Monday, October 31, 2011

Gasoline Price Update

by Bill McBride on 10/31/2011 10:27:00 PM

The graph below shows gasoline prices have been slowly moving down since peaking in early May.

Unfortunately, according to Bloomberg, Brent Crude is up to $109.12 per barrel, and WTI is up to $92.83.

According to the EIA, WTI is up from $79 per barrel at the end of September, and Brent is up from $105. It appears the gap between WTI and Brent is closing.

Note: This graph show oil prices for WTI; gasoline prices in most of the U.S. are impacted more by Brent prices.




Orange County Historical Gas Price Charts Provided by GasBuddy.com

Europe: Greece to Hold Referendum on Debt Deal in December or January

by Bill McBride on 10/31/2011 06:14:00 PM

This was announced earlier today, but this story has the timing. From the NY Times: Greece to Hold Referendum on New Debt Deal

Prime Minister George Papandreou announced Monday night that his Socialist government would hold a rare national referendum on a new debt agreement for Greece ... Mr. Papandreou said that the decision on whether to adopt the deal, which includes fresh financial assistance for the country but also imposes unpopular austerity measures, belonged to the Greek people. “Let us allow the people to have the last word, let them decide on the country’s fate,” he said ... Government sources said that the confidence vote was expected by the end of the week, with the referendum much later, in December or even January.
So there will be a vote of confidence by the end of this week, and then a general referendum later.

The Greek 2 year yield is down to 77.7%. The Greek 1 year yield is down to 158%.

The Portuguese 2 year yield is up to 18.3% and the Irish 2 year yield is up to 8.8%.

The Spanish 10 year yield is at 5.54% and the Italian 10 year yield is up to 6.1%.

The Belgian 10 year yield is at 4.4% and the French 10 year yield is down to 3.1%.

Fannie Mae and Freddie Mac Serious Delinquency Rates mixed in September

by Bill McBride on 10/31/2011 04:14:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined to 4.00% in September. This is down from 4.03% in August, and down from 4.56% in September 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 increased to 3.51% in September, up from 3.49% in August. This is down from 3.80% in September 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.

Tracking this on a monthly basis this is kind of like watching paint dry, but the serious delinquency rates are generally falling - but only falling slowly. The key is the normal serious delinquency rate is under 1%, and at this pace of decline, the delinquency rate will not be back to "normal" for a number of years.

Restaurant Performance Index increased in September

by Bill McBride on 10/31/2011 12:45:00 PM

From the National Restaurant Association: Restaurant Performance Index Rose Above 100 in September, as Sales and Traffic Levels Improved

Buoyed by stronger same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) topped the 100 mark in September for the first time in three months. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.1 in September, up 0.7 percent from August and its highest level since June. In addition, September represented the first time in three months that the RPI stood above 100, the level above which signifies expansion in the index of key industry indicators.

“The September increase in the Restaurant Performance Index was fueled by improvements in the same-store sales and customer traffic indicators,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Among the forward-looking indicators, restaurant operators are more optimistic about sales growth in the months ahead, while their outlook for the overall economy remains cloudy.”
...
Restaurant operators reported stronger same-store sales in September. ... Restaurant operators also bounced back from a sluggish August performance to report net positive customer traffic levels in September.
Restaurant Performance Index Click on graph for larger image.

The index increased to 100.1 in September (abpve 100 indicates expansion).

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

Last month I wrote: "August was an especially weak economic month following the debt ceiling debate, and it will be interesting to see if these indicators show some rebound in September and October." This is a small rebound, but this suggests the recent dip might have been partially due to the default threat.

Dallas Fed Manufacturing Survey shows sluggish expansion

by Bill McBride on 10/31/2011 10:30:00 AM

This is the last of the regional Fed surveys for October. The regional surveys provide a hint about the ISM manufacturing index - and the regional surveys were mixed and still weak in October, but improved from August and September.

Dallas Fed: Texas Manufacturing Activity Expands

Texas factory activity increased in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained positive but edged down from 5.9 to 4.1, suggesting growth slowed slightly.

Other measures of current manufacturing conditions also indicated growth in October, and the pace of new orders increased. The shipments index fell from 9.4 to 2.7, suggesting shipment volumes continued to increase but at a slower pace. The capacity utilization index moved back into positive territory after being negative for two months. The new orders index suggested a pickup in demand, moving from 3.6 to 8.3. ...

Perceptions of general business conditions improved in October. The general business activity index jumped up from -14.4 to 2.3, its first positive reading in six months. The company outlook index also rose markedly, bouncing back to a reading of 7.2 after coming in near zero in September.

Labor market indicators reflected higher labor demand growth. The employment index came in at 15.1, up slightly from 13.4 in September.
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

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

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

The ISM index for October will be released Tuesday, Nov 1st and this suggests another fairly weak reading in October. The consensus is for a slight increase to 52.0 from 51.6 in September.

Chicago PMI at 58.4, down from 60.4 in September

by Bill McBride on 10/31/2011 09:45:00 AM

From the Chicago ISM Chicago Business Barometer™ Stabilized:

The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER stabilized in October. The Business Barometer marked a 25th month of expansion, yet the 3 month moving average for the barometer fell for the 7th consecutive month. Monthly changes in the individual Business Activity components were generally modest with all but one component converging towards their 3 month moving averages.
The overall index decreased to 58.4 from 60.4 in September. This was close to consensus expectations of 58.0.

Note: any number above 50 shows expansion.

The employment index increased to 62.3 from 60.6. "EMPLOYMENT highest in 6-months"

The new orders index decreased to 61.3 from 65.3. "NEW ORDERS erased half of September's gain"

Weekend:
Summary for Week ending Oct 28th
Schedule for Week of Oct 30th
FOMC Meeting Preview

Mario Draghi takes over at ECB tomorrow, FT Cartoon

by Bill McBride on 10/31/2011 08:51:00 AM

A cartoon from the FT Alphaville: E*C*B

[This] appears on page 8 of the FT’s UK print edition. It’s like one of them Renaissance allegory paintings ... Interpretations welcome.

I'm not sure about the meaning, but I liked the play on M*A*S*H.

Maybe this has something to do with Mario Draghi taking over at the ECB tomorrow. Although the ECB will obviously cut rates soon (they were caught going the wrong direction), it seems that Draghi's hands are mostly tied as far as QE.

