by Calculated Risk on 7/02/2009 02:02:00 PM

This is BFT (Bank Failure Thursday), and there are a couple of large banks that might fail (Corus Bank and Guaranty Bank), so this is timely ...

First, from MarketWatch: FDIC chills private-equity bank bidders

The Federal Deposit Insurance Corporation on Thursday urged tough capital requirements on private equity firms buying battered banks, and said any firms they buy must be held for at least three years.
...
"Private-equity investors are probably going to lose their zeal for investing in this undervalued market because the upfront costs will be too much," said Lawrence Kaplan, of counsel in the banking and financial institutions group at law firm Paul Hastings and a former special counsel at the Office of Thrift Supervision.

"The FDIC is saying to private-equity firms that 'while we like your money, we're going to make it too expensive,'" he added.

From the FDIC: FDIC Board Approves Proposed Policy Statement on Qualifications for Failed Bank Acquisitions

FDIC Chairman Sheila Bair's Statement

I am particularly concerned with new owners’ ability to support depository institutions with adequate capital, management expertise, and a long term commitment to provide banking services in a safe and sound manner. Obviously, we want to maximize investor interest in failed bank resolutions. On the other hand, we don’t want to see these institutions coming back. I remain open minded on many aspects of this proposal, including the categories of investors to whom it should apply, the appropriate level of upfront capital commitments, and the operation of cross guarantee provisions and limits on affiliate transactions. I look forward to receiving comments in these areas.

I support the transactions we have completed to date which have involved sales to private equity owners. We have imposed some special restrictions on these, including higher capital requirements. However, some have suggested that capital requirements should be even higher, given the difficulties in enforcing source of strength obligations outside the initial capital investment made by the acquirers in so-called “shell” structures. I know that this will be a contentious area, and we are opening high, with a proposed 15% requirement.

I am also troubled by the opacity of some of the ownership structures that we have seen in our bidding process, though these have not been winning bids. We have seen bids where it has been difficult to determine actual ownership. We have seen bidders who have wanted permission to immediately flip ownership interests. We have seen structures organized in the secrecy law jurisdictions. So based on the experiences we have gathered, I think it is prudent to put some generic policies in place which tell non-traditional investors that we welcome their participation, but only if we have essential safeguards to assure that they will approach banking in a way that is transparent, long term, and prudently managed.

Federal Register Notice

by Calculated Risk on 7/02/2009 12:20:00 PM

From HotelNewsNow.com: STR reports U.S. hotel performance for week ending 27 June 2009

In year-over-year measurements, the industry’s occupancy fell 8.7 percent to end the week at 65.4 percent. Average daily rate dropped 9.5 percent to finish the week at US$97.49. Revenue per available room for the week decreased 17.4 percent to finish at US$63.74.

No wonder some expect as many as 20% of U.S. hotels to default on their loans ...

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week trailing average).

The three week average is off 10.3% from the same period in 2008.

The average daily rate is down 9.5%, so RevPAR is off 17.4% from the same week last year.

Note: the occupancy rate has risen to 65% - this is just seasonal. The hotel occupancy rate is usually the highest during the peak vacation months of June, July and August (with declines on weeks with holiday weekends).

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

by Calculated Risk on 7/02/2009 10:33:00 AM

A few more graphs based on the (un)employment report ...

Employment-Population Ratio

Click on graph for larger image in new window.

This graph show 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 general upward trend from the early '60s was mostly due to women entering the workforce. As an example, in 1964 women were about 32% of the workforce, today the percentage is close to 50%.

This measure is at the lowest level since the early '80s and shows the weak recovery following the 2001 recession - and the current cliff diving!

Part Time for Economic Reasons

From the BLS report:

The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in June at 9.0 million. Since the start of the recession, the number of such workers has increased by 4.4 million.

Note: "This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs."

Not only has the unemployment rate risen sharply to 9.5%, but the number of workers only able to find part time jobs (or have had their hours cut for economic reasons) is at 9.0 million.

Of course the U.S. population is significantly larger today (about 305 million) than in the early '80s (about 228 million) when the number of part time workers almost reached 7 million. That is the equivalent of about 9.3 million today, so population adjusted this isn't quite a record - but close.

