by Calculated Risk on 8/07/2009 09:06:00 AM

Note: earlier Employment post: Employment Report: 247K Jobs Lost, 9.4% Unemployment Rate . The earlier post includes a comparison to previous recessions.

Stress Test Scenarios

Click on graph for larger image in new window.

This graph shows the unemployment rate compared to the stress test economic scenarios on a quarterly basis as provided by the regulators to the banks (no link).

This is a quarterly forecast: the Unemployment Rate for Q3 just includes July, and will probably move higher. Once again, the unemployment rate is already higher than the "more adverse" scenario.

Note also that the unemployment rate has already exceeded the peak of the "baseline scenario".

Unemployed over 26 Weeks

The DOL report yesterday showed seasonally adjusted insured unemployment at 6.3 million, down from a peak of about 6.9 million. This raises the question of how many unemployed workers have exhausted their regular unemployment benefits (Note: most are still receiving extended benefits, although this is about to change).

The monthly BLS report provides data on workers unemployed for 27 or more weeks, and here is a graph ...

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are almost 5.0 million workers who have been unemployed for more than 26 weeks (and still want a job). This is 3.2% of the civilian workforce.

Notice the peak happens after a recession ends, and the of long term unemployed peaked about 18 months after the end of the last two recessions (because of the jobless recovery). This suggests that even if the current recession officially ended this month, the number of long term unemployed would probably continue to rise through the end of 2010.

Diffusion Index

Here is a look at how "widespread" the job losses are using the employment diffusion index from the BLS.

In July, job losses continued in many of the major industry sectors.
BLS, July Employment Report

The BLS diffusion index is a measure of how widespread changes in employment are. Some people think it measures the percent of industries increasing employment, but that isn't quite correct.

From the BLS handbook:

The diffusion indexes for private nonfarm payroll employment are based on estimates for 278 industries, while the manufacturing indexes are based on estimates for 84 industries. Each component series is assigned a value of 0, 50, or 100 percent, depending on whether its employment showed a decrease, no change, or an increase over a given period. The average (mean) value is then calculated, and this percent is the diffusion index number.

Think of this as a measure of how widespread the job losses are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

Before last Summer, the all industries employment diffusion index was in the 40s, suggesting that job losses were limited to a few industries. However starting in September the diffusion index plummeted. In March, the index hit 19.6, suggesting job losses were very widespread. The index has recovered since then to 30.1 in July, suggesting job losses are not as widespread across industries as in March - but losses continue in many industries.

The manufacturing diffusion index fell even further, from 40 in May 2008 to just 6 in January 2009. The manufacturing index has rebounded to 22.3 in July, indicating some improvement, but still widespread job losses across manufacturing industries.

by Calculated Risk on 8/07/2009 08:30:00 AM

From the BLS:

Nonfarm payroll employment continued to decline in July (-247,000), and the unemployment rate was little changed at 9.4 percent, the U.S. Bureau of Labor Statistics reported today. The average monthly job loss for May through July (-331,000) was about half the average decline for November through April (-645,000). In July, job losses continued in many of the major industry sectors.

Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 247,000 in July. The economy has lost almost 5.7 million jobs over the last year, and 6.66 million jobs during the 19 consecutive months of job losses.

The unemployment rate declined slightly to 9.4 percent.

Year over year employment is strongly negative.

The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up over the last year, and the current recession is now the 2nd worst recession since WWII in percentage terms (and the 1948 recession recovered very quickly) - and also in terms of the unemployment rate (only early '80s recession was worse).

With fewer job losses ("only" a rate of 3 million job losses per year), and the dip in unemployment rate, this will be consider an improvement. It is still a weak employment report. Much more to come ...

by Calculated Risk on 8/06/2009 08:58:00 PM

Note: some of the data appears out of date - but if the data was updated regularly this would be a useful tool.

Healdsburg Housing Bubble directs me to a Google maps feature that shows houses in various states of distress.

The distress ranges from delinquent payments, to homes that will be auctioned off, to REOs. It appears that Google uses several vendors for the data, and some of the vendors charge for more information.

Here is a look at a section of New York and New Jersey. Click on the red dots for more info (some data is free depending on the vendor). Use the map here, or click on View larger map and enter your own zip code.


