by Calculated Risk on 9/14/2012 09:58:00 AM

Click on graph for larger image.

The preliminary Reuters / University of Michigan consumer sentiment index for September increased to 79.2, up from the August reading of 74.3.

This was above the consensus forecast of 73.5 but still fairly low. Sentiment remains weak due to the high unemployment rate, sluggish economy and higher gasoline prices.

by Calculated Risk on 9/14/2012 09:31:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production fell 1.2 percent in August after having risen 0.5 percent in July. Hurricane Isaac restrained output in the Gulf Coast region at the end of August, reducing the rate of change in total industrial production by an estimated 0.3 percentage point. Manufacturing output decreased 0.7 percent in August after having risen 0.4 percent in both June and July. Precautionary shutdowns of oil and gas rigs in the Gulf of Mexico in advance of the hurricane contributed to a drop of 1.8 percent in the output of mines for August. The output of utilities declined 3.6 percent. At 96.8 percent of its 2007 average, total industrial production in August was 2.8 percent above its year-earlier level. Capacity utilization for total industry moved down 1.0 percentage point to 78.2 percent, a rate 2.1 percentage points below its long-run (1972--2011) average.

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 11.3 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 78.2% is still 2.1 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.6% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production decreased in August to 96.8. This is 16% above the recession low, but still 3.9% below the pre-recession peak.

The consensus was for Industrial Production to decrease 0.1% in August, and for Capacity Utilization to decline to 79.2%. Both IP and Capacity Utilization were below expectations.

All current manufacturing graphs

by Calculated Risk on 9/14/2012 08:47:00 AM

On a monthly basis, retail sales were up 0.9% from July to August (seasonally adjusted), and sales were up 4.7% from August 2011. This increase was largely due to higher gasoline prices. From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $406.7 billion, an increase of 0.9 percent from the previous month and 4.7 percent (±0.7%) above August 2011. ... The June to July 2012 percent change was revised from 0.8 percent to 0.6 percent.

Click on graph for larger image.

Sales for July were revised down to a 0.6% increase (from 0.8% increase).

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales are up 22.7% from the bottom, and now 7.3% above the pre-recession peak (not inflation adjusted)

The second graph shows the same data, but just since 2006 (to show the recent changes). This shows that much of the recent increase is due to gasoline.

Excluding gasoline, retail sales are up 19.3% from the bottom, and now 7.2% above the pre-recession peak (not inflation adjusted).

The third graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 4.9% on a YoY basis (4.7% for all retail sales). Retail sales ex-gasoline increased 0.3% in August.

This was above the consensus forecast for retail sales of a 0.8% increase in August, and above (edit) the consensus for a 0.7% increase ex-auto.

All current retail sales graphs

by Calculated Risk on 9/13/2012 08:49:00 PM

First, Tom Lawler has been discussing the rental demand for single family homes. He sent me this article today: Phoenix-area rental homes a red-hot commodity

In the Valley’s most popular communities, desperate renters are submitting applications for multiple single-family homes to secure a place to live. ... The unprecedented demand for rentals is fueled by former homeowners whose houses were foreclosed on or sold in short sales and now need a place to live. Some of them can no longer qualify to buy a home. For others, the housing bubble sullied the aura of owning a home.

With the trend showing no sign of slowing, more investors than ever are buying homes to rent. Popular areas such as central and north Phoenix, south Scottsdale, Glendale, central Tempe, Chandler and Gilbert are hot spots for rentals.

Multiple indicators show demand for rentals has never been higher:

More rental contracts were signed in June and July than in any other months in the past decade, according to the Arizona Regional Multiple Listing Service.

The percentage of single-family homes purchased to be rented out hit a record 32 percent in July, more than triple the typical rate, said Mike Orr, a real-estate analyst at Arizona State University.

In July, the average rental home was empty for only 38 days, tied for the shortest period in 12 years, Orr said.

The vacancy rate for big apartment complexes recently hit an almost six-year low as of June 30, according to commercial broker Marcus & Millichap.

“It’s a crazy rental market right now,” said Liza Asbury of Realty One Group. “There are multiple offers for properties. If it (the home) is nice, it is definitely going fast.”

On Friday:
• At 8:30 AM ET, the Consumer Price Index for August will be released. The consensus is for CPI to increase 0.6% in August and for core CPI to increase 0.2%.

• Also at 8:30 AM, Retail Sales for August will be released. The consensus is for retail sales to increase 0.8% in August, and for retail sales ex-autos to increase 0.7%.

• At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for August. The consensus is that Industrial Production declined 0.1% in August, and that Capacity Utilization declined to 79.2%.

• At 9:55 AM, the Reuters/University of Michigan's Consumer sentiment index will be released (preliminary for September). The consensus is for sentiment to decrease to 74.0 from 73.5 in August.

• At 10:00 AM, the Manufacturing and Trade: Inventories and Sales report for July (Business inventories) will be released. The consensus is for 0.5% increase in inventories.

Two more questions for the September economic prediction contest:

by Calculated Risk on 9/13/2012 04:45:00 PM

The FOMC delivered everything I expected - and more. This was a very strong move and I suspect many analysts are underestimating the potential positive impact on the economy.

However, as Fed Chairman said, monetary policy is "not a panacea". I do think this will help, but this will not solve the unemployment problem.

Here are a few key points:

• Forward guidance is a critical part of Fed policy (see Michael Woodford's paper presented at Jackson Hole). The FOMC didn't go as far as targeting nominal GDP, but they took two key steps today: 1) they extended the forward guidance until mid-2015, and 2) the FOMC made it clear that "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens". "AFTER the economic recovery strengthens" is key.

• This easing was not based on new economic weakness. From the FOMC statement: "economic activity has continued to expand at a moderate pace in recent months". This easing was intended to help increase the pace of recovery.

• Another key change was the FOMC tied this easing directly to the labor market: "If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability."

• I think this will be more effective than most analysts expect. As I noted last weekend, housing is usually a key transmission channel for monetary policy, and now that residential investment has started to recover - and house price have stabilized, or even started to increase, this channel will probably become more effective.

I also liked that Bernanke addressed three concerns that have been raised about monetary policy. Note: The replay of the press conference is available here.

The first "concern" was that some people are confusing fiscal and monetary policy. Monetary policy is NOT spending (see Bernanke's comments at 7:00).

The other two are legitimate concerns - that the Fed policies can hurt savers, and that there is a risk of inflation down the road. I agree with Bernanke that a stronger economy will lead to better returns for savers, and that inflation is not an immediate concern.