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Friday, March 30, 2012

Chart of the Week: Gasoline


On the week of Dec 19, 2011 Iran begun to threaten shutting down the Straight of Hormuz. Since then Gas has risen 69 cents.

Consumers More Confident in March

Consumer confidence continues to rebound in March, with the University of Michigan’s Consumer Sentiment Index rising to 76.2 at the end of the month. This is up from the 75.3 reported in February and the highest level the index has seen in over a year.


The increase in sentiment was driven entirely in an increase in the present conditions component of the index, which grew from 83.0 to 84.2. Future expectations fell from an index reading of 70.3 to 68.0.

Inflationary expectations for the next year rose substantially to 3.9% from 3.3% in January. Long term inflationary expectations remained relatively anchored, increasing by just 0.1% to 3.0%.

Consumer Spending Rose Faster Than Income in February

Consumer spending outpaced personal income growth in February, rising 0.8% from the previous month. Personal income rose by a more modest 0.2%. This led the savings rate to fall sharply to 3.7% from 4.3% in January.


Nominal personal consumption rose 0.8% in February, its fastest rate since July. The spending was driven primarily by durable goods purchases, particularly autos. Real consumer spending rose 0.5% over the month, outpacing the cumulative growth for the last four months.

Real personal income shrank by 0.1% in February, despite 0.2% nominal growth. Real personal income, excluding transfer payments, grew for the first time in six months.


Consumer prices rose at their fastest rate since August, however much of this was driven by energy as core prices only rose 0.1%.

The savings rate fell sharply in February as a result of consumer spending growth outpacing income. The savings rate fell to 3.7% from a downwardly revised 4.3%. This is the first time the consumer savings rate has been below 4% since August 2009.

Read the report.

Thursday, March 29, 2012

GDP Grew at 3.0% in the Fourth Quarter

Real GDP expanded at 2.95 % in the final quarter of 2011 according to the BEA’s final estimate, released this morning. This reading is essentially unchanged from the 2.98% reported in the second estimate. GDP accelerated in the fourth quarter, from an annual pace of 1.8% in the third quarter.


The acceleration in growth seen in the fourth quarter was due primarily to private inventory investment, which presented a sizable drag on growth in the third quarter, but contributed 1.8% of the growth in the fourth quarter. This is a negative sign for first quarter 2012 growth, as inventory growth is not seen as sustainable.


Fourth quarter growth was also aided by an increase in consumption. Growth in fixed investment slowed in the fourth quarter, contributing about 1% less to growth than the previous quarter. Net exports became a drag on growth in the fourth quarter as global demand slowed. Fiscal drag was larger than the previous three months as well.

Read the report.

Wednesday, March 28, 2012

Farm Banks Increased Ag Loans and Added Jobs in 2011

The banking industry continues to be the major source of agricultural credit, providing more than half of all outstanding farm loans, according to the American Bankers Association's annual Farm Bank Performance Report.


The nation's 2,185 farm banks increased farm and ranch lending $3.8 billion or 5.6 percent in 2011, for a total outstanding balance of $72.3 billion. "The growth in farm loans shows banks continue to meet the credit needs of both large and small farms and remain the most important supplier of agricultural credit," said John Blanchfield, senior vice president and director of ABA's Center for Agricultural & Rural Banking.


Farm banks added 6,327 jobs in rural America since 2007, a 7.8 percent increase, and employed a total of 86,984 men and women at the end of 2011.

"Farm banks posted solid performance in 2011, reflecting the overall strength of the agricultural economy," said Blanchfield. Pre-tax income rose 25.3 percent, the second consecutive annual increase, while equity capital increased 10.9 percent to $40.4 billion and asset quality continued to improve.

"As vital, tax-paying members of their communities, farm banks continue to provide opportunities for rural Americans to finance farms, ranches, businesses and homes, while adding jobs and supporting the agricultural economy," said Blanchfield.

New this year, the Farm Bank Performance Report now provides regional summaries:
  • The Northeast region (264 banks) increased farm loans 6.5 percent and employment by 2.0 percent.
  • The South region (585 banks) reported improved profitability and employed over 22,000 men and women.
  • The Cornbelt region (641 banks) increased farm loans by 6.6 percent and employment by 2.9 percent.
  • The Plains region (491 banks) increased return on equity by 50 basis points and employed over 20,000 men and women.
  • The West region (196 banks) noted a 2.2 percent increase in jobs along with improved capital and profitability.

