by Calculated Risk on 9/30/2012 09:07:00 PM

For the economic question contest in September, the leaders were (Congratulations all!):

1st: Andrew Marrinson
2nd: Daniel Brawdy
3rd tie: Billy Forney, Walt Tucker

On Monday:
• At 10:00 AM ET, the ISM Manufacturing Index for September will be released. The ISM index has shown contraction for three consecutive months; the first contraction in the ISM index since the recession ended in 2009. The consensus is for an increase to 49.7, up from 49.6 in August. (below 50 is contraction).

• At 10:00 AM, the Construction Spending report for August will be released. The consensus is for a 0.6% increase in construction spending.

• At 12:30 PM, Fed Chairman Ben Bernanke will speak: "Five Questions about the Federal Reserve and Monetary Policy", At the Economic Club of Indiana, Indianapolis, Indiana

The Asian markets are mixed tonight, with the Nikkei down 0.6%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down slightly, and the DOW futures up slightly.

Oil prices are mixed with WTI futures up slightly at $92.19 and Brent down at $112.07 per barrel.

Yesterday:
• Summary for Week Ending Sept 28th
• Schedule for Week of Sept 30th

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

by Calculated Risk on 9/30/2012 12:40:00 PM

Some of Mark Zandi's analysis has been excellent, but I think he is wrong about the housing tax credit and confused about some of the timing of the housing bust.

First, from Mark Zandi, chief economist at Moody’s Analytics in the WaPo: Obama policies ended housing free fall

Temporary tax credits also enticed home buyers to act sooner rather than later, breaking a self-reinforcing deflationary cycle in the housing market. Prospective buyers had remained on the sidelines, waiting for prices to stop falling, and their reluctance caused prices to drop still more.

The tax credits didn’t spark additional home sales so much as pull sales forward from the future; sales weakened sharply as soon as the credits expired. The credits also were expensive, costing the Treasury tens of billions of dollars, and much of the benefit went to home buyers who would have bought homes anyway. But the tax benefit gave buyers a reason to stop waiting, ending the downdraft in prices.

Critics charge that the government’s intervention was costly and ineffective, that the administration should have let the housing market sort things out on its own. This would have been a reasonable position if house prices had been too high when Obama’s policies kicked in; but they weren’t. By the time Obama took office, prices had fallen substantially; with low mortgage rates factored in, homes were as affordable as ever. Investors knew this, and as soon as they saw prices nearing the bottom, they began snapping up distressed properties. These investors weren’t house flippers, like those who fueled the housing bubble, but long-term players seeing bargains. Obama’s efforts to shore up housing were well timed.

First, house prices declined about 7.5% from January 2009 to the recent low earlier this year. In real terms, house prices declined about 16% from January 2009 to the recent low!. How can Zandi say the tax credit ended "the downdraft in prices"? That is incorrect.

Most of the decline in house prices happened before January 2009, but the decline since early 2009 would still have been the largest decline in house prices nationally from the Depression through 2006. Only a few regional house price declines (like California in the early '90s) were larger than the 16% real decline over the last 3+ years!

In fact the housing tax credit was expensive and ineffective. I opposed the tax credit early and often. The tax credit for buying new homes was especially dumb. A key problem during the housing bust was the excess supply of vacant housing units, and incentivizing people to buy new homes (and add to the supply) made no sense at all.

Of course the Obama Administration doesn't deserve all the blame for the housing tax credit blunder; the tax credit was originally proposed by Senators Johnny Isakson (R) and Joe Lieberman (I). 

Zandi makes another mistake when he conflates investor buying and affordability: "with low mortgage rates factored in, homes were as affordable as ever". The buy-and-rent investors really started buying in late 2008 and early 2009 - and those investors paid cash (low mortgage rates were NOT a factor). At that time the private label securities (Wall Street) were dumping foreclosed properties in mostly low priced areas, and investors responded by buying for the cash flow opportunity. It is correct that prices bottomed earlier in many of those areas (the "destickification" of prices due to PLS dumping), but prices declined in most areas for a few more years.

