by Calculated Risk on 7/15/2011 09:15:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.2 percent in June after having edged down 0.1 percent in May. For the second quarter as a whole, total industrial production increased at an annual rate of 0.8 percent. Manufacturing output was unchanged in June. In the second quarter, supply chain disruptions following the earthquake in Japan curtailed the production of motor vehicles and parts and restrained output in related industries; the production index for overall manufacturing was little changed for the quarter. The output of mines rose 0.5 percent in June, while the output of utilities climbed 0.9 percent. At 93.1 percent of its 2007 average, total industrial production in June was 3.4 percent above its year-earlier level. The capacity utilization rate for total industry remained unchanged at 76.7 percent in June, a rate 2.2 percentage points above the rate from a year earlier but 3.7 percentage points below its average from 1972 to 2010.

Click on graph for larger image in graph gallery.

This graph shows Capacity Utilization. This series is up 9.4 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 76.7% is still "3.7 percentage points below its average from 1972 to 2010" - and below the pre-recession levels of 81.2% in November 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production increased in June to 93.1.

Both industrial production and capacity utilization have been moving sideways recently. This was below the consensus forecast of a 0.4% increase in Industrial Production in June, and an increase to 76.9% for Capacity Utilization.

There is still significant excess capacity.

by Calculated Risk on 7/15/2011 08:30:00 AM

• From the NY Fed: Empire State Manufacturing Survey

The July Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated for a second consecutive month. The general business conditions index remained below zero, at -3.8.

The new orders index also remained negative, while the shipments index increased to a level slightly above zero. The indexes for both prices paid and prices received were positive but lower than last month, suggesting that price increases slowed. The index for number of employees fell to a level near zero, indicating that employment levels held steady, while the average workweek index dropped well into negative territory. Future indexes bounced up after declining steeply in June—a sign that conditions were generally expected to improve over the next six months—but the level of optimism was well below the levels observed earlier this year.

The index increased from -7.8 in June, but was well below expectations of a reading of 8.0. This is the first regional survey released for July and shows that manufacturing in the NY region is still contracting.

• From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. ... The gasoline index declined sharply in June, falling 6.8 percent. ... In contrast, the index for all items less food and energy increased 0.3 percent for the second consecutive month.

Headline CPI declined because of the sharp decline in gasoline prices, but the core index increased 0.3 percent and is now up 1.6 percent over the last year. I'll have more on inflation later.

by Calculated Risk on 7/14/2011 11:15:00 PM

The 2011 EU-wide stress test reports will be released at 12 PM ET: Some country reports might be released earlier, but the summary report and the aggregate results will be published by the European Banking Authority (EBA) at 6pm CEST (5pm BST) on Friday, July 15th.

Here is the page for the European Banking Authority (EBA) (it will probably crash at 12 PM ET).

From the NY Times: Europe Looks for Hope in Bank Test Results

[T]he euro zone’s top banking supervisor will announce on Friday the results of its latest examination into the health of its financial institutions. It is an exercise that an increasingly desperate European Union hopes will quell investor fears ... Since the last stress tests a year ago, the banks have raised 67 billion euros ($94.2 billion) in new capital, according to Morgan Stanley, a relative pittance given that European banks have on their books 1.1 trillion euros in government debt from Greece, Ireland, Portugal and Spain.

Also tomorrow:

8:30 AM: Consumer Price Index for June. The consensus is for a 0.2% decrease in prices. The consensus for core CPI is an increase of 0.2%.

8:30 AM ET: NY Fed Empire Manufacturing Survey for July. This is the first of regional surveys for July. The consensus is for a reading of 8.0, indicating expansion, after a reading of -7.8 in June (contraction).

9:15 AM ET: The consensus is for a 0.4% increase in Industrial Production in June, and an increase to 76.9% (from 76.7%) for Capacity Utilization.

9:55 AM: Reuters/University of Mich Consumer Sentiment preliminary for July. The consensus is for a slight decrease to 71.0 from 71.5 in June.

by Calculated Risk on 7/14/2011 08:24:00 PM

I hate to even mention this ...

