by Calculated Risk on 9/05/2012 07:01:00 AM

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

The Refinance Index decreased 3 percent from the previous week to the lowest level since May 2012. The seasonally adjusted Purchase Index decreased 0.8 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 3.78 percent from 3.80 percent, with points decreasing to 0.37 from 0.42 (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 has been mostly moving sideways over the last two years.

by Calculated Risk on 9/04/2012 08:06:00 PM

I've been puzzling over the MBA purchase index (to be released tomorrow). This index has mostly been moving sideways and hasn't indicated any pickup in home purchases. However there are other indicators (the Fed's recent Senior Loan Officer survey) that suggest there has been an increase in purchase activity.

It is probably worth asking if the data is being impacted by changes in behavior or in the sample. I don't know the answer, but the MBA index has been impacted by changes before.

First here is an excerpt from a Reuters article in October 2006: Greenspan: Housing market worst may be over

The U.S. housing market appears to be emerging from its recent travails and the “worst may well be over,” former Federal Reserve Chairman Alan Greenspan was quoted as saying on Friday.

“I suspect that we are coming to the end of this downtrend, as applications for new mortgages, the most important series, have flattened out,” Greenspan said at an event in Calgary, Canada ...

Of course Greenspan was wrong (as I noted at the time). Here was what I previously wrote: "In mid-2006, the MBA index did flatten out, and in late 2006 the index increased (and increased further in 2007). At that time I spoke with some mortgage brokers, and there was clear evidence of homebuyers applying for mortgages with multiple brokers - this lead to some double counting by the MBA. And in late 2006 the increase was because mortgage brokers started going out of business (this skewed the data, because the MBA samples only certain large brokers – and the large brokers were getting more applications as the weaker companies went under). I identified these flaws and stopped using the MBA index, but Greenspan blindly used the index and drew the wrong conclusion."

Now I'm wondering if the index is being impacted by another change in the mix. Here was an interesting article today from Jon Prior at HousingWire: Credit union mortgage lending doubles in California

California credit unions took advantage of the Home Affordable Refinance Program and originated twice as many home loans in second quarter than the previous three months.
...
Chris Collver, senior regulatory analyst for CANV, said the trend will continue as large firms grow more conservative or exit the more exotic mortgage business entirely.

Credit unions took up about 2% of the space in 2005. That grew to 6.7% of the home credit market in 2011, according to Collver.

Prior's article is focused on refinancing (the MBA Purchase index is for purchases, not refinance activity). But I wonder if some lenders who are not surveyed by the MBA are seeing an increase in activity? It is a puzzle ...

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

• At 8:30 AM, the BLS will released Productivity and Costs for Q2. The consensus is for a 1.4% increase in unit labor costs.

• At 10:00 AM, the Trulia Price and Rent Monitors for August will be released. This is the new index from Trulia that uses asking prices adjusted both for the mix of homes listed for sale and for seasonal factors.

by Calculated Risk on 9/04/2012 02:55:00 PM

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.52 million SAAR in August. That is up 17% from August 2011, and up 3% from the sales rate last month.

This was above the consensus forecast of 14.3 million SAAR (seasonally adjusted annual rate).

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for August (red, light vehicle sales of 14.52 million SAAR from Autodata Corp).

Click on graph for larger image.

The year-over-year increase was fairly large because the auto industry was still recovering from the impact of the tsunami and related supply chain issues in 2011 (the issues were mostly over in September of 2011).

Sales have averaged a 14.17 million annual sales rate through the first seven months of 2012, up from 12.4 million rate for the same period of 2011.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

This shows the huge collapse in sales in the 2007 recession.

It looks like auto sales will be up slightly in Q3 compared to Q2, and make another small positive contribution to GDP.

by Calculated Risk on 9/04/2012 01:55:00 PM

Note: I'll post an estimate for August auto sales around 4 PM ET.

Here is another update using inventory numbers from HousingTracker / DeptofNumbers to track changes in listed inventory. Tom Lawler mentioned this last year.

According to the deptofnumbers.com for (54 metro areas), inventory is off 22.6% compared to the same week last year. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through July (left axis) and the HousingTracker data for the 54 metro areas through early September.

