by Calculated Risk on 10/08/2012 11:22:00 AM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is little MEW right now - and normal principal payments and debt cancellation.

For Q2 2012, the Net Equity Extraction was minus $75 billion, or a negative 2.5% of Disposable Personal Income (DPI). This is not seasonally adjusted.

Click on graph for larger image in new window.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding declined sharply in Q2. Mortgage debt has declined by $1.05 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance.

For reference:

Dr. James Kennedy also has a new method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).

For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.

by Calculated Risk on 10/08/2012 09:13:00 AM

From the WSJ: Greece, Troika to Resume Talks This Week

Talks between Greece and a visiting troika of international inspectors made progress ... but no deal has yet been reached and the negotiations will resume next week.

The inspectors, from the European Commission, the International Monetary Fund and the European Central Bank, will depart Athens ... to attend a meeting of euro-zone finance ministers in Luxembourg Monday, the officials said.

"There has been progress on all fronts, fiscal and structural," one official, speaking to reporters after more than three hours of talks in the Greek capital, said. "The work will continue next week." ...
[As the talks drag on, overshooting their early October deadline, hopes of securing that aid by an Oct. 18 European summit--when European leaders were expected to sign off on Greece's latest aid tranche--now look dim.

And from the Athens News: Police announce ban on rallies during Merkel visit

The police on Monday announced that all open-air gatherings and rallies will be banned in large sections of central Athens between 9am and 10pm on Tuesday, as a security precaution to "preserve the peace" during a visit by German Chancellor Angela Merkel.

by Calculated Risk on 10/07/2012 09:44:00 PM

It appears gasoline prices in California have peaked following several refinery problems, see Jim Hamilton's California gas price spike. These refinery issues happened at a terrible time - just as the refineries were about to change to the winter blend.

From the LA Times: Gov. Brown takes emergency action to try to reduce gas prices

Gov. Jerry Brown took “emergency steps” Sunday to try to bring down record gas prices in the state.

He directed the California Air Resources Board to increase the fuel supply by allowing the immediate sale and import of cheaper and more available winter-blend gasoline.

The move would reduce the price of gas in California by 15 to 20 cents per gallon, probably within a few days, said energy expert Chris Faulkner of Dallas-based Breitling Oil and Gas.

The week will start with a focus on Europe. On Monday:
• Columbus Day Holiday: Banks will be closed in observance of Columbus Day. The stock market will be open.

• At 6:00 AM ET, Europe's European Stability Mechanism (ESM) will become active.

• Also at 6:00 AM, the "Troika" Report On Greece will be released.

• At 12:00 PM, the EU Finance Minsters meet in Luxembourg.

The Asian markets are mostly red tonight, with the Hang Seng down 0.3% and the Shanghai down 0.1%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 2, and the DOW futures are down 17.

Oil prices are down with WTI futures down to $89.88 and Brent down at $111.69 per barrel.

Yesterday:
• Summary for Week Ending Oct 5th
• Schedule for Week of Oct 7th

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

by Calculated Risk on 10/07/2012 06:32:00 PM

Earlier today I posted a few key dates this month in Europe. Here are a few more articles on Europe:

From the Financial Times: UK austerity squeeze set to run until 2018

George Osborne is set to be told this autumn by the Office for Budget Responsibility he will have to plug another large hole in the public finances, extending austerity until 2018 and throwing the coalition’s deficit reduction strategy into doubt.
Excerpt with permission.

From Bloomberg: Europe Seeks to Contain Spanish Troubles as Finance Chiefs Meet

European officials will move to prevent Spain from dragging the single currency into a new round of convulsions this week as a series of high-level meetings aim to ease the three-year-old European debt crisis.

European finance ministers meet in Luxembourg today to discuss Spain’s overhaul effort and closer banking cooperation, while on Oct. 10, Spanish Prime Minister Mariano Rajoy travels for talks with French President Francois Hollande in Paris. Germany’s Chancellor Angela Merkel tomorrow makes her first visit to Greece since the crisis began in 2009.

“It feels as if we are in for a month or so of Spanish trouble,” Erik Nielsen, London-based chief global economist at UniCredit SpA (UCG), wrote in a note yesterday.

With a 25.1% unemployment rate in Spain, maybe they should call it an "unemployment crisis".

And from Bloomberg: Greece’s Coalition Government, Troika Pause on Budget Talks

Greece and its European Union and International Monetary Fund creditors made progress on talks on a 13.5 billion-euro ($18 billion) package of austerity measures for the next two years and said negotiations would continue next week.

Finance Minister Yannis Stournaras told reporters in Athens after briefing Prime Minister Antonis Samaras on the latest round of negotiations that he hoped the inspectors would give euro-area finance ministers meeting on Oct. 8 a good report.

