Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $38.7 billion in the third quarter of 2014, up $2.6 billion (7.3 percent) from earnings of $36.1 billion the industry reported a year earlier. The increase in earnings was mainly attributable to a $7.8 billion (4.8 percent) increase in net operating revenue (the sum of net interest income and total noninterest income), the biggest since the fourth quarter of 2009. ...
The number of "problem banks" fell for the 14th consecutive quarter. The number of banks on the FDIC's "Problem List" declined from 354 to 329 during the quarter, the lowest since the 305 in the first quarter of 2009. The number of "problem" banks now is 63 percent below the post-crisis high of 888 at the end of the first quarter of 2011. Two FDIC-insured institutions failed in the third quarter, compared to six in the third quarter of 2013.
The Deposit Insurance Fund (DIF) balance continued to increase. The DIF balance (the net worth of the Fund) rose to a record $54.3 billion as of September 30 from $51.1 billion at the end of June. The Fund balance increased primarily due to assessment income, recoveries from litigation settlements, and receivership asset recoveries that exceeded estimates.
The season is just starting, and snow may yet pile high, but the harvest in California the last three years was bleak, and the globe’s long-range forecast is grim.
Last year’s snow pack at the University of California, Berkeley’s Central Sierra Snow Lab, in the heart of California ski country near Lake Tahoe, topped out at a depth of 133 centimeters (about 52 inches), the second lowest of the last 90 years. With most of the snow arriving late in the season, skier and snowboarder visits in this area were down by 25 percent from the season before, according to the National Ski Area Association.
Similarly meager snow packs in 2012 and 2013 have exacerbated the statewide drought, with ramifications far beyond the ski industry. A fourth lackluster season would be unprecedented, according to snow records kept since 1879.
Today, the Data and Analytics division of Black Knight Financial Services released its latest Home Price Index (HPI) report, based on September 2014 residential real estate transactions. The Black Knight HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.
| Month | YoY House Price Increase |
|---|---|
| Jan-13 | 6.7% |
| Feb-13 | 7.3% |
| Mar-13 | 7.6% |
| Apr-13 | 8.1% |
| May-13 | 7.9% |
| Jun-13 | 8.4% |
| Jul-13 | 8.7% |
| Aug-13 | 9.0% |
| Sep-13 | 9.0% |
| Oct-13 | 8.8% |
| Nov-13 | 8.5% |
| Dec-13 | 8.4% |
| Jan-14 | 8.0% |
| Feb-14 | 7.6% |
| Mar-14 | 7.0% |
| Apr-14 | 6.4% |
| May-14 | 5.9% |
| June-14 | 5.5% |
| July-14 | 5.1% |
| Aug-14 | 4.9% |
| Sep-14 | 4.6% |
Editor’s Note: I think Roz Usheroff’s latest post is so timely for procurement professionals in terms of our need to recognize our true value to our respective organizations through the passion we bring to our jobs each and every day!
“You just summed up your entire sorry career here in one sentence! If you had a tenth of the heart of Ruettiger, you’d have made All-American by now! As it is, you just went from third team to the prep team! Get out of here!”
Even though I am not what you would consider to be a football fan, there are nonetheless many powerful moments in the movie Rudy from which the above quote has been taken.
Moments that I believe transcend the sports world, and apply to both business and life in general.
The reason I thought about this movie, and in particular this scene, is that I was recently asked the question does desire and commitment trump talent alone?
The individual, who is a senior executive with a large corporation, posed the question because he was having difficulty in deciding which one of two people on his management…
View original 641 more words
After the deep freeze last winter, the labor market has steadily recovered over the last 10 months. Payrolls have averaged about 240,000 and the unemployment rate has dropped mainly for “good reasons”—because of solid jobs rather than falling participation. While it is very hard to pin down the inflation neutral (NAIRU) unemployment rate in real time, we seem to be in the neighborhood of NAIRU. At 5.8%, the official U-3 measure has dipped below its 30-year average of 6.1% and is approaching estimates of NAIRU from the FOMC (5.2 to 5.5%) and the Congressional Budget Office (5.5%). We like to focus on the broader U-6 measure. If the rate of decline over the last year continues, it will hit its historical average by next year and its pre-crisis average by early 2016.
