Category: Recession

Economics Update

No Comments

The lede on most business sections was good news, that home sales rose in December, as you can see on the top chart, but as the bottom chart clearly shows, home prices continue to fall.

Prices are down 15.3% year over year, and sales in 2008 are down 13% from 2007 sales.

The real question is how much of this is foreclosures and other REOs creating a market for bottom feeders, because the percentage of foreclosures relative to sales is way up.

Of course, interest rates have gone up a bit for mortgages, as they have in Treasuries, and this might further reduce home sales.

We also have the Conference Board’s index of leading economic indicators rising for the first time in 6 months, but it appears that this is entirely because of increasing money supply, as the Fed cranks up the presses.

The National Association of Business Economics’ (NABE) quarterly industry poll shows a far more pessimistic view of the path forward, with the worst numbers since they started the survey in 1982.

Israel’s central bank cut its benchmark rate by 75 basis points to 1%, on indications of a recession there.

In currency, the dollar fell, largely on good news on UK bank bailouts, and in energy oil was down about 6 bits, on reports of high inventories.

Economics Update

No Comments

Consumer confidence just fell again, and hit an all time low, 37.7, the lowest number since the Conference Board started keeping records in 1967.

What with the Case-Shiller index showing a November home price drop of 18.2% year over year, and California home prices falling a staggering 42% year over year along with word of that there have been 519,895 job cuts announced since election day.

It’s all a major bummer.

We do have a report that Obama will direct his TARP funds toward consumers, as opposed to the corruption orgy under Bush and His Evil Minions™, which is good news, but it looks like Fannie Mae will need another $16 billion of that.

Meanwhile, Sweden, which handled its early 1990s banking crisis about as well as anyone, it was able to wrap up its intervention years ahead of schedule and with a profit, is looking at injecting cash into its banking system again.

Russia is looking at doing the same for its banks.

In any case, the lousy consumer confidence numbers have had the effect of driving oil down, and scaring people into fleeing to the safety of the dollar, which drove the buck up.

Economics Update

No Comments

Well, it’s official now for the British, they are in recession too.

Not surprisingly, the Pound has tanked and the dollar is generally up on this news.

The Ruble further weakened too.

We also now have ING warning that France’s AAA sovereign debt rating is at risk.

Meanwhile, on this side of the pond, the New York Stock Exchange has lowered its market capitalization requirement for companies on the exchange.

They delisted a record 53 companies last year, and my guess is that they are worried about breaking 100 this year, so they changed the requirement to account for a tanking market.

A more general indicator of economic activity, the rail freight traffic, has fallen sharply.

Generally, the high energy prices of 2008 favored the industry, but when total economic activity falls, so does rail traffic, even as it grows relative to trucking. (H/T Calculated Risk: Rail Freight Traffic Off Sharply in 2009)

In the intersection of banking and real estate, it appears that the regulators of Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLB) are seriously tightening up regulations because they are still engaging in risky activity.

I just want to note that I suggested that this might be an issue in March of last year.

Also, it appears that the inventory and foreclosure numbers are worse than you think.

Banks are not wanting to flood the market, so they are holding back on placing some of their foreclosures on the MLS and delaying foreclosures on properties in default, so there is a “ghost inventory” out there that is not showing up in the numbers.

In energy, oil was up today.

Economics Update

No Comments

The weekly new claims for unemployment jumped last week by 62,000 last week, to 589,000, the highest level since 1982, and more than predictions.

The 4 week average was flat, and continuing claims were worse than predictions too, at 4.607 million.

If that weren’t enough housing starts fell by 15.5% to 550,000, which, according to Calculated Risk,is, “by far the lowest level since the Census Bureau began tracking housing starts in 1959.”

Mortgage applications fell by 9.8% last week, because interest rates bumped by 0.37%, and most of the action right now is ReFi.

Over in Asia, the Bank of Japan is buying corporate bonds, because the credits markets have frozen there, and China’s economic growth fell to a 7 year low for the 4th quarter.

