by Calculated Risk on 4/12/2012 09:09:00 AM

The Department of Commerce reported:

[T]otal February exports of $181.2 billion and imports of $227.2 billion resulted in a goods and services deficit of $46.0 billion, down from $52.5 billion in January, revised. February exports were $0.2 billion more than January exports of $180.9 billion. February imports were $6.3 billion less than January imports of $233.4 billion

The trade deficit was well below the consensus forecast of $51.7 billion.

The first graph shows the monthly U.S. exports and imports in dollars through January 2012.

Click on graph for larger image.

Exports increased slightly in February, while imports decreased sharply. Exports are well above the pre-recession peak and up 9% compared to February 2011; imports are near the pre-recession high and imports are up about 8% compared to February 2011.

The second graph shows the U.S. trade deficit, with and without petroleum, through February.

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.

Oil averaged $103.63 per barrel in February, down slightly from January. The decline in imports was a combination of less petroleum imports and less imports from China.

Exports to the European Union were $22.5 billion in February, up from $20.0 billion in February 2011.

by Calculated Risk on 4/12/2012 08:30:00 AM

The DOL reports:

In the week ending April 7, the advance figure for seasonally adjusted initial claims was 380,000, an increase of 13,000 from the previous week's revised figure of 367,000. The 4-week moving average was 368,500, an increase of 4,250 from the previous week's revised average of 364,250.

The previous week was revised up to 367,000 from 357,000.

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

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 368,500.

The 4-week moving average has been moving sideways at this level for about two months.

And here is a long term graph of weekly claims:



This is the highest level for weekly claims since January.

All current Employment Graphs

by Calculated Risk on 4/12/2012 12:01:00 AM

From RealtyTrac: Q1 2012 Foreclosure Activity Lowest Since Q4 2007

RealtyTrac ... today released its U.S. Foreclosure Market Report™ for the first quarter of 2012, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 572,928 properties during the quarter, down 2 percent from the previous quarter and down 16 percent from the first quarter of 2011.

The first quarter total was the lowest quarterly total since the fourth quarter of 2007, when 527,740 properties with foreclosure filings were reported.

Foreclosure filings were reported on 198,853 U.S. properties in March, a 4 percent decrease from February and a 17 percent decrease from March 2011. March’s total was the lowest monthly total since July 2007, and also the first monthly total below 200,000 since July 2007.

“The low foreclosure numbers in the first quarter are not an indication that the massive reservoir of distressed properties built up over the past few years has somehow miraculously evaporated,” said Brandon Moore, chief executive officer of RealtyTrac. “There are hairline cracks in the dam, evident in the sizable foreclosure activity increases in judicial foreclosure states over the past several months, along with an increase in foreclosure starts in many judicial and non-judicial states in March. The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen — both in terms of new foreclosure activity and new short sale activity.”
...
The nationwide decrease in foreclosure activity was caused primarily by decreasing activity in states that use the non-judicial foreclosure process. These 24 states combined, along with the District of Columbia, had 329,854 properties with foreclosure filings during the quarter, more than half the national total — but a decrease of 8 percent from the previous quarter and a decrease of 28 percent from the first quarter of 2011.
...
Meanwhile foreclosure activity increased in states that primarily use the judicial foreclosure process. These 26 states combined accounted for 243,074 properties with foreclosure filings during the quarter, an increase of 8 percent from the previous quarter and an increase of 10 percent from the first quarter of 2011.

Judicial states posting some of the biggest year-over-year increases in foreclosure activity in the first quarter included Indiana (up 45 percent), Connecticut (up 38 percent), Massachusetts (up 26 percent), Florida (up 26 percent), South Carolina (up 26 percent), and Pennsylvania (up 23 percent).

The mortgage settlement was just signed off last week, so we really have to wait until April or May to see the impact of the settlement. Obviously RealtyTrac thinks the dam is about to burst and the market will be flooded again with foreclosures. My feeling is this will have more of an impact on the judicial states because of the huge backlog in those states.

by Calculated Risk on 4/11/2012 07:15:00 PM

Fed Vice Chair Janet Yellen argues that the Fed is falling "far short" of the "maximum employment objective", and that inflation will be "at or below the FOMC's longer-run goal of 2 percent". She discusses reasons for considering keeping the Fed funds rate close to zero "until late 2015" as opposed to the current 2014.

