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Wednesday, October 31, 2012

Banks Eased Standards Slightly in Past Three Months

Banks eased business lending slightly for both small and large business borrowers according to the Federal Reserve’s most recent Senior Loan Officer Survey. The survey, released today, covers August through the end of October.



A net 7.6% of respondents reported easing lending standards on business loans to both small and large businesses over the time period. Despite the eased standards, loan demand was relatively neutral. Demand from medium borrowers was down slightly according to 6.2% of respondents. Demand from small businesses rose slightly, reported by a net 4.5% of respondents.

Underwriting standards on mortgages were little changed over the past three months with only a net 1.6% of banks report easing standards. Demand for residential loans rose significantly over the month, with 32.8% of banks reporting stronger demand.

Read the Federal Reserve release.

Tuesday, October 30, 2012

Home Prices Continue to Rise in August

Existing home prices continued to improve in August, with the Case-Shiller's 20-city index improving to 2.0% above year ago levels, up from 1.2% reported the previous month. The 10-city index improved as well gaining 0.9% over the month, with prices 1.3% over year ago levels. Case-Shiller's 20-city index has now reported yearly gains for three consecutive months.



August's improvement was widespread geographically with every metropolitan area except one reporting a month-over-month gain. Phoenix and Atlanta saw the strongest gains, rising 1.8% over the month. Seattle was the only city reporting a monthly decline in prices, reporting a 0.1% loss.



An increasing number of metro areas reported year-over year gains in August. Only Chicago, New York and Atlanta still have prices below year-ago levels. Atlanta has fared, by far, the worst seeing a 6.1% decline in home prices. Phoenix is reporting the strongest gains, with prices up 18.8% over the past year.

Read the S&P release.

Monday, October 29, 2012

Personal Income Grew 0.4% in September

Personal income grew by $48.1 billion in September, 0.4%, its fastest pace since March. Despite the strong income growth consumption personal consumption growth outpaced income, leading the savings rate to fall to its lowest level in ten months.



Personal income growth accelerated in September, led by dividend, rental and proprietor income. Wage income improved in September, rising 0.3%, however remains modest consistent with the weak labor market.

Real spending accelerated to 0.4% in september, however nominal spending jumped 0.8% over the month, the fastest growth since February. Spending growth was led by goods, both durable and non-durable.

Nominal spending outpacing income led the savings rate to drop to 3.3%, its lowest level on ten months. The savings rate has now fallen 1% since June.

Read the BEA release.

Friday, October 26, 2012

Consumer Sentiment Improved in October

Consumer sentiment rose 4.3 points in October according to the University of Michigan’s Consumer Sentiment Index. The index reached 82.6, its highest level since late 2007. The index has now improved for three consecutive months.



Both present conditions and future expectations improved notably in October, with future expectations rising notably. Future expectations rose 5.5 points, reaching 79, their highest level since late 2007. The current conditions portion of the index improved to 88.1, not enough to completely offset its 3 point decline from September.

Inflationary expectations were subdued in October, with one-year expectations dropping 0.2 points to 3.1% and five year expectations dropping 0.1 points to 2.7%.

GDP Growth Accelerated to 2.0% in Third Quarter

Real GDP growth in the U.S. accelerated to 2.0% in the third quarter, following a disappointing 1.3% growth in the first. The improvement seen in the third quarter puts growth on par with the first quarter of the year, but much slower than the 4.1% growth seen at the end of last year.

ABA Chief Economist James Chessen commented, “Despite the improvement in the third quarter, growth remains weak at 2 percent. Furthermore, the economic recovery faces a number of serious challenges moving into next year. The uncertainty associated with the fiscal cliff, for example, has already begun to have an impact on growth.”



Third quarter growth was led by government, which grew by 3.7%, its fastest growth in 3 years. This translates to a 0.71% boost to real GDP growth, up from the 0.14% drag in the second quarter. The boost provided by government in the third quarter will likely prove unsustainable as fiscal tightening begins at the end of the year.

Consumer spending improved in the third quarter as well increasing 2% in the third quarter. This translates to a 1.42% boost to real GDP growth over the quarter. Improving consumption is an important part of any economic recovery, as it is the largest component of GDP.