Read the 2011 Farm Bank Performance Report on aba.com

Watch a video summary of the report by John Blanchfield on ABA's YouTube channel

Real Estate Lending Conditions Unchanged in 2011

Real estate lending conditions were mostly unchanged from 2010 to 2011, according to ABA’s 19th annual Real Estate Lending Survey.

Refinancings made up 63% of mortgage activity in 2011, down slightly from 66% in 2010. Fixed rate mortgages remained the preferred loan structure representing 80% of originations in 2011, and the 30-year fixed rate structure remained the most popular, comprising 47% of all mortgages originated last year.

Banks retained 41% of one to four family mortgages originated in 2011, up 3 percentage points from 2010. Twenty-seven percent of originations were sold directly to either Fannie Mae or Freddie Mac, the same as 2010. Sales to aggregators fell from 21.7% in 2010 to 17.3%, while sales to the Federal Home Loan Bank programs increased from 4.7% to 7.0%.

ABA EVP Bob Davis attributed the survey results to the increasing regulatory burden and ambiguity over rules still in the pipeline. “Continued concern about forthcoming mortgage rules and the unknown future of Fannie Mae and Freddie Mac have increased lending uncertainty in an already sluggish market,” he said. “Clarity through well-constructed rules that ensure credit availability for qualified borrowers is essential for the housing recovery.”

Read the press release.

Tuesday, March 27, 2012

Home Prices Continue to Fall in January

S&P’s Case-Shiller index continued to decline in January with the 10- and 20-city indices falling 0.8%. The declines seen in January are slower than December declines of 1.2% and 1.1% for the 10- and 20-city indices respectively. Year-ago price changes improved from December, with the 10-city index reporting a 3.9% drop, up from a 4.1% drop reported last month. The 20-city index has declined 3.8% over the last year, up from the 4.1% reported in December.


In January, only three of the 19 reporting metro areas saw appreciation in prices. Charlotte was not included in January’s survey due to delays in data reporting. Washington, Phoenix and Miami were the only areas to see appreciation in prices. San Francisco fared the worst, with home prices falling 2.5% over the month.


Read the report.

Friday, March 23, 2012

Chart of the Week: Healthcare Costs


“The United States outspends all other OECD nations on healthcare both per capita and as a portion of GDP. The rise in the Federal budget deficit is very much connected with rising health care costs. Controlling costs is critical to controlling America’s debt."

James Chessen, ABA Chief Economist

New Home Sales Fell in February

New home sales continued to fall in February to a seasonally adjusted 313,000 units per year pace, down from 318,000 annual units in January. This is the second month that new home sales have declined since peaking at 336,000 in December.


The South led the decline, with sales falling 7.2% to an annual pace of 168,000 units. This weighs heavily on the index and currently comprises 50% of new homes sold in the US. The Midwest was the only other region to decline, seeing a modest fall of 2.4%. The Northeast and the West both gained 14.3% and 8.0% respectively, but, due to their small market share were unable to offset the fall seen in the south.

Months’ supply on the market edged up in February to 5.8 months due to both slowing sales as well as an increase in supply that has begun to build over recent months. The median new home price continued to appreciate in February, rising 6.8% to $234,700.

Read the report.

Thursday, March 22, 2012

Deutsche Bank Restructures to Avoid Dodd-Frank

Duetsche Bank restructured its US operations on February 1 from a financial holding company to a domestic entity so as to avoid parts of Dodd Frank Act.

ABA pointed out that this bill would have unintended consequences. Duetsche Bank is not the first to take such actions, Barclays Bank recently took a similar action.

Duetsche Bank spokesman Duncan King stated:
We have always had and will continue to have appropriate capital levels in all our US regulated entities. This action – which does not diminish any of our regulatory oversight – allows us to streamline out organizational structure, strengthening an already strong institution.

The restructuring of Deutsch Bank was briefly discussed during the Senate Banking Committee hearing on the international impacts of the Dodd-Frank Act today. The Committee posed questions about foreign bank’s business within the US and the extend of US regulators’ authority over such institutions.

