by Calculated Risk on 10/20/2012 08:01:00 AM

The US economic data clearly improved last week. This was the third week in a row with mostly better than expected data, and suggests some recent pickup in economic activity.

The week started off with a strong retail sales report for September. Although some of the increase in sales was related to higher gasoline prices, sales excluding gasoline picked up too.

And once again the housing reports showed significant improvement. Housing starts were up sharply (as were permits), and residential investment is now a fairly strong tailwind for the economy (I expect this to continue in 2013 and beyond). On Friday, existing home sales disappointed a few people, but the underlying details were solid. For some analysis, see: Existing Home Sales: A few comments and NSA Sales Graph

There was even a little improvement in the regional manufacturing reports (these have been showing contraction for months). The Empire State report still showed contraction in October, but at a slower pace than in September, and the Philly Fed report showed expansion for the first time since April.

One negative report was for initial weekly unemployment claims. Claims were down significantly in the prior week, and increased sharply last week. The large swings over the last two weeks were related to timing and technical factors, and are a reminder to use the 4-week average. On a 4-week average basis, unemployment claims are still elevated, but near the cycle low.

Here is a summary of last week in graphs:

• Housing Starts increased sharply to 872 thousand SAAR in September

Click on graph for larger image.

The first graph shows single family and total housing starts.

Total housing starts were at 872 thousand (SAAR) in September, up 15.0% from the revised August rate of 758 thousand (SAAR). Note that August was revised up from 750 thousand.

Single-family starts increased 11.0 to 603 thousand in September.

This was way above expectations of 765 thousand starts in September. This was partially because of the volatile multi-family sector, but single family starts were up sharply too - and above 600 thousand SAAR for the first time since 2008. Right now starts are on pace to be up about 25% from 2011.

All Housing Investment and Construction Graphs
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months of supply

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in September 2012 (4.75 million SAAR) were 1.7% lower than last month, and were 11.0% above the September 2011 rate.

According to the NAR, inventory declined to 2.32 million in September down from 2.40 million in August. Inventory is not seasonally adjusted, and usually inventory increases from the seasonal lows in December and January to the seasonal high in mid-summer.

This graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 20.0% year-over-year in September from September 2011. This is the 19th consecutive month with a YoY decrease in inventory. Months of supply declined to 5.9 months in September.

This was at expectations of sales of 4.75 million. For existing home sales, the key number is inventory - and the sharp year-over-year decline in inventory is a positive for housing.
All current Existing Home Sales graphs
• Retail Sales increased 1.1% in September

On a monthly basis, retail sales were up 1.1% from August to September (seasonally adjusted), and sales were up 5.4% from September 2011.

Sales for August were revised up to a 1.2% increase (from 0.9% 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 24.6% from the bottom, and now 9.0% above the pre-recession peak (not inflation adjusted)

Excluding gasoline, retail sales are up 20.9% from the bottom, and now 8.6% above the pre-recession peak (not inflation adjusted).

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

Retail sales ex-gasoline increased by 5.3% on a YoY basis (5.4% for all retail sales). Retail sales ex-autos increased 1.1% in September.

This was above the consensus forecast for retail sales of a 0.7% increase in September, and above the consensus for a 0.5% increase ex-auto.

• Industrial Production increased 0.4% in September, Capacity Utilization increased

From the Fed: "Capacity utilization for total industry moved up 0.3 percentage point to 78.3 percent, a rate 2.0 percentage points below its long-run (1972--2011) average."

This graph shows Capacity Utilization. This series is up 11.5 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 78.3% is still 2.0 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.

The second graph shows industrial production since 1967.

Industrial production increased 0.4 percent in September to 97.0. This is 16% above the recession low, but still 3.7% below the pre-recession peak.

The consensus was for Industrial Production to increase 0.2% in September, and for Capacity Utilization to increase to 78.3%. IP was slightly above expectations (some bounce back from shut downs related to Hurricane Isaac) and Capacity Utilization was at expectations. Overall Industrial Production has moved sideways this year.
All current manufacturing graphs
• Key Measures show low inflation in September

This graph shows the year-over-year change for  four key measures of inflation. On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 1.9%, and core CPI rose 2.0%. Core PCE is for August and increased 1.6% year-over-year.

On a monthly basis, two of these measure were above the Fed's target; trimmed-mean CPI was at 2.6% annualized, median CPI was at 2.6% annualized. However core CPI increased 1.8% annualized, and core PCE for August increased 1.3% annualized. These measures suggest inflation is close to the Fed's target of 2% on a year-over-year basis.

The Fed's focus will probably be on core PCE and core CPI, and both are at or below the Fed's target (year-over-year and on a monthly basis).

