by Calculated Risk on 10/05/2010 10:00:00 AM

The September ISM Non-manufacturing index was at 53.2%, up from 51.5% in August - and above expectations of 52.0%. The employment index showed slight expansion in September at 50.2%, up from 48.2% in August. Note: Above 50 indicates expansion, below 50 contraction.

Click on graph for larger image in new window.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

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

Economic activity in the non-manufacturing sector grew in September for the ninth consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee; and senior vice president — supply management for Hilton Worldwide. "The NMI (Non-Manufacturing Index) registered 53.2 percent in September, 1.7 percentage points higher than the 51.5 percent registered in August, indicating continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index decreased 1.6 percentage points to 52.8 percent, reflecting growth for the 10th consecutive month, but at a slower rate than in August. The New Orders Index increased 2.5 percentage points to 54.9 percent, and the Employment Index increased 2 percentage points to 50.2 percent, indicating growth in employment for the third time in the last five months. The Prices Index decreased 0.2 percentage point to 60.1 percent, indicating that prices increased in September at a slightly slower rate. According to the NMI, 11 non-manufacturing industries reported growth in September. Respondents' comments continue to be mixed about business conditions, with a slight majority reflecting optimism."
emphasis added

by Calculated Risk on 10/05/2010 09:02:00 AM

From the WSJ: Bank of Japan Cuts Key Rate

The Bank of Japan [announced] a 35 trillion yen ($418 billion) monetary easing program ... while cutting interest rates to virtually zero. It also launched a 5 trillion yen program to buy private- and public-sector assets.

... the BOJ said the new program was designed to "encourage the decline in longer-term interest rates and various risk premiums to further enhance monetary easing."

The central bank acknowledged its move was "an extraordinary measure for a central bank." Bank of Japan Gov. Masaaki Shirakawa said Tuesday that the central bank's [decision] was based on a worse-than-expected outlook for the domestic economy.

The Japan central bank will be buying corporate debt in addition to government debt.

by Calculated Risk on 10/04/2010 11:59:00 PM

Click on graph for larger image in new window.

This graph shows the office vacancy rate starting in 1991.

Reis is reporting the vacancy rate rose to 17.5% in Q3 2010, up from 17.4% in Q2 2010, and up from 16.6% in Q3 2009. The peak following the previous recession was 16.9%.

From the WSJ Signs of Recovery For Office Market

[O]ffice buildings in 79 metropolitan areas tracked by Reis lost 1.9 million square feet of occupied space in the third quarter, pushing the national office vacancy rate to 17.5%, the highest level since 1993.
...
Average effective rents ... fell by just a penny in the last three months, the smallest quarterly decline since 2008.

It appears the rate of increase in the vacancy rate has slowed - and rents may be stabilizing.

Reis should release the Mall and Apartment vacancy rates over the next few days, and those will probably be at record levels.

by Calculated Risk on 10/04/2010 09:34:00 PM

From Mary Williams Walsh at the NY Times: Cities in Debt Turn to States, Adding Strain

Across the country, a growing number of towns, cities and other local governments are seeking refuge in [distressed-cities programs] that many states provide as alternatives to federal bankruptcy court. Pennsylvania will have 20 cities in its distressed-cities program if Harrisburg receives approval. Michigan has 37 in its program; New Jersey has seven; Illinois, Rhode Island and California each have at least one. ...

The programs, which vary by state, generally allow troubled communities to tap emergency credit lines while restructuring their finances with some form of state oversight.

The concern with the distressed-cities programs is that the cities become almost permanent wards of the state - and the states already have their own budget problems. And the list of distressed-cities keeps growing ...

by Calculated Risk on 10/04/2010 08:01:00 PM

This speech isn't worth reading for substance (Ben Bernanke is clueless on budget issues), but it reveals something about Bernanke.

From Fed Chairman Ben Bernanke speaking at the Rhode Island Public Expenditure Council meeting tonight: Fiscal Sustainability and Fiscal Rules

Bernanke never mentioned "PAYGO" when he was head of the Council of Economic Advisors in 2005. In fact Bernanke barely mentioned the deficit in 2005 - except in postive terms - even though the structural deficit was in place and the cyclical deficit was coming (because of the housing bubble). I wonder why? Well, he missed the housing bubble completely - but what about the structural deficit?

Today he said:

Our fiscal challenges are especially daunting because they are mostly the product of powerful underlying trends, not short-term or temporary factors. Two of the most important driving forces are the aging of the U.S. population, the pace of which will intensify over the next couple of decades as the baby-boom generation retires, and rapidly rising health-care costs.

Weren't the baby boomers going to get older in 2005? Oh my ...

This is an issue that 1) is outside of Bernanke's area of responsibility, 2) he has promised not to discuss, and 3) he has zero credibility on. Enough said.

by Calculated Risk on 10/04/2010 03:59:00 PM

From Bloomberg: Yellen Sworn in as Vice Chairman of Federal Reserve, Raskin as Governor. Dr. Yellen was the San Francisco Fed President, and was currently not on the FOMC. She has been supportive of more easing - and both appointees are expected to support QE2.

From the WSJ: Goldman Sees Peak in Treasury Rally

Francesco Garzarelli, chief interest-rate strategist at Goldman Sachs in London, said that the benchmark 10-year note's yield has seen its bottom in the 2.45%-to-2.50% area, breaking ranks with other bulls. ... Mr. Garzarelli said some of the quantitative easing measures have been priced into the Treasury market.

Note that this forecast is not from the Goldman Sachs economics group in New York (that correctly forecast the bond market rally this year).

And repeating, here is NY Fed EVP Brian Sack's speech: Managing the Federal Reserve's Balance Sheet. Sack outlined what the Fed expects additional QE to accomplish, and how it would probably be implemented. He said the FOMC would probably announce the amount of balance sheet expansion incrementally at each meeting, that the FOMC would be "persistent", but that they would also be flexible if the incoming data changed.