Average Weekly Hours

From the BLS report:

In June, the average workweek for production and nonsupervisory workers on private nonfarm payrolls fell by 0.1 hour to 33.0 hours--the lowest level on record for the series, which began in 1964.

The average weekly hours has been declining since the early '60s, but usually falls sharply during a recession. As the BLS noted, average weekly hours in June was at the lowest level since the series began in 1964.

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

Several analysts follow this series to look for the end of a recession. Usually companies increase the work week before they start hiring, so the average weekly hours increases as a recession ends. Something to watch ...

Earlier employment posts today:

Employment Report: 467K Jobs Lost, 9.5% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

Unemployment: Stress Test Scenarios, Diffusion Index, Weekly Claims

by Calculated Risk on 7/02/2009 09:25:00 AM

Note: earlier Employment post: Employment Report: 467K Jobs Lost, 9.5% Unemployment Rate. The earlier post includes a comparison to previous recessions.

Stress Test Scenarios

Click on graph for larger image in new window.

This graph shows the unemployment rate compared to the stress test economic scenarios on a quarterly basis as provided by the regulators to the banks (no link).

This is a quarterly forecast: the Unemployment Rate in Q2 was higher than the "more adverse" scenario.

Note also that the unemployment rate has already exceeded the peak of the "baseline scenario".

Diffusion Index

Here is a look at how "widespread" the job losses are using the employment diffusion index from the BLS.

Job losses were widespread across the major industry sectors, with large declines occurring in manufacturing, professional and business services, and construction.
BLS, June Employment Report

The BLS diffusion index is a measure of how widespread changes in employment are. Some people think it measures the percent of industries increasing employment, but that isn't quite correct.

From the BLS handbook:

The diffusion indexes for private nonfarm payroll employment are based on estimates for 278 industries, while the manufacturing indexes are based on estimates for 84 industries. Each component series is assigned a value of 0, 50, or 100 percent, depending on whether its employment showed a decrease, no change, or an increase over a given period. The average (mean) value is then calculated, and this percent is the diffusion index number.

Think of this as a measure of how widespread the job losses are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

Before September, the all industries employment diffusion index was close to 40, suggesting that job losses were limited to a few industries. However starting in September the diffusion index plummeted. In December, the index hit 20.5, suggesting job losses were very widespread. The index has recovered since then, but declined slightly in June to 28.6, suggesting job losses are still widespread.

The manufacturing diffusion index fell even further, from 40 in May 2008 to just 6 in January 2009. The manufacturing index is still very low in June (13.9) indicating widespread job losses.

Initial Weekly Unemployment Claims

The DOL reports on weekly unemployment insurance claims:

In the week ending June 27, the advance figure for seasonally adjusted initial claims was 614,000, a decrease of 16,000 from the previous week's revised figure of 630,000. The 4-week moving average was 615,250, a decrease of 2,750 from the previous week's revised average of 618,000.
...
The advance number for seasonally adjusted insured unemployment during the week ending June 20 was 6,702,000, a decrease of 53,000 from the preceding week's revised level of 6,755,000.

This graph shows weekly claims and continued claims since 1971.

Continued claims decreased to 6.70 million. This is 5.0% of covered employment.

The four-week average of weekly unemployment claims decreased this week, and is now 43,500 below the peak of 12 weeks ago. There is a reasonable chance that claims have peaked for this cycle.

However the level of initial claims (over 614 thousand) is still very high, indicating significant weakness in the job market.

by Calculated Risk on 7/02/2009 08:30:00 AM

From the BLS:

Nonfarm payroll employment continued to decline in June (-467,000), and the unemployment rate was little changed at 9.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Job losses were widespread across the major industry sectors, with large declines occurring in manufacturing, professional and business services, and construction.

Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 467,000 in June. The economy has lost almost 5.7 million jobs over the last year, and 6.46 million jobs during the 18 consecutive months of job losses.

The unemployment rate rose to 9.5 percent; the highest level since 1983.

Year over year employment is strongly negative.

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).

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up over the last 9 months (4.4 million jobs lost, red line cliff diving on the graph), and the current recession is now the 2nd worst recession since WWII in percentage terms - and also in terms of the unemployment rate (only early '80s recession was worse).