Sunday, October 30, 2011

Sunday Night Futures: Japan Intervenes in foreign-exchange

by Bill McBride on 10/30/2011 10:14:00 PM

From the WSJ: Japan Intervenes on Yen

[T]he Japanese government launched a new foreign-exchange intervention on Monday, Finance Minister Jun Azumi said ... The intervention came after the dollar fell to a post-World War II record low of ¥75.31 in early Asian trading.
The Asian markets are mixed tonight. The Nikkei is up 0.75%, the Hang Seng is down slightly.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 is down about 5 points, and Dow futures are down about 40 points.

Oil: WTI futures are down slightly to $93.07 and Brent is down to $109.35 per barrel.

Weekend:
Summary for Week ending Oct 28th
Schedule for Week of Oct 30th
FOMC Meeting Preview

Recovery Measures

by Bill McBride on 10/30/2011 05:33:00 PM

By request, here is an update to four key indicators used by the NBER for business cycle dating: GDP, Employment, Industrial production and real personal income less transfer payments.

Note: The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

These graphs show that most major indicators are still way below the pre-recession peaks.

GDP Percent Previous PeakClick on graph for larger image.

This graph is for real GDP through Q3 2011 and shows real GDP is finally back to the pre-recession peak. Gross Domestic Income (not shown) returned to the pre-recession peak in Q2 - GDI for Q3 will be released with the 2nd estimate of GDP. (For a discussion of GDI, see here).

At the worst point, real GDP was off 5.1% from the 2007 peak. Real GDI was off 5.7% at the trough.

Personal Income less TransferAnd real GDP has performed better than other indicators ...

This graph shows real personal income less transfer payments as a percent of the previous peak through September.

This measure was off almost 11% at the trough!

Real personal income less transfer payments is still 5.3% below the previous peak and has declined over the last three months.

Industrial Production This graph is for industrial production through September.

Industrial production had been one of the stronger performing sectors because of inventory restocking and some growth in exports.

However industrial production is still 6.5% below the pre-recession peak, and it will probably be some time before industrial production returns to pre-recession levels.

Employment The final graph is for employment. This is similar to the graph I post every month comparing percent payroll jobs lost in several recessions.

Payroll employment is still 4.8% below the pre-recession peak.

This shows that the recovery in all indicators has been very sluggish compared to recent recessions.

Yesterday:
Summary for Week ending Oct 28th
Schedule for Week of Oct 30th

FOMC Meeting Preview

by Bill McBride on 10/30/2011 01:55:00 PM

There will be a two day meeting of the Federal Open Market Committee (FOMC) this coming Tuesday and Wednesday. I expect no changes to the Fed Funds rate, or to the recently announced program to "extend the average maturity of its holdings of securities" (scheduled to end in June 2012), or to the program to "reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities".

The FOMC statement will be released at 12:30PM and Fed Chairman Ben Bernanke will hold a quarterly press briefing at 2:15 PM ET.

A couple of things to look for:

1) Fed Chairman Press Briefing. This is the third of the new press briefings. At the press briefing, Chairman Bernanke will discuss the new FOMC forecasts (these forecasts used to be released a few weeks after the FOMC meeting with the minutes). Growth forecasts have surely been revised down since June, the unemployment rate revised up, and inflation forecasts have been revised up.

Mr. Bernanke will probably also discuss some other policy options. I expect he will be asked about the possibility of a large scale MBS purchase program (as recently discussed by Fed Vice Chairman Janet Yellen, NY Fed President William Dudley, and Fed Governor Daniel Tarullo).

Here are the updated forecasts through June. The FOMC GDP forecasts for 2011 have been revised down all year, and will probably be revised down to the 1.5% to 2.0% range. The forecast for 2012 will probably be revised down again too.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1201120122013
Jan 2011 Projections3.4 to 3.93.5 to 4.43.7 to 4.6
April 2011 Projections3.1 to 3.33.5 to 4.23.5 to 4.3
June 2011 Projections2.7 to 2.93.3 to 3.73.5 to 4.2
November 2011 Projections?????????
1 Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was revised down in April, but was revised back up in June. This will probably be revised up to around 9.0% to 9.2% in the November forecast. The forecasts for the unemployment rate in 2012 and 2013 will also be key. In June, the FOMC expected the unemployment rate to be in the 7.0% to 7.5% in Q4 2013 (still high), and this forecast will probably be revised up again.

Note: The first forecast for 2014 will be included too.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2201120122013
Jan 2011 Projections8.8 to 9.07.6 to 8.16.8 to 7.2
April 2011 Projections8.4 to 8.77.6 to 7.96.8 to 7.2
June 2011 Projections8.6 to 8.97.8 to 8.27.0 to 7.5
November 2011 Projections?????????
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

The forecasts for overall and core inflation have been revised up all year and will probably be revised up again in November (PCE inflation will probably be revised up close to 3% and core PCE inflation close to 2%).

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1201120122013
Jan 2011 Projections1.3 to 1.71.0 to 1.91.2 to 2.0
April 2011 Projections2.1 to 2.81.2 to 2.01.4 to 2.0
June 2011 Projections2.3 to 2.51.5 to 2.01.5 to 2.0
November 2011 Projections?????????

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1201120122013
Jan 2011 Projections1.0 to 1.31.0 to 1.51.2 to 2.0
April 2011 Projections1.3 to 1.61.3 to 1.81.4 to 2.0
June 2011 Projections1.5 to 1.81.4 to 2.01.4 to 2.0
November 2011 Projections?????????


2) Possible Statement Changes. The incoming data has been marginally better since the September meeting, so we might see some wording changes. I don't expect the key sentence "The Committee ... currently anticipates that economic conditions ... are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013" to be changed any time soon.

There will probably be some changes to the first paragraph to mention the recent improvement in economic data. I expect the phrase "Household spending has been increasing at only a modest pace" to be upgraded a little.

In the second paragraph, the sentence "there are significant downside risks to the economic outlook, including strains in global financial markets" might also be upgraded a little. There might be some other minor upgrades, but overall the statement will probably be pretty similar to the September statement.

I expect the focus will be on the press briefing and the FOMC forecasts.

Yesterday:
Summary for Week ending Oct 28th
Schedule for Week of Oct 30th

Visible Existing Home Inventory continues to decline year-over-year in October

by Bill McBride on 10/30/2011 09:27:00 AM

I've been using inventory numbers from HousingTracker / DeptofNumbers to track changes in inventory. Tom Lawler mentioned this back in June (Tom also discussed how the NAR estimates existing home inventory - they don't aggregate data from local boards!)

