by Calculated Risk on 6/16/2014 09:15:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production rose 0.6 percent in May after having declined 0.3 percent in April. The decrease in April was previously reported to have been 0.6 percent. Manufacturing output increased 0.6 percent in May after having moved down 0.1 percent in the previous month. In May, the output of mines gained 1.3 percent and the production of utilities decreased 0.8 percent. At 103.7 percent of its 2007 average, total industrial production in May was 4.3 percent above its level of a year earlier. The capacity utilization rate for total industry increased 0.2 percentage point in May to 79.1 percent, a rate that is 1.0 percentage point below its long-run (1972–2013) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 12.2 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 79.1% is 1.0 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% 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 0.6% in May to 103.7. This is 23.8% above the recession low, and 2.9% above the pre-recession peak.

The monthly change for both Industrial Production and Capacity Utilization were above expectations - and April was revised up.

by Calculated Risk on 6/15/2014 07:48:00 PM

Monday:
• At 8:30 AM ET: NY Fed Empire State Manufacturing Survey for June. The consensus is for a reading of 15.0, down from 19.0 in May (above zero is expansion).

• At 9:15 AM, the Fed will release Industrial Production and Capacity Utilization for May. The consensus is for a 0.5% increase in Industrial Production, and for Capacity Utilization to increase to 78.9%.

• At 10:00 AM, the June NAHB homebuilder survey. The consensus is for a reading of 47, up from 45 in May. Any number below 50 indicates that more builders view sales conditions as poor than good.

Weekend:
• FOMC Preview: More Tapering
• Schedule for Week of June 15th

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 3 and DOW futures are down 25 (fair value).

Oil prices moved up over the last week with WTI futures at $107.42 per barrel and Brent at $113.09 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.65 per gallon (might move up soon due to higher oil prices).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; 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 6/15/2014 09:42:00 AM

It appears the FOMC will announce a reduction in monthly asset purchases by another $10 billion per month on Wednesday, from $45 billion to $35 billion following the FOMC meeting.

There will probably be some changes to the FOMC projections, and some minor revisions to the FOMC statement.

Following the release of the FOMC statement, Fed Chair Janet Yellen will hold her second post-FOMC press conference. She will probably be asked about her "six months" comment during the March Q&A. As a reminder, in response to a question about the FOMC statement, she said:

"[T]he language that we used in the statement is considerable period. So I, you know, this is the kind of term it’s hard to define. But, you know, probably means something on the order of around six months, that type of thing.”

She was referring to this sentence in the FOMC statement:

The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.
emphasis added

Based on the current pace of tapering, this suggested to many that the first rate hike will be in Q2 or around mid-year 2015.

On the statement, the FOMC will probably change the first paragraph a little. From the statement of April 30th:

Information received since the Federal Open Market Committee met in March indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending appears to be rising more quickly. Business fixed investment edged down, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

This might be changed to 1) drop weather language, 2) upgrade labor market sentence, and 3) upgrade housing slightly.  The first two sentences might be changed to:

Information received since the Federal Open Market Committee met in April indicates that economic activity is expanding at a moderate pace. Labor market conditions have shown further improvement; the unemployment rate has declined but remains elevated.

A key sentence will be on business investment and housing (probably slight upgrade due to higher housing starts).

It will also be interesting to see if there are any changes to the FOMC projections. I expect GDP to be downgraded following the very weak reading in Q1 (due to severe weather).   The unemployment rate will probably be lowered and inflation increased slightly.

For review, here are the previous projections.   GDP for 2014 will be revised down:

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2014	2015	2016
Mar 2014 Meeting Projections	2.8 to 3.0	3.0 to 3.2	2.5 to 3.0
Dec 2013 Meeting Projections	2.8 to 3.2	3.0 to 3.4	2.5 to 3.2

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 6.3% in May, so the unemployment rate for Q4 2014 will be probably be lowered again. 

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2014	2015	2016
Mar 2014 Meeting Projections	6.1 to 6.3	5.6 to 5.9	5.2 to 5.6
Dec 2013 Meeting Projections	6.3 to 6.6	5.8 to 6.1	5.3 to 5.8

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of April, PCE inflation was up 1.6% from April 2013, and core inflation was up 1.4%.   Both PCE and core PCE inflation measure will probably be revised up a little, but still be below the FOMC's 2% target. 

