by Calculated Risk on 9/05/2009 10:38:00 PM

This is a story that will keep building as workers exhaust their extended unemployment benefits ...

From the Boston Globe: State jobless pay to end for many

Massachusetts is experiencing its first wave of jobless workers to exhaust unemployment benefits after nearly two years of rising unemployment, state labor officials said.

The state this week sent out letters notifying about 2,500 jobless workers that they had or would soon receive their last unemployment checks, having used up state and federal extensions that provided up to 79 weeks, or about 18 months, of benefits. The state expects about 21,000 jobless workers to run out of unemployment benefits by Thanksgiving.

And on extending the unemployment benefits for another 13 weeks, from the SF Chronicle: 4 stimulus breaks due to run out at year end

The stimulus act increased the weekly unemployment benefit by $25 per week, allowed people to deduct up to $2,400 in benefits on their federal tax return and extended the federal government's extended benefits program, which provides additional compensation to people who have used up their regular state benefits.

In California, a person who exhausted 26 weeks of state benefits could get up to 20 more weeks under the first federal extension, then up to 13 weeks under a second extension and up to 20 weeks more under a third extension. The first and second extensions were supposed to expire in the spring but the stimulus extended them until Dec. 31. The stimulus also provided 100 percent federal funding for the third extension.

All these federal benefits sunset after Dec. 31. A person who was already receiving extended benefits on Jan. 1 could finish that round of benefits, but not start the next extension. A person who was still receiving their regular state benefits on Jan. 1 would get no extended benefits.

HR3404, sponsored by Rep. Jim McDermott, D-Wash., would extend all of the expiring provisions through next year. It also would create a fourth extension of up to 13 weeks for people in high-unemployment states.

It is very likely that this bill will pass soon (the Senate bill is S. 1647).

by Calculated Risk on 9/05/2009 07:25:00 PM

Although the unemployment rate is noisy month-to-month, we can use the graph and formula from Unemployment and Net Jobs to guess when the unemployment rate will reach 10%.

This graph from that previous posts shows the quarterly change in net jobs (on the x-axis) as a percentage of the civilian workforce, and the change in the unemployment rate on the y-axis.

The data is for the last 40 years: 1969 through Q2 2009.

Click on graph for larger image in new window.

The Red squares are for 2008, and for the first two quarters of 2009.

The U-3 headline unemployment rate for August was reported at 9.7% (this is actually rounded up from 9.66%).

If net job losses average over 200 thousand per month, the unemployment rate will probably hit 10% in October.

If net job losses average 100 to 200 thousand per month, the unemployment rate will probably reach 10% in November.

With 50 thousand net job losses per month, it will probably take until December.

And if the economy averages zero net job losses per month, the unemployment rate will probably hit 10% in January or so.

These are just estimates - the series is noisy month-to-month - and it is possible the unemployment rate could hit 10% this month.

As I noted previously, this graph also suggests the economy needs to be adding about 0.33 percent of the civilian workforce per quarter to keep the unemployment rate from rising. That is about 170 thousand net jobs per month. Note: The civilian workforce in August was 154.6 million. 0.33% of 154.6 million is 510 thousand jobs per quarter or 170 thousand per month.

Note that the trend line is a 2nd order polynomial (equation on graph). When the economy starts to add jobs, more people start looking for work - and the relationship between net jobs and unemployment rate is not linear.

by Calculated Risk on 9/05/2009 01:49:00 PM

Here is an update. See the post last month for much more discussion ...

Click on graph for larger image in new window.

This graph shows housing starts (both total and single unit) and unemployment (inverted).

You can see both the correlaton and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.

This suggests unemployment might peak in Spring 2010.

by Calculated Risk on 9/05/2009 10:45:00 AM

From the WSJ: Failed Illinois Bank Has Ties to Fallen Mortgage Executive

The Illinois connection to Mr. Farkas' now-bankrupt mortgage banking empire of Taylor, Bean & Whitaker Mortgage Corp. was Rolling Meadows, Ill.-based Platinum Community Bank, which went down Friday with assets of $345.6 million and deposits of $305 million.
...
After acquiring Platinum, located in Chicago's northwest suburbs, Mr. Farkas sent an email to his staff in October 2008 saying the purchase was "without a doubt the MOST IMPORTANT acquisition we have ever made and offers opportunity for (Taylor Bean) to grow and prosper." Eventually, he said, Platinum would help "fund new production thereby eliminating funding challenges in the future. And it will lessen our reliance on other banks that have hampered our operations in the past." He also wrote that it was "imperative" for employees to set up personal bank accounts at Platinum.

Nice.

by Calculated Risk on 9/05/2009 07:59:00 AM

From Floyd Norris at the NY Times: Construction Loans Falter, a Bad Omen for Banks

Reports filed by banks with the Federal Deposit Insurance Corporation indicate that at the end of June about one-sixth of all construction loans were in trouble. With more than half a trillion dollars in such loans outstanding, that represents a source of major losses for banks.
...
It is in commercial real estate construction — be it stores or office buildings — that the pain seems likely to rise. At the end of June, $291 billion in such loans was outstanding, down only a few billion from the peak reached earlier this year.

“On the commercial side,” said Matthew Anderson, a partner in Foresight Analytics, a research firm based in Oakland, Calif., “I think we are fairly early in the down cycle.”

See the great charts in the article.

The article makes the point that the local and regional banks were unable to compete with the larger banks for credit card loans (and residential mortgages too). So the smaller banks ended up overweighted in Construction & Development (C&D) and CRE loans. That isn't look good now, and most of the bank failures during the next couple of years will probably be because of CRE and C&D defaults.

I was looking back at some old posts, and I started writing about how CRE typically follows residential real estate back in 2006, and also about the excessive C&D and CRE loans concentrations of local and regional banks. Here is an excerpt from a post in March 2007:

The housing crisis is now front page news, but there is little discussion about U.S. bank exposure to CRE loans. If a CRE slump follows the residential real estate bust (the typical historical pattern), then the U.S. commercial banks might have a serious problem.

The pattern is always the same: residential leads, CRE follows. And some lenders (and developers) never learn.