by Calculated Risk on 10/02/2009 07:08:00 PM

Nine Point Eight Percent
Recovery is forestalled
More bankers jobless
by Soylent Green is People
From the FDIC: Central Bank, Stillwater, Minnesota, Assumes All of the Deposits of Jennings State Bank, Spring Grove, Minnesota

Jennings State Bank, Spring Grove, Minnesota, was closed today by the Minnesota Department of Commerce, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of July 31, 2009, Jennings State Bank had total assets of $56.3 million and total deposits of approximately $52.4 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $11.7 million. ... Jennings State Bank is the 97th FDIC-insured institution to fail in the nation this year, and the fourth in Minnesota. The last FDIC-insured institution closed in the state was Brickwell Community Bank, Woodbury, on September 11, 2009.

Hey, less than $12 million! Still counts ...

by Calculated Risk on 10/02/2009 06:11:00 PM

Bair: Send ur dues now.
Bank: GL GBTW
Bair: BCNU
by Soylent Green is People
From the FDIC: The Huntington National Bank, Columbus, Ohio, Assumes All of the Deposits of Warren Bank, Warren, Michigan

Warren Bank, Warren, Michigan, was closed today by the Michigan Office of Financial and Insurance Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of July 31, 2009, Warren Bank had total assets of $538 million and total deposits of approximately $501 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $275 million. ... Warren Bank is the 96th FDIC-insured institution to fail in the nation this year, and the second in Michigan. The last FDIC-insured institution closed in the state was Michigan Heritage Bank, Farmington Hills, on April 24, 2009.

It is Friday!

by Calculated Risk on 10/02/2009 03:56:00 PM

Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

From the WSJ: Starwood-Led Group Likely Winner of Corus Assets

... a group of investors led by ... Starwood Capital Group is emerging as the likely winner ... of the failed Corus Bank's condominium loans and other property ...

The assets have a face value of about $5 billion but the winning bid is expected to be far less than that ... To minimize the losses to taxpayers from the failure of Corus, the FDIC will take a 60% equity stake in the partnership that ends up owning the Corus assets ...The FDIC also will provide financing to the partnership.

And more hotels going down ... from a Lodgian press release: (ht Zach)

The Merrill Lynch Fixed Rate Pool 3, secured by six hotels, is in default. The loan matured on October 1, 2009. The company has engaged in negotiations with the lender regarding extension and modification of the loan, with no resolution to date. Unless some agreement is reached in the near-term, the company intends to return the hotels to the lender in full satisfaction of the debt;

The company has stopped servicing the debt secured by the Crowne Plaza in Worcester, Mass., and intends to return the hotel to the lender in full satisfaction of the debt;

by Calculated Risk on 10/02/2009 03:09:00 PM

Since it is Friday ...

From Bloomberg: Banks With 20% Unpaid Loans at 18-Year High Amid Recovery Doubt

The number of U.S. lenders that can’t collect on at least 20 percent of their loans hit an 18-year high, signaling that more bank failures and losses could slow an economic recovery.

[There are] 26 firms with more than one-fifth of their loans 90 days overdue or not accruing interest as of June 30 -- a level of distress almost five times the national average ...

For banks with 20 percent of loans overdue, “either they’ve got a massive amount of capital, or the FDIC just hasn’t gotten around to them,” said Jeff Davis, an analyst with FTN Equity Capital Markets in Nashville.

And here is a classic quote:

“Everything was so positive for so long in this area, it came as a surprise when it stopped,” said John Medernach, Benchmark’s CEO ...

“I stop and think of all the rich farmland that has been developed into subdivisions during the boom years,” Medernach said. “It makes you wonder what we’ve been doing.”

Hey, Hoocoodanode? (Who could have known?)

The article includes a table with all 62 banks. Here are the "leaders" according to Bloomberg:

Company	Location	Nonaccrual Loans as % of Total
Community Bank of Lemont	Lemont, IL	49.45
Eastern Savings Bank FSB	Hunt Valley, MD	48.01
City Bank	Lynnwood, WA	43.95

by Calculated Risk on 10/02/2009 12:41:00 PM

From the American Bankruptcy Institute: Consumer Bankruptcy Filings Surge Past One Million During First Nine Months of 2009

Consumer bankruptcies totaled 1,046,449 filings through the first nine months of 2009 (Jan. 1-Sept. 30), the first time since the 2005 bankruptcy overhaul that filings have surged past the 1 million mark during the first three calendar quarters of a year, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). The filings for the first three-quarters of 2009 were the highest total since the 1,350,360 consumer filings through the first nine months of 2005.

