Fannie Mae: Mortgage Serious Delinquency rate declined in July, Lowest since August 2008

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in July to 1.63% from 1.66% in June. The serious delinquency rate is down from 2.00% in July 2014, and this is the lowest level since August 2008.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

The Fannie Mae serious delinquency rate has only fallen 0.37 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will not be below 1% until 2017.

The "normal" serious delinquency rate is under 1%, so maybe Fannie Mae serious delinquencies will be close to normal some time in 2017.  This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog.

Witch Hunt Victim „Confesses“: Word Police in China vs. Word Police in US

Witch Hunt Review

As I noted earlier today China Starts Witch Hunt for Those Obstructing Government Efforts to Prop Up Stocks.

Public Confession

It took less than a day for a victim of the witch hunt to be rounded up for public display. The Financial Times reports China Reporter Confesses to Stoking Market ‘Panic and Disorder’.
A leading journalist at one of China’s top financial publications has admitted to causing “panic and disorder” in the stock market, in a public confession carried on state television.

The detention of Wang Xiaolu, a reporter for Caijing magazine, comes amid a broad crackdown on the role of the media in the slump in China’s stock market, which is down about 40 per cent from its June 12 peak. Nearly 200 people have been punished for online rumour-mongering, state news agency Xinhua reported at the weekend.

“I shouldn’t have released a report with a major negative impact on the market at such a sensitive time. I shouldn’t do that just to catch attention which has caused the country and its investors such a big loss. I regret . . . [it and am] willing to confess my crime,” [said Xiaolu]

When the market turmoil began in June, Beijing imposed restrictions on media reporting of the stock market. The independent China Digital Times, which monitors internet censorship in the country, said in June media were told to avoid stoking panic.

Do not conduct in-depth analysis, and do not speculate on or assess the direction of the market,” it reported an official directive as saying. “Do not exaggerate panic or sadness. Do not use emotionally charged words such as ‘slump’, ‘spike’ or ‘collapse’.”
Word Police US Style

With thanks to reader Mark for the link,  Campus Reform reports that Professors Threaten Bad Grades for Saying Oppressive Words.
Multiple professors at Washington State University have explicitly told students their grades will suffer if they use terms such as “illegal alien,” "male," and “female,” or if they fail to “defer” to non-white students.

According to the syllabus for Selena Lester Breikss’ “Women & Popular Culture” class, students risk a failing grade if they use any common descriptors that Breikss considers “oppressive and hateful language.”

Much like in Selena Breikss’s classroom, students taking Professor Rebecca Fowler’s “Introduction to Comparative Ethnic Studies” course will see their grades suffer if they use the term “illegal alien” in their assigned writing.

According to her syllabus, students will lose one point every time they use the words “illegal alien” or “illegals” rather than the preferred terms of “‘undocumented’ migrants/immigrants/persons.”

White students in Professor John Streamas’s “Introduction to Multicultural Literature” class, are expected to “defer” to non-white students, among other community guidelines, if they want “to do well in this class.”

Streamas previously generated controversy by calling a student a “white sh*tbag” and declared that WSU should stand for “White Supremacist University”.

It is notable that one of the syllabus provisions warns: ‘The subject material of this class is sensitive and controversial. Strive to keep an open mind.’

How are students supposed to approach these sensitive and controversial materials at all, let alone to keep an open mind, if they have to fear that a misconstrued statement, or one that unreasonably offends a classmate will lead to a grade reduction or even removal from class?
Banned Words and Phrases Comparison

Banned Words and Phrases
ChinaUS
SlumpIllegal Alien
SpikeMale
CollapseFemale
PanicIllegals
Overvalued
Down Big
High PE

Repercussions China vs. US

In China, use of banned words and phrases, or even an analytical report that says a company is struggling will land you in prison or worse.

It is illegal to speak the truth in China. Heck, it's even illegal to pursue the truth. China has banned in-depth analysis!

Chinese analysts are probably scrambling right now to make sure they do not hint that sales of a company are likely to decline, be worse than expected, less than last quarter, or anything similar.

Those who make a mistake will find themselves on public display with a forced confession. Failure to confess when asked is likely to mean a death sentence or prison for life.

At Washington State University, use of politically incorrect terms will simply affect your grade. Moreover, students have the upfront option to not take inane classes in the first place.

