Friday, March 28, 2014

Consumer Confidence Declines Slightly in March

Consumer sentiment declined by 1.6 points to 80.0, according to the University of Michigan Consumer Sentiment Index. The index decline was due to a drop in future expectations.

The decline in the index was driven by a drop in future expectations, shrinking from 72.7 to 70.0. Present conditions rose slightly by 0.3 points to 95.7, but did not fully recover from last month’s drop.

The report indicated that inflationary expectations unchanged from February, calling for 3.2% inflation over the next year and 2.9% over the next 5 years.

Consumer sentiment has risen 9% since its cycle low in October during the shutdown. Despite the improvement, consumer sentiment levels remain below levels seen last summer before the shutdown and debt ceiling talks began.

Personal Income and Consumption Grew 0.3% in February

Personal income grew by $47.7 billion (0.3%) in February, the same pace as the month prior. Personal consumption also grew by 0.3% in February, a slightly faster pace than January. The savings rate grew to 4.3%

Personal income growth was led by dividend and transfer income growth. Wage income grew 0.2% in February, contributing less to personal income growth than the month prior. Real income growth was lower than the nominal wage growth, growing 0.2%.

Personal consumption picked up the pace slightly to 0.3% in February. Real consumption was 0.2%. Consumption growth was led by services and non-durable goods, both which grew 0.3% over the month. Durable goods shrank for the third consecutive month.

The PCE deflator rose 0.9% above year ago levels, the slowest growth since October. Inflation is well below the 2.0% target of the Federal Reserve and could be a cause for concern.

The savings rate increased slightly to 4.3% from 4.2%.

Read the BEA release.

Thursday, March 27, 2014

Four Quarter GDP Growth Revised Up to 2.6%

Real GDP growth for the fourth quarter was revised up to 2.6% in the BEA’s final estimate. The upward revision was driven primarily by higher consumption growth than initially forecast. Growth in the fourth quarter slowed from the 4.1% growth seen in the third quarter. Despite the stronger consumption growth, third quarter GDP was held back by slower contributions from inventory accumulation and lower government spending.

Consumption remained a strong component of growth, contributing 2.2% to fourth quarter growth following 1.4% in the third. The slowing of the pace of growth from the third quarter was due to slowing inventory accumulation. Inventories contributed 1.7% in the third quarter and declined a negligible amount in the fourth. Inventories tend to be highly volatile. Net exports improved to 1.0%. The government went from contributing 0.1% to growth in the third quarter to a 1.0% drag in the fourth, which is unsurprising given the government shutdown.

Fixed investment declined from its previous reading of 0.6% to 0.4%. It’s also below the third quarter estimate of 0.9%.

Read the BEA release.

Wednesday, March 26, 2014

Fed Survey: Mobile Banking Continues to Grow

Mobile banking and payments continue to gain ground, according to a Federal Reserve survey. One-third of cell phone users surveyed in December 2013 reported using mobile banking services in the previous year, up from 28% in 2012. More than half of smartphone users reported using mobile banking, up three points from the year before.

Meanwhile, mobile payments expanded threefold, with 17% of smartphone owners reporting using their phone to pay at the point of sale in the previous year.

The Fed survey found that the most common mobile banking activities are balance inquiries, transaction verification and funds transfers. Additionally, 38% of mobile banking customers used their phone’s camera to deposit a check in 2013.

The Fed also reported that mobile banking is more prevalent among the underbanked, 64% of whom have smartphones. Of those with mobile phones, 39% used mobile banking -- six points above the overall population.

Read more.

Tuesday, March 25, 2014

Mutuals Report Confidence in Growth, Easing of Basel III Concerns

Most mutual institutions expect sustainable and improving business line activity in the next three years, according to the results of an ABA Mutual Bank Survey released yesterday during ABA’s Mutual Community Bank Conference in Washington, D.C.

Ninety-five percent of respondents, 88% of which had assets of less than $1 billion, said they expect commercial loan activity to increase or stay the same. Similar numbers (87%) said the same of consumer loans and residential mortgage loans.

