by Calculated Risk on 9/02/2009 08:31:00 AM

ADP reports:

Nonfarm private employment decreased 298,000 from July to August 2009 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from June to July was revised by 11,000, from a decline of 371,000 to a decline of 360,000.

Note: the BLS reported a 254,000 decrease in nonfarm private employment in July (-247,000 total nonfarm), so once again ADP was only marginally useful in predicting the BLS number - and last month ADP was too pessimistic.

On the Challenger job-cut report from Reuters: US Planned Layoffs Fall in August: Challenger Report

Planned layoffs at U.S. firms fell in August, suggesting less stress on the labor market and improvements in consumer spending and the broader economy in the coming months, a report released on Wednesday showed.

Planned job cuts announced by U.S. employers fell to 76,456 last month, down 21 percent from 97,373 in July, according to a report released by global outplacement consultancy Challenger, Gray & Christmas.

While the rate of layoffs has slowed, the cumulative number of job cuts has climbed to 1.07 million from January through August, 60 percent higher than the same period a year earlier.

The BLS reports Friday, and the consensus is for just over 200,000 net job losses for August.

by Calculated Risk on 9/01/2009 09:35:00 PM

Just a few numbers ... and somewhat random thoughts.

The first time home buyer tax credit applies to purchases that close in 2009 before Dec. 1, 2009.

The NAR has reported 2.81 million existing home sales through July. There will probably be around 4.4 to 4.5 million sales that close by before Dec 1st.

The NAR projects that 1.8 to 2.0 million buyers will claim the first time home buyer tax credit.

So about 40% to 45% of all purchases will qualify for the tax credit.

Yet ... the NAR reported that "An NAR practitioner survey showed first-time buyers purchased 30 percent of homes in July ..."

And for June and May: "An NAR practitioner survey in June showed first-time buyers accounted for 29 percent of transactions, unchanged from May ..."

And back in April: "An NAR practitioner survey in March showed first-time buyers accounted for 53 percent of transactions, based largely on contracts offered before the $8,000 first-time home buyer tax credit became available."

Now there are different definitions of "first-time": for the tax credit "First-time" homebuyers are defined as anyone who hasn't owned a primary residence for the last 3 years (not really "first-time").

But the NAR is now saying that about 40% to 45% of all homebuyers this year (before Dec 1st) will be first time buyers. And another large percentage of buyers are investors.

With regards to the tax credit, what really matters is the cost per additional home sold. And as I pointed out earlier today, even using the NAR numbers, the cost per additional home sold is $43.4 thousand.

Here is the math: 1.9 million buyers qualify for the credit (the NAR estimates between 1.8 and 2.0 million) = $15.2 billion.

The NAR estimates the tax credit resulted in 350 thousand additional purchases. So divide $15.2 billion by 350 thousand = $43,000 per additional home. And the numbers will get worse if the program is extended.

by Calculated Risk on 9/01/2009 05:14:00 PM

First another cartoon from Eric Lewis ...

Cartoonist Eric G. Lewis' take on the economic discussion. Click on cartoon for larger image in new window.

And a market graph from Doug Short.

This matches up the market bottoms for four crashes (with an interim bottom for the Great Depression).

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

On Wells Fargo from Bloomberg: Wells Fargo to Repay TARP Without Raising New Equity

“We will pay it back, but we’re going to pay it back in a shareholder-friendly way,” John Stumpf, president and chief executive officer of the San Francisco-based lender, said in an interview today on Bloomberg Television. ‘We are now earning capital so quickly, organically, we don’t want to dilute our existing shareholders.”

On BofA from Bloomberg: Bank of America May Repay U.S. Aid, End Loss-Sharing Accord

Bank of America Corp. offered to repay part of the $45 billion received in U.S. bank-rescue funds and end a loss-sharing arrangement with the government related to the bank’s acquisition of Merrill Lynch & Co., according to a person familiar with the plan.

And on CIT from Reuters: CIT defers interest payment, shares fall

The cash-strapped company said in a filing with the U.S. Securities and Exchange Commission that it cannot pay an interest payment due September 15 to holders of its March 15, 2067 junior subordinated notes.

And of course the bids for the assets of Corus Bank are due this week ...

by Calculated Risk on 9/01/2009 04:00:00 PM

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for August (red, light vehicle sales of 14.09 million SAAR from AutoData Corp).

This is the highest vehicle sales since May 2008 (14.23 million SAAR).

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Obviously sales were boosted significantly by the "Cash-for-clunkers" program. Although this wasn't as bad as some of the lower forecasts, it still a disappointing number.

The real question is: What happens in September?

by Calculated Risk on 9/01/2009 01:14:00 PM

To calculate the cost of a tax credit per additional unit sold, we need to sum up the total cost of the credit - as an example $2.877 billion for Cash-for-Clunkers according to the Dept. of Transportation - and then divide by the estimated increase in sales because of the credit.

Remember some cars or houses would have been sold anyway (even though they still receive the tax credit), but it is the additional sales that matter. That was the purpose of the tax credit! (update: Shnaps notes that the auto credit had an additional benefit of better mileage)

We have two examples today.

First, for autos, if sales in August had been about the same as June (pre-tax credit), there would have been 850 thousand light vehicles sold (NSA). This is about a 9.7 million SAAR.

Next we add in the tax credit: Although the DOT reported close to 700 thousand car sales associated with the Cash-for-Clunkers program, probably about 550 thousand were in August. If these were all additional sales, then the total sales (NSA) for August would be about 1.4 million, or almost 16 million SAAR.

If Edmonds.com is correct, and total sales were 1.17 million (NSA) in August, then the tax credit only generated about 320 thousand extra sales. Of course some regular car buyers might have put off a purchase to avoid the rush in August, so this isn't perfect, but instead of costing taxpayers $4,170 per car (as announced by DOT), the cost to taxpayers per additional car sold was close to $7,200.

The numbers are much worse for the first-time home buyer tax credit. The NAR reported this morning:

NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit.

I believe the NAR underestimates first-time home buyers, especially considering the definition for the tax credit is anyone who hasn't owned a home in three years - not really a "first-time" buyer. I also think the NAR is overestimating the number of additional buyers.

But using their numbers ...

With 1.9 million first-time buyers, the total cost of the tax credit will be $15.2 billion. Divide $15.2 billion by 350 thousand, and the program cost $43.4 thousand per additional buyer. The actual number could be much higher if there were fewer additional first-time buyers than the NAR's estimate - or if the overall cost is higher (more buyers claiming tax credit).

This is the actual cost per additional home sold. And since buyer interest will fade (like with the Clunkers program), the cost per additional house will increase sharply if the program is extended.