by Calculated Risk on 11/18/2011 09:01:00 AM

It has been a long time since I posted a few indicators of credit stress.

First - I want to reiterate that the U.S. economic data has looked better recently and Q4 U.S. GDP should be OK (more sluggish growth). I think the most likely path is no U.S. recession in 2012. However there are downside risks - especially from the European financial crisis (and apparently European recession) and also from more fiscal tightening the U.S..

The somewhat improved economy in the U.S. has led Macroeconomic Advisers to up their Q4 GDP forecast to 3.2%, and for Merrill Lynch to up their Q4 forecast to 3.0%. From Neil Irwin at the WaPo:

Putting all the recent evidence together, forecasting firm Macroeconomic Advisers projects that the economy will have grown at a 3.2 percent annual rate in the final three months of 2011 ...

And from Bloomberg (ht sum luk):

Economists at JPMorgan Chase & Co. (JPM) in New York now see gross domestic product rising 3 percent in the final quarter, up from a previous prediction of 2.5 percent. Macroeconomic Advisers in St. Louis increased its forecast to 3.2 percent from 2.9 percent at the start of November, while New York-based Morgan Stanley & Co. boosted its outlook to 3.5 percent from 3 percent.

That is still sluggish growth with all the slack in the system, but an improvement over Q3 and the event driven weakness earlier this year.

Here are a few indicators of credit stress:

• Here is a screen shot of the TED spread from Bloomberg.

The TED spread is at 0.49, and has been rising recently (top graph). The 5 year graph shows that recent increase in comparison to the U.S. financial crisis in 2008.

Click on graph for larger image.

The peak was 4.63 on Oct 10th. A normal spread is around 0.5.

• The three month LIBOR has increased:

Data from the British Bankers' Association showed the three-month dollar London Interbank Offered Rate, or Libor, rose to 0.47944% from 0.47111% Wednesday.

The three-month LIBOR rate peaked during the crisis at 4.81875% on Oct 10, 2008. This is rising again, but still low.

• The A2P2 spread as at 0.49. This spread has increased slightly over the last few days, but far lower than the peak of the financial crisis of 5.86.

This is the spread between high and low quality 30 day nonfinancial commercial paper. Right now quality 30 day nonfinancial paper is yielding close to zero.

• The two year swap spread screen shot from Bloomberg. This spread is just over 51.

This spread peaked at near 165 in early October 2008.

By these indicators, credit stress is rising, but it is still very low compared to the levels reached in September 2008.

by Calculated Risk on 11/17/2011 08:43:00 PM

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported - and possible hints about the trade report for October. LA area ports handle about 40% of the nation's container port traffic.

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic is down 0.6% from September, and outbound traffic is up 0.3%.

Inbound traffic is "rolling over" and this might suggest that retailers are cautious about the coming holiday season.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

For the month of October, loaded inbound traffic was down 7% compared to October 2010, and loaded outbound traffic was up 3% compared to October 2010.

Exports have been increasing, although bouncing around month-to-month. Exports are up from last year, but are still below the peak in 2008.

Imports have been soft - this is the 5th month in a row with a year-over-year decline in imports.

All current trade graphs
Earlier:
• Weekly Initial Unemployment Claims: Four Week average falls under 400,000
• MBA: Mortgage Delinquencies decline slightly in Q3
• Q3 MBA National Delinquency Survey: Comments and State Data
• Philly Fed: "Regional manufacturing is expanding, but at a slow pace"
• Housing Starts decline slightly in October
• Multi-family Starts and Completions, and Quarterly Starts by Intent

by Calculated Risk on 11/17/2011 06:22:00 PM

Since it usually takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - it makes sense that there will be a record low, or near record low, number of multi-family completions this year.

The following graph shows the lag between multi-family starts and completions using a 12 month rolling total.

The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.

Click on graph for larger image.

The rolling 12 month total for starts (blue line) has been increasing all year. It now appears multi-family starts will be in the 150 thousand to 160 thousand unit range in 2011, up from 104 thousand units in 2010. That is a 50%+ increase in starts - but from a very low level.

Completions (red line) appear to have bottomed. This is probably because builders are rushing projects to completion because of the strong demand for rental units.

It is important to emphasize that even with a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). But this is bright spot for construction.

