See you on Tuesday, not Monday.
Friday, September 3, 2010
Weekly Indicators: Honor Labor Edition
- by New Deal democrat
On Labor Day weekend, let us remember and vow to assist the 8 million workers who have been thrown out of their jobs since the beginning of the Great Recession, and to continue to press for policies thaat will get them all back to work. Bonddad had an extremely good idea earlier this week.
In the meantime, this morning we found out that, excluding the census, there were +60,000 jobs added in August. As I said last week, the critical part of this report I wanted to see was whether weakness would be confined to the two areas of expired stimulus - housing construction / real estate and state and local employment; or whether it was spreading out into other area. The answer is, the report was better on that score than I could have hoped. Government losses, ex-census, were only 7,000. Construction gained jobs (due to the ending of a strike), but was otherwise flat. The gains were relatively small, but they were broad-based. The household survey showed a gain of +290,000, for a gain of 1,438,000 so far this year - double that of the establishment survey. The report validated looking at the American Staffing Association Index, as 392,000 of the 763,000 jobs gained in the establishment survey so far this year have been temp jobs. Hours worked in manufacturing were up +0.1, which will add +0.07 to the LEI. One downside was the increase in U6 from 16.5% to 16.7%.
Other monthly data reported this week was either flat: auto sales, personal income, the ISM manufacturing index (a positive surprise though); or higher: personal spending, factory orders, pending home sales (also a positive surprise). So were August same store sales, up 3.2%. The savings rate declined, but that is good for the near term for growth. Construction spending continued to decline.
Now here's a look at high frequency weekly indicators:
The Mortgage Bankers' Association reported that "the Refinance Index increased 2.8 percent from the previous week and is at its highest level since May 1, 2009.... The seasonally adjusted Purchase Index increased 1.8 percent from one week earlier." The Purchase index continues to move generally sideways after bottoming. Refinancing is becoming a real story, having almost relentlessly risen since rates cratered 4 months ago, and is beginning to approach its highs from ! 1/2 years ago. Household debt is being delevered dramatically. This is a good sign for the future.
The ICSC reported same store sales for the week ending August 29 rose 2.8% vs. a year earlier, and also barely up +0.1% from the prior week. Shoppertrak, on the other hand, reported that "retail sales increased 5.4 percent for the week ending August 28 while sales slipped 4.6 percent versus the previous week ending August 21." A brief side note: there is a commenter who continues to repeat Mish's claim of survivor bias in same store sales. Aside from the fact that we have debunked this claim as to the census bureau data, readers may wish to ponder why the ICSC raw number tanked when Walmart pulled out of the survey.
Gas prices decreased $.02 to $2.68 a gallon, testing new lows since Oil peaked in April. At 9.386 million barrels consumed a day vs. 9.478 the same week last August, this is the first week in a while in YoY decline -- but 2009's number was an outlier, so I am not giving this much weight.
The BLS reported 472,000 new jobless claims, the second week back in its 8 month range. This time of year is the lowest "seasonal" layoff period, meaning unexpected layoffs get greater weight. With the census mainly unwound, and local school years having started, will we see declines in the weeks ahead?
Railfax once again showed substantial growth vs. last year in all 4 sectors: Cyclical, intermodal, baseline, and total traffic all continued to move significantly up, and intermodal traffic remains at new highs. Rail traffic seems to be an excellent real-time indicator of the economy, and has suggested that the downturn foreseen in the LEI beginning in April has already been happening. Rail traffic may now be telling us that the downturn in the private sector at least may be abating.
The American Staffing Association reported that for the week ending August 22, temporary and contract employment remained even at its two year high of 95.0.
M1 increased +1.3% in the last week, about 2.0% month over month, and up 5.0% YoY, so “real M1” is up 3.7%. M2 increased 0.15% in the last week, +0.5% month over month, and up 2.7% YoY, so “real M2” is up 1.4%. Real M1 remains a positive sign, while real M2 continues to counsel caution.
Weekly BAA commercial bond rates continued to drop, .05% more last week to 5.51%. If there are creditworthiness issues arising due to an anticipated "double-dip", they certainly aren't showing up here! BTW, this is confirmed by the fact the DJ Bond Index continues to make new weekly highs.
The Daily Treasury Statement ended August at $135.5 B vs. $126.4 B a year ago, a gain of $9.1 B or 7.4%%. For the last 20 reporting days, we are up ~4% vs. a year ago..
Bottom line: For the second week in a row, almost all of the weekly indicators were positive. Since April there have been a lot of weeks when the bear ate us, so we can be thankful that for a couple of weeks now, we have eaten the bear instead.
---
P.S.: A brief programming note. Although we are "closed" for the holiday, I may paste a tome on outsourcing and productivity if I don't party or sleep too much!
Whether you are a Doomer or a Happytalking Corporate Shill, enjoy your long weekend.
On Labor Day weekend, let us remember and vow to assist the 8 million workers who have been thrown out of their jobs since the beginning of the Great Recession, and to continue to press for policies thaat will get them all back to work. Bonddad had an extremely good idea earlier this week.
In the meantime, this morning we found out that, excluding the census, there were +60,000 jobs added in August. As I said last week, the critical part of this report I wanted to see was whether weakness would be confined to the two areas of expired stimulus - housing construction / real estate and state and local employment; or whether it was spreading out into other area. The answer is, the report was better on that score than I could have hoped. Government losses, ex-census, were only 7,000. Construction gained jobs (due to the ending of a strike), but was otherwise flat. The gains were relatively small, but they were broad-based. The household survey showed a gain of +290,000, for a gain of 1,438,000 so far this year - double that of the establishment survey. The report validated looking at the American Staffing Association Index, as 392,000 of the 763,000 jobs gained in the establishment survey so far this year have been temp jobs. Hours worked in manufacturing were up +0.1, which will add +0.07 to the LEI. One downside was the increase in U6 from 16.5% to 16.7%.
