by Calculated Risk on 11/23/2011 11:25:00 AM

Although there are significant downside risks from the European financial crisis and additional fiscal tightening in early 2012, right now the U.S. data suggests continued sluggish growth ...

• From the Kansas City Fed: Growth in Manufacturing Activity Eased Slightly

The Federal Reserve Bank of Kansas City released the November Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity eased slightly in November, but expectations for future months remained relatively solid.

“Factory activity in the region grew slightly slower in November than in the previous two months, and price pressures eased a bit,” said Wilkerson. “But capital spending plans were generally solid, and many firms planned to add workers in coming months as well.”
...
The month-over-month composite index was 4 in November, down from 8 in October and 6 in September ... The production and shipments indexes decreased to 0, and the new orders and order backlog indexes were negative. The employment index dropped to its lowest level of the year but remained slightly positive, and the new orders for exports index moderated slightly.

In general the regional manufacturing surveys have indicated sluggish growth in November.

• From Truecare.com: Highest SAAR for New Vehicle Sales Since Cash for Clunkers

For November 2011, new light vehicle sales in the U.S. (including fleet) is expected to be 972,712 units, up 11.5 percent from November 2010 and down 4.7 percent from October 2011 (on an unadjusted basis) ... The November 2011 forecast translates into a Seasonally Adjusted Annualized Rate (SAAR) of 13.3 million new car sales, up from 13.2 million in October 2011 and up from 12.3 million in November 2010.

“We’ve seen six straight months of year over year gains for new vehicle sales, which shows positive momentum for the auto industry, ” said Jesse Toprak, Vice President of Industry Trends and Insights for TrueCar.com. “There is a strong possibility that we could reach a 14 million SAAR next month.“

Earlier:
• Personal Income increased 0.4% in October, Spending increased 0.1%
• Weekly Initial Unemployment Claims at 393,000

by Calculated Risk on 11/23/2011 10:00:00 AM

The final November Reuters / University of Michigan consumer sentiment index declined to 64.1 from the preliminary reading of 64.2, up from the October reading of 60.9, and up from 55.7 in August.

From MarketWatch: November UMich consumer sentiment hits 64.1

A gauge of consumer sentiment reached 64.1 in the final reading for November -- the highest reading since June -- compared with 60.9 in October, according to Wednesday reports on the data from the University of Michigan and Thomson Reuters. A preliminary reading for November pegged the gauge at 64.2

Click on graph for larger image.

Consumer sentiment is usually impacted by employment (and the unemployment rate) and gasoline prices. But right now the European financial crisis is probably also impacting sentiment.

Although sentiment is up from October, this is still very weak, and slightly below the consensus forecast of 64.6.

by Calculated Risk on 11/23/2011 08:56:00 AM

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

Personal income increased $48.1 billion, or 0.4 percent ... in October, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $8.2 billion, or 0.1 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.1 percent in October, compared with an increase of 0.5 percent in September. ... PCE price index -- The price index for PCE decreased 0.1 percent in October, in contrast to an increase of 0.2 percent in September.

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

Click on graph for larger image.

PCE increased 0.1% in October, and real PCE increased 0.1%.

Note: The PCE price index, excluding food and energy, increased 0.1 percent.

The personal saving rate was at 3.5% in October.

Personal saving -- DPI less personal outlays -- was $400.2 billion in October, compared with $376.9 billion in September. Personal saving as a percentage of disposable personal income was 3.5 percent in October, compared with 3.3 percent in September.

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

In October, income increased faster than spending - reversing a recent trend - and the saving rate increased slightly. However the saving rate has declined sharply over the last few months. Personal income was slightly better than expected, and spending a little lower than expectations.

by Calculated Risk on 11/23/2011 08:30:00 AM

The DOL reports:

In the week ending November 19, the advance figure for seasonally adjusted initial claims was 393,000, an increase of 2,000 from the previous week's revised figure of 391,000. The 4-week moving average was 394,250, a decrease of 3,250 from the previous week's revised average of 397,500.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 394,250.

This is the lowest level for the 4 week average since early April - although this is still elevated.

And here is a long term graph of weekly claims:




All current Employment Graphs

by Calculated Risk on 11/23/2011 07:26:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 4.0 percent from the previous week to its lowest level since July 29, 2011. The seasonally adjusted Purchase Index increased 8.2 percent from last week to its highest level since August 12, 2011.
...
"Purchase applications increased last week, returning to levels from before the Veteran's Day holiday," said Michael Fratantoni, MBA's Vice President of Research and Economics. "However, purchase activity remains almost 5 percent below last year's level."
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) remained unchanged at 4.23 percent, with points decreasing to 0.46 from 0.52 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. ...

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500)increased to 4.59 percent from 4.56 percent, with points decreasing to 0.40 from 0.46 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The following graph shows the MBA Purchase Index and four week moving average since 1990.

Click on graph for larger image.

Although the purchase index increased, the index is still sharply below the levels of June and July - and at about the same level as in 1996. This does not include cash buyers, and, according to the NAR, cash buyers "accounted for 29 percent of purchases in October".
All current Existing Home Graphs

by Calculated Risk on 11/23/2011 12:01:00 AM

Still no hint of timing ...

