by Calculated Risk on 6/09/2009 01:51:00 PM

First a report from Bloomberg: U.S. Third-Quarter Hiring Plans at Record Low, Manpower Says

U.S. employers’ hiring plans for the third quarter held at a record low, signaling fired workers will have to wait many more months to find a job, a survey showed.
...
Companies are “treading slowly and watching with guarded optimism, hoping a few quarters of stability will be the precursor to the recovery,” Jonas Prising, president of the Americas for Milwaukee-based Manpower, said in a statement.

That fits with the Fed Economic Paper I posted yesterday: Jobless Recovery Redux? that argued a jobless recovery is likely.

Our analysis generally supports projections that labor market weakness will persist, but our findings offer a basis for even greater pessimism about the outlook for the labor market.
...
This projection indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate. This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing workforces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates.
emphasis added

And Frankels (on the NBER recession Business Cycle Dating Committee) notes: The labor market has NOT yet signaled a turning point (ht Mark Thoma, Paul Krugman)

The members of the NBER Business Cycle Dating Committee (of which I am one) will be responsible for calling the trough when the time is right.
...
Speaking entirely for myself, I like to look at the rate of change of total hours worked in the economy. Total hours worked is equal to the total number of workers employed multiplied by the average length of the workweek for the average worker. The length of the workweek tends to respond at turning points faster than does the number of jobs. When demand is slowing, firms tend to cut back on overtime, and then switch to part-time workers or in some cases cut workers back to partial workweeks, before they lay them off. Conversely, when demand is rising, firms tend to end furloughs, and if necessary ask workers to work overtime, before they hire new workers. (The hours worked measure improved in April 1991 and November 2001 which on other grounds were eventually declared to mark the ends of their respective recessions.) The phenomenon is called “labor hoarding” and it is attributable to the costs of finding, hiring and training new workers and the costs in terms of severance pay and morale when firing workers.

Note that Frankels is making similar arguments as the San Francisco Fed paper - except he is discussing the end of the recession as opposed to a jobless recovery.

And the following graph shows the aggregate hours index from the BLS over several recessions.

Click on graph for larger image in new window.

Frankel notes that the "hours worked measure improved in April 1991 and November 2001" and that was a factor in declaring the end of those recessions. In 1991 the index flattened out - and in 2001, after improving slightly at the end of the year, the index actually declined further in 2002 and 2003 (the employment recession lasted until July 2003 by this measure).

This will be an important series to follow in trying to predict when the NBER calls the end of the recession.

As the recession ends, we should see hours worked increase (or at least stop falling), and the number of part time for economic reasons workers decline. New hiring will probably remain sluggish for some time.

by Calculated Risk on 6/09/2009 12:15:00 PM

From Bloomberg: U.S. Commercial Mortgage Defaults May Rise to 17-Year High (ht Brian)

The default rate on commercial mortgages held by U.S. banks may rise to the highest in 17 years in the fourth quarter as debt for refinancing remains scarce and the recession drags down rents.

The rate is likely to reach 4.1 percent by year-end, Real Estate Econometrics LLC ... said in a report today. ...

Commercial defaults already are at a 15-year high after climbing to 2.3 percent in the first quarter ... from 1.6 percent at the end of 2008 ...

The projection for this year would match the 4.1 percent rate seen in 1993 and be the highest since defaults reached 4.6 percent in 1992 during the savings and loan crisis ...

The company projects the default rate on commercial mortgages will reach 5.2 percent by the end of 2010 and peak at 5.3 percent in 2011 before starting to decline.

Earlier this morning, TARP panel chair Elizabeth Warren recommended running the stress tests again on US banks, but using a higher unemployment rate and for more years (including 2011 through 2013). This would include these higher commercial real estate defaults that everyone now sees coming.

by Calculated Risk on 6/09/2009 09:52:00 AM

From MarketWatch: Ten large banks can return $68 billion in TARP

Repay TARP: NTRS, BBT, MS, STT, JPM, USB, AXP, COF, GS, BNY

It is a little confusing because Northern Trust (NTRS) wasn't one of the 19 stress test banks.