This is another weak employment report ... more soon.

by Calculated Risk on 7/01/2009 09:48:00 PM

A quick summary ...

California starts issuing IOUs tomorrow. From the SacBee: Furlough Fridays back - now three days a month

With California on the verge of issuing IOUs, Gov. Arnold Schwarzenegger moved to conserve cash Wednesday by ordering state workers to take a third day of unpaid furlough each month ... [about 14 percent] pay cut for state workers ...

Auto sales were still below 10 million units (SAAR):

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for June (red, light vehicle sales of 9.69 million SAAR from AutoData Corp).

Construction spending declined in May

This graph shows private residential and nonresidential construction spending since 1993 through May. Note: nominal dollars, not inflation adjusted.

"Spending on private construction was at a seasonally adjusted annual rate of $649.2 billion, 1.0 percent below the revised April estimate of $655.6 billion."

Residential construction spending fell further in May, and nonresidential spending was up a little (because of private spending on power), but will probably decline sharply over the next two years.

The ISM June 2009 Manufacturing Report On Business® showed continued contraction.

Employment reports from ADP, Challenger and Monster were released. The BLS report will be released tomorrow (Thursday) because of the holiday on Friday.

The NAR Pending Home Sales Index increased.

The MBA reported refinance applications were off 30%.

by Calculated Risk on 7/01/2009 06:30:00 PM

Here is a review of a few previous state bailouts during recessions by Richard H. Mattoon, senior economist at the Chicago Fed: Should the federal government bail out the states? Lessons from past recessions. A few excerpts:

The rationale for [a bailout] is that states (which are generally prohibited from running deficits) need the money to maintain key programs, such as Medicaid, unemployment insurance, and work force training, for which demand rises during a recession. Also, this aid might help states avoid enacting spending cuts or tax increases that could deepen or prolong the economic downturn.
...
Three factors are particularly important in evaluating the effectiveness of such federal aid to states—timing, triggers, and targeting.

The biggest problem was found to be timing - here is a review of a previous bailout (the 1973-1975 Antirecession Fiscal Assistance (ARFA)):

Extensive evaluations were conducted by the U.S. Department of the Treasury, the Congressional Budget Office (CBO), and the U.S. General Accounting Office (GAO) to assess the federal government’s aid package in response to the 1973–75 recession. In general, the reports were critical of the effectiveness of the aid programs. Specifically, the Treasury’s report found that the aid to the states arrived after the recession had already bottomed out and did little to forestall states from taking budgetary actions that likely exacerbated the recession. In addition, a significant portion of the aid was received during the subsequent economic recovery and may have contributed to post-recession inflationary pressures. Finally, it appears that some states failed to spend the money and instead put the aid toward rebuilding state budget balances during the recovery.
emphasis added

First, many states are now cutting spending and / or raising taxes - what Krugman calls the Fifty Herbert Hoovers.

Second, aid to the states is already late and the public layoffs are already happening (and tax increases for 25 states). But the "good news" is the recovery will probably be very sluggish - so it is unlikely that the aid will not be used (or lead to inflationary pressures).

Of course states like California need more than a little aid ...

by Calculated Risk on 7/01/2009 04:43:00 PM

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for June (red, light vehicle sales of 9.69 million SAAR from AutoData Corp).

June was about average for the year so far on seasonally adjusted basis, and sales are still on pace to be the worst since 1967.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

The small increase in June hardly shows up on the graph.

In 1967 there were 103 million drivers and 9.54 million light vehicles sold; now there are about twice that many (205.7 million licensed drivers in 2007). Compared to the number of drivers, the current sales rate is the lowest since the BEA started tracking auto sales.

by Calculated Risk on 7/01/2009 04:07:00 PM

From the LA Times: Schwarzenegger orders third furlough day, proposes new cuts

Gov. Arnold Schwarzenegger this morning ordered state workers to take a third day off without pay each month ... If lawmakers and the governor do not agree on a plan to wipe out the deficit -- or at least part of it -- by the end of today, State Controller John Chiang will begin giving out IOUs in lieu of checks to pay debts owed by the state.

