by Calculated Risk on 8/07/2011 04:33:00 PM

UPDATE2: From ECB:

7 August 2011 - Statement by the President of the ECB
....
6. It is on the basis of the above assessments that the ECB will actively implement its Securities Markets Programme. This programme has been designed to help restoring a better transmission of our monetary policy decisions – taking account of dysfunctional market segments – and therefore to ensure price stability in the euro area.

UPDATE: from Reuters: ECB to intervene decisively on markets - source (ht Rickkk)

"The Euro system will intervene very significantly on markets and respond in a significant and cohesive way," the euro zone monetary source said, adding a statement by the ECB will be issued shortly.

From the WSJ: ECB Officials Weigh Massive Purchases of Italian, Spanish Bonds

European Central Bank officials on Sunday evening were weighing whether to purchase government bonds of Italy and Spain on a massive scale ... ECB intervention to prop up Italy and Spain would be a watershed in Europe's effort to fight the financial crisis.

Sunday's meeting, which began in the early evening via a video conference ...

Also the G7 is expected to put out a statement later today.

Sunday is the new Monday again.

Yesterday:
• A long Summary for Week ending August 5th
• Schedule for Week of August 7th

by Calculated Risk on 8/07/2011 04:09:00 PM

Over the last few days, I noted that the FHA and Fannie Mae recently sold a record number of REOs (Real Estate Owned), and that their REO inventories are declining. That is interesting data, but just a small part of the overall distressed property picture.

Let's start at the beginning: The lenders report delinquent loans in four delinquency buckets, a "30-day" delinquent loan is past due by one payment, a "60-day" is past due by two payments, "90 days delinquent" is past due by three or more payments, and "loans in foreclosure" are if the foreclosure process has started.

There are always quite a few "30 day" delinquent loans and it can get a little complicated. As Tanta noted:

30-day delinquencies are very volatile. They are often seasonal, for one thing, and they can very often turn into what underwriters call a "rolling 30" ("rolling" in this case is not to be confused with a "roll rate" of 30 to 60 days delinquent). Imagine a borrower who is current through the June payment, misses the July payment, makes the August payment, and continues on through the end of the year making a payment each month, but never making up that missed payment from July. That borrower would be considered "current" in July (you aren't "delinquent" for our purposes until you're at least 30 days delinquent), 30 days delinquent in August, 30 days delinquent in September, and so on to the end of the year. It doesn't matter how far in time you get from that missed payment: you only missed one, so you are never on any given reporting date more than 30 days down.

You can have "rolling 60s," but servicers are rather less likely to put up with them than rolling 30s.

And on the difference between 90 days and "in-foreclosure":

As a general rule, most servicers do not begin foreclosure proceedings until a loan is 90 days delinquent. This isn't a "magic number," it's just a rule of thumb. For our purposes, one thing it means is that a servicer will usually report separately on loans "90 days delinquent" and "loans in foreclosure." "In foreclosure" means the loan is in a process, often a long one, that starts with the filing of a foreclosure notice and ends at an auction on the courthouse steps.

The foreclosure process starts with the filing of either a "Notice of Default" or a "Lis pendens" depending on the local requirements.

After the foreclosure is completed, the property is "acquired" by the lender and is counted as "Real Estate Owned" (REO) until the lender sells the property. Here is a look at REO inventory:

Click on graph for larger image in graph gallery.

There was a huge surge in REOs for the Private Label Securities (the loans securitized by Wall Street). This was the worst of the worst loans, but the number of REOs held by the PLS has been declining since 2008.

The number of REOs for Fannie, Freddie, the FHA, and FDIC insured institutions have just started to decline. This is a combination of increasing the pace of selling REOs and a slowdown in acquisitions (see Fannie Mae sells record number of REO in Q2 for a graph of acquisitions, dispositions and inventory - and Fannie's discussion of the slowdown in acquisitions).

If we just looked at REO inventory, we might think that the situation is getting better pretty quickly. However there are a large number of properties in the "90 days delinquent" and "in foreclosure" buckets.

This graph shows the delinquent and REO buckets over time. The delinquency data is from LPS, and the REO estimates are based on work by Tom Lawler and my own calculations.

The dashed lines are "normal" historical levels for each bucket. The 30 day bucket is only slightly elevated (as of June), and the 60 day buckets is somewhat elevated. But the glaring problems are in the 90 day and in-foreclosure buckets.

