by Calculated Risk on 8/30/2011 02:00:00 PM

From the Fed: Minutes of the Federal Open Market Committee, August 9, 2011. Excerpts:

Participants discussed the range of policy tools available to promote a stronger economic recovery should the Committee judge that providing additional monetary accommodation was warranted. Reinforcing the Committee's forward guidance about the likely path of monetary policy was seen as a possible way to reduce interest rates and provide greater support to the economic expansion; a few participants emphasized that guidance focusing solely on the state of the economy would be preferable to guidance that named specific spans of time or calendar dates. Some participants noted that additional asset purchases could be used to provide more accommodation by lowering longer-term interest rates. Others suggested that increasing the average maturity of the System's portfolio--perhaps by selling securities with relatively short remaining maturities and purchasing securities with relatively long remaining maturities--could have a similar effect on longer-term interest rates. Such an approach would not boost the size of the Federal Reserve's balance sheet and the quantity of reserve balances. A few participants noted that a reduction in the interest rate paid on excess reserve balances could also be helpful in easing financial conditions. In contrast, some participants judged that none of the tools available to the Committee would likely do much to promote a faster economic recovery, either because the headwinds that the economy faced would unwind only gradually and that process could not be accelerated with monetary policy or because recent events had significantly lowered the path of potential output. Consequently, these participants thought that providing additional stimulus at this time would risk boosting inflation without providing a significant gain in output or employment. Participants noted that devoting additional time to discussion of the possible costs and benefits of various potential tools would be useful, and they agreed that the September meeting should be extended to two days in order to provide more time.
...
In the discussion of monetary policy for the period ahead, most members agreed that the economic outlook had deteriorated by enough to warrant a Committee response at this meeting. While all felt that monetary policy could not completely address the various strains on the economy, most members thought that it could contribute importantly to better outcomes in terms of the Committee's dual mandate of maximum employment and price stability. In particular, some members expressed the view that additional accommodation was warranted because they expected the unemployment rate to remain well above, and inflation to be at or below, levels consistent with the Committee's mandate. Those viewing a shift toward more accommodative policy as appropriate generally agreed that a strengthening of the Committee's forward guidance regarding the federal funds rate, by being more explicit about the period over which the Committee expected the federal funds rate to remain exceptionally low, would be a measured response to the deterioration in the outlook over the intermeeting period. A few members felt that recent economic developments justified a more substantial move at this meeting, but they were willing to accept the stronger forward guidance as a step in the direction of additional accommodation. Three members dissented because they preferred to retain the forward guidance language employed in the June statement.

The forward guidance was included in the last FOMC statement. The other three options are: Additional asset purchases (QE3), extend maturities, and reduce interest paid on reserves. As Bernanke noted in his Jackson Hole speech, the next meeting has been extended to allow for more discussion of these options.

by Calculated Risk on 8/30/2011 11:25:00 AM

Case-Shiller, CoreLogic and others report nominal house prices. However it is also useful to look at house prices in real terms (adjusted for inflation), as a price-to-rent ratio, and also price-to-income (not shown here).

Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices are back to 1999/2000 levels, and the price-to-rent ratio is also back to 2000 levels.

Nominal House Prices

Click on graph for larger image in graph gallery.

The first graph shows the quarterly Case-Shiller National Index SA (through Q2 2011), and the monthly Case-Shiller Composite 20 SA (through June) and CoreLogic House Price Indexes (through June) in nominal terms (as reported).

In nominal terms, the Case-Shiller National index is back to Q4 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to June 2003 levels, and the CoreLogic index is back to May 2003.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q3 1999 levels, the Composite 20 index is back to September 2000, and the CoreLogic index back to May 2000.

In real terms, all appreciation in the last decade is gone.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller Composite 20 and CoreLogic House Price Index (through May).

This graph shows the price to rent ratio (January 1998 = 1.0).

Note: the measure of Owners' Equivalent Rent (OER) was mostly flat for two years - so the price-to-rent ratio mostly followed changes in nominal house prices. In recent months, OER has been increasing - lowering the price-to-rent ratio.

On a price-to-rent basis, the Composite 20 index is back to September 2000 levels, and the CoreLogic index is back to May 2000.

