Friday, September 28, 2012

Personal Income Grew 0.1% in August

Personal income rose 0.1% in August, the same as in July. July’s data has been downwardly revised. Consumption growth of 0.5% led the savings rate to tick lower to 3.7%, the first drop below 4% in three months.

Consumption grew at a strong 0.5% in August, its strongest pace since February. The increase in spending in August was led by strong spending for nondurable goods, which rose 1.7%. Durable goods spending was also up rising 0.3%, while service spending rose 0.2%.

Consumer prices, according to the PCE indicator, rose 0.4% in August, the fastest growth since March 2011. Gasoline prices drove the gain.

Wage income growth remained very weak, consistent with weakness in the labor market.

Read the BEA report.

Thursday, September 27, 2012

Second Quarter GDP Revised Down to 1.3%

Economic growth slowed in the second quarter to 1.3%, down from the 2.0% growth seen in the first quarter. The BEA's final estimate revised second quarter growth down from its previous estimate of 1.7%. This estimate represents the slowest growth rate since the third quarter of last year.

The drought played a key factor in the downward revisions seen in the second quarter as farm inventories dropped notably. Consumer service spending and exports also provided less growth than initially estimated.

The slowing from the first quarter was due primarily to a shift from strong consumer spending on durable goods to almost no growth. The second quarter also saw a sharp decline in construction spending.

Inflation slowed in the second quarter according to the PCE index. The PCE index indicated 0.7% inflation in the second quarter, significantly lower than the 2.5% seen in the first quarter. Much of the slowing was due to falling energy prices.

Read the BEA release.

Wednesday, September 26, 2012

New Home Sales Fell 0.3% in August

New home sales fell slightly in August on regional weakness. New home sales fell to an annualized 373,000 units, down 0.3% from July’s upwardly revised pace. New home sales have seen strong improvements in the past year, with August’s pace 28% higher than one year ago.

August’s weakness was isolated in the large South region, which saw the pace of sales decline 4.9%. The South region has an outsize effect on the overall number as its sales account for 47% of homes sold. The northeast saw sales rise 20% in August to a pace of 23,000 units. The Mid-west and West both saw modest improvements in pace, rising 1.8% and 0.9% respectively over the month.

The supply of homes on the market was unchanged in August at 4.5 months. Home prices also appreciated notably, with the median home rising 15.7% over the month to $267,900. This measure is up 17% from one year ago.

Read the Census release.

Tuesday, September 25, 2012

Home Prices Rose 1.2% in Past Year

Existing home prices continued to improve in July, with the Case-Shiller 20-city index rising 1.2% above year ago levels. Last month was the first time home prices had risen above year-ago levels since September 2010. Both the 10- and 20- city indices saw strong gains in July, rising 1.5% and 1.6% respectively. Despite their strong recent improvement, home prices remain 30% below peak levels.

Every metropolitan area surveyed saw month-over-month gains in home prices. Additionally, an increasing number of metro areas are seeing positive year-over-year gains. Sixteen of the 20 metro areas surveyed now have prices above year-ago levels, up from 13 the previous month. Los Angeles, San Diego, and Boston all saw their prices appreciate for the first time this month. New York, Las Vegas, Atlanta, and Chicago are the remaining cities with home prices remaining below year-ago levels.

Read the S&P release.

Wednesday, September 19, 2012

Existing Home Sales Jumped 7.8% in August

Sales of existing homes surged 7.8% in August to a seasonally adjusted pace of 4.82 million units. August’s pace is a significant improvement from the 4.47 million units seen in July, and the fastest pace since May 2010. The pace of existing home sales are now 9.3% above year ago levels.

Growth in August was widespread geographically, with all regions reporting growth above 7%. The Northeast saw the strongest gains, with the pace of sales rising 8.6% over the month.

The months supply of homes on the market decreased to 6.1, its lowest level since the beginning of the year.

