by Calculated Risk on 2/18/2012 08:11:00 AM

Once again most of the economic data last week was above expectations, and the data suggests some increase in economic activity. We could blame the improvement on better than normal weather – and that was a factor – but with all the bad weather in 2011, it is about time the economy caught a little break.

The strongest data was probably housing starts, especially single family starts. But we have to be careful with the numbers – the weather played a role - and January is seasonally one of the weakest months of the year. The key months for housing starts begin in March. The increase in starts fits with the recent increase in the builder confidence index, but we still haven’t seen a pickup in new home sales (January new home sales will be released next week).

There was some disappointment with the retail sales report for January. Retail sales only increased 0.4%, and that was below expectations for the month. And there was disappointment with inflation as several key measures ticked up a little in January.

Other positive data included another drop in initial weekly unemployment claims, and, for manufacturing, an increase in both the Empire State and Philly Fed manufacturing surveys showing faster expansion in February.

Also the MBA released the results of the Q4 National Delinquency Survey, and mortgage delinquencies declined in Q4 – and according to MBA Chief Economist Jay Brinkmann, delinquencies are about “half way” back to normal. However the number of loans in the foreclosure process is still near record levels.

Overall this was another solid week. Here is a summary in graphs:

• Retail Sales increased 0.4% in January

Click on graph for larger image.

On a monthly basis, retail sales were up 0.4% from December to January (seasonally adjusted, after revisions), and sales were up 5.8% from January 2011. Sales for December were revised down from a 0.1% increase to "virtually unchanged".

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales are up 20.7% from the bottom, and now 6.1% above the pre-recession peak (not inflation adjusted).

This was below the consensus forecast for retail sales of a 0.7% increase in January, but above the consensus for a 0.5% increase ex-auto.

All current retail sales graphs
• Housing Starts increased in January

Total housing starts were at 699 thousand (SAAR) in January, up 1.5% from the revised December rate of 689 thousand (SAAR). Note that December was revised up from 657 thousand.

Single-family starts declined 1.0% to 508 thousand in January, however December was revised up by 43 thousand from 470 thousand. There were the first two months above 500 thousand since the expiration of the tax credit.

This graph shows total and single unit starts since 1968. It now appears both multi-family and single-family starts are moving up, but from very low levels. This was above expectations of 670 thousand starts in January.
All Housing Investment and Construction Graphs
• MBA: Mortgage Delinquencies declined in Q4

From the MBA: Delinquencies and Foreclosures Decline in Latest MBA Mortgage Delinquency Survey

The MBA reported that 11.96 percent of mortgage loans were either one payment delinquent or in the foreclosure process in Q4 2011 (delinquencies seasonally adjusted). This is down from 12.41 percent in Q3 2011 and is the lowest level since 2008.

This graph shows the percent of loans delinquent by days past due.

Loans 30 days delinquent increased to 3.22% from 3.19% in Q3. This is at about 2007 levels.

Delinquent loans in the 60 day bucket decreased to 1.25% from 1.30% in Q4. This is the lowest level since Q4 2007.

There was a decrease in the 90+ day delinquent bucket too. This decreased to 3.11% from 3.50% in Q3 2011. This is the lowest level since 2008, but still way above normal (probably around 1% would be normal).

The percent of loans in the foreclosure process declined slightly to 4.38% from 4.43%. The key problem remains the very high level of seriously delinquent loans and loans in the foreclosure process.

• Industrial Production unchanged in January, Capacity Utilization declines

This graph shows Capacity Utilization. This series is up 11.3 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 78.5% is still 1.8 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 81.3% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

This graph shows industrial production since 1967.

Industrial production was unchanged in January at 95.9; December was revised up sharply.

The consensus was for a 0.6% increase in Industrial Production in January, and for an increase to 78.6% for Capacity Utilization. Although below consensus, with the December revisions, this was about at expectations.
All current manufacturing graphs
• Weekly Initial Unemployment Claims declined to 348,000

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 365,250.

The 4-week moving average is at the lowest level since early 2008.