• In a few months, the NAR is expect to release revisions for their existing home sales and inventory numbers for the last few years. The sales revisions will be down (the NAR has pre-announced this), and the inventory is expected to be revised down too.

• Using the deptofnumbers.com for monthly inventory (54 metro areas), it appears inventory will be back to late 2005 / early 2006 levels this month. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

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

This graph shows the NAR estimate of existing home inventory through September (left axis) and the HousingTracker data for the 54 metro areas through October. 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 in a few months).

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 October listings - for the 54 metro areas - declined 16.4% from last year. Inventory was down 16.7% year-over-year in September.

This is just "visible inventory" (inventory listed for sales). There is a large percentage of distressed inventory, and various categories of "shadow inventory" too.

Yesterday:
Summary for Week ending Oct 28th
Schedule for Week of Oct 30th

Saturday, October 29, 2011

Unofficial Problem Bank list increases to 985 Institutions

by Bill McBride on 10/29/2011 09:23:00 PM

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

Here is the unofficial problem bank list for Oct 28, 2011. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

The OCC finally released some information on its actions since September 23rd. This week, also, the FDIC released its actions through September. These releases contributed to many changes to the Unofficial Problem Bank List. In all, there were seven removals and 16 additions, which leaves the list with 985 institutions with assets of $406.6 billion. A year-ago, the list had 894 institutions with assets of $410.7 billion. For the month, there were 18 additions and 19 removals with 11 from failure, seven from action termination, and one unassisted merger. It was the fourth consecutive month for the list to have fewer institutions since its month-end peak of 1,001 in June, but the serial monthly decline was only a single institution.

Among the seven removals this week is the failed All American Bank, Des Plaines, IL ($38 million). Other removals were from action termination including Marathon National Bank of New York, Astoria, NY ($818 million); West Pointe Bank, Oshkosh, WI ($371 million); Ojai Community Bank, Ojai, CA ($125 million Ticker: OJCB); Parkway Bank, Rogers, AR ($116 million); Regal Financial Bank, Seattle, WA ($101 million); and First National Bank and Trust, Barron, WI ($44 million).

Among the 16 additions are United Central Bank, Garland, TX ($2.6 billion); Falcon International Bank, Laredo, TX ($841 million); Valley Community Bank, Pleasanton, CA ($196 million Ticker: VCBC); and Americas United Bank, Glendale, CA ($106 million Ticker: AUNB). It looks like the OCC issued its first formal action against a thrift on September 15 to Stephens Federal Bank, Toccoa, GA ($196 million).

Other changes include the FDIC issuing Prompt Corrective Action orders against Fidelity Bank, Dearborn, MI ($867 million Ticker: DEAR); and Heartland Bank, Leawood, KS ($129 million Ticker: MBR).
Earlier:
Summary for Week ending Oct 28th
Schedule for Week of Oct 30th

Lawler to Census on Housing Data: "Splainin" Needed Not Just on Vacancy Rate

by Bill McBride on 10/29/2011 04:31:00 PM

This is a very long article from economist Tom Lawler. The introduction is below. Here is the entire article in word format (typos and all).

In looking at the “disparities” between recent Census 2010 housing data and other Census “housing” reports, many folks have focused the most on differences in the Census 2010 vacancy rates and the Housing Vacancy Survey vacancy rates, and the possible implications of these disparities on measuring the “excess” supply of housing. Indeed, Census officials, reacting to numerous stories on this issue (thank CR for this), agreed that they had “some splainin’” to do, and said that they are “actively investigating” the differences in Census 2010, ACS 2010, and HVS 2010 vacant housing unit estimates, and plan to report the results of this research at the 2012 Federal Committee on Statistical Methodological Research Conference this coming January.

In looking at the advance program for that conference, the session devoted to this topic is labeled “Evaluation of Gross Vacancy Rates from the Decennial Census Versus Current Surveys.”

Census officials have been “mum,” however, about other “honkingly big” differences between Census 2010 and both the CPS/HVS and the CPS/ASEC, including big differences in household growth by age group, and sizable differences in homeownership rates by age group. There has also been no discussion about the growth in the housing stock as measured by Census 2010 and Census 2000 compared to other Census estimates of total housing production, and how the apparent “net loss” in the housing stock related to various factors (demolitions, disasters, conversions, etc.) last decade was MASSIVELY lower than that implied by the biennial “Component of Inventory Change” (CINCH) report using American Housing Survey Data (all aspects of which are inconsistent both with decennial Census data and ACS data).

Officials have also not said much if anything about how some of these disparities are not new, but in fact have been evident as far back as at least 2000. Stated another way, the “measurement” issues are not just a “point in time,” issue, but there are time series issues as well, which make macroeconomic “analysis” of the housing market [difficult].

CR comment: The entire article is here and a must read for anyone using Census data to analyze the housing market. Hopefully we will have better data to work with in the future!

Earlier:
Summary for Week ending Oct 28th
Schedule for Week of Oct 30th

Schedule for Week of Oct 30th

by Bill McBride on 10/29/2011 12:49:00 PM

Earlier:
Summary for Week ending Oct 28th

The key report this week will be the employment situation report for October on Friday. Also the FOMC statement and Fed Chairman Ben Bernanke's press briefing on Wednesday, will be closely watched.

Other key reports include the October ISM manufacturing index on Tuesday, auto sales also on Tuesday, and the ISM non-manufacturing index on Thursday.

----- Monday, Oct 31st -----

9:45 AM: Chicago Purchasing Managers Index for October. The consensus is for a decrease to 58.0, down from the strong 60.4 in September.

10:30 AM: Dallas Fed Manufacturing Survey for October. The consensus is for contraction of -5.0 from expansion of 5.9 in September. This is the last of the regional Fed manufacturing surveys for October, and the results have been mixed - but generally better than for September.

----- Tuesday, Nov 1st -----

10:00 AM: Construction Spending for September. The consensus is for a 0.3% increase in construction spending.

10:00 AM ET: ISM Manufacturing Index for October. The consensus is for a slight increase to 52.0 from 51.6 in September.

All day: Light vehicle sales for October. Light vehicle sales are expected to increase to 13.2 million (Seasonally Adjusted Annual Rate), from 13.1 million in September.

Vehicle SalesThis graph shows the Edmunds.com September estimate for light vehicle sales of 13.4 million SAAR.

