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

Fed's Beige Book:

Reports from the twelve Federal Reserve Districts indicated that economic activity generally expanded modestly since the last report.

Consumer spending was generally reported to be flat to up slightly since the last report. A number of Districts characterized retail sales as expanding at a modest pace ...

And on real estate:

Residential real estate showed widespread improvement since the last report. All twelve Districts reported that existing home sales strengthened, in some cases substantially. Selling prices were steady or rising. Boston, Atlanta, Minneapolis, Dallas and San Francisco noted declining or tight inventories, which have put upward pressure on prices. Modest price increases were reported in the New York, Richmond, Chicago, and Kansas City Districts. New York and Richmond reported relatively strong demand at the high and low ends of the market, whereas Philadelphia and Kansas City noted relative strength for mid-range homes; Boston indicated a shift in the mix toward lower or medium priced homes. New home construction and sales were more mixed but still mostly improved: increased construction and/or new home sales were reported in the Atlanta, Chicago, St. Louis, Kansas City, Dallas and San Francisco Districts. Multi-family construction, in particular, was described as robust in the Boston, New York, Atlanta, Chicago, and Dallas Districts. Residential rental markets continued to be characterized as strong, even in the New York and Atlanta Districts where rents increased somewhat less strongly than in recent months.

Commercial real estate markets were mixed since the last report. Office markets showed signs of softening in the northeastern Districts--Boston, New York and Philadelphia--with New York remarking on substantial new supply coming on the market in early 2013. In contrast, Atlanta, Minneapolis and San Francisco noted some improvement, while most other Districts reported stable or mixed market conditions. Industrial markets showed some strength in the New York, Philadelphia, Cleveland and Atlanta Districts, while conditions were described as sluggish in Richmond and mixed in St. Louis. Atlanta noted weakness in the market for retail space. Commercial construction activity was also mixed: Atlanta, Minneapolis and Kansas City reported some improvement in non-residential construction activity, while Richmond and Dallas noted that activity was sluggish.

"Prepared at the Federal Reserve Bank of New York and based on information collected on or before September 28, 2012."

More sluggish "modest" growth. And more positive comments on residential real estate ...

by Calculated Risk on 10/10/2012 12:26:00 PM

On a Monday I wrote Understanding the Decline in the Participation Rate. Here are a few definitions - and a couple of graphs - that might help understand the issues.

Definitions from the BLS:
Civilian noninstitutional population: "consists of persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities and homes for the aged) and who are not on active duty in the Armed Forces". If you look at the first graph below, the total of the Blue, Red, and light brown areas is the Civilian noninstitutional population.

"The civilian labor force consists of all persons classified as employed or unemployed". This is Blue and Red combined on the first graph.

"The labor force participation rate represents the proportion of the civilian noninstitutional population that is in the labor force." So this is Blue and Red, divided by all areas combined.

"The employment-population ratio represents the proportion of the civilian noninstitutional population that is employed." This is Blue divided by the total area.

"The unemployment rate is the number of unemployed as a percent of the civilian labor force." This is Red divided by Red and Blue combined. This is the REAL unemployment rate (some claim U-6 is the "real rate", but that is nonsense - although U-6 is an alternative measure of underemployment, it includes many people working part time).

Click on graph for larger image.

There are some bumps in the total area - usually when there is a decennial census. These are due to changes in population controls.

Note that the Blue area collapsed in 2008 and early 2009, and started increasing in 2010. This shows the increase in employment over the last few years. Over the last few years, the red area (unemployment) has been decreasing.

However the combined area, the civilian labor force, has not increased much - even though the civilian noninstitutional population has been increasing. Some people argue that this evidence of a large number of people who left the labor force because of the weak labor market - and that the actual unemployment rate should be much higher than 7.8%.

However, as I noted on Monday, some decrease in the labor force participation rate was expected, and it appears most of the decline in the participation rate can be explained by demographic shifts.