All current Employment Graphs

• Key Measures of Inflation increase in January

"According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index 0.2% (3.0% annualized rate) in January. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.9% annualized rate) during the month. ... The CPI less food and energy increased 0.2% (2.7% annualized rate) on a seasonally adjusted basis."

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.4%, the trimmed-mean CPI rose 2.6%, and core CPI rose 2.3%. Core PCE is for December and increased 1.85% year-over-year. These measures show inflation is still above the Fed's 2% target.

• Empire State and Philly Fed Manufacturing Surveys show stronger expansion

From the NY Fed: Empire State Manufacturing Survey

The general business conditions index rose six points to 19.5, its highest level in more than a year.

This was above the consensus forecast of a reading of 14.1 (above 0 is expansion) and the highest level since June 2010.

From the Philly Fed: February 2012 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of
current activity, edged higher from a reading of 7.3 in January to 10.2, its highest level since October.

This indicates expansion in Febraury, at a faster pace than in January, and slightly above the consensus forecast of +8.4.

Above is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through February. The ISM and total Fed surveys are through January.

The average of the Empire State and Philly Fed surveys increased again in February, and is at the highest level since April 2011.
All current manufacturing graphs
• NFIB: Small Business Optimism Index increased slightly in January

From the National Federation of Independent Business (NFIB): Small Business Confidence in a Lull

This graph shows the small business optimism index since 1986. The index increased to 93.9 in January from 93.8 in December. This is the fifth increase in a row after declining for six consecutive months.

The optimism index declined sharply in August due to the debt ceiling debate and has now rebounded to about the same level as early in 2011. This index is still low - probably due to a combination of sluggish growth, and the high concentration of real estate related companies in the index.

• Other Economic Stories ...
• NAHB Builder Confidence index increases in February; Highest in over four years
• Residential Remodeling Index increases 22.8% year-over-year in December
• From San Francisco Fed President John Williams: The Federal Reserve’s Mandate and Best Practice Monetary Policy
• Ceridian-UCLA: Diesel Fuel index declined 1.7% in January
• FHA REO Inventory declines to four-year low in December

by Calculated Risk on 2/17/2012 09:07:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Feb 17, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

As expected, the OCC released its enforcement action activity through mid-January 2012 this week, which contributed to several changes to the Unofficial Problem Bank List this week. Given that the FDIC played nice with community banks by hosting an outreach conference in D.C. this week, it is not surprising they kept the closing teams grounded. In all, there were seven removals and five additions that leave the list with 956 institutions. However, assets were virtually unchanged at $389.56 billion. A year ago, there were 951 institutions with assets of $418.6 billion.

All of the removals were cures and include Plumas Bank, Quincy, CA ($472 million Ticker: PLBC); The Farmers National Bank of Prophetstown, Prophetstown, IL ($450 million); Resource Bank, National Association, Dekalb, IL ($342 million); The First National Bank of Eagle River, Eagle River, WI ($146 million); The First National Bank of Plainview, Plainview, MN ($140 million); Western National Bank, Cass Lake, MN ($32 million); and The First National Bank of Frederick, Frederick, SD ($18 million).

The additions include Riverview Community Bank, Vancouver, WA ($861 million); Mariners Bank, Edgewater, NJ ($294 million); American National Bank, Oakland Park, FL ($214 million); Commerce National Bank & Trust, Winter Park, FL ($100 million); and First National Bank of Wauchula, Wauchula, FL ($84 million).

Next Friday there is a good chance the FDIC will release its enforcement action activity for January 2012.

After peaking at 1,004 institutions last July, the number of institutions on the unofficial list has slowly declined. But this is still very high.

by Calculated Risk on 2/17/2012 05:56:00 PM

Note: Cardiff Garcia at FT Alphaville has some comments on inventory from several analysts: The decline of US housing inventory

Here is another report on inventory ... from Realtor.com: Real Estate Trends for January 2012

