Federal Reserve Sees Economy Stabilizing
About every six weeks the Federal Reserve issues the Beige Book. This is anecdotal information collected from each Federal Reserve district. It provides a good overview of the current situation in the economy. Let's take a look at what the report says.
Residential real estate markets remained weak, but signs of improvement continued to be noted. Chicago, Richmond, Boston, and San Francisco observed an uptick in sales over the last six weeks, while sales in the Philadelphia District were described as steady. St. Louis commented that residential home sales had not improved. Most Districts reported that sales remained below the levels of a year earlier. However, Atlanta, New York, Cleveland, and Minneapolis documented some year-over-year gains in select markets. Most Districts noted that demand remained stronger at the low-end of the housing market. Boston, Cleveland, Dallas, Kansas City, Richmond, and New York indicated that the first-time home buyer tax incentive was spurring sales. However, Philadelphia did note an upturn in sales at the high-end of the market. Reports on house prices generally indicated ongoing downward pressures, although Dallas and New York noted some increases. Construction remained at low levels overall, although Chicago and Dallas reported a small increase in activity.
The points made are consistent with the following charts of homes sales.
New homes sales have bottomed and are showing a slight increase.
Existing home sales increased at a good rate last month.
While we are still seeing a year over year decline in housing prices, we are starting to see month to month improvement:
The prices of single-family homes in 20 major cities rose a not-seasonally adjusted 1.4% in June, the second increase in a row after falling every month for three years, according to the Case-Shiller home-price index released Tuesday by Standard & Poor's.
Commercial real estate is still having problems:
Reports on commercial real estate markets indicated that demand for space remained weak and that construction continued to decline in all Districts. Atlanta, Philadelphia, Richmond, and San Francisco reported that vacancy rates increased, while rates held steady in the Boston and Kansas City Districts and were mixed in New York. Boston, Dallas, Kansas City, Philadelphia, and Richmond commented that the demand for space remained weak. Commercial rents declined according to Boston, Chicago, New York, Philadelphia, and Richmond. Rent concessions were reported in the Richmond and San Francisco markets, and Richmond noted that some landlords had postponed property improvements in an effort to conserve cash. Construction remained at very low levels, with modest improvements noted in public construction in the Chicago, Cleveland, and Minneapolis Districts.
There's been a great deal written about the impending commercial real estate collapse. However, a closer look at the data indicates the word collapse is a bit far-fetched:
U.S. banks have been charging off soured commercial mortgages at the fastest pace in nearly 20 years, according to an analysis by The Wall Street Journal. At that rate, losses on loans used to finance offices, shopping malls, hotels, apartments and other commercial property could reach about $30 billion by the end of 2009.The losses by regional banks on their commercial real-estate loans will be among the most watched details as thousands of banks report second-quarter results over the next two weeks. Many of the most troubled banks have heavy exposure to commercial real estate. So far, 57 banks have failed this year.
The $30 billion estimate is based on financial reports filed by more than 8,000 banks for the first quarter. The trend continued as a handful of major banks reported second-quarter results, including Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Bank of America Corp. Regional banks tend to have higher exposure to commercial real estate than these big financial institutions.
While $30 billion is not good, it is hardly a fact on which to make calls for an apocalypse. In short, the market should be able to handle that. While other estimates place the total losses higher (at a maximum rate of $150 billion) it's still not a a level where we should be making doomsday predictions. And while there is also trouble in commercial mortgaged backed securities, the concern is over roughly $100 billion in total problem loans that will come due and have to be refinanced by 2012. That means the loans will have to be dealt with over a period of 2-3 years. While the development is not good and should not be applauded, this is a manageable disaster.
Most Districts reported modest improvements in the manufacturing sector. Philadelphia, Richmond, Atlanta, Cleveland, and Chicago all reported slight-to-moderate increases in new orders. San Francisco indicated that new orders increased for manufacturers of semiconductors and other IT products, while orders declined for metal fabricators and petroleum refineries. Dallas noted that orders held steady, while St. Louis reported that manufacturing output continued to decline, but at a slower pace. Richmond, Atlanta, Chicago, and Minneapolis reported increases or planned increases in automobile and automobile-related production. Several Districts also noted increased production in the pharmaceutical industry.
This has been a surprisingly uncovered series of stories. Consider these charts of the various Federal Reserve district's manufacturing surveys:
The Empire State index (NY) has been increasing for several months and is now above 50.
The Philly Fed index is right about expansion levels, as is
The Richmond Fed's numbers.