By now I'd hope that everyone would realize 1) that the housing tax credit was a policy mistake, and 2) most house prices declined significantly over the last 3+ years.

Yesterday:
• Summary for Week Ending Sept 28th
• Schedule for Week of Sept 30th

by Calculated Risk on 9/30/2012 09:18:00 AM

Another update: Gasoline prices declined recently, and are down about 8 cents nationally over the last 2 weeks. Brent crude spot prices increased to $117.48 per barrel two weeks ago, and then declined sharply to $108.49. However Brent has increased over the last few days to $113 per barrel.

We are still paying over $4 per gallon in California (I filled up on Friday and paid $4.15 per gallon.
.
Using the calculator from Professor Hamilton, and the current price of Brent crude oil, the national average should be around $3.67 per gallon. That is about 10 cents below the current level according to Gasbuddy.com (see graph below).

The following graph shows the recent decrease in gasoline prices. Gasoline prices have been on a roller coaster all year.

Note: If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

Yesterday:
• Summary for Week Ending Sept 28th
• Schedule for Week of Sept 30th

by Calculated Risk on 9/29/2012 06:47:00 PM

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

Here is the unofficial problem bank list for Sept 28, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

FDIC released its enforcement action activity through August 2012 and closed a bank this week leading to many changes in the Unofficial Problem Bank List. In total, there were 12 removals and eight additions that leave the list with 874 institutions with assets of $334.9 billion. While the number of banks on the list declined, it was the first weekly increase in assets since June 29th. A year ago, the list held 986 institutions with assets of $405 billion. For the month, assets increased by $3.4 billion while the institutions count fell by 17 institutions after 18 action terminations, nine unassisted mergers, three failures, and a voluntary liquidation.

Actions were terminated against Ames Community Bank, Ames, IA ($406 million); Farmers & Merchants Bank & Trust, Burlington, IA ($195 million); Bank of Lincoln County, Fayetteville, TN ($130 million); Lake Community Bank, Long Lake, MN ($128 million); EuroBank, Coral Gables, FL ($104 million); Twin City Bank, Longview, WA ($41 million); Beartooth Bank, Billings, MT ($38 million); America's Community Bank, Blue Springs, MO ($28 million).

First United Bank, Crete, IL ($328 million)was removed because of failure. Desert Commercial Bank, Palm Desert, CA ($139 million Ticker: DCBC); The Exchange National Bank of Cottonwood Falls, Cottonwood Falls, KS ($34 million); and Colorado Valley Bank, SSB, La Grange, TX ($28 million) were acquired through unassisted mergers.

The eight additions were Doral Bank, San Juan, PR ($7.6 billion Ticker: DRL); Northwestern Bank, Traverse City, MI ($869 million Ticker: NWBM); Alliance Bank Central Texas, Waco, TX ($208 million); Flathead Bank of Bigfork, Montana, Bigfork, MT ($207 million); Bay Bank, Green Bay, WI ($99 million); Colonial Co-operative Bank, Gardner, MA ($72 million); Elysian Bank, Elysian, MN ($45 million); and Community Bank and Trust - West Georgia, LaGrange, GA ($95 million), which joins its sister bank Community Bank and Trust – Alabama on the list.

With the end of the third quarter, it is time to refresh the transition matrix. As seen in the table below, there have been a total of 1,588 institutions with assets of $810.9 billion that have appeared on the list. Removals have totaled 714 institutions or 45 percent of the total. Failures continue to be the leading removal cause as 340 institutions with assets of $288.2 billion have failed since appearing on the list. Removals from unassisted mergers and voluntary liquidations total 122 institutions. This year, there has been an acceleration in action terminations. In all, actions have been terminated against 252 institutions with assets of $112.9 billion, with 53 termination occurring in this quarter.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	87	(25,157,616)
	Unassisted Merger	25	(3,781,599)
	Voluntary Liquidation	2	(4,855,164)
	Failures	148	(182,228,947)
	Asset Change		(16,422,867)
Still on List at 9/30/2012		127	43,867,236
Additions		747	291,097,603
End (9/30/2012)		874	334,964,839
Intraperiod Deletions1
	Action Terminated	165	87,707,680
	Unassisted Merger	88	48,052,527
	Voluntary Liquidation	7	1,760,816
	Failures	192	105,953,675
	Total	452	243,474,698
1Institutions not on 8/7/2009 or 9/30/2012 list but appeared on a list between these dates.

