by Calculated Risk on 8/29/2014 09:59:00 AM

Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for August was at 82.5, up from the preliminary reading of 79.2, and up from 81.8 in July.

This was above the consensus forecast of 80.3. Sentiment has generally been improving following the recession - with plenty of ups and downs - and a big spike down when Congress threatened to "not pay the bills" in 2011.

by Calculated Risk on 8/29/2014 08:41:00 AM

The BEA released the Personal Income and Outlays report for July:

Personal income increased $28.6 billion, or 0.2 percent ... in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $13.6 billion, or 0.1 percent.
...
Real PCE -- PCE adjusted to remove price changes -- decreased 0.2 percent in July, in contrast to an increase of 0.2 percent in June. ... The price index for PCE increased 0.1 percent in July, compared with an increase of 0.2 percent in June. The PCE price index, excluding food and energy, increased 0.1 percent in July, the same increase as in June.

The following graph shows real Personal Consumption Expenditures (PCE) through July 2014 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

PCE is off to a slow start in Q3. NOTE: Graph corrected.

On inflation: The PCE price index increased 1.6 percent year-over-year, and at a 1.0% annualized rate in July. The core PCE price index (excluding food and energy) increased 1.5 percent year-over-year in July, and at a 1.1% annualized rate in July.

by Calculated Risk on 8/28/2014 07:46:00 PM

Friday:
• At 8:30 AM ET, Personal Income and Outlays for July. The consensus is for a 0.3% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:45 AM, the Chicago Purchasing Managers Index for August. The consensus is for an increase to 56.0, up from 52.6 in July.

• At 9:55 AM, the Reuter's/University of Michigan's Consumer sentiment index (final for August). The consensus is for a reading of 80.3, up from the preliminary reading of 79.2, and down from the July reading of 82.5.

And on the GDP revision from the BEA: Gross Domestic Product, Second Quarter 2014 (Second Estimate); Corporate Profits, Second Quarter 2014 (Preliminary Estimate)

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 4.2 percent in the second quarter of 2014, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 4.0 percent. With this second estimate for the second quarter, the general picture of economic growth remains the same; the increase in nonresidential fixed investment was larger than previously estimated, while the increase in private inventory investment was smaller than previously estimated

Here is a Comparison of Second and Advance Estimates.

Below is a table comparing the contributions to the percent change for a few categories.  Less inventory, more investment ... a positive.

Revision: Contributions to Percent Change in Real Gross Domestic Product
	Advance	2nd Release	Revision
GDP, Percent change at annual rate:	4.0	4.2	0.2
PCE, Percentage points at annual rates:
Personal consumption expenditures	1.69	1.69	0.0
Investment, Percentage points at annual rates:
Nonresidential Structures	0.15	0.26	0.11
Equipment	0.40	0.59	0.19
Intellectual property products	0.14	0.17	0.03
Residential	0.23	0.22	-.01
Change in private inventories	1.66	1.39	-0.27
Trade, Percentage points at annual rates:
Net exports of goods and services	-0.61	-0.43	0.18
Government, Percentage points at annual rates:
Federal Government	-0.05	-0.06	-0.01
State and Local	0.35	0.33	-0.02

by Calculated Risk on 8/28/2014 02:15:00 PM

From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Slowed Slightly

The Federal Reserve Bank of Kansas City released the August Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity slowed slightly, but producers’ expectations for future activity remained solid.

“Growth eased a bit from last month’s pace,” Wilkerson said. “Still, August represented the eighth straight month of expansion in the region, and plant managers remained generally optimistic.”
...
The month-over-month composite index was 3 in August, down from 9 in July and 6 in June. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.

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

All of the regional surveys showed expansion in August, and it seems likely the ISM index will be in mid-to-high 50 range again this month.  The ISM index for August will be released Tuesday, September 2nd.

by Calculated Risk on 8/28/2014 11:16:00 AM

The FDIC released the Quarterly Banking Profile for Q2 today.

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $40.2 billion in the second quarter of 2014, up $2.0 billion (5.3 percent) from earnings of $38.2 billion the industry reported a year earlier. The increase in earnings was mainly attributable to a $1.9 billion (22.4 percent) decline in loan-loss provisions and a $1.5 billion (1.4 percent) decline in noninterest expenses. Also, strong loan growth contributed to an increase in net interest income compared to a year ago. However, lower income from reduced mortgage activity and a drop in trading revenue contributed to a year-over-year decline in noninterest income.
...
"We saw further improvement in the banking industry during the second quarter," FDIC Chairman Martin J. Gruenberg said. "Net income was up, asset quality improved, loan balances grew at their fastest pace since 2007, and loan growth was broad-based across institutions and loan types. We also saw a large decline in the number of problem banks. However, challenges remain. Industry revenue has been under pressure from narrow net interest margins and lower mortgage-related income. Institutions have been extending asset maturities, which is raising concerns about interest-rate risk. And banks have been increasing higher-risk loans to leveraged commercial borrowers. These issues are matters of ongoing supervisory attention. Nonetheless, on balance, results from the second quarter reflect a stronger banking industry and stronger community banks."
emphasis added

The FDIC reported the number of problem banks declined:

he number of "problem banks" fell for the 13th consecutive quarter. The number of banks on the FDIC's "Problem List" declined from 411 to 354 during the quarter. The number of "problem" banks now is 60 percent below the post-crisis high of 888 at the end of the first quarter of 2011. Seven FDIC-insured institutions failed in the second quarter, compared to 12 in the second quarter of 2013.

