Friday, August 31, 2012

Unofficial Problem Bank list declines to 891 Institutions

by Calculated Risk on 8/31/2012 09:27:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Aug 31, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

The FDIC released its actions for July 2012 as anticipated. This week there were 10 removals and three additions leaving the Unofficial Problem Bank List with 891 institutions with assets of $331.5 billion, down from 898 institutions with assets of $346.7 billion. About two-thirds or $10.0 billion of the $15.2 billion decline in assets came from updating assets with figures from the second quarter. For the month of August 2012, the list declined by a net of nine institutions after 11 additions, 16 actions terminations, three unassisted mergers, and one failure. The singular failure is the lowest monthly total since the list was first published on August 7, 2009. A year ago, the list held 988 institutions with assets of $403.0 billion. This week the FDIC released the Official Problem Bank List for the second quarter that included 732 institutions with assets of $282 billion.

Actions have been terminated against Park View Federal Savings Bank, Solon, OH ($805 million Ticker: PVFC); Cornerstone Community Bank, Chattanooga, TN ($420 million Ticker: CSBQ); PBK Bank, Inc., Stanford, KY ($116 million); The First Bank of Greenwich, Cos Cob, CT ($88 million); Community First Bank, Rosholt, WI ($68 million); Select Bank, Grand Rapids, MI ($66 million); and The State Exchange Bank, Lamont, OK ($50 million).

Three banks were removed as they found merger partners -- BankAtlantic, Fort Lauderdale, FL ($3.8 billion Ticker: BBX); Valliance Bank, McKinney, TX ($68 million); and Texas Coastal Bank, Pasadena, TX ($27 million).

The three additions were The Peoples Bank, Eatonton, GA ($137 million); The Peoples Bank, Covington, GA ($113 million); and First Community Bank of Crawford County, Van Buren, AR ($97 million). The other change was the FDIC issuing a Prompt Corrective Action order against Banks of Wisconsin, Kenosha, WI ($155 million).

Not surprising the FDIC took the long weekend off. We wish a happy Labor weekend to all and hope that anyone seeking a job lands one soon.
CR Note: 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. (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.

When the list was increasing, the official and "unofficial" counts were about the same. Now with the number of problem banks declining, the unofficial list is lagging the official list. This probably means regulators are changing the CAMELS rating on some banks before terminating the formal enforcement actions.

Two more reviews of Bernanke's Speech: Weak Labor Market "a grave concern"

by Calculated Risk on 8/31/2012 06:29:00 PM

"The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years."
Fed Chairman Ben Bernanke, August 31, 2012

From a research note today by Andrew Tilton at Goldman Sachs:

In the most striking line of the speech, Bernanke professed “grave concern” about the weak labor market and the potential human and economic cost of persistently high unemployment. Although consistent with prior comments about long-term unemployment and the risk of hysteresis, these are very strong words from a Fed chairman. When one has a “grave concern”, action—quite possibly aggressive action─is appropriate.

The Chairman’s remarks strengthen our conviction that the Fed will ease in September, most likely by pushing out its guidance that rates will remain “exceptionally low at least through late 2014” to mid-2015 or beyond. We now think the probability of an announcement of further asset purchases is close to 50/50 in September, though our base-case forecast is still that this is more likely in December or early 2013. When and if asset purchases do occur, we expect them to be concentrated in agency mortgage-backed securities, and on an open-ended basis (i.e. a monthly rate of purchases) with changes in the rate of purchases conditional on the economic environment. Our views could still change depending on how economic data and financial conditions evolve between now and the September 13 announcement.
And from Tim Duy at EconomistsView: Bernanke at Jackson Hole
On net, Bernanke's speech leads me to believe the odds of additional easing at the next FOMC meeting are somewhat higher (and above 50%) than I had previously believed. His defense of nontraditional action to date and focus on unemployment point in that direction. This is the bandwagon the financial press will jump on. Still, the backward looking nature of the speech and the obvious concern that the Fed has limited ability to offset the factors currently holding back more rapid improvement in labor markets, however, leave me wary that Bernanke remains hesitant to take additional action at this juncture. This suggests to me that additional easing is not a no-brainer, but perhaps that is just my internal bias talking.

LPS: Mortgage delinquencies decreased in July

by Calculated Risk on 8/31/2012 03:54:00 PM

LPS released their First Look report for July this week. LPS reported that the percent of loans delinquent decreased in July from June.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased in July to 7.03% from 7.14% in June. The percent of delinquent loans is still significantly above the normal rate of around 4.5% to 5%. The percent of delinquent loans peaked at 10.57%, so delinquencies have fallen over half way back to normal.

The following table shows the LPS numbers for July 2012, and also for last month (June 2012) and one year ago (July 2011).

LPS: Percent Loans Delinquent and in Foreclosure Process
July 2012June 2012July 2011
Delinquent7.03%7.14%7.90%
In Foreclosure4.08%4.09%4.12%
Number of loans:
Loans Less Than 90 Days1,960,0002,012,000NA
Loans 90 Days or more1,560,0001,590,000NA
Loans In Foreclosure2,042,0002,061,000NA
Total​5,562,0005,663,000NA

The total number of delinquent loans, and in foreclosure, dropped about 100 thousand in July from June.

The percent of loans less than 90 days delinquent is close to normal, but the percent (and number) of loans 90+ days delinquent and in the foreclosure process are still very high.

Fannie Mae and Freddie Mac Serious Delinquency rates declined in July

by Calculated Risk on 8/31/2012 01:54:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in July to 3.50% from 3.53% June. The serious delinquency rate is down from 4.08% in July last year, and this is the lowest level since April 2009.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate declined in July to 3.42%, from 3.45% in June. Freddie's rate is only down slightly from 3.51% in July 2011. Freddie's serious delinquency rate peaked in February 2010 at 4.20%. This is the lowest level for Freddie since August 2009.

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 2009, Fannie's serious delinquency rate increased faster than Freddie's rate. Since then, Fannie's rate has been falling faster - and now the rates are at about the same level.

Although this indicates some progress, the "normal" serious delinquency rate is under 1% - and it looks like it will be several years until the rates back to normal.

Analysis: Bernanke Clears the way for QE3 in September

by Calculated Risk on 8/31/2012 12:33:00 PM

First from Jon Hilsenrath and Kristina Peterson at the WSJ: Bernanke Signals Readiness to Do More

Federal Reserve Chairman Ben Bernanke offered a robust defense of the effectiveness of the central bank's easy-money policies in his speech Friday at the Fed conference here, and left little doubt that he is looking toward doing more to give the economy a lift at the Fed's next policy meeting in September.
As Hilsenrath notes, Bernanke argued: 1) QE has been effective, 2) Additional QE would be helpful, 3) the costs of additional QE "appear manageable", and 4) the economy is "far from satisfactory.

• In Bernanke's view, QE has been effective. From his speech:
How effective are balance sheet policies? After nearly four years of experience with large-scale asset purchases, a substantial body of empirical work on their effects has emerged. Generally, this research finds that the Federal Reserve's large-scale purchases have significantly lowered long-term Treasury yields. ... These effects are economically meaningful.

... a study using the Board's FRB/US model of the economy found that, as of 2012, the first two rounds of LSAPs may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred. The Bank of England has used LSAPs in a manner similar to that of the Federal Reserve, so it is of interest that researchers have found the financial and macroeconomic effects of the British programs to be qualitatively similar to those in the United States.

To be sure, these estimates of the macroeconomic effects of LSAPs should be treated with caution. ... Overall, however, a balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks.
• The costs of additional QE are "manageable":
[T]he costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.
• The economy is still very weak:
[T]he economic situation is obviously far from satisfactory ... The unemployment rate remains more than 2 percentage points above what most FOMC participants see as its longer-run normal value ... Further, the rate of improvement in the labor market has been painfully slow. I have noted on other occasions that the declines in unemployment we have seen would likely continue only if economic growth picked up to a rate above its longer-term trend. In fact, growth in recent quarters has been tepid, and so, not surprisingly, we have seen no net improvement in the unemployment rate since January.
Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.
Bernanke's comments suggest QE3 will be launched very soon, perhaps on September 13th following the next FOMC meeting.

