by Calculated Risk on 10/04/2012 02:10:00 PM

From the Fed: Minutes of the Federal Open Market Committee, September 12-13, 2012 . Excerpt:

Participants again exchanged views on the likely benefits and costs of a new large-scale asset purchase program. Many participants anticipated that such a program would provide support to the economic recovery by putting downward pressure on longer-term interest rates and promoting more accommodative financial conditions. A number of participants also indicated that it could lift consumer and business confidence by emphasizing the Committee's commitment to continued progress toward its dual mandate. In addition, it was noted that additional purchases could reinforce the Committee's forward guidance regarding the federal funds rate. Participants discussed the effectiveness of purchases of Treasury securities relative to purchases of agency MBS in easing financial conditions. Some participants suggested that, all else being equal, MBS purchases could be preferable because they would more directly support the housing sector, which remains weak but has shown some signs of improvement of late. One participant, however, objected that purchases of MBS, when compared to purchases of longer-term Treasury securities, would likely result in higher interest rates for many borrowers in other sectors. A number of participants highlighted the uncertainty about the overall effects of additional purchases on financial markets and the real economy. Some participants thought past purchases were useful because they were conducted during periods of market stress or heightened deflation risk and were less confident of the efficacy of additional purchases under present circumstances. A few expressed skepticism that additional policy accommodation could help spur an economy that they saw as held back by uncertainties and a range of structural issues. In discussing the costs and risks that such a program might entail, several participants reiterated their concern that additional purchases might complicate the Committee's efforts to withdraw monetary policy accommodation when it eventually became appropriate to do so, raising the risk of undesirably high inflation in the future and potentially unmooring inflation expectations. One participant noted that an extended period of accommodation resulting from additional asset purchases could lead to excessive risk-taking on the part of some investors and so undermine financial stability over time. The possible adverse effects of large purchases on market functioning were also noted. However, most participants thought these risks could be managed since the Committee could make adjustments to its purchases, as needed, in response to economic developments or to changes in its assessment of their efficacy and costs.

Participants also discussed issues related to the provision of forward guidance regarding the future path of the federal funds rate. It was noted that clear communication and credibility allow the central bank to help shape the public's expectations about policy, which is crucial to managing monetary policy when the federal funds rate is at its effective lower bound. A number of participants questioned the effectiveness of continuing to use a calendar date to provide forward guidance, noting that a change in the calendar date might be interpreted pessimistically as a downgrade of the Committee's economic outlook rather than as conveying the Committee's determination to support the economic recovery. If the public interpreted the statement pessimistically, consumer and business confidence could fall rather than rise. Many participants indicated a preference for replacing the calendar date with language describing the economic factors that the Committee would consider in deciding to raise its target for the federal funds rate. Participants discussed the benefits of such an approach, including the potential for enhanced effectiveness of policy through greater clarity regarding the Committee's future behavior. That approach could also bolster the stimulus provided by the System's holdings of longer-term securities. It was noted that forward guidance along these lines would allow market expectations regarding the federal funds rate to adjust automatically in response to incoming data on the economy. Many participants thought that more-effective forward guidance could be provided by specifying numerical thresholds for labor market and inflation indicators that would be consistent with maintaining the federal funds rate at exceptionally low levels. However, reaching agreement on specific thresholds could be challenging given the diversity of participants' views, and some were reluctant to specify explicit numerical thresholds out of concern that such thresholds would necessarily be too simple to fully capture the complexities of the economy and the policy process or could be incorrectly interpreted as triggers prompting an automatic policy response. In addition, numerical thresholds could be confused with the Committee's longer-term objectives, and so undermine the Committee's credibility. At the conclusion of the discussion, most participants agreed that the use of numerical thresholds could be useful to provide more clarity about the conditionality of the forward guidance but thought that further work would be needed to address the related communications challenges.

This suggests that the Fed will likely set QE3 targets for unemployment and inflation. As an example, Chicago Fed President Charles Evans has suggested that QE3 purchases should continue until the unemployment rate is below 7% or inflation at 3%.

by Calculated Risk on 10/04/2012 11:42:00 AM

Reis reported that the vacancy rate for regional malls declined to 8.7% in Q3 from 8.9% in Q2. This is down from a cycle peak of 9.4% in Q3 of last year.

For Neighborhood and Community malls (strip malls), the vacancy rate was unchanged at 10.8% in Q3. For strip malls, the vacancy rate peaked at 11.0% in Q2 of last year.

Comments from Reis Senior Economist Ryan Severino:

[Strip mall] Vacancy was unchanged during the third quarter. This is slightly worse than the second quarter when the vacancy rate declined by 10 basis points. On a year-over-year basis, the vacancy rate declined by a scant 20 bps. While demand slightly outpaced new construction during the quarter, it was insufficient to cause the vacancy rate to decline. With only 569,000 square feet delivered, any semblance of demand would have caused the vacancy rate to decline. The fact that it did not speaks volumes about the continued struggles that the retail sector must countenance.