On QE3, she discussed additional stimulus "if the recovery faltered or inflation drifted down", but then added "doing so involves costs and risks."

From Fed Vice Chair Janet Yellen: The Economic Outlook and Monetary Policy. Excerpt:

I see no good reason to doubt that our nation's high unemployment rate indicates a substantial degree of slack in the labor market. Moreover, while I recognize the significant uncertainty surrounding such forecasts, I anticipate that growth in real gross domestic product (GDP) will be sufficient to lower unemployment only gradually from this point forward, in part because substantial headwinds continue to restrain the recovery.

One headwind comes from the housing sector, which has typically been a driver of business cycle recoveries. We have seen some improvement recently, but demand for housing is likely to pick up only gradually given still-elevated unemployment, uncertainties over the direction of house prices, and mortgage credit availability that seems likely to remain very restricted for all but the most creditworthy buyers. When housing demand does pick up more noticeably, the huge overhang of both unoccupied dwellings and homes in the foreclosure pipeline will likely allow demand to be met for a time without a sizable expansion in homebuilding.

A second headwind comes from fiscal policy. State and local governments continue to face extremely tight budget situations in light of the weak economy, depressed home prices, and the phasing out of federal stimulus grants, though overall tax revenues have been improving and that should continue as the economy expands further. At the federal level, stimulus-related policies are scheduled to wind down, while both real defense and nondefense purchases are expected to decline over the next several years under the spending caps put in place last year.

A third factor weighing on the outlook is the sluggish pace of economic growth abroad. Strains in global financial markets have eased somewhat since late last year, an improvement that reflects in part policy actions taken by European authorities. Nonetheless, risk premiums on sovereign debt and other securities are still elevated in many European countries, while European banks continue to face pressure to shrink their balance sheets, and concerns about the outlook for the region remain. A further slowdown in economic activity in Europe and in other foreign economies would inhibit U.S. export growth.

For these reasons, I anticipate that the U.S. economy will continue to recover only gradually and that labor market slack will remain substantial for a number of years to come.

And on inflation:

Let me now turn to inflation. Overall consumer price inflation has fluctuated quite a bit in recent years, largely reflecting movements in prices for oil and other commodities. ...

In my view, the subdued inflation environment largely reflects two factors. First, the substantial slack in the labor market has restrained inflation by holding down labor costs. Second, and of critical importance, longer-term inflation expectations have been remarkably stable.

Conclusion:

In summary, I expect the economic recovery to continue--indeed, to strengthen somewhat over time. Even so, over the next several years, I anticipate that we will fall far short in achieving our maximum employment objective, and I expect inflation to remain at or below the FOMC's longer-run goal of 2 percent.

by Calculated Risk on 4/11/2012 02:00:00 PM

Fed's Beige Book:

Reports from the twelve Federal Reserve Districts indicated that the economy continued to expand at a modest to moderate pace from mid-February through late March. Activity in the Boston, Atlanta, Chicago, Dallas, and San Francisco Districts grew at a moderate pace, while Cleveland and St. Louis cited modest growth. New York reported that economic growth picked up somewhat. Philadelphia and Richmond cited improving business conditions. The economy in Minneapolis grew at a solid pace and Kansas City's economy expanded at a faster pace.

And on real estate:

Residential real estate activity improved in most Districts, though Cleveland and San Francisco noted that activity remained lackluster or at low levels. The St. Louis and Minneapolis Districts reported increases in building permits. The construction of multi-family housing units, including apartments and senior housing, expanded in many Districts. Home prices continued to decline in Boston, New York, and Minneapolis, but were largely flat in San Francisco. Contacts in Boston, Philadelphia, and Kansas City indicated that mild weather had boosted real estate activity.

Non-residential construction activity improved in the Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis Districts, though many of these contacts characterized the improvement as slow. Boston, New York, and San Francisco characterized non-residential real estate activity as unchanged or steady. The energy and high-tech sectors were driving much of the demand in the Dallas District. San Francisco noted a rise in the demand for office space from the technology sector. Cleveland and Chicago saw a boost in healthcare-related construction. Projects related to the education sector are showing growth in Boston, Cleveland, Philadelphia, and Richmond. The outlook of builders is described as positive or slowly improving in the Philadelphia, Cleveland, Atlanta, and Kansas City Districts, and as cautiously optimistic in Boston.

