Thursday, May 28, 2015

Fed Survey Finds Increasing Economic Optimism

Four in 10 U.S. households surveyed last fall said they were somewhat or much better off financially than they had been five years prior, according to the Federal Reserve’s 2014 Survey of Household Economics and Decisionmaking. Just over a quarter said they were worse off than in 2009. The numbers show an improvement from last year’s figures, when one-third said they were worse off but only three in 10 said they were better off.

Meanwhile, 65% of respondents said they were either “doing okay” or “living comfortably” financially, up five points from the year before, while 10% said they found it difficult to get by.

The survey also found that 37% had applied for credit in the prior 12 months — up from 31% the year before — and 32% of those households were turned down or given less credit than applied for. Another 12% said they put off applying for credit because they thought they would be turned down. Respondents were more optimistic in 2014 than 2013 that they would be able to obtain a mortgage loan.

More than 8 in 10 respondents who rented their home said they would prefer to own a home. When asked why they don’t, 50% said they cannot afford a down payment, 31% said they would not qualify for a mortgage and 27% said it is cheaper to rent than own.

The survey also explored savings practices. Two-thirds of respondents said they could cover three months of expenses from savings and other sources if they lost their main source of income. Two-fifths said their spending in the previous year exceeded their income. The survey found that 31% of non-retired respondents reported having no retirement savings or pension, including 25% of those over 60.

Read the survey report.

Wednesday, May 27, 2015

ABA Statement on FDIC’s First Quarter Bank Earnings Report

“The banking industry has settled into steady growth bolstered by a continued improvement in the quality of bank portfolios and strong levels of capital. Lending is growing – particularly to small businesses – and real estate loans are starting to return with more enthusiasm. Today’s report is another indication that banks are in a great position to continue making the loans that drive our economy forward.”

Hometown Banks Drive Business Loan Growth
“We’re continuing to see robust lending growth driven by strong demand for business loans. Borrowing is likely to remain elevated as businesses look to jumpstart expansion plans before an expected increase in rates by the Fed later this year. People borrow when they feel they have the capacity to repay debt, and the comfort level of both businesses and consumers is increasing as the economy continues on the road to recovery. Maintaining confidence, particularly for businesses, is critical to supporting economic growth and job creation. More confidence translates into more borrowing and a better future. Banks remain eager to make the loans that fuel economic expansion.”

Increased Lending and Diversification Drive Earnings Growth
“Strong lending growth has driven higher earnings for banks of all sizes, with trading revenue playing an important supporting role. Diversification of revenue streams continues to support income growth, particularly for many larger banks. Community banks have continued to excel at their bread and butter product, small business lending. Margins remain strained under the weight of competition to fund loans and the challenges associated with deploying the large number of new deposits that continue to flow into the U.S. banking system. Expense control remains a high priority as regulatory costs continue to rise.”

Banks Prepared for Rising Interest Rates
“The expected increase in rates from the Fed later this year comes as no surprise to our industry, and banks are actively engaged in preparing for that eventuality. This is one of many risks that banks must manage as they work to balance customer demands for longer-term, low-interest loans against the negative impact of rising rates on funding costs.”

Asset Quality Improves Across the Board
“Loan quality has improved across the board due to prudent underwriting by banks and careful management of debt by businesses and individuals. Banks are now back to more normal levels of provisioning funds to cover the possibility of loan losses in the future. Problem loans are back to levels we saw nine years ago, and losses have reduced to pre-crisis levels. The level of non-performing loans are back to levels we saw seven years ago, declining more than 68 percent since its peak in the first quarter of 2010. ”

Higher Capital Supports Lending Base
“The level and quality of bank capital continues to increase, providing a strong base that supports lending to consumers and businesses. With industry capital at a record high, the focus has shifted toward deploying it in the form of loans and community reinvestment. Total industry capital is now $1.8 trillion, and with reserves banks have set aside for possible loan losses, there is a total buffer of $1.9 trillion protecting the industry from any economic circumstance that could arise.”

Tuesday, May 26, 2015

New Home Sales Rose 6.8% in April

Sales of new single-family houses in April rose to a seasonally adjusted annual rate of 517,000 according to the U.S. Census Bureau and Department of Housing and Urban Development. The April rate is 6.8% above the revised March rate of 484,000 and 26.1% above the year-ago rate of 410,000.

New home sales in two of the four regions increased this month. The Midwest increased 36.8% and the South rose 5.8%. Sales in the Northeast and the West declined 5.6% and 2.3%, respectively.

