Fannie Mae and Freddie Mac Serious Delinquency rates declined in May

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in May to 3.57% from 3.63% April. The serious delinquency rate is down from 4.14% in May last year, and this is the lowest level since April 2009.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate declined slightly in May to 3.50%, from 3.51% in April. Freddie's rate is only down from 3.53% in May 2011. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

I don't know why Fannie's delinquency rate is falling faster than for Freddie.

The "normal" serious delinquency rate is under 1%, so there is a long way to go.

Unofficial Problem Bank List declines to 917 Institutions, Quarterly Transition Matrix

The Unofficial Problem Bank List finished the first half of 2012 with 917 institutions with assets of $354.6 billion. A year ago, the list held 1,003 institutions with assets of $419.9 billion, which was the peak level in terms of assets. Net change for the month was a decline of 14 institutions and $3.4 billion of assets.

This week, there were six removals and two additions. Action terminations include TNBank, Oak Ridge, TN ($177 million); Pan Pacific Bank, Fremont, CA ($116 million Ticker: PPFC); First Community Bank, Hammond, LA ($115 million); Columbus Community Bank, Columbus, GA ($109 million); and Ericson State Bank, Ericson, NE ($49 million). The other removal -- The Palm Bank, Tampa, FL ($117 million) -- came from an unassisted merger.

The additions include Putnam Bank, Putnam, CT ($450 million Ticker: PSBH) and First Bank of Miami, Coral Gables, FL ($248 million). The other change is the FDIC issuing a Prompt Corrective Action order against McHenry Savings Bank, McHenry, IL ($262 million).

With the passage of the calendar quarter, it is time to update the transition matrix. As seen in the table, there have been a total of 1,552 institutions with assets of $802.2 billion that have appeared on the list. About 41 percent or 635 institutions with assets of $369.4 billion have been removed from the list. Failure has been the prior manner of exodus as 330 institutions with assets of $286.0 billion have failed since appearing on the list. Since the list first appeared on August 7, 2009, 31 institutions have failed without being on the unofficial list. Removals from unassisted mergers and voluntary liquidations total 106 institutions.

Actions have been terminated against 199 institutions with assets of $93.5 billion. During the quarter, there was an acceleration in action terminations, particularly within the pool of institutions added after publication of the original list. This group had 44 terminations compared with six terminations in the original pool. Overall, 5.3 percent of the 948 institutions on the list at the start of the second quarter were removed because of action termination. For comparison purposes, the action termination rate was 3.3 percent in the first quarter of 2012 and 2.2 percent in the fourth quarter of 2011. Some cynical observers would say the acceleration in the termination rate results from industry outcry and Congressional pressure on the banking regulators. The difference in the termination rates among the pools may provide some insights as to vintage severity. In other words, were the early arrivers on the list in worse condition than the late comers?

Summary for Week ending June 29th

The top economic story last week was the eurozone deal. From the Financial Times:

The agreement will result in EU bailout funds eventually being injected directly into teetering Spanish financial institutions, meaning Madrid can sweep the burden of the bailouts off its sovereign books.

However, the rescue for Spain's banks will only come after the creation of a single banking supervisor to be run by the European Central Bank.

The summit agreement also contained some concessions for Italy ... setting the stage for Rome to become the sixth eurozone country to request EU assistance ...
excerpt with permission

As always, beware of the details!

In the US, housing continues to improves, however manufacturing was soft in June - and consumer spending was flat in May. For housing, new home sales were up solidly, and house prices - as reported by Case-Shiller - increased in April. Also the Pending Home sales index increased 5.9% in May.

Here is a summary of last week in graphs:

' New Home Sales increased in May to 369,000 Annual Rate

Click on graph for larger image in graph gallery.

The Census Bureau reports New Home Sales in May were at a seasonally adjusted annual rate (SAAR) of 369 thousand. This was up from 343 thousand SAAR in April. Sales in February and March were revised up.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

This graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale was at a record low 43,000 units in May. The combined total of completed and under construction is at the lowest level since this series started.

New home sales have averaged 353 thousand SAAR over the first 5 months of 2012, after averaging under 300 thousand for the previous 18 months. All of the recent revisions have been up too. This was a very solid report and above the consensus forecast.

Tomorrow: Personal Income and Outlays for May, Chicago PMI, Consumer Sentiment

The focus tomorrow will be on the end of the two day European summit in Brussels. There will probably be some sort of agreement on a "growth pact". The Financial Times is live blogging the European summit: EU summit: Live blog

And late today, Ford said that the European recession will really hit Q2 earnings. From the NY Times: Ford Motor, Citing Europe's Woes, Says Foreign Losses to Triple in Quarter

The company said on Thursday that its total international losses would triple in the second quarter, with Europe accounting for the most of the loss. Ford lost $190 million in the first quarter in its international operations ...

The company's chief financial officer, Robert Shanks, said in an interview that conditions in Europe were 'getting tougher,' as manufacturers stepped up discounts to jump-start sales, which are at their lowest level in more than a decade.

On Friday:
' At 8:30 AM ET, The Personal Income and Outlays report for May will be released. The consensus is for a 0.3% increase in personal income in May, and for no change in personal spending. And for the Core PCE price index to increase 0.2%. Note: Q1 PCE was revised down slightly in the third estimate of GDP released this morning.

' At 9:45 AM, The Chicago Purchasing Managers Index for June. The consensus is for an increase to 53.1, up from 52.7 in May.

' At 9:55 AM, The final June Reuter's/University of Michigan's Consumer sentiment index will be released. The consensus is for no change from the preliminary reading of 74.1.

Europe: Growth Pact Update

There is a little news from the European summit meeting:

Herman Van Rompuy, President of the European Council did tweet:

With the #GrowthCompact we will boost the financing of the economy by mobilising around EUR 120 bn for immediate growth measures.

This is the plan that was discussed last week.

Rompuy also wrote:

A EUR 10 bn increase of the EIB capital will increase the bank's overall lending capacity by EUR 60 bn. This money must flow across Europe.

Earlier Angela Merkel cancelled a planned press conference.

The Financial Times is live blogging the European summit: EU summit: Live blog

Van Rompuy says no agreement yet on growth pact because they haven't finished discussing all the chapters yet. He would not confirm it was being blocked by either Mario Monti or David Cameron; it was simply unfinished. He said two countries were most concerned to see agreement on both long and short term together ' he didn't name them, but Germany and Italy are the most likely suspects. Both inclined to say no agreement until it is all agreed.
excerpt with permission

Meanwhile Bloomberg is reporting there is agreement: EU Leaders Agree 120 Billion-Euro Pact to Promote Growth, Jobs

Personal Income increased 0.2% in May, Spending decreased slightly

The BEA released the Personal Income and Outlays report for May:

Personal income increased $25.4 billion, or 0.2 percent ... in May, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $4.7 billion, or less than 0.1 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.1 percent in May, the same increase as in April. ... PCE price index -- The price index for PCE decreased 0.2 percent in May, compared with an increase of less than 0.1 percent in April. The PCE price index, excluding food and energy, increased 0.1 percent in May, the same increase as in April.