Rest assured, classes in "multicultural literature", and "Women & Popular Culture" are not a likely foundation for a well-paying job.

Mike "Mish" Shedlock

Restaurant Performance Index increased in July

Here is a minor indicator I follow from the National Restaurant Association: Stronger sales, traffic in July boost RPI
Driven by stronger same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) posted a solid gain in July.

The RPI stood at 102.7 in July, up 0.7 percent from June and the first gain in three months. In addition, July represented the 29th consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“July’s RPI gain was fueled primarily by an improvement in the current situation indicators,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Although a solid majority of operators reported higher same-store sales and customer traffic levels in July, their outlook for both sales growth and the economy is more cautious compared to recent months.”
emphasis added
Restaurant Performance Index Click on graph for larger image.

The index increased to 102.7 in July, up from 102.0 in June. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. Even with the decline in the index, this is a solid reading.

It appears restaurants are benefiting from lower gasoline prices.

Inventory Grows in Economic Liftoff Anticipation

The Chicago PMI reading came in just shy of the Bloomberg Econoday Estimate of 54.9.
The headline for August looks solid, at 54.4 for the Chicago PMI, but the details look weak. New orders and production both slowed and order backlogs fell into deeper contraction. Employment contracted for a fourth straight month while prices paid fell back into contraction.

Lifting the composite index are delays in shipments which point to tight conditions in the supply chain. Inventories rose sharply in the month and the report hints that the build, despite the weakness in orders, was likely intentional. But strength is less than convincing and this report suggests that activity for the Chicago-area economy may be flat going into year end.
ISM Chicago

Let's dive into the Chicago PMI Report for further details.
While New Orders and Production softened in August, both remained above their 12-month averages and significantly up from the depressed levels seen between February and June. Part of that resilience in Production and New Orders was due to stock growth as companies built inventories at the fastest pace since November 2014. Feedback from companies was mixed although our assessment is that the overall positive tone of the survey is consistent with a deliberate stock-build in anticipation of stronger demand in Q4.

Despite the latest gain, the labour component remained in contraction for the fourth consecutive month and was still close to June’s nearly 5-1/2 year low. The Employment component has been relatively weak in recent months and the survey suggests it’s unlikely to see a strong pick-up in the short-term.

Responding to a special question asked in August, 63% of our panel said they didn't plan to expand
their workforce over the next three months.
Economic Liftoff Anticipation

Once again, everyone hopes for a "second half liftoff" that perennially struggles to arrive as strong as expected.

This year, I highly doubt 2% for the entire year. 1% growth might be an achievement. Nonetheless, businesses stockpile in anticipation liftoff.



Anticipation is the word (and song) of the day.

Link if video does not play Anticipation: Carly Simon

Mike "Mish" Shedlock

Dallas Fed Region Activity Plunges Well Below Any Forecast

Repeat after me "housing and cars and part time jobs, oh my". There's little else worth cheering about, not even the stock market lately. And housing is not all that strong either.

Today, the Dallas Fed reported that activity in its region plunged to a reading of -15.8, well below any economist's prediction. The Bloomberg Consensus range was -8.0 to +0.5.
Nowhere are the effects of the oil-patch rout more evident than in the Dallas Fed manufacturing report where the general activity index fell to minus 15.8 in August from July's already weak minus 4.6. New orders fell into deep contraction this month, down more than 13 points to minus 12.5 with employment, at minus 1.4, in contraction for a fourth straight month. Hours worked are at minus 6.3 while readings on the business outlook fell steeply though both remain in slightly positive ground. Less weak readings were posted by production, shipments and capacity utilization. But price readings are very weak, with raw materials at minus 8.0 and finished goods at minus 15.7. It really doesn't get any worse than this report which points to increasing drag from the energy sector.
Dallas Fed Business Indicators



Note that wages and benefits are up big, while prices received and new orders are in deep contraction.

The above table from the Dallas Fed Texas Manufacturing Outlook Survey.

Some of the comments are interesting.

Primary Metal Manufacturing

  • Overall business is slowing.
  • The strength of the dollar is impacting us through an inability to export and high volume of imports.
  • The price of finished product dropped dramatically.

