Category: Recession

Economics Update

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New Home sales and interest rates (H/t The Big Picture)

So the OMC of the Fed held its meeting, and left interest rates and purchases of debt unchanged, which basically means that they are still concerned about the recession, and not inflation, which they called “subdued”.

You can see the full statement here.

On a more general level, we have durable goods rose unexpectedly in May, primarily on increased aircraft sales, but new home sales unexpectedly decreased in May.

We have a further indication of weakness in real estate from the Architecture billings index, which was up only 1/10 point, and still indicates continued contraction.

Mortgage applications rose last week, but that week was hit hard by the higher interest rates at that time.

We also have an indication that it’s not just real-estate where banks will be hurting. The Moody’s Credit Card Index showed charge offs in excess of 10% for the first time ever, so in addition, to subprime, prime, and commercial real estate, expect to see big losses from credit cards.

Meanwhile, the Fed statement drove the dollar up, and oil down.

Economics Update

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Philly Fed Coincident Index(red is bad)

The Philadelphia Bank of the Federal Reserve has released its “state coincident indicators”, and 49 of 50 states showed contraction during the past quarter.

And another day, another S&P downgrades of residential mortgage backed securities. They review 101, and downgraded 93 of them.

Meanwhile, May existing home roes, but the year over number is still down, and median home prices have declined 16.7% year over year, so there is no incication that prices are falling.

Distressed home sales, foreclosures, short sales, etc., declined to only 33% (!) of sales from 45% (!!!) in April, so we are still well in vulture territory.

There looks to be downward pressure on interest rates, as treasurys have risen, pushing the yield down.

Not much in the way of “green shoots” in Europe, with both consumer spending in France and the a purchasing managers’ index in Germany falling.

Of course everyone is holding their breath about what the Federal Open Market Committee will do tomorrow, though the consensus is that they will not raise rates, which pushed the dollar lower.

The falling dollar, and unrest in Nigeria, drove oil up today/a>, it finished the session at just below $70/bbl.

Economics Update

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Well, I’ve missed a point on jobless claim numbers, which came out today, and showed increasing initial jobless claims, from 605,000 to 608,000, still into what Atrios calls “holy crap” territory, but that continuing claims fell from 6.74 million to 6.69 million.

I generally find continuing claims to be a better metric, but, as Susie Madrak notes, continuing claims do not count people whose benefits have been exhausted.

I’m not sure how to account for this in the data, but it is a factor.

On the other hand, we do have some unequivocally good news in the April vehicle miles driven statistics from the DOT for the first time in 20 months, which could be an indicator of a recovery, though gas prices nationally are about a buck cheaper, which may also be goosing the driving numbers.

We also have the index of leading economic indicators rising, a good sign, though the Philadelphia Fed’s Business Outlook Survey improved significantly, though it still shows contraction, so it’s an positive 2nd derivative.

It also looks like yesterday’s report of declining mortgage bond yields did predict today’s report of falling mortgage rates, with the 30 year fixed rate dropping 21 basis points (0.21%) to 5.38%, which should relieve some of the pressure on housing.

Still, with Midtown Manhattan office rents falling, down 28% year over year (!), the other show in real estate, the commercial side, is clearly dropping.

A note on the recent rise in interest rates, the real yield (interest -inflation) on 10 year treasuries is at a 15 year high, over 5%, which indicates that that inflation fears might be overblown.

The energy and currency markets have viewed today’s news as generally positive though, with oil rising, though Nigerian unrest contributed to this, and the dollar falling.

Economics Update

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It’s a day for mixed economic news, with credit card defaults rise hitting a record in May, which obviously bodes ill for consumer spending

On less personal metrics, Los Angeles and Long Beach port traffic was up over April, though it was still down year over year, and housing starts and housing permits jumped though much of this activity may simply be builders trying to beat the $8000 first time home buyer tax credit before it expires at the end of November.

Additionally, it looks like the financial markets are moving toward some instability, as the VIX, an index of market volatility, has moved above 30, which indicates a bumpy ride, and possibly a correction, in the markets.

Inflation is muted on both sides of the Atlantic, with last with wholesale prices inflation hitting only 0.2% in May, and inflation in the Euro Zone posting a 0% rate.

