by Calculated Risk on 5/01/2009 03:00:00 PM

Here is a common question:

Q: I was looking at the Q1 Advance GDP report, and it showed that PCE was up 2.2%. However the March Personal Income and Outlay report showed that real March PCE was off -0.2%, after increasing 0.1% in February, and 0.9% in January. How did they get 2.2% for Q1 PCE growth? How does that compare to the monthly numbers?

A: First, the reported change in the Personal Income report is from the previous month (not annualized). The quarterly GDP report is the annualized change from Q4 to Q1.

Second, the quarterly change is from the average PCE in Q4 to the average PCE in Q1. Look at the following chart ...


Click on graph for larger image in new window.

Note: graph doesn't start at zero to show the change. All numbers are in billions.

This shows both the quarterly (red) and monthly (blue) PCE data (2000 dollars).

If you average October, November and December PCE, you get the Q4 PCE. And Q1 PCE is the average of January, February and March.

The math is simple: $8,214.2 (Q1 2009) divided by $8170.5 (Q4 2008) equals 1.00535. Take that to the 4th power (to annualize), subtract 1, and that gives the annualized rate of change in real PCE from Q4 to Q1: 2.2%.

Notice that the month-to-month change isn't useful in comparing to the quarterly change. Also notice that I didn't even report the March PCE numbers - that was mostly captured in the Q1 GDP report - and the monthly series is noisy.

The first two Personal Income reports each quarter are much more useful than the final month. When the April Personal Income report is released, the media will focus on the month-to-month change. However I will compare April PCE to January PCE - and then May PCE to February. This is the "two month" estimate for Q2 PCE (notice the calculation compares to the same month of the previous quarter, not the previous month).

For some time I had been forecasting a slump in consumer spending, and then using the two month method, I was able to declare the slump had arrived, see: Personal Income for August Indicates Consumer Recession and Estimating PCE Growth for Q3 2008

[T]his will be the first decline in PCE since Q4 1991. This is strong evidence that the indefatigable U.S. consumer is finally throwing in the towel.

I was also among the first to point out PCE would probably be positive in Q1: February PCE and Personal Saving Rate

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

The monthly data is extremely useful for forecasting - especially the first two months of each quarter.

by Calculated Risk on 5/01/2009 01:45:00 PM

Just a preview for Bank Failure Friday ...

From the Corus 8-K SEC Filing this morning (ht Kevin):

Both the [Federal Reserve Bank of Chicago and the Office of the Comptroller of the Currency] will continue to monitor the results of our operations, including liquidity and capital and based on their assessment of our ability to continue to operate in a safe and sound manner, may take further actions including placing the Bank into conservatorship or receivership. Additional actions taken by our regulators may negatively impact our ability to continue as a going concern.

From the South Florida Business Journal: Fla. condo lender Corus Bank warns of receivership

Corus Bank said it had $2 billion in nonperforming loans and $499 million in foreclosed property as of March 31. That covered 32 percent of the bank’s $7.7 billion in assets.

On Feb 18th Corus announced a consent order with regulators.

It might not have been a great business model to focus on Florida condos.

by Calculated Risk on 5/01/2009 12:22:00 PM

From Reuters: Ford April U.S. vehicle sales off 31.3 pct

This is a year-over-year comparison: April 2009 vs. April 2008.

In March, Ford reported sales off 40.9%

In February Ford sales were off 46.3% YoY

And in January Ford sales were off 42.1%

December: 32.4%

November: 31%

The other manufacturers will report later.

Update: Toyota U.S. April sales fall 41.9% to 126,540

Update2: GM U.S. April sales down 33.2% to 172,150 units

Update3: Chrysler April U.S. sales fall 48%

by Calculated Risk on 5/01/2009 11:03:00 AM

The WSJ, Bloomberg and others are reporting the results of the stress tests will be released Thursday May 7th (apparently in the afternoon).

The release will include capital needs for each individual bank, plus estimated losses by loan categories.

According to the Fed white paper, the data is being collected for 12 loan categories, so hopefully they will release projected losses by each category.

From Bloomberg: Regulators Said to Plan Stress-Test Disclosures on May 7
(no link yet)

The Federal Reserve and U.S. banking regulators will reveal the results of the tests on the country’s 19 largest banks on May 7 after financial markets close, according to a government official.

The government will unveil both aggregate information and firm-specific details about the capital buffer required to absorb losses if the recession worsens ...

From CNBC: Results of Bank 'Stress Tests' To Be Released on Thursday

by Calculated Risk on 5/01/2009 09:59:00 AM

From the Institute for Supply Management: April 2009 Non-Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector failed to grow in April for the 15th consecutive month, and the overall economy contracted for the seventh consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.
...
Manufacturing contracted in April as the PMI registered 40.1 percent, which is 3.8 percentage points higher than the 36.3 percent reported in March. This is the 15th consecutive month of contraction in the manufacturing sector. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
...
"The decline in the manufacturing sector continues to moderate. After six consecutive months below the 40-percent mark, the PMI, driven by the New Orders Index at 47.2 percent, shows a significant improvement. While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again. The Customers' Inventories Index indicates that channels are paring inventories to acceptable levels after reporting inventories as 'too high' for eight consecutive months. The prices manufacturers pay for their goods and services continue to decline; however, copper prices have bottomed and are now starting to rise. This is definitely a good start for the second quarter."
emphasis added

As noted, any reading below 50 shows contraction, although the pace of contraction has slowed.