Mutuals concerned about maintaining adequate capital under Basel III fell dramatically, dropping from 54% last year to 32% this year. One-third of mutuals continue to report that their examiners do not understand the concept of mutuality, but nearly three-quarters said their primary regulator is making adequate outreach efforts. ABA EVP Bob Davis said:

Mutuals expressed increasing optimism for improving commercial lending and residential mortgage businesses, and somewhat fewer concerns about the impact of Basel capital constraints compared to a year ago. However, competitive pressures increased interest in consideration of business combinations and partnerships.

Read the survey report.

Home Price Appreciation Slowed in January

The pace at which home prices are rising slowed slightly in January according to the Case-Shiller index. The 20-city composite index indicated that prices in January are 13.2% above year-ago levels, slower than the 13.4% seen in December. Overall price levels were little changed over the month of January, with the 20-city composite down less than 0.1% from the month prior. Price appreciation may have been weak in January as cold weather depressed demand.

Thirteen of the twenty metropolitan areas saw home prices decline from the previous month in January. Despite the declines, every metropolitan area has seen price increases over the past year. Chicago saw the steepest declines in January, with prices falling 1.2% over the month. Las Vegas continues to drive gains, with prices rising 1.4% over the month and 25% from a year ago, as it recovers from the hard hit it took during the recession.

Read the S&P Release.

New Home Sales Fall to 5-Month Low

Sales of new homes fell 3.3% in February to an annualized pace of 440,000 units. This pace is 1.1% slower than it was one year ago. Continuing cold temperatures along with a number of other factors, including rising mortgage rates and lack of inventories, combined to restrain sales.

Sales fell in three of the four regions surveyed. The Midwest was the exception to this, with sales rising 37% to a pace of 67,000 units per year. Compared with year-ago levels both the Northeast and West have seen strong declines, falling 34% and 28% respectively. The South has been the strongest, with sales up 20%. Finally the Midwest is nearly neutral, with sales up just 2% from the pace in February 2013.

The tight supply of new homes on the market loosened slightly in February. There were 189,000 new homes on the market, the most since December 2010. At the current pace of sales, this equates to 5.2 months’ supply, the most since September.

Read the Census release.

Thursday, March 20, 2014

Existing Home Sales Largely Unchanged in February

Existing home sales fell 0.4% in February, according to the National Association of Realtors. Sales dropped slightly to an annual pace of 4.6 million units, from a January pace of 4.62 million units. February’s pace is 7.1% below year ago levels, which is the lowest since July 2012.

Two of the four regions posted losses in February. The Northeast was hit the hardest, dropping 11.3%. The Midwest also declined 3.8%. The West and South improved 5.9% and 1.5% respectively. The declines in the Midwest and Northeast may be in part due to the unusually harsh weather in February, which prevented some closings.

Market supply improved, with the supply of homes on the market rising to 5.5 months at February’s pace.

The median housing price grew slightly to $189,000. Existing home prices are 9.1% above year ago levels, but are below mid-2013 appreciation levels.

Read the NAR release.

Wednesday, March 19, 2014

FOMC Maintains Taper Pace, Changes Forward Guidance

The Federal Reserve will maintain its current pace of tapering, reducing its purchase pace by $10 billion per meeting. At its March meeting, the Federal Open Market Committee (FOMC) dropped its previous forward guidance linking rate increases to the unemployment rate, but now forecast that the Federal Funds rate will reach 1% by the end of 2015.

Beginning in April, the Committee will reduce its purchase pace to $30 billion per month in mortgage-backed securities and $35 billion per month in longer-term Treasury securities. The FOMC statement notes that, “Asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.”