What is missing from this labor lullaby is some sign of normal wage growth. There have been a number of head fakes—jumps in erratic second-tier indicators and pockets of pressure that never expanded. However, the two best gauges of pressure, total average hourly earnings (AHE) and the employment cost index (ECI) have shown few signs of life.
The good news is that while AHE are still stuck at 2%, there are now early hints of a pick-up in the ECI. After a very weak 1Q reading the index was solid in both 2Q and 3Q. Moreover, the pick-up is broad-based, including both wages and benefits and increases for most occupational groups and industries. Finally, just maybe, labor compensation is starting to pick up.
Before we get too excited about improved income or inflation, keep in mind that the recovery in both wage and price inflation is likely to be very slow.
...
At this stage, it is not clear whether the long-awaited rise in labor costs has arrived or will start sometime next year. Two things are clear. First, the rise is likely to be very slow. Second, the Fed’s initial response will be to breathe a sigh of relief and they will only view it as a threat to the inflation target if it gets above its historic norm of 3.5%.
In their discussion of the economic situation and the outlook, most meeting participants viewed the information received over the intermeeting period as suggesting that economic activity continued to expand at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate; on balance, participants judged that the underutilization of labor resources was gradually diminishing. Participants generally expected that, over the medium term, real economic activity would increase at a pace sufficient to lead to a further gradual decline in the unemployment rate toward levels consistent with the Committee's objective of maximum employment. Inflation was continuing to run below the Committee's longer-run objective. Market-based measures of inflation compensation declined somewhat, while survey-based measures of longer-term inflation expectations remained stable. Participants anticipated that inflation would be held down over the near term by the decline in energy prices and other factors, but would move toward the Committee's 2 percent goal in coming years, although a few expressed concern that inflation might persist below the Committee's objective for quite some time. Most viewed the risks to the outlook for economic activity and the labor market as nearly balanced. However, a number of participants noted that economic growth over the medium term might be slower than they currently expected if the foreign economic or financial situation deteriorated significantly.
...
In their discussion of communications regarding the path of the federal funds rate over the medium term, meeting participants agreed that the timing of the first increase in the federal funds rate and the appropriate path of the policy rate thereafter would depend on incoming economic data and their implications for the outlook. Most participants judged that it would be helpful to include new language in the Committee's forward guidance to clarify how the Committee's decision about when to begin the policy normalization process will depend on incoming information about the economy. Some participants preferred to eliminate language in the statement indicating that the current target range for the federal funds rate would likely be maintained for a "considerable time" after the end of the asset purchase program. These participants were concerned that such a characterization could be misinterpreted as suggesting that the Committee's decisions would not depend on the incoming data. However, other participants thought that the "considerable time" phrase was useful in communicating the Committee's policy intentions or that additional wording could be used to emphasize the data-dependence of the Committee's decision process. A couple of them noted that the removal of the "considerable time" phrase might be seen as signaling a significant shift in the stance of policy, potentially resulting in an unintended tightening of financial conditions. A couple of others thought that the current forward guidance might be read as suggesting an earlier date of liftoff than was likely to prove appropriate, given the outlook for inflation and the downside risks to the economy associated with the effective lower bound on interest rates. With regard to the pace of interest rate increases after the start of policy normalization, a number of participants thought that it could soon be helpful to clarify the Committee's likely approach. It was noted that communication about post-liftoff policy would pose challenges given the inherent uncertainty of the economic and financial outlook and the Committee's desire to retain flexibility to adjust policy in response to the incoming data. Most participants supported retaining the language in the statement indicating that the Committee anticipates that economic conditions may warrant keeping the target range for the federal funds rate below longer-run normal levels even after employment and inflation are near mandate-consistent levels. However, a couple of participants thought that the language should be amended in light of the prescriptions suggested by many monetary policy rules and the risks associated with keeping interest rates below their longer-run values for an extended period of time.
emphasis added
Builder confidence in the market for newly built single-family homes rose four points to a level of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.
“Growing confidence among consumers is what’s fueling this optimism among builders,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “Members in many areas of the country continue to see increasing buyer traffic and signed contracts.”
“Low interest rates, affordable home prices and solid job creation are contributing to a steady housing recovery,” said NAHB Chief Economist David Crowe. “After a slow start to the year, the HMI has remained above the 50-point benchmark for five consecutive months, and we expect the momentum to continue into 2015.”