"We have one more day," Senate President Pro Tem Darrell Steinberg (D-Sacramento)

Here are the FAQs on IOUs (known as Registered Warrants). A few points:

6. Will my financial institution honor a registered warrant?
Recipients of registered warrants should contact their financial institution to determine whether they will honor the registered warrant before the redemption date.

7. What happens if my financial institution will not accept the registered warrant?
You may decide to open an account at another financial institution that will accept registered warrants, or you will have to hold the warrant until it matures on October 1, 2009.
...
9. Who will receive registered warrants?
The State in July will issue registered warrants, or IOUs, for all other payments, including those to private businesses, local governments, taxpayers receiving income tax refunds and owners of unclaimed property.

Most banks will probably accept warrants from established customers ...

by Calculated Risk on 7/01/2009 02:01:00 PM

From MarketWatch: General Motors U.S. June sales decline 33.6%

This is worse the the 29% drop in May.

Also: Toyota June U.S. sales down 32% to 131,654 units

And Chrysler June U.S. sales down 42% to 68,297 units

I'll have a summary for the month soon.

by Calculated Risk on 7/01/2009 12:59:00 PM

I've already posted most of the data in this article ... so I'll just excerpt a quote.

From Bloomberg: Hotel Loan Defaults Double as Recession Cuts Travel (ht mark, ghostfaceinvestah, brian)

As many as one in five U.S. hotel may default on their loans by the end of 2010 as the recession forces companies to spend less on travel and perks, according to Kenneth Rosen, an economist at the University of California.

The value of hotel properties in default or foreclosure almost doubled to $17.3 billion in the second quarter through June 24 from $9 billion at the end of the first quarter, data compiled by Real Capital Analytics Inc. show. The New York-based research firm, which began tracking distressed commercial property in November, expects hotel defaults to increase by as much as $2 billion next quarter, said analyst Jessica Ruderman.

“Hotels without question will have the highest foreclosure rate of any commercial real-estate sector,” said Rosen ...

The hotel segment was the most overbuilt of all CRE - and that is saying something with all the excess retail space!

by Calculated Risk on 7/01/2009 12:27:00 PM

From MarketWatch:

Ford June U.S. sales down 11% to 148,153 units

Ford to increase Q3 production to 485,000 vehicles

Volvo June U.S. sales down 0.6% to 7,042 units

Daimler June U.S. sales fell 26.5% to 16,271 vehicles.

MORE TO COME ...

Previous months:
Ford U.S. May sales fall 24.2%

Ford April U.S. vehicle sales off 31.3%

Ford U.S. March sales dropped 40.9%

February Ford sales were off 46.3% YoY

January off 42.1%

December off 32.4%

November off 31%

by Calculated Risk on 7/01/2009 10:49:00 AM

From the NAR: Pending Home Sales Record Fourth Straight Monthly Gain

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in May, increased 0.1 percent to 90.7 from an upwardly revised reading of 90.6 in April, and is 6.7 percent higher than May 2008 when it was 85.0. The last time there were four consecutive monthly gains was in October 2004.
...
Lawrence Yun, NAR chief economist, cautions that there could be delays in the number of contracts that go to closing. “Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions,” he said.

Yun is blaming the disconnect beteween pending and existing home sales on the change in apprasial rules, but there are probably other factors too - like rising mortgage rates, tighter lending standards, and the inability of homeowners to sell the current home.

by Calculated Risk on 7/01/2009 10:15:00 AM

Private residential construction spending is 64.5% below the peak of early 2006.

Private non-residential construction spending is only off 4.1% below the peak of last September.

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.

Residential construction spending fell further in May, and nonresidential spending was up a little (because of private spending on power), but will probably decline sharply over the next two years.

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

Nonresidential spending is off 3.3% on a year-over-year basis, and will turn strongly negative as projects are completed. Residential construction spending is still declining YoY, although the negative YoY change should be smaller going forward.

As I've noted before, these will probably be two key stories for late 2009: the collapse in private non-residential construction, and the probable bottom for residential construction spending. Both stories are still developing ...

