Calculated Risk

Nevada Construction Crane: "Endangered species"

2009-11-07T19:40:00.000-05:00

Brian Wargo writes at the Las Vegas Sun: Construction nears standstill

The state bird of Nevada, the construction crane, is on the endangered species list.

... there are nine commercial projects of consequence under construction off from the Strip in Southern Nevada. Once most of those projects wind down early next year, there’s not much in the pipeline and development will essentially cease ... the long-range outlook ... is that there won’t be another major casino project built on the Strip for another decade. ...

As these remaining projects are completed thousands of construction workers will leave Las Vegas - impacting the local housing market and the Las Vegas economy.

“Once CityCenter is done, that is going to be it for a while,” [Steve Holloway, executive director of Associated General Contractors of Las Vegas] said. “It is going to be ugly. ... I think Southern Nevada is going to remain in this recession two to five more years.”

In many bubble areas, people thought high levels of construction activity and real estate related employment were the norm. I pointed out the obvious in 2005: "the areas most at risk have had the greatest increase in real estate related jobs". As usual, Vegas took the building boom to excess ...

U.K. Record 35 Thousand People Declared Insolvent in Q3

2009-11-07T17:13:00.003-05:00

From the Independent: Personal insolvencies rise to new record as unemployment bites

More people than ever before were declared insolvent in England and Wales during the third quarter of the year. Figures released by the Insolvency Service yesterday reveal that there were 35,242 personal insolvencies over the three months to the end of September, up by 28 per cent on the same period of 2008 ...

There was a decrease in corporate insolvencies in the U.K.

For the most recent stats in the U.S., from the American Bankruptcy Institute: October Consumer Bankruptcy Filings Reach New Highs, Up 28 Percent Over Last Year and a graph of U.S. personal bankruptcy filings here.

TARP Loses $299 million Investment in United Commercial Bank

2009-11-07T13:09:00.004-05:00

From the LA Times: United Commercial Bank is shut down, sold to East West Bancorp

Toppled by loan losses and misstated financial reports, San Francisco's United Commercial Bank was shut down by regulators Friday night ...

United Commercial's collapse may cause a greater-than-usual stir because a year ago the federal government invested $299 million in bailout funds in the bank in exchange for preferred stock, which was made worthless by the failure.

In addition, the FDIC said the collapse would cost the federal deposit insurance fund an estimated $1.4 billion.
...
United Commercial was burned by commercial lending losses, especially loans to developers and home builders during the housing boom. But it also was tainted by a financial scandal that resulted in a shake-up of its top management.

UCBH announced in September that its financial reports could not be trusted because of the "deliberate and improper actions and omissions of certain bank officers," who had understated losses in "an apparent desire to downplay deteriorating financial conditions."

UCBH Holdings, Inc. received $298,737,000 under the Troubled Asset Relief Program one year ago.

U.K.: Bank of England Warns of "Doom Loop"

2009-11-07T09:08:00.001-05:00

From The Telegraph: Bank of England says financiers are fuelling an economic 'doom loop'

On the eve of the G20 meeting of finance ministers in Scotland, Andy Haldane, the Bank's executive director for financial stability warned that the relationship between the state and banks represents a "doom loop" which will keep inflicting crises on the public unless arrested.

The warning, which follows Governor Mervyn King's call for investment banks to be split from their high street wings, is the most radical yet from the Bank, and comes amid growing concern that the G20 has abandoned any plans for far-reaching reforms.
...
Mr Haldane, who was a key part of a Bank unit which was among the first to warn, well ahead of the crisis, of a dangerous gap between what banks had in their balance sheets and what they were lending customers ...

Not much has been done to reform the banking system despite warnings from BofE's King, former Fed Chairman Paul Volcker, BofE's Haldane and others. As Haldane says, no reform equals a "doom loop".

NY Times: Unemployment Measure U-6 Highest Since Great Depression

2009-11-06T23:59:00.001-05:00

From David Leonhardt at the NY Times: Broader Measure of Unemployment Stands at 17.5% Excerpts:

Officially, the Labor Department’s broad measure of unemployment goes back only to 1994. But early this year, with the help of economists at the department, The New York Times created a version that estimates it going back to 1970.
...
If statistics went back so far, the measure would almost certainly be at its highest level since the Great Depression.

