Banks and the Economy

Federal Reserve Provides QE3 Tapering Guidelines

noreply@blogger.com (Banks and the Economy 2) — Wed, 19 Jun 2013 18:14:00 +0000

The Federal Reserve will maintain its present level of bond buying at a pace of $85 billion per month following the Federal Open Market Committee’s (FOMC) June meeting. The Federal Reserve left its open-ended quantitative easing program (QE3) unchanged and left interest rates at near zero levels. The Fed did, however, note that it is prepared to vary purchases according to economic conditions.

The Fed provided additional guidance about how they plan to handle the winding down of QE3. During the Press Conference, Chairman Bernanke said the Fed plans to begin tapering by end of year and totally wind down tapering by mid-2014 when unemployment hits 7.0%.

“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year," Chairman Bernanke said. "If the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”

Chairman Bernanke also noted that it's possible the Federal funds rate could remain at its current level even after unemployment reaches the previously set 6.5% threshold. Despite improving labor market forecasts, the Committee sees Federal funds rates remaining lower in the short term. Bernanke even mentioned then that 6.5% target could be revised down. Bernanke noted that when the Fed begins winding down its balance sheet, it will not sell mortgage backed securities, instead opting to let the securites mature and roll off.

“Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated,” the Fed noted in its announcement. Chairman Bernanke has already eluded that the pace of bond buying may vary depending on the economy. The FOMC updated their projections of the unemployment rate from the previous meeting, rivising the forecast to drop faster than previously anticipated. The more optmisitic outlook means tapering by the Fed could start sooner.

The Fed’s statement suggested that the economy continues to expand at a “moderate pace,” with some improvement in labor and housing markets. They did note, however, that the unemployment rate remains elevated.

FOMC Fed Funds Rate Projections

Read the full FOMC statement below. Read the Federal Reserve's updated projections.

June 19th Meeting	May 1st Meeting
Information received since the Federal Open Market Committee met in May suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Partly reflecting transitory influences, inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.	Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.	Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.	To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic omic objective.	The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objective.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.	To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

Housing Starts Improved Moderately in May

noreply@blogger.com (Banks and the Economy 2) — Tue, 18 Jun 2013 15:20:00 +0000

Housing starts increased 6.8% in May to an annualized pace of 914,000 units, from a revised April figure of 865,000 units and 28.6% above year ago levels.

May’s gain was driven by multi-family starts, which rose to a pace of 315,000 units annually, a 21.6% from the previous month. Single family starts saw a 0.3% increase, rising to a pace of 599,000 units per month. Single family starts are 29% above year ago levels.

Permit issuance fell 3.1% in May, due to the10% drop in multifamily permits.

Despite the strong improvement in the past year, housing starts remain well below their 50-year average of 1.5 million units.

Read the Census report.

Consumer Prices Rose 0.1% in May

noreply@blogger.com (Banks and the Economy 2) — Tue, 18 Jun 2013 13:43:00 +0000

Consumer prices rebounded in May, posting a 0.1% gain which partially offset the previous month’s fall. Rising energy prices and gains in the shelter index contributed to the gain. Prices are now 1.4% above year ago levels. Core CPI remained stable, increasing 0.2% from the previous month and matched the previous month’s year over year gain, at 1.7%.

The shelter index rose 0.3%, accounting for more than half of May’s increase. May’s gain was also driven by the energy index, which grew 0.4%.

Food prices declined 0.1%, following modest increases since the beginning of this year. The 0.3% drop in the food at home index was its steepest in almost four years.

Read the BLS report.

James Chessen Discusses Interest Rates on Fox Business News

noreply@blogger.com (Banks and the Economy 2) — Fri, 14 Jun 2013 15:59:00 +0000

ABA's Chief Economist James Chessen spoke with Fox Business News today, where he discussed the interest rates and broke down how quantitative easing impacts both short term and long term rates.

"[Short term] interest rates are probably not going to go up until the first quarter of 2015."

Watch the full interview.

