by Calculated Risk on 9/19/2009 11:55:00 AM

From Kenneth Harney at the LA Times: Homeowners who 'strategically default' on loans a growing problem

National credit bureau Experian teamed with consulting company Oliver Wyman to identify the characteristics and debt management behavior of the growing numbers of homeowners who bail out of their mortgages with none of the expected warning signs, such as nonpayments on other debts.
...
[Some results:]
...

The number of strategic defaults is far beyond most industry estimates -- 588,000 nationwide during 2008, more than double the total in 2007. ...

Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. ...

Strategic defaults are heavily concentrated in negative-equity markets ...

This fits with recent research from Guiso, Sapienza and Zingales: See New Research on Walking Away and here is their paper: Moral and Social Constraints to Strategic Default on Mortgages

by Calculated Risk on 9/19/2009 08:36:00 AM

I've been asked many times what people should do financially during a recession. My first answer has always been "Keep your job if you can!"

Earlier this week, David Leonhardt at the NY Times wrote: Wages Grow for Those With Jobs, New Figures Show

Even though unemployment has reached its highest level in 26 years, most workers have received a raise over the last year.

That contrast highlights what I think is one of the more overlooked features of the Great Recession. In the job market, at least, the recession’s pain has been unusually concentrated.
...
People who have lost their jobs are struggling terribly to find new ones. Since the downturn began in 2007, companies have been extremely reluctant to hire new workers, and few new companies have started. The economy and the job market are churning very slowly.
...
Try thinking of it this way: All of the unemployed people in the country are gathered in a huge gymnasium that’s been turned into a job search center. The fact that this recession is the worst in a generation means that there are many, many people in the gym. The fact that the economy is churning so slowly means that there is not much traffic into and out of the gym.

If you’re inside, you will have a hard time getting out. Yet if you’re lucky enough to be outside the gym, you will probably be able to stay there. The consequences of a job loss are terribly high, but — given that the unemployment rate is almost 10 percent — the odds of job loss are surprisingly low.

From an earlier post, here is a graph of hires and separations from the BLS "Job Openings and Labor Turnover Survey" (JOLTS) survey. The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers.

Note: Remember the CES (Current Employment Statistics, payroll survey) is for positions, the CPS (Current Population Survey, commonly called the household survey) is for people. See Jobs and the Unemployment Rate for a comparison of the two surveys.

The following graph shows hires (Green Line), Quits (blue bars) and Layoff, Discharges and other (red bars) from the JOLTS. Red and blue added together equals total separations. Unfortunately this is a new series and only started in December 2000.

Click on graph for larger image in new window.

Notice that hires (green line) and separations (red and blue together) are pretty close each month. When the green line is above total separations, the economy is adding net jobs, when the green line is below total separations, the economy is losing net jobs.

Total separation and hires have both declined recently - the lower "churn" that Leonhardt discusses, and the reason so many people are stuck in the "gymnasium".

by Calculated Risk on 9/18/2009 09:15:00 PM

This is an unofficial list of Problem Banks.

Note: Bank failures today, Irwin Union Bank, F.S.B., Louisville, KY, and Irwin Union Bank and Trust Company, Columbus, IN, were on this list.

Changes and comments from surferdude808:

There were large changes to Unofficial Problem Bank List as the OCC released some of its newly issued actions for late July and early August.

The list increased by a net of 12 institutions to 436 from 424 last week. Assets increased by $7.4 billion to $294 billion. There were five removals with assets of $8.5 including three failures -- Corus Bank, N.A. ($7 billion), Venture Bank ($991 million), and Brickwell Community Bank ($72.5 million); and two action terminations (First National Bank of Colorado City and Cumberland Valley National Bank).

Interestingly, last week Hometown National Bank, Longview, WA was removed as the OCC terminated a Formal Agreement only for them to be added back to this week’s list as the OCC subsequently placed Hometown under a Cease & Desist Order.

Of the 17 additions this week are several subsidiary banks of the privately controlled bank holding company FBOB Corporation based in Chicago, IL. These include the Park National Bank, Chicago, IL ($4.8 billion), San Diego National Bank, San Diego, CA ($3.4 billion), and Pacific National Bank, San Francisco, CA ($2.1 billion). The Federal Reserve issued a Written Agreement against FBOB Corporation on Sept 14, 2009. FBOB Corporation has assets of $18.3 billion and controls nine institutions supervised by either the OCC or FDIC with five subject to a formal enforcement action.

