Friday, December 21, 2012

Treasury Estimates TARP Auto Program Lifetime Cost of $24 Billion

Earlier this week, Treasury announced plans to sell its remaining TARP investment in General Motors (GM) within the next 12 to 15 months.

Treasury currently holds 500.1 million shares of GM common stock. Treasury has approved a plan in which GM will purchase 200 million shares of this common stock at $27.50 per share (a total of $5.5 billion). Treasury plans to sell the remaining 300.1 million shares through various means within the next 12 to 15 months. At current prices this would produce a loss of over $12 billion to taxpayer from the GM program alone.

The automotive industry was bailed out by Treasury at a total cost of $79.69 billion through TARP—GM received $49.5 billion of this. Including the upcoming purchase of common stock by GM, Treasury will have recovered less than $29 billion of the GM investment. As of November 30, Treasury estimated the automotive bailout to cost taxpayers $24.27 billion.

Earlier this week, Treasury announced that it expects to make significant additional progress winding down TARP’s bank programs in 2013. Overall, to date, through repayments and other income, Treasury has recovered more than $267.9 billion of the $245.1 billion disbursed through TARP bank programs. Treasury’s investment in banks has resulted in a net profit of $22.8 billion for taxpayers.

TARP legislation requires any TARP losses be recouped from the financial industry. However, this was established before TARP was expanded to non-bank sectors. This requirement needs to be reassessed to adequately reflect where TARP losses have occurred. Banks should not be responsible to pay for losses which they have not produced.

OCC: Q3 Mortgage Quality Up from a Year Ago

The overall quality of first-lien mortgages serviced by large national and federal savings banks improved from the same period a year ago but declined slightly from the prior quarter, according to a report released by the Office of the Comptroller of the Currency (OCC).

The OCC Mortgage Metrics Report for the Third Quarter of 2012 showed 88.6% of mortgages were current and performing at the end of the quarter, compared with 88.7% the prior quarter and 88.0% a year earlier. The percentage of mortgages that were seriously delinquent at the end of the quarter was 4.4%, the lowest level in three years.

Servicers initiated 252,604 new foreclosures during the third quarter of 2012, 95,124 fewer than the same period a year ago.

Servicers continued to emphasize alternatives to foreclosure during the quarter, as servicers implemented 382,899 home retention actions. This included 136,316 modifications, 131,403 trial-period plans, and 115,180 payment plans during the quarter.

Read the Report.

Consumer Sentiment Plunges as the Fiscal Cliff Approaches

Consumer Sentiment dropped almost 10 points to 72.9 in December according to the University of Michigan's Consumer Sentiment Index. The drop was considerably more than expected, as concerns regarding the fiscal cliff weighed on consumers. Both components of the index declined in December, however the decline was led by future expectations.

Consumer sentiment is extremely vulnerable the debate taking place in Washington. During the debt ceiling debate at the end of 2011, consumer sentiment dropped to levels lower than the middle of the most recent depression.

The present conditions portion of the index fell 3.7 points to 87.0. The majority of December's deterioration was seen in the future expectations portion of the index, which fell form 77.6 to 63.8, the lowest level since last december, when congress was debating the debt ceiling.

Inflationary expectations rose slightly in December, with one-year expectations rising to 3.2% and five-year expectations rising to 2.9%.

Personal Income Grew 0.6% in November

Personal income growth outpaced consumption growth in November, rising 0.6% and leading the savings rate to tick up slightly. November's growth was the fastest rate since February. Hurricane Sandy played a role in November's strength, as it depressed growth in October, leading to a rebound in November.

The improvement in personal income was welcome, as growth has averaged just 0.2% over the past 7 months. Real personal income preformed better than nominal rising 0.8% due to a falling PCE index. Wage income rose 0.6% in November as well, recovering from a 0.3% drop the previous month.

Consumption recovered in November, rising 0.4% over the month after falling in October. Consumption gains were led by durable goods purchases, which rose 2.7% over the month. Some of this strength is due to auto sales delayed by Sandy. Non-durable goods purchases fell for the second consecutive month in November, losing 1.0%.

Consumer prices, as measured by the PCE deflator, fell 0.2% in November, their first decline since May. Much of the decline was due to energy prices falling 4.4%. Core prices remained unchanged.

With income growth outpacing spending growth, the savings rate rose 0.2 points to 3.6%. November is the second month the savings rate has improved, putting it on par with August's level.

Read the BEA report.

Thursday, December 20, 2012

Existing Home Sales Surged in November

Existing home sales continued their strong recent trend in November, gaining 5.9% from the previous month to reach an annualized pace of 5.0 million units. November’s pace is 14.5% above the pace seen one year ago, this is the strongest growth in over three years. Although Hurricane Sandy caused disruptions in affected areas, gains elsewhere more than offset the weakness.

Although Hurricane Sandy caused disruptions in the Northeast, the region was resilient, seeing a 6.9% increase in home sales. The Midwest and South both saw strong gains in November as well, increasing 7.2% and 7.9% respectively. The West continues to lag the recovery, improving just 0.5% in November.

Distressed sales accounted for just 22% of sales in November, down from 24% the previous month and 29% one year ago. As a result of the falling share of distressed homes, median prices rose, reaching $180,600 in November, a 2.0% improvement month-over-month and 10.1% above year-ago levels.

The supply of existing homes on the market continues to tighten from historically low levels. Supply fell for the fifth consecutive month, reaching 4.8 months in November, its lowest level in over seven years. Supply of existing homes on the market is now 32% below year-ago levels.

