by Calculated Risk on 1/28/2012 08:12:00 AM

The key story last week was that the Federal Open Market Committee (FOMC) noted that “economic conditions … are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.” This was a change from mid-2013.

In addition the FOMC released their inaugural forecasts of the appropriate path for the Fed Funds rate, and most participants expect rates to be low for a long long time. The FOMC also set a long run inflation target of 2 percent (this was understood, but now it is official).

The January Summary of Economic Projections (SEP) showed the FOMC is projecting inflation will remain below target through 2014, whereas the unemployment rate will remain too high for years. This suggest that further action is likely, and Fed Chairman Bernanke seemed to pave the way for QE3 with his comments at the press briefing. My view is QE3 could be announced as early as the next FOMC meeting in March, or perhaps at one of the two day meetings in April or June.

In general the economic data released last week was disappointing. The advance report showed that real GDP only increased at a 2.8% annual rate in Q4. Much of the increase was related to changes in private inventories, and PCE only increased at a 2.0% annual rate. New home sales also disappointed, with sales falling to 307 thousand annual rate in December.

There was some mild good news: two regional Fed manufacturing surveys (Richmond and Kansas City) showed faster expansion in January, and consumer sentiment increased again.

Overall this is consistent with sluggish growth.

Here is a summary in graphs:

• Real GDP increased 2.8% annual rate in Q4

The BEA reported that "Real gross domestic product ... increased at an annual rate of 2.8 percent in the fourth quarter of 2011"

Click on graph for larger image.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The dashed line is the current growth rate. Growth in Q4 at 2.8% annualized was below trend growth (around 3%) - and very weak for a recovery - but the best since Q2 2010.

PCE increased at a 2.0 percent annual rate. GDP was boosted significantly by the "change in private inventories" that added 1.94 percentage points. That was somewhat offset by a decline in government spending (subtracted 0.93 percentage points).

Another key story is that residential investment is now adding to GDP. Since RI is historically the best leading indicator for the economy, this suggests further growth in 2012 (although still sluggish).

• New Home Sales declined in December to 307,000 Annual Rate

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 307 thousand. This was down from a revised 314 thousand in November (revised down from 315 thousand).

This graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Starting in 1973 the Census Bureau broke down inventory into three categories: Not Started, Under Construction, and Completed. This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale was at 61,000 units in December. The combined total of completed and under construction is at the lowest level since this series started.

New home sales have averaged only 300 thousand SAAR over the 20 months since the expiration of the tax credit ... mostly moving sideways at a very low level.

All New Home Sales graphs
• ATA Trucking Index increased sharply in December

"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."

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.
All current Transportation Graphs
• State Unemployment Rates "slightly lower" in December

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
• Weekly Initial Unemployment Claims increased to 377,000

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

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 377,500.

The 4-week moving average remains below 400,000.

Weekly claims have been bouncing around lately - January is a period with large seasonal adjustments and that can lead to some large swings - but the 4-week average of weekly claims have been mostly trending down.
All current Employment Graphs
• Consumer Sentiment increased in January

The final January Reuters / University of Michigan consumer sentiment index increased to 75.0, up from the preliminary reading of 74.0, and up from the December reading of 69.9.

Sentiment is still fairly weak, although above the consensus forecast of 74.0.

• Other Economic Stories ...
• FOMC Statement: Rates likely exceptionally low through late 2014
• FOMC: Sets 2% Inflation Target, January Summary of Economic Projections (SEP) and Press Briefing
• Analysis: Bernanke paves the way for QE3
• Pending Home Sales Decline in December
• From the Richmond Fed: Manufacturing Activity Picks Up the Pace in January; Expectations Upbeat
• Kansas City Fed: Tenth District Manufacturing Activity Rebounded in January
• DOT: Vehicle Miles Driven declined 0.9% in November

by Calculated Risk on 1/27/2012 09:03:00 PM

From Jon Prior at HousingWire: Treasury to pay investors triple for HAMP principal reductions

The Treasury Department will triple payments to mortgage investors for reducing borrower principal through an expanded Home Affordable Modification Program announced Friday [CR note: Treasury will pay incentives ranging from .18 to .63 cents on the dollar - depending on the change in LTV]

Officials announced several critical changes to HAMP, including an enrollment extension to Dec. 31, 2013, from its original expiration date at the end of this year.