The second graph shows the number of people in the US by age group from both the 2000 and 2010 decennial Census.

This graph shows two key shifts.  First, baby boomers now moving into lower participation rate age groups (look at increase in the 55-to-59 and 60-to-64 groups from 2000 to 2010).

A second key demographic is the significant increase in people in the 15-to-19 and 20-to-24 age groups. These groups have lower participation rates usually because of school enrollment - and enrollment has been increasing.

Taken together, it is clear why the labor force hasn't increase as quickly as the civilian noninstitutional population, and therefore, why a decline in the labor force participation rate was expected.

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

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings in August was 3.6 million, essentially unchanged from July.
...
The level of total nonfarm job openings in August was up from 2.4 million at the end of the recession in June 2009. ... The number of job openings in August (not seasonally adjusted) increased over the year for total nonfarm and total private, and was little changed for government.
...
In August, the quits rate was unchanged for total nonfarm, total private, and government. The number of quits was 2.1 million in August, up from 1.8 million at the end of the recession in June 2009. ... Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs.

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.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for August, the most recent employment report was for September.

Click on graph for larger image.

Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings decreased in August to 3.561 million, down slightly from 3.593 million in July. The number of job openings (yellow) has generally been trending up, and openings are up about 13% year-over-year compared to August 2011.

Quits decreased slightly in August, and quits are up about 5% 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").

This suggests a gradually improving labor market.

All current employment graphs

by Calculated Risk on 10/10/2012 07:02:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 2 percent from one week earlier.

“Refinance applications declined somewhat last week although volume is still near three-year highs, and purchase applications increased to the highest level since June, with both conventional and government volumes increasing,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Rates on 30-year fixed-rate loans remain historically low, benefitting both prospective homebuyers and those seeking to refinance.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.56 percent from 3.53 percent, with points increasing to 0.39 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The 30 year contract rate increased for the first time after declining for six consecutive weeks.

Click on graph for larger image.

This graph shows the MBA mortgage purchase index. The purchase index is up about 7% over the last three weeks and is at the highest level since June.

However the purchase index has been mostly moving sideways over the last two years.

by Calculated Risk on 10/09/2012 09:11:00 PM

On Wednesday:
• At 7:00 AM, The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. Expect refinance activity to remain strong with low mortgage rates.

• At 10:00 AM, the Job Openings and Labor Turnover Survey (JOLTS) for August will be released by the BLS. The number of job openings has generally been trending up.

• Also at 10:00 AM, the Monthly Wholesale Trade: Sales and Inventories report for August will be released. The consensus is for a 0.4% increase in inventories.

• At 2:00 PM, the Federal Reserve will release the "Beige Book". This is 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".

by Calculated Risk on 10/09/2012 04:32:00 PM

Economist Tom Lawler sent me the table below with a one word discussion: "Wow".

CR Note: We've been tracking several distressed areas across the country, and a couple of clear patterns have developed:

1) There has been a shift from foreclosures to short sales. Foreclosures are down and short sales are up just about everywhere. For two of the cities below, short sales are three times foreclosures - and more than double in Phoenix. That is a huge change. A year ago, there were many more foreclosures than short sales.

2) The overall percent of distressed sales (combined foreclosures and short sales) are down year-over-year.

The three cities in the table below - Reno, Vegas, and Phoenix - were some of the hardest hit areas in the country. The decline in in distressed sales in Phoenix (from 64.1% in Sept 2011 to 39.9% in Sept 2012) is stunning. But we have to remember that 40% distressed is still extremely high.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Sep	11-Sep	12-Sep	11-Sep	12-Sep	11-Sep
Las Vegas	44.8%	23.5%	13.6%	49.4%	58.4%	72.9%
Reno	41.0%	29.0%	12.0%	38.0%	53.0%	67.0%
Phoenix	27.0%	27.0%	12.9%	37.1%	39.9%	64.1%

by Calculated Risk on 10/09/2012 12:49:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

From the GLVAR: GLVAR reports local home prices, short sales continuing to climb

According to GLVAR, the total number of local homes, condominiums and townhomes sold in September was 3,298. That’s down from 3,688 in August and down from 4,108 total sales in September 2011.
...
GLVAR reported a total of 3,805 condos and townhomes listed for sale on its MLS at the end of September, down 0.7 percent from 3,830 condos and townhomes listed for sale on its MLS at the end of August and down 7.8 percent from one year ago.

