by Calculated Risk on 12/11/2012 08:52:00 PM

The FOMC will probably announce additional bond buying tomorrow that will start in January after the conclusion of Operation Twist. I don't expect the Fed to announce tomorrow a change to thresholds (using the unemployment rate and inflation) for the timing of the first Fed Funds rate hike.

On Sunday I posted a preview, and the September economic projections for review. The unemployment rate is lower than previously expected, but the other indicators are close.

Wednesday economic releases:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. Recently the Purchase Index has been showing more purchase activity.

• At 8:30 AM, Import and Export Prices for November. The consensus is a 0.4% decrease in import prices.

• At 12:30 PM, the FOMC statement will be released. With Operation Twist ending in a few weeks, the FOMC will probably announce additional policy accommodation that will start in January.

• At 2:00 PM, The Federal Open Market Committee (FOMC) participants' quarterly economic projections.

• At 2:15 PM, Fed Chairman Ben Bernanke holds a press briefing following the FOMC announcement.

by Calculated Risk on 12/11/2012 07:17:00 PM

We are still waiting for a strong increase in construction employment, but we know it is coming (I expect construction employment will be revised up in the annual revision).

Michelle Meyer at Merrill Lynch wrote about this today (and more on housing): The housing market in 2013

We believe 2012 will go down in history as a year of transition for the housing market. Housing starts are on track to be up 25% and home prices are set to rise 5% over 2012. We believe the recovery will continue into 2013 for several reasons. Most importantly, household formation has started to turn higher, reflecting the shortfall of household creation over the prior five years. In addition, listed inventory is low, owing to extraordinarily slow construction and only a gradual reduction of the distressed pipeline. And specifically for prices, there has been a shift toward short sales as a means of disposing distressed properties. Moreover, investor demand is strong, particularly for distressed inventory.

We forecast housing starts to increase another 25% to an average of 975,000 and home prices to increase 3% in 2013.
...
The housing market is turning into an engine of growth once again. Housing construction will likely add 0.3pp to GDP growth in 2012 and 0.4pp to 2013 growth. ... The gain in homebuilding will support related sectors such as furniture, building material sales and financial companies. Moreover, construction jobs will finally come back, allowing some of the 2 million people who lost construction jobs to find employment in the field again.

There will also be a jolt to the economy from the gain in home prices. An increase in home values lifts household net worth and boosts consumer confidence. If consumers perceive the gain in wealth to be permanent, they will increase their current consumption. But the rise in home prices can do something even more vital for the economy – it can spur credit creation, which then fuels housing demand and reinforces the gain in home prices. We are seeing the very early stages of a positive feedback loop between the housing market, credit market and real economy, which can be quite powerful in time.

I've wrote about the positive impact of prices early this year, see The economic impact of stabilizing house prices?

We are probably already seeing the impact of stabilizing prices on housing inventory. If potential sellers think prices will fall further, then they will rush to sell and list their homes right away. But if potential sellers think prices are stabilizing, and may even increase, they are more willing to wait for a better market or to sell when it is most convenient. I think we are seeing that right now.

More importantly, I think stabilizing prices will give hope to some “underwater” homeowners and we will probably see mortgage default rates fall quicker. And over time, buyers will gain confidence that prices have stopped falling, and I expect demand to increase – and also for more private lenders to reenter the mortgage market and help support that demand.

And this demand will also boost homebuilding and new home sales – since homebuilders will have a better idea of the pricing needed to compete in a market (falling prices makes it hard to plan).

And on construction employment: Back to work we go

There are several ways that the recovery in the housing market multiplies through the economy. One of the key channels is to create jobs in the construction industry and related fields. However, despite the 25% gain in housing starts this year, the construction sector has not added workers. Looking back at prior cycles, it appears that it is normal for construction jobs to lag output by about a year. We think we are on the verge of construction hiring.
...
As demand for housing continues to improve, construction companies will likely become more comfortable expanding their workforce. In addition, construction workers do not just focus on new construction; they can also find employment for renovations. Renovation spending has been on the rise and will likely receive a boost from Hurricane Sandy rebuilding. We think the future looks brighter for construction workers.

I also expect a pickup in construction employment in 2013.

by Calculated Risk on 12/11/2012 03:59:00 PM

Economist Tom Lawler sent me an update today of short sales and foreclosures for a few selected cities in November.

Note: Reno was corrected (the table yesterday used October numbers instead of November). There will be more cities added soon.

For all of these cities, the percentage of foreclosures is down from a year ago.   The percentage of short sales is up in Las Vegas and Reno, but down in Phoenix and in the mid-Atlantic area.

Look at the overall percent of distressed sales (combined foreclosures and short sales).  There is a large year-over-year decline in distressed sales in all of these cities. 

