by Calculated Risk on 9/04/2013 08:50:00 AM

The Department of Commerce reported this morning:

[T]otal July exports of $189.4 billion and imports of $228.6 billion resulted in a goods and services deficit of $39.1 billion, up from $34.5 billion in June, revised. July exports were $1.1 billion less than June exports of $190.5 billion. July imports were $3.5 billion more than June imports of $225.1 billion.

The trade deficit was close to the consensus forecast of $39.0 billion.

The first graph shows the monthly U.S. exports and imports in dollars through July 2013.

Click on graph for larger image.

Imports increased in July, and exports decreased.  

Exports are 14% above the pre-recession peak and up 3% compared to July 2012; imports are 1% below the pre-recession peak, and up 1% compared to July 2012 (mostly moving sideways).

The second graph shows the U.S. trade deficit, with and without petroleum, through July.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil averaged $97.07 in July, up slightly from $96.93 in June, and up from $93.71 in July 2012. 

The trade deficit with the euro area was $11.0 billion in July, up slightly from $10.8 billion in July 2012.

The trade deficit with China increased to $30.1 billion in July, up from $29.4 billion in July 2012.  Most of the trade deficit is related to China and oil. And most of the recent improvement in the trade deficit is related to a decline in the volume of imported petroleum.

by Calculated Risk on 9/04/2013 07:03:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage applications increased 1.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 30, 2013. ...

The Refinance Index increased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.4 percent from one week earlier.
...
The refinance share of mortgage activity increased to 61 percent of total applications from 60 percent the previous week. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.73 percent from 4.80 percent, with points decreasing to 0.33 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.

The first graph shows the refinance index.

The refinance index is down 63.4% over the last 17 weeks.  

The last time the index declined this far was in late 2010 and early 2011 when mortgage increased sharply with the Ten Year Treasury rising from 2.5% to 3.5%.  We've seen a similar increase over the last few months with the Ten Year Treasury yield up from 1.6% to over 2.85% today.

The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index has generally been trending up over the last year (but down over the last few months), and the 4-week average of the purchase index is up about 6.1% from a year ago. 

by Calculated Risk on 9/03/2013 09:04:00 PM

Josh Barro at Business Insider writes: ECONOMISTS: Summers As Fed Chair Would Shave 0.5% Off GDP And Cost Us 350,000 Jobs

Julia Coronado, Chief Economist for North America at BNP, and her colleagues Bricklin Dwyer and Laura Rosner estimated in a note last week that picking Summers over Fed Vice Chair Janet Yellen would shave 0.5 to 0.75 points off GDP growth over two years and cut job creation by 350,000 to 500,000 jobs.

Barro has some excerpts from the note with the author's conclusion:

[T]he efficacy of monetary policy does not seem to be the driving force in this nomination process and the forces in Washington seem to be moving in the direction of a Summers nomination.
emphasis added

Ouch!

Based on merit, I believe Yellen would be the nominee. 

Wednesday:
• 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM, the Trade Balance report for July from the Census Bureau. The consensus is for the U.S. trade deficit to increase to $39.0 billion in July from $34.2 billion in June.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

• Around 4:00 PM, total Light vehicle sales for August. The consensus is for light vehicle sales to increase to 15.8 million SAAR in August (Seasonally Adjusted Annual Rate) from 15.7 million SAAR in July.

by Calculated Risk on 9/03/2013 05:41:00 PM

Here is another weekly update on housing inventory: One of key questions for 2013 is Will Housing inventory bottom this year? Since this is a very important question, I'm tracking inventory weekly in 2013. 

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 Realtor (NAR) data is monthly and released with a lag (the most recent data was for July).  However Ben at Housing Tracker (Department of Numbers) has provided 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 (to normalize the data).

In 2010 (blue), inventory increased more than the normal seasonal pattern, and finished the year up 7%. 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.

Click on graph for larger image.

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

So far in 2013, inventory is up 19.5%.  There might be some further increases over the next few weeks, but then inventory should start declining seasonally.  

It is important to remember that inventory is still very low, and is down 4.7% from the same week last year according to Housing Tracker.

This strongly suggests inventory bottomed early this year, and I expect inventory to be up year-over-year very soon (maybe later this month), and I also expect the seasonal decline to be less than usual at the end of the year.  This increase in inventory should mean price increases will slow.

by Calculated Risk on 9/03/2013 02:58:00 PM

From housing economist Tom Lawler:

In a controversial paper presented at the Federal Reserve Bank of Kansas City’s Economic Symposium at Jackson Hole, authors Arvind Krishnamurthy and Annette Vissing-Jorgensen argued that Fed “large scale asset purchases” (LSAP) of agency MBS are “more economically beneficial” than Fed LSAP of Treasury securities. Here is an excerpt from their “conclusion” section.