Edmunds is forecasting 13.4 million:
An estimated 1,033,257 new cars will be sold in October, for a projected Seasonally Adjusted Annual Rate (SAAR) of 13.4 million units, forecasts Edmunds.com ... This sales pace would mark the highest monthly SAAR since August 2009, when sales were inflated by the Cash for Clunkers program.
----- Wednesday, Nov 2nd -----

7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been especially weak since early August, although this doesn't include cash buyers.

8:15 AM: The ADP Employment Report for October. This report is for private payrolls only (no government). The consensus is for 100,000 payroll jobs added in October, up from the 91,000 reported in September.

10:00 AM: Q3 Housing Vacancies and Homeownership report from the Census Bureau. As a reminder: Be careful with the Housing Vacancies and Homeownership report. This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates. Unfortunately the report is based on a fairly small sample, and does not track the decennial Census data.

12:30PM: FOMC Meeting Announcement. No changes are expected to interest rates. The Fed will release its quarterly economic forecasts prior to the press briefing. The Fed growth forecasts are expected to be revised down once again. I'll post a preview on Sunday.

2:15 PM: Fed Chairman Ben Bernanke holds a press briefing following FOMC announcement.

----- Thursday, Nov 3rd -----

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a slight decrease to 400,000 from 402,000 last week. The 4-week average has declined recently, but is still above 400,000.

10:00 AM ET: Manufacturers' Shipments, Inventories and Orders for September. The consensus is for a 0.2% decrease in orders.

10:00 AM: ISM non-Manufacturing Index for October. The consensus is for a no change at 53.0 in October, the same as in September. Note: Above 50 indicates expansion, below 50 contraction.

----- Friday, Nov 4th -----

8:30 AM: Employment Report for October.

Payroll Jobs per Month The consensus is for an increase of 90,000 non-farm payroll jobs in October, down from the 103,000 jobs added in September. However the September report was boosted by returning Verizon workers - excluding those workers, this would be an improvement over September, but still a very weak jobs report.

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

The consensus is for the unemployment rate to remain at 9.1% in October.

This second employment graph shows the percentage of payroll jobs lost during post WWII recessions through September.

Through the first nine months of 2011, the economy has added 1.074 million total non-farm jobs or just 119 thousand per month. This is a better pace of payroll job creation than last year, but the economy still has 6.6 million fewer payroll jobs than at the beginning of the 2007 recession. The economy has added 1.341 million private sector jobs this year, or about 149 thousand per month.

There are a total of 13.992 million Americans unemployed and 6.24 million have been unemployed for more than 6 months. Very grim.

Summary for Week ending Oct 28th

by Bill McBride on 10/29/2011 07:58:00 AM

Note: The graphs have been changed. If you click on a graph, a larger image will appear with thumbnails of all the graphs in the post below the larger image. This is very fast and does not use scripting like the previous graph gallery. To close the window, just click on the “X” in the upper right. For RSS readers, just the large image will appear. There are new graph galleries (very fast) that group graphs by topic (I’ll add all the previous galleries soon).

The key story of the week was the European agreement including 1) “develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors”, 2) “to leverage the resources of the EFSF”, and 3) an “agreement … by the members of the European Council on bank recapitalisation and funding”. Here is the Euro Summit Statement. This is short on details, and without ECB support, mostly just “kicks the can” down the road a few more months.

Another key story was the updated HARP refinance program. Here is the statement from the FHFA: FHFA, Fannie Mae and Freddie Mac Announce HARP Changes to Reach More Borrowers. I wrote two short posts about this last week: A few comments on the HARP Refinance Program changes and More on HARP and Housing. I think this will be helpful and reach more borrowers.

I expect more housing related policy announcements within the next month or two, including the mortgage settlement with lenders are servicers, and a pilot program for Fannie/Freddie/FHA REO disposition.

The U.S. economic data was mixed, but seemed to indicate a little improvement. GDP growth was reported at 2.5% in Q3 (real, annualized). That was an improvement from the first half of the year, but still very sluggish.

New home sales were up slightly to a still very low 313 thousand in September. House prices indexes were mixed with Case-Shiller showing a small seasonal increase in prices – although the prices index will start showing declines soon and will probably fall to new post-bubble lows during the winter months.

Two regional manufacturing surveys were released - the Richmond Fed survey showed further contraction, but the Kansas City survey showed slightly faster expansion.

Next week will be very busy including the employment report and the FOMC meeting. I'll have some preview posts tomorrow (and later in the week for employment).

Here is a summary in graphs:

Advance Estimate: Real Annualized GDP Grew at 2.5% in Q3

Click on graph for larger image.

This 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 2.5% annualized was below trend growth (around 3%) - and very weak for a recovery, especially with all the slack in the system.

• Real personal consumption expenditures increased 2.4 percent in the second quarter, compared with an increase of 0.7 percent in the second.

• Change in private inventories subtracted 1.08 percentage point.

According to the BEA, real GDP is finally just above the pre-recession peak. The estimate for real GDP in Q3 (2005 dollars) was $13,352.8 billion, 0.2% above the $13,326.0 billion in Q4 2007. Nominal GDP was reported as $15,198.6 billion in Q3 2011.

GDP Percent Previous PeakThis 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. Now real GDP through Q3 2011 and shows real GDP is back to the the 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 for Q3. GDI was back to the pre-recession peak in Q2.

Investment ContributionsThis 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.Residential Investment (RI) made a positive contribution to GDP in Q3 2011, and the four quarter rolling average finally turned positive in Q3.

Equipment and software investment has made a significant positive contribution to GDP for nine straight quarters (it is coincident). The contribution from nonresidential investment in structures was positive in Q3.

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.

New Home Sales increase in September to 313,000

The Census Bureau reports New Home Sales in September were at a seasonally adjusted annual rate (SAAR) of 313 thousand. This was up from a revised 296 thousand in August (revised up from 295 thousand).

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


The second graph shows New Home Months of Supply.

Months of supply decreased to 6.2 in September. The all time record was 12.1 months of supply in January 2009. This is still slightly higher than normal (less than 6 months supply is normal).

On inventory, 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.

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

The inventory of completed homes for sale was at 61,000 units in September. The combined total of completed and under construction is at the lowest level since this series started.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In September 2011 (red column), 25 thousand new homes were sold (NSA). This ties the record low for September set in 2010. The high for September was 99 thousand in 2005.