The following graph shows real Personal Consumption Expenditures (PCE) through May (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE. You can really see the slow down in Q2 of last year.

Using the two-month method, it appears real PCE will increase around 1.4% in Q2 (PCE is the largest component of GDP); the mid-month method suggests an increase of less than 1% in Q2. Also - so far - it appears spending is soft in June, so Q2 PCE growth will probably be fairly weak.

Another key point is the PCE price index has only increased 1.5% over the last year, and core PCE is up 1.8%. And it looks like the year-over-year increases will decline further in June.

Weekly Initial Unemployment Claims mostly unchanged

The DOL reports:

In the week ending June 23, the advance figure for seasonally adjusted initial claims was 386,000, a decrease of 6,000 from the previous week's revised figure of 392,000. The 4-week moving average was 386,750, a decrease of 750 from the previous week's revised average of 387,500.

The previous week was revised up from 387,000 to 392,000.

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 declined slightly to 386,750.

This is just off the high for the year.

And here is a long term graph of weekly claims:

This was near the consensus forecast of 385,000 and suggests some renewed weakness in the labor market.

Tomorrow: Unemployment Claims, Q1 GDP (third estimate)

The focus tomorrow will be on the start of the two day European summit in Brussels, and also on the SCOTUS ruling on the health care law. The ruling on the Affordable Care Act is expected a little after 10 AM ET. (the SCOTUSblog is a good resource).

On Thursday:
' At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for claims to decline to 385 thousand from 387 thousand last week.

' Also at 8:30 AM, the third estimate of Q1 GDP will be released. The consensus is that real GDP increased 1.9% annualized in Q1; no change from the 2nd estimate.

' At 11:00 AM, the Kansas City Fed regional Manufacturing Survey for June will be released this is the last of the regional Fed surveys for June, and three out of four have been below expectations. The consensus is for a decrease to 4 from 9 in May (above zero is expansion).

Look Ahead: Durable Goods, Pending Home Sales

The two day European summit starts on Thursday, and there will be more pre-meeting position statements tomorrow. Here was some "positioning" today:

From Reuters: Merkel buries euro bonds as summit tension rises

Two days before a crucial European Union summit, European Council President Herman Van Rompuy released a seven-page report on closer fiscal and banking union envisaging a euro zone treasury that would issue common debt in the medium term.

Merkel immediately stamped on the idea of mutualising debt - favored by France, Italy and Spain - at a meeting of lawmakers from her Free Democratic coalition partners in Berlin, according to people who attended the closed-door session.

"I don't see total debt liability as long as I live," she was quoted as saying, a day after branding the idea of euro bonds "economically wrong and counterproductive".

From the Financial Times: Monti lashes out at Germany ahead of summit

Mario Monti has set the stage for a tough fight with Germany at the EU summit this week, insisting that he will continue to push Italy's proposal to use eurozone bailout funds in an attempt to stabilise financial markets.
Excerpt with permission

I don't expect much from this summit except an extension for Greece. I'm keeping an eye on Europe, but not watching too closely!

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

' At 8:30 AM, Durable Goods Orders for May will be released by the Census Bureau. The consensus is for a 0.4% increase in durable goods orders.

' Also at 10:00 AM, the NAR will released the Pending Home Sales Index for May. The consensus is for a 1.2% increase in the index.

Earlier on house prices:
' Case Shiller: House Prices increased in April
' Real House Prices and Price-to-Rent Ratio
' House Prices to increase 10%?
' All Current House Price Graphs

Misc: Richmond Fed Survey shows contraction, Consumer confidence declines

Some earlier releases ...

From the Richmond Fed: Manufacturing Activity Eased in June, But Expectations Remained Upbeat

Manufacturing activity in the central Atlantic region softened in June, following six months of moderate expansion, according to the Richmond Fed's latest survey.

In June, the seasonally adjusted composite index of manufacturing activity ' our broadest measure of manufacturing ' lost seven points to '3 from May's reading of 4. Among the index's components, shipments declined two points to '2, new orders dropped thirteen points to end at '12, and the jobs index moved down eight points to 8.

Three out of four regional manufacturing surveys have been below expectations in June.

And from the Conference Board: The Conference Board Consumer Confidence Index® Declines Again

The Conference Board Consumer Confidence Index®, which had declined in May, fell further in June. The Index now stands at 62.0 (1985=100), down from 64.4 in May. The Expectations Index declined to 72.3 from 77.3. The Present Situation Index, however, increased to 46.6 from 44.9 last month.

This was below expectations of a decline to 63.5. It seems the only "good news" these days is from housing!

Earlier on house prices:
' Case Shiller: House Prices increased in April
' Real House Prices and Price-to-Rent Ratio
' All Current House Price Graphs

MBA: Mortgage Applications Decrease in Latest Weekly Survey

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

The Refinance Index decreased 8 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier.

'Refinance volume fell last week due largely to a fall-off in refinance applications for government loans, which had more than doubled the prior week,' said Michael Fratantoni, MBA's Vice President of Research and Economics. 'The large swings in activity were due to the implementation of FHA's new premiums on streamline refinances, and borrowers timing their applications to lower their premiums.'

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.88 percent from 3.87 percent, with points decreasing to 0.40 from 0.49 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

The purchase index is mostly moving sideways.

Refinance activity has been increasing, and the decline this week followed the surge in FHA streamline refinancing last week. With mortgage rates near record lows, refinance activity will probably stay fairly strong.

Look Ahead: Case-Shiller House Prices

The key report tomorrow will be the Case-Shiller house price index for April. Of course most of the focus will be on Europe and the summit meeting later this week.

On Europe, the Financial Times reports: EU could rewrite eurozone budgets

The European Union would gain far-reaching powers to rewrite national budgets for eurozone countries that breach debt and deficit rules under proposals likely to be discussed at a summit this week, according to a draft report seen by the Financial Times.

The proposals are part of an ambitious plan to turn the eurozone into a closer fiscal union ...
Excerpt with permission

' At 9:00 AM ET, S&P/Case-Shiller House Price Index for April will be released. The consensus is for a 2.3% decrease year-over-year in Composite 20 prices (NSA) in April. I think the year-over-year decline will be smaller than the consensus.

' At 10:00 AM, The Conference Board's consumer confidence index for June will be released. The consensus is for a decrease to 63.5 from 64.9 last month.

' Also at 10:00 AM, the Richmond Fed Survey of Manufacturing Activity for June will be released. The consensus is for an increase to 5 for this survey from 4 in May (above zero is expansion). So far the NY Fed (Empire State) and Philly Fed surveys were lower than expected, but the Dallas Fed survey was above expectations.

