by Calculated Risk on 11/22/2011 01:57:00 PM

From the Fed: Minutes of the Federal Open Market Committee, November 1-2, 2011. Excerpts:

Regarding their overall outlook for economic activity, participants generally agreed that, even with the positive news received over the intermeeting period, the most probable outcome was a moderate pace of economic growth over the medium run with only a gradual decline in the unemployment rate. While some factors were seen as likely to support growth going forward--such as pent-up demand, improvements in household and business balance sheets, and accommodative monetary policy--participants observed that the pace of economic recovery would likely continue to be held down for some time by persistent headwinds. In particular, they pointed to very low levels of consumer and business confidence, further efforts by households to deleverage, cutbacks at all levels of government, elevated financial market volatility, still-tight credit conditions for some households and small businesses, and the ongoing weakness in the labor and housing markets. While recent incoming data suggested reduced odds that the economy would slide back into recession, participants still saw significant downside risks to the outlook for economic growth. Risks included potential spillovers to U.S. financial markets and institutions, and so to the broader U.S. economy, if the European debt and banking crisis were to worsen significantly. In addition, participants noted the risk of a larger-than-expected fiscal tightening and the possibility that structural problems in the housing market had attenuated the transmission of monetary policy actions to the real economy. It was also noted that the extended period of highly accommodative monetary policy could eventually lead to a buildup of financial imbalances. A few participants, however, mentioned the possibility that economic growth could be more rapid than currently expected, particularly if gains in output and employment led to a virtuous cycle of improvements in household balance sheets, increased confidence, and easier credit conditions.

And there was discussion about communication:

The staff gave a presentation on alternative monetary policy strategies, and meeting participants discussed those alternatives as well as potential approaches for enhancing the clarity of their public communications. No decision was made at this meeting to change the Committee's policy strategy or communications. It was noted that many central banks around the world pursue an explicit inflation objective, maintain flexibility to stabilize economic activity, and seek to communicate their forecasts and policy plans as clearly as possible. Many participants pointed to the merits of specifying an explicit longer-run inflation goal, but it was noted that such a step could be misperceived as placing greater weight on price stability than on maximum employment; consequently, some suggested that a numerical inflation goal would need to be set forth within a context that clearly underscored the Committee's commitment to fostering both parts of its dual mandate. More broadly, a majority of participants agreed that it could be beneficial to formulate and publish a statement that would elucidate the Committee's policy approach, and participants generally expressed interest in providing additional information to the public about the likely future path of the target federal funds rate. The Chairman asked the subcommittee on communications to give consideration to a possible statement of the Committee's longer-run goals and policy strategy, and he also encouraged the subcommittee to explore potential approaches for incorporating information about participants' assessments of appropriate monetary policy into the Summary of Economic Projections.

There were concerns about targeting nominal GDP:

The Committee also considered policy strategies that would involve the use of an intermediate target such as nominal gross domestic product (GDP) or the price level. The staff presented model simulations that suggested that nominal GDP targeting could, in principle, be helpful in promoting a stronger economic recovery in a context of longer-run price stability. Other simulations suggested that the single-minded pursuit of a price-level target would not be very effective in fostering maximum sustainable employment; it was noted, however, that price-level targeting where the central bank maintained flexibility to stabilize economic activity over the short term could generate economic outcomes that would be more consistent with the dual mandate. More broadly, a number of participants expressed concern that switching to a new policy framework could heighten uncertainty about future monetary policy, risk unmooring longer-term inflation expectations, or fail to address risks to financial stability.

by Calculated Risk on 11/22/2011 10:52:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were generally little changed or slightly lower in October. Thirty-six states and the District of Columbia recorded unemployment rate decreases, five states posted rate increases, and nine states had no rate change, the U.S. Bureau of Labor Statistics reported today.
...
Nevada continued to record the highest unemployment rate among the states, 13.4 percent in October. California posted the next highest rate, 11.7 percent. North Dakota registered the lowest jobless rate, 3.5 percent, followed by Nebraska, 4.2
percent.