Other monthly data reported this week was either flat: auto sales, personal income, the ISM manufacturing index (a positive surprise though); or higher: personal spending, factory orders, pending home sales (also a positive surprise). So were August same store sales, up 3.2%. The savings rate declined, but that is good for the near term for growth. Construction spending continued to decline.
Now here's a look at high frequency weekly indicators:
The Mortgage Bankers' Association reported that "the Refinance Index increased 2.8 percent from the previous week and is at its highest level since May 1, 2009.... The seasonally adjusted Purchase Index increased 1.8 percent from one week earlier." The Purchase index continues to move generally sideways after bottoming. Refinancing is becoming a real story, having almost relentlessly risen since rates cratered 4 months ago, and is beginning to approach its highs from ! 1/2 years ago. Household debt is being delevered dramatically. This is a good sign for the future.
The ICSC reported same store sales for the week ending August 29 rose 2.8% vs. a year earlier, and also barely up +0.1% from the prior week. Shoppertrak, on the other hand, reported that "retail sales increased 5.4 percent for the week ending August 28 while sales slipped 4.6 percent versus the previous week ending August 21." A brief side note: there is a commenter who continues to repeat Mish's claim of survivor bias in same store sales. Aside from the fact that we have debunked this claim as to the census bureau data, readers may wish to ponder why the ICSC raw number tanked when Walmart pulled out of the survey.
Gas prices decreased $.02 to $2.68 a gallon, testing new lows since Oil peaked in April. At 9.386 million barrels consumed a day vs. 9.478 the same week last August, this is the first week in a while in YoY decline -- but 2009's number was an outlier, so I am not giving this much weight.
The BLS reported 472,000 new jobless claims, the second week back in its 8 month range. This time of year is the lowest "seasonal" layoff period, meaning unexpected layoffs get greater weight. With the census mainly unwound, and local school years having started, will we see declines in the weeks ahead?
Railfax once again showed substantial growth vs. last year in all 4 sectors: Cyclical, intermodal, baseline, and total traffic all continued to move significantly up, and intermodal traffic remains at new highs. Rail traffic seems to be an excellent real-time indicator of the economy, and has suggested that the downturn foreseen in the LEI beginning in April has already been happening. Rail traffic may now be telling us that the downturn in the private sector at least may be abating.
The American Staffing Association reported that for the week ending August 22, temporary and contract employment remained even at its two year high of 95.0.
M1 increased +1.3% in the last week, about 2.0% month over month, and up 5.0% YoY, so “real M1” is up 3.7%. M2 increased 0.15% in the last week, +0.5% month over month, and up 2.7% YoY, so “real M2” is up 1.4%. Real M1 remains a positive sign, while real M2 continues to counsel caution.
Weekly BAA commercial bond rates continued to drop, .05% more last week to 5.51%. If there are creditworthiness issues arising due to an anticipated "double-dip", they certainly aren't showing up here! BTW, this is confirmed by the fact the DJ Bond Index continues to make new weekly highs.
The Daily Treasury Statement ended August at $135.5 B vs. $126.4 B a year ago, a gain of $9.1 B or 7.4%%. For the last 20 reporting days, we are up ~4% vs. a year ago..
Bottom line: For the second week in a row, almost all of the weekly indicators were positive. Since April there have been a lot of weeks when the bear ate us, so we can be thankful that for a couple of weeks now, we have eaten the bear instead.
---
P.S.: A brief programming note. Although we are "closed" for the holiday, I may paste a tome on outsourcing and productivity if I don't party or sleep too much!
Whether you are a Doomer or a Happytalking Corporate Shill, enjoy your long weekend.
Mish has lost all credibility re State Sales Tax Receipts
- by New Deal democrat
I last blogged about Mish's accidental bottom ticking in early July, saying that The Emperor of Doom wears no Clothes, shredding his claim that retail sales gains were a mirage because, allegedly, state sales tax returns were still declining. Here's what he said then:
In rebuttal to a comment our reader Constant Learner attempted to leave on his blog, Mish cited an article from July 2009 w/r/t tax increases in many states that rose earlier in 2009. Any of those increases already in effect in May 2009 are equally applicable to both years and support the data I cited. He also cited a California article that references the many tax increases that took place beginning in April 2009. Again these are applicable to both years and so support my point.
Well, as Bonddad reported earlier this week, the Rockefeller Institute came out with its initial report on second quarter state revenues. Mish duly quoted them as follows (my emphasis):
Florida:
FL up 2.6% YoY in July
Ohio:
Ohio up 9.6% in July
New Jersey's data was unavailable.
Since both of the articles Mish cited two months ago dealt with tax increases that predated the second half of 2009, they don't apply, as previous tax hikes wouldn't affect YoY July numbers. I eagerly await Mish's attempt to discover tax hikes in those states that occurred after last July.
I last blogged about Mish's accidental bottom ticking in early July, saying that The Emperor of Doom wears no Clothes, shredding his claim that retail sales gains were a mirage because, allegedly, state sales tax returns were still declining. Here's what he said then:
Month in and month out we hear the same nonsense about retail sales. I will believe it when I see state sales tax collections support the claims.Unfortunately for Mish's claim, checking state sales tax collection reports showed that in the second quarter almost all of them were increasing!
