Friday, August 30, 2013

Consumer Confidence Slips Slightly in August

Consumer confidence fell marginally in August, according to the University of Michigan’s Consumer Sentiment index. Both present conditions and future expectations were lower relative to July. In August the index slipped to 82.1, a decline of 3 points from July. Despite the fall the idex remains near recovery highs.

The present condition portion of the index fell to 95.2, a decline of 3.4 points from July. Future expectation declined to 73.7, a drop of 2.8 points.

Inflationary expectation fell slightly, with the 1-year exception decreasing 0.1 percentage point to 3.0% in August. However, the 5-year expectation rose slightly higher to 2.9% in August, a 0.1 percentage point increase.

Personal Income & Consumption Grow 0.1% in July

Personal income growth decelerated in July, growing 0.1%, after two consecutive months of 0.3% growth. This represents the weakest growth since April. Consumption also decelerated, growing 0.1% in July. The savings rate remained constant relative to the previous month at 4.4%. This level is low by historical standards.

The deceleration of person income was driven primarily by wage income, which declined 0.3%, the first decline since January. Growth was also restrained by a decline in interest income. Strong growth in dividend income slightly offset these negative effects on person income. Disposable income rose 0.2%.

While consumption did slow, there was still growth as pent-up demand and wealth effects lifted consumer spending. The growth in consumption was led by nondurable goods, which rose 0.9% in July. Consumption of durable goods fells 0.2%, while expenditures on services were unchanged.

Overall prices rose 0.1%. Excluding food and energy, prices were also up 0.1%. Currently, prices are 1.4% above year-ago levels, indicating low inflation, although it is the highest reading since February.

Read the Bureua of Economic Analysis release.

Q2 Banking Industry Performance

FDIC-insured banks and savings institutions earned $42.2 billion in the second quarter, 22.6 percent more than the industry’s $34.4 billion earnings a year ago, the FDIC said yesterday. The average return on assets -- a standard measure of bank profitability -- rose to 1.17 percent, up from 0.99 percent a year ago but trailing its average between 2000 and 2006. Profitability rose as year-on-year noninterest income growth of 11.1 percent outstripped a 1.7 percent fall in interest income.

The banking industry has had 16 consecutive quarters of profits increasing year-over-year, the agency said. Over half of all institutions reported an improvement in quarterly net income from a year ago, and those reporting first-quarter net losses fell to 8.2 percent -- the lowest proportion since 2006. Asset quality continued to improve as troubled loans and leases fell. Charge-offs were $14.2 billion in the first quarter, down $6.3 billion -- or 30.7 percent -- from a year earlier.

The number of institutions on the problem bank list dropped from 612 to 553 -- the ninth straight quarter they declined. The Deposit Insurance Fund balance rose from $35.7 billion to $37.9 billion during the quarter, stemming primarily from assessment revenues, officials said.

“Banks continued their strong performance with robust earnings supported by a diverse product base, lower losses and an ongoing improvement in asset quality,” said ABA Chief Economist James Chessen. “At the same time, institutions face challenges as they recover from a one-two punch of rising compliance costs and weaker-than-normal loan demand that makes it difficult to grow topline revenue.”

Read Jim Chessen's statement.

Read the FDIC press release.

Thursday, August 29, 2013

Second Quarter Growth Receives Strong Upward Revision

Real GDP growth for the second quarter was revised up strongly to 2.5% in the BEA’s second estimate. Growth was revised up from an initial estimate of just 1.7% as reported in the first estimate last month. The upward revision was driven primarily by better than expected exports. Growth in the second quarter accelerated notably from the 1.1% growth in the first quarter.

The acceleration from the first quarter was due primarily to strong growth in fixed investment and a slowing of government drag. Fixed investment swung from a 0.2% drag to a 0.9% boost to the economy in the second quarter, driven by improvements in nonresidential investment. Government drag, which was 0.8% in the first quarter, slowed to just 0.1%. Personal consumption continued to play a strong role in GDP growth, contributing the largest portion of growth at 1.2%.

The upward revision to the first estimate was due almost entirely to an improvement in net exports, which were neutral in the second estimate, but provided a 0.8% drag in the initial estimate.

