by Calculated Risk on 1/12/2011 05:13:00 PM

To put the following forecasts into prespective, there were around 474,000 single-family housing starts in 2010, and about 588,000 total housing starts (the final numbers are not available yet).

From MarketWatch: Home-building rebound in 2011 a small matter

Home building is set for a rebound in 2011, with single-family housing starts projected to climb 21% to 575,000 units, the [National Association of Home Builders chief economist David Crowe] said Wednesday.

I expect a rebound for housing starts, but that forecast seems overly optimistic. Economist Tom Lawler is forecasting single-family starts at 520,000 in 2011.

And here is an even lower forecast:

“We do not see any significant increase in starts occurring this year,” said Edward Sullivan, chief economist for the Portland Cement Association. ... Sullivan forecast single-family housing starts will hit 492,000 in 2011, a 3.4% increase from 2010.

Here is a long term graph of housing starts through November ...

Click on graph for larger image in graph gallery.

Even if single-family housing starts increased to 575,000 (the NAHB forecast) that would still leave starts below the bottom of the '90/'91 recession.

Hopefully housing starts will not rebound too much, and the excess vacant housing inventory will be reduced in 2011.

The Census Bureau will report December and 2011 housing starts next Wednesday, January 19th.

by Calculated Risk on 1/12/2011 02:00:00 PM

Fed's Beige Book:

Reports from the twelve Federal Reserve Districts suggest that economic activity continued to expand moderately from November through December.
...
Contacts in the manufacturing sector in all Districts reported that activity continued to recover, with the Richmond and Chicago Districts citing especially solid gains in orders. However, the Boston, Atlanta, and Dallas Districts noted that business remained weak for manufacturers selling into the construction sector. Retailers in all Districts indicated that sales appeared to be higher in this holiday season than in 2009 and, in some cases, better than expectations.

And on real estate:

Activity in residential real estate and new home construction remained slow across all Districts. A majority of the Districts, including Boston, New York, Cleveland, Atlanta, Chicago, Minneapolis, Dallas, and San Francisco characterized local housing markets as weak and sluggish with little change from the previous reporting period.
...
High levels of existing home inventories continued to damp the pace of new home construction in most Districts reporting on construction, although Boston, Richmond, Dallas, and San Francisco mentioned pick-ups in multifamily construction within their Districts. Home prices generally declined or held steady in the New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, Minneapolis, and San Francisco Districts; the New York, Atlanta, Chicago, and San Francisco Districts mentioned distressed properties placing downward pressure on prices.
...
Commercial real estate markets displayed mixed results across the Districts again this reporting period, as leasing markets exhibited increasing signs of recovery and nonresidential construction remained weak.

This fits with other recent data. One of the keys is the pick-up in multifamily construction - I expect this sector to provide some boost to GDP and employment this year.

by Calculated Risk on 1/12/2011 11:19:00 AM

From the WSJ: Illinois House Passes Big Income-Tax Increase

Among the increases in the bill, the individual income-tax rate would jump to 5%, from 3%. ... The corporation tax would also rise to 7% from 4.8%.

It sounds like this will pass in the Illinois state senate and be signed into law.

This is a key theme for 2011: State and local spending cuts and tax hikes. Question #7 for 2011: State and Local Governments. This will be a drag on growth and employment as the states try to get their fiscal houses in order.

Also Meredith Whitney was on CNBC: Whitney Defends Muni Call, Sees 'Indiscriminate Selling'. Her key call was not the number of muni defaults, but the size of the defaults. On 60 Minutes Whitney said about this year: "You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults." As I noted in the State and Local government post, I think that level of defaults is unlikely.

by Calculated Risk on 1/12/2011 08:27:00 AM

Portugal sold €1.25bn of four-year and 10-year bonds and the auction was "successful" with the 10-year yield at 6.71%. There is plenty of skepticism (via the Financial Times):

Howard Wheeldon, senior strategist at BGC Partners, said: “Even though the government managed to get the latest bond auction away does not mean that this problem is in any way solved.”

Apparently the EU is considering a €60 billion aid package for Portugal: Portugal Aid, Buybacks, Debt Rules Weighed in EU Plan

European governments are considering aid for Portugal, debt buybacks, lower interest rates on rescue loans and guarantees against excessive debt as part of a package to quell the financial crisis, according to two people with direct knowledge of the talks.

The plan, which may include a loan to Portugal of about 60 billion euros ($78 billion) and purchases of outstanding Greek debt, would mark an attempt to contain a crisis ... Euro-area finance ministers will discuss elements of the package next week ... decisions may wait until a scheduled summit of political leaders on Feb. 4

Here are three stories on the Portugal bond auction:

• From the WSJ: Portugal's Auction Soothes Nerves

• From the NY Times: Portugal Bond Sale Succeeds Despite Budget Woes

• From the Financial Times: Lisbon succeeds with debt auction

Italy and Spain have auctions this week too.

by Calculated Risk on 1/12/2011 07:00:00 AM

The MBA reports: Mortgage Refinance Applications Increase in Latest MBA Weekly Survey

The Refinance Index increased 4.9 percent from the previous week. The seasonally adjusted Purchase Index decreased 3.7 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.78 percent from 4.82 percent, with points decreasing to 0.91 from 1.10 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Although there was an increase in existing home sales in December, the four-week moving average of the purchase index suggests weak existing home sales through the first couple months of 2011.

by Calculated Risk on 1/11/2011 08:22:00 PM

The story remains the same - indicators are mixed, but mostly show gradual improvement - and ongoing problems in Europe and falling house prices ...

