by Calculated Risk on 10/09/2009 08:37:00 AM

The Census Bureau reports:

The ... total August exports of $128.2 billion and imports of $158.9 billion resulted in a goods and services deficit of $30.7 billion, down from $31.9 billion in July, revised. August exports were $0.2 billion more than July exports of $128.0 billion. August imports were $0.9 billion less than July imports of $159.8 billion.

Click on graph for larger image.

The first graph shows the monthly U.S. exports and imports in dollars through August 2009.

Imports were down in August, and exports increased slightly. On a year-over-year basis, exports are off 21% and imports are off 29%.

The second graph shows the U.S. trade deficit, with and without petroleum, through August.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Import oil prices increased to $64.75 in August - up more than 50% from the prices in February (at $39.22) - and the sixth monthly increase in a row. Import oil prices will probably rise further in September.

It appears the cliff diving for U.S. trade is over. The weaker dollar is probably helping exports - and hurting imports.

by Calculated Risk on 10/08/2009 09:05:00 PM

From the Edmund Andrews at the NY Times: Rift Emerges in Fed Over When to Tighten Money

Fissures are developing among policy makers at the Federal Reserve as they debate how and when to start raising the benchmark interest rate from its current level just above zero.
...
One hint of the discord came Tuesday, in a speech by Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City.

Though he stopped short of calling for immediate rate increases, Mr. Hoenig made it clear that he was getting impatient.

“My experience tells me that we will need to remove our very accommodative policy sooner rather than later,” he told an audience of business executives. ...

And he is not alone.

Richard Fisher, president of the Federal Reserve Bank of Dallas, sent a similar message in a speech on Sept. 29. “That wind-down process needs to begin as soon as there are convincing signs that economic growth is gaining traction,” he told a business group.

Other Fed officials [have] similar views ...

And on the other side:

“The turnaround is certainly welcome, but it shouldn’t be overstated,” Daniel K. Tarullo, a Fed governor ...

“Some observers are concerned that this expansion will ultimately prove to be inflationary,” William C. Dudley, president of the New York Fed told an audience at the Fordham University’s Corporate Law Center. “This concern is not well founded.”

As I noted last month, it is unlikely that the Fed will increase the Fed's Fund rate until sometime after the unemployment rate peaks.

Click on graph for larger image in new window.

This graph shows the effective Fed Funds rate (Source: Federal Reserve) and the unemployment rate (source: BLS)

In the early '90s, the Fed waited more than a 1 1/2 years after the unemployment rate peaked before raising rates. The unemployment rate had fallen from 7.8% to 6.6% before the Fed raised rates.

Following the peak unemployment rate in 2003 of 6.3%, the Fed waited a year to raise rates. The unemployment rate had fallen to 5.6% in June 2004 before the Fed raised rates.

Although there are other considerations, since the unemployment rate will probably continue to increase into 2010, I don't expect the Fed to raise rates until late in 2010 at the earliest - and more likely sometime in 2011.

And from Chairman Bernanke tonight:

When the economic outlook has improved sufficiently, we will be prepared to tighten the stance of monetary policy and eventually return our balance sheet to a more normal configuration.

Some people are taking that as tough talk, see: Dollar Rises After Bernanke Says Fed Ready to ‘Tighten’ Policy, but I disagree - I think "improved sufficiently" means Bernanke will wait for a meaningful decline in the unemployment rate.

by Calculated Risk on 10/08/2009 05:40:00 PM

From Fed Governor Daniel Tarullo: In the Wake of the Crisis

Turning first to the economic outlook, let me begin by stating the obvious: After a period in which there seemed to be only two plausible scenarios--very bad and even worse--financial and economic conditions have steadied. ... As we closed out the third quarter last week, it was apparent that economic growth was back in positive territory. ...

This turnaround is certainly welcome, but it should not be overstated. Although we can expect positive growth to continue beyond the third quarter, economic activity remains relatively weak. The upturns in industrial production and residential investment, for example, follow startling declines in the first half of the year. Improvement is gradual and beginning from very low levels.

