Tuesday, April 30, 2013

Home Prices Continue Upward Trend in February

Existing home prices increased 0.3% in February according to the Case-Shiller 20-city index. Home prices improved 9.3% above year-ago levels, an improvement from January’s 8.1% gain. The country’s 10 largest cities improved 0.4% from January and are 8.3% above year ago levels.

For the second consecutive month, all metro regions included in the release reported home price appreciation from year-ago levels, a first in almost 5 years. Phoenix reported the highest change from year-ago levels, increasing 23.0%. New York was the lowest at 1.9%.

While the improvements in February’s report are positive, home prices still remain 29.0% below the peak in July of 2006.

Read Standard and Poor’s release.

Monday, April 29, 2013

Personal Income Rose 0.2% in March

Personal income increased 0.2% in March, matching the 0.2% rise in consumption. Income had been volatile due to distortions stemming from tax increases at the beginning of the year. Personal income improved 2.5% over year ago levels, and consumption grew 3.2% over year ago levels.

There was no one driving force for March’s personal income gains. Wage growth and disposable personal income both grew 0.2% from February. Consumption decreased slightly from 0.7% to 0.2%. The decline was driven by nondurable goods, which dropped 1.1% in March.

Consumer prices, as measured by the PCE deflator, fell -0.1% in March. Prices are 1% above year ago levels. March’s report is the lowest inflation levels since late 2009.

The savings rate remained constant at February’s revised 2.7%.

Read the BEA report.

Friday, April 26, 2013

Consumer Sentiment Declined in April

Consumer Sentiment dropped 2.2 points in April to 76.4, according to the University of Michigan’s Consumer Sentiment index. Consumer sentiment is extremely vulnerable the debate taking place in Washington, dropping almost 10 points during the fiscal cliff negotiations. The sequester may be partially responsible for April’s decline. April’s reading is the lowest since the fiscal cliff debate in late December and January.

The dip in consumer sentiment for April was due both to present and future expectations declining to 84.8 and 64.2 respectively.

Inflationary expectations were mixed in April, with one-year expectations dropping to 3.0% and five-year expectations remaining constant at 2.8%

U.S. Economy Grew 2.5% in 1st Quarter

Real GDP grew 2.5% in the first quarter of 2013, up from just 0.4% in the fourth quarter of 2012. The improvements in the first quarter were driven primarily by consumption as well as inventory accumulation.

Consumption drove first quarter GDP growth, rising 2.2%. Consumption was expected to decrease with the expiration of the payroll tax holiday at the beginning of the year. Inventories, recovered in the first quarter, rising 1.0% which declined heavily in the 4th quarter of 2012, likely due in part to Hurricane Sandy, increased in the 1st quarter by 1.0%, after declining in the 4th quarter 1.5%.

Government spending continues to drag on the economy, lowering growth by 0.8% in the first quarter. Although less than the 1.4% drag last quarter, spending cuts continue to present a strong headwind to the U.S. economy. Sequester began March 1st, and government drag is anticipated to increase in the coming quarters for 2013. Defense spending cuts alone slowed growth by 0.6%. Net exports decreased for the first time since 2011, slowing growth by 0.5%.

The BEA announced that starting in July 2013, it will release the initial results of the 14th comprehensive, or benchmark, revision of the national income and product accounts (NIPAs). GDP will increase roughly 3.0% as a result of the new computing measures which include new items such as research and development as well as royalties on intellectual property.

Read the BEA release.

Tuesday, April 23, 2013

New Home Sales Increased in March

New home sales increased slightly to an annual pace of 417,000 units in March, a 1.5% improvement from the previous month. New home sales have now improved 19% from year-ago levels, signaling a rebounding housing market.

The supply of new homes on the market remains extremely low at 4.4 months.

Improving sales and tight supplies are combining to push up house prices, which have risen 3.0% above year ago levels to $247,000.

Read the Census report.

Monday, April 22, 2013

Existing Home Sales Slowed in March

The pace of existing home sales slowed slightly in March, but are still stronger than most of 2012’s reports. Existing home sales slowed 0.6% to a pace of 4.92 million units annually. The previous month’s figure was also revised down to 4.95 million units.

March’s drop was driven by declining condo sales, which decreased 3.2% from February. However, condo sales are still 20% above year ago levels.

March’s disappointing jobs growth, along with weaker income and consumer confidence growth likely contributed to March’s softer existing home sales report. Moreover, lower inventory of existing homes for sale have also depressed existing home sales in March. Market supply is at 4.7.

Housing prices continue to strengthen, with the median price of existing homes sold increasing to $184,300 from a revised $173,200 in February. The current pace is 11.8% above year ago levels.

Read the NAR release.

