by Calculated Risk on 5/12/2009 02:32:00 PM

GE Chief Executive Jeff Immelt is uncertain when growth will resume ...

From Reuters: GE CEO says economy stabilized, growth a question

Improved credit markets have brought stabilization to the economy but it is still not clear when growth will resume, General Electric Co Chief Executive Jeff Immelt said on Tuesday.

"The credit picture, we think, is improving and that's really one of the fundamentals to getting the broader economy doing better," Immelt said in an interview with Reuters. "Things certainly have stabilized and now the goal is to see where growth goes in the second half of the year."

And from PIMCO's El-Erian:

It was clear to us that, despite the very high hurdle that we always apply to such a statement, the world has changed in a manner that is unlikely to be reversed over the next few years. Put another way, markets are recovering from a shock that goes way, way beyond a cyclical flesh wound.
...
For the next 3–5 years, we expect a world of muted growth ...

And Bloomberg quotes Paul Krugman:

“It looks to me now as if the markets are now pricing in a rapid recovery, that they’re pricing in a V-shaped recession, which I consider extremely unlikely,” Krugman said at a forum in Shanghai today. “The market seems to be looking as if this is going to be an average recession, but it’s not.”

I thought a depression was unlikely, and I think an immaculate recovery is also unlikely. Something in the middle - that will feel like a recession to many - is more likely.

As I noted last week (see A Return to Trend Growth in 2010? and The Impact of Changes in the Saving Rate on PCE ), the usual engines of recovery - personal consumption expenditures (PCE) and residential investment (RI) - will both remain under pressure (even if they show some sluggish growth).

My forecast is for unemployment to stay elevated for some time, and the suggests minimal wage growth. And I also think household will increase their saving rate to repair their household balance sheet (and because of an aging population). This suggests PCE growth will probably be below trend.

And for RI, there is far too much inventory for any significant rebound in new home construction. So where will the growth come from?

by Calculated Risk on 5/12/2009 11:32:00 AM

The NAR reported today: Foreclosure and Short Sale Discounts Weigh Down Metro Area Median Prices

" ... first-time buyers account[ed] for half of all purchases during the first quarter ..."

“Close to 455,000 buyers purchased their first home during the first quarter, and those are likely just the first wave of new buyers coming into the market – they’re critical for a housing recovery,” [Lawrence Yun, NAR chief economist] said.

Most of the press release discusses the median price (something to ignore because of the change in mix), but there is a key point being missed - many of these sales are "one and done" with no move up buyer.

Click on graphis for larger image in new window.

Here is a graphic I created a couple years ago to show a normal market chain reaction.

At that time I wrote: "Not all chain reactions start with a first time buyer using a subprime loan, but the loss of a large number of subprime buyers will impact the entire chain."

Where are the move up buyers going to come from?

There is no "chain reaction" in the housing market - over half the sales are to first time buyers, and frequently the sellers are banks.

I hear this from real estate agents all the time: the agents (low end) are plenty busy with REOs and short sales, but the deals are mostly "one and done".

by Calculated Risk on 5/12/2009 09:25:00 AM

From Bloomberg: Advanta Shuts Down Credit-Card Lending Amid Surging Charge-Offs

Advanta Corp., the issuer of credit cards for small businesses, will halt new lending for its 1 million customers next month as the recession causes a surge in loan defaults. ... Advanta said ... charge-offs, or uncollectible debt, reached 20 percent on some cards as of March 31.
...
“We’ll be shutting down accounts for future transaction activities, but many of the customers will maintain balances and pay us off over time,” [Chief Financial Officer Philip Browne] said yesterday in a telephone interview.

Advanta was the 11th-biggest U.S. credit-card issuer at the end of 2008 with about $5 billion in outstanding balances, and the only major lender focused on small business borrowers ...

This is much higher loss rate than for consumer credit cards - the Fed's two year indicative loss rate was 18% to 20% for consumer credit cards - Advanta is seeing that in one year for some cards!

by Calculated Risk on 5/12/2009 08:31:00 AM

The Census Bureau reports:

The ... total March exports of $123.6 billion and imports of $151.2 billion resulted in a goods and services deficit of $27.6 billion, up from $26.1 billion in February, revised. March exports were $3.0 billion less than February exports of $126.6 billion. March imports were $1.6 billion less than February imports of $152.8 billion.

Click on graph for larger image.

The first graph shows the monthly U.S. exports and imports in dollars through March 2009.

Both imports and exports declined in March, although it appears the cliff diving in trade might be over.

On a year-over-year basis, exports are off 17.4% and imports are off 27%!

The second graph shows the U.S. trade deficit, with and without petroleum, through March.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Import oil prices increased slightly to $41.36 in March following eight consecutive monthly declines. Spot prices have increased since March, so it appears the decline in the trade deficit due to lower oil prices is over for now.

The trade deficit is mostly oil and China now, so any further significant decline in the deficit is unlikely in the short term. Although the NY Times reports: Chinese Exports Fall 22.6% in April

Exports from mainland China slumped 22.6 percent in April from a year earlier, official statistics showed — a fall that was not only larger than economists had expected but also bigger than that in March, when overseas shipments declined 17.1 percent.

by Calculated Risk on 5/11/2009 11:31:00 PM

From the NY Times: As Storefronts Become Vacant, Ads Arrive

Almost every category of advertising is declining precipitously in this economy, but there is one that is thriving. ...

Taking advantage of all the abandoned retail spaces in urban areas, marketers are leasing them at cut-rate prices and filling them with their ads.
...
“In the last year and a half, it’s been much easier to acquire locations,” said [Ray Lee, the managing director of ... a company that creates storefront advertisements].

Yeah ... "much easier to acquire locations". I bet!