by Calculated Risk on 10/11/2013 01:41:00 PM

From the WSJ: Prospect of Longer Federal Shutdown Worries Workers, Firms

Many workers and businesses, including thousands with no direct government funding, are now bracing for a stark reality: protracted financial pressure if the federal government remains closed for longer.

The prospect of an extended disruption—as House Republicans' latest proposal Thursday could allow—is starting to sink in as people across the U.S. already face lost wages and profits from the nearly two-week shutdown.

"We're just going to limp along," said Rebekah Klein , owner of Emma's Tea Room, a cafe in Huntsville, Ala., which serves many workers with jobs at the nearby Army operations and NASA's Marshall Space Flight Center and which has lost business as a result of the federal closure.
...
Nationally, economists forecast each week of a shutdown will subtract about 0.1 to 0.2 percentage point from this quarter's annualized pace of economic growth, which has been running at about 2% a year.

But communities across the U.S. are facing a more substantial impact. In Huntsville, for instance, federal employees account for almost 18% of all wages, according to an analysis of government data by Jed Kolko, chief economist at the real-estate firm Trulia.

Yesterday I posted some information on the impact on hotels. The shutdown is also hurting restaurants and retailers.

It is time for the House to end the shutdown. They are hurting the economy.

UPDATE: Another article from the Financial Times: Shutdown starts to bite for US businesses

The evidence is anecdotal, in part because many government statistical agencies have themselves shut down, but the falling sales are real.

Costco, the warehouse retailer, said that it had seen “some effect downward” on sales around Washington ... Richard Galanti, Costco’s chief financial officer, told analysts this week that the company was “scratching our head in disbelief” over the political deadlock. One analyst replied: “We’re all getting bald doing that.”
posted with permission

by Calculated Risk on 10/11/2013 10:34:00 AM

Economist Mark Zandi is providing testimony this morning to the Joint Economic Committee: Written Testimony of Mark Zandi Chief Economist and Co-Founder Moody’s Analytics

The impasse in Washington over funding the federal government and increasing the Treasury debt ceiling is significantly damaging the economy. Stock prices are grinding lower and consumer confidence is weakening. The economic harm will mount significantly each day the government remains shut and the debt ceiling is not raised. If policymakers are unable to reach agreement on these issues by the end of October, the economy will face another severe recession.

To resolve the budget impasse, policymakers should not add to the significant fiscal austerity already in place, which is set to last through mid-decade. Tax increases and government spending cuts over the past three years have put a substantial drag on economic growth. In 2013, this fiscal drag is as large as it has been since the defense drawdown after World War II.

Moreover, because of fiscal austerity and the economic recovery, the federal government’s fiscal situation has improved markedly. The budget deficit in just-ended fiscal 2013 was less than half its size at the recession’s deepest point in 2009. Under current law and using reasonable economic assumptions, the deficit will continue to narrow through mid-decade, causing the debt-to-GDP ratio to stabilize.

As part of any budget deal, lawmakers should reverse the sequester. The second year of budget sequestration will likely have greater consequences than the first, affecting many government programs in ways that nearly all agree are not desirable. A sizable share of the sequestration cuts to date has involved one-off adjustments, but future cuts will have to come from lasting reductions in operational budgets.

It would of course also be desirable for lawmakers to address the nation’s long-term fiscal challenges. Although the fiscal situation should be stable through the end of this decade, the long-term outlook remains disconcerting. If Congress does not make significant changes to the entitlement programs and tax code, rising healthcare costs and an aging population will swamp the budget in the 2020s and 2030s. Both cuts in government spending and increases in tax revenues will be necessary to reasonably solve these long-term fiscal problems.

And his conclusion:

Washington’s recent budget battles have been painful to watch and harmful to the economy. Political brinkmanship creates significant uncertainty and anxiety among consumers, businesses and investors, weighing on their willingness to spend, hire and invest.

Despite this, the economic recovery is more than four years old, and the private economy has made enormous strides. Business balance sheets are about as strong as they have ever been, the banking system is well capitalized, and households have significantly reduced their debt loads. The private economy is on the verge of stronger growth, more jobs and lower unemployment.

The key missing ingredient is Congress’ willingness to fund the government and make sure all its bills can be paid. If policymakers can find a way to do these things in the next few days, almost regardless of how awkward the process is, the still-fragile recovery will quickly become a self-sustaining expansion.

We are close to finally breaking free from the black hole of the Great Recession. All it takes is for Washington to come together.
emphasis added

A Republican advisor giving testimony to Congress, and telling Congress they are the problem. Ouch.

by Calculated Risk on 10/11/2013 09:55:00 AM

Click on graph for larger image.

The preliminary Reuters / University of Michigan consumer sentiment index for October was at 75.2, down from the September reading of 77.5.

This was close to the consensus forecast of 75.0. Sentiment has generally been improving following the recession - with plenty of ups and downs - and one big spike down when Congress threatened to "not pay the bills" in 2011.

