Nouriel Roubini thinks the US economy is dangerously close to a double dip recession, and covers the topic in detail on his website. Below are his introductory notes on the topic of what kind of recovery we’re experiencing, and these topics are covered in detail on his site (which is subscriber based).
A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession. more…
Swerve aside Toyota. There’s a bigger, badder consumer recall notice on the loose now: Gerber Legendary Blades Recalls Machetes Due To Laceration Hazard. Totally off topic but hilarious. And true. Click the link for the full story, and below is the picture of the recalled machete. That machete is a laceration hazard? Are you sure? (Note to Seth and Amy on SNL: this is your next ‘Really?’ segment).
This report covers weeks 60-61 of a mortgage bond purchase program by the Federal Reserve—here’s weeks 57-59. In the last two weeks, the Fed bought $21b net of mortgage bonds as follows: $11b Feb 18-24, $10b Feb 24-Mar 3. For the past 6 months, the Fed has focused weekly buying on 4.5% and 5% coupons (tables below), which represent outstanding loans in the 4.75%-5.125% and 5.375%-5.75% ranges respectively. This makes sense since most of the new bond supply coming to market from new loans being made are at those rate ranges.
Rates have held below 5% since dipping last week, but are advancing higher this morning’s release of the February jobs report which was interpreted as positive despite the economy losing 36k jobs and forced-into-part-time workers increasing by 500k. Rates are still just a touch above all-time lows, but how long will it stay this way? more…
The Bureau of Labor Statistics non-farm payroll report showed that the economy lost 36,000 private sector jobs in February. January was revised from -20k to -26k jobs lost and December was revised from -150k to -109k jobs lost. This means 25 of the last 26 months have shown losses, putting the job loss toll since the recession began in December 2007 at 8.4 million. In 2009, 4.8m jobs were lost. BLS also reported that 14.8 million people are unemployed. This is a 9.7% unemployment rate, up 4.8% since the recession began in December 2007. See charts below.
Additionally there are now 8.8 million people who would like to work full time but are working part time because their hours have been cut or they can’t find full-time jobs. This forced-into-part-time-work category is up 4.1m million since January 2008, and increased by 500k this month, offsetting a big drop in January. January’s drop from 9.2m to 8.3m was the first improvement in nine months. This is the fine print of the jobs report—the headline job loss and unemployment statistics show that these 8.8 million people are employed and therefore not in the job loss category, but because of their job status these 8.8 million workers aren’t likely to be consuming at normal levels. Markets are interpreting today’s report as positive—stocks are rallying, bonds are selling off, and rates are higher—but this statistic is mostly undiscussed in market coverage.
The National Association of Realtors reported that the number of existing homes (as opposed to new construction) that entered into sales contracts in January dropped 7.6%. NAR’s chief economist Lawrence Yun said bad weather was a big reason, and also said that ’sufficient’ job creation would create a self-sustaining housing recovery. Many other economists think 10%-range unemployment will be the norm for years to come. Yun’s comments below:
Funny or Die has taken the activist route by adding a ‘contact your senator’ message at the end of this hilarious video where the last 5 ex-presidents (as portrayed by Saturday Night LIve actors) visit Obama to give financial reform advice. So have a laugh then bug your Senator.
Overall Personal Consumption Expenditures, the Fed’s favorite measure of consumer inflation, were 0.2% in January and 2.1% year-over-year through January. Excluding volatile oil and food costs from the readings, “Core” PCE price index for January was unchanged and 1.4% YOY through January. The Fed looks closely at Core PCE excluding food and energy prices because of the price volatility of these two items, and the Fed’s zone for reasonable inflation is 1-2% per year. At 1.4%, Core inflation is within their comfort zone, as confirmed by the Ben Bernanke’s remarks last week that inflation is likely to be subdued for some time, and the fact that PCE inflation has been stable since summer 2009.
