by Calculated Risk on 10/20/2014 08:58:00 AM

The Department of Transportation (DOT) reported:

Travel on all roads and streets changed by 0.4% (1.0 billion vehicle miles) for August 2014 as compared with August 2013.

Travel for the month is estimated to be 267.8 billion vehicle miles.

Cumulative Travel for 2014 changed by 0.6% (11.1 billion vehicle miles).

The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is still mostly moving sideways ...


Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 81 months - almost 7 years - and still counting.  Currently miles driven (rolling 12 months) are about 2.0% below the previous peak.

The second graph shows the year-over-year change from the same month in the previous year.

 In August 2014, gasoline averaged of $3.57 per gallon according to the EIA.  That was down from August 2013 when prices averaged $3.65 per gallon.

Prices will really be down year-over-year for September and October.

Of course gasoline prices are just part of the story.  The lack of growth in miles driven over the last 7 years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.

With all these factors, it might take a few more years before we see a new peak in miles driven - but it does seem like miles driven is now increasing.

by Calculated Risk on 10/19/2014 09:01:00 PM

From Merrill Lynch on Oil:

The plunge in oil prices, if it proves persistent, could end up being the big economic story. Energy prices have fallen very sharply in the past three months. Brent oil prices have declined from around $110/bbl in July to $86/bbl as this goes to print. It takes a few weeks for the full pass-through to gasoline and other refined products, but this would imply a drop of about 70 cents for a gallon of gas by year end.

How much does this boost growth? At first sight, not very much. After all, the US is becoming increasingly energy independent. The monthly energy trade deficit dropped to just $13.1bn in August. For argument’s sake, if we assume the trend since 2008 continues, the deficit will be zero by late 2018 ... Hence, the windfall of lower prices to consumers is almost matched by the loss to producers. Nonetheless, we would expect a net stimulus to growth in the near term. The big oil producers are flush with profits and cash. ... With such a large cushion of savings, we would expect them to respond slowly to weaker profit growth. Of course, if oil prices remain very low, over time, this will discourage investment and eventually lower the growth in oil production.

By contrast, consumers will likely respond quickly to the saving in energy costs. Many families live “hand to mouth”, spending whatever income is available. ... formal models suggest ... the $25/bbl drop in the price of oil can add roughly 0.4pp to real GDP growth over the next two years.

Weekend:
• Schedule for Week of October 19th

From CNBC: Pre-Market Data and Bloomberg futures: currently the S&P futures are up 10 and DOW futures are up about 100 (fair value).

Oil prices were down over the last week with WTI futures at $83.39 per barrel and Brent at $86.43 per barrel.  A year ago, WTI was at $102, and Brent was at $109 - so prices are down close to 20%  year-over-year.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.12 per gallon (down more than 20 cents from a year ago).  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 10/19/2014 11:09:00 AM

Some interesting thoughts from Professor Hamilton: How will Saudi Arabia respond to lower oil prices?

Oil prices (along with prices of many other commodities) have fallen dramatically since last summer. Some observers are waiting to see if Saudi Arabia responds with significant cutbacks in production. I say, don’t hold your breath.
...
Last week I discussed the three main factors in the recent fall in oil prices: (1) signs of a return of Libyan production to historical levels, (2) surging production from the U.S., and (3) growing indications of weakness in the world economy.

As far as Libya is concerned, the politics on the ground remain quite unsettled. It makes sense to wait and see if anticipated production gains are really going to hold before anybody makes major adjustments.

In terms of surging U.S. production, the key question is how low the price can get before significant numbers of U.S. producers decide to pull out. If world economic growth indeed slows, and if most of the frackers are willing to keep going strong even if the price falls to $80 a barrel, trying to maintain the price at $90 could be a losing bet for the Saudis. They’d be giving up their own revenue just in order to keep the money flowing into ever-growing operations in Texas and North Dakota.

