Friday, March 29, 2013

Consumer Sentiment Improved in March

Consumer sentiment rose to 78.6 points in March, an improvement of 1.0 from the previous month. Confidence is slowly improving after plunging in December due to Congress’ fighting to resolve the fiscal cliff.

The improvement was due to both present conditions and future expectations, rising 1.7 and 0.6 respectively. Present conditions have returned to November’s number of 90.7 before the fiscal cliff battle decreased sentiment.

Inflationary expectations were little changed, with the 1-year expectation decreasing 0.1% to 3.2% and 5-year expectations declining slightly to 2.8%.

Personal Income Increased 1.1% in February

Personal income rose 1.1% in February after falling in January due to onetime events resulting from the government tax changes. These tax changes led to accelerated dividend and bonus payments in December, and a drop off in January. Income improved 2.6% from year ago levels.

February’s gains were largely due to dividend income growth, which saw massive gains in November and December, followed by a huge drop in January. Excluding the dividend effects, the BEA estimates personal income would have grown by 0.45% in February.

Consumption improved 0.3% to 0.7% from the previous month. The increase was driven by nondurable goods, which grew 1.9% in February.

The savings rate improved slightly to 2.6%, as income outpaced consumption. Although savings improved the overall level of 2.6% is extremely low. January’s savings rate of 2.2% was the lowest since August 2007.

Read the BEA release.

Thursday, March 28, 2013

Fourth Quarter GDP Revised up to 0.4%

Economic growth slowed in the fourth quarter to 0.4%, down from the 3.1% growth seen in the third quarter of 2012. BEA’s final estimate of fourth quarter GDP revised growth upward from its original estimate of -0.1% and second estimate of 0.1. Despite the upward revision, GDP growth slowed notably in the fourth quarter from the 3.1% growth seen in the previous quarter.

As we previously noted following the BEA’s initial and second estimates, 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. Sharp cuts in defense spending presented a drag on GDP growth. Falling inventories are also a positive sign for future growth.

The upward revision in the third estimate was due primarily to greater business spending and a narrower trade gap. Net exports were revised up to 0.3% from 0.2% in the second estimate and -0.3% in the first estimate. Fixed investment was revised upward from the second estimate by 0.3% to 1.7%.

Read the BEA release.

Tuesday, March 26, 2013

New Home Sales Dropped in February

New home sales slowed to an annual pace of 411,000 units in February, a 4.6% decline from the previous month. January’s strong numbers were revised down to 431,000 units. New home sales improved 12.3% from year ago levels, and are the second strongest since April 2010.

The supply of new homes on the market rose slightly, reaching 4.4 months. The median new house price increased to $244,700, 2.9% above year ago levels. Despite the slight rise in inventor for the last five out of six months, home supply remains extremely tight.

Read the Census report.

Home Prices Continue to Rise in January

Existing home prices continued to improve, rising 0.1% in January, according to the Case-Shiller 20-city index. Home prices improved against year ago measures by 8.1%, but are still 29.2% below the peak in July of 2006. The country’s 10 largest cities improved 0.2% from December and 7.3% from year ago levels.

For the first time in over five years, all 20 metro regions covered by the index report price increases from year ago levels. New York, the weakest performer, saw home prices grow by 0.6%. Phoenix continues to show the strongest home price improvements, increasing 23.2%.

Read the Standard and Poor's release.

Friday, March 22, 2013

Fewer Households Holding More Debt

The U.S. Census released a study analyzing changes inhousehold debt over the last decade. The study found that although the number of U.S. households with debt decreased, the amount of debt held by those households increased. The number of households holding debt fell from 74% in 2000 to 69% in 2011. The median debt held by households rose over the same period, from $50,971 to $70,000. The increase in the median debt attributes to both a 30% surge in secured and unsecured debt.

Most notably, the largest increase in debt is by age group. The median amount of debt increased for the 35-44, 45-54, and 55-64 year old age groups by $21,350, $23,055 and $27,346 respectively.

Secured debt remained the largest component of debt. The composition of unsecured debt changed, as credit cards and student loans only accounted for 17% of unsecured debt in 2000 and 49% in 2011.

Read the U.S. Census Bureau's study and release.

Thursday, March 21, 2013

Existing Home Sales Rose 0.8% in February

Existing home sales improved slightly in February, rising to an annual pace of 4.98 million units. February’s pace is 0.8% higher than January’s upwardly revised pace, and the fastest rate of sales since the homebuyer tax credit artificially boosted sales in 2009.