And the national ISM number is now above 50, indicating expansion in the manufacturing sector. Overall, manufacturing is showing clear signs of pulling out of the recession.
Labor market conditions remained weak across all Districts, but several also noted an uptick in temporary hiring and a decline in the pace of layoffs. Richmond reported that most service-providing firms continued to cut employees, while Minneapolis and New York noted additional layoffs in the manufacturing sector. Cleveland reported modest job declines in the banking, commercial construction, and coal mining sectors. Further job cuts are expected in auto manufacturing according to St. Louis, and Dallas indicated further staff reductions are anticipated in the airline, energy, and residential construction sectors. Staffing firms in a majority of Districts reported a modest increase in the demand for temporary workers, although industry contacts in Boston also questioned whether these gains will persist. New York cited a modest pickup in temporary hiring for the legal and financial industries. Chicago noted an uptick in demand for workers in the healthcare and information technology industries. St. Louis and Minneapolis reported that federal stimulus funds have had a positive impact on construction and local government jobs.
I analyzed the latest jobs report here. Here is a list of the conclusions from the article:
1.) The rate of job destruction has decreased since the beginning of the year. Remember that at the end of last year the beginning of this year, the economy was losing 600,000 jobs per month. To expect that figure to turn around and print a positive number within 6-9 months is highly unrealistic. In fact, it is most possible that we'll see job losses through the next 3-6 months. But the pace of job losses is decreasing which is good news.2.) The increase in the unemployment rate is bad news, plain and simple.
3.) The steady size of the number of people working part-time for economic reasons along with the possible topping out of discouraged workers is also good news as it indicates a possible topping of two categories of labor under-utilization.
4.) Two of the four time periods of unemployment showed improvement last month and the worst category (people unemployed for 27 weeks and longer) showed a far slower rate of acceleration.
5.) The increase in the marginally attached and the number of people unemployed for 5-14 weeks are bad developments.
There is one important point with the unemployment rate: it is a lagging indicator. History shows us that on a year over year basis, GDP must turn positive before we can even think about a decline in the unemployment rate. As such, we're simply not in a position to be talking about a drop in the unemployment rate yet.
Consumer spending remained soft in most Districts. The majority of Districts reported that retail activity was flat. Boston, Philadelphia, and Kansas City noted improvement in sales, but attributed the increase primarily to back-to-school purchases. Philadelphia, Chicago, Cleveland, and San Francisco observed that shoppers remained focused on essentials and continued to refrain from purchasing discretionary and big-ticket items. Kansas City and San Francisco noted weak restaurant sales. Richmond, Philadelphia, Chicago, Atlanta, and Boston remarked that retailer inventories were being closely monitored and were keeping them in line with low sales levels.
While spending is soft, it has stabilized as these two charts demonstrate:
Real (inflation-adjusted) retail sales have bottomed, as have:
Real personal consumption expenditures.
1.) Housing sales have stabilized.
2.) Housing prices are still declining on a year over year basis, but have shown improvement over the last two months.
3.) The talk of a commercial real estate "implosion" is a bit far-fetched. There are problems but they are manageable.
4.) Manufacturing is now expanding.
5.) The labor market is still weak, but the rate of job loss continues to decrease and metrics within the jobs report (the number of people unemployed for specific lengths of time) is showing improvement. The latest Beige Book mentions in several places of an uptick in temporary help. Finally, the unemployment rate is a lagging indicator; it is unrealistic to talk of an improvement in the unemployment rate when GDP is still contracting.
6.) Consumer spending has bottomed.
Dan Dorfman: Bulls Rule, But Watch Your Back
There's an age-old Wall Street saying: Don't fight the trend. For now, at least, the apparent trend is that equity prices are headed even higher after whopping stock gains.
Charlie Farrell: Three Things Still Wrong With the Housing Market
We've gotten a bit of good news lately on the housing front with more new home sales and a slight bump in home prices, but the market is still completely dysfunctional.
Danny Schechter: Searching for the Crisis and Finding It
Out in the street, you notice fewer cabs and town cars. There are retail vacancies on every block. Stores are discounting everything. When JC Penny opened in Midtown, 15,000 people applied for 500 jobs.
John F. Wasik: Want to See Neighborhoods that Beat the Bust? Take a Walk
Pedestrian-friendly cities can make huge personal economic sense. If you don't need a car, you can save thousands a year.
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The Federal Reserve Bankers.
Now, THERE's a name you know you can trust.
