Wednesday, November 27, 2013

Consumer Confidence Rose in November

Consumer confidence rose after two consecutive monthly declines according to the University of Michigan’s Consumer Sentiment. The index increased 1.9 index points to 75.1. The previous declines were driven by uncertainty surrounding the federal budget and debt ceiling. However in November, the index was carried by optimism for future expectations.

Future expectations rose 4.3 points to 66.8 as consumers are more optimistic in regards to the future of the U.S. recovery. The present conditions portion of the index declined 1.9 index points to 88.0.

The 1-year inflationary expectation declined to 2.9% from 3.0% in the previous month. However, the 5-year inflationary expectation rose to 2.9% from 2.8% in October.

Tuesday, November 26, 2013

ABA Statement on FDIC Bank Earnings Report

ABA Chief Economist Jim Chessen stated in response to the report, “Banks delivered a solid performance marked by strong business and auto loan growth and a continued improvement in asset quality. At the same time, the near disappearance of mortgage refinancing due to rising interest rates has hindered bank revenue, and continued fiscal and policy uncertainty could make businesses and individuals more reluctant to borrow. This uncertainty has also contributed to a rapid increase in bank deposits as consumers look for safety in today’s environment.”

Business loans increased for the 13th consecutive quarter. Chessen noted that, “With uncertainty swirling around future tax rates, healthcare costs and government regulation, many businesses are understandably cautious. Banks, which have seen a tremendous inflow of deposits, have both the desire and capacity to make loans once borrowers’ hesitancy dissipates. Lackluster loan demand, not the supply of credit, is limiting the pace of small business lending.”

High-quality bank capital continues to grow. Reserves now stand 27 percent higher than 2008 levels. Regulators have categorized almost 98 percent of banks as well-capitalized, which means their capital levels are at least 25 percent higher than minimum standards.

Read the full press release.

Home Prices Continue Upward Trend in September

According to the Case-Shiller’s 20-city index, existing home prices rose 0.7 in September. It’s the slowest pace since February. Gains from one year ago accelerated, with both the 10-city and 20-city indexes rising 13.3% above their year ago paces. The 10-city index also grew 0.7% over the month of September.

All metro regions reported both year-over-year and monthly gains. However, the gains were not consistent across regions. Las Vegas saw the largest monthly gain at 1.3%, while Denver was the weakest at 0.2%. The gains are weaker than the previous months, signaling that rising interest rates are impacting home prices.

The 20-city index still remains 19.8% below its peak in July 2006.

Read the Standard and Poor release.

Housing Starts Revised Down in August

New residential construction was revised down in August to an annual pace of 883,000 units. There is no new data for September due to the government shutdown, which caused a delay in the data.

There is positive news for future growth. Housing permit issuance increased 6.2% in October, reaching the highest level since 2008 and surpassing the 1 million mark for the first time since April.

Gains continue to be driven by multifamily housing, which saw a strong uptick in housing permits in September and October.

Read the Census report.

Thursday, November 21, 2013

Producer Prices Dropped 0.2% in October

Producer prices shrank for the second consecutive month, dropping 0.2% in October. The decline was due to a large drop in energy prices, which offset gains in food prices and core goods. Producer prices held at just 0.3% above year ago levels, the weakest year-over-year growth since September 2009.

Prices for finished energy goods declined for the first time in six months, shrinking 1.5%. Most of October’s decline resulted from a 3.8% drop in gasoline prices. Core finished goods rose 0.2%, a slight improvement from the previous four months. Intermediate core goods dropped 0.1%, following two months of positive growth. Crude prices shrank 0.9%, completely offsetting the 0.5% gain in September. Notably the year-over-year gains for crude goods dropped for the first time in a year.

Read the BLS report.

Wednesday, November 20, 2013

FOMC Members Discuss Tapering Occurring Soon

In the FOMC minutes from the October 29-30 meeting, most members of the FOMC agreed that the labor market has improved since the summer and discussed imminent plans to slow the pace of its bond-buying program during the next few meetings.