I doubt Merkel would be visiting Greece on Tuesday if the report was going to be "bad".

by Calculated Risk on 10/07/2012 02:19:00 PM

I've written extensively on the reasons for the decline in the participation rate. Unfortunately some people haven't been paying attention.

Two key points:
• Some of the recent decline in the participation rate has been to due to cyclical issues (severe recession), but MOST of the decline in the overall participation rate over the last decade has been due to the aging of the population. There are also some long term trends toward lower participation for younger workers pushing down the overall participation rate.

• This decline in the participation rate has been expected for years. Here are three projections (two from before the recession started). The key to these projections is that the decline in the participation rates was expected:
1) From BLS economist Mitra Toossi in November 2006: A new look at long-term labor force projections to 2050
2) From Austin State University Professor Robert Szafran in September 2002: Age-adjusted labor force participation rates, 1960–2045
3) BLS economist Mitra Toossi released some new projections for the participation rate as of January 2012: Labor force projections to 2020: a more slowly growing workforce.

Click on graph for larger image.

Here is a graph of the actual overall participation rate and a few projections through 2040. The participation rate might increase a little over the next year or two, but in the longer term, the overall participation rate will probably continue to decline until 2040.

Once again, this is not a surprise. Sven Jari Stehn at Goldman Sachs put out a research note early last year arguing:

[T]here is little evidence for the idea that an “unduly” low participation rate is masking an even weaker labor market than indicated by the ... unemployment rate. Instead, we find that most of the drop in participation in recent years reflects changes in the underlying demographics and the “normal” effects of the economic cycle (i.e., the fact that [the] unemployment rate in itself is very high).

Bottom line: If someone says the "actual" unemployment rate is much higher than reported because of the decline in the participation rate, they are unaware of a key demographic shift.

Friday on employment:
• September Employment Report: 114,000 Jobs, 7.8% Unemployment Rate
• Employment: Somewhat Better (also more graphs)
• All Employment Graphs

Yesterday:
• Summary for Week Ending Oct 5th
• Schedule for Week of Oct 7th

by Calculated Risk on 10/07/2012 09:18:00 AM

A few key dates in Europe:
• Monday, Oct 8th, at 6 AM ET, Europe's European Stability Mechanism (ESM) will become active.

• Monday, Oct 8th, at 6 AM ET, The "Troika" Report On Greece will be released.

• Monday, Oct 8th, at 12 PM, EU Finance Ministers meeting in Luxembourg.

• Tuesday, Oct 9th, at 6 AM: Eurozone Finance Minsters Meet

• Tuesday, Oct 9th: German Chancellor Angela Merkel will visit Athens and meet with Greek Prime Minister Antonis Samaras.  Press conference to follow.

• European Council meeting, October 18th and 19th in Brussels.

From the WSJ: Chancellor Merkel to Pay Visit to Athens

Ms. Merkel's trip is meant to show her support for Greek Prime Minister Antonis Samaras as his government struggles to agree on a new round of unpopular austerity measures, analysts say. The trip will signal the two leaders' attempt at easing strains between indebted Greece and its most powerful creditor, Germany.
...
Ms. Merkel will likely express sympathy with the Greek people's economic sacrifices, say analysts, while standing firm on Greece's need to implement promised spending cuts and economic overhauls.
...
A massive security presence is likely during the visit of Ms. Merkel, who plans to return to Berlin by Tuesday night. ... The expected protests could turn violent, as many demonstrations in Athens have in the past three years, which could sully the two governments' attempt to show a renewed fellowship.

Since Merkel is visiting Greece, it seems like the Troika report will be somewhat positive.

Friday on employment:
• September Employment Report: 114,000 Jobs, 7.8% Unemployment Rate
• Employment: Somewhat Better (also more graphs)
• All Employment Graphs

Yesterday:
• Summary for Week Ending Oct 5th
• Schedule for Week of Oct 7th

by Calculated Risk on 10/06/2012 06:15:00 PM

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

Here is the unofficial problem bank list for Oct 6, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Very quiet week for the Unofficial Problem Bank List with only removal. The list has 873 institutions with assets of $334.9 billion. A year ago, the list held 983 institutions with assets of $404.1 billion. This week, the Federal Reserve terminated the action against Farmers State Bank of West Concord, West Concord, MN ($46 million). Next week will likely be just as quiet.

