by Calculated Risk on 12/09/2013 04:32:00 PM

Here is another weekly update on housing inventory ... for the eight consecutive week, housing inventory is up year-over-year.  This suggests inventory bottomed early 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 October).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years.

Click on graph for larger image.

This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012 and 2013.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.

Inventory in 2013 is now 1.8% above the same week in 2012 (red is 2013, blue is 2012).

We can be pretty confident that inventory bottomed early this year.  Inventory is still very low, but this increase in inventory should slow house price increases. 

Note: One of the key questions for 2014 will be: How much will inventory increase?  I'll post some thoughts on inventory at the end of the year.

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

The Federal Reserve released the Q3 2013 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q3 compared to Q2, and is at a new record. Net worth peaked at $69.1 trillion in Q3 2007, and then net worth fell to $55.7 trillion in Q1 2009 (a loss of $13.4 trillion). Household net worth was at $77.3 trillion in Q3 2013 (up $21.6 trillion from the trough in Q1 2009).

The Fed estimated that the value of household real estate increased to $19.0 trillion in Q3 2013. The value of household real estate is still $3.6 trillion below the peak in early 2006.

Click on graph for larger image.

This is the Households and Nonprofit net worth as a percent of GDP.  Although household net worth is at a record high, as a percent of GDP it is still below the peaks in 2000 (stock bubble) and 2006 (housing bubble).

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This ratio was increasing gradually since the mid-70s, and then we saw the stock market and housing bubbles. The ratio has been trending up and increased again in Q3 with both stock and real estate prices increasing.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q3 2013, household percent equity (of household real estate) was at 50.7% - up from Q2, and the highest since Q2 2007. This was because of both an increase in house prices in Q3 (the Fed uses CoreLogic) and a reduction in mortgage debt.

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 52+ million households with mortgages have far less than 50.7% equity - and millions have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt increased by $10.0 billion in Q3.  (Still declined as percent of GDP).  This is the first increase in mortgage debt since Q1 2008.

Mortgage debt has now declined by $1.32 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The value of real estate, as a percent of GDP, was up in Q3 (as house prices increased), but still close to the average of the last 30 years (excluding bubble). However household mortgage debt, as a percent of GDP, is still historically high, suggesting a little more deleveraging ahead for certain households.

by Calculated Risk on 12/09/2013 09:27:00 AM

An agreement should be reached this week ...

From Ezra Klein and Evan Soltas at the WaPo: Wonkbook: The ‘Grand Bargain’ is over

The budget deal Patty Murray and Paul Ryan are crafting isn't a "grand bargain." ... But the deal does lift about a third of sequestration's cuts while giving agencies more flexibility to deal with the rest. It does mean the 2014 budget is the work of human hands rather than automatic cuts. It might be a vehicle for Capitol Hill to extend expiring unemployment benefits. And it would be a small but real boost to the economy.

Joel Prakken of Macroeconomic Advisors says the deal "would be a modest boost to GDP growth (relative to sequester). Maybe 1/4 percentage point." Moody's Mark Zandi adds in the possibility of extending unemployment insurance and estimates that "the lift to GDP next year compared to current law is .4. Small, but it matters."

Reducing the sequester budget cuts is good policy.  And it would be good economics (and good overall policy) to extend the emergency unemployment benefits too - but it isn't clear if that will happen.

by Calculated Risk on 12/08/2013 08:44:00 PM

This will be a light week for economic data, but there will be plenty of discussion about when the Fed will start to taper QE3 asset purchases. From Binyamin Appelbaum at the NY Times: Fed’s Plan to Taper Stimulus Effort Not Expected Until Next Year

Federal Reserve officials are in no hurry to retreat from their bond-buying campaign to stimulate the economy and are likely to postpone any cuts to the program until next year, according to public statements by Fed officials and interviews with some of them.
...
[I]nfluential Fed officials see little harm in postponing the decision, particularly compared with the risks of pulling back too soon. Significant details of the eventual retreat also remain the subjects of unresolved debates, according to the public statements and interviews. And some officials argue that the slow pace of inflation is itself a reason for the Fed to maintain its stimulus campaign.

I still think there is a chance that the taper will start in December, but the consensus seems to be early in 2014 (either at the January or March meeting).

Another key event this week will be the expected "small ball" budget agreement on Friday. From Lori Montgomery at the WaPo: Budget deal expected this week amounts to a cease-fire as sides move to avert a standoff

House and Senate negotiators were putting the finishing touches Sunday on what would be the first successful budget accord since 2011 ...

Senior aides familiar with the talks say the emerging agreement aims to partially repeal the sequester and raise agency spending to roughly $1.015 trillion in fiscal 2014 and 2015. That would bring agency budgets up to the target already in place for fiscal 2016. To cover the cost, Ryan and Murray are haggling over roughly $65 billion in alternative policies, including cuts to federal worker pensions and higher security fees for the nation’s airline passengers.

