by Calculated Risk on 7/29/2013 10:30:00 AM

From the Dallas Fed: Texas Manufacturing Activity Increases but at a Slower Pace

Texas factory activity continued to expand in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 17.1 to 11.4, suggesting output growth continued but at a slower pace than in June. ...

The new orders index was positive for the third month in a row, although it edged down from 13 to 10.8. ...Perceptions of broader business conditions improved again in July. The general business activity index posted a second consecutive positive reading, although it edged down from 6.5 to 4.4.

Labor market indicators reflected a pickup in labor demand. The employment index rose to 9.3, its highest reading in nearly a year. ...

Expectations regarding future business conditions remained optimistic in July. The indexes of future general business activity and future company outlook fell five points but remained in strongly positive territory. Indexes for future manufacturing activity also remained solidly positive.
emphasis added

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

All of the regional surveys - except Richmond - showed expansion in July.  The ISM index for July will be released Thursday August 1st, and the consensus is for an increase to 53.1 from 50.9 in June (above is expansion). 

by Calculated Risk on 7/29/2013 10:04:00 AM

From the NAR: Pending Home Sales Slip in June

The Pending Home Sales Index, a forward-looking indicator based on contract signings, edged down 0.4 percent to 110.9 in June from a downwardly revised 111.3 in May, but is 10.9 percent higher than June 2012 when it was 100.0; the data reflect contracts but not closings. Pending sales have been above year-ago levels for the past 26 months, and the pace in May was the highest since December 2006 when it reached 112.8.
...
The PHSI in the Northeast was unchanged at 87.2 in June but is 12.2 percent higher than a year ago. In the Midwest the index slipped 1.0 percent to 114.3 in June but is 19.5 percent above June 2012. Pending home sales in the South fell 2.1 percent to an index of 118.3 in June but are 9.5 percent higher than a year ago. The index in the West rose 3.3 percent in June to 114.2, and is 4.4 percent above June 2012.

Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in July and August.

With limited inventory at the low end and fewer foreclosures, we might see flat existing home sales going forward.

by Calculated Risk on 7/29/2013 09:27:00 AM

Notes: I follow several house price indexes (Case-Shiller, CoreLogic, LPS, Zillow, FHFA, FNC and more). The timing of different house prices indexes can be a little confusing. LPS uses April closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From LPS: LPS Home Price Index Report: May Transactions Show U.S. Home Prices Up 1.3 Percent for the Month; Up 7.9 Percent Year-Over-Year

Lender Processing Services ... today released its latest LPS Home Price Index (HPI) report, based on May 2013 residential real estate transactions. Beginning with this month's release, the LPS HPI has significantly expanded its property data tracking and now covers approximately 25 percent more U.S. counties - nearly 1,900 in total - and more than 18,500 ZIP codes. The LPS HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of the ZIP codes covered. The LPS HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.

The LPS HPI is off 16.3% from the peak in June 2006. Note: The press release has data for the 20 largest states, and 40 MSAs. LPS shows prices off 47.9% from the peak in Las Vegas, 39.0% off from the peak in Riverside-San Bernardino, CA (Inland Empire), and at a new peak in Austin, Dallas, Denver and Houston!

Note: Case-Shiller for May will be released tomorrow.

by Calculated Risk on 7/28/2013 09:13:00 PM

Monday:
• 10:00 AM ET, the NAR will release the Pending Home Sales Index for June. The consensus is for a 1.4% decrease in the index.

• At 10:30 AM, Dallas Fed Manufacturing Survey for July. This is the last of the regional manufacturing surveys for July. The consensus is a reading of 6.4, mostly unchanged from the reading of 6.5 in June (above zero is expansion).

Weekend:
• Schedule for Week of July 28th

• FOMC Preview: Economic Slowdown

More support for Dr. Janet Yellen from Professor Hamilton at Econbrowser: The case for Janet Yellen as Federal Reserve chair

I have known Governor Yellen for many years, from the days when she was a professor at Berkeley to her distinguished service within the Federal Reserve. I have had an opportunity to interact with her in a variety of settings.

Yellen is brilliant ... Yellen is one of the people I would trust most to be able to sort out what the key problems are and what needs to be done in any new situation. ...