Meanwhile, it looks like the humongous loss phenomenon is moving from the banking giants to the regional banks, which may have a larger effect on business output, since they do a lot less of the high finance and a lot more lending to mom and pop businesses.

In commodities, steel production fell 1.2% in 2008, the first annual drop in a decade, while oil was up a few pennies today.

In currencies the dollar was down vs. the Euro and Yen, but up against the Pound…but then again, everything is up against the pound.

Economics Update

No Comments

You know that old saying about releasing bad news on a Friday, because everyone is looking toward the weekend?

It’s one of those Fridays.

Let’s start with Ireland, where the Anglo Irish Bank, the 3rd largest in that country has been declared insolvent and nationalized. I’m beginning to think that the “Celtic Tiger” is on its way back to poetic poverty, particularly now that places like Poland and Slovakia are cheaper labor markets.

In the world of recession/deflation, we have the CPI falling 0.7% and industrial production falling 2% in December.

I’m beginning to think that the US will start to resemble Ireland…Without the Poetry bit.

We also have a couple of updates courtesy of Calculated Risk, with Los Angeles Area Port Traffic falling sharply and office vacancy rate rising in Q4.

Note that there are predictions of a 30% drop in office rents, and that exports are dropping more than imports, so this is not a turn around on the deficit.

In retail, we have Toyota North America announcing cuts in production, and Circuit City is going to liquidate, as in, no more Circuit City, no kidding.

In currency, more bailouts to banks means more concerns about the dollar, so it fell today.

In energy, oil was up slightly today, but down most of the day, after the IEA predicted that demand would continue to fall, and retail gasoline was up again, which means that it’s gone up around $0.20/gal since New Years day.

Economics Update

No Comments

Well, weekly first time jobless claims at rose to 524,000, and the 4 week moving average was down 8000 to 518,500, and continued claims fell slightly, from 4.6 to 4.5 million. (Scary graph pr0n on right)

I’m not sure how much of this is being effected by the short weeks of Christmas and new years, but it should sort out in the next few weeks.

Not unsurprisingly, the Federal Reserve’s Beige Book, a collection of anecdotal economic information reported by the various Federal Reserve banks, was really quote grim.

Unsurprising, considering that foreclosure filings rose 81% in 2008 over 2007.

Housing is not recovering in the near term, even with mortgage rates hitting another record low.

One of the reasons that there will not be a recovery is that commercial real estate is imploding right now, with the volume of loans for office space and rental properties defaulting or becoming delinquent expected to triple in 2009.

In international finance, S&P downgraded Greek sovereign debt, from A to A-, and the ECB cut its benchmark rate to 2%, an all time low.

Not surprisingly, both of these pushed the dollar up today.

The juxtaposition of economic weakness with a stronger dollar drove oil down too.

Economics Update

No Comments

It’s official: retail sales just cratered. Retail sales fell 2.7% from November to December, and this is after November was adjusted down to 2.1 from the previously reported as a 1.8% drop.

It’s a 9.8% year over year drop, but adjusting for inflation declined by 11.3%. It’s a record, and a very scary one.

It’s why Nissan is moving its Auto plants to a 4-day week. No one is buying anything.

Expect to see more bankruptcies increasing in retail.

The department store Gottschalks and the clothing store Goody’s are filing for bankruptcy.

We will see more of this as retailers realize realize that the Christmas season did them in.

Also, note that part of the reason for this is that the credit crunch appears to be easing, which means that getting debtor in possession financing, which allows continuing operations under reorg, is easier, which makes bankruptcy easier.

That being said, the bankruptcy filing by Nortel still surprises me.

I’m not sure how much of this is the economy, how much is that it never recovered from the dot-bomb collapse in 2000, and how much is that it’s still very much a telephone equipment company.

In real estate foreclosure activity just spiked again in California, they recently passed a law to delay foreclosures by 45 days, and the 60 days are up now.

Even with low rates, which drove refinancing to a 5½ year record last week, are no help for homeowners who are under water.

In energy, oil fell on reports of large stockpiles.

