Category: Recession

Economics Update

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We have a bumpy road ahead on the economy, with
retail sales falling 1.1% and the Producer Price Index (PPI) falling 1.2%, both of which indicating that there are still deflationary and recessionary pressures out there.

In regulation, there is finally an Obama choice to run the TARP, Fannie Mae CEO Herb Allison, replacing Bush holdover Neel “Cash and Carry” Kashkari, who along with Hank Paulson, should be in jail for the fraud perpetrated on the US taxpayers.

We also have some news from the moniliner insurers, after a long break, with Moody’s downgrading Ambac to junk status.

Dead man walking.

That being said, there are more signs that credit is thawing, with the LIBOR, the rate big banks charge each other for loans, falling at the fastest rate in 3 months.

In currency, we have news from Asia, where Singapore has devalued its currency by lowering interest rates in an attempt to stem its recession, the idea being that its export based economy would be boosted by a falling currency.

This is a fairly limited option for most nations, as many nations that need the help are debtor nations, while Singapore is a creditor nation.

Meanwhile, the US dollar is up vs. the Euro and down vs the Yen.

Oil fell below $50/bbl today.

Economics Update

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We have a report that consumer confidence is improving, according to the IBD/TIPP economic optimism index, which rose to 49.1 from 45.3, which is only slightly pessimistic, 50 being neutral.

I have no idea if the folks at at Investors Business Daily/TIPP actually run a good poll, but it does look like consumer confidence is up a bit, though the Federal Reserve’s view of the economy remains gloomy.

Certainly with wholesale inventories falling by 1.5% in February, the largest drop in 17 years, there are some bright spots here, because as inventories fall, orders have to be made to restock.

The same cannot be said for commercial real estate, with
mall vacancies at a 10-Year high, and office t rents falling significantly in San Francisco.(-24% year over year !)

Rents fell for apartments in Southern California and nation wide too, which tends to mitigate the impetus for people to buy homes, so I think that the continued increase in mortgage applications is still largely Refi activity.

The credit markets still suck which is why the Fed is looking at offering longer term loans at a higher interest rate for TALF, even as participation in the program is less than anticipated, indicating that investors are still leery of investing in things like mortgage backed securities.

In international finance, Fitch has followed S&P’s lead, and downgraded Ireland’s sovereign debt.

The Treasury has expanded TARP to cover insurance companies, including some of the very big names, such as Hartford, Prudential, and Met Life.

This Problem is getting smaller, not bigger.

Finally, both oil and the US dollar rose today, on a less then expected inventory for the former, and a flight to safety for the latter.

Economics Update

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Scare Pic of the day courtesy of Calculated Risk

Today’s lede has to be the unemployment numbers with non farm payrolls dropping 663,000 in March and unemployment (U-3) hitting 8.5%.

It should be noted that if you use the broader U-6 metric, then unemployment is 15.6% up 6.3% from last March’s 9.3%.

We also have the number of involuntary part-time workers increasing from climbed by 423,000, to 9.0 million, and the contraction of service industries is accelerating.

The best metric of the employment situation may be the employment-population ration, and it fell to 59.9%, the lowest level since 1985.

BTW, remember when I posted about UK house prices going up for the first time since 2007 in March? Not sop much, alternate data shows another fall in prices.

The dollar rose on a flight to safety after the crappy jobs report, and oil fell for the same reason.

Economics Update

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We have the weekly unemployment claims report, and it is not pretty, with 669,000 new claims, an increase of 12,000, the 4 week moving average was up 6,500 to 656,750, and the continuing claims hit 5,728,000, up 161,000.

Note that the initial claims number constitutes a 26½ year high, and continuing claims are at the 9th all time record level in 9 weeks.

Meanwhile, the credit news is not good, with Calculated Risk’s Credit Crisis Indicators somewhat improved, though still at pretty awful levels, but Moody’s downgraded $1.76 trillion in corporate debt in the first quarter of 2009, and both credit card charge-offs and home equity loan delinquencies have climbed to record levels.

In real estate commercial real estate defaults hit a new record, and the formerly unassailable real estate of Manhattan is sales volume falling 48%, though house prices rose in the UK for the first time since 2007.

Additionally, the Feds efforts to lower mortgage rates appear to be working, with the 30 year fixed mortgage rate hitting a new low.

