by Calculated Risk on 2/17/2011 10:00:00 AM

From the Philly Fed: February 2011 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 19.3 in January to 35.9 this month. This is the highest reading since January 2004. [anything above 0 shows expansion]
...
Although the new orders index was virtually unchanged in February, it has increased over the past six months
...
The current employment index increased 6 points [to 23.6], and for the sixth consecutive month, the percentage of firms reporting an increase in employment (29 percent) is higher than the percentage reporting a decline (5 percent).

That is mostly good news. This was well above the consensus of 21.0.
The concern is the pickup in both prices paid and received:

Price increases for inputs as well as firms’ own manufactured goods were more widespread again this month. Sixty-seven percent of the firms reported higher prices for inputs, compared with 54 percent in the previous month. The prices paid index, which increased 13 points in February, has now increased 55 points over the past five months. On balance, firms also reported a rise in prices for their own manufactured goods.

Click on graph for larger image in new window.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through February. The ISM and total Fed surveys are through January.

This early reading suggests the ISM index will be in the 60s again this month.

by Calculated Risk on 2/17/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Feb. 12, the advance figure for seasonally adjusted initial claims was 410,000, an increase of 25,000 from the previous week's revised figure of 385,000. The 4-week moving average was 417,750, an increase of 1,750 from the previous week's revised average of 416,000.

Click on graph for larger image in graph gallery.

This graph shows the 4-week moving average of weekly claims for the last 10 years. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week by 1,750 to 417,750.

The 4-week average has been just above 400,000 all year after falling sharply during the last few months of 2010. Hopefully claims will fall below the 400,000 level soon.

by Calculated Risk on 2/16/2011 09:44:00 PM

• From Nick Timiraos, Victoria McGrane and Ruth Simon at the WSJ: Big Banks Face Fines on Role of Servicers

The penalties ... could include fines and changes in how the companies operate ... some banks could be notified within days of the enforcement action being taken against them ...

The OCC conducted a separate investigation of the Mortgage Electronic Registration Systems ... and it isn't clear when it will be finished ...

• From Diana Olick at CNBC: Enforcement Action Coming Against Loan Servicers

Earlier today:
• Housing Starts increase in January (graphs)
• Industrial Production, Capacity Utilization decrease slightly in January (graphs)
• MBA: Mortgage Purchase Application activity decreases (graph)
• Multi-family Housing Starts and Completions (graphs)
• Lawler: Early Read on January Existing Home Sales

by Calculated Risk on 2/16/2011 06:20:00 PM

From Cheyenne Hopkins at American Banker: Regulators to Hit Largest Mortgage Servicers with Enforcement Orders; Fines Likely

Alarmed by significant deficiencies uncovered as part of a regulatory review of mortgage servicer practices, the federal banking agencies are preparing formal enforcement actions against the largest servicing firms ...

The enforcement orders are expected to hit most, and possibly all, of the 14 mortgage servicers reviewed by regulators after foreclosure problems surfaced in the press last year, but the largest firms — including Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., and Ally Financial Inc. — are likely to face the toughest requirements ...

The orders are expected to be coupled with a global settlement with other government entities investigating the servicing industry, which is almost certain to include civil money penalties.
...
Several banks had initially expected the enforcement orders to come as early as this week, but that timeline appears to be slipping. Sources indicated regulators are shooting to issue the orders, along with the global settlement, sometime in March.

This is the result of the review that Fed Governor Sarah Bloom Raskin discussed last Friday:

Late last year, the federal banking agencies began a targeted review of loan servicing practices at large financial institutions that had significant market concentrations in mortgage servicing. The preliminary results from this review indicate that widespread weaknesses exist in the servicing industry. The agencies intend to report more specific findings to the public soon, but I can tell you that these deficiencies pose significant risk to mortgage servicing and foreclosure processes, impair the functioning of mortgage markets, and diminish overall accountability to homeowners.

I'm sure this has been said, but I'll say it again because I have seen little to no evidence of improvement in the operational performance of servicers since the onset of the crisis in 2007

I hope the fines are commensurate with the size of the "deficiencies".

by Calculated Risk on 2/16/2011 04:15:00 PM

From economist Tom Lawler:

Based on my regional tracking so far, I estimate that existing home sales (using the NAR’s methodology) ran at a seasonally adjusted annual rate of about 5.17 million in January, down 2.1% from December’s pace. While such an estimate seems low given the previous few month’s gains in the pending home sales index, that’s what I get with the data released so far by local MLS/realtors.

