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Tuesday, December 27, 2011

Existing Home Prices Fell in October

Existing home prices fell in October, according to the S&P’s Case-Shiller index. The 10- and 20-city indices declined 1.1% and 1.2% respectively. This marks the second consecutive month of price declines.


Despite the fall, home prices improved on a year-ago basis. The 10-city index is down 3% from one year ago, an improvement from the 3.2% reported last month.


Of the 20 metropolitan areas surveyed, only one, Phoenix, reported appreciation in home prices, a 0.3% increase in prices. Atlanta and Detroit were hit hardest, seeing monthly declines of 5.0% and 3.3% respectively. Only two metro areas, Detroit and Washington, have prices above year ago level seeing appreciation of 2.5% and 1.3% respectively. Las Vegas has been hit the hardest this year with prices remaining 8.5% below their level one year ago.

Read the report.

Friday, December 23, 2011

New Home Sales Increased 1.6% in November

New home sales increased by 1.6% in November to an annualized pace of 315,000 units. Sales are now up 9.8% on a year ago basis. This marks the third straight month new home sales have increased, and is the fastest pace since April. Strenght was seen primarily in the Midwest and South. Both the Northeast and West recorded sizable declines.


The inventory continues to drop, with months supply falling to 6.0 in November. The number of new homes for sale declined and sits near historical lows. The median price of a new home dropped over 6% in November, and is down 2.5% from this time last year. Median price is a volatile measure, particularly with so few sales occurring.

Read the report.

Personal Income Growth and Consumption Slowed in November

Personal income growth and consumer spending growth were both slow in November according to a Bureau of Economic Analysis report released this morning. Nominal personal income grew at 0.1% in November, down from 0.4% in October. Disposable income failed to grow, in either real or nominal terms, in October. Wage income fell for the first time since August with growth driven by rental, dividend and interest income.

Consumer spending growth has moderated in the past two months growing just 0.1% per month. This is significantly lower than the levels of 0.7% and 0.8% seen earlier in the year. Nominal spending growth was led by durable goods, with spending on nondurable goods falling for the second month.


The savings rate dropped to 3.5%, from 3.6% in October. Consumers dropped their savings rates significantly from June through September, but the savings rate seems to have leveled out. Without income growth, however, it will be difficult for consumers to bring savings back up.

Read the report.

Policy Uncertainty Adversely Affects Small Business Plans to Expand

A recent paper by Mark E. Schweitzer and Scott Shane at the Federal Reserve Bank of Cleveland looks at the relationship between economic policy uncertainty and small business expansion.

The authors found statistically significant negative effects of policy uncertainty on small business owners’ plans to hire and make capital expenditures over the last 25 years.

The correlations between the policy uncertainty and small business expansion plans "are strong enough to reject the argument that policy uncertainty is irrelevant for currently weak small business expansion plans."

For example, the authors found that policy uncertainty during the summer of 2011 exacerbated hiring plans by small businesses. The net percentage of small business owners planning to hire would have been 6 percentage points higher, if policy uncertainty was not present.

The authors recommend that "policymakers should take seriously the widespread anecdotal reports that policy uncertainty is adversely affecting small business owners’ expansion plans."

Read the study.

Thursday, December 22, 2011

Consumer Sentiment Rose in December

Consumer sentiment rose by 5.8 points in December to 69.9 according to the University of Michigan Consumer Sentiment Index. The larger than expected rise was due to improvement in both the current conditions and future expectations portions of the index.


The rise in the index was driven by the improving future expectations, rising from 55.4 to 63.6. Present conditions also added to the improvement, rising from 77.6 to 79.6.

The report indicated that inflationary expectations are little changed from November, calling for 3.1% inflation over the next year and 3.5% over the next 5 years.

Consumer sentiment has risen 25% since its near historic low of 55.7 seen in August. This low matched recessionary lows and was one of the lowest readings ever. Despite the improvement, consumer sentiment levels remain below levels seen at the beginning of the year.

Third Quarter GDP Growth Revised Down to 1.8%

GDP growth in the third quarter was revised down to 1.8% SAAR from 2.0% reported last month. This is the second downward revision of third quarter GDP growth which was initially estimated at 2.5%. Even with the downward revision, the growth is the strongest we have seen so far this year and much better than the 0.36% growth seen in the first quarter.


