by Calculated Risk on 1/15/2011 11:45:00 AM

Three key housing reports will be released this week: January homebuilder confidence on Tuesday, December housing starts on Wednesday, and December existing home sales on Thursday.

Note: Some large bank reporting included for possible comments on foreclosures.

----- Monday, Jan 17th -----
Holiday: Martin Luther King Jr. Day. All US markets will be closed.

7:15 AM ET: Philly Fed President Charles Plosser speaks in Santiago, Chile "Thoughts on the Scope of Monetary Policy"

----- Tuesday, Jan 18th -----
8:00 AM ET: Citigroup Fourth Quarter 2010

8:30 AM: NY Fed Empire Manufacturing Survey for January. The consensus is for a reading of 14.0, up from 10.57 in December.

10 AM: The January NAHB homebuilder survey. The consensus is for a reading of 17, up slightly from 16 in December. Any number below 50 indicates that more builders view sales conditions as poor than good. This index has been below 25 for the last 3 1/2 years.

----- Wednesday, Jan 19th -----
Early: The AIA's Architecture Billings Index for December (a leading indicator for commercial real estate). This index showed expansion (52.0) in November, the highest mark since December 2007. This index usually leads investment in non-residential structures (hotels, malls, office) by 9 to 12 months.

7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index declined sharply following the expiration of the tax credit, and the index has only recovered slightly since then.

8:00 AM: Wells Fargo and Goldman Sachs Fourth Quarter 2010

8:30 AM: Housing Starts for December. After collapsing following the housing bubble, housing starts have mostly moved sideways at a very depressed level for the last two years.

Click on graph for larger image in graph gallery.

This graph shows total and single unit starts since 1968.

Total housing starts were at 555 thousand (SAAR) in November, up 3.9% from the revised October rate of 534 thousand. Single-family starts increased 6.9% to 465 thousand in November.

The consensus is for a slight decrease to 550,000 (SAAR) in December.

----- Thursday, Jan 20th -----
7:30 AM: Morgan Stanley Fourth Quarter 2010

8:30 AM: The initial weekly unemployment claims report will be released. The number of initial claims increased last week to 445,000, but the trend has been down over the last few months. The consensus is for a decrease to 420,000 from 445,000 last week.

10:00 AM: Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for sales of 4.9 million at a Seasonally Adjusted Annual Rate (SAAR) in December, up about 5% from the 4.68 million SAAR in November. Economist Tom Lawler is projecting sales of 5.13 million in December.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in November 2010 (4.68 million SAAR) were 5.6% higher than in October, and were 27.9% lower than November 2009.

In addition to sales, the level of inventory and months-of-supply will be very important (since months-of-supply impacts prices). The months-of-supply will probably be 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.

10:00 AM: Philly Fed Survey for January. This survey showed stronger expansion in November and December after showing contraction in the early fall. The consensus is for a reading of 20.4, down slightly from the revised 20.8 in December.

10:00 AM: Conference Board Leading Indicators for December. The consensus is for a 0.6% increase for this index.

----- Friday, Jan 21st -----
8:00 AM: Bank of America Fourth Quarter 2010

After 4:00 PM: The FDIC might have a busy Friday afternoon ...

by Calculated Risk on 1/15/2011 09:03:00 AM

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

Here is the unofficial problem bank list for Jan 14, 2011.

Changes and comments from surferdude808:

It was a quiet week for the Unofficial Problem Bank List as there were only two additions and one removal, which leaves the list at 933 institutions with assets of $410.4 billion.

The removal was Sunnyside FS&LA of Irvington, Irvington, NY ($96 million) as the OTS terminated its Cease & Desist Order against the thrift. CR received notice the order had been terminated from an officer of Sunnyside. It is interesting that CR has yet to receive a notice from an institution when it has been placed under a formal action.

The sole failure this week -- Oglethorpe Bank, Brunswick, GA -- was not on the Unofficial Problem Bank List. The failure cost the FDIC $80.4 million or nearly 35 percent of the failed bank's assets. It is becoming more unusual for an institution to fail without being subject to a formal action as banking regulators have mostly caught-up from the onslaught of problems/failures that started in 2008. However, given the high percentage cost in terms of the failed bank's assets, it is difficult to understand how the 52nd bank failure in Georgia was not operating under a corrective action.

The additions this week include First Bank and Trust Company of Illinois, Palatine, IL ($357 million); and First Federal Savings and Loan Association of Hammond, Hammond, IN ($52 million). The other change this week is a new name and ticker symbol for First Standard Bank, Los Angeles, CA ($123 million Ticker: FSTA), which is now operating as Open Bank (Ticker: OPBK).

We thought there might be an outside chance for the OCC to release its actions through mid-December 2010, but that did not happen. Look for the OCC press release next Friday, until then try to practice safe banking.

by Calculated Risk on 1/14/2011 09:15:00 PM

The Fed released the FOMC transcripts from 2005 today. That was a key year for the housing bubble because that is when activity peaked - also inventory started to rise towards the end of the year and that helped me call the top.

Earlier I excerpted some comments from the June meeting - a meeting focused on housing.

