Earlier:
' Summary for Week Ending March 15th
There are three key housing reports that will be released this week: February housing starts on Tuesday, February Existing home sales on Thursday, and the March homebuilder confidence survey on Monday.
A key event this week is the two day FOMC meeting on Tuesday and Wednesday. Note: the time has changed for the FOMC announcement and quarterly news conference.
Also, for manufacturing, the Philly Fed survey will be released on Thursday.
Note: Several people sent me links early this morning on the Cyprus bailout (thanks jb and others). This bailout was expected to eventually happen, but the surprise was forcing losses on depositors, even small depositors - and that leads to the question of possible contagion to other distressed countries (Greece, Spain, etc).
For a detailed discussion, see Joseph Cotterill piece at Alphaville: A stupid idea whose time had come
Earlier:
' Summary for Week Ending March 15th
' Schedule for Week of March 17th
Economist Tom Lawler sent me the updated table below of short sales and foreclosures for several selected cities in February.
In every area that has reported distressed sales so far (two right columns), the share of distressed sales is down year-over-year - and down significantly in many areas.
Also there has been a decline in foreclosure sales just about everywhere. Also there has been a shift from foreclosures to short sales. In most of these areas, short sales now out number foreclosures (Minneapolis and Orlando are exceptions).
Another interesting point: short sales are now declining in many areas. This might be related to sellers rushing short sales last year - before the one year extension of the Mortgage Debt Relief Act of 2007 was announced, and sales declining early in 2013. Or it might indicate that short sales activity has peaked in some areas (this will be interesting to watch).
From economist Tom Lawler:
Based on reports I've seen so far from various state and local realtor association/board/MLS reports (and a few reports based on property records), it seems highly likely that the YOY growth rate in unadjusted existing home sales as measured by the National Association of Realtors slowed substantially in February relative to January's reported YOY sales gain of 11.9%. Almost all areas reporting so far showed slower YOY growth in February relative to January, and several states/areas showed YOY declines (including but not limited to California, Michigan, Iowa, Minnesota, Long Island, Phoenix, Tucson, Las Vegas, and Reno). Based on what I've seen so far, I estimate that February existing home sales as measured by the NAR will show a YOY increase of about 4.3%. Of course, the YOY gain in seasonally adjusted sales will be higher, reflecting the lower business day count this February vs. last February (last year was a leap year). Based on my estimated seasonal factor, I expect that the NAR will report that existing home sales in February ran at a seasonally adjusted annual rate of about 4.87 million, down about 1% from January's pace, and up about 7.7% from last February's pace.
On the inventory front, it's a bit challenging of late to estimate the NAR's existing home inventory, as it hasn't been 'tracking' various trackers of overall home listings. E.g., realtor.com said that daily residential listings on realtor.com during January averaged 1,477,266, down 16.5% from last January's average, and during February listings averaged 1,494,218, down 16.0% from last February (December showed a YOY decline of 17.3%). Zillow said that residential listings on Zillow.com on January 23, 2013 were 17.5% lower than listings on January 23, 2012, and listings on February 24, 2013 were down 16.6% from February 24, 2012. The NAR, however, estimated that the number of existing homes for sale at the end of January was 25.3% lower than the number of existing homes for sale a year earlier! And the monthly drop in the NAR's inventory estimate for January of 4.9% substantially exceeded that of all listings trackers, as well as what local realtor/MLS reports would have suggested.
Based on listings trackers as well as the local realtor/MLS reports I've seen so far, I'd expect that 'actual' existing home inventories increased by a modest 1% or so in February. How that will translate in the NAR's estimate, however, is not clear: a 1% increase in the NAR's estimate in February, combined with no revision in the January estimate, would imply an implausibly large YOY drop of 26.7%. In looking at admittedly limited historical data, however, there has been a tendency for the NAR inventory number in February to show a bigger gain than other measure, so I'm 'guessing' that the NAR inventory estimate will show a monthly gain of 3% or so.
CR Note: The NAR will report February existing home sales on Thursday, March 21st. The early consensus is the NAR will report sales of 4.99 million on a seasonally adjusted annual rate (SAAR) basis. However Lawler's analysis suggests the NAR will report sales of around 4.87 million SAAR.
Based on Lawler's estimates, the NAR will report inventory at around 1.8 million units for February, and months-of-supply around 4.4 months (up from 4.2 months in January, but still very low).
Here is the unofficial problem bank list for Mar 15, 2013.
This is an unofficial list of Problem Banks compiled only from public sources.
Changes and comments from surferdude808:
As anticipated, the OCC released its recent actions this week, which contributed to several change to the Unofficial Problem Bank List. In all, there were seven removals and three additions that leave the list at 801 institutions with assets of $295.6 billion. A year ago, the list held 952 institutions with assets of $379.1 billion.CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The number of unofficial problem banks grew steadily and peaked at 1,002 institutions on June 10, 2011. The list has been declining since then.Actions were terminated against Winona National Bank, Winona, MN ($258 million); Amfirst Bank, National Association, McCook, NE ($237 million); The First National Bank of Wahoo, Wahoo, NE ($206 million); The University National Bank of Lawrence, Lawrence, KS ($71 million); and The First National Bank of Germantown, Germantown, OH ($52 million). The other removals were Pacific International Bank, Seattle, WA ($182 million) and Borrego Springs Bank, National Association, La Mesa, CA ($142 million), which merged on an unassisted basis.
The additions this week were Illinois-Service Federal Savings and Loan Association, Chicago, IL ($136 million); Home Federal Savings and Loan Association of Collinsville, Collinsville, IL ($97 million); and Community Savings, Caldwell, OH ($77 million).
Next week will likely be quiet one for the list.
This was another week of solid economic data. Retail sales were strong even after removing the impact of higher gasoline prices. Industrial production is at a new post-recession high and nearing the pre-recession peak. And the four-week average of initial weekly unemployment claims is at the lowest level since March 2008.
One negative was a fairly sharp decline in consumer sentiment, but that survey indicated that the decline was mostly dissatisfaction with policymakers and that buying plans were essentially unchanged.
The recent good news - even without any housing data (the key driver) - has led to some upgraded forecasts for Q1 GDP. I've excerpted a from a few research notes below. All of these analysts are upgrading their Q1 forecasts, but are still cautious about Q2 and Q3 due to fiscal policy and inventory adjustments.
From Goldman Sachs:
The US consumer has proven more resilient to the increase in payroll and income taxes than we had expected, and we are lifting our near-term GDP growth forecast slightly. Our tracking estimate for Q1 has already climbed to 2.9% and we are raising Q2 from 1.5% to 2%, primarily via stronger consumption.From Merill Lynch:Our upgrade is modest for three reasons. First, the growth pickup in Q1 is partly due to faster inventory accumulation. Second, while consumption is holding up better than expected, it is unlikely to be strong in absolute terms. Third, we still expect the 'sequester' to weigh on growth in the near term.
One of the key elements of our below-consensus forecast is that consumer spending will slow amid higher taxes and fiscal cuts. The data continue to challenge this view. February retail sales jumped 1.1% and 'core control' sales, which net out the volatile components of autos, building materials and gasoline, increased 0.4%. Coupled with stronger inventory growth, this led us to revise up our forecast for 1Q GDP growth to 3.0%. We are also taking up 2Q GDP to 1.3% from 1.0% to reflect stronger momentum. This leaves full year growth at 1.8%, versus our prior forecast of 1.5%. That said, we are not entirely capitulating on our forecast ' we still believe growth will slow in coming months as the sequester kicks in, but from a higher level.From Nomura:
Incoming data point to faster-than-expected growth in the first quarter. The need to replenish inventories and an apparent delay by households to adjustment to higher tax burdens at the start of the year has lifted current quarter growth tracking to an annual rate of 2.5%. However, it now appears that the 1 March spending cuts (sequester) will be in place until at least the end of September. These new cuts in spending will slow growth in Q2 and Q3 (previously we assumed that only half of these cuts would be implemented).Here is a summary of last week in graphs:
' Retail Sales increased 1.1% in February
Click on graph for larger image.