The downward revision was driven by a downward revision to consumption, primarily in healthcare services. There was also a slight upward revision of imports, which helped lower GDP. These factors were partially offset by a small upward revision in inventories, fixed investment, and exports.

The acceleration of GDP growth from the second quarter to the third quarter was due primarily to increased consumer spending and business investment. In addition, state and local governments provided a smaller drag and exports improved.

Corporate profit growth fell in the third quarter to 1.7% (annualized), from 3.3% in the second quarter. Profits were up 7.5% over this time last year.

Read the report.

Wednesday, December 21, 2011

Existing Home Sales Rose In November

Existing home sales increased in November, rising 4% to an annualized pace of 4.42 million units according to a National Association of Realtors report released this morning. Despite the encouraging growth this report included significant downward revisions to sales dating as far back as January 2007. Even with the downward revisions sales have grown 12.2% year-over-year in November. Some of this year-over year strength can be attributed to slow sales in November 2010 following the expiration of the federal homebuyer tax credit.


Existing home sales were revised down by 14.5% from a pace of 4.97 million to 4.25 million. These revisions extended all of the way to the beginning of 2007. The revisions reduced 2010 existing home sales by nearly 14.8%. There were also significant revisions in the number of homes listed for sale. Despite these revisions historical growth rates for existing home sales remain relatively unchanged.

Growth in November was seen across all regions, with the Northeast posting the strongest gains of 9.8% in November. The South saw the least improvement, rising 2.4% in November.

The months of homes available for sale continued to fall in November to 7.0, down from 7.7 the previous month. After incorporating downward revisions, this is the lowest level seen this year. These declines have been led by falling home inventory, rather than strong sales growth.

The median home price rose to $164,200 in November, up from $160,800 last month. Despite this, home sales remain 3.5% below their level one year ago.

Read the report.

Tuesday, December 20, 2011

Housing Starts Jumped 9.3% in November

Housing starts rose to 685,000 annualized units in November, up 9.3% from the revised October pace. Permit issuance continues to grow as well, rising 5.7% in November. This suggests that the rate of new construction could continue to accelerate.


The more volatile multi-family starts lead growth, jumping 25.3% to an annualized rate of 238,000 units. Single-family starts grew less rapidly at 2.3%, but still account for the majority of starts at an annual pace of 447,000 units.

Permit issuance trends suggest that gains will continue in December as permit issuance grew by 5.7% to an annualized level of 681,000 permits. The issuances suggest that multi-family starts are likely to continue driving growth, as multi-family permits grew by 13.9%. Single-family permits rose by 1.6%.

Although the growth in housing starts is encouraging, it is growing from a low base. Historically housing starts are near 1.5 million units per year. Although we have seen some recovery, we are a long way off from those levels.

Read the report.

Friday, December 16, 2011

Consumer Prices Unchanged in November

The Consumer Price Index remained unchanged in November, following a 0.1% drop in the previous month, according to a Bureau of Labor Statistics report released this morning. Despite the unchanged headline reading, core inflation accelerated slightly to a 0.2% pace, up from 0.1% in October.


The headline index was driven lower primarily by a decline in the energy index, which fell 1.6% over the month. Food prices rose 0.1%, continuing the previous month’s trend. Core inflation strengthened in November, as a result of goods prices rising 0.1%. Service prices continue to rise at 0.2%.

Prices are now 3.4% above their level one year ago, a slower pace than the 3.6% reported in October. Core prices have risen less over the past year and stand 2.2% above their level this time last year.

There are some supply constraints in the economy that are holding core CPI inflation up however, core inflation is expected to moderate in coming months.

Read the report.

Thursday, December 15, 2011

Initial Jobless Claims Drop to Three-Year Low

Initial claims dropped significantly this week by 19,000 to 366,000, the lowest level since May 2008. This drop led the 4 week moving average down to 388,000, remaining below the important 400,000 level for the fifth consecutive month.


Although this drop is encouraging, it is important to note that seasonal factors are volatile this time of year. Iowa and Wisconsin led the areas reporting a drop in initial claims in areas reporting more than 1,000 fewer each. California and North Carolina led the states reporting initial claims jumping by over 1,000.