Click on graph for larger image.

Since the NAR released their revisions for sales and inventory last year, the NAR and HousingTracker inventory numbers have tracked pretty well.

On a seasonal basis, housing inventory usually bottoms in December and January and then increases through the summer. Inventory only increased a little this spring and has been declining for the last four months by this measure. It looks like inventory has peaked for this year.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the early September listings, for the 54 metro areas, declined 22.6% from the same period last year.

This decline in active inventory remains a huge story, and the lower level of inventory is pushing up house prices.

by Calculated Risk on 9/04/2012 11:40:00 AM

Catching up ... This morning the Census Bureau reported that overall construction spending decreased in July:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during July 2012 was estimated at a seasonally adjusted annual rate of $834.4 billion, 0.9 percent below the revised June estimate of $842.2 billion. The July figure is 9.3 percent above the July 2011 estimate of $763.5 billion.

Both private construction spending and public spending declined:

Spending on private construction was at a seasonally adjusted annual rate of $558.7 billion, 1.2 percent below the revised June estimate of $565.6 billion. ... In July, the estimated seasonally adjusted annual rate of public construction spending was $275.7 billion, 0.4 percent below the revised June estimate of $276.7 billion.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 61% below the peak in early 2006, and up 19% from the recent low. Non-residential spending is 29% below the peak in January 2008, and up about 30% from the recent low.

Public construction spending is now 15% below the peak in March 2009 and near the post-bubble low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 19%. Non-residential spending is also up year-over-year mostly due to energy spending (power and electric). Public spending is still down year-over-year, although it now appears public construction spending is moving sideways.

The slight decline in residential construction spending in July followed several months of solid gains. The solid year-over-year increase in private residential investment is a positive for the economy (the increase in 2010 was related to the tax credit).
All Housing Investment and Construction Graphs

by Calculated Risk on 9/04/2012 10:00:00 AM

This is the third consecutive month of contraction (below 50) in the ISM index since the recession ended in 2009. PMI was at 49.6% in August, down slightly from 49.8% in July. The employment index was at 51.6%, down from 52.0%, and the new orders index was at 47.1%, down from 48.0%.

From the Institute for Supply Management: August 2012 Manufacturing ISM Report On Business®

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI™ registered 49.6 percent, a decrease of 0.2 percentage point from July's reading of 49.8 percent, indicating contraction in the manufacturing sector for the third consecutive month. This is also the lowest reading for the PMI™ since July 2009. The New Orders Index registered 47.1 percent, a decrease of 0.9 percentage point from July, indicating contraction in new orders for the third consecutive month. The Production Index registered 47.2 percent, a decrease of 4.1 percentage points and indicating contraction in production for the first time since May 2009. The Employment Index remained in growth territory at 51.6 percent, but registered its lowest reading since November 2009 when the Employment Index registered 51 percent. The Prices Index increased 14.5 percentage points from its July reading to 54 percent. Comments from the panel generally reflect a slowdown in orders and demand, with continuing concern over the uncertain state of global economies."

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was below expectations of 50.0%. This suggests manufacturing contracted in August for the third consecutive month.

This was another weak report.

by Calculated Risk on 9/04/2012 08:54:00 AM

Notes: This CoreLogic House Price Index report is for July. The Case-Shiller index released last week was for June. Case-Shiller is currently the most followed house price index, however CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic® July Home Price Index Rises 3.8 Percent Year-Over-Year—Biggest Increase Since 2006

Home prices nationwide, including distressed sales, increased on a year-over-year basis by 3.8 percent in July 2012 compared to July 2011. This was the biggest year-over-year increase since August 2006. On a month-over-month basis, including distressed sales, home prices increased by 1.3 percent in July 2012 compared to June 2012. The July 2012 figures mark the fifth consecutive increase in home prices nationally on both a year-over-year and month-over-month basis.

Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 4.3 percent in July 2012 compared to July 2011. On a month-over-month basis excluding distressed sales, home prices increased 1.7 percent in July 2012 compared to June 2012, also the fifth consecutive month-over-month increase. Distressed sales include short sales and real estate owned (REO) transactions.