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All three HMI components increased in November. The index gauging current sales conditions rose five points to 62, while the index measuring expectations for future sales moved up two points to 66 and the index gauging traffic of prospective buyers increased four points to 45.
Looking at the three-month moving averages for regional HMI scores, the Northeast rose three points to 44, the South posted a four-point gain to 62, and the West edged up one point to 58. The Midwest registered a two-point loss to 57.
emphasis added
Click on graph for larger image. 
[W]e find that long-term unemployed workers are not less attached to the labor market than short-term unemployed workers. If anything, the long-term unemployed group has the largest share of prime-age workers, the age group likely to have the strongest labor force attachment. We also see that long-term unemployment is an economy-wide phenomenon, spread across industries and occupations. While there may be unobservable characteristics of long-term unemployed workers that make them less attached to the labor force, when looking at their observable characteristics, it’s hard to argue that they should not be considered as part of labor market slack.
[C]onsider retail performance excluding gasoline stations. Retail sales are reported nominally and gas prices have plummeted since June. That means a clearer picture of the consumer sector will come from looking at retail sales excluding gas stations.
There are two reasons for that. The first is obvious: If gas sales are falling, sales excluding gas are doing better than total sales.
The second reason is that cheaper gas frees up money that can be spent elsewhere. If nongas sales don’t post a solid gain in October, consumers may be saving that extra money.
The Bay Area housing market posted another modest uptick in sales during October but activity remained below average as cash purchases continued to taper off and buyers faced a limited inventory as well as affordability and mortgage availability challenges. Home prices appear to have plateaued in recent months, although the October median sale price was still about 11 percent higher than a year earlier.
A total of 7,693 new and resale houses and condos sold in the nine-county San Francisco Bay Area in October 2014. That was up 3.4 percent from 7,443 in September and up 1.3 percent from 7,595 in October 2013, according to CoreLogic DataQuick data..
A small gain in sales from September to October is normal for the season. The October sales count was the highest for that month since 7,902 homes sold in October 2012. October sales have ranged from a low of 5,486 in 2007 to a high of 13,392 in 2003. October 2014 sales were 9.7 percent below the October average of 8,521 sales since 1988, when CoreLogic DataQuick’s data began.
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“After hitting what many view as a stratospheric level, Bay Area home prices have shown signs of leveling off,” said Andrew LePage, data analyst for CoreLogic DataQuick. “To some extent it’s the result of sticker shock and a modest pickup in inventory."
...
Foreclosure resales accounted for 2.7 percent of resales in October, down from a revised 2.8 percent the month before, and down from 3.7 percent a year ago. Foreclosure resales in the Bay Area peaked at 52.0 percent in February 2009, while the monthly average since 1995 is 9.7 percent. Foreclosure resales are homes that had been foreclosed on in the prior 12 months.
Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 3.5 percent of Bay Area resales in October. That was down from an estimated 3.8 percent in September and down from 7.3 percent in October 2013.
emphasis added
Why is it that every time public sector procurement (which is the only procurement most people are familiar with) makes the news, it’s because they have done something ridiculous? I think sometimes public sector procurement gets a bad rap, with a few bad actors serving as the basis for broadly generalized low expectations. The public sector is not as bad as it seems, and the private sector is not always as much better as we think it is. And yet…
This week, the Massachusetts Bay Transit Authority (MBTA) raised more than a few eyebrows when they awarded a ten year, $560M contract for 284 heavy rail cars to CNR MA Corp, the local subsidiary of China CNR Corp, a Chinese state-owned entity. Immediately, almost every constituent group was up at arms: residents, losing suppliers, local people with ties to China and strong feelings about the role of government in business.
We all make mistakes, and there could be a perfectly reasonable explanation for any or all of the things that look amiss. But all of them in combination? This particular public sector bid process reads like a three ring circus of sloppy procurement practices.
Mishandling of Participating Suppliers
There were a total of six suppliers invited to submit proposals. Of the five that did not receive the award, three have already complained publicly about not being given the opportunity to make a best and final offer before a decision was made. In fact, one bidder claimed not to have known a decision had been made until they found out through the news media that they had not been selected.
