by Calculated Risk on 11/22/2011 04:40:00 PM

From the WSJ: Fed Outlines Plans for New Bank Stress Tests

The Federal Reserve on Tuesday outlined plans for annual tests of the financial strength of the largest U.S. banks and said some of the results would be made public.

Banks must submit their plans to the Fed by Jan. 9 for the "stress tests," which apply to 19 firms that participated in similar tests earlier this year and 12 more with at least $50 billion in assets that have not participated in similar tests before ... When the stress tests are complete, the Fed said it will publicly disclose its estimates of bank revenue and losses and estimates of bank capital ratios for the 19 largest firms.

Here is the press release from the Federal Reserve.

The stress test scenario is outlined here. The stress tests assume the unemployment rate will rise to 13% in 2013, that the Dow Jones (update: Dow Jones Total Stock Market Index) will decline by more than 50% from the current level. The scenario assumes that house prices will fall another 20%+.

Click on graph for larger image.

This graphs shows the stress test scenarios for the Dow Jones and a house price index.

This scenario shows the Dow Jones Total Stock Market Index falling to 5,668 in Q4 2012 (from 11,771.86 at the end of Q3), and house prices declining until early 2014 - and off almost 47% from the peak in 2006.

by Calculated Risk on 11/22/2011 03:27:00 PM

From ATA: ATA Truck Tonnage Index Rose 0.5% in October

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 0.5% in October after rising a revised 1.5% in September 2011. September’s increase was slightly less than the 1.6% gain ATA reported on October 25, 2011. The latest gain put the SA index at 116.3 (2000=100) in October, up from the September level of 115.8.

Compared with October 2010, SA tonnage was up 5.7%. In September, the tonnage index was 5.8% above a year earlier. Further, October’s tonnage reading was just 4.4% below the index’s all-time high in January 2005.

“Tonnage readings continue to show that economy is growing and not sliding back into recession,” ATA Chief Economist Bob Costello said. “Over the last two months, tonnage is up nearly 2% and is just shy of the recent high in January of this year.”

Click on graph for larger image.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index. From ATA:

Trucking serves as a barometer of the U.S. economy, representing 67.2% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9 billion tons of freight in 2010. Motor carriers collected $563.4 billion, or 81.2% of total revenue earned by all transport modes.

This index has started increasing again after stalling earlier this year - however this is still fairly sluggish growth.
All current Transportation Graphs

by Calculated Risk on 11/22/2011 01:57:00 PM

From the Fed: Minutes of the Federal Open Market Committee, November 1-2, 2011. Excerpts:

Regarding their overall outlook for economic activity, participants generally agreed that, even with the positive news received over the intermeeting period, the most probable outcome was a moderate pace of economic growth over the medium run with only a gradual decline in the unemployment rate. While some factors were seen as likely to support growth going forward--such as pent-up demand, improvements in household and business balance sheets, and accommodative monetary policy--participants observed that the pace of economic recovery would likely continue to be held down for some time by persistent headwinds. In particular, they pointed to very low levels of consumer and business confidence, further efforts by households to deleverage, cutbacks at all levels of government, elevated financial market volatility, still-tight credit conditions for some households and small businesses, and the ongoing weakness in the labor and housing markets. While recent incoming data suggested reduced odds that the economy would slide back into recession, participants still saw significant downside risks to the outlook for economic growth. Risks included potential spillovers to U.S. financial markets and institutions, and so to the broader U.S. economy, if the European debt and banking crisis were to worsen significantly. In addition, participants noted the risk of a larger-than-expected fiscal tightening and the possibility that structural problems in the housing market had attenuated the transmission of monetary policy actions to the real economy. It was also noted that the extended period of highly accommodative monetary policy could eventually lead to a buildup of financial imbalances. A few participants, however, mentioned the possibility that economic growth could be more rapid than currently expected, particularly if gains in output and employment led to a virtuous cycle of improvements in household balance sheets, increased confidence, and easier credit conditions.

