by Calculated Risk on 6/29/2012 08:30:00 AM

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

Personal income increased $25.4 billion, or 0.2 percent ... in May, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $4.7 billion, or less than 0.1 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.1 percent in May, the same increase as in April. ... PCE price index -- The price index for PCE decreased 0.2 percent in May, compared with an increase of less than 0.1 percent in April. The PCE price index, excluding food and energy, increased 0.1 percent in May, the same increase as in April.

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

Click on graph for larger image.

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE. You can really see the slow down in Q2 of last year.

Using the two-month method, it appears real PCE will increase around 1.4% in Q2 (PCE is the largest component of GDP); the mid-month method suggests an increase of less than 1% in Q2. Also - so far - it appears spending is soft in June, so Q2 PCE growth will probably be fairly weak.

Another key point is the PCE price index has only increased 1.5% over the last year, and core PCE is up 1.8%. And it looks like the year-over-year increases will decline further in June.

by Calculated Risk on 6/28/2012 09:43:00 PM

The focus tomorrow will be on the end of the two day European summit in Brussels. There will probably be some sort of agreement on a "growth pact". The Financial Times is live blogging the European summit: EU summit: Live blog

And late today, Ford said that the European recession will really hit Q2 earnings. From the NY Times: Ford Motor, Citing Europe’s Woes, Says Foreign Losses to Triple in Quarter

The company said on Thursday that its total international losses would triple in the second quarter, with Europe accounting for the most of the loss. Ford lost $190 million in the first quarter in its international operations ...

The company’s chief financial officer, Robert Shanks, said in an interview that conditions in Europe were “getting tougher,” as manufacturers stepped up discounts to jump-start sales, which are at their lowest level in more than a decade.

On Friday:
• At 8:30 AM ET, The Personal Income and Outlays report for May will be released. The consensus is for a 0.3% increase in personal income in May, and for no change in personal spending. And for the Core PCE price index to increase 0.2%. Note: Q1 PCE was revised down slightly in the third estimate of GDP released this morning.


• At 9:45 AM, The Chicago Purchasing Managers Index for June. The consensus is for an increase to 53.1, up from 52.7 in May.

• At 9:55 AM, The final June Reuter's/University of Michigan's Consumer sentiment index will be released. The consensus is for no change from the preliminary reading of 74.1.

by Calculated Risk on 6/28/2012 05:00:00 PM

There is a little news from the European summit meeting:

Herman Van Rompuy, President of the European Council did tweet:

With the #GrowthCompact we will boost the financing of the economy by mobilising around EUR 120 bn for immediate growth measures.

This is the plan that was discussed last week.

Rompuy also wrote:

A EUR 10 bn increase of the EIB capital will increase the bank's overall lending capacity by EUR 60 bn. This money must flow across Europe.

Earlier Angela Merkel cancelled a planned press conference.

The Financial Times is live blogging the European summit: EU summit: Live blog

Van Rompuy says no agreement yet on growth pact because they haven’t finished discussing all the chapters yet. He would not confirm it was being blocked by either Mario Monti or David Cameron; it was simply unfinished. He said two countries were most concerned to see agreement on both long and short term together – he didn’t name them, but Germany and Italy are the most likely suspects. Both inclined to say no agreement until it is all agreed.
excerpt with permission

Meanwhile Bloomberg is reporting there is agreement: EU Leaders Agree 120 Billion-Euro Pact to Promote Growth, Jobs

by Calculated Risk on 6/28/2012 02:04:00 PM

By request, here is an updated timeline of QE (and Twist operations):

• November 25, 2008: Press Release: $100 Billion GSE direct obligations, $500 billion in MBS

• December 16, 2008 FOMC Statement: Evaluating benefits of purchasing longer-term Treasury Securities

• January 28, 2009: FOMC Statement: FOMC Stands Ready to expand program.

• March 18, 2009: FOMC Statement: Expand MBS program to $1.25 trillion, buy up to $300 billion of longer-term Treasury securities

• March 31, 2010: QE1 purchases were completed at the end of Q1 2010.

• August 27, 2010: Fed Chairman Ben Bernanke hints at QE2: Analysis: Bernanke paves the way for QE2

• November 3, 2010: FOMC Statement: $600 Billion QE2 announced.

• June 30, 2011: QE2 purchases were completed at the end of Q2 2011.

• September 21, 2011: "Operation Twist" announced. "The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less."

• June 20, 2012: "Operation Twist" extended. "The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities."

This graph show the S&P 500 and the Fed actions.

Click on graph for larger image.

by Calculated Risk on 6/28/2012 11:03:00 AM

From the Kansas City Fed: Growth in Tenth District Manufacturing Eased Further Activity Slowed

Growth in Tenth District manufacturing activity slowed in June, and expectations eased as producers grew more uncertain.. ...

The month-over-month composite index was 3 in June, down from 9 in May and equal to 3 in April ... The production index eased from 17 to 12, and the new orders index fell back into negative territory after rising slightly last month. Order backlogs continued to ease. The employment index moved lower but remained positive, while the new orders for exports index decreased.

Price indexes moderated for the second straight month, including an actual decline in monthly selling prices. The month-over-month finished goods price index dropped from 0 to -4, its lowest level since mid-2010, and the raw materials price index also decreased.

The regional manufacturing surveys were mostly weaker in June, especially the Philly Fed index.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through June), and five Fed surveys are averaged (blue, through June) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through May (right axis).

