Friday, February 28, 2014

Consumer Confidence Rose in February

According to the University of Michigan Consumer Sentiment survey, consumer confidence rose slightly in February to 81.6, a 0.4 point rise. Future expectations outgrew the decline in present conditions. However, February has yet to offset January’s decline with confidence remaining below December’s value.

The present conditions portion of the index declined by 1.4 points to 95.4, while the future expectations portion grew 1.5 to 72.7. Future expectations are at the highest level in 6 months.

Inflationary expectations changed little from the month prior. The one-year inflationary expectations remained the same at 2.9%. Five-year inflationary expectations rose from 3.1% to 3.2%.

Fourth Quarter Growth Revised Down

Real GDP growth for the fourth quarter was revised down to 2.4% in the BEA’s second estimate. Growth was revised down from an initial estimate of 3.2%. The downward revision was due to declines in categories across the board, aside from fixed investment. Growth in the fourth quarter dropped substantially from the 4.1% growth in the third quarter.

The drop from the third quarter was expected due to the government shutdown, unusually high inventory accumulation the previous quarter, and harsh winter weather. In comparison to the third quarter however, consumption growth is still stronger than in the third quarter. Inventories grew at a slower pace than the 0.6% the quarter prior.

Consumption was revised to 1.7% from an original estimate of 2.3% in the fourth quarter. Inventories grew 0.1%, a slower growth rate than the original estimate. The government drag increased to 1.1%, with the bulk of the drag coming from the federal government. State and local governments only contributed to less than 0.1% of the drag. Fixed investment was the only category that saw growth in the fourth quarter. Residential investment declined at a slower pace and non-residential investment grew both from the initial estimate at the previous quarter.

Current Federal Reserve Chairman Janet Yellen contributed the sluggish economic data to the unusually cold winter and high frequency of storms. She said at a U.S. Senate Banking Committee hearing yesterday that, “I think it’s clear that unseasonably cold weather has played some role in much of that.” The weather could also impact the first quarter data in 2014.

Read the BEA release.

Wednesday, February 26, 2014

ABA Statement on FDIC's Fourth Quarter Bank Earnings Report

ABA's Chief Economist, James Chessen commented on the FDIC's fourth quarter bank earnings report, which was released today.

"Broad-based improvement in loan demand and increased asset quality were the driving forces behind a strong 2013 for America’s banking industry," Chessen said. "Banks posted solid earnings by cutting costs and working aggressively to make the loans that help drive our economy forward."

Bank lending continued to increase 2013.

"Bank lending increased nearly across the board last year – from automobile loans and credit cards to a sharp increase in multifamily home loans. An improving economy has reduced the risks associated with lending, and banks have adjusted their underwriting standards accordingly," said Chessen. "There is no shortage of competition to meet the needs of today’s borrowers. With the Federal Reserve continuing to hold interest rates low, now is the perfect time for businesses to borrow and expand their operations."

Read the full press release here.

New Home Sales Jumped in January

New home sales picked up in January to an annual pace of 468,000, a 9.6% increase from the previous month. The pace of new home sales is at the strongest level since 2008. The pace of new home sales is now 2.2% above year ago levels.

Three of the four regions saws gains in January. The Northeast grew the most, increasing 73.7%. However, given the 40.6% decline the previous month, the Northeast has returned to more normal levels. The South and West grew 10.4% and 11.0% respectively. The Midwest took a big hit, dropping 17.2% to the lowest level in at least 6 months.

The supply of new homes on the market declined to 4.7 months. The drop coincides with post-recession sale high. The median home price shrank for the second consecutive month to $260,100.

Read the Census report.

Tuesday, February 25, 2014

Home Prices Declined in December

Existing home prices declined 0.1% in December, according to the Case-Shiller 20-city index. It is the second consecutive monthly decline. Despite values declining month-over-month, home prices improved from a year ago, growing 13.4%. The pace of year-over-year growth is still strong.

