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Monday, April 30, 2012

Consumer Spending Growth Slowed Despite Income Growth

Consumer spending growth slowed in March despite a faster rate of income growth, allowing the savings rate to recover slightly. Consumers increased spending by 0.3% in March, down from 0.9% growth the previous month. Personal income growth accelerated to 0.4%, up from 0.3% in the previous two months. As a result, the savings rate rose slightly to 3.8%, up from 3.7% in February.



Consumer spending growth slowed notably from January and February’s rapid pace. Some of this slowing is inevitable as the previous month’s spending was bolstered by unseasonably warm temperatures. Durable goods spending slowed most notably, shrinking 0.3% in March after growing 2.0% in February. Nondurable goods held almost steady, growing 0.9%, down from 1.0% the previous month. Service spending growth fell as well, down to 0.1% from 0.6%.



Personal income growth accelerated in March, growing 0.4%. Wages grew at 0.3% over the month, a slowdown from the pace of 0.4% held over the previous three months. Rental, dividend, and proprietors income led the income growth in March. Disposable income rose 0.4% in the month as well.

Inflation was subdued in March, with consumer prices up just 0.2% in March.

Read the report.

Friday, April 27, 2012

Chart of the Week: GDP

Personal consumption has consistently contributed to GDP growth for 11 consecutive quarters. The slower growth in the first quarter was due primarily to slower accumulation of inventories, an expected trend as inventory growth is not sustainable.

GDP Growth Slowed to 2.2% in Beginning of 2012

Growth in real GDP slowed more than expected in the first quarter of 2012, down to 2.2% annualized growth. This represents a slowdown from the 3.0% growth seen at the end of last year and falls short of the 2.5% – 2.8% growth expected.



The slowdown from fourth quarter growth was almost entirely due to decreased investment. Growth in fixed investment slowed substantially contributing only 0.18% to GDP growth, down from a contribution of 0.78% the previous period. Slowing inventory accumulation also contributed to the slowdown, contributing 0.59% to growth, down from 1.81%.



Despite the drag from investment, growth in consumer spending improved buoying GDP growth. Personal consumption contributed 2.04% to first quarter growth, up from 1.47% the previous quarter. Both goods and services spending contributed to the spending growth, adding 1.47% and 0.57 % respectively, up from 1.29% and 0.19% respectively.

Net exports were nearly neutral for first quarter growth, proving a 0.01% drag. This is an improvement from the 0.26% drag added in the fourth quarter. Exports contributed to growth in the second and third quarters of 2011.

The public sector continues to drag on growth, although by less than in previous quarters subtracting 0.6% from growth.

The PCE price indicator showed inflation at 2.4% in the first quarter, nearly double the rate at the end of last year. Although much of this was due to the rising cost of oil it contributed to weaker growth in real disposable income, which rose only 0.4%, down from 1.7%.

Read the report.

Wednesday, April 25, 2012

FOMC Leaves Rates Unchanged in March

The Federal Open Market Committee (FOMC) made no changes to policy at its March meeting, leaving interest rates at low level and announcing no new actions. “The committee expects economic growth to remain moderate over coming quarters and then to pick up gradually.” The unemployment rate has declined in recent months but remains elevated.

The target federal funds rate remains at 0 to ¼ percent. The committee reaffirmed its view that policy rates would remain “exceptionally low” through late-2014.

Inflation “has picked up somewhat,” due mostly to higher prices of crude oil and gasoline. Energy prices, however, are expected to influence prices “only temporarily,” and will subside later this year. Longer-term inflationary expectations remain stable.

Policymakers acknowledged some improvement in housing, but also noted that the market remains “depressed.” They also warned that “strains in the global financial system continue to pose significant downside risk to the economic outlook.”

The following is the Fed Funds forecast, with each dot representing the forecast of an individual member.


Chairman Bernanke's press conference

Video streaming by Ustream

Read the release.




August 25th MeetingMarch 13th Meeting
Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.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.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and 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 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.
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 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.
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.
















































What Business Activity Tax Simplification Act Means For Banks

The House is currently considering the Business Activity Tax Simplification Act (BATSA H.R. 1439 ). BATSA would modernize existing law to ensure that states and localities can impose business activity taxes only in certain clearly defined situations, such as when an entity has physical presence (i.e., property or employees) and thereby receives related benefits and protections from the jurisdiction.