If you examine her speeches and public statements, you will find that she has been one of the most accurate economic forecasters within the Federal Reserve, or for that matter compared with any private-sector economic analysts.

The Nikkei is down about 1.8%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up slightly and DOW futures are up 3 (fair value).

Oil prices have declined slightly with WTI futures at $104.71 per barrel and Brent at $107.35 per barrel. The spread between WTI and Brent is back (but still small).

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are starting to decline again.  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 7/28/2013 05:12:00 PM

Treasury Secretary Jack Lew was on Meet the Press today (recorded Friday). Lew said:

"The fight over the debt limit in 2011 hurt the economy, even though, in the end, we saw an extension of the debt limit. We saw confidence fall, and it hurt the economy. Congress needs to do its job. It needs to finish its work on appropriation bills. It needs to pass a debt limit."

Click on graph for larger image.

Here is a graph of consumer sentiment.  Notice the huge spike down in 2011 - that was due when Congress threatened to "not pay the bills". 

As Jack Lew notes, there is no reason to do this again. 

The following excerpts are from a post I wrote the last time Congress threatened to not pay the bills: Default Ceiling: Bluffing into the Nuts. 

I wrote several posts about the "debt ceiling" debate in 2011.  The debate clearly scared many Americans and impacted the economy.  Hopefully this time the "debt ceiling" will be raised well in advance of the deadline.

I prefer "default ceiling" because "debt ceiling" sounds like some sort of virtuous limit, when, in reality, the vote is about whether or not to the pay the bills - and voting for default is reckless and irresponsible.

Note: Several financial articles recently have used poker terms - and the title of this post is my contribution to this sad trend.  "The Nuts" is the best possible poker hand in a given situation. Bluffing into the nuts is a losing play - and that is what the Congress is trying to do with the "debt ceiling".  The sooner they fold, the better for the economy and the Congress.

From the WaPo: GOP dissension over debt-ceiling strategy

House Speaker John A. Boehner (R-Ohio) likewise insisted that Republicans hold the line, telling his members they must demand that every dollar they raise the debt limit be paired with commensurate spending cuts.

But other Republicans counseled caution, warning that pressure from the business community and the public to raise the $16.4 trillion federal borrowing limit renders untenable any threats not to do so and will weaken the GOP’s hand if their stance is perceived to be a bluff.

It is a bluff. As Republican Senator Mitch McConnell noted in 2011, if the debt ceiling isn't raised the "Republican brand" would become toxic and synonymous with fiscal irresponsibility.

The bottom line is Congress is being silly (again), and they will raise the debt ceiling.  It is just a matter of when. Note: There is a reason Congress never threatens to default right before an election, they hope everyone will forget!

by Calculated Risk on 7/28/2013 10:19:00 AM

The Federal Open Market Committee (FOMC) is meeting on Tuesday and Wednesday, with the FOMC statement expected to be released at 2:00 PM ET on Wednesday.

Expectations are the FOMC will take no action at this meeting (the FOMC will probably not adjust the size of their purchases of agency mortgage-backed securities and Treasury securities).

Jon Hilsenrath at the WSJ wrote on Thursday: Up for Debate at Fed: A Sharper Easy-Money Message

The Federal Reserve is on track to keep its $85 billion-a-month bond-buying program in place at its policy meeting next week, but officials will debate changes to the way the central bank describes its plans for the program and for short-term interest rates.

At their July 30-31 meeting, Fed officials are likely to discuss whether to refine or revise "forward guidance," the words they use to describe their intentions for the next few years.

Any discussion on forward guidance will probably show up in the FOMC minutes, and not in the statement. It is possible that they could lower the unemployment rate threshold, although my guess is the guidance in the statement will remain as follows (Statement from June 19):

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

A key question for the meeting this week is how the FOMC will recognize the weaker incoming data.  Q2 GDP will be released Wednesday morning before the FOMC statement is released, and expectations are for a weak reading (consensus is for 1.1% annualized growth rate in Q2).  For growth, there will probably be some change to the first sentence in the June statement:

Information received since the Federal Open Market Committee met in May suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated.

Perhaps something like the following, maybe without the "considerably" (from the August 2011 statement):

Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected.

