Tuesday, January 31, 2012

CBO Highlights Impact of Upcoming Policy Decisions

The CBO has just released its budget and economic outlook for the next 10 years. The forecast indicates deficits may average anywhere from 1.5% of GDP to 5.4% of GDP from 2013 to 2022.

The CBO’s baseline scenario currently projects a $1.1 trillion deficit in 2012, moving forward, the model predicts deficits dropping to under $200 billion and averaging 1.5% of GDP from 2013 to 2022. These projections, however, are not a forecast, “rather, they are intended to provide a benchmark against which potential policy changes can be measured.”

The CBO includes an alternative fiscal scenario, in which some recent and current policies are assumed to continue despite being, by law, scheduled to change. This scenario predicts a much greater deficit going forward with deficits averaging 5.4% from 2013 to 2022. In this scenario, debt held by the public reaches 94% of GDP by 2022.

The CBO’s alternative fiscal scenario includes the following four key assumptions that set it apart from the baseline scenario. First, the model assumes that expiring tax provisions (other than the payroll tax reduction) are extended, raising $3.8 trillion from 2013 through 2022 . Second, the scenario assumes the automatic sequestration enacted by the Budget Control Act will not take effect, negating reductions in spending that average $109 billion per year. Third, the Alternative Minimum Tax is indexed for inflation, preventing the number of taxpayers affected from jumping. Finally the scenario assumes that Medicare’s payment rate for physicians’ services are held at current levels, rather than being dropped by 27% this year.

Read the report.

Home Prices Continued to Decline in November

Home prices continued to decline in November with S&P’s Case-Shiller index indication a 1.3% decline in both its 10- and 20-city indices. On a year ago basis the 10- and 20-city indices fell 3.6% and 3.7% respectively, worse than the 3.2% and 3.4% respectively reported in October.

For the second consecutive month, 19 of the 20 cities covered reported home price decreases. Phoenix was the only city to report a gain in November, but remains down 3.6% from one year ago. Detroit and Washington are the only cities that have seen prices appreciate over the year, at 3.8% and 0.5% respectively. Atlanta has fared the worst in the past 12 months, falling 11.8%.

Read the report.

Monday, January 30, 2012

Banks Report Stronger Business Loan Demand, Tighten Standards to Firms with Significant European Exposures

The Federal Reserve’s Senior Loan Officer Opinion Survey reported that domestic banks experienced stronger demand for commercial and industrial (C&I) loans from firms of all sizes. Fifteen percent of domestic banks, on net, reported increased demand for C&I loans from small firms, the highest level since 2005.

Domestic banks reported, on balance, little change in standards on C&I loans. A net 5.4% of banks reported tightening standards on C&I loans to large and medium borrowers, with a net 1.9% of banks reported tightening on C&I loans to small borrowers. Banks continued easing of pricing terms on business loans during the fourth quarter and also reduced their use of interest rate floors.

Domestic banks that reported having eased terms on C&I loans unanimously cited increased competition from other banks and nonbank lenders as a reason for having done so. The handful of banks that reported having tightened standards or at least one C&I loan term primarily cited a less favorable or more uncertain economic outlook and increased concerns about legislative, supervisory, or accounting policies.

A large fraction of domestic banks reported having tightened standards on loans to European banks or their affiliates and subsidiaries. There was also more widespread tightening of standards on loans to nonfinancial firms that have operations in the United States and significant exposures to European economies. This tightening of standards reflects prudential management of risks posed by the European debt crisis.

Read the report.

Personal Income Rose 0.5% in December

Personal income grew by $61.3 billion, or 0.5%, in December according to a Bureau of Economic Analysis report released this morning. Consumer spending was unchanged, despite the growing personal income, prompting the savings rate to jump to 4.0%

Real income growth was 0.4% accounting for a 0.1% rise in prices. Both real and nominal income growth are at their fastest levels since March. Driving income growth were wages and transfer income, while interest income fell for the third straight month.

Spending growth appears to be moderating, with real consumption falling by 0.1% in December. In each of the previous two months consumption rose by 0.1%. Third quarter growth averaged 0.5%. A 0.2% growth in service spending was offset by a 0.4% growth in both durable and non-durable goods spending.