Dallas Fed: Regional Manufacturing Activity "Surges" in June

Here is a bit of an outlier this month ... earlier from the Dallas Fed: Texas Manufacturing Activity Surges but Outlook Largely Unchanged

Texas factory activity surged in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 5.5 to 15.5, posting its strongest reading in 15 months.

Other measures of current manufacturing conditions also indicated strengthening activity in June. The new orders index rose to 7.9, following three readings around zero, suggesting demand finally grew after staying flat since February. ... The general business activity index had been negative in April and May but increased to 5.8 this month.
...
Labor market indicators reflected stronger labor demand growth and steady workweeks. Employment grew at a faster pace in June, with the index rising from 8.5 to 13.7. Twenty-one percent of firms reported hiring new workers, while 8 percent reported layoffs. The hours worked index was 1, suggesting little change in workweek length.

This was above expectations of a zero reading for the general business activity index.

There are two more regional surveys to be released this week, and the ISM index for June will be released Monday, July 2nd.

Earlier on New Home Sales:
' New Home Sales increase in May to 369,000 Annual Rate
' Home Sales Reports: What Matters
' New Home Sales graphs

When will the Case-Shiller house price index turn positive Year-over-year?

On Friday I posted Zillow's forecasts for the April Case-Shiller indexes to be released tomorrow. The year-over-year (YoY) decline in Case-Shiller prices has been getting smaller all year, and the Zillow forecast suggests the YoY decline will be smaller still in April - and be the smallest YoY decline since the expiration of the housing tax credit.

This raises the question: When will the Case-Shiller indexes turn positive year-over-year?

I looked at the recent improvement in prices (comparing the month-to-month changes for the NSA index to last year). At the current pace of improvement, it looks like the YoY change will turn positive in either the August or September reports.

It is important to remember that most of the sales that will be included in the August report have already been signed. The August Case-Shiller report will be a 3 month average of closing prices for June, July and August - and the contracts are usually signed 45 to 60 days before closing. So just about all of the contracts that will close in July have been signed, and probably many of the contracts that will close in August have already been signed.

So any increase in inventory will probably not impact the August Case-Shiller house price report. Note: we haven't seen any increase yet through June, and I don't expect a huge surge in inventory - but others do.

Click on graph for larger image.

Here is a graph of the YoY change in the Case-Shiller Composite 10 and 20 indexes. In March, the indexes were down 2.8% and 2.6%, respectively.

Zillow is forecasting the Composite 10 index will be down 2.4% YoY in April, and the Composite 20 index will be down 1.9%.

Earlier this year, when I argued prices were near the bottom for the Not Seasonally Adjusted (NSA) repeat sales indexes, I thought the year-over-year change would turn positive late this year or early in 2013. Right now it looks like August or September of this year.

DOT: Vehicle Miles Driven decreased 0.4% in April

The Department of Transportation (DOT) reported last week:

Travel on all roads and streets changed by -0.4% (-1.0 billion vehicle miles) for April 2012 as compared with April 2011. Travel for the month is estimated to be 247.2 billion vehicle miles.

The following graph shows the rolling 12 month total vehicle miles driven.

The rolling 12 month total is mostly moving sideways.

Click on graph for larger image.

In the early '80s, miles driven (rolling 12 months) stayed below the previous peak for 39 months.

Currently miles driven has been below the previous peak for 53 months - and still counting.

The second graph shows the year-over-year change from the same month in the previous year.

Gasoline prices peaked in April at close to $4.00 per gallon, and that was higher than the $3.85 per gallon drivers paid in April 2011 - so it makes sense that driving was off a little year-over-year.

Gasoline prices were down in May to an average of $3.79 per gallon according to the EIA. Last year, prices in May averaged $3.96 per gallon, so I'd expect miles driven to up year-over-year in May.

However gasoline prices is just part of the story. The lack of growth in miles driven over the last 4+ years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), and also the aging of the overall population. Census data shows that gasoline demand peaks around age 50, and then starts to decline - so many "baby boomers" are probably driving less now.

Yesterday:
' Summary for Week ending June 22nd
' Schedule for Week of June 24th

Chicago Fed: Economic growth slower in May

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows slower economic growth in May

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to '0.45 in May from +0.08 in April. ...

The index's three-month moving average, CFNAI-MA3, decreased from '0.13 in April to '0.34 in May'its third consecutive reading below zero and its lowest value since June 2011. May's CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests growth was below trend in May.

According to the Chicago Fed:

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

Gasoline Prices: $3 per gallon?

The roller-coaster ride for gasoline prices continue ... remember when some forecasters were predicting $5 per gallon? Now we are seeing prediction of $3 per gallon.

From the Atlantic Journal Constitution: Expect gas prices to fall below $3

Is it possible the average price at the pump could be below $3 a gallon by the time leaves begin to change?

Absolutely, according to experts who follow fuel price trends, and some areas of Georgia have already broken the barrier. At one station in Macon on Friday, unleaded regular was selling for $2.90, and in Duluth and Suwanee prices were as low as $3.04 and $3.05, respectively.

Barring any unforeseen calamity that might disrupt production or distribution ... the price trend should continue, even with the arrival of summer and more vehicles on the road for vacations.

'[T]he market is suggesting gas below $3 by Halloween, and certainly by Thanksgiving,' Tom Kloza of the Oil Price Information Service ...

There are always threats to the oil supply - Iran, a storm in the GOM, a strike in Norway, but right now it looks like prices will continue to decline with adequate supply and week demand growth.

Oil prices are still moving down. Brent is down to $90.98 per barrel, down another 10% over the last two weeks, and WTI is down to $79.76. The lower oil prices will not only lead to lower gasoline prices, but also a lower trade deficit and lower headline inflation (CPI).

The following graph shows the decline in gasoline prices. Gasoline prices are down significantly from the peak in early April. Gasoline prices in the west had been impacted by refinery issues, but prices are now falling there too.

Note: The graph shows oil prices for WTI; gasoline prices in most of the U.S. are impacted more by Brent prices.

Summary for Week ending June 22nd

In a reversal of fortune, the only recent good news has been from the housing sector. Housing starts were down slightly in May, but that was because of the volatile multi-family sector. The details were better: single family starts were up, revisions to previous reports were up, and permits were up sharply.

The headline number for existing home sales was a little weak, but the key number ' inventory ' was down in May, and down over 20% from May 2011. However away from housing, the economic data was very weak.

For manufacturing, the Philly Fed index declined sharply to the lowest level since last August. The previous week, the Empire State manufacturing index also declined sharply ' and this suggests that manufacturing slowed in June. Three more regional surveys will be released this coming week.