The CoreLogic Pending HPI indicates that August home prices, including distressed sales, will rise by 4.6 percent on a year-over-year basis from August 2011 and at least 0.6 percent on a month-over-month basis from July 2012.

“The housing market continues its positive trajectory with significant price gains in July and our expectation of a further increase in August,” said Mark Fleming, chief economist for CoreLogic. “While the pace of growth is moderating as we transition to the off-season for home buying, we expect a positive gain in price levels for the full year.”

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 1.3% in July, and is up 3.8% over the last year.

The index is off 27% from the peak - and is up 9.7% from the post-bubble low set in February (the index is NSA, so some of the increase is seasonal).

The second graph is from CoreLogic. The year-over-year comparison has been positive for five consecutive months.

Excluding the tax credit bump, these are the first year-over-year increases since 2006 - and this is the largest year-over-year increase since 2006.

by Calculated Risk on 9/03/2012 09:31:00 PM

Happy Labor Day!

On Tuesday:
• At 10:00 AM ET, the ISM Manufacturing Index for August is scheduled for release. The consensus is for an increase to 50.0, up from 49.8 in July. (below 50 is contraction).

• Also at 10:00 AM, Construction Spending for July will be released. The consensus is for a 0.4% increase in construction spending.

• All day: Light vehicle sales for August. The consensus is for light vehicle sales to increase to 14.3 million SAAR in August from 14.1 million in July. The SAAR estimate is usually available around 4 PM ET.

The Asian markets are mostly green tonight, with the Nikkei up slightly and the Shanghai Composite up 0.6%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P future are up 1, and the DOW futures up 16 points.

Oil prices are still moving up with WTI futures are at $97.22 and Brent is at $116.09 per barrel. Using the calculator at Econbrowser suggests national gasoline prices at about $3.74 per gallon.

Weekend:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd

Here are the first week questions for the September contest. You can now enter with Facebook, Twitter, or OpenID logins:

by Calculated Risk on 9/03/2012 06:08:00 PM

From the WSJ: ECB Chief Hints at Bond Purchases

The president of the European Central Bank dropped more hints about how the bank could support struggling countries, suggesting the bank was free to buy government bonds maturing in three years or less.

The comments by Mario Draghi in a closed hearing at the European Parliament on Monday came ahead of the ECB's monthly policy meeting Thursday.
...
Mr. Draghi indicated Monday that the ECB would be open to buying bonds with a maturity of two to three years, stressing that such purchases wouldn't break European Union treaties, according to several lawmakers present at the hearing.

Paul Murphy at Alphaville has the market reaction: A Draghi leak ...

It will an interesting week!

by Calculated Risk on 9/03/2012 11:55:00 AM

From CNBC: Europe Shares Close Higher on Asset Purchase Hopes

Traders are hoping the ECB will cut rates and detail a new bond-buying plan to ease the funding pressures on Spain and Italy. All eyes will be on the European Central Bank on Thursday as investors await news on its next policy move.

The ECB Governing Council meets on Thursday in Frankfurt with a press conference to follow. Analysts at Nomura are expecting a rate cut, but no bond buying yet for Spain and Italy. From Nomura:

• Having failed to cut in August, we now expect the ECB to cut the refi rate 25bp in September and leave the deposit rate at zero.

• We also expect the ECB to announce on 6 September that it is ready to intervene but only when help has been requested.

• We expect Spain and Italy to resist calling for help, prompting renewed market deterioration.

And from Jack Ewing at the NY Times: In Pivotal Week for Euro Zone, a Test for the Central Bank’s Leader

[T]his Thursday, when the central bank meets again, Mr. Draghi, the bank’s president, could have a far harder time reconciling the expectations of twitchy financial markets with the limitations of his power. Although investors are counting on bold action, analysts say the bank probably needs more time to resolve internal differences and deliver on a promise to use its financial clout to tame runaway borrowing costs for the most troubled euro zone countries.
...
Some analysts do expect the central bank to cut the benchmark interest rate to 0.5 percent on Thursday, from its already record low level of 0.75 percent.
...
In any case, actual bond buying by the central bank is probably at least several weeks away. Mr. Draghi said in August that the bank would intervene in bond markets only in concert with the new European Union rescue fund, the European Stability Mechanism, or E.S.M.