Inflation in consumer prices, as measured by the PCE deflator, has been mild in recent months. After two months of no price growth, December’s prices rose a modest 0.1%. Compared to one year ago, prices are up 2.4%, the slowest appreciation reported since April.

Read the report.

Friday, January 27, 2012

Consumer Sentiment Rose in January

Consumer sentiment continues to climb, reaching 75.0 in January, up from December’s reading of 69.9, according to the University of Michigan’s consumer sentiment index. Sentiment has now improved for five consecutive months, reaching its highest level since last February. Consumer sentiment has recovered steadily since dropping to near historic lows in August, on concern over the US debt debate.

The improvement in the index was driven both by future expectations and assessment of current conditions, with increases of 5.5 and 4.6 points respectively.

Inflationary expectations rose slightly in the near-term, with the one-year expectation rising from 3.1% to 3.3%. Despite this long-term inflationary expectations remain anchored, with the expected five-year inflation steady at 2.7%.

GDP Growth Accelerated to 2.8% in Final Quarter of 2011

Real GDP growth accelerated to 2.8% SAAR in the fourth quarter, up from 1.8% growth in the third quarter according to the BEA’s initial estimate released today. Although the accelerating growth represents a solid trend, it is below the 3.2% growth forecast by ABA’s Economic Advisory Committee.

The accelerating growth was driven primarily by a large swing in inventories, which went from dragging 1.35% to aiding growth by 1.94%. This amounts to nearly two thirds of fourth quarter growth. Accumulating inventories may indicate a slowing of growth early this year.

Consumption also grew, and contributed 1.45% to growth, up from 1.24% in the previous quarter. Fixed investment slowed in the end of 2011, and contributed only 0.41% to growth. Both trade and government spending decreased, becoming drags on growth of 0.11% and 0.93% respectively.

Read the report.

Thursday, January 26, 2012

New Home Sales Fell in December

New home sales finished 2011 on a negative note, with December’s pace of sales falling 2.2% from November to an annualized pace of 307,000 units. This pace is 7.3% below the pace seen in December 2010. The supply of new homes remains well balanced as prices continue to decline.

The decline was led by the South, where the pace of new home sales fell 10.1%. This decline may have been, in part, a correction from November’s 14.8% growth in November. The only other region to slow was the Midwest, falling 3.7%. The Northeast saw sales jump by 46.7%, however, this increase had little effect on national levels, as the Northeast represents only 7% of national sales. Sales in the West increased 9%.

The supply inched up in December to 6.1 months, but remains below the 6-month average of 6.4 months supply. Prices continued to fall in December, with the median home price falling 7% from November to $201,100. This price level is 17% below the median price seen one year ago.

Read the report.

Wednesday, January 25, 2012

Bernanke Press Conference

In his press conference, following today's FOMC statement, Chairman Bernanke addressed the Fed Funds forecasts introduced with today's statement. Bernanke stressed that the forecast is no more than a forecast, based on the information currently available, and subject to change with economic data.

In response to a question regarding the prospects for another round of quantitative easing, Chairman Bernanke indicated that QE3 is "certainty on the table," should economic conditions deteriorate. He warned that it was too early to make a decision either way.

Many of Bernanke's comments were designed to anchor expectations of future inflation. He noted the continuity of the FOMC board, even given different chairmen. He also stressed that even though the forecasts are subject to change, he sees little possibility of inflation forcing policy action any time soon.

FOMC Pledges Low Rates Through Late 2014: Updated

At its January 25th meeting the Federal Open Market Committee extended their pledge to keep interest rates low through late 2014. Previously the FOMC had committed to low rates through mid-2013.

Apart from this move, the federal reserve left monetary policy unchanged. The Federal Reserve will continue to exchange short-term securities for longer dated notes in an effort to keep long term rates low. They will also continue to roll over maturing Treasuries and mortgage-backed securities.

The FOMC is concerned with high unemployment, the European debt crisis, and the weak U.S. housing market. The FOMC also noted that “inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.” The Fed has made clear that inflation is not a concerning factor in considering a potential QE3.

Update: The FOMC , for the first time, released its forecast for the benchmark lending rate. The forecast called for a median Fed Funds rate of 75 basis points at the end of 2014, with a long run target of 3.75%-4.5%. See the forecast here.