Personal income increased 0.1% percent in January, and wages were up 0.4% since December. The household savings rate dropped from 4.8% to 3.3% but not due solely to consumer spending. The larger reason for less savings is from a 0.6% decrease in disposable income (which is income adjusted for inflation and taxes). The 12 month average savings rate is 4.2% which is well below the May 2009 all-time record of 6.9%. Below are all key details from the Personal Income & Outlays report.
The second of three 4Q09 GDP readings came in today at +5.9%, making a second consecutive quarter of positive GDP growth after four consecutive quarters of economic contraction (a 60yr record for consecutive GDP declines). The strong initial GDP reading was due largely to acceleration in private inventory investment, a deceleration in imports, and an upturn in nonresidential fixed investment that were partly offset by decelerations in federal government spending and in Personal Consumption Expenditures (which we’ll hear more about Monday). Real GDP in 2009 declined -2.4% versus a +0.4% gain in 2008.
Stocks are up modestly on this GDP update today and bonds (including Treasuries and Mortgages) are up about 22 basis points, which is a big gain. The main reason seems to be because increasing inventories isn’t viewed by markets as a meaningful or sustainable contributor to GDP growth. Consumer Spending needs to be higher before any sustained GDP growth can occur, and the data don’t suggest we’re there yet. All GDP figures are ‘real’ or inflation-adjusted, and the next reading will come on March 26. The last nine quarters of GDP are at the bottom of this post, and you can also visit our Data section to see historical GDP figures, graphs and download data. more…
The Wall Street Journal just posted a list of what they think the top 10 finance blogs are at the present time. No surprises for those who read finance blogs regularly, and good reference links for those who don’t. The good part is that they didn’t link to blogs run by big media sites, they’re all independent. The story also includes a link to a previous piece that highlights top 30 economics blogs. Congratulations to all who’ve made the list. Well deserved.
Following Ben Bernanke’s semi-annual monetary policy testimony to the House Financial Services Committee this morning, stocks are rallying, Treasuries are up modestly and mortgage bonds are flat. The full testimony is below and the core message hasn’t changed: a “nascent” economic recovery means that inflation is likely to remain subdued for some time, the Fed will wind down asset purchases between now and March 31, it will evaluate rate hike measures and further asset purchases as needed, and the first signal of a post-crisis reversal of policy is hiking the Fed-to-bank Discount rate and decreasing the term from 90 days back to the more traditional overnight terms.
Bernanke had a special section of his testimony called Federal Reserve Transparency where he discussed how the Fed is the most transparent central bank in the world and while they do share explicit details about their policy decisions and methodology, “it is vital that the conduct of monetary policy continue to be insulated from short-term political pressures so that the FOMC can make policy decisions in the longer-term economic interests of the American people.” As we’ve said repeatedly, it’s unfortunate that short election cycles are completely out of sync with long-term economic cycles and this kind of Fed message is therefore lost on lawmakers who are more concerned with a election year soundbytea than long-term solutions. We’re glad Bernanke got this message out officially but that doesn’t mean it will change the approach of most lawmakers. We also think Bernanke is perhaps a bit too easy on inflation messaging but he’s got a tough job: the US raises money by selling Treasuries to the entire world and a hawkish inflation message in the midst of the largest Treasury issuance in history erodes the value of those efforts. That said, we still think that inflation became a sudden threat Bernanke would tighten policy just as quickly as he loosened beginning in Fall 2007. more…
“Manually underwritten loans are subject to scrutiny such as we have never seen before and we do not have the courage to paint outside of the lines because we cannot afford to have a loan purchase refused by an investor. Today, it takes two to three times as long to underwrite a loan and we have checklist upon checklist that help us make sure all of the i’s are dotted and the t’s are crossed. I have been doing this for over 30 years and frankly we are back to the rules of the early 80’s or worse when it comes to documentation.”
— A senior mortgage bank underwriter, on why loan approvals are so hard, even for the most qualified borrowers.
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