Tuesday, September 30, 2014

ABA Report: Credit Card Use Mirrors Broader Economy in First Quarter

The economic contraction that occurred in this year’s first quarter also affected the credit card market, putting downward pressure on average credit lines and monthly purchase volumes, according to the latest edition of the American Bankers Association’s Credit Card Market Monitor.

“The sharp economic contraction we saw during this year’s brutal winter also reverberated across the credit card market, with weaker consumer spending leading to a decline in credit card purchases,” said Kenneth J Clayton, ABA’s executive vice president of legislative affairs and chief counsel. “The economy rebounded strongly in the second quarter, and time will tell whether the card market will recover as quickly and robustly.”

The study, reflecting data from the first quarter of 2014, found that monthly purchase volumes declined for all consumer categories. Compared to the fourth quarter of 2013, monthly purchase volumes fell 8.4 percent for sub-prime accounts, 8.1 percent for prime accounts and 5.2 percent for super-prime accounts. This coincided with weak consumer activity, particularly in January and February. Retail sales contracted 1.0 percent on an annualized basis in the first quarter.

Read the full press release.

Home Price Appreciation Continues to Slow

According to the Case-Shiller 20-city index, home price appreciation slowed to 0.6% in July. Notably, year-over-year growth has steadily declined from 13.1% in January to 6.7% in July, a trend that will likely continue due to increasing interest rates. The 10-city index followed a similar pattern, as year-over-year growth slowed from 13.4% in January to 6.7% in July.

9 out of the 10 metropolitan areas saw home prices improve from the previous month. Only San Francisco saw a 0.4% decline. Miami accelerated the fastest at 0.8%. All metropolitan areas continue to see prices above year-ago levels. Notably, the range of growth has narrowed, indicative of a normalizing market.

The 20-city index remains 16.1% below its 2006 peak.

Read the S&P release.

Monday, September 29, 2014

Personal Consumption Rebounded in August

Personal consumption rose 0.5% in August. Personal income rose 0.3%. Both values improved the pace from the month prior, however personal income growth is the second slowest pace all year.

Wage growth grew 0.4% and disposable income improved slightly to 0.3%. Due to no growth of the PCE deflator, real consumption and income growth were the same as nominal growth.

The savings rate declined to 5.4 months, as consumption grew faster than income.

Inflation remained tame; the PCE deflator rose 1.5% above year-ago levels. This was below the 2.0% target of the Federal Reserve.

Read the BEA release.

Friday, September 26, 2014

Consumer Sentiment Improved in August

According to the University of Michigan Consumer Sentiment index, consumer sentiment rose in September to 84.6, the highest value since July 2013.

Current expectations declined slightly to 98.9, but still remain at the second highest level all year. Future expectations jumped to 75.4, the highest reading since July 2013. While consumers are less optimistic about the future in comparison to the present, the gap between current and future expectations shrank.

The report indicated that inflationary expectations subsided slightly from the month prior, calling for 3.0% inflation over the next year and 2.8% over the next 5 years.

Second Quarter GPD Revised Up to 4.6%

Real GDP growth for the second quarter was revised up to 4.6% in the BEA’s final estimate. The upward revision was driven by improvements across the board. Growth in the second quarter jumped following the decline in the first quarter. Second quarter GDP more than compensated for the decline in the first quarter.

Consumption remained the strongest component of growth, contributing 1.8% to second quarter growth, a slight uptick from the previous estimate. Fixed investment jumped from its first quarter reading of 0.0% to 1.5%. Inventories contributed 1.4% in the second quarter, following a 1.2% decline in the first quarter. Inventories tend to be highly volatile. The government went from dragging growth by 0.2% in the first quarter to contributing 0.3% growth in the second.

The healthy growth of the economy in the second quarter is due to several factors. First, the harsh winter is over and the second quarter rebounded as a result. Moreover, the government’s austerity measures are no longer weighing on GDP growth. Finally, customers are spearheading growth with higher consumption levels.

Read the BEA release.

Thursday, September 25, 2014

Durable Manufactured Goods Fell 18.2% in August

New orders for durable manufactured goods fell 18.2% in August, following two consecutive monthly increases. The decline in August was due to a fall in new orders for transportation goods—which experienced a large increase in the previous month. Excluding transportation goods, new orders on durables increased 0.7% in August, which is above the post-recession average.

