by Calculated Risk on 8/10/2013 06:24:00 PM

From USA Today: Relief at the pump: Gas prices on the decline

The federal Energy Information Administration forecasts 2014 will average $3.37 a gallon vs. an estimated $3.52 a gallon in 2013. That would be the lowest national average since 2010, when gasoline averaged about $2.80.

"Once we get to mid-September, we'll see prices drop 10 to 20 cents a gallon,'' says Tom Kloza, chief oil analyst for price tracker Gasbuddy.com. "Typically, demand drops the last 100 days of the year and bottoms out in December."

Here is the current EIA forecast:

The U.S. Energy Information Administration (EIA) expects that the Brent crude oil spot price, which averaged $108 per barrel over the first half of 2013, will average $104 per barrel over the second half of 2013, and $100 per barrel in 2014.
...
EIA expects the WTI discount to widen to $6 per barrel by the end of 2013 as crude oil production in Alberta, Canada, recovers following the heavy June flooding and as midcontinent production continues to grow.
...
EIA expects the regular gasoline retail price to average $3.59 per gallon in the third quarter of 2013, and the annual average price to decline from an average of $3.63 per gallon in 2012 to $3.52 per gallon in 2013 and to $3.37 per gallon in 2014.

U.S. crude oil production increased to an average of 7.5 million barrels per day (bbl/d) in July 2013, the highest monthly level of production since 1991.

WTI oil prices have been moving sideways over the last month after increasing in early July, with WTI at $105.97 per barrel.  Brent is at $108.22. A year ago, WTI was in the low $90s, and Brent was around $113 per barrel - so the spread has narrowed considerably, although the EIA expects the spread to widen a little later this year.

Using the calculator from Professor Hamilton, and the current price of Brent crude oil, the national average should be around $3.54 per gallon. That is just below the current level according to Gasbuddy.com.

The following graph is from gasbuddy.com. Note: If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 8/10/2013 01:05:00 PM

This will be a busy week for economic data. A key report will be July retail sales to be released on Tuesday.  Also there are two key housing reports that will be released later in the week; housing starts on Friday, and the homebuilder confidence survey on Thursday.

For manufacturing, the July Industrial Production survey, and the August NY Fed (Empire State) and Philly Fed surveys will be released this week. 

For prices, PPI will be released on Wednesday, and CPI on Thursday.

----- Monday, August 12th -----
2:00 PM ET: Monthly Treasury Statement for July. The CBO has projected a deficit of $96 billion in July 2013, down $10 billion from July 2012 after accounting for "quirks of the calendar".

----- Tuesday, August 13th -----
7:30 AM ET: NFIB Small Business Optimism Index for July. 

8:30 AM ET: Retail sales for July will be released.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales are up 27.5% from the bottom, and now 11.8% above the pre-recession peak (not inflation adjusted)

The consensus is for retail sales to increase 0.4% in July, and to increase 0.4% ex-autos.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for June.  The consensus is for a 0.3% increase in inventories.

----- Wednesday, August 14th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Producer Price Index for July. The consensus is for a 0.3% increase in producer prices (0.2% increase in core).

11:00 AM: The Q2 2013 Quarterly Report on Household Debt and Credit will be released by the Federal Reserve Bank of New York.

----- Thursday, August 15th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 340 thousand from 333 thousand last week.

8:30 AM: Consumer Price Index for July. The consensus is for a 0.2% increase in CPI in July and for core CPI to increase 0.2%.

8:30 AM: NY Fed Empire Manufacturing Survey for August. The consensus is for a reading of 10.0, up from 9.5 in July (above zero is expansion).

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for July.

This graph shows industrial production since 1967.

The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 77.9%.

10:00 AM ET: The August NAHB homebuilder survey. The consensus is for a reading of 57, the same as in July. Any number above 50 indicates that more builders view sales conditions as good than poor.

10:00 AM: the Philly Fed manufacturing survey for August. The consensus is for a reading of 15.8, down from 19.8 last month (above zero indicates expansion).

----- Friday, August 16th -----
8:30 AM: Housing Starts for July.

Total housing starts were at 836 thousand (SAAR) in June. Single family starts were at 591 thousand SAAR in June.

The consensus is for total housing starts to increase to 904 thousand (SAAR) in July.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for August). The consensus is for a reading of 85.5, up from 85.1 in July.

by Calculated Risk on 8/10/2013 08:34:00 AM

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

Here is the unofficial problem bank list for August 9, 2013.

Changes and comments from surferdude808:

Not that many changes were made to the Unofficial Problem Bank List this week as anticipated. In all, there were three removals that lower the institution count to 723 with assets of $255.0 billion. Assets declined this week by $4.1 billion with $3.1 billion of the decline coming from updating assets through the second quarter. A year ago, the list held 900 institutions with assets of $348.6 billion.

Removals include the failed Bank of Wausau, Wausau, WI ($49 million). The Federal Reserve terminated the action against Belt Valley Bank, Belt, MT ($62 million) and The First National Bank of Shelby, Shelby, NC ($716 million) departed through an unassisted merger.

