by Calculated Risk on 1/25/2012 02:00:00 PM

Earlier the FOMC released a statement for the January meeting.

Here are the longer run projections

The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. ... FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent.

Here are the updated forecasts from the January meeting. The key details are below the video.

Fed Chairman Ben Bernanke will hold a press briefing at 2:15 PM.




Click on graph for larger image.

"The shaded bars represent the number of FOMC participants who project that the initial increase in the target federal funds rate (from its current range of 0 to ¼ percent) would appropriately occur in the specified calendar year."

Most participants project the first rate hike will appropriately occur in 2014 or later.

"The dots represent individual policymakers’ projections of the appropriate federal funds rate target at the end of each of the next several years and in the longer run. Each dot in that chart represents one policymaker’s projection."

Most participants think the Fed Funds rate will be in the current range into 2014. Then there is some disagreement.

GDP projections were revised down.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0
November 2011 Projections	2.5 to 2.9	3.0 to 3.5	3.0 to 3.9

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

Unemployment rate projections were also revised down.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6
November 2011 Projections	8.5 to 8.7	7.8 to 8.2	6.8 to 7.7

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

And inflation projections were revised down.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
January 2012 Projections	1.4 to 1.8	1.4 to 2.0	1.6 to 2.0
November 2011 Projections	1.4 to 2.0	1.5 to 2.0	1.5 to 2.0

Here is core inflation:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2012	2013	2014
January 2012 Projections	1.5 to 1.8	1.5 to 2.0	1.6 to 2.0
November 2011 Projections	1.5 to 2.0	1.4 to 1.9	1.5 to 2.0

If the economy under performs or even tracks the November projections, QE3 would seem likely at either of the two day meetings in April or June. Some have argued that QE3 could happen sooner, perhaps at the March meeting. Based on these projections, QE3 is very likely.

by Calculated Risk on 1/25/2012 12:30:00 PM

Note: The Summary of Economic Projections (SEP) will be released around 2 PM ET (including the new FOMC forecasts for the federal funds rate), and Ben Bernanke will hold a press briefing starting at 2:15 PM.

FOMC Statement:

Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that over coming quarters, inflation will run at levels at or below those consistent with the Committee's dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.

by Calculated Risk on 1/25/2012 10:00:00 AM

From the NAR: Pending Home Sales Decline in December, Remain Above a Year Ago

The Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 3.5 percent to 96.6 in December from 100.1 in November but is 5.6 percent above December 2010 when it was 91.5. The data reflects contracts but not closings.
...
The PHSI in the Northeast declined 3.1 percent to 74.7 in December and is 0.8 percent below a year ago. In the Midwest the index rose 4.0 percent to 95.3 and is 13.3 percent higher than December 2010. Pending home sales in the South slipped 2.6 percent to an index of 101.1 in December but are 4.9 percent above a year ago. In the West the index fell 11.0 percent in December to 107.9 but is 3.7 percent higher than December 2010.

by Calculated Risk on 1/25/2012 08:38:00 AM

From the MBA: Mortgage Applications Fall by 5 percent in Latest MBA Weekly Survey

The Refinance Index decreased 5.2 percent from the previous week. The seasonally adjusted Purchase Index decreased 5.4 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.11 percent from 4.06 percent ...

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.39 percent from 4.40 percent...

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

Click on graph for larger image.

The 4-week average of the purchase index increased slightly last week. This index has mostly moved sideways for the last 2 years, and is at about the same level as in 1997. The refinance index will probably increase later in February or in March at the HARP refinance program picks up.

by Calculated Risk on 1/24/2012 10:17:00 PM

Below is a graph that compares the Ceridian diesel fuel index and the ATA trucking index.

The ATA index showed a sharp increase in December: ATA Truck Tonnage Index Posts Largest Annual Gain in 13 Years

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index jumped 6.8% in December after rising 0.3% in November 2011. The latest gain put the SA index at 124.5 (2000=100) in December, up from the November level of 116.6.

But the Ceridian index showed only a small increase: Pulse of Commerce Index Increased 0.2 Percent in December

The Ceridian-UCLA Pulse of Commerce Index® (PCI®), issued ... by the UCLA Anderson School of Management and Ceridian Corporation, rose 0.2 percent in December following the 0.1 percent increase in November and the 1.1 percent increase in October.

