Thursday, January 31, 2013

Personal Income Surged in December

Personal income rose sharply in December, rising at its fastest pace since December 2004, when income was inflated by a massive Microsoft dividend. Personal income grew at 2.6% in December, up from 1.0% the previous month and well above the 0.3% average for the previous year. Much of the strength in personal income growth was due to accelerated dividend and bonus payments.

Dividend income grew 34.3% in December, $291 billion at an annual rate. Excluding the dividend effects, the BEA estimates personal income would have grown by 0.5% in December and 0.6% in November.

Consumption slowed over the month, falling to 0.2% from 0.4% the previous month. The slowdown in spending was due primarily to slower growth in durable goods consumption, which rose 1.0% over the month, down from 2.7% the previous month.

The extraordinary jump in income boosted the savings rate up to 6.5%, almost double levels seen in recent months. This is the highest level seen since 2008.

Read the BEA report.

Wednesday, January 30, 2013

Federal Reserve Left Monetary Policy Unchanged in January Meeting

As expected, the Federal Open Market Committee made no changes to monetary policy at its January 29-30 meetings. After making substantial changes to its communication policy in the previous meeting the

The Fed was not concerned with the unexpected drop in 4th quarter GDP. The statement acknowledged that “transitory” factors hit economic growth in the fourth quarter, but expect those factors to be passing.

The Fed will continue its bond buying program, QE3, at current levels which will add $85 billion to its balance sheet every month. In addition the Fed held its pledge to keep interest rates at near-zero levels until unemployment falls below 6.5% as long as inflation does not rise above 2.5%.

Read the FOMC release.

ADP Payroll Employment Continues to Improve in January

Private sector employment increased by 192,000 jobs in January according to ADP’s National Employment Report. January’s increase is stronger than the 185,000 jump seen in December. 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. In December, the ADP’s gain of 185,000 jobs translated to 155,000 jobs created as reported by the BLS.

January’s employment gains were driven by a surge in service sector job creation. The service sector added 177,000 jobs in January, up from 129,000 the previous month. The goods producing sector did not fare as well, and was unable to keep up the relatively strong job creation pace seen in December. The goods producing sector added 15,000 jobs in January, down from the 56,000 in December, but in line with its trend in previous months.

Read the ADP report.

Economy Unexpectedly Shrank in 4th Quarter

Real GDP fell 0.1% in the fourth quarter of 2012, marking the first decline since the US economy exited the 2007-2009 recession. Although the headline decline is somewhat shocking, the fundamental data is surprisingly strong. The decline was driven by one-time events, some of which may be reversed, boosting growth in coming quarters. The majority of the decline was driven by the largest fall in federal defense spending in over 40 years.

Growth in the fourth quarter slowed significantly from the 3.1% growth seen in the third quarter. The fourth quarter’s decline brought down 2012 GDP growth to 2.2% for the year.

The decline in the fourth quarter was driven primarily by reduced government spending, inventory drawdown and drag from exports. Federal defense spending fell at a 22% annual rate in the fourth quarter, producing a 1.3% drag on GDP growth. The cuts came primarily from outlays other than military personnel, suggesting that the military has been preparing for the looming sequestration.

The drawdown on inventories provided a 1.3% drag on growth in the fourth quarter, however is a positive sign for growth going forward. As inventories decline, it means more is being consumed than is being produced. This means that in coming months production will need to be ramped up to meet demand and rebuild inventories.

Finally, net exports provided a 0.3% drag on growth as continued weakness overseas hampers our growth.

Despite the strong declines in a number of categories, the fundamentals actually improved in the third quarter. Personal consumption added 1.5% to GDP growth, up from 1.1% the previous quarter. Fixed investment also improved notably, rising to 1.2% from 0.1% the previous quarter. Both residential investment and non-residential investment improved. These two areas are where we can see sustainable growth and will be the pillar of a sustainable recovery. Their continued strength suggests the fourth quarter results are unlikely to be repeated.

Read the BEA release.

Tuesday, January 29, 2013

Home Prices See Strongest Gains Since 2006

Home prices are now 5.5% above year-ago levels according to the Case-Shiller 20-city index, the fastest yearly growth since August 2006. Despite small month-over-month declines, home prices improved against year ago measures in November, reaching their highest yearly growth since the collapse of the housing bubble.