The meeting minutes note that despite the delayed economic data due to the shutdown, the partial shutdown of the federal government would have a temporary and limited economic impact. However, several committee members expressed concern about the effects of the shutdown on business and consumer confidence. The committee members see fiscal policy as, “exerting significant restraint on economic growth, was expected to become somewhat less restrictive over the forecast period. Nonetheless, it was noted that the stance of fiscal policy was likely to remain one of the most important headwinds restraining growth over the medium term.”

It appears as though tapering will begin at the December or January meeting.

Since the FOMC’s meeting in October, a promising jobs report was released. Payroll employment grew by 204,000 in October, and revised up August and September’s numbers.

Read the Federal Reserve’s release.

Existing Home Sales Dipped 3.2% in October

Existing home sales sharply dropped in October, declining 3.2% to an annual pace of 5.12 million units, according to the National Association of Realtors. October’s pace is 6% greater than year-ago levels. For the last 28 months, sales have remained above year-ago levels.

The details of the report were weak, with all four regions reporting slower sales. The west took the biggest hit, declining 7.1% from the previous month. The Midwest had the smallest drop of 1.6%. NAR chief economist Lawrence Yun attributed the decline to increasing loan costs and low inventory, which pushes up home prices.

Housing inventory rose slightly to 5.0 months, from 4.9 in September.

The national median existing –home price was $199,500, below the third quarter average but above last month’s price. Moreover, the median existing-home price is 12.8% above year-ago levels.

Read the NAR release.

Consumer Price Fell 0.1% in October

The consumer price index dropped by 0.1% in September, the first negative month since April. The fall was primarily due to decreasing gasoline prices. Food prices slightly increased from the previous month. The year-ago change, which has steadily declined since July, dropped 0.9% in October.

Core prices grew in October at the same rate as the previous month. Goods prices fell 0.1% and services grew 0.2%, consistent with September. Goods prices fell 0.1% from a year ago while services increased 0.2%.

Energy prices decreased greatly, by 1.7% from last month and by 4.9% from last year.

Read the BLS report.

Retail Sales Improved 0.4% in October Despite Shutdown

Retail sales grew a modest 0.4% in October, showing little impact from the government shutdown. Auto sales, sporting goods and hobbies and clothing and accessories drove the retail gains. Year-over-year growth improved to 3.9%.

Core sales rose 0.3% in October, the same growth seen the prior month. Over half of October’s gains came from auto sales, which grew 1.3% and reversing the previous month’s decline.

The modest gains reveal that customers are conservative. Their consumer confidence is low and income growth is modest, a cause for concern due to the upcoming holiday shopping season.

Read the Census release.

Tuesday, November 19, 2013

ABA President Keating on Bloomberg: Policy Uncertainty Hinders Economy

Uncertainty from Washington contributes to major economic headwinds, ABA President and CEO Frank Keating said on Bloomberg TV last night. "Uncertainty about regulatory practices, uncertainty about healthcare costs under the Affordable Care Act, uncertainty about jobs -- all that has an impact," he told host Mark Crumpton of "Bottom Line."

Congressional unpredictabilty also plays a role, Keating added. "If we go through fiscal cliffs and shutdowns again, I think people are going to throw up their hands and hunker down," he said, which could lead to another economic contraction.

Keating also focused on the role of debt in consumers' economic decisions. "Young people who are wanting to build or buy their first home are absolutely saddled with loan debt," he said. "That will have an impact." Regulatory mandates could also lead to slow growth in the housing market, Keating added, with the "really steep" 43 percent debt-to-income limit in the Qualified Mortgage rule disqualifying those who may have plenty of assets but don't fit the debt or income box exactly.

Watch the interview.

Friday, November 15, 2013

Industrial Production Declined in October

Industrial production declined 0.1% in October, against expectations of a slight improvement. Despite the overall drop, manufacturing production strengthened, rising 0.3%.Large drops in the volatile mining and utilities drove the decline. The shutdown in October appeared to impact industrial production more so than other economic reports.

Manufacturing output rose by 0.3%, an improvement from September’s 0.1% growth, and better than the 6-month average. Motor vehicle and parts, which had sizeable increases the month prior, sharply declined 1.3% in October.

Utilities suffered the largest decrease, falling 1.1% in October, following a 4.5% increase the month prior. Mining experienced larger losses than anticipated, declining 1.6%.

The capacity utilization ratio declined slightly to 78.1, however for manufacturing utilization rose to 76.2%.

Read the Federal Reserve release.

Thursday, November 14, 2013

Trade Deficit Increased to $41.8 Billion

The U.S. trade deficit grew by 8% to $41.8 billion in September, higher than previously forecasted. The increase in the deficit was due to both a decline in exports and a rise in imports from the previous month. September’s reports also slightly revised the August headline number up $0.1 billion.

Exports decreased by 0.2% to $1.88 billion and imports increased by 1.2% to $230.7 billion. The petroleum deficit increased 6.5% to $19.8 billion and the nonpetroleum grew 5.1% to $61.3 billion. The service industry surplus shrank by just $0.1 billion.

Import growth was strong in most goods categories, but the disappointing exports numbers came from a decline in demand from Asia and Latin America. Conversely, exports to China and Europe rose.

The real goods deficit, which is important to calculate GDP, increased to $50.4 billion from $47.4 billion in August.

Read the Census report.

Tuesday, November 12, 2013

Small Business Optimism Dropped in October

The NFIB’s Small Business Optimism Index shrank by 2.3 index points to 91.6, the second consecutive month decline. October’s decline was due to a drop in hiring plans and expectations for future small business conditions. The decline was expected in October due to the government shutdown and debt ceiling uncertainty.

Financing continues to be the least cited concern holding back small business conditions, with 2% of respondents citing it as the single more important problem. Government requirement and red tape remained in the top spot, dropping 1% to 21%. Taxes also remained the second most commonly cited problem, with 20% of residents reporting it as their top concern.

The details of the report were weak. Seven of the ten index components turned negative, declining a combined 27%. The combination of the government shutdown and the failed Obamacare website rollout caused 68% of owners feeling it’s bad to expand at the moment. 37% of those owners identified the political climate in Washington as the culprit—a record high level.

Job creation plans dropped 4 points from September, settling at 5%. However, the number of owners reporting a job opening they could not fill increased 1 point to 21%, a positive sign for the unemployment rate.

Read the NFIB report.

Friday, November 8, 2013

Consumer Confidence Declined in November

Consumer confidence dropped to the lowest level since December 2011 according to the University of Michigan’s Consumer Sentiment. The drop in consumer sentiment was driven by the uncertainty surrounding the federal budget and debt ceiling. The index dropped 1.2 points to 72.0.

The present conditions portion of the index declined 2.7 index points to 87.2, the lowest level since January. Future expectations index declined to 62.3 from 62.5 in October.

Inflationary expectations rose slightly, with the 1-year expectation increasing 0.1 percentage point to 3.1% and the 5-year expectation increasing 0.1 percentage point to 2.9%.

Personal Income Still Growing Faster Than Consumption in September

Personal Income continues to grow at 0.5%, the highest growth since February, and unchanged from August. Consumption decreased slightly, growing at just 0.2%. Due to the decline in consumption, the savings rate accelerated to 4.9% from 4.6% in August.

Personal income growth was supported by a better than expected wage and salary income growth of 0.4%.

Non-durable goods led growth in consumer spending, gaining 0.6%, while consumer spending on durable goods declined 1.3%.

Overall prices rose 0.1%. Excluding food and energy, prices were also up 0.1%. Currently, prices are 1.2% above year-ago levels, indicating low inflation.

Read the BEA release.

Economy Added 204,000 Jobs as Unemployment Rate Rose Slightly

The economy added 204,000 jobs in October, exceeding expectations. The unemployment rate rose to 7.3%. Labor market results were stronger than expected, considering the government shutdown.

October’s report also includes revisions to the previous months. The change in total nonfarm payroll employment for August was revised from 193,000 to 238,000 jobs, and the change for September was revised from 148,000 to 163,000 jobs. With these revisions, employment gains in August and September combined were 60,000 more than previously reported.

October saw broad growth across sectors. Good producers added 35,000 job with gains in both construction and manufacturing. The financial services sector more than made up for the last two months of losses. The public sector shed 8,000 jobs, but the effect of the government shutdown was less severe than previous expected.

The participation rate fell from 63.2 to 62.8 this month.

Read the report.