Meanwhile, continued comments by Russia about moving to an alternative reserve currency to the dollar pushed the dollar down, and that, along with the housing numbers, drove crude oil up for most of the day, though it settled down $0.15/bbl, basically treading water.

[late update]

US industrial output fell 1.1% in May, and the capacity utilization rate fell to 68.3%, the lowest number since records started being kept in 1967.

Economics Update

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Well, if you are looking for “green shoots”, the New York Fed Empire State Manufacturing Survey is not one of them, they got worse (see picture).

Additionally, the NAHB Builder Confidence fell a bit in June, from 16 to 15, with 50 being neutral, so that remains awful.

When one considers that delinquencies on commercial mortgage backed securities broke 2%, this is a state of mind that accurately reflects the reality out there.

Still, another measure of consumer confidence, this one from the University of Michigan, , which is marginally better, but still well below the 10 year average of 88.2.

We also have two relatively well known business have filed for bankruptcy reorganization, Six Flags amusement parks and the Extended Stay hotel chain.

Meanwhile, in Ireland, deflation has hit an annual rate of -4.7%, which is not surprising. There are a lot fewer dollars (Euros) chasing goods there, now that their bubble has popped.

Still, it appears that foreign investors are more confident about the future on a global level, as they have cut back on purchases of long term US securities, as the flight to safety slowed/reversed.

Meanwhile, we are starting to see some inflation from the recovery in oil prices, with import prices rising 1.3%, largely on oil, though they are down by 17.6% (!) year over year.

This has driven the price of retail gasoline up again, and are now up 63% for the year, though crude oil fell today.

The dollar was up, largely on statements by Russia that it should remain the world’s reserve currency.

Economics Update

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We had the latest jobless report come out, and it’s another mixed bag, with the initial claims falling by 24K to 601,000, and the 4 week moving average fell to 621,750, but continuing claims rose again to another record, 6.82 million.

We also have mixed news on retail sales, with a ½% increase month over month, but a 10.8% decrease year over year, and a lot of the increase was driven by more expensive retail gasoline, which, by the way, was up again today, to $2.632/gal.

And real estate is not looking good, with foreclosures hitting the 3rd highest on record, and
mortgage rates rising sharply, to nearly 6%.

Additionally we have, despite the recent stock rally, Americans’ wealth falling $1.3 so far in 2009.

Additionally, international trade is still in the doldrums, with China’s exports in may down 26.4% year over year.

On the brighter side, Treasury yields fell, indicating that the upward pressure on interest rates may be abating.

In any case, it looks like oil will continue heading up, a prices closing at $72.68/bbl, though it was above $73 earlier in the day, largely on the IEA’s upwardly revised estimates of world demand.

In currency, the dollar fells on what were seen to be positive jobs and sales data, which reduced safe-haven demand.

Economics Update

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From Wingnut Economist Arthur Laffer and the contemptible Wall Street Journal OP/ED page, but there has been a huge growth in the money supply under “Helicopter” Ben Bernanke.

Well, we are seeing some more signs of increasing rates, with the 10-year Treasury hitting 4%, the highest level since October of last year.

It could mean that fewer investors are fleeing to the safety of treasuries, or it could mean that the monetary expansion is finally hitting interest rates (see pic).

My money is on the former, but that doesn’t stop rising mortgage rates from pushing down the volume of home loan applications.

In international trade, the US trade deficit rose, not because of additional imports, but because of fewer exports. International trade remains at rather low levels.

We have some good news from the Federal Reserve, in a 2nd derivative kind of way, with their so-called Beige Book showing that the pace of the decline is slacking off somewhat.

We also have some good news from the UK, with UK industrial output rising for the first time since February of last year, up 0.3%, though it is still down 12.3% year over year.

Gordon Brown’s aggressive approach to the downturn may be showing some fruit.

We actually had a lot of action in the currency market today, with both Russia and Brazil making large buys of IMF bonds, so as to diversify away from US Treasuries.

For Russia, that may just be grandstanding, but for Brazil, it’s a significant move.

In any case, it drove the dollar down for most of the day, though it finished up at the end of trading.

In energy, oil rose on falling stockpiles, and wholesale gasoline futures rose about $2/gal for the first time since October.

