by Calculated Risk on 12/10/2011 08:15:00 AM

This was a light week for economic data and most of the focus was on Europe.

The good news included fewer initial weekly unemployment claims, an increase in consumer sentiment and an increase in rail traffic. However the ISM non-manufacturing index was weaker than expected, and - of course - house prices continued to decline.

Also, the data this week had implications for Q4 GDP, from Goldman Sachs:

[D]ata on inventories in the manufacturing and wholesale sectors was much stronger than expected for October. We now expect a modest inventory build in Q4 instead of a contraction. [I]mport growth was weaker than expected (because imports are subtracted from GDP, this is a positive). ... We revised up our tracking estimate for the quarter by nine tenths from 2.5% (annualized) at the start of the week to 3.4% currently.

However, Goldman still expects growth to slow in the first half of 2012 to around 1%, due to spillover from the Euro-area crisis, and from U.S. fiscal tightening.

Here is a summary of last week in graphs:

• Trade Deficit declined in October

The Department of Commerce reported:

[T]otal October exports of $179.2 billion and imports of $222.6 billion resulted in a goods and services deficit of $43.5 billion, down from $44.2 billion in September,
revised. October exports were $1.5 billion less than September exports of $180.6 billion. October imports were $2.2 billion less than September imports of $224.8 billion.

Click on graph for larger image.

This graph shows the monthly U.S. exports and imports in dollars through October 2011.

Both exports and imports decreased in October. Imports have been mostly moving sideways for the past six months (seasonally adjusted) - partially due to slightly lower oil prices. Exports are well above the pre-recession peak and up 12% compared to October 2010; imports have stalled recently but are still up about 11% compared to October 2010.

• ISM Non-Manufacturing Index indicates slower expansion in November

The November ISM Non-manufacturing index was at 52.0%, down from 52.9% in October. The employment index decreased in November to 48.9%, down from 53.3% in October.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was below the consensus forecast of 53.8% and indicates slower expansion in November than in October.

• CoreLogic: House Price Index declined 1.3% in October

CoreLogic released its October Home Price Index showing that "home prices in the U.S. decreased 1.3 percent on a month-over-month basis".

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was down 1.3% in October, and is down 3.9% over the last year.

The index is off 32.0% from the peak - and up just 2.5% from the March 2011 low.

Some of this decrease is seasonal (the CoreLogic index is NSA). Month-to-month prices changes will probably remain negative through February or March 2012 - the normal seasonal pattern. It is likely that there will be new post-bubble lows for this index in early 2012.
All House Price Graphs
• Labor Force Participation Rate

Three recent post on the labor force participation rate:
1) Comments on the Employment-Population Ratio
2) Labor Force Participation Rate by Age Group
3) Labor Force Participation Rate: The Kids are Alright

Here is a repeat of the graph showing the trends by age group since 1990.

Some of the recent decline in the participation rate for the '20 to 24' age group is probably related to the recession.

But probably the main reason for the decline in the participation rate for the younger age groups is that more people are pursuing higher education.

This graph uses data from the BLS on participation rate, and the National Center for Education Statistics (NCES) on enrollment rates.

This graph shows the participation and enrollment rates for the 18 to 19 year old age group. These two lines are a "mirror image".

Note: I added the participation rate for men and women too. One of the key labor stories in the 2nd half of the 1900s was the surge in participation by women.

In the long run, more education is a positive for the economy (although I am concerned about the surge in student loans).

• Weekly Initial Unemployment Claims decline to 381,000

"In the week ending December 3, the advance figure for seasonally adjusted initial claims was 381,000, a decrease of 23,000 from the previous week's revised figure of 404,000."

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. This is the fourth week in a row with the 4-week average below 400,000, and this is the lowest level for claims since February.
All current Employment Graphs
• Consumer Sentiment increased in December


The preliminary December Reuters / University of Michigan consumer sentiment index increased to 67.7, up from the November reading of 64.1.

Consumer sentiment is usually impacted by employment (and the unemployment rate) and gasoline prices.

However the recent sharp decline was event driven (the debt ceiling debate), and sentiment has rebounded as expected. Note: Back in August I looked at event driven declines in consumer sentiment.

Sentiment is still very weak, although this was above the consensus forecast of 66.0.

• Other Economic Stories ...
• From LPS: LPS Home Price Index Shows 1.2 Percent Decline in September U.S. Home Prices; Early Data Suggests Further 1.1 Percent Drop in October Likely
• Research: New paper on the role of investors in the housing bubble
• Lawler on "Real Estate Investors, the Leverage Cycle, and the Housing Crisis"
• AAR: Rail Traffic increased in November

by Calculated Risk on 12/09/2011 08:30:00 PM

This is a special case ...

From the Press Democrat: Bank donates Carinalli house to homeless agency (ht Tom)

An aging, two-bedroom ranch house at the west edge of Santa Rosa, seized in foreclosure proceedings from bankrupt financier Clem Carinalli, will soon become a housing complex for people who have lost their homes.

The house, which sits on two acres and is valued at $290,000, was donated by Luther Burbank Savings to Community Housing Sonoma County, a nonprofit that has helped create 179 units of low-income housing since 2003.

