by Calculated Risk on 1/11/2015 10:41:00 AM

The European policy makers have dragged their feet (especially the Germans), and Grexit is back in the news.

From the WSJ: Banks Ready Contingency Plans in Case of Greek Eurozone Exit

Banks and other financial institutions in Europe are stress-testing their internal systems and dusting off two-year-old contingency plans for the possibility Greece could leave the region’s monetary union after a key election later this month.

Among the firms running through drills are Citigroup Inc., Goldman Sachs Group Inc. and brokerage ICAP PLC, according to people familiar with the matter.

The firms’ plans include detailed checks on counterparties that could be significantly affected by a Greek exit, looking at credit exposures and testing how they would provide cross-border funding to local operations.

And from Business Insider: Here's What A 'Grexit' Would Cost Europe

A snap election in Greece on January 25 could bring to power the far-left Syriza party, which wants to abandon the austerity policy imposed by the EU and IMF as part of the country's 240-billion-euro ($282 billion) international bailout.

The market selloff was triggered by media reports indicating that if a new government in Athens reversed course, Germany was ready to let Greece leave the European club of common currency users.

Most analysts doubt it would come to that, but if it did Athens would be hard pressed to repay its bailout loans and would likely default.

by Calculated Risk on 1/10/2015 06:13:00 PM

By request, here is an update on an earlier post through the December employment report.

NOTE: Several readers have asked if I could add a lag to these graphs (obviously a new President has zero impact on employment for the month they are elected). But that would open a debate on the proper length of the lag, so I'll just stick to the beginning of each term.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, however the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is generally declining now.  But these graphs give an overview of employment changes.

First, here is a table for private sector jobs. The top two private sector terms were both under President Clinton.  Reagan's 2nd term saw about the same job growth as during Carter's term.  Note: There was a severe recession at the beginning of Reagan's first term (when Volcker raised rates to slow inflation) and a recession near the end of Carter's term (gas prices increased sharply and there was an oil embargo).

Term	Private Sector Jobs Added (000s)
Carter	9,041
Reagan 1	5,360
Reagan 2	9,357
GHW Bush	1,510
Clinton 1	10,885
Clinton 2	10,070
GW Bush 1	-841
GW Bush 2	379
Obama 1	1,998
Obama 2	5,0071
123 months into 2nd term: 10,449 pace.

¹Currently Obama's 2nd term is on pace to be the 2nd best ever - only trailing Clinton's 1st term.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s). President George H.W. Bush only served one term, and President Obama is in the second year of his second term.

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble. Mr. Obama (blue) took office during the financial crisis and great recession. There was also a significant recession in the early '80s right after Mr. Reagan (yellow) took office.

There was a recession towards the end of President G.H.W. Bush (purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

The employment recovery during Mr. G.W. Bush's (red) first term was sluggish, and private employment was down 841,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 462,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,510,000 private sector jobs added.

Private sector employment increased by 20,955,000 under President Clinton (light blue), by 14,717,000 under President Reagan (yellow), and 9,041,000 under President Carter (dashed green).

There were only 1,998,000 more private sector jobs at the end of Mr. Obama's first term.  Twenty three months into Mr. Obama's second term, there are now 7,005,000 more private sector jobs than when he initially took office.

 A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1980, 1990, 2000, and 2010. 

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 634,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment.

And a table for public sector jobs. Public sector jobs declined the most during Obama's first term, and increased the most during Reagan's 2nd term.

Term	Public Sector Jobs Added (000s)
Carter	1,304
Reagan 1	-24
Reagan 2	1,438
GHW Bush	1,127
Clinton 1	692
Clinton 2	1,242
GW Bush 1	900
GW Bush 2	844
Obama 1	-713
Obama 2	791
122 months into 2nd term, 165 pace

Looking forward, I expect the economy to continue to expand for the next few years, so I don't expect a sharp decline in private employment as happened at the end of Mr. Bush's 2nd term (In 2005 and 2006 I was warning of a coming recession due to the bursting of the housing bubble).