WE’LL KNOW OUR DISINFORMATION PROGRAM IS COMPLETE WHEN EVERYTHING THE AMERICAN PUBLIC BELIEVES IS FALSE’: William Casey, Director of Central Intelligence: An observation by the late Director at his first staff meeting in 1981. This observation reveals the mentality of cynicism which infests the US Federal control structures, and the reality that these structures regard the American people with total contempt. This attitude is the opposite to the noble concept of service to the American people which ought to inspire holders of public office, and therefore represents the epitome of decadence.
This stage of the Recession is call the CHRUNING STAGE .
The banks need to get people to spend money for a little while before they take more of their spoils.
Notice the jump in the price of Gold. More of the super rich are cashing out. Soon they will need more cash so more can cash out.
But watch out for the gold squeeze and prices to drop fast like the 1970's
You bloggers are right. Our leaders deny reality. Geithner, the Banking Savior, had an unprecedented town meeting with young white intellectual types who are trying to get a cut of the financial system easy money. The Obama "economic team" knows that with sincerity, easy questions and simple solutions, the masses can be convinced that their emerging slavery is actually freedom of opportunity. His appearance in such a forum is a blatant thrust for unearned influence---the mark od demigoguery.
There was no discussion of foreign penetration of our markets, no discussion of any succor for the 20 million without a job or future, no salient ideas except the ideas that benefit the monopolistic banks.
Propaganda has replaced substance as our country continues to "stabalize" ever downward.
Our leaders are working night and day for their masters---the swindling bankers. The people are no longer part of the equation of governance. The destruction of the middle class is on its way. And those declining citizens are being indoctrinated to accept it.
The ever downward decline is the new "stabalized".
Geithner is our Savior
Impovershed goat herders on the other side of the world living in mud huts are an imminent threat to our survival.
You've still got it leader.
After reviewing the criteria used to determine the beginnings and endings of recessions it appears as though the official declaration of the end of the current downturn will be sometime this summer. The announcement, if true to form, will be delayed. The production side of the equation appears to have bottomed and returned to slightly positive growth. Hiring however is still non existent. The consumption side has yet to turn upward to any great extent. Exports look promising. There are still a few sticky wickets to deal with:
Back to school sales down 2.9%. These are noted as being a harbinger of Christmas sales.
Withholding tax receipts are plummeting, down 20% Q1 to Q2 2009 and 7.5% Y to Y.
Unemployment claims remain stubbornly elevated. This chart looks very much like the 2001 recession but about 150,000 claims per week worse. What is painful is that even now we are above the peak of 2001.
Personal consumption expenditures remain depressed.
Wages are still plummeting.
Government spending is holding all of this together. Five billion dollars per day in deficit spending is keeping our collective noses above water. That's half of all Federal spending and 13% of GDP just to reach ZERO. Calling what we have now a recovery is like pushing a broken car down a hill and declaring it fixed. Given the deficit and that the Wall Street's Robber Barons are still in control I hope the sign up ahead doesn't say bridge out.
Recession may have ended, but the depression has not. See: Debt Induced Deflationary Spiral
Also notice that last night Obama said the economy is "on the road to recovery" which means government will not make any more interventions in the near future. This leads me to believe when the pulled forward demand caused by the stimulus bill peters out, so will whats left of this recovery.
Oh and here is a fun fact: Corporate managers/directors sell/buy insider stock (the stock for the company they currently work for) and this rate is tracked by the SEC and made public. At the begining of March (the stock market upswing) it was 1/20 sell/buy, two weeks ago it was 33/1 sell/buy, this week its 100/1 sell/buy. Good Luck folks, the rats are jumping the sinking ship over in NY.
"this week its 100/1 sell/buy"
The insiders think that's all folks! Now for the bad news, as Bonddad has reminded us the stock market is a leading indicator. So, if its going over a cliff then a,,,,,,
Don't worry, that's why G.O.D. invented shorting the market! Make money on the way to bankruptcy, its the American Way!
In the meantime, all those taxes that Bush "saved" me are going to pay for the Highway Patrol's 87 tickets they issued during a two hour patrol of one mile of Hwy 101 (a city's gotta make money somehow...) The money is also going for increased fees down at the permit department every time I fix up my little place--something needs to replace those sagging tax receipts. And the cost of food, utilities, energy, all have gone up, while my wages, and those of most folks I know, have gone down or stopped all together.
Without jobs there will be no spending. No recovery. Just wait till the inflation hits.
