Tuesday, July 31, 2012

Existing Home Prices Improved in May

Existing home prices improved in May as measured by S&P’s Case-Shiller index. Both the 10- and 20-city indices saw 2.2% growth in home prices over the month. May’s improvement brought prices closer to year ago levels.

The 10-city index is now just 1.0% below year ago levels, a significant improvement on the 2.2% reported in April. Similarly the 20-city index remains only 0.7% below year ago levels, better than the 1.9% reported in April.

May’s home price performance was strong across the country, with no metropolitan areas reporting price declines over the month. Only 8 of the 20 metro areas surveyed are still reporting prices below year-ago levels. Atlanta has fared the worst by far, with prices 14.5% below year-ago levels, however saw prices rebound 4.0% in May alone. Prices in Phoenix have rebounded notably, and now stand 11.5% above year-ago levels, following a 2.7% jump in May.

Read S&P's release.

Personal Income Grew 0.5% as Consumption was Stagnant in June

Personal income grew at 0.5% in June, its fastest pace since March. Despite the income growth, consumption was stagnant, failing to grow for the second consecutive month. The combination of higher income and consistent spending led the savings rate to rise to 4.4%, up from 4% in May.

Personal income grew at 0.5% driven primarily by wage growth. Disposable income only grew by 0.4% over the month as tax payments grew faster than income.

Nominal consumption spending was unchanged in June. When accounting for 0.1% inflation real spending declined 0.1% over the month, offsetting May’s gain in real consumption and continuing the trend of weak consumption growth. Spending on goods, both durable and non-durable fell in June. Service spending rose 0.2% over the month.

Inflation was modest in June, with the PCE deflator indicating a 0.1% rise in prices. Prices had remained stagnant or fell in the previous two months. Core prices strengthened a stronger 0.2% in June. Currently prices are 1.5% above year-ago levels, the slowest level of inflation since January 2011.

The savings rate rose to 4.4% in June, the strongest level in a year. This level is however very low by historical standards.

Read the BEA release.

Friday, July 27, 2012

Keating Comments on Glass Steagall

ABA President and CEO Frank Keating made the following statement regarding Sandy Weill's comment about reinstating the Glass Steagall Act.

“While I have great respect for Sandy Weill, I’m dismayed by his comments supporting the breakup of our country’s largest banks. As I’ve said in the past, the banking industry strongly believes that no bank—or company—should be too big to fail. Moreover, these types of misguided proposals aren’t the solution and would damage our still-recovering economy. Reducing the size of our largest banks would ,severely diminish their capacity to serve America's largest businesses, driving corporations to foreign competitors that would quickly move to meet their financial needs. Financing would gravitate more heavily to the lightly regulated ‘shadow’ banking system and our country’s status as the world's premier financial center would be in grave peril.

“It’s time to push the pause button on flawed proposals that would damage the U.S. economy. Neither our financial system nor local communities are well-served by a rush to judgment on this issue. Those calling for a return to Glass-Steagall to solve the world’s economic problems simply aren’t looking at the facts. Glass-Steagall would not have prevented the financial crisis, which the GAO found was caused by exotic securities that fueled massive amounts of subprime mortgages. Policy decisions should be based on reason and facts, not hysteria and catchy sound bites.”

Consumer Confidence Fell in July

Consumer confidence fell by 0.9 points in July to 72.3 according to the University of Michigan’s Consumer Sentiment Survey. A slight improvement in current conditions was not enough to offset the deterioration of the outlook for the future. This month’s deterioration is the second consecutive month that sentiment has fallen. The past two months have erased any gains made early in the year.

The assessment of current conditions rebounded in July, gaining 1.2 points for a reading of 82.7. This follows a fall of 5.7 points in June. Future expectations dropped a strong 2.2 points from June’s reading to 65.6 and now stands at its lowest level since December.

Inflationary expectations remain subdued, with one-year inflationary expectations dropping to 3.0% from 3.1%. Five-year inflationary expectations also fell from 2.8% to 2.7%.

GDP Growth Slowed to 1.5% in the Second Quarter

Real GDP growth slowed in the second quarter, to a slow 1.5%, down from 2.0% in the first quarter. Although the second quarter’s growth was within expectations, it is the slowest pace of growth seen since the third quarter of last year. Over the past year GDP has expanded at a 2.2% rate.