Producer Prices Rose 0.5% in May

noreply@blogger.com (Banks and the Economy 2) — Fri, 14 Jun 2013 14:17:00 +0000

Producer prices increased in May and rose to 0.5%, following two months of decline. Producer prices are up 1.8% over year ago levels. The gain was driven primarily by higher gasoline and good prices. Core prices improved 0.1% in May.

Prices for finished energy goods rose sharply, improving 1.3% from the previous month, reversing a two month decline. Higher gasoline prices largely contributed to the gain. Food prices increased 0.6% in May.

The price of crude goods increased 2.2% in May. Crude prices improved 7.6% over year ago levels. However core crude goods fell 2.3% and is 6.3% lower over year ago levels.

Read the BLS report.

Retail Sales Rose 0.6% in May

noreply@blogger.com (Banks and the Economy 2) — Thu, 13 Jun 2013 14:02:00 +0000

Retail sales performed better than expected in May, rising 0.6%. May’s growth follows an upward revision to March, which was revised to a 0.3% decline. Retail sales are now 4.3% above year ago levels, a return to the strong year over year growth seen earlier this year in January and February. The jump in sales is largely attributed to a 1.8% increase in auto sales.

Led by an increase in auto sales, building materials also grew 0.9% from the previous month.

Excluding auto and gas, sales improved 0.3% from April.

Despite May’s growth, there were several areas where sales declined from the previous month. Furniture and home furnishings led the decline, at 0.8%. Electronics and appliances as well as food service and drinking places both decreased 0.4%.

Read the Census release.

Small Business Data Trends in 1Q13

noreply@blogger.com (Banks and the Economy 2) — Tue, 11 Jun 2013 16:29:00 +0000

Only 22% of small business owners plan to hire a new college graduate in the next 6 months, according to Capital One’s Spark Small Business Barometer, a quarterly survey of small businesses across the nation. 73% of female executives say they don’t plan to hire college graduates, while 81% of males say the same thing about their company.

The survey found financial optimism is on the rise. It creased 3.6% from last quarter and 45% of small businesses across the country are reporting that they believe their financial position will be better in six months.

Small Business Owners are feeling financially better off than a year ago. 35% of small businesses say their firm’s financial position is better than a year ago, compared with 18 % who report that their financial position is worse in Q2 2013 and 23% in 2012.

The report also shed positive light on growing optimism about local market economies. 64% of small businesses are optimistic about the economies where they do business. When the survey launched, in Q1 2009, more than seven in ten consumers felt business conditions in their area were only fair or poor.

Small Business Optimism Continued Increase in May

noreply@blogger.com (Banks and the Economy 2) — Tue, 11 Jun 2013 13:40:00 +0000

The NFIB’s Small Business Optimism Index rose 2.3 points in May, reaching 94.4. It is the second consecutive month gain. While May’s reading is the second highest since the recession started December 2007, it’s still well below the long run average of 98.1.

Financing continues to be the least citied challenge facing small business, with only 2% of respondents reporting it as their single most important problem, unchanged from the previous month. Taxes and government requirements remained unchanged as the first and second most often cited problems, but the number of respondents citing the issues as the single most important problem increased. Taxes rose from 23% to 24%, and government requirements and red tap grew 2% to 23%.

Read the NFIB report.

Economic Advisory Committee Press Conference

noreply@blogger.com (Banks and the Economy 2) — Mon, 10 Jun 2013 13:42:00 +0000

The Economic Advisory Committee (EAC) of the American Bankers Association, which includes 13 chief economists from among the largest banks in North America, presented their consensus findings at a press conference last Friday, June 7, 2013 .

The committee found that inflation-adjusted GDP growth for 2013 will be 2.1 percent over the course of the year, and is expected to increase to 2.8 percent in the first half of 2014.

Scott Anderson, Bank of the West Chief Economist and current chair of the EAC, lead the press conference, "We believe that the Fed should remain fairly cautious here as they see the continued improvement in the (economic) numbers."

Watch the full press conference.