Five of the top ten largest cities in the U.S. saw price drops. However, all grew from year ago levels. Chicago declined the most in December from the month prior, dropping 0.5%, but its year-ago growth was healthy at 11.3%. New York had the weakest year-over-year growth at 6.3% and declined 0.3% in December alone. Las Vegas has the strongest year-over-year growth at 25.5% and Miami grew the most in December, improving 0.9%.

Despite the strong year-over-year growth, the growth is coming from depressed levels. The 20-city index remains 19.8% below its 2006 peak.

Read Standard and Poor's release.

Friday, February 21, 2014

Existing Home Sales Slowed in January

The pace of existing home sales declined in January to a pace of 4.62 million units annually, the slowest pace since July 2012. Existing home sales slowed 5.1% from December’s pace. The decline is likely attributed to the unusually harsh weather in January. However, additional headwinds, for example, limited inventory and higher mortgage interest rates, may also be attributing to the decline. Total sales are down 5.1% on a year-over-year basis, the third consecutive month of decline.

The drop in existing home sales was led by single-family sales, which fell 5.8%. In addition, first-time buyers accounted for 26% of purchases in January, a slight drop from December, and representing the lowest market share for first-time buyers since the monthly measurement began in October 2008.

The supply of homes on the market rose slightly to 4.9 months, up from 4.6 months in December. However, demand is still below the third quarter average of last year.

Home prices fell in January to a median of $188,900, but the change from one year ago improved 10.7%. However the year-over-year improvement pace is showing signs of starting to slow.

Read the NAR release.

Thursday, February 20, 2014

Consumer Prices Rose 0.1% in January

Consumer prices rose 0.1% in January due to a spike in household energy costs. January is the third consecutive month of growth.

Core prices continued their modest gains as well, growing 0.1% for the second consecutive month. Prices on goods declined 0.1% while services rose 0.2%. Energy prices saw a 0.6% increase, which given the unusually cold weather in January, was expected.

Prices are 1.6% above year ago levels, below the 2.0% target of the Federal Reserve, with core prices also up 1.6% over the same period. Energy saw the largest year-over-year gains, growing 2.1%.

Read the BLS report.

Wednesday, February 19, 2014

FOMC Members Discuss Future Forward Guidance Changes

The FOMC minutes from the January 28-29 meeting highlight the FOMC’s discussions around forward guidance. The minutes note that with unemployment soon to reach the 6.5% threshold, the Committee will need to change its forward guidance. A quantitate versus qualitative approach was debated. Moreover, members noted that, “The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market. These factors may change over time and may not be directly measurable. Consequently, it would not be appropriate to specify a fixed goal for employment.”

Emerging markets have suffered capital flows exiting since the Fed’s decision to taper. The minutes highlight that the Fed took note, and didn’t feel the impact was substantial enough to stop the tapering. The minutes state that, “In considering recent events in emerging market economies, the staff judged that the effects of recent financial market volatility had not been large enough to have a material effect on the overall outlook for those economies and, similarly, that the spillover effects on the United States of developments to date were likely to be modest. Because conditions were in flux, however, these markets would require careful monitoring.”

It appears as though the committee will continue tapering by $10 billion a month, at least for the short term.

Read the FOMC minutes.

Producer Prices Rose 0.2% in January

Producer prices increased for the second consecutive month, rising 0.2% over the previous month’s levels. Producer prices are now 1.2% above year-ago levels, up from the 1.1% reported last month.

Food prices rose 0.4%, which largely contributed to a gain in the headline index. The prices on finished energy goods rose 0.3%, a vast difference from the 1.5% jump the month prior. Core goods prices rose 0.4%, the largest gain in over a year.

The prices of crude goods increased 0.9% in January, however prices are 0.9% below year ago levels. Spikes in household electricity and utility usage during an unusually cold December and January should subside in the following months and places downward pressure on those prices.

Read the BLS report.

