by Calculated Risk on 2/28/2013 07:53:00 PM

There are several key economic releases on Friday. First, the Personal Income and Outlays report for January will be released. This will give some idea of how consumer spending is holding up following the payroll tax increase at the beginning of the year. Note that Personal Income will be off sharply in January since some people took income in December to avoid higher taxes in 2013. Don't be shocked by a large one month decline in income!

Another key release is light vehicles sales for February. The automakers will release results all day, and I'll post an estimate of the seasonally adjusted annual sales rate around 4 PM ET. Strong auto sales in February, combined with the ongoing housing recovery, would be a positive sign for the economy going forward.

As always, the ISM manufacturing index could move the markets. The regional surveys have been mixed, although the Markit Flash PMI was fairly strong, and the Chicago PMI increased in February.

Friday economic releases:
• At 8:30 AM ET, Personal Income and Outlays for January. The consensus is for a 2.1% decrease in personal income in January, and for 0.2% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (final for February). The consensus is for a reading of 76.0.

• At 10:00 AM, ISM Manufacturing Index for February. The consensus is for PMI to decline to 52.8%. (above 50 is expansion).

• Also at 10:00 AM, Construction Spending for January. The consensus is for a 0.6% increase in construction spending.

• All day: Light vehicle sales for February. The consensus is for light vehicle sales to be at 15.2 million SAAR in February (Seasonally Adjusted Annual Rate) down from 15.3 SAAR in January.

by Calculated Risk on 2/28/2013 05:51:00 PM

From Freddie Mac: Freddie Mac Fourth Quarter 2012 Financial Results

Net income for the fourth quarter of 2012 was $4.5 billion, compared to $2.9 billion for the third quarter of 2012. The increase primarily reflects a shift from a provision for credit losses in the third quarter to a benefit for credit losses in the fourth quarter due to a decrease in the volume of newly delinquent single-family loans and continued improvement in national home prices, as well as a higher income tax benefit primarily driven by the favorable resolution of tax matters with the Internal Revenue Service (IRS). These favorable impacts were partially offset by higher net security impairments.
...
Freddie Mac does not require a draw from Treasury for the fourth quarter of 2012 because the company had positive net worth at December 31, 2012. The company’s $8.8 billion net worth at December 31, 2012 reflects $4.9 billion in net worth at September 30, 2012 and fourth quarter comprehensive income of $5.7 billion, partially offset by the $1.8 billion quarterly dividend payment to Treasury on the company’s senior preferred stock.

On Real Estate Owned (REO), Freddie acquired 82,818 properties in 2012, and disposed of 94,296, and the total REO fell to 49,077 at the end of the year.

From Freddie:

In 2012, REO dispositions continued to exceed the volume of REO acquisitions. We believe our single-family REO acquisition volume in 2012 and 2011 was less than it otherwise would have been due in part to the length of the single-family foreclosure timeline, particularly in states where judicial foreclosures (those conducted under the supervision of the court) are required.

During 2012, our REO property inventory declined most in the West region primarily due to increased disposition activity and strengthening home prices in California.

The North Central region comprised 42 percent of our REO property inventory at December 31, 2012. We continue to have a significant number of properties in our REO inventory that we are unable to list because they are occupied or in states with a redemption period, particularly in Michigan, Minnesota and Illinois. States with redemption periods require a period of time after foreclosure during which the borrower may reclaim the property.

Click on graph for larger image.

This graph shows REO inventory for Freddie.

For FDIC insured institutions, the FDIC reports the dollar value of REOs, and the dollar value declined again in Q4. After Fannie announces results I'll post a graph of REO for the F's (Fannie, Freddie, and the FHA).

by Calculated Risk on 2/28/2013 03:15:00 PM

From the National Restaurant Association: Restaurant Performance Index Hit Five-Month High in January as Operators’ Optimism Grew

Driven by a more optimistic outlook among restaurant operators, the National Restaurant Association's Restaurant Performance Index (RPI) rose to its highest level in five months. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.6 in January, up 1.0 percent from December and its highest level since August 2012. In addition, January represented the first time in four months that the RPI rose above 100, which signifies expansion in the index of key industry indicators.