Other indicators were also weak: the four week average for initial weekly unemployment claims is at the highest level for the year, and the Architectural Billings Index declined sharply (mostly a leading indicator for commercial real estate).

The Fed met last week, and decided to 'continue through the end of the year its program to extend the average maturity of its holdings of securities' (aka Operation Twist). The bigger story was the sharp downward revision in the FOMC projections ' mostly below the levels of the January projections when it appeared the FOMC was moving towards QE3 (before the stronger payroll reports for January and February). The FOMC projections show the unemployment rate well above the Fed's target for years, and the inflation rate below the Fed's target rate.

Here is a summary of last week in graphs:

' Housing Starts at 708 thousand in May, Single Family starts increase to 516 thousand

Click on graph for larger image.

Total housing starts were at 708 thousand (SAAR) in May, down 4.8% from the revised April rate of 744 thousand (SAAR). Note that April was revised up from 717 thousand. March was revised up too.  

Single-family starts increased 3.2% to 516 thousand in May. April was revised up to 500 thousand from 492 thousand.

The second graph shows total and single unit starts since 1968.

This shows the huge collapse following the housing bubble, and that total housing starts have been increasing lately after moving sideways for about two years and a half years.

Total starts are up 55% from the bottom start rate, and single family starts are up 41% from the low.

This was below expectations of 720 thousand starts in May, but the decline was because of the volatile multi-family sector. Single family starts were up, and building permits were up sharply. And previous months were revised up. This was a fairly strong report.

Zillow's forecast for Case-Shiller House Price index in April

Note: The Case-Shiller report is for April (really an average of prices in February, March and April). This data is released with a significant lag, see: House Prices and Lagged Data

Zillow Forecast: Zillow Forecast: April Case-Shiller Composite-20 Expected to Show 1.9% Decline from One Year Ago

On Tuesday, June 26th, the Case-Shiller Composite Home Price Indices for April will be released. Zillow predicts that the 20-City Composite Home Price Index (non-seasonally adjusted [NSA]) will decline by 1.9 percent on a year-over-year basis, while the 10-City Composite Home Price Index (NSA) will decline by 2.4 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from March to April will be 0.5 percent for both the 20 and 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below and are based on a model incorporating the previous data points of the Case-Shiller series and the April Zillow Home Value Index data, and national foreclosure re-sales.

April is the third consecutive month with monthly appreciation for the Case-Shiller indices, with April projected to be particularly strong. Buyers are experiencing many markets with extremely low inventory, which is propping up prices in the near term, paired with a decreasing share of foreclosure re-sales. The decreasing share of foreclosure re-sales, especially, will impact the Case-Shiller indices positively this month.

Despite the recent uptick in home prices, we do believe that 2012 will end on a lower level than 2011.

Zillow's forecasts for Case-Shiller have been pretty close.

One of the keys this year is to watch the year-over-year change in the various house price indexes. The composite 10 and 20 indexes declined 2.8% and 2.6% YoY respectively in March, after declining 3.6% and 3.5% in February. Zillow is forecasting a smaller year-over-year decline in April.

Unofficial Problem Bank list increases to 921 Institutions

This is an unofficial list of Problem Banks compiled only from public sources. (And only US banks).

Here is the unofficial problem bank list for June 22, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Quiet week for the Unofficial Problem Bank List with three additions and one removal. The changes leave the list with 921 institutions with assets of $354.6 billion, up for the second consecutive week. A year ago, the list held 1,001 institutions with assets of $419.2 billion.

The Federal Reserve terminated the action against Paradise Bank, Boca Raton, FL ($288 million). Written Agreements were issued to Commercial Bank, Harrogate, TN ($801 million; and Mainstreet Bank, Ashland, MO ($59 million).

Another addition came through the Federal Reserve issuing a Prompt Corrective Action order against First Security Bank of Malta, Malta, MT ($39 million), with this action being unusual in its timing as it has not been preceded by a safety & soundness enforcement action.

Next week, we anticipate the FDIC will release its actions through May 2012, so it would not be surprising to see the list increase for three consecutive weeks.

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.

Schedule for Week of June 24th

The key US economic reports this week are May New Home Sales on Monday, April Case-Shiller house prices on Tuesday, and the May Personal Income and Outlays report on Friday.

With the recent economic weakness, the high frequency manufacturing reports (Richmond, Dallas and Kansas City Fed surveys), the Chicago PMI, weekly initial unemployment claims, and consumer sentiment will be closely watched.

In Europe, there is a summit in Brussels on Thursday and Friday.

Different Views on QE3 Timing

Yesterday I argued that Fed Chairman Ben Bernanke had paved the way for QE3 as soon as August 1st, depending, as always, on incoming data. Others think the Fed will wait longer. Here are some different views:

From Merrill Lynch analysts (who all year have been predicting QE3 at the September FOMC meeting):

The Federal Reserve announced that it would extend Operation Twist through the end of the year, selling or rolling over $267bn of short-term holdings into longer-term Treasuries. We view this program as a down-payment on further easing: we still expect the Fed to launch QE3 in September and to push out its forward guidance to mid-2015 by August or September. Bernanke confirmed that the Fed stood ready to ease further if economic conditions warranted; under our forecast, deteriorating conditions will convince the Fed to ease again this fall.

From Goldman Sachs analysts (who thought there was a high probability QE3 would be announced at the meeting yesterday):

The FOMC's communication was dovish. First, changes to the committee's economic outlook were larger than expected, with significant downgrades to real GDP growth and employment. Second, the FOMC put in place a more explicit easing bias in the statement, saying that it "is prepared to take further action" should the recovery--and the job market in particular--continue to disappoint.

We believe further easing will be needed ... given our forecast for the economy--which remains below the Fed's own view--we also expect additional balance sheet expansion by early 2013.

However, the hurdle for additional balance sheet action in the next few months appears to be quite high. The fact that the FOMC took a "substantive" easing step today probably makes another easing move in the near term relatively unlikely.

And quite a few people wonder - given the Fed's own projections - why the Fed didn't do QE3 yesterday. From Paul Krugman:

The Fed has a dual mandate, employment and price stability. Its own projections show high unemployment persisting for years and years, inflation running below its target ' and realistically its inflation projections are too high while its unemployment projections are too low. There is no rational argument I can see for not going all out with monetary stimulus.

But what we actually got was action that was pretty obviously calculated to be the absolute least the Fed could do without generating headlines saying 'Fed ignores weak economy'.

CR Note: Perhaps an argument against a QE3 announcement on August 1st is there will not be much data released between now and the next FOMC meeting. For employment, the only major report will be the June employment report to be released on July 6th. Also the advance estimate for Q2 GDP will be released on July 27th. Still, if the data is weak, I expect the FOMC to provide additional accommodation at the August meeting.

Mortgage Rates: Another Week, Another Record Low

Below is a graph comparing mortgage rates from the Freddie Mac Primary Mortgage Market Survey® (PMMS®) and the refinance index from the Mortgage Bankers Association (MBA).

