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Friday, October 02, 2009

Employment Report: 263K Jobs Lost, 9.8% Unemployment Rate

by Calculated Risk on 10/02/2009 08:30:00 AM

From the BLS:

Nonfarm payroll employment continued to decline in September (-263,000), and the unemployment rate (9.8 percent) continued to trend up, the U.S. Bureau of Labor Statistics reported today. The largest job losses were in construction, manufacturing, retail trade, and government.
Employment Measures and Recessions Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 263,000 in September. The economy has lost almost 5.8 million jobs over the last year, and 7.2 million jobs during the 21 consecutive months of job losses.

The unemployment rate increased to 9.8 percent. This is the highest unemployment rate in 26 years.

Year over year employment is strongly negative.

Percent Job Losses During Recessions The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up earlier this year, and the current recession is now the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession was worse).

The economy is still losing jobs at about a 3.2 million annual rate, and the unemployment rate will probably be above 10% soon. This is a very weak employment report - just not as bad as earlier this year. Much more to come ...

Note: The the preliminary benchmark payroll revision is minus 824,000 jobs. (This is the preliminary estimate of the annual revision - this is very large).

Thursday, October 01, 2009

"After the Storm": No Immaculate Recovery

by Calculated Risk on 10/01/2009 10:44:00 PM

A couple late night articles:

The Ylan Mui at the WaPo reviews the recent economic data: New Economic Reports Show We're Still Hurting (ht Ann)

The fragile economic recovery has relied heavily on government stimulus spending, but new data show that as the money runs out, a sustained rebound may be elusive.
A similar theme from The Economist: After the storm
Despite a welcome return to growth, the world economy is far from returning to “normal” activity. Unemployment is still rising and much manufacturing capacity remains idle. Many of the sources of today’s growth are temporary and precarious. The rebuilding of inventories will not boost firms’ output for long. Across the globe spending is being driven by government largesse, not animal spirits. Massive fiscal and monetary stimulus is cushioning the damage to households’ and banks’ balance-sheets, but the underlying problems remain. In America and other former bubble economies, household debts are worryingly high, and banks need to bolster their capital. That suggests consumer spending will be lower and the cost of capital higher than before the crunch. The world economy may see a few quarters of respectable growth, but it will not bounce back to where it would have been had the crisis never happened.
Recoveries are usually led by a pickup in consumer spending and residential investment. Although consumer spending was strong in August, the numbers were distorted by the cash-for-clunkers program, and I expect weak growth for consumer spending through most of next year as households save more and rebuild their balance sheets.

And for residential investment, there is still too much excess existing home inventory, and possibly a large shadow inventory. I will write more on the outlook for consumer spending and residential investment soon.

As The Economists notes, rebuilding inventories will be a transitory boost for the economy, and that leaves government spending and exports. That doesn't sound like an Immaculate Recovery.

Summary and Misc Articles

by Calculated Risk on 10/01/2009 06:40:00 PM

The BLS jobs report will be released tomorrow morning. The consensus is for 170 thousand net jobs lost and the unemployment rate rising to 9.8%. That seems a little optimistic given the recent data flow.

Lots of data today:

  • Weekly Unemployment Claims: 551,000
  • August PCE and Saving Rate Note: August was distorted by cash-for-clunkers (see auto post).
  • ISM Manufacturing shows expansion in September
  • Construction Spending increases in August
  • Light Vehicle Sales 9.2 Million (SAAR) in September

    And a few other interesting articles:

  • Another article on strategic defaults, from Bloomberg: Leaving Affordable Mortgage May Become Winning Gambit
    So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian PLC ...
    The classic definition of a "strategic default" is a borrower who can afford their mortgage, but stops paying it because they owe far more than their home is worth. This measurement from Experian is very different and includes many people who can no longer afford their mortgage. Long ago borrowers paid their mortgages first - to keep their homes - but that was when people actually had money invested in their homes. (sorry for the snark).

  • On failed banks, from Jonathan Weil at Bloomberg: Banks Have Us Flying Blind on Depth of Losses
    There was a stunning omission from the government’s latest list of “problem” banks, which ran to 416 lenders, a 15-year high, as of June 30. One outfit not on the list was Georgian Bank, the second-largest Atlanta-based bank, which supposedly had plenty of capital.
    ...
    The cost of Georgian’s failure confirms that the bank’s asset values were too optimistic.
    ...
    Georgian also reported a 12-fold jump in nonperforming loans to $306.4 million from $24.7 million three months earlier, mostly construction loans. Georgian’s numbers made it seem as if the surge arose from nowhere.
    ...
    What wasn’t made public until Sept. 25, the day it closed, was that Georgian Bank had agreed to a cease-and-desist order with the FDIC on Aug. 31 after flunking an agency examination.
    I believe it would be helpful if the FDIC released the Cease & Desist orders on a more timely basis.