The donation of the foreclosure property is unprecedented in Sonoma County and possibly nationwide, housing advocates and bankers involved in the deal said.
...
Carinalli's assets, including 248 North Bay real estate properties ... according to bankruptcy documents.
...
Luther Burbank Savings, which had loaned Carinalli $19.5 million, foreclosed on 19 of his properties and sold all but one ...

Considering the glut of foreclosed homes in the county ... [Georgia Berland, executive director of the Sonoma County Task Force for the Homeless] said she hoped other banks might follow Luther Burbank Savings' example.

Biggs said he thought that was unlikely, calling the donation the result of “a unique set of circumstances,” including the cluster of Carinalli foreclosures and the home's marginal appeal to buyers.

by Calculated Risk on 12/09/2011 03:43:00 PM

A few details and articles.

From the EU: First session of the EU summit: Agreement on immediate action and on new fiscal rule for the eurozone

At a press conference Herman Van Rompuy, President of the European Council, and José Manuel Barroso, President of the European Commission, explained the short-term measures. Up to €200 billion will be made available to the IMF, the European Financial Stability Facility (EFSF) leverage "will be rapidly deployed" and the European Stability Mechanism (ESM) should enter into force in July 2012.

For the medium and longer term, the 17 eurozone countries will conclude an international agreement. This fiscal compact, to be signed no later than March 2012, will establish a new, stronger fiscal rule, including more automatism in the excessive deficit procedure. The objective remains to incorporate these provisions into the treaties of the Union as soon as possible. The Heads of State or Government of Bulgaria, Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden indicated the possibility to take part in this process after consulting their Parliaments where appropriate.

Excerpts from the communiqué: "General government budgets shall be balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of nominal GDP." CR note: there are several ways around this "principle".

"A mechanism will be put in place for the ex ante reporting by Member States of their national debt issuance plans."

As far as rebalancing, there is mention of "the new macro-economic imbalances procedure".

From the WSJ: EU Leaders Forge Fiscal Pact

The 17 countries of the euro zone formally agreed to run only minimal budget deficits in the future and allowed the European Court of Justice the right to strike down national laws that don't enforce such discipline properly.

From the NY Times: A Treaty to Save Euro May Split Europe

In a day of historic, seemingly tectonic shifts in the architecture of Europe, all 17 members of the European Union that use the euro agreed to the new treaty, along with six other countries that wish to join the currency union eventually. Three stragglers, the Czech Republic, Hungary and Sweden entered the fold later, after a strong diplomatic push.

Gavyn Davies at the Financial Times is somewhat optimistic: Eurozone crisis might move from acute to chronic phase

My initial take on the deal is that it will be sufficient to dampen the acute phase of the crisis, but that the absence of a clear long-term strategy for growth means that there could still be a long period of chronic problems ahead.
...
the communiqué ... does mention the “new macro-economic imbalances procedure” ... This is intended to increase the pressure on surplus countries (mainly Germany) ... But this resolution, unlike the fiscal rule, has no teeth ... The missing growth strategy, and the missing plan to eliminate competitiveness imbalances in the eurozone, could prove to be very serious omissions indeed.

And from the FT Alphaville: The gap between summit rhetoric and reality

by Calculated Risk on 12/09/2011 12:41:00 PM

The Association of American Railroads (AAR) reports carload traffic in November increased 2.3 percent compared with the same month last year, and intermodal traffic (using intermodal or shipping containers) increased 3.8 percent compared with November 2010.

The Association of American Railroads (AAR) today reported gains in November 2011 rail traffic compared with the same month last year, with U.S. railroads originating 1,476,635 carloads, up 2.3 percent, and 1,162,249 trailers and containers, up 3.8 percent. November 2011 saw the largest year-over-year percentage increase in carload traffic since March 2011.
...
“In November, U.S. rail carload traffic saw its highest year-over-year percentage increase in eight months, and year-over-year intermodal traffic grew for the 24th straight month,” said AAR Senior Vice President John Gray. “There are still clearly a lot of things that aren’t right with the economy, but we hope this improvement in rail traffic is a sign that the pace of economic growth is increasing.”

On a seasonally adjusted basis, carloads in November were up 0.9% from last month, and intermodal in Novmeber was up 0.8% from October.

Click on graph for larger image.

This graph shows U.S. average weekly rail carloads (NSA).

Rail carload traffic collapsed in November 2008, and now, over 2 years into the recovery, carload traffic is about half way back to the pre-recession levels.

The second graph is for intermodal traffic (using intermodal or shipping containers):

Graphs reprinted with permission.

Intermodal traffic is close to the peak year in 2006. Usually October is the strongest month for intermodal shipping as retailers stock up for the holiday season. That was true again this year, but shipping held up pretty well in November too.

Overall rail traffic improved in November - and this suggests somewhat sluggish growth, and may indicate that the pace of growth is increasing a little.
All Current Transportation graphs

by Calculated Risk on 12/09/2011 09:55:00 AM

The preliminary December Reuters / University of Michigan consumer sentiment index increased to 67.7, (typo corrected) up from the November reading of 64.1.


Click on graph for larger image.

Consumer sentiment is usually impacted by employment (and the unemployment rate) and gasoline prices.

However the recent sharp decline was event driven (the debt ceiling debate), and sentiment has rebounded as expected. Note: Back in August I looked at event driven declines in consumer sentiment.

Sentiment is still very weak, although above the consensus forecast of 66.0.