by Calculated Risk on 9/14/2012 08:47:00 AM

On a monthly basis, retail sales were up 0.9% from July to August (seasonally adjusted), and sales were up 4.7% from August 2011. This increase was largely due to higher gasoline prices. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $406.7 billion, an increase of 0.9 percent from the previous month and 4.7 percent (±0.7%) above August 2011. ... The June to July 2012 percent change was revised from 0.8 percent to 0.6 percent.

Click on graph for larger image.

Sales for July were revised down to a 0.6% increase (from 0.8% increase).

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 22.7% from the bottom, and now 7.3% above the pre-recession peak (not inflation adjusted)

The second graph shows the same data, but just since 2006 (to show the recent changes). This shows that much of the recent increase is due to gasoline.

Excluding gasoline, retail sales are up 19.3% from the bottom, and now 7.2% above the pre-recession peak (not inflation adjusted).

The third graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 4.9% on a YoY basis (4.7% for all retail sales). Retail sales ex-gasoline increased 0.3% in August.

This was above the consensus forecast for retail sales of a 0.8% increase in August, and above (edit) the consensus for a 0.7% increase ex-auto.

All current retail sales graphs

by Calculated Risk on 9/13/2012 08:49:00 PM

First, Tom Lawler has been discussing the rental demand for single family homes. He sent me this article today: Phoenix-area rental homes a red-hot commodity

In the Valley’s most popular communities, desperate renters are submitting applications for multiple single-family homes to secure a place to live. ... The unprecedented demand for rentals is fueled by former homeowners whose houses were foreclosed on or sold in short sales and now need a place to live. Some of them can no longer qualify to buy a home. For others, the housing bubble sullied the aura of owning a home.

With the trend showing no sign of slowing, more investors than ever are buying homes to rent. Popular areas such as central and north Phoenix, south Scottsdale, Glendale, central Tempe, Chandler and Gilbert are hot spots for rentals.

Multiple indicators show demand for rentals has never been higher:

More rental contracts were signed in June and July than in any other months in the past decade, according to the Arizona Regional Multiple Listing Service.

The percentage of single-family homes purchased to be rented out hit a record 32 percent in July, more than triple the typical rate, said Mike Orr, a real-estate analyst at Arizona State University.

In July, the average rental home was empty for only 38 days, tied for the shortest period in 12 years, Orr said.

The vacancy rate for big apartment complexes recently hit an almost six-year low as of June 30, according to commercial broker Marcus & Millichap.

“It’s a crazy rental market right now,” said Liza Asbury of Realty One Group. “There are multiple offers for properties. If it (the home) is nice, it is definitely going fast.”

On Friday:
• At 8:30 AM ET, the Consumer Price Index for August will be released. The consensus is for CPI to increase 0.6% in August and for core CPI to increase 0.2%.

• Also at 8:30 AM, Retail Sales for August will be released. The consensus is for retail sales to increase 0.8% in August, and for retail sales ex-autos to increase 0.7%.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for August. The consensus is that Industrial Production declined 0.1% in August, and that Capacity Utilization declined to 79.2%.

• At 9:55 AM, the Reuters/University of Michigan's Consumer sentiment index will be released (preliminary for September). The consensus is for sentiment to decrease to 74.0 from 73.5 in August.

• At 10:00 AM, the Manufacturing and Trade: Inventories and Sales report for July (Business inventories) will be released. The consensus is for 0.5% increase in inventories.

Two more questions for the September economic prediction contest:

by Calculated Risk on 9/13/2012 04:45:00 PM

The FOMC delivered everything I expected - and more. This was a very strong move and I suspect many analysts are underestimating the potential positive impact on the economy.

However, as Fed Chairman said, monetary policy is "not a panacea". I do think this will help, but this will not solve the unemployment problem.

Here are a few key points:

• Forward guidance is a critical part of Fed policy (see Michael Woodford's paper presented at Jackson Hole). The FOMC didn't go as far as targeting nominal GDP, but they took two key steps today: 1) they extended the forward guidance until mid-2015, and 2) the FOMC made it clear that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens". "AFTER the economic recovery strengthens" is key.