In all, more than one out of every six workers — 17.5 percent — were unemployed or underemployed in October. The previous high was 17.1 percent, in December 1982.

There is much more in the article, but this suggest that the BLS' "Alternative measure of labor underutilization U-6"¹ is now at the highest level since the Great Depression.

¹ "Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers"

Bank Failure #120: United Commercial Bank, San Francisco, California

2009-11-06T21:40:00.003-05:00

Sunrise in the East
United Commercial Bank
Sunsets in the West
by Soylent Green is People
From the FDIC: East West Bank, Pasadena, California Assumes All the Deposits of United Commercial Bank, San Francisco, California

United Commercial Bank, San Francisco, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of October 23, 2009, United Commercial Bank had total assets of $11.2 billion and total deposits of approximately $7.5 billion. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $1.4 billion. ... United Commercial Bank is the 120th FDIC-insured institution to fail in the nation this year, and the 14th in California. The last FDIC-insured institution closed in the state was Pacific National Bank, San Francisco, which closed on October 30, 2009.

A late night whale makes five ...

Unofficial Problem Bank List Grows to 505

2009-11-06T21:27:00.004-05:00

Note: This was before the FDIC seized four banks today.

This is an unofficial list of Problem Banks.

Changes and comments from surferdude808:

The steady climb in members on the Unofficial Problem Bank list continued this week despite the failure of the multi-bank holding company FBOP Corporation, which took down 9 banks including 5 banks with aggregate assets of $17.5 billion that were on the Unofficial Problem Bank List.

There were 10 additions this week, which pushes the total number of institutions on the list to 505, up from 500 last week. Aggregate assets did drop to $330 billion from $341 billion a week ago.

Notable additions include Hanmi Bank, Los Angeles, CA ($3.9 billion, ticker HAFC); Bank of Blue Valley, Overland Park, KS ($810 million, ticker BVBC.OB); and San Luis Trust Bank, FSB, San Luis Obispo, CA ($369 million, ticker SNLS..OB). In addition, another banker’s bank was added -- Independent Banker's Bank of Florida, Lake Mary, FL. The failure of Silverton Bank, N.A., another banker’s bank based in Georgia, back in May was a costly failure for the FDIC.

By next Friday, the OCC may release its actions for October.

This week we looked over the numbers to determine which states have the most stress in their banking sector. For the ranking, we added together the number of institutions that are on the Unofficial Problem Bank List and failures since 2008 and divided by the number of institutions headquartered in the state and failures since 2008. Interestingly, Georgia is not the top ranked state. Here is the top 10 list; actually top 11 as Maryland and Colorado are in a virtual tie. Please note that we only ranked states with at least 15 institutions headquartered within their borders, as we did not want the ranking influenced by a small banking market.

State Percent

Washington 26.3%

Utah 25.0%

Arizona 21.3%

Nevada 20.0%

Oregon 19.5%

Georgia 19.2%

California 17.8%

Florida 16.3%

Michigan 13.2%

Maryland 10.8%

Colorado 10.6%

Washington State leads the way with more than 26 percent of its banking industry either under formal enforcement action or having failed. No wonder the esteemed governor wrote a letter to the state’s congressional delegation complaining about bank regulators (see Wall Street Journal article).
Washington Gov. Christine Gregoire sent a letter to her congressional delegation Oct. 9 complaining that "federal regulators have applied inflexible 'one size fits all' regulatory standards on community banks and potential investors that hinder the ability of these community banks to weather the financial storm and actually inhibit opportunities to raise critically needed capital at the local level." Her letter came just days after the Federal Reserve declined to approve the sale of Frontier Financial, the fifth-largest bank in her state, to a New York investment fund for $450 million. Frontier Financial Chief Executive Patrick Fahey declined to comment.

State	Percent
Washington	26.3%
Utah	25.0%
Arizona	21.3%
Nevada	20.0%
Oregon	19.5%
Georgia	19.2%
California	17.8%
Florida	16.3%
Michigan	13.2%
Maryland	10.8%
Colorado	10.6%

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".