On a monthly basis, retail sales increased 1.1% from January to February (seasonally adjusted), and sales were up 4.6% from February 2012. Sales for December were revised up to a 0.2% gain.
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 27.2% from the bottom, and now 11.2% above the pre-recession peak (not inflation adjusted)
Retail sales ex-autos increased 1.0%. Retail sales ex-gasoline increased 0.6%.
This was above the consensus forecast of a 0.5% increase. Although higher gasoline prices boosted sales, retail sales ex-gasoline increased 0.6% - suggesting some pickup in the economy in February.
' Fed: Industrial Production increased 0.7% in February
"The capacity utilization rate for total industry increased to 79.6 percent."
This graph shows Capacity Utilization. This series is up 12.8 percentage points from the record low set in June 2009 (the series starts in 1967).
Capacity utilization at 79.6% is still 0.6 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.6% in December 2007.
Note: y-axis doesn't start at zero to better show the change.
The second graph shows industrial production since 1967.
"Industrial production increased 0.7 percent in February after having been unchanged in January". Industrial production increased in February to 99.5. This is 19.2% above the recession low, but still 1.2% below the pre-recession peak.
The monthly change for both Industrial Production and Capacity Utilization were above expectations.
' Weekly Initial Unemployment Claims decrease to 332,000
This graph shows the 4-week moving average of weekly claims since January 2000.
The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 346,750 - this is the lowest level since early March 2008.
Weekly claims were below the 350,000 consensus forecast.
Claims might increase over the next few months due to the "sequestration" budget cuts, but right now initial unemployment claims suggest an improving labor market.
' Key Measures of inflation in February
This graph shows the year-over-year change for four key measures of inflation: the median Consumer Price Index, 16% trimmed-mean Consumer Price Index, core CPI and core PCE.
On a year-over-year basis, the median CPI rose 2.2%, the trimmed-mean CPI rose 1.9%, and the CPI less food and energy rose 2.0%. Core PCE is for January and increased 1.3% year-over-year.
On a monthly basis, median CPI was at 2.9% annualized, trimmed-mean CPI was at 2.6% annualized, and core CPI increased 2.1% annualized. Also core PCE for January increased 1.8% annualized.
The Fed will meet next week, and with this level of inflation and the current high level of unemployment, I expect the Fed will keep the "pedal to the metal".
' BLS: Job Openings "little changed" in January
From the BLS: Job Openings and Labor Turnover Summary
This graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.
This series started in December 2000.
Jobs openings increased in January to 3.693 million, up from 3.612 million in December. The number of job openings (yellow) has generally been trending up, and openings are up 8% year-over-year compared to January 2012.
Quits increased in January, and quits are up 13% year-over-year and at the highest level since 2008. 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.
' Preliminary March Consumer Sentiment declined to 71.8
The preliminary Reuters / University of Michigan consumer sentiment index for March declined to 71.8 from the February reading of 77.6.
This was well below the consensus forecast of 77.7, and very low. There are a number of factors that impact sentiment including unemployment, gasoline prices and, for 2013, the payroll tax increase and even politics (sequestration, default threats, etc).
In this case, the decline was probably related to both high gasoline prices and policy concerns. According to Reuters, a record 34 percent of those surveyed were negative about government economic policies (sequestration, etc.). Reuters also reports that buying plans were essentially unchanged.
From Freddie Mac today: Mortgage Rates up on Signs of Improving Economy
The 30-year fixed averaged 3.63 percent, its highest reading since the week of August 23, 2012. The 30-year fixed hit its average all-time record low of 3.31 percent the week of November 21, 2012. ...30-year fixed-rate mortgage (FRM) averaged 3.63 percent with an average 0.8 point for the week ending March 14, 2013, up from last week when it averaged 3.52 percent. Last year at this time, the 30-year FRM averaged 3.92 percent.
15-year FRM this week averaged 2.79 percent with an average 0.8 point, up from last week when it averaged 2.76 percent. A year ago at this time, the 15-year FRM averaged 3.16 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 near the record low for the last 40 years.
This shows the recent small increase in mortgage rates. This probably means refinance activity will slow in 2013. Note: There has been an increase in refinance activity due to HARP.
Here is an update to an old graph - by request - that shows the relationship between the 10 year Treasury Yield and 30 year mortgage rates.
Currently the 10 year Treasury yield is 2.02% and 30 year mortgage rates are at 3.63%. If the ten year yield stay in this range, 30 year mortgage rates might move up a little from here.
The third graph shows the 15 and 30 year fixed rates from the Freddie Mac survey since the Primary Mortgage Market Survey® started in 1971 (15 year in 1991).
The recent increase in rates is pretty small on this long term graph.
Note: Mortgage rates were at or below 5% back in the 1950s.
First, here is a price index for commercial real estate that I follow. CoStar reported that their value weighted index is up 4.8% year-over-year, and the equal weighted index is up 5.5% from January 2012. Also the volume of distressed sales is continuing to decline.
From CoStar: Commercial Real Estate Pricing Levels Off In January Following Year-End Surge
The U.S. Value-Weighted Composite Index, which weights each repeat-sale by transaction size or value (and therefore is heavily influenced by larger transactions), ticked up by 0.7% in January, and has now increased 38% from its trough in 2010. The U.S. Equal-Weighted Composite Index, which weights each repeat-sale by transaction equally (and therefore is heavily influenced by numerous smaller transactions), began 2013 with a 2.9% monthly loss, largely due to a seasonal slowdown in trading activities after the year-end sales surge. However, thanks to its steady recovery throughout 2012, the equal-weighted index has increased 5.5% since January 2012.
...
Distressed sales as a percentage of total transactions have been following a declining trend since the start of 2011. Although this percentage ticked up in January 2013 due to the seasonal slowdown in total transactions, the number of repeat sales involving distress assets was the lowest in January 2013 since the summer of 2009.
emphasis added
Click on graph for larger image.This graph from CoStar shows the Value-Weighted and Equal-Weighted indexes. As CoStar noted, the Value-Weighted index is up 38.5% from the bottom (showing the demand for higher end properties) and up 4.8% year-over-year. However the Equal-Weighted index is only up 9.0% from the bottom, and up 5.5% year-over-year.
Note: These are repeat sales indexes - like Case-Shiller for residential - but this is based on far fewer pairs.
Friday economic releases:
' At 8:30 AM ET, the Consumer Price Index for February will be released. The consensus is for a 0.5% increase in CPI in February (due to higher gasoline prices) and for core CPI to increase 0.2%.
' Also at 8:30 AM, the NY Fed Empire Manufacturing Survey for March. The consensus is for a reading of 8.5, down from 10.0 in February (above zero is expansion).
' At 9:15 AM, the Fed will release Industrial Production and Capacity Utilization for February. The consensus is for a 0.3% increase in Industrial Production in February, and for Capacity Utilization to increase to 79.3%.
' At 9:55 AM, the preliminary March Reuter's/University of Michigan's Consumer sentiment index will be released. The consensus is for a reading of 77.5, down from 77.6.
