by Calculated Risk on 10/22/2012 12:25:00 PM

The Federal Open Market Committee (FOMC) meets on Tuesday and Wednesday, with a statement expected at 2:15 PM ET on Wednesday. The FOMC is expected to take no action at this meeting, although the members will probably discuss setting explicit economic targets for ending QE3 purchases or tightening policy ...

From Cardiff Garcia at Alphaville: Early FOMC preview

... there are a few things that might happen, even if we not get the full picture until the minutes come out a few weeks later.

The most important item is that the committee will continue discussing whether to adopt explicit economic targets to determine when tightening (ie raising rates from exceptionally low levels) would begin, replacing the current approach of giving a calendar date, which now mid-2015.

Although the Fed might mention the recent pickup in economic activity, they will not change course quickly. From Neil Irwin at the WaPo: How an improving economy makes new Fed policies more potent

A key part of the Fed’s new strategy last month was to announce that the FOMC “expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.” In other words, the central bank aimed to assure the world that it would not pull away the support strut of low interest rates until the economy was well along in recovering, so long as inflation doesn’t threaten to get much above the Fed’s 2 percent target.

It looks like the unemployment rate will decline more than the Fed projected (see second table below), but the rate is still high at 7.8% - and 2% GDP is nothing to get too excited about.

Here are the FOMC Sept meeting projections for GDP and unemployment, and the June projections to show the change.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
Sept 2012 Projections	1.7 to 2.0	2.5 to 3.0	3.0 to 3.8
June 2012 Projections	1.9 to 2.4	2.2 to 2.8	3.0 to 3.5

¹ Projections of change in real GDP are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The BEA reported GDP increased at a 2.0% annual pace in Q1, and at a 1.3% annual pace in Q2. Forecasts for Q3 have been revised up recently, but the consensus is only for 1.9% annualized in Q3. So this is still close to the recent projections.

The unemployment rate was at 7.8% in September, and that is below the most recent projections for Q4 2012. That is just one month of data. It is possible that the unemployment situation might not be as bad as the FOMC projected, but the unemployment rate is still very high. The key is there is nothing in the recent data that will make the Fed change course any time soon.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
Sept 2012 Projections	8.0 to 8.2	7.6 to 7.9	6.7 to 7.3
June 2012 Projections	8.0 to 8.2	7.5 to 8.0	7.0 to 7.7

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

So the FOMC will probably take no action, might mention the recent slight improvement in economic data, and will probably reiterate "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." and "To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens."

by Calculated Risk on 10/22/2012 09:13:00 AM

From Kate Mackenzie at FT Alphaville: The US bright spot

It seems odd — and it may well be short-lived — but the US is beginning to shape up as a rare bright spot in the world economy. Or indeed almost the only bright spot in the world’s economy, except for the Gulf petro-states. That is, if you were to base such an assessment solely on Japan’s September export data, released on Monday.

Japan’s preliminary September trade data tell a story not dissimilar to China’s — exports to Europe are slowing (unsurprisingly) by a lot, down 26 per cent for the month, year-on-year. Asian exports also fell, by 8.3 per cent. But US exports rose 0.9 per cent. The six months between April and September show a more striking contrast: exports to North America rose 16.6 per cent; while for Asia they fell 4.7 per cent and for Western Europe, there was a 20.8 per cent decline.

Actually it isn't that "odd" as Mackenzie mentions in a note at the bottom: "The FT’s Martin Wolf made a comment along these lines in Sydney last week. Plus, Cardiff has been looking at (very) tentative signs of an upturn in housing and construction for some time now, and that was before Jamie Dimon picked up on it."

This is another reminder that Europe and China pose downside risks, but right now the US is doing better than most other areas.

by Calculated Risk on 10/21/2012 09:14:00 PM

Later in the week, there are several key economic releases (Q3 GDP, New Home sales, Durable Goods) and an FOMC announcement on Wednedsy. There are no releases scheduled for tomorrow ...

• Expected: LPS "First Look" Mortgage Delinquency Survey for September.

• At 9:00 PM ET, the Third Presidential Debate: President Obama and former Governor Romney debate Foreign policy at Lynn University in Boca Raton, Florida.

The Asian markets are red tonight, with the Nikkei down 1.2%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures and DOW futures are down slightly.

Oil prices are down with WTI futures down to $90.05 and Brent down at $110.66 per barrel.

Weekend:
• Summary for Week Ending Oct 19th
• Schedule for Week of Oct 21st

Three more questions this week for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 10/21/2012 06:24:00 PM

From Reuters: Average U.S. retail gas prices drop 8 cents in two weeks: survey

Gasoline prices averaged $3.7529 per gallon on October 19, down from $3.8375 on October 5, Trilby Lundberg, editor of the Lundberg Survey, said.
...
Lundberg said further declines in retail gas prices are expected if the cost of crude oil does not rise substantially. She added that in California, gasoline prices could have a "dramatic crash" after refinery problems caused a spike two weeks ago.

Those of us in California are still waiting for the "dramatic crash"! We are still paying well over $4 per gallon because of the recent refinery issues (I filled up Friday and paid $4.50 per gallon, but it looks like prices have fallen further over the last 2 days).

Using the calculator from Professor Hamilton, and the current price of Brent crude oil, the national average should be around $3.60 per gallon. That is about 8 cents below the current level according to Gasbuddy.com, and I expect prices to fall further. Note: Brent crude spot prices is at $110.76 per barrel (WTI is down to $90.05)

Gasoline prices have been on a roller coaster all year. Add a California city to the graph - like Los Angeles or San Francisco - and you will see the recent spike.

Note: If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

Yesterday:
• Summary for Week Ending Oct 19th
• Schedule for Week of Oct 21st

by Calculated Risk on 10/21/2012 12:21:00 PM

The Department of Transportation (DOT) reported Friday:

Travel on all roads and streets changed by 1.2% (3.0 billion vehicle miles) for August 2012 as compared with August 2011. Travel for the month is estimated to be 262.4 billion vehicle miles.

Cumulative Travel for 2012 changed by 0.9% (17.8 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is still mostly moving sideways.

Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 57 months - and still counting.

The second graph shows the year-over-year change from the same month in the previous year.

Gasoline prices were up in August compared to August 2011. In August 2012, gasoline averaged of $3.78 per gallon according to the EIA. Last year, prices in August averaged $3.70 per gallon - but even with the increase in gasoline prices, miles driven increased year-over-year in August.

Just looking at gasoline prices suggest miles driven will be down in September - especially with the very high prices in California. Nationally gasoline prices averaged $3.91 in September, up sharply from $3.67 a year ago.

However, as I've mentioned before, gasoline prices are just part of the story. The lack of growth in miles driven over the last 5 years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

This graph from the Federal Highway Administration is based on the National Household Travel Survey shows the miles driven by certain age groups over time. The key is a large group is moving into the older age brackets, so their miles driven will decline - a large group is moving the from the "54 to 58" age group into the higher age groups.

I also suspect miles driven has been falling for lower age groups over the last few years, and the next survey will probably show that decline.

With all these factors, it may be years before we see a new peak in miles driven.

Yesterday:
• Summary for Week Ending Oct 19th
• Schedule for Week of Oct 21st