There are 4.1 million seriously delinquent loans (90 day and in-foreclosure). This is about 3 million more properties than normal. Probably when the mortgage settlement is announced, some of these loans will cure as part of the settlement with principal reduction loan modifications, but many of these properties will become REOs fairly quickly (I've spoken to servicers and they don't know when the dam will break).

So even though REO inventory is declining - and the lenders are selling a record number of REOs - there are still many more to come.

Yesterday:
• A long Summary for Week ending August 5th
• Schedule for Week of August 7th

by Calculated Risk on 8/07/2011 10:05:00 AM

Yesterday:
• A long Summary for Week ending August 5th
• Schedule for Week of August 7th

The graph below shows the number of construction payroll jobs (blue line), and the number of construction jobs as a percent of total non-farm payroll jobs (red line).

Construction employment is down 2.194 million jobs from the peak in April 2006, but up slightly this year (through July).

Click on graph for larger image in graph gallery.

Unfortunately this graph is a combination of both residential and non-residential construction employment. The BLS only started breaking out residential construction employment fairly recently (residential building employees in 1985, and residential specialty trade contractors in 2001). Usually residential investment (and residential construction) lead the economy out of recession, and non-residential construction usually lags the economy. Because this graph is a blend, it masks the usual pickup in residential construction following previous recessions. Of course residential investment didn't lead the economy this time because of the huge overhang of existing housing units.

This table below shows the annual change in construction jobs (total, residential and non-residential) and through July for 2011.

	Annual Change in Payroll jobs (000s)
Year	Total Construction Jobs	Residential Construction Jobs	Non-Residential
2002	-85	88	-173
2003	127	161	-34
2004	290	230	60
2005	416	268	148
2006	152	-62	214
2007	-198	-273	75
2008	-787	-510	-277
2009	-1053	-431	-622
2010	-149	-113	-36
Through July 2011	34	6	28

Not much, but after five consecutive years of job losses for residential construction (and four years for total construction), this is a start.

by Calculated Risk on 8/06/2011 10:54:00 PM

Last week the FHA reported a record number of Real Estate Owned (REO) sales in June, and a sharp decline in end-of-quarter REO inventory.

Yesterday Fannie Mae also reported a record number of REO sales in Q2, and a decline in REO inventory. In Q2, Fannie Mae acquired 53,697 properties, and sold 71,202. Fannie's REO inventory fell to 135,719 from 153,224 at the end of Q1.

Here is a graph of Fannie Mae REO acquisitions (completed foreclosure or deed-in-lieu) and dispositions (sales) (ht Tom Lawler).

Note the slowdown in REO acquisitions in Q4 2010, and the increase in sales.

Since sales are higher than acquisitions, REO inventory is falling. However there are many properties delayed in the foreclosure process, and acquisitions will pick up later this year (or when the mortgage servicer settlement is reached).

From Fannie:

The continued weak economy, as well as high unemployment rates, continue to result in a high level of mortgage loans that transition from delinquent to REO status, either through foreclosure or deed-in-lieu of foreclosure, which has resulted in a higher inventory of REO properties as of June 30, 2011 compared with June 30, 2010. Our foreclosure rates remain high; however, foreclosure levels were lower than what they otherwise would have been during the first half of 2011 due to delays in the processing of foreclosures caused by continuing foreclosure process issues, changes in state foreclosure laws, and new court rules and proceedings.

Freddie Mac will report next week, but clearly overall REO inventory is falling (I'll have more on this soon).

Earlier:
• A long Summary for Week ending August 5th
• Schedule for Week of August 7th

by Calculated Risk on 8/06/2011 05:15:00 PM

Earlier: A long Summary for Week ending August 5th

The key reports this week are July Retail Sales on Friday, and the June Trade Balance report on Thursday.

The FOMC statement on Tuesday will be closely scrutinized for possible hints of QE3.

----- Monday, Aug 8th -----
10:00 AM ET: NY Fed Q2 Report on Household Debt and Credit (note: moved to Aug 15th)

----- Tuesday, Aug 9th -----
7:30 AM: NFIB Small Business Optimism Index for July.

Click on graph for larger image in graph gallery.

This graph shows the small business optimism index since 1986. The index decreased to 90.8 in June from 90.9 in May.