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2014	2015	2016
Mar 2014 Meeting Projections	1.5 to 1.6	1.5 to 2.0	1.7 to 2.0
Dec 2013 Meeting Projections	1.4 to 1.6	1.5 to 2.0	1.7 to 2.0

Here are the FOMC's recent core inflation projections:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2014	2015	2016
Mar 2014 Meeting Projections	1.4 to 1.6	1.7 to 2.0	1.8 to 2.0
Dec 2013 Meeting Projections	1.4 to 1.6	1.6 to 2.0	1.8 to 2.0

Overall tapering will probably continue at the same pace, and the FOMC will be a little more positive.  But I expect there will be no change on the timing for the end of QE3 or on the first rate hike.

by Calculated Risk on 6/14/2014 01:01:00 PM

The key report this week is housing starts for May on Tuesday.

For manufacturing, the May Industrial Production and Capacity Utilization report, and the June NY Fed (Empire State) and Philly Fed surveys, will be released this week. 

For prices, CPI will be released on Tuesday.

The FOMC meets on Tuesday and Wednesday, and the FOMC is expected to taper QE3 asset purchases another $10 billion per month at this meeting.

----- Monday, June 16th -----
8:30 AM: NY Fed Empire Manufacturing Survey for June. The consensus is for a reading of 15.0, down from 19.0 in May (above zero is expansion).

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for May.

This graph shows industrial production since 1967.

The consensus is for a 0.5% increase in Industrial Production, and for Capacity Utilization to increase to 78.9%.

10:00 AM: The June NAHB homebuilder survey. The consensus is for a reading of 47, up from 45 in May.  Any number below 50 indicates that more builders view sales conditions as poor than good.

----- Tuesday, June 17th -----
8:30 AM: Housing Starts for May.

Total housing starts were at 1.072 million (SAAR) in April. Single family starts were at 649 thousand SAAR in April.

The consensus is for total housing starts to decrease to 1.036 million (SAAR) in May.

8:30 AM: Consumer Price Index for May. The consensus is for a 0.2% increase in CPI in May and for core CPI to increase 0.2%.

----- Wednesday, June 18th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

During the day: The AIA's Architecture Billings Index for May (a leading indicator for commercial real estate).

2:00 PM: FOMC Meeting Announcement.  The FOMC is expected to reduce monthly QE3 asset purchases from $45 billion per month to $35 billion per month at this meeting.

2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

2:30 PM: Fed Chair Janet Yellen holds a press briefing following the FOMC announcement.

----- Thursday, June 19th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 313 thousand from 317 thousand.

10:00 AM: the Philly Fed manufacturing survey for June. The consensus is for a reading of 13.0, down from 15.0 last month (above zero indicates expansion).

----- Friday, June 20th -----
10:00 AM: Regional and State Employment and Unemployment (Monthly) for May 2014

by Calculated Risk on 6/14/2014 08:15:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for June 13, 2014.

Changes and comments from surferdude808:

Back-to-back quiet weeks for changes to the Unofficial Problem Bank List. This week only Minnwest Bank Metro, Eagan, MN ($209 million) was removed as it found a merger partner to work its way off the list. After removal, the list holds 494 institutions with assets of $153.7 billion. A year ago, the list had 757 institutions with assets of $274.5 billion. Next week, we anticipate for the OCC to provide an update on its enforcement action activity through mid-May 2014.

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 494.

by Calculated Risk on 6/13/2014 08:22:00 PM

Just an update ... during the recession, I wrote about the troubles in Las Vegas and included a chart of visitor and convention attendance: Lost Vegas.

Since then Las Vegas visitor traffic recovered to a new record high in 2012, although visitor traffic was down slightly in 2013.

Convention attendance in 2013 was still about 18% below the peak level in 2006.  Here is the data from the Las Vegas Convention and Visitors Authority.  

Click on graph for larger image.

The blue bars are annual visitor traffic (left scale), and the red line is convention attendance (right scale). 

Through April, visitor traffic in 2014 is running 4.8% above 2013 - and on a record pace.

Convention traffic is barely up from last year, and is still way below the pre-recession peak.

In general, the gamblers are back ... but the conventions are still lagging behind.

by Calculated Risk on 6/13/2014 02:29:00 PM

Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for several selected cities in May.

On distressed: Total "distressed" share is down in all of these markets, mostly because of a sharp decline in short sales.

Short sales are down in all of these areas.

Foreclosures are down in most of these areas too, although foreclosures are up a little in a couple of areas.

The All Cash Share (last two columns) is mostly declining year-over-year. 