Prepared by the Federal Reserve Bank of Cleveland based on information collected on or before April 2, 2012. Mostly sluggish growth, but some positive comments on residential real estate ...

by Calculated Risk on 4/11/2012 11:38:00 AM

BLS economist Mitra Toossi released some new projections for the participation rate as of January 2012: Labor force projections to 2020: a more slowly growing workforce. This post updates a couple of graphs with these projections.

A key issue is what will happen to the labor force participation rate as the economy slowly recovers. In 2010 I looked at some of the cyclical and long term trends for the participation rate: Labor Force Participation Rate: What will happen? I concluded that a majority of the recent decline in the participation rate is due to changes in demographics.

Changes in population and the participation rate can significantly impact the unemployment rate. If the Civilian noninstitutional population (over 16 years old) grows by about 2 million per year - and the participation rate stays flat - the economy will need to add about 94 thousand jobs per month to keep the unemployment rate steady at 8.2%.

However if the population grows faster (say 2.5 million per year), and/or the participation rate rises, it could take significantly more jobs per month to hold the unemployment rate steady. As an example, if the working age population grows 2.5 million per year and the participation rate rises to 65% (from 63.8%) over the next two years, the economy will need to add 227 thousand jobs per month to hold the unemployment rate steady.

A big difference!

Note: These calculations were done with the Atlanta Fed Jobs Calculator.

That is why forecasting the participation rate is important - and why reports of the number of jobs needed to hold the unemployment rate steady are all over the place and can be very confusing.

Here is an update to a couple of graphs based on Toossi's projections.

Click on graph for larger image.

Note that Toossi is expecting a couple of recent trends to continue: lower participation rates for people in the 16 to 24 year age group (I think this decline is mostly due to more people attending college), and an increase in the participation for older age groups (I think this increase is due to several factors including less physically strenuous jobs, and, unfortunately, financial need).

The second graph shows the actual annual participation rate and two forecasts based on changes in demographics. Now that the leading edge of the baby boom generation is starting to retire, the participation rate is declining and will probably continue to decline for the next 20 years.

This suggests that any bounceback in the participation rate as the economy recovers will probably be fairly small, and the number of jobs needed to hold the unemployment rate steady is probably closer to 100 thousand per month than the frequently report 150+ thousand per month.

Here is the paper with the longer term projection, from Austin State University Professor Robert Szafran in September 2002: Age-adjusted labor force participation rates, 1960–2045 (these projections were made before the recession).

by Calculated Risk on 4/11/2012 08:29:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Refinance Index decreased 3.1 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.5 percent from one week earlier. ... There was no adjustment made for Good Friday.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.10 percent from 4.16 percent, with points remaining unchanged at 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. This is the lowest 30-year fixed rate since March 9, 2012.

Yesterday, the FHFA acting director Ed DeMarco commented on HARP refinances:

"[M]any of the largest lenders are seeing tremendous homeowner interest [in HARP]. FHFA and the Enterprises expect the volume of HARP loans to increase in the very near future."

by Calculated Risk on 4/10/2012 07:29:00 PM

Here is a very good overview (and fairly short) of US mortgage and foreclosure law by Zachary Kimball and Paul Willen at The New Palgrave Dictionary of Economics.

This article discusses title and liens, the differences between judicial states and non-judicial states, judgments and recourse, the Mortgage Electronic Registration System (MERS) and much more.

Here is an excerpt:

Two types of foreclosure by sale emerged in US law. The first is foreclosure by judicial sale, in which the lender petitions the court and the court orders a foreclosure auction. Judicial sale is available in every jurisdiction. The alternative approach is that, when the mortgage is originated, the borrower gives the lender the right to carry out a foreclosure auction in the event of default, a right known as the ‘power of sale’ (Osborne, 1951, p. 992). Although rare in the early 19th century, power-of-sale foreclosure became more common in the USA over time (Osborne, 1951, p. 993).

