by Calculated Risk on 3/03/2013 09:29:00 PM

I thought US Fiscal Policy was the biggest question mark for 2013, and that fiscal policy posed the biggest downside risk to the US economy (I still think fiscal policy is the biggest risk).

 First there was the "fiscal cliff", and then the threat of default and not paying the bills (aka "debt ceiling"), then "sequestration", followed by the March 27th threat to shut down the government (really just a small portion of the government, but will be very disruptive). As I've noted several times, the deficit is declining fairly quickly, and the key risk is too much deficit reduction too quickly (this can't be repeated enough).

Hopefully something will be worked out to reverse the "sequestration" cuts, and maybe the government shutdown will be avoided ...

From the WaPo: Deal to avert government shutdown likely, officials say

Congress returns to work this week with no plan to reverse across-the-board spending cuts that took effect Friday, but with hope on both sides of the aisle of averting an end-of-the-month showdown that could result in a government shutdown.
...
It would provide funding through the end of the fiscal year on Sept. 30 ...

Weekend:
• Summary for Week Ending March 1st
• Schedule for Week of March 3rd

The Asian markets are mixed tonight with the Nikkei up 0.8%, and Shanghai Composite down 1.5%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 5 and DOW futures are down 40 (fair value).

Oil prices have moved down a little recently with WTI futures at $90.61 per barrel and Brent at $110.55 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are down a few cents over the last week after increasing more than 50 cents per gallon from the low last December.

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

by Calculated Risk on 3/03/2013 04:30:00 PM

Here is some investment data from the BEA (Note: The BEA released the underlying details for the Q4 second GDP report on Friday). The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased slightly, but from a very low level.

Investment in offices is down about 55% from the recent peak (as a percent of GDP). With the high office vacancy rate, investment will probably not increase significantly (as a percent of GDP) for several years - even though there has been some increase in the Architecture Billings Index lately.

Click on graph for larger image.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 63% from the peak (note that investment includes remodels, so this will not fall to zero).   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment peaked at 0.32% of GDP in Q2 2008 and is down about 73%.   With the hotel occupancy rate close to normal, it is possible that hotel investment will increase this year.

The second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

Usually the most important components are investment in single family structures followed by home improvement.

Investment in single family structures is now increasing after mostly moving sideways for almost three years (the increase in 2009-2010 was related to the housing tax credit).

Investment in home improvement was at a $159 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.0% of GDP), still above the level of investment in single family structures of $143 billion (SAAR) (or 0.9% of GDP).  Single family structure investment will probably overtake home improvement as the largest category of residential investment later this year.

Brokers' commissions increased slightly in Q4 as a percent of GDP. And investment in multifamily structures increased in Q4. This is a small category, and even though investment is increasing, the positive impact on GDP will be relatively small.

These graphs show there is currently very little investment in offices, malls and lodging. And residential investment is starting to pickup, but from a very low level.

by Calculated Risk on 3/03/2013 10:34:00 AM

Last year when I wrote The Housing Bottom is Here and Housing: The Two Bottoms, I pointed out there are usually two bottoms for housing: the first for new home sales, housing starts and residential investment, and the second bottom is for house prices.

For the bottom in activity, I presented a graph of Single family housing starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

When I posted that graph, the bottom wasn't obvious to everyone. Now it is, and here is another update to that graph.

Click on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

For the current housing bust, the bottom was spread over a few years from 2009 into 2011. This was a long flat bottom - something a number of us predicted given the overhang of existing vacant housing units.

We could use any of these three measures to determine the first bottom, and then use the other two to confirm the bottom. But this says nothing about prices.

The second graph compares RI as a percent of GDP with the real (adjusted for inflation) CoreLogic house price index through December.

Although the CoreLogic data only goes back to 1976, look at what happened following the early '90s housing bust. RI as a percent of GDP bottomed in Q1 1991, but real house prices didn't bottom until Q4 1996 (real prices were mostly flat for several year). Something similar happened in the early 1980s - first activity bottomed, and then real prices - although the two bottoms were closer in the '80s.

Now it appears activity bottomed in 2009 through 2011 (depending on the measure) and house prices bottomed in early 2012.

by Calculated Risk on 3/02/2013 04:11:00 PM

Here is the unofficial problem bank list for Mar 1, 2013.

Changes and comments from surferdude808:

There was only one removal this week to the Unofficial Problem Bank List. After removal, the list holds 808 institutions with assets of $298.1 billion. From last week, assets fell by $4.7 billion with $4.0 billion of the decline in assets during the fourth quarter. A year ago, the list held 959 institutions with assets of $385.4 billion. According to an SEC filing, the FDIC terminated the action against Bank of Granite, Charlotte, NC ($717 million Ticker: FNBN).

