by Calculated Risk on 8/28/2009 08:30:00 AM

From the BEA: Personal Income and Outlays, July 2009

Personal income increased $3.8 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $4.6 billion, or less than 0.1 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $25.0 billion, or 0.2 percent.
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Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in July, compared with an increase of 0.1 percent in June.
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Personal saving -- DPI less personal outlays – was $458.5 billion in July, compared with $486.8 billion in June. Personal saving as a percentage of disposable personal income was 4.2 percent in July, compared with 4.5 percent in June.

Click on graph for large image.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the July Personal Income report. The saving rate was 4.2% in July.

Households are saving substantially more than during the last few years (when the saving rate was around 1.0%). The saving rate will probably continue to rise.

The following graph shows real Personal Consumption Expenditures (PCE) through July (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

The July numbers suggest PCE will grow at a 1.3% (annualized rate) in Q3.

Note that PCE declined sharply in Q3 and Q4 2008 - the cliff diving - and was been relatively flat in Q1 and Q2 2009. Auto sales should gave a boost to PCE in Q3, but in general PCE will probably remain weak over the 2nd half of 2009 and into 2010 as households continue to repair their balance sheets.

by Calculated Risk on 8/28/2009 12:16:00 AM

From MarketWatch: Japan reports record unemployment rate for July

Japan [reported] a record unemployment rate and the biggest decline in consumer prices in roughly 38 years.

Japan's Ministry of Internal Affairs and Communications said the country's unemployment rate rose to 5.7% in July from 5.4% in the previous month.

The unemployment rate was higher than the 5.5% expected by economists, according to Dow Jones Newswires, and is the highest on record since World War II.
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Meanwhile Japan's average monthly income per household fell 2.4% in nominal terms in July, while consumption expenditures fell 4.5% nominally ...

Japan's recession may be over, but I bet it doesn't feel like it to many workers.

by Calculated Risk on 8/27/2009 10:26:00 PM

From the WSJ: Recession Finally Hits Down on the Farm (ht Bob_in_MA)

The Agriculture Department forecast Thursday that U.S. farm profits will fall 38% this year, indicating that the slump is taking hold in rural America. ... The Agriculture Department said it expects net farm income -- a widely followed measure of profitability -- to drop to $54 billion in 2009, down $33.2 billion from last year's estimated net farm income of $87.2 billion, which was nearly a record high.

And from the Chicago Fed August AgLetter:

Farmland values for the second quarter of 2009 were 3 percent lower than a year ago in the Seventh Federal Reserve District. ... Almost 30 percent of the responding bankers expected farmland values to fall in the third quarter of 2009, whereas 71 percent expected stable farmland values.

This will probably mean lower food prices, from the WSJ:

For most Americans, the chill in the farm belt is related to one of the few positives they see in this economy: slowing inflation. Prices farmers are receiving for everything from corn and wheat to hogs are down sharply from last year.

by Calculated Risk on 8/27/2009 06:01:00 PM

A little history from Paul Kasriel, Chief Economist at Northern Trust: The Rhyming of History – Bloomberg and the RFC?

On November 7, 2008, Bloomberg LP sued the Federal Reserve Board under terms of the Freedom of Information Act to obtain the names of borrowers of funds from the Federal Reserve as well as lists of the collateral posted by the borrowers. On August 25, 2009, a U.S. District judge ruled in favor of Bloomberg, ordering the Federal Reserve Board to turn over to Bloomberg the requested information within five days. At this writing, the Fed has yet to comply and has yet made a decision to appeal the ruling.

CR Notes, from Bloomberg: The Fed has asked the Judge to stay the order until the U.S. Court of Appeals in New York can hear the case.

The Fed has been reluctant to reveal the names of its borrowers allegedly out of a concern that such a revelation could have an adverse competitive impact on the borrowers.

The reason I bring this up is that it is similar to a situation that arose in 1932 with the Reconstruction Finance Corporation (RFC). The RFC was established by an act of Congress on January 22, 1932, for the purpose of making loans to financial institutions, railroads and to extend credit for crop loans. The Treasury provided some capital to the RFC and the RFC was permitted to borrow from the Treasury. Initially, the RFC granted credit primarily to banks. These loans coincided with a reduction in bank failures and currency held outside the banks declined.

On July 21, 1932, the RFC was authorized to make loans for self-liquidating public works projects, and to states to provide relief and work relief to needy and unemployed people. This legislation also required that the RFC report to Congress, on a monthly basis, the identity of all new borrowers of RFC funds. On orders from the Speaker of the House of Representatives, commencing in August 1932, the names of banks borrowing from the RFC became public information. This publication of the names of banks borrowing from the RFC discouraged current borrowers from continuing their borrowing and prospective borrowers from commencing borrowings out of a fear that depositors would judge this borrowing as a sign of financial weakness. By November 1932, the outstanding amount of RFC loans to banks had decreased.

In mid February of 1933, a Detroit bank began having difficulties. The RFC was willing to lend to this bank, but because of a dispute between one of the Michigan senators and Henry Ford, a large depositor in the bank, the RFC loan was not allowed to be made. A bank panic started in Michigan as a result. This Michigan bank panic served as a catalyst for a nationwide bank panic.

The failure of the Detroit bank was not because the bank was reluctant to borrow from the RFC. But one can only speculate as to whether other banks in Michigan and nationwide were reluctant to borrow from the RFC because their names would have been published. And one can only speculate that if these other banks had willing to borrow from the RFC if a nationwide bank could have been averted.

Today, we have federal deposit insurance. Therefore, the probabilities and magnitude of depositor runs on banks are much reduced compared with 1933. Yet, we can see “runs” by stockholders and other creditors of banks if there is a suspicion of financial problems. If the Fed is required to publish the names of financial institutions to which it has extended credit and this publication induces financial institutions to refrain from borrowing from the Fed, one can only speculate if this would be the tinder for another liquidity conflagration in the coming months.

Would we see another liquidity crisis because of concerns about the level of borrowing by certain banks from the Fed? I don't think so - but this is the concern. Doesn't everyone already suspect that Citi and BofA will be near the top of the list?

I suppose some second tier bank might have a problem if the data is disclosed.

by Calculated Risk on 8/27/2009 02:13:00 PM

From HotelNewsNow.com: STR reports US performance for week ending 22 August 2009

In year-over-year measurements, the industry’s occupancy fell 7.2 percent to end the week at 60.4 percent. Average daily rate dropped 10.2 percent to finish the week at US$95.70. Revenue per available room for the week decreased 16.7 percent to finish at US$57.84.

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week trailing average).

The three week average is off 7.3% from the same period in 2008.

The average daily rate is down 10.2%, and RevPAR is off 16.7% from the same week last year.

Comments: This is a multi-year slump. Although the occupancy rate was off 7.3 percent compared to last year, the occupancy rate is off over 11 percent compared to the same week in 2007.

The end of July through the beginning of August is usually the peak leisure travel period. So the peak occupancy rate for 2009 was probably a month ago at 67%. And that is far below normal.

Earlier this year business travel was off much more than leisure travel. So it was expected that the summer months would not be as weak as earlier in the year. September - after Labor Day (Sept 7th) - will be the real test for business travel, and for the hotel industry.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com