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Friday, June 29, 2012

Personal Income Grew 0.2% in May

Personal income continued its steady growth of 0.2% in May as consumer credit failed to grow, leading the savings rate to increase slightly. Personal income continued to expand, matching its rate from the previous month. Although it is a good sign personal income is holding steady, it is at low levels. April and May’s growth are the slowest since November.



Consumer spending failed to grow for the first time since November, led lower by goods purchases. Service spending held up well, continuing to expand at 0.3% in May. Durable and non-durable purchases fared the worst falling 0.4% and 0.8% respectively. Both durable and non-durable goods spending have fallen for the past two months.

Consumers benefitted from lower prices in May as the PCE deflator fell 0.2% on lower energy prices. Core prices saw modest gains, rising 0.1%. The falling overall prices meant that, inflation adjusted, personal income grew 0.4% in May, with consumption growing 0.2%.



The combination of rising income and consistent consumption meant that the savings rate rose in May to 3.9%, its highest level since the beginning of the year.

Read the BEA report.

OCC Reports Steady Lending Standards

The Office of the Comptroller of the Currency released its 18th annual credit underwriting survey. The results of this year’s survey showed that underwriting standards remained largely unchanged from last year, although some easing was noted within certain commercial and retail products. OCC examiners reported that national banks and FSAs (collectively, banks) that eased standards generally did so in response to changes in economic outlook, the competitive environment, and the bank’s risk appetite, including a desire for growth. Large banks reported the highest share of eased underwriting standards.

Loan portfolios that experienced the most easing in underwriting standards include indirect consumer, credit cards, large corporate, asset-based lending, and leveraged loans. Loan portfolios that experienced the most tightening in underwriting since last year include HLTV home equity, international, commercial and residential construction, affordable housing, and residential real estate loans.

As in the past, the economy’s health was a major factor influencing changes in underwriting standards. Expectations regarding the future health of the economy, however, differ by bank and loan product as examiners reported that economic outlook was one of the main reasons given for easing or tightening underwriting standards. Other factors influencing tighter underwriting standards were changes in risk appetite and product performance. Factors contributing to eased standards were changes in the competitive environment, increased competition and desire for growth, and increased market liquidity.

The tightening previously seen in small business banking underwriting practices has decreased with 82 percent of banks now reporting unchanged standards from the last survey. The level of credit risk in small business loans remained stable, and is expected to remain so over the next 12 months.

Read the OCC report.

Thursday, June 28, 2012

Supreme Court Upholds Health Care Reforms

A divided Supreme Court held that the Affordable Care Act’s provision that requires all Americans to purchase health insurance or pay a penalty is constitutional. In a surprise to almost everyone, Justice Roberts sided with the more liberal justices (Breyer, Kagan, and Sotomayor) to hold that the health care act was not valid as a mandate that requires Americans to buy health insurance, but as a tax if they refuse.

Roberts reasoned that the penalty's "practical characteristics pass muster as a tax under our narrowest interpretations of the taxing power." He said a person who does not wish to carry health insurance is left with a "lawful choice to do or not do a certain act, so long as he is willing to pay a tax levied on that choice." The tax argument was the government’s third ancillary argument. The administration’s first argument was the government’s authority under the commerce clause, and the second was based on the Necessary and Proper Clause.

However the majority did hold that the Medicaid expansion provision was unconstitutional. The court ruled that the federal government cannot sanction the states' existing Medicaid funding if the states decline to follow the Medicaid expansion program. Only two justices, Ginsburg and Sotomayor, believed the Medicaid program was constitutional.

Many were also surprised that Justice Kennedy, who wrote the dissenting opinion sided with Justices Alito, Scalia and Thomas. Justice Kennedy, who read his dissenting opinion from the bench, stated “In our view, the entire Act before us is invalid in its entirety."

Taxpayers Continue to Gain from TARP Bank Programs

Banks continue to exit the Trouble Asset Relief Program (TARP), repaying the U.S. Department of Treasury’s investments beyond expectations. The Treasury announced it has priced secondary public offerings of the preferred stock it holds in seven financial institutions this week. The aggregate net proceeds from the seven offerings are expected to be approximately $204 million.