Read the report.

January 25th MeetingDecember 13th Meeting
Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth. While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but business fixed investment appears to be increasing less rapidly and the housing sector remains depressed. Inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that over coming quarters, inflation will run at levels at or below those consistent with the Committee's dual mandats. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy.  In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability

Tuesday, January 24, 2012

IMF Downgrades Global Growth Prospects

The IMF has cut its growth forecast, predicting the global recovery to stall and risks to intensify, in its latest World Economic Outlook. The latest forecast calls for Europe slipping into recession and cooling growth in China. The only major economy without a downward revision was the United States, with growth holding at 1.8% in 2012.

The revised forecast calls for World output to grow by 3.3% in 2012, down from its prediction of 3.9% growth in September. The Eurozone is now expected to enter a recession with its GDP shrinking by 0.5% in 2012, before recovering with 0.8% growth in 2013. This forecast is significantly lower than the 1.1% expansion in GDP that the September IMF forecast predicted for 2012.

The IMF noted that Europe remains the “epicenter,” and that should the crisis worsen, “the world could be plunged into another recession.” The IMF noted that, with certain measures, “the worst can definitely be avoided, and the recovery can be put back on track. These measures can be taken, need to be taken, and need to be taken urgently.” These measures were outlined by IMF Managing Director Christine Lagarde in a January 23rd speech in Berlin, where she called for “stronger growth, larger firewalls, and deeper integration.” Specifically Lagarde called for the IMF to increase its lending resources by up to $500 billion.

Read the IMF Report.

Monday, January 23, 2012

Fed Reaffirms ABA: Increasing Farmland Prices Driven By Cash Purchases, Not Debt

A recent report from the Federal Reserve Bank of Kansas City assessed the rise in farmland prices, finding that cash purchases are driving land values higher, as farm debt levels have remained relatively stable.

The report found that farmers are using cash proceeds from high commodity prices to purchase new land, saying, “farmers have yet to use debt to pay for investments in land, equipment, and machinery on the scale of past farm booms.”

The Fed’s findings confirm testimony by Matt Williams on behalf of ABA to the House Committee on Agriculture. The testimony was delivered in April 2011, nearly a year prior to the Fed’s report.

Williams stated, “While it is clear in some areas of the country farm land prices have escalated, there is no evidence that this is being fueled by credit. Demand for credit to finance these new land acquisitions has been relatively flat.”

The average farm real estate value has risen 116% since 2000 according to the USDA, while farm real estate debt has increased 55%. Land purchased with cash is driving the appreciating values, as growth in farm real estate debt has been modest compared to the increase in land prices.

Friday, January 20, 2012

Existing Home Sales Climb 5% in December

Existing home sales rose for the third consecutive month, and are now at the fastest pace since January 2011. Existing home sales rose 5% to a seasonally adjusted 4.61 million unit annual pace. This rate of sales is well above the 2011 average of 4.30 million units.

Condo sales led the gains, increasing 8.7% over the month, however single family homes also increased by a strong 4.6%. December’s gains were consistent across the country. Compared to year ago levels performance improved in almost every region, with the Midwest growing 9.5%, the South 3.5, and the Northeast growing 3.3%. The West is the only region that remains down (slightly) for the year at -0.8%.

The strong sales led inventory to drop substantially to 6.2 months available for sale from 7.2. This is the lowest level since early 2006, indicating less distressed homes are reaching the market.

House prices remain weak, falling 2.5% from a year ago in December. This seems to be turning around, as prices appreciated slightly and the year-over-year decline is the smallest in about one year.

Read the report.

Thursday, January 19, 2012

Housing Starts Fell in December

Housing starts fell slightly in December to a seasonally adjusted rate of 657,000 units, with permits also sliding slightly, according to a Census Bureau report released this morning. The 4.1% decline in starts leaves December’s rate above the 6-month average of 636,000 annual units. Compared with this time last year housing starts are up 24.9%, and have gained in six of the last seven months.

Despite the decline in overall starts seen in December, single family housing starts rose by 4.4%, their strongest one month gain in seven months. Total permits issued were 679,000 in December, down 0.1% from November, but up 7.8% from last year’s levels.

