by Calculated Risk on 8/02/2011 03:11:00 PM

Note: I'll post on vehicle sales soon.

Earlier this year, Tom Lawler noted that the FHA was having REO inventory problems, and the FHA's REO inventory increased in Q1.

It now appears the FHA REO problem has been solved. The FHA sold a record number of REO in April, more in May, and another new record in June.

According to HUD, the FHA acquired 7,667 REO in June and sold a record 13,609 properties (breaking the record of 12,671 properties sold in May). The FHA REO inventory has declined from 69,958 at the end of Q1 2011, to 54,645 at the end of Q2.

Click on graph for larger image in graph gallery.

Fannie and Freddie are expected to release results including REO aquisitions and inventory later this week. From Diana Golobay at HousingWire: Fannie Earnings Expected Later This Week, Freddie After

Freddie Mac spokesperson Michael Cosgrove noted the company could release its Q210 earnings later this week but may wait until close of business Monday. Fannie Mae spokesperson Jason Vasquez also said earnings are anticipated "sometime this week," ... it is believed that Fannie will release Thursday, with Freddie to follow after, sources say.

I expect Fannie and Freddie to report declines in REO inventory in Q2 too.

by Calculated Risk on 8/02/2011 12:55:00 PM

By request, here are four key indicators used by the NBER for business cycle dating: GDP, Employment, Industrial production and real personal income less transfer payments.

Note: The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

These graphs show that no major indicator has returned to the pre-recession levels - and most are still way below the pre-recession peaks.

Click on graph for larger image in graph gallery.

This graph is for real GDP through Q2 2011 and shows real GDP is still 0.4% below the previous pre-recession peak.

At the worst point, real GDP was off 5.1% from the 2007 peak.

And real GDP has performed better than other indicators ...

This graph shows real personal income less transfer payments as a percent of the previous peak.

With the revisions, this measure was off almost 11% at the trough - a significant downward revision and shows the recession was much worse than originally thought.

Real personal income less transfer payments is still 5.1% below the previous peak.

It will be some time before this indicator returns to pre-recession levels.

This graph is for industrial production through June.

Industrial production had been one of the stronger performing sectors because of inventory restocking and some growth in exports.

However industrial production is still 7.6% below the pre-recession peak, and it will probably be some time before industrial production returns to pre-recession levels.

The final graph is for employment. This is similar to the graph I post every month comparing percent payroll jobs lost in several recessions.

On the timing of the trough of the recession, GDP and industrial production would suggest the end of Q2 2009 (and June 2009). The other two indicators would suggest later troughs.

And of course the recovery in all indicators has been very sluggish compared to recent recessions.

by Calculated Risk on 8/02/2011 10:41:00 AM

On Friday, the BEA released revisions for GDP that showed the recession was significantly worse than originally estimated. This morning the BEA released revisions for Personal Income and Outlays.

One of the key measures of the economy is personal income less transfer payments, in real terms. This is also one of the measures the National Bureau of Economic Research (NBER) uses in business cycle dating:

The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment.

The following graph shows personal income less transfer payments as a percent of the previous peak.

Click on graph for larger image in graph gallery.

Prior to the revisions, the BEA reported this measure was off close to 7% from the previous peak at the trough of the recession.

With the revisions, this measure was off almost 11% at the trough - a significant downward revision and shows the recession was much worse than originally thought.

Real personal income less transfer payments is still 5.1% below the previous peak.

by Calculated Risk on 8/02/2011 09:03:00 AM

The BEA released the Personal Income and Outlays report for June:

Personal income increased $18.7 billion, or 0.1 percent ... Personal consumption expenditures (PCE) decreased $21.9 billion, or 0.2 percent.
...
Real PCE decreased less than 0.1 percent. ... The price index for PCE decreased 0.2 percent in June

The following graph shows real Personal Consumption Expenditures (PCE) through June (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image in graph gallery.

PCE decreased 0.2 in June, and real PCE decreased less than 0.1% as the price index for PCE decreased 0.2 percent in June. On a quarterly basis, PCE barely increased in Q2 from Q1 (this was in the GDP report Friday).

Note: The PCE price index, excluding food and energy, increased 0.1 percent.

The personal saving rate was at 5.4% in June.