I. Inconsistent and unclear taxation standards between states subject businesses to litigation and other onerous business costs, which are especially harmful to small businesses.

An increasing number of states have enacted, or are considering, legislation that would lower the threshold of what constitutes “substantial nexus” for purposes of taxing an out-of-state business’ activity within the state. However, there is no uniform definition or application of substantial nexus among the states and no set rules or parameters for determining how a state would apply the nexus standard – it varies from state to state. Therefore, each state applies its own nexus standard to determine when an out-of-state business that has contacts with the state is required to pay income tax. In fact, in some states, the presence of even one customer within the state would establish the state’s required nexus for applying its business income tax to an out-of-state business.

This type of application of the nexus standard is devastating for small businesses, especially community banks, because they do not possess the substantial resources required to comply with a proliferation of different state tax laws. There are more than 2,500 banks and savings associations with 25 or fewer employees; 750 of these have 10 or fewer employees. Many of these community banks operate near state borders and, therefore, have contacts with consumers residing in different states. Additionally, many financial institutions now provide services to customers online, which allow people nationwide to take advantage of increased competition and better services to fit their individual needs. Without a uniform standard, these banks find themselves subject to different states’ standards, resulting in undue costs and burdens.

II. Greater certainty for businesses will foster a more stable business environment that encourages investment and creates new jobs.

The additional costs resulting from the application of different state taxation standards divert resources businesses could invest in areas such as product innovation, improved customer service, or additional employees. The result would be fewer products offered to consumers at higher prices. Worse yet, without business certainty, some financial service providers may cease doing business in those states where additional tax burdens exist. Therefore, states that aggressively tax out-of-state businesses are creating incentives that may ultimately reduce choices available to consumers in their states. Consumers may experience reduced access to credit and increased credit costs, which is clearly not good for them or the economic health of their communities.

III. BATSA will help minimize litigation costs and uncertainty for businesses by (1) clarifying that entities must have a physical presence in the taxing jurisdiction in order to be subject to state and local taxes, and (2) providing a clear definition of physical presence.

BATSA would remove uncertainty by codifying in federal law that an actual physical presence in a state is required in order for a state to impose a tax on an out-of-state business. It also would include a bright-line test that would establish a minimal amount of activity a business must perform in a state before it is subject to income taxes and additional paperwork. Finally, this bill would help limit businesses’ exposure to unanticipated taxes, thus reducing compliance and legal costs associated with frivolous nexus claims.

Tuesday, April 24, 2012

New Home Sales Fell 7.1% in March

New home sales fell 7.1% in March to an annualized pace of 328,000 units. March’s decline is entirely due to a strong 13% upward revision in February’s pace from 313,000 units to 353,000. First quarter sales have risen 16% annualized from the fourth quarter’s pace.



Months of inventory ticked up in March due mostly to a lack of supply of new homes. This measure has remained below 6 months supply for the past five months.

New home prices were essentially unchanged in March at $237,600. This follows two months of strong new home price appreciation, 7.1% and 6.3% in February and January respectively.

Read the report.

Home Prices Fell 0.8% in February

Existing home sales fell 0.8% according to S&P’s Case-Shiller index’s 10- and 20-city index. Despite the declining home prices, change from a year ago improved in February. The 10-city index has now fallen 3.6% in the past year, better than the 4.1% reported in January. The 20-city index has improved as well, falling 3.5% from a year ago, down from 3.9% reported in January.



Five metropolitan areas have now seen prices appreciate from one year ago – Denver, Detroit, Miami, Minneapolis, Phoenix. Price declines in other cities range from a 1% drop in Dallas to a 17.3% drop in Atlanta.



On a month to month basis, only Phoenix, San Diego and Miami saw prices rise in February.

Read the report.

Monday, April 23, 2012

FDIC Fund Recapitalization Showcases Industry Strength

“The rapid recapitalization of the Deposit Insurance Fund reflects a noticeable slowdown in bank failures as the banking industry continues to gain strength. The FDIC has been overly conservative in setting aside reserves for possible failures that did not occur. These excessive reserves mean the fund is even healthier than expected.

“Banks are solely responsible for all of the FDIC’s expenses, paying about $13.5 billion in premiums every year. This means banks will provide more than $65 billion in revenue over the next five years, more than five times what the FDIC expects in failure costs. As a result, the fund will recapitalize much faster than the FDIC anticipates.

