by Calculated Risk on 11/10/2014 01:08:00 PM

In November 2012, I was interviewed by Joe Weisenthal at Business Insider. One of my comments during our discussion on state and local governments was:

I wouldn’t be surprised if we see all of a sudden a report come out, “Hey, we’ve got a balanced budget in California.”

At the time that was way out of the consensus view. And a couple of months later California announced a balanced budget, see The California Budget Surplus

The situation has improved significantly since then. Here is the most recent update from California State Controller John Chiang: Controller Releases October Cash Update

State Controller John Chiang today released his monthly report covering California's cash balance, receipts and disbursements in October 2014. Total revenues for the fourth month of Fiscal Year 2014-15 were $6.0 billion, coming in above Budget Act estimates by $662.2 million, or 12.3 percent.

For the fiscal year to date (July 1-October 31), total revenues reached $27.9 billion, beating estimates by $1.2 billion, or 4.5 percent.

“Four months into the fiscal year, California's coffers overflow by $1.2 billion. The news comes on the heels of two other positive developments: the vote to strengthen California's rainy-day fund through Proposition 2, and the credit upgrade that followed one day later," Chiang said.
emphasis added

This is just one state, but I've been expecting local and state governments (in the aggregate) to add to both GDP and employment in 2014 - and that has happened.  I expect this trend to continue in 2015.

by Calculated Risk on 11/10/2014 11:42:00 AM

Barry Ritholtz tweeted this morning: "Forcaster who was wrong about recession in 2010 sees recession in 2015" and included a link to this article from Bloomberg: Predictors of ’29 Crash See 65% Chance of 2015 Recession

“Clearly the direction of most of the recent global economic news suggests movement toward a 2015 downturn,” chairman David Levy told clients in an Oct. 23 edition of a monthly forecasting report ... Why the gloom? Levy argues the U.S. and many advanced economies still have balance-sheet excesses exposing them to renewed financial crisis. There is limited room for policy makers to reverse any slump, and low inflation risks tipping into deflation in many parts of the world.

Although there are geopolitical downside risks, and there is the potential for some disastrous political showdown in the U.S. (unlikely), I don't see a recession any time soon.

Of course I could be wrong, but currently I'm not on recession watch!

This reminds me of all those recession calls in 2011 and 2012.  As an example, ECRI called several recessions since August 2011 and all of their calls were wrong.

Part of the problem in forecasting recently is the sluggish recovery has ups and downs, and each down looks like the start of a recession to some models. Another problem is that negative news sells ... and there is an entire industry that sells doom and gloom.  It appears Levy is basing his call on the international showdown, but I doubt that will exert enough of a drag to take the U.S. into recession.

But this does give me a chance to post an update to the recession probability chart from FRED.

Click on graph for larger image in new window.

This graph is based on research by economists Chauvet and Piger. From Professor Piger's site:

"Historically, three consecutive months of smoothed probabilities above 80% has been a reliable signal of the start of a new recession, while three consecutive months of smoothed probabilities below 20% has been a reliable signal of the start of a new expansion."

This approach is useful for calling a recession in real time (of course, no one thinks the U.S. is in recession now).   Longer term, one of the best leading indicators - residential investment - is still increasing and is still very low, and suggests the recovery will continue.   I think a recession in 2015 is very unlikely.

by Calculated Risk on 11/10/2014 10:03:00 AM

In addition to Case-Shiller, and CoreLogic, I'm also watching the FNC, Zillow and several other house price indexes.

FNC released their September index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values decreased 0.3% from August to September (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) decreased between 0.4% and 1.0% in September. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.

The year-over-year (YoY) change was lower in September than in August, with the 100-MSA composite up 6.3% compared to September 2013.   In general, for FNC, the YoY increase has been slowing since peaking in February at 9.3%.

The index is still down 19.3% from the peak in 2006.

Click on graph for larger image.

This graph shows the year-over-year change based on the FNC index (four composites) through September 2014. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

All of the price indexes had been showing a slowdown in price increases.

The September Case-Shiller index will be released on Tuesday, November 25th, and I expect Case-Shiller to show a further slowdown in YoY price increases.

by Calculated Risk on 11/09/2014 09:52:00 PM

It seems like I'm posting a link to an article like this every week, from Reuters: U.S. gasoline prices fell 13 cents in past 2 weeks-Lundberg

The average price of a gallon of gasoline in the United States dropped 13 cents in the past two weeks to its cheapest in nearly four years, according to the latest Lundberg survey released on Sunday.