This week Capitol Bancorp, Ltd was in the news as they "lashed out at the FDIC" in an August 2nd filing with the bankruptcy court for not granting cross-guaranty waivers that supposedly prevented the sale of some units before they failed according to a report published by SNL Securities (A Capitol offense? BHC blasts FDIC for 'undermining' sale efforts, 'unnecessary' seizures). Perhaps the resolution of the remaining units is nearing an end.

Next week we anticipate the OCC will release its action through mid July 2013.

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 8/09/2013 08:29:00 PM

A new song from Merle Hazard called the "The Great Unwind".  This was debuted on PBS this week and several economists have commented on the song:

Yesterday from PBS: Art Laffer, John Taylor, Simon Johnson Respond to the Fed's 'Great Unwind' Problem

From John Taylor:

I've been writing about the costs of unwinding unconventional monetary policy since the Fed started its massive bond buying four years ago. Now, just in time for the actual unwinding, we have the online debut of Merle Hazard's funny and informative "The Great Unwind," a country and western song about the Fed's current predicament. Like Merle's earlier numbers -- such as "Inflation or Deflation" and "Bailout" -- his new song tells you a lot about monetary policy. Full disclosure: I'm a real fan of Merle Hazard as I said in this promotional video Merle Hazard Meets John Taylor for "Inflation or Deflation."

And today: Is the Fed's 'Great Unwind' a Nonevent or the Chickens Finally Coming Home to Roost? (with comments from Ken Rogoff, Justin Wolfers, James Galbraith, and Greg Mankiw) From Rogoff:

Another great performance from Merle Hazard. However, I would worry more about the long-term effects of lingering unemployment and growing income inequality than the risks of quantitative easing (QE). ... the real risk is that there will be a sharp rise in interest rates making it very expensive to roll over growing issuance of short-term debt. As long as that doesn't happen, the "great unwind" will be a non-event.

From Wolfers:

Country music star Merle's Hazard's latest turns to a far more important theme than the usual fare of unrequited love, dead dogs, old trucks and 'merica, worrying instead about how the Fed will unwind it's balance sheet. Is Ben Bernanke a monetary outlaw or the trusted sheriff who'll restore order? I'm betting on the latter, but either way, I tip my (ten-gallon) hat to the strumming balladeer and dismal scientist.

From CR: Rogoff argues that the concern is "a sharp rise in interest rates" - I'd say the concern is an eventual sharp increase in inflation that forces the Fed to unwind quicker than planned. I'm not that worried though - I'm more in the "non-event" / "restore order" group - but it does require a Fed Chairman with good judgment and an understanding of what is happening. Enjoy!

by Calculated Risk on 8/09/2013 06:14:00 PM

From the FDIC: Nicolet National Bank, Green Bay, Wisconsin, Assumes All of the Deposits of Bank of Wausau, Wausau, Wisconsin

As of June 30, 2013, Bank of Wausau had approximately $43.6 million in total assets and $40.7 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $13.5 million. ... Bank of Wausau is the 18th FDIC-insured institution to fail in the nation this year, and the second in Wisconsin.

It is Friday!

by Calculated Risk on 8/09/2013 03:49:00 PM

Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for several selected cities in July.

From CR: Look at the two columns in the table for Total "Distressed" Share. In every area that has reported distressed sales so far, the share of distressed sales is down significantly year-over-year. 

Also there has been a sharp decline in foreclosure sales in all of these cities.  

And now short sales are declining year-over-year too!  This is a recent change - short sales had been increasing year-over-year, but it looks like both categories of distressed sales are now declining.

The All Cash Share is mostly staying steady.  The all cash share will probably decline when investors pull back in markets like Las Vegas and Phoenix (already declining).

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Jul-13	Jul-12	Jul-13	Jul-12	Jul-13	Jul-12	Jul-13	Jul-12
Las Vegas	28.0%	40.0%	8.0%	20.7%	36.0%	60.7%	54.5%	54.8%
Reno	21.0%	38.0%	7.0%	15.0%	28.0%	53.0%
Phoenix	11.5%	29.5%	9.4%	14.6%	20.8%	44.1%	35.8%	44.9%
Charlotte					9.5%	13.8%
Tucson							29.1%	33.3%
Toledo							35.0%	36.5%
Omaha							15.9%	15.6%
Memphis*			16.7%	26.9%
*share of existing home sales, based on property records

by Calculated Risk on 8/09/2013 02:48:00 PM

An excerpt from a post by Cardiff Garcia at FT Alphaville: Shrinking US deficit update, and a new debt ceiling projection

From a note this morning by economists at Barclays:

The US federal budget deficit has been improving at a dramatic pace in recent months. As a percent of GDP, the deficit peaked at 10.2% of GDP in the four quarters ending in Q4 09; over the past four quarters, it has totaled 4.2% of GDP, down from 7.7% one year earlier.