  • From Bloomberg: Recession Rising Like Phoenix With Area Delinquencies Surging (ht Mike In Long Island)
    Delinquencies in the Phoenix area on loans backed by office, industrial, retail and apartment properties have risen more than five-fold since March, according to data compiled by Bloomberg.
    ...
    “The problems in commercial real estate are just getting started and they will dampen what is already going to be a weak economic recovery,” said Jim Rounds, senior vice president and senior economist at Elliott D. Pollack. “In Arizona, the recession is probably going to last to the middle of the next calendar year.”
    Live by real estate. Die by real estate.

  • Light Vehicle Sales 9.2 Million (SAAR) in September

    by Calculated Risk on 10/01/2009 03:38:00 PM

    Vehicle Sales Click on graph for larger image in new window.

    This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for September (red, light vehicle sales of 9.22 million SAAR from AutoData Corp).

    This is the third lowest vehicle sales this year.

    Vehicle Sales The second graph shows light vehicle sales since the BEA started keeping data in 1967.

    Obviously sales were boosted significantly by the "Cash-for-clunkers" program in August and some in July. Although this wasn't as bad as some of the lower forecasts, it was still below most estimates.

    Note: the answer to the earlier poll was 746 thousand (not seasonally adjusted sales).

    Hotel RevPAR off 16.6 Percent

    by Calculated Risk on 10/01/2009 02:44:00 PM

    We are now in the Fall business travel season ...

    From HotelNewsNow.com: Norfolk-Virginia Beach posts RevPAR growth in STR weekly numbers

    Overall, in year-over-year measurements, the industry’s occupancy fell 7.2 percent to end the week at 59.8 percent. Average daily rate dropped 10.1 percent to finish the week at US$100.30. RevPAR for the week decreased 16.6 percent to finish at US$59.94.
    Hotel Occupancy Rate Click on graph for larger image in new window.

    This graph shows the YoY change in the occupancy rate (3 week trailing average).

    The three week average is off 10.2% from the same period in 2008.

    The average daily rate is down 10.1%, and RevPAR is off 16.6% from the same week last year.

    Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com


    The goods news is the comparisons will become easier soon since business travel fell off a cliff last October. However occupancy rates below 60% are crushing. For comparison, occupancy rates for October in 2006 and 2007 were close to 68%.

    Ford reports U.S. Sept. sales fall 5.1%

    by Calculated Risk on 10/01/2009 12:05:00 PM

    Note: graphs will be posted around 4 PM ET.

    Update: Percentage comparisons are to Sept 2008.

    From MarketWatch: Ford total U.S. Sept. sales decline 5.1%

    Ford Motor Co. said Thursday that U.S. auto sales for September dropped 5.1% to 114,655 vehicles from 116,734 a year ago.
    UPDATES: GM U.S. Sept. sales drop 45% (compared to Sept 2008)

    Chrysler sales off 42%.

    Toyota U.S. Sept. sales off 12.7%

    Once all the reports are released, I'll post a graph of the estimated total September sales (SAAR: seasonally adjusted annual rate). The range of estimates for September have been very wide ...

    For fun, here are the results of a poll in the comments (Monthly, not SAAR):
    620,000 end of the world 6% (3 votes)
    650,000 black hole 40% (20 votes)
    700,000 detectable pulse 42% (21 votes)
    740,000 trend sans C4C 6% (3 votes)
    800,000 post Viagra pause 2% (1 vote)
    960,000 all clear same as Sept 2008 2% (1 vote)
    1,000,000 (puts pinky to corner of mouth) 2% (1 vote)
    Total votes: 50

    Construction Spending increases in August

    by Calculated Risk on 10/01/2009 10:26:00 AM

    We started the year looking for two key construction spending stories: a likely bottom for residential construction spending, and the collapse in private non-residential construction. This report shows further evidence of both stories.

    Construction Spending Click on graph for larger image in new window.

    The first graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

    Residential construction spending increased in August, and nonresidential spending continued to decline.

    Private residential construction spending is now 63.1% below the peak of early 2006. Although it appears residential construction spending may have bottomed, any growth in spending will probably be sluggish until the large overhang of existing inventory is reduced.

    Private non-residential construction spending is still only 12.6% below the peak of last September.

    Construction Spending YoYThe second graph shows the year-over-year change for private residential and nonresidential construction spending.

    Nonresidential spending is off 10.5% on a year-over-year basis, and will turn strongly negative as projects are completed. Residential construction spending is still declining YoY, although the negative YoY change will get smaller going forward.

    From the Census Bureau: August 2009 Construction at $941.9 Billion Annual Rate

    The U.S. Census Bureau of the Department of Commerce announced today that construction spending during August 2009 was estimated at a seasonally adjusted annual rate of $941.9 billion, 0.8 percent (±1.8%) above the revised July estimate of $934.6 billion. The August figure is 11.6 percent (±1.8%) below the August 2008 estimate of $1,066.1 billion.

