Category: Economy

Economics Update

No Comments
Image Courtesy Calculated Risk

We have the new unemployment claims numbers, and according to USA Today and Reuters, the numbers are down, though as Bloomberg notes, the numbers are still 570K, more than the 564K expected.

Only, in a bit of flagrant journamalism, they ignore the fact that, the initial numbers for last week were 570K, and this week’s numbers are 570K, but since last week’s numbers have been revised up to 574K, they claim a small drop in initial Filings. (H/t Dean Baker, as well as CNN, normally the Cheer-leaders News Network, out there, for the catch)

Note that if the number is much above 400K, we are still losing jobs, that the 4 week moving average rose to 571,250, and that continuing claims rose by 92K to 6.23m.

The Institute for Supply Management’s (ISM) NMI (Non-Manufacturing Index) is at 48.4%, indicating further contraction, but this is an improvement.

As Atrios puts it, “Hurray, the 2nd derivative is positive.”

In retail, same store sales fell 2.9% year over year in August, the back to school season, so the consumer is not yet ready to put the economy back on their shoulders.

In central bank news from across the pond, the European Central Bankleft its benchmark interest rate at 1%, and issued a statement that it sees no prospect of either rate hikes or its unwinding its support for their banks in the near future.

In the world of credit rating, Moody’s raised Ford’s debt rating to Caa1 from Caa3, but according to S&P, the default rate for junk bonds rose to 10.2% in August, up from July’s 9.4%, which does not bode well for the ability of companies to raise capital.

BTW, remember last week when I said that insider selling was beating insider buying by 30.6:1? Well, it’s up to 61.8:1.

The sucker’s rally is coming to an end.

Finally, something I generally pay very little attention to, but gold is getting awfully close to $1000.00/oz. (Troy)

The gold bugs will tell you that now is the time to buy gold, but I’ll say that gold approaching the 4 digit line means that it is time to dump gold and get the f%$# out of dodge.

In currency, the dollar was a bit stronger, largely on concern for Japan’s new government, and the statement by the ECB.

In energy, oil fell slightly, largely on the unemployment numbers.

Economics Update

No Comments

Well, the first set of numbers for August job losses have come out, and ADP forecasts a drop of 298K non-farm payroll jobs, the lowest number since last September, and the Dickensian-named Challenger, Gray, and Christmas, has reported that there were 76,456 jobs cut, well down from July, but about 2K more than June. (Note: these are apples and oranges. The 1st is the total delta in employment, and the 2nd is total layoffs.)=

These numbers are not good, they are still on the minus side, but they are better, as is the revised BLS numbers for productivity, which show a 6.6% annual rate of increase.

Still, we saw consumer bankruptcies up 24% YoY, and they are on a pace to hit 1.4 million this year.

In finance, Treasuries were up, and yields down, on the release of the Federal Reserve Board’s minutes, which show a bit more concern about the recovery, and the VIX (Volatility IndeX) is up, which would tend to indicate that the current rally is on its last legs.

In real estate, mortgage applications fell, even though rates were down.

ADP’s job loss numbers pushed both the dollar and crude oil down, largely because even though they were an improvement over the prior month, they were worse than forecast.

Economics Update

No Comments
Auto Sales Graph Pr0n Courtesy Calculated Risk

Construction Spending Pron Also Courtesy of Calculated Risk

As is noted by Calculated Risk, light vehicle sales hit a 1¼ year high in August, but that was with the Cash for Clunkers program, which is now over, which begs the question, “What happens in September?”

I think that the trend is generally up, because the sales were so low that the fleet replacement time (fleet size/sales) was approaching 30 years, which is simply unsustainable. (click images for full size)

It should also be noted that for all the claims of recovery, both residential and non-residential construction spending continues to decline.

Additionally, notwithstanding the “green shoots”, the bond market is pricing in some very hard times ahead, with US Treasuries rising in price, which drops their yield.

This sentiment is also serving to drive the Yen and the dollar higher, and crude oil lower, as people look for a safe haven.

Economics Update

No Comments

The Institute for Supply Management’s Chicago Purchasers’ Index beat expectations,
rising to 50, where 50 is the dividing line between contraction and expansion.

It’s the highest number since last September, but it has been goosed a bit for cash for clunkers, which has me wondering what the number will look this September.

