by Calculated Risk on 10/10/2011 08:33:00 PM

From Professor Duy: Too Early to Sound the All Clear?. An excerpt:

[A]lthough there is optimism the European situation can be resolved in three weeks, they seem to be walking a very fine line between attempting to recapitalize the banking system without undermining sovereign debt ratings while maintaining what effectively amounts to a pegged exchange rate system that is fundamentally inconsistent with the economic needs of more than one nation. In addition, they have an odd situation where every nation needs to issue Euro-denominated debt, but no nation can actually print Euros as a backstop. It's as if each nation issues only foreign-denominated debt, with ultimately no lender of last resort on a national level. Of course, the European Central Bank could fill this role, but will they?

My experience is that when a financial landscape is as ugly as we see here, there is no rescue plan. Things tend to get much worse before they get better. That seems to be what financial market are telling us.

Duy mentions the optimistic Bloomberg article today: No U.S. Recession as Forecasts Improve

A string of stronger-than-projected statistics -- capped by the news on Oct. 7 of a 103,000 rise in payrolls last month -- has prompted economists at Goldman Sachs Group Inc. and Macroeconomic Advisers LLC to raise their growth forecasts for third quarter growth to 2.5 percent from about 2 percent. That’s nearly double the second quarter’s 1.3 percent rate and would be the fastest growth in a year.

Goldman did up their Q3 growth forecast, but they remain cautious on the next few quarters. In a note research note titled "Economy Holds Up, But for How Long?", they argued "real income growth has stalled" and "financial conditions have tightened sharply in recent months". They think growth will slow over the next two quarters.

I still think the a new U.S. recession is unlikely, but there are definite headwinds and downside risks.

by Calculated Risk on 10/10/2011 04:35:00 PM

This graph (click on graph for larger image) from Doug Short shows the recent volatility.

And some followup on the story this morning in the NY Times on the median income falling: Recession Officially Over, U.S. Incomes Kept Falling

From David Leonhardt at the NY Times: Behind a Surprising Income Trend.

And Felix Salmon provides a graph of falling income in the U.S.: Chart of the day, median income edition

Every month, the Current Population Survey goes out to a nationally representative sample of more than 50,000 interviewed households and their members. And in one of the questions, those households — or at least the households who didn’t answer the same question the previous month — are asked how much money they made, in total, over the past 12 months. That question has now been asked in 138 successive months, since January 2000. Which means that with a bit of clever analysis, it’s possible to put together an apples-to-apples comparison of what has happened to household income every month.

And when you do that, the results are very scary indeed.

The red line, here, is median real household income, as gleaned from the CPS, indexed to January 2000=100. It’s now at 89.4, which means that real incomes are more than 10% lower today than they were over a decade ago.

The gray line is the unemployment rate. Pretty scary indeed!

Here is the report from Sentier Research.

by Calculated Risk on 10/10/2011 01:05:00 PM

From Reuters: EU leaders delay summit to agree crisis plan

European Union leaders will delay a summit meeting planned for next Monday [to until October 23] buying time to agree a crisis strategy to boost struggling banks and cope with debt-laden Greece.
...
"This timing will allow us to finalize our comprehensive strategy on the euro area sovereign debt crisis," said [European Council President Herman Van Rompuy] ...

"Further elements are needed to address the situation in Greece, the bank recapitalization and the enhanced efficiency of stabilization tools (the EFSF bailout fund)."

The delay also means leaders will know whether Greece qualifies to receive the next tranche of aid under its existing rescue program ... Greece was wrapping up talks with EU and IMF officials on the vital aid, Finance Minister Evangelos Venizelos said on Monday.

By the end of the month, the EU will know if Greece will receive the next loan installment, and the EU leaders should announce a plan to recapitalize European banks. Sounds like another exciting Sunday in just under two weeks ...

by Calculated Risk on 10/10/2011 10:51:00 AM

I've been using inventory numbers from HousingTracker / DeptofNumbers to track changes in inventory. Tom Lawler mentioned this back in June (Tom also discussed how the NAR estimates existing home inventory - they don't aggregate data from local boards!)