Read the NAR report.

Third Quarter GDP Growth Revised Up to 3.1%

Real economic growth for the third quarter was revised up to 3.1% in the BEA’s final estimate released today. The upward revision puts third quarter growth 50% higher than the first estimate. This third and final estimate is higher than the second estimate of 2.7% and even higher than the initial estimate of 2.0%. Third quarter growth was the fastest pace seen all year.

Overall, third quarter GDP growth was led by consumption, with strong contributions from both government spending and inventory accumulation. Consumption contributed 1.1% to third quarter growth, up from the second quarter, but far from the strong levels seen at the end of last year continuing into the first quarter. Government spending provided its largest boost to growth in three years, adding 0.8% to growth. Inventory accumulation also made strong contributions to growth, adding 0.7%.

Although the strong third quarter growth is encouraging, it is unlikely that either the government or inventory contributions are sustainable. Strong inventories tend to be a bad sign for future growth, and government spending is expected to fall sharply in the coming year.

Compared to the previous estimate, the upward revisions were due primarily to improvements in trade, including more exports and fewer imports. Government spending, at both state and local levels also increased, reaching its largest contribution to growth in three years. Consumer spending also improved from the initial estimate. In fact, residential investment was the only category to see a downward revision.

Read the BEA report.

Wednesday, December 19, 2012

Housing Starts Slowed in November

New residential construction slowed somewhat in November, reaching an annual rate of 861,000 units, down from 888,000 the previous month. Despite November’s mild decline, housing starts remain 15% above levels seen as recently as August, at nearly the fastest pace since early 2008. In the past year, the pace of new home construction has increased 21.6%.

Single-family starts led the decline in November, falling 4.1% over the month. Despite the strong loss, single-family starts remain near their fastest pace in over four years and maintain a positive trend.

Permit issuance rose in November, rising 3.6% to an annual pace of 899,000 permits. Strong permit issuance points to a continuing recovery in housing construction. Total permit issuance is up 26.8% from year-ago levels.

Read the Census report.

Friday, December 14, 2012

Industrial Production Surged in November

Industrial production rose more than expected in November, gaining 1.1%, its strongest gain since 2010. November’s report included a large downward revision to October’s production as the impacts of Hurricane Sandy turned out to be greater than initially thought. Moreover, November’s strength is, in part, due to production that was delayed by the storm coming back online.

Manufacturing production rose 1.1% in November, with strong contributions form autos, which rose 4.5% over the month. Excluding autos manufacturing rose 0.8%. Durable goods production was strong in November, gaining 1.6%. Nondurable goods production rose 0.5% over the months as well.

Utilities production rose 1.0% in November and Mining rose 0.8%.

November’s strength pushed the capacity utilization rate up to 78.4%, a four-month high.

Read the Fed report.

Consumer Prices Fell in November

Consumer prices fell in November for the first time in six months, as sharp declines in energy prices outweighed modest increases in food and core prices. The consumer price index fell 0.3% in November, slightly more than expected. With the drop, consumer prices are now 1.8% above year-ago levels, down from 2.2% the previous month.

Core goods saw a modest 0.1% appreciation in November, slower than the 0.2% seen in October. Core prices are now 1.9% above year-ago levels, down from 2.0% the previous month. The appreciation in core prices was due entirely to services, which rose 0.2% over the month. Goods prices saw modest declines, falling 0.1%. Goods prices have now fallen in all of the past four months.

Energy prices fell 4.1% in November, offsetting some of their strong gains seen earlier in the year. In September and August energy prices rose 4.5% and 5.6% respectively. Food prices continued their appreciation in November, rising 0.2%.

Read the BLS report.

Thursday, December 13, 2012

Retail Sales Increased 0.3% in November

Retail sales reversed the previous month’s loss in November, rising 0.3%. Auto dealers were primarily responsible for the gain, as core sales (excluding autos and gasoline) rose by just 0.7%. Despite the modest overall rise there were big moves within individual segments. Year-over-year growth held steady at 3.7% in November.

Non-store retailers saw strong gains in November rising 3% over the previous month, about three times their recent average. The strong growth contributed 0.3% to overall growth. Electronics and appliances stores also saw strong growth, rising 2.5%. Rebuilding from Hurricane Sandy likely contributed to the strong 1.6% growth in sales at building materials stores.

Sales fell the most sharply at Gasoline stations, falling 4.0% over the month. The decline in gasoline sales was likely a direct result of lower gasoline prices. Sales also fell unusually sharply at general stores, which were down 0.9%.

Read the Census report.

Producer Prices Fell in November

Producer prices fell for the second consecutive month in November, dropping 0.8% over the month. A sharp drop in energy prices more than offset a modest rise in the prices of core goods and food. Finished core goods saw prices appreciate just 0.1% in November, rebounding from their 0.2% decline the previous month.

Prices for finished energy products fell 4.6% in November, the sharpest drop in over three years. The decline was driven almost entirely by a 10% plunge in gasoline prices. Food prices rose 1.3% in November, up from a moderate 0.4% the previous month.

Producer prices are now only 1.4% above year-ago levels, considerably weaker than the 2.3% reported last month. Producer price appreciation has slowed notably from the rapid pace seen over the summer and will likely drag on consumer prices in coming months.

Read the BLS report.