    ISM Manufacturing shows expansion in September

    by Calculated Risk on 10/01/2009 10:00:00 AM

    PMI at 52.6% in September down from 52.9% in August.

    From the Institute for Supply Management: September 2009 Manufacturing ISM Report On Business®

    Economic activity in the manufacturing sector expanded in September for the second consecutive month, and the overall economy grew for the fifth consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

    The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The manufacturing sector grew for the second consecutive month in September. While the rate of growth moderated slightly when compared to August, the recovery broadened as the number of industries reporting growth increased from 11 to 13. Both new orders and production are growing, but at a slower rate when compared to August. It appears the fundamentals for continuing recovery are still at work as inventories and sales are gaining balance."
    ...
    ISM's New Orders Index registered 60.8 percent in September, 4.1 percentage points lower than the 64.9 percent registered in August. This is the third consecutive month of growth in the New Orders Index. A New Orders Index above 48.8 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).
    emphasis added
    As noted, any reading above 50 shows expansion.

    Also, from the NAR: Record Streak Continues for Pending Home Sales
    The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in August, rose 6.4 percent to 103.8 from a reading of 97.6 in July, and is 12.4 percent above August 2008 when it was 92.4. The index is at the highest level since March 2007 when it was 104.5.

    August PCE and Saving Rate

    by Calculated Risk on 10/01/2009 08:53:00 AM

    Note: A large portion of the increase in durable goods consumption in August was due to cash-for-clunkers, however there was also a significant increase in non-durable goods.

    From the BEA: Personal Income and Outlays, August 2009

    Personal income increased $19.3 billion, or 0.2 percent, and disposable personal income (DPI) increased $15.5 billion, or 0.1 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $129.6 billion, or 1.3 percent.
    ...
    Real PCE -- PCE adjusted to remove price changes -- increased 0.9 percent in August, compared with an increase of 0.2 percent in July. Purchases of durable goods increased 5.8 percent, compared with an increase of 1.8 percent. Reflecting the impact of the federal CARS program (popularly called "cash for clunkers"), purchases of motor vehicles and parts accounted for most of the August increase in purchases of durable goods and more than accounted for the July increase.
    ...
    Personal saving -- DPI less personal outlays -- was $324.1 billion in August, compared with $436.0 billion in July. Personal saving as a percentage of disposable personal income was 3.0 percent in August, compared with 4.0 percent in July.
    Personal Saving RateClick on graph for large image.

    This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the August Personal Income report. The saving rate was 3.0% in August.

    This decline in the saving rate was probably temporary, and I expect the saving rate to continue to rise.

    The following graph shows real Personal Consumption Expenditures (PCE) through August (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

    PCE The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

    The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

    The July and August numbers suggest PCE will grow at over 3% (annualized rate) in Q3, however I expect September to be much lower. So I expect a 2% increase in Q3 PCE.

    Note that PCE declined sharply in Q3 and Q4 2008 - the cliff diving - and was been relatively flat in Q1 and Q2 2009. Auto sales gave a boost to PCE in Q3, but in general PCE will probably remain weak into 2010 as households continue to repair their balance sheets.

    Weekly Unemployment Claims: 551,000

    by Calculated Risk on 10/01/2009 08:30:00 AM

    The DOL reports weekly unemployment insurance claims increased to 551,000:

    In the week ending Sept. 26, the advance figure for seasonally adjusted initial claims was 551,000, an increase of 17,000 from the previous week's revised figure of 534,000. The 4-week moving average was 548,000, a decrease of 6,250 from the previous week's revised average of 554,250.
    ...
    The advance number for seasonally adjusted insured unemployment during the week ending Sept. 19 was 6,090,000, a decrease of 70,000 from the preceding week's revised level of 6,160,000.
    Weekly Unemployment Claims Click on graph for larger image in new window.

    This graph shows the 4-week moving average of weekly claims since 1971.

    The four-week average of weekly unemployment claims decreased this week by 6,250 to 548,000, and is now 110,750 below the peak in April.

    Initial weekly claims have peaked for this cycle, however the continuing high level of weekly claims indicates significant weakness in the job market. The four-week average of initial weekly claims will probably have to fall below 400,000 before total employment stops falling.

    And in other employment news ... from Reuters: Challenger, Gray reports planned layoffs declined in Sept.
    Planned job cuts announced by U.S. employers fell to 66,404 last month, down 13 percent from 76,456 in August, according to a report released Thursday by global outplacement consultancy Challenger, Gray & Christmas.

    September's layoff tally was 30 percent lower than the 95,094 job cuts during the same time last year. This brought the figure for the July-September quarter to 240,233, the lowest since the first quarter of 2008 and marking the fourth consecutive quarter in which job cuts declined from the year prior level.
    But a big part of the problem is lack of hiring, not firings. From Monster.com:
    The Monster Employment Index edged downward in September after a significant rise in late summer recruitment activity during August. Over the year, the Index fell 25 percent largely unchanged from last month’s pace.
    The BLS report will be released tomorrow.