' From the Bureau of Labor Statistics (BLS): Consumer Price Index - February 2013
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.7 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment. The gasoline index rose 9.1 percent in February to account for almost three-fourths of the seasonally adjusted all items increase.On a year-over-year basis, CPI is up 2.0 percent, and core CPI is up also up 2.0 percent. Both are at the Fed's target. This was above the consensus forecast of a 0.5% increase for CPI (due to gasoline prices), and a 0.2% increase in core CPI.
...
The index for all items less food and energy increased 0.2 percent in February.
I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.
' From the NY Fed: Empire State Manufacturing Survey
The general business conditions index was positive for a second consecutive month and, at 9.2, was little changed. ... Employment indexes suggested that labor market conditions were sluggish, with little change in employment levels and the length of the average workweek. Indexes for the six-month outlook pointed to an increasing level of optimism about future conditions, with the future general business conditions index rising to its highest level in nearly a year.This is the first of the regional manufacturing surveys for March. This was at the consensus forecast of a reading of 8.5.
The DOL reports:
In the week ending March 9, the advance figure for seasonally adjusted initial claims was 332,000, a decrease of 10,000 from the previous week's revised figure of 342,000. The 4-week moving average was 346,750, a decrease of 2,750 from the previous week's revised average of 349,500.The previous week was revised up from 340,000.
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 decreased to 346,750 - this is the lowest level since early March 2008.
Weekly claims were below the 350,000 consensus forecast. Claims might increase over the next few months due to the "sequestration" budget cuts, but right now initial unemployment claims suggest an improving labor market.
One of the housing markets I follow closely is southern California. I highlighted a couple of key points in this article: 1) Activity is picking up, especially in the move-up markets, 2) there is evidence of strong investor buying, and 3) foreclosure resales are at the lowest level since 2007.
From DataQuick: Southland Home Sales at Six-Year High; Median Price Up Again Yr/Yr
Southern California logged the highest February home sales in six years last month amid relatively strong sales of mid- to high-end properties and a record share of homes sold to absentee buyers. ...Cash buying is strong in many areas. Economist Tom Lawler sent me the following comments and table today. From Tom Lawler:A total of 15,945 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 0.7 percent from 16,058 sales in January, and up 1.0 percent from 15,780 sales in February 2012, according to San Diego-based DataQuick. ... Last month's sales were the highest for the month of February since 17,680 homes sold in February 2007, but they were 9.9 percent below the February average of 17,696 sales. The low for February sales was 10,777 in 2008, while the high was 26,587 in 2004.
'Our January and February stats certainly indicate housing remains a big target for investors. But typically those two months don't offer much insight into how the market will behave the rest of the year. These are sales that closed in January and February, meaning many of the buyers were out home shopping during the holiday season late last year. That's when many traditional buyers and sellers drop out of the market, leaving a relatively high concentration of very motivated market participants, especially investors,' said John Walsh, DataQuick president.
'March and April will offer a better view of how broader market trends are shaping up this year. One of the real wild cards will be how many more homes go up for sale. More people who've long been thinking of selling will be tempted to list their homes at today's higher prices. Fewer people will be underwater and therefore could at least break even on a sale. Some investors who've held for a while will consider cashing in. A meaningful rise in the supply of homes on the market should at least tame price appreciation.'
Move-up markets continued to show big sales gains from a year earlier. The number of homes sold in February for between $300,000 and $800,000 ' a range that would include many first-time move-up buyers ' rose 33.4 percent year-over-year. The number that sold for $500,000 or more jumped 54.0 percent from one year earlier, while sales of $800,000-plus homes increased 62.7 percent compared with February 2012.
Last month foreclosure resales ' properties foreclosed on in the prior 12 months ' accounted for 15.8 percent of the Southland resale market. That was down from a revised 17.2 percent the month before and down from 32.6 percent a year earlier. In recent months foreclosure resales have been at the lowest level since September 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009.
Short sales ' transactions where the sale price fell short of what was owed on the property ' made up an estimated 22.0 percent of Southland resales last month. That was down from an estimated 24.0 percent the month before and 26.9 percent a year earlier.
Investor and cash buying was at or near all-time highs.
Absentee buyers ' mostly investors and some second-home purchasers ' bought a record 31.4 percent of the Southland homes sold in February. That was up from 30.4 percent the prior month and up from 29.9 percent a year earlier. ... Buyers paying with cash accounted for 35.6 percent of last month's home sales, compared with 33.7 percent both the month before and a year earlier. The peak was 35.8 percent last December.
Emphasis added
"While distressed sales, and especially foreclosure sales, have fallen considerably in most markets over the last year, the all-cash share of transactions in aggregate doesn't appear to have fallen, and in some markets it has even reason. This suggests that investor buying of non-distressed properties has increased significantly over the last year.
(Note: all save for So. California are MLS based; also, the Las Vegas number for February 2013 is an estimate based on press reports that the all-cash share last month was 'nearly' 60%. For some reason the GLVAR has stopped posting its press release on monthly sales)"
On the declining deficit from MarketWatch: February budget deficit $203.5 billion: Treasury
The U.S. government ran a budget deficit of $203.5 billion in February, down 12% from the same month last year, the Treasury Department reported on Wednesday. The narrowing of the gap between spending and revenue in February is further indication that the deficit is on track to improve this fiscal year which ends Sept. 30. If lawmakers hold fiscal policy steady, the deficit for this year will total $845 billion, about $240 billion less than the fiscal 2012 deficit and the first deficit below a trillion since fiscal 2008, according to the Congressional Budget Office projections.The Congressional Budget Office (CBO) is projecting the deficit will decline to $845 billion in fiscal 2013 (the current budget year), and that the deficit will be about 5.3% of GDP.
Click on graph for larger image.
This graph shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next ten years based on estimates from the CBO.
The CBO projects the deficit will decline to 3.7% of GDP in fiscal 2014, and 2.4% of GDP in fiscal 2015. After 2015, the deficit will start to increase again according to the CBO.
Thursday economic releases:
' At 8:30 AM, The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 350 thousand from 340 thousand last week.
' Also at 8:30 AM, the Producer Price Index for February. The consensus is for a 0.6% increase in producer prices (0.1% increase in core).
From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier.
...
'The announcement of stronger than anticipated job growth last week led to an increase in interest rates, with the 30 year fixed mortgage rate in our survey reaching the highest level in more than six months,' said Mike Fratantoni, MBA's Vice President of Research and Economics. 'Refinance applications declined as a result, but remain high given the steady flow of HARP applications.'
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.81 percent, the highest rate since August 2012, from 3.70 percent, with points remaining unchanged at 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Click on graph for larger image.The first graph shows the refinance index.
There has been a sustained refinance boom for over a year, and 76 percent of all mortgage applications are for refinancing.
Refinance activity will probably slow in 2013.
The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index has generally been trending up (slowly) over the last six months.
This index will probably continue to increase as conventional home purchase activity increases.
On a monthly basis, retail sales increased 1.1% from January to February (seasonally adjusted), and sales were up 4.6% from February 2012. From the Census Bureau report:
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $421.4 billion, an increase of 1.1 percent from the previous month and 4.6 percent (±0.7%) above February 2012. ...The December 2012 to January 2013 percent change was revised from +0.1 percent to +0.2 percent.
Click on graph for larger image.Sales for December were revised up to a 0.2% gain.
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 27.2% from the bottom, and now 11.2% above the pre-recession peak (not inflation adjusted)
Retail sales ex-autos increased 1.0%. Retail sales ex-gasoline increased 0.6%.
Excluding gasoline, retail sales are up 23.5% from the bottom, and now 11.0% above the pre-recession peak (not inflation adjusted).
The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.