Wednesday, April 17, 2013

Beige Book Reports Modest Growth

The Federal Reserve released its Beige Book today, which shows that the economy is recovering at a modest pace. All twelve districts reported economic activity improvement since the last report. The report noted increase in manufacturing, particularly industries tied to automobiles and residential construction.

Consumer spending grew modestly. Higher gasoline prices, expiration of the payroll tax cut, and winter weather likely suppressed retail gains.

Defense related sectors reported uncertainty and weakness as a result of sequestration.

Home prices rose in most districts, which positively impacted real estate sales, particularly residential. Loan demand rose slightly from the previous report, which may be due, in part, to the rebounding housing market.

Employment was unchanged or slightly improved, coming off of a disappointing jobs report in March. Reports of hiring occurred most prevalently in manufacturing, residential construction, information technology, and professional services sectors.

Read the report.

Tuesday, April 16, 2013

Industrial Production Rose 0.4% in March

Industrial production increased 0.4% in March due primarily to a surge in utilities. Unseasonably cold weather led utilities production to surge 5.3% in March, buoying overall industrial production. Both manufacturing and mining output fell over the month.

Manufacturing production fell 0.1% in March on lower durable good spending. Auto production was, however, a bright spot in manufacturing, rising 2.9%. Overall, manufacturing saw decent gains in the first quarter, rising 5.3% at an annualized pace.

The capacity utilization rate rose to 78.5 in March, a high for the current recovery.

Read the Federal Reserve report.

Consumer Prices Fell 0.2% in March

Consumer prices fell 0.2% in March, reversing a strong reading from the previous month according to the consumer price index. March’s decline in consumer prices was driven entirely by retreating energy prices. Price appreciation of core goods continued, albeit at a slower pace than the previous month. Consumer prices are now 1.5% above year-ago levels, lower than the 2.0% reported last month.

The energy index declined 2.6% over the month, following a strong 5.4% rise in February. This fall was mostly due to gasoline prices, which fell 4.4 percent in March. Food prices were unchanged in March and remain 1.5% above year-ago levels.

Prices for core goods rose 0.1% over the month, slower than the pace seen in the past two months. The appreciation in core goods was entirely due to services, which rose 0.2%. Goods prices fell 0.1% in March. Core prices are now 1.9% higher than year-ago levels.

Read the BLS release.

Housing Starts Surpass 1 Million Unit Pace

Housing starts jumped in March, gaining 7.8% over the month and surpassing the 1-million unit pace for the first time since mid-2008. The pace of new home construction reached 1.04 million units per year in March, and is now 47% faster than the pace in March 2012.

Multifamily construction continued to drive gains in March, rising 31.1% over the month. The pace of multifamily construction is now running 82% faster than one year ago. Single family starts saw a 4.8% decline in March, declining to an annual pace of 619,000 units. Despite the decline, the pace of single family starts is 29% higher than one year ago.

Permit issuance fell slightly in March, declining 3.9% due primarily to declines in multifamily permit issuance.

Despite the strong improvement in the past year, housing starts remain well below their 50-year average of 1.5 million units.

Read the Census report.

Friday, April 12, 2013

Retail Sales Drop 0.4% in March

Retail sales declined 0.4% in March, the steepest drop in nine months. February and January’s growth were revised down, to 1.0% and -0.1% respectively. Retail sales are now 2.8% above year ago levels, a strong decline from the year-ago growth seen in previous months. The drop in sales was across the board, a likely result of the colder than usual weather and lower gasoline prices.

Gasoline stations led the decline in prices, dropping 2.2% from the previous month’s strong gain, and resulted from the drop in gas prices. Electronics and appliance also saw a large decline from the previous month at 1.6%.

There were pockets of strength in March’s disappointing report. Furniture and home furnishings grew at 0.9% and food service and drinking places rose 0.7%.

Read the Census report.

Producer Prices Fell in March

Producer Prices fell 0.6% in March, reversing a positive two month trend. Energy prices were entirely responsible for the decline more than offsetting a slight increase in the price of core goods. Producer prices are now 1.1% above year ago levels, the slowest reading in months. Core prices for finished goods continued to grow at 0.2%.

Prices for finished energy products fell 3.4% in March, largely driven by a 6.8% decline in gasoline prices. Crude goods increased 0.9%, reversing a declining two month trend and are still 4.7% below year ago levels.

Read the BLS report.

Thursday, April 11, 2013

FDIC Updates Deposit Insurance Fund Forecast

The FDIC has updated its forecast for the Deposit Insurance Fund balance, substantially revising down their projected cost of bank failures over the next five years. In addition, the FDIC announced that it will return $5.7 billion in prepaid assessments to banks due to the rapid improvement of the DIF.

