Tuesday, May 31, 2011

Case Shiller: Existing Home Prices Fall 4.2% in Q1; New Recession Low

The U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter’s data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels.

The year-over-year decline accelerated to 3.6% for the 20-city index. The 10-city index declined 2.9% on a year-over-year basis. As with last month, one city, Washington, D.C., bucked this trend, posting a year-over-year increase of 4.3%.

5.31.11 (Source: Standard & Poors)

Friday, May 27, 2011

University of Michigan Consumer Sentiment Index Up 4.5 Points

The University of Michigan Consumer Sentiment Index gained 4.5 points in May, gaining back some of the ground lost in the large drop in March. Expectations drove most of the gain, increasing 7.9 points.

Inflation expectations were down from April 0.5 points.

5.27.11 (Source: University of Michigan)

Personal Income Up 0.4%; Revisions to March Bring Savings Rate Down

Personal income increased $46.1 billion, or 0.4%, the third month in a row at this growth rate.

Personal consumption expenditures (PCE) increased $41.5 billion, or 0.4%, slightly less than the increase of 0.5% in March.

Personal income was revised downward significantly from the April report, therefore the savings rate has been revised as well, and is at 4.9% for both March and April.

5.27.11 (Source: Bureau of Economic Analysis)

Thursday, May 26, 2011

Q1 GDP Unrevised at 1.8% Annualized

GDP remained essentially unchanged in the second estimate, at an annualized 1.8% increase.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investments. Federal government spending and state and local government spending were drags on growth.

Imports increased in the first quarter.

5.26.11 (Source: Bureau of Economic Analysis)

Tuesday, May 24, 2011

QBP Shows Banking Industry Gaining Strength

Today’s report shows that the banking industry continues to gain strength. For a year now, asset quality has steadily improved, loan losses have declined, and capital is at record highs. This forward momentum helps solidify the base for making new loans to bolster growth in the expanding economy.

Banks added nearly $25 billion in equity capital during the first quarter and total industry capital is now more than $1.5 trillion. Banks also have set aside more than $218 billion in reserves to cover possible loan losses. Capital plus reserves gives a total buffer protecting the industry of more than $1.7 trillion. This demonstrates strong industry-wide improvement and a continued build-up of underlying strength. In addition, the industry capital-to-assets ratio – a key measure of financial strength – continues to remain very strong and ended the quarter at an all-time high.

The fact that lending declined is not surprising, given the tepid recovery. The housing market is still drowning in an oversupply of existing homes and buyers remain hesitant. Business lending did improve slightly, but loan demand remains exceptional weak. Businesses are reluctant to invest in new equipment or hire new workers due to the lack of confidence in the economy.

The condition of borrowers seems to be improving, as seriously delinquent loans dropped to their lowest levels since second quarter 2009. In every loan category, the level of delinquent loans declined. In fact, non-current loans were down by $17 billion (4.7 percent) compared to last quarter.

The number of banks on the FDIC’s list of troubled institutions has stabilized. This reflects the fact that parts of the country are still recovering from the recession. Importantly, the FDIC continues to revise downward the expected cost of failures. The banking industry, which pays the full cost of any bank failure, is committed to maintaining the strength of the deposit insurance fund. Each depositor is fully insured up to $250,000, and there is full protection for non-interest bearing transaction accounts through the end of 2012. In the 78-year history of the FDIC, no depositor has ever lost a penny of insured deposits.

Navigating the ups and downs of the economy is nothing new to banking. Nearly 5,000 banks – or 64 percent – have been in business for more than 50 years, and one out of three banks has served its local community for more than a century. This demonstrates the staying power of banks and their commitment to serve local communities.

New Home Sales Rise 7.1%

New home sales rose 7.1% in March to a seasonally adjusted annual rate of 323,000, the second straight monthly rise and the highest level since December, the Commerce Department said yesterday. Despite the April increase, the market for new homes is being squeezed by competition from previously owned homes and a deluge of foreclosed properties.

The improvement in new home sales pushed the months’ supply of inventory down from 7.3 months in March to 6.5 months in April, the lowest since April 2010.

Thursday, May 19, 2011

Existing Home Sales Decrease 0.8%; Down 12.9% From Last Year

Existing home sales, as reported by the National Association of Realtors, decreased 0.8% to an annualized pace of 5.05 million units in April. All regions reported a decrease, with the exception of the Midwest, which reported an increase of 5.7%.

Based upon the current pace of sales, the inventory of existing homes rose to 9.2 months, up from 8.3 months of inventory reported in March.

