by Calculated Risk on 3/14/2009 05:35:00 PM

The recent data suggests there is a significant inventory correction in progress.

Click on graph for larger image in new window.

This graph is based on the Manufacturing and Trade Inventories and Sales report from the Census Bureau.

This shows the 3 month change (annualized) in manufacturers’ and trade inventories. The inventory correction was slow to start in this recession, but inventories are now declining sharply.

This change in inventories will probably have a significant impact on GDP for the next few quarters. This is common in a recession. The contribution of changes in inventory to GDP have been pretty wild at times - in the early '80s there were a few quarters where the change in inventory subtracted more than 5% from GDP (annualized) in just one quarter! Something like that could happen in Q1 or Q2 too - and this is difficult to predict - and that could contribute to a horrible GDP number in Q1.

This inventory correction is probably also impacting imports and could be part of the reason import traffic has fallen off a cliff (see LA Port Import Traffic Collapses in February)

The good news is a significant inventory correction will help with GDP later in the year. Even with some evidence of stabilization in personal consumption, I expect a horrible GDP number for Q1 due to this inventory correction and also because of the sharp decline in all categories of investment (especially non-residential investment).

by Calculated Risk on 3/14/2009 03:22:00 PM

Here is the G20 statement. Excerpt:

Our key priority now is to restore lending by tackling, where needed, problems in the financial system head on, through continued liquidity support, bank recapitalisation and dealing with impaired assets, through a common framework (attached). We reaffirm our commitment to take all necessary actions to ensure the soundness of systemically important institutions.

And from the "common framework":

We, the G20 Finance Ministers and Central Bank Governors, agreed the need to continue working together to maintain and support lending in our financial systems. We are committed to taking decisive action, where needed, and to use all available tools to restore the full functioning of financial markets, and in particular to underpin the flow of credit, both domestically and globally.

Actions to achieve this may include where necessary:

providing liquidity support, including through government guarantees to financial institutions’ liabilities;

injecting capital into financial institutions;

protecting savings and deposits; and,

strengthening banks’ balance sheets, including through dealing with impaired assets.

Our key priority now is to address the uncertainties around the value of assets held on banks’ balance sheets, which are significantly constraining banks’ lending. This uncertainty, and the extent to which banks are holding capital to protect themselves from further potential extreme losses, is preventing them from restoring lending to business and households, with damaging consequences to our economies.
emphasis added

The rest is general, but it keeps coming back to how to value the toxic assets on the banks' balance sheets.

by Calculated Risk on 3/14/2009 09:15:00 AM

From the WSJ: G-20 Won't Call for More Stimulus

Finance ministers and central bank heads from the group of 20 leading economies won't make a joint call for further fiscal stimulus at the end of their two-day meeting here ...

Separately, officials will lay out a set of principles on how to address the toxic assets weighing on banks' balance sheets ... The person said the principles will likely be included in an annex to the communique officials will release after today's meeting.

The U.S. plans to release details of its plan to use public and private money to ease the burden of toxic assets in the coming weeks, but European governments are likely to want more detail even sooner ...

The G-20 Finance Ministers are meeting today in preparation for the April 2nd summit of national leaders in London. Geithner is expected to hold a briefing around mid-day ET after the G-20 talks.

It doesn't sound like there will be a coordinated fiscal stimulus policy as some had hoped for.

by Calculated Risk on 3/13/2009 09:19:00 PM

I guess the FDIC needed a break!

David Letterman: Andy Kindler visits with Maria Bartiromo and Paul Krugman

Enjoy the evening ...

by Calculated Risk on 3/13/2009 06:03:00 PM

Earlier today the Census Bureau reported that both imports and exports continued to decline in January. But February is looking even worse. Last week China reported exports had collapsed in February. And from the Journal of Commerce Online today: St. Petersburg TEU Traffic Plunges

The First Container Terminal in St. Petersburg, Russia’s biggest box terminal, reported traffic in February plunged 27.3 percent from a year ago as imports collapsed.

The terminal handled 61,301 TEUs in February, taking volume for the first two months of the year to 124,608 TEUs, a drop of 24.7 percent on the same period in 2008.

The decline “is a direct result of the unfolding economic downturn which is affecting Russian importers in every possible way,” said Egor Govorukhin, vice president sales and marketing at National Container Co., the terminal’s owner.

Now we have data from the Port of Los Angeles for February (usually I wait until Long Beach reports too and combine the two ports, but this collapse is stunning).

Click on graph for larger image in new window.

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 35% below last February and 35% below last month.

The Port of Los Angeles put up a special message explaining the collapse:

Contributing factors:

Continued worldwide economic crisis contributing to a decline in trade volumes.

Consumer sales are down due to high unemployment rates.

15 less vessel calls this February due to this decline and the consolidation of services in order to fill up the existing services.

Chinese factories closed for an extended periods of time (beyond the normal time period) for Chinese New Year.

Due to the lack of volume and Chinese New Year, Maersk 6700 TEU/week vessel did not make any calls in LA during the month of February (which is traditionally a low volume month).

Anticipate this year’s volumes will continue to be below last year’s volumes because sales are still slow with most economists predicting there will not be any recovery before the second half of the year.

We have to be careful because of the impact of the Chinese New Year on trade, but it does appear trade collapsed in February.