by Calculated Risk on 9/24/2012 09:27:00 PM

On Tuesday:
• At 9:00 AM ET, the S&P/Case-Shiller House Price Index for July will be released. The consensus is for a 1.2% year-over-year increase in the Composite 20 index (NSA) for July. The Zillow forecast is for the Composite 20 to increase 1.6% year-over-year, and for prices to increase 1.0% month-to-month seasonally adjusted.

• At 10:00 AM, the FHFA House Price Index for July 2012 will be released. The consensus is for a 0.8% increase in house prices.

• Also at 10:00 AM, the Conference Board's consumer confidence index for September will be released. The consensus is for an increase to 64.8 from 60.6 last month.

• Also at 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for September will be released. The consensus is for an increase to -4 for this survey from -9 in August (below zero is contraction).


A question for the September economic prediction contest:

by Calculated Risk on 9/24/2012 06:18:00 PM

This is an excellent followup to Josh Lehner's post (and the graph I posted) earlier today showing that the US recovery is doing better than most recoveries following a financial crisis.

From Tim Duy at EconomistsView: Excuses Not To Do More. Duy discusses Reinhart and Rogoff and excerpts from a piece by Ezra Klein:

...if you look at the leaked memo that the Obama administration was using when they constructed their stimulus, you’ll find, on page 10 and 11, a list of prominent economists the administration consulted as to the proper size for the stimulus package. And there, on page 11, is Rogoff, with a recommendation of “$1 trillion over two years” — which is actually larger than the American Recovery and Reinvestment Act. So if they’d been following Rogoff’s advice, the initial stimulus would have been even bigger — not nonexistent.

As for Reinhart, I asked her about this for a retrospective I did on the Obama administration’s economic policy. “The initial policy of monetary and fiscal stimulus really made a huge difference,” she told me. “I would tattoo that on my forehead. The output decline we had was peanuts compared to the output decline we would otherwise have had in a crisis like this. That isn’t fully appreciated.”

Then Duy added this update:

Update: I notice some Twitter chatter of surprise that Rogoff was not completely opposed to fiscal stimulus (I thought everyone read Ezra Klein).

The key point here is that short term stimulus, in a depressed economy, can actually reduce the long term deficit.

by Calculated Risk on 9/24/2012 03:25:00 PM

From San Francisco Fed President John Williams: The Economic Outlook and Challenges to Monetary Policy. A few excerpts:

In considering what maximum employment is, economists look at the unemployment rate. We tend to think of maximum employment as the level of unemployment that pushes inflation neither up nor down. This is the so-called natural rate of unemployment. It is a moving target that depends on how efficient the labor market is at matching workers with jobs. Although we can’t know exactly what the natural rate of unemployment is at any point in time, a reasonable estimate is that it is currently a little over 6 percent.5 In other words, right now, an unemployment rate of about 6 percent would be consistent with the Fed’s goal of maximum employment. In terms of the Fed’s other statutory goal—price stability—our monetary policy body, the Federal Open Market Committee, or FOMC, has specified that a 2 percent inflation rate is most consistent with our dual mandate.

So, how are we doing on these goals? As I said earlier, the economy continues to grow and add jobs. However, the current 8.1 percent unemployment rate is well above the natural rate, and progress on reducing unemployment has nearly stalled over the past six months. If we hadn’t taken additional monetary policy steps, the economy looked like it could get stuck in low gear. That would have meant that, over the next few years, we would make relatively modest further progress on our maximum employment mandate. What’s more, the job situation could get worse if the European crisis intensifies or we go over the fiscal cliff. Progress on our other mandate, price stability, might also have been threatened. Inflation, which has averaged 1.3 percent over the past year, could have gotten stuck below our 2 percent target.

For the FOMC, this was the sobering set of circumstances we were staring at during our most recent policy meeting. Faced with this situation, it was essential that we at the Fed provide the stimulus needed to keep our economy moving toward maximum employment and price stability. So, at our meeting, we took two strong measures aimed at achieving this goal.

First, we announced a new program to purchase $40 billion of mortgage-backed securities every month. This is in addition to our ongoing program to expand our holdings of longer-term Treasury securities by $45 billion a month. Second, we announced that we expect to keep short-term interest rates low for a considerable time, even after the economy strengthens. Specifically, we expect exceptionally low levels of our benchmark federal funds rate at least through mid-2015.

And on the economic outlook:

Thanks in part to the recent policy actions, I anticipate the economy will gain momentum over the next few years. I expect real gross domestic product to expand at a modest pace of about 1¾ percent this year, but to improve to 2½ percent growth next year and 3¼ percent in 2014. With economic growth trending upward, I see the unemployment rate gradually declining to about 7¼ percent by the end of 2014. Despite improvement in the job market, I expect inflation to remain slightly below 2 percent for the next few years as increases in labor costs remain subdued and public inflation expectations stay at low levels.