This was above the consensus forecast of 300 thousand, and was tied the record low for the month of September set last year (NSA). New home sales have averaged only 300 thousand SAAR over the 17 months since the expiration of the tax credit ... mostly moving sideways at a very low level (with a little upward slope recently).

Case Shiller: Home Prices increased Seasonally in August

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

Case-Shiller House Prices IndicesThis 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 32.2% from the peak, and down 0.2% in August (SA). The Composite 10 is 1.0% above the June 2009 post-bubble bottom (Seasonally adjusted).

The Composite 20 index is off 32.0% from the peak, and down 0.1% in August (SA). The Composite 20 is slightly above the March 2011 post-bubble bottom seasonally adjusted.

The Composite 10 SA is down 3.6% compared to August 2010. The Composite 20 SA is down 3.9% compared to August 2010. This is slightly smaller year-over-year decline than in July.

Case-Shiller Price Declines This graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices. Prices increased (SA) in 6 of the 20 Case-Shiller cities in August seasonally adjusted. Prices in Las Vegas are off 59.8% from the peak, and prices in Dallas only off 9.0% from the peak.

As S&P noted, prices increased in 10 of 20 cities not seasonally adjusted (NSA). However seasonally adjusted, prices only increased in 6 cities.

Real House Prices and House 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).

Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices are back to 1999/2000 levels, and the price-to-rent ratio is also back to 2000 levels.

Nominal House PricesThis graph shows the quarterly Case-Shiller National Index SA (through Q2 2011), and the monthly Case-Shiller Composite 20 SA (through August) and CoreLogic House Price Indexes (through August) in nominal terms (as reported).

In nominal terms, the Case-Shiller National index is back to Q4 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to June 2003 levels, and the CoreLogic index is back to July 2003.

Real House PricesThe next graph shows the same three indexes 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 Q3 1999 levels, the Composite 20 index is back to July 2000, and the CoreLogic index back to June 2000.

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

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

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

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 August 2000 levels, and the CoreLogic index is back to July 2000.

In real terms - and as a price-to-rent ratio - prices are mostly back to 2000 levels (nationally) and will probably be back to 1999 levels in the next few months.

Personal Income increased 0.1% in September, Spending increased 0.6%

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

PCE increased 0.6 in August, and real PCE increased 0.5%.

Note: The PCE price index, excluding food and energy, decreased 0.2 percent.

The personal saving rate was at 3.6% in Setpember.

Personal Saving rateThis graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the September Personal Income report.

Spending is growing faster than incomes - and the saving rate has been declining. That can't continue for long ...

Consumer Sentiment increased in October, still very weak

Consumer SentimentThe final October Reuters / University of Michigan consumer sentiment index increased to 60.9, up from the preliminary October reading of 57.5, and up from 59.4 in September.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices. In August, sentiment was probably negatively impacted by the debt ceiling debate.

This was still very weak, but above the consensus forecast of 58.0.

NMHC Apartment Survey: Market Conditions Tighten Slightly in Recent Survey

From the National Multi Housing Council (NMHC): Development Ramps Up as Demand Swells Finds NMHC Quarterly Survey

Apartment Tightness IndexThis graph shows the quarterly Apartment Tightness Index.

The index has indicated tighter market conditions for the last seven quarters and although down from the record 90 earlier this year, this still suggests falling vacancy rates and or rising rents.

This fits with the recent Reis data showing apartment vacancy rates fell in Q3 2011 to 5.6%, down from 6.0% in Q2 2011, and 9.0% at the end of 2009. Based on this index, I expect the declines in vacancy rates to slow.

New multi-family construction is one of the few bright spots for the U.S. economy and this survey indicates demand for apartments is still strong.

ATA Trucking Index increased 1.6% in September

Pulse of Commerce Index From ATA: ATA Truck Tonnage Index Increased 1.6% in September

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

The dashed line is the current level of the index.

Sluggish growth after stalling earlier this year ...

Other Economic Stories ...
• Chicago Fed: Economic activity improved in September
• From NY Fed President William Dudley: The National and Regional Economic Outlook
DOT: Vehicle Miles Driven decreased 1.7% in August compared to August 2010
A few comments on the HARP Refinance Program changes
Moody's: Commercial Real Estate Prices increased 2.4% in August
• Richmond Fed: Manufacturing Contraction Persists in October; Employment Turns Negative
• From the Kansas City Fed: Growth in Manufacturing Activity Edged Higher

Friday, October 28, 2011

Friday Evening Reading on Europe

by Bill McBride on 10/28/2011 09:47:00 PM

From the Financial Times: Italy gives EU a post-party hangover

Italy was forced to pay a record 6.06 per cent at an auction of its benchmark 10-year bonds, up from 5.86 per cent a month ago, despite intervention by the European Central Bank on the open market.
excerpt with permission
From the NY Times: Hitches Signal Further Difficulties for Euro Zone
Elsewhere in the troubled euro zone, a big loss by an Austrian bank served as a reminder of the fragility of financial institutions, while a German supreme court decision scrambled efforts to speed up political decision making. In the meantime, the head of Europe’s bailout fund turned to China to invest in the fund.
From the NY Times: China Is Asked for Investment in Euro Rescue
China is expected to demand significant concessions, including financial guarantees and limits on what Beijing sees as discriminatory trade policies, in exchange for any investment in Europe’s emergency stability fund.
From the NY Times: Greeks Direct Anger at Germany and European Union
Beyond populist talk, which ranges from euro-skepticism to anti-German demagoguery, experts say the concessions that Greece has made in exchange for the foreign aid it needs to stave off default — including allowing European Union officials to monitor Greek state affairs closely — are unprecedented for a member nation, making Greece a bellwether for the future of European integration.
From Kash Mansori at Street Light: Worrying Signs
I am not impressed by the direction in which things have been heading in Europe this week. My sense is that, like me, many financial market participants have been suffering from so much 'crisis exhaustion' that they were willing to give this week's rescue package the benefit of the doubt and believe that it was in fact sufficient to permanently put things on a stable footing. Everyone wants this crisis to be over. But the inadequacies of the plan are real, and will only become more apparent over time. I hate to say it, but I fear that we haven't reached the final fix yet.
And a great cartoon from Paul Krugman: Here We Go Again

Bank Failure #85: All American Bank, Des Plaines, Illinois

by Bill McBride on 10/28/2011 07:17:00 PM

All American
International savior.
Done the Chi-Town way.

by Soylent Green is People

From the FDIC: International Bank of Chicago, Chicago, Illinois, Assumes All of the Deposits of All American Bank, Des Plaines, Illinois
As of June 30, 2011, All American Bank had approximately $37.8 million in total assets and $33.4 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $6.5 million. ... All American Bank is the 85th FDIC-insured institution to fail in the nation this year, and the ninth in Illinois.
Pretty sad when the All American Bank fails ... oh well, it is Friday!