Housing Starts Slowed in January

New residential construction slowed somewhat in January, reaching an annual rate of 880,000 units, down from a revised 1,048,000 the previous month. The 16% decline from the previous month brings housing starts to slowest pace is last 4 months. Moreover, the pace of construction is down 2% from year-ago levels. The unusual number of winter storms in January likely contributed to the decline, as they delayed homebuilding.

Multifamily house starts led the decline at 16.3%, but single family wasn’t far behind, dropping 15.9% over the course of January. Multifamily is still above third quarter levels, while single family is well below.

Permit issuance declined 5.4% to an annual pace of 937,000 permits. On a brighter note, total housing completions rose 4.6Z%, after declining the month prior.

Read the Census report.

NYFRB: Households Are Borrowing Again

Aggregate consumer debt increased by $241 billion in the fourth quarter of 2013 to $11.5 trillion, according to a quarterly study by the New York Federal Reserve Bank. This was the largest quarterly increase since the third quarter of 2007. The increase in household debt was largely driven by a $152 billion increase in mortgages and a $53 billion increase in student loans. Credit card debt and auto loan debt increased by $11 billion and $18 billion respectively, while home equity revolving debt decreased by $6 billion. From the fourth quarter of 2012, total household debt rose $180 billion, which is the first four-quarter increase in outstanding debt since 2008. The year-over-year increase may indicate that after a long period of households deleveraging, households are ready to borrow again.

Delinquency rates overall continued to decline, and have been improving since the crisis. Overall 90+ day delinquency rates fell to 5.0% from the 8.7% reached during the first quarter of 2010. The improvement was across all household loan categories except credit cards. About 332,000 consumers had a bankruptcy notation added to their credit reports in the fourth quarter, roughly flat compared to the same quarter last year, and are now at the lowest level since the end of 2005.

The average consumer credit score has improved: the average and 1st, 2nd, and 3rd quartiles all rose by one point to 696, 621, 712, and 789 respectively.

See the full report.

Tuesday, February 18, 2014

Congressional Budget Office Outlines Effects of Minimum Wage Increase

The Congressional Budget Office analyzed the impact of raising the minimum wage to $9.00 by 2016 and $10.10 by 2016. The non-partisan report found a dual impact of raising the minimum wage on workers. Those that retained employment would see a higher wage. Overall real income would rise by $2 billion under the $10.10 plan and $1 billion under the $9.00 plan.

The $10.10 option reduces employment by roughly 500,000 workers, or 0.3%. The $9.00 plan sheds 100,000 workers. Those who receive a higher wage will benefit and some families moving above the poverty threshold. However, the individuals that lose their job or are unable to attain one will suffer, and the poverty between the employment and unemployed will deepen.

Due to preset budget spending levels the next two years, the impact on the federal budget is negligible.

Read the full report.

Friday, February 14, 2014

Industrial Production Dropped in January

Industrial production dropped by 0.3% in January as harsher than usual weather hampered production in parts of the U.S. January’s report included downward revisions to previous headline numbers as well. The decline was led by manufacturing.

Manufacturing production declined by 0.8%, the first decline in 6 months. The 5.0% drop in motor vehicles and parts heavily contributed to the manufacturing decline. Durable goods declined for the second consecutive month, dropping 0.8%. Mining declined 0.9%, following strong growth in December.

Utilities production jumped 4.1% on strong heating demand after a decline the prior month. Utilities production continues to be highly volatile.

The capacity utilization ratio dropped to 78.5%, a three month low.

Read the Fed report.

Thursday, February 13, 2014

Retail Sales Weaken in January

Retail sales declined by 0.4% in January, below expectations. January’s report also revised down November and December’s headline numbers. Year-over-year growth was 2.6%, the slowest growth since 2009. The decline in sales was across the board, led by drops in auto sales. The colder then usual temperatures likely factored into the disappointing report.

Despite the general decline, there were some bright spots in January’s report. Building material sales grew 1.4%. Gasoline stations saw sales rise 1.1%. Motor vehicles and sales took the biggest hit, dropping 2.1%.

