by Calculated Risk on 4/04/2012 12:21:00 PM

This is the UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce Index Increased 0.3 Percent in March, Compared to March 2011, the Pulse is Down 2.2 Percent

The Ceridian-UCLA Pulse of Commerce Index® (PCI®), issued today by the UCLA Anderson School of Management and Ceridian Corporation, rose 0.3 percent in March following the 0.7 percent increase in February and the 1.7 percent decrease in January.

This puts the index down 2.2% from March 2011. Note: For comparison, the ATA Trucking index was up 5.1% year-over-year in February.

Click on graph for larger image.

This graph shows the index since January 2000.

This index has been weaker than the ATA trucking index and reports for rail traffic. It is possible that the high cost of fuel is shifting some long haul traffic from trucks to rail (intermodal) - but it is unclear why this index is weaker than the trucking index.
All current Transportation graphs

by Calculated Risk on 4/04/2012 10:00:00 AM

The March ISM Non-manufacturing index was at 56.0%, down from 57.3% in February. The employment index increased in March to 56.7%, up from 55.7% in February. Note: Above 50 indicates expansion, below 50 contraction.

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

Economic activity in the non-manufacturing sector grew in March for the 27th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. "The NMI registered 56 percent in March, 1.3 percentage points lower than the 57.3 percent registered in February, and indicating continued growth at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 58.9 percent, which is 3.7 percentage points lower than the 62.6 percent reported in February, reflecting growth for the 32nd consecutive month. The New Orders Index decreased by 2.4 percentage points to 58.8 percent, and the Employment Index increased by 1 percentage point to 56.7 percent, indicating continued growth in employment at a slightly faster rate. The Prices Index decreased 4.5 percentage points to 63.9 percent, indicating prices increased at a slower rate in March when compared to February. According to the NMI, 16 non-manufacturing industries reported growth in March. Respondents' comments remain mostly optimistic about business conditions. They indicate that increased discretionary spending reflects the increased confidence level of businesses and consumers. There is continued concern about cost pressures and the instability of fuel prices."

Click on graph for larger image.

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

This was below the consensus forecast of 56.7% and indicates slightly slower expansion in March than in February.

by Calculated Risk on 4/04/2012 09:00:00 AM

Notes: This CoreLogic House Price Index report is for February. The Case-Shiller index released last week was for January. Case-Shiller is currently the most followed house price index, however CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average of the last three months and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic® February Home Price Index Reports Month-Over-Month Increase, When Excluding Distressed Sales

[CoreLogic February Home Price Index (HPI®) report] shows national home prices, including distressed sales, declined on a year-over-year basis by 2.0 percent in February 2012 and by 0.8 percent compared to January 2012, the seventh consecutive monthly decline.

Excluding distressed sales, month-over-month prices increased 0.7 percent in February from January. The CoreLogic HPI® also showed that year-over-year prices declined by 0.8 percent in February 2012 compared to February 2011. Distressed sales include short sales and real estate owned (REO) transactions.

“House prices, based on data through February, continue to decline, but at a decreasing rate. The deceleration in the pace of decline is a first step toward ultimately growing again,” said Mark Fleming, chief economist for CoreLogic. “Excluding distressed sales, we already see modest price appreciation month over month in January and February.”

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was down 0.8% in February, and is down 2.0% over the last year.

The index is off 34.4% from the peak - and is now at a new post-bubble low.

The second graph is from CoreLogic. As Mark Fleming noted, the year-over-year declines are getting smaller - this is the smallest year-over-year decline since 2010 when prices were impacted by the housing tax credit.

Some of this decline was seasonal (the CoreLogic index is NSA) and month-to-month price changes will probably remain negative through March.

by Calculated Risk on 4/04/2012 08:15:00 AM

ADP reports:

Employment in the U.S. nonfarm private business sector increased by 209,000 from February to March on a seasonally adjusted basis. Estimated gains for previous months were revised higher; the gain from December to January was revised up by 9,000 to 182,000, and the gain from January to February was revised up by 14,000 to 230,000.

Employment in the private, service-providing sector increased 164,000 in March, after rising a revised 183,000 in February. Employment in the private, goods-producing sector rose 45,000 in March. Manufacturing employment added 23,000 jobs.

This was slightly above the consensus forecast of an increase of 208,000 private sector jobs in March. The BLS reports on Friday, and the consensus is for an increase of 201,000 payroll jobs in March, on a seasonally adjusted (SA) basis.

Government payrolls have been shrinking, so the ADP report suggests close to 200,000 nonfarm payroll jobs added in March. Note: ADP hasn't been very useful in predicting the BLS report.

by Calculated Risk on 4/04/2012 12:12:00 AM

Reis reported that the apartment vacancy rate (82 markets) fell to 4.9% in Q1 from 5.2% in Q4 2011. The vacancy rate was at 6.1% in Q1 2010 and peaked at 8.0% at the end of 2009.

