Category: employment

Economics Update

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Seeing as how the nationalization-in-everything-but-name of the GSEs has been covered elsewhere on the blog, it won’t be here.

That being said, the response of the international markets, rising dollar and oil prices falling despite a hurricane pointed at the gulf, appear to be positive.

It comes from the fact that while shareholders will get F$#@ed, the foreign national banks and sovereign wealth funds which bought Fannie and Freddie paper are getting bailed out.

It also looks like the monoliner bond insurers are winners here too, at least that’s how their stocks reacted to the news.

This does not mean that the housing crisis is over, or even that it has bottomed out, which is why foreclosures hit a record high in Q2.

Additionally with the official unemployment rate spiking to a 5 year high, the rest of the economy sucks wet farts from dead pigeons too.

What’s more, as Krugman notes that the U6 numbers are positively grim.

The common reported number is U3, while U6 is:

Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers

And U6 is higher than it was in the worst part of the 2001 recession:

It’s not just banking, real estate, or employment though; Paul Volker is saying that the current financial system, which relies on complex securitization, as opposed to conventional loans is very broken.

The best proof of this is that the bank of China is suffering a liquidity crisis, because its investments are illiquid.

Economics Update

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Things have seemed pretty hectic today.

Normally I don’t mention this, I think that it is just noise, but all three major stock indices are down 3%+, so while it’s not yet raining Katz and Lehmans, it’s pretty ugly.

Note that this is my economic update post, so I’m not going to claim that a certain VP pick’s speech caused anything, and instead point at jobless claims spiking unexpectedly by 15,000, though truth be told, it should not cause that sort of reaction: the weekly data is simply too noisy for any rational investor to act upon the basis of those numbers.

But this isn’t “rational investors” this be Wall Street, so it could have been the Lehman CEO’s choice of shoes today.

The rest of the financial news is no where near as definitive, and even Federal Reserve officials are publicly disagreeing on whether the concern is recession or inflation.

Meanwhile, even though the Bank of England and the ECB kept rates steady, the cost of money in Europe went up, because the ECB has significantly tightened requirements to lend to banks.

In any case, the lack of rate hikes strengthened the dollar.

Mortgage rates are down this week, which would ordinarily be good news, but I think that “the markets” (and I) see this as a sign of a weakening economy, just as “the markets” (and I) see declining oil prices and declining gas prices as signs of a weakening economy.

Even so, the numbers for the service sector were good, so the blood on the street today is a bit odd.

Of course, it sucks to be a bank right now, with Community National Bank of Sarasota looking to be on the FDIC’s Friday afternoon press releases, and Lehman floating the idea of creating a “bad bank” to shift bad assets to.

Someone needs to explain the concept to me, because it seems to suffer from the, “We’ve run out of gullible idiots,” problem.

In any case, it appears that insurance giant AIG is considering something similar.

I’m not sure how piling crap in a separate pile really helps anything.

Economics Update

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It’s generally not been a good year for manufacturing and construction, with the Institute for Supply Management’s (ISM) manufacturing index falling to 49.9, with any number below 50 meaning contraction, though I wonder how much inflation is being measured as “growth”, which is what I think is driving much of the US Commerce Department data showing an increase in factory orders.

I think that this is entirely export driven growth, a position that the abysmal auto sales reinforces, but these export sales are being driven by a cheap dollar, which will eventually drive interest rates higher in the US (foreigners will demand higher returns), crushing domestic consumption.

That being said, construction is clearly cratering, falling 0.6% in July, twice expectations.

Meanwhile, banking continues to look pretty heinous with the FDIC expanding office space in the expectation of a spate of bank failures, S&P downgrading two regional banks, and suggesting that 37% of regional banks will be down graded.

Additionally, when GMACis laying off thousands, you know that the industry is in dire straits.

With Euro zone inflation falling, it appears that the ECB will hold rates steady, for a while at least, which will serve to keep the dollar relatively strong, as evidenced by the US Dollar’s rise today.

Since the hurricanes in the Gulf were relatively mild, oil and gasoline have continued their downward path.