Countries would need to ask the rescue fund for help, Mr. Draghi said, and the fund would take the lead in bond buying, with the central bank providing backup financial support. But the fund, meant to replace a temporary bailout fund, is in legal limbo at least until the German constitutional court rules Sept. 12 on a challenge to the country’s participation.

by Calculated Risk on 9/03/2012 09:20:00 AM

For the economic question contest in August, the leaders were (Congratulations all!):

1st: Richard Plaster
2nd tie: Bill Dawers, Lance Leger, Jeffrey McNamee, Jeremy Strouse, Bill (CR)

Weekend:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd

Here are the first week questions for the September contest. You can now enter with Facebook, Twitter, or OpenID logins:

by Calculated Risk on 9/02/2012 05:55:00 PM

Two of the key U.S. economic trends I expected this year were 1) a recovery in residential investment, and 2) that most of the drag from state and local governments would be over by mid-year 2012. Just eliminating the drag from state and local governments would help GDP and employment growth.

I've written extensively about the housing recovery, and it is time to take another look at state and local government spending. In early August, the Rockefeller Institute of Government put out a report on state and local government revenue through Q1. From the press release:

Overall state tax revenues are now above pre-recession levels, as well as above peak levels that came several months into the Great Recession. In the first quarter of 2012, total state tax revenues were 4.8 percent higher than during the same quarter of 2008.

Starting at the end of 2008 and extending through 2009, states suffered five straight quarters of decline in tax revenues. They now have enjoyed nine consecutive periods of growth, and the second quarter of 2012 will likely extend the string to 10. Overall collections in 45 early-reporting states showed growth of 5.8 percent in the months of April and May of 2012 compared to the same months of 2011.

After adjusting for inflation, however, state tax revenues are still 1.6 percent lower compared to the same quarter four years ago, in 2008.

That is a little encouraging, but the news isn't as positive for local governments:

While state tax revenues have been recovering, many localities face significant fiscal challenges, according to the report’s author, Senior Policy Analyst Lucy Dadayan.

“The Great Recession led to a growing divergence between state and local government tax performance,” Dadayan said. “State tax revenues collapsed steeply from 2008 to 2010 while local tax revenues continued to grow. Such trends have reversed since 2010, and state tax revenues started trending upward while local tax revenues have been mostly heading downward. Fiscal pressures are continuously mounting for local governments, and depressed housing prices are now causing declines in local property taxes.”

The problem is local governments are mostly funded by property taxes, and property taxes react slowly to falling house prices - and property taxes are still declining. From the report:

Collections from local property taxes made up 81.6 percent of such receipts during the first quarter of 2012. Local property tax revenues showed a decline of 0.9 percent in nominal terms in the first quarter of 2012 compared to the same quarter of 2011. Moreover, local property taxes were 4.6 and 1.3 percent lower than during the same quarters of 2009 and 2010, respectively.

This suggests some further local cutbacks, although I still expect the drag to be less than the last few years.

Here is a graph showing the contribution to percent change in GDP for residential investment and state and local governments since 2005.

Click on graph for larger image.

The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has added to GDP growth for the last 5 quarters (through Q2 2012).

However the drag from state and local governments is ongoing. State and local governments have been a drag on GDP for eleven consecutive quarters. Although not as large a negative as the worst of the housing bust (and much smaller spillover effects), this decline has been relentless and unprecedented.

In real terms, state and local government spending is now back to Q4 2001 levels, even with a larger population.

The next graph is for state and local government employment. So far in 2012 - through July - state and local governments have lost 42,000 jobs (7,000 jobs were lost in July). In the first seven months of 2011, state and local governments lost 205,000 payroll jobs - and 230,000 for the year. So the layoffs have slowed.

This graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 230,000 in 2011.

Note: Some of the stimulus spending from the American Recovery and Reinvestment Act probably kept state and local employment from declining faster in 2009.

Note: Of course the Federal government is still losing workers (38,000 over the last 12 months and another 2,000 in July), but it looks like state and local government employment losses might be slowing - but the job losses haven't stopped yet - and with property tax revenue still falling, more local jobs will probably be lost.