And if some of the U.S. producers do move into the red at current prices, it’s in the Saudis’ longer-term interests to let that pain take its toll until some of the newcomers decide to pack up and go home. If U.S. production does decline, prices would quickly move back up. But if that happens after a shake-out, the next time there would be less enthusiasm for everybody to jump into the game if they always have to keep an eye on whether they might be undercut again. This may be less of an issue for the U.S. tight oil producers, who can move in or out much more easily than operations like deepwater or artic, where there are huge fixed costs, long lead times, and a much bigger unavoidable loss if you gamble on prices always staying high.

And as for worries of another global economic downturn, so far they are only that– worries. If and when we see a downturn materialize, then I would expect to see the Saudis cut back production.

But until then it’s primarily a question of responding to surging output of U.S. tight oil. My guess is that Saudi Arabia would lower prices rather than cut production as long as that’s the name of the game.
emphasis added

by Calculated Risk on 10/18/2014 01:11:00 PM

The key reports this week are September New home sales on Friday, and Existing home sales on Tuesday.

For prices, CPI will be released on Wednesday.

----- Monday, October 20th -----
No releases scheduled.

----- Tuesday, October 21st -----
10:00 AM: Existing Home Sales for September from the National Association of Realtors (NAR).

The consensus is for sales of 5.09 million on seasonally adjusted annual rate (SAAR) basis. Sales in August were at a 5.05 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 5.14 million SAAR.

A key will be the reported year-over-year increase in inventory of homes for sale.

10:00 AM: Regional and State Employment and Unemployment (Monthly) for September 2014

----- Wednesday, October 22nd -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Consumer Price Index for September. The consensus is for no change in CPI in September and for core CPI to increase 0.1%.

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

----- Thursday, October 23rd -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 285 thousand from 264 thousand.

8:30 AM ET: Chicago Fed National Activity Index for September. This is a composite index of other data.

9:00 AM: FHFA House Price Index for August. This was originally a GSE only repeat sales, however there is also an expanded index. The consensus is for a 0.3% increase.

11:00 AM: the Kansas City Fed manufacturing survey for October.

----- Friday, October 24th -----
10:00 AM: New Home Sales for September from the Census Bureau.

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

The consensus is for a decrease in sales to 460 thousand Seasonally Adjusted Annual Rate (SAAR) in September from 504 thousand in August.

by Calculated Risk on 10/18/2014 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 Oct 17, 2014.

Changes and comments from surferdude808:

Unexpectedly, there was a bank failure today. Expectedly, the OCC provided us an update on their enforcement action activities through September. For the week, there were four removals and one addition that leave the Unofficial Problem Bank List at 426 institutions with assets of $135.5 billion. A year ago, the list held 677 institutions with assets of $236.8 billion.

The OCC terminated actions against Heartland National Bank, Sebring, FL ($309 million); First Federal Savings and Loan Association of Kewanee, Kewanee, IL ($66 million); and American Loan and Savings Association, Hannibal, MO ($5 million). Also, the OCC issued a Formal Agreement against Homestead Savings Bank, Albion, MI ($72 million).

NBRS Financial, Rising Sun, MD ($191 million) became the 15th bank failure this year. At the 41st week of the year, the pace of 15 failures matches approximates the 16 failures at the 41st week of 2008. This is well under the 129 failures at the same point in 2010.

Since publication of the Unofficial Problem Bank List in August 2009, 384 banks on the list have been removed because of failure. This trails actual failures of 410 over the same period. Thus, there have been 26 banks that have failed without being under a published enforcement action.

We anticipate for the FDIC to provide an update on its enforcement action activities on the last Friday of the month on the 31st. So next week will likely see few changes to list.

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 426.

by Calculated Risk on 10/17/2014 06:12:00 PM

This is the first bank failure since July!

From the FDIC: Howard Bank, Ellicott City, Maryland, Assumes All of the Deposits of NBRS Financial, Rising Sun, Maryland

As of June 30, 2014, NBRS Financial had approximately $188.2 million in total assets and $183.1 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $24.3 million. ... NBRS Financial is the 15th FDIC-insured institution to fail in the nation this year, and the second in Maryland. The last FDIC-insured institution closed in the state was Slavie Federal Savings Bank, Bel Air, on May 30, 2014.

by Calculated Risk on 10/17/2014 01:01:00 PM

From Joe Light at the WSJ: Fannie, Freddie Near Deal That Promises to Boost Mortgage Lending

Mortgage giants Fannie Mae and Freddie Mac , their regulator and lenders are close to an agreement that could greatly expand mortgage credit while helping lenders protect themselves from charges of making bad loans, according to people familiar with the matter.
...
The new agreement would clarify what mistakes should constitute fraud, giving greater confidence to lenders that they won’t be penalized many years after a loan is made.
...
Separately, Fannie Mae, Freddie Mac and the FHFA are considering new programs that would allow them to guarantee some mortgages with down payments of as little as 3%.