Although housing starts decreased slightly in December, the general upward trend remains. If the economy continues to avoid recession and create jobs, housing will continue to slowly improve, albeit from a low base. Even though housing starts have improved in recent months, they remain well below the long run average of 1.5 million units per year.

Read the report.

Consumer Prices Unchanged in December

In December the consumer price index remained unchanged for the second consecutive month. Headline CPI has failed to register positive growth for three consecutive months causing the year ago change from December 2010 to now be 3.0%. Core prices rose by 0.1% in December, moderating from November’s 0.2% increase. The year ago change for core prices held at 2.2%, an acceptable level for policymakers.

December’s slight increase in core prices was more than offset by falling energy prices, which fell 1.3% in December. Energy prices have now risen 6.6% year-over-year, significantly less than the 19.6% year-over-year gain reported in September. Food prices rose by 0.2% in December, slightly higher than the pace of 0.1% seen in the two previous months.

Price appreciation in core goods was driven by services, which saw prices rise 0.3%, an increase from the 0.2% reported last month. This was partially offset by a 0.2% fall in the price of goods, the first decline in three months.

Read the report.

Wednesday, January 18, 2012

Industrial Production Rose 0.4% in December

Industrial production rose by 0.4% in December according to a Federal Reserve report released this morning. December’s increase rounds out a fourth quarter that saw industrial production growth slow to an average rate of 0.2%, down from third quarter average growth of 0.5%.

Manufacturing rebounded 0.9% from a November decline of 0.4%. December’s growth was relatively widespread, with durable goods production growing 0.9%, nondurable goods growing 0.8%, and business equipment growing 0.8%. Utilities continues to drag on production growth, falling 2.7%, mostly due to warmer weather. The capacity utilization rate recovered from November’s decline, matching October’s 78.1%.

December’s report is good news, showing that November’s decline was just a blip and that manufacturing is likely to continue growing with some momentum.

Read the report.

Friday, January 13, 2012

Trade Deficit Widened in November

The U.S. trade deficit for November widened considerably more than expected to $47.8 billion from $43.3 billion. This widening follows five consecutive months of narrowing and puts the trade balance at its largest level since June. The widening was a result of both an increase in imports as well as a slowdown in exports. The real goods balance also widened significantly to $63.2 billion from $58.6 billion.

Imports grew by $3 billion to $225.6 billion as exports shrunk $ 1.6 billion to $177.8 billion. A pickup in inventory accumulation is pushing imports higher. Slower growth overseas as a result of Europe’s debt crisis and a slowing in China led exports to fall. Also contributing to the widening was a widening in the petroleum balance by $3.4 billion.

Read the report.

Thursday, January 12, 2012

Bank Economists See Gradual Improvement In U.S. Economy

The U.S. economy will continue on a course of moderate growth with relatively low inflation and steady job growth in 2012, according to the forecast from the Economic Advisory Committee of the American Bankers Association.

According to the committee, which includes 11 chief economists from the largest banks across the country, inflation-adjusted GDP growth rose to an annualized pace near the long-term potential of 2.5 percent in the latter half of 2011 and will stay on this path throughout 2012.

“Despite severe shocks in recent years, the economy has shown resilience as it continues a gradual march forward," George Mokrzan, committee chairman and Huntington Bank chief economist, said. “The economy is gaining momentum, with strong capital expenditures from businesses and moderate consumer spending setting the stage for sustained growth.”

Even though consumer confidence remains weak, the committee expects consumer spending to continue to grow by a 2.0-2.5 percent pace each quarter and by 2.4 percent this year. That rate, along with strong business spending, will keep the economy on a slow, but steady path forward.

Despite a moderately positive outlook, the group sees several significant downside risks to the U.S. economy, including the European debt crisis, challenges surrounding U.S. fiscal policy and geopolitical risks.

“Europe will likely experience a mild recession this year, which will slow U.S. exports, but will not dramatically affect our economy unless Europe’s financial challenges become much more severe,” Mokrzan added.

Read the release.

See the detailed forecast.

Retail Sales Growth Moderated In December

Retail sales grew by just 0.1% in December, the slowest rate since May, according to a Census Bureau report released this morning. The continued slow-down in December suggests the holiday season was not particularly strong. Despite the slow-down, growth has been strong in the past few months. November growth was revised upwards to 0.4%, from 0.2%, and both October and September experienced strong growth.