Consumer Credit Grew $11.1 Billion in April

noreply@blogger.com (Banks and the Economy 2) — Fri, 07 Jun 2013 20:11:00 +0000

Consumer credit rose by $11.1 billion over April, a faster pace than the previous month but below rates seen so far this year. Following recent trends, consumer credit growth continues to be driven by student loans, while revolving credit growth remains sluggish.

Revolving credit, consisting primarily of credit card balances, grew by $700 million, partially offsetting a $900 million loss the previous month. Revolving credit has now grown $1 billion since the beginning of the year.

Non-revolving balances grew for the 20th consecutive month, rising $10.4 billion in April. Although strong, April’s growth is slower than the $12.5 billion growth seen over the first quarter. Student and auto loans make up the majority of the non-revolving sector.

Non-revolving credit has accounted for the vast majority of growth lately. Of the $156.7 billion in credit growth over the past 12 months, 94% is due to non-revolving balances.

Read the Federal Reserve Release.

Bank Economists See Stronger Growth Ahead

noreply@blogger.com (Banks and the Economy 2) — Fri, 07 Jun 2013 16:08:00 +0000

According to the Economic Advisory Committee (EAC) of the American Bankers Association, which includes 13 chief economists from among the largest banks in North America, inflation-adjusted GDP growth for 2013 will be 2.1 percent over the course of the year, and is expected to increase to 2.8 percent in the first half of 2014.

Although economic growth has been constrained in recent quarters, it will accelerate later this year and into 2014 as external pressures and fiscal drag ease.

The bank economists believe the housing market has finally entered a sustainable recovery. The group sees the housing recovery gaining significant strength this year, with improving construction levels and rising home sales and prices. The committee forecast is that home prices nationwide will rise solidly and residential investment will increase 15 percent in 2013.

“This strong growth demonstrates that housing has finally caught up with the broader economic recovery,” Anderson said. Consumers are on a stronger financial footing and have regained confidence. The group believes consumer spending will support economic growth over the next two years.

“Higher equity prices and rising home values, along with declining gas and energy prices, have helped consumers cope with rising taxes and reduced federal spending,” Scott Anderson, committee chairman and Bank of the West chief economist, said. “The wealth effect created by rising home values will boost consumer sentiment and spur increased spending.”

Read the full release. Read the detailed EAC forecast numbers.

Unemployment Rose to 7.6% with the U.S. Economy Adding 175,000 Jobs in May

noreply@blogger.com (Banks and the Economy 2) — Fri, 07 Jun 2013 13:36:00 +0000

Payroll employment increased by 175,000 jobs in May, as the unemployment rate increased 0.1% to 7.6% from the previous month. May’s growth is still below the 1Q13 average of 207,000 jobs per month. May’s report saw April’s job gains revised down from 165,000 to 149,000, while March was revised up slightly.

Similar to previous months, May’s strong numbers were solely due to the private sector, driven by the service industry, which added 176,000 jobs. The private industry as a whole added 178,000 jobs in May, up from a revised 157,000 in April. The goods producing sector shed 1,000 jobs in May, following a revised 15,000 job loss in April.

The government continues to drag on growth and lost 3,000 jobs in May. It is the government’s lowest amount of job lost in a given month since February. The government is expected to continue to drag on payroll employment through the end of this fiscal year as the impacts of sequester take hold.

The unemployment rate ticked up to 7.6% from the previous month’s 7.5% rate. The increase in the unemployment rate is due to new entrants in the labor force. The labor force participation rate increased to 63.4%.

Read the BLS report.

Beige Book Reports Modest Growth

noreply@blogger.com (Banks and the Economy 2) — Wed, 05 Jun 2013 18:48:00 +0000

The Federal Reserve released its Beige Book today, which shows that the economy is recovering at a modest to moderate pace since the previous report across all Federal Reserve Districts except the Dallas District, which reported strong economic growth.

