by Calculated Risk on 7/24/2012 04:34:00 PM

From Jon Hilsenrath at the WSJ: Fed Sees Action if Growth Doesn't Pick Up Soon

Federal Reserve officials, impatient with the economy's sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring.

Since their June policy meeting, officials have made clear—in interviews, speeches and testimony to Congress—that they find the current state of the economy unacceptable. Many officials appear increasingly inclined to move unless they see evidence soon that activity is picking up on its own.

Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central-bank officials could take new steps at their meeting next week, July 31 and Aug. 1, though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act. ... There are several reasons why Fed officials might wait for their September meeting to decide whether to proceed. By then they will have seen two more monthly unemployment reports and two more months of data on output, spending and investment. Fed officials update their economic projections at the September meeting and Mr. Bernanke holds his a quarterly news conference after, which would give him an opportunity to publicly explain the Fed's thinking.
...
A new round of bond-buying would be politically controversial so close to the November presidential election. ... Another option is a change in the Fed's public communication about its plans.

There are arguments for waiting until September (more data, updated projections), but I think there is a reasonable chance they will move on August 1st since their current projections are already unacceptable - and the data has been mostly disappointing since their last meeting.

The Q2 GDP report to be released on Friday will be an important piece of data - not just the Q2 growth rate, but the annual revisions. If GDP is revised down, then that would suggest a larger "output gap" - and that would probably influence many FOMC members to vote for more accommodation now.

by Calculated Risk on 7/24/2012 01:14:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for June 2012. In the past month, the indexes increased in 30 states, decreased in nine states, and remained stable in 11 states, for a one-month diffusion index of 42. Over the past three months, the indexes increased in 39 states, decreased in nine states, and remained stable in two states, for a three-month diffusion index of 60.

Note: These are coincident indexes constructed from state employment data. From the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In June, 35 states had increasing activity, unchanged from May. The last two months have been weak following eight months of widespread growth geographically. The number of states with increasing activity is at the lowest level since June of last year.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession.

And the map was all green just just a couple of months ago.

Now there are a number of red states.

by Calculated Risk on 7/24/2012 10:14:00 AM

• From the FHFA: House Price Index Up 0.8 Percent in May

U.S. house prices rose 0.8 percent on a seasonally adjusted basis from April to May, according to the Federal Housing Finance Agency’s monthly House Price Index. ... For the 12 months ending in May of 2012, U.S. prices rose 3.7 percent. The U.S. index is 17.0 percent below its April 2007 peak and is roughly the same as the May 2004 index level.

The FHFA monthly index is calculated using purchase prices of houses with mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac.

This is GSE loans only, and these loans have performed better than the non-GSE loans.

• From the Richmond Fed: Manufacturing Activity Contracted in July; Manufacturers' Optimism Waned

The pullback in manufacturing activity in the central Atlantic region deepened in July, after edging lower in June, according to the Richmond Fed's latest seasonally adjusted survey. The index of overall activity was pushed lower as shipments and new orders declined further into negative territory. Employment remained in positive territory, but grew at a pace below June's rate. Other indicators also suggested additional softness.
...
In July, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — fell sixteen points to −17 from June's reading of −1. Among the index's components, shipments declined twenty-three points to −23, new orders dropped eighteen points to end at −25, and the jobs index moved down seven points to 1.

• Comments from UPS (ht Brian):

Global trade is lagging GDP growth currently. Only 2nd time in last 10 years that this has happened. Think this is temporary.

They see US GDP growth at 1% in 2nd half ... ”we think current 2H econ forecasts are too high”

Non-US domestic volumes down 3.2%. Southern Europe had double digit declines

US outlook see rev up 1-2%, see B2B deteriorating further – weaker US outlook is primary driver behind reduced outlook “sees concerning trends in US”

by Calculated Risk on 7/24/2012 09:07:00 AM

From Markit: PMI signals slowest manufacturing expansion since December 2010

The July Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) indicated the weakest improvement in U.S. manufacturing sector business conditions in 19 months, according to the preliminary ‘flash’ reading which is based on around 85% of usual monthly replies. At 51.8, down from 52.5 in June, the headline index was the second-lowest since the manufacturing recovery was first signalled by the PMI in late-2009 (only December 2010 saw a weaker PMI reading).

PMI index readings above 50.0 signal an increase or improvement on the prior month, while readings below 50.0 indicate a decrease.

Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:

“The U.S. manufacturing sector is clearly struggling under the pressure from falling exports ... Reassuringly, domestic demand appears to be showing ongoing signs of resilience, encouraging firms to take on more staff.

“Overall, the third quarter is so far shaping up to be worse than the second quarter in terms of growth, which is a growing concern for policymakers. Some comfort can be drawn from the fall in prices, which should help keep inflation at bay and increase the scope for further stimulus. However, falling prices are also a worrying sign of just how much demand has weakened in recent weeks.”

This suggests another weak ISM PMI (due next week).

by Calculated Risk on 7/24/2012 12:14:00 AM

From Zillow: U.S. Home Values Post First Annual Increase In Nearly Five Years

Home values in the United States have reached a bottom. The Zillow Home Value Index (ZHVI) rose on an annual basis for the first time since 2007, increasing 0.2 percent year-over-year to $149,300, according to Zillow’s second quarter Real Estate Market Reports. Values have risen for four consecutive months.
...
“After four months with rising home values and increasingly positive forecast data, it seems clear that the country has hit a bottom in home values,” said Zillow Chief Economist Dr. Stan Humphries. “The housing recovery is holding together despite lower-than-expected job growth, indicating that it has some organic strength of its own.

“Of course, there is still some risk as we look down the foreclosure pipeline and see foreclosure starts picking up. This will translate into more homes on the market by the end of the year, but we think demand will rise to absorb that, particularly in markets where there are acute inventory shortages now. Looking forward, we expect home values to remain relatively flat as the market works through a backlog of foreclosures and high rates of negative equity.”