I thought the odds of QE3 in August were high - and the minutes of the meeting indicated they were very very close. It is possible that the FOMC in September will announce an extension of the extended period until 2015 (from late 2014), and wait again for QE3, but that would seem at odds with Bernanke's comments today.

Bernanke: Monetary Policy since the Onset of the Crisis

by Calculated Risk on 8/31/2012 10:06:00 AM

From Fed Chairman Ben Bernanke at the Jackson Hole Economic Symposium: Monetary Policy since the Onset of the Crisis

The potential benefit of policy action, of course, is the possibility of better economic outcomes--outcomes more consistent with the FOMC's dual mandate. In light of the evidence I discussed, it appears reasonable to conclude that nontraditional policy tools have been and can continue to be effective in providing financial accommodation, though we are less certain about the magnitude and persistence of these effects than we are about those of more-traditional policies.
...
In sum, both the benefits and costs of nontraditional monetary policies are uncertain; in all likelihood, they will also vary over time, depending on factors such as the state of the economy and financial markets and the extent of prior Federal Reserve asset purchases. Moreover, nontraditional policies have potential costs that may be less relevant for traditional policies. For these reasons, the hurdle for using nontraditional policies should be higher than for traditional policies. At the same time, the costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.
...
the economic situation is obviously far from satisfactory.
...
Early in my tenure as a member of the Board of Governors, I gave a speech that considered options for monetary policy when the short-term policy interest rate is close to its effective lower bound. I was reacting to common assertions at the time that monetary policymakers would be "out of ammunition" as the federal funds rate came closer to zero. I argued that, to the contrary, policy could still be effective near the lower bound. Now, with several years of experience with nontraditional policies both in the United States and in other advanced economies, we know more about how such policies work. It seems clear, based on this experience, that such policies can be effective, and that, in their absence, the 2007-09 recession would have been deeper and the current recovery would have been slower than has actually occurred.

As I have discussed today, it is also true that nontraditional policies are relatively more difficult to apply, at least given the present state of our knowledge. Estimates of the effects of nontraditional policies on economic activity and inflation are uncertain, and the use of nontraditional policies involves costs beyond those generally associated with more-standard policies. Consequently, the bar for the use of nontraditional policies is higher than for traditional policies. In addition, in the present context, nontraditional policies share the limitations of monetary policy more generally: Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve; in particular, it cannot neutralize the fiscal and financial risks that the country faces. It certainly cannot fine-tune economic outcomes.

As we assess the benefits and costs of alternative policy approaches, though, we must not lose sight of the daunting economic challenges that confront our nation. The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years.

Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.
QE has been effective and costs appear manageable.

Chicago PMI declines to 53.0

by Calculated Risk on 8/31/2012 09:51:00 AM

From Chicago ISM: Chicago Business Barometer Anemic

The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER posted a small gain in August but remained steady for the last four months. Among the Business Activity measures, declines into contraction for both Order Backlogs and Supplier Deliveries offset minor gains in Production, New Orders, and Employment in August.

• EMPLOYMENT recovered more than half of last month's slowing; • PRICES PAID slight gain; • ORDER BACKLOGS lowest since September 2009; • SUPPLIER DELIVERIES lowest since July 2009.
The PMI decreased to 53.0 from 53.7. Expectations were for a decrease to 53.0.

The employment index increased to 57.1 from 53.3, and new orders increased to 54.8 from 52.9.

Thursday, August 30, 2012

Friday: Bernanke, Bernanke, Bernanke

by Calculated Risk on 8/30/2012 09:10:00 PM

The focus on Friday will be Fed Chairman Ben Bernanke's speech at the Jackson Hole Economic Symposium.

Earlier this week, ECB President Mario Draghi cancelled his speech on Saturday. Here is an update on Europe, from the Financial Times: Brussels pushes for wide ECB powers

The European Central Bank would be given sweeping authority over all 6,000 eurozone banks under a plan being drawn up by the European Commission ... The plan, agreed at a meeting this week between top aides to José Manuel Barroso, commission president, and Michel Barnier, the EU’s senior financial regulator, would strip existing national supervisors of almost all authority to shut down or restructure their countries’ failing banks, giving those powers to Frankfurt.
Excerpt with permission.
Europe will be back on the front pages next week.

On Friday:
• At 9:45 AM ET, the Chicago Purchasing Managers Index for August will be released. The consensus is for a decrease to 53.0, down from 53.7 in July.

• At 9:55 AM ET, the final Reuter's/University of Michigan's Consumer sentiment index for August will be released. The consensus is for a reading of 73.5, down from the preliminary August reading of 73.6, and up from the July reading of 72.3.

• At 10:00 AM, the Manufacturers' Shipments, Inventories and Orders (Factory Orders) for July will be released. The consensus is for a 0.9% increase in orders.

• Also at 10:00 AM, Fed Chairman Ben Bernanke will speak at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, "Monetary Policy Since the Crisis"

Lawler: On the relationship between pending home sales and closed sales

by Calculated Risk on 8/30/2012 06:55:00 PM

Yesterday the National Association of Realtors reported that its “National” Pending Home Sales Index increased by 2.4% on a seasonally adjusted basis in July to its highest level since April 2010.

The NAR’s PHSI did not signal the “dip” in June/July closed existing home sales, for reasons that are difficult to discern. It’s not easy to figure out “fallout” rates from the PHSI for several reasons: first, the PHSI is an index number with 2001 “activity” equal to 100, making numerical comparisons to the NAR’s existing home sales estimate difficult, especially since there is a “discontinuity” in the NAR’s existing home sales methodology in 2007; and second, the NAR’s PHSI is based on a sample size not much more than half that used to estimate existing home sales. To really delve into the relationship between pending sales and closed sales, one needs to get local data—which unfortunately isn’t available to the public in that many places.

Closed and Pending Home Sales Click on graph for larger image.

CR Note: This graph from Tom Lawler shows Pending and Closed home sales since January 2008. For this graph, Tom Lawler set both series to 100 in 2008.

More from Lawler: For fun, however, I looked at pending sales vs. closed sales data reported by MRIS for the mid-Atlantic region. While I have limited historical data, that data suggests that (1) contract fallout over the past two and a half years is up considerably from earlier periods; and (2) that increased fallout coincided with a significant increase in the share of pending sales that were “contingent. Other MRIS data/analyses suggests that a rise in the share of pending contracts that are short-sales, which (1) take much longer time to close; and (2) which have very high contract fall-out rates, has significantly impacted the relationship between pending sales and closed sales.

MRIS Closed and Pending Home SalesHere is a chart showing closed home sales by MRIS for the mid-Atlantic region compared to lagged new pending contracts, using a weighting of 60% for the previous month and 40% for two months earlier.

This chart suggests that over the last two years the number of closed home sales has been significantly lower than one would have expected based on the past relationship between past new pending sales and closed sales. While not shown here, a more “sophisticated” look at leads and lags suggests that the reason is not simply delayed closings, but is mainly contract fallout.

CR Note: It appears short sales are distorting the relationship between pending and closed sales, and the "pending home sales" report should currently be taken with an extra grain of salt.

WSJ: Bernanke Jackson Hole Speech Preview

by Calculated Risk on 8/30/2012 03:51:00 PM

Fed Chairman Ben Bernanke is scheduled to speak on Friday at 10 AM ET at the Jackson Hole Economic Symposium.

From Jon Hilsenrath at the WSJ: Bernanke's Dilemma Over His Legacy

[W]hen the chairman speaks Friday morning at the central bank's annual retreat here, he must once again address whether there is more the Fed can do to get the economy going and whether it is worth taking chances on controversial new programs. All along he has argued these efforts are worth it and appears likely to stick to that line in his speech.