According to real estate data released today by Realtor.com, the national inventory of for-sale single family homes, condominiums, townhouses and co-ops (SFH/CTHCOPS) declined -6.59% from December to January, and is now down -23.20% compared to a year ago. The median age of the inventory also declined on both an annual and monthly basis, and is now -4.80% below the levels observed in January 2011.
...
For-sale inventories of SFH/CTHCOPS in January 2012 declined in all but one of the 146 MSAs monitored by Realtor.com compared to a year ago when for-sale inventories in more than half of all markets (85) dropped by 20% or more. ... Springfield, IL, was the only market to register a year-over-year increase in for-sale inventory. However, areas that showed the least signs of improvement tended to be concentrated in the Northeast corridor.
...
The median age of the inventory exceeded 120 days in 46 markets in January, down from 60 markets in December. While many of the markets with the oldest inventories are resort communities, particularly in Florida and the Carolinas, others are in industrialized areas that are experiencing the brunt of the economic downturn.

The NAR report doesn't always match up with other inventory reports - and there is some variability in how inventory is reported (some report include contingent short sales, some don't) - but it does appear inventory is down sharply in most areas. (Contingent short sale inventory is also down sharply).

by Calculated Risk on 2/17/2012 01:55:00 PM

Economist Tom Lawler is forecasting that the National Association of Realtors (NAR) will report sales of 4.66 million on a seasonally adjusted annual rate (SAAR) basis for January. The NAR is scheduled to report existing home sales on Wednesday, Feb 22nd at 10 AM ET.

This is a slight increase from the 4.61 million rate in December, and essentially unchanged from the 4.64 million rate reported in January 2011.

Tom didn't send me an estimate for inventory, but based on other reports, I expect inventory to decline slightly from the 2.38 million houses for sale reported for December.

This sales rate, combined with a decline in inventory, could put months-of-supply under 6 months for the first time since early 2006.

Note: Even though there is a seasonal pattern for inventory (inventory usually bottoms in January and peaks in the summer), the months-of-supply metric is calculated using the seasonally adjusted sales rate and the not seasonally adjusted inventory. So the months-of-supply will probably increase again over the next 6 months.

by Calculated Risk on 2/17/2012 01:26:00 PM

Earlier today the BLS reported:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in January on a seasonally adjusted basis ... The index for all items less food and energy increased 0.2 percent in January.

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index 0.2% (3.0% annualized rate) in January. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.9% annualized rate) during the month.
...
The CPI less food and energy increased 0.2% (2.7% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for January here.

On a monthly basis, the rate of increase was above the Fed's target.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.4%, the trimmed-mean CPI rose 2.6%, and core CPI rose 2.3%. Core PCE is for December and increased 1.85% year-over-year.

These measures show inflation is still above the Fed's 2% target.

by Calculated Risk on 2/17/2012 11:22:00 AM

An update by request: The following graph shows single family housing starts (through January) and the unemployment rate (inverted) also through January. Note: there are many other factors impacting unemployment, but housing is a key sector.

You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.

Housing starts (blue) increased a little in 2009 with the homebuyer tax credit - and then declined again - but mostly starts moved sideways for two and a half years and only started increasing recently. This was one of the reasons the unemployment rate has remained elevated.

Click on graph for larger image.

Usually near the end of a recession, residential investment (RI) picks up as the Fed lowers interest rates. This leads to job creation and also additional household formation - and that leads to even more demand for housing units - and more jobs, and more households - a virtuous cycle that usually helps the economy recover.

However this time, with the huge overhang of existing housing units, this key sector hasn't been participating. The good news is single family starts should increase modestly in 2012, and construction employment should also increase.

by Calculated Risk on 2/17/2012 08:35:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in January on a seasonally adjusted basis ... Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment. ...

The index for all items less food and energy increased 0.2 percent in January. The shelter index increased 0.2 percent, with the indexes for rent, owners' equivalent rent, and lodging away from home all rising 0.2 percent.

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was below the consensus forecast of a 0.3% increase in CPI.

by Calculated Risk on 2/16/2012 10:26:00 PM

Earlier from the Philly Fed: February 2012 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of
current activity, edged higher from a reading of 7.3 in January to 10.2, its highest level since October. ... The new orders index was positive for the fifth consecutive month and increased from 6.9 to 11.7.
...
The current employment index, which has been positive for six consecutive months, fell from a reading of 11.6 in January to 1.1 this month, suggesting little overall growth in employment.
...
The future general activity index fell from a reading of 49.0 in January to 33.3 this month. The index, which has increased for five consecutive months, remains at a relatively high level.

