RSS Feed by Calculated Risk on 1/12/2013 09:59:00 PM
Saturday, January 12, 2013
No Trillion Dollar Platinum Coin
From Joe Weisenthal at Business Insider: White House Rules Out The Trillion Dollar Coin Option To Break The Debt Ceiling
”Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” [Anthony Coley, a spokesman for the Treasury Department]I don't think of this as "hostage taking" since I remain confident that Congress will raise the debt ceiling (really just about paying the bills) and pay the bills on time - without any concessions from the White House. A better term would be "economic terrorism" since they are just trying to scare people.
...
From HuffPo:
"There are only two options to deal with the debt limit: Congress can pay its bills or they can fail to act and put the nation into default," said Press Secretary Jay Carney. "When Congressional Republicans played politics with this issue last time putting us at the edge of default, it was a blow to our economic recovery, causing our nation to be downgraded. The President and the American people won't tolerate Congressional Republicans holding the American economy hostage again simply so they can force disastrous cuts to Medicare and other programs the middle class depend on while protecting the wealthy. Congress needs to do its job."emphasis added
It would be better for America, the economy and all parties to raise the debt ceiling sooner rather than later.
The good news is, as Goldman Sachs chief economist Jan Hatzius wrote yesterday:
"By 2015, we expect the federal deficit to be down to $500bn, or just under 3% of GDP. If this forecast is correct, concerns about the federal deficit are likely to diminish over the next few years."That fits with my view for the next few years.
We should all agree: Pay the bills. Stop scaring people. Raise the debt ceiling today.
Unofficial Problem Bank list declines to 832 Institutions
by Calculated Risk on 1/12/2013 04:11:00 PM
The first bank failure of 2013:
Westside eclipsed by Sunwest
Sun burning savers
by Soylent Green is People
From the FDIC: Sunwest Bank, Irvine, California, Assumes All of the Deposits of Westside Community Bank, University Place, Washington
As of September 30, 2012, Westside Community Bank had approximately $97.7 million in total assets and $96.5 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $20.3 million. ... Westside Community Bank is the first FDIC-insured institution to fail in the nation this year, and the first in Washington.And the unofficial list of Problem Banks compiled only from public sources.
Here is the unofficial problem bank list for Jan 11, 2012.
Changes and comments from surferdude808:
The FDIC cranked up a closing team to get the first full week in 2013 underway, otherwise it would have been a quiet week for the Unofficial Problem Bank List. Along with the failure, there was one action termination, which leaves the list count at 832 institutions with assets of $310.7 billion. A year ago, the list held 969 institutions with assets of $391.2 billion.Earlier:
The action termination was Southern First Bank, National Association, Greenville, SC ($779 million Ticker: SFST). The failure was Westside Community Bank, University Place, WA ($98 million), which was the 18th bank to close in Washington since the on-set of the crisis. Next week, we anticipate the OCC will release its actions through mid-December 2012.
• Schedule for Week of Jan 13th
• Summary for Week Ending Jan 11th
Schedule for Week of Jan 13th
by Calculated Risk on 1/12/2013 01:10:00 PM
Earlier:
• Summary for Week Ending Jan 11th
This will be a busy week for economic data. The key reports for this week will be the December retail sales report on Tuesday, and December housing starts on Thursday. On Monday, the focus will be on "a conversation with Fed Chairman Ben Bernanke".
Also the Consumer Price Index (CPI) and Producer Price Index (PPI) for December will be released this week.
For manufacturing, the Fed will release December Industrial Production on Wednesday, and the January NY Fed (Empire state) and Philly Fed surveys will be released this week.
8:45 AM ET: LPS will release their Mortgage Monitor report for November.
4:00 PM: Fed Chairman Ben Bernanke will speak at the University of Michigan's Rackham Auditorium, "Chairman Bernanke visits the University of Michigan for a conversation with Ford School Dean Susan M. Collins on monetary policy, recovery from the global financial crisis, and long-term challenges facing the U.S. economy". The even will be streamed live, and Bernanke will take questions on Twitter: #fordschoolbernanke
8:30 AM: Producer Price Index for December. The consensus is for a 0.1% decrease in producer prices (0.2% increase in core).
