by Calculated Risk on 9/08/2009 12:19:00 AM

Reuters is reporting comments by State Councillor Ma Kai indicating China will continue with their stimulative policies.

"The trend of economic stabilisation is still not firm, not solidified, not balanced, and we still face many difficulties and problems," Ma [said] ... "We will maintain the consistency and stability of macroeconomic policies and fully implement and constantly improve a package of plans."

Futures are up ...

Futures from barchart.com

Bloomberg Futures.

CBOT mini-sized Dow

And the Asian markets are mostly up.

Best to all.

by Calculated Risk on 9/07/2009 09:31:00 PM

Another laugh from Jim ... "and if you get busted, you can always say you lost your mind because ..."

by Calculated Risk on 9/07/2009 05:50:00 PM

This story has it all: negative equity, Option ARM, health problems, a modification horror story and more - all with one family in Orange County.

From the O.C. Register: Family faces loss of home amid health crisis

... the Kempffs' option adjustable-rate mortgage payment skyrocketed to $4,300 a month from $2,500 last December. Seeing no way to afford the new payments, the Kempffs opted for a loan modification from their bank, IndyMac which was later purchased by OneWest from the FDIC in March.
...
The Kempffs said they were told by an IndyMac representative on the phone that they had to miss three payments before a deal could be worked out. ... For a family that had never missed payments in 14 years of being homeowners, purposely skipping payments was hard for the Kempffs, but they consented.

I'm curious about the timing in the article. IndyMac was seized by the FDIC on July 11, 2008, and was then run by the FDIC until March of 2009. Did this happen when IndyMac was being used by the FDIC to demonstrate how to modify loans? Tanta correctly predicted that the FDIC would discover that modifying loans was not easy, see: IndyMac-FDIC Mortgage Modification Plan: Still in the Real World

I wrote a snotty post at the end of August after Sheila Bair's plan for "affordability modifications" of the former IndyMac loans was announced, the burden of snot wisdom of which was my prediction that Bair was going to discover that it's a lot harder than she thinks to get successful mortgage modifications done on a wide scale in a very short period of time. However, I did express the hope that the Bair plan would prove remarkably successful and indicated my willingness to eat my words should it prove necessary.

Looks like I'll have to stick to my usual dry toast and bananas after all.

Back to the article:

A OneWest Bank spokesperson said the Kempffs didn't qualify for a loan modification because the amount they owed on their first mortgage was more than $729,750.

The unpaid amount on the Kempffs' loan is $786,802.59, short of qualifying for a modification by about $60,000.

Since the Kempffs purchased their home in 2002, they took out loans and refinanced their mortgage. The equity from those transactions enabled the Kempff family to fix their cracked pool, remedy a slipping backyard slope by putting in three retaining walls, help three children pay for college and pay for the medical bills of their youngest son who had malignant melanoma.
...
Juergen Kempff, 65, has battled leukemia and lymphoma for a decade, on and off. His bone marrow has been debilitated from his treatments, and his oncologist has given him about six months to live.
...
Desperate to stall the foreclosure process, the Kempffs declared bankruptcy.

A sympathetic borrower - a professor at the University of California, Irvine with a serious health issue - negative equity, using the home as an ATM, an Option ARM, a personal bankruptcy, miscommunication with the lender on a modification (apparently while the FDIC was running IndyMac) - and a home in the upper middle price range. This story has it all.

by Calculated Risk on 9/07/2009 01:05:00 PM

A frequent question is how do the 570,000 initial weekly unemployment claims, as reported by the Dept of Labor (DOL), correspond to the 216,000 in monthly job losses as reported by the Bureau of Labor Statistics (BLS).

If about 2.4 million people filed initial weekly claims in a month (570,000 X 4 weeks), how come the economy only lost 216 thousand net jobs in August?

First, I think it is helpful to look at total hires and separations each month. The BLS has a survey called "Job Openings and Labor Turnover Survey" (JOLTS) that provides this information. The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers.

Note: Remember the CES (Current Employment Statistics, payroll survey) is for positions, the CPS (Current Population Survey, commonly called the household survey) is for people. See Jobs and the Unemployment Rate for a comparison of the two surveys.

The following graph shows hires (Green Line), Quits (blue bars) and Layoff, Discharges and other (red bars) from the JOLTS. Red and blue added together equals total separations.