This index is still very low - and had been trending up - but optimism has declined for four consecutive months now, and July will probably make five.

2:15 PM: FOMC Meeting Announcement. There will no press briefing after this meeting (the next press conference is scheduled for Nov 2nd). Although no change is expected to interest rates, the FOMC statement will probably be changed to reflect the recent weakness in the economy.

----- Wednesday, Aug 10th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been very weak over the last several months.

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

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for June. The consensus is for a 1.0% increase.

10:00 AM: Job Openings and Labor Turnover Survey for June from the BLS. In general job openings have been trending up, however overall labor turnover remains low.

----- Thursday, Aug 11th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 405,000 from 400,000 last week.

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

This graph shows the monthly U.S. exports and imports in dollars through May 2011.


The consensus is for the U.S. trade deficit to be around $48 billion, down from $50.2 billion in May.

----- Friday, Aug 12th -----
8:30 AM: Retail Sales for July.

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

The consensus is for retail sales to increase 0.6% in July, and for a 0.3% increase ex-auto.

9:55 AM: Reuters/University of Mich Consumer Sentiment preliminary for August. The consensus is for a slight decrease to 63.0 from 63.7 in July.

10:00 AM: Manufacturing and Trade: Inventories and Sales for June. The consensus is for a 0.6% increase in inventories.

by Calculated Risk on 8/06/2011 11:09:00 AM

This was a crazy week that people will long remember. On the political front, the U.S. government finally agreed to raise the debt ceiling. Unfortunately there were clear indications that the process negatively impacted the economy over the last couple of weeks.

In Europe, the financial crisis continued to spread. The President of the European Commission, José Manuel Barroso, finally acknowledged that containment has been lost and that the crisis has spread beyond Greece, Ireland and Portugal: “[I]t is clear that we are no longer managing a crisis just in the euro-area periphery.”

And on Friday, Standard & Poor’s downgraded U.S. debt to AA+. This will lead to related downgrades on Monday. However the regulatory agencies have already said there would be no change for risk-based capital purposes for financial institutions

There was plenty of economic data released too. Let’s start with employment:

The BLS reported that payroll employment increased 117,000 in July and that the unemployment rate decreased to 9.1%. So far the economy has added 1,148,000 private sector jobs this year, or 164,000 per month. There have been 930,000 total non-farm jobs added this year or 133,000 per month.

The pace of job growth has slowed over the last three months, and the overall pace is barely enough to keep up with the growth in the labor force. The unemployment rate has only declined from 9.4% in December 2010 to 9.1% in July. Mostly moving sideways ...

This was another weak employment report and reminds us that unemployment and underemployment are critical problems in the U.S. There are 6.8 million fewer payroll jobs now than before the recession started in 2007 with 13.9 million Americans currently unemployed. Another 8.4 million are working part time for economic reasons, and about 4 million more workers have left the labor force. Of those unemployed, 6.2 million have been unemployed for six months or more. Clearly the overall employment situation remains grim.

Other data was mostly weak too. The ISM manufacturing index declined to the lowest level since July 2009, and the ISM non-manufacturing index fell to the lowest level since early 2010. Auto sales were above expectations, although still below the pre-tsunami levels.

CoreLogic reported home prices increased in June, although the increase was mostly seasonal. And private construction spending increased slightly in June, although public spending is falling sharply.

On Friday, Goldman Sachs lowered their outlook through 2012: “We have lowered our growth forecast further and now expect real GDP to increase just 2%-2½% (annualized) through the end of 2012. Since this pace is slightly below the US economy’s potential, we now expect the unemployment rate to be at 9¼% by the end of 2012, slightly above the current level. We now see a one-in-three risk of renewed recession ...”

It was another very difficult week.

Here is a summary in graphs:

• July Employment Report: 117,000 Jobs, 9.1% Unemployment Rate

The BLS reported: "Total nonfarm payroll employment rose by 117,000 in July, and the unemployment rate was little changed at 9.1 percent ... The change in total nonfarm payroll employment for May was revised from +25,000 to +53,000, and the change for June was revised from +18,000 to +46,000."

The following graph shows the employment population ratio, the participation rate, and the unemployment rate.

Click on graph for larger image in graph gallery.

The unemployment rate decreased to 9.1% (red line).