On Monday, the Treasury will release the monthly update of the Federal Government deficit for July. The report is expected to show that the deficit for the current calendar year will be close to the Congressional Budget Office's (CBO) projections in May.   The CBO already released their Monthly Budget Review for July 2013:

The federal government incurred a deficit of $96 billion in July 2013, CBO estimates, $27 billion more than the shortfall in the same month last year. But that comparison is distorted by quirks of the calendar: Because July 1, 2012, fell on a Sunday, certain payments that ordinarily would have been made in July were made earlier, reducing outlays in July 2012 by about $36 billion. No such payment shift occurred in July 2013. Without that shift in the timing of payments in 2012, the deficit for July 2013 would have been $10 billion less than the deficit for July 2012.

Watch out for reports that don't mention the timing issue!

For the current fiscal year (ends September 30th), the CBO is projecting a deficit of 4.0%.  This is down sharply from 7.0% last year.  And the CBO expects the deficit to fall to 2.1% of GDP in 2015.

Click on graph for larger image.

This graph, based on the CBO's May projections, shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next ten years based on estimates from the CBO.

After 2015, the deficit will start to increase again according to the CBO, but as I've noted before, we really don't want to reduce the deficit much faster than this path over the next few years, because that will be too much of a drag on the economy.

by Calculated Risk on 8/09/2013 12:59:00 PM

About two years ago I posted a graph with projections of when payroll employment would return to pre-recession levels (see: Sluggish Growth and Payroll Employment from November 2011).

In 2011, I argued we'd continue to see sluggish growth (back in 2011 many analysts were forecasting another US recession - those forecasts were wrong).

  On the graph I posted two lines - one with payroll growth of 125,000 payroll jobs added per month (the pace in 2011), and another line with 200,000 payroll jobs per month.  The following graph is an update with reported payroll growth through July 2013.

The dashed red line is 125,000 payroll jobs added per month. The dashed blue line is 200,000 payroll jobs per month.  Both projections are from November 2011.

Click on graph for larger image.

So far the economy has tracked fairly closely to the blue line (200,000 payroll jobs per month).

Right now it appears payrolls will exceed the pre-recession peak in early to mid-2014.  

Currently there are about 2 million fewer payroll jobs than before the recession started, and at the recent pace of job growth it will take another 11 months to reach the previous peak.   Note: I expect another upward adjustment when the annual benchmark revision is released in January, so we will probably reach the previous peak in fewer than 11 months.

Of course this doesn't include population growth and new entrants into the workforce (the workforce has continued to grow).

Note: There are 1.482 million fewer private sector payroll jobs than before the recession started. At the recent pace of private sector job growth - plus a positive benchmark revision in January - we could be back at the pre-recession peak early in 2014.

by Calculated Risk on 8/09/2013 09:59:00 AM

An interesting story from Cale Ottens at the LA Times: Condo conversions inch up in Los Angeles

Apartment building owners in Los Angeles and throughout California are once again converting to condos, but not at the torrid pace of 2007, when condo conversion peaked before the Great Recession.
...
Before the last recession, it was common for apartments to convert to condos when the market was hot. But the trend came to a screeching halt when the housing bubble burst.

At the peak in 2007, the city issued 208 permits allowing apartment complexes to be converted. But that number has declined every year since. The city issued a mere 38 permits last year.
...
The number of condo conversions, however, probably won't get anywhere near the levels they were before the economic downturn, said Chris Foley, a principal at real estate marketing firm Polaris Pacific in San Francisco.

The only conversions Foley said he expects to see throughout the state are the properties originally intended to be condos but turned into apartments when the housing market tanked and condos weren't selling.

Right now it seems like most of the conversions from apartments to condos are buildings originally intended to be condos, but were converted to rental units during the housing bust. So far I haven't seen older apartments being converted to condos as was happening during the bubble.

by Calculated Risk on 8/08/2013 09:41:00 PM

Earlier I posted the MBA National Delinquency Survey press release and a graph that showed mortgage delinquencies and foreclosures by period past due. There is a clear downward trend for mortgage delinquencies, however some states are further along than others. From the press release:

States with a judicial foreclosure system continue to bear a disproportionate share of the foreclosure backlog. .... The rate of new foreclosures in New York hit an all-time high during the second quarter and is now essentially equal with Florida. The percentage of loans in foreclosure in New Jersey remains about the same as the rates in California, Arizona and Nevada combined. The foreclosure percentages in Connecticut are back to near all-time highs for that state.

Click on graph for larger image.

This graph is from the MBA and shows the percent of loans in the foreclosure process by state. Posted with permission.

The top states are Florida (10.58% in foreclosure down from 11.43% in Q1), New Jersey (8.01% down from 9.00%), New York (6.09% down from 6.18%), and Maine (5.62% down from 5.80%).  Nevada is the only non-judicial state in the top 10, and this is partially due to state laws that slow foreclosures.

California (1.64% down from 1.76%) and Arizona (1.51% down from 1.77%) are now well below the national average by every measure.

For judicial foreclosure states, it appears foreclosure inventory peaked in Q2 2012 (foreclosure inventory is the number of mortgages in the foreclosure process).  Foreclosure inventory in the judicial states has declined for four consecutive quarters.  This was three years after the peak in foreclosure inventories for non-judicial states.

It looks like the judicial states will have a significant number of distressed sales for several more years.