by Calculated Risk on 2/28/2015 01:12:00 PM

The key report this week is the February employment report on Friday.

Other key indicators include the January Personal Income and Outlays report on Monday, February ISM manufacturing index also on Monday, February vehicle sales on Tuesday, the ISM non-manufacturing index on Wednesday, and the January Trade Deficit on Friday.

----- Monday, March 2nd -----
8:30 AM ET: Personal Income and Outlays for January. The consensus is for a 0.4% increase in personal income, and for a 0.1% decrease in personal spending. And for the Core PCE price index to increase 0.1%.

10:00 AM: ISM Manufacturing Index for February. The consensus is for a decrease to 53.0 from 53.5 in January.

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

The ISM manufacturing index indicated expansion in January at 53.5%. The employment index was at 54.1%, and the new orders index was at 52.9%

10:00 AM: Construction Spending for January. The consensus is for a 0.3% increase in construction spending.

----- Tuesday, March 3rd -----
All day: Light vehicle sales for February. The consensus is for light vehicle sales to increase to 16.7 million SAAR in February from 16.6 million in January (Seasonally Adjusted Annual Rate).

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

8:15 PM: Speech, Fed Chair Janet L. Yellen, Bank Regulation and Supervision, At the Citizens Budget Commission's Annual Awards Dinner, New York, New York

----- Wednesday, March 4th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for February. This report is for private payrolls only (no government). The consensus is for 220,000 payroll jobs added in February, up from 213,000 in January.

10:00 AM: ISM non-Manufacturing Index for February. The consensus is for a reading of 56.5, down from 56.7 in January. Note: Above 50 indicates expansion.

2:00 PM: Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

----- Thursday, March 5th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 300 thousand from 313 thousand.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for January. The consensus is for no change in January orders.

4:30 PM: Dodd-Frank Act Stress Test Results

----- Friday, March 6th -----
8:30 AM: Employment Report for February. The consensus is for an increase of 230,000 non-farm payroll jobs added in February, down from the 257,000 non-farm payroll jobs added in January.

The consensus is for the unemployment rate to decline to 5.6% in February from 5.7% in January.

This graph shows the year-over-year change in total non-farm employment since 1968.

In January, the year-over-year change was 3.21 million jobs. This was the highest year-over-year gain since the '90s.

As always, a key will be the change in real wages - and as the unemployment rate falls, wage growth should start to pickup.

8:30 AM: Trade Balance report for January from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through December. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is for the U.S. trade deficit to be at $41.8 billion in January from $46.6 billion in December.

3:00 PM: Consumer Credit for January from the Federal Reserve.  The consensus is for credit to increase $15.0 billion.

by Calculated Risk on 2/28/2015 08:11:00 AM

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

Here is the unofficial problem bank list for February, 2015.

Changes and comments from surferdude808:

Very busy week for the Unofficial Problem Bank List as the FDIC closed a bank and provided an update on its enforcement actions through January 2015. There were 21 removals this week pushing the list count down to 357 institutions with assets of $109.2 billion. A year ago, the list held 566 institutions with assets of $182 billion. During January 2015, the unofficial list declined by 31 institutions after 25 action terminations, four mergers, and two failures. In addition, assets fell by $13.3 billion during the month, which is the largest monthly decline since $18.1 billion in January 2014.

As widely expected, the FDIC closed Doral Bank, San Juan, PR ($5.9 billion Ticker: DRL) today. Doral Bank was the third largest bank on the Unofficial Problem Bank List. Since the on-set of the Great Recession, Doral Bank is the 14th largest bank failure and the 2nd largest failure in Puerto Rico behind the $10.8 billion Westernbank Puerto Rico that failed in 2010.

Finding their way off the list through unassisted mergers were Valley Community Bank, Pleasanton, CA ($130 million Ticker: VCBC); The Bank of Perry, Perry, GA ($116 million); The Peoples Bank, Covington, GA ($96 million); and Winfield Community Bank, Winfield, IL ($55 million).

