Wednesday, July 31, 2013

FOMC Maintains Current Level of QE3 Purchases

The Federal Reserve will maintain its present level of bond buying at a pace of $85 billion per month following the Federal Open Market Committee’s (FOMC) July meeting. The Federal Reserve left its open-ended quantitative easing program (QE3) unchanged and left interest rates at near zero levels. The Fed did, however, note that it is prepared to vary purchases according to economic conditions.

The Fed’s statement suggested that the economy continues to expand at a “modest pace,” with some improvement in labor and housing markets. At the June meeting, the FOMC press release said the economic pace was expanding moderately, which was changed to modest after July’s meeting. They did note, however, that the unemployment rate remains elevated. The current press release did note the rise in mortgage rates, which increased following the Chairman’s last press conference.

The FOMC stated in its release that, “Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated.”

While inflation is persistently low, the Fed is more optimistic about inflation in the medium term.

FOMC Fed Funds Rate Projections

Read the full FOMC statement below. Read the Federal Reserve's updated projections.    

U.S. Economy Grew 1.7% in 2nd Quarter

Real GDP grew 1.7% in the second quarter of 2013, up from 1.1% in the first quarter. Improvements in the second quarter were driven primarily by consumption and fixed investment.

This is the BEA’s first release under a new GDP calculation system, with revisions to the entire historical GDP database. The new measurements of GDP increase it in comparison to the previous methodology. While the short term will see higher values of GDP, the longer term growth path should remain fairly consistent with the older method. In April 2013, the BEA predicted that GDP would 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. Below is the graph of GDP under the old method of calculation. The newer model appears to be slightly more volatile.

Overall, second quarter GDP growth was led by consumption, with strong contributions from both fixed investment and inventory accumulation. Consumption contributed 1.2% to second quarter growth, down from the first quarter in 2013, but still above levels seen last year in the third and fourth quarter. Fixed investment improved 0.9%, up from a decline in the previous quarter.

Net exports and Government spending continue to drag on the economy, decreasing 0.8% and 0.1% respectively.

Read the BEA release.

ADP Employment Grew by 200,000 in July

ADP’s National Employment Report indicated that the private sector increased employment by 200,000 jobs in July, an improvement from June’s upward revision to 198,000 jobs. Gains in July were solely drive by the service sector. July’s gains are the largest this year.

The service sector created 177,000 jobs in July, up from 176,000 in June.

The goods producing sector remained steady in July, adding 22,000 jobs, the same amount as the previous month. Manufacturing did not contribute to the gain, declining 5,000 jobs.

Read the ADP release.

Tuesday, July 30, 2013

Home Prices Continued Improvements in May

Existing home prices appreciated 2.4% in May, according to the Case-Shiller 20-city index. Gains from one year ago accelerated as well, with the 20-city index rising 12.2% above its May 2012 pace. The 10-city index rose 2.5% from the previous month, and 11.8% from year ago levels. May’s gains softened slightly from April.

May’s improvement was widespread geographically with 18 out of the 20 metropolitan areas surveyed reporting month over month price increases. The biggest month-to-month gains were in the west. San Diego led the back at 2.6%. Cleveland and Minneapolis were the two declining regions. Year-over-year gains improved in all metro areas. San Francisco saw the strongest year-over-year growth at 24.5%, with the lowest at 3.3% in New York.

Despite the recent improvements, home prices remain well below their pre-crisis peak. The 20-city index is still 24.4% below its July 2006 peak.

Read the Standard and Poor release.

Friday, July 26, 2013

Consumer Confidence Rose in July

Consumer confidence rose to its highest level in 6 years, according to the University of Michigan’s Consumer Sentiment index. The gain in consumer sentiment was driven solely by current conditions, as future expectations dropped. July’s index was 85.1, an increase of 1.0 index points over the previous month.

The present index portion of the index improved 4.8 points from the month prior to 98.6. It’s at its highest level since July 2007. Future expectations declined 1.3 points to 76.5.

Inflationary expectations were little changed, with the 1-year expectation increasing 0.1% to 3.1% and the 5-year expectation declining slightly to 2.8%.

Wednesday, July 24, 2013

New Home Sales Increased in June

New home sales increased to an annual pace of 497,000 units in June, 8.3% above May’s downwardly revised pace. June’s pace is now 38% above year ago levels.

New Home sales were not regionally balanced. The Midwest saw a sharp decline, dropping 11.8% from the previous month, while the remaining three regions all posted double digit gains. The Northeast led the gains at 18.5%.

The supply of existing home on the market remains tight, decreasing to 3.9 months. An influx of listings was offset by the strong demand. Listings increased 1.3% over the month. Supply will remain at cyclical lows until residential construction picks up sufficiently.