ABA Chief Economist James Chessen commented, “The rapid recapitalization of the Deposit Insurance Fund reflects an industry that is stronger today than at any point in the last four years. The banking industry is returning to profitability and failures continue to decline sharply. As a result, the Deposit Insurance Fund is growing faster than expected and will have the resources to weather any contingency that could arise.”

At the end of 2012 the DIF reached $33.0 billion resulting in a reserve ratio of 0.45%. In addition to this the DIF holds $3.2 billion in reserves for anticipated failures in the next year. The FDIC projects that the DIF will reach a 1.15% reserve ratio in 2018 and reach its target 1.35% by the 3Q 2020 deadline. Under the Dodd-Frank act, once the fund reaches 1.15% - its pre-crisis reserve ratio - banks larger than $10 billion in assets will be responsible for raising the additional funds to reach 1.35% coverage.

The updated forecast substantially revises down the FDIC’s projected bank failure costs. Just last October, the FDIC estimated that bank failures would cost the fund $10 billion from 2012 through 2016. In this forecast this has been revised down 30% to $7 billion due to “lower recent and expected failure rates. In addition the FDIC now forecasts that failures in the next five years (2013-2017) will be even less, totaling just $5 billion.

The expiration of the FDIC’s temporary insurance on transaction accounts greater than $250,000 will boost the reserve ratio by 11 basis points in the first quarter of 2013.

In 2009 the FDIC required depository institutions to prepay 13 quarters of assessments, totaling $45.7 billion, to ensure the DIF had sufficient liquidity. The FDIC will refund excess prepaid assessments totaling $5.7 billion at the end of June.

Banks, not taxpayers, are entirely responsible for covering all of the FDIC’s expenses, including the recapitalization of the fund. In fact, banks have paid over $100 billion in assessments since the inception of the find, ensuring that no one has ever lost a penny of an insured deposit.

Tuesday, April 9, 2013

Small Business Optimism Dropped in March

The NFIB’s Small Business Optimism Index dropped 1.3 points in March to a reading of 89.5. The index is 3 points below year-ago readings and well below the long run average at 98.1 and back in the sub-90s.

Financing continues to be the least cited issue facing small business, with only 3% of respondents reporting it as their single most important problem. Taxes jumped government requirements as the most often cited problem for small businesses at 23%. Government requirements remained at 21% as the second most often cited problem.

Despite the negative report, a net of 25% of respondents plans to make capital expenditures, the same as the previous month.

Read the NFIB report.

Friday, April 5, 2013

Consumer Credit Surged $18.1 billion in February

Consumer credit continued its recent growth pattern in February, rising 7.8% to $18.1 billion over the previous month’s level. Non-revolving credit continues to drive the gains in consumer credit. Growth from a year ago hastened to 6%, the fastest pace since November 2011.

Non-revolving credit grew 11.5%, gaining $17.6 billion in one month. Student loans continue to account for the growth in non-revolving credit. Student loans again comprised the entire gain in non-revolving credit on a non-seasonally adjusted basis.

Revolving credit slowed to 0.8% growth in February, increasing $0.5 billion over the previous month. Revolving credit continues the volatile trend seen in 2012.

Read the Federal Reserve release.

US Trade Gap Narrows Slightly in February

The US foreign trade deficit dropped 3% in February to $43.0 billion. The decrease in the deficit is due solely to exports, which increased. Imports remained the same as the previous month.

Exports grew by 0.9% to $186.0 billion. Imports reported no change between January and February at $228.9 billion both months. The reduction in the deficit for February was caused primarily by a reduction in the petroleum deficit, which dropped $3.1 billion to $21.2 billion. The goods deficit also declined and the services surplus increased, also contributing to a lower deficit.

The real goods deficit, which is important for the calculation of GDP, shrank 1.5% to $47.4 billion.

Read the Census report.

Job Creation Dropped Sharply as Unemployment Decreased to 7.6% in March

Payroll employment increased by 88,000 jobs in March, well below the average pace seen the last 8 months. February was revised up to 268,000 jobs, an increase of 32,000 from the initial report. January’s numbers were revised up as well to 148,000 jobs. Despite the slow payroll employment increase in March, the unemployment rate dropped to 7.6%. However, the decrease is largely due to falling labor force participation rates, as opposed to new job creation.

Although job creation continues to be driven primarily by the service sector, March’s gain of 72,000 jobs is well below the 195,000 jobs added the previous month. The goods producing sector added 16,000 jobs, its lowest increase since October 2012. The public sector saw a decline of 7,000 jobs,as the U.S. Postal Service cut 12,000 jobs. Construction added 18,000 jobs in March, a 31,000 drop from the previous month, but still indicates a rebounding housing market.

“The continued increase to construction payrolls in January, February and March signals that the U.S. housing market is transitioning into a sustainable recovery,” said ABA’s Chief Economist Jim Chessen.