TARP’s bank programs have already earned a significant profit for taxpayers. Including the expected proceeds from the transactions announced today, Treasury has recovered $264 billion from TARP’s bank programs through repayments, dividends, interest, and other income—a $19 billion positive return. Each additional dollar recovered from TARP’s bank programs is an additional dollar of profit for taxpayers.

Treasury has announce it expects to begin its first in a series of pooled auctions of CPP preferred stock later this year, and will continue with individual auctions as early as late July. Treasury has indicated it intends to use a combination of repayments, restructurings, and sales to recover the remaining investments.

Read Treasury’s press release.
 
Read ABA’s white paper: TARP Bank Programs Have Been Paid Back in Full.

Wednesday, June 27, 2012

Mortgage Delinquencies Fell to 3-Year Low

The percentage of first-lien mortgages that were current and performing at the end of the first quarter of 2012 increased to the highest levels in three years, according to a report published today by the Office of the Comptroller of the Currency.

The OCC Mortgage Metrics Report for the First Quarter of 2012 showed percentages of mortgages that were 30 to 59 and 60 to 89 days delinquent also decreased to their lowest levels since the OCC began publishing its report on mortgage performance in first quarter of 2008. The improvement in mortgage performance can be attributed to several factors, including strengthening economic conditions during the quarter, seasonal effects, servicing transfers, and the ongoing effects of home retention programs as well as home forfeiture actions.

Servicers initiated 352,989 new home retention actions—modifications, trial-period plans, and payment plans. During the past five quarters, servicers initiated more than 2.2 million home retention actions.

Servicers have modified 2,543,133 mortgages from the beginning of 2008 through the end of the fourth quarter of 2011. At the end of the first quarter of 2012, 50.7 percent of these modifications remained current or were paid off.

On average modifications implemented in the first quarter of 2012 reduced monthly principal and interest payments by $437, which is 31 percent more than modifications implemented during the first quarter of 2011. HAMP modification reduced payments by $588 on average.

Tuesday, June 26, 2012

Home Prices Continue to Improve in April

Home prices rose 1.3% in April according to Case-Shiller’s 10- and 20- city indices. Prices remain below year-ago levels, but have improved notably from March. The 10-city index has dropped 2.2% from one year ago, better than the 2.8% drop reported last month. The 20-city index has now dropped 1.9% from year-ago levels, an improvement from the 2.6% drop reported last month.



April’s improvement was widespread, with only Detroit reporting a decline in prices (-3.6%). San Francisco performed the best in April, with prices rising 3.4% over the month. Half of the 20 metropolitan areas reporting have seen home prices rise from year ago levels.

Monday, June 25, 2012

New Home Sales Improved in May

New home sales grew 7.6% in May to an annualized pace of 369,000 units, their fastest pace in two years. Home sales in May are 19.8% higher than year-ago levels. Sales have now been trending upward since August of last year.



Some of May’s increase may be due to house prices, which fell from April to May. The median price of a new home was $234,500, down 0.6% from April, but 5.6% above year-ago levels.

The volume of new home sales remains near its bottom level in 2010. In fact, new home sales remain at only one quarter of their peak 1,389,000 pace set in 2005. Despite the low levels, new home sales have been on an upward trend since mid-2011.

Read Census' Report.

Thursday, June 21, 2012

Existing Home Sales Fell Slightly in May

Existing home sales slowed 1.5% in May to an annualized pace of 4.55 million units. Despite the small drop in May, the pace of existing home sales has improved notably in the past year, and May’s pace is 10.4% above the pace set in May 2011. Furthermore, the six-month average, ending in May remains about 6% above that of the previous six months.



Inventory of existing homes rose slightly in May, reaching 6.6 months up from 6.5 the previous month. The increase was driven by a drop in demand. Listings of homes for sale fell as well, but only by 0.4%. Despite the uptick in May, supply remains 20% below year-ago levels.

The average median home price continued to appreciate in May as a result of a declining share of distressed sales. The median home price increased 1.3% over the previous month in May to $182,600. This level is 7.9% above year-ago levels. The share of distressed sales dropped to 25% in May from 31% one year ago.

Read the NAR release.