More metropolitan areas are reporting prices above year-ago levels. Only one area covered posted a decline in November, with New York prices down 1.2% from a year ago. Gains ranged from .08% in Chicago to 22.8% in Phoneix, the only metro area to report a gain greater than 15%.

Although home prices have seen strong growth in recent months, the growth is coming from depressed levels. The 20-city index remains 29.4% below its 2006 peak

Read the S&P release.

Friday, January 25, 2013

New Home Sales Dropped in December

New home sales saw a surprise decline in December, as the pace slowed 7.3% from the previous month. Despite December’s weakness, new home sales remain on an upward trend new home sales rising 7% in the fourth quarter alone to an annualized pace of 369,000. In 2012, the pace of new home sales rose 20% from the previous year. The annual gain is the first since 2005 and the strongest since 1992.

The supply of new homes on the market rose slightly in December, reaching 4.9 months. The rise was directly attributable to the slowing pace of sales, as listings held steady in December. Despite the slight rise in inventory, home supply remains extremely tight. The median home price fell slightly in December to $243,900, but remains 13.7% above year-ago levels.

Read the Census report.

Thursday, January 24, 2013

The Business of Banking Guide

ABA has produced the a guide, The Business of Banking: What Every Policy Maker Needs to Know, and sent it to Capitol Hill offices. It reviews the basics of banking and provides a foundation for understanding how banking policy decisions affect communities and constituents.

Banks’ fundamental mission – building success for their customers and communities – is a vital one. Policy issues surrounding banking can be complex, but the basic business of banking is not. To ensure that policies help banks achieve their mission, it’s critical that policymakers understand the fundamentals of how banks help businesses grow, create jobs and promote prosperity.

Copies of the guide are available at of banking.

Tuesday, January 22, 2013

Existing Home Sales Softened in December

Sales of existing homes slowed slightly in December, declining 1.0% to an annual pace of 4.94 million units. Despite the surprise decline in December, existing home sales have recovered notably in recent months. December’s pace of home sales is the nearly the fastest since the beginning of 2007. Overall sales for 2012 were 9% higher than 2011 sales, the strongest acceleration the housing market has seen since 2003.

The decline seen in December was concentrated in the Midwest and South, which saw sales decline 5.9% and 3.0% respectively. The Northeast and West both saw improvement with sales improving 3.2% and 5.1% respectively.

Market supply is extremely tight, with the month’s supply falling in December to 4.4, its lowest reading since May 2005.

House prices continue to strengthen as well, with the median price of existing homes sold rising to $180,800 in December. The median price has risen 11.5% from a year-ago. Some of this shift is the result of fewer distressed properties being sold. According to the NAR’s survey distressed sales have dropped to 24% of homes sold, down from 32% a year ago.

Read the NAR release.

Thursday, January 17, 2013

Housing Starts Surged 12.1% In December

The housing recovery strengthened in December as new residential construction increased 12.1% from the previous month. Housing starts are now running 954,000 their fastest level since early 2008. Housing starts have risen 36.9% above their level one year ago. Despite the strong improvement, housing starts are improving from an extremely low base. December’s pace is only 2/3 of the long run average of 1.5 million units per year.

As has been the case throughout most of the recovery to date, December’s increase was driven by strong growth in multi-family construction. Multi-family construction surged 20.3% over the month. Single-family starts were strong in December as well, rising 5.0%.

Other statistics were positive as well, with increases in permit issuance and completions. Permits issued rose 0.3%, with single-family permits being the sole source of strength, offsetting a decline by multi-family starts. This is notable because it indicates that the important single-family sector is poised for strong gains. Completions rose 1.6% in December as well.

Read the Census release.

Bank Economist See Acceleration After Fiscal Cliff Drag

The fiscal cliff agreement has created headwinds early in 2013, resulting in an economy that will grow slowly in the first half of the year before improving to a moderate pace in the second half, according to the Economic Advisory Committee of the American Bankers Association. The committee warns that the tax hikes, a protracted fight over the debt ceiling and the possibility of severe spending cuts in 2013 have the potential to stop our economy in its tracks.

According to the committee, which includes 13 chief economists from among the largest banks in North America, inflation-adjusted GDP growth for the first half of 2013 will be below 2 percent, and is expected to increase to 2.6 percent in this year’s fourth quarter.