The MBA reported yesterday that refinance activity increased again last week.

Earlier today from Freddie Mac: 30-Year Fixed-Rate Mortgage Averages 3.66 Percent

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average mortgage rates easing amid worsening economic indicators. Both the 30-year fixed and the 5-year ARM registered new average record lows.

30-year fixed-rate mortgage (FRM) averaged 3.66 percent with an average 0.7 point for the week ending June 21, 2012, down from last week when it averaged 3.71 percent. Last year at this time, the 30-year FRM averaged 4.50 percent.

Click on graph for larger image.

This graph shows the MBA's refinance index (monthly average) and the the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey®.

The Freddie Mac survey started in 1971 and mortgage rates are currently at the record low for the last 40 years.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a huge refinance boom - and rates are there! The 30 year conforming mortgage rates were at 4.23% in October 2010, so a 50 bps drop would be 3.73% - and rates hit 3.66% last week.

There was an increase this week in FHA streamlined refinances (due to lower premiums). And there has also been an increase in refinance activity from borrowers with negative equity and loans owned or guaranteed by Fannie or Freddie.

Earlier on Existing Home Sales:
' Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
' Existing Home Sales: Inventory and NSA Sales Graph ' Existing Home Sales graphs

Residential Remodeling Index increases 2 percent in April

BuildFax Remodeling Index

Residential remodels authorized by building permits in the United States in April were at a seasonally-adjusted annual rate of 2,729,000. This is 2 percent above the revised March rate of 2,683,000 and is 12 percent above the April 2011 estimate of 2,447,000.

Seasonally-adjusted annual rates of remodeling across the country in April 2012 are estimated as follows: Northeast, 397,656 (up 5% from March and up 11% from April 2011); South, 1,102,000 (up 5% from March and up 14% from April 2011); Midwest, 484,000 (down 11% from March and up 7% from April 2011); West, 768,000 (up 2% from March and up 10% from April 2011).

"Remodeling continues to grow steadily in the U.S. on a seasonally-adjusted basis; more residential remodeling projects were started in April 2012 than in any of the prior six Aprils," said Joe Emison, Vice President of Research and Development at BuildFax

Three key components of residential investment are increasing: home improvement, new multi-family structures, and recently new single family structures.

Earlier on Existing Home Sales:
' Existing Home Sales in May: 4.55 million SAAR, 6.6 months of supply
' Existing Home Sales: Inventory and NSA Sales Graph ' Existing Home Sales graphs

Weekly Initial Unemployment Claims mostly unchanged, Four week average highest this year

The DOL reports:

In the week ending June 16, the advance figure for seasonally adjusted initial claims was 387,000, a decrease of 2,000 from the previous week's revised figure of 389,000. The 4-week moving average was 386,250, an increase of 3,500 from the previous week's revised average of 382,750.

The previous week was revised up from 386,000 to 389,000.

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 increased to 386,250.

The average had been between 363,000 and 384,000 all year, so this is a new high for the year.

And here is a long term graph of weekly claims:

This was above the consensus forecast of 383,000 and suggests some renewed weakness in the labor market.

Bernanke Paves the Way for QE3 on August 1st

At the January press conference, Fed Chairman Ben Bernanke hinted at further accommodation (QE3) based on incoming data. Then the January and February employment reports were above expectations, and inflation also picked up a little due to the surge in oil and gasoline prices.

In April, based on the stronger data, the FOMC participants revised up their projections for GDP and inflation, and revised down their projections for the unemployment rate - and QE3 was put on hold.

Compare the current projections released today (below) not just with the April projections, but with the January projections. GDP is below the projections in January, and inflation is also below the January projection.

Only the unemployment rate is slightly improved from the January projections - and then only for 2012 - 2013 and 2014 are now worse. As Tim Duy wrote, the projections are "shocking".

[T]his is a significant downward revision to the forecast for not just this year, but next year as well. Moreover, they expect no meaningful progress on the unemployment rate and the PCE inflation forecast remains centered well below 2%.

In the press conference today, Bernanke made it clear that further accommodation is very likely if employment indicators don't improve soon. He also pointed out that the Fed can't do any more "twisting" because of the lack of short duration securities.

And that strongly suggests QE3 following the two day meeting ending August 1st.

Also the FOMC statement was changed to "The Committee is prepared to take further action as appropriate ..." from "The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate ...". A little more aggressive.

One of the reasons I thought QE3 was unlikely today was the lack of foreshadowing from the Fed. Now the markets are prepared - and unless employment indicators pick up significantly, QE3 seems very likely. (Note: There is only one employment report between now and the next FOMC meeting - the June report on July 6th. Otherwise the Fed will rely on weekly unemployment claims and other indicators).

It is possible the Fed will wait until September (depending on incoming data), but right now I think QE3 will arrive on August 1st.

ATA Trucking index declined 0.7% in May

From ATA: ATA Truck Tonnage Fell 0.7% in May

The American Trucking Associations' advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 0.7% in May after falling 1.1% in April. (April's loss was the same as ATA reported on May 22.) The latest drop lowered the SA index to 117.8 (2000=100), down from April's level of 118.7. Compared with May 2011, the SA index was 4.1% higher, the largest year-over-year increase since February 2012. Year-to-date, compared with the same period last year, tonnage was up 3.8%.
...
'Two straight months of contractions is disappointing,' ATA Chief Economist Bob Costello said. 'The drops in tonnage are reflective of the broader economy, which has slowed.'

'The good news is that the decrease in fuel prices will help support retail sales going forward, which is a big part of truck tonnage,' he said. As a negative, Costello said he's concerned about businesses sitting on cash instead of hiring more workers or spending it on capital, both of which would give the economy and tonnage a shot in the arm, as they are worried about Europe and the so-called U.S. fiscal cliff at the end of the year. He also reiterated last month's comment: 'Annualized tonnage growth should be in the 3% to 3.9% range this year.'

Click on graph for larger image.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index. The index is above the pre-recession level and still up 3.8% year-over-year - but has been moving mostly sideways in 2012.

From ATA:

Trucking serves as a barometer of the U.S. economy, representing 67.2% of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Trucks hauled 9 billion tons of freight in 2010. Motor carriers collected $563.4 billion, or 81.2% of total revenue earned by all transport modes.

Earlier on Housing:
' On Yahoo: McBride: Total Housing Starts Decline in May, but the Trend Is Positive
' Comments on Housing
' Housing Starts at 708 thousand in May, Single Family starts increase to 516 thousand

Look Ahead: Fed Day

For those suffering with insomnia, here is the G20 communiqué released tonight. There is no grand bond buying scheme mentioned as was rumored earlier in the day.

