by Calculated Risk on 9/16/2011 09:55:00 AM

The preliminary September Reuters / University of Michigan consumer sentiment index increased slightly to 57.8 from 55.7 in July.


Click on graph for larger image in graphic gallery.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices. In August, sentiment was probably negatively impacted by the debt ceiling debate.

Note: It usually takes 2 to 4 months to bounce back from an event driven decline in sentiment (if the August decline was event driven) - and any bounce back from the debt ceiling debate would be to an already weak reading.

This was slightly above the consensus forecast of 56.0.

by Calculated Risk on 9/16/2011 08:44:00 AM

Not much news yet ...

From Reuters: Geithner Presses EU to Act Decisively, Speak as One

U.S. Treasury Secretary Timothy Geithner told EU finance ministers on Friday they should end loose talk about a euro zone break-up and work more closely with the European Central Bank to tackle the debt crisis.
...
"What is very damaging (in Europe) from the outside is not the divisiveness about the broader debate, about strategy, but about the ongoing conflict between governments and the central bank, and you need both to work together to do what is essential to the resolution of any crisis," he said.

"Governments and central banks have to take out the catastrophic risks from markets ...(and avoid) loose talk about dismantling the institutions of the euro."

And from the WSJ: Finance Chiefs Meet to Resolve Splits on Crisis

Euro-zone finance ministers gathering for two days of talks said they would strive to ease market tensions caused by the region's escalating sovereign-debt problems but didn't appear ready to overcome divisions that have marred efforts to resolve the crisis.

by Calculated Risk on 9/15/2011 11:34:00 PM

A couple of articles from earlier:
• From Freddie Mac: Fixed-Rate Mortgages Continue To Find New Record Lows

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed-rate mortgages remaining near their 60-year lows as ongoing investor concerns over the European debt market kept Treasury bond yields low. The 30-year fixed averaged 4.09 percent, a new all-time low. The 15-year fixed, a popular refinancing option, also reached a new record low for the week averaging 3.30 percent.

• From RealtyTrac: U.S. Foreclosure Activity Increases 7 Percent in August, Defaults Surge 33 Percent

RealtyTrac® (www.realtytrac.com) ... today released its U.S. Foreclosure Market Report™ for August 2011, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 228,098 U.S. properties in August, a 7 percent increase from the previous month, but still down nearly 33 percent from August 2010.

Default notices (NOD, LIS) were filed for the first time on a total of 78,880 U.S. properties in August, a nine-month high and a 33 percent increase from July — the biggest month-over-month increase since August 2007. Despite the monthly increase, default notices were still down 18 percent from August 2010 and were 44 percent below the monthly peak of 142,064 default notices in April 2009.

Default notices increased more than 40 percent on a month-over-month basis in several states, including New Jersey (42 percent), Indiana (46 percent) and California (55 percent), but were still down from a year ago in all of those states.

“The big increase in new foreclosure actions may be a signal that lenders are starting to push through some of the foreclosures delayed by robo-signing and other documentation problems,” said James Saccacio, chief executive officer of RealtyTrac. “It also foreshadows more bank repossessions in the coming months as these new foreclosures make their way through the process.”

According to LPS, in July there were about 1.9 million loans 90+ delinquent but not in the foreclosure process (another 2.2 million already in the foreclosure process). In more normal times lenders would have filed a default notice on the majority of the 90+ day delinquent loans. Maybe they are now getting the process started.

Jim the Realtor mentioned today that it seems the lenders are "being proactive in identifying defaulters who have already bailed, so they know they can quit worrying about the stinkin' loan mod and get on with the foreclosure."

Earlier:
• Weekly Initial Unemployment Claims increased to 428,000
• Industrial Production increased 0.2% in August, Capacity Utilization increases slightly
• NY and Philly Fed Manufacturing surveys show contraction
• Key Measures of Inflation increase in August
• Early Look: 2012 Social Security Cost-Of-Living Adjustment on track for 3.5% increase

by Calculated Risk on 9/15/2011 07:39:00 PM

On Friday, the European finance ministers will meet, and Timothy Geithner will make an appearance and probably propose using the EFSF like the TALF - from Reuters: Geithner Is Likely to Suggest Europe Leverage Bailout Fund (ht jb)

Treasury Secretary Timothy Geithner is likely to suggest to European finance ministers on Friday that they leverage their bailout fund along the lines of the U.S. TALF program, EU officials said.
...
Under TALF, the New York Fed would lend out up to $200 billion, taking ABS as collateral with a haircut and the Treasury offered $20 billion credit protection for the Fed.

In this way, a little bit of public money leveraged a much larger central bank contribution and the same idea could work for the European Financial Stability Facility, which has 440 billion euros at its disposal, to offer credit protection to, for example, the ECB to buy euro zone sovereign bonds.