....
states have been reporting declining sales tax collections for the entire year.
In rebuttal to a comment our reader Constant Learner attempted to leave on his blog, Mish cited an article from July 2009 w/r/t tax increases in many states that rose earlier in 2009. Any of those increases already in effect in May 2009 are equally applicable to both years and support the data I cited. He also cited a California article that references the many tax increases that took place beginning in April 2009. Again these are applicable to both years and so support my point.
Well, as Bonddad reported earlier this week, the Rockefeller Institute came out with its initial report on second quarter state revenues. Mish duly quoted them as follows (my emphasis):
Sales tax collections increased by 5.9 percent in the second quarter of 2010 compared to the same quarter of 2009, but were still 5.4 percent lower than two years ago. With 42 of 45 sales-tax states reporting so far, only seven states reported declines in sales tax collections compared with the same quarter last year.To which Mish replied (without any reference to supporting data):
Much of the improvement in sales taxes is a result of tax hikes, not increased sales. Those effects will soon wear off in year-over-year comparisonsNote btw that Mish doesn't say tax increases are responsible for all of the improvement, just an undefined "much" of it.
So let's review:
1. Mish says that "I will believe [increases in retail sales data] when I see state sales tax collections support the claims."
2. The Rockefeller Institute reports that sales tax collections increased.
3. Mish discounts the Rockefeller Institute report, without citation to contrary data.
Mish has lost all credibility when it comes to state sales tax receipts.
And by the way, contrary to his last sentence, July state sales tax receipts don't help him out either. Here they are:
New York:
sales tax receipts up 7.7%
total tax receipts up 6.8%
Indiana
Indiana up 10% YoY in June
Texas:
Texas up 7.6% YoY
Tennessee"
Tennessee July up 5.94% YoY
Alabama
Alabama up 1.31%
Georgia:
Georgia up 2.4%
4.7% total tax revenues
California:
Calif up 1.2% YoY June (UPDATE: July up almost 20%)
1. Mish says that "I will believe [increases in retail sales data] when I see state sales tax collections support the claims."
2. The Rockefeller Institute reports that sales tax collections increased.
3. Mish discounts the Rockefeller Institute report, without citation to contrary data.
Mish has lost all credibility when it comes to state sales tax receipts.
And by the way, contrary to his last sentence, July state sales tax receipts don't help him out either. Here they are:
New York:
sales tax receipts up 7.7%
total tax receipts up 6.8%
Indiana
Indiana up 10% YoY in June
Texas:
Texas up 7.6% YoY
Tennessee"
Tennessee July up 5.94% YoY
Alabama
Alabama up 1.31%
Georgia:
Georgia up 2.4%
4.7% total tax revenues
California:
Calif up 1.2% YoY June (UPDATE: July up almost 20%)
Florida:
FL up 2.6% YoY in July
Ohio:
Ohio up 9.6% in July
New Jersey's data was unavailable.
Since both of the articles Mish cited two months ago dealt with tax increases that predated the second half of 2009, they don't apply, as previous tax hikes wouldn't affect YoY July numbers. I eagerly await Mish's attempt to discover tax hikes in those states that occurred after last July.
The Employment Report, Part II
From the BLS:
The duration of employment numbers were interesting:
Less than 5 weeks: -79,000
5-14 weeks: + 575,000
15-26 weeks: + 84,000
27 + weeks: -323,000
The increase in the 5-14 weeks is probably caused by the recent increase in initial unemployment claims. The decrease in the 27 + weeks in also interesting. However, at the current pace of job creation this months decrease will eventually move higher as the people who increased the 5-14 weeks number move out the time line.
In addition, we have the following revisions:
The pace of job creation was better than thought the last two months.
Average weekly hours stayed the same at 34.2
Average hourly earnings increased 6 cents
Average weekly earnings increased $2.05
The index of average weekly hours remained the same at 92.4
There is nothing in these numbers to get excited about. As I mentioned in the previous post, on a scale of 1-10 this is a 3.5.
The duration of employment numbers were interesting:
Less than 5 weeks: -79,000
5-14 weeks: + 575,000
15-26 weeks: + 84,000
27 + weeks: -323,000
The increase in the 5-14 weeks is probably caused by the recent increase in initial unemployment claims. The decrease in the 27 + weeks in also interesting. However, at the current pace of job creation this months decrease will eventually move higher as the people who increased the 5-14 weeks number move out the time line.
In addition, we have the following revisions:
The change in total nonfarm payroll employment for June was revised from -221,000 to -175,000, and the change for July was revised from -131,000 to -54,000.
The pace of job creation was better than thought the last two months.
Average weekly hours stayed the same at 34.2
Average hourly earnings increased 6 cents
Average weekly earnings increased $2.05
The index of average weekly hours remained the same at 92.4
There is nothing in these numbers to get excited about. As I mentioned in the previous post, on a scale of 1-10 this is a 3.5.
The Employment Report, Part 1
From the BLS:
Let's start with the household survey.
The civilian, non-institutional population increased by 209,000. This is the denominator of several important macro statistics.
The civilian labor force increased 550,0000, for an increase in the labor force participation rate of .1%, increasing from 64.6% to 64.7%.
The number of unemployed increased 261,000, leading to an increase in the unemployment rate of .1%, increasing the level from 9.5% to 9.6%.
The number of employed increased by 290,000, for an increase of the employment to population ration of .1% or a rise from 58.4% to 58.5%.
