Category: Economy

Economics Update

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Well, notwithstanding the “green shoots” that every fool (Ben Bernanke) is crowing about Consumer Confidence fell to 53.1 in September, down from 54.5 (revised) in August, and well below the predicted 57.0.

While this may not effect spending for the Christmas holiday, it does look like it’s putting a crimp in Halloween spending, with consumers planning to spend about 20% less this year.

Of course, we are still seeing some good news, such as the Case-Shiller home price index rising for the 3rd straight month, but, as Barry Ritholtz notes, it’s still down 13.3% for the year.

I would also add, that these are seasonally adjusted numbers, which really make no sense when a market is as out of whack as this one is, it’s YoY that gives meaningful data.

We also have the Chicago Fed’s National Activity index falling in September, to -.90, from August’s -0.54, indicating further contraction.

Overseas, we are seeing more good news though, with consumer confidence in Germany increasing to a 16 month high, and the Brazilian central bank being confident enough that it is starting to clamp back down on credit, which means that they are worried about inflation.

One hopes that the Brazilian bankers are not jumping the gun here.

In insurance, we have a bit of nostalgia, with the monoliner insurers popping up their head again, as S&P cut both MBIA, Inc. and MBIA Insurance credit ratings, to BB-minus and BB-Plus respectively.

Both ratings are below investment grade. (i.e. junk)

In energy, it looks like the consumer confidence numbers have driven oil prices down, to $66.71/bbl, and it looks like natural gas prices are about to fall off a cliff, because the salt domes, depleted oil fields, and aquifers used to story the fuel have reached capacity, meaning that anything pumped has to be sold, and delivered as soon as it leaves the ground.

Gasoline prices are continuing their fall too.

Meanwhile, the dollar is up, largely on increased worries about the economy, though the rate cut by Russia’s central bank has also made the USD more attractive to investors.

Economics Update

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Blah, blah, blah!

Well, let’s lead with housing sales, since it gives me an opportunity to start with one of my pet peeves: Journalists pumping up news as better than it is.

CNN leads with New home sales rise for 5th straight month in August,which sounds good, sales went from a seasonally adjusted annual rate (SAAR) of 429K, up from July’s 426K, so what’s the problem?

Well the problem is that the forecast was for 440K, and a 3K gain is about ¾%, nothing to phone home about, and as Calculated Risk so ably notes when he looks at the numbers and declares that sales were flat, “This is a slight increase from the revised rate of 426 thousand in July (revised from 433 thousand).” (emphasis mine)

So there was an increase relative to the revised figure, but a drop when compare initial figure to initial figure, and in any case, an honest description for this would be “flat”, or “down slightly”, not a hed screaming a 5th straight month of increase.

In either case, we are still seeing week demand for manufactured goods, as evidenced by the 2.4% drop in durable goods orders, though the Truck Tonnage Index rose in in August, which compares to the drop in rail traffic I reported 2 days ago.

In the world of finance, banks losses in big mofo loans, the so-called syndicated loans, tripled in 2009.

In energy, revelations regarding Iran’s nuclear program and potential sanctions pushed oil up, though it is still well below $70/bbl, and in currency, the dollar fell broadly, hitting a 7½ month low vs the Yen, and remaining near the 1-year low vs the Euro that it hit a few days ago.

Economics Update

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Unemployment Graph Pr0n Courtesy of Calculated Risk

Exhaustion Rate Graph Pr0n Courtesy of zero hedge

Initial claims for unemployment fell this week again, down 21K to 530K, but that’s because unemployment claims from last week were revised to 551. The first count was 545K, so the apples to apples delta is 15K, not 21K (I love how it always seems to work out this way).

The 4 week moving average fell too, 553.5K, down from 546.5K, and continuing claims fell 123K, to 6.138m from last weeks 6,261m.

Note, however, that continuing claims do not count folks who are on extended benefits, or who have exhausted benefits, and that the exhaustion rate has hit a new record, with 52.40% of all people filing for unemployment exhausting their benefits before they find another job.

