by Calculated Risk on 8/27/2017 06:49:00 PM

My thoughts are with the people of south Texas. I was hoping the forecasts were wrong - and the rain and damage wouldn't be this severe - but once again the NHC forecasts were correct.

There will be some significant economic impacts from Hurricane Harvey (housing, oil, etc). I'll try to address some of these later this week after the deluge. Best wishes to all.

Weekend:
• Schedule for Week of Aug 27, 2017

Monday:
• At 10:30 AM, Dallas Fed Survey of Manufacturing Activity for August.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 and DOW futures are mostly unchanged (fair value).

Oil prices were mixed over the last week with WTI futures at $48.03 per barrel and Brent at $52.83 per barrel.  A year ago, WTI was at $47, and Brent was at $50 - so oil prices are up slightly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.36 per gallon - a year ago prices were at $2.22 per gallon - so gasoline prices are up 14 cents per gallon year-over-year.

by Calculated Risk on 8/27/2017 08:15:00 AM

Note: Surferdude808 compiles an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for August 2017.

Here are the monthly changes and a few comments from surferdude808:

Update on the Unofficial Problem Bank List for August 2017.  The list shrank by a net 11 banks to 123 after twelve removals and one addition.  Aggregate assets dropped by $4½ billion to $32.8 billion.  A year ago, the list held 184 institutions with assets of $56½ billion.

Actions were terminated against Lone Star National Bank, Pharr, TX ($2.2 billion); State Bank of India (California), Los Angeles, CA ($633 million); Intercredit Bank, National Association, Miami, FL ($360 million); Central Federal Savings and Loan Association, Cicero, IL ($175 million); Alliance Bank & Trust Company, Gastonia, NC ($142 million Ticker: ABTO); Anthem Bank & Trust, Plaquemine, LA ($132 million); Community 1st Bank Las Vegas, Las Vegas, NM ($123 million); Hometown Bank of The Hudson Valley, Walden, NY ($118 million  Ticker: HTWC); People's Bank and Trust Company of Pickett County, Byrdstown, TN ($116 million); Valley Bank of Nevada, North Las Vegas, NV ($111 million); Signature Bank of Georgia, Sandy Springs, GA ($100 million); and Columbia Savings and Loan Association, Milwaukee, WI ($25 million).

The addition this month was the Farmers and Merchants State Bank of Argonia, Argonia, KS ($34 million).  In addition, the Federal Reserve issued a Prompt Corrective Action order against Heartland Bank, Little Rock, AR ($199 million), which has been on the list since December 2016.

This week the FDIC released their official Problem Bank figures for the end of the second quarter of 2017, with their list holding 105 institutions with assets of $17.2 billion, which equates to an average asset size of about $164 million.  Last quarter, the FDIC said the official list had 112 institutions with assets of $23.7 billion, which equated to an average asset size of $212 million.  Thus, during the second quarter of 2017, the FDIC removed a net seven institutions and $6.5 billion of assets from the official list.  The average asset size of the seven institutions the FDIC removed from the official list was about $929 million.  Currently, the unofficial list only has five institutions larger than $950 million; therefore, it seems a bit of a stretch for the aggregate assets on the official list to decline by $6.5 billion during the second quarter.  We know the FDIC does not like publishing the official figures, so it is unlikely they would provide us readers/analysts with an average or median asset figure to improve our understanding of the characteristics of the institutions on the official list.

by Calculated Risk on 8/26/2017 08:11:00 AM

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

Other key indicators include the second estimate of Q2 GDP, the August ISM manufacturing index, August auto sales and the June Case-Shiller house prices.

----- Monday, Aug 28th -----
10:30 AM: Dallas Fed Survey of Manufacturing Activity for August.

----- Tuesday, Aug 29th -----
9:00 AM ET: S&P/Case-Shiller House Price Index for June.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the May 2017 report (the Composite 20 was started in January 2000).