Beyond big issues of the moment—such as whether the Fed will launch a new bond-buying program—a broader question looms in Jackson Hole about Mr. Bernanke's legacy. Long after his term as chairman ends in 17 months, will he be remembered as the Fed chief who did too little to combat high unemployment or the one who did too much and unleashed inflation and financial instability with the actions he took? Critics make both arguments.
I'd like to think that Bernanke isn't thinking about his legacy, but that he is focused on what is best for the economy. So far the inflation critics have been wrong, and high inflation still seems very unlikely with a depressed economy, and significant resource slack.

More from Hilsenrath:
The Fed signaled strongly in the minutes of its August 1 policy meeting that in September it is likely to offer new assurances that interest rates will stay low beyond 2014 and that it is seriously considering more bond purchases. One issue Mr. Bernanke might clear up on Friday: Whether U.S. economic data since that meeting—some of it modestly stronger—has changed his outlook.

Goldman Sachs chief U.S. economist Jan Hatzius estimates that a $500 billion bond-buying program would boost growth by 0.2 percentage points for a year and bring down the unemployment rate by 0.1 percentage point.
Bernanke will not announce a new program at Jackson Hole. The most he will do is argue the Fed can do more and still has tools that will be effective - and he will probably say that help from fiscal authorities to provide more stimulus in the short term, and a credible long term plan to reduce the deficit, would be very helpful (good luck).

I think the key will be how he describes the economy and his view of growth prospects.

Forecasts: Light Vehicle Sales expected to increase in August

by Calculated Risk on 8/30/2012 02:29:00 PM

In addition to the decent personal income and outlays report for July released this morning, and solid retailer results for August, it appears auto (and light truck) sales increased in August.

TrueCar is forecasting: August 2012 New Car Sales Expected to Be Up 17 Percent

For August 2012, new light vehicle sales in the U.S. (including fleet) is expected to be 1,255,392 units, up 17.2 percent from August 2011 and up 8.9 percent from July 2012 (on an unadjusted basis)
...
The August 2012 forecast translates into a Seasonally Adjusted Annualized Rate (“SAAR”) of 14.2 million new car sales, up from 12.1 million in August 2011 and up from 14.1 million in July 2012
Edmunds.com is forecasting: August Car Sales Offer a Pleasant Summer Surprise for the Auto Industry
Edmunds.com ... forecasts that 1,287,603 new cars will be sold in August for an estimated Seasonally Adjusted Annual Rate (SAAR) this month of 14.5 million light vehicles. If the numbers hold, August will be the second best month of 2012 in terms of SAAR and the third best month in terms of unit sales.

“Sales showed signs of flattening out in the first couple months of summer, so August’s sales figures will come as a nice surprise for everyone in the auto industry,” says Edmunds.com Senior analyst Jessica Caldwell.
...
Edmunds.com estimates that August’s projected sales will be an 11.7 percent increase from July 2012, and a 20.1 percent increase (unadjusted for number of selling days) from August 2011. Retail SAAR will come in at 12.0 million vehicles in August, with fleet transactions accounting for 17.0 percent of total sales. An estimated 3.1 million used cars will be sold in August, for a SAAR of 36.9 million (compared to 3.2 million – or a SAAR of 36.3 million – used car sales in July).
The cash-for-clunkers spike was at a SAAR of 14.546, and the Edmunds forecast is close. Note: There was one more selling day in August 2012 than in August 2011. Light vehicle sales for August will be released on Tuesday, Sept 4th.

This doesn't suggest "a substantial and sustainable strengthening in the pace of the economic recovery" (from the FOMC minutes), but it does suggest some pickup in Q3.

Kansas City Fed: "Moderate" growth in Regional Manufacturing Activity in August

by Calculated Risk on 8/30/2012 11:00:00 AM

From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Improved Moderately

The Federal Reserve Bank of Kansas City released the August 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 activity improved moderately, and producers’ optimism continued to edge higher.

“Factory activity in our region grew slightly faster this month, in spite of the ongoing drought having a negative effect on producers of agricultural equipment” said Wilkerson. “Firms also expected production to accelerate in coming months.”
...
Growth in Tenth District manufacturing activity improved moderately in August, and producers’ optimism continued to edge higher. Price indexes were relatively stable, although the share of producers planning to raise prices increased further. Several respondents said the ongoing drought has negatively affected their business, mainly through higher input costs and slower sales for agricultural-related products.

The month-over-month composite index was 8 in August, up from 5 in July and 3 in June. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ... The production index climbed from 2 to 7, and the shipments, new orders, and order backlog indexes all moved back into positive territory. The new orders for export index inched higher but remained below zero, while the employment index dipped slightly from 6 to 2.
Most future factory indexes improved further after rebounding last month. The future composite index edged up from 13 to 16, and future production and shipments indexes increased notably after no change last month. The future order backlog index jumped from 3 to 14, while the employment index remained unchanged.
This was below expectations of a 5 reading for the composite index. However the regional manufacturing surveys were mostly weak in August. 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 August), and five Fed surveys are averaged (blue, through August) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through July (right axis).

The ISM index for August will be released Tuesday, Sept 4th, and these surveys suggest another weak reading.

Personal Income increased 0.3% in July, Spending increased 0.4%

by Calculated Risk on 8/30/2012 09:02:00 AM

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

Personal income increased $42.3 billion, or 0.3 percent, and disposable personal income (DPI) increased $39.9 billion, or 0.3 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $46.0 billion, or 0.4 percent. In June, personal income increased $46.1 billion, or 0.3 percent, DPI increased $37.4 billion, or 0.3 percent, and PCE increased $3.5 billion, or less than 0.1 percent, based on revised estimates.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.4 percent in July, in contrast to a decrease of 0.1 percent in June. ... The PCE price index increased less than 0.1 percent in July, compared to an increase of 0.1 percent in June. The PCE price index, excluding food and energy, increased less than 0.1 percent, compared to an increase of 0.2 percent.
...
Personal saving -- DPI less personal outlays -- was $506.3 billion in July, compared with $516.2 billion in June. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 4.2 percent in July, compared with 4.3 percent in June.
The following graph shows real Personal Consumption Expenditures (PCE) through July (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.

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE.

A key point is the PCE price index has only increased 1.3% over the last year, and core PCE is up only 1.6%. The PCE price index - and core PCE - hardly increased in July.

Weekly Initial Unemployment Claims at 374,000

by Calculated Risk on 8/30/2012 08:30:00 AM

The DOL reports:

In the week ending August 25, the advance figure for seasonally adjusted initial claims was 374,000, unchanged from the previous week's revised figure of 374,000. The 4-week moving average was 370,250, an increase of 1,500 from the previous week's revised average of 368,750.
The previous week was revised up from 372,000, so this was an increase from the reported level a week ago.

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 to 370,250.

This was above the consensus forecast of 370,000.



And here is a long term graph of weekly claims:

All current Employment Graphs

Wednesday, August 29, 2012

Thursday: Personal Income for July, Weekly Unemployment Claims

by Calculated Risk on 8/29/2012 09:51:00 PM

A few excerpts from Michelle Meyer at Merrill Lynch: Home is where the heart is

The turn in home prices, although modest at the start, will help to boost consumer confidence. Simply believing that prices have stopped falling should provide a sense of relief to households. It will also allow households to have greater mobility, generating a more efficient labor market and greater churn in the housing stock.
...
While the housing market is far from normal, the bottoming in home prices marks an important shift for the economy. Home-price appreciation will slowly start to support household balance sheets and improve confidence, creating a positive feedback loop with the credit market and broader economy. It is gradual and fragile, but we believe it has finally begun.
I made a similar argument a few weeks ago: The economic impact of a slight increase in house prices.

On Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 370 thousand from 372 thousand.

• Also at 8:30 AM, the BEA will release the Personal Income and Outlays report for July. The consensus is for a 0.3% increase in personal income in July, and for 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 11:00 AM, the Kansas City Fed regional Manufacturing Survey for August will be released. The consensus is for an a reading of 5, unchanged from 5 in July (above zero is expansion). This is the last of the regional surveys for August, and all of them have been weak.



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

ATA Trucking index unchanged in July

by Calculated Risk on 8/29/2012 04:44:00 PM

From ATA: ATA Truck Tonnage was Unchanged in July

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index was unchanged in July after increasing 1.1% in June. (June’s gain was slightly smaller than the 1.2% increase ATA reported on July 25.) In July, the SA index stayed at 118.8 (2000=100). Compared with July 2011, the SA index was 4.1% higher, which was the largest year-over-year gain since February 2012. Year-to-date, compared with the same period last year, tonnage was up 3.7%.
...
“July’s reading reflects an economy that has lost some steam, but hasn’t stalled,” ATA Chief Economist Bob Costello said. “Certainly there has been some better economic news recently, but I continue to believe we will see some deceleration in tonnage during the second half of the year, if for nothing else but very tough comparisons on a robust August through December period in 2011.” ... Costello kept his tonnage outlook for 2012 to the 3% to 3.5% range as reported last month.
Note from ATA:
Trucking serves as a barometer of the U.S. economy, representing 67% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9.2 billion tons of freight in 2011. Motor carriers collected $603.9 billion, or 80.9% of total revenue earned by all transport modes.
ATA Trucking Click on graph for larger image.

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. The index is above the pre-recession level and up 3.7% year-over-year - but has been moving mostly sideways in 2012.

Fed's Beige Book: Economic activity increased "gradually", Residential real estate shows "signs of improvement"

by Calculated Risk on 8/29/2012 02:07:00 PM

Fed's Beige Book:

Reports from the twelve Federal Reserve Districts suggest economic activity continued to expand gradually in July and early August across most regions and sectors. Six Districts indicated the local economy continued to expand at a modest pace and another three cited moderate growth; among the latter, Chicago noted that the pace of growth had slowed from the prior period.
This is a downgrade from the previous beige book that reported "modest to moderate" growth.

And on real estate:
Housing markets across most Districts exhibited signs of improvement, with sales and construction continuing to increase. Dallas reported significant levels of buyer traffic, Richmond noted strong pending sales, and Minneapolis and St. Louis mentioned increases in building permits. New York, Philadelphia, and Chicago indicated improvements as well, but characterized the progress as slow and modest. Declines in inventory levels were reported in Boston, New York, Philadelphia, Atlanta, Dallas, and San Francisco; these declining inventories put some upward pressure on prices according to Boston, Atlanta, and Dallas. A reduction in the stock of distressed properties was mentioned in New York, Richmond, and San Francisco. In Philadelphia and Kansas City, the possibility of shadow inventory entering the market remains a concern. In general, outlooks were positive, with continued increases in activity expected, although the projected gains were more modest in Boston, Cleveland, and Kansas City.

Commercial real estate market conditions held steady or improved in nearly all Districts in recent weeks.
"Prepared at the Federal Reserve Bank of Boston and based on information collected on or before August 20, 2012."

Another downgrade ... from "moderate growth" two reports ago, to "modest to moderate" in the last report ... and now "expand gradually". On the positive side, there were more positive comments about residential real estate.

Fed: Consumer Deleveraging Continued in Q2

by Calculated Risk on 8/29/2012 11:00:00 AM

From the NY Fed: Overall Delinquency Rates Down as Americans Paying More Debt on Time

In its latest Quarterly Report on Household Debt and Credit, the Federal Reserve Bank of New York today announced that delinquency rates for mortgages (6.3 percent), credit cards (10.9 percent), and auto loans (4.2 percent) decreased from the previous quarter. However, rates for student loans (8.9 percent) and home equity lines of credit (HELOC) (4.9 percent) increased from March.

Household indebtedness declined to $11.38 trillion, a $53 billion decline from the first quarter of 2012. Outstanding household debt has decreased $1.3 trillion since its peak in Q3 2008. The reduction was led by a decline in real estate-related debt like mortgages and HELOC. More information about how Americans are paying down their debt is available in our corresponding blog post.

"The continuing decrease in delinquency rates suggests that consumers are managing their debts better," said Wilbert van Der Klaauw, vice president and economist at the New York Fed. "As they continue to pay down debt and take advantage of low interest rates, Americans are moving forward with rebalancing their household finances."

... Mortgage originations, which we measure as the appearance of new mortgages on consumer credit reports, rose to $463 billion.
Here is the Q2 report: Quarterly Report on Household Debt and Credit
Mortgage balances shown on consumer credit reports continued to fall, and now stand at $8.15 trillion, a 0.5% decrease from the level in 2012Q1. Home equity lines of credit (HELOC) balances dropped by $23 billion (3.7%). Household debt balances excluding mortgages and HELOCS increased by 0.4% in the second quarter to $2.6 trillion, boosted by increases of $14 billion in auto loans and $10 billion in student loans.
...
About 256,000 individuals had a new foreclosure notation added to their credit reports between March 31 and June 30, a slowdown of 12% since the first quarter and the lowest number seen since mid-2007. ... Foreclosures are down 55% from its peak in Q2 of 2009, which coincided with the bottom of the recession.
Here are two graphs:

Total Household Debt Click on graph for larger image.

The first graph shows aggregate consumer debt decreased in Q2. This was mostly due to a decline in mortgage debt.

However student debt is still increasing. From the NY Fed:
Student loan debt rose $10 billion to $914 billion. ... Since the peak in household debt in 2008Q3, student loan debt has increased by $303 billion, while other forms of debt fell a combined $1.6 trillion.
Delinquency Status The second graph shows the percent of debt in delinquency. In general, the percent of delinquent debt is declining, but what really stands out is the percent of debt 90+ days delinquent (Yellow, orange and red).

From the NY Fed:
Overall delinquencies improved in 2012Q2. As of June 30, 9.0% of outstanding debt was in some stage of delinquency, compared with 9.3% at the end of 2012Q1. About $1.02 trillion of debt is delinquent, with $765 billion seriously delinquent (at least 90 days late or “severely derogatory”).
There are a number of credit graphs at the NY Fed site.

NAR: Pending home sales index increased 2.4% in July

by Calculated Risk on 8/29/2012 10:05:00 AM

From the NAR: July Pending Home Sales Rebound

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 2.4 percent to 101.7 in July from 99.3 in June and is 12.4 percent above July 2011 when it was 90.5. The data reflect contracts but not closings.

The PHSI in the Northeast increased 0.5 percent to 77.0 in July and is 13.4 percent higher than a year ago. In the Midwest the index grew 3.4 percent to 97.4 in July and is 20.2 percent above July 2011. Pending home sales in the South rose 5.2 percent to an index of 111.7 in July and are 15.6 percent above a year ago. In the West the index slipped 1.7 percent in July to 109.9 but is 1.3 percent higher than July 2011.
This was above the consensus forecast of a 1.0% increase for this index and is the highest level in two years (since the expiration of the housing tax credit).

Contract signings usually lead sales by about 45 to 60 days, so this is for sales in August and September.

Q2 GDP Growth Revised up to 1.7% Annualized

by Calculated Risk on 8/29/2012 08:47:00 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 1.7 percent in the second quarter of 2012 (that is, from the first quarter to the second quarter), according to the "second" estimate released by the Bureau of Economic Analysis.
The main revisions were:

PCE was revised up from 1.5% to 1.7% (services were revised up).

Investment was revised down (the contribution to GDP from Change in private inventories was revised from +0.32 percentage points to -0.23 in the second release).