Other sizable additions to the list this week include the $1.2 billion asset Metrobank, National Association, Houston, TX, and the $1.1 billion asset Atlantic Southern Bank, Macon, GA.

The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.

See description below table for Class and Cert (and a link to FDIC ID system).

For a full screen version of the table click here.

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)





Class: from FDIC

The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC

Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system "will provide the last demographic and financial data filed by the selected institution".

by Calculated Risk on 9/18/2009 05:15:00 PM

New fuel for fire
Two Irwin Banks burn away
Incandescent heat
by Soylent Green is People
From the FDIC: First Financial Bank, National Association, Hamilton, Ohio, Assumes All of the Deposits of Irwin Union Bank, F.S.B., Louisville, Kentucky, and Irwin Union Bank and Trust Company, Columbus, Indiana

Federal and state regulators today closed Irwin Union Bank, F.S.B., Louisville, Kentucky, and Irwin Union Bank and Trust Company, Columbus, Indiana, respectively. The institutions are banking subsidiaries of Irwin Financial Corporation, Columbus, Indiana. The regulators immediately named the Federal Deposit Insurance Corporation (FDIC) as the receiver for the banks. ...

Irwin Union Bank and Trust Company, Columbus, Indiana, was closed by the Indiana Department of Financial Institutions. As of August 31, 2009, it had total assets of $2.7 billion and total deposits of approximately $2.1 billion. Irwin Union Bank, F.S.B., Louisville, Kentucky, was closed by the Office of Thrift Supervision. As of August 31, 2009, it had total assets of $493 million and total deposits of approximately $441 million.
...
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) for both institutions will be $850 million. ... The failure of the two institutions brings the nation's total number this year to 94. This was the first failure of the year in Indiana and Kentucky. The last FDIC-insured institutions closed in the respective states were The Rushville National Bank, Rushville, Indiana, on December 18, 1992, and Future Federal Savings Bank, Louisville, Kentucky, on August 30, 1991.

A two-fer to start BFF.

by Calculated Risk on 9/18/2009 04:11:00 PM

While we wait for the FDIC (HomeGnome has a poll each week in the comments!):

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.

And from Eric Dash at NY Times Economix: What’s Really Wrong With Wall Street Pay?

Note: “I.B.G. - Y.B.G.” stands for what happens - from a trader's perspective - if a huge trade goes South: "I’ll Be Gone and You’ll Be Gone"

And since we've been discussing the possible impact of Fed purchases on mortgage rates, from the Atlanta Fed weekly Financial Highlights:

From the Atlanta Fed:

On September 15, the Fed purchased $2.05 billion in Treasuries, roughly in the 10-17 year sector; on September 16, it purchased $1.799 billion in the one-to-two year sector. It has purchased a total of $285.2 billion of Treasury securities through September 16.

The Fed plans to purchase $300 billion by the end of October, or about six weeks from now, which makes for a pace of about $2.5 billion in purchases per week.

And from the Atlanta Fed:

The Fed has purchased a net total of $18.8 billion of agency MBS between September 3 and 9. It bought $3.6 billion of Freddie Mac, $12.4 billion of Fannie Mae, and $2.9 billion of Ginnie Mae.

The Fed’s cumulative MBS purchases have reached $840.1 billion, and it has announced plans to purchase up to $1.25 trillion by the end of the year.

The Treasury purchases have slowed and will end in six weeks. The MBS purchases are ongoing.

by Calculated Risk on 9/18/2009 02:09:00 PM

Professor Hamilton, at Econbrowser, excerpts from the WSJ on curbing bankers' pay, and adds some important comments: Regulating compensation in the banking sector

One of the key questions for understanding the causes of our current problems is the following. Suppose that in 2005, the individuals who were putting together securities derived from subprime and alt-A mortgage loans could have known, with perfect foresight, events that were going to unfold in 2008. Would they have still done the same things they did in 2005? My concern is that, for many individuals, the answer might be "yes", insofar as they were richly rewarded personally in 2005 for making exactly the decisions they did. It was other parties (namely you and me) who later down the road were forced to absorb the downside of their gambles. Capitalism functions well when individuals are rewarded for making socially productive decisions. It is a disaster when individuals are rewarded for making socially destructive decisions. For this reason, I am quite supportive of the broad idea of the above proposal.