Read the Census report.

Wednesday, February 12, 2014

USDA: Net Farm Income Forecast to Fall in 2014

The USDA forecast that net farm income will drop 26.6% to $95.8 billion in 2014 from 2013’s forecast of $130.5 billion. Although this is the lowest net farm income since 2010, it remains $8 billion above the 10-year average. The expected fall in net farm income is largely caused by an across-the-board expected decrease in prices of all the major crop categories.

Farm debt is expected to increase, though at a slower rate than previous years. Farm real estate debt is expected to increase 3.2% to $186.7 billion, slightly lower than the 3.9% average over the past 5 years. The slightly slower growth is attributed to the expected slowdown in farmland price increases, as well as an expected increase in interest rates, reduced government payments and lower net cash income. Non-real estate debt is forecasted to grow more slowly than real estate debt, rising 1% to $129.5 billion. Here, the slowed growth demonstrates the interaction between falling incomes and input price levels. While lower income prompts the need for farmers to finance their debt, conversely, lower cost of production inputs decreases operating expenses, reducing the need for debt financing.

Crop receipts are expected to decrease by more than 12% in 2014. U.S. corn production is expected to increase as farmers continue to recuperate from the 2012 drought. This will drive both the sales receipts and value of inventory change in 2014 to decline significantly. Furthermore, wheat and cotton producers will see increased competition from production abroad, driving expected annual prices in 2014 to decline. The average prices for corn, wheat, soybean, cotton, vegetables and melons are expected to decline in 2014.

However, livestock receipts are expected to increase by 0.7%, mainly driven by higher milk prices. Increased dairy receipts are expected to more than offset forecast declines in hog and egg receipts. Receipts for cattle and receipts for calves are expected to remain stable in 2014.

Production expenses are expected to decrease by $3.9 billion, declining for the first time since 2009 and interrupting a 12-year upward trend in expenses. However, production expenses remain well above the nominal 2012 level, and are expected to be the second highest on record nominally and the third highest in inflation-adjusted dollars. The decrease is due to a decline in input prices. Despite the decrease, total production expenses are expected to constitute 78% of gross farm income in 2014, up from 73% in 2013, indicating a return to much tighter margins.

Government payments paid to producers are expected to decline 45.4% from 2013, totaling $6.12 billion.

Read the USDA report.

Tuesday, February 11, 2014

Business Optimism Continued Small Increase in January

Small business optimism rose slightly in January to 94.1. However, optimism is still below the pre-recession average of 100.

Financing continues to be the least cited concern holding back small business conditions, with only 2% of respondents citing it as the single most important problem. Taxes and government requirements were the most commonly cited problems, with 46% of respondents citing one as the largest problem facing small businesses.

There were encouraging aspects to January’s report. Owners positive expectations about their own sales jumped 7 points. Job creation plans improved to the highest level since 2007. The problem remains that there are on net fewer firms than in 2007.

However, small business owners found inventories “too high,” which was anticipated given the unusually strong inventory growth in the 3Q13. Moreover, the percent of owners planning capital outlays in the next 3 to 6 months dropped to 24%, shedding 2% from December.

Read the NFIB report.

Friday, February 7, 2014

Consumer Credit Grew $18.8 Billion in December

Consumer credit expanded $18.8 billion in December, much more than expected. This was the largest increase since February 2013. The surge was largely due to increases in non-revolving credit. Consumer credit is 7.3% above year ago levels.

Revolving credit grew by $5 billion, reaching its highest level since May 2013, as consumers become less weary of credit card use.

Non-revolving credit continued to grow, increasing by $13.8 billion in December, consisting mainly of student and auto loans. Non-revolving credit is 7.4% above year ago levels.

Read the Federal Reserve release.