“Banks have been aggressive in putting losses behind them and building up capital reserves. The industry’s strong capital-to-assets ratio means banks have ample liquidity and are well prepared for any challenging economic circumstances that could arise.”

James Chessen, ABA Executive Vice President and Chief Economist

Friday, April 20, 2012

Chart of the Week: Debit Cards

Debit card use continues to grow while credit card sales have fallen.

Thursday, April 19, 2012

March Existing Home Sales Fell 2.6%

Existing home sales fell to 4.48 million annualized units for the second month this year but remains above the 12-month 4.34 million unit mark. Home sales dropped 2.6% from February but are up 5.2% compared to last year. While the decline in sales was fairly even across the nation, sales in the West fell the most with a smaller decrease in the Northeast and South. As with the national trend, Midwestern sales were flat. Listings also fell this month although that is atypical of the previous two months gain. Both the fall in listings and sales kept the number of months supply constant at 6.3.



Median house prices, for year over year and month to month, have increased by 2.5% and 5.2% respectively after adjustment for seasonal factors. The National Association of Realtors also reported a decreasing share of distressed home sales which may contribute to the median price increase. In the longer term, there is some uncertainty whether the share of distressed home sales will continue to have an upward or downward effect on home prices. The median price of condos also has year over year gain, 7.1%, but larger than the increase in single-family home prices.

Read the report.

Tuesday, April 17, 2012

Industrial Production Remained Stagnant for Second Month

Industrial production failed to grow in March for the second consecutive month. Despite the lack of growth, January and December’s growth was revised up to 0.7% and 0.9% respectively.



Manufacturing output was the primary drag on growth, contracting by 0.2% in March after growing 0.8% in February. Despite the contraction, manufacturing output now stands 10.4% above its level one year ago.

Utilities increased production 1.5% in March despite unseasonably warm temperatures. Mining output also grew in March, although its 0.2% growth was not enough to offset the 4.0% contraction seen in February.

Read the report.

Housing Starts Fell in March

Housing starts declined 5.8% in March, marking the second consecutive month of declines. Housing starts fell to a seasonal rate of 654,000 units. The pace of construction is now at its lowest level since October. Despite the fall in starts, housing permits continue to grow at strong levels, rising 4.5% in March.



March’s decline in housing starts was led almost entirely by a decline in multi-family construction, which fell 16.9% over the month. Single family starts were down a small 0.2%. Multi-family starts have been particularly volatile in recent months, growing by as much as 40% and falling by as much as 17%.



Completions grew by 4.2% to a seasonal pace of 600,000 units, its most rapid pace since September.

Read the report.

Card Fees Have A Minute Effect on Gas Prices

A recent report published by the National Association for Convenience Stores asserted that interchange fees have contributed to the rise in gas prices at the pump. In fact, interchange fees have little to do with the price paid at the pump. As gas reaches $4 per gallon, the debit interchange fee remains under one cent per gallon at 4/5 of one cent, or $0.008 per gallon . At this level, debit card fees account for $0.13 of the average $64 gas fill-up of 16 gallons. Even for credit cards, which charge higher rates on transactions, the related interchange cost remains only $0.012 per gallon.



The price of gasoline has more to do with the price of oil, the cost of refining, and taxes than retailers’ costs. The Energy Information Agency (EIA) estimates that only five percent, including all marketing, wages and infrastructure, of the price of gas is due to retailers. For a $4 gallon of gas, gas stations add about 3.2 cents per gallon with less than one cent going to interchange fees.

As the price of crude oil has increased in recent months, gas prices have also risen sharply. Debit interchange fees are not responsible for the rise in gas prices. Of any $1 price increase at the pump, only 1/5 of one cent or $0.002 is due to interchange fees.

See the EIA’s explanation of the factors effecting gas prices.

Monday, April 16, 2012

Retail Sales Grew 0.8% in March

Consumer spending continued to grow steadily in March, expanding 0.8%. This represents a slight slowdown from February’s (downwardly revised) 1.0% growth, but remains well above the 12-month average of 0.5%. Core sales, excluding autos and gas, accelerated in March, growing 0.7% up from 0.5% in February.



