by Calculated Risk on 1/01/2013 11:36:00 PM

From the WaPo: House passes ‘fiscal cliff’ bill

The vote was 257 to 167, with 85 Republicans joining with nearly all of the chamber’s Democrats. President Obama, whose vice president, Joe Biden, crafted the deal with Senate Minority Leader Mitch McConnell (R-Ky.), was preparing to address the nation.

After the bill passed, President Obama spoke briefly. Mr. Obama said this bill was "just one step", that he is "open to compromise" on the deficit, but that the default ceiling (aka debt ceiling) was off the table (taking a page from Ronald Reagan).

by Calculated Risk on 1/01/2013 06:51:00 PM

Update: The FOMC Minutes and auto sales will be released on Thursday.

Here is the live feed for the U.S. House of Representatives. That might vote on something tonight.

Back to work ...

Wednesday economic releases:
• At 9:00 AM ET, The Markit US PMI Manufacturing Index Flash. The consensus is for an increase to 54.2, up from 52.8.

• At 10:00 AM, the ISM Manufacturing Index for December will be released. The consensus is for PMI to increase to 50.5 from 49.5 in November. (above 50 is expansion). The regional surveys suggest expansion in December.

• Also at 10:00 AM, Construction Spending for November. The consensus is for a 0.6% increase in construction spending.

Here are the winners for the December economic question contest:
1st: Matei Ripeanu
2nd tie: Walt Tucker, OpenID User, Bill Dawers, Joey Cordero

Here are the 2012 Overall winners:
1st: Bill (CR)
2nd: Bryant Dodson
3rd: Billy Forney
4th: Bill Dawers
5th: Walt Tucker

Congratulations all!

by Calculated Risk on 1/01/2013 12:07:00 PM

Taxprof has posted the Senate version of the bill: H. R. 8

It appears that the Mortgage Debt Relief Act of 2007 will be extended for one year. Usually cancelled debt is considered income, but a provision of the Debt Relief Act allowed borrowers "to exclude certain cancelled debt on [a] principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief." (excerpt from IRS).

Here is the text from H.R.8:

SEC. 202. EXTENSION OF EXCLUSION FROM GROSS INCOME OF DISCHARGE OF QUALIFIED PRINCIPAL RESIDENCE INDEBTEDNESS.

(a) IN GENERAL.—Subparagraph (E) of section 108(a)(1) is amended by striking ‘‘January 1, 2013’’ and inserting ‘‘January 1, 2014’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to indebtedness discharged after December 31, 2012.

This is helpful for foreclosures, mortgage modifications, and for short sales (so the seller can sell the house for less than is owed, and not have to pay taxes on the debt forgiveness). This provision had wide bipartisan support and was expected to be included.

by Calculated Risk on 1/01/2013 10:53:00 AM

From CBS: Fiscal cliff deal heads to House after Senate vote

Legislation to negate a fiscal cliff of across-the-board tax increases and sweeping spending cuts to the Pentagon and other government agencies is headed to the GOP-dominated House after bipartisan, middle-of-the-night approval in the Senate capped a New Year's Eve drama unlike any other in the annals of Congress.

CBS News correspondent Nancy Cordes reports from Capitol Hill that the House vote could come as early as 1 p.m. Tuesday.

Of course they are always late.

For details on the bill, see: Wonkbook: Everything you need to know about the fiscal cliff deal

Assuming the bill passes the House (seems likely given the large majority voting for the bill in the Senate), the next question is the size of the drag on the economy. The largest drag will come from the payroll tax cut - also there will be more drag in a couple of months because the sequester was delayed (scheduled budget cuts).

From Sudeep Reddy at the WSJ: Deal's Likely Impact: More Slow Growth

The biggest hit to 2013 growth appears likely to come from the payroll-tax holiday's expiration on Monday.
...
The workers' share of the Social Security payroll tax had been lowered by two percentage points for the past two years, to 4.2% from 6.2%, amounting to an annual income boost of $1,000 for a typical U.S. family earning $50,000 a year.
...
The rise in payroll taxes would amount to about $125 billion a year, or about 0.8% of the nation's overall output, according to J.P. Morgan Chase. According to many forecasters, that would slow the pace of U.S. economic growth by about half a percentage point next year, a sizable amount for an economy growing about 2% a year.

by Calculated Risk on 12/31/2012 10:00:00 PM

Thanks to everyone for a great year, and I wish everyone the best in 2013.

From the WSJ: U.S. Budget Compromise Deal Reached

President Barack Obama and congressional Republicans sealed a budget deal ... Top Democratic lawmakers said the Senate would vote on the deal Monday night. The House could reconvene, or wait until Tuesday to vote. Passage in the House isn't assured and could depend in part on the result in the Senate as well as the reaction to conservatives of the delay in spending cuts.

The vote will be after midnight so technically the politicians are voting for tax cuts, not increases.

Here is a link of a live video of the senate floor.

And this one is a little more fun - Times Square in NYC.

by Calculated Risk on 12/31/2012 05:46:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in November to 3.30% from 3.35% October. The serious delinquency rate is down from 4.00% in November last year, and this is the lowest level since March 2009.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate declined in November to 3.25% from 3.31%, in October. Freddie's rate is down from 3.57% in November 2011, and this is the lowest level since August 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

In 2009, Fannie's serious delinquency rate increased faster than Freddie's rate. Since then, Fannie's rate has been falling faster - and now the rates are at about the same level.