In currency, the dollar was mixed, and the Ruble was devalued again on reports of a continued impasse in the Russia/Ukraine spat.

Economics Update

No Comments

Initial claims for unemployment fell unexpectedly to 467,000, but continuing claims increased to 4.6 million, the highest number since 1982.

We also saw Monster.com’s Online Job Index Stumbles falling in December, which is another indication that we are nowhere near the bottom.

In retail, holiday sales were grim, with even Wal-Mart missing sales predictions.

This is far from surprising when you consider the fact that consumer credit fell by a record amount in November.

People are not buying, they are paying down debt.

Surveys in Europe are showing a precipitous drop in sentiment too.

We are also seeing a rather precipitous drop in port traffic in 2008, it looks to be about 8%, to the lowest level since 2004, according to the National Retail Federation (NRF)

Consumers are buying less, and domestic manufacturers are drawing down inventories, and both of these reduce the demand for imports.

As such, it is no surprise that the Bank of England cut its benchmark rate by 50 basis points (½%), the lowest since its founding…..In 1694.

Interest rates are still trending down here, with the 30-year fixed mortgage rate hitting a record low.

I’m not sure how long the low rates will last though, as Moody’s is reporting that the Federal Home Loan Banks (FHLB) are experiencing serious losses in mortgage backed bonds, and may fall below required capital minimums as a result.

While failure is not imminent, the spreads between their bonds and treasuries are rising as a result.

BTW, we are also seeing holes in one of the panglossian predictions of real estate professionalw, residential rents are dropping too, “apartment rents fell in 54 out of 79 U.S. metropolitan areas in the fourth quarter of 2008.”

We are also getting rumblings that the Chinese are losing their appetite for US debt, though Brad Setser says that this article is bogus, and he has the number to show this.

Really, the important thing here is not that people are not investing in US debt, it’s that they are talking about not investing, in the New York Times no less, which is the first step to a drying up of foreign lending.

The only foreign lending that does not seem to be decline is that of central banks to commercial banks. Case in point: the Bank of Japan decided to shovel $13 Billion to banks in the hopes of jumpstarting their lending.

In currency, the dollar fell today, largely because the 50 basis point cut of the BoE was less than had been predicted.

In energy, oil fell again, on the expectation that the recession would continue to suppress demand.

Economics Update

No Comments

Umm….Holy excrement?

The payroll firm ADP Employer Services just released its report as to job losses in December, 693,000 jobs lost…..In one month…..The ironically named Challenger, Gray & Christmas is also saying that layoffs reached a 5 year high in 2008.

The BLS will release its numbers on Friday, but I rather expect them to hew pretty closely to ADP’s numbers, particularly since ADP has been working to make its survey match the government numbers.

It’s no wonder that late loan payments are higher than at any point since 1980, there are a lot of people out of work.

In retail, we saw U.S. retail sales fell 0.8% YOY in the week following Christmas, and mall vacancies are at a 10 year high, rising from 6.6% to 7.1%, the highest quarterly jump ever recorded, and the highest vacancy rate ever recorded.

We are also seeing mortgage applications down for the first time in 4 weeks, though that could people waiting for the Federal Reserve’s purchase of mortgage backed securities to drive rates lower.

We are seeing similarly grim economic data in Europe too.

About the only bright news is that GM is saying that it does not expect to need more in the way of loans…After $13.4 billion in tax dollars to GM and $6 Billion to GMAC, I would certainly hope so.

The jobs number drove the dollar down, and traders are starting to go long on the Canadian dollar, which implies that they expect commodities, oil and timber come to mind for Canada, to start going up again.

That being said, expectations were not met today, with oil falling by 12% on reports of large inventories…..They are literally running out of tanks to store the stuff.

Retail gasoline, however has risen for the 9th straight day, and is now higher than it was a month ago…..My thinking here is that there was an overshoot on the way down, and (assuming that oil stays around $50/bbl) we will be looking at $2/gal gas.