Click on graph for larger image.

The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $6.57 billion in Q1 2014 to $6.22 billion in Q2. This is the lowest level of REOs since Q3 2007. Even in good times, the FDIC insured institutions have about $2.5 billion in residential REO.

This graph shows the dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

by Calculated Risk on 8/28/2014 10:03:00 AM

From the NAR: Pending Home Sales Pick Up in July

The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 3.3 percent to 105.9 in July from 102.5 in June, but is still 2.1 percent below July 2013 (108.2). The index is at its highest level since August 2013 (107.1) and is above 100 – considered an average level of contract activity – for the third consecutive month.
...
The PHSI in the Northeast jumped 6.2 percent to 89.2 in July, and is 8.3 percent above a year ago. In the Midwest the index marginally fell 0.4 percent to 104.6 in July, and is 6.4 percent below July 2013.

Pending home sales in the South increased 4.2 percent to an index of 119.0 in July, and is now 1.0 percent below a year ago. The index in the West rose 4.0 percent in July to 99.5, but remains 6.0 percent below July 2013.

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

by Calculated Risk on 8/28/2014 08:33:00 AM

The DOL reports:

In the week ending August 23, the advance figure for seasonally adjusted initial claims was 298,000, a decrease of 1,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 298,000 to 299,000. The 4-week moving average was 299,750, a decrease of 1,250 from the previous week's revised average. The previous week's average was revised up by 250 from 300,750 to 301,000.

There were no special factors impacting this week's initial claims.

The previous week was revised up to 299,000.

The following graph shows the 4-week moving average of weekly claims since January 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 299,750.

This was close to the consensus forecast of 300,000.

by Calculated Risk on 8/27/2014 07:44:00 PM

CR Note: Many analysts and reporters use Census data to estimate ongoing household formation. They are ignoring severe problems with the Census estimates ... from housing economist Tom Lawler:

For well over a decade I have been trying to get Census to explain the widely different estimates of households from different surveys. In a 2004 "summit" that I hosted at Fannie Mae, I asked Census officials "what household number from a time series perspective should analysts use as the best estimate from Census?" The answer I got a decade a go was, "that's a good question." Read the attached.

Household Estimates Conundrum: Effort to Develop More Consistent Household Estimates Across Surveys

And here is the conclusion section from the above.

We have an obligation to our data users to provide clear, unambiguous explanations and guidance about the estimates we provide on households (occupied housing units). In our role as the "leading source of quality data about the Nation’s people and economy," we ultimately should be able to:

1. Develop a common methodology that produces reasonably consistent estimates of households (and, therefore, vacant housing units) across our current surveys,

2. Develop a common methodology that may still produce noticeable differences but still be able to explain differences and recommend a preferred estimate, or

3. Be able to explain why we cannot develop a common methodology and be able to explain the differences and provide guidance about the agency’s preferred estimate of households (occupied housing units) for the United States.

It's been a long slog ...

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 300 thousand from 298 thousand.

• Also at 8:30 AM, Gross Domestic Product, 2nd quarter 2014 (second estimate). The consensus is that real GDP increased 4.0% annualized in Q2, unchanged from 4.0% in the advance estimate.

• At 10:00 AM, the Pending Home Sales Index for July. The consensus is for a 0.5% increase in the index.

• At 11:00 AM, the Kansas City Fed manufacturing survey for August. This is the last of the Fed regional surveys for August.

by Calculated Risk on 8/27/2014 04:27:00 PM

I use the weekly Freddie Mac Primary Mortgage Market Survey® (PMMS®) to track mortgage rates. The PMMS series started in 1971, so there is a fairly long historical series.

For daily rates, the Mortgage News Daily has a series that tracks the PMMS very well, and is usually updated daily around 4 PM ET. The MND data is based on actual lender rate sheets, and is mostly "the average no-point, no-origination rate for top-tier borrowers with flawless scenarios". (this tracks the Freddie Mac series).

MND reports that average 30 Year fixed mortgage rates declined today to 4.11% from 4.13% yesterday.

One year ago rates were at 4.61%, so rates are down 50 bps year-over-year.

I've mentioned before that mortgage refinancing tends to pickup when mortgage rates drop by about 50 bps from the recent levels.  However rates were only at or above 4.60% for a short period - and many homeowners refi'd when rates were below 4% in 2012 and 2013.  So I don't expect a "refi boom" right now.

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 8/27/2014 12:36:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in July to 2.02% from 2.07% in June. Freddie's rate is down from 2.70% in July 2013, and this is the lowest level since January 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". 

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for July in a few days.

Click on graph for larger image

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

The serious delinquency rate has fallen 0.68 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until early 2016.

Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales for perhaps 2 more years (mostly in judicial foreclosure states).