by Calculated Risk on 10/08/2013 07:31:00 AM

From the National Federation of Independent Business (NFIB): Small Businesses Skeptical About Future; Optimism Dips

Small-business owner optimism did not “crash “ in September, but it did fall, dropping 0.20 from August’s reading of 94.1 and landing at 93.9. The largest contributing factor to the dip was the significant increase in pessimism about future business conditions, although this was somewhat offset by a notable increase in number of small-business owners expecting higher sales. Overall, four Index components improved, four fell and two remained unchanged from August. While it is premature to measure the impact of the government shut-down on the small-business sector, it’s possible that the pending “crisis” impacted economic outlook. ...

Job Creation. Job creation was down in September. NFIB owners reduced employment by an average of 0.1 workers per firm in September after August’s slight gain (0.08 workers added on average) following three months of negative numbers.

Small business hiring plans decreased slightly in the September survey to a reading of 9 from 10 in August (zero is neutral). This is a solid reading.

In another small sign of good news, only 17% of owners reported poor sales as the top problem (lack of demand). This was down from 21% a year ago, and half the peak of 34% during the recession. During good times, small business owners usually complain about taxes and regulations - and those are now the top problems again.

Click on graph for larger image.

This graph shows the small business optimism index since 1986. The index decreased to 93.8 in September from 94.1 in August.   This is still low, but just below the post-recession high.

However this was before the U.S. House shutdown the government, and October's reading may be grim.

by Calculated Risk on 10/07/2013 08:50:00 PM

There are now deniers who claim there will not be serious economic damage if the country doesn't pay the bills (aka raise the "debt ceiling").   That is crazy talk.  It would probably take a few weeks before the economy completely tanked - but it would tank.

Interesting - it seems the "debt ceiling" deniers (like Larry Kudlow) are many of the same people who said there was no housing bubble!  Note: I still believe - no matter how crazy Congressmen talk - that Congress will pay the bills (raise the debt ceiling). 

From the WSJ: Debt Limit Taking Center Stage in Impasse

Senate Democrats this week are planning a vote to extend the nation's borrowing authority through 2014, the latest sign that the focus of the budget impasse is shifting toward preventing a U.S. debt default.

From the WaPo: Obama, Senate Dems hope to break logjam soon with debt ceiling bill

President Obama and Senate Democrats tried Monday to break a political logjam that could threaten the U.S. economy, advancing legislation that would raise the federal debt ceiling as soon as possible.

Democrats said they will attempt to force Republicans to agree to a $1 trillion debt-limit increase to ensure that the government does not reach a point this month where it may be unable to pay its bills, risking its first default. They said they also may accept a short-term bill, perhaps lasting only weeks, to avoid going over the brink.

The Democratic push on the debt limit came as a partial government shutdown entered its second week with no solution in sight. New polling showed that the fiscal standoff is hurting Republicans far more than it is Obama, although no party is faring particularly well.

Unfortunately voters will forget the shutdown of the government.

Tuesday:
• 7:30 AM ET, the NFIB Small Business Optimism Index for September.

• DELAYED: At 8:30 AM, the Trade Balance report for August from the Census Bureau. The consensus is for the U.S. trade deficit to increase to $40.0 billion in August from $39.1 billion in July.

• DELAYED 10:00 AM, the Job Openings and Labor Turnover Survey for August from the BLS.

by Calculated Risk on 10/07/2013 05:08:00 PM

From housing economist Tom Lawler:  Fannie Mae on Government Shutdown and Government Verifications

“In some instances, Fannie Mae requires validation through a government agency, such as the Internal Revenue Service (IRS) and the Social Security Administration (SSA) for certain documentation or information provided by the borrower. During the government shutdown, these requests may not be processed. Fannie Mae is implementing the following temporary policies with regard to these two agencies.

“IRS Transcripts: Fannie Mae requires lenders to have each borrower (regardless of income source) complete and sign a separate IRS Request for Transcript of Tax Return (Form 4506-T) at or before closing. Lenders are only required to execute the Form 4506-T prior to closing for loans originated and underwritten with the policies pertaining to borrowers with five to ten financed properties. This policy requires the lender to obtain the IRS copies of the tax returns or transcripts to validate the accuracy of the tax returns provided by the borrower prior to the loan closing.