Yesterday:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd

by Calculated Risk on 9/02/2012 12:03:00 PM

From HotelNewsNow.com: STR: US results for week ending 25 August

In year-over-year comparisons, occupancy ended the week with a 4.9-percent increase to 65.7 percent, average daily rate was up 5.3 percent to US$105.43 and revenue per available room ended the week with an increase of 10.5 percent to US$69.30.

The 4-week average is above the pre-recession levels (the occupancy rate for the same week in 2007 was 64.2 percent).

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using a four week average.

Click on graph for larger image.

The red line is for 2012, yellow is for 2011, blue is "normal" and black is for 2009 - the worst year since the Great Depression for hotels.

The occupancy rate will decline over the next month as the summer travel season ends. The next key period is for fall business travel.

The recovery in the occupancy rate has helped hotel profitability, from HotelNewsNow.com: Hotel profitability bouncing back

The U.S. hotel industry achieved a net income of approximately $33 billion, or 21.4% of total revenues, during 2011—a healthy increase of 15.7% over 2010 levels, according to STR through its Hotel Operating Statistics, or HOST, program. STR is the parent company of HotelNewsNow.com.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

Yesterday:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd

by Calculated Risk on 9/02/2012 09:06:00 AM

From the National Restaurant Association: Uncertainty Over Future Business Conditions Dampens Restaurant Performance Index

The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.2 in July, down 1.1 percent from June and the lowest mark since a reading of 100.0 in October. However, July still represented the ninth consecutive month that the RPI stood above 100, which signifies continued expansion in the index of key industry indicators.

“Although restaurant operators reported positive same-store sales for the 14th consecutive month in July, their economic outlook for the months ahead continued to soften,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Only 22 percent of restaurant operators expect economic conditions to improve in the next six months, the lowest level in 10 months.”

Click on graph for larger image.

The index decreased to 100.2 in July, down from 101.4 in June (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month.

Yesterday:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd

by Calculated Risk on 9/01/2012 06:36:00 PM

Here is a brief interview of Atlanta Fed President Dennis Lockhart in the WSJ: Fed Official Says More Stimulus a 'Close Call'

"It's a close call" when it comes answering the question of whether the Fed should provide more aid to the economy, Federal Reserve Bank of Atlanta President Dennis Lockhart said.
...
"I'm increasingly of the view that we are on a track that you would, to simplify it, would say is about a 2% growth track with fluctuating job growth. But overall, not a strong enough pace to bring down unemployment to anything close to a notion of full employment in a reasonable time," Mr. Lockhart said.

"That's a very tough question. I am not highly confident in the ability of simply monetary action to jump-shift the economy onto a different track," ... "There really is a lot to be solved on the fiscal side to create the conditions, arguably, in which further monetary action could really boost the economy,"
...
If the Fed were to act, Mr. Lockhart said half-measures would not get the job done. While he didn't state what the steps could be, he said stimulus, if chosen, should be "a package. When I say package that means two or three things done at the same time to create maximum possible gains."

CR Note: If Lockhart is waiting for additional fiscal stimulus, it will be a long long wait. And the "fiscal cliff" will not be addressed until after the election.

I think his most interesting comment is at the end about additional accommodation as "a package". That suggests that both extending the extended period until 2015 and another round of asset purchases might happen at the same time (perhaps conditional on the economy).

Earlier:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd

by Calculated Risk on 9/01/2012 12:57:00 PM

Earlier:
• Summary for Week Ending Aug 31st

The key report for this week will be the August employment report to be released on Friday, Sept 7th. Other key reports include the ISM manufacturing index on Tuesday, vehicle sales also on Tuesday, and the ISM non-manufacturing (service) index on Thursday.

On Thursday, September 6th, there is a Governing Council meeting of the European Central Bank in Frankfurt with a press conference to follow. ECB President Mario Draghi is expected to discuss how the ECB will help lower Spanish and Italian borrowing costs.

----- Monday, Sept 3rd----- All US markets will be closed in observance of the Labor Day holiday.

