by Calculated Risk on 8/15/2011 06:47:00 PM

Usually economist Tom Lawler sends me his forecast for existing home sales (and his forcasts have been very close). Tom has been extremely busy this month, but he sent me this short update today:

My early read of local MLS/association data suggests that national existing home sales as measured by the NAR may actually dip a bit on a seasonally adjusted basis in July -- of course, taking into account the lower business day count this July vs. last July.

The NAR reported existing home sales at 4.77 million in June, and the consensus (from Bloomberg) is for sales of 4.92 million at a Seasonally Adjusted Annual Rate (SAAR) in July (the NAR will report on Thursday).

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

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported - and possible hints about the trade report for July. LA area ports handle about 40% of the nation's container port traffic.

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image in graph gallery.

On a rolling 12 month basis, inbound traffic is down 0.2% from June, and outbound traffic is up 0.6%.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

For the month of July, loaded inbound traffic was down 2% compared to July 2010, and loaded outbound traffic was up 7% compared to July 2010.

Exports have been increasing, although bouncing around month-to-month. Exports are up from last year, but still below the peak in 2008.

Imports were down from last year, and are below the levels of July in 2006 and 2007 too. This is the 2nd month in a row with a year-over-year decline in imports - but there will probably be a surge in imports over the next couple of months as goods arrive for the holiday season.

by Calculated Risk on 8/15/2011 03:14:00 PM

From DataQuick: Southland Housing Market's Vital Signs Remain Weak

Southern California home sales fell last month to the lowest level for a July in four years ... A total of 18,090 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in July. That was down 11.9 percent from 20,532 in June and down 4.5 percent from 18,946 in July 2010, according to San Diego-based DataQuick.
...
"The latest sales figures look a bit worse than they really are, given this July was a fairly short month, but they still suggest some potential homebuyers got spooked. Reports on the economy became increasingly downbeat and, no doubt, some people fretted over the possibility the country would default on its obligations," said John Walsh, DataQuick president.

"If there's a shred of good news in the data it's that last month's sales weren't much worse than a year earlier. For the first time in many months, we get an apples-to-apples comparison to year-ago sales, given that in July 2010 the market lost its crutch -- federal homebuyer tax credits."
...
Overall home sales in July fell across all price categories compared with June. Sales declined 11.2 percent from June for homes priced below $200,000, while they fell 13.3 percent month-to-month for $300,000-to-$800,000 homes and fell 20.5 percent for homes over $800,000.
...
Foreclosure resales -- properties foreclosed on in the prior 12 months -- made up 32.5 percent of the Southland resale market in July ... Short sales, where the sale price fell short of what was owed on the property, made up an estimated 17.3 percent of Southland resales last month.

About half the sales in SoCal are distressed (foreclosure resales or short sales) and about 24% of sales were to absentee homeowners (mostly investors).

The NAR reports existing home sales for July on Thursday.

by Calculated Risk on 8/15/2011 12:15:00 PM

This report shows some minor household credit improvement, but that the pace of deleveraging has slowed.

From the NY Fed: New York Fed’s Quarterly Report on Household Debt and Credit Shows Continued Signs of Healing in Consumer Credit Markets

The Federal Reserve Bank of New York today released its Household Debt and Credit Report for the second quarter of 2011. Consistent with last quarter's findings, the report shows continued signs of healing in the consumer credit markets.
...
"Outstanding consumer debt remained essentially flat, down just $50 billion, in what was basically a repeat of the previous quarter. This is more evidence that the pace of consumer deleveraging that began in late 2008 has slowed," said Andrew Haughwout, vice president in the Research and Statistics Group at the New York Fed. "During the next few quarters we will gain a better understanding of whether this is a permanent or temporary break in the decline of total outstanding consumer debt."

Here is the Q2 report: Quarterly Report on Household Debt and Credit. Here are two graphs:

Click on graph for larger image in new window.

The first graph shows aggregate consumer debt decreased slightly in Q2. From the NY Fed:

As of June 30, 2011, total consumer indebtedness was $11.4 trillion, a reduction of $1.08 trillion (8.6%) from its peak level at the close of 2008Q3, and $50 billion (0.4%) below its March 31, 2011 level. Mortgage
balances shown on consumer credit reports fell very slightly ($20 billion or 0.2%) during the quarter; home equity lines of credit (HELOC) balances fell by $20 billion (3.0%). ... Consumer indebtedness excluding mortgage and HELOC balances fell very slightly ($10 billion or about 0.4%) in the quarter.

The second graph shows the percent of debt in delinquency. The percent of delinquent debt is declining, but what really stands out is the percent of debt 90+ days delinquent (Yellow, orange and red).

