Thursday, February 28, 2013

Fourth Quarter GDP Growth Revised Up to 0.1%

GDP continued to grow in the end of 2012, albeit at a notably weak pace, following an upward revision in the BEA’s second estimate of fourth quarter GDP growth. GDP grew by 0.1% in the fourth quarter, better than the 0.1% decline reported in the BEA’s initial estimate. Despite the modest upward revision, GDP growth slowed notably in the fourth quarter from the 3.1% growth seen in the previous quarter.

As we noted following the BEA’s initial estimate, the weakness in the fourth quarter was due primarily to transient factors. Strong declines in inventories and government spending proved to be a 2.9% drag on GDP growth in the fourth quarter. One of the chief drags came from sharp cuts in defense spending, which fell at a 22% annual rate, providing a 1.3% drag on GDP. The weakness in both of these categories is expected to be a one-time event. Falling inventories is a positive sign for future growth. 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.

Despite the drag, the core components of GDP saw strong growth. Consumption added 1.5% to GDP growth, its strongest contribution since the beginning of 2011. Fixed investment was also strong, contributing 1.4% to growth.

The upward revision in the second estimate was due primarily to strong exports. Exports were revised up by 0.5% in the second estimate, swinging from a 0.3% drag to contributing 0.3%. Fixed investment was also revised up in the second estimate, adding 1.4 % to growth.

Read the BEA's second estimate.

Tuesday, February 26, 2013

Home Prices Were Strong for December 2012

Home prices are now 6.8% above year-ago levels according to the Case-Shiller 20-city index. With month-over-month increases of 0.2%, November 2012 losses were reversed.

More metropolitan areas are reporting prices above year-ago levels. Only one area covered posted a decline again in December, with New York prices down 0.5% from a year ago. Gains ranged from 2.2% in Chicago to 23.0% in Phoenix, 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 about 30% below its 2006 peak.

Read the S&P release.

ABA Statement of Banking Industry Performance, Q4 2012

Below is a statement by ABA's Chief Economist, James Chessen, on the FDIC's release of the Quarterly Banking Profile.

“It was another strong year for the banking industry, which showed significant improvement in every category from strong loan growth to improving asset quality. A strong banking system and a growing economy go hand in hand. Going forward, there are questions as to how the sequester will impact the banking industry. All businesses, including banks, will suffer if the economy slows dramatically because of sequestration. It will increase uncertainty, making businesses more reluctant to borrow and consumers more reluctant to spend.”

Business Loans Grow for Tenth Consecutive Quarter

“Bank lending is spurring economic growth. Business lending posted strong year-over-year growth at 12 percent. It marks the tenth consecutive quarter of business lending growth. Even more promising is the broad-based increase in most loan categories, with real estate and auto loans continuing to rise as consumers become more confident in their finances. Whether businesses continue to seek loans will largely depend on whether there is greater policy certainty surrounding taxes, healthcare costs and government regulations.”

Bank Earnings Grow in Challenging Environment

"It’s not unusual to see fourth quarter earnings come in below previous quarters. The real story is the 37 percent year-over-year gains, which is a significant uptick in a challenging economic environment. At the same time, low interest rates and other factors will continue to present challenges for banks’ top line revenue growth.”

Record Inflow of Deposits

“Deposits continue to flow into U.S. banks as customers seek the safety of our country’s institutions during a period of economic uncertainty. Businesses accelerated dividend payments in anticipation of higher tax rates in 2013, which no doubt contributed to elevated deposit rates. The steady increase in deposits is not a one-quarter event, but has been a noticeable trend since the recession began, reflecting continued confidence in our nation’s banking system.”

Capital Continues to Grow

“Bank capital continues to grow and remains near record levels. Bank capital rose by $63 billion over the course of last year and is 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.”

Problem Loans Stable, Failures Continue to Decline

“While problem loans continue to show signs of improvement, we expect the pace of improvement will slow. Reserve positions are now more reflective of a normal banking environment and future losses will undoubtedly be lower. Problem loans remain somewhat elevated because of our slow-growing economy and persistently high unemployment. Bank failures have slowed dramatically, reflective of a rapidly improving industry. Banks, not taxpayers, are solely responsible for all of the FDIC’s expenses, paying nearly $12.4 billion in premiums over the last year.”

New Home Sales Increased in January

New home sales saw a large increase in January, as the pace quickened 15.6% from the previous month and is the largest monthly increase in the last 6 months.

The supply of new homes on the market declined in January, reaching 4.1 months. The median home price fell slightly in January to $226,400 but remains about 2% above year-ago levels.

Read the Census report.