• This easing was not based on new economic weakness. From the FOMC statement: "economic activity has continued to expand at a moderate pace in recent months". This easing was intended to help increase the pace of recovery.

• Another key change was the FOMC tied this easing directly to the labor market: "If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability."

• I think this will be more effective than most analysts expect. As I noted last weekend, housing is usually a key transmission channel for monetary policy, and now that residential investment has started to recover - and house price have stabilized, or even started to increase, this channel will probably become more effective.

I also liked that Bernanke addressed three concerns that have been raised about monetary policy. Note: The replay of the press conference is available here.

The first "concern" was that some people are confusing fiscal and monetary policy. Monetary policy is NOT spending (see Bernanke's comments at 7:00).

The other two are legitimate concerns - that the Fed policies can hurt savers, and that there is a risk of inflation down the road. I agree with Bernanke that a stronger economy will lead to better returns for savers, and that inflation is not an immediate concern.

by Calculated Risk on 9/13/2012 02:00:00 PM

Here are the updated projections from the FOMC meeting.

Fed Chairman Ben Bernanke's press conference starts at 2:15 PM ET. Here is the video stream.


Live Video streaming by Ustream

Below are the updated projections starting with when participants project the initial increase in the target federal funds rate should occur, and the participants view of the appropriate path of the federal funds rate. I've included the chart from the June meeting to show the change.


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."

Here is the June chart for comparison.

There was a clear shift to 2015.

Another key is very few participants think the FOMC should raise rates before 2015.



"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 still think the Fed Funds rate will be in the current range through 2014.

The four tables below show the FOMC Sept meeting projections, and the June projections to show the change.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
Sept 2012 Projections	1.7 to 2.0	2.5 to 3.0	3.0 to 3.8
June 2012 Projections	1.9 to 2.4	2.2 to 2.8	3.0 to 3.5

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.

GDP projections have been revised down for 2012, and revised up for 2013 and 2014.

The unemployment rate was at 8.1% in August, and the projection for 2012 is unchanged. The projection for 2014 was revised down.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
Sept 2012 Projections	8.0 to 8.2	7.6 to 7.9	6.7 to 7.3
June 2012 Projections	8.0 to 8.2	7.5 to 8.0	7.0 to 7.7

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

The forecasts for overall and core inflation show the FOMC is still not concerned about inflation.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
Sept 2012 Projections	1.7 to 1.8	1.6 to 2.0	1.6 to 2.0
June 2012 Projections	1.2 to 1.7	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
Sept 2012 Projections	1.7 to 1.9	1.7 to 2.0	1.8 to 2.0
June 2012 Projections	1.7 to 2.0	1.6 to 2.0	1.6 to 2.0

by Calculated Risk on 9/13/2012 12:33:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months. Growth in employment has been slow, and the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment appears to have slowed. The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

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; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.

Here is the previous FOMC Statement for comparison.

by Calculated Risk on 9/13/2012 08:30:00 AM

The DOL reports:

In the week ending September 8, the advance figure for seasonally adjusted initial claims was 382,000, an increase of 15,000 from the previous week's revised figure of 367,000. The 4-week moving average was 375,000, an increase of 3,250 from the previous week's revised average of 371,750

The previous week was revised up from 365,000.

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 increased to 375,000.

This was above the consensus forecast of 370,000.

Update via MarketWatch: "The government said about 9,000 claims stemmed from the storm that passed through the Gulf Coast in late August."


And here is a long term graph of weekly claims:

Mostly moving sideways this year.

All current Employment Graphs

by Calculated Risk on 9/12/2012 09:47:00 PM

From Tim Duy at EconomistsView: The Wait Should be Finally Over

With respect to the meeting tomorrow, I agree with Robin Harding at the FT on this point:

For me, the question of what the Fed will do is far less interesting – and far less in doubt – than how the Fed will do it. This will not be a pro forma repeat of previous actions. As Mr Bernanke’s speech shows, the Fed is trying to address grave concerns about the labour market. The crucial issue is whether and how they tie any action to the state of the economy.