Wednesday, December 12, 2012

Federal Reserve to Increase Purchases and Introduce Explicit Targets: Updated

In its December meeting, the Federal Open Market Committee (FOMC) announced that they would begin a bond purchase program to offset the completion of “Operation Twist.” The program will add $45 billion in purchases to the existing bond purchases (QE3). In addition to the purchases, the FOMC announced explicit conditions under which it will hold rates low, dropping its pledge to keep rates low until mid-2015.

Under the additional bond purchases announced today, the Federal Reserve will purchase $45 billion per month in long-term treasuries. These purchases will be made in addition to the $40 billion monthly purchases of mortgage backed securities being purchased as a part of QE3. The additional purchases are designed to offset the expiration of “Operation Twist,” at the end of the year, which saw the Fed sell $45 billion in short-dated treasuries and purchase $45 billion in longer-term treasuries in an effort to depress long-term interest rates. The programs combined mean Fed purchases will rise to $85 billion per month. The Fed did not announce a completion date for the bond purchases, instead noting that “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate.”

In addition to the additional bond purchases, the FOMC announced for the first time ever the exact conditions under which it will hold interest rates low. As long as unemployment remains above 6.5% and inflation remains less than 0.5% above the committee’s long-run goal of 2% the fed funds rate will remain at its current near-zero levels. The FOMC also noted that long-term inflationary expectations must remain anchored. The introduction of explicit targets mean that the Fed has dropped its pledge to hold rates at exceptionally low levels through mid-2015, however “the Committee views these thresholds as consistent with its earlier date-based guidance.”

The FOMC noted that economic activity has continued to expand at a moderate pace in recent months, which has led the unemployment rate to improve. Despite the improvements the unemployment rate remains elevated. The committee also observed that inflation has been running somewhat below the long run objective of 2%.

There was one dissenting vote, from Jeffery Lacker, who opposed both the additional asset purchases as well as the introduction of explicit targets.


See Chairman Bernanke's Press Conference

FOMC Fed Funds Forecast

Notes from Bernanke's Press Conference:
  • The targets for interest rates are not triggers, but instead guidelines. So, the unemployment rate falling below 6.5% will not automatically trigger a rate increase. 
  • Providing an explicit connection between economic data and the policy rate is "more transparent and more helpful to markets."
  • The explicit targets do not change the weighting or importance of the Federal Reserve's dual mandate.
  • Today's announcement indicates a continuation of previous policies rather than a shift to more accommodation.  
  • If the U.S. goes off the "Fiscal Cliff," the Fed would "perhaps increase [purchases] a bit," but the Fed does not have the tools to offset the full impact.
See below to compare the two most recent statements.

Tuesday, December 11, 2012

Trade Deficit Widened Slightly in October

The U.S. trade deficit widened by $1.9 billion in October, reaching $42.2 billion. The trade deficit has tracked in a narrow range, from $40 to $43 billion, since June. Both exports and imports fell in October, with the decline in exports outpacing the fall in imports. It is not surprising that both imports and exports fell in October, as Hurricane Sandy shut down many ports in the Northeast.

Exports fell 3.6% in October, reaching $180.5 billion, their lowest level since February. Imports fell in February as well, but by a more modest 2.1%, reaching $222.8 billion.

The real good’s deficit, which has a direct impact on GDP, shrank slightly in October to $46.2 billion. The European crisis has widened the U.S trade gap, as Europeans import fewer goods due to slowing economic activity.

Read the Census report.

Friday, December 7, 2012

Unemployment Dropped to 7.7 Percent as the U.S. Economy Added 146,000 Jobs in November

The labor market weathered Hurricane Sandy better than expected, adding 146,000 jobs in November. Job creation was expected to see a much larger impact from the hurricane. November’s strength suggests that the labor market fundamentals are strong enough to continue improving even in the face of adversity.

November’s report was not all good news however, as October and September job growth was revised down by a total of 49,000 jobs. Much of the revision, however, was a result of weaker than expected government job creation. In October, the government sector shed 51,000 jobs, up from the initially reported 12,000. September’s revisions saw the government sector lose an additional 10,000 jobs as well.

The service sector continues to be the primary driver behind job creation, adding 168,000 jobs in November, its strongest level since August. The goods producing sector shed 22,000 jobs in November and has now done so for three of the past four months.

The public sector presented a smaller drag to Job growth in November, shedding just 1,000 jobs. In October it shed 51,000 jobs.

The unemployment rate fell 0.2% in November, reaching 7.7 %, its lowest level since December 2008. November’s drop in the unemployment rate was a direct result of a shrinking labor force, which dropped by 350,000. It is possible the drop in labor force is due to impact from Hurricane Sandy. The decline led the labor force participation rate to fall further to 63.6%.

Read the BLS release.

Wednesday, December 5, 2012

ISM Non-Manufacturing Improved Slightly in November

The ISM’s non-manufacturing index performed better than expected in November, rising a slight 0.5 points to 54.7. November’s gain offsets part of the previous month’s decline, and returns the index to growth. The ISM index has now improved for four of the past five months. As opposed to the manufacturing index – which fell sharply in November – the service sector has held up well in the face of uncertainty associated with the fiscal cliff.

The details of November’s report were encouraging as well. Business activity rose 5.8 points, reaching 61.2. November is only the second month this year that business activity has been above 60. New orders improved in November as well, rising to 58.1, its highest level since March.

Exports rebounded slightly over the month, but remain below their expansionary threshold at 48.0. The employment portion of the index deteriorated notably, falling to 50.3 from 54.9 the previous month. Supplier deliveries fell below their expansionary threshold reaching 49.0.

