by Calculated Risk on 4/02/2012 10:00:00 AM

PMI was at 53.4% in March, up from 52.4% in February. The employment index was at 56.1%, up from 53.2%, and new orders index was at 54.5%, down from 54.9%.

From the Institute for Supply Management: March 2012 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in March for the 32nd consecutive month, and the overall economy grew for the 34th 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 53.4 percent, an increase of 1 percentage point from February's reading of 52.4 percent, indicating expansion in the manufacturing sector for the 32nd consecutive month. The Production Index increased 3 percentage points from February's reading of 55.3 percent to 58.3 percent, and the Employment Index increased 2.9 percentage points to 56.1 percent. Of the 18 industries included in the survey, 15 are experiencing overall growth. Comments from the panel remain positive, with several respondents citing increased sales and demand for the next few months."

Click on graph for larger image.

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

This was slightly above expectations of 53.0%. This suggests manufacturing expanded at a faster rate in March than in February. It appears manufacturing employment expanded in March with the employment index at 56.1%.

by Calculated Risk on 4/02/2012 08:48:00 AM

From Reuters: Unemployment in Euro Zone Hit New High in February

Unemployment in the euro zone reached its highest level in almost 15 years in February, with more than 17 million people out of work, according to figures released Monday.

Joblessness in the 17-nation currency zone rose to 10.8 percent, up by 0.1 point from January, Eurostat said Monday.
...
Separate data released Monday showed manufacturing activity in the euro zone shrank for an eighth successive month in March, providing further support for Brussels’s forecast that euro zone output will shrink 0.3 percent this year.

Here is the Eurostat data by country.

Rising unemployment, falling manufacturing, declining output ... no surprise.

by Calculated Risk on 4/01/2012 06:57:00 PM

A long article from Edward Robinson at the WaPo: Foreclosures give rise to new industry. A few excerpts:

Waypoint, which owns 1,100 houses and is buying five more a day, is betting that converting foreclosures into rentals is a better way to make a profit. Other firms, such as Landsmith in San Francisco, are now cropping up and pursuing the same strategy in Arizona, California and Nevada.

With many suburban homes selling for half their peak values and demand for rentals from prospective tenants climbing, Waypoint was earning a return of
8 to 9 percent on its capital as of Dec. 31, according to a quarterly report. That beats the 6.3 percent gain in the BI NA Multifamily REIT Index, which tracks the performance of 27 apartment-building operators.
...
The home rental market boasts a total property value of $3 trillion, according to Morgan Stanley housing analyst Oliver Chang. Yet institutions have long shunned it as too scattered and impractical to be profitable.
...
Oaktree Capital Management, the investment firm co-founded by billionaire Howard Marks, announced a $450 million deal with Carrington Capital Management to acquire and convert foreclosed single-family homes into rental properties. Carrington rents out more than 3,000 houses in California and other states.

Starwood Capital Group is poised to enter the foreclosure-to-rental market, according to an investor familiar with its plans. So, too, are Zell and the real estate arm of Apollo Investment Management.
...
Investors are already having an effect: The supplies of homes for sale in Phoenix, Orlando and other hard-hit markets have fallen more than 60 percent from their post-crash highs as bargain hunters scoop up foreclosures.

I've talked to several smaller investor groups, and they have all done very well. Now the larger groups are moving in.

Investors buying foreclosures to rent is one of the reasons inventory levels of existing homes has fallen so sharply.

Yesterday:
• Summary for Week Ending March 30th
• Schedule for Week of April 1st

by Calculated Risk on 4/01/2012 11:43:00 AM

For the question contest in March, the leaders were:

1) Bill (Calculated Risk)
2) Billy Forney
3) Bryant Dodson
4) Charles Chuckray
5 tie) Walt Tucker
5 tie) Ed Hodder

Congratulations to all.

For fun I've added a monthly question contest on the right sidebar. It takes a Facebook login.

In April, I'll ask some economic predictions several times a week: For April 2nd, I'm asking: Will the March ISM Manufacturing Index be over 53? (Note: I'm leaving the market predictions out for April).

Contestants receive 1 point for each correct answer. At the end of each month, I'll list the leaders in a post on the blog.

For both February and March, the winner was ... CR. Hey, play along and beat CR!

Yesterday:
• Summary for Week Ending March 30th
• Schedule for Week of April 1st

by Calculated Risk on 4/01/2012 09:45:00 AM

I've been reading former PIMCO managing director Paul McCulley for years (great insights). The following piece discusses the current liquidity trap and the failure of austerity in Europe: "Fiscal austerity does not work in a liquidity trap and makes as much sense as putting an anorexic on a diet."