The FOMC changed its forward guidance, dropping the 6.5% unemployment rate threshold. Instead, the FOMC will look to a “wide range” of factors when considering current and future federal funds rates, “Including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.” Forecasts released along with the statement call for the that the Federal Funds rate to rise to 1% by the end of 2015. Chairman Yellen, however, anchored short term rate expectations in her press conference saying, “we know we’re not close to full employment… and unless inflation were a significant concern, we wouldn’t dream of raising the federal funds rate target.”

In her first press conference as Chair of the Federal Reserve, Janet Yellen emphasized that the unusually harsh weather in January and February tampered with data. Moreover, she highlighted the U-6 unemployment rate, which includes marginally attached and underemployed workers. She noted that the U-6 rate fell faster than the official unemployment rate since the last press conference.

FOMC Fed Funds Rate Projections March 2014

FOMC Fed Funds Rate Projections December 2013

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

Tuesday, March 18, 2014

Housing Starts Slowed in February

New residential construction slowed in February, reaching an annual rate of 907,000 units, down from a revised 909,000 the previous month. Housing starts are currently running 6.4% slower than their pace one year ago.

Multi-family starts led the decline in February, falling 1.2% over the month. However single-family starts remained strong, growing 0.3%, the first month of growth in the last three months.

Permit issuance was strong, growing 7.7% in February. Single family permit issuance led the growth, rising 0.3% over the month to a pace of 588,000 permits per year. Multi-family permit issuance declined, but rose a sharp 24.3% from year ago levels. Completions rose as well this month, rising 4.4% to a pace of 886,000 units per year.

Despite the strong improvement seen in recent months housing starts remain well below the long-run average of 1.5 million units.

Read the Census report.

Consumer Prices Rose 0.1% in February

Consumer prices rose 0.1% in February due to a spike in household food costs. February’s gain is the fourth consecutive month where prices have risen.

Core prices continued their modest gains as well, growing 0.1% for the third consecutive month. Prices on goods declined 0.1% while service prices rose 0.2%, the same as last month. Energy prices saw a 0.5% decline, which was expected after the spike in December and January due to cold weather.

Prices are 1.1% above year ago levels, below the 2.0% target of the Federal Reserve, with core prices up 1.6% over the same period. Services saw the largest year-over-year gains, growing 2.2%.

Read the BLS report.

Monday, March 17, 2014

Industrial Production Rose 0.6% in February

Industrial production rose 0.6% in February, with manufacturing resuming healthy growth. Overall production is now 2.8% above year ago levels.

Manufacturing growth declined in January due the harsh winter weather, but recovered in February, expanding 0.8%. The productions of auto parts, which sharply declined in January, recovered 4.6% in February. The strong auto gains offset the 1.7% decline in the production of appliances, furniture and carpeting, which should rebound in March as the weather further improves.

Mining production grew 0.3% in February, the second month of growth. Utilities production dropped 0.2%, after spiking 3.8% the month prior due to the cold winter weather.

Read the Federal Reserve release.

Friday, March 14, 2014

Producer Prices Fell 0.1% in February

Producer prices fell in February, the first decline in three months. Prices dropped a modest 0.1% from the month prior. Final demand for services declined – largely due to the harsh weather – putting downward pressure on prices. Producer prices are now just 0.9% above year-ago levels, down from 1.2% last month.

Prices for finished goods rose 0.4%, while finished services declined 0.3%. Crude products sharply rose 5.7%, the highest monthly jump in almost 4 years, driven by a 14.7% rise in energy prices.

The elevated energy prices should subside as the harsh weather ends. The overall tepid growth should pick up, but the report’s general weakness is worrisome, as near future reports may reveal weak growth too.

Read the BLS report.

Thursday, March 13, 2014

Retail Sales Rose 0.3% in February

Retail sales reversed the previous month’s loss in February, rising 0.3%. Core growth – excluding autos and gas – also rose 0.3% over the month. Despite the improvement, many of the details in February’s report remained weak. Year-over-year growth continued to fall in February, coming in at 1.5%, its slowest pace since 2009.