Gasoline prices fell to $2.94 per gallon of regular grade gasoline, its lowest level since December 2010, according to the survey conducted on Nov. 7.

Lower gasoline prices should give a boost to retailers (ex-gasoline).

Monday:
• At 10:00 AM ET, the Fed will release the new monthly Labor Market Conditions Index (LMCI).

Weekend:
• Schedule for Week of November 9th

• Employment: Party Like It's 1999!

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

Oil prices were down over the last week with WTI futures at $78.98 per barrel and Brent at $83.87 per barrel.  A year ago, WTI was at $95, and Brent was at $105 - so prices are down around 20%  year-over-year.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $2.91 per gallon (down about 30 cents from a year ago).  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 11/09/2014 06:13:00 PM

As of the October BLS report, the economy has added 2.225 million private sector jobs, and 2.285 million total jobs in 2014.

To be the best year since 1999, the economy needs to add an additional 176 thousand private sector jobs (probably happen in November), and 222 thousand total nonfarm jobs.

Also interesting: For the first time since 2008, the public sector will add jobs in 2014.  State and local governments started adding a few jobs last year, but austerity has been ongoing at the Federal level.  According to the WSJ The Federal Government Now Employs the Fewest People Since 1966

Not since July 1966 has the federal government’s workforce been so small. ... But that’s only the raw numbers! As a share of the total workforce ... data going back to 1939 would show no point where the federal government’s share of employment was so low.

In the last 75 years (when the BLS started tracking the data), the public sector (non-military) shed jobs in 12 years. Three of those years were at the end of WWII, two in the early '80s, and the last five consecutive years (unprecedented streak since the Great Depression).

Here is a table of the annual change in total nonfarm and private sector payrolls jobs since 1999.  The last three years have been near the best since 1999 (2005 was the best year for total nonfarm, and 2011 the best for private jobs).

It seems very likely that 2014 will be the best year since 1999 for both total nonfarm and private sector employment.

Change in Payroll Jobs per Year (000s)
	Total, Nonfarm	Private
1999	3,177	2,716
2000	1,946	1,682
2001	-1,735	-2,286
2002	-508	-741
2003	105	147
2004	2,033	1,886
2005	2,506	2,320
2006	2,085	1,876
2007	1,140	852
2008	-3,576	-3,756
2009	-5,087	-5,013
2010	1,058	1,277
2011	2,083	2,400
2012	2,236	2,294
2013	2,331	2,365
20141	2,742	2,670
1 2014 is current pace annualized (through October).

by Calculated Risk on 11/09/2014 12:57:00 PM

This is an update to a previous post through October.

Earlier this year, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group and The Future is still Bright!

I pointed out that "even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon."

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through October 2014.

Click on graph for larger image.

There was a huge surge in the prime working age population in the '70s, '80s and '90s - and the prime age population has been mostly flat recently (even declined a little).

The prime working age labor force grew even quicker than the population in the '70s and '80s due to the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s!

So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply).

The prime working age population peaked in 2007, and appears to have bottomed at the end of 2012.  The good news is the prime working age group has started to grow again, and should be growing solidly by 2020 - and this should boost economic activity in the years ahead.

by Calculated Risk on 11/08/2014 04:52:00 PM

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

Here is the unofficial problem bank list for Nov 7, 2014.

Changes and comments from surferdude808:

Surprising these days to have a bank failure in three out of the past four weeks, but that is just what happened. Along with the failure there were two other removals this week that push the Unofficial Problem Bank List count down to 419 institutions with assets of $131.9 billion. A year ago, the list held 661 institutions with assets of $228.8 billion.

Frontier Bank, FSB, Palm Desert, CA ($88 million) became the 17th failure this year and 40th institution headquartered in California to fail since the on-set of the Great Recession. Other removals include an action termination at Carver Federal Savings Bank, New York, NY ($648 million) and a change in control and recapitalization of Michigan Commerce Bank, Ann Arbor, MI ($922 million).

Next week should be quiet as the OCC likely will not provide an update on its latest enforcement action activity until November 21st.

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 419.

by Calculated Risk on 11/08/2014 11:50:00 AM

The key economic report this week is October retail sales on Friday.

The MBA is expected to release the Q3 National Delinquency Survey on Friday.

----- Monday, November 10th -----
At 10:00 AM ET: The Fed will release the new monthly Labor Market Conditions Index (LMCI).


