by Calculated Risk on 10/02/2010 08:50:00 AM

1) The consensus is for a headline payroll number of zero (no net payroll jobs added or lost) and for the unemployment rate to increase to 9.7% in September from 9.6% in August.

Goldman Sachs is forecasting a minus 50,000 headline payroll number and an increase in the unemployment rate to 9.7%.

2) My estimate is the decennial Census workforce was reduced by 78,000 in August. This suggests a consensus headline payroll number of +78,000 ex-Census.

Click on graph for larger image in new window.

This graph shows the number of Census workers paid each week. The red labels are the weeks of the BLS payroll survey.

The Census payroll decreased from 83,955 for the week ending August 14th to 6,038 for the week ending September 18th.

So my estimate for the impact of the Census on September payroll employment is minus 78 thousand (this will probably be close).

With temporary payroll employment down to 6,038, September will be the last month with a significant decennial Census adjustment.

3) The unemployment rate is dependent on both job creation and the participation rate (both numbers from the household survey - payroll employment is from the establishment survey).

Usually the participation rate - the percent of the civilian population in the labor force - falls when the job market is weak. And a decline in the participation rate puts downward pressure on the unemployment rate (and the opposite is true when the participation rate increases).

Right now the participation rate is very low at 64.7%, and a further decline would be considered bad employment news (even if the unemployment rate declined slightly). An increase in the participation rate, combined with a weak labor market, could lead to a jump in the unemployment rate. This is something to watch closely.

4) In August the unemployment rate was 9.643% unrounded (reported as 9.6%), so it won't take much of an increase to reach the consensus 9.7% for September.

5) This will be the last employment report before the two day FOMC meeting on Nov 2nd and 3rd. Anything close to the consensus will probably all but guarantee QE2 (barring a significant upside surprise for Q3 GDP to be reported on October 29th).

by Calculated Risk on 10/01/2010 11:59:00 PM

From David Streitfeld at the NY Times: Bank of America to Freeze Foreclosure Cases

Bank of America, the country’s largest mortgage lender by assets, said on Friday that it was reviewing documents in all foreclosure cases now in court to evaluate if there were errors.

It is the third major lender in the last two weeks to freeze foreclosures in the 23 states where the process is controlled by courts.
...
Bank of America, in an e-mailed statement, said it would “amend all affidavits in foreclosure cases that have not yet gone to judgment.”

And from Jacob Gaffney at Housing Wire: Wells Fargo standing by accuracy of foreclosure affidavits

The second largest servicer in the United States, Wells Fargo is not planning to review foreclosure affidavits in light of the robo-signer allegations at many of its competitors.

In an email to HousingWire, Wells Fargo spokesman Jason Menke said, "Wells Fargo policies, procedures and practices satisfy us that the affidavits we sign are accurate. We audit, monitor and review our affidavits under controlled standards on a daily basis. We will stand by our affidavits and, if we find an error, we will take the appropriate corrective action."

I've corresponded with two servicers and they both believe their procedures are adequate (no "robo-signers"). However for GMAC - and apparently for JPMorgan and BofA - there is no excuse.

by Calculated Risk on 10/01/2010 09:14:00 PM

Surging sea of debt
Shoreline swiftly eroded
Solvency soon sunk
by Soylent Green is People
From the FDIC: GBC International Bank, Los Angeles, California, Assumes All of the Deposits of Shoreline Bank, Shoreline, Washington

As of June 30, 2010, Shoreline Bank had approximately $104.2 million in total assets and $100.2 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $41.4 million. ... Shoreline Bank is the 129th FDIC-insured institution to fail in the nation this year, and the tenth in Washington.

Two down today ...

by Calculated Risk on 10/01/2010 06:08:00 PM

Ten One Twenty Ten
Some day these failures will end
Today's not that day
by Soylent Green is People
From the FDIC: Centennial Bank, Conway, Arkansas, Assumes All of the Deposits of Wakulla Bank, Crawfordville, Florida

As of June 30, 2010, Wakulla Bank had approximately $424.1 million in total assets and $386.3 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $113.4 million. ... Wakulla Bank is the 128th FDIC-insured institution to fail in the nation this year, and the twenty-fifth in Florida.

Twenty five in Florida alone this year ...

by Calculated Risk on 10/01/2010 06:04:00 PM

From the WaPo: Connecticut halts all foreclosures for all banks

From Business Insider: Bank Of America Joins JPMorgan In Suspending Foreclosures

From MarketWatch: Title insurers dented by ‘robo-signer’ concern

by Calculated Risk on 10/01/2010 04:00:00 PM

Based on an estimate from Autodata Corp, light vehicle sales were at a 11.76 million SAAR in Setpember. That is up 25.8% from September 2009 (the dip following cash-for-clunkers), and up 2.8% from the August 2010 sales rate.

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for August (red, light vehicle sales of 11.76 million SAAR from Autodata Corp).

This is the high for the year - slightly higher than in March.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current month sales rate. The current sales rate is about at the bottom of the '90/'91 recession - when there were fewer registered drivers and a smaller population.

