by Calculated Risk on 6/07/2008 09:23:00 PM

From Bloomberg: U.S., Asia Express `Serious Concern' Over Oil Prices

The U.S. and Asia expressed ``serious concern'' over record oil prices, ... in a joint statement issued [by officials from Japan, China, India, South Korea and the U.S.] after a meeting in Aomori in northern Japan today.
...
The governments of China and India, which sell fuels to domestic users below cost, were in agreement with the U.S., Japan and South Korea that ``a gradual withdrawal of fuel subsidies is desirable,'' the statement said.

India, Malaysia, Indonesia and Taiwan over the past month raised fuel prices and cut subsidies, in a move that may reduce Asian demand and slow global oil-consumption growth.

``This is the first time that we can agree on the necessity of abolishing fuel subsidies by steps,'' Japan's Trade Minister Akira Amari told reporters today. ``Each country has different reasons and contexts, so they cannot do that immediately.''

Reducing subsidies is an important step for the Asian countries. With market prices, Asian fuel demand will probably slow or even decline.

by Calculated Risk on 6/07/2008 10:44:00 AM

NY Times: Job Losses and Surge in Oil Spread Gloom on Economy

Many people turn negative again ...

by Calculated Risk on 6/06/2008 10:56:00 PM

From Bloomberg: Australian House Prices Fall Most in Five Years on Higher Rates

The median price for houses fell to A$458,488 ($439,644) in the March quarter, down 2.7 percent from the previous three months, the Real Estate Institute of Australia and Mortgage Choice Ltd. said. ...

Falling residential prices support the central bank's view that Australia's $1 trillion economy will slow this year, helping ease the fastest inflation in 17 years.

From ABC News in Australia: Construction slump points to economic downturn

The Australian Industry Group (AiG) - Housing Industry Association (HIA) Performance of Construction Index (PCI) reveals that building activity fell sharply in May, after also falling heavily in April.

The index now stands at a paltry 36.9 - well below the benchmark number of 50 that separates an expanding industry from a contracting one.

This is the lowest result and the sharpest monthly fall in the index's two and a half year history.

The previous sharpest fall was the month before.

And from Australian TV: Their view is the credit crisis is back - well, it never really went away (hat tip RemiG, 2 min 56 sec). This appears to be from yesterday - before the U.S. market tanked today.



I laugh every time I hear the phrase "dodgy debt".

by Calculated Risk on 6/06/2008 07:14:00 PM

From the LA Times: Housing downturn is a jolt to upscale Temecula

It wasn't supposed to happen here. Not like this. The crashes are expected to hit hard in the Fontanas and the Perrises of the world -- cities marketed more to working-class buyers, first-time buyers or sub-prime buyers. Indeed, Temecula is by no means the hardest-hit area of the Inland Empire; many communities here have plunged into record levels of foreclosure.
...
Today, said Rich Johnston, Temecula's deputy director of building and safety and code enforcement, as many as 15% of Temecula's 22,500 single-family homes are bank-owned or in some stage of foreclosure.

I remember visiting a friend in Temecula about 3 years ago. We were standing in his front yard, and he started telling me what his neighbors did for a living. "A mortgage broker lives there. A real estate agent there. That guy is in construction. Another mortgage broker there" ... and on and on. Over half of the households on his block were dependent on the housing market in way or another.

So it is no surprise that the housing bust is hitting Temecula hard.

But look at Temecula on this map. San Diego is far to the south - living in Escondido is a tough enough commute to work in San Diego. And Orange County is an even more difficult drive to the west. Imagine what $5 gasoline will do.


View Larger Map

by Calculated Risk on 6/06/2008 03:57:00 PM

It's Friday. Do you know if your bank failed today?

Note: Just asking because the FDIC usually announces bank failures Friday afternoon.

by Calculated Risk on 6/06/2008 02:07:00 PM

From MarketWatch: Wal-Mart sees growth both in U.S., overseas

Chief Financial Financial Officer Tom Schoewe also said it's "highly likely" that Wal-Mart's capital spending this fiscal year will be at the low end of its previous estimate of $13.5 billion to $15.2 billion ...

A billion less capital spending here, a billion there ... and the non-residential investment slump is here.

by Calculated Risk on 6/06/2008 10:27:00 AM

From Professor Hamilton: The Oil Shock of 2008

"Time to reassess the potential for recent oil price increases to contribute to an economic downturn.

The sharp spikes in oil prices associated with the 1973-74 oil embargo, the 1978 Iranian Revolution, the Iran-Iraq War in 1980, and the first Persian Gulf War in 1990 were each followed by an economic recession. However, when oil prices started to rise again five years ago, many of us suggested that things would be different this time, in part because the price was rising much more gradually and so should be less disruptive of consumer spending patterns. Others emphasized that, despite the price increases, oil was still cheaper than it had been historically if you took into account inflation. However, once you include the most recent data, neither of those claims would still be true."

From EconbrowserThe graph above shows that the real price of oil is now above the levels of the previous oil shocks.

Hamilton points out that American businesses and consumers are now clearly changing their behavior based on the price of oil. (see his post for more graphs)

Of course oil is a global commodity, and strong demand growth overseas can more than offset declining demand in the U.S. Just today Morgan Stanley analyst Ole Slorer said that he expects strong Asian demand to push prices to $150 by July.

Morgan Stanley analyst Ole Slorer said he expected strong demand in Asia that could drive prices to $150 by July 4. Shipments from the Middle East are mimicking patterns seen in the third quarter last year, when Morgan Stanley based its "oil price spike" predictions on Atlantic Basin draws, he said.

"We made the same call using the same parameters, but now we are starting from much lower inventory levels," Slorer said Friday.

"Asia is taking an unprecedented share" of Middle East exports to build up stocks, Slorer wrote in his report.

Interesting times.

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.