Federal Reserve Governor Daniel Tarullo admitted Deutsch Bank’s actions have affected his thinking about foreign banks and mentioned the possibility of rewriting or restructuring the proposed rules affecting such institutions.

When questioned to name other countries with regulations similar to the Dodd-Frank Act, Tarullo was unable to produce a name. The Committee members questioned whether the Dodd-Frank Act may continue to scare businesses out of the US.

Watch the hearing.

Wednesday, March 21, 2012

Existing Home Sales Fell in February

Existing home sales fell by 0.9% to 4.59 million annual units in February. The decline is due to a strong upward revision in January’s sales, as February’s pace is stronger than January’s initially reported pace. January’s pace of home sales was revised up from 4.57 million units per year to 4.63 million. As a result, despite February’s slight decline, sales are running 4% faster in the three months ending February than the three months ending in November.


Months’ supply of homes on the market increased to 6.4 million however part of this increase was due to increased listings. The median house price appreciated in February by 0.3% versus a year ago to $156,600. After adjusting for seasonal factors the appreciation of prices was 1.6% from the previous month.

Read the report.

Tuesday, March 20, 2012

Housing Starts Fell Slightly in February

Housing starts declined 1.1% from January to an annualized pace of 698,000 units. January’s report was revised upward to an annual pace of 706,000 units. Housing starts continue to trend upward, albeit slowly. The three month average for starts is currently 695,000, well above the 12-month average of 616,000 units. Starts are 35% higher than year-ago levels.


Single-family starts led February’s drop, falling 9.9%. This follows four consecutive months of growth in single-family starts. Multi-family starts partially offset the decline, growing by 21.1% in February.

Permit issuance was up in February, rising 5.1% to an annual pace of 717,000 permits. This growth was seen in both single- and mulit-family permits.


Although housing starts are improving, they remain well below historical levels. There is a long way to go before starts make it back to their long run average of 1.5 million units per year.

Read the report.

Friday, March 16, 2012

Chart of the Week: US Petroleum Exports


"After being a net importer of petroleum products for decades, the U.S. is now a net petroleum exporter and net petroleum exports are set to increase due to supply constrictions arising from the conflict with Iran and booming demand from emerging countries."

James Chessen, ABA Chief Economist

Industrial Production Unchanged in February

Overall industrial production failed to grow in February, constrained by declines in mining and poor utility performance. This marks the second time in the past four months that industrial production has failed to expand.


Despite the flat headline number, the details of the report were encouraging. Industrial production was dragged down by a 1.2% decline in mining output, the second consecutive month mining output has fallen. In addition to this, due to a warm month, utility output failed to grow.

Manufacturing output continues to show resilience to weaker foreign demand, growing 0.3% in February. Although slower than the strong 1.1% and 1.5% growth seen in the previous two months, it has expanded in nine out of the last ten months.

Read the report.

Consumer Prices Rose 0.4% in February

The consumer price index rose by 0.4% in February, its strongest pace since April. The majority of the increase was due to rising gasoline prices as core prices only raised by 0.1. The year ago change in core CPI dropped to 2.2% from 2.3%, this is within the range acceptable to policymakers.


The energy index rose 3.2% in February due to surging gasoline prices. Appreciation in food prices stopped in February, down from two consecutive month of 0.2% growth. Core CPI growth was led by both goods and services prices, rising 0.1% over the month each. Goods prices compared to one year ago appreciated 2.0% down from 2.2% reported in January. Services prices saw a similar slowing from 2.3% in January to 2.2% in February.

Despite spikes in energy prices, core CPI continues to grow at a steady rate that is considered healthy by policymakers. Forward indicators are also encouraging that the strong level of inflation seen over the past year is set to slow. Oil prices are likely to fluctuate with events in the strait of Hormuz, despite some hints that leaders could release supplies from the strategic petroleum reserves.

Read the report.

Thursday, March 15, 2012

Producer Prices Rose 0.4% in February

The Producer Price Index rose 0.4% in February, accelerating from the slow 0.1% growth seen in January. The year-ago change slowed to 3.4%, the lowest level in two years. The 0.4% headline growth is the strongest since September.


Core goods appreciated by 0.2%, a slowdown from the 0.4% seen in January, indicating that much of February’s headline PPI growth was a result of jumping energy prices. Prices for finished energy goods rose 1.3%, with the gasoline index rising 4.3%. Core price growth has been relatively steady, holding between 2.9%-3.0% year over year change since October.