Imports are revised down. PCE prices increased at only 0.7% annualized (same as advance release), and core PCE prices increased at a 1.7% annual rate. Overall these changes are minor and were at expectations. This is still sluggish growth.

MBA: Mortgage Refinance Activity declines

by Calculated Risk on 8/29/2012 07:03:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 6 percent from the previous week to its lowest level since May 11, 2012. The seasonally adjusted Purchase Index increased more than 1 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.80 percent from 3.86 percent, with points remaining unchanged at 0.42 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
Purchase Index Click on graph for larger image.

This graph shows the MBA mortgage purchase index.

The purchase index has been mostly moving sideways over the last two years.

I'm still puzzling over why the MBA index is moving sideways but the recent Senior Loan Officer survey showed "moderately to stronger" demand for mortgages to purchase homes:

Senior Loan Officer Survey
Over half the banks surveyed reported moderately to substantially strong demand for mortgage to purchase homes. It isn't clear why the MBA index and the Fed survey results are different.

Tuesday, August 28, 2012

Wednesday: Q2 GDP update, Pending Home Sales, Beige Book

by Calculated Risk on 8/28/2012 08:37:00 PM

First an excerpt from a research note by Jan Hatzius at Goldman Sachs:

At a minimum, we expect an extension of the forward rate guidance to "mid-2015" at the September 12-13 FOMC meeting. We also expect an eventual return to QE, although in terms of timing we believe that either December or early 2013 is still more likely than September.
...
The tone of the data has clearly improved a bit since the [last FOMC] meeting. ... we estimate that Q3 GDP is on track for a 2.4% annualized gain versus an advance estimate of 1.5% for Q2.

However, a return to QE in September is clearly possible if the upcoming data, especially the August employment report released on September 7, fall short of expectations or if financial conditions tighten again--e.g., in the wake of any disappointment around the European situation and the ECB meeting on September 6.
On Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

• At 8:30 AM, the BEA will release the 2nd estimate of Q2 GDP. The consensus is that real GDP increased 1.7% annualized in Q2, revised up from 1.5% in the advance release.

• At 10:00 AM, the Pending Home Sales Index for August will be released. The consensus is for a 1.0% increase in the index.

• At 11:00 AM, the New York Fed will release the Q2 2012 Report on Household Debt and Credit

• 2:00 PM, the Federal Reserve Beige Book will be released. This is an informal review by the Federal Reserve Banks of current economic conditions in their Districts.


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

Housing: Two Bearish Views on House Prices and Foreclosures

by Calculated Risk on 8/28/2012 05:04:00 PM

First a couple of bearish views on house prices - clearly residential investment has bottomed, but some analysts think house prices will fall further.

• From RadarLogic: Apparent Strength in Home Price Metrics Driven by Decline in Distressed Sales

A decline in sales of homes in bank inventories, coupled with an increase in the rate of all other sales, helped drive the 25 metropolitan area RPX Composite price to a year-over-year gain in June, according to the June 2012 RPX Monthly Housing Market Report ...
"The absence of real price appreciation when distressed sales are excluded from the analysis suggests that traditional home buyers remain hesitant to return to the market in strength," said Michael Feder, Radar Logic's CEO. "We continue to be concerned that this negative psychology could be the biggest risk threatening any real recovery in housing values. If it continues, the resultant imbalance between supply and demand could trigger another decline in home values."

The gains of the first half of 2012 could be short lived. They were the result of seasonal factors and REO disposition strategies that could reverse in the fall. The unusually rapid price appreciation could give way to equally rapid declines in the second half of the year.
• From Mark Hanson posted at the Big Picture: Hanson On Case Shiller
[T]oday’s CS is disappointing…a YoY 15% increase in purchasing power and 25% decrease in foreclosure resales and still the CS-20 NSA only managed a 0.5% gain over last year. To me, normalized, that means real house prices are still falling.
My view is house prices probably bottomed early this year (back when I wrote "The Bottom is Here").

And on foreclosures: CoreLogic® Reports 58,000 Completed Foreclosures in July
According to the report, there were 58,000 completed foreclosures in the U.S. in July 2012 down from 69,000 in July 2011 and 62,000* in June 2012. Since the financial crisis began in September 2008, there have been approximately 3.8 million completed foreclosures across the country. Completed foreclosures are an indication of the total number of homes actually lost to foreclosure.
...
“Completed foreclosures were down again in July, this time by 16 percent versus a year ago, as servicers increasingly rely on alternatives to the foreclosure process, such as short sales and modifications,” said Mark Fleming, chief economist for CoreLogic. “Completed foreclosures remain concentrated in five states, California, Florida, Michigan, Texas and Georgia, accounting for 48 percent of all completed foreclosures nationwide in July.”
Earlier:
Case-Shiller: House Prices increased 0.5% year-over-year in June
House Price Comments, Real House Prices, Price-to-Rent Ratio
All Current House Price Graphs

FDIC reports Fewer Problem banks, REO Declines; Total REO Declines in Q2

by Calculated Risk on 8/28/2012 02:50:00 PM

The FDIC released the Quarterly Banking Profile for Q2 today.

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $34.5 billion in the second quarter of 2012, a $5.9 billion improvement from the $28.5 billion in profits the industry reported in the second quarter of 2011. This is the 12th consecutive quarter that earnings have registered a year-over-year increase. Lower provisions for loan losses and higher gains on sales of loans and other assets accounted for most of the year-over-year improvement in earnings. Also noteworthy was an increase in loan balances for the fourth time in the last five quarters.
The FDIC reported the number of problem banks declined:
The number of "problem" institutions fell for the fifth quarter in a row. The number of "problem" institutions declined from 772 to 732. This is the smallest number of "problem" banks since year-end 2009. Total assets of "problem" institutions declined from $292 billion to $282 billion. Fifteen insured institutions failed during the second quarter. This is the smallest number of failures in a quarter since the fourth quarter of 2008, when there were 12. Another nine banks have failed so far in the third quarter, bringing the total for the year to date to 40. At this point last year, there had been 68 failures.
FDIC Insured Institution REO Click on graph for larger image.

And the dollar value of Real Estate Owned (REOs, foreclosure houses) declined from $11.1 billion in Q1 to $9.5 billion in Q2. This is the lowest level of REOs since Q1 2008.

This graph shows the dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

The next graph is from Tom Lawler and shows the total REO for Fannie, Freddie, FHA, Private Label (PLS) and FDIC insured institutions. This isn't all the REO, as Lawler noted before, it "excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts", but it is probably over 90%.

Total REOSome comments from Tom Lawler:

On the SF REO front, the “carrying value” of 1-4 family REO properties of FDIC-insured institutions at the end of last quarter was $9.5302 billion, down from $11.0819 billion at the end of the first quarter and $12.0895 billion a year ago. The FDIC does not report (or even collect) data on the number of 1-4 family REO properties held by FDIC-insured institutions, which is annoying.

Assuming that the carrying value of SF REO properties held by FDIC-insured institutions is 50% higher than the average of Fannie and Freddie, here is a chart showing trends in the SF REO inventories of Fannie, Freddie, FHA, private-label securities (from Barclays Capital), and FDIC-insured institutions.

Combined REO inventories last quarter were down about 21% from a year ago, and were at the lowest level since 2007.

House Price Comments, Real House Prices, Price-to-Rent Ratio

by Calculated Risk on 8/28/2012 11:56:00 AM

Case-Shiller reported the first year-over-year (YoY) gain in their house price indexes since 2010 - and the increase back in 2010 was related to the housing tax credit. Excluding the tax credit, this is the first YoY increase since 2006. The YoY increase in June suggests that house prices probably bottomed earlier this year (the YoY change lags the turning point for prices).

Since there is a seasonal pattern for house prices, we should expect the month-over-month change to turn negative later this year (probably in the report for August or September). The key will be to watch the YoY change and also compare to the seasonal lows in March 2012. In June, the Case-Shiller Composite 20 index Not Seasonally Adjusted (NSA) was 6.0% above the March 2012 low.