“We have presented theory and evidence that LSAPs work through narrow channels in which asset purchases affect the prices of the assets that are purchased. The primary channels for the operation of LSAPs in the US, and likely around the world, are the capital constraints and scarcity channels. We find that MBS LSAPs are more economically beneficial than Treasury LSAPs. There is little evidence for the operation of a broad channel through which LSAPs lower the yield on all long-term bonds.”

While I won’t go into the details of the paper, essentially the authors argue that (1) Fed purchases of a particular type of security lower that security’s yield relative to other yields; (2) purchases of agency MBS, by lowering MBS yields relative to other yields, encourages/allows mortgage lenders to originate agency-eligible mortgages to home buyers and home owners at lower interest rates; (3) lower rates on agency-eligible mortgages benefit the housing market; and (4) benefiting the housing market relative to other markets is a “good thing.”

While the authors don’t explicitly state their “findings” this way, that effectively is what their “findings” imply.

There are, however, several things missing from the paper. First, of course, is the issue of whether monetary policy should be conducted in a fashion that alters the allocation of credit to one sector of the economy relative to other sectors of the economy. Last year, for example, Philadelphia Federal Reserve Bank President Charles Plosser suggested that Fed purchases of MBS might be an “inappropriate foray” into fiscal policy. Here is a quote:

“When the Fed engages in targeted credit programs that seek to alter the allocation of credit across markets, I believe it is engaging in fiscal policy and has breached the traditional boundaries established between the fiscal authorities and the central bank,”

Richmond Federal Reserve Bank President Jeffrey Lacker this spring said that the Fed should “get out of the credit allocation business” and stop buying agency MBS.

Dallas Federal Reserve Bank President Richard Fisher also believes the Fed should dramatically scale back MBS purchases, arguing that “the housing market is on a self-sustaining path and does not need the same impetus we (the Fed) have been giving it.”

There is a long history on the appropriate “line” between the Treasury’s fiscal policy objectives and the Fed’s monetary and credit policy policies, and folks interested should get a copy of the Federal Reserve Bank of Richmond’s “Economic Quarterly Special Issue,” Winter 2001, commemorating the 50th anniversary of the 1951 Treasury Fed Accord.

The fiscal/monetary “line” came to the forefront during the height of the financial crisis, and to “clarify” things the Department of the Treasury and the Federal Reserve issued a joint statement on the role of the Federal Reserve in preserving financial and monetary stability on March 23, 2009. In that statement there were four “broad points” that the Treasury and the Federal Reserve agreed on.

1. Treasury-Federal Reserve cooperation in improving the functioning of credit markets and fostering financial stability
The Federal Reserve's expertise and powers are indispensable for preventing and managing financial crises. The programs it has initiated since the onset of this crisis have played a critical role in helping to contain the damage to the broader economy. As long as unusual and exigent circumstances persist, the Federal Reserve will continue to use all its tools working closely and cooperatively with the Treasury and other agencies as needed to improve the functioning of credit markets, help prevent the failure of institutions that could cause systemic damage, and to foster the stabilization and repair of the financial system.

2. The Federal Reserve to avoid credit risk and credit allocation
The Federal Reserve's lender-of-last-resort responsibilities involve lending against collateral, secured to the satisfaction of the responsible Federal Reserve Bank.
Actions taken by the Federal Reserve should also aim to improve financial or credit conditions broadly, not to allocate credit to narrowly-defined sectors or classes of borrowers. Government decisions to influence the allocation of credit are the province of the fiscal authorities.

3. Need to preserve monetary stability
Actions that the Federal Reserve takes, during this period of unusual and exigent circumstances, in the pursuit of financial stability, such as loans or securities purchases that influence the size of its balance sheet, must not constrain the exercise of monetary policy as needed to foster maximum sustainable employment and price stability. Treasury has in place a special financing mechanism called the Supplementary Financing Program, which helps the Federal Reserve manage its balance sheet. In addition, the Treasury and the Federal Reserve are seeking legislative action to provide additional tools the Federal Reserve can use to sterilize the effects of its lending or securities purchases on the supply of bank reserves.