Retail sales ex-gasoline increased by 4.8% on a YoY basis (4.6% for all retail sales).
This was above the consensus forecast of a 0.5% increase. Although higher gasoline prices boosted sales, retail sales ex-gasoline increased 0.6% - suggesting some pickup in the economy in February.
Economist Tom Lawler sent me the table below of short sales and foreclosures for several selected cities in February.
Look at the right two columns in the table below (Total "Distressed" Share for Feb 2013 compared to Feb 2012). In every area that has reported distressed sales so far, the share of distressed sales is down year-over-year - and down significantly in most areas.
Also there has been a decline in foreclosure sales just about everywhere. Look at the middle two columns comparing foreclosure sales for Feb 2013 to Feb 2012. Foreclosure sales have declined in all these areas, and some of the declines have been stunning (the Nevada sales were impacted by the new foreclosure law).
Also there has been a shift from foreclosures to short sales. In all of these areas, short sales now out number foreclosures.
I think this is important: Imagine that the number of total existing home sales doesn't change over the next year - some people would argue that is "bad" news and the housing market isn't recovering. But also imagine that the share of distressed sales declines 20%, and conventional sales increase to make up the difference. That would be a positive sign - and that is what appears to be happening.
An example would be Sacramento (I posted data on Sacramento earlier today). In Sacramento, total sales were down 14% in Feb 2013 compared to Feb 2012, but conventional sales were up 42%! I'd say that is a positive sign.
Here is Nomura's current US outlook:
Activity: In the 3 1/2 years since the Great Recession ended, real GDP has grown at a lackluster 2.1% pace and is tracking close to that pace in Q1 2013.Nomura is projecting real GDP to increase 1.9% in 2013 (another sluggish year), and for the unemployment rate to fall to 7.5% in Q4. For housing starts, Nomura is forecasting an increase to 1.02 million starts from 780 thousand in 2012 (a 30% increase).Lower-income households are in the process of ratcheting down spending in response to a higher tax burden, but aggregate demand is being held up by higher-income spenders reacting to rising wealth from equities and real estate. Fiscal policy remains a source of uncertainty for the outlook, but risks of a policy misstep have diminished. Our forecast for the US economy assumes that half of the 1 March spending cuts will be implemented this year, but it is looking more likely that the full sequester will remain in place. If so, our assumptions for government spending will need to be revisited. Congress is working to complete a continuing resolution (CR) before the 22 March Easter holiday break. The CR is expected to fund the federal government through the end of this fiscal year (30 September).
Providing a buffer against fiscal headwinds, the housing recovery continues to deepen. Home price increases are providing support for household confidence and we expect the wealth effect from real estate to help support aggregate demand.
Inflation: Our forecast for consumer price inflation to remain below 2% for the forecast horizon reflects the effects of a substantial output gap that has emerged from three years of sub-par growth in the economy, and limited risks from commodity prices.
Policy: We expect the FOMC to maintain its current longer-term asset purchase program through Q3 2013, and then begin to taper purchases as the recovery strengthens and outlook improves convincingly. Upcoming negotiations in Washington over the reprogramming of spending cuts and the budget are likely to prove very contentious.
Risks: Fiscal policy missteps and slower global growth remain the dominant risks to the outlook.
Tuesday economic releases:
' At 7:30 AM ET, NFIB Small Business Optimism Index for February. The consensus is for an increase to 90.1 from 88.9 in January.
' At 10:00 AM, Job Openings and Labor Turnover Survey for January from the BLS. The number of job openings has generally been trending up, but openings were only up 2% year-over-year in December.
I've been asked several times about the recent ECRI recession call (obviously I disagreed with their incorrect recession call in 2011 - I wasn't even on recession watch then and I'm not on recession watch now - and I also think ECRI is wrong about a recession starting in mid-2012). Several people have written about ECRI's call, see Menzie Chinn at Econbrowser, NDD at the Bonddad blog, and Henry Blodget at Business Insider.
It seems to me ECRI is trying to make this an academic exercise and hoping for some significant downward revisions. Right now the data doesn't indicate a recession in 2012, but, as Menzie Chinn notes, "all of these series will be revised, so one wouldn't want to state definitively we are not in a recession ' therein lies the path to embarrassment. But the case still has to be made for recession."
But why do we care? Here is a repeat of a post I wrote in early 2011 (with updated tables and charts):
From 2011 [updates in brackets]: Here is something very different. This is NOT intended as investment advice.
Why is there so much focus on the business cycle? For companies, especially cyclical companies, the reason is obvious ' it helps with planning, staffing and investment. [Update: Most cyclical companies are expanding now]
But why are investors so focused on the business cycle? Obviously earnings decline in a recession, and stock prices fall too. The following graph shows the year-over-year (YoY) change in the S&P 500 (using average monthly prices) since 1970. Notice that the market usually declines YoY in a recession.
Note: Because this is 'year-over-year' there is a lag to the S&P 500 data. [Graph updated to March 2013]
Click on graph for larger image.
So calling a recession isn't just an academic exercise, there is some opportunity to preserve capital.
Not all downturns in the stock market are associated with recessions. As an example, the 1987 market crash was during an economic expansion. And the stock bubble collapse lasted from March 2000 through early 2003 ' and the only official economic recession during that period was 7 months in 2001.
Although I don't give investment advice, I think investors should measure their performance with some index. Warren Buffett likes to use the S&P 500 index, so I also used the S&P 500 for this exercise.
Imagine if we could call recessions in real time, and if we could predict recoveries in advance. The following table shows the performance of a buy-and-hold strategy (with dividend reinvestment), compared to a strategy of market timing based on 1) selling when a recession starts, and 2) buying 6 months before a recession ends.
For the buy and sell prices, I averaged the S&P 500 closing price for the entire month (no cherry picking price ' just cherry picking the timing with 20/20 hindsight).
I assumed an investor started at four different times, in January of 1970, 1980, 1990, and 2000 [UPDATE: added 2010 start].
Earlier:
' Summary for Week Ending March 8th
The key reports for this week will be the February retail sales report on Wednesday, and February Industrial Production on Friday.
Also for manufacturing, the March NY Fed (Empire state) survey will be released on Friday.
For prices, CPI and PPI for February will be released.
Here is the unofficial problem bank list for Mar 8, 2013.
Changes and comments from surferdude808:
The FDIC got back to closing a bank this week and terminated an action. In all, there were three removals this week that leave the Unofficial Problem Bank List at 805 institutions with assets of $296.4 billion. A year ago, the list held 956 institutions with assets of $383.4 billion.Earlier:FDIC terminated the action against Bank of the Cascades, Bend, OR ($1.3 billion Ticker: CACB). Mojave Desert Bank, National Association, Mojave, CA ($104 million) merged through an unassisted acquisition with Mission Bank, Bakersfield, CA. As hard as it may be to believe, Georgia lost another bank this week, which is the 85th failure in the state at a cost of $11.4 billion since the on-set of the financial crisis. Frontier Bank, LaGrange, GA ($259 million Ticker: FIEC) failed after being under a Consent Order issued on February 15, 2012.
Next week, we anticipate the OCC will release its actions through mid-February 2013.
From the Association of American Railroads (AAR): AAR Reports Mixed Rail Traffic for February, Gains for Week Ending March 2
Intermodal traffic in February 2013 totaled 983,078 containers and trailers, up 10.5 percent (93,231 units) compared with February 2012. That percentage increase represents the biggest year-over-year monthly gain since December 2010. The weekly average of 245,770 intermodal units in February was the highest weekly average for any February in history.Carloads originated in February totaled 1,113,843 carloads, down 1.1 percent (12,562 carloads) compared with the same month last year. However, carloads excluding coal and grain were up 4.5 percent (25,311 carloads) in February 2013 over February 2012.