The unemployment rate dropped 0.1% in March and the labor force participation rate declined 0.2% to 63.3%.

Read the BLS report.

Wednesday, April 3, 2013

ISM Non-Manufacturing Fell in March

The service sector growth cooled in March, falling to the lowest level since August. The ISM non-manufacturing index fell to 54.4 in March from 56.0 the previous month. Despite the decline, services continue to outperform the manufacturing sector, which declined to 51.3 in March. Any reading over 50 indicated industry expansion.

The details of March’s report declined across the board except for supplier deliveries and backlogs. The employment index dropped 3.9 points to 53.3. Overall business activity edged lower to 56.5 index points, losing 0.4 points from the previous month.

Despite the overall decline in March, the indexes remained above the neutral threshold of 50, signaling an expansion, albeit at a slower rate then the previous month.

A copy of the press release can be found here.

ADP Employment Grew by 158,000 in March

ADP’s National Employment Report indicated that the private sector increased employment by 158,000 jobs in March. March’s increase is weaker then February’s gain, which was revised up by 39k jobs to 237k. Improvements in March continued to be driven primarily by the service sector. February's ADP report of 237k jobs matched closely to the 236k jobs reported by the BLS.

Job gains continue to be centered in the service sector, which added 151,000 jobs in March, down from 164,000 in February. Goods producing employment added 7,000 new jobs in March, a drop from the 34,000 jobs added in February. Manufacturing contributed 6,000 jobs, a decline from the 9,000 new jobs in February.

Read the ADP release.

Tuesday, April 2, 2013

Consumer Delinquencies Decline Significantly in Fourth Quarter 2012

Consumer delinquencies declined significantly in last year’s fourth quarter, with bank card delinquencies falling to levels not seen since the third quarter of 1994, according to results from the ABA's Consumer Credit Delinquency Bulletin.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 17 basis points to 1.99 percent of all accounts in the fourth quarter, below the 15-year average of 2.39 percent. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

James Chessen, ABA’s chief economist, attributed the improvement to consumers’ continued efforts build a financial buffer against economic uncertainty.

“Consumers continue to carefully manage their finances in an effort to get debt levels under control and build up a secure financial base,” Chessen said. “While this conservative approach to credit may slow economic growth in the short-term, it portends stronger, more consistent growth in the future. The sharp decline in delinquencies reinforces the notion that the economic recovery has become more self-sustaining and is on a path to increased growth.”

While Chessen found the continued decline encouraging, he cautioned that future challenges could make it difficult for some consumers to meet their financial obligations.

“Make no mistake about it, a great deal of uncertainty still lingers over this economy,” Chessen said. “Furloughs from sequestration, falling disposable income and increased healthcare and regulatory costs for businesses could lead to challenges in the year ahead.”

Read ABA's full release.

Monday, April 1, 2013

2008-2012 Bank Failure Cycle Coming to Close

Bank failures continued to decline in the first quarter of 2013 as the banking industry returns to health with strong earnings, lower losses and significant increases in capital. In the first quarter of 2013, there were just 4 bank failures with $465 million of assets. This is a marked change from the height of the bank failures seen in the third quarter of 2009, where 50 banks failed. Bank failures have now normalized to pre-recession levels.

The FDIC continues to ensure the safety of all insured deposits. In fact, no insured depositor has ever lost money in a bank failure. The FDIC insurance fund has over $25 billion in reserves and is entirely funded by the banking industry – which bears all the financial costs of supporting the FDIC – paying over $12.3 billion each year to assure adequate funding.

ISM Manufacturing Declined in March

The ISM manufacturing index fell sharply in March, falling from 54.2 to 51.3. While still above the expansionary threshold, March’s reading is the lowest so far in 2013. Details of the report were weak as well, with both production and new orders declining over 5 index points from the previous month.

New orders decreased from 57.8 to 51.4. Backlogged orders caused the overall decline in new orders, dropping 4.0 index points to 51.0. Export orders continued to increase to 56.0, while imports remained the same, improving the trade balance in March.

Inventories fell in March by 2.0 points to 49.5, indicating a potential for future growth. However, the gap between new orders and inventories – a proxy for future production – declined to 1.9 from 6.3 the previous month.

Read the ISM release.

Construction Spending Rose 1.2% in February

Construction spending accelerated in February by 1.2% and is 7.9% above year-ago levels. February’s improvement partially reverses the decline seen in January.

Private residential construction led gains in February, increasing 2.2% and reversing a negative trend from December to January. Private nonresidential and public construction spending improved as well, growing 0.4% and 0.9% respectively. Private nonresidential spending recovered from a 5.9% decline the month prior. Public spending continues to be driven by transportation and education spending.

Read the Census report.