by Calculated Risk on 7/11/2011 08:35:00 AM

This doesn't look good ... (see table below).

The Greek 2 year yield is up to a record 31.1%.

The Portuguese 2 year yield is up to a record 18.3%.

The Irish 2 year yield is up to a record 18.1%.

And the big jump ... the Italian 2 year yield is up to a record 4.1%. Still much lower than Greece, Portugal and Ireland, but rising.

From the Telegraph: Italy debt contagion fears hit markets as top EU officials meet

Herman Van Rompuy, the president of the European Council, will meet European Central Bank President Jean-Claude Trichet and Jean-Claude Juncker, the chairman of the Eurogroup, for talks in Brussels at around midday, ahead of a meeting of the 17 euro zone finance ministers later on Monday.

Mr Van Rompuy's spokesman described the gathering as a "coordination, not a crisis meeting". He added that Italy would not be on the agenda, as ministers focused on thrashing out terms of a second Greek rescue package.

The meeting comes as the Financial Times reported that leaders are prepared to accept that Athens should default on some of its bonds.

Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 7/10/2011 10:12:00 PM

From the Financial Times: EU stance shifts on Greece default

The Financial Times is reporting that European leaders will now accept that "Athens should default on some of its bonds" to reduce the overall debt burden of Greece.

This would be a major shift. The Financial Times suggests this will be discussed at the meeting of finance ministers on Monday and probably ends the plan suggested by France.

From the Irish Times: European leaders to consider default as part of Greek rescue

EURO ZONE finance ministers are considering a fundamental revision of their strategy in the Greek debt crisis ... At issue as the ministers meet today in Brussels is whether they agree to look again at a German debt-swap plan in which Greek investors would be urged to exchange their bonds for debt with a longer maturity.

This plan was scrapped weeks ago on the basis that it would lead to a default rating on Greek debt, something which is resolutely opposed by the European Central Bank.
...
Also on the table is the revival of a plan rejected four months ago in which the euro zone bailout fund — the European Financial Stability Facility — would intervene in markets to buy Greek debt at a discount to its original value.

Consideration may also be given to another lowering of the interest rate on Greece’s rescue loans.

Another interesting week in Europe.

by Calculated Risk on 7/10/2011 05:42:00 PM

Dean Baker writes: We Need 90,000 Jobs Per Month to Keep Pace With the Growth of the Population

In an article on the June employment report the NYT told readers that the economy needs 150,000 jobs per month to keep pace with the growth in the population. Actually, the Congressional Budget Office projects that the underlying rate of labor force growth is now just 0.7 percent annually. This comes to roughly 1,050,000 a year or just under 90,000 a month.

Here is the CBO report that Baker mentions: CBO’s Labor Force Projections Through 2021

The number of jobs needed per month to keep up with population growth depends on the rate of population growth, and the participation rate. We also have to be clear on the time frame we are discussing. The CBO report is through 2021, and the CBO is projecting the participation rate to fall to 63% by 2021 due to an aging population.

If, instead, we asked how many jobs are needed over the next year to keep the unemployment rate steady using the CBO projection of the participation rate, the answer is very different. The CBO is projecting the participation rate will be at 64.6% in 2012 and the current participation rate is 64.1%.

I've been projecting some bounce back in the participation rate too - but it hasn't happened yet.

The following table uses the CBO projections and provides an estimate of the jobs needed per month (per the household survey¹) to hold the unemployment rate steady.

The first column is actual for June 2011 as reported by the BLS. The second column is using the CBO projections, the third column is a modified CBO using the June 2011 population estimate and a lower estimate for the next 12 months (population only increases 1.8 million).

The fourth column is for the participation rate staying steady at 64.1% (no bounce back).

