by Calculated Risk on 2/01/2012 08:15:00 AM

ADP reports:

Employment in the U.S. nonfarm private business sector increased by 170,000 from December to January on a seasonally adjusted basis. The estimated advance in employment from November to December was revised down to 292,000 from the initially reported 325,000.

Employment in the private, service-providing sector rose 152,000 in January, and employment in the private, goods-producing sector increased 18,000 in January, while manufacturing employment increased 10,000.

This was at the consensus forecast of an increase of 172,000 private sector jobs in January. The BLS reports on Friday, and the consensus is for an increase of 135,000 payroll jobs in January, on a seasonally adjusted (SA) basis.

Government payrolls have been shrinking, so the ADP report suggests around 150,000 private nonfarm payroll jobs added in January. Of course ADP hasn't been very useful in predicting the BLS report.

by Calculated Risk on 2/01/2012 12:09:00 AM

This is technical. Earlier this month there was some discussion about how the ISM manufacturing survey might be overstating the strength of manufacturing in December due to some seasonal adjustment issues. Here was a story from FT Alphaville: ‘Tis (still) the seasonality, ISM edition

Today the ISM addressed this issue and released some revisions: ISM Report On Business® Seasonal Adjustments 2012

Seasonal adjustment factors are used to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-movable holidays. It is standard practice to project the seasonal adjustment factors used to calculate the indexes one year ahead (2012).

This year's seasonal factor revisions include greater attention to two areas: series with marginal seasonality and with improved outlier detection. Due to this focus, the Department of Commerce recommended that ISM no longer seasonally adjust the ISM Manufacturing Inventories Index. Additionally, they recommended making revisions to all seasonally adjusted data for a longer time period than what ISM has typically done in the past.

In response to concerns that the unusually large declines in autumn 2008 associated with the recent recession that may not have been adequately handled with default settings, this year the Department of Commerce used lower thresholds (critical values) for detecting outliers. As a result of moving averages, these changes in outlier detection affected seasonal factors both before and after 2008; therefore, ISM is making revisions to seasonally adjusted data for the past seven years rather than the customary four-year period.

For December, the ISM PMI was revised down to 53.1 from 53.9.

For January, the consensus is for a reading of 54.5, and this revision probably means the ISM PMI released Wednesday will be a little lower than consensus.

by Calculated Risk on 1/31/2012 07:07:00 PM

Another sign that the mortgage settlement will be announced soon ... from Ally Financial 8-K filed today:

Ally Financial Inc. (“Ally”) has concluded that it will record a charge of approximately $270 million in the fourth quarter of 2011 for penalties expected to be imposed by certain of our regulators and other governmental agencies in connection with foreclosure related matters, which is anticipated to result in an overall net loss for Ally in the fourth quarter. This charge was recorded effective December 31, 2011, considering developments subsequent to year-end.

The mortgage settlement (deadline for states is Friday) is one of several upcoming policy announcements that could impact the economy both in the US and in Europe.

Earlier on House Prices:
• Case Shiller: House Prices fall to new post-bubble lows in November (seasonally adjusted)
• Real House Prices and House Price-to-Rent
• All current house price graphs

by Calculated Risk on 1/31/2012 04:27:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in December to 3.91%, down from 4.0% in November. This is down from 4.48% in December 2010. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate increased to 3.58% in December, up from 3.57% in November. This is the fourth month in a row with a small increase in the delinquency rate. Freddie's rate is down from 3.84% in December 2010. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

The serious delinquency rate has been declining, but declining very slowly (Freddie's decline seems to have stalled). The reason for the slow decline is most likely the backlog of homes in the foreclosure process due to processing issues (aka robo-signing).

I expect a mortgage servicer settlement agreement to be reached very soon, and that will probably lead to more modifications and foreclosures - so the delinquency rate should start to decline faster.

The "normal" serious delinquency rate is under 1%, so there is a long way to go.