The following graph shows the current unemployment rate for each state (red), and the max during the recession (blue). Every state finally has some blue - indicating no state is currently at the maximum during the recession.

Click on graph for larger image in graph gallery.

The states are ranked by the highest current unemployment rate.

From the BLS: "Forty-five states recorded unemployment rates that were not appreciably different from those of a year earlier."

The fact that 45 states have seen little or no improvement over the last year is a reminder that the unemployment crisis is ongoing.

All current employment graphs

by Calculated Risk on 11/22/2011 10:06:00 AM

From the Richmond Fed: Manufacturing Activity Steadied in November; Expectations Were Upbeat

Manufacturing activity in the central Atlantic region stabilized in November following four months of contraction, according to the Richmond Fed's latest survey ... In November, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — increased six points to 0 from October's reading of −6. Among the index's components, shipments gained seven points to 1, while new orders edged up three points to finish at −2 and the jobs index steadied, moving up seven points to 0.

Labor market conditions changed little at District plants in November. Both the manufacturing employment and average workweek indexes registered a reading of 0, moving up seven points and one point, respectively. Wage growth doubled, picking up five points to finish at 10.

In our November survey, our contacts were more bullish about their business prospects for the next six months. The index of expected shipments increased eight points to 36, and expected orders jumped twelve points to finish at 37. ...

District manufacturers' hiring plans were more upbeat in November. The expected manufacturing employment index gained nine points to 22, while the average workweek indicator held constant at 3. In addition, the index of expected wages moved up nine points to 28.

This was slightly above consensus.

Richmond and New York (Empire state) have been the two weakest regions, and both showed stabilization in November - but still not expansion.

by Calculated Risk on 11/22/2011 08:52:00 AM

From the BEA: Gross Domestic Product, Second Quarter 2011 (second estimate

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.0 percent in the third quarter of 2011 (that is, from the second quarter to the third quarter) according to the "second" estimate released by the Bureau of Economic Analysis.

This was revised down from 2.5% and below the consensus of 2.4%.

The downward revisions was mostly due to a large decline in the "change in real private inventories " - this subtracted 1.55 percentage points from the third-quarter change in real GDP (second estimate) as opposed to 1.08 percentage points in the advance estimate. Final domestic demand was mostly unchanged (the inventories will probably reverse in Q4). Still sluggish growth ...

by Calculated Risk on 11/22/2011 12:35:00 AM

From the WSJ: BofA Warned to Get Stronger

Bank of America Corp.'s board has been told that the company could face a public enforcement action if regulators aren't satisfied with recent steps taken to strengthen the bank ... The nation's second-largest lender has been operating under a memorandum of understanding since May 2009 ... In recent months, regulators met with Bank of America's board and said they wanted to see more progress ... Otherwise the informal order could turn into a formal and public action ...

This would be a huge addition to the "Unofficial" problem bank list (We only include banks operating under a formal action on the list). A formal action would mean greater restrictions - and would bring more negative publicity to the bank.

Earlier:
• Existing Home Sales in October: 4.97 million SAAR, 8.0 months of supply
• Existing Home Sales: More on Inventory and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 11/21/2011 08:46:00 PM

Just a quick note - for anyone accessing Calculatedriskblog via an iPad, I'm trying out some new software with a customized tablet layout. I'll be adding smart phone software soon ...

Earlier:
• Existing Home Sales in October: 4.97 million SAAR, 8.0 months of supply
• Existing Home Sales: More on Inventory and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 11/21/2011 06:03:00 PM

From Dow Jones: Moody's: Commercial Real-Estate Prices Fell In September

U.S. commercial real-estate prices fell 1.4% in September, ending a four-month growth streak ... Moody's expects "multi-family and hotel properties to lead the price recovery," said Nick Levidy, Moody's managing director. "Office and retail will lag mostly because of a very high number of vacancies and the burn-off of above-market rent leases."

Below is a graph of the Moodys/REAL Commercial Property Price Index (CPPI) - Beware of the "Real" in the title - this index is not inflation adjusted.

Click on graph for larger image.

CRE prices only go back to December 2000.