The Treasury will also require servicers to factor in second liens and other obligations in the debt-to-income ratio calculation. Previously, if a borrower's first-lien mortgage monthly payment was below 31% of the income, the borrower was deemed ineligible. Factoring other debts to the DTI evaluation will expand the pool of borrowers who could receive the assistance.

To combat blight, officials said they would also expand HAMP to investors who are renting properties to tenants.
...
Department of Housing and Urban Development Secretary Shaun Donovan said in the conference call Friday that the Treasury would make these payments to Fannie Mae and Freddie Mac if they participate in the principal reduction program.

To date, the GSEs have not committed to such a program.
...
"FHFA’s assessment of the investor incentives now being offered will follow its previous analysis, including consideration of the eligible universe, operational costs to implement such changes, and potential borrower incentive effects," said FHFA Acting Director Edward DeMarco in a statement Friday.

Based on DeMarco's comments, it doesn't sound like Fannie and Freddie will participate in the principal reductions.

by Calculated Risk on 1/27/2012 06:10:00 PM

Inequality
Failure for all the small fish
Pardons for the whales
by Soylent Green is People
From the FDIC: First Resource Bank, Savage, Minnesota, Assumes All of the Deposits of Patriot Bank Minnesota, Forest Lake, Minnesota

As of September 30, 2011, Patriot Bank Minnesota had approximately $111.3 million in total assets and $108.3 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $32.6 million. ... Patriot Bank Minnesota is the sixth FDIC-insured institution to fail in the nation this year, and the first in Minnesota. The last FDIC-insured institution closed in the state was The Riverbank, Wyoming, Minnesota, on October 7, 2011.

From the FDIC: U.S. Bank National Association, Cincinnati, Ohio, Assumes All of the Deposits of BankEast, Knoxville, Tennessee

As of September 30, 2011, BankEast had approximately $272.6 million in total assets and $268.8 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $75.6 million. ... BankEast is the seventh FDIC-insured institution to fail in the nation this year, and the second in Tennessee. The last FDIC-insured institution closed in the state was Tennessee Commerce Bank, Franklin, earlier today.

That makes four today.

by Calculated Risk on 1/27/2012 05:13:00 PM

Federal Giants
Sack Panther and Titan banks
A Patriots chore
by Soylent Green is People
From the FDIC: CenterState Bank of Florida, National Association, Winter Haven, Florida, Assumes All of the Deposits of First Guaranty Bank and Trust Company of Jacksonville, Jacksonville, Florida

As of September 30, 2011, First Guaranty Bank and Trust Company of Jacksonville had approximately $377.9 million in total assets and $349.5 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $82.0 million. ... First Guaranty Bank and Trust Company of Jacksonville is the fourth FDIC-insured institution to fail in the nation this year, and the second in Florida. The last FDIC-insured institution closed in the state was Central Florida State Bank, Belleview, on January 20, 2012.

From the FDIC: Republic Bank & Trust Company, Louisville, Kentucky, Assumes All of the Deposits of Tennessee Commerce Bank, Franklin, Tennessee

As of September 30, 2011, Tennessee Commerce Bank had approximately $1.185 billion in total assets and $1.156 billion in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $416.8 million. ... Tennessee Commerce Bank is the fifth FDIC-insured institution to fail in the nation this year, and the first in Tennessee. The last FDIC-insured institution closed in the state was Bank of Alamo, Alamo, on November 8, 2002.

