by Calculated Risk on 9/17/2009 10:00:00 AM

Here is the Philadelphia Fed Index released today: Business Outlook Survey.

The region’s manufacturing sector is showing signs of growth, according to firms polled for this month’s Business Outlook Survey. ...

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 4.2 in August to 14.1 this month. This is the highest reading since June 2007 and the second consecutive positive reading. The percentage of firms reporting increases in activity (33 percent)exceeded the percentage reporting decreases (19 percent). Other broad indicators
also suggested some growth this month. The current new orders index also remained positive for the second consecutive month, although it edged one point lower, to 3.3. The current shipments index increased eight points and has now increased 18 points over the last two months. Firms reported declines in inventories this month: The current inventory index declined 18 points, from 0.3 in August to ‐18.1. Indicators for unfilled orders and delivery times remained negative, suggesting continued weakness.

Labor market conditions remain weak, despite signs of improvement in overall activity. The current employment index decreased slightly, from ‐12.9 to ‐14.3. Overall declines, however, are still not as widespread as in the first six months of this year. ...

Click on graph for larger image in new window.

This graph shows the Philly index for the last 40 years.

The index has been positive for two months now, after being negative for 19 of the previous 20 months. Employment is still weak.

by Calculated Risk on 9/17/2009 08:31:00 AM

Click on graph for larger image in new window.

Total housing starts were at 598 thousand (SAAR) in August, up 1.5% from the revised July rate, and up sharply from the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 479 thousand (SAAR) in August, down 3.0% from the revised July rate, but still 34 percent above the record low in January and February (357 thousand).

Permits for single-family units were 462 thousand in August, suggesting single-family starts will be steady in September.

Here is the Census Bureau report on housing Permits, Starts and Completions.

Building Permits:
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 579,000. This is 2.7 percent (±1.2%) above the revised July rate of 564,000, but is 32.4 percent (±1.3%) below the August 2008 estimate of 857,000.

Single-family authorizations in August were at a rate of 462,000; this is 0.2 percent (±1.1%) below the revised July figure of 463,000.

Housing Starts:
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 598,000. This is 1.5 percent (±7.9%) above the revised July estimate of 589,000, but is 29.6 percent (±6.0%) below the August 2008 rate of 849,000.

Single-family housing starts in August were at a rate of 479,000; this is 3.0 percent (±5.7%) below the revised July figure of 494,000.

Housing Completions:
Privately-owned housing completions in August were at a seasonally adjusted annual rate of 760,000. This is 5.5 percent (±14.0%) below the revised July estimate of 804,000 and is 25.3 percent (±9.6%) below the August 2008 rate of 1,018,000.

Single-family housing completions in August were at a rate of 489,000; this is 1.6 percent (±12.7%)* below the revised July figure of 497,000.

Note that single-family completions of 489 thousand are at about the same level as single-family starts (479 thousand). This suggests residential construction employment has stabilized.

It now appears that single family starts bottomed in January. However, as expected, it appears starts are moving sideways - and will probably stay near this level until the excess existing home inventory is reduced.

by Calculated Risk on 9/17/2009 08:30:00 AM

The DOL reports weekly unemployment insurance claims decreased to 545,000:

In the week ending Sept. 12, the advance figure for seasonally adjusted initial claims was 545,000, a decrease of 12,000 from the previous week's revised figure of 557,000. The 4-week moving average was 563,000, a decrease of 8,750 from the previous week's revised average of 571,750.
...
The advance number for seasonally adjusted insured unemployment during the week ending Sept. 5 was 6,230,000, an increase of 129,000 from the preceding week's revised level of 6,101,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 8,750 to 563,000, and is now 95,750 below the peak in April.

It appears that initial weekly claims have peaked for this cycle. However it seems that weekly claims are stuck at a very high level; weekly claims have been in the high 500 thousands for almost 3 months. This indicates continuing weakness in the job market. The four-week average of initial weekly claims will probably have to fall below 400,000 before the total employment stops falling.

by Calculated Risk on 9/16/2009 09:09:00 PM

From Bloomberg: Homebuyer Tax-Credit Extension Gains Lawmaker Support

An extension of the $8,000 U.S. homebuyer tax credit is gaining support in the Senate as bill sponsor John Isakson said he is rallying lawmakers to continue a program that helped boost home sales by more than 1 million.

“I’m working the floor now to make everyone aware that the $8,000 credit sunsets on Nov. 30,” Isakson, a Georgia Republican, said in an interview today. The former real estate executive says he is “talking to everybody and anybody.”

This is terrible policy, and hopefully the bill will be scuttled.

Meanwhile the usual suspects are lining up to support the bill:

Realtors, bankers and homebuilders have joined in the push, starting a campaign that encourages Congress to extend the program for one year ...

