by Calculated Risk on 7/01/2009 09:48:00 PM

A quick summary ...

California starts issuing IOUs tomorrow. From the SacBee: Furlough Fridays back - now three days a month

With California on the verge of issuing IOUs, Gov. Arnold Schwarzenegger moved to conserve cash Wednesday by ordering state workers to take a third day of unpaid furlough each month ... [about 14 percent] pay cut for state workers ...

Auto sales were still below 10 million units (SAAR):

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for June (red, light vehicle sales of 9.69 million SAAR from AutoData Corp).

Construction spending declined in May

This graph shows private residential and nonresidential construction spending since 1993 through May. Note: nominal dollars, not inflation adjusted.

"Spending on private construction was at a seasonally adjusted annual rate of $649.2 billion, 1.0 percent below the revised April estimate of $655.6 billion."

Residential construction spending fell further in May, and nonresidential spending was up a little (because of private spending on power), but will probably decline sharply over the next two years.

The ISM June 2009 Manufacturing Report On Business® showed continued contraction.

Employment reports from ADP, Challenger and Monster were released. The BLS report will be released tomorrow (Thursday) because of the holiday on Friday.

The NAR Pending Home Sales Index increased.

The MBA reported refinance applications were off 30%.

by Calculated Risk on 7/01/2009 06:30:00 PM

Here is a review of a few previous state bailouts during recessions by Richard H. Mattoon, senior economist at the Chicago Fed: Should the federal government bail out the states? Lessons from past recessions. A few excerpts:

The rationale for [a bailout] is that states (which are generally prohibited from running deficits) need the money to maintain key programs, such as Medicaid, unemployment insurance, and work force training, for which demand rises during a recession. Also, this aid might help states avoid enacting spending cuts or tax increases that could deepen or prolong the economic downturn.
...
Three factors are particularly important in evaluating the effectiveness of such federal aid to states—timing, triggers, and targeting.

The biggest problem was found to be timing - here is a review of a previous bailout (the 1973-1975 Antirecession Fiscal Assistance (ARFA)):

Extensive evaluations were conducted by the U.S. Department of the Treasury, the Congressional Budget Office (CBO), and the U.S. General Accounting Office (GAO) to assess the federal government’s aid package in response to the 1973–75 recession. In general, the reports were critical of the effectiveness of the aid programs. Specifically, the Treasury’s report found that the aid to the states arrived after the recession had already bottomed out and did little to forestall states from taking budgetary actions that likely exacerbated the recession. In addition, a significant portion of the aid was received during the subsequent economic recovery and may have contributed to post-recession inflationary pressures. Finally, it appears that some states failed to spend the money and instead put the aid toward rebuilding state budget balances during the recovery.
emphasis added

First, many states are now cutting spending and / or raising taxes - what Krugman calls the Fifty Herbert Hoovers.

Second, aid to the states is already late and the public layoffs are already happening (and tax increases for 25 states). But the "good news" is the recovery will probably be very sluggish - so it is unlikely that the aid will not be used (or lead to inflationary pressures).

Of course states like California need more than a little aid ...

by Calculated Risk on 7/01/2009 04:43:00 PM

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for June (red, light vehicle sales of 9.69 million SAAR from AutoData Corp).

June was about average for the year so far on seasonally adjusted basis, and sales are still on pace to be the worst since 1967.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

The small increase in June hardly shows up on the graph.

In 1967 there were 103 million drivers and 9.54 million light vehicles sold; now there are about twice that many (205.7 million licensed drivers in 2007). Compared to the number of drivers, the current sales rate is the lowest since the BEA started tracking auto sales.

by Calculated Risk on 7/01/2009 04:07:00 PM

From the LA Times: Schwarzenegger orders third furlough day, proposes new cuts

Gov. Arnold Schwarzenegger this morning ordered state workers to take a third day off without pay each month ... If lawmakers and the governor do not agree on a plan to wipe out the deficit -- or at least part of it -- by the end of today, State Controller John Chiang will begin giving out IOUs in lieu of checks to pay debts owed by the state.

"We have one more day," Senate President Pro Tem Darrell Steinberg (D-Sacramento)

Here are the FAQs on IOUs (known as Registered Warrants). A few points:

6. Will my financial institution honor a registered warrant?
Recipients of registered warrants should contact their financial institution to determine whether they will honor the registered warrant before the redemption date.

7. What happens if my financial institution will not accept the registered warrant?
You may decide to open an account at another financial institution that will accept registered warrants, or you will have to hold the warrant until it matures on October 1, 2009.
...
9. Who will receive registered warrants?
The State in July will issue registered warrants, or IOUs, for all other payments, including those to private businesses, local governments, taxpayers receiving income tax refunds and owners of unclaimed property.