'Rail intermodal traffic continues to grow. In February, year-over-year intermodal volume on U.S. railroads rose for the 39th straight week, and February saw the first double-digit year-over-year increase in two years,' said AAR Senior Vice President John T. Gray. 'Shippers find intermodal appealing for a lot of reasons, including fuel savings, higher trucking costs, and service that has become much better in recent years.'
emphasis added
Click on graph for larger image. This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA). Green is 2013.
Commodities with carload gains on U.S. railroads in February 2013 over February 2012 included many of the usual suspects, led by petroleum and petroleum products (up 21,326 carloads, or 64.2% ...); crushed stone, gravel, and sand (up 10,759 carloads, or 17.2%...); motor vehicles and parts (up 1,722 carloads, or 2.6% ...); and lumber and wood products (up 1,310 carloads, or 10.4% ...). ...Note that building related commodities were up.Excluding coal and grain, U.S. rail carloads were up 4.5% (25,311 carloads) in February 2013 over February 2012
The second graph is for intermodal traffic (using intermodal or shipping containers):
Graphs and excerpts reprinted with permission.
Intermodal traffic is almost off the chart ...
Excluding coal and grain, U.S. rail carloads were up 4.5% (25,311 carloads) in February 2013 over February 2012Intermodal will probably set a new record in 2013.
Earlier on the employment report:
' February Employment Report: 236,000 Jobs, 7.7% Unemployment Rate
' Employment Report Comments and more Graphs
' All Employment Graphs
From the FDIC: HeritageBank of the South, Albany, Georgia, Assumes All of the Deposits of Frontier Bank, LaGrange, Georgia
As of December 31, 2012, Frontier Bank had approximately $258.8 million in total assets and $224.1 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $51.6 million. ... Frontier Bank is the fourth FDIC-insured institution to fail in the nation this year, and the first in Georgia.It is Friday! And this is the first failure in Georgia this year (it took until March for a bank to fail in Georgia - the economy must be improving!)
Earlier on the employment report:
' February Employment Report: 236,000 Jobs, 7.7% Unemployment Rate
' Employment Report Comments and more Graphs
' All Employment Graphs
WARNING: Don sunglasses before reading! :-)
Clearly the economy was picking up before the sequestration budget cuts. We will find out over the next two months how much the budget cuts will slow the economy.
In a research note last night, Goldman Sachs economists asked: Are We Already over the Hump?
In our annual forecast rollout last November, we predicted that the US economy would move 'over the hump' of fiscal contraction, with still-sluggish growth in most of 2013 followed by a gradual acceleration to an above-trend pace in late 2013 and 2014. But the recent data raise the tantalizing prospect that the 'hump' may already have occurred. ... The most visible data point is the strong February employment report showing a nonfarm payroll gain of 236,000 and a drop in the unemployment rate to 7.7%. But arguably the more important one is the apparent resilience of consumer spending despite the $200bn tax increase that took effect in January. ... In our view, it is still too early to close the books on the early-2013 consumption slowdown. After all, we only have auto sales and consumer confidence in hand for February so far. And we still think that the weakness in federal spending will restrain growth in coming quarters. But if consumption picture holds up in light of upcoming data, a modest upward adjustment to our growth forecast would probably make sense.The key report for the week was the February employment report. The BLS reported 236,000 payroll jobs added and the unemployment rate declined to 7.7%; this is the lowest unemployment rate since 2008 (246,000 private sector jobs, and another 10,000 public sector jobs lost). Overall this was a solid report and above expectations, although there is still a long way to go.
emphasis added
The ISM non-manufacturing index (service) increased (highest since February 2012), weekly initial unemployment claims declined (lowest 4 week average since March 2008), the ADP employment report was above expectations, and mortgage delinquencies declined.
The only negative was the increase in the trade deficit, but overall the data was better than expected.
Here is a summary of last week in graphs:
' February Employment Report: 236,000 Jobs, 7.7% Unemployment Rate
Click on graph for larger image.
"Total nonfarm payroll employment increased by 236,000 in February, and the unemployment rate edged down to 7.7 percent." The headline number was above expectations of 171,000 payroll jobs added. Employment for January was revised lower, but jobs added in December was revised higher.
NOTE: This graph is ex-Census meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes.
The second graph shows the unemployment rate.
The unemployment rate decreased to 7.7% from 7.9% in January.
The third graph shows the employment population ratio and the participation rate.
The Labor Force Participation Rate decreased slightly to 63.5% in February (blue line. This is the percentage of the working age population in the labor force.
The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although a significant portion of the recent decline is due to demographics.
The Employment-Population ratio was unchanged at 58.6% in February (black line).
The fourth graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.
This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.
This was a fairly solid employment report and better than expectations.
' ISM Non-Manufacturing Index indicates faster expansion in February
The February ISM Non-manufacturing index was at 56.0%, up from 55.2% in January. The employment index decreased in February to 57.2%, down from 57.5% in January. Note: Above 50 indicates expansion, below 50 contraction.
This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.
This was above the consensus forecast of 55.0% and indicates faster expansion in February than in January.
' Trade Deficit increased in January to $44.4 Billion
The first graph shows the monthly U.S. exports and imports in dollars through January 2013.
"[T]otal January exports of $184.5 billion and imports of $228.9 billion resulted in a goods and services deficit of $44.4 billion, up from $38.1 billion in December, revised. January exports were $2.2 billion less than December exports of $186.6 billion. January imports were $4.1 billion more than December imports of $224.8 billion."
The trade deficit was above the consensus forecast of $43.0 billion.
Exports are 11% above the pre-recession peak and up 3.3% compared to January 2012; imports are near the pre-recession peak, and down 1% compared to January 2012.
The second graph shows the U.S. trade deficit, with and without petroleum, through January.
The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.
The increase in the trade deficit in January was mostly due to an increase in the volume of petroleum imports.
Oil averaged $94.08 per barrel in January, down slightly from $95.16 in December.
The trade deficit with China increased to $27.8 billion in January, up from $26.0 billion in January 2012. Most of the trade deficit is still due to oil and China.
' Weekly Initial Unemployment Claims decrease to 340,000
This graph shows the 4-week moving average of weekly claims since January 2000.
"In the week ending March 2, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 7,000 from the previous week's revised figure of 347,000."
The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 348,750 - this is the lowest level since March 2008.
Weekly claims were below the 355,000 consensus forecast. Note: Claims might increase soon due to the "sequestration" budget cuts.
' Q4 Flow of Funds: Household Mortgage Debt down $1.2 Trillion from Peak
The Federal Reserve released the Q4 2012 Flow of Funds report this week: Flow of Funds.
This graph shows homeowner percent equity since 1952.
Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.
In Q4 2012, household percent equity (of household real estate) was at 46.6% - up from Q3, and the highest since Q1 2008. This was because of both an increase in house prices in Q4 (the Fed uses CoreLogic) and a reduction in mortgage debt.
This graph shows household real estate assets and mortgage debt as a percent of GDP.
Mortgage debt declined by $6 billion in Q4. Mortgage debt has now declined by $1.2 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates). It appears the rate of decline is slowing.
The value of real estate, as a percent of GDP, was up in Q4 (as house prices increased), but is just above the lows of the last 30 years. However household mortgage debt, as a percent of GDP, is still historically very high, suggesting still more deleveraging ahead for certain households.
' CoreLogic: House Prices up 9.7% Year-over-year in January
From CoreLogic: CoreLogic Home Price Index Rises by Almost 10 Percent Year Over Year in January
This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.