“Although the current situation indicators were mixed in January, restaurant operators were decidedly more optimistic about sales growth and the economy in the months ahead,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Operators’ outlook for same-store sales, capital spending and the overall economy all improved, which propelled the Expectations Index to its highest level in eight months.”
...
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 99.7 in January – up 0.6 percent from December’s level. Although restaurant operators reported net positive same-store sales results in January, softness in the customer traffic and labor indicators outweighed the performance, which resulted in a Current Situation Index reading below 100 for the fifth consecutive month.

Click on graph for larger image.

The index increased to 100.6 in January, up from 99.7 in December (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 2/28/2013 01:30:00 PM

This is the last of the regional manufacturing surveys for February, and the results have been mixed. From the Kansas City Fed: Tenth District Manufacturing Survey Contracted Further

The Federal Reserve Bank of Kansas City released the February Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity contracted further in February, and factories’ expectations weakened somewhat.

“Factory activity fell more sharply in February than in previous months. Some contacts cited disruptions due to bad weather, and many firms noted that possible federal spending cuts were hurting business,” said Wilkerson. However, capital spending plans for later in the year improved considerably.”

The month-over-month composite index was -10 in February, down from -2 in January and -1 in December ...

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

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

The average of the five regional surveys was slightly negative again, but improved from January.

The ISM index for February will be released tomorrow, Friday, March 1st, and these surveys suggest another weak reading. However the Chicago PMI (released this morning) indicated stronger expansion, and the Markit Flash PMI for February was solid too. So the ISM PMI will probably show sluggish expansion.

by Calculated Risk on 2/28/2013 11:00:00 AM

From the NY Fed: Total Consumer Debt Up Slightly as Deleveraging Process Decelerates

In its latest Household Debt and Credit Report, the Federal Reserve Bank of New York announced that in the fourth quarter of 2012 outstanding consumer debt increased slightly ($31 billion), breaking the downward trend observed since the fourth quarter of 2008. The increase was primarily due to a rise in non-housing debt and the stabilization of mortgage debt.

Total consumer indebtedness was $11.34 trillion, 0.3% higher than the previous quarter but considerably lower than its peak of $12.68 trillion in the third quarter of 2008. While outstanding mortgage debt remained roughly flat, originations of new mortgages rose to $553 billion, a fifth consecutive quarterly increase.

Non-housing debt balances increased for the third straight quarter and now stand at $2.75 trillion, up 1.4% in the fourth quarter. All non-housing components increased; auto loans up $15 billion, student loans up $10 billion and credit cards up $5 billion.

“The data provides early evidence that consumers may be reaching the end of the four year deleveraging cycle, though we’ll need to see if this is sustained in upcoming quarters,” said Andrew Haughwout, vice president and economist at the New York Fed. “At the same time, we observed mixed developments, mortgage originations increased and fewer accounts entered the foreclosure pipeline but delinquency rates remain considerably higher than pre-crisis levels.”
emphasis added

Here is the Q4 report: Quarterly Report on Household Debt and Credit

Mortgages, the largest component of household debt, were roughly flat. Mortgage balances shown on consumer credit reports stand at $8.03 trillion, roughly unchanged from the level in 2012Q3. Home equity lines of credit (HELOC) were the only product to see a substantive decline in the fourth quarter; balances dropped by $10 billion (1.7%) and now stand at $563 billion. Non-housing household debt balances increased for the third consecutive quarter and now stand at 2.75 trillion, up by 1.3% in the fourth quarter. All non-housing components increased, with auto loans up by $15 billion; student loans up by $10 billion, and credit card balances up by $5 billion.
...
About 336,000 consumers had a bankruptcy notation added to their credit reports in 2012Q4, a 21% drop from the same quarter last year, and the eighth consecutive drop in bankruptcies on a year-over-year basis.

Here are two graphs:

Click on graph for larger image.

The first graph shows aggregate consumer debt increased slightly in Q4.

Student debt is still increasing. From the NY Fed:

Outstanding student loan balances increased by $10 billion during the fourth quarter, to a total of $966 billion as of December 31, 2012.

The second graph shows the percent of debt in delinquency. In general, the percent of delinquent debt is declining, but what really stands out is the percent of debt 90+ days delinquent (Yellow, orange and red).