The increase in the labor force tells us the more people moved back into the labor force. There are far too many reasons for this to ascribe a good or bad label to it.
It is important to remember that with the workforce getting older, we will start to see a decrease in the employment to population ratio and the labor force participation rate.
Let's move onto the establishment survey.
Total private hiring increased 61,000, 107,000 and 67,000 over the last three months. This is not an inspiring series of numbers and indicates that employers are extremely cautious about something.
Goods producing job gains stood at 0 as increases in mining and construction were offset by decreases in manufacturing. The decreases in manufacturing are consistent with the lower numbers we have been seeing in various regional manufacturing surveys over the last few months.
The service sector was responsible for all of the gains in the work force, accounting for 67,000 jobs. The bulk of these jobs came in the professional service category (+20,000) and education and health care services (+45,000). This number has printed at 60,000 and 70,000 for the preceding two months -- again, a very uninspiring series of numbers.
Government employees are responsible for the bulk of all the job losses for the last three months, as this category of employment has decreased by 236,000, 161,000 and 121,000 for the last three months, respectively.
On a scale of 1-10, I'd give this about 3.5. The private sector is hiring, but just barely. Manufacturing -- which led us out of the recovery -- is slowing and the service sector is having difficulty picking up the slack.
Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of LaborStatistics reported today. Government employment fell, as 114,000 temporaryworkers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000)
Let's start with the household survey.
The civilian, non-institutional population increased by 209,000. This is the denominator of several important macro statistics.
The civilian labor force increased 550,0000, for an increase in the labor force participation rate of .1%, increasing from 64.6% to 64.7%.
The number of unemployed increased 261,000, leading to an increase in the unemployment rate of .1%, increasing the level from 9.5% to 9.6%.
The number of employed increased by 290,000, for an increase of the employment to population ration of .1% or a rise from 58.4% to 58.5%.
The increase in the labor force tells us the more people moved back into the labor force. There are far too many reasons for this to ascribe a good or bad label to it.
It is important to remember that with the workforce getting older, we will start to see a decrease in the employment to population ratio and the labor force participation rate.
Let's move onto the establishment survey.
Total private hiring increased 61,000, 107,000 and 67,000 over the last three months. This is not an inspiring series of numbers and indicates that employers are extremely cautious about something.
Goods producing job gains stood at 0 as increases in mining and construction were offset by decreases in manufacturing. The decreases in manufacturing are consistent with the lower numbers we have been seeing in various regional manufacturing surveys over the last few months.
The service sector was responsible for all of the gains in the work force, accounting for 67,000 jobs. The bulk of these jobs came in the professional service category (+20,000) and education and health care services (+45,000). This number has printed at 60,000 and 70,000 for the preceding two months -- again, a very uninspiring series of numbers.
Government employees are responsible for the bulk of all the job losses for the last three months, as this category of employment has decreased by 236,000, 161,000 and 121,000 for the last three months, respectively.
On a scale of 1-10, I'd give this about 3.5. The private sector is hiring, but just barely. Manufacturing -- which led us out of the recovery -- is slowing and the service sector is having difficulty picking up the slack.
Yesterday's Market
Yesterday, prices gapped slightly higher at the open (a), and rode the EMAs a bit higher before consolidating gains in a downward sloping triangle (b). After breaking out of the triangle (c), prices rose again before consolidating again (d), and then rising into the close on increasing volume (e). This is the second day in a row that prices have closed near their daily highs.
Prices have moved through the 10, 20 and 50 day EMA, and are now right below the 200 day EMA.
Treasuries are right at critical support. A close below this level with downside follow-through would be very bullish for the stock market.
Yesterday prices gapped lower at the open (a) moved lower but with the MACD moving sideways a reversal shouldn't have been a surprise. Prices bottomed, rose a bit but in reality traded in a very tight range for the rest of the day.
Both the equity and bond markets are waiting for tomorrow's employment report. Both stand at important technical levels, ready to make important moves in either direction.
Oil had a strong rally yesterday (A). There were three strong advances (C) followed by areas of consolidation (B).
Gold continues its upward advance (A). Notice the bullish orientation of the EMAs (B) with the shorter above the longer and all moving higher. In addition, the MACD is still bullish (C). However, prices are nearing key areas of resistance (D).
Thursday, September 2, 2010
Quarterly Banking Profile, Part II
Let's turn our attention to loan quality:
The FDIC divides banks according to asset size, focusing on the lines between above and below $1 billion. Notice that over 50% of largest institutions had lowered loan-loss reserves. This is a good development as the US banking system is fairly concentrated. However, only 40% of smaller banks reported a drop in the loan-loss reserve, indicating this part of the industry is still under pressure.
The decline in charge-offs is also extremely good news, as is the breadth of the lowered charge-offs. This indicates improvement in the general loan picture.
This decline in non-current loans -- both its occurrence and the breadth of its occurrence -- is very good news. It is important to caution this is the first decline we're seen in a few years, so some caution going forward is warranted (one quarter does not make a trend).
Again -- these are are healthy developments.
Here are the relevant charts:
Notice the pace of quarterly charge-offs appears to be topping -- we've seen more or less the same level for the last 5 quarters.
Charge - offs are higher than loan loss provisons
The drop -- so far -- is only one quarter of data coming from a very high level. While this is an encouraging development, we need a few more quarters of data before declaring victory.
Non-current rates on residential mortgages appear to be topping, although at high rates.
These levels are sky high.
The non-current rate for larger institutions is dropping, but was also at a higher rate than that for smaller institutions. Also note the rate for smaller institutions also appears to be toppin.
