by Calculated Risk on 3/04/2013 09:09:00 PM

The kids are alright! From the WSJ: Young Adults Retreat From Piling Up Debt

Young people are racking up larger amounts of student debt than ever before, but fresh data suggest they are becoming warier of borrowing in general: Total debt among young adults dropped in the last decade to the lowest level in 15 years.

A typical young U.S. household—defined as one led by someone under age 35—had $15,000 in total debt in 2010, down from $18,000 in 2001 and the lowest since 1995, according to a recent Pew Research Center report and government data. Total debt includes mortgage loans, credit cards, auto lending, student loans and other consumer borrowing.

In addition, fewer young adults carried credit-card balances and 22% didn't have any debt at all in 2010—the most since government tracking began in 1983.

The lower overall debt comes despite an increase in student borrowing, which ballooned to $966 billion last year from $253 billion at the end of 2003, according to the Federal Reserve.

Student debt is a significant problem, but less overall debt is good news.

Tuesday economic releases:
• At 10:00 AM ET, Trulia Price Rent Monitors for February. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

• Also at 10:00 AM, ISM non-Manufacturing Index for February. The consensus is for a decrease to 55.0 from 55.2 in January. Note: Above 50 indicates expansion, below 50 contraction.

by Calculated Risk on 3/04/2013 03:24:00 PM

Dude, Where's my inventory?

Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'll be tracking inventory weekly for the next few months.

If inventory does bottom, we probably will not know for sure until late in the year. In normal times, there is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The NAR data is monthly and released with a lag.  However Ben at Housing Tracker (Department of Numbers) kindly sent me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year.

In 2010 (blue), inventory followed the normal seasonal pattern, however in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

So far - through early March - it appears inventory is increasing at a sluggish rate. Housing Tracker reports inventory is down -23.2% compared to the same week in 2012 - still falling fast year-over-year.

Click on graph for larger image.

Note: the data is a little weird for early 2011 (spikes down briefly).

The key will be to see how much inventory increases over the next few months. In 2010, inventory was up 8% by early March, and up 15% by the end of March.

For 2011 and 2012, inventory only increased about 5% at the peak and then declined for the remainder of the year.

So far in 2013, inventory is only up 3.4%. If inventory doesn't increase more soon, then the bottom for inventory might not be until 2014.

by Calculated Risk on 3/04/2013 02:02:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in January to 3.18% from 3.29% in December 2012. The serious delinquency rate is down from 3.90% in January 2012, and this is the lowest level since March 2009.

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

Freddie Mac has not reported for January yet.

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

Click on graph for larger image

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

by Calculated Risk on 3/04/2013 09:53:00 AM

There has always been a clear seasonal pattern for house prices, but the seasonal differences have been more pronounced in recent years.

Even in normal times house prices tend to be stronger in the spring and early summer than in the fall and winter. Recently there has been a stronger than normal seasonal pattern because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have had a larger negative impact on prices in the fall and winter.

However, house prices - not seasonally adjusted (NSA) - have been pretty strong over the last few months - at the start of the normally weak months.

Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller Composite 20 index since 2001 (both Case-Shiller and CoreLogic through December).   The seasonal pattern was smaller back in the early '00s, and increased since the bubble burst.

The CoreLogic index was positive in both the November and December reports (CoreLogic is a 3 month weighted average, with the most recent month weighted the most).

Case-Shiller NSA turned negative month-to-month in the October report (also a three month average, but not weighted), but was only slightly negative in November and turned positive in the December report.   This shows that the "off-season" for prices has been pretty strong this year.

The second graph shows the seasonal factors for the Case-Shiller composite 20 index. The factors started to change near the peak of the bubble, and really increased during the bust.

Note: I was one of several people to question this change in the seasonal factor - and this led to S&P Case-Shiller reporting the NSA numbers.