"Bankruptcy filings continue to climb as consumers look to shelter themselves from the effects of rising unemployment rates and housing debt," said ABI Executive Director Samuel J. Gerdano. "The consumer filing total through the first nine months is consistent with our expectation that consumer bankruptcies will top 1.4 million in 2009."

The September 2009 consumer filing total reached 124,790, a 41 percent increase from the 88,663 consumer filings in September 2008.

Click on graph for larger image in new window.

This graph shows the non-business bankruptcy filings by quarter.

Note: Quarterly data from Administrative Office of the U.S. Courts, Q3 2009 based on monthly data from the American Bankruptcy Institute.

The quarterly rate is close to the levels prior to when the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) took effect. There were over 2 million bankruptcies filed in Calendar 2005 ahead of the law change.

There have been 1.05 million personal bankruptcy filings through Sept 2009, and the American Bankruptcy Institute is predicting over 1.4 million new bankruptcies by year end - I'll take the over!

by Calculated Risk on 10/02/2009 11:26:00 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 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 general upward trend from the early '60s was mostly due to women entering the workforce.

This measure fell in September to 58.8%, the lowest level since the early '80s.

The Labor Force Participation Rate fell to 65.2% (the percentage of the working age population in the labor force). This is also the lowest since the mid-80s.

When the job market starts to recover, many of these people will reenter the workforce and look for employment - and that will keep the unemployment rate elevated for some time.

This second graph shows the quarterly change in net jobs (on the x-axis) as a percentage of the civilian workforce, and the change in the unemployment rate on the y-axis. Although this data is from two different surveys, there is a clear relationship between the data. For a discussion of the two surveys, see Jobs and the Unemployment Rate.

The following data is for the last 40 years: 1969 through Q3 2009.

The Red squares are for 2008, and for the first three quarters of 2009 (the current employment recession).

The U-3 headline unemployment rate for September was reported at 9.8% (this was actually rounded down from 9.83%).

Notice the relationship is not linear. As the job market starts to recover, more people will participate in the labor force - and the Labor Force Participation Rate and the employment-population ratio will increase.

10% Unemployment

It is possible that the unemployment rate will hit 10% in October (the current unemployment rate is 9.83%, an increase of 0.17% from August).

With similar job losses in October as in September, or just more people participating in the work force - perhaps looking for one of the scarce holiday retail jobs - the unemployment rate could easily hit 10% this month. If not in October, then probably in November.

Part Time for Economic Reasons

From the BLS report:

In September, the number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 9.2 million. The number of such workers rose sharply throughout most of the fall and winter but has been little changed since March.

The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) is at a record 9.179 million.

Note: 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 is not quite a record.

Earlier employment posts today:

Employment Report: 263K Jobs Lost, 9.8% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

Unemployment: Stress Tests, Unemployed over 26 Weeks, Diffusion Index

by Calculated Risk on 10/02/2009 09:30:00 AM

Note: earlier Employment post: Employment Report: 263K Jobs Lost, 9.8% Unemployment Rate. The earlier post includes a graph of percent job losses in a recession - the current recession is the worst post-WWII.

Stress Test Scenarios

The economy is performing better that the stress test baseline scenario for GDP and house prices, but worse than the "more adverse" stress test scenario for unemployment.

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 for Q3 is 9.63% (rounded to 9.6%), and will move higher in Q4. Once again, the unemployment rate is already higher than the "more adverse" scenario.

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

Unemployed over 26 Weeks

The DOL report yesterday showed seasonally adjusted insured unemployment at 6.1 million, down from a peak of about 6.9 million. This raises the question of how many unemployed workers have exhausted their regular unemployment benefits (Note: most are still receiving extended benefits, although many workers are starting to exhaust their extended benefits too).