This week the FDIC issued industry results for the fourth quarter including an update on the Official Problem Bank List. While the FDIC does not disclose institutions on the official list, they provided an institution count of 651 with assets of $233 billion. During the quarter, the official list declined by 43 institutions and assets dropped $29 billion. Since the last FDIC release, the unofficial list declined by 66 institutions and assets dropped $36.9 billion. After the FDIC released problem bank figures for the second quarter of 2010, the unofficial list has been higher since while it was lower at the time of prior quarterly releases. The upside tracking difference peaked at 185 institutions and assets of $72.6 billion when second quarter of 2012 figures were released. With the current release, the differences have been reduced to 157 institutions and assets of $65.0 billion.

Because the FDIC does not publish the official list, a proxy or unofficial list can be developed by reviewing press releases and published formal enforcement actions issued by the three federal banking regulators, reviewing SEC filings, or through media reports and company announcements describing that the bank is under a formal enforcement action. For the most part, the official problem bank list is comprised of banks with a safety & soundness CAMELS composite rating of 4 or 5 (the banking regulators use the FFIEC rating system known as CAMELS, which stands for the components that receive a rating including Capital adequacy, Asset quality, Management quality, Earnings strength, Liquidity strength, and Sensitivity to market risk. A composite rating is assigned from the components, but it does not result from a simple average of the components. The composite and component rating scale is from 1 to 5, with 1 being the strongest). Customarily, a banking regulator will only issue a safety & soundness formal enforcement when a bank has a composite CAMELS rating of 4 or 5, which reflects an unsafe & unsound financial condition that if not corrected could result in failure. There is high positive correlation between banks with a safety & soundness composite rating of 4 or worse and those listed on the official list. For example, many safety & soundness enforcement actions state in their preamble that an unsafe & sound condition exists, which is the reason for action issuance.

Since 1991, the banking regulators have statutorily been required to publish formal enforcement actions. For many reasons, the banking regulators have a general discomfort publishing any information on open banks especially formal enforcement actions, so not much energy is expended on their part ensuring the completeness of information in the public domain or making its retrieval simple. Given the difficulty for easy retrieval of all banks operating under a safety & soundness formal enforcement action, the unofficial list fills this void as a matter of public interest.

All of the banks on the unofficial list have received a safety & soundness formal enforcement action by a federal banking regulator or there is other information in the public domain such as an SEC filing, media release, or company statement that describe the bank being issued such an action. No confidential or non-public information supports any bank listed and a hypertext link to the public information is provided in the spreadsheet listing. The publishers make every effort to ensure the accuracy of the unofficial list and welcome all feedback and any credible information to support removal of any bank listed erroneously.

Earlier:
• Summary for Week Ending March 1st
• Schedule for Week of March 3rd

by Calculated Risk on 3/02/2013 01:11:00 PM

Earlier:
• Summary for Week Ending March 1st

The key report this week is the February employment report on Friday.

Other key reports include the ISM service index on Tuesday, and the Trade Balance report on Thursday.

Also, the Federal Reserve will release the Q4 Flow of Funds report on Thursday.

----- Monday, Mar 4th -----

8:00 AM ET: Speech by Fed Vice Chair Janet Yellen, "Challenges Confronting Monetary Policy", At the 29th National Association for Business Economics Policy Conference, Washington, D.C.

----- Tuesday, Mar 5th -----
10:00 AM: ISM non-Manufacturing Index for February. The consensus is for a decrease to 55.0 from 55.2 in January. Note: Above 50 indicates expansion, below 50 contraction.

10:00 AM: Trulia Price Rent Monitors for February. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

----- Wednesday, Mar 6th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for February. This report is for private payrolls only (no government). The consensus is for 173,000 payroll jobs added in February.   Even with the new methodology, the report still isn't that useful in predicting the BLS report.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for January. The consensus is for a 2.2% decrease in orders.

2:00 PM: Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.  Analysts will look for signs of an impact from the recent tax increases.

----- Thursday, Mar 7th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 355 thousand from 344 thousand last week.  This is pre "sequester", and unemployment claims will probably increase soon.

8:30 AM: Trade Balance report for January from the Census Bureau.

Exports increased in December, and imports decreased and the trade deficit fell sharply.

The consensus is for the U.S. trade deficit to increase to $43.0 billion in January from $38.5 billion in December.

12:00 PM: Q4 Flow of Funds Accounts of the United States from the Federal Reserve.

3:00 PM: Consumer Credit for January from the Federal Reserve. The consensus is for credit to increase $15.0 billion in January.

----- Friday, Mar 8th -----
8:30 AM: Employment Report for February. The consensus is for an increase of 171,000 non-farm payroll jobs in February; the economy added 157,000 non-farm payroll jobs in January.

The consensus is for the unemployment rate to decrease to 7.8% in February.

The second employment graph shows the percentage of payroll jobs lost during post WWII recessions through January.

The economy has added 6.1 million private sector jobs since employment bottomed in February 2010 (5.5 million total jobs added including all the public sector layoffs).

There are still 2.7 million fewer private sector jobs now than when the recession started in 2007.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for January. The consensus is for a 0.4% increase in inventories.