Click on graph for larger image.

Here is a graph comparing the two indexes. In general the two indexes move together, but there are periods when one index is strong than the other. As an example the ATA trucking index was moving sideways prior to the recession, but the Ceridian index was still increasing.

And recently the ATA index is showing a strong increase, but the Ceridian index is only increasing slightly. Perhaps rail traffic is the tie breaker: AAR: Rail Traffic increased 7.3 percent YoY in December

by Calculated Risk on 1/24/2012 08:55:00 PM

Transcript: 2012 SOTU. Not much on housing ...

I'm sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape. No more runaround from the banks. A small fee on the largest financial institutions will ensure that it won't add to the deficit, and will give banks that were rescued by taxpayers a chance to repay a deficit of trust.
...
And tonight, I am asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.

Ezra Klein SOTU liveblogging

by Calculated Risk on 1/24/2012 06:56:00 PM

The State of the Union Address is at 9 PM tonight.

President Obama will probably mention some housing policy initiatives that do not require Congressional approval: 1) the updated HARP program (refinance activity will increase in March), 2) an REO to rental program for Fannie and Freddie, and 3) the mortgage settlement agreement.

On the possible REO to rental program, here is a story from Patrick Coolican at the Las Vegas Sun: Your next landlord in Las Vegas could be a hedge fund

Hedge funds could be the next big player in the Las Vegas real estate market. ...

“We’ve been contacted by a number of different groups who have never considered owning single-family residences as rental properties in their investment portfolios,” says Brian Krueger, vice president for strategic services at Coldwell Banker, the real estate firm.

They are organizing money and have started to come in and do due diligence,” he says.

Doug Brien, managing director and co-founder of Waypoint Homes, tells me he was in Las Vegas last week to survey the landscape. Waypoint, an Oakland, Calif.-based company, has bought 1,000 homes as rental properties in other markets.

However in many areas selling REO in bulk doesn't seem to make much sense - since there are so many small investors already buying. Here is an excerpt of a piece from economist Tom Lawler:

Contrary to what some espousers of “bulk” REO sales to large investors to rent our SF properties might suggest, the number and % of single-family detached homes occupied by renters increased significantly during the latter half of last decade, with the largest gains coming in “bubbly” areas. The table below is based on data from the American Community Survey. The 2000 data are from Census 2000, while the 2006-07 and 2008-09 averages are derived from the 5-year, 3-year, and 1-year ACS results for the 2006-10, 2008-10, and 2010 periods released this year.

Percent of Occupied SF Detached Homes Occupied by Renters
	2000	2006-07	2008-09	2010
US	13.2%	12.8%	14.3%	15.1%
Maricopa County	10.4%	13.5%	16.8%	19.8%
Clark County	12.5%	18.2%	22.0%	24.4%
Sacramento County	18.8%	16.7%	20.2%	22.4%
Lee County	10.6%	12.3%	14.6%	17.3%
Source: Decennial Census 2000, American Community Survey 5-, 3-, and 1-year Estimates

According to ACS estimates – which sadly are just estimates – for the US as a whole the % of occupied SF detached homes that were occupied by renters increased from an average of 12.8% in the 2006-07 period to 15.1% in 2010. That % increase translated into a 3,637,349 jump in the number of renters occupied SF detached homes. By comparison, the number of owners occupied SF detached homes declined by 1,333,747.

For “distressed” areas, the numbers were even more striking, as the above table suggests.

In Maricopa County (home of Phoenix), the estimated number of SF detached homes occupied by renters increased to about 182,251 on average in 2010 from about 123,553 on average during the two-year 2006-07 period.

Of course, SF homes lost to foreclosure rose sharply in Maricopa County in 2008, and remained at elevated levels through last year – though foreclosures in 2011 were down from 2010. Investor buying also appeared to pick up dramatically in 2008, as (NOT coincidentally) the all-cash share of home sales in the county.

The ACS data, combined with investor/all-cash shares, suggests by 2010 a SIGNIFICANT share of SF homes lost to foreclosure in 2008-2010 period (1) were purchased by “investors;” and (2) had by 2010 been successfully rented out.
...
It is not clear why folks focusing on the rental market for SF housing have not actually looked at any data, much less analyzed or commented on the truly astounding increase in the rental share of the SF housing market in many parts of the country. The astounding increase in the number of foreclosed SF detached homes in Maricopa County occurred, of course, without any mandated program to have bulk sales of REO at discounts to “large” investors.