The decision of the FOMC tomorrow is very uncertain. Cardiff Garcia at Alphaville has an excellent overview: Problems with extending Twist, and one final preview

The WSJ argues there are several possible outcomes: Europe, Weak Economy Add to Pressure on Fed

Fed officials ... could extend a program known as "Operation Twist," in which the central bank sells short-term Treasury bills and notes and plows the proceeds into longer-term securities. They also could decide to shift the proceeds into mortgage- backed securities rather than long-term Treasury bonds.

Among other choices: launching a new round of bond-buying, known to some as quantitative easing, to expand the central bank's portfolio of assets. Or they could alter the way they describe their plans for interest rates with an assurance that short-term interest rates will stay near zero beyond 2014.

Policy makers also could stand pat but offer assurance that they stand ready to act if the economy gets weaker.

The consensus seems to be the FOMC will expand and extend Operation Twist, but anything - including QE3 - or doing nothing are possible.

And on Wednesday:

' At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. Refinance activity has been increasing sharply, and it appears purchase activity is increasing too.

' At 12:30 PM, the FOMC statement will be released.

' At 2:00 PM, the Federal Open Market Committee (FOMC) participants' projections will be released.

' And at 2:15 PM, Fed Chairman Ben Bernanke will hold a press briefing.

' Also tomorrow, the AIA's Architecture Billings Index for May will be released (expect some weakness), and the LPS First Look Mortgage Report.

MBA: FHA Mortgage Refinance Applications increase sharply

From the MBA: Government Refinance Applications More Than Double in Latest MBA Survey

The Refinance Index increased 1 percent from the previous week. The seasonally adjusted Purchase Index fell 9 percent from one week earlier.

'Refinance volume increased again last week, but the composition of activity changed markedly. Despite rates remaining near all-time lows, conventional refinance application volume declined, and the HARP share of refinance activity dropped to 20 percent,' said Michael Fratantoni, MBA's Vice President of Research and Economics. 'On the other hand, FHA refinance volume exploded to an all-time high, more than doubling over the week. New, lower FHA premiums on streamlined refinance loans came fully into effect, and borrowers seized the opportunity to lower their mortgage rates without increasing their FHA premiums. Purchase activity fell off last week, but this is likely only a recalibration following the Memorial Day holiday, as the level of activity remains within the narrow band seen for the past 3 years.'

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.87 percent, matching the lowest rate in the history of the survey, from 3.88 percent, with points increasing to 0.49 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Click on graph for larger image.

The purchase index is still very weak, and is mostly moving sideways.

Refinance activity continues to increase, especially with the surge in FHA streamline refinancing - and because mortgage rates are near the record low set the previous week.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a huge refinance boom - and rates have fallen about that far - and refinance activity is now at the highest level since 2009.

Report: Fed concerned about "Credit divide"

From Jon Hilsenrath at the WSJ: Clogged Credit Weighs on Fed Policy Makers

The housing bust left behind millions of people with credit records damaged by plunging home prices, lost jobs, past overspending or bad luck. Many are now walled off from the low interest rates engineered by the Federal Reserve ...
...
Fed officials are weighing new steps at their policy meetings Tuesday and Wednesday, following a period of disappointing jobs growth and financial turbulence in Europe. ... The credit divide factors into their thinking.

Analysts think the policy options under discussion are:

1) extend the extended period to 2015, the current statement reads "the Committee ... currently anticipates that economic conditions ... are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014".

2) Expand and extend the "program to extend the average maturity of its holdings of securities" (Operation Twist).

3) Launch QE3 (probably with more MBS buying).

None of these programs will bridge the credit divide.  And not much of a hint from a usual source ...

Look Ahead: Housing Starts

With Spanish 10 year bond yields solidly above 7%, the focus will remain on Europe, especially Greece and Spain. And there will be another meaningless statement from the G20 tomorrow, which reminds me of this great line (and funny commentary) from Matthew O'Brien at the Atlantic: 'Call Me Maybe' Explains the Euro Crisis'Seriously

The only thing more maddening than "Call Me Maybe" is the euro crisis. One is a banal string of saccharine statements, punctuated by swift choruses of action. The other is a pop song. And neither will go away.

' At 8:30 AM ET, Housing Starts for May will be released. The consensus is for total housing starts to increase to 720,000 (SAAR) in May, up from 717,000 in April.

' At 10:00 AM, the BLS will release the Job Openings and Labor Turnover Survey for April. The number of job openings has generally been trending up.

Did I mention Spanish 10 year bond yields are above 7%?

Housing Starts at 708 thousand in May, Single Family starts increase to 516 thousand

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in May were at a seasonally adjusted annual rate of 708,000. This is 4.8 percent below the revised April estimate of 744,000, but is 28.5 percent above the May 2011 rate of 551,000.

Single-family housing starts in May were at a rate of 516,000; this is 3.2 percent above the revised April figure of 500,000. The May rate for units in buildings with five units or more was 179,000.

Building Permits:
Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 780,000. This is 7.9 percent above the revised April rate of 723,000 and is 25.0 percent above the May 2011 estimate of 624,000.

Single-family authorizations in May were at a rate of 494,000; this is 4.0 percent above the revised April figure of 475,000. Authorizations of units in buildings with five units or more were at a rate of 266,000 in May.

Click on graph for larger image.

Total housing starts were at 708 thousand (SAAR) in May, down 4.8% from the revised April rate of 744 thousand (SAAR). Note that April was revised up from 717 thousand. March was revised up too.  

Single-family starts increased 3.2% to 516 thousand in May. April was revised up to 500 thousand from 492 thousand.

The second graph shows total and single unit starts since 1968.

This shows the huge collapse following the housing bubble, and that total housing starts have been increasing lately after moving sideways for about two years and a half years.

Total starts are up 55% from the bottom start rate, and single family starts are up 41% from the low.

This was below expectations of 720 thousand starts in May, but the decline was because of the volatile multi-family sector. Single family starts were up, and building permits were up sharply. And previous months were revised up. This is a fairly strong report.

FOMC Preview: QE3 now or later?

Some analysts think the FOMC will announce QE3 this week, others think the FOMC will wait until August or September.

It is also possible that the Greek election will influence some FOMC participants to wait until "Operation Twist" ends in a few weeks and then see what happens.

Usually the Fed provides pretty clear signals in advance of additional accommodation, but this time the smoke signals have been a little confused. From Tim Duy: Communications Failure

Reading Cardiff Garcia's preview of next week's Fed meeting, I was struck by [a] chart from Nomura

The extensive discussion of options with arguments for and against reminded me of the fog that hangs over this next meeting. We really have no idea what the Fed is going to do or why they are going to do it. Reasonable analysis ranges from nothing to massive quantitative easing.

