by Calculated Risk on 11/03/2011 07:28:00 PM

Note: NFIB’s monthly small business survey for October will be released on Tuesday, November 8, 2011.

From the National Federation of Independent Business (NFIB): NFIB Jobs Statement: October Brought Early Snow but Not New Jobs

Chief economist for the National Federation of Independent Business (NFIB) William C. Dunkelberg, issued the following statement ...

“The cold has set in, and it looks like it might be a long winter for small-business owners. Still hunkering down, small-business owners reported a small, but overall reduction in employment, posting an average reduction of 0.1 employees per firm in October. ... The good news is that October’s jobs numbers are better than September’s (which showed a net decrease of 0.3 employees per firm), but still not good enough to lower the unemployment rate. ... Over the next three months ... a seasonally adjusted net three percent of owners planning to create new jobs. This is down 1 point from September and 2 points below August, the month that has, thus far, posted the strongest reading for 2011. For some context, in an expansion, this number should exhibit double digit readings."

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.

Here is a graph of the net hiring plans for the next three months since 1986.

Hiring plans were low in October, but still positive and the trend is up.

It is no surprise that small businesses are struggling due to the high concentration of real estate related companies in the survey. As Dunkelberg noted, "the good news is that October’s jobs numbers are better than September’s".

• On the employment report tomorrow: Employment Situation Preview: Another Weak Report

by Calculated Risk on 11/03/2011 03:35:00 PM

On Friday the BLS will release the October Employment Situation Summary at 8:30 AM ET. Bloomberg is showing the consensus is for an increase of 90,000 payroll jobs in October, and for the unemployment rate to remain unchanged at 9.1%.

Overall the economic data for October was fairly weak, though slightly better than in August and September. The BLS reported 57,000 jobs added in August, and 103,000 added in September. Of course, the Verizon labor dispute subtracted 45,000 payroll jobs in August, and those jobs were added back in the September report. The average of those two months was 80,000 jobs added, and if the economy was a little "better" in October, we'd expect a few more jobs added.

Here is a summary of recent data:

• The ADP employment report showed an increase of 110,000 private sector payroll jobs in October. Unfortunately ADP hasn't been very useful in predicting the BLS report. Also note that government payrolls have been shrinking by about 30,000 on average per month this year, so this suggests around 110,000 private nonfarm payroll jobs added, minus 30,000 government workers - or around 80,000 total jobs added in September.

• The ISM manufacturing employment index decreased slightly to 53.5% from 53.8% in September. Based on a historical correlation between the ISM index and the BLS employment report for manufacturing, this reading suggests no change in private payroll jobs for manufacturing in October.

The ISM non-manufacturing employment index increased 4.6 percentage points to 53.3. A historical correlation suggests this indicates about 150,000 service jobs added in October.

• Initial weekly unemployment claims averaged about 404,000 per week in October, down from 418,000 per week in September and 411,000 average in August.

For the BLS reference week (includes the 12th of the month), initial claims were at the lowest level since April - and in April the BLS reported 217,000 jobs added.

• The final October Reuters / University of Michigan consumer sentiment index increased to 60.9 from 59.4 in September. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. In general this low level would suggest a weak labor market - but slightly better than in August and September.

• And on the unemployment rate from Gallup: U.S. Unemployment Improves in October

Unemployment, as measured by Gallup without seasonal adjustment, is at 8.4% at the end of October, down from 8.7% in September and 9.2% in August. Unemployment was at 8.3% in mid-October -- its lowest level since Gallup began continuous monitoring in January 2010. Gallup's unemployment measure is also now much lower compared with a year ago -- it stood at 9.4% at the end of October 2010.

NOTE: The Gallup poll results are Not Seasonally Adjusted (NSA), so use with caution. Usually the NSA unemployment rate declines in October, and the seasonally adjusted rate is higher - so this would suggest little change in the unemployment rate from September.

There always seems to be some randomness to the employment report, but my guess is the BLS will report above the consensus of 90,000. The ADP report would suggest around 80,000 jobs added, and consumer sentiment is very poor suggesting even fewer jobs. However the rebound in the ISM non-manufacturing survey is encouraging, and so is the decline in initial weekly unemployment claims. But 100,000 jobs added is a weak report - heck, even 200,000 jobs added would be a poor month with so many people unemployed.

Caveat: my track record when I take the under has been very good - but recently I've been mostly wrong when I've taken the over (although I correctly took the over last month)!

by Calculated Risk on 11/03/2011 01:15:00 PM

First, on mortgages rate, Freddie Mac reported: 30-Year Fixed-Rate Mortgage Averages 4.00 Percent

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average mortgage rates declining sharply as investors rushed to U.S. Treasury bonds amid concerns over the European debt market. The 30-year fixed at 4.00 percent marks the second lowest reading since it hit a record 3.94 percent in the October 6, 2011 PMMS, the lowest in history.

