by Calculated Risk on 5/02/2011 08:26:00 PM

From Reuters: ECB official open to extending Greek debt maturities

European Central Bank policymaker Nout Wellink said on Monday that he was open to the idea of extending maturities on Greek debt ...

Wellinck said: “Restructuring is essentially saying: 'Send me the bill. We feel sorry for you.' You shouldn't do that. Paying the bill hurts.

“It may sometimes take longer than expected. It can sometimes lead to a restructuring - but not in the way some advocate it to be - that ... leads to a longer maturity of debt.”

This isn't the official position, but some sort of restructuring seems priced in with the yield on Greece ten year bonds at 15.7% today and the two year yield up to 25.9%.

Earlier:
• ISM Manufacturing Index at 60.4 in April
• Construction Spending increased in March

Weekend:
• Summary for Week ending April 29th
• Schedule for Week of May 1st

by Calculated Risk on 5/02/2011 04:19:00 PM

From Bloomberg: New Households Forming at Fastest Rate Since ’07

Millions of young adults like Webb are starting to leave their parents’ homes, creating households at the fastest rate since 2007.
...
Between 750,000 and 1 million new households will be created in 2011, predict UBS Securities LLC’s Maury Harris and IHS Global Insight’s Patrick Newport. That compares with just 357,000 added in the year ended March 2010, the lowest on record, according to the Census Bureau.

First, the 357,000 number is probably based on the Census Bureau's HVS (or perhaps the ACS) and those surveys are not designed to track household formation in real time. However I agree that household formation will probably increase sharply this year.

“On the personal ego thing, you don’t want to be 24 and living in your parents’ house,” said [Jesse Hipp, 24, who graduated from the University of Arkansas in 2009, still lives with his parents in Fayetteville, Arkansas]
...
“Most guys who live at home beyond some young age walk around with a great big L on their forehead. It is just not acceptable. As soon as these young adults get a job and keep it for some reasonable period, they are gone. As more young people feel they will be able to keep a job, bingo, they are gone.” [said demographic-trends analyst Peter Francese].

Many people doubled up or moved in to their parents' basements during the recession, and this is pent up demand for housing - well, once these people find jobs. Note: housing includes both apartments and owner occupied units, and most of these people will rent will they move out.

This reminds us that what we would like to know is 1) the number of excess housing units, 2) the rate of household formation, and 3) the net number of housing units being added to the stock.

As I mentioned on Saturday, we will get a better feel for the number of excess household units this month as the Census bureau releases more Census 2010 data (as of April 1, 2010). We already know the net number of housing units added to the stock will be at or near a record low this year. With a million new households formed this year, the excess supply of vacant housing units will be reduced significantly (but will still be high).

by Calculated Risk on 5/02/2011 02:25:00 PM

From the Fed April 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices:

The April survey indicated that, on net, bank lending standards and terms generally had eased somewhat further during the first quarter of this year, and that the demand for commercial and industrial loans (C&I) and for commercial mortgages increased, while that for residential mortgages continued to decrease.
...
Regarding changes in standards and terms on loans to households, several large banks eased lending policies on credit card and auto loans, and the net fraction of banks that reported having become more willing to make consumer installment loans rose to its highest level since the first half of 1994. Moderate net fractions of banks reported a net easing of the spreads of auto loan rates over their own cost of funds, and roughly similar fractions of large banks also eased several other terms on such loans.

Standards are still tight, but banks are more willing to make consumer loans - and C&I loan demand continues to increase.

by Calculated Risk on 5/02/2011 11:39:00 AM

The Census Bureau reported this morning that overall construction spending increased in March compared to February (seasonally adjusted).

[C]onstruction spending during March 2011 was estimated at a seasonally adjusted annual rate of $768.9 billion, 1.4 percent (±1.6%)* above the revised February estimate of $758.6 billion. The March figure is 6.7 percent (±1.8%) below the March 2010 estimate of $824.0 billion.

Private construction spending also increased in March:

Spending on private construction was at a seasonally adjusted annual rate of $476.1 billion, 2.2 percent (±1.4%) above the revised February estimate of $466.0 billion. Residential construction was at a seasonally adjusted annual rate of $229.1 billion in March, 2.6 percent (±1.3%) above the revised February estimate of $223.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $247.0 billion in March, 1.8 percent (±1.4%) above the revised February estimate of $242.7 billion.

