by Calculated Risk on 11/05/2010 06:47:00 PM

K Street Lobbyists
Plenipotentiaries
Could not save K Bank
by Soylent Green is People
From the FDIC: Manufacturers and Traders Trust Company (M&T Bank), Buffalo, New York, Assumes All of the Deposits of K Bank, Randallstown, Maryland

As of September 30, 2010, K Bank had approximately $538.3 million in total assets and $500.1 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $198.4 million. ... K Bank is the 140th FDIC-insured institution to fail in the nation this year, and the fourth in Maryland.

One down today ...

by Calculated Risk on 11/05/2010 05:20:00 PM

The combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA increased by 24% at the end of Q3 2010 compared to Q2 2010. The REO inventory increased 92% compared to Q3 2009 (year-over-year comparison).

Click on graph for larger image in new window.

This graph shows the REO inventory for Fannie, Freddie and FHA through Q3 2010.

The REO inventory for the "Fs" has increased sharply over the last year, from 153,007 at the end of Q3 2009 to a record 293,171 at the end of Q3 2010.

There are new records for Fannie, Freddie, and FHA REO inventory individually too.

Remember this is just a portion of the total REO inventory. Private label securities and banks and thrifts also hold a substantial number of REOs.

The REO inventory will probably increase sharply in Q4. From Fannie Mae today:

Given the large number of seriously delinquent loans in our single-family guaranty book of business and the large current and anticipated supply of single-family homes in the market, we expect it will take a number of years before our REO inventory approaches pre-2008levels.
...
Our expectation that the foreclosure pause will likely result in higher serious delinquency rates, longer foreclosure timelines, higher foreclosed property expenses, higher credit losses, higher credit-related expenses, and an increase in the number of REO properties we are unable to market for sale.

by Calculated Risk on 11/05/2010 02:21:00 PM

According to the BLS employment report, retailers hired seasonal workers at about the pre-crisis pace in October.

Click on graph for larger image.

Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.

This really shows the collapse in retail hiring in 2008 and modest rebound in 2009.

Retailers hired 150.9 thousand workers (NSA) net in October. This is about the same level as in 2003 through 2006. Note: this is NSA (Not Seasonally Adjusted), retailers hired 28 thousand workers SA in October.

This suggests retailers are fairly optimistic about the holiday season.

Earlier employment posts:

October Employment Report: 151,000 Jobs, 9.6% Unemployment Rate

Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks

Graphics Gallery for Employment

by Calculated Risk on 11/05/2010 12:30:00 PM

Earlier employment posts:

October Employment Report: 151,000 Jobs, 9.6% Unemployment Rate

Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks

Graphics Gallery for Employment

From the NAR:
Pending Home Sales Slip but Modest Recovery Expected in 2011

The Pending Home Sales Index,* a forward-looking indicator, slipped 1.8 percent to 80.9 based on contracts signed in September from an upwardly revised 82.4 in August. ... The data reflects contracts and not closings, which normally occur with a lag time of one or two months.

August was revised up slightly from 82.3.

This suggests existing home sales in October and November might be slightly lower than in September and months-of-supply will probably still be in double digits putting downward pressure on house prices. As usual, I'll take the under on the NAR forecast for 2011 ("more than 5.1 million existing home sales" in 2011).

by Calculated Risk on 11/05/2010 10:04:00 AM

Here are a few more graphs based on the employment report ...

Percent Job Losses During Recessions, aligned at Bottom

Click on graph for larger image.

This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at the bottom of the recession (Both the 1991 and 2001 recessions were flat at the bottom, so the choice was a little arbitrary).

The dotted line shows payroll employment excluding temporary Census workers.

Employment-Population Ratio

The Employment-Population ratio declined to 58.3% in October from 58.5% in September. This is disappointing news.

This graph shows the employment-population ratio; this is the ratio of employed Americans to the adult population.

Note: the graph doesn't start at zero to better show the change.

The Labor Force Participation Rate also declined to 64.5% in October from 64.7% in September. This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years.

When the employment picture eventually improves, people will return to the labor force and the participation rate will increase from these very low levels. Right now workers are leaving the labor force, and even though that is keeping the reported unemployment rate from rising, it is really unwelcome news.

Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons (some-
times referred to as involuntary part-time workers) fell by 318,000
over the month to 9.2 million, partially offsetting large increases in
the prior 2 months. These individuals were working part time because
their hours had been cut back or because they were unable to find a
full-time job.

The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) declined to 9.154 million in October, from the record 9.472 million in September. This is still very high.

These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 17.0% in October from 17.1% in September. The high for U-6 was 17.4% in October 2009. Still grim.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 6.206 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 6.123 million in September. It appears the number of long term unemployed has peaked ... although this may be because people are giving up.

The number of long term unemployed is staggering - still over 6 million people who are looking for a job.

Summary

The underlying details of the employment report were mixed. The positive included the 151,000 payroll jobs added, the upward revisions to August and September, a slight uptick in hours worked and average hourly earnings, and a slight decline in part time workers (and slight decline in U-6 unemployment).

The negatives include the declines in the employment-population ratio and the participation rate, the increase in workers unemployed for over 26 weeks, and the unemployment rate still flat at a very high level.

