by Calculated Risk on 11/09/2009 06:10:00 PM

From the NY Times: Paterson Paints Grim Picture of N.Y. Budget Crisis

"We stand on the brink of a financial challenge of unprecedented magnitude in the history of this state,” Mr. Paterson told lawmakers as he warned that New York was rapidly running out of cash ...

While the state faces a deficit of more than $3 billion for the remaining four and a half months of this fiscal year, the greater worry among state officials are the unprecedented deficits the state faces in 2011 and 2012, after federal stimulus financing and a temporary tax increase on the wealthy expire.

“We’re going to fall off a cliff unless we get our revenues and our expenditures in true sync,” said Lt. Gov. Richard Ravitch ...

The Rockefeller Institure recently released a report showing most states have seen a precipitous decline in revenues.

Total state tax collections as well as collections from two major sources — sales tax and personal income — all declined for the third consecutive quarter. Overall state tax collections in the April-June quarter of 2009, as reported by the Census Bureau, declined by 16.6 percent from the same quarter of the previous year. We have compiled historical data from the Census Bureau Web site going back to 1962. Both nominal and inflation adjusted figures indicate that the second quarter of 2009 marked the largest decline in state tax collections at least since 1963. The same is true for combined state and local tax collections, which declined by 12.2 percent in nominal terms.
emphasis added

by Calculated Risk on 11/09/2009 03:19:00 PM

Note: The Sacramento Association of REALTORS® is now breaking out monthly resales by equity sales (conventional resales), and distressed sales (Short sales and REO sales). I'm following this series as an example to see changes in the mix in a former bubble area.

Click on graph for larger image in new window.

UPDATE: percentages corrected.

Here is the October data.

They started breaking out REO sales last year, but this is only the fifth monthly report with short sales. About 63.2 percent of all resales (single family homes and condos) were distressed sales in October.

The second graph shows the mix for the last four months. REO sales declined, but short sales and conventional sales were up. It will be interesting to see if foreclosure resales pick up later this year - or early next year - when the early trial modifications period is over.

Total sales in October were off 17.5% compared to October 2008; the fifth month in a row with declining YoY sales.

On financing, over half the sales were either all cash (24.6%) or FHA loans (28.9%), suggesting most of the activity in distressed former bubble areas like Sacramento is first-time home buyers using government-insured FHA loans (and taking advantage of the tax credit), and investors paying cash.

This is a local market still in distress.

by Calculated Risk on 11/09/2009 02:00:00 PM

From the Fed: The October 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices

In the October survey, domestic banks indicated that they continued to tighten standards and terms over the past three months on all major types of loans to businesses and households. However, the net percentages of banks that tightened standards and terms for most loan categories continued to decline from the peaks reached late last year. The exceptions were prime residential mortgages and revolving home equity lines of credit, for which there were only small changes in the net fractions of banks that had tightened standards. A small net fraction of branches and agencies of foreign banks eased standards on C&I loans, whereas a significant net fraction continued to tighten standards on CRE loans. Demand for most major categories of loans at domestic banks reportedly continued to weaken, on balance, over the past three months.
emphasis added

The banks are still tightening lending standards and demand continues to weaken.

And a special question on maturing CRE loans:

The October survey included a special question on the status of CRE loans on banks' books that, at the beginning of 2009, were scheduled to mature by September of this year. Among the domestic respondents that reported having such loans, about 75 percent indicated that they had extended more than one-fourth of maturing construction and land development loans, and 70 percent reported extending more than one-fourth of maturing loans secured by nonfarm nonresidential real estate. In contrast, only 15 to 20 percent of domestic banks reported that they had refinanced more than one-fourth of each of the two types of maturing CRE loans.

Extend and ... hope.

by Calculated Risk on 11/09/2009 11:11:00 AM

The following graph shows the maximum number of net jobs lost after the end of several official recessions (both in numbers and as a percent of peak employment prior to the start of the recession).

Note: The last two columns assume the 2007 recession officially ended in June 2009 or in July 2009. Recessions are labled by starting year.

Click on graph for larger image in new window.

Even if the economy started adding jobs in November (very unlikely), the 2009 recovery would already be one of weakest for job creation.

The recovery following the 2001 recession was the worst for job creation, with the bottom for employment happening in August 2003, twenty one months after the official end of the recession.

This graph shows the job losses from the start of the employment recession, in percentage terms.

Look at the brown line for the 2001 recession. According to NBER, the 2001 recession lasted 8 months, but the job losses continued for another 21 months (the brown line bottoms in month 29) - and employment didn't reach the pre-recession level for 46 months.

In terms of jobs lost, the 2009 "recovery" might be even worse than the 2001 recovery.

Maybe we should call this a "job loss" recovery?

by Calculated Risk on 11/09/2009 08:39:00 AM

St. Louis Fed President James Bullard told the Financial Times that uncertainty about the inflation outlook is the most since 1980.

From the Financial Times: Uncertainty ‘high’ over inflation outlook

“For 2009, in particular, and maybe a little bit into 2010, you have to worry about getting out of the recession, establishing your recovery, making sure the recovery has really taken hold. And then, at the appropriate time, when things are all going forward, you have to switch gears and watch whether the inflation rate is coming up.” [Bullard said]
excerpted with permission

Bullard noted that the first step would not be raising the Fed Funds rate, and unwinding some of the unconventional policy. Bullard also added the Fed is concerned about asset bubbles this time:

What is different this time is that the argument about staying too low for too long is going to weigh pretty heavily on the committee. It is more than just: ‘What does the output gap look like; what does inflation look like?’ ”

He said it was also the issue of whether “you are generating the conditions that might foster a bubble that really might come back to hurt you later? I think this will be a big issue for the committee.”

My comment: historically the Fed does not raise rates until well after the unemployment rate peaks. And the Fed plans on buying MBS through the first quarter of 2010 - so Bullard's comment about starting to switch gears "a little bit into 2010" is probably way too early.