• Weekly Initial Unemployment Claims increase sharply to 388,000

The DOL reports:

In the week ending October 13, the advance figure for seasonally adjusted initial claims was 388,000, an increase of 46,000 from the previous week's revised figure of 342,000. The 4-week moving average was 365,500, an increase of 750 from the previous week's revised average of 364,750.

The previous week was revised up from 339,000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 365,500. The 4-week average has mostly moved moving sideways this year, but is now near the cycle bottom.

The large swings over the last two weeks were related to timing and technical factors, and is a reason to use the 4-week average.

Weekly claims were higher than the consensus forecast of 365,000.
All current Employment Graphs
• Regional Fed Surveys were mixed

The Philly Fed manufacturing index showed expansion in October after five consecutive months of contraction. From the Philly Fed: October Manufacturing Survey: "Firms responding to the October Business Outlook Survey reported a modest improvement in business activity this month. ... The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased 8 points, to 5.7, marking the first positive reading since April."

Earlier in the week, the NY Fed reported: "The October Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to decline for a third consecutive month. The general business conditions index increased four points but remained negative at -6.2."

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through October. The ISM and total Fed surveys are through September.

The average of the Empire State and Philly Fed surveys increased in October but was still slightly negative.  This suggests another weak reading for the ISM manufacturing index - but maybe slightly better than last month.

by Calculated Risk on 10/19/2012 07:36:00 PM

Bumbling bankers:
Our spreadsheets aren’t adding up
Big Excel problem.
by Soylent Green is People
From the FDIC: Simmons First National Bank, Pine Bluff, Arkansas, Assumes All of the Deposits of Excel Bank, Sedalia, Missouri

As of June 30, 2012, Excel Bank had approximately $200.6 million in total assets and $187.4 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $40.9 million. ... Excel Bank is the 46th FDIC-insured institution to fail in the nation this year, and the third in Missouri.

FDIC hat trick today!

Earlier on Existing Home Sales:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales: A few comments and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 06:40:00 PM

You’re movin’ on up
Said the Feds to East Side Bank
To a deluxe Stearns.
by Soylent Green is People
From the FDIC: Stearns Bank National Association, St. Cloud, Minnesota, Assumes All of the Deposits of First East Side Savings Bank, Tamarac, Florida

As of June 30, 2012, First East Side Savings Bank had approximately $67.2 million in total assets and $65.9 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $9.1 million. ... First East Side Savings Bank is the 45th FDIC-insured institution to fail in the nation this year, and the seventh in Florida.

Two down today.

by Calculated Risk on 10/19/2012 05:07:00 PM

Private, quietly
Hours before SmartBank arrived
Smarter cash made off.
by Soylent Green is People
From the FDIC: SmartBank, Pigeon Forge, Tennessee, Assumes All of the Deposits of GulfSouth Private Bank, Destin, Florida

As of June 30, 2012, GulfSouth Private Bank had approximately $159.1 million in total assets and $151.1 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $36.1 million. ... GulfSouth Private Bank is the 44th FDIC-insured institution to fail in the nation this year, and the sixth in Florida.

The FDIC gets back to work.

Earlier on Existing Home Sales:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales: A few comments and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 04:01:00 PM

Economist Tom Lawler sent me his comments on the NAR report:

The National Association of Realtors estimated that US existing home sales ran at a seasonally adjusted annual rate of 4.75 million in September, down 1.7% from August’s slightly upwardly revised (to 4.83 million from 4.82 million) pace. The upward revision to August’s seasonally-adjusted pace was puzzling/mildly amusing, as unadjusted sales were revised downward to 476,000 from 477,000! The NAR’s September seasonally-adjusted sales estimate was close to consensus and just a tad higher than my estimate based on regional tracking, though all of my “miss” was in the seasonal factor for September – my unadjusted sales estimate was “right on.” While seasonally adjusted sales in September were up 11.0% from last September’s pace, unadjusted sales showed a YOY gain of just 2.2% (mainly but not totally reflecting the lower business day count).

The NAR’s estimate of the inventory of existing homes for sale at the end of September was 2.32 million, down 3.3% from August’s downwardly revised (by a hefty 2.8% to 2.40 million from 2.47 million) level and down 20.0% from last September.

According to the NAR, the median existing US home sales price last month was $183,900, up 11.3% from last September, and the median existing SF home sales price was $184,300, up 11.4% from a year ago. August’s median home sales price was revised down by 1.3%, and August’s median SF home sales price was revised down by 1.7% -- resulting in a revised YOY increase of 8.4%, vs. last month’s estimate of 10.2%. The NAR’s median sales price numbers continued to come in higher than what state and local realtor reports would suggest, for unknown reasons.

