by Calculated Risk on 8/09/2010 08:49:00 AM

Alana Semuels at the LA Times describes the impact of the housing / credit bust on the communities east of San Francisco: Northeast of Silicon Valley, recession's effects are magnified. A few excerpts:

[B]uilding has all but stopped. Home prices in San Joaquin County have fallen 63% since the peak median price of $451,500 in November 2005, according to MDA DataQuick. [Note: these are median prices]. Prices in Contra Costa County are down 53% from their peak of $600,000 in April 2007. One in every 135 houses in Contra Costa County received a foreclosure filing in June 2010. In San Joaquin County, that figure is 1 in 104 — nearly double the California average.

Signs of a slowdown are everywhere. At Bethel Island, a Contra Costa County summer vacation area normally busy with tourists and fishermen, boats sit rotting in the Sacramento River. Nearby, a planned residential waterfront development has stalled. The builder completed boat docks before pulling out; an eerie remnant of the luxury once planned there. In Livermore, an Alameda County town, whole shopping developments are empty and foreclosure notices dot homes.
...
The unemployment rate in Stockton, the county seat of San Joaquin County, is 19.8%. It's 29% in the nearby hamlet of Garden Acres, higher than any city of its size in Southern California's Inland Empire.

During the boom, a large percentage of the people in these communities worked in construction or other real estate related fields - and for obvious reasons, the more an area was dependent on housing, the larger the negative impact of the housing bust.

by Calculated Risk on 8/08/2010 08:34:00 PM

I mentioned the FOMC in the Weekly Summary and Schedule post, and here is some more ...

From the Financial Times: Fed set to downgrade outlook for US

The Federal Reserve is set to downgrade its assessment of US economic prospects when it meets on Tuesday to discuss ways to reboot the flagging recovery. ...

[The Fed might make] ... a decision to reinvest proceeds from maturing mortgage-backed securities held by the US central bank ... most economists believe that it would take several more months of poor data for the Fed to actually begin a new round of [large scale] asset purchases
excerpt with permission

That is a good summary. The Fed will obviously acknowledge the weaker data since the last meeting in June, but they might view the last two months as a "pause" as opposed to a slowdown. In his recent testimony and his speech last week, Bernanke clearly felt the economy would continue to recover. Bernanke said:

While the support to economic activity from stimulative fiscal policies and firms' restocking of their inventories will diminish over time, rising demand from households and businesses should help sustain growth. In particular, in the household sector, growth in real consumer spending seems likely to pick up in coming quarters from its recent modest pace, supported by gains in income and improving credit conditions.

A change in outlook in just a week would be significant.

It is possible that the Fed could announce they will reinvest the proceeds from maturing MBS (some people put this at $200 billion through 2011, but other analysts expect it might be closer to $400 billion with lower mortgage rates and more refinance activity).

It was just a couple of months ago that some Fed Presidents were arguing that the Fed should sell MBS in addition to the maturing MBS. Selling additional MBS is clearly off the table for now.

by Calculated Risk on 8/08/2010 05:15:00 PM

Professor Hamilton reviews the data last week: Current economic conditions. Unfortunately he is even more "discouraged":

Last week's new economics data were a mixed bag. But on balance I'd have to say I'm more discouraged than when the week began.
...
The Aruoba-Diebold-Scotti Business Conditions Index, which does not use hours, and does not adjust the monthly employment changes for the effects of temporary Census hiring, is certainly discouraged. In fact, the combined effect of last week's increase in new claims for unemployment insurance plus the weak employment report pushed the ADS dangerously close to the -0.8 value that historically would often mean that a new recession could be starting. The most recent inference of that series, however, can be heavily influenced by the latest data, and it would be a mistake to make too much out of the most very recent values.

But it would also be a mistake to say that everything is going just fine.

by Calculated Risk on 8/08/2010 10:55:00 AM

The key economic report this week will be July retail sales to be released on Friday. The FOMC statement on Tuesday will also be closely watched.

Sometime this week the July rail traffic report, from the Association of American Railroads (AAR), and the July Ceridian-UCLA Pulse of Commerce Index (based on diesel fuel consumption) will probably both be released. Both showed transportation weakness in June.

On Tuesday, the National Association of Independent Business (NFIB) will release the small business optimism survey for July. Also on Tuesday, the BLS will release the Q2 Productivity and Costs report, and the Census Bureau will release the Monthly Wholesale Trade: Sales and Inventories for June.

The Federal Reserve’s Federal Open Market Committee (FOMC) will meet on Tuesday, and the FOMC statement will be released at around 2:15 PM ET. This will be closely scrutinized for a discussion of the economic slowdown since the last meeting on June 23rd – especially considering the two weak employment reports in the interim – and to see if the FOMC will slightly ease monetary policy. There has been some discussion that the Fed might announce they are reinvesting maturing mortgage backed securities (MBS) into either new MBS or Treasury securities.

Jon Hilsenrath discusses this possibility in the WSJ: Jobs Report Intensifies Fed Debate

A key item on the agenda is likely to be whether the Fed should tweak its strategy for managing its $1.1-trillion portfolio of mortgage backed securities so holdings don't shrink in the months ahead.
...
The divisive question for the Fed is what message they would be sending if they alter their reinvestment strategy. Fed officials are acutely aware that if they start reinvesting proceeds from maturing mortgage bonds -- as they now do for maturing Treasury debt -- many investors will think they are laying the groundwork for a more dramatic move of large scale purchases of new bonds ...

On Wednesday, the MBA will release the mortgage purchase applications index. Also on Wednesday, the June Trade Balance report will be released at 8:30 AM by the Census Bureau. The consensus is for the U.S. trade deficit to increase slightly to $42.5 billion (from $42.3 billion in May). This might lead to further adjustments for Q2 GDP.

Also on Wednesday the Job Openings and Labor Turnover Survey (JOLTS) for June will be released at 10 AM by the BLS. This report has been showing very little turnover in the labor market and few job openings.

On Thursday, the initial weekly unemployment claims will be released. Consensus is for a decline to 460K from 479K last week.

On Friday, the Consumer Price Index for July will be released at 8:30 AM. This is expected to show a 0.2% increase in prices. Also on Friday July retail sales will be released at 8:30 AM. The consensus is for an increase of 0.5% from the June rate, and 0.2% increase ex-autos. Also the preliminary August Reuter's/University of Michigan's Consumer sentiment index will be released at 9:55 AM, and June Business inventories will be released at 10 AM.

And of course the FDIC will probably have another busy Friday afternoon ...

And a summary of last week:

July Employment Report: 12K Jobs ex-Census, 9.5% Unemployment Rate

Total nonfarm payroll declined by 131,000 in July.
The number of temporary decennial Census worker declined by 143,000.
So the total nonfarm ex-Census is -143,000 minus -131,000 = +12,000¹.

¹For an explanation, see: Employment Report: Why the different payroll numbers?

Click on graph for larger image.

This graph shows the job losses from the start of the employment recession, in percentage terms.

The dotted line shows the impact of Census hiring. In July, there were 196,000 temporary 2010 Census workers on the payroll. The number of Census workers will continue to decline - and the gap between the solid and dashed red lines will be gone in a few months.

Read more »

by Calculated Risk on 8/08/2010 07:15:00 AM

From Theo Francis at footnoted.com: Jingle mail in Jersey from Hyatt Hotels ... (ht NorkaWest)

If you’re in Princeton, New Jersey, anytime soon, swing by the Hyatt Regency Princeton. With the Hyatt Hotels (H) quarterly report filed yesterday, it has become a symbol of the financial crisis ... one of Hyatt’s subsidiaries “did not have sufficient cash flow to meet interest payment requirements under its mortgage loan” on the property, in this case a 347-room hotel with a restaurant, bar and comedy club, just a mile from the famous university.
...
“When hotel cash flow became insufficient to service the loan,” the company said in the filing, “HHC notified the lender that it would not provide assistance.” In other words, Hyatt decided to walk away — the equivalent of “jingle mail,” ... In Hyatt’s case, the company “and the lender agreed in principal to effect a deed in lieu of foreclosure transaction.”

Some people are still mailing in the keys!

by Calculated Risk on 8/07/2010 07:35:00 PM

An update by request ...

Click on graph for larger image.

This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

Note: The BLS reports 15+ weeks, so the 15 to 26 weeks number was calculated.

In July 2010, the number of unemployed for 27 weeks or more declined slightly to 6.572 million (seasonally adjusted) from 6.751 million in June. It is possible that the number of long term unemployed has peaked, but it is still very difficult for these people to find a job - and this is a very serious employment issue.

The less than 5 weeks category increased in July and is now at the highest level since January - and that is concerning.

Note: Even though these numbers are all seasonally adjusted, they can't be added together to calculate the unemployment rate.

Employment posts yesterday (with many graphs):

July Employment Report: 12K Jobs ex-Census, 9.5% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

Employment-Population Ratio, Part Time Workers, Unemployed over 26 Weeks

Employment Report: Temporary Help and Diffusion Index