Although the median home price declined somewhat in August, the year over year gains remain strong at 9.5%. The median home price in August was $187,400, down slightly from $187,800 the previous month. According to the NAR, the share of distressed sales has dropped from 31% in July to 22% in August.

Read the NAR release.

Housing Starts Rose in August

Housing starts rose 2.3% in August to an annualized pace of 750,000 units. August’s growth brings housing starts to 29% above its year-ago level. Notably, the majority of August’s gain was centered in single-family starts, rather than the more erratic multi-family measure.

Permit issuance fell slightly in August, slipping 1%. Despite the fall, permit issuance remains 25% above year-ago levels. Additionally, single-family permit issuance rose slightly in August. The three-month moving average for single family issuance has remained positive since May 2010.

Although housing starts have seen significant improvement in the past year, they are recovering from an extremely low base. August’s pace of 750,000 is only half of the long run average of 1.5 million units per year. Housing starts are a lagging indicator of housing market performance and will be the final measure to recover as housing bottoms and begins to recover.

Read the Census release.

Tuesday, September 18, 2012

2011 HMDA Mortgage Market Data Released

Data from the Housing Mortgage Disclosure Act was released today. The data consists of information reported by over 7,600 home lenders, including the nation’s largest mortgage originators. “Together, the home-purchase, refinance, and home-improvement loans reported represent the majority of home lending nationwide and thus are broadly representative of all such lending in the United States.”

The total number of home loans fell in 2011 to 7.1 million loans from about 7.9 million loans in 2010. This is the lowest level reported in HMDA data since 1995 when 6.2 million loans were reported.

Government-backed loans originated accounted for a slightly smaller share of home purchase loans made in 2011 than the previous year. Despite the decline, government-backed loans still account for a historically large portion of owner-occupant mortgage origination market at nearly 50%.

The HMDA data indicates that the retail mortgage market has not become more concentrated in the past five years, with the top 10 most active organizations accounting for 37% of first lien mortgages, up from 35% reported in 2006.

Read the Federal Reserve's HMDA report.

Friday, September 14, 2012

Chart of the Week: QE3

"Confidence is weak and the Fed’s action is not helping it by continuing to emphasize that the economy will be weak for years. Businesses have no incentives to expand or borrow when they know interest rates will be low for years. They will wait, which means the economic expansion will be slower. And lenders worry about the rapid increase in interest rates once the Fed has to unwind this enormous stimulus."

-ABA Chief Economist, James Chessen

Industrial Production Plunged in August

Industrial production fell 1.2% in August, its worst performance since the recovery began. The report indicated that all components of industrial production fell in August.

Manufacturing production fell 0.7% in August, pulled lower by a 4% drop in motor vehicle production. Even without the auto sector drag, manufacturing production dropped 0.4% over the month.

The drop in production led the capacity utilization rate to fall to 78.2%, a nine-month low.

Read the Federal Reserve release.

Consumer Prices Saw Largest Gain in Three Years in August

Consumer prices rose 0.6% in August, their first positive reading in five months. Prior to today’s report, consumer prices had failed to appreciate since March, with the majority of the readings showing stagnant prices. August’s gain of 0.6% is the largest monthly gain in three years. Consumer prices are now 1.7% above year-ago levels.

August’s gain was driven primarily by surging energy prices, which rose 5.6% over the past month. Energy prices had receded for four consecutive months prior to August.

Core prices rose at a more moderate, but strong pace of 0.2%, up from 0.1% the previous month. Core appreciation was entirely due to a 0.1% rise in service prices, as goods prices declined 0.2%.

Read the BLS report.

Retail Sales Rose 0.9% in August

Consumers increased their spending in August, with retail sales growing 0.9% over the month. August’s growth is an improvement from July’s 0.6%. August’s strength was largely due to increasing gasoline and auto sales. Core retail sales (excluding autos and gas) rose by a much more modest 0.1%, down from 0.8% the previous month. Growth from a year ago accelerated to 4.7% in August, up from the 3.9% reported in July.