In its press release the NAR misleading said that “(d)istressed homes3 - foreclosures and short sales sold at deep discounts - accounted for 24 percent of September sales (13 percent were foreclosures and 11 percent were short sales), up from 22 percent in August; they were 30 percent in September 2011.” A footnote in the press release notes that the distressed sales shares are from a monthly survey of realtors (for the Realtor Confidence Index), generally taken from the last week of a given report month through the first week of the subsequent month. The sample size is small and varies over time; is voluntary; and the results often do not represent trends in the market as a whole. Based on available data from various regional reports, the short-sale share of home sales was higher this September than last September, while the foreclosure-sale share was down sharply.

If, in fact, the “distressed” sales share of total home sales had been 24% last month and 30% last September, and if the NAR unadjusted sales estimates AND seasonal factors were correct, then “non-distressed” home sales last month were up about 10.9% from a year ago on an unadjusted basis, and up about 20.5% from a year ago on a seasonally adjusted basis.

Of course, in many markets, especially some hard-hit ones, the distressed share of total sales last month fell by a lot more than that implied by the NAR’s survey. Here’s an updated table for selected markets.

	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%
Minneapolis	10.1%	13.1%	25.2%	32.9%	35.3%	46.0%
Mid-Atlantic (MRIS)	12.4%	12.6%	9.4%	14.4%	21.8%	27.0%
California*	27.0%	23.8%	17.7%	33.8%	44.7%	57.6%
Orlando	28.0%	25.6%	24.0%	35.9%	52.0%	61.5%
Sacramento	35.4%	26.1%	15.4%	37.9%	50.8%	64.0%
King Co. WA**	16.0%	10.0%	10.0%	22.0%	25.0%	32.0%
Lee County, FL***	21.4%		15.9%		37.3%	54.0%
Charlotte					15.3%	20.9%
Chicago					40.6%	40.0%
Hampton Roads VA					25.4%	31.6%
Northeast Florida					44.7%	49.0%
Memphis*			26.3%	30.8%
Houston			16.1%	19.4%
Birmingham AL			26.6%	31.8%
*share of existing home sales, based on property records
** Third Quarter: total may not add up due to rounding
*** SF Only

The “big” story in the above table, of course, was the huge decline in foreclosure sales this September vs. last September. Foreclosure sales, of course, tend to be “uber-distressed”/”highly motivated.” Short sales, in contrast, are more “mixed” in terms of urgency and distress.

Earlier on Existing Home Sales:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales: A few comments and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 02:38:00 PM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were generally lower in September. Forty-one states and the District of Columbia recorded unemployment rate decreases, six states posted rate increases, and three states had no change, the U.S. Bureau of Labor Statistics reported today.
...
Nevada continued to record the highest unemployment rate among the states, 11.8 percent in September. Rhode Island and California posted the next highest rates, 10.5 and 10.2 percent, respectively. North Dakota again registered the lowest jobless rate, 3.0 percent.

Click on graph for larger image in graph gallery.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement - obviously Michigan and Ohio have seen the most improvement - New Jersey and New York are the laggards.

The states are ranked by the highest current unemployment rate. Only three states still have double digit unemployment rates: Nevada, Rhode Island, and California. In early 2010, 18 states and D.C. had double digit unemployment rates.

I expect the unemployment rate in California to fall below 10% very soon.

All current employment graphs
Earlier on Existing Home Sales:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales: A few comments and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 11:36:00 AM

This was a solid report, not because of sales, but because of the level of inventory. Based on historical turnover rates, I think "normal" sales would be in the 4.5 to 5.0 million range. So, existing home sales at 4.75 million are in the normal range.

Of course a "normal" market would have very few distressed sales, so there is still a long ways to go, but the market is headed in the right direction. Note: No one should expect existing home sales to go back to 6 or 7 million per year. Instead the key to returning to "normal" are more conventional sales and fewer distressed sales.

From the NAR this morning:

Distressed homes - foreclosures and short sales sold at deep discounts - accounted for 24 percent of September sales (13 percent were foreclosures and 11 percent were short sales), up from 22 percent in August; they were 30 percent in September 2011

I'm not confident in the NAR distressed sales measurement (it is from an unscientific survey of Realtors), but other sources also suggest distressed sales have fallen in many areas.

Some quick calculations: According to the NAR, existing home sales in September were at a 4.75 million annual rate with 24% distressed sales. That would suggest conventional sales at a 3.61 million annual rate.

In September 2011, sales were at a 4.28 million annual rate with 30% distressed. That would suggest conventional sales were at a 3.0 million annual rate in September 2011. So conventional sales in September 2012 were up about 20% from a year ago.

Also, according to the NAR, the percent of distressed sales peaked in March 2009 at just under 50% when total sales were at a 3.94 million sales rate. That would suggest conventional sales were at a 2.0 million sales rate in March 2009, and that conventional sales are up about 80% from the bottom! If we were confident in the NAR data, this would be the number to watch.