Also today, the Census Bureau released the "Quarterly Starts and Completions by Purpose and Design" report for Q3 2011. Although this data is Not Seasonally Adjusted (NSA), it shows the trends for several key housing categories.

This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

Single family starts built for sale were up slightly year-over-year in Q3. This was the 2nd weakest Q3 on record. Owner built starts were at a record low for a Q3, and condos built for sale are scrapping along the bottom.

Only the 'units built for rent' is showing any significant pickup. This is a 25% increase from Q3 2010 and more than double Q3 2009.

The largest category - starts of single family units, built for sale - has mostly been moving sideways at very depressed level for about 3 years.

Earlier:
• Weekly Initial Unemployment Claims: Four Week average falls under 400,000
• MBA: Mortgage Delinquencies decline slightly in Q3
• Q3 MBA National Delinquency Survey: Comments and State Data
• Philly Fed: "Regional manufacturing is expanding, but at a slow pace"
• Housing Starts decline slightly in October

by Calculated Risk on 11/17/2011 02:39:00 PM

A few comments from Michael Fratantoni, MBA's Vice President of Research and Economics on the conference call.

• Delinquencies are down, foreclosure starts are up due to a couple of servicers and products (ARMs).

• The inventory of foreclosures-in-process was unchanged, but that masks two different trends. For judicial states, the number of in-foreclosure properties continues to increase and is up to 6.8% of all properties with a mortgage. For non-judicial states, the number of in-foreclosure properties is falling - and is down to 2.9%.

• Fratantoni expects it will take 3 to 4 years for delinquencies to return to "normal" (the levels prior to the crisis) assuming steady economic growth.

• On the possible impact of the possible mortgage settlement, Fratantoni said it was too early to know since the details are not available.

CR Note: I expect the in-foreclosure inventory to decline - especially in judicial states - after a settlement is reached. Some of the decline will probably be due to more mortgage modifications, but most because the servicers will start completing more foreclosures.

• Judicial foreclosure states usually have the highest percentage of loans in the foreclosure process.

Click on graph for larger image.

This graph shows the percent of loans in the foreclosure process by state and by foreclosure process. Red is for states with a judicial foreclosure process. Because the judicial process is longer, those states typically have a higher percentage of loans in the process. Nevada is an exception.

Florida, Nevada, New Jersey, Illinois and New York are the top five states with percent of loans in the foreclosure process. In Arizona and California, the percent of loans in the foreclosure process is declining fairly rapidly.

This graph shows all delinquent loans by state (sorted by percent seriously delinquent).

Florida and Nevada have the highest percentage of serious delinquent loans, followed by New Jersey, Illinois, and New York.

Note: the MBA's National Delinquency Survey (NDS) covers about "43.5 million first-lien mortgages on one- to four-unit residential properties" and is "estimated to cover around 88 percent of the outstanding first-lien mortgages in the market." This gives about 6.1 million loans delinquent or in the foreclosure process.

Earlier:
• MBA: Mortgage Delinquencies decline slightly in Q3

by Calculated Risk on 11/17/2011 12:24:00 PM

Catching up (I'll have more on mortgage delinquencies later) ...

From the Philly Fed: November 2011 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, remained positive for the second consecutive month, but it decreased from 8.7 in October to 3.6. Indexes for current new orders and shipments showed a similar pattern, remaining positive but falling 7 points and 6 points, respectively.
...
The current employment index increased 11 points from its reading in October, attributable also to a decline in the share of firms reporting employment decreases. The average workweek index increased 8 points, to its highest level in seven months.
...
The broadest indicator of future activity increased nearly 15 points and is
now at its highest reading in eight months. The indexes for future new orders
and shipments both improved, increasing 13 points and 10 points, respectively.
Paralleling the increase in other future indicators, the index for future employment rose 11 points.

This indicates expansion in November, but at a slower pace than in October and below the consensus forecast of +9.0.

The six month outlook improved "notably", and employment increased (number of employees was at 12.0, up from 1.4 last month, and the average workweek was at 11.0, up from 3.1).

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through November. The ISM and total Fed surveys are through October.

The average of the Empire State and Philly Fed surveys increased again in November, and is has been slightly positive for two months.
All current manufacturing graphs

Earlier:
• Weekly Initial Unemployment Claims: Four Week average falls under 400,000
• Housing Starts decline slightly in October
• MBA: Mortgage Delinquencies decline slightly in Q3