From the Census Bureau: May 2009 Construction at $968.7 Billion Annual Rate

Spending on private construction was at a seasonally adjusted annual rate of $649.2 billion, 1.0 percent (±1.1%)* below the revised April estimate of $655.6 billion. Residential construction was at a seasonally adjusted annual rate of $240.2 billion in May, 3.4 percent (±1.3%) below the revised April estimate of $248.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $409.0 billion in May, 0.5 percent (±1.1%)* above the revised April estimate of $406.9 billion.

by Calculated Risk on 7/01/2009 10:00:00 AM

From the Institute for Supply Management: June 2009 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector failed to grow in June for the 17th consecutive month, while the overall economy grew for the second consecutive month following seven months of decline, 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. "Manufacturing continues to contract at a slower rate, but the trends in the indexes are encouraging as seven of 18 industries reported growth in June. Most encouraging is the gain in the Production Index, which is up 12.1 percentage points in the last two months to 52.5 percent. Aggressive inventory reduction continues and indications are that the de-stocking cycle is at or near the end in most industries, as the Customers' Inventories Index remained below 50 percent for the third consecutive month. The Prices Index was unchanged from May, indicating that the supply/demand balance is improving. Overall, a slow recovery for manufacturing is forming based on the current trends in the ISM data."
emphasis added

As noted, any reading below 50 shows contraction, although the pace of contraction has slowed.

by Calculated Risk on 7/01/2009 08:35:00 AM

ADP reports:

Nonfarm private employment decreased 473,000 from May to June 2009 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from April to May was revised by 47,000, from a decline of 532,000 to a decline of 485,000.

Note: the BLS reported a 338,000 decrease in nonfarm private employment in May, so once again ADP was not very useful in predicting the BLS number.

On the Challenger job-cut report from CNBC:

[P]lanned layoffs at U.S. firms fell for a fifth consecutive month in June, hitting the lowest since March 2008 ...

Planned job cuts announced by employers totaled 74,393 in June, down 33 percent from 111,182 in May, according to .... Challenger, Gray & Christmas.

"We typically see a decline in job cuts in the second quarter." [the report said]
...
It was the first time since last September that the monthly total was less than 100,000 and it was the lowest job-cut count since 53,579 job cuts were announced in March 2008.

It was also 9 percent lower than the same month a year ago, making it the first year-over-year decline since February 2008, Challenger added.

And from Monster:

The Monster Employment Index slipped one point or one percent in June as online job opportunities fell modestly, largely in line with seasonal expectations. Year-over-year, the Index was down 28 percent ...

“While U.S. online job availability has remained largely flat since January, the annual pace improved during the second quarter, suggesting some expansion in underlying employer demand for workers,” said Jesse Harriott, senior vice president ... at Monster Worldwide. “Still, current levels of online job vacancies are at their lowest since January 2005, illustrating the extent to which hiring has slowed during this recession.”

The BLS reports tomorrow, and the consensus is for about 350,000 in reported job losses for June.

by Calculated Risk on 7/01/2009 08:11:00 AM

The MBA reports:

The Market Composite Index, a measure of mortgage loan application volume, was 444.8, a decrease of 18.9 percent on a seasonally adjusted basis from 548.2 one week earlier.
...
The Refinance Index decreased 30.0 percent to 1482.2 from 2116.3 the previous week and the seasonally adjusted Purchase Index decreased 4.5 percent to 267.7 from 280.3 one week earlier. The Refinance Index is at its lowest level since November 2008.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.34 percent from 5.44 percent ...

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 2002.

Note: The increase in 2007 was due to the method used to construct the index.

The Purchase index is still near recent lows, but the big story this week was the sharp decline in the Refinance index - probably because of the recent rise in borrowing costs.

by Calculated Risk on 7/01/2009 12:07:00 AM

From David Leonhardt at the NY Times: A Forecast With Hope Built In

In the weeks just before President Obama took office, his economic advisers made a mistake. They got a little carried away with hope.

... Without the stimulus, they saw the unemployment rate — then 7.2 percent — rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.

We now know that this forecast was terribly optimistic.

Here is the January forecast with the actual data ...

Click on graph for larger image in new window.