Thursday, February 21, 2013

Existing-Home Sales Edged Higher in January

Existing-home sales edged higher in January, according to the National Association of Realtors.

Existing-home sales increased 0.4% to a seasonally adjusted annual rate of 4.92 million in January from a downwardly revised 4.90 million in December, and are 9.1% above the 4.51 million-unit pace in January 2012.

Every region, but the West, reported higher existing-home sales.

Housing inventory at the end of January fell 4.9% to 1.74 million existing homes available for sale, which represents a 4.2-month supply at the current sales pace, down from 4.5 months in December, and is the lowest housing supply since April 2005 when it was also 4.2 months.

The national median existing-home price for all housing types was $173,600 in January, up 12.3% from January 2012, which is the 11th consecutive month of year-over-year price increases; that last occurred from July 2005 to May 2006. The January gain is the strongest since November 2005 when it was 12.9% above a year earlier.

Read more.

Consumer Prices Unchanged in January

The consumer price was unchanged for the second consecutive month in January, despite expectations for a modest increase. A strong rise in core goods prices was perfectly offset by falling energy costs. Prices are now 1.6% below year ago levels, down from the 1.8% reported the previous month.

Core goods saw strong gains, rising 0.3% over the month, its fastest pace since mid-2011. Service prices drove January's strength, rising 0.3% over the previous month's level. Goods prices also saw strong appreciation, rising 0.2% over the month. Core goods prices are now 1.9% above a year ago. 

Energy prices continued to fall in January, falling 1.7% for the third consecutive month of declines. Energy prices have now fallen from year-ago levels, and remain 1.0% below January 2012 levels. Food prices were unchanged in January, but remain 1.6% above year-ago levels.

Read the BLS report.

Wednesday, February 20, 2013

Producer Prices Rose 0.2% in January

Producer prices increased for the first time in four months, rising 0.2% over the previous month’s levels. Producer prices are now 1.4% above year-ago levels, up from the 1.3% reported last month.

Food prices rose sharply in January, offsetting a surprise decline in energy prices. The prices on finished energy goods fell 0.4%, its fourth monthly decline. Core good prices rose 0.2% in January, a slight acceleration from the 0.1% pace seen in December.

The prices of crude goods fell in January, declining 0.3%. Although this is the first decline in three months, crude goods prices remain 3.7% below year-ago prices.

Read the BLS report.

Housing Starts Slowed in January

New residential construction slowed in January, however not enough to offset the outsized gains seen in December. January’s pace of construction was 8.5% lower than the previous month. January’s report also included an upward revision to December’s already strong growth, bringing its gain over the prior month up to 15.7%. Housing starts are currently running 24% faster than their pace one year ago.

The more volatile multi-family sales were responsible for all of January’s decline, falling 24.1% over the month. The pace of single family home construction improved for the second consecutive month, rising 0.8%.

Permit issuance continued to rise in January, rising 1.8% from the previous month.

Read the Census report.

Tuesday, February 19, 2013

New Simpson Bowles Plan Would Cut Deficits by $2.4 Trillion

Erskine Bowles and Alan Simpson, former heads of the debt commission, announced a new deficit reduction plan Tuesday. The deal, which would cut the deficit by $2.4 trillion over the next 10-years, is an attempt to find a middle ground between Democrats and Republicans. House Republicans have set a $4 trillion target for deficit reduction, while the White House has set a more modest $1.5 trillion goal.

The new plan would build on recent measures to address the deficit, and cut an additional $2.4 trillion from deficits from 2014-2023. These savings would be achieved via $600 billion in cuts to Medicare and Medicaid, $600 billion in additional tax revenue following tax reform, and $1.2 trillion from cuts and caps to discretionary spending.

Read the proposal.

Friday, February 15, 2013

Frank Keating Discusses Banking Issues with Fox Business

ABA President and CEO Frank Keating spoke with Fox Business, discussing Dodd-Frank reform, Basel III’s impact on community banks and President Obama’s executive order on cybersecurity. Watch the interview here.

Industrial Production Fell Slightly in January

Industrial production fell 0.1% in January, however the decline was offset by upward revisions to growth in the previous two months. December’s growth was revised up to 0.4% from an initially reported 0.3% and November’s growth was revised to 1.4% from 1.0%. Without the revisions to previous months’ January’s level would have been a 0.5% increase from the previous month, rather than a 0.1% decline.

The details of January’s report were disappointing as well, with manufacturing production falling by 0.4% from the previous months. Much of the decline in manufacturing production was due to a 3.2% decline in auto production. Even excluding autos however, manufacturing production fell by 0.1% over the month.