Earlier:
• Case Shiller: Home Prices increased in June

by Calculated Risk on 8/30/2011 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for June (actually a 3 month average of April, May and June).

This includes prices for 20 individual cities and and two composite indices (for 10 cities and 20 cities), plus the Q2 2011 quarterly national house price index.

Note: Case-Shiller reports NSA, I use the SA data. The composite indexes were up about 1.1% in June (from May) Not Seasonally Adjusted (NSA), but flat Seasonally Adjusted (SA).

From S&P: Nationally, Home Prices Went Up in the Second Quarter of 2011 According to the S&P/Case-Shiller Home Price Indices

Data through June 2011, released today by S&P Indices for its S&P/Case-Shiller Home Price Indices ... show that the U.S. National Home Price Index increased by 3.6% in the second quarter of 2011, after having fallen 4.1% in the first quarter of 2011. With the second quarter’s data, the National Index recovered from its first quarter low, but still posted an annual decline of 5.9% versus the second quarter of 2010. Nationally, home prices are back to their early 2003 levels.
...
As of June 2011, 19 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were up versus May – Portland was flat. However, they were all down compared to June 2010.

Click on graph for larger image in graph gallery.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 31.9% from the peak, and up slightly in June (SA). The Composite 10 is 1.5% above the June 2009 post-bubble bottom (Seasonally adjusted).

The Composite 20 index is off 31.9% from the peak, and down slightly in June (SA). The Composite 20 is slightly above the March 2011 post-bubble bottom seasonally adjusted.

The second graph shows the Year over year change in both indices.

The Composite 10 SA is down 3.9% compared to June 2010.

The Composite 20 SA is down 4.6% compared to June 2010.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 8 of the 20 Case-Shiller cities in June seasonally adjusted. Prices in Las Vegas are off 59.2% from the peak, and prices in Dallas only off 9.7% from the peak.

From S&P (NSA):

“Nineteen of the 20 MSAs and both Composites were up in June over May. Portland was flat. Cleveland has improved enough that average home prices in this market are back above its January 2000 levels. Only Detroit and Las Vegas remain below those levels

There could be some confusion between the SA and NSA numbers, but this increase was mostly seasonal. I'll have more later ...

by Calculated Risk on 8/29/2011 09:00:00 PM

The Case-Shiller House Price index for June will be released tomorrow morning. Here is a roundup of a few other indexes:

• CoreLogic: Home Price Index increased 0.7% in June

[H]ome prices in the U.S. increased by 0.7 percent in June 2011 compared to May 2011, the third consecutive month-over-month increase. According to CoreLogic, national home prices, including distressed sales, declined by 6.8 percent in June 2011 compared to June 2010

• FNC: June Home Prices Up for Third Straight Month

Based on the latest data on non-distressed home sales (existing and new homes), FNC’s Residential Price Index™ 1 (RPI) indicates that single-family home prices were up in June at a seasonally unadjusted rate of 0.9%. As a gauge of underlying home value, the RPI excludes sales of foreclosed homes, which are often sold with large price discounts due to poor property conditions.

• FHFA Expanded House Price Index (quarterly)

The expanded FHFA national series was down 1.1 percent in Q2 (Seasonally adjusted), and down 6.1% from Q2 2010 ...

• Zillow: Real Estate Market Reports indicated house prices declined 0.1% in June.

• From RadarLogic Housing Markets Continue to Show Weakness

The RPX Composite price, which tracks housing values in 25 major metropolitan markets in the United States, declined 4.7 percent year over year through June. [CR Note: The 25-city composite index increased 1.7% in June 2011.]

Last month, we predicted that the S&P/Case-Shiller 10-City composite for May 2011 would be about 154 and the 20-City composite would be roughly 141. In fact, the 10-City composite was 153.64 and the 20-City composite was 139.87.

This month, we expect the June 2011 10-City composite index to be about 156 and the 20-City index to be roughly 142.

We expect RPX values to decline in coming months ... and we expect that similar declines will be observed in the S&P/Case-Shiller Composite indices.

The Case-Shiller index for June will be released Tuesday, August 30th at 9 AM ET. The consensus is for flat prices in June.