Gasoline stations saw the strongest gains in August, rising 5.5% over the month. Auto sales also saw strong gains in August, rising 1.3%.

Outside of autos and gas, the largest gains were in building materials and food services which rose 1.0% and 0.5% respectively.

Read the Census report.

Thursday, September 13, 2012

FOMC Announces QE3: Updated

The Federal Open Market Committee announced today, a third round of quantitative easing. The Fed will further ease monetary policy by purchasing an additional $40 billion per month in agency mortgage-backed securities.

In addition, the Fed will continue to implement “operation twist,” as well as reinvest maturing debt. “These actions, together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year.”

Although “operation twist” is set to finish by the end of the year, the program announced today has no definitive end date.

The FOMC left the door open for additional easing beyond what was announced today: “If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.”

The FOMC also noted that, "a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens." In his press conference, Chairman Bernanke stressed this point, adding that it should give the public the confidence to make decisions farther out into the future.

Low Rates: The Fed extended its pledge to hold rates low “at least through mid-2015”

Takeaway: The additional round of asset purchases were less than markets had predicted, however, the Fed has clearly left the door open to more significant action down the road.


Watch Chairman Bernanke's Press Conference

FOMC Fed Funds Forecast

See the FOMC Statement below 

Producer Prices Rose 1.7% in August

Producer prices saw their largest monthly gain in three years in August, jumping 1.7%. August’s unexpected price increases were primarily driven by higher energy and food costs, as core finished goods only appreciated 0.2%. Prices are now 2.0% above year-ago levels, up from the 0.5% seen in July.

Prices at the earliest stages of production also surged, rising 2.2% over the month. Despite the strong appreciation in August, prices on crude goods are down 10.2% from year-ago levels.

Input costs are not expected to maintain the rapid appreciation seen in August, as the global economic slowdown will likely keep inflation moderate.

Read the BLS report.

Wednesday, September 12, 2012

FDIC’s 2011 National Survey of Unbanked and Underbanked Households

The FDIC today released the results of its 2011 National Survey of Unbanked and Underbanked Households, the most comprehensive survey on the unbanked and underbanked in the U.S. The survey indicates that 28.3% of households are either unbanked or underbanked, conducting some or all of their financial transactions outside of the mainstream banking system. This is a slight increase from the findings of the FDIC's 2009 inaugural survey.

According to the 2011 Survey, 821,000 more U.S. households have become unbanked since the first survey in 2009, representing a 0.6 percentage point increase. More than half of all unbanked households said they do not have an account because they believe they do not have enough money or that they do not need or want an account. Certain segments of the unbanked population are inclined to open an account, with 33.9% reporting they are “very likely” or “somewhat likely” to do so.

Other key findings include:
  • 8.2% of U.S. households are unbanked, representing nearly 10 million households. One in five of these unbanked households became so this year.
  • 20.1% of U.S. households are underbanked, representing 24 million households.
  • 29.3% of households do not have a savings account, while 10.3% do not have a checking account.
  • About two-thirds of households have both checking and savings accounts.
  • One-quarter of households have used at least one alternative financial service (AFS), such as non-bank check cashing or payday loans in the past year.

The FDIC has noted the Survey results suggest four possible lessons for policymakers, financial institutions, and others working to improve access to financial services.
  • Understanding the characteristics of different segments of the unbanked and underbanked populations may increase the efficacy of economic inclusion strategies.
  • Having a bank account does not guarantee long-term participation in the banking system.
  • Households with banking experience appear to have more positive perceptions of having an account and rely less of AFS.
  • Financial institutions interested in pursuing the market opportunity that AFS users present need to more clearly demonstrate the value in having a bank account to AFS users who perceive non-bank financial services to be more convenient, faster, less expensive, or to present lower barriers to qualification. 
Read more.