8:30 AM ET: Retail sales for December will be released. There have been a number of reports of "soft" holiday retail sales.This graph shows monthly retail sales and food service, seasonally adjusted (total and ex-gasoline) through November. Retail sales are up 24.5% from the bottom, and now 8.8% above the pre-recession peak (not inflation adjusted)
The consensus is for retail sales to increase 0.2% in December, and to increase 0.3% ex-autos.
8:30 AM: NY Fed Empire Manufacturing Survey for January. The consensus is for a reading of 0.0, up from minus 8.1 in December (below zero is contraction).
8:30 AM: Corelogic will release their House Price Index for November 2012.
10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for November. The consensus is for a 0.3% increase in inventories.
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.
8:30 AM: Consumer Price Index for December. The consensus is for no change in CPI in December and for core CPI to increase 0.1%.
9:15 AM: The Fed will release Industrial Production and Capacity Utilization for December.This shows industrial production since 1967 through November.
The consensus is for a 0.2% increase in Industrial Production in December, and for Capacity Utilization to increase to 78.5%.
10:00 AM: The January NAHB homebuilder survey. The consensus is for a reading of 48, up from 47 in December. Although this index has been increasing sharply, any number below 50 still indicates that more builders view sales conditions as poor than good.
2:00 PM: Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts. This might show some slight improvement.
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 368 thousand from 371 thousand last week.
8:30 AM: Housing Starts for December. Total housing starts were at 861 thousand (SAAR) in November, down 3.0% from the revised October rate of 888 thousand (SAAR). Single-family starts decreased to 565 thousand in November.
The consensus is for total housing starts to increase to 887 thousand (SAAR) in December, up from 861 thousand in November.
10:00 AM: Philly Fed Survey for January. The consensus is for a reading of 6.0, down from 8.1 last month (above zero indicates expansion).
9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for January). The consensus is for a reading of 75.0, up from 72.9.
10:00 AM: Regional and State Employment and Unemployment (Monthly) for November 2012
Summary for Week Ending January 11th
by Calculated Risk on 1/12/2013 08:05:00 AM
There was little economic data released this week. The trade deficit was much higher than expected, however the data might have been impacted by the port strike on the west coast. The BLS reported job openings were up about 12% year-over-year and the 4-week average for initial weekly unemployment claims increased a little. Not much data, but next week will be busy!
Some quarterly data was released for office, apartment and mall vacancy rates and rents. All vacancy rates declined, although both office and mall rates are still near the cycle high - and apartment vacancy rates are already low.
Here are some thoughts on the economy in 2013:
• Question #1 for 2013: US Fiscal Policy
• Question #2 for 2013: Will the U.S. economy grow in 2013?
• Question #3 for 2013: How many payroll jobs will be added in 2013?
• Question #4 for 2013: What will the unemployment rate be in December 2013?
• Question #5 for 2013: Will the inflation rate rise or fall in 2013?
• Question #6 for 2013: What will happen with Monetary Policy and QE3?
• Question #7 for 2013: What will happen with house prices in 2013?
• Question #8 for 2013: Will Housing inventory bottom in 2013?
• Question #9 for 2013: How much will Residential Investment increase?
• Question #10 for 2013: Europe and the Euro
And here is a summary of last week in graphs:
• Trade Deficit increased in November to $48.7 Billion
Click on graph for larger image.
From Commerce: "[T]otal November exports of $182.6 billion and imports of $231.3 billion resulted in a goods and services deficit of $48.7 billion, up from $42.1 billion in October, revised. November exports were $1.7 billion more than October exports of $180.8 billion. November imports were $8.4 billion more than October imports of $222.9 billion."
Exports are 10% above the pre-recession peak and up 3.3% compared to November 2011; imports are near the pre-recession peak, and up 2.5% compared to November 2011.
The increase in the trade deficit in November was due to non-petroleum products. The trade deficit with the euro area was $10.6 billion in November, up from $8.2 billion in November 2011. It appears the eurozone recession is still impacting trade.
Note: The trade deficit might have been skewed by the port strike that started in late November.
• BLS: Job Openings "unchanged" in November
This graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.
Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.
Jobs openings increased slightly in November to 3.676 million, up from 3.665 million in October. The number of job openings (yellow) has generally been trending up, and openings are up about 12% year-over-year compared to November 2011. Quits increased slightly in November, and quits are up 8% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").
Not much changes month-to-month in this report, but the trend suggests a gradually improving labor market.