Freddie Mac also released their Q3 financial results today, from the WSJ: Freddie Mac Loss Widens

Freddie Mac posted a wider loss in the third quarter of $4.4 billion, marking its worst quarterly loss in more than one year.
...
The loss forced Freddie Mac to seek $6 billion in new aid from the Treasury ... The loss brings Freddie's total cost to taxpayers to $56 billion.

And on REO from the Third Quarter 2011 Financial Results Supplement

Here are a few excerpts on REO:

• The pace of REO acquisitions remained slow in 3Q 2011 due to continued delays in the foreclosure process for single-family mortgages. We expect these delays will likely continue into 2012. However, we expect our REO inventory to remain at elevated levels.

• REO dispositions remained high with over 25,000 homes sold, more than 70% of which were sold to owner occupants, or buyers who intend to live in the home.

• Excluding any post-foreclosure period during which a borrower may reclaim a foreclosed property, the average holding period for the company’s REO dispositions was 201 days for the third quarter of 2011 but varies significantly in different states.

Click on graph for larger image.

This graph shows the REO inventory for Freddie through Q3 2011. There was a slight decline in REO in Q3.

Fannie Mae will report tomorrow and the FHA in the next few days.

The 2nd graph shows the single-family cumulative foreclosure transfer and short sale rates by book year.

The x-axis is by quarter post origination. The worst performing vintages for Freddie Mac are 2006, 2007 and 2008 followed by 2005 and 2004. So far it appears 2009 loans are back to normal and it is too early to tell for 2010 and 2011 loans.

Overall the worst performing mortgage loans were made in 2005 and 2006, but the GSEs were operating under a portfolio cap - and most of the terrible loans were private label and securitized by Wall Street. The portfolio caps were lifted in February 2008.

by Calculated Risk on 11/03/2011 10:00:00 AM

The October ISM Non-manufacturing index was at 52.9%, down slightly from 53.0% in September. The employment index increased in October to 53.3%, up from 48.7% in September. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: October 2011 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in October for the 23rd consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. "The NMI registered 52.9 percent in October, 0.1 percentage point lower than the 53 percent registered in September, and indicating continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased 3.3 percentage points to 53.8 percent, reflecting growth for the 27th consecutive month. The New Orders Index decreased by 4.1 percentage points to 52.4 percent. The Employment Index increased 4.6 percentage points to 53.3 percent, indicating growth in employment after one month of contraction. The Prices Index decreased 4.8 percentage points to 57.1 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI, eight non-manufacturing industries reported growth in October. Even though there is month-over-month growth in the Employment Index, respondents are still expressing concern over available labor resources and job growth. The continued strong push for inventory reduction by supply management professionals has resulted in contraction in the Inventories Index for the first time in eight months. Respondents' comments are mixed and reflect concern about future business conditions."
emphasis added

Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was slightly below the consensus forecast of 53.0% and indicates slightly slower expansion in October than in September. The employment index indicated expansion in October following contraction in September.

by Calculated Risk on 11/03/2011 08:30:00 AM

The DOL reports:

In the week ending October 29, the advance figure for seasonally adjusted initial claims was 397,000, a decrease of 9,000 from the previous week's revised figure of 406,000. The 4-week moving average was 404,500, a decrease of 2,000 from the previous week's revised average of 406,500.

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

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week to 404,500.


Click on graph for larger image.

This is down from September, but still elevated - and still above the post-recession lows of earlier this year.

For a longer term graph, see the employment graph gallery.

by Calculated Risk on 11/02/2011 11:43:00 PM

From Fed Chairman Ben Bernanke:

I certainly understand that many people are dissatisfied with the state of the economy. I'm dissatisfied with the state of the economy. Unemployment is far too high. Inequality, which is not a new phenomenon, it's been going on - increases in inequality have been going on for at least 30 years. But, obviously, that - as that has continued we now have a more unequal society than we've had in the past.

So, again, I fully sympathize with the notion that the economy is not performing the way we would like it to be, and in that respect the concerns that people express across the spectrum are -- are understandable.
...
I think the best way to address inequality is to create jobs. It gives people opportunities. It gives people a chance to earn income, gain experience and to ultimately earn more. But that's an indirect approach that's really the only way the Fed can address inequality per se.
...
I think it would be helpful if we could get assistance from some other parts of the government to work with us to help create more jobs.

A weak economy, few jobs, and rising inequality will lead to more social unrest.

As an example, from the San Francisco Chronicle: Occupy Oakland crowd marches on port

Thousands of people jammed into downtown Oakland on Wednesday for a general strike called by Occupy Oakland to protest economic inequity and corporate greed - then marched en masse to the Port of Oakland and shut it down.
...
Protesters smashed windows around 3 p.m. at a Wells Fargo Bank branch at 12th Street and Broadway, a Bank of America near Lake Merritt, a dry-cleaning store and a financial office on Webster Street near 21st Street, and at a Whole Foods store on Bay Place ...

by Calculated Risk on 11/02/2011 07:25:00 PM

From the Financial Times Eurozone crisis: live blog

German Chancellor Angela Merkel said the Greek referendum would determine whether Greece was to stay in the euro. ...