Read the ISM release.

ADP Employment Increased by 118,000 Jobs in November

ADP’s National Employment Report indicated that the private sector increased employment by 118,000 jobs in November. Although November’s growth is lower than October’s 157,000, it is still a strong result given the effects of Hurricane Sandy. ADP estimates that the effects of Sandy cut 86,000 jobs from payrolls in November. Accounting for this effect, ADP estimates November’s employment would have risen by 204,000 jobs.

In October, ADP moved to a new methodology of calculating payroll employment, designed to ensure that employment numbers line up more closely with the BLS’s employment situation. The 157,000 jobs created in October, translated to growth of 171,000 jobs as reported by the BLS.

The report indicates that the service sector continues to drive job creation, accounting for 114,000 of the jobs created in November. November’s service sector growth represents a slowing from the 149,000 jobs the sector created in October. The goods producing sector also slowed in November, creating 4,000 jobs, less than the 8,000 jobs created in October. The manufacturing sector remains weak, shedding jobs for the past five months.

Read the ADP report.

Tuesday, December 4, 2012

Banks Report Strong Third Quarter Results

By James Chessen, ABA chief economist

“The third quarter was another strong one for the banking industry, with solid earnings, higher capital levels, lower losses and stable asset quality signifying an industry that continues to gain strength. At the same time, continuing uncertainty surrounding the fiscal cliff is already slowing economic activity and businesses are hesitant to borrow. Decisions made in the month ahead will have a profound impact on our economic path and the outlook for all businesses – banks included.”

Business Loans Grow for Ninth Consecutive Quarter
“Banks continue to make the loans that help drive our economy forward. Business loans achieved double-digit growth, increasing 13.5 percent year-over-year. In addition, loan growth has become more broad-based, with an uptick in real estate lending and auto loans signaling that consumers have become increasingly more confident in their finances.”

Capital Continues to Grow
“Bank capital continues to grow and remains near record levels. It’s important to remember that bank capital has increased throughout the financial crisis and is now 25 percent higher than 2008 levels. Regulators have categorized over 97 percent of banks as well-capitalized, which means their capital levels are at least 25 percent higher than minimum standards.

“Total industry capital is now over $1.6 trillion, providing an important buffer for any economic challenges that could arise. Adding reserves banks have set aside for possible loan losses, there is a total buffer protecting the industry of almost $1.8 trillion.”

Temporary Account Guarantee Program Should be Extended
“ABA is urging Congress to pass a temporary two-year extension of the FDIC’s Temporary Account Guarantee program. Customers value the protection of FDIC insurance and balances in TAG accounts continue to increase. In today’s uncertain environment, security of deposits is trumping yield for businesses. A temporary extension will take at least one piece of uncertainty off the table for businesses at year-end.”

Bank Earnings Grow in Challenging Environment
"Strong business loan growth, aggressive cost controls and recaptured reserves have helped banks maintain earnings in a challenging environment. Reserves have declined because loan losses were less than expected and future losses will undoubtedly be lower. Low interest rates continue to squeeze margins and put significant pressure on traditional banking. Extremely low rates and regulatory pressure on non-interest income will continue to challenge banks’ top line revenue growth.”

Problem Loans Stable, Failures Continue to Decline
“The industry’s asset quality has remained stable, with problem loans holding at levels not seen since early 2009. The number of problem banks fell below 700 for the first time since the third quarter of 2009, and bank failures continue to fall dramatically. Banks, not taxpayers, are solely responsible for all of the FDIC’s expenses, paying nearly $13 billion in premiums over the last year.”

For more detailed statistics on the banking industry please visit our Center for Banking Information.

Monday, December 3, 2012

U.S. Manufacturing Unexpectedly Weakened in November

The manufacturing sector unexpectedly contracted in November, according to the ISM’s manufacturing index. The index dropped below its expansionary threshold to 49.5 in November. Manufacturing had begun to expand again in September and October, however November’s report shows this improvement could not be sustained. It is unclear whether November’s weakness was a temporary impact from Hurricane Sandy or whether it represents a true softening due to fears associated with the fiscal cliff.

November’s weakness is complicated by the effects of Hurricane Sandy. It is possible that the storm’s impact on manufacturing in the northeast drove the index lower. However, traditionally substitution from storm-affected areas to other parts of the country offset any regional disruptions. For example, the ISM’s index rose following hurricane Katrina. It is possible that Sandy has obscured a true softening in manufacturing in November, but we won’t be able to tell until December’s data is released.

Despite the general weakness in November, production remained strong, gaining 1.3 points and rising to 53.7, making production the strongest component of the index. Other details of the report were much less encouraging. New orders fell by 3.9 points, reaching 50.3 in November. Employment also dropped substantially in November, falling into contractionary territory at 48.4.

The sharp decline in inventories, falling from 50.0 to 45.0 pulled the index lower in November, but is positive for future growth. The fall widens the gap between new orders and inventories – a proxy for future production – to 5.3 points, its highest level since May.

Read the ISM report.

Construction Spending Rose 1.4% in October

Construction spending increased more than expected in October, rising 1.4% from the previous month. Spending is now 9.6% above year-ago levels. October’s improvement was broad based, with both private and public spending contributing to growth.

The recovery continues to be driven by strong growth in private residential construction, which rose 3.0% in October. In the past year, spending on private residential construction has increased 20.8%. Private non-residential construction improved as well, rising 0.3% over the month to 10.7% above year ago levels. One of the largest components of non-residential construction, spending on power and utilities structures, saw strong gains that offset a decline on spending on manufacturing structures.