Appearance of Impropriety
The Governor of Massachusetts, Deval Patrick, met with CNR in China a year before the contract was awarded. And while his Transportation Secretary Richard Davey called the meeting, “ “totally appropriate” and said “The governor had talked often about wanting state contracts to have as much robust competition as possible” there is no indication that Patrick met with any of the other suppliers, either abroad or at home. Meeting with one supplier does nothing to stimulate competition, and may even do the opposite. If that didn’t smell funky enough, a local consultant for CNR China that has been closely involved in the deal is… former MBTA spokesperson Lydia Rivera. Hmmm…
Questions about Costs and Pricing
The original budget for the rail cars was $800M, and we all know how estimates work out in either the public or private sector. Common sense would set expectations for the final bid somewhere in the neighborhood of that bid. At least one other supplier was below this estimate and another was within striking distance (see below). CNR was so far below this estimate, nearly thirty percent, that questions are being raised about the treatment and compensation of workers that will do the overseas portion of the work.
Bid Totals Made Public (in US $M)
CNR MA Corp $566.6
Hyundai Rotem $720.6
Kawasaki $904.9
Bombardier of Canada $1,080.0
Absent any explanation, it is hard not to be uncertain about the process that was followed and the people who followed it. Think of how it would look if your CEO met with only one participating supplier, if the supplier’s local representative was a former employee of the company, and if the bid came in so far below expectations that specs and requirements documentation were brought into question. Then, after the award was made, the company was immediately subjected to criticism on social issues, elevating risk and creating brand damage. Perhaps most damning of all is the allegation that qualified suppliers were not given an opportunity to finish negotiating. Any procurement professional worth their weight in salt knows that getting a competitive price is only part of the process. It is what you get for that price – the value you might say – that needs to be the final determining factor.
Additional Reading
Nicole Dungca, “MassDot Awards MBTA Car Contract to China Controlled Company,” Boston Globe, October 22, 2014,
Chris Cassidy, “China Lowballs MBTA Bid,” Boston Herald, October 22, 2014,
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Southland homes sold at the slowest pace for the month of October in three years as sales to investors and cash buyers continued to run well below October 2013 levels. ... A total of 19,271 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in October 2014. That was down 0.4 percent from 19,348 sales in September, and down 4.4 percent from 20,150 sales in October 2013, according to CoreLogic DataQuick data.
Last month’s sales decline from September was not unusual. On average, Southern California sales have fallen 0.3 percent between September and October since 1988, when CoreLogic DataQuick data begin. ...
"It was another sub-par month for Southern California home sales. We've yet to see traditional buyers fill the void left by the drop-off in investor and cash buyers, which began in spring last year,” said Andrew LePage, data analyst for CoreLogic DataQuick. “Of course, there are multiple reasons for this year's lackluster sales. New-home transactions are still running at about half their normal level. The resale market is hampered by constrained inventory in many areas, in part because some people who want to put their homes up for sale still haven't regained enough equity to purchase their next home. Then there are the would-be buyers who continue to struggle with affordability and mortgage availability, if not uncertainty over their employment or the direction of the housing market."
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Foreclosure resales represented 4.8 percent of the Southern California resale market in October. That was up insignificantly from 4.7 percent the prior month and down from 6.3 percent a year earlier. In recent months the foreclosure resale rate has been the lowest since early 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009. Foreclosure resales are homes foreclosed on in the prior 12 months.
Short sales made up an estimated 5.9 percent of resales last month. That was down from 6.1 percent the prior month and down from 10.8 percent a year earlier. Short sales are transactions where the sale price fell short of what was owed on the property.
emphasis added
Nationally, the month-over-month increase in asking home prices rose to 1.0% in October. Year-over-year, asking prices rose 6.4%, down from the 10.6% year-over-year increase in October 2013. Asking prices rose year-over-year in 91 of the 100 largest U.S. metros.
Nationally, year-over-year price gains have slowed from a year ago. In some markets, this price slowdown has been precipitous. In the most extreme case, Las Vegas prices rose 10.1% in October 2014 versus 31.9% in October 2013, a drop of 21.8 percentage points. Price gains have slowed by almost 20 percentage points in both Northern California (Sacramento, Oakland) and Southern California (Riverside-San Bernardino, San Diego) markets. Among the 10 markets with the largest price slowdowns, only one – Warren-Troy-Farmington Hills, next to Detroit – is outside California or the Southwest.