For some people I don't think there is any question the answer would have been "yes". For many others, they would have ignored the "perfect foresight", and rationalized away the risks. The result is the same, but the second group can feel better about themselves while living large.

Hamilton also adds some comments on regulatory capture - another important issue.

by Calculated Risk on 9/18/2009 11:26:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Twenty-seven states and the District of Columbia reported over-the-month unemployment rate increases, 16 states registered rate decreases, and 7 states had no rate change, the U.S. Bureau of Labor Statistics reported today. Over the year, jobless rates increased in all 50 states and the District of Columbia.
...
Fourteen states and the District of Columbia reported jobless rates of at least 10.0 percent in August. Michigan continued to have the highest unemployment rate among the states, 15.2 percent. Nevada recorded the next highest rate, 13.2 percent, followed by Rhode Island, 12.8 percent, and California and Oregon, 12.2 percent each. The rates in California, Nevada, and Rhode Island set new series highs.
emphasis added

Click on graph for larger image in new window.

This graph shows the high and low unemployment rates for each state (and D.C.) since 1976. The red bar is the current unemployment rate (sorted by the current unemployment rate).

Fourteen states and D.C. now have double digit unemployment rates.

Illinois, Indiana, and Georgia are all close.

Four states are at record unemployment rates: Rhode Island, Oregon, Nevada, and California. Several others - like Florida and Georgia - are close.

by Calculated Risk on 9/18/2009 10:26:00 AM

From the WSJ: FDIC Considers Borrowing From Treasury to Shore Up Deposit Insurance

Federal Deposit Insurance Corp. Chairman Sheila Bair said her agency is considering borrowing from the U.S. Treasury to replenish its deposit insurance fund.

"We are carefully considering all options" including borrowing from the Treasury, Ms. Bair said Friday after a speech in Washington.

UPDATE: Bair is responding to comments by Barney Frank (see this speech at 25 mins, ht Kevin)

Here is a reference to a recent letter from Sen Levin, via Dow Jones: FDIC Should Borrow From Tsy, Not Charge Banks Fee

Sen. Carl Levin, D-Mich. ... said in a letter to FDIC Chair Sheila Bair that he was concerned about the possibility of the agency charging banks a second special assessment this year. ... Such fees could hurt smaller banks, Levin wrote.

"Adding yet another major financial obligation during this crisis could further deplete the capital of these small financial institutions, making it difficult for them to extend the credit needed to turn our economy around," Levin said in the letter.

The Deposit Insurance Fund (DIF) had $10.4 billion in assets at the end of Q2, but the total reserves were $42 billion. Note that accounting for the DIF includes reserves against estimate future losses, so that is the difference between the total reserves and the reported assets. Total reserves of the Deposit Insurance Fund (DIF) stood at $42 billion. From the FDIC:

Just as insured institutions reserve for loan losses, the FDIC has to provide for a contingent loss reserve for future failures. To the extent that the FDIC has already reserved for an anticipated closing, the failure of an institution does not reduce the DIF balance. The contingent loss reserve, which totaled $28.5 billion on March 31, rose to $32.0 billion as of June 30, reflecting higher actual and anticipated losses from failed institutions. Additions to the contingent loss reserve during the second quarter caused the fund balance to decline from $13.0 billion to $10.4 billion. Combined, the total reserves of the DIF equaled $42.4 billion at the end of the quarter.

Of course the FDIC cut a check to MB Financial Bank last week for approximately $4 billion as part of the Corus Bank seizure. For the Corus deal, MB Financial Bank assumed all of the deposits of Corus Bank (approximately $7 billion) and agreed to purchase approximately $3 billion of the assets (mostly cash and marketable securities). The FDIC wrote a check for the difference. The FDIC retained the remaining $4 billion in assets for later disposal, and estimated the losses would be $1.7 billion. But writing a $4 billion check was a significant hit to the cash reserves of the DIF.

by Calculated Risk on 9/18/2009 08:38:00 AM

From the WaPo: Housing Agency's Cash Reserves Will Drop Below Requirement

The Federal Housing Administration has been hit so hard by the mortgage crisis that for the first time, the agency's cash reserves will drop below the minimum level set by Congress, FHA officials said.

The FHA guaranteed about a quarter of all U.S. home loans made this year, and the reserves are meant as a financial cushion to ensure that the agency can cover unexpected losses.