Wednesday, June 20, 2012

Operation Twist Extended Until End of Year: Updated

The Federal Reserve moved today to extend “Operation Twist” through the end of the year, despite some expectations that it would announce another round of asset purchases today. The Federal Reserve will continue to replace its short-term bonds with longer-term debt through the end of the year by $267 billion. The extension of operation twist “should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative."

Policymakers left their view unchanged that economic conditions are likely to warrant keeping interest rates “exceptionally low” at least through late 2014.

The language describing the economy was slightly altered in May’s release from April's statement. The committee noted that “growth in employment has slowed in recent months, and the unemployment rate remains elevated.” They went on to note “household spending appears to be rising at a somewhat slower pace than earlier in the year.”

The FOMC stressed that they are “prepared to take further action as appropriate to promote a stronger economic recovery and sustain improvement in labor market conditions in a context of price stability.” This keeps the door open for further quantitative easing should the economic situation deteriorate significantly.

Update:

The FOMC revised down its economic forecasts by about 0.5% at today's meeting with 2012 growth expected to fall between 1.9%-2.4%. Unemployment forecasts for the end of the year were revised up as well by about 0.2% with expectations for he unemployment rate to remain in the 8.0%-8.2%range at the end of 2012.

In his press conference, Chairman Bernanke stressed that the Federal Reserve stands ready to provide additional  accommodation should economic conditions warrant it. He noted that another round of asset purchases (QE3) would be a consideration should the Fed move to further ease policy.

FOMC Fed Funds Forecast


See the FOMC's full forecast.

Watch Chairman Bernanke's Press Conference

 
June 20th MeetingApril 25th Meeting
Information received since the Federal Open Market Committee met in April suggests that the economy has been expanding moderately this year. However, growth in employment has slowed in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed. Inflation has declined, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.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.
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 very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term 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 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.
T o 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 through the end of the year its program to extend the average maturity of its holdings of securities. Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less. This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions 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.
















































Tuesday, June 19, 2012

Housing Starts Fell in May

New home construction fell in May to an annualized pace of 708,000 units, a 4.8% drop from April’s high of 744,000 units. The Census bureau revised up estimates for April’s pace by 4%, making April’s pace the fastest since October 2008. Housing starts have now averaged 673,000 units over the past 12-months, up from 660,000 units reported in April.



Single family starts continued to improve in May as well to an annualized pace of 516,000 units, its fastest pace since December. Multifamily construction drove May’s decline falling 21% to an annualized pace of 192,000 units.



Permit issuance was strong in May, rising 7.9% to an annual pace of 780,000 permits. The pace of housing permits issued is now 25% above year-ago pace.

Read Census' report.

Friday, June 15, 2012

Industrial Production Fell 0.1% in May

Industrial production edged lower in May, falling 0.1% over the previous month. Industrial production has now fallen in two out of the last three months. Vehicle production and consumer goods led the declines in May, with manufacturing down across the board.



Manufacturing output fell 0.4% in May, led by a 1.5% decline in auto production. The decline was not entirely due to the poor auto performance however, as manufacturing fell 0.3% excluding autos.

Strength in mining and utilities were not enough to offset the declines in manufacturing. Mining and utilities both increased production by 0.9% and 0.8% respectively.

The capacity utilization rate edged lower by 0.2% to 79.0, but remains well above recent readings.

Read the Federal Reserve report.

Chart of The Week: Large Banks and the Economy



Although Switzerland, the Netherlands, Denmark, Sweden, Belgium, Spain, the U.K and France all have banks that exceed the size of their economies, none are discussing reducing the size of their largest institutions.

In comparison, the largest bank in the United States is equal to 16 percent of GDP. Despite the relatively small size, some policymakers are calling for the breaking up of the largest banks.

Thursday, June 14, 2012

New York Fed Reports Maiden Lane Loans Fully Repaid

The New York Federal Reserve reported today that the Maiden Lane loans have been fully repaid with interest.

The New York Fed commented, "The Maiden Lane entities were established to protect the U.S. economy at a time of great economic stress, and I am pleased we were able to accomplish that policy objective and be fully repaid.”

Read the NY Fed's release.