From the NY Fed:

Total household delinquency rates declined for the sixth consecutive quarter in 2011Q2. As of June 30, 9.9% of outstanding debt was in some stage of delinquency, compared to 10.5% on March 31 and 11.4% a year ago. About $1.1 trillion of consumer debt is currently delinquent, with $833 billion seriously delinquent (at least 90 days late or “severely derogatory”). Compared to a year ago, both delinquent and seriously delinquent balances have fallen 15%.

There are a number of credit graphs at the NY Fed site.

by Calculated Risk on 8/15/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) was unchanged in August at 15, the same level as in July. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Unchanged in August

Builder confidence in the market for newly built, single-family homes held unchanged at a low level of 15 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for August, released today.
...
"Builders continue to confront the same major challenges they have seen over the past year, including competition from the large inventory of distressed homes on the market, inaccurate appraisal values, and issues with their buyers not being able to sell an existing home or qualify for favorable mortgage rates because of overly tight underwriting requirements," said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nev. He noted that 41 percent of respondents to a special questions section of the HMI indicated they had lost sales contracts due to buyers' inability to sell their current homes.
...
Two out of three of the HMI's component indexes posted marginal gains in August. The component gauging current sales conditions gained one point to 16 – its highest level since March of this year – and the component gauging traffic of prospect buyers rose one point to 13 following two consecutive months at 12. However, the component gauging sales expectations for the next six months declined two points to 19, partially offsetting a six-point gain from the last month's revised number.

Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the August release for the HMI and the June data for starts (July housing starts will be released tomorrow).

Both confidence and housing starts have been moving sideways at a very depressed level for several years.

by Calculated Risk on 8/15/2011 09:05:00 AM

The BuildFax Residential Remodeling Index was at 129.5 in June, up from 124.3 in May. This is based on the number of properties pulling residential construction permits in a given month.

From BuildFax:

The Residential BuildFax Remodeling Index rose 23% year-over-year--and for the twentieth straight month--in June to 129.5, the highest number in the index to date. Residential remodels in June were up month-over-month 5.2 points (4%) from the May value of 124.3, and up year-over-year 24.5 points from the June 2010 value of 105.0.
...
In June, the West (7.3 points; 6%), the Midwest (11.2 points; 13%), and the South (< .1 points; < 1%) all had month-over-month gains, while the Northeast saw a decline (3.7 points; 4%). ... “The first half of 2011 brought pain to many sectors of the economy including home sales and jobs, however Americans continue to invest in remodeling, sending the BuildFax Remodeling Index to a new all-time high,” said Joe Emison, Vice President of Research and Development at BuildFax. “With so many Americans unable to sell their current home, it is apparent that they are planning on staying in their current residences and are making renovations and upgrades.”

Click on graph for larger image in graph gallery.

This is the highest level for the index (started in 2004) - even above the levels from 2004 through 2006 during the home equity ("home ATM") withdrawal boom.

Note: Permits are not adjusted by value, so this doesn't mean there is more money being spent, just more permit activity. Also some smaller remodeling projects are done without permits and the index will miss that activity.

Since there is a strong seasonal pattern for remodeling, the second graph shows the year-over-year change from the same month of the previous year.

The remodeling index is up 23% from June 2010.

Even though new home construction is still moving sideways, it appears that two other components of residential investment will increase in 2011: multi-family construction and home improvement.

Data Source: BuildFax, Courtesy of Index.BuildFax.com

Weekend:
• Summary for Week Ending August 12th
• Schedule for Week of August 14th

by Calculated Risk on 8/15/2011 08:30:00 AM

From the NY Fed: Empire State Manufacturing Survey

The August Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to worsen. The general business conditions index fell four points to -7.7, its third consecutive negative reading. The new orders index also remained below zero, at -7.8, while the shipments index was positive at 3.0.

Price indexes continued to retreat, with the prices paid index falling fifteen points to 28.3 and the prices received index falling three points to 2.2. The index for number of employees was slightly positive, while the average workweek index was slightly negative.

The index decreased from -3.8 in July, and is well below expectations of a reading of 1.0. This is the first regional survey released for August and shows that manufacturing in the NY region is still contracting.

Weekend:
• Summary for Week Ending August 12th
• Schedule for Week of August 14th

by Calculated Risk on 8/15/2011 12:47:00 AM

There will be a meeting of German chancellor Angela Merkel and French president Nicholas Sarkozy on Tuesday. There were some more rumors of a Eurobond this weekend, but according to the Financial Times that has been ruled out for now: Germany and France rule out eurobonds. Another meeting is not a good sign ...

The NY Times discusses the slowing European economies: Setbacks May Push Europe Into a New Downturn

On Tuesday, economists expect a report on euro area economic activity to show that gross domestic product slowed to 0.3 percent in the second quarter, from 0.8 percent in the first three months of the year.