Bank Failures #118 & 119: Banks in Minnesota & Missouri

2009-11-06T19:13:00.004-05:00

Whats a "Prosperan"?
A breakfast food, car or band?
Answer: money pit

Looming Gateway Arch
Symbol of pioneer spirit
Their bank now a ghost.
by Soylent Green is People
From the FDIC: Alerus Financial, National Association, Grand Forks, North Dakota, Assumes All of the Deposits of Prosperan Bank, Oakdale, Minnesota

Prosperan Bank, Oakdale, Minnesota, was closed today by the Minnesota Department of Commerce, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of August 31, 2009, Prosperan Bank had total assets of $199.5 million and total deposits of approximately $175.6 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $60.1 million. ... Prosperan Bank is the 118th FDIC-insured institution to fail in the nation this year, and the sixth in Minnesota. The last FDIC-insured institution closed in the state was Riverview Community Bank, Ostego, on October 23, 2009

From the FDIC: Central Bank of Kansas City, Kansas City, Missouri, Assumes All of the Deposits of Gateway Bank of St. Louis, St. Louis, Missouri

Gateway Bank of St. Louis, St. Louis, Missouri, was closed today by the Missouri Division of Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of September 25, 2009, Gateway Bank of St. Louis had total assets of $27.7 million and total deposits of approximately $27.9 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $9.2 million. ... Gateway Bank of St. Louis is the 119th FDIC-insured institution to fail in the nation this year, and the third in Missouri. The last FDIC-insured institution closed in the state was First Bank of Kansas City, Kansas City, on September 4, 2009.

That makes four today ...

Bank Failure #117: Home Federal Savings Bank, Detroit, Michigan

2009-11-06T18:17:00.003-05:00

Motor City crash.
Home Federal has spun out.
Bagholders totaled
by Soylent Green is People
From the FDIC: Liberty Bank and Trust Company, New Orleans, Louisiana, Assumes All of the Deposits of Home Federal Savings Bank, Detroit, Michigan

Home Federal Savings Bank, Detroit, Michigan, was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of September 24, 2009, Home Federal Savings Bank had total assets of $14.9 million and total deposits of approximately $12.8 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $5.4 million. ... Home Federal Savings Bank is the 117th FDIC-insured institution to fail in the nation this year, and the third in Michigan. The last FDIC-insured institution closed in the state was Warren Bank, Warren, on October 2, 2009.

A small one ... but it counts.

Bank Failure #116: United Security Bank, Sparta, Georgia

2009-11-06T17:05:00.003-05:00

"Feds!... Come and Take Them"
United Security
Sparta Bank is dead.
by Soylent Green is People
From the FDIC: Ameris Bank, Moultrie, Georgia, Assumes All of the Deposits of United Security Bank, Sparta, Georgia

United Security Bank, Sparta, Georgia, was closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of September 14, 2009, United Security Bank had total assets of $157 million and total deposits of approximately $150 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $58 million. ... United Security Bank is the 116th FDIC-insured institution to fail in the nation this year, and the twenty-first in Georgia. The last FDIC-insured institution closed in the state was American United Bank, Lawrenceville, on October 23, 2009.

Off to a quick start ...

Consumer Credit Declines Sharply in September

2009-11-06T15:00:00.004-05:00

From MarketWatch: Consumer debt drops for record 8th straight month

Outstanding consumer debt fell at a 7.2% annual rate in September, the eighth consecutive decline, the Federal Reserve reported Friday.

Click on graph for larger image in new window.

This graph shows the year-over-year (YoY) change in consumer credit. Consumer credit is off 4.7% over the last 12 months - and falling fast. The previous record YoY decline was 1.9% in 1991.

Here is the Fed report: Consumer Credit

Consumer credit decreased at an annual rate of 6 percent in the third quarter of 2009. Revolving credit decreased at an annual rate of 10 percent, and nonrevolving credit decreased at an annual rate of 3-3/4 percent. In September, consumer credit decreased at an annual rate of 7-1/4 percent.

Note: The Fed reports a simple annual rate (multiplies change in month by 12) as opposed to a compounded annual rate. Consumer credit does not include real estate debt.

CRE Report: "Gloomy Times"

2009-11-06T13:47:00.003-05:00

Update: A couple points: CRE is a lagging sector (see Business Cycle: Temporal Order), and I make some pretty optimistic comments in the middle of this post. I'll try to put some number togther on household formation and excess inventory.

