by Calculated Risk on 11/28/2009 08:02:00 AM

A collection of articles ...

From The Times: Dubai debt fears threaten credit crunch 2 — and RBS is exposed

From Bloomberg: India Studying Effect of Dubai’s Debt Delay Plan on Its Economy

India, the world’s top recipient of migrant remittances, is examining the effect Dubai’s attempt to delay debt repayments may have on Asia’s third-largest economy, central bank Governor Duvvuri Subbarao said.

About 4.5 million Indians live and work in the Gulf region and remit more than $10 billion annually, according to government data. The turmoil may affect remittances, said Thomas Issac, finance minister of the southern state of Kerala, which accounted for about a quarter India’s migrant labor in 2005.

From the NY Times: Dubai Debt Woes Raise Fear of Wider Problem

[O]ne concern is that some British banks with large credit exposure to the United Arab Emirates are already troubled. Royal Bank of Scotland, majority-controlled by the British government, was one of the largest lenders to Dubai World, having secured $2.3 billion worth of loans to it since early 2007, according to a report by J.P. Morgan. Standard Chartered and Barclays were also large lenders to the region, with more than $10 billion between them, analysts said. HSBC has $17 billion exposure to the United Arab Emirates.

But while a Dubai default may not provoke a banking crisis, it could well spur a broader crisis of investor confidence in overly leveraged economies.

From the WSJ: Dubai Jitters Infect Debt of Sovereign Spendthrifts

[S]tress lines were felt in the sovereign-bond market, where the cost of insuring against defaults in places like Hungary, Turkey, Bulgaria, Brazil, Mexico and Russia rose, fueled by concerns that emerging-market nations may have trouble honoring their debts even as the economy heals. The worry is that sovereign debt may now represent another aftershock of the global financial crisis.

by Calculated Risk on 11/27/2009 09:13:00 PM

A flipper bought this one in September for $330,000, and has reduced the asking price to $379,000. Still no takers.

Jim the Realtor is watching for "flips turning to flops" and this might be one. For more - and a couple of interviews with Adam (a flipper who had made money) - see Jim's site.

by Calculated Risk on 11/27/2009 06:29:00 PM

James Pressler at Northern Trust provides an overview of the Dubai situation: Dubai’s Latest Mega-project – A Massive Default? (pdf) A few excerpts:

The complexities of the UAE’s governmental structure make the situation difficult to grasp at first glance, but the problem can be captured by a few basic points. First, Dubai is the second-largest emirate in the UAE next to Abu Dhabi, but Abu Dhabi is also the power of the national government and has been challenged by Dubai’s meteoric rise. Next, the UAE has a sovereign wealth fund estimated at one half-trillion dollars in case of emergency, so money is clearly available at the national level to bail out Dubai if that route is chosen. Lastly, the national government wants to emerge from this situation with international markets assured that a state-run entity has the backing of the government and will be subsequently subject to reform and accountability. Taken together, these points plus an appreciation of the politicial undercurrents suggest a scenario that avoids outright default.

This suggests that Abu Dhabi will bailout Dubai, but that isn't certain:

The first sign of things to come could be as early as the first week in December, when Gulf markets re-open from the Eid al-Adha holiday (Dubai World announcing its debt postponement plans just before Eid celebrations was in all likelihood not a coincidence). This will mark the first chance for officials to state positions and make confidence-building claims, with the further interest of calming international markets. Between that time and the December 14 due date for Dubai World’s next debt payment, we expect to see a concrete plan laid out for bailing out the conglomerate and some pressure taken off the credit markets. However, if no settlement can be reached, it would not surprise us if another major entity started talking about restructuring or a debt freeze before year-end – and not necessarily a company in the UAE.