A key will be to watch the comments on inflation. At the last meeting, James Bullard dissented because he "believed that the Committee should signal more strongly its willingness to defend its inflation goal in light of recent low inflation readings".  From the June meeting:

Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Since then, it appears inflation has fallen even more.  The recent decline in inflation is probably a growing concern for some FOMC participants.

As a reminder, here are the quarterly projections from the June meeting. If Q2 is close to consensus, GDP would have to be in the 3.3% to 3.9% range in the 2nd half to reach the FOMC projections (a sharp pickup in activity):

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2013	2014	2015
June 2013 Meeting Projections	2.3 to 2.6	3.0 to 3.5	2.9 to 3.6

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 7.6% in June, and the outlook for Q4 unemployment probably hasn't changed much (the July unemployment rate will be released on Friday).

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2013	2014	2015
June 2013 Meeting Projections	7.2 to 7.3	6.5 to 6.8	5.8 to 6.2

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

For inflation, PCE inflation was up 1.0% year-over-year in May, and only increased at a 0.4% annualized rate during the first five months of 2013.  This is below the FOMC projected range.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2013	2014	2015
June 2013 Meeting Projections	0.8 to 1.2	1.4 to 2.0	1.6 to 2.0

For core inflation, core PCE inflation was up 1.1% year-over-year in May, and only increased at a 1.1% annualized rate during the first five months of 2013.  To reach the FOMC projections, inflation will have to pickup in the 2nd half of 2013.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2013	2014	2015
June 2013 Meeting Projections	1.2 to 1.3	1.5 to 1.8	1.7 to 2.0

So a key for this statement is how the FOMC addresses the weaker incoming data.

by Calculated Risk on 7/27/2013 11:55:00 AM

This will be a very busy week for economic data.  The key reports this week are the Q2 advance GDP report on Wednesday, and the July employment report on Friday.

Other key reports include the ISM manufacturing index on Thursday, auto sales also on Tuesday, and Case-Shiller house prices for May on Tuesday.   The June Personal Income and Outlays report will be released on Friday.

Also there is an FOMC meeting on Tuesday and Wednesday.  Overseas, the ECB and BOE will hold monetary policy meetings, and China's PMI will be released.

----- Monday, July 29th -----
10:00 AM ET: Pending Home Sales Index for June. The consensus is for a 1.4% decrease in the index.

10:30 AM: Dallas Fed Manufacturing Survey for July. This is the last of the regional manufacturing surveys for July. The consensus is a reading of 6.4, mostly unchanged from the reading of 6.5 in June (above zero is expansion).

----- Tuesday, July 30th -----
9:00 AM: S&P/Case-Shiller House Price Index for May. Although this is the May report, it is really a 3 month average of March, April and May.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through April 2012 (the Composite 20 was started in January 2000).

The consensus is for a 12.3% year-over-year increase in the Composite 20 index (NSA) for May. The Zillow forecast is for the Composite 20 to increase 12.1% year-over-year, and for prices to increase 1.3% month-to-month seasonally adjusted.

10:00 AM: Conference Board's consumer confidence index for July. The consensus is for the index to decrease to 81.0 from 81.4.

10:00 AM: Q2 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track with other measures (like the decennial Census and the ACS) and this survey probably shouldn't be used to estimate the excess vacant housing supply.

----- Wednesday, July 31st -----
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 July. This report is for private payrolls only (no government). The consensus is for 179,000 payroll jobs added in July, down from 188,000 in June.  

8:30 AM: Q2 GDP (advance estimate). This is the advance estimate of Q2 GDP from the BEA. The consensus is that real GDP increased 1.1% annualized in Q2.  This report will includes a Comprehensive Revision from 1929 through 1st quarter 2013.

9:45 AM: Chicago Purchasing Managers Index for July. The consensus is for an increase to 54.0, up from 51.6 in June.

2:00 PM: FOMC Meeting Announcement.  No change to interest rates or QE purchases is expected at this meeting.

----- Thursday, Aug 1st -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 345 thousand from 343 thousand last week.

All day: Light vehicle sales for July. The consensus is for light vehicle sales to decrease to 15.8 million SAAR in July (Seasonally Adjusted Annual Rate) from 15.9 million SAAR in June.

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the June sales rate.