Earlier:
• Summary for Week Ending Sept 28th
• Schedule for Week of Sept 30th

by Calculated Risk on 9/29/2012 01:10:00 PM

Earlier:
• Summary for Week Ending Sept 28th

The key report for this week will be the September employment report to be released on Friday, Oct 5th. Other key reports include the ISM manufacturing index on Monday, vehicle sales also on Tuesday, and the ISM non-manufacturing (service) index on Wednesday.

On Monday, Fed Chairman Ben Bernanke will speak on monetary policy, and on Thursday, October 4th, there is a Governing Council meeting of the European Central Bank with a press conference to follow.

Reis will release their Q3 Office, Mall and Apartment vacancy rate reports this week. Last quarter Reis reported falling vacancy rates for apartments, a slight decline in vacancy rates for malls, and that the office vacancy rate was unchanged.

----- Monday, Oct 1st ----- 10:00 AM ET: ISM Manufacturing Index for September.

Here is a long term graph of the ISM manufacturing index. The ISM index has shown contraction for three consecutive months; the first contraction in the ISM index since the recession ended in 2009. The consensus is for an increase to 49.7, up from 49.6 in August. (below 50 is contraction).

10:00 AM: Construction Spending for August. The consensus is for a 0.6% increase in construction spending.

12:30 PM: Speech, Fed Chairman Ben Bernanke, "Five Questions about the Federal Reserve and Monetary Policy", At the Economic Club of Indiana, Indianapolis, Indiana

----- Tuesday, Oct 2nd ----- Early: Reis Q3 2012 Office vacancy rates.

All day: Light vehicle sales for September. The consensus is for light vehicle sales to be unchanged at 14.5 million SAAR in September (Seasonally Adjusted Annual Rate).

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

TrueCar is forecasting:

The September 2012 forecast translates into a Seasonally Adjusted Annualized Rate (“SAAR”) of 14.6 million new car sales, up from 13.1 million in September 2011 and up from 14.5 million in August 2012

Edmunds.com is forecasting:

Edmunds.com ... forecasts that 1,145,344 new cars and trucks will be sold in the U.S. in September for an estimated Seasonally Adjusted Annual Rate (SAAR) this month of 14.4 million light vehicles.

----- Wednesday, Oct 3rd ----- Early: Reis Q3 2012 Apartment vacancy rates.

7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for September. This report is for private payrolls only (no government). The consensus is for 140,000 payroll jobs added in August, down from the 201,000 reported last month.

10:00 AM: ISM non-Manufacturing Index for September. The consensus is for a decrease to 53.5 from 53.7 in August. Note: Above 50 indicates expansion, below 50 contraction.

9:00 PM: First Presidential Debate: President Obama and former Governor Romney.

----- Thursday, Oct 4th ----- Early: Reis Q3 2012 Mall vacancy rates.

7:45 AM: Governing Council meeting of the European Central Bank with a press conference to follow. Here is the ECB website and press conference page.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 370 thousand from 359 thousand.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for August. The consensus is for a 6.0% decrease in orders.

10:00 AM: Trulia Price Rent Monitors for September. This is the new index from Trulia that uses asking prices adjusted both for the mix of homes listed for sale and for seasonal factors.

2:00 PM: FOMC Minutes for Meeting of September 12-13, 2012.  The minutes might provide additional information about the recent Fed decision.

----- Friday, Oct 5th ----- 8:30 AM: Employment Report for September. The consensus is for an increase of 113,000 non-farm payroll jobs in September; there were 96,000 jobs added in August.

The consensus is for the unemployment rate to be unchanged at 8.1% in August.

Note: Analysts at Nomura point out a special issue: "We expect the Chicago teacher strike to reduce local government payrolls by roughly 25k in September ..." 

This second employment graph shows the percentage of payroll jobs lost during post WWII recessions through June.