Read the BEA release.

Tuesday, August 27, 2013

ABA's CEO Frank Keating Discusses Regulatory Uncertainty

Frank Keating, ABA's CEO discusses the impact of regulatory uncertainty on lending with Fox Business.

See the interview here.

Home Prices Rose 2.2% in June

Existing home prices continued to rise in June according to the Case-Shiller index, both the 10- and 20-city indices rose 2.2% from the previous month. The broader, 20-city index is now 12.1% above year-ago levels. June’s gains were widespread geographically as well, with every metropolitan are surveyed reporting a gain in June. All of the 20 metro areas continue to report gains from year-ago levels as well.

All of the metropolitan areas surveyed reported improvements, both over the month and the year. June’s gains ranged from a 1.3% gain in Charlotte, to a 2.8% gain in San Diego. Compared to a year ago, Las Vegas has fared the best, with prices rising 24.9%. New York, which lost much less value in the crisis, has seen the weakest gains, rising 3.3% from a year ago.

Despite the improvements seen recently, home prices remain well below the levels seen at the peak of the bubble. The 20-city index remains 22.7% below its July 2006 peak.

Read the S&P release.

Most Bank Customers Pay Little or No Fees

According to a recent survey by the American Bankers Association (ABA), most bank customers—65 percent—spend $3 or less in monthly fees for banking services such as checking account maintenance and ATM access—less than the cost of a gallon of gas. The majority of Americans—55 percent—continue to pay nothing at all.

“Today’s savvy consumers are avoiding many bank fees by taking steps like maintaining a minimum balance and only using ATMs owned by their bank,” said Nessa Feddis, ABA’s senior vice president and deputy chief counsel for Consumer Protection and Payments. “These results prove that most customers responsibly manage their accounts, allowing them free access to a service that ensures their money is safe and available day and night.”

The annual survey of 1,000 U.S. adults was conducted for ABA by Ipsos Public Affairs, an independent market research firm, July 11-17, 2013. ABA has conducted the survey annually since 1998.

When asked “How much do you estimate you spend on fees for banking services each month, such as fees for checking account maintenance, ATMS use and so forth?,” consumers provided the following responses:

-55 percent said they pay nothing;
-10 percent said $3 or less;
-8 percent said $4 to $6;
-4 percent said $6 to $9; and
-14 percent said $10 or more.

See the full release.

Friday, August 23, 2013

Federal Reserve Considers Adding Additional Rate Tool

In the FOMC minutes, Federal Reserve policymakers reviewed the possibility of adding a tool that would help them manage money market interest rates. The report dealt with the potential for establishing a “fixed-rate, full-allotment overnight reverse repurchase agreement facility.” The FOMC members “thought such a facility could prove helpful; they asked the staff to undertake further work to examine how it might operate and how it might affect short-term funding markets.”

Such a tool would allow the Federal Reserve to “offer an overnight, risk-free instrument directly to a relatively wide range of market participants. The FOMC noted that this tool could compliment the current ability to control interest rates paid on excess reserves held by banks, and would improve the Committee’s ability to control short term rates.

In support of the Committee’s longer-run planning for improvements in the implementation of monetary policy, the Desk report also included a briefing on the potential for establishing a fixed-rate, full-allotment overnight reverse repurchase agreement facility as an additional tool for managing money market interest rates. The presentation suggested that such a facility would allow the Committee to offer an overnight, risk-free instrument directly to a relatively wide range of market participants, perhaps complementing the payment of interest on excess reserves held by banks and thereby improving the Committee’s ability to keep short-term market rates at levels that it deems appropriate to achieve its macroeconomic objectives. The staff also identified several key issues that would require consideration in the design of such a facility, including the choice of the appropriate facility interest rate and possible additions to the range of eligible counterparties. In general, meeting participants indicated that they thought such a facility could prove helpful; they asked the staff to undertake further work to examine how it might operate and how it might affect short-term funding markets. A number of them emphasized that their interest in having the staff conduct additional research reflected an ongoing effort to improve the technical execution of policy and did not signal any change in the Committee’s views about policy going forward.