Although this indicates ongoing progress, the "normal" serious delinquency rate is under 1%.  At this pace, it will take several years until the rates are back to normal.

by Calculated Risk on 12/31/2012 03:51:00 PM

From the National Restaurant Association: Restaurant Performance Index Improved in November but Remained Below 100 for Second Consecutive Month

The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 99.9 in November, up 0.5 percent from October. However, November marked the second consecutive month in which the RPI stood below 100, which signifies contraction in the index of key industry indicators.

“The November gain in the RPI was driven by improving same-store sales and customer traffic levels, both of which registered their strongest performance in three months,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “However, restaurant operators remain concerned about the direction of the overall economy, due in large part to the uncertainty around the fiscal cliff.”
...
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 99.8 in November – up 0.6 percent from a level of 99.3 in October. Although restaurant operators reported net positive sales and traffic results in November, softness in the labor and capital spending indicators outweighed the performance, which resulted in a Current Situation Index reading below 100 for the fourth time in the last five months.

Click on graph for larger image.

The index increased to 99.9 in November, up from 99.5 in October (below 100 indicates contraction).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month.

Note: It appears that the "uncertainty around the fiscal cliff" will be resolved (My initial guess is austerity will subtract around 1.5% to 2.0% from GDP in 2013 - with the largest drag coming from the increase in the payroll tax - but we still need the details).

by Calculated Risk on 12/31/2012 12:54:00 PM

From Ezra Klein:
1. Details on the deal: 39.6% tax rate for individual income over 400k/family income over $450k. AMT patched permanently.

2. Dividends and cap gains taxes at 20% of the $400k/$450k levels. PEP at $250k. Pease at $300k.

3. UI and business cuts extended through 2013. Stimulus cuts for 5 years. Medicare cuts stopped with offsets. Payroll cut expires.

4. Sequester unclear. Prez wants to offset with taxes and spending cuts. R's only want to offset with spending cuts.

Updates:
5. Estate tax set at $10m exemption but 40% rate.

6. Deal raises about $600b -- and maybe a bit more -- in taxes over 10 years. As always details can change, but that's where it is now.

From Reuters:

• Obama to speak on fiscal cliff at 1:30pm ET event: White House
• Source: Emerging "cliff" deal would raise tax on income above $400k/yr
• Source: Emerging deal would include permanent alternative minimum tax fix
• Source: Emerging deal would extend unemployment benefits for a year
• Sr. Republican aide: Tentative "cliff" deal contains no new spending cuts
• Sr. Republican aide: Majority of Sen. GOP expected to support tentative deal
• Cornyn via Twitter: GOP to meet at 2pm ET on fiscal cliff negotiations

by Calculated Risk on 12/31/2012 10:30:00 AM

From the Dallas Fed: Texas Manufacturing Activity: Slow Growth and Improved Company Outlook

Texas factory activity edged up in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 1.7 to 2.7, which is consistent with slow growth.

Most other survey measures also indicated manufacturing activity crept up in December. The capacity utilization index returned to positive territory with a reading of 1.8, implying utilization rates ticked up from last month. The shipments index jumped to 11.3 after a reading near zero last month. The new orders index, however, remained near zero, suggesting demand was flat in December.

Perceptions of broader business conditions improved markedly in December. The general business activity index emerged from negative territory, rising sharply to 6.8 as a result of a drop in the share of contacts reporting that conditions worsened. The company outlook index also turned positive, jumping 14 points to 9.2, its best reading since March.

Labor market indicators were flat in December. The employment index came in at -1, its lowest reading in over two years, with about 17 percent of employers reporting hiring and the same share noting layoffs. The hours worked index turned positive after two months in negative territory; however, at a reading of 1, it suggested hours worked barely changed.

This was above (edit) expectations of a reading of 1.0 for the general business activity index.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through December), and five Fed surveys are averaged (blue, through December) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through November (right axis).

This is the first positive reading for the average of the five Fed surveys since May.

The ISM index for December will be released Wednesday, Jan 1st, and these surveys suggest another weak reading - but probably indicating expansion (above 50).

by Calculated Risk on 12/31/2012 09:14:00 AM

According to this report, income taxes would only increase on earnings over $450,000, and the estate tax would be at the GOP requested level. Still no deal.

From the WaPo: Biden, McConnell continue ‘cliff’ talks as clock winds down

Vice President Biden and Senate Minority Leader Mitch McConnell (R-Ky.) continued urgent talks Monday over a deal to avoid the “fiscal cliff” after Democrats offered several significant concessions on taxes, including a proposal to raise rates only on earnings over $450,000 a year.

With a New Year’s Eve deadline hours away, Democrats abandoned their earlier demand to raise tax rates on household income over $250,000 a year.
...
Democrats also relented on the politically sensitive issue of the estate tax, according to a detailed account of the Democratic offer obtained by The Washington Post. They promised instead to hold a vote in the Senate that would guarantee that taxes on inherited estates remain at their current low levels, a key GOP demand.
...
McConnell was holding out to set the income threshold for tax increases even higher, at $550,000, according to people close to the talks in both parties.

Payroll taxes are going up under all proposals.