And the NY Times discusses the false rumor last week about funding problems at Société Générale: Source Sought for False Story on French Bank. Pretty amusing story - it seems the rumor might have started with a fictional story in Le Monde (that was clearly labeled fiction).

And from the WSJ: Japan's Economy Shrinks but Beats Expectations

... Japan's economy continues to rebound from the devastating March 11 earthquake and tsunami faster than anticipated. The government reported that real Gross Domestic Product shrank 1.3% in annualized, seasonally adjusted terms in the second quarter. The outcome beat a 2.7% contraction [forecast].

The Asian markets are green tonight with the Nikkei up over 1%. The Hang Seng is up over 2%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 is up about 7 points, and Dow futures are up about 70 points.

Oil: WTI futures are up to $85 and Brent is up to $108.

Yesterday:
• Summary for Week Ending August 12th
• Schedule for Week of August 14th

by Calculated Risk on 8/14/2011 05:32:00 PM

On Friday, Reuters and the University of Michigan released the preliminary consumer sentiment index for August. This showed a sharp decline in sentiment to 54.9, the lowest level in 30 years (see graph below).
My reaction was the decline in sentiment was related to the heavy coverage of the debt ceiling debate, and not due to the usual suspects: gasoline prices or a weakening labor market. Of course consumer sentiment was already low because of high gasoline prices and a weak labor market, but gasoline prices are now falling and initial weekly unemployment claims have declined recently (the key for sentiment is that neither appears to be getting worse rapidly).

I looked at some of the previous spikes down in sentiment due to fairly short term events: 1) the 1987 market crash, 2) the Gulf War, 3) 9/11, 4) the Iraq Invasion, and 5) Hurricane Katrina. These events are apparent on the following graph (along with plenty of noise):

Click on graph for larger image in graphic gallery.

There are other reasons for declines in sentiment, but I was looking for event driven declines. Note: It is more unusual to see sentiment spike up due to an event - perhaps the capture of Saddam Hussein in Dec 2003 led to an increase in sentiment in the January 2004 report.

Looking at these five events (table below), some of the declines were related to other factors (like an increase in oil prices) - and some lasted longer and had a direct impact on consumption.

My feeling is the debt ceiling decline - assuming the decline was due to the insanity in D.C. - is most similar to the 1987 stock market crash (that scared everyone, but had little impact on the economy) and to Hurricane Katrina (although Katrina led to higher oil prices and a direct impact on consumption in several gulf states).

If I'm correct, then sentiment should bounce back fairly quickly - but only to an already low level. And the impact on consumption should be minimal. Of course sentiment could have declined because of other factors (weak labor market, European financial crisis, etc), and then sentiment will probably not bounce back quickly.

Event Driven Declines in Consumer Sentiment
Event	Date	Bounce Back	Impact on Consumption	Other Factors
1987 Market Crash	Oct-87	2 Months	None	None
Gulf War	Aug-90	6 Months	PCE declined	Recession, Oil Prices Doubled
9/11	Sep-01	4 months	PCE declined 3 out of 4 months	Recession
Iraq Invasion	Mar-03	2 Months	None	Oil Prices increased 10%+
Hurricane Katrina	Aug-05	3 Months	PCE declined 2 months	Oil Prices increased 10%+
Debt Ceiling	Aug-11	---	---	European Crisis, Weak Recovery

Yesterday:
• Summary for Week Ending August 12th
• Schedule for Week of August 14th

by Calculated Risk on 8/14/2011 02:11:00 PM

From Professor Hamilton at Econbrowser: Economic consequences of recent oil price changes

Earlier this year, disruptions in Libya and the resurgence of demand from the emerging economies sent oil prices up sharply, a development that many economists believe contributed to the slow growth for 2011:H1. The chaotic markets of the last few weeks saw oil prices drop back down to where they had been in December. Will that be enough to revive the struggling U.S. economy? There is some evidence suggesting that it may be too late.

I recently completed a survey of a large number of academic studies that found a nonlinear economic response to oil price changes. One very well-established observation is that although oil price increases were often associated with economic recessions, oil price decreases did not bring about corresponding economic booms. ... An oil price increase that just reverses a recent price decrease does not seem to have the same economic effects as a price move that establishes new highs.
emphasis added

In his post, Hamilton notes that there is usually a lagged response to oil price increases, and the worst impact from the sharp increase earlier this year would usually be expected at the end of this year - even though prices have since declined.

However, Hamilton continues:

My reading of developments during 2011 has been that, because of the very high gasoline prices we saw in 2008, U.S. car-buying habits never went back to the earlier patterns, and we did not see the same shock to U.S. automakers as accompanied some of the other, more disruptive oil shocks.

So maybe the impact will be less than for previous price shocks. Lower oil and gasoline prices has to help a little, however as Hamilton concludes, the reasons for the recent oil price decline are not good news for the U.S. economy.