Read the full FOMC minutes.

New Home Sales Fell 13% in July

The pace of new home sales plummeted in July, falling to an annual rate of 394,000 units. The pace is 13.7% below the previous month’s 455,00 units and the lowest level since October of last year. July’s pace is just 6.8% higher than a year ago. By comparison, June’s report was 38% higher than the year-ago pace.

July’s slowdown was broad based, with three of the four regions reporting sales slowing by more than 10%. The Northeast fared the best, with sales falling by 5.7%. The West, which was hit the hardest, saw sales fall by 16.1%.

The deceleration of sales and an increase in listings led the supply of homes for sale at the current sales pace to rise from 4.3 months to 5.2 months. Listings increased by 4.3% over the months reaching an annual level of 171,000 untis.

The median price of a new home rose to $253,900, up 8.3 % from year-ago levels. Although this has improved, the median price is 8% below its level just three months prior.

Read the Census report.

Wednesday, August 21, 2013

Existing Home Sales Rose 6.5% in July

According to the National Association of Realtors, existing home sales improved 6.5% in July to an annual pace of 5.39 million units. Existing home sales are at their highest rate in at least two years, well surpassing the 6-month average. Notably, sales of existing single-family homes grew 6.3%, reaching their highest level since the expiration of the homebuyer tax credit.

All four regions showed an improvement of at least 5.0% from the previous month. The northwest improved the most at 12.7% from the previous month levels. The south grew 5.0%, while still impressive, was the slowest growth region. The Midwest and west improved 5.8% and 6.6% respectively.

Housing inventory remained the same from June’s revised inventory of 5.1 months. The months of supply remain well below the 6-month mark that indicates a balanced market and 5% below year ago levels.

The national median existing-home price was $213,500 in June, up 13.7% from a year ago, but below June’s revised median home price of $214,000. After 7 straight months of double digit increases, this is the first month of decline.

Read the NAR release.

Friday, August 16, 2013

Housing Starts Improved Modestly in July

New residential construction improved modestly in July, increasing 5.9% from the previous month. Housing starts are now running at an annual rate of 896,000, up from the previous month’s upwardly revised value of 846,000, but below May’s pace. Housing starts are 11% below the one-million yearly units seen in March, but 23% above year ago levels.

As has been the case throughout most of the recovery to date, July’s increase was driven by strong growth in multi-family construction. Multi-family construction surged 26% over the month. Single-family starts weakened, dropping 2.2% in July.

The details were positive as well, with increases in permit issuance and completions. Permit issuance rose 2.7%, reversing a two month decline. Multi-family issuance drove the rise, increasing 12.6% over the month while single-family permit issuance declined 1.9%. This is notable because it indicates that the important single-family sector is poised for strong gains. Completions rose 1.8% in July as well.

Read the Census report.

Thursday, August 15, 2013

Industrial Production Remained Stagnant in July

Industrial production remained unchanged in July, along with slight downward revisions to previous reports. The mining output increased while manufacturing and utility production shrank.

Manufacturing, the key indicator of the three, declined 0.1% in July primarily due to a 1.7% drop in motor vehicle and parts production. Non-manufacturing production was mixed in July. Mining production grew by 2.1% while utilities shrank by 2.1%. Both continued their upward and downward trends respectively.

The capacity utilization ratio dropped slightly to 77.6 from a revised 77.7 from the previous month, but is below recovery highs seen earlier this year.

Read the Federal Reserve release.

Consumer Prices Rose 0.2% in July

Consumer prices rose 0.2% in July, moderating significantly from June’s 0.5% gain. July’s number was driven by small gains in gasoline and food prices. Prices are now 2.0% above year ago levels, stronger than the 1.8% reported in June. Core CPI remained stable, with prices increasing 0.2%, matching the previous two months’ growth.

The energy index helped contribute to July’s gain, rising 0.2% over the month. However, the pace is slower than the previous month, which surged 3.4%.

Food prices rose just 0.1%, below the 0.2% gains in June, but above the negative gains in May. Food and vegetable prices contributed to the gains.

Read the BLS report.