The continuing improvement in initial claims signals an early improvement in the job market. This improvement is not a signal that companies are hiring, but it does indicate they are holding onto current workers.

Read the report.

Wednesday, December 14, 2011

Farmer Net Cash Income Will Approach $110 Billion for 2011

The Economic Research Service of USDA is projecting that both net farm income and net cash income will surpass $100 billion for the fist time in 2011.

Net cash income, at $109.8 billion, is projected to increase $17.5 billion (19%)from 2010 and would be $34.2 billion above its 10-year average. Net cash income reflects only the cash transactions occurring within the calendar year and is a measure of solvency, or the ability to pay bills and make payments on debt. Net cash income is generally less variable than net farm income.

Additionally, USDA is expecting that farm debt will fall about 3 percent to $242 billion for 2011.

Read the report.
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Tuesday, December 13, 2011

FOMC Leaves Policy Unchanged

At its December 13th meeting, the Federal Open Market Committee left monetary policy unchanged. FOMC governors noted that the economy in the U.S. is maintaining its expansion despite a global economic slowdown. The statement also noted that some labor market indicators had showed slight improvement and household spending continues to advance. Despite this the unemployment rate remains elevated and business fixed investment growth has slowed. Today's statement continued to reiterate that "strains in global financial markets continue to pose significant downside risks to the economic outlook."

The committee held the federal funds rate target between 0%-.25%, and continues to offer forward guidance on interest rates, noting that economic conditions are likely to warrant "exceptionally low" interest rates through mid-2013. "Operation twist" will remain in effect as $400 billion in short-term debt is exchanged with longer dated debt in order to lengthen the average maturity of Federal Reserve holdings.

Chicago Federal Reserve President Charles Evans dissented for the second meeting in a row, favoring "additional policy accommodation" at this time.

Read the report.





December 13th MeetingNovember 2nd Meeting
Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth. While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but business fixed investment appears to be increasing less rapidly and the housing sector remains depressed. Inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable.Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.
To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.








































The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability. The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

Retail Sales Growth Moderated In November

Retail sales grew by just 0.2% in November, the slowest rate since June, according to a Census Bureau report released this morning. Despite the slow-down, growth has been strong in the past few months. Both September and October growth were revised to strong levels of 1.3% and 0.6% respectively.


Growth was less widespread in November than recent months with only electronics and nonstore retailers posting better than 1% growth. Electronics stores were the biggest winners in November posting growth of 2.1%. Building supply stores, food and beverage, and restaurant sales all turned negative after posting growth last month.

Year-over-year growth has now fallen to 6.7%, the lowest level since August 2010. This year-over-year growth is being led by nonstore retailers. Gasoline sales have also improved significantly over the year, but will deteriorate as gasoline prices were rising quickly at this time last year. Department stores are the only major segment reporting sales below their year-ago level in November.

Read the report.

Friday, December 9, 2011

Trade Deficit Narrowed In October

The trade deficit narrowed to $43.5 billion in October from $44.2 billion in September, according to a Census Bureau report released this morning. September’s trade deficit was revised up from an initially-reported $43.1 billion. Both nominal exports and imports fell for the first time since June.

This report suggests that trade could add as much as a half of a percentage point to GDP growth this quarter, up from initial estimates of 0.1 percent boost.


The fall in the trade gap was caused by a larger fall in imports than exports. Imports fell from $224.8 billion in September to $222.6 billion in October. Imports have now fallen for four out of the last five months.

Exports fell, as well, from $180.6 in September to $179.2 billion in October. This is the first decline in exports since June.

The real goods balance narrowed even more, falling from $45.9 billion to $44.2 billion. This is a positive sign for growth.

Read the report.

Thursday, December 8, 2011

Household Net Worth Fell $2.4 Trillion In Third Quarter

Household net worth fell $2.4 trillion to $57.4 trillion in the third quarter, its lowest level in a year, according to the Z1 report (Flow of Funds Accounts of the United States) released by the Federal Reserve this afternoon. This decline marks two consecutive quarters of declining household net worth following three straight quarters of growth. Household net worth remains well short of the 2007 high of $65.6 trillion.

Household net worth fell in relation to disposable personal income as well, totaling 496%, down from 517% reported in the second quarter.

