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Monday, November 08, 2010

Fed: Banks expect tight lending standards for foreseeable future

by Calculated Risk on 11/08/2010 02:23:00 PM

In general banks have stopped tightening standards (they are already very tight), and demand has stopped falling (there is little demand for loans).

From the Federal Reserve The October 2010 Senior Loan Officer Opinion Survey on Bank Lending Practices

The October survey indicated that, on net, banks eased standards and terms over the previous three months on some categories of loans to households and businesses. ... However, substantial fractions of banks reported in response to a set of special questions that standards for many categories of loans would not return to their longer-run averages for the foreseeable future.
...
Domestic survey respondents reported easing standards and most terms on [commercial and industrial] C&I loans to firms of all sizes. ... Demand declined, on net, for C&I loans ...

Most respondents reported no change in their bank's standards for approving [commercial real estate] CRE loans. ...

[A] special question asked banks whether their current level of lending standards remained tighter than the average level over the past decade and, if so, when they expected that standards would return to their long-run norms, assuming that economic activity progressed according to consensus forecasts. For all loan categories, substantial fractions of respondents thought that their bank's lending standards would not return to their long-run norms until after 2012 or would remain tighter than longer-run average levels for the foreseeable future.
Here is the full report.

NY Fed: Continued Decline in Consumer Debt

by Calculated Risk on 11/08/2010 11:14:00 AM

This is a new quarterly report from the NY Fed ... an interesting finding is that consumers are actively reducing their debt - the decline in debt isn't just because of defaults.

From the NY Fed: Q3 Report on Household Debt and Credit Shows Continued Decline in Consumer Debt

The Federal Reserve Bank of New York today released its Quarterly Report on Household Debt and Credit for the third quarter of 2010, which shows that consumer debt continues its downward trend of the previous seven quarters, though the pace of decline has slowed recently. Since its peak in the third quarter of 2008, nearly $1 trillion has been shaved from outstanding consumer debts.

Additionally, this quarter’s supplemental report addresses for the first time the question of how this decline has been achieved and notes a sharp reversal in household cash flow from debt, indicating a decrease in available funds for consumption. According to newly available data through year end 2009, the payoff of debt by consumers reduced their cash flow by about $150 billion, whereas between 2000 and 2007, borrowing had contributed more than $300 billion annually to consumers’ cash flow.

Excluding the effects of defaults and charge-offs, available data show that non-mortgage debt fell for the first time since at least 2000. Also, net mortgage debt paydowns, which began in 2008, reached nearly $140 billion by year end 2009. These unique findings suggest that consumers have been actively reducing their debts, and not just by defaulting.

Consumer debt is declining but only part of the reduction is attributable to defaults and charge-offs,” said Donghoon Lee, senior economist in the Research and Statistics Group at the New York Fed. “Americans are borrowing less and paying off more debt than in the recent past. This change, which we continue to study carefully, can be a result of both tightening credit standards and voluntary changes in saving behavior.”
Here is the Q3 report: Quarterly Report on Household Debt and Credit

And a supplemental report: Have Consumers Become More Frugal?
So are consumers becoming more frugal? Yes. Holding aside defaults, they are indeed reducing their debts at a pace not seen over the last ten years. A remaining issue is whether this frugality is a result of borrowers being forced to pay down debt as credit standards tightened, or a more voluntary change in saving behavior.
And some data and graphs.

Total Household Debt Click on graph for larger image in new window.

From the NY Fed:
Aggregate consumer debt continued to decline in the second quarter, continuing its trend of the previous six quarters. As of June 30, 2010, total consumer indebtedness was $11.7 trillion, a reduction of $812 billion (6.5%) from its peak level at the close of 2008Q3, and $178 billion (1.5%) below its March 31, 2010 level. Household mortgage indebtedness has declined 6.4%, and home equity lines of credit (HELOCs) have fallen 4.4% since their respective peaks in 2008Q3 and 2009Q1. Excluding mortgage and HELOC balances, consumer indebtedness fell 1.5% in the quarter and, after having fallen for six consecutive quarters, stands at $2.31 trillion, 8.4% below its 2008Q4 peak.
There are a number of credit graphs at the NY Fed site.

Ireland Update: "Relying on the kindness of strangers"

by Calculated Risk on 11/08/2010 08:49:00 AM

The yield on the Ireland 10-year bond hit a record 7.75% this morning.

From Bloomberg: Irish Fight to End Bond `Buyers Strike' as EU Examines Budget

EU Economic and Monetary Affairs Commissioner Olli Rehn arrives in Dublin today for a two-day visit ... Ireland has the funds to avert the need for an immediate rescue, its cash may run out in the middle of next year unless it can raise money from the bond market in 2011.
...
Erik Nielsen, chief European economist at Goldman Sachs Group Inc., said Ireland may need help from the European Stability Fund and the IMF in Washington in early 2011.