And there was discussion about communication:

The staff gave a presentation on alternative monetary policy strategies, and meeting participants discussed those alternatives as well as potential approaches for enhancing the clarity of their public communications. No decision was made at this meeting to change the Committee's policy strategy or communications. It was noted that many central banks around the world pursue an explicit inflation objective, maintain flexibility to stabilize economic activity, and seek to communicate their forecasts and policy plans as clearly as possible. Many participants pointed to the merits of specifying an explicit longer-run inflation goal, but it was noted that such a step could be misperceived as placing greater weight on price stability than on maximum employment; consequently, some suggested that a numerical inflation goal would need to be set forth within a context that clearly underscored the Committee's commitment to fostering both parts of its dual mandate. More broadly, a majority of participants agreed that it could be beneficial to formulate and publish a statement that would elucidate the Committee's policy approach, and participants generally expressed interest in providing additional information to the public about the likely future path of the target federal funds rate. The Chairman asked the subcommittee on communications to give consideration to a possible statement of the Committee's longer-run goals and policy strategy, and he also encouraged the subcommittee to explore potential approaches for incorporating information about participants' assessments of appropriate monetary policy into the Summary of Economic Projections.

There were concerns about targeting nominal GDP:

The Committee also considered policy strategies that would involve the use of an intermediate target such as nominal gross domestic product (GDP) or the price level. The staff presented model simulations that suggested that nominal GDP targeting could, in principle, be helpful in promoting a stronger economic recovery in a context of longer-run price stability. Other simulations suggested that the single-minded pursuit of a price-level target would not be very effective in fostering maximum sustainable employment; it was noted, however, that price-level targeting where the central bank maintained flexibility to stabilize economic activity over the short term could generate economic outcomes that would be more consistent with the dual mandate. More broadly, a number of participants expressed concern that switching to a new policy framework could heighten uncertainty about future monetary policy, risk unmooring longer-term inflation expectations, or fail to address risks to financial stability.

by Calculated Risk on 11/22/2011 10:52:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were generally little changed or slightly lower in October. Thirty-six states and the District of Columbia recorded unemployment rate decreases, five states posted rate increases, and nine states had no rate change, the U.S. Bureau of Labor Statistics reported today.
...
Nevada continued to record the highest unemployment rate among the states, 13.4 percent in October. California posted the next highest rate, 11.7 percent. North Dakota registered the lowest jobless rate, 3.5 percent, followed by Nebraska, 4.2
percent.

The following graph shows the current unemployment rate for each state (red), and the max during the recession (blue). Every state finally has some blue - indicating no state is currently at the maximum during the recession.

Click on graph for larger image in graph gallery.

The states are ranked by the highest current unemployment rate.

From the BLS: "Forty-five states recorded unemployment rates that were not appreciably different from those of a year earlier."

The fact that 45 states have seen little or no improvement over the last year is a reminder that the unemployment crisis is ongoing.

All current employment graphs

by Calculated Risk on 11/22/2011 10:06:00 AM

From the Richmond Fed: Manufacturing Activity Steadied in November; Expectations Were Upbeat

Manufacturing activity in the central Atlantic region stabilized in November following four months of contraction, according to the Richmond Fed's latest survey ... In November, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — increased six points to 0 from October's reading of −6. Among the index's components, shipments gained seven points to 1, while new orders edged up three points to finish at −2 and the jobs index steadied, moving up seven points to 0.

Labor market conditions changed little at District plants in November. Both the manufacturing employment and average workweek indexes registered a reading of 0, moving up seven points and one point, respectively. Wage growth doubled, picking up five points to finish at 10.

In our November survey, our contacts were more bullish about their business prospects for the next six months. The index of expected shipments increased eight points to 36, and expected orders jumped twelve points to finish at 37. ...

District manufacturers' hiring plans were more upbeat in November. The expected manufacturing employment index gained nine points to 22, while the average workweek indicator held constant at 3. In addition, the index of expected wages moved up nine points to 28.

This was slightly above consensus.

Richmond and New York (Empire state) have been the two weakest regions, and both showed stabilization in November - but still not expansion.