No one should expect the strong price increases to continue. The Case-Shiller Composite 20 index NSA was up 2.3% in June from May. However a large portion of that increase was seasonal. On a Seasonally Adjusted (SA) basis, the Composite 20 index was up 0.9%. That is a 11% annualized rate - and that will not continue. I suspect much of the increase over the last few months was a "bounce off the bottom" and I don't expect prices to increase at this pace.

Here is another update to a few graphs: Case-Shiller, CoreLogic and others report nominal house prices, and it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio. Real prices, and the price-to-rent ratio, are back to late 1999 to 2000 levels depending on the index.

Nominal House Prices

Nominal House PricesClick on graph for larger image.

The first graph shows the quarterly Case-Shiller National Index SA (through Q2 2012), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through June) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q1 2003 levels (and also back up to Q4 2010), and the Case-Shiller Composite 20 Index (SA) is back to July 2003 levels, and the CoreLogic index (NSA) is back to November 2003.

Real House Prices

Real House PricesThe second 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 mid-1999 levels, the Composite 20 index is back to June 2000, and the CoreLogic index back to October 2000.

As we've discussed before, in real terms, all of the appreciation early in the last decade is still gone.

Price-to-Rent

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 National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to Q3 1999 levels, the Composite 20 index is back to June 2000 levels, and the CoreLogic index is back to August 2000.

In real terms - and as a price-to-rent ratio - prices are mostly back to late 1990s or early 2000 levels.

All Current House Price Graphs

Case-Shiller: House Prices increased 0.5% year-over-year in June

by Calculated Risk on 8/28/2012 09:00:00 AM

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

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the quarterly national index.

Note: Case-Shiller reports NSA, I use the SA data.

From S&P: Home Prices Rose in the Second Quarter of 2012 According to the S&P/Case-Shiller Home Price Indices

Data through June 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices ... showed that all three headline composites ended the second quarter of 2012 with positive annual growth rates for the first time since the summer of 2010. The national composite was up 1.2% in the second quarter of 2012 versus the second quarter of 2011, and was up 6.9% versus the first quarter of 2012. The 10- and 20-City Composites posted respective annual returns of +0.1% and +0.5% in June 2012. Month-over-month, average home prices in the 10-City Composite were up 2.2% and in the 20-City Composite were up 2.3% versus May. For the second consecutive month, all 20 cities and both Composites recorded positive monthly gains. Eighteen of the 20 MSAs and both Composites posted better annual returns in June as compared to May 2012 – only Charlotte and Dallas saw a deceleration in their annual rates.
...
“Home prices gained in the second quarter,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “In this month’s report all three composites and all 20 cities improved both in June and through the entire second quarter of 2012. All 20 cities and both monthly Composites rose for the second consecutive month. It would have been a third consecutive month had we not seen home prices fall in Detroit back in April."
Case-Shiller House Prices Indices Click on graph for larger image.

The first 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 32.0% from the peak, and up 1.0% in June (SA). The Composite 10 is up 3.5% from the post bubble low set in March (SA).

The Composite 20 index is off 31.6% from the peak, and up 0.9% (SA) in June. The Composite 20 is up 3.6% from the post-bubble low set in March (SA).

Case-Shiller House Prices Indices The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 0.1% compared to June 2011.

The Composite 20 SA is up 0.5% compared to June 2011. This was the first year-over-year since 2010 (when the tax credit boosted prices temporarily).

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Case-Shiller Price Declines Prices increased (SA) in 18 of the 20 Case-Shiller cities in June seasonally adjusted (all 20 cities increased NSA). Prices in Las Vegas are off 60.0% from the peak, and prices in Dallas only off 6.0% from the peak. Note that the red column (cumulative decline through June 2012) is above previous declines for all cities.

This was better than the consensus forecast and the change to a year-over-year increase is significant. I'll have more on prices later.

Report: ECB President Draghi to Skip Jackson Hole

by Calculated Risk on 8/28/2012 08:42:00 AM

From Reuters: Draghi Skips Jackson Hole Ahead of Pivotal ECB Meeting

European Central Bank President Mario Draghi will not attend the annual Jackson Hole meeting of central bankers at the end of this week due to a heavy workload, the ECB said on Tuesday as its policymakers gear up for a critical meeting on Sept. 6.

Draghi had been expected to speak at the Jackson Hole gathering, but the retreat in the U.S. state of Wyoming falls just as ECB policymakers are hammering out the details of a new bond-buying plan aimed at tackling the euro zone debt crisis.

When asked whether Draghi was no longer planning to attend the Jackson Hole meeting, an ECB spokesman said: "That's correct ... He has a very heavy workload in the coming days."
No speech on Saturday (Bernanke speaks on Friday at the Jackson Hole Economic Symposium).

Monday, August 27, 2012

Tuesday: Case-Shiller House Price index

by Calculated Risk on 8/27/2012 09:11:00 PM

First, tropical storm Isaac is forecast to reach hurricane strength soon, and is expected to make landfall near New Orleans on Tuesday night. Here is the NHC website with the forecast track and satellite images. It appears Isaac will be slow down as it makes landfall and will be over New Orleans for an extended period.

The big news tomorrow will be the release of the Case-Shiller house price index for June that I expect will to show a year-over-year increase for the first time since the housing bust started (except a brief increase in 2010 related to the housing tax credit).

On Tuesday:
• At 9:30 AM ET, the S&P/Case-Shiller House Price Index for June (and the national index for Q2) will be released. The consensus is for a no change year-over-year in the Composite 20 prices (NSA) for June. The Zillow forecast is for the Composite 20 to increase 0.3% year-over-year, and for prices to increase 0.9% month-to-month seasonally adjusted.

• At 10:00 AM, the Conference Board's consumer confidence index for August is scheduled for release. The consensus is for a decrease to 65.0 from 65.9 last month.

• Also at 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for August will be released. The consensus is for an increase to -10 for this survey from -17 in July (above zero is expansion).


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

DOT: Vehicle Miles Driven increased 0.4% in June

by Calculated Risk on 8/27/2012 04:49:00 PM

The Department of Transportation (DOT) reported today:

Travel on all roads and streets changed by 0.4% (1.1 billion vehicle miles) for June 2012 as compared with June 2011. Travel for the month is estimated to be 257.6 billion vehicle miles.

Cumulative Travel for 2012 changed by 1.1% (15.6 billion vehicle miles).
The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is still mostly moving sideways.

Vehicle Miles Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 55 months - and still counting.

The second graph shows the year-over-year change from the same month in the previous year.

Vehicle Miles Driven YoY Gasoline prices peaked in April at close to $4.00 per gallon, and then started falling.

Gasoline prices were down in June to an average of $3.60 per gallon according to the EIA. Last year, prices in June averaged $3.74 per gallon, so it makes sense that miles driven are up year-over-year in June.

Just looking at gasoline prices suggest miles driven will be up in July too, but then decline year-over-year in August with the recent increase in prices.

However, as I've mentioned before, gasoline prices are just part of the story. The lack of growth in miles driven over the last 4+ years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 50 drivers drive fewer miles) and changing driving habits of young drivers. With all these factors, it may be years before we see a new peak in miles driven.

Fed's Pianalto discusses Benefits and Costs of QE3

by Calculated Risk on 8/27/2012 01:08:00 PM

From Cleveland Fed President Sandra Pianalto: The Federal Reserve and Monetary Policy

I am expecting the U.S. economy to continue to grow, but at a moderate pace. I expect economic growth of about 2 percent this year. And with this moderate GDP growth forecast, my outlook is for very slow improvement in the jobless rate. I expect the pace of GDP growth to pick up gradually through 2014, and for the unemployment rate to remain above 7 percent through 2014. Given my outlook for slow economic growth, I also expect slow wage growth, and I anticipate that core inflation will remain near the FOMC's 2 percent long-term objective over the next few years. While inflation remains close to our objective, unemployment is still well above the FOMC's estimate of the longer-term normal rate. The monetary policy debate is whether the FOMC should take further actions to stimulate today's slow-growth economy to bring down unemployment.