Growth was led by a 3% jump in sales at building supply stores, likely due to the warm temperatures seen in March. March’s growth was wide-based, however, with many categories expanding at or above 1%. These segments included gas stations, furniture stores, auto dealers, electronics, and clothing stores. The only market segments reporting declines were miscellaneous retailers and drug stores.



Year-over-year growth accelerated slightly to 6.5% in March, up from 6.4% in February. The strongest segments in growth for the year are building supply stores, non-store retailers and vehicle dealers.

Read the report.

Friday, April 13, 2012

Consumer Prices Rose 0.3% in March

The Consumer Price Index rose 0.3% in March, moderating from February’s 0.4% growth on slower energy price growth. Although overall prices rose at a slower rate in March, core prices appreciated at a more rapid pace of 0.2%, up from 0.1% in February. Prices now stand at 2.6% above year-ago levels.



Energy prices continued to rise in March, rising 0.9%, albeit at a slower pace than February’s 3.9%. Core prices appreciated at a faster rate in March, with both goods and services prices rising 0.2%, up from 0.1% the previous month. Goods prices now stand at 2.1% above year-ago levels, with services prices rising 2.3% over the same period.

Read the report.

Thursday, April 12, 2012

IMF: New Regulations Make Safe Assets Scarce, Undermining Financial Stability

A recent IMF report warns that an increasing scarcity of safe assets pose a threat to financial stability. The report notes that new regulations are pushing up banks demand for safe assets. At the same time, sovereign debt crises are reducing the number of governments that can issue safe debt. The report notes that the regulations, aimed at creating financial stability, could instead undermine it. “Safe asset scarcity could lead to more short-term volatility jumps, herding behavior, and runs on sovereign debt,” warns the IMF.

The IMF finds $74.4 trillion in potentially safe assets today. These assets include gold, investment grade government and corporate debt, as well as covered bonds. The report warns that this figure could fall by up to 16 percent, or $9 trillion, by 2016. The report also notes that new liquidity rules for banks could push up demand for safe assets by $2 to $4 trillion.

The following factors are expected to have the largest impact on bank’s demand for safe assets:

Basel III – Under Basel III banks must increase their government debt holdings to meet the liquidity requirements of the Liquidity Coverage Ratio (LCR).

Regulatory Risk Weighting – The removal of a zero percent risk weighting for sovereign debt will increase the safe assets that banks need to hold.

OTC Derivatives Regulations - Moving a large number of OTC derivatives to central counterparties (CCPs) will require higher initial margin and contributions to guarantee funds that reside at the CCPs. This will push up demand for safe assets.

IMF Global Stability Report

Producer Prices Held Steady in March

Producer prices failed to raise in March, a strong slowdown from February’s 0.4% growth. Prices have not stagnated or fallen since October. Although broad prices failed to grow in March, core prices rose 0.3% for finished goods, a slight acceleration from the 0.2% growth in February.



Core producer prices have now grown 2.9 percent from one year ago, the same pace seen in February. Core producer prices have remained within a relatively narrow range, between 2.9%-3.0% year over year change since September.

Read the report.

Trade Deficit Narrowed by $6.5 Billion

The U.S. trade deficit narrowed by $6.5 billion in February, the largest narrowing in three years and partially offsets the past three months widening. February’s trade gap was $46.0 billion, its lowest level since October. The trade gap has widened sharply for three consecutive months, from November to January, after steadily declining for five months.



February’s narrowing of the trade gap was led primarily by a steep 2.7% decline in imports. Much of this decline was centered in China, as imports fell during the Chinese New Year.

Exports continued to grow in February, although at a relatively modest 0.1%.

The goods deficit declined notably, dropping $5.9 billion. The services surplus continued to grow as well, contributing $0.8 billion to the narrowing. The petroleum deficit also fell to its lowest level this year.

Read the report.

Wednesday, April 11, 2012

Beige Book Shows Modest to Moderate Expansion

The Federal Reserve’s Beige Book, released today indicated that economic expansion is continuing at a “modest to moderate pace.” The release, which covers from mid-February through late March, was more positive than a February release that reported “modest growth.” Reports from Boston, Atlanta, Chicago, Dallas, and San Francisco all indicated moderate growth, while Cleveland and St. Louis only reported modest growth.

The report noted that hiring was “steady or showed a modest increase.” This stands in contrast to March’s jobs report, which indicated a slowdown in job creation. Many districts are reporting difficulty filling qualified workers for high-skilled positions.

