by Calculated Risk on 11/17/2011 08:30:00 AM

The DOL reports:

In the week ending November 12, the advance figure for seasonally adjusted initial claims was 388,000, a decrease of 5,000 from the previous week's revised figure of 393,000. The 4-week moving average was 396,750, a decrease of 4,000 from the previous week's revised average of 400,750.

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

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 396,750.

This is the lowest level for the 4 week average since early April - although this is still elevated.

And here is a long term graph of weekly claims:



All current Employment Graphs

by Calculated Risk on 11/16/2011 08:39:00 PM

Professors Amir Sufi and Atif Mian use county level data to show that household balance sheet problems are directly linked to the high level of unemployment. It is important for policy to understand the reasons unemployment has remained elevated.

From Bloomberg: How Household Debt Contributes to Unemployment: Mian and Sufi

The weakness in household balance sheets and the associated pullback in spending are directly responsible for the lion’s share of employment losses in the U.S. economy. This deficiency remains the most significant impediment to a robust recovery.

Our research suggests that 65 percent of the job losses from 2007 to 2009 came from the drop in household spending induced by the collapse in home prices and its effect on a highly levered household sector.
...
The declines in consumption are far too large to be explained by the drop in house prices alone. It was the combination of collapsing home values and high debt levels that proved disastrous. High-debt areas have been plagued with delinquencies, deleveraging, and the inability to refinance into lower rates -- all characteristics of overleveraged households.

Further, low levels of consumption in high-debt areas continue to be a major drag. For instance, in the second quarter of 2011, auto sales in U.S. counties with the most debt remained a whopping 40 percent below their 2006 levels. By contrast, in areas that had healthy balance sheets before the recession began, the declines in spending were short-lived and a robust recovery is under way.

A summary and two papers:

Household Balance Sheets and the Weak Recovery

What Explains High Unemployment? The Aggregate Demand Channel

A drop in aggregate demand driven by shocks to household balance sheets is responsible for a large fraction of the decline in U.S. employment from 2007 to 2009. The aggregate demand channel for unemployment predicts that employment losses in the non-tradable sector are higher in high leverage U.S. counties that were most severely impacted by the balance sheet shock, while losses in the tradable sector are distributed uniformly across all counties. We find exactly this pattern from 2007 to 2009. Alternative hypotheses for job losses based on uncertainty shocks or structural unemployment related to construction do not explain our results.

Household Balance Sheets, Consumption, and the Economic Slump

The large accumulation of household debt prior to the recession in combination with the decline in house prices has been the primary explanation for the onset, severity, and length of the subsequent consumption collapse. Using novel county level retail sales data, we show that the decline in consumption was much stronger in high leverage counties with large house price declines.

Earlier:
• Industrial Production increased 0.7% in October, Capacity Utilization increased
• Residential Remodeling Index at new high in September
• AIA: Architecture Billings Index increased in October
• Rate of increase slows for Key Measures of Inflation in October
• NAHB Builder Confidence index increases in November

by Calculated Risk on 11/16/2011 06:27:00 PM

Can't go a day without a post on Europe ...

Earlier today - during market hours - Fitch warned about possible contagion to U.S. banks from Europe. From Bloomberg: U.S. Banks Face Serious Risk From Europe Crisis, Fitch Says

“Fitch believes that unless the euro zone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen,” the New York-based rating company said today in a statement.

And on the ECB from the WSJ: Pressure Rises on the ECB

Pressure mounted on the European Central Bank to take drastic action to stabilize euro-zone bond markets, as investors shrugged off the bank's limited bond buying and European politicians sparred over the ECB's role in fighting the debt crisis.

ECB purchases of Italian and other euro-zone government bonds on Wednesday largely failed to halt the sell-off of struggling euro nations' debt. Investors continued to dump everything but German bunds and it became increasingly difficult to find private buyers for bonds issued by large, economically struggling countries such as Italy and Spain.
...
But Germany's leaders continued to reject calls for the ECB to print money and buy bonds on a bigger scale, insisting that only economic reforms by national governments can solve the debt crisis.

The ECB, with support from Germany, has so far refused to act as euro governments' lender of last resort, and has steadfastly insisted that its bond-purchasing program is temporary and limited in scope.

It seems that policymakers will have to decide soon between more ECB buying or the breakup of the euro-zone.

Below is a table for several European bond yields (links to Bloomberg).

The Italian 10 year bond yield is down to 7.00%. The Italian 2 year yield is down to 6.41%.

The Spanish 10 year bond yield has increased to 6.41%. The Spanish 2 year yield is up to 5.40%.

The Irish 10 year yield is up to 8.21%. The Portuguese 10 year yield is up to 11.3%.

The French 10 year bond yield is up to 3.71%. The Belgium 10 year yield is down slightly to 4.87%.

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 11/16/2011 02:58:00 PM

Earlier today the BLS reported:

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in October on a seasonally adjusted basis ... The index for all items less food and energy increased 0.1 percent in October; this was the same increase as last month and matches its smallest increase of the year.

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.3% annualized rate) in October. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.4% annualized rate) during the month.
...
The CPI less food and energy increased 0.1% (1.6% annualized rate) on a seasonally adjusted basis. ... Over the last 12 months, the median CPI rose 2.2%, the trimmed-mean CPI rose 2.5%, the CPI rose 3.5%, and the CPI less food and energy rose 2.1%.

Note: The Cleveland Fed has a discussion of a number of measures of inflation: Measuring Inflation. You can see the median CPI details for October here.

On a year-over-year basis, these measures of inflation are increasing, and are slightly above the Fed's target. However, on a monthly basis, the rate of increase is mostly below the Fed's target.

Click on graph for larger image.

On a monthly basis, the median Consumer Price Index increased 2.3% at an annualized rate, the 16% trimmed-mean Consumer Price Index increased 1.4% annualized, and core CPI increased 1.6% annualized.

These key price measures increased at a lower rate than in September.

Earlier:
• Industrial Production increased 0.7% in October, Capacity Utilization increased
• Residential Remodeling Index at new high in September
• AIA: Architecture Billings Index increased in October
• NAHB Builder Confidence index increases in November

by Calculated Risk on 11/16/2011 01:15:00 PM

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

From AIA: Architecture Billings Index Moves Upward

After a sharp dip in September, the Architecture Billings Index (ABI) climbed nearly three points in October. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the October ABI score was 49.4, following a score of 46.9 in September. This score reflects an overall decrease in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 57.3, up from a reading of 54.3 the previous month.

“An increase in the billings index is always an encouraging sign,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “We’re seeing some regions and some construction sectors move into positive territory. But there continues to be a high level of volatility in the marketplace with architecture firms reporting a wide range of conditions from improving to uncertain to poor. It’s likely we will see a similar state of affairs in the coming months.”

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index increased to 49.4 in October from 46.9 in September. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

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 the recent surveys suggests further declines in CRE investment in 2012.
All current Commercial Real Estate graphs