by Calculated Risk on 4/10/2012 08:39:00 AM

From the National Federation of Independent Business (NFIB): After Six Months of Increases, Small-Business Optimism Drops For Main Street, No New Jobs in the Months to Come

After six months of gains, the Small-Business Optimism Index fell by almost 2 points in March, settling at 92.5. After a promising start to the year, nine of ten index components dropped last month, most notably hiring plans and expected real sales growth each taking a significant dive, in spite of owners reporting the largest increase in new jobs per firm in a year.
...
Job creation in March was the bright spot in this month’s Index; the net change in employment per firm seasonally adjusted was 0.22, far above January’s “0” reading.
...
A lack of sales remains a problem for owners with 22 percent reporting “poor sales” as their top business problem.

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Click on graph for larger image.

This graph shows the small business optimism index since 1986. The index declined to 92.5 in March from 94.3 in February. This is slightly above the 91.9 reported in March 2011.

This index remains low - probably due to a combination of sluggish growth, and the high concentration of real estate related companies in the index. And the single most important problem remains "poor sales".

by Calculated Risk on 4/09/2012 07:40:00 PM

From Fed Chairman Ben Bernanke: Fostering Financial Stability. A few excerpts on shadow banking:

I've outlined a number of ongoing efforts, both domestic and international, to bring the shadow banking system into the sunlight, so to speak, and to impose tougher standards on systemically important financial firms. But even as we make progress on known vulnerabilities, we must be mindful that our financial system is constantly evolving, and that unanticipated risks to stability will develop over time. Indeed, an inevitable side effect of new regulations is that the system will adapt in ways that push risk-taking from more-regulated to less-regulated areas, increasing the need for careful monitoring and supervision of the system as a whole.
...
Unfortunately, data on the shadow banking sector, by its nature, can be more difficult to obtain. Thus, we have to be more creative to monitor risk in this important area. We look at broad indicators of risk to the financial system, such as measures of risk premiums, asset valuations, and market functioning. We try to gauge the risk of runs by looking at indicators of leverage (both on and off balance sheet) and tracking short-term wholesale funding markets, especially for evidence of maturity mismatches between assets and liabilities. We are also developing new sources of information to improve the monitoring of leverage. For example, in 2010, we began a quarterly survey on dealer financing (the Senior Credit Officer Opinion Survey on Dealer Financing Terms) that collects information on the leverage that dealers provide to financial market participants in the repo and over-the-counter derivatives markets. In addition, we are working with other agencies to create a comprehensive set of regulatory data on hedge funds and private equity firms.

And his conclusion:

In the decades prior to the financial crisis, financial stability policy tended to be overshadowed by monetary policy, which had come to be viewed as the principal function of central banks. In the aftermath of the crisis, however, financial stability policy has taken on greater prominence and is now generally considered to stand on an equal footing with monetary policy as a critical responsibility of central banks. We have spent decades building and refining the infrastructure for conducting monetary policy. And although we have done much in a short time to improve our understanding of systemic risk and to incorporate a macroprudential perspective into supervision, our framework for conducting financial stability policy is not yet at the same level. Continuing to develop an effective set of macroprudential policy indicators and tools, while pursuing essential reforms to the financial system, is critical to preserving financial stability and supporting the U.S. economy.

Before the crisis, oversight and financial stability were not emphasized. Now the regulators are paying attention; hopefully, even after financial conditions finally recovers, regulators will remain vigilant (but I expect they will become complacent again).

by Calculated Risk on 4/09/2012 04:31:00 PM

High gasoline and oil prices are a downside risk for the economy. So far - as Professor Hamilton noted in the previous post - prices haven't been too "disruptive". With Memorial Day still a month and a half away (May 28th), and it seems a little early to call the peak in gasoline prices for the spring ...

From Ronald White at the LA Times: Gasoline prices may have finally peaked for now

[T]he uncertainty over whether prices have peaked comes from the fact that 15 of the 23 states with the most expensive gasoline are still higher than they were at this time last week. Still, there was some guarded optimism among analysts.

"Gasoline prices in the hardest-hit areas have finally shown signs of relief with prices falling now in Chicago as they have for a few weeks in California," said Patrick DeHaan, senior petroleum analyst for GasBuddy.com. "We may see an earlier peak than we have in prior years."

From the Chicago Sun-Times: Gasoline prices in Chicago area fall double digits from record highs

In the Chicago area, the average price of unleaded regular gas Monday was $4.34 a gallon, down 17 cents from the record high of $4.506 reached March 27 and down 11 cents from April 2, according to AAA, Wright Express and the Oil Price Information Service.

In the city of Chicago, the average price was down 8 cents from a week earlier at $4.57 a gallon and down 11 cents from the record high of $4.678, also reached on March 27.

Note: The graph shows oil prices for WTI; 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 4/09/2012 01:27:00 PM

Professor Hamilton reviews the current situation at Econbrowser: Current economic conditions

An excerpt on the impact oil and gasoline prices:

One of the big concerns of many analysts was that rising oil prices of the last 5 months might significantly slow down economic growth. My view is that the main mechanism by which oil prices can sometimes have a disproportionately disruptive effect on the economy is if they result in sudden shifts in the patterns of spending. One typical channel is a plunge in sales of the larger vehicles manufactured in the U.S., which then leads to further losses of income and jobs in the auto sector. But the evidence suggests that an oil price increase that just reverses a previous oil price decrease-- and that is basically what we've experienced so far in 2012-- is not nearly as disruptive as if the price were rocketing into uncharted territory. One reason for this is that recent consumers' vehicle purchase plans were already taking into account the possibility that $4 gas could soon return.

See Hamilton's post for much more on oil.

Hamilton concludes: "the economy undeniably continues to grow, the rate of that growth continues to disappoint".

by Calculated Risk on 4/09/2012 09:14:00 AM

Notes: The timing of different house prices indexes can be a little confusing. LPS uses January closings - other indexes usually report sales recorded in a month, and there is frequently a lag between closings and recording - so this is closer to what other indexes report for February (without the weighting of several months).

From LPS: LPS Home Price Index Shows U.S. Home Price Decline of 0.9 Percent in January; Early Data Suggests Slowing Likely in February, to 0.3 Percent Drop

LPS ...that starting with this month’s report, results are based on an updated view that more accurately tracks price changes for non-distressed homes. In addition to foreclosure price data the LPS HPI now accounts for the impact of short sale on estimates of normal market prices.

The updated LPS HPI national average home price for transactions during January 2012 declined 0.9 percent to a price level not seen since March 2003.

LPS excludes both foreclosures and short sales from the index - so this is non-distressed properties only. From LPS:

Among the 26 MSAs for which LPS and the Bureau of Labor Statistics both provide data, average prices in January increased only in Washington, D.C.

Fourteen of these MSAs saw declines of more than 1.0%, and three, San Francisco, Cleveland and Chicago declined more than 1.5%.

Note: Based on early data, LPS expects to report prices fell 0.3% in February.