From Paul McCulley and Zoltan Pozsar: Does Central Bank Independence Frustrate the Optimal Fiscal-Monetary Policy Mix in a Liquidity Trap? (ht Richard)

An excerpt:

The United States and much of the developed world are in a liquidity trap. However, policymakers still have not embraced this diagnosis which is a problem as solutions to a liquidity trap require specific sets of policies. There are policies that will work, and there are policies that will not work. Correct diagnosis is necessary to prescribe the right policy medication.

A liquidity trap is a circumstance in which the private sector is deleveraging in the wake of enduring negative animal spirits caused by the bursting of joint asset price and credit bubbles that leave private sector balance sheets severely damaged. In a liquidity trap the animal spirits of the private sector cannot be revived by a reduction in short-term interest rates because there is no demand for credit. This effectively means that conventional monetary policy does not work in a liquidity trap.
...
This is not to say that the private sector should not deleverage. It has to. It is a part of the economy’s healing process and a necessary first step toward a self-sustaining economic recovery.

However, deleveraging is a beast of a burden that capitalism cannot bear alone. At the macro level, deleveraging must be a managed process: for the private sector to deleverage without causing a depression, the public sector has to move in the opposite direction and re-lever by effectively viewing the balance sheets of the monetary and fiscal authorities as a consolidated whole.
...
[McCulley reviews several recent cases]
...
These historical cases of acting responsibly, irresponsibly and half-heartedly irresponsibly relative to orthodoxy carry telling lessons for the outlooks of the Eurozone, U.K. and U.S. today.

First, acting responsibly relative to orthodoxy in the Eurozone and following the German “dictat” of sado-fiscalism and internal devaluation are reminiscent of several defining economic episodes and frictions of the interwar gold standard.
...
On a more systemic level, Germany’s refusal to inflate at the core while insisting on internal devaluation in the periphery is eerily similar to the frictions caused by the imbalance between gold surplus countries refusing to inflate and deficit countries unable to sufficiently deflate during the 1920s and early 1930s.

Just as laboring classes could not bear the pain of adjustments required by the gold standard’s orthodoxies, laboring classes in peripheral Eurozone economies may not be able to bear the pain of adjustments required by the single currency’s orthodoxies.

If history is our guide, painful adjustments will ultimately lead to some countries abandoning the euro, or politics overruling monetary orthodoxies: (1) legal restrictions against monetizing debt today versus the fixed exchange rate mentality of the gold standard, and (2) the independence of the ECB.
...
Second, acting responsibly relative to orthodoxy on the fiscal front, but acting irresponsibly relative to orthodoxy on the monetary front, policies in the U.K. are also unlikely to work.
...
Third, to date, the U.S. has acted irresponsibly relative to orthodoxy on both the fiscal and monetary front. This is good.

However, risks are rising that while the monetary authority will remain committed to acting irresponsibly, the government will choose to act responsibly relative to fiscal orthodoxy and adopt austerity.

I agree with McCulley that most of the world is in a liquidity trap and it appears that austerity alone will eventually fail at the ballot box, see from Reuters: Resistance to Austerity Stirs in Southern Europe

by Calculated Risk on 3/31/2012 07:35:00 PM

By request, a couple more graphs based on the February Personal Income and Outlays report. The first graph shows real personal income less transfer payments in 2005 dollars. This has been slow to recover - real (inflation adjusted) personal income less transfer payments decreased slightly in February. This remains 4.2% below the previous peak in early 2008.

From the BEA:

Personal current transfer receipts increased $3.0 billion in February, compared with an increase of $1.6 billion in January.

Click on graph for larger image.

“Other” government social benefits to persons increased $1.3 billion, in contrast to a decrease of $15.8 billion; the January change was reduced $13.6 billion reflecting the expiration of the Making Work Pay refundable tax credit. Offsetting these changes, government social benefits for social security increased $2.9 billion in February, compared to an increase of $20.3 billion in January; the January change was boosted by a 3.6-percent cost-of-living adjustment (COLAs) to social security benefits.

The second graph is for the personal saving rate.

The saving rate decreased to 3.7% in February.

Personal saving -- DPI less personal outlays -- was $438.7 billion in February, compared with $509.5 billion in January. The personal saving rate -- personal saving as a percentage of disposable income -- was 3.7 percent in February, compared with 4.3 percent in January.

This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the February Personal Income report.

After increasing sharply during the recession, the saving rate has been moving down for the last two to three years - so spending growth has increased a little faster than income growth. This was especially true in February with spending increasing 0.8% and income only increasing 0.2%.

Earlier:
• Summary for Week Ending March 30th
• Schedule for Week of April 1st

by Calculated Risk on 3/31/2012 01:05:00 PM

Earlier:
• Summary for Week Ending March 30th

The key report for this week will be the March employment report to be released on Friday, Apr 6th. Other key reports include the ISM manufacturing index on Monday, vehicle sales on Tuesday, and the ISM non-manufacturing (service) index on Wednesday. The FOMC minutes for the March meeting will be released on Tuesday.