CR note: Foreclosures will probably pick up significantly once (and if) a mortgage settlement is reached. But right now it doesn't appear a bulk REO program is needed in most areas. Hopefully, if a program is announced, it will be limited to areas where small investors will be overwhelmed by the volumes (perhaps Las Vegas and parts of Florida).

by Calculated Risk on 1/24/2012 03:58:00 PM

From DataQuick: California Foreclosure Activity Drops

The number of California homes going into foreclosure dropped in the fourth quarter of 2011 to the second-lowest level in more than four years, the result of evolving lender and mortgage servicer policies as well as shifting market conditions, a real estate information service reported.

A total of 61,517 Notices of Default (NODs) were recorded at county recorders offices during the fourth quarter. That was down 13.7 percent from 71,275 for the prior three months, and down 11.9 percent from 69,799 in fourth-quarter 2010, according to San Diego-based DataQuick.

Last quarter's 61,517 NODs marked the lowest level since 56,633 NODs were filed in second-quarter 2011, and the second-lowest since 53,943 NODs were recorded in second-quarter 2007. New foreclosure filings (NODs) peaked in first-quarter 2009 at 135,431.

"We are certainly seeing a lower level of foreclosure activity than a year or two ago. The question is, how much of that decline is due to market conditions, and how much is due to policy changes that try to address economic distress and lower home values," said John Walsh, DataQuick president.

"Five years ago almost all mortgage payment delinquencies would have triggered a default notice after a certain amount of time. Strategies now include short sales, refinances, interest rate changes, principal reduction as well as just plain waiting longer. It will be interesting to see how this plays out as the economy improves and the housing market finds its footing," Walsh said.

As Walsh noted, some of the decline is probably due to process issues. California is a non-judicial state, and it still takes an average of 9.7 months to foreclose after the Notice of Default is filed (the shortest possible period is 3 months and 21 days).

Click on graph for larger image.

This graph shows the annual Notices of Default (NODs) filed in California.

California had a significant housing bust in the early '90s, with defaults peaking - and prices bottoming - in 1996. That bust was mild compared to the recent housing bust - and defaults are still way above the 1996 peak.

by Calculated Risk on 1/24/2012 01:15:00 PM

From ATA: ATA Truck Tonnage Index Posts Largest Annual Gain in 13 Years

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index jumped 6.8% in December after rising 0.3% in November 2011. The latest gain put the SA index at 124.5 (2000=100) in December, up from the November level of 116.6.

For all of 2011, tonnage rose 5.9% over the previous year – the largest annual increase since 1998. Tonnage for the last month of the year was 10.5% higher than December 2010, the largest year-over-year gain since July 1998. November tonnage was up 6.1% over the same month last year.
...
“While I’m not surprised that tonnage increased in December, I am surprised at the magnitude of the gain,” ATA Chief Economist Bob Costello said.
...
“Not only did truck tonnage increase due to solid manufacturing output in December, but also from some likely inventory restocking. Inventories, especially at the retail level, are exceedingly lean, and I suspect that tonnage was higher than expected as the supply chain did some restocking during the month.” he said.

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. This index stalled early in 2011, but increased sharply at the end of the year. 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.

All current Transportation Graphs

by Calculated Risk on 1/24/2012 10:55:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were slightly lower in December. Thirty-seven states and the District of Columbia recorded unemployment rate decreases, 3 states posted rate increases, and 10 states had no rate change, the U.S. Bureau of Labor Statistics reported today. Forty-six states registered unemployment rate decreases from a year earlier, while four states and the District of Columbia experienced increases.
...
Nevada continued to record the highest unemployment rate among the states, 12.6 percent in December. California posted the next highest rate, 11.1 percent. North Dakota again registered the lowest jobless rate, 3.3 percent ...

Click on graph for larger image in graph gallery.

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

The states are ranked by the highest current unemployment rate. Only four states and the District of Columbia still have double digit unemployment rates. This is the fewest since early 2009. At the end of 2009, 18 states and D.C. had double digit unemployment rates.


All current employment graphs