by Calculated Risk on 3/02/2009 10:30:00 AM

From the ISM: February 2009 Manufacturing ISM Report On Business®

"Manufacturing continues to decline at a rapid rate in February. While production has slowed its rate of decline, employment continues to fall precipitously. Prices continue to decline, but price advantages are not sufficient to overcome manufacturers' apparent loss of demand. Survey respondents appear generally pessimistic about recovery in 2009."
...
Manufacturing contracted in February as the PMI registered 35.8 percent, which is 0.2 percentage point higher than the 35.6 percent reported in January. This is the 13th consecutive month of contraction in the manufacturing sector. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
...
ISM's Employment Index registered 26.1 percent in February, which is 3.8 percentage points lower than the 29.9 percent reported in January. This is the seventh consecutive month of decline in employment. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Manufacturing is still contracting, and employment is especially weak with the employment index at a record low (since the index started in 1948).

by Calculated Risk on 3/02/2009 10:01:00 AM

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 is still declining, and now nonresidential spending has peaked and will probably decline sharply over the next 18 months to two years.

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

Nonresidential spending is now at the year ago level and will turn strongly negative going forward. Residential construction spending is still declining, although the YoY change will probably be less negative going forward.

These are two key stories for 2009: the collapse in private non-residential construction, and the probably bottom for residential construction spending.

From the Census Bureau: January 2009 Construction at $986.2 Billion Annual Rate

Spending on private construction was at a seasonally adjusted annual rate of $682.6 billion, 3.7 percent (±1.1%) below the revised December estimate of $709.0 billion. Residential construction was at a seasonally adjusted annual rate of $291.5 billion in January, 2.9 percent (±1.3%) below the revised December estimate of $300.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $391.0 billion in January, 4.3 percent (±1.1%) below the revised December estimate of $408.7 billion.

by Calculated Risk on 3/02/2009 06:21:00 AM

For the Fed and Treasury AIG restructuring announcement, please see the previous post.

From MarketWatch: AIG reports fourth-quarter loss of over $61 billion

[AIG] said its fourth-quarter loss widened to $61.66 billion, or $22.95 a share, from the $5.29 billion loss in the year-earlier period. Continued severe credit market deterioration, particularly in commercial mortgage-backed securities, and charges related to ongoing restructuring-related activities weighed down results.

The numbers just keep getting bigger ...

by Calculated Risk on 3/02/2009 06:15:00 AM

From the Fed: U.S. Treasury and Federal Reserve Board Announce Participation in AIG Restructuring Plan

The U.S. Treasury Department and the Federal Reserve Board today announced a restructuring of the government's assistance to AIG in order to stabilize this systemically important company in a manner that best protects the U.S. taxpayer. ...

The company continues to face significant challenges, driven by the rapid deterioration in certain financial markets in the last two months of the year and continued turbulence in the markets generally. ...

As significantly, the restructuring components of the government's assistance begin to separate the major non-core businesses of AIG, as well as strengthen the company's finances. The long-term solution for the company, its customers, the U.S. taxpayer, and the financial system is the orderly restructuring and refocusing of the firm. This will take time and possibly further government support, if markets do not stabilize and improve.
...
Treasury has stated that public ownership of financial institutions is not a policy goal and, to the extent public ownership is an outcome of Treasury actions, as it has been with AIG, it will work to replace government resources with those from the private sector to create a more focused, restructured, and viable economic entity as rapidly as possible. This restructuring is aimed at accelerating this process. Key steps of the restructuring plan include:

Preferred Equity
The U.S. Treasury will exchange its existing $40 billion cumulative perpetual preferred shares for new preferred shares with revised terms that more closely resemble common equity and thus improve the quality of AIG's equity and its financial leverage. The new terms will provide for non-cumulative dividends and limit AIG's ability to redeem the preferred stock except with the proceeds from the issuance of equity capital.

Equity Capital Commitment
The Treasury Department will create a new equity capital facility, which allows AIG to draw down up to $30 billion as needed over time in exchange for non-cumulative preferred stock to the U.S. Treasury. This facility will further strengthen AIG's capital levels and improve its leverage.

Federal Reserve Revolving Credit Facility
The Federal Reserve will take several actions relating to the $60 billion Revolving Credit Facility for AIG established by the Federal Reserve Bank of New York (New York Fed) in September 2008, to further the goals described above.

[see statement for more details]

by Calculated Risk on 3/01/2009 10:25:00 PM

From AIG:

American International Group, Inc. (AIG) will report its fourth quarter and full year 2008 results on Monday, March 2, 2009 at approximately 6:00 a.m. EST. AIG’s earnings release and financial supplement will be available in the Investor Information section of www.aigcorporate.com following the filing of AIG’s Form 10-K for the year ended December 31, 2008.

AIG Chairman and Chief Executive Officer Edward M. Liddy will host a conference call, broadcast live over the Internet, on Monday, March 2, 2009 at 8:30 a.m. EST to discuss AIG’s fourth quarter results.

The audio webcast of the conference call can be accessed at www.aigwebcast.com.

From the WSJ: U.S. Revamps Bailout of AIG

The new deal, the government's fourth for AIG, represents a nearly complete reversal from the one first laid out in mid-September. Back then, federal officials acted as a demanding lender, forcing the insurer to pay a steep interest rate for what was expected to be a short-term loan. Now the government is relaxing loan terms by wiping out interest in hopes of preserving AIG's value over a longer period.

With the latest move, AIG will have the benefit of up to $70 billion from the TARP program; it got a $40 billion TARP investment in November. The total amounts to 10% of the $700 billion financial-sector rescue fund, money that most lawmakers did not expect would go toward propping up a troubled insurer. Officials believed they had little choice but to use the TARP money, particularly because they lack the authority to unwind a troubled firm such as AIG the way the government can do now with failing banks.

AIG: a black hole.