Net exports slowed notably in the third quarter amid global weakness, presenting a drag on GDP growth for the first time in two quarters. Net exports were a 0.18% drag on economic growth, as opposed to the 0.23% boost in the second quarter. Nonresidential fixed investment and Inventories also proved drags on growth, dragging 0.13% and 0.12% respectively.

Read the BEA release.

Thursday, October 25, 2012

Fed Announces Annual Reserve Requirement Indexing

The Federal Reserve announced the annual indexing of the reserve requirement exemption amount and the low reserve tranche for 2013 on Thursday.

The Federal Reserve requires that all depository institutions hold a percentage of deposits as reserves at a Federal Reserve Bank.

In 2013, the first $12.4 million of transactions accounts will be exempt from reserve requirements, up from $11.5 million in 2012. In addition a 3% reserve ratio will be assessed on all transaction accounts from $12.4 to $79.5 million. A 10% assessment will be placed on all net transaction accounts in excess of $79.5 million.

Read the Fed's release.

Wednesday, October 24, 2012

FOMC Leaves Monetary Policy Unchanged

The Federal Open Market Committee took no action at its October 24th meeting. No action was expected today following the announcement of a third round of asset purchases at last month's meeting. The committee also maintained its pledge to keep interest rates at "exceptionally low" levels through mid-2015.

In September the FOMC announced a third round of asset purchases, deemed QE3, in an effort to spur job growth. Under the program, the Federal Reserve will purchase $40 billion in agency mortgage-backed securities per month. In addition, the Fed will continue its "operation twist" maturity extension program through the end of the year as planned. Operation twist will see $45 billion of short-term notes exchanged for longer maturity debt. Combined, these actions will add about $85 billion per month to the Fed's long-term securities holdings.



The FOMC statement noted that job market improvement have "been slow, and the unemployment rate remains elevated." However, "household spending has advanced a bit more quickly."

Although short-term inflation has picked up due to higher energy prices, longer-term inflationary expectations remain anchored.

See the FOMC's statement side-by-side with the previous statement.


New Home Sales Continued to Improve in September

New home sales rose 5.7% in September, reaching a pace of 389,000 homes per year. This is the fastest pace since the homebuyer tax credit surge seen in early 2010. Sales have now risen 27% from year-ago levels, with gains in the third quarter accelerating from the second.



The inventory of new homes for sale continued to fall in September, reaching 4.5 months. The supply of new homes on the market is now 9.4% lower than its level one year ago.

Although the median price of a new home fell in September, it remains 12% above year ago levels at $242,400.

Read the Census report.

Friday, October 19, 2012

Existing Home Sales Slowed in September

The pace of existing home sales slowed slightly in September, but held onto most of August’s strong gain. Existing home sales slowed 1.7% in September to a pace of 4.75 million units annually. Sales in August and September were at the strongest levels since mid-2010 when the homebuyer tax credit boosted sales.



The supply of homes on the market is currently not enough to keep up with the rising demand, as the supply of homes on the market fell to 5.9 months in September. The inventory of homes has not been below six months since the peak of the housing boom in 2006.

Home prices fell slightly in September, but the change from one year ago improved notably. The median home price in September was $183,900, 11.3% above its year-ago level. This is significantly better than the 8.0% reported in August.

Read the NAR release.

Wednesday, October 17, 2012

Housing Starts Surged in September

Housing starts jumped 15% in September to their fastest pace since 2008, surpassing the surge in home building that accompanied the 2010 home-buyer tax credit. Housing starts rose to an annualized pace of 872,000 units in September, up from the 758,000 pace seen in August.



The pace of single family starts rose 11% in September, to an annualized pace of 603,000 units. Multifamily construction also saw strong gains in September, gaining 25% and reaching a pace of 269,000 units per year.



Housing starts were also improved in September, rising 11.6% over the month. The gain in starts was seen primarily in multi-family units which rose 20.3% over the month. Single-family starts rose 6.7% in September as well.

Read the Census report.

Tuesday, October 16, 2012

Industrial Production Recovered in September

Industrial production rebounded in September, rising 0.4% after falling 1.4% the previous month. September’s reports included minor offsetting revisions to the previous two month’s growth.