The slowing of growth in the second quarter was driven primarily by a shift in consumer spending on durable goods. In the first quarter durable consumption provided a notable boost to GDP growth, however, in the second quarter it represented a slight drag.

Slower growth in fixed investment and an increase in exports both contributed to the drag that saw GDP slow in the second quarter.

Price appreciation slowed considerably in the seconds quarter as the PCE price index indicated inflation of 0.7% down from 2.5% in the first quarter. This substantial slowdown was primarily due to receding energy prices, as PCE excluding food and energy fell from 2.2% to 1.8%.

Read the BEA release.

Wednesday, July 25, 2012

New Home Sales Decreased 8.4% in June

Sales of new single-family homes decreased 8.4% in June to an annualized pace of 350,000 units. The drop is less severe than it appears however, as May’s pace was revised up strongly to 382,000 units, the fastest pace since April 2010. Census, however, has frequently revised up initial monthly sales numbers in recent releases.

The months of supply on the market ticked up to 4.9 from 4.5. This remains a relatively low reading and is in line with the average over the past 4 months.

New home prices remain weak, with the median price falling 0.9% to $230,400. The median new home price has fallen 3% lower than its year-ago level.

Read Census' report.

US Drought to Lower Beef Prices in Near Term

The USDA’s Economic Research Service (ERS) forecasts that food prices will rise 2.5% to 3.5% in 2012 and an additional 3% to 4% in 2013.

As a result of the current drought, the ERS lowered its 2012 forecast for beef and veal prices. The current drought is expected to reduce cattle herd sizes because of increased feed costs. This in turn will increase the retail beef supply and push prices down in the short term.

The ERS did, however, revise upward its forecast for poultry and fats and oils due to the drought. The poultry category is likely to be the first to see price increases with prices expected to rise 3.5% to 4.5% in 2012.

Read the USDA's full release.

Tuesday, July 24, 2012

Debt Ceiling Debate Increased Treasury’s Borrowing Costs by $1.3 Billion

The Government Accountability Office has just released a report estimating the costs of the debt ceiling debate at around $1.3 billion in 2011 and may indeed be higher.
Delays in raising the debt limit can create uncertainty in the Treasury market and lead to higher Treasury borrowing costs. GAO estimated that delays in raising the debt limit in 2011 led to an increase in Treasury’s borrowing costs of about $1.3 billion in fiscal year 2011. However, this does not account for the multiyear effects on increased costs for Treasury securities that will remain outstanding after fiscal year 2011. Further, according to Treasury officials, the increased focus on debt limit-related operations as such delays occurred required more time and Treasury resources and diverted Treasury’s staff away from other important cash and debt management responsibilities.
Read GAO's full report.

Friday, July 20, 2012

Chart of the Week: Growing Student Loan Debt

Student loan debt is the only form of consumer debt that has grown since the peak of consumer debt in 2008. Balances of student loans have eclipsed both auto loans and credit cards, making student loan debt the largest form of consumer debt outside of mortgages.

Thursday, July 19, 2012

Existing Home Sales Fell in June

Existing-home sales slowed 5.4% in June, declining to an annualized pace of 4.37 million units. This is the slowest pace since last October. Compared with the first quarter of this year, sales are down by an annualized 2.6%. Nonetheless, the second quarter pace of sales is the second fastest in the last two years.

The decline in June sales was broad-based across regions, with the Northeast faring the worst and the Midwest faring the best.

Inventory of existing homes rose slightly in June, reaching 6.6 months, up from 6.4 the previous month. The increase was driven by a drop in demand. Listings of homes for sale fell as well, by 3.2%, likely a result of fewer distressed listings.

The average median home price continued to appreciate in June as a result of a declining share of distressed sales. The median home price increased 0.9% over the previous month in June to $189,400. This level is 7.9% above year-ago levels. The share of distressed sales dropped to 25% in June from 30% the previous year.

Read the NAR release.