The monthly BLS report provides data on workers unemployed for 27 or more weeks, and here is a graph ...

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are a record 5.4 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 3.5% of the civilian workforce. (note: records started in 1948)

Diffusion Index

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.

Both the "all industries" and "manufacturing" employment diffusion indices had been trending up - meaning job losses were becoming less widespread. However both turned down in September. This series is noisy month-to-month, but it still appears job losses are widespread across industries.

Ugly. Ugly. Ugly.

by Calculated Risk on 10/02/2009 08:30:00 AM

From the BLS:

Nonfarm payroll employment continued to decline in September (-263,000), and the unemployment rate (9.8 percent) continued to trend up, the U.S. Bureau of Labor Statistics reported today. The largest job losses were in construction, manufacturing, retail trade, and government.

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 263,000 in September. The economy has lost almost 5.8 million jobs over the last year, and 7.2 million jobs during the 21 consecutive months of job losses.

The unemployment rate increased to 9.8 percent. This is the highest unemployment rate in 26 years.

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 earlier this year, and the current recession is now the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession was worse).

The economy is still losing jobs at about a 3.2 million annual rate, and the unemployment rate will probably be above 10% soon. This is a very weak employment report - just not as bad as earlier this year. Much more to come ...

Note: The the preliminary benchmark payroll revision is minus 824,000 jobs. (This is the preliminary estimate of the annual revision - this is very large).

by Calculated Risk on 10/01/2009 10:44:00 PM

A couple late night articles:

The Ylan Mui at the WaPo reviews the recent economic data: New Economic Reports Show We're Still Hurting (ht Ann)

The fragile economic recovery has relied heavily on government stimulus spending, but new data show that as the money runs out, a sustained rebound may be elusive.

A similar theme from The Economist: After the storm

Despite a welcome return to growth, the world economy is far from returning to “normal” activity. Unemployment is still rising and much manufacturing capacity remains idle. Many of the sources of today’s growth are temporary and precarious. The rebuilding of inventories will not boost firms’ output for long. Across the globe spending is being driven by government largesse, not animal spirits. Massive fiscal and monetary stimulus is cushioning the damage to households’ and banks’ balance-sheets, but the underlying problems remain. In America and other former bubble economies, household debts are worryingly high, and banks need to bolster their capital. That suggests consumer spending will be lower and the cost of capital higher than before the crunch. The world economy may see a few quarters of respectable growth, but it will not bounce back to where it would have been had the crisis never happened.

Recoveries are usually led by a pickup in consumer spending and residential investment. Although consumer spending was strong in August, the numbers were distorted by the cash-for-clunkers program, and I expect weak growth for consumer spending through most of next year as households save more and rebuild their balance sheets.

And for residential investment, there is still too much excess existing home inventory, and possibly a large shadow inventory. I will write more on the outlook for consumer spending and residential investment soon.

As The Economists notes, rebuilding inventories will be a transitory boost for the economy, and that leaves government spending and exports. That doesn't sound like an Immaculate Recovery.

by Calculated Risk on 10/01/2009 06:40:00 PM

The BLS jobs report will be released tomorrow morning. The consensus is for 170 thousand net jobs lost and the unemployment rate rising to 9.8%. That seems a little optimistic given the recent data flow.

Lots of data today:

Weekly Unemployment Claims: 551,000

August PCE and Saving Rate Note: August was distorted by cash-for-clunkers (see auto post).

ISM Manufacturing shows expansion in September

Construction Spending increases in August

Light Vehicle Sales 9.2 Million (SAAR) in September

And a few other interesting articles:

Another article on strategic defaults, from Bloomberg: Leaving Affordable Mortgage May Become Winning Gambit

So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian PLC ...

The classic definition of a "strategic default" is a borrower who can afford their mortgage, but stops paying it because they owe far more than their home is worth. This measurement from Experian is very different and includes many people who can no longer afford their mortgage. Long ago borrowers paid their mortgages first - to keep their homes - but that was when people actually had money invested in their homes. (sorry for the snark).

