by Calculated Risk on 6/19/2010 09:02:00 PM

An update on a theme ...

Click on graph for larger image in new window.

This graph shows single family housing starts and the unemployment rate through May (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.

Usually housing starts and residential construction employment lead the economy out of a recession, but not this time because of the huge overhang of existing housing units. After rebounding a little in early '09, housing starts (blue) have mostly moved sideways.

This is what I expected when I first posted the above graph last summer. I wrote:

[T]here is still far too much existing home inventory, a sharp bounce back in housing starts is unlikely, so I think ... a rapid decline in unemployment is also unlikely.

Usually near the end of a recession, residential investment (RI) picks up as the Fed lowers interest rates. This lead to job creation and also household formation - and that leads to even more demand for housing units - and more jobs, and more households - a virtuous cycle that usually helps the economy recovery.

Note: RI is mostly new home sales and home improvement.

However this time, with the huge overhang of existing housing units, this key sector isn't participating. So in this recovery there is less job creation, less household formation, and less demand for housing units than a normal recovery. This is sort of a circular trap for both GDP growth and employment.

Eventually the excess housing units will be absorbed - (progress is slowly being made, see Housing Stock and Flow) - but until then, this key sector will remain under pressure and I expect the recovery will be sluggish and the unemployment rate will stay elevated.

by Calculated Risk on 6/19/2010 05:02:00 PM

From the Boston Globe: Summers cites recovery, risks

The US economy has probably begun a lasting recovery, but the outlook has become more uncertain in recent weeks ... said Lawrence Summers, President Obama’s top economic adviser.
...
Summers ... presented a cautious, measured view of economic conditions. For example, after expressing confidence that European policy makers would contain the government debt crisis and avoid another global financial crisis, he added that the assessment was “my best guess, and I could be wrong.’’

Or, when asked if the nation had achieved a self-sustaining recovery, Summers responded, “I think that’s the right presumption and my expectation. I wouldn’t be foolish enough to be certain.’’

No one has a crystal ball, but Summers sure doesn't seem very confident.

by Calculated Risk on 6/19/2010 01:05:00 PM

In a post last month I reviewed the impact of the decennial Census hiring on the payroll report. Here is an update ...

We can estimate the Census hiring using weekly payroll data from the Census bureau (ht Bob_in_MA). If we subtract the number of temporary 2010 Census workers in the week containing the 12th of the month, from the same week for the previous month - this provides a close estimate for the impact of the Census hiring.

The Census Bureau releases the actual number with the employment report.

Click on graph for larger image in new window.

This graph shows the number of Census workers paid each week. The red labels are the weeks of the BLS payroll survey.

So far the decennial Census payroll has decreased by 156 thousand this month, and will probably subtract 200 to 250 thousand from the payroll report (we will have a good estimate this coming Wednesday when the week ending June 12th is released).

When the employment report is released on July 2nd, a key number will be payroll jobs ex-Census (to understand the underlying trend). The headline number for June - including Census numbers - will probably be negative.

by Calculated Risk on 6/19/2010 08:48:00 AM

From Bloomberg: China Yuan Pledge Suggests Peg to Dollar May Go

Here are some excerpts from the statement (via WSJ):

In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People´s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.
...
The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility.

I'll believe it when I see it ...

by Calculated Risk on 6/18/2010 11:45:00 PM

Sheila may be taking it easy, but surferdude808 is working hard ... Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for June 18, 2010.

Changes and comments from surferdude808:

After relative calm last week, there were many changes to the Unofficial Problem Bank List this week as the OCC finally released their actions for May. The list stands at 781 institutions with aggregate assets of $404.3 billion, up from 760 institutions with aggregate assets of $385.2 billion last week. Only one removal this week -- the failed Nevada Security Bank ($492 million Ticker: TBHS).

There were 22 additions with aggregate assets of $19.6 billion. Most notable among the additions are Pacific Capital Bank, National Association, Santa Barbara, CA ($7.4 billion Ticker: PCBC); Bank Midwest, National Association, Kansas City, MO ($4.3 billion); Bank of Hampton Roads, Norfolk, VA ($2.7 billion); Seaside National Bank & Trust, Orlando, FL ($808 million); and Waccamaw Bank, Whiteville, NC ($585 million Ticker: WBNK). Bank Midwest is controlled by Dickinson Financial Corporation, a multi-bank holding company, and its other bank subsidiaries were also added this week including Academy Bank, National Association ($507 million), Armed Forces Bank, National Association ($835 million), Armed Forces Bank of California, National Association ($22 million), Southern Commerce Bank, National Association ($257 million), and SunBank, National Association ($88 million).

The OCC issued a Formal Agreement against Saigon National Bank, Westminster, CA ($71 million Ticker: SAGN), which has the dubious distinction of missing six TARP dividend payments. It is a mind scratcher why it has taken the OCC so long to issue an action against Saigon National Bank. One is even more challenged to understand the tardiness in action against Pacific Capital Bank, National Association.

As anticipated, there were two add backs -- Mission Oaks National Bank and Valley National Bank that were removed in the past two weeks when the OCC terminated Formal Agreements. Now these banks are operating under Consent Orders.

Other changes include Prompt Corrective Action Orders against banks already on the list and the conversion of some actions. The Federal Reserve issued PCA Orders against Pierce Commercial Bank ($258 million) and Sterling Bank ($408 million), and the OTS issued a PCA Order against Turnberry Bank ($264 million). The OCC converted Formal Agreements to Consent Orders against Rosemount National Bank ($38 million) and Security Bank, National Association ($160 million).