The consensus is for a 5.7% year-over-year increase in the Comp 20 index for June.

----- Wednesday, Aug 30th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for August. This report is for private payrolls only (no government). The consensus is for 182,000 payroll jobs added in August, up from 178,000 added in July.

8:30 AM: Gross Domestic Product, 2nd quarter 2017 (Second estimate). The consensus is that real GDP increased 2.8% annualized in Q2, up from advance estimate of 2.6%.

----- Thursday, Aug 31st -----
8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 237 thousand initial claims, up from 234 thousand the previous week.

8:30 AM: Personal Income and Outlays for July. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

9:45 AM: Chicago Purchasing Managers Index for August. The consensus is for a reading of 58.0, down from 58.9 in July.

10:00 AM: Pending Home Sales Index for June. The consensus is for a 0.8% increase in the index.

----- Friday, Sept 1st -----
8:30 AM: Employment Report for August. The consensus is for an increase of 180,000 non-farm payroll jobs added in August, down from the 209,000 non-farm payroll jobs added in July.

The consensus is for the unemployment rate to be unchanged at 4.3%.

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

In July, the year-over-year change was 2.16 million jobs.

A key will be the change in wages.

10:00 AM: ISM Manufacturing Index for August. The consensus is for the ISM to be at 56.6, up from 56.3 in August.

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

The ISM manufacturing index indicated expansion in July. The PMI was at 56.3% in July, the employment index was at 55.2%, and the new orders index was at 60.4%.

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

All day: Light vehicle sales for August. The consensus is for light vehicle sales to be 16.7 million SAAR in August, unchanged from 16.7 million in  July (Seasonally Adjusted Annual Rate).

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

10:00 AM: University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 97.2, unchanged from the preliminary reading 97.6.

by Calculated Risk on 8/25/2017 04:53:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on Aug 25, 2017:

• Continued decline in rig counts

• Total US oil rigs were down 4 to 759

• Horizontal oil rigs were down 3 at 647
...
• Drilling Info is showing more optimistic rig numbers than Baker Hughes

• Thesis is unchanged: Expect rigs counts to roll off for the next three months or so, with oil prices languishing in the $46-49 range typically

Click on graph for larger image.

CR note: This graph shows the US horizontal rig count by basin.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.

by Calculated Risk on 8/25/2017 01:41:00 PM

The automakers will report July vehicle sales on Friday, September 1st.

Note: There were 27 selling days in August 2017, there were 26 in August 2016.

From WardsAuto: Forecast: U.S. Auto Market Continues Downward Trend in August

A WardsAuto forecast calls for U.S. automakers to deliver 1.51 million light vehicles in August. ... The report puts the seasonally adjusted annual rate of sales for August at 16.5 million units, below the 17.1 million SAAR in same-month 2016 and 16.7 million in prior-month 2017.
...
Light-vehicle inventory stood at 3.86 million units at the end of July, up 9.4% from year-ago and about 15% higher than necessary with current sales rates. The streak of record-high stock is expected to continue with 3.8 million units at the end of August, 7.5% greater than same-month 2016. This will leave automakers with a 69 days’ supply, same as prior-month, but well above year-ago’s 62. Slowdowns in production and higher sales incentives through September are expected to narrow the gap between supply and demand.
emphasis added

Overall sales through July are down about 3% from the record level in 2016.

by Calculated Risk on 8/25/2017 11:30:00 AM

Freddie Mac reported that the Single-Family serious delinquency rate in July was at 0.85%, unchanged from 0.85% in June.  Freddie's rate is down from 1.08% in July 2016.

Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

This ties last month as the lowest serious delinquency rate since April 2008.

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

Click on graph for larger image

Although the rate is still generally declining, the rate of decline has slowed.

Maybe the rate will decline another 0.2 to 0.3 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Fannie Mae will report for July soon.

by Calculated Risk on 8/25/2017 10:08:00 AM

From Fed Chair Janet Yellen: Financial Stability a Decade after the Onset of the Crisis. A few excerpts (here Dr. Yellen argues for keeping most of existing regulations put in place after the financial crisis):

Is This Safer System Supporting Growth?