This indicates expansion in Febraury, at a faster pace than in January, and slightly above the consensus forecast of +8.4.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through February. The ISM and total Fed surveys are through January.

The average of the Empire State and Philly Fed surveys increased again in February, and is at the highest level since April 2011.

All current manufacturing graphs

Earlier:
• Weekly Initial Unemployment Claims decline to 348,000
• Housing Starts increase in January
• MBA: Mortgage Delinquencies decline in Q4
• Q4 MBA National Delinquency Survey Comments

by Calculated Risk on 2/16/2012 07:36:00 PM

The MBA noted that judicial states generally have the most loans in the foreclosure process. The graph below shows the percent of loans in the foreclosure process by state and by foreclosure process. Red is for states with a judicial foreclosure process. Because the judicial process is longer, those states typically have a higher percentage of loans in the process.

Nevada is an exception. But Nevada had the largest quarterly decline, and for the first time in years is not in the #2 spot behind Florida - Nevada has dropped to #4.

Other hard hit states, like California and Arizona, have also seen significant improvement. California and Arizona started 2011 in the 6th and 7th spot (respectively) with percent of loans in foreclosure, and have fallen all the way to 23rd and 17th by Q4.

Click on graph for larger image.

Florida, New Jersey, Illinois, Nevada, Maine, New York and Connecticut are the top seven states with percent of loans in the foreclosure process. And Vermont, Maryland, Hawaii, Maine, Connecticut and New York saw the largest increases in Q4.

With the mortgage servicer settlement, I expect the number of loans in foreclosure to start to decline in all states.

Earlier:
• Weekly Initial Unemployment Claims decline to 348,000
• Housing Starts increase in January
• MBA: Mortgage Delinquencies decline in Q4
• Q4 MBA National Delinquency Survey Comments

by Calculated Risk on 2/16/2012 02:37:00 PM

With the recent increase in single family housing starts, a key question is: Are the home builders starting too many homes? The answer is no.

Part of the increase for starts in December and January can be explained by the unseasonably warm weather in most of the country. The reported number is seasonally adjusted, and usually January is the weakest month of the year for housing starts - so nice weather can make a difference. Building activity will pick up in March, and that will be a key month for starts.

However the builders are also responding to sales. As I've noted before, we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction

However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis. The Q4 2011 quarterly report was released today and showed there were 64,000 single family starts, built for sale, in Q4 2011, and that was slightly below the 68,000 new homes sold for the same quarter. This data is Not Seasonally Adjusted (NSA).

This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

Click on graph for larger image.

Single family starts built for sale were down seasonally in Q4 compared to Q3, but starts were up about 10% compared to Q4 2010. Even with the year-over-year increase, this was still close to the record low. Owner built starts were up slightly year-over-year, and condos built for sale are still very low.

The 'units built for rent' has increased significantly and is up about 67% year-over-year.

The second graphs shows the difference (quarterly) between single family starts, built for sale and new home sales.

In 2005, and most of 2006, starts were higher than sales, and inventories of new homes increased. In 2008 and 2009, the home builders started far fewer homes than they sold as they worked off the excess inventory they built up in 2005 and 2006.

For the last two years, the builders have sold a few more homes than they started, and inventory levels are now at record lows. In Q4, builders started 4 thousand fewer homes than they sold.

Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions). This is not perfect because of the handling of cancellations.

And here is an update to the graph comparing multi-family starts and completions. Note: it usually takes over a year on average to complete a multi-family project, so there is a lag between multi-family starts and completions. This graph uses a 12 month rolling total.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing since mid-2010. Completions (red line) are now following starts up.

It is important to emphasize that even with a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI).

Earlier:
• Weekly Initial Unemployment Claims decline to 348,000
• Housing Starts increase in January
• MBA: Mortgage Delinquencies decline in Q4
• Q4 MBA National Delinquency Survey Comments