Government spending rose 0.8% in October, but remains slightly below year ago levels. Increased spending on education and transportation structures offset a decline in highway and street construction.

Read the Census report.

Friday, November 30, 2012

Personal Income Unchanged in October

Personal income was ultimately unchanged in October after strong growth of 0.4% in September. The slow movement in October makes for the slowest growth since April. Interest, rental, and dividend income led growth, while wage income fell for the first decline since May, by 0.2%.

Real spending fell, posting its largest decline in just over three years in October, with Superstorm Sandy playing a role in the decline. The BEA estimates Superstorm Sandy caused a downward adjustment to wage income due to work interruption of $18 billion, accounting for the entire reduction in wage income.

Nominal consumer spending fell 0.2% led by a decline in durable goods spending. Nondurable goods spending also fell but at a more moderate pace.

The savings rate climbed slightly to 3.4% but remains well below previous months after hitting its lowest level in ten months in September.

Read the BEA release.

Thursday, November 29, 2012

U.S. Economy Grew at 2.7% in Third Quarter

Real GDP growth in the US improved in the third quarter to an annual rate of 2.7%, up from 1.3% in the second quarter, according to the BEA’s second estimate. This report revised growth up from 2.0% reported in the first estimate. The improvement from the second quarter was driven primarily by increased inventories as well as the largest positive contribution to growth from government spending in three years.

Inventory accumulation strongly helped third quarter growth, adding 0.8%, much better than the 0.5% drag in the second quarter. Government spending boosted growth as well, contributing 0.7%, the strongest level in three years. Fixed investment dropped off in the third quarter, contributing only 0.1% to GDP growth, down from the 0.6% contribution seen in the second quarter.

The BEA’s second estimate of third quarter GDP growth is notably higher than its initial estimate of 2.0%. The improvement is due primarily to revisions to inventory accumulation and exports that outweighed negative revisions to consumer spending and fixed investment. Inventories, initially reported as a 0.5% drag for the third quarter, improved to providing a 0.8% boost. Net exports also received a strong revision, recording a contribution to GDP growth rather than a drag.

Although the BEA’s revision presents much stronger growth than its initial estimate, the details of the report are not positive for growth moving forward. The strength of third quarter growth rests heavily on inventory and government spending. Inventory accumulation is a negative sign for future growth as less will need to be produced to meet future demand. In addition, the strong government spending is unlikely to be sustainable as the government cuts spending and begins addressing the deficit.

Read the BEA release.

Wednesday, November 28, 2012

New Home Sales Slowed in October

New home sales slowed notably in October, due partially to large downward revisions. New home sales fell to a pace of 368,000 units per year in October from 369,000 in September. Although the month-to-month drop is small, downward revisions obscure the true size of the decline. October’s pace is 5.4% lower than the 389,000 unit pace initially reported in September. Despite the disappointing revisions, the pace of new home sales remains 17% above year-ago levels.

It is likely that October’s weak pace of new home sales is due, in part, to effects seen from Hurricane Sandy. Sales in the Northeast declined by 31% in October. Excluding the Northeast, the pace of sales rose 2.7%.

Inventories increased slightly but remain at extremely tight levels, with only 4.8 months of supply on the market. The median price of a new home fell slightly to $240,000 in September, but remains 5.7% above year-ago levels.

Read the Census report.

Tuesday, November 27, 2012

Consumer Deleveraging Continues

The Federal Reserve Bank of New York released a report today that shows total "consumer debt fell again in the third quarter, by $74 billion, continuing the nearly four-year downward trend in household debt."

Total household debt has fallen by $1.37 trillion from its peak at the end of the third quarter of 2008 to $11.31 trillion at the end of the third quarter of 2012.

Both mortgage and home equity loans fell during the third quarter, while student loans and auto loans rose during the quarter. Credit card balances were largely unchanged -- increasing by $2 billion during the quarter.

Read the report.

Looking Beyond the Fiscal Cliff - Fundamental Strength of the U.S. Economy

We have released an analysis piece that looks beyond the pending fiscal cliff and focuses on the fundamental strength of the U.S. economy. If we are able to avoid the ill effects of the fiscal cliff, there are a number of factors that will contribute to strong economic growth in the U.S.

See the full analysis.

Home Prices Continued Improvements in September

Existing home prices appreciated 0.3% in September according to the Case-Shiller’s 10- and 20-city indices. Gains from one year ago accelerated as well, with the 20-city index rising 3.0% above its September 2011 pace, better than the 2.0% year-ago gain reported in August. September’s year-ago gain is the strongest since July 2010.

September’s improvement was widespread geographically with 15 out of the 20 metropolitan areas surveyed reporting month over month price declines. Year-over-year gains improved in most areas surveyed as well, with only 2 reporting declines in prices from a year ago. Phoenix has seen the strongest gains in the past year, with prices 20% above September 2011 levels. Chicago and New York are the only areas that are still reporting year over year declines, however both saw improvement from August.

Despite the recent improvements, home prices remain well below their pre-crisis peak. The 20-city index is still 29.2% below its July 2006 peak.

Read the S&P release.