The index was up 0.7% in January, and is up 9.7% over the last year.
The index is off 26.4% from the peak - and is up 10.1% from the post-bubble low set in February 2012.
From the BLS:
Total nonfarm payroll employment increased by 236,000 in February, and the unemployment rate edged down to 7.7 percent ...
...
The change in total nonfarm payroll employment for December was revised from +196,000 to +219,000, and the change for January was revised from +157,000 to +119,000.
Click on graph for larger image.The headline number was above expectations of 171,000 payroll jobs added. Employment for January was revised lower, but jobs added in December was revised higher.
NOTE: This graph is ex-Census meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes.
The second graph shows the unemployment rate.
The unemployment rate decreased to 7.7% from 7.9% in January.
The unemployment rate is from the household report and the household report showed only a small increase in employment.
The third graph shows the employment population ratio and the participation rate.
The Labor Force Participation Rate decreased slightly to 63.5% in February (blue line. This is the percentage of the working age population in the labor force.
The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although a significant portion of the recent decline is due to demographics.
The Employment-Population ratio was also unchanged at 58.6% in February (black line). I'll post the 25 to 54 age group employment-population ratio graph later.
The fourth graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.
This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.
This was a fairly solid employment report and better than expectations. I'll have much more later ...
With housing for sale inventory still low, I expect to see some upward revisions to 2013 house price forecasts. The consensus is for prices to increase about 3% this year. From Merrill Lynch tonight:
Paying homage to home prices. Our mortgage strategists and economists provide an upbeat assessment of the January CoreLogic release that showed US home prices rising nearly 10% annually (Jan-Jan). That leaves "substantial upside risk to our 2013 HPA forecast of 4.7%".Thursday economic releases:
' Also at 8:30 AM, Trade Balance report for January from the Census Bureau. The consensus is for the U.S. trade deficit to increase to $43.0 billion in January from $38.5 billion in December.
' At 12:00 PM, Q4 Flow of Funds Accounts of the United States from the Federal Reserve will be released.
' At 3:00 PM, Consumer Credit for January from the Federal Reserve. The consensus is for credit to increase $15.0 billion in January.
Imagine going six months without a manufactured crisis? Maybe it will happen. I expect the Senate will restore some of the sequestration cuts, but this sounds like a little progress.
From the NY Times: Moving First on Budget, House Passes Funding Bill
The House on Wednesday easily passed legislation to keep the government financed through September, raising pressure on the Senate to quickly follow suit before the current financing runs out on March 27.The House bill gives military and veterans programs some breathing room under the automatic spending cuts that took effect on Friday by increasing financing for Pentagon priorities.
But domestic programs are left largely unprotected from cuts of up to 11 percent under the so-called sequestration.
Senator Barbara Mikulski of Maryland ... said she would demand the kind of changes the House afforded military programs for at least some of the domestic side of the spending bill. That way Congress can prioritize programs that lift economic growth now, like transportation and infrastructure, and strengthen future economic growth through science and technology, even within the strictures of across-the-board cuts.
...
Senator Mitch McConnell of Kentucky, the Republican leader, said Republican leaders in the House and Senate accepted that Senate Democrats would want to put their mark on the spending plan. He was still sanguine that a final measure would reach President Obama in time for Congress's two-week spring recess, set to begin on March 23.
The DOL reports:
In the week ending March 2, the advance figure for seasonally adjusted initial claims was 340,000, a decrease of 7,000 from the previous week's revised figure of 347,000. The 4-week moving average was 348,750, a decrease of 7,000 from the previous week's revised average of 355,750.The previous week was revised up from 344,000.
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 decreased to 348,750 - this is the lowest level since March 2008.
Weekly claims were below the 355,000 consensus forecast. Note: Claims might increase soon due to the "sequestration" budget cuts.
From the MBA: Mortgage Applications Increase as Rates Drop in Latest MBA Weekly Survey
The Refinance Index increased 15 percent from the previous week and was at its highest level since mid-January. The seasonally adjusted Purchase Index also increased 15 percent from one week earlier and was at its highest level since the week ending February 1.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.70 percent from 3.77 percent, with points decreasing to 0.39 from 0.48 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Click on graph for larger image.The first graph shows the refinance index.
There has been a sustained refinance boom for over a year, and 77 percent of all mortgage applications are for refinancing.
Refinance activity will probably slow in 2013.
The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index has generally been trending up (slowly) over the last six months.
This index will probably continue to increase as conventional home purchase activity increases.
Back in October, ADP revised their methodology for estimating changes in private employment. Here is a table of the four releases since the methodology was changed.
Fannie Mae reported that the Single-Family Serious Delinquency rate declined in January to 3.18% from 3.29% in December 2012. The serious delinquency rate is down from 3.90% in January 2012, and this is the lowest level since March 2009.
The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.
Freddie Mac has not reported for January yet.
Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".
Click on graph for larger image
Although this indicates some progress, the "normal" serious delinquency rate is under 1%. At the recent pace of improvement, it will take several years until the rates are back to normal.
Dude, Where's my inventory?
Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'll be tracking inventory weekly for the next few months.
If inventory does bottom, we probably will not know for sure until late in the year. In normal times, there is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.
The NAR data is monthly and released with a lag. However Ben at Housing Tracker (Department of Numbers) kindly sent me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year.
In 2010 (blue), inventory followed the normal seasonal pattern, however in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.
So far - through early March - it appears inventory is increasing at a sluggish rate. Housing Tracker reports inventory is down -23.2% compared to the same week in 2012 - still falling fast year-over-year.
Click on graph for larger image.
Note: the data is a little weird for early 2011 (spikes down briefly).
The key will be to see how much inventory increases over the next few months. In 2010, inventory was up 8% by early March, and up 15% by the end of March.
For 2011 and 2012, inventory only increased about 5% at the peak and then declined for the remainder of the year.
So far in 2013, inventory is only up 3.4%. If inventory doesn't increase more soon, then the bottom for inventory might not be until 2014.
Here is some investment data from the BEA (Note: The BEA released the underlying details for the Q4 second GDP report on Friday). The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased slightly, but from a very low level.
Investment in offices is down about 55% from the recent peak (as a percent of GDP). With the high office vacancy rate, investment will probably not increase significantly (as a percent of GDP) for several years - even though there has been some increase in the Architecture Billings Index lately.
Click on graph for larger image.
Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 63% from the peak (note that investment includes remodels, so this will not fall to zero). The vacancy rate for malls is still very high, so investment will probably stay low for some time.
Lodging investment peaked at 0.32% of GDP in Q2 2008 and is down about 73%. With the hotel occupancy rate close to normal, it is possible that hotel investment will increase this year.
The second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).
Usually the most important components are investment in single family structures followed by home improvement.
Investment in single family structures is now increasing after mostly moving sideways for almost three years (the increase in 2009-2010 was related to the housing tax credit).
Investment in home improvement was at a $159 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.0% of GDP), still above the level of investment in single family structures of $143 billion (SAAR) (or 0.9% of GDP). Single family structure investment will probably overtake home improvement as the largest category of residential investment later this year.
Brokers' commissions increased slightly in Q4 as a percent of GDP. And investment in multifamily structures increased in Q4. This is a small category, and even though investment is increasing, the positive impact on GDP will be relatively small.
These graphs show there is currently very little investment in offices, malls and lodging. And residential investment is starting to pickup, but from a very low level.