In real estate, existing home sales fell for the first time in 5 months, and we are hearing dire warnings about a shadow inventory of 7 million foreclosures which have yet to hit the market, either because the lenders are hip deep in foreclosures, and the process is proceeding slowly, or because they are holding off to avoid selling into a down market.

The down housing market has been good for treasuries, with prices rising, and yields falling, as people flock to their relative safety.

The quest for safety has investors running back to dollars, driving the greenback up, and pushing oil down below $66/bbl (!).

Someone is not believing in recovery here.

Economics Update (a Day Late) (Again!)

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I know that there is a lot of talk about the recession ending, but all the metrics that involve manufacturing real items in the united states, are down, case in point, the AAR’s report on rail traffic, which is down, 17.1% YoY, which is, as Yves Smith notes, down to 1993 levels.

I’m not saying that the rest of the world is not showing signs of recovery, after all the economic powerhouse New Zealand’s economy has left recession, and the $NZ is hitting records, but for the United States, things are not looking better for the rest of us.

Actually, we are seeing some positive movement in US manufacturing, like GM adding shifts at its plants, though this appears to be one part “cash for clunkers”, and one part having to make up for other plants that have been closed.

We are seeing some action though in Federal Reserve and U.S. Treasury land, where US Treasuries are up, and hence yields are down, largely on the expectation that the Fed won’t do anything to interest rates.

More importantly, we are seeing evidence that the Fed is looking at winding down its money printing. They are not doing it yet, but the Bernanke and crew are in preliminary discussions with bond dealers to implement reverse repurchase agreements in order to get a trillion dollars or so out of the money that they pumped into the economy:

Central bank officials are discussing plans to use so- called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That’s where the Fed sells securities to its 18 primary dealers for a specific period, temporarily decreasing the amount of money available in the banking system.

Well, the intent is clear, though the mechanism is as clear as mud to me.

In the always fun areas of energy and currency, oil rose because the dollar fell to a one year low, $1.4778:€1.000, though this is still about a dime below the peak in early July of last year.

Economics Update (a Day Late)

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ABI Graph Pr0n H/t Calculated Risk

The index of leading economic indicators rose 0.6% in August, the 5th straight month, which implies very strongly that the recession ended in July or August.

I don’t really see this as a “recovery for the rest of us.” Even the most optimistic forecasters see a slow recovery in unemployment, and real-estate, which took us down in the first place, looks like it will do so again, this time on the commercial (CRE) side too.

We are seeing mortgage delinquencies hitting 7.58%, up from 7.32% in July and a new record, and AIA’s Architectural Billings Index fell in August, which indicates that future activity is trending down in 9-12 months.

Additionally, the YoY price of CRE fell 27%, and rents are down too, everywhere.

Rents are falling at near rates not seen in nearly a ¼ cedntury on some of the most prestigious streets, 5th and Madison Avenues in New York, the Champs-Elysees in Paris, London’s New Bond Street, and Causeway Bay in Hong Kong,

This is a real problem because the mortgages on these properties are typically 5 years, and if the owner is under water at the end of their loan, they default, because they cannot rollover into a new loan.

Unlike a home loan, the owner cannot just sit tight.

It appears that the currency and the energy markets are concerned about this too, with Oil falling on demand concerns, and the dollar rising as investors look to a safe haven.

Well, That Explains all the Bullsh$# When I Was Single

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Someone asks behavioral economist Dan Ariely if she should put out to a guy that she is dating. She “Unsure” is seriously into “George”, and wonders if the rule about making him wait is true.

Well, Dr Arieli says that according to behavior economics research, the rule is true:

The classic experiment here comes from psychologists Leon Festinger and James Carlsmith, who had participants perform a boring task and then paid them either $20 or $1 to convince someone else that the task had been great fun. Everyone then rated the task, with the result that the $1 participants rated the task more positively than did the $20 crew. While the $20 group could explain away the dissonance between their action (“I told someone the task was riveting”) and their belief (“It actually bored me to tears”) via money (“I was paid to promote the task”), the $1 individuals could not because they could not justify misleading others for such a small amount of money– so they changed their initial belief (“I must really like the task, to have promoted it”) and they ended up rating the task more positively.

