by Calculated Risk on 9/17/2012 08:41:00 AM

From MarketWatch: Empire State index hits nearly two-year low

The Empire State index decreased to negative 10.4 in September from negative 5.9 in August, according to the manufacturing survey released by the New York Federal Reserve. It is the lowest reading since November 2010.

The new-orders index worsened to negative 14.0 in September from negative 5.5 in August.

One bright spot in the report was an increase in a key barometer of future activity that asks manufacturers about expectations six months ahead. The forward-looking index rose to 27.2 in September from 15.2 in August.

The index of the number of employees fell sharply in September but remained slightly above negative territory at 4.3.

The number of employees fell from 16.47 in August to 4.3 in September. This was significantly below expectations of a reading of minus 2.0.

Manufacturing remains a weak spot for the US economy.

by Calculated Risk on 9/16/2012 09:55:00 PM

This could slow down the QE3 mortgage transmission mechanism, from the Financial Times: QE3 hit by mortgage processing delays

“In the very near term [QE3] has virtually no transfer mechanism whatsoever to the customer,” said one executive at a leading lender, who requested anonymity. “Originators are massively backlogged in terms of origination volumes.”
Excerpt with permission

The Asian markets are mixed tonight, with the Shanghai down 0.3% and the Hang Seng up 0.3%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P future are down almost 5 points, and the DOW futures down 32 points.

Oil prices are moving up WTI futures are at $99.00 and Brent is at $117.44 per barrel.

On Monday:
• At 8:30 AM ET, the NY Fed will release the Empire State Manufacturing Survey for September. The consensus is for a reading of minus 2.0, up from minus 5.8 in August (below zero is contraction).

Yesterday:
• Summary for Week Ending Sept 14th
• Schedule for Week of Sept 16th

Three more questions this week for the September economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 9/16/2012 01:29:00 PM

From Paul Krugman: How Could QE Work?

[A]t this point it’s not at all clear that we have an overhang of excess housing capacity; we might even have a shortfall.

And we’re seeing a modest housing recovery starting ...
...
This means that we actually can hope that the Fed’s new policy will boost housing as well as operating through other channels, and therefore that it can act more like conventional monetary policy in fostering recovery.

That said, I’m still skeptical about whether monetary policy alone can come close to doing enough — a skepticism shared by Ben Bernanke:

So looking at all the different channels of effect, we think it does have impact on the economy, it will have impact on the labor market but as again, the way I would describe it is a meaningful effect, a significant effect but not a panacea, not a solution for the whole issue.

We still need fiscal policy. But it’s good to see the Fed doing more.

This is similar to the argument I made last weekend:

[O]ne of the key transmission channels for monetary policy is through residential investment and mortgages. The previous rounds of QE (and "twist") have lowered mortgage rates and allowed homeowners with excellent credit and income to refinance. However this channel has been limited ...

As residential investment recovers, and house prices increase (or at least stabilize), this channel will probably become more effective.

Last month I summarized some of The economic impact of a slight increase in house prices. This includes mortgage lenders and appraisers becoming more confident in the mortgage and housing markets. I think that is starting to happen, and I think QE might have more traction now through the housing channel.

Note: Krugman's comment on "overhang of excess housing" is very important. Although there isn't good timely data on household formation and the housing stock, I do think most of the excess supply has been absorbed.

For another view on QE3, see Jim Hamilton's: Effects of QE3

I think the correct interpretation of QE3 is that the Fed has unambiguously signaled that it's not going to re-run the Japanese experiment to see what happens when the central bank stands by and watches wages and prices fall even while unemployment remains very high. The Fed can and will keep U.S. inflation from falling much below 2%, and that may help a little. Investors should expect that, and not a whole lot more.

And for those who think commodity prices will soar, I suggest Michael Pettis' analysis of supply and demand: By 2015 hard commodity prices will have collapsed

Yesterday:
• Summary for Week Ending Sept 14th
• Schedule for Week of Sept 16th

by Calculated Risk on 9/16/2012 10:00:00 AM

According to housingtracker, median asking prices are up 2.1% year-over-year in early September. We can't read too much into this increase because these are just asking prices, and median prices can be distorted by the mix. As an example, the median asking price might have increased just because there are fewer low priced foreclosures listed for sale.