Friday on employment:
• September Employment Report: 114,000 Jobs, 7.8% Unemployment Rate
• Employment: Somewhat Better (also more graphs)
• All Employment Graphs

Earlier:
• Summary for Week Ending Oct 5th
• Schedule for Week of Oct 7th

by Calculated Risk on 10/06/2012 01:01:00 PM

Earlier:
• Summary for Week Ending Oct 5th

Early in the week, the focus will be on Europe with a report due on Greece, the ESM becoming active, and a finance minister meeting.

The key US report for this week will be the August trade balance report on Thursday.

Note: I will be in San Francisco later this week attending the Zillow / USC housing forum.

----- Monday, Oct 8th----- Columbus Day Holiday: Banks will be closed in observance of Columbus Day. The stock market will be open.

6:00 AM ET: Europe's European Stability Mechanism (ESM) will become active.

6:00 AM: The "Troika" Report On Greece will be released.

12:00 PM: the EU Finance Minsters meet in Luxembourg.

----- Tuesday, Oct 9th ----- 6:00 AM: Eurozone Finance Minsters Meet

----- Wednesday, Oct 10th ----- 7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

10:00 AM: Job Openings and Labor Turnover Survey for August from the BLS.

This graph shows job openings (yellow line), hires (purple), 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.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for August. The consensus is for a 0.4% increase in inventories.

2:00 PM: Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts. This might show some slight improvement.  Some analysts will be looking for concerns about Europe or the "fiscal cliff".

----- Thursday, Oct 11th ----- 8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 370 thousand from 367 thousand.

8:30 AM: Trade Balance report for August from the Census Bureau.

This graph is through July. Both exports and imports decreased in July. 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 consensus is for the U.S. trade deficit to increase to $44.0 billion in August, up from from $42.0 billion in July. Export activity to Europe will be closely watched due to economic weakness.

8:30 AM: Import and Export Prices for September. The consensus is a for a 0.7% increase in import prices

10:00 AM: Speech by Fed Governor Jeremy Stein, "Evaluating Large-Scale Asset Purchases", At the Brookings Institution Discussion, Washington, D.C.

----- Friday, Oct 12th ----- 8:30 AM: Producer Price Index for September. The consensus is for a 0.8% increase in producer prices (0.2% increase in core).

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for October). The consensus is for sentiment to be unchanged at 78.3.

by Calculated Risk on 10/06/2012 08:01:00 AM

This was a very busy week for US economic data, capped off with an encouraging employment report. Yesterday I wrote Employment: Somewhat Better (also more graphs) and I pointed out a number of positives (and a few negatives) in the September report.

Most of the other economic data was somewhat positive too (even without housing!). Both ISM surveys (manufacturing and service) were weak, but above expectations. And auto sales were at the highest level since February 2008.

Also the impact of QE3 was evident in the MBA mortgage refinance index that increased to the highest level since 2009.

Here is a summary of last week in graphs:

• September Employment Report: 114,000 Jobs, 7.8% Unemployment Rate

Even though payroll growth was weak, this was a much stronger report than the last few months, especially considering the upward revisions to the July and August reports. And that doesn't include the annual benchmark revision (that will also show more jobs).

This was slightly above expectations of 113,000 payroll jobs added.

The second graph shows the employment population ratio, the participation rate, and the unemployment rate. The unemployment rate decreased to 7.8% (red line). This is from the household report, and that report showed strong job growth.

The Labor Force Participation Rate increased slightly to 63.6% in September (blue line. This is the percentage of the working age population in the labor force.

The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although most of the recent decline is due to demographics.

The Employment-Population ratio increased to 58.7% in September (black line). This is still very low.

The third graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

The fourth graph shows the job losses from the start of the employment recession, in percentage terms compared to other financial crisis (including the Great Depression).

This is an update to a graph by economist Josh Lehner (ht Josh for the data):

[I]n the context of the Big 5 financial crises, the current U.S. cycle suddenly does not look quite as dire. Notice how the x-axis, how long it takes to return to peak levels of employment, is measured in years(!) not months like the first graph.
...
[T]he U.S. labor market has performed better than 4 of the previous Big 5 crises, as identified by Reinhart and Rogoff, in terms of job loss and the return to peak time line.

Even though payroll growth was weak and close to expectations (expected was 113,000), overall this was a much stronger report than for recent months.

• ISM Manufacturing index increases in September to 51.5

Click on graph for larger image.

The ISM index indicated expansion after three consecutive months of contraction. PMI was at 51.5% in September, up from 49.6% in August. The employment index was at 54.7%, up from 51.6%, and the new orders index was at 52.3%, up from 47.1%.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 49.7% and suggests manufacturing expanded in September. The internals were positive too with new orders and employment increasing.