To give you an example that is closer to our social life, look at fraternities: loyalty to frats increases with the amount of hazing, since pledges tell themselves, “I did a lot of embarrassing stuff for my frat – it must really matter to me.”

So, the advice to, “In other words, make him work, and he will rationalize it by deciding he loves you,” is supported by studies.

It does explain my favoring women who are can sometimes be described as “high maintenance,” though I feel compelled to note that each moment with Sharon,* is unalloyed bliss.

*Love of my life, light of the cosmos, she who must be obeyed, my wife.†
†I know what you are thinking, he’s just writing that because he knows that she could read this on the net. My response is that Sharon* is a deeply passionate woman, and she has knives, and some of them are dull…..Mama did not raise no fools.

Economics Update

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If This Doesn’t Make You Feel Like a Chump, then You are forgetting the “Ownership Economy” Hype
H/t Calculated Risk

Well, it’s Thursday, and that means that it’s new jobless claims day.

We are actually in a place where we can see the seasonally adjusted statistics have meaning, because we are past the auto plant shutdown in the dog days of Summer that actually happened in the spring.

Initial claims were 545,000, down 12,000 from last week’s upwardly revised 557,000, a drop of 12,000, but remember that if we compare initial numbers to initial numbers, we were at 550,000 last week, so the drop is only 5,000, not 12,000…..Anyone see a pattern?

The 4 week moving average, which is a less noisy metric, fell from 8,750 to 563,000, but note that anything at 400K or above is still bad news territory.

Continuing claims rose by 129K to 6.2 million, and that does not account for people who are exhausting their benefits.

As CR notes (link on graph pr0n) the fed has reported that household net worth has fallen $12.2 trillion, or about $40,000.00 for every man woman and child in the United States.

Of course the financial journalist are reporting that household net worth is up for the first time since Q3 of 2007, but this is almost entirely the recent bump in stock prices, which primarily benefits the top decile.

Still, we are seeing good news, with housing starts and the Philadelphia Fed Manufacturing Index both showing improvement.

Of course, part of this has to do with the fact that mortgage rates are way down, because the Federal Reserve is buying mortgage backed securities like they are going out of style, in order to keep those rates low.

I would also note that there just are not that many consumers out there. The UK again being a case in point. Yesterday, I mentioned that their unemployment had spiked, and today we discover that their retail sales fell 0.2%, as opposed to the forecast increase of o.1%.

People without jobs cannot buy stuff.

That’s why the Bank of Japan decided to keep its benchmark rate at essentially 0%, actually 0.1%, but that’s a f%$#ing rounding error.

In energy, oil fell slightly, to 72.47/bbl.

In currency, the dollar took a hit today, falling against both the Euro and yen, and the Canadian dollar rose to an 11 month high.

Economics Update

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Home Builder Confidence

Industrial Production Utilization

Well, we got the inflation numbers in, the CPI rose 0.4% in August and fell 1.5% year over year.

I’m not sure whether to call this a sign of recovery (mild inflation) or of further problems (deflation).

I’d be tempted to go with the former, as both builder confidence and industrial production capacity utilization increased this past month (see pics), but that is from horribly low levels, and objectively, the levels are still horrible.

With UK unemployment hitting the highest level since 1996, would appear to cut the on the down side.

Mortgage applications fell last week, though some of that may come from the 4 day week because of labor day, and they are still well above the trough, though one wonders how long that will last once the tax credit for first time home buyers expires. (More on that later)

In energy, oil rose above $72/bbl on falling inventories.

Currency is getting interesting though, with the dollar falling to a 1 year low, largely on increases in optimism on the economy, but gold hit the highest level since March, 2008 $1,017.65/oz (Troy), and gold generally rises in times of pessimism and uncertainty?