5.19.11 (Source: National Association of Realtors)

Wednesday, May 18, 2011

District FRB Presidents Could Lose Vote on Monetary Policy

Representative Barney Frank (D - MA) has introduced legislation (H.R. 1512) that would remove the five rotating members who are representatives of District Federal Reserve Banks from the Federal Open Market Committee (FOMC).

The FOMC is the group that makes monetary policy within the Federal Reserve. The FOMC is currently composed of the seven members of the Board of Governors plus the five voting members from the twelve Federal Reserve Banks, although all twelve district Bank participate in the FOMC's policy discussions.

The bill would not affect the remaining seven seats held by members of the Federal Reserve Board of Governors, who are nominated by the President and confirmed by the Senate.

Read the bill.

Fed Outlines Principles for Normalizing Monetary Policy

The minutes from the April 26-27 Federal Open Market Committee (FOMC) outlined the principles that would guide the FOMC's strategy for normalizing monetary policy.

First, the pace and sequencing of the policy steps would be driven by the FOMC’s monetary policy objectives for maximum employment and price stability.

Second, the size of the securities portfolio would be reduced over the intermediate term to a level consistent with the implementation of monetary policy through the management of the federal funds rate rather than through variation in the size or composition of the Federal Reserve’s balance sheet.

Third, over the intermediate term, normalization would require the Federal Reserve's balance sheet to return to holding only Treasury securities. This would minimize the extent to which the Federal Reserve's portfolio might affect the allocation of credit across sectors of the economy. This means the Federal Reserve would have to sell agency securities that it is holding in its portfolio.

Fourth, asset sales would be communicated to the public in advance and at a pace that potentially could be adjusted in response to changes in economic or financial conditions.

Tuesday, May 17, 2011

Industrial Production Unchanged; Manufacturing Output Up 0.2%

Industrial production was unchanged for the month of April, led by a sharp decline in automobile output, caused by parts shortages following the Japan earthquake and tsunami.

Manufacturing output was down 0.4% for the month of April. However, removing automobile production from the mix, output was up slightly, 0.2%.

The rate of capacity utilization for total industry edged down 0.1 percentage point to 76.9 percent, a rate 3.5 percentage points below its average from 1972 to 2010.

5.17.11 (Source: Federal Reserve)

April Housing Starts Down 10.6% From March

After an increase in March, housing starts fell back to December 2010 levels. Both the Midwest and the West reported increases in housing starts in April, but the Northeast and the South reported lower level of starts overriding the increase. Housing starts are down almost 24 percent from April 2010 levels.

The level of construction permits also dropped 4.0% in April. Permits are now down 12.8% on a year-over-year basis.

5.17.11 (Source: US Census Bureau)

Friday, May 13, 2011

CPI Up 0.4%; Core Prices Up 0.2%

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported. Gasoline prices accounting for almost half of the seasonally adjusted all items increase.

Over the last 12 months, the all items index increased 3.2 percent before seasonal adjustment – the highest figure since October 2008.

The core CPI index for all items minus food and energy rose 0.2 percent in April, the third increase of that size in the last four months. The core CPI is up 1.3 percent over the last 12 months.

Read the press release.

Thursday, May 12, 2011

Retail Growth Pushed Up by Gas Station Sales

Retail sales grew at a slower rate for the month of April, although the March sales were revised up significantly, mostly due to rising prices at the gas pump. Gasoline prices are expected to moderate in the coming months.

Sales growth was mixed, with strong growth reported in grocery and non-store retailers and declines posted in appliances, sporting goods, furniture, and others.

The year-over-year gain was 7.6%, although many segments posted declines while segments such as gas stations posted large gains.

05.12.11 (Source: US Census Bureau)

PPI: Headline up 0.8%; Core Prices Up 0.3%

The Producer Price Index (PPI) continued its upward march in the month of April, with increases in both the headline and core prices.

PPI was up 0.8% in April, an increase that was mostly due to increases in energy prices, which increased 2.5%. The year-over-year PPI is up 6.6%.

Core prices are up 0.3% for the month of April, helped by modest increases in passenger cars and light trucks. Core prices are up 2.2% on a year-over-year basis.

5.12.11 (Source: Bureau of Labor Statistics)

Tuesday, May 10, 2011

Weak Sales, Not Credit Availability, Hindering Small Businesses

Ninety-two percent of small business owners reported that all their credit needs were met or that they were not interested in borrowing in April, according to the National Federation of Independent Business. Only 8% of small business owners stated that not all of their credit needs were satisfied.

Thirty-two percent of all small business owners reported borrowing on a regular basis, 4 points above the record low.

For an overwhelming majority of small businesses, credit is not a problem as only 3% of small businesses reported credit supply as their number one business problem.

