by Calculated Risk on 6/12/2012 08:19:00 AM

From the National Federation of Independent Business (NFIB): Small-Business Optimism Index Stagnates: No Progress Made for Small-Business Sector in May

Dropping just a tenth-of-a-point in the month of May, the Nation Federation of Independent Business (NFIB) Index of Small Business Optimism came in at 94.4. A reading of 94.4 is historically low and consistent with the sub-par performance of GDP and employment growth. The individual indicators were mixed, with expected sales in a three month decline. However, some employment components improved and profit trends remained relatively stable after its sharp gain in April.
...
It appears that sales are improving modestly in the small-business sector. The net percent of all owners (seasonally adjusted) reporting higher nominal sales over the past three months dropped 2 points, falling to two percent, the second highest reading in 60 months (the highest was April’s reading of 4 percent).
...
Twenty (20) percent reported that “poor sales” are their top business problem, up 1 point from April.

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image.

This graph shows the small business optimism index since 1986. The index decreased slightly to 94.4 in May from 94.5 in April.

For the second consecutive month, the "single most important problem" was not "poor sales". In the best of times, small business owners complain about taxes and regulations, and that is starting to happen again.

The second graphs shows an index of hiring plans over the next six months.

Seasonally adjusted, the net percent of owners planning to create new jobs rose 1 point to six percent, confirming the 5 point jump recorded in April.

Hiring plans increased slightly in May, and has been trending up slowly.

This optimism index remains low, but as housing continues to recover, I expect this index to increase (there is a high concentration of real estate related companies in this index).

by Calculated Risk on 6/11/2012 10:22:00 PM

First on Spain:

From Joseph Cotterill at FT Alphaville:

A day of confusion over the terms of the Spanish bank bailout ended with a market sell-off. Spanish bond yields closed higher on Monday than on Friday, with the ten-year yield at 6.54 per cent (Wall Street Journal). Spain said it would continue with auctions of its debt as normal, but investors pointed to the possibly seniority of ESM loans over private bondholders as a risk to buying more bonds (Financial Times). In addition to fears over Spain, it emerged that eurozone planners discussed border and capital controls as a contingency if Greece leaves the euro (Reuters).

And a summary from Ben Walsh at Reuters: Parsing the Spanish bailout

• At 7:30 AM ET, the NFIB Small Business Optimism Index for May will be released. The index increased to 94.5 in April from 92.5 in March. This tied February 2011 as the highest level since December 2007. The consensus is for a slight decrease to 94.2 in May.

• At 8:30 AM, U.S. Import and Export Price Indexes for May will be released. The consensus is a for a 1.1% decrease in import prices due primarily to the decline in oil prices.

by Calculated Risk on 6/11/2012 05:33:00 PM

I've been following the Sacramento market to look for changes in the mix of house sales in a distressed area over time (conventional, REOs, and short sales). The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

So far there has been a shift from REO to short sales, and the percentage of distressed sales has been declining year-over-year. This data would suggest improvement, however we do not know the impact of the mortgage settlement yet (the court signed off on the agreement in early April).

In May 2012, 58.3% of all resales (single family homes and condos) were distressed sales. This was down from 60.7% last month, and down from 65.6% in May 2011. This is lowest level since the Sacramento Realtors started tracking distressed sales, but 58% distressed is still extremely high!

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales. There is a seasonal pattern for conventional sales (stronger in the spring and summer), and distressed sales happen all year - so the percentage of distressed sales decreases every summer and the increases in the fall and winter.

There has been a sharp increase in conventional sales, and there were more short sales than REO sales in May for the second consecutive month.

Total sales were up 9.0% compared to May 2011, and conventional sales were up 32% year-over-year. Active Listing Inventory for single family homes declined 65.6% from last May, and total inventory, including "short sale contingent", was off 36% year-over-year.

Cash buyers accounted for 31.5% of all sales (frequently investors), and median prices were down 1.8% from last May.

This appears to be a little progress, although the market is still in distress - and the impact of the mortgage settlement is still unknown.