 Rising gasoline prices presented some cause for concern, however, reports on retail spending remained positive.

 Banking conditions remained “stable,” according to the report, with modest improvements in demand for loans. Consumer lending was stable or increased modestly in a few districts. Several districts reported improving credit quality, with delinquencies continuing to decline.

Read the release.

Tuesday, April 10, 2012

Banks Increase Small Business Lending

Banks participating in the Small Business Lending Fund (SBLF) increased loans to small businesses by $1.3 billion in the final quarter of 2011. These banks have now increased small business lending $4.8 billion over their baseline in 2011.


So far, 235 of the 281 participating community banks (84%) have increased their small business lending. Moreover, a substantial majority, over 68%, have increased small business lending by more than 10%.

Read Treasury's report.

Monday, April 9, 2012

Consumer Credit Rose $8.7 Billion in February

Consumer credit continued to grow in February, expanding by $8.7 billion. February’s gains were again driven by growth in non-revolving credit, offsetting a decline in revolving credit. Although February’s gain was strong, it represents a slowdown from the rapid pace set over the previous three months, where growth averaged 18.3 billion. Consumer credit has now expanded for six consecutive months.


February’s consumer credit growth was again led by a jump in non-revolving credit, which grew by $10.9 billion, down from the $21.6 billion growth seen in January. Non-revolving credit consists of big-ticket items, such as student loans and auto which have both been growing rapidly in recent months.


Revolving credit contracted for the second month, shrinking $2.2 billion. Although consumers have increased spending in recent months, it appears that they have done so by reducing their savings as the personal savings rate fell to 3.7% in February.

 Read the release.

Friday, April 6, 2012

Chart of the Week: Labor Force Participation


"Although the unemployment rate has fallen measurably in recent months, it’s been driven in part by a large number of discouraged workers who have left the labor force. As the economy improves, it will take even more jobs to reabsorb these workers and keep the unemployment rate trending downward."

 -James Chessen, ABA Chief Economist

Economy Added Fewest Jobs in Five Months

Employers added 120,000 jobs in March, the slowest growth seen since October, and less than half of the 246,000 averaged over the last three months. March’s growth was significantly lower than expectations, which were for around 200,000 jobs. Despite the slower job creation, the unemployment rate edged down slightly in March to 8.2% from 8.3% last month.



ABA Chief Economist James Chessen commented, "The March jobs report shows that the labor market is barely treading water. The economy must create nearly 100,000 jobs per month just to offset new entrants into the labor force.In order to see a measurable improvement in the unemployment rate the economy needs produce more than 200,000 jobs per month."

The private sector added 121,000 jobs, down from 233,000 in February. The slowdown in private job growth was due entirely to the service sector, which added 89,000 jobs in March, after adding 211,000 jobs the previous month. The goods producing sector actually saw better job gains, adding 31,000 jobs, up from the 29,000 created in February.


The public sector shed just 1,000 jobs in February. Although it contributed to job growth in February following revisions, it has only done so in two of the last 17 months. Despite the poor job gains, the unemployment rate edged lower in March, to 8.2%, down from 8.3% in February. The labor force participation rate was virtually unchanged at, an extremely low, 63.8%. Read the report.

Thursday, April 5, 2012

Consumer Delinquencies Fall in All Categories in Fourth Quarter 2011

First time in 8 years that delinquencies fell in all categories

Consumer delinquencies fell in all 11 loan categories tracked by the American Bankers Association, which today released results from the fourth quarter 2011 Consumer Credit Delinquency Bulletin. The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 10 basis points to 2.49 percent of all accounts in the fourth quarter, the lowest it has been since 2008. Bank card delinquencies continued to improve, falling eight basis points to 3.17 percent of all accounts in the fourth quarter, the lowest since 2001. (See Historical Fact Sheet.) The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

Overall, ABA Chief Economist James Chessen said the news was very encouraging.
“You can’t get a better consumer credit report card than this,” Chessen said. “It's very rare that delinquencies improve in every single loan category. The last time that happened was in the fourth quarter of 2004,” he added.