Personal saving -- DPI less personal outlays -- was $620.6 billion in June, compared with $581.7 billion in May. Personal saving as a percentage of disposable personal income was 5.4 percent in June, compared with 5.0 percent in May.

This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the June Personal Income report.

Real PCE has declined for three straight months - this was expected based on the weak GDP report, but this is very weak.

by Calculated Risk on 8/01/2011 09:00:00 PM

Over the last couple of weeks, we saw extreme caution by businesses and consumers. CEOs were warning about a sharp slowdown. Lawyers were telling their clients to wait before signing contracts. Corporations were stockpiling cash ... and there was even a "run to the banks"!

From Francesco Guerrera at the WSJ: Washington's Haggling Left Wall Street Dangling

U.S. companies large and small also chose an extraordinary playbook, stashing cash in the corporate equivalent of mattresses—bank accounts that yield no interest ... Banks, for their part, looked at the influx of deposits with mixed feelings.

On one hand, the unexpected bounty provides them with cheap funding that can be put to work in the form of loans. At the same time, the new deposits swelled their liabilities ... One executive even suggested that if this "run to the bank" continues, lenders might consider introducing negative interest rates on deposits (savers would have to pay a fee to park the money in the bank) to keep money out.

Some of this move to cash is due to the European financial crisis (the Italy to Germany 10 year spread hit another record high today). But most of the move was probably due to the political uncertainty. A key question is how quickly consumer and business confidence returns to the already low pre-debt ceiling debate levels.

by Calculated Risk on 8/01/2011 05:27:00 PM

• From J.P. Morgan (this includes debt ceiling deal, expiring EUB, payroll tax cut. etc.):

Impending fiscal drag for 2012 remains intact. The deal does nothing to extend the various stimulus measure which will expire next year: we continue to believe federal fiscal policy will subtract around 1.5%-points from GDP growth in 2012. Its possible the fiscal commission could do something to extend some measure such as the one-year 2% payroll tax holiday, though we think unlikely, as it would need to be paid for, which would be tough. If anything, the debt deal may add modestly to the fiscal drag we have penciled in for next year.

• From the WSJ: House Closes In on Vote as Deadline Approaches

The U.S. House began debate Monday afternoon, and voted 249-178 on a procedural measure to allow final debate on the bill, expected Monday evening. The procedural vote is a test of support for the underlying bill. As the House moved forward, the Senate scheduled its vote on the debt ceiling for Tuesday ...

• From David Altig at Macroblog: Is the economy hitting stall speed?

[R]esearch shows that things could become considerably less comfortable if the 2 percent threshold persists, or the yield curve flattens, or the housing market tanks again. At that point, history is on the side of the recessionists. While Lockhart and our Reserve Bank don't believe we're there yet, it's fair to say we'd feel more comfortable if the incoming third quarter data were a little more positive. And on that count, this morning's Institute for Supply Management report for manufacturing isn't a very promising first step.

Many people (myself included) keep looking for a little pickup in activity that never seems to materialize. Of course the slowdown in July can be blamed on a self inflicted wound to an already fragile economy. I wonder what the excuse will be in August?

by Calculated Risk on 8/01/2011 03:25:00 PM

It looks like the spending cuts in the deal through the end of 2012 will be $22 billion, although there could be more after the special committee fails makes their recommendations later this year.

These spending cuts will only have a small negative impact on the economy, but we have to remember that the original stimulus is almost over - and that the payroll tax cut expires at the end of the year - as do the emergency unemployment benefits. Plus state and local governments are continuing to cut spending.

Brad Delong estimates:

A first guess: -0.4% off of fiscal 2012 real GDP growth, with an unemployment rate in November 2012 0.2% above the baseline.

That seems high based on the above spending cuts, but that is only part of the drag. I'll try to find some other estimate of the economic drag.

Floyd Norris writes in the NY Times that this could lead to a larger deficit Could This Deal Raise Budget Deficits

[T]his deal could manage to do the exact opposite of what it promises — raise the deficit.

... This could damage the economy enough to send tax receipts down again. Although you never would have guessed it from the rhetoric, tax receipts are at the lowest level in years, as a percentage of gross domestic product. Get a healthy economy and tax revenues rise while a lot of spending, on such things as unemployment benefits, goes away.