All current mortgage delinquency graphs

Earlier on House Prices:
• Case Shiller: House Prices fall to new post-bubble lows in November (seasonally adjusted)
• Real House Prices and House Price-to-Rent
• All current house price graphs

by Calculated Risk on 1/31/2012 02:28:00 PM

From the National Restaurant Association: Restaurant Performance Index Rose to Highest Level in Nearly Six Years in December

The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.2 in December, up 1.6 percent from November and its highest level in nearly six years. In addition, December represented the third time in the last four months that the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“Aided by favorable weather conditions in many parts of the country, a solid majority of restaurant operators reported higher same-store sales and customer traffic levels in December,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “In addition, restaurant operators are solidly optimistic about sales growth in the months ahead, and their outlook for the economy is at its strongest point in nearly a year.”
...
Building on a solid November performance that saw the strongest same-store sales results in more than four years, restaurant operators reported even better numbers in December. ... Restaurant operators also reported solid customer traffic results in December. ... In addition to positive sales and traffic levels, capital spending activity among restaurant operators continues to trend upward. Forty-eight percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, the highest level in six months.

Blame in on the lack of snow!

Click on graph for larger image.

The index increased to 102.2 in December (above 100 indicates expansion).

The data for this index only goes back to 2002.

This is "D-list" data (at best), but restaurant spending is discretionary and can tell us a little something about the overall economy. This index showed contraction in July and August, but is now solidly positive.

All current retail related graphs

Earlier on House Prices:
• Case Shiller: House Prices fall to new post-bubble lows in November (seasonally adjusted)
• Real House Prices and House Price-to-Rent
• All current house price graphs

by Calculated Risk on 1/31/2012 11:47:00 AM

A monthly update: Case-Shiller, CoreLogic and others report nominal house prices. It is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio.

Below are three graphs showing nominal prices (as reported), real prices and a price-to-rent ratio. Real prices are back to 1999/2000 levels, and the price-to-rent ratio is also back to 2000 levels.

Nominal House Prices

Click on graph for larger image.

The first graph shows the quarterly Case-Shiller National Index SA (through Q3 2011), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through November) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q4 2002 levels, the Case-Shiller Composite 20 Index (SA) is back to February 2003 levels, and the CoreLogic index is back to April 2003.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q1 1999 levels, the Composite 20 index is back to April 2000, and the CoreLogic index back to February 2000.

In real terms, all appreciation in the '00s is gone.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller Composite 20 and CoreLogic House Price Index.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Composite 20 index is back to April 2000 levels, and the CoreLogic index is back to February 2000.

In real terms - and as a price-to-rent ratio - prices are mostly back to 2000 levels and will probably be back to 1999 levels within the next few months.

Note: In late 2010 I guessed that prices would decline another 5% to 10% on these national indexes (from October 2010 prices). So far prices have fallen another 4% to 5% on these indexes.

All current house price graphs
Earlier:
• Case Shiller: House Prices fall to new post-bubble lows in November (seasonally adjusted)

by Calculated Risk on 1/31/2012 10:15:00 AM

The Census Bureau released the Housing Vacancies and Homeownership report for Q4 this morning.

As Tom Lawler has been discussing, this is from a fairly small sample, and the homeownership and vacancy rates are higher than estimated in other reports (like Census 2010). This report is commonly used by analysts to estimate the excess vacant supply for housing, but it doesn't appear to be useful for that purpose.

It might show the trend, but I wouldn't rely on the absolute numbers.

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate declined to 66.0%, down from to 66.3% in Q3 2011.

I'd put more weight on the decennial Census numbers and that suggests the actual homeownership rate is probably in the 64% to 65% range.

The Census researchers are investigating differences in Census 2010, ACS 2010, and HVS 2010 vacant housing unit estimates, but there is no scheduled date for any report.

