by Calculated Risk on 3/27/2009 05:17:00 PM

Update: from Soylent Green Is People

Bright, warm Spring Friday...
Bank failures blight like crab grass...
Spray Round-Up on all....
From the FDIC: SunTrust Bank, Atlanta, Georgia, Receives the Insured Deposits of Omni National Bank, Atlanta, Georgia

Omni National Bank, Atlanta, Georgia, was closed today by the Office of the Comptroller of the Currency, which then appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.
...
As of March 9, 2009, Omni National Bank had total assets of $956.0 million and total deposits of $796.8 million. At the time of closing, there were approximately $2.0 million in uninsured deposits that potentially exceeded the insurance limits. ...
...
The cost to the FDIC's Deposit Insurance Fund is estimated to be $290 million. Omni National Bank is the twenty-first bank to fail this year. The last bank failure in Georgia was FirstCity Bank, Stockbridge, on March 20, 2009.

This is the follow-up to the earlier post.

by Calculated Risk on 3/27/2009 04:43:00 PM

First, a quick market update ...

Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

On Q1 GDP:

Earlier today the BEA released the February Personal Income and Outlays report. This report suggests Personal Consumption Expenditures (PCE) will probably be slightly positive in Q1 (caveat: this is before the March releases and revisions).

Since PCE is almost 70% of GDP, does this mean GDP will be OK in Q1?

Nope.

I expect Q1 2009 GDP to be very negative, and possibly worse than in Q4 2008. Right now I'm looking at something like a 6% to 8% decline (annualized) in real GDP (there is significant uncertainty, especially with inventory and trade).

The problem is the 30% of non-PCE GDP, especially private fixed investment. There will probably be a significant inventory correction too, and some decline in local and state government spending. But it is private fixed investment that will cliff dive. This includes residential investment, non-residential investment in structures, and investment in equipment and software.

A little story ...

Imagine ACME widget company with a steadily growing sales volume (say 5% per year). In the first half of 2008 their sales were running at 100 widgets per year, but in the 2nd half sales fell to a 95 widget per year rate. Not too bad.

ACME's customers are telling the company that they expect to only buy 95 widgets this year, and 95 in 2010. Not good news, but still not too bad for ACME.

But this is a disaster for companies that manufacturer widget making equipment. ACME was steadily buying new widget making equipment over the years, but now they have all the equipment they need for the next two years or longer.

ACME sales fell 5%. But the widget equipment manufacturer's sales could fall to zero, except for replacements and repairs.

And this is what we will see in Q1 2009. Real investment in equipment and software has declined for four straight quarters, including a 28.1% decline (annualized) in Q4. And I expect another huge decline in Q1.

For non-residential investment in structures, the long awaited slump is here. I expect declining investment over a number of quarters (many of these projects are large and take a number of quarters to complete, so the decline in investment could be spread out over a couple of years). And once again, residential investment has declined sharply in Q1 too.

When you add it up, this looks like a significant investment slump in Q1.

by Calculated Risk on 3/27/2009 04:09:00 PM

Form Bloomberg: Omni National Bank in Georgia Shut, 21st U.S. Failure (ht Brad)

Omni National Bank of Atlanta was seized by federal regulators, the 21st U.S. bank to fail this year ...

Omni National, with $980 million in assets, was shut by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. was named receiver, the OCC said today in a statement. ...

The failed bank had six branches in Georgia, Illinois, Florida and Texas, and two loan offices in Alabama and Pennsylvania, the OCC said. The lender opened in 2000. The FDIC, which arranges to sell the deposits and assets of failed banks, didn’t immediately identify a buyer for Omni National.

No word from the FDIC yet. Did Bloomberg jump the gun?

by Calculated Risk on 3/27/2009 02:39:00 PM

From Bloomberg: Default Rate Rises for Student Loans, U.S. Government Reports (ht Anthony)

Student-loan default rates for people who recently left school rose to 6.9 percent from 5.2 percent a year earlier as a deteriorating economy weighed on borrowers, the U.S. government said.

... The rate is based on borrowers who were to begin making repayments between October 2006 and October 2007, and who fell at least nine months behind by late September 2008.

Almost 232,000 of those borrowers entered default, a 13 percent increase from the previous year and a jump of 43 percent from two years earlier, the department said.

by Calculated Risk on 3/27/2009 11:34:00 AM

The BEA released vehicle sales for February this morning. Total auto and truck sales in the U.S. were 9.29 million (SAAR).

The automakers will release March sales numbers next Wednesday.

Click on graph for larger image in new window.

The first graph shows monthly vehicle sales (autos and trucks) as reported by the BEA at a Seasonally Adjusted Annual Rate (SAAR).

This shows that sales have plunged to a 9.29 million annual rate in February; the lowest since Dec 1981.

March 2009 sales will be down sharply from March 2008 too, but analysts will be looking for some stabilization on a seasonally adjusted basis.

This graph shows the total number of registered vehicles in the U.S. divided by the sales rate - and gives a turnover ratio for the U.S. fleet (this doesn't tell you the age of the fleet).

