Category: Economy

Economics Update

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Scary graph pr0n of the day, option ARM resets
h/t Calculated Risk

Well, today is “Jobless Thursday,” and initial claims unexpectedly rose to 480,000, rather than dropping as forecast, as did the rather more significant 4-week moving average, while continuing claims remained flat, though better productivity numbers might indicate a bit of an upswing.

Additionally, factory orders rose more strongly than forecast in December, which also is good news.

In the class half empty/full division. we have home listings rising for the first time in 18 months, which could presage a turn around in the market (full), or the fact that sellers who were trying to wait out the downturn are finally capitulating to the real estate market (empty), which would indicate further price declines ahead.

Me, I’m a bear on this.

Meanwhile, over on the other side of the pond, the Bank of England kept its benchmark rate at 0.5%, but perhaps more significantly, it announce that it is “pausing” in its quantitative easing (printing money) through buying bonds.

I’m not sure if they are just taking a month to survey the landscape, or if they think that recovery is, “just around the corner.”

Meanwhile, the recent swings in global stock markets, along with the jobs number, have investors worried, which has them buying up dollars, and these concerns also drove oil and other commodities lower.

Economics Update

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In the “recovery, my tuchas” division, we have the latest ADP estimate as to job losses, which shows that yet again, private sector employment fell, though the panglossian financial “journalists”, are now expecting employment to grow this month.

I don’t think so, seeing as how this is when the so-called birth/death adjustment gets rejiggered for the new year (more on this later).

Along with this, the Institute for Supply Management’s index of nonmanufacturing activity continues to remain in the doldrums, which is better than it was early last year, but still does not point to employment increases.

In the nexus of real estate and banking, mortgage applications were up sharply this week, but this was refinance activity, not home purchases.

In the old favorites of currency and energy, the dollar rose on the ADP report, as well as concerns about the potential Greek meltdown, while oil fell slightly on reports of strong inventories.

Economics Update (a Day Late)

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Busy day yesterday, both good and bad, so this is short.

First, we have the personal bankruptcy numbers dropped 10% from December to January, but are up 15% year over year, and the American Bankruptcy Institute expects 2010 BK levels to be higher than 2009.

In real estate, pending sales of existing homes rose slightly in December, but the percentage of homes remaining vacant rose in the 4thquarter.

Real estate is not going to lead us out of the recession, and absent cram-down legislation, government action is not going to help.

Economics Update

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Well, we had mixed signals, with factory activity rising faster than expected and construction spending falling faster than expected.

As to what you follow, I’ll go with disposable personal income and personal consumption expenditures, where spending went up less than income, increasing the savings rate, meaning that the consumer is still well into the “paradox of thrift”, and as The Big Picture observes, most of the increase in personal income is from government stimulus spending, but Obama has decided to go all 1937 on the budget. (Separate post for the budget)

Meanwhile in central bank/bond finance land, the Obama’s budget, along with the industrial growth reading pushed bond prices down, and yields up.

Meanwhile, in Oz, the Reserve Bank of Australia kept its benchmark rate at 3.75%, it had been expected to raise the rate to 4%, and so its currency took a hit.

Meanwhile in currency and energy, the ISM’s index of national factory activity drove both oil and the dollar up.

Economics Update

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Worst post-Depression recession
H/t Economic Policy Institute

So, US GDP grew at a 5.7% annual rate in the 4th quarter, according to the advance estimate from the Bureau of Economic Analysis.

Some points: First, 5.7% is a spectacularly good number, the best in about 6 years, second, I expect that as more data comes in, future revisions will be downward, third, much of this growth was from a low “deflator” number, basically meaning that the numbers were juiced by the extraordinarily low inflation numbers, and fourth, as Krugman notes, it was an inventory blip, with over half of the growth being restocking of depleted inventories, not real growth.

Even with this number, as the graph pr0n shows, we are still down from peak more than any other recession since WWII.

Still, the Reuters/University of Michigan Surveys of Consumers was up more than forecast, to 74.4, and given that consumer spending is most of our economy, it is a big deal.

As to energy and currency, the GDP numbers did what was expected, with the dollar strengthening, and the stronger dollar pushing oil down.

[on edit]
Just in, in 2009, wages and benefits rose the least since statistics began to be kept in 1982.

Economics Update

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H/t Calculated Risk

It’s what Atrios calls “Jobless Thursday”, and while the number of people filing for initial unemployment claims fell, it was less than forecast, claims fell t0 470,000, not the estimate of 450,000, the 4 week moving average rose, and the number of continuing claims fell by 57,000 to 4.6 million.

On a brighter side (above link) orders for durable goods did rise in December, as did orders for capital goods, and while the Federal Reserve Bank of Chicago’s economic activity index of fell in December, the 3-month moving average rose.

Personally, I tend to place more credence in the transportation based indices, and so the fact that the Baltic Dry Index, an index of shipping costs, fell to a 3 month low, to be the thing that I would hold onto, which makes me bearish ………… Then again, I’m always bearish.

Since I missed the economics update yesterday, I should note that the Federal Reserve Open Market Committee kept its benchmark Fed Funds rate 0.25%, effectively 0%, and while their statement was significantly more upbeat than last time, they are still signaling that the rates will remain low for some time.

Meanwhile, in real estate, Freddie Mac issued a report showing that mortgage delinquencies jumped in December, and new-home sales fell again in December, in yet another indication that the recent activity was an artifact of the tax credit, as opposed to any real market turn around.

One interesting data point, again from Freddie, is that the ratio of people cashing out from their houses to those lowering balances or rates hit an all time low, meaning that people were refinancing to lower their payments, and not using their homes as an ATM.

In the long run, this is a good thing, but in the short run, it runs headlong into the paradox of thrift.

In the more general world of finance and banking, we are seeing skittishness about things like the Greek financial problems, and so there is a flight to quality, which has increased demand for US Treasuries, which has driven the rate on the 1-month treasury to a negative interest for the first time in 10 months, interestingly enough, the T-bill auctions seem to indicate that it’s Americans who are fleeing to quality, as the last auction had robust demand, but foreign buyers seemed to be backing off, at least the foreign central banks.

In consumer debt, credit card charge-offs fell a little in December, which indicates that people are a bit more able to pay off their debt, though the fact that Chase had a “payment holiday” may be a large reason for this.

In the old standards of energy and currency, crude oil fell slightly, while the dollar hit a 6½ month high against the Euro, largely on concerns that Greece will go the way of Ukraine, the Baltic States, or Iceland.

Of course, since Greece is in the Euro zone, when none of the other nations were, that is where it gets pretty hinky.

Full FOMC statement after the break:

Press Release
Federal Reserve Press Release

Release Date: January 27, 2010
For immediate release

Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

In light of improved functioning of financial markets, the Federal Reserve will be closing the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility on February 1, as previously announced. In addition, the temporary liquidity swap arrangements between the Federal Reserve and other central banks will expire on February 1. The Federal Reserve is in the process of winding down its Term Auction Facility: $50 billion in 28-day credit will be offered on February 8 and $25 billion in 28-day credit will be offered at the final auction on March 8. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30 for loans backed by new-issue commercial mortgage-backed securities and March 31 for loans backed by all other types of collateral. The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.

Economics Update

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Well, the news has been pretty good today with the American Trucking Association Truck Tonnage Index rising in December, and the Conference Board’s consumer confidence index rose sharply in January, while across both ponds, the UK GSP rose in the 4th quartter opf 2009, indicating an possible end to their recession, and Japanese exports rose for the first time since the Lehman collapse.

I will note that ex-consumer confidence, these could be temporary blips from the need to restock inventories.

In the old standards of oil and currency, oil fell, largely on concerns about a downgrade on Japanese sovereign debt, while the dollar was mixed, up vs the Euro and Pound, but down vs. the Yen, and I’m just confused about that.

Mostly, I think that the markets are holding their breath waiting for the Fed’s meeting this week to finish.

Economics Update (a Day Late)

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So, we now have some idea just how much the new home buyer tax credit artificially inflated the market, because existing home sales fell 16.7% from November to December.

Since existing home sales are recorded at closing, and in order to qualify for the tax credit, the sale had to close before the end of November, this (seasonally adjusted) number shows that just anemic residential real estate is.

In overseas central banks, the Bank of Japan has kept its benchmark rate at 0.1% (effectively 0%) as they continue to fight what is now a nearly 20 year long deflationary spiral.

In energy, oil was up slightly, while in currency, the US dollar fell slightly.

Economics Update (For the Week)

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Well, it’s “Jobless Thursday”, as Atrios is wont to say, and it ain’t a good Thursday, with initial claims up 36,000 to 482,000 and hitting a 2 month high, the 4-week moving average up 7,000 to 448,250, though continuing claims fell by 18K to 4,599,000.

Additionally, the Philadelphia Federal Reserve Bank’s business activity index fell from 22.5 to 15.2, which still indicates growth, positive numbers indicate growth, but might show that the stimulus package is running out of steam.

Also, it looks like finances may be catching up with the bank, with Citi reporting a loss for the year on a horrible 3rd quarter, and Bank of America posted a large loss, largely as a result of its eagerness to pay off the TARP so that it could go back to overpaying its incompetent executives, while Morgan Stanley misses its earning estimate, though it still turned a profit.

I had kind of figured that a lot of the obscene profits earlier in the year were the result of rearranging deck chairs, and I think that the 4th quarter results give credence to this view.

Note that these numbers were turning worse even as consumer defaults were falling.

BTW, in the UK, we are seeing journalists running around like chickens with their heads cut off over the recent spike in consumer prices, up to a 2.9% annual rate.

Kind of silly when you think about it.

US inflation seems well in check, with the
Producer Price Index for up 0.2% in December,

In real estate, home builder confidence fell in January, but the Architecture Billings Index was up slightly, though still below 50, indicating further contraction.

The jump in building applications, would seem to indicate improvements in the real estate market, but the FHA is increasing premiums and tightening loan standards, which may deflate the balloon.

The FHA really does not have a choice. Their balance sheet is a complete mess.

Economics Update

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Another Transportation Indicator of Non-Recovery

The Federal Reserve has released its Industrial Production and Capacity Utilization data, and it shows a 0.6% increase in December, though, as Dean Baker notes, it would have fallen but for increased electricity and gas consumption from the weather.

This is kind of in line with the LA/Long Beach port traffic data for December, the last 3 months of the year were down -9.2% year over year, though they were up +2.9% Y0Y in December.

As the associated graph pr0n shows, there is a big seasonal variation, so only YoY is the only meaningful data.

Still, the Empire State Fed Index is at 15.9, with numbers above zero indicating expansion, and Reuters/University of Michigan index of consumer sentiment rose to 72.8, though this was less than the forecast of 74.

Inflation is mooted, CPI rising by only 0.1% in December, and the figure, at least the initial inflation number, for the year was 2.7% inflation in 2009, largely on the fact that energy and other commodity prices are much higher, +50% on a gallon of gas, for example.

Ex-energy, we are still looking at deflation.

In real estate, once again, New York City is not doing, well, which means that no one is doing well, with properties across the 5 boroughs rising by only 0.12%, $1,200 on a million dollar property for the mathematically disinclined, and in Manhattan, rents fell 9.4%.

Finally, we had warm weather pushing oil down again, and the dollar rose.

Economics Update

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Unemployment, SA vs NSA, h/t Brad Delong

Well, it’s Thursday, and initial unemployment claims rose for the 2nd straight week, once again worse than forecast.

What might be more significant is the significant divergence between seasonally and non-seasonably adjusted numbers, because the NSA unemployment number was 800,000 initial claims. (see graph pr0n)

The 4 week moving average continued to fall though, down 9,000 to 440,750 and the continuing claims number fell by 211 thousand to 4.596 million, though it should be noted that all these numbers are seasonally adjusted, and it appears that the adjustments are getting a big hinky.

In any case, the DoL’s numbers are here.

Retail sales also were below forecast, with the December number showing a -0.3% drop, missing analysts expectations of +0.5%.

We do have some good news though, with business inventories rising in November; it is the 2nd straight month, and the 2nd month-to-month increase in 15 months.

In real estate, foreclosures rose 14% in December, and total defaults for 2009 hit a record, 2,824,674, up 21% from 2008, and more than double the number for 2007.

In central bank land, Chilean central bank kept it’s rate at 0.5%, as the economy in the Latin American nation remains mired in recession and deflation.

In the US, the bad financial numbers had Treasurys rising as investors looked for safety.

In energy, warmer weather continued to push oil prices down, while in currency, the dollar was essentially unchanged.

Signs of the Apocalypse

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When “sensible centrist”, by which I mean that he some of his time trying to hew to the Washington, DC pundit consensus, Kevin Drum starts sounding like Leon Trotsky, something is amiss:

Like anyone, I’m pleased when I find someone to confirm my prejudices. And this is definitely one of them. Growth in a modern mixed economy is fundamentally based on consumer spending, and middle class consumers can increase their spending in only three ways: (1) real wage growth, (2) borrowing, or (3) drawing down savings. Only the first is sustainable. So if we want the American economy to grow consistently over long periods, we have to focus our economic machinery on median wage growth. We’ve done it before, we can do it again if we’re smart, and the result would be good for everyone: the rich would get richer, the middle class would get richer, and the poor would get less poor. The alternative is booms, busts, and continued social erosion. So let’s be smart, OK?

(emphasis mine)

He’s right, but the fact that he’s bucking the “Beltway Boyz” on this is telling.

Working for Mother Jones is good for Mr. Drum.

Iceland Considering Dropping Icesave Bill

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It looks like they are on their way to losing the referendum, so the Icelandic government is looking at withdrawing the bill and renegotiating terms with the British and Dutch.

There are only 320 thousand people on the island, and the legislators have a pretty good idea on how the voters feel, because they know, and have talked with, a lot of them.

Fundamentally, the voters are showing a level of courage that the politicians are not, and refusing to be blackmailed.

Economics Update

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H/t Calculated Risk

The Federal Reserve has released its “Summary of Commentary on Current Economic Conditions”, better known as the “Beige Book”, and there has been a small improvement.

I’m not sure where the improvement is, since transportation indices continue to disappoint, with the American Association of Railroads’ report on carload traffic showing the lowest level since 1988, and if goods aren’t moving, then people aren’t buying.

Meanwhile the trend in mortgages, with refinancing increasing and mortgages for purchases falling, continued this week.

Overseas, the GDPs of Britain and Germany both suffered the largest drop since before the 2nd World War, -4.8% and -5.0% respectively, while in Japan, machinery orders fell sharply in November.

In the world of US government finance, the US budget deficit doubled year over year in December, which probably had something to do with bond prices being mixed, with the 10-year bond falling slightly, and the 30-year bond rising slightly. (Yields move in the opposite direction of prices)

In energy, oil fell below $80/bbl, on reports of increasing US fuel inventories.

In currency, the dollar was mixed, down slightly versus the Pound and Euro, but up slightly versus the Yen.

Economics Update

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Decline in job openings since 2007
h/t Zero Hedge

The US trade deficit grew by 9.7% in November, largely on the recent run up in oil prices.

The National Federation of Independent Business’s small business optimism index fell for the 2nd straight month in December, indicating that the small business segment is still not ready to start hiring.

In central bank land, the yield on 30-year treasuries fell again, indicating an expectation that rates would remain low, while in China, the central bank raised the reserve requirement for banks by 50 basis points.

In energy, oil continues to fall on the promise of warmer weather.

