Friday, October 31, 2014

Financial Stability Board Reports Expansion of Shadow Banking in 2013

The Basel, Switzerland-based Financial Stability Board (FSB) reported that shadow banking—financial intermediation outside of depository institutions—grew by $5 trillion in 2013 to reach $75 trillion, according to the fourth annual Global Shadow Banking Monitoring Report. Shadow banking increased its share of total financial assets worldwide from 23.6% to 24.6%; meanwhile, depository institutions’ share fell from 46.8% to 45.6%.

The report presents data as of end-2013 from 25 jurisdictions and the euro area as a whole, covering about 80% of global GDP and 90% of global financial system assets. The FSB studies shadow banking as part of its work to identify and mitigate stability risks across the financial system.

In addition, the report found that by absolute size, advanced economies have the largest shadow banking sectors, while emerging market jurisdictions recorded the fastest growth rates—albeit from a relatively small base. “While the non-bank financial system may contribute to financial deepening, careful monitoring is still required to detect any increases in systemic risk factors (e.g. maturity and liquidity transformation, and leverage) that could arise from the rapid expansion of credit provided by the non-bank sector.”

This year, the report is accompanied for the first time by the publication of a comprehensive dataset on a jurisdiction and aggregate level.

Read more.

ABA Releases Cybersecurity, Data Breaches Infographic

ABA has released an infographic on cybersecurity and data breaches. The association encourages bankers to use it as a tool to let their customers and friends know what bankers are doing to protect customers’ money and what consumers think about data breaches.

The infographic shows that banks pick up the vast majority of costs associated with making customers whole after a breach, in addition to the hundreds of millions of dollars they spend preventing cybercrime. Only one third of banks in the last five years reported receiving any reimbursement for fraud losses and reissue costs of which 83% received less than 10 cents on the dollar, according to the infographic.

In addition, the infographic shows that consumers are confident in banks, as 89% say local banks do a good job of protecting customer information, and 73% trust banks the most to protect their payment data—just 2% trust major retailers.

View and share the infographic.

Personal Consumption Declined in September

Personal consumption declined 0.2% in September. This is the first monthly decline since January, which was driven by unusually cold weather. Personal income grew 0.2%, the slowest growth all year. 3Q GDP consumption growth was strong, however this report may pull down GDP slightly in later revisions.

Wage growth improved 0.2% and disposable income improved just 0.1%. Real personal income increased a modest 0.1% in September. Dividends drove income growth in September.

The savings rate increased to 5.6 months, as both consumption declined and income increased.

Inflation remained tame; the PCE deflator rose 0.1% in September and was 1.4% above year-ago levels.

Read the BEA release.

Consumer Sentiment at 7 Year High

Consumer sentiment reached 86.9 in October, a 7 year high, driven by improvements in the future expectations component.

Future expectations jumped to 79.6, the highest reading since July 2007. Current expectations declined slightly to 98.3. While consumers are less optimistic about the future in comparison to the present, the gap between current and future expectations shrank.

The report indicated that inflationary expectations subsided slightly from the month prior, calling for 2.9% inflation over the next year and 2.8% over the next 5 years.

Thursday, October 30, 2014

U.S Economy Beat Expectations with 3.5% Growth in Third Quarter

Real GDP growth remained strong in the third quarter, growing at a 3.5% seasonally adjusted annual rate according to the Bureau of Economic Analysis' preliminary estimate. The growth is stronger than anticipated given the 4.6% growth in the quarter prior. Once again, the growth was driven by consumption. Net exports also heavily contributed to third quarter gains, improving noticeably from the second to third quarter.

Consumption contributed slightly less to overall GDP growth in the third quarter, when compared to the second quarter. Nevertheless, consumer spending continued to drive economic growth in the third quarter. Its contribution to GDP was 1.2%.

Other components that positively contributed to the GDP growth, included: net exports, nonresidential fixed investments and government spending. Net exports jumped, moving from a drag the previous two quarters, to contributing 1.3% to overall growth as exports grew strongly while imports declined. The government’s 0.8% contribution to growth demonstrated improved finances for state and local governments and federal defense spending—government spending made its largest contribution to growth since 2009. Non-residential investment was largely the reason fixed investment grew, which contributed 0.7% to third quarter GDP. Taken together, the data paints the picture of a healthy and growing economy.

Inventories were the only category to drag on GDP growth, lowering growth by 0.6%. However, inventories are known to fluctuate and will likely rebound in the final quarter of 2014.

Read the BEA report.

Wednesday, October 29, 2014

Fed Ends QE3, Sets Up for Further Tightening

The Federal Reserve terminated its open-ended bond buying program on Wednesday as expected, but went further, beginning to signal further policy tightening.

The most unexpected element of today’s statement is that the Federal Open Market Committee (FOMC) no longer believes that there is “significant underutilization” of labor market resources, instead saying that the underutilization is “gradually diminishing.” This change highlights the Fed’s shift away from an extremely accommodative stance toward eventual rate increases.

The FOMC continues to forecast near-zero federal funds rates for a “considerable time,” but now tied to “this month.” It also introduced some leeway in terms of timing, adding that “if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated.”

The Fed has now completed its asset purchases associated with QE3, completing a tapering of purchases that it began last December. Since December, the Fed has reduced purchases by $10 billion at each meeting. Prior to today’s announcement, purchases had been reduced to $15 billion monthly.

Since the beginning of QE3 in September 2012, the official unemployment rate has fallen from 8.1% to 5.9%. During this period, inflation has remained contained, staying largely below the Fed’s 2% target.

The FOMC did not update its projections at this meeting, but will do so at its December 17th meeting.

Read the FOMC release.

Tuesday, October 28, 2014

Slowing Home Price Appreciation Continued

According to the Case-Shiller 20-city index, home prices continued to rise nationally in August but the eight-month slide in price gains continued. Year-over-year price appreciation has fallen from 13.1% in January to 5.6% in August. (The monthly gain was 0.2% in August.) This trend is expected to continue, considering the outlook for rising mortgage interest rates.

The 20-city index remains 15.9% below its 2006 peak.

The 10-city index followed a similar pattern, as year-over-year growth slowed to 5.5% in August from 13.4% in January. Eight out of the 10 metropolitan areas saw home prices rise in August. The largest jumps were in Denver and Las Vegas, at 0.5% each. Only San Francisco and San Diego saw declines, 0.4% and 0.1% respectively. Prices are higher than year-ago levels in all ten areas. Notably, the range of growth rates has narrowed, indicative of a normalizing market.

Read the S&P release.