by Calculated Risk on 6/24/2012 10:25:00 PM

The key report tomorrow will be new home sales.

• At 8:30 AM ET on Monday, 8:30 AM: The Chicago Fed National Activity Index for May will be released. This is a composite index of other data.

• At 10:00 AM, The Census Bureau will release New Home Sales for May. The consensus is for an increase in sales to 350 thousand Seasonally Adjusted Annual Rate (SAAR) in May from 343 thousand in April.

• At the 10:30 AM, the Dallas Fed Manufacturing Survey for June will be released. The consensus is for 0.0 for the general business activity index, up from -5.1 in May. The regional surveys have been disappointing in June.

The Asian markets are mostly red tonight. The Nikkei is down slightly, and the Shanghai Composite is down 0.5%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 futures are down about 8, and Dow futures are down 50.

Oil: WTI futures are up to $80.09 (this is down from $109.77 in February) and Brent is up to $91.90 per barrel.

Yesterday:
• Summary for Week ending June 22nd
• Schedule for Week of June 24th For the monthly economic question contest (four more questions for June):

by Calculated Risk on 6/24/2012 07:21:00 PM

The Department of Transportation (DOT) reported last week:

Travel on all roads and streets changed by -0.4% (-1.0 billion vehicle miles) for April 2012 as compared with April 2011. Travel for the month is estimated to be 247.2 billion vehicle miles.

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

The rolling 12 month total is 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 53 months - and still counting.

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

Gasoline prices peaked in April at close to $4.00 per gallon, and that was higher than the $3.85 per gallon drivers paid in April 2011 - so it makes sense that driving was off a little year-over-year.

Gasoline prices were down in May to an average of $3.79 per gallon according to the EIA. Last year, prices in May averaged $3.96 per gallon, so I'd expect miles driven to up year-over-year in May.

However gasoline prices is just part of the story. The lack of growth in miles driven over the last 4+ years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), and also the aging of the overall population. Census data shows that gasoline demand peaks around age 50, and then starts to decline - so many "baby boomers" are probably driving less now.

Yesterday:
• Summary for Week ending June 22nd
• Schedule for Week of June 24th

by Calculated Risk on 6/24/2012 01:49:00 PM

From Carolyn Said at the San Francisco Chronicle: Refis on underwater jumbo loans nearly impossible

The four-bedroom split-level they bought for $799,000 has plunged in value to $566,000 - and they owe $648,000. ... The couple, who have perfect credit, don't want to blemish it by walking away from the house or doing a short sale.

... they're trapped in a mortgage with a 6.375 interest rate - sky-high compared with current rates, which average 3.7 percent - and they can't refinance because their house is underwater and their jumbo mortgage is excluded from government plans for underwater refis. ... "It makes me sick when I think about it. We could save between $800 and $1,200 a month," said Pieralde ...

Since their loan is from a private lender, their only options are 1) Walk away (they can afford the payments and don't want to walk away), 2) try to talk the lender into refinancing (good luck), 3) pay down the loan in one lump sum enough to refinance, or 4) try to pay more each month and get the loan balance down.

Said gives an example of option 3:

[A] Half Moon Bay couple who ... bought their seaside home in 2005 for slightly more than $1 million with a seven-year adjustable-rate mortgage. Late last year, when they went to refinance, the home appraised at $730,000 - and they still owed $834,000.

So they took $140,000 out of their retirement and savings to pay down the mortgage enough to refinance into a 30-year fixed at 4.25 percent.

"We felt we were up against the wall," the woman said. Refinancing "would bring our interest rate down and save a lot of money over the life of the loan. It was a hard decision but we made the financial calculation that it was worth it."

This is a reasonable option for those with the resources ... but most people probably don't have the resources to make a large lump sum payment.

Yesterday:
• Summary for Week ending June 22nd
• Schedule for Week of June 24th

by Calculated Risk on 6/24/2012 08:58:00 AM

The roller-coaster ride for gasoline prices continue ... remember when some forecasters were predicting $5 per gallon? Now we are seeing prediction of $3 per gallon.

From the Atlantic Journal Constitution: Expect gas prices to fall below $3

Is it possible the average price at the pump could be below $3 a gallon by the time leaves begin to change?