Goldman analysts recently put the odds of QE3 this week at 75%, from Goldman economist Sven Jari Stehn on June 8th:

Although the uncertainty is significant, our model points to a probability of easing of 75% at the June meeting. Moreover, financial conditions are critical: were European stress to ease between now and the meeting the estimated probability of easing could drop to around 50%. Conversely, any further tightening in financial conditions from here'such as turmoil surrounding the June 17 Greek election'would push up the likelihood of easing in June.

I think the odds of QE3 are very high, but I'm uncertain on the timing. One key is changes in the FOMC financial projections that will be released this week.  Here are the projections from the April meeting.

The following April chart shows when participants projected the initial increase in the target federal funds rate should occur.

Click on graph for larger image.

"The shaded bars represent the number of FOMC participants who project that the initial increase in the target federal funds rate (from its current range of 0 to ¼ percent) would appropriately occur in the specified calendar year."

I expect some movement towards later years - and that would be an argument for QE3 this week.

The following table shows the FOMC's projections for GDP. Given the recent weak data, I'd expect the June projections to be lower for 2012 than the April projections.

Spanish Bond Yields above 7.25%

From the WSJ: Spanish Yields Surge; Greek Relief Wanes

Spain's 10-year government bond yield soared above 7% and equities lost early gains ...

"Greek election results are unlikely to resolve euro-zone uncertainty," said Barclays. "Instead, the focus should shift to the June 28-29 EC summit, the likely renegotiation of the Greek austerity package, and to Spanish yields."

Here are the Spanish and Italian 10-year yields from Bloomberg. The Spanish 10 year yield is up to 7.28%, and the Italian 10 year yield is at 6.16%.

Note: The preliminary results of the independent Spanish Bank Stress Tests are due today. This is the results of the tests by Oliver Wyman Ltd. and Roland Berger Strategy Consultants.

On Thursday, June 21st, there is a meeting of the euro zone finance ministers, and the following week, starting on June 28th, is a two day European summit in Brussels.

Schedule for Week of June 17th

Earlier:
' Summary for Week Ending June 15th

The focus will be on Greece on Sunday. For the US, this week is about the Fed and housing. The key reports are housing starts on Tuesday, and Existing Home Sales on Thursday.

On Wednesday, the FOMC concludes a two day meeting, and there is the possibility of additional policy accommodation.

Unofficial Problem Bank list declines to 919 Institutions

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.

So this is an unofficial list of Problem Banks compiled only from public sources. (And only US banks).

Here is the unofficial problem bank list for June 15, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

As anticipated, the OCC released its actions through mid-May 2012. That release and several failures contributed to some changes to the Unofficial Problem Bank List. In all, there were six removals and two additions. The changes leave the list with 919 institutions with assets of $354.0 billion. A year ago, 996 institutions with assets of $416.7 billion.

The removals include three action terminations -- Baylake Bank, Sturgeon Bay, WI ($1.1 billion Ticker: BYLK); First National Bank South Dakota, Yankton, SD ($415 million Ticker: FINN); and Woodlands National Bank, Hinckley, MN ($133 million). The three failures were Putnam State Bank, Palatka, FL ($169 million); The Farmers Bank of Lynchburg, Lynchburg, TN ($164 million); and Security Exchange Bank, Marietta, GA ($151 million).

The additions were Lifestore Bank, West Jefferson, NC ($294 million Ticker: LSFG) and Fidelity National Bank, Medford, WI ($89 million).

Earlier:
' Summary for Week Ending June 15th
' Schedule for Week of June 17th

Greece Election: Voting now, Polls close at Noon ET

Polls close at noon ET on Sunday and the first "safe" results are expected around 2:30 PM ET.

Meanwhile there is a forest fire raging near Athens.

A few stories ...

From the Athens News: Voting underway in crunch election

Voting in the second general election in as many months got underway at 7am [Athens time] on Sunday at over 20,000 polling stations in 56 constituencies across the country.
Polling stations will remain open until [12 PM ET].
...
Unofficial exit polls will be announced, via the media, by the country's polling agencies shortly after the closing of polling stations.

The authorities expect the first official projections by [2:30 PM ET]. Counting should be completed in the early hours of Monday morning.

From the Financial Times: Greece vote set to end in stalemate

Greeks voted on Sunday in a second general election set to end in stalemate ... The centre-right New Democracy party had a three-point lead over the radical left Syriza coalition, but neither party would capture even 30 per cent of the vote, according to two private polls seen by the FT.
excerpt with permission

From the WSJ: Greeks Vote in High-Stakes Election

The vote is pitting the conservative New Democracy party'which mostly supports the country's latest European-led bailout'against its leftist rival, Syriza, which has denounced the deal and wants to tear up the austerity program that came with it.

From the NY Times: A Critical Vote in Greece on Its Standing in the Euro Zone

As world financial institutions braced for more political uncertainty and potential market turmoil on Monday, Greek political leaders said they understood the need to form a government as quickly as possible, no matter what the election results. ...

As they headed to the polls, Greeks were gripped by anxiety about the collapse of the economy and with it the middle class ' and shaken by repeated warnings from European leaders that Greece's exit from the single currency was likely. For many, the election was seen as a choice between hope and fear.

There will be no clear winner, and even if a government is formed, the path forward is uncertain.

Bank Failures #29 - #31 in 2012

by CalculatedRisk on 6/15/2012 06:16:00 PM

David Rosenberg cracks me up!

I've always enjoyed reading Gluskin Sheff economist David Rosenberg's analysis. Of course Rosenberg has been bearish on the economy and the stock market for years. But I found his comments in this article amusing: Market Bear Gets (a Little) Bullish

[It]caused a mini-sensation within financial circles this week when Mr. Rosenberg'the former economist at Merrill Lynch & Co. who's now at Canadian money-management firm Gluskin Sheff'wrote a morning commentary titled 'Parting of the Clouds?'

... 'I do see a light at the end of the dark tunnel,' [Rosenberg] wrote.

And the article concludes:

'Don't be surprised,' he wrote, 'if I end up turning bullish ahead of the pack.'

Really? After missing the sluggish recovery and the large run up in the stock market, Rosenberg thinks he will be "ahead of the pack"?

Geesh. I wrote "Looking for the Sun" in February 2009. That was one of several posts about the coming end of the recession. I even used some of Rosenberg's analysis on auto sales (arguing Rosenberg was wrong), as one of my reasons that we were nearing the end of the recession (see Vehicle Sales, Jan, 2009). Needless to say I was correct about auto sales - auto sales have been a key driver of the sluggish recovery - and I was correct about the economy (and, in a rarity for me, I even mentioned my bullish outlook on the stock market). Of course, even though I thought a recovery would start, I thought it would be choppy and sluggish.

So Rosenberg was wrong, and I was correct. And now, three years later, he is looking for the "parting of the clouds?" and he thinks he will be "ahead of the pack"? Oh my. I feel like saying "Check the scoreboard, Mr. Rosenberg!"

