RSS Feed by Calculated Risk on 12/21/2009 08:31:00 AM
Monday, December 21, 2009
Chicago Fed Index: Some Improvement in Economic activity in November
From the Chicago Fed: Index shows economic activity improved in November
Led by improvements in production-related and employment-related indicators, the Chicago Fed National Activity Index increased to –0.32 in November, up sharply from –1.02 in October.
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The index’s three-month moving average, CFNAI-MA3, increased to –0.77 in November from –0.87 in October. November’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The level of activity, however, remained in a range that has historically been consistent with the early stages of a recovery following a recession.
Click on table for larger image in new window.This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. According to the Chicago Fed:
"When the economy is coming out of a recession, the CFNAI-MA3 moves significantly into positive territory a few months after the official NBER date of the trough. Specifically, after the onset of a recession, when the index first crosses +0.20, the recession has ended according to the NBER business cycle measures. ... The critical question is: how early does the CFNAI-MA3 reveal this turning point? For four of the last five recessions, this happened within five months of the business cycle trough."Although improved in November, the Chicago Fed National Activity Index is still negative. According to Chicago Fed, it is still early to call the official recession over.
Sunday, December 20, 2009
Greece, Dubai Updates
by Calculated Risk on 12/20/2009 09:34:00 PM
From the WSJ: ECB Member Says No Bailouts
The European Central Bank won't bail out debt-stricken member states such as Greece, which must repair its public finances on its own, ECB governing council member Ewald Nowotny said.And from Bloomberg: Dubai World May Not Present Standstill Offer Yet, Bankers Say
"One has to be very clear: The ECB has no mandate or intention to take into account the situation of a specific country, especially not with regard to public finances," he said in an interview late Friday.
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The ECB said Friday that it expected banks in the euro zone to see much higher losses than it had previously thought, mainly from their exposure to Eastern Europe and commercial real estate.
Dubai World ... may be unable to present a “standstill” offer to lenders today as the terms of government support for the state-owned holding company have yet to be agreed, two bankers involved in the talks said.No updates on Spain, Ireland and Eastern Europe, but sovereign debt will remain a hot topic.
The complexity of Dubai World Group and its funding structure are to blame for the delay, one banker said ...
For a summary of the last week and a look ahead, please see my earlier post. Best to all.
The Lost Decade
by Calculated Risk on 12/20/2009 06:31:00 PM
We've discussed this several times, and I expect to see a number of articles about the lost decade for the stock market and employment over the next few weeks.
From the WSJ: Stocks' 'Nightmare' Decade
In nearly 200 years of recorded stock-market history, no calendar decade has seen such a dismal performance as the 2000s.This is definitely a "quirk of the calendar", but is has been a difficult 10 years.
Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress.
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It edges out the 0.2% decline stocks suffered during the Depression years of the 1930s, which up until now held the title of worst decade.
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To some degree these statistics are a quirk of the calendar, based on when the 10-year period starts and finishes. The 10-year periods ending in 1937 and 1938 were worse ...
On employment, there were 130,532,000 payroll jobs in December 1999, and 130,996,000 payroll jobs in November 2009; an increase of 464 thousand jobs. However the preliminary estimate of the annual benchmark revision "indicates a downward adjustment to March 2009 total nonfarm employment of 824,000". So it appear there will be fewer payroll jobs at the end of the aughts than at the beginning.
Of course another argument is the decade actually started on Jan 1, 2001 (not 2000) and that is similar to the debate over when the millennium started and ended - but I think most people partied like it was 1999!
Weekly Summary and a Look Ahead
by Calculated Risk on 12/20/2009 02:02:00 PM
Existing home sales will be released on Tuesday (probably around 6.3 SAAR, the highest level since the end of the bubble). New Home sales will be released on Wednesday (probably around 430 thousand SAAR). Of course the number that matters for the economy is new home sales ...
In other economic news, the BEA will release the final Q3 GDP on Tuesday, and Personal Income and Outlays for November on Wednesday (this will give a good estimate for Q4 PCE growth). Durable goods will be released Thursday.
Also the Chicago Fed National Activity Index will be released Monday, and Moody’s/REAL Commercial Property Price Indices will probably be released early in the week.
A busy holiday week! Note: I'll be in town this year between Christmas and New Year's day, and there will be some interesting data that week too.
And a summary of last week ...