Wednesday, July 18, 2012

Housing Starts Rose in June

New home construction rose in June to an annualized pace of 760,000 units, a 6.9% increase from May and a 1.7% increase from the 2012 high in April of 747,000 units. The Census bureau revised estimates for May’s pace up by 3,000 to 711,000 units.

Single family starts continued to improve in June as well to an annualized pace of 539,000 units. This pace, 4.7%, is one of the top two increases since January.

Residential permit issuance declined in June by 3.7% from May suggesting that building may slow in the future.

Read Census' report.

Tuesday, July 17, 2012

Industrial Production Rose 0.4% in June

Industrial production rose, a better than expected, 0.4% in June, ending a weak quarter on a positive note. Overall industrial production rose at an annualized rate of 2.2% in the second quarter, down from 5.8% in the first quarter. Manufacturing and mining output increased 0.7% offsetting the 1.9% decline in utilities production.

There were downward revisions to industrial production in May, from -0.1% to -0.2%, and in April, from 1% to 0.8%.

The manufacturing production increase in June was driven by a 1.9% increase in motor vehicle production. Overall manufacturing production slowed to an annualized rate of 1.4% in the second quarter. Weakness in foreign markets and mild domestic demand may lead to a poor start for the factory sector in the third quarter.

The capacity utilization rate increased from 78.7% to 78.9% in June, remaining well above recent readings.

Read the report.

Consumers Prices Unchanged in June

The consumer price index was unchanged in June. This is the third consecutive month that the index has failed to advance. Lower gasoline prices resulted in declining energy costs of 1.4% over the month, dominating the 0.2% increase in the food index.

Core prices continued modest gains, growing 0.2% for the fourth consecutive month. Prices of goods rose at 0.2%, the same level of growth seen in the previous four months. Prices on services rose 0.2% as well, the same level of growth as the previous month.

Prices are currently 1.7% above year-ago levels, with core prices up 2.2% over the same period. While energy has fallen 3.9% from the year-ago level, the food index has increased 2.7% over the same period.

Read the report.

Monday, July 16, 2012

Retail Sales Fell 0.5% in June

Retail sales declined 0.5% in June, the third consecutive monthly decline. Excluding autos, sales fell 0.4% as declines were broad-based in June. Revisions to growth in May were minor, but April sales were revised lower to -0.5% from the previously revised -0.2% reported last month.

Falling gasoline prices played a part in June’s decline as gasoline stations' sales led the fall. Building supply stores and sporting goods and hobby stores also experienced larger declines.

The only bright spot to the report was nonstore retailers, but their sales were small and also lagged recent trends.

While retail sales remain above year-ago levels, the growth slowed to 3.8%, the first time growth has been below 4% since August 2010.

Read the report.

Friday, July 13, 2012

Producer Price Increase Slightly in June

Producer Prices just increased by 0.1% in June, reversing a three-month downward trend. Despite the slight increase, produce prices indicated overall decreasing firm costs. Prices for intermediate and crude goods decreased compared to the change in May and last year.

Prices for finished goods have increased at the same rate for four months. The change in these goods from a year ago is less than 1% and was last seen at that level in 2009.

Read the BLS release.

Wednesday, July 11, 2012

More Monetary Stimulus Soon Beyond Operation Twist Is Unlikely

In its June 19th and 20th meetings, the Federal Open Market Committee discussed the extension of Operation Twist through year-end without much hint of additional monetary stimulus according to the FOMC minutes released today. One member disagreed with extending this program through the year-end with a dissenting vote. In addition, some members noted the risk that continued purchases of longer-term Treasury securities could, at some point, lead to deterioration in the function of the Treasury securities market which could undermine the intended effects of the policy. However, there was a general agreement that such risks were presently low.

The FOMC minutes also showed that strains in the global financial market pose a significant downside risk to the committee’s economic outlook and that fiscal policy continues to act as a drag on economic growth.

Read the minutes.

U.S. Trade Deficit Fell to $48.7 Billion in May

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced that the Trade Deficit fell in May to $48.7 billion, down from $50.6 billion in April.

Total May exports were $183.1 billion and imports were $231.8 billion. May exports were $0.4 billion more than April exports of $182.7 billion. May imports were $1.6 billion less than April imports of $233.3 billion. Cheaper oil from abroad helped to narrow the trade deficit.