"It's very serious," FHA Commissioner David H. Stevens said in an interview. "There's nothing more serious that we're addressing right now, outside the housing crisis in general, than this issue."
...
[Stevens] said he is planning to announce Friday several measures that should help the reserves rebound quickly.
...
An independent audit due out this fall will show that the agency's reserves will drop below the 2 percent level as of Oct. 1, the start of the new fiscal year, Stevens said.
...
For one, he will propose that banks and other lenders that do business with the FHA have at least $1 million in capital they can use to repay the agency for losses if they were involved in fraud. Now, they are required only to hold $250,000. Second, he will propose that lenders also take responsibility for any losses due to fraud committed by the mortgage brokers with whom they work.
emphasis added

Here is a table of FHA lenders with 2 year default rates of 15% or more (only lenders with 100+ originations included). There are ten lenders with "perfect" records (100% default), but they only have one or two originations each. Many of these lenders will probably go away with the new rules.

The FHA is banking on a "recovery in the housing market":

The new audit shows that even without any new measures, the reserves will rebound to the required level within two or three years largely as the result of the recovery in the housing market, Stevens said. This calculation is based on projections of future home prices, interest rates and the volume and credit quality of FHA's business.

Yeah, if house prices increase, everything will be OK!

Note: here is a post from a couple of weeks ago: FHA: The Next Bailout?

by Calculated Risk on 9/17/2009 10:25:00 PM

From Reuters: "Option" mortgages to explode, officials warn

"Payment option ARMs are about to explode," Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama's administration to discuss ways to combat mortgage scams.
...
In Arizona, 128,000 of those mortgages will reset over the the next year and many have started to adjust this month, the state's attorney general, Terry Goddard, told Reuters after the meeting.

"It's the other shoe," he said. "I can't say it's waiting to drop. It's dropping now."

This was a meeting of state AGs discussing mortgage scams with the Obama Administration, and based on the comments, there was an emphasis on Option ARMs.

I guess that deserves a Hoocoodanode?

by Calculated Risk on 9/17/2009 07:41:00 PM

About time ... (and a BFF preview below)

From Jillayne Schlicke at RainCityGuide: FTC Considers Total Ban on Upfront Loan Modification Fees. FTC Chairman Jon Leibowitz made the suggestion today. Jillayne adds:

Third party loan mod salesmen should only be allowed to collect a fee once the loan modification is not only performed but also after the homeowner has made a specific number of on time payments. This will rid the system of the Devil’s Rejects subprime LOs who act like they just walked off the set of a Rob Zombie movie and can only smell money.

Exactly! Jillayne has been arguing for this ban for some time.

And to get ready for Bank Failure Friday (BFF), from an SEC 8-K filing today: (ht Michael)

On September 15, 2009, Irwin Financial Corporation (the “Corporation”) and its principal depository institution subsidiary, Irwin Union Bank and Trust Company (“IUBT”), entered into a Cease and Desist Order (the “Order”) with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Indiana Department of Financial Institutions (the “DFI”). The Order includes requirements that the Corporation and IUBT achieve certain designated capital levels and reduce reliance on certain types of deposits by September 30, 2009. The Corporation and IUBT believe that there is no realistic prospect of achieving the required capital levels by the date required in the Order and, in the absence of certain loan sales, which the Corporation and IUBT believe would not be approved by appropriate regulatory bodies, they cannot achieve the requisite reduction in reliance on the designated deposits by the required date.
emphasis added

"No realistic prospect" is pretty clear.

by Calculated Risk on 9/17/2009 06:20:00 PM

The Federal Reserve released the Factors Affecting Reserve Balances today. Total assets were basically flat at $2.14 trillion. This graph from the Atlanta Fed shows the breakdown in the assets (from earlier this month):

Click on graph for larger image in new window.

This raises an interesting question: What is the impact from Fed MBS buying on mortgage rates?

Earlier this year, Political Calculations introduced a tool to estimate mortgage rates based on the Ten Year Treasury yield (based on an earlier post of mine): Predicting Mortgage Rates and Treasury Yields. Using their tool, with the Ten Year yield at 3.39%, this suggests a 30 year mortgage rates of 5.36% based on the historical relationship between the Ten Year yield and mortgage rates.

Freddie Mac released their weekly survey today:

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.04 percent with an average 0.7 point for the week ending September 17, 2009, down from last week when it averaged 5.07 percent.