White House spokesman Robert Gibbs told reporters today that President Barack Obama’s economic team is looking at the tax credit and “evaluating the impact” on new home sales.

“Through that evaluation we’ll come to something to give the president a recommendation,” Gibbs said.
...
The bill has at least 15 co-sponsors including Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and senators Patty Murray, a Washington Democrat, and Joe Lieberman, a Connecticut independent.

What is wrong with Connecticut?

by Calculated Risk on 9/16/2009 05:25:00 PM

From the UCLA News today:

Sluggish overall growth is predicted [in a report titled "The Long Goodbye," by UCLA Anderson Forecast], as the [national] unemployment rate will be above 10 percent well into next year.

And in the UK from The Times: Record one in five young people out of work

The number of young people out of work hit a record 947,000 in July as total unemployment in Britain hit 2.47 million.

Official data today showed that the number of jobless 16 to 24-year-olds jumped by nearly 60,000 in the three months to July to the highest level since 1992, when records began.

That figure translates to a record 19.7 per cent - also the highest since records began - meaning that one in five people in that age bracket is looking for work.
...
Total unemployment hit a 13-year high of 2.47 million as more than 210,000 people lost their jobs, sending the jobless rate back to 1996 levels of 7.9 per cent.

And from the NY Times: High Jobless Rates Could Last Years, O.E.C.D. Warns

Unless government programs for the unemployed are refined, there is a danger that high jobless rates will persist beyond 2010 in advanced economies, the Organization for Economic Cooperation and Development warned on Wednesday.

“A recovery may be in sight,” the group said in its annual employment outlook, referring to economic output. “But the short-term employment outlook is grim.”

The international organization said that unemployment among its 30 member nations would rise to nearly 10 percent by the end of 2010, above its previous post-1970 peak of 7.5 percent during the second quarter of 1993.

In the U.S., Rep. Jim McDermott, D-Wash and Sen. Jack Reed, D-R.I. have offered bills in the House and Senate to extend unemployment benefits again. However this proposed extension would only be for any additional 13 weeks for people in high-unemployment states, and many workers will exhaust those claims early in the new year.

I expect to see a double digit unemployment rate within the next few months, and with below trend GDP growth, I expect double digit unemployment rates through most of 2010.

by Calculated Risk on 9/16/2009 02:41:00 PM

Better late than never ...

From Steve Liesman at CNBC: Fed Reviewing Banks' Commercial Real Estate Exposure (ht Bill)

The Federal Reserve is involved a broad review of commercial real estate exposures at the nation's largest regional banks, which Fed sources say is both the result of concern in that area but part of the "new normal" for how they will be supervising banks.
...
People familiar with the examinations say the fed is "getting granular" looking, for example, at the differences in banks' concentration of construction loans vs. multifamily vs. motels and retail.

Clearly the Fed has room for improvement. A review of bank failures (see: Federal Reserve Oversight and the Failure of Riverside Bank of the Gulf Coast) shows that the Fed recognized problems of excessive concentration and risk taking as early as 2003 - and the Fed did nothing.

I think the Fed needs to explain how the new approach would have caught the problems at Riverside (as an example) in 2004 or so. Hopefully that is the point of this "new normal".

by Calculated Risk on 9/16/2009 01:00:00 PM

Click on graph for larger image in new window.

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

The housing market index (HMI) increased to 19 in September from 18 in August. The record low was 8 set in January.

This is still very low - and this is what I've expected - a long period of builder depression.

Note: any number under 50 indicates that more builders view sales conditions as poor than good.

This second graph compares the NAHB HMI (left scale) with new home sales and single family housing starts (right scale). This is the September release for the HMI compared to the July data for starts and sales.

This shows that the HMI, single family starts and new home sales mostly move in the same direction - although there is plenty of noise month-to-month.

NOTE: For purposes of determining if starts are above or below sales, you have to use the quarterly data by intent. You can't compare the monthly total single family starts directly to new home sales, because single family starts include several categories not included in sales (like owner built units and high rise condos).

Press release from the NAHB (added): Builder Confidence Edges Up Again In September

Builder confidence in the market for newly built, single-family homes edged higher for a third consecutive month in September, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI rose one point to 19 this month, its highest level since May of 2008.

“Builders are seeing some improvement in buyer demand as a result of the first-time home buyer tax credit, and low mortgage rates and strong housing affordability have also helped to revive some optimism,” noted Joe Robson, chairman of the National Association of Home Builders (NAHB) and a home builder from Tulsa, Okla. “However, the window is now basically closed for being able to start a new home that can be completed in time for buyers to take advantage of the tax credit before it expires at the end of November, and builders are concerned about what will keep the market moving once the credit is gone. ....”