Of course, my projections, like any forecast, may turn out to be wrong. That’s something we kept in mind when we designed our new policy measures. Specifically, an important new element is that our recently announced purchase program is intended to be flexible and adjust to changing circumstances. Unlike our past asset purchase programs, this one doesn’t have a preset expiration date. Instead, it is explicitly linked to what happens with the economy. In particular, we will continue buying mortgage-backed securities until the job market looks substantially healthier. We said we might even expand our purchases to include other assets.

This approach serves as a kind of automatic stabilizer for the economy. If conditions improve faster than expected, we will end the program sooner, cutting back the degree of monetary stimulus. But, if the economy stumbles, we will keep the program in place as long as needed for the job market to improve substantially, in the context of price stability. Similarly, if we find that our policies aren’t doing what we want or are causing significant problems for the economy, we will adjust or end them as appropriate.

With this forecast, QE3 will continue for some time.

by Calculated Risk on 9/24/2012 01:15:00 PM

Last year economist Josh Lehner posted a number of charts and graphs as an update to work by Carmen Reinhart and Kenneth Rogoff: This Time is Different, An Update

Today, Lehner updated a few graphs again (through August, 2012). See: Checking in on Financial Crises Recoveries. Here is one graph and an excerpt:

Click on graph for larger image.

From Lerner:

[W]hen the Great Recession is compared ... to the Big 5 financial crises and the U.S. Great Depression ... the current cycle actually compares pretty favorably. This is likely due to the coordinated global response to the immediate crises in late 2008 and early 2009. While the initial path of both the global and U.S. economies in 2008 and 2009 effectively matched the early years of the Great Depression – or worse – the strong policy response employed by nearly all major economies – both monetary and fiscal – helped stop the economic free fall.

by Calculated Risk on 9/24/2012 10:38:00 AM

From the Dallas Fed: Texas Manufacturing Growth Picks Up

Texas factory activity increased in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 6.4 to 10, suggesting stronger output growth.

Other measures of current manufacturing activity also indicated growth in September. The new orders index rose to 5.3 following a reading of zero last month, suggesting a pickup in demand. The capacity utilization index advanced from 1.7 to 9.3, largely due to fewer manufacturers noting a decrease. The shipments index rose to 4.5, bouncing back into positive territory after falling to -2.3 in August.

Indexes reflecting broader business conditions were mixed. The general business activity index remained slightly negative but edged up from -1.6 to -0.9. The company outlook index was positive for the fifth month in a row but fell slightly to 2.4 from a reading of 4.1 in August.

Labor market indicators reflected slower labor demand growth and slightly longer workweeks. The employment index remained positive but fell to 5.9, its lowest reading in more than a year. Sixteen percent of firms reported hiring new workers, while 10 percent reported layoffs. The hours worked index moved up from -0.9 to 2.8.

This is still weak, and the general business activity index has been negative 5 of last 6 months.

by Calculated Risk on 9/24/2012 09:08:00 AM

LPS released their First Look report for August today. LPS reported that the percent of loans delinquent decreased in August from July, and declined about 10% year-over-year. The percent of loans in the foreclosure process also decreased in August, but remain at a very high level.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.87% from 7.03% in July. The percent of delinquent loans is still significantly above the normal rate of around 4.5% to 5%. The percent of delinquent loans peaked at 10.57%, so delinquencies have fallen over half way back to normal. The percent of loans in the foreclosure process declined to 4.04%.

The table below shows the LPS numbers for August 2012, and also for last month (July 2012) and one year ago (August 2011).

The number of delinquent properties, but not in foreclosure, is down about 10% year-over-year (530,000 fewer properties delinquent), and the number of properties in the foreclosure process is down 5% or 100,000 year-over-year.

The percent of loans less than 90 days delinquent is close to normal, but the percent (and number) of loans 90+ days delinquent and in the foreclosure process is still very high.

LPS: Percent Loans Delinquent and in Foreclosure Process
	August 2012	July 2012	August 2011
Delinquent	6.87%	7.03%	7.68%
In Foreclosure	4.04%	4.08%	4.12%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,910,000	1,960,000	2,240,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,520,000	1,560,000	1,720,000
Number of properties in foreclosure pre-sale inventory:	2,020,000	2,042,000	2,120,000
Total Properties	​5,450,000	5,562,000	6,080,000

by Calculated Risk on 9/24/2012 08:39:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Economic Activity Weakened in August

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to –0.87 in August from –0.12 in July. All four broad categories of indicators that make up the index deteriorated from July, with each making a negative contribution to the index in August.

The index’s three-month moving average, CFNAI-MA3, decreased from –0.26 in July to –0.47 in August—its lowest level since June 2011 and its sixth consecutive reading below zero. August’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

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

Click on graph for larger image.

This suggests growth was below trend in August.

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.

by Calculated Risk on 9/23/2012 09:11:00 PM

On Monday:
• At 8:30 AM ET, the Chicago Fed National Activity Index for August will be released. This is a composite index of other data.

• At 9:00 AM, the LPS "First Look" Mortgage Delinquency report for August will be released. Look for a decline in the delinquency rate.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for September will be released. The consensus is for 0.5 for the general business activity index, up from -1.6 in August.

