by Calculated Risk on 7/25/2011 10:18:00 PM

The Asian markets are mostly green tonight, with the Hang Seng up 0.75%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 is off about 4 points, and Dow futures are off about 25 points.

Tuesday ...

9:00 AM: S&P/Case-Shiller Home Price Index for May. Although this is the May report, it is really a 3 month average of March, April and May. The consensus is for flat prices in May, however I expect prices to increase NSA.

10:00 AM: New Home Sales for June. The consensus is for a slight increase in sales to 321 thousand Seasonally Adjusted Annual Rate (SAAR) in June from 319 thousand in May.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for July. The consensus is for the index to be at 4, up from 3 in June (above zero is expansion).

by Calculated Risk on 7/25/2011 07:10:00 PM

UPDATE: President Obama Press Conference at 9PM ET.

From the WSJ: Europe Rates Resume Climb

By Monday afternoon, Spain's [Ten year] debt was being traded at a yield of 6%, or 3.24 percentage points above the rate on German bonds, seen as a risk-free investment. The rate represented an upswing from 5.7% last Thursday, just as news of the new bailout deal for Greece began to emerge. On July 18, the rate hit 6.3%.

Italy was paying 5.5%, up from 5.2% on Thursday, but down from 5.8% on July 18.

Yields moved higher today, but are still below the previous peaks. The Greek 2 year yield is up to 28.1% (was above 39%).

The Portuguese 2 year yield is down to 15.3% (was above 20%)

The Irish 2 year yield is up to 15.4% (was above 23%).

The Italian 2 year yield is up to 4.0%. And the Spanish 2 year yield is up to 4.2%.

Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 7/25/2011 03:58:00 PM

This is more technical for analyst and reporters: On Friday the Census Bureau will release the Q2 Housing Vacancies and Homeownership. This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates. Unfortunately the report is based on a fairly small sample, and does not track the decennial Census data.

Economist Tom Lawler has pointed out the discrepancies in the homeownership rate before, and he points out that the vacancy rates are "silly" too.

From economist Tom Lawler: HVS Rental Vacancy Rate Silliness: The Case of Richmond, Virginia

In early 2009 the Richmond, Virginia press wrote numerous articles after quarterly HVS data on metro area rental vacancy rates “showed” that the rental vacancy rate in the Richmond, Virginia metro area in the fourth quarter of 2008 was 23.7%, the highest in the country. This shocked local real estate folks, including folks who tracked rental vacancy rates in apartment buildings in the area. The Central Virginia Apartment Association, e.g., found that the rental vacancy rate based on a survey of 52 multi-family properties in the Richmond, VA metro area was around 8% -- above a more “normal” 5%, but no where close to 23.7%. And while the HVS attempts to measure the overall rental vacancy rate (and not just MF apartments for rent), the data seemed “whacky.”

When I talked to Census folks back then, they said that there quarterly metro area vacancy rates were extremely volatile and had extremely high standard errors, and that folks should focus on annual data.

However, “annual average” data from the HVS showed MASSIVELY different rental vacancy rates in Richmond, Virginia than did the American Community Survey, which also produces estimates of the vacancy rate in the overall rental market.

Here are some annual data comparisons of the HVS rental vacancy rate and the American Community Survey (ACS) rental vacancy rate (which is also for the overall rental market) from 2006 through 2009, as well as the Census 2010 rental vacancy rate for April 1, 2010.

HVS Rental Vacancy Rates: The Case of Richmond, VA Metro Area
	HVS (annual average)	ACS (annual average)	Census 2010 (April 1)
2006	13.8%	8.1%
2007	16.3%	8.1%
2008	20.8%	9.1%
2009	18.5%	7.8%
2010	13.5%		8.8%

I am showing Richmond not because it is the most “outlandish,” but rather because the HVS data “mistakes” create huge confusion in the local press. Census analysts had no clue why the HVS data produced such outlandish estimates relative to the ACS – it could be massive sampling errors, significant non-sampling errors, or both.

There are several other MSAs where the HVS rental vacancy rates just look plain “silly.” Some Census analysts agree that the HVS MSA data aren’t reliable, and even that several state data aren’t reliable, but, well, er, the national data are probably “ok” – which they are not.

From CR: Media and Analysts: There are serious questions about this report. Here are some previous post by Lawler on the HVS:
• Census Bureau on Homeownership Rate: We've got “Some 'Splainin' to Do”
• Lawler: Census 2010 and the US Homeownership Rate
• Lawler: Census 2010 Demographic Profile: Highlights, Excess Housing Supply Estimate, and Comparison to HVS
• Lawler: The “Excess Supply of Housing” War
• Lawler: Census Releases Demographic Profile of 12 States and DC: Confirms Bias of HVS
• Lawler: Census 2010 and Excess Vacant Housing Units
• Lawler: On Census Housing Stock/Household Data
• Lawler: Housing Vacancy Survey appears to massively overstate number of vacant housing units
• Lawler: US Households: Why Researchers / Analysts are “Confused”

by Calculated Risk on 7/25/2011 01:49:00 PM

From James Surowiecki at the New Yorker: Smash the Ceiling

The truth is that the United States doesn’t need, and shouldn’t have, a debt ceiling. Every other democratic country, with the exception of Denmark, does fine without one. There’s no debt limit in the Constitution. And, if Congress really wants to hold down government debt, it already has a way to do so that doesn’t risk economic chaos—namely, the annual budgeting process. The only reason we need to lift the debt ceiling, after all, is to pay for spending that Congress has already authorized.
...
One argument you hear for having a debt ceiling is that it’s useful as what the political theorist Jon Elster calls a “precommitment device”—a way of keeping ourselves from acting recklessly in the future, like Ulysses protecting himself from the Sirens by having himself bound to the mast. As precommitment devices go, however, the debt limit is both too weak and too strong. It’s too weak because Congress can simply vote to lift it, as it has done more than seventy times in the past fifty years. But it’s too strong because its negative consequences (default, higher interest rates, financial turmoil) are disastrously out of proportion to the behavior it’s trying to regulate. For the U.S. to default now, when investors are happily lending it money at exceedingly reasonable rates, would be akin to shooting yourself in the head for failing to follow your diet.

The smart option: Eliminate the debt ceiling!

Note: Still no worries. The debt ceiling will be raised.

by Calculated Risk on 7/25/2011 10:30:00 AM

From the Dallas Fed: Texas Manufacturing Activity Picks Up

Texas factory activity expanded in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 5.6 to 10.8, suggesting output growth picked up this month.

The new orders index rose sharply from 6.4 in June to 16 in July. ... Labor market indicators reflected more hiring and longer workweeks. The employment index came in at 12.1, up from 5.3 in June. Twenty-two percent of manufacturers reported hiring new workers, the highest share this year. The hours worked index rose from 1.5 to 7.9.

There are two more regional manufacturing surveys that will be released this week (Richmond and Kansas City), and those surveys will probably show a slight improvement too.

by Calculated Risk on 7/25/2011 08:30:00 AM

No surprise (this is a composite index) ... from the Chicago Fed: Index shows economic growth again below average in June

The Chicago Fed National Activity Index increased to –0.46 in June from –0.55 in May; however, the index remained negative for the third consecutive month. Three of the four broad categories of indicators that make up the index improved in June, but only one made a positive contribution to the index.

The index’s three-month moving average, CFNAI-MA3, declined to –0.60 in June from –0.31 in May, remaining negative for a third consecutive month and reaching its lowest level since October 2009.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image in graph gallery.

According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

This index suggests the economy was still growing in June, but below trend.

by Calculated Risk on 7/24/2011 09:45:00 PM

They seem crazy, but are they insane? I don't think so. And investors don't think so either ... at least not yet.

The Asian markets are barely red tonight, with the Nikkei off 0.6%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 is off about 11 points, and Dow futures are off about 105 points.

A couple of articles, but nothing new ...

From the WaPo: Debt-limit talks at a standstill as parallel strategies take shape in House, Senate

From the WSJ: Gridlock for Debt Talks

Yesterday:
• Summary for Week Ending July 22nd
• Schedule for Week of July 24th

by Calculated Risk on 7/24/2011 06:34:00 PM

Tracking the participation rate for various age groups monthly is a little like watching paint dry, but the trends are important. Here is a look at some the long term trends (updated graphs through June 2011).

The following graph shows the changes in the participation rates for men and women since 1960 (in the 25 to 54 age group - the prime working years).

The participation rate for women increased significantly from the mid 30s to the mid 70s and has mostly flattened out - although the rate has been declining recently (down to 74.6% in June). The participation rate for men has decreased from the high 90s to 89.0% in June 2011. (down slightly from May)

Click on graph for larger image in graph gallery.

There will probably be some "bounce back" for both men and women (some of the recent decline is probably cyclical), but the long term trend for men is down.

The next graph shows that participation rates for several key age groups.

There are a few key long term trends:
• The participation rate for the '16 to 19' age group has been falling for some time (red). This at 34% in June.

• The participation rate for the 'over 55' age group has been rising since the mid '90s (purple), although this has stalled out a little recently (perhaps cyclical).

• The participation rate for the '20 to 24' age group fell recently too (perhaps more people are focusing on eduction before joining the labor force). This appears to have stabilized - although it was down to 70.5% in June, and I expect the participation rate to increase for this cohort as the job market improves.

The third graph shows the participation rate for several over 55 age groups. The red line is the '55 and over' total seasonally adjusted. All of the other age groups are Not Seasonally Adjusted (NSA).

The participation rate is generally trending up for all older age groups.

The increase in participation of older cohorts might push up the overall participation rate over the next few years, however eventually the 'over 55' participation rate will start to decline as the oldest baby boomers move into even older age groups.

I've been expecting some small bounce back in the participation rate, but I don't think the bounce back will be huge - and we haven't seen it yet. This will be a key number to watch over the next few years.

Yesterday:
• Summary for Week Ending July 22nd
• Schedule for Week of July 24th

by Calculated Risk on 7/24/2011 01:40:00 PM

Probably the key economic release this coming week is the advance estimate of Q2 GDP on Friday. The consensus is that real GDP increased 1.8% annualized in Q2. Note: Bloomberg is showing the consensus as 1.9%. Goldman Sachs is forecasting "real GDP growth decelerated further in Q2, to an annualized growth rate of just 1.5%".

In addition to the advance release of GDP, the Bureau of Economic Analysis will release revisions for the previous three years:

On July 29, 2011, the Bureau of Economic Analysis will release the results of the annual revision of the national income and product accounts (NIPAs) together with the advance estimate of gross domestic product (GDP) for the second quarter of 2011. In addition to the regular revision of estimates for the most recent 3 years and for the first quarter of 2011, this “flexible” annual revision will result in revisions to GDP and some components back to the first quarter of 2003.

My guess is the revisions will show the recovery has been weaker than the original estimates indicated.

Click on graph for larger image in graph gallery.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years.

The consensus is that real GDP increased 1.8% annualized in Q2. The estimate for Q2 is in blue.

Back-to-back weak quarters and a sluggish and choppy recovery ...

Yesterday:
• Summary for Week Ending July 22nd
• Schedule for Week of July 24th

by Calculated Risk on 7/24/2011 09:34:00 AM

Ezra Klein outlined three possible options: 11 days until disaster, three options to prevent it

At this point, there are three serious options on the table. A $4 trillion deal that includes some revenues, a $1 trillion-$2 trillion deal that’s all spending cuts but leaves much of the job until after the election, and a deal in which Republicans don’t come to a negotiated agreement with President Obama but they grant him the authority -- and let him take the blame -- for raising the debt ceiling. Those are our three options, and Congress needs to pick one.

From a pure economic perspective, here are the best options (#1 is best):

Option #1: Eliminate the debt ceiling. The debt ceiling is a joke. It serves no purpose except political posturing. It is not about the deficit - it is about paying the bills, and the U.S. will pay the bills. I've been making this argument for months. Moody's made the same argument last week: Moody's suggests U.S. eliminate debt ceiling

The United States is one of the few countries where Congress sets a ceiling on government debt, which creates "periodic uncertainty" over the government's ability to meet its obligations, Moody's said in a report.

"We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty," Moody's analyst Steven Hess wrote in the report.

Unfortunately some politicians forgot the debt ceiling is just for posing, and they have overplayed a non-existent hand. From the NY Times:

“Our problem is, we made a big deal about this for three months,” said Senator Lindsey Graham, Republican of South Carolina.

“How many Republicans have been on TV saying, ‘I am not going to raise the debt limit,’ ” said Mr. Graham, including himself in the mix of those who did so. “We have no one to blame but ourselves.”

Option #2: Pass a "clean" bill raising the debt ceiling enough to get through the next election (so the politicians don't have to embarrass themselves again). Congress could do this at any time. That is why voters would blame the party controlling the House if the debt ceiling is not raised. As Republican Senator Mitch McConnell recently noted, if the debt ceiling isn't raised the "Republican brand" would become toxic and synonymous with fiscal irresponsibility.

Option #3: The McConnell Option. This is the agreement Klein noted to give President Obama the authority to increase the debt ceiling, and try to blame Obama for the increases.

Those are the smart options. Reaching some vague non-binding agreement on some future spending cuts might soothe some pain, but it would just lead to more articles about how the cuts aren't real.

I'd praise the GOP if they selected Option #1 or even Option #2. This charade has been the worst of American politics. I'll be happy when it is over.

Yesterday (on the economy):
• Summary for Week Ending July 22nd
• Schedule for Week of July 24th