9:00 AM: The Markit US PMI Manufacturing Index for July. The consensus is for the index to increase to 53.1 from 51.9 in June.

10:00 AM ET: ISM Manufacturing Index for July. The consensus is for an increase to 53.1 from 50.9 in June.  Based on the regional surveys, an increase in July seems likely.

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

The ISM manufacturing index indicated expansion in June at 50.9%. The employment index was at 48.7%, and the new orders index was at 51.9%.

10:00 AM: Construction Spending for June. The consensus is for a 0.4% increase in construction spending.

----- Friday, Aug 2nd -----
8:30 AM: Employment Report for July. The consensus is for an increase of 175,000 non-farm payroll jobs in July; the economy added 195,000 non-farm payroll jobs in June.

The consensus is for the unemployment rate to decrease to 7.5% in July from 7.6% in June.

The following graph shows the percentage of payroll jobs lost during post WWII recessions through June.

The economy has added 7.2 million private sector jobs since employment bottomed in February 2010 (6.6 million total jobs added including all the public sector layoffs).

There are still 1.6 million fewer private sector jobs now than when the recession started in 2007.

8:30 AM ET: Personal Income and Outlays for June. The consensus is for a 0.4% increase in personal income in June, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for June. The consensus is for a 2.3% increase in orders.

by Calculated Risk on 7/27/2013 09:50:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for July 26, 2013.

Changes and comments from surferdude808:

The FDIC released its enforcement actions through June 2013 on Friday. This release led to many changes to the Unofficial Problem Bank List. For the week, there were eight removals and three additions that leave the list holding 729 institutions with assets of $260.9 billion. A year ago, the list held 900 institutions with assets of $349.5 billion. For the month, the list declined by 20 institutions after 19 action terminations, seven unassisted mergers, and six additions. The monthly net decline of 20 institutions is the highest since publication of the list.

Actions were terminated against Amalgamated Bank, New York, NY ($3.6 billion); Parkway Bank and Trust Company, Harwood Heights, IL ($2.0 billion); Alliance Bank, Lake City, MN ($579 million); ISB Community Bank, Ixonia, WI ($285 million); First Trust and Savings Bank, Oneida, TN ($149 million); First Pryority Bank, Pryor, OK ($116 million); The Citizens Bank, Enterprise, AL ($95 million); and Bancroft State Bank, Bancroft, WI ($70 million).

The three additions this week were The Bank of Union, El Reno, OK ($388 million); First Security Trust Bank, Inc., Florence, KY ($93 million); and The Citizens State Bank and Trust Company, Woodbine, KS ($16 million). Also, the FDIC issued a Prompt Corrective Action order against Securant Bank & Trust, Menomonee Falls, WI ($202 million), which has been under a formal enforcement action since 2010.

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The number of unofficial problem banks grew steadily and peaked at 1,002 institutions on June 10, 2011. The list has been declining since then.

by Calculated Risk on 7/26/2013 05:39:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in June to 2.79% from 2.85% in May. Freddie's rate is down from 3.45% in June 2012, and this is the lowest level since May 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Earlier this week, LPS reported that total delinquencies increased in June - but that was mostly due to an increase in short term delinquencies (seasonally delinquencies increase every June). Freddie Mac is reporting serious delinquencies only.

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for June next week.

Click on graph for larger image

Although this indicates some progress, the "normal" serious delinquency rate is under 1%. 

At the recent rate of improvement, the serious delinquency rate will not be under 1% until 2016 or so.

by Calculated Risk on 7/26/2013 02:04:00 PM

From housing economist Tom Lawler:

Several large, publicly-traded home builders have released earnings for the quarter ended June 30th, 2013, and the operating results varied wildly.  Below are some stats for net orders, settlements, and average sales prices on settlements.

All results in the table below include “discontinued operations,” and Standard Pacific’s results exclude JVs.

Ryland’s results included 177 net orders and 17 settlements associated with its June acquisitions of the Dallas operation of LionsGate homes. Standard Pacific completed its acquisitions of “select homebuilding assets” from Centerline Homes and affiliates in June, which included about 30 current and future communities, five of which are active with 119 homes under contract.