Asking and effective rents both grew by 0.1% during the quarter. This represents a slowdown from the already paltry 0.2% growth in asking and effective rents during the second quarter. It was the fourth consecutive quarter that asking and effective rents have increased. Although positive, rent growth remains at dazzlingly low levels.
...
[New construction] With the ongoing weakness in the sector, new construction declined near record‐levels during the quarter. 569,000 square feet were delivered during the third quarter, versus 805,000 square feet during the second quarter. However, this is a slowdown compared to the 2.008 million square feet of retail space that were delivered during the third quarter of 2011. In fact, 569,000 square feet is the second‐lowest figure on record since Reis began tracking quarterly data in 1999, bested only by the minuscule 261,000 square feet that were delivered in the first quarter of 2011. With demand for space at depressed levels, there is little to no impetus to develop new projects.
...
[Regional] Malls continue to outperform their neighborhood and community shopping center brethren. The vacancy rate declined by another 20 basis points during the quarter. This is the fourth consecutive quarter with a vacancy decline. Asking rent growth was in line with last quarter, growing by another 0.3%. This was the sixth consecutive quarter of asking rent increases. Overall the improvement in the mall subsector is not accelerating, but it is not faltering either. However, underlying these trends there remains a strong diverge in the performance between dominant Class A malls, which typically boast luxury retailers and cater to affluent consumers, and inferior malls which sport more mainstream retailers and cater to more typical consumers.

Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

The yellow line shows mall investment as a percent of GDP. This has been increasing a little recently because this includes renovations and improvements. New mall investment has essentially stopped.

The good news is, as Severino noted, new square footage is near a record low, and with very little new supply, the vacancy rate will probably continue to decline slowly.

Mall vacancy data courtesy of Reis.

by Calculated Risk on 10/04/2012 10:00:00 AM

Press Release: Asking Prices On Track To Rise 4 Percent Nationally in 2012

Trulia today released the latest findings from the Trulia Price Monitor and the Trulia Rent Monitor ... Based on the for-sale homes and rentals listed on Trulia, these monitors take into account changes in the mix of listed homes and reflect trends in prices and rents for similar homes in similar neighborhoods through September 30, 2012.
...
In September, asking prices on for-sale homes–which lead sales prices by approximately two or more months – increased 2.5 percent year over year (Y-o-Y). Excluding foreclosures, Y-o-Y asking prices rose 3.5 percent. Meanwhile, asking prices rose nationally 1.6 percent quarter over quarter (Q-o-Q), seasonally adjusted, and 0.5 percent month over month (M-o-M), seasonally adjusted.
...
Nationally, rent gains continue to outpace home price increases in September, rising by 4.8 percent Y-o-Y. Among the largest 25 rental markets, Y-o-Y rents rose the most in Houston and Miami, where they climbed more than 10 percent
...
”As asking prices continue to climb, 2012 will almost surely be the first year of rising home prices since 2006,” said Jed Kolko, Trulia’s Chief Economist. “Right now, prices are recovering across the country, with few local markets left behind. While some of these increases are a bounceback from the huge price declines during the recession, price gains are strongest where job growth has boosted housing demand and where declining inventories lead to tighter supply.”

These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases over the next few months on a SA basis.

More from Jed Kolko, Trulia Chief Economist: Asking Prices Rise Year over Year in 6 out of 7 Election Swing States

by Calculated Risk on 10/04/2012 08:30:00 AM

The DOL reports:

In the week ending September 29, the advance figure for seasonally adjusted initial claims was 367,000, an increase of 4,000 from the previous week's revised figure of 363,000. The 4-week moving average was 375,000, unchanged from the previous week's revised average.

The previous week was revised up from 359,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.



Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims was unchanged at 375,000.

This was lower than the consensus forecast of 370,000.



And here is a long term graph of weekly claims:

Mostly moving sideways this year ...

All current Employment Graphs

by Calculated Risk on 10/03/2012 08:16:00 PM

There is a presidential debate tonight starting at 9 PM ET. The Wonkblog promises to "provide real time context for the many statistics and ideas".

There was a sharp decline in oil prices today, from Bloomberg: Oil Tumbles as [US} Crude Production Surges to 15-Year High

Oil fell to a two-month low in New York after the government reported that U.S. crude production climbed to the highest level in more than 15 years and fuel consumption decreased.

Futures dropped 4.1 percent after the Energy Department said crude output rose 11,000 barrels a day to 6.52 million last week, the most since December 1996. Total fuel demand fell 0.3 percent to 18.3 million barrels a day in the four weeks ended Sept. 28, the lowest level since April.

Brent oil for November settlement decreased $3.40, or 3 percent, to end the session at $108.17 a barrel on the London- based ICE Futures Europe exchange, the lowest close since Aug. 2.

On Thursday:
• Early: Reis will release the Q3 2012 Mall vacancy rates. Last quarter Reis reported a small decline in the vacancy rate for regional malls at 8.9%. For Neighborhood and Community malls (strip malls), the vacancy rate declined to 10.8% in Q2, from 10.9% in Q1.

• At 7:45 AM, the European Central Bank announcement with a press conference to follow.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 370 thousand from 359 thousand.

• At 10:00 AM, the Manufacturers' Shipments, Inventories and Orders (Factory Orders) report for August will be released. The consensus is for a 6.0% decrease in orders..

• Also at 10:00 AM, the Trulia Price Rent Monitors for September will be released. This is the new index from Trulia that uses asking prices adjusted both for the mix of homes listed for sale and for seasonal factors.

• At 2:00 PM, the FOMC Minutes for Meeting of September 12-13, 2012 will be released. The minutes might provide additional information about the recent Fed decision.