“This is starting to feel like a tsunami of new concerns,” Nielsen said “There is a considerable probability that the alphabet soup will get involved in financing Ireland and Portugal early next year.”
And a long piece from Professor Morgan Kelly (Ireland's "Doctor Doom"): If you thought the bank bailout was bad, wait until the mortgage defaults hit home. He is definitely pessimistic, and concludes:
Ireland faced a painful choice between imposing a resolution on banks that were too big to save or becoming insolvent, and, for whatever reason, chose the latter. Sovereign nations get to make policy choices, and we are no longer a sovereign nation in any meaningful sense of that term.

From here on, for better or worse, we can only rely on the kindness of strangers.

Sunday, November 07, 2010

NY Times on Irish Bond Yields

by Calculated Risk on 11/07/2010 10:23:00 PM

From Landon Thomas at the NY Times: Irish Debt Woes Revive Concern About Europe

The yield on Ireland’s 10-year bond climbed to 7.6 percent on Friday ... Its debt woes have stoked fear that it might even need to follow Greece and request a bailout from the European Union and the International Monetary Fund.
...
For the moment, at least, that outcome seems improbable. Unlike Greece earlier this year, Ireland has enough cash on hand to allow it to finance government operations through June 2011.
Ireland has until next June to make progress. If Ireland does need a bailout next year, it will probably come from the European Financial Stability Facility (EFSF) - and at rates of around 8%.

Earlier:
  • Summary for Week ending Nov 6th. With plenty of graphs (employment, Fannie/Freddie/FHA REOs, auto sales, etc).
  • Schedule for Week of Nov 7th

  • NFIB: Small Business hiring "improves slightly"

    by Calculated Risk on 11/07/2010 06:28:00 PM

    The National Federation of Independent Business (NFIB) will release their small business confidence survey on Tuesday. They pre-released the employment results: Job Creation Plans on Main Street Improve Slightly

    [A] seasonally adjusted net 1 percent of owners [plan] to create new jobs, 4 points better than September. Although expectations for business conditions and real sales trends improved in October, it wasn’t enough to produce a surge in job creation plans which remained mired at recession levels. The NFIB labor market indicators are underperforming all recovery periods since 1973.”
    Small business hiring has been weak in the current recovery, and any improvement is plus - however it is important to note that a large percentage of small businesses are real estate related (compared to all businesses).

    Earlier:
  • Summary for Week ending Nov 6th. With plenty of graphs (employment, Fannie/Freddie/FHA REOs, auto sales, etc).
  • Schedule for Week of Nov 7th

  • Schedule for Week of Nov 7th

    by Calculated Risk on 11/07/2010 01:30:00 PM

    A light week for economic releases. The trade report on Wednesday is probably the key release and could lead to a revision in Q3 GDP.

    ----- Likely, but not scheduled -----

    Association of American Railroads rail traffic indicators for October. Trucking, rail traffic and the Ceridian diesel fuel index are all measures of transportation (a coincident indicator).

    ----- Monday, Nov 8th -----

    AM: New York Fed: U.S. Credit Conditions for Q3. This is a new quarterly report from the New York Fed.

    ----- Tuesday, Nov 9th -----

    7:30 AM: NFIB Small Business Optimism Index for October. This index has been showing small businesses remain pessimistic and the survey shows that the major concern is the lack of customers.

    9:00 AM: Ceridian-UCLA Pulse of Commerce Index™ This is the diesel fuel index for October (a measure of transportation).

    10:00 AM: Monthly Wholesale Trade: Sales and Inventories for September. The consensus is 0.6% increase in inventories.

    10:00 AM: Job Openings and Labor Turnover Survey for September from the BLS. This report has been showing very little turnover in the labor market and few job openings.

    ----- Wednesday, Nov 10th -----

    7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index declined sharply following the expiration of the tax credit, and the index has only recovered slightly over the last couple months - suggesting reported home sales through at least November will be very weak.

    8:30 AM: Trade Balance report for September from the Census Bureau. The consensus is for the U.S. trade deficit to decrease to $45 billion (from $46.3 billion in August).

    8:30 AM: The initial weekly unemployment claims report will be released. Consensus is for a decline to 450,000 from 457,000 last week. (released a day early).

    ----- Thursday, Nov 11th -----

    Veteran's Day: Stock Market Open

    ----- Friday, Nov 12th -----

    9:55 AM: Reuters/University of Mich Consumer Sentiment preliminary for November. The consensus is for a slight increase to 69.0 from 67.7 in October.

    After 4:00 PM: Perhaps the FDIC will have another busy Friday afternoon ...