Category: Recession

Economics Update

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Yeah, I know, I don’t normally do the stock market indices, but the Dow fell to below 7000 today, and closed at 6,763.29, a 12 year low, and you can be sure that this spooks both the markets, and the regulators.

More significant is the fact that personal savings in the US are way up, and as the graph from Calculated Risk shows.

It’s been over a decade since personal savings were that high, and while generally this would be a good thing™, right now the fact that people are deleveraging means that the economy is driven even further down.

It makes sense personally, but in the aggregate, it makes things worse.

Interestingly enough, even with the increase in savings, consumer spending rose in January by 0.6%, which was unexpected, as did incomes, bu 0.4%, which was also a surprise.

I think that it is a one month thing, though it might be the “Obama Effect,” making people more willing to spend now that a Bush and His Evil Minions™ are no longer running things, but in either case the effect is small, and unless we see increases for the next few months, things won’t get better.

We also saw the Institute for Supply Management’s manufacturing index rise to 35.8 from 35.6, beating expectations of a fall to 33.8, but note that this means merely that it’s contracting slightly less implosively than it would otherwise: any number below 50 is a contraction, and this makes 13 straight months of contraction.

The full link to the ISM monthly report is here, and it should be noted that their employment index is at all time (since 1947) low.

In real estate, construction dropped to a 4½ year low.

Meanwhile, the AIG bailout, and the concerns that it raises has driven oil down on concerns of more turmoil in the banking system, and has driven the dollar up in a flight to safety.

Economics Update

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Well, the revised GDP numbers are in for Q4 of 2008, and they are a horror-show, with GDP declining 6.2%, when the initial numbers had been -3.8%.

With numbers like this it’s no wonder that the FDIC is reporting that the banking industry posted an aggregate net loss for a quarter for the first time since 1990.

If we are expecting real estate to rebound any time soon and save us, I wouldn’t hold my breath with condo developers trying auctions to move properties, and And apartment buyers walking away from deposits….Six and seven figure deposits….in Manhattan.

I would also note that the consumer does not appear to be their either, with the finally tally for the Consumer Confidence Index falling to a 29 year low.

With numbers like this, it’s no surprise that S&P is considering downgrading the ratings on $140 billion of prime jumbo mortgage CDOs, and non-prime mortgage origination hit a 17-year low last year.

Real estate, and hence banking, is in a sad enough condition that the FDIC has instituted a temporary emergency rate hike in order to bolster its reserves.

More generally, we have The Institute for Supply Management’s Chicago Purchasers’ Index showing continued contraction. It rose to 34.2 from 33.3, but anything under 50 means contraction, and the 30s are significant contraction.

The fact that GE cut its dividend to 10 cents from 31 cents indicates that no one is doing well here.

The same is going on overseas, with most of eastern Europe in dire straits, getting emergency loans totaling about $31 billion, and Japanese factory output falling, and new jobs drying up.

The revised GDP figures drove both oil and the dollar down.

Economics Update

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So, the new unemployment numbers are out, and once again, they are brutal, with adjusted initial claims hitting 667,000, up 36,000 from last week, and the less noisy 4-week moving average hit 639,000, up 19,000, while the continuing claims are at 5,112,000.

As Calculated Risk notes, the 4-week moving average is the highest since 1982, and the continuing claims are the highest ever recorded, though both are somewhat better when normalized against total workforce size. (Graph at CR)

We also saw durable goods orders fall to a 6 year low, and new-home sales fell in January, the lowest number since records started to be kept in 1963.

We also have banks cratering with the FDIC list of problem banks up 50% in Q4 of 2008.

BTW, it’s hitting the export driven economies of Asia even harder, with Singapore’s Q4 GDP falling at a 16.4% annual rate.

We also have oil down following the announcement of production cuts by the UAE, and the dollar is down, for reasons that are not entirely clear to me.

Economics Update

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Well, the Conference Board’s consumer confidence report came out and it is starkly grim, dropping to a record low of 25, lower than had been predicted.

BTW, it’s not just us, German business confidence has fallen, and Standard & Poor’s lowered Latvia’s debt rating to junk.

This means that German businesses have no confidence in the new future, and no one has any confidence in Latvia.