The economy has added 5.1 million private sector jobs since employment bottomed in February 2010 including benchmark revision (4.4 million total jobs added including all the public sector layoffs).

There are still 3.8 million fewer private sector jobs now than when the recession started in 2007 (including benchmark revision). There are 4.3 million fewer total nonfarm jobs (including benchmark).

3:00 PM: Consumer Credit for August from the Federal Reserve. The consensus is for credit to increase $7.8 billion in August.

by Calculated Risk on 9/29/2012 08:11:00 AM

The economic data was mostly weak last week. Q2 GDP growth was revised down to 1.3% annualized (from an already anemic 1.7%), durable goods orders declined sharply (although mostly due to the volatile transportation sector), personal income barely increased in August, and the September Chicago PMI declined to the lowest level in 3 years.

There were a few positives: Even though new home sales were slightly below expectations, sales are still up solidly from last year. House prices, according to Case-Shiller, are now up 1.2% year-over-year. Mortgage delinquencies continued to decline. And initial weekly unemployment claims declined in the previous week.

This suggests the economy is still growing sluggishly.

Here is a summary of last week in graphs:

• New Home Sales at 373,000 SAAR in August

Click on graph for larger image in graph gallery.

The Census Bureau reports New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 373 thousand. This was down slightly from a revised 374 thousand SAAR in July (revised up from 372 thousand). Sales in June were revised up.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. This was below expectations of 380,000, but this was another fairly solid report and indicates an ongoing sluggish recovery in residential investment.

"The seasonally adjusted estimate of new houses for sale at the end of August was 141,000. This represents a supply of 4.5 months at the current sales rate."

This graph shows the three categories of inventory starting in 1973: Completed, under construction and not started.

The inventory of completed homes for sale was at a record low 38,000 units in August. The combined total of completed and under construction is at the lowest level since this series started.

New Home Sales graphs
• Case-Shiller: House Prices increased 1.2% year-over-year in July

S&P/Case-Shiller released the monthly Home Price Indices for July (a 3 month average of May, June and July).

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 31.7% from the peak, and up 0.4% in July (SA). The Composite 10 is up 3.7% from the post bubble low set in March (SA).

The Composite 20 index is off 31.2% from the peak, and up 0.4% (SA) in July. The Composite 20 is up 4.0% from the post-bubble low set in March (SA).

The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 0.6% compared to July 2011.

The Composite 20 SA is up 1.2% compared to July 2011. This was the second year-over-year gain since 2010 (when the tax credit boosted prices temporarily).

This was at the consensus forecast and the recent change to a year-over-year increase is significant.

• Real House Prices, Price-to-Rent Ratio

Real prices, and the price-to-rent ratio, are back to late 1999 to 2000 levels depending on the index.

This graph shows the Case-Shiller National index, Case-Shiller composite 20 and Corelogic indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to mid-1999 levels, the Composite 20 index is back to July 2000, and the CoreLogic index back to February 2001.

In real terms, most of the appreciation early in the last decade is gone.

Here is a graph of the price-to-rent ratio using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to Q3 1999 levels, the Composite 20 index is back to June 2000 levels, and the CoreLogic index is back to February 2001.

In real terms - and as a price-to-rent ratio - prices are mostly back to late 1990s or early 2000 levels.

All Current House Price Graphs
• Personal Income increased 0.1% in August, Spending increased 0.5%

The BEA released the Personal Income and Outlays report for August: "Personal income increased $15.0 billion, or 0.1 percent ... in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $57.2 billion, or 0.5 percent."

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE.

Using the two-month method, it appears real PCE will increase around 1.3% annualized in Q3 - another weak quarter for GDP growth (June PCE was weak, so maybe PCE will increase 1.6%).

A key point is the PCE price index has only increased 1.5% over the last year, and core PCE is up only 1.6%. In August, core PCE increase at a 1.3% annualized rate.

• Regional Manufacturing Surveys mixed

From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Slowed Somewhat

From the Dallas Fed: Texas Manufacturing Growth Picks Up

From the Richmond Fed: Manufacturing Activity Ticked Up in September; New Orders Turned Positive

The New York and Philly Fed surveys are averaged together (dashed green, through September), and five Fed surveys are averaged (blue, through September) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through August (right axis).