Note: The Trulia asking price index is adjusted for both mix and seasonality, but the housingtracker data is just the median, the 25th percentile and 75th percentile - and is impacted by both changes in the mix and seasonality.

But with those caveats, here is a graph of asking prices compared to the year-over-year change in the Case-Shiller composite 20 index.

Click on graph for larger image.

The Case-Shiller index is in red. The brief period in 2010 with a year-over-year increase in the repeat sales index was related to the housing tax credit.

Also note that the 25th percentile took the biggest hit (that was probably the flood of low end foreclosures on the market).

Now the year-over-year change in median asking prices has been positive for ten consecutive months. We have to be careful about the mix (fewer foreclosures on the market), but this suggests year-over-year selling prices will stay positive.

On seasonality, asking prices peaked in June and are down slightly over the last three months. That is a reminder that the Not Seasonally Adjusted repeat sales indexes will show month-to-month declines later this year - and the focus will be on the year-over-year change.

Yesterday:
• Summary for Week Ending Sept 14th
• Schedule for Week of Sept 16th

by Calculated Risk on 9/15/2012 07:07:00 PM

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

Here is the unofficial problem bank list for Sept 14, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

There were two removals and one addition to the Unofficial Problem Bank List, which leaves it standing at 886 institutions with assets of $330.5 billion. A year ago, the list held 984 institutions with assets of $402.4 billion.

The failed Truman Bank, St. Louis, MO ($282 million) and Alliant Bank, Sedgwick, KS, which merged out of existence on an unassisted basis. Added this week was The State Bank of Geneva, Geneva, IL ($84 million). Next week, we anticipate the OCC will release its actions through mid-August 2012.

CR Note: The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public. (CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.)

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

When the list was increasing, the official and "unofficial" counts were about the same. Now with the number of problem banks declining, the unofficial list is lagging the official list. This probably means regulators are changing the CAMELS rating on some banks before terminating the formal enforcement actions.

Earlier:
• Summary for Week Ending Sept 14th
• Schedule for Week of Sept 16th

by Calculated Risk on 9/15/2012 01:10:00 PM

Earlier:
• Summary for Week Ending Sept 14th

There are three key housing reports to be released this week: September homebuilder confidence on Tuesday, and August housing starts and August Existing Home sales, both on Wednesday.

For manufacturing, the September NY Fed (Empire state) and Philly Fed surveys will be released this week.

Also, for data nerds, the Fed's Q2 Flow of Funds report, and the Census Bureau's 2011 American Community Survey will be released.

----- Monday, Sept 17th----- 8:30 AM: NY Fed Empire Manufacturing Survey for September. The consensus is for a reading of minus 2.0, up from minus 5.8 in August (above zero is expansion).

----- Tuesday, Sept 18th ----- 10:00 AM: The September NAHB homebuilder survey. The consensus is for a reading of 38, up from 37 in August. Although this index has been increasing lately, any number below 50 still indicates that more builders view sales conditions as poor than good.

----- Wednesday, Sept 19th ----- 7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

8:30 AM: Housing Starts for August.

Total housing starts were at 746,000 (SAAR) in July, down 1.1% from the revised June rate of 754,000 (SAAR).

The consensus is for total housing starts to increase to 768,000 (SAAR) in August, up from 746,000 in July.

10:00 AM: Existing Home Sales for August from the National Association of Realtors (NAR).

The consensus is for sales of 4.55 million on seasonally adjusted annual rate (SAAR) basis. Sales in July 2012 were 4.47 million SAAR.

A key will be inventory and months-of-supply.

During the day: The AIA's Architecture Billings Index for August (a leading indicator for commercial real estate).

----- Thursday, Sept 20th ----- 8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 373 thousand from 382 thousand.

9:00 AM: The Markit US PMI Manufacturing Index Flash. This is a new release and might provide hints about the ISM PMI for September. The consensus is for a reading of 51.5, down from 51.9 in August.

10:00 AM: Philly Fed Survey for September. The consensus is for a reading of minus 4.0, up from minus 7.1 last month (above zero indicates expansion).