Economics Update

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Retail Sales Chart Pr0n Courtesy of Calculated Risk

Well, Helicopter Ben Bernanke is now saying that, “recession is very likely over at this point,” in a speech at the Brookings Institution.”

This statement, along with the news that retail sales rose 2.7% in August, largely as a result of the Cash for Clunkers program, which actually had a lot more stimulative effect that I would have believed.

What’s more, since the engines of the “clunkers” are destroyed, by pouring abrasive in the motor oil, it means that these cars are gone, as opposed to working their way down the food chain in the used market.

We also have the Federal Reserve Bank of New York’s general economic index rising to 18.9, up from 12.1 in August, which gives us two straight months with the index above 0, meaning expansion.

German investor confidence has hit a 3-year high.

So, we have a passle of good news here.

That being said, we are still seeing easing by the central banks, with the Bank of England looking at cutting its rate on bank reserves, the rate that banks are paid to keep their reserves at the BoE, which will make lending a more attractive option for the banks.

We have seen the dollar fall, and the price of oil rise.

Economics Update (a Day Late)

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The University of Michigan survey showed an improvement in consumer sentiment, hitting 70.2, exceeding forecasts of 68.0.

In wholesale, inventories have fallen to a 3 year low, indicating that there is little push to restock, though wholesale sales actually rose.

In retail, the fact that video game sales fell for the 6th straight month is worrying: When consumers, specifically hard core video gamers, do not feel comfortable purchasing video games, they don’t feel comfortable purchasing anything.

Meanwhile across the pond(s), we have

Japan’s growth in Q2 being revised down to 2.3% from a 3.7% annualized rate, though domestic cargo volumes in Russian indicate a recovery is imminent there.

Meanwhile, in the folks with more petro-dollars than brains department, Dubai’s sovereign wealth fund, Istithmar World, has stopped making investments, probably because they are having problems covering their losses.

In real estate, repossessions dropped 12.7% in August, but foreclosure filings fell only 0.5% and the number of people defaulting.

My guess is that this is some of the banks out there are already overwhelmed with REOs and don’t want to acknowledge the bottom line hit, so they are letting things slide right now.

Oil falls below $70 on demand recovery doubts – Sep. 11, 2009:

Meanwhile crude oil finished the week below $70/bbl.

In currency, the dollar index, a basked of currencies against which the USD is measured, fell to a 1-year low, in the longest sting of losses in the index, 6 days, since March.

Finally, gold ended the day above $1000/ox (Troy), which might make for happy gold bugs, but I’m inclined to say that it is time to cash in and get Yen or Euro.

Economics Update

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Unemployment Chart Pr0n Courtesy Calculated Risk

Well, we have the initial unemployment claims out now (government link), and it appears to point to improvement. Initial claims were 550,000, a decrease of 26,000 from the revised figure of 576,000 (but the initial figure was 570,000, so the drop is 20K, not 26K apples to apples), the 4 week moving average was 570,000, down from 572,250, and the continuing claims number(seasonally adjusted) was 6,088,000, down 159,000 from last week’s revised level of 6,247,000 (only continuing claims were revised up from 6.23m, so the apples to apples drop is actually 142K, not 159K).

Anyone else knowing a pattern in revision numbers, or is it just me?

BTW, note that the continuing claims number drops as people lose benefits or move to emergency unemployment claims.

In any case, with foreclosures up 18% year over year, and poverty rate hitting an 11 year high, 13.2%, things really don’t indicate a rapid improvement.

The weekly claims number needs to be below 400K before we will start seeing increases in employment.

Additionally, we have a leading indicator in Japan, machinery (capital) orders are in the toilet, with orders being the lowest since the start of the survey in 1987.

I’d also stay out of the stock market, as insiders selling continuing to go crazy, and when people sell their own stocks it’s because they know something, even if this knowledge is not sufficient to trigger an criminal or civil investigation.