Wednesday, August 14, 2013

Producer Prices Remained Unchanged in July

Producer prices remained unchanged in July after June’s strong gains, and are up 2.1% over year ago levels. Energy prices fell and food prices remained constant. There was a slight rise in core goods, with finished core goods rising 0.1% and remains consistent with growth rates seen the last 6 months.

Prices for finished energy products dropped 0.2%, a likely result of lower gasoline prices. The food index remained constant as a steep drop in fresh vegetable prices was offset by other gains.

The prices of crude goods declined in July, and are 1.9% below year ago levels.

Read the BLS release.

Tuesday, August 13, 2013

Retail Sales Increased 0.2% in July

Retail sales grew 0.2% in July. July’s report includes a 0.2% upward revision to June’s number. Falling auto sales were a drag on retail sales in July, which were primarily the result of auto dealers. Core sales (excluding auto and gas) rose 0.4%, the highest amount in 3 months. Year-over-year growth increased 5.4%, slightly lower than June’s revised 5.9% growth but well above all other year-over-year growth in 2013.

Sporting goods and hobbies saw the largest gains in July, rising 1.0% over the previous month, the highest month-over-month gain since January.

Sales fell the most sharply for furniture & home furnishings, dropping 1.4% from the previous month. Motor vehicles and parts saw a 1.0% decline.

Read the Census report.

Small Business Optimism Improved Slightly in July

The NFIB’s Small Business Optimism Index grew slightly in July, rising 0.6 index points to 94.1. While July’s reading was the 4th highest since December 2007, the index is still below its long term average of 100.

Financing remained the least cited problem for small businesses in July, with only 3% of respondents reporting it as their single most important problem. Taxes, Government requirements, and poor sales were all tied as the single most important problem facing small businesses, with 21% of respondents citing each.

There were a few encouraging aspects to July’s report such as inventories and sales, profits and wages. Wages increased a seasonally adjusted net 14%. A net seasonally adjusted 11% plan to raise compensation in the coming months, up 5 points.

Despite the improved index, some details of the report were not positive. Capital spending and the labor markets decreased. July’s report found that on net, firms lost jobs at a rate of 0.11 workers per firm.

Read the NFIB report.

Wednesday, August 7, 2013

Consumer Credit Grew by $13.8 Billion in June

Consumer credit grew by $13.8 billion in June, a slower pace from May's revised downward pace of $17.5 billion, but slightly above the 6 month average of $13.7 billion. The decline in consumer credit was driven solely by revolving credit, which shrank in June.

Revolving credit, consisting primarily of credit card balances, declined by $2.7 billion, a 3.7% decrease from the previous month. Revolving credit continues its volatile trend.

Non-revolving credit grew for the 22nd consecutive month, rising $16.5 billion in June, a 10.5% increase from the previous month and well above the 6-month average of $12.2 billion.

Read the Federal Reserve release.

Tuesday, August 6, 2013

U.S. Trade Gap Narrows in June

The U.S. foreign trade deficit dropped 22% in June to $34.2 billion. The decrease in the deficit is due to a combination of increased exports and decreased imports.

Exports grew by 2.2% to $191.2 billion and imports declined by 2.9% to $225.4 billion. The goods and petroleum deficits contributed to June’s trade gap shrinking. The goods deficit declined from $62.9 billion to $53.2 billion and the petroleum deficit dropped from $20.8 billion to $17.4 billion.

The real goods deficit, which is important to calculate GDP, shrank from $51.9 billion to $43.1 billion.

Read the Census report.

Banks Report Improved 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. Banks primarily eased their lending policies for commercial and industrial (C&I) and CRE loans and experienced stronger demand for such loans over the past three months. A moderate number of the banks reported easing terms slightly.

A net 15.3% 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 24.3% of respondents noting higher demand. Banks have continued to ease standards on these business loans as well, with 18.1% of banks easing standards slightly on loans to large and medium sized borrowers and 0.1% of banks easing standards to small borrowers.

Read the report.

Monday, August 5, 2013

ISM Non-Manufacturing Improved in July

The ISM non-manufacturing index increased to 56.0 in July from 52.2 in June, more than offsetting June’s losses. The index has remained above 50 for over a year, indicating strong industry growth.