Even the New York Stock Exchange is getting in the act, looking at temporarily suspending a requirement of a $1/share price in order to avoid delisting….I call it a Citi Special, though the two most prominent companies at risk of delisting right now are AIG and Ford.

The fact that the Case-Shiller numbers for the top 20 real estate markets show a price decline of 18.5% year over year, has a lot to do with that.

In currency, the dollar fell a bit, while in energy, oil rose.

Economics Update

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The Federal Reserve Bank of Chicago’s National Activity Index showed a small bump in January, though it should be noted that December was an absolut disaster, so I’m callijng dead cat bounce, particularly since the 3 month moving average is at a record low.

It also appears that the gift that keeps on giving, AIG, is looking for more welfare from the government.

The US government already owns 70% of the company. How about giving all of senior management the boot….TODAY.

BTW, it appears that the rising levels of derfault on commercial real estate are giving Atlanta Federal Reserve Bank President Dennis Lockhart the willies. He says that it is keeping him up at night.

Meanwhile, the go-go free market capital of the Arab world, Dubai, has just gotten a bailout from the United Arab Emirates following the failure of its bond offering.

Dubai has done its level best to cast itself as the banking sector of the Arab petro-states in the region, and now it looks like things are going bad there too.

Not only are there problems with bond offerings, but thousands of expats are fleeing the country, because they have lost their jobs, and under the law there, they face debtors prison.

Meanwhile, it appears that oil spiked above $40 on Friday, but it’s below $40/bbl again.

In currency, the dollar gained against both the Yen and Euro.

The Yen is down largely on concerns about declining exports will effect Japan’s export driven economy.

The concern with the Euro is that the former Warsaw Pact and Soviet States that were absorbed (too soon) in the optimism that followed the fall of the Berlin Wall are beginning to resemble Iceland, or Ireland, or Argentina.

I will be posting on Citi, and “stress testing”, later.

Economics Update

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Well, we have another Asian economy cratering in Q4 of 2008, with Taiwan’s GDP shrinking at an 8.36 annual rate. Unsurprisingly, they are now predicting a contraction for 2009.

This is “post Berlin Wall coming down shock-treatment elderly begging in streets” numbers.

In the US, producer prices posted a large gain, 0.8%, or about a 9½% inflation rate. I’m not certain if this is good or bad news, as the concern right now is deflation, but the impetus for the jump seems to be massive cash infusions from the Fed and the Treasury, which implies that we may be tiptoeing toward Zimbabwe.

Still, the jobless report was brutal, with initial claims remaining at 627,000, and continuing claims jumping to 4.99 million, the highest number ever.

I wouldn’t expect manufacturing or building to be a part of a recovery any time soon though, as the Philadelphia Fed’s Business Outlook Survey hit a record low, as did the Architecture Billings Index (ABI).

Note that the ABI typically presages construction activity 9-12 months ahead.

Additionally, I think that we are near seeing some of the non AIG insurance giants failing, with the first indicator being that Prudential Financial Inc. being excluded from the Federal Reserve’s commercial paper program, because Fitch Ratings downgraded them.

Note that Prudential Financial Inc. is the parent of Prudential Insurance, and that the insurance division can still use the “Commercial Paper Funding Facility,” for a while, at least.

The dollar fell a bit today, largely on reduced concerns about the smaller nations in the Euro zone going completely broke.

In energy, oil rose, though it is still well below $40/bbl, because of a surprise drop in inventory.

Auto Industry Update

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To get a perspective on just how bad the auto industry is hurting right now, look at this graph from Calculated Risk.

It’s monthly the total auto fleet in the united states divided by auto sales, which gives you the turnover rate, basically a measure of how long it would take to replace every car on the road right now.

It’s gone from 10 years to 23.9 years, meaning that if this were baseline sales, the average age of the auto fleet would reach 29.9 years.

It’s clear that something, either auto sales, or the number of cars on the road, or both, will have to give, but this is just nuts.

It’s not surprising then that unions for GM subsidiaries in Europe want the car maker to spin-off of Opel and Saab. They know that they are viable, but that they will be sacrificed by the folks in Detroit.

So, while all this is going on, GM and Chrysler have to make their pitches for their recovery plan today, in order to get federal money.

