by Calculated Risk on 1/11/2011 09:55:00 AM

Notes: CoreLogic reports the year-over-year change. The headline for this post is for the change from October to November 2010. The CoreLogic HPI is a three month weighted average of September,October and November, and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic® Home Price Index Shows Decline for Fourth Straight Month

CoreLogic ... released its November Home Price Index (HPI) which shows that home prices in the U.S. declined for the fourth month in a row. According to the CoreLogic HPI, national home prices, including distressed sales, declined by 5.07 percent in November 2010 compared to November 2009 and declined by 3.35 percent in October 2010 compared to October 2009. Excluding distressed sales, year-over-year prices declined by 2.21 percent in November 2010 compared to November 2009 and declined by 2.24 in October 2010 compared to October 2009. ...

“We’re continuing to see the influence of seasonal declines that typically depress home prices during the latter part of the year, but the fact that the rate of decline increased for November is indicative of the uphill battle we’re facing with the housing recovery,” said Mark Fleming, chief economist for CoreLogic.

Click on graph for larger image in graph gallery.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index is down 5.07% over the last year, and off 30.9% from the peak.

The index is only 1.2% above the low set in March 2009, and I expect to see a new post-bubble low for this index - possibly as early as next month or maybe in early 2011.

by Calculated Risk on 1/11/2011 09:00:00 AM

This is the new UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce Index^TM

Click on graph for larger image in new window.

This graph shows the index since January 1999.

Press Release: Year-End Surge Reported in Latest Ceridian-UCLA Pulse of Commerce Index™

The Ceridian-UCLA Pulse of Commerce Index™ (PCI), a real-time measure of the flow of goods to U.S. factories, retailers and consumers, surged 2.4 percent in December and pushed the PCI above its previous 2010 peak established in May. This performance, combined with November’s 0.4 percent increase, was enough to offset three previous consecutive months of decline.

“The latest PCI data further evidences the positive economic sentiment felt since the start of the New Year,” explained Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “However, we have not entirely escaped the summer doldrums as the three-month moving average is still below its July 2010 level.”
...
The PCI tracks closely on a monthly basis to the Industrial Production Index (to be released later this month) and GDP. Though the forecasts for subsequent growth remain weak, the December surge translates into a very favorable growth of industrial production by .6 percent. Similarly, the PCI outlook for fourth quarter 2010 GDP is more optimistic, but is still expected to be less than current consensus estimates.
...
The Ceridian-UCLA Pulse of Commerce Index™ is based on real-time diesel fuel consumption data for over the road trucking ...

Note:
I'm not confident in using this index to forecast GDP growth, although it does appear to track Industrial Production over time (with plenty of noise). Industrial Production for December will be released on Friday.

by Calculated Risk on 1/11/2011 07:30:00 AM

From National Federation of Independent Business (NFIB): Small Business Optimism declines slightly in December

The National Federation of Independent Business Index of Small Business Optimism lost 0.6 points in December, dropping to 92.6, disappointing those who were anticipating a rebound that might signify more growth in the small business sector. Weak sales remains the top problem, stagnating hiring and spending on capital projects. All of which are sidelining the small business sector from a recovery. This marks the 36th month of Index readings in the recession level.

"The hope for a pick-up in the small business sector did not materialize, but new weaknesses did not appear either," said William C. Dunkelberg, chief economist for the National Federation of Independent Business. "More owners expect their real sales volumes to rise in the coming months, increasing the odds that more hiring and inventory investments will take place. Overall, owners remain stubbornly cautious and uncertain about the future course of the economy and their business prospects."

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image in new window.

The first graph shows the small business optimism index since 1986. The index decreased slightly to 92.6 in December from 93.2 in November.

According to the NFIB: "This marks the 36th month of Index readings in the recession level".

The second graph shows the net hiring plans over the next three months.

Hiring plans have turned positive again and are at the highest level since mid-2008. According to NFIB: "Over the next three months, 10 percent plan to increase employment (up one point), and nine percent plan to reduce it (down three points), yielding a seasonally adjusted netsix percent of owners planning to create new jobs, a two point gain from December and the best reading in 27 months."

And the third graph shows the percent of small businesses saying "poor sales" is their biggest problem.

Usually small business owners complain about taxes and regulations (that usually means business is good!), but now their self reported biggest problem is lack of demand.

The decline this month was small, and in general this index has been improving - but very slowly.

by Calculated Risk on 1/10/2011 11:22:00 PM

From Sudeep Reddy at the WSJ: Downturn's Ugly Trademark: Steep, Lasting Drop in Wages

Between 2007 and 2009, more than half the full-time workers who lost jobs that they had held for at least three years and then found new full-time work by early last year reported wage declines, according to the Labor Department. Thirty-six percent reported the new job paid at least 20% less than the one they lost.

The severity of the latest downturn makes it likely that many of the unemployed who get rehired will take wage cuts, and that it will be years, if ever, before many of their wages return to pre-recession levels, says Columbia University labor economist Till von Wachter. "The deeper the recession, the lower the wage you're going to get in the next job and the lower the quality of your next job," he says.

Even for those who can find work, the impact of the great recession lingers ...

Note: Wages are typically sticky downward for those workers who do not lose their jobs - but for those who lose their jobs, wages can fall sharply when they eventually find new work (this happened in the early '80s too).

by Calculated Risk on 1/10/2011 06:58:00 PM

Three articles from the Financial Times (excerpts with permission):

• Concerns over Belgian debt levels grow

[Belgian] 10-year debt yields rose 12 basis points to 4.24 per cent ... Belgium now pays a 1.4 percentage point premium, or spread, over benchmark German paper, the highest since January 2009.