4. Need for a comprehensive resolution regime for systemically critical financial institutions
The Treasury and the Federal Reserve remain fully committed to preventing the disorderly failure of systemically critical financial institutions. To reduce the risk of future crises, the Treasury and the Federal Reserve will work with the Congress to develop a regime that will allow the U.S. government to address effectively at an early stage the potential failure of any systemically critical financial institution. ...
emphasis added

Going back to the Krishnamuthy/Vissing-Jorgensen’s (KVJ) paper, their findings, if valid, suggest that the Fed’s LSAP of agency MBS has benefited a narrowly-defined sector (housing) and class of borrowers (mortgagors). Now read point 2 above.

Any questions?
Another shocking thing missing from the paper is that actions by other government entities and Congress have worked in the opposite direction of the Fed’s LSAP of agency MBS. FHA, for example, has raised its mortgage insurance premiums a boatload since 2010, both the bolster its depleted reserves and to encourage “private capital” to return to the mortgage market. Both Fannie Mae and Freddie Mac, to a large extent at the direction of its regulator (FHFA), have increased significantly the guarantee fees they charge on new SF mortgage acquisitions, both to bolster their finances and to encourage private capital to return to the mortgage market. And finally, Congress passed (and the President signed) the Temporary Payroll Tax Continuation Act of 2011, which required both Fannie Mae and Freddie Mac to increase their guarantee fees on all SF residential mortgages delivered to them on or after April 1, 2012 by 10 basis points, with the incremental revenue being remitted to Treasury (effectively to fund the continuation of the payroll tax cut.)

So ... FHA, FHFA/the GSEs, and Congress have all acted to increase the rates on agency-eligible mortgages, with FHA’s and the GSEs’ increases in part designed to encourage other entities to enter the mortgage market. The Fed, in contrast, has engaged in LSAP on agency MBS, which, in the KVJ framework, would lower agency MBS yields relative to other yields, including (presumably) what mortgage lenders would charge on mortgages not intended to be delivered to/insured by FHA or the GSEs! The Fed’s LSAP of agency MBS, in short, act to increase the “government’s” share of the mortgage market!

Interestingly and/or amusingly, an implication of the KVJ paper is that the Fed’s LSAP of agency MBS has “enabled” the GSEs to increase guarantee fees without losing much if any market share, bolstering their profits – which, of course, go back to the Treasury!

Is this “wack,” or what?

CR Note: The above was from economist Tom Lawler.

by Calculated Risk on 9/03/2013 11:55:00 AM

The Census Bureau reported that overall construction spending increased in July:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during July 2013 was estimated at a seasonally adjusted annual rate of $900.8 billion, 0.6 percent above the revised June estimate of $895.7 billion. The July figure is 5.2 percent above the July 2012 estimate of $856.3 billion.
...
Spending on private construction was at a seasonally adjusted annual rate of $631.4 billion, 0.9 percent above the revised June estimate of $625.6 billion. ...

In July, the estimated seasonally adjusted annual rate of public construction spending was $269.4 billion, 0.3 percent below the revised June estimate of $270.1 billion.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 51% below the peak in early 2006, and up 46% from the post-bubble low.

Non-residential spending is 28% below the peak in January 2008, and up about 32% from the recent low.

Public construction spending is now 17% below the peak in March 2009.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 25%. Non-residential spending is up slightly year-over-year. Public spending is down 4% year-over-year.

To repeat a few key themes:
1) Private residential construction is usually the largest category for construction spending, and is now the largest category once again.  Usually private residential construction leads the economy, so this is a good sign going forward.

2) Private non-residential construction spending usually lags the economy.  There was some increase this time for a couple of years - mostly related to energy and power - but the key sectors of office, retail and hotels are still at very low levels.  I expect private non-residential to start to increase later this year.

3) Public construction spending decreased in July.  Public spending has declined to 2006 levels (not adjusted for inflation) and has been a drag on the economy for 4 years. In real terms, public construction spending has declined to 2001 levels.

by Calculated Risk on 9/03/2013 10:05:00 AM

The ISM manufacturing index indicated faster expansion in August. The PMI was at 55.7% in August, up from 55.4% in July. The employment index was at 53.3%, down from 54.4%, and the new orders index was at 63.2%, up from 58.3% in July.

From the Institute for Supply Management: August 2013 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in August for the third consecutive month, and the overall economy grew for the 51st 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 55.7 percent, an increase of 0.3 percentage point from July's reading of 55.4 percent. August's PMI™ reading, the highest of the year, indicates expansion in the manufacturing sector for the third consecutive month. The New Orders Index increased in August by 4.9 percentage points to 63.2 percent, and the Production Index decreased by 2.6 percentage points to 62.4 percent. The Employment Index registered 53.3 percent, a decrease of 1.1 percentage points compared to July's reading of 54.4 percent. The Prices Index registered 54 percent, increasing 5 percentage points from July, indicating that overall raw materials prices increased when compared to last month. Comments from the panel range from slow to improving business conditions depending upon the industry."
emphasis added

Click on graph for larger image.