Nationally, price gains have slowed in 60 of the 100 largest metros, although prices are actually falling year-over-year in only nine metros.
Nationally, rents rose 6.2% year-over-year in October. But in the markets where renters are stretched thinnest, rents are rising even faster. In Miami, Los Angeles, and New York, the median rent on a 2-bedroom unit equals more than half of the average monthly wage, and it’s nearly that much in Oakland and San Francisco. In all five of these least-affordable markets, rents rose 7.8% or more year-over-year.
emphasis added
If Washington can simply manage to do absolutely nothing to the economy in the next two years, except to agree to pay already incurred debts (a/k/a lift the debt ceiling), then we are in the best position we have been in for nearly a decade for the economy by itself to improve the lot of the working and middle class appreciably.
Here's why:• there is nothing in the long leading indicators to suggest that we are going to enter an economic downturn at any point in at least the next 9 months. If interest rates continue to drift lower and housing starts improve as a result, you can extend that forecast into 2016.
• continuing economic growth means continuing positive monthly jobs reports
• so long as there is positive jobs growth, and initial jobless claims stay at or near their current levels, the unemployment rate is going to continue to decline -- and that's not just the usual rate, but all the other variations on the unemployment rate as well.
• Because the unemployment rate should remain below 6.5% for the foreseeable future, that means that nominal wage growth, which has been improving for the last 18 months, will continue to improve further - i.e., to 2.5% YoY or 3.0% YoY.
• Also, incremental tightness in the labor market is going to mean that better paying jobs become an increasing share of employment - my hypothesis is that this recovery is no different from previous recoveries, where low wage jobs get added first, and higher wage jobs get added later. Like the expansion after the deep 1982 recession, there was so much slack that it took a long time for those higher paying jobs to show up. There is evidence from the last few jobs reports that it is beginning to happen.
• Unless there is a reversal in gas prices, this is going to mean significant real wage growth to the average working family.
In short, simply leaving the economy alone for the next 2 years is likely to mean a continued improvement in the jobs picture, and a significant improvement on the wage front. Or, if ever there was a time when laissez faire might be a perfectly decent policy, this point in the cycle is it.
The U.S. Census Bureau of the Department of Commerce announced today that construction spending during September 2014 was estimated at a seasonally adjusted annual rate of $950.9 billion, 0.4 percent below the revised August estimate of $955.2 billion.. The September figure is 2.9 percent (±2.1%) above the September 2013 estimate of $924.2 billion.
Spending on private construction was at a seasonally adjusted annual rate of $680.0 billion, 0.1 percent below the revised August estimate of $680.8 billion. Residential construction was at a seasonally adjusted annual rate of $349.1 billion in September, 0.4 percent above the revised August estimate of $347.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $331.0 billion in September, 0.6 percent below the revised August estimate of $333.0 billion. ...
In September, the estimated seasonally adjusted annual rate of public construction spending was $270.9 billion, 1.3 percent below the revised August estimate of $274.4 billion.
emphasis added
Click on graph for larger image. 
The second graph shows the year-over-year change in construction spending.
Click on graph for larger image. “Before the most recent reductions in the average 30-year mortgage interest rate, approximately six million borrowers met broad-based ‘refinancibility’ criteria,” said Barnes. “These criteria assume loan-to-value ratios of 80 percent or below, good credit, non-delinquent loan status and current interest rates high enough that borrowers have an incentive to refinance. In light of where rates are today, and looking at borrowers with current notes at 4.5 percent and above, that population has now swelled to 7.4 million – almost a 25 percent increase. This is a relatively conservative assessment though, as those with current rates of 4.25 to 4.5 percent could arguably benefit from refinancing as well. That group adds another 1.7 million borrowers to the population.
“On a related note, we also examined how the equity situation in America has changed since we last looked. Due in no small part to 28 consecutive months of home price appreciation since 2012, we’ve seen the share of borrowers with negative equity drop down to just below eight percent as of July, down from a level of 33 percent at the end of 2011, and to its lowest point since 2007. An additional 8.5 percent of borrowers are in ‘near-negative equity’ positions, with less than 10 percent equity in their homes. However, more than half of all borrowers have 30 percent or more equity, a level not seen in nearly eight years.”