It is not just this deal, but the winding down of all the programs that will be a drag on the economy.

As far as confidence, I do think there will be some boost from the deal. Not because it reduces the deficit - that does nothing for confidence - but because the deal takes not paying the bills off the table.

by Calculated Risk on 8/01/2011 11:50:00 AM

Catching up ... this morning from the Census Bureau reported that overall construction spending increased slightly in June:

[C]onstruction spending during June 2011 was estimated at a seasonally adjusted annual rate of $772.3 billion, 0.2 percent (±1.8%)* above the revised May estimate of $770.5 billion.

Private construction spending increased in June:

Spending on private construction was at a seasonally adjusted annual rate of $493.4 billion, 0.8 percent (±1.3%)* above the revised May estimate of $489.6 billion. Residential construction was at a seasonally adjusted annual rate of $235.8 billion in June, 0.3 percent (±1.3%)* below the revised May estimate of $236.5 billion. Nonresidential construction was at a seasonally adjusted annual rate of $257.7 billion in June, 1.8 percent (±1.3%) above the revised May estimate of $253.1 billion.

Click on graph for larger image in graph gallery.

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

Private residential spending is 65% below the peak in early 2006, and non-residential spending is 38% below the peak in January 2008.

Private construction spending is mostly moving sideways, and it is public construction spending that is now declining.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending will probably turn positive in August, but public spending is now falling sharply as the stimulus spending ends.

by Calculated Risk on 8/01/2011 10:00:00 AM

PMI was at 50.9% in July, down from 55.3% in June. The employment index was at 53.5%, down from 59.9% and new orders decreased to 49.2%, down from 51.6%.

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

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 50.9 percent, a decrease of 4.4 percentage points, indicating expansion in the manufacturing sector for the 24th consecutive month, although at a slower rate of growth than in June. Production and employment also showed continued growth in July, but at slower rates than in June. The New Orders Index registered 49.2 percent, indicating contraction for the first time since June of 2009, when it registered 48.9 percent. The rate of increase in prices slowed for the third consecutive month, dropping 9 percentage points in July to 59 percent. In the last three months combined, the Prices Index has declined by 26.5 percentage points, dropping from 85.5 percent in April to 59 percent in July. Despite relief in pricing, however, several comments suggest a slowdown in domestic demand in the short term, while export orders continue to remain strong."

Click on graph for larger image in new window.

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

This was below expectations of 54.3%, but in line with the weak regional surveys.

by Calculated Risk on 8/01/2011 09:06:00 AM

From Alejandro Lazo at the LA Times: Homeowners who want to trade up are stuck waiting

Although there is no way to precisely to track move-up buyers, such shoppers often are looking in the $300,000-to-$800,000 price range, according to San Diego real estate research firm DataQuick.

Home sales fell the most in that category in June, dropping 25.5% from June 2010, mainly because buyer tax credits last year sparked so many first-time purchases, DataQuick said. All those first-time purchases fueled move-up transactions.

By comparison, sales of homes priced below $200,000 fell 11.4% from June 2010, and sales of homes priced at more than $800,000 dropped 17.6%.

Before the bust, moving up was so common that chains of buyers and sellers would develop, with each deal dependent on the previous one in the chain. Move-up buyers are a key part of a more robust market, as all that trading up fuels price gains and helps homeowners to build equity.

"It is critical," said Ed Leamer, director of the UCLA Anderson Forecast. "The way to think about is a chain of trades that normally occurs, and if that chain is broken at any point, or it doesn't begin because you don't have enough entry-level buyers, then the whole dynamic of the marketplace is affected and the level of resales is going to be very small."

Talk about "chain reaction". Here is a graphic I put together in early 2007 to talk about how the move-up buyer would disappear.

Click on graphis for larger image in new window.

An excerpt from a post in 2009:

[T]hese sales are "one and done" with no move up buyer.

Where are the move up buyers going to come from?

There is no "chain reaction" in the housing market - over half the sales are to first time buyers, and frequently the sellers are banks.

I hear this from real estate agents all the time: the agents (low end) are plenty busy with REOs and short sales, but the deals are mostly "one and done".

Weekend:
• Summary for Week ending July 29th
• Schedule for Week of July 31st