Wednesday, November 21, 2012

Consumer Sentiment Nearly Unchanged in November

Consumer Sentiment was nearly unchanged in November according to the University of Michigan’s Consumer Sentiment Survey. The index inched up from October’s level gaining just 0.1 points and settling at 82.7. Although the index is at its highest levels since mid-2007, November’s reading is notably lower than its preliminary reading, signaling a drop in sentiment later in the month. The index has now gained for four consecutive months, but November’s gain is easily the smallest of these gains.

Consumer’s evaluations of current conditions improved in November, adding 2.6 points to reach 90.7. This portion of the index has now gained for two consecutive months and is at the highest level since early 2008.

Consumer’s view of the future is much less bright, with the expectations portion of the index looking much less optimistic. This index dropped 1.4 points over the month, settling at 77.6. The decline is particularly notable, as the preliminary reading had this measure improving by 1.8 point gain. The sharp drop in future expectations is likely due to the looming fiscal cliff and the associated concerns.

Inflationary expectations were little changed in November, with one-year inflation expectations holding steady at 3.1%. Expectations for five-year inflation ticked up 0.1 points to 2.8%.

Tuesday, November 20, 2012

Housing Starts Continued Strong Gains in October

New residential construction continued to improve significantly in October, reaching an annual pace of 894,000 the fastest pace since mid-2008. October’s 3.6% gain follows an even stronger 15.1% gain in September. The pace of home sales has accelerated in the past three months, and is now 23% above July’s level.

Multi-family starts were entirely responsible for October’s gain, rising 11.9% from the previous month. Single-family starts fell 0.2% in October to a pace of 594,000.

Permit issuance fell slightly in October, falling 2.7%. This decline was seen only in multi-family permit issuance, which fell 10.6% over the month. Single-family permit issuance rose 2.2% over the month. Completions rose sharply as well this month, rising 14.5% to a pace of 772,000 units per year.

Despite the strong improvement seen in recent months housing starts remain well below the long-run average of 1.5 million units, however,if these strong improvements continue we could see normal levels within a year.

Read the Census report.

Monday, November 19, 2012

Existing Home Sales Improved in October

Existing home sales rose in October to an annual pace of 4.79 million units, the second fastest pace in two years. Sales rebounded in October after falling in September, and are now just below August’s strong pace of 4.83 million units. Sales were 2.1% higher than in September and are 11% above year-ago levels. Hurricane Sandy had a minor impact on sales in the Northeast, which was the only region to see sales fall.

Home prices continue to appreciate, with the median price of existing homes sold rising to $178,600. October’s median price is 11.1% higher than October 2011, an improvement from the 7.9% reported in September.

The supply of homes on the market continues to tighten, with the months supply of homes on the market falling to 5.4. This is the tightest supply has been since mid-2006.

Read the NAR release.

Friday, November 16, 2012

Industrial Production Weak in October

Industrial production weakened in October, falling 0.4%. Industrial production has now failed to grow in four of the past six months. Much of October’s weakness is directly related to Hurricane Sandy, which the Federal Reserve estimates undercut output by a full percentage point.

October’s report was weak across the board, with a decline in manufacturing offset slightly by a strong increase in mining production. Both durable and non-durable goods production fell, 0.6% and 1.0% respectively. Mining production saw strong gains, rising 1.5% in October. Utilities production was little changed, falling 0.1% over the month.

The capacity utilization rate fell in October reaching 77.8, down from 78.2 the previous month.

Read the Fed report.

Thursday, November 15, 2012

Consumer Prices Rose Modestly in October

Consumer prices rose 0.1% in October, a sharp slowdown from the 0.6% gain seen in each of the two previous months. October’s slowdown was due entirely to falling energy prices, as core inflation strengthened to its highest level since June. Core prices rose 0.2% in October, following three consecutive months of 0.1% gains. Consumer prices now remain 2.2% above year ago levels, stronger than the 2.0% reported last month.

Falling energy prices offset a rise in food costs, bringing headline inflation down from the high levels seen in the previous two months. Energy prices fell 0.2%, after rising 5.6% and 4.5% in August and September respectively. Food prices gained slightly more in October than September, rising 0.2%.

The gains in core prices were due entirely to an increase in the cost of services, which rose 0.3% in October, matching September’s pace. The price of goods fell 0.1%, better than the 0.2% decline seen in the previous month.

Read the BLS report.

Wednesday, November 14, 2012

Retail Sales Fell 0.3% in October

Retail Sales fell 0.3% in October following two strong months of growth. September’s growth was revised up to 1.3% from an initially reported 1.1%. Retail sales are now 3.8% above year-ago levels, a strong decline from the 5.4% reported in in September. Year-over-year growth is now at its slowest rate since June, and the second slowest since February 2010. Notably, year-ago growth in core sales fell under 3% for the first time since July 2010.

The declines seen in October were broad based and may, in part, reflect the impact of Hurricane Sandy. The Census Bureau reported that it could not estimate the impacts of the hurricane, although there were reports of lost sales due to store closings and fewer customers. The areas of strength, grocery stores and gasoline stations, likely benefitted from the storm as demand increased as people prepared for the storm.

Another area of interest is nonstore retailers, which saw sales jump 2.4% in September, but fall off 1.8% in October. This is likely a result of a surge in September sales due to the release of the iPhone 5, and the subsequent fall in October.

Read the Census report.

Producer Prices Fell in October

Producer prices fell 0.2% in October, following sharp increases in the previous two months. Both energy and core goods prices fell in October, offsetting a substantial increase in food prices. Producer prices are now 2.3% above year-ago levels, higher than the 2.2% reported in September.