Insured institutions added $40.3 billion in provisions to their loan-loss allowances in the second quarter. While still high by historic standards, this is the smallest total since the industry set aside $37.2 billion in first quarter 2008 and is $27.1 billion (40.2 percent) less than the industry’s provisions in second quarter 2009. Fewer than half of all institutions (41.3 percent) reported year-over-year reductions in quarterly loss provisions. Only 40 percent of community banks (institutions with less than $1 billion in assets) reported year-over-year declines. Reductions were more prevalent among larger institutions. More than half (56.2 percent) of institutions with assets greater than $1 billion had lower provisions in the second quarter.
The FDIC divides banks according to asset size, focusing on the lines between above and below $1 billion. Notice that over 50% of largest institutions had lowered loan-loss reserves. This is a good development as the US banking system is fairly concentrated. However, only 40% of smaller banks reported a drop in the loan-loss reserve, indicating this part of the industry is still under pressure.
Net charge-offs totaled $49 billion in the second quarter, a $214-million (0.4 percent) decline from a year earlier and the first year-over-year decline since fourth quarter 2006. Charge-offs were lower than a year ago in most major loan categories except for credit cards and real estate loans secured by nonfarm nonresidential properties. Charge-offs on loans to commercial and industrial (C&I) borrowers were $3.1 billion (37.0 percent) lower than a year ago, while charge-offs on real estate construction and development (C&D) loans were $2.7 billion (34.6 percent) lower. Charge-offs of one-to-four family residential mortgage loans were down by $1.4 billion (16.0 percent). Credit card charge-offs were $8.6 billion (86 percent) higher than in second quarter 2009. Most, if not all, of this increase was attributable to the inclusion of charge-offs on securitized credit card balances, which were not included in reported charge-offs in previous years. The change in reporting was the result of the application of FASB 166 and 167. In contrast, the $1.8 billion (107.2 percent) year-over-year increase in charge-offs of nonfarm nonresidential real estate loans reflected further deterioration in commercial real estate portfolios. Almost half (49.1 percent) of insured institutions with more than $1 billion in assets reported lower net charge-offs, while only 43.6 percent of community banks reported year-over-year declines.
The decline in charge-offs is also extremely good news, as is the breadth of the lowered charge-offs. This indicates improvement in the general loan picture.
The amount of loans and leases that were noncurrent (90 days or more past due or in nonaccrual status) declined by $19.6 billion (4.8 percent) during the second quarter. This is the first quarterly decline in noncurrent loans since first quarter 2006. Noncurrent levels declined in most major loan categories during the quarter. The sole exception was nonfarm nonresidential real estate loans, where noncurrents increased by $547 million (1.2 percent), the smallest quarterly increase in three years. The largest reduction in noncurrent loans in the quarter occurred in real estate C&D loans, where noncurrents fell by $5.9 billion (8.3 percent). This is the third consecutive quarter that noncurrent C&D loans have declined. Noncurrent C&I loans also declined for a third straight quarter, falling by $2.7 billion (7.3 percent), while noncurrent residential mortgage loans declined by $4.7 billion (2.5 percent) and noncurrent credit cards fell by $4.2 billion (19 percent). Slightly fewer than half of all institutions (48.9 percent) reported declines in their noncurrent loan balances during the quarter. Noncurrent loan balances fell by 5.3 percent at institutions with more than $1 billion in assets and rose by 0.3 percent at community banks.
This decline in non-current loans -- both its occurrence and the breadth of its occurrence -- is very good news. It is important to caution this is the first decline we're seen in a few years, so some caution going forward is warranted (one quarter does not make a trend).
Total loan-loss reserves of insured institutions fell for the first time since fourth quarter 2006, declining by $11.8 billion (4.5 percent), as net charge-offs of $49 billion exceeded loss provisions of $40.3 billion. Almost two out of three institutions (61.7 percent) increased their loss reserves in the second quarter, but a number of large banks reduced their loss provisions, producing net declines in their reserve balances. In particular, some institutions that converted equity capital into reserves in the first quarter in accordance with the requirements of FASB 166 and 167 reported lower provisioning in the second quarter. Although the industry’s ratio of reserves to total loans fell from 3.50 percent to 3.40 percent during the quarter, it is still the second-highest level for this ratio in the 63 years for which data are available. The industry’s “coverage ratio” of reserves to noncurrent loans improved for a second consecutive quarter, from 64.9 percent to 65.1 percent, as the reduction in noncurrent loans slightly outpaced the decline in loss reserves.
Again -- these are are healthy developments.
Here are the relevant charts:
Notice the pace of quarterly charge-offs appears to be topping -- we've seen more or less the same level for the last 5 quarters.
Charge - offs are higher than loan loss provisons
The drop -- so far -- is only one quarter of data coming from a very high level. While this is an encouraging development, we need a few more quarters of data before declaring victory.
Non-current rates on residential mortgages appear to be topping, although at high rates.
These levels are sky high.
The non-current rate for larger institutions is dropping, but was also at a higher rate than that for smaller institutions. Also note the rate for smaller institutions also appears to be toppin.
Quarterly Banking Profile, Part 1
The FDIC released the quarterly banking profile several days ago. Today I want to delve into this very important report and highlight important development in the industry. Let's start with earnings:
Banks are setting aside less money for loan losses -- this is an extremely encouraging development, as it indicates that loan quality is either stabilizing or getting better (we'll get to this later today). The strong year over year comparisons are good and bad; they are good because there was a wide-spread increase, but bad because the YOY comparison is pretty easy to make. The breadth of the increases are a very good sign, although we're still seeing a large number of institutions with some pretty big losses.