I don't anticipate a lump sum QE announcement. I anticipate an open-ended commitment to regular purchases of securities, Treasuries and/or MBS, that can be scaled up or down in response to the economy. Wall Street may be initially disappointed by the lack of a big number, but over time I think markets will come to appreciate the greater impact offered by a regular commitment based upon economic outcomes rather than the arbitrary amounts and time lines of previous QE efforts.

As Harding says, how they tie the policy to the economy is key.

From Jon Hilsenrath at the WSJ: Four Things to Watch at Fed Meeting. Some excerpts:

–QE STRATEGY: Many investors expect the Federal Reserve to launch a new round of bond purchases, often called quantitative easing or QE. One big question is how the Fed would structure such a program.
...
–WHAT TO DO WITH TWIST: Officials must decide what to do about the “Operation Twist” program if they launch a new bond-buying program. The Fed is funding the Twist purchases with money it gets by selling short-term Treasury securities.
...
–COMMUNICATION: How the Fed describes its impetus for action, and its criteria for even more in the future, could matter a lot. Is it responding to a darkening outlook? Or has it decided to take more aggressive action because its patience with slow growth and high unemployment is running out and it has a new commitment to changing that?
...
–WHETHER TO LOWER ANOTHER RATE: The Fed now pays banks 0.25% interest on reserves they keep with the central bank. The Fed could reduce the rate it pays on reserves that aren’t required of banks (known as excess reserves) a little bit to try to give banks more impetus to lend.

On Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 370 thousand from 365 thousand.

• Also at 8:30 AM, the Producer Price Index for August will be released. The consensus is for a 1.4% increase in producer prices (0.2% increase in core).

• At 12:30 PM, the FOMC Meeting Announcement will be released. Additional policy accommodation is very likely. The FOMC might lengthen their forward guidance for the first rate hike to mid-2015 or later, and / or also launch an open ended Large Scale Asset Purchases(LSAP) program (commonly called QE3).

• At 2:00 PM, The FOMC Forecasts will be released. These include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections. Earlier I posted a preview with the June projections for reference.

• At 2:15 PM: Fed Chairman Ben Bernanke will hold a press briefing and discuss the FOMC policy decisions.
.

by Calculated Risk on 9/12/2012 07:01:00 PM

There is plenty of discussion about QE3 (will they or won't they), but another key piece of information released tomorrow is the projections of the FOMC participants. In advance of the meeting I thought I'd take a look back at the previous projections from the June meeting. 

The first chart is when participants project the initial increase in the target federal funds rate should occur, and the participants view of the appropriate path of the federal funds rate.


"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."

The key is to see if this shifts further to the right with more participants thinking the first rate increase will happen in 2015 or beyond. Many analysts expect that the FOMC will push out their forward guidance to 2015 (from 2014), and that suggests many more participants will view 2015 or beyond as appropriate.

"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."

This graph will probably be extended to 2015, and once again many participants will probably think the Fed Funds rate will be in the current range into 2015.

On the projections, GDP will probably be revised down again for 2012.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
June 2012 Projections	1.9 to 2.4	2.2 to 2.8	3.0 to 3.5

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.

GDP grew at a 1.8% annualized rate in the first half of 2012, and would have to increase at a 2.0% to 3.0% rate in the 2nd half to reach the previous range of projections.

The unemployment rate was at 8.1% in August. This is still in the June projection range, and the key will be to watch the projections for 2013 and 2014. Fed Chairman Ben Bernanke called unemployment a "grave concern" in his recent Jackson Hole speech.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
June 2012 Projections	8.0 to 8.2	7.5 to 8.0	7.0 to 7.7

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

Overall PCE inflation has been on a 1.3% annualized pace this year through July (although this will probably increase with the increase in oil prices), and core PCE has been increasing at a 1.8% annualized pace. The core PCE rate has slowed further over the last few months. Right now inflation is tracking near the bottom of the previous FOMC projections.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
June 2012 Projections	1.2 to 1.7	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
June 2012 Projections	1.7 to 2.0	1.6 to 2.0	1.6 to 2.0

Here was the key sentence from the most recent FOMC minutes: "Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery."

