Category: Recession

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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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

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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

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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

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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

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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.

Holy Crap. The Fed is Going 1937 on Us

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It’s the Recession all over again, with the Fed tightening money as something resembling a recovery begins:

Guess what? The Federal Reserve has not only stopped depositing copious amounts of liquidity into the economy — it now appears to be in the process of making a sizable withdrawal.

A close look at quantitative measures of monetary policy reveals a sudden change in trend. After growing at unprecedented rates for well over a year, these aggregates stopped rising several months ago and have since declined, according to data provided by the Federal Reserve Bank of St. Louis.

For example, the monetary base — the raw material for the money supply — has fallen at a seasonally adjusted annual rate of 8% from early April of this year through mid-August, after soaring at a 187% pace during the previous eight months.

I’m a pessimist, and I do not believe that the current recovery is “real”. I think that it is largely being driven by the Fed laundering money and pushing it into the equities markets (stocks), which has pushed up the indices, and that the rising stock market is creating the perception* of a recovery.

But even if I’m wrong, and the recovery is real, if very anemic, this is absolutely the wrong time to put your foot on the break.

*Yes, I know, perception is a BIG percentage of what constitutes a recession, but it is not everything.

Signs of the Apocalypse

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Rents in New York City are falling:

Manhattan apartment rents fell as much as 10 percent in August from a year ago as tenants gained negotiating power in the recession and forced landlords to offer concessions.

10% ain’t some sort of rounding error.

Real estate has been declining for some time, but the fact that rents, not purchases of condos or co-ops are falling is an indicator that the downturn in real estate has a ways to go before truly hitting bottom.

Economics Update

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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

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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

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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

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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

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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.