The HVS homeowner vacancy rate declined to 2.3% from 2.4% in Q3. This is the lowest level since early 2006 for this report.

The homeowner vacancy rate has probably peaked and is now declining. However - once again - this probably shows that the trend is down, but I wouldn't rely on the absolute numbers.

The rental vacancy rate declined to 9.4% from 9.8% in Q3.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the overall trend in the rental vacancy rate - and Reis reported that the rental vacancy rate has fallen to the lowest level since 2001.

This is the most timely survey on households, but unfortunately the survey has serious issues - and sadly many analysts still use this survey to estimate the excess vacant supply. However this does suggest that the housing vacancy rates are falling.

by Calculated Risk on 1/31/2012 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for November (a 3 month average of September, October, and November). This release includes prices for 20 individual cities and and two composite indices (for 10 cities and 20 cities).

Note: Case-Shiller reports NSA, I use the SA data.

From S&P: Home Prices Continued to Decline in November 2011 According to the S&P/Case-Shiller Home Price Indices

Data through November 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices ... showed declines of 1.3% for both the 10- and 20-City Composites in November over October. For a second consecutive month, 19 of the 20 cities covered by the indices also saw home prices decrease. The 10- and 20-City composites posted annual returns of -3.6% and -3.7% versus November 2010, respectively. These are worse than the -3.2% and -3.4% respective rates reported for October.

“Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall. Weakness was seen as 19 of 20 cities saw average home prices decline in November over October,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “... Nationally, home prices are lower than a year ago. The 10-City Composite was down 3.6% and the 20-City was down 3.7% compared to November 2010. The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand."

“The crisis low for the 10-City Composite was April 2009; for the 20-City Composite the more recent low was March 2011. The 10-City Composite is now about 1.0% above its low, and the 20-City Composite is only 0.6% above its low. From their 2006 peaks, both Composites are down close to 33% through November.

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 33.5% from the peak, and down 0.7% in November (SA). The Composite 10 is at a new post bubble low (Seasonally adjusted), but still above the low NSA.

The Composite 20 index is off 33.5% from the peak, and down 0.7% in November (SA). The Composite 20 is also at a new post-bubble low.

The second graph shows the Year over year change in both indices.

The Composite 10 SA is down 3.6% compared to November 2010.

The Composite 20 SA is down 3.7% compared to November 2010. This was a slightly larger year-over-year decline for both indexes than in October.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 3 of the 20 Case-Shiller cities in November seasonally adjusted (only one city increased NSA). Prices in Las Vegas are off 61.6% from the peak, and prices in Dallas only off 9.2% from the peak.

The NSA indexes are around 1% above the March 2011 lows - and these indexes will hit new lows in the next month or two since prices are falling again. Using the SA data, the Case-Shiller indexes are now at new post-bubble lows.

by Calculated Risk on 1/30/2012 10:52:00 PM

Housing, payroll tax extension, a Greek deal and more ...

• Mortgage Servicer Settlement. Loren Berlin at the HuffPo writes: As Mortgage Settlement Deal Nears Feb. 3 Deadline, Nevada AG Raises Concerns

As the Obama administration, state attorneys general and the nation's biggest banks close in on a settlement over allegations of widespread mortgage fraud, Nevada's attorney general is pushing back with concerns and questions. Meanwhile a Feb. 3 deadline looms for states to declare whether they are joining the settlement.

In a letter sent Friday, emailed to federal officials and obtained by The Huffington Post, Nevada's attorney general, Catherine Cortez Masto, asked 38 questions relating to a variety of concerns, including fears that states would play second fiddle to the federal government in making decisions. She also questioned if states would lose their ability to pursue certain types of lawsuits against banks and whether states would get their fair share of the housing assistance for their borrowers.

It sounds like these issues will be clarified, and I expect most states (if not all) to join the settlement. Note that Masto has been working closely with California AG Harris.

