by Calculated Risk on 5/28/2010 05:20:00 PM

There have been numerous reports of less small business lending. But it is unclear if this is because a lack of credit, or if the lower level of lending is because of less demand. A survey by the Atlanta Fed suggests that it is mostly a demand problem (especially excluding construction and real estate industries).

From Atlanta Fed senior economist Paula Tkac: How "discouraged" are small businesses? Insights from an Atlanta Fed small business lending survey

We at the Federal Reserve Bank of Atlanta have ... begun a series of small business credit surveys. Leveraging the contacts in our Regional Economic Information Network (REIN), we polled 311 small businesses in the states of the Sixth District (Alabama, Florida, Georgia, Louisiana, Mississippi and Tennessee) on their credit experiences and future plans. While the survey is not a stratified random sample and so should not be viewed as a statistical representation of small business firms in the Sixth District, we believe the results are informative.

Indeed, the results of our April 2010 survey suggest that demand-side factors may be the driving force behind lower levels of small business credit. To be sure, when asked about the recent obstacles to accessing credit, some firms (34 firms, or 11 percent of our sample) cited banks' unwillingness to lend, but many more firms cited factors that may reflect low credit quality on the part of prospective borrowers. For example, 32 percent of firms cited a decline in sales over the past two years as an obstacle, 19 percent cited a high level of outstanding business or personal debt, 10 percent cited a less than stellar credit score, and 112 firms (32 percent) report no recent obstacles to credit. Perhaps not surprisingly, outside of the troubled construction and real estate industries, close to half the firms polled (46 percent) do not believe there are any obstacles while only 9 percent report unwillingness on the part of banks.

This fits with comments from the National Federation of Independent Businesses that cited "poor sales" as the number one problem for small businesses.

by Calculated Risk on 5/28/2010 03:32:00 PM

This sounds so 2007 ... but it is today.

From David Bracken at the Newobserver.com: Sales stop for Raleigh condo project (ht dshort)

Hue, the multicolor building that is the largest condo project ever attempted in downtown Raleigh, closed its sales office without ever selling a unit.

Signs posted on the building's doors, as well as a message left on the sales office's answering machine, say Hue will be closed until further notice.
...
With its royal blue and mustard exterior, the 208-unit ... seven-story building across from the city administration building downtown replaced a parking lot and was considered a bold symbol of downtown Raleigh's revitalization.

So much for the "revitalization". This is part of the shadow inventory ...

by Calculated Risk on 5/28/2010 12:41:00 PM

This is one of several industry specific indexes I track each month.

Click on graph for larger image in new window.

Same store sales and customer traffic both showed declines in April. This was more than offset by a postive outlook in the "expectations index" and the overall index showed expansion in April.

Unfortunately the data for this index only goes back to 2002.

Note: Any reading above 100 shows expansion for this index.

From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Positive as the Restaurant Performance Index Stood Above 100 in April

[T]the National Restaurant Association’s Restaurant Performance Index (RPI) ... was essentially unchanged from its previous month’s level; the RPI stood at 100.4 in April, down slightly from its March level of 100.5. RPI levels above 100 indicate expansion of key industry indicators.

“Although the sales and traffic indicators softened somewhat from their March performance, restaurant operators remain optimistic that business conditions will improve in the months ahead,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “In addition, restaurant operators reported a positive outlook for staffing gains, as well as continued plans for capital expenditures in the coming months.”
...
After reporting net positive same-store sales in March for the first time in 22 months, restaurant operators reported softer sales results in April.
...
Similarly, restaurant operators reported a net decline in customer traffic levels in April, after posting positive traffic results in March.
emphasis added

Restaurants are a discretionary expense, and they tend to be 'first in, last out' of a recession for consumer spending (as opposed to housing that is usually first in and first out). So far the recovery for restaurants has been sluggish, and operators will only stay optimistic if sales and traffic picks up.

by Calculated Risk on 5/28/2010 09:51:00 AM

From the Institute for Supply Management – Chicago:

The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER eased again, tempering the pace of its expansion while marking its eighth month of growth. All Business Activity indexes except EMPLOYMENT signaled expansion. ... EMPLOYMENT slipped below neutral for the first time in 2010.