Economics Update

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Well, we have good news, that consumer confidence rose in June, to 50.8, which means that it crossed 50, the dividing line between optimism and pessimism.

We also have mixed news in that wholesale inventories fell for the 8th straight month, which can either mean that we are seeing continued weak demand, or that we are approaching the point where orders have to pick up, because they still need to ship to retailers.

For what it’s worth, and I’m not a big fan of the predictive powers of “the market”, but both oil rose on the expectation of increasing demand and the US dollar fell, on reduced demand for a safe haven.

Economics Update

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I think that the lede for today is the fact that two of the most prominent indicators of consumer distress, consumer credit card delinquency and consumer bankruptcy filings are up 11% and 37% year over year respectively.

These “green shoots” are all about the bankers, not about the real economy, or real people.

What’s more, indicators of the economy that are independent of investment banking, things like, the American Trucking Association Tonnage Index and the AAR’s reports on rail volume (same link), continue their downward trend.

The so-called “green shoots” are things like the Conference Board’s Employment Trends Index, which improved for the first time in 16 months:

The Conference Board Employment Trends Index (ETI)™ saw a small uptick in May. The index now stands at 89.9, increasing 0.2 percent from the revised April figure of 89.7, and down 20 percent from a year ago.

So, a 1 months uptick of less than 0.3% is a promising sign (100=1996), even though it’s still down 29% year over year, and 1996 was a great year only by the standards of the Bush economy.

Meanwhile, in international finance, downgraded the Celtic Kitten, Ireland from AA+ to AA, because Ireland, the Baltics, and much of the rest of the new EU members have experienced growth driven more by speculative flows rather than real economic development.

In energy, retail gasoline was up again this week, that’s about 27% in the past month and a half, to $2.613/gal, though oil was down slightly, largely on a stronger dollar.

Economics Update

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Unemployment Rates, Actuals vs. Geithner’s “Stress Tests”, courtesy Calculated Risk

Today, we get the unemployment rate (U3). It rose from 8.9% to 9.4%, a ½% rise.

Ouch.

By way of context, you can look at the BLS alternate measures table, and U6, which is probably closest to the figures used during the depression, though it still under counts relative to the older metric, rose from 15.8% to 16.4%.

Ugly number.

Of course, the press is reporting that the decrease in non-farm payrolls was less than expected, -345,000 as opposed to their projection of something in the -500K range.

Additionally, part of the increase in unemployment is workers becoming undiscouraged and actively looking for work, though the U6 number indicates that there was still an upward revision despite that.

Still, it appears that bondholders are betting on a recovery, they are bidding up the rates on treasuries, which is also driving up mortgage rates.

There is an argument between economists as to whether this is inflation concerns, or whether people have simply stopped fleeing headlong to the safety of US Government securities.

I’m with the latter school, but you can decide for yourselves.

As to where the economy is headed, I’d bet with the insiders and banks and such, and
insider sales as reported to the SEC are going up, implying that they are expecting worse for their firms.

Still, the jobs report drove both the dollar and oil up today.

Economics Update

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We have good news on the jobs front, with both new and continuing claims claims falling this week.

Continuing claims fell by 15K to 6,740,000, the first time that they have fallen since January 3.

We also have the rather Dickensian named Challenger Gray & Christmas reporting that corporate layoff plans fell in May.

Meanwhile, the consumer economy continues in the doldrums, with MasterCard announcing that consumer spending continues to fall, though not as quickly as earlier in the year, and the retail chain’s monthly sales reports missing expectations, though the 800 pound evil gorilla in the room, Wal Mart, has stopped reporting monthly sales figures.

Mortgage rates are continuing their climb, with the rate for a 30 year fixed mortgage hitting a 6 month high.

On the other side of the pond, both the European Central Bank and the Bank of England left their benchmark rates unchanged, which drove the dollar down, because there had been some expectation of a rate cut priced in.

Meanwhile, in energy, Goldman-Sachs predicted higher oil prices later this year, which, along with the employment data, pushed the price of oil up.

Economics Update

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Well, the ADP payroll estimate is out, and they are estimating a drop of 532,000 in non-farm payrolls, which is better than last month, but is still in major league suckage territory.

The Institute for Supply Management’s index of non-manufacturing businesses is in the same boat, which covers the services sector, is still declining, but not quite as badly.