In the meantime, auto industry analysts are doing handsprings over the March auto sales figures, because annualized sales figures rose to 9.86 million up from February’s rate of 9.12 million, though dealer incentives also rose 5%.

Your call as to whether an 8% increase of awful, the normal annual sales runs at about 16 million, is something to crow about.

In either case, other manufacturing had an uptick, with Chinese manufacturing increasing for the first time in 4 months, and US factory orders rising for the first time in 7 months.

In Yurp, the European Central Bank cut its rates by only 25 basis points (¼%), less than expected, and as a result the Euro strengthened vs the US dollar, though the ECB President has said that more rates might be forthcoming

In energy, the rising stock market (Dow above 8k for the first time in about 7 weeks) has driven oil higher.

Economics Update

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Well, the job loss report from payroll processor ADP is out, and according to them, there were 742,00 job losses in March, well above the 655K forecast.

Part of this is driven by continued declines in construction spending, as Calculated Risk notes and graphs (see graph pr0n).

As he notes, non-residential construction spending is following residential spending off a cliff.

There was also an increase in the NAR’s pending home sales index, though it remains firmly in the horrible range, at 82.1, up from 80.4, with 100 being the average level of pending home sales in 2001.

Still, mortgage applications are up again, though this is largely still refi activity.

The Institute for Supply Management’s Manufacturing Index mirrors the pending home sales index, in that it is up, to 36.3 from 35.8, but still in a firmly contracting posture, as 50 is neutral.

On the other side of the Pacific, we are seeing Japanese business confidence numbers fall to record lows.

The news in the auto industry, whether foreign or domestic is grim, with sales numbers for GM, Toyota, Ford, Chrysler, Honda, and Nissan all falling significantly.

We also see the Fed printing money to buy $6 billion in Treasuries, so as to keep the interest rates down.

In currency, the dollar is up on risk aversion again. Investors are concerned about the G-20 meeting, though I’m not sure if the concern is about nothing being done, or something being done….Maybe it’s a bit of both.

In energy, oil fell on strong inventory reports.

Economics Update

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Note: Red denotes contraction, and yes, this is scary.

I guess that the lede is that the consumer confidence numbers are out, and that they remain near record lows, at 26, just one point above the all time low reported in February.

If that were not enough, we now have a survey indicating that consumer spending may fall by $1 trillion after the recession is over (by way of perspective, the US total GDP is about $14 trillion) according to the AlixPartners Long-Range Economic Outlook Survey.

That’s a 7% haircut on GDP, exclusive of the secondary effects, closed stores, warehouses, etc., once the economy recovers…..Great googly moogly!

In the meantime, I don’t think that a whole bunch of people will be tapping their home equity, as the Case-Shiller home price indices show a 19% drop in home prices, though it appears that defaults are abating, as private mortgage insurers saw defaults, and claims, fall in February, the first decrease since June, 2008.

Additionally, 2nd home sales fell in 2008, down to 30% of total home sales, from 40% in 2005, and more of these buyers are paying cash, which implies that a lot of the contraction in this market is an inability to find mortgages.

In terms of the general state of the economy, the Restaurant Peformance Index is showing the 16th straight month of contraction (h/t Calculated Risk), and the Philadelphia Fed State Coincident indices have shown a decline in all 50 states (pdf), for both the past month and the past three months (again h/t Calculated Risk).

Meanwhile, we have an indication that the Bank of England is looking at significant inflation, they have adjusted their pension investments to account for it, so I think that they expect the £ Sterling to fall, and inflation to increase in the UK.

In any case, we now have the chief economist for the OECD suggesting that the Federal Reserve would take aggressive action against a precipitous fall in the dollar, and work to maintain its position as a reserve currency.

I think that this is more an attempt to talk up the dollar than anything else, because protecting the dollar would, over the long term at least, require higher interest rates, which would have the economy collapsing like overcooked broccoli.

In any case, the dollar was down today, largely because the flight to safety yesterday following Obama’s announcement that GM and Chrysler were on notice is now over.

Oil was up too, though it’s still a bit under $50/bbl.

Economics Update

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So, we have some mixed news on the state of consumers, consumer sentiment improved slightly, though it is still near historic lows, and incomes have fallen.