Economics Update

No Comments

Well, real estate sucks, with pending home sales falling by 4% (BTW, Manhattan apartment prices fell 4% too, so ain’t nothing going up.)

Manufacturing data is out too, and it’s grim, with factory orders falling twice what was forecast in November, and Toyota deciding to idle its plants for 11 days over February and March.

The last time Toyota did this was in the early 1990s recession, and they did it for one day.

Services did better than expected, with the Institute for Supply Management’s (ISM) non-manufacturing index rising. The prediction was that it would fall from 37.3 to 37 in November, but it rose to 40.6.

Better than expected, but any number below 50 still counts as contraction.

A bit of up news is that Calculated Risk’s Credit Crisis Indicators are showing improvement today.

But with all this going on it is no surprise that consumer bankruptcies rose by nearly a third in 2008.

The problem with the 2005 act was that people don’t declare bankruptcy on a whim, they declare bankruptcy when they fall of the tight rope that is middle class existence in the United States, and there is no safety net to catch them.

In currency, the dollar rose against the Euro, largely on the expectations of further rate cuts by the ECB.

In energy, oil finished the day down, but it spent part of the day above $50/bbl for the first time in about a month.

Economics Update

No Comments

Well, the Institute for Supply Management, released its manufacturing index: 32.4 in December, a 18 year low. Europe , Russia, China, and Australia had similar declines in similar indices.

In currencies, the dollar strengthened against both the Euro and Yen, while the Pound continued its slide.

Meanwhile, in energy, oil is above $46/bbl, and retail gasoline prices rose for the 3rd straight day.

An interesting side note to this is that they are adding 12 million to the strategic petroleum reserve, which implies to me that someone there thinks that we are near bottom, and that it is a good time to buy.

Economics Update

No Comments

It’s the last day of the year, and we are finally getting a picture of how retail did during the holiday season, and it is not pretty.

ShopperTrak is revising its original holiday sales figures downward, from a sales increase of 0.1% and a traffic drop of 9.9%. which was already pretty grim, to a sales decrease of 2.3% with a 16% drop in traffic.

The estimates now are that 2009 is not going to be good either and that over ¼ of all retailers are at significant risk for bankruptcy (see graph pr0n above), which will hose suppliers too.

The unemployment claims numbers from last week were better than recent reports, 492,000 new applications, down 94,000 from the last week’s 586,000, and the 4 week moving average fell by about 1%.

I would note, however, that there are two things that make this news less good than it sounds, first, we are talking about the week of Christmas which means that everything was shut down on last Thursday, and, perhaps more significantly, continuing jobless claims continued to rise, hitting a 26 year high of 4.5 million.

Real estate still appears grim, with Manhattan office rents down about 25% (h/t Calculated Risk), though mortgage application activity remains at a 5 year high.

My real question though would be as to the number of mortgages granted, not the number of applications, which are likely multiple refi applications driven by even lower mortgage rates.

Additionally, the Federal reserve is to start buying mortgage backed securities, so they are going even deeper into the sh&%pile.

In currency, the dollar is up, and infact it’s up against the Euro this year, the first time 2005 that this has happened.

I guess that investors still think of the US Dollar as a safe haven, though the same cannot be said about the Ruble, which is down again.

In the stock market the VIX, the Chicago Board Options Exchange Volatility Index, fell below 40 for the first time since October 2, to 39.9, which indicates that traders are a bit less twitchy.

But that’s only a bit, because before the Lehman collapse, it was around 25, and a year and a half ago, it hung around 10-15.

In energy, oil rose about 5½ bucks/bbl, to settle at $44.60/bbl.

Economics Update

No Comments

It’s a heavy news day. I know this because I was not sure whether or not consumer confidence falling to its lowest level ever recorded, and the Conference Board’s sentiment index began in 1967.

Economists were predicting an increase from 44.9 to 45.5.

This probably explains why the International Council of Shopping Centers says that this has been the weakest holiday sales season since 1970.

Well, the Standard & Poor’s/Case-Shiller home price index fell 18% from October 2007 to October 2008, so the index is now at March 2004 levels, and by all indications, it’s still headed down.