In the world of central banking, the Bank of England is leaving its benchmark unchanged, and continuing with bond purchases (quantitative easing).

Bonds did fairly well today, with the yields on mortgage backed bonds and US treasuries prices rising, which means that the yields are falling………Unless, of course, you are talking about Polish government bonds, which look to be heading into the world of hurt that their Baltic Republic neighbors are feeling.

Meanwhile, a week inventory report has pushed crude oil up, and the US dollar was up marginally, though whether this is a turn, or just a breather, is unclear.

Economics Update

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Good news everyone!

I invented a device that makes you read this in your head using my voice!

Well, the Fed’s Beige Book, more formally known as the “Summary of Commentary on Current Economic Conditions”, came out today, and they are seeing signs of improvement (also here).

It seems to me that we are talking about evidence of a bottom, or at least a moderation, as opposed to improvement, but it could be a prelude to a recovery, or a breather on the way down, but either way, it’s good news.

We still have CRE and insurance meltdowns to deal with.

There is also good news from Moody’s, that there is no expectation that they will cut the ratings on sovereign debt for any of the major industrialized nations, so the ratings of, “U.S., U.K., Germany, France. and Spain,” are safe.

Then again, if they are so safe, why did they even have to make this statement?

We also have further evidence of the credit markets thawing, with the 3-month Libor interbank lending rate hitting a record low, and the TED Spread, basically the interest rate spread between public and private debt, falling.

The dropping interest rates, kicked mortgage applications to a 3 month high.

Still, in the real world, single family home prices fell by 0.5% in July, and bankruptcy filings are up 22% in August year over year.

In energy we are now seeing statements from OPEC that there will be no changes to quotas which drove prices up 21¢ to $71.31/bbl, despite increases in inventories.

In currency, the dollar fell to a near 10-month low, despite a slight bump following the release of the Beige Book, to $1.4562:€1.0000 and $1.0000:¥91.61.

Economics Update

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Retail Employment Courtesy of Calculated Risk
Click for full size pic


Temp hire numbers courtesy Bloomberg
Click for full size pic

So, let’s start with employment today, shall we?

We have Manpower’s latest survey of hiring intentions for US companies, which are best described as “sluggish,” with the seasonally adjusted employment outlook for the US being the weakest since Manpower began its survey, in 1962.

On the other side it appears that retail hiring is showing some signs of picking up, but holiday retail employment was pretty beaten down in 2008 anyway. (See top picture)

Also, it appears that US companies are still cutting temporary employees from their payrolls, (bottom pic) and temps tend to be both the first in the door, and the first out the door.*

On Europe, we are getting conflicting signals, with consumer confidence in the U.K. hitting its highest level since May, 2008, but German industrial output falling in July, production rose 0.8% in June, but fell 0.9% in July, against a consensus estimate of a gain of 1.6%….Ouch.

The intersection of banking and consumers in the US ain’t doing well, with U.S. consumer credit falling at a 10% annual rate, or $21.6 billion, and Standard & Poor’s noting that despite a slight improvement in July, it expects credit card write-offs to continue to increase.

Meanwhile if you follow the stock market, perhaps you should listen to Warren Buffett:

Mr. Buffett declined to predict the short-run course of the stock market. But corporate data from Berkshire shows his company was selling more stocks than it was buying by the end of the second quarter, according to Bloomberg News. Its spending on stocks fell to the lowest level in more than five years, although the company is still deftly picking up shares in some companies and buying corporate and government debt.

(emphasis mine)

So he is moving out of stock, and getting completely out of Moody’s. (more on that in another post.)

Meanwhile, we have some gold bug news, with gold topping $1000.00/oz (troy).

In related news, the value of the dollar and gold tend to be inversely related, the dollar fell to its lowest level vs. the Euro this year, $1.4491:€1.0000.

We also saw this pushing up the price of oil today, up 4.5% to $71.10/bbl.

