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Tuesday, April 02, 2013

Wednesday: ADP Employment, ISM Service, Apartment Vacancy Survey

by Calculated Risk on 4/02/2013 09:18:00 PM

On Europe from the NY Times: Unemployment in Euro Zone Reaches a Record 12%

The euro zone jobless rate rose to 12.0 percent in the first two months of the year, the latest in a series of record highs tracing to late 2011, Eurostat, the statistical agency of the European Union, reported Tuesday.

The agency revised upward the January jobless rate for the euro zone from the previously reported 11.9 percent, itself a record. For the overall European Union, Eurostat said the February jobless rate rose to 10.9 percent from 10.8 percent in January, with more than 26 million people without work across the 27-nation bloc.

Both the jobless rates and the number of unemployed are the highest Eurostat has recorded in data that reach back to 1995, before the creation of the euro.
...
“Europe is pursuing a policy that is self-evidently failing.” [said Mark Cliffe, chief economist at ING Group].
In Europe, "self-evidently failing" apparently means more of the same.

Wednesday economic releases:
• 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• Early, Reis Q1 2013 Apartment survey of rents and vacancy rates will be released.

• At 8:15 AM, The ADP Employment Report for March. This report is for private payrolls only (no government). The consensus is for 205,000 payroll jobs added in March.

• At 10:00 AM, ISM non-Manufacturing Index for March. The consensus is for a reading of 56.0 unchanged from 56.0 in February. Note: Above 50 indicates expansion, below 50 contraction.

U.S. Light Vehicle Sales decreased to 15.3 million annual rate in March

by Calculated Risk on 4/02/2013 03:55:00 PM

Based on an estimate from AutoData Corp, light vehicle sales were at a 15.27 million SAAR in March. That is up 8% from March 2012, and down slightly from the sales rate last month.

This was below the consensus forecast of 15.4 million SAAR (seasonally adjusted annual rate).

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for March (red, light vehicle sales of 15.27 million SAAR from AutoData).

Vehicle Sales Click on graph for larger image.

This is a solid start to the new year.    After three consecutive years of double digit auto sales growth, the growth rate will probably slow in 2013 - but this will still be another positive year for the auto industry.

Even if sales average the Q1 rate all year, Total sales would be up about 6% from 2012.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Vehicle SalesNote: dashed line is current estimated sales rate.

This shows the huge collapse in sales in the 2007 recession, and that sales have increased significantly from the bottom.

Philly Fed: State Coincident Indexes increased in 45 States in February

by Calculated Risk on 4/02/2013 01:18:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for February 2013. In the past month, the indexes increased in 45 states, decreased in three (Alabama, Illinois, and New Mexico), and remained stable in two (Hawaii and Wyoming), for a one-month diffusion index of 84. Over the past three months, the indexes increased in 46 states, decreased in two (Illinois and Wyoming), and remained stable in two (Alaska and Alabama), for a three-month diffusion index of 88.
Note: These are coincident indexes constructed from state employment data. From the Philly Fed:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Philly Fed Number of States with Increasing ActivityClick on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In February, 47 states had increasing activity, up from 45 in January (including minor increases). This measure has been and up down over the last few years since the recovery has been sluggish.


Philly Fed State Conincident Map Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession.

The map is mostly green again and suggests that the recovery is geographically widespread.

Fannie Mae reports record profit in 2012

by Calculated Risk on 4/02/2013 11:01:00 AM

From Fannie Mae: Fannie Mae Reports Largest Net Income in Company History; $17.2 Billion for 2012 and $7.6 Billion for Fourth Quarter 2012

Fannie Mae today reported annual net income of $17.2 billion for 2012 and quarterly net income of $7.6 billion for the fourth quarter of 2012, compared with a net loss of $16.9 billion for 2011. The improvement in the company’s full-year and quarterly net income was due primarily to improved credit results driven by a decline in serious delinquency rates, an increase in home prices, higher sales prices on Fannie Mae-owned properties, and the company’s resolution agreements with Bank of America.