The report noted that banks have money to lend; but face weak loan demand. Despite money being cheap, business owners have no incentive to borrow to expand and invest in new equipment and new workers due to historically weak sales. Planned capital outlays over the next 3 to 6 months remain at recessionary levels.

Only 4% of small business owners stated that this is a good time to expand their operations.

Not surprisingly, the Small Business Optimism Index fell slightly in April.

Read the report.

Monday, May 9, 2011

Farm Banks Increase Ag Loans in 2010

Banks increased farm and ranch lending in 2010, providing the majority of all farm credit, according to the American Bankers Association Center for Agricultural & Rural Banking’s annual Farm Bank Performance Review.

In 2010, the U.S. banking industry held $127.4 billion in farm loans, which includes $68.7 billion in small farms loans with $22.7 billion of that in very small farm loans, according to the report. In 2009, the banking industry held $126 billion in farm loans. The number of small farm loans in 2010 reached nearly 1.2 million, with the vast majority – almost 900,000 – under $100,000.

“Banks continue to meet the credit needs of both large and small farms,” said John Blanchfield, senior vice president and director of the ABA Center for Agricultural & Rural Banking. “Farm income was up in 2010 on the strength of high commodity prices. This has translated into a solid performance on the part of our nation’s farm banks.”

“Farm banks” are defined by ABA as FDIC-insured banks with assets of less than $1 billion whose ratio of domestic farm loans to total domestic loans is greater than or equal to 13.95 percent in 2010.

Farm banks increased farm loans by 4.9 percent holding a total of $60 billion in loans by the end of 2010. The number of full-time employees at farm banks increased by more than 1 percent in 2010 totalling 76,337 jobs in rural communities.

“Thanks to the banking industry, rural Americans – especially the owners of small farms – are finding opportunities to finance their farms, ranches, businesses and homes,” Blanchfield said. “Of all financial service providers, banks provide the broadest array of products and services and are vital, long-term, tax-paying members of their communities.”

The study, which analyzed the performance of 2,236 farm banks in the United States, found:

• Total loans at farm banks grew 1.1 percent to $181.1 in 2010.

• Farm bank income, before taxes, totaled $3.1 billion, which was 33.6 percent higher than in 2009. In 2009, it was $2.3 billion.

• The average farm bank has three offices – two branches and a main office – and 34 employees.

• Farm banks hold $14.6 billion in loans $100,000 or smaller to small farmers and an additional $13.3 billion in loans between $100,000 and $250,000.

• Farm banks held approximately $292 billion in assets in 2010, up 4.5 percent from 2009.

A full copy of the report is available here.

Friday, May 6, 2011

Consumer Credit Grew in March; Sixth Consecutive Monthly Increase

The Federal Reserve reported that consumer credit grew at annual rate of 3% in March to $2.425 trillion. Both nonrevolving and revolving credit grew at a similar rate in March. March was the sixth consecutive monthly increase in total consumer credit.

Revolving credit increased in March for the second time in four months (the last increase was in December 2010) suggesting that it has reached an inflection point. In 29 of the last 31 months, outstanding revolving credit has declined.

In March, revolving credit expanded by 2.9% (annualized rate) to $796.1 billion; but is still 18.23 percent below its August 2008 peak.

Nonrevolving credit grew at an annual rate of 3% in March. This was the eighth consecutive monthly increase in nonrevolving consumer debt.

Read the G. 19 Report.

Private Sector Posts Solid Job Growth, Despite Unemployment Rate Edging Higher

Nonfarm payroll employment rose by 244,000 in April, and the unemployment rate edged up to 9.0 percent from 8.8 percent, according to the U.S. Bureau of Labor Statistics.

The number of unemployed persons increased by 205,000 to 13.7 million in April. The number of persons unemployed for less than 5 weeks increased by 242,000 in April, while the number of long-term unemployed (those jobless for 27 weeks and over) declined by 283,000 to 5.8 million.

The private sector added 268,000 jobs, as job gains occurred in several service-providing industries, manufacturing, and mining. However, the public sector continued its trend of shedding jobs.

"Although private sector job creation was solid, it was not enough to make a dent in the pool of unemployed Americans," commented Jim Chessen, chief economist for the American Bankers Association.

Read the press release.

Wednesday, May 4, 2011

ISM Non-Manufacturing Index Slows to 52.8; Still Indicates Growth

In April, the Institute for Supply Management's Non-Manufacturing Index fell by 4.5 points to 52.8. Despite the drop, the index still remains strong. A value over 50 denotes service sector activity growth. So a the decline still represents expansion, but just at a slower pace than what occurred in February. Recovery is continuing, albeit at the slowest rate since last August.