10:00 AM: Conference Board Leading Indicators for September. The consensus is no change in this index.

12:00 PM: Q2 Flow of Funds Accounts from the Federal Reserve.

Note: On Thursday, the Census Bureau will release the 2011 American Community Survey estimates.

----- Friday, Sept 21st ----- 10:00 AM: Regional and State Employment and Unemployment (Monthly) for August 2012

by Calculated Risk on 9/15/2012 08:07:00 AM

The key event of the week was the FOMC announcement. Here were my posts:
• FOMC Statement: QE3 $40 Billion per Month, Extend Guidance to mid-2015
• FOMC Projections and Bernanke Press Conference
• Analysis: Bernanke Delivered

In other news, retail sales were strong due to higher gasoline prices. From Merrill Lynch:

Gasoline prices surged in the month, forcing consumers to spend more at the pump. Gasoline station sales climbed 5.5%, contributing to the majority of the gain in total sales. Netting out gasoline station sales, spending was only up 0.3%. ...

Outside of gasoline, autos and building materials, core control sales fell 0.1%. This was a decidedly weak report, showing a pullback in consumer spending. ...

The combination of weak August core retail sales and a downward revision to July and June (0.1pp in each month), slices 0.4pp from our Q3 GDP tracking model. We are now looking for GDP growth of only 1.1% in Q3.

Some of the other data was impacted by hurricane Isaac: Industrial production declined although this was partially due to the impact of Hurricane Isaac and weekly unemployment claims increased - also partially blamed on the hurricane.

In a little good news, consumer sentiment increased some in September.

Overall this suggests more sluggish growth.

Here is a summary of last week in graphs:

• Retail Sales increased 0.9% in August

Click on graph for larger image.

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.

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)

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
• Trade Deficit at $42.0 Billion in July

The Department of Commerce reported: "[T]otal July exports of $183.3 billion and imports of $225.3 billion resulted in a goods and services deficit of $42.0 billion, up from $41.9 billion in June, revised. July exports were $1.9 billion less than June exports of $185.2 billion. July imports were $1.8 billion less than June imports of $227.1 billion."

The trade deficit was below the consensus forecast of $44.3 billion.

This graph shows the monthly U.S. exports and imports in dollars through July 2012.

Exports are 10% above the pre-recession peak and up 3% compared to July 2011; imports are just below the pre-recession peak, and up about 1% compared to July 2011.

The second graph shows the U.S. trade deficit, with and without petroleum, through July.

• Industrial Production declined 1.2% in August, Capacity Utilization decreased

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 78.2% is still 2.1 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.6% 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 decreased in August to 96.8. This is 16% above the recession low, but still 3.9% below the pre-recession peak.

The consensus was for Industrial Production to decrease 0.1% in August, and for Capacity Utilization to decline to 79.2%. Both IP and Capacity Utilization were below expectations.
All current manufacturing graphs
• Consumer Sentiment increases in September to 79.2

The preliminary Reuters / University of Michigan consumer sentiment index for September increased to 79.2, up from the August reading of 74.3.

This was above the consensus forecast of 73.5 but still fairly low. Sentiment remains weak due to the high unemployment rate, sluggish economy and higher gasoline prices.


• Weekly Initial Unemployment Claims increase to 382,000

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.

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

The 4-week average of unemployment claims has mostly moved sideways this year.
All current Employment Graphs
• BLS: Job Openings "little changed" in July

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.


Jobs openings decreased in July to 3.664 million, down from 3.722 million in June. The number of job openings (yellow) has generally been trending up, and openings are up about 9% year-over-year compared to July 2011.

Quits increased slightly in July, and quits are up about 8% year-over-year. These are voluntary separations and more quits might indicate some improvement in the labor market. (see light blue columns at bottom of graph for trend for "quits").
All current employment graphs
• Other Economic Stories ...
• Key Measures show slowing inflation in August
• Lawler: Where has the increase in the number of renters of Single Family homes come from?
• CoreLogic: Negative Equity Decreases in Q2 2012
• Lawler: Preliminary Table of Short Sales and Foreclosures for Selected Cities in August

by Calculated Risk on 9/14/2012 08:52:00 PM

An excerpt from a Goldman Sachs research note by Alec Phillips today: The Fiscal Cliff Moves to Center Stage

While we are hopeful that lawmakers will manage to reach an agreement before year-end, we expect that the road to such an agreement will be a bumpy one.