The median price of homes sold dropped in June, with the median home selling for $235,700. This is the second month of declining median home prices. April’s median home price is 1.3% above year-ago levels.

Read the Census report.

Monday, July 22, 2013

Existing Home Sale Drop 1.2% in June

According to the National Association of Realtors, existing home sales decline 1.2% in June, to an annual pace of 5.08 million units. May’s pace was revised down as well. June’s report is above the 5 million sales pace mark and stronger then the pace seen in several years.

The Midwest was the only region that showed no decline in June from the previous month, remaining stagnant. The Northwest, West and South decreased 1.6%, 1.6% and 1.5% respectively.

Housing inventory increased in June, rising 1.9% to 5.2 months. However, the 5.2 months of supply remain well below the 6-month mark that indicates a balanced market and 8% lower than year ago levels.

The national median existing-home price was $214,200 in June, up 13.5% from a year ago. This represents the 7th straight month of double digit increases.

Read the NAR release.

Wednesday, July 17, 2013

Fed's Beige Book Shows Modest to Moderate Expansion

The Federal Reserve's Beige Book indicated that economic activity expanded at a modest to moderate pace across the country. The report, which covered June through mid-July, indicated that improvements across all districts. Most industries reported moderate to modest growth except for agriculture.

Eleven of the Federal Reserve districts reported economic activity grew at a "moderate" pace and one district, Atlanta, reported that its improvement was "modest." “Most Districts noted that overall consumer spending and auto sales increased during the reporting period. Activity in a wide variety of nonfinancial services was stable or increased in most reporting Districts… Manufacturing expanded in most Districts since the previous report, with many Districts reporting increases in new orders, shipments, or production.”

“Banking conditions generally improved across the Districts. Credit quality improved, while credit standards remained largely unchanged.”

Read the full Federal Reserve report.

Housing Starts Slowed in June

New residential construction slowed in June to a pace of 836K per year, a 9.9% decrease from May’s revised pace. The pace of housing starts is at their lowest level in almost a year. While May was revised up to an 8.9% increase from the previous month, April was revised downward slightly. Housing starts are 10.9% above 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 56 percent of its long-run average of 1.5 million units per year.

The slowdown in June was primarily caused by multi-family construction, which shrank 26% from the previous month. Single family construction decreased 0.8% from the previous month.

Permit issuance dropped 7.5%, largely due to the 21.4% decrease in multi-family permit issuance in June. However, single family permit issuance increased 0.6%. Total permit issuance is up 16% from year-ago levels. Single family permits are still strongly rising while multifamily permitting growth has slowed to 1% year over year.

Read the Census report.

Tuesday, July 16, 2013

Homebuilder Sentiment Reached Highest Level Since January 2006

According to the NAHB, homebuilder sentiment improved in July as the index rose 6 points to 57. The index reached its highest level since January 2006 and is the third consecutive monthly gain. The details of the report were good as well, with all three components of the report showing improvement from the previous month, particularly current sales conditions.

All four of the housing market regions in the U.S. showed improved builder confidence. , only the west declined from April. The Midwest showed the most improvement and grew to an index of 54.

Read the NAHB release.

Industrial Production Increased 0.3% in June

Industrial production grew 0.3% in June due primarily to a surge in motor vehicle and parts and high-tech. Both manufacturing and mining output increased, while utility production shrank.

Manufacturing rose 0.3% in June primarily due to a 1.3% growth in motor vehicle and parts and a 1.2% improvement in high-tech. Non-manufacturing production was mixed in June. Mining production continued to grow, increasing 0.8%. Utilities also followed the previous months declining trend, dropping 0.1%.

The capacity utilization rate rose slightly to 77.8 in June, but is below recovery highs seen earlier this year.

Read the Federal Reserve release.

Consumer Prices Jumped 0.5% in June

Consumer prices jumped in May, rising 0.5% and fully offsetting March and April’s decline. Rising energy prices contributed to the gain. Prices are now 1.8% above year ago levels. Core CPI remained stable, increasing 0.2% from the previous month, and slightly decreased from the previous month’s year over year gain by 0.1% to1.6%.

The energy index rose sharply, increasing 3.4% from the previous month. Gas prices surged 6.3% and contributed heavily to the energy gains.

Food prices rose a modest 2.0% in June, reversing the previous month’s decline. It suggests that rising gas prices have started to impact the price of food.

Read the BLS report.

