by Calculated Risk on 1/07/2011 06:12:00 PM

Twenty Eleven
First Commercial Bank Failure
Inauspicious start.
by Soylent Green is People
From the FDIC: First Southern Bank, Boca Raton, Florida, Assumes All of the Deposits of First Commercial Bank of Florida, Orlando, Florida

As of September 30, 2010, First Commercial Bank of Florida had approximately $598.5 million in total assets and $529.6 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $78.0 million. ... First Commercial Bank of Florida is the first FDIC-insured institution to fail in the nation this year, and the first in Florida.

And so it begins ...

by Calculated Risk on 1/07/2011 02:12:00 PM

An interesting question is why the unemployment rate fell so sharply, even with relatively few payroll jobs added (103,000 jobs added in December).

First, it is important to remember that there are two separate surveys for the Employment Situation Summary. The unemployment rate comes from the Current Population Survey (CPS: commonly called the household survey), a monthly survey of about 60,000 households.

The payroll jobs number comes from Current Employment Statistics (CES: payroll survey), a sample of "approximately 140,000 businesses and government agencies representing approximately 410,000 worksites". See this post for a discussion of the two surveys.

The following table is based on the Household survey (all seasonally adjusted):

Household Survey (000s)	November	December	Change
Civilian noninstitutional population (16 and over)	238,715	238,889	174
Civilian labor force	153,950	153,690	-260
Employed	138,909	139,206	297
Unemployed	15,041	14,485	-556
Participation Rate	64.49%	64.34%	-0.16%
Unemployment Rate	9.77%	9.42%	-0.35%

The household survey measures percentages for the 60,000 households (unemployment rate, participation rate) and then the BLS derives the other numbers based on the population estimate.

So the estimated number of unemployed dropped by 556,000. Some of this decline was due to higher employment, but some was also due to the decline in participation - even while the population increased.

The table helps explain why the reported unemployment rate fell from 9.8% to 9.4%. A key reason was the decline in the participation rate. If the participation rate had held steady at 64.5%, then the unemployment rate would have only declined to 9.64%.

So almost 2/3rds of the decline in the unemployment rate was related to the decline in the participation rate. Some of the decline might be from workers going back to school, but some is probably due to people just giving up.

A large portion of the decline in the participation rate was for people in the 16 to 24 age group. According to the BLS, the 16 to 24 civilian labor force declined by 244 thousand. Most of these people will probably return to the labor force as the economy improves - and that will put upward pressure on the unemployment rate.

Another group that saw a decline in the participation rate was men in the key 25 to 54 age group. I wonder if these people are just giving up?

Click on graph for larger image.

Here is a repeat of the graph showing the unemployment rate (red), the participation rate (blue), and the employment-population ratio (black).

The participation rate has fallen sharply from 66% at the start of the recession to 64.3% in December. That is almost 4 million workers who are no longer in the labor force and not counted as unemployed in U-3, although most are included as "discouraged workers" or "Marginally Attached to Labor Force" in U-6.

A decline in the unemployment rate mostly due to a decline in the participation rate is not good employment news.

Earlier Employment posts:
• Employment Summary and Part Time Workers, Unemployed over 26 Weeks
• December Employment Report: 103,000 Jobs, 9.4% Unemployment Rate

by Calculated Risk on 1/07/2011 12:53:00 PM

From Bloomberg: Banks Lose Pivotal Massachusetts Foreclosure Case

The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were improperly transferred into two mortgage-backed trusts.

“We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,” Justice Ralph D. Gants wrote.

The concurring opinion by Justice Cordy helps clarify the situation:

I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets. There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order. Although there was no apparent actual unfairness here to the mortgagors, that is not the point. ...

The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments. The court's opinion clearly states that such assignments do not need to be in recordable form or recorded before the foreclosure, but they do have to have been effectuated.

These are important points:
• The "assignments do not need to be in recordable form or recorded before the foreclosure". That is a key point.
• This case is really about the "utter carelessness with which the plaintiff banks documented the titles to their assets".