Growth in December occurred in autos, furniture, and building material areas, all posting 1% or better growth. Building material stores were the biggest winners in December posting growth of 1.6%. Electronics, gasoline stations, and other general merchandise stores led the declines.

Year-over-year growth has now fallen to 6.5%, the lowest level since August 2010. The year-over-year growth is being led by nonstore retailers. Gasoline and auto sales have also improved significantly over the year, but gasoline sales will deteriorate as gasoline prices were rising quickly at this time last year. Department stores are the only major segment reporting sales below their year-ago level in December, while electronics and appliance stores were in effect unchanged.

Read the report.

Tuesday, January 10, 2012

Small Business Lending Fund Successful

The Small Business Lending Fund is working, according to a Treasury report delivered to Congress on Monday. The report noted that institutions participating in the SBLF have increased their lending to small businesses by $3.5 billion over their baseline lending.

Banks are lending the money received through the program to help small businesses. So far, 218 of 281 participating community banks (78%) have increased their small business lending. Moreover, a substantial majority of SLBF participants (more than 60%)have increased their small business lending by 10% or more. The report also indicates that the lending is widespread geographically, with 44 states reporting increased lending.

Read Treasury’s Report

Federal Reserve Banks Transfer $76.9 Billion in Net Income to Treasury

The Board of Governors of the Federal Reserve announced the the Reserve Banks transferred approximately $76.9 billion of their estimated 2011 net income to the U.S. Treasury. This is slightly less than the $79.3 billion distribution to Treasury for 2010.

The Reserve Banks had an estimated unaudited net income of $78.9 billion for 2011. The Reserve Banks reported reported revenues of $83.6 billion in interest income on securities acquired through open market operations. Additional earnings were derived primarily from realized gains on the sale of U.S. Treasury securities of $2.3 billion, foreign currency gains of $152 million, and income from services of $479 million.

The Reserve Banks had interest expense of $3.8 billion on depository institutions' reserve balances and term deposits.

Operating expenses of the Reserve Banks totaled $3.4 billion in 2011. In addition, the Reserve Banks were assessed $1.1 billion for the cost of new currency and Board expenditures and $282 million to fund the operations of the Bureau of Consumer Financial Protection and Office of Financial Research.

Read the press release.

GAO Report on Troubled Asset Relief Program

The GAO released the Troubled Asset Relief Program report this week, which examines the condition and status of TARP programs; management of TARP operations; and the direct and indirect costs of TARP.

The report focused on Treasury’s TARP exit plan, noting Treasury’s exit goals are at times conflicting.

When exiting TARP programs, Treasury stated it will strive to promote stability; bolster markets’ confidence; protect taxpayers’ investment and maximize overall returns; and exit the program as soon as possible. The GAO reports noted in some cases Treasury will be conflicted between maximizing taxpayer returns and exiting as soon as practicable.
Treasury’s ability to exercise control over the timing of its exit from TARP programs is limited in some cases. For example, Treasury will likely decide when to exit AIG based on market conditions but Treasury has less control over its exit from PPIP because the program’s exit depends on the timing of each public-private investment fund selling its investments.
Financial Institutions Remaining in TARP

Financial strength will determine when remaining institutions will be able to exit TARP.

Treasury disbursed $204.9 billion to 707 institutions nationwide. As of September 30, 2011, Treasury has received $208.1 billion in repayment and income, exceeding the amount originally disbursed. Treasury estimates lifetime income of $13 billion from its investment in financial institutions.

As of September 30, 2011, 317 institutions have exited the program. Of the 317 institutions, about 40%, fully exited by repaying their investments, another 52% exited by exchanging their securities under other federal programs – CDCI and the Small Business Lending Fund.

As of September 30, 2011, 390 financial institutions remain in TARP accounting for only 8.4% of the original investments, concentrated in a relatively small number of institutions. The financial strength of these institutions will largely determine the speed they are able to make repayments and exit TARP.

Read the GAO report.

See other TARP related material.

