by Calculated Risk on 6/01/2010 10:30:00 AM

Overall construction spending increased in April, and private construction spending, both residential and non-residential, also increased in April. From the Census Bureau: April 2010 Construction at $847.3 Billion Annual Rate

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during April 2010 was estimated at a seasonally adjusted annual rate of $869.1 billion, 2.7 percent (±1.4%) above the revised March estimate of $845.9 billion. The April figure is 10.5 percent (±1.6%) below the April 2009 estimate of $971.4 billion. ... Spending on private construction was at a seasonally adjusted annual rate of $565.8 billion, 2.9 percent (±1.1%) above the revised March estimate of $549.7 billion.

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.

Private residential construction spending appears to have bottomed in early 2009, but has been mostly moving sideways since then. Residential spending is now 61% below the peak of early 2006.

Private non-residential construction spending is now 29% below the peak of late 2008.

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

Nonresidential spending is off 24.6% on a year-over-year (YoY) basis.

Residential construction spending is now up 4.1% from a year ago (easy comparison), and will probably decline slightly later this year.

Private residential spending will probably exceed non-residential spending later this year - mostly because of continued declines in non-residential spending. Private construction will be a weak sector for some time.

by Calculated Risk on 6/01/2010 10:00:00 AM

PMI at 59.7% in May, down from 60.4% in April.

From the Institute for Supply Management: May 2010 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in May for the 10th consecutive month, and the overall economy grew for the 13th consecutive month, 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. "The manufacturing sector grew for the 10th consecutive month during May. The rate of growth as indicated by the PMI is driven by continued strength in new orders and production. Employment continues to grow as manufacturers have added to payrolls for six consecutive months. The recovery continues to broaden as 16 of 18 industries report growth. There are a number of reports, particularly in the tech sector, of shortages of components; this is the result of excessive inventory de-stocking during the downturn."
...
ISM's Employment Index registered 59.8 percent in May, which is 1.3 percentage points higher than the 58.5 percent reported in April. This is the sixth consecutive month of growth in manufacturing employment. An Employment Index above 49.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
emphasis added

This was close to expectations of 59.5% and suggests continued growth in the manufacturing sector.

by Calculated Risk on 6/01/2010 08:51:00 AM

The euro is at a four year low this morning at 1.2174 dollars

From Eurostat: Euro area unemployment rate at 10.1%

The euro area1 (EA16) seasonally-adjusted unemployment rate was 10.1% in April 2010, compared with 10.0% in March. It was 9.2% in April 2009. The EU271 unemployment rate was 9.7% in April 2010, unchanged compared with March. It was 8.7% in April 2009.

Eurostat estimates that 23.311 million men and women in the EU27, of whom 15.860 million were in the euro area, were unemployed in April 2010.

Among the Member States, the lowest unemployment rates were recorded in the Netherlands (4.1%) and Austria (4.9%), and the highest rates in Latvia (22.5%), Spain (19.7%) and Estonia (19.0% in the first quarter of 2010).

Compared with a year ago, one Member State recorded a fall in the unemployment rate and twenty-six an increase. The fall was observed in Germany (7.6% to 7.1%), and the smallest increases in Luxembourg (5.3% to 5.4%) and Malta (6.9% to 7.0%). The highest increases were registered in Estonia (11.0% to 19.0% between the first quarters of 2009 and 2010), Latvia (15.4% to 22.5%) and Lithuania (11.2% to 17.4% between the first quarters of 2009 and 2010).

by Calculated Risk on 6/01/2010 12:55:00 AM

Click on cartoon for larger image in new window. Cartoon from Eric G. Lewis www.EricGLewis.com (site coming soon)

From Bloomberg: Commodities’ Biggest Drop Since Lehman Bear Signal

The Journal of Commerce commodity index that includes steel, cattle hides, tallow and burlap plunged 57 percent in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.

From the WSJ: Steel Prices Under Pressure

From the WSJ: China Bites Into Commodities Reserves

The Dow Jones-UBS Commodity Index last week dropped to its lowest level since July, before recouping some of its losses. The index is down 9.9% this year.

In April, China posted a significant drop in imports for some commodities, leaving many analysts wondering whether China's appetite for commodities has abated.

The euro is down to 1.226 dollars.

The Asian markets are off tonight about 0.5% to 1%.

The futures are off somewhat (Dow off 47).

by Calculated Risk on 5/31/2010 10:09:00 PM

From David Streitfeld at the NY Times: Owners Stop Paying Mortgages, and Stop Fretting. A few excerpts:

Foreclosure procedures have been initiated against 1.7 million of the nation’s households.
...
The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.
...
More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property ...

Streitfeld provides a few examples. One lady said "The longer I’m in foreclosure, the better."