Hey, Tennessee is on the board. Another failure in Florida? No surprise.

by Calculated Risk on 1/27/2012 02:46:00 PM

From LPS Applied Analytics: LPS' Mortgage Monitor Shows 2010, 2011 Originations Among Best Quality on Record

The December Mortgage Monitor report released by Lender Processing Services shows mortgage originations continued their decline from 2011’s September peak, down 10.1 percent from the month before. At the same time, those loans originated over the last two years have proven to be some of the best quality originations on record.
...
Looking at judicial vs. non-judicial foreclosure states, LPS found that half of all loans in foreclosure in judicial states have not made a payment in more than two years. Foreclosure sale rates in non-judicial states stood at approximately four times that of judicial foreclosure states in December. Still, on average, pipeline ratios (the time it would take to clear through the inventory of loans either seriously delinquent or in foreclosure at the current rate of foreclosure sales) have declined significantly from earlier this year.

According to LPS, 8.15% of mortgages were delinquent in December, unchanged from November, and down from 8.83% in December 2010.

LPS reports that 4.11% of mortgages were in the foreclosure process, down from 4.16% in November, and down slightly from 4.15% in December 2010.

This gives a total of 12.26% delinquent or in foreclosure. It breaks down as:

• 2.31 million loans less than 90 days delinquent.
• 1.79 million loans 90+ days delinquent.
• 2.07 million loans in foreclosure process.

For a total of 6.17 million loans delinquent or in foreclosure in December.

Click on graph for larger image.

This graph shows the total delinquent and in-foreclosure rates since 1995.

The total delinquent rate has fallen to 8.15% from the peak in January 2010 of 10.97%, but the decline has "halted". A normal rate is probably in the 4% to 5% range, so there is a long ways to go.

The in-foreclosure rate was at 4.11%, down from the record high in October 2011 of 4.29%. There are still a large number of loans in this category (about 2.07 million). LPS reported that foreclosure starts were down nearly 40% in December, probably due to process issues.

This graph provided by LPS Applied Analytics shows foreclosure inventories by process.

As LPS noted earlier: "Judicial vs. non-judicial foreclosure processes remain a significant factor in the reduction of foreclosure pipelines from state to state, with non-judicial foreclosure inventory percentages less than half that of judicial states. This is largely a result of the fact that foreclosure sale rates in non-judicial states have been proceeding at four to five times that of judicial. Non-judicial foreclosure states made up the entirety of the top 10 states with the largest year-over-year decline in non-current loans percentages."

The third graph shows the 90+ day default rate by vintage.

LPS noted "2010 and 2011 originations are among the best on record".

And this isn't just because of tighter lending standards, LPS also noted (see report) that there were vintage improvements for high risk cohorts too (high risk defined as "Credit Score less than 660 and LTV greater than 80").

Notice the early payment default for the bubble years. The jump in payment 3 means the buyer missed the first three payments!

Overall this means newer loans are performing very well, but that there are a large number of delinquent loans stuck in the pipeline - especially in the judicial states.

All current mortgage delinquency graphs

by Calculated Risk on 1/27/2012 11:19:00 AM

The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential Investment (RI) made a positive contribution to GDP in Q4 for the third consecutive quarter. Usually residential investment leads the economy, but not this time because of the huge overhang of existing inventory.

The contribution from RI will probably continue to be sluggish compared to previous recoveries. Still the positive contribution is a significant story.

Equipment and software investment has made a significant positive contribution to GDP for ten straight quarters (it is coincident). However the contribution from equipment and software investment in Q4 was the weakest since the recovery started.

The contribution from nonresidential investment in structures was negative in Q4. Nonresidential investment in structures typically lags the recovery, however investment in energy and power has masked the ongoing weakness in office, mall and hotel investment (the underlying details will be released next week).

Residential Investment as a percent of GDP increased slightly in Q4.

Most of the increase was probably due to multifamily and home improvement investment. I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

Residential investment will increase further in 2012, and I expect investment in single family structures will also add to growth this year.

The last graph shows non-residential investment in structures and equipment and software.

Equipment and software investment had been increasing sharply, however the growth slowed in Q4.

Non-residential investment in structures decreased in Q4 and is still near record lows as a percent of GDP. The recent small increase has come from investment in energy and power. I'll add details for investment in offices, malls and hotels next week.

The key story is that residential investment is starting to increase. This trend will probably continue in 2012 - although the recovery in RI will be sluggish.

Earlier ...
• Real GDP increased 2.8% annual rate in Q4

by Calculated Risk on 1/27/2012 09:55:00 AM

Click on graph for larger image.