“Because these requests may not be processed during the shutdown, Fannie Mae is temporarily revising this policy to enable lenders to obtain the transcripts and complete the validation after closing but prior to delivery of the loan. Loans originated and underwritten in accordance with the five to ten financed properties policy with tax returns that cannot be validated prior to delivery are not eligible for sale to Fannie Mae.

“Social Security Number Validation: When data integrity issues pertaining to the borrower’s Social Security number are identified, a lender may be required to validate the Social Security number with the SSA using SSA Form 89. Because these requests may not be processed during the shutdown, Fannie Mae is temporarily revising this policy to enable lenders to obtain the verification prior to the delivery of the loan. If the Social Security number cannot be validated with the SSA prior to delivery, the loan is not eligible for sale to Fannie Mae.”

Other temporary Seller and Servicing Policy changes related to the government shutdown can be found in Lender Letter LL-2013-08.

by Calculated Risk on 10/07/2013 01:41:00 PM

The CBO monthly budget report for September (and fiscal 2013¹) that was due today has been delayed. From the CBO: CBO's Monthly Budget Review Will Not Be Published Today

Because a lapse in appropriated funds has caused CBO to largely shut down its operations, the Monthly Budget Review, which ordinarily would be issued this morning, will not be published today or during the duration of the government shutdown.
emphasis added

The CBO has been projecting the deficit would decline significantly this year:

[T]he budget deficit will shrink this year to $642 billion, the Congressional Budget Office (CBO) estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.

Flying blind.  Time to end the shutdown.

¹ The Federal Government fiscal year runs from Oct 1st through September 30th of each year.

by Calculated Risk on 10/07/2013 10:30:00 AM

Here is another graph on framing lumber prices (as an indicator of building activity). Early this year I mentioned that lumber prices were nearing the housing bubble highs. Then prices started to decline sharply, with prices off over 25% from the highs by June.

Prices have been increasing again since June (there is some seasonality to prices).

Currently prices are up about 20% year-over-year.

Click on graph for larger image in graph gallery.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through last week (via NAHB), and 2) CME framing futures.

Lumber prices have been increasing again lately.

by Calculated Risk on 10/07/2013 08:48:00 AM

LPS released their Mortgage Monitor report for August today. According to LPS, 6.20% of mortgages were delinquent in August, down from 6.41% in July. LPS reports that 2.66% of mortgages were in the foreclosure process, down from 4.04% in August 2012.

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

• 1,836,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,288,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,341,000 loans in foreclosure process.

For a total of ​​4,465,000 loans delinquent or in foreclosure in August. This is down from 5,450,000 in August 2012.

LPS has found that prepayment activity declined sharply (no surprise with higher rates). LPS also thinks we might see a pickup in home equity borrowing:

The August Mortgage Monitor report released by Lender Processing Services found that prepayment activity (historically a good indicator of mortgage refinance activity) declined sharply in August as mortgage rates continued to rise. In conjunction with those rate increases, a large portion of borrowers has been effectively shifted out of the “refinancible” population. However, at the same time, according to analysis done by LPS, rising home prices and corresponding levels of equity for many borrowers may translate into opportunity for the home equity loan and lines of credit market.

“We have seen prepayments decline by more than 30 percent since May, when mortgage interest rates began climbing approximately 100 basis points to where we are today,” LPS Senior Vice President Herb Blecher said. “As a result, the percentage of borrowers currently in loans with interest rates high enough for refinancing to make fiscal sense has decreased significantly. Over half of borrowers are now ‘out of the money’ with respect to refinancing. In December 2012, the population of potentially refinance-eligible borrowers stood at roughly 10 million. However, refinance activity during that time, along with rising interest rates, have shrunk that pool to just 5.7 million borrowers as of August.

“While higher interest rates may certainly have the effect of tamping down refinance activity, they may actually wind up contributing to a new appetite for home equity loans among homeowners,” Blecher continued. “After bottoming out at the beginning of 2012, home prices are now at their highest levels since 2009, and borrowers who bought or refinanced within the last few years are quite likely to have accumulated additional equity in their homes. Based upon LPS’ analysis of historical borrowing patterns and home value trends, it is possible that we could see an increase in second-lien borrowing among those who have locked in their first mortgages at very low rates and who wish to tap their equity without refinancing into a higher rate.”