• NFIB: Small Business Optimism index declines slightly in December

Click on graph for larger image in graph gallery.

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". Here is the NFIB press release: NFIB Small Business Optimism Index Remains Weak

• Ceridian-UCLA: Diesel Fuel index increases in December

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.

Here is the press release: Year-End Surge Reported in Latest Ceridian-UCLA PCI

• CoreLogic: House Prices declined 1.6% in November

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.

• AAR: Rail Traffic increases in December.

The AAR reports carload traffic in December 2010 was up 9.4% compared to December 2009, and traffic is also above December 2008. Intermodal traffic (using intermodal or shipping containers) is up 13.3% over December 2009 and up over December 2008.

• BLS: Job Openings steady in November, Labor Turnover still Low

• Europe Update: Portugal Bond Auction Wednesday

by Calculated Risk on 1/11/2011 04:35:00 PM

• This is a key point from Landon Thomas at the NY Times: Foreigners Shun Europe’s Bonds, and Debt Piles Up

With its 10-year debt trading close to the historic high of 7 percent reached last week, Portugal will try Wednesday to sustain what many have come to see as nothing more than a form of bond market charades when it attempts to raise up to €1.25 billion, or $1.62 billion, in long-term financing — debt that is expected to come largely from the country’s already depleted banking system.

This has happened in other countries too (there was even story in El Mundo this morning that the Spanish government had contacted local banks about buying bonds without going through an auction process).

An excellent article about the "bond market charades".

• And from Marcus Walker and Stephen Fidler at the WSJ: EU Weighs Boosting Bailout Fund

Top civil servants from EU finance ministries discussed an overhaul of Europe's main bailout mechanism, the €440 billion ($568 billion) European Financial Stability Facility ...

Preparing for Spain?

• And from David Oakley, Lindsay Whipp and Peter Spiegel at the Financial Times: Japan pledges to buy eurozone bonds. At least there are buyers for the EFSF bonds.

by Calculated Risk on 1/11/2011 02:06:00 PM

This was released earlier by the BLS: Job Openings and Labor Turnover Summary

There were 3.2 million job openings on the last business day of
November, the U.S. Bureau of Labor Statistics reported today. The job
openings rate was essentially unchanged over the month at 2.4 percent.

The following graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Unfortunately this is a new series and only started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for November, the most recent employment report was for December.

Click on graph for larger image in graphics gallery.

Notice that hires (purple) and total separations (red and blue columns stacked) are pretty close each month. When the purple line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Note: The temporary decennial Census hiring and layoffs distorted this series over the summer months.

In November, about 4.118 million people lost (or left) their jobs, and 4.210 million were hired (this is the labor turnover in the economy) adding 92 thousand total jobs.

Even with the slight decline in November, job openings are up significantly over the last year.

by Calculated Risk on 1/11/2011 11:49:00 AM

From the Association of American Railroads: AAR Reports December 2010 Rail Traffic. The AAR reports carload traffic in December 2010 was up 9.4% compared to December 2009, and traffic is also above December 2008. Intermodal traffic (using intermodal or shipping containers) is up 13.3% over December 2009 and up over December 2008.

Total carloads for the year were 14.8 million, up 7.3% over the 13.8 million in 2009. Total intermodal volume in 2010 was 11.3 million trailers and containers, up 14.2% over 2009’s 9.9 million units.

The 7.3% increase in carloads and 14.2% increase in intermodal volume in 2010 over 2009 might be the largest annual percentage increases in history; they’re definitely the largest since 1988, the earliest year for which we have comparable data. Unfortunately, 2010’s increases followed what were probably the biggest annual percentage declines in history in 2009, when carloads were down more than 16% and intermodal traffic was down more than 14% from 2008’s levels. In other words, U.S. railroads have recovered some lost ground, but not nearly all of it.

Click on graph for larger image in new window.

This graph shows U.S. average weekly rail carloads (NSA). Traffic increased in 16 of 19 major commodity categories year-over-year.

From AAR:

• In December 2010, U.S. freight railroads originated an average of 271,568 carloads per week, up 9.4% over December 2009 and the biggest year-over-year percentage monthly increase since June 2010

As the first graph shows, rail carload traffic collapsed in November 2008, and now, about 18 months into the recovery, carload traffic has only recovered part way.

The second graph is for intermodal traffic (using intermodal or shipping containers):

• U.S. railroads also averaged 206,820 intermodal trailers and containers per week in December 2010, up 13.3% over December 2009.

• Seasonally Adjusted: Carloads in December 2010 increased 1.9% from Nov.
2010; intermodal in December 2010 increased 0.3% over November 2010.
excerpts with permission

As the AAR notes, "U.S. railroads have recovered some lost ground, but not nearly all of it". Traffic is increasing slowly, but still below the 2007 levels.

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.