And this means that
• These issues are curable, but will be costly for the banks. As Tanta frequently argued, the upfront "cost savings" would be paid for in arrears!
• This does not appear to be a systemic risk.

by Calculated Risk on 1/07/2011 10:01:00 AM

Here are a few more graphs based on the employment report ...

Percent Job Losses During Recessions

Click on graph for larger image.

This graph shows the job losses from the start of the employment recession, in percentage terms - this time from the start of the recession.

In the previous post, the graph showed the job losses aligned at the bottom.

The dotted line shows payroll employment excluding temporary Census workers.

This is by far the worst post WWII employment recession.

Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons (some-times referred to as involuntary part-time workers) was essentially unchanged in December at 8.9 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) declined slightly to 8.931 million in December. This has been around 9 million since early 2009 - a very high level.

These workers are included in the alternate measure of labor underutilization (U-6) that declined to 16.7% in December. Still very grim.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 6.441 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 6.328 million in November. It appeared the number of long term unemployed had peaked, however the increases over the last three months are very concerning.

Summary

This was a mixed report.

The best news was the decline in the unemployment rate to 9.4% from 9.8% in November. However this was partially because the participation rate declined to 64.3% - a new cycle low, and the lowest level since the early '80s. Note: This is the percentage of the working age population in the labor force (here is the graph in the galleries of the participation rate).

The 103,000 payroll jobs added was below expectations of 140,000 jobs, however payroll for October payroll was revised up 38,000 and November was revised up 70,000 32,000 for a total of 70,000 (ht Mish).

The increase in the long term unemployed, and the high level of part time workers for economic reasons are ongoing concerns. The average workweek was steady at 34.3 hours, and average hourly earnings ticked up 3 cents.

• Earlier Employment post: December Employment Report: 104,000 Jobs, 9.4% Unemployment Rate

by Calculated Risk on 1/07/2011 08:30:00 AM

From the BLS:

The unemployment rate fell by 0.4 percentage point to 9.4 percent in
December, and nonfarm payroll employment increased by 103,000, the U.S. Bureau of Labor Statistics reported today.

Payroll for October payroll was revised up 38,000, and November was revised up 32,000 (total of 70,000). (edit)

The following graph shows the employment population ratio, the participation rate, and the unemployment rate.

Click on graph for larger image.

The unemployment rate decreased to 9.4% (red line).

The Labor Force Participation Rate declined to 64.3% in December (blue line). This is the lowest level since the early '80s. (This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years.)

The Employment-Population ratio increased to 58.3% in December (black line).

The second graph shows the job losses from the start of the employment recession, in percentage terms aligned at maximum job losses. The dotted line is ex-Census hiring.

For the current employment recession, employment peaked in December 2007, and this recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only the early '80s recession with a peak of 10.8 percent was worse).

This was slightly below expectations, although the upward revision to October and November were signficant. I'll have much more soon ...

by Calculated Risk on 1/06/2011 10:57:00 PM

From Alejandro Lazo at the LA Times: Housing bust creates new kind of declining city

"Some neighborhoods are going to suffer tremendously or are never going to come back or come back very, very slowly," said James R. Follain, senior fellow at the Rockefeller Institute of Government ...

Potential candidates for long-term decline named by the study are the areas hit hardest by the drop in home prices in recent years. They include several inland California metropolitan areas that grew rapidly during the boom, including Stockton, Modesto, Fresno, Riverside and San Bernardino. Las Vegas and Miami also made the list.

A traditional city in decline is one that has suffered a sustained population drop, leaving behind empty houses, apartment buildings, offices and storefronts. Cleveland and Detroit, for instance, suffered from the erosion of manufacturing and the loss of residents, who left in search of jobs.

Instead of eroding a particular industry, however, the housing bust left a glut of homes because of overbuilding and the foreclosure crisis. Follain argues that the future of these cities is threatened in similar ways to that of Rust Belt cities.

Here is the report: A Study of Real Estate Markets in Declining Cities

There is a "particular industry" gone in these new declining cities - construction!

Earlier: Employment Report Preview