by Calculated Risk on 10/11/2011 01:38:00 PM

I've been tracking the MBA mortgage purchase application index every week, and that index suggests a fairly sharp decline in mortgage purchase applications in August. That decline would normally suggest weaker home sales in September (seasonally adjusted), however that index doesn't include investors who usually pay cash ... and investors are very active in many markets.

Here is an example from the Las Vegas Sun: Realtors:

Las Vegas home prices off 8.6 percent from September 2010Las Vegas-area home ... sales stayed strong thanks to investors snapping up homes [the Greater Las Vegas Association of Realtors] ... said the total number of existing local homes, condominiums and townhomes sold in September was 4,108. That was down from 4,693 sales in August – the second-best month ever for existing home sales in Southern Nevada.

But September’s sales total was up from 3,603 sales one year ago.

And from economist Tom Lawler on Las Vegas:

About 45% of last month’s sales were bank-owned properties, down from 50% in August, while short sales comprised 25% of September sales, up from 21% in August. Active listings in September totaled 25,995, down 4.6% from August and down 9.3% from a year ago

So even though the MBA index declined recently, existing home sales might still be fairly strong in September due to investor buying.

by Calculated Risk on 10/11/2011 10:10:00 AM

Statement by the European Commission, the ECB and IMF on the Fifth Review Mission to Greece

Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) have concluded their fifth review mission to Greece to discuss recent economic developments. The mission has reached staff-level agreement with the authorities on the economic and financial policies needed to bring the government’s economic program back on track.
...
Once the Eurogroup and the IMF’s Executive Board have approved the conclusions of the fifth review, the next tranche of EUR 8 billion (EUR 5.8 billion by the euro area Member States, and EUR 2.2 billion by the IMF) will become available, most likely, in early November.

From the NY Times: Slovak Leader Vows to Resign If Bailout Vote Fails

Lawmakers in Slovakia were scrambling on Tuesday to avert political and financial disaster over the vote on the expansion of the euro rescue fund, after the prime minister tied the fate of her government to the legislation through a confidence vote.
...
The opposition Smer-Social Democracy party could bridge the gap, but its leader, the former prime minister Robert Fico, said he would support the proposal only in exchange for new elections, which could return him to power. He told reporters in Bratislava that his party would abstain from the vote but could support the measure at a later session if it failed.

It sounds like the EFSF vote might fail in Slovakia before passing later this week. Slovakia is the last country to vote on the enhanced EFSF.

The next step for Greece is the size of the haircuts, and various reports suggest the haircuts will be close to 50%.

by Calculated Risk on 10/11/2011 07:54:00 AM

From the National Federation of Independent Business (NFIB): Small-Business Confidence Sees Modest Gain: The Start of a Trend, or a Blip?

Small-business optimism gained 0.8 points in September, according to the National Federation of Independent Business’ (NFIB’s) latest Index, ending a six-month decline. However, NFIB’s chief economist cautions that in spite of this uptick, there is little among the 10 Index components that can be considered “positive.” ...

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 graph gallery.

The first graph shows the small business optimism index since 1986. The index increased to 88.9 in September from 88.1 in August.

Optimism had declined for six consecutive months and this is just a small increase.

The second graph shows the net hiring plans for the next three months.

Hiring plans were still low in September, but still positive and the trend is up.

According to NFIB: “Over the next three months, 11 percent plan to increase employment (unchanged), and 12 percent plan to reduce their workforce (unchanged), yielding a seasonally adjusted 4 percent of owners planning to create new jobs, also down 1 point from August."

Twenty eight percent of small business owners reported that weak sales continued to be their top business problem in September.

In good times, owners usually report taxes and regulation as their biggest problems.

The optimism index declined sharply in August due to the debt ceiling debate and only rebounded modestly in September. This index has been slow to recover - probably due to a combination of the recent economic weakness, and also the high concentration of real estate related companies in the index.

by Calculated Risk on 10/10/2011 08:33:00 PM

From Professor Duy: Too Early to Sound the All Clear?. An excerpt:

[A]lthough there is optimism the European situation can be resolved in three weeks, they seem to be walking a very fine line between attempting to recapitalize the banking system without undermining sovereign debt ratings while maintaining what effectively amounts to a pegged exchange rate system that is fundamentally inconsistent with the economic needs of more than one nation. In addition, they have an odd situation where every nation needs to issue Euro-denominated debt, but no nation can actually print Euros as a backstop. It's as if each nation issues only foreign-denominated debt, with ultimately no lender of last resort on a national level. Of course, the European Central Bank could fill this role, but will they?

My experience is that when a financial landscape is as ugly as we see here, there is no rescue plan. Things tend to get much worse before they get better. That seems to be what financial market are telling us.

Duy mentions the optimistic Bloomberg article today: No U.S. Recession as Forecasts Improve

A string of stronger-than-projected statistics -- capped by the news on Oct. 7 of a 103,000 rise in payrolls last month -- has prompted economists at Goldman Sachs Group Inc. and Macroeconomic Advisers LLC to raise their growth forecasts for third quarter growth to 2.5 percent from about 2 percent. That’s nearly double the second quarter’s 1.3 percent rate and would be the fastest growth in a year.

Goldman did up their Q3 growth forecast, but they remain cautious on the next few quarters. In a note research note titled "Economy Holds Up, But for How Long?", they argued "real income growth has stalled" and "financial conditions have tightened sharply in recent months". They think growth will slow over the next two quarters.

I still think the a new U.S. recession is unlikely, but there are definite headwinds and downside risks.

by Calculated Risk on 10/10/2011 04:35:00 PM

This graph (click on graph for larger image) from Doug Short shows the recent volatility.

And some followup on the story this morning in the NY Times on the median income falling: Recession Officially Over, U.S. Incomes Kept Falling

From David Leonhardt at the NY Times: Behind a Surprising Income Trend.

And Felix Salmon provides a graph of falling income in the U.S.: Chart of the day, median income edition

Every month, the Current Population Survey goes out to a nationally representative sample of more than 50,000 interviewed households and their members. And in one of the questions, those households — or at least the households who didn’t answer the same question the previous month — are asked how much money they made, in total, over the past 12 months. That question has now been asked in 138 successive months, since January 2000. Which means that with a bit of clever analysis, it’s possible to put together an apples-to-apples comparison of what has happened to household income every month.

And when you do that, the results are very scary indeed.

The red line, here, is median real household income, as gleaned from the CPS, indexed to January 2000=100. It’s now at 89.4, which means that real incomes are more than 10% lower today than they were over a decade ago.

The gray line is the unemployment rate. Pretty scary indeed!

Here is the report from Sentier Research.