Since consumers are generally deleveraging, I would place more importance on the latter, case in point, is February automobile sales continuing to drop, with the replacement for the US auto fleet, fleet size divided by monthly sales, hitting 27 years.

Obviously, this is not a sustainable number, and I would expect car sales to improve at some point, though whether this in time for the Big 3 (Big 2½) is anyone’s guess.

In any case, it apperas that Japan is heading back toward a deflationary situation, with their January CPI figures showing no change.

In energy and currency, the dollar is up and oil and other commodities are down.

Economics Update

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So, the US economy contracted at a revised 6.3% annual rate in the 4th quarter of 2008 and initial jobless claims rose to 652,000 from 640,000 last week, with continuing claims jumped to 5.56 million, another record.

Additionally, we saw New York City’s jobless rate jump by 1.2% in February, from 6.9% to 8.1%.

On the other hand, truck tonnage rose in February, which implies that the requirements for goods and services increased, and the 30 year fixed mortgage rates dropped again.

Meanwhile, in energy, retail gasoline broke $2/gal for the first time this year, and oil hit a 4 month high of $54.34/bbl.

In currency, the dollar rose today.

Economics Update

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Well, we have some good news today, with both durable goods orders and new home sales up in February on a monthly basis, though on a year over year basis, durable goods are still down 22%, and home sales are still down 41% year over year, so it may mean nothing, or it may be, to quote paraphrase Churchill, the end of the beginning as opposed to the beginning of the end.

The spike in mortgage applications may reinforce this news, or it may just be a lot of people refinancing their mortgages.

Certainly with California home prices down 41% year over year, this end game is likely to to be ugly anyway.

In the mean time, in the world of government finance, the Fed has started buying US treasuries to further push down interest rates, and across the pond, a U.K. bond auction has failed for the first time in 7 years.

There were not enough buyers there.

In energy, oil was down slightly, and in currency, the dollar was mixed against other major currencies.

Economics Update

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Thursday is new jobless day, and the numbers suck with new claims falling to a still very high 646,000 and continuing claims hitting a new record of 5.47 million, which is a new record….Again.

This implies that people are still unable to find jobs, but, for a while, at least, employers have run out of people to lay off….Delightful.

We also had the Leading Economic Indicators falling, though not as badly as the consensus prediction, and the Philadelphia Fed Business Outlook Survey for March remained awful, from -41.3 in February to -35.0 this month, so we are still seeing a contraction.

In the auto industry, the bailout has been extended to parts suppliers, to the tune of %5 billion.

In real estate, it looks like Moody’s might cut the ratings on some $241 billion of debt for jumbo mortgages, which means that it must suck to live in a high cost real estate area right now.

In the world of the here and now, Moody’s did downgrade insurance company Prudential, and I’m wondering how long before the rest of the insurance industry looks like AIG.

In any case, it appears that the Fed’s decision to start quantitative easing (printing money) is having an effect, with the cost of borrowing falling, with 30-year fixed mortgages falling to 4.98%.

The Fed has also driven the US dollar lower, with the dollar hitting $1.36:€1.00 for the first time since January.

We are also hearing rumors that Citi is considering a reverse stock split, my guess is that this is how they want to address the worry that they might become a penny stock.

In energy, oil broke $50/bbl for the first time this year, on the falling dollar and reports that OPEC members are more-or-less keeping to their quotas.

Economics Update

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Credit card defaults have hit a 20 year high, which implies to me that the unemployment numbers when they come out are going to show further contraction.

Housing Starts were up 22% from January in February, though the headline on the link, “U.S. Housing Starts Rebound,” is simply nonsensical, as Barry Ritholtz notes, single family building remained flat, it was people building multi-residential properties, and even with the gain, the number is down 50% year over year.

Calculated Risk’s Credit Crisis Indicators are showing modest improvement, though they all remain at troubling levels.

In energy, oil hit a new high for the year, approaching nearly $50/bbl, and in currency, they dollar was down only marginally.

Economics Update

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Scary production graph courtesy of Calculated Risk

Industrial production has fallen for the 4th straight month, and the year over year decline is the largest since 1975, and the New York Fed’s Empire State Manufacturing Survey fell to a record low, so no one is manufacturing much of anything.