The group believes the economy will be shaped this year by the struggle between private sector momentum and the inevitable fiscal drag that comes from the tax and spending decisions made by Congress.

The private sector economy appears poised for sustainable growth. However, the tax hikes made at the start of 2013 will create a drag on GDP growth of at least 1.25 percent, and additional budget cuts from sequestration could further restrain growth.

“If you double down on austerity this year, you’re flirting with recession,” Scott Anderson, committee chairman and Bank of the West chief economist, said. “Resolving the debt ceiling and providing clarity on taxes and spending will boost confidence, opening the door for faster growth at a critical point in the economic expansion.”

While job creation is expected to weaken in the first half of 2013, the bank economists predict that unemployment will continue its slow but steady decline.

“The committee’s consensus is that unemployment will fall to 7.4 percent by year-end,” Anderson said.

The committee sees the housing recovery gaining strength this year, with improving construction levels and rising home sales and prices combining to bolster the housing market in 2013. The committee forecast is that home prices nationwide will rise 4.3 percent and residential investment will increase 12.9 percent.

“Rising home prices create a wealth effect that’s critical to supporting consumer spending and economic expansion,” Anderson said.

According to the committee, consumer spending growth will be positive, but will not improve from last year’s pace. Consumer spending, which represents 70 percent of the economy, is expected to grow only 1.8 percent for 2013 as a whole - about the same as last year.

“We expect consumer spending to slow in the first half of this year as higher taxes reduce consumers’ take-home pay,” Anderson said. “Consumer spending will pick up in the second half of 2013 as housing activity and consumer confidence gain strength.”

While the committee forecasts a slight rise in long-term interest rates, short-term rates will remain exceptionally low in 2013.

“Short-term interest rates are anchored by current Fed monetary policy,” Anderson said. The committee noted that the Federal Reserve has adopted thresholds of 2.5 percent on its inflation forecast and 6.5 percent on the unemployment rate before it would consider raising the Fed Funds rate.

“The committee doesn’t see the unemployment rate falling to 6.5 percent until May 2015,” Anderson said.

The bank economists forecast that credit growth in 2012 will continue this year. Loans to businesses are expected to grow 6.5 percent in 2013, while loans to individuals are expected to increase 5.0 percent.

“The increase in business lending shows that banks are doing their part to make loans that finance our economy,” Anderson said.

The group sees the federal budget deficit continuing to decline, but remaining at unsustainably high levels. The committee’s forecast is for the federal deficit to fall to $925 billion in 2013 and to $738 billion in 2014 (down from $1.1 trillion in 2012).

“While budget deficits continue to fall, addressing the federal debt as a whole is still a work in progress,” Anderson said. “Much more needs to be done to reduce the federal deficit over the long term.”

The members of the 2013 ABA Economic Advisory Committee are:
  • EAC Chair Scott A. Anderson, SVP and chief economist, Bank of the West, San Francisco, Calif.
  • Scott J. Brown, SVP and chief economist, Raymond James & Associates, Inc., St. Petersburg, Fla.;
  • Robert A. Dye, SVP and chief economist, Comerica Bank, Dallas;
  • Ethan S. Harris, co-head of global economics research, Bank of America Merrill Lynch, New York;
  • Stuart G. Hoffman, chief economist, PNC Financial Services Group, Pittsburgh;
  • Peter Hooper, managing director and chief economist, Deutsche Bank Securities Inc., New York;
  • Nathaniel Karp, EVP and chief economist, BBVA Compass, Houston;
  • Bruce C. Kasman, chief economist, JP Morgan Chase & Company, New York;
  • Christopher Low, chief economist, First Horizon National Corp’s FTN Financial, New York;
  • Gregory L. Miller, SVP and chief economist, SunTrust Banks, Inc., Atlanta;
  • George Mokrzan, director of economics, Huntington National Bank, Columbus, Ohio;
  • Richard F. Moody, SVP and chief economist, Regions Financial Corporation, Birmingham, Ala.; and
  • Carl R. Tannenbaum, SVP and chief economist, Northern Trust, Chicago
View detailed EAC forecast numbers.

Wednesday, January 16, 2013

Industrial Production Increased in December

Industrial production 0.3% in December after surging in November, gaining 1.0%, its strongest gain since 2010. The December growth is stronger than anticipated, however manufacturing in the fourth quarter was little changed from the third quarter.