As a result of actions to strengthen its financial performance and continued improvement in the housing market, Fannie Mae’s financial results improved significantly in 2012 and the company expects to remain profitable for the foreseeable future. Based on analysis of all relevant factors, Fannie Mae determined that the valuation allowance on the company’s deferred tax assets was still appropriate as of December 31, 2012. The valuation allowance as of December 31, 2012 was $58.9 billion.
Fannie had a one time gain from their agreement with BofA, but this didn't includes releasing any of the valuation allowance on its deferred tax assets:
In evaluating the recoverability of Fannie Mae’s deferred tax assets, as of December 31, 2012, the company again determined that the factors in favor of maintaining the allowance outweighed the factors in favor of releasing it. Therefore, Fannie Mae did not release any of its valuation allowance as of December 31, 2012. The valuation allowance as of December 31, 2012 was $58.9 billion.

If and when Fannie Mae does release the valuation allowance on its deferred tax assets, it will be included as income in that period and will result in a corresponding increase in the company’s net worth as of the end of that period. Accordingly, Fannie Mae expects to pay Treasury a significant dividend in the quarter following a release of the valuation allowance on the company’s deferred tax assets. Although Fannie Mae has not completed its analysis, the company believes that, after considering all relevant factors, it may release the valuation allowance on its deferred tax assets as early as the first quarter of 2013.
Tom Lawler reported on this last month: "Given negative earnings and prospects for negative earnings, in 2008 Fannie felt that ... a large portion of its deferred tax asset would never be realized, and as a result it created a "valuation allowance" for its net deferred asset, which hit earnings and net worth."

Now Fannie expects to release a portion of the valuation allowance on its deferred tax assets in 2013, so expect a large reported profit, probably in Q1.

And on house prices (from the Fannie SEC filing):
Specifically, the profile of our single-family guaranty book improved due to:

• A 4.7% increase in home prices in 2012 compared with a home price decline of 3.7% in 2011. Higher home prices decrease the likelihood that loans will default and reduce the amount of credit loss on loans that do default.

• An increase in sales prices of our REO properties. We received net proceeds from our REO sales equal to 59% of the loans’ unpaid principal balance in 2012, compared with 54% in 2011. Sales prices on dispositions of our REO properties improved in 2012 as a result of increased demand compared with 2011 as well as our efforts to improve the sales execution of our REO properties. The increase in sales proceeds reduces the amount of credit loss at foreclosure and, accordingly, results in a lower provision for credit losses.

• A continued reduction in the number of delinquent loans in our single-family guaranty book of business. Our serious delinquency rate declined from 3.91% as of December 31, 2011 to 3.29% as of December 31, 2012 and our “early stage” delinquencies (loans that are 30 to 89 days past due) declined from 2.91% as of December 31, 2011 to 2.62% as of December 31, 2012. The reduction in the delinquency rates is due, in part, to our efforts since 2009 to improve our underwriting standards and the credit quality of our single-family guaranty book of business, which has resulted in a decrease in the number of loans becoming delinquent. A decline in the number of loans becoming delinquent or seriously delinquent reduces our total loss reserves and provision for credit losses.

Reis: Office Vacancy Rate declines slightly in Q1 to 17.0%

by Calculated Risk on 4/02/2013 08:47:00 AM

Reis released their Q1 2013 Office Vacancy survey this morning. Reis reported that the office vacancy rate declined slightly to 17.0% from 17.1% in Q4 2012.

From Reis VP of Research Victor Calanog:

Vacancy declined by 10 basis points during the first quarter to 17.0%. This is exactly the same pace as the 10 basis point decline recorded in the prior quarter, and roughly the same pace as any improvements in occupancy recorded throughout 2012 (when vacancies fell by a scant 30 basis points over four quarters, from 17.4% to 17.1%). If demand for office space were more robust, vacancies would be declining at a much faster pace since supply additions are virtually nil.
emphasis added
On new construction:
Occupied stock rose by only 4.020 million SF in the first quarter, roughly the same anemic pace as the prior quarter. ... Given high vacancy rates and lenders who are still skittish about committing relatively large amounts for construction and development financing, it is hard to justify breaking ground on new office projects. Only 1.578 million SF of new office space came online in the first quarter of 2013, the lowest quarterly figure for new completions since Reis began publishing quarterly data in 1999. If inventory growth for all of 2013 continued to grow at this quarter’s rate we will set a new historic low for construction activity (the previous low is 7 million SF in 1994, the nadir following the Savings and Loan crisis).
On rents:
Asking and effective rents both grew by 0.7% during the first quarter. ... Asking and effective rents have now risen for ten consecutive quarters. However, given the meager increases over the last two and a half years, rent levels are still anchored at benchmarks last observed in late 2007. National effective rents, for example, are still about 7.7% below peak levels observed in the second quarter of 2008, right before the fall of Lehman Brothers pushed the US recession into overdrive.
Office Vacancy Rate Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis reported the vacancy rate declined in Q1 to 17.0%, down slightly from 17.1% in Q4, and down from 17.3% in Q1 2012. The vacancy rate peaked in this cycle at 17.6% in Q3 and Q4 2010, and Q1 2011.

As Calanog noted, net absorption was still positive, even though demand for office space was low - because there is record low new construction. This remains a sluggish recovery for office space, and new construction will stay low until the vacancy rate falls much further.

Office vacancy data courtesy of Reis.

Monday, April 01, 2013

Tuesday: Auto Sales, Office Vacancy Rate

by Calculated Risk on 4/01/2013 09:29:00 PM

On Europe, from Joe Weisenthal: Expect The European Economic Trainwreck To Be On Full Display Tomorrow

A quick reminder: European PMI readings for the month of March come out tomorrow morning.

They're likely to be very ugly.

Flash PMI numbers for France and Germany were both bad, and there's no real sign that any data is improving anywhere. ... The endless decline of the economy is the real killer in Europe.
Obviously Europe needs more bloodletting (aka austerity) ...

Tuesday economic releases:
• Early, Reis Q1 2013 Office survey of rents and vacancy rates will be released.

• All day, Light vehicle sales for March. The consensus is for light vehicle sales to be at 15.4 million SAAR in March (Seasonally Adjusted Annual Rate) unchanged from 15.4 SAAR in February.

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for February. The consensus is for a 2.9% increase in orders.

Update: Recovery Measures

by Calculated Risk on 4/01/2013 05:44:00 PM

By request, here is an update to 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 some major indicators are still below the pre-recession peaks.

GDP Percent Previous PeakClick on graph for larger image.

This graph is for real GDP through Q4 2012.

Real GDP returned to the pre-recession peak in Q4 2011, and hit new post-recession highs for five consecutive quarters.

At the worst point - in Q2 2009 - real GDP was off 4.7% from the 2007 peak.

Personal Income less TransferThis graph shows real personal income less transfer payments as a percent of the previous peak through the February report.

This measure was off 11.2% at the trough in October 2009.

Real personal income less transfer payments returned to the pre-recession peak in December, but that was due to a one time surge in income as some high income earners accelerated earnings to avoid higher taxes in 2013.   Real personal income less transfer payments declined sharply in January, and were 3.7% below the previous peak in February.

Industrial Production The third graph is for industrial production through February 2013.

Industrial production was off over 17% at the trough in June 2009, and has been one of the stronger performing sectors during the recovery.

However industrial production is still 1.2% below the pre-recession peak.  This indicator will probably return to the pre-recession peak in 2013.

Employment The final graph is for employment and is through February 2013.  This is similar to the graph I post every month comparing percent payroll jobs lost in several recessions.

Payroll employment is still 2.2% below the pre-recession peak.

All of these indicators collapsed in 2008 and early 2009, and only real GDP is back to the pre-recession peak (personal income returned to the previous peak in December due to a one time increase in income). At the current pace of improvement, industrial production will be back to the pre-recession peak later this year, personal income less transfer payments late in 2013, and employment in late 2014.

Existing Home Inventory is up 6.5% year-to-date on April 1st

by Calculated Risk on 4/01/2013 01:42:00 PM

Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm tracking inventory weekly this year.

