by Calculated Risk on 3/27/2009 04:43:00 PM

First, a quick market update ...

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.

On Q1 GDP:

Earlier today the BEA released the February Personal Income and Outlays report. This report suggests Personal Consumption Expenditures (PCE) will probably be slightly positive in Q1 (caveat: this is before the March releases and revisions).

Since PCE is almost 70% of GDP, does this mean GDP will be OK in Q1?

Nope.

I expect Q1 2009 GDP to be very negative, and possibly worse than in Q4 2008. Right now I'm looking at something like a 6% to 8% decline (annualized) in real GDP (there is significant uncertainty, especially with inventory and trade).

The problem is the 30% of non-PCE GDP, especially private fixed investment. There will probably be a significant inventory correction too, and some decline in local and state government spending. But it is private fixed investment that will cliff dive. This includes residential investment, non-residential investment in structures, and investment in equipment and software.

A little story ...

Imagine ACME widget company with a steadily growing sales volume (say 5% per year). In the first half of 2008 their sales were running at 100 widgets per year, but in the 2nd half sales fell to a 95 widget per year rate. Not too bad.

ACME's customers are telling the company that they expect to only buy 95 widgets this year, and 95 in 2010. Not good news, but still not too bad for ACME.

But this is a disaster for companies that manufacturer widget making equipment. ACME was steadily buying new widget making equipment over the years, but now they have all the equipment they need for the next two years or longer.

ACME sales fell 5%. But the widget equipment manufacturer's sales could fall to zero, except for replacements and repairs.

And this is what we will see in Q1 2009. Real investment in equipment and software has declined for four straight quarters, including a 28.1% decline (annualized) in Q4. And I expect another huge decline in Q1.

For non-residential investment in structures, the long awaited slump is here. I expect declining investment over a number of quarters (many of these projects are large and take a number of quarters to complete, so the decline in investment could be spread out over a couple of years). And once again, residential investment has declined sharply in Q1 too.

When you add it up, this looks like a significant investment slump in Q1.

by Calculated Risk on 3/27/2009 04:09:00 PM

Form Bloomberg: Omni National Bank in Georgia Shut, 21st U.S. Failure (ht Brad)

Omni National Bank of Atlanta was seized by federal regulators, the 21st U.S. bank to fail this year ...

Omni National, with $980 million in assets, was shut by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. was named receiver, the OCC said today in a statement. ...

The failed bank had six branches in Georgia, Illinois, Florida and Texas, and two loan offices in Alabama and Pennsylvania, the OCC said. The lender opened in 2000. The FDIC, which arranges to sell the deposits and assets of failed banks, didn’t immediately identify a buyer for Omni National.

No word from the FDIC yet. Did Bloomberg jump the gun?

by Calculated Risk on 3/27/2009 02:39:00 PM

From Bloomberg: Default Rate Rises for Student Loans, U.S. Government Reports (ht Anthony)

Student-loan default rates for people who recently left school rose to 6.9 percent from 5.2 percent a year earlier as a deteriorating economy weighed on borrowers, the U.S. government said.

... The rate is based on borrowers who were to begin making repayments between October 2006 and October 2007, and who fell at least nine months behind by late September 2008.

Almost 232,000 of those borrowers entered default, a 13 percent increase from the previous year and a jump of 43 percent from two years earlier, the department said.

by Calculated Risk on 3/27/2009 11:34:00 AM

The BEA released vehicle sales for February this morning. Total auto and truck sales in the U.S. were 9.29 million (SAAR).

The automakers will release March sales numbers next Wednesday.

Click on graph for larger image in new window.

The first graph shows monthly vehicle sales (autos and trucks) as reported by the BEA at a Seasonally Adjusted Annual Rate (SAAR).

This shows that sales have plunged to a 9.29 million annual rate in February; the lowest since Dec 1981.

March 2009 sales will be down sharply from March 2008 too, but analysts will be looking for some stabilization on a seasonally adjusted basis.

This graph shows the total number of registered vehicles in the U.S. divided by the sales rate - and gives a turnover ratio for the U.S. fleet (this doesn't tell you the age of the fleet).

Currently this ratio is at 26.8 years, the highest ever. This is an unsustainable level (I doubt most vehicles will last 27 years!), and the ratio will probably decline over the next few years. This could happen with vehicles being removed from the fleet, but more likely because of a sales increase.

This suggests vehicle sales are much nearer the bottom than the top, and there will probably be some sort of modest rebound later this year.

by Calculated Risk on 3/27/2009 11:04:00 AM

In addition to the Personal Income report this morning, the BEA released the final Q4 private fixed investment supplemental tables.

One of the key areas for downward revisions in the final Q4 GDP report was non-residential investment. These revisions were significant.

I'll use lodging as an example ... this first graph was based on the advanced GDP report:

Click on graph for larger image in new window.

This graph shows investment in lodging as a percent of GDP.

In the advance report, lodging investment was reported at 0.34% of GDP - an all time high.

Note: prior to 1997, the BEA included Lodging in a category with a few other buildings. This earlier data was normalized using 1997 data, and is an approximation.

The second graph is based on the final Q4 GDP report.

Instead of increasing slightly in Q4 - as suggested by the advance report - lodging investment declined at a 15.7% annual rate in Q4.

Office investment declined at a 10.1% annual rate in Q4, and mall investment declined at a 11.3% annual rate.

The turning point for non-residential investment was in Q4. Let the cliff diving begin!