In currency, the dollar rose, both on investor jitters, and on the Federal Reserve Bank of Philadelphia President being a complete moron and talking up rate hikes. (more on this later)

Economics Update

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Slow news day, with the only non-energy/currency news being that non-foreclosure U.S. Mortgage Delinquencies 9.8% in November, a 5.5% increase over October, and a 21% increase year over year.

In the old reliables of energy and currency, we see gasoline prices back in the news, the the price of a gallon of regular unleaded approaching $3.00, though crude oil fell on forecasts of warmer weather in the US and Europe.

In currency, the dollar fell to a 3 week low, largely on the expectation of continued low rates, as well as indications of a recovery, and higher interest rates, in China.

Who’d Have Thunk It?

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That the patron saint of dotcom excesses, Henry Blodget is calling for

Latest AIG Revelations: One More Reason Why Geithner’s Got to Go
Posted Jan 08, 2010 11:20am EST by Henry Blodget in Investing, Newsmakers, Recession, Banking

The latest revelations about the New York Fed’s actions in the AIG bailout make one thing clear: Treasury Secretary Tim Geithner must go.

Geithner must go not just because of the emails showing that his New York Fed ordered AIG to keep details of the bailout secret, but because of many other decisions and policies he has championed in the past two years.

…………………

This is a time for Obama to fish or cut bait.

He is either a captive of the FIRE (Finance Insurance Real Estate) sector, or he represents the American people, and Geithner, and to an even larger extant Lawrence Summers are an artifact of the former.

H/t The Big Picture.

Unsurprising Lesson

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When the modern version conservatives talk about anything, they define reality to fit their preconceived notions, much in the tradition of their Trotskyite progenitors, and you cannot believe a word they say.

Case in point, James Manzi, who, as Paul Krugman notes, talks about the GDP of Europe, and completely fudges the data:

But as Jonathan Chait quickly pointed out, Manzi’s definition of Europe included the Soviet bloc (!), so that he was attributing to social democracy an economic decline that was mainly about the collapse of communism. Chait also suggested that Manzi wasn’t comparing the same dates for America and Europe; and most importantly, Chait pointed out that to the extent there has been a growth divergence, it’s almost entirely because America has faster population growth; since 1980, real GDP per capita in Western Europe and the US have grown at almost the same rate.

But I went back to Manzi’s source of data, and it turns out that it’s even worse than that. If you use the broad definition of Europe, which includes the USSR, it did indeed have 40 percent of world output in the early 1970s. But that share has not fallen to 25 percent — it’s still above 30 percent.

The only thing I can think is that Manzi compared Europe including the eastern bloc in 1970 with Europe not including the east today.

It’s probably not a deliberate case of data falsification. Instead, like so many conservatives, Manzi just knew that Europe is an economic disaster, glanced at some numbers, thought he saw his assumptions confirmed, and never checked.

I think that Krugman is being too charitable. Manzi lied, and had to have knowingly lied in order to cook the books this way.

Economics Update

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Deleveraging: The recession continues until it’s done
h/t Calculated Risk


H/t Calculated Risk

Well, the NFP came out, and the non-farm payroll fell by 85,000, and unemployment (U3) remained at 10%, which kind of gives the lie to all those forecasts that predicted an increase.

On bright spot, however, was that “November payrolls were revised to show the economy actually added 4,000 jobs rather than losing 11,000,” so the 22 month losing streak is broken….Kind of. (BLS link)

Consumer spending is not bouncing back either, as US consumer credit fell by $17.5 billion, a new record, indicating that consumers are continuing to deleverage and pay down their debts, taking us yet further into the paradox of thrift.

The fact that US office vacancies hit 17 pct, a 15-year high, reinforces the idea that things are still not turning around, though a surprise increase in wholesale inventories weighs in on the other side of the ledger.

Treasuries rose. and the dollar fell on the jobs report, as investors fled the dollar, and ran to treasuries, because of concerns about the strength of the recovery.

Of more concern is the fact that oil still rose after the abysmal NFP report, which implies that the new stable level for oil prices is above $80/bbl, which would have the effect of further crippling any recovery.