And from the Financial Times: Abu Dhabi expected to prop up smaller brother

[W]ith Dubai raising the possibility that one of its flagship entities may default, attention is now focusing on just how far Abu Dhabi is willing to go to bail out its smaller brother. Underlying the uncertainty, it is thought that Abu Dhabi officials were caught unaware by Dubai World’s dramatic statement ... Ultimately, though, there is consensus that Abu Dhabi will not see it fail.
excerpted with permission

Should be an interesting couple of weeks.

by Calculated Risk on 11/27/2009 03:07:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Changes and comments from surferdude808:

The FDIC finally released its enforcement actions for October today, which led to a large increase in the number of institutions on the Unofficial Problem Bank List.

This week the list changed by a net 30 institutions to 543 from 513 while aggregate assets increased by $10 billion to $312 billion.

For the 33 institutions added, their average asset size is $321 million. The largest include Hillcrest Bank, Overland Park, Kansas ($1.9 billion); Charter Bank, Santa Fe, New Mexico ($1.3 billion), and Severn Savings Bank, Annapolis, Maryland ($990 million). Geographic highlights include the addition of five Illinois-based institutions and four each in Georgia and Texas.

The FDIC issued a Prompt Corrective Action Order against Rockbridge Commercial Bank, Atlanta, Georgia ($294 million), and LibertyPointe Bank, New York, New York ($212 million); LibertyPointe has been operating under a Cease & Desist Order since July 2009.

The deletions this week include Commerce Bank of Southwest Florida, which failed last Friday, and First Independent Bank, where the FDIC terminated the enforcement action during October 2009.

The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.

Note: The FDIC announced there were 552 bank on the official Problem Bank list at the end of Q3. The difference is a mostly a matter of timing - some enforcement actions haven't been announced yet, and others may be pending.

See description below table for Class and Cert (and a link to FDIC ID system).

For a full screen version of the table click here.

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)





Class: from FDIC

The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC

Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system "will provide the last demographic and financial data filed by the selected institution".

by Calculated Risk on 11/27/2009 01:00:00 PM

Click on graph for larger image in new window.

First, since the markets closed early ...

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.

Krugman suggests there are three views on the Dubai situation: 1) the beginning of a wave of sovereign defaults, 2) an extension of the CRE bust, and 3) Dubai as sui generis. Krugman believes it is some combination of two and three.

I agree. Dubai seems like an extreme example of the CRE bust. "Vegas on steroids" as Nanoo-Nanoo wrote in the comments to an earlier post.

It is the state-controlled Dubai World that might delay payments - and both Moody's and Standard & Poor’s have said they may consider delaying payments a default - and it is unclear if oil rich Abu Dhabi will help out Dubai. So the situation is confusing ... but it does seem that Dubai is the most overbuilt city in the world.

Here is a repeat of a video on the Dubai real estate crash I posted in February:

Some photos of Dubai from the Boston Globe last year.

Also from February, an article on "skips" - expatriates fleeing home rather than risk jail for defaulting on loans: Driven down by debt, Dubai expats give new meaning to long-stay car park

And from the NY Times in February: Laid-Off Foreigners Flee as Dubai Spirals Down

by Calculated Risk on 11/27/2009 10:53:00 AM

From Donna St. George at the WaPo: The $698,000 mistake

[A]ll of this began in the heady days of the mortgage boom ... [Ms. White] only knew that there seemed to be possibilities, even to those with little means such as herself, which is how a woman who had never paid more than $700 a month in rent and who had relied in recent years on Section 8 housing vouchers suddenly owned a house.

A four-bedroom house.

With 3 1/2 bathrooms. And walk-in closets, black granite countertops and a fireplace.

You can already tell how this story will end.

On settlement day, reality bore down.
...
Papers were read and presented, most of which White did not try to decipher. ... White's papers cited income of $163,320 a year, even though she says her 2005 income-tax earnings were less than $15,000 and she relied at times on food stamps.
...
White signed papers while waiting for the one she cared most about: her monthly payment. ... "Please let this be something I can afford," she said to herself. She was pretty sure she could afford $2,000. She told herself that if her day-care business did well, perhaps she could afford $2,500. If it was $2,800, she would struggle. Here, now, came reality: $5,635 a month.