Manufacturing output rose 0.2% in September, better than the 0.9% fall seen in August. The auto sector was a large weakness in September, falling 2.5%. The weak auto sector was offset by gains in durable goods and nondurable goods, which rose 0.1% and 0.2% respectively. Total manufacturing output, excluding motor vehicles rose 0.4%.

Mining and utilities also saw growth in September after falling the previous month. Utilities rose 1.5% in September after falling 4.3% in August. Mining also saw a slight recovery, rising 0.9% after falling 1.6% the previous month.

Read the Fed release.

Consumer Prices Rose 0.6% in September

Consumer prices rose sharply for the second consecutive month in September as gas prices continued to rise. Prices are now 2.0% above year-ago levels, stronger than the 1.7% reported in August. Core CPI remained stable, with prices increasing 0.1%, matching the previous two months’ growth.



The energy index drove September’s large gain, rising 4.5% over the month. This was primarily a result of surging gas prices, which rose 7% during September.

Food prices rose just 0.1% in September, down from 0.2% the previous month. The moderate gains suggest that spikes in grain prices have yet to be passed along to consumers.

Read the BLS release.

Monday, October 15, 2012

Retail Sales Rose 1.1% in September

Consumers increased their spending in September, with retail sales growing 1.1% over the month. The growth in September follows an upwardly revised August growth of 1.2%, making for the third consecutive monthly gain. September’s strength was led by electronics and appliance stores and non-store retailers largely due to iPhone 5 sales and sales at gasoline stations and auto dealers.


Core retail sales (excluding autos and gas) rose by 0.9%, up from the 0.3% the previous month. Growth from a year ago accelerated to 5.4% in September, up from the 5.0% reported in August.

Electronic and appliances saw the strongest gains in September, rising 4.5% over the month, followed by gasoline stations rising 2.5% over the month.

Auto dealers, grocery stores, and building supply stores all posted average to slightly above average growth. Departments stores were the only major category displaying weakness, with sales fall 0.2% in September.

Read the Census report.

Friday, October 12, 2012

Slow Pace of Household Formation Adversely Impacted the Housing Market

Recent research by the Federal Reserve Bank of Cleveland noted that the United States had a sharp slowdown in the pace of household formation from 2007 through 2010 relative to trend. This slow rate of household formation adversely impacted the housing market, as lower household formation rates reduce housing demand.

From 1997 to 2007, about 1.5 million households were formed on average each year in the United States. When the Great Recession hit, household formation averaged about 500,000 per year for the next three years.

As a result, there were 2.5 million fewer households formed between 2007 and 2010 with almost three-quarters of the deficit attributed to young adults (ages 18 - 34).

The study concludes that "the sharp decline in home ownership rates for the younger cohort shows little sign of recovering, suggesting that when young adults start forming more households, it may have a stronger impact on the demand for rental properties than owner-occupied housing over the near term."

Read the report.

Producer Prices Rose 1.1% in September

Produce prices appreciated 1.1% in September, a stronger pace than expected, but much slower than August's 1.7% growth.

September's gain was almost entirely driven by food and fuel prices, as core finished goods failed to appreciate in September. Producer price appreciation from one year ago rose slightly to 2.2%, slightly higher than August's 2.0%, but much lower than the nearly 5% seen throughout much of last year.


Prices for finished energy goods rose 4.7% in September, their second consecutive jump following several months of depreciation. The finished consumer foods index also appreciated, but by a more mild 0.2%.

Prices at earlier stages of production appreciated notably as well, with intermediate goods rising 0.6% in September and crude goods rising 1.6%. However, both measures have still depreciated from year-ago levels, 1.1% and 8.8% respectively.

Read the BLS report.

Thursday, October 11, 2012

CBO Estimates TARP Bank Programs Will Yield a Net Gain of $26 Billion for Taxpayers

Today the Congressional Budget Office (CBO) released the latest in a series of statutory reports on transactions undertaken as part of the Troubled Asset Relief Program (TARP). CBO estimates that the net cost of TARP, including the cost of grants for mortgage programs that have not been made yet, will amount to about $24 billion.

