by Calculated Risk on 7/01/2009 10:00:00 AM

From the Institute for Supply Management: June 2009 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector failed to grow in June for the 17th consecutive month, while the overall economy grew for the second consecutive month following seven months of decline, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "Manufacturing continues to contract at a slower rate, but the trends in the indexes are encouraging as seven of 18 industries reported growth in June. Most encouraging is the gain in the Production Index, which is up 12.1 percentage points in the last two months to 52.5 percent. Aggressive inventory reduction continues and indications are that the de-stocking cycle is at or near the end in most industries, as the Customers' Inventories Index remained below 50 percent for the third consecutive month. The Prices Index was unchanged from May, indicating that the supply/demand balance is improving. Overall, a slow recovery for manufacturing is forming based on the current trends in the ISM data."
emphasis added

As noted, any reading below 50 shows contraction, although the pace of contraction has slowed.

by Calculated Risk on 7/01/2009 08:35:00 AM

ADP reports:

Nonfarm private employment decreased 473,000 from May to June 2009 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from April to May was revised by 47,000, from a decline of 532,000 to a decline of 485,000.

Note: the BLS reported a 338,000 decrease in nonfarm private employment in May, so once again ADP was not very useful in predicting the BLS number.

On the Challenger job-cut report from CNBC:

[P]lanned layoffs at U.S. firms fell for a fifth consecutive month in June, hitting the lowest since March 2008 ...

Planned job cuts announced by employers totaled 74,393 in June, down 33 percent from 111,182 in May, according to .... Challenger, Gray & Christmas.

"We typically see a decline in job cuts in the second quarter." [the report said]
...
It was the first time since last September that the monthly total was less than 100,000 and it was the lowest job-cut count since 53,579 job cuts were announced in March 2008.

It was also 9 percent lower than the same month a year ago, making it the first year-over-year decline since February 2008, Challenger added.

And from Monster:

The Monster Employment Index slipped one point or one percent in June as online job opportunities fell modestly, largely in line with seasonal expectations. Year-over-year, the Index was down 28 percent ...

“While U.S. online job availability has remained largely flat since January, the annual pace improved during the second quarter, suggesting some expansion in underlying employer demand for workers,” said Jesse Harriott, senior vice president ... at Monster Worldwide. “Still, current levels of online job vacancies are at their lowest since January 2005, illustrating the extent to which hiring has slowed during this recession.”

The BLS reports tomorrow, and the consensus is for about 350,000 in reported job losses for June.

by Calculated Risk on 7/01/2009 08:11:00 AM

The MBA reports:

The Market Composite Index, a measure of mortgage loan application volume, was 444.8, a decrease of 18.9 percent on a seasonally adjusted basis from 548.2 one week earlier.
...
The Refinance Index decreased 30.0 percent to 1482.2 from 2116.3 the previous week and the seasonally adjusted Purchase Index decreased 4.5 percent to 267.7 from 280.3 one week earlier. The Refinance Index is at its lowest level since November 2008.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.34 percent from 5.44 percent ...

Click on graph for larger image in new window.

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

Note: The increase in 2007 was due to the method used to construct the index.

The Purchase index is still near recent lows, but the big story this week was the sharp decline in the Refinance index - probably because of the recent rise in borrowing costs.

by Calculated Risk on 7/01/2009 12:07:00 AM

From David Leonhardt at the NY Times: A Forecast With Hope Built In

In the weeks just before President Obama took office, his economic advisers made a mistake. They got a little carried away with hope.

... Without the stimulus, they saw the unemployment rate — then 7.2 percent — rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.

We now know that this forecast was terribly optimistic.

Here is the January forecast with the actual data ...

Click on graph for larger image in new window.

This graph compares the actual quarterly unemployment rate (in red) with the Obama economic forecast from January 10th: The Job Impact of the American Recovery and Reinvestment Plan

There are two possible explanations that the administration was so wrong. ... The first explanation is that the economy has deteriorated because the stimulus package failed. ... The second answer is that the economy has deteriorated in spite of the stimulus.

Very little of the stimulus has been spent so far, so it is premature to say it failed. However Romer recently was quoted in the Financial Times:

Ms Romer said stimulus spending was “going to ramp up strongly through the summer and the fall”.