From MarketWatch: S&P warns on U.S. debt, 50% chance of downgrade

Standard & Poor's Ratings Services said late Thursday it has placed U.S. sovereign credit ratings on watch for possible downgrade, saying the action "signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days."

Ezra Klein has some details on The debt deal that’s taking shape, and its drawbacks

I still think something will be worked out, but this interview with Stan Collender is a little scary. First on a meeting he had with some new representatives back in February:

What I took from that was, first, that the debt ceiling was going to be a lot more trouble than anyone realized. They did not want a negotiation there. There was a religious-like fervor on that point: Voting for the debt ceiling was a sin, and you can’t just sin a little.

And later in the interview:

EK: What do you think the chance is we see a deal before Aug. 2?

SC: Less than 50-50.

EK: What’s the scenario for that? Is it something like the talks seem like they’re going somewhere, and then whatever the negotiators come up with unexpectedly fails on the floor after the Tea Party whips on it?

SC: Something like that. In the back of my mind I keep remembering something Peter Orszag said, which was you were going to need a combination of Democrats and Republicans in the House, and the only way that vote would be acceptable for Boehner to schedule is after negative market reaction that spooks people. It’s not unlike how TARP got through. The average member of Congress has got to be sitting there saying if I don’t vote for this, it’ll be a disaster, and if I do vote for it, it’ll be a disaster. So without the negative market effect, there’s not enough pressure. But remember Bachmann is running around saying there will be no negative effect.

EK: Which suggests to me that a market reaction could have a more significant effect on the psychology of some of these members of Congress than we give it credit for. They’re not prepared for it, and if it comes, it disproves some of the assumptions they’re working with.

SC: Right. And remember the general idea on Wall Street right now is that there will be a deal because there’s always a deal. But Wall Street works off of expectations. So if the market realizes they got this wrong, the reaction could be larger than expected

The debt ceiling is not a sin. I think there will be a deal, and I sure hope Collender is wrong.

by Calculated Risk on 7/14/2011 04:09:00 PM

From DataQuick: Bay Area June Home Sales Surge, Median Price Edges Up to 2011 High

Bay Area home sales rose sharply last month from May to the highest level for any month since June 2010, when outgoing homebuyer tax credits gave housing demand a final boost.
...
A total of 7,998 new and resale houses and condos sold in the nine-county Bay Area last month. ... June sales have ranged from a low of 7,118 in 1993 to a high of 15,735 in 2004, while the average is 10,129. Sales last month fell 21.0 percent below the June average. June is normally a strong month and, among all months, it’s had the highest number of sales most often – seven of the past 23 years.
...
“It’s difficult to point to one specific thing that caused last month’s sales to jump more than usual from May. It wasn’t just in the Bay Area – we saw it across much of the state. June likely benefitted from a combination of factors, such as price reductions, low mortgage rates and perhaps a batch of short sale transactions from spring that took months to close. Bargain hunters, mainly investors and first-time buyers, remain very active,” said John Walsh, DataQuick president. ... “Let’s keep in mind, however, that last month was not a particularly strong June, historically speaking, and one month’s increase in sales from the prior month doesn’t constitute a trend.”
...
Last month 399 newly built houses and condos sold in the Bay Area, down 43.8 percent from a year earlier and the second-lowest for a June in DataQuick’s records, behind 360 new-home sales in 1993.

This is another report suggesting an increase in existing home sales in June compared to the reported 4.81 million sold in May on a seasonally adjusted annual rate (SAAR) basis (before the coming benchmark revisions).

Hopefully Tom Lawler will have a June forecast soon. National existing home sales for June will be reported on July 20th. New home sales will reported on July 26th.

Note on New Home sales: DataQuick reports when the escrow closes, and the Census Bureau reports when a contract is signed. So you can't use this low level of sales to forecast June new home sales - this is just confirmation that there were very few contracts signed 6 months or so ago (since it takes about 6 months to close a new home).