It appears the seasonal factor has stopped increasing, and I expect that over the next several years - as the percent of distressed sales decline - the seasonal factors will slowly move back towards the previous levels. 

by Calculated Risk on 3/04/2013 08:53:00 AM

From Fed Vice Chair Janet Yellen: Challenges Confronting Monetary Policy. A few excerpts on asset purchases and what a "Substantial Improvement in the Outlook for the Labor Market" means:

The first imperative will be to judge what constitutes a substantial improvement in the outlook for the labor market. Federal Reserve research concludes that the unemployment rate is probably the best single indicator of current labor market conditions. In addition, it is a good predictor of future labor market developments. Since 1978, periods during which the unemployment rate declined 1/2 percentage point or more over two quarters were followed by further declines over the subsequent two quarters about 75 percent of the time.

That said, the unemployment rate also has its limitations. As I noted before, the unemployment rate may decline for reasons other than improved labor demand, such as when workers become discouraged and drop out of the labor force. In addition, while movements in the rate tend to be fairly persistent, recent history provides several cases in which the unemployment rate fell substantially and then stabilized at still-elevated levels. For example, between the fourth quarter of 2010 and the first quarter of 2011, the unemployment rate fell 1/2 percentage point but was then little changed over the next two quarters. Similarly, the unemployment rate fell 3/4 percentage point between the third quarter of 2011 and the first quarter of 2012, only to level off over the subsequent spring and summer.

To judge whether there has been a substantial improvement in the outlook for the labor market, I therefore expect to consider additional labor market indicators along with the overall outlook for economic growth. For example, the pace of payroll employment growth is highly correlated with a diverse set of labor market indicators, and a decline in unemployment is more likely to signal genuine improvement in the labor market when it is combined with a healthy pace of job gains.

The payroll employment data, however, also have shortcomings. In particular, they are subject to substantial revision. When the Labor Department released its annual benchmarking of the establishment survey data last month, it revised up its estimate of employment in December 2012 by 647,000.

In addition, I am likely to supplement the data on employment and unemployment with measures of gross job flows, such as job loss and hiring, which describe the underlying dynamics of the labor market. For instance, layoffs and discharges as a share of total employment have already returned to their pre-recession level, while the hiring rate remains depressed. Therefore, going forward, I would look for an increase in the rate of hiring. Similarly, a pickup in the quit rate, which also remains at a low level, would signal that workers perceive that their chances to be rehired are good--in other words, that labor demand has strengthened.

I also intend to consider my forecast of the overall pace of spending and growth in the economy. A decline in unemployment, when it is not accompanied by sufficiently strong growth, may not indicate a substantial improvement in the labor market outlook. Similarly, a convincing pickup in growth that is expected to be sustained could prompt a determination that the outlook for the labor market had substantially improved even absent any substantial decline at that point in the unemployment rate.
emphasis added

CR Notes: Defining a "substantial improvement" is helpful in trying to determine when the Fed when end the asset purchase program.  Obviously the program will continue for some time ...

by Calculated Risk on 3/03/2013 09:29:00 PM

I thought US Fiscal Policy was the biggest question mark for 2013, and that fiscal policy posed the biggest downside risk to the US economy (I still think fiscal policy is the biggest risk).

 First there was the "fiscal cliff", and then the threat of default and not paying the bills (aka "debt ceiling"), then "sequestration", followed by the March 27th threat to shut down the government (really just a small portion of the government, but will be very disruptive). As I've noted several times, the deficit is declining fairly quickly, and the key risk is too much deficit reduction too quickly (this can't be repeated enough).

Hopefully something will be worked out to reverse the "sequestration" cuts, and maybe the government shutdown will be avoided ...

From the WaPo: Deal to avert government shutdown likely, officials say

Congress returns to work this week with no plan to reverse across-the-board spending cuts that took effect Friday, but with hope on both sides of the aisle of averting an end-of-the-month showdown that could result in a government shutdown.
...
It would provide funding through the end of the fiscal year on Sept. 30 ...

Weekend:
• Summary for Week Ending March 1st
• Schedule for Week of March 3rd

The Asian markets are mixed tonight with the Nikkei up 0.8%, and Shanghai Composite down 1.5%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 5 and DOW futures are down 40 (fair value).

Oil prices have moved down a little recently with WTI futures at $90.61 per barrel and Brent at $110.55 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are down a few cents over the last week after increasing more than 50 cents per gallon from the low last December.

If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 3/03/2013 04:30:00 PM

Here is some investment data from the BEA (Note: The BEA released the underlying details for the Q4 second GDP report on Friday). The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased slightly, but from a very low level.