Of course what matters the most in the NAR's existing home sales report is inventory. It is active inventory that impacts prices (although the "shadow" inventory will keep prices from rising). For existing home sales, look at inventory first and then at the percent of conventional sales.

The NAR reported inventory decreased to 2.32 million units in September, down from 2.40 million in August. This is down 20.0% from September 2011, and down 16% from the inventory level in September 2005 (mid-2005 was when inventory started increasing sharply). This is the lowest level for the month of September since 2002.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Click on graph for larger image.

This graph shows inventory by month since 2004. In 2005 (dark blue columns), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

This year (dark red for 2012) inventory is at the lowest level for the month of September since 2002, and inventory is below the level in September 2005 (not counting contingent sales). All year I've been arguing months-of-supply would be below 6 towards the end of the year, and months-of-supply fell to 5.9 months in September (a normal range).

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA in September (red column) are only slightly above last year (there were 2 fewer selling days). Sales are well below the bubble years of 2005 and 2006, and also below 2007.

Earlier:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 10:00:00 AM

The NAR reports: September Existing-Home Sales Down but Prices Continue to Improve

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 1.7 percent to a seasonally adjusted annual rate of 4.75 million in September from an upwardly revised 4.83 million in August, but are 11.0 percent above the 4.28 million-unit pace in September 2011.
...
Total housing inventory at the end September fell 3.3 percent to 2.32 million existing homes available for sale, which represents a 5.9-month supply at the current sales pace, down from a 6.0-month supply in August. Listed inventory is 20.0 percent below a year ago when there was an 8.1-month supply.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in September 2012 (4.75 million SAAR) were 1.7% lower than last month, and were 11.0% above the September 2011 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory declined to 2.32 million in September down from 2.40 million in August. Inventory is not seasonally adjusted, and usually inventory increases from the seasonal lows in December and January to the seasonal high in mid-summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 20.0% year-over-year in September from September 2011. This is the 19th consecutive month with a YoY decrease in inventory.

Months of supply declined to 5.9 months in September.

This was at expectations of sales of 4.75 million. For existing home sales, the key number is inventory - and the sharp year-over-year decline in inventory is a positive for housing. I'll have more later ...

All current Existing Home Sales graphs

by Calculated Risk on 10/19/2012 08:36:00 AM

Each year I track seasonal retail hiring during October, November and December. This usually provides an early clue on holiday retail sales. Currently the NRF is forecasting about the same level of seasonal hiring as last year.

From the National Retail Federation: Expect Solid Growth This Holiday Season

Tempered by political and fiscal uncertainties but supported by signs of improvement in consumer confidence, holiday sales this year will increase 4.1 percent to $586.1 billion. NRF’s 2012 holiday forecast is higher than the 10-year average holiday sales increase of 3.5 percent.
...
According to NRF, retailers are expected to hire between 585,000 and 625,000 seasonal workers this holiday season, which is comparable to the 607,500 seasonal employees they hired last year.

Last year was the highest level of seasonal hiring since 2007 (seasonal hiring was especially weak in 2008, and then improved some in 2009). There is also a shift towards online buying that is keeping down seasonal hiring.

by Calculated Risk on 10/18/2012 08:37:00 PM

The most important numbers in the existing home sales report, to be released Friday morning, are inventory and percent conventional sales - not total sales (although that will be the focus of most of the media).

Inventory is important because this is "visible inventory" (as opposed to "shadow inventory"), and visible inventory that has the largest impact on prices. The percent of conventional sales is important because this gives a hint as to the health of the overall market.

Imagine if sales move mostly sideways for the next few years, but the number of distressed sales steadily declines. That would be a sign of an improving market.

Unfortunately I'm not very confident in the NAR methodology for estimating the percent of distressed sales. This data comes from a monthly survey for the Realtors® Confidence Index and is an unscientific sample. However the regional data Tom Lawler and I have been tracking suggests the percent of conventional sales is increasing.

In August 2012, the NAR reported "Distressed homes ... accounted for 22 percent of August sales (12 percent were foreclosures and 10 percent were short sales), down from 24 percent in July and 31 percent in August 2011" and last year, the NAR reported "Distressed homes ... accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from ... 35 percent in September 2010." 

So it appears the percent of distressed sales is declining (the percent of conventional sales is increasing), and I'd expect the NAR to report distressed sales in the low 20 percent range.

Housing economist Tom Lawler estimates the NAR will report sales of 4.70 million and a monthly decline in the inventory of existing homes for sale of about 3.2% in September.

On Friday:
• At 10:00 AM, the National Association of Realtors (NAR) will releases Existing Home Sales for September. The consensus is for sales of 4.75 million on seasonally adjusted annual rate (SAAR) basis. Sales in August 2012 were 4.82 million SAAR.

• Also at 10:00 AM, the BLS will release the Regional and State Employment and Unemployment report for September 2012.


Another question for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).