Jobs needed over next 12 months to hold unemployment rate constant	Current	Projections
	BLS	CBO	CBO modified2	Participation Rate Unchanged
	Jun-11	Jun-12	Jun-12	Jun-12
Civilian noninstitutional population, 16 and over (millions)	239.5	242.8	241.3	241.3
Participation Rate (Percent)	64.1%	64.6%	64.6%	64.1%
Labor Force (millions)	153.4	156.8	155.9	154.7
Employed (millions)	139.3	142.4	141.5	140.4
Unemployed (millions)	14.1	14.4	14.3	14.2
Unemployment Rate	9.2%	9.2%	9.2%	9.2%
Jobs needed to hold unemployment rate constant (millions)		3.1	2.2	1.1
Jobs needed per month		260,000	187,000	95,000
Lower Unemployment Rate to 8.2%		CBO	CBO Modified2	Participation Rate Unchanged
Unemployment Rate		8.2%	8.2%	8.2%
Employed (millions)		144.0	143.1	142.0
Unemployed (millions)		12.9	12.8	12.7
Jobs need to lower unemployment rate to 8.2% (millions)		4.7	3.8	2.7
Jobs needed per month		391,000	316,000	224,000

¹ This is all based on the household survey. The headline payroll number is from the establishment survey.
² The modified CBO uses the actual population for June 2011 and assumes the population only increases 1.8 million over the next 12 months.

It would take 187,000 jobs added per month over the next year to hold the unemployment rate steady if the participation rate rises to 64.6%. If the participation rate stays steady, it will take 95,000 jobs added per month.

I also included the number of jobs needed to lower the unemployment rate by one percentage point to 8.2%. If the participation rate rises, then it would take 316,000 jobs per month. If the participation rate stays steady, it would take 224,000 jobs per month to lower the unemployment rate to 8.2%.

If the economy does start adding more jobs per month, I expect more people will then join the labor force - keeping the unemployment rate elevated. Of course more people could give up, and the labor force participation rate could fall further pushing down the unemployment rate - but that wouldn't be good news.

by Calculated Risk on 7/10/2011 12:13:00 PM

From Reuters: Exclusive: EU calls emergency meeting as crisis stalks Italy(ht Rajesh, jb)

European Council President Herman Van Rompuy has called an emergency meeting of ... for Monday morning, reflecting concern that the crisis could spread to Italy, the region's third largest economy.
...
The talks were organized after a sharp sell-off in Italian assets on Friday, which has increased fears that Italy, with the highest sovereign debt ratio relative to its economy in the euro zone after Greece, could be next to suffer in the crisis.

Reuters reports that ECB President Jean-Claude Trichet, finance minister chairman Jean-Claude Juncker, European Commission President Jose Manuel Barroso and Olli Rehn, European Commissioner for Economic and Financial Affairs, will all attend.

The finance ministers will meet later in the day. On Friday, the European bank stress test results will be released. It will be a busy week for U.S. economic releases, and there will be plenty of news from Europe too.

Yesterday:
• Summary for Week Ending July 8th
• Schedule for Week of July 10th
• Graph Galleries

by Calculated Risk on 7/10/2011 09:22:00 AM

Home sales are strong in Las Vegas, but mostly because of distressed sales. According to the following article 47.2% of the sales in June were bank-owned properties, and another 21.6% were short sales.

The high level of distressed sales will keep downward pressure on house prices. Note: The articles mentions median prices, and the median is impacted by the mix of homes sold.

From Buck Wargo at the Las Vegas Sun: Las Vegas home sales surge in June as prices continue to fall

The Greater Las Vegas Association of Realtors reported today that the 3,629 sales of single-family homes on the Multiple Listing Service were up 16.7 percent over May and were 8 percent higher than June 2010.
...
GLVAR President Paul Bell said the June sales figures were the third-best month ever for existing homes in Southern Nevada using the Realtor-based MLS. Non-Realtor transactions will be released later in the month by local research firms.

Foreclosures continue to drive the market with the GLVAR reporting 47.2 percent of existing home sales in June were bank-owned properties, up from 43.8 percent in May. In a sign that investor activity remains strong, some 50 percent of homes sold in June were purchased with cash, down from 51.4 percent in May.
...
In June, 21.6 percent of existing homes sold were short sales in which the bank agrees to sell the property for less than is owed on the mortgage.
...
The inventory of single-family homes fell slightly in June to 22,702, down 0.3 percent from May. About half of those homes don’t have offers on them.

A market with almost 70% distressed sales is a long way from normal. And with all the delinquent and in-foreclosure mortgages in Nevada - and with most property owners "underwater" on their mortgages - the number of distressed sales will remain very high for some time.