by Calculated Risk on 3/07/2011 06:00:00 PM

American Banker has posted the 27 page draft servicer settlement agreement that the state attorneys general sent to the servicers last week.

Settlement Terms (27 page PDF)

And from Cheyenne Hopkins at American Banker: Cheat Sheet: How the State AGs Want to Revamp Mortgage Servicing

The 27-page term sheet handed to the five largest mortgage servicers last week is a detailed, dense list of requirements that, if implemented as proposed, would fundamentally change the relationship between servicers, investors and borrowers.

The term sheet, obtained by American Banker and available here, is just the opening bid in an ongoing negotiating process between the servicers and various state and federal agencies attempting to punish them for significant issues uncovered in the foreclosure process. While some of the details of the term sheet have been made public already, the sheer breadth and depth of the proposed requirements were not clear until now.

The article has a nice summary of the document.

by Calculated Risk on 3/07/2011 02:18:00 PM

This is "D list" data and doesn't show much improvement in February.

From the Association of American Railroads: February Freight Rail Traffic Continues to Make Gains. The AAR reports carload traffic in February 2011 was up 4.2% compared to February 2010 and intermodal traffic (using intermodal or shipping containers) was up 10.3% over February 2010.

U.S. freight railroads originated 1,135,396 carloads in February 2011, an average of 283,849 per week (see chart below). That’s up 4.2% (46,054 carloads) over February 2010 and up 2.7% (29,400 carloads) over February 2009.

Click on graph for larger image in new window.

This graph shows U.S. average weekly rail carloads (NSA).

From AAR:

On a seasonally adjusted basis, U.S. rail carloads were down 3.0% in February 2011 from January 2011. That’s the biggest month-to-month decline
since April 2009, but we cannot be certain that the weather effect was completely captured by the seasonal adjustment process. Even if the seasonally adjusted decline is legitimate, it could just be one of those “two steps forward, one step back” kind of things.

As the first graph shows, rail carload traffic collapsed in November 2008, and now, over 18 months into the recovery, carload traffic has only recovered a little.

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

In February 2011, U.S. railroads averaged 220,458 intermodal trailers and containers per week, for a total of 881,830 for the month. That’s up 10.3% (82,267 intermodal units) over February 2010 and up 21.4% (155,487 units) over February 2009.

Seasonally adjusted U.S. rail intermodal traffic was up 0.1% in February 2011 from January 2011. ... in seasonally adjusted terms, the recovery in U.S. rail intermodal traffic has been much stronger than the recovery in U.S. carload traffic.
excerpts with permission

Intermodal traffic is fairly strong, but carload traffic has barely recovered.

by Calculated Risk on 3/07/2011 12:40:00 PM

We continue to be reminded of the downside risks to economic growth this year: higher oil prices and the potential for a supply shock, the European financial crisis, state and local government fiscal issues, Federal government budget issues, and the two sides of the inflation coin (inflation increases or policymakers overreact).

• U.S. oil prices were near $107 per barrel this morning before declining slightly to $105. I think this is the key risk to U.S. economic growth in the short term.

Not only is the situation in Libya looking more and more like a prolonged civil war, but the unrest may spread to Bahrain and Saudi Arabia (March 11th is the "Day of Rage" in Saudi).

• The European financial crisis has been on the back burner, but yields are still elevated and there are key Euro Zone meetings scheduled in March - including a special eurozone debt crisis summit scheduled for Friday, March 11th. Ireland is asking to renegotiate the terms of their bailout, Greece debt was downgraded this morning, and Portugal is probably next in line. And the European Banking Authority has now launched the next round of bank stress tests.

I expect this to be front page news again soon.

• State and local governments reduced employment by 30,000 in February, and several state budgets are in the news, especially the ongoing Wisconsin political battles. I expect state and local government cutbacks to continue all year.

• On the Federal government, some drag from fiscal policy was expected due to some spending cuts, and also from the decline in spending from the 2009 fiscal stimulus package. However the "debt ceiling" debate is just political grandstanding, but it is possible that more cuts will be enacted this year - slowing growth in 2011.

• Inflation is a two sided coin: if inflation increases in the U.S., then the Fed might move quicker on tightening policy (I think core inflation will remain below the Fed's target all year), and it is possible policymakers will overreact to price increases in commodities and raise rates too soon. However if oil prices continue to increase, then QE3 is more likely:

"If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation," [Atlanta Fed President Dennis Lockhart said this morning].

These are all risks to 2011 economic growth. For now I'm sticking with my over forecast of 3.5% to 4.0% real GDP growth in 2011, but I'm watching all of these issues closely.

by Calculated Risk on 3/07/2011 08:57:00 AM

The following is a reminder that there is a special eurozone debt crisis summit scheduled for Friday, March 11th.

