by Calculated Risk on 6/04/2012 10:16:00 PM

• At 9:00 AM ET, Ceridian-UCLA Pulse of Commerce Index will be released. This is the diesel fuel index for May (a measure of transportation).

• At 10:00 AM AM, the ISM non-manufacturing (service) index will be released. The consensus is for the index to be unchanged at 53.5.

• Also at 10:00 AM ET, the Trulia House Price & Rent Monitors for May. This is the new index from Trulia that uses asking prices adjusted both for the mix of homes listed for sale and for seasonal factors.



The focus will be on Europe and the "emergency" G7 talks. Also three Fed regional presidents will speak in the afternoon.

by Calculated Risk on 6/04/2012 06:31:00 PM

Gad Levanon at the Conference Board makes some interesting points: Why is Employment Growth Still Disappointing and When Will it be “Normal” Again?

In a typical recovery, rapid economic growth is driven by pent-up demand for consumer durable goods, housing, and business equipment. Also, in a typical recovery the government moderately adds jobs, and economies outside of the U.S. are enjoying robust growth, which helps boost American exports and raises the revenues of American multinationals. So what’s different this time? There are several combined factors that are dragging down the U.S. economy and labor market:

1) Government spending is shrinking. The hope was that the federal stimulus would create jobs while the private sector was in recession, and that this federal stimulus would eventually wind down while the private sector would pick up. This wind-down has occurred, but the private sector is not generating enough jobs by itself yet. At the same time, state and local governments... have been cutting back for several years now ... In the past year, state and local governments have slowed down their layoffs, but the number of employees in the federal government is still rapidly shrinking -- down by 1.8%. Overall, the public sector has reduced its workforce for three years in a row, cutting a total of about 700,000 workers.

2) The housing market has barely started recovering, and employers in related industries are barely adding jobs. This typically strong driver of growth during expansions is missing in this economy.

3) The global economy is weak. Many countries in Europe are in recession, and the main emerging countries’ economies are significantly slowing down. As a result, U.S. exports and revenues of multinationals and overall consumer and business confidence are suffering.

4) Commodity prices are now at a much higher level than two-to-three years ago. This has caused large price increases in food, energy, and other commodity related products. In the past 2 years, as a result of the price hikes and weakness in housing, the consumption of food, gasoline, public transportation, housing, and utilities have increased by just 0.5% of their annual rate.

Usually housing is an engine of recovery following a recession, but this time, due to the excess supply of vacant homes, housing has lagged the economy.

And usually government hiring contributes moderately to a recovery, but this time we've seen a significant decline in government employment. This decline has been mostly from state and local cutbacks, but the Federal government has been cutting back too.

And of course, as Levanon notes, the global economy is weak with several key countries in recession.

The little bit of good news is housing is finally starting to slowly recover, and perhaps state and local government layoffs might end mid-year. So far GDP growth has been heavily car driven, and that growth might slow - and, of course, the global economy is a drag.

It seems like one or two cylinders of the growth engine are always misfiring. This is why sluggish and choppy growth has been my general forecast for almost 3 years now.

by Calculated Risk on 6/04/2012 03:26:00 PM

From Reuters: G7 to hold emergency euro zone talks, Spain top concern

Finance chiefs of the Group of Seven leading industrialized powers will hold emergency talks on the euro zone debt crisis on Tuesday ...

Canadian Finance Minister Jim Flaherty said ministers and central bankers of the United States, Canada, Japan, Britain, Germany, France and Italy would hold a special conference call, raising pressure on the Europeans to act.

"The real concern right now is Europe of course - the weakness in some of the banks in Europe, the fact they're undercapitalized, the fact the other European countries in the euro zone have not taken sufficient action yet to address those issues of undercapitalization of banks and building an adequate firewall," Flaherty told reporters.

Over the weekend, I put together a short list of key dates this month for Europe. There will probably be plenty of "emergency" discussions too.

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

by Calculated Risk on 6/03/2012 09:17:00 AM

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

Here is the unofficial problem bank list for June 1, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

As anticipated, most changes to the Unofficial Problem Bank List were removals. In all, there were four removals that include one unassisted merger --Bank of Anderson, National Association, Anderson, SC ($139 million) -- and three action terminations -- Preferred Bank, Los Angeles, CA ($1.4 billion Ticker: PFBC); Castle Rock Bank, Castle Rock, CO ($106 million); and Battle Creek State Bank, Battle Creek, NE ($26 million). After the removals, the list holds 927 institutions with assets of $356.4 billion. A year ago, the list held 997 institutions with assets of $416.7 billion. The other change this week is the Federal Reserve issuing a Prompt Corrective Action order against Premier Bank, Denver, CO ($53 million).

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

by Calculated Risk on 6/02/2012 08:59:00 PM

Earlier:
• Summary for Week Ending June 1st

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

The key report this week is the April Trade Balance report.

Also the ISM non-manufacturing (service) index will be released on Tuesday.

Fed Chairman Ben Bernanke will provide Senate testimony on Thursday. There are several Fed speeches scheduled this week, and the Fed Beige Book will be released on Wednesday.

----- Monday, June 4th -----
10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for April. The consensus is for a 0.1% increase in orders.

----- Tuesday, June 5th -----
9:00 AM: Ceridian-UCLA Pulse of Commerce Index™ This is the diesel fuel index for May (a measure of transportation).

10:00 AM: ISM non-Manufacturing Index for May. The consensus is for the index to be unchanged at 53.5. Note: Above 50 indicates expansion, below 50 contraction.

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

10:00 AM: Trulia Price & Rent Monitors for May. This is the new index from Trulia that uses asking prices adjusted both for the mix of homes listed for sale and for seasonal factors.

----- Wednesday, June 6th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. Expect record low mortgage rates and probably an increase in refinance activity.

8:30 AM: Productivity and Costs for Q1 (Final). The consensus is for a 2.1% increase in unit labor costs.

2:00 PM: Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts. This will receive extra attention this month as investors look for signs of a slowdown.

7:00 PM: Speech by Fed Vice Chair Janet Yellen, "The Economic Outlook and Monetary Policy", At the Boston Economic Club Dinner, Boston, Massachusetts

----- Thursday, June 7th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decline to 379 thousand from 383 thousand last week.

10:00 AM: Testimony, Fed Chairman Ben Bernanke, "Economic Outlook and Policy", before the Joint Economic Committee, U.S. Senate.

3:00 PM: Consumer Credit for April. The consensus is for a $12.0 billion increase in consumer credit.

12:00 PM: Q1 Flow of Funds Accounts from the Federal Reserve.

----- Friday, June 8th -----
8:30 AM: Trade Balance report for April from the Census Bureau.

Exports increased in March, and were at record levels. Imports increased even more. Exports are 13% above the pre-recession peak and up 7% compared to March 2011; imports are 3% above the pre-recession peak, and up about 8% compared to March 2011.

The consensus is for the U.S. trade deficit to decrease to $49.3 billion in April, down from from $51.8 billion in March. Export activity to Europe will be closely watched due to economic weakness. Also oil prices started to decline in April, but that probably won't reduce imports until May.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for April. The consensus is for a 0.5% increase in inventories.