Report: Mortgage Settlement deal could be reached within a month

by Bill McBride on 10/28/2011 03:55:00 PM

From Reuters: Analysis: Mortgage probe may open new path for housing relief

Settlement talks continue with the banks, state attorneys general and some federal agencies over foreclosure shortcuts and other abuses. A deal could be struck within a month, according to people familiar with the matter.
...
Five major banks could be required to commit roughly $15 billion to reduce principal balances for struggling homeowners and modify loans in other ways under a proposed deal to settle allegations linked to the "robo-signing" scandal.

That amount would be part of broader sanctions that could total $25 billion ... Much of the exact language has yet to be hashed out but it could provide for the first broad use of principal writedowns ...
It appears there will be two more housing related announcements soon: this mortgage settlement, and an REO disposition program for Fannie/Freddie/FHA (also the changes to the HARP refinance program were announced this week).

Q3 2011 Details: Investment in Office, Mall, and Lodging, Residential Components

by Bill McBride on 10/28/2011 01:21:00 PM

The BEA released the underlying detail data today for the Q3 Advance GDP report. As expected, the recent pickup in non-residential structure investment has been for power and communication. Here is a look at office, mall and lodging investment:

Office Investment as Percent of GDP Click on graph for larger image.

This graph shows investment in offices, malls and lodging as a percent of GDP. Office investment as a percent of GDP peaked at 0.46% in Q1 2008 and then declined sharply. Investment has increased a little recently (probably mostly tenant improvements as opposed to new office buildings).

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 65% from the peak (note that investment includes remodels, so this will not fall to zero). Mall investment declined in Q3.

The bubble boom in lodging investment was stunning. Lodging investment peaked at 0.32% of GDP in Q2 2008 and has fallen by over 80%.

Notice that investment for all three categories typically falls for a year or two after the end of a recession, and then usually recovers very slowly (flat as a percent of GDP for 2 or 3 years). This is happening again, and there will not be a recovery in these categories until the vacancy rates fall significantly.

Residential Investment ComponentsThe second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

Usually the most important components are investment in single family structures followed by home improvement.

Investment in single family structures was just above the record low set in Q2 2009.

Investment in home improvement was at a $151 billion Seasonally Adjusted Annual Rate (SAAR) in Q3 (about 1.0% of GDP), significantly above the level of investment in single family structures of $106 billion (SAAR) (or 0.7% of GDP).

Brokers' commissions increased slightly in Q3, and are moving sideways as a percent of GDP.

And investment in multifamily structures is still moving sideways as a percent of GDP (increasing slowly in dollars). This is a small category, and even though investment is increasing, the positive impact on GDP will be relatively small.

These graphs show there is currently very little investment in offices, malls and lodging - and for residential investment.

Consumer Sentiment increases in October, still very weak

by Bill McBride on 10/28/2011 09:55:00 AM

The final October Reuters / University of Michigan consumer sentiment index increased to 60.9, up from the preliminary October reading of 57.5, and up from 59.4 in September.

Consumer Sentiment
Click on graph for larger image.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices. In August, sentiment was probably negatively impacted by the debt ceiling debate.

This was still very weak, but above the consensus forecast of 58.0.

Personal Income increased 0.1% in September, Spending increased 0.6%

by Bill McBride on 10/28/2011 08:30:00 AM

The BEA released the Personal Income and Outlays report for September:

Personal income increased $17.3 billion, or 0.1 percent ... in September ... Personal consumption expenditures (PCE) increased $68.7 billion, or 0.6 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.5 percent in September, in contrast to a decrease of less than 0.1 percent in August. ... PCE price index -- The price index for PCE increased 0.2 percent in September, compared with an increase of 0.3 percent in August. The PCE price index, excluding food and energy, decreased less than 0.1 percent.
The following graph shows real Personal Consumption Expenditures (PCE) through August (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.

PCE increased 0.6 in September, and real PCE increased 0.5%.

Note: The PCE price index, excluding food and energy, decreased 0.2 percent.

The personal saving rate was at 3.6% in Setpember.
Personal saving -- DPI less personal outlays -- was $419.8 billion in September, compared with $479.1 billion in August. Personal saving as a percentage of disposable personal income was 3.6 percent in September, compared with 4.1 percent in August.
Personal Saving rate This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the September Personal Income report.

Spending is growing faster than incomes - and the saving rate has been declining. That can't continue for long ...

Thursday, October 27, 2011

California Gov. Jerry Brown proposes State Pension Changes

by Bill McBride on 10/27/2011 11:52:00 PM

If this moves forward, this might become a model for other states. A big "if" ...

From the LA Times:

Gov. Jerry Brown risks backlash on pension planBrown's 12-point plan, announced Thursday, would require that all public workers have at least half the cost of their pensions deducted from their paychecks. ...

The governor also wants future employees to receive up to a third of their retirement income from a 401(k)-style plan rather than a traditional guaranteed pension. And he urged that the retirement age for most new public workers be raised from 55 to 67.
Earlier on GDP:
GDP slightly above pre-recession peak, Investment Contributions
Advance Estimate: Real Annualized GDP Grew at 2.5% in Q3
GDP Graphs

Strong Auto Sales growth seen in October

by Bill McBride on 10/27/2011 08:50:00 PM

It looks like auto sales are fairly strong in October ...

From Edmunds.com: Edmunds.com October Auto Sales Forecast: Momentum Is Strong, But it May be a Bubble

An estimated 1,033,257 new cars will be sold in October, for a projected Seasonally Adjusted Annual Rate (SAAR) of 13.4 million units, forecasts Edmunds.com ... This sales pace would mark the highest monthly SAAR since August 2009, when sales were inflated by the Cash for Clunkers program.

Edmunds.com analysts attribute October’s sales results to the release of pent-up demand that has been building for more than a year. As a result, the auto industry may be in the midst of a small sales bubble.