From MarketWatch: Moody’s cuts Greece rating, stokes debt fears

Moody’s Investors Service cut Greece’s sovereign-debt rating Monday by three notches to B1 ... The ratings agency, which also assigned a negative outlook to Greece’s ratings, highlighted the government’s difficulties with revenue collection and noted a risk that Athens might not meet the criteria for continued support from the International Monetary Fund and the European Union after 2013.

That could result in a voluntary restructuring of existing debt, the ratings agency said.

The Ten Year yield for Greece is at 12.4%.

Here are the Ten Year yields for Ireland, Portugal, Spain, and Belgium. All moving up some today ...

On U.S. economy:
• Summary for last week ending March 4th
• Schedule for Week of March 6th

by Calculated Risk on 3/06/2011 10:38:00 PM

I always pay close attention to Fed stories from Jon Hilsenrath at the WSJ: Fed Unlikely to Remove Its Economic Stimulus Just Yet

Hilsenrath makes several key points:
• QE2 will probably end in June: "the securities purchase program ... is likely to end in June as scheduled."

• Tapering off of purchases unlikely: "Though the idea of tapering has received some attention on Wall Street of late, officials seem unlikely to want to follow that course this time ..."

• Fed will probably take a wait and see approach after June to see "how the economy performs later in the year without [QE2]."

• The "hawks" aren't pushing hard to finish early.

As I noted in When will the Fed raise rates?, this suggests a timeline for the earliest Fed funds rate increase:
• End of QE2 in June.
• End of reinvestment 0 to 2 months later.
• Drop extended period language a couple months later
• Raise rates in early 2012.

That is probably the earliest the Fed will raise rates - and it could be later in 2012 or even later ...

Earlier:
• Summary for last week ending March 4th
• Schedule for Week of March 6th

by Calculated Risk on 3/06/2011 08:32:00 PM

• Libya: Looking like a prolonged civil war ...

From the NY Times: Rebel Advance in Libya Set Back by Heavy Assault

From al Jazeera: Libya Live Blog - March 7

• WTI oil prices at $105.03

• From Brent Hunsberger at The Oregonian: Hundreds of Oregon foreclosure sales stopped after judges' rulings (ht azurite)

Earlier:
• Summary for last week ending March 4th
• Schedule for Week of March 6th

by Calculated Risk on 3/06/2011 02:17:00 PM

The National Federation of Independent Business (NFIB) will release their February survey on Tuesday, but here is a pre-release of the employment data ... from NFIB: Positive Trend in Job Growth

“February brought us good news on the jobs front: The trend for job creation is, at last, decidedly positive. While job creation reports have been improving for almost two years, they have consistently been negative or near zero, indicating that employment at the nation’s small firms was still contracting, albeit at slower and slower rates. But this month’s reading confirms that we are moving in the right direction. Equally important, small firms’ plans to hire have been consistently positive for the past five consecutive months.

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy. With the high percentage of real estate (including small construction companies), small businesses will be slow to recover this cycle.

Click on graph for larger image in new window.

This graph shows the net hiring plans for the next three months.

Hiring plans increased slightly in February. According to NFIB: “The percent of owners reporting hard-to-fill job openings rose two points to 15 percent, indicating that a reduction in the unemployment rate is likely within the next few months. Plans to create jobs strengthened; up two points to a net 5 percent of all firms. While this is still low, it is 15 points better than the recession low reading of negative 10 percent, reached in March 2009."

Baby steps in the right direction.

Earlier:
• Summary for last week ending March 4th
• Schedule for Week of March 6th

by Calculated Risk on 3/06/2011 08:33:00 AM

Note: Here is the Summary for last week ending March 4th

The key economic reports this week will be the trade balance report on Thursday and February retail sales on Friday.

----- Monday, March 7th -----
8:00 AM ET: Atlanta Fed President Dennis Lockhart speaks at the NABE conference in Arlington, VA. "A View from the Fed"

9:15 AM: Dallas Fed President Richard Fisher speaks at the Institute of International Bankers conference in D.C. "Challenges and Opportunities Facing the U.S. and Global Economy and Financial Markets"

3:00 PM: Consumer Credit for January. The consensus is for a $3.4 billion increase in consumer credit. Consumer credit has increased for three straight months after declining sharply during and after the recession.

----- Tuesday, March 8th -----
7:30 AM: NFIB Small Business Optimism Index for February. This index has been showing some increases in optimism.

Click on graph for larger image in graph gallery.

This graph shows the small business optimism index since 1986. The index increased to 94.1 in January from 92.6 in December.

Although still fairly low, this is the highest level for the index since December 2007.

10:00 AM: Senate confirmation hearing for Federal Reserve Board nominee and Nobel laureate Peter Diamond

----- Wednesday, March 9th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been very weak over the last couple months suggesting weak home sales through the first few months of 2011.

9:00 AM ET: Ceridian-UCLA Pulse of Commerce Index™ This is the diesel fuel index for February (a measure of transportation).

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for January. The consensus is for a 0.9% increase in inventories.

----- Thursday, March 10th -----
8:30 AM: The initial weekly unemployment claims report will be released. The number of initial claims had been trending down over the last few months. The consensus is for a slight increase to 378,000 from 368,000 last week.