This graph compares the actual quarterly unemployment rate (in red) with the Obama economic forecast from January 10th: The Job Impact of the American Recovery and Reinvestment Plan

There are two possible explanations that the administration was so wrong. ... The first explanation is that the economy has deteriorated because the stimulus package failed. ... The second answer is that the economy has deteriorated in spite of the stimulus.

Very little of the stimulus has been spent so far, so it is premature to say it failed. However Romer recently was quoted in the Financial Times:

Ms Romer said stimulus spending was “going to ramp up strongly through the summer and the fall”.

“We always knew we were not going to get all that much fiscal impact during the first five to six months. The big impact starts to hit from about now onwards,” she said.

Ms Romer said that stimulus money was being disbursed at almost exactly the rate forecast by the Office of Management and Budget. “It should make a material contribution to growth in the third quarter.”

So we should see an impact in the 2nd half of 2009 ... and that starts now!

by Calculated Risk on 6/30/2009 09:05:00 PM

San Francisco Fed President Janet Yellen has been rumored to be one of the front runners to replace Chairman Ben Bernanke (although most consider Larry Summers the front runner, assuming Bernanke isn't reappointed).

Tonight Dr. Yellen spoke in San Francisco: A View of the Economic Crisis and the Federal Reserve’s Response. Here are some excerpts on her views going forward:

I expect the recession will end sometime later this year. That would make it the longest and probably deepest downturn since the Great Depression. ...

I don’t like taking the wind out of the sails of our economic expansion, but a few cautionary points should be considered. I expect the pace of the recovery will be frustratingly slow. It’s often the case that growth in the first year after a recession is very rapid. That’s what happened as we came out of a very deep downturn in the early 1980s. Although I sincerely wish we would repeat that performance, I don’t think we will. In past deep recessions, the Fed was able to step on the accelerator by cutting the federal funds rate sharply, causing the economy to shoot ahead. This time, we already have our foot planted firmly on the floor. We can’t take the federal funds rate any lower than zero. I believe that the Fed’s novel programs are stimulating the flow of credit, but they simply aren’t as powerful levers as large rate cuts, so this time monetary policy alone can’t power a rapid recovery.

History also teaches us that it often takes a long time to recover from downturns caused by financial crises. In particular, financial institutions and markets won’t heal overnight. Our major banks have made excellent progress in establishing the capital buffers needed to continue lending even through a downturn that is more serious than we anticipate. But they are still nursing their wounds and credit will remain tight for some time to come.

I also think that a massive shift in consumer behavior is under way—one that will produce great benefits in the long run but slow our recovery in the short term. American households entered this recession stretched to the limit with mortgage and other debt. The personal saving rate fell from around 8 percent of disposable income two decades ago to almost zero. Households financed their lifestyles by drawing on increasing stock market and housing wealth, and taking on higher levels of debt. But falling house and stock prices have destroyed trillions of dollars in wealth, cutting off those ready sources of cash. What’s more, the stark realities of this recession have scared many households straight, convincing them that they need to save larger fractions of their incomes. In the long run, higher saving promises to channel resources from consumption to investment, making capital more readily available to retool industry and fix our infrastructure. But, in the here and now, such a rediscovery of thrift means fewer sales at the mall, and fewer jobs on assembly lines and store counters.

A fourth factor that could slow recovery is the unprecedented global nature of the recession. Neither we nor our trading partners can count on a boost from strong foreign demand. Finally, developments in the labor market suggest it could take several years to return to full employment. During this recession, an unusually high proportion of layoffs have been permanent as opposed to temporary, meaning workers won’t get called back when conditions improve. Also, we’ve seen an unprecedented level of involuntary part-time work, such as state workers on furlough a few days per month. Those workers are likely to return to full-time status before new workers are hired. To summarize, I expect that we will turn the growth corner sometime later this year, but I am not optimistic that the economy will spring back to normal anytime soon. What’s more, I expect the unemployment rate to remain painfully high for several more years.