The first imperative will be to judge what constitutes a substantial improvement in the outlook for the labor market. Federal Reserve research concludes that the unemployment rate is probably the best single indicator of current labor market conditions. In addition, it is a good predictor of future labor market developments. Since 1978, periods during which the unemployment rate declined 1/2 percentage point or more over two quarters were followed by further declines over the subsequent two quarters about 75 percent of the time.That said, the unemployment rate also has its limitations. As I noted before, the unemployment rate may decline for reasons other than improved labor demand, such as when workers become discouraged and drop out of the labor force. In addition, while movements in the rate tend to be fairly persistent, recent history provides several cases in which the unemployment rate fell substantially and then stabilized at still-elevated levels. For example, between the fourth quarter of 2010 and the first quarter of 2011, the unemployment rate fell 1/2 percentage point but was then little changed over the next two quarters. Similarly, the unemployment rate fell 3/4 percentage point between the third quarter of 2011 and the first quarter of 2012, only to level off over the subsequent spring and summer.
To judge whether there has been a substantial improvement in the outlook for the labor market, I therefore expect to consider additional labor market indicators along with the overall outlook for economic growth. For example, the pace of payroll employment growth is highly correlated with a diverse set of labor market indicators, and a decline in unemployment is more likely to signal genuine improvement in the labor market when it is combined with a healthy pace of job gains.
The payroll employment data, however, also have shortcomings. In particular, they are subject to substantial revision. When the Labor Department released its annual benchmarking of the establishment survey data last month, it revised up its estimate of employment in December 2012 by 647,000.
In addition, I am likely to supplement the data on employment and unemployment with measures of gross job flows, such as job loss and hiring, which describe the underlying dynamics of the labor market. For instance, layoffs and discharges as a share of total employment have already returned to their pre-recession level, while the hiring rate remains depressed. Therefore, going forward, I would look for an increase in the rate of hiring. Similarly, a pickup in the quit rate, which also remains at a low level, would signal that workers perceive that their chances to be rehired are good--in other words, that labor demand has strengthened.
I also intend to consider my forecast of the overall pace of spending and growth in the economy. A decline in unemployment, when it is not accompanied by sufficiently strong growth, may not indicate a substantial improvement in the labor market outlook. Similarly, a convincing pickup in growth that is expected to be sustained could prompt a determination that the outlook for the labor market had substantially improved even absent any substantial decline at that point in the unemployment rate.
emphasis added
Earlier:
' Summary for Week Ending March 1st
The key report this week is the February employment report on Friday.
Other key reports include the ISM service index on Tuesday, and the Trade Balance report on Thursday.
Also, the Federal Reserve will release the Q4 Flow of Funds report on Thursday.
There was only one removal this week to the Unofficial Problem Bank List. After removal, the list holds 808 institutions with assets of $298.1 billion. From last week, assets fell by $4.7 billion with $4.0 billion of the decline in assets during the fourth quarter. A year ago, the list held 959 institutions with assets of $385.4 billion. According to an SEC filing, the FDIC terminated the action against Bank of Granite, Charlotte, NC ($717 million Ticker: FNBN).This week the FDIC issued industry results for the fourth quarter including an update on the Official Problem Bank List. While the FDIC does not disclose institutions on the official list, they provided an institution count of 651 with assets of $233 billion. During the quarter, the official list declined by 43 institutions and assets dropped $29 billion. Since the last FDIC release, the unofficial list declined by 66 institutions and assets dropped $36.9 billion. After the FDIC released problem bank figures for the second quarter of 2010, the unofficial list has been higher since while it was lower at the time of prior quarterly releases. The upside tracking difference peaked at 185 institutions and assets of $72.6 billion when second quarter of 2012 figures were released. With the current release, the differences have been reduced to 157 institutions and assets of $65.0 billion.
Because the FDIC does not publish the official list, a proxy or unofficial list can be developed by reviewing press releases and published formal enforcement actions issued by the three federal banking regulators, reviewing SEC filings, or through media reports and company announcements describing that the bank is under a formal enforcement action. For the most part, the official problem bank list is comprised of banks with a safety & soundness CAMELS composite rating of 4 or 5 (the banking regulators use the FFIEC rating system known as CAMELS, which stands for the components that receive a rating including Capital adequacy, Asset quality, Management quality, Earnings strength, Liquidity strength, and Sensitivity to market risk. A composite rating is assigned from the components, but it does not result from a simple average of the components. The composite and component rating scale is from 1 to 5, with 1 being the strongest). Customarily, a banking regulator will only issue a safety & soundness formal enforcement when a bank has a composite CAMELS rating of 4 or 5, which reflects an unsafe & unsound financial condition that if not corrected could result in failure. There is high positive correlation between banks with a safety & soundness composite rating of 4 or worse and those listed on the official list. For example, many safety & soundness enforcement actions state in their preamble that an unsafe & sound condition exists, which is the reason for action issuance.
Since 1991, the banking regulators have statutorily been required to publish formal enforcement actions. For many reasons, the banking regulators have a general discomfort publishing any information on open banks especially formal enforcement actions, so not much energy is expended on their part ensuring the completeness of information in the public domain or making its retrieval simple. Given the difficulty for easy retrieval of all banks operating under a safety & soundness formal enforcement action, the unofficial list fills this void as a matter of public interest.
All of the banks on the unofficial list have received a safety & soundness formal enforcement action by a federal banking regulator or there is other information in the public domain such as an SEC filing, media release, or company statement that describe the bank being issued such an action. No confidential or non-public information supports any bank listed and a hypertext link to the public information is provided in the spreadsheet listing. The publishers make every effort to ensure the accuracy of the unofficial list and welcome all feedback and any credible information to support removal of any bank listed erroneously.
by Bill McBride on 3/01/2013 10:00:00 PM
It was interesting week. In testimony to Congress, Fed Chairman Ben Bernanke made it clear he will keep the "pedal to the metal" with monetary policy. Meanwhile, Congress keeps tapping on the fiscal policy brakes, this time with "sequestration" budget cuts.
However, even with conflicting policy, the economy is doing OK - at least so far in 2013.
New Home sales in January were at the highest level since July 2008, auto sales were up again in February, the ISM manufacturing index for February was at the highest level since June 2011, weekly initial unemployment claims declined, and consumer sentiment increased. All were better than expected, and it appears the economy was improving before the sequestration budget cuts on March 1st - even with the payroll tax increase this year (although personal consumption expenditures were only up slightly in January).
Also Case-Shiller reported that house prices were up 6.8% in 2012 and finished the year strong. This year-over-year increase strongly suggests house prices bottomed in early 2012.
The ongoing housing recovery and solid auto sales (both leading indicators) suggest the economy will continue to grow for next few years.
Here is a summary of last week in graphs:
' New Home Sales at 437,000 SAAR in January
Click on graph for larger image in graph gallery.
The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate (SAAR) of 437 thousand. This was up from a revised 378 thousand SAAR in December (revised up from 369 thousand).
January is seasonally the weakest month of the year for new home sales, so January has the largest positive seasonal adjustment. Also this was just one month with a sales rate over 400 thousand - and we shouldn't read too much into one month of data. But this was the highest level since July 2008 and it is clear the housing recovery is ongoing.
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 just above the record low. The combined total of completed and under construction is also just above the record low.
This was above expectations of 381,000 sales in January. This is the strongest sales rate since 2008. This was another solid report.
From Freddie Mac: Freddie Mac Fourth Quarter 2012 Financial Results
Net income for the fourth quarter of 2012 was $4.5 billion, compared to $2.9 billion for the third quarter of 2012. The increase primarily reflects a shift from a provision for credit losses in the third quarter to a benefit for credit losses in the fourth quarter due to a decrease in the volume of newly delinquent single-family loans and continued improvement in national home prices, as well as a higher income tax benefit primarily driven by the favorable resolution of tax matters with the Internal Revenue Service (IRS). These favorable impacts were partially offset by higher net security impairments.On Real Estate Owned (REO), Freddie acquired 82,818 properties in 2012, and disposed of 94,296, and the total REO fell to 49,077 at the end of the year.
