by Calculated Risk on 12/06/2012 08:30:00 AM

The DOL reports:

In the week ending December 1, the advance figure for seasonally adjusted initial claims was 370,000, a decrease of 25,000 from the previous week's revised figure of 395,000. The 4-week moving average was 408,000, an increase of 2,250 from the previous week's revised average of 405,750.

The previous week was revised up from 393,000.

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 408,000.

This sharp increase in the 4 week average is due to Hurricane Sandy as claims increased significantly in NY, NJ and other impacted areas over the 4-week period (some of those areas saw another decline this week). Note the spike in 2005 was related to hurricane Katrina - we are seeing a similar impact, although on a smaller scale.

Weekly claims were lower than the consensus forecast.


And here is a long term graph of weekly claims:

We use the 4-week average to smooth out noise, but following an event like Hurricane Sandy,  the 4-week average lags the event. It looks like the average should decline next week to around 390,000 and should continue to decline over the next few weeks.


All current Employment Graphs

by Calculated Risk on 12/05/2012 08:57:00 PM

"Laws, like sausages, cease to inspire respect in proportion as we know how they are made."

John Godfrey Saxe, 1869.

Watching politician's public statements is definitely not inspiring. But here are a couple of articles, first from CNBC: Geithner: Ready to Go Over 'Cliff' If Taxes Don't Rise

Treasury Secretary Timothy Geither told CNBC Wednesday that Republicans are "making a little bit of progress" in "fiscal cliff" talks but said the Obama administration was "absolutely" ready to go over the cliff if the GOP doesn't agree to raise tax rates on the wealthy.

I'm pretty sure that tax rates will increase on high earners, and this is why I think the agreement will not be reached until early January  (so policitians can say they didn't increases taxes).

And from the WSJ: White House Unyielding on Debt Limit

The White House hardened its position that Congress should raise the U.S.'s borrowing limit without preconditions, adding an unpredictable new element into the high-stakes budget talks.

In a Wednesday speech to top corporate chiefs, President Barack Obama said he wouldn't negotiate with Republicans on this issue as he did in 2011.

"I want to send a very clear message to people here: We are not going to play that game next year," Mr. Obama said in remarks to the Business Roundtable, a trade group. He said Washington needs to "break that habit before it starts," referring to the way Republicans would like to use the debt limit to negotiate further spending cuts.

I argued a year and a half ago, eliminating the debt ceiling would be the correct approach.

On the debt ceilng, it seems like Obama is taking a page from Ronald Reagan:

"Congress consistently brings the Government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the Federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility – two things that set us apart from much of the world."

We don't know what else we be in the compromise, but it will obviously not be eliminating "unspecified deductions" - if deductions are eliminated, then they have to be specified (by definition). I still think a compromise will be reached, but probably not until early January.  Right now the public statements are pretty fair apart.

Thursday economic releases:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. This is expected to show a further decline following the spike related to Hurricane Sandy. The consensus is for claims to decrease to 380 thousand from 393 thousand.

• At 12:00 PM, Q3 Flow of Funds Accounts of the United States from the Federal Reserve. Household mortgage debt probably declined further in Q3.

by Calculated Risk on 12/05/2012 01:52:00 PM

CR NOTE: This is a very long piece from economist Tom Lawler on long term house prices. I've written about this before, The upward slope of Real House Prices, and Tom digs much deeper into the data!

From Tom Lawler:

One of the most widely abused home price series used by folks is the long-term “real” home price chart constructed by Robert Shiller in his “Irrational Exuberance” book. While he and others have sometimes characterized his “time series” of “real” home prices back to 1890 as being a good representation of “constant quality” home prices, in fact that is not even remotely the case. There are especially serious issues with the “older” home price series used by Dr. Shiller, with the “most troubling” being that used for the 1890-1934 period. Indeed, the authors of the book from which the home price index used by Dr. Shiller came from actually argued that this index did NOT reflect the behavior of “constant-quality” home price (with evidence to support that argument), and suggested using a materially different home price index. More on this point later.

When Dr. Shiller decided to explore home prices, and especially what appeared to be a housing “bubble,” he was “most surprised” that there were no “good” data going back prior to 1987 – with “good” defined as the Case-Shiller HPI.. But he wanted to “show” last decade’s house price runup in a long-term historical context. So he decided to take various home price sources, and attempt to construct a “long run” home price index by “concatenating” time series based on these sources.

Not surprisingly, from 1987 to the present Shiller used the “national” S&P/Case-Shiller home price index, which is a market-value weighted (using values from the various decennial Censuses, which unfortunately are not available for 2010. This “national” index is estimated to cover just over 70% of the US housing market.

From 1975 to 1987 Shiller used the “national” FHFA (formerly OFHEO) home price index, which is a unit-weighted index (using annually-updated estimates of states’ share of the housing stock) based on repeat sales transactions AND appraisal information on refinances of homes backing mortgages owned or guaranteed by Fannie Mae or Freddie Mac. Aside from the obvious “dataset” limitations (GSE only) and use of appraisals, the “unit-weighting” can result in materially different behavior than “value-weighting” over time.