On failed banks, from Jonathan Weil at Bloomberg: Banks Have Us Flying Blind on Depth of Losses

There was a stunning omission from the government’s latest list of “problem” banks, which ran to 416 lenders, a 15-year high, as of June 30. One outfit not on the list was Georgian Bank, the second-largest Atlanta-based bank, which supposedly had plenty of capital.
...
The cost of Georgian’s failure confirms that the bank’s asset values were too optimistic.
...
Georgian also reported a 12-fold jump in nonperforming loans to $306.4 million from $24.7 million three months earlier, mostly construction loans. Georgian’s numbers made it seem as if the surge arose from nowhere.
...
What wasn’t made public until Sept. 25, the day it closed, was that Georgian Bank had agreed to a cease-and-desist order with the FDIC on Aug. 31 after flunking an agency examination.

I believe it would be helpful if the FDIC released the Cease & Desist orders on a more timely basis.

From Bloomberg: Recession Rising Like Phoenix With Area Delinquencies Surging (ht Mike In Long Island)

Delinquencies in the Phoenix area on loans backed by office, industrial, retail and apartment properties have risen more than five-fold since March, according to data compiled by Bloomberg.
...
“The problems in commercial real estate are just getting started and they will dampen what is already going to be a weak economic recovery,” said Jim Rounds, senior vice president and senior economist at Elliott D. Pollack. “In Arizona, the recession is probably going to last to the middle of the next calendar year.”

Live by real estate. Die by real estate.

by Calculated Risk on 10/01/2009 03:38:00 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 September (red, light vehicle sales of 9.22 million SAAR from AutoData Corp).

This is the third lowest vehicle sales this year.

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

Obviously sales were boosted significantly by the "Cash-for-clunkers" program in August and some in July. Although this wasn't as bad as some of the lower forecasts, it was still below most estimates.

Note: the answer to the earlier poll was 746 thousand (not seasonally adjusted sales).

by Calculated Risk on 10/01/2009 02:44:00 PM

We are now in the Fall business travel season ...

From HotelNewsNow.com: Norfolk-Virginia Beach posts RevPAR growth in STR weekly numbers

Overall, in year-over-year measurements, the industry’s occupancy fell 7.2 percent to end the week at 59.8 percent. Average daily rate dropped 10.1 percent to finish the week at US$100.30. RevPAR for the week decreased 16.6 percent to finish at US$59.94.

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 10.2% from the same period in 2008.

The average daily rate is down 10.1%, and RevPAR is off 16.6% from the same week last year.

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

The goods news is the comparisons will become easier soon since business travel fell off a cliff last October. However occupancy rates below 60% are crushing. For comparison, occupancy rates for October in 2006 and 2007 were close to 68%.

by Calculated Risk on 10/01/2009 12:05:00 PM

Note: graphs will be posted around 4 PM ET.

Update: Percentage comparisons are to Sept 2008.

From MarketWatch: Ford total U.S. Sept. sales decline 5.1%

Ford Motor Co. said Thursday that U.S. auto sales for September dropped 5.1% to 114,655 vehicles from 116,734 a year ago.

UPDATES: GM U.S. Sept. sales drop 45% (compared to Sept 2008)

Chrysler sales off 42%.

Toyota U.S. Sept. sales off 12.7%

Once all the reports are released, I'll post a graph of the estimated total September sales (SAAR: seasonally adjusted annual rate). The range of estimates for September have been very wide ...

For fun, here are the results of a poll in the comments (Monthly, not SAAR):

620,000 end of the world 6% (3 votes)
650,000 black hole 40% (20 votes)
700,000 detectable pulse 42% (21 votes)
740,000 trend sans C4C 6% (3 votes)
800,000 post Viagra pause 2% (1 vote)
960,000 all clear same as Sept 2008 2% (1 vote)
1,000,000 (puts pinky to corner of mouth) 2% (1 vote)
Total votes: 50

by Calculated Risk on 10/01/2009 10:26:00 AM

We started the year looking for two key construction spending stories: a likely bottom for residential construction spending, and the collapse in private non-residential construction. This report shows further evidence of both stories.

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 increased in August, and nonresidential spending continued to decline.

Private residential construction spending is now 63.1% below the peak of early 2006. Although it appears residential construction spending may have bottomed, any growth in spending will probably be sluggish until the large overhang of existing inventory is reduced.