Condo sales drove February’s gain, with single-family sales falling 0.2%. The pace of both single-family and condo sales has improved 9% and 22% respectively from a year ago.

Inventories increased for the first time since last spring, however remain 19% below year-ago levels. The increase in inventories led the supply of homes on the market to rise to 4.7 months, its highest level in three months. Despite the rise, inventories remain extremely tight.

Prices continued to improve in February, with the median home price rising to $173,600. February’s median home price is now 11.6% above year-ago levels, better than the 10.3% reported the previous month.

Read the NAR release.

Wednesday, March 20, 2013

Farm Banks Increase Ag Lending, Jobs in 2012 Despite Slow Economy

U.S. agricultural banks increased farm and ranch lending by 13.9 percent, or $10 billion, in 2012 and held $81.8 billion at the end of the year, according to the American Bankers Association’s annual Farm Bank Performance Report.

The nation’s 2,215 farm banks also added more than 3,615 jobs, a 4.2 percent increase, and employed 90,569 rural Americans.

“The continued growth in farm loans demonstrates the important role banks play in the success of farms and ranches both large and small,” said John Blanchfield, senior vice president and director of ABA’s Center for Agricultural and Rural Banking. “Banks remain the most important source of ag credit holding more than half of all farm loans.”

More than 95 percent of farm banks were profitable in 2012, with 67 percent reporting an increase in earnings. 2012FarmReportgraph2.jpg

“The ag economy is strong and getting stronger with a favorable outlook. Our nation’s farm banks remain optimistic despite the challenge to find additional revenue sources,” said Blanchfield.

Farm banks experienced an improvement in asset quality in 2012, as customers benefited from the strong farm economy. Non-performing loans declined to 1.49 percent of total loans, close to pre-recession levels.

“As vital, tax-paying members of their communities, farm banks provide funding to support rural Americans, while adding jobs and boosting the agricultural economy,” said Blanchfield.

The Farm Bank Performance Report also provides regional summaries:

  • The Northeast region increased farm loans by 10 percent to $350 billion. Ag production loans rose 11.3 percent and farmland loans rose 9.3 percent.
  • The South region improved profitability and increased farm loans by 3.7 percent rising to $6.1 billion in 2012. Farm banks in the South employ more than 11,200 men and women.
  • The Cornbelt region increased farm loans by 15.6 percent and improved profitability. Farm banks in the Cornbelt employ more than 37,200 men and women.
  • The Plains region increased farm loans 13.9 percent to more than $31.5 billion. Farm banks in the Plains region employ more than 33,800 men and women.
  • The West region increased farm loans by 14.9 percent to $8.1 billion and increased employment by 2.7 percent, or 7,500 men and women.

James Chessen Discusses Cyprus on Fox Business News

ABA's Chief Economist James Chessen spoke with Fox Business News today, discussing why a tax on bank deposits would not happen in the United States.

"It will not happen here. The FDIC is strong. It is backed fully by the entire banking industry - that pays for losses not taxpayers - and the full faith and credit of the United States stands even behind that."

Watch the segment here.

Fed Left monetary Policy Unchanged at March Meeting

The Federal Open Market Committee took no new action at its March 19-20 meeting. No new action was expected today as the Fed continues its bond buying program, dubbed QE3. The FOMC noted that economic activity has continued to expand at a moderate pace in recent months, which has led the unemployment rate to improve. Despite the improvements the unemployment rate remains elevated.

QE3 currently adds $85 billion to the Fed’s balance sheet each month. The $85 billion each month is comprised of $40 billion in agency mortgage-backed securities purchases and $45 billion in long-term Treasury securities purchases. In his press conference Chairman Bernanke noted that the amount of the purchases may vary in the future depending on economic conditions. He noted that although we have seen improvement in recent months, the Fed will wait to ensure the improvements are sustained before adjusting purchases accordingly.

The FOMC held its pledge to keep interest rates at near-zero levels as long as unemployment remains above 6.5% and inflation remains less than 0.5% above the committee’s long-run goal of 2%. The inflation portion of this is not a concern for the Fed as “Inflation has been running somewhat below the Committee’s longer-run objective.” The press release also remarked that longer-term inflation expectations continue to be well anchored.

There was one dissenting vote, from Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

FOMC Fed Funds Rate Projections

Read the FOMC's entire statement below.

Tuesday, March 19, 2013

Housing Starts Improved Moderately in February

Housing starts increased 0.8% in February, reaching an annual rate of 917,000 units. The Census Bureau revised up January’s figure by 0.2% to 910,000 units. February is the second strongest reading since mid-2008. Housing starts have now risen 28% from year-ago levels.