From 1953 to 1975 Shiller used the home price index from the BLS’ Consumer Price Index, which was based on a sample of new home purchases financed with FHA-insured loans. It probably is not the case, however, that new home prices financed with FHA-insured loans, which often represent a very small sample of total home purchases, reflected trends in “overall” home prices. Indeed, the BLS characterized the data base used as representing “a small and specialized segment of the housing market and presents BLS with increasingly serious estimation problems . Here is an excerpt from a BLS paper discussing the 1983 change in the treatment of shelter costs for homeowners in the CPI.

Read more »

by Calculated Risk on 12/05/2012 12:20:00 PM

LPS released their Mortgage Monitor report for October today. According to LPS, 7.03% of mortgages were delinquent in October, down from 7.40% in September, and down from 7.58% in October 2011.

LPS reports that 3.61% of mortgages were in the foreclosure process, down from 3.87% in September, and down from 4.30% in October 2011.

This gives a total of 10.64% delinquent or in foreclosure. It breaks down as:

• 1,957,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,543,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,800,000 loans in foreclosure process.

For a total of ​​5,300,000 loans delinquent or in foreclosure in October. This is down from 5,640,000 last month, and down from 6,111,000 in October 2011.

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

Click on graph for larger image.

From LPS:

The October Mortgage Monitor report released by Lender Processing Services (NYSE: LPS) showed a significant decline in foreclosure starts for the last two months – down 21.9 percent in October and almost 48 percent on a year-over-year basis – leading to a nearly 7 percent drop in overall foreclosure inventory. However, as LPS Applied Analytics Senior Vice President Herb Blecher explained, this fall-off in foreclosure starts is likely a temporary phenomenon, driven by new borrower notification requirements called for in the National Mortgage Settlement.

“LPS observed a drop-off in foreclosure starts in September that accelerated in October,” Blecher said. “This decline coincided with the implementation of new procedural changes outlined in the National Mortgage Settlement, which requires, among other things, that mortgage servicers provide written notice to borrowers 14 days prior to referring a delinquent loan to a foreclosure attorney. This has resulted in what is likely a temporary slowdown in foreclosure starts that we do not believe is indicative of a longer-term trend. However, we will continue to monitor this activity closely in the coming months.”

The second graph shows a break down of home sales by conventional, foreclosure and short sale.

As the housing market slowly recovers, we'd expect distressed sales to decline and conventional sales to increase. This appears to be starting.

There is much more in the mortgage monitor.

by Calculated Risk on 12/05/2012 10:00:00 AM

The November ISM Non-manufacturing index was at 54.7%, up from 54.2% in October. The employment index decreased in November to 50.3%, down from 54.9% in October. Note: Above 50 indicates expansion, below 50 contraction.

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

Economic activity in the non-manufacturing sector grew in November for the 35th 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 54.7 percent in November, 0.5 percentage point higher than the 54.2 percent registered in October. This indicates continued growth at a slightly faster rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 61.2 percent, which is 5.8 percentage points higher than the 55.4 percent reported in October, reflecting growth for the 40th consecutive month. The New Orders Index increased by 3.3 percentage points to 58.1 percent. The Employment Index decreased by 4.6 percentage points to 50.3 percent, indicating growth in employment for the fourth consecutive month but at a slower rate. The Prices Index decreased 8.6 percentage points to 57 percent, indicating prices increased at a slower rate in November when compared to October. According to the NMI™, 11 non-manufacturing industries reported growth in November. Respondents' comments are mixed; however, the majority of survey respondents reflect a cautious optimism about current economic conditions."

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 above the consensus forecast of 53.6% and indicates faster expansion in November than in October. The internals were mixed with the employment index down, but new orders up.

by Calculated Risk on 12/05/2012 08:24:00 AM

From ADP:

Private sector employment increased by 118,000 jobs from October to November, according to the November ADP National Employment Report®, which is produced by Automatic Data Processing, Inc. (ADP®) ... in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. The October 2012 report, which reported job gains of 158,000, was revised down by 1,000 to 157,000 jobs.

Mark Zandi, chief economist of Moody’s Analytics, said, “Superstorm Sandy wreaked havoc on the job market in November, slicing an estimated 86,000 jobs from payrolls. The manufacturing, retailing, leisure and hospitality, and temporary help industries were hit particularly hard by the storm. Abstracting from the storm, the job market turned in a good performance during the month. This is especially impressive given the uncertainty created by the Presidential election and the fast-approaching fiscal cliff. Businesses appear to be holding firm on their hiring and firing decisions.”

This was below the consensus forecast for 125,000 private sector jobs added in the ADP report. Note:  The BLS reports on Friday, and the consensus is for an increase of 80,000 payroll jobs in November, on a seasonally adjusted (SA) basis.