Actions were terminated against Hancock Bank & Trust Company, Hawesville, KY ($275 million); Frontenac Bank, Earth City, MO ($271 million); CornerstoneBank , Atlanta, GA ($248 million); Florida Citizens Bank, Gainesville, FL ($231 million); The Bank of Versailles, Versailles, MO, ($226 million); Balboa Thrift and Loan Association, Chula Vista, CA ($206 million); The First National Bank of Mount Dora, Mount Dora, FL ($205 million); Colombo Bank, Rockville, MD ($201 million); Uniti Bank, Buena Park, CA ($190 million); Wisconsin River Bank, Sauk City, WI ($97 million); One American Bank, Centerville, SD ($81 million); State Bank of Delano, Delano, MN ($79 million); Currie State Bank, Currie, MN ($67 million); Systematic Savings Bank, Springfield, MO ($36 million); Kentucky Federal Savings and Loan Association, Covington, KY ($36 million); and First National Bank in Pawhuska, Pawhuska, OK ($29 million).

The FDIC provided an update on the Official Problem Bank List figures this week. They currently list 291 institutions with assets of $87 billion. Since the FDIC's last release, the number of institutions on the Official Problem Bank List fell by 38 or 11.6 percent. In contrast, the unofficial list fell by 51 institutions or 12.5 percent over the same period.

Given the slowdown in new additions to the list, we will start publishing updates at month-end going forward.

by Calculated Risk on 2/27/2015 06:46:00 PM

From the FDIC: Banco Popular De Puerto Rico, Hato Rey, Puerto Rico, Assumes all of the Deposits of Doral Bank, San Juan, Puerto Rico

As of December 31, 2014, Doral Bank had approximately $5.9 billion in total assets and $4.1 billion in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $748.9 million. ... Doral Bank is the fourth FDIC-insured institution to fail this year, and the first in Puerto Rico. The last time an FDIC-insured institution was closed in Puerto Rico was on April 30, 2010.

This was a decent size bank a fairly large hit to the DIF.

by Calculated Risk on 2/27/2015 03:04:00 PM

From housing economist Tom Lawler:

The National Association of Realtors reported that its Pending Home Sales Index, designed to gauge contract-signing activity on MLS-based existing home sales, increased by 1.2% on a seasonally adjusted basis from December to 104.2 in January. A value of 100 is equal to the average level of contract activity in 2001.

There were significant revisions in historical data – not just seasonally adjusted data but unadjusted data – with all of the unadjusted revisions coming in the West region. As I had noted several times over the past year, most recently in the October 1, 2014 LEHC report (“NAR’s Pending Home Sales Index: The “Curious Case” of the Wild, Wild West”), the NAR’s Pending Home Sales Index for the West had previously made no sense either in terms of the pattern of pending sales vs. closed sales in that region, or in terms of pending sales reports from realtors/MLS in the region. I sent that report to the NAR, and one of their analysts told me that they were aware that the pending data in the West did not look correct, and were looking through archived records to figure out why. Apparently the NAR “found” out why, and the PHSI for the West was revised massively in today’s report, as shown in the table below.

NAR Pending Home Sales Index for the West Region, 2014 (Not Seasonally Adjusted, 2001 = 100
	December 2014 Report	January 2015 Report	% Change
Jan	79.4	78.0	-1.7%
Feb	67.9	83.0	22.3%
Mar	88.6	104.2	17.6%
Apr	79.9	105.0	31.5%
May	99.9	106.1	6.2%
June	100.7	103.2	2.5%
July	109.7	104.1	-5.1%
Aug	126.2	100.9	-20.0%
Sept	111.2	94.4	-15.1%
Oct	109.8	93.3	-15.0%
Nov	101.6	76.8	-24.4%
Dec	65.3	65.3	0.0%

Click on graph for larger image

The NAR’s revisions also produced massive changes in the implied seasonal pattern of Pending Home Sales in the West, from the previously “silly” looking pattern to a more reasonable pattern, as shown on this graph.

Prior to the recent revision the NAR’s Pending Home Sales in the West showed a seasonal peak in August, while NAR estimates of closed existing home sales showed a typical seasonal peak in the May/June period. Local realtor reports in the West – including that of the California Association of Realtors – showed pending sales as reaching a seasonal peak around April, a result much more consistent with the seasonal pattern of closed sales.

The revisions in the Pending Home Sales Index for the West go way back, and the West PHSI for 2012, 2013, and 2014 were all revised downward by about 2.3 percentage points.

The revisions in the West PHSI, combined with annual benchmark seasonal adjustment revisions, produced the following changes in the NAR’s National Pending Home Sales Index for 2014.