For the public sector, the cutbacks are clearly over at the state and local levels, and it appears cutbacks at the Federal level have slowed.  Right now I'm expecting some increase in public employment during Obama's 2nd term, but nothing like what happened during Reagan's second term.

by Calculated Risk on 1/10/2015 11:11:00 AM

The key economic report this week is December retail sales on Wednesday.

For manufacturing, the December Industrial Production and Capacity Utilization report, and the January NY Fed (Empire State),  and Philly Fed surveys, will be released this week. 

For prices, PPI will be released on Thursday, and CPI will be released on Friday.

----- Monday, January 12th -----
At 10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

----- Tuesday, January 13th -----
7:30 AM ET: NFIB Small Business Optimism Index for December.

10:00 AM: Job Openings and Labor Turnover Survey for November from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings increased in October to 4.834 million from 4.685 million in September.

he number of job openings (yellow) were up 21% year-over-year compared to October 2013, and Quits were up 12% year-over-year.

----- Wednesday, January 14th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM ET: Retail sales for December will be released.

This graph shows retail sales since 1992 through November 2014. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). On a monthly basis, retail sales increased 0.7% from October to November (seasonally adjusted), and sales were up 5.1% from November 2013.

The consensus is for retail sales to decrease 0.1% in December, and to decrease 0.1% ex-autos.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for November.  The consensus is for a 0.2% increase in inventories.

2:00 PM: Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

----- Thursday, January 15th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 295 thousand from 294 thousand.

8:30 AM: The Producer Price Index for December from the BLS. The consensus is for a 0.4% decrease in prices, and a 0.1% increase in core PPI.

8:30 AM: NY Fed Empire Manufacturing Survey for January. The consensus is for a reading of 5.0, up from -3.6 last month (above zero is expansion).

10:00 AM: the Philly Fed manufacturing survey for January. The consensus is for a reading of 18.8, down from 24.3 last month (above zero indicates expansion).

----- Friday, January 16th -----
8:30 AM: Consumer Price Index for December. The consensus is for a 0.4% decrease in CPI, and for core CPI to increase 0.1%.

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for December.

This graph shows industrial production since 1967.

The consensus is for no change in Industrial Production, and for Capacity Utilization to decrease to 80.0%.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for January). The consensus is for a reading of 94.1, up from 93.6 in December.

by Calculated Risk on 1/09/2015 08:36:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Jan 2, 2015 (to be updated next week).

Changes and comments from surferdude808:

Slow week as expected for changes to the Unofficial Problem Bank List. There was only removal that lowered the list count to 399 institutions with assets of $124.6 billion. A year ago, the list held 618 institutions with assets of $205.6 billion.

The FDIC terminated the action against Business Bank, Burlington, WA ($133 million), which then changed its name to SaviBank after being released from the enforcement action. Next week, we anticipate the OCC will provide an update on its latest enforcement action activity.

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now back down to 399.

by Calculated Risk on 1/09/2015 04:25:00 PM

A number of people are wondering when inflation (and wage growth) will start to increase.   One key: First come the jobs, and then come real wages.  No one knows how much employment needs to increase before real wages start to increase, but at least we are making progress.

On inflation, I've been looking at this from a demographics perspective.  If we look at the annual change in the prime working age population, there is one other period similar to the current situation - the early-to-mid 60s.

The first graph shows the year-over-year change in the prime working age population (25 to 54 years old).

Note: Ignore the steps up and down - the data was affected by changes in population controls.

Click on graph for larger image.

The key is the prime working age population was declining in the early part of this decade and has only started increasing again recently.

This is very similar to what happened in the 60s.

 In the early 60s, there was a slow increase in the prime working age population until the baby boomers started pouring into the labor force.

The second graph shows the unemployment rate and year-over-year change in inflation in the 1960s.

In the 1960s, inflation didn't pickup until the unemployment rate had fallen close to 4%.  There could be several demographics reasons for the low inflation (in addition to policy reasons).  As an example, maybe older workers were being replaced by younger workers who made less (just like today), and maybe the slow increase in the prime working age population put less pressure on resources.

Ignoring for the moment monetary and fiscal policy differences between the periods (LBJ's guns and butter and some austerity recently), maybe the unemployment rate will have to fall below 5% before inflation picks up.