From Carolyn Said at the San Francisco Chronicle: Gloomy times for commercial real estate

Values will plunge, vacancies will rise and rents will decrease across all types of commercial property before the market hits bottom in 2010, according to the "Emerging Trends in Real Estate" forecast from the Urban Land Institute and PricewaterhouseCoopers LLP.
...
No quick recovery is in store, the report said. "2010 looks like an unavoidable bloodbath for a multitude of 'zombie' borrowers, investors and lenders," it said. "The shake-out period may extend several years as even some conservative owners with well-underwritten loans from the early 2000s see their equity destroyed."

The report suggests the first sector to recover will be apartments as "people who were forced to move back in with their parents seek their own places as soon as they find jobs".

This household creation is really the key to entire housing market. During a recession people double up with friends or move into their parent's basements - and this is pent-up demand for housing units (mostly apartments) once these people find jobs and regain confidence about their future earnings.

All will not be grim forever. The number of housing units currently being completed (single family and apartments) is significantly below the level normally required for population growth. This level of completions would usually be reducing the excess inventory, however the improvement is being masked by the loss of households due to the recession. Once the job market starts to improve, I'd expect a surge in household creation (mostly renters).

Unfortunately there is a catch-22. Usually residential investment contributes significantly to job creation at the beginning of a recovery - and the excess housing inventory is holding down residential construction employment this time.

For the other CRE sectors the outlook is very grim. From the Urban Land Institute:

Among property sectors, the survey finds declines or near low record lows in investment sentiment for almost every property type. Only rental apartments register fair prospects and all other categories sink into the fair to poor range. Hotel and retail record the most precipitous falls. Development prospects are “largely dead” and drop to new depths and practically to “abysmal” levels for office, retail and hotels. Warehouse and apartments score only marginally better at “modestly poor.”

Unemployment: Stress Tests, Unemployed over 26 Weeks, Diffusion Index

2009-11-06T10:29:00.001-05:00

A few more graphs ...

Stress Test Scenarios

The economy is performing better that the stress test baseline scenario for GDP and house prices, but worse than the "more adverse" stress test scenario for unemployment.

Click on graph for larger image in new window.

This graph shows the unemployment rate compared to the stress test economic scenarios on a quarterly basis as provided by the regulators to the banks (no link).

This is a quarterly forecast: the Unemployment Rate for Q4 is just October at 10.2%. The unemployment rate is higher than the "more adverse" scenario, and much higher than the peak of the baseline scenario.

Unemployed over 26 Weeks

The DOL report yesterday showed seasonally adjusted insured unemployment at 5.75 million, down from a peak of about 6.9 million. This raises the question of how many unemployed workers have exhausted their regular unemployment benefits (Note: most are still receiving extended benefits, and President Obama signed a further extension of benefits this morning).

The monthly BLS report provides data on workers unemployed for 27 or more weeks, and here is a graph ...

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are a record 5.6 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 3.6% of the civilian workforce. (note: records started in 1948)

Diffusion Index

The third graph shows the BLS diffusion indexes for total private employment and manufacturing employment.

Think of this as a measure of how widespread the job losses are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.

Both the "all industries" and "manufacturing" employment diffusion indices had been trending up - meaning job losses were becoming less widespread. However both turned down in October. This series is noisy month-to-month, but it still appears job losses are widespread across industries.

Earlier employment posts today:

Employment Report: 190K Jobs Lost, 10.2% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

Employment-Population Ratio, Record Part Time Workers, Weak Holiday Hiring

2009-11-06T09:24:00.001-05:00

The [un]employment report headline numbers were ugly, but the internals are even less encouraging ...

Employment-Population Ratio

Click on graph for larger image in new window.

This graph shows the employment-population ratio; this is the ratio of employed Americans to the adult population.

Note: the graph doesn't start at zero to better show the change.

The general upward trend from the early '60s was mostly due to women entering the workforce.

This measure fell in October to 58.5%, the lowest level since the early '80s.

The Labor Force Participation Rate fell to 65.1% (the percentage of the working age population in the labor force). This is also the lowest since the mid-80s.

When the job market starts to recover, many of these people will reenter the workforce and look for employment - and that will keep the unemployment rate elevated for some time.

Part Time for Economic Reasons

From the BLS report:

The number of persons working part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in October at 9.3 million. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of workers only able to find part time jobs (or have had their hours cut for economic reasons) is at a record 9.284 million.