• A surge in refinance activity in March. Not a new policy - this was announced last October when the FHFA made changes to Home Affordable Refinance Program (HARP) to allow more homeowners with GSE loans and with negative or near negative equity - and who are current on their mortgages - to refinance into lower interest rate loans.

The key to this program - for the lenders - was that the lender was not responsible for any of the representations and warranties associated with the original loan (this is huge for the lenders). The elimination of Reps and warrants for the original loans applies to Desktop Underwriter® (DU) and that will not be updated until March.

• REO to Rental Program: This rental program for Fannie and Freddie REO is being pushed by several agencies, and was discussed earlier this month in the Fed white paper "The U.S. Housing Market: Current Conditions and Policy Considerations" and by NY Fed President William Dudley: Housing and the Economic Recovery

This program could include bulk REO sales to investors, but might also include Fannie and Freddie renting out more REOs. There will be a similar effort for non-GSE properties as regulators relax the rules on banks renting out properties. Note: This program isn't needed in many areas because of the strong demand from small investor groups.

• Extension of payroll tax cut and extended unemployment benefits: The two month extension expires Feb 29th, and I expect these two programs will be extended through the end of the year. From Bloomberg: Boehner Says He’s Confident Congress Will Extend Payroll Tax-Cut

House Speaker John Boehner said he’s confident that Republicans and Democrats in Congress will agree to a payroll tax-cut extension supported by President Barack Obama.

“We are in a formal conference with the Senate, and I’m confident that we’ll be able to resolve this fairly quickly,” Boehner, an Ohio Republican, said on ABC’s “This Week” program yesterday.

And on Europe:

• Although a default is possible, I expect the Greek debt deal and next bailout agreement to be reached sometime in February. From the Athens News: Troika stick delays PSI carrot

Despite its agreement with bondholders on all the parameters of private-sector involvement (PSI) in the Greek debt writedown, the government will have to wait for another week before winning approval from the EU-IMF-ECB troika for a second bailout package worth 130bn euros.

A timely PSI deal for the haircut of 50 percent – or 100bn euros – from the 205bn euro privately held portion of Greek debt was crucial to avert a Greek default before March 20 when a 14.4bn euro bond redemption comes due.

These deals always happen at the last minute, and this will be no exception.

• The second round of the ECB's 3 year Long Term Refinancing Operation (LTRO) will probably be for over €1 trillion (the first 3 year LTRO was for €489 billion). The second auction will be held on February 29th. From the Financial Times: Banks set to double crisis loans from ECB

Several of the eurozone’s biggest banks have told the Financial Times that they could well double or triple their request for funds ... “Banks are not going to be as shy second time round,” said the head of one eurozone bank .. “We should have done more first time.”
excerpt with permission

It may be well over €1 trillion.

by Calculated Risk on 1/30/2012 07:28:00 PM

The average duration of unemployment in the US increased sharply during the recent recession, and was still near the record high in December. One of the reasons the average has stayed high is because of a change in the measurement methodology, but even after accounting for that change, the duration is still near record levels.

Another measure - the median duration of unemployment - has declined slightly from a peak of 25 weeks in June 2010, to 21 weeks in December 2011. In the severe recession of the early '80s, the median duration peaked at 12.3 weeks, even though the unemployment rate was higher in the early '80s than during the recent employment recession.

Researchers Rob Valletta and Katherine Kuang at the San Francisco Fed look at the reasons the duration increased: Why Is Unemployment Duration So Long?

During the recent recession, unemployment duration reached levels well above those of past downturns. Duration has continued to rise during the uneven economic recovery that began in mid-2009. Elevated duration reflects such factors as changes in survey measurement, the demographic characteristics of the unemployed, and the availability of extended unemployment benefits. But the key explanation is the severe and persistent weakness in aggregate demand for labor.

This seems obvious, but it is important for policymakers to understand that the primary cause of the increase in duration is not extended unemployment benefits or changes in demographics, but weak aggregate demand.