by Calculated Risk on 12/30/2011 02:56:00 PM

Last weekend I posted some questions for next year: Ten Economic Questions for 2012. I'll try to add some thoughts, and maybe some predictions for each question over the next week.

Many of the questions are interrelated. The question on monetary policy depends on inflation (question #9), the unemployment rate (question #6) and what happens in Europe (question #8). And the unemployment rate is related to GDP growth (question #4), and on and on ...

9) Inflation: Will the inflation rate rise or fall in 2012?

Over the last 12 months, several key measures of inflation have shown increases: CPI (Consumer Price Index) rose 3.4%, the median CPI increased 2.2%, the trimmed-mean CPI increased 2.5%, core CPI (less food and energy) increased 2.2%, and core PCE prices increased 1.6% (Q3 2010 to Q3 2011).

Click on graph for larger image.

This graph shows core CPI, median CPI and trimmed-mean CPI on a year-over-year basis.

Early in the year there was a spike in energy prices, and it appears there was some spillover into these core measures. However, over the last few months, the rate of inflation has slowed. As an example, core PCE has increased at a 1.5% annual rate over the last 3 months.

In November, on a monthly basis, the median Consumer Price Index increased 1.1% at an annualized rate, the 16% trimmed-mean Consumer Price Index increased 1.0% annualized, and core CPI increased 2.1% annualized.

Also inflation expectations are not indicating a significant increase in inflation. In fact expectations are for further declines in inflation.

This makes sense because of the slack in the system, and also because deflation is the usual concern following a credit bubble and financial crisis, not inflation.

There are some people who have been predicting an imminent rapid increase in inflation for almost 3 years - in their view, a sharp increase in inflation is always just around the corner. That view has consistently been wrong, although some people also claim the government measures are not correct and that inflation is much higher than reported.

However private measures show similar results as BEA and BLS measures (see The Billion Prices Project).

The MIT prices are mostly for goods, because as they note: "The price of services, in particular, are not easy to find online and therefore are not included in our statistics." This is important because, according to the BEA, prices of good have increased significantly faster than the price of services over the last year (Prices for goods have increased 3.9%, and prices for service 1.6% from Q3 2010 to Q3 2011). So, if anything, the MIT prices overstate inflation by excluding most services.

The bottom line is the inflation rate will probably stay low in 2012 with high unemployment and low resource utilization. I expect QE3 to be announced before mid-year, and that will probably keep the inflation rate near the Fed's target (as opposed to falling further). But I don't see inflation as a significant threat in 2012.

Earlier:
• Question #10 for 2012: Monetary Policy

by Calculated Risk on 12/30/2011 01:38:00 PM

From HotelNewsNow.com: STR: US results for week ending 24 December

The U.S. hotel industry experienced increases in all three key performance metrics during the week of 18-24 December 2011, according to data from STR.

In year-over-year comparisons for the week, occupancy rose 8.1 percent to 37.3 percent, average daily rate increased 2.7 percent to US$89.48 and revenue per available room finished the week with an increase of 11.0 percent to US$33.39.

This is the weak season for hotel occupancy, but this is a fairly strong improvement over 2010. However ADR is still about 4% below the rate for the same week in 2008. Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using a four week average.

Click on graph for larger image.

Hotels have seen a solid finish to 2011. The 4-week average of the occupancy rate is back to normal.

Looking forward, the 4-week average will decline until mid-January and then start to increase again (the normal seasonal pattern). February and March are the next key period - that is when business travel usually picks up.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 12/30/2011 11:39:00 AM

From the National Restaurant Association: Restaurant Industry Outlook Improved in November as Restaurant Performance Index Rose to Five-Month High

The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.6 in November, up 0.6 percent from October. In addition, November represented the second time in the last three months that the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“The November increase in the Restaurant Performance Index was fueled by broad-based gains in both the current situation and forward-looking indicators,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Restaurant operators reported their strongest net positive same-store sales results in more than four years, while customer traffic levels also grew in November.”
...
Restaurant operators reported positive same-store sales for the sixth consecutive month inNovember. ... Restaurant operators also reported stronger customer traffic levels in November. ... Capital spending activity among restaurant operators trended upward in recent months. Forty-six percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, the highest level in five months.

Click on graph for larger image.

The index increased to 100.6 in November (above 100 indicates expansion).

Unfortunately the data for this index only goes back to 2002.

Restaurant spending is discretionary and is impacted by the overall economy. This index showed contraction in July and August, but is now positive again.

All current retail related graphs

by Calculated Risk on 12/30/2011 08:54:00 AM

Fannie Mae reported that the Single-Family Serious Delinquency rate was unchanged at 4.00% in November. This is down from 4.50% in November of 2010. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate increased to 3.57% in November, up from 3.54% in October. This is down from 3.85% in November 2010. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

The increase in November (unchanged for Fannie) is probably seasonal. The serious delinquency rates have been declining, but declining very slowly. The reason for the slow decline is most likely the backlog of homes in the foreclosure process.

The "normal" serious delinquency rate is under 1%, and at this pace of decline, the delinquency rate will not be back to "normal" for a long time.

Early in 2012, a mortgage settlement agreement with the servicers might be reached, and that might lead to more modifications and foreclosures - so the delinquency rate might decline faster. Also Fannie and Freddie are expected to announce a bulk sale of REO to investors (and possible rental program) early next year - and that might also lead to more foreclosures.

All current mortgage delinquency graphs

by Calculated Risk on 12/29/2011 07:53:00 PM

The year is almost over and once again a key downside risk for the economy is high gasoline prices. According to Bloomberg, Brent Crude is up to $108.10 per barrel, while WTI is up to $99.76. These prices have kept gasoline prices high, and pushed down vehicle miles driven in the US.

Although prices were higher in the first half of 2008, it is possible that the average annual price for oil and gasoline in 2012 will see a new record high.

If the global economy really slows, oil and gasoline prices will probably fall - and probably offset some of the impact from lower exports. Unfortunately turmoil in the Middle East (this time with Iran) might be pushing up oil prices.

This following graph shows the prices for Brent and WTI over the last few years. Usually the prices track pretty closely, but the "glut" of oil at Cushing pushed down WTI prices relative to Brent.

Click on graph for larger image.

The spread has narrowed over the last couple of months following the announcement of a partial reversal of the Seaway pipeline to transport crude oil from Cushing, Oklahoma, to the Gulf Coast (the pipeline is scheduled to be reversed in Q2 2012).

And below is a graph of gasoline prices. Gasoline prices have been slowly moving down since peaking in early May. Note: The graph below shows oil prices for WTI; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com