and manufacturing in the Cleveland District, contributed to modest overall employment gains.
And on real estate:
Residential real estate sales in almost all Districts were little changed from the last Beige Book. Activity edged up in the Richmond, Atlanta, and Minneapolis Districts. ... Increasing inventories of unsold homes in the Boston, New York, and Kansas City Districts have restrained building in the single-family housing sector. ... Since the previous Beige Book, construction and activity in the residential rental market have continued to improve in the New York, Chicago, Dallas, and San Francisco Districts.
...
Nonresidential real estate activity improved somewhat in the Boston, Philadelphia, Cleveland, Chicago, St. Louis, and Dallas Districts. The Chicago District reported strong demand for industrial facilities, particularly from the automotive sector. The Philadelphia District reported improvements in terms of lower vacancy rates for office space, industrial space, and apartments; the Chicago District reported generally lower vacancy rates. The New York, Richmond, Atlanta, Minneapolis, Kansas City, and San Francisco Districts all reported generally weak activity in nonresidential real estate.
This was based on data gathered before July 15th, and I've heard reports of further slowing since the middle of the month.

Europe Update

by Bill McBride on 7/27/2011 11:06:00 AM

It looks like they're going to need a bigger bailout ...

From Reuters: Italian banks fall as Italy/Bund spread widens

The Italian BTP spread over German Bunds expanded by 15 basis points to 305 basis points early on Wednesday. The BTP/Bund yield gap was at around 290 basis points late on Tuesday
Here is a graph of the 10 year spread (Italy to Germany) from Bloomberg. This is probably the key graph to watch right now.

And from CNBC: S&P Expects Second Greek Haircut, New Downgrade
A new and bigger restructuring of Greek debt is likely within the next two years, an official from credit ratings agency Standard & Poor's said on Tuesday, adding a further downgrade of Greece's sovereign debt rating was "pretty certain."
Here are the links for bond yields for several countries (source: Bloomberg):

Greece2 Year5 Year10 Year
Portugal2 Year5 Year10 Year
Ireland2 Year5 Year10 Year
Spain2 Year5 Year10 Year
Italy2 Year5 Year10 Year
Belgium2 Year5 Year10 Year
France2 Year5 Year10 Year
Germany2 Year5 Year10 Year

MBA: Mortgage Purchase Application Index Lowest Since February

by Bill McBride on 7/27/2011 07:47:00 AM

The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 5.5 percent from the previous week. The seasonally adjusted Purchase Index decreased 3.8 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages increased to 4.57 percent from 4.54 percent, with points increasing to 1.14 from 0.98 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
The following graph shows the MBA Purchase Index and four week moving average since 1990.

MBA Purchase Index Click on graph for larger image in graph gallery.

The four week average of the purchase index is at best moving sideways at about 1997 levels.

Of course this doesn't include the large number of cash buyers ... but this suggests purchase activity remains fairly weak.

Mortgage Servicer Settlement Update

by Bill McBride on 7/27/2011 01:44:00 AM

Not many details, but this story suggests the banks are now fighting with each other.

From the WSJ: Banks Spar Over Loan Settlement

U.S. banks trying to negotiate a settlement over the home-foreclosure mess have hit a new hurdle: They are squabbling over how to split the tab.
...
All sides have agreed to a framework that would govern how banks meet their obligations once a deal is reached. Those include principal reductions on certain mortgages, forgiveness of second-lien loans, restitution to borrowers and dealing with foreclosure-related blight.
...
Citigroup is pushing to keep its part of any settlement at about $1 billion ... Wells Fargo ... is discussing a range of $4 billion to $5 billion.
It isn't clear what this means - and what will be included as part of the settlement.

On June Home Sales:
New Home Sales in June at 312,000 Annual Rate
Existing Home Sales in June: 4.77 million SAAR, 9.5 months of supply
Home Sales: Distressing Gap
• Graph Galleries: New Home Sales and Existing Home Sales

On House Prices:
Case Shiller: Home Prices increase in May
Real House Prices and Price-to-Rent
• Graph Galleries: Home Prices

Tuesday, July 26, 2011

ATA Trucking index increased 2.8% in June

by Bill McBride on 7/26/2011 07:20:00 PM

From ATA Trucking: ATA Truck Tonnage Index Jumped 2.8% in June

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 2.8% in June after decreasing a revised 2.0% in May 2011. May’s drop was slightly less than the 2.3% ATA reported on June 27, 2011. The latest gain put the SA index at 115.8 (2000=100) in June, up from the May level of 112.6 and the highest since January 2011.
...
Compared with June 2010, SA tonnage jumped 6.8%, the largest year-over-year gain since January 2011. In May, the tonnage index was 3% above a year earlier.

“Motor carriers told us that freight was strong in June and that played out in the data as well,” ATA Chief Economist Bob Costello said. Tonnage recovered all of the losses in April and May when the index contracted a total of 2.6%.
Pulse of Commerce Index Click on graph for larger image in graph gallery.

Here is a long term graph that shows ATA's Fore-Hire Truck Tonnage index.

The dashed line is the current level of the index. From ATA:
Trucking serves as a barometer of the U.S. economy, representing 67.2% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9 billion tons of freight in 2010. Motor carriers collected $563.4 billion, or 81.2% of total revenue earned by all transport modes.
Unfortunately July will probably be weak based on some comments from UPS, from the WSJ:
United Parcel Service Inc., explaining its expectation of flat U.S. package volume in the third quarter, is citing the stalemate over the debt ceiling as a factor.

In a post-earnings conference call with analysts Tuesday, UPS Chief Executive Scott Davis said the economy had become extremely uncertain and that "economic growth expectations have slowed."

He blamed the ongoing political debate over whether to raise the U.S. debt ceiling, among other factors, for contributing to the uncertainty.

"Consumer confidence is down because of it," he said.

He described his outlook on the upcoming peak fall shipping season as "cautious" so far, saying early indications don't show much of a buildup.