Economics Update

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Well, the big news is that the US GDP rose by an adjusted 3.3% rate in Q2. The initial estimate was 1.7%, and the estimate for this, the 2nd cut on GDP numbers was 2.7%.

Of course, inflation ran at a 4.2% rate, which puts it back into negative territory, though the economists typically use the “core” rate, 2.1%, even though purchasing energy and food is included in the GDP numbers.

This is reinforced by the weekly unemployment numbers, with new claims down by 10,000 this week, but, “continued claims are now above 3.4 million for the first time since 2003.”

What is going on is that the real estate asset bubble was concealing the fact that productivity from 2000 through 2007, but middle class income fell.

We were working harder for less money, and going into debt because our houses were appreciating.

Things ain’t great in Europe either, with European retail sales falling, though German unemployment fell, even while the German economy contracted….I really don’t get that one.

We do have good news on the monoliner insurers, with MBIA getting a juicy insurance deal thanks to the help of the New York State Insurance Superintendent…..Smells like a backdoor bailout to me.

In the world of home mortgages, it appears that numbers showing a mortgage application increase may be garbage, because they do not account for multiple applications from one person, which is what tends to happen when lenders get pickier about issuing loans.

Finally, oil is down, the dollar is up, and gas prices are down again, more than 45¢ off their peak.

Economics Update

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Ummm….This is not a day for pleasant economic news.

First, the Leading Economic Indicators indicate a bigger slowdown than anticipated, dropping 3x more than expectations, and then the Philly Fed index fell for the 9th straight month.

Employment isn’t good either. While new unemployment claims fell, the 4 week rolling average rose, and in any case at 432,000 claims (seasonally adjusted, which is the elephant in the room), it’s still too damn high.

If you are a monetarist, then we have more bad news, because the growth rate for M3 has dropped off a cliff (chart pr0n below):


Note that this is a graph or the rate of growth, not the money supply, so the effect on the overall money supply is less than it appears, but, “As a rule of thumb, the data gives a one-year advance signal on economic growth, and a two-year signal on future inflation.”

The chart is a rolling 3 month average of the annual rate, and the rate for May-July is 2.1%, indicating a contraction of the M3 money supply in real terms, which would suggest downward pressure in housing and financial markets.

We also have the Reuters/Jefferies CRB Index of commodities making the biggest weekly jump in over 30 years and oil up by 6 bucks, along with the dollar falling which seems to indicate that the past few weeks might just have been profit taking…a breather before an ascent to the summit, though
gasoline is down over a dollar today.

Economics Update

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Weekly initial jobless claims came in higher than expected, at 450K as opposed 432K, and the 4 week moving average is 440.5K, the highest number since 2002.

At the same time, the CPI numbers are grim, with prices up 0.8% in July, and 5.6% year over year.

The Europeans are not doing much better, with GDP declining 0.2% in the 2nd quarter.

The European weakness, meant a Euro weakness, with the dollar gaining against the Euro.

These indications of a global slowdown have pushed oil prices lower, and Gasoline is down too.

Don’t expect a real estate recovery to save the economy though, foreclosures are up 8% for the month, and 55% year over year, and home prices have fallen 7.6% year over year.

Employee Fired for Refusing to Donate to Romney

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An executive at Huron Consulting Group has filed a complaint that he was fired, in part, for not donating to the Mitt Romney campaign (he is also alleging age discrimination):

The company denies that charge. But officials confirm the authenticity of emails showing that the CEO of the Chicago-based corporate consulting firm, Gary E. Holdren, repeatedly linked his requests for donations to Huron’s business prospects. The emails were provided to The Wall Street Journal by Mr. Pimentel.[the complainant]

In another email, dated Sept. 21, 2007, Mr. Holdren wrote, “I wanted to thank all of you who contributed to Mitt Romney. You can’t realize how much leverage this gives Huron going forward to ask various people for business.”

Other emails from Mr. Holdren refer to conversations with Mr. Romney, deals Huron supposedly won from Romney supporters at other firms and promises to reward Huron executives with “business for your contributions.”

