by Calculated Risk on 1/02/2013 10:00:00 AM

The ISM manufacturing index indicated expansion in December. PMI was at 50.7% in December, up from 49.5% in November. The employment index was at 52.7%, up from 48.4%, and the new orders index was at 50.3%, unchanged from November.

From the Institute for Supply Management: November 2012 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in December, following one month of contraction, and the overall economy grew for the 43rd consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI™ registered 50.7 percent, an increase of 1.2 percentage points from November's reading of 49.5 percent, indicating expansion in manufacturing for only the third time in the last seven months. This month's PMI™ reading moved manufacturing off its low point for 2012 in November. The New Orders Index remained at 50.3 percent, the same rate as in November, indicating growth in new orders for the fourth consecutive month. The Production Index registered 52.6 percent, a decrease of 1.1 percentage points, indicating growth in production for the third consecutive month. The Employment Index registered 52.7 percent, an increase of 4.3 percentage points, indicating a resumption of growth in employment following only one month of contraction since September 2009. Both the Exports and Imports Indexes registered 51.5 percent, returning both indexes to growth territory following consecutive periods of contraction of six and four months, respectively. Comments from the panel this month are mixed, with some indicating a strengthening of demand and others indicating a continuing softness in demand. Additionally, many respondents express uncertainty about government regulations, taxes and global economics in general as we approach 2013."

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was slightly above expectations of 50.5% and suggests manufacturing expanded in December.

by Calculated Risk on 1/02/2013 09:05:00 AM

Scheduling note: Both the FOMC minutes and the MBA Purchase index will be released on Thursday.

From MarkIt: PMI at seven-month high in December, signalling solid expansion of manufacturing sector

The final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) was 54.0 in December, down slightly from the flash estimate of 54.2, and signalled a further expansion of the U.S. manufacturing sector. Moreover, up from 52.8 in November, the headline PMI indicated the strongest rate of growth since May.
...
One-in-five companies reported an increase in new orders, with the overall rate of growth the fastest since April. Moreover, new export orders increased for the second month running and at the strongest pace since March.
...
“Firms are also taking on more staff, suggesting that the underlying improvement in demand pushed any worries about the ‘fiscal cliff’ to backs of manufacturers’ minds in the closing weeks of the year. [said Chris Williamson, Chief Economist at Markit]

“With recent indications that growth is also picking up in other key economies around the world, notably in emerging markets such as China and Brazil, and that the Eurozone’s economic crisis is easing, U.S. companies should benefit as stronger demand lifts exports in early 2013. While economic growth may disappoint in the fourth quarter compared to the 3.1% rate of expansion seen in the third quarter, the recent run of positive PMI surveys towards the end of 2012 suggests that prospects have begun to look a little brighter for the new year.”

The ISM PMI will be released at 10 AM today.

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