Transportation goods decreased 42% in August, attributing to most of the month’s decline. New orders for capital goods, including defense and nondefense goods, decreased 34%, led by a 36% decrease in nondefense goods. New orders for computers and electronic products increased 1.7% and new orders for electronic equipment, appliances and components increased 3.1%—both suggest stronger activity among the business sectors. Of some concern, orders for vehicles and parts declined 6.4%.

Read the U.S. Census Bureau release.

Wednesday, September 24, 2014

New Home Sales Jumped in August

New home sales jumped in August to an annual pace of 504,000 units, driven largely by gains in the West region. August’s report, on net, revised previous months by 18,000 units. August’s pace was an 18.0% improvement from July’s and a 33% gain from year ago levels.

Three of the four regions saw their annual pace improve. Only the Midwest saw no growth at 0.0%, but it had the strongest growth the month prior. The West, Northeast and South respectively grew 50.0%, 29.2% and 7.8%.

The surge in sales caused a tightening of new-home inventory. The months supply declined from 5.6 to 4.8. The median prices of a new home in August was $275,000, a decrease of 1.6% from the month prior. However, median home prices are still 7.9% above year ago levels.

Read the Census report.

Monday, September 22, 2014

Existing Home Sales Decline in August as Investors Leave Market

Existing home sales declined for the first time in 5 months in August. Sales settled at an annual pace of 5.05 million, a 1.8% decline from July. Sales are 5.3% below year ago levels. However, the decline in sales is largely attributed to investors leaving the market, a healthy sign for home buyers. Individual investors, who account for the majority of cash sales, purchased 12% of the homes in August, a decline from 16% in July and 17% in August 2013.

Two of the four regions improved. The Northeast and Midwest increased in August by 4.7% and 2.5% respectively. The South and West declined by 4.2% and 5.1% respectively. All four regions saw their year-over-year levels decline.

The market supply remained the same at 5.5 months. The median house price declined to $219,800, a 4.8% increase over year ago prices. The decline in the median home price points to a slightly looser housing market.

Read the NAR release.

Friday, September 19, 2014

Fed Holds Interchange Fee Cap Steady

Based on data released in the Federal Reserve’s biennial survey of debit card issuers’ costs, the Fed said that it will not change its interchange fee cap and fraud-prevention adjustment. The survey showed that the median issuer’s cost of authorizing, clearing and settling debit card transactions was 14.9 cents. Issuers at the 75th percentile had costs of 42.2 cents per transaction. The overall average cost declined slightly from 2011.

Debit card fraud losses rose slightly, with the median issuer’s average fraud loss as a share of transaction value amounting to 0.05% — up from 0.047% in 2011. The Fed estimated that all parties — merchants, issuers and card networks — saw $1.57 billion in debit card fraud losses in 2013.

The survey also showed that 53.7 billion debit and prepaid card transactions amounting to $2.07 trillion were processed in the U.S. in 2013. Transactions grew 8.4% from 2012 to 2013 at banks not subject to the rule, compared to 5.9% for covered issuers. The growth of prepaid cards — averaging more than 36% from 2009 to 2012 — slowed dramatically in 2013.

Read the Federal Reserve survey.

Survey Reveals Regular Use of Mobile Deposits

Although only one in eight Americans deposited a check using their smartphones in the past year — according to an Ipsos Public Affairs survey conducted for ABA — 80% of those who did used mobile deposits at least once a month. ABA SVP Nessa Feddis said:
Convenience and saving time are paramount for today’s consumer, so it is no surprise that mobile deposit is gaining traction with banks and their customers. It doesn’t get much easier than depositing a check with the simple snap of a photo.
The survey, conducted Aug. 7-12, found that more than one-third of those who used mobile deposits in the past year did so at least twice per month. Feddis added:
As mobile deposit becomes more widely available and people become more comfortable with the technology, we expect its popularity to continue to grow.
Read more.

