by Calculated Risk on 11/13/2009 12:54:00 PM

This is an update to an earlier post. As I've noted for some time, housing leads the economy and is the best leading indicator for the economy - both into and out of recessions.

Update: Employment tends to be a coincident indicator into recessions, and used to be coincident coming out of recessions. Employment has lagged the economy after the previous two recessions (and appears to be lagging again).

Employment lags housing, and the following graph shows the relationship between starts and unemployment.

The graph is based on a talk by Jon Fisher, a professor at the University of San Francisco School of Business.

Click on graph for larger image in new window.

This graph shows housing starts (both total and single unit) and unemployment (inverted).

You can see both the correlation and the lag. The lag is usually about 12 to 18 months, with peak correlation at a lag of 16 months for single unit starts. The 2001 recession was a business investment led recession, and the pattern didn't hold.

This suggests unemployment might peak in Spring 2010.

Professor Fisher argued that unemployment will rise to about 10.4% and then fall rapidly. He is now projecting unemployment will decline to 8% by the end of 2010.

He is basing the rapid decline in unemployment on a "V shaped" housing recovery similar to previous recessions. I disagree with that point.

In most earlier recessions, the slumps were caused by the Fed raising interest rates to fight inflation. When the Fed cut rates, housing bounced back sharply (V shaped).

Although this recession was led by a housing bust - and that makes it look similar to some previous periods - this recession was not engineered by the Fed raising rates, rather it was the busting of the credit and housing bubbles, and all the related problems that led the economy into recession. Since there is still far too much existing home inventory, a sharp bounce back in housing starts is unlikely, so I think Fisher's forecast for a rapid decline in unemployment is also unlikely.

by Calculated Risk on 11/13/2009 11:19:00 AM

From the NY Times: Euro Zone Officially Out of Recession

... [T]he euro area emerged from recession during the third quarter, helped largely by export growth and improved industrial production in its largest economy, Germany.

The European Union’s statistics agency, Eurostat, reported Friday that gross domestic product for the 16 countries using the single currency expanded by 0.4 percent from the second quarter, following five quarters of contraction. Against a year earlier, G.D.P. was still 4.1 percent lower.

Analysts said the outlook remained patchy, particularly because unemployment is still climbing, wages are stagnant and consumption and lending are being propped up by government programs that will not be renewed indefinitely.

Note: the 0.4% is the quarterly rate (1.6% annualized when comparing to reporting in the U.S.).

Here is the Eurostat report: Euro area GDP up by 0.4% and EU27 GDP up by 0.2% with a breakdown by country.

by Calculated Risk on 11/13/2009 08:37:00 AM

The Census Bureau reports:

The ... total September exports of $132.0 billion and imports of $168.4 billion resulted in a goods and services deficit of $36.5 billion, up from $30.8 billion in August, revised. September exports were $3.7 billion more than August exports of $128.3 billion. September imports were $9.3 billion more than August imports of $159.1 billion.

Click on graph for larger image.

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

Imports and exports increased in September. On a year-over-year basis, exports are off 13% and imports are off 21%.

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

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 $68.17 in September - up more than 50% from the prices in February (at $39.22) - and the seventh monthly increase in a row. Import oil prices will probably rise further in October.

The major contributors to the increase in the trade deficit were the increase in oil prices, and more imports from China. Also - the deficit is higher than expected, suggesting a downward revision to Q3 GDP.

by Calculated Risk on 11/13/2009 12:30:00 AM

Earlier this week I mentioned a possible "upside surprise" for GDP in 2010:

With unemployment above 10%, there will be significant political pressure for another stimulus package - especially if the economy starts to slow in the first half of 2010. This next package could be several hundred billion (maybe $500 billion) and could increase GDP growth in 2010 above my forecast.

From The Hill: Senator Reid tees up 2010 jobs bill

Senate Democrats will take up a new job-creation bill in the wake of the 10.2 percent unemployment rate, Majority Leader Harry Reid told his colleagues Tuesday.

And from the LA Times: Obama announces forum -- a brainstorming session on job creation

Next month, Obama said he would gather chief executives, small-business owners, economists, labor leaders and others to discuss ways to create jobs and grow the economy.

It appears the idea of another stimulus package is gaining momentum ...

by Calculated Risk on 11/12/2009 08:17:00 PM

From Bloomberg: Barofsky Says TARP ‘Almost Certainly’ Will Bring Loss (ht jb)

Neil Barofsky ... said the [TARP] will “almost certainly” result in a loss to U.S. taxpayers.
...
“Tens of billions of dollars are likely to be lost on the automotive bailout,” Barofsky said. In addition, some banks that received TARP money are failing, so the aid they received will be wiped out.

The TARP lost $2.33 billion on CIT and another $299 b million on the failure of UCBH Holdings (United Commercial Bank) last week.

And there are a growing number of banks not paying their TARP dividends (33 banks as of August - not all will fail, but that is a bad sign).

And this is the quote of the day:

“When I first took office, I can’t tell you how many times I’d be having a sit-down and warning about potential fraud in the program and I would hear a response basically saying, ‘Oh, they’re bankers, and they wouldn’t put their reputations at risk by committing fraud,’” he said.

“I think we’ve done a good job of instilling a greater degree of skepticism that what comes from Wall Street isn’t necessarily the Holy Grail,” he said.