CR Note: There are two parts: 1) less risk to lenders of being forced to buyback faulty loans, and 2) a lower downpayment in certain circumstances. According to the article the agreement could be announced next week.

by Calculated Risk on 10/17/2014 11:45:00 AM

There were 761 thousand total housing starts during the first nine months of 2014 (not seasonally adjusted, NSA), up 9.5% from the 695 thousand during the same period of 2013.  Single family starts are up 4%, and multifamily starts up 23%.  The key weakness has been in single family starts.

The following table shows the annual housing starts since 2005, and the percent change from the previous year (estimates for 2014). The housing recovery has slowed in 2014, especially for single family starts.  I expect to further growth in starts over the next several years.

Housing Starts (000s) and Annual Change
	Total	Total % Change	Single	Single % Change
2005	2,068.3	5.8%	1,715.8	6.5%
2006	1,800.9	-12.9%	1,465.4	-14.6%
2007	1,355.0	-24.8%	1,046.0	-28.6%
2008	905.5	-33.2%	622.0	-40.5%
2009	554.0	-38.8%	445.1	-28.4%
2010	586.9	5.9%	471.2	5.9%
2011	608.8	3.7%	430.6	-8.6%
2012	780.6	28.2%	535.3	24.3%
2013	924.9	18.5%	617.6	15.4%
20141	990.0	7.0%	630.0	2.0%
1Estimate for 2014

This graph shows the month to month comparison between 2013 (blue) and 2014 (red).  Starts in 2014 have been above the same month in 2013 for six consecutive months.

Click on graph for larger image.

Starts in Q1 2014 averaged 925 thousand SAAR, and starts in Q2 averaged 985 thousand SAAR, up 7% from Q1.

Starts in Q3 averaged 1.024 million SAAR, up 4% from Q2 (and up 16% from Q3 2013).

This year, I expect starts to mostly increase throughout the year (Q1 will probably be the weakest quarter, and Q2 the second weakest).

However the year-over-year growth will slow in Q4 because the comparisons will be more difficult.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) are lagging behind - but completions will continue to follow starts up (completions lag starts by about 12 months).

For the second consecutive month, there were more multifamily completions than multifamily starts.

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Single family starts had been moving up, but recently starts have only increased slowly on a rolling 12 months basis. 

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

by Calculated Risk on 10/17/2014 09:55:00 AM

Click on graph for larger image.

The preliminary Reuters / University of Michigan consumer sentiment index for October was at 86.4, up from 84.6 in September.

This was above the consensus forecast of 84.2. Sentiment has 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.

by Calculated Risk on 10/17/2014 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in September were at a seasonally adjusted annual rate of 1,017,000. This is 6.3 percent above the revised August estimate of 957,000 and is 17.8 percent above the September 2013 rate of 863,000.

Single-family housing starts in September were at a rate of 646,000; this is 1.1 percent above the revised August figure of 639,000. The September rate for units in buildings with five units or more was 353,000.
emphasis added

Building Permits:
Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,018,000. This is 1.5 percent above the revised August rate of 1,003,000 and is 2.5 percent above the September 2013 estimate of 993,000.

Single-family authorizations in September were at a rate of 624,000; this is 0.5 percent below the revised August figure of 627,000. Authorizations of units in buildings with five units or more were at a rate of 369,000 in September.

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) increased in September (Multi-family is volatile month-to-month).

Single-family starts (blue) also increased slightly in September.

The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and that housing starts have been increasing after moving sideways for about two years and a half years.

This was at expectations of 1.010 million starts in September.

This was an OK report; close to expectations.  I'll have more later ...