Thursday, September 18, 2014

Housing Starts Decline in August

The pace of new residential construction decreased to an annualized pace of 956,000 units in August. Both single-family and multi-family housing starts posted declines, the latter showing the larger decline. However, both multi- and single-family housing starts were up from August 2013. August’s rate dropped 14.4%, offsetting the previous month’s large increase, but is 8.0% higher than a year ago.

Both multi- and single-family starts dropped, falling by 31.7% and 2.4%, respectively. Multi-family starts grew at an annual pace of 313,000 units, while single-family starts grew at an annual pace of 643,000 units.

August’s decline was broad-based across regions. The West had the steepest decline, falling by 24.7%, followed by the Northeast (12.9% decline), the South (10.9% decline) and the Midwest (10.3% decline). However, each of the four regions improved from August 2013.

Single-family housing permits declined 0.8% and multi-family housing permits dropped 12.7%.

Read the Census report.

Wednesday, September 17, 2014

Federal Reserve: Asset Purchases Remain on Track to Complete in October, Fed Funds to Rise to 1.375% End-2015

The Federal Open Market Committee stayed the course today, reducing asset purchases by another $10 billion, bringing the pace of purchases to $15 billion per month. The committee expects to end purchases at its October meeting. The FOMC restated its commitment to holding rates at near zero for a “considerable time,” however, revised their forecast for the Federal Funds rate, and now see it rising faster than had initially been anticipated.

The Federal Reserve will remain on target to end its Quantitative Easing program in at its October 28-29 meeting if the labor market conditions continue to improve. Beginning in October, the Committee will purchase MBS at a pace of $5 billion per month rather than $10 billion per month, and purchase longer-term Treasury securities at a pace of $10 billion per month rather than $15 billion per month.

The Committee reaffirmed that “it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends.” Despite this, the updated forecasts show that when tightening does occur, it may be more swift than initially thought. The updated forecast shows the federal funds rate is expected to reach 1.375% by the end of 2015, up from the 1.12% forecast in the June meeting. The median Federal Funds Rate forecast for the end of 2016 has increased to 2.875%, up from 2.5%.

The Committee offered additional guidance this meeting on its plans to normalize policy. The Fed will begin raising the Federal Funds rate by adjusting the interest rate it pays on excess reserve balances. Any reduction in securities holdings will take place after an initial rate increase, and will be accomplished by discontinuing reinvestment of maturing securities. The Committee does not plan to sell any of its MBS portfolio as part of normalization.

Read the FOMC Statement
See the Forecast
Read the Policy Normalization Document

Home Builder Sentiment Highest Since 2005

Home builder confidence rose for the fourth consecutive month to 59 in September, the highest level since November of 2005, according to the National Association of Home Builders and Wells Fargo.

The Northeast, South and West showed month-over-month increases in the index, while the Midwest showed a decrease after a larger upward spike the previous month.

Read the NAHB release.

Consumer Prices Fell 0.2% in August

The consumer price index decreased 0.2% in August, which is down from the 0.1% growth the month prior. August's drop in consumer prices is the first negative rate since April 2013. The price drop was driven by a decline in energy prices, and offset by food prices. Prices are now 1.7% above year ago levels.

Overall energy prices shrank 2.6% in August, as energy commodities declined 3.9% and energy services prices declined 0.6%. The declines were led by a 4.1% drop in gasoline prices and a 2.8% drop in utility gas services, respectively.

Food prices increased 0.2% from the previous month and 2.7% from the previous year. The month-over-month increase was driven by an increase in the price of meats, poultry, fish and eggs.

Read the BLS report.

Tuesday, September 16, 2014

Producer Prices Remained Stagnant in August

Producer prices held steady in August. The pace of growth slowed for the second consecutive month. Price growth in services was offset by the price decline in goods. Year-over-year growth increased slightly to 1.8%, but is still below the 2.0% target of the Federal Reserve.

Prices for finished services increased 0.3% in August, driven largely by transportation and warehousing and other. Finished goods prices declined 0.3%, due to a 1.5% decline in energy prices. Gasoline prices continue to drop rapidly.

Prices at earlier stages of production showed similar patterns. Processed intermediate energy declined 1.7% and unprocessed intermediate energy dropped 4.9%. Total processed intermediate goods dropped by 0.3% and unprocessed intermediate goods sharply declined 3.3%.