I would say that we have a pretty good indicator for the cynics among us (hi there) that the stock market rally will soon be ending, as insiders are now selling their stocks 30.6 times more than they are buying, and when the insiders sell, it generally means that some sort of disappointment is on the way.

We are getting mixed signals from Asia, with both Chinese and Japanese industrial production rising, but South Korean exports falling this month, giving a 20.6% year over year drop.

In energy, closed at $69.96/bbl, as falling stocks led to demand concerns, and in currency, the biggest mover was the Yen, on the election news.

Economics Update

No Comments

Consumer confidence is at a 4 month low for August, Reuters/University of Michigan Surveys of Consumers, which compares with the Conference Board’s reading, which was up a few days back.

Both results are consistent in that they beat expectations, but this confuses the hell out of me. I think that future sentiment has a bigger role in the Conference Board’s survey, which may explain the difference.

We saw consumer spending rise by 0.2% in July, though income was flat, but this should be taken with a grain of salt, as the increase was entirely a consequence of the “Cash for Clunkers” program.

Meanwhile, in banking, the Federal Reserve is reducing the size of its Term Auction Facility (TAF) cash for sh$#pile auctions to banks, largely on the basis of reduced demand for them:

Banks are increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the credit-market debacle began in 2007.

……

“I am surprised by how quickly the market has become receptive to leverage again,” said Bob Franz, the co-head of syndicated loans in New York at Credit Suisse. The Swiss bank has seen increasing investor demand for financing to buy loans in the past two months, he said.

I’m not surprised. Modern investment banking is about making big bucks by scamming rubes like the one pictured on the right.

Unfortunately, said rube has the power to make every American taxpayer pay for his decisions.

Meanwhile, on the other side of both ponds, we have record unemployment and record deflation, while businesses in the UK cut investment spending at a record rate, so there is not much in the way of green shoots there.

In currency, the dollar fell, and more significantly, the “cost of borrowing dollars for three months slipped below the rate on similar loans in yen for the first time since 1993,” which implies that in the event of a flight to safety, that money will go toward Japan, where returns are now marginally higher.

In energy, oil rose slightly.

Economics Update

No Comments

Well, let’s start with the jobless numbers, where the press is reporting that initial claims fell last week, the 4 week moving average fell from 571K to 566.25K, and continuing claims fell by 119K to 6.13 million.

The lede is the fall in initial claims, only the the fall in initial claims was actually an increase:

The NYT article on weekly unemployment insurance (UI) claims carried the surprising headline: ‘first-time U.S. jobless claims fall again.’ The reason the headline is surprising is that claims rose the prior week, from 561,000 to 576,000, a number that was revised up to 580,000 in the new report. So, claims did not fall again.

The 4 week number is much more sound, because this us done all the time: comparing new numbers with revised ones, it’s a pet peeve of mine, along with the fact that no one ever mentions that the fall in continuing claims numbers is largely an artifact of people exhausting their benefits or moving to extended unemployment benefits.

**sigh**

I would also note that the GDP number for the 2nd quarter of 2009 contracted at a -1.0% annual rate, and that this is somehow considered good news.

Still, it looks like the GDP numbers have made people less risk averse, which has pushed Treasuries’ prices down, and their yield up.

Me, I’m more concerned by the fact that the FDIC’s problem bank list has mushroomed to 400.

It appears that the “improving” GDP numbers has reduced the need for a currency safe haven, pushing the dollar down, and they also pushed oil prices up.

Economics Update, Yesterday’s

No Comments

And actually Tuesday’s too.

Between helping my kids try out recipes for a cooking contest, and general laziness, I’ve let it slide.

In any case, the big news is that consumer confidence beat expectations, and actually went into “optimistic” territory, though as Dean Baker observesmost of the increse in the index is, “Attributable to a 10.1 percentage point increase in the expectations index,” which, “is much more volatile than the current conditions index and has little relationship to spending,” so the numbers are not about hopped up consumers bringing on a recovery.

We also have reports that home sales and durable goods orders have increased, and the American Trucking Association’s Tonnage Index (top pic) all increased in July, though I will address how the home sales/prices may be a Chimera in a later post, and the durable goods orders are not as good as they appears, ex-Boeing and defense, they actually fall:

Orders for non-defense capital goods excluding aircraft, a barometer of business investment, fell 0.3 percent in July after rising 3.6 percent in June.

