by Calculated Risk on 10/23/2012 10:00:00 AM

From the Richmond Fed: Manufacturing Activity Pulled Back in October; Optimism Wanes

Manufacturing activity in the central Atlantic region pulled back in October after improving somewhat last month, according to the Richmond Fed's latest survey. The seasonally adjusted index of overall activity was pushed lower as all broad indicators of activity — shipments, new orders and employment — were in negative territory.
...
Looking forward, assessments of business prospects for the next six months were less optimistic in October. Contacts at more firms anticipated that new orders, backlogs, capacity utilization, and vendor lead-times will grow more slowly than anticipated a month ago.
...
In October, the seasonally adjusted composite index of manufacturing activity — our broadest measure of manufacturing — lost eleven points to −7 from September's reading of 4. Among the index's components, shipments fell eighteen points to −9, new orders moved down thirteen points to finish at −6, and the jobs index held steady at −5.

This suggests contraction in manufacturing activity in the central Atlantic region. It appears some of this contraction may be due to the European recession and reduced exports to Europe.

by Calculated Risk on 10/23/2012 08:37:00 AM

From the WSJ: Bank of Spain Warns on Deficit Targets

Spain's central bank said Tuesday the country's economy contracted slightly less than expected in the third quarter but repeated a warning that tax-revenue shortfalls could cause the government to miss its 2012 budget-deficit target.

The euro zone's fourth-largest economy contracted by 0.4%, the same as in the second quarter, the Bank of Spain said in a quarterly report. On an annual basis, the contraction was 1.7% ...

The government has said its deficit will rise to 7.4% of GDP this year ...

"The efforts to lower spending at the public sector have had a net contracting effect (on the economy) in the central months of the year," the central bank said. "We see drops in consumption and investment by all levels of government above those seen in previous quarters."
emphasis added

Another austerity data point. Still the Spanish bond yields are down from the levels of a few months ago with the 10-year yield at 5.55%, and the 2-year yield at 2.98%.

by Calculated Risk on 10/22/2012 07:47:00 PM

There will be plenty of economic data released later this week! There is some sort of political debate tonight at 9 PM ET. The good news is the election will be over on November 6th. The bad news, as Atrios mentioned earlier, is the 2016 election cycle starts on Nov 7th.

Here is something I like to check occasionally as a different measure for inflation in addition to to CPI from the BLS.

This is the US only index of the MIT Billion Prices Project.

This index uses prices for online goods. From MIT:

These indexes are designed to provide real-time information on major inflation trends, not to forecast official inflation announcements. We are constantly adding new categories of goods, but we do not cover 100% of CPI goods and services. The price of services, in particular, are not easy to find online and therefore are not included in our statistics.

Click on graph for larger image.


It appears that year-over-year inflation, according to this measure, is under 2.0%. This is another measure that suggests inflation is not currently a problem.

On Tuesday:
• At 10:00 AM ET, the Richmond Fed Survey of Manufacturing Activity for October will be released. The consensus is for an increase to 6 for this survey from 4 in September (above zero is expansion).

by Calculated Risk on 10/22/2012 04:15:00 PM

LPS released their First Look report for September today. LPS reported that the percent of loans delinquent increased in September compared to August, but declined about 4% year-over-year. On the other hand, the percent of loans in the foreclosure process declined sharply in September to the lowest level in almost 2 years.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) increased to 7.40% from 6.87% in August. The percent of loans in the foreclosure process declined to 3.87% from 4.04% in August. Note: the normal rate for delinquencies is around 4.5% to 5%.

LPS is looking into the reasons for the increase in the delinquency rate, and will probably provide a discussion in the Mortgage Monitor that will be released in early November. Looking at the table below - that shows the LPS numbers for September 2012, and also for last month (August 2012) and one year ago (September 2011) - most of the increase in delinquencies was in the short term category. The number of serious delinquent properties (90+ days and in-foreclosure) declined 70 thousand from August.

The number of delinquent properties, but not in foreclosure, is down about 7% year-over-year (280,000 fewer properties delinquent), and the number of properties in the foreclosure process is down 9% or 190,000 year-over-year.

The percent (and number) of loans 90+ days delinquent and in the foreclosure process is still very high.

LPS: Percent Loans Delinquent and in Foreclosure Process
	Sept 2012	August 2012	Sept 2011
Delinquent	7.40%	6.87%	7.72%
In Foreclosure	3.87%	4.04%	4.18%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	2,170,000	1,910,000	2,250,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,530,000	1,520,000	1,730,000
Number of properties in foreclosure pre-sale inventory:	1,940,000	2,020,000	2,130,000
Total Properties	​5,640,000	5,450,000	6,130,000

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."