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

This was above expectations of 53.8% and suggests manufacturing expanded at a slightly faster pace in August.

by Calculated Risk on 9/03/2013 09:01:00 AM

Notes: This CoreLogic House Price Index report is for July. The recent Case-Shiller index release was for June. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic Reports July Home Prices Rise by 12.4 Percent Year Over Year

Home prices nationwide, including distressed sales, increased 12.4 percent on a year-over-year basis in July 2013 compared to July 2012. This change represents the 17th consecutive monthly year-over-year increase in home prices nationally. On a month-over-month basis, including distressed sales, home prices increased by 1.8 percent in July 2013 compared to June 2013.

Excluding distressed sales, home prices increased on a year-over-year basis by 11.4 percent in July 2013 compared to July 2012. On a month-over-month basis, excluding distressed sales, home prices increased 1.7 percent in July 2013 compared to June 2013. Distressed sales include short sales and real estate owned (REO) transactions.

The CoreLogic Pending HPI indicates that August 2013 home prices, including distressed sales, are expected to rise by 12.3 percent on a year-over-year basis from August 2012 and rise by 0.4 percent on a month-over-month basis from July 2013. Excluding distressed sales, August 2013 home prices are poised to rise 12.2 percent year over year from August 2012 and by 1.2 percent month over month from July 2013.
...
“Home prices continued to surge in July,” said Dr. Mark Fleming, chief economist for CoreLogic. “Looking ahead to the second half of the year, price growth is expected to slow as seasonal demand wanes and higher mortgage rates have a marginal impact on home purchase demand.”

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 1.8% in July, and is up 12.4% over the last year.  This index is not seasonally adjusted, and this is usually the strongest time of the year for price increases.

The index is off 17.6% from the peak - and is up 22.8% from the post-bubble low set in February 2012.

The second graph is from CoreLogic. The year-over-year comparison has been positive for seventeen consecutive months suggesting house prices bottomed early in 2012 on a national basis (the bump in 2010 was related to the tax credit).

This is the largest year-over-year increase since 2006.

I expect the year-over-year price increases to slow in the coming months.

by Calculated Risk on 9/03/2013 08:11:00 AM

LPS released their Mortgage Monitor report for July today. According to LPS, 6.41% of mortgages were delinquent in July, down from 6.68% in June. LPS reports that 2.82% of mortgages were in the foreclosure process, down from 4.08% in July 2012.

This gives a total of 9.23% delinquent or in foreclosure. It breaks down as:

• 1,846,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,347,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,406,000 loans in foreclosure process.

For a total of ​​4,599,000 loans delinquent or in foreclosure in July. This is down from 5,562,000 in July 2012.

Click on graph for larger image.

This graph from LPS shows percent of loans delinquent and in the foreclosure process over time.

From LPS:

The strong downward trend in delinquencies and foreclosures continues ... Foreclosure starts year to date were the lowest since 2007; almost 50% are repeats ... Delinquency and foreclosure improvement extends across virtually all products

Delinquencies and foreclosures are still high, but moving down - and might be back to normal levels in a couple of years.

There is much more in the mortgage monitor.

by Calculated Risk on 9/02/2013 08:59:00 PM

Tuesday:
• Early: The LPS July Mortgage Monitor report. This is a monthly report of mortgage delinquencies and other mortgage data.

• At 9:00 AM ET, The Markit US PMI Manufacturing Index for August. The consensus is for the index to increase to 53.9 from 53.7 in July.

• 10:00 AM, the ISM Manufacturing Index for August. The consensus is for an decrease to 53.8 from 55.4 in July. Based on the regional surveys, a decrease in August seems likely. The ISM manufacturing index indicated expansion in 55.4% in July. The employment index was at 54.4%, and the new orders index was at 58.3%

• Also at 10:00 AM, Construction Spending for July. The consensus is for a 0.3% increase in construction spending.

Weekend:
• Schedule for Week of September 1st

The Nikkei is up about 2.3%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up 15 and DOW futures are up 111 (fair value).

Oil prices have declined slightly with WTI futures at $106.87 per barrel and Brent at $114.34 per barrel.  Below is a graph from Gasbuddy.com for nationwide gasoline prices.  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