by Calculated Risk on 2/01/2010 02:00:00 PM

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

The January survey indicated that commercial banks generally ceased tightening standards on many loan types in the fourth quarter of last year but have yet to unwind the considerable tightening that has occurred over the past two years. The net percentages of banks reporting tighter loan terms continued to trend lower. Banks reported that loan demand from both businesses and households weakened further, on net, over the survey period.
emphasis added

In general banks have stopped tightening lending standards, however demand continues to weaken. For real estate - especially commercial real estate - the banks are still tightening standards:

Questions on residential real estate lending. Banks continued to tighten standards on residential real estate loans over the past three months. In line with recent patterns, a small net fraction of banks tightened standards on prime residential real estate loans over that period, and somewhat larger net fractions of banks tightened standards on nontraditional residential real estate loans. In addition, a moderate net fraction of banks reported weaker demand from prime borrowers for residential real estate loans.

Questions on commercial real estate lending. ... a substantial share of domestic banks, on net, reported having tightened standards on CRE loans and having experienced weaker demand for such loans again in the fourth quarter of 2009.

by Calculated Risk on 2/01/2010 12:43:00 PM

Here are graphs of office, mall and lodging investment through Q4 2009 based on the underlying detail data released by the BEA ...

Click on graph for larger image in new window.

This graph shows investment in offices as a percent of GDP. Office investment as a percent of GDP peaked at 0.46% in Q3 2008 and has declined sharply to a new all time low (as percent of GDP).

Reis reported that the office vacancy rate rose to a 15 year high in Q4 to 17.0%, from 16.5% in Q3 and from 15.9% in Q2. The peak vacancy rate following the 2001 recession was 16.9%. With the office vacancy rate rising, office investment will probably decline through 2010.

Office investment is usually the most overbuilt in a boom, but this time the office market struggled for a few years after the stock market bubble burst and there was comparatively more investment in malls and hotels.

The second graph is for investment in malls.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and has fallen by 50% (note that investment includes remodels, so this will not fall to zero). Mall investment will probably continue to decline through 2010.

Reis reported that the mall vacancy rate in Q4 was the highest on record at 8.8% for regional malls, and 10.6% for strip malls. From Reis economist Ryan Severino:

"Our outlook for retail properties as a whole is bleak ... we do not foresee a recovery in the retail sector until late 2012 at the earliest."

The third graph is for lodging (hotels).

The recent boom in lodging investment was stunning. Lodging investment peaked at 0.32% of GDP in Q2 2008 and has declined rapidly to 0.16% in Q4 2009.

I expect lodging investment to continue to decline through at least 2010, to perhaps one-third of the peak or even lower (investment as percent of GDP).

As projects are completed there will be little new investment in these categories probably at least through 2010. This will be a steady drag on GDP (nothing like the decline in residential investment though), and a steady drag on construction employment.

Notice that investment in all three categories typically falls for a year or two after the end of a recession, and then usually recovers very slowly. Something similar will probably happen again, and there will not be a recovery in these categories until the vacancy rates fall significantly.

by Calculated Risk on 2/01/2010 10:21:00 AM

Residential construction spending was off slightly in December, and is now about 10% above the bottom in June 2009. I expect some growth in residential spending in 2010, but the increases will probably be sluggish until the large overhang of existing inventory is reduced.

Non-residential increased slightly in December, but the trend is clearly down. The collapse in non-residential construction spending continues ...

Click on graph for larger image in new window.

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

Residential construction spending decreased in December, and nonresidential spending increased slightly.

Private residential construction spending is now 61.5% below the peak of early 2006.

Private non-residential construction spending is 22.0% below the peak of October 2008.

The second graph shows the year-over-year change for private residential and nonresidential construction spending.

Nonresidential spending is off 17.7% on a year-over-year (YoY) basis.

Residential construction spending is down 10.3% from a year ago, and the negative YoY change is getting smaller.

Only over the last few months - for the first time since the housing bust started - has nonresidential spending been off more on a YoY basis than residential.

Here is the report from the Census Bureau: December 2009 Construction at $902.5 Billion Annual Rate

by Calculated Risk on 2/01/2010 10:00:00 AM

PMI at 58.4% in January, up sharply from 54.9% in December.

From the Institute for Supply Management: January 2009 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in January for the sixth consecutive month, and the overall economy grew for the ninth consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The manufacturing sector grew for the sixth consecutive month in January as the PMI rose to 58.4 percent, its highest reading since August 2004 when it registered 58.5 percent. This month's report provides significant assurance that the manufacturing sector is in recovery. Both the New Orders and Production Indexes are above 60 percent, indicating strong current and future performance for manufacturing. This month, 13 of 18 industries reported growth, up from nine industries last month, and this is a good indication that the impact of the recovery is expanding."
...
ISM's Employment Index registered 53.3 percent in January, which is 3.1 percentage points higher than the seasonally adjusted 50.2 percent reported in December. This is the second month of growth in manufacturing employment, and the highest reading since April 2006 (54.9 percent). An Employment Index above 49.8 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
emphasis added

As noted, any reading above 50 shows expansion.

by Calculated Risk on 2/01/2010 08:30:00 AM

From the BEA: Personal Income and Outlays, November 2009

Personal Personal income increased $44.5 billion, or 0.4 percent, and disposable personal income (DPI) increased $45.9 billion, or 0.4 percent, in December, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $22.6 billion, or 0.2 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.1 percent in December, compared with an increase of 0.4 percent in November.
...
Personal saving -- DPI less personal outlays -- was $534.2 billion in December, compared with $506.3 billion in November. Personal saving as a percentage of disposable personal income was 4.8 percent in December, compared with 4.5 percent in November.

Click on graph for large image.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the December Personal Income report. The saving rate was 4.8% in December.

I expect the saving rate to continue to rise over the next couple of years - possibly to 8% or more - slowing the growth in PCE.

The following graph shows real Personal Consumption Expenditures (PCE) through December (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

The question is what happens to PCE growth in 2010?