To get White to sign, the sellers - who were real estate agents - agreed to make the first two mortgage payments for Ms. White. According to the article, White received $40,000 in cash out at closing - and the seller made over $200,000 on the house. Naturally it went into foreclosure and Ms. White is back living in an apartment.

by Calculated Risk on 11/27/2009 08:33:00 AM

A little more Dubai news ...

From Bloomberg: Dubai Debt May Be Higher Than $80 Billion, UBS Analysts Say

Dubai... may owe more than the $80 billion to $90 billion in liabilities assumed by investors, UBS AG analysts said in a note.

“Perhaps Dubai’s debt includes sizeable off-balance sheet liabilities that imply a total debt burden well above the $80 billion to $90 billion markets have estimated so far,” real estate analyst Saud Masud wrote in a note yesterday. “This could imply that the debt issued by Dubai in recent weeks is insufficient to meet upcoming redemptions.”

And more: RBS Led Dubai World Lenders, HSBC May Have Most at Stake in UAE

RBS, the largest U.K. government-controlled bank, arranged $2.3 billion, or 17 percent, of Dubai World loans since January 2007, JPMorgan said in a report today .... HSBC, Europe’s biggest bank, has the “largest absolute exposure” in the U.A.E. with $17 billion of loans in 2008, JPMorgan said ...

by Calculated Risk on 11/26/2009 09:39:00 PM

Some Turkey Night reports and futures ...

From The Times: Dubai in deep water as ripples from debt crisis spread

Fears of a dangerous new phase in the economic crisis swept around the globe yesterday ... Shares plunged, weak currencies were battered and more than £14 billion was wiped from the value of British banks on fears that they would be left nursing new losses.
...
Although the scale of Dubai’s debts is comparatively modest at $80 billion (£48 billion), the uncertainty spooked the markets ... The FTSE 100 plunged by 171 points to 5,194 — its biggest one-day fall in eight months ...

The French CAC-40 was down 3.4% and the German DAX index was down 3.3%.

In Asia, the Hang Seng is off about 3%, and Nikkei is off 1.8%.

In the U.S, the S&P futures are off about 25 points (Dow futures off 200). Some sources:

Bloomberg Futures.

CNBC Futures

Best to all.

by Calculated Risk on 11/26/2009 05:55:00 PM

From Jon Lansner at the O.C. Register: How banks may lose $430 billion more

Banks are projected to lose $430 billion on commercial real estate loans in the next two to three years [said] Stan Mullin, an associate with California Real Estate Receiverships in Newport Beach
...
Highlight’s of Mullin’s talk:

•$1.4 trillion in commercial loans are coming due in the next five years.
•That’s equal to the same amount that came due in the last 15 years.
•Lenders could take massive losses on their real estate portfolios from 2010-2013.

This is similar to the recent presentation by Dr. Randall Zisler, CEO of Zisler Capital Partners:

A crisis of unprecedented proportions is approaching. Of the $3 trillion of outstanding mortgage debt, $1.4 trillion is scheduled to mature in four years. We estimate another $500 billion to $750 billion of unscheduled maturities (i.e., defaults).

And from the WSJ in October:

Commercial real-estate loans are the second-largest loan type after home mortgages. More than half of the $3.4 trillion in outstanding commercial real-estate debt is held by banks.

The Fed presentation states that the most "toxic" loans on bank books are so-called interest-only loans, which require borrowers to repay interest but no principal. Those loans "get no benefit from amortization," the report states.

"Today, most of the borrowers are paying because interest rates are so low, but the question is whether the loans will get paid off when they come due," said Michael Straneva, global head of Ernst & Young's transaction real-estate practice.

And of course this is why the FDIC released the recent Policy Statement on Prudent Commercial Real Estate Loan Workouts

This policy statement stresses that performing loans, including those that have been renewed or restructured on reasonable modified terms, made to creditworthy borrowers will not be subject to adverse classification solely because the value of the underlying collateral declined.

And the "value of the underlying collateral" had definitely declined - by 43% on average according to Moody's.