A few key points:
• In a few months, the NAR is expect to release revisions for their existing home sales and inventory numbers for the last few years. The sales revisions will be down (the NAR has pre-announced this), and the inventory is expected to be revised down too. From the NAR last month: "Publication of the revisions is expected in several months, and we will provide a notice several weeks in advance of the publication date. ... Although there will be a downward revision to sales volume, there will be no notable change to previous characterizations of the market in terms of sales trends, monthly percentage changes, etc."

• Using the deptofnumbers.com for monthly inventory (54 metro areas), it appears inventory will be back to late 2005 / early 2006 levels this month. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

• Existing home inventory surged in the 2nd half of 2005 and that was a key indicator that the housing bubble was about the burst (I was able to call the top in activity mid-2005, and predict prices would start to decline in 2006).

Click on graph for larger image.

This graph shows the NAR estimate of existing home inventory through August (left axis) and the HousingTracker data for the 54 metro areas through early October. The HousingTracker data shows a steeper decline in inventory over the last few years (as mentioned above, the NAR will probably revise down their inventory estimates in a few months).

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the early October listings - for the 54 metro areas - declined 16.4% from last year. Inventory was down 16.7% year-over-year in September.

This is just "visible inventory" (inventory listed for sales). There is a large percentage of distressed inventory, and various categories of "shadow inventory" too. But the decline in listed or "visible" inventory is a key story in 2011 - and listed inventory for October is probably down to the lowest level since October 2005.

by Calculated Risk on 10/10/2011 08:54:00 AM

From the NY Times: Recession Officially Over, U.S. Incomes Kept Falling. A few excerpts:

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.

So the inflation-adjusted median household income has continued to decline even after the recession ended.

And for people who lost their jobs - and were lucky enough to find a new job:

In a separate study, Henry S. Farber, an economics professor at Princeton, found that people who lost jobs in the recession and later found work again made an average of 17.5 percent less than they had in their old jobs.

And on education:

Median annual income declined most for households headed by someone with an associate’s degree, dropping 14 percent, to $53,195, in the four-year period that ended in June 2011, the report said.

For households headed by people who had not completed high school, median income declined by 7.9 percent, to $25,157. For those with a bachelor’s degree or more, income declined by 6.8 percent, to $82,846.

Grim numbers. This is no surprise given the high level of unemployment and underemployment.

Weekend:
• Summary for Week Ending Oct 7th
• Schedule for Week of Oct 9th

by Calculated Risk on 10/09/2011 11:50:00 PM

From Bloomberg: Merkel, Sarkozy Pledge Bank Recapitalization

Angela Merkel and Nicolas Sarkozy ... gave themselves three weeks to devise a plan to recapitalize banks, get Greece on the right track and fix Europe’s economic governance.

“By the end of the month, we will have responded to the crisis issue and to the vision issue,” the French president said in Berlin yesterday at a joint briefing with the German chancellor before they dined at her office.

... Merkel said European leaders will do “everything necessary” to ensure that banks have enough capital. Sarkozy said they would deliver a plan by the Nov. 3 Group of 20 summit.

The Asian markets are mixed tonight (update: Nikkei is closed).

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 is up about 10 points, and Dow futures are up about 100 points.

Oil: WTI futures are up to $83.50 and Brent is up to $106 per barrel.

Yesterday:
• Summary for Week Ending Oct 7th
• Schedule for Week of Oct 9th

by Calculated Risk on 10/09/2011 04:13:00 PM

No details, but a new "deadline": the end of October. There is a meeting of European leaders scheduled for Oct 17th and 18th summit in Brussels.

• From the Financial Times: Merkel and Sarkozy set euro deadline

France and Germany have set themselves a deadline of the end of October to reach agreement on a comprehensive package of measures to stabilise the eurozone, including the recapitalisation of European banks if they need it.
excerpt with permission

• From the WSJ: Merkel, Sarkozy Claim Broad Agreement to Stabilize Euro Zone

German Chancellor Angela Merkel and French President Nicolas Sarkozy said Sunday that they have reached broad agreement on a plan to shore up Europe's battered banks and restore stability to the euro zone. ...