Read the release.

Tuesday, July 10, 2012

Treasury Announces Auction of CPP Investments

The Treasury Department will auction—on or about July 23—its preferred stock and subordinated debt holdings in 12 institutions under the Capital Purchase Program (CPP), which is part of the bank portion of the Troubled Asset Relief Program (TARP), the agency said yesterday.

Treasury has already held three CPP auctions and plans to hold several more this summer. In a June 18 letter to about two-thirds of the banks left in the CPP, the Treasury said it intends to auction pools of their program investments, probably starting in the fall.

TARP’s bank programs have already earned a significant profit for taxpayers. To date, Treasury has recovered $264 billion from TARP’s bank programs through repayments, dividends, interest, and other income – compared to the $245 billion initially invested.

Read more about the Treasury auction.
Read ABA’swhite paper: TARP Bank Programs Repaid in Full: May 2012

Small Business Optimism Struggles in June

Small business sentiment declined in June according to the NFIB Optimism Index. The index fell by 3.0 points to 91.4, the lowest level since October 2011.

Nearly one-quarter of owners cite weak sales as their most important business problem (23%), followed by taxes (21%) and unreasonable regulations and red tape (19%). Only 3% reported that financing was their top business problem.

Ninety-three percent of all owners reported that all their credit needs were met or that they were not interested in borrowing. Twenty-nine percent of all owners reported borrowing on a regular basis, down 3 points from May, and a net 7% reported loans “harder to get” compared to their last attempt, down 2 points.

After reaching a five year high of a net 4% in April, the net percent of all owners reporting higher nominal sales over the past three months fell to -5%. Expectations for future sales do not look much better, declining 5 points to -3% of all owners, producing a 4 month decline of 15 percentage points.

Capital expenditures are consistent with the slow performance of the economy. The frequency of reported capital outlays over the past six months dropped 3 points to 52%. The net percent of owners expecting better business conditions in 6 months was a negative 10%, an 8 point decline from May.

Read the report.

Consumer Credit Rose $17.1 Billion in May

Consumer credit rose $17.1 billion in May. This ninth consecutive month of growth was fueled by the largest one-month gain in revolving credit since 2007. Consumer credit grew at an annualized rate of 8% and is close to prerecession levels. On the other hand, revolving credit remains below prerecession levels despite the large gain in May.

The demand for auto loans, student loans, and other types of nonrevolving credit increased at a 6.5% annual rate, or $9.1 billion. Revolving credit, the borrowing category including credit cards, rose at an 11.2% annual rate, or $8 billion.

Read the report.

Friday, July 6, 2012

U.S. Economy Added 80,000 Jobs in June

The unemployment rate held steady at 8.2% in June after the economy added 80,000 jobs. Although slightly below expectations of 90,000, June’s growth is an improvement from the 77,000 jobs created in May. Job growth in the second quarter averaged only 75,000 new jobs per month, a severe slowdown from the 225,000 job average seen in the first quarter. In fact, the second quarter of 2012 saw the weakest job growth in two years.

“The U.S. economy and labor market remain stuck in low gear,” said Jim Chessen, chief economist of the American Bankers Association. “Job creation during the second quarter was the weakest since the third quarter of 2010,” he added.

The private sector continues to drive job growth, adding 84,000 jobs in June, down from the 105,000 added in May. The public sector shed 4,000 jobs in June, fewer than the 28,000 job drag in May.

The majority of June’s job creation was in the professional and business services sector, with other sectors remaining nearly unchanged. Professional and business services added 47,000 of June’s jobs.

The unemployment rate remained at 8.2% in June as the labor force participation rate remained unchanged at 63.8%.

Read the BLS release.

Thursday, July 5, 2012

ISM Non-Manufacturing Weakened in June

Services weakened in June with the ISM non-manufacturing index falling to 52.1, down from 53.7 in May. The index is now at its lowest level since January 2010. Although the report is not encouraging, any reading above 50 indicates growth in the service sector. In fact, the non-manufacturing index has remained above 50 for 30 consecutive months.

The details of June’s report were also weak. The forward looking new orders component of the index fell 2.2 points to 53.3. Business activity was down significantly, dropping 3.9 points to 51.7. The good news was the employment index, which improved from its near neutral reading of 50.8 to 52.3.