NAR National Pending Home Sales Index for 2014, Seasonally Adjusted (2001 = 100)
	December 2014 Report	January 2015 Report	% Change
Jan	94.7	96.1	1.5%
Feb	94.2	95.4	1.3%
Apr	97.9	98.6	0.7%
May	103.8	101.9	-1.8%
June	102.5	101.9	-0.6%
July	105.8	103.3	-2.3%
Aug	104.7	103.1	-1.6%
Sept	105.3	103.7	-1.5%
Oct	104.0	103.7	-0.3%
Nov	104.6	104.1	-0.5%
Dec	100.7	102.5	1.8%

CR Note: The index was reported at 104.2 in January 2015.

by Calculated Risk on 2/27/2015 01:35:00 PM

A review of policy normalization by Fed Vice Chairman Stanley Fischer: Conducting Monetary Policy with a Large Balance Sheet (excerpt)

Turning to policy normalization, the FOMC and market participants anticipate that the federal funds rate will be raised sometime this year. We have for some years been considering ways to operate monetary policy with an elevated balance sheet.

Prior to the financial crisis, because reserve balances outstanding averaged only around $25 billion, relatively minor variations in the total amount of reserves supplied by the Desk could move the equilibrium federal funds rate up or down. With the nearly $3 trillion in excess reserves today, the traditional mechanism of adjustments in the quantity of reserve balances to achieve the desired level of the effective federal funds rate may well not be feasible or sufficiently predictable.

As discussed in the FOMC's statement on its Policy Normalization Principles and Plans, which was published following the September 2014 FOMC meeting, we will use the rate of interest paid on excess reserves (IOER) as our primary tool to move the federal funds rate into the target range.5 This action should encourage banks not to lend to any private counterparty at a rate lower than the rate they can earn on balances maintained at the Fed, which should put upward pressure on a range of short-term interest rates.

Because not all institutions have access to the IOER rate, we will also use an overnight reverse repurchase agreement (ON RRP) facility, as needed. In an ON RRP operation, eligible counterparties may invest funds with the Fed overnight at a given rate. The ON RRP counterparties include 106 money market funds, 22 broker-dealers, 24 depository institutions, and 12 government-sponsored enterprises, including several Federal Home Loan Banks, Fannie Mae, Freddie Mac, and Farmer Mac. This facility should encourage these institutions to be unwilling to lend to private counterparties in money markets at a rate below that offered on overnight reverse repos by the Fed. Indeed, testing to date suggests that ON RRP operations have generally been successful in establishing a soft floor for money market interest rates.6

The Fed could also employ other tools, such as term deposits issued through the Term Deposit Facility and term RRPs, to help drain reserves and put additional upward pressure on short-term interest rates. We have been testing these tools and believe they would help support money market rates, if needed.

Finally, with regard to balance sheet normalization, the FOMC has indicated that it does not anticipate sales of agency mortgage-backed securities, and that it plans to normalize the size of the balance sheet primarily by ceasing reinvestment of principal payments on its existing securities holdings when the time comes. As illustrated in figure 4, cumulative repayments of principal on our existing securities holdings from now through the end of 2025 are projected to be about $3.2 trillion. As a result, when the FOMC chooses to cease reinvestments, the size of the balance sheet will naturally decline, with a corresponding reduction in reserve balances.
emphasis added

by Calculated Risk on 2/27/2015 11:18:00 AM

Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for February was at 95.4, up from the preliminary reading of 93.6, and down from 98.1 in January.

This was above the consensus forecast of 94.0. Sentiment has been generally improving, and then surged last year at gasoline prices declined - and the economy improved.  The decline in February was probably related to higher gasoline prices.

Chicago PMI February 2015: Chicago Business Barometer At 5½-Year Low

The Chicago Business Barometer plunged 13.6 points to 45.8 in February, the lowest level since July 2009 and the first time in contraction since April 2013. The sharp fall in business activity in February came as Production, New Orders, Order Backlogs and Employment all suffered double digit losses, leaving them below the 50 level which separates contraction from expansion.

The West Coast port strike and the harsh winter probably had a negative impact in February, although it is difficult to gauge the magnitude.
emphasis added

This was well below the consensus forecast of 58.3.  This is just one month, and the decline could be related to special factors - such as the port strike - and we need to see what happens in March.

by Calculated Risk on 2/27/2015 10:05:00 AM

From the NAR: Pending Home Sales Rise in January to Highest Level in 18 Months

The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 1.7 percent to 104.2 in January from an upwardly revised 102.5 in December and is now 8.4 percent above January 2014 (96.1). This marks the fifth consecutive month of year-over-year gains with each month accelerating the previous month's gain.
...
The PHSI in the Northeast inched 0.1 percent to 84.9 in January, and is now 6.9 percent above a year ago. In the Midwest the index decreased 0.7 percent to 99.3 in January, but is 4.2 percent above January 2014.