Consumer Prices Fell 0.3% in May

Consumer prices fell 0.3% in May due to receding energy prices, marking the second month where prices have failed to appreciate. May’s decline in prices is directly a result of receding oil prices as energy costs fell 4.3% over the month.



Core prices continued their modest gains, growing 0.2% for the third consecutive month. Prices on goods rose at 0.2%, the same level they have grown in the past three months. Prices on services rose 0.2% as well, down from 0.3% the previous month.

Prices are currently 1.7% above year-ago levels, with core prices up 2.3% over the same period. Energy has fallen 4.7% from a year ago.

Read the BLS report.

TARP Bank Programs Continue to Make Profits for Taxpayers

The U.S. Department of Treasury has announced it is winding down its remaining Troubled Asset Relief Program (TARP) bank investments. The Treasury announced it has priced secondary public offerings of the preferred stock it holds in seven financial institutions this week. The aggregate net proceeds to Treasury from the seven offerings are expected to be approximately $245 million, an overall total of 15% above the minimum prices set for the auctions.

TARP’s bank programs have already earned a significant profit for taxpayers. Including the expected proceeds from today’s transaction, Treasury has now recovered $264 billion from TARP’s bank programs through repayments, dividends, interest, and other income – compared to the $245 billion initially invested. Each additional dollar recovered from TARP’s bank programs is an additional dollar of profit for taxpayers.

Assistant Secretary for Financial Stability Timothy G. Massad stated, “We’re pleased with the results of today’s auction, which enabled these community banks to replace temporary government support with new private capital, and keeps us on track to earn a positive return for taxpayers from TARP’s bank programs in excess of $20 billion. TARP played a critical role in stabilizing an economy in freefall during the financial crisis, and we are continuing to make good progress in winding down the program and recovering taxpayer dollars.”

Read the Treasury press release.

Read ABA’s white paper: TARP Bank Programs Have Been Paid Back in Full.

Wednesday, June 13, 2012

Retail Sales Fell 0.2% in May

Retail sales declined 0.2% in May, matching April’s decline. Although retail sales were expected to be weak in May, downward revisions to previous month’s data make the report particularly weak. March’s growth was revised down from 0.7% to 0.4% and April’s growth was revised down from 0.1% to -0.2%. Some of the weakness may be due to falling gasoline prices and seasonal factors however, the report remains worrying.



Falling gasoline prices played a part in May’s drop as retail sales excluding gasoline and autos fell just 0.1%, with gasoline stores representing the largest decline of any component at 2.2%. Building materials stores were also hit particularly hard, with sales falling 1.7% over the month.

There were pockets of strength in May’s disappointing report. Nonstore retailers saw sales grow at 1.3% and clothing retailers saw a 0.9% growth in sales.

Retail sales remain 5.3% above year-ago levels, down from 5.6% just a month ago and 8.0% as recently as October.

Read the Census report.

Producer Prices Fell 1% in May

Producer Prices fell 1% in May, marking the third consecutive month that prices have failed to appreciate. Moreover, the largest price declines were seen at the early stages of production and are likely to be passed along.



Although finished goods appreciated 0.2%, earlier stages of production have fallen off, with intermediate goods falling 0.2% in May and crude goods falling 1.3%. The price appreciation from one year ago has fallen well below 1%, to 0.8%. Just 6 months ago prices were 5.7% above year ago levels.

Read the BLS release.

Tuesday, June 12, 2012

Share of Families Unbanked Edged Lower

The Federal Reserve's Survey of Consumer Finances reported that fewer families were unbanked between 2007 and 2010.

The proportion of families with any type of transaction account inched higher from 92.1% in 2007 to 92.5% in 2010. A transaction account is comprised of the following financial products -- checking, savings, and money market deposit accounts; money market mutual funds; and call or cash accounts at brokerages.

Also, the share of families without a checking account fell 0.7 percentage point, from 10.3% in 2007 to 9.6% in 2010. In 1989, the share of families without a checking account was 18.7 percent.

When asked for the primary reason for not having a checking account, the top reason was that they did not like dealing with banks (27.8%). Other top reasons for not having a checking account were did not write enough checks to make account ownership worthwhile (20.3%) and service charges were too high (10.6%).