Monday, July 15, 2013

Retail Sales Grew 0.4% in June

Retail sales rose 0.4% in June. June’s growth follows a 0.1% downward revision to May and a 0.1% upward revision to April. Retail sales are now 5.7% above year ago levels, an improvement over May’s 4.4% gain and the strongest year over year growth in 2013. June’s sales increase is attributed to the increased auto sales.

Auto sales increased 1.8% in June, its third consecutive monthly gain exceeding 1%. Sales at gasoline stations improved 0.7%, an acceleration from May’s revised 0.4% gain. Excluding auto and gas, sales declined 0.1%, and were 4.5% above year ago levels.

There were pockets of strength in June’s disappointing report. Furniture and home furnishings improved 2.4%. Building materials sales preformed the worst, declining 2.2% from the previous month.

Read the Census report.

Friday, July 12, 2013

Producer Prices Rose 0.8% in June

Producer prices increased for the second consecutive month in June, rising 0.8% over May’s levels. Producer prices are up 2.5% from year-ago levels, the largest increase in over a year. Higher gasoline prices were a strong driver of June’s appreciation. Core prices for finished goods rose slightly to 2.0%, but remains at consistent with the growth rate seen over the last 6 months.

Prices for finished energy products rose 2.9% in June, its second month gain. Food prices increased 0.2%, a drop from the previous month.

The prices of crude goods remained stagnant in June, and are 2.2% below year ago levels.

Read the BLS release.

Wednesday, July 10, 2013

FOMC Members Discuss Announcing Plans to Slow QE Pace

In the FOMC minutes from the June 18th – 19th meeting, most members of the FOMC agreed that the labor market has improved since the economic downturn and discussed announcing future plans to slow the pace of its bond-buying program.

At the FOMC meeting, members continued their pledge to keep the target range for the federal funds rate at 0 to ¼ percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6½ percent.

Since the September meeting, some participants had become more confident of sustained improvement in the outlook for the labor market and so thought that a downward adjustment in asset purchases had or would likely soon become appropriate.

Most committee members, however, now anticipate that the Committee would not sell agency mortgage backed securities (MBS) as part of the normalization process, although some indicated that limited sales might be warranted in the longer run to reduce or eliminate residual holdings.

Since the FOMC’s meeting in June, a promising jobs report was released. Payroll employment grew by 195,000 in July and revised up April and May’s numbers.

Read the FOMC minutes.

Tuesday, July 9, 2013

Small Business Optimism Dropped in June

The NFIB’s Small Business Optimism Index dropped after two previous months of increases in June, settling at 93.5 index points. The index is well below the long run average of 98.1.

Financing continues to be the least cited challenge facing small business, with only 2% of respondents reporting it as their single most important problem, unchanged from the previous few months. Taxes and government requirements continued to be the first and second most often cited problem, but the number of respondents citing the issues as the single most important problem decreased. Taxes dropped from 24% to 20% and government requirements declined from 23% to 20%.

Read the NFIB report.

Consumer Delinquencies Decline Significantly in the First Quarter 2013

Consumer delinquencies declined significantly in this year’s first quarter, falling in 11 out of 13 loan categories as consumers more carefully manage their finances, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 29 basis points to 1.70 percent of all accounts in the first quarter, the lowest level since December 2004 and well below the 15-year average of 2.37 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 falling delinquencies to a steady improvement in the economy and improving financial health for consumers.

“Sharply lower delinquency levels reflect improving consumer balance sheets, steady job creation and a continuing increase in household wealth,” Chessen said. “Many consumers have learned the hard lessons of recession, and have redoubled their efforts to keep debt at manageable levels.”

Chessen believes that rising wealth and improving consumer confidence have played an important role in lower delinquency rates.

“Household net worth rebounded in the first quarter, rising above its pre-recession peak for the first time in over five years,” Chessen said. “Rising home and stock prices create a wealth effect that boosts consumer confidence, which contributes to healthier finances and a greater ability to pay down debt.”

While delinquencies for home equity loans, which are closed-end loans with fixed terms and repayment schedules, fell sharply, delinquencies for home equity lines of credit moved slightly higher in the first quarter.

“An increasing number of home equity lines of credit have gone from interest only to fully amortizing,” Chessen said. “This results in a payment shock for some borrowers who must adjust to paying down the principal, along with the interest.”

Read ABA’s full release.

Monday, July 8, 2013

Consumer Credit Grew by $19.6 billion in May

Consumer credit rose by $19.6 billion over May, the fastest pace in a year. Unlike in previous months, the jump in consumer credit was also driven by an increase in revolving credit, in addition to non-revolving credit gains. In previous months consumer credit was driven by non-revolving student loans.