The two key numbers for real estate markets are 1) inventory, and 2) the percent of conventional sales (non-distressed sales).  Inventory is falling, and the percent of conventional sales is increasing - and those are positive signs.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Nov	11-Nov	12-Nov	11-Nov	12-Nov	11-Nov
Las Vegas	41.2%	26.8%	10.7%	46.0%	51.9%	72.8%
Reno	41.0%	36.0%	9.0%	35.0%	50.0%	71.0%
Phoenix	23.2%	29.6%	12.9%	29.8%	36.1%	59.4%
Mid-Atlantic (MRIS)	11.9%	13.7%	8.7%	14.2%	20.6%	27.9%
Memphis*			24.3%	31.3%
Metro Detroit			33.6%	38.7%
*share of existing home sales, based on property records

by Calculated Risk on 12/11/2012 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings in October was 3.7 million, essentially unchanged from September.
...
The level of total nonfarm job openings in October was up from 2.4 million at the end of the recession in June 2009.
...
In October, the quits rate was unchanged for total nonfarm and total private, and little changed for government. The number of quits was 2.1 million in October compared to 1.8 million at the end of the recession in June 2009.

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 October, the most recent employment report was for November.

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 increased in October to 3.675 million, up from 3.547 million in September. The number of job openings (yellow) has generally been trending up, and openings are up about 8% year-over-year compared to October 2011.

Quits increased in October, and quits are up 4% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

The trend suggests a gradually improving labor market.

All current employment graphs

by Calculated Risk on 12/11/2012 08:30:00 AM

The Department of Commerce reported:

[T]otal October exports of $180.5 billion and imports of $222.8 billion resulted in a goods and services deficit of $42.2 billion, up from $40.3 billion in September, revised. October exports were $6.8 billion less than September exports of $187.3 billion. October imports were $4.9 billion less than September imports of $227.6 billion.

The trade deficit was smaller than the consensus forecast of $42.8 billion.

The first graph shows the monthly U.S. exports and imports in dollars through October 2012.

Click on graph for larger image.

Both exports and imports decreased in October. US trade has slowed recently.

Exports are 9% above the pre-recession peak and up 1.0% compared to October 2011; imports are 4% below the pre-recession peak, and down 0.8% compared to October 2011.

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

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil averaged $99.75 in October, up from $98.88 per barrel in September. The trade deficit with China increased to $29.5 billion in October, up from $28.1 billion in October 2011. Most of the trade deficit is still due to oil and China.

The trade deficit with the euro area was $8.9 billion in October, up from $7.1 billion in October 2011. It appears the eurozone recession is impacting trade.

by Calculated Risk on 12/10/2012 08:29:00 PM

The WSJ had a front page article on consumer spending yesterday: Consumer Spending Wobbles . The article starts with "U.S. consumer spending, a rare pillar of economic strength in recent months, is showing signs of weakening."

Tim Duy takes exception to both the "pillar of strength" and "signs of weakening": Wobbly Consumers?

I am not sure who exactly believed that the US consumer is a "rare pillar of economic strength," but I suspect they were somewhat delusional and perhaps overemphasizing the importance of consumer confidence surveys. I don't think the consumer is falling off the cliff, fiscal or otherwise, just yet, but household spending hasn't been exactly a source of strength for several months now. The fragility of the sector is not new.

Dr. Duy has a number of charts supporting his view.

I don't think we will see a huge surge in spending, but I think Duy is correct and we will see continued growth in consumer spending. As I mentioned on Friday, seasonal retail hiring is solid, and that is usually a good sign. The LA Times noted it today: Holiday retail hiring could break record set 12 years ago

Here is the chart I posted last Friday:

Click on graph for larger image.

Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.

Retailers hired 465.5 thousand workers (NSA) net in November. The combined level for October and November is the highest ever. This suggests retailers are fairly optimistic about the holiday season. There is a decent correlation between retail hiring and retail sales, see: Retail: Seasonal Hiring vs. Retail Sales

As I wrote a month ago: "This is an old idea: Watch what they do, not what they say. And once again the retailers are hiring seasonal workers at a solid pace."

Tuesday economic releases:
• At 7:30 AM ET, the NFIB Small Business Optimism Index for November will be released. The consensus is for a decrease to 92.5 from 93.1 in October.

• At 8:30 AM, the Trade Balance report for October from the Census Bureau. The consensus is for the U.S. trade deficit to increase to $42.8 billion in October, up from from $41.5 billion in September. Export activity to Europe will be closely watched due to the European recession. Note: The strike at the ports of Long Beach and Los Angeles started in late November, and this report is for October.

• At 10:00 AM, the BLS will releases the Job Openings and Labor Turnover Survey for October. In general, job openings have generally been trending up.

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



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

by Calculated Risk on 12/10/2012 05:51:00 PM

From Joe Weisenthal at Business Insider: Goldman's Top Economist Explains The World's Most Important Chart, And His Big Call For The US Economy

Hatzius is bullish on the U.S. economy starting in the second half of 2013, because finally he expects private releveraging to occur at a nice clip, and to not be counteracted by a fiscal drag. Says Hatzius:

"If the business sector is basically trying to reduce its financial surplus at a more rapid pace than the government is trying to reduce its deficit then you’re getting a net positive impulse to spending which then translates into stronger, higher, more income, and ultimately feeds back into spending."