Among families with a checking account, the most important reason they chose the financial institution for their main checking account was location of the offices of the financial institution, which was cited by 46% of the families. Other top reasons were the ability to obtain many services at one place (16.6%) and to obtain the lowest fees or minimum balance requirements (14.2%).

Read the survey.

Monday, June 11, 2012

Fed Survey Shows More Cardholders Paying Balances In Full

The Federal Reserve's Survey of Consumer Finance reported that the proportion of cardholders with bank-type credit cards who had a balance went down 5.9 percentage points to 52.4%.

Additionally, the triennial survey found more people reported usually paying their balances in full. In 2007, the percent of holders of bank-type cards who reported that they usually pay their balances in full rose was 55.3%. This went up to 56.4% in 2010.

Furthermore, the median new charges for the month preceding the interview on all bank-type cards held by the
family rose $40 from $260 in 2007 to $300 in 2010.

However, familes having any bank-type cards reported that their credit limits on all such cards declined from $18,900 in 2007 to $15,000 in 2010.

Friday, June 8, 2012

Chart of the Week: State Unemployment


Although the national unemployment rate stands at 8.2%, there is a large difference across the country, with central states performing better than those near the coasts.

Chairman Geroge Mokrzan Discusses EAC Forecast

See George Mokrzan discuss the consensus forecast of ABA's Economic Advisory Committee

U.S. Trade Deficit Fell to $50.1 Billion in April

The U.S. trade gap narrowed to $50.1 billion, down from the $52.6 billion in March. The narrowing of the trade gap was led by a fall in imports that outweighed a decline in exports. The goods deficit narrowed by a smaller $2.7 billion to $64.8 billion.



Both exports and imports fell in April, with a 1.6% drop in imports outweighing a 1.5% drop in exports to narrow the gap. Despite the narrower deficit in April, trade remains on track to drag slightly on second quarter GDP growth.

Read the release.

Bank Economists See Moderate Growth For U.S. Economy, But With Risks

The U.S. economy will continue to grow at a moderate pace, with ongoing downside risks from Europe and the looming “fiscal cliff,” according to the Economic Advisory Committee of the American Bankers Association.

According to the committee, which includes 12 bank economists from among the largest banks in North America, inflation-adjusted GDP will expand by 2.2 percent this year, compared to 1.6 percent in 2011.

“Although economic growth will pick up, downside risks have become more pronounced,” George Mokrzan, committee chairman and Huntington Bank chief economist, said. “Our consensus forecast is that the economy isn’t growing rapidly enough to push the unemployment rate below 8 percent by year-end.”

The group sees enough positives to keep the economy moderately moving forward. Consumer spending, which represents 70 percent of the economy, is expected to grow at an annualized rate of 2.4 percent this year. Household debt service has dropped, strengthening consumer balance sheets, which could support future spending. Auto sales will exceed 14.5 million units this year, a strong showing.

The committee also forecasts a mild recovery in the housing market. The committee foresees a rebound in real residential investment spending, growing at a 10.4 percent pace for 2012, but coming off a low base. However, housing prices are stabilizing at depressed levels. And with record-low mortgage rates, the committee forecasts a rise in new and existing home sales.

The bank economists see the economic challenges facing Europe as a significant risk to the U.S. economy. Europe is one of America’s largest trading partners, and weakened finances in that region could risk a global crisis.

“European leaders understand the need for strong, collective action to right the ship,” Mokrzan said. “If countries delay or don’t take the necessary steps, the situation could escalate and further threaten the global economy.”

The bank economists also see continuing fiscal challenges as a major risk to the U.S. economic outlook.

The threat of a “fiscal cliff” may discourage business expansion, according to the committee. Firms may not want to take on new hiring and spending commitments with major potential tax hikes and federal spending cuts looming.

“We urge Congress and the administration to generate a consensus solution to avoid a devastating impact on the economy,” Mokrzan said.

The committee feels that monetary policy will continue to strongly support economic growth for the foreseeable future. With inflation holding near 2 percent, the bank economists believe that the Federal Reserve will maintain the target range for the federal funds rate between 0 percent and 0.25 percent at least throughout next year.