On the inventory front, I’m still bummed that my previous source of state listings (realtor.com) no longer updates that data, so I’ve been looking around at other data sources, as well as listings reported by local MLS. For some reason I’ve noted that the data of many of the widely followed public “trackers” of listings in select metro areas do not “foot” with local MLS reports, so that’s been a pain. Looking at everything I could, however, including data on listings in local MLS/realtor association monthly reports, I estimate that existing home inventories in January were down by about 0.8 to 0.9% from December.

CR notes:
• This would put the months-of-supply in the low 8 months range, probably up slightly from the 8.1 months reported in December. However the decline in inventory is seasonal, and inventory should increase again in February. The months-of-supply metric uses seasonally adjusted (SA) sales, and not seasonally adjusted (NSA) inventory - and I expect the months-of-supply metric to increase in the coming months (impacting house prices).

• Along with the release of January existing home sales on February 23rd, the National Association of Realtors (NAR) will release revisions for the past three years (2008 through 2010). This is the ordinary annual revision, and the revisions will probably be minor.

• I believe the NAR is working on benchmarking existing home sales for previous years with other industry data. There is no planned release date for these possible revisions - if any are announced. I expect this to be completed sometime after mid-year, and I expect this effort will lead to significant downward revisions to previously reported sales (and probably inventory).

by Calculated Risk on 2/16/2011 02:20:00 PM

Here are the minutes for the January FOMC meeting.

Below are the forecasts. GDP was revised up, the unemployment rate revised down (this was before the January unemployment rate was announced), inflation is still forecast to be below target.

A few excerpts:

While participants viewed the downside risks to their forecasts of economic activity over the projection period as having diminished, their assessment of the most likely outcomes for economic activity and inflation over the projection period was not greatly changed. Most participants raised their forecast of real GDP growth in 2011 somewhat and continued to anticipate stronger growth this year than in 2010, with a further gradual acceleration during 2012 and 2013. The unemployment rate was still projected to decline gradually over the forecast period but to remain elevated. Total inflation was still expected to remain subdued, and core inflation was projected to trend up slowly over the next few years as economic activity picks up but inflation expectations remain well anchored.

And on the risks:

Participants generally saw the risks to their outlook for economic growth and employment as having become broadly balanced, but they continued to see significant risks to both sides of the outlook. On the downside, participants remained worried about the possible effects of spillovers from the banking and fiscal strains in peripheral Europe, the ongoing fiscal adjustments by U.S. state and local governments, and the continued weakness in the housing market. On the upside, the recent strength in household spending raised the possibility that domestic final demand could snap back more rapidly than anticipated. If so, a considerably stronger recovery could take hold, more in line with the sorts of recoveries seen following deep economic recessions in the past.

And on the pace of QE2:

A few members noted that additional data pointing to a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size of the purchase program. However, others pointed out that it was unlikely that the outlook would change by enough to substantiate any adjustments to the program before its completion.

Just a little more positive overall.

January 2011 Economic projections of Federal Reserve Governors and Reserve Bank presidents
	2011	2012	2013
Change in Real GDP	3.4 to 3.9	3.5 to 4.4	3.7 to 4.6
Previous Projection (Nov 2010)	3.0 to 3.6	3.6 to 4.5	3.5 to 4.6
Unemployment Rate	8.8 to 9.0	7.6 to 8.1	6.8 to 7.2
Previous Projection (Nov 2010)	8.9 to 9.1	7.7 to 8.2	6.9 to 7.4
PCE Inflaton	1.3 to 1.7	1.0 to 1.9	1.2 to 2.0
Previous Projection (Nov 2010)	1.1 to 1.7	1.1 to 1.8	1.2 to 2.0
Core PCE Inflation	1.0 to 1.3	1.0 to 1.5	1.2 to 2.0
Previous Projection (Nov 2010)	0.9 to 1.6	1.0 to 1.6	1.1 to 2.0

FOMC definitions:
¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.