by Calculated Risk on 3/27/2009 11:04:00 AM

In addition to the Personal Income report this morning, the BEA released the final Q4 private fixed investment supplemental tables.

One of the key areas for downward revisions in the final Q4 GDP report was non-residential investment. These revisions were significant.

I'll use lodging as an example ... this first graph was based on the advanced GDP report:

Click on graph for larger image in new window.

This graph shows investment in lodging as a percent of GDP.

In the advance report, lodging investment was reported at 0.34% of GDP - an all time high.

Note: prior to 1997, the BEA included Lodging in a category with a few other buildings. This earlier data was normalized using 1997 data, and is an approximation.

The second graph is based on the final Q4 GDP report.

Instead of increasing slightly in Q4 - as suggested by the advance report - lodging investment declined at a 15.7% annual rate in Q4.

Office investment declined at a 10.1% annual rate in Q4, and mall investment declined at a 11.3% annual rate.

The turning point for non-residential investment was in Q4. Let the cliff diving begin!

by Calculated Risk on 3/27/2009 08:26:00 AM

The BEA released the Personal Income and Outlays report for February this morning. The report shows that PCE will probably make a positive contribution to GDP in Q1 2009.

Each quarter I've been estimating PCE growth based on the Two Month method. This method is based on the first two months of each quarter and has provided a very close estimate for the actual quarterly PCE growth.

Some background: The BEA releases Personal Consumption Expenditures monthly and quarterly, as part of the GDP report (also released separately quarterly).

You can use the monthly series to exactly calculate the quarterly change in real PCE. The quarterly change is not calculated as the change from the last month of one quarter to the last month of the next. Instead, you have to average all three months of a quarter, and then take the change from the average of the three months of the preceding quarter.

So, for Q1 2009, you would average real PCE for January, February, and March, then divide by the average for October, November and December. Of course you need to take this to the fourth power (for the annual rate) and subtract one.

The March data isn't released until after the advance Q1 GDP report. But we can use the change from October to January, and the change from November to February (the Two Month Estimate) to approximate PCE growth for Q1.

The two month method suggests real PCE growth in Q1 of 0.8% (annualized). Not much, but a significant improvement from the previous two quarters (declines of -3.8% and -4.3% in PCE).

The following graph shows this calculation:

Click on graph for larger image in new window.

This graph shows real PCE for the last 12 months. The Y-axis doesn't start at zero to better show the change.

The dashed red line shows the comparison between January and October. The dashed green line shows the comparison between February and November.

Since PCE was weak in December, the March to December comparison will probably be positive too.

This graph also show the declines in PCE in Q3 and Q4.

For Q3, compare July through September with April through June. Notice the sharp decline in PCE. The same was true in Q4.

This suggests that PCE will make a positive contribution to GDP in Q1.

Also interesting:

Personal saving -- DPI less personal outlays -- was $450.7 billion in February, compared with $478.1 billion in January. Personal saving as a percentage of disposable personal income was 4.2 percent in February, compared with 4.4 percent in January.

This is substantially above the near zero percent saved of recent years.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing).

Although this data may be revised significantly, this does suggest households are saving substantially more than during the last few years (when they saving rate was close to zero). This is a necessary but painful step ... and a rising saving rate will repair balance sheets, but also keep downward pressure on personal consumption.

It is not much, but this is definitely a positive report.

by Calculated Risk on 3/27/2009 12:19:00 AM

Another open thread.

The U.S. futures are off a little right now ahead of the Personal Income and Outlays report Friday AM. This report should give us a strong clue on PCE for Q1.

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets. The Asian markets are up a little tonight (in general).

And a graph of the Asian markets.

Best to all.

by Calculated Risk on 3/26/2009 08:25:00 PM

ht Nemo. Caution: Cartoon violence.

by Calculated Risk on 3/26/2009 06:24:00 PM

We do requests (sometimes). This is an update to a graph I posted last November.

This is a look at the real year-over-year (YoY) change in house prices vs. personal consumption expenditures (PCE) through Q4 2008:

Click on image for larger graph in new window.

This graph shows real Case-Shiller quarterly national prices adjusted using CPI less Shelter vs. real PCE. Note that YoY real Case-Shiller prices fell at a slightly slower pace in Q4 - only 17% - compared to 21% YoY in Q3, mostly because CPI less shelter declined in Q4.

For this limited data set (house price data is only available since 1987) the YoY changes move somewhat together, although house prices started declining before PCE during the current economic downturn. This difference in timing could be because of homeowners withdrawing equity from their homes (the Home ATM) even after prices first started falling. However the recent MEW data shows that the Home ATM is closed and consumption has declined sharply.