Ahead of the election, lawmakers seem unlikely to reach any sort of compromise on major tax or spending policies, particularly now that the window for a legislative agreement is essentially closed. Once the election results are known, lawmakers will work toward compromise, but members of both parties have an incentive to make the threat of “falling off the cliff” appear as credible as possible, so a resolution in November, or even early December, seems unlikely. Indeed, under a status quo election outcome, for example, a decision on even a short-term extension of expiring policies seems unlikely until late December, since political compromise would presumably come only after all other options have been exhausted.

... we think there is at least a one in three likelihood that lawmakers fail to agree by December 31. ... if a deal is reached by the end of the year it may not provide much certainty in 2013. After all, the debt limit may still need to be raised, and the since the most likely scenario seems to be a short-term extension of fiscal cliff-related policies, the risks from fiscal policy seem likely to continue into 2013, regardless of how the fiscal cliff is dealt with at year end.

I've just been ignoring the "fiscal cliff" until after the election. I suspect some sort of deal will be reached - but you never know.

Meanwhile, here is an animated version of Merle Hazard's "Fiscal Cliff"

by Calculated Risk on 9/14/2012 06:13:00 PM

Missouri wisdom
Presidential paraphrase
“The buck won’t stop here”.
by Soylent Green is People
From the FDIC: Simmons First National Bank, Pine Bluff, Arkansas, Assumes All of the Deposits of Truman Bank, Saint Louis, Missouri

As of June 30, 2012, Truman Bank had approximately $282.3 million in total assets and $245.7 million in total deposits ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $34.0 million. ... Truman Bank is the 42nd FDIC-insured institution to fail in the nation this year, and the second in Missouri.

Friday is here!

by Calculated Risk on 9/14/2012 02:50:00 PM

The BLS reported this morning: "The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.7 percent over the last 12 months to an index level of 227.056 (1982-84=100). For the month, the index increased 0.7 percent prior to seasonal adjustment."

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is an explanation ...

The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W¹ for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and not seasonally adjusted.

SPECIAL NOTE on CPI-chained: There has been some discussion of switching from CPI-W to CPI-chained for COLA. This will not happen this year, but could happen next year and impact future Cost-of-living adjustments, see: Cost of Living and CPI-Chained

Since the highest Q3 average was last year (2011), at 223.233, we only have to compare to last year. Note: The last few years we needed to compare to Q3 2008 since that was the previous highest Q3 average.

Click on graph for larger image.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

Currently CPI-W is above the Q3 2011 average. If the current level holds, COLA would be around 1.4% for next year (the current 226.312 average divided by the Q3 2011 level of 223.233). With the recent increases in oil and gasoline prices, CPI COLA might be closer to 1.6% once the September data is released.

This is early - we need the data for September - but COLA will be slightly positive next year.

Contribution and Benefit Base

The law prohibits an increase in the contribution and benefit base if COLA is not greater than zero. However if the there is even a small increase in COLA, the contribution base will be adjusted using the National Average Wage Index.

From Social Security: Cost-of-Living Adjustment Must Be Greater Than Zero

... ... any amount that is directly dependent for its value on the COLA would not increase. For example, the maximum Supplemental Security Income (SSI) payment amounts would not increase if there were no COLA.

... if there were no COLA, section 230(a) of the Social Security Act prohibits an increase in the contribution and benefit base (Social Security's maximum taxable earnings), which normally increases with increases in the national average wage index. Similarly, the retirement test exempt amounts would not increase ...

This is based on a one year lag. The National Average Wage Index is not available for 2011 yet, but wages probably didn't increase much from 2010. If wages increased the same as last year, and COLA is positive (seems likely right now), then the contribution base next year will be increased to around $112,500 from the current $110,100.

Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).

⁽¹⁾ CPI-W usually tracks CPI-U (headline number) pretty well. From the BLS:

The Bureau of Labor Statistics publishes CPIs for two population groups: (1)the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) ... which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self- employed, short-term workers, the unemployed, and retirees and others not in the labor force.