One of the primary way banks make money is on the "spread" -- the difference between short and long-term rates. Banks lend money to depositors at short-term rates and make money lon loans which are usually of a longer term. In addition, with the yield curve currently pretty steep, banks are investing short term assets into bonds and pocketing the difference. Either way, the difference between short and long-term assets is an important one for banks. Also note the increase was "largely attributable" to an accounting change that forced banks to add a new asset to their interest bearing assets.
Here are some accompanying graphs.
Reductions in loan-loss provisions underscored improvement in asset quality indicators during second quarter 2010. The industry’s quarterly earnings of $21.6 billion are up dramatically from the year-ago loss of $4.4 billion and represent the highest quarterly earnings since third quarter 2007. Almost two out of three institutions (65.5 percent) reported higher year-over-year quarterly net income. The proportion of institutions reporting quarterly net losses remained high at 20 percent but was down from more than 29 percent a year earlier.
Banks are setting aside less money for loan losses -- this is an extremely encouraging development, as it indicates that loan quality is either stabilizing or getting better (we'll get to this later today). The strong year over year comparisons are good and bad; they are good because there was a wide-spread increase, but bad because the YOY comparison is pretty easy to make. The breadth of the increases are a very good sign, although we're still seeing a large number of institutions with some pretty big losses.
Net interest income was $8.5 billion (8.6 percent) higher than a year ago, as more than 70 percent of all institutions reported year-over-year increases. Net interest margins at almost 60 percent of institutions (58.6 percent) improved from a year earlier, as average funding costs fell more rapidly than average asset yields. The magnitude of the increase in net interest income was largely attributable to the application of Financial Accounting Standards Board (FASB) Statements 166 and 167 in 2010 at a small number of institutions with significant levels of securitized consumer loans; among other things, the new rules require that revenues from securitized loan pools that had previously been included in noninterest income be reflected in net interest income.1
One of the primary way banks make money is on the "spread" -- the difference between short and long-term rates. Banks lend money to depositors at short-term rates and make money lon loans which are usually of a longer term. In addition, with the yield curve currently pretty steep, banks are investing short term assets into bonds and pocketing the difference. Either way, the difference between short and long-term assets is an important one for banks. Also note the increase was "largely attributable" to an accounting change that forced banks to add a new asset to their interest bearing assets.
Here are some accompanying graphs.
At some point, Housing becomes a compelling bargain
- by New Deal democrat
Via Economist's View, here is commentary by Karl Case in the New York Times:
But Case is right. In some local markets, most notably those that were the most infested bubbilicious areas of half a decade ago, housing is already almost a steal.
For example, take Phoenix AZ. According to Housing Tracker, in April 2006, the median asking price for a property in the Phoenix area was $333,800 (and that was after the peak). As of this week, it is $149,000. That's a 55% decline. A search this morning for a 1800+ square foot single family home built less than 20 years ago generated 100s of results, including this house:
the asking price for which is $75,000. A 20% down payment is $15,000. A 30 year mortgage at 4.2% requires a monthly payment of $293.41.
Via Economist's View, here is commentary by Karl Case in the New York Times:
Four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of about 6.6 percent was $1,533. Today that $300,000 house would sell for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. In addition, the down payment would be $42,600 instead of $60,000....
[H]ousing has perhaps never been a better bargain, and sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again.I suspect that as to sales, housing is bottoming right now (could we get lower sales figures during the winter, sure). As to prices, it probably has a couple more years to go on a nationwide basis, as the price to income ratio is still above its long-term norm.
But Case is right. In some local markets, most notably those that were the most infested bubbilicious areas of half a decade ago, housing is already almost a steal.
For example, take Phoenix AZ. According to Housing Tracker, in April 2006, the median asking price for a property in the Phoenix area was $333,800 (and that was after the peak). As of this week, it is $149,000. That's a 55% decline. A search this morning for a 1800+ square foot single family home built less than 20 years ago generated 100s of results, including this house:
the asking price for which is $75,000. A 20% down payment is $15,000. A 30 year mortgage at 4.2% requires a monthly payment of $293.41.
A young couple just starting out might have to borrow some from their parents or affluent Uncle Bob for help with the down payment for this house, but at under $300 a month, they are practically giving it away. Even if the price of this house were to fall another 20%, the couple still wouldn't be underwater, and would have a home of their own in the meantime. If they lived there for 10 years, there is an excellent chance they would break even or better.
Five years ago, that young couple - if they were financially responsible at all - would have been completely priced out by a mortgage that, at 6.6%, and increased proportionately to the April 2006 price level, would have run $1064.43 a month!
Five years ago, that young couple - if they were financially responsible at all - would have been completely priced out by a mortgage that, at 6.6%, and increased proportionately to the April 2006 price level, would have run $1064.43 a month!
The housing bubble and ensuing bust has been a disaster. But there are plenty of people who were frugal and did not fall for the bubble. There are also millions of young people who were 18-25 years old at the height of the bubble and too young to participate, who are now 23-30 years old and if they have jobs, can easily afford housing in some of the formerly "hot" housing markets.
At some point, housing becomes a compelling bargain. As prices fall further nationwide, that will become the case in more and more areas and for more and more people. That is when the housing bust will end.
Yesterday's Market
Yesterday prices gapped higher at the open (a), hit the 10 minute EMA and moved higher (b) and then spent the rest of the day moving sideways in a tight range (c). Notice that prices didn't sell-off at the end of trading, indicating traders are willing to keep positions overnight.
