by Calculated Risk on 7/14/2013 10:02:00 AM

From Merrill Lynch:

Our tracking model now pegs 2Q GDP growth at just 1%, and we only get that high with some fairly generous bounce back assumed for some of the missing data. We don’t see anything fluky about this number: it is the third weak quarter in a row.

From MarketWatch:

Barclays ... cut its second-quarter GDP trading estimate to 1.0% from 1.6% after the trade deficit widened in May. In a note to clients, Barclays blamed the larger-than-expected increase in imports in the month for the downward revision.

J.P.Morgan also cut their Q2 forecast to 1.0% (from 2.0%).

This mid-year slowdown has been expected due to the significant drag from fiscal policy. Here is what I wrote in January: The Future's so Bright ...

The key short term risk is too much additional deficit reduction too quickly. There is a strong argument that the "fiscal agreement" might be a little too much with the current unemployment rate - my initial estimate was that Federal government austerity would subtract about 1.5 percentage points from growth in 2013 (Merrill Lynch estimate up to 2.0 percentage points including an estimate for the coming sequester agreement). This means another year of sluggish growth, even with an improved private sector (retail will be impacted by the payroll tax increase). But ex-austerity, we'd probably be looking at a decent year.

Note: Fiscal policy is even more negative than I thought in January because I assumed some sort of agreement on limiting the sequestration budget cuts.  The good news is the fiscal drag should start to diminish later this year.

Click on graph for larger image.

Last month I posted Four Charts to Track Timing for QE3 Tapering . Here is an update to the GDP chart.

The June FOMC forecast was for GDP to increase between 2.3% and 2.6% from Q4 2012 to Q4 2013.

The first quarter was below the FOMC projections (red), and it appears the second quarter will also be below the FOMC forecast..  Of course the Fed appears to be focusing mostly on employment to start tapering QE3 purchases, but they can't ignore other data (the advance estimate for Q2 GDP will be released July 1st, and the second estimate on August 29th).

Assuming a 1.0% growth rate in Q2, GDP would have to be at a 3.2% annual pace in the 2nd half to reach the FOMC's lower forecast (3.8% growth to reach the higher forecast).  More likely the FOMC will revise down their forecasts in September.

by Calculated Risk on 7/13/2013 05:54:00 PM

It takes time to ramp up, and it appears the home builders are getting ready for more sales in Orange County ... from Alejandro Lazo at the LA Times: O.C.'s Rancho Mission Viejo reflects rebound of housing market

New construction across the region has taken off this year. Builders began work on some 2,944 homes during the first three months of the year throughout Ventura, Los Angeles, Orange, Riverside and San Bernardino counties.

That's a 7% increase from the previous quarter and nearly double the pace from the 1,513 homes started during the first three months of 2012, according to Metrostudy.

... the "village" of Sendero in south Orange County offers a pristine view of the new building boom. ... The development — which will total about a thousand new homes on 690 acres when finished — shows the degree to which big builders are confident that real estate has stabilized.

Sendero is the first leg of a project that has been long in the works, called Rancho Mission Viejo. Developers expect 14,000 homes will go up in this massive, master-planned community over the next two decades.
...
Other big home developments are in the works. Luxury builder Toll Bros. last year snapped up a big chunk of land in south Orange County and is partnering with Shea Homes to construct more than 2,000 homes and apartments.

Building is underway on what will total 726 single-family homes and detached condominium units in Pavilion Park, the first part of the Great Park Neighborhoods development in Irvine.

by Calculated Risk on 7/13/2013 10:31:00 AM

A key report this week will be June retail sales to be released on Monday.  There are two key housing reports that will be released this week, housing starts on Wednesday, and the homebuilder confidence survey on Tuesday.

Fed Chairman Ben Bernanke will provide his semiannual Monetary Policy Report and testimony to the House and Senate this week.

For manufacturing, the June Industrial Production survey, and the July NY Fed (Empire State) and Philly Fed surveys will be released this week. 

For prices, CPI will be released on Tuesday.

----- Monday, July 15th -----
8:30 AM ET: Retail sales for June will be released.