In February, miscellaneous retailers, general merchandise retailers, food and beverage stores and electronics and appliance stores declined the most. Sales fell the most sharply for general merchandisers, dropping 0.3%. Cold weather contributed to the weakness, and March’s report should show an across the board rebound.

The components that were hit hardest last month led February’s recovery, such as sporting goods and hobbies and nonstore retailers. Sporting goods and hobbies saw sales rise 2.5%. Nonstore retailers also saw rebounding growth, increasing sales by 1.2%.

Read the Census report.

Wednesday, March 12, 2014

ABA: Farm Banks Report Strong 2013 Performance

Farm banks’ agricultural lending grew 9 percent in 2013 -- a significant increase, according to the American Bankers Association’s annual Farm Bank Performance Report released this week. At the end of the year, farm banks held $87.8 billion in farm loans.

The nation’s farm banks, which ABA defines as banks whose ratio of domestic farm loans to total domestic loans is greater than or equal to the industry average, also reported continued improvement in asset quality in 2013. Non-performing loans declined to 1.22 percent of total loans, close to pre-recession levels.

“There are some headwinds forecasted for the agricultural economy in 2014, but farmers and their bankers are in good shape to weather any storm that may be brewing,” said John Blanchfield, ABA SVP and director of ABA’s Center for Agricultural and Rural Banking. “Banks remain the most important source of ag credit, holding nearly half of all farm loans.”

Read the full press release. Read the 2013 Farm Bank Performance Report.

Watch ABA’s John Blanchfield and two ag bankers – Kreg Denton, senior vice president, First Community Bank, Fancy Farm, Ky. and Nate Franzen, president, Ag Division, First Dakota National Bank, Yankton, S.D – discuss the report and the outlook for 2014 below.


Tuesday, March 11, 2014

Consumer Credit Grew $13.7 Billion in January

Consumer credit increased by $13.7 billion in January, slower than December’s pace. Growth in consumer credit continues to be driven by student loans. Revolving balances shrunk in January, continuing their trend of uneven performance. Households still remain hesitant to take on credit card debt.

Revolving consumer credit shrank by $0.2 billion in September, but did not shrink enough to offset December’s gain. Revolving credit has now shrunk in three of the past five months. Revolving balances have been slow to recover, and remain 0.3% below its year ago level.

Non-revolving balances continued to drive growth in December, rising $13.9 billion. Non-revolving balances consist mostly of student and auto loans. Non-revolving balances have grown since August 2011.

Read the Federal Reserve release.

Small Business Optimism Declined in February

The NFIBs Small Business Optimism index declined to 91.4 in February from 94.1, its first decline in four months. February’s decline was broad based, with six of the ten sub-indices dropping. The winter weather seemed to adversely affect the index.

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 jumped to the top spot, but still dropped 1 % to 21%. Poor sales and the quality of labor concerns rose a combined 5% from the month prior as the largest problem facing small businesses.

The details of the report were weak. Six of the ten index components turned negative, declining a combined 30%. The outlook for real sales took the biggest hit, dropping 12 points to 3%. Small businesses are also pessimistic about the economy improving, as the expectations for the economy to improve sub-index dropped 8 points to a more negative reading of -19%. Only plans to make capital outlays increased, by 1 point to 25%.

Current job openings remained the same as the previous month, showing no improvement. Job creation plans drooped 5 points and employment gains were weak. Firms hired an average 0.11 workers in February.

The data points to a steady unemployment rate and a mid 2% GDO growth rate in 2014.

Read the NFIB report.

Friday, March 7, 2014

Trade Gap Widened Slightly in January

In January, the trade deficit grew slightly to $39.1 billion, from $39.0 billion the previous month. Exports and imports both increased by the same proportion, 0.6%.

The goods and services deficits rose. The goods deficit was $59.3 billion in January, up from $58.7 billion in December. The services surplus rose to $20.2 billion from $19.7 billion the month prior.

Notably, January’s report highlights the improving global market. It demonstrates that a global recovery is underway, particularly in the European Union, one of America’s largest trading partners. The EU accounts for roughly 1/8th of U.S. trade.