Earlier:
• Personal Income increased 0.3% in July, Spending increased 0.8%
• Comparison of Regional Fed Manufacturing Surveys and ISM
Weekend:
• Summary for Week Ending August 26th (with plenty of graphs)
• Schedule for Week of Aug 28th

by Calculated Risk on 8/29/2011 03:32:00 PM

In June, Tom Lawler posted on how the NAR estimates existing home inventory. The NAR does NOT aggregate data from the local boards (see Tom's post for how the NAR estimates inventory). Sometime this fall, the NAR will revise down their estimates of inventory and sales for the last few years. Also the NAR methodology for estimating sales and inventory will likely (hopefully) be changed.

I think the HousingTracker / DeptofNumbers data that Tom mentioned might provide a timely estimate of changes in inventory. Ben at deptofnumbers.com is tracking the aggregate monthly inventory for 54 metro areas.

Click on graph for larger image in graph gallery.

This graph shows the NAR estimate of existing home inventory through July (left axis) and the HousingTracker data for the 54 metro areas through August. The HousingTracker data shows a steeper decline in inventory over the last few years (as mentioned above, the NAR will probably revise down their inventory estimates this fall).

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the August listings - for the 54 metro areas - declined 14.1% from last year.

Of course there is a large percentage of distressed inventory, and various categories of "shadow inventory" too. But the decline in listed inventory is something to watch carefully all year.

Earlier:
• Personal Income increased 0.3% in July, Spending increased 0.8%
• Comparison of Regional Fed Manufacturing Surveys and ISM
Weekend:
• Summary for Week Ending August 26th (with plenty of graphs)
• Schedule for Week of Aug 28th

by Calculated Risk on 8/29/2011 01:48:00 PM

Perhaps some progress on the next bailout for Greece ...

From Dow Jones: Finland Working To Resolve Collateral Issue - Foreign Minister

Finland expects a solution to be found for its demand for collateral from Greece before contributing to the bailout fund, the country's European Affairs and Foreign Minister said Monday.

"Finland is not out to cause problems, but to find solutions," Alexander Stubb told a joint news conference in Helsinki, after a lunch with German Deputy Foreign Minister Werner Hoyer

From Bloomberg: Germany’s Hoyer Tells Finns to ‘Not Rock the Boat’ on Euro

German Deputy Foreign Minister Werner Hoyer warned euro-area countries not to destabilize the currency after Finland demanded collateral in return for agreeing to a second Greek aid package.

The euro is “of utmost importance to all of us in Europe, in particular for countries like Finland and Germany,” Hoyer told reporters at a joint news conference in Helsinki today with Finnish Foreign Trade Minister Alexander Stubb. “So let us not rock the boat.”
...
Germany is “approaching the question with care” and will wait to see the outcome of the collateral model that transpires, Hoyer said. “Finland doesn’t have the reputation as a troublemaker, so I’m very optimistic.”

The Greek 2 year yield is at 45.6% and the 10 year yield increased to 18.1% today.

Here is a graph of the 10 year spread (Italy to Germany) from Bloomberg. And for Spain to Germany. The Italian spread is at 286, down from 389 on Aug 4th, and the Spanish spread is at 279, down from 398 on Aug 4th. Moving sideways.

The Portuguese 2 year yield is down a little to 13.2%. Also the Irish 2 year yield is at 8.6%. And the French 10 year is at 2.9%. So this is a Greek issue right now.

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

Earlier:
• Personal Income increased 0.3% in July, Spending increased 0.8%
• Summary for Week Ending August 26th (with plenty of graphs)
• Schedule for Week of Aug 28th

by Calculated Risk on 8/29/2011 10:30:00 AM

From the Dallas Fed: Texas Manufacturing Activity Flat

Texas factory activity was largely unchanged in August, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained positive but fell from 10.8 to 1.1, suggesting growth stalled this month.

The new orders index fell from 16 to 4.8 this month, suggesting order volumes continued to increase, but at a decelerated pace. ... The capacity utilization index dipped into negative territory in August, with one-quarter of manufacturers noting a decrease ... The employment index came in at 5.4, down from 12.1 in July. Twenty-three percent of manufacturers reported hiring new workers, while 17 percent reported layoffs. The hours worked index fell from 7.9 to –2.2, suggesting average workweeks shrank.

This was above the consensus view of -6.