Exports were notably weak in June as we are beginning to feel pressure from Europe’s troubles.

The weakness in the non-manufacturing is not quite as bad as the poor ISM manufacturing report for June, which saw the index fall below 50 for the first time in almost three years.

ADP Employment Increased by 176,000 Jobs in June

The nonfarm private sector added 176,000 jobs in June, according to the ADP National Employment Report released this morning. This represents an acceleration from May’s upwardly revised 136,000 jobs (initially reported at 133,000 jobs). June’s employment growth is above the 6-month average of 173,000 jobs created.

Job creation continues to be driven primarily by the services sector, which added 160,000 jobs in June. The goods producing sector showed increased employment growth in June, adding 16,000 jobs, compared to growth of 1,000 in May. Also in the goods producing sector, a two-month downward trend in manufacturing was reversed with an addition of 4,000 jobs in June.

Tuesday, July 3, 2012

Consumer Delinquencies Continue Broad-Based Decline in First Quarter 2012

Consumer delinquencies fell in 10 of 11 categories tracked by the American Bankers Association, which today released results from the first quarter 2012 Consumer Credit Delinquency Bulletin.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 14 basis points to 2.35 percent of all accounts in the first quarter, the best quarter since 2007 and below the 15-year average of 2.40 percent. Bank card delinquencies also continued their descent, falling nine basis points to 3.08 percent of all accounts in the first quarter, the lowest since 2001 and below the 15-year average of 3.93 percent. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

Overall, ABA Chief Economist James Chessen said the news was very encouraging, considering delinquencies declined in nearly every category. In the previous quarter, delinquencies fell in all 11 categories.

“This is another strong quarter of improving delinquencies. Consumers have done a remarkable job getting their finances under control,” Chessen said. “Improvement was all the more remarkable when you consider that gas prices rose 66 cents a gallon in the first quarter alone. That’s a significant amount of money that was diverted from other uses, including paying off debt. Gas prices have fallen 48 cents a gallon since the first quarter so that pressure has abated somewhat and freed up precious resources,” he added. The only category where delinquencies rose was home equity lines of credit. Chessen attributed the increase to the painful adjustment still underway in the housing sector. “It will be many quarters before delinquencies on home equity loans get back to anything close to normal,” he said.

But Chessen said consumers have ample reason to feel positive. “Overall debt levels have declined dramatically and savings continues to grow. This means many consumers have more capacity to absorb a financial shock, and that’s a good place to be,” he said.

Looking forward, Chessen expects delinquency rates to continue to improve but not as dramatically as in the last two quarters. “We’ve moved back to historical norms now and further improvement could be hard to achieve. The economy has slowed recently and uncertainty remains high. This means banks will continue their prudent approach to extending new consumer credit as high unemployment levels are still creating loan losses,” Chessen said. “However, continued growth in jobs, moderating gas prices, and steady growth in personal income all will help consumers build a strong financial base.”

Read the entire report.

Monday, July 2, 2012

ISM Manufacturing Plunged in June

The ISM’s manufacturing index plunged in June, entering contractionary territory for the first time since the recovery began. June’s reading fell 3.8 points to 49.7, below the expansionary threshold of 50. This month’s report is the first contraction reported since July 2009.

Many of the details in June’s report were weak as well. The new orders index plunged 12.3 points, to 47.8, its biggest drop since 1980. The production index dropped 4.6 points, however, remained in expansionary territory at 51.0.

Employment was the one bright spot in June, falling a modest 0.3 points and remaining at a relatively high 56.6. Employment, however, is a lagging indicator, and may catch up with the other indicators in the next report.

Read the ISM release.

Construction Spending Grew 0.9% in May

Construction spending improved notably in May, increasing 0.9% over April’s level. Construction spending now stands 7% higher than year-ago levels.

Private residential construction continued to be the biggest driver in May, rising 3.0%. Private non-residential construction also added to the growth, increasing 0.4% over the month.

The public sector continues its trend of dragging on growth, falling 0.4% over the month. Public construction has now fallen for six consecutive months.

Read Census' report.