Read the report.

Wednesday, March 14, 2012

Mobile Banking Poised to Expand

The Federal Reserve released today a study on mobile banking.

The study found that one out of five American consumers used their mobile phone to access their bank account, credit card, or other financial account in the 12 months ending in January 2012.

The study also found that mobile banking is poised to grow further, as an additional 20% indicated they would likely use mobile banking at some point in the future. It is estimated that one-third of consumers with mobile phones are likely to use mobile banking in 2013.

Despite the expected increased use of mobile banking, many consumers remain skeptical of the benefit of mobile banking and the level of security associated with the technology.

The most common mobile banking activities are consumers checking their account balances or monitoring recent transactions. Less frequently used mobile banking functions include making online bill payments from a bank account, locating an in-network automated teller machine, and depositing a check by phone.

The study noted that mobile technology has the potential to expand access to financial services for previously underserved populations, as underbanked consumers tend to make relatively heavy use of mobile banking.

Read the study at ABA's Center for Banking Information website.

Tuesday, March 13, 2012

Federal Reserve Announces Results of Stress Test

“The banking industry is pleased that the overwhelming majority of institutions passed the Federal Reserve’s stress tests with flying colors. The banking industry has worked hard to fortify its financial base since the financial crisis. The industry is now very well prepared for any challenging economic circumstances that could arise.

At the same time, we object to testing bank capital under theoretical conditions that are far more severe than even those seen during ‘the Great Recession.’ It unjustifiably prohibits some institutions from paying dividends to shareholders and could potentially impair their ability to raise capital and make loans. That is an unnecessary and ill-timed consequence of these stress tests given the essential role of banks in our still-recovering economy.”

By Frank Keating, ABA President and CEO

Read the Federal Reserve's release.

FOMC Leaves Rates Unchanged

The Federal Open Market Committee decided to hold the federal funds rate at 0 to ¼ percent, and foresees rates remaining low through late 2014. This was largely expected and remains in line with the previous FOMC statement. The FOMC made no changes to its balance sheet, or to its communications strategy.

March’s statement noted that labor market conditions continue to improve, and that “the unemployment rate has declined notably in recent months but remains elevated.”

The committee did note that oil and gas prices had pushed prices up in the near term, but see this as “temporary,” noting that longer term inflationary expectations have remained stable.

Read the report.





March 13th MeetingJanuary 25th Meeting
Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.Information received since the Federal Open Market Committee met in December suggests that the economy has been expanding moderately, notwithstanding some slowing in global growth. While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth over coming quarters to be modest 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 over coming quarters, inflation will run at levels at or below those consistent with the Committee's dual mandate.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today 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 late 2014.To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy.  In particular, the Committee decided today 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 late 2014.
The Committee also decided 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 promote a stronger economic recovery in a context of price stability.The Committee also decided 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 promote a stronger economic recovery in a context of price stability.
















































Retail Sales Strong in February

Consumers increased retail spending in February by 1.1%, the fastest growth since September. February’s report also included an upward revision to January’s growth to 0.6%. Warm weather and job gains led consumers to maintain other purchases despite spending more on gasoline. Year-over-year growth accelerated to 6.5%, from an upwardly revised 6.3%.


Higher gasoline prices contributed to the growth in retail sales, with sales at gasoline stations rising 3.3% in February. Despite this gain consumers continued to grow spending in other areas as well, rather than cutting back. Clothing and building materials contributed to the growth, gaining 1.8% and 1.4% respectively. The only segment to see a significant drop was furniture and home furnishings, which dropped 1.2% in February, likely a correction from the 2.4% growth averaged over the previous two months.

Read the report.

Fed to Release Large-Bank Stress-Test Results

The Federal Reserve announced that on Thursday afternoon it will release the results of the latest round of stress tests performed on 19 major U.S. banks. The 19 institutions had submitted in early January comprehensive capital plans describing their strategies over a nine-month period in the event of a crisis.

The supervisory stress scenario examined whether the banks could withstand a crisis in which unemployment hits 13%, stocks fall 50%, and housing prices drop 21%.

The Fed has released a paper on the stress-tests’ methodology, and templates showing the categories that will be disclosed in the results.

