by Calculated Risk on 6/04/2012 01:30:00 PM

From the Bank for International Settlements (BIS): Quarterly Review(ht mp)

And from Mark Scott at the NY Times DealBook: Global Banks Cut Lending in Response to Economic Slowdown

International lending by global banks in the fourth quarter last year fell by the largest amount since the collapse of Lehman Brothers in 2008, according to the Bank for International Settlements, an association of the world’s central banks.

In total, financial firms cut overseas lending by $799 billion in the last three months of 2011, the latest figures available. Around 80 percent of the reduction came from the so-called interbank market where institutions lend money to one another.
...
As the ripple effects of the European debt crisis have been felt across the United States and emerging economies in Asia and Latin America, banks in both developed and emerging economies have been looking to pullback on credit to risky borrowers.

Attention has focused on Europe and its beleaguered banking system. In its quarterly review published on Monday, the Bank for International Settlements, based in Basel, Switzerland, said international banks had cut lending to financial firms in the so-called euro zone region by $364 billion in the fourth quarter last year. The reduction represents almost half of the global pullback in lending over the period.

This pullback in lending is global, but it is concentrated in Europe. However there appears to be some tightening in the U.S. too. In a research note on Friday, Goldman Sachs noted this:

US financial conditions have tightened by about 40bp since April, according to our GSFCI. If the current stress were sustained, the tightening would mechanically imply a 0.6% hit to real GDP. Our analysis suggests that perhaps half of this can be explained by the European crisis.

by Calculated Risk on 6/04/2012 09:09:00 AM

Oil prices have fallen sharply. West Texas Intermediate (WTI) futures are down to $82.36, and Brent is down to $96.93 per barrel.

Note on Europe: There are two main channels that could impact the U.S. economy: trade, and financial spillover / credit tightening. The impact on trade will probably be minimal, even as the euro falls sharply against the dollar, because a small percentage of U.S. GDP is from exports to Europe - and some of decline in trade will be offset by lower oil prices (and lower US interest rates). The financial channel is much more of an unknown, and that is the significant downside risk.

From the Indystar.com: Gasoline prices expected to continue to fall in Indiana, analyst says

“With significant downward pressure on oil last week, motorists will continue to see prices sliding east of the Rockies, and even the West Coast will start to get in on the action, thanks to a supply situation that appears to be turning around.”

Average retail gas prices in Indianapolis have dropped by 17 cents a gallon last week, averaging $3.53 Sunday and $3.52 this morning. That’s about 40 cents lower than last month and about half a dollar cheaper than last year, according to Gasbuddy.com.

The following graph shows the decline in gasoline prices. Gasoline prices are down significantly from the peak in early April, and should fall further following the steep decline in oil prices last week. Gasoline prices in the west have been impacted by refinery issues, but prices are now falling there too.

Note: The graph shows oil prices for WTI; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 6/03/2012 10:06:00 PM

The only release on Monday is Factory Orders at 10:00 AM. The consensus is for a 0.1% increase in orders.

The focus will probably be on Europe again, although the FTSE 100 is closed for the Queen's Diamond Jubilee.  The ECB meets on Wednesday (see Europe: A few Key Dates this Month )

The Asian markets are all red tonight. The Nikkei is down about 2.2%, and the Shanghai Composite is down 1.3%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 futures are down about 10, and Dow futures are down 100.

Oil: WTI futures are at $82.30 (this is down from $109.77 in February) and Brent is at $97.73 per barrel. Both are down about 10% over the last week.

Saturday:
• Summary for Week Ending June 1st
• Schedule for Week of June 3rd

For the monthly economic question contest (two more questions for June):

by Calculated Risk on 6/03/2012 04:15:00 PM

Last November I posted a graph showing two possible paths for payroll employment if sluggish growth continued. I've received several requests to update that graph.

The two rates were 125,000 jobs added per month, and 200,000 jobs added per month.

Since I posted that graph, payroll growth has averaged 172,000 jobs per month. Also, with the annual benchmark revision, the previous year was revised up - so at 125,000 per month from November 2011, it would have taken 48 months just to get back to the pre-recession level of payroll employment. From the current level, at 125,000 per month, it will take an additional 40 months (Sept 2015).

At 200,000 payroll jobs per month, it will take an additional 25 months (June 2014) to get back to the pre-recession level from the current level. (The graph shows April 2014 at 200,000 per month, but that is from November 2011, and we are behind that pace).

The following two graphs show these projections from last November.

The dashed red line is 125,000 payroll jobs added per month. The dashed blue line is 200,000 payroll jobs per month.

Click on graph for larger image.

If we followed the red line path from last year, payroll jobs would return to the pre-recession level in November 2015. The dashed blue line returns to the pre-recession level in April 2014.

And this doesn't include population growth and new entrants into the workforce (the workforce has continued to grow).

The second graph shows the same data but aligned at peak job losses.

Last November the debate was been between another recession and sluggish growth - and I correctly took sluggish growth. But as I noted last year, even sluggish growth is a disaster for payroll employment.

by Calculated Risk on 6/03/2012 12:46:00 PM

Just a few dates ... the last two weeks will be very busy.

• Wednesday, June 6th: ECB Governing Council meeting. Here are a few comments from analysts at Nomura:

We expect the ECB to keep its policy rate unchanged at 1%, keeping the powder dry until there is more clarity on Greece's euro-area membership. ... We think the tone of the press conference and the statement will be significantly more dovish than last month given that the ECB's assumption of a mid-summer recovery is currently at risk. We also expect the June quarterly forecast update to show downward revisions to both the inflation and the output outlook. In our view, such a dovish signal would firm expectations that the ECB will cut rates as soon as at the July meeting. ... At the moment, we see a 30% probability of a 25bp rate cut next week.

• Thursday, June 7th: BoE rate decision. From the Telegraph: Bank of England to consider £50bn stimulus for economy

Worsening economic prospects could force the hand of the Bank’s Monetary Policy Committee, which last month voted to pause its purchase of government bonds after pumping £325bn into the market through quantitative easing. ... The International Monetary Fund has recommended that the MPC consider a further reduction in interest rates, which have been at an all-time low of 0.5pc since March 2009, to help the UK weather the eurozone debt crisis.

• Monday, June 11th: IMF Report on Spanish Banks

• Sunday, June 17th: Greek Election.

Monday, June 18th: Independent Spanish Bank Stress Tests. This is the preliminary results of the tests by Oliver Wyman Ltd. and Roland Berger Strategy Consultants. From Reuters: "Big Four" to audit Spain's banking sector

Spain has picked the "Big Four" accounting firms KPMG KPMG.UL, PwC PWC.UL, Deloitte DLTE.UL and Ernst & Young ERNY.UL to carry a full, individual audit of its ailing banks, a source with knowledge of the decision told Reuters on Saturday.

The review, which should take a few months, will complement an ongoing exercise to stress test Spain's banking sector by consultors Oliver Wyman and Roland Berger, whose first results are expected around mid-June.

Monday, June 18th: Start of two day G20 summit meeting in Los Cabos, Mexico

Thursday, June 21st: Meeting of euro zone finance ministers

Thursday, June 28th: Start of two day European summit in Brussels

Saturday, June 30th: Greece required to enact new austerity measures as part of the bailout agreement. Greece is currently funded until the end of June.

Yesterday:
• Summary for Week Ending June 1st
• Schedule for Week of June 3rd
Employment posts:
• May Employment Report: 69,000 Jobs, 8.2% Unemployment Rate
• May Employment Summary and Discussion
• Employment Report Graphs: Construction, Duration of Unemployment and Diffusion Indexes
• Employment Graphs