by Calculated Risk on 10/08/2012 04:49:00 PM

From economist Tom Lawler:

The Arizona Regional MLS reported that residential home sales by realtors in the Greater Phoenix, Arizona area totaled 6,478 in September, down 17.9% from last September’s pace. REO properties were just 12.9% (835) of last month’s sales, down from 37.1% (2,931) last September, while last month’s short-sales share was 27.0%, unchanged from a year ago. Active listings in September totaled 22,862, up 9.2% from August but down 15.2% from a year ago. The median home sales price last month was $150,000, up 30.5% from last September. Citing data from the Cromford Report, the ARMLS also reported that foreclosures pending in Maricopa County totaled 14,584 in September, down 38.1% from a year ago.

Click on graph for larger image.

Here is a chart showing active listings in the Greater Phoenix area (from ARMLS) from January 2002 through September 2012 (note: the ARMLS reports available to the public only show active listings “rightly defined” back to April 2005. The data from January 2002 through March 2005 in the chart below were derived from a chart from a realtor with direct access to ARMLS data).

One thing worth watching is the recent uptick in listings over the past few months – listings increased by 2.7% in both July and August, and jumped up by 9.2% last month. Over the past few years investor buying of residential properties on a low to no leverage basis with the intent to rent the properties out has been quite substantial.

In the middle of last decade, in contrast, Phoenix saw a surge in highly-leveraged real estate investment purchases by folks looking to make a “quick” flip – see 2nd graph.

However, over the past year home prices in Phoenix have rebounded sharply. The very recent jump up in listings may reflect some investors’ desire to “cash out” of their real estate investments, especially given the recent (though late in the cycle) increase in the number of “big-money” investors looking for SF rental properties.

CR Note: the increase in inventory hasn't been huge, and it could be sellers "waiting for a better market". More listings seems like a normal response to a sharp increase in prices.

by Calculated Risk on 10/08/2012 01:52:00 PM

I've been writing about the expected decline in the labor force participation rate for years. On Sunday, I posted another update: Employment: A decline in the participation rate was expected due to the aging population

I made a couple of key points on Sunday:
1) A decline in the participation rate was expected.
2) Although some of the recent decline in the participation rate has been to due to cyclical issues (severe recession), MOST of the decline in the overall participation rate has been due to changing demographics.

This morning Mish disagreed with me. His conclusion was: "While the Participation Rate trend is certainly down, and down was expected, most of the decline in participation rate since the start of the recession is due to economic weakness, not demographics."

I consider this progress! It wasn't long ago that I was still arguing with people that we should expect a decline in the participation rate. Now the question has shifted to what portion of the decline is cyclical (due to the recession) and what portion is due to demographics.

Mish looked at a paper I linked to on Sunday, written in 2002 by Austin State University Professor Robert Szafran, and Mish used Szafran's projection for the participation rate in 2015. However, as Szafran noted in his paper, for simplification purposes he assumed that the "age-specific participation rates do not change" after 2000.  However if we look at the 16-to-19 age group, the participation rate declined from 51% in 2000 to 42% in 2007 - before the recession started. Although Szafran's paper is very useful, the actual numbers (because of the simplifying assumptions) are clearly too high.

First, what are we talking about? The headline participation rate is the percentage of people 16 years old and over who are in the labor force. Here is a graph of the headline participation rate:

Click on graph for larger image.

The decline in the overall participation rate, especially since 2008, has been a cause of concern. But the headline number can be impacted by demographic changes (that is why Professor Szafran was estimating an "age adjusted" participation rate - his paper was titled: Age-adjusted labor force participation rates, 1960–2045).

Changing demographics makes projecting the overall participation rate very difficult. We do know that a fairly low percentage of people in the 16-to-19 age group participate in the labor force, this percentage increases for the 20-to-24 age group, and then remains high until people reach 55 or so. To project the overall rate, we need to know the trends for each age group, and we need to estimate how many people will be in each age group each year (this depends on mortality rates and immigration - and those change over time too).

Here is a graph based on BLS economist Mitra Toossi's projections (another paper I linked to on Sunday).

Note that Toossi is expecting a couple of recent trends to continue: lower participation rates for people in the 16 to 24 year age group (I think this decline is mostly due to more people attending college), and an increase in the participation for older age groups (I think this increase is due to several factors including less physically strenuous jobs, and, unfortunately, financial need).

An increase in the participation rate for an age group (like the 60 to 64 group) is just one part of the equation. We also have to recognize that a large cohort is moving from the 55 to 59 age category into the 60 to 64 age group, and the participation rate for that cohort is falling.

This graphic is from the Census Bureau and shows the number of people by age and sex in the US based on the 2000 and 2010 Census. See: Age and Sex Composition: 2010

The baby boom generation is obvious. This graph is from two years ago, and shows that a large number of people are moving into the 55-to-65 age group now. Even though the participation rate is rising for the age group, it is lower than for the 45-to-55 age groups - so that pushes down the overall participation rate.

There are changes for other groups too. A fairly large group just moved into the 20-to-24 age group, and they will be moving into higher participation age groups soon (it isn't all bad news).

Here is the trend for men in the 16-to-19 age group. As I noted before, for his purposes, Szafran assumed this would stay at the 2000 rate. Instead the rate declined sharply from 2000 through 2007 - before the recession started.

How can we tell if the decline since 2008 was just a continuation of the trend, or if it was because of the severe recession? It is very difficult.

One idea is to look at a very narrow group (men in the 35-to-44 age group) and look for the impact of the recession.

These people aren't going back to school in large numbers, and they are not retiring early in large numbers.

What do we see? A long term down trend from about 97% participation in 1968 to about 91% participation now. If we look at a short term trend - from 1995 through 2007 - it appears there is about a 1% decline in the participation rate due to the recession (from 92% to 91%). But if we look at a long term trend, it appears the participation rate is about what we'd expect.

Other groups were probably impacted more by the recession than 35-to-44 year old males (younger groups tend to be impacted more), but I don't think there is evidence of a huge cyclical decline in the overall participation rate. I've looked at many age groups, and although I think some of the decline in the overall participation rate is due to the recession, it appears most of the recent decline in the participation rate is due to changing demographics.

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.