From Ruth Simon and Nick Timiraos at the WSJ: Foreclosure Talks Push Ahead Absent California

Bank representatives and government officials are working on a broad settlement of most state and federal foreclosure-practices investigations that could move forward without the participation of California ... Negotiators are continuing to make a push to persuade California to join a settlement valued at $25 billion among federal officials, state attorneys general and the nation's five largest mortgage servicers ... The dollar value would include the value of principal write-downs, interest-rate reductions and other benefits to homeowners as well as cash penalties.

There are about 4 million seriously delinquent loans - about 1.8 million 90+ days delinquent, but not in foreclosure, and another 2.2 million in the foreclosure process - and this number has only been declining slowly. If and when this agreement is reached, there will probably be a significant increase in both completed foreclosures and in modifications - both reducing the number of seriously delinquent loans.

by Calculated Risk on 11/22/2011 08:29:00 PM

The FDIC released the Quarterly Banking Profile today for Q3. The report showed that 1-4 family Real Estate Owned (REO) by FDIC insured institutions declined to $11.9 billion in Q3, from $12.1 billion in Q2 - and from a record $14.76 billion in Q3 2010.

As economist Tom Lawler has pointed out before, the FDIC does not collect data on the number of properties held by FDIC-insured institutions, instead they aggregate the carrying value of 1-4 family residential REO on FDIC-insured institutions’ balance sheets.

Using an average of $150,000 per unit would suggest the number of 1-4 family REOs declined from 80,597 in Q2 to 79,335 in Q3.

Here is a graph of the 1-4 family REO carrying value for FDIC insured institutions since Q1 2003.

Click on graph for larger image in new window.

The left scale is the dollars reported in the FDIC Quarterly Banking Profile, and the right scale is an estimate of REOs using an average of $150,000 per unit. Using this estimate for the average per REO gives 79.3 thousand REO at the end of Q3.

Note: FDIC insured institutions have other REO and this is just the 1-4 family residential REO (other REO includes Construction & Development, Multi-family, Commercial, Farm Land).

Of course this is just a small portion of the total 1-4 family REO. Here is a graph showing REO inventory for Fannie, Freddie, FHA¹, Private Label Securities (PLS), and FDIC insured institutions. (economist Tom Lawler has provided some of this data).

The Fannie, Freddie, FHA, PLS, FDIC REO decreased to about 460,000 in Q3 from just under 500,000 in Q2.

¹ Note: FHA inventory is for August.

As Tom Lawler has noted: "This is NOT an estimate of total residential REO, as it excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts, and a few other lender categories." However this is the bulk of the 1-4 family REO - probably 90% or more. Rounding up the estimate (using 90%) suggests total REO is just around 510,000 in Q3.

Important: REO inventories have declined over the last year. This is a combination of more sales and fewer acquisitions due to the slowdown in the foreclosure process. There are many more foreclosures coming - see my post earlier this month Housing: REO and Mortgage Delinquencies.

All current Mortgage Delinquency and REO graphs.

by Calculated Risk on 11/22/2011 04:40:00 PM

From the WSJ: Fed Outlines Plans for New Bank Stress Tests

The Federal Reserve on Tuesday outlined plans for annual tests of the financial strength of the largest U.S. banks and said some of the results would be made public.

Banks must submit their plans to the Fed by Jan. 9 for the "stress tests," which apply to 19 firms that participated in similar tests earlier this year and 12 more with at least $50 billion in assets that have not participated in similar tests before ... When the stress tests are complete, the Fed said it will publicly disclose its estimates of bank revenue and losses and estimates of bank capital ratios for the 19 largest firms.

Here is the press release from the Federal Reserve.

The stress test scenario is outlined here. The stress tests assume the unemployment rate will rise to 13% in 2013, that the Dow Jones (update: Dow Jones Total Stock Market Index) will decline by more than 50% from the current level. The scenario assumes that house prices will fall another 20%+.

Click on graph for larger image.

This graphs shows the stress test scenarios for the Dow Jones and a house price index.

This scenario shows the Dow Jones Total Stock Market Index falling to 5,668 in Q4 2012 (from 11,771.86 at the end of Q3), and house prices declining until early 2014 - and off almost 47% from the peak in 2006.

by Calculated Risk on 11/22/2011 03:27:00 PM

From ATA: ATA Truck Tonnage Index Rose 0.5% in October

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 0.5% in October after rising a revised 1.5% in September 2011. September’s increase was slightly less than the 1.6% gain ATA reported on October 25, 2011. The latest gain put the SA index at 116.3 (2000=100) in October, up from the September level of 115.8.

Compared with October 2010, SA tonnage was up 5.7%. In September, the tonnage index was 5.8% above a year earlier. Further, October’s tonnage reading was just 4.4% below the index’s all-time high in January 2005.

“Tonnage readings continue to show that economy is growing and not sliding back into recession,” ATA Chief Economist Bob Costello said. “Over the last two months, tonnage is up nearly 2% and is just shy of the recent high in January of this year.”

Click on graph for larger image.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index. From ATA:

Trucking serves as a barometer of the U.S. economy, representing 67.2% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9 billion tons of freight in 2010. Motor carriers collected $563.4 billion, or 81.2% of total revenue earned by all transport modes.

This index has started increasing again after stalling earlier this year - however this is still fairly sluggish growth.
All current Transportation Graphs

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.