by Calculated Risk on 8/05/2010 11:19:00 AM

More from the Q2 2010 GDP underlying detail tables ...

Note: Residential investment (RI), according to the Bureau of Economic Analysis (BEA), includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

Click on graph for larger image in new window.

This graph shows the various components of RI as a percent of GDP for the last 50 years. Usually the most important components are investment in single family structures followed by home improvement.

Investment in home improvement was at a $150.8 billion Seasonally Adjusted Annual Rate (SAAR) in Q2, significantly above the level of investment in single family structures of $119.7 billion (SAAR).

Investment in single family structures has been increasing since bottoming in Q2 2009, however - based on home builder comments and a collapse in new home sales - this will decline sharply in Q3.

Brokers' commissions will also decline sharply in Q3 as the number of existing home sales falls off a cliff in July and August (based on pending home sales).

And investment in multifamily structures - already at a series low as a percent of GDP (since 1959) - will decline further in Q3 since completions have been significantly above starts for some time.

According to the BEA, RI contributed 0.59 percentage points to real annualized Q2 GDP growth, and a RI will probably subtract about the same amount from Q3 (part of the 2nd half slowdown).

by Calculated Risk on 8/05/2010 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending July 31, the advance figure for seasonally adjusted initial claims was 479,000, an increase of 19,000 from the previous week's revised figure of 460,000. The 4-week moving average was 458,500, an increase of 5,250 from the previous week's revised average of 453,250.
...
The advance number for seasonally adjusted insured unemployment during the week ending July 24 was 4,537,000, a decrease of 34,000 from the preceding week's revised level of 4,571,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since January 2000.

The four-week average of weekly unemployment claims increased this week by 5,250 to 458,500.

The dashed line on the graph is the current 4-week average. The 4-week average of initial weekly claims has been at about the same level since December 2009 (eight months) and the 4-week average of 458,500 is high historically, and suggests a weak labor market.

This is the highest number of initial weekly claims since April.

by Calculated Risk on 8/04/2010 10:26:00 PM

From Bloomberg: China Said to Test Banks for 60% Home-Price Drop

Banks were instructed to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively ... Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.

At least they are realize prices can fall sharply. In some European countries the regulators assumed steady prices was a worst-case economic scenario!

by Calculated Risk on 8/04/2010 06:55:00 PM

From the NY Times: Senate Vote Clears Way for $26 Billion in Aid to States

The Senate on Wednesday cleared the way to provide $10 billion to states and local school districts to prevent teacher layoffs and an additional $16 billion in federal aid to cash-strapped states ... The cost of the current version of the bill is fully paid with other spending cuts and a provision to close a tax loophole ... The $16.1 billion in aid to states would increase the federal government’s contribution toward Medicaid costs

This bill will provide Medicaid funding through the first 6 months of 2011, and the sponsors say it will help save 140,000 teacher jobs.

I'll have another update on the 2nd half slowdown tomorrow, but this will reduce the cutbacks at the state and local level in the 2nd half of 2010.

by Calculated Risk on 8/04/2010 04:07:00 PM

First - the advance Q2 GDP report released last week showed an annualized real increase of 5.2% for investment in non-residential structures. This broke a streak of seven straight quarterly declines. However the construction spending report released on Monday suggests that most of this gain will be revised away.

Second - with the release of underlying detail data today - we can see that most of the reported gains in Q2 were for power and petroleum mining structures. My guess is some of this investment was related to the BP oil gusher.

If we look at just office, mall and lodging investment, non-residential structure investment continued to decline in Q2.

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 series low as a percent of GDP (data series starts in 1959).

Reis reported that the office vacancy rate is at a 17 year high at 17.4% in Q2, up from a revised 17.3% in Q1 and 16.0% in Q2 2009. With the office vacancy rate still rising, office investment will probably decline further - although most of the decline in investment has already happened.

The second graph is for investment in malls.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and has fallen by over two-thirds (note that investment includes remodels, so this will not fall to zero). Mall investment is also at a series low (as a percent of GDP) and will probably continue to decline through 2010.

Reis reported that the mall vacancy rate increased in Q2 2010, and was the highest on record at 9.0% for regional malls, and the highest since 1991 for strip malls.

The third graph is for lodging (hotels).

The bubble boom in lodging investment was stunning. Lodging investment peaked at 0.32% of GDP in Q2 2008 and has fallen by over 70% already. And I expect lodging investment to continue to decline through at least 2010.

As projects are completed there will be little new investment in these categories for some time.

Also 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 (flat as a percent of GDP for 2 or 3 years). Something similar will probably happen again, and there will not be a recovery in these categories until the vacancy rates fall significantly.