RSS Feed by Calculated Risk on 3/21/2010 09:21:00 PM
Sunday, March 21, 2010
Report: China Losing Support of American Business Community
From the Financial Times: China to lose ally against US trade hawks
Myron Brilliant, senior vice-president for international affairs, who has previously helped to protect Beijing from hawkish trade policies, told the Financial Times: “I don’t think the Chinese government can count on the American business community to be able to push back and block action [on Capitol Hill].”Mr Brilliant has long supported China, including lobbying for China to join the WTO.
...
Mr Brilliant said corporate America’s attitude had changed in response to a range of “industrial policies” pursued by Beijing, including the undervaluation of the renminbi, which made it harder for US companies to do business and compete with China.
excerpted with permission
And China keeps pushing back - from the WaPo: China's commerce minister: U.S. has the most to lose in a trade war
China's commerce minister warned the United States on Sunday that if it launches a "trade war" against China by levying punitive tariffs on Chinese imports, the United States will suffer the most.This is heating up prior to April 15th release of the Treasury report on worldwide currencies that might name China a "currency manipulator".
...
"You're not going to get 1.3 billion Chinese to change by insulting them," [Commerce Minister Chen Deming] said. "Could it be related to upcoming elections? I don't know. Because economically, it makes no sense."
...
"[Obama] wants exports to double in five years, but I don't know whom he is going to sell them to."
Oil Prices and Vehicle Miles
by Calculated Risk on 3/21/2010 05:03:00 PM
Something for a Sunday - in the weekly look ahead post I forgot to mention that the Department of Transportation (DOT) will release the vehicle miles driven report for January this week.
In early 2008 there was sharp drop in U.S. vehicle miles driven and that was one of the key signs of demand destruction for oil that led me to predict oil prices would decline sharply in the 2nd half of 2008.
First a look at oil prices ...
Click on graph for larger image in new window.
This graph shows the daily Cushing, OK WTI Spot Price FOB from the Energy Information Administration (EIA).
With oil prices hoovering around $80 per barrel, I've started looking for possible signs of demand destruction again (see: Oil Prices Push Above $81 per Barrel). Of course there are other factors - like China - but vehicle miles is something to watch in the U.S.
The second graph shows monthly oil prices and vehicle miles (month over the same month of the previous year with a 3 month centered average).
Although vehicle miles driven are noisy month to month, it appear that miles driven responds to spikes in oil prices.
For December 2009 - the last month of data - the DOT reported that miles driven were unchanged compared to December 2008 after increasing in 5 of the 6 pervious months. This slow down in miles driven could be because of the sluggish recovery, or it could be because oil prices are starting to impact miles driven.
Weekly Summary and a Look Ahead
by Calculated Risk on 3/21/2010 12:30:00 PM
There will be two key housing reports released this week (existing home sales on Tuesday and new home sales on Wednesday) and plenty of Fed speeches ...
On Monday, the Chicago Fed will release the February Chicago Fed National Activity Index at 8:30 AM ET. Activity in February was probably sluggish. Also on Monday, Treasury Secretary Tim Geithner will speak at the American Enterprise Institute (4:30 PM ET), and Atlanta Fed President Dennis Lockhart will speak in the evening in Florida.
Probably early this week, the Moody's/REAL Commercial Property Price Indices (CPPI) for January will be released. This is a repeat sales price index for Commercial Real Estate (CRE).
On Tuesday, Existing Home sales for February will be released by the National Association of Realtors (NAR) at 10 AM ET. Expectations are for a slight decrease in sales to a 5 million Seasonally Adjusted Annual Rate (SAAR). I’ll take the under. The Census Bureau will also release the Mass Layoffs report for February on Tuesday.
Also on Tuesday the FHFA House Price Index for January will be released (this has been ignored recently), the Richmond Fed Survey (March) at 10 AM ET, and San Francisco Fed President Janet Yellen will speak at 3:35 PM ET. It is widely reported that Yellen will be nominated to be the next Fed Vice Chairman.
On Wednesday the American Institute of Architects’ February Architecture Billings Index will be released - a leading indicator for Commercial Real Estate (CRE). This has been showing significant weakness for some time.
Also on Wednesday, the New Home sales report from the Census Bureau will be released at 10 AM ET. The consensus is for some increase from the record low set in January (309 thousand SAAR), but the number will still be very low. Sales have averaged 370 thousand (SAAR) over the last 12 months, and February will be well below that level.
Also on Wednesday, the weekly MBA mortgage purchase applications index will be released (7 AM ET) and the Durable Goods report for February at 10 AM ET.
There will be more Fed speak on Wednesday: the FOMC’s lone dissenter, Kansas Fed President Thomas Hoenig, speaks at 10:45 AM ET, and outgoing Fed Vice Chairman Donald Kohn speaks at 8 PM ET.
On Thursday, the closely watched initial weekly unemployment claims will be released. Also the Census Bureau will released the Regional and State Employment and Unemployment for February at 10 AM ET.
Cleveland Fed President Sandra Pianalto speaks at 9 AM ET, and Fed Chairman Ben Bernanke testifies before the House Financial Services Committee at 10 AM ET.
On Friday the 3rd estimate of Q4 GDP released (any change will be minor), and the Reuter's/University of Michigan's Consumer sentiment index for March will be released at 9:55 AM ET (consensus is for a slight increase to 73 from 72.5).