Cutting back the sequester is good economic policy, and we don't need more austerity right now ... so this agreement will be a positive for the economy.

Weekend:
• Schedule for Week of December 8th

• Update: Four Charts to Track Timing for QE3 Tapering

The Nikkei is up about 1.8%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up 2 and DOW futures are up 20 (fair value).

Oil prices are up with WTI futures at $97.76 per barrel and Brent at $111.58 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.24 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 12/08/2013 03:31:00 PM

Friday on the employment report:
• November Employment Report: 203,000 Jobs, 7.0% Unemployment Rate
• Employment Report: Decent Report, Solid Seasonal Retail Hiring


A few more employment graphs by request ...

Duration of Unemployment
This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

The general trend is down for all categories, and both the "less than 5 weeks" and 6 to 14 weeks" are close to normal levels. 

The long term unemployed is at 2.6% of the labor force - the lowest since May 2009 - however the number (and percent) of long term unemployed remains a serious problem.

Unemployment by Education
This graph shows the unemployment rate by four levels of education (all groups are 25 years and older).

Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down.

Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment!

Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".

Construction Employment
This graph shows total construction employment as reported by the BLS (not just residential).

Since construction employment bottomed in January 2011, construction payrolls have increased by 416 thousand.    According to the BLS, essentially no construction jobs have been over the last five months.  Historically there is a lag between an increase in activity and more hiring - and it appears hiring should pickup significant in 2014.

Diffusion Indexes
 The BLS diffusion index for total private employment was at 63.5 in November, up from 61.1 in October.

For manufacturing, the diffusion index increased to 63.0, up from 56.8 in October.

Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. From the BLS:

Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.

Job growth was widespread in November (a good sign).  

by Calculated Risk on 12/08/2013 09:55:00 AM

Here is an update of the four charts I'm using to track when the Fed will start tapering QE3 purchases.

In general the year-end data might be "broadly consistent" with the June (and September) FOMC projections.

However I suspect the FOMC is very concerned about the low level of inflation, and also the decline in the employment participation rate.

The December FOMC meeting is on the 17th and 18th.  Note: Another key is that a budget agreement is reached by December 13th.

Click on graph for larger image.

The first graph is for the unemployment rate.

The current forecast is for the unemployment rate to decline to 7.1% to 7.3% in Q4 2013.

We only have data through November, but it is pretty clear that the  unemployment rate is tracking the FOMC forecast (lower is better). 

However, in July, Bernanke said that the unemployment rate "probably understates the weakness of the labor market."  He suggested he is watching other employment indicators too, and I suspect the FOMC will also discuss the decline in the participation rate.

The second graph is for GDP.

The current forecast is for GDP to increase between 2.0% and 2.3% (the FOMC revised down their forecast from 2.3% and 2.6% in June).  This is the increase in GDP from Q4 2012 to Q4 2013.

Currently GDP is tracking the FOMC forecasts, and real GDP only has to increase 0.8% annualized in Q4 to reach the lower forecast.  Even with a negative contribution from inventories in Q4, it appears GDP will meet the lower forecast.

The third graph is for PCE prices.

The current forecast is for prices to increase 1.1% to 1.2% from Q4 2012 to Q4 2013.  This was revised up from 0.8% to 1.2% in June.

We only have data through October, but so far PCE prices are below this projection - and this projection is significantly below the FOMC target of 2%. Clearly the FOMC expects inflation to pickup, and a key is if the recent decline in inflation is "transitory".

The fourth graph is for core PCE prices

The current forecast is for core prices to increase 1.2% to 1.3% from Q4 2012 to Q4 2013.

Through October core PCE prices are below this projection - and, once again, this projection is significantly below the FOMC target of 2%.

by Calculated Risk on 12/07/2013 01:11:00 PM

This will be a light week for economic data.

The key report this week will be retail sales for November.

----- Monday, December 9th -----
12:00 PM: Q3 Flow of Funds Accounts of the United States from the Federal Reserve.

----- Tuesday, December 10th -----
7:30 AM ET: NFIB Small Business Optimism Index for November.

10:00 AM: Job Openings and Labor Turnover Survey for October from the BLS.

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

Jobs openings increased in September to 3.913 million from 3.844 million in August.  The number of job openings (yellow) is up 8.6% year-over-year compared to September 2012 and openings are at the highest level since early 2008.

Quits were mostly unchanged in September and are up about 18% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

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

----- Wednesday, December 11th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

----- Thursday, December 12th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 325 thousand from 298 thousand last week.

8:30 AM ET: Retail sales for November 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 29.1% from the bottom, and now 13.2% above the pre-recession peak (not inflation adjusted)

The consensus is for retail sales to be 0.6% in November, and to increase 0.3% ex-autos.