Read the BLS report.

Monday, September 15, 2014

Industrial Production Declined in August

Industrial production declined by 0.1% in August, the first monthly decline since January. Two of the three major components increased, with the largest gains in utilities. However, the main index of the three components - manufacturing - declined, indicating a real decline in the headline index. The three-month annualized growth rate dropped to 1.8% in August from 4.1% in July, indicating softening data.

Manufacturing output declined 0.4%, the first month to decline since January. Manufacturing is up 3.6% from year ago levels. The high-tech sector was the main driver in August, growing 1.5%. Motor vehicles and parts dropped 7.6% over the month, following a massive 9.3% jump the month prior.

Mining grew 0.5%, following a 0.3% decline the previous month, continuing a volatile trend. Utilities improved 1.0%.

Read the Federal Reserve release.

Friday, September 12, 2014

Retail Sales Increased a Strong 0.6% in August

Retail sales improved 0.6% in August, the fastest monthly pace since April. August’s report included upward revisions to previous months. Automobile sales led the increase, growing 1.5% in August. Year-over-year growth was also strong, improving 5.0%, the strongest yearly growth since July 2013.

Excluding automobile and gasoline sales, retail sales grew 0.5% in August. Building materials also saw strong growth at 1.4%. The report was generally positive, indicative of a growing and strengthening economy. The growth for the remainder of the year should continue August’s trend.

Gasoline sales declined 0.8%, however gasoline sales tend to be volatile from one month to the next.

Read the Census report.

Thursday, September 11, 2014

Survey: Most Bank Customers Pay Little or No Fees

The majority of Americans—62 percent—pay nothing at all for bank services such as checking account maintenance and ATM access, according to a recent survey by the American Bankers Association. Most bank customers (74 percent) spend $3 or less in monthly fees—less than the cost of a gallon of gas.

“Banking services are a great value for consumers, and bank customers have more choices than ever before,” said Nessa Feddis, ABA’s senior vice president and deputy chief counsel for Consumer Protection and Payments. “Increasingly, consumers are finding that simple steps like having their paychecks directly deposited or using ATMs owned by their bank result in a free service that protects their money and makes it available 24/7.”

The annual survey of 1,000 U.S. adults was conducted for ABA by Ipsos Public Affairs, an independent market research firm, Aug. 7-12, 2014. ABA has conducted the survey annually since 1998.

Read the full release.

Tuesday, September 9, 2014

Small Business Optimism at Second Highest Level Since 2007

Small business optimism increased in August by 0.4 points to 96.1, the second highest level since October 2007. August’s gain was driven by increases in plans to make capital outlays and expectations that the economy will improve.

Financing continues to be the least cited concern holding back small business conditions, with 2% of respondents citing it as the single most important problem. Taxes remained the top spot rising 2% to 24%, followed by government requirement and red tape, which declined to 19%.

Six of the ten index components improved slightly, three components declined and one component, credit conditions, was unchanged. Expectations that the economy will improve increased 3 points, the second consecutive month of strong growth.

Expectations for higher real sales took the biggest hit, dropping 4 points to 6%. August was first month plans to increase employment declined, following a ten month positive gain.

Read the NFIB report.

Monday, September 8, 2014

Consumer Credit Posted Record Gains in July

Consumer credit increased $26.0 billion in July, a new monthly record. July saw a 9.7% annualized gain, the largest monthly annualized gain since 2011. July’s gains continue to be largely driven by non-revolving credit.

Revolving credit grew $5.4 billion. It’s well above the $1.8 billion growth from the month prior. Non-revolving credit grew by $20.6 billion, as consumers continue to finance large ticket items. The spike in consumer credit reveals that consumers are increasingly comfortable taking on higher debt levels.

Read the Federal Reserve release.

CBO: Climbing Interest Rate, Large Effect on Federal Debt

Federal debt held by the public will reach about $12.8 trillion by the end of this fiscal year, an amount that equals 74% of the nation’s total output (GDP) this year, according to CBO projections. If current laws remain unchanged, CBO projects that the debt will reach $20.6 trillion, or 77% of GDP in 2024.

