by Calculated Risk on 5/19/2012 06:00:00 PM

We can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction

We are often asked why the numbers of new single-family housing units started and completed each month are larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series.

However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis. The Q1 2012 quarterly report was released this week and showed there were 77,000 single family starts, built for sale, in Q1 2012, and that was below the 83,000 new homes sold for the same quarter (Using Not Seasonally Adjusted data for both starts and sales).

This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

Click on graph for larger image.

Single family starts built for sale were up about 17% compared to Q1 2011. Usually Q2 is the strongest quarter seasonally, and single family starts, built for sale, will probably be close to 100 thousand in Q2 - the highest level since 2008.

Owner built starts were up 30% year-over-year from a record low in Q1 2011. And condos built for sale are still near the record low.

The 'units built for rent' has increased significantly and is up about 41% year-over-year.

The second graph shows the difference (quarterly) between single family starts, built for sale and new home sales.

In 2005, and most of 2006, starts were higher than sales, and inventories of new homes increased. In 2008 and 2009, the home builders started far fewer homes than they sold as they worked off the excess inventory they had built up in 2005 and 2006.

For the last 2+ years, the builders have sold a few more homes than they started, and inventory levels are now at record lows. In Q1, builders started 6 thousand fewer homes than they sold.

Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions). This is not perfect because of the handling of cancellations, but it does suggest the builders are keeping inventories.

Earlier:
• Summary for Week Ending May 18th
• Schedule for Week of May 20th

by Calculated Risk on 5/19/2012 01:31:00 PM

Earlier:
• Summary for Week Ending May 18th

There are two key housing reports to be released this week: April existing home sales on Tuesday, and April new home sales on Wednesday.

Other key reports include durable goods on Thursday, and two regional manufacturing surveys.

Note: The FDIC might release the Q1 Quarterly Bank Profile this week.

----- Monday, May 21st -----
5:15 AM ET: Atlanta Fed President Dennis Lockhart speaks in Tokyo on monetary policy.

8:30 AM: Chicago Fed National Activity Index (April). This is a composite index of other data.
----- Tuesday, May 22nd -----
10:00 AM: Existing Home Sales for April from the National Association of Realtors (NAR).

The consensus is for sales of 4.66 million on seasonally adjusted annual rate (SAAR) basis. Sales in March 2012 were 4.48 million SAAR.

Housing economist Tom Lawler is forecasting the NAR will report sales of 4.53 million in April.

A key will be inventory and months-of-supply.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for May. The consensus is for a decrease to 11 for this survey from 14 in April (above zero is expansion).

----- Wednesday, May 23rd -----
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.

10:00 AM ET: New Home Sales for April from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the March sales rate.

The consensus is for an increase in sales to 335 thousand Seasonally Adjusted Annual Rate (SAAR) in April from 328 thousand in March. This might be a little low based on recent builder comments and reports, and the homebuilder confidence survey. Watch for upward revisions to prior reports.

10:00 AM: FHFA House Price Index for March 2012. This is based on GSE repeat sales and is no longer as closely followed as Case-Shiller (or CoreLogic).

----- Thursday, May 24th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to be essentially unchanged at 371 thousand compared to 370 thousand last week.

8:30 AM: Durable Goods Orders for April from the Census Bureau. The consensus is for a 0.5% increase in durable goods orders.

10:30 AM: New York Fed President William C. Dudley will speak on the regional economy and participate in a Q&A session with media. The New York Fed might release the Q1 2012 Report on Household Debt and Credit

11:00 AM: Kansas City Fed regional Manufacturing Survey for May. The index was at 3 in April (above zero is expansion).

----- Friday, May 25th -----
9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for May). The consensus is for no change from the preliminary reading of 77.8.

SIFMA recommends US markets close at 2:00 PM ET in advance of the Memorial Day Holiday on May 28th.

by Calculated Risk on 5/19/2012 08:27:00 AM

The headlines last week were once again mostly about Europe and Greece, especially the possibility of Greece exiting the euro (aka "Grexit") after the next election on June 17th. The outcome of the election is uncertain, although most Greeks and European policymakers would like Greece to stay in the euro. One thing is certain, Greece will be in the headlines for at least another month.

Most of the US economic data was at or above expectations last week. An exception was the Philly Fed manufacturing survey, but that was partially offset by faster expansion in the Empire State survey.

Housing starts were solid as the slow housing recovery continues. Industrial production and capacity utilization increased, and the mortgage deliquencies are trending down.