That’s a dreary prediction, but there is also some risk that things could turn out worse. High on my worry list is the possibility of another shock to the still-fragile financial system. Commercial real estate is a particular danger zone. Property prices are falling and vacancy rates are rising in many parts of the country. Given the weak economy, prices could fall more rapidly and developers could face tough times rolling over their loans. Many banks are heavily exposed to commercial real estate loans. An increase in defaults could add to their financial stress, prompting them to tighten credit. The Fed and Treasury are providing loans to investors in securitized commercial mortgages, which should be a big help. But a risk remains of a severe shakeout in this sector.
emphasis added

Yellen also discusses Fed policy, the Fed balance sheet, the fiscal deficit and inflation: "I think the predominant risk is that inflation will be too low, not too high, over the next several years."

by Calculated Risk on 6/30/2009 06:23:00 PM

Here is a collection of real estate and economic graphs for data released in June ...

Note: Click on graphs for larger image in new window. For more info, click on link below graph to original post.

********************
New Home Sales in May (NSA)

The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted).

Note the Red columns for 2009. This is the lowest sales for May since the Census Bureau started tracking sales in 1963. (NSA, 32 thousand new homes were sold in May 2009; the record low was 36 thousand in May 1982).

From: New Home Sales: Record Low for May

********************
New Home Sales in May

This graph shows shows New Home Sales vs. recessions for the last 45 years. New Home sales have fallen off a cliff.

"Sales of new one-family houses in May 2009 were at a seasonally adjusted annual rate of 342,000 ...

This is 0.6 percent (±17.8%)* below the revised April rate of 344,000 and is 32.8 percent (±10.9%) below the May 2008 estimate of 509,000."

From: New Home Sales: Record Low for May

********************
New Home Months of Supply in May

There were 10.2 months of supply in May - significantly below the all time record of 12.4 months of supply set in January.

"The seasonally adjusted estimate of new houses for sale at the end of May was 292,000. This represents a supply of 10.2 months at the current sales rate."

From: New Home Sales: Record Low for May

********************
Existing Home Sales in May

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in May 2009 (4.77 million SAAR) were 2.4% higher than last month, and were 3.6% lower than May 2008 (4.95 million SAAR).

From: Existing Home Sales Graphs

********************
Existing Home Inventory May

shows nationwide inventory for existing homes. According to the NAR, inventory decreased to 3.80 million in May. The all time record was 4.57 million homes for sale in July 2008. This is not seasonally adjusted.

Typically inventory increases in May, and then really increases over the next couple months of the year until peaking in the summer. This decrease in inventory was a little unusual, and the next few months will be key for inventory.

Also, many REOs (bank owned properties) are included in the inventory because they are listed - but not all. Recently there have been stories about a substantial number of unlisted REOs - this is possible.

From: Existing Home Sales Graphs

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Existing Home Inventory May, Year-over-Year Change

This graph shows the year-over-year change in existing home inventory.

If the trend of declining year-over-year inventory levels continues in 2009 that will be a positive for the housing market. Prices will probably continue to fall until the months of supply reaches more normal levels (closer to 6 months compared to the current 9.6 months), and that will take some time.

From: Existing Home Sales Graphs

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Case Shiller House Prices for April

This graph shows the nominal Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 33.1% from the peak, and off 1.0% in April.

The Composite 20 index is off 32.0% from the peak, and off 0.9% in April.

From: Case-Shiller: House Prices Fall in April

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NAHB Builder Confidence Index in June

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

The housing market index (HMI) decreased to 15 in June from 16 in May. The record low was 8 set in January.

From: NAHB: Builder Confidence Decreases Slightly in June

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Architecture Billings Index for May

"A leading indicator of U.S. nonresidential construction spending held steady for a second month in May, suggesting an economic recovery has stalled, an architects' trade group said on Wednesday.

The Architecture Billings Index edged up a tenth of a point to 42.9 last month after a slight decline in the prior month, according to the American Institute of Architects....."

From: American Institute of Architects: Recovery has stalled

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Housing Starts in May

Total housing starts were at 532 thousand (SAAR) in May, rebounding from the all time record low in April of 454 thousand. The previous record low was 488 thousand in January (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 401 thousand (SAAR) in May; above the record low in January and February (357 thousand) and above 400 thousand for the first time since last November.

From: Housing Starts May

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Construction Spending in April

This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Residential construction spending was up slightly in April (compared to March), and nonresidential spending has peaked and will probably decline sharply over the next two years.