Prices found resistance at highs from 8 days ago (a).
On the daily chart, prices broke out of the downward sloping wedge pattern and moved through the 10 and 20 day EMA. Also note prices printed a very strong bar on solid volume (a).
Treasuries were the mirror image of stocks. Prices gapped lower at the open (a), ran into resistance at the 10 minute EMA (b), bottomed (c) and then moved slightly higher.
However, the IEFs are still in a very strong uptrend (a), although prices are approaching important technical levels. For the last 4 months, the upward trend line in the Treasury market has acted as a natural selling point for stocks.
Copper had a strong break out, starting in the Asian markets (A). Prices moved through resistance (B), then consolidated their gains before the US open (C). Prices moved higher again, moving through resistance (D) and then consolidated again (E).
Copper consolidated gains in a downward sloping pennant pattern over a few weeks, but has broken out strongly printing some good bars (A). Note the EMAs are still bullish with the shorter above the longer and all moving higher (C). Finally, the MACD has given a buy signal (B).
Wednesday, September 1, 2010
Chicago PMI Drops, But Is Still Positive
From Bloomberg:
Chicago purchasers report solid but slower month-to-month growth in August. The Chicago purchasers' index came in at 56.7, down sizably from 62.3 in July but still well above breakeven 50. New orders rose in the month, at an index of 55.0 but down from July's 64.6 for the slowest reading of the year. In an offset, backlogs, at 56.2, show a very strong gain for the month. Inventories are a negative, down more than four points to 46.5 to signal month-to-month contraction. But given solid shipping activity, some of this draw likely reflects production needs. Other readings indicate solid activity including greater slowing in deliveries and steady a month-to-month increase for employment.
The thing to remember with diffusion indexes is that lower readings are not necessarily a disaster. The readings in this report are holding well above 50 to indicate continued growth underway for the Chicago economy. The data point to favorable though slowing readings for tomorrow's ISM report on the manufacturing sector and Friday's ISM report on the non-manufacturing sector.
Here is a link to the report:
Here is a chart of the salient data:
Click for a larger image
Notice that the production and new orders numbers dropped. Also note that are both above 50, indicating expansion.
The size of the drop could be important. The numbers were printing solidly about 60 for the last 5 months and yesterday they dropped almost 10 points to mid-50's readings. This is in line with the drops we have seen in several regional manufacturing reports over the last few months.
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NDD here: I just wanted to add a couple of notes, not about the Chicago index, but rather the ISM manufacturing index, which was surprisingly strong.
Another strongly positive surprise was the employment index which came in at 60.0. Early this year, when we were getting stubbornly negative employment readings (subsequently revised to positive), I looked at trends in the ISM index and payrolls, concluding as follows:
My original "Leading Employment Index" relied on an ISM manufacturing reading above 53. We can tweak that in a manner consistent with both above graphs by insisting on the following as a prerequisite to job growth:ISM non manufacturing has been hovering near 54 in the last couple of months, and the ISM non manufacturing employment sub-index has been at or below 50. That report won't be released until after the BLS report. With ISM manufacturing strong, Challenger strong, and ADP weak, we have a picture very much like the end of last year.
both [ISM manufacturing and non manufacturing] indexes be above 52 and average 53 or higher as a final signal, which gives one or two months' lead time to job growth.
As an aside, vendor deliveries also declined. This is one of the 10 LEI, and will detract about -0.1 from the LEI for August.
Bonddad here: nothing more to add, I just don't want NDD to have the last word
Bonddad Solves the Unemployment Situation
From the Financial Times:
“Nearly one in four construction workers is unemployed and nearly one in four bridges in the region are structurally deficient or functionally obsolete,” Mr Frye said.“We have workers. We have work that needs to be done. What we’re missing is a commitment from Washington to invest in building our country, our state and our workforce.”
According to the BLS, the height of establishment jobs for the last expansion occurred in December of 2007 when there were 137,951,000 establishment jobs. According to the last jobs report, there were 130,242,000, bringing the total number of lost jobs to 7,709,000. Here is a chart of the data:
The construction industry has been hard hit by the recession -- which you would expect coming off of a housing bubble. Total construction employment reached its peak in August 2006 with a total of 7,725,000 construction jobs. The latest employment report showed this total to be 5,573,000 for a total loss of 2,152,000 or 27.91% of all job losses. Here is a chart of the data:
Manufacturing has also been hard-hit by this recession. I think you can guess where I'm going here, so I'll just eyeball the following chart of total manufacturing employment:
Let's call that 2.1 million jobs since roughly the end of 2007, or about 27% of all jobs lost.
So, blue collar jobs lost total over 50% of all job losses during the recession. So, why don't we allocate, say, $500 billion to infrastructure investment and get these people back to work? Make the projects long-term so infrastructure employment will last until private demand takes over in 3-5 years.
Was that so hard?
No need to thank me, Washington, just stop acting like jackasses.
The Savings Rate and Retail Spending
- by New Deal democrat
On Monday personal income, spending, and the savings rate for July were reported. Spending was up 0.4%, while the savings rate declined 0.3%.
Readers already know that for the last 5 years, households have been rebuilding their balance sheets. In April 2005, they saved a paltry 0.8% of earnings. That rocketed as high as 8.2% in May 2009. With the latest reading, personal savings was 5.9%. My position is that the "slow motion bust" won't be over until that balance sheet is fully rebuilt, with a savings rate closer to 10% as it stood in the 1970s and 1980s.