Name	TARP Amount	Repay
Bank of America	$52.5 billion	No way!
Citigroup	$50 billion	No way!
JPMorgan Chase	$25 billion	XXX
Wells Fargo	$25 billion	-
GMAC	$12.5 billion	No way!
Goldman Sachs	$10 billion	XXX
Morgan Stanley	$10 billion	XXX
PNC Financial Services	$7.6 billion	-
U.S. Bancorp	$6.6 billion	XXX
SunTrust	$4.9 billion	-
Capital One Financial Corp.	$3.6 billion	XXX
Regions Financial Corp.	$3.5 billion	-
Fifth Third Bancorp	$3.4 billion	-
American Express	$3.4 billion	XXX
BB&T	$3.1 billion	XXX
Bank of New York Mellon	$3 billion	XXX
KeyCorp	$2.5 billion	-
State Street	$2 billion	XXX
MetLife	None	-

Bailout amounts from Pro Publica : Eye on the Bailout

by Calculated Risk on 6/09/2009 08:39:00 AM

From CNBC: Repeat Bank Stress Tests 'Right Now': TARP Panel Chair

The Congressionally-appointed panel overseeing the Troubled Asset Relief Program (TARP) recommends running again the stress tests on US banks, as economic conditions have worsened, its chair, Harvard University professor Elizabeth Warren, told CNBC Tuesday.

"We actually make recommendations to do it all over again right now," Warren told "Squawk Box."

"We've already blown past the worst-case scenario on unemployment," she added.
...
Other reasons for concern are that the model used in the Treasury's stress tests stretches on less than two years, while many commercial mortgages are coming up in 2011, 2012 and 2013, Warren said.

Click on graph for larger image in new window.

This graph shows the unemployment rate compared to the stress test economic scenarios on a quarterly basis as provided by the regulators to the banks (no link).

This is a quarterly forecast: in Q1 the unemployment rate was higher than the "more adverse" scenario. The Unemployment Rate in Q2 (only two months) is already higher than the "more adverse" scenario, and will probably rise further in June.

Note also that the unemployment rate has already exceeded the peak of the "baseline scenario".

The second graph compares the Case-Shiller Composite 10 NSA index with the Stress Test scenarios from the Treasury (stress test data is estimated from quarterly forecasts).

The Stress Test scenarios use the Composite 10 index and start in December. Here are the numbers:

Case-Shiller Composite 10 Index, March: 151.41

Stress Test Baseline Scenario, March: 154.82

Stress Test More Adverse Scenario, March: 149.96

It has only been three months, but prices are tracking close to the 'More Adverse' scenario so far.

For GDP, the baseline case was for GDP to decline at a 5.0% annual real rate in Q1, and the more adverse scenario was for a decline of 6.9%. The BEA preliminary report showed a decline of 5.7% in Q1 (about half way between the two scenarios).

So far GDP and house prices are tracking a little better than the more adverse scenario, and unemployment worse.

Meanwhile CNBC says American Express and Morgan Stanley are on the list to repay TARP funds. CNBC also lists Goldman Sachs Group, JPMorgan Chase, State Street, U.S. Bancorp and BB&T.

The WSJ lists American Express Co., Bank of New York Mellon Corp., Capital One Financial Corp., Goldman Sachs Group Inc. and J.P. Morgan Chase & Co.

by Calculated Risk on 6/08/2009 10:22:00 PM

From Bloomberg: U.S. Treasury Said to Plan Approving 10 Banks to Repay TARP

The Treasury is preparing to announce tomorrow it will let 10 banks buy back government shares, people familiar with the matter said, signaling confidence some of the largest U.S. lenders won’t again need a taxpayer rescue.

JPMorgan Chase & Co. is among those cleared to repay Troubled Asset Relief Program funds ... Goldman Sachs Group Inc., American Express Co. and State Street Corp. are also among those that have sold shares and debt unguaranteed by the government ...

Here is your handy table ...according to the Bloomberg article 10 of these stress tested banks will be approved to repay the TARP money (MetLife didn't take TARP money). I've noted the banks mentioned in various articles ... let the guessing games begin!

Name	TARP Amount	Comment
Bank of America	$52.5 billion	No way!
Citigroup	$50 billion	No way!
JPMorgan Chase	$25 billion	Mentioned
Wells Fargo	$25 billion	Unlikely
GMAC	$12.5 billion	No way!
Goldman Sachs	$10 billion	Mentioned
Morgan Stanley	$10 billion	Mentioned
PNC Financial Services	$7.6 billion	-
U.S. Bancorp	$6.6 billion	Mentioned
SunTrust	$4.9 billion	-
Capital One Financial Corp.	$3.6 billion	-
Regions Financial Corp.	$3.5 billion	-
Fifth Third Bancorp	$3.4 billion	-
American Express	$3.4 billion	Mentioned
BB&T	$3.1 billion	Mentioned
Bank of New York Mellon	$3 billion	Mentioned
KeyCorp	$2.5 billion	-
State Street	$2 billion	Mentioned
MetLife	None	-

Bailout amounts from Pro Publica : Eye on the Bailout

by Calculated Risk on 6/08/2009 08:48:00 PM

In some cities there are a substantial number of uncounted new condos for sale or just sitting vacant. These units are not included in the Census Bureau new home sales inventory report.