Absolutely, according to experts who follow fuel price trends, and some areas of Georgia have already broken the barrier. At one station in Macon on Friday, unleaded regular was selling for $2.90, and in Duluth and Suwanee prices were as low as $3.04 and $3.05, respectively.

Barring any unforeseen calamity that might disrupt production or distribution ... the price trend should continue, even with the arrival of summer and more vehicles on the road for vacations.

“[T]he market is suggesting gas below $3 by Halloween, and certainly by Thanksgiving,” Tom Kloza of the Oil Price Information Service ...

There are always threats to the oil supply - Iran, a storm in the GOM, a strike in Norway, but right now it looks like prices will continue to decline with adequate supply and week demand growth.

Oil prices are still moving down. Brent is down to $90.98 per barrel, down another 10% over the last two weeks, and WTI is down to $79.76. 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: 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 6/23/2012 11:56:00 AM

In a reversal of fortune, the only recent good news has been from the housing sector. Housing starts were down slightly in May, but that was because of the volatile multi-family sector. The details were better: single family starts were up, revisions to previous reports were up, and permits were up sharply.

The headline number for existing home sales was a little weak, but the key number – inventory – was down in May, and down over 20% from May 2011. However away from housing, the economic data was very weak.

For manufacturing, the Philly Fed index declined sharply to the lowest level since last August. The previous week, the Empire State manufacturing index also declined sharply – and this suggests that manufacturing slowed in June. Three more regional surveys will be released this coming week.

Other indicators were also weak: the four week average for initial weekly unemployment claims is at the highest level for the year, and the Architectural Billings Index declined sharply (mostly a leading indicator for commercial real estate).

The Fed met last week, and decided to “continue through the end of the year its program to extend the average maturity of its holdings of securities” (aka Operation Twist). The bigger story was the sharp downward revision in the FOMC projections – mostly below the levels of the January projections when it appeared the FOMC was moving towards QE3 (before the stronger payroll reports for January and February). The FOMC projections show the unemployment rate well above the Fed’s target for years, and the inflation rate below the Fed’s target rate.

Here is a summary of last week in graphs:

• Housing Starts at 708 thousand in May, Single Family starts increase to 516 thousand

Click on graph for larger image.

Total housing starts were at 708 thousand (SAAR) in May, down 4.8% from the revised April rate of 744 thousand (SAAR). Note that April was revised up from 717 thousand. March was revised up too.  

Single-family starts increased 3.2% to 516 thousand in May. April was revised up to 500 thousand from 492 thousand.

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

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

Total starts are up 55% from the bottom start rate, and single family starts are up 41% from the low.

This was below expectations of 720 thousand starts in May, but the decline was because of the volatile multi-family sector. Single family starts were up, and building permits were up sharply. And previous months were revised up. This was a fairly strong report.

All Housing Investment and Construction Graphs
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply

The NAR reports: Existing-Home Sales Constrained by Tight Supply in May, Prices Continue to Gain

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in May 2012 (4.55 million SAAR) were 1.5% lower than last month, and were 9.6% above the May 2011 rate.

The next graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 20.4% year-over-year in May from May 2011. This is the fifteenth consecutive month with a YoY decrease in inventory.

Months of supply increased slightly to 6.6 months in May.

This was at expectations of sales of 4.57 million, but the big story is the decline in inventory - inventory (not including "contingent" sales) is below the level for the same month in 2005.

All current Existing Home Sales graphs
• NY and Philly Manufacturing indexes decline

From the Philly Fed: June 2012 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of -5.8 in May to -16.6, its second consecutive negative reading ...

And from the NY Fed: Empire State Manufacturing Survey

The June Empire State Manufacturing Survey indicates that manufacturing activity expanded slightly over the month. The general business conditions index fell fifteen points, but remained positive at 2.3.

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 June. The ISM and total Fed surveys are through May.

The average of the Empire State and Philly Fed surveys declined in May, and is at the lowest level since last summer.