• At 3:00 PM, San Francisco Fed President John Williams (voting member) speaks at The City Club of San Francisco, Jamison Roundtable Luncheon. This speech will be closely watched for any hints of possible "thresholds" with regard to QE3 and the unemployment rate and inflation.

The Asian markets are down tonight, with the Nikkei down 0.3%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P future are down almost 2 points, and the DOW futures down 10 points.

Oil prices are mixed with WTI futures up slightly at $92.61 and Brent down at $111.74 per barrel. Both are down sharply from a week ago.

Yesterday:
• Summary for Week Ending Sept 21st
• Schedule for Week of Sept 23rd
• Goldman Estimate: QE3 could be $1.2 to $2.0 Trillion

Four more questions this week for the September economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 9/23/2012 12:53:00 PM

I've mentioned this before, but it is probably worth repeating ...The Not Seasonally Adjusted (NSA) house price indexes will show month-to-month declines later this year. This should come as no surprise and will not be a sign of impending doom.

• There is a seasonal pattern for house prices. Prices tend to be stronger in the spring and early summer, and then weaker in the fall and winter.

• Currently there is a stronger than normal seasonal pattern. This is because conventional sales are following the normal pattern (more sales in the spring and summer), but distressed sales (foreclosures and short sales) happen all year. So distressed sales have a larger negative impact on prices in the fall and winter.

• Two of the most followed house price indexes are three month averages. This means the indexes lag the month-to-month change. The Case-Shiller report for "July", to be released on Tuesday, is actually an average of May, June and July. The CoreLogic index is a three month average, but weighted to the most recent month. Prices have probably started declining month-to-month seasonally in August or September, but this will not show up in the indexes for several months. (Several real estate agents have told me the seasonal slowdown has started in their areas).

• The key is to watch the year-over-year change and to compare to the NSA lows earlier this year. I think house prices have already bottomed, and will be up slightly year-over-year when prices reach the usual seasonal bottom in early 2013.

Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic (through July) and NSA Case-Shiller Composite 20 index (through June) over the last several years. There is a clear seasonal pattern.

Right now I'm guessing the CoreLogic index will report negative month-to-month price changes for August or September, and Case-Shiller for September or October. Just something to be aware of ...

Yesterday:
• Summary for Week Ending Sept 21st
• Schedule for Week of Sept 23rd
• Goldman Estimate: QE3 could be $1.2 to $2.0 Trillion

by Calculated Risk on 9/23/2012 10:37:00 AM

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

Here is the unofficial problem bank list for Sept 21, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

As anticipated, the OCC released its actions through mid-August 2012 that led to many changes in the Unofficial Problem Bank List. This week there 13 removals and five additions leaving the list with 878 institutions with assets of $327.4 billion. A year ago, the list held 986 institutions with assets of $400.4 billion.

Removals from action termination include NCB, FSB, Hillsboro, OH ($1.6 billion); Farmers Bank & Trust, National Association, Great Bend, KS ($655 million); Coconut Grove Bank, Miami, FL ($617 million); Alaska Pacific Bank, Juneau, AK ($177 million Ticker: ALPB); The First National Bank of Milaca, Milaca, MN ($169 million); Peoples National Bank of Mora, Mora, MN ($157 million); The Farmers National Bank of Cynthiana Cynthiana, KY ($104 million); The Mason National Bank, Mason, TX ($90 million).

Removals through unassisted merger were Gateway Business Bank, Cerritos, CA ($181 million); Bank of Naples, Naples, FL ($116 million); Northwest Bank, Lake Oswego, OR ($94 million); and Sonoran Bank, N.A., Phoenix, AZ ($28 million) Border Trust Company, Augusta, ME ($45 million) voluntarily liquidated on August 14, 2012.

The additions were Community Bank, Staunton, VA ($502 million Ticker: CFFC); Slavie Federal Savings Bank, Bel Air, MD ($177 million); Amory Federal Savings and Loan Association, Amory, MS ($99 million); First Capital Bank, Bennettsville SC ($60 million Ticker: FCPB); and United Trust Bank, Palos Heights, IL ($45 million).

Next week, we anticipate for the FDIC to release its actions through August 2012.

Recently, the Treasury Department issued its monthly Congressional TARP update report, which included bank holding companies or institutions that failed to make their August 15th TARP dividend or interest payment. There are 112 institutions on the Unofficial Problem Bank List that directly or are controlled by a parent company that did not make the August 15th payment. Within this group are 43 institutions, including 9 with assets over $1 billion, that have missed 10 or more quarterly payments. See the table for additional details. Theoretically, only healthy banks were eligible for an infusion of capital through the various TARP programs. At least 15 TARP recipients have failed and given the large number of TARP recipients on the Unofficial Problem Bank List, it appears that reality does not comport with theory.

Yesterday:
• Summary for Week Ending Sept 21st
• Schedule for Week of Sept 23rd
• Goldman Estimate: QE3 could be $1.2 to $2.0 Trillion