Tuesday, September 11, 2012

Small Business Sentiment Improved Slightly in August

Small business sentiment gained 1.7 points in August according to the NFIB Small Business Optimism Index, which rose to a reading of 92.9.

Financing continues to be one of the least cited factors holding back small business conditions, with only 4% of respondents citing it as the single most important problem. Taxes and government requirements were the most commonly cited problems, with 44% of respondents citing one as the largest problem facing small businesses.

There were a few encouraging aspects to August’s report as employment indicators, plans for capital outlays, and expectations for business conditions all improved. A net 18% of small businesses surveyed currently have job openings, and a net 10% plan to increase employment.

Despite the improvements, “few employers continue to think the current period is a good time to expand.” A mere net 4% of small businesses surveyed think that now is a good time to expand, down from the previous month.

Read the NFIB report.

Trade Gap Remained Small in July

The U.S. foreign trade deficit widened incrementally in July, however remained at relatively low levels. In July the trade gap was $42.0 billion, up slightly from the previous month’s $41.9 billion. Today’s report saw June’s trade gap revised downward to $41.9 billion from an initially reported $42.9 billion. July’s trade gap is 20% smaller than it was in January.

Both exports and imports fell in July. Weak domestic demand held back imports, which fell 0.8% to $225.3 billion. Weak overseas growth led to a 1% fall in exports.

The real goods deficit widened in July by $2.5 billion in July. This figure is important, as it factors into real GDP.

Read Census' report.

Monday, September 10, 2012

Consumer Credit Fell $3.3 Billion in July

Driven entirely by a drop in revolving credit, consumer credit unexpectedly fell $3.3 billion in July. This broke a streak of ten consecutive monthly increases.

June’s consumer credit was revised upwards from $6.5 billion, to $11.8 billion. Consumer credit shrank at a 1.5% annualized rate, well below previous months.

July’s decline in consumer credit was driven entirely by a $4.8 billion drop in revolving credit. Revolving credit has recovered some, but still remains 17% below its prerecession peak.

Non-revolving credit has increased for eleven consecutive months but at a much smaller rate than previous months. Non-revolving credit grew only $1.6 billion in July, its smallest gain in nearly a year.

Read the Federal Reserve release.

Friday, September 7, 2012

Economy Added 96,000 Jobs as Unemployment Rate Dropped to 8.1%

The economy added just 96,000 jobs in August, however the unemployment rate fell to 8.1% on lower labor force participation. The 96,000 jobs added in August represents a strong slowdown from the 141,000 jobs created in July. August’s report also included notable downward revisions, with July’s growth revised from 163,000 to 141,000 and June’s growth falling to 45,000 from an initially reported 64,000.

The majority of the slowing seen in August was in the goods producing sector, which actually shed jobs in August, losing 16,000 jobs. This is the worst performance in the goods producing sector since February 2010.

Job creation in the service producing sector slowed as well, but only by 6,000 jobs, creating 112,000 new jobs in August.

Although the unemployment rate dropped from 8.3% to 8.1% over the month, there was little true improvement in the labor market. Much of the improvement in the unemployment rate was a result of a rapidly deteriorating labor force participation rate which fell from 63.7% to 63.5% over the month. August saw 368,000 workers leave the labor force.

Read the BLS report.

Thursday, September 6, 2012

Draghi Announces Bond Buying Program

Mario Draghi announced an unlimited bond buying program at today's ECB meeting. The program, which will be called "Monetary Outright Transactions," will allow the ECB to address "short-term distortions in financial markets." The following are some key aspects of the program:

Bond Purchases
The ECB has committed to potentially unlimited purchases of sovereign bonds "to the extent that they are warranted from a monetary perspective."The program will not set an explicit range on interest rates, as had been speculated. Instead the ECB will bring interest rates down to levels consistent with what it believes the nations would pay absent risk premia associated with concerns of a breakup of the euro. The purchases will focus on the shorter end of the yield curve, specifically the 1-3 year range. In addition the ECB has said it will hold no seniority on bonds it purchases.