Note: the U.S. population is significantly larger today (about 308 million) than in the early '80s (about 228 million) when the number of part time workers almost reached 7 million. Still - even adjusted for population - part time workers is at record levels.

Seasonal Retail Hiring

The old saying is "Watch what they do, not what they say". Yesterday there were some reports that retail sales were up slightly year-over-year. But retailers are hiring seasonal workers at the same pace as last year ...

Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.

This really shows the collapse in retail hiring in 2008.

Retailers only hired 63.5 thousand workers (NSA) net in October. This is essentially the same as in 2008 (59.1 thousand NSA), and suggests retailers are being very cautious with their seasonal hiring.

Earlier employment post today:

Employment Report: 190K Jobs Lost, 10.2% Unemployment Rate for graphs of unemployment rate and a comparison to previous recessions.

Employment Report: 190K Jobs Lost, 10.2% Unemployment Rate

2009-11-06T08:30:00.006-05:00

From the BLS:

The unemployment rate rose from 9.8 to 10.2 percent in October, and nonfarm payroll employment continued to decline (-190,000), the U.S. Bureau of Labor Statistics reported today. The largest job losses over the month were in construction, manufacturing, and retail trade.

Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 190,000 in October. The economy has lost almost 5.5 million jobs over the last year, and 7.3 million jobs¹ during the 22 consecutive months of job losses.

The unemployment rate increased to 10.2 percent. This is the highest unemployment rate in 26 years.

Year over year employment is strongly negative.

The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up earlier this year, and the current recession is the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early '80s recession with a peak of 10.8 percent was worse).

The economy is still losing jobs at about a 2.2 million annual rate, and the unemployment rate is finally above 10%. This is a very weak employment report - just not as bad as earlier this year. Much more to come ...

¹Note: The total jobs lost does not include the preliminary benchmark payroll revision of minus 824,000 jobs. (This is the preliminary estimate of the annual revision that will be announced early in 2010).

Employment Report Preview

2009-11-06T00:31:00.003-05:00

See the poll in the right sidebar ...

Catherine Rampell at the NY Times Economix offers a Jobs Report Preview

Ms. Rampell suggests three things to look for:

1) The unemployment rate may hit 10 percent.
...
2) Job losses continue to mount, but more slowly.
...
3) Hours worked stagnate.

There will be many more interesting details such as the employment-population ratio, part time workers, how many people are unemployed more than 26 weeks (for unemployment benefits), and how many part time workers were hired for seasonal retail jobs - just to mention a few.

Report: Pre-Retirees in Denial on Savings

2009-11-05T21:24:00.006-05:00

From CNBC: Boomers in Denial About Retirement Savings

Wells Fargo just released the results of its Retirement Fitness survey and looked hard at the investment habits of pre-retirees ages 50 to 59. What did they find?

“There is a sense of denial among the pre-retirees,” said Lynne Ford, head of Wells Fargo Retail Retirement.

Even after suffering significant losses last year, many remain overly optimistic about their investment returns and the ability of their savings to fund their expenses after they stop working.
...
On average, these pre-retirees expected they would need $800,000 to fund their retirement. However, most had only saved about $300,000.

I expect many of these pre-retirees will start saving more soon, and this is part of the reason I expect the saving rate to increase to 8% or so over the next couple of years. And for a more humorous take:

Fannie Mae: $18.9 Billion Loss, Requests Another $15 Billion

2009-11-05T17:20:00.004-05:00

Press Release: Fannie Mae Reports Third-Quarter 2009 Results

Fannie Mae (FNM/NYSE) reported a net loss of $18.9 billion in the third quarter of 2009, compared with a loss of $14.8 billion in the second quarter of 2009. ... Third-quarter results were largely due to $22.0 billion of credit related expenses, reflecting the continued build of the company’s combined loss reserves and fair value losses associated with the increasing number of loans that were acquired from mortgage backed securities trusts in order to pursue loan modifications.
...
As a result, on November 4, 2009, the Acting Director of the Federal Housing Finance Agency (FHFA) submitted a request for $15.0 billion from Treasury on the company’s behalf.
...
The seriously delinquent loans in our single-family book of business, which we define as those loans 90 or more days delinquent or in the process of foreclosure, increased and aged during the third quarter. This was caused by a greater number of loans that transitioned to seriously delinquent status, while the proportion of already seriously delinquent loans that cured or transitioned to completed foreclosures declined. Factors contributing to the increase in serious delinquencies included: high unemployment that hampered the ability of many delinquent borrowers to cure their delinquencies; Home Affordable Modifications in trial periods, which remain classified as delinquent; our directive that servicers delay foreclosure sales until other alternatives, including Home Affordable Modification, have been exhausted; and, the slowdown in the legal process for foreclosures in a number of states.
...
Total nonperforming loans in our guaranty book of business were $198.3 billion, compared with $171.0 billion on June 30, 2009, and $119.2 billion on December 31, 2008. The carrying value of our foreclosed properties was $7.3 billion, compared with $6.2 billion on June 30, 2009, and $6.6 billion on December 31, 2008.
emphasis added

Obama to Sign Extension of Unemployment Benefits and Housing Tax Credit Friday

2009-11-05T15:26:00.003-05:00

Apparently to reduce the sting from the [un]employment report ...

From CNNMoney: Congress approves more benefits for jobless

The closely watched legislation would extend jobless benefits in all states by 14 weeks. Those that live in states with unemployment greater than 8.5% would receive an additional six weeks. ... The measure would apply to those whose benefits run out by Dec. 31, which is nearly two million people, according to Senate estimates. Those whose checks have already stopped would be able to reapply for another round.

There probably will be another bill for those who exhaust their benefits after the end of the year.

President Obama will apparently sign the bill into law Friday morning ...

Hotel RevPAR Off 13.8 Percent

2009-11-05T12:44:00.000-05:00

From HotelNewsNow.com: Anaheim-Santa Ana leads occupancy increases in STR weekly numbers

Overall, in year-over-year measurements, the industry’s occupancy fell 7.2 percent to end the week at 51.8 percent, average daily rate dropped 7.2 percent to US$98.99, and revenue per available decreased 13.8 percent to US$51.28.

Click on graph for larger image in new window.

This graph shows the occupancy rate by week for each of the last four years (2006 through 2009 labeled by start of month).

Notes: the scale doesn't start at zero to better show the change. Thanksgiving was late in 2008, so the dip doesn't line up with the previous years.

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

The above graph shows two key points:

This is a two year slump for the hotel industry. Although occupancy is off 7.2% compared to 2008, occupancy is off about 14% compared to 2006 and 2007.

There is a distinct seasonal pattern for the occupancy rate. The occupancy rate is higher in the summer (because of leisure travel), and lower on certain holidays.

The HotelNewsNow press release also has this graph on occupancy variance compared to 2008.

For most of the year business travel (mid-week) has been off more than leisure travel (weekends).

Perhaps there has been an increase in mid-week travel, and this is something to watch.

Fannie Mae Announces "Lease for Deed" Program

2009-11-05T11:20:00.001-05:00

From Fannie Mae: Fannie Mae Announces Deed for Lease™ Program

Fannie Mae (FNM/NYSE) is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.
...
The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.

To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31% of their gross income.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period. A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.

This is part of the "single family public housing" program.

Weekly Initial Unemployment Claims: 512,000

2009-11-05T08:33:00.003-05:00

The DOL reports weekly unemployment insurance claims decreased to 512,000:

In the week ending Oct. 31, the advance figure for seasonally adjusted initial claims was 512,000, a decrease of 20,000 from the previous week's revised figure of 532,000. The 4-week moving average was 523,750, a decrease of 3,000 from the previous week's revised average of 526,750.
...
The advance number for seasonally adjusted insured unemployment during the week ending Oct. 24 was 5,749,000, a decrease of 68,000 from the preceding week's revised level of 5,817,000.

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 3,000 to 523,750, and is now 135,000 below the peak in April. The significant decline from the peak strongly suggests that initial weekly claims have peaked for this cycle.

However, the level is still very high suggesting continuing job losses.

Politicians Pressuring Regulators on Banks

2009-11-04T22:06:00.003-05:00

Repeating the errors from the S&L crisis ...