Currently this ratio is at 26.8 years, the highest ever. This is an unsustainable level (I doubt most vehicles will last 27 years!), and the ratio will probably decline over the next few years. This could happen with vehicles being removed from the fleet, but more likely because of a sales increase.

This suggests vehicle sales are much nearer the bottom than the top, and there will probably be some sort of modest rebound later this year.

by Calculated Risk on 3/27/2009 11:04:00 AM

In addition to the Personal Income report this morning, the BEA released the final Q4 private fixed investment supplemental tables.

One of the key areas for downward revisions in the final Q4 GDP report was non-residential investment. These revisions were significant.

I'll use lodging as an example ... this first graph was based on the advanced GDP report:

Click on graph for larger image in new window.

This graph shows investment in lodging as a percent of GDP.

In the advance report, lodging investment was reported at 0.34% of GDP - an all time high.

Note: prior to 1997, the BEA included Lodging in a category with a few other buildings. This earlier data was normalized using 1997 data, and is an approximation.

The second graph is based on the final Q4 GDP report.

Instead of increasing slightly in Q4 - as suggested by the advance report - lodging investment declined at a 15.7% annual rate in Q4.

Office investment declined at a 10.1% annual rate in Q4, and mall investment declined at a 11.3% annual rate.

The turning point for non-residential investment was in Q4. Let the cliff diving begin!

by Calculated Risk on 3/27/2009 08:26:00 AM

The BEA released the Personal Income and Outlays report for February this morning. The report shows that PCE will probably make a positive contribution to GDP in Q1 2009.

Each quarter I've been estimating PCE growth based on the Two Month method. This method is based on the first two months of each quarter and has provided a very close estimate for the actual quarterly PCE growth.

Some background: The BEA releases Personal Consumption Expenditures monthly and quarterly, as part of the GDP report (also released separately quarterly).

You can use the monthly series to exactly calculate the quarterly change in real PCE. The quarterly change is not calculated as the change from the last month of one quarter to the last month of the next. Instead, you have to average all three months of a quarter, and then take the change from the average of the three months of the preceding quarter.

So, for Q1 2009, you would average real PCE for January, February, and March, then divide by the average for October, November and December. Of course you need to take this to the fourth power (for the annual rate) and subtract one.

The March data isn't released until after the advance Q1 GDP report. But we can use the change from October to January, and the change from November to February (the Two Month Estimate) to approximate PCE growth for Q1.

The two month method suggests real PCE growth in Q1 of 0.8% (annualized). Not much, but a significant improvement from the previous two quarters (declines of -3.8% and -4.3% in PCE).

The following graph shows this calculation:

Click on graph for larger image in new window.

This graph shows real PCE for the last 12 months. The Y-axis doesn't start at zero to better show the change.

The dashed red line shows the comparison between January and October. The dashed green line shows the comparison between February and November.

Since PCE was weak in December, the March to December comparison will probably be positive too.

This graph also show the declines in PCE in Q3 and Q4.

For Q3, compare July through September with April through June. Notice the sharp decline in PCE. The same was true in Q4.

This suggests that PCE will make a positive contribution to GDP in Q1.

Also interesting:

Personal saving -- DPI less personal outlays -- was $450.7 billion in February, compared with $478.1 billion in January. Personal saving as a percentage of disposable personal income was 4.2 percent in February, compared with 4.4 percent in January.

This is substantially above the near zero percent saved of recent years.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing).

Although this data may be revised significantly, this does suggest households are saving substantially more than during the last few years (when they saving rate was close to zero). This is a necessary but painful step ... and a rising saving rate will repair balance sheets, but also keep downward pressure on personal consumption.

It is not much, but this is definitely a positive report.

by Calculated Risk on 3/27/2009 12:19:00 AM

Another open thread.

The U.S. futures are off a little right now ahead of the Personal Income and Outlays report Friday AM. This report should give us a strong clue on PCE for Q1.

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets. The Asian markets are up a little tonight (in general).

And a graph of the Asian markets.

Best to all.

by Calculated Risk on 3/26/2009 08:25:00 PM

ht Nemo. Caution: Cartoon violence.

by Calculated Risk on 3/26/2009 06:24:00 PM

We do requests (sometimes). This is an update to a graph I posted last November.

This is a look at the real year-over-year (YoY) change in house prices vs. personal consumption expenditures (PCE) through Q4 2008:

Click on image for larger graph in new window.

This graph shows real Case-Shiller quarterly national prices adjusted using CPI less Shelter vs. real PCE. Note that YoY real Case-Shiller prices fell at a slightly slower pace in Q4 - only 17% - compared to 21% YoY in Q3, mostly because CPI less shelter declined in Q4.

For this limited data set (house price data is only available since 1987) the YoY changes move somewhat together, although house prices started declining before PCE during the current economic downturn. This difference in timing could be because of homeowners withdrawing equity from their homes (the Home ATM) even after prices first started falling. However the recent MEW data shows that the Home ATM is closed and consumption has declined sharply.

This doesn't tell us how much further real PCE will decline on a YoY basis - my initial guess was 4%, but it might be less.