• Weekly Initial Unemployment Claims mostly unchanged, Four week average highest this year

The DOL reports:

In the week ending June 16, the advance figure for seasonally adjusted initial claims was 387,000, a decrease of 2,000 from the previous week's revised figure of 389,000. The 4-week moving average was 386,250, an increase of 3,500 from the previous week's revised average of 382,750.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 386,250.

The average had been between 363,000 and 384,000 all year, so this is a new high for the year.

All current Employment Graphs
• FOMC Projections

Here are the updated projections from the FOMC meeting.

On the projections, GDP was revised down, unemployment rate up, and inflation down. Compare the current projections released this week, not just with the April projections, but with the January projections. GDP is below the projections in January, and inflation is also below the January projections.

Only the unemployment rate is slightly improved from the January projections - and then only for 2012 - 2013 and 2014 are now worse.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
June 2012 Projections	1.9 to 2.4	2.2 to 2.8	3.0 to 3.5
April 2012 Projections	2.4 to 2.9	2.7 to 3.1	3.1 to 3.6
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0

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

GDP projections have been revised down for 2012, and revised down for 2013 and 2014.

The unemployment rate increased to 8.2% in April, and the projection for 2012 has been revised up.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
June 2012 Projections	8.0 to 8.2	7.5 to 8.0	7.0 to 7.7
April 2012 Projections	7.8 to 8.0	7.3 to 7.7	6.7 to 7.4
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6

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

The forecasts for overall and core inflation were revised down to reflect the recent decrease in inflation.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
June 2012 Projections	1.2 to 1.7	1.5 to 2.0	1.5 to 2.0
April 2012 Projections	1.9 to 2.0	1.6 to 2.0	1.7 to 2.0
January 2012 Projections	1.4 to 1.8	1.4 to 2.0	1.6 to 2.0

• AIA: Architecture Billings Index declines sharply in May

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

This graph shows the Architecture Billings Index since 1996. The index was at 45.8 in May, the lowest since July of last year. 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 suggests further weakness in CRE investment (it will be some time before investment in offices and malls increases).
All current Commercial Real Estate graphs
• BLS: Job Openings declined in April

Jobs openings declined in April to 3.416 million, down from 3.741 million in March. However the number of job openings (yellow) has generally been trending up, and openings are up about 13% year-over-year compared to April 2011.

Quits declined slightly in April, and quits are now up about 10% year-over-year. These are voluntary separations and more quits might indicate some improvement in the labor market. (see light blue columns at bottom of graph for trend for "quits").
All current employment graphs
• Other Economic Stories ...
• At Yahoo: McBride: Total Housing Starts Decline in May, but the Trend Is Positive
• NAHB Builder Confidence increases slightly in June, Highest since May 2007
• FNC: Residential Property Values increase 0.6% in April
• ATA Trucking index declined 0.7% in May
• LPS: Mortgage delinquencies increased in May
• Census: Number of Shared Households increased 2.25 million from 2007 to 2010
• FOMC Statement: Continue Twist through end of Year

by Calculated Risk on 6/23/2012 08:01:00 AM

The key US economic reports this week are May New Home Sales on Monday, April Case-Shiller house prices on Tuesday, and the May Personal Income and Outlays report on Friday.

With the recent economic weakness, the high frequency manufacturing reports (Richmond, Dallas and Kansas City Fed surveys), the Chicago PMI, weekly initial unemployment claims, and consumer sentiment will be closely watched.

In Europe, there is a summit in Brussels on Thursday and Friday.

----- Monday, June 25th -----
8:30 AM: Chicago Fed National Activity Index (May). This is a composite index of other data.

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

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

The consensus is for an increase in sales to 350 thousand Seasonally Adjusted Annual Rate (SAAR) in May from 343 thousand in April.

10:30 AM: Dallas Fed Manufacturing Survey for June. The consensus is for 0.0 for the general business activity index, up from -5.1 in May.

----- Tuesday, June 26th -----
9:00 AM: S&P/Case-Shiller House Price Index for April. Although this is the April report, it is really a 3 month average of February, March and April.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through Marchy 2012 (the Composite 20 was started in January 2000).