Monetary policy should do what it can to support the recovery, but there are limits to what monetary policy can accomplish. Monetary policy cannot directly control the unemployment rate. It can only foster conditions in financial markets that are conducive to growth and a lower unemployment rate. At times, significant obstacles can get in the way.
...
... large-scale asset purchases can be effective. But our experience with these programs is limited, and as a result, they justify more analysis. For example, as the structure of interest rates has moved lower over time, it is possible that future large-scale asset purchase programs will yield somewhat smaller interest-rate declines than past programs. A related issue to evaluate is whether further reductions in longer-term interest rates would stimulate economic activity to the same degree as they have in the past.

Let me now turn to some of the potential costs. It is conceivable that, at some point, policies designed to promote further declines in rates could interfere with financial stability. Some financial institutions find themselves challenged today by the low-interest-rate environment, and they might take actions to remain profitable that could affect risk in the financial system. ...

Finally, it is also conceivable that, at some point, the Federal Reserve's presence in certain securities markets would become so large that it would distort market functioning. It is important to have good estimates of how large the Federal Reserve's participation would have to be to cause a meaningful deterioration in securities market functioning, and to better understand the potential costs of such deterioration for the economy as a whole.

The bottom line is this: I am supportive of actions that provide economic benefits with manageable risks. The FOMC's policy actions to date have been important economic stabilizers and have acted to support the expansion. Yet today, we still find ourselves in a challenging economic environment – one in which we continue to rely on nontraditional policy tools. These new tools come with benefits and with risks ... and we must constantly weigh both in our efforts to meet our dual mandate of maximum employment and stable prices.
Pianalto is a voting member of the FOMC and her views are considered to be in the middle. Her concern about "a meaningful deterioration in securities market functioning" was addressed in the last meeting in a staff report, from the FOMC minutes:
In reviewing the costs that such a program might entail, some participants expressed concerns about the effects of additional asset purchases on trading conditions in markets related to Treasury securities and agency MBS, but others agreed with the staff's analysis showing substantial capacity for additional purchases without disrupting market functioning.
Some reports will probably focus on Pianalto's comment that "there are limits to what monetary policy can accomplish", but she clearly outlined the dual mandate, noted that unemployment was forecast to be very high for years, while inflation is forecast to be "close" to the FOMC objective - and there has already been a staff report addressing her concern about market functioning.  My guess is she is leaning towards additional accommodation.

Dallas Fed: "Growth Slows" in August Regional Manufacturing Activity

by Calculated Risk on 8/27/2012 10:30:00 AM

From the Dallas Fed: Texas Manufacturing Growth Slows but Six-Month Expectations Improve

Texas factory activity increased but at a slower pace in August, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 12 to 6.4, suggesting softer output growth.

The general business activity index remained negative but climbed nearly 12 points from -13.2 to -1.6.
...
Labor market indicators reflected stronger labor demand but unchanged workweeks. Employment growth picked up in August, with the index rising to 14.2, its highest reading in five months. Twenty-four percent of firms reported hiring new workers, while 10 percent reported layoffs. The hours worked index was near zero, suggesting little change in workweek length.
This was above expectations of a -6.0 reading for the general business activity index.

So far all of regional manufacturing surveys have been weak in August.

Fed's Evans supports Open-Ended QE

by Calculated Risk on 8/27/2012 08:50:00 AM

From Chicago Fed President Charles Evans: Some Thoughts on Global Risks and Monetary Policy

Evans concludes with an impassioned plea to do more to help reduce unemployment:

Finding a way to deliver more accommodation — whether it is monetary or fiscal — is particularly important now because delays in reducing unemployment are costly. An unusually large percentage of the unemployed have been without work for quite an extended period of time; their skills can become less current or even deteriorate, leaving affected workers with permanent scars on their lifetime earnings. And any resulting lower aggregate productivity also weighs on potential output, wages and profits for the economy as a whole. The damage intensifies the longer that unemployment remains high. Failure to act aggressively now could lower the capacity of the economy for many years to come.
...
I have outlined some policy actions that I think can take us in the direction of a more vibrant and resilient economy. Given the risks we face, I think it is vital that we make such moves today. I don’t think we should be in a mode where we are waiting to see what the next few data releases bring. We are well past the threshold for additional action; we should take that action now.
Evans once again proposes keeping the Fed funds rate low until unemployment falls below some target (he suggests 7%), unless inflation rises above 3%.

Evans also supports open-ended QE until the economic conditions clearly improve:
I support further use of our balance sheet to provide even more monetary accommodation. ... I believe it is time to take even stronger steps, such as the purchase of more mortgage-backed securities, to increase the degree of monetary support for the recovery. As suggested recently by my colleagues Eric Rosengren and John Williams, these could be open-ended purchases, meaning that they would continue at a certain rate until there was clear evidence of improvement in economic conditions.
This is not a new position for Evans, but this is an especially strong speech.

Sunday, August 26, 2012

Sunday Night Futures:Isaac, ECB and Fed

by Calculated Risk on 8/26/2012 09:07:00 PM

Tropical Storm Isaac in the Gulf (soon to be a hurricane). Fed Chairman Ben Bernanke and ECB President Mario Draghi speak later this week at the Jackson Hole Symposium. It will be a busy week!

From Reuters: Isaac heads for U.S. Gulf Coast, Landfall likely on anniversary of Hurricane Katrina

Isaac is expected to strengthen to a Category 2 hurricane and hit the Gulf Coast ... on or near the seventh anniversary of Hurricane Katrina - the U.S. National Hurricane Center (NHC) said in an advisory.

With the threat to offshore oil infrastructure and Louisiana refineries, U.S. crude oil prices traded up 75 cents to $96.90 a barrel in Asia trading early Monday.

Once ashore, the storm could wreak havoc on low-lying fuel refineries along the Gulf Coast that account for about 40 percent of U.S. refining capacity.
It was the storm surge during Katrina that damaged the Gulf Coast refineries - and the NHC doesn't expect Isaac to be as large or powerful as Katrina, but Isaac is still a very dangerous storm.

From the WSJ: ECB Weighs Flexible Targets on Bond Yields
[O]fficials are moving in the direction of informal, flexible yield objectives for shorter-maturity bond yields of Spain and other at-risk countries, according to the person familiar with the matter.

The central bank is unlikely to finalize anything before its Sept. 6 policy meeting, at the earliest. Yet the basic contours are starting to take shape.

The thinking, the person said, is that the ECB would guide investors toward a target, or range, for government bond yields of Spain and others by publicly communicating specifics about the amount of the bond purchases it conducts, as well as the details on the types of bonds it buys.
No denial yet from Germany.

And from Jon Hilsenrath at the WSJ: Will Fed Act Again? Sizing Up Potential Costs
Federal Reserve Chairman Ben Bernanke delivers what could be his closing argument in deliberations about launching a new bond-buying program when he speaks Friday at the central bank's Jackson Hole, Wyo., conference.

The argument comes down to weighing costs and benefits.
The Asian markets are mixed tonight, with the Nikkei up 0.8% and the Shanghai Composite down 1%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P future are up 2, and the DOW futures up 25 points.

Oil prices are moving up again with WTI futures are at $96.88 and Brent is at $114.27 per barrel. Using the calculator at Econbrowser suggests national gasoline prices at about $3.69 per gallon.

Yesterday:
Summary for Week Ending Aug 24th
Schedule for Week of Aug 26th

Three more questions for the August economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).



