by Calculated Risk on 7/23/2012 10:08:00 PM

The key stories today were about Europe (once again). The yields on Spanish and Italian bond yields increased. Ezra Klein calls a graph of Spanish bond yields the scariest chart in the world today.

Also Spain and Italy banned some short selling and Moody's downgraded their outlook on Germany's rating to negative. Another day in the eurozone crisis.

On Tuesday:
• At 9:00 AM ET, the Markit US PMI Manufacturing Index Flash will be released. This is a new release and might provide hints about the ISM PMI for July. The consensus is for a reading of 52.6, down slightly from 52.9 in June.

• At 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for July will be released. The consensus is for an increase to 0 for this survey from -3 in June (above zero is expansion).

• Also at 10:00 AM, the FHFA House Price Index for May is scheduled to be released. The consensus is for a 0.3% increase in house prices.

by Calculated Risk on 7/23/2012 04:12:00 PM

From DataQuick: California Q2 Foreclosure Activity Lowest in Five Years

The number of California homes entering the formal foreclosure process dropped in the second quarter to its lowest level since early 2007. The decline stems from a combination of factors, including an improving housing market, the gradual burning off of the most egregious mortgages originated from 2005 through 2007, and the growing use of short sales, a real estate information service reported.

A total of 54,615 Notices of Default (NODs) were recorded on houses and condos during the April-though-June period. That was down 2.9 percent from 56,258 for the prior three months, and down 3.6 percent from 56,633 in second-quarter 2011, according to San Diego-based DataQuick.
...
Most of the loans going into default are still from the 2005-2007 period. The median origination quarter for defaulted loans is still third-quarter 2006. That has been the case for three years, indicating that weak underwriting standards peaked then. ...
The all-time peak for Trustees Deeds was 79,511 in third-quarter 2008. The state's all-time low was 637 in the second quarter of 2005, DataQuick reported.
...
Foreclosure resales accounted for 27.9 percent of all California resale activity last quarter, down from a revised 33.6 percent the prior quarter and 35.6 percent a year ago. It peaked at 57.8 percent in the first quarter of 2009. Foreclosure resales varied significantly by county last quarter, from 7.3 percent in San Francisco County to 47.4 percent in Madera County.

Short sales - transactions where the sale price fell short of what was owed on the property - made up an estimated 18.0 percent of statewide resale activity last quarter. That was down from an estimated 20.1 percent the prior quarter and up from 17.4 percent a year earlier. In terms of the number of short sales, last quarter's estimated 20,141 was up 13.0 percent from the prior quarter and up 10.2 percent from a year earlier.

Click on graph for larger image.

This graph shows the number of NODs filed per year (according to DataQuick). The estimate for 2012 is twice the Q1 and Q2 level.

The number of NODs is still very high - well above the peak of the early '90s bust, but the number of NODs has been falling. When the number of NODs falls below the 1996 level (peak of previous housing bust) - that will really be progress.

by Calculated Risk on 7/23/2012 01:55:00 PM

Here is a series I'm looking forward to reading ... from David Leonhardt at the NY Times: A Closer Look at Middle-Class Decline

Arguably no question is more central to the country’s global standing than whether the economy will perform better in the future than it has in the recent past.

Over the next few months on this blog, several colleagues and I will look in some detail at the challenge and at possible ways forward, and we’ll encourage you to weigh in with questions, ideas and other feedback.

Leonhardt starts with:

Since median inflation-adjusted family income peaked in 2000 at $64,232, it has fallen roughly 6 percent. You won’t find another 12-year period with an income decline since the aftermath of the Depression.

This unhappy phenomenon has two major sources. First, economic growth in this country has been relatively slow in recent years, which means the total bounty that the American economy produces, to be shared by all of its citizens, has not been growing very rapidly. Even before the financial crisis began in 2008, economic growth in the decade that started in 2001 was on pace to be slower than growth in any decade since World War II.

Then of course came a deep recession that caused the economy to shrink.
...
In addition to the slow growth in overall size of the pie, the share that has been going to anyone but the richest Americans has been declining. ... In the simplest terms, the relatively meager gains the American economy has produced in recent years have largely flowed to a small segment of the most affluent households, leaving middle-class and poor households with slow-growing living standards.

A very important topic.

by Calculated Risk on 7/23/2012 10:27:00 AM

Always a sign of desperation ...

From the Financial Times Alphaville: Spain and Italy take gold for flailing, banning short-selling

From Reuters: Spain Bans Short-Selling for 3 Months

Spain's stock market regulators banned short-selling on all Spanish securities on Monday for three months and said it may extend the ban beyond October 23.

Earlier on Monday, Italy reintroduced a temporary ban on the short selling of financial stocks ...

The yield on Spanish 10 year bonds is up to 7.5%; the yield on Italian 10 year bonds is up to 6.33%.

Some related articles from the WSJ: Treasury Yields Hit New Record Lows, Oil Prices Plunge 4%, and Euro Hits New Multiyear Lows. The US 10 year treasury yield has fallen to 1.42%, Brent oil prices are down to $103.43, and the euro is down $1.21.

by Calculated Risk on 7/23/2012 08:40:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic activity increased in June

Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to –0.15 in June from –0.48 in May. ...

The index’s three-month moving average, CFNAI-MA3, increased from –0.38 in May to –0.20 in June—its fourth consecutive reading below zero. June’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests growth was below trend in June.

According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.