Note: Reis is expected to release their Q1 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 regional malls, and a slight decline in the office vacancy rate.

----- Monday, Apr 2nd -----
10:00 AM ET: ISM Manufacturing Index for March.

Here is a long term graph of the ISM manufacturing index. The consensus is for a slight increase to 53.0 from 52.4 in February.

10:00 AM: Construction Spending for February. The consensus is for a 0.7% increase in construction spending.

----- Tuesday, Apr 3rd -----
All day: Light vehicle sales for March. Light vehicle sales are expected to decline to 14.7 million from 15.0 million in February (Seasonally Adjusted Annual Rate).

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

TrueCar is forecasting:

The March 2012 forecast translates into a Seasonally Adjusted Annualized Rate (SAAR) of 14.5 million new car sales, up from 13.1 million in March 2011 and down from 15.1 million in February 2012

Edmund.com is forecasting:

Edmunds.com estimates that 1,451,956 new cars will be sold in March, for a projected Seasonally Adjusted Annual Rate (SAAR) of 14.9 million units. The projected sales results would be a 26.4 percent increase over February 2012 and a 16.5 percent increase over March 2011.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for February. The consensus is for a 1.5% increase in orders.

2:00 PM: FOMC Minutes, Meeting of March 13th. The minutes might include a discussion of possible easing options.

4:05 PM: San Francisco Fed President John Williams speaks on the economy to students at University of San Diego.

----- Wednesday, Apr 4th -----
Early: Reis Q1 2012 Apartment vacancy rates.

7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been weak this year, although this does not include all the cash buyers.

8:15 AM: The ADP Employment Report for March. This report is for private payrolls only (no government). The consensus is for 208,000 payroll jobs added in March, down from the 216,000 reported last month.

10:00 AM: ISM non-Manufacturing Index for March. The consensus is for a decrease to 56.7 from 57.3 in February. Note: Above 50 indicates expansion, below 50 contraction.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

----- Thursday, Apr 5th -----
Early: Reis Q1 2012 Office vacancy rates.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to essentially unchanged at 360,000.

----- Friday, Apr 6th -----
Markets will be closed in observance of Good Friday.

Early: Reis Q1 2012 Mall vacancy rates.

8:30 AM: Employment Report for March. The consensus is for an increase of 201,000 non-farm payroll jobs in March, down from the 227,000 jobs added in February.

The consensus is for the unemployment rate to remain unchanged at 8.3%.

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

The economy has added 3.45 million jobs since employment bottomed in February 2010 (3.94 million private sector jobs added, and 490 thousand public sector jobs lost).

There are still 4.9 million fewer private sector jobs now than when the recession started. (5.3 million fewer total nonfarm jobs).

3:00 PM: Consumer Credit for February. The consensus is for a $12.0 billion increase in consumer credit.

by Calculated Risk on 3/31/2012 08:05:00 AM

Last week S&P reported that the Case-Shiller house price index fell to a new post-bubble low in January. However it is important to remember that the Case-Shiller index has a significant lag to current pricing.

The report last week was for a three month average for house sales recorded in November, December and January, and sales are usually recorded a couple of months after the purchase agreement is signed. For a house that closed in November, the purchase agreement was probably signed in September or early October. So some portion of the just reported Case-Shiller index was for contract prices over 6 months ago!

Even the most recent portion of the index (for January) is probably for contracts signed in November or early December. A significant lag was fine when we expected prices to just keep on falling, but for those of us now looking for an inflection point for house prices, the Case-Shiller index will only tell us well after the event.

Other data was mixed last week. Three regional Fed manufacturing surveys showed slower expansion in March, the Chicago PMI declined, and pending home sales were down in February.

On the other hand, personal spending increased in February, consumer sentiment improved, and weekly initial unemployment continued to trend down.

Overall mixed and still sluggish growth.

Here is a summary in graphs:

• Case Shiller: House Prices fall to new post-bubble lows in January

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

Click on graph for larger image.

The first 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 34.2% from the peak, and down 0.1% in January (SA). The Composite 10 is at a new post bubble low (both Seasonally adjusted and Not Seasonally Adjusted).

The Composite 20 index is off 33.9% from the peak, and unchanged in January (SA) from December. The Composite 20 is also at a new post-bubble low.

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

The Composite 10 SA is down 3.8% compared to January 2011.

The Composite 20 SA is down 3.8% compared to January 2011. This was a slightly smaller year-over-year decline for both indexes than in December.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 9 of the 20 Case-Shiller cities in January seasonally adjusted (only 3 cities increased NSA). Prices in Las Vegas are off 61.8% from the peak, and prices in Dallas only off 8.6% from the peak. There was no data for Charlotte in January.

Both the SA and NSA are at new post-bubble lows - and the NSA indexes will continue to decline for the next couple of months (this report was for the three months ending in January).