Click on graph for larger image in new window.Total housing starts were at 574 thousand (SAAR) in November, up 8.9% from the revised October rate, and up from the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959). Starts had rebounded to 590 thousand in June, and have moved mostly sideways for six months.
Single-family starts were at 482 thousand (SAAR) in November, up 2.1% from the revised October rate, and 35 percent above the record low in January and February (357 thousand). Just like for total starts, single-family starts have been at this level for six months.
Here is the Census Bureau report on housing Permits, Starts and Completions.
This graph shows the builder confidence index from the National Association of Home Builders (NAHB).The housing market index (HMI) was at 16 in December. This is a decline from 17 in November. The record low was 8 set in January.
This is very low - and this is what I've expected - a long period of builder depression.
Note: any number under 50 indicates that more builders view sales conditions as poor than good.
The American Institute of Architects’ Architecture Billings Index declined to 42.8 in November from 46.1 in October. Any reading below 50 indicates contraction.
"There continues to be a lot of uncertainty in the construction industry that likely will delay new projects in the near future," said Kermit Baker, chief economist at the American Institute of Architects.
This graph shows the Architecture Billings Index since 1996. The index has remained below 50, indicating falling demand, since January 2008.Historically there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests further significant declines in CRE investment through 2010, and probably longer.
Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions.
From the Fed: Industrial production and Capacity Utilization: "Industrial production increased 0.8 percent in November after having been unchanged in October. Manufacturing production advanced 1.1 percent, with broad-based gains among both durables and nondurables. ... At 99.4 percent of its 2002 average, total industrial production was 5.1 percent below its level of a year earlier. Capacity utilization for total industry moved up 0.7 percentage point to 71.3 percent, a rate 9.6 percentage points below its average for the period from 1972 through 2008." This graph shows Capacity Utilization. This series is up from the record low set in June (the series starts in 1967), and still well below the level of last year.
Note: y-axis doesn't start at zero to better show the change.
[R]ating agencies downgraded the public debt of Greece and warned about the outlook for several others. Greece could become the first developed country since 1948 to default on its debt, thanks to a deficit running at more than 12 percent of GDP and few signs that the government is willing or able to cut it. More seriously, Standard & Poor's last week slapped a negative outlook on Spain, a much larger economy.
Best wishes to all.
Fed's Flow of Funds now using LoanPerformance Index
by Calculated Risk on 12/20/2009 11:48:00 AM
UPDATE: Originally I thought the Fed switcehed to Case-Shiller. In fact they switched to LoanPerformance, see: Flow of Funds: Change in House Price Index
From a newsletter by John Mauldin:
Frank Veneroso noticed something unusual in the latest Federal Reserve Flow of Funds report. They changed their methodology for analyzing housing prices to a model more like the Case-Shiller index, which most believe to be more accurate. That meant they deducted another $2 trillion from household net worth than in the previous quarter. They just caught up with reality, so no big news there. But there is some big news if you look closely.On the first point the Fed is now using the
About one-third of the homes in the US have no mortgages. Typically, these are nicer homes, as the "rich" have paid off their homes. So you can estimate that to be somewhere between 35-40% of the total value of US homes. Writes Frank:
"So now the flow of funds accounts tell us that the total value of residential real estate is $16.53 trillion. The share owned by households with a mortgage is probably $10 trillion to $11 trillion. Total mortgage household debt now stands at $10.3 trillion. In effect, for all households with a mortgage taken in the aggregate, their loan-to-value ratio is now close to 100% and perhaps close to half of them have a zero to negative equity."
The second point is probably a little inaccurate. According to the most recent American Community Survey, approximately 31.7% of homeowners have no mortgage. Although the "rich" frequently have no mortgage, homeowners without mortgages tend to own less expensive homes than homeowners with mortgages.
Click on graph for larger image in new window.This graph is based on the American Community Survey data for homeowners without a mortgage, and for homeowners with mortgages.
The median value (not average) of homes without a mortgage is $148,100, and the median for homes with a mortgage is $214,400.
My estimate is that homeowners without mortgages own about 26% of all household real estate (by value), and this suggests homeowners with mortgages have about 85% loan-to-value in the aggregate. This includes homeowners with 90% equity (almost paid off), and homeowners with substantial negative equity.
Negative equity is a serious problem, but according to First American Core Logic, about 23% of homeowners with mortgages have negative equity - and that is probably closer to the actual number.
Note: here is much more on negative equity with several graphs.
It is interesting the the Fed has switched to