----- Tuesday, November 11th -----
The is a federal/bank holiday. The Bond market will be closed in observance of the Veterans Day. The stock market will be open for trading.

----- Wednesday, November 12th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

7:30 AM ET: NFIB Small Business Optimism Index for October.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for September. The consensus is for a 0.2% increase in inventories.

----- Thursday, November 13th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 275 thousand from 278 thousand.

10:00 AM: Job Openings and Labor Turnover Survey for September 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 August to 4.835 million from 4.605 million in July.

The number of job openings (yellow) were up 23% year-over-year. Quits were up 5% year-over-year.

2:00 PM ET: The Monthly Treasury Budget Statement for October.

----- Friday, November 14th -----
8:30 AM ET: Retail sales for October will be released.

This graph shows retail sales since 1992 through September 2014. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). On a monthly basis, retail sales decreased 0.3% from August to September (seasonally adjusted), and sales were up 4.3% from September 2013.

The consensus is for retail sales to increase 0.2% in October, and to increase 0.2% ex-autos.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for November). The consensus is for a reading of 87.5, up from 86.9 in October.

10:00 AM: The Mortgage Bankers Association (MBA) Q3 2014 National Delinquency Survey (NDS).

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

by Calculated Risk on 11/08/2014 08:01:00 AM

Update: On Nov 8th I added the MBA forecast.

Towards the end of each year I collect some housing forecasts for the following year, and it looks like most analysts are optimistic for 2015.

The NAR released their forecast yesterday: Home Sales Expected to Improve in 2015, but Some Headwinds Still Remain

[Lawrence Yun, chief economist of the National Association of Realtors®] expects the national median existing-home price to rise 4 percent both next year and in 2016. ... Housing starts are forecast to hit 1 million this year and reach 1.3 million in 2015, which is still below the underlying demand of about 1.5 million, but should gradually normalize as lenders open their credit box more to builders. New-home sales are likely to total 440,000 in 2014, and increase to 620,000 next year.

Note: Wells Fargo updated their forecast (slight changes).

Here is a summary of forecasts for 2014. In 2014, new home sales will be around 440 thousand, and total housing starts will be close to 1 million.  No one was close on New Home sales (all way too optimistic), and Michelle Meyer (Merrill Lynch) and Fannie Mae were the closest on housing starts (about 10% too high).

In 2014, many analysts underestimated the impact of higher mortgage rates and higher new home prices on new home sales and starts.

Note: Here is a summary of forecasts for 2013. In 2013, new home sales were 429 thousand, and total housing starts were 925 thousand.  Barclays were the closest on New Home sales followed by David Crowe (NAHB).  Fannie Mae and the NAHB were the closest on housing starts.

The table below shows a few forecasts for 2015 (I'll update these in further in December).

From Fannie Mae: Housing Forecast: October 2014

From NAHB: Single-Family Production Poised to Take Off in 2015

I don't have Moody's Analytics' forecast, but Mark Zandi, chief economist at Moody's Analytics said today "that single-family starts could be closing in on 1 million units by the end of 2015 and multifamily production could go as high as 500,000 units."  That seems too high.

I haven't worked up a forecast yet for 2015.

Housing Forecasts for 2015
	New Home Sales (000s)	Single Family Starts (000s)	Total Starts (000s)	House Prices1
Fannie Mae	523	783	1,170	4.9%2
Merrill Lynch	557		1,200	3.6%
MBA	503	728	1,108	3.0%2
NAHB	547	802	1,158
NAR	620		1,300	4%3
Wells Fargo	530	770	1,160	3.3%
Zillow				3.0%4
1Case-Shiller unless indicated otherwise 2FHFA Purchase-Only Index 3NAR Median Home price 4Zillow Home Value Index, Sept 2014 to Sept 2015

by Calculated Risk on 11/07/2014 08:15:00 PM

From the FDIC: Bank of Southern California, N.A., San Diego, California, Assumes All of the Deposits of Frontier Bank, FSB, d/b/a El Paseo Bank, Palm Desert, California

As of June 30, 2014, Frontier Bank, FSB had approximately $86.4 million in total assets and $82.1 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $4.7 million. ... Frontier Bank, FSB is the 17th FDIC-insured institution to fail in the nation this year, and the first in California. The last FDIC-insured institution closed in the state was Palm Desert National Bank, Palm Desert, on April 27, 2012.

It feels like a Friday!