There is much more in the mortgage monitor.

by Calculated Risk on 10/06/2013 08:24:00 PM

From Ben Casselman at the WSJ: Workers Stay Put, Curbing Jobs Engine

Workers aren't quitting their jobs to pursue better opportunities. Companies aren't filling positions when they do open up.

Economists refer to job turnover that doesn't change the overall number of employees at a company as "churn." In normal times, churn dwarfs job creation and destruction, as millions of workers resign or are fired and are replaced. By a wide array of measures, however, rates of churn remain far below normal. In 2007, nearly three million workers quit their jobs each month. In July, just 2.3 million did, a figure that has improved only modestly since the recession ended.

Churn doesn't get as much attention as new-job creation, but to people looking for work, it's just as important.
...
Policy makers are taking notice. Federal Reserve Vice Chairwoman Janet Yellen ... last year highlighted the low rate of so-called voluntary quits as an important sign that the economy isn't improving as rapidly as the falling unemployment rate might suggest.

This data is found in the monthly Job Openings and Labor Turnover Survey (JOLTS). Here is a graph from last month's survey:

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Total turnover (churn) is the light blue and red combined.  This is still low. 

Quits are in light blue and have been trending up, but still low.  These are voluntary separations and more quits usually indicate a better labor market.

NOTE: The JOLTS for August is scheduled to be released on Tuesday, but will probably be delayed by the government shutdown.

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

• At 3:00 PM ET, the Consumer Credit report for August from the Federal Reserve. The consensus is for credit to increase $12.8 billion in August.

Weekend:
• Schedule for Week of October 6th

The Nikkei is up about 0.2%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 8 and DOW futures are down 60 (fair value).

Oil prices are down with WTI futures at $103.55 per barrel and Brent at $109.26 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are below $3.40 per gallon.  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 10/06/2013 09:53:00 AM

• The reason the Republicans shutdown the government is an attempt by "conservative" groups to "defund Obamacare".  From the NY Times: A Federal Budget Crisis Months in the Planning

Shortly after President Obama started his second term, a loose-knit coalition of conservative activists led by former Attorney General Edwin Meese III gathered in the capital to plot strategy. ...

Out of that session, held one morning in a location the members insist on keeping secret, came a little-noticed “blueprint to defunding Obamacare,” signed by Mr. Meese and leaders of more than three dozen conservative groups.

It articulated a take-no-prisoners legislative strategy that had long percolated in conservative circles: that Republicans could derail the health care overhaul if conservative lawmakers were willing to push fellow Republicans — including their cautious leaders — into cutting off financing for the entire federal government.

“We felt very strongly at the start of this year that the House needed to use the power of the purse,” said one coalition member ...

Last week the country witnessed the fallout from that strategy: a standoff that has shuttered much of the federal bureaucracy and unsettled the nation.

• This is a radical approach to public policy and it is Not Gonna Happen.

• All of the furloughed federal workers will be paid in full for lost pay during the shutdown. The House passed this bill on Saturday by a 407-0 vote. So workers will be paid for not working.

• Most defense workers have been recalled. From the NY Times: Hagel Recalls Most Defense Department Workers

Defense Secretary Chuck Hagel made a surprise announcement on Saturday that he would recall next week almost all of the 400,000 civilian employees of the Defense Department who had been sent home when the government shut down.

Mr. Hagel said the decision that “most D.O.D. civilians” would now be exempted from furloughs came after Pentagon and Justice Department lawyers interpreted a budget law passed just before the shutdown to include a larger number of workers.

• Congress will pay-the-bills (aka raise the "debt ceiling"). This is not negotiable. Treasury believes they will be low on funds by October 17th.

• Monday, October 14th is Columbus Day (A Federal holiday), and the week of October 14th through October 18th is a "Constituent Work Week" (aka recess). The current schedule is to the have no votes after 3 PM ET on Friday October 11th, so Congress can leave Washington Friday night. It is very unlikely that Congress will leave town that week without agreeing to "pay the bills".

• The bottom line is: 1) the shutdown was caused by groups making non-negotiable demands, 2) the shutdown will be expensive, and my guess is 3) the shutdown will probably end before Congress goes on recess.

by Calculated Risk on 10/05/2013 07:52:00 PM

Note: We will probably see some impact on travel over the next week or two from the government shutdown. The data below is before the shutdown.

