by Calculated Risk on 1/04/2012 04:44:00 PM

Based on an estimate from Autodata Corp, light vehicle sales were at a 13.56 million SAAR in December. That is up 8.9% from December 2010, and down 0.3% from the sales rate last month (13.60 million SAAR in Nov 2011).

This was at the consensus forecast of 13.6 million SAAR.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for December (red, light vehicle sales of 13.56 million SAAR from Autodata Corp).

Click on graph for larger image.

The annualized sales rate was essentially unchanged from November, and the last two months were the strongest since June 2008 excluding cash-for-clunkers.

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

This shows the huge collapse in sales in the 2007 recession. This also shows the impact of the tsunami and supply chain issues on sales, especially in May and June.

Note: dashed line is current estimated sales rate.

Growth in auto sales should make a strong positive contribution to Q4 GDP. Sales in Q3 averaged 12.45 million SAAR, and sales averaged 13.46 million SAAR in Q4, an increase of 8.1% over Q3.

by Calculated Risk on 1/04/2012 02:53:00 PM

From the Federal Reserve: The U.S. Housing Market: Current Conditions and Policy Considerations. Excerpt on converting REO to rental units:

At the same time that housing demand has weakened, the number of homes for sale is elevated relative to historical norms, due in large part to the swollen inventory of homes held by banks, guarantors, and servicers after completion of foreclosure proceedings. These properties are often called real estate owned, or REO, properties. While the total stock of REO properties is difficult to measure precisely, perhaps one-fourth of the 2 million vacant homes for sale in the second quarter of 2011 were REO properties. The combination of weak demand and elevated supply has put substantial downward pressure on house prices, and the continued flow of new REO properties--perhaps as high as 1 million properties per year in 2012 and 2013--will continue to weigh on house prices for some time. To the extent that REO holders discount properties in order to sell them quickly, the near-term pressure on home prices might be even greater.

In contrast to the market for owner-occupied houses, the market for rental housing across the nation has recently strengthened somewhat. Rents have turned up in the past year, and the national vacancy rate on multifamily rental properties has dropped noticeably from its peak in late 2009. These developments have been fairly widespread across metropolitan areas. The relative strength of the rental market reflects increased demand as families who are unable or unwilling to purchase homes are renting properties instead. Rental demand has also been supported by families who have lost their homes to foreclosure--the majority of whom move to rental housing, most commonly to single-family rentals.

The price signals in the owner-occupied and rental housing markets--that is, the decline in house prices and the rise in rents--suggest that it might be appropriate in some cases to redeploy foreclosed homes as rental properties. In addition, the forces behind the decline in the homeownership rate, such as tight credit conditions, are unlikely to unwind significantly in the immediate future, indicating a longer-term need for an expanded stock of rental housing.

Although small investors are currently buying and converting foreclosed properties to rental units on a limited scale, larger-scale conversions have not occurred for at least three interrelated reasons. First, it can be difficult for an investor to assemble enough geographically proximate properties to achieve efficiencies of scale with regard to the fixed costs of a rental program. Second, attracting investors to bulk sales opportunities--whether for rental or resale--has typically required REO holders to offer significantly larger price concessions relative to direct sales to owner occupants through conventional realtor-listing channels, in part because it can be difficult for investors to obtain financing for such sales. Third, the supervisory policy of GSE and banking organization regulators has generally encouraged sales of REO property as early as practicable. We discuss each of these issues in more detail later [in the white paper].

I suspect the FHFA will announce a bulk sale program of REO to investors within the next month or two.

by Calculated Risk on 1/04/2012 12:54:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2012. I'm trying to add some thoughts, and a few predictions for each question.

6) Unemployment Rate: What will the unemployment rate be in December 2012?

Last year, my prediction was for the unemployment rate to still be above 9% in December 2011. As of November, the unemployment rate had fallen to 8.6%. My guess was the participation rate would increase a little in 2011, however the participation rate continued to decline, and that pushed down the unemployment rate.

This is a reminder that forecasting the participation rate is critical in forecasting the unemployment rate.

First a few definitions from the BLS Glossary:

• Civilian noninstitutional population: Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

• Labor force: The labor force includes all persons classified as employed or unemployed in accordance with the definitions contained in this glossary.