The ISM index for September will be released Monday, Oct 1st, and these surveys suggest another weak reading close to 50.

• Weekly Initial Unemployment Claims decline to 359,000


And here is a long term graph of weekly claims:

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 374,000.

This was below the consensus forecast of 376,000.

Mostly moving sideways this year, but moving up recently.

All current Employment Graphs
• Consumer Sentiment in September at 78.3

The final Reuters / University of Michigan consumer sentiment index for September was 78.3, down from the preliminary reading of 79.2, and up from the August reading of 74.3.

This was below the consensus forecast of 79.0 and still fairly low. Sentiment remains weak due to the high unemployment rate, sluggish economy and higher gasoline prices.

• Other Economic Stories ...
• Chicago Fed: Economic Activity Weakened in August
• LPS: Mortgage delinquencies decreased in August
• Restaurant Performance Index increases in August
• DOT: Vehicle Miles Driven decreased 0.3% in July
• NAR: Pending home sales index declined 2.6% in August

by Calculated Risk on 9/28/2012 07:13:00 PM

Autumnal changes
Green leaves shift from gold to red
As have balance sheets
by Soylent Green is People
From the FDIC: Old Plank Trail Community Bank, National Association, New Lenox, Illinois, Assumes All of the Deposits of First United Bank, Crete, Illinois

As of June 30, 2012, First United Bank had approximately $328.4 million in total assets and $316.9 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $48.6 million. ... First United Bank is the 43rd FDIC-insured institution to fail in the nation this year, and the seventh in Illinois.

The FDIC has really slowed down!

by Calculated Risk on 9/28/2012 05:01:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in August to 3.44% from 3.50% July. The serious delinquency rate is down from 4.03% in August last year, and this is the lowest level since April 2009.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate declined in August to 3.36%, from 3.42% in July. Freddie's rate is down from 3.49% in August 2011. Freddie's serious delinquency rate peaked in February 2010 at 4.20%. This is the lowest level for Freddie since August 2009.

These are loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

In 2009, Fannie's serious delinquency rate increased faster than Freddie's rate. Since then, Fannie's rate has been falling faster - and now the rates are at about the same level.

Although this indicates some progress, the "normal" serious delinquency rate is under 1% - and it looks like it will be several years until the rates back to normal.

by Calculated Risk on 9/28/2012 12:55:00 PM

From the National Restaurant Association: Stronger Sales, Traffic Bolster Restaurant Performance Index in August

The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.6 in August, up 0.4 percent from July and the first increase in five months. August represented the tenth consecutive month that the RPI stood above 100, which signifies continued expansion in the index of key industry indicators.

“Growth in the RPI was driven largely by improving same-store sales and customer traffic results in August,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Six out of 10 restaurant operators reported positive same-store sales in August, while customer traffic readings bounced back from July’s net decline.”

“In contrast, the Expectations Index remained dampened compared to recent stronger levels, with restaurant operators retaining a cautious outlook for sales growth and the economy in the months ahead,” Riehle added.

Click on graph for larger image.

The index increased to 100.6 in August, up from 100.2 in July (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month.

by Calculated Risk on 9/28/2012 09:58:00 AM

Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for September was 78.3, down from the preliminary reading of 79.2, and up from the August reading of 74.3.

This was below the consensus forecast of 79.0 and still fairly low. Sentiment remains weak due to the high unemployment rate, sluggish economy and higher gasoline prices.

From the Chicago ISM:

The Chicago Purchasing Managers reported the Chicago Business Barometer fell to 49.7, its lowest level in three years.

• EMPLOYMENT: 2 1/2 year low; [declined to 52.0 from 57.1 in August]
• NEW ORDERS, ORDER BACKLOGS, and SUPPLIER DELIVERIES: 3 month moving averages lowest since mid 2009; [new orders declined to 47.4 from 54.8]
• PRICES PAID: third consecutive monthly gain

The Chicago PMI was well below the consensus forecast of 53.1.