Here is more from Ryan Grim at the HuffPo: Fed Economist To Greenspan In 2005: Discovery Channel's 'Flip That House' Should Cause 'Existential Crisis'

"I offer one more piece of evidence that I think almost surely suggests that the end is near in this sector. While channel-surfing the other night, to the annoyance of my otherwise very patient wife, I came across a new television series on the Discovery Channel entitled 'Flip That House,'" economist David Stockton said, prompting a roomful of laughter according to the transcript. "As far as I could tell, the gist of the show was that with some spackling, a few strategically placed azaleas and access to a bank, you too could tap into the great real-estate wealth machine. It was enough to put even the most ardent believer in market efficiency into existential crisis. [Laughter]"

The Fed, the home of many of the most ardent believers in market efficiency, did not go through an existential crisis, however, and did little to slow down surging prices or warn consumers that "the end is near."

This was from the end of Dec 13th transcript and by then the housing bust had already started.

Posts this morning:
• Retail Sales increased 0.6% in December
• Industrial Production, Capacity Utilization increased in December
• Consumer Sentiment declines in January
• Core measures of inflation increase in December

by Calculated Risk on 1/14/2011 05:23:00 PM

Earlier:
• Retail Sales increased 0.6% in December
• Industrial Production, Capacity Utilization increased in December
• Consumer Sentiment declines in January
• Core measures of inflation increase in December

Akin appendix
Surgeons remove rotted flesh
Oglethorpe excised
by Soylent Green is People
From the FDIC: Bank of the Ozarks, Little Rock, Arkansas, Assumes All of the Deposits of Oglethorpe Bank, Brunswick, Georgia

As of September 30, 2010, Oglethorpe Bank had approximately $230.6 million in total assets and $212.7 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $80.4 million. ... Oglethorpe Bank is the third FDIC-insured institution to fail in the nation this year, and the first in Georgia.

by Calculated Risk on 1/14/2011 04:05:00 PM

The Federal Reserve just released the transcripts of the FOMC meetings in 2005. This will take some reading, but the June meeting was focused on housing.

From then Atlanta Fed President Jack Guynn:

[T]there is the housing situation, which we talked about for a long time yesterday afternoon. As I’ve been reporting for several meetings, some of our markets, especially those in coastal areas of South Florida and the Florida panhandle, are experiencing a level of building activity and price increases that are clearly, in my view, unsustainable. Nearly every major Florida city now has experienced increases in the double-digit range, and some, like Miami, Palm Beach, Sarasota, and West Palm, have been reporting increases in housing prices on a year-over-year basis of between 25 and 30 percent. While our discussion yesterday did not seem to indicate a consensus on a national housing bubble, based on past experience I’m reasonably comfortable characterizing the housing feeding frenzy in some of our markets as being a bubble or a near bubble.

For example, the number of major projects planned or under construction in Miami now totals 114, most of which are high-rise developments. That includes 61,000 condo units—eight times the number that were built in the last decade—and a total of 100,000 new parking spaces. I know we don’t have any process for introducing exhibits into the record, but I’d like to pass Dave Stockton this pictorial of the new projects in Miami, so that he can continue to worry a little bit along with me. [Laughter]

My supervision and regulation staff thinks this is an accident waiting to happen in our area. And while the local market excesses probably do not represent systemic national risk, the shakeouts could have serious regional consequences. My bank supervision staff points out that housing-related credit risks to our bank lenders are not so much from defaults on permanent mortgage financing that we talked about yesterday, but rather from lending for land acquisition, development, and construction. The ugly picture we have seen before—and that they think we may very likely see again before long—goes something like this: the drying up of sales of new units; the painful decision of developers to go ahead and complete the construction of additional units to make them saleable, further depressing the market; and speculators who had hoped to see big capital gains walking away or defaulting on their contracts, giving their properties back to the lender. Perhaps it’s because of where I sit, but I am less comforted than some of my colleagues about the housing situation. ...

CHAIRMAN GREENSPAN. Let’s take a break for coffee.

Here are the presentation materials for the June meeting with plenty of graphs on housing.

by Calculated Risk on 1/14/2011 02:31:00 PM

From Boston Fed President Eric Rosengren: Two Key Questions about the Economic Recovery

The first question is, what role will housing play in the recovery? ... housing has traditionally been an important sector of the economy for generating recovery. ... I expect housing will not provide as much support to this recovery as it has in previous ones. My sense is that residential investment, consumer durables, and services related to housing will be less robust than is usual in many recoveries, thus playing a role in what I think will be only a gradual improvement in the economy and employment.

To put it plainly, these housing-related headwinds are part of why I do not expect growth greater than 4 percent this year. And while 4 percent is not terrible, at that rate it will still take a very long time to get back to full employment.
...
The real laggard in this recovery has been housing. While housing is a relatively small component of GDP, it can be quite volatile – and often grows rapidly during an economic recovery. In addition, purchases of appliances, home furnishings, and housing-related services are impacted by slowed housing activity. Given the problems that flow from the bursting of the housing bubble, Figure 5 [below] shows that residential fixed investment is roughly where it was at the trough of the recession – and thus not providing its more usual contribution to growth in the early stages of a recovery.