This made me wonder if mortgage rates have been running below projections while the Fed has buying MBS ...

So I updated the previous graph. Sure enough mortgage rates have been below expectations for a number of months (the last 5 months in blue triangles).

Although this is a limited amount of data - and the blue triangles are within the normal spread - this suggests the Fed's buying of MBS is reducing mortgage rates by about 35 bps.

Of course the Fed is also buying Treasuries - reducing the yield on the Ten Year Treasury - and that is another factor reducing mortgage rates (although Treasury buying is a much smaller amount and for different durations).

The third graph shows a breakdown of Fed Treasury purchases by maturity. From the Atlanta Fed:

Decomposing the Fed’s purchases of Treasury securities by maturity shows a heavy focus in the four-to-seven-year and seven-to-10-year sectors, together making up half of all purchases so far.

But the last four Treasury purchases have been focused elsewhere, with the biggest purchases in the shorter end of the yield curve.

I think the impact on mortgage rates from the Treasury purchases is minor. This suggests to me that mortgage rates will rise by about 35 bps, relative to the Ten Year yield, when the Fed stops buying MBS.

by Calculated Risk on 9/17/2009 03:20:00 PM

From DataQuick: Bay Area August home sales and median price fall

Bay Area home sales bucked the seasonal norm and fell last month from July, though they remained higher than a year ago for the 12th consecutive month. The region’s overall median sale price also declined as a greater portion of sales occurred in more affordable areas ...

A total of 7,518 new and resale houses and condos closed escrow in the nine-county Bay Area last month. That was down 14.3 percent from 8,771 in July and up 4.0 percent from 7,232 in August 2008, according to MDA DataQuick of San Diego.
...
“Part of the mid-summer pause in the market could have been caused by home shoppers becoming frustrated by market conditions they didn’t anticipate. In many areas there were fewer homes, especially cheap foreclosures, to choose from, and lots of talk about multiple offers and all-cash deals. It might have driven some back to the sidelines,” said John Walsh, MDA DataQuick president.

“At the same time, people are still concerned about job security, and about how many foreclosures might yet hit the market,” he said. “There are ongoing reports of mortgage delinquencies rising, yet the number of homes being foreclosed on has trended down lately. It’s bred a lot of uncertainty among the pundits and the public about how many more foreclosures are coming, when they’ll hit, and what impact they’ll have on prices.”

The 14.3 percent drop in sales between July and August was atypical, given the average change between those two months is a gain of 3.4 percent. ...

The median’s $35,000 drop between July and August was mainly the result of a shift toward a higher percentage of sales occurring in lower-cost inland areas. Although sales fell across the region and home price spectrum, some costlier areas saw the biggest declines. Sales fell the most – 21.1 percent – between July and August in Santa Clara County. Its share of total Bay Area sales fell to 23.1 percent in August, down from 25.1 percent in July.
...
Foreclosure resales made up 32.5 percent of total August resales, up from 31.2 percent in July but down from 36.0 percent a year ago. The August percentage was higher than July’s, despite fewer foreclosed homes selling last month, because of the sharp drop in non-foreclosure resales in August.
...
Foreclosures are off their recent peak but remain high historically ... and non-owner occupied buying is above-average in some markets, MDA DataQuick reported.

This sales decline in August is being reported in many areas.

And the shift back to more low end homes - even with the lower foreclosure inventory in the low end areas - is a bad sign for the mid-to-high end of the housing market. This suggest prices will fall further in those areas.

It appears the first-time homebuyer frenzy is started to fade, although investors are still buying in the low end areas.

by Calculated Risk on 9/17/2009 01:38:00 PM

This is a crushing comparison, but the numbers might be distorted by the late Labor Day this year (Sept 7th). That made the comparison easier last week (with more leisure travel), but perhaps business travel hasn't started yet (important for hotels after Labor Day). Next week will be key ...

From HotelNewsNow.com: New Orleans leads declines in STR weekly results

In year-over-year measurements, the U.S. industry’s occupancy fell 14.6 percent [for the week ending 12 September] at 52.8 percent. ADR dropped 12.8 percent to finish the week at US$94.49. RevPAR for the week decreased 25.5 percent to finish at US$49.92.

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week trailing average).

The three week average is off 9.6% from the same period in 2008.

The average daily rate is down 12.8%, and RevPAR is off 25.5% from the same week last year.