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

----- Friday, December 13th -----
8:30 AM: Producer Price Index for November. The consensus is for a 0.1% decrease in producer prices (and 0.1% increase in core PPI).

by Calculated Risk on 12/07/2013 08:36:00 AM

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

Here is the unofficial problem bank list for December 6, 2013.

Changes and comments from surferdude808:

There were only two removals this week to the Unofficial Problem Bank List, which now stand at 643 institutions with assets of $219.8 billion. A year ago, the list held 849 institutions with assets of $316.2 billion.

The Federal Reserve terminated the Written Agreement against Peoples Bank, Lawrence, KS ($412 million). Metropolitan National Bank, Little Rock, AR ($973 million) merged with Simmons First National Bank, Pine Bluff, AR to exit the list.

There is nothing new to report on the status of the banking subsidiaries controlled by Capitol Bancorp, Ltd. Next week should be fairly quiet as we do not anticipate the OCC releasing its latest action activity until December 20th.

Note on the unofficial list:

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

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

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

by Calculated Risk on 12/06/2013 08:53:00 PM

From the Association of American Railroads (AAR): AAR Reports Increased Intermodal, Carload Traffic for November

The Association of American Railroads (AAR) today reported increased U.S. rail traffic for November 2013 over November 2012. Intermodal traffic in November totaled 1,007,549 containers and trailers, up 7.8 percent (73,004 units) compared with November 2012. The weekly average of 251,887 intermodal containers and trailers per week in November 2013 was the highest weekly average for any November in history. Carloads originated in November 2013 totaled 1,145,353, up 1.3 percent (14,931 carloads) compared with the same month last year.
...
Excluding coal, U.S. carloads were up 5.3 percent, or 34,988 carloads, in November 2013 compared with November 2012. Excluding coal and grain, U.S. carloads were up 3.3 percent, or 19,303 carloads, in November.

“U.S. rail traffic in November 2013 saw a big decline in coal carloads that was more than offset by gains in carloads of grain and petroleum products,” said AAR Senior Vice President John T. Gray. “Carload traffic continues to be consistent with an economy that’s growing at a moderate pace. Meanwhile, rail intermodal volume was extremely strong in November, demonstrating the tremendous value that intermodal has become for rail customers.”
emphasis added

Click on graph for larger image.

This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Green is 2013.

U.S. rail carloads were up 1.3% (14,931 carloads) in November 2013 over November 2012, totaling 1,145,353 carloads for the month. That’s the fourth consecutive year-over-year monthly increase, the first time that’s happened in two years. The weekly average in November 2013 was 286,338 carloads ...

Among the 20 commodity categories tracked by the AAR each month, grain had by far the biggest carload gain in November, with grain carloads up 15,685 (20.6%) over the same month last year. ... Carloads of petroleum and petroleum products averaged 14,532 per week in November 2013, up 20.0% over November 2012.

Graphs and excerpts reprinted with permission.

The second graph is for intermodal traffic (using intermodal or shipping containers):

Intermodal traffic is on track for a record year in 2013.

U.S. railroads originated an average of 251,887 intermodal containers and trailers per week in November 2013, easily the highest weekly average for any November in history and up 7.8% (73,004 intermodal units) over November 2012. That’s the biggest year-over-year percentage change in nine months.

To date, the peak full year for U.S. rail intermodal volume is 2006, when originations totaled 12.3 million containers and trailers. In order for 2013 not to set an annual record, intermodal volume in December 2013 would have to average no more than approximately 102,000 units per week. So far in 2013, the weekly average has been more than 247,000 units, so it’s a safe bet that next month in this space we’ll be reporting that 2013 was a record year for intermodal.

Rail traffic and the economy usually grow together, so this is a good sign for the overall economy.

by Calculated Risk on 12/06/2013 05:26:00 PM

From the Congressional Budget Office (CBO): Monthly Budget Review for November 2013

The federal government ran a budget deficit of $231 billion for the first two months of fiscal year 2014, $61 billion less than the shortfall recorded in October and November of last year, CBO estimates.
...
Receipts for the first two months of fiscal year 2014 totaled $380 billion, CBO estimates—$34 billion more than receipts during the same period last year.

...
Outlays for the first two months of fiscal year 2014 were $27 billion less than they were during the same period last year, CBO estimates. That decrease would have been slightly larger if not for shifts in the timing of certain payments from December to November (because December 1 fell on a weekend in both years). Without those timing shifts, CBO estimates, spending would have declined by $29 billion (or 5 percent).

The most recent CBO projection put the fiscal 2014 deficit at 3.3% of GDP, down from 4.1% in fiscal 2013. These monthly deficits suggest even more improvement in fiscal 2014 than originally forecast.