In other news, new manufacturer orders were down, from the Census Bureau:

New orders for manufactured goods in March, down seven of the last eight months, decreased $3.2 billion or 0.9 percent to $345.3 billion, the U.S. Census Bureau reported today.

by Calculated Risk on 5/01/2009 09:23:00 AM

Note: Any reading below 50 indicates conditions are worsening; above 50 improving. So the increase in the index to 16 means the apartment conditions are worsening, but at a slower pace.

"Worse conditions" implies higher vacancy rates and lower rents - so it is good for renters.

From the National Multi Housing Council (NMHC): Apartment Market Still Suffering Downturn, Though Pace Is Decelerating, According To National Multi Housing Council Survey

Apartment market conditions continue to worsen, though the pace is decelerating, according to the National Multi Housing Council's (NMHC) latest Quarterly Survey of Apartment Market Conditions.

While all four market indexes remained below 50 (index numbers below 50 indicate conditions are worsening; numbers above 50 indicate conditions are improving), they all rose from three months ago. In particular, about half of respondents thought conditions were unchanged in the sales volume, equity finance, and debt finance markets.

“This global downturn has led to the most challenging economic conditions in at least five decades, and the apartment industry is suffering like other industries," noted Mark Obrinsky, NMHC's Chief Economist. "Capital remains difficult to obtain, and the sharp and continuing drop in employment, in particular, is sapping demand for apartments in markets throughout the country."

“Interestingly,” he continued, “despite considerable media focus on the “shadow rental” market, only a slim majority of respondents noted greater competition from condos and single-family rentals than in previous years.”

The Market Tightness Index, which measures changes in occupancy rates and/or rents, rose to 16 from 11 last quarter. Nevertheless, 73 percent of respondents said markets were looser (meaning higher vacancy and/or lower rents). While this was the seventh straight quarter in which the index has been below 50, the low reading may partially represent normal seasonal weakness.

Click on graph for larger image in new window.

This graph shows the quarterly Apartment Tightness Index.

It is common in a recession for apartment vacancies to rise, as households double up by moving in with a friend or family member. However an added factor in this recession is all the single family homes being offered as rentals. This is possible additional competition for apartments:

In a special fifth question to NMHC’s Quarterly Survey, one-third (33 percent) said such competition [from condos and single-family rentals] was unchanged. Another four percent thought there was less competition, and 11 percent don’t consider condos and single-family rentals to be significant competition for apartments in their markets. A slightly majority, 52 percent, did report more competition from condos and single-family rentals than in previous years.

Competition from condos and single-family rentals probably depends on location.

by Calculated Risk on 4/30/2009 11:46:00 PM

For those interested in the legal issues surrounding the Chrysler bankruptcy, here are a couple of posts from attorney Steven Jakubowski.

First, an overview of situation and Chrysler balance sheet:

Part I: Assessing The Financial Carnage

Second, a discussion of some of the legal issues:

Part II: Testing The Limits Of Section 363 Sales

Jakubowski concludes:

So, who will win? Really, only the true speculator and/or holder of Chrysler credit default swaps will (and perhaps Fiat if they--unlike their predecessors--can make it work), as my first post on the financial carnage at Chrysler demonstrates. My guess is that after much briefing, discovery, and expedited litigation over the next 60 days, Judge Gonzalez will show enough angst to worry both sides that they stand to lose, thus resulting in a compromise that settles the matter and allows the transaction to go forward. But with all Chrysler plants and operations now idled pending a final sale, the pressure to get the deal consummated and return people to work will be so overwhelming that it's hard to imagine Judge Gonzalez not approving the transaction in some form that's acceptable to everyone (except perhaps the dissenting lenders).

by Calculated Risk on 4/30/2009 08:49:00 PM

Hat tip to several - thanks! Note: Victorville is east of Los Angeles at the southern edge of the Mojave desert.

by Calculated Risk on 4/30/2009 08:34:00 PM

From Bloomberg: U.S. Stress Test Results Delayed as Early Conclusions Debated

The Federal Reserve will postpone the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners ... The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week ... A new release date may be announced as soon as tomorrow, they said.

Note that President Obama announced today that GMAC would be receiving government aide (as part of Chrysler deal, GMAC will takeover all financing of Chrysler vehicles). GMAC is one of the 19 banks undergoing stress tests.

by Calculated Risk on 4/30/2009 05:54:00 PM

From CNBC: US May Release Stress Test Results for Specific Banks

U.S. officials are leaning toward announcing the "stress test" results of individual banks next week instead of just summary results ...

The plan on exactly how to release the results "is not very far along," the source said, adding that regulators are looking to disclose a lot of supervisory information about banks that is usually kept confidential.

Transparency is important. It seems the basic principle should be: Banks that require public support should disclose the details of the stress tests to the public.

If a bank does not want to disclose details of the stress test - no problem, they are a private enterprise. But shouldn't they immediately return any TARP money and stop using any special Fed/FDIC/Treasury liquidity programs?