----- Tuesday, Sept 4th -----
All day: Light vehicle sales for August. The consensus is for light vehicle sales to increase to 14.3 million SAAR in August from 14.1 million in July (Seasonally Adjusted Annual Rate).

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the July sales rate.

TrueCar is forecasting:

The August 2012 forecast translates into a Seasonally Adjusted Annualized Rate (“SAAR”) of 14.2 million new car sales, up from 12.1 million in August 2011 and up from 14.1 million in July 2012.

Edmunds.com is forecasting:

Edmunds.com ... forecasts that 1,287,603 new cars will be sold in August for an estimated Seasonally Adjusted Annual Rate (SAAR) this month of 14.5 million light vehicles.

10:00 AM ET: ISM Manufacturing Index for August.

Here is a long term graph of the ISM manufacturing index. The ISM index has shown contraction for two consecutive months; the first contraction in the ISM index since the recession ended in 2009. The consensus is for an increase to 50.0, up from 49.8 in July. (below 50 is contraction).

10:00 AM: Construction Spending for July. The consensus is for a 0.4% increase in construction spending.

----- Wednesday, Sept 5th ----- 7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

8:30 AM: Productivity and Costs for Q2. The consensus is for a 1.4% increase in unit labor costs.

10:00 AM: Trulia Price Rent Monitors for August. This is the new index from Trulia that uses asking prices adjusted both for the mix of homes listed for sale and for seasonal factors.

----- Thursday, Sept 6th ----- 8:15 AM: The ADP Employment Report for August. This report is for private payrolls only (no government). The consensus is for 149,000 payroll jobs added in August, down from the 163,000 reported last month.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 370 thousand from 374 thousand.

10:00 AM: ISM non-Manufacturing Index for August. The consensus is for an increase to 53.0 from 52.6 in July. Note: Above 50 indicates expansion, below 50 contraction.

During the day: Governing Council meeting of the European Central Bank with a press conference to follow.

----- Friday, Sept 7th ----- 8:30 AM: Employment Report for August. The consensus is for an increase of 125,000 non-farm payroll jobs in August, down from the 163,000 jobs added in July.

The consensus is for the unemployment rate to be unchanged at 8.3%.

This second employment graph shows the percentage of payroll jobs lost during post WWII recessions through June.

The economy has added 4.54 million private sector jobs since employment bottomed in February 2010 (4.00 million total jobs added with all the public sector layoffs).

There are still 4.3 million fewer private sector jobs now than when the recession started in 2007. (4.8 million fewer total nonfarm jobs).

by Calculated Risk on 9/01/2012 08:03:00 AM

The key event of the week was Fed Chairman Ben Bernanke’s speech on Friday at the Jackson Hole Economic Symposium. Here was my take on the speech: Analysis: Bernanke Clears the way for QE3 in September and a couple more views: Two more reviews of Bernanke's Speech: Weak Labor Market "a grave concern"

The economic data was still weak, but a little better than expected - since expectations are so low. Q2 GDP was revised up to a still weak 1.7% from 1.5% and personal income and spending increased in July. An important positive was that the Case-Shiller house price index turned positive on a year-over-year basis suggesting house prices might have bottomed earlier this year.

On the other hand, the manufacturing surveys were once again disappointing.

Even the “better” news was pretty weak – definitely not “substantial and sustainable strengthening in the pace of the economic recovery”. Next week the focus will be on the August employment report and the European ECB meeting.

Here is a summary of last week in graphs:

• Case-Shiller: House Prices increased 0.5% year-over-year in June

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 32.0% from the peak, and up 1.0% in June (SA). The Composite 10 is up 3.5% from the post bubble low set in March (SA).

The Composite 20 index is off 31.6% from the peak, and up 0.9% (SA) in June. The Composite 20 is up 3.6% from the post-bubble low set in March (SA).

The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 0.1% compared to June 2011.

The Composite 20 SA is up 0.5% compared to June 2011. This was the first year-over-year since 2010 (when the tax credit boosted prices temporarily).

• Real House Prices, Price-to-Rent Ratio

Here is another update to a few graphs: Case-Shiller, CoreLogic and others report nominal house prices, and it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio. Real prices, and the price-to-rent ratio, are back to late 1999 to 2000 levels depending on the index.