It’s why, when Republicans talk about running government like a business, you should run the other way. It’s all graft and back scratching.

Economics Update

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Well, the jobless numbers came out, and they suck. The weekly numbers rose by 7,000 to 455,000, a 6 year high, when predictions were for a drop to 433K, and the 4 week moving average, which is less noisy, rose to 419,500, a 5 year high.

At least our misery has company, with the ECB holding rates steady, saying that “risks to economic growth were starting to materialize”, which is a signal that Euro zone rates will remain steady.

Of course, our relentlessly optimistic financial press has to try to make s%$# into Shinola in housing, where they are touting a 5.3% month to month gain, which as Barry Ritholtz so eloquently notes, this is unmitigated crap, and driven by seasonal differences more than anything else, and the numbers are down year over year.

Additionally, we do not know how many of these are short sales in lieu of foreclosure.

We also have retail experiencing major suckitude now that the rebate checks have run out. To the degree that people are spending any more, it’s on necessities, and they are running up their credit cards to do this, because the banks are cutting back on HELOCs.

Meanwhile, oil rose on supply concerns after Kurdish rebels blew up a Turkish pipeline, though gasoline is down for the 21st straight day.

In the world of insurance, the largest US insurer, American International Group wrote down more than $11 billion in holdings, and is making noises about selling more shares to raise capital.

Economics Update

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Challenger, Gray & Christmas is reporting that planned job cuts were up 26% in July, and the Conference Board’s Employment Trends Index fell to 112.1 in July, leading the board to predict that unemployment could pass 6% in 2009.

Additionally, the board noted that U6 has now topped 10%, which is probably the best metric, and closer to the one used in EU nations, for the first time in 5 years. Quoth the Wiki:

  • U1: Percentage of labor force unemployed 15 weeks or longer.
  • U2: Percentage of labor force who lost jobs or completed temporary work.
  • U3: Official unemployment rate per ILO definition.
  • U4: U3 + “discouraged workers”, or those who have stopped looking for work because current economic conditions makes them believe that no work is available for them.
  • U5: U4 + other “marginally attached workers”, or those who “would like” and are able to work, but have not looked for work recently.
  • U6: U5 + Part time workers who want to work full time, but can not due to economic reasons.

In an article with a typically bad headline, we see that personal spending and income fell in July, the headline leads with non-inflation adjusted spending, and we also see that inflation has eaten up most of the tax rebate stimulus package.

So what the taxman giveth, the House of Saud taketh away.

Commodities are showing some moderation now, with copper and aluminum falling because of the economic slowdown, though there is a consensus that latter will rebound.

Energy is down too, both oil and retail gasoline, much for the same reasons.

The dollar is down slightly, but is likely to be a holding pattern until tommorow, when the Fed makes its decision on interest rates, and may not move much until Thursday, when the ECB does the same.

In banking, Citi is now losing money on credit card securitizations, where they take credit card debt and package it into securities (similar to mortgage backed securities).

When you lose money on this, the economy is not in good shape, or you are completely incompetent. In the case of Citi, probably both.

Finally, the finance unit of Chrysler was able to finance only $24 billion of the $30 billion it sought to renew, and it was at a higher cost than anticipated, which will likely make auto loans more expensive.

Economics Update

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Well, the official unemployment rate climbed to a 4 year high, 5.5%, and total number of jobs fell by 51K, the 7th straight monthly drop in a row, in July.

We’re in a recession. Get over it.

Manufacturing actually did a bit better than expected in July, it was flat, though much of that was military and exports driven by a weak dollar, but I’ll take what I can get.

In the monoliner insurance follies, we have good news for AMBAC, they paid Citigroup $850 million to get out of a $1.4 billion guarantee on some collateralized debt obligations (CDO).

It’s being reported as good news for AMBAC, which says something about the qualities of said CDOs.

As bad as the job news was, it was better than expected, so the dollar strengthened in international trading.

In energy, the employment report drove oil up too, though retail gasoline is back below $3.90/gallon. Woo hoo!!