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Freddie Mac does not require a draw from Treasury for the fourth quarter of 2012 because the company had positive net worth at December 31, 2012. The company's $8.8 billion net worth at December 31, 2012 reflects $4.9 billion in net worth at September 30, 2012 and fourth quarter comprehensive income of $5.7 billion, partially offset by the $1.8 billion quarterly dividend payment to Treasury on the company's senior preferred stock.
From Freddie:
In 2012, REO dispositions continued to exceed the volume of REO acquisitions. We believe our single-family REO acquisition volume in 2012 and 2011 was less than it otherwise would have been due in part to the length of the single-family foreclosure timeline, particularly in states where judicial foreclosures (those conducted under the supervision of the court) are required.During 2012, our REO property inventory declined most in the West region primarily due to increased disposition activity and strengthening home prices in California.
The North Central region comprised 42 percent of our REO property inventory at December 31, 2012. We continue to have a significant number of properties in our REO inventory that we are unable to list because they are occupied or in states with a redemption period, particularly in Michigan, Minnesota and Illinois. States with redemption periods require a period of time after foreclosure during which the borrower may reclaim the property.
Click on graph for larger image.This graph shows REO inventory for Freddie.
For FDIC insured institutions, the FDIC reports the dollar value of REOs, and the dollar value declined again in Q4. After Fannie announces results I'll post a graph of REO for the F's (Fannie, Freddie, and the FHA).
There are several key economic releases on Friday. First, the Personal Income and Outlays report for January will be released. This will give some idea of how consumer spending is holding up following the payroll tax increase at the beginning of the year. Note that Personal Income will be off sharply in January since some people took income in December to avoid higher taxes in 2013. Don't be shocked by a large one month decline in income!
Another key release is light vehicles sales for February. The automakers will release results all day, and I'll post an estimate of the seasonally adjusted annual sales rate around 4 PM ET. Strong auto sales in February, combined with the ongoing housing recovery, would be a positive sign for the economy going forward.
As always, the ISM manufacturing index could move the markets. The regional surveys have been mixed, although the Markit Flash PMI was fairly strong, and the Chicago PMI increased in February.
Friday economic releases:
' At 8:30 AM ET, Personal Income and Outlays for January. The consensus is for a 2.1% decrease in personal income in January, and for 0.2% increase in personal spending. And for the Core PCE price index to increase 0.2%.
' At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (final for February). The consensus is for a reading of 76.0.
' At 10:00 AM, ISM Manufacturing Index for February. The consensus is for PMI to decline to 52.8%. (above 50 is expansion).
' Also at 10:00 AM, Construction Spending for January. The consensus is for a 0.6% increase in construction spending.
' All day: Light vehicle sales for February. The consensus is for light vehicle sales to be at 15.2 million SAAR in February (Seasonally Adjusted Annual Rate) down from 15.3 SAAR in January.
The BEA released the Personal Income and Outlays report for January:
Personal income decreased $505.5 billion, or 3.6 percent ... in January, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $18.2 billion, or 0.2 percent.The following graph shows real Personal Consumption Expenditures (PCE) through January (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.
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Real PCE -- PCE adjusted to remove price changes -- increased 0.1 percent in January, the same increase as in December. ... PCE price index -- the price index for PCE increased less than 0.1 percent in January, in contrast to a decrease of less than 0.1 percent in December. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of less than 0.1 percent.
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Personal saving -- DPI less personal outlays -- was $283.9 billion in January, compared with $797.4 billion in December. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 2.4 percent in January, compared with 6.4 percent in December.
Click on graph for larger image.
The dashed red lines are the quarterly levels for real PCE. Personal spending increased about as expected in January.
Ignore the sharp decline in income and decline in the saving rate - that decline was because some people took income in December to avoid higher taxes in 2013.
Note: Q4 GDP growth was revised up from slightly negative to slightly positive. From the BEA:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.1 percent in the fourth quarter of 2012 ... In the advance estimate, real GDP declined 0.1 percent.I'll have more on GDP later.
The DOL reports:
In the week ending February 23, the advance figure for seasonally adjusted initial claims was 344,000, a decrease of 22,000 from the previous week's revised figure of 366,000. The 4-week moving average was 355,000, a decrease of 6,750 from the previous week's revised average of 361,750.The previous week was revised up from 362,000.
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 decreased to 355,000 - just above the lowest 4-week average since the recession.
Weekly claims were below the 360,000 consensus forecast.
From economist Tom Lawler:
Yesterday the FDIC released its 'Quarterly Banking Profile' for Q4/2012. Some of the 'headline highlights' from the report, which reflects the activity at and performance of FDIC-insured financial institutions, were:
'Net Income Is More Than a Third Higher Than in Fourth Quarter 2011' despite the fact that 'Banks See (Net Interest) Margins Erode,' as net income was '(bolstered by higher noninterest income and lower provisions for loan losses.' The jump in noninterest income was driven 'primarily by higher gains on loan sales (up $2.4 billion, or 132.4 percent, over fourth quarter 2011), increased trading revenue (up $1.9 billion, or 75.3 percent), and reduced losses on sales of foreclosed property (down $1.2 billion, or 72 percent).' The higher gains on loans sales were driven by gains on sales of mortgages ' partly reflecting higher origination volumes, but mainly reflecting extraordinarily large mortgage origination margins, which in turn partly reflected the unintended consequences of current government policy.
According to the report, the percent of loans and leases that were 'noncurrent' last quarter fell to 3.60% -- the lowest rate since the end of 2008 ' from 3.68% in the previous quarter and 4.19% in the fourth quarter of 2011. The % of loans secured by one-to-four family residential properties that were noncurrent last quarter was actually up from the fourth quarter of 2011, partly reflecting higher default rates on junior mortgage loans.
From the WaPo: Obama to meet congressional leaders on ways to avoid sequester impact
President Obama will meet with congressional leaders Friday at the White House to discuss a way to avoid the fallout of deep spending cuts ...This will not have a huge negative impact (defaulting on the debt would have been serious), but this is still unnecessary.Among the sequester's possible impacts, the head of the Federal Aviation Administration warned Wednesday, are major flight delays and the closure of hundreds of air traffic control towers at smaller airports across the country.
'Flights to major cities like New York, Chicago and San Francisco could experience delays, in some instances up to 90 minutes during peak hours, because we'll have fewer controllers on staff,' FAA administrator Michael P. Huerta said in a speech to an American Bar Association forum in Washington. ... Should the cuts occur as scheduled, travelers would begin to notice the impact in mid-April, according to the [National Air Traffic Controllers Association].
Thursday economic releases:
' At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 360 thousand from 362 thousand last week.
' Also at 8:30 AM, Q4 GDP (second estimate). This is the second estimate of GDP from the BEA. The consensus is that real GDP increased 0.5% annualized in Q4, revised up from a negative 0.1% in the advance report.
' At 9:45 AM, the Chicago Purchasing Managers Index for February. The consensus is for a decrease to 55.0, down from 55.6 in January.
' At 11:00 AM, the Kansas City Fed regional Manufacturing Survey for February will be released. This is the last of the regional surveys for February, and most of the surveys have indicated expansion.
' Also at 11:00 AM, The Federal Reserve Bank of New York will release the Q4 2012 Quarterly Report on Household Debt and Credit