The above graph is from Rosengren (PDF version here).

This shows the lack of contribution from residential investment in the current recovery. If Rosengren had included earlier recessions, many would like the 1982 recovery!

And on inflation:

A second key question involves the concerns about Fed actions stoking inflation. ... Some observers and analysts have voiced great concern that the nascent economic recovery, combined with the actions of the Federal Reserve that have expanded its balance sheet, will lead to significant inflation. However, Figure 11 [see previous post for similar graph] provides a variety of different measures of core inflation; core CPI, core PCE, trimmed core CPI and trimmed core PCE. It is striking how much all four series have declined. In fact many of these series are at their historical lows.
...
While we have been experiencing disinflation generally, it is not the case for all prices. ... some prices have risen rapidly. Energy prices in particular have been rising, in response to robust growth in emerging markets. But outside of energy prices, most prices have shown little increase, and in fact a number of the major categories in the CPI index have experienced declines in prices. ... my primary concern about rising energy prices is not so much that they will lead to higher inflation, but that they will subtract from household income and thus weaken the economy.

I've highlighted this many times: residential investment is usually a strong engine of recovery, but not this time because of the large excess inventory of vacant housing units. I think residential investment will finally add to GDP and employment growth this year, but the increase will not be robust.

by Calculated Risk on 1/14/2011 12:43:00 PM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.7% annualized rate) in December. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.6% annualized rate) during the month. ...

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.5% (6.2% annualized rate) in December. The CPI less food and energy increased 0.1% (1.1% annualized rate) on a seasonally adjusted basis.

Over the last 12 months, the median CPI rose 0.6%, the trimmed-mean CPI rose 0.8%, the CPI rose 1.5%, and the CPI less food and energy rose 0.8%

So these three measures: core CPI, median CPI and trimmed-mean CPI, all increased less than 1% over the last 12 months.

However, all three increased in December at an annualized rate - although still below the Fed's target of around 2%. The headline CPI number reflects the surge in oil prices.

Click on graph for larger image in graph gallery.

This graph shows these three measure of inflation on a year-over-year basis.

They all show that inflation has been falling, and that measured inflation is up less than 1% year-over-year.

Note: The Cleveland Fed has a discussion of a number of measures of inflation: Measuring Inflation

The indexes for rent and owners' equivalent rent both increased in December.

By these measures rents have bottomed and are starting to increase again (this fits with earlier reports of falling vacancy rates and rising rents). I don't expect rents to push up inflation very much (I think core inflation will stay low for some time with all the slack in the system), but rising rents suggests that the excess rental housing units are being absorbed - a necessary step for an eventual recovery in residential investment.

by Calculated Risk on 1/14/2011 10:09:00 AM

The preliminary Reuters / University of Michigan consumer sentiment index declined to 72.7 in January from 75.2 in December.

Click on graph for larger image in graphics gallery.

This was below the consensus forecast of 75.5.

Sentiment is still at levels usually associated with a recession - and sentiment is well below the pre-recession levels.

In general consumer sentiment is a coincident indicator, and this suggests the recovery is still relatively sluggish.

by Calculated Risk on 1/14/2011 09:15:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.8 percent in December after having risen 0.3 percent in November. ... At 94.9 percent of its 2007 average, total industrial production in December was 5.9 percent above its level of a year earlier. The capacity utilization rate for total industry rose to 76.0 percent, a rate 4.6 percentage points below its average from 1972 to 2009.

Click on graph for larger image in new window.

This graph shows Capacity Utilization. This series is up 11.5% from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 76.0% is still far below normal - and well below the pre-recession levels of 81.2% in November 2007.

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

The second graph shows industrial production since 1967.

Industrial production increased in December, but production is still 5.8% below the pre-recession levels at the end of 2007.

This was above consensus expectations of a 0.5% increase in Industrial Production, and an increase to 75.6% for Capacity Utilization.

by Calculated Risk on 1/14/2011 08:30:00 AM

On a monthly basis, retail sales increased 0.6% from November to December(seasonally adjusted, after revisions), and sales were up 7.9% from December 2009.

Click on graph for larger image in new window.

This graph shows retail sales since 1992. This is monthly retail sales, seasonally adjusted (total and ex-gasoline).

Retail sales are up 13.5% from the bottom, and now 0.2% above the pre-recession peak.


The second graph shows the year-over-year change in retail sales (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 7.4% on a YoY basis (7.9% for all retail sales).

Here is the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $380.9 billion, an increase of 0.6 percent (±0.5%) from the previous month, and 7.9 percent (±0.7%) above December 2009. Total sales for the 12 months of 2010 were up 6.6 percent (±0.4%) from 2009. Total sales for the October through December 2010 period were up 7.8 percent(±0.5%) from the same period a year ago. The October to November 2010 percent change was unrevised from +0.8 percent (±0.2%).

This was below expectations for a 0.8% increase. Retail sales ex-autos were up 0.5%; also below expectations of a 0.7% increase.

Although slightly lower than expected, retail sales are now above the pre-recession peak in November 2007.