Existing Home Inventory increases 5.4% Year-over-Year

Existing Home Inventory increases 5.4% Year-over-Year – Earlier the NAR released the existing home sales data for November; here are a couple more graphs … The first graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.  The key is to recognize the seasonal pattern, and watch the YoY change in inventory. The year-over-year increase in inventory is especially bad news because the reported inventory is very high (3.71 million), and the 9.5 months of supply in November is well above normal.  By request – the second graph shows existing home sales Not Seasonally Adjusted (NSA). The red columns are for 2010. Sales NSA were slightly above the level in 2008, but well below the level in other years. The bottom line: Sales were weak in November – below consensus and close to Tom Lawler’s forecast – and existing home sales will continue to be weak for some time.  The high level of inventory will continue to put downward pressure on house prices.
 

Oil Passes $90 as Supplies Tighten – Crude-oil futures prices settled above $90 a barrel Wednesday, as declining supplies and an improving economy have pushed prices to their highest level in more than two years. The U.S. has hemorrhaged 19.3 million barrels of oil since late November, with supplies dropping at their fastest pace since May 2008, when oil prices were well into record territory above $100 a barrel. Oil futures have rallied 13% since mid-November, putting crude on a track back towards triple digits.  Light, sweet crude for February delivery settled at $90.48 a barrel, up 66 cents on the New York Mercantile Exchange, after rising as high as $90.80 earlier in the session. Brent crude on the ICE futures exchange traded 49 cents higher at $93.69 a barrel. "A settlement over $90 is a pretty key level. Now we’re starting to see prices at the pump make really big moves," The move higher was sparked by another big drop in U.S. oil inventories in the latest Department of Energy report. Crude stocks fell by 5.3 million barrels in the week ended Friday, following a 9.9-million-barrel plunge in last week’s report, the largest decline in eight years.

Why The Upward Revision in Third Quarter GDP Growth is Not Good News – The growth rate for GDP for the third quarter was revised upward from 2.5 percent to 2.6 percent, but a closer look at the numbers reveals it’s actually not such good news. Dean Baker explains why: Inventories and the Wonders of GDP Accounting… The news stories are coming out on the Commerce Department’s release of revised data on 3rd quarter GDP and it seems that almost everyone has missed the story. The headlines of the articles are telling us that GDP growth was revised up slightly from 2.5 percent to 2.6 percent. While that may sound like at least somewhat positive news a more careful review of the data shows the opposite. While the rate of GDP growth was revised up, the rate of final demand growth was revised down. Final demand, which is GDP excluding inventory accumulations, grew at just a 0.9 percent annual rate in the 3rd quarter, the same as its growth rate in the second quarter. The reason that GDP growth was revised upward was a more rapid reported growth in inventories. It is very unlikely that this pace of inventory growth will be sustained…
 
An inflation (or lack thereof) chart show – Atlanta Fed’s macroblog – Over at TheMoneyIllusion, Scott Sumner takes a shot at what he refers to as "Disinflation Denial." His point is that prior to the recent run-up, "commodity price indices fell by more than 50%." Thus, if the run-up in commodity prices suggests loose policy now, they must have been signaling tight policy earlier. I am hesitant to endorse the view that any subset of prices gives us a clear view of inflation trends. What I do endorse in the Sumner piece is the advice that "the Fed look at a wide range of indicators." I can tell you that is exactly what we do at the Atlanta Reserve Bank and, as just one example within the Fed System, in this post I’ll review the battery of indicators that we are currently looking at here. Most of these will be no surprise, but I find it useful to occasionally see them in one place. So here we go. (Note that throughout this blog post I will focus most of my comments on the consumer price index [CPI], but most of what I say also applies to the personal consumption expenditure [PCE] price index as well.)
 
Is the Fed Printing Money? –  Is the Federal Reserve printing money to finance its bond buying? Or isn’t it? Ben Bernanke has given inconsistent answers, at times saying it is and at times saying it isn’t.In an exchange with readers on Time magazine’s website this past weekend, a reader asked Mr. Bernanke why the Fed is creating dollars “out of thin air.” Mr. Bernanke said it wasn’t. “These policies are not leading to increases in the amount of currency in circulation,” he said. He made a similar argument to CBS News’s Scott Pelley earlier this month in defense of the Fed’s plan to purchase $600 billion of U.S. Treasury bonds with money that the Fed creates. “People talk about the printing press. That’s not what this is about. This policy does not increase the amount of currency in circulation. It does not increase in any significant way the amount of money in broader terms, say, as measured by bank deposits,” he said. Yet back in March 2009 Mr. Bernanke told Mr. Pelley that the Fed was printing money to fund an earlier bond buying program. “It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. It’s much more akin to printing money than it is to borrowing,”
 
The Case for Nominal GDP Targeting  – I am late getting to this, but Mark Thoma wants to hear the case for nominal GDP targeting.  This approach to monetary policy requires the Fed stabilize the growth path for total current dollar spending.  As an advocate of  nominal GDP level targeting, I am more than happy to respond to Mark’s request.  I will  focus my response on what I see as its  three most appealing aspects: (1) it provides a simple and intuitive approach to monetary policy, (2) it focuses monetary policy on that over which it has meaningful influence, and (3) its simplicity makes it  easier to implement  than other  popular alternatives. Let’s consider each point in turn.
 
CBO on GSE Reform – I am currently drafting something on the same general topic, so I will add comments based on my current thinking. The folks at CBO discuss three options–purely public, purely private, and a hybrid. They find drawbacks to every option. They explain the hybrid option: Many proposals for the future of the secondary market involve providing federal guarantees of certain mortgages or MBSs that would qualify for government backing. …However, a hybrid approach would depart from the precrisis model in three main ways: A potentially different set of private intermediaries would be established to securitize federally backed mortgages, the federal guarantees on those mortgages would be explicit rather than implicit, and their subsidy cost would be recorded in the federal budget.  The prospect of "a potentially different set of private intermediaries" with federal backing should strike terror into your heart. I think that if we are going to have a hybrid option, I would rather go back to Freddie and Fannie than try something new. Just because Freddie and Fannie have earned bad names does not mean that you will gain something by creating a new structure.
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