The ISM index for June will be released Monday, July 2nd, and these surveys suggest some decrease from the 53.5 reading in May.

by Calculated Risk on 6/28/2012 08:30:00 AM

The DOL reports:

In the week ending June 23, the advance figure for seasonally adjusted initial claims was 386,000, a decrease of 6,000 from the previous week's revised figure of 392,000. The 4-week moving average was 386,750, a decrease of 750 from the previous week's revised average of 387,500.

The previous week was revised up from 387,000 to 392,000.

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 declined slightly to 386,750.

This is just off the high for the year.

And here is a long term graph of weekly claims:

This was near the consensus forecast of 385,000 and suggests some renewed weakness in the labor market.


All current Employment Graphs

by Calculated Risk on 6/27/2012 10:30:00 PM

The focus tomorrow will be on the start of the two day European summit in Brussels, and also on the SCOTUS ruling on the health care law. The ruling on the Affordable Care Act is expected a little after 10 AM ET. (the SCOTUSblog is a good resource).

On Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for claims to decline to 385 thousand from 387 thousand last week.


• Also at 8:30 AM, the third estimate of Q1 GDP will be released. The consensus is that real GDP increased 1.9% annualized in Q1; no change from the 2nd estimate.

• At 11:00 AM, the Kansas City Fed regional Manufacturing Survey for June will be released this is the last of the regional Fed surveys for June, and three out of four have been below expectations. The consensus is for a decrease to 4 from 9 in May (above zero is expansion).

by Calculated Risk on 6/27/2012 08:03:00 PM

The following graph shows the number of cities with increasing house prices on a year-over-year and month-over-month basis.

This graph is based on the Case-Shiller Composite 20 cities using seasonally adjusted data starting in January 2001.

Most cities were seeing month-over-month increases every month through 2005. In 2006, some cities started seeing year-over-year declines (red). There were still a few cities with increasing prices in early 2007. The increases in 2009 and 2010 were related to the housing tax credit (all of those gains and more are gone).

Recently prices have started increasing in more and more cities. Note: Case-Shiller data is through April.

Click on graph for larger image in graph gallery.

In April 2012, 17 cities saw month-over-month price increases (SA), and 10 cities saw year-over-year price increases.

I expect that the number of cities with a year-over-year price increase will continue to climb, and in a few months the Case-Shiller Composite 20 index will turn positive on a year-over-year basis.

by Calculated Risk on 6/27/2012 04:29:00 PM

From economist Tom Lawler:

Lennar Corporation, the 3rd largest US home builder in 2011, reported that net home orders in the quarter ended May 31, 2012 totaled 4,481, up 39.9% from the comparable quarter of last year. The company’s sales cancellation rate, expressed as a % of gross orders, was 16% last quarter, down from 17% a year ago. Home deliveries last quarter totaled 3,222, up 20.1% from the comparable quarter last year. Lennar’s order backlog at the end of May was 3,970, up 60.7% from last May.

As with most other builders, Lennar reported that “pricing trends” were positive in “most” markets last quarter. Here are some comments by CEO Stuart Miller in the press release.

"Evidence from the field suggests that the 'for sale' housing market has, in fact, bottomed and that we have commenced a slow and steady recovery process. And while the housing downturn was broad-based and national, the recovery process continues to be very localized. Although highly conservative mortgage lending practices and challenging appraisals remain a constant headwind, we are experiencing net positive price and volume trends in most of our markets."

Mr. Miller continued, "As the overall housing market has continued to improve over the last several quarters, our well located communities and product execution has allowed us to outperform the market. During the quarter, deliveries increased 20%, new orders increased 40%, backlog increased 61% and our operating margin increased over 100% to 9.2%, our highest margin percentage since Q2 2006. This operating leverage was driven by our ability to increase sales per community, raise prices and lower incentives, and control our overhead costs."

Lennar’s results easily beat “consensus.”

CR Note: It helps to watch the builders. In early May, Tom Lawler sent me a chart on homebuilder sales, and Tom argued we'd see upward revisions to new home sales:

"[R]ight now I estimate that revisions will lift Census’s estimates of new SF home sales last quarter from an average seasonally adjusted annual rate of 337,000 to a SAAR of 350,000."

Sure enough, the Commerce Department has revised up Q1 new home sales to an average of just over 350,000.

Tom adds another key point today:

While the new home sales report exceeded “consensus,” recent numbers might even have been stronger if builders on average had higher inventories for sale. After being burned several times with some “false” signs of recovery, most builders have been pretty conservative in both “spec” building and community-count growth.

by Calculated Risk on 6/27/2012 01:40:00 PM

A new song from Merle Hazard called the "Fiscal Cliff"

This was debuted on PBS Making Sen$e this morning, see: A Q-and-A, Plus a Ditty and Contest as U.S. Races Toward the 'Fiscal Cliff'

They are having a contest for a new song. From Merle:

Though I'm a country singer, I also love surf-style music. The only thing wrong with the genre is that these songs are always -- of course -- about surfing, as well as teenage romance and drag races. There should be more on macro-economic topics and political economy. So I'd like to do another one like 'Fiscal Cliff,' but I'm out of ideas. I'm hoping NewsHour audience might help. I have in mind a song contest. Submit a topic, a key phrase, or a whole lyric. Whatever you like.