by Calculated Risk on 9/13/2010 07:15:00 PM

From William Alden at HuffPo: Home Prices Set To Fall Further: Richard Fairbank, Capital One CEO

"I think we feel very cautious about the housing market," [Capital One CEO Richard Fairbank] said. "I think that even despite some of the recent months where home prices have gone up, I think it's a very plausible case for home prices to go back down again."
...
"We are managing to a view that home prices are more likely to be headed down rather than up."

I think house prices started falling again in July, but it might take some time before we see prices falling in the repeat sales index. CoreLogic will probably release their July HPI this week, and that might show declining prices - but that is a weighted average of May, June and July.

by Calculated Risk on 9/13/2010 03:14:00 PM

By request, the following graph is an update to: The Investment Slump in Q2 2009

The following graph shows the rolling 4 quarter contribution to GDP from residential investment, equipment and software, and nonresidential structures. This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, blue.

Click on graph for larger image in new window.

Residential Investment (RI) made a positive contribution to GDP in the Q2 2010, but RI will be a drag on GDP again in Q3.

RI was positively impacted in Q2 by the housing tax credit in two ways: first, builders rushed to complete homes by the end of June, and, second, real estate agent commissions were boosted in Q2 and will decline sharply in Q3 (just look at existing home sales in July).

The rolling four quarter change for RI just turned positive, but will turn negative again in Q3.

Equipment and software investment has made a significant positive contribution to GDP for four straight quarters (it is coincident).

The contribution from nonresidential investment in structures was flat in Q2 - only because of a surge of investment for petroleum and natural gas - while investment in hotels, malls and office buildings continued to decline. As usual nonresidential investment in structures is the last sector to recover.

The key leading sector - residential investment - has lagged the recovery because of the huge overhang of existing inventory. Usually RI is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and this is a key reason why the recovery has been sluggish so far.

by Calculated Risk on 9/13/2010 01:04:00 PM

October is the first month for seasonal retail hiring - and most hiring happens in November. So it is probably time to start looking ahead.

According to a survey released last week, most retailers plan on hiring about the same number of seasonal workers as last year (a weak year), however about one-fifth expect to hire more.

Here was an article from the WSJ: Holiday Job Outlook Stays Flat

Most major American retailers plan to hire the same number of temporary holiday workers as last year, according to a survey by a top industry consultant, underscoring that store chains continue to view the coming season with caution.

Still, the annual Hay Group survey ... found that more than one-fifth of respondents expected to hire more seasonal help than in 2009 ...

Click on graph for larger image.

The first graph shows that seasonally adjusted (blue) and not seasonally adjusted (red) retail employment. There is a clear seasonal pattern (no surprise).

Not only is overall retail employment down, but seasonal hiring was very low in 2008, and still weak in 2009.

The second graph shows the seasonal hiring by the three key months (October, November and December).

Although seasonal hiring bounced back last year, it was still the second weakest year since 1989 (only 2008 was worse). From this early survey, it sounds like there should be some increase in seasonal hiring - but it will still be a very weak year.

by Calculated Risk on 9/13/2010 08:48:00 AM

Nick Timiraos has an excellent article on house prices and foreclosures at the WSJ: Banks' Plans for Foreclosed Homes Will Drive Market

The speed at which house prices fall over the next few months could depend ... on how banks decide to manage the huge number of foreclosed homes they own or may take from delinquent borrowers in the near future.

Unlike home owners, banks often are much quicker to slash prices to unload properties quickly.
...
"We see the perfect storm brewing with rising supply and falling demand," said Ivy Zelman ... She estimated that distressed sales could account for half of the market by year-end if traditional sales didn't rebound.

Usually house prices are sticky downwards and decline over several years, but the flood of foreclosures in late 2008 pushed down prices significantly in lower priced areas (Tom Lawler called this "destickification").

Something similar could happen again, especially in some mid-to-high end areas where prices are still too high, although it won't be the flood of foreclosures we saw at the end of 2008. But prices will fall.

There is much more in the article ...

by Calculated Risk on 9/12/2010 11:45:00 PM

From the WSJ: China Has Done ‘Very Little’ on Exchange Rate: Geithner

“China took the very important step in June of signaling that they’re going to let the exchange rate start to reflect market forces. But they’ve done very, very little, they’ve let it move very, very little in the interim."

And from Paul Krugman at the NY Times: China, Japan, America

Back in June, Timothy Geithner, the Treasury secretary, praised China’s announcement that it would move to a more flexible exchange rate. Since then, the renminbi has risen a grand total of 1, that’s right, 1 percent against the dollar — with much of the rise taking place in just the past few days, ahead of planned Congressional hearings on the currency issue.

Obviously China is a "currency manipulator" ... now what?

by Calculated Risk on 9/12/2010 07:59:00 PM

A few excerpts from a WSJ interview with Treasury Secretary Timothy Geithner: Geithner Urges Action on Economy

"[The] typical error most countries make coming out of a financial crisis is they shift too quickly to premature restraint. ... It is very important for us to avoid that mistake. If the government does nothing going forward, then the impact of policy in Washington will shift from supporting economic growth to hurting economic growth."

And on tax cuts for high income earners:

"We just don't think it would be responsible for this country, given the size of our future deficits, and given the substantial burden the middle class has been bearing over the past decade in particular, to go out and borrow $700 billion from our children so we can sustain those Bush tax cuts that only go to the wealthiest 2% of Americans."

I agree with Geithner on both points.