Revolving credit, consisting primarily of credit card balances, grew by $6.6 billion, a 9.7% increase from the previous month. The increase was a large jump from the previous month and the largest gain in a year. Revolving credit continues a volatile trend, and has grown by $10.7 billion in the past year. The gains in revolving credit attributed to the uptick in credit card use.

Non-revolving balances grew for the 21st consecutive month, rising $13.0 billion in May, and increasing 8.2% from the previous month. Student loans were surprisingly not the driver of non-revolving credit.

Read the Federal Reserve release.

Friday, July 5, 2013

Job Creation Surged in June as Unemployment Remains Constant

The U.S. economy added 195,000 jobs in June, with strong upward revisions to past reports as well. Unemployment remained constant at 7.6%. May’s job growth was revised up from 175,000 to 195,000 jobs. April’s numbers were revised up as well to 199,000 jobs. The cumulative revisions added 70,000 jobs over the previous two months. Overall, June’s report is encouraging.

As seen in past months, June’s strong numbers resulted from positive growth in the private sector, particularly the services industry, which added 187,000 jobs. The private sector industry as a whole added 202,000 jobs, and saw positive revisions to the previous two months. The goods producing sector saw an 8,000 job gain, following two months of no gains and losses.

The government continues to drag on job growth, shedding 7,000 jobs in June, and above the 6 month average of 4,000 jobs lost per month. Due to sequestration, government employment loss is expected through the remainder of this fiscal year.

The unemployment rate remained constant at 7.6% as the labor force participation increased to 63.5%. Previous discouraged job seekers are returning to the labor market.

Read the BLS release.

Wednesday, July 3, 2013

ISM Non-Manufacturing Decline in June

The ISM non-manufacturing index declined to 52.2 in June, from 53.7 in May. The index has dropped three in the last four months, and June’s reading is the lowest value since early 2010. The non-manufacturing index has now remained above 50 – indicating industry expansion – for 42 consecutive months. Services continue to outperform the manufacturing sector, which had a headline number of 50.9 in the last reading.

Employment improved from 50.1 in May to 54.7 index points.

Aside from employment, the details of the report were weaker. Business output and new orders dropped 4.8 to 51.7 and 5.2 to 50.8 index points, respectively, from the previous month.

Exports fell below the expansionary threshold to a reading of 47.5.

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

Read the ISM release.

Trade Gap Widened in May

The trade deficit increased in May to $45.0 billion, a 12.0% increase from a revised $40.1 billion deficit in April. The increase in May is the second consecutive month to report an increased trade deficit. Rising imports solely contributed to the increase in the deficit.

Exports shrank by 0.3% from April to $187.1 billion. Imports grew by 1.9% to $232.1 billion. The services surplus improved slightly by $0.1 billion to $18.4 billion.

Read the Census report.

ADP Employment Grew By 188,000 in June

Private sector employment increased by 188k jobs in June, according to ADP’s National Employment Report. Gains in June continued to be driven by the service sector, however the goods sector made gains as well. June’s report has the largest gains since February, and is well above May’s slight revision to 134k and April’s upward revision to 124k. May’s BLS report had job gains at 175k, well above the ADP reported value.

The service sector created 161k jobs in June, up from 138k in May.

The goods producing sector picked up steam in June, adding 27k jobs, up from the 4k decline the previous month. Manufacturing did not contribute much to the gain, only adding 1k jobs in June. However, it’s an improvement from the negative manufacturing job growth in April and May.

Read the ADP release.

Monday, July 1, 2013

Construction Spending Increased 0.5% in May

Construction spending increased 0.5% in May and is 5.4% above year ago levels. April’s report was revised down while March’s report was revised up to 0.1% and -0.1% respectively.

Public construction led the gains in May, which improved 1.8% from the previous month. Public construction continues to be driven by transportation, power and water supply. Private construction had no net gain, but private residential improved 1.2% from April while private non-residential shrank 1.4%.

Read the Census report.

ISM Manufacturing Index Grew in June

The ISM manufacturing index rose to 50.9 in June, following May’s drop to 49.0. The expansionary threshold is 50. Details of the report mostly improved as well.

The indexes for new orders and production rose above the expansionary threshold in June. New orders increased from 48.8 to 51.9, let by export orders, which grew to 54.5. Production also improved 4.8 index points to 53.4.

Not all of the details were positive. Employment dropped below the expansionary threshold to 48.7. It’s the third consecutive month reporting a decline and the first time since 2009 that the index dropped below 50.

Inventories grew in June by 1.5 points to 50.5. The gap between new orders and inventories – a proxy for future production – grew to 1.4 index points, up from a 0.2 decline the previous month.

Read the ISM release.