The consensus is for a 2.3% decrease year-over-year in Composite 20 prices (NSA) in April. The Zillow forecast is for the Composite 20 to decline 1.9% year-over-year, and for prices to increase 0.5% month-to-month seasonally adjusted. The CoreLogic index increased 2.6% in April (NSA).

10:00 AM: Conference Board's consumer confidence index for June. The consensus is for a decrease to 63.5 from 64.9 last month.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for June. The consensus is for an increase to 5 for this survey from 4 in May (above zero is expansion).
----- Wednesday, June 27th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. Refinance activity has been increasing sharply, and it appears purchase activity is increasing a little too.

8:30 AM: Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.4% increase in durable goods orders.

10:00 AM ET: Pending Home Sales Index for May. The consensus is for a 1.2% increase in the index.

----- Thursday, June 28th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decline to 385 thousand from 387 thousand last week.

8:30 AM: Q1 GDP (third estimate). This is the third estimate from the BEA. The consensus is that real GDP increased 1.9% annualized in Q1; no change from the 2nd estimate.

11:00 AM: Kansas City Fed regional Manufacturing Survey for June. The consensus is for a decrease to 4 from 9 in May (above zero is expansion). This is the last of the regional Fed manufacturing surveys for June.

----- Friday, June 29th -----
8:30 AM ET: Personal Income and Outlays for May. The consensus is for a 0.3% increase in personal income in May, and for no change in personal spending. And for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for June. The consensus is for an increase to 53.1, up from 52.7 in May.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for June). The consensus is for no change from the preliminary reading of 74.1.

by Calculated Risk on 6/22/2012 09:20:00 PM

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

Here is the unofficial problem bank list for June 22, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Quiet week for the Unofficial Problem Bank List with three additions and one removal. The changes leave the list with 921 institutions with assets of $354.6 billion, up for the second consecutive week. A year ago, the list held 1,001 institutions with assets of $419.2 billion.

The Federal Reserve terminated the action against Paradise Bank, Boca Raton, FL ($288 million). Written Agreements were issued to Commercial Bank, Harrogate, TN ($801 million; and Mainstreet Bank, Ashland, MO ($59 million).

Another addition came through the Federal Reserve issuing a Prompt Corrective Action order against First Security Bank of Malta, Malta, MT ($39 million), with this action being unusual in its timing as it has not been preceded by a safety & soundness enforcement action.

Next week, we anticipate the FDIC will release its actions through May 2012, so it would not be surprising to see the list increase for three consecutive weeks.

Note: The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public. (CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.)

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

by Calculated Risk on 6/22/2012 05:31:00 PM

Note: The Case-Shiller report is for April (really an average of prices in February, March and April). This data is released with a significant lag, see: House Prices and Lagged Data

Zillow Forecast: Zillow Forecast: April Case-Shiller Composite-20 Expected to Show 1.9% Decline from One Year Ago

On Tuesday, June 26th, the Case-Shiller Composite Home Price Indices for April will be released. Zillow predicts that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) will decline by 1.9 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) will decline by 2.4 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from March to April will be 0.5 percent for both the 20 and 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below and are based on a model incorporating the previous data points of the Case-Shiller series and the April Zillow Home Value Index data, and national foreclosure re-sales.

April is the third consecutive month with monthly appreciation for the Case-Shiller indices, with April projected to be particularly strong. Buyers are experiencing many markets with extremely low inventory, which is propping up prices in the near term, paired with a decreasing share of foreclosure re-sales. The decreasing share of foreclosure re-sales, especially, will impact the Case-Shiller indices positively this month.

Despite the recent uptick in home prices, we do believe that 2012 will end on a lower level than 2011.

Zillow's forecasts for Case-Shiller have been pretty close.

One of the keys this year is to watch the year-over-year change in the various house price indexes. The composite 10 and 20 indexes declined 2.8% and 2.6% YoY respectively in March, after declining 3.6% and 3.5% in February. Zillow is forecasting a smaller year-over-year decline in April.