The new orders index declined from April (65.2 to 62.7), and inventories increased sharply. Note: any number above 50 shows expansion.

This is similar to other regional reports: continued expansion, but at a slower pace. New orders are softer, and the inventory adjustment is over.

Especially concerning is the sharp decline in the employment index (from 57.2 to 49.2). The national ISM manufacturing index will be released next Tuesday.

by Calculated Risk on 5/28/2010 08:30:00 AM

From the BEA: Personal Income and Outlays, April 2010

Personal income increased $54.4 billion, or 0.4 percent ... Personal consumption expenditures (PCE) increased $4.0 billion, or less than 0.1 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased less than 0.1 percent in April
...
Personal saving as a percentage of disposable personal income was 3.6 percent in April, compared with 3.1 percent in March.

The following graph shows real Personal Consumption Expenditures (PCE) through April (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for large image.

The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

Spending only increased slightly in April compared to March.

The National Bureau of Economic Research (NBER) uses several measures to determine if the economy is in recession. One of the measures is real personal income less transfer payments (see NBER memo). This increased in April to $9,059 billion (SAAR) and is barely above the low of October 2009 ($8,987 billion).

This graph shows real personal income less transfer payments since 1969.

This measure of economic activity is moving sideways - similar to what happened following the 2001 recession.

This month income increased faster than spending ... meaning the saving rate increased.

This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the April Personal Income report. The saving rate increased to 3.6% in April (decreased slightly using a three month average).

I still expect the saving rate to rise over the next couple of years slowing the growth in PCE.

The increase in income was good news, but personal income less transfer payments are still barely above the low of last year.

by Calculated Risk on 5/27/2010 11:59:00 PM

I was out for some time ... the euro is back under 1.23 dollars again ... futures are off slightly (Dow off about 45).

On Friday the BEA will release the Personal Income and Outlay report for April - and that will provide some hints for PCE for Q2. Also the Chicago Purchasing Managers Index for May will be released. Another fun day!

Best to all

by Calculated Risk on 5/27/2010 06:49:00 PM

I thought this was from The Onion ... unfortunately it is not.

From the NAHB: Legislation Addresses Housing Production Credit Crisis

Legislation introduced yesterday by Reps. Brad Miller (D-N.C.) and original co-sponsors Carolyn Maloney (D-N.Y.) and Joe Baca (D-Calif.) would help alleviate the severe lack of credit for acquisition, development and construction (AD&C) financing that threatens to end the budding housing recovery before it has time to take root, according to the National Association of Home Builders (NAHB).

“We applaud these lawmakers for taking the lead to address the housing production credit crisis that is jeopardizing the housing and economic recovery now under way,” said NAHB Chairman Bob Jones, a home builder from Bloomfield Hills, Mich.

H.R. 5409, the Residential Construction Lending Act, would create a new residential construction loan guarantee program within the Department of Treasury to provide loans to builders with viable construction projects. Designed to unfreeze credit for small home building firms, the measure would expand the flow of credit to residential builders on competitive terms.

Under intense pressure from their bank examiners to reduce their exposure to development and construction loans to builders and curtail their outstanding portfolios of real estate loans, many lenders are refusing to make loans for viable new housing projects and cutting off the funding for performing loans, or calling them. This is causing unnecessary foreclosures and losses on these loans. Performing loans are also being reappraised, reducing the value of the collateral and forcing borrowers to come up with large amounts of cash to keep their loans current.

“H.R. 5409 will help restore the flow of credit to housing, provide jobs and give a meaningful lift to the economy,” said Jones. “We urge Congress to act quickly on this bill.”