Bankruptcies and the Birth/Death Adjustment

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When generating employment numbers, the Bureau of Labor Statistics (BLS)uses something called a Birth/Death adjustment, which is supposed to account for small new businesses that it misses in its surveys.

Well, the always quotable Barry Ritholtz has a question, is anyone at the BLS looking at the “death” part of the model?

Specifically, commercial bankruptcies are up 45%, but the BLS is still using their Birth/Death model to increase employment numbers.

Economics Update

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Well, we have a big bit of information to lead with today, it turns out that the revised GDP numbers for the 4th quarter of 2007 show a contraction of 0.2% in the economy, which means that as numbers come in, that might very well be the start of the economy, particularly given the fact that the inflation numbers used to generate “real” GDP growth are bogus.

According to the most recent figures, the US economy grew in the 2nd quarter of 2008, but it grew less than forecast, 1.9% as versus 2.3%, but given what happens in revisions, I expect the number to get worse over time.

Employment is grim too, with weekly jobless claims up 44,000 to 448,000, though part of this is the effect of people going back on unemployment because of the 13 week extension.

While the weekly number is noisy, the trend has been toward increasing unemployment, and I agree with Calculated Risk, “Labor related gauges are at best coincident indicators, and this indicator suggests the economy is in recession.”

That’s not to say that there is no data pointing in the other direction, as the Chicago Purchasing Managers’ Index Increased to 50.8, and any number above 50 points toward expansion.

That being said, the currency market saw the clouds, not the silver lining, with the dollar falling, though the fact that Euro zone inflation hit an all time high of 4.1%, which points toward rate increases by the ECB, could be a factor in there too.

In real estate, mortgage rates fell this week, which is probably an artifact of the reduced inflation fears from moderating oil prices.

The bit I found interesting though is that Freddie Mac is doubling the payments it makes to loan servicers for foreclosure prevention activities, which strikes me as a sort of a “hail Mary” play to keep more of their mortgage backed paper from going bad.

And our old friend, “The trouble with the monoliner insurers,” is back, with Financial Guaranty Insurance Co. (FGIC) being cut to junk bond status by Fitch.

In energy, both oil and gasoline are down.

Finally, a reason, as if you needed one, not to watch the Fox Business Chennel:


This just buggers the mind.

Core of US Army Corroding

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While the military press, and military experts, have been wringing their hands over the flight of junior officers from the military, I’m not concerned.

The US military has 1 officers for every 5 enlisted men, twice the historical rate of 1:10, so I think that there is plenty of margin there.

That being said, Salon’s report that the army is now being forced to promote unqualified soldiers to senior NCO positions to meet the challenges of the Iraq campaign is very troubling.

Senior NCOs are the heart and soul of the army, and when the NCO corps starts failing, the whole military does.

Economics Update

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Well, you know that the economy sucks when lawyers are being laid off, in this case at Cadwalader, Wickersham* & Taft because the 70% decline in the commercial real estate market had created redundant personnel.

When you consider the fact that Citi will likely write-down its CDOs to the tune of $8 billion, following Merrill Lynch’s $5.7 B writedown of its CDOs, it’s not surprising nothing is moving.

Citi currently values its CDOs at 53¢ on the dollar, but Merrill sold at somewhere between 22¢ and 5.5¢ on the dollar (see this post), so this will be ugly for them, and for a lot of other financial institutions.

Some people are predicting writedowns of over $100 billion for Fannie Mae and Freddy Mac, but it could be worse if there is a rush to the exits.

I think that it’s also pretty likely that the credit crunch had a lot to do with Mervyns, department stores filing for bankruptcy, reorganization, not liquidation, as the straw that breaks the Camel’s back is typically the withdrawal of credit.

Still, we have a decent numbers in the ADP jobs report, which has also strengthened the dollar.

Additionally, the efforts by government institutions continue with Federal Reserve extending its loan program to Wall Street banks, “Cash for Trash,” from mid-September to January 30 and the SEC has extended its naked short-selling ban until August 17.

In energy, oil is up, and retail gasoline is down.