Greek Prime Minister George Papandreou said: “The Greek people want us to remain in the eurozone. We are part of the eurozone and we are proud to be part of the eurozone. Being part of the eurozone means having many rights and also obligations. We can live up to these obligations. I do believe there is a wide consensus among the Greek people and that’s why I want the Greek people to speak”

From Reuters: EU, IMF Aid to Greece on Hold Until After Referendum

"As soon as the referendum is completed, and all uncertainty removed, I will make a recommendation to the IMF executive board regarding the sixth tranche of our loan to support Greece's economic program," IMF Managing Director Christine Lagarde said in a statement.

The confidence vote will be this Friday, and the referendum will probably be in early December - since Greece will not receive any more aid until after the referendum. Greece has a large bond payment due on December 11th, so the referendum will probably be before that date - or maybe Papandreou will lose the confidence vote this week.

by Calculated Risk on 11/02/2011 03:57:00 PM

• The video of the press conference will be available soon.

• Bernanke made it clear the Fed stands ready to take additional policy action. This would probably be additional buying of agency (Fannie & Freddie) MBS.

Sudeep Reddy at the WSJ has some notes: Recap: Ben Bernanke’s November Press Conference and this is the key section:

"The outlook remains unsatisfactory over the next few years," [Bernanke] says, and at the Fed "we'll continue to ask ourselves" whether additional stimulus is warranted. Doing more "remains on the table," he says.

Although Bernanke was noncommittal, and always pointed out that further action would be a committee decision, I believe his comments mean the Fed will act if the outlook doesn't improve soon as compared to their current forecast. Their current forecast is already pretty dismal - clearly "unsatisfactory".

• Here are the Fed's current forecasts. In the previous post, I included these forecasts and the earlier forecasts for this year to show the steady downgrade.

• Bernanke twice repeated that "it would be helpful if the Fed got some help from other parts of the government" on trying to stimulate the economy in the short term. He was clearly referring to a new jobs program.

by Calculated Risk on 11/02/2011 02:15:00 PM

Below is a live video feed for Ben Bernanke's press conference.

UPDATE: The forecast updates have been added below the video.

The FOMC statement was released at 12:30 PM. The FOMC noted that "economic growth strengthened somewhat in the third quarter" although "recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated". They also noted "Inflation appears to have moderated since earlier in the year".

Here are the new FOMC projections.

GDP growth was revised down to around 1.7% this year.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2011	2012	2013	2014
Jan 2011 Projections	3.4 to 3.9	3.5 to 4.4	3.7 to 4.6	NA
April 2011 Projections	3.1 to 3.3	3.5 to 4.2	3.5 to 4.3	NA
June 2011 Projections	2.7 to 2.9	3.3 to 3.7	3.5 to 4.2	NA
November 2011 Projections	1.6 to 1.7	2.5 to 2.9	3.0 to 3.5	3.0 to 3.9

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was revised up to 9.0% to 9.1% (this is Q4 unemployment rate). The FOMC thinks the unemployment rate will still be around 8% at the end of 2013 and in the 6.8% to 7.7% in 2014!

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2011	2012	2013	2014
Jan 2011 Projections	8.8 to 9.0	7.6 to 8.1	6.8 to 7.2	NA
April 2011 Projections	8.4 to 8.7	7.6 to 7.9	6.8 to 7.2	NA
June 2011 Projections	8.6 to 8.9	7.8 to 8.2	7.0 to 7.5	NA
November 2011 Projections	9.0 to 9.1	8.5 to 8.7	7.8 to 8.2	6.8 to 7.7

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

Inflation was revised up for 2011.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2011	2012	2013	2014
Jan 2011 Projections	1.3 to 1.7	1.0 to 1.9	1.2 to 2.0	NA
April 2011 Projections	2.1 to 2.8	1.2 to 2.0	1.4 to 2.0	NA
June 2011 Projections	2.3 to 2.5	1.5 to 2.0	1.5 to 2.0	NA
November 2011 Projections	2.7 to 2.9	1.4 to 2.0	1.5 to 2.0	1.5 to 2.0

But core inflation is seen at levels still below the FOMC target.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2011	2012	2013	2014
Jan 2011 Projections	1.0 to 1.3	1.0 to 1.5	1.2 to 2.0	NA
April 2011 Projections	1.3 to 1.6	1.3 to 1.8	1.4 to 2.0	NA
June 2011 Projections	1.5 to 1.8	1.4 to 2.0	1.4 to 2.0	NA
November 2011 Projections	1.8 to 1.9	1.5 to 2.0	1.4 to 1.9	1.5 to 2.0

by Calculated Risk on 11/02/2011 12:33:00 PM

Fed Chairman Ben Bernanke will hold a press briefing at 2:15 PM ET.

From the Federal Reserve:

Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months. Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.