There is still a large overhang of existing housing units (at the current price). The last thing we need is more production - and then sticking the U.S. taxpayers with more bad loans.

by Calculated Risk on 5/27/2010 03:49:00 PM

Most of the revisions in the "Second Estimate" GDP report this morning were small; the headline GDP number was revised down to 3.0% from 3.2% (annualized real growth rate).

There are really two measures of GDP: 1) real GDP, and 2) real Gross Domestic Income (GDI). The BEA also released GDI today. Recent research suggests that GDI is often more accurate than GDP.

For a discussion on GDI, see from Fed economist Jeremy Nalewaik, “Income and Product Side Estimates of US Output Growth,” Brookings Papers on Economic Activity. An excerpt:

The U.S. produces two conceptually identical official measures of its economic output, currently called Gross Domestic Product (GDP) and Gross Domestic Income (GDI). These two measures have shown markedly different business cycle fluctuations over the past twenty five years, with GDI showing a more-pronounced cycle than GDP. These differences have become particularly glaring over the latest cyclical downturn, which appears considerably worse along several dimensions when looking at GDI. ...

In discussing the information content of these two sets of estimates, the confusion often starts with the nomenclature. GDP can mean either the true output variable of interest, or an estimate of that output variable based on the expenditure approach. Since these are two very different things, using “GDP” for both is confusing. Furthermore, since GDI has a different name than GDP, it may not be initially clear that GDI measures the same concept as GDP, using the equally valid income approach.

The NBER uses both real GDP and real GDI to date recessions.

The following graph is constructed as a percent of the previous peak in both GDP and GDI. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%. The recent recession is marked as ending in Q3 2009 - this is preliminary and NOT an NBER determination.

Click on graph for larger image in new window.

It appears that GDP bottomed in Q2 2009 and GDI in Q3 2009. Real GDP is only 1.2% below the pre-recession peak - but real GDI is still 2.3% below the previous peak.

GDI suggests the recovery has been more sluggish than the headline GDP report and better explains the weakness in the labor market.

Also "Personal income excluding current transfer receipts (billions of chained 2005 dollars)" was revised down for the last two quarters, and now shows essentially no growth in real personal income since the bottom of the recession.

by Calculated Risk on 5/27/2010 01:46:00 PM

From HotelNewsNow.com: STR: Urban hotels top weekly performance

Overall, the industry’s occupancy increased 4.0 percent to 61.6 percent, ADR ended the week virtually flat with a 0.3-percent decrease to US$98.15, and RevPAR rose 3.7 percent to US$60.49.

The occupancy rate has been running about 3% to 4% above 2009 for the last three months. The following graph shows the occupancy rate by week and the 52 week rolling average since 2000.

Click on graph for larger image in new window.

Notes: the scale doesn't start at zero to better show the change.

The graph shows the distinct seasonal pattern for the occupancy rate; higher in the summer because of leisure/vacation travel, and lower on certain holidays.

The occupancy rate is running above 2009 - the worst year since the Depression - but still well below the normal level of close to 67% for this week.

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

by Calculated Risk on 5/27/2010 11:21:00 AM

From Lori Montgomery at the WaPo: Bill on jobless benefits, state financial help scaled back

[C]ongressional leaders reached a tentative agreement Wednesday to scale back a package that would have devoted nearly $200 billion to jobless benefits and other economic provisions ...

Under Wednesday's agreement, the overall cost of the package would drop from more than $190 billion to about $145 billion ... Unemployment benefits would be extended through the end of November, instead of through the end of the year ... $32 billion in expiring tax credits and deductions for businesses and individuals and $24 billion to help cash-strapped state governments.

The "extension" of the unemployment benefits doesn't add more weeks; it extends the eligibility for the previously expanded benefits.

The spending from the American Recovery and Reinvestment Act (ARRA) starts to decline in Q3, and that will be a drag on GDP growth. However the additional spending (including this proposed package) will probably keep the overall contribution to GDP growth slightly positive in Q3, but will be a drag on GDP growth starting in Q4 as spending declines.