Unfortunately this is a new series and only started in December 2000.

Click on graph for larger image in new window.

Notice that hires (green line) and separations (red and blue together) are pretty close each month. When the green line is above total separations, the economy is adding net jobs, when the green line is below total separations, the economy is losing net jobs.

Although initial claims are for people and JOLTS is for positions, this does show why initial claims are so high. In the first six months of 2009, an average of about 2.8 million jobs were lost involuntarily each month. If all of these people applied for unemployment claims, the average initial weekly unemployment claims would have been about 650,000 per week (2.8 million divided by 4.3 weeks per month). In fact weekly claims averaged just over 600,000 per week for the first six months of 2009. Note: "quits" don't receive unemployment insurance.

So even though there were about 4.2 million new hires each month during the first six months of 2009, people who lose their jobs involuntarily during a recession have a difficult time finding a new job right away, and most apply for unemployment benefits.

In better times, like 2005, about 2.26 million jobs were lost involuntarily each month, but weekly claims only averaged 330,000 per week (2.26 million divided by 4.3 week is 525,000). This shows when the economy is adding net jobs, a larger percentage of people can find new jobs right away and don't apply for unemployment insurance. But many people still do file for benefits.

Although we don't have JOLTS data for the '90s, even in the best of times for employment (like 1997), the U.S. averaged about 230 thousand initial unemployment claims per week - even though the economy added almost 3.4 million net jobs for the year. This just points out there is significant employment turnover in the U.S. economy, and many people lose their jobs involuntarily even in good times.

Final Note: Since weekly initial unemployment claims are related to involuntary separations - and the overall strength of the job market (Can people find a job right away?), there is no magic formula between initial claims and net jobs. It does appear that initial weekly claims will have to fall to about 400,000 per week before the economy starts adding jobs, see from Brad DeLong: Payroll Employment Starts Growing When Seasonally-Adjusted Unemployment Claims Fall Below 400K per Week or so...

This is the graph from DeLong's post (click on graph for larger image.)

by Calculated Risk on 9/07/2009 09:50:00 AM

From Michael Luo at the NY Times: Out of Work, Too Down to Search On, and Uncounted (ht Kai, Ann)

They were left out of the latest unemployment rate, as they are every month: millions of hidden casualties of the Great Recession who are not counted in the rate because they have stopped looking for work.

But that does not mean these discouraged Americans do not want to be employed. As interviews with several of them demonstrate, many desperately long for a job, but their inability to find one has made them perhaps the ultimate embodiment of pessimism as this recession wears on.
...
The official jobless rate, which garners the bulk of attention from politicians and the public, was reported on Friday to have risen to 9.7 percent in August. But to be included in that measure, which is calculated by the Bureau of Labor Statistics from a monthly nationwide survey, a worker must have actively looked for a job at some point in the preceding four weeks.

For an increasing number of people in this country who would prefer to be working, that is not the case.

Luo provides short stories about four people who have given up looking.

by Calculated Risk on 9/06/2009 08:34:00 PM

Laura Conaway at NPR Money highlights a new survey by the Rutgers University John J. Heldrich Center for Workforce Development.

From the Press Release:

A comprehensive national survey conducted among 1,200 Americans nationwide who have been unemployed and looking for a job in the past 12 months, including 894 who are still jobless, portrays a shaken, traumatized people coping with serious financial and psychological effects from an economic downturn of epic proportion.
...
The survey shows that the great recession of 2007-2009 may have long-lasting financial and psychological effects on millions of people, and therefore on the nation’s social fabric. Two thirds of respondents say they are depressed, over half have borrowed money from friends or relatives, and a quarter have skipped mortgage or rent payments. ...

More than half of the jobless think the changes in the economy will be fundamental and lasting, and when the unemployed are asked when the economy will recover, only 20% believe it will do so in the next year.

Here are the raw comments and stats from the survey.

Click on graph for larger image in new window.