Despite the strong recovery in housing starts seen in recent months, there is a long way to recover to reach normal levels. February’s pace is just 61 percent of its long-run average of 1.5 million units per year.

The recovery continues to be driven by multi-family construction. Multi-family construction grew 1.4%, while single family construction only gained 0.5% over the previous month.

Permit issuance rose 4.6%, largely due to the 8.1% increase in multi-family permit issuance in February. Strong permit issuance points to a continuing recovery in housing construction. Total permit issuance is up 34% from year-ago levels.

Read the Census report.

Friday, March 15, 2013

Industrial Production Increased in February

Industrial production increased 0.7% in February after remaining unchanged in January. February’s reports included minor revisions to the previous two months.

Manufacturing production rose 0.8%, helped by a 3.6% increase in auto manufacturing. The manufacturing data reported for earlier months were revised higher. Non-manufacturing production was mixed in February. Mining production continued to fall 3.0%. Utilities also followed the trend from the previous month, rising 3.5%, the same as the change in January.

February’s report pushed the capacity utilization rate up to 79.6%, a recovery high.

Read the Fed release.

Consumer Prices Rose 0.7% in February

The consumer price index rose for the first time in four months driven by a rise in gasoline prices. Prices are now 2.0% above year-ago levels, stronger than the 1.6% reported in the previous month. Core CPI slowed slightly, gaining 0.2%.

The energy index rose sharply, increasing 5.4% and reversing a declining trend in the previous three months. Gas prices surged 9.1% and contributed heavily to the large energy gains.

Food prices rose just 0.1% in February, a 0.1% from the previous month, suggesting that rising gas prices have yet to impact the price of food.

Read the BLS report.

Thursday, March 14, 2013

Producer Prices Rose 0.7% in February

Producer prices increased for the second consecutive month in February, rising 0.7% over January’s levels. Producer prices are up 1.8% from year-ago levels, the largest increase in the last four months. February’s strong appreciation was due primarily to surging energy prices. Core prices rose 0.2%, matching the previous month’s growth.

Prices for finished energy goods rose sharply to 3.0%, offsetting a four month decline. The change was due in large part to the increase in gasoline prices. Food prices dropped 0.5% in February, reversing a sharp increase in the previous month.

The price of crude goods declined 1.7%, resulting from drops in the price of metal and ore. Crude prices continues the declining trend that started last month, and remain 5.0% below year-ago levels.

Read the BLS report.

Wednesday, March 13, 2013

Retail Sales Jumped 1.1% in February

Retail sales performed better than expected given the tax increases at the beginning of the year, improving from January’s revised 0.2% increase. February’s strong increase is encouraging news, as it shows that consumers have been resilient in the face of the year-end tax hikes as well as rising gasoline prices. Retail sales are now 4.6% above year-ago levels, an improvement from January’s 4.2%.

Excluding auto and gas, sales improved 0.4% from the previous month and 3.9% from year-ago levels.

The sales increase was led by gasoline stations that saw a 5.0% increase from January. Soaring gasoline prices contributed to the large growth.

Find the data here.

Tuesday, March 12, 2013

Small Business Optimism Improved in February

Small business sentiment gained 1.9 points in February, according to the NFIB Small Business Optimism Index, which rose to a reading of 90.8. Despite recent improvements in the index remains lower than indexes in the 1991-92 and 2001-02 recessions, and at similar levels as 2008.

Financing continues to be the least cited issue facing small businesses, with only 2% of respondents reporting it as their single most important problem. Taxes and government requirements jumped poor sales as they tied for the most often cited problems for small businesses at 21%. Poor sales dropped from 22% to 18%.

There were positive gains in capital spending and inventory investment. Capital spending was 2 points higher than in January and 7 points higher than December’s reporting. However, this index remains near it 40-year lows.

Read the NFIB report here.

Friday, March 8, 2013

U.S. Economy Added 236,000 Jobs in February as Unemployment Dropped to 7.7%

Payroll employment increased by 236K jobs in February. There are mixed revisions in February’s report. December was revised up to 219K, an increase of 23K jobs from the initial report. However, January was revised downward from 157K to 119K. The economy has now added an average of 187k jobs per month over the past six months.

Similar to January, February’s strong job numbers resulted from positive growth in the private sector, particularly the services industry. The economy added 169K jobs in the service sector. The goods producing sector continues to see improvements as well, adding 67K jobs in February. Both December and January’s numbers were revised up. Even though the private sector saw large employment gains, the government continues to drag on job growth, shedding 10K in February.