TARP's Bank Programs Profitable

Banks Remain Committed to Repaying TARP

ABA's TARP Homepage

Financing Remains Among Least Cited Concerns For Small Business

Small business sentiment rose for the second month according to the NFIB Optimism Index. The index rose by 1.8 points to 93.8, the fourth monthly gain since September. Despite this gain the overall reading remains in recession territory and is still 6 points below the pre-recession average.

Sales remain the largest concern for small business. The net percentage of owners reporting higher nominal sales over the past three months was -7%, indicating that more firms continue to see sales trending down. Despite this, expectations for future sales have improved, with a net 9% of owners expecting improving sales next year.

“Access to credit continues to rank at the bottom of concerns, with only 4 percent reporting financing as their No.1 problem.” Spending has improved, but remains “far short of normal,” with only 24% of owners planning capital outlays in the next 3 to 6 months. “Money is available, but most owners are not interested in a loan to finance the purchase of equipment that they don’t need.”

Read the report.

Monday, January 9, 2012

Consumer Credit Jumped in November

Consumer credit increased by $20 billion in November, its largest increase in 10 years, according to a Federal Reserve report released this afternoon. The surge indicates that banks are willing to lend and households are willing to borrow. Consumer credit has now risen in 10 out of 11 months in 2011.

Non-revolving credit drove the increase, rising $14.8 billion. This increase was driven by a large increase in federal government and student loans, which accounted for about 80% of the monthly change on a non-seasonally adjusted basis.

Revolving credit rose by $5.6 billion in November, its largest gain since March 2008. Commercial banks’ revolving balances contributed about two thirds of this growth on a non-seasonally adjusted basis.

Consumer credit’s surge in November was driven by an increase in federal government and student loans. Despite this, consumers increased their borrowing for both big ticket items (non-revolving) and smaller purchases (revolving), indicating that consumers are optimistic enough to take on more debt.

Read the report.

Friday, January 6, 2012

Unemployment Drops to 8.5% on 200,000 New Jobs

The U.S. economy created 200,000 jobs in December, prompting the unemployment rate to continue to fall to 8.5%. The private sector created 212,000 jobs, while the public sector continued to drag shedding 12,000 jobs. Job gains came primarily from the transportation and warehousing, retail trade, manufacturing, healthcare, and mining sectors.

Payroll growth of 200,000 is the strongest level since September and well above the 2011 average of 136,000. The private sector continues to drive job gains, despite a persistent public sector drag. The private sector has created jobs for 22 straight months. Continuing with recent trends, the service sector is the primary driver behind the private job growth. The goods sector growth was strong as well at 48,000, its highest level since July.

The unemployment rate was revised for the previous year, as is done every December. November’s unemployment rate was revised up slightly to 8.7%. The current unemployment rate of 8.5% is the lowest level since February 2009. The labor force participation rate held steady at 64.0%

ABA’s Chief Economist James Chessen commented, “today’s report shows signs of steady progress and improvements in job availability. However, we still have a long way to go as there remain a number of discouraged workers that will reenter the labor force once conditions improve.”

Read the report.

Thursday, January 5, 2012

ISM Non-Manufacturing Rose Slightly in December

The ISM non-manufacturing index rose a modest 0.6 points to 52.6 in December, according to the Institute for Supply Management report released today. This represents the first monthly gain since August, but is less than expected. The index remains below its third quarter average of 53, but continues to remain above its expansionary threshold of 50.

The business activity index was unchanged in December, as new orders crept higher to 53.2. The employment and supplier deliveries portions of the index also rose modestly. New export orders fell to 51 as imports rose to 54. This is the third monthly gain in imports. Imports only exceeded exports for two months last year.

Read the report.

ADP: Nonfarm Private Sector Employment Grew by 325,000 in December

ADP announced that employment in the U.S. nonfarm private business sector increased by 325,000 from November to December on a seasonally adjusted basis. The increase in December was the largest monthly gain since last December 2010 and nearly twice the average monthly gain since May when employment decelerated sharply.

Employment in the private, service-providing sector increased 273,000 in December, after rising 176,000 in November. Employment in the private, goods-producing sector rose 52,000 in December. Manufacturing employment increased 22,000, tripling the previous month’s increase of 7,000.