Private non-residential construction spending is still only 12.6% below the peak of last September.

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

Nonresidential spending is off 10.5% 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 will get smaller going forward.

From the Census Bureau: August 2009 Construction at $941.9 Billion Annual Rate

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during August 2009 was estimated at a seasonally adjusted annual rate of $941.9 billion, 0.8 percent (±1.8%) above the revised July estimate of $934.6 billion. The August figure is 11.6 percent (±1.8%) below the August 2008 estimate of $1,066.1 billion.

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

PMI at 52.6% in September down from 52.9% in August.

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

Economic activity in the manufacturing sector expanded in September for the second consecutive month, and the overall economy grew for the fifth 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 second consecutive month in September. While the rate of growth moderated slightly when compared to August, the recovery broadened as the number of industries reporting growth increased from 11 to 13. Both new orders and production are growing, but at a slower rate when compared to August. It appears the fundamentals for continuing recovery are still at work as inventories and sales are gaining balance."
...
ISM's New Orders Index registered 60.8 percent in September, 4.1 percentage points lower than the 64.9 percent registered in August. This is the third consecutive month of growth in the New Orders Index. A New Orders Index above 48.8 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).
emphasis added

As noted, any reading above 50 shows expansion.

Also, from the NAR: Record Streak Continues for Pending Home Sales

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in August, rose 6.4 percent to 103.8 from a reading of 97.6 in July, and is 12.4 percent above August 2008 when it was 92.4. The index is at the highest level since March 2007 when it was 104.5.

by Calculated Risk on 10/01/2009 08:53:00 AM

Note: A large portion of the increase in durable goods consumption in August was due to cash-for-clunkers, however there was also a significant increase in non-durable goods.

From the BEA: Personal Income and Outlays, August 2009

Personal income increased $19.3 billion, or 0.2 percent, and disposable personal income (DPI) increased $15.5 billion, or 0.1 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $129.6 billion, or 1.3 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.9 percent in August, compared with an increase of 0.2 percent in July. Purchases of durable goods increased 5.8 percent, compared with an increase of 1.8 percent. Reflecting the impact of the federal CARS program (popularly called "cash for clunkers"), purchases of motor vehicles and parts accounted for most of the August increase in purchases of durable goods and more than accounted for the July increase.
...
Personal saving -- DPI less personal outlays -- was $324.1 billion in August, compared with $436.0 billion in July. Personal saving as a percentage of disposable personal income was 3.0 percent in August, compared with 4.0 percent in July.

Click on graph for large image.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the August Personal Income report. The saving rate was 3.0% in August.

This decline in the saving rate was probably temporary, and I expect the saving rate to continue to rise.

The following graph shows real Personal Consumption Expenditures (PCE) through August (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

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 colored rectangles show the quarters, and the blue bars are the real monthly PCE.

The July and August numbers suggest PCE will grow at over 3% (annualized rate) in Q3, however I expect September to be much lower. So I expect a 2% increase in Q3 PCE.

Note that PCE declined sharply in Q3 and Q4 2008 - the cliff diving - and was been relatively flat in Q1 and Q2 2009. Auto sales gave a boost to PCE in Q3, but in general PCE will probably remain weak into 2010 as households continue to repair their balance sheets.

by Calculated Risk on 10/01/2009 08:30:00 AM

The DOL reports weekly unemployment insurance claims increased to 551,000:

In the week ending Sept. 26, the advance figure for seasonally adjusted initial claims was 551,000, an increase of 17,000 from the previous week's revised figure of 534,000. The 4-week moving average was 548,000, a decrease of 6,250 from the previous week's revised average of 554,250.
...
The advance number for seasonally adjusted insured unemployment during the week ending Sept. 19 was 6,090,000, a decrease of 70,000 from the preceding week's revised level of 6,160,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 6,250 to 548,000, and is now 110,750 below the peak in April.

Initial weekly claims have peaked for this cycle, however the continuing high level of weekly claims indicates significant weakness in the job market. The four-week average of initial weekly claims will probably have to fall below 400,000 before total employment stops falling.

And in other employment news ... from Reuters: Challenger, Gray reports planned layoffs declined in Sept.