"We are determined to do what is necessary to guarantee the recapitalization of our banks," Mrs. Merkel told reporters. "We will make proposals in a comprehensive package that will enable closer cooperation between euro-zone countries that will include changes to treaties."

Yesterday:
• Summary for Week Ending Oct 7th
• Schedule for Week of Oct 9th

by Calculated Risk on 10/09/2011 11:51:00 AM

• From the Financial Times: Merkel and Sarkozy hold talks on crisis German Chancellor Angela Merkel and French President Nicolas Sarkozy are holding the talks today in Berlin on the financial crisis. A key point is trying to agree on how to recapitalize European banks. Merkel is pushing for a solution prior to the Oct 17th and 18th summit of European leaders in Brussels.

• From the WSJ: Belgium, France to Nationalize Part of Dexia

The governments of Belgium and France agreed to nationalize the Belgian subsidiary of Dexia SA, paving the way for the embattled Belgian-French lender to be broken up.

If Merkel and Sarkozy wait too long, the markets will force an ad-hoc approach.

• From Reuters: Barroso says Greek default would spread crisis: paper

"If we give up on Greece, there is a big danger that the crisis will spread to other countries," [European Commission President Jose Manuel Barroso] told Bild in an interview to be published on Monday ... "This is new territory for us and we are discussing solutions which have not really been tested before," he said.

But the European Union was convinced that a Greek bankruptcy was "not cheaper for all participants than the current aid schemes," he said.

The next two weeks are critical for Europe.

Yesterday:
• Summary for Week Ending Oct 7th
• Schedule for Week of Oct 9th

by Calculated Risk on 10/09/2011 08:57:00 AM

The graph below shows the number of total construction payroll jobs in the U.S., including both residential and non-residential, since 1969.

Construction employment is down 2.175 million jobs from the peak in April 2006, but up 53 thousand this year through the September BLS report.

Unfortunately this graph is a combination of both residential and non-residential construction employment. The BLS only started breaking out residential construction employment fairly recently (residential building employees in 1985, and residential specialty trade contractors in 2001).

Click on graph for larger image.

Usually residential investment (and residential construction) lead the economy out of recession, and non-residential construction usually lags the economy. Because this graph is a blend, it masks the usual pickup in residential construction following previous recessions. Of course residential investment didn't lead the economy this time because of the huge overhang of existing housing units.

This table below shows the annual change in construction jobs (total, residential and non-residential) and through September for 2011.

	Annual Change in Payroll jobs (000s)
Year	Total Construction Jobs	Residential Construction Jobs	Non-Residential
2002	-85	88	-173
2003	127	161	-34
2004	290	230	60
2005	416	268	148
2006	152	-62	214
2007	-198	-273	75
2008	-787	-510	-277
2009	-1053	-431	-622
2010	-149	-113	-36
Through September 2011	53	-6	59

After five consecutive years of job losses for residential construction (and four years for total construction), it looks like construction employment will increase this year (and residential will be close). However there will not be a strong increase in residential construction until the excess supply of housing is absorbed.

In addition residential investment has made a positive contribution to GDP so far this year for the first time since 2005.

Yesterday:
• Summary for Week Ending Oct 7th
• Schedule for Week of Oct 9th

by Calculated Risk on 10/08/2011 07:22:00 PM

Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Oct 7, 2011.

Changes and comments from surferdude808:

As anticipated, it was a quiet week for changes to the Unofficial Problem Bank List. This week, there were three removals, which leaves the list with 983 institutions and assets of $404.1 billion. A year ago, there were 877 institutions with assets of $417.3 billion.

The removals include the Federal Reserve terminating an action against State Bank Financial, La Crosse, MN ($303 million) and the two failures this week -- The Riverbank, Wyoming, MN ($417 million); and Sun Security Bank, Ellington, MO ($356 million).