Sterilized Purchases
The program will “sterilize” purchases to offset the effect of injecting cash into the system. The ECB will remove cash from the system elsewhere in proportion to what it spends on transactions, ensuring a neutral impact on the money supply.

Highly Conditional
The program will have "strict and effective conditionality," any nation looking to receive help under the program must apply for aid from one Europe’s bailout funds and abide by the reform program set forth there. Any country that fails to meet the conditions of its’ aid could see the ECB either stop purchases, or sell existing bonds.

Within ECB Mandate
The ECB is acting within its mandate to maintain price stability within the medium term.

"We aim to preserve the singleness of our monetary policy and to ensure the proper transmission of our policy stance to the real economy throughout the euro area. OMTs will enable us to address severe distortions in government bond markets, which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro."

Watch Draghi's press conference below.

ISM Non-Manufacturing Improved in August

The service industry improved in August, growing at a faster pace than the previous month. The ISM’s non-manufacturing index improved to 53.7, up from 52.6 the previous month. The index remains well above its neutral threshold of 50, signaling expansion of the service industry.

The details of August’s report were mixed, as production and new orders fell off slightly, however both remain squarely in expansionary territory. Somewhat surprisingly, exports improved on a non-seasonally adjusted basis, rising to 52.0. This is encouraging, as it shows service exports to be resilient despite the continuing weakness in the eurozone.

The employment portion of the index also continued to improve in August, a sign that companies are confident enough in the outlook to continue hiring, even with the fiscal cliff looming.

Read the ISM release.

ADP Employment Rose 201,000 in August

Employment in the non-farm private sector increased by 201,000 in August according to ADP’s National Employment Report. August’s growth is the fastest pace seen since March. Today’s report saw July’s growth revised up to 173,000 jobs from an initially reported 163,000. In July the BLS indicated that overall payroll employment grew by 163,000, perfectly matching the ADP report. If tomorrow’s report from the BLS is anywhere near the 201,000 reported today it will be good news for the economy.

Employment gains continue to be concentrated in the service sector, which added 185,000 jobs in August, up from 156,000 jobs in the previous month. The goods producing sector slowed slightly in August, adding 16,000 new jobs, down from 17,000 jobs in July.

Manufacturing added jobs for the third consecutive month, creating 3,000 new jobs in August. This is slower than the 6,000 created in July.

Read the ADP release.

Tuesday, September 4, 2012

Manufacturing Continued to Slow in August

Manufacturing in the United States continued to slow in August as the ISM’s manufacturing index fell to 49.6. August is the third consecutive month that the ISM index has indicated industry contraction (any reading below 50).

The details from August’s report were disappointing as well. Production dropped off sharply, falling from 51.3 in July to 47.2. New orders also fell by 0.9 points to 47.1. Employment also saw slight declines in August, but remained above its neutral threshold of 50.

Notably, the inventories portion of the index surged in August, rising from 49.0 to 53.0 over the month. This is a bad sign for future growth. The gap between new orders and inventories, a proxy for future growth, surged to -11.3 points in August from just -1.0 point the previous month.

Although August’s report is concerning, the manufacturing PMI remains well above levels signaling a recession. Typically, when the manufacturing PMI falls below a reading of 45 it has meant that the U.S. economy is in or near a recession.

Read the ISM release.

Construction Spending Fell 0.9% in July

Total construction spending fell 0.9% in July from the previous month, however, remains 9.3% above year-ago levels. July’s decline follows three consecutive months of gains in construction spending.

Private construction led the declines in July, falling 1.2% from the previous month. The fall was concentrated in residential construction, which fell 1.6% in July. Non-residential construction was down as well, falling 0.9%. The good news is that spending on single-family homes rose 1.5% in July and remains 19.1% higher than year-ago levels

Public construction spending was little changed in July, although down slightly falling 0.4%.

Read the Census report.