by Calculated Risk on 11/13/2011 12:47:00 PM

On Friday, Goldman Sachs economists expressed concerns about two potential negative shocks for the U.S. economy:

"We are particularly concerned about two potential negative shocks— one of which has already materialized to some degree. First, a worsening of the European financial crisis would hurt the economic outlook globally. Second, our forecast assumes that the payroll tax cut is extended for another year; if that failed to happen, the fiscal drag in early 2012 would rise significantly."

Goldman Sachs, November 11, 2011

These are downside risks to Goldman's forecast of about 1% GDP growth in the first half of 2012 - already a very weak forecast!

On the second point, additional fiscal stimulus might depend on the so-called "super committee" that has a November 23rd deadline. I have little confidence in the committee. Here is an update from the WaPo: Supercommittee hasn’t ‘given up hope,’ Hensarling says

“We haven’t given up hope,” Rep. Jeb Hensarling (R-Texas) said on CNN’s “State of the Union.” “But if this was easy, the president of the United States and the speaker of the House would have gotten it done themselves.”

It is hard to believe that Congress would raise taxes on working Americans with a 9% unemployment rate, and in an election year - but that just might happen ...

I agree that the European financial crisis and additional fiscal tightening are the two major downside risks, but I think there are several other risks worth mentioning.

Oil and gasoline prices have remained fairly high and there is always the risk of another supply shock in the middle east. Gasoline prices are already at the highest level ever for October and November. Not a great way to start the holiday shopping season.

Another ongoing drag has been state and local government cutbacks. This year, state and local governments have cut 232,000 payroll jobs (about 23 thousand per month). This might continue in 2012 (most forecasts are for cutbacks to slow next year). The California State controller recently reported:

State Controller John Chiang today released his monthly report covering California's cash balance, receipts and disbursements in October, showing revenues came in $810.5 million below projections from the recently passed state budget.

"October's poor revenues capped a very disappointing first four months of the fiscal year," said Chiang. "Unless revenues and expenditures begin to track with projections, the State will face increasing cash pressure in the months ahead."

This shortfall could lead to additional cuts in California next year, and other states are probably falling short too.

And last, but never least, the U.S. housing crisis is ongoing. House prices are now falling again, and there will be more distressed supply coming on the market - especially once the mortgage settlement is reached. It does appear the excess supply is being absorbed (based on falling vacancy rates), but there is still a long way to go.

My general forecast is for sluggish growth, but there are some significant downside risks.

Yesterday:
• Schedule for Week of Nov 13th
• Summary for Week Ending Nov 11th

by Calculated Risk on 11/13/2011 09:09:00 AM

From Ashley Powers at the LA Times: In foreclosure-plagued Vegas, empty homes go to pot

The home — with four bedrooms and 61 plants — was one of the smaller alleged grow operations authorities have dismantled this year. At another home, authorities seized 878 plants worth an estimated $2.6 million.

Las Vegas has a pot home problem. And like many of the region's maladies, it's tied to the housing slump.
...
"You can't have crime without opportunity," said William Sousa, a criminologist at the University of Nevada, Las Vegas. "And all those empty homes present an opportunity for criminal activity."

Major cultivators spend tens of thousands of dollars turning cheap homes into greenhouses.

This reminds me of a classic Jim the Realtor video: High on the Hill

Yesterday:
• Schedule for Week of Nov 13th
• Summary for Week Ending Nov 11th

by Calculated Risk on 11/12/2011 08:29:00 PM

There will be a confidence vote on Wednesday (obviously Papademos will win), and the troika inspectors (EU, the IMF and the ECB) will visit Greece early next week to obtain commitments from the new government.

But basically the beatings will continue until morale improves (more austerity), although Papademos did say getting the unemployment rate down was a top priority.

A couple of stories from the Athens News: New government offers no austerity relief, may stay longer

Greeks have largely welcomed the new government, saying the somber international policymaker [new Prime Minister Lucas Papademos] is a safer pair of hands than those of politicians they say have put their own interests ahead of those of the country.

But [Theodoros Pangalos, a returning deputy prime minister from the previous cabinet] warned voters not to expect relief from the tough tax measures decided earlier this year to qualify for further bailout tranches.

"The manoeuvring space for any relief measures in 2012 is very narrow," he said.

In his first statement as prime minister, Papademos vowed to fulfill a deal forged last month with eurozone leaders that will release an 8 billion euro loan Athens needs to avoid running out of cash next month plus longer-term funding later.

"The government's main task is to implement the decisions, the conclusions of the October 26th and 27th eurozone summit meeting, and secondly to put into force the economic policies which come together with these decisions," he said.

From the Athens News: Citizens strongly back unity coalition: polls

Greeks strongly support their new technocrat prime minister Lucas Papademos and his national unity government, opinion polls showed Saturday, which also indicated the country may continue with coalition rule after he steps down next year.