Similar to the last report, the manufacturing sector expanded in most Districts since the previous report. Consumer spending grew slightly to moderately in most districts, particularly centered around vehicle sales. The energy sector was flat, partially due to lower gas prices that could have dampened consumer spending.

Residential real estate and construction activity increased at a moderate to strong pace in all Districts. Several Districts reported that higher demand and low inventory of homes available for sale are resulting in multiple offers on properties. Almost all Districts reported higher home sale prices. Continuing a theme from the previous report, strength in residential construction boosted suppliers in that industry.

Defense related sectors experienced weakened activity in several districts, likely a result of the sequester.

Residential real estate and construction activity increased at a moderate to strong pace in all Districts. Several Districts reported that higher demand and low inventory of homes available for sale are resulting in multiple offers on properties. Almost all Districts reported higher home sale prices. Commercial real estate and construction activity grew at a modest to moderate pace in most Districts.

Hiring increased at a measured pace in several Districts, with some contacts noting difficulty finding qualified workers. Wage pressures remained contained overall.

Read the report.

ISM Non-Manufacturing Improved in May

noreply@blogger.com (Banks and the Economy 2) — Wed, 05 Jun 2013 15:26:00 +0000

The ISM non-manufacturing index increased to 53.7 in May from 51.3 in April. The gains don’t fully offset April’s cooling of the index and the composite index remains down 1.3 points on a year-ago basis. The non-manufacturing index has now remained above 50 – indicating industry expansion – for 41 consecutive months. Services continue to outperform the manufacturing sector, which declined below 50 to 49.0 this past month.

Details of the report are mixed. Business output and new orders improved while exports declined. Business output increased 1.5 points to 56.5 in May. New orders also grew to 56.0, a positive sign for future production. Inventories posted no index change, but at 51.5, is above the expansionary threshold and could aid GDP growth in the second quarter. Exports noticeably declined 3.5 points to 50.0.

Although unemployment dropped to 50.1, the index remains in expansionary territory.

Read the ISM release.

ADP Employment Rose by 135,000 jobs in May

noreply@blogger.com (Banks and the Economy 2) — Wed, 05 Jun 2013 13:59:00 +0000

ADP’s National Employment Report indicated that the private sector increased employment by 135,000 jobs in May, an improvement from April’s revised 113,000 jobs, but below the job gains seen this year and late last year. Employment gains were solely driven by the service sector.

Job gains continue to be rooted in the service sector, which added 138,000 jobs in May, up from 119,000 jobs in April but below the 6 month average. Goods producing employment contracted in May, shedding 3,000 jobs. It’s the second consecutive month of negative job gains in the goods producing sector.

Manufacturing declined as well, losing 6,000 jobs after posting a revised 15,000 job decrease in April.

Read the ADP release.

Trade Gap Widened in April

noreply@blogger.com (Banks and the Economy 2) — Tue, 04 Jun 2013 14:07:00 +0000

The trade deficit increased in April to $40.3 billion, a 9% increase from a revised $37.1 billion deficit in March. The increase partially reverses the previous month’s decline, but remains below the revised deficits from January and February. Rising imports were the primary contributor to the increase in the deficit.

Exports grew by 1.2% from March to $187.4 billion. Imports increased by 2.4% to $227.7 billion. While exports improved, imports grew at a faster rate. The services surplus remained unchanged at $18.3 billion, while the goods deficit increased to $58.6 billion.

Read the Census report.

ISM Manufacturing Index Shrinks in May

noreply@blogger.com (Banks and the Economy 2) — Mon, 03 Jun 2013 15:43:00 +0000

The ISM manufacturing Index fell to 49.0 in April, falling below the expansionary threshold of 50 for the first time since November 2012 and the second time since July 2009.

The index saw broad declines across its various components. New orders decreased 2.5 index points to 48.8, the lowest since July 2012 and below 50 for the first time since December 2012.

Production dropped 4.9 points to 48.6. This is only the second time since 2009 that the index is below 50.