Furthermore, with the interest rate set to rise, the interest payments on the debt will increase from $231 billion in 2014, or 1.3% of GDP, to $799 billion in 2024, or 3.0% of GDP. The rising debt accounts for some of that increase, but much of it stems from CBO’s expectation that—largely owing to the improving economy—the average interest rate paid on that debt will more than double over the next 10 years, from 1.8% in 2014 to 3.9% in 2024.

Read more.

ABA Survey Finds Target Breach Costly to Banks

The Target consumer data breach last year was costly for banks of all sizes — and especially for community banks — according to an ABA survey of more than 500 banks. More than 8% of debit cards and nearly 4% of credit cards were implicated in the breach, and banks reissued nearly every card so implicated, representing tens of millions of cards reissued in response to a single breach. Community banks experienced disproportionately higher costs in reissuing cards. Banks with under $1 billion in assets spent just over $11 per debit card and $12.75 per credit card, including mailing, card production and staff time. The largest banks — those with over $50 billion — spent under $3 per card. ABA President and CEO Frank Keating said:
These costs are deeply troubling for all banks, especially for community banks. As each new retailer breach occurs, these costs will be repeated over and over. Enough is enough.
Banks also bear the costs of retailer breaches through low reimbursement rates. Although the survey did not cover reimbursement specifically for the Target breach, only one third of banks reported receiving any reimbursement for fraud losses and reissue costs in the previous five years. Of those that did receive reimbursement, 83% said they received less than 10 cents on the dollar — and 46% reported receiving not even a penny on the dollar. Keating said:
We have engaged for the past year in discussions with the card associations on increasing bank reimbursement levels for data breach costs. These findings make it clear that banks bear too much of the cost of retailers’ data breaches. We will continue to push to get these reimbursement levels up.
View the survey results.

Friday, September 5, 2014

Job Growth Slowed in August and Unemployment Dipped to 6.1%

Total nonfarm payroll employment rose by 142,000 jobs in August, the slowest pace since last December. The disappointing report was well below expectations. August’s report included on net loss of 28,000 jobs from revisions to previous months. The poor growth breaks a six-month run where jobs growth was above 200,000 per month.

August’s weaker report may be due, in part, to statistical noise as the monthly survey has a margin of error of 90,000 jobs. Moreover, we have seen strength in other labor market metrics recently.

The unemployment rate dropped slightly to 6.1%, according to the U.S. Bureau of Labor Statistics. The labor force participation rate declined to 62.8% as 64,000 people left the labor force in August. The number of long term unemployed, defined as those who have been out of work for over 27 weeks, dropped by 192,000 people — accounting for 31% of all unemployed individuals.

The private sector, particularly the service industry, continues to drive job growth. However the weak growth across the board in the private sector lagged the overall growth for August. The service sector added 112,000 jobs in August, lower than the previous two months and August 2013. The goods producing sector also saw weak job gains, improving 22,000 in August, well below the 67,000 seen the month prior.

Government employment increased by 8,000 jobs, well above the previous three month average of 2,000.

Read the BLS report.

Thursday, September 4, 2014

ISM Nonmanufacturing Index at Record High

In August, the ISM nonmanufacturing index reached the highest level ever since the index’s inception in January 2008. The index was 59.6 in August, a 0.9 point increase from the month prior. Any reading above 50 indicates industry expansion and August is the 55th month the index has remained above that threshold.

The employment index saw strong growth, improving 1.1 points to 57.1. It is the highest reading since February 2013. Without any major upcoming economic hurdles, employment index should maintain its healthy path.

Business output shot up to 65.0, the highest recording since February 2011. However, new orders declined in August, settling at 63.8. Exports declined 0.5 points, which may hurt the nominal trade deficit, and GDP.

Read the ISM report.

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

The Federal Reserve’s Beige Book, released yesterday indicated that economic expansion is continuing at a “moderate" pace, an uptick from the previous report. Boston and Richmond reported strong growth. Reports from New York, Cleveland, Chicago, Minneapolis, Dallas, and San Francisco Districts all indicated moderate growth. Philadelphia, Atlanta, St. Louis, and Kansas City saw the pace of growth improve modestly. All districts were generally optimistic about future growth.

