by Calculated Risk on 1/11/2010 12:15:00 AM

From Bloomberg: Fed’s Bullard Says Asset-Purchase Adjustments Main Policy Issue (ht MrM)

[St. Louis Fed President] James Bullard said the main challenge for U.S. policy makers will be to adjust the asset-purchase program ...

The Fed should retain flexibility by adopting a “state- contingent” policy that would allow for the adjustment of such purchases as new information becomes available ... He said it was “disappointing” that markets focus more on interest rates instead of the Fed’s quantitative monetary policy.
...
“Markets are still thinking of monetary policy strictly as changes in interest rates even though the Fed has been conducting successful policy this past year through quantitative easing,” Bullard said. “Markets should be focusing on quantitative monetary policy rather than interest rate policy.”

It is pretty clear that the Fed will not raise rates any time soon.

by Calculated Risk on 1/10/2010 09:28:00 PM

Note: Here is a weekly summary and look ahead.

Evelyn Nieves at HuffingtonPost has an update on Stockton, CA: Stockton, California Is Foreclosureville, USA, Has One Of The Worst Foreclosure Rates In The United Sates. A short excerpt:

Stockton is a changed place. Whole neighborhoods have been decimated by the mortgage disaster. The tax base has shrunken. City services and municipal jobs have been cut. Unemployment hovers at about 16 percent. Economists predict it will take years for Stockton to recover from the housing bust.
...
Housing developments built for commuters have been hit the hardest, since they were the ones to attract newcomers fleeing the huge spike in prices closer to the Bay area. Those whose livelihoods depend on a healthy housing environment – real estate brokers, contractors, day laborers – are barely holding on here.
...
The heart of Foreclosureville, U.S.A. – the Stockton subdivision that had more bank repossessions than any other place in the country for much of the last two years – is starting to look like its old self again.

The "For Sale" signs that overwhelmed Weston Ranch are mostly gone, and the lawns where weeds grew like corn stalks are shorn.

Foreclosure businesses that sprang up, including one that spray-painted brown lawns green and another that offered a foreclosure bus tour, have folded. Every time a foreclosure hits the market, bargain hunters snap it up.

But looks are deceiving. In Weston Ranch, financial devastation struck like a natural disaster and the ground has not yet settled. Speculators are buying houses to rent out. On streets where everyone knew everyone, no one knows anyone.

A long way from normal ...

by Calculated Risk on 1/10/2010 06:28:00 PM

Note: Here is a weekly summary and look ahead.

The Hartford Courant quoted Boston Fed President Eric S. Rosengren as saying he expects mortgage rates to rise 50 to 75 bps when the Fed MBS purchase program ends.

And that is an excuse to update the status of the program. From the Atlanta Fed weekly Financial Highlights:

Click on graph for larger image.

From the Atlanta Fed:

[T]he agency-backed MBS purchase program is ... on
schedule, with more than $1.1 trillion purchased by year-end.

The Fed purchased a net total of $9.3 billion of agency-backed MBS through the week of December 30. This brings its total purchases up to $1.115 trillion, and by the end of the first quarter 2010 the Fed will purchase $1.25 trillion (thus, it is 89% complete).

The Fed purchased an additional $12 billion net in MBS over the last week, bringing the total to $1.127 trillion or just over 90% complete.

by Calculated Risk on 1/10/2010 01:59:00 PM

Economic news this week includes the trade report for November on Tuesday (consensus is for an increase in the trade deficit from $32.9 billion in October to around $35 billion in November). Retail sales for December will be released on Thursday (consensus is for 0.2% increase ex-auto), and CPI and Industrial Production / Capacity Utilization (for December) on Friday.

I expect the AAR rail traffic report, DOT's vehicle miles, and West coast port traffic data all to be released this week too.

And a summary of last week ...

Employment Report: 85K Jobs Lost, 10% Unemployment Rate

Here are couple of graphs based on the employment report this week:

Click on graph for larger image.

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

Note: The total jobs lost does not include the annual benchmark payroll revision that will be announced on February 5, 2010. The preliminary estimate is for a downward revision of 824,000 jobs - pushing the total jobs lost over 8 million.

The second graph (blue line) is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are a record 6.13 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 4.0% of the civilian workforce. (note: records started in 1948).

For more on the employment report:
-> Employment Report: 85K Jobs Lost, 10% Unemployment Rate
-> Employment-Population Ratio, Part Time Workers, Temporary Workers
-> Unemployed over 26 Weeks, Diffusion Index, Seasonal Retail Hiring

Commercial Real Estate Vacancy Rates Rise Sharply, Rents Fall

This graph shows the office vacancy rate starting in 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%.

-> On offices from Reuters: At 17 pct, US office vacancy rate hits 15-year high
-> On apartments from Reuters: U.S. apartment vacancy rate hits 30-year high
-> On malls from Reuters: US shopping center vacancies hit records - report

Construction Spending Declines in November

Residential construction spending was off slightly in November, and is now only 5.8% above the bottom earlier in 2009. Non-residential appeared flat in November, but that was only because of a downward revision to October spending. The collapse in non-residential construction spending continues ...

This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Private residential construction spending is now 62.9% below the peak of early 2006.

Private non-residential construction spending is 22.5% below the peak of October 2008.

U.S. Light Vehicle Sales 11.25 Million SAAR in December

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for December (red, light vehicle sales of 11.25 million SAAR from AutoData Corp).

Excluding August (sales driven by "Cash-for-clunkers"), December was the strongest month since September 2008 (12.5 million SAAR) before sales fell off the final cliff.

The current level of sales are still very low, and are still below the lowest point for the '90/'91 recession (even with a larger population). On an annual basis, 2009 sales were probably just above the level of 1982 (10.357 million light vehicles).

Other Economic Stories ...

From the Institute for Supply Management: December 2009 Manufacturing ISM Report On Business® PMI increased to 55.9% in December from 53.6 in November.

Oil Prices Push Above $81 per Barrel

The WSJ reports: Personal Bankruptcy Filings Rising Fast

From the NAR: Pending Home Sales Decrease Sharply in November

From the FDIC: FDIC Issues Interest Rate Risk Advisory

Consumer Credit Declines for Record 10th Straight Month

Guest post from Albrt: HAMP Loan Modifications and Due Process

Unofficial Problem Bank List Increases to 576

Best wishes to all.

by Calculated Risk on 1/10/2010 11:44:00 AM

From Patti Waldmeir in the Financial Times: China’s exports rise as economy picks up

Exports climbed 17.7 per cent last month from a year earlier and imports shot up 55.9 per cent, according to official figures released on Sunday. ...

Andy Rothman, CLSA’s chief China economist, predicted ... that if the export recovery continues, that would give China’s leaders the political cover they need to resume renminbi appreciation by mid-year, with a possible increase of 3 per cent for 2010.
excerpted with permission

This was an easy comparison because exports collapsed last year.

The article quotes Rothman arguing that the Chinese government has been waiting for three things before resuming appreciation of the renminbi: 1) economic recovery in China, 2) stabilization in Europe and the U.S., and 3) sustained Chinese export growth (for several months). Rothman thinks the first two have happened, and that if export growth continues, the Chinese will allow the renminbi to appreciate later this year.