The cost is largely from Treasury’s investments in AIG, aid to the automotive industry, and grant programs aimed at avoiding home foreclosures. The CBO has estimated these investments will cost roughly $51 billion.

The CBO did remark that not all of TARP’s investments will end up costing the government money. CBO estimates TARP’s investment in banks will, taken together, yield a net gain of about $26 billion.

CBO has lowered its estimate of the cost of the TARP’s transactions by $8 billion since the agency’s previous report in March; at that time CBO estimated a cost of $32 billion. The decrease in the estimated cost stems primarily from an increase in the market value of the government’s investments in AIG.

Read the CBO report.

U.S. Trade Gap Widened by 4% in August

The trade deficit in the U.S. grew in August to $44.2 billion, its highest level since May. Despite the widening, the trade gap remains below its 6-month average of $46.3 billion. August’s report also revised July’s trade deficit, widening it from $42.0 to $42.5 billion.



Imports dropped slightly below July levels, falling just 0.2 billion to $225.5 billion. The decline was driven by weak domestic demand.

Weak overseas growth led exports to fall more than imports, falling $1.9 billion to $181.3 billion in August.

The real goods deficit, which is important for GDP, widened by $1.4 billion to $48.4 billion.

Read the Census report.

Tuesday, October 9, 2012

ABA Releases Statement on FDIC Deposit Insurance Fund Forecast

By James Chessen, ABA’s Chief Economist

“The rapid recapitalization of the Deposit Insurance Fund reflects an industry that is stronger today than at any point in the last four years. The banking industry is returning to profitability and failures continue to decline sharply. As a result, the Deposit Insurance Fund is growing faster than expected and will have the resources to weather any contingency that could arise.

“The economy faces many challenges over the coming year, but the industry’s improved health and near-record capital levels leaves us well prepared. A strong and profitable banking system is an essential ingredient for a sustained economic recovery.

“The industry is committed to rebuilding the FDIC fund. A strong FDIC is important both for banks and our depositors. Banks are solely responsible for all of the FDIC’s expenses, with the FDIC forecasting about $12.4 billion in premiums this year. This means that premium revenue for one year more than covers losses expected over the next five years. This report makes it clear that the fund is recapitalizing much faster than the FDIC had expected.

“ABA continues to support a temporary two-year extension of the Transaction Account Guarantee (TAG) program. An extension would have no material impact on the pace of recapitalization and would provide businesses with a bit of certainty in a very uncertain economy.”

Small Business Optimism Dropped in September

The NFIB’s Small Business Optimism Index dropped slightly in September, however saw sharp declines in employment figures. The overall index fell 0.1 points to a reading of 92.8, pulled down by a 6 point drop in job creation plans.

Financing remained the least cited problem for small businesses in September, with only 2% of respondents reporting it as their single most important problem. This is only one point above the survey low, of 1%. Taxes, Government requirements, and poor sales were all tied as the single most important problem facing small businesses, with 21% of respondents citing each.



The employment portion of the report was by far the weakest in September, with only a net 4% of respondents planning to increase employment, down 6 points from the previous month. This is down to historically weak levels, especially for a recovery. The number of companies reporting current job openings fell as well, dropping 1 point to 17%.

Read the full NFIB report.

IMF Downgrades Global Growth Forecast

The IMF has cut its global growth forecast, with the eurozone debt crisis and the U.S. fiscal cliff being the key downside risks. The world economy is expected to grow at 3.3% this year and 3.6% next. These forecasts are lower than the 3.5% and 3.9% forecast in 2012 and 2013 in the IMF's July forecast. The "key reason is that policies in the major advanced economies have not rebuilt confidence in medium-term prospects. Tail risks, such as those relating to the viability of the euro area or major U.S. fiscal policy mistakes, continue to preoccupy investors."

The IMF forecast calls for the European economy to shrink 0.4% this year and expand just 0.2% next, with both Italy and Spain remaining in recession next year. U.S. Growth is forecast to reach 2.2% this year and 2.1% in 2013.

Read the IMF's updated World Economic Outlook.

Friday, October 5, 2012

Consumer Credit Grew $18.1 Billion in August

After Falling in July, consumer credit rebounded well in August, growing by $18.1 billion. Both revolving and non-revolving consumer credit contributed to August’s growth. Consumer credit balances are now 5.5% above year-ago levels, the strongest since last November.