All current house price graphs
• Real House Prices and Price-to-Rent Ratio decline to late '90s Levels

Case-Shiller, CoreLogic and others report nominal house prices. It is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio.

This graph shows the CoreLogic, Case-Shiller Composite 20, and Case-Shiller National indexes in real terms (adjusted for inflation using CPI less Shelter).

In real terms, the National index is back to Q4 1998 levels, the Composite 20 index is back to February 2000, and the CoreLogic index back to August 1999.

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph 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 October 1998 levels, the Composite 20 index is back to February 2000 levels, and the CoreLogic index is back to August 1999.

All current house price graphs
• Weekly Initial Unemployment Claims decline to 359,000

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

The DOL reports "In the week ending March 24, the advance figure for seasonally adjusted initial claims was 359,000, a decrease of 5,000 from the previous week's revised figure of 364,000. The 4-week moving average was 365,000, a decrease of 3,500 from the previous week's revised average of 368,500." Note: "This week's release reflects the annual revision to the weekly unemployment claims seasonal adjustment factors. The seasonal adjustment factors used for the UI Weekly Claims data from 2007 forward, along with the resulting seasonally adjusted values for initial claims and continuing claims, have been revised."

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims declined to 365,000 (after annual revisions).

The 4-week moving average is at the lowest level since early 2008 (including revisions).

All current Employment Graphs
• Regional Fed Manufacturing Surveys

Three regional Fed surveys were released last week: Richmond, Dallas and Kansas City. All three showed slightly slower expansion in March.

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

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

• Personal Income increased 0.2% in February, Spending 0.8%

The following graph shows real Personal Consumption Expenditures (PCE) through February (2005 dollars).

PCE increased 0.8% in February, and real PCE increased 0.5%. January was revised up from unchanged to a 0.2% increase.

Note: The PCE price index, excluding food and energy, increased 0.1 percent. The personal saving rate was at 3.7% in February.

This was a sharp increase in spending in February (and January spending was revised up). Using the two-month method, it appears real PCE will increase around 2.0% in Q1 (PCE is the largest component of GDP); the mid-month method suggests an increase closer to 2.9%.

• Consumer Sentiment improves in March

The final Reuters / University of Michigan consumer sentiment index for March increased to 76.2, up from the preliminary reading of 74.3, and up from the February reading of 75.3.

This was above the consensus forecast of an increase to 74.7. Overall sentiment is still fairly weak, although sentiment has rebounded from the decline last summer and is near the high since collapsing in late 2007 and early 2008.

• Other Economic Stories ...
• Chicago PMI declines to 62.2
• From the NAR: Pending Home Sales Ease in February but Solidly Higher Than a Year Ago
• From ATA: ATA Truck Tonnage Increased 0.5% in February
• Restaurant Performance Index increases in February

by Calculated Risk on 3/30/2012 10:30:00 PM

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

Here is the unofficial problem bank list for March 30, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

As expected, the FDIC released its enforcement action activity for February 2012. For the week, there were six removals and five additions, which leave the Unofficial Problem Bank List with 948 institutions and assets of $377.6 billion. A year ago, there were 985 institutions with assets of $431.1 billion. For the month of March 2012, there were 21 removals and nine additions or a net decline of 12 institutions and assets of $12.1 billion. This month there were 14 removals from action termination, which is the first month since the list has been published that action terminations greatly outpaced new additions.

The action terminations this week include Homestreet Bank, Seattle, WA ($2.2 billion); Security State Bank, Scott City, KS ($132 million); United Pacific Bank, City Of Industry, CA ($126 million); America California Bank, San Francisco, CA ($123 million); and Peoples Bank of the South, Bude, MS ($78 million). The failed Fidelity Bank, Dearborn, MI ($843 million Ticker: DEAR), which had been operating under a Prompt Corrective Action order since September 2011, was also removed this week.

The five additions include Community Bank of Florida, Inc., Homestead, FL ($525 million); Frontier Bank, LaGrange, GA ($298 million); Bank of Eastman, Eastman, GA ($221 million); First Enterprise Bank, Oklahoma City, OK ($167 million); and Surety Bank, DeLand, FL ($112 million).

The unofficial problem bank list peaked at 1,004 institutions in July 2011, and has slowly declined since then.

by Calculated Risk on 3/30/2012 06:33:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in February to 3.82%, down from 3.90% in January. This is down from 4.44% in February 2011. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate declined to 3.57% in February, down from 3.59% in January. Freddie's rate is down from 3.82% in Feburary 2010. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Click on graph for larger image

The serious delinquency rate has been declining, but declining very slowly. The recent sideways move for Freddie Mac would still hasn't been explained. With the mortgage servicer settlement, I'd expect the delinquency rate to start to decline faster over the next year.

The "normal" serious delinquency rate is under 1%, so there is a long way to go.