From the NY Fed:

Overall, delinquency rates continued to improve in 2012Q4. As of December 31, 8.6% of outstanding debt was in some stage of delinquency, compared with 8.9% in 2012Q3. About $978 billion of debt is delinquent, with $712 billion seriously delinquent (at least 90 days late or “severely derogatory”).

There are a number of credit graphs at the NY Fed site.

by Calculated Risk on 2/28/2013 09:56:00 AM

Note: From the Chicago ISM for February: "The Chicago Purchasing Managers reported the Chicago Business Barometer rose for a second month, up 1.2 points to 56.8, its highest level since last March." PMI: Increased to 56.8 from 55.6. (Above 50 is expansion). Employment: at 55.7, down from 58.0. New orders increased to 60.2 from 58.2. This was above expectations of a reading of 55.0.

LPS released their First Look report for January today. LPS reported that the percent of loans delinquent decreased in January compared to December, and declined about 8% year-over-year. Also the percent of loans in the foreclosure process declined further in January and were down significantly over the last year.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 7.03% from 7.17% in December. Note: the normal rate for delinquencies is around 4.5% to 5%.

 The percent of loans in the foreclosure process declined to 3.41% in January from 3.44% in December. 

The number of delinquent properties, but not in foreclosure, is down about 11% year-over-year (413,000 fewer properties delinquent), and the number of properties in the foreclosure process is down 21% or 461,000 properties year-over-year.

The percent (and number) of loans 90+ days delinquent and in the foreclosure process is still very high, but the number of loans in the foreclosure process is now steadily declining.

LPS will release the complete mortgage monitor for January in early March.

LPS: Percent Loans Delinquent and in Foreclosure Process
	Jan 2013	Dec 2012	Jan 2012
Delinquent	7.03%	7.17%	7.67%
In Foreclosure	3.41%	3.44%	4.23%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,974,000	2,031,000	2,159,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,531,000	1,545,000	1,759,000
Number of properties in foreclosure pre-sale inventory:	1,703,000	1,716,000	2,164,000
Total Properties	5,208,000	5,292,000	6,082,000

by Calculated Risk on 2/28/2013 08:30:00 AM

Note: Q4 GDP growth was revised up from slightly negative to slightly positive. From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.1 percent in the fourth quarter of 2012 ... In the advance estimate, real GDP declined 0.1 percent.

I'll have more on GDP later.

The DOL reports:

In the week ending February 23, the advance figure for seasonally adjusted initial claims was 344,000, a decrease of 22,000 from the previous week's revised figure of 366,000. The 4-week moving average was 355,000, a decrease of 6,750 from the previous week's revised average of 361,750.

The previous week was revised up from 362,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 355,000 - just above the lowest 4-week average since the recession.

Weekly claims were below the 360,000 consensus forecast.

by Calculated Risk on 2/27/2013 09:17:00 PM

From the WaPo: Obama to meet congressional leaders on ways to avoid sequester impact

President Obama will meet with congressional leaders Friday at the White House to discuss a way to avoid the fallout of deep spending cuts ...

Among the sequester’s possible impacts, the head of the Federal Aviation Administration warned Wednesday, are major flight delays and the closure of hundreds of air traffic control towers at smaller airports across the country.

“Flights to major cities like New York, Chicago and San Francisco could experience delays, in some instances up to 90 minutes during peak hours, because we’ll have fewer controllers on staff,” FAA administrator Michael P. Huerta said in a speech to an American Bar Association forum in Washington. ... Should the cuts occur as scheduled, travelers would begin to notice the impact in mid-April, according to the [National Air Traffic Controllers Association].

This will not have a huge negative impact (defaulting on the debt would have been serious), but this is still unnecessary.

Thursday economic releases:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 360 thousand from 362 thousand last week.

• Also at 8:30 AM, Q4 GDP (second estimate). This is the second estimate of GDP from the BEA. The consensus is that real GDP increased 0.5% annualized in Q4, revised up from a negative 0.1% in the advance report.

• At 9:45 AM, the Chicago Purchasing Managers Index for February. The consensus is for a decrease to 55.0, down from 55.6 in January.