From the report:

Over half of the unemployed have lost their jobs for the first time ... Job loss is hitting more affluent workers and educated professionals hard — a metric of the recession’s seismic impact. More than one in four of those who were unemployed for the first time earned $75,000 or more in their previous job; one in four first-time unemployed workers have at least a four-year college degree.

by Calculated Risk on 9/06/2009 02:00:00 PM

A few posts of interest this last week:

Restaurants in July: 23rd Consecutive Month of Declining Traffic

Construction Spending in July

Light Vehicle Sales 14.1 Million (SAAR) in August

ISM Non-Manufacturing Index Shows Contraction in August

Problem Bank List (Unofficial) Sep 4, 2009 (5 more banks failed this week)

Employment Report: 216K Jobs Lost, 9.7% Unemployment Rate

Unemployment: Stress Tests, Unemployed over 26 Weeks, Diffusion Index

Employment-Population Ratio, Part Time Workers, Average Workweek

Enjoy the weekend!!! Best to all.

by Calculated Risk on 9/06/2009 11:00:00 AM

In the comments yesterday we were comparing the "feel" of the current recession compared to the early '80s. Back then it seemed there were many more homeless people, and camps of "Reaganvilles" (an echo of the Hoovervilles during Depression) were sprouting up around the country. I commented that it seems there are far fewer homeless people now, so this story caught my eye ...

From the NY Times: Surge in Homeless Children Strains School Districts

While current national data are not available, the number of schoolchildren in homeless families appears to have risen by 75 percent to 100 percent in many districts over the last two years, according to Barbara Duffield, policy director of the National Association for the Education of Homeless Children and Youth, an advocacy group.

There were 679,000 homeless students reported in 2006-7, a total that surpassed one million by last spring, Ms. Duffield said.

With schools just returning to session, initial reports point to further rises. In San Antonio, for example, the district has enrolled 1,000 homeless students in the first two weeks of school, twice as many as at the same point last year.

by Calculated Risk on 9/06/2009 08:00:00 AM

From the WSJ: G-20 Agree to Boost Banks' Capital Requirements, Set Rules on Bonuses

The agreement on bankers' pay calls for a large portion of bonuses to be clawed back if bank performance subsequently deteriorates. It also calls for the deferral of a share of bonuses. ... More detailed proposals will be worked on in coming weeks by the Financial Stability Board ... Officials want the new rules in place before bonuses are paid out at year-end.

And on capital requirements:

... the officials [agreed] that more needs to be done to boost banks' capital cushions "once recovery is assured." ...

In a victory for Mr. Geithner ... there was also agreement that the leverage of international banks – the ratio of their total equity to their total assets -- should be capped. ... Officials fear that if the capital is not raised, undercapitalized 'zombie banks' would be unable to lend and would block economic recovery.

Here is the Communiqué - UK, 5 September 2009 (PDF 13KB)

And Declaration on further steps to strengthen the financial system, 5 September 2009 (PDF 15.5KB)

by Calculated Risk on 9/05/2009 10:38:00 PM

This is a story that will keep building as workers exhaust their extended unemployment benefits ...

From the Boston Globe: State jobless pay to end for many

Massachusetts is experiencing its first wave of jobless workers to exhaust unemployment benefits after nearly two years of rising unemployment, state labor officials said.

The state this week sent out letters notifying about 2,500 jobless workers that they had or would soon receive their last unemployment checks, having used up state and federal extensions that provided up to 79 weeks, or about 18 months, of benefits. The state expects about 21,000 jobless workers to run out of unemployment benefits by Thanksgiving.

And on extending the unemployment benefits for another 13 weeks, from the SF Chronicle: 4 stimulus breaks due to run out at year end

The stimulus act increased the weekly unemployment benefit by $25 per week, allowed people to deduct up to $2,400 in benefits on their federal tax return and extended the federal government's extended benefits program, which provides additional compensation to people who have used up their regular state benefits.

In California, a person who exhausted 26 weeks of state benefits could get up to 20 more weeks under the first federal extension, then up to 13 weeks under a second extension and up to 20 weeks more under a third extension. The first and second extensions were supposed to expire in the spring but the stimulus extended them until Dec. 31. The stimulus also provided 100 percent federal funding for the third extension.

All these federal benefits sunset after Dec. 31. A person who was already receiving extended benefits on Jan. 1 could finish that round of benefits, but not start the next extension. A person who was still receiving their regular state benefits on Jan. 1 would get no extended benefits.

HR3404, sponsored by Rep. Jim McDermott, D-Wash., would extend all of the expiring provisions through next year. It also would create a fourth extension of up to 13 weeks for people in high-unemployment states.

It is very likely that this bill will pass soon (the Senate bill is S. 1647).