Employment Gains Affected by Winter Weather

Total nonfarm payroll employment rose by 113,000 in January, and the unemployment rate was little changed at 6.6 percent, according to the U.S. Bureau of Labor Statistics. The change in total nonfarm payroll employment for November was revised from 241,000 to 274,000, and the weak December number was revised from 74,000 to 75,000. In 2013, employment growth averaged 194,000 per month.

In January, goods producing employment rebounded from the weather-induced December weakness, adding 76,000 jobs. Job gains occurred in construction, manufacturing, wholesale trade, and mining. Employment in manufacturing increased by 21,000 and in wholesale trade by 14,000. Mining added 7,000 jobs in January, compared with an average monthly gain of 2,000 jobs in 2013. Construction added 48,000 jobs over the month, more than offsetting a decline of 22,000 in December.

Weak employment numbers in the services and private sector resulted in weaker than expected January results. The services sector added 37,000 the lowest reading in over six months. While, the public sector continued to drag, declining for the second consecutive month. Both sectors may have been affected by the severe winter weather.

The unemployment rate fell only slightly to 6.6% from 6.7% in December, while the labor force participation rate edged up to 63.0% from 62.8% in December. The number of long-term unemployed (those jobless for 27 weeks or more) declined by 232,000 in January to 3.6 million. These individuals accounted for 35.8% of the unemployed. The number of long-term unemployed has declined by 1.1 million over the year.

The Federal Reserve has begun tapering, however this second consecutive weak report could cause tapering to follow a slower than planned schedule, even as the unemployment rate dropped closer to the Federal Reserve’s target 6.5% unemployment at which point the Federal Reserve has said it will begin evaluating raising rates. However, the improvement needs to be real job growth, not a declining labor force.

Read the BLS report.

Thursday, February 6, 2014

Trade Gap Widened 12% in December on Soft Exports

The U.S. trade deficit grew to $38.7 billion in December, widening more than forecast. The decline was driven by exports, which ended the year on a soft note. December’s widening offsets a sharp narrowing seen in November, and brings the gap back to the average seen over the four prior months.

Exports – which had been strong in 2013 – were weak in December, with an overall decline of 1.8%. This decline was broad based, with consumer goods, food, industrial supplies, and capital goods all declining. Imports rose slightly as well, gaining 0.3%. The goods deficit rose 10% in December, reaching $49.5 billion.

U.S. petroleum exports climbed to a record level in December, finishing out their strongest year on record. Domestic oil production in the U.S. surged in 2013 and looks to remain strong in 2014. However imports of petroleum products also grew in December, a trend that is likely to continue as the U.S. economy accelerates. Despite this, energy exports are likely to contribute to narrowing the trade gap in the coming year.

Read the Census release.

Wednesday, February 5, 2014

ISM Nonmanufacturing Grew in January

The service sector growth accelerated slightly in January, according to the ISM non-manufacturing index. The index grew 1.0 index points to 54.0 in January. The services sector continues to outperform the manufacturing sector, which declined to 51.3 in January. Any reading above 50 indicates industry expansion.

The details of the report were mainly strong. While exports declined to 49.0, the rest of the report was positive. Business activity picked up by 1.1 points to 56.3. New orders moved back into expansionary territory after declining for a month. The employment index grew 1.4 points to 56.4, its highest level since August.

Read the ISM release.

ADP Employment Adds 175,000 Jobs in January

According to ADP’s National Employment Report, job growth in January was on par with the average monthly growth for 2013. Growth is below December’s downwardly revised pace of 227,000. However, ADP’s employment numbers were well above the Bureau of Labor Statistic’s 87,000 private sector jobs recorded for December. Notably, the unusually cold January likely impacted job growth. Aside from manufacturing, employment gains are broad based.

The report indicates that the service sector continues to drive employment gains, accounting for 160,000 of the jobs created in January. January’s service sector growth represents a slowing from the 177,000 jobs the sector created in December. The goods producing sector also slowed in January, creating 16,000 jobs, less than the 50,000 created in December. The manufacturing sector shed jobs for the first time in 6 months, dropping 12,000.