According to Moody's, CRE prices are up 1.3% from a year ago, and down about 42% from the peak in 2007. This index is very volatile because there are relatively few transactions - but it does appear to be mostly moving sideways.
All current Commercial Real Estate graphs

Earlier:
• Existing Home Sales in October: 4.97 million SAAR, 8.0 months of supply
• Existing Home Sales: More on Inventory and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 11/21/2011 03:45:00 PM

The Department of Transportation (DOT) reported:

• Travel on all roads and streets changed by -1.5% (-3.7 billion vehicle miles) for September 2011 as compared with September 2010.

• Travel for the month is estimated to be 244.2 billion vehicle miles.

• Cumulative Travel for 2011 changed by -1.3% (-29.8 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven.

Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 46 months - so this is a new record for longest period below the previous peak - and still counting! Talk about moving sideways ...

The second graph shows the year-over-year change from the same month in the previous year. The current decline is not as a severe as in 2008, but this is significant.

The year-over-year decline in September wasn't as severe as in July and August, but was still negative for the seventh straight month.

Earlier:
• Existing Home Sales in October: 4.97 million SAAR, 8.0 months of supply
• Existing Home Sales: More on Inventory and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 11/21/2011 12:56:00 PM

Yesterday I discussed the expected downward revisions to the NAR estimates for sales and inventory. The NAR didn't provide any update on the benchmark revision process in the release today. I expect sales and inventory estimates to be revised down by 10% to 15% for the current year - and less in earlier years - probably about 2% or so in 2006 or 2007.

The NAR reported inventory fell to 3.33 million in October, but if my guess is correct, inventory will be adjusted to something in the 2.85 to 3.0 million range after the benchmark revision. This is close to the same level as in October 2005 (with listed inventory at 2.87 million units).

Click on graph for larger image in graph gallery.

This graph shows inventory by month since 2004. In 2004 (black line), inventory was fairly flat and declined at the end of the year. In 2005 (dark blue line), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

This year (dark red) inventory is at the lowest level since 2005. And with the coming revisions correcting the "drift" in the reported data (both sales and inventory were too high for the last few years), the red line will probably be close to the 2005 (blue) line. Inventory will still be elevated - especially with the much lower sales rate - but this will put less downward pressure on house prices (of course the level of distressed properties is still very high, and there is a significant shadow inventory).

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

The red columns are for 2011.

Sales NSA are above last October when sales declined sharply following the expiration of the tax credit in June 2010. Sales are close to the October 2008 level, but will be lower after the benchmark revision is released.

The level of sales is still elevated due to investor buying. The NAR noted:

All-cash sales accounted for 29 percent of purchases in October, little changed from 30 percent in September and 29 percent in October 2010; investors make up the bulk of cash transactions.

Investors purchased 18 percent of homes in October, compared with 19 percent in September and 19 percent in October 2010.

Earlier:
• Existing Home Sales in October: 4.97 million SAAR, 8.0 months of supply
• Existing Home Sales graphs

by Calculated Risk on 11/21/2011 10:00:00 AM

The NAR reports: October Existing-Home Sales Rise, Unsold Inventory Continues to Decline

Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 1.4 percent to a seasonally adjusted annual rate of 4.97 million in October from a downwardly revised 4.90 million in September, and are 13.5 percent above the 4.38 million unit level in October 2010.
...
Total housing inventory at the end of October fell 2.2 percent to 3.33 million existing homes available for sale, which represents an 8.0-month supply at the current sales pace, down from an 8.3-month supply in September. Inventories have been trending gradually down since setting a record of 4.58 million in July 2008.

Click on graph for larger image in graph gallery.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in October 2011 (4.97 million SAAR) were 1.4% higher than last month, and were 13.5% above the October 2010 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 3.33 million in October from 3.41 million in September.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 13.8% year-over-year in October from October 2010. This is the ninth consecutive month with a YoY decrease in inventory.

Months of supply decreased to 8.0 months in October, down from 8.3 months in September. This is still higher than normal. These sales numbers were just above the consensus.

All current Existing Home Sales graphs