by Calculated Risk on 12/29/2011 08:39:00 AM

The DOL reports:

In the week ending December 24, the advance figure for seasonally adjusted initial claims was 381,000, an increase of 15,000 from the previous week's revised figure of 366,000. The 4-week moving average was 375,000, a decrease of 5,750 from the previous week's revised average of 380,750.

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 decreased this week to 375,000.

This is the lowest level for the 4-week average since June 2008.

And here is a long term graph of weekly claims:

Although initial claims increased this week, the 4-week moving average is still falling and is now well below 400,000.



All current Employment Graphs

by Calculated Risk on 12/28/2011 06:16:00 PM

Residential investment made a small positive contribution to GDP in 2011, for the first time since 2005. And construction employment turned slightly positive in 2011.

Now the question is what will happen in 2012? I think some pickup is likely, but I'm not as optimistic as some other people ...

From the WSJ: Hedge Funds See Rebirth for U.S. Housing

Hedge funds run by Caxton Associates LP, SAC Capital Advisors LP, Avenue Capital and Blackstone Group LP have been buying housing-related investments, betting on a rebound. And formerly bearish research firm Zelman & Associates now predicts a housing pickup, as does Goldman Sachs Group Inc.
...
Even some housing skeptics acknowledge that real estate may no longer be the drag it has been on the economy. ... "I'm sold that it's a bottom," says James Bianco, who runs Bianco Research, in Chicago. "It's gone from a negative to a nothing for the economy," ...

Ivy Zelman [predicts] that rising rents will push would-be buyers to purchase homes. A housing recovery isn't "happening as fast as everyone would like," she says. But there are "a lot of pillars in place to give us some optimism."

Of course there are still housing bears:

"The smartest money in the world has been carried out on stretchers betting on a true recovery for housing," says Mark Hanson

I think we will probably see some increase in new home sales in 2012, but it will be from a very low level (around 300 thousand new homes will be sold in 2011, a record low since the Census Bureau started tracking new home sales in 1963). I'll have more on housing and residential investment soon.

by Calculated Risk on 12/28/2011 01:45:00 PM

Another update: I've been using inventory numbers from HousingTracker / DeptofNumbers to track changes in inventory. Tom Lawler mentioned this back in June.

According to the deptofnumbers.com for monthly inventory (54 metro areas), listed inventory is probably back to early 2005 levels. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

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

Click on graph for larger image.

This is the first update since the NAR released their revisions for sales and inventory. Now the NAR and HousingTracker are pretty close.

There is a seasonal pattern for inventory, bottoming in December and January and peaking during the summer months. So inventory will probably decline again next month and then start increasing in February.

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

HousingTracker reported that the December listings - for the 54 metro areas - declined 17.6% from the same month last year. For the final week in December, inventory is down 18.4% from a year ago.

This is just inventory listed for sale, sometimes referred to as "visible inventory". There is also a large "shadow inventory" that is currently not on the market, but is expected to be listed in the next few years. Shadow inventory could include bank owned properties (REO: Real Estate Owned), properties in the foreclosure process, other properties with delinquent mortgages (both serious delinquencies of over 90+ days, and less serious), condos that were converted to apartments (and will be converted back), investor owned rental properties, and homeowners "waiting for a better market", and a few other categories - as long as the properties are not currently listed for sale. Some of this "shadow inventory" will be forced on the market, such as completed foreclosures, but most of these sellers will probably wait for a "better market".

However listed inventory has clearly declined in many areas. And it is the listed months-of-supply combined with the number of distressed sales that mostly impacts prices. (note: there are still 7 months of supply because both sales and inventory have declined).

by Calculated Risk on 12/28/2011 11:46:00 AM

Over the weekend I posted some questions for next year: Ten Economic Questions for 2012. I'll try to add some thoughts, and maybe some predictions for each question over the next week.

Many of the questions are interrelated. The question on monetary policy depends on inflation (question #9), the unemployment rate (question #6) and what happens in Europe (question #8). And the unemployment rate is related to GDP growth (question #4), and on and on ...

10) Monetary Policy: Will the Fed introduce QE3? Will the Fed change their communication strategy and include the likely future path of the Fed Funds rate?

Last year many analysts were arguing that the Fed would end QE2 early and raise rates before the end of 2011. That seemed very unlikely. Not only didn't the Fed raise rates, but they went a step further at the August meeting and dropped the somewhat ambiguous "extended period" language and replaced it with a time frame: "economic conditions ... are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."

Now it appears the FOMC will drop the time frame from the FOMC statement and replace it with a forecast of the likely future path of the Fed Funds rate. There have been several recent articles suggesting this change (see the WSJ: Federal Reserve Prepares to Make Itself Perfectly Clear and Fed Could Keep Rates Near Zero Into 2014)

When the Fed revises its communications approach, there is a good chance it will cease offering a fixed date for the timing of rate increases. Instead, officials could signal their intentions by publishing a range of their forecasts for rates along with their quarterly economic projections.

This change in communication strategy will probably happen at the two day January FOMC meeting on the 24th and 25th.

There is also a good chance the Fed will embark on another round of Large Scale Asset Purchases (LSAP or QE3) in 2012. The Fed will probably take a wait and see approach early in the year, and QE3 would be dependent on the unemployment rate and inflation (the Fed's dual mandate).

If the economy tracks the most recent projections, QE3 would seem likely at either the April or June meetings. Others are arguing that QE3 could happen at the March meeting. If the economy performs better than expected, then the Fed will probably wait longer. QE3 will probably be focused on purchases of agency Mortgage Backed Securities (MBS).

Of course, if the economy performs worse than projected early in the year - or Europe implodes - the Fed would probably move quickly on QE3.

To summarize my views:
• I expect the Fed will change their communication strategy and add a likely future path of the Fed Funds rate to the quarterly economic forecasts.
• I think QE3 is likely, but more towards mid-year - and is data dependent.

by Calculated Risk on 12/28/2011 08:53:00 AM

From the NY Times: Italy's Borrowing Costs Drop Sharply at Auction

The sale of €9 billion, or $11.8 billion, of six-month Treasury bills was seen as the first post-holiday pointer to condition of the beleaguered euro zone.

The bills were sold at a yield of 3.251 percent, sharply down from 6.504 percent at a previous auction in late November. ... In an auction of two-year bonds, which raised €1.7 billion, the yield fell to 4.853 percent from 7.814 percent last month.

The Italian 2 year yield is down to 4.95% - the lowest level since October, but the 10 year yield is still at 6.86%.

The Spanish 2 year yield is down sharply to 3.26%, and the 10 year yield is down to 5.09%.

But the Italian economy is weak:

Italy suffered its biggest decline in Christmas retail sales in 10 years, according to data released this week by the consumer group Codacons, reflecting the impact of the souring economy.

It was a similar picture in Greece, headed for a fourth year of recession in 2012. The country’s near-record unemployment was reflected in a 30 percent drop in pre-Christmas sales, the ESEE retail federation said Tuesday.