He has a specific explanation and numbers in mind, to explain the private sector's inclination to reduce its savings, and spend more.

"Since mid-2009, that surplus has gradually come down as businesses and households have gotten closer to where they need to be from a long-term balance sheet perspective. They’ve paid down debt, they’ve eliminated the excess supply of housing, and that’s basically allowed them to reduce the financial surpluses that they run. They’re still running large surpluses – still 5.5 to 7 percent of GDP, but they’re no longer as large. We expect those figures to come down as the balance sheet adjustment process makes further strides and that’s an underlying source of boost to the economy that’s happening on the one side."

Of course, Hatzius's bullishness on the private sector's impulse to spend more is tempered by the fact that we're going to see some form of austerity early in 2013, even if there's a deal on the fiscal cliff.

The transcript of the interview is here, and check out the graph on Private Sector Surplus and Government Deficit.

by Calculated Risk on 12/10/2012 03:55:00 PM

Economist Tom Lawler sent me the following preliminary table today of short sales and foreclosures for a few selected cities in November.

There will be more cities added soon.

For all of these cities, the percentage of foreclosures is down from a year ago.   The percentage of short sales is up in Las Vegas and Reno, but down in Phoenix and in the mid-Atlantic area.

Look at the overall percent of distressed sales (combined foreclosures and short sales).  There is a large year-over-year decline in distressed sales in all of these cities. 

I think the two key numbers for real estate markets are 1) inventory, and 2) the percent of conventional sales (non-distressed sales).  Inventory is falling, and the percent of conventional sales is increasing - and those are positive signs.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Nov	11-Nov	12-Nov	11-Nov	12-Nov	11-Nov
Las Vegas	41.2%	26.8%	10.7%	46.0%	51.9%	72.8%
Reno	40.0%	32.0%	12.0%	38.0%	52.0%	70.0%
Phoenix	23.2%	29.8%	12.9%	29.8%	36.1%	59.6%
Mid-Atlantic (MRIS)	11.9%	13.7%	8.7%	14.2%	20.6%	27.9%

by Calculated Risk on 12/10/2012 01:13:00 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 November 2012 Housing Statistics

GLVAR said the total number of local homes, condominiums and townhomes sold in November was 3,293. That’s down from 3,651 in October and down from 3,883 total sales in November 2011. Compared to October, single-family home sales during November decreased by 10.1 percent, while sales of condos and townhomes decreased by 8.5 percent. Compared to one year ago, home sales were down 15.1 percent, while condo and townhome sales were down 15.6 percent.
...
The total number of homes listed for sale on GLVAR’s Multiple Listing Service declined in November, with a total of 15,637 single-family homes listed for sale at the end of the month. That’s down 6.8 percent from 16,778 homes listed for sale at the end October and down 24.9 percent from 2011. ...

The number of available homes listed for sale without any sort of pending or contingent offer also decreased from the previous month. By the end of November, GLVAR reported 3,849 single-family homes listed without any sort of offer. That’s down 5.6 percent from 4,079 such homes listed in October and down 60.6 percent from one year ago.
...
Meanwhile, 41.2 percent of all existing local homes sold during November were short sales. That’s down from 44.7 percent in October and from a record 44.8 percent in September, but still up from 26.8 percent one year ago. Continuing a trend of declining foreclosure sales, bank-owned homes accounted for 10.7 percent of all existing home sales in November, down from 11.6 percent in October.

A few key points:
• Inventory decreased in November, and inventory is down 24.9% from November 2011.  For single family homes without contingent offers, inventory is down sharply from a year ago (down 60.6% year-over-year).

• Short sales are almost four times foreclosures now. The GLVAR reported 41.2% of sales were short sales, and only 10.7% foreclosures. We've seen a shift from foreclosures to short sales in most areas (not just in areas with new foreclosure laws).  Note: If the Mortgage Debt Relief Act of 2007 is not extended, the number of short sales could decline significantly in 2013.

• The percent distressed sales was extremely high at 51.9% in November (short sales and foreclosures), but down from 56.3% in October. This means conventional sales are finally almost half the market in Las Vegas.

Overall these are signs of a distressed market slowly improving. The decline in overall sales is because of fewer distressed sales (Las Vegas had a record number of real estate sales last year, even higher than at the peak of the bubble in 2005, because of all the distressed sales!).

The numbers to watch are inventory (and non-contingent inventory), and the percent conventional sales. Inventory is down sharply, and conventional sales are increasing.

by Calculated Risk on 12/10/2012 10:15:00 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 Q3 2012, the Net Equity Extraction was minus $112 billion, or a negative 3.8% 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 Q3. Mortgage debt has declined by $1.15 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.