From Reuters: U.S. apartment vacancy rate falls to decade low

The U.S. apartment vacancy rate in the first quarter fell to its lowest level in more than a decade, and rents posted their biggest jump in four years ...

The national vacancy rate fell 0.30 percentage points in the first quarter to 4.9 percent, the lowest level since the fourth quarter 2001, according to preliminary results Reis released Wednesday.
...
Stripping away months of free rent and other perks designed to lure or retain tenants, effective rent rose to $1,018 per month, up 0.9 percent, the largest increase since the first quarter 2008, Reis said.

"I think that rent growth will accelerate this year," said Victor Calanog, head of Research & Economics at Reis.

But that may be short lived. About 150,000-200,000 new units are expected be built next year. That supply likely will dampen rent growth next year ...

"Once that supply hits the market next year, we may find that this is the year rent growth peaked," he said. "It's still going to be a great year for apartment landlords."

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 2005.

Reis is just for large cities, but this decline in vacancy rates is happening just about everywhere.

by Calculated Risk on 4/03/2012 08:20:00 PM

From economist Tom Lawler:

Last week HUD released the FHA Single-Family Mutual Mortgage Insurance Fund Quarterly Report to Congress for the first quarter of FY 2012 (ending 12/31/2011), which gave some insights into the disturbing rise is the number of seriously delinquent FHA-insured SF loans, as well on the surprising slow pace of foreclosure resolutions.

At the bottom of this post is a table summarizing SDQ rates by FY endorsement.

And here is a chart from the report showing SDQ rates by calendar year origination and months of seasoning.

Click on graph for larger image.

Needless to say, this is not a pretty picture.

In the discussion on the sizable jump in the FHA’s SF SDQ rate, the report said that

“(t)wo factors appear to be driving this result. The first is the persistency of loans in 90-day delinquency as lenders attempt to craft workout plans, and persistency of loans in foreclosure processing. The second is that the historically large FY 2009 and FY 2010 books-of-business are at the age where their serious delinquency rates are increasing toward their life-cycle peaks. Because those books are much larger than is the new FY 2011 book, their loan-age seasoning patterns are not offset by the low default rates on recent endorsements.”

The report did not mention the sharp falloff in FHA modifications in the second half of 2011.

Relative to the projection in the FY 2011 annual independent actuarial study, actual FHA claims were 52% lower by loan count and 57% lower by dollars, but NOT because the loans are performing better than projected. Here is an excerpt from the report:

“The number of claims paid this quarter (27,356) is down slightly from that of the previous quarter (30,108). The gap between predicted and actual claims paid shows little variation from the previous quarters, with year-to-date counts 52% below forecast, and year-to-date dollars 57% below forecast. The principal contributing factor to this gap continues to be delays in foreclosure processing in many areas of the country. We anticipate the recent settlement will accelerate foreclosure activity, perhaps within the next two quarters.”

The report also included some historical data on the FHA’s loss rate on REO and on pre-foreclosure sales, which showed rising trends in both.

In the quarter ended 12/31/2011, FHA’s loss severity on REO averaged 71.7%, while the loss severity on short sales was 47.4%. Delays in foreclosure processing appear to be a significant factor in rising loss severity rates. The combination of rising SDQs and rising loss severities bodes very poorly for the MMIF outlook, which may help explain the sizable recently-announced hikes in FHA’s premiums.

Here is the table summarizing SDQ rates by FY endorsement.

Serious Delinquency Rate by Endorsement Fiscal Year, FHA SF Mortgages
Endorsement FY	Pre-2007	2007	2008	2009	2010	2011	All Years
Q1/12	12.58%	25.59%	23.83%	10.92%	4.07%	0.93%	9.59%
Q4/11	11.57%	23.36%	21.38%	9.13%	2.96%	0.45%	8.70%
Q3/11	10.77%	21.83%	19.97%	8.05%	2.13%	0.22%	8.18%
Q2/11	10.98%	21.71%	19.49%	7.58%	1.61%	0.08%	8.31%
Q1/11	11.59%	22.44%	19.65%	7.23%	1.20%	0.01%	8.78%
Q4/10	11.41%	21.49%	18.37%	6.08%	0.65%		8.66%
Q3/10	11.15%	21.11%	17.35%	4.94%	0.33%		8.59%
Q2/10	11.56%	21.40%	17.13%	4.07%	0.16%		9.05%
Q1/10	11.89%	21.55%	16.22%	3.05%	0.02%		9.44%
Q4/09	10.72%	18.60%	12.19%	1.59%			8.52%
Q3/09	8.71%	14.23%	8.45%	0.84%			7.14%

by Calculated Risk on 4/03/2012 03:59:00 PM

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.37 million SAAR in March. That is up 10.4% from March 2011, but down 4.4% from the sales rate last month (15.03 million SAAR in Feb 2012).

This was below the consensus forecast of 14.7 million SAAR.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for March (red, light vehicle sales of 14.37 million SAAR from Autodata Corp).