Of the results released so far, “most surprising” was the weakness in net order growth at the two largest US home builders, D.R. Horton (up just 12.2% YOY) and PulteGroup (DOWN 12.4% YOY). D.R. Horton’s sales cancellation rate was 24%, up from 19% in the previous quarter and 23% a year ago. An official cited rising mortgage rates as contributing to the rise in cancellations. Last quarter’s sales cancellation rate was down from a year ago, however, at Meritage, M/I, NVR, and Ryland. D.R. Horton, of course, relies more on the first-time home buyer market than these other builders. Pulte does not report its sales cancellation rate in its press release, though an official said that cancellation rates were “little changed.” In Pulte’s press release the company said that “the recent rise in interest rates has had little effect on overall activity,” despite its incredibly disappointing orders. Pulte attributed the slowdown in net home orders to a 16% reduction in community count, as well as “the company’s decision to purposely slow sales in a number of communities,” particularly in Arizona, Nevada, and Southern California, where an official said Pulte had sold homes “too quickly” (presumably meaning at “too low” a price) in 2012. Stated another way, Pulte increased prices in a fashion that slowed sales.

	Net Orders			Settlements			Average Closing Price
Qtr. Ended:	3/31/13	3/31/12	% Chg	3/31/13	3/31/12	% Chg	3/31/13	3/31/12	% Chg
D.R. Horton	6,822	6,079	12.2%	6,464	4,957	30.4%	$252,290	$224,975	12.1%
Pulte Group	4,885	5,578	-12.4%	4,152	3,816	8.8%	$294,000	$268,000	9.7%
NVR	3,278	2,614	25.4%	2,878	2,475	16.3%	$344,700	$305,100	13.0%
The Ryland Group	2,191	1,415	54.8%	1,659	1,149	44.4%	$287,000	$253,000	13.4%
Standard Pacific	1,516	1,108	36.8%	1,095	815	34.4%	$397,000	$337,000	17.8%
Meritage Homes	1,637	1,353	21.0%	1,321	1,042	26.8%	$330,000	$270,000	22.2%
M/I Homes	1,078	826	30.5%	788	625	26.1%	$281,000	$259,000	8.5%
Total	21,407	18,973	12.8%	18,357	14,879	23.4%	$294,805	$262,220	12.4%

On the pricing front, all builders reported significant increases in average sales prices, with the increases generally attributed both to overall price increases and a shift in mix, with several builders saying there were focused more on the “move-up” market. Demand from first-time home buyers was perceived at many builders as being “weak.”

While overall results varied a lot, net home orders for the above seven home builders combined were up just 12.8% from a year ago – and a bit less after adjusting for acquisitions – which combined was SUBSTANTIALLY below consensus. In the quarter ended March 31, 2013, net orders for these seven builders combined were up 24.0% from the comparable quarter of 2012.

Given the net home orders reported so far by publicly-traded builders, the Census estimates for new SF home sales for Q2/2013 seem surprisingly strong – 134,000 on an unadjusted basis, up over 30% from the second quarter of 2012. The estimated YOY gain in sales Q1/2013 was about 25% .

Of course, comparing home builder reports with Census SF home sales estimates is “challenging.” First, Census does not treat sales cancellations the same as do home builders. Second, historical data suggest that the timing of the recognition of a “sale” by Census lags that of home builders. Third, there can be substantial quarterly swings in market share. And fourth, preliminary Census estimates are subject to substantial revisions, partly because preliminary estimates include “imputed” data, because the survey data used to estimate sales are based on a permit being issued. Many homes may have a sales contract signed prior to a permit being issued, and Census must “guesstimate” such sales using some “historical trends” model (that has often been changed).

Nevertheless, I have found builder reports to be somewhat useful in projecting revisions in Census’ estimates of new SF home sales. Based on the builder reports so far, there is a better than even chance that Census’ new SF home sales estimates for last quarter will be revised downward, and I’d guess that the bulk of the downward revision will be in June sales. It’s worth noting that while Census’ estimated new SF home sales last quarter were up by over 30% YOY (on an unadjusted basis), estimated sales of homes not yet started were up 53%, compared to 24% for sales of homes under construction, and 20% for sales of completed homes. For June Census estimated that there were 18,000 sales of new SF homes not yet started, up from 11,000 last June, and the highest level since June 2007.