by Calculated Risk on 4/27/2012 11:05:00 PM

Just a reminder of why companies aren't investing more ... from Bruno Navarro at CNBC: Why Businesses Aren't Investing in the US: CEO

Businesses aren’t investing in the United States because of a lack of consumer demand, International Paper CEO John Faraci said Friday.

“I think this was all about consumer spending and demand. You know, the problem we have is there’s inadequate demand to create jobs. We know how to respond when there is demand,” he said ...

“Productivity has obviously been very good, so we’re creating more capacity with less resources. But at the end of the day, this is really about responding to demand, whether it’s automobiles or packaging products we make for a whole variety of industries and end users,”

It really isn't hard to understand [why certain companies aren't investing - these companies have adequate capacity to meet expected demand]. [added]

by Calculated Risk on 4/27/2012 09:20:00 PM

A tattered banker
Crawling along the desert
Deposits ... Cash ... Help!
by Soylent Green is People
From the FDIC: Pacific Premier Bank, Costa Mesa, California, Assumes All of the Deposits of Palm Desert National Bank, Palm Desert, California

As of December 31, 2011, Palm Desert National Bank had approximately $125.8 million in total assets and $122.8 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $20.1 million. ... Palm Desert National Bank is the 22nd FDIC-insured institution to fail in the nation this year, and the first in California.

That makes five today ... and we haven't seen a California bank fail since last September.

by Calculated Risk on 4/27/2012 06:28:00 PM

Harvesting Reaper
The merciless scythe wielded
Detritus voided
by Soylent Green is People
From the FDIC: FDIC Creates a Deposit Insurance National Bank of Eastern Shore to Protect Insured Depositors of Bank of the Eastern Shore, Cambridge, Maryland

As of December 31, 2011, Bank of the Eastern Shore had $166.7 million in total assets and $154.5 million in total deposits. ... The cost to the FDIC's Deposit Insurance Fund is estimated to be $41.8 million. Bank of the Eastern Shore is the 18th FDIC-insured institution to fail in the nation this year, and the first in Maryland.

From the FDIC: Sonabank, McLean, Virginia, Assumes All of the Deposits of HarVest Bank of Maryland, Gaithersburg, Maryland

As of December 31, 2011, HarVest Bank of Maryland had approximately $164.3 million in total assets and $145.5 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $17.2 million. ... HarVest Bank of Maryland is the 19th FDIC-insured institution to fail in the nation this year, and the second in Maryland.

From the FDIC: Great Southern Bank, Reeds Spring, Missouri, Assumes All of the Deposits of Inter Savings Bank, fsb D/B/A Interbank, fsb, Maple Grove, Minnesota

As of December 31, 2011, InterBank, fsb had approximately $481.6 million in total assets and $473.0 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $117.5 million. ... InterBank, fsb is the 20th FDIC-insured institution to fail in the nation this year, and the third in Minnesota.

From the FDIC: First Federal Bank, Charleston, South Carolina, Assumes All of the Deposits of Plantation Federal Bank, Pawleys Island, South Carolina

As of December 31, 2011, Plantation Federal Bank had approximately $486.4 million in total assets and $440.5 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $76.0 million. ... Plantation Federal Bank is the 21st FDIC-insured institution to fail in the nation this year, and the first in South Carolina.

Four down so far!

by Calculated Risk on 4/27/2012 03:03:00 PM

Earlier today from Nick Timiraos at the WSJ: Stunned Home Buyers Find the Bidding Wars Are Back

A new development is catching home buyers off guard as the spring sales season gets under way: Bidding wars are back.
...
From California to Florida, many buyers are increasingly competing for the same house. Unlike the bidding wars that typified the go-go years and largely reflected surging sales, today's are a result of supply shortages.
...
"We very much believe we've hit bottom," said Ivy Zelman, chief executive of a research firm, who was among the first to warn of a downturn seven years ago.
...
The Wall Street Journal's quarterly survey found that the inventory of homes listed for sale declined sharply in all 28 markets tracked. ...
Increased competition is frustrating buyers and their agents. "We're writing a record number of offers, but we're not seeing a record number of closings and that's because it's so competitive," said Glenn Kelman, chief executive of real-estate brokerage Redfin Corp. in Seattle with offices in 14 states.