I suspect many in this audience would agree with the narrative of my remarks so far: The events of the crisis demanded action, needed reforms were implemented, and these reforms have made the system safer. Now--a decade from the onset of the crisis and nearly seven years since the passage of the Dodd-Frank Act and international agreement on the key banking reforms--a new question is being asked: Have reforms gone too far, resulting in a financial system that is too burdened to support prudent risk-taking and economic growth?

The Federal Reserve is committed individually, and in coordination with other U.S. government agencies through forums such as the FSOC and internationally through bodies such as the Basel Committee on Banking Supervision and the FSB, to evaluating the effects of financial market regulations and considering appropriate adjustments. Furthermore, the Federal Reserve has independently taken steps to evaluate potential adjustments to its regulatory and supervisory practices. For example, the Federal Reserve initiated a review of its stress tests following the 2015 cycle, and this review suggested changes to reduce the burden on participating institutions, especially smaller institutions, and to better align the supervisory stress tests with regulatory capital requirements. In addition, a broader set of changes to the new financial regulatory framework may deserve consideration. Such changes include adjustments that may simplify regulations applying to small and medium-sized banks and enhance resolution planning.

More broadly, we continue to monitor economic conditions, and to review and conduct research, to better understand the effect of regulatory reforms and possible implications for regulation. I will briefly summarize the current state of play in two areas: the effect of regulation on credit availability and on changes in market liquidity.

The effects of capital regulation on credit availability have been investigated extensively. Some studies suggest that higher capital weighs on banks' lending, while others suggest that higher capital supports lending. Such conflicting results in academic research are not altogether surprising. It is difficult to identify the effects of regulatory capital requirements on lending because material changes to capital requirements are rare and are often precipitated, as in the recent case, by financial crises that also have large effects on lending.

Given the uncertainty regarding the effect of capital regulation on lending, rulemakings of the Federal Reserve and other agencies were informed by analyses that balanced the possible stability gains from greater loss-absorbing capacity against the possible adverse effects on lending and economic growth. This ex ante assessment pointed to sizable net benefits to economic growth from higher capital standards--and subsequent research supports this assessment. The steps to improve the capital positions of banks promptly and significantly following the crisis, beginning with the 2009 Supervisory Capital Assessment Program, have resulted in a return of lending growth and profitability among U.S. banks more quickly than among their global peers.

While material adverse effects of capital regulation on broad measures of lending are not readily apparent, credit may be less available to some borrowers, especially homebuyers with less-than-perfect credit histories and, perhaps, small businesses. In retrospect, mortgage borrowing was clearly too easy for some households in the mid-2000s, resulting in debt burdens that were unsustainable and ultimately damaging to the financial system. Currently, many factors are likely affecting mortgage lending, including changes in market perceptions of the risk associated with mortgage lending; changes in practices at the government-sponsored enterprises and the Federal Housing Administration; changes in technology that may be contributing to entry by nonbank lenders; changes in consumer protection regulations; and, perhaps to a limited degree, changes in capital and liquidity regulations within the banking sector. These issues are complex and interact with a broader set of challenges related to the domestic housing finance system.

Credit appears broadly available to small businesses with solid credit histories, although indicators point to some difficulties facing firms with weak credit scores and insufficient credit histories. Small business formation is critical to economic dynamism and growth. Smaller firms rely disproportionately on lending from smaller banks, and the Federal Reserve has been taking steps and examining additional steps to reduce unnecessary complexity in regulations affecting smaller banks.