This might work, but the sovereign debt collateral haircuts have to be appropriate.

Note: Earlier today, the ECB announced three U.S. dollar liquidity-providing operations in coordination with the U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank.

The Greek 2 year yield declined sharply to 61%. The Greek 1 year yield is down to 129%!

The Portuguese 2 year yield declined slightly to 15.9% and the Irish 2 year yield was down to 9.1%.

Earlier:
• Weekly Initial Unemployment Claims increased to 428,000
• Industrial Production increased 0.2% in August, Capacity Utilization increases slightly
• NY and Philly Fed Manufacturing surveys show contraction
• Key Measures of Inflation increase in August
• Early Look: 2012 Social Security Cost-Of-Living Adjustment on track for 3.5% increase

by Calculated Risk on 9/15/2011 03:43:00 PM

The BLS reported this morning: "The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 4.3 percent over the last 12 months to an index level of 223.326 (1982-84=100)."

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is an explanation (much of the following is a repeat from a previous post updated with current data):

The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and not seasonally adjusted.

Click on graph for larger image in graph gallery.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

• In 2008, the Q3 average of CPI-W was 215.495. In the previous year, 2007, the average in Q3 of CPI-W was 203.596. That gave an increase of 5.8% for COLA for 2009.

• In 2009, the Q3 average of CPI-W was 211.013. That was a decline of 2.1% from 2008, however, by law, the adjustment is never negative so the benefits remained the same in 2010.

• In 2010, the Q3 average of CPI-W was 214.136. That was an increase of 1.5% from 2009, however the average was still below the Q3 average in 2008, so the adjustment was zero.

• CPI-W in July and August 2011 averaged 223.006. This is above the Q3 2008 average, although we still have to wait for the September CPI-W. But if the current level holds, COLA would be around 3.5% for next year (the current 223.006 divided by the Q3 2008 level of 215.495).

This is still early, but we can be pretty sure COLA will increase this year. Of course medicare premiums will increase too.

Contribution and Benefit Base

The law prohibits an increase in the contribution and benefit base if COLA is not greater than zero. However if the there is even a small increase in COLA, the contribution base will be adjusted using the National Average Wage Index.

This is based on a one year lag. Since there was no increase in COLA for the last two years, the contribution base has remained at $106,800 for three years. Since COLA will be positive this year, the adjustment this year will use the 2010 National Average Wage Index compared to the 2007 Wage Index. The National Average Wage Index is not available for 2010 yet, and it is possible that wages declined further in 2010 and are back to 2007 levels. If so, there will be no increase in the contribution base.

If wages increased to the 2008 level, then the contribution base next year will be increased to around $109,000 to $110,000 from the current $106,800.

Remember - this is an early look and is only for two months in Q3. What matters is average CPI-W during Q3 (July, August and September).

NOTE on CPI-chained: There has been some discussion of switching from CPI-W to CPI-chained for COLA. This will not happen this year, but could impact future Cost-of-living adjustments, see: Cost of Living and CPI-Chained

Earlier:
• Weekly Initial Unemployment Claims increased to 428,000
• Industrial Production increased 0.2% in August, Capacity Utilization increases slightly
• NY and Philly Fed Manufacturing surveys show contraction
• Key Measures of Inflation increase in August

by Calculated Risk on 9/15/2011 01:31:00 PM

Earlier today the BLS reported:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in August on a seasonally adjusted basis ... The gasoline index rose for the 12th time in the last 14 months and led to a 1.2 percent increase in the energy index, while the food index rose 0.5 percent, its largest increase since March. ... The index for all items less food and energy increased 0.2 percent in August, the same increase as the previous month.

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.3% (3.6% annualized rate) in August. The 16% trimmed-mean Consumer Price Index increased 0.3% (4.0% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.4% (4.6% annualized rate) in August. The CPI less food and energy increased 0.2% (3.0% annualized rate) on a seasonally adjusted basis.

Over the last 12 months, the median CPI rose 2.0%, the trimmed-mean CPI rose 2.4%, the CPI rose 3.8%, and the CPI less food and energy rose 2.0%

Note: The Cleveland Fed has a discussion of a number of measures of inflation: Measuring Inflation. You can see the median CPI details for August here.

Click on graph for larger image in graph gallery.

On a year-over-year basis, these measures of inflation are increasing, and are near the Fed's target.

On a monthly basis, the median Consumer Price Index increased 3.6% at an annualized rate, the 16% trimmed-mean Consumer Price Index increased 4.0% annualized in July, and core CPI increased 3.0% annualized.