Most banks will probably accept warrants from established customers ...

by Calculated Risk on 7/01/2009 02:01:00 PM

From MarketWatch: General Motors U.S. June sales decline 33.6%

This is worse the the 29% drop in May.

Also: Toyota June U.S. sales down 32% to 131,654 units

And Chrysler June U.S. sales down 42% to 68,297 units

I'll have a summary for the month soon.

by Calculated Risk on 7/01/2009 12:59:00 PM

I've already posted most of the data in this article ... so I'll just excerpt a quote.

From Bloomberg: Hotel Loan Defaults Double as Recession Cuts Travel (ht mark, ghostfaceinvestah, brian)

As many as one in five U.S. hotel may default on their loans by the end of 2010 as the recession forces companies to spend less on travel and perks, according to Kenneth Rosen, an economist at the University of California.

The value of hotel properties in default or foreclosure almost doubled to $17.3 billion in the second quarter through June 24 from $9 billion at the end of the first quarter, data compiled by Real Capital Analytics Inc. show. The New York-based research firm, which began tracking distressed commercial property in November, expects hotel defaults to increase by as much as $2 billion next quarter, said analyst Jessica Ruderman.

“Hotels without question will have the highest foreclosure rate of any commercial real-estate sector,” said Rosen ...

The hotel segment was the most overbuilt of all CRE - and that is saying something with all the excess retail space!

by Calculated Risk on 7/01/2009 12:27:00 PM

From MarketWatch:

Ford June U.S. sales down 11% to 148,153 units

Ford to increase Q3 production to 485,000 vehicles

Volvo June U.S. sales down 0.6% to 7,042 units

Daimler June U.S. sales fell 26.5% to 16,271 vehicles.

MORE TO COME ...

Previous months:
Ford U.S. May sales fall 24.2%

Ford April U.S. vehicle sales off 31.3%

Ford U.S. March sales dropped 40.9%

February Ford sales were off 46.3% YoY

January off 42.1%

December off 32.4%

November off 31%

by Calculated Risk on 7/01/2009 10:49:00 AM

From the NAR: Pending Home Sales Record Fourth Straight Monthly Gain

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in May, increased 0.1 percent to 90.7 from an upwardly revised reading of 90.6 in April, and is 6.7 percent higher than May 2008 when it was 85.0. The last time there were four consecutive monthly gains was in October 2004.
...
Lawrence Yun, NAR chief economist, cautions that there could be delays in the number of contracts that go to closing. “Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions,” he said.

Yun is blaming the disconnect beteween pending and existing home sales on the change in apprasial rules, but there are probably other factors too - like rising mortgage rates, tighter lending standards, and the inability of homeowners to sell the current home.

by Calculated Risk on 7/01/2009 10:15:00 AM

Private residential construction spending is 64.5% below the peak of early 2006.

Private non-residential construction spending is only off 4.1% below the peak of last September.

Click on graph for larger image in new window.

The first graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Residential construction spending fell further in May, and nonresidential spending was up a little (because of private spending on power), but will probably decline sharply over the next two years.

The second graph shows the year-over-year change for private residential and nonresidential construction spending.

Nonresidential spending is off 3.3% on a year-over-year basis, and will turn strongly negative as projects are completed. Residential construction spending is still declining YoY, although the negative YoY change should be smaller going forward.

As I've noted before, these will probably be two key stories for late 2009: the collapse in private non-residential construction, and the probable bottom for residential construction spending. Both stories are still developing ...

From the Census Bureau: May 2009 Construction at $968.7 Billion Annual Rate

Spending on private construction was at a seasonally adjusted annual rate of $649.2 billion, 1.0 percent (±1.1%)* below the revised April estimate of $655.6 billion. Residential construction was at a seasonally adjusted annual rate of $240.2 billion in May, 3.4 percent (±1.3%) below the revised April estimate of $248.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $409.0 billion in May, 0.5 percent (±1.1%)* above the revised April estimate of $406.9 billion.

by Calculated Risk on 7/01/2009 10:00:00 AM

From the Institute for Supply Management: June 2009 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector failed to grow in June for the 17th consecutive month, while the overall economy grew for the second consecutive month following seven months of decline, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "Manufacturing continues to contract at a slower rate, but the trends in the indexes are encouraging as seven of 18 industries reported growth in June. Most encouraging is the gain in the Production Index, which is up 12.1 percentage points in the last two months to 52.5 percent. Aggressive inventory reduction continues and indications are that the de-stocking cycle is at or near the end in most industries, as the Customers' Inventories Index remained below 50 percent for the third consecutive month. The Prices Index was unchanged from May, indicating that the supply/demand balance is improving. Overall, a slow recovery for manufacturing is forming based on the current trends in the ISM data."
emphasis added

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