From: Construction Spending in April

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May Employment Report

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 345,000 in May. The economy has lost almost 3.6 million jobs over the last 6 months, and over 6 million jobs during the 17 consecutive months of job losses.

The unemployment rate rose to 9.4 percent; the highest level since 1983.

Year over year employment is strongly negative (there were 5.4 million fewer Americans employed in May 2009 than in May 2008).

From: Employment Report: 345K Jobs Lost, 9.4% Unemployment Rate

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May Employment Comparing Recessions

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

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up over the last 8 months (4.6 million jobs lost, red line cliff diving on the graph), and the current recession is now one of the worst recessions since WWII in percentage terms - although not in terms of the unemployment rate.

From: Employment Report: 345K Jobs Lost, 9.4% Unemployment Rate

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May Retail Sales

This graph shows the year-over-year change in nominal and real retail sales since 1993.

The Census Bureau reported that nominal retail sales decreased 10.8% year-over-year (retail and food services decreased 10.1%), and real retail sales also declined by 10.8% on a YoY basis.

From: Retail Sales in May: Off 10.8% from May 2008

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LA Port Traffic in May

This graph shows the loaded inbound and outbound traffic at the port of Los Angeles in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported.

Inbound traffic was 19.7% below May 2008.

Outbound traffic was 15.3% below May 2008.

There has been some recovery in exports over the last few months (the year-over-year comparison was off 30% from December through February). But this is the 3nd worst YoY comparison for imports - only February and April were worse. So imports from Asia appear especially weak.

From: LA Area Port Traffic in May

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U.S. Imports and Exports Through April

This graph shows the monthly U.S. exports and imports in dollars through April 2009.

Both imports and exports declined again in April. On a year-over-year basis, exports are off 21% and imports are off 31%!

From: Trade Deficit Increases Slightly in April

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May Capacity Utilization

This graph shows Capacity Utilization. This series is at another record low (the series starts in 1967).

"Industrial production decreased 1.1 percent in May after having fallen a downward-revised 0.7 percent in April. The average decrease in industrial production during the first three months of the year was 1.6 percent. Manufacturing output moved down 1.0 percent in May with broad-based declines across industries. Outside of manufacturing, the output of mines dropped 2.1 percent, and the output of utilities fell 1.4 percent. At 95.8 percent of its 2002 average, overall industrial output in May was 13.4 percent below its year-earlier level. The rate of capacity utilization for total industry declined further in May to 68.3 percent, a level 12.6 percentage points below its average for 1972-2008. Prior to the current recession, the low over the history of this series, which begins in 1967, was 70.9 percent in December 1982."

From: Industrial Production Declines, Capacity Utilization at Record Low

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Vehicle Miles driven in April

This graph shows the annual change in the rolling 12 month average of U.S. vehicles miles driven. Note: the rolling 12 month average is used to remove noise and seasonality.

By this measure, vehicle miles driven are off 3.1% Year-over-year (YoY); the decline in miles driven was worse than during the early '70s and 1979-1980 oil crisis.

Note that rolling miles driven has a built in lag, and miles driven was larger in April 2009 than April 2008.

From: DOT: U.S. Vehicles Miles increase YoY in April

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Unemployment Claims

This graph shows weekly claims and continued claims since 1971.

Continued claims decreased to 6.74 million. This is 5.0% of covered employment.

Note: continued claims peaked at 5.4% of covered employment in 1982 and 7.0% in 1975.

The four-week average of weekly unemployment claims increased this week by 500, and is now 41,500 below the peak of 10 weeks ago. There is a reasonable chance that claims have peaked for this cycle.

From: Initial Unemployment Claims Increase

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Restaurant Performance Index for May

"The outlook for the restaurant industry was dampened somewhat in May, as the National Restaurant Association’s comprehensive index of restaurant activity registered its first decline in five months. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 98.3 in May, down 0.3 percent from April and its 19th consecutive month below 100."

From: Restaurants: 21st Consecutive Month of Traffic Declines

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Philly Fed State Conincident Indicators for May

Here is a map of the three month change in the Philly Fed state coincident indicators. Forty nine states are showing declining three month activity.

This is what a widespread recession looks like based on the Philly Fed states indexes.

From: Philly Fed State Coincident Indexes

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