“October’s sales numbers are certainly a bright spot in a sluggish economy, but it would be a mistake to believe that this momentum is the ‘new normal,’ said Jessica Caldwell, senior analyst at Edmunds.com. “Unless early holiday incentives inspire droves of buyers in November, we don’t expect sales to increase on the same trajectory as we have seen in the last two months.”
From Truecar.com: New Vehicle Sales Expected to Reach Highest SAAR Since August 2009 According to TrueCar.com
For October 2011, new light vehicle sales in the U.S. (including fleet) is expected to be 1,035,042 units, up 9.0 percent from October 2010 and down 1.7 percent from September 2011 (on an unadjusted basis)

The October 2011 forecast translates into a Seasonally Adjusted Annualized Rate (SAAR) of 13.4 million new car sales, up from 13.1 million in September 2011 and up from 12.2 million in October 2010.
Vehicle SalesClick on graph for larger image.

Sales in Q3 were up slightly from Q2, although - as part of the Q3 GDP release - the BEA estimated motor vehicles and parts made a small negative contribution to GDP in Q3 (probably due to mix of vehicles).

If sales are at this forecast for October - and just hold this level in November and December - vehicle sales will make a strong contribution to Q4 GDP.

Misc: Fannie/Freddie Investor REO Buying, Pending Home Sales down, Kansas City Manufacturing edges higher

by Bill McBride on 10/27/2011 04:43:00 PM

Just catching up ...

• Last Sunday, I mentioned a rumor that a new program for investors to buy (and rent) foreclosed houses from Fannie and Freddie would be announced soon. Diana Olick at CNBC writes today: Investors Raising Cash to Buy Government Foreclosures

[T]he Obama Administration is pushing a potential [plan] to auction off foreclosed properties in bulk to investors, specifically the quarter of a million properties currently on the books of Fannie Mae, Freddie Mac and the FHA. As demand for single family rental properties rises, so too do potential investor returns.

"There is a hope that we'll be able to do a pilot in the near future, perhaps by the end of 2011 or early 2012. However, there hasn't been any decision on timing yet," according to an administration source.
• From the Kansas City Fed: Growth in Manufacturing Activity Edged Higher
Growth in Tenth District manufacturing activity edged higher in October. Expectations for future activity rebounded after easing somewhat the past few months. ... The month-over-month composite index was 8 in October, up from 6 in September and 3 in August ... the employment index remained unchanged [at 12].
From Freddie Mac:
30-year fixed-rate mortgage (FRM) averaged 4.10 percent with an average 0.8 point for the week ending October 27, 2011, down from last week when it averaged 4.11 percent. Last year at this time, the 30-year FRM averaged 4.23 percent.
• From NAR: September Pending Home Sales Down, Still Higher Than a Year Ago
The Pending Home Sales Index ... fell 4.6 percent to 84.5 in September from 88.6 in August but is 6.4 percent higher than September 2010 when it stood at 79.4.
S&P 500• This graph (click on graph for larger image) from Doug Short shows the recent market increase.

Earlier on GDP:
GDP slightly above pre-recession peak, Investment Contributions
Advance Estimate: Real Annualized GDP Grew at 2.5% in Q3
GDP Graphs

NMHC Apartment Survey: Market Conditions Tighten Slightly in Recent Survey

by Bill McBride on 10/27/2011 03:07:00 PM

From the National Multi Housing Council (NMHC): Development Ramps Up as Demand Swells Finds NMHC Quarterly Survey

Increased demand for rental housing has led to a considerable uptick in multifamily construction, finds the National Multi Housing Council’s (NMHC) latest Quarterly Survey of Apartment Market Conditions.

The pace of development activity has increased in most markets. Two-thirds (67%) of respondents noted considerable activity, either in the planning stage or actual new construction. In particular, 20% said developers are breaking [ground] on new projects at a rapid clip. The other 47% reported an increase in pre-construction activities—acquiring land, lining up financing, getting building permits—but not much actual construction yet.

Even with this increased activity, more than half (54%) think new development remains considerably below demand.

"Powerful demographic trends along with changing attitudes about homeownership and tighter mortgage underwriting continue to drive a shift toward renting, which is fueling a ramp up in new construction," noted NMHC Chief Economist Mark Obrinsky. "While some survey respondents expressed concern over sporadic overbuilding, others noted that the lack of construction financing may prevent some developments from actually breaking ground."

Overall, the apartment market continued its healthy growth, although there is some evidence of a slowdown. For the sixth time in the last seven quarters, all four market indexes were above 50—a reading above 50 indicates improving market conditions—although all four fell, suggesting less widespread growth than the prior quarter.

"A narrowing in the extent of the improvement is not unexpected after almost two years of strong gains," said Obrinsky. "As long as the economy continues to generate jobs, the apartment upswing should remain on track."
Apartment Tightness Index
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index.

The index has indicated tighter market conditions for the last seven quarters and although down from the record 90 earlier this year, this still suggests falling vacancy rates and or rising rents.

This fits with the recent Reis data showing apartment vacancy rates fell in Q3 2011 to 5.6%, down from 6.0% in Q2 2011, and 9.0% at the end of 2009. Based on this index, I expect the declines in vacancy rates to slow.

New multi-family construction is one of the few bright spots for the U.S. economy and this survey indicates demand for apartments is still strong.

A final note: This index helped me call the bottom for effective rents (and the top for vacancy rate) early last year.

Hotels: Occupancy Rate increases 4% year-over-year

by Bill McBride on 10/27/2011 01:14:00 PM

From HotelNewsNow.com: Miami reports strongest weekly RevPAR gain

Overall, the U.S. hotel industry’s occupancy rose 4% to 66.2%, average daily rate increased 4.4% to US$105.49, and RevPAR finished the week up 8.6% to US$69.88.
Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using a four week average for the occupancy rate.

Hotel Occupancy Rate Click on graph for larger image.

We are now in the fall business travel season. The 4-week average of the occupancy rate has increased again seasonally. In September, the 4-week average was back to the pre-recession median, but October fall business travel was less than normal - but still better than last year.

Hotel Occupancy RateThe second graph shows the 4-week average of the occupancy rate as a percent of the median since 2000. Note: Since this is a percent of the median, the number can be above 100%.

This shows the decline in the occupancy rate during and following the 2001 recession. The sharp decline in 2001 was related to 9/11, and the sharp increase towards the end of 2005 was due to Hurricane Katrina.

The occupancy rate really fell off a cliff in 2008. After briefly recovering to the median, this measure has declined over the last month.