At this point, there is only one thing that I know, any bailout should make Cerberus pay. The private equity firm that now owns Chrysler were looking for a quick flip on their investment, and they are unwilling to put any skin in the game.

As a first step, Cerberus must open its books to regulators.

Economics Update

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Only a few bits of news, besides the auto bailout update, which I will cover later, but they are fairly significant.

First, the New York Fed’s Empire State Manufacturing Index hit another record low, though it has only been kept since July, 2001, so that’s not an enormously long time.

On the other side of the pond, though we have rumors that Ireland is on the brink of defaulting on its debt, which could make things very ugly very quickly.

It would likely also trigger events that would lead to defaults by other nations, the Baltic republics and Ukraine come to mind, as a rush for the doors starts.

Oil is down again, and the continued flight to safety has driven the dollar up.

Economics Update

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Japan’s economy contracted at an annual rate of 12.7% in the Q4 of 2008. Those are numbers more than a recession, they are near implosion, so I would take the Confederation of British Industry’s prediction that the UK economy will shrink 3.3% in 2009 with a grain of salt.

The UK is far more dependent on banking and investment than Japan is in its economy, the Japanese actually make stuff and sell it to people.

A further indicator of the likelihood of a brutal downturn is that the companies in the S&P 500 just turned their first ever aggregate quarterly loss ever, with something like 400 of the 500 companies declaring a loss.

However, today was not without good news, as junk bond sales hit a 6 month high, which implies that people are no longer fleeing so strongly to safe havens like US treasuries, though there is still enough uncertainty to push the dollar and the Yen higher.

Still, demand concerns are driving oil down, even as retail gasoline prices continue their march back towards $2.00 a gallon.

Economics Update

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Well, GDP in the Euro Zone fell by 1.5% in the 4rth quarter, and 1.2% from the 4th quarter of 2007.

The quarterly drop is the largest in 13 years, and the year over year drop is the first recorded ever…..One of the joys of integrating your economy is that you integrate your recessions.

It’s no wonder that OPEC’s predictions for world oil consumption have been slashed again, though interestingly enough, oil is up today, by the largest amount this year, largely on the expectation that the stimulus bill will pass.

In real estate, the New York Federal Reserve is continuing its aggressive policy of buying from the sh$% pile, purchasing another $23.2 billion in agency mortgage-backed securities this week, for a total of $114.96 billion.

There is an interesting bit here though, this quote, “The Fed has also said it may soon begin modifying mortgages it owns within the assets it owns.”

Somehow I figure that this is part of a much bigger story, only I don’t know what it is yet.

Also we have Citi and J.P. Morgan Chase Agreeing to a foreclosure moratorium, and I think that this might be a part of the rest of that story. Specifically, I think that they are worried about Geithner’s “Stress Test,” and they are doing this because they are hoping for goodwill from regulators.

Finally, the dollar is down today, for the same reason that oil is up. The stimulus package looks like a light at the end of the tunnel, and so the “flight to safety” moderated a bit.

Economics Update

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The budget deficit is exploding, with the annual total now looking to be around $1 trillion:

The excess of spending over revenue in January rose to $83.8 billion, compared with a $17.8 billion surplus in the same month a year earlier. Spending gained 30.6 percent, while revenue dropped 11.4 percent. Corporate tax revenue in the past four months is down 44.3 percent from a year earlier

, and if we weren’t at risk of entering a deflationary spiral, I’d be concerned about inflation.

Speaking of deflationary spirals, the trade deficit hit a 6 year low, not because we are exporting more, but because no one is buying anything.

No one is borrowing to finance, or refinance their homes either, with U.S. mortgage applications falling to an 8-year low.

Overseas, we have the Bank of England predicting that inflation in the UK will be ½% two years from now. Me, I’m expecting deflation, and the stagnant GDP that goes along with it.

The UK economy is even more heavily underwater, than that of the US, so it’s likely to get even worst there.

Further east we have the Russian bond market completely seizing up.

In energy and currency, we have oil down on reports of diminishing demand, and the dollar up on reports that the conference committee has cut a stimulus deal. (More on that later)

Economics Update

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So we have the new, official jobs report, Oh My God!!!