8:30 AM: Trade Balance report for January from the Census Bureau.

This shows the monthly U.S. exports and imports in dollars through December 2010.

Imports had been mostly flat since May, but increased again in December. Exports have started increasing again after the mid-year slowdown.

The consensus is for the U.S. trade deficit to be around $41.5 billion, up from $40.6 billion in December.

10:00 AM Regional and State Employment and Unemployment (Monthly) for January 2010

12:00 PM: Q4 Flow of Funds Accounts from the Federal Reserve.

----- Friday, March 11th -----
8:30 AM: Retail Sales for February.

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

Retail sales are up 13.7% from the bottom, and now 0.4% above the pre-recession peak.

The consensus is for retail sales to rise sharply in February, a 1.0% increase from January. (0.7% increase ex-auto).

9:55 AM: Reuters/University of Mich Consumer Sentiment preliminary for March. The consensus is for a slight decrease to 76.5 from 77.5 in February.

10:00 AM: Manufacturing and Trade: Inventories and Sales for January. The consensus is for a 0.8% increase in inventories.

10:00 AM: Job Openings and Labor Turnover Survey for January from the BLS. This report has been showing a general increase in job openings, but very little turnover in the labor market.

Best Wishes to All!

by Calculated Risk on 3/05/2011 11:07:00 PM

Earlier: Here is the Summary for last week ending March 4th

• From Nelson Schwartz and David Streitfeld at the NY Times: Mortgage Modification Overhaul Sought by States

State attorneys general have presented the nation’s five biggest banks with a list of demands that could drastically alter the foreclosure process ...

Under the blueprint, banks would be prohibited from starting foreclosure proceedings while a borrower was actively trying to lower the interest rate or ease other terms of the home loan, a process known as a mortgage modification.

Any borrower who successfully made three payments in a trial modification would be given a permanent modification. When a modification was denied, it would be automatically reviewed by an ombudsman or independent review panel.

It was absurd that servicers would deny a modification when the borrower was making all the payments in a trial program - that just seemed like the servicer was taking advantage of the borrower. This is definitely a needed change.

• From Nick Timiraos and Ruth Simon at the WSJ: Mortgage Practices Overhaul Proposed

Current government modification programs are largely voluntary, and there are few rules governing servicers' practices. But on Thursday, the nation's largest banks, including Wells Fargo & Co., Bank of America Corp., and Citigroup Inc., received a detailed 27-page proposal from state attorneys general and federal agencies to force a shakeup in banks' mortgage-servicing policies.

One mortgage industry executive familiar with the document described it as "almost like a wish list."

Obviously this is just the beginning ...

by Calculated Risk on 3/05/2011 05:27:00 PM

As I noted yesterday, a key question is what happens to the labor force participation rate as the economy hopefully improves. The current participation rate is 64.2%.

Here are a two earlier analysis pieces:
• From BLS economist Mitra Toossi in November 2006: A new look at long-term labor force projections to 2050
• From Austin State University Professor Robert Szafran in September 2002: Age-adjusted labor force participation rates, 1960–2045

Those papers were written when the participation rate was in the mid-66% range. Based on demographics, Szafran had forecast the participation rate to fall to 64.6% in 2015, and Toosi had forecast the rate to fall to 64.5% in 2020. So some of the recent decline was expected - although it happened sooner and faster than either expected because of the severe recession.

And there might be reasons those forecasts were too high. First the participation rate of the 16 to 19 age group has fallen much faster than Toosi forecast (and might not bounce back much after the recession), and second, some people might have permanently given up.

Sudeep Reddy and Sara Murray at the WSJ wrote: Jobless Rate Falls Further

A growing number of workers with health problems are applying for Social Security Disability Insurance benefits. The disability rolls, where many beneficiaries remain for life, have surged more than 14% since the recession began, to nearly 10.2 million in December 2010.

"We already know from the number of people who have entered the disability rolls that there's going to be a permanent hit to the labor force participation rate," said Lawrence Katz, a Harvard University economist. "That's both costly to them—they're going to be less happy—and costly to us to lose someone who could be a productive worker."

I still expect some bounce back in the participation rate, and how many people return to the labor force is key in estimating how many jobs are needed to reduce the unemployment rate.

As I noted yesterday, if the Civilian noninstitutional population (over 16 years old) grows by about 2 million per year - and the participation rate stays flat - the economy will need to add about 100 thousand jobs per month to keep the unemployment rate steady at 8.9%.

If the population grows faster (say 2.5 million per year), and/or the participation rate rises, it could take significantly more jobs per month to hold the unemployment rate steady. As an example, if the working age population grows 2.5 million per year and the participation rate rises to 65% (from 64.2%) over the next two years, the economy will need to add 200 thousand jobs per month to hold the unemployment rate steady.

One thing is clear - we need more jobs!

Earlier:
• Summary for Week ending March 4th