by Calculated Risk on 10/01/2009 08:53:00 AM

Note: A large portion of the increase in durable goods consumption in August was due to cash-for-clunkers, however there was also a significant increase in non-durable goods.

From the BEA: Personal Income and Outlays, August 2009

Personal income increased $19.3 billion, or 0.2 percent, and disposable personal income (DPI) increased $15.5 billion, or 0.1 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $129.6 billion, or 1.3 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.9 percent in August, compared with an increase of 0.2 percent in July. Purchases of durable goods increased 5.8 percent, compared with an increase of 1.8 percent. Reflecting the impact of the federal CARS program (popularly called "cash for clunkers"), purchases of motor vehicles and parts accounted for most of the August increase in purchases of durable goods and more than accounted for the July increase.
...
Personal saving -- DPI less personal outlays -- was $324.1 billion in August, compared with $436.0 billion in July. Personal saving as a percentage of disposable personal income was 3.0 percent in August, compared with 4.0 percent in July.

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 August Personal Income report. The saving rate was 3.0% in August.

This decline in the saving rate was probably temporary, and I expect the saving rate to continue to rise.

The following graph shows real Personal Consumption Expenditures (PCE) through August (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 and August numbers suggest PCE will grow at over 3% (annualized rate) in Q3, however I expect September to be much lower. So I expect a 2% increase in Q3 PCE.

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 gave a boost to PCE in Q3, but in general PCE will probably remain weak into 2010 as households continue to repair their balance sheets.

by Calculated Risk on 10/01/2009 08:30:00 AM

The DOL reports weekly unemployment insurance claims increased to 551,000:

In the week ending Sept. 26, the advance figure for seasonally adjusted initial claims was 551,000, an increase of 17,000 from the previous week's revised figure of 534,000. The 4-week moving average was 548,000, a decrease of 6,250 from the previous week's revised average of 554,250.
...
The advance number for seasonally adjusted insured unemployment during the week ending Sept. 19 was 6,090,000, a decrease of 70,000 from the preceding week's revised level of 6,160,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 6,250 to 548,000, and is now 110,750 below the peak in April.

Initial weekly claims have peaked for this cycle, however the continuing high level of weekly claims indicates significant weakness in the job market. The four-week average of initial weekly claims will probably have to fall below 400,000 before total employment stops falling.

And in other employment news ... from Reuters: Challenger, Gray reports planned layoffs declined in Sept.

Planned job cuts announced by U.S. employers fell to 66,404 last month, down 13 percent from 76,456 in August, according to a report released Thursday by global outplacement consultancy Challenger, Gray & Christmas.

September's layoff tally was 30 percent lower than the 95,094 job cuts during the same time last year. This brought the figure for the July-September quarter to 240,233, the lowest since the first quarter of 2008 and marking the fourth consecutive quarter in which job cuts declined from the year prior level.

But a big part of the problem is lack of hiring, not firings. From Monster.com:

The Monster Employment Index edged downward in September after a significant rise in late summer recruitment activity during August. Over the year, the Index fell 25 percent largely unchanged from last month’s pace.

The BLS report will be released tomorrow.

by Calculated Risk on 9/30/2009 09:40:00 PM

A quick summary and a look ahead ...

The OCC and OTS Q2 Mortgage Metrics Report showed rising mortgage delinquencies and foreclosures. There is also a huge backlog of foreclosures in process. Also see: Modification Re-Default Rates

The Chicago PMI report showed declining business activity in the Chicago region.

ADP reported nonfarm private employment decreased 254,000. The BLS report for September will be released on Friday.

From the WSJ: CIT Draws Up Bankruptcy Option

CIT Group Inc. upped the ante with its creditors by drawing up a prepackaged bankruptcy plan, two people familiar with the matter said Wednesday. ... Another person familiar with the matter said CIT likely wouldn't roll out the debt-exchange offer and prepackaged bankruptcy solicitation until late Thursday night.

CIT would be the fifth largest bankruptcy in U.S. history behind Lehman Brothers, Washington Mutual, WorldCom and General Motors.

Tomorrow

More employment reports: Challenger & Gray corporate layoffs, and weekly initial jobless claims.

Personal income and Outlays for August.

Auto Sales for September

ISM Manufacturing Index

Construction Spending

Pending Home Sales Index

And Bernanke testifies on financial reform.

So I apologize in advance for all the posts.

by Calculated Risk on 9/30/2009 05:48:00 PM

From Bloomberg: Bank of America’s Chief Executive Ken Lewis to Retire Dec. 31

No successor named.

Not sure what to make of this.

BofA Press Release: Ken Lewis Announces His Retirement

"Bank of America is well positioned to meet the continuing challenges of the economy and markets," said Lewis. "I am particularly heartened by the results that are emerging from the decisions and initiatives of the difficult past year-and-a-half."

"The Merrill Lynch and Countrywide integrations are on track and returning value already," Lewis noted. "Our board of directors and our senior management include more talent, and more diversity of talent, than at any time in this company's history. We are in position to begin to repay the federal government's TARP investments. For these reasons, I decided now is the time to begin to transition to the next generation of leadership at Bank of America."

by Calculated Risk on 9/30/2009 04:02:00 PM

Here is some more data from the Office of the Comptroller of the Currency and the Office of Thrift Supervision: OCC and OTS Release Mortgage Metrics Report for Second Quarter 2009

Modified Loan Performance ... [T]he percentage of loans that were 60 or more days delinquent or in the process of foreclosure rose steadily in the months subsequent to modification for all vintages for which data were available. Modifications made in third quarter 2008 showed the highest percentage of modifications that were 60 or more days past due following the modification. Modifications made during fourth quarter 2008 and first quarter 2009 performed better in the first three to six months after the modification than those made in the third quarter 2008.

Note: This doesn't include HAMP yet because all of those modifications are still in the "trial period". That raises a question: If a borrower re-defaults during the trial, will they still be considered a "re-default"? Something to watch for if the re-default rate drops sharply next quarter - they might be excluding the trial period re-defaulters.

Click on graph for larger image.

This graph shows the cumulative re-default rate by quarter of modifications. About 25% to 30% of modifications fail in the first three months.

For Q1 and Q2 2008, about 55% of borrowers have re-defaulted. Q3 2008 will probably be worse, and Q4 2008 and Q1 2009 about the same.

Over time, I expect a very high re-default rate since many of these modifications are just "extend and pretend" (the missed payments and fees are added to the principal, and the rate is reduced for a few years), although about 10% of borrowers received a principal reduction in Q2 (more than double as in Q1).