We are seeing similar patterns in other distressed areas.

by Calculated Risk on 6/11/2012 02:36:00 PM

From the Federal Reserve: Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances (ht MS)

The Federal Reserve Board’s Survey of Consumer Finances (SCF) for 2010 provides insights into changes in family income and net worth since the 2007 survey. The survey shows that, over the 2007–10 period, the median value of real (inflation-adjusted) family income before taxes fell 7.7 percent; median income had also fallen slightly in the preceding three-year period. The decline in median income was widespread across demographic groups, with only a few groups experiencing stable or rising incomes. Most noticeably, median incomes moved higher for retirees and other nonworking families. The decline in median income was most pronounced among more highly educated families, families headed by persons aged less than 55, and families living in the South and West regions.
...
The decreases in family income over the 2007−10 period were substantially smaller than the declines in both median and mean net worth; overall, median net worth fell 38.8 percent, and the mean fell 14.7 percent (figure 2).Median net worth fell for most groups between 2007 and 2010, and the decline in the median was almost always larger than the decline in the mean. The exceptions to this pattern in the medians and means are seen in the highest 10 percent of the distributions of income and net worth, where changes in the median were relatively muted. Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.

Click on table for larger image.

This is a portion of table 4 from the Fed Bulletin, and shows the median and mean net worth by income and head of household age for four periods (2001, 2004, 2007 and 2010).

The only group (by income) with an increase in the median net worth was the top 10%. There is much more in the survey.

by Calculated Risk on 6/11/2012 12:23:00 PM

There is plenty of confusion regarding the Spanish bank aid. See the Financial Times Alphaville: Just buying time? , An ESM subordination ... save? and on rumors of capital controls.

From Bloomberg: U.S. Gasoline Fell to $3.6243 a Gallon, Lundberg Survey

The average price of regular gasoline at U.S. filling stations declined 15.9 cents in the past three weeks to $3.6243 a gallon, according to Lundberg Survey Inc.

... The price is down 11.62 cents from a year earlier. The highest average this year was $3.9671 during the two weeks ended April 6.

“Europeans’ misfortunes are American fuel consumers gain,” Trilby Lundberg, president of Lundberg Survey, said today in a telephone interview. “Our dollar looks strong against the weaker euro, which has reduced the price of crude.”

The euro has declined further today with the confusion around the Spanish bank aid.

Oil prices are down again today. Brent is down to $98.56 per barrel, and WTI is down to $83.36. The lower oil prices will not only lead to lower gasoline prices, but also a lower trade deficit and lower headline inflation (CPI).

The following graph shows the decline in gasoline prices. Gasoline prices are down significantly from the peak in early April. Gasoline prices in the west had been impacted by refinery issues, but prices are now falling there too.

Note: The graph shows oil prices for WTI; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 6/11/2012 08:59:00 AM

CoreLogic released their June MarketPulse Report today.

Here is a brief excerpt from a piece by Sam Khater, CoreLogic senior economist, on the impact of negative equity on housing supply:

While the rapid decline in months’ supply is typically good news because it indicates a better balance between demand and supply, this decline is occurring less because of an increase in sales and more because of a drop in unsold inventory as a result of negative equity. Negative equity is typically a demand-side obstacle to sales and refinances, but currently is also restricting the supply of homes for sale. Analysis of the 50 largest markets reveals the metropolitan areas with the lowest levels of months’ supply also have the higher shares of negative equity. Markets with negative equity share of 50 percent or more have an average months’ supply of 4.7 months, compared to 8.3 months’ supply for markets with less than a 10 percent negative equity share. The presence of negative equity not only drives foreclosures, reduces the availability of purchase down payments and impedes refinances, but also restricts the ability of owners to list their homes for sale as the demand side of the market improves.

Paradoxically, as the flow of REOs has slowed over the last 18 months, negative equity has become a positive force in real estate markets by restricting supply in the face of increasing demand.

Although negative equity is probably contributing to the decline in inventory - especially in certain markets with high levels of negative equity - I think price expectations are a bigger factor in the recent decline in inventory.

by Calculated Risk on 6/10/2012 09:24:00 PM

There are no US economic releases scheduled for Monday. The big story will be the aid for Spanish Banks. The next key event in Europe is the Greek election on Sunday June 17th.

The Asian markets are up tonight. The Nikkei is up about 2.3%, and the Hang Seng is up 2.6%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 futures are up about 16, and Dow futures are up 150.

Oil: WTI futures are up to $86.48 (this is down from $109.77 in February) and Brent is back over $100 at $102.14 per barrel.

Saturday:
• Summary for Week Ending June 8th
• Schedule for Week of June 10th

For the monthly economic question contest (three more questions for June later this week):

by Calculated Risk on 6/10/2012 01:15:00 PM

Another story on the sharp decline in home inventory ...

From Alejandro Lazo at the LA Times: Shortage of homes for sale creates fierce competition

Housing inventory has sunk to levels not seen since the bubble years. ... In Southern California, inventories have plunged over the last year. The number of homes listed for sale in April fell 35% in Los Angeles County and was down 42% in Orange, 39% in San Bernardino, 42% in Riverside, 53% in Ventura and 43% in San Diego counties, according to online brokerage Redfin.