The US economy remains sluggish. However, excluding Europe (and other international issues), the outlook would be improving. Two key questions are: what will happen in Greece and Europe? and how will that impact the US economy? I'll try to add some thoughts soon, but even with the problems in Europe, a recession in the US seems unlikely this year.

Here is a summary in graphs:

• Housing Starts increased to 717,000 in April

Click on graph for larger image.

Total housing starts were at 717 thousand (SAAR) in April, up 2.6% from the revised March rate of 699 thousand (SAAR). Note that March was revised up sharply from 654 thousand to 699 thousand..

Single-family starts increased 2.3% to 492 thousand in April. March was revised up to 481 thousand from 462 thousand.

Total starts are up 50% from the bottom, and single family starts are up 39% from the low.

This was above expectations of 690 thousand starts in April, and was especially strong given the upward revisions to prior months.

All Housing Investment and Construction Graphs
• Retail Sales increased 0.1% in April

On a monthly basis, retail sales were up 0.1% from March to April (seasonally adjusted), and sales were up 6.4% from April 2011. Ex-autos, retail sales also increased 0.1% in April.

Sales for March was revised down to a 0.7% increase from 0.8%, and February was revised down to 1.0% from 1.1%.

This graph shows monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales are up 23.1% from the bottom, and now 7.7% above the pre-recession peak (not inflation adjusted)

This was at the consensus forecast for retail sales of a 0.1% increase in April, and below the consensus for a 0.2% increase ex-auto.

All current retail sales graphs
• Industrial Production up in April, Capacity Utilization increases

This graph shows Capacity Utilization. This series is up 12.4 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 79.2% is still 1.1 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 80.6% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production increased in April to 97.4. March was revised down (so the month-to-month increase was greater than expected), and February was revised up.

The consensus was for a 0.5% increase in Industrial Production in April, and for an increase to 79.0% (from 78.7%) for Capacity Utilization. This was above expectations.


All current manufacturing graphs
• MBA: Mortgage Delinquencies decline in Q1

The MBA reported that 11.79 percent of mortgage loans were either one payment delinquent or in the foreclosure process in Q1 2012 (delinquencies seasonally adjusted). This is down from 11.96 percent in Q4 2011 and is the lowest level since 2008.

This graph is from the MBA and shows the percent of loans in the foreclosure process by state. Posted with permission.

The top states are Florida (14.31% in foreclosure), New Jersey (8.37%), Illinois (7.46%), Nevada (the only non-judicial state in the top 10 at 6.47%), and New York (6.17%).

As Jay Brinkmann, MBA’s Chief Economist and Senior Vice President for Research and Education noted, the biggest problem is the number of loans in the foreclosure process. This is primarily a problem in states with a judicial foreclosure process. States like California and Arizona are now below the national average of percent of loans in the foreclosure process.

The second graph shows the percent of loans delinquent by days past due.

Loans 30 days delinquent decreased to 3.13% from 3.22% in Q4. This is at about 2007 levels and around the long term average.

Delinquent loans in the 60 day bucket decreased to 1.21% in Q1, from 1.25% in Q4. This is the lowest level since Q4 2007.

There was a decrease in the 90+ day delinquent bucket too. This decreased to 3.06% from 3.11% in Q4 2011. This is the lowest level since 2008, but still way above normal (around 0.8% would be normal according to the MBA).

The percent of loans in the foreclosure process increased slightly to 4.39% from 4.38%.

• Regional manufacturing activity mixed in May Surveys

From the Philly Fed: May 2012 Business Outlook Survey

Firms responding to the May Business Outlook Survey indicated that manufacturing growth fell back from the pace of recent months. The survey’s broad indicators for general activity fell into negative territory for the first time in eight months. Indicators for new orders and employment also suggested slight declines from April.

From the NY Fed: May Empire State Manufacturing Survey indicates manufacturing activity expanded at a moderate pace

The May Empire State Manufacturing Survey indicates that manufacturing activity expanded in New York State at a moderate pace. The general business conditions index rose eleven points to 17.1.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through May. The ISM and total Fed surveys are through April.

The NY and Philly Fed surveys went in opposite directions this month. The NY Fed survey showed stronger expansion; the Philly Fed survey indicated contraction. The average of the Empire State and Philly Fed surveys declined in May, and is at the lowest level this year.

• Weekly Initial Unemployment Claims at 370,000

The DOL reports:

In the week ending May 12, the advance figure for seasonally adjusted initial claims was 370,000, unchanged from the previous week's revised figure of 370,000. The 4-week moving average was 375,000, a decrease of 4,750 from the previous week's revised average of 379,750.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 375,000.