Read the Federal Reserve’s press release.
Read the methodology paper.
View the template of Supervisory Stress Scenario Results.

Friday, March 9, 2012

Treasury Estimates Lifetime CPP Return Income of $13.5 Billion

The GAO released a report regarding the Capital Purchase Program (CPP), a bank program within TARP, stating the “repayments, dividends, and interest from institutions participating in the Capital Purchase Program have exceed the program’s original investment disbursements.”

As of January 31st, 2012, participating institutions have repaid $211.5 billion of Treasury’s investment, exceeding the $204.9 billion Treasury had disbursed. As of November 30th, 2011, Treasury estimated CPP will return a lifetime income of $13.5 billion. Most of the outstanding CPP investments are at a few institutions.

Read the report.

Trade Deficit Widened in January

The U.S. trade gap widened by 4.4% to $52.6 billion in January. This is the third consecutive month of widening and the largest it has been since October 2008. The real goods balance widened by less, to $49.1 billion from $48.3 billion.


Both imports and exports grew in January, however, imports grew more quickly. Imports grew by 1.3% to $233 billion, while exports improved by 1.1% to $180 billion.

The goods deficit widened in January by $2.5 billion. This led the three month goods deficit to widen by $9 billion, the largest three-month period since 2005.

Read the report.

Payroll Employment Jumps by 227,000

Payroll employment grew 227,000 in February, exceeding expectations of 210,000. This is the third consecutive monthly gain over 200,000. The private sector continued to drive job growth in February with widespread gains across sectors. The unemployment rate remained unchanged from January at 8.3%.

Past reports were revised upward as well, with January’s growth revised to 284,000 from 243,000 and December’s growth revised to 223,000 from 203,000.

ABA’s chief economist James Chessen commented, “There’s now slow steady march forward. Businesses are gaining confidence and realizing that existing staffing isn’t enough to meet the expected demand as the economy grows.”


February’s employment gains were broad based, across the private sector, which added 233,000 jobs. The service industry continued to see the largest gains, adding 203,000 jobs while the goods producing sector added 24,000 jobs.

Specific industries seeing the largest boost in February were the professional and business services, education and healthcare, and leisure and hospitality. Professional and business services added 82,000 jobs. The education and healthcare sectors added 71,000 jobs, with healthcare expanding 61,000. The leisure and hospitality sector added 44,000.

Government continues to drag on growth, shedding 6,000 jobs in February.


The unemployment rate remained unchanged at 8.3% in February, as increases in the labor force were balanced by increases in household employment. The labor force participation rate increased slightly to 63.9% in February.

While the average workweek remained unchanged from January at 34.5 hours, the average hourly earnings did increase slightly to $23.31 from $23.28.

Read the report.

Thursday, March 8, 2012

Household Net Worth Rose by $1.2tn in Fourth Quarter

Household net worth grew by $1.2 trillion in the final quarter of 2011 to $58.5 trillion. The modest gain however was not enough to offset the $2.5 trillion decline that occurred in the third quarter. Household net worth had been recovering steadily since the beginning of 2009 until faltering in the third quarter of 2011. Household net worth has now only recovered to levels seen in late 2005.


The recovery in household net worth was led by a stock market recovery that began in October. The value of financial assets held by American households rose by $1.5 trillion. This trend is expected to continue early into this year, as the S&P is currently up 7.6% so far this year.

Home values proved the largest drag on recovering household wealth. The value of household real estate fell by $367.4 billion.

Corporate cash rose to a record $2.4 trillion.

Read the report.

Chart of the Week: Jobs Report Preview


“Initial claims provides consistent hard data regarding jobs in our economy. Historically, it has acted as a leading indicator for the unemployment rate. The sharp decline in initial claims suggests that the unemployment rate is set to continue to fall in coming months.”

James Chessen, ABA Chief Economist

Update:
Payroll employment grew 227,000 in February, exceeding expectations of 210,000. This is the third consecutive monthly gain over 200,000. Read more.

Wednesday, March 7, 2012

Consumer Credit Grew by $17.7 Billion in January

Consumer credit continued to grow at a rapid pace in January, rising by $17.7 billion. Consumer credit has now grown by $54 billion in the past three months, the fastest pace since October 2000. Consumer credit has expanded for five consecutive months, and for 15 out of the past 16 months.