The unemployment rate went up to 7.6%, and 598,000 jobs were cut, the most since 1974, and it happened across all sectors.

Barry Ritholtz looks at the number in more detail, and finds (excerpting):

  • Total job losses since the recession started in December 2007: 3.6 million;
  • Over the past 12 months, the number of unemployed persons has increased by 4.1 million;
  • For the first time since records began in 1939, there were three consecutive months of 500k + job losses;
  • Household survey showed a record 1.24 million job plunge (Since data began in 1950)
  • The employment-population ratio fell to 60.5%, down from 62.7% at the beginning of the recession, — the lowest rate since 1986.
  • Unemployment rate: 16-year high (1992);
  • The 3.5 million job loss since January 2008 is the largest 12-month decline since the government started compiling those figures in 1939;
  • U-6 Marginally attached and involuntary part-time workers: 13.9% last month — up almost five percent;
  • The employment-to-population ratio was the lowest since 1986.

Except for the jobs report, it’s a slow news day, which is kind of like saying, “Apart from that Mrs Lincoln, how did you enjoy the play?

Then again, I expect at least one bank closing shortly after I shut down for Shabbos, because Friday is bank regulator seizure day (cue Prince Spaghetti Day ad).

The good news is that it looks like the SEC and Treasury are denying any plans of suspending mark to market.

Going back to mark to model would be like pouring gasoline on a the bonfire of the fraudulent.

One odd thing here is that the Federal Reserve appears to be walking away from expanding its Term Asset-Backed Securities Lending Facility (TALF) program, a sh%$ pile for cash givaway lending program, to include consumer credit derived instruments.

Not sure what is going on here, but it would seem to me that this might be one of the better ways to throw money at the problem.

Meanwhile, oil fell on the jobs reports, and the dollar was mixed, up against the Yen, down vs the Euro, and flat vs. the Sterling.

Economics Update

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Our economy just had one of those days when you wonder why you get out of bet.

First, we have initial unemployment claims spiking to the highest number since October, 1982, 626,000. The consensus estimate had been 580,000.

The more reliable, and less noisy, 4 week moving average was up too, from 543,250 to 582,250, and continuing claims hit 4,788,000, another new record.

In manufacturing, December new factory orders fall 3.9%, well above the estimate of 3 %, and in rental real estate, the MIT commercial property price index posted a record drop, 10% in Q4 of 2008.

In international high finance, the Bank of England its benchmark rate by 50 basis points (½%), to 1%, which breaks last month’s record…..Considering that the BoE has been around since 1694, that’s a long record.

Across the channel in Euro land, the European Central Bank has left its benchmark unchanged, though I think that this is less from optimism than from the inflation-hawk nature of the ECB’s charter, and the fear of the zero rate destroying their ability to manage the economy with monetary means.

Meanwhile, mortgage interest rates have continued their increase, with the 30 year fixed being reported at 5.25%.

With the rate cuts in England, and the ECB still signaling future rate cuts, the dollar was up today.

The dismal job numbers drove oil down.

Economics Update

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Well, the ADP Monthly Survey estimates that 522,000 jobs were lost in January, and while the Institute of Supply Management’s non-manufacturing index rose, it’s still below 50, 42.9, which means more contraction on the way.

These aren’t official government figures, but those figures, due out Friday, are expected to be grim:

In its report on Friday, the Labor Department is expected to show 525,000 jobs were lost throughout the economy in January and the jobless rate is expected to rise to 7.5 percent.

Meanwhile, the dollar is up on expectation of further Euro zone rate cuts, and oil was down 46¢, continuing its love affair with the $40/bbl price.

Economics Update

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Consumer spending fell for the 6th straight month in December, and all of 2008 turned in just 3.6% increase, the worst year over year number since 1961.

The Institute for Supply Management’s factory index was better than expected, but still an anemic 35.6, but better than the consensus prediction of 32.5, but 50 is neutral, so anything under 50 signifies more contraction.

In inflation, the “Treasury Real Yield” is at a 16 month high.

The Treasury Real Yield is the spread between TIPS (Treasury Inflation Protected Securities) and regular treasuries, and is a measure of investor expectations of inflation….Which means that they are expecting more inflation…..Which is a good thing in this topsy-turvey economy.