There is nothing in the recent data pointing to a "substantial and sustainable strengthening in the pace of the economic recovery". So I expect QE3 to be announced tomorrow.

by Calculated Risk on 9/12/2012 02:59:00 PM

CR Note: Yesterday I posted some distressed sales data for Sacramento. I'm following the Sacramento market to see the change in mix over time (short sales, foreclosure, conventional). There has been a clear shift to fewer distressed sales in Sacramento.

Economist Tom Lawler has been digging up similar data, and he sent me the following table today for several more distressed areas. For all of these areas the share of distressed sales is down from August 2011 - and for the areas that break out short sales, the share of short sales has increased (except Minneapolis) and the share of foreclosure sales are down - and down significantly in some areas.

Previous comments from Lawler:

Note that the distressed sales shares in the below table are based on MLS data, and often based on certain “fields” or comments in the MLS files, and some have questioned the accuracy of the data. Some MLS/associations only report on overall “distressed” sales.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Aug	11-Aug	12-Aug	11-Aug	12-Aug	11-Aug
Las Vegas	43.7%	21.7%	16.9%	50.2%	60.6%	71.9%
Reno	38.0%	30.0%	13.0%	31.0%	51.0%	61.0%
Phoenix	29.4%	25.2%	14.0%	41.5%	43.4%	66.7%
Sacramento	35.4%	23.6%	16.6%	38.4%	52.0%	62.0%
Minneapolis	10.8%	11.6%	26.0%	33.4%	36.8%	45.0%
Mid-Atlantic (MRIS)	11.8%	11.2%	8.7%	14.7%	20.6%	25.9%
Hampton Roads VA					24.4%	29.3%
Charlotte					13.6%	19.0%
Memphis			28.7%	31.5%
Birmingham AL			27.8%	30.3%

by Calculated Risk on 9/12/2012 12:39:00 PM

An interview with Professor Robert Shiller on NPR: The Housing Market: Have We Finally Hit Bottom? A brief excerpt:

Neil Conan, Host, NPR: And in the spring you were on the fence as those first reports came in giving three months of generally positive data. Do you think we're coming off the bottom?

Robert Shiller, economist, Yale University: Well, we definitely have positive data. The question is how strong is it, and will this fizzle - this rally fizzle or not? And I don't know the answer to that. But I point out that this is the fourth time we've had a rally since the crisis ended. It's coming in the summertime, right? Well, that's the normal time of strength in the market.

So if you look at the data, it doesn't jump out at you that we've reached the turning point. Now, we may have, but I think that seasonality seems to be getting stronger, and that's another contender.

CONAN: So how long do you think you would want to wait before you saw enough numbers to make a decision?

SHILLER: Well, I used to forecast home prices, and I thought a year - once you have a year - this is what I used to think, and whether it's still true, but ... But once you have a year of solid price increases, you are probably off to the races for some years. So yeah, but we're not into it that long yet.

CONAN: And there's other factors, because of all those foreclosures, because of all those mortgages underwater, a lot of people fear that there's a big backlog of housing stock that you're going to have to work through before you can start going again.

SHILLER: Right, there's a lot of people who are thinking, you know, if the prices would just come up a little bit, I'd sell.

Robert Shiller makes a few key points:
• There is a seasonal pattern for house prices, and the seasonality has been much stronger in recent years. The reason is foreclosures and short sales happen all year, but there is a seasonal pattern for conventional sales.  So distressed sales push down prices more than normal in the winter. Some of the recent increase in house prices was due to seasonal factors, and - as I noted last month - we should expect the NSA indexes to show month-over-month declines later this year. But the key will be to watch the year-over-year change.

• I've argued before that we will not really know if house prices have bottomed until at least a year after it happens (I think prices bottomed early this year). Robert Shiller makes the same argument: "once you have a year of solid price increases, you are probably off to the races for some years". I don't think prices will be "off to the races" because ...

• As Shiller notes, there are probably quite a few people waiting for a better market and somewhat higher prices: "there's a lot of people who are thinking, you know, if the prices would just come up a little bit, I'd sell". That is one reason why prices will probably not be "off to the races". Also there are still quite a few distressed sales in the pipeline - and that will keep prices from rising quickly.

Here is the radio interview: