Category: Economy

Economics Update

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Remember yesterday, when I said that consumer confidence fell? Well, that was the Conference Board. According to Nielsen, U.S. consumer confidence is up for the first time since 2007, as well as most of the rest of the world.

I think that both organizations conduct reputable surveys, but they got different answers because they asked different questions. This is something that one should consider for any survey.

In the world of slightly more objective metrics, we have durable goods orders rising for the 4th time in 6 months, which is good news, but New home sales unexpectedly fell.

I’m not sure why new home sales falling was “unexpected”. They are recorded when the contract is made, and not when they close, whereas existing home sales are recorded at closing, which means that people who had not bought new homes by the end of August, were really pushing it to qualify for the first time buyer tax credit, which require that the deal be closed by the end of November.

The end of the tax credit is why mortgage applications fell, even though rates fell.

In fact the divergence between new and existing home sales (more later) is a real indicator of how much that tax credit is goosing things.

In the world of central banks, the Norwegian central bank raised its benchmark rate, but the New Zealand bank kept its rate steady.

Of course, there is some apples and oranges here, because Norway raised its rate to 1.5%, and the Kiwis kept their rate steady at 2.5%.

In either case, the markets are not being optimistic, with oil falling below $78/bbl, and the dollar and yen strengthening on a flight to safety.

Economics Update

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Case Shiller Graph Pron (Both) Courtesy Calculated Risk


Woah: Las Vegas -55%, Phoenix -53%, Miami -46.9%

In the, “Well, this can’t be good,” category, we have the Conference Board’s Consumer Confidence Index fell, with the numbers for the current economic situation falling to a 26 year low.

Still, we have seen the Case-Shiller home prices rising for the 4th straight month, though, with the expiration of the first time home buyer tax credit, and the end of the home buying season, I do not expect this to continue.

In the old standbys, oil was largely unchanged, remaining just below $80/bbl, and the dollar rose on concerns about the consumer confidence numbers.

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Chicago Fed Index Chart Pr0n H/t Calculated Risk


Your Moment of Zen

We have some dueling indices today, with the ATA Truck Tonnage Index falling, and the Chicago Fed reporting that its Midwest Manufacturing Index rose in September to levels approaching where they were prior to the recession.

Overseas, we have the Bank of Israel leaving its benchmark rate at .75%, German consumer confidence falling, and the South Korean economy growing at its fastest pace in 7 years, so it’s more mixed signals.

We are seeing an increased risk appetite among investors, which has driven treasuries lower, and pushed their yields up, though a statement by an official in the Chinese central bank that China should diversify its currency holdings, may have been a factor too.

In real estate, home prices in California fell by 7.3% from a year ago, largely on increased foreclosure sales.

In energy, oil fell again, and the dollar rose from this year’s lows, which would indicate a reduction in risk appetite, which is kind of counter to the results with the US treasuries above.

Finally, watch the video, it’s funny, in an, “I don’t know whether to laugh or cry,” way, and one note to the non-Brits, “Freddy” is Sir Fred Goodwin of the £ multimillion pension.

Economics Update

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Scary Picture of the Day:
Commercial Mortgage Back Security Amounts by Maturity Date


Or Maybe this is the Scary Picture, H/T Calculated Risk


Philadelphia Fed Index, State by State


Philadelphia Fed Index, Historical

As a Friday bonus, here is Barry Ritholtz, of The Big Picture schooling a blissfully ignorant ‘Phant Congressman on the Consumer Protection Agency:

Good news, everyone Existing home sales hit a two year high…Or maybe not…As Barry Ritholtz notes, there is an increase only when factoring seasonal adjustments, it fell otherwise, and those adjustments are problematic when under such circumstances.

Reinforcing Mr. Ritholtz’, and my, opinion of the state or real estate is the fact that Freddie Mac’s September delinquencies hit an all time high. (top graph)

More generally, we have the Philly Fed State Coincident Index continuing to show widespread weakness. (3rd and 4th graph down)

Also, we have the little employment tidbit that the
average unemployment period has hit 6 months, an all time high.

On the other side of the pond, UK GDP fell at twice the forecast rate, 0.4%, in the 3rd quarter.

Finally, both the dollar and the Pound Sterling rose against the Euro, and oil fell again, though it is still above $80/bbl.

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Unemployment Chart Pr0n Courtesy Calculated Risk


Adjusted vs. Nonadjusted Claims Courtesy of J. Bradford DeLong


10 Year SA vs NSA, H/t The Reconstruction

It’s what Atrios calls “New Jobless Day,” and initial claims rose by 11K to a seasonally adjusted 531,000, but the 4-week moving average, which I consider to be a better metric, was basically flat, falling by 750 to 532,250, and continuing claims fell 98K to 5.92 million.

BTW, look at the graphs of the seasonally adjusted vs the non-seasonally adjusted numbers on the right.

I’m not sure how well the adjustments work in the current crisis, but it does smooth out the numbers somewhat, but you can clearly see some artifacts, January 2009, of the adjustments.

It’s even clearer in the bottom graph which goes back 10 years: Seasonal adjustment generally works, except when it doesn’t.

There is a potential cloud on the horizon from China, where authorities are starting to talk about reducing their economic stimulus package because of inflation concerns.

There is a possibility that a reduction in stimulus may have an oversize effect, particularly since official Chinese economic numbers are pretty Mickey Mouse.

If this is the case, it might put a further crimp in world trade.

In any case, the Conference Board’s Index of Leading Economic Indicators rose for the 6th straight month in September.

Calculated Risk: Apartment Rents “Plunge” in the West: also means that house prices have to fall to get back in line with rent to own ratios

In any case, the unemployment numbers drove oil prices down slightly, to $81.19/bbl, and the dollar strengthened slightly vs the Euro and yen.

Economics Update

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Unemployment by State, h/t Calculated Risk


Architectural Billings Index, h/t Calculated Risk

Permanent Layoffs, h/t macroblog, which led Calculated risk to note that that it’s not a jobless recovery, it’s a “job-loss” recovery

The Federal Reserve’s Beige Book, a collection of “anecdotal” data (it’s really more than “anecdotal”, but you know economists) about the economy, was released today, and it shows that the economy is stabilizing, with that data showing either flat, or slight upticks, in economic activity.

We also got the state by state unemployment report for September, and it is ugly. (see bottom pic)

In real estate, mortgage applications fell sharply on higher rates, and the Architectural Billings Index rose, but remained below 50, indicating further contraction in nonresidential construction

The news in the Far East was pretty good though, with the decline in Japanese exports slowing to a 10-month best, and China’s GDP growing by 8.9% year over year, though Chinese statistics are always somewhat suspect.

In energy, oil rose to a 1-year high, $81.37/bbl, and the dollar weakened to a 14 month low, hitting $1.5014:€1.0000, so the buck and a half barrier is broken again.

Economics Update

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Housing Start Graph Pr0n Courtesy of Calculated Risk


Foreclosure/Default Graph Pr0n Courtesy of The Big Picture

We are still not seeing any signs of inflation, with wholesale prices falling 0.6$ in September, largely on falling energy costs, so this is unlikely to repeat this month.

Also, the G20 country in the best fiscal position right now is Canada, and the Bank of Canada is keeping its benchmark rate at 0.25%, so it is declining to follow Australia’s lead.

In real estate, housing rose to 590,000, which was below expectations, and applications for housing permits fell.

In energy, the eight-day long rally has ended after briefly being about $80/bbl, though it’s likely just some profit taking.

8 Days is a long time in the commodities market.

Meanwhile, the dollar is up, largely on strong statements from various European central bankers and politicians about how they support a strong dollar.

Economics Update

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Commercial Real Estate Prices


Home Builder Confidence Graph Pron Courtesy Calculated Risk

Ummm…If you think that the real estate implosion is done, then you haven’t been following commercial real estate (CRE), where prices fell 3% in August, about a 42% annual rate,* though the year over year decline was “just” 32%, and it’s down 41% from its peak in 2007.

Remember, commercial mortgages typically come due after 5 years, so we are going to see a lot of folks defaulting on CRE mortgages as their time comes up, because they will be under water.

It’s no wonder that the National Association of Home Builders’ Confidence Index has fallen, particularly when juxtaposed with the expiration of the let’s reinflate the bubble first time home buyer’s tax credit at the end of November.

Note that to qualify for the credit, you must close before November 30, which means that if you buy now, you are starting to cut it close.

Still investors seem to be sanguine about economic prospects, as they are pulling out of US Treasuries and the dollar while crude oil hit a 1-year high.

*The joys of compound interest. 3% a month over 12 months is not 36%, it’s 1.0312=1.42=42%.

Economics Update (a Day Late)

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H/T Calculated Risk for the Graph Pr0n


Yeah, CR again, this time LA Port Traffic

Notwithstanding green shoots, it still appears that consumers, who account for 70% of GDP,* remain pessimistic, with the Consumer Sentiment Index falling to 69.4, down from August’s 73.5, and well below the forecast that the number would be flat.

On the other hand, industrial production rose 0.7% in September, and capacity utilization (see top graph) rose to 70.5%.

You also have a secondary indicator of the economy, port traffic for the LA/Long Beach ports continues to fall.

Additionally, the banks who actually do make loans to real people, as opposed to the Wall Street parasites, are not doing well, with Bank of America posting a loss, and credit card delinquencies are rising.

Wall Street may be doing fine, but main street is still being hammered.

Meanwhile, in energy, the industrial production numbers drove oil to a 12-month high, and the US dollar recovered a bit, though it is still down for the week

*Or maybe not, see here.

Economics Update (a Day Late)

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Unemployment Numbers, Actual v. Seasonably Adjusted


Philly Fed Graph Pr0n Courtesy Calculated Risk


NY Fed Graph Pr0n Courtesy The Bonddad Blog

So, Seasonally adjusted first time unemployment claims fell to 514,000, the lowest level since January, the 4 week moving average fell by 9K to 531,500, and continuing claims fell 75K to 5.99 million, the first time that the number has been below 6 million in 6 months.

Well, sort of anyway. As Brad Delong notes, the non-seasonally adjusted number actually went up:

Unemployment Insurance claims rose from 452,000 last week to 504,000 this week, but the seasonal adjustment factor fell from +72,000 to +10,000, leaving seasonally-adjusted claims falling from 524,000 to 514,000.

Considering the strangeness of the times that we are currently going through, this does mean that the SA numbers have a bit of flakiness.

Still these numbers, as well as the New York and Philadelphia Federal Reserve activity indices are definitely trending better.

The reason that I think that this is a pause, rather than a recovery, is because the underlying problems remain unresolved, with foreclosures hitting an all time high in the 3rd quarter.

About 1 out of 136 homes got a foreclosure notice in the past quarter.

That along with the fact that the CPI numbers are showing that “Owners’ Equivalent Rent” is falling, which implies that home prices have even farther to fall before the rent/own ratio is back to where it should be imply to me that the real estate crash is still on the down slope.

Additionally, it’s clear that consumers are still stretched, with Capital One credit card defaults rising in September.

30 year fixed mortgage rates remain below 5%, though they are up a bit this week.

In energy, oil is now at a 2009 high, and in currency, the
dollar rose against the Yen, but fell against the Pound Sterling and Euro.

Economics Update

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Retail Sales, Courtesy Calculated Risk


DJIA Since Late 1998

As much as I think that the crossing of arbitrary numbers is bullsh#@, and I think that covering the daily swings of the market is bullsh#@, and I think that the Dow Jones is perhaps an even bigger load of bullsh#@, the fact that the DJIA topped 10,000 today is the obvious lede in today’s economics news.

The Dow closed at 10015.86, the highest number in over a year.

It should also be noted this makes the return on the Dow Jones Industrial Average over the past 10 years roughly 0%.

I still think that this is a dead cat bounce, fueled largely by the Federal Reserve printing money and laundering it into the stock market through the banks.

It appears that the Federal Reserve is similarly dubious about the meaning of the recent rally, as the newly released FOMC Minutes make notes about “Considerable Uncertainty” about the strength of the recovery, once the stimulus package wraps up.

When one looks at things like falling retail sales in September with the expiration of “cash for clunkers”, (though the number did beat expectations) and US business inventories falling in August, there is little sign that all this money doing anything but creating an equities bubble.

In real estate, we are seeing mortgage applications fall again as rates for the 30 year fixed mortgage head back above 5%.

The energy and currency markets are ecstatic about breaking the 10K barrier, which drove oil above $75/bbl for the first time in almost exactly a year, and because people are optimistic, and hence no longer looking for a safe haven, the Dollar weakened to $1.4924:€1.0000, the lowest number in 14 months.

Economics Update

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Well, if you are a small business that relies on CIT for your credit, you have a problem, because the company’s CEO is resigning as a likely prelude to bankruptcy.

There are over a million small and medium sized businesses that rely on CIT for their credit.

Additionally, the meltdown among the monoliners continues apace, with Fitch downgrading Assured Guaranty from AA+ to AA, which, given the fact that their business is basically renting out their credit rating, they are pretty close to “toast” status.

Meanwhile, on the other side of the pond, investor confidence in Germany has fallen for the first time in 3 months, down to 56 September’s 57.7 and well below the forecast of 58.8.

Meanwhile, we are seeing increased demand for Treasuries because foreign investors think that they have become cheap with the falling dollar, and investors are expecting a rebound in the dollar when the Federal Reserve finally does tighten monetary policy.

It appears that this optimism also pushed the price of oil to $74.15/bbl.

Economics Update (a Day Late)

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Foreclosures hitting high end homes


Hotel Pulse Index


Baltic Dry Index, a Measure of Shipping Demand, Courtesy Barry Ritholtz

You know, there are very few guaranteed money makers, but one is owning baseball club, and the Chicago Cubs have just filed for bankruptcy, which says something about the state of the economy.

I know that this is really an artifact of Sam Zell’s completely idiotic business model, which seemed to be:

  1. Collect Underpants
  2. ?
  3. Profit

Except, of course, Zell was collecting short term loans, rather than underpants.

Of course, it’s not only big debtors like Zell who are getting into trouble. You are seeing foreclosures increasing among more expensive homes, which gives the lie to the constant refrain from many in the right wing that it’s all the fault of those n*gg*rs irresponsible borrowers.

It’s going to get worse, and it’s likely to create another crisis if Wells-Fargo’s numbers on Option ARMs carry across the industry, which are unbelievably grim:

“Several of our investors have questioned the current loss severity in light of negative amortization and home price decline,” researchers wrote in the report. “Our analysis suggests that option ARM loss severity will likely range between 60% and 70% provided home prices have stabilized.”

So 60+% of the option ARM are expected to go bad, even if house prices are not falling any further.

We are also seeing a continued drop in hotel activity, which implies that both consumer and corporate travel remain moribund.

The bottom piece of chart pr0n is the Baltic Dry Index, basically an index of shipping costs, though it is also a very good proxy for shipping demand, and this appears to indicate that the need for shipping, and hence the level of international trade, is still well off.

We are some seeing some interesting activity in US Treasuries now, with bonds rising, and their yields thus falling, on the expectation that the Fed will print more money and that inflation will remain low, but Treasury Inflation Protected Securities (TIPS) are also showing signs of expanded demand, which implies that at least part of the bond market is betting on increased inflation in the relatively near term.

We have some good news, in that the recession appears to be well and truly over…..In New Zealand, with retail sales jumping there.

This would explain why both the $NZ and the $Aus rose significantly yesterday….Well, that and the fact Australia’s central bank raised rates last week.

The US dollar was otherwise mixed, weaker vs. the Euro, but up vs. the Pound Sterling and Yen.

Oil rose yesterday too, as a result of a combination of cold weather in the US and optimism about the economy.

What’s the Difference Between a Trend and a Media Fad?

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Change in Reserves

Truth be told, I don’t know, but this article from Bloomberg is about the 5th or 6th article that I’ve seen this week, so either a tiptoe toward the exits is beginning, or the press is going all herd mentality on the rest of us:

Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

I honestly don’t know which one it is, though I kind of hope for a falling dollar, since many of the inefficiencies in our economy are due to an excessively high dollar, which both creates large trade deficits and harms domestic production, and serves to prop up Wall Street and enable it to seize a greater proportion of our economy.

(On edit, added chart pr0n)

Birth-Death Adjustment Finally Coming Under Scrutiny

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Houston, we have a problem.


And job recoveries are progressively slower too

This is kind of a wonky bit about employment statistics in the US, and how a statistical tool, the birth death adjustment, may not be a reasonable way of looking at employment in the United states, and now New York Times columnist Floyd Norris is taking note of the fact that job losses in 2008 are now understood to be far greater than originally reported at the time:

It now appears that during the first half of 2008, when the recession was getting under way, job losses averaged 146,000 per month. That is nearly three times the average of 49,000 jobs shown in the initial estimates.

How did the government get it so wrong?

(emphasis mine)

The answer is very simple, a statistical correction called the “birth-death adjustment”, which is about birth and death of new businesses, rather than the birth and death of people, and it, “factors in jobs assumed to have been created by employers who are too new to have been included in the survey, and subtracts jobs from employers assumed to have failed and therefore not responded to the latest survey”.

You see, under George W. Bush and His Evil Minions™, the birth-death adjustment was massively expanded, just in time to create for the 2004 election. So there are a number of reasons for this:

  • It created better job numbers, and hence political advantage for Bush and His Evil Minions™.
  • It was part of the ideology of the “ownership society” that there were millions of people chomping at the bit to become entrepreneurs, which leads to a feeling that the Birth/Death numbers need to be expanded.
  • Political advantage.
  • A lack of understanding that Americans have become much less entrepreneurial even in comparison to members of other developed economies, because people are unwilling to rely on privately purchased insurance for their healthcare.
  • Political Advantage.
  • It is bad to present Dear Leader with bad news.