View Larger Map

by Calculated Risk on 8/06/2009 06:03:00 PM

Fannie Mae Press Release: Loss of $14.8 Billion Driven by Credit-Related Expenses

Fannie Mae (FNM/NYSE) reported a loss of $14.8 billion, ... in the second quarter of 2009, compared with a loss of $23.2 billion, ... in the first quarter of 2009. Second-quarter results were driven primarily by $18.8 billion of credit-related expenses, reflecting the ongoing impact of adverse conditions in the housing market, as well as the economic recession and rising unemployment. Credit-related expenses were partially offset by fair value gains. The company also reported a substantial decrease in impairment losses on investment securities, which was due in part to the adoption of new accounting guidance.

Taking into account unrealized gains on available-for-sale securities during the second quarter and an adjustment to our deferred tax assets due to the new accounting guidance, the loss resulted in a net worth deficit of $10.6 billion as of June 30, 2009. As a result, on August 6, 2009, the Director of the Federal Housing Finance Agency (FHFA), which has been acting as our conservator since September 6, 2008, submitted a request for $10.7 billion from the U.S. Department of the Treasury on our behalf under the terms of the senior preferred stock purchase agreement between Fannie Mae and the Treasury in order to eliminate our net worth deficit. FHFA has requested that Treasury provide the funds on or prior to September 30, 2009.
...
Credit-related expenses, which are the total provision for credit losses plus foreclosed property expense, were $18.8 billion, compared with $20.9 billion in the first quarter of 2009. Our provision for credit losses was $18.2 billion, compared with $20.3 billion in the first quarter of 2009. The reduction in the provision for credit losses in the second quarter was attributable to a slower rate of increase in both our estimated default rate and average loss severity, or average initial charge-off per default, as compared with the first quarter. Our provision exceeded net charge-offs of $4.8 billion by $13.4 billion, as we continued to build our combined loss reserves, which represent our current estimate of probable losses inherent in our guaranty book of business as of June 30, 2009.

Combined loss reserves were $55.1 billion on June 30, 2009, up from $41.7 billion on March 31, 2009, and $24.8 billion on December 31, 2008. ...

We are experiencing increases in delinquency and default rates for our entire guaranty book of business, including on loans with fewer risk layers. Risk layering is the combination of risk characteristics that could increase the likelihood of default, such as higher loan-to-value ratios, lower FICO credit scores, higher debt-to-income ratios and adjustable-rate mortgages. This general deterioration in our guaranty book of business is a result of the stress on a broader segment of borrowers due to the rise in unemployment and the decline in home prices. Certain states, higher risk loan categories and our 2006 and 2007 loan vintages continue to account for a disproportionate share of our foreclosures and chargeoffs.

Total nonperforming loans in our guaranty book of business were $171.0 billion on June 30, 2009, compared with $144.9 billion on March 31, 2009, and $119.2 billion on December 31, 2008. The carrying value of our foreclosed properties was $6.2 billion, compared with $6.4 billion on March 31, 2009, and $6.6 billion on December 31, 2008.
emphasis added

Fannie Mae has reserved seating at the confessional. NPLs of $171.0 billion. Wow.

by Calculated Risk on 8/06/2009 03:50:00 PM

More from the supplemental GDP tables released yesterday ...

Residential investment (RI), according to the Bureau of Economic Analysis (BEA), includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

Back in Q4 2008 - for the first time ever - investment in home improvements exceeded investment in new single family structures. This has continued through Q2 2009.

Click on graph for larger image in new window.

This graph shows the various components of RI as a percent of GDP for the last 50 years. The most important components are investment in single family structures followed by home improvement.

Investment in home improvement was at a $153.3 billion Seasonally Adjusted Annual Rate (SAAR) in Q2, significantly above investment in single family structures of $92.8 billion (SAAR).

Let's take a closer look at these two key components of RI:

As everyone knows, investment in single family structures has fallen off a cliff. This is the component of RI that gets all the media attention - although usually from stories about single family starts and new home sales.

Currently investment in single family structures is at 0.66% of GDP, significantly below the average of the last 50 years of 2.35% - and almost half of the previous record low in 1982 of 1.20%.

And on home improvement:

The third graph shows home improvement investment as a percent of GDP.

Home improvement is at 1.08% of GDP, well off the high of 1.31% in Q4 2005 - but just back to the average of the last 50 years of 1.07%.

This would seem to suggest there remains downside risk to home improvement spending. Home Depot and Lowes announce results in the middle of August, and this might be something to watch.

NOTE: Home improvement is a rough estimate by the BEA - and could be lower. Also, there could be changes in spending patterns leading to a higher percentage of GDP on home improvement.