From HotelNewsNow.com: STR: US results for week ending 28 September

In year-over-year comparisons, occupancy rose 5.8% to 67.8%; ADR was up 8.3% to $115.47; and RevPAR increased 14.5% to $78.31.

The 4-week average of the occupancy rate is close to normal levels.

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Click on graph for larger image.

The red line is for 2013, yellow is for 2012, blue is "normal" and black is for 2009 - the worst year since the Great Depression for hotels.

Through September 28th, the 4-week average of the occupancy rate is slightly higher than the same period last year and is tracking just above the pre-recession levels.  The 4-week average of the occupancy rate would usually increase seasonally over the next several weeks, before declining during the holidays. 

Overall - before the shutdown - this has been a decent year for the hotel industry.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 10/05/2013 12:51:00 PM

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

Here is the unofficial problem bank list for October 4, 2013.

Changes and comments from surferdude808:

The FDIC released its enforcement action activity through August 2013 on Monday , September 30th, which was a change in the timing of the release as they usually release on the last Friday of the month. In this case, that would have been Friday, September 27th. We are unsure if this a permanent change going forward or one-off because of some technical issue. The release did contribute to many changes to the Unofficial Problem Bank List. Moreover, it allowed us to update the quarterly transition matrix.

This week there were eight removals and three additions that leave the list holding 685 institutions with assets of $238.7 billion. A year ago, the list held 873 institutions with assets of $334.9 billion.

All removals were action terminations for First Bank and Trust, New Orleans, LA ($716 million); The Delaware County Bank and Trust Company, Lewis Center, OH ($506 million Ticker: DCBF); Cornerstone Bank, Fargo, ND ($233 million); The Citizens Bank of Forsyth County, Cumming, GA ($218 million); Monterey County Bank, Monterey, CA ($211 million Ticker: NRLB); First Security Bank of Nevada, Las Vegas, NV ($119 million); First Sound Bank, Seattle, WA ($106 million Ticker: FSWA); and Town Center Bank, Frankfort, IL ($89 million).

The three additions were Hancock Bank & Trust Company, Hawesville, KY ($317 million); Marshall County State Bank, Varna, IL ($31 million); and Bank of Monticello, Monticello, GA ($93 million). Who would have thought there was a bank in Georgia left to be put under an enforcement action.

With the passage of the third quarter of 2013, we have updated the Unofficial Problem Bank List transition matrix. Full details may be found in the accompanying table. Also, we have added a time series chart depicting the disposition status of banks whose presence has graced the list.

Click on graph for larger image.

In all, there have been 1,659 institutions that have made an appearance on the list. So far, nearly 59 percent or 1,064 of the banks that have appeared on the list have been removed. Action termination has now solidly overtaken failure as the largest manner of exit. Actions have been terminated against 441 banks. During the latest quarter, the banking regulators accelerated action terminations as 64 were removed. At the start of the quarter, the list had 701 banks, so the removal rate was 9.1 percent of the start balance. This removal rate was well above the previous quarterly high of 6.1 percent in the first of 2013 and the absolute number of 53 removals in the third quarter of 2012.

Despite the acceleration of terminations, the other manners of removal still exceed a turnaround in condition that results in action termination. Failures total 368 and, at $293.6 billion, they do account for a far greater share of assets removed than terminations at $191.9 billion. So far, failures have represented 22.1 percent of banks that have appeared on the list, which is well above the low double digit failure rate usually cited by the media for banks that appear on the official list. Voluntary closings and mergers sum to 10 percent of banks that have appeared on the list. The list was first published in August 2009 with 389 banks, so after more than four years, 90 still remain, indicating that its taking many banks a long time to rehabilitate themselves.

Next week should be comparatively quiet as to changes. There is nothing new to pass along on Capitol Bancorp, Ltd.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	117	(37,076,372)
	Unassisted Merger	28	(4,624,747)
	Voluntary Liquidation	4	(10,584,114)
	Failures	150	(183,316,242)
	Asset Change		(8,593,209)
Still on List at 6/30/2013		90	32,118,745
Additions		595	206,591,667
End (10/4/2013)		685	238,710,412
Intraperiod Deletions1
	Action Terminated	324	154,815,490
	Unassisted Merger	126	58,722,086
	Voluntary Liquidation	7	1,760,816
	Failures	218	110,261,224
	Total	675	325,559,616
1Institution not on 8/7/2009 or 10/4/2013 list but appeared on a weekly list.