I wonder how long the support will last?

Earlier:
• Schedule for Week of Nov 13th
• Summary for Week Ending Nov 11th

by Calculated Risk on 11/12/2011 04:12:00 PM

From the WSJ: Italy Passes Budget; Berlusconi Resigns

Italian Prime Minister Silvio Berlusconi resigned on Saturday , the country's president's office said, paving the way for the formation of an interim government tasked with pulling Italy from the grip of the European debt crisis.
...
The move came after Parliament passed key economic measures that preface a much tougher round of austerity likely to be carried out under the emergency administration.

From the NY Times: Berlusconi’s Resignation Ends a 17-Year Era for Italy

The front-runner to guide a new government appears to be Mario Monti, 68, a former European commissioner and a well-respected economist with close ties to European Union officials. On Wednesday, Mr. Napolitano named Mr. Monti a senator for life, an unexpected move seen as a prelude to receiving the mandate to form a government.

In a sign of intense deal-making ahead of a delicate political transition, Mr. Monti met with Mr. Berlusconi and two of his close advisers on Saturday at the prime minister’s office.

And the beatings will continue until morale improves ...

by Calculated Risk on 11/12/2011 01:15:00 PM

Earlier:
• Summary for Week Ending Nov 11th

Two key housing reports will be released this week: November homebuilder confidence on Wednesday, and October housing starts on Thursday.

For manufacturing, the November NY Fed (Empire state) survey will be released on Tuesday, the November Philly Fed survey on Thursday, and the September Industrial Production and Capacity Utilization report on Wednesday.

On prices, the October Producer Price index (PPI) will be released Tuesday, and CPI will be released on Wednesday.

Several regional Fed presidents will be speaking this week: Chicago's Evans, St Louis' Bullard, San Francisco's Williams, and Dallas' Fischer all speak on Tuesday. On Wednesday, Richmond's Lacker and Boston's Rosengren, and on Thursday Cleveland's Pianalto and New York's Dudley.

----- Monday, Nov 14th -----
No releases scheduled.

----- Tuesday, Nov 15th -----
8:30 AM: Producer Price Index for October. The consensus is for a 0.2% decrease in producer prices (0.1% increase in core).

8:30 AM ET: NY Fed Empire Manufacturing Survey for November. The consensus is for a reading of -2.6, up from -8.48 in October (below zero is contraction).

8:30 AM: Retail Sales for October. After a strong September, the consensus is for retail sales to increase 0.2% in October, and for no change ex-auto.

10:00 AM: Manufacturing and Trade: Inventories and Sales for September. The consensus is for a 0.2% increase in inventories.

----- Wednesday, Nov 16th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been especially weak since early August, although this doesn't include cash buyers.

8:30 AM: Consumer Price Index for October. The consensus is for no change in prices. The consensus for core CPI is an increase of 0.1%.

9:15 AM ET: The Fed will release Industrial Production and Capacity Utilization for October. The consensus is for a 0.4% increase in Industrial Production in October, and an increase to 77.6% (from 77.4%) for Capacity Utilization.

10 AM ET: The November NAHB homebuilder survey. The consensus is for a reading of 16, down from 18 in October. Any number below 50 indicates that more builders view sales conditions as poor than good. This index has been below 25 for four years.

During the day: The AIA's Architecture Billings Index for October (a leading indicator for commercial real estate).

----- Thursday, Nov 17th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a slight increase to 395,000 from 390,000 last week. The 4-week average has declined recently to 400,000.

8:30 AM: Housing Starts for October. After collapsing following the housing bubble, housing starts have mostly been moving sideways for almost three years. The consensus is for a decrease to 605,000 (SAAR) from 658,000 (SAAR) in September.

10:00 AM: Philly Fed Survey for November. The consensus is for a reading of 9.0 (above zero indicates expansion, up slightly from 8.7 last month.


10:00 AM: Mortgage Bankers Association (MBA) 3rd Quarter 2011 National Delinquency Survey (NDS). The following graph shows the percent of loans delinquent by days past due for Q2. The MBA reported 8.44% of mortgage loans were delinquent at the end of Q2, seasonally adjusted, and another 4.43% were in the foreclosure process (total of 12.87%, essentially unchanged from Q1).

Click on graph for larger image.

This graph shows the percent of loans delinquent by days past due in Q2. Based on other data, the delinquency rate probably decreased slightly in Q3.

However the key problem is the large number of seriously delinquent loans (90+ days and in the foreclosure process). And there probably was little change in those percentages in Q3.

----- Friday, Nov 18th -----
10:00 AM: Conference Board Leading Indicators for October. The consensus is for a 0.5% increase in this index.