The final January Reuters / University of Michigan consumer sentiment index increased to 75.0, up from the preliminary reading of 74.0, and up from the December reading of 69.9.

Sentiment is still fairly weak, although above the consensus forecast of 74.0.

by Calculated Risk on 1/27/2012 08:30:00 AM

From the BEA:

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 2.8 percent in the fourth quarter of 2011 (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis.

The acceleration in real GDP in the fourth quarter primarily reflected an upturn in private inventory investment and accelerations in PCE and in residential fixed investment that were partly offset by a deceleration in nonresidential fixed investment, a downturn in federal government spending, an acceleration in imports, and a larger decrease in state and local government spending.

The following graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The dashed line is the current growth rate. Growth in Q4 at 2.8% annualized was below trend growth (around 3%) - and very weak for a recovery - but the best since Q2 2010.


Click on graph for larger image.

A few key numbers:
• Real personal consumption expenditures increased 2.0 percent in the second quarter, compared with an increase of 1.7 percent in the third.

• Change in private inventories added 1.94 percentage point. This was partially ffset by a decline in government spending (subtracted 0.93 percentage points).

• Investment growth slowed, except residential investment: "Real nonresidential fixed investment increased 1.7 percent in the fourth quarter, compared with an increase of 15.7 percent in the third. Nonresidential structures decreased 7.2 percent, in contrast to an increase of 14.4 percent. Equipment and software increased 5.2 percent, compared with an increase of 16.2 percent. Real residential fixed investment increased 10.9 percent, compared with an increase of 1.3 percent."

I'll have more on GDP later ...

by Calculated Risk on 1/26/2012 10:05:00 PM

On December New Home Sales:
• New Home Sales decline in December to 307,000 Annual Rate
• 2011: Record Low New Home Sales and 'Distressing Gap'
• New Home Sales graphs

Last week on Existing Home sales:
• Existing Home Sales in December: 4.61 million SAAR, 6.2 months of supply
• Existing Home Sales: Inventory and NSA Sales Graph
• Existing Home Sales graphs

The BEA will release the Q4 advance GDP report Friday morning. The consensus is that real GDP increased 3.0% annualized in Q4.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The Red column is the forecast for Q4 GDP.

At 3% this would be the fastest growth rate since Q2 2010, however PCE growth will probably still be weak and will probably be closer to 2% annualized.

by Calculated Risk on 1/26/2012 05:07:00 PM

The Case Shiller house price indexes for November will be released next Tuesday. Here are a couple of forecasts:

• Zillow Forecast: November Case-Shiller Composite-20 Expected to Show 3.2% Decline from One Year Ago

Zillow predicts that the 20-City Composite Home Price Index (non-seasonally adjusted, NSA) will decline by 3.2 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) will show a year-over-year decline of 2.7 percent. The seasonally adjusted (SA) month-over-month change from October to November will be -0.2 percent and -0.1 percent for the 20 and 10-City Composite Home Price Index (SA), respectively.

• From RadarLogic: Home Prices Declined at an Accelerating Rate in November as Sales Increased

The S&P/Case-Shiller Composite Home Price Indices for November 2011 will decline again on a month-over-month basis.
...
This month, we expect the November 2011 10-City composite index to be about 152 and the 20-City index to be roughly 138.

Below is a summary table. Case-Shiller will probably report house prices are at a new post-bubble low seasonally adjusted, but still above the NSA (Not Seasonally Adjusted) levels of March 2011.

		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (actual)	Nov-10	157.5	156.44	143.77	142.77
	Oct-11	154.1	152.24	140.3	138.56
Zillow Forecast	YoY	-2.7%	-2.7%	-3.2%	-3.2%
	MoM	-0.6%	-0.1%	-0.8%	-0.2%
Zillow Forecasts1		153.2	152.2	139.2	138.2
RadarLogic Forecast		152		138
Post Bubble Lows2		150.44	152.24	137.64	138.56
1Estimate based on Year-over-year and Month-over-month Zillow forecasts 2NSA lows were in March 2011, SA lows were last month.