by Calculated Risk on 7/27/2012 09:55:00 AM

Note: I'll have more on GDP soon.


Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for July increased to 72.3 from the preliminary reading of 72.0, and was down from the June reading of 73.2.

This was slightly above the consensus forecast of 72.0 and the lowest level this year. Overall sentiment is still weak - probably due to a combination of the high unemployment rate and the sluggish economy.

by Calculated Risk on 7/27/2012 08:30:00 AM

From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.5 percent in the second quarter of 2012, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.0 percent. [revised up from 1.9 percent]

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, private inventory investment, and residential fixed investment that were partly offset by a negative contribution from state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the second quarter primarily reflected a deceleration in PCE, an acceleration in imports, and decelerations in residential fixed investment and in nonresidential fixed investment that were partly offset by an upturn in private inventory investment, a smaller decrease in federal government spending, and an acceleration in exports.

Overall the revisions to the last three years were pretty minor.

Click on graph for larger image.

This graph shows real GDP before (blue) and after (red) the revision. The recession was not quite as deep as previously reported, and the recovery in 2010 was slightly slower - and the recovery in 2011 slightly faster.

Real GDP in Q1 was slightly above the previously reported level indicating the output gap is about the same as previously estimated.

The second graph shows the same data but as a percent change annualized.

There were some downward revisions in Q1 and Q2 2010, and some upward revisions in 2011.

A couple of comments:
• Real personal consumption expenditures increased 1.5 percent in the first quarter, compared with an increase of 2.4 percent in the first.

• Government spending continued to be a drag at all levels, but at a slower pace: The Federal government decreased 0.4 percent in Q2 compared to a 4.2 percent decrease in Q1, and state and local government decreased 2.1 percent compared to 2.2 percent in Q1.

This was above expectations. I'll have more on GDP later ...

by Calculated Risk on 7/26/2012 10:02:00 PM

On Friday ...
• At 8:30 AM ET, the Q2 advance GDP will be released. The consensus is that real GDP increased 1.2% annualized in Q2. The BEA will also release the revised estimates for 2009 through First Quarter 2012. If GDP is revised significantly up or down, this might be part of the FOMC discussion next week.

The BEA put out an excellent note on revisions this week: Revising Economic Indicators: Here’s Why the Numbers Can Change

The public wants accurate data and wants it as soon as possible. To meet that need, BEA publishes early estimates that are based on partial data. Even though these data aren’t complete, they do provide an accurate general picture of economic activity. ...

BEA produces three estimates of gross domestic product (GDP) for a given quarter. Each includes updated, more complete, and more accurate information as it becomes available. The first, called the “advance” estimate, typically receives the most attention and is released roughly 4 weeks after the end of a quarter. ...

When BEA calculates the advance estimate, the Bureau doesn’t yet have complete source data, with the largest gaps in data related to the third month of the quarter. In particular, the advance estimate is lacking complete source data on inventories, trade, and consumer spending on services. Therefore, BEA must make assumptions for these missing pieces based in part on past trends. ...

As new and more complete data become available, that information is incorporated into the second and third GDP estimates. About 45 percent of the advance estimate is based on initial or early estimates from various monthly and quarterly surveys that are subject to revision for various reasons, including late respondents that are eventually incorporated into the survey results. Another roughly 14 percent of the advance estimate is based on historical trends.

• At 9:55 AM, the final Reuter's/University of Michigan's Consumer sentiment index for July will be released. The consensus is for no change from the preliminary reading of 72.0.


For the monthly economic question contest:

• And at 10:00 AM, the Q2 Housing Vacancies and Homeownership report from the Census Bureau will be released. This data might indicate the trend, but there are serious questions about the accuracy of this survey.

by Calculated Risk on 7/26/2012 06:33:00 PM

Another month, another record ...

Below is a graph comparing mortgage rates from the Freddie Mac Primary Mortgage Market Survey® (PMMS®) and the refinance index from the Mortgage Bankers Association (MBA).

The the MBA reported yesterday that refinance activity was at the highest level since 2009.

And from Freddie Mac today: 30-Year Fixed-Rate Mortgage Averages a Record-Breaking 3.49 Percent

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed mortgages rates continuing their streak of record-breaking lows. The 30-year fixed rate mortgage averaged 3.49 percent, more than a full percentage point lower than a year ago when it averaged 4.55 percent. Meanwhile, the 15-year fixed-rate mortgage, a popular choice for those looking to refinance, also set another record low at 2.80 percent.

Click on graph for larger image.

This graph shows the MBA's refinance index (monthly average) and the the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey®.

The Freddie Mac survey started in 1971 and mortgage rates are currently at the record low for the last 40 years.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a significant refinance boom, and rates have fallen about 75 bps from the 4.23% low in October 2010 - and refinance activity is picking up.

There has also been an increase in refinance activity due to HARP.

The second graph shows the 15 and 30 year fixed rates from the Freddie Mac survey. The Primary Mortgage Market Survey® started in 1971 (15 year in 1991). Both rates are at record lows for the Freddie Mac survey. Rates for 15 year fixed loans are now at 2.8%.

Note: The Ten Year treasury yield is just off the record low at 1.43% (the record low was earlier this week at 1.39%), so rates will probably fall a little more next week.

by Calculated Risk on 7/26/2012 03:35:00 PM

From Professor Tim Duy at EconomistView: Draghi Blinks. Maybe.. A few excerpts:

It looks like Draghi finally found that panic button. This is crucial, as the ECB is the only institution that can bring sufficient firepower to the table in a timely fashion. His specific reference to the disruption in policy transmission appears to be a clear signal that the ECB will resume purchases of periphery debt, presumably that of Spain and possibly Italy. The ECB will - rightly, in my opinion - justify the purchases as easing financial conditions not monetizing deficit spending.

So far, so good. But there is enough in these statements to leave me very unsettled. First, the claim that the Euro is "irreversible" should send a shiver down everyone's backs. Sounds just a little too much like "the crisis is contained to subprime" and "Spain will not need a bailout." Second, the bluster that "believe me, it will be enough" is suspect. The ECB always thinks they have done enough, but so far this has not been the case. Moreover, he is setting some pretty high expectations, and had better be prepared to meet them with something more than half-hearted bond purchases.

Also, note that despite Draghi's bluster, the rally in Spanish debt send yields just barely below the 7% mark.
...
More distressing to me was Draghi's clearly defiant tone, reminiscent of comments earlier this week from German Finance Minister Wolfgang Schäuble. The message is that Europe has done all the right things, it is financial market participants that are doing the wrong things.

As Duy noted, Spanish 10 year bond yields have only fallen to 6.93% - not a huge vote of confidence.

Usually - whenever a European policymakers sounds like they have found the "panic button" - Schäuble speaks up and squashes all hope. Luckily Schäuble is going on vacation ...