In the end, the size and timing of the losses really depends on the success of the workouts, and I expect the terms on many of these loans will be extended for a number of years - taking advantage of the very low interest rates and hoping property values eventually rebound.

by Calculated Risk on 11/26/2009 02:45:00 PM

Happy Thanksgiving! Make sure to check out the previous post on Dubai.

by Calculated Risk on 11/26/2009 11:01:00 AM

No one saw this coming ...

From Bloomberg: Dubai Debt Delay Rattles Confidence in Gulf Borrowers

Dubai is shaking investor confidence across the Persian Gulf after its proposal to delay debt payments risked triggering the biggest sovereign default since Argentina in 2001.
...
Moody’s Investors Service and Standard & Poor’s cut the ratings on state companies yesterday, saying they may consider state-controlled Dubai World’s plan to delay debt payments a default. The sheikhdom, ruled by Sheikh Mohammed Bin Rashid Al Maktoum, borrowed $80 billion in a four-year construction boom ...

And a few articles from the WSJ: Dubai Starts to Untangle Dubai World Fallout

And European Banks Seen Exposed To Dubai World

Most banks on Thursday said their exposure to Dubai and Dubai World is small or declined to comment, but Credit Suisse analysts estimate European banks have about $40 billion in exposure to debt issued by various Dubai city-state entities, including Dubai World.

And from December 2008: Citi Voices Upbeat View on Dubai (ht jb)

With questions about Dubai's looming debt obligations swirling, Citigroup Inc. said it had raised $8 billion for the Persian Gulf city-state over the course of the past year and still had a positive outlook on its economy.

Citigroup Chairman Win Bischoff was quoted in the bank's statement Monday as saying Citigroup continues to see Dubai as among its "most significant markets."

When there are bad loans to be made, apparently Citi never sleeps.

UPDATES: Brad DeLong suggests it might be Time to Reread the History of Austria's Creditanstalt in 1931...

Interesting time. In Europe, the Creditanstalt's bankruptcy and what followed was what turned the recession into the European Great Depression...

And DeLong excerpts from a Financial Times article by Roula Khalaf: The emirate has a lot of explaining to do

And from Izabella Kaminska at the FT Alphaville: Barclays Capital ‘change their view’ on Dubai

My, my, what a difference a few weeks make.

Earlier this month — when all still seemed relatively well in the UAE emirate of Dubai — Barclays Capital was among those touting Dubai-related debt as a decent investment for clients. The bank even confidently predicted the repayment of the now infamous Nakheel sukuk.

In fact on November 4 — the day Moody’s slashed its ratings on five Dubai government related entities — BarCap analysts wrote:

We expect several developments to act as positive catalysts for Dubai’s sovereign spreads. First, the likely repayment of the Nakheel sukuk in December. Second, Dubai’s ability to raise the second USD10bn tranche with the support of Abu Dhabi. Third, a successful conclusion of the merger between Emaar and Dubai Holding, as well as a solution allowing mortgage providers Amlak and Tamweel to resume lending.

On that basis, we recommend a long position in Dubai sovereign credit and see today’s negative price actions as an opportunity to buy.

There is much more at the link.

by Calculated Risk on 11/26/2009 08:53:00 AM

One of the keys to the housing market is the success of the modification programs. The Treasury Department is expected to release a key measurement next month: the number of permanent modifications for the Making Home Affordable program.

Scott Reckard at the LA Times has an overview: Few mortgages have been permanently modified

Loan-modification limbo is of high concern these days ... even after reporting this month that trial modifications had topped 650,000, the government still hasn't said how many of those loans have been permanently restructured. ...

"You can't claim victory at 500,000 trial modifications and then have half of them drop out," said Paul Leonard, California director for the Center for Responsible Lending, a Durham, N.C.-based advocacy group.
...
Exactly what is holding up the conversions depends on whom you talk to.

"Getting these loans to the finish line is tough" for loan servicers, Chase Home Lending Senior Vice President Douglas Potolsky said ... The main obstacle, he and other bankers said, is borrowers who don't properly complete their paperwork.
...
Getting income documentation is a major problem now that the era of "low doc" and "no doc" loans is long gone, [Sam Khater, an economist with mortgage data firm First American CoreLogic] said in an interview.