But, in the shorter term, we don't want the balance sheet rebuilt too quickly. When households cut back on spending - out of fear - in order to save, that is Keynes' Paradox of Thrift that throws the economy into a recession. A couple of weeks ago, in How Pavlov's Dogs explain the Sputtering Recovery I argued that it was exactly a case of paralyzing fear that put the economy into a sudden stall beginning at the end of April with the Euro crisis.
The tradeoff between savings and consumer spending is evident in the below graph. Since unfortunately the St. Louis FRED won't allow me to graph the rate of monthly change in the savings rate, the below is the best I can do. In the graph, the savings rate, normed to zero at its highest rate, is shown in blue. The change in retail sales, normed to zero at its lowest change, is shown in red, beginning of 2009.
While not exact, the general "mirror image" is clear. When the savings rate decreases (the blue line goes down), the change in retail spending increases (the red line goes up). When savings increase, the change in spending decreases. Note in particular the big increase in the savings rate in April of this year that coincided with a sharp decrease in the rate of retail spending. That was Pavlovian fear kicking in.
On Monday personal income, spending, and the savings rate for July were reported. Spending was up 0.4%, while the savings rate declined 0.3%.
Readers already know that for the last 5 years, households have been rebuilding their balance sheets. In April 2005, they saved a paltry 0.8% of earnings. That rocketed as high as 8.2% in May 2009. With the latest reading, personal savings was 5.9%. My position is that the "slow motion bust" won't be over until that balance sheet is fully rebuilt, with a savings rate closer to 10% as it stood in the 1970s and 1980s.
But, in the shorter term, we don't want the balance sheet rebuilt too quickly. When households cut back on spending - out of fear - in order to save, that is Keynes' Paradox of Thrift that throws the economy into a recession. A couple of weeks ago, in How Pavlov's Dogs explain the Sputtering Recovery I argued that it was exactly a case of paralyzing fear that put the economy into a sudden stall beginning at the end of April with the Euro crisis.
The tradeoff between savings and consumer spending is evident in the below graph. Since unfortunately the St. Louis FRED won't allow me to graph the rate of monthly change in the savings rate, the below is the best I can do. In the graph, the savings rate, normed to zero at its highest rate, is shown in blue. The change in retail sales, normed to zero at its lowest change, is shown in red, beginning of 2009.
While not exact, the general "mirror image" is clear. When the savings rate decreases (the blue line goes down), the change in retail spending increases (the red line goes up). When savings increase, the change in spending decreases. Note in particular the big increase in the savings rate in April of this year that coincided with a sharp decrease in the rate of retail spending. That was Pavlovian fear kicking in.
In tht regard, even if it is only one month, that consumers were comfortable saving a little less and spending a little more in July is a good sign that their Pavlovian fear may have begun to abate.
Yesterday's Market
Yesterday, the IEF's gapped higher at the open (a), fell a bit to the EMAs (b) and then gently rose for the rest of the day (c). However, most of their gain came from the opening gap higher.
For the last few days, the SPYs have found support in the (a) area. Yesterday, prices also found support and resistance between Fibonacci lines (b).
Prices gapped lower at the open (a), but quickly rebounded higher, printing strong bars (b) on decent volume. After hitting Fibonacci levels they got trapped in the EMAs for most of the day (c). They tried a near close sell off on rising volume (d) but quickly rebounded (e), finding resistance at Fibonacci levels.
On the daily chart, prices are still in a downward sloping wedge, between lines (a) and (b). Prices are also in a pretty tight range for the last week (c) at the bottom of the wedge.
Yesterday, oil prices took a big tumble, consolidating in a triangle pattern at the beginning of trading (A) and then falling for most of the rest of the day, rising to consolidate losses and find resistance at the EMAs several times (B and C). Prices eventually hit bottom at point (D).
Once again, oil prices are looking for support in the lower 70's area (A).
Wheat is still a correcting in a downward sloping pennant pattern (A). Notice that while momentum is decreasing (B), we're not seeing a price crash. The above chart pattern of a downward sloping consolidation pattern after a strong rally accompanied by decreasing momentum is pretty common.
Cattle has been in a strong rally (A) since the beginning of June. Prices are now approaching an important technical juncture as they decrease (C) gently to previous highs (B) and the upward sloping trend line (A).
Tuesday, August 31, 2010
A Break Down Of PCEs
What do we spend money on? To answer that question, let's take a look at personal consumption expenditures, or PCEs. These are the largest component of the GDP report. Click on all images for a larger image
First, note that PCE expenditures are broken down into services, non-durable and durable expenditures.
Services is the largest area of expenditures, accounting for 65% of PCEs. The three largest areas of service expenditures are housing, health care and "other".
After the "other" category in the non-durable category, we see that food, clothing and energy are the largest expenditures of the non-durable category.
And in the durable goods category, we see that recreational goods (think really big toys), cars and furnishings are the biggest components.
When we put all of this together, notice that housing and health care are the biggest areas of expense. Food and beverages for "off premises consumption" and financial services are also large areas of expense.
First, note that PCE expenditures are broken down into services, non-durable and durable expenditures.
Services is the largest area of expenditures, accounting for 65% of PCEs. The three largest areas of service expenditures are housing, health care and "other".
After the "other" category in the non-durable category, we see that food, clothing and energy are the largest expenditures of the non-durable category.
And in the durable goods category, we see that recreational goods (think really big toys), cars and furnishings are the biggest components.
When we put all of this together, notice that housing and health care are the biggest areas of expense. Food and beverages for "off premises consumption" and financial services are also large areas of expense.