The Labor Force Participation Rate declined to 63.9% in July (blue line). This is the percentage of the working age population in the labor force. This is a new cycle low - and the lowest participation rate since the early '80s.

The Employment-Population ratio declined to 58.1% in July (black line). This is also at a new cycle low and the lowest since the early '80s.

This graph shows the job losses from the start of the employment recession, in percentage terms aligned at the start of the recession. The dotted line is ex-Census hiring.

This was a weak report, but better than expectations for payroll jobs, and the unemployment rate.

Here is the Employment graph gallery

• ISM Manufacturing index declines in July

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

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%.

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.

• ISM Non-Manufacturing Index indicates slower expansion in July

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

The July ISM Non-manufacturing index was at 52.7%, down from 53.3% in June. The employment index decreased in July to 52.5%, down from 54.1% in June. Note: Above 50 indicates expansion, below 50 contraction.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was below the consensus forecast of 54.0%.

• U.S. Light Vehicle Sales 12.23 million Annual Rate in July

Based on an estimate from Autodata Corp, light vehicle sales were at a 12.23 million SAAR in July. That is up 6.1% from July 2010, and up 6.2% from the sales rate last month (June 2011).

This graph shows light vehicle sales since the BEA started keeping data in 1967.

Although still below the sales rate earlier this year - before the tragedy in Japan - this was above the consensus forecast of 11.9 million SAAR.

• Recession Measures

By request, here are four key indicators used by the NBER for business cycle dating: GDP, Employment, Industrial production and real personal income less transfer payments.

Note: The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

These graphs show that no major indicator has returned to the pre-recession levels - and most are still way below the pre-recession peaks.

This graph is for real GDP through Q2 2011 and shows real GDP is still 0.4% below the previous pre-recession peak.

At the worst point, real GDP was off 5.1% from the 2007 peak.

And real GDP has performed better than other indicators ...

This graph shows real personal income less transfer payments as a percent of the previous peak.

With the revisions, this measure was off almost 11% at the trough - a significant downward revision and shows the recession was much worse than originally thought.

Real personal income less transfer payments is still 5.1% below the previous peak.

This graph is for industrial production through June.

Industrial production had been one of the stronger performing sectors because of inventory restocking and some growth in exports.

However industrial production is still 7.6% below the pre-recession peak, and it will probably be some time before industrial production returns to pre-recession levels.

The final graph is for employment. This is similar to the graph I post every month comparing percent payroll jobs lost in several recessions.

On the timing of the trough of the recession, GDP and industrial production would suggest the end of Q2 2009 (and June 2009). The other two indicators would suggest later troughs.

And of course the recovery in all indicators has been very sluggish compared to recent recessions.

• CoreLogic: Home Price Index increased 0.7% in June

From CoreLogic: CoreLogic® Home Price Index Shows Third Consecutive Month-Over-Month Increase

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 0.7% in June, and is down 6.8% over the last year, and off 31.7% from the peak.

Some of this increase is seasonal (the CoreLogic index is NSA) and the index is still off 6.8% from last June. This is also the eleventh consecutive month showing a year-over-year decline.

• Construction Spending increased in June

The Census Bureau reported that overall construction spending increased slightly in June.

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 public spending is now falling sharply as the stimulus spending ends.

• Personal Income increased 0.1% in June, PCE decreased 0.2%

The BEA released the Personal Income and Outlays report for June.

This graph shows real Personal Consumption Expenditures (PCE) through June (2005 dollars).

PCE decreased 0.2 in June, and real PCE decreased less than 0.1% as the price index for PCE decreased 0.2 percent in June. On a quarterly basis, PCE barely increased in Q2 from Q1 (this was in the GDP report Friday).

Real PCE has declined for three straight months - this was expected based on the weak GDP report, but this is very weak.

• Other Economic Stories ...
• ADP: Private Employment increased 114,000 in July
• European Commission President: Crisis no longer contained to periphery
• NMHC Quarterly Apartment Survey: Market Conditions Tighten
• States cutting Unemployment Insurance benefits
• FHA sells record number of REO in June
• LPS: Foreclosure Starts Increased in June
• Q2 2011 Details: Investment in Office, Mall, and Lodging, Residential Components

Have a great weekend!

by Calculated Risk on 8/06/2011 08:14:00 AM

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

Here is the unofficial problem bank list for Aug 5, 2011.