Earlier:
• Weekly Initial Unemployment Claims increased to 428,000
• Industrial Production increased 0.2% in August, Capacity Utilization increases slightly
• NY and Philly Fed Manufacturing surveys show contraction

by Calculated Risk on 9/15/2011 10:10:00 AM

First, from the WSJ: Central Banks Boost Dollar Liquidity

The ECB said that it will be joined by U.S. Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to conduct three U.S. dollar liquidity-providing operations.

The action addresses an acute shortage of dollar availability as U.S. lenders withheld funds [from European banks] ... The new dollar tenders, under which banks will be able to bid for unlimited funds, will have a maturity of approximately three months covering the end of the year, the ECB said.

From the Philly Fed: September 2011 Business Outlook Survey

The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a very low reading of -30.7 in August to -17.5 in September. The index has been negative in three of the last four months (see Chart). The current new orders index paralleled the general activity index, increasing 16 points and remaining negative. The current shipments index fell 9 points.
...
Firms' responses suggest a slight improvement in hiring this month compared with August. The current employment index increased 11 points, after recording its first negative reading in 12 months in August. Over 22 percent of the firms reported an increase in employment, but 16 percent reported a decrease. The percentage of firms reporting a shorter workweek (23 percent) remained greater than the percentage reporting a longer one (9 percent).

This indicates contraction in September and was slightly below the consensus forecast of -15.0.

Click on graph for larger image in graph gallery.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through September. The ISM and total Fed surveys are through August.

The average of the Empire State and Philly Fed surveys rebounded in September, but is still well below zero - possibly indicating a further decline in the ISM index.

by Calculated Risk on 9/15/2011 09:25:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.2 percent in August after having advanced 0.9 percent in July. Manufacturing rose 0.5 percent in August, after a similarly sized gain in July, and the rates of change were revised down slightly in April, May, and June. In August, the output of mines moved up 1.2 percent. The output of utilities decreased 3.0 percent, as temperatures moderated somewhat from the previous month. At 94.0 percent of its 2007 average, total industrial production for August was 3.4 percent above its year-earlier level. Capacity utilization for total industry edged up to 77.4 percent, a rate 1.9 percentage points above its level from a year earlier but 3.0 percentage points below its long-run (1972--2010) average.

Click on graph for larger image in graph gallery.

This graph shows Capacity Utilization. This series is up 10.1 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.4% is still 3.0 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 81.3% in Decebmer 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production increased in August to 94.0 (although earlier months were revised down).

After the fairly rapid increase last year, increases in industrial production and capacity utilization have slowed recently.

by Calculated Risk on 9/15/2011 08:30:00 AM

• From the NY Fed: Empire State Manufacturing Survey: "The Empire State Manufacturing
Survey indicates that conditions for New York manufacturers worsened for a fourth consecutive month in September. The general business conditions index inched down one point, to -8.8." This was lower than expectations of a reading of -3.6.

• CPI increased 0.4% in August (0.2% core). I'll have more later on the Fed survey and CPI.

• The DOL reports:

In the week ending September 10, the advance figure for seasonally adjusted initial claims was 428,000, an increase of 11,000 from the previous week's revised figure of 417,000. The 4-week moving average was 419,500, an increase of 4,000 from the previous week's revised average of 415,500.

The following graph shows the 4-week moving average of weekly claims since January 2000 (longer term graph in graph gallery).

Click on graph for larger image in graph gallery.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week to 419,500.

The 4-week average has been increasing recently and this is the highest level since early July.

by Calculated Risk on 9/14/2011 11:41:00 PM

Tomorrow we will see if there is any improvement from the dismal August readings for both the Philly Fed and NY Fed (Empire state) manufacturing surveys. On Friday, the preliminary Reuters/University of Mich Consumer Sentiment for September will be released.

Thursday at 8:30 AM ET: NY Fed Empire Manufacturing Survey for September. The consensus is for a reading of -3.6, up from -7.7 in August (above zero is expansion).

10:00 AM: Philly Fed Survey for September. This index fell off a cliff in August. The consensus is for a reading of -15.0 (above zero indicates expansion), up from -30.7 last month.

Friday at 9:55 AM: Reuters/University of Mich Consumer Sentiment preliminary for September. The consensus is for a slight increase to 56.0 from 55.7 in August.

Last month I argued the sharp decline in sentiment - from an already low level - might be due to the debt ceiling debate. I looked at some of the previous spikes down in sentiment due to fairly short term events - and those events suggested sentiment should recover in 2 to 4 months. So maybe in October or November - but it is too early in September.

Of course sentiment - and the manufacturing surveys - could have declined because of other factors (weak labor market, European financial crisis, etc), and then the surveys might remain weak. We will get our first look tomorrow.