This graph shows the quarterly Case-Shiller National Index SA (through Q2 2012), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through June) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q1 2003 levels (and also back up to Q4 2010), and the Case-Shiller Composite 20 Index (SA) is back to July 2003 levels, and the CoreLogic index (NSA) is back to November 2003.

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to mid-1999 levels, the Composite 20 index is back to June 2000, and the CoreLogic index back to October 2000.

As we've discussed before, in real terms, all of the appreciation early in the last decade is still gone.

Here is a graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes compared to owners equivalent rent.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to Q3 1999 levels, the Composite 20 index is back to June 2000 levels, and the CoreLogic index is back to August 2000.

In real terms - and as a price-to-rent ratio - prices are mostly back to late 1990s or early 2000 levels.

All Current House Price Graphs
• Personal Income increased 0.3% in July, Spending increased 0.4%

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE.

"Personal income increased $42.3 billion, or 0.3 percent ... Personal consumption expenditures (PCE) increased $46.0 billion, or 0.4 percent. ... Real PCE -- PCE adjusted to remove price changes -- increased 0.4 percent in July, in contrast to a decrease of 0.1 percent in June."

A key point is the PCE price index has only increased 1.3% over the last year, and core PCE is up only 1.6%. The PCE price index - and core PCE - hardly increased in July.

• Weekly Initial Unemployment Claims at 374,000

"In the week ending August 25, the advance figure for seasonally adjusted initial claims was 374,000, unchanged from the previous week's revised figure of 374,000. The 4-week moving average was 370,250, an increase of 1,500 from the previous week's revised average of 368,750"

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 370,250.

This was above the consensus forecast of 370,000.

All current Employment Graphs

• Fed: Consumer Deleveraging Continued in Q2

From the NY Fed: Overall Delinquency Rates Down as Americans Paying More Debt on Time

This graph shows aggregate consumer debt decreased in Q2. This was mostly due to a decline in mortgage debt.

However student debt is still increasing.

This graph shows the percent of debt in delinquency. In general, the percent of delinquent debt is declining, but what really stands out is the percent of debt 90+ days delinquent (Yellow, orange and red).

From the NY Fed: "Overall delinquencies improved in 2012Q2. As of June 30, 9.0% of outstanding debt was in some stage of delinquency, compared with 9.3% at the end of 2012Q1. About $1.02 trillion of debt is delinquent, with $765 billion seriously delinquent (at least 90 days late or “severely derogatory”)."

• Other Economic Stories ...
• NAR: Pending home sales index increased 2.4% in July
• Fed's Beige Book: Economic activity increased "gradually", Residential real estate shows "signs of improvement"
• Chicago PMI declines to 53.0
• Fannie Mae and Freddie Mac Serious Delinquency rates declined in July
• LPS: Mortgage delinquencies decreased in July

by Calculated Risk on 8/31/2012 09:27:00 PM

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

Here is the unofficial problem bank list for Aug 31, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

The FDIC released its actions for July 2012 as anticipated. This week there were 10 removals and three additions leaving the Unofficial Problem Bank List with 891 institutions with assets of $331.5 billion, down from 898 institutions with assets of $346.7 billion. About two-thirds or $10.0 billion of the $15.2 billion decline in assets came from updating assets with figures from the second quarter. For the month of August 2012, the list declined by a net of nine institutions after 11 additions, 16 actions terminations, three unassisted mergers, and one failure. The singular failure is the lowest monthly total since the list was first published on August 7, 2009. A year ago, the list held 988 institutions with assets of $403.0 billion. This week the FDIC released the Official Problem Bank List for the second quarter that included 732 institutions with assets of $282 billion.

Actions have been terminated against Park View Federal Savings Bank, Solon, OH ($805 million Ticker: PVFC); Cornerstone Community Bank, Chattanooga, TN ($420 million Ticker: CSBQ); PBK Bank, Inc., Stanford, KY ($116 million); The First Bank of Greenwich, Cos Cob, CT ($88 million); Community First Bank, Rosholt, WI ($68 million); Select Bank, Grand Rapids, MI ($66 million); and The State Exchange Bank, Lamont, OK ($50 million).