The real goods deficit, which is important for the calculation of GDP, shrank to $48.5 billion, a positive sign for first quarter GDP growth.

Read the Census report.

Employment Gains Rebounding from Winter Weather in February

Total nonfarm payroll employment rose by 175,000 jobs in February and the unemployment rate was little changed at 6.7%, according to the U.S. Bureau of Labor Statistics. February’s report also included positive upward revisions to December and January, adding a combined additional 25,000 jobs.

The winter weather took a rough toll on employment gains in January and rebounded in February. Gains were across the board. The goods producing sector added 22,000 jobs in February, down from the 61,000 jobs added the month prior. Construction saw lower gains, adding 15,000 jobs in February. The private services industry saw a big growth from the month prior, increasing job growth by 140,000. Surprisingly, the government added 13,000 jobs as well, reversing a negative two-month trend.

Unemployment rate rose slightly to 6.7% as more people entered the labor force. The labor force participation rate remained the same at 63.0%. The number of long-term unemployed (those jobless for 27 weeks or more) grew to 3.8 million, up from 3.6 million the month prior.

The Federal Reserve has begun tapering, however the lower than anticipated headline number could cause tapering to follow a slower than planned schedule. However, current Chairman of the Fed, Janet Yellen, expressed that she thinks the weak data is weather driven, and March should see more improvements and self-corrections.

Read the BLS report.

Thursday, March 6, 2014

Household Net Worth Rose by $3.0 Trillion in Fourth Quarter

According to the Federal Reserve’s Flow of Funds report, household net worth increased by $3.0 trillion in the fourth quarter of 2013 to a new record of $80.7 trillion. The gain continues an upward trend that begun in 2009 and is now $12 trillion above its pre-recession peak.

The gains in household net worth were led by stocks and real estate. Overall household net worth improved 14% in 2013, driven by a $2.3 trillion increase in real estate values. Household debt increased slightly by 0.4% in the fourth quarter. Moreover, the S&P 500 grew 30% over the course of 2013, helping to increase household wealth. Home mortgage debt, however, decreased signaling that homebuyers remain cautious.

Businesses continue to sit on increasingly large piles of cash. In the fourth quarter, they held $1.98 trillion in liquid assets on hand, an increase from $1.91 trillion in the third quarter. Despite the shutdown in the fourth quarter, federal government debt increased at an annual rate of 11.6%, a faster pace than the 1.5% in the third quarter.

The household savings rate dropped to 4.5% in the fourth quarter.

Read the Federal Reserve release.

Wednesday, March 5, 2014

Beige Book: U.S. Economy Grew at “Modest to Moderate” Pace

The Federal Reserve’s Beige Book, released today, indicated that from January to early February most districts saw the economy expand at a modest to moderate pace. This expansion was hampered by cold weather, particularly in the Midwest and Northeast.

Retail sales generally weakened from the weather that kept people home. The report stated that, “New York reported noticeable weakness… The extreme winter weather conditions reportedly contributed to the decline in sales in some markets; however, Richmond, Chicago, and Minneapolis reported that weather-related goods contributed to positive sales growth.” Moreover the weather dampened auto sales.

Manufacturing was disrupted from the cold, negatively impacting the Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, and Dallas regions. Despite this, most districts were optimistic about the future and expect manufacturing activity to rise in the coming months.

Residential real estate conditions improved “somewhat” in most districts. There were several reports of increased home sales and some reports of increased construction. New York and Boston noted a “mixed report” on sales. was the one exception to the improvement noting “steady to softer” home sales. Philadelphia, Cleveland, Minneapolis, and Kansas City saw a decrease.

Most districts indicated a “softening” in hiring activity. Most districts indicated that, “wage pressures were largely steady since the last report; however, a few Districts cited upward wage pressures in some highly skilled jobs in industries such as information technology, transportation, and construction.”

Read the Fed's report.