Read the ADP report.

Tuesday, February 4, 2014

CBO Predicts Deficit Will Fall to 3.0% of GDP This Year

According to a new CBO report released today, the deficit will fall to 3.0% of GDP in 2014. The CBO found that under current law, the deficit will shrink in 2014 and 2015, and start rising after that. While government revenue is expected to rise on par with the pace of GDP, spending is expected to grow at a faster pace. CBO estimates that federal debt held by the public will equal 74 percent of GDP at the end of this year and 79 percent in 2024 (the end of the current 10-year projection period).

Notably, the CBO warns that, "Such large and growing federal debt could have serious negative consequences, including restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a financial crisis."

Read the full CBO report.

Monday, February 3, 2014

Banks Report Easing Loan Standards

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, primarily for commercial and industrial loans.

A net 13.7% of respondents reported seeing looser standards on commercial and industrial (C&I) lending to large and medium sized borrowers. Notably, increased merger or acquisition financing needs were among the top reasons for C&I loan demand. A net 16.4% of banks reported stronger loan demand for large and medium sized businesses. It was 19.7% for small businesses, while 5.6% reported weaker demand.

Read the report.

Construction Spending Grew 0.1% in December

Construction spending barely grew in December, rising just 0.1%. December’s report included downward revisions to September and October. The tepid growth was due to declining non-residential and public construction. Construction rose 5.3% above year ago levels.

Private residential construction grew 2.6% in December, driven by an increase in new single-family homes. Non-residential construction shrank 0.7% following strong gains the month prior. The primary declines were in manufacturing and office structures. Public construction spending continued to decline, dropping 2.3% in December. The trend will likely continue as government cuts back spending levels with the new budget plan.

An unexpectedly cold and snowy December could have placed downward pressure on construction spending, a trend that will continue in January.

Read the Census report.

ISM Manufacturing Index Dropped in January

The ISM manufacturing index declined in January to 51.3, dropping 5.3 points for the the second consecutive decline. The index is weaker than expected and starts 2014 off on a soft note. The index remains in expansionary territory, as the reading is above 50. However, the colder than expected weather in January likely contributed to a lower manufacturing index. The weaker report is not a cause for concern yet, especially if next month is stronger.

The details of the report saw across the board broad declines. New orders dropped to 51.2 from 64.2. Inventories shrank further, declining to 44.0. The gap between new orders and inventories – a proxy for future growth – declined substantially to 7.2, from 17.2 the previous month. Production also saw a decline.

Trade indicators declined slightly by 0.5 points to 54.5.

The employment index dropped to 52.3. It is still in expansionary territory, but it’s the lowest value since June 2013.

Read the ISM release.

Treasury to Offer Retirement Option

The U.S. Treasury will develop the myRA (“my Retirement Account”), offering a new retirement savings account in late 2014. The retirement savings account will be a Roth IRA account and have the same rules and tax treatment. There will be no fees and the account can be opened for a minimum of $25 through payroll direct deposit. Backed by the U.S. Department of the Treasury, the account balance of myRA will never go down and will earn interest at the same rate as the Government Securities Investment Fund in the Thrift Savings Plan for federal employees.

Initially, employers can, but are not obligated to, offer myRA information to their employees who will, once it is available, be able to enroll in the account with a minimum initial contribution of $25 and as little as $5 directly deposited from each paycheck. Like a Roth IRA account, the annual income eligibility limit is $129,000 for individuals and $191,000 for couples.

The account will not be limited to one employer; account holders can carry the plan from one employers to another and savers with multiple jobs can use direct deposit from each paycheck to contribute to a single myRA. Contributions to myRA can be withdrawn tax free at any time and earnings will be tax free unless withdrawn before the saver is 59½. Account holders can build on the account for 30 years or until the account reaches $15,000, whichever comes first. After that, the myRA balance will roll over to private-sector retirement accounts.

Learn more.