What’s more, the port of Los Angeles import traffic fell 27.3% year over year, so no one is buying imports either. (Note that this number does not include the port of Long Beach)

Also, the Builder Sentiment Index is unchanged, and so it remains near its record low, so real estate is still dead.

At least people are still willing to buy US government debt at reasonably low interest rates.

In energy, OPEC kept production targets unchanged yesterday, and so oil rose today.

In currency, the dollar fell on the poor manufacturing numbers.

Economics Update

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Well, it looks like bank failure Friday is going to be busy, with 200 Federal Deposit Insurance Corp. (FDIC) agents descending on Puerto Rico, and a report that BankUnited has halted attempts to raise capital, which indicates a fair number of bank seizures, or at least serious investigations, and BankUnited is a fairly big bank.

On the brighter side, we had the Consumer Sentiment Index rise in March.

In the meantime, people are still buying very little, so international trade is falling, including the US trade deficit, which fell to a 6 year low.

Part of this is that banks are increasingly unwilling, or charging more, to issue letters of credit to shippers, which makes shipping more difficult and expensive.

This is being mirrored by the tepid response to the Federal Reserve/Treasury program, the TALF, which has pushed back its start date because of the low number of interested parties.

In energy, we have oil falling on weak demand.

In currency, we have the dollar falling on the good consumer confidence numbers, which slows the “flight to safety.”

Economics Update

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Your Scary Pic of the Day, Courtesy of Calculated Risk

So, today is the day for new jobless claims, and U.S. jobless claims rose by 9000 to 654,000, which is not a new record, though the continuing claims number of 5.317 million, which was a new record.

Well, we are seeing more in the way of rate cuts world wide, with the European Central Bank approaching 0% interest rates by stealth, using their deposit rate now at ½%, as opposed to their benchmark rate, now at 1½%, by lending like a madman, and the the Swiss central bank cut its benchmark rate to ¼% in an effort to keep the Franc from appreciating against other currencies, so the zero interest rate contagion is spreading.

And the consumer is still on vacation with retail sales falling by 0.1% in February, and it’s seen as a sign of progress, because the experts were expecting a fall of 0.5%.

It’s no wonder that retail sales are falling, as U.S. household net worth fell at a record pace in 4Q 2008, $5.1 trillion for the quarter and $11.2 trillion for the year, and this was accompanied by the first drop, at a 2% annual rate, in household debt ever.

These numbers are not surprising. With house prices down, and a foreclosures rising 30% year over year, and 6% month to month in February, it just makes sense to economize.

Interestingly enough, even though foreclosures continue to increase, mortgage rates fell this week, largely on the expectation of little in the way of inflationary pressures because of the weak economy.

We also have two bits of WTF today, with yet another bank, this time Bank of America saying that it made a profit in the first two months of the year, while not counting its losses in the big sh&^pile.

Additionally, S&P has downgraded General Electric from AAA to AA+, which, until the last year or so, I always thought was a sign of the economic apocalypse.

In energy, oil is up. largely on the retail sales report.

In currency, the dollar is up, largely on the aforementioned Swiss rate cuts.

Economics Update

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The Manpower hiring survey has fallen to its lowest level in its history, and the survey started in 1962.

Meanwhile, a survey of economists say that the U.S. economy set should start to recover in the 2nd half of the 2009:

“Consumer spending and residential investment are expected to turn positive and begin boosting GDP growth in the third quarter of this year,” the newsletter Blue Chip Economic Indicators said, summarizing its survey of private economists.

I want what the economists are smoking, because we are seeing no signs of either right now.

The fact the even previously overheated China saw deflation in January indicates to me that this will be longer and deeper than they think.

Additionally, while wholesale inventories fell in January, wholesale sales fell faster, and house prices fell 3.5% in January, according to the Integrated Asset Services index, indicating that the contraction is accelerating.

There is also the fact that the meltdown of the US megabanks has gotten worse, with us regulators looking at more bailout money for Citi, and the notification that the Federal Home Loan Bank of Seattle said it has fallen short of one of its capital requirements.

Note that the FHLBs are where the mortgages are being written right now, so this means that things are going pear shaped in the mortgage market.

With all this going on, it’s no wonder that the 3-month LIBOR spread is up, indicating a tightening credit environment.