All sectors of the economy dependent on middle class discretionary spending will shrivel up like a spider on a hot stove. Kiss another 20 million jobs goodbye. Fees and fines and taxes are not discretionary but they can't squeeze blood out of a turnup.
30B$ is the problem, and
30B$ is the bonus the Bankster who caused the crash got.
OH, the FED says it's gonna be ok.
I feel better now...
Want to be just like all the rest of Americans and not worry about things you don't understand? Just send for a bottle of my newest product I. Q. B. Gone. Just follow the simple directions and you too can tune out reality. You'll fit in better with those you usually avoid. You'll nod in agreement with Glenn Beck. If you're over 65 you can even protest Socialized Medicine and the hypocrisy of it will fly right over your head. Act now and you'll receive a bonus bottle of Brain Dead Tablets; we guarantee that in 30 days Sarah Palin will start making sense. You Betcha!
Inflation plus high unemployment, plus negative job growth, plus surging foreclosure rates. Oh yeah things are really looking up. Well I guess if you are able to shift your assets to gold and away from the US dollar you're feeling pretty good. Then again most middle class Americans saw most of their wealth destroyed when the market crashed in 2008. Since then, the market has struggled to retrace above 30% from its March 9th lows, so most middle class Americans aren't in any position to do any gold speculating. The US isn't even the most competitive nation in the world any more with many Asia and the Pacific rim moving up the ranks from last year and Switzerland taking first place. One thing the rest of these nations are not pouring their hard earned dollars into is WAR. The US keeps throwing money down that hole with no end is sight and it will play a huge role in preventing economic recovery. As long as bombs, bullets and military contractors take priority over the crisis in housing, poverty, unemployment, and education, recovery will remain illusive at best.
Well said. Let the lost decade begin...
"hard earned dollars into is WAR. The US keeps throwing money down that hole with no end is sight and it will play a huge role in preventing economic recovery. As long as bombs, bullets and military contractors take priority over the crisis in housing, poverty, unemployment, and education, recovery will remain illusive at best."
"hard earned dollars into is WAR. The US keeps throwing money down that hole with no end is sight and it will play a huge role in preventing economic recovery. As long as bombs, bullets and military contractors take priority over the crisis in housing, poverty, unemployment, and education, recovery will remain illusive at best."
"hard earned dollars into is WAR. The US keeps throwing money down that hole with no end is sight and it will play a huge role in preventing economic recovery. As long as bombs, bullets and military contractors take priority over the crisis in housing, poverty, unemployment, and education, recovery will remain illusive at best."
Hell-O, Hell-O is anybody listening? Hell-O, Hell-O. Rats Viper, I keep getting a busy signal at the White House. I'll try again later.
Adding liquidity to maintain a booming financial market will lead to a lost decade. Even Greenspan admitted that monetarist measures by the central bank cannot perpetuate the boom phase of the business cycle indefinitely, banishing the bust phase from finance capitalism altogether.
Bernanke is an ideologue who has moved beyond Greenspan and Milton Friedman. He is a free market fundamentalist who believes in issuing the liquidity to banks. The problem is solvency; liquidity is only one facet of the underlying structural problems which Bernenke is ignoring again.
The US will pay for this is massive unemployment and declining home prices. Later, we will experience the devastaing effects of inflation and stagnation.
There have been a few Paul Volcker sightings even though the administration has been keeping him out of the spotlight so you know inflation will be coming. It's just a matter of time.
They plan to switch horses in mid-crisis? How about a devaluation and a global currency under the control of the global bankers who brought you this crisis.
This is Fed speak for inflation is coming into the economy so start getting prepared for higher interest rates.
Can you sell me a derivative so that I can hedge? I want to lock in lower interest rates now so I can buy more stuff and pay it back later with inflated dollars. I don't care if you have no reserves and you don't care whether I have an insurable interest. How much will you charge me for a triple A rating?
and of course, we should always trust the word of the Fed. (cue eye roll)
Hale - I hear alarms being sounded over the Alt A and Option Arms that are due to reset soon, suggesting that we aren't even halfway through the defaults that we have to face. Any truth to that?
It's in the contracts, they reset 209-2010. Banks and Investors know it. It's coming
Just wanna be clear.
Is it -
It's all okay because it's in the contracts and the banks and investors know it's coming.
So, don't worry.
Or, is it.
The impossible losses, even without mark-to-market rules, will soon be upon us because, unfortunately, it's in the contracts.
The bankers know this, and they have convinced the investors to give them some capital that will share in the losses. Thank you investors.
But, irregardless.
IT'S COMING !!
Which is it?
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