The unemployment rate fell to 7.7%, its lowest level since 2008. The improvement in unemployment was due to both new job creation as well as lower labor force participation. The labor force participation rate continues to fall, decreasing 0.1% to 63.5%. Labor force participation has not been lower than the current level since 1979.

Read the BLS report.

Thursday, March 7, 2013

Consumer Credit Grew $16.2 Billion in January

Consumer credit rose $16.2 billion driven almost entirely by non-revolving credit with a $16.0 billion gain. Consumer credit has increased over $10 billion for the last five months, mainly driven by increases in the non-revolving segment. Growth stayed constant from a year ago, at 5.8%.

Revolving credit, consisting mostly of credit card debt, rose just $0.1 billion and fell 0.1% from December. Revolving credit continues the volatile trend seen in 2012. In the past year, revolving credit has grown by just $6.4 billion.

Revolving credit, consisting primarily of auto and student loans, has been the primary driver of credit growth over the past two years, and has gained $148.6 billion in the past year. Student loans continue to account for the majority of this growth accounting for 89% of January’s increase on a non-seasonally adjusted basis.

The consumer credit report from January echoes the same trends witnessed in the last two years. Non-revolving consumer credit continues to swell while there is minimal revolving consumer credit change.

A link to the data can be found here.

Household Net Worth Recovered $1.17 Billion in 4Q 2012

Household net worth continued its recovery in the fourth quarter, gaining $1.17 billion. Household net worth has been revering steadily since the beginning of 2009 and is now approaching its pre-crisis peak. The fourth quarter’s household net worth is just $1.3 billion short of its 3Q 2007 peak of $64.4 billion. Household net worth rose 9% over 2012.

The improvement was driven primarily by a near $800 billion increase in the value of financial assets that occurred despite stock market declines. The Dow Jones Industrial Average fell 2.5% over the quarter. The increase in the value of financial assets shows households’ increasing willingness to invest, as household holdings of equities surged. The Dow has now surged 9.1% so far in 2013, indicating that improvement in household net worth will likely improve.

Home equity also improved as the housing recovery continued, with net worth receiving a $500 billion increase due to real estate wealth. Home equity as a percentage of household real estate rose to 46.6%, its highest level since the first quarter of 2008.

Liabilities also rose for the household sector as families become willing to take on more debt. Total liabilities rose by about $133 billion, as household debt grew at an annual rate of 2.4% in the fourth quarter.

Read the Federal Reserve's Z.1 release.

US Trade Gap Widened Notably in January

The US foreign trade deficit rose in January by 17% to $44.4 billion. January’s significant increase in the trade deficit was not enough to offset the fall seen in December. The trade gap remains below its November level and well below the 2012 high of $52.3 billion.

Exports decreased by 1.1% to $184.5 billion and imports simultaneously increased by 1.8% to $228.9 billion. The goods deficit was primarily responsible for January’s trade deficit widening rising from $56.1 billion to $61.8. The services surplus fell by $0.9 billion, adding to the increasing deficit.

The real goods deficit, which is important to calculate GDP, widened from $44.2 billion to $48 billion.

The press release can be found here.

Wednesday, March 6, 2013

Fed's Beige Book Shows Modest to Moderate Expansion

The Federal Reserve's Beige Book indicated that economic activity expanded at a mostly moderate to modest pace across most of the country. Both the Chicago and Boston areas reported slower growth. The report, which covered January through early February, indicated that consumer spending picked up as the housing market continued its gradual improvement.

Five of the Federal Reserve districts reported economic activity grew at a "moderate" pace and five districts reported that improvements were "modest." Both Boston and Chicago reported that economic activity grew at a "slow pace."

"Most districts reported an expansion in consumer spending," despite slowing retail sales in some districts. Automobile sales drove spending over the time of the report, as well as an increase in tourism. Manufacturing also generally saw improvements, with strong demand from the auto, food and residential construction sectors.

Overall, loan demand was stable to slightly higher across the districts, with some bankers noting strong competition for qualified borrowers.

Read the full Federal Reserve report.

ADP Employment Rose by 198,000 in February

Private sector employment increased by 198k jobs in February according to ADP's National Employment Report. Gains in February continued to be driven primarily by the service sector, however the goods sector made gains as well. February's gain is slightly lower than January's gain of 215k jobs, revised upward from an initially reported 192k jobs. January's ADP report translated into a gain of 157k jobs as reported by the BLS.

Keeping with recent trends, the majority of job creation in February came from the service sector, which created 164k jobs, down from 184k in January.