As investors pull back, the share of all cash buyers will probably continue to decline.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	May-14	May-13	May-14	May-13	May-14	May-13	May-14	May-13
Las Vegas	7.9%	31.8%	9.1%	10.3%	17.0%	42.1%	40.2%	57.9%
Reno**	11.0%	27.0%	6.0%	7.0%	17.0%	34.0%
Phoenix	3.9%	12.3%	6.7%	9.7%	10.7%	22.0%	29.5%	38.9%
Sacramento	7.0%	22.5%	8.3%	7.5%	15.3%	30.0%	20.5%	33.6%
Minneapolis	3.9%	6.8%	12.1%	19.9%	16.0%	26.7%
Mid-Atlantic	5.2%	8.2%	8.1%	7.2%	13.3%	15.5%	17.2%	16.7%
California *	6.0%	11.3%	6.9%	15.0%	12.9%	26.3%
Bay Area CA*	4.7%	10.4%	3.1%	6.5%	7.8%	16.9%	22.9%	27.6%
So. California*	6.6%	15.7%	5.8%	10.9%	12.4%	26.6%	25.8%	32.6%
Hampton Roads					21.3%	26.3%
Northeast Florida					36.5%	37.8%
Toledo							36.6%	33.8%
Des Moines							17.5%	17.3%
Tucson							31.3%	32.8%
Omaha							19.4%	14.1%
Georgia***							26.0%	NA
Houston			4.5%	9.4%
Memphis*			15.9%	21.5%
*share of existing home sales, based on property records **Single Family Only ***GAMLS

by Calculated Risk on 6/13/2014 10:31:00 AM

Here are some analyst comments on the upcoming FOMC meeting. From Nomura:

At the conclusion of the 17-18 June Federal Open Market Committee (FOMC) meeting, we expect the FOMC to announce another $10bn reduction in its asset purchase program. We will look to see if there is any mention of discussions around the exit strategy in the statement or in Chair Yellen’s press conference. We will also look out for any mention of the pace of adjustment when the Committee begins to raise rates. The Summary of Economic Projections (SEP) will also be released. Notably, based on the weak Q1 GDP numbers, we expect to see a downward revision to the FOMC’s GDP forecast for 2014.

And from Merrill Lynch:

The Fed is unlikely to make any meaningful policy changes in June: tapering should continue (bringing the asset purchase pace down to $35 bn per month) and the forward guidance should remain unchanged. The interesting discussions should revolve around various aspects of the exit strategy. There is some chance that Fed Chair Janet Yellen addresses aspects at her press conference, but more likely, we will have to wait until the minutes to get any details. ...

At this point, it would take a significant shift in the outlook to change the pace of tapering. In all likelihood, the Fed will taper $10 bn each in June, July, and September, leaving a $15 bn purchase pace at the October meeting. If the economy is deemed strong enough, they could taper the full amount then. Alternatively, should they want to hammer home a message of gradual exit, they could again taper $10 bn in October and then do the final $5 bn in December.

CR note: I've seen a suggestion that the FOMC might increase the pace of tapering at this meeting - they won't - and other suggestions that QE3 will never end - it will. I'll post some thoughts on the upcoming meeting this weekend.

by Calculated Risk on 6/13/2014 09:55:00 AM

Click on graph for larger image.

The preliminary Reuters / University of Michigan consumer sentiment index for June was at 81.2, down from 81.9 in May.

This was below the consensus forecast of 83.0. Sentiment has generally been improving following the recession - with plenty of ups and downs - and a big spike down when Congress threatened to "not pay the bills" in 2011, and another smaller spike down last October and November due to the government shutdown.

by Calculated Risk on 6/12/2014 07:16:00 PM

Several years ago I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales).  For a long time, not much changed. But over the last 2+ years we've seen some significant changes with a dramatic shift from foreclosures (REO: lender Real Estate Owned) to short sales, and the percentage of total distressed sales declining sharply.

This data suggests healing in the Sacramento market and other distressed markets are showing similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In May 2014, 14.7% of all resales (single family homes) were distressed sales. This was down from last month, and down from 29.1% in May 2013. This is the post-bubble low.

The percentage of REOs was at 7.7%, and the percentage of short sales was 7.0%.

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional sales over the last 2 years (blue). 

Active Listing Inventory for single family homes increased 83.7% year-over-year in May. 

Cash buyers accounted for 20.5% of all sales, down from 33.6% in May 2013, and down from 21.9% last month (frequently investors).  This has been trending down, and it appears investors are becoming less of a factor in Sacramento.

Total sales were down 10.6% from May 2013, but conventional equity sales were up 7.5% compared to the same month last year. This is exactly what we expect to see in an improving distressed market - flat or even declining overall sales as distressed sales decline, and conventional sales increasing.

As I've noted before, we are seeing a similar pattern in other distressed areas.