We will know more in December, but it might not have been a great idea to loan the money first, and then qualify the borrowers.

by Calculated Risk on 11/25/2009 11:42:00 PM

From the WaPo: Fannie Mae to tighten lending standards (ht Ann, Pat, Tim)

Starting Dec. 12, the automated system that Fannie Mae uses to approve loans will reject borrowers who have at least a 20 percent down payment but whose credit scores fall below 620 out of 850. Previously, the cut-off was 580.

Also, for borrowers with a 20 percent down payment, no more than 45 percent of their gross monthly income can go toward paying debts. Fannie declined to disclose the previous threshold, except to say that it was higher. ...

Brian Faith, a Fannie Mae spokesman, said ... Loans to people with credit scores below 620 fell seriously behind at a rate approximately nine times higher than other loans purchased in the same period ...

This change will only impact a small percentage of Fannie Mae loans. I'm surprised they still allow debt payments to be as high as 45% of gross income - that seems a little loose and leaves the borrowers house poor.

by Calculated Risk on 11/25/2009 10:14:00 PM

A short excerpt from the WSJ Developments: Think Twice About Cheering New Home Sales

Already, builders report weak November traffic. One private builder in Raleigh, N.C. - long considered a strong market because of tech and higher-education employers - reports no shoppers in the first week, according to John Burns Real Estate Consulting.

I've heard similar reports from real estate agents that the first two weeks of November were exceptionally weak, but that the phones started ringing again once the word spread that the tax credit had been extended.

I wouldn't be surprised by a dip in New home sales in November - although existing home sales will probably still be fairly strong from people buying in September (existing home sales are reported at the close of escrow).

by Calculated Risk on 11/25/2009 07:08:00 PM

Jim shows a property and interviews the investor. The investor recently bought the property for $590,000 on the court house steps, and sold it fairly quickly for $685,000.

by Calculated Risk on 11/25/2009 05:10:00 PM

From the U.S. Courts: Bankruptcy Filings Up 34 Percent over Last Fiscal Year

Bankruptcy cases filed in federal courts for fiscal year 2009 totaled 1,402,816, up 34.5 percent over the 1,042,993 filings reported for the 12-month period ending September 30, 2008, according to statistics released today by the Administrative Office of the U.S. Courts.

The federal Judiciary’s fiscal year is the 12-month period ending September 30. The bankruptcies reported today are for October 1, 2008 through September 30, 2009.
...
For the 12-month period ending September 30, 2009, business filings totaled 58,721, up 52 percent from the 38,651 business filings in the 12-month period ending September 30, 2008. Non-business filings totaled 1,344,095, up 34 percent from the 1,004,342 non-business bankruptcy filings in September 2008.

Click on graph for larger image in new window.

This graph shows the bankrutpcy filings over the last year per 1,000 population by states and territories.

Nevada makes sense with close to 70% of homeowners underwater. And Michigan is the state with the highest unemployment rate, and a large percentage of homeowners underwater. But I'm not sure why Tennessee is #2.

by Calculated Risk on 11/25/2009 03:26:00 PM

Here is more on the "distressing gap" between existing and new home sales.

The following graph shows the ratio of existing home sales divided by new home sales through October.

Click on graph for larger image in new window.

This ratio has increased again to a new all time high.

The ratio of existing to new home sales increased at first because of the flood of distressed sales. This kept existing home sales elevated, and depressed new home sales since builders couldn't compete with the low prices of all the foreclosed properties.

The recent increase in the ratio was due primarily to the timing of the first time homebuyer tax credit (before the extension). New home sales are counted when the contract is signed, and usually before construction begins. So to close before the original Dec 1st deadline, the contract had to be signed early this Summer (that might explain the dip in the ratio earlier this year).

Existing home sales are counted when escrow closes, and escrow usually takes less than 60 days. So the recent surge in sales were boosted by buyers rushing to beat the tax credit. And this has pushed the ratio to a new record.