*Something I am all too familiar with, having done contract technical work for the past 17 years.

Economics Update (Yesterdays)

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Not much going on, it was labor day, so most of the markets and regulatory announcements didn’t happen.

That being said, it looks like we may have a couple new candidates for bank failure Fridays, with the Federal Reserve imposing restrictions on two correspondent banks, Nebraska Bankers’ Bank of Lincoln, NE, and Midwest Independent Bank of Jefferson City, MO.

Correspondent banks are “banks for banks”, they provide clearing services, participate in large loans, etc. Silverton Bank was a correspondent bank.

We are also seeing more clouds on the horizon with insurance, with the cost of reinsurance increasing.

Reinsurance is basically insurance of the insurance companies, they sell risk to each other in order to spread the risk, and revenues, around.

As an aside, while I have been ranting about how the next crash is CRE, it might be insurance.

We are seeing more optimism among manufacturers, with the Price Waterhouse Coopers survey showing a 27% improvement, which may mean that people are going to start restocking inventories.

In energy, oil was basically flat at $68.05/bbl, while in currency, the Yen rose against both the Euro and the dollar.

Economics Update

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Employment-population ratio, part time for economic reasons, and hours worked economic graph pr0n courtesy of Calculated Risk

The employment numbers are out, and you can look at the cup as half empty or half full, with non farm payroll falling by 217K, but unemployment (U3) spiking to 9.7%.

Note that the drop was less than the 276K in July (up from 246K following revisions), U6, the broadest measure of unemployment, and the one closest to the Depression era metric,* spiked to 16.8%.

Other than that, there was not a whole bunch of news, priobably because the upcoming Labor Day holiday, though Treasuries fell, and their yields rose, as a result of the job numbers, which also drove oil and the US dollar up, so the markets considered all this generally good news.

Minor, as I write this though, the FDIC bank closing page does not have any closings yet.

Normally, they like to move on 3 day weekends, it gives them more times to get things done.

*Though still more conservative than the 1930s version, so we are getting very close to the 25% rate at the height of the Depression.

On Being Clueless

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Mike “Mish” Shedlock writes about a lot of things, and he tends to come from the position of the “Treasury View”, which states, among other things, that deficit spending cannot hasten recovery, since it takes money from other things.

It should be noted that this theory has been widely, from Keynes and Galbraith to Friedman, has been discredited since the 1930s.

In his latest, he goes after Paul Krugman for writing in 2004 that the Bush tax cuts should be rolled back to help with the deficit, and for writing in 2009 that the stimulus package, and the resultant deficit, are not matters of immediate concern.

Of course, in 2004, we were dealing with a frothy economy, most notably in the housing market, though it was still 2 years off peak, while in 2009, we are suffering from the worst recession, and worst banking crisis since the depression, with the central bank unable to lower rates because they have run up against the zero bound.*

Of course, Mich has the answer:

Q. What’s different?

A: Politics: a democrat ultra-liberal is in the White House.

(If Barack Obama is ultra liberal, I’m Jayne Mansfield)

It’s complete crap like this that keeps him off my blogroll and my feed list (it went there via a link).

I do actually check out some sites that I disagree with vociferously some times, Mat Rodina comes to mind, but in those cases I get insight into a point of view, in that case Russian nationalism, that I would not otherwise understand.

There are people who are cogent writers who help me understand opposing views. Mike “Mish” Shedlock is not one of them.

*Zero bound: When rates cannot be lowered, because they are effectively 0%.

A New Term to Describe Our Economy

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The shrill one, Paul Krugman, noted on Stephanopoulos’ show, that, “We’ve got a problem with terminology because we usually say either the economy is in recession or the economy is recovering. Either you’re in hell or you’re in heaven. And the trouble is we’re actually in purgatory.”

You can see it on the video at about -7:20. (it counts down, not up, and there is a 15 second ad)

This is a term which should stick. “Jobless recovery,” like the last 2-3 recoveries, sounds so benign.