The decline in net worth was due primarily to a fall in the value of financial assets, which fell 5.2% in the third quarter. Also driving the decline was a slight fall in home values (0.6%).

Although the third quarter was poor for equities, they saw a significant rebound in October with the Dow Jones Industrial Average rising 1,042 points, or 9.5%, its best performance since October 2002. As a result of this we are likely to see a slight improvement in fourth quarter household net worth, barring any unforeseen declines in market values.

The savings rate fell drastically in the third quarter to an average of 3.8%, down from 5.3% in the second quarter. This is its lowest quarterly average since the fourth quarter of 2007. Consumers have faced falling real incomes and have had to decrease savings rates in order to keep consumption steady.

Read the report.

Wednesday, December 7, 2011

Consumer Credit Rose by $7.7 billion

Consumer credit increased by $7.7 billion in October to $2.5 trillion, its highest level in two years, according to the Federal Reserve’s G19 report released this afternoon. This continues with recent trends that have seen consumer credit rise in nine out of the last ten months.


The increase in credit was driven primarily by an increase in non-revolving credit which grew by $7.3 billion. This includes categories such as auto and student loans. In October, revolving credit, which includes credit cards, gained $400 million. Throughout most of the year we have seen gains primarily in non-revolving credit.


Read the report.

Federal Reserve’s Emergency Lending Activities

The Federal Reserve issued a letter yesterday to address criticisms issued by a number of news sources regarding its emergency lending activities during the financial crisis. The articles accused the Federal Reserve of “secret lending that was not disclosed to Congress or the public.” Chairman Bernanke’s letter highlights a few points in response to these statements.

Many of the articles made claims of “secret” loans made. “No lending program was ever kept secret from Congress or the public. All of the programs were publicly announced when they were initiated.” Moreover, information regarding the scope of the lending was provided to the public weekly via the Federal Reserve’s balance sheet as well as detailed monthly reports to congress.

The Federal Reserve did not release the names of counterparties and borrowers immediately because it would have undermined the effectiveness of the emergency lending. Announcing the names of specific banks requiring loans would lead to a run on those specific banks, necessitating more lending. The Federal Reserve did inform Congress of the volume of borrowing by large banks despite these restrictions. The monthly reports detailed the average borrowing during the month in aggregate for the five largest discount window borrowers, the next five, and the rest.

Almost all of the emergency loans made have already been repaid or are on track to be fully repaid. In fact, these loans generated considerable income for taxpayers. The Federal Reserve reports that, “the emergency lending programs have generated an estimated $20 billion in interest income for the Treasury. Moreover, in 2009 and 2010, the Federal Reserve returned to the taxpayers over $125 billion in excess earnings on its operations, including emergency lending.”

See Bernanke’s full letter here.

FDIC 2012 Operating Budget 15,4% Lower han 2011 Budget

The Federal Deposit Insurance Corporation (FDIC) Board today approved a $3.28 billion operating budget for 2012, 15.4% lower than the 2011 budget.

FDIC announced that the authorized 2012 staffing of 8,704 employees, a net reduction of 565 positions

Additionally, the FDIC Board expects further staff reductions projected in 2013 and future years. Over one-third of all authorized staff positions for 2012 will be temporary hires.

ABA Chief Economist Jim Chessen stated: "We applaud FDIC over its stewardship of the industry's funds by employing temporary employees in the recognition of the cyclical nature of bank failures. The decline in the 2012 budget and staffing is an indication that health of the banking industry continues to improve. The pace of bank failures has slowed and the number of troubled banks is trending lower."

However, FDIC's 2012 budget is allocating additional resources towards the implementation of provisions in the Dodd-Frank Act. FDIC is adding 24 permanent positions for institutional monitoring and resolution planning of complex financial institutions.

Read the press statement.

View slide show on the budget.

Tuesday, December 6, 2011

European Debt Crisis Plan

Last Thursday, European leaders began to unveil a plan to address the region’s sovereign debt crisis “once and for all.” Individual statements made last week as well as a joint statement Monday from French President Nicolas Sarkozy and German Chancellor Angela Merkel have outlined a common position that will be presented to the European Commission at its December 9th meeting. The heart of this plan involves European nations ceding fiscal sovereignty for tighter budgetary constraints. In exchange for these measures, markets expect the European Central Bank to step in and take aggressive actions to stabilize debt markets.