However, Chessen said the delinquency rate on the composite ratio is still too high.
“Even with a strong quarter, there’s still room for improvement in delinquencies,” Chessen said. “Troublesome performance in housing-related loans is keeping overall delinquency rates elevated. The housing sector continues its painful adjustment, and it will take a long time before delinquency rates return to normal,” he said.
Home equity loan delinquencies appear to be the most stubborn, falling just 4 basis points to 4.08 percent of all accounts in the fourth quarter. Property improvement loan delinquencies fell 3 basis points to 0.93 percent of all accounts and home equity lines of credit delinquencies dropped 24 basis points to 1.69 percent of all accounts.

But Chessen said consumers have reason to feel positive.
“The economic tide at the end of 2011 lifted most boats. The deleveraging of consumer credit is paying dividends now. Consumers are being careful about taking on new debt; they’re managing the debt they do have much better and the amount of debt as a portion of income is going down,” Chessen said, adding, “The biggest concern I have now is retail gas prices.” (See economic charts.)

Chessen noted that average gas prices have risen 71 cents per gallon since tensions increased in the Middle East over Iran’s nuclear program in mid-December.
“That’s $70 billion that could have gone towards other kinds of spending or to pay down debt,” he said.
Looking forward, Chessen expects delinquency rates to improve but says they are unlikely to repeat this quarter’s unusual rate of improvement.

“The good news is that fewer people are losing their jobs and more people are becoming re-employed. Those two factors combined means more people are better positioned to meet their debt obligations,” he said.

The fourth quarter 2011 composite ratio is made up of the following eight closed-end loans. All figures are seasonally adjusted based upon the number of accounts. Read the full release.

Wednesday, April 4, 2012

ISM Non-Manufacturing Slows in March

The ISM’s non-manufacturing index fell in March to 56.0 from 57.3 reported in February. While the index remained above contractionary levels, this is the first time this year the index has slowed and is at its lowest level since December. The more than expected decline is not too worrisome as the details remain mixed.


Both employment and inventory indices rose in March. Employment rose to 56.7 in March from 55.7. While inventory rose to 54.0 from 53.5 in February.

The business activity and new orders indices both fell. The business activity index fell to 58.9 from 62.6 in February. New orders fell to 58.8, from a high of 61.2 in February.

Supplier deliveries stayed constant at 49.5 in March, after the index fell in February to the first contraction level since September.

The trade details were negative in February as well, with the export index falling 2 points to 52.5. Much of this is likely due to decreased demand from Europe.

Read the report.

ADP Employment Rose 209,000 in March

Employment grew by a seasonally adjusted 209,000 jobs in March according to ADP’s employment report released this morning. March’s rate of growth is slightly lower than February’s 230,000 pace (revised up from 216,000), however is right on the six month average and well above the year average of 158,000. The ADP report measures jobs created in only the nonfarm private business sector, thus is not affected by any government cuts. The report does however, provide a preview of Friday’s job report.


Gains in employment continue to be driven by the service sector, which added 167,000 jobs in March, down from the 183,000 jobs added in February. Growth in the goods producing sector was essentially steady from February’s level, creating 45,000 jobs. Manufacturing has now added jobs for five consecutive months, adding 23,000 after several months of contraction.

Read the report.

Monday, April 2, 2012

Construction Spending Fell 1.1% in February

Construction spending fell for the second month in February, dropping 1.1% from the previous month. Despite the consecutive monthly declines, construction spending remains 5.8% above its level from one year ago.


Private construction fell 0.8% in February, but remains 10.2% above year ago levels. Private residential construction held steady in February. Although private residential construction fell slightly in January as well, it displayed strong growth for the 5 months prior. Private nonresidential construction fell by 1.6%, less than the 2.3% it fell in January.

Public construction was the largest drag on construction spending in February, falling 1.7%. Public construction has been a drag all year, and is down 1.4% form a year ago.

Read the report.

Manufacturing Recovered in March

The ISM manufacturing index recovered in March, rising to 53.4 from 52.4 and offsetting some of the unexpected slowdown seen in February. In February, the index unexpectedly dropped from 54.1 to 52.4.


The production portion of the index surged from 55.3 to 58.3 over the month. Employment also improved to 56.1, its highest level since June 2011. Inventories improved to a neutral 50.0, the first time it has not contracted since September.

New orders fell in February, to 54.5 from 54.9. Most of this decline was led by new export orders, which fell 5.5 points, to 54.0 on poor international demand.

Read the report.