So, things are getting worse less quickly, not getting better.

Meanwhile in the junction of banking and real estate, S&P has downgraded 59 prime Residential Mortgage Backed Securities (RMBS) to D, which, according to the Wiki, means, “Bankruptcy or lasting inability to make payments most likely.”

With all this going on in mortgages, it is not surprising that we are seeing higher rates and fewer mortgage applications.

Well, at least we are not in Latvia, whose government was unable to sell debt today….That’s right, we aren’t talking about paying more interest than anticipated, no one would buy their debt.

Mean while, the news of reduced demand and a surge in inventory drove oil down, while the dismal economic news drove the dollar higher, as investor looked for safe havens.

My guess is that the trend in the dollar is down, and it will be firmly ensconced somewhere weaker than $1.50:€1.00 by year’s end

Economics Update

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Well, the Euros are not doing well with unemployment, hitting 9.2%, which is not as bad as it sounds, because the EU’s count is more accurate, and so generally excludes fewer people from the unemployment statistics, and because the social safety net is better there.

We have some good news in real estate, with pending existing home sales jumping, though the numbers are still awful, and large proportion of them are distressed sales.

Still, the most recent numbers on construction spending are grim, and you can see that it looks like non residential construction is due to start falling too.

Still the home sales number kept profit taking against oil to a minimum.

The dollar is getting interesting, as in the curse, “May you live in interesting times,” over the past few weeks. It hit another low for 2009:, and there is active talk about countries moving to some other currency, typically the Euro, Russia’s idea of some sort of “non western” reserve currency being a pipe dream.

Economics Update

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The OECD has released its GDP figures for the 1st quarter, and they are not good, down 2.1% for the quarter, and down 4.2%year over year.

Also, consumers in the US are continuing to explore the paradox of thrift, with consumption down and savings up, even though there was a bump in income.

Of course, the financial press is optimistic on the fact that the ISM manufacturing index is the highest it has been in 9 months, only the number, 42.8, still signals further contraction, but for the financial press, the fact that the 2nd derivative is up means that prosperity is just around the corner.

The Wall Street Journal is selling the fact that corporate profits rose for the 1st time in two years in the same way.

Personally, I’m more concerned about signs of increasing interest rates and inflation, like the recent surge in 10-year treasuries, and the fact that retail gasoline broke $2.50/gal nationally this weekend.

With oil breaking $68/bbl, even a long time in the doldrums is going to have energy prices rising.

Still the traders are optimistic, which is why the dollar fell to its lowest level this year, there is less demand for a safe haven.

Economics Update

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We’re All Red States Now
(Philly Fed Index, Red is Contraction)

The revised numbers for the first quarter GDP are out now, and it’s an upward revision for once, from a fall of 6.1% to a fall of only 5.7%.

Of course, -5.7% is still pretty ugly, and the fact that the ATA Truck Tonnage Index fell 2.2% in April, and that the Philly Fed State index is not showing expansion in any states, seems to indicate to me that we are still talking about a change in the 2nd derivative, i.e. not getting worst faster, than a rebound.

Still, there was still some good news, with the Consumer Sentiment Index reaching an 8 month high, 68.7, and Japan’s factory output unexpectedly rose last month.

Still, with Euro zone inflation hitting 0% this month, the specter of deflation is very real.

Meanwhile, the less concern about the economy has pushed the dollar down, while oil price increases have pushed the Canadian dollar up by 9.6% in May.

Economics Update

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Initial and Continuing Claims, Courtesy of
Calculated Risk

So, the new unemployment claims numbers are out, and they are still bad, though a bit better, 623,000, down 13,000 from the last week, and the 4-week moving average fell 3K to 626,750.

That being said, the continuing claims were 6,788,000, up 110K, to yet another record, so layoffs may be slowing, but so is hiring.

My take: this is more businesses are running out of people to lay off than it is the economy improving.

On the other side of the pacific, Japanese retail sales rose, but the consensus is that this is a temporary blip, not a trend.

Reinforcing my “dead cat bounce” view is the fact that durable goods orders remain near a 13 year low. (There is also some very bad financial journalism around this story, which I will get to separately)

Meanwhile, in real estate new home sales rose even as prices continued their fall, and if you look at the sales there is a huge portion which are distressed properties, short sales or foreclosures.