In normal times, there is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The NAR data is monthly and released with a lag.  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year (to normalize the data).

In 2010 (blue), inventory followed the normal seasonal pattern, however in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

So far - through April 1st - inventory is increasing faster than in 2011 and 2012. Housing Tracker reports inventory is down -21.3% compared to the same week in 2012 - still a rapid year-over-year decline.

Exsiting Home Sales Weekly dataClick on graph for larger image.

Note: the data is a little weird for early 2011 (spikes down briefly).

In 2010, inventory was up 15% by the end of March, and close to 20% by the end of April.

For 2011 and 2012, inventory only increased about 5% at the peak and then declined for the remainder of the year.

So far in 2013, inventory is up 6.5% (above the peak percentage increase for 2011 and 2012) Right now I think inventory will not bottom until 2014, but it is still possible that inventory will bottom this year.

Construction Spending increased in February

by Calculated Risk on 4/01/2013 11:34:00 AM

Catching up ...

The Census Bureau reported that overall construction spending increased in February:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during February 2013 was estimated at a seasonally adjusted annual rate of $885.1 billion, 1.2 percent above the revised January estimate of $874.8 billion. The February figure is 7.9 percent above the February 2012 estimate of $820.7 billion.
Both private construction and public construction spending increased:
Spending on private construction was at a seasonally adjusted annual rate of $613.0 billion, 1.3 percent above the revised January estimate of $605.2 billion. Residential construction was at a seasonally adjusted annual rate of $303.4 billion in February, 2.2 percent above the revised January estimate of $296.9 billion. ...

February, the estimated seasonally adjusted annual rate of public construction spending was $272.1 billion, 0.9 percent above the revised January estimate of $269.6 billion.
Private Construction Spending Click on graph for larger image.

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

Private residential spending is 55% below the peak in early 2006, and up 36% from the post-bubble low. Non-residential spending is 25% below the peak in January 2008, and up about 37% from the recent low.

Public construction spending is now 16% below the peak in March 2009 and just above the lowest level since 2006 (not inflation adjusted).

Private Construction SpendingThe second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 20%. Non-residential spending is up 6% year-over-year mostly due to energy spending (power and electric). Public spending is down 1.5% year-over-year.

A few key themes:
1) Private residential construction is usually the largest category for construction spending, but there was a huge collapse in spending following the housing bubble (as expected).  Private residential is now about even with private non-residential, and residential will probably be the largest category of construction spending in 2013.  Usually private residential construction leads the economy, so this is a good sign going forward.

2) Private non-residential construction spending usually lags the economy.  There was some increase this time, mostly related to energy and power - but the key sectors of office, retail and hotels are still at very low levels.

3) Public construction spending has declined to 2006 levels (not adjusted for inflation).  This has been a drag on the economy for 4 years.

ISM Manufacturing index declines in March to 51.3

by Calculated Risk on 4/01/2013 10:07:00 AM

The ISM manufacturing index indicated expansion in March. The PMI was at 51.3% in March, down from 54.2% in February. The employment index was at 54.2%, up from 52.6%, and the new orders index was at 51.4%, down from 57.8% in February.

From the Institute for Supply Management: March 2013 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in March for the fourth consecutive month, and the overall economy grew for the 46th consecutive month, say the nation's supply executives in the latest 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 51.3 percent, a decrease of 2.9 percentage points from February's reading of 54.2 percent, indicating expansion in manufacturing for the fourth consecutive month, but at a slower rate. Both the New Orders and Production Indexes reflected growth in March compared to February, albeit at slower rates, registering 51.4 and 52.2 percent, respectively. The Employment Index registered 54.2, an increase of 1.6 percentage points compared to February's reading of 52.6 percent. The Prices Index decreased 7 percentage points to 54.5, and the list of commodities up in price reflected far fewer items than in February. In addition, the Backlog of Orders, Exports and Imports Indexes all grew in March."
ISM PMIClick on graph for larger image.

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

This was below expectations of 54.0% and suggests manufacturing expanded at a slower pace in March.