Three banks were removed as they found merger partners -- BankAtlantic, Fort Lauderdale, FL ($3.8 billion Ticker: BBX); Valliance Bank, McKinney, TX ($68 million); and Texas Coastal Bank, Pasadena, TX ($27 million).

The three additions were The Peoples Bank, Eatonton, GA ($137 million); The Peoples Bank, Covington, GA ($113 million); and First Community Bank of Crawford County, Van Buren, AR ($97 million). The other change was the FDIC issuing a Prompt Corrective Action order against Banks of Wisconsin, Kenosha, WI ($155 million).

Not surprising the FDIC took the long weekend off. We wish a happy Labor weekend to all and hope that anyone seeking a job lands one soon.

CR 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.

When the list was increasing, the official and "unofficial" counts were about the same. Now with the number of problem banks declining, the unofficial list is lagging the official list. This probably means regulators are changing the CAMELS rating on some banks before terminating the formal enforcement actions.

by Calculated Risk on 8/31/2012 06:29:00 PM

"The stagnation of the labor market in particular is a grave concern not only because of the enormous suffering and waste of human talent it entails, but also because persistently high levels of unemployment will wreak structural damage on our economy that could last for many years."
Fed Chairman Ben Bernanke, August 31, 2012

From a research note today by Andrew Tilton at Goldman Sachs:

In the most striking line of the speech, Bernanke professed “grave concern” about the weak labor market and the potential human and economic cost of persistently high unemployment. Although consistent with prior comments about long-term unemployment and the risk of hysteresis, these are very strong words from a Fed chairman. When one has a “grave concern”, action—quite possibly aggressive action─is appropriate.

The Chairman’s remarks strengthen our conviction that the Fed will ease in September, most likely by pushing out its guidance that rates will remain “exceptionally low at least through late 2014” to mid-2015 or beyond. We now think the probability of an announcement of further asset purchases is close to 50/50 in September, though our base-case forecast is still that this is more likely in December or early 2013. When and if asset purchases do occur, we expect them to be concentrated in agency mortgage-backed securities, and on an open-ended basis (i.e. a monthly rate of purchases) with changes in the rate of purchases conditional on the economic environment. Our views could still change depending on how economic data and financial conditions evolve between now and the September 13 announcement.

And from Tim Duy at EconomistsView: Bernanke at Jackson Hole

On net, Bernanke's speech leads me to believe the odds of additional easing at the next FOMC meeting are somewhat higher (and above 50%) than I had previously believed. His defense of nontraditional action to date and focus on unemployment point in that direction. This is the bandwagon the financial press will jump on. Still, the backward looking nature of the speech and the obvious concern that the Fed has limited ability to offset the factors currently holding back more rapid improvement in labor markets, however, leave me wary that Bernanke remains hesitant to take additional action at this juncture. This suggests to me that additional easing is not a no-brainer, but perhaps that is just my internal bias talking.

by Calculated Risk on 8/31/2012 03:54:00 PM

LPS released their First Look report for July this week. LPS reported that the percent of loans delinquent decreased in July from June.

LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased in July to 7.03% from 7.14% in June. The percent of delinquent loans is still significantly above the normal rate of around 4.5% to 5%. The percent of delinquent loans peaked at 10.57%, so delinquencies have fallen over half way back to normal.

The following table shows the LPS numbers for July 2012, and also for last month (June 2012) and one year ago (July 2011).

LPS: Percent Loans Delinquent and in Foreclosure Process
	July 2012	June 2012	July 2011
Delinquent	7.03%	7.14%	7.90%
In Foreclosure	4.08%	4.09%	4.12%
Number of loans:
Loans Less Than 90 Days	1,960,000	2,012,000	NA
Loans 90 Days or more	1,560,000	1,590,000	NA
Loans In Foreclosure	2,042,000	2,061,000	NA
Total	​5,562,000	5,663,000	NA

The total number of delinquent loans, and in foreclosure, dropped about 100 thousand in July from June.

The percent of loans less than 90 days delinquent is close to normal, but the percent (and number) of loans 90+ days delinquent and in the foreclosure process are still very high.