Revolving credit grew $4.2 billion (6.1%), its first gain in three months. Revolving credit balances have been slower than non-revolving balances to recover, and remain almost 17% below their 2008 peak.



Non-revolving balances continued to drive the growth in August, growing by $13.9 billion (9.4%). This category consists primarily of student loans and automobile loans. Non-revolving credit balances are more than 20% higher than their pre-recession peak. Student loans continue to be the primary driver of student loan growth, as can be seen in the non-seasonally adjusted numbers below.



Read the Federal Reserve release.

Economy Added 114,000 Jobs in September and Unemployment Fell to 7.8%

Employment increased by 114,000 in September, in line with expectations, but a relatively slow pace nonetheless. Despite the slow job growth, the unemployment rate continued to fall, reaching 7.8% in September. This report also saw July and August’s employment gains revised up to 142,000 and 181,000 respectively, a net gain of about 86,000 jobs.



The most notable element of September’s report, the drop in the unemployment rate, was due to large increases in employment numbers in the household employment. The household employment numbers come from a different survey than the headline payroll numbers. September’s household survey has employment increasing by 873,000, although it is best to take this number with a grain of salt, as the household employment data tends to be volatile.



September’s job growth was the slowest since the anemic growth seen in June, when the economy only created 45,000 jobs. Although the upward revisions to August and July’s growth were encouraging, job creation remains weak. The service sector continues to drive job growth, adding 124,000 jobs in September. The goods producing sector continued to drag on job creation in September, shedding 10,000 jobs.

Labor force participation ticked up in September, rising to 63.6% from 63.5% the previous month.

We have updated our Chart of the Week from earlier this week in our full post.

Thursday, October 4, 2012

Chart of the Week: Real Unemployment



"When adjusted for significant departures from the labor force, the unemployment rate jumps above 12 percent. That’s over 7 million people out of work that are not accounted for in the official unemployment rate."

- ABA Chief Economist James Chessen

Romney Addressed QM Definition in Debate

In last night’s presidential debate, Governor Romney addressed the issue of defining qualified mortgages under Dodd Frank.

“Dodd-Frank correctly says we need to have qualified mortgages, and if you give a mortgage that’s not qualified, there are big penalties. Except they didn’t ever go on to define what a qualified mortgage was.” He continues to say, “It’s been two years. We don’t know what a qualified mortgage is yet. So banks are reluctant to make loans, mortgages. Try and get a mortgage these days. It’s hurt the housing market because Dodd-Frank didn’t anticipate putting in place the kinds of regulations you have to have. It’s not that Dodd- Frank always was wrong with too much regulation. Sometimes they didn’t come out with a clear regulation.”

Consumer Delinquencies Continue Decline in Second Quarter 2012

Consumer delinquencies continued to decline in the second quarter of 2012, with bank card delinquencies falling to 11-year lows as consumers shore up their financial base in an uncertain economy, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin.

During the second quarter, bank card delinquencies dropped below three percent of accounts for the first time since 2001, falling 15 basis points to 2.93 percent of all accounts and well below the 15-year average of 3.91 percent.

The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 11 basis points to 2.24 percent of all accounts in the second quarter, below the 15-year average of 2.40 percent. The ABA report defines a delinquency as a late payment that is 30 days or more overdue.

James Chessen, ABA’s chief economist, attributed the improvement to continued efforts by consumers to manage their finances.

“Consumers are saving more and borrowing less as they work to pay down debt at a faster rate,” Chessen said. “Economic uncertainty has made consumers hesitant to take on new debt, and building a stronger financial base has become a priority.”



While Chessen found the continued decline encouraging, the report didn’t reflect the kind of comprehensive improvement across categories seen in the first quarter.

“The lack of broad-based improvement gives us pause about the future,” Chessen said. “The economy experienced turbulence in the second quarter. Slow job growth and continued uncertainty means many consumers will face challenges managing their debt going forward.”

Chessen also noted that delinquencies in all three categories of home-related loans rose in the second quarter.
“While the housing market appears to have turned a corner, we are many quarters away from seeing improvement filter through to reduce home-related delinquencies,” Chessen said.

