by Calculated Risk on 9/04/2009 08:30:00 AM

From the BLS:

Nonfarm payroll employment continued to decline in August (-216,000), and the unemployment rate rose to 9.7 percent, the U.S. Bureau of Labor Statistics reported today. Although job losses continued in many of the major industry sectors in August, the declines have moderated in recent months.

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 216,000 in August. The economy has lost almost 5.83 million jobs over the last year, and 6.93 million jobs during the 20 consecutive months of job losses.

The unemployment rate increased to 9.7 percent. This is the highest unemployment rate in 26 years.

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).

The economy is still losing jobs at about a 2.6 million annual rate, and the unemployment rate will probably be above 10% soon. This is still a weak employment report - just not as bad as earlier this year. Much more to come ...

by Calculated Risk on 9/03/2009 09:25:00 PM

John Burns Consulting sent out a note today titled: FHA Likely To Be The Next Shoe To Drop

"The FHA's aggressive lending programs have continued throughout the housing downturn, causing its market share of the mortgage industry to grow from 2% in 2005 to 23% today. ... The FHA insurance fund, however, is likely running dry. ...

While almost all of the experts believe that Congress would support the FHA if necessary (it's currently self-funded), we wonder if FHA officials will be under pressure to continue tightening their lending policies, which currently allow 96.5% mortgages to people with 600 FICO scores. ... Claims against the insurance fund have climbed, with roughly 7% of all FHA-insured loans now delinquent.

And from the WSJ: Loan Losses Spark Concern Over FHA

The Federal Housing Administration ... is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.
...
Resulting FHA losses are offset by premiums paid by borrowers. Federal law says the FHA must maintain, after expected losses, reserves equal to at least 2% of the loans insured by the agency. The ratio last year was around 3%, down from 6.4% in 2007.
...
Officials said as recently as May that they didn't expect to fall below the 2% limit, but home price declines have exceeded those used to model their expected losses. Given the pace of those declines, "there is no way they will make the 2%" if the current study follows last year's methodology, says [Thomas Lawler, an independent housing economist].

Based on the issues at the FHA, the end of the tax credit, and more supply coming on the market, Burns concluded that "housing could see another leg down later this year or early next year":

[W]atch the growing controversy regarding the FHA very carefully. The decisions made to allow the FHA to continue lending will have a huge impact on the housing market, particularly when so few entry-level buyers have a substantial down payment.

by Calculated Risk on 9/03/2009 08:09:00 PM

From Rolfe Winkler at Reuters: U.S. junk bond default rate rises to 10.2 pct -S&P

The U.S. junk bond default rate rose to 10.2 percent in August from 9.4 percent in July ... Standard & Poor's data showed on Thursday.

The default rate is expected to rise to 13.9 percent by July 2010 and could reach as high as 18 percent if economic conditions are worse than expected, S&P said in a statement.
...
In another sign of corporate distress, the rating agency has downgraded $2.9 trillion of company debt year to date, up from $1.9 trillion in the same period last year.

Bad loans everywhere ...

by Calculated Risk on 9/03/2009 04:30:00 PM

Just another mention: the Atlanta Fed puts out an Economic Highlights and Financial Highlights every week. They highlight different data each week ...

The Federal Reserve released the Factors Affecting Reserve Balances today. Total assets increased slightly to $2.119 trillion. This graph from the Atlanta Fed shows the breakdown in the assets (as of yesterday):

Click on graph for larger image in new window.

From the Atlanta Fed:

The size of the Fed’s balance sheet has largely been flat since March, remaining within a range of $2 trillion to $2.2 trillion.

The overall size of the Fed’s balance sheet has been flat during the past few months, and the broad trends remain little changed. That is, the sizeable declines in short-term lending to financials and nonbank credit markets have largely been offset by increases in holdings of Treasury securities, mortgage-backed securities (MBS), and agency debt.

On Friday, the Federal Reserve Board announced a reduction for the two September TAF auctions, lowering both from $100 billion to $75 billion. The Board has cut the amounts available in the TAF auctions three times in $25 billion increments (from the program’s maximum of $150 billion, last available in June).

The second graph shows a breakdown of Fed Treasury purchases by maturity. From the Atlanta Fed:

Decomposing the Fed’s purchases of Treasury securities by maturity shows a heavy focus in the four-to-seven-year and seven-to-10-year sectors, together making up half of all purchases so far.

But the last four Treasury purchases have been focused elsewhere, with the biggest purchases in the shorter end of the yield curve.

The Fed has purchased a total of $276.4 billion of Treasury securities through September 2. Of the $271.8 billion in non-TIPS securities, the Fed has focused on the four-to-seven-year and seven-to-10-year sectors the most, purchasing approximately $65 billion in each (totaling about half of all purchases).

The two-to-three-year and three-to-four-year sectors have also received a fair amount of attention, especially following two large purchases in the last week and a half in each sector. Recently, the Fed purchased $6.1 billion in the two-to-three-year sector on August 24, $2.3 billion in the 17-to-30-year sector on August 26, and $5.6 billion in the three-to-four-year sector on September 1.

The FOMC statement released on Wednesday, August 12, said the Fed is “in the process of buying $300 billion of Treasury securities” by the end of October. This statement was an adjustment from previous statements that stated “up to” $300 billion in purchases would be made “by autumn.”

There is much more in the highlights. Enjoy.

by Calculated Risk on 9/03/2009 02:35:00 PM

From The Oregonian: Portland's hotels face grim prospects (ht Shawn)

[F]or two weeks in November and one week each in December and January, the Hilton's presidential suite -- along with all other rooms in [the original 23-story building] -- will go dark. [The newer Hilton will remain open.]
...
Downtown Portland hotels are also facing stiffer competition after Sage Hospitality Resources of Denver opened two new hotels with more than 500 rooms just as market went into its funk. At one of those hotels, The Nines, Sage's business was off so much that it sought a delay in loan payments to the City of Portland's urban renewal agency.

Marks, the Hilton general manager, said early this week that the hotel routinely shuts entire floors during slow weeks to cut cleaning and energy costs. He projects the Hilton's occupancy could be as low as 30 percent in some winter weeks.

It is routine for hotels to close floors, but unusual to close an entire building (although Hilton has a newer tower across the street).

There are a couple of key points in this story: occupancy has declined, especially business related travel, and there is too much new supply on the market. Lower demand meets higher supply, and the result is lower prices - and hotels cutting costs, closing buildings, and more and more hotels unable to meet their debt payments - and some even unable to make their payroll.