Manufacturing production rose 0.8% in December, with autos production increasing by 2.6% over the month. Excluding autos, manufacturing rose 0.7% indicating results beyond autos were good as well.

Durable goods production in December gained 1.0%, while nondurable goods production rose 0.6% over the months.

Utilities production plunged in December, falling -4.8% largely due to the warm weather. Mining production rose 0.6% in December.

December’s report pushed the capacity utilization rate up to 78.8%, a five-month high.

Read the Fed report.

Consumer Prices Unchanged in December

Consumer prices were unchanged in December, after falling 0.3% in November the first decline in six months. Consumer prices are now 1.7% above year-ago levels–the third smallest December-December increase of the past ten years.

Core goods saw a modest 0.1% appreciation in December, constant with that seen in November. Core prices are now 1.9% above year-ago levels.

The appreciation in core prices was due entirely to services, which rose 0.2% over the month. Goods prices saw declines, falling 0.2%. Goods prices have now fallen in all of the past five months.

Energy prices fell for the third consecutive month, falling 1.2% in December—a much smaller decline than the previous month fall of 4.1%. Food prices continued their appreciation in December, rising 0.2%.

Read the BLS report.

Tuesday, January 15, 2013

Retail Sales Rose 0.5% in December

Retail sales performed better than expected in December, rising 0.5%. December’s strong growth follows an upward revision to November growth, making holiday sales look better than initially thought. Retail sales are now 4.7% above year-ago levels, better than the 4.1% reported in November.

Core sales remained strong in December, matching the previous month’s 0.6% growth. Auto’s helped the overall index in December, with sales up 1.6%. However much of this was offset by falling gasoline prices, which fell 1.6% in December.

Growth was strong across a number of industries, with auto dealers, furniture stores, drugstores, restaurants and apparel stores all seeing greater than 1% growth.

Read the Census release.

Producer Prices Fell in December

Producer prices fell 0.2% in December, declining for the third consecutive month. December’s decline of 0.2% was more mild than the 0.8% seen in November. Although headline producer prices have declined sharply in the past few months, core process have grown slightly in the past two months. Prices of core finished goods have risen 0.1% for the past two months.

A sharp decline in energy prices drove producer prices lower in December. The finished consumer foods index fell 0.9% in December, its first drop since May. Energy prices continued to fall in December as well, however only declined 0.3% compared to 4.7% the previous month.

Read the BLS release.

Friday, January 11, 2013

Trade Gap Unexpectedly Widened in November

In November the trade deficit unexpectedly widened to its largest level since April due to a surge in imports. The November trade gap widened to $48.7 billion from 42.1 billion. The trade gap has remained under $43 billion for the past five months prior to November’s jump.

A small rise in exports was not enough to offset the surge of imports seen in November that pushed the deficit wider. Exports rose 1.0% in November to $183 billion. Imports, however surged 3.8% rising to $231 billion.

The real goods deficit, which is important for the calculation of GDP, rose 12.8% to $51.9 billion.

Read the Census report.

Tuesday, January 8, 2013

Consumer Credit Continued Strong Growth in November

Consumer credit continued its recent surge in November, rising $16 billion over the previous month’s level. As has been the case for some time, the majority of the growth in consumer credit is driven by gains in non-revolving credit. Consumer credit has now gained more than $10 billion per month for the past four months, after a surprise decline in July.

The gains in revolving credit were relatively modest, gaining $800 million over the month. Revolving credit has been up and down throughout 2012, rising in six and falling in five of the months.

Non-revolving credit continues to drive overall growth, rising 10.1% in November ($15.2 billion). November marks the 15th consecutive gain for non-revolvoing balances. Non-revolving debt growth has been driven primarily by growth in student loans, accounting for 62% of the growth in non-revolving credit on a non-seasonally adjusted basis.

Read the Fed release.

Friday, January 4, 2013

Service Industry Expansion Continued in December

The service industry continues to improve according to the ISM’s non-manufacturing index. The index improved to a reading of 56.1 in December, its highest level since February. December’s improvement marks the fifth increase in six months. The non-manufacturing index has now remained above 50 – indicating industry expansion – for 36 consecutive months.