Thursday, November 7, 2013

Consumer Credit Grew $13.7 Billion in September

Consumer credit expanded by $13.7 billion in September, as August’s report was revised up to $14.2 billion. September’s gain was driven by non-revolving credit, as revolving credit shrank for the fourth consecutive month. Consumer credit is 5.4% above year ago levels.

Revolving credit shrank by $2.1 billion in September as consumers remain hesitant to take on debt, particularly in an uncertain political environment and sluggish job market. However, the shutdown in October will likely raise the level of credit card debt reported next month.

Non-revolving credit balances continued to grow, improving $15.8 billion in September, and 9.0% from year ago levels. Increasing vehicle sales are becoming a larger contributor to non-revolving credit, instead of student loans solely contributing to the growth.

Read the Federal Reserve release.

U.S. Economy Grew 2.9% in 3rd Quarter

Read GDP grew 2.9% in the third quarter of 2013, up from 2.5% in the second quarter. The improvements in the third quarter were due to increasing inventories and an improved trade balance. The across the board growth in the third quarter is surprising, and above expectations due to sequestration and pending government shutdown, which likely shaved some fourth quarter growth off of GDP.

Unlike in previous quarters, which were driven by consumption, inventory growth drove overall growth during the third quarter. Inventories grew 0.8% over the quarter, an uptick from the 0.4% growth seen in the previous quarter. Net exports increased 0.3%, after a negative growth rates in the first and second quarters of the year. Consumption declined slightly, to 1.0% from 1.2% the previous quarter, as expected due to the upcoming government shutdown and lower consumer spending levels.

The government did not drag on the economy, which is surprising given that the height of the government furloughs were in the third quarter. It’s the first month of non-negative growth in the past year. Current third quarter growth was 0.04%.

Notably, inflation accelerated in the third quarter by 1.9%, a marketable change from the 0.6% increase during the second quarter.

Read the BEA release.

Tuesday, November 5, 2013

ISM Nonmanufacturing Index Rose in October

The ISM nonmanufacturing index rose in October to 55.4, following a drop the previous month. However, October’s report is below the third quarter average of 56.3. The report as a whole still performed well given the government shutdown in October, indicating businesses were not impacted as strongly as expected.

While the headline index is stronger than anticipated, details of the report are mixed. New orders dropped 2.8 points to 56.8. The employment index recovered some of the previous month’s decline, improving 3.5 points to 56.2. The improvement in the employment index is a postive indicator for what’s expected to be a weak October jobs report.

The negative detail in August’s report were the trade details, which saw imports increase and exports decrease, suggesting the nominal trade deficit widened in October, which would drag on GDP.

Read the ISM release.

Monday, November 4, 2013

Banks Report Little Change to Loan Demand

The Federal Reserve’s Senior Loan Officer Survey indicated that banks standards on business loans have remained the same over the past three months. The survey, released today, covers August through the end of October.

A net 8.3% of respondents reported easing lending standards on business loans to large businesses over the time period, while 7.1% of respondents reported easing lending standards on business loans to small businesses over the same time period. Despite the eased standards, loan demand was relatively neutral. Demand from medium borrowers was down slightly according to 1.4% of respondents. Demand from small businesses remained unchanged, as it has been in the last three months.

Underwriting standards on mortgages were slightly improved the past three months with a net 8.7% of banks report easing standards. Demand for residential loans remained unchanged.

Read the Federal Reserve release.

Friday, November 1, 2013

ISM Manufacturing Increased in October

The ISM Manufacturing Index increased in October to 56.4, above expectations. The index is at its highest level since 2011 with five straight months of improvement. The manufacturing industry appeared to be little phased by the government shutdown in October.

The details of the report are favorable. Production saw a slight decline, losing 0.2 points and settling at 60.8. Production is still well in the expansionary territory. New orders improved, rising 0.1 points to 60.6. The inventory index also improved, rising to 52.5. The gap between inventories and new orders, a proxy for future production, shrank to 8.1. However, the wide gap still indicates future improvement in manufacturing.

Trade indicators improved as well, with new export orders rising to 52.0 from 57.0.

The employment index deteriorated from 55.4 to 53.2. Despite the deterioration, employment continues to grow as the index remains above its neutral threshold of 50.

Read the ISM release.