“Low rates are supportive of capital investments by businesses and enable households to afford homes, cars and other consumer goods,” said Mokrzan. “This will help keep the economic motor running.”

The committee forecasts that strong credit growth in 2012 will continue into next year. Loans to businesses are expected to grow 11.5 percent this year, while loans to individuals are expected to increase 7.4 percent.

“The significant increase in credit growth shows that banks are doing their part to make loans that will help drive the economic recovery,” Mokrzan said.

The members of the 2012 ABA Economic Advisory Committee are:

  • EAC Chair George Mokrzan, director of economics, Huntington Bancorp., Columbus, Ohio;
  • Scott Anderson, director and senior economist, Wells Fargo & Company, Minneapolis
  • Scott J. Brown, SVP and chief economist, Raymond James and Associates, St. Petersburg, Fla.;
  • Sherry Cooper, EVP and chief economist, BMO Financial Group, Toronto;
  • Robert Dye, SVP and chief economist, Comerica Bank, Dallas;
  • Ethan Harris, co-head of global economics, Bank of America Merrill Lynch, New York;
  • Stuart Hoffman, chief economist, The PNC Financial Services Group, Inc., Pittsburgh;
  • Peter Hooper, co-head of global economics, Deutsche Bank, New York;
  • Nathaniel Karp, EVP and chief economist, BBVA Compass, Houston;
  • Bruce Kasman, managing director and chief economist, JP Morgan Chase, Inc., New York;
  • Christopher Low, chief economist, First Horizon National Corp’s FTN Financial, New York;
  • Gregory Miller, SVP and chief economist, SunTrust Bank, Inc., Atlanta
Click here for detailed EAC forecast numbers.

Thursday, June 7, 2012

Consumer Credit Rose $6.5 Billion in April

Consumer credit rose $6.5 billion in April, after surging in March rising $21.4 billion. This is the eighth consecutive monthly growth. Consumer credit grew at an annualized rate of 3.1%, the slowest level of growth since October.



Non-revolving balances continued to drive the increases in credit, growing $10 billion. The growth in non-revolving credit outpaced the past two months, but is not the $18.1 billion high seen in January.

Revolving credit fell $3.4 billion, its first decline in two months. This is the second decline in the past six months in revolving credit.



Read the report.

Wednesday, June 6, 2012

Beige Book: Loan Demand and Credit Conditions Improve

The Federal Reserve's Beige Book reported that lenders in most Districts noted an improvement in loan demand and credit conditions during the early April to late May reporting period.

"Small and medium-sized banks in the New York District reported the most broad-based increase in loan demand since the mid-1990s. Several bankers in the Richmond District said the volume of small business loan applications was markedly higher. Drivers of business loan demand included energy, healthcare, and commercial real estate. Several Districts noted increased demand for capital spending loans.

Reports on mortgage lending generally indicated slow improvement. The New York District noted stronger mortgage lending, although growth in refinancing eased. The Cleveland District indicated strong mortgage demand and a shift from home refinancing to new purchases. The Richmond District cited continued improvement in mortgage demand, although refinancing still dominated much of the mortgage lending. The Atlanta District said that more applicants had ample cash for down payments or enough equity in their homes to meet refinancing requirements. Demand for commercial real estate loans was generally reported to be stronger. Districts reporting on consumer lending noted steady demand, with some strength in auto loans.

A number of Districts, including Cleveland, Atlanta, Chicago, Dallas, and San Francisco, said loan pricing remained quite competitive. New York District respondents noted a decrease in spreads of loan rates over the cost of funds, particularly for commercial mortgages. Lending standards were relatively unchanged to slightly easier across Districts and loan types. Bankers reporting on deposit growth indicated that deposits were steady or continued to increase. Credit quality remained solid, and there were several reports of improved loan quality. Most District banks said loan delinquencies continued to decline."

Read the Beige Book.

Tuesday, June 5, 2012

ISM Services Stabilized in May

The ISM’s nonmanufacturing index stabilized in May, following a precipitous drop the previous month, indicating a stabilization of service sector growth. The index rose just 0.2 points in May to a reading of 53.7. In the previous two months the index fell by 3.8 points. The nonmanufacturing index has remained above its neutral threshold of 50 for 29 consecutive months, indicating an expansion of the industry.