Investment in offices is down about 55% from the recent peak (as a percent of GDP). With the high office vacancy rate, investment will probably not increase significantly (as a percent of GDP) for several years - even though there has been some increase in the Architecture Billings Index lately.

Click on graph for larger image.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 63% from the peak (note that investment includes remodels, so this will not fall to zero).   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment peaked at 0.32% of GDP in Q2 2008 and is down about 73%.   With the hotel occupancy rate close to normal, it is possible that hotel investment will increase this year.

The second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

Usually the most important components are investment in single family structures followed by home improvement.

Investment in single family structures is now increasing after mostly moving sideways for almost three years (the increase in 2009-2010 was related to the housing tax credit).

Investment in home improvement was at a $159 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.0% of GDP), still above the level of investment in single family structures of $143 billion (SAAR) (or 0.9% of GDP).  Single family structure investment will probably overtake home improvement as the largest category of residential investment later this year.

Brokers' commissions increased slightly in Q4 as a percent of GDP. And investment in multifamily structures increased in Q4. This is a small category, and even though investment is increasing, the positive impact on GDP will be relatively small.

These graphs show there is currently very little investment in offices, malls and lodging. And residential investment is starting to pickup, but from a very low level.

by Calculated Risk on 3/03/2013 10:34:00 AM

Last year when I wrote The Housing Bottom is Here and Housing: The Two Bottoms, I pointed out there are usually two bottoms for housing: the first for new home sales, housing starts and residential investment, and the second bottom is for house prices.

For the bottom in activity, I presented a graph of Single family housing starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

When I posted that graph, the bottom wasn't obvious to everyone. Now it is, and here is another update to that graph.

Click on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

For the current housing bust, the bottom was spread over a few years from 2009 into 2011. This was a long flat bottom - something a number of us predicted given the overhang of existing vacant housing units.

We could use any of these three measures to determine the first bottom, and then use the other two to confirm the bottom. But this says nothing about prices.

The second graph compares RI as a percent of GDP with the real (adjusted for inflation) CoreLogic house price index through December.

Although the CoreLogic data only goes back to 1976, look at what happened following the early '90s housing bust. RI as a percent of GDP bottomed in Q1 1991, but real house prices didn't bottom until Q4 1996 (real prices were mostly flat for several year). Something similar happened in the early 1980s - first activity bottomed, and then real prices - although the two bottoms were closer in the '80s.

Now it appears activity bottomed in 2009 through 2011 (depending on the measure) and house prices bottomed in early 2012.

by Calculated Risk on 3/02/2013 04:11:00 PM

Here is the unofficial problem bank list for Mar 1, 2013.

Changes and comments from surferdude808:

There was only one removal this week to the Unofficial Problem Bank List. After removal, the list holds 808 institutions with assets of $298.1 billion. From last week, assets fell by $4.7 billion with $4.0 billion of the decline in assets during the fourth quarter. A year ago, the list held 959 institutions with assets of $385.4 billion. According to an SEC filing, the FDIC terminated the action against Bank of Granite, Charlotte, NC ($717 million Ticker: FNBN).

This week the FDIC issued industry results for the fourth quarter including an update on the Official Problem Bank List. While the FDIC does not disclose institutions on the official list, they provided an institution count of 651 with assets of $233 billion. During the quarter, the official list declined by 43 institutions and assets dropped $29 billion. Since the last FDIC release, the unofficial list declined by 66 institutions and assets dropped $36.9 billion. After the FDIC released problem bank figures for the second quarter of 2010, the unofficial list has been higher since while it was lower at the time of prior quarterly releases. The upside tracking difference peaked at 185 institutions and assets of $72.6 billion when second quarter of 2012 figures were released. With the current release, the differences have been reduced to 157 institutions and assets of $65.0 billion.