Employment improved 0.1 to 50.1. While inventories increased to 49.0, the difference between new orders and inventories—a proxy for future production—fell from 5.8 to -0.2, and is the worst reading since August 2012, signaling a cooling economy.

Read the ISM release.

Construction Spending Increased 0.4% in April

noreply@blogger.com (Banks and the Economy 2) — Mon, 03 Jun 2013 15:22:00 +0000

Construction spending grew 0.4% in April and is 4.3% above year ago levels. Construction spending in April partially reversed the previous month’s decline, and continues the volatile trends seen in the past 6 months.

Private construction saw gains in April, driven solely by non-residential construction, which increased 2.2% from the previous month and reversed the previous month’s drop. Residential construction declined 0.1%, after posting positive gains the previous two months.

Public spending fell 1.2%. While some components of public spending increased, all are down from year ago levels.

Read the Census report.

Minneapolis Fed Publishes Regulatory Burden Calculator for Community Banks

noreply@blogger.com (Banks and the Economy 2) — Fri, 31 May 2013 20:53:00 +0000

The Minneapolis Federal Reserve created a regulatory burden cost calculator associated with hiring additional compliance full-time equivalent employees (FTEs.) The authors’ methodology is based on measuring regulatory cost through additional hires. The concluded that hiring one FTE reduces ROA by approximately 23 basis points for the median bank with assets below $50 million. The paper points to a crucial hurdle faced by community banks, dealing with the increased costs associated with new regulations.

Read the Minneapolis Federal Reserve piece.

Consumer Sentiment Jumped in May

noreply@blogger.com (Banks and the Economy 2) — Fri, 31 May 2013 14:42:00 +0000

Consumer confidence rose to its highest level since 2007 in May, according to the University of Michigan’s consumer sentiment index. Both present conditions and expectations contributed to the 8.1 index point increase to 84.5. It is also the largest monthly gain since October 2006.

The present conditions portion of the index improved to 98.0 in May, up from 84.8 the previous month. Future expectations also rose 11.6 index points from the previous month to 75.8.

Inflationary expectations remained unchanged in May from the previous month. Both the one- and five-year expectations held close to their respective averages over the past year and a half, with a reporting of 3.1% and 2.8% respectively.

Personal Income Failed to Grow in April

noreply@blogger.com (Banks and the Economy 2) — Fri, 31 May 2013 13:48:00 +0000

After a revised 0.3% rise of personal income in March, April’s report is disappointed, with personal income failing to grow over the month. The savings rate remained steady at 2.5%.

Wages in April were essentially unchanged. Gains in investment income were offset by declines in government transfer payments and farm proprietors' income.

Total spending fell 0.2% over the month, due primarily to decreased spending on gasoline and utilities. Core spending, however, grew 0.1% in April, a slowdown from the 0.2% growth reported in March.

Consumer prices, according to the PCE indicator, rose 0.7% from year ago levels, the lowest inflation since late 2009.

Read the BEA release.

First Quarter GDP Revised Down to 2.4%

noreply@blogger.com (Banks and the Economy 2) — Thu, 30 May 2013 13:50:00 +0000

Real economic growth for the first quarter was revised down by 0.1% to 2.4% in the BEA’s second estimate released today. Despite the modest downward revision, first quarter growth is still well above the 0.4% growth seen in 4Q12.

As we previously noted following the BEA’s initial estimate, consumption drove first quarter GDP growth, and was revised up in the second estimate from 2.2% to 2.4%. Inventories, which were revised down in the second estimate to 0.6% from 1.0, still recovered in the first quarter. This follows a steep decline in the 4th quarter of 2012, likely due in part to Hurricane Sandy.

The government spending drag increased in the revision by 0.2% to 1.0%. Although less than the 1.4% drag last quarter, spending cuts continue to present a strong headwind to the U.S. economy. Net exports were less of a drag on the economy in the second revision, decreasing from .5% to .2%.

Read the BEA release.

ABA Statement on FDIC Bank Earnings Report

noreply@blogger.com (Banks and the Economy 2) — Wed, 29 May 2013 15:21:00 +0000

ABA's Chief Economist, James Chessen, gives his opinion.