“We always knew we were not going to get all that much fiscal impact during the first five to six months. The big impact starts to hit from about now onwards,” she said.

Ms Romer said that stimulus money was being disbursed at almost exactly the rate forecast by the Office of Management and Budget. “It should make a material contribution to growth in the third quarter.”

So we should see an impact in the 2nd half of 2009 ... and that starts now!

by Calculated Risk on 6/30/2009 09:05:00 PM

San Francisco Fed President Janet Yellen has been rumored to be one of the front runners to replace Chairman Ben Bernanke (although most consider Larry Summers the front runner, assuming Bernanke isn't reappointed).

Tonight Dr. Yellen spoke in San Francisco: A View of the Economic Crisis and the Federal Reserve’s Response. Here are some excerpts on her views going forward:

I expect the recession will end sometime later this year. That would make it the longest and probably deepest downturn since the Great Depression. ...

I don’t like taking the wind out of the sails of our economic expansion, but a few cautionary points should be considered. I expect the pace of the recovery will be frustratingly slow. It’s often the case that growth in the first year after a recession is very rapid. That’s what happened as we came out of a very deep downturn in the early 1980s. Although I sincerely wish we would repeat that performance, I don’t think we will. In past deep recessions, the Fed was able to step on the accelerator by cutting the federal funds rate sharply, causing the economy to shoot ahead. This time, we already have our foot planted firmly on the floor. We can’t take the federal funds rate any lower than zero. I believe that the Fed’s novel programs are stimulating the flow of credit, but they simply aren’t as powerful levers as large rate cuts, so this time monetary policy alone can’t power a rapid recovery.

History also teaches us that it often takes a long time to recover from downturns caused by financial crises. In particular, financial institutions and markets won’t heal overnight. Our major banks have made excellent progress in establishing the capital buffers needed to continue lending even through a downturn that is more serious than we anticipate. But they are still nursing their wounds and credit will remain tight for some time to come.

I also think that a massive shift in consumer behavior is under way—one that will produce great benefits in the long run but slow our recovery in the short term. American households entered this recession stretched to the limit with mortgage and other debt. The personal saving rate fell from around 8 percent of disposable income two decades ago to almost zero. Households financed their lifestyles by drawing on increasing stock market and housing wealth, and taking on higher levels of debt. But falling house and stock prices have destroyed trillions of dollars in wealth, cutting off those ready sources of cash. What’s more, the stark realities of this recession have scared many households straight, convincing them that they need to save larger fractions of their incomes. In the long run, higher saving promises to channel resources from consumption to investment, making capital more readily available to retool industry and fix our infrastructure. But, in the here and now, such a rediscovery of thrift means fewer sales at the mall, and fewer jobs on assembly lines and store counters.

A fourth factor that could slow recovery is the unprecedented global nature of the recession. Neither we nor our trading partners can count on a boost from strong foreign demand. Finally, developments in the labor market suggest it could take several years to return to full employment. During this recession, an unusually high proportion of layoffs have been permanent as opposed to temporary, meaning workers won’t get called back when conditions improve. Also, we’ve seen an unprecedented level of involuntary part-time work, such as state workers on furlough a few days per month. Those workers are likely to return to full-time status before new workers are hired. To summarize, I expect that we will turn the growth corner sometime later this year, but I am not optimistic that the economy will spring back to normal anytime soon. What’s more, I expect the unemployment rate to remain painfully high for several more years.

That’s a dreary prediction, but there is also some risk that things could turn out worse. High on my worry list is the possibility of another shock to the still-fragile financial system. Commercial real estate is a particular danger zone. Property prices are falling and vacancy rates are rising in many parts of the country. Given the weak economy, prices could fall more rapidly and developers could face tough times rolling over their loans. Many banks are heavily exposed to commercial real estate loans. An increase in defaults could add to their financial stress, prompting them to tighten credit. The Fed and Treasury are providing loans to investors in securitized commercial mortgages, which should be a big help. But a risk remains of a severe shakeout in this sector.
emphasis added

Yellen also discusses Fed policy, the Fed balance sheet, the fiscal deficit and inflation: "I think the predominant risk is that inflation will be too low, not too high, over the next several years."