Looking at the details of the report, all areas slowed. The output component fell 6.0 points points to 53.7, while the employment component fell 1.8 points to 53.7. New orders fell 11.4 points to 52.7 and backlogged orders fell 0.5 points to 55.5. Even though there was slowing, all numbers remain over 50, indicating continued economic growth.

5.4.11 (Source: Institute for Supply Management)

ADP: Nonfarm Private Business Emplyment Up 179,000 in April

Nonfarm private business employment rose 179,000 from March to April on a seasonally adjusted basis, according to the latest ADP National Employment Report®. The report revised up the estimated change of employment from February 2011 to March 2011 to 207,000 from the previously reported increase of 201,000.

The report noted that "[w]hile employment accelerated sharply around the turn of the year, the monthly gains have been holding fairly steady around 200,000 since then. Employment growth at this pace is consistent with only modest declines in the unemployment rate."

Read the press release.

Pace of Announced Job Cuts Slowed in April

The pace of downsizing slowed in April, as employers announced plans to cut 36,490 jobs from their payrolls, 12% fewer than the 41,528 job cuts announced in March, according to Challenger, Gray & Christmas, Inc.

The April job-cut total was down 5% from the same month a year ago, when 38,326 planned layoffs were announced. The April announced job cuts was the lowest monthly total of the year and the third lowest over the last 16 months. Year-to-date, employers announced 167,239 job cuts, 24% fewer than the 219,509 layoffs by the same point last year.

The public sector announced 10,731 job cuts in April, bringing the year-to-date total to 52,660. However, the good news is that public sector layoffs were down 32% from a year ago.

Read the press release.

Monday, May 2, 2011

C&I Loan Demand Stronger, Standards Ease

As reported in the Federal Reserve Senior Loan Officer Opinion Survey, banks continued to ease standards and terms for C&I loans, and no bank reported tightening standards. The majority of respondents that had eased standards and terms on C&I loans cited increased competition from other banks and nonbank lenders as the most important reason for the easing. Some banks that had eased standards and terms also pointed to a more favorable or less uncertain economic outlook.

Survey responses indicating increases in demand for C&I loans from smaller firms were less widespread than for larger firms. Of the banks reporting stronger demand for C&I loans by firms of any size, substantial fractions indicated that the greater demand was due to an increase in customers’ financing needs for inventories, merger and acquisition activity, and accounts receivable, as well as to a reduction in borrowing from other banks and nonbank sources. The most often cited reason for stronger demand noted by larger banks was greater demand for financing merger and acquisition activity, whereas for other banks it was a rise in financing needs for inventories.

Jim Chessen, ABA Chief Economist commented:
The Senior Loan Officer Survey reveals that both banks and businesses alike are reacting to a warming economy. Banks are loosening credit terms, and businesses are choosing to take on more credit. This does not mean that the economy is out of the woods, but it is a good sign that things are improving.

In response to a special question about the credit quality of potential business borrowers, the overall credit quality of potential business borrowers over the past three months has improved. About 55 percent of domestic respondents reported improvements in the overall credit quality of large and middle-market loan applicants, while about 35 percent of domestic respondents reported improvements, on net, in the overall credit quality of small firms that applied for loans.

5.2.11 (Source: Federal Reserve Board)

ISM Manufacturing Index Down 0.8 Points to 60.4 – Index Above 60 for 4 Consecutive Months

The Institute for Supply Management's Manufacturing Index fell back slightly by 0.8 points in April to 60.4. Any value over 50 indicates growth in the manufacturing sector, so despite the modest decline, the index value is still very strong. As manufacturing activity had been very active and a driver of the economic recovery, some cooling has been expected and this decline is not a major sign of concern.

This is the second consecutive monthly decline as activity in many components cooled in April. Production eased from 69.0 to 63.8 and employment registered a slight decline of 0.3 points to 62.7.

New orders fell to 61.7 while inventories rose from 47.4 to 53.6. The gap between these two readings, an indicator of future production, narrowed from 15.9 in March to 8.1 in April, the narrowest reading since November.

Source: Institute for Supply Management

Construction Spending Up 1.4% – Biggest Increase in Residential

Construction spending increased 1.4% in March over February levels, after falling for three months. Although spending was up in all categories, the largest increase was in private residential spending, which increased 2.6% over February. Private non-residential spending increased 1.8% and public spending went up a meager 0.1%,the first increase since August 2010, despite being held back by freezes at state and federal levels of government.

On a year-ago basis, total construction spending for March was down 6.7%. During the first 3 months of this year, construction spending was 7.8% below the same period in 2010. Private residential spending was down 8.1% on a year-over-year basis, and private non-residential spending was down 10.2% over the same period. Public sector spending was down 2.3% from a year earlier.

5.2.11 (Source: U.S. Census Bureau)