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

GDP slightly above pre-recession peak, Investment Contributions

by Bill McBride on 10/27/2011 10:37:00 AM

According to the Bureau of Economic Analysis (BEA), real GDP is finally just above the pre-recession peak. The estimate for real GDP in Q3 (2005 dollars) was $13,352.8 billion, 0.2% above the $13,326.0 billion in Q4 2007. Nominal GDP was reported as $15,198.6 billion in Q3 2011.

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 PeakClick on graph for larger image.

This graph is for real GDP through Q3 2011 and shows real GDP is back to the the 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 for Q3. GDI was back to the pre-recession peak in Q2.

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 ContributionsResidential Investment (RI) made a positive contribution to GDP in Q3 2011, and the four quarter rolling average finally turned positive in Q3.

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

The contribution from nonresidential investment in structures was positive in Q3. 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 InvestmentAlthough Residential Investment (RI) increased slightly in Q3, RI as a percent of GDP declined slightly - and RI as a percent of GDP is at a new record low.

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.

As expected, RI is increasing slowly in 2011 and it looks like RI will add to both GDP and employment growth - for the first time since 2005. It won't be much, but it will probably be positive.

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

Equipment and software investment has been increasing sharply, however several tech companies have lowered their outlooks - so investment in equipment and software might slow in Q4.

Non-residential investment in structures increased in Q3. I'll add details for investment in offices, malls and hotels next week.

Earlier ...
Advance Estimate: Real Annualized GDP Grew at 2.5% in Q3

Weekly Initial Unemployment Claims decline slightly

by Bill McBride on 10/27/2011 08:51:00 AM

The DOL reports:

In the week ending October 22, the advance figure for seasonally adjusted initial claims was 402,000, a decrease of 2,000 from the previous week's revised figure of 404,000. The 4-week moving average was 405,500, an increase of 1,750 from the previous week's revised average of 403,750.
The following graph shows the 4-week moving average of weekly claims since January 2000:


Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week to 405,500.

This is down from September, but still elevated - and still above the post-recession lows of earlier this year.

The next graph shows the 4-week average since 1971:

Advance Estimate: Real Annualized GDP Grew at 2.5% in Q3

by Bill McBride on 10/27/2011 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 2.5 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter) according to the "advance" estimate released by the Bureau of Economic Analysis.

The acceleration in real GDP in the third quarter primarily reflected accelerations in PCE and in nonresidential fixed investment and a smaller decrease in state and local government spending that were partly offset by a larger decrease in private inventory investment.
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 2.5% annualized was below trend growth (around 3%) - and very weak for a recovery, especially with all the slack in the system.

Click on graph for larger image.


A few key numbers:
• Real personal consumption expenditures increased 2.4 percent in the second quarter, compared with an increase of 0.7 percent in the second.

• Change in private inventories subtracted 1.08 percentage point.

• Investment: "Real nonresidential fixed investment increased 16.3 percent in the third quarter, compared with an increase of 10.3 percent in the second. Nonresidential structures increased 13.3 percent, compared with an increase of 22.6 percent. Equipment and software increased 17.4 percent, compared with an increase of 6.2 percent. Real residential fixed investment increased 2.4 percent, compared with an increase of 4.2 percent.."

I'll have much more later today ...

Wednesday, October 26, 2011

Euro Summit Statement

by Bill McBride on 10/26/2011 10:49:00 PM

EURO SUMMIT STATEMENT. Excerpts:

The Private Sector Involvement (PSI) has a vital role in establishing the sustainability of the Greek debt. Therefore we welcome the current discussion between Greece and its private investors to find a solution for a deeper PSI. Together with an ambitious reform programme for the Greek economy, the PSI should secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020. To this end we invite Greece, private investors and all parties concerned to develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors. The Euro zone Member States would contribute to the PSI package up to 30 bn euro. On that basis, the official sector stands ready to provide additional programme financing of up to 100 bn euro until 2014, including the required recapitalisation of Greek banks. The new programme should be agreed by the end of 2011 and the exchange of bonds should be implemented at the beginning of 2012. We call on the IMF to continue to contribute to the financing of the new Greek programme.
On EFSF:
We agree that the capacity of the extended EFSF shall be used with a view to maximizing the available resources in the following framework:
• the objective is to support market access for euro area Member States faced with market pressures and to ensure the proper functioning of the euro area sovereign debt market, while fully preserving the high credit standing of the EFSF. These measures are needed to ensure financial stability and provide sufficient ringfencing to fight contagion;
• this will be done without extending the guarantees underpinning the facility and within the rules of the Treaty and the terms and conditions of the current framework agreement, operating in the context of the agreed instruments, and entailing appropriate conditionality and surveillance.

19. We agree on two basic options to leverage the resources of the EFSF:
• providing credit enhancement to new debt issued by Member States, thus reducing the funding cost. Purchasing this risk insurance would be offered to private investors as an option when buying bonds in the primary market;
• maximising the funding arrangements of the EFSF with a combination of resources from private and public financial institutions and investors, which can be arranged through Special Purpose Vehicles. This will enlarge the amount of resources available to extend loans, for bank recapitalization and for buying bonds in the primary and secondary markets.

20. The EFSF will have the flexibility to use these two options simultaneously, deploying them depending on the specific objective pursued and on market circumstances. The leverage effect of each option will vary, depending on their specific features and market conditions, but could be up to four or five.
UPDATE: IIF Statement: (ht Brian)
Institute of International Finance

October 27, 2011 – Brussels, Belgium:

The following statement was issued by Mr. Charles Dallara, Managing Director
of the Institute of International Finance:

We welcome the announcement by the leaders of the Euro Area of a
comprehensive package of measures to stabilize Europe, to strengthen the
European banking system and to support Greece's reform effort. On behalf of
the private investor community, the IIF agrees to work with Greece, Euro
Area authorities and the IMF to develop a concrete voluntary agreement on
the firm basis of a nominal discount of 50% on notional Greek debt held by
private investors with the support of a 30 billion Euro official PSI
package. This should set the basis for the decline of the Greek debt to GDP
ratio with an objective of reaching 120% by 2020.

The specific terms and conditions of the voluntary PSI will be agreed by all
relevant parties in the coming period and implemented with immediacy and
force. The structure of the new Greek claims will need to be based on terms
and conditions that ensure an NPV loss for investors fully consistent with a
voluntary agreement.