by Calculated Risk on 5/18/2010 11:59:00 PM

Note: This index is a leading indicator for Commercial Real Estate (CRE) investment.

Reuters reports that the American Institute of Architects’ Architecture Billings Index increased to 48.5 in April from 46.1 in March. Any reading below 50 indicates contraction.

This suggests the slump for commercial real estate design might be nearing a bottom. However, according to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So there will probably be further declines in CRE investment through all of 2010, and probably into 2011.

The ABI press release is not online yet.

Click on graph for larger image in new window.

This graph shows the Architecture Billings Index since 1996. The index has remained below 50, indicating falling demand, since January 2008.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions.

by Calculated Risk on 5/18/2010 07:53:00 PM

From The Times: German shocks to the market push euro down again

The euro ... slid even further to $1.212, its lowest level against the greenback since April 17, 2006, after Germany instituted a ban from midnight last night on the naked short sale of shares in the country’s top financial institutions and the bonds of eurozone countries.

Germany also prohibited the purchase of credit default swaps (CDS) on eurozone government bonds, other than for hedging purposes.

That calls for an updated graph ...

Click on graph for larger image in new window.

The Euro has only been around since Jan 1999. The graph shows the number of dollars per euro since Jan 1, 1999.

The dashed line is the current exchange rate. This is the lowest level for the euro against the dollar since April 2006.

Just a little further (below 1.1667 dollars per euro), and we will be discussing the lowest level since 2003.

From CNBC: Pre-Market Data shows the S&P 500 off about 9 points or just under 1%. Dow futures are off about 70 points. The European markets will be interesting ...

by Calculated Risk on 5/18/2010 04:02:00 PM

Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

The Euro is at 1.22 dollars. Other sources for exchange rates and NetDania.

From the WSJ: Euro Falls on German Tax Plan

German Chancellor Angela Merkel said Tuesday in Berlin that Germany would support a tax on the sector to contribute to the costs of the euro-zone sovereign-debt rescue plan.
...
Germany's ruling center-right parties agree that the financial-market sector must contribute to the costs of the euro-zone debt crisis if the lower house of Parliament is to approve Germany's share of the huge euro-zone rescue plan. They demanded the introduction of a financial-transaction tax or financial-activities tax.

And Germany bans naked short selling on eurobonds and some banks ... from CNBC: Germany Planning Sharp Curbs On Some Kinds of Short Selling

by Calculated Risk on 5/18/2010 02:53:00 PM

Note: ignore the median price - it is distorted by the changing mix.

From DataQuick: Southern California home sales dip

Southern California’s housing market leveled off last month as sales activity migrated ever-so-slightly from inland bargain areas toward entry- and mid-market neighborhoods closer to the coast. ...

Sales of new and resale homes totaled 20,299 in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 0.9 percent from 20,476 in March, and down 1.0 percent from 20,514 for April 2009, according to MDA DataQuick of San Diego.

It’s possible that a significant number of sales that would otherwise have closed escrow in April were delayed until May as buyers tried to take advantage of new state tax credits effective May 1. In addition, those who rushed to sign a sales contract last month before the April 30 deadline for a federal home buyer tax credit would likely close escrow in May or June.

... The Southland’s 1.0 percent decline in overall sales was the first year-over-year drop in almost two years.
...
Foreclosure resales accounted for 36.4 percent of the resale market last month, down from a revised 38.3 percent in March, and down from 53.5 percent a year ago. The all-time high was February 2009 at 56.7 percent.

Government-insured FHA loans, a popular choice among first-time buyers, accounted for 38.5 percent of all mortgages used to purchase homes in April.

... Buyers who appeared to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 27.7 percent of April sales, paying a median $200,000.

... Foreclosure activity remains high by historical standards but is lower than peak levels reached over the last two years.

As DataQuick noted, many California buyers might have signed a contract in April (to get the Federal tax credit), but are planning on closing in May (to get the state tax credit). That could have reduced sales in April - we need to wait a few months to let this sort out. Also DataQuick tracks foreclosures, but not short sales - and the total percentage of distressed sales is probably still over half the market.

by Calculated Risk on 5/18/2010 12:45:00 PM

From Cleveland Fed President Sandra Pianalto: Forecasting in Uncertain Times

As we are all aware, we're emerging from the deepest and longest recession since the Great Depression. Our models would tell us that the deeper the downturn in the economy, the more rapid the recovery. You've probably heard this referred to as a V-shaped recovery.

However, my outlook is that our journey out of this deep recession will be a slow one because we face two primary headwinds that I expect will temper growth for awhile. The first is the effect of prolonged unemployment, and the second is a heightened sense of caution on the part of consumers and businesspeople.
...
About half of those who are currently unemployed have been out of work for at least six months, and the longer someone is out of work, the harder it is to find a job. In the 1982 recession, which was another severe recession, the average duration of unemployment peaked at 21 weeks, but today the average is already over 30 weeks—a record high. Research also tells us that workers lose valuable skills during long spells of unemployment, and that some jobs simply don't return.
...
The second powerful headwind in this recession is a heightened sense of caution, driven by a deep uncertainty about where the "new normal" or baseline might be. A whole generation of Americans who began their working careers in the mid-1980s had experienced only long periods of prosperity punctuated by just two very brief downturns. Those experiences encouraged an expectation for relatively smooth growth. Now everyone's expectations have shifted as a result of this long and deep recession.

People's attitudes about their own prospects have fundamentally changed. In a recent survey by Ohio's Xavier University, 60 percent of those polled believe attaining the American dream is harder for this generation than ones before. And nearly 70 percent think it will be even more difficult for their children. Many people are now just aiming for “financial security” as their American dream
...
Businesses are also cautious. Business leaders base many decisions on forecasts, and they tell me that they are attaching the same high degree of uncertainty around their projections as I am. Most business leaders say that they’re not planning significant hiring until there’s more clarity about how the recovery is going to progress and about policies relating to health care, energy, the environment, and taxes. This caution translates into fewer job opportunities, fewer equipment purchases, fewer building projects—and on and on.

These two factors—overall caution and the effects of labor market damage—lead me to an outlook for relatively subdued output growth through this year and next, with unemployment rates that decline only gradually.

We already know that a "V-shaped" recovery is off the table. Researchers at the San Francisco Fed argued yesterday for a recovery between a "U" and a "V", see The Shape of Things to Come, however those researchers focused on GDP, and I'd suggest GDI, employment and real personal income less transfer payments all suggest an even more sluggish recovery than GDP.

Also I'd add residential investment to Pianalto's two "headwinds". Usually housing is a key engine of growth in a recovery - for both GDP and employment - and this time any contribution from housing will be muted for some time.