The median sales price of new homes sold in April was $297,300, up 4.1% from March. The average price was $341,500, down 0.5% from March.

At the end of April, there were an estimated supply of 4.8 months at the current sales rate.

Read the Census report.

Home Prices Steadily Increased in March

The 20-City Case-Shiller Composite gained 5.0% year-over-year in March, consistent with February’s gain. The 10-City Composite gained 4.7% in March from the previous year, down from the 4.8% year-over-year gain in February. The National Index recorded a 4.1% gain on an annual basis in March, compared to a 4.2% annual gain in February.

On a monthly basis, all three indices posted increases as the 10-City Composite increased 0.8%, the 20-City Composites rose 0.9% and the National Index rose 0.8%.

The increase this month brought the 10-city and 20-city indices back to their autumn 2004 level, but still remain roughly 15-16% below their June/July 2006 peak.

Only New York reported a monthly decline in March, falling 0.1%. San Francisco reported the highest monthly increase, rising 3.0%, followed by a 2.3% increase in Seattle.

Year-over-year, San Francisco increased 10.3%, the highest of the 20 cities, followed by 10.0% growth in Denver and 9.3% growth in Las Vegas. Cleveland and Washington reported the slowest year-over-year growth, increasing 1.0%, followed by a 2.7% increase in New York.

Read the S&P release.

New Orders for Durable Goods Decreased in April

New orders for durable manufactured goods decreased 0.5% to $235.5 billion in April, according to the U.S. Census Bureau. This decrease, down two of the last three months, followed a 5.1% increase in March. Excluding transportation, new orders increased 0.5%.

Shipments of manufactured durable goods, down three of the last four months, decreased 0.1% to $240.5 billion, following a 1.5% increase in March.

Inventories of manufactured durable goods, up twenty-four of the last twenty-five months, increased 0.2% to $401.5 billion, and continues to be at an all-time high since the series was first published in 1992.

Read the U.S. Census Bureau release.

Friday, May 22, 2015

Yellen: Rate Hike Likely This Year, Despite Headwinds

“[I]f the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy,” Federal Reserve Chair Janet Yellen said in a speech at the Providence Chamber of Commerce in Rhode Island. But, as always, Yellen included the adage that increases in the federal funds rate will be data dependent and are not on a preset course.

Yellen’s monetary policy projection is based on her overall belief that, while there are headwinds, the economy is growing at a moderate pace. Job growth has gradually strengthened; the unemployment rate has declined to 5.4%, the number of job openings has risen and more workers are quitting their jobs, signaling greater confidence in their ability to find a new job. However, there is still slack in the labor market in the form of those working part time for economic reasons, those who are out of the labor force but would work if conditions were better and those who perceive a lack of good job opportunities, as well as overall disappointing wage growth. But these labor market headwinds are showing sign of abating, and wage gains at larger retailers such as Wal-Mart and Target signal that there might be larger wage gains in the future.

In recent months, some economic data have suggested that the pace of improvement in the economy may have slowed. But Yellen believes that the flat GDP projection in the first quarter was largely due to transitory factors, including the unusually harsh winter and the labor dispute at ports on the West Coast, as well as some statistical noise. Yellen expects the economic data to strengthen, and for employment and output to be moderate over the remainder of the year and beyond.

Price inflation still remains a headwind, as CPI has been held down by the continued economic weakness during the slow recovery and, more recently, by lower prices of imported goods as well as the fall in oil prices. But with oil prices no longer declining, Yellen and other FOMC members believe that CPI will move up to 2% as the economy strengthens.

Read the speech.

CPI Increases Despite Lower Energy Prices

The Consumer Price Index increased 0.1% in April on a seasonally adjusted basis, as further declines in energy was offset by an increase in all items less food and energy, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the CPI declined 0.1% SAAR — the third year-over-year decline in 2015.

The index for energy fell 1.3% month-over-month, driven by an 8.4% decline in fuel oil and a 1.7% decline in gasoline. On a yearly basis, the energy index fell 18.9% SAAR.

Non-energy items drove the monthly increase, as all items less food and energy increased 0.3% from March. The largest monthly gains were a 0.9% increase in medical care services, a 0.6% increase in used cars and trucks and a 0.3% gain in shelter. In contrast, the index for apparel and airline fares declined in April.

The food index, however, was flat on a monthly basis as a 0.2% increase in food away from home was offset by a 0.2% decline in food at home. On a yearly basis, the index for food increased 2.0% attributable to increases in both food at home and food away from home.

Read the Bureau of Labor Statistics report.