*Interestingly enough, I probably would not have even noticed the story, but for the fact that the name Wikersham was there. he first political story that I have any recollection about was about that ship, and the problems that developed as a result of cabotage related issues with the Jones Act, which required it to stop in Canada between American ports,

I actually rode on the ship when my family was leaving Alaska.

Economics Update

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The Bush administration is now, finally, predicting a slowing economy, with a GDP growth rate of 1.6%…though with a higher prediction of inflation at 3.8%, it’s a net contraction, which is why they are also predicting an increase in the unemployment rate.

Given this environment, it is unsurprising that home prices fell in May by 0.9%, 15.8% year over year, which is grim.

What is surprising is that Consumer confidence was up a bit, to 51.9 from 51.0, but even 51.9 is very pessimistic.

We may be seeing a bottom of consumer pessimism, which is different from seeing a bottom to the credit crisis.

The slowdown seems to be driving the price of oil down, as well as the price of retail gasoline, and falling energy prices seem to be bolstering the dollar versus foreign currencies, though the bad news on Japanese unemployment, a 2 year high, may have contributed to this.

Still, the banks are buying lots of money from the Federal Reserve to deal with the liquidity problems, $75 billion this time, so we ain’t out of the woods.

For your amusement, a cartoon:

Economics Update

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While the Federal Reserve is afraid to say the word, it appears from their latest report that we are seeing stagflation.

Jobless benefit claims just spiked above 400,000, up 34,000 from last week to 406,000, the highest reading since March.

Again, let me note that the weekly numbers have a lot of noise, but this news still sucks.

What’s more we have increasing evidence that the downturn is not “decoupled”, but is effecting other economies, with consumer and corporate confidence in Europe coming in well below expectations.

Not surprisingly, the bad news out of Europe, which points to interest rate moderation there, has bolstered the dollar.

Some real estate numbers came out today, and they are not good.

home sales fell 2.6% from may, and are now at an annual rate of 4.93 million/year, the lowest rate since 1998.

If you are wondering what might happen when mortgage rates rise, you should break out the popcorn, because it looks like that show might be starting soon. Rates went up 0.37% last week to 6.63% for a 30 year fixed mortgage.

Because of all this, I am not surprised thatthe number of vacant homes has remained at more than 2.2 million.

Energy was flippity floppity today, with oil up by about a dollar, and retail gasoline prices down again.

Economics Update

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Weekly unemployment filings are up 16K from last week, which is not good, but better than forecast, though, as I’ve said before, the weekly data is noisy and not very useful.

On the other hand, the Philadelphia Fed Business Outlook Survey is definitely downbeat, though not as grim as I would have anticipated.

China has problems. While its growth rate slowed to only 10.1% annually(!), inflation remained well above 7%.

Honestly, I think that the fix here is simple, let the Yuan rise some, which would decrease the relative cost of imported energy, and slow exports to cool down the economy, but I do not expect the Chinese central bank to do this.

Housing starts jumped 9.1%, only because of change in NY City building codes, allowing for more multi-residential building. Otherwise it would have been -4%, and construction of single-family homes dropped by 5.3%, hitting a 17 year low.

Seeing as how the Europeans have inflation concerns too, and are talking about ratcheting up rates, it;s not surprising that the dollar fell today.

Oil continues its slide, dropping below $130/bbl for the first time in over a month, though retail gasoline holds at yesterday’s record.

Economics Update

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Well, the Employment Trends Index is down again. That 11 down over the past 12 months.

In energy, oil prices briefly brok $140/bbl on the downside before settling at $141.37, but the price of retail gasoline continues upward unabated.

Unsurprisingly, the dollar strengthened today, though I am unclear why. The fundamentals underlying the dollar, trade and budget deficits, would seem to point further down.

I wonder what happens when we run out of Dutch boys’ fingers to put in the levee.*

Meanwhile, I think that all those folks who said that it was only residential real estate that was crashing are now desperately trying to find their happy place, because we just saw the the worst Q2 in commercial rentals in 30 years.

*No, I’m not going there.