by Calculated Risk on 3/08/2011 08:10:00 AM

From National Federation of Independent Business (NFIB): NFIB Small Business Optimism Index -- Slow and Steady: Continues Gradual Rise in February

The Index of Small Business Optimism gained 0.4 points in February, rising to 94.5, not the hoped-for surge that would signal a shift into “second gear” for economic growth.
...
“Weak sales” still get the most votes by owners as their top business problem.
...
Most notably, hiring and future plans to hire were solid and hopefully presage a string of steady job creation months this year. While historically weak, these relative gains signal good news for a sector still deeply encumbered by weak sales.
...
“This is not a reading that characterizes a strongly rebounding economy,” said NFIB chief economist Bill Dunkelberg.

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image in new window.

The first graph shows the small business optimism index since 1986. The index increased to 94.5 in February from 94.1 in January.

Although still fairly low, this is the highest level for the index since December 2007.

This graph shows the net hiring plans for the next three months.

Hiring plans increased slightly in February. According to NFIB: “The percent of owners reporting hard-to-fill job openings rose two points to 15 percent, indicating that a reduction in the unemployment rate is likely within the next few months. Plans to create jobs strengthened; up two points to a net 5 percent of all firms. While this is still low, it is 15 points better than the recession low reading of negative 10 percent, reached in March 2009."

Weak sales is still the top business problem with 28 percent of the owners reporting that weak sales continued to be their top business problem in February. In good times, owners usually report taxes and regulation as their biggest problems.

The recovery is sluggish for this index (probably because of the high concentration of real estate related companies), but this is the highest level for the optimism index since December 2007.

by Calculated Risk on 3/07/2011 08:44:00 PM

I appreciate the mention from Time: The 25 Best Financial Blogs. Professor Hamilton's introduction to my blog was much too kind. Thanks!

The editors at Time.com asked if I'd write a review of one of the other blogs on their list, although they wouldn't tell me who was on the list. They asked me to send them a short list of blogs I'd like to write a review for, and then they'd pick one.

The top two blogs on my short list were Hamilton's Econbrowser (with Menzie Chinn), and Mark Thoma's EconomistsView(with Tim Duy who writes FedWatch) - two of my favorite economic blogs. I'm shocked that EconomistsView is not on the Time.com list.

I wish I'd written a better review of Econbrowser - I was under the weather last week, and they edited my piece extensively (it needed editing).

From my unedited review: "In a recent research paper, “Historical Oil Shocks”, Dr. Hamilton reviewed several oil shocks and the impact on oil prices and the economy – a timely topic. He has discussed the paper in several blog posts, including a discussion of the possible impact of the events in Libya on oil prices and the U.S. economy (see “Libya, oil prices, and the economic outlook”). Hamilton’s analysis shows the events so far “are not in the same ballpark as the major historical oil supply disruptions”, but he cautions that geopolitical changes might continue to spread."

Great analysis. Best wishes to all.

by Calculated Risk on 3/07/2011 06:00:00 PM

American Banker has posted the 27 page draft servicer settlement agreement that the state attorneys general sent to the servicers last week.

Settlement Terms (27 page PDF)

And from Cheyenne Hopkins at American Banker: Cheat Sheet: How the State AGs Want to Revamp Mortgage Servicing

The 27-page term sheet handed to the five largest mortgage servicers last week is a detailed, dense list of requirements that, if implemented as proposed, would fundamentally change the relationship between servicers, investors and borrowers.

The term sheet, obtained by American Banker and available here, is just the opening bid in an ongoing negotiating process between the servicers and various state and federal agencies attempting to punish them for significant issues uncovered in the foreclosure process. While some of the details of the term sheet have been made public already, the sheer breadth and depth of the proposed requirements were not clear until now.

The article has a nice summary of the document.

by Calculated Risk on 3/07/2011 02:18:00 PM

This is "D list" data and doesn't show much improvement in February.

From the Association of American Railroads: February Freight Rail Traffic Continues to Make Gains. The AAR reports carload traffic in February 2011 was up 4.2% compared to February 2010 and intermodal traffic (using intermodal or shipping containers) was up 10.3% over February 2010.

U.S. freight railroads originated 1,135,396 carloads in February 2011, an average of 283,849 per week (see chart below). That’s up 4.2% (46,054 carloads) over February 2010 and up 2.7% (29,400 carloads) over February 2009.

Click on graph for larger image in new window.

This graph shows U.S. average weekly rail carloads (NSA).

From AAR:

On a seasonally adjusted basis, U.S. rail carloads were down 3.0% in February 2011 from January 2011. That’s the biggest month-to-month decline
since April 2009, but we cannot be certain that the weather effect was completely captured by the seasonal adjustment process. Even if the seasonally adjusted decline is legitimate, it could just be one of those “two steps forward, one step back” kind of things.

As the first graph shows, rail carload traffic collapsed in November 2008, and now, over 18 months into the recovery, carload traffic has only recovered a little.

The second graph is for intermodal traffic (using intermodal or shipping containers):

In February 2011, U.S. railroads averaged 220,458 intermodal trailers and containers per week, for a total of 881,830 for the month. That’s up 10.3% (82,267 intermodal units) over February 2010 and up 21.4% (155,487 units) over February 2009.

Seasonally adjusted U.S. rail intermodal traffic was up 0.1% in February 2011 from January 2011. ... in seasonally adjusted terms, the recovery in U.S. rail intermodal traffic has been much stronger than the recovery in U.S. carload traffic.
excerpts with permission

Intermodal traffic is fairly strong, but carload traffic has barely recovered.

by Calculated Risk on 3/07/2011 12:40:00 PM

We continue to be reminded of the downside risks to economic growth this year: higher oil prices and the potential for a supply shock, the European financial crisis, state and local government fiscal issues, Federal government budget issues, and the two sides of the inflation coin (inflation increases or policymakers overreact).

• U.S. oil prices were near $107 per barrel this morning before declining slightly to $105. I think this is the key risk to U.S. economic growth in the short term.

Not only is the situation in Libya looking more and more like a prolonged civil war, but the unrest may spread to Bahrain and Saudi Arabia (March 11th is the "Day of Rage" in Saudi).

• The European financial crisis has been on the back burner, but yields are still elevated and there are key Euro Zone meetings scheduled in March - including a special eurozone debt crisis summit scheduled for Friday, March 11th. Ireland is asking to renegotiate the terms of their bailout, Greece debt was downgraded this morning, and Portugal is probably next in line. And the European Banking Authority has now launched the next round of bank stress tests.

I expect this to be front page news again soon.

• State and local governments reduced employment by 30,000 in February, and several state budgets are in the news, especially the ongoing Wisconsin political battles. I expect state and local government cutbacks to continue all year.

• On the Federal government, some drag from fiscal policy was expected due to some spending cuts, and also from the decline in spending from the 2009 fiscal stimulus package. However the "debt ceiling" debate is just political grandstanding, but it is possible that more cuts will be enacted this year - slowing growth in 2011.

• Inflation is a two sided coin: if inflation increases in the U.S., then the Fed might move quicker on tightening policy (I think core inflation will remain below the Fed's target all year), and it is possible policymakers will overreact to price increases in commodities and raise rates too soon. However if oil prices continue to increase, then QE3 is more likely:

"If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation," [Atlanta Fed President Dennis Lockhart said this morning].

These are all risks to 2011 economic growth. For now I'm sticking with my over forecast of 3.5% to 4.0% real GDP growth in 2011, but I'm watching all of these issues closely.