by Calculated Risk on 1/08/2010 09:30:00 AM

Here are a few more graphs based on the (un)employment report ...

Employment-Population Ratio

The Employment-Population ratio continues to plunge, falling to 58.2% in December - the lowest level since 1983.

Click on graph for larger image in new window.

This graph shows the employment-population ratio; this is the ratio of employed Americans to the adult population.

Note: the graph doesn't start at zero to better show the change.

The general upward trend from the early '60s was mostly due to women entering the workforce.

The Labor Force Participation Rate fell to 64.6% (the percentage of the working age population in the labor force). This is the lowest since the early 80s.

When the job market starts to recover, many of these people will reenter the workforce and look for employment - and that will keep the unemployment rate elevated for some time.

Temporary Workers

From the BLS report:

Temporary help services added 47,000 jobs in December. Since reaching a low point in July, temporary help services employment has risen by 166,000.

This graph shows temporary help services (seasonally adjusted) and the unemployment rate. Unfortunately the data on temporary help services only goes back to 1990, but it does appear temporary help and the unemployment rate have been inversely correlated.

The thinking is that before companies hire permanent employees following a recession, employers will first increase the hours worked of current employees and also hire temporary employees. Since the number of temporary workers increased sharply, some people think this might be signaling the beginning of an employment recovery.

However, there has been some evidence of a shift by employers to more temporary workers, and the saying may become "We are all temporary now!", so use this increase with caution.

Tom Abate at the San Francisco Chronicle recently provided some caution on using temporary help as a guide:

BLS economist Amar Mann said an analysis by the San Francisco office suggests that employers are getting more sophisticated about using temp hiring as a clutch to downshift into recessions and upshift into recoveries.
...
"Employers are getting more savvy about using just-in-time labor on the way down and on the way up," he said

Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was about unchanged at 9.2 million in December and has been relatively flat since March. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) declined slightly to 9.165 million.

The all time record was set in October.

Overall this is a grim employment report.

Earlier employment post today:

Employment Report: 85K Jobs Lost, 10% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

by Calculated Risk on 1/08/2010 08:30:00 AM

From the BLS:

Nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction, manufacturing, and wholesale trade, while temporary help services and health care added jobs.

Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 85,000 in December. The economy has lost almost 4.2 million jobs over the last year, and 7.24 million jobs¹ since the beginning of the current employment recession.

The unemployment rate was steady at 10.0 percent. Year over year employment is declining, but still strongly negative.

The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

For the current recession, employment peaked in December 2007, and this recession is the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).

The 85,000 jobs lost was in line with other indicators (like ADP, weekly initial claims, ISM reports). The BLS is now reporting a small increase in payroll jobs in November (4,000), however that is because October was revised down by 16,000 jobs!

¹Note: The total jobs lost does not include the preliminary benchmark payroll revision of minus 824,000 jobs. (This is the preliminary estimate of the annual revision that will be announced early in 2010).

by Calculated Risk on 1/08/2010 12:22:00 AM

Click on graph for larger image in new window.

This graph shows the office vacancy rate starting 1991.

Reis is reporting the vacancy rate rose to 17.0% in Q4, from 16.6% in Q3 and from 14.5% in Q4 2008. The peak following the previous recession was 16.9%.

From Reuters: At 17 pct, US office vacancy rate hits 15-year high

During the fourth quarter the national office vacancy rate climbed 0.40 percentage point from the third quarter to 17 percent, the highest level since 1994.
...
During the fourth quarter, asking rent fell 1.1 percent ... effective rent, dropped 1.9 percent ... For the year, effective rent fell 8.9 percent, the largest one-year decline since Reis began tracking it in 1980.

"Never before have landlords been under so much pressure to offer concessions to attract and retain tenants," Calanog said. "Asking rents have fallen at a lower rate, but this just implies further room to fall down the road if conditions do not improve soon."

The vacancy rate isn't a record, but there was a record decline in effective rents. Add that to the records announced earlier this week ...

Reis: Strip Mall Vacancy Rate Hits 10.6%, Highest on Record

Apartment Vacancy Rate Highest on Record, Rents Plunge

by Calculated Risk on 1/07/2010 08:27:00 PM

From Liz Rappaport and Jon Hilsenrath at the WSJ: Fed Plan to Stop Buying Mortgages Feeds Recovery Worries

The Federal Reserve's pledge to stop buying mortgages by the end of March is sparking fears among home builders, mortgage investors and even some Fed officials that mortgage rates could rise and knock the fragile housing recovery off course.

The authors review the concerns described in the minutes of the December FOMC meeting. From the FOMC minutes:

... some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness, including the termination next year of the temporary tax credits for homebuyers and the downward pressure that further increases in foreclosures could put on house prices. Moreover, mortgage markets could come under pressure as the Federal Reserve's agency MBS purchases wind down.

Others are even more worried, from the WSJ:

... Ronald Temple, portfolio manager at Lazard Asset Management ... sees mortgage rates rising by a percentage point when the Fed stops buying. A withdrawal of government support, combined with high unemployment and rising mortgage foreclosures, could push home prices down 20%, he said.

... home builders and others are hoping the Fed will flinch. ... If the Fed stops buying, "it would be the beginning of a crisis again, and we haven't emerged from the last one," said Larry Sorsby, chief financial officer at home builder Hovnanian Enterprises Inc, ... Mr. Sorsby figures the Fed's withdrawal would prompt at least a one-percentage-point rise in mortgage rates, which he fears could squash recent glimmers of more demand for homes. He expects the Fed will, in fact, keep buying. "I doubt they'll just pull out," he said.

First, it is very unlikely that mortgage rates would rise by 100bps. My estimate is around 35 bps.

Although the Fed has made it clear - repeatedly - that they would either continue the program or restart it if they felt it was necessary, I think it is likely that the Fed will stop buying MBS by the end of March - and then react to whatever happens ...

by Calculated Risk on 1/07/2010 04:05:00 PM

From the FDIC: FDIC Issues Interest Rate Risk Advisory

The Federal Deposit Insurance Corporation (FDIC), in coordination with the other member agencies of the Federal Financial Institutions Examination Council (FFIEC), released an advisory today reminding institutions of supervisory expectations for sound practices to manage interest rate risk (IRR).
...
The member agencies of the FFIEC include the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the FFIEC State Liaison Committee. The FDIC currently chairs the FFIEC.

Here is the advisory: FFIEC Advisory on Interest Rate Risk Management

The financial regulators1 are issuing this advisory to remind institutions of supervisory expectations regarding sound practices for managing interest rate risk (IRR). In the current environment of historically low short-term interest rates, it is important for institutions to have robust processes for measuring and, where necessary, mitigating their exposure to potential increases in interest rates.

Current financial market and economic conditions present significant risk management challenges to institutions of all sizes. For a number of institutions, increased loan losses and sharp declines in the values of some securities portfolios are placing downward pressure on capital and earnings. In this challenging environment, funding longer-term assets with shorter-term liabilities can generate earnings, but also poses risks to an institution’s capital and earnings.

The regulators recognize that some degree of IRR is inherent in the business of banking. At the same time, however, institutions are expected to have sound risk management practices in place to measure, monitor, and control IRR exposures.
emphasis added

The agencies recommended the following stress testing ...

When conducting scenario analyses, institutions should assess a range of alternative future interest rate scenarios in evaluating IRR exposure. ... In many cases, static interest rate shocks consisting of parallel shifts in the yield curve of plus and minus 200 basis points may not be sufficient to adequately assess an institution’s IRR exposure. As a result, institutions should regularly assess IRR exposures beyond typical industry conventions, including changes in rates of greater magnitude (e.g., up and down 300 and 400 basis points) across different tenors to reflect changing slopes and twists of the yield curve.