Prices of core goods fell in October as well. Finished core goods fell 0.2% in October, and now are 2.1% above year-ago levels. Prices were mixed at earlier stages of production, with intermediate good prices unchanged from the previous month. Prices for crude goods fell 1.4%, nearly offsetting their 1.6% rise in September.

Read the BLS report.

Tuesday, November 13, 2012

Small Business Optimism Improved In October

Small business optimism improved slightly in October, rising 0.3 points to 93.1, its highest level since May. The index moved within a narrow range in the past year, oscillating between 90 and 95. The index has yet to recover to more normal levels (around 100) following the recession. “The Index remains in solidly pessimistic – and recessionary territory,” according to NFIB chief economist William Dunkelberg.

The percent of small business owners uncertain about whether business conditions will be better or worse in six months reached a record high of 23%. Some of this may be because the survey was completed prior to the election, but likely also reflects the uncertainty associated with the looming fiscal cliff.

Financing remains the least cited problem for small businesses, with only 3% of businesses citing it as the single most important problem. Poor sales, taxes and government requirements remain the most often cited problems for small businesses at 22%, 20% and 19% respectively.

Read the NFIB report.

Friday, November 9, 2012

CBO Details Economic Impact of Fiscal Cliff

The Congressional Budget Office has released a report detailing the economic effects of various components of the fiscal cliff. The CBO report details two scenarios, the first assumes that all of the components of the fiscal cliff go into effect. Under this scenario GDP would shrink by 0.5% in 2013, reflecting a decline early in the year, with a recovery following in the second half.

In the second scenario, the CBO assumes that the fiscal cliff is avoided entirely. This includes eliminating the automatic sequestration, maintain medicare payment rates and extending all expiring tax provisions. Under this scenario, GDP receives a 2.25% boost.

The CBO noted that "of the total difference in the projected growth of GDP next year under current law and under the alternative fiscal scenario, about two=thirds owes to changes in tax policies and about one-third owes to changes in spending policies." Changes in spending account for about half the estimated effect of the expiring tax provisions even though the budgetary impact of changes in spending are less. As such the CBO recommends that the spending cuts may carry the most "bang for the buck."

For a more detailed break-down of the impacts of the fiscal cliff, see the CBO report.

Thursday, November 8, 2012

Trade Deficit Narrowed in September

The U.S. trade deficit narrowed by $2.3 billion in September reaching its lowest level in almost two years. The deficit in September was $41.5 billion, and has fallen off significantly from its march highs of $51.6 billion. A surge in exports was enough to offset a rise in imports, breaking a two month trend of widening the deficit.

Exports rose 3.1% in September, reaching $187 billion, its highest level ever recorded. Both the exports of goods ($134 billion) and the export of services ($53 billion) were the highest on record. Imports rose 1.5% over September, primarily a result of higher fuel prices.

The real goods deficit, which is important for the calculation of GDP, shrunk in September to $46.9 billion. Despite the improvement, this measure remains near its level from last September.

Read the Census report.

Wednesday, November 7, 2012

Consumer Credit Continued to Expand in September

Consumer credit increased by $11.4 billion in September, slightly slower than August’s pace, but nowhere near the contraction seen in July. Growth in consumer credit continues to be driven by non-revolving balances. Revolving balances shrunk in September, continuing their trend of uneven performance. Consumer credit has rebounded well from its July contraction, gaining $29.5 billion in the past two months. July was the first month consumer credit had contracted since August 2011.

Revolving consumer credit shrank by $2.9 billion in September, offsetting much of August’s gain. Revolving credit has now shrunk in three of the past four months. Revolving balances have been slow to recover, and remain 17% below their 2008 peak.

Non-revolving balances continued to drive growth in September, rising 14.3 billion. Non-revolving balances consist mostly of student and auto loans. Non-revolving balances have now increased for 13 consecutive months and are well above their pre-recession peak.

Much of the growth in non-revolving balances is due to strong increases in student loans, which accounted for 69% of the increase in non-revolving balances in September on a non-seasonally adjusted basis.

Read the Fed release.

Monday, November 5, 2012

ISM Non-Manufacturing Fell in October

The service sector growth slowed slightly in October, but remains strong according to the ISM’s non-manufacturing index. The non-manufacturing index fell to 54.2 in October from 55.1 the previous month. Despite the decline, services continue to outperform the manufacturing sector, which improved to 51.7 in October. Any reading above 50 indicates industry expansion.

The details of October’s report were not encouraging. New orders fell to 54.8 from 57.7 the previous month. Business activity also slowed notably, falling from 59.9 to 55.4. Exports weakened as global demand continues to drop, entering negative territory for the first time since June.

Despite the weakness there were positive trends in October. Employment improved, rising from 51.1 to 54.9 in October. Inventories also continued to drop, falling to a low 46.5.

Read the ISM release.

Friday, November 2, 2012

Job Creation Surged in October as Unemployment Ticks Up

The U.S. economy created 171,000 jobs in October, well above the 6-month average job creation of 137,000 jobs. In addition, September and August job creation was revised up, adding 84,000 jobs more than had initially been reported. Despite the strong job growth the unemployment rate ticked up to 7.9% due primarily to increasing labor force participation. Job growth has picked up in the past three months, averaging 170,000, much better than the 67,000 averaged in the second quarter.

Job creation continues to be driven by the service sector, although by a lesser degree. The public sector added 150,000 jobs in October, its weakest growth since June when the overall economy added just 45,000 jobs. October’s job growth was boosted by the goods producing sector resuming hiring, adding 21,000 jobs. Government returned to dragging on growth in October, shedding 13,000 jobs.

