by Calculated Risk on 6/06/2008 08:43:00 AM

From the BLS: Employment Situation Summary

The unemployment rate rose from 5.0 to 5.5 percent in May, and nonfarm payroll employment continued to trend down (-49,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today. In May, employment continued to fall in construction, manufacturing, retail trade, and temporary help services, while health care continued to add jobs.

The first graph shows the unemployment rate and the year-over-year change in employment vs. recessions.
Click on graph for larger image.

Unemployment jumped sharply and the rise in unemployment, from a cycle low of 4.4% to 5.5%, is a strong recession indicator.

Also concerning is the YoY change in employment is close to zero (the economy has added only 236 thousand jobs in the last year), also suggesting a recession.

Note the current recession indicated on the graph is "probable", and is not official.

The second graph shows residential construction employment.

Note: graph doesn't start at zero to better show the change.

Residential construction employment declined 25,100 in May, and including revisions to previous months, is down 494 thousand, or about 14.3%, from the peak in February 2006. (compared to housing starts off over 50%).

This is the fifth straight month of job losses. This is a weak report, and the jump in unemployment strongly suggests a recession.

by Anonymous on 6/06/2008 08:36:00 AM

Vikas Bajaj and Michael Grynbaum report in the Times:

The first three months of 2008 marked the worst quarter for American homeowners in nearly three decades, according to the report, issued by the Mortgage Bankers Association. The rate of new foreclosures and past-due payments surged to their highest level since 1979, when the group first started collecting the data.

All told, about 8.8 percent of home loans were past due or in foreclosure, or about 4.8 million loans. That is up from 7.9 percent at the end of December. (About a third of American homeowners do not have mortgages.)

Delinquency and foreclosure rates started rising from historically low levels in late 2006 and have picked up speed in nearly every quarter since. Analysts say at first past due mortgages represented mostly high-risk loans made to borrowers with blemished, or subprime, credit. Now, as the economy has weakened and home prices have fallen in many parts of the country, homeowners with better loans are also falling behind.

It's almost like . . . we're all subprime now.

by Anonymous on 6/06/2008 08:01:00 AM

Floyd Norris in the NYT:

This is a tale of sex, lies and foreclosures.

I figured you guys would need to read that.

by Calculated Risk on 6/06/2008 12:16:00 AM

From the WSJ: National City Is Under U.S. Scrutiny

National City Corp.'s banking unit, which has been buffeted by rising bad loans, has recently entered into a "memorandum of understanding" with federal regulators, effectively putting the bank on probation.

The confidential agreement with the Office of the Comptroller of the Currency was entered into over the past month or so. ... Such MOUs are agreements between regulators and bank management. They are considered serious and are fairly rare ...

The bank division of National City had $153 billion of assets at the end of March, up from $132 billion one year earlier ...

It is possible that National City will resolve these issues, but I can't help but think of FDIC Chairman Sheila Bair's comments today: "There is also the possibility that future failures could include institutions of greater size than we have seen in the recent past."

by Calculated Risk on 6/05/2008 08:00:00 PM

From MarketWatch: Fitch downgrades MGIC Investment, PMI ratings

Fitch Ratings on Thursday downgraded MGIC Investment Corp., noting it has become much more pessimistic on its outlook for the mortgage insurance sector. ... Fitch also cut PMI Mortgage Insurance's rating ...

Didn't Tanta once say it won't feel like a real housing bust until at least one mortgage insurer goes bankrupt?

by Calculated Risk on 6/05/2008 04:45:00 PM

PJ at Housing Wire has more on the rise in delinquencies for prime loans: Primed for Trouble: Pace of Mortgage Distress Shifts to Prime Borrowers

[A]n alarming shift of the mortgage mess towards prime borrowers appears to be taking place ... signaling that the credit crunch that began among those with less-than-perfect credit is now marching onward towards borrowers usually deemed better credit risks.

... the Q4 to Q1 change in severe delinquencies strongly favors prime borrowers, for example, with severe DQs increasing by 19.2 percent for prime and 13.7 percent for subprime borrowers.

See the entire article - the problems are accelerating rapidly for prime loans.

by Calculated Risk on 6/05/2008 04:39:00 PM

RSS Readers. Sorry for the inconvenience of a short feed, but I'm trying to discourage sites like this one from using our material without credit. Any suggestions?

by Calculated Risk on 6/05/2008 02:23:00 PM

From S&P: Ambac, MBIA Financial Strength Ratings Lowered

Standard & Poor's Rating Services today lowered its financial strength ratings on Ambac Assurance Corp. and MBIA Insurance Corp. to 'AA' from 'AAA' and placed the ratings on CreditWatch with negative implications.

The ratings on the holding companies, Ambac Financial Group and MBIA Inc., have also been lowered to 'A' and 'A-' from 'AA' and 'AA-', respectively, and placed on CreditWatch with negative implications.

The rating actions on the companies reflect our belief that these entities will face diminished public finance and structured finance new business flow and declining financial flexibility. In addition, we believe continuing deterioration in key areas of the U.S. residential mortgage sector and related CDO structures will place increasing pressure on capital adequacy.

by Calculated Risk on 6/05/2008 02:11:00 PM

Wachovia economists Mark Vitner and Anika R. Khan: Commercial Real Estate Chartbook: June 2008

The faltering housing market and generally sluggish pace of the overall economy are finally taking a toll on the commercial real estate market. Demand for office, industrial and retail space is waning, sending vacancy rates higher and property prices lower.

Click on graph for larger image in new window.

This graph shows the Wachovia forecast for real non-residential investment (green columns, and the Year-over-year forecast in red).

Real private nonresidential construction is expected to moderate in the second quarter and continue to slide under the weight of tightening underwriting standards and slower economic growth.

Here is my fairly long Non-Residential Investment Overview with similar conclusions.

Also - this coming slump in CRE is one of the reasons the FDIC and the Fed are so concerned with bank failures later this year.

by Calculated Risk on 6/05/2008 12:53:00 PM

From Reuters: Bigger U.S. bank failures may be coming - FDIC (hat tip Ed)

An increasing number of banks face high exposure to deteriorating conditions in commercial real estate and construction lending, [Federal Deposit Insurance Corp Chairman Sheila Bair] told a Senate Banking Committee hearing on the state of the banking industry.

"There is also the possibility that future failures could include institutions of greater size than we have seen in the recent past," Bair said. "Uncertainties in today's economic environment continue to pose significant challenges for the banking industry, households, and bank regulators."

The coming bank failures are no secret:

Feb 25, 2008: FDIC Bracing for Bank Failures

March 17, 2008: Federal Deposit Insurance Corporation Stresses Importance of Managing Commercial Real Estate Concentrations

April 17, 2008: Fed Vice Chairman Kohn Warns on CRE Concentrations at Small banks

Note: The largest bank to fail this year was ANB Financial with $2.1 billion in assets.