Click on graph for larger image.

The annualized sales rate is up in Q1 from Q4.

March was above the August 2009 rate with the spike in sales from "cash-for-clunkers". Only February had a higher sales rates since early 2008.

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

This shows the huge collapse in sales in the 2007 recession. This also shows the impact of the tsunami and supply chain issues on sales, especially in May and June of last year.

Note: dashed line is current estimated sales rate.

Even though this was below expectations, growth in auto sales will make another strong positive contribution to GDP in Q1 2012.

All current Retail Graphs

by Calculated Risk on 4/03/2012 02:00:00 PM

"Several members" were concerned that the unemployment rate would be elevated, and inflation subdued in late 2014. That would suggest further action now, but, later in the discussion, "a couple of members" indicated further action might be necessary if the "economy lost momentum". So it doesn't seem like there is any push for QE3 in the short term.

From the Fed: Minutes of the Federal Open Market Committee, March 13, 2012. Excerpts:

With the economic outlook over the medium term not greatly changed, almost all members again agreed to indicate that the Committee expects to maintain a highly accommodative stance for monetary policy and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. Several members continued to anticipate, as in January, that the unemployment rate would still be well above their estimates of its longer-term normal level, and inflation would be at or below the Committee's longer-run objective, in late 2014. It was noted that the Committee's forward guidance is conditional on economic developments, and members concurred that the date given in the statement would be subject to revision in response to significant changes in the economic outlook. While recent employment data had been encouraging, a number of members perceived a nonnegligible risk that improvements in employment could diminish as the year progressed, as had occurred in 2010 and 2011, and saw this risk as reinforcing the case for leaving the forward guidance unchanged at this meeting.

The Committee also stated that it is prepared to adjust the size and composition of its securities holdings as appropriate to promote a stronger economic recovery in a context of price stability. A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.

by Calculated Risk on 4/03/2012 11:48:00 AM

Following a ProPublica story last week, Fannie and Freddie: Slashing Mortgages Is Good Business, there was some commentary suggesting that principal reductions would result in a windfall for banks holding 2nd liens.

Michael Stegman, Counselor to the Secretary of the Treasury for Housing Finance Policy responded: GSEs & Principal Reduction: How HAMP Helps More Underwater Homeowners (ht Dan)

Recently, various sources have alleged that large banks will get a windfall if Fannie Mae and Freddie Mac (the GSEs) reduce the principal balance on first lien mortgage loans that are owned or guaranteed by the GSEs. The claims arise from a concern that if the GSEs reduce the principal balance on a GSE first lien mortgage loan, any investor holding a second (and subordinated) lien on the property stands to benefit unfairly.

In fact, the principal reduction program that we have asked the FHFA to allow the GSEs to participate in, the principal reduction alternative of the Home Affordable Modification Program (HAMP), is designed to protect against exactly this result.

Of course, not all under water GSE loans have second liens. But if they do, under HAMP, where a first lien mortgage is modified, then the holder of an eligible second lien must modify that lien proportionately if they are a participant in the Second Lien Modification Program (2MP). ...

So quite contrary to providing a windfall to the banks, GSE participation in this program would force them to help homeowners even further by writing down these second lien loans.

The bank "windfall" argument was incorrect.

However a valid point was raised by Tom Lawler: The program might make sense to Fannie and Freddie only if the Treasury incentive is included. If that is the case, then the program might not make sense for taxpayers.

Principal reduction can be a very effective and cost saving program if done correctly, but I have to see the details of the proposal before deciding if this makes sense.

by Calculated Risk on 4/03/2012 09:24:00 AM

LPS released their Mortgage Monitor report for February today.

According to LPS, 7.57% of mortgages were delinquent in February, down sharply from 7.97% in January, and down from 8.80% in February 2011.

LPS reports that 4.13% of mortgages were in the foreclosure process, down slightly from 4.15% in January, and down slightly from 4.15% in February 2011.

This gives a total of 11.7% delinquent or in foreclosure. It breaks down as:

• 2,059,000 loans less than 90 days delinquent.
• 1,722,000 loans 90+ days delinquent.
• 2,065,000 loans in foreclosure process.

For a total of 5,846,000 loans delinquent or in foreclosure in February.

Click on graph for larger image.

This graph shows the total delinquent and in-foreclosure rates since 1995.

The total delinquent rate has fallen to 7.57% from the peak in January 2010 of 10.97%, but the decline has halted. A normal rate is probably in the 4% to 5% range, so there is a long ways to go.

The in-foreclosure rate was at 4.11%, down from the record high in October 2011 of 4.29%. There are still a large number of loans in this category (about 2.07 million).

This graph provided by LPS Applied Analytics shows foreclosure starts and sales.

Foreclosure starts and sales were up in January, but then declined in February. This was before the mortgage servicer settlement was announced in mid-February and filed with the court in March, so it is still too early to see the impact of the settlement.