Many people who bought at the top of the cycle are so deeply underwater, they can't get the price they need to sell and are therefore not bothering to put their homes on the market.

"We know negative equity holds back home sales, but it also holds back the listing of sales," said Sam Khater, an economist with CoreLogic ...

Glenn Kelman, chief executive of Redfin, said the recovery remains tentative but the market has grown competitive because sellers feel they have time on their side, while buyers feel a sense of urgency given low interest rates and relatively cheap prices compared with the bubble years.

"It is a precarious situation, but the real issue is that nobody wants to sell a house right now," Kelman said. "So now we have classes for our real estate agents on how to win a bidding war."

Negative equity is keeping some people from selling, however most homeowners have positive equity (there are about 75 million owner occupied homes, and about 11 million have negative equity). I think a more important driver of the decline in inventory is price expectations. I agree with Redfin's Kelman who pointed out that "sellers feel they have time on their side".

Earlier I argued:

When the expectation is that prices will fall further, marginal sellers will try to sell their homes immediately. And marginal buyers will decide to wait for a lower price. This leads to more inventory on the market.

But when the expectation is that prices are stabilizing (the current situation), sellers will wait until it is convenient to sell. And buyers will start feeling a little more confident.

This leads to less inventory on the market.

Yesterday:
• Summary for Week Ending June 8th
• Schedule for Week of June 10th

by Calculated Risk on 6/10/2012 09:16:00 AM

From the WSJ: China Data Signal Some Strength

A raft of data released over the weekend by the Chinese government present a mixed picture, but overall suggest an economy stronger than many market players feared at the end of last week.

Some of the data from the WSJ article:

Industrial production was up 9.6% year-over-year (YoY) in May, a stronger pace than in April (9.3%) - however that isn't saying much since April saw the slowest YoY growth since 2009.

CPI increased 3.0% YoY in May, the slowest since June 2010.

Both exports and imports were up in May. Exports were up 15.3% YoY, and import up 12.7%.

Auto sales were up 22.6% YoY, increasing at a faster pace than in April (12.5%).

However overall retail sales increased at a slower pace in May; 13.8% year-over-year compared to 14.1% in April.

Overall this was slightly better than expected.

Yesterday:
• Summary for Week Ending June 8th
• Schedule for Week of June 10th

by Calculated Risk on 6/09/2012 07:36:00 PM

This is an unofficial list of Problem Banks compiled only from public sources. (Only US banks).

Here is the unofficial problem bank list for June 8, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Four failures meant four removals from the Unofficial Problem Bank List. The list stands at 923 institutions with assets of $355.7 billion. A year ago, the list held 1,002 institutions with assets of $417.4 billion. After three weeks off, the FDIC got back to closings leading to the following removal s -- Waccamaw Bank, Whiteville, NC ($533 million Ticker: WBNK); Carolina Federal Savings Bank, Charleston, SC ($54 million); First Capital Bank, Kingfisher, OK ($46 million); and Farmers' and Traders' State Bank, Shabbona, IL ($43 million).

F & M Bank, Edmond, Oklahoma paid a 7.65 percent deposit premium to acquire First Capital Bank. This appears to be the highest deposit premium paid to complete an assisted acquisition during this crisis. Although the FDIC likes to receive a deposit premium when selling a failed bank, buyers have only been willing to pay one in about one-third of the 443 failures since 2008 and in four transactions buyers have bid a discount.. When paid, the average deposit premium is 1.09 percent. Thus, the premium paid by F&M Bank is very high at 4.7 standard deviations above the average. In a few months, the FDIC will release bidding information for First Capital Bank, which should allow some insight if the premium paid F&M Bank was necessary to close the deal. There have been some transactions where bidders have been too aggressive. For instance, in January 2010, United Valley Bank, Cavalier, ND, paid a 7.35 percent deposit premium to acquire the failed Marshall Bank, National Association, Hallock, MN with the next highest bid was a 1.32 percent premium.

Next week, we anticipate the OCC will release its actions through mid-June 2012.

Earlier:
• Summary for Week Ending June 8th
• Schedule for Week of June 10th

And on Spain:
• Eurogroup statement on Spain
• WSJ: Spain Asks EU for Aid For Its Banks
• NY Times: Spain to Accept Rescue From Europe for Its Ailing Banks
• Financial Times: Spain seeks eurozone bail out