The 4-week average has declined for two consecutive weeks. The average has been between 363,000 and 384,000 all year.

This was above the consensus of 365,000.


All current Employment Graphs
• AIA: Architecture Billings Index indicates contraction in April

From AIA: Architecture Billings Index Reverts to Negative Territory

After five months of positive readings, the Architecture Billings Index (ABI) has fallen into negative terrain. ... The American Institute of Architects (AIA) reported the April ABI score was 48.4, following a mark of 50.4 in March.

This graph shows the Architecture Billings Index since 1996. The index was at 48.4 in April. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This is just one month - and as Baker noted, this might be payback for the mild weather earlier in the year - but this suggests CRE investment will stay weak all year (it will be some time before investment in offices and malls increases).


All current Commercial Real Estate graphs
• Key Measures of Inflation in April

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.3% annualized rate) in April. The 16% trimmed-mean Consumer Price Index increased 0.2% (1.9% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.
...
Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers was flat at 0.0% (0.4% annualized rate) in April. The CPI less food and energy increased 0.2% (2.9% annualized rate) on a seasonally adjusted basis.

This graph shows the year-over-year change for core CPI, core PCE, median CPI and the trimmed-mean CPI. On a year-over-year basis, the median CPI rose 2.4%, the trimmed-mean CPI rose 2.3%, and core CPI rose 2.3%. Core PCE is for March and increased 2.0% year-over-year.

These measures show inflation on a year-over-year basis is mostly still above the Fed's 2% target.

• Other Economic Stories ...
• NAHB Builder Confidence increases in May, Highest since May 2007
• Lawler: Early Read on Existing Home Sales in April
• Greece: Election is June 17th
• Hotels: RevPAR increases 4.5% compared to same week in 2011
• State Unemployment Rates decline in 37 states in April

by Calculated Risk on 5/18/2012 09:13:00 PM

Remarks from Herman Van Rompuy, President of the European Council prior to the G8 summit:

This G8 summit comes at a time of significant challenges to the world economy, and for Europe in particular. As far as Europe is concerned, my message is straightforward: we are determined to stay the course. We will pursue our comprehensive strategy to decrease deficit and debts, and to return to growth and job creation, based on structural reforms, investments and trade. The European Council will discuss a pro-active growth agenda on the dinner on May 23 and we will finalize it on the European Council on 28-29 of June. In that respect it should not be forgotten that in aggregate terms growth in the Euro area is positive and picking up, while our external balances with the rest of the global economy are in equilibrium.

Recently, we have raised our firewalls and increased our contribution to the International Monetary Fund; we have also strengthened economic governance, recapitalised banks and provided ample bank liquidity through the European Central Bank. This week, finance ministers of the EU also made further significant progress in putting into European law the international Basel 3 agreements. We will do whatever is needed to guarantee the financial stability of the euro zone.

In parallel, most EU countries are engaged in very ambitious reforms to ensure debt sustainability, raise productivity and improve competitiveness. This is particularly the case in Spain - where the Government has embarked on a set of comprehensive reforms - and in Italy, as also positively recognized by the IMF after its consultation with Rome this week. I am confident they will succeed.

As regards Greece, I do not hide my concern about the current political uncertainty. Greece is a member of the EU and the Euro zone and this membership implies solidarity and responsibility. The Euro zone has shown considerable solidarity, supplying nearly € 150bn in loans to Greece so far. Alongside this support the EU is developing a huge effort to help reviving the Greek economic potential.

We do not question Greece's sense of responsibility and are hopeful that the next Greek government will act in accordance with the country's engagement and its European future. Continued reform is the best guarantee for the Greek economy and for a future of the Greek people in the euro area.

The long awaited "growth agenda" will finalized in late June. Most likely too little, too late.

I'm not sure what Van Rompuy means by "aggregate growth in the Euro area is positive and picking up". According to Eurostat, "GDP remained stable in both the euro area1 (EA17) and the EU271 during the first quarter of 2012, compared with the previous quarter". Flat line isn't growth.

Although Van Rompuy expressed "concern" about Greece, he also said the EU will "do whatever is needed to guarantee the financial stability of the euro zone". It is important to remember that these guys are committed to the euro - and they will not give up easily.

by Calculated Risk on 5/18/2012 06:26:00 PM

Alabama bank
Torpedoed in sea of debt
Sunk by crimson tide
by Soylent Green is People
From the FDIC: Southern States Bank, Anniston, Alabama, Assumes All of the Deposits of Alabama Trust Bank, National Association, Sylacauga, Alabama

As of March 31, 2012, Alabama Trust Bank, National Association had approximately $51.6 million in total assets and $45.1 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $8.9 million. ... Alabama Trust Bank, National Association is the 24th FDIC-insured institution to fail in the nation this year, and the first in Alabama.