Non-revolving credit continues to drive the growth, expanding by $20.7 billion, the fastest pace since November of 2001. The surge in non-revolving credit was driven largely by federal government balances, which include student loans. This accounted for 85% of the monthly change in non-revolving credit. Strengthening auto sales also helped grow consumer credit.

ABA Chief Economist James Chessen said, “Student loan growth continues to dominate the increase in consumer credit, and is having a major impact on overall non-mortgage consumer debt.”


Revolving credit fell by $2.9 billion in January, the first contraction in five months. Despite the fall, revolving credit has growth by $6.2 billion in the past year.

Read the report.

ADP: Private Payrolls rose 216,000 in February

Employment in the private business sector rose by 216,000 in February according to the ADP National Employment Report. January’s report also saw a slight upward revision to 173,000 new jobs. February’s report was in line with expectations and likely means we will see a strong jobs number on Friday.


The service sector continues to drive job creation, accounting for 170,000 of February’s new jobs. Manufacturing employment was also notable, adding another 21,000 jobs. Construction jobs continue to grow as well, adding 16,000 in February, the fifth consecutive month of growth. Financial services sector added 14,000 jobs, the largest monthly gain in the last two years.

Read the report.

Monday, March 5, 2012

New York Fed Releases Student Loan Data

The New York Federal Reserve just released student loan data and commentary. The data indicates that as of the Q3 2011, the outstanding student loan balance stands at $870 billion, greater than total outstanding credit card loans ($693 billion) or total auto loans ($730 billion).

From the second to the third quarter of 2011,the total outstanding student loan balance grew 2.1%. Over the same period other types of consumer debt declined or remained flat. Equifax estimates that nearly 37 million individuals hold outstanding student debt. This amounts to 15.7% of those with credit reports. Among people under thirty years old, 40.1% have outstanding student debt. In contrast, only 7.4% of people over forty have outstanding student debt. Equifax estimates that $580 billion of the total $870 billion in outstanding student debt is held by those under 40 years old.

See the NY Fed’s report.

ISM Non-Manufacturing Rose in February

The ISM’s non-manufacturing index rose in February to 57.3 from the 56.8 reported in January. This is the third consecutive month that growth in the non-manufacturing sector has accelerated. The index is now well above its fourth quarter average of 52.5.


The details of the report were mixed, with the business activity index and new orders both breaking 60. The business activity index rose to 62.6 in February. New orders rose to 61.2, the first time it has been above 60 since March 2011.

Both employment and supplier delivery indices fell in February. Employment fell to a still expansionary 55.7. Supplier deliveries contracted in February, with the index falling to 49.5, the first contraction since September 2011.

The trade details were negative in February as well, with the export index falling 2 points to 54.5. Much of this is likely due to decreased demand from Europe.

Read the report.

European Update: Mar 5

Banks Borrow €530 billion from ECB Facility

The ECB lent out €529.5 billion in cheap, three-year loans to more than 800 European banks last week through its Longer Term Refinancing Operations(LTRO). The ECB has now injected more than €1 trillion into the European banking system, enough to fully fund all maturing bank debt through 2013.

The large uptake means bank funding costs are now detached from their respective sovereigns. The uptake is also seen as a positive for bank revenues, although this may not reach the bottom line, as banks use the revenues to clean up books.

The first LTRO was successful in lowering the borrowing costs for sovereigns, as well, with banks buying the much higher yielding sovereign debt. ECB figures show that Italian and Spanish banks increased their sovereign debt holdings by 13 and 29 percent respectively from December.

Following the LTRO, bank deposits with the ECB continued to surge, reaching €821 billion over the weekend, after surging to €777 billion on Thursday. Banks are currently paying the 75 basis on the fund, as the ECB’s overnight facility pays 25 basis points on deposits.

See the ECB's release.

No CDS Trigger for Greek Debt

Greece’s planned debt swap will not trigger the outstanding $3.3 billion in credit default swaps according to the International Swaps Derivatives Association (ISDA). The ISDA has determined that the restructuring of €206 billion in Greek bonds necessitating investors to take a 53.5 % haircut does not constitute a “credit event.” Despite the decision, the ISDA can still declare a credit event and trigger CDS payouts.