This isn't for everyone. Streitfeld quotes Kyle Lundstedt, managing director of Lender Processing Service’s analytics group:

“These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure.”

by Calculated Risk on 5/31/2010 08:54:00 PM

Note: Here is the Weekly Summary and a Look Ahead (it will be a busy week).

From Mickey Meese at the NY Times: Fading Summer Jobs

State and local governments, traditionally among the biggest seasonal employers, are knee-deep in budget woes, and the stimulus money that helped cushion some government job programs last summer is running out. Private employers are also reluctant to hire until the economy shows more solid signs of recovery.

So expect fewer lifeguards on duty at public beaches this summer in California, fewer workers at some Massachusetts state parks and camping grounds and taller grass outside state buildings in Kentucky.

Click on graph for large image.

For summer jobs, this will probably be the worst year since the Great Depression.

This graph shows the unemployment rate for workers 16 to 24 years old (from the BLS), and the headline unemployment rate (blue). The unemployment rate hit a record 19.6% in April for this group.

This probably ties into the recent NY Times article on overwhelming student debt. When I was in college, I was able to find summer jobs that helped me pay my way through college (of course I walked 10 miles through the snow and all that too). Times have really changed ...

by Calculated Risk on 5/31/2010 04:02:00 PM

The ECB released the twice yearly Finanical Stability Review report today. Here are couple of articles about the report:

From the Financial Times: ECB warns of ‘hazardous contagion’

The eurozone’s financial sector and economy are facing “hazardous contagion” effects from the region’s debt crisis, according to the European Central Bank ... Taking into account writedowns already reported and loan loss provisions, some €90bn of writedowns have yet to feed through, it said. For 2011, it expected banks would have to make additional loan-loss provisions of about €105.
except with permission

There is also a video discussion with Martin Wolf and Richard Haass, president of the Council on Foreign Relations.

From the NY Times: Europe’s Banks at Risk From Slower Growth, Report Says

... the E.C.B. expressed particular concern about banks’ need to refinance some €800 billion, or $980 billion, in long-term debt by the end of 2012. Borrowing costs could rise as the banks compete with governments in the bond market “making it challenging to roll over a sizeable amount of maturing bonds by the end of 2012,” the report said.

by Calculated Risk on 5/31/2010 12:39:00 PM

Just continuing a theme ...

From Eddie Baeb at Crain's Chicago Business: Nearly vacant condo tower goes back to lender

The 35-story Lexington Park, near Michigan Avenue and Cermak Road, was surrendered last week by its Irish developer through a deed-in-lieu of foreclosure. The private-equity venture that now owns the property acquired Corus Bank’s the distressed condo loans after the Chicago-based lender failed last fall.

Just three buyers have closed on Lexington Park’s 333 units, according to property records. The tower, 2138 S. Indiana Ave., was supposed to be ready for occupancy in 2008.

Hey, they closed on 1% percent of the units!

Note that the developer just "walked away" (deed-in-lieu) and the original lender was Corus, the "Condo King". Unless listed for sale, these units are not included in the new or existing home inventory reports - real shadow inventory!

by Calculated Risk on 5/31/2010 09:13:00 AM

Note: Here is the Weekly Summary and a Look Ahead (it will be a busy week).

On Friday, the BEA released the Personal Income and Outlays report for April. The report showed that Real PCE increased less than 0.1 percent in April (compared to March).

Even though the month-to-month increase was small, this was fairly large increase from January (comparing the first month of Q2 to the first month of Q1).

In calculating PCE for the GDP report, 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 following graph illustrates how this is calculated. Note that the y-axis doesn't start at zero to better show the change.

Click on graph for large image.

The blue columns show real PCE by month, and the dashed red lines are the quarterly average.

PCE didn't increase much in January compared to December either, but there was strong growth in February and March. This resulted in PCE growing at an annualized rate of 3.5% for Q1.

Even if PCE was flat in May and June compared to April (preliminary reports suggest growth in May), real PCE would grow at 2.0% in Q2. More likely - with some growth in May and June - PCE will grow closer to 3% in Q2.

This is just a reminder that PCE growth (and GDP growth) is pretty much already baked into Q2.

Best to all.

by Calculated Risk on 5/30/2010 10:13:00 PM

From Buck Wargo at the Las Vegas Sun: CityCenter condo closings slow in down economy

Through the end of April, MGM Mirage and Dubai World, the owners of the project, have closed on 78 of 1,543 units at the Vdara condo-hotel, according to SalesTraq.

... Houston-based Metrostudy reported that Las Vegas has more than 8,200 condominium units that are sitting empty, including those still vacant in CityCenter.

This is a reminder that unless these condos are listed, they do not show up as either existing or new home inventory (the new home report doesn't include high rise condos).

There are some areas - like Las Vegas and Miami - that have a huge number of vacant high rise condos. But there are also many smaller buildings that are mostly vacant in a number of cities (like in New York, Raliegh, N.C. and Irvine, Ca). This is part of the shadow inventory ...