This decline is probably due to the government shutdown and another threat to "not pay the bills".

by Calculated Risk on 10/10/2013 07:43:00 PM

From Professor Menzie Chinn at Econbrowser: Flying Blind

The House Republicans' insistence on keeping the government closed means that it is likely that we will be conducting macroeconomic policymaking with increasingly sparse or mismeasured data. If one doesn’t believe in expertise and information, then this is not a problem. If one believes that knowledge should inform decisionmaking, it is.

So far, we have missed the employment situation, the international trade, wholesale trade, and import/export prices releases. As of Friday, we will have missed the PPI, retail sales, and business inventories releases. Assuming the shutdown continues through Wednesday (Monday is a holiday), the CPI and Treasury International Capital figures will be missed.

The Longer the Shutdown Goes on, the Blinder We Will Be

It’s well known that we don’t have a read on the September figures, although the underlying statistics are sitting in computers at the BLS. What is less well known is that surveys regarding the October employment situation begin the week of October 13. If the current trajectory is for sustained closure of the Federal government, then these surveys will be delayed, so as to distort the resulting output. ...

Now, it might be that the intent behind the government closure is to hobble information gathering, so that people can make the craziest statements (I can already hear “inflation is soaring – we just don’t know it!”). But I remain hopeful that ignorance is not the objective, and that the current data blackout is merely collateral damage.

CR: Dr. Chinn brings up a key point - data collection for the October employment report would normally start next week. If the government is still closed, the October report might not be useful.

I enjoyed the comment on inflation - some people (and politicians) have been wrong on inflation for years, and right now we can't refute their absurd claims.

Thursday:
• DELAYED: Retail sales for September. The consensus is for retail sales to be unchanged in September, and to increase 0.4% ex-autos.

• DELAYED: Producer Price Index for September. The consensus is for a 0.2% increase in producer prices (0.1% increase in core).

• At 9:55 AM ET, the Reuter's/University of Michigan's Consumer sentiment index (preliminary for October). The consensus is for a reading of 75.0, down from 77.5 in September. Other sentiment indicators have shown a sharp decline.

• DELAYED: Manufacturing and Trade: Inventories and Sales (business inventories) report for August. The consensus is for a 0.2% increase in inventories.

by Calculated Risk on 10/10/2013 06:36:00 PM

From the NY Times: Obama Rejects G.O.P. Offer of Short-Term Debt Limit Plan

President Obama on Thursday rejected a proposal from politically besieged House Republican leaders to extend the nation’s borrowing authority for six weeks because it would not also reopen the government. Yet both parties saw it as the first break in Republicans’ brinkmanship and a step toward a fiscal truce.

Twenty Republicans, led by Speaker John A. Boehner, went to the White House at Mr. Obama’s invitation after a day of fine-tuning their offer to increase the Treasury Department’s authority to borrow money to pay existing obligations through Nov. 22. In exchange, they sought the president’s commitment to negotiate a deal for long-term deficit reduction and a tax overhaul.

Mr. Boehner and his colleagues left after about an hour and a half without speaking to waiting reporters.

The Republican proposal could come to a vote as soon as Friday. But the White House and Congressional Democrats remained skeptical that House Republican leaders could pass the proposal. A large faction of Tea Party conservatives campaigned on promises never to vote to increase the nation’s debt limit, and say they do not believe the warnings — including from Republican business allies — that failing to act could provoke a default and economic chaos globally. And House Democrats vowed not to support the proposal without a companion measure to fully fund a government now shuttered for 10 days.

Arriving back at the Capitol, the House Republicans huddled in Mr. Boehner’s office for further discussion.

“We had a very useful meeting, and we expect further conversations tonight,” said Representative Eric Cantor of Virginia, the majority leader.

It is hard to believe anyone thinks the government doesn't have to pay-the-bills. Those members of Congress are clearly ignorant. Otherwise this sounds like slow progress ...

by Calculated Risk on 10/10/2013 02:16:00 PM

From Freddie Mac today: Fixed Mortgage Rates Little Changed

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates changing little for the week amid the federal debt impasse in Washington, D.C. and a light week of economic data releases. ...

30-year fixed-rate mortgage (FRM) averaged 4.23 percent with an average 0.7 point for the week ending October 10, 2013, up from last week when it averaged 4.22 percent. A year ago at this time, the 30-year FRM averaged 3.39 percent.

15-year FRM this week averaged 3.31 percent with an average 0.7 point, up from last week when it averaged 3.29 percent. A year ago at this time, the 15-year FRM averaged 2.70 percent.

The high this year for 30 year rates in the Freddie Mac survey was 4.58%, and the high for 15 year rates was 3.60%.

Here is an update to a graph that shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey.

Click on graph for larger image.

Currently the 10 year Treasury yield is 2.69% and 30 year mortgage rates are at 4.23% (according to Freddie Mac). Based on the relationship from the graph, the 30 year mortgage rate (Freddie Mac survey) would be around 5% when 10-year Treasury yields are around 3.33% (not happen any time soon).

