Monday, August 01, 2005

Housing, Layoffs, the UK and more

by Calculated Risk on 8/01/2005 02:12:00 AM

A potpourri of stories ...

My most recent post is up on Angry Bear: A Regulatory Substitute to Burst Housing Bubble? Fed Chairman Alan Greenspan, July 11, 2005:

"Bank Regulatory policies are neither designed nor used to influence asset prices in particular sectors of the economy. Rather, there purpose is to ensure adequate bank risk management ..."

Bloomberg: Greenspan Housing View Seen Hazardous by Wall Street Economists
Worry, say Wall Street economists including David Rosenberg of Merrill Lynch & Co. and Stephen Roach of Morgan Stanley.

The economists say the Fed must act, for a simple reason: The U.S. has become so dependent on real estate and construction to fuel growth and jobs that an eventual, wrenching correction has the potential to sink the entire economy.

"Act now and cut off the pinky, or wait till later and risk slicing off the entire hand," Rosenberg said in an interview last week. "Either way it hurts, but you can still type with nine fingers."
"The Fed is in some sense caught in a box," said Rosenberg, who estimates 60 percent of the U.S. is experiencing a housing-price bubble. "Housing has been this giant locomotive driving just about everything."
"There's enough of a risk that the Fed should be preemptive," Maury Harris, chief economist at UBS Securities LLC in Stamford, Connecticut, said in an interview. He recommends the Fed keep pushing up its short-term rate, now at 3.25 percent, until market forces raise mortgage rates as much as 0.75 percentage points. Mortgages are linked to long-term bond yields.
"The Fed behaved irresponsibly" by "over-stimulating housing," Edward Leamer, director of the Anderson Forecast Center at the University of California, Los Angeles, said in an interview.
"The Fed is probably going to raise interest rates somewhat faster because of the housing price bubble," said Gramley, who is now a senior economic adviser at Stanford Washington Research Group in Washington. "If they can engineer a monetary policy now that brings a nice smooth end to this run-up in home prices, they're less likely to have economic instability down the road,"
Danielle DiMartino: Job losses might herald bigger woes
"Summer is typically a time when we see a dropoff in job cuts, but this year that slowdown has not materialized," said John Challenger, chief executive of outplacement firm Challenger, Gray & Christmas. "In fact, five out of the six largest job cuts announced so far this year have occurred since May."

With that in mind, while most others waited out last week on tenterhooks until Friday's July labor report, my vigil will end Wednesday with the release of Challenger's July layoff report.

After all, the government's report looks to the past, while Challenger's looks to the future, as the announced job cuts turn into real job cuts.

Announced job cuts in May and June alone were nearly 200,000. This summer's cuts could easily surpass the total for the first four months of the year, when it is much more typical to see heavy downsizing.

The number of job cuts announced between May and August is typically 20 percent lower than in the first four months of the year, according to Challenger.

This break with the typical pattern has John Challenger, whose Chicago firm has been tracking layoff announcements since 1989, looking for a deeper meaning in the numbers.

"We haven't seen mega-layoffs like this in years," Challenger said. "If the summer surge proves to be the first sign of an eventual economic slowdown, this would be the weakest expansion in recent times."
Stephen King: America and Britain: united by debt but divided by economic performance - so far
... the biggest difference, at least from a cyclical point of view, probably lies with housing and the consumer. From the Bank of England's point of view, the UK economy has delivered three major surprises over the past 18 months. The first surprise has been the slowdown in housing activity given that short-term interest rates rose only to 4.75 per cent last year, hardly a threatening level by previous standards.

Surprise No 2 has been the consumer's response: house prices are now roughly flat year-on-year, yet consumers have retrenched more rapidly than the Bank had expected. And the third surprise has been that, on the back of all these housing and consumer shenanigans, interest rates are on the verge of falling once again, suggesting that the neutral, or structural, level of interest rates is a lot lower than the Bank of England ever seriously contemplated.
Bloomberg: ECB Rate Cut May Hurt More Than Help, Economists Say
"If consumers are hiding in their bolt holes, it's because of the fear of higher unemployment and unsettling European policies," said David Brown, chief European economist at Bear Stearns in London. While the ECB may lower rates as a last resort, "a quarter-point rate cut is going to make very little difference to consumer or business confidence. It's a drop in the ocean."
Sorry for all the Doom and Gloom to start the week.