The details of December’s report were encouraging as well, with new orders improving to 59.3. The employment index jumped 6.0 points, reaching 56.3, its highest level since march. Export orders improved in December, gaining 1.5 points and presenting a much smaller drag on expansion.

Overall business activity edged lower in December, losing 0.9 points, however remain above 60, an extremely strong reading. Inventories improved slightly in December, however remain below their neutral threshold of 50, indicating a drag on expansion.

Read the ISM release.

U.S. Economy Added 155,000 Jobs in December with Unemployment Steady at 7.8%

Payroll employment increased by 155,000 jobs in December, as the unemployment rate held steady at 7.8%. December’s growth brings the third quarter average monthly job growth to 151,000 jobs, lower than the 168,000 average from the previous quarter. December’s report saw November’s job gains revised up from 146,000 to 161,000.

Although job creation continues to be driven primarily by the service sector, it played much smaller a part in December’s job growth than in previous months. The service sector added 96,000 jobs over the month, the fewest since June, when overall employment grew by just 45,000. The goods producing sector picked up the slack in the service sector, adding 59,000 jobs, its fastest pace in a year. Both construction and manufacturing payrolls contributed to the goods sector strength adding 30,000 and 25,000 jobs respectively.

The unemployment rate held steady at 7.8% in December, although November’s unemployment rate was revised up to 7.8% from an initially reported 7.7%. The labor force participation rate remained unchanged in December at 63.6%.

Read the BLS report.

Thursday, January 3, 2013

Keating on CNBC’s ‘Squawk Box’: Leadership Needed on Fiscal Issues

ABA President and CEO Frank Keating called for leadership and a bipartisan solution to the nation’s fiscal challenges during an appearance yesterday on CNBC’s “Squawk Box” television program. Joe Kernen, the program’s co-anchor, asked both Keating, a former Oklahoma governor, and former Pennsylvania Gov. Ed Rendell, to provide their perspectives on those challenges.

Consumer Delinquencies Continue Decline in Third Quarter

Bank card delinquencies fell 18 basis points to 2.75 percent of all accounts in the third quarter, the lowest level since 1994 and well below the 15-year average of 3.89 percent, 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 2.16 percent of all accounts, 8 basis points lower than the previous quarter and the lowest level since 2006.

ABA Chief Economist Jim Chessen attributed the improvement to consumers’ continuing efforts to manage their finances. “Consumers are paying close attention to their finances as they continue to pay down debt in an uncertain economy,” Chessen said. “The conservative approach … has allowed them to better manage their debt and better position themselves for the future.”

He added, however, that while the ongoing decline in delinquencies is encouraging, there hasn’t been a comprehensive improvement across categories since 2012’s first quarter.

“The lack of broad-based improvement remains a concern,” Chessen said. “Some categories have reached historical lows leaving little room for improvement. In addition, slow job growth, continued uncertainty and falling consumer confidence could signal rising delinquencies in the year ahead.”

Read ABA's full release.

Wednesday, January 2, 2013

Construction Spending Fell in November

New spending on construction fell slightly in November, dropping 0.3% from the previous month’s level. November’s decline was the first since March. Despite the decline, construction spending remains 7.7% above year-ago levels.

As has been the trend lately, private residential construction spending outperformed the other categories, rising 0.4%. Private non-residential construction fell 0.7% over the month. Total public spending fell as well, dropping 0.4% from the previous month.

Read the Census release.

ISM Manufacturing Recovered in December

The ISM’s manufacturing index recovered in December, rising 1.2 points, and re-entering expansionary territory. In November the manufacturing index unexpectedly fell into contractionary territory with an index reading of 49.5, due in large part to Hurricane Sandy. December’s gain offsets only about half of the decline seen in November, suggesting that last month’s decline was not entirely due to effects from the storm.

The details of December’s report are not especially encouraging either. Production fell slightly, losing 0.9 points and settling at 52.6. New orders failed to improve in December, remaining pinned just above their neutral threshold at 50.3.

Not all of the particulars were bad in December however. Employment improved notably, rising from 48.4 to 52.7, more than offsetting the large drop seen the previous month. New export orders also performed well, rising to 51.5, entering expansionary territory for the first time since May.

Inventory growth continued to fall in December, leading the gap between inventories and new orders – a proxy for future production – to rise to 7.3 points, the best since May.

Read the ISM release.