Meanwhile in the Celtic kitten, Ireland is looking at injecting €8 billion into its troubled banks.

In Russia, and it looks like speculators are betting very heavily against the Ruble, which just hit a new low.

With Russia having already burnt through about 1/3 of its reserves in an unsuccessful attempt to maintain the currency, this could get very ugly.

Shrinking consumer demand has oil prices dropping again, and has pushed the dollar down against the Yen and Euro, though it improved against the sick man of Europe, the British Pound.

Economics Update

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The gross domestic product (GDP) fell at an annual rate of 3.8% in the 4th quarter of 2008, the biggest drop since the first quarter of 1982.

This is better than expected, but probably worse than it sounds.

First, the Fed Funds rate had peaked at almost 20% in 1981, and was still at 15% in early 1982. The Fed was trying to create a recession to short circuit inflation. (See graph pr0n)

Also, I agree with Barry Ritholtz of The Big Picture when he says, “The advance GDP data was released. I expect the revisions will make this even worse.”

Meanwhile, Calculated Risk’s Credit Crisis Indicators are showing improvement, most notably with treasury yields increasing, which implies that there is more competition for that money from other borrowers and lenders.

That being said, we are in a very weird place economically when an increase in interest rates is good news.

There are some dark spots in the indicators, the Chicago Purchasers’ January Index fell to 33.3, the lowest level since March, 1982….There it is again…..1982, and the Restaurant Performance Index (RPI) fell to a record low in December, which means that we aren’t seeing much buying on a wholesale or a retail level.

In energy, oil is up on concerns about the refinery strike, and in currency, the dollar is up on low Euro Zone inflation numbers, which suggest that the ECB might cut rates again.

Activity Declined in Every State in December

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For the first time ever, the Federal Reserve Bank of Philadelphia has released a report showing a decline in the coincident index in all 50 states.

Not only are we in a recession, but every single state is individually in a recession, for the very first time.

Look at 1982, when Paul Volker was doing his best to crush wages, and still, there were 7 states whose economies were expanding.

This is going to get very very bad.

Economics Update

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Well, the jobless numbers are out, and they are not pretty with initial claims running at 588,000,continuing claims rising 159,000 to 4.776 million, which is the highest number recorded since the 1967, when they started collecting the data, and the 4 week moving average rose by 24,250 to 542,500.

Additionally durable goods orders fell by 3.7% in 2008.

And if you are wondering if there is a segment of the banking industry that won’t need a bailout, stop wondering.

There isn’t a segment of the banking industry that is not in trouble, as regulators are not moving to inject capital into credit unions, which are traditionally the most conservative, and the safest of the bank like institutions.

The fact that new home sales have fallen to the lowest level ever recorded (recording started in 1963) probably has a lot to do with this.

Also, freight truck tonnage is cliff diving. (H/T Calculated Risk)

Meanwhile, the most healthy of the Big 3 (Big 2½) auto makers, Ford, just reported a larger-than-expected $5.9 billion loss in the last quarter.

In international finance New Zealand is aggressively dropping its benchmark interest rates too, with their central bank 150 basis points (1½%) to the record low of 3.5%.

About the only good news is that it appears that deflationary expectations are easing, as the spread between 10 year Treasury Inflation Protected Securities (TIPS)and 10 year nominal securities has risen about 1% for the first time since November 10.

Meanwhile, the dollar was mixed today, and oil fell on the housing news.

Economics Update

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Well, the FOMC meeting ended, and they relased statement saying that they will stay at zero interest rates for some time.

Additionally, they are looking at, “Unconventional Measures,” which appear to include buying longer term Treasuries.

It appears that one of those steps is that they will write down a significant of the mortgage backed securities that they picked up in the Bear and AIG bailouts, a sort of voluntary “cram down”.

Europe seems to have stabilized, at least for now, with consumer sentiment steadying.

Meanwhile, mortgage applications fell sharply, as interest rates have risen, from 4.88% at the beginning of the year to 5.22% now, in anticipation of ballooning deficits.

Of course, if reports that Moody’s is considering cutting GE’s triple-A credit rating, are true, we’re in for another big shock.

Both oil and the dollar inched up today.