This report was a clear improvement from the previous four months, but this was still a fairly soft report.

Earlier Employment post: October Employment Report: 151,000 Jobs, 9.6% Unemployment Rate

by Calculated Risk on 11/05/2010 08:30:00 AM

From the BLS:

Nonfarm payroll employment increased by 151,000 in October, and the unemployment rate was unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today.

Both August and September payroll employment were revised up.

Click on graph for larger image.

This graph shows the unemployment rate vs. recessions. The unemployment rate has been stuck at 9.6% for three straight months.

Nonfarm payrolls increased by 151 thousand in October. The economy has gained 829 thousand jobs over the last year, and still lost 7.5 million jobs since the recession started in December 2007.

The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

The dotted line is ex-Census hiring. The two lines have joined since the decennial Census is over.

For the current employment recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only the early '80s recession with a peak of 10.8 percent was worse).

This is an improved employment report compared to recent months. I'll have much more soon ...

by Calculated Risk on 11/05/2010 12:01:00 AM

A late night update ... from the Financial Times: Clearing house warning to Irish bond traders

Fears over the health of the eurozone bond market intensified after one of Europe’s biggest clearing houses warned investors they could be compelled to stump up substantially more money to trade in Ireland’s debt.
...
Such a curb would be a blow to the Irish debt market and comes amid growing concerns over the fragility of the euro­zone’s peripheral economies.
excerpt with permission

And from the Irish Times: Government to postpone publication of four-year plan

A detailed four-year budget had been scheduled for publication in the next week or so but it emerged yesterday that the plan will not be disclosed until closer to the December budget.

by Calculated Risk on 11/04/2010 06:14:00 PM

The BLS will release the October Employment Report at 8:30 AM tomorrow. The consensus is for an increase of 60,000 payroll jobs in October, and for the unemployment rate to stay steady at 9.6%.

Most of the reports this week have been slightly above expectations:

The ADP employment report showed an increase of 43,000 private sector jobs in October. This was above expectations of 20,000 private sector jobs.

The ISM manufacturing employment index increased to 57.7 from 56.5 in September. This suggests some minor manufacturing job growth in October, although the ADP report showed a decline in manufacturing jobs.

The ISM non-manufacturing employment index increased to 50.9 from 50.2 in September. Although the relationship between this index and payroll jobs is noisy, this suggests close to 100,000 service jobs added in October.

Weekly initial unemployment claims were at about the same level in October as in September.

The decennial Census hiring and layoffs can finally be ignored this month. However it is worth remembering that the payroll reports showed job losses for each of the last four months, but excluding the decennial Census, the reports showed average gains of about 40,000 per month. So reports tomorrow that "this is the first gain since May" will be a little misleading.

I don't expect a strong report, but perhaps slightly better than expectations (I have no strong view this month).

by Calculated Risk on 11/04/2010 02:29:00 PM

As followup to the previous post, here is a look at European bond spreads from the Atlanta Fed weekly Financial Highlights released today (graph as of Nov 2nd):

Click on graph for larger image in new window.

From the Atlanta Fed:

Some peripheral European bond spreads (over German bonds) continue to be elevated, particularly those of Greece, Ireland, and Portugal.

Since the September FOMC meeting, the 10-year Greece-to-German bond spread has narrowed by 45 basis points (bps), from 8.62% to 8.17%, through November 2, though the spread has risen by 110 bps in the past two weeks.

Similarly, with other European peripherals’ spreads, Portugal’s is essentially unchanged over the intermeeting period but is 56 bps higher than two weeks prior, and Ireland’s spread is actually 70 bps higher since the last FOMC meeting and 100 bps higher since October 19.

The Atlanta Fed data is a couple days old. Nemo has links to the current data on the sidebar of his site.

As of today, the Ireland-to-German spread has increased to a record 525 bps, and the Portugal-to-German spread has increased to 417 bps - just below the record set in late September. The Greece-to-German spread is at 892 bps.

by Calculated Risk on 11/04/2010 12:24:00 PM

The yield on the Ireland 10-year bond surged again today to 7.68%. The Portugal 10-year yield is near a record at 6.57%.

At what point does it make sense for Ireland to use the European Financial Stability Facility (EFSF)?

Wolfgang Münchau at the Financial Times worked through the details in September and estimated the EFSF borrowing costs would be around 8%: Could any country risk a eurozone bail-out?

It is not all that hard to conceive of a situation in which the borrower would end up paying a total interest rate of 8 per cent ... Three issues arise from this set-up. The first is that no country would ever want to borrow from the EFSF, unless it was absolutely unavoidable. The typical situation where an EFSF loan would be useful would be a case of egregious market failure. If the borrower is insolvent, the EFSF cannot help.
excerpt with permission

So probably at around 8%. Ireland apparently will not need to borrow until sometime in 2011 - and they will do everything possible to avoid the EFSF, still the yields are getting close for the EFSF to make sense ...

And it appears Russia has stopped investing in bonds of Ireland and Portugal - via Tracy Alloway at the Financial Times Alphaville: The world backs away from Ireland, Spain, Portugal

There’s something missing from the Russian Finance Ministry’s website.

No mention of Ireland, Portugal or even Spain.