Non-manufacturing production was mixed in January. Mining production fell by 1.0%, its first decline in five months. Utilities saw strong growth in January, rising 3.5%, however this was not enough to offset the 4.5% drop seen in December.

Read the Fed release.

Thursday, February 14, 2013

ABA Publishes 2013 Key Banking Issues Guide

ABA has released an updated guide—2013 Key Banking Issues for Congress—Why They Matter to You and Your Constituents—to the new senators, representatives and staffers.

The guide provides background on the industry’s top policy issues, including the credit union tax exemption, Basel III, municipal adviser registration requirements and the Volker Rule. It also explains how issues affect the lawmakers’ constituents and what Congress can do to help.

Read or download the guide.

Wednesday, February 13, 2013

Retail Sales Rose Modestly in January

Retail sales rose a modest 0.1% in January as higher taxes undermined growth. Retail sales are now 4.4% above year-ago levels, a decline from the 4.8% reported in December.

Excluding auto and gas, sales were up 0.2% from the previous month and 4.0% from year-ago levels.

The increase in sales was led by general merchandise stores, including department stores and nonstore retailers. Motor vehicle and parts, clothing and accessories, and furniture stores were among sectors posting declines in sales from the previous month.

Read the Census release.

Monday, February 11, 2013

Net Cash Farm Income Forecast for 2013

According to the U.S. Department of Agriculture, net cash income for farmers and ranchers is forecasted at $123.5 billion, down almost 9 percent from 2012. Even so, 2013’s forecast would be the fourth time net cash income, after adjusting for inflation, has exceeded $100 billion since 1973.

Read the report.

Friday, February 8, 2013

Electronic Payments Provide 0.3% Boost to GDP

A recent study released by Moody’s Analytics shows that card usage in the U.S. increased GDP by 0.3% over the past five years, adding $127 billion to the economy.

The study looked at 56 countries, together representing 93% of global GDP and found that payment cards added $983 billion to global GDP over the same five-year window. The average global growth for the five years was 1.8% per year, which would have fallen to 1.6% without card usage.

Moody’s noted that “Card usage makes the economy more efficient, yielding a meaningful boost to economic growth, year after year, through a multitude of factors including transaction efficiencies, consumer access to credit and consumer confidence in the payment system overall."

Card usage contributes to economic activity by reducing transaction costs and improving efficiency in the flow of goods and services. Cards allow consumers immediate secure access to all of their funds and credit lines allowing them to optimize consumption decisions. The cards also aid merchants by reducing cash and check handling and the risks associated with holding cash.

Read the full white paper and fact sheet.

US Trade Gap Narrows to Lowest Level in 3 Years

The US foreign trade deficit fell sharply in December, reaching its lowest level since January 2010. The trade deficit fell to $38.5 billion in December, down from $48.6 billion the previous month as exports rose and imports fell. The trade gap recovered in December, after being distorted by Hurricane Sandy and port strikes in November.

Exports grew 2.1% in December, reaching $186.4 billion. A rebound in exports to Europe aided December’s gain and offset some of the weak exports seen in previous months. Imports shrunk notably in December as well, falling 2.7% to $224.9 billion.

The real goods deficit, which is important to the calculation of GDP growth, shrank significantly falling 15% from the previous month and reaching $44.1 billion.

Read the Census report.

Thursday, February 7, 2013

Consumer Credit Grew $14.6 Billion in December

Consumer credit rose by $14.6 billion in the final month of 2012, driven entirely by gains in non-revolving credit. Consumer credit has now grown for five consecutive months, gaining over 10 billion each month. Gains in recent months have been driven almost entirely by the non-revolving segment. Growth from a year ago slipped slightly, falling to 5.7% in December from 5.8% the previous month.

Nonrevolving balances accounted for the entirety of December’s gain, more than offsetting a decline in revolving balances. Revolving credit fell by $3.6 billion in December, negating most of the gains seen in the previous two months. Revolving balances have been volatile in 2012, rising in just half of the months.

Nonrevolving credit grew by $18.2 billion in December, its fifth consecutive gain and the largest gain of the five. Nonrevolving credit has now grown 8.8% in the past year. On a non-seasonally adjusted basis, nonrevolving credit saw much smaller gains. Student loans continue to make heavy contributions to credit growth, accounting for about half of the non-seasonally adjusted balance.

Read the Federal Reserve release.

Tuesday, February 5, 2013

Service Sector Expansion Cooled in January

Growth in the service sector slowed slightly in January, with the ISM’s non-manufacturing index falling 0.5 points to 55.2. Despite the slight decline, January’s reading remains strong, with any reading above 50 representing industry expansion. Overall, the service sector has been improving consistently since June’s low of 52.7.