Planned job cuts announced by U.S. employers fell to 66,404 last month, down 13 percent from 76,456 in August, according to a report released Thursday by global outplacement consultancy Challenger, Gray & Christmas.

September's layoff tally was 30 percent lower than the 95,094 job cuts during the same time last year. This brought the figure for the July-September quarter to 240,233, the lowest since the first quarter of 2008 and marking the fourth consecutive quarter in which job cuts declined from the year prior level.

But a big part of the problem is lack of hiring, not firings. From Monster.com:

The Monster Employment Index edged downward in September after a significant rise in late summer recruitment activity during August. Over the year, the Index fell 25 percent largely unchanged from last month’s pace.

The BLS report will be released tomorrow.

by Calculated Risk on 9/30/2009 09:40:00 PM

A quick summary and a look ahead ...

The OCC and OTS Q2 Mortgage Metrics Report showed rising mortgage delinquencies and foreclosures. There is also a huge backlog of foreclosures in process. Also see: Modification Re-Default Rates

The Chicago PMI report showed declining business activity in the Chicago region.

ADP reported nonfarm private employment decreased 254,000. The BLS report for September will be released on Friday.

From the WSJ: CIT Draws Up Bankruptcy Option

CIT Group Inc. upped the ante with its creditors by drawing up a prepackaged bankruptcy plan, two people familiar with the matter said Wednesday. ... Another person familiar with the matter said CIT likely wouldn't roll out the debt-exchange offer and prepackaged bankruptcy solicitation until late Thursday night.

CIT would be the fifth largest bankruptcy in U.S. history behind Lehman Brothers, Washington Mutual, WorldCom and General Motors.

Tomorrow

More employment reports: Challenger & Gray corporate layoffs, and weekly initial jobless claims.

Personal income and Outlays for August.

Auto Sales for September

ISM Manufacturing Index

Construction Spending

Pending Home Sales Index

And Bernanke testifies on financial reform.

So I apologize in advance for all the posts.

by Calculated Risk on 9/30/2009 05:48:00 PM

From Bloomberg: Bank of America’s Chief Executive Ken Lewis to Retire Dec. 31

No successor named.

Not sure what to make of this.

BofA Press Release: Ken Lewis Announces His Retirement

"Bank of America is well positioned to meet the continuing challenges of the economy and markets," said Lewis. "I am particularly heartened by the results that are emerging from the decisions and initiatives of the difficult past year-and-a-half."

"The Merrill Lynch and Countrywide integrations are on track and returning value already," Lewis noted. "Our board of directors and our senior management include more talent, and more diversity of talent, than at any time in this company's history. We are in position to begin to repay the federal government's TARP investments. For these reasons, I decided now is the time to begin to transition to the next generation of leadership at Bank of America."

by Calculated Risk on 9/30/2009 04:02:00 PM

Here is some more data from the Office of the Comptroller of the Currency and the Office of Thrift Supervision: OCC and OTS Release Mortgage Metrics Report for Second Quarter 2009

Modified Loan Performance ... [T]he percentage of loans that were 60 or more days delinquent or in the process of foreclosure rose steadily in the months subsequent to modification for all vintages for which data were available. Modifications made in third quarter 2008 showed the highest percentage of modifications that were 60 or more days past due following the modification. Modifications made during fourth quarter 2008 and first quarter 2009 performed better in the first three to six months after the modification than those made in the third quarter 2008.

Note: This doesn't include HAMP yet because all of those modifications are still in the "trial period". That raises a question: If a borrower re-defaults during the trial, will they still be considered a "re-default"? Something to watch for if the re-default rate drops sharply next quarter - they might be excluding the trial period re-defaulters.

Click on graph for larger image.

This graph shows the cumulative re-default rate by quarter of modifications. About 25% to 30% of modifications fail in the first three months.

For Q1 and Q2 2008, about 55% of borrowers have re-defaulted. Q3 2008 will probably be worse, and Q4 2008 and Q1 2009 about the same.

Over time, I expect a very high re-default rate since many of these modifications are just "extend and pretend" (the missed payments and fees are added to the principal, and the rate is reduced for a few years), although about 10% of borrowers received a principal reduction in Q2 (more than double as in Q1).