Here is a short video from Jim the Realtor of a few more units in Encinitas (north county San Diego). Hey ... where are the gas meters?

by Calculated Risk on 6/08/2009 06:14:00 PM

From the SCOTUS Blog: Ginsburg temporarily blocks Chrysler deal

Supreme Court Justice Ruth Bader Ginsburg put a temporary hold Monday on the deal to sell Chrysler to save it from collapse. Her order, however, simply gives her or the full Court more time to ponder whether to postpone the sale further, or allow it to go forward. The order can be found here.
...
The deal remains in legal limbo until Ginsburg, as the Circuit Justice, or the full Court takes some definitive action. There is now no timetable for further action at the Supreme Court, although the terms of the deal allow Chrysler’s new business spouse — Fiat, the Italian automaker — to back out as of next Monday if the deal has not closed. Moreover, the papers filed in the Supreme Court have suggested that Chrysler is losing money at the rate of $100 million a day, pending the sale. That gives the Justices some incentive not to let much time pass before acting.

There is more ...

by Calculated Risk on 6/08/2009 05:46:00 PM

From the Fed:

The 10 banking organizations required by the Supervisory Capital Assessment Program to bolster their capital buffers have all submitted capital plans that, if implemented, would provide sufficient capital to meet the required buffer under the assessment's more-adverse scenario. As supervisors, we will be working with the institutions to ensure their plans are implemented quickly and effectively.

Supervisors also continue to work with all regulated financial institutions to review the quality of their corporate-governance, risk-management and capital-planning processes.

by Calculated Risk on 6/08/2009 03:58:00 PM

Paul Krugman is delivering a three part lecture at the London School of Economics starting today.

Bloomberg has some quotes: Nobel Laureate Krugman Says Recession May End ‘This Summer’

“I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer,” he said in a lecture today at the London School of Economics. “Things seem to be getting worse more slowly. There’s some reason to think that we’re stabilizing.”
...
Even with a recovery, “almost surely unemployment will keep rising for a long time and there’s a lot of reason to think that the world economy is going to stay depressed for an extended period,” Krugman said.

The next two lectures will be Tuesday ("The eschatology of lost decades") and Wednesday ("The night they reread Minsky") at 6:30 PM London Time.

The live webcasts are here.

by Calculated Risk on 6/08/2009 02:42:00 PM

Economic letter from the San Francisco Fed: Jobless Recovery Redux?

Although the pace of layoffs appears to be subsiding and the overall economy is showing hints of stabilization, most forecasters expect unemployment to continue to increase in coming months and to recede only gradually as recovery takes hold. In this Economic Letter, we evaluate this projection using data on three labor market indicators: worker flows into and out of unemployment; involuntary part-time employment; and temporary layoffs. We pay particular attention to how these indicators compare with data from previous episodes of recession and recovery. Our analysis generally supports projections that labor market weakness will persist, but our findings offer a basis for even greater pessimism about the outlook for the labor market. Specifically, we suggest that the relatively low level of temporary layoffs and high level of involuntary part-time workers make a jobless recovery similar to the one experienced in 1992 a plausible scenario.
emphasis aded

Click on graph for larger image in new window.

What does all this mean for the course of the labor market? We combine data on involuntary part-time workers with the standard unemployment rate to arrive at an alternative measure of labor underutilization. We plot this measure in Figure 3, which shows that the labor market has considerably more slack than the official unemployment rate indicates. The figure extends this labor underutilization measure using the Blue Chip consensus forecast for the unemployment rate as a benchmark and then adding a share of involuntary part-time workers based on the proportion of workers in that category to the unemployed during the current recession. This projection indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate. This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing workforces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates.

This weekend I plotted some graphs of jobs and the unemployment rate for four recessions and recoveries (1981, 1990, 2001, and the current recession). See: Jobs and the Unemployment Rate. Here is the graph for the 1990 recession and the jobless recovery that followed:

The unemployment rate continued to rise for 15 months after the recession ended.

The researchers argue that the labor recovery following the current recession may be similar or worse than the jobless recovery following the 1991 recession:

[S]hould labor market conditions ... proceed along the path taken in the 1992 recovery, the unemployment rate could peak close to 11% in mid-2010 and remain above 9% through the end of 2011.