Chessen said consumers should be congratulated on their prudent and cautious behavior toward credit, particularly given the uncertainty they face.

“Good financial planning is the best defense against inevitable economic bumps in the road that lie ahead,” he said. “The economic path is far from certain as Europe continues to struggle and big decisions are needed to deal with the looming U.S. debt cliff.”

Looking forward, Chessen believes that the future outlook depends on a growing economy with stronger job growth.

“A robust economy is the best protector against increased delinquencies,” Chessen said.

The second quarter 2012 composite ratio is made up of the following eight closed-end loans. All figures are seasonally adjusted based upon the number of accounts.

Read ABA's full release.

Wednesday, October 3, 2012

ISM Non-Manufacturing Strong in September

The ISM non-manufacturing index unexpectedly improved in September, rising 1.4 points to reach 55.1. The index is now well above its second quarter average and at levels consistent with economic expansion. The index is at its highest level since March.



The details of September’s report were strong as well. New orders gained 4 points rising to a reading of 57.7, its strongest level since March. Business activity also rose, reaching 59.9, its highest level since February.

The employment index lost some ground in September, falling from 53.8 to 51.1, however remains in expansionary territory. Export orders also fell slightly as a global slowdown dampened demand.

Read the ISM release.

ADP Employment Increased by 162,000

Employment in the nonfarm private sector increased by 162,000 in September according to the National Employment Report published by ADP today. September’s growth represents a slowing from August’s downwardly revised pace of 189,000 jobs. ADP has not tracked especially close to the BLS’s payroll estimates in recent months. In August the BLS reported that the economy added just 96,000 jobs despite the strong ADP number. Despite the recent discrepancies, September’s report is strong, well above the six-month average of 153,000 Jobs.



Job gains continue to be centered in the service sector, which added 144,000 jobs in September, down from 175,000 jobs in August. Goods producing employment rose from August, with 18,000 new goods producing jobs in September. Manufacturing continued to add jobs as well, contributing 4,000 to September’s growth.

REad the ADP release.

Tuesday, October 2, 2012

2012 Holiday Sales to Miss 2011 Level

The National Retail Federation in releasing its forecast for the 2012 holiday season, which shows sales increasing less than the 2011 holiday season. "Tempered by political and fiscal uncertainties but supported by signs of improvement in consumer confidence, holiday sales this year will increase by 4.1% to $586.1 billion." This is down from the 5.6% growth seen in the 2011 holiday season, but remains above the 10-year average holiday sales increase of 3.5%. The NRF expects retailers to hire between 585,000 and 625,000 seasonal workersthis holiday season, in line with the 607,000 hired last year.

Monday, October 1, 2012

ISM Manufacturing Recovered in September

The ISM’s manufacturing index recovered in September, reentering expansionary territory with a reading of 51.5. The index was at 49.6 in August and had remained below expansionary territory for three consecutive months. Although manufacturing has a long way to go before matching its April highs of nearly 55, it is good to see the index indicate industry expansion.



The production portion of the index remained below expansionary territory in September, with a reading of 49.5. Despite the low production reading, the details were largely postitive. New orders surged in September, reaching 52.3 from a low 47.1 in August. The employment index surged as well, gaining almost 3 points and reaching 54.7, making it the strongest component of the composite. The gap between new orders and inventories, a proxy for future production, returned to a positive spread of 2 points in September. Some other details remain a concern however, with new export orders remaining weak at 48.5.

Read the ISM release.

Construction Spending Fell 0.6% in August

Construction spending fell for the second consecutive month in August, falling 0.6% below July’s level. Despite the fall, construction spending remains 6.5% above year-ago levels. Residential construction was the strong point in August, growing 0.9%, however was unable to offset the fall in private non-residential spending which fell 1.7%.



Spending on new multifamily homes continues to drive residential home spending growth, rising 3.7% in august, and remaining 44.8% above year-ago levels. Spending on single family homes increased as well, gaining 2.8% in August, 20.8% over year-ago levels.

Public construction was a drag on growth as well, falling 0.8% in August after falling 0.5% the previous month.

Read the Census report.