Service Sector Expansion Cooled in February

Growth in the service sector slowed slightly in February, with the ISM’s non-manufacturing index falling 2.4 points to 51.6. Despite the slight decline, February’s reading signifies growth, as any reading above 50 representing industry expansion. The cold weather likely impacted February’s disappointing report.

The details of January’s report were weak. The business activity sub-index fall to 54.6 is 2.2 points below its 2013 average. The employment index took a big hit and dropped below the expansionary threshold to 47.5. It’s the lowest value in at least 3 years. The employment index reading is consistent with the weak ADP jobs number this morning, which reported a private sector gain of 139,000 jobs in February. Exports dropped as well to 47.5, remaining a second month below the expansionary threshold.

A bright spot was new orders, which rose to 51.3 for the second consecutive month. However, it still has yet to recover from the losses in December.

Read the ISM release.

ADP Employment Adds 139,000 Jobs in February

Employment in the nonfarm private sector increased by 139,000 jobs in February according to the National Employment Report published by ADP. February’s growth is faster than January’s, but well below 2013’s fourth quarter average of 211,000 jobs created per month. January’s report included downward revisions to the previous two months, lowering growth previously reported by a combined 84,000 jobs. ADP has not tracked especially close to the BLS’s payroll estimates in recent months.

Job gains continue to be centered in the service sector, which added 120,000 jobs in February, up from 116,000 in January. Goods producing employment rose from January, with 19,000 new goods producing jobs in February. Manufacturing added a mere 1,000 jobs, but reversed a decline from the month prior.

Read the ADP release.

Monday, March 3, 2014

Personal Income Growth Outpaced by Consumption Growth in January

Personal income rose 0.3% in January, but was outpaced by consumption, which grew by 0.4%. The savings rate held steady at 4.3%. January’s personal income growth may be distorted as many individuals took advantage of expiring tax credits in December, artificially boosting income. As a result growth from a month prior is likely understated.

Personal income grew 0.3% in January, largely due to a 0.2% increase in wage growth. The Affordable Care Act boosted personal income by lifting transfer income and increasing federal salaries in January. Moreover, growth was lowered in December due to expiring unemployment benefits. As such, the BEA found that absent the Affordable Care Act, personal income would have fallen 0.1% in December and increased 0.2% in January.

Consumption rose 0.4% in January, however, a large portion this growth was due to increased utility spending from the unusually harsh winter weather. Spending on goods dropped 0.6%, both real and nominally.

Inflation picked marginally, reaching 1.2% year-over-year as measured by PCE. Core PCE year-over year growth was similar at 1.1%. Overall inflation levels remain well below the Federal Reserve’s target annual rate of 2.0%.

Read the BEA report.

ISM Manufacturing Index Rose in February

The ISM manufacturing index bounced back in February following sluggish growth in January due to the cold weather. February’s recovery was not enough to offset the sharp decline seen the previous month, with the overall index reaching just 53.2. Aside from January, this is the lowest level since July. The details of the improvement were also mixed.

Some of the details of the report were strong. In particular, new orders rose from 51.2 to 54.5 in February. Manufacturing got a big boost in the second half of 2013 from inventory accumulation. Inventories slowed over the past two month but have picked up again, gaining 8.5 points and reentering expansionary territory. The gap between new orders and inventories, a proxy for future production, dropped substantially from 7.2 to 2.0.

Production took a hit in February, losing 6.6 points and dropping below the expansionary threshold. The employment index remained the same at 52.3. Exports dropped while imports remained the same.

Read the ISM release.

Construction Spending Rose 0.1% in January

Despite the harsh winter weather, construction spending rose 0.1% in January, beating expectations. Spending is now 9.3% above year-ago levels. Private residential construction was the only contributor to growth in January, as both public and private non-residential spending fell.

Total private construction rose 0.5%, driven by a 1.1% residential gain. Non-residential construction fell 0.2% in January. Government spending on construction remained the largest drag, falling 0.8% in January.

Read the Fed release.