• At 11:00 AM, the Kansas City Fed regional Manufacturing Survey for February will be released. This is the last of the regional surveys for February, and most of the surveys have indicated expansion.

• Also at 11:00 AM, The Federal Reserve Bank of New York will release the Q4 2012 Quarterly Report on Household Debt and Credit

by Calculated Risk on 2/27/2013 03:39:00 PM

From economist Tom Lawler:

Yesterday the FDIC released its “Quarterly Banking Profile” for Q4/2012. Some of the “headline highlights” from the report, which reflects the activity at and performance of FDIC-insured financial institutions, were:

“Net Income Is More Than a Third Higher Than in Fourth Quarter 2011” despite the fact that “Banks See (Net Interest) Margins Erode,” as net income was “(bolstered by higher noninterest income and lower provisions for loan losses.” The jump in noninterest income was driven “primarily by higher gains on loan sales (up $2.4 billion, or 132.4 percent, over fourth quarter 2011), increased trading revenue (up $1.9 billion, or 75.3 percent), and reduced losses on sales of foreclosed property (down $1.2 billion, or 72 percent).” The higher gains on loans sales were driven by gains on sales of mortgages – partly reflecting higher origination volumes, but mainly reflecting extraordinarily large mortgage origination margins, which in turn partly reflected the unintended consequences of current government policy.

According to the report, the percent of loans and leases that were “noncurrent” last quarter fell to 3.60% -- the lowest rate since the end of 2008 – from 3.68% in the previous quarter and 4.19% in the fourth quarter of 2011. The % of loans secured by one-to-four family residential properties that were noncurrent last quarter was actually up from the fourth quarter of 2011, partly reflecting higher default rates on junior mortgage loans.

% of Loans & Leases Noncurrent, FDIC-Insured Financial Institutions
	2012:Q4	2012:Q3	2012:Q2	2012:Q1	2011:Q4
Total Loans & Leases	3.60%	3.86%	3.90%	4.11%	4.19%
Loans Secured by 1-4 Family Res. Mortgages	7.82%	8.07%	7.80%	7.84%	7.70%
Closed-End First Lien 1-4 Family Residential Mortgages	9.49%	9.88%	9.75%	9.87%	10.00%
Closed-End 2nd Lien 1-4 Family Residential Mortgages	5.09%	5.47%	3.86%	3.76%	3.50%
Home Equity Lines of Credit	2.88%	2.88%	2.62%	2.65%	1.83%
Other Loans & Leases	1.62%	1.84%	2.01%	2.28%	2.44%

Click on graph for larger image.

On the REO front, the report showed that the carrying value of one-to-four family REO properties at FDIC institutions declined to $8.3375 billion at the end of December, down from $8.7663 billion at then end of September and $11.6376 billion at the end of 2011.

by Calculated Risk on 2/27/2013 11:46:00 AM

At this point the biggest downside risk to the US economy is from cutting the deficit too quickly. The deficit is already declining and will continue to decline for the next few years. Additional short term deficit reduction will probably be counter productive (the focus should be on long term deficit reduction, especially health care costs). The "sequester" is bad policy - but it will probably happen anyway. Dumb.

From Brad Plumer at the WaPo Wonkblog: Bernanke: The sequester could make it harder to reduce the deficit, not easier

Federal Reserve Chairman Ben Bernanke had something to say about sequestration during his testimony before the House Banking Committee on Tuesday. He thinks the looming spending cuts could actually make it harder, not easier, to reduce the deficit. Why? They’ll hurt growth:

The CBO estimates that deficit-reduction policies in current law will slow the pace of real GDP growth by about 1-1/2 percentage points this year, relative to what it would have been otherwise.

A significant portion of this effect is related to the automatic spending sequestration that is scheduled to begin on March 1, which, according to the CBO’s estimates, will contribute about 0.6 percentage point to the fiscal drag on economic growth this year. Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant.

Moreover, besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions.

The logic here is simple enough. The sequestration cuts will drag down economic growth this year, which will mean that fewer Americans will have jobs and less tax revenue will pour in. Nothing cures deficits like stronger economic growth. And right now, Congress’s policies are standing in the way of stronger growth.