For a more in depth analysis of the plan, read our paper here.

Monday, December 5, 2011

ISM Nonmanufacturing Slowed in November

The service industry weakened in November as measured by the ISM nonmanufacturing index, which fell from 52.9 to 52.0. This marks the third consecutive monthly decline, leaving the index below its third quarter average of 53.0. Despite the negative headline number, the details are not quite as negative. Furthermore, the number does not line up with other recent data on the services industry.


In November business activity picked up substantially, rising to 56.2 from 53.8. New orders rose as well, to 53.0 from 52.4.

The employment aspect of the index accounted for the biggest loss, falling from an expansionary 53.3 to a contracting 48.9, indicating jobs were lost in November. This is discouraging, however other data suggests employment gains in the service sector. Supplier deliveries fell 2 points to 50.0, the breakeven point between expansion and contraction.

There was an improvement in trade details as well with exports growing to 55.5, and imports growing mildly to 48.5. Inventories recovered in November as well, rising from 45.5 to 52.5.

Read the report
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Friday, December 2, 2011

Unemployment Rate Dropped to 8.6 on 120,000 New Jobs

The US economy added 120,000 jobs in November, dropping the unemployment rate to 8.6% according to a Bureau of Labor Statistics report released this morning. November’s report also included significant revisions to previous months' data. September’s job growth was revised up by 52,000 to 210,000 new jobs and October’s job growth was revised up by 20,000 to 100,000 new jobs.


The private sector created 140,000 jobs in November and has now added jobs for 21 straight months. The gains in employment continue to come primarily from the service sector, which created 146,000 jobs in November. The goods producing sector shed 6,000 jobs for its third loss in four months.

The public sector continues to be a drag on growth shedding 20,000 jobs. The public sector has added jobs in only one of the past 12 months.


The unemployment rate has dropped below the 9% level to 8.6%, levels not seen since March 2009. From April to September the unemployment rate held in a narrow range between 9.0% and 9.2%. Although this drop in the unemployment rate is positive it occurred largely due to a contraction in the labor force.

The household survey indicated that the unemployment rate dropped on the creation of 278,000 new jobs and a contraction of the labor force by 315,000. This led the labor force participation rate to fall to 64.0% from 64.2%. The breadth of job growth (the diffusion index) narrowed in November to 54.7% from 59.6% indicating that job growth is due mostly to a few industries.

ABA’s Chief Economist James Chessen commented, “Although it is encouraging to see the unemployment rate fall below 9% there are details of this report that are cause for some concern. The level of discouraged workers is very high and growing, so maintaining the 8.6% unemployment rate is unlikely in the near term. Job growth is still not strong enough to make consistent and sustainable progress in reducing unemployment. We’re still running at half of what is needed to eat away at unemployment in a meaningful way."

Read the report.

Thursday, December 1, 2011

ISM Manufacturing Jumped in November

The ISM manufacturing index jumped in November to its highest level since June according to an ISM report released this morning. The Purchasing Managers Index rose to 52.7, up from its near contractionary level of 50.8 in October.


This positive reading marks 28 straight months of growth in the manufacturing sector. Any reading above 50 indicates an expansion in the manufacturing sector.

The details in the report are encouraging as well, with new orders rising 4.3 points to 56.7, its highest level since April. Production and new export orders both rose by 6.5 and 2.0 points respectively. Inventories continue to shrink, but by less than the previous month, to a level of 48.3.

The employment index fell to 51.8 from 53.5, matching its lowest level since November 2009.

Although the index is above the third quarter average of 51.0, it remains significantly lower than the 12-month average of 55.6. The latest improvement in the index is a strong first step, but it is just that.

Read the report.

Construction Spending Rose 0.8% in October

Led by strong private sector gains, construction spending rose 0.8% in October according to a Census Bureau report released this morning. The growth is stronger than September’s weak 0.2% but remains at relatively low levels.


Private construction led the gain, growing by 2.3%, its fastest rate since May. Private residential construction was the primary contributor to the growth, up 3.4% from September. Non-residential growth was strong as well, growing 1.3%. Public construction spending proved a drag on growth falling 1.8%.

Read the report.