Will the last realtor please turn off the lights?

Finally, in 4th place in the competition for which story should be the lede, we have
assets in mutual funds falling 3% in November, they are down 22.7% since December 2007.

What we are seeing here is a slow run on mutual funds by investors who are fleeing to quality.

Banks are fleeing to quality too, with banks cutting lending this year by 55%, to the lowest level since 1994.

In currency, Russia has devalued the ruble again, it’s now down about 18.6% from its peak.

The dollar fell again against the Yen and Euro, though it rose against the Pound, largely because the UK appears to be in worse shape than the US.

I wonder if this might give additional impetus for the UK to move from the Pound to the Euro.

The fall of both the USD and the Pound are largely because of “quantitative easing”, otherwise called printing money, by the central banks.

One bit of financial news that surprises me is that the
Israeli Shekel just had it’s biggest pop vs. the dollar in 10 years, and this was despite the fact that the central bank cut its benchmark rate by 75 basis points (¾%).

The claim is that it’s year end repatriation of profits that drove the Shekel up, but my guess is that it’s people who think that the current fighting will calm things down in the short term (3-18 months) and are trying to flip the currency for a quick buck.

In energy, both oil and retail gasoline were down today, and this picture is from today. (Click picture for link)

Economics Update

No Comments

It appears that credit is still easing, with the 3 month LIBOR (London interbank offered rates) falling.

The spread between LIBOR and Treasuries is still awful, but it’s a bit better, largely because the Treasuries are effectively 0% right now.

On the other hand, the Chicago Federal Reserve Bank’s Midwest factory index dropped to the lowest level in 12 years.

I’m a mechanical engineer, so I believe that manufacturing and services, and not banking, are the core activities of the economy, so I tend to believe the factory index more than LIBOR spreads.

In international currencies, Pound hit an all time low vs the Euro £0.9798:€1.000, nearly parity.

The experts are saying that they believe that the Pound will gain vs the Euro in the coming because the Bank of England won’t be lowering rates much more.

This makes sense. The BOE is already bumping up against zero interest rates.

The US dollar is down too, largely on concerns that the Gaza conflict will drive up oil prices and because the Fed’s zero target lending rate makes it a less attractive currency.

The conflict in Gaza has also driven oil up, though retail gasoline is near a 5-year low at $1.619/gal.

Yowza, I gots to buy me a Hummer!

Economics Update

No Comments

Retail sales tanked in the Christmas shopping season, down 5.5% in November and 8% in December, though ex-retail gasoline sales, where the fall in prices drove things further down, the numbers were -2.5% and -4%, which are pretty worrying too.

I think that when the numbers are adjusted later with more complete data, they will be worse, because customer visits to retailers fell 24% on the weekend before Christmas.

FWIW, it does not look like the rest of the world will be pulling themselves, or anyone else, out of recession soon, as Japanese industrial production fell 8.1% YoY in November, and the Japanese central bank has no where to go with interest rates, having just lowered them to 0.10% (no misplaced decimal).

About the only piece of good news are The Big Picture’s Credit Crisis Indicators, which are showing a bit of improvement, with the TED spread and the LIBOR-OIS spread improving, though rates on Treasuries are still very low.

In the meantime, mortgage rates for a 30 year fixed mortgagehit the lowest number since at least 1971, when Freddie Mac started keeping these records, 5.14%, though there is the caveat that you can get these only if the banks are willing to lend at all.

Note that this is for the “conforming” mortgage, which is packaged and resold by the GSEs, which now have an explicit guarantee from the government, and, as noted earlier, “non-conforming” mortgages are at about 2% more, an all time high.

Oil was up a bit on announcements by suppliers of production cuts by the UAE and House of Saud.

Nothing much happened with currency. The 26th is a day off for most American traders, and Boxing Day in the UK, so there was not much activity.

Economics Update

No Comments

Ouch. Initial jobless claims for last week hit 586,000, the highest number since Nov. 27, 1982. The 4 week rolling average, which is a better metric, rose as well, to 558,000, though continuing claims declined to 4.370 million.