This is the last of the regional Fed surveys for August. The regional surveys provide a hint about the ISM manufacturing index - and the regional surveys were very weak in August.

Click on graph for larger image in graph gallery.

The New York and Philly Fed surveys are averaged together (dashed green, through August), and five Fed surveys are averaged (blue, through August) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through July (right axis).

The early surveys in August were especially weak (Philly Fed and Empire State), although the surveys later in the month were a little better. Both the Kansas City and Texas surveys showed slight expansion in August, although the Richmond survey showed contraction. The ISM index for August will be released Thursday, Sept 1st, and the consensus is for a decrease to 48.5 from 50.9 in July.

Earlier:
• Personal Income increased 0.3% in July, Spending increased 0.8%
• Summary for Week Ending August 26th (with plenty of graphs)
• Schedule for Week of Aug 28th

by Calculated Risk on 8/29/2011 10:00:00 AM

From the NAR: Pending Home Sales Slip in July but Up Strongly From One Year Ago

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, slipped 1.3 percent to 89.7 in July from 90.9 in June but is 14.4 percent above the 78.4 index in July 2010. The data reflects contracts but not closings.
...
The PHSI in the Northeast declined 2.0 percent to 67.5 in July but is 9.7 percent above July 2010. In the Midwest the index slipped 0.8 percent to 79.1 in July but is 18.8 percent above a year ago. Pending home sales in the South fell 4.8 percent to an index of 94.4 but are 9.5 percent higher than July 2010. In the West the index rose 3.6 percent to 110.8 in July and is 20.6 percent above a year ago.

The consensus was for a 1% decrease in the index. This suggests existing home sales will stay weak.

Earlier:
• Personal Income increased 0.3% in July, Spending increased 0.8%
• Summary for Week Ending August 26th (with plenty of graphs)
• Schedule for Week of Aug 28th

by Calculated Risk on 8/29/2011 08:30:00 AM

The BEA released the Personal Income and Outlays report for July:

Personal income increased $42.4 billion, or 0.3 percent ... in July ... Personal consumption expenditures (PCE) increased $88.4 billion, or 0.8 percent.
...
Real PCE increased 0.5 percent ... The price index for PCE increased 0.4 percent in July

The following graph shows real Personal Consumption Expenditures (PCE) through July (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image in graph gallery.

PCE increased 0.8 in July, and real PCE increased 0.5% as the price index for PCE increased 0.4 percent in July.

Note: The PCE price index, excluding food and energy, increased 0.2 percent, the same increase as in June.

The personal saving rate was at 5.0% in July.

Personal saving -- DPI less personal outlays -- was $582.8 billion in July, compared with $638.6 billion in June. Personal saving as a percentage of disposable personal income was 5.0 percent in July, compared with 5.5 percent in June.

This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the June Personal Income report.

Real PCE was revised up a little for Q2 too. This was a solid increase in spending and above the consensus of 0.5% - however I expect August to be weaker due to the confidence shattering debt ceiling debate.

by Calculated Risk on 8/29/2011 12:00:00 AM

Nothing new, but a summary of some of the headwinds for the large banks face - and the prospects for more layoffs (ht Brian).

From Eric Dash at the NY Times: As Fortunes Dim, Banks Confront a Leaner Future

Battered by a weak economy, the nation’s biggest banks are cutting jobs, consolidating businesses and scrambling for new sources of income ... UBS has announced 3,500 layoffs, 5 percent of its staff, and Citigroup is quietly cutting dozens of traders. Bank of America could cut as many as 10,000 jobs, or 3.5 percent of its work force. ABN Amro, Barclays, Bank of New York Mellon, Credit Suisse, Goldman Sachs, HSBC, Lloyds, State Street and Wells Fargo have in recent months all announced plans to cut jobs — tens of thousands all told.
...
Lending, the prime driver of revenue, has been depressed for several years and is not expected to pick up anytime soon ... Trading profits have also been waning amid a slowdown in volumes, and Wall Street’s once-lucrative mortgage packaging business is unlikely to bring in the blockbuster fees it earned during the housing boom.

On top of that, the financial regulations enacted by Congress last year are causing banks to add more risk managers and compliance staff ...

Yesterday:
• Summary for Week Ending August 26th (with plenty of graphs)
• Schedule for Week of Aug 28th