		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	April 2011	151.78	154.81	138.43	141.27
Case-Shiller (last month)	March 2012	146.61	149.55	134.10	136.90
Zillow March Forecast	YoY	-2.4%	-2.4%	-1.9%	-1.9%
	MoM	1.1%	0.5%	1.2%	0.5%
Zillow Forecasts1		148.2	150.7	135.8	138.6
Current Post Bubble Low		146.61	149.29	134.10	136.57
Date of Post Bubble Low		March 2012	January 2012	March 2012	January 2012
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 6/22/2012 02:18:00 PM

From the WSJ: European Leaders Push for €130 Billion to Help Growth

Italy, France, Spain and Germany agreed to push European leaders at a key summit next week to sign off on a €130 billion ($163 billion) euro plan aimed at increasing growth in Europe's beleaguered economies.

This was a small meeting of German Chancellor Angela Merkel, French President François Hollande, Spanish Premier Mariano Rajoy, and Italian Prime Minister Mario Monti. This was preparation for the two day European summit in Brussels that starts next Thursday, June 28th.

From the NY Times: Euro Leaders Agree to Push for Stimulus Package

After a two-hour meeting here, the leaders of France, Germany, Spain and Italy also pledged to give a clearer, more comprehensive vision of the future, while acknowledging the serious crisis sweeping the Continent.

“The 130 billion euros is a strong signal,” French President Francois Hollande said at the news conference following the private meeting, and is part of “a road map that presupposes fiscal and banking union.”

by Calculated Risk on 6/22/2012 11:31:00 AM

More on Europe ...

From the WSJ: Spain to Make Official Aid Request Monday

Spain's government said Friday it plans to make its official request for European Union aid for its banking sector Monday, and expects to have the terms for such aid set by July 9, as discussions continue on ways to inject European aid funds directly into ailing Spanish banks.

An unresolved question is how the bank bailout will work.

And from the ECB: ECB takes further measures to increase collateral availability for counterparties

On 20 June 2012 the Governing Council of the European Central Bank (ECB) decided on additional measures to improve the access of the banking sector to Eurosystem operations in order to further support the provision of credit to households and non-financial corporations.

The Governing Council has reduced the rating threshold and amended the eligibility requirements for certain asset-backed securities (ABSs). It has thus broadened the scope of the measures to increase collateral availability which were introduced on 8 December 2011 and which remain applicable.

There are details in the press release on acceptable collateral and the associated haircuts.

by Calculated Risk on 6/22/2012 09:19:00 AM

This is something I like to check occasionally as a differnt measure for inflation - as opposed to CPI from the BLS.

This is the US only index of the MIT Billion Prices Project.

This index uses prices for online goods. From MIT:

These indexes are designed to provide real-time information on major inflation trends, not to forecast official inflation announcements. We are constantly adding new categories of goods, but we do not cover 100% of CPI goods and services. The price of services, in particular, are not easy to find online and therefore are not included in our statistics.

Click on graph for larger image.


It appears that year-over-year inflation is around 1.5%.

The recent monthly decline is probably related to oil and gasoline prices, but this is another measure that suggests inflation is not currently a problem.

by Calculated Risk on 6/21/2012 09:54:00 PM

BuildFax Remodeling Index

Residential remodels authorized by building permits in the United States in April were at a seasonally-adjusted annual rate of 2,729,000. This is 2 percent above the revised March rate of 2,683,000 and is 12 percent above the April 2011 estimate of 2,447,000.

Seasonally-adjusted annual rates of remodeling across the country in April 2012 are estimated as follows: Northeast, 397,656 (up 5% from March and up 11% from April 2011); South, 1,102,000 (up 5% from March and up 14% from April 2011); Midwest, 484,000 (down 11% from March and up 7% from April 2011); West, 768,000 (up 2% from March and up 10% from April 2011).

"Remodeling continues to grow steadily in the U.S. on a seasonally-adjusted basis; more residential remodeling projects were started in April 2012 than in any of the prior six Aprils," said Joe Emison, Vice President of Research and Development at BuildFax

Three key components of residential investment are increasing: home improvement, new multi-family structures, and recently new single family structures.