It may be small, but it still counts. It's Friday, Friday ...

by Calculated Risk on 5/18/2012 01:46:00 PM

The Greek election is still a month away ...

From the WSJ: EU Official: Greek Exit Plans Discussed

The European Commission and the European Central Bank are drawing up plans should Greece abandon the euro, Trade Commissioner Karel De Gucht said in an interview published Friday, the first time a senior European Union official has acknowledged such preparations.

The ECB and the commission are "working on emergency scenarios in case Greece doesn't make it," Mr. De Gucht said in an interview with the Flemish newspaper De Standaard.
...
European Economics Commissioner Olli Rehn quickly countered Mr. De Gucht's comments about the contingency plans, saying: "We are not working on the scenario of a Greek exit. We are working on the basis of a scenario of Greece staying in."

Here are some comments from analysts at Nomura:

• We expect the ECB to cut the refi rate to 0.50% in July with risks skewed towards less and later; a policy error in our view.
• We assume that the eurozone crisis will escalate and further increase pressure on the ECB: ultimately we expect QE.
• Based on current political trends, a Greek euro-area exit looks probable rather than possible following the 17 June election.

And some other commentary:
From Paul Krugman at the NY Times: Apocalypse Fairly Soon

Right now, Greece is experiencing what’s being called a “bank jog” — a somewhat slow-motion bank run, as more and more depositors pull out their cash in anticipation of a possible Greek exit from the euro. Europe’s central bank is, in effect, financing this bank run by lending Greece the necessary euros; if and (probably) when the central bank decides it can lend no more, Greece will be forced to abandon the euro and issue its own currency again.

This demonstration that the euro is, in fact, reversible would lead, in turn, to runs on Spanish and Italian banks. Once again the European Central Bank would have to choose whether to provide open-ended financing; if it were to say no, the euro as a whole would blow up.

Yet financing isn’t enough.

From Tim Duy at Fed Watch: Closer to Colliding

Can the Troika cave to Greece while remaining credible with other troubled economies? I doubt it - which I think increases the risk that the core of Europe will believe it necessary to create a moral hazard example out of Greece.

Of course, this worked so well with Lehman Brothers. We will just foget about that little detail for the moment.

From Michael Pettis: Europe’s depressing prospects

by Calculated Risk on 5/18/2012 10:33:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were little changed in April. Thirty-seven states and the District of Columbia recorded unemployment rate decreases, five states posted rate increases, and eight states had no change, the U.S. Bureau of Labor Statistics reported today. Forty-eight states and the District of Columbia registered unemployment rate decreases from a year earlier, while only one state experienced an increase and one had no change.
...
Nevada continued to record the highest unemployment rate among the states, 11.7 percent in April [down from 12.0 in March]. Rhode Island and California posted the next highest rates, 11.2 and 10.9 percent, respectively. North Dakota again registered the lowest jobless rate, 3.0 percent, followed by Nebraska, 3.9 percent, and South Dakota, 4.3 percent.

Click on graph for larger image in graph gallery.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). Every state has some blue - indicating no state is currently at the maximum during the recession.

The states are ranked by the highest current unemployment rate. Only three states still have double digit unemployment rates: Nevada, Rhode Island, and California. This is the fewest since January 2009. In early 2010, 18 states and D.C. had double digit unemployment rates.

The states with the largest decrease in the unemployment rate are Michigan, Alabama, Tennessee, South Carolina, Ohio and Oregon. The states with the smallest improvement are New Jersey and New York.

All current employment graphs

by Calculated Risk on 5/18/2012 08:49:00 AM

From HotelNewsNow.com: St. Louis posts top occupancy, RevPAR gains

Overall, the U.S. hotel industry’s occupancy ended the week virtually flat with a 0.1% increase to 62.7%, ADR increased 4.5% to $105.85 and RevPAR jumped 4.5% to $66.35.

Hotel occupancy and RevPAR have improved from 2011, and occupancy is back close to normal. However ADR is still 3% to 4% below the precession levels, and the same for RevPAR.

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using a four week average.

Click on graph for larger image.

The red line is for 2012, yellow is for 2011, blue is "normal" and black is for 2009 - the worst year since the Great Depression for hotels.