The number of available homes listed for sale without any sort of pending or contingent offer also fell from the previous month and year. By the end of September, GLVAR reported 3,943 single-family homes listed without any sort of offer. That’s down 1.0 percent from 3,981 such homes listed in August and down 63.1 percent from one year ago.
...
Meanwhile, 44.8 percent of all existing local homes sold during September were short sales. That’s up from 43.7 percent in August, up from 23.5 percent one year ago, and the highest short sale percentage GLVAR has ever recorded.

Continuing a trend of declining foreclosure sales in recent months, bank-owned homes accounted for 13.6 percent of all existing home sales in September, down from 16.9 percent in August.

A few key points:
• Inventory declined slightly in September, and total inventory is down 7.8% from September 2011. However, for single family homes without contingent offers, inventory is still down sharply from a year ago (down 63.1% year-over-year).

• Short sales are more than triple foreclosures now. The GLVAR reported 44.8% of sales were short sales, and only 13.6% foreclosures. We've seen a shift from foreclosures to short sales in most areas (not just in areas with new foreclosure laws).

• The percent distressed sales was extremely high at 58.4% in September (short sales and foreclosures), but down from 60.6% in August.

• There is a push to complete short sales, from the article:

[H]omeowners have been rushing to short-sell their homes by the end of 2012, when the Mortgage Forgiveness Debt Relief Act is set to expire unless Congress acts to extend it. If Congress does not extend this law by Dec. 31, she said any amount of money a bank writes off in agreeing to sell a home as part of a short sale will become taxable when sellers file their income taxes.

by Calculated Risk on 10/09/2012 10:49:00 AM

From Fannie Mae: Consumer Attitudes on Housing Continue Summer Season's Gradual Upward Trend

Results from Fannie Mae’s September 2012 National Housing Survey show Americans’ optimism about the recovery of the housing market and with regard to homeownership continued its gradual climb, bolstered by a fseries of mortgage rate decreases experienced throughout the summer. Consumer attitudes about the economy also improved substantially last month, breaking the progression of waning confidence seen during much of this year.

“Consumers are showing increasing faith in the nascent housing recovery,” said Doug Duncan, senior vice president and chief economist of Fannie Mae. “Home price change expectations have remained positive for 11 straight months, and the share expecting home price declines has stabilized at a survey low of only 11 percent. Furthermore, the Federal Reserve’s latest round of quantitative easing has caused a large drop in mortgage rate expectations. Friday's September jobs report, including the strong upward revisions for prior months, a sizable increase in earnings, and a sharp decline in the unemployment rate, should provide further impetus for improving consumer confidence in the housing market.”

Keeping a relatively steady pace with recent periods, survey respondents expect home prices to increase an average of 1.5 percent in the next year. The share who say mortgage rates will increase in the next 12 months dropped 7 percentage points to 33 percent. Nineteen percent of those surveyed say now is a good time to sell, marking the highest level since the survey began in June 2010. Tying the June 2012 level (and the all-time high since the survey’s inception), 69 percent of respondents said they would buy if they were going to move.

With regard to the economy overall, 41 percent of consumers now believe the economy is on the right track, up from 33 percent last month, while 53 percent believe the economy is on the wrong track, compared with 60 percent the prior month. Both the right track and wrong track figures mark the highest and the lowest readings, respectively, since the survey began in June 2010.