Also on Friday the FDIC will probably close several more banks. I think this is the week for Puerto Rico!
And a summary of last week ...
Click on graph for larger image in new window.Total housing starts were at 575 thousand (SAAR) in February, down 5.9% from the revised January rate, and up 20% from the all time record low in April 2009 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 nine months.
Single-family starts were at 499 thousand (SAAR) in February, down 0.6% from the revised January rate, and 40% above the record low in January and February 2009 (357 thousand). Just like for total starts, single-family starts have been at about this level for nine months.
Note: any number under 50 indicates that more builders view sales conditions as poor than good.
This graph shows the builder confidence index from the National Association of Home Builders (NAHB).The housing market index (HMI) was at 15 in March. This is a decrease from 17 in February.
The record low was 8 set in January 2009. This is very low - and this is what I've expected - a long period of builder depression.
From the Fed: "Industrial production edged up 0.1 percent in February following a gain of 0.9 percent in January. ... Capacity utilization for total industry moved up 0.2 percentage point to 72.7 percent, a rate 7.9 percentage points below its average from 1972 to 2009."This graph shows Capacity Utilization. This series is up 6.5% from the record low set in June (the series starts in 1967).
Capacity utilization at 72.7% is still far below normal - and far below the the pre-recession levels of 80.5% in November 2007.
The Fed's favorite house price indicator from First American CoreLogic’s LoanPerformance ...
From LoanPerformance: "On a month-over-month basis, the national average home price index decline accelerated, falling by 1.9 percent in January 2010 compared to 0.8 percent in December 2009, indicating the housing market still remains weak."This graph shows the national LoanPerformance data since 1976. January 2000 = 100.
The index is off 0.7% over the last year, and off 29% from the peak.
The index has declined for five consecutive months.
Here is an update on the price-to-rent ratio using the First Amercican CoreLogic house price index and the Owners' Equivalent Rent (OER) from the BLS.
This graph shows the price to rent ratio (January 2000 = 1.0). This suggests that house prices are still a little too high on a national basis. But it does appear that prices are much closer to the bottom than the top.
Also, OER declined slightly again in February. The price index has declined 6 of the last 8 months, although most of the declines have been very small. With rents still falling, the OER index will probably continue to decline - pushing up the price-to-rent ratio.
Best wishes to all.
I.M.F. Warns Wealthy Nations about Debt
by Calculated Risk on 3/21/2010 09:27:00 AM
From Sewell Chan and Keith Bradsher at the NY Times: I.M.F. Warns Wealthiest Nations About Their Debt
The global economic crisis has left “deep scars” in the fiscal balances of the world’s advanced economies, which should begin to rein in spending next year as the recovery continues, the No.2 official at the International Monetary Fund said Sunday.The U.S. deficit can be separated into 1) a cyclical deficit that will start to decline automatically when the economy begins to recover, and 2) a structural deficit that will be very difficult to resolve. But we need a recovery first, and then we can discuss deficit reduction.
...
For the United States, “a higher public savings rate will be required to ensure long-term fiscal sustainability,” Mr. Lipsky said.
...
“Addressing this fiscal challenge is a key near-term priority, as concerns about fiscal sustainability could undermine confidence in the economic recovery,” Mr. Lipsky said. ... While it makes sense for the world’s largest economies to continue stimulus spending through the end of this year, “fiscal consolidation should begin in 2011, if the recovery occurs at the projected pace,” Mr. Lipsky said.
Mr. Lipsky also discussed the need for rebalancing the world economy, although he didn't criticize China's currency manipulation (he was speaking in China).
Phoenix Housing Market: The Rise of the Investor
by Calculated Risk on 3/21/2010 01:09:00 AM
This is an article describing the changing dynamics in the Phoenix housing market ...
From Craig Anderson at the Arizona Republic: Real-estate investors, who once fueled a run-up in home values, now helping stabilize market (ht JG)
For decades to come, participants in the Valley's housing economy are sure to remember 2009 as the Year of the Investor. ... Investors and bank foreclosures helped boost Maricopa County home sales up to 78,899 in 2009, up from 58,454 the previous year, according to The Arizona Republic's analysis of 2009 Valley home-values data from the Information Market, based in Phoenix.These investors are very different from the "investors" (really speculators) in the 2003 - 2006 period. The current investors are paying all cash - and planning on renting the homes until prices increase. Of course this is supply that will come back on the market eventually ...
... [Alan] Langston, executive director of the Arizona Real Estate Investors Association, based in Tempe, said a number of recent developments have slowed the rate of lender foreclosure in recent months ...
One factor is the rise in short sales, which have replaced about 25 percent of the foreclosures banks were initiating a year ago, he said. ...
Another recent change is the decision by some lenders to use "drop bids" to sell more properties in default to third-party investors before they become bank-owned, he said.
Before the first half of 2009, it was rare for private parties to buy homes at a trustee's deed sale, a cash-only auction for pre-foreclosed properties that takes place daily at the Maricopa County courthouse.
Drop bids changed all that, Langston said. They are a last-minute decision by the lender to slash a property's auction price. Langston said drop bidding has helped lenders avoid taking possession of even more homes while providing new opportunities for buyers.