Click on graph for larger image in graph gallery.

This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Residential spending is 66% below the peak in early 2006, and non-residential spending is 40% below the peak in January 2008.

I expect residential spending to pick up a little this year (mostly multifamily) - and residential will probably be above non-residential spending by the end of the year.

by Calculated Risk on 5/02/2011 10:00:00 AM

PMI at 60.4% in April, down from 61.2% in March. The employment index was at 62.7 and new orders at 61.7. All slightly slower than in March, but still very strong.

From the Institute for Supply Management: April 2011 Manufacturing ISM Report On Business®

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The recent trend of rapid growth in the manufacturing sector continued in April as the PMI registered above 60 percent for the fourth consecutive month. The New Orders and Production Indexes continue to drive the PMI, as they have both exceeded 60 percent for five consecutive months. Manufacturing employment appears to have developed significant momentum, as the Employment Index readings for the first four months of 2011 are the highest readings in the last 38 years. Inventory growth also took place in April after two months of destocking; however, the inventory restocking would appear to be necessitated by the strong performance in new orders. While the manufacturing sector is definitely performing above most expectations so far in 2011, manufacturers are experiencing significant cost pressures from commodities and other inputs."

Click on graph for larger image in new window.

Here is a long term graph of the ISM manufacturing index.

This was a strong report and above expectations of 59.5%.

by Calculated Risk on 5/02/2011 08:40:00 AM

From the NY Times: Survey Says Small-Business Lending Is Surging (ht Sebastian)

In the third quarter of 2010, five percent of the small companies surveyed [by Greenwich Associates] applied for a loan, a share that tripled in the last three months of the year. In the first three months of 2011, the figure leaped to 29 percent. Loan demand is typically highest at the end of the year, according to Marc Bernstein, the head of small-business banking for Wells Fargo. That would make the jump in applicants in the first months of 2011 especially notable.

The Federal Reserve is expected to release the April 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices later today. The January survey indicated some slight easing of standards and more demand for commercial and industrial (C&I), but not for other businesses. It will be interesting to see if the Fed survey for April saw any increase in demand from small firms.

Weekend:
• Summary for Week ending April 29th
• Goldman estimates 3.5 million Excess Vacant Housing Units.
• Schedule for Week of May 1st

by Calculated Risk on 5/01/2011 11:50:00 PM

By request, a discussion thread.

The Asian markets are mixed tonight with the Nikkei up 1%.

From CNBC: Pre-Market Data shows the S&P 500 up about 11 points, and the Dow futures up about 100 points.

Weekend:
• Summary for Week ending April 29th
• Goldman estimates 3.5 million Excess Vacant Housing Units.
• Schedule for Week of May 1st

Best to all.

by Calculated Risk on 5/01/2011 08:44:00 PM

Three weeks ago there were a couple of articles in the WSJ about lower prices for steel and copper. Here is another more general article: Commodity Surprise: Some Are Now Heading Down

Cotton has pulled back 17% from the all-time record set in early March, and sugar is down 34% from its multidecade high in February. Lead and zinc have tumbled in recent weeks after shooting up in the second half of 2010. Copper has shed 6% this year.

The declines came amid a wild April in which other raw materials continued to climb. U.S. oil prices rose 7% for the month, while gold set fresh records in nominal terms 13 times and silver neared its all-time high.

Lower commodity prices would definitely help, but unfortunately the one that matters the most for the U.S. economy - oil prices - are still high (WTI futures are at $113.56 per barrel, and Brent Crude is at $125.56). High oil and gasoline prices are one of the key downside risks for the economy.

Weekend:
• Summary for Week ending April 29th
• Goldman estimates 3.5 million Excess Vacant Housing Units.
• Schedule for Week of May 1st

by Calculated Risk on 5/01/2011 02:16:00 PM

Catching up - this was released last week at the same time as several other releases. Note: This is a composite index based on a number of economic releases.