The details of July’s report were strong, with business output, exports and new orders improving. New orders increased by 6.9 points, a positive sign for future production. It is the single largest month increase for new orders since April 2009. Business output increased 8.7 points to 60.4 in July. Inventories declined slightly to 53.5, but still remain in expansionary territory. The export index improved, but still remains below the expansionary threshold.

Although unemployment dropped to 53.2, the index remains in expansionary territory.

A copy of the press release can be found here.

Friday, August 2, 2013

Personal Income Grew 0.3% in June as Consumption Increased 0.5%

Personal income continued its steady growth, increasing 0.3% in June. Consumption improved 0.5%, the largest gain in 4 months. The uptick in consumption caused the savings rate to decline slightly in June to 4.4%, down from 4.6% in May. This level is very low by historical standards.

Personal income growth was driven primarily by wages, which improved 0.5% in June. Disposable income only grew by 0.3% over the month as tax payments grew faster than income.

Nominal consumption spending increased 0.5% in June, led by both durable and non-durable goods. When accounting for 0.2% inflation, real spending increased slightly at 0.1%, the same gains seen in the last two months. Durable goods grew 0.9% and non-durable goods increased 1.3%, the highest gains since February. Service spending rose 0.2% over the month.

Inflation was moderate in June, with the PCE deflator indicating a 0.4% rise in prices. Prices had remained stagnant or fell in the previous two months. Core prices strengthened 0.2% in June. Currently prices are 1.3% above year-ago levels, indicating low inflation.

Read the BEA release.

Economy Added 162,000 Jobs in July and Unemployment Fell to 7.4%

Employment increased by 162,000 in July, well below expectations and the 6-month average of 200,000 jobs per month. Despite the slow job growth, the unemployment rate fell, reaching 7.4% in July, primarily due to a decreased labor force participation rate. The report also saw May and June’s employment gains lowered to 176,000 and 188,000 respectively, a net loss of roughly 26,000 jobs.

Job creation continued to be driven by the service sector, however July’s weaker job growth resulted from a weaker increase in service sector jobs. The service sector added 157,000 jobs, the slowest pace since January. July’s job growth was boosted slightly by the goods-producing sector, which added 4,000 jobs. Manufacturing payrolls contributed to the goods sector strength, adding 6,000 jobs, while construction lost 6,000, on net equaling out. Government added 1,000 jobs, a reverse from the previous two months of job losses.

The drop in the unemployment rate was due to a drop in the labor force participation rate, which declined from 63.5% in June to 63.4% in July.

Read the BLS report.

Thursday, August 1, 2013

Construction Spending Dropped 0.6% in June

Construction spending decreased by 0.6% in June. Despite the decline, spending remains 3.3% above year-ago levels. June’s report also contained an upward revision to April and May’s growth by 1.0% and 0.8% respectively.

While private residential construction remained unchanged, the total loss in June was accounted for by the loss in private nonresidential construction. With a decrease of 0.9%, private nonresidential spending reversed the positive trend seen in the previous 4 months, but is still up 1.4% from year-ago levels.

Public residential saw a 1.1% decrease in spending, more than reversing the positive gains last month.

Read the Census report.

ISM Manufacturing Index Improved in July

The ISM manufacturing index rose to 55.4 index points in July, a 4.5 point rise from the previous month. The index is at its highest level since June 2011. July marks the second consecutive monthly gain since the index fell into contractor territory in May.

The details of July’s report were improved as well. Production was strong in July, rising 11.6 points to 65.0. The employment index also saw notable gains, rising 5.7 points to 54.4 and back into expansionary territory. New orders improved 6.4 points, settling at 58.3.

Not all of the details were positive however. Export orders declined 1.0 index points to 53.5 and backlogged orders dropped 1.5 index points to 45.0.

Inventories dropped by 3.5 points, settling at 47.0. The gap between new orders and inventories is a proxy for future production. The decline in inventories coupled with the growth in new orders created a strong proxy for July. The gap increased to 11.3 points, up from 1.4 the previous month.

Read the ISM release.