Earlier on Existing Home Sales:
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
• Existing Home Sales: Inventory and NSA Sales Graph • Existing Home Sales graphs

by Calculated Risk on 6/21/2012 06:14:00 PM

Yesterday I argued that Fed Chairman Ben Bernanke had paved the way for QE3 as soon as August 1st, depending, as always, on incoming data. Others think the Fed will wait longer. Here are some different views:

From Merrill Lynch analysts (who all year have been predicting QE3 at the September FOMC meeting):

The Federal Reserve announced that it would extend Operation Twist through the end of the year, selling or rolling over $267bn of short-term holdings into longer-term Treasuries. We view this program as a down-payment on further easing: we still expect the Fed to launch QE3 in September and to push out its forward guidance to mid-2015 by August or September. Bernanke confirmed that the Fed stood ready to ease further if economic conditions warranted; under our forecast, deteriorating conditions will convince the Fed to ease again this fall.

From Goldman Sachs analysts (who thought there was a high probability QE3 would be announced at the meeting yesterday):

The FOMC's communication was dovish. First, changes to the committee's economic outlook were larger than expected, with significant downgrades to real GDP growth and employment. Second, the FOMC put in place a more explicit easing bias in the statement, saying that it "is prepared to take further action" should the recovery--and the job market in particular--continue to disappoint.

We believe further easing will be needed ... given our forecast for the economy--which remains below the Fed's own view--we also expect additional balance sheet expansion by early 2013.

However, the hurdle for additional balance sheet action in the next few months appears to be quite high. The fact that the FOMC took a "substantive" easing step today probably makes another easing move in the near term relatively unlikely.

And quite a few people wonder - given the Fed's own projections - why the Fed didn't do QE3 yesterday. From Paul Krugman:

The Fed has a dual mandate, employment and price stability. Its own projections show high unemployment persisting for years and years, inflation running below its target — and realistically its inflation projections are too high while its unemployment projections are too low. There is no rational argument I can see for not going all out with monetary stimulus.

But what we actually got was action that was pretty obviously calculated to be the absolute least the Fed could do without generating headlines saying “Fed ignores weak economy”.

CR Note: Perhaps an argument against a QE3 announcement on August 1st is there will not be much data released between now and the next FOMC meeting. For employment, the only major report will be the June employment report to be released on July 6th. Also the advance estimate for Q2 GDP will be released on July 27th. Still, if the data is weak, I expect the FOMC to provide additional accommodation at the August meeting.

by Calculated Risk on 6/21/2012 03:55:00 PM

Below is a graph comparing mortgage rates from the Freddie Mac Primary Mortgage Market Survey® (PMMS®) and the refinance index from the Mortgage Bankers Association (MBA).

The MBA reported yesterday that refinance activity increased again last week.

Earlier today from Freddie Mac: 30-Year Fixed-Rate Mortgage Averages 3.66 Percent

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average mortgage rates easing amid worsening economic indicators. Both the 30-year fixed and the 5-year ARM registered new average record lows.

30-year fixed-rate mortgage (FRM) averaged 3.66 percent with an average 0.7 point for the week ending June 21, 2012, down from last week when it averaged 3.71 percent. Last year at this time, the 30-year FRM averaged 4.50 percent.

Click on graph for larger image.

This graph shows the MBA's refinance index (monthly average) and the the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey®.

The Freddie Mac survey started in 1971 and mortgage rates are currently at the record low for the last 40 years.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a huge refinance boom - and rates are there! The 30 year conforming mortgage rates were at 4.23% in October 2010, so a 50 bps drop would be 3.73% - and rates hit 3.66% last week.

There was an increase this week in FHA streamlined refinances (due to lower premiums). And there has also been an increase in refinance activity from borrowers with negative equity and loans owned or guaranteed by Fannie or Freddie.

Earlier on Existing Home Sales:
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
• Existing Home Sales: Inventory and NSA Sales Graph • Existing Home Sales graphs

by Calculated Risk on 6/21/2012 01:56:00 PM

Catching up ...

• From the Philly Fed: June 2012 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of -5.8 in May to -16.6, its second consecutive negative reading ...
...
The current employment index increased 3 points this month [to 1.8]. Firms indicated fewer hours worked this month: the average workweek index decreased 14 points and posted its third consecutive negative reading.

Click on graph for larger image.

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 June. The ISM and total Fed surveys are through May.