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 27.1% from the bottom, and now 11.4% above the pre-recession peak (not inflation adjusted)

The consensus is for retail sales to increase 0.8% in June, and to increase 0.5% ex-autos.

8:30 AM: NY Fed Empire Manufacturing Survey for July. The consensus is for a reading of 5.0, down from 7.8 in June (above zero is expansion).

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for May.  The consensus is for no change in inventories.

----- Tuesday, July 16th -----
8:30 AM: Consumer Price Index for June. The consensus is for a 0.4% increase in CPI in June and for core CPI to increase 0.2%.

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for June.

This graph shows industrial production since 1967.

The consensus is for a 0.2% increase in Industrial Production, and for Capacity Utilization to increase to 77.7%.

10:00 AM ET: The July NAHB homebuilder survey. The consensus is for a reading of 52, the same as in June. Any number below 50 indicates that more builders view sales conditions as good than poor.

----- Wednesday, July 17th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Housing Starts for June.

Total housing starts were at 914 thousand (SAAR) in May. Single family starts were at 599 thousand SAAR in May.

The consensus is for total housing starts to increase to 951 thousand (SAAR) in June.

10:00 AM: Testimony by Fed Chairman Ben Bernanke, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives

2:00 PM: Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

----- Thursday, July 18th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an decrease to 344 thousand from 360 thousand last week.

10:00 AM: Testimony by Fed Chairman Ben Bernanke, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate

10:00 AM: the Philly Fed manufacturing survey for June. The consensus is for a reading of 9.0, down from 12.5 last month (above zero indicates expansion).

10:00 AM: Conference Board Leading Indicators for June. The consensus is for a 0.3% increase in this index.

----- Friday, July 19th -----
10:00 AM: Regional and State Employment and Unemployment (Monthly) for June 2013

by Calculated Risk on 7/13/2013 08:05:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for July 12, 2013.

Changes and comments from surferdude808:

Very quiet week for the Unofficial Problem Bank List with no closures, mergers or new actions to report. The only change was the Federal Reserve terminating an action against Buckeye Community Bank, Lorain, OH ($150 million). After removal, the list holds 742 institutions with assets of $271.3 billion. A year ago, the list held 912 institutions with assets of $352.9 billion. Next Friday, we anticipate for the OCC to release its actions through mid-June 2013.

Note on the unofficial list:

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.

by Calculated Risk on 7/12/2013 08:48:00 PM

Cardiff Garcia writes at Alphaville (with some quotes from analysts): US housing’s resilience

The Q2 results from Wells Fargo and JP Morgan have again raised the issue of declining mortgage refinancings (if rates stay elevated), along with spurring more general worries about the housing market.
...
From a macro perspective, refinancings certainly help, but not as much as housing construction activity ...

This is a good excuse to excerpt from a post I wrote over a year ago: Home Sales Reports: What Matters

The key number in the existing home sales report is not sales, but inventory. It is visible inventory that impacts prices (although the "shadow" inventory will keep prices from rising).

When we look at sales for existing homes, the focus should be on the composition between conventional and distressed. Total sales are probably close to the normal level of turnover, but the composition of sales is far from normal - sales are still heavily distressed sales. Over time, existing home sales will probably settle around 5 million per year, but the percentage of distressed sales will eventually decline. Those looking at the number of existing home sales for a recovery in housing are looking at the wrong number. Look at inventory and the percent of conventional sales.

However, for the new home sales report, the key number is sales! An increase in sales adds to both GDP and employment (completed inventory is at record lows, so any increase in sales will translate to more single family starts).

It might be hard to believe, but earlier this year [in 2012] there was a debate on whether housing had bottomed. That debate is over - clearly new home sales have bottomed – and the debate is now about the strength of the recovery.

The composition of existing home sales has moved to more and more conventional sales - a good sign (I wrote the post above over a year ago).

As Garcia notes, the key for housing is construction activity (new home sales and housing starts) and I expect activity to continue to increase.

I wouldn't be surprised to see a decline in existing home sales as investor buying slows (and distressed sales slow). Some people will see that as a sign of weakness for "housing". They will be wrong.