Even if you do have a job, it’s likely that you are seeing wages and or hour cut….And that 401(k) match, fuggedaboudit.

It’s no wonder that consumer spending fell in November, though it was less than expected, and when adjusted for inflation….OK, adjusted for deflation….It was actually up.

As Calculated Risk notes even as record low mortgage rates are boosting demand, a lot of that ReFi, the spread between “conforming” and “jumbo” 30 year fixed mortgages remain at an all time high of about 2%, which means that in expensive areas, the cheap mortgages are simply not available.

CRE is tumbling too, as we can see from the fact that Manhattan office vacancies hit a two-year high.

In currency, the dollar was down again today, and the Russian central bank devalued the Ruble…again.

I still think that a run on the dollar is a possibility when traders start to realize that the Treasury and Fed are printing money and dropping it from the proverbial helicopter.

In energy, increases in inventory, drove oil to $35.35/bbl.

Economics Update

No Comments

Will the last home builder please turn off the lights?

Because existing home sales fell 8.6% from October, new home sales fell 2.9%, home prices fell by 13.2%, and foreclosures and short sales were 45% of all sales.

Consumer sentiment improved more than forecast last month though, driven largely by the expectation of lower prices.

In currency, the dollar was largely mixed, though both the Yen and Pound were down.

It should be noted that the Yen is off a historic high, and the pound is near a historic low, it’s about to reach parity with the Euro, so the dynamics are different.

As to why the Pound is falling, it might be that the U.K. economy is shrinking at a pace not seen in 17 years, 0.6%, which is worse than
the US figure of -0.5% for the quarter.

EVen more than the US, the UK bought into the idea of the finance industry as an engine for the economy, and they are reaping the whirlwind.

Oil is down again.

Also, here is a story that I think we will see more of in the next few months,* there has been a default by Global Investment House (GIH) in Kuwait on a $200 million loan, one of the larger investment houses in the Arab world.

They aren’t going under just yet, but I think that this is the first crack in the armor of the petro-Arab investment houses.

*Because I am just so good at making predictions.†
†Considering my record, this may actually be a sign to go the other way….Or not.‡
‡Disclaimer: Matthew G. Saroff disclaims any responsibility for any actions taken as a result of the information displayed on any pages of this website.

And Then There are the Involuntary Part Timers

No Comments

One of the ways that unemployment is understated is that in bad times, you see an explosion in the number of people who work part time.

This is one of the numbers that you rarely, if ever, see reported in the press, and it is not a pretty picture.

Graph pr0n courtesy of Calculated Risk, who to his credit notes that this is not population adjusted, it goes back to 1960, which was a recession year itself, but does note that the near vertical rise in the involuntary part-time is as bad as has been seen over those 48 years.

It’s about a 75% increase over the past 12 months.

Economics Update

No Comments

Well, most of the credit crunch indicators seem to be better today, or at least not as bad as expected.

First, we have the TED spread, the difference between the rates on interbank overnight loans and short term T-bills falling below 150 basis points (1½%) to 148 basis points, for the first time since Lehman collapsed.

Of course historically, the TED spread has been about 38 basis points.

Additionally, U.S. 2-Year T-Notes were auctioned off at a higher interest rate than predicted, 0.922%, which was better than the predictions of 0.912%, though the former is still near a record low, and still reflects a flight to safety at the expense of anything resembling returns.

You get the same picture from Calculated Risk’s Credit Crisis Indicators where things appear to be really bad, but better than they have been.

In terms of the real economy, things are still tough though with temp agency Manpower, Inc. withdrawing its forecast on weak demand, and temp employment is a bellwether, and we also are seeing the first decline in online holiday sales ever, according to a report from ComScore.

Considering the fact that online sales are still growing as a proportion of overall sales, the rest of retail is doing worse.

In energy, oil is down again, largely on reports of diminished Chinese demands.

In currency, the Dollar is up on the expectation that central banks will act to support it.