• Weekly Initial Unemployment Claims at 371,000
From the Department of Labor (DOL): "In the week ending January 5, the advance figure for seasonally adjusted initial claims was 371,000, an increase of 4,000 from the previous week's revised figure of 367,000. The 4-week moving average was 365,750, an increase of 6,750 from the previous week's revised average of 359,000. Weekly claims were above the 362,000 consensus forecast.
Note: There are large seasonal factors in December and January, and that can make for fairly large swings for weekly claims.
• Reis: Office Vacancy Rate declines slightly in Q4 to 17.1%
Reis reported that the office vacancy rate declined slightly to 17.1% from 17.2% in Q3.This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).
The vacancy rate peaked in this cycle at 17.6% in Q3 and Q4 2010, and Q1 2011.
As Reis noted, net absorption was still positive, even though demand for office space was low - because there is so little new construction. This remains a sluggish recovery for office space, and new construction will stay low until the vacancy rate falls much further.
• Reis: Apartment Vacancy Rate declined to 4.5% in Q4
Reis reported that the apartment vacancy rate fell to 4.5% in Q4, down from 4.7% in Q3 2012. The vacancy rate was at 5.2% in Q4 2011 and peaked at 8.0% at the end of 2009.This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.
This was another strong quarter for apartments with the vacancy rate falling and rents rising. With more supply coming online in 2013, the decline in the vacancy rate should slow - but the market is still tight, and Reis expects rents to continue to increase.
• Reis: Mall Vacancy Rate declines in Q4
Reis reported that the vacancy rate for regional malls declined to 8.6% in Q4 from 8.7% in Q3. This is down from a cycle peak of 9.4% in Q3 2011.For Neighborhood and Community malls (strip malls), the vacancy rate declined to 10.7% in Q4, down from 10.8% in Q3. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.
This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.
In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.
The yellow line shows mall investment as a percent of GDP through Q3. This has increased from the bottom because this includes renovations and improvements. New mall investment has essentially stopped.
The good news is, as Reis noted, new square footage is near a record low, and with very little new supply, the vacancy rate will probably continue to decline slowly.
Vacancy data courtesy of Reis.
Friday, January 11, 2013
Goldman's Hatzius: 10 Questions for 2013
by Calculated Risk on 1/11/2013 08:59:00 PM
Some short excerpts from a research note by Goldman Sachs chief economist Jan Hatzius:
1.Will the 2013 tax hike tip the economy back into recession?
No. To be sure, it will likely deal a heavy blow to household finances, and we therefore expect consumer spending to be weak this year. ...
2.Will growth pick up in the second half?
Yes. This forecast is based on the assumption that the drag from fiscal retrenchment—i.e., the ex ante reduction in the government deficit—diminishes in the second half of 2013 but the boost from the ex ante reduction in the private sector financial balance remains large. In our forecast, this causes a pickup in real GDP growth to a 2½% annualized rate in 2013H2, and further to around 3% in 2014.
...
3.Will capital spending growth accelerate?
Yes. We expect a pickup from around zero in the second half of 2012 to about 6% in 2013 on a Q4/Q4 basis. This would contribute 0.6 percentage points to real GDP growth and offset most of the likely slowdown in consumer spending growth.
...
4.Will the housing market continue to recover?
Yes. The fundamentals for housing activity point to further large gains in the next couple of years.
...
6.Are profit margins bound to shrink in 2013?
No.
...
7.Will core inflation accelerate significantly?
No. We expect inflation as measured by the PCE price index excluding food and energy to stay around 1½%, moderately below the Fed’s 2% target.
...
8.Will there be a bond market scare over the budget deficit?
No. ... the large government deficits of the past five years are closely related to the dramatic balance sheet adjustment in the private sector. ... As the private sector balance sheet adjustment comes closer to completion, we expect the government deficit to diminish gradually ... By 2015, we expect the federal deficit to be down to $500bn, or just under 3% of GDP. If this forecast is correct, concerns about the federal deficit are likely to diminish over the next few years.
...
9.Will the Federal Reserve stop buying assets?
No. Admittedly, the minutes of the December 11-12 FOMC meeting suggest that most Fed officials currently expect QE3 to end by late 2013. But we would not make too much of this. For one thing, it is important to remember that the outlook for monetary policy depends on the outlook for the economy.
...
10.Will interest rates rise?
Not much. ... At the longer end of the curve, we do expect a small increase in 10-year Treasury yields to 2.2% by the end of 2013.