The details of May’s report were mixed, with the business activity index gaining 1.0 points rising to 55.6. New orders rose as well in May, raising 2.0 points to 55.5. Despite these gains, the employment index was weak, falling 3.4 points, near its neutral threshold. New export orders were notably weak as well, falling 5.0 points to 53.0.

Read the ISM's Report.

Friday, June 1, 2012

ISM Manufacturing Index Fell to 53.5 in May

The ISM’s manufacturing index fell to 53.5 in May, down from 54.8 the previous month. Although the index declined, May’s reading still indicates expansion. In fact, the manufacturing index has indicated expansion for 34 consecutive months.



The details of May’s report were mixed despite the overall index decline. New orders improved 1.9 points to a reading of 60.1. The employment index inched lower by 0.4 points to 56.9 and new export orders dropped sharply from 59.0 to 53.5.

Read the ISM Manufacturing report.

Construction Spending Rose 0.3% in April

Construction spending in April rose 0.3%, for the second consecutive monthly increase. The growth in March was revised from 0.1% to 0.3% as well. The April number is 6.8% higher than a year ago.

Public construction spending continued to drag, declining 1.4% from the previous month. However, increases in private construction were able to offset the decline, increasing 2.8%. The increase in private construction spending was led by a 2.8% increase in residential spending.



April’s data, while better than March’s, suggest the recovering economy has still not fully taken off.

Read Census' report.

Consumer Spending Rose 0.3% in April

Consumer spending growth remained modest in April, rising 0.3%. Personal income rose 0.2% over the month leading the savings rate to plunge to 3.4%. Personal income growth of 0.2% is its slowest pace since November, and well below the average of 3.7% set in the first quarter.



Spending growth rose from its March pace, but remains well below the first quarter average of 5%. Durable goods spending led the increase, growing 0.6% over the month. Nondurable goods spending fell 0.2% over the month. Service spending also contributed to growth, rising 0.4%. Consumption now remains 4.0% above year ago levels.

Personal income growth slowed in April due to declines in wage growth and disposable income growth. Wage growth slowed to 0.2% in April, its slowest pace of the year. Disposable income growth fell as well, down to 0.2% from 0.4% in March. Personal income now remains 2.8% above year ago levels.



The savings rate dropped to 3.4% in April, matching its lowest level since 2007.

Read the BEA release.

Weak Job Growth in May Sees Unemployment Rise to 8.2%

Job growth disappointed in May, with the economy adding only 69,000 new jobs, nearly 90,000 less than expectations, leading the unemployment rate to rise to 8.2%. April’s job growth was revised down strongly as well, with the economy creating only 77,000 jobs, less than the initially reported 115,000. With the downward revisions, the economy has created fewer jobs in the past two months than the expectations for May alone. Over the past two months the economy has created an average of 73,000 jobs, down from the average of 226,000 seen in the first quarter.

ABA Senior Economist Keith Leggett commented, “Today’s jobs report is very disappointing, it shows the economy is still not firing on all cylinders.”



Today’s disappointing report fueled the flight to safety that we reported on earlier, leading U.S. 10-year debt yields to fall below 1.5% for the first time in history.

The private sector continues to drive growth, creating 82,000 jobs in May, this was partially offset by the government shedding 13,000 jobs. The goods producing sector shed jobs for the first time this year, and has not performed worse since February 2010. Service jobs saw improvement from April’s downwardly revised number, but only added 84,000, down from the first quarter average of 178,000.



The weak job growth, coupled with an increase in the labor force participation rate led the unemployment rate to rise slightly to 8.2%. In May, there were 682,000 new entrants into the labor force, the most since November 2007. In May, the labor force participation rate rose to 63.8%.

Read the BLS Employment Situation.

Chart of the Week: Treasuries



Yields on U.S. Treasuries have fallen to record lows, with notable drops in the last two days, as global turmoil spurs a flight to quality.

Update: Today's disappointing jobs report drove yields even lower, with the 10-year dropping below 1.5% for the first time in history.