I usually don't these survey results, but it does appear consumers are gaining confidence in the housing market.

by Calculated Risk on 10/09/2012 08:39:00 AM

From CoreLogic: CoreLogic® Reports Shadow Inventory Continues to Decline in July 2012

CoreLogic ... reported today that the current residential shadow inventory as of July 2012 fell to 2.3 million units, representing a supply of six months. This was a 10.2 percent drop from July 2011, when shadow inventory stood at 2.6 million units, which is approximately the same level the country was experiencing in March 2009. Currently, the flow of new seriously delinquent (90 days or more) loans into the shadow inventory has been roughly offset by the equal volume of distressed (short and real estate owned) sales.
...
“The decline in shadow inventory has recently moderated reflecting the lower outflow of distressed sales over the past year,” said Mark Fleming, chief economist for CoreLogic. “While a lower outflow of distressed sales helps alleviate downward home price pressure, long foreclosure timelines in some parts of the country causes these pools of shadow inventory to remain in limbo for an extended period of time.”
...
CoreLogic estimates the current stock of properties in the shadow inventory, also known as pending supply, by calculating the number of properties that are seriously delinquent, in foreclosure and held as real estate owned (REO) by mortgage servicers but not currently listed on multiple listing services (MLSs). Roll rates are the transition rates of loans from one state of performance to the next. Beginning with this report, cure rates are factored in as well to capture the rise in foreclosure timelines and further enhance the accuracy of the shadow inventory analysis. Transition rates of “delinquency to foreclosure” and “foreclosure to REO” are used to identify the currently distressed non-listed properties most likely to become REO properties. Properties that are not yet delinquent but may become delinquent in the future are not included in the estimate of the current shadow inventory. Shadow inventory is typically not included in the official metrics of unsold inventory.
...
Of the 2.3 million properties currently in the shadow inventory, 1 million units are seriously delinquent (2.9 months’ supply), 900,000 are in some stage of foreclosure (2.5-months’ supply) and 345,000 are already in REO (1.0-months’ supply).

Click on graph for larger image.

This graph from CoreLogic shows the breakdown of "shadow inventory" by category.

Note: The "shadow inventory" could be higher or lower using other numbers and methods; the key is that their estimate of the shadow inventory is declining.

by Calculated Risk on 10/08/2012 09:26:00 PM

Tuesday: Nixon goes to China (uh, Merkel goes to Greece). There are no US economic data releases scheduled on Tuesday.

Last year I wrote Labor Force Participation Rate: The Kids are Alright. I linked to some data on the impact of the phase out of lead in gasoline and paint, and how this could be leading to more enrollment in school. Of course higher school enrollment is the mirror image of a falling participation rate for young people (see graph below).

From Brad Plumer at the WaPo: Study: Getting rid of lead does wonders for school performance

Over the past 50 years, after scientists realized that even minute doses of lead can have harmful effects, policymakers have been steadily pushing to eradicate the stuff from the environment. In the United States, no one uses lead-based paint or fills up their cars with leaded gasoline anymore—those were phased out back in the 1970s and 1980s. Lead levels in the air have dropped 92 percent since then.

By most accounts, this was a savvy investment. There’s ample evidence that lead exposure is extremely damaging for young children. Kids with higher lead levels in their blood tend to act more aggressively and perform more poorly in school. Economists have pegged the value of the leaded gasoline phase-out in the billions or even trillions of dollars. Some criminologists have even argued that the crackdown on lead was a major reason why U.S. crime rates plunged so sharply during the 1990s.

Click on graph for larger image.

This graph uses data from the BLS on participation rate (through September), and the National Center for Education Statistics (NCES through 2010) on enrollment rates.

This graph shows the participation and enrollment rates for the 18 to 19 year old age group. These two lines are a "mirror image".

If reducing lead exposure is the reason for the higher enrollment rate - and lower participation rate - that would be a great success! In the long run, more education is a positive for the economy (although I am concerned about the surge in student loans).