The goods producing sector picked up steam in January, adding 34k jobs, up from 31k the previous month. Much of this gain was driven by improvements in the manufacturing sector, which added 9K jobs. The goods sector has now seen employment gains for five consecutive months.

Read the ADP release.

Tuesday, March 5, 2013

ISM Non-Manufacturing Improved in February

The ISM non-manufacturing index increased to 56.0 in February from 55.2 in January. Despite slightly cooling off in January, there is an overall upward trend since June 2012. The index has remained above 50 for over 6 months, indicating industry growth.

The details of February’s report were encouraging, with exports, business output and new orders indexes all improving. New orders increased by 5.8 points, a positive sign for future production. Inventories saw strong gains, rising above their neutral threshold of 50 to 54.0, indicating that inventory accumulation aid GDP growth in the first quarter. The export index also rose notably, reaching 60.5, its highest level since 2007.

Although unemployment dropped to 57.2, the drop was minor and the index remains in expansionary territory.

A copy of the press release can be found here.

Friday, March 1, 2013

Consumer Sentiment Improved in February

Consumer sentiment rose 3.8 points in February, rising to 77.6. Although consumer sentiment continuous to improve 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.

The improvement was due to contributions from both future expectations and present conditions. Present conditions rose 4 points to 89.0 despite the weight of higher taxes. This increase more than reversed the previous month’s drop. Future expectations rose 3.6 points to 70.2.

Inflationary expectations were little changed, with the 1-year expectation remaining unchanged at 3.3% and 5-year expectations rising slightly to 3.0%.

ISM Manufacturing Improved in February

The ISM manufacturing index unexpectedly improved in February, rising from 53.1 to 54.2 over the month. The index now sits above its fourth quarter average of 50.6. The index is now at its highest level since June 2011. The details of February’s report were strong as well, pointing toward future growth.

The index saw broad gains across its various components. Production saw strong increases gaining 4 points and settling at 57.6. New orders also improved, rising 4.5 points to 57.8. The inventory index also improved, rising to 51.5. The gap between inventories and new orders, a proxy for future production, widened to 6.3 indicating future improvement in manufacturing.

Trade indicators improved as well, with new export orders rising to 53.5 from 50.5.

The only portion of the index to deteriorate was the employment index, which deteriorated from 54.0 to 52.6. Despite the deterioration, employment continues to grow as the index remains above its neutral threshold of 50.

Read the ISM release.

Construction Spending Fell 2.1% in January

Construction spending decreased by in a total of 2.1% in January. Despite the decline, spending remains 7.1% above year-ago levels. January’s report also contained an upward revision to December and November’s growth by 0.2% and 0.3% respectively.

While private residential construction remained unchanged, the total loss in January was accounted for by the large loss in private nonresidential construction. With a decrease of 5.1%, private nonresidential spending reversed the positive trend seen in the previous 4 months and is now down 3.6% from year-ago levels.

Public residential saw a 1.0% decrease in spending, the same as the loss seen in December.

Read the Census report.

Personal Income Fell 3.6% in January

Personal income plunged in January, falling 3.6% as many one-time supports present in January were removed. Although the fall is the second largest decline in history, it was driven primarily by transitory factors. Excluding the effects of the dividend acceleration, personal income still would have fallen by 0.6% in January after rising 0.5% the previous month. Consumption continued its growth in January, rising 0.2%. The sharp drop in personal income coupled with rising consumption led the savings rate to fall dramatically.

Dividend income was the primary source of January’s decline as dividend payments had been pushed up to the end of 2012 due to tax increases taking effect in January. Personal income was reduced by $81 billion in January due to reduced dividends payments. This follows a $291 billion increase in December as well as a $26 billion increase in November due to accelerated and special dividends payouts. Wage income was also cut by accelerated bonus payments. Although the BEA does not track bonus payments, it adjusted income payments down by $15 billion in January after adjusting income payments up by $30 and $15 billion in December and November respectively.

The end of the Social Security tax holiday decreased disposable income in January, as did the new tax under the Affordable Care Act. These totaled to decrease disposable income by $132 billion for the month.

Consumption increased by 0.2% in January, which was surprising due to the strong decline in income. Spending, however, was likely boosted by the previous two month’s income. Spending growth in January was led by services, which is due in part to weather-related increases in utility spending.

Due primarily to the large decline in personal income, the savings rate plummeted in January, reaching 2.4%, down from $6.4 the previous month. As the temporary distortions disappear, we expect this rate to normalize closer to levels seen as of late. Despite this normalization savings rates have generally been low, staying below 4% for five of the past seven months.

Read the BEA release.