The average of the Empire State and Philly Fed surveys declined in May, and is at the lowest level since last summer.

• Also this morning, the Markit Flash PMI came in below expectations at 52.9% (slower expansion).

• The Conference Board leading indicators increased 0.3% in May:

"Economic data in general reflect a U.S. economy that is growing modestly, neither losing nor gaining momentum," said Ken Goldstein, economist at the Conference Board, a private research group. However, he added that ongoing U.S. and international challenges are making economic strengthening "difficult."

• The FHFA house price index showed further gains in April: FHFA House Price Index Up 0.8 Percent in April

U.S. house prices rose 0.8 percent on a seasonally adjusted basis from March to April, according to the Federal Housing Finance Agency’s monthly House Price Index. ... For the 12 months ending in April, U.S. prices rose 3.0 percent.

by Calculated Risk on 6/21/2012 12:00:00 PM

The NAR reported inventory decreased to 2.49 million units in May, down 0.4% from the downwardly revised 2.50 million in April (revised down from 2.54 million). This is down 20.4% from May 2011, and down 2.6% from the inventory level in May 2005 (mid-2005 was when inventory started increasing sharply).

It is very likely that inventory will be below the comparable month in 2005 for the rest of the year. It is even possible that inventory has peaked for 2012 (or is at least very close to the peak).

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

The following graph shows inventory by month since 2004. In 2005 (dark blue columns), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

Click on graph for larger image.

This year (dark red for 2012) inventory is at the lowest level for the month of May since 2004, and inventory is below the level in May 2005 (not counting contingent sales). However inventory is still elevated using months-of-supply.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA (red column) are above the sales for the 2008, 2009 and 2011 (2010 was slightly higher because of the tax credit). Sales are well below the bubble years of 2005 and 2006.

Also it appears distressed sales were down in May. From the NAR:

Distressed homes - foreclosures and short sales sold at deep discounts - accounted for 25 percent of May sales (15 percent were foreclosures and 10 percent were short sales), down from 28 percent in April and 31 percent in May 2011.

This suggests non-distressed sales increased in May, and that is a positive sign for the housing market.

Earlier:
• Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
• Existing Home Sales graphs

by Calculated Risk on 6/21/2012 10:00:00 AM

The NAR reports: Existing-Home Sales Constrained by Tight Supply in May, Prices Continue to Gain

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, declined 1.5 percent to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April, but are 9.6 percent above the 4.15 million-unit pace in May 2011.
...
Total housing inventory at the end of May slipped 0.4 percent to 2.49 million existing homes available for sale, which represents a 6.6-month supply2 at the current sales pace; there was a 6.5-month supply in April. Listed inventory is 20.4 percent below a year ago when there was a 9.1-month supply. Unsold inventory has trended down from a record 4.04 million in July 2007; supplies reached a cyclical peak of 12.1 months in July 2010.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in May 2012 (4.55 million SAAR) were 1.5% lower than last month, and were 9.6% above the May 2011 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory declined to 2.49 million in May from the downwardly revised 2.50 million in April (revised down from 2.54 million). Inventory is not seasonally adjusted, and usually inventory increases from the seasonal lows in December and January to the seasonal high in mid-summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 20.4% year-over-year in May from May 2011. This is the fifteenth consecutive month with a YoY decrease in inventory.

Months of supply increased slightly to 6.6 months in May.

This was at expectations of sales of 4.57 million. I'll have more soon ...


All current Existing Home Sales graphs

by Calculated Risk on 6/21/2012 08:38:00 AM

The DOL reports:

In the week ending June 16, the advance figure for seasonally adjusted initial claims was 387,000, a decrease of 2,000 from the previous week's revised figure of 389,000. The 4-week moving average was 386,250, an increase of 3,500 from the previous week's revised average of 382,750.

The previous week was revised up from 386,000 to 389,000.

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 386,250.

The average had been between 363,000 and 384,000 all year, so this is a new high for the year.

And here is a long term graph of weekly claims:

This was above the consensus forecast of 383,000 and suggests some renewed weakness in the labor market.