The details of January’s report were mixed. The business activity sub-index saw its largest fall since March 2011, dropping to 56.4. New orders fell as well, dropping 3.9 points, more than offsetting gains seen over the previous two months.

Despite the negative aspects of the report, there were some bright spots. The employment index improved to 57.5, a gain of 2.2 points. In addition, supplier deliveries reentered expansionary territory rising to 52.5 over the month. Surprisingly, exports improved notably in January, gaining 6 points and entering expansionary territory for the first time in four months.

Read the ISM release.

Monday, February 4, 2013

Banks Report Slight Improvement in Loan Demand

Banks loosened lending standards slightly amid improving loan demand over the past three months according to the Federal Reserve’s Senior Loan Officer Survey released today. The report, which covers the past three months, indicated that demand for loans generally improved, primarily for business loans, prime residential mortgages and auto loans. A modest number of the banks reported easing terms slightly.

A net 19.1% of respondents reported seeing stronger demand for business loans from large and medium sized borrowers. Demand from small businesses increased as well, with a net 15.4% of respondents noting higher demand. Banks have begun easing standards on these business loans as well, with 7.4% of banks easing standards slightly on loans to large and medium sized borrowers and 9.2% of banks easing standards to small borrowers.

Read the report.

Friday, February 1, 2013

ISM Manufacturing Surged in January

The ISM’s manufacturing index improved to 53.1 in January, its highest level since April. January marks the second consecutive monthly gain since the index fell into contractionary territory in November. Some of the improvement seen in January may be seasonal, as manufacturing tends to improve in January, rising each January since 2008.

The details of January’s report were improved as well. New orders were strong in January, rising 3.6 points to 53.3. The employment index also saw notable gains, rising 2.1 points, settling at 54.0, its highest level since June.

Not all of the details were positive however. Inventories rose sharply, by 8 points, settling at 51.0. Although this boosted January performance, inventories are not seasonally adjusted and tend to rise in January. Moreover, rising inventories significantly narrowed the gap between new orders and inventories, a proxy for future production. This gap fell to 2.3 points in January from 6.7 the previous month.

Read the ISM release.

Consumer Sentiment Improved Slightly in January

Consumer sentiment rose 0.9 points in January, settling at 73.8. Although consumer sentiment has come off recent lows it remains well below levels seen just two months ago that reached 82.7. Confidence plunged in December as congress fought to resolve the fiscal cliff. It appears that the deal put in place has alleviated some of the long term concern associated with the cliff.

As expected the improvement in January came entirely from the future expectations portion of the index, which gained 2.7 points to settle at 66.6. This improvement is a signal that consumers view the resolution of the fiscal cliff as a positive development.

The present conditions portion of the index fell by 2 points dropping to 85.0 in January. This drop was largely expected and is due primarily to the expiration of the payroll tax holiday which lowered workers’ paychecks by 2%.

Inflationary expectations were little changed, with the 1-year expectation raising slightly to 3.3% and 5-year expectations holding at 2.9%.

Construction Spending Rose 0.9% in December

Construction spending accelerated in December rising 0.9% over the month. Spending has now risen 7.8% from year-ago levels. December’s report contained an upward revision to November’s growth as well, showing spending rising .01% as opposed to falling 0.3% as was initially reported.

Construction spending continues to be driven by private spending. Both residential and nonresidential spending saw strong gains in December. Residential spending rose 2.2%, accelerating from 0.6% in November. Nonresidential spending improved as well growing 1.8% over the month, as opposed to the 0.3% decline seen in November.

Public construction spending continued to decline, falling 1.4% in December. Public construction spending is not 4.6% below year-ago levels, with the primary declines coming from spending on transportation and education structures.

Read the Census release.

U.S. Economy Added 157K Jobs in January as Unemployment Rose to 7.9%

Payroll employment grew by 157K jobs in January down from December’s revised pace. January’s report included strong upward revisions to the previous two months growth. December’s gain was revised up to 196K from an initially reported 155K and November’s gain was revised even higher, to 247K from an initially reported 161K. Despite the strong gains, the unemployment rate ticked up to 7.9% as new entrants into the labor force outpaced jobs created.

The service sector continues to be the primary driver behind jobs gains, adding 121K jobs in January, down from 152K the previous month. The goods producing sector continues to see gains as well adding 36K jobs over the month. Government continues to drag on jobs growth, shedding 9K jobs over the month. Over half of the losses were in public education. Over the past 12 months the government has shed 74K jobs.

The unemployment rate rose slightly to 7.9% from 7.8% in December. The labor force participation rate remained unchanged in January at 63.6%. The household survey implemented new population controls in December, which makes comparison to previous months difficult.

Read the BLS report.