Despite the strong job creation, the unemployment rate ticked up to 7.9%. This was primarily due to a large increase in the labor force, which outpaced employment growth, rising 578,000. This increase led the labor force participation rate to rise to 63.8%.

It is important to note that the job creation figures used to calculate the unemployment rate come from a different survey than the headline job growth numbers. The household survey, used to calculate unemployment, tends to be more volatile than the establishment survey that reports job creation.

The BLS noted that Hurricane Sandy had no discernible effect on employment and unemployment data for October. The household survey was collected before the storm, and the establishment survey data collection rates were within normal ranges both nationally and in affected areas.

Read the BLS report.

Thursday, November 1, 2012

Manufacturing Improved in October

Manufacturing made strong progress in October, with the ISM’s manufacturing index rising from 51.5 to 51.7. Although the improvement in the overall index was modest, the details of the report were strong, indicating further improvement in coming months. Currently, the index is at its highest levels since May.

Despite only rising 0.2 points in October, movement within the survey’s components suggest a strong trend. Specifically, new orders picked up 1.9 points, rising to 54.2. In addition a 0.5 point decline in inventories put inventory accumulation at its neutral threshold of 50. The gap between new orders and inventories, a proxy for future production, more than doubled to 4.2 points.

Production returned to positive territory in October, reaching 52.4. The employment portion of the index gave up some of the outsized gain it experienced in September but remained strong at 52.1. The weak global economy continues to drag on growth, with new export orders falling farther into negative territory in October, reaching 48.0.

Read the ISM release.

Construction Spending Increased Moderately in September

Construction spending increased 0.6% in September, recovering from a 0.1% decline in August. Construction spending is now 7.8% above its level from one year ago. Constructions spending has been slowly but steadily recovering, led primarily by private residential construction over the past year.

Private residential construction was entirely responsible for September’s gain, rising 2.8% over the month. Non-residential construction fell 0.1% in September. Government spending on construction remained the largest drag, falling 0.8% in September.

Read the Fed release.

ADP Employment Grew by 158,000 in October

ADP reported today that private sector employment increased by 158,000 in October, up from the 88,000 added the previous month. Employment gains continue to be driven by service sector growth, but were aided by the goods producing sector for the first time in three months.

October’s report is the first to utilize ADP’s new methodology, which is designed to ensure that employment numbers line up more closely with the BLS’s employment situation. Transitioning to this methodology has resulted in strong downward revisions to job growth in recent months. September’s growth was revised down from 162,000 to 88,000. The revisions cut 206,000 jobs out of reported job creation in the previous three months combined.

The service sector continues to drive job growth in October, creating 144,000 private sector jobs in September, up from the 97,000 created in September. The goods producing sector improved in October as well, contributing 14,000 jobs as opposed to dragging 9,000 jobs as it did the previous month. Manufacturing continues to shed jobs, falling 8,000 over the month.

Read ADP's release.

Wednesday, October 31, 2012

Banks Eased Standards Slightly in Past Three Months

Banks eased business lending slightly for both small and large business borrowers according to the Federal Reserve’s most recent Senior Loan Officer Survey. The survey, released today, covers August through the end of October.

A net 7.6% of respondents reported easing lending standards on business loans to both small and large businesses over the time period. Despite the eased standards, loan demand was relatively neutral. Demand from medium borrowers was down slightly according to 6.2% of respondents. Demand from small businesses rose slightly, reported by a net 4.5% of respondents.

Underwriting standards on mortgages were little changed over the past three months with only a net 1.6% of banks report easing standards. Demand for residential loans rose significantly over the month, with 32.8% of banks reporting stronger demand.

Read the Federal Reserve release.

Tuesday, October 30, 2012

Home Prices Continue to Rise in August

Existing home prices continued to improve in August, with the Case-Shiller's 20-city index improving to 2.0% above year ago levels, up from 1.2% reported the previous month. The 10-city index improved as well gaining 0.9% over the month, with prices 1.3% over year ago levels. Case-Shiller's 20-city index has now reported yearly gains for three consecutive months.

August's improvement was widespread geographically with every metropolitan area except one reporting a month-over-month gain. Phoenix and Atlanta saw the strongest gains, rising 1.8% over the month. Seattle was the only city reporting a monthly decline in prices, reporting a 0.1% loss.

An increasing number of metro areas reported year-over year gains in August. Only Chicago, New York and Atlanta still have prices below year-ago levels. Atlanta has fared, by far, the worst seeing a 6.1% decline in home prices. Phoenix is reporting the strongest gains, with prices up 18.8% over the past year.

Read the S&P release.

Monday, October 29, 2012

Personal Income Grew 0.4% in September

Personal income grew by $48.1 billion in September, 0.4%, its fastest pace since March. Despite the strong income growth consumption personal consumption growth outpaced income, leading the savings rate to fall to its lowest level in ten months.

Personal income growth accelerated in September, led by dividend, rental and proprietor income. Wage income improved in September, rising 0.3%, however remains modest consistent with the weak labor market.

Real spending accelerated to 0.4% in september, however nominal spending jumped 0.8% over the month, the fastest growth since February. Spending growth was led by goods, both durable and non-durable.

Nominal spending outpacing income led the savings rate to drop to 3.3%, its lowest level on ten months. The savings rate has now fallen 1% since June.

Read the BEA release.