Some good news, though it means short term pain, which is that the Securities and Exchange Commission remains committed to reality based accounting, and so it will not abandon mark-to-market.

We also have oil rising on reports of OPEC production cuts, and the dollar falling on US bank worries.

Paul Krugman Is Freaking Out

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Specifically, he is freaking out over the “let them eat cake” policies of Mssrs. Geithner and Summers with regard to the insolvent banking giants:

….Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

He is referring, of course to Geithner’s insistence that the big sh%$pile has an “artificially depressed value”, and Ben Bernanke’s denial of zombie financial institutions, including AIG (!).

These, quite honestly delusional preconceptions have a very real cost, as the Nobel prize winning economist notes:

But this refusal to face the facts means, in practice, an absence of action. And I share the president’s fears: inaction could result in an economy that sputters along, not for months or years, but for a decade or more.

(emphasis mine)

Personally, I lay even more of this at the feet of Lawrence Summers than I do either Geithner or Bernanke: He was one of the most vociferous free-market mousketeers, and his professional life has been marked by failure and misery left in his wake.

Of course, Summers will come out of this clean, as he has mastered the art of failing up even more than Dick Cheney.

Economics Update

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Scary Pix Courtesy of Barron’s Econoday

So the unemployment rate jumped ½% in February, from 7.6% to 8.1%. and 651,000 jobs were lost.

Additionally, U6, the broadest measure of un and under employment is at 14.8%, and note that U6 is the statistic closest to the 20+% unemployment rates recorded in the great depression.
….
Delightful.

If that weren’t bad enough, 20% of all mortgaged properties are under water, and something around 1 in 9 mortgages are either in foreclosure or delinquent, so any turn around in residential real estate is are greatly exaggerated.

It also looks like the FDIC is asking Congress to lend it $500 billion, because its insurance fund is depleted.

We do have Baltic Dry Index, a measure of the demand for cargo shipping, one piece of good news, in that the just hit its highest level this year, which indicates more international trade.

Meanwhile, the jump in unemployment has driven the dollar down, and oil up.

Economics Update

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Busy day, so let’s start with the central banks: The Bank of England cuts rates by 50 basis points (½%), and is engaging in quantitative easing (printing money) in the form of buying £75 billion ($US 106 B), and the European cut its benchmark rate by 50 basis points to 1.5%, and is also looking at “further non-standard measures” (see quantitative easing).

Considering that the ECB has no charge except to manage inflation, this is extraordinary.

Unsurprisingly, the rates cuts have driven the dollar up.

As Brad Delong Notes, “It is overwhelmingly likely that the current downturn-in-progress will then surpass the united 1979-1982 downturn as the worst downturn since the Great Depression itself.“

In employment, first time jobless claims fell to 639,000, but the less volatile 4 week moving average rose to 641,750, the “highest since October 1982,” and productivity dropped 0.4% in Q4 of 2008.

Bumpy ride, folks.

On the brighter side Bonddad’s credit indicators show a thaw in lending over the past few months, and February retail sales beat expectations, though the numbers are still pretty bad.

In autos, GM is saying that there is “substantial doubt” about whether it can survive in an SEC filing, not a surprise, and implies Chapter 11, which further implies liquidation for Chrysler.

Mortgage rates rose last week.

Oil, meanwhile fell in response to the generally anemic economic news.

Economics Update

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Will the last entity leaving making cars in the US please turn off the lights?

Toyota’s U.S. sales are down 39.8% to 109,583 units in February – MarketWatch, Ford and GM fell 48.2% and 51.6%, and Chrysler fell 44%.

In real estate, pending home sales fell, but realtors are hawking “affordability,” because, well, otherwise they would have nothing to hawk at all.

Meanwhile, the Federal Reserve is rolling out its Term Asset-Backed Securities Loan Facility (TALF), a lending facility geared toward business, auto, and consumer loans.

It’s buying more more sh%$pile from desperate people, but they have decided that they will ignore the compensation limits, even though some of the money from the $700 billion dollar bailout fund.

Bastards.

We also have some mixed signals with recession indicators, with a record number of cargo ships idle, but over the road trucking showing a slight bump.

Oil is above $41/bbl, and the dollar is a bit weaker, largely on the fact that Australia has not dropped its rates.