Power-of-sale foreclosure is available in a majority of states. In general, states in the south and west of the country offer power of sale and states in the north and east are judicial; whether power-of-sale or judicial foreclosure is the preferred method aligns almost exactly with whether the state follows title or lien theory, respectively. Of the states with the most severe foreclosure problems in the current crisis, Arizona, California and Nevada all allow power-of-sale foreclosure, while Florida only allows judicial foreclosure. Other notable judicial states include Illinois, New York and New Jersey. For fuller discussion of judicial and power-of-sale foreclosure, see Gerardi et al. (2011) and National Consumer Law Center (2010).

by Calculated Risk on 4/10/2012 04:45:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities. Prices, as of the January report, were off 61.8% from the peak according to Case-Shiller, and off 9.1% over the last year.

Sales in 2011 were at record levels - even more than during the bubble - and it looks like 2012 will be an even stronger year, even with some new rules that slow the foreclosure process.

From the LVGAR: GLVAR reports local home prices, sales rising as inventory shrinks

According to GLVAR, the total number of local homes, condominiums and townhomes sold in March was 4,388. That’s up from 3,794 in February, and up from 4,316 total sales in March 2011.
...
Compared to one year ago, home sales were up 4.4 percent, while condo and townhome sales were down 8.4 percent.
...
The total number of homes listed for sale on GLVAR’s Multiple Listing Service again decreased from February to March, with a total of 18,200 single-family homes listed for sale at the end of the month. That’s down 3.6 percent from 18,870 single-family homes listed for sale at the end of February and down 18.0 percent from one year ago.
...
By the end of March, GLVAR reported 4,901 single-family homes listed without any sort of offer. That’s down 25.1 percent from 6,543 such homes listed in February and down 56.8 percent from one year ago.
...
“Our inventory is really dropping,” said GLVAR President Kolleen Kelley, a longtime local REALTOR®. “Based on current demand, we’re looking at a six-week supply of homes on the market. This is making new homes more attractive and creating a window of opportunity for home builders.”

Economist Tom Lawler sent me the following table for several distressed areas that have reported so far for March.

CR Note: This could be very useful data over the next several months (and years) as we try to track the impact of the mortgage servicer settlement and to see if the markets are improving. For all of the areas, the distressed share of sales is down from March 2011, the share of short sales has increased and the share of foreclosure sales are down - and down significantly in some areas.

Look at Phoenix: Short sales have increased from 19.1% to 25.7%, and foreclosures have declined from 46.2% to 21.1%.

Note: The table is a percentage of total sales.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Mar	11-Mar	12-Mar	11-Mar	12-Mar	11-Mar
Las Vegas	26.6%	23.6%	40.7%	47.6%	67.3%	71.2%
Reno	34.0%	30.0%	32.0%	41.0%	66.0%	71.0%
Phoenix	25.7%	19.1%	21.1%	46.2%	46.7%	65.3%
Mid-Atlantic (MRIS)	13.2%	13.1%	14.7%	26.3%	27.9%	39.5%

by Calculated Risk on 4/10/2012 02:43:00 PM

From Andrew Ross at the San Francisco Chronicle: Hot 'spec' deal 1st in S.F. since recession began

It's not every day that a parking lot goes for $41 million. In cash.
...
Late last week, New York's Tishman Speyer Properties closed escrow on the space, which, by the end of next year will be transformed into a 10-story, 286,000-square-foot office building ...

Two distinguishing aspects of the deal: It's the first "spec development" (i.e. built from the ground up with no signed tenants) in the city since the onset of the recession in 2007, and no debt financing is involved. The land, architectural plans and construction costs - the latter estimated between $180 million and $185 million - is "funded with all equity," said [Allen Palmer, managing director at Tishman Speyer's San Francisco office].

Last week Reis reported that the office vacancy rate (major markets) declined slightly to 17.2% in Q1 from 17.3% in Q4 2011. Reis noted:

Weak supply growth remains a tailwind for improvement in the office sector. During the first quarter of 2012 only 1.917 million square feet of office space were completed [in the markets Reis tracks]. This represents the lowest quarterly level on record since Reis began tracking quarterly market data in 1999.

There has been some new construction here and there (like the PIMCO tower in Newport Beach), but very little spec building. And this building in San Francisco is being built with no financing.