The employment situation continues to be dismal. While the pace of job losses has slowed from the extraordinary levels of early 2009, the economy has recently still been losing on average about a quarter of a million jobs each month. Hopes for a steady reduction in the pace of job losses were once again confounded last Friday with release of the September employment report, which showed net job declines well above the consensus expectation of economic forecasters. The unemployment rate has risen to 9.8 percent. ...

Indicators apart from the unemployment rate underscore the weakness of labor markets. The percentage of working-age people with jobs has fallen to a point not seen in a quarter century. Average hours worked have not increased through the spring and summer from what were, by historic standards, unusually low levels.The number of part-time workers who want full-time jobs jumped nearly 50 percent last fall and winter and has remained elevated since. The a>verage duration of unemployment has risen almost 10 weeks since the recession began, to more than six months.

The labor market conditions I have just described reflect the low level of resource utilization in the economy as a whole. In this context, with inflation expected to remain subdued for some time, the Federal Open Market Committee indicated after our meeting two weeks ago that exceptionally low interest rates are likely to be warranted for an extended period. Indeed, with the effects of the February stimulus package diminishing next year, bank lending that is still declining, and continued dysfunction in some parts of capital markets, there is considerable uncertainty as to how robust growth will be in 2010. At the same time, the unconventional policies pursued by the Federal Reserve in order to halt the crisis have produced levels and types of reserves that will eventually require use of the unconventional exit tools discussed on numerous occasions by Chairman Bernanke and Vice Chairman Kohn.

The coincidence of a weak economy and an unusually large balance sheet at the Federal Reserve will require some judgments by the Federal Open Market Committee of a sort for which there are not many historical precedents. Still, just as with conventional monetary policy, decisions on the timing and pace for removing accommodation should and will depend on our ongoing analysis and forecasts of all relevant economic factors.
emphasis added

by Calculated Risk on 10/08/2009 03:47:00 PM

Note: Market graph at bottom.

From HotelNewsNow.com: NorfolkLuxury occupancy holds steady in STR weekly numbers

Overall, in year-over-year measurements, the industry’s occupancy fell 5.8 percent to end the week at 55.8 percent. Average daily rate dropped 8.3 percent to finish the week at US$95.51. Revenue per available room for the week decreased 13.7 percent to finish at US$53.30.

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 8.3%, and RevPAR is off 13.7% from the same week last year.

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

As I noted last week, the comparisons are now easier soon since business travel fell off a cliff last October. Comparing to the same week two years ago, occupancy rates are off 16.4%.

Occupancy rates for October in 2006 and 2007 were close to 68%.

Market update:

The second graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

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

by Calculated Risk on 10/08/2009 02:20:00 PM

From MarketWatch: Obama plan claims 500,000 mortgage modifications started

U.S. loan servicers have begun modifying more than 487,081 loans for troubled homeowners on the verge of foreclosure as of the end Sept. 30, according to the report. The program met its 500,000 goal in early October. More than 757,955 modification offers have been extended by loan servicers as part of the program known as the Home Affordable Modification Program, or HAMP.

And from Scott Reckard at LA Land (LA Times):

Stand by ... for answers to the big question: whether these modified loans will hold up or whether “underwater” homeowners will stumble back into default after hitting new bumps along their financial roads.
...
The trial modifications “are simply offers,” [Mark Zandi of Moody's Economy.com notes]. “Many won't turn into actual mods, and those mods that occur will have a high redefault rate.”

As I noted back in July when this goal was announced:

Counting the number of mods might make for useful PR, but some mods are more effective than others. A capitalization of missed payments and fees, along with a rate reduction and/or extended term, are the most common modifications. But for homeowners with significant negative equity that is just "extend and pretend" and leads to a high redefault rate and just postpones foreclosure.

The September industry data is not available yet on the HopeNow website.