Additionally, the Philadelphia Fed State Coincident Indicator numbers came out (bottom pic), and all but 4 states are still contracting.

It should be noted that mortgage apps were up slightly this week.

We also had a major downgrade of an insurer, Massachusetts Mutual Life Insurance, which had its rating cut from AAA to AA+ by S&P.

I expect there to be more of this in insurance.

Despite a near record auction, US Treasuries were basically unchanged.

Meanwhile, the consumer confidence drove the dollar up, though oil fell, on the expectation of increases in inventories in today’s report.

Economics Update

No Comments



The Big Picture looks at the sales numbers

Seeing as how I did not post on Friday, there was a tornado watch, and my kids were freaking, I’ll start with the big story from last week, which was that existing home sales rose to a 2 year high.

Of course, the 1st thing that comes to mind is that the National Association of Realtors (NAR) are supplying this data, and it’s suspect.

The 2nd thing that comes to mind is that a remarkably large portion of these sales are distressed.

The Big Picture runs the numbers more fully (chart pr0n is from this link, click to see full size), and while mentioning these two points, notes some other interesting bits of information:

  • “If not for a surprise and suspect 16k increase in Northeast condo sales, Existing Home Sales would have been lower month-over-month and only up 12k units from July 2008, which was the worst year on record for housing.”
  • Non-seasonally adjusted data actually shows a decrease, and given the high proportion of foreclosures and short sales, seasonal adjustment is actually not going to be accurate right now; the market is just too fracked right now.
  • Prices are still falling.
  • Sales less foreclosure activity (bottom pic) is way down.

Furthermore, we are also seeing the effect of the housing cash for clunkers tax credit, which allows a 10% tax credit (max $8K) on purchases for “New” (not owned a house in 3 years) buyers, but the home has to close before November 30, which really means having the sale done in the next 8 weeks or so, so it’s another blip, unless, as CR notes, the NAR and NAHB manage to successfully bribe lobby for an extension.

Note that the tax credit can be used for a down-payment, which further distorts the market.

He have a housing market that is really still heading down, albeit more slowly, despite massive federal subsidies.

If there were really a return to health in the housing market, then Taylor Bean, the 12th largest mortgage company in the US, would not be filing for bankruptcy.

As to housing news for the rest of us, the rate at which mortgage holders who have fallen behind catch up on their payments, the so-called “cure rate”, for holders of prime mortgages, has fallen to 6.6%, down from 45% in the years 2000-2006, and very close to the rate for Alt-A (4.3%) and sub-prime (5.3%).

Meanwhile, treasuries have risen again, driving yields down, though it is unclear how much is risk aversion increasing, and how much is the Federal Reserve buying more of the securities.

It does mean that investors believe that the Fed won’t be raising rates for a while yet, though the Bank of Israel just raised its benchmark rate, which indicates optimism on their part.

My guess is that they are wrong, simply because they are the 1st central bank to do so, and my money is on any first mover jumping the gun.

Then again, they could be right. The Chicago Fed July National Activity Index rose sharply in July, increasing to -0.74 in July from -1.82.

Even though the numbers still show contraction, the delta is impressive.

Meanwhile, in energy, crude oil is at a 10-month high on “green shoots” in the economy, and retail gasoline prices have remained basically unchanged, despite falls at the wholesale level.

The dollar was up slightly, largely in a holding pattern as traders wait for new consumer spending and housing data.

Economics Update

No Comments
Historical unemployment, courtesy Calculated Risk

Today is Jobless Thursday, and initial jobless claims unexpectedly rose by 15,000 to 576,000, (click pic for full size image) with the 4 week moving average, and the continuing claims were up marginally, to 6.241 million from 6.239 million, but it should be noted that as people move to extended benefits, or lose benefits completely, they are dropped from that number.

Closely related to this is the fact that mortgage delinquencies are rising, to 9.24% of all outstanding loans on 1-4 unit residences in the 2nd quarter, up .12% from the 1st quarter, and up 2.83% from last year, and loans overdue by more than 90 days, which is when foreclosure begins, are at an all time high of 7.97%.

Not surprisingly, “Helicopter” Ben Bernanke is on another buying binge, with Federal reserve assets up by 2.3% this week, buying treasuries, which is an how the Fed pumps up the stock market, and mortgage backed securities, which is how they are trying to cover up the increasing collapse in mortgages.