It’s why we are seeing more stories about how there are No “move-up” buyers, selling their old house and upgrading.

There is very little equity for such a move currently, and with mortgage rates continuing their upward path, and delinquencies and foreclosures rising sharply, they broke another record in first quarter, I don’t see any signs of a real rebound in the sector.

Meanwhile, I wonder how much the relaxation of the credit crunch involves the rest of our economy. The metrics involving inter-bank lending show signs of a thaw, but US commercial paper fell to its lowest level in 8 years.

This is largely non-bank lending, and it’s absolutely comatose.

Menqhile in currency and energy, the dollar dropped, and the Yen dropped more/a>, on the (not really that) good durable goods numbers and unemployment figures, while oil was up on OPEC’s announcement of no production boosts.

Economics Update

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The economic press is touting the fact that consumer confidence hit an 8 month high.

More accurately, they are touting that the jump from 40.8 to 54.9, is the biggest in 6 years….Only, of course, the index is bench marked such that 1985=100, so the number is still crappy.

It’s the same as the Chicago Bank of the Federal Reserve’s April National Activity Index, which is up (Yay!), but this does not mean expansion, it means contraction, just not quite so fast (Awww!).

You know, maybe we can wait to call a recovery until we have a month where the year over year Case-Shiller housing price index does not fall by 18.7%.

Consumers will not spend under these circumstances, and the economy, which is/was 70%+ consumer spending, will not recover.

In any case, be glad we aren’t German, and not just because that means that we aren’t German, because Germany’s GDP fell by 3.8% for the quarter and 6.7% year-over-year, as their export driven economy sputtered.

Meanwhile, in energy and currency land, oil was up on the consumer confidence figures, and the dollar rose as people freaked over the DPRK conducting another nuke test.

If I could predict the actions of the North Koreans, I would make a killing on the futures markets.

Economics Update

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The Economic Downturn and Contemporary Art Sales, courtesy of Felix Salmon

Well, Thursday is jobless claims day, and weekly initial jobless claims fell by 12,000, to 631,000, and the 4 week moving average fell to 628,500 from 632,000, but continuing claims hit yet another new record, hitting the number of the beast, 6.66 million.

Meanwhile, more GDP data from more countries has come out, and it is almost uniformly grim.

Additionally, the Philadelphia Fed manufacturing index is showing further contraction, though it did rise, from -24.4 to -22.6.

Of course, the press is touting the fact that the April leading economic indicators rose, but this is a volatile index, and is not supposed to mean anything until you have 3 straight months up or down.

Meanwhile, Treasuries fell, and yields rose, on reports that the Fed will be buying less of them, and on an announcement that the government would be selling an additional $162 billion of them next week.

Basically, it’s inflation concerns, which also drove the dollar to a 4 month low.

Oil rose, largely on profit taking from yesterday’s high.

Economics Update

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Well, let’s lead with a rather unique bit of news, the volume of the derivatives market fell for the first time ever in the last 6 months of 2008.

The outstanding contracts fell by 15% to $592 trillion dollars (!!), or about forty times the GDP of the United States, and 110% of the entire planet.

My guess is that people suddenly realized that they had absolutely no idea at all what the hell they were holding, and started to unwind, because they did not know who they could trust.

It’s the sort of story I like, so I put it first even though by all rights the fact that Japan’s GDP fell at a 15.2% annualized rate in the first quarter of this year.

That’s Eastern Europe imploding numbers.

Export driven economies like Japan’s are going to take a hit, which is why
Moody’s is warning on possible downgrades of Asian banks, specifically those in Korea, Malaysia, the Philippines, and Indonesia.

Still we have a couple of glimmers on real estate, with the Architecture Billings Index holding steady in April, indicating that there future building is at least taking a pause downward, and mortgage applications rose in response to low interest rates, though much of that is refi activity.

Of course, the commercial real estate market market is still heading down sharply, which is why the Federal Reserve has expanded the TALF to include commercial mortgage backed securities.

Ending with oil and the US dollar, oil finished above $60 for the first time since November, $62.04/bbl, and the dollar hit a 5-month low on more optimism about the world economy.

I don’t get that last bit. All I see is a dead cat bounce.