All current Employment Graphs

by Calculated Risk on 6/20/2012 10:42:00 PM

Existing home sales for May is the key economic release on Thursday. And somewhat related, here is an interesting article on construction in Phoenix, from Bloomberg: Arizona’s Homebuilding Revival Sparks Bidding Wars for Workers (ht Brian)

After being decimated by the housing crash, Arizona’s builders are now scrounging for workers as demand for new homes climbs. Building permits are at an almost three-year high, creating a scarcity of framers, roofers and masons, many of whom moved elsewhere when work dried up. ...

Construction jobs, which also include commercial and government projects, increased 9.3 percent in May from a year earlier to 120,300, the biggest gain of any industry in the state, according to Arizona’s Office of Employment and Population Statistics. ...

“The industry is so wound down that it’s hard to flip the switch on and build as many homes as there is demand right now,” said Ben Sage, director of the Arizona region for Metrostudy, a Houston-based firm that tracks new construction. “The subcontractors are scrambling for workers.”

On Thursday:

• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for claims to decline to 383 thousand from 386 thousand last week.

• At 9:00 AM, the Markit US PMI Manufacturing Index Flash will be released. This is a new release and might provide hints about the ISM PMI for June. The consensus is for a reading of 53.8, down slightly from 53.9 in May.

• At 10:00 AM, the NAR is scheduled to release existing home sales for May. The consensus is for sales of 4.57 million on seasonally adjusted annual rate (SAAR) basis. Housing economist Tom Lawler is forecasting the NAR will report sales of 4.66 million in May.

• Also at 10:00 AM, the Philly Fed manufacturing survey for June (consensus 0.5), the FHFA house price index for April, and the Conference Board Leading Indicators for May (consensus no change) will be released.

by Calculated Risk on 6/20/2012 06:20:00 PM

At the January press conference, Fed Chairman Ben Bernanke hinted at further accommodation (QE3) based on incoming data. Then the January and February employment reports were above expectations, and inflation also picked up a little due to the surge in oil and gasoline prices.

In April, based on the stronger data, the FOMC participants revised up their projections for GDP and inflation, and revised down their projections for the unemployment rate - and QE3 was put on hold.

Compare the current projections released today (below) not just with the April projections, but with the January projections. GDP is below the projections in January, and inflation is also below the January projection.

Only the unemployment rate is slightly improved from the January projections - and then only for 2012 - 2013 and 2014 are now worse. As Tim Duy wrote, the projections are "shocking".

[T]his is a significant downward revision to the forecast for not just this year, but next year as well. Moreover, they expect no meaningful progress on the unemployment rate and the PCE inflation forecast remains centered well below 2%.

In the press conference today, Bernanke made it clear that further accommodation is very likely if employment indicators don't improve soon. He also pointed out that the Fed can't do any more "twisting" because of the lack of short duration securities.

And that strongly suggests QE3 following the two day meeting ending August 1st.

Also the FOMC statement was changed to "The Committee is prepared to take further action as appropriate ..." from "The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate ...". A little more aggressive.

One of the reasons I thought QE3 was unlikely today was the lack of foreshadowing from the Fed. Now the markets are prepared - and unless employment indicators pick up significantly, QE3 seems very likely. (Note: There is only one employment report between now and the next FOMC meeting - the June report on July 6th. Otherwise the Fed will rely on weekly unemployment claims and other indicators).

It is possible the Fed will wait until September (depending on incoming data), but right now I think QE3 will arrive on August 1st.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
June 2012 Projections	1.9 to 2.4	2.2 to 2.8	3.0 to 3.5
April 2012 Projections	2.4 to 2.9	2.7 to 3.1	3.1 to 3.6
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0

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

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
June 2012 Projections	8.0 to 8.2	7.5 to 8.0	7.0 to 7.7
April 2012 Projections	7.8 to 8.0	7.3 to 7.7	6.7 to 7.4
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6

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

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
June 2012 Projections	1.2 to 1.7	1.5 to 2.0	1.5 to 2.0
April 2012 Projections	1.9 to 2.0	1.6 to 2.0	1.7 to 2.0
January 2012 Projections	1.4 to 1.8	1.4 to 2.0	1.6 to 2.0