This doesn't tell us how much further real PCE will decline on a YoY basis - my initial guess was 4%, but it might be less.

by Calculated Risk on 3/26/2009 04:26:00 PM

The Federal Reserve released the Factors Affecting Reserve Balances today. Total assets increased to $2.1 trillion.

[This] include information related to the Term Asset-Backed Securities Loan Facility (TALF). Credit was extended under the TALF for the first time on March 25, 2009.

The TALF is just getting started with $4.7 billion yesterday.


Click on graph for larger image in new window.

After spiking last year to $2.31 trillion the week of Dec 18th, the Federal Reserve assets have declined somewhat.

Now the Federal Reserve is starting to expand their balance sheet again.

Note: the graph shows Total Factors Supplying Federal Reserve Funds and is an available series that is close to assets.

Three trillion here we come! Or maybe four?

by Calculated Risk on 3/26/2009 04:14:00 PM

Rex Nutting writes at MarketWatch: Unemployment still rising

The raw numbers, not seasonally adjusted, [show] 6.4 million collecting state unemployment benefits, and an additional 1.4 million who were collecting the federal benefits that go to people who've been fruitlessly looking for a job for more than six months.

The claims numbers don't show the whole story.

About 4 million more people are officially unemployed but not eligible for jobless benefits. In addition, 8.6 million can find only part-time work and another 2 million have given up looking for work. Nearly 15% of the workforce is unemployed, underemployed, or just plain discouraged.

The employment situation is grim, and even if GDP turns slightly positive later this year, the unemployment rate will probably rise all this year and into 2010.

by Calculated Risk on 3/26/2009 02:51:00 PM

From Kris Hudson at the WSJ: Developers Scale Back Luxury Projects as Economy Shifts

Amid the worst retail climate in decades, a number of shopping developments are slated to open this year ...

Real-estate developers are expected this year to complete more than 78 million square feet of new retail space in the top 54 U.S. markets, according to real-estate-research company Property & Portfolio Research Inc. While that is down from the 144 million square feet completed last year -- the peak number this decade -- the amount expected this year probably is more than the market can absorb in its second year of a recession.
...
The situation is a reminder of the vulnerabilities of commercial real-estate development to changes in the economy. Because it can take years to get a project from conception to completion, projects that sounded like a great idea a few years ago are fast becoming problematic for developers.

For certain retail space, the absorption rate is negative because of all the store closings and retailer bankruptcies. Vacancy rates are already climbing sharply, and this additional 78 million square feet of retail space will push up the vacancy rate even more.

by Calculated Risk on 3/26/2009 12:13:00 PM

From HotelNewsNow.com: STR reports U.S. performance for week ending 21 March 2009

In year-over-year measurements, the industry’s occupancy fell 4.7 percent to end the week at 58.5 percent. Average daily rate dropped 8.0 percent to finish the week at US$99.92. Revenue per available room for the week decreased 12.3 percent to finish at US$58.45.

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 12.0% from the same period in 2008.

The average daily rate is down 8.0%, so RevPAR (Revenue per available room) is off 12.3% from the same week last year.

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

by Calculated Risk on 3/26/2009 10:57:00 AM

From Bloomberg: Geithner Calls for ‘New Rules of the Game’ in Finance

... Geithner’s proposals would bring large hedge funds, private-equity firms and derivatives markets under federal supervision for the first time. A new systemic risk regulator would have powers to force companies to boost their capital or curtail borrowing, and officials would get the authority to seize them if they run into trouble.
...
The administration’s regulatory framework would make it mandatory for large hedge funds, private-equity firms and venture-capital funds to register with the Securities and Exchange Commission. The SEC would be able to refer those firms to the systemic regulator, which could order them to raise capital or curtail borrowing.

The strategy also would require derivatives to be traded through central clearinghouses. And it would add new oversight for money-market mutual funds ....

While the Bush administration had proposed that the Federal Reserve take on the authority of a systemic-risk regulator, Geithner didn’t specify which agency should have the job. Bernanke has also called for such a regulator, and said the central bank should have some role.

Imagine if the Federal Reserve had been the "systemic-risk regulator" during the bubble.

According to Greenspan in 2005 "we don't perceive that there is a national bubble", just "a little froth", and even in March 2007 Bernanke said "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained".

How would a systemic-risk regulator help if they miss the problem?

I'm not opposing this idea - I don't see how it could hurt - and I think having the FDIC, OTS, Fed, state agencies, and others all providing risk oversight is unworkable.