Housing economist Tom Lawler sent me this comment on Timiraos' article:

The above [article] highlights a trend many realtors have been talking about – in many parts of the country homes listed for sale are not just receiving multiple offers, but are selling above list price. In many markets the “catalysts” for this “new” trend are sharply lower inventories of homes listed for sale; moderate increases in “traditional” home buying, spurred by low interest rates, rising rents, and a growing view that home prices may have finally stopped declining; and intense demand by investors for “distressed” properties they plan to rent out. Of course, the article cautions that housing markets face “headwinds” – still high (but much lower) REO inventories, still high (but somewhat lower) numbers of mortgages either seriously delinquent or in foreclosure, still lots of current homeowners “underwater,” and historically “sorta tough” mortgage lending standards. Still, the article is consistent with local realtor reports and other incoming data that home prices in many parts of the country are rebounding, and this trend should be reflected in many widely followed home price indexes a few months from now.

by Calculated Risk on 4/27/2012 12:11:00 PM

The GDP report was weaker than expected, however, on a positive note, final demand was decent. Personal consumption expenditures increased at a 2.9% annual rate in Q1, and residential investment increased at a 19.1% annual rate. Weather probably provided a boost to GDP - and PCE growth at this rate is not sustainable without more income growth - but this was still decent.

Investment in equipment and software slowed down to a 1.7% annual rate in Q1, but this slowdown is probably temporary. The largest quarterly contributions to GDP from equipment and software in this recovery have probably already happened, but I expect equipment investment to continue at a reasonable pace.

And investment in non-residential structures was negative in Q1. The details will be released next week, but this probably means investment in energy and power structures slowed in Q1 (this has been the main driver for non-residential structure investment over the last couple of years). However, based on the architecture billing index, I expect the drag from other non-residential categories (offices, malls) to end mid-year, so this negative contribution will probably end.

And there was another negative contribution from government spending at all levels. However, it appears the drag from state and local governments will end mid-year (after declining for almost 3 years).

A negative was that some of the increase in GDP was related to a positive contribution from changes in private inventories (this added 0.59 percentage points to Q1 GDP). This will probably be a drag for a quarter or two (swings in inventory are normal).

Overall this was a weak report, but it appears some of the drags will diminish over the course of the year - and that is a positive.

The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential Investment (RI) made a positive contribution to GDP in Q1 for the fourth consecutive quarter. Usually residential investment leads the economy, but that didn't happen this time because of the huge overhang of existing inventory, but now RI is contributing. Sure - some of the boost could be weather related, but RI has clearly bottomed.

The contribution from RI will probably continue to be sluggish compared to previous recoveries, but the ongoing positive contribution to GDP is a significant story.

Equipment and software investment has made a positive contribution to GDP for eleven straight quarters (it is coincident). However the contribution from equipment and software investment in Q1 was the weakest since the recovery started.

The contribution from nonresidential investment in structures was negative in Q1. Nonresidential investment in structures typically lags the recovery, however investment in energy and power has masked the ongoing weakness in office, mall and hotel investment (the underlying details will be released next week).

Residential Investment as a percent of GDP is still near record lows, but it is increasing. Usually RI bounces back quickly following a recession, but this time there is a wide bottom because of the excess supply of existing vacant housing units.

Last year the increase in RI was mostly from multifamily and home improvement investment. Now the increase is probably from most categories including single family. I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The last graph shows non-residential investment in structures and equipment and software.

Equipment and software investment had been increasing sharply, however the growth slowed over the last two quarters.

Non-residential investment in structures decreased in Q1 and is still near record lows as a percent of GDP. The recent small increase has come from investment in energy and power. I'll add details for investment in offices, malls and hotels next week.

The key story is that residential investment is continuing to increase, and I expect this to continue all year (although the recovery in RI will be sluggish compared to previous recoveries). Since RI is the best leading indicator for the economy, this suggests no recession this year.

Earlier ...
• Real GDP increased 2.2% annual rate in Q1