by Calculated Risk on 3/21/2007 02:32:00 PM

Comparing the FOMC statement from today with January:

Economy:

Today:

"Recent indicators have been mixed and the adjustment in the housing sector is ongoing."

January:

"Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market."

Inflation:

Today:

"Recent readings on core inflation have been somewhat elevated."

January:

"Readings on core inflation have improved modestly in recent months ..."

Bias (slight change with different wording):

Today:

"... the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected."

January:

"The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth ..."

Weaker economy with more inflation.

by Anonymous on 3/21/2007 12:52:00 PM

Look who just got the keys to Calculated Risk, The Blog.

And we'll have fun, fun, fun 'til the Daddy takes the Blogger password away . . .

Note: From here on out, you must actually read the name under "posted by" at the end of a post, if simple common sense does not allow you to distinguish between some long sprawling wonkery by Tanta (deputy assistant co-blogger) and a trenchant, crisp observation by CalculatedRisk (founder and CBO) accompanied by the usual beautiful charts.

The comments to this post are open to anyone who thinks he or she can discern the topic (and thus figure out a way to take them off-topic immediately). I believe Those Other Blogs call it an "open thread." This is your big chance to get as snotty as you want to with me, since this is my very first Blogger post and I haven't yet discovered how to edit your comments. In fact, I see that CR hasn't given me that ability. The man is clever.

by Calculated Risk on 3/21/2007 12:49:00 PM

"Housing has always sort of been the canary in the coal mine for the economy — it tends to turn down before the rest of the economy. If you were just looking at this indicator, you would say recession is here, but I think there's enough offsets and optimism to keep the economy out of recession,"
Dirk Van Dijk, director of research at Chicago-based Zacks Equity Research.

This LA Times article lays out the more optimistic view that the housing slump will not take the general economy into recession. A few excerpts from Molly Hennessy-Fiske at the LA Times: Home equity could buoy economy

Analysts say the U.S. economy won't completely crash ... as a result of the sub-prime mortgage meltdown, thanks in part to homeowners ... home equity built up during the boom ... that could support consumer spending and the housing market.

Click on chart for larger image from the LA Times.

Many ... sub-prime borrowers ... are expected to lose their homes, unable to make mortgage payments. But they are not a big enough part of the overall housing market to harm the entire sector, experts say.

So although failing sub-prime mortgages are likely to slow consumer spending and overall economic growth, they aren't expected to provoke a broader credit crunch or tip the economy into recession — barring severe disruptions, many analysts say.
...
One of the biggest concerns is that the sub-prime meltdown will result in a surge of foreclosures that in turn will sink home prices and trigger a housing-led recession.

But sub-prime foreclosures will be only a small percentage of total foreclosures and thus "will not break the national economy or the mortgage lending industry as a whole," said Christopher Cagan, director of research at First America CoreLogic, a Santa Ana-based real estate analysis firm.

I'll look at the First American report later this week.

by Calculated Risk on 3/21/2007 12:24:00 PM

The Mortgage Bankers Association (MBA) reports: Mortgage Applications Decrease in Latest MBA Survey

The Market Composite Index, a measure of mortgage loan application volume, was 672.1, a decrease of 2.7 percent on a seasonally adjusted basis from 690.5 one week earlier. On an unadjusted basis, the Index decreased 2.5 percent compared with the previous week and was up 18 percent compared with the same week one year earlier.

The Refinance Index decreased 4.5 percent to 2208.6 from 2312.2 the previous week and the seasonally adjusted Purchase Index decreased 0.9 percent to 410.6 from 414.3 one week earlier.

Mortgage rates increased slightly:

The average contract interest rate for 30-year fixed-rate mortgages increased to 6.06 percent from 6.03 percent ...

The average contract interest rate for one-year ARMs increased to 5.88 from 5.86 percent ...

Click on graph for larger image.

This graph shows the Purchase Index and the 4 and 12 week moving averages since January 2002. The four week moving average is up 1.8 percent to 407.9 from 400.6 for the Purchase Index.

The refinance share of mortgage activity decreased to 45.3 percent of total applications from 46.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 20.9 from 21.9 percent of total applications from the previous week.

by Calculated Risk on 3/20/2007 06:44:00 PM

Bill Fleckenstein recently received this email:

"Our business is a large hardwood sawmill (sawing oak, maple, cherry, ash, etc., for the furniture (read: HOUSING) industry. We usually enter recession five to six months ahead of the rest of the economy. IT'S HERE! Prices for green and finished lumber are falling at a faster rate than at any time since 1974."
Posted with permission.

Typically lumber and housing move together, so it is not surprising that those in the lumber industry would feel they "enter recession five to six months ahead of the rest of the economy".

Click on graph for larger image.

This graph shows New Home Sales vs. Recessions for the last 35 years. New Home sales were falling prior to every recession, with the exception of the business investment led recession of 2001.

Lumber, along with New Home sales, and starts and completions all tell us basically the same thing; the housing market is in a deep recession - and we should be concerned about the general economy.