by Calculated Risk on 11/02/2009 10:00:00 AM

PMI at 55.7% in October up from 52.6% September.

From the Institute for Supply Management: October 2009 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in October for the third consecutive month, and the overall economy grew for the sixth consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The manufacturing sector grew for the third consecutive month in October, and the rate of growth is the highest since April 2006 when the PMI registered 56 percent. The jump in the index was driven by production and employment, with both registering significant gains. Production appears to be benefiting from the continuing strength in new orders, while the improvement in employment is due to some callbacks and opportunities for temporary workers. Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode."
...
The recovery in manufacturing strengthened in October as the PMI registered 55.7 percent, which is 3.1 percentage points higher than the 52.6 percent reported in September, and the highest reading for the index since April 2006 (56 percent). A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
emphasis added

As noted, any reading above 50 shows expansion.

Also, from the NAR: Pending Home Sales Rise for Record Eight Straight Months

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in September, rose 6.1 percent to 110.1 from a reading of 103.8 in August, and is 21.2 percent higher than September 2008 when it stood at 90.9.

by Calculated Risk on 11/02/2009 08:56:00 AM

From the Independent: Darling prepares to unveil bank shake-up

Chancellor Alistair Darling will this week unveil his proposed overhaul of the UK banking system which includes breaking up Lloyds and Royal Bank of Scotland and bringing "at least" three new banks to the high street.
...
The two banks "will be divesting some of the holdings they have at the moment. What you really want to do is have substantial divestment of branches, or particular institutions they own, made available to other people," Mr Darling said. This follows pressure from the European competition commissioner, Neelie Kroes, who has demanded that RBS and Lloyds sell operations under the EU's state aid rules.
...
Banking giants Barclays, HSBC and possibly Spain's Banco Santander, which owns Abbey, Alliance & Leicester and branches of Bradford & Bingley, are likely to be blocked from bidding as the Government is "determined" to see more competition in the wake of its £1.2 trillion bailout of the sector.

Breaking up the big banks to lower the risk and increase competition. It makes me think of BofA and Citi ...

by Calculated Risk on 11/01/2009 11:15:00 PM

From Crain's New York: Not much life left in the party

The severity of the recession may have caught some companies by surprise in 2008, but this year reality has sunk in ... The lavish celebrations of years past are not making a comeback this year in the city—or anywhere else in the country.

Just 62% of companies nationwide are planning holiday parties this year, down from 77% last year and 90% in 2007, according to a survey by outplacement firm Challenger Gray & Christmas.
...
Restaurants and hotels that count on this lucrative business say their private party business is off by about 20% this year, compared with a dismal season in 2008.

Just more bad news for restaurants and hotels ...

by Calculated Risk on 11/01/2009 07:08:00 PM

The WSJ has an article on landlords cutting effective rents: Landlords Offer Incentives to Stay Put

... Equity Residential said new tenants in the third quarter paid 9% to 10% less rent than the previous residents. ... Denver-based UDR is offering renewing tenants a flat-screen TV, new carpet, kitchen upgrade or, $300 in cash. ... Some landlords have also become more open-minded about tenants with credit issues involving home foreclosures.

Rents are falling because vacancies are at record levels. Reis recently reported that the apartment vacancy rate in cities hit a 23 year high of 7.8 percent in the third quarter, and Reis expects the vacancy rate to reach a record 8 percent soon.

Click on graph for larger image in new window.

Last week the Census Bureau reported the overall rental vacancy rate hit a record 11.1 percent in Q3 2009.

The higher vacancy rate is pushing down rents and the value of rental units. This is good news for renters, but this will also lead to more apartment defaults, higher default rates for apartment CMBS, and more losses for small and regional banks.

And falling rents are already pushing down owners' equivalent rent (OER). OER just turned negative for the first time 1992. From the BLS:

The increase [in CPI] occurred despite declines in the indexes for rent and owners' equivalent rent, the first decreases in those indexes since 1992.

Since OER is the largest component of CPI, this will apply downward pressure on CPI for some time. And lower rents will also put pressure on house prices, since renting is a competing product.

Note: REIT BRE reports tomorrow and their CEO always some interesting comments.

"I think it is shaping up there is another leg down in terms of market rents and effective rents and that will be somewhere late this year or early [next] year where I think all the operators will move their rents down to basically handle the late stage of this recession."
BRE CEO, Aug 5, 2009

by Calculated Risk on 11/01/2009 03:53:00 PM

Press Release: CIT Board of Directors Approves Proceeding with Prepackaged Plan of Reorganization with Overwhelming Support of Debtholders

And from the NY Times Dealbook: CIT Files for Bankruptcy

On Sunday afternoon, the company filed for Chapter 11 — but under a so-called prepackaged bankruptcy plan that will enable it to emerge from court protection by the end of the year.

Sunday’s filing, made in a Manhattan federal court, caps months of efforts by CIT to stay alive.

And from the WSJ:

One loser from a bankruptcy would be the U.S. Treasury. Late last year it injected $2.3 billion of funds from the Troubled Asset Relief Program ... The government investment is likely to be wiped out ...

Even if CIT emerges intact, its lending capacity could drop to less than 20% of what it was two years ago, according to an estimate by Brian Charles, a debt analyst at R.W. Pressprich & Co.

CIT provides financing for about one million small businesses, so the key question is how will this impact the ability of many small businesses to obtain financing.