From the Chicago Fed: Economic Activity Improved in March

Led by gains in production indicators, the Chicago Fed National Activity Index increased to +0.26 in March from +0.16 in February. March marked the fourth consecutive positive reading of the index and the sixth consecutive positive contribution from employment-related indicators. Neither has exhibited such patterns since April 2006.

The index’s three-month moving average, CFNAI-MA3, edged down to +0.20 in March from +0.27 in February, but remained positive for the third consecutive month for the first time since May 2010. March’s CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend. With regard to inflation, the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.

Click on graph for larger image in graph gallery.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967. According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

Not a robust recovery, but this index suggests the economy was growing somewhat above trend in March.

Weekend:
• Summary for Week ending April 29th
• Goldman estimates 3.5 million Excess Vacant Housing Units.
• Schedule for Week of May 1st

by Calculated Risk on 5/01/2011 08:15:00 AM

The key report for this week will be the April employment report to be released on Friday, May 6th. The ISM manufacturing report will be released on Monday, and the ISM non-manufacturing report on Wednesday. There are several Fed speeches this week (only a few are included below). Also the automakers report on vehicle sales on Tuesday.

----- Monday, May 2nd -----
10:00 AM: ISM Manufacturing Index for April. The consensus is for a decrease to a still strong reading of 59.5 from 61.2 in March.

10:00 AM: Construction Spending for March. The consensus is for a 0.3% increase in construction spending.

2:00 PM: The April 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve. The January survey indicated some slight easing of standards and more demand for commercial and industrial (C&I) loans over the fourth quarter. For other types of loans to businesses and households, the January survey indicated banks have stopped tightening standards (they are already very tight), and demand has stopped falling (there is little demand for loans).

----- Tuesday, May 3rd -----
All day: Light vehicle sales for April. Light vehicle sales are expected to decrease to 13.0 million (Seasonally Adjusted Annual Rate), from 13.1 million in March. The impact of the supply chain disruption is a big unknown.

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the March sales rate.

Edmunds is forecasting: "Edmunds.com analysts predict that April's Seasonally Adjusted Annualized Rate (SAAR) will be 13.3 million, up from 13.1 in March 2011.

“As inventories rapidly deteriorate, April could be the last month that we’ll see strong sales numbers until late summer or early fall,” said Edmunds.com Senior Analyst Jessica Caldwell."

10:00 AM: Manufacturers' Shipments, Inventories and Orders for March. The consensus is for a 0.3% increase in orders.

----- Wednesday, May 4th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been very weak over the last couple months suggesting weak home sales through the first few months of 2011.

8:00 AM: Boston Fed President Eric Rosengren speaks before the NAIOP Commercial Real Estate Development Association

8:15 AM: The ADP Employment Report for April. This report is for private payrolls only (no government). The consensus is for +195,000 payroll jobs in April, down slightly from the 201,000 reported in March.

10:00 AM: ISM non-Manufacturing Index for April.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. The March ISM Non-manufacturing index was at 57.3% in March. The employment index indicated slower expansion in March at 53.7%.

The consensus is for a slight increase in April to 58.0.

3:00 PM: San Francisco Fed President John Williams gives his first policy speech on "Maintaining Price Stability in a Global Economy" in Los Angeles.

----- Thursday, May 5th -----
8:30 AM: The initial weekly unemployment claims report will be released. The number of claims has increased over the last few weeks. The consensus is for a decrease to 410,000 from 429,000 last week.

9:00 AM: Fed Chairman Ben Bernanke, "Implementing a Macroprudential Approach to Supervision and Regulation" in Chicago.

----- Friday, May 6th -----
8:30 AM: Employment Report for April.

The consensus is for an increase of 185,000 non-farm payroll jobs in April, down slightly from the 216,000 added in March.

This graph shows the net payroll jobs per month (excluding temporary Census jobs) since the beginning of the recession. The estimate for April is in blue.

The consensus is for the unemployment rate to remain at 8.8% in April.

The second employment graph shows the percentage of payroll jobs lost during post WWII recessions through March - aligned at maximum job losses.

This shows the severe job losses during the recent recession - there are currently 7.25 million fewer jobs in the U.S. than when the recession started.

3:00 PM: Consumer Credit in March from the Federal Reserve. The consensus is for credit to increase $5 billion.

Best wishes to All!