• ISM Non-Manufacturing Index increases in September

The September ISM Non-manufacturing index was at 55.1%, up from 53.7% in August. The employment index decreased in September to 51.1%, down from 53.8% in August. Note: Above 50 indicates expansion, below 50 contraction.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was above the consensus forecast of 53.5% and indicates faster expansion in September than in August. The internals were mixed with the employment index down, but new orders up.

• U.S. Light Vehicle Sales at 14.94 million annual rate in September, Highest since Feb 2008

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.94 million SAAR in September. That is up 14% from September 2011, and up 3% from the sales rate last month.

This was above the consensus forecast of 14.5 million SAAR (seasonally adjusted annual rate).

It looks like auto sales were up about 2.7% in Q3 compared to Q2 (over 10% annualized increase), and auto sales will probably make another small positive contribution to GDP. However it appears there is a shift to smaller cars, so total revenue might not increase much.

• Office Vacancy Rate declines slightly in Q3 to 17.1%

From Reuters: U.S. office market barely gains in third quarter

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis is reporting the vacancy rate declined in Q3 to 17.1%, down slightly from 17.2% in Q2, and down from 17.4% in Q3 2011. The vacancy rate peaked in this cycle at 17.6% in Q3 and Q4 2010.

This is a sluggish recovery for office space.

• Reis: Apartment Vacancy Rate declined slightly to 4.6% in Q3, More Supply coming in 2013

Reis reported that the apartment vacancy rate (82 markets) fell slightly to 4.6% in Q3, down from 4.7% in Q1 2012. The vacancy rate was at 5.6% in Q3 2011 and peaked at 8.0% at the end of 2009.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999).

Reis is just for large cities. It appears that the declines in vacancy rates is slowing, and rent increases might slow too. Also, as Reis economist Calanog notes, there will be a significant increase in new supply in 2013 (and in 2014).

• Reis: Regional Mall Vacancy Rate declines in Q3, Strip Mall vacancy rate unchanged

Reis reported that the vacancy rate for regional malls declined to 8.7% in Q3 from 8.9% in Q2. This is down from a cycle peak of 9.4% in Q3 of last year.

For Neighborhood and Community malls (strip malls), the vacancy rate was unchanged at 10.8% in Q3. For strip malls, the vacancy rate peaked at 11.0% in Q2 of last year.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The yellow line shows mall investment as a percent of GDP. This has been increasing a little recently because this includes renovations and improvements. New mall investment has essentially stopped.

• Weekly Initial Unemployment Claims increase to 367,000

The DOL reports:

In the week ending September 29, the advance figure for seasonally adjusted initial claims was 367,000, an increase of 4,000 from the previous week's revised figure of 363,000. The 4-week moving average was 375,000, unchanged from the previous week's revised average.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims was unchanged at 375,000.

This was lower than the consensus forecast of 370,000. Mostly moving sideways this year ...

All current Employment Graphs
• Construction Spending decreased in August

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 60% below the peak in early 2006, and up 23% from the post-bubble low. Non-residential spending is 30% below the peak in January 2008, and up about 27% from the recent low.

Public construction spending is now 16% below the peak in March 2009 and near the post-bubble low.

Note: Spending in August would have been up compared to July without the upward revision to July spending. With both June and July revised up, this report was decent. Residential construction spending was up in August, and the solid year-over-year increase in private residential investment is a positive for the economy (the increase in 2010 was related to the tax credit).
All Housing Investment and Construction Graphs
• Other Economic Stories ...
• LPS: Mortgage prepayment rates highest since 2005
• MBA: Mortgage Refinance Applications increases sharply, Highest Since 2009
• U.S. Births Decline for the fourth consecutive year in 2011
• Trulia: Asking House Prices increased in September
• FOMC Minutes: "Most participants agreed numerical thresholds could be useful"
• ADP: Private Employment increased 162,000 in September

by Calculated Risk on 10/05/2012 05:56:00 PM

Earlier on employment:
• September Employment Report: 114,000 Jobs, 7.8% Unemployment Rate
• Employment: Somewhat Better (also more graphs)
• All Employment Graphs

Last night I mentioned the soaring gasoline prices in California, here is an update from the LA Times: California facing new record high for gasoline prices

The average price for a gallon of regular gasoline in California jumped a whopping 17.1 cents overnight. That makes it almost certain that the state's motorists will see a new all-time record high for gas sometime this weekend.

Friday's average price for a gallon of unleaded regular in California is $4.486 a gallon, which is by far the highest in the nation.
...
Analysts have blamed the sudden increase on a recent spate of refinery problems.

The following graph shows the recent decrease in gasoline prices. Gasoline prices have been on a roller coaster all year.

Add Los Angeles or San Francisco, and you'll see the graph go straight up!

Orange County Historical Gas Price Charts Provided by GasBuddy.com