by Calculated Risk on 9/29/2010 10:31:00 AM

Minneapolis Federal Reserve President Narayana Kocherlakota spoke in London today. He has been one of more optimistic Fed presidents, and he revised down his forecast today ...

From Kocherlakota: Economic Outlook and the Current Tools of Monetary Policy

Our September estimates are distinctly lower than our August estimates. I now expect GDP growth to be around 2.4 percent in the second half of 2010 and around 2.5 percent in 2011.
...
From the fourth quarter of 2009 through the second quarter of 2010, the change in the PCE price level was just over 0.5 percent, which works out to an annual rate of just over 1 percent. ... I expect inflation to remain at about this level during the rest of this year. However, our Minneapolis forecasting model predicts that it will rise back into the more desirable 1.5-2 percent range in 2011.
...
To summarize: GDP is growing, but more slowly than I expected or than we would like. Inflation is a little low, but only temporarily. The behavior of unemployment is deeply troubling.

This still seems too optimistic, but he is moving in the right direction.

And on the coming QE2:

My own guess is that further uses of QE would have a more muted effect on Treasury term premia. Financial markets are functioning much better in late 2010 than they were in early 2009. As a result, the relevant spreads are lower, and I suspect that it will be somewhat more challenging for the Fed to impact them.

Kocherlakota is currently an alternate member of the FOMC and will be a voting member next year. It is interesting that certain Fed presidents are now revising down their overly optimistic forecasts - all but guaranteeing QE2 (even if he thinks it will have little impact).

by Calculated Risk on 9/29/2010 10:02:00 AM

The Census Bureau released the weekly payroll data for the week ending September 18th today (ht Bob_in_MA).

If we subtract the number of temporary 2010 Census workers in the week containing the 12th of the month, from the same week for the previous month - this provides a close estimate for the impact of the Census hiring on payroll employment.

The Census Bureau releases the actual number with the employment report.

Click on graph for larger image in new window.

This graph shows the number of Census workers paid each week. The red labels are the weeks of the BLS payroll survey.

The Census payroll decreased from 83,955 for the week ending August 14th to 6,038 for the week ending September 18th.

So my estimate for the impact of the Census on September payroll employment is minus 78 thousand (this will probably be close). The employment report will be released on October 8th, and the headline number for September - including Census numbers - will probably be close to zero. But a key number will be the hiring ex-Census (so we will add back the Census workers again this month).

The following table compares the weekly payroll report estimate to the monthly BLS report on Census hiring - this shows the estimate is usually very close:

	Payroll, Weekly Pay Period	Payroll, Monthly BLS	Change based on weekly report	Actual Change (monthly)
Jan	25	24
Feb	41	39	16	15
Mar	96	87	55	48
Apr	156	154	61	67
May	574	564	418	410
Jun	344	339	-230	-225
Jul	200	196	-144	-143
Aug	84	82	-116	-114
Sep	6		-78
All thousands

There are very few temporary decennial workers left on the payroll, and this month marks the end of the weekly payroll report from the Census Bureau: "These data will continue through the end of September with the last release of data being the week of Sept. 26-Oct. 2."

I'll have more on the September employment report (due Oct 8th) this Sunday in the weekly schedule.

by Calculated Risk on 9/29/2010 07:34:00 AM

The MBA reports: Mortgage Refinance Applications Decrease Despite Decline in Rates in Latest MBA Weekly Survey

The Refinance Index decreased 1.6 percent from the previous week, which is the fourth straight weekly decrease. The seasonally adjusted Purchase Index increased 2.4 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.38 percent from 4.44 percent, with points increasing to 1.01 from 0.81 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The 30-year contract rate is a new low for this survey. The previous low was 4.43 percent for the week ending August 27, 2010.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Purchase applications have increased slightly from the lows in July and are at about the same level is in 1996 or 1997. This suggests existing home sales (closed transactions) in September, October, and even November will not be much above the August sales rate.

by Calculated Risk on 9/28/2010 07:56:00 PM

From the American Trucking Association: ATA Truck Tonnage Index Plunged 2.7 Percent in August

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 2.7 percent in August, which was the largest month-to-month decrease since March 2009. The latest drop lowered the SA index from 110 (2000=100) in July to 106.9 in August.
...
Compared with August 2009, SA tonnage climbed 2.9 percent, which was well below July’s 7.4 percent year-over-year gain. Year-to-date, tonnage is up 6.2 percent compared with the same period in 2009.

ATA Chief Economist Bob Costello said that August’s data highlights that the economy, while still growing, is slowing. “We fully anticipate sluggish economic growth for the remainder of this year and the latest tonnage numbers are reflecting that slowdown.”

This graph from the ATA shows the Truck Tonnage Index since Jan 2006 (no larger image).

by Calculated Risk on 9/28/2010 05:44:00 PM

From Atlanta Fed President Dennis Lockhart: The Approaching Monetary Policy Decision Dilemma

In the coming weeks monetary policymakers must come to grips with the question of whether there is anything they can do to improve the situation in the economy and, if so, what that action should be. The circumstances of weak recovery, persistent unemployment, dangerously low inflation, and the policy interest rate (the primary tool of modern monetary policy) at the zero lower bound present a tough analytical challenge.
...
If action is taken by the Fed, a clear option is to grow the size of the balance sheet since the policy interest rate, for all practical purposes, cannot go any lower. Growth of the balance sheet would be accomplished by a second round of asset purchases (probably Treasury bills and notes) paid for by newly created money. The technical term for this policy is "quantitative easing," and the prospect of more of this approach is being referred to as QE2.

Will it work? And, how much would be needed to make a difference? In my view, a consensus on these pivotal questions remains to come together, and I will not take a position here today. In the weeks ahead my staff and I will be tackling these and related questions to prepare for the important decisions coming.
...
I cannot tell you how the economic policy story will play out. I can assure you, however, that the Fed has scope for further action to influence the course of recovery. And, importantly, I believe the Fed and the committee have the will to act—or not—as demanded by economic conditions in the near term.

Lockhart is not a voting member of the FOMC this year, but I think a consensus is building for QE2 in early November.