ADP revised down slightly the increase in private sector employment for November to 204,000. The initial estimate was 206,000 jobs were added by the private sector.

Read the press release.

Planned Job Cuts Fall in December

Planned job cuts announced by U.S. employers declined in December to its lowest level in six months, according to a report from Challenger, Gray & Christmas, Inc.

December's announced layoffs of 41,785 were down 1.6% from November's level, but were up 31% from December 2010.

Announced job cuts of 606,082 for 2011 were up 14% from the 2010 total of 529,973 announced job cuts; but almost 53 percent below 2009 job cut announcements.

The increase in job cuts in 2011 was due primarily to downsizing in the government sector, where employers announced plans to eliminate 183,064 jobs, a 29% increase from 142,255 announced job cuts in 2010. The financial sector ranked second in announced layoffs with 63,624 job cuts this year.

Read more.

Consumer Delinquencies Fall in Most Loan Categories in Third Quarter

Consumer credit delinquencies fell in seven of 11 loan categories in the third quarter, and rose only slightly in two others, according to the ABA Consumer Credit Delinquency Bulletin that was released today.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, dropped to 2.59% of all accounts, 29 basis points lower than the previous quarter and 42 basis points lower than 2010’s third quarter.

Bank card delinquencies were stable, rising just three basis points to 3.25%. That was well below both the 3.64% registered in 2010’s third quarter and the 15-year average of 3.94%.

“Household debt levels continue to fall and are getting easier to manage. Subtle improvements in the economy such as lower gas prices and a better job market have reduced some of the stresses facing consumers,” ABA Chief Economist Jim Chessen said.

“Improvement in delinquencies over the next year hinges on the housing market, which still poses an enormous challenge to continued economic growth. Job creation and income growth are also a must if we hope to see delinquencies continue to fall,” he said.

Read more.

Tuesday, January 3, 2012

Federal Reserve Will Release Benchmark Rate Forecasts

Federal Reserve officials will make their forecasts for the federal funds rate public at their next meeting (January 24-25), according the Federal Open Market Committee minutes released today. In a move to increase transparency and anchor expectations “participants decided to incorporate information about their projections of appropriate monetary policy” into their statements.

The minutes also reflected that “a number of members indicated that the current prospective economic conditions could well warrant additional policy accommodation.” The committee also decided that communication could provide a strong tool, noting that “any additional actions would be more effective if accompanied by enhanced communication about the FOMC’s longer-run economic goals and policy framework. quote

The minutes noted that the U.S economic activity “expanded moderately.” This marks an improvement from the previous statement. Despite the improvement, the Fed warned of an “apparent slowing in global growth” and noted that “strains in global financial markets continue to pose significant downside risks to the economic outlook.”

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U.S. Manufacturing Improved in December

The ISM’s Manufacturing index rose from 52.7 to 53.9 in December, leaving the index at its highest level since June. The improvement leaves the index above its second-half average of 51.8.

The details in December were encouraging, as well, with new orders increasing from 56.7 to 57.6. This is the fourth increase in the past five months and the highest level since April for the index.

After rising briefly November, inventories continued to decline in December, with the inventory index falling from 48.3 to 47.1. The index has now fallen for three of the last four months and remains below its neutral threshold of 50 for the third month.

The difference between new orders and inventories, an indicator of future production, widened from 8.4 to 10.5 in December. This is the best level since March and indicates that factory output could continue to see gains in the beginning of the year. Employment also saw gains in December, rising from 51.8 to 59.9.

New export orders continued to climb, to 53.0, however, there remains potential for demand to drop as a result of Europe’s debt crisis.

This report shows that manufacturing continues to rebound, despite some headwinds from Europe. This is consistent with many other indicators, that show the U.S. economy recovering and has, so far, avoided contagion from Europe.

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Construction Spending Rose 1.2% in November

Construction spending rose 1.2% in November, following a 0.2% decline in October, according to a Census Bureau report released this morning. October’s growth was revised from an initially reported 0.8% growth to a 0.2% contraction.

The increase was led by private residential construction and public construction, rising 2.0% and 1.7% respectively. Private non-residential construction was flat in November. Within private residential construction, spending on new single-family construction is up 1.5% from last month, and spending on new multi-family construction is up 1.3% over the same period.

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