Looking forward, leisure travel usually increases over the summer months, and occupancy rates will rise. So far it looks like 2012 will have higher occupancy than 2011, but still mostly below the pre-rececession median. Hotels have come a long way since 2008 when I was writing about The Coming Hotel Bust. But it will be sometime before investment increases again.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 5/17/2012 11:08:00 PM

The only economic release schedule for Friday is the State Employment and Unemployment report for April.

• From Freddie Mac: Fixed Mortgage Rates Hit Record Lows Again

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates again hitting new record lows. The 30-year fixed-rate mortgage at 3.79 percent continues to remain well below 4 percent and 15-year fixed-rate mortgages are also slightly down at 3.04 percent.

30-year fixed-rate mortgage (FRM) averaged 3.79 percent with an average 0.7 point for the week ending May 17, 2012, down from last week when it averaged 3.83 percent. Last year at this time, the 30-year FRM averaged 4.61 percent.

• From the WSJ: Ten-Year Treasury Yield Near Record Low

The benchmark note gained 18/32 in price by late-afternoon trading to yield 1.702% after sinking as far as 1.692%. The record low of 1.672% was matched in September and originally set in February 1946. Based on a 3 p.m. EDT finish, 1.702% would be the lowest yield ever to round out a session.

• From the Financial Times: Spain moves to calm bank fears

Moody’s downgraded 16 Spanish banks, with three-notch cuts for the “Big Three” lenders – Santander, BBVA and La Caixa – and three small institutions left in “junk” territory, though the agency made no mention of Bankia.

It said the downgrades were prompted primarily by the deteriorating Spanish economy and the reduced credit-worthiness of the government.
Excerpt with permission

Earlier in the day there were unfounded rumors of a bank run in Spain.

• The Asian markets are all red tonight. From MarketWatch: Asia stocks tumble as Spain joins list of fears

Japan’s Nikkei Stock fell 2.1%, South Korea’s Kopsi dropped 2.7%, and Australia’s S&P/ASX 200 index skidded 2.1%.

Hong Kong’s Hang Seng Index fell 2%, and the Shanghai Composite index lost 0.7%.

by Calculated Risk on 5/17/2012 07:17:00 PM

The election is a month away and Europe will support Greece financially through the next election, but no one knows what will happen at the end of June.

Until the election, the campaign rhetoric will be global front page news. Syriza leader Alexis Tsipras seems to think that Greece can stay in the euro and also break the bailout agreement. His opponents say a vote for Syriza is a vote to exit the euro.

From the AthensNews: Judge to lead Greece to critical eurozone vote

A senior judge was put in charge of an emergency government on Wednesday to lead Greece to new elections on June 17 and bankers sought to calm public fears after the president said political chaos risked causing panic and a run on deposits.

European leaders who once denied vociferously that they were fretting over Greece leaving their currency union have given up pretence. Asked if he was concerned about a Greek exit, European Central Bank chief Mario Draghi said simply: "No comment".

Citizens have been withdrawing hundreds of millions of euros from Greek banks in recent days, as the prospect of the country being forced out of the European Union's common currency zone seems ever more real ...

The "run" on Greek deposits started in 2010, and deposits were already down about one-third before the recent run started. There won't be much left on June 17th.

Right now Syriza is leading in the polls, but the election outcome is uncertain. From the WSJ: Greek Leftist Leader Throws Down Gauntlet on Debt

The head of Greece's radical left party says there is little chance Europe will cut off funding to the country and if it does, Greece will repudiate its debts ...

A financial collapse in Greece would drag down the rest of the euro zone, says Alexis Tsipras, the 37-year-old head of ... Syriza ... Instead, he says, Europe must consider a more growth-oriented policy to arrest Greece's spiraling recession and address what he calls a growing "humanitarian crisis" facing the country.

"Our first choice is to convince our European partners that, in their own interest, financing must not be stopped," Mr. Tsipras said in an interview with The Wall Street Journal. "If we can't convince them—because we don't have the intention to take unilateral action—but if they proceed with unilateral action on their side, in other words they cut off our funding, then we will be forced to stop paying our creditors, to go to a suspension in payments to our creditors."

I think Tsipras is both right and wrong. He is correct about the need for growth policies, but he might be misjudging the European policymakers who seem more and more willing to stop financing Greece.

Many people are asking: Will this be a Lehman moment? US policymakers had many months to prepare for the collapse of Lehman, and the Bush administration was still unprepared when it happened. Are the policymakers in Europe ready for Greece leaving the euro? They sure haven't inspired confidence so far ...