• ECB intervenes as debt crisis deepens

• And a commentary: Europe must look beyond Portugal

Repeatedly having one’s hand forced by markets is no way to manage financial turmoil. Madrid and the eurozone must prepare for a bond strike against Spain before one happens.

by Calculated Risk on 1/10/2011 03:42:00 PM

From economist Tom Lawler:

While I don’t have sales data from that many parts of the country, my “early” read is that the pace of existing home sales increased noticeably on a seasonally- adjusted basis in December from November. Right now my “best guess” is that existing home sales will come in at a seasonally adjusted annual rate of about 5.13 million, up 9.6% from November’s pace. On the “inventory” front, there is no doubt that December listings will be down sharply from November’s (a “seasonal” norm), but by how much so in the NAR’s report is not clear. Based on realtor.com data (through mid-December; they stopped showing the report I used in mid month) and local MLS data, I’d estimate that the NAR’s estimate of the inventory of existing homes for sale at the end of December will be down about 5% from November.

CR: This would put the months-of-supply in the low 8 months range, down sharply from the 9.5 months reported for November. However some of the decline is seasonal, and inventory should increase again in February.

by Calculated Risk on 1/10/2011 01:07:00 PM

From Atlanta Fed President Dennis Lockhart: The Economy in 2011: Sustainable Growth despite Headwinds

Here are the the "key points":

• According to Lockhart, the economy seems to have gained durable momentum. Growth in gross domestic product, personal income, and jobs should be better this year compared with 2010. Lockhart thinks that although the growth pace is likely to remain relatively modest, economic performance could surprise on the upside.

CR Note: that is close to my view.

• In Lockhart's view, the recovery continues to be constrained by headwinds, especially the interplay among the housing market, household finances and consumer spending, ongoing credit market repair, and lingering uncertainty restraining business and consumer spending. Lockhart believes these headwinds to a significant degree reflect structural adjustments that in the longer term will place the U.S. economy on a stronger footing.

CR Note: I think the key headwinds are 1) housing market issues, 2) State and local government cutbacks and debt, and 3) European financial issues.

• Lockhart believes the housing market will be slow to improve. Weakness in the housing market, especially the downward trend in home prices, has been restraining consumer spending. Consumers have been reducing debt and saving more, and this process of deleveraging may continue for some time.

CR Note: I agree. And like Lockhart, I think residential investment will be sluggish in 2011, but will add to GDP and employment growth for the first time since 2005.

• In Lockhart's opinion, the credit system is not yet back to full health, but the stage is set for some credit expansion in 2011.

by Calculated Risk on 1/10/2011 11:26:00 AM

I've received several emails recently about the Baltic Dry Index (BDI). This is an index that tracks certain international shipping rates. Here is the Baltic Dry Index from Bloomberg. (and another site with a longer term chart).

From Wikipedia:

[T]he index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).

The supply of cargo ships is generally both tight and inelastic — it takes two years to build a new ship, and ships are too expensive to take out of circulation ... So marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly.

So some people have tried to use the BDI as a forecasting tool, but it can't be used in a vacuum. In fact - as the charts at the links above show - the recent decline is nothing unusual.

Here are a couple of article that explain the recent weakness:
• From Bloomberg: Freight Rates Tumbling as 35 Miles of Ships Passes Ore Demand

While about 90 percent of global trade moves by sea, according to the Round Table of International Shipping Associations, the slump in rates is being caused by a vessel surplus not a contracting world economy. ... The surplus was caused by orders placed in 2007 and 2008, when daily income averaged about $111,000.

There are many more ships coming online - no surprise since shipping rates went through the roof a few years ago and it takes time to build new ships!

• And this from Bloomberg last week: Queensland Flooding to Cut Freight Rates as Coal Transporters Lie Idle.

Freight costs fell as Queensland’s worst flooding for 50 years prompted buyers of the Australian state’s coal to cancel ship charters, intensifying competition for cargoes as the extra vessels become available.

BDI signaling a slowdown? Yawn. No worries.

by Calculated Risk on 1/10/2011 08:54:00 AM

• From Bloomberg: Germany May Soften Objections to Fund Increase as Bonds Drop

Germany may soften its opposition to expanding the region’s 750 billion-euro ($966 billion) rescue facility as Belgium’s political deadlock sent borrowing costs surging and the European Central Bank bought Portuguese bonds.

• From AP: Greece borrowing rates hit new record

• From Reuters: ECB Throws Portugal a Temporary Lifeline

The European Central Bank threw Portugal a temporary lifeline on Monday by buying up its bonds, traders said, as market and peer pressure mounted for Lisbon to seek an international bailout soon.

This will be a key week for Portugal.

If Portugal turns to the EFSF, so much for a firewall between the markets and Spain ... the yield on the Spain 10-year bonds hit 5.53% today.

Weekend:
• Summary for Week ending January 8th
• Schedule for Week of January 9th

by Calculated Risk on 1/09/2011 11:27:00 PM

From Bloomberg: China Reports Smaller Trade Surplus Before Obama Meeting

China reported a less-than-forecast $13.1 billion trade surplus for December, bolstering the nation’s bargaining position ahead of a Jan. 19 meeting where U.S. President Barack Obama may press for more gains in the yuan.

The gap compared with ... November’s $22.9 billion.

Nice timing - but I'm skeptical of China's data. The U.S. trade numbers for November will be released this Thursday. The country-by-country trade numbers are not seasonally adjusted, and there is always a huge surge in imports from China right before the holidays - and then a sharp decline, so this might just be seasonal. We will need to look at the year-over-year numbers for China on Thursday.