Pending home sales experienced the largest increase in the South, up 3.2 percent to an index of 121.9 in January (highest since April 2010) and are 9.7 percent above last January. The index in the West rose 2.2 percent in January to 96.4 and is 11.4 percent above a year ago.

Total existing-homes sales in 2015 are forecast to be around 5.26 million, an increase of 6.4 percent from 2014.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in February and March. I'll take the "under" on the NAR forecast for 2015 sales!

by Calculated Risk on 2/27/2015 08:37:00 AM

From the BEA: Gross Domestic Product: Fourth Quarter 2014 (Second Estimate)

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 2.2 percent in the fourth quarter of 2014, according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 5.0 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.6 percent. With the second estimate for the fourth quarter, private inventory investment increased less than previously estimated, while nonresidential fixed investment increased more.

The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, state and local government spending, private inventory investment, and residential fixed investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the fourth quarter primarily reflected an upturn in imports, a downturn in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by an acceleration in PCE, an upturn in private inventory investment, and an acceleration in state and local government spending.

Here is a Comparison of Second and Advance Estimates.  PCE was revised down from 4.3% to 4.2% - still solid.  Overall about as expected.

by Calculated Risk on 2/26/2015 08:13:00 PM

The following important older post on inflation from Professor Krugman explains why I follow various measures of underlying inflation: Core Logic

[T]he idea of core inflation. Why do we need such a concept, and how should it be measured?

So: core inflation is usually measured by taking food and energy out of the price index; but there are alternative measures, like trimmed-mean and median inflation, which are getting increasing attention.
...
And people who say things like “That’s a stupid concept — people have to spend money on food and gas, so they should be in your inflation measures” are missing the point. Core inflation isn’t supposed to measure the cost of living, it’s supposed to measure something else: inflation inertia.

Think about it this way. Some prices in the economy fluctuate all the time in the face of supply and demand; food and fuel are the obvious examples. Many prices, however, don’t fluctuate this way — they’re set by oligopolistic firms, or negotiated in long-term contracts, so they’re only revised at intervals ranging from months to years. Many wages are set the same way.

The key thing about these less flexible prices — the insight that got Ned Phelps his Nobel — is that because they aren’t revised very often, they’re set with future inflation in mind. Suppose that I’m setting my price for the next year, and that I expect the overall level of prices — including things like the average price of competing goods — to rise 10 percent over the course of the year. Then I’m probably going to set my price about 5 percent higher than I would if I were only taking current conditions into account.

And that’s not the whole story: because temporarily fixed prices are only revised at intervals, their resets often involve catchup. ...

The standard measure tries to do this by excluding the obviously non-inertial prices: food and energy. But are they the whole story? Of course not ... Hence the growing preference among many economists for measures like medians and trimmed means, which exclude prices that move by a lot in any given month, presumably therefore isolating the prices that move sluggishly, which is what we want.
emphasis added

Friday:
• At 8:30 AM ET, Gross Domestic Product, 4th quarter 2014 (second estimate). The consensus is that real GDP increased 2.1% annualized in Q4, down from the advance estimate of 2.6%.

• Also at 9:45 AM, the Chicago Purchasing Managers Index for February. The consensus is for a reading of 58.3, down from 59.4 in January.

• At 10:00 AM: University of Michigan's Consumer sentiment index (final for February). The consensus is for a reading of 94.0, up from the preliminary reading of 93.6, but down from the December reading of 98.1.

• Also at 10:00 AM, the Pending Home Sales Index for January. The consensus is for a 2.0% increase in the index.

• At 1:30 PM: Speech, Fed Vice Chairman Stanley Fischer, Conducting Monetary Policy with a Large Balance Sheet, At the 2015 U.S. Monetary Policy Forum, New York, New York

by Calculated Risk on 2/26/2015 05:41:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in January to 1.86%, down from 1.88% in December. Freddie's rate is down from 2.34% in January 2014, and the rate in January was the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for January next week.

Click on graph for larger image

Although the rate is generally declining, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.48 percentage points over the last year - and the rate of improvement has slowed recently - but at that rate of improvement, the serious delinquency rate will not be below 1% until late 2016.

Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales for 2+ more years (mostly in judicial foreclosure states).