Changes and comments from surferdude808:

Busy week for removals with the two failures this Friday night and after the FDIC updated its structure database to reflect some recent unassisted mergers. The removals plus one addition leave the Unofficial Problem Bank List at 988 institutions with assets of $411.6 billion, down from 995 institutions with assets of $415.4 billion last week.

The removals from failure include Bank of Whitman, Colfax, WA ($608 million) and Bank of Shorewood, Shorewood, IL ($120 million). Consistent with an American Banker article published in the past month that said regulators are pushing troubled banks to find merger partners, there were six removals because of unassisted mergers including Wilmington Trust FSB, Baltimore, MD ($2.3 billion); Sunrise Bank, San Diego, CA ($232 million); Jefferson Bank, Dallas, TX ($205 million); Bank of the Northwest, Bellevue, WA ($146 million); Cornerstone Bank & Trust, National Association, Carrollton, IL ($144 million); and Heritage Bank, National Association, Holstein, IA ($137 million).

The flow of new additions will become lumpier with the shuttering of the OTS as the OCC and FDIC only release actions on a monthly basis instead of when they are issued like the Federal Reserve and OTS.

Employment posts yesterday (with graphs):
• July Employment Report: 117,000 Jobs, 9.1% Unemployment Rate
• Employment Summary, Part Time Workers, and Unemployed over 26 Weeks
• More Employment (Duration, Education, Diffusion Index)
• Employment graph gallery

by Calculated Risk on 8/05/2011 10:26:00 PM

Note: S&P downgraded U.S. debt to AA+. The regulatory agencies responded saying there would be no change for risk-based capital purposes for financial institutions.

Here are the earlier employment posts (with graphs):
• July Employment Report: 117,000 Jobs, 9.1% Unemployment Rate
• Employment Summary, Part Time Workers, and Unemployed over 26 Weeks
• More Employment (Duration, Education, Diffusion Index)
• Employment graph gallery

The Association of American Railroads (AAR) reports carload traffic in July 2011 decreased 1.0 percent compared with the same month last year, and intermodal traffic (using intermodal or shipping containers) increased 1.3 percent compared with July 2010. On a seasonally adjusted basis, carloads in July 2011 were up 0.7% from June 2011; intermodal in July 2011 was down 0.8% from June 2011.

On a non-seasonally adjusted basis, U.S. freight railroads averaged 277,921 carloads per week in July 2011, down 1.0% from July 2010’s 280,680 carloads per week and up 3.1% over July 2009’s 269,479 carloads per week. July 2011 was the fourth straight month in which carload traffic closely tracked year-earlier levels.

... July ... saw the biggest year-over-year monthly decline (and the second decline of any kind) in U.S. rail carload traffic in 16 months.

Click on graph for larger image in graph gallery.

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

Rail carload traffic collapsed in November 2008, and now, 2 years into the recovery, carload traffic ex-coal is about half way back.

"Excluding coal, U.S. rail carloads in July 2011 were up 4.3% over July 2010."

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

U.S. railroads originated 895,649 intermodal trailers and containers in July 2011, an average of 223,912 units and up 1.3% (11,724 units) over July 2010. That’s the lowest year-over-year increase since January 2010.
excerpts with permission

Another soft month for rail traffic.

by Calculated Risk on 8/05/2011 09:14:00 PM

Slim profit Whitman
Bankers yodel past graveyard
Siren song of doom
by Soylent Green is People
From the FDIC: Columbia State Bank, Tacoma, Washington, Assumes All of the Deposits of Bank of Whitman, Colfax, Washington

As of June 30, 2011, Bank of Whitman had approximately $548.6 million in total assets and $515.7 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $134.8 million. ... Bank of Whitman is the 63rd FDIC-insured institution to fail in the nation this year, and the third in Washington.

Two today!

by Calculated Risk on 8/05/2011 08:30:00 PM

Bankers, hat in hand
We Shorewood like more money
Heartland, Fed say no.
by Soylent Green is People
From the FDIC: Heartland Bank and Trust Company, Bloomington, Illinois, Assumes All of the Deposits of Bank of Shorewood, Shorewood, Illinois

As of June 30, 2011, Bank of Shorewood had approximately $110.7 million in total assets and $104.0 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $25.6 million. ... Bank of Shorewood is the 62nd FDIC-insured institution to fail in the nation this year, and the sixth in Illinois.