Note: The yellow marker is the current (last week) relationship.

by Calculated Risk on 10/10/2013 11:07:00 AM

From HotelNewsNow.com: STR: US results for week ending 5 October

In year-over-year measurements, the industry’s occupancy declined 1.2% to 64.7%; ADR edged up 1.4% to $111.67; and RevPAR increased 0.1% to $72.29.

The relatively flat performances across the board can be attributed to the partial shutdown of the U.S. government on 1 October, said Brad Garner, senior VP for STR. ...

Washington D.C. and Norfolk-Virginia Beach, Virginia, were among the markets most affected during the week. Garner said each market experienced a progressive decline in occupancy during the week. Washington ended the week with a 12.1 percent decline in occupancy, a flat ADR and a 12.1-percent drop in RevPAR. The Norfolk-Virginia Beach market finished the week with a 9.9-percent fall in occupancy, a 2.4-percent decrease in ADR and a 12.1-percent decline in RevPAR.

“Several variables factor into the performance for the week, and overall there were challenges for a number of markets,” Garner said. “Long-term effects of the shutdown remain to be seen, but in the early going it clearly had an impact on the overall hotel industry.”
emphasis added

The 4-week average of the occupancy rate is close to normal levels.

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Click on graph for larger image.

The red line is for 2013, yellow is for 2012, blue is "normal" and black is for 2009 - the worst year since the Great Depression for hotels.

Through October 5th, the 4-week average of the occupancy rate is slightly higher than the same period last year and is tracking just above the pre-recession levels.  The 4-week average of the occupancy rate would usually increase seasonally over the next several weeks, before declining during the holidays. 

This has been a decent year for the hotel industry before the shutdown.  Now the occupancy rate is down year-over-year, and this decline will also show up in airlines, rental cars, restaurants and more.  Just as the hotel industry is almost back on solid footing, Congress pulls the football away again. 

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

by Calculated Risk on 10/10/2013 08:30:00 AM

The DOL reports:

In the week ending October 5, the advance figure for seasonally adjusted initial claims was 374,000, an increase of 66,000 from the previous week's unrevised figure of 308,000. The 4-week moving average was 325,000, an increase of 20,000 from the previous week's unrevised average of 305,000.

The previous week was unrevised at 308,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 325,000.

Some of this sharp increase is related to the government shutdown.

Note: This information is collected by the states and will continue to be released.

by Calculated Risk on 10/09/2013 09:02:00 PM

Maybe the message will get through - from the NY Times: Business Groups Urge Congress to Reopen as Shutdown Drags On

House Republicans, facing the ninth day of a government shutdown, appeared increasingly isolated on Wednesday from even their strongest backers, with business groups demanding the immediate reopening of the government and benefactors such as Koch Industries publicly distancing themselves from the shutdown fight.
...
On Wednesday, the National Retail Federation joined other business groups like the U.S. Chamber of Commerce and the National Association of Manufacturers in asking House Republicans to relent.

From Gallup: Republican Party Favorability Sinks to Record Low

[T]he Republican Party is now viewed favorably by 28% of Americans, down from 38% in September. This is the lowest favorable rating measured for either party since Gallup began asking this question in 1992.
..
More than six in 10 Americans (62%) now view the GOP unfavorably, a record high.

Thursday:
• 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 310 thousand from 308 thousand last week. This data is gathered by the states and will continue to be released

by Calculated Risk on 10/09/2013 05:34:00 PM

From housing economist Tom Lawler:

The declining all-cash share in Vegas and (more dramatically) in Phoenix suggests slowdown in investor buying. [Here is some data]

The Arizona Regional MLS reported that residential home sales by realtors in the Greater Phoenix, Arizona area totaled 6,314 in September, down 2.5% from last September’s pace. Lender-owned properties were 8.0% of last month’s sales, down from 12.9% last September, while last month’s short-sales share was 8.8%, down from 27.0% a year ago. All-cash transactions were 33.4% last month, down from 43.9% last September. Active listings in September totaled 23,384, up 9.4% from August and up 7.3% from a year ago. The median home sales price last month was $185,000, up 23.3% from last September. Contracts signed last month were down 17.0% from a year ago.

The Greater Las Vegas Association of Realtors reported that residential home sales by realtors in the Greater Las Vegas, Nevada area totaled 3,259 in September, down 1.2% from last September’s pace. All-cash transactions were 47.2% of last month’s sales, down from 54.8% last August. Active listings in September totaled 18,253, up 1.4% from August but down 11.3% from a year ago. The median SF home sales price last month was $180,000, up 28.6% from last September.
emphasis added

CR Note: We've been seeing some decline in the "all cash share" for the last few months, and this decline looks significant. Of course not all "all cash" buyers are investors, but it is probably reasonable to use this for the trend in investor buying. I expect Tom to provide me with a table of selected cities in September (here is the data for August). This data is suggesting a slowdown in investor buying in many areas.