Still, there is good news, with the Federal Reserve Bank of Philadelphia’s general economic index giving an unexpectedly strong showing of +4.2, well above the predicted -2.0, and this is a real indicator of growth, not just a decline in the rate of decline, and the cost of insuring corporate bonds fell, on the expectation of better growth.

Oil and energy looked at the different numbers, with the dollar falling on the Philadelphia Fed data, which has people feeling less need for a safe haven, and oil falling on the new jobless numbers, which indicates that demand will still remain low for a while.

Economics Update

No Comments

Well, mortgage applications rose this week as rates fell 23 basis points (0.23%), not too surprising.

The Architecture Billings Index, one of the leading indicators of future construction activity, rose in July, (click pic for full size) but remained below 50, indicating continued contraction roughly 12 months out.

Meanwhile, we are seeing near record drops in producer prices in Germany, adding more weight to the idea that the current concern should be deflation, not inflation.

Energy is kind of confusing, with prices falling below $69/bbl today, largely on a 5% drop in prices in Chinese stocks, but prices rise to nearly $72/bbl tomorrow on reports of shrinking inventories.

It’s an international dateline thing. The drop was at market close in New York, and the increase was from places where it is tomorrow.

Meanwhile, the dollar is down on optimism about the world economy.

Economics Update

No Comments
Housing Starts, Courtesy Calculated Risk

I guess that it’s time to rejoice, because the IMF’s chief economist is saying that the global recession is over…Seeing as how they handled things like the Asian Financial Crisis of the 1990s, I’m inclined to believe that they are not a reliable source.

I would also note that he has a huge caveat in this, “we may not go back to the old growth path … potential output may be lower than it was before the crisis,” which to my mind sounds like a permanent decline in economic activity, and thus the recession might be over because normalcy is being redefined.

That being said, we are seeing signs of either a recovery, or a pause in the path downward, with credit card defaults moderating somewhat, so, for example, BoA’s charge-off rate dropped to 13.81% last month, down 0.05% from the level in June.

Basically, the numbers are still pretty horrible, but they aren’t getting any worse…yet.

We also have a stronger consumer confidence level in August, with the Investor’s Business Daily and TechnoMetrica Market Intelligence (IBD/TIPP) Economic Optimism Index rising to 50.3 in August from 46.3 last month, and this is a real positive number as 50 is the dividing line between optimism and pessimism.

In inflation, producer prices fell by -0.9% from the previous month, and the year over year price decline was -6.8%, beating the predictions of -0.3% and -5.9% respectively.

Meanwhile, in the UK, consumer inflation remained steady at 1.8%, but it had been predicted to drop to 1.5%.

Real estate is confusing, or at least the reporting of it is.

The data came out today, and the coverage is interesting, with Bloomberg noting that single-family housing starts rose for the 5th straight month, but CNN noting that housing starts and building permits declined with only single family housing starts showing an improvement, and that the year over year numbers are way down.

I’d go with CNN here, because:

  • We know that more than a third of single family home sales are distressed.
    • As an aside, we know that people are coming out of the woodwork looking for distressed sales, and prices are still falling, driven by foreclosures and short sales, as evidenced by the latest data out of California.
  • The month to month numbers are seasonally adjusted, but I think that the current market is so out of whack that the seasonal adjustments do not serve their intended purpose.
  • The drop in multi-residential buildings indicates that fewer people are moving into condos/townhouses, from which they would trade up to single family structures.

Then again, YMMV, and I always see the economic glass as half empty.

Oil was briefly back above $70/bbl before settling at $69.19, largely on a report that US crude inventories have dropped, and the dollar and Yen both fell against the Euro, largely on more optimistic business sentiment in Germany.

Economics Update

No Comments
Graph Pr0n, courtesy of Calculated Risk

Lets lead with some good news, the New York Bank of the Federal Reserve’s Empire State Manufacturing Index hit its highest level since November, 2007, and it’s actually positive, as opposed to the “falling less slowly,” good news we frequently see from hack economic reporters. (See top pic)

We also have home builder confidence, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index, rising to its highest level in more than a year.

<Paul Harvey>And now, the rest of the story:</Paul Harvey>

We have the delinquency rates at commercial banks rising sharply in Q2, and the banks responded by tightening credit significantly.