ADP hasn't been very useful in predicting the BLS report, but maybe the new method will work better. This is the 2nd month for the new method.

by Calculated Risk on 12/05/2012 07:01:00 AM

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

The Refinance Index increased 6 percent from the previous week. The seasonally adjusted Purchase Index increased 0.1 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.52 percent, matching the lowest rate in the history of the survey, from 3.53 percent, with points increasing to 0.41 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

This graph shows the MBA mortgage purchase index.

The purchase index had been mostly moving sideways over the last two years, however the purchase index has increased 9 of the last 11 weeks.  The 4-week average of the purchase index is at the highest level since 2010 (when the tax credit boosted application activity).

The 4-week average is up about 25% from the low in 2011.

by Calculated Risk on 12/04/2012 08:45:00 PM

Oh my. From Business Insider: 47% Of People Think The Deficit Would INCREASE If We Go Over The Fiscal Cliff

Were the United States to "go over the fiscal cliff," what do you expect would happen to the National Deficit?

At least according to the CBO and most economists, the correct answer is that "It will decrease." Going over the Fiscal Cliff would, according a Congressional Budget Office study, result in a reduction in the National Deficit of $607 billion between fiscal years 2012 and 2013.

However that was not the most popular answer. Per the survey, 47.4% of respondents said that the deficit would INCREASE if we went over the Fiscal Cliff. Only 12.6% think it will decrease.

The so-called "fiscal cliff" would cut spending and raise taxes, and the deficit would decrease very quickly. The key concern is that the CBO's analysis suggests a rapid decrease in the deficit will lead to a recession in 2013.   That is why a better name is "austerity slope" or something similar.

Wednesday economic releases:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

• At 8:15 AM, the ADP Employment Report for November will be released. This report is for private payrolls only (no government). The consensus is for 125,000 payroll jobs added in November. This is the second report using a new methodology, and the report last month (158,000) was fairly close to the BLS report for private employment (the BLS reported 184,000 private sector jobs added in November).

• At 10:00 AM, the ISM non-Manufacturing Index (Service) for November will be released. The consensus is for a decrease to 53.6 from 54.2 in October. Note: Above 50 indicates expansion, below 50 contraction.

• At 10:00 AM, the Manufacturers' Shipments, Inventories and Orders (Factory Orders) for October. The consensus is for a 0.1% decrease in orders.



Another question for the December economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 12/04/2012 05:55:00 PM

The ISM manufacturing index indicated contraction in November, with the PMI declining to 49.5% (below 50 is contraction). A couple of weeks ago, the Markit PMI increased to 52.4 from 51.0 in October - a five month high - suggesting "moderate" expansion.

Which was it? Contraction or expansion?

Chris Williamson, Markit chief economist wrote today (ht NW): Divergence in ISM and Markit survey headline indicators masks consistent picture of sluggish expansion in fourth quarter

Two barometers of US manufacturing business conditions moved in different directions in November, but if examined in more detail both tell a similar story of modest expansion of manufacturing output so far in the fourth quarter.
...
the PMIs are composite indicators derived from various survey questions, and although using the same indexes, the two surveys have different weights for each component. While the headline composite indexes from the two surveys did diverge, the discrepancies are smaller when you look at the subindices.
...
When the Output Indexes from the two surveys are compared against the three-month change in official production data (a widely used comparison for survey and official data), the Markit index has a correlation of 94% compared with 87% for the ISM data (this is based in both cases on the data from mid-2007 onwards, when Markit data were first available).

Of course this commentary was from Markit (the ISM index has a much longer history).  And, however we look at the data, manufacturing is clearly weak.

Tim Duy at EconomistsView has more: Apples and Oranges in the Manufacturing Data?

by Calculated Risk on 12/04/2012 03:00:00 PM

The following graph is from economist Tom Lawler and shows the total REO for Fannie, Freddie, FHA, Private Label (PLS) and FDIC insured institutions. This isn't all the REO, as Lawler noted before, it "excludes non-FHA government REO (VA, USDA, etc.), credit unions, finance companies, non-FDIC-insured banks and thrifts", but it is probably over 90%.

From Tom Lawler:

On the SF REO front, the [FDIC insured] industry’s “carrying value” of 1-4 family REO properties at the end of September was $8.7663 billion, down from 8.0% on the quarter and down 26.3% from a year ago. The FDIC neither reports on nor collects data on the number of 1-4 family REO properties held by FDIC-insured institutions, which is annoying. Assuming that the average carrying value of 1-4 family properties at such institutions is 50% higher than the average for Fannie and Freddie (which seems broadly consistently with other data sources on average UPB balances), then a chart showing SF REO inventories of Fannie, Freddie, FHA, private-label securities, and FDIC-insured institution would look as follows.

Click on graph for larger image.

SF REO inventories for these combined sectors in September were down 21.7% from last September.

CR Note: There are still quite a few properties with loans 90+ days delinquent or in the foreclosure process, but it appears these institutions are working down the number of foreclosed properties they are holding.