This was above most forecasts of around 11.6 million SAAR.

by Calculated Risk on 10/01/2010 01:50:00 PM

From New York Fed President William Dudley: The Outlook, Policy Choices and Our Mandate

Currently, my assessment is that both the current levels of unemployment and inflation and the timeframe over which they are likely to return to levels consistent with our mandate are unacceptable. In addition, the longer this situation prevails and the U.S. economy is stuck with the current level of slack and disinflationary pressure, the greater the likelihood that a further shock could push us still further from our dual mandate objectives and closer to outright deflation.

We have tools that can provide additional stimulus at costs that do not appear to be prohibitive. Thus, I conclude that further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.

And from Chicago Fed President Charles Evans: A Perspective on the Future of U.S. Monetary Policy

The modern economic theory of liquidity traps indicates that the optimal policy response at zero-bound is to lower the real interest rate, almost surely by employing unconventional policy tools. Theory also indicates that, in the absence of such policy stimulus, the factors that generate high risk aversion could very well stifle a meaningful recovery, keep unemployment high and reinforce disinflationary pressures – clearly an undesirable equilibrium.

So, in the coming weeks and months, as I assess the incoming data, update my forecast and deliberate on the best monetary policy approach, I will be pondering two key issues: How much more should monetary policy do to reduce the shortfalls in meeting our dual mandate responsibilities for employment and price stability; and what tools should we use?

Dudley is on the FOMC (NY is a permanent member) and Evans is an alternate member. The Fed presidents are signaling that barring an upside surprise - and the personal income report this morning suggests Q3 GDP will show sluggish growth - QE2 will arrive on November 3rd.

by Calculated Risk on 10/01/2010 12:30:00 PM

Catching up with all the data this morning ...

The Census Bureau reported overall construction spending increased slightly in August.

[C]onstruction spending during August 2010 was estimated at a seasonally adjusted annual rate of $811.8 billion, 0.4 percent (±1.8%)* above the revised July estimate of $808.6 billion.

However private construction spending declined again:

Spending on private construction was at a seasonally adjusted annual rate of $498.2 billion, 0.9 percent (±1.1%)* below the revised July estimate of $502.6 billion. Residential construction was at a seasonally adjusted annual rate of $238.5 billion in August, 0.3 percent (±1.3%)* below the revised July estimate of $239.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $259.7 billion in August, 1.4 percent (±1.1%) below the revised July estimate of $263.5 billion.

Click on graph for larger image in new window.

This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Both residential and non-residential private construction spending declined in August. Residential spending is 64.7% below the peak early 2006, and 4.7% above the recent low in 2009.

Non-residential spending is 37.3% from the peak in January 2008.

On a year-over-year basis, residential spending has turned slightly negative after the tax credit expired - and this indicates residential investment (RI) will be a drag on Q3 GDP.

Non-residential spending is still off sharply from last year (down 24%), but the rate of decline might be slowing. As major projects are completed, I expect private non-residential spending to fall below residential spending later this year or in early 2011.

by Calculated Risk on 10/01/2010 10:58:00 AM

Note: in September 2009 U.S. light vehicle sales were 9.3 million (SAAR). There was a sharp decline in sales following the "Cash-for-clunkers" program that ended in August 2009, so the year-over-year comparisons look good. The real key is the seasonally adjusted sales rate compared to the last few months (total U.S. light vehicle sales have been mostly flat since March 2010).

From MarketWatch: GM September U.S. sales up 10.5% to 173,155 units

General Motors Co. said Friday that U.S. sales in September rose 10.5% to 173,155 vehicles from 156,673 in September 2009.

I'll add reports from the other major auto companies as updates to this post.

Update1: from MarketWatch: Chrysler U.S. September sales surge 61% to 100,077

Update2: from MarketWatch: Ford U.S. Sept. sales jump 46.3% to 160,873 units

Update3: from MarketWatch: Toyota U.S. Sept. sales rise 16.8% to 147,162

NOTE: Once all the reports are released, I'll post a graph of the estimated total September light vehicle sales (SAAR: seasonally adjusted annual rate) - usually around 4 PM ET. Most estimates are for an increase to 11.6 million SAAR in September from the 11.44 million SAAR in August.

by Calculated Risk on 10/01/2010 10:00:00 AM

PMI at 54.4% in September down from 56.3% in August. The consensus was for a decline to 54.5 percent.

From the Institute for Supply Management: September 2010 Manufacturing ISM Report On Business®

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "While the headline number shows relative strength this month as the PMI reading of 54.4 percent is still quite positive, the overall picture is less encouraging. The growth of new orders continued to slow, as the index is down significantly from its cyclical high of 65.9 percent (January 2010). Production is currently growing at a faster rate than new orders, but it typically lags and would be expected to weaken further in the fourth quarter. Manufacturing has enjoyed a stronger recovery than other sectors of the economy, but it appears that weaker growth is the expectation for the fourth quarter. Both the Inventories and Backlog of Orders Indexes are sending strong negative signals of weakening performance in the sector."

Click on graph for larger image in new window.

Here is a long term graph of the ISM manufacturing index.

In addition to the decrease in the PMI, the ISM's new orders index fell to 51.1 from 53.1 in August, and the production index declined to 56.5 from 59.9.

The employment index declined to 56.5 from 60.4 in August.

And the inventory index was up for the 3rd month in a row to 55.6 from 51.4.

With new order growth slowing, and inventory increasing - further declines in the ISM PMI are very likely. Or as Ore noted, these indexes are "sending strong negative signals of weakening performance in the [manufacturing] sector".