This is pushing up the price of treasuries, and thus lowering their yields, as investors flee to quality.

As a result, the Fed has extended its TALF facility for commercial real estate, because they (correctly) see an impending crash.

Meanwhile, on the other side of the pond, where our other partner in corrupt “Anglo-Saxon Capitalism” goes to work, asking prices of UK homes fell by 2.2% this month, (that’s for the month, not annualized) with lack of credit to home buyers being a large factor in this move.

All in all, most of the signs are not good, which is why both crude oil and natural gas fell significantly today, and the US dollar and the Japanese Yen both rose.

Economics Update

No Comments

You know, someone had better tell the ordinary people of the US that things are getting better, because they are not buying it. 63.2 in August, down from 66 in July.

What’s more, we are seeing more signs of deflation, with consumer prices falling by 2.1% year over year, the biggest drop since January, 1950.

What’s more, commercial real estate is going through the economy like a guy in a hockey mask through a road trip of teenage girls in a slasher flick, with commercial mortgage backed bonds falling, which has driven up their yields, and commercial real estate prices falling by 17% in the first ½ of the year.

We do have some good news in industrial production, where output rose by ½%, beating expectations, largely on “cash for clunkers”.

The confidence figures had currency traders moving to the Yen, and it also pummeled both crude oil and wholesale gasoline futures.

Economics Update

No Comments

Retail sales numbers courtesy of Calculated Risk

It’s Jobless Thursday, and initial claims rose by 4,000 to 558K, with the 4 Week moving average increasing to 565K from 556.5K, and continuing claims, falling by 141K to 6.2 million, though for the latter, I’m not sure how much is people exhausting claims and moving to extended benefits, and how much is people finding work.

My money is on a negative interpretation of the data, what with retail sales falling in July. (see graph pr0n)

In Europe, Germany’s and France’s GDP both rose at an annual rate of 0.3%, which has people shouting that they’ve left the recession, but a recession is more than raw GDP numbers, and industrial output in the EU tanked in June.

I’m a pessimist….I see it as a pause, not a reversal, we still have more down to go.

All in all, when one considers the that 35% increase in bankruptcy filings in the 2nd quarter , the abysmal foreclosure numbers, and the fact that video game sales are down for the 5th straight month, I just don’t basis for anything like a robust recovery.

In T-Bill news, I’m very confused.

First, the 3-year notes rose, then the 10 year notes fell, and today, 30 year Treasuries rose, and I cannot make any sense of that. (bonds rising=yields falling, and vise versa)

If Treasuries continue to rise though, it might reverse the reverse the rise in rates that has a depressed mortgage demand.

In any case, the economic news from Europe had the dollar tanking versus the Euro, to $1.4295:€1.0000, and it also pushed oil marginally higher.

Economics Update

No Comments

Trade Deficit Graphs Courtesy of Calculated Risk

The lede today is that the Federal Reserve Open Market Committee (FOMC) med and has issued its report.

Rates are staying where they are, but they are winding down their bond purchase program, and they seem to be seeing a light at the end of the recession tunnel.

You can read their full statement here.

Unsurprisingly, their upbeat attitude pushed the prices down, and hence the yields up, on 10 year US treasuries.

Me, I’m not the optimistic type, and with home prices declining 15.6% year over year, as foreclosures push down prices, and there is also tremendous amount of Shadow inventory out there, where banks are not listing houses on the MLS in order to support prices.

In any case, mortgage rates are on the rise again, which has depressed mortgage applications, particularly those for ReFis.

In addition, further indicators of what is going on in the real economy, specifically back to school sales and pay raises are both trending in the direction of awful.

On the trade deficit, there has been an increase in the US trade deficit, (see graphs) but this is not an artifact of increased demand for goods and services, but of rising oil prices, which, by the way, were up today.

We are also seeing a deflationary spiral in Japan, where wholesale prices fell by 8½% year over year in July.

Still, it appears that the Fed’s optimism has driven the dollar up today.

Hoovervilles, Again

No Comments

That’s Favelas to my Brazilian* friends.

It looks like an increasingly large number of municipalities have started offering services to tent cities erected by the homeless on public land, as opposed to the old policy of evicting the residents, because they have no resources to address the explosion of the newly homeless.

*If you are asking how many is a “Brazilian”, you must have been a senior Bush admistration official.