Fabricated Metal Manufacturing

  • New orders have dropped to half of what they were last year. Capital project equipment continues to be sourced in China and Korea as the owners are chasing every dollar of savings possible. We had our first layoff in 15 years.
  • We are currently experiencing a large surge in the automotive industry due to our relationship and close proximity to an automotive plant during a new vehicle implementation period.
  • It seems like if you are in a position to take on work and able to turn it around quickly there seems to be plenty of small to medium-range quantity types knocking. We are hoping that as oil prices continue to fall, food and other commodities fall also.
  • A little more deflation could certainly help.
  • Our oil and gas business, historically 50 percent of our revenues, is still down. Inventories have been consumed fairly well, which now offsets the second drop of oil prices. The growth we expect is due to our efforts to grow our non-oil and gas business.
  • The continued decline in the West Texas Intermediate crude oil price is expected to soften the demand for our basic fabricated products.
  • The volatility in the stock market and decreased energy costs always have a negative impact on replacement windows orders.
  • Even though there is a substantial decrease in raw material prices, capacity levels in PVC and glass are extremely constrained.
  • The reason for the decreased capacity levels is that during the housing crisis no capital expenditures were made and now most vendors are at full capacity.

Mike "Mish" Shedlock

Paul Krugman: A Heckuva Job

"Those predicting Mr. Trump’s imminent political demise are ignoring the lessons of recent history":

A Heckuva Job, by Paul Krugman, Commentary, NY Times: ...Katrina was special in political terms because it revealed such a huge gap between image and reality. Ever since 9/11, former President George W. Bush had been posing as a strong, effective leader keeping America safe. He wasn’t. But as long as he was talking tough about terrorists, it was hard for the public to see what a lousy job he was doing. It took a domestic disaster, which made his administration’s cronyism and incompetence obvious to anyone with a TV set, to burst his bubble.
What we should have learned from Katrina, in other words, was that political poseurs with nothing much to offer besides bluster can nonetheless fool many people into believing that they’re strong leaders. And that’s a lesson we’re learning all over again as the 2016 presidential race unfolds.
You probably think I’m talking about Donald Trump, and I am. But he’s not the only one.
Consider, if you will, the case of Chris Christie. Not that long ago he was regarded as a strong contender for the presidency... Now Mr. Christie looks pathetic — did you hear the one about his plan to track immigrants as if they were FedEx packages? But he hasn’t changed, he’s just come into focus.
Or consider Jeb Bush... What happened to Jeb the smart, effective leader? He never existed.
And there’s more. Remember when Scott Walker was the man to watch? Remember when Bobby Jindal was brilliant?
I know, now I’m supposed to be evenhanded, and point out equivalent figures on the Democratic side. But there really aren’t any; in modern America, cults of personality built around undeserving politicians seem to be a Republican thing. ...
Which brings us back to Mr. Trump.
Both the Republican establishment and the punditocracy have been shocked by Mr. Trump’s continuing appeal to the party’s base. He’s a ludicrous figure, they complain. His policy proposals, such as they are, are unworkable, and anyway, don’t people realize the difference between actual leadership and being a star on reality TV?
But ... those predicting Mr. Trump’s imminent political demise are ignoring the lessons of recent history, which tell us that poseurs with a knack for public relations can con the public for a very long time. Someday The Donald will have his Katrina moment, when voters see him for who he really is. But don’t count on it happening any time soon.

Fed Watch: Does 25bp Make A Difference?

Tim Duy:

Does 25bp Make A Difference?, by Tim Duy: I am often asked if 25bp really makes any difference? If not, why does it matter when the Fed makes its first move? The Fed would like you to believe that 25bp really isn't all that important. Indeed, they don't want us focused on the timing of the first move at all, reiterating that the path of rates is most important. Yet I have come to believe that the timing of the first rate hike is important for two reasons. First, it will help clarify the Fed's reaction function. Second, if the experience of Japan and others who have tried to hike rates in the current global macroeconomic environment is any example, the Fed will only get one shot at pulling the economy off the zero bound. They better get it right.
On the first point, consider that there is no widespread agreement on the timing of the Fed's first move. Odds for September have been bouncing around 50%, lower after a couple of weeks of market turmoil, but bolstered by the Fed's "stay the course" message from Jackson Hole. I think you can contribute the lack of consensus to the conflicting signals send by the Fed's dual mandate. On one hand, labor markets are improving unequivocally. The economy is adding jobs and measures of both unemployment and underemployment continue to improve. The Fed has said that only "some" further progress is necessary to meet the employment portion of the dual mandate. I would argue the Fed Vice-Chair Stanley Fischer even was kind enough to define "some" while in Jackson Hole:
In addition, the July announcement set a condition of requiring "some further improvement in the labor market." From May through July, non-farm payroll employment gains have averaged 235,000 per month. We now await the results of the August employment survey, which are due to be published on September 4.
Nonfarm payroll growth was the only labor market indicator he put a number to. He clearly intended to tie that number to the Fed statement. Basically, he said "some" further improvement is simply another month of the same pattern.
While the Fed is moving closer to the employment mandate, however, the price stability mandate is moving further from view:

PCE082815

On a year-over-year basis, core-CPI is at four year lows, and the collapse in the monthly change suggests that year-over-year trends will not soon turn in the Fed's favor. One can argue that the net effect on policy should be zero. After all, the Fed has long argued that inflation will revert to target, yet inflation has only drifted away from target. What kind of central bank tightens policy when they are moving farther from their inflation target?
Fischer, however is undeterred:
Can the Committee be "reasonably confident that inflation will move back to its 2 percent objective over the medium term"? As I have discussed, given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further. While some effects of the rise in the dollar may be spread over time, some of the effects on inflation are likely already starting to fade. The same is true for last year's sharp fall in oil prices, though the further declines we have seen this summer have yet to fully show through to the consumer level. And slack in the labor market has continued to diminish, so the downward pressure on inflation from that channel should be diminishing as well.
So back to the question: What kind of central bank tightens policy when they are moving further from their inflation target? Answer: The Federal Reserve. Why? Faith in their estimate of the natural rate of unemployment. Inflation expectations hold the baseline steady, shocks cause deviations from that baseline. The shocks will all dissipate over time, including labor market shocks. The economy is approaching full employment, therefore the downward pressure from labor market slack will soon diminish and turn into upward pressure in the absence of tighter monetary policy.
Now note that, aside from the equilibrium real rate, of the four variables in a Taylor-type reaction function, only one of those variables is unobserved. The target inflation rate is defined, and unemployment and inflation are measured. The natural rate of unemployment is unobserved and needs to be estimated. How confident are policymaker's in their estimate (5.0-5.2 percent) of the natural rate of unemployment?
I would argue that the Fed will reveal a high degree of confidence in that estimate if they hike rates in the face of inflation drifting away from trend. That would be new information in defining their reaction function. I think it would be a signal that Federal Reserve Chair Janet Yellen has largely abandoned here concerns about underemployment, which remains unacceptably high.
The clarification of the Fed's reaction function by narrowing the confidence interval around the Fed's estimate of the natural rate of unemployment would, I think, be an important new piece of information. Moreover, I think it would be a fairly hawkish signal - remember that financial market participants, as well as the Federal Reserve staff, tend to have a more dovish outlook that FOMC participants. The sooner the Fed hikes rate, the more hawkish the signal relative to expectations.
That signal, I suspect, is more important than the actual 25bp. The latter might not mean much, but at the zero bound, the former probably means a lot.
The timing of the first hike is also important because the Fed will only get one bite at the apple. That at least is what we saw with the rush to tighten in Japan, Europe, and Sweden. The downside risks of tightening too early are thus enormous, amounting to essentially locking your economy into a subpar equilibrium. This was the Fed's staff's warning in the last set of minutes:
The risks to the forecast for real GDP and inflation were seen as tilted to the downside, reflecting the staff's assessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks.
Again, Fischer seems to fear the opposite risk more. Via the New York Times:
And Mr. Fischer emphasized that Fed officials could not afford to wait until all of their questions were answered and all of their doubts resolved. “When the case is overwhelming,” he said, “if you wait that long, then you’ve waited too long.”
I am not looking for an overwhelming case, just inflation that is trending toward target instead of away. Yet even that is apparently too much for Fischer as unemployment bears down on their estimate of the full employment.
You can take the central banker out of the 1970's, but you can't take the 1970's out of the central banker.
Bottom Line: I am coming around to the belief that the timing of the first rate hike is more important than Fed officials would like us to believe. The lack of consensus regarding the timing of the first hike tells me that we don't fully understand the Fed's reaction function and, importantly, their confidence in their estimates of the natural rate of unemployment. The timing of the first hike will thus define that reaction function and thus send an important signal about the Fed's overall policy intentions.
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