"Serial Refinancers" and Percent of Refinance Loans with Cash Out

by Calculated Risk on 8/26/2012 04:06:00 PM

From Annamaria Andriotis at the WSJ: The Serial Refinancers

To keep up with falling rates, almost 2.2 million homeowners have refinanced their mortgages at least twice since 2009, according to data compiled for The Wall Street Journal by SMR Research, a mortgage-research firm in Hackettstown, N.J.

From 2006 through 2008, some 3.5 million homeowners refinanced at least twice.
...
The last time homeowners were so eager to refinance, it was a more expensive proposition. At the height of the housing boom, 86% of borrowers who refinanced took out cash and ended up with a higher loan amount, according to Freddie Mac.
Refinance activity has picked up again this year, but this is very different from the mortgage equity withdrawal surge during the housing bubble.

Freddie Mac has some great data in their refinance activities reports.

Refinance Cash Out Click on graph for larger image.

This graph uses the Freddie Mac data. This year, close to 60% of loans have no change in the loan balance, and another 20%+ were "Cash-in" refinances (with the borrower putting money into the house to obtain the refinance loan). Last year, in Q4, almost half of all loans were "cash-in"!

Here are the definitions from Freddie Mac:
"Higher Loan Amount" refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. "No Change In Loan Amount" refers to loans on which the principal balance was unchanged during refinance or loans that increased less than 5 percent of the original loan balance due to the inclusion of closing costs for the refinance. "Lower loan amount" refers to loan amounts that were less than the amortized UPB of the original loan. These three columns may not sum to 100% due to rounding.
Yesterday:
Summary for Week Ending Aug 24th
Schedule for Week of Aug 26th

Zillow: House Prices increased 1.2% Year-over-year in July

by Calculated Risk on 8/26/2012 10:18:00 AM

Notes: Every month Zillow uses their data to estimate the Case-Shiller index. On Friday I posted their estimate for the June Case-Shiller Composite 20 index showing a 0.3% year-over-year increase.

Of course Zillow has their own house price index that excludes foreclosure resales and they released their report for July last week and I rarely mention it - so here is their most recent release.

From Zillow: U.S. Home Values Climb for Eighth Consecutive Month; Over 60% of Metros Show Increasing Values

Zillow’s July Real Estate Market Reports ... show that home values increased 0.5 percent to $151,600 from June to July (Figure 1), marking another month of healthy monthly appreciation. Compared to July 2011, home values are up by 1.2 percent (Figure 2), supported in many places by low for-sale inventory. Inventory shortages are being fueled by negative equity and a slowed distribution of REOs. ... On an annual basis, rents across the nation are up by 5.4 percent
Zillow House Price Index Click on graph for larger image.

This graph from Zillow shows the national Zillow HPI.

The index was up 0.5% in July, and is up 1.2% over the last year.

The index is off 21.7% from the peak in April 2007. (This excludes foreclosures).

From Zillow:
The Zillow Real Estate Market Reports cover 167 metropolitan areas (metros) of which 102 showed monthly home value appreciation. Among the top 30 metros, 21 experienced monthly home value appreciation and 14 saw annual increases. The largest monthly decline among the top 30 metros took place in St. Louis, where home values fell by 0.4 percent from June to July. Leading the pack on the appreciation side are Phoenix, San Jose and San Francisco, which experienced 2.2, 1.2 and 1.2 percent home value appreciation, respectively
Zillow YoY House Price IndexThe second graph is also from Zillow. The year-over-year comparison has turned positive this year, and is positive for the first time since the housing bubble burst.

Zillow also has data on rents and the rate of foreclosed homes.

Note: At the peak of the bubble, we only had the OFHEO HPI (now FHFA and for GSE loans only), and some median price indexes that are impacted by the mix. Now we have a number of house price indexes released every month: Case-Shiller, CoreLogic, LPS, Zillow, FNC and several others.

Saturday, August 25, 2012

Unofficial Problem Bank list declines to 898 Institutions

by Calculated Risk on 8/25/2012 06:39:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Aug 24, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Only one change for the Unofficial Problem Bank List this week as the FDIC held to form and did not release its actions until the last Friday of the month. For next week, that means we will should get the second quarter industry earnings and the Official Problem Bank List on the 28th and FDIC's actions for July on the 31st.

The Federal Reserve terminated the action against Valley Bank, Roanoke, VA ($781 million Ticker: VYFC). After removal, the Unofficial Problem Bank List holds 898 institutions with assets of $346.7 billion. A year ago, the list held 988 institutions with assets of $415.9 billion.
Earlier:
Summary for Week Ending Aug 24th
Schedule for Week of Aug 26th

Schedule for Week of Aug 26th

by Calculated Risk on 8/25/2012 01:05:00 PM

Earlier:
Summary for Week Ending Aug 24th

The most anticipated events this coming are the speeches by Fed Chairman Ben Bernanke (Friday) and ECB President Mario Draghi (Saturday) at the Jackson Hole Economic Symposium .

Key economic releases include the Case-Shiller house price index on Tuesday, the second estimate of Q2 GDP on Wednesday, and July Personal Income and Spending on Thursday.

Note: The FDIC is expected to release the Q2 Quarterly Banking Profile this week.

----- Monday, Aug 27th -----
6:00 AM ET: Chicago Fed President Charles Evans speaks in Hong Kong (not voting member of FOMC).

10:30 AM: Dallas Fed Manufacturing Survey for August. The consensus is for -6.0 for the general business activity index, up from -13.2 in July.

12:15 PM: Cleveland Fed President Sandra Pianalto speaks on the economic outlook and monetary policy in Newark (voting member of FOMC).

----- Tuesday, Aug 28th -----
Case-Shiller House Prices Indices 9:00 AM: S&P/Case-Shiller House Price Index for June. Although this is the June report, it is really a 3 month average of April, May and June.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through May 2012 (the Composite 20 was started in January 2000).

The consensus is for a no change year-over-year in the Composite 20 prices (NSA) for June. The Zillow forecast is for the Composite 20 to increase 0.3% year-over-year, and for prices to increase 0.9% month-to-month seasonally adjusted. The CoreLogic index increased 1.3% in June (NSA).

10:00 AM: Conference Board's consumer confidence index for August. The consensus is for a decrease to 65.0 from 65.9 last month.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for August. The consensus is for an increase to -10 for this survey from -17 in July (above zero is expansion).

----- Wednesday, Aug 29th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

8:30 AM: Gross Domestic Product, 2nd quarter 2012 (second estimate); Corporate Profits, 2nd quarter 2012 (preliminary estimate). This is the second estimate from the BEA. The consensus is that real GDP increased 1.7% annualized in Q2, revised up from 1.5% in the advance release.

10:00 AM ET: Pending Home Sales Index for August. The consensus is for a 1.0% increase in the index.

11:00 AM: New York Fed to Release Q2 2012 Report on Household Debt and Credit.

2:00 PM: Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts. This will receive extra attention this month as investors look for any sign of a "a substantial and sustainable strengthening in the pace of the economic recovery" that might derail QE3. (quote from the recent FOMC minutes).

----- Thursday, Aug 30th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 370 thousand from 372 thousand.

8:30 AM ET: Personal Income and Outlays for July. The consensus is for a 0.3% increase in personal income in July, and for 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

11:00 AM: Kansas City Fed regional Manufacturing Survey for August. This is the last of the regional surveys for August. The consensus is for an a reading of 5, unchanged from 5 in July (above zero is expansion).

----- Friday, Aug 31st -----
9:45 AM: Chicago Purchasing Managers Index for August. The consensus is for a decrease to 53.0, down from 53.7 in July.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for August). The consensus is for a reading of 73.5, down from the preliminary August reading of 73.6, and up from the July reading of 72.3.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for July. The consensus is for a 0.9% increase in orders.

10:00 AM, Speech by Fed Chairman Ben Bernanke, "Monetary Policy Since the Crisis", At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming

----- Saturday, Sep 1st -----
10:00 AM, Speech by ECB President Mario Draghi at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming