by Calculated Risk on 8/01/2011 11:50:00 AM

Catching up ... this morning from the Census Bureau reported that overall construction spending increased slightly in June:

[C]onstruction spending during June 2011 was estimated at a seasonally adjusted annual rate of $772.3 billion, 0.2 percent (±1.8%)* above the revised May estimate of $770.5 billion.

Private construction spending increased in June:

Spending on private construction was at a seasonally adjusted annual rate of $493.4 billion, 0.8 percent (±1.3%)* above the revised May estimate of $489.6 billion. Residential construction was at a seasonally adjusted annual rate of $235.8 billion in June, 0.3 percent (±1.3%)* below the revised May estimate of $236.5 billion. Nonresidential construction was at a seasonally adjusted annual rate of $257.7 billion in June, 1.8 percent (±1.3%) above the revised May estimate of $253.1 billion.

Click on graph for larger image in graph gallery.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 65% below the peak in early 2006, and non-residential spending is 38% below the peak in January 2008.

Private construction spending is mostly moving sideways, and it is public construction spending that is now declining.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending will probably turn positive in August, but public spending is now falling sharply as the stimulus spending ends.

by Calculated Risk on 8/01/2011 10:00:00 AM

PMI was at 50.9% in July, down from 55.3% in June. The employment index was at 53.5%, down from 59.9% and new orders decreased to 49.2%, down from 51.6%.

From the Institute for Supply Management: July 2011 Manufacturing ISM Report On Business®

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 50.9 percent, a decrease of 4.4 percentage points, indicating expansion in the manufacturing sector for the 24th consecutive month, although at a slower rate of growth than in June. Production and employment also showed continued growth in July, but at slower rates than in June. The New Orders Index registered 49.2 percent, indicating contraction for the first time since June of 2009, when it registered 48.9 percent. The rate of increase in prices slowed for the third consecutive month, dropping 9 percentage points in July to 59 percent. In the last three months combined, the Prices Index has declined by 26.5 percentage points, dropping from 85.5 percent in April to 59 percent in July. Despite relief in pricing, however, several comments suggest a slowdown in domestic demand in the short term, while export orders continue to remain strong."

Click on graph for larger image in new window.

Here is a long term graph of the ISM manufacturing index.

This was below expectations of 54.3%, but in line with the weak regional surveys.

by Calculated Risk on 8/01/2011 09:06:00 AM

From Alejandro Lazo at the LA Times: Homeowners who want to trade up are stuck waiting

Although there is no way to precisely to track move-up buyers, such shoppers often are looking in the $300,000-to-$800,000 price range, according to San Diego real estate research firm DataQuick.

Home sales fell the most in that category in June, dropping 25.5% from June 2010, mainly because buyer tax credits last year sparked so many first-time purchases, DataQuick said. All those first-time purchases fueled move-up transactions.

By comparison, sales of homes priced below $200,000 fell 11.4% from June 2010, and sales of homes priced at more than $800,000 dropped 17.6%.

Before the bust, moving up was so common that chains of buyers and sellers would develop, with each deal dependent on the previous one in the chain. Move-up buyers are a key part of a more robust market, as all that trading up fuels price gains and helps homeowners to build equity.

"It is critical," said Ed Leamer, director of the UCLA Anderson Forecast. "The way to think about is a chain of trades that normally occurs, and if that chain is broken at any point, or it doesn't begin because you don't have enough entry-level buyers, then the whole dynamic of the marketplace is affected and the level of resales is going to be very small."

Talk about "chain reaction". Here is a graphic I put together in early 2007 to talk about how the move-up buyer would disappear.

Click on graphis for larger image in new window.

An excerpt from a post in 2009:

[T]hese sales are "one and done" with no move up buyer.

Where are the move up buyers going to come from?

There is no "chain reaction" in the housing market - over half the sales are to first time buyers, and frequently the sellers are banks.

I hear this from real estate agents all the time: the agents (low end) are plenty busy with REOs and short sales, but the deals are mostly "one and done".

Weekend:
• Summary for Week ending July 29th
• Schedule for Week of July 31st

by Calculated Risk on 7/31/2011 10:39:00 PM

Although the debt ceiling deal has been announced, we still need to see the details to evaluate the drag on the economy. And the bill still needs to pass the House and Senate.

Hopefully the focus can be back on the economy (instead of D.C.) Unfortunately the economic data for July will be weak. The economy is still sluggish, and the "debate" itself was negatively impacting the economy over the last few weeks as some people feared the U.S. government would not pay its bills. Although that fear was unfounded, it is pretty clear there will be no additional stimulus, no further help for the unemployed, and no extension of the payroll tax cut.

Here is the economic schedule for coming week. The key report for this week will be the July employment report to be released on Friday, August 5th.

The Asian markets are green tonight with the Nikkei up almost 2%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 is up about 15 points, and Dow futures are up about 175 points.

Oil: WTI futures are up to $97.41 and Brent is up to $118.23.

Yesterday:
• Summary for Week ending July 29th

by Calculated Risk on 7/31/2011 06:58:00 PM

The details are still murky ...

UPDATE2: WSJ: Obama Says Congressional Leaders Have Agreed to a Debt Deal

Update: The WSJ reports:

House Republican leaders have agreed to a “tentative deal” ... House leaders have scheduled a briefing for their caucus at 8:30, aides say.

From the WSJ:

* $900 billion in the first stage of deficit reduction.

* $1.5 trillion in second stage of deficit reduction to be defined by a bipartisan special committee of lawmakers appointed by leaders of the House and Senate.

* If the special committee fails to deliver a deficit-cutting package that would trigger $1.2 trillion in cuts, half would be Defense cuts and the other half would be non-Defense cuts, exempting low-income programs Social Security and Medicaid, and only impacting providers in Medicare.

* The debt ceiling increase would be done in three phases: $400 billion initially; another $500 billion later this year would be subject to a vote of disapproval; a third increase of $1.5 to get the rest through 2012 and would also be subject to vote of disapproval.

* There is also a provision to have Congress vote on balanced budget amendment.

From the WaPo: Reid hopes for vote on deal Sunday night

From the NY Times: Reid Backs Debt Deal; Defense Cuts Still in Debate

Apparently Boehner is balking at the defense cuts. The idea behind the triggers is to make people take the recommendations of the special committee seriously. Unless the triggers are unpalatable to both sides, the commission will fail (I suspect it is already doomed).

The multiple votes are for more posing (shameful, but typical politics).

Yesterday:
• Summary for Week ending July 29th
• Schedule for Week of July 31st

by Calculated Risk on 7/31/2011 03:41:00 PM

The following graph compares the weekly count of banks on the "unofficial problem bank list" with the number from the FDIC's Quarterly Banking Profile.

We started posting the Unofficial Problem Bank list in early August 2009 (credit: surferdude808).

The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public (just the number of banks and assets every quarter). Note: Bank CAMELS ratings are also not made public.

CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.


The red dots are the number of banks on the official problem bank list as announced in the FDIC quarterly banking profile for Q1 2009 through Q1 2011. The dots are lagged one month because of the delay in announcing formal actions. Here is a graph from the FDIC back to Q1 2006.

On August 7, 2009, we listed 389 institutions with $276 billion in assets, and the list now has 995 institutions and $415 billion in assets.

For Q1 2011, the FDIC listed 888 institutions and $390 billion in assets (somewhat less than the unofficial list a month later). The FDIC Q2 2011 Quarterly Banking Profile will be released in a few weeks.

The unofficial count is close, but is somewhat higher than the official count.

Yesterday:
• Summary for Week ending July 29th
• Schedule for Week of July 31st

by Calculated Risk on 7/31/2011 12:18:00 PM

The final vote will probably be on Tuesday to maximize camera time ...

From the WSJ:

The White House and negotiators for congressional leaders of both parties are pushing for a deal that would raise the nation’s borrowing limit in tandem with deficit reduction in a two-stage process that could result in as much as $3 trillion in spending cuts over the next decade, lawmakers said Sunday.

The terms of the second phase – which would link further borrowing leeway to a potentially far-reaching overhaul of the tax code, defense spending and the major old-age safety net programs – are still not decided, leaders of both parties said in appearances on Sunday morning news programs.

The details sketchy are still sketchy, so it is difficult to tell how much of a drag this plan will be on the economy.

On a personal note, I think most Americans (and most politicians) do not understand the U.S. budget. This reminds me of the housing bubble - it seemed obvious to many of us, but most Americans (and most politicians) missed it completely. As an example, the "Balanced Budget Amendment" is obviously bad policy, yet politicians aren't ridiculed for supporting it. Immediate cuts with a 9.2% unemployment rate are bad policy, but that appears to be what is going to happen. I wish I was a better writer ... but I'll try to explain why these are policy mistakes in the months ahead.

Update: here is what I wrote in the comments:

I get really frustrated with politicians comparing the Federal budget to a family budget. The government does not have a capital budget, so if they spend money on R&D or roads, that is just included in the budget.

If a family buys a car with 5 year financing, they usually just budget the monthly payments. If they budgeted like the government, they'd have to include the entire purchase of the car the year it was bought (same with a house - they'd have to enough to pay cash to buy the house).

Some people compare to the states too. Hey the states are supposed to have balanced budgets. But states have separate capital and operating budgets. I think people just don't understand.
...
A politician can say "We should have a balanced budget". It sounds good, but why aren't they challenged about operating vs. capital budgets? And about business cycle spending (obviously revenue falls during a recession - and spending increases)?

What they really want is a balanced operating budget over the business cycle. You can't put that in the Constitution. It requires effective government and constant vigilance.

Of course in 2001, when the politicians were concerned about paying off the debt too soon, that nonsense went mostly unchallenged too. Very frustrating.

I need to think about how to explain it. "Balanced budget" sounds so good, and is so wrong.

by Calculated Risk on 7/31/2011 08:15:00 AM

From the National Restaurant Association: Restaurant Industry Outlook Strengthened in June as Restaurant Performance Index Rose Above 100

Driven by stronger same-store sales and traffic levels and a more optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) rose above 100 in June. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.6 in June, up 0.8 percent from May’s level of 99.9. In addition, June represented the sixth time in the last seven months that the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“The RPI’s solid improvement in June was due in large part to stronger same-store sales and customer traffic performances, which bounced back from their May declines,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “In addition, restaurant operators are optimistic that their sales environment will improve in the months ahead, while their outlook for capital spending also remains strong.”
...
Restaurant operators reported stronger same-store sales results in June. ... Restaurant operators also reported improving customer traffic levels in June.

Click on graph for larger image in graph gallery.

The index increased to 100.6 in June (above 100 indicates expansion).

Unfortunately the data for this index only goes back to 2002.

This is a minor report (barely "D-List" data), but I'd expect discretionary spending to slow sharply if consumers become really worried - and that doesn't seem to be happening.

by Calculated Risk on 7/31/2011 12:17:00 AM

From the NY Times: Amid New Talks, Some Optimism on Debt Crisis

Senator Harry Reid ... said he would convene the Senate at noon on Sunday for a vote an hour later.

The vote will probably be delayed some more ... and then maybe fail in the House on the first vote. But eventually the debt ceiling will be raised.

Earlier:
• Summary for Week ending July 29th
• Schedule for Week of July 31st

by Calculated Risk on 7/30/2011 09:14:00 PM

• I remain confident that Congress will raise the debt ceiling; however the circus in D.C. is clearly impacting the economy. This morning I spoke to a business owner who is negotiating a new lease to expand. His lawyer told him not to sign the lease until the debt ceiling issue is resolved. I believe similar caution has gripped business owners and consumers in many places - and impacting consumer and business confidence.

• Some people have asked why Q2 GDP growth was higher than Q1 GDP growth given the supply chain disruptions hit in Q2. The answer is both quarters were weak, but there was slightly more investment in Q2, less drag from government spending in Q2, and a positive contribution from trade. Inflation was lower in Q2 too, so the adjustment to real GDP was less.

The supply chain disruptions really showed up in Personal Consumption Expenditures (PCE) in Q2. PCE contributed almost nothing to Q2 growth; PCE increased at a 0.1% annualized real rate in Q2, after increasing at an anemic 2.1% in Q1. PCE should bounce back in Q3 - so real GDP growth will probably pick up. Well, if the politicians stop hurting the already fragile economy.

• I'm trying to ignore the debt ceiling nonsense, but it will probably be front page news for the next few days - so it will be difficult to avoid. Ezra Klein at the WaPo is providing excellent coverage, and the Capital Gains and Games blog has some great insights. (I expect Ezra will be working Sunday).

If you think Congress will fail to raise the debt ceiling, I'd suggest Tar and Feather futures!

Earlier:
• Summary for Week ending July 29th
• Schedule for Week of July 31st