But I still enjoy reading his analysis :-)

P.S. His reasons for turning more optimistic (more austerity in the US) are wrong too.

Summary for Week ending June 15th

Another week. More disappointment. A broken record ...

The European problems are dominating the headlines, with the Greek election on Sunday, and bond yields increasing in Spain and Italy. In response, the UK has announced a new stimulus plan, and the ECB is hinting at further monetary accommodation.

US data was weak again. Retail sales and industrial production declined, consumer sentiment was down, and initial weekly unemployment claims increased. And the NY Fed manufacturing survey showed slow expansion in June.

However inflation appears to be falling and this increases the possibility of further Fed policy accommodation at the FOMC meeting next week.

The coming week will be about Europe ' especially Greece ' housing, and the Fed.

Here is a summary of last week in graphs:

' Retail Sales declined 0.2% in May

Click on graph for larger image.

On a monthly basis, retail sales were down 0.2% from April to May (seasonally adjusted), and sales were up 5.3% from May 2011. Sales for April was revised down to a 0.2% decrease from a 0.1% increase.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales are up 22.1% from the bottom, and now 6.8% above the pre-recession peak (not inflation adjusted)

This was at the consensus forecast for retail sales of a 0.2% decrease in May, and below the consensus for a 0.1% decrease ex-auto.

Look Ahead: Industrial Production, Consumer Sentiment and more

It seems like it is all about Europe, but there are several US economic indicators to be released tomorrow:

' At 8:30 AM ET, The NY Fed Empire Manufacturing Survey for June will be released. The consensus is for a reading of 13.8, down from 17.1 in May (above zero is expansion).

' At 9:15 AM, The Fed will release Industrial Production and Capacity Utilization for May. The consensus is for no change in Industrial Production in May, and for Capacity Utilization to be unchanged at 79.2%.

' At 9:55 AM, the Reuter's/University of Michigan's Consumer sentiment index (preliminary for June) will be released. The consensus is for sentiment to decline to 77.5 from 79.3 in May.

' At 10:00 AM, the BLS will release the Regional and State Employment and Unemployment report for May 2012.

But most of the discussion tomorrow will be about Greece, Spain, Italy and the rest of Europe.

Greece: Election results expected at 2:30 PM ET Sunday, Unemployment Rate hits Record 22.6%

My understanding is the Greek polls close at noon ET on Sunday. According to the Athens News: First safe election estimation to be given at 21.30 on Sunday

The first "safe" estimate of the result of Sunday's repeat general elections is expected to be released at around 9:30 on Sunday night, according the IT firm Singular Logic, which has been assigned the job of collecting and transmitting the results of voting throughout the country.

9:30 PM Athens time is 2:30 PM ET.

And from the Athens News: Quarterly unemployment hits record 22.6%

Unemployment hit a record high in the first quarter of 2012, data showed on Thursday ... The jobless rate hit 22.6 percent in the first three months of the year - double the euro zone average ... The statistics service said the number officially unemployed reached 1.12 million in the first quarter, up 57.3 percent year-on-year

NY Fed: Regional manufacturing activity "expanded slightly" in June Survey

From the NY Fed: Empire State Manufacturing Survey

The June Empire State Manufacturing Survey indicates that manufacturing activity expanded slightly over the month. The general business conditions index fell fifteen points, but remained positive at 2.3. The new orders index declined six points to 2.2, and the shipments index fell a steep nineteen points to 4.8. Price indexes were markedly lower, with the prices paid index falling eighteen points to 19.6 and the prices received index dropping eleven points to 1.0. Employment indexes also retreated, though they still indicated a small increase in employment levels and a slightly longer average workweek.

The employment index declined to 12.4 from 20.5.

This is the first regional manufacturing survey released for June, and this was well below the consensus forecast of 13.8.

DataQuick: SoCal home sales up in May

From DataQuick: More Gains for Southern California Home Sales and Median Prices

Last month's total Southland sales rose nearly 21 percent compared with a year ago, and activity increased across the home-price spectrum. But the gains were strongest above $300,000. The volume of transactions in lower-cost markets has been restrained by, among other things, the dwindling inventories of homes for sale, especially foreclosures.
...
In May, a total of 22,192 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties. That was up 15.1 percent from 19,284 in April, and up 20.6 percent from 18,394 in May 2011.
...
On a year-over-year basis, Southland home sales have increased for five consecutive months, with last month's 20.6 percent annual gain the largest in the series. Sales have also increased year-over-year in nine out of the last ten months. Still, last month's sales were 14.5 percent lower than the average sales tally for all the months of May since 1988.

The month-to-month and year-over-year increases in sales last month would not have been as great if this May hadn't had one extra business day on which sales could close. While last month had 22 business days, this April and May 2011 had 21 business days.
...
Distressed sales ' the combination of foreclosure resales and short sales ' made up 44.8 percent of last month's resale market. That was the lowest level since the figure was 44.4 percent in March 2008.

The percent of distressed sales is still very high, but this is the lowest level since March 2008.

The median price is being impacted by the mix and isn't useful for measuring house price changes (with fewer low end distressed sales, the median has increased).

The NAR is scheduled to report May existing home sales and inventory next week on Thursday, June 21st.

Look Ahead: CPI, Weekly Unemployment Claims, Greece

The Greek election is this coming Sunday, and the polls will close at noon ET. The election will probably be very close between "New Democracy" and "Syriza".

The 1st place party gets a 50 seat bonus (out of 300 total seats) and the parties split the remaining seats by the percent of the vote (excluding all parties with less than 3% of the vote).

From Merrill Lynch today:

[T]he baseline scenario [is ]that Greece gets a pro-program government - most likely led by New Democracy and supported by Pasok ... the probability of a disorderly Greek exit from the Euro is significantly reduced.
...
Should the less likely scenario of an anti-program government led by Syriza materialize, however, our markets would probably trade as if Greece is on the path of a disorderly exit from the Euro.

Sunday will be the new Monday once again!

On Thursday:

' At 8:30 AM ET, the Consumer Price Index for May will be released. The consensus is for headline CPI to decline 0.2% (with the decline in energy prices). The consensus is for core CPI to increase 0.2%.

' Also at 8:30 AM, The initial weekly unemployment claims report will be released. The consensus is for claims to decline to 375 thousand from 377 thousand last week.

Weekly Initial Unemployment Claims increase to 386,000

The DOL reports:

In the week ending June 9, the advance figure for seasonally adjusted initial claims was 386,000, an increase of 6,000 from the previous week's revised figure of 380,000. The 4-week moving average was 382,000, an increase of 3,500 from the previous week's revised average of 378,500.

The previous week was revised up from 377,000 to 380,000.

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 increased to 382,000.

The average has been between 363,000 and 384,000 all year, and this is near the high for the year.

And here is a long term graph of weekly claims:

This was above to the consensus forecast of 375,000.