Note that this is a multi-year slump. Although occupancy was off 14.6% compared to the same week in 2008, occupancy is off about 23% from the same week in 2006.

Also, earlier this year business travel was off much more than leisure travel. So it was no suprise that occupancy rates didn't decline as far during the Summer as earlier in the year. However, after Labor Day, business travel becomes far more important for the hotel industry than leisure, and next week will be very important to see if business travel is recovering.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 9/17/2009 11:59:00 AM

The Fed released the Q2 2009 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth is now off $12.2 Trillion from the peak in 2007.

Click on graph for larger image in new window.

This is the Households and Nonprofit net worth as a percent of GDP.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

According to the Fed, household net worth increased in Q2 mostly from increases in stock holdings - although the value of household real estate increased slightly too.

Note that this ratio was relatively stable for almost 50 years, and then ... bubbles!

This graph shows homeowner percent equity since 1952.

Household percent equity (of household real estate) was up to 43% from the all time low last quarter of 41.9%. The increase was due to a slight increase in the value of household real estate and a decline in mortgage debt - and also a decline in overall GDP (so the ratio increases).

When prices were increasing dramatically, the percent homeowner equity was stable or declining because homeowners were extracting equity from their homes. Now, with prices falling, the percent homeowner equity has been cliff diving.

Note: approximately 31% of households do not have a mortgage. So the 50+ million households with mortgages have far less than 43% equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP. Household assets as a percent of GDP increased slightly in Q2 - because of a slight increase in real estate values, and a decline in GDP.

Mortgage debt declined, but was flat as a percent of GDP in Q2 - since GDP declined too.

After a bubble, the value of assets decline, but most of the debt remains.

by Calculated Risk on 9/17/2009 10:00:00 AM

Here is the Philadelphia Fed Index released today: Business Outlook Survey.

The region’s manufacturing sector is showing signs of growth, according to firms polled for this month’s Business Outlook Survey. ...

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 4.2 in August to 14.1 this month. This is the highest reading since June 2007 and the second consecutive positive reading. The percentage of firms reporting increases in activity (33 percent)exceeded the percentage reporting decreases (19 percent). Other broad indicators
also suggested some growth this month. The current new orders index also remained positive for the second consecutive month, although it edged one point lower, to 3.3. The current shipments index increased eight points and has now increased 18 points over the last two months. Firms reported declines in inventories this month: The current inventory index declined 18 points, from 0.3 in August to ‐18.1. Indicators for unfilled orders and delivery times remained negative, suggesting continued weakness.

Labor market conditions remain weak, despite signs of improvement in overall activity. The current employment index decreased slightly, from ‐12.9 to ‐14.3. Overall declines, however, are still not as widespread as in the first six months of this year. ...

Click on graph for larger image in new window.

This graph shows the Philly index for the last 40 years.

The index has been positive for two months now, after being negative for 19 of the previous 20 months. Employment is still weak.

by Calculated Risk on 9/17/2009 08:31:00 AM

Click on graph for larger image in new window.

Total housing starts were at 598 thousand (SAAR) in August, up 1.5% from the revised July rate, and up sharply from the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 479 thousand (SAAR) in August, down 3.0% from the revised July rate, but still 34 percent above the record low in January and February (357 thousand).

Permits for single-family units were 462 thousand in August, suggesting single-family starts will be steady in September.

Here is the Census Bureau report on housing Permits, Starts and Completions.

Building Permits:
Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 579,000. This is 2.7 percent (±1.2%) above the revised July rate of 564,000, but is 32.4 percent (±1.3%) below the August 2008 estimate of 857,000.

Single-family authorizations in August were at a rate of 462,000; this is 0.2 percent (±1.1%) below the revised July figure of 463,000.

Housing Starts:
Privately-owned housing starts in August were at a seasonally adjusted annual rate of 598,000. This is 1.5 percent (±7.9%) above the revised July estimate of 589,000, but is 29.6 percent (±6.0%) below the August 2008 rate of 849,000.

Single-family housing starts in August were at a rate of 479,000; this is 3.0 percent (±5.7%) below the revised July figure of 494,000.

Housing Completions:
Privately-owned housing completions in August were at a seasonally adjusted annual rate of 760,000. This is 5.5 percent (±14.0%) below the revised July estimate of 804,000 and is 25.3 percent (±9.6%) below the August 2008 rate of 1,018,000.