FDIC Banks Earning Report
“Banks performed strongly in the first quarter, with asset quality continuing to improve and earnings remaining strong due to aggressive cost controls. At the same time, topline revenue growth continues to be a struggle as businesses delay borrowing due to concern about rising healthcare costs, tax increases and the pace of our economic recovery. Until the fog of uncertainty dissipates, rapid loan growth is unrealistic.”

Business Loans Increase for 11th Consecutive Quarter, But Challenges Hinder Growth
“While business loans grew for the eleventh consecutive quarter, the pace has slowed. Banks are working aggressively to make loans, but businesses are hesitant to expand amidst the specter of higher taxes, uncertain healthcare costs and new regulations. In addition, companies feel no urgency to borrow as interest rates are expected to stay abnormally low for several years to come.”

Bank Earnings Strong in Challenging Environment
"As a sign of the industry’s broad-based recovery, over 90 percent of banks were profitable in the first quarter. A continued focus on expense control and a dramatic improvement in asset quality has helped earnings remain solid even as businesses delay borrowing. Low interest rates continue to squeeze margins and put significant pressure on traditional banking.”

As Debate Continues, Capital Gains Strength
“Bank capital continues to grow in both quality and quantity, and it remains at near-record levels. While appropriate capital ratios have been the focus of recent policy debates, these conversations often ignore the fact that bank capital increased throughout the financial crisis and is now 26 percent higher than 2008 levels. Regulators have categorized over 97 percent of banks as well-capitalized, which means their capital levels are at least 25 percent higher than minimum standards. “Total industry capital is now over $1.6 trillion, ensuring our industry is well equipped to fend off any economic challenges that could arise. Adding reserves banks have set aside for possible loan losses, there is a total buffer protecting the industry of almost $1.8 trillion.”

Asset Quality Improves, Failures Continue to Decline
“Banks’ portfolios have grown stronger as problem loans continue to decline. Our industry continues to put losses behind it, with most problems now firmly in the rearview mirror. Problem loans fell to levels not seen since early 2009. Bank failures are few and far between, with only four failures in the first quarter. Banks, not taxpayers, are solely responsible for all of the FDIC’s expenses, paying about $11.3 billion in premiums over the last year.”

Existing Home Prices Continue to Accelerate in March

noreply@blogger.com (Banks and the Economy 2) — Tue, 28 May 2013 13:45:00 +0000

According to the Case-Shiller 20-city index, home prices are now 1.4% above previous month’s prices and 10.9% above year ago levels. The country’s 10 largest cities improved 1.4% from February and 10.3% from year ago levels.

All 20 metro regions covered by the index reported price increases from year ago levels, the third consecutive month to do so. New York, the weakest performer saw home prices rise 2.6% from year ago levels, but drop 0.4% from the previous month. Phoenix continues to show the strongest home price improvement, increasing 22.5% from year ago levels.

Although home prices have seen strong growth in recent months, the growth is coming from depressed levels. The 20-city index remains 28.0% below its peak in July of 2006.

Read the Standard and Poor release.

New Home Sales Continue to Improve in April

noreply@blogger.com (Banks and the Economy 2) — Thu, 23 May 2013 14:45:00 +0000

The pace of new home sales rose 2.3% in April, to an annualized pace of 454,000 units. April’s pace is now 29% higher than April 2012. April’s report also included notable revisions to March’s pace, which was revised to 444,000 units, a 3.5% gain, up from an initially reported 1.5% gain.

The supply of existing homes on the market remains tight at just 4.1 months. An influx of listings was offset by the strong gain in sales. Listings increased 3.3% over the month. Supply will remain at cyclical lows until residential construction picks up sufficiently.

The median price of homes sold continued to climb in April, with the median home selling for $267,200. It is no surprise this continues to rise as sales outpace supply. April’s median home price is 13.0% above year-ago levels.

Read the Census report.