The second graph shows the same information with existing home sales (left axis), and new home sales (right axis). This is updated through the October data released this morning.

Although distressed sales will stay elevated for some time, I expect this gap to eventually close.

The ratio could decline because of an increase in new home sales, or a decrease in existing home sales - I expect a combination of both.

by Calculated Risk on 11/25/2009 12:38:00 PM

I skipped the MBA market index earlier ...

The MBA reports: Mortgage Applications Decrease in Latest MBA Weekly Survey

The Market Composite Index, a measure of mortgage loan application volume, decreased 4.5 percent on a seasonally adjusted basis from one week earlier. ...

The Refinance Index decreased 9.5 percent from the previous week and the seasonally adjusted Purchase Index increased 9.6 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.82 percent from 4.83 percent, with points increasing to 1.19 from 1.18 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Note: This is the lowest contract interest rate since mid-May.

Click on graph for larger image in new window.

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

In the past, the MBA index was predictive of future sales, but it has been questionable for some time. The increase in 2007 was due to the method used to construct the index: a combination of lender failures, and borrowers filing multiple applications pushed up the index in 2007 even though activity was actually declining.

Recently there has been a substantial number of cash buyers, so the MBA index missed the strength of the recent existing home sales increase. Still the recent plunge in the 4 week moving average of the purchase index is probably worth watching.

by Calculated Risk on 11/25/2009 10:00:00 AM

The Census Bureau reports New Home Sales in October were at a seasonally adjusted annual rate (SAAR) of 430 thousand. This is an increase from the revised rate of 405 thousand in September (revised from 402 thousand).

Click on graph for larger image in new window.

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

Note the Red columns for 2009. In October 2009, 35 thousand new homes were sold (NSA); the record low was 29 thousand in October 1981; the record high for October was 105 thousand in 2005. This is the 6th lowest sales for October since the Census Bureau started tracking sales in 1963.

Sales in October 2009 were above October 2008 (32 thousand). This is the first year over same month increase since October 2005.

The second graph shows New Home Sales vs. recessions for the last 45 years. New Home sales fell off a cliff, but are now 31% above the low in January.

Sales of new one-family houses in October 2009 were at a seasonally adjusted annual rate of 430,000 ... This is 6.2 percent (±17.6%) above the revised September rate of 405,000 and is 5.1 percent (±14.9%) above the October 2008 estimate of 409,000.

And another long term graph - this one for New Home Months of Supply.

There were 6.7 months of supply in October - 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 October was 239,000. This represents a supply of 6.7 months at the current sales rate.

The final graph shows new home inventory.

Note that new home inventory does not include many condos (especially high rise condos), and areas with significant condo construction will have much higher inventory levels.

Months-of-supply and inventory have both peaked for this cycle, and sales have probably bottomed too. New home sales are far more important for the economy than existing home sales, and new home sales will remain under pressure until the overhang of existing housing inventory declines much further.

I'll have more later ...

by Calculated Risk on 11/25/2009 08:48:00 AM

From the BEA: Personal Income and Outlays, October 2009

Personal income increased $30.1 billion, or 0.2 percent, and disposable personal income (DPI) increased $45.7 billion, or 0.4 percent, in October, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $68.3 billion, or 0.7 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.4 percent in October, in contrast to a decrease of 0.7 percent in September.
...
Personal saving -- DPI less personal outlays -- was $490.3 billion in October, compared with $510.4 billion in September. Personal saving as a percentage of disposable personal income was 4.4 percent in October, compared with 4.6 percent in September.

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 October Personal Income report. The saving rate was 4.4% in October.

I expect the saving rate to continue to rise - possibly to 8% or more - slowing the growth in PCE.

The following graph shows real Personal Consumption Expenditures (PCE) through October (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.

Note that PCE in Q3 was distorted by the cash-for-clunkers program (especially August). Just using the October numbers, PCE would increase at about a 2.6% annualized rate in Q4. In general PCE growth will probably be below normal well into 2010 as households continue to repair their balance sheets.