“Today’s report indicates that builders are starting to see some glimmers of light at the end of the tunnel in terms of improving sales activity,” said NAHB Chief Economist David Crowe. “However, the fact that the HMI component gauging sales expectations for the next six months slipped backward this month is a sign of their awareness that this is a very fragile recovery period and several major hurdles remain that could stifle the positive momentum. Those hurdles include the impending expiration of the $8,000 tax credit as well as the critical lack of credit for housing production loans and continuing problems with low appraisals that are sinking one quarter of all new-home sales. These concerns need to be addressed if we are to embark on a sustained housing recovery that will help bolster economic growth.”

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

Two out of three of the HMI’s component indexes recorded gains in September. The index gauging current sales conditions rose two points to 18, while the index gauging traffic of prospective buyers rose one point, to 17. Meanwhile, the index gauging sales expectations for the next six months declined one point, to 29.

All four regions posted gains in their HMI readings for September. The biggest improvement was registered in the Midwest, where a three-point gain brought its HMI to 19, the highest level since July of 2007. The Northeast posted a two-point gain to 24, the South posted a two-point gain to 19, and the West posted a one-point gain to 18, respectively.
emphasis added

by Calculated Risk on 9/16/2009 11:48:00 AM

Nouriel Roubini writes: Desperately seeking an exit strategy

[T]he key issue for policy-makers is to decide when to mop up the excess liquidity and normalize policy rates – and when to raise taxes and cut government spending, and in which combination.

The biggest policy risk is that the exit strategy from monetary and fiscal easing is somehow botched, because policy-makers are damned if they do and damned if they don't. If they have built up large, monetized fiscal deficits, they should raise taxes, reduce spending and mop up excess liquidity sooner rather than later.

The problem is that most economies are now barely bottoming out, so reversing the fiscal and monetary stimulus too soon – before private demand has recovered more robustly – could tip these economies back into deflation and recession. Japan made that mistake between 1998 and 2000, just as the United States did between 1937 and 1939.

But if governments maintain large budget deficits and continue to monetize them as they have been doing, at some point – after the current deflationary forces become more subdued – bond markets will revolt. When that happens, inflationary expectations will mount, long-term government bond yields will rise, mortgage rates and private market rates will increase, and one would end up with stagflation (inflation and recession).
...
Getting the exit strategy right is crucial: Serious policy mistakes would significantly heighten the threat of a double-dip recession.

In the short term - probably through most or all of 2010 - with the sluggish recovery, high unemployment and overcapacity, the major concern of policymakers will continue to be deflation.

by Calculated Risk on 9/16/2009 09:15:00 AM

The Federal Reserve reported:

Industrial output rose 0.8 percent in August, following an upwardly revised increase of 1.0 percent in July. Production in manufacturing expanded 0.6 percent in August, and the index excluding motor vehicles and parts increased 0.4 percent. The gain in July for manufacturing was revised up 0.4 percentage point, to 1.4 percent; in addition, factory output for April through June is now somewhat less weak than reported previously. Production at mines moved up 0.5 percent in August. The output of utilities gained 1.9 percent, as temperatures swung from an unseasonably mild July to a slightly warmer-than-usual August. At 97.4 percent of its 2002 average, total industrial production was 10.7 percent below its level of a year earlier. In August, the capacity utilization rate for total industry advanced to 69.6 percent, a level 11.3 percentage points below its average for the period 1972 through 2008.
emphasis added

Click on graph for larger image in new window.

This graph shows Capacity Utilization. This series has increased for two straight months, and is up slightly from the record low set in June (the series starts in 1967). Capacity Utilization had decreased in 17 of the previous 18 months.

Note: y-axis doesn't start at zero to better show the change.

Even excluding motor vehicles and parts, industrial production increased 0.4% in August. This suggests that the official recession ended sometime this Summer.

by Calculated Risk on 9/16/2009 08:33:00 AM

From the BLS: Consumer Price Index Summary

On a seasonally adjusted basis, the Consumer Price Index for all Urban Consumers (CPI-U) rose 0.4 percent in August, the Bureau of
Labor Statistics reported today. The index has decreased 1.5 percent over the last 12 months on a not seasonally adjusted basis.
...
The index for all items less food and energy also rose 0.1 percent in August, the second consecutive such increase.
...
the shelter index ... rose 0.1 percent in August after a 0.2 percent decline in July. The rent index was unchanged and the index for owners' equivalent rent increased 0.1 percent.

The BLS measure for rent increased slightly (rounded to flat). And owners' equivalent rent (OER), the largest component of CPI, increased slightly even though rents have been falling in most areas.

CPI has declined 1.5% compared to one year ago.