Finally, many financial market participants have expressed concerns about the ability to transact in volume at low cost--that is, about market liquidity, particularly in certain fixed-income markets such as that for corporate bonds. Market liquidity for corporate bonds remains robust overall, and the healthy condition of the market is apparent in low bid-ask spreads and the large volume of corporate bond issuance in recent years. That said, liquidity conditions are clearly evolving. Large dealers appear to devote less of their balance sheets to holding inventories of securities to facilitate trades and instead increasingly facilitate trades by directly matching buyers and sellers. In addition, algorithmic traders and institutional investors are a larger presence in various markets than previously, and the willingness of these institutions to support liquidity in stressful conditions is uncertain. While no single factor appears to be the predominant cause of the evolution of market liquidity, some regulations may be affecting market liquidity somewhat. There may be benefits to simplifying aspects of the Volcker rule, which limits proprietary trading by banking firms, and to reviewing the interaction of the enhanced supplementary leverage ratio with risk-based capital requirements. At the same time, the new regulatory framework overall has made dealers more resilient to shocks, and, in the past, distress at dealers following adverse shocks has been an important factor driving market illiquidity. As a result, any adjustments to the regulatory framework should be modest and preserve the increase in resilience at large dealers and banks associated with the reforms put in place in recent years.
emphasis added

by Calculated Risk on 8/24/2017 08:46:00 PM

Here is the program for the 2017 Jackson Hole Economic Symposium, "Fostering a Dynamic Global Economy.

Friday:
• At 8:30 AM ET, Durable Goods Orders for July from the Census Bureau. The consensus is for a 5.7% decrease in durable goods orders.

• At 10:00 AM ET, Speech by Fed Chair Janet L. Yellen, Financial Stability, At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming

• At 3:00 PM ET, Mario Draghi Luncheon Address, President, European Central Bank at Jackson Hole.

by Calculated Risk on 8/24/2017 04:20:00 PM

CR Note: The month-to-month increase in delinquencies is mostly seasonal (happens every July).

From Black Knight: Black Knight Financial Services’ First Look at July 2017 Mortgage Data

• Foreclosure inventory fell by 12,000 in July, bringing the total below 400,000 for the first time since February 2007

• Active foreclosure inventory has declined by 28 percent (more than 150,000) over the past 12 months

• July’s 53,300 foreclosure starts mark the second lowest (next to April 2017) monthly volume since the start of 2005

• Early-stage mortgage delinquencies experienced a slight seasonal uptick in July

According to Black Knight's First Look report for July, the percent of loans delinquent increased 2.8% in July compared to June, and declined 13.5% year-over-year.

The percent of loans in the foreclosure process declined 3.0% in July and were down 28.0% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 3.90% in July, up from 3.80% in June.

The percent of loans in the foreclosure process declined in July to 0.78%.

The number of delinquent properties, but not in foreclosure, is down 300,000 properties year-over-year, and the number of properties in the foreclosure process is down 152,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	July 2017	June 2017	July 2016	July 2015
Delinquent	3.90%	3.80%	4.51%	4.71%
In Foreclosure	0.78%	0.82%	1.09%	1.40%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:	1,986,000	1,932,000	2,286,000	2,389,000
Number of properties in foreclosure pre-sale inventory:	398,000	410,000	550,000	711,000
Total Properties	2,384,000	2,342,000	2,836,000	3,100,000

by Calculated Risk on 8/24/2017 02:20:00 PM

Earlier: NAR: "Existing-Home Sales Slide 1.3 Percent in July"

First, as usual, housing economist Tom Lawler's estimate was much closer to the NAR report than the consensus.    So the decline in sales in July was no surprise for CR readers.

Inventory is still very low and falling year-over-year (down 9.0% year-over-year in July). Inventory has declined year-over-year for 26 consecutive months.  I started the year expecting inventory would be increasing year-over-year by the end of 2017. That now seems unlikely.

Inventory is a key metric to watch.  More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in July (red column) were the same as  July 2016. (NSA).

Note that sales NSA are now in the seasonally strong period (March through September).

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next several years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through July 2017. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Another way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down since the housing bust, and this ratio will probably continue to trend down over the next several years.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.