Single-family housing completions in August were at a rate of 489,000; this is 1.6 percent (±12.7%)* below the revised July figure of 497,000.

Note that single-family completions of 489 thousand are at about the same level as single-family starts (479 thousand). This suggests residential construction employment has stabilized.

It now appears that single family starts bottomed in January. However, as expected, it appears starts are moving sideways - and will probably stay near this level until the excess existing home inventory is reduced.

by Calculated Risk on 9/17/2009 08:30:00 AM

The DOL reports weekly unemployment insurance claims decreased to 545,000:

In the week ending Sept. 12, the advance figure for seasonally adjusted initial claims was 545,000, a decrease of 12,000 from the previous week's revised figure of 557,000. The 4-week moving average was 563,000, a decrease of 8,750 from the previous week's revised average of 571,750.
...
The advance number for seasonally adjusted insured unemployment during the week ending Sept. 5 was 6,230,000, an increase of 129,000 from the preceding week's revised level of 6,101,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 8,750 to 563,000, and is now 95,750 below the peak in April.

It appears that initial weekly claims have peaked for this cycle. However it seems that weekly claims are stuck at a very high level; weekly claims have been in the high 500 thousands for almost 3 months. This indicates continuing weakness in the job market. The four-week average of initial weekly claims will probably have to fall below 400,000 before the total employment stops falling.

by Calculated Risk on 9/16/2009 09:09:00 PM

From Bloomberg: Homebuyer Tax-Credit Extension Gains Lawmaker Support

An extension of the $8,000 U.S. homebuyer tax credit is gaining support in the Senate as bill sponsor John Isakson said he is rallying lawmakers to continue a program that helped boost home sales by more than 1 million.

“I’m working the floor now to make everyone aware that the $8,000 credit sunsets on Nov. 30,” Isakson, a Georgia Republican, said in an interview today. The former real estate executive says he is “talking to everybody and anybody.”

This is terrible policy, and hopefully the bill will be scuttled.

Meanwhile the usual suspects are lining up to support the bill:

Realtors, bankers and homebuilders have joined in the push, starting a campaign that encourages Congress to extend the program for one year ...

White House spokesman Robert Gibbs told reporters today that President Barack Obama’s economic team is looking at the tax credit and “evaluating the impact” on new home sales.

“Through that evaluation we’ll come to something to give the president a recommendation,” Gibbs said.
...
The bill has at least 15 co-sponsors including Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and senators Patty Murray, a Washington Democrat, and Joe Lieberman, a Connecticut independent.

What is wrong with Connecticut?

by Calculated Risk on 9/16/2009 05:25:00 PM

From the UCLA News today:

Sluggish overall growth is predicted [in a report titled "The Long Goodbye," by UCLA Anderson Forecast], as the [national] unemployment rate will be above 10 percent well into next year.

And in the UK from The Times: Record one in five young people out of work

The number of young people out of work hit a record 947,000 in July as total unemployment in Britain hit 2.47 million.

Official data today showed that the number of jobless 16 to 24-year-olds jumped by nearly 60,000 in the three months to July to the highest level since 1992, when records began.

That figure translates to a record 19.7 per cent - also the highest since records began - meaning that one in five people in that age bracket is looking for work.
...
Total unemployment hit a 13-year high of 2.47 million as more than 210,000 people lost their jobs, sending the jobless rate back to 1996 levels of 7.9 per cent.

And from the NY Times: High Jobless Rates Could Last Years, O.E.C.D. Warns

Unless government programs for the unemployed are refined, there is a danger that high jobless rates will persist beyond 2010 in advanced economies, the Organization for Economic Cooperation and Development warned on Wednesday.

“A recovery may be in sight,” the group said in its annual employment outlook, referring to economic output. “But the short-term employment outlook is grim.”

The international organization said that unemployment among its 30 member nations would rise to nearly 10 percent by the end of 2010, above its previous post-1970 peak of 7.5 percent during the second quarter of 1993.

In the U.S., Rep. Jim McDermott, D-Wash and Sen. Jack Reed, D-R.I. have offered bills in the House and Senate to extend unemployment benefits again. However this proposed extension would only be for any additional 13 weeks for people in high-unemployment states, and many workers will exhaust those claims early in the new year.

I expect to see a double digit unemployment rate within the next few months, and with below trend GDP growth, I expect double digit unemployment rates through most of 2010.