As the top graph shows, something is truly whack here.

Unfortunately, I don’t see this being fixed in the foreseeable future, becausethere is no advantage for Obama/Geithner/Summers to start using more accurate, and hence scarier, numbers.

H/t Barry Ritholtz.

Economics Update (Catching Up)

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Unemployment Claims, Courtesy Calculated Risk


Consumer Credit, Courtesy of EconomPic


Office Vacancies, Courtesy Calculated Risk


Office Investment, Courtesy Calculated Risk


Strip Mall Vacancies, Courtesy Calculated Risk

So, we have some news on the unemployment front, with new unemployment claims falling to 521,000, a 33,000 drop, with the 4 week moving average falling 9K to 539,750, and continuing claims falling by 72K to 6.04 million.

We also have some good news from Australia has become the first G-20 central bank to raise its benchmark rate, by 25 basis points (¼%) to 3.25%.

My guess is that the Reserve Bank of Australia’s (RBA) is premature in this action, as is generally the case with first movers coming out of a recession, but it means that the next central bank will likely be correct, or at least less wrong, as the second movers, such as the European Central Bank and the Bank of England, who both kept their rates unchanged, generally are in such things.

Still, 3¼% is pretty damn low by historical standards.

It could be that Australia’s rate hike may force other central banks’ hands though, as their rate increase appears to have pushed prices down, and yields up, on US Treasuries.

We also saw retail sales rising for the first time in over a year in September, and the Institute for Supply Management has released its Non Manufacturing Index, which rose to 40.9, up from 48.4 in August, and the first time that it has been above 50, meaning expansion, as opposed to that whole 2nd derivative is positive thing, for the first time in 11 months.

So, it appears that there is some sort of recovery in the works, assuming that something else bad does not happen, like US apartment vacancy rates hitting a 23-year high and rents falling, consumer credit continuing to contract, CRE taking a hit as office vacancies go up as rents go down, along with strip mall vacancies hitting a 17 year high, and wholesale inventories falling in August.

Much of what worries me is real estate, though it has to be said that mortgage applications have risen as the rate for a 30 year fixed mortgage has fallen to 4.87%(!).

It does appear that the good economic news, along with the Australian rate hike, has had an impact on currencies and energy, with oil rising above $71/bbl, and the dollar falling on both an increased risk appetite, and downward pressure from the Aussie rate hike.

As to how much is optimism, and how much is the rate hike, the fact that gold hit a new high, and gold is typically seen as a hedge against uncertainty leaves me inclined to lean toward the pessimistic view, but then again I always lean toward the pessimistic view.

This Ain’t Your Dad’s Recession

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Fall in employment participation at post Great Depression high


U3 to U6

So, we have the numbers for September today, and they really suck.

The non-farm payrolls fell by 263,000 in September, well above the consensus estimate of 175,000, and the unemployment rate (U3) went from 9.7% to 9.8%.

Additionally, the numbers for factory orders fell in August, as did non defense capital goods, durable goods, and manufacturing inventories fell by for the 12th straight month.

Unless you are a banker, or Obama’s economic team, this is not a recovery.

Kevin Drum, citing Brad Delong and Andrew Samwick, note that workforce participation has fallen further than at any time since the Great Depression.

The numbers, peak to trough declines in workforce participation.

  • 1948 — 2.2%
  • 1953 — 3.1%
  • 1958 — 2.5%
  • 1960 — 1.4%
  • 1969 — 1.9%
  • 1974 — 2.4%
  • 1979 — 3.0%
  • 1990 — 2.0%
  • 2000 — 2.7%
  • 2008 — 4.6%

This is just really scary stuff, particularly when, like me, you are looking for a job.

Cash for Clunkers Have had a Long Term Effect

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The folks at the Wall Street Journal miss the point, by stressing capacity cuts, but it takes 2-3 years for new cars to become used cars.

I’m not sure whey they do this, except for the fact that the jobs being lost are UAW jobs.

More significant is the fact that anyone who got cash for a clunker under the government program did not have their car work its way down the used car ecology.

Cars traded in under that program had to be rendered undrivable, generally by putting abrasive in the crankcase.

What that means is that there has been a significant reduction in used cars in the pipeline, which is likely going to be boosting used car prices, and possibly new car prices, for the next few years.