Because the FDIC does not publish the official list, a proxy or unofficial list can be developed by reviewing press releases and published formal enforcement actions issued by the three federal banking regulators, reviewing SEC filings, or through media reports and company announcements describing that the bank is under a formal enforcement action. For the most part, the official problem bank list is comprised of banks with a safety & soundness CAMELS composite rating of 4 or 5 (the banking regulators use the FFIEC rating system known as CAMELS, which stands for the components that receive a rating including Capital adequacy, Asset quality, Management quality, Earnings strength, Liquidity strength, and Sensitivity to market risk. A composite rating is assigned from the components, but it does not result from a simple average of the components. The composite and component rating scale is from 1 to 5, with 1 being the strongest). Customarily, a banking regulator will only issue a safety & soundness formal enforcement when a bank has a composite CAMELS rating of 4 or 5, which reflects an unsafe & unsound financial condition that if not corrected could result in failure. There is high positive correlation between banks with a safety & soundness composite rating of 4 or worse and those listed on the official list. For example, many safety & soundness enforcement actions state in their preamble that an unsafe & sound condition exists, which is the reason for action issuance.

Since 1991, the banking regulators have statutorily been required to publish formal enforcement actions. For many reasons, the banking regulators have a general discomfort publishing any information on open banks especially formal enforcement actions, so not much energy is expended on their part ensuring the completeness of information in the public domain or making its retrieval simple. Given the difficulty for easy retrieval of all banks operating under a safety & soundness formal enforcement action, the unofficial list fills this void as a matter of public interest.

All of the banks on the unofficial list have received a safety & soundness formal enforcement action by a federal banking regulator or there is other information in the public domain such as an SEC filing, media release, or company statement that describe the bank being issued such an action. No confidential or non-public information supports any bank listed and a hypertext link to the public information is provided in the spreadsheet listing. The publishers make every effort to ensure the accuracy of the unofficial list and welcome all feedback and any credible information to support removal of any bank listed erroneously.

Earlier:
• Summary for Week Ending March 1st
• Schedule for Week of March 3rd

by Calculated Risk on 3/02/2013 01:11:00 PM

Earlier:
• Summary for Week Ending March 1st

The key report this week is the February employment report on Friday.

Other key reports include the ISM service index on Tuesday, and the Trade Balance report on Thursday.

Also, the Federal Reserve will release the Q4 Flow of Funds report on Thursday.

----- Monday, Mar 4th -----

8:00 AM ET: Speech by Fed Vice Chair Janet Yellen, "Challenges Confronting Monetary Policy", At the 29th National Association for Business Economics Policy Conference, Washington, D.C.

----- Tuesday, Mar 5th -----
10:00 AM: ISM non-Manufacturing Index for February. The consensus is for a decrease to 55.0 from 55.2 in January. Note: Above 50 indicates expansion, below 50 contraction.

10:00 AM: Trulia Price Rent Monitors for February. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

----- Wednesday, Mar 6th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for February. This report is for private payrolls only (no government). The consensus is for 173,000 payroll jobs added in February.   Even with the new methodology, the report still isn't that useful in predicting the BLS report.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for January. The consensus is for a 2.2% decrease in orders.

2:00 PM: Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.  Analysts will look for signs of an impact from the recent tax increases.

----- Thursday, Mar 7th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 355 thousand from 344 thousand last week.  This is pre "sequester", and unemployment claims will probably increase soon.

8:30 AM: Trade Balance report for January from the Census Bureau.

Exports increased in December, and imports decreased and the trade deficit fell sharply.

The consensus is for the U.S. trade deficit to increase to $43.0 billion in January from $38.5 billion in December.

12:00 PM: Q4 Flow of Funds Accounts of the United States from the Federal Reserve.

3:00 PM: Consumer Credit for January from the Federal Reserve. The consensus is for credit to increase $15.0 billion in January.

----- Friday, Mar 8th -----
8:30 AM: Employment Report for February. The consensus is for an increase of 171,000 non-farm payroll jobs in February; the economy added 157,000 non-farm payroll jobs in January.

The consensus is for the unemployment rate to decrease to 7.8% in February.

The second employment graph shows the percentage of payroll jobs lost during post WWII recessions through January.

The economy has added 6.1 million private sector jobs since employment bottomed in February 2010 (5.5 million total jobs added including all the public sector layoffs).

There are still 2.7 million fewer private sector jobs now than when the recession started in 2007.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for January. The consensus is for a 0.4% increase in inventories.