Yesterday’s decision was in response to two complaints brought to the ISDA. The first complaint was in regards to the ECB being given de facto seniority in the swap. The second was in relation to the collective action clause that forces hesitant bondholders to take part in the swap.

See the ISDA statement.

IMF Sees Europe as Key Risk to Global Economy

In a report to the G20, the IMF noted that “risks to global growth remain squarely to the downside.” The “overarching risk” is a global reduction in demand from households, firms, and governments. This risk is “further exacerbated by fragile financial systems, high public deficits and debt, and already-low interest rates.”

The IMF notes that policies are needed to shift Europe to a “good equilibrium” and “break the adverse feedback loops between real, fiscal, and financial sectors.”

See the IMF report.

G20 Pressures Germany to Boost Rescue Fund

Finance ministers from the G20 have put pressure on Germany to boost the size of Europe's bailout fund, calling the move "essential" in their decision to contribute funds to the IMF. Germany has opposed boosting the size of the upcoming European Stability Mechanism (ESM) past its planned €500 billion. Some eurozone officials have called for the fund to be boosted to €750 billion or even €1 trillion. Other nations have offered to contribute additional funds to the IMF but have stressed that "the IMF cannot substitute for the absence of a stronger European firewall." –Geithner

Greece Launched Debt Exchange Offer

On Friday Greece made a formal offer to bondholders to exchange €206 billion of government debt for a 53.5% haircut in face value. The cuts amount to a nearly 75% loss in NPV for investors. According to the deal, investors will receive two-year, AAA bonds issued by the European Financial Stability Facility (EFSF. The remaining 31.5 % of face value will be issued as Greek government bonds, maturing in 2023. The new bonds will pay a coupon of 2 % for the next three years, then 3 % for the following five years, and 4.3 % for the remaining maturity.

See the formal offer.

Friday, March 2, 2012

Chart of the Week: Government Spending


Government spending is outpacing revenue growth.

Thursday, March 1, 2012

Construction Spending Fell 0.1% in January

Construction spending in January was $827 billion, falling 0.1% from the upwardly revised December growth. This is the first decline in five months. January construction spending remained 7.1% above year ago levels in January 2011.


Public construction spending led the decline, falling 0.2% from December. Total private construction stayed constant from December, as non-residential spending declines were offset by the increases in residential spending.

January’s data highlights the slow pace of recovery and suggests the private residential construction recovery has begun to outpace the recovery of private non-residential and public spending.

Read the full report.

U.S. Manufacturing Growth Slowed in February

Growth in the U.S. manufacturing sector unexpectedly slowed in February, after three consecutive monthly increases. The index fell from 54.1 to 52.4 in February, reversing around half of the gains of the previous three months. However, the decline in February does not raise any immediate concerns as the details of the report are not horrible. The ISM manufacturing index has remained above its expansionary threshold for 31 straight months.


New orders led the decline, falling to 54.9 from 57.6. The decline in new orders should be interpreted carefully as new orders have recently been unstable.

Production and employment both declined in February to 55.3 and 53.2 respectively. February is the third consecutive decline in the employment index.

The inventories index remained constant at 49.5, below the contrationary level for the fifth consecutive month.

Exports orders continue to rise despite turmoil in Europe, climbing from 55.0 to 59.5 in February.

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Personal Income and Consumption Rose in January

Personal income growth moderated in January, growing by 0.3%, down from the 0.5% growth reported in December. The BEA report released this morning indicated that personal consumption grew by 0.2% in January after failing to grow the previous month.


Personal income growth continued to be led by transfer and rental income. Wage income continues to grow as well, expanding at 0.4% for the second month. Disposable income grew by just 0.1% as tax payments jumped.

Consumption resumed growth in January led by durable goods. Durable goods spending grew by 0.9%, up from 0.5 % the previous month. This contrasts with a commerce department report that indicated durable goods spending shrunk 4% in January. This indicates that although businesses cut spending on capital goods, consumers continued buying durable goods.

Consumption of non-durable goods recovered in January, growing 0.4% after falling 0.8% in December.


The savings rate dropped slightly to 4.6% from 4.7% the previous month. The savings rate for the previous month was revised up substantially due to inclusion of third quarter census data.

Prices increased by 0.2% in January, faster than the 0.1% appreciation in December. Core prices also increased by 0.2%.

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