Consumer spending expanded in most districts and remained strong, as reported in the last Beige Book, a positive sign for third quarter GDP growth. Vehicle sales remained strong, with Philadelphia and Dallas reporting record-levels of auto sales. However, there was some retreat in auto sales in parts of the New York District. Tourism activity was reported to have increased across much of the nation, with many Districts reporting higher hotel booking and occupancy rates.

Manufacturing growth was mixed. The Beige Book found that report by district were, “divided almost evenly into one of three characterizations of the sector's activity: expanding, contracting, or unchanged.”

Loan volumes generally increased since the last reporting period. Loan volumes increased in eight districts and remained constant in one. “Credit standards were largely unchanged. Six Districts reported improving credit quality, falling delinquency rates, or both.”

The report noted that market conditions remained relatively unchanged since the last reporting period. Continuing a recent trend, many districts report difficulty filling qualified workers for high-skilled positions. Notably, the districts reported upward wage pressures, a positive sign of a growing economy. Moreover, the wage pressure was generally for lower skilled positions, which have the stickiest wages since the recession.

Read the Federal Reserve release.

ADP: Private Sector Added 204,000 Jobs in August

According to the ADP’s National Employment Report, the private sector added 204,000 jobs in August. The pace of job growth slowed for the second consecutive month, however the number of jobs added remained above 200,000, indicative of a healthy and growing labor market. Moreover, August’s report included a positive revision to June’s headline number, which more than offsets the slight decline in revision to July’s number.

Job gains continued to be centered in the service sector, which added 164,000 in August, down from 190,000 the month prior. Professional and business services declined slightly, to 51,000 jobs added, which was the second slowest month of growth all year, aside from January.

The goods producing sector rebounded in August from a weaker July. The sector added 41,000 jobs, the second highest growth seen all year. Manufacturing added a strong 23,000 jobs in August, the highest total since December 2012.

Read the ADP release.

Trade Deficit Dropped to $40.5 Billion in July

The U.S. trade deficit shrank for the third consecutive month in July, dropping 1% to $40.5 billion from a downwardly revised deficit in June. The deficit is the lowest it has been in 6 months. Exports increased faster than imports, contributing to the overall decline in the trade deficit.

Exports improved 0.9% to $198.0 billion. Imports increased 0.7% to $238.6 billion. The goods and petroleum deficits shrank while the services surplus remained the same from the previous month.

The real goods deficit, which is important for the calculation of GDP, shrank to $48.2 billion.

Read the Census report.

Tuesday, September 2, 2014

Construction Spending Rebounded in July

Construction spending’s rebound in July more than offset the losses from June. According to the Census Bureau, construction spending jumped 1.8% in July, the largest monthly gain since May 2013. The level was 8.2% above year ago levels.

All three components on construction spending – private residential, private non-residential and public construction – improved.

Public construction led the growth, increasing 3.0% in July and 2.1% from a year ago. Improved spending on highway and street construction led the growth.

Private residential spending improved due a combination of spending on new single-family homes, multifamily homes and residential improvements, which grew 0.5%, 0.2% and 0.7% respectively. Moreover, all components improved on an annual basis.

Spending on power and utility structures leg the gains for spending on private non-residential construction. Year-over-year growth for private non-residential construction was 14.1% in July.

Read the Census release.

ISM Manufacturing Index Reached Highest Level Since 2011

The ISM manufacturing index was 59.0 in August, the highest level since early 2011. The index has been above its expansionary threshold of 50 for 15 months. The ISM report points to future growth.

The details of the report were strong. The New Orders Index surged to 66.7, a post-recession high. The inventory index rose 3.5 points and into expansionary territory. As a result of new orders and inventories improving, the gap between new orders and inventories - a proxy for future production – remained at elevated levels, recording 14.7 in August.

The Employment Index was the one spot of weakness. The index declined 0.1 points to 58.1. However, the index level is well above the expansionary threshold and the second highest reading this year.

The Export Orders Index grew 2.0 points to 55.0, however the Import Index grew more, increasing 4.0 points. The increased trade gap will likely negatively impact GDP growth.

Read the ISM release.