Last Friday, the Chicago Tribune reported: Regulators seize FBOP banks

The Park National shutdown occurred after several Illinois congressmen, including Reps. Bobby Rush and Danny Davis and Sen. Roland Burris, called the FDIC asking it to delay closing the bank for at least a week, said Marilyn Katz, a bank spokeswoman.
emphasis added

Tonight from the WSJ: Bank Crackdown Draws Criticism

Politicians are putting pressure on regulators to go easy on small community banks across the U.S. ...

"A self-fulfilling prophecy of community bank failures, shrinking credit availability and a slower economic recovery can all result from a regulatory overreaction to the current crisis," said the letter, which also was signed by Rep. Walt Minnick (D., Idaho).
...
Rep. Tom Price (R., Ga.) told [FDIC Chairwoman] Ms. Bair he wasn't "convinced that the FDIC isn't contributing to the awful problems that we're having" in his state, where 20 banks have failed in 2009. The banks "dot every 'i' and they cross every 't' and then the knock comes on the door on Friday afternoon," he told her.

This is backwards. By moving slowly, the FDIC is tainting all small banks and making it more difficult for them to raise capital (ht Pat). In addition, healthy banks are holding on to capital to try to buy assets from the FDIC at a discount, compared to the cost of a similar new loan.

The sooner the FDIC completes the process of closing failed banks, the better for the remaining banks and the economy.

FHA Delays Fiscal Report

2009-11-04T18:47:00.000-05:00

From Diana Golobay at HousingWire: FHA Delays Yearly Fiscal Report over ‘Accuracy’ of Methodology

A US Department of Housing and Urban Development (HUD) spokeswoman indicated hours before the scheduled release that the report would not be completed in time, and FHA commissioner David Stevens later issued a statement on the cause of the delay.

“FHA asked the independent actuary, IFE [Integrated Financial Engineering], to run additional economic scenario testing above and beyond what was going to be included in the actuarial study to better understand a broader range of risk scenarios,” Stevens said. “Based on these results, we raised questions about the accuracy of IFE’s modeling and IFE therefore advised us that we should not treat the report as final. IFE is now running additional tests to ensure that the final report is accurate.”

Stevens added, “We will only release a report that we are confident is accurate and fully reflects the health of the FHA.”

And from the WaPo: FHA abruptly delays audit of agency's financial health

In September, Stevens said the audit, when released, would show that the agency's cash reserves had dropped below federally mandated levels. ... But while the reserves are at a historic low, the audit predicted that they would rebound to the required level within two to three years largely as a result of the recovery in the housing market ...

On Wednesday, neither the FHA nor the auditing firm would publicly comment about whether the preliminary data are now in question.

But Barry Dennis, president and chief operating officer of the auditing firm, said his office is working as quickly as possible to produce the final report. "In an environment like we're in today, you need to look at a number of different economic scenarios and in the process of doing that, we needed to track down some potential issues," Dennis said.

The concern is that some of the "different economic scenarios" showed the FHA would require a significant taxpayer bailout.

ISM and Employment: Manufacturing Gives, Service Takes Away

2009-11-04T15:44:00.001-05:00

Earlier this week there was some discussion about the increase in the ISM Manufacturing employment index.

ISM's Employment Index registered 53.1 percent in October, which is 6.9 percentage points higher than the 46.2 percent reported in September. This is the first month of growth in manufacturing employment following 14 consecutive months of decline. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

To check this statement, I posted a scatter graph of the relationship between the ISM Manufacturing employment index and the reported monthly change in manufacturing employment. (See: ISM and Manufacturing Employment) Sure enough, the increase in the employment index suggests an improvement in the BLS manufacturing employment numbers.

However the news today from the ISM non-manufacturing employment index was discouraging:

Employment activity in the non-manufacturing sector contracted in October for the 21st time in the last 22 months. ISM's Non-Manufacturing Employment Index for October registered 41.1 percent. This reflects a decrease of 3.2 percentage points when compared to the 44.3 percent registered in September.

And that calls out for another graph!

The following graph shows the ISM Non-Manufacturing Employment Index vs. the BLS reported monthly change in private service employment (as a percent of private service employment).

Note: There is a limited amount of data for the ISM non-manufacturing index (only back to July 1997).

Click on graph for larger image in new window.

Once again the ISM employment index is related to changes in BLS employment.

Although the relationship is noisy, the decline in the non-manufacturing employment index suggests that the October improvement in manufacturing employment will be more than offset by a decline in service employment.