• Labor force participation rate: The labor force as a percent of the civilian noninstitutional population.

Say the Civilian noninstitutional population was 1 million, and 650,000 participated in the labor force. And say 600,000 were employed leaving 50,000 unemployed. Then the labor force participation rate would be 65%, and the unemployment rate would be 50,000 / 650,000 equals 7.7%.

But if only 640,000 people participated in the labor force, then with the same level of employment (600,000), only 40,000 will be unemployed - and the unemployment rate would be 40,000 / 640,000 equals 6.3%.

So, with the same population and employment level, the participation rate makes a huge difference in the unemployment rate.

There are many reasons why people do not participate in the labor force. Some are in school, some are stay at home spouses, some are retired, and others may have given up looking for a job.

Even before the recent recession started, the participation rate was expected to decline because of the aging of the population. But, with the recession, the participation rate has plummeted.

Here is a graph showing the current unemployment rate (red) and the participation rate (blue).

Click on graph for larger image.

The unemployment rate is currently at 8.6%, and the Labor Force Participation Rate (blue) was at 64.0% in November.

Although I expect the participation rate to decline over the next couple of decades as the population ages, I think the participation rate will rise a little in 2012.

Below is a table showing the sensitivity of the unemployment rate to various levels of the participation rate and the job creation for 2012.

Unemployment Rate based on Jobs added and Participation Rate
		Participation Rate
		63.5%	64.0%	64.5%	65.0%
Jobs added per month (000s)	150	7.4%	8.2%	8.9%	9.6%
	200	7.0%	7.8%	8.5%	9.2%
	250	6.7%	7.4%	8.1%	8.8%

Although I'm still looking at GDP and employment for 2012, I think the unemployment rate will be mostly unchanged in 2012. A couple of predictions.
• The participation rate will rise slightly in 2012 and probably end the year in the 64.0% to 64.5% range.
• The unemployment rate will still be in the 8% to 9% range in December 2012.

Earlier:
• Question #7 for 2012: State and Local Governments
• Question #8 for 2012: Europe and the Euro
• Question #10 for 2012: Monetary Policy
• Question #9 for 2012: Inflation

by Calculated Risk on 1/04/2012 10:25:00 AM

The key number for the economy is the seasonally adjusted annual sales rate (SAAR) compared to the last few months, not the year-over-year comparison provided by the automakers. Once all the reports are released, I'll post a graph of the estimated total December light vehicle sales (SAAR) - usually around 4 PM ET.

From the Detroit Free Press: Chrysler sales up 37% in December; Ford posts 10% gain; GM sees 5% uptick

Chrysler said today sales of new cars and trucks in the U.S. increased 37% in December compared to the same month a year ago ... it sold 138,019 vehicles in December, marking its best month since May 2008.

Ford gained a more modest 10% increase in December from a year ago on sales of 210,140 ...

General Motors reported a smaller 5% increase for the month for a total of 234,351 vehicles sold.

The consensus is for sales to be unchanged from November at around 13.6 million SAAR.

by Calculated Risk on 1/04/2012 08:16:00 AM

From the MBA: Mortgage Applications Decrease Over Two Week Holiday Period

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the weeks ending December 23, 2011 and December 30, 2011.
...
The seasonally adjusted Purchase Index decreased 9.7 percent compared with levels reported two weeks ago. ...

"Mortgage application activity declined over the last two weeks, even after adjusting for the typical seasonal decline in activity. Refinance applications continue to account for the vast majority of total application volume, with the refinance share reaching its highest level in 2011. As part of legislation to extend the payroll tax holiday, guarantee fees for loans purchased by the GSEs and mortgage insurance premiums for FHA loans will eventually increase. Given the announced implementation of this change, we do not expect to see an impact on mortgage rates and application activity until at least February," said Michael Fratantoni, MBA's Vice President of Research and Economics.

The following graph shows the MBA Purchase Index and four week moving average since 1990.

Click on graph for larger image.

The purchase index decreased last week, and the 4-week average decreased slightly. This index has mostly been sideways for the last 2 years - and at about the same level as in 1997.