by Calculated Risk on 11/10/2009 12:19:00 AM

Floyd Norris at the NY Times asks: Did Unemployment Really Rise?

The economic reactions over the weekend to Friday’s employment report all started from the assumption that things grew much worse in October. The unemployment rate leaped to 10.2 percent from 9.8 percent. Another 190,000 jobs vanished.

Actually, none of that happened.

In reality, the government report says unemployment rates remained steady at 9.5 percent. And the number of jobs actually rose, by 80,000. ...

The adjustments are for seasonality. ... All this may be very reasonable, and there is no way I can think of to test whether the seasonal adjustments are reliable. But I suspect seasonal factors are less important this year, when the economy may be changing directions, than they normally are.

I'm not sure where the 80,000 number came from - the not seasonally adjusted (NSA) payroll employment increased by 641,000 in October - but the BLS did report a 9.5% NSA unemployment rate.

However there is a strong and consistent seasonal pattern for employment, and I think the seasonal adjusted numbers are the ones to use. I wrote about this earlier this year (excerpt with an updated graph):

What if I wrote that U.S. payroll employment increased by 383 thousand jobs in May 2009 following an increase of 259 thousand jobs in April 2009?

Some readers would suspect CR had been captured by aliens or had visited crazytown.

But, in fact, those numbers are exactly what the BLS reported as the actual change in payroll employment in April and May. The economy added 643 thousand jobs over those two months. However no one reports those numbers because there is a strong seasonal pattern to employment.

Even in the best of years, 2.5 to 3.0 million people lose their jobs in January. It happens every year for a number of reasons such as retail cutting back on holiday hires. And just about every July the economy loses over 1 million jobs for seasonal reasons too.

The following graph shows this seasonal pattern:

Click on graph for larger image in new window.

The blue line is the seasonally adjusted (SA) change in net jobs as reported by the BLS, and the red columns are the actual not seasonally adjusted (NSA) data.

No one reports the NSA data because the swings are so wild and the pattern very consistent. Unless you follow the data closely, the NSA numbers are meaningless.

There may be problems with the BLS numbers - as an example the birth/death model has consistently overestimated new job creation during the current employment recession, possibly because small businesses have been impacted more than larger companies. But the model used by the BLS for seasonal adjustments is very good, and the SA number is still the one to use.

by Calculated Risk on 11/09/2009 09:24:00 PM

Former Fed Governor Frederic Mishkin writes in the Financial Times: Not all bubbles present a risk to the economy

There is increasing concern that we may be experiencing another round of asset-price bubbles that could pose great danger to the economy. Does this danger provide a case for the US Federal Reserve to exit from its zero-interest-rate policy sooner rather than later, as many commentators have suggested? The answer is no.
excerpted with permission

Mishkin outlines two different types of bubbles, and argues a "credit boom bubble" poses a risk to the economy, but a "pure irrational exuberance bubble" does not.

For more excerpts, see EconomistView: "Not All Bubbles Present a Risk to the Economy"

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.