From Calculated Risk:
Office Vacancy Rates Rising
The Residential Rental Market
Office Investment
Saturday, January 10, 2009
Friday, January 9, 2009
Jobless Rate Jumps to 7.2% in December
From Yahoo! Finance: Jobless rate jumps to 7.2% in December
The nation's unemployment rate bolted to 7.2 percent in December, the highest level in 16 years, as nervous employers slashed 524,000 jobs, capping one of the worst years in modern history for American workers.
For all of 2008, the economy lost a net total of 2.6 million jobs. That was the most since 1945, when nearly 2.8 million jobs were lost. Though the U.S. labor force has more than tripled since then, losses of this magnitude are still being painfully felt.
The nation's unemployment rate bolted to 7.2 percent in December, the highest level in 16 years, as nervous employers slashed 524,000 jobs, capping one of the worst years in modern history for American workers.
For all of 2008, the economy lost a net total of 2.6 million jobs. That was the most since 1945, when nearly 2.8 million jobs were lost. Though the U.S. labor force has more than tripled since then, losses of this magnitude are still being painfully felt.
With employers throttling back hiring, the nation's jobless rate averaged 5.8 percent last year. That was up sharply from 4.6 percent in 2007 and was the highest since 2003.
While economists were forecasting even more payroll reductions in December -- around 550,000 -- job losses in both October and November turned out to be deeper than previously estimated. Revised figures showed employers slashed 584,000 positions in November and 423,000 in October.
The unemployment rate, meanwhile, rose from 6.8 percent in November, to 7.2 percent last month, the highest since January 1993. Economists were expecting the jobless rate to rise to 7 percent.
Losses were widespread in December. Construction companies slashed 101,000, and manufacturers axed a a whopping 149,000 jobs. Professional and business services got rid of 113,000 jobs. Retailers eliminated nearly 67,000 jobs, and leisure and hospitality reduced employment by 22,000. That more than swamped gains in education and health care, and the government. All told, 11.1 million people were unemployed in December.
Not only are employers cutting jobs; they also are cutting workers' hours. The average work week in December fell to 33.3 hours, the lowest level on records dating to 1964.
And the number of people who work part time -- a category that includes those who would like to work full time but whose hours were cut back or those who were unable to find full-time work -- jumped to 8 million in December, from 7.3 million in November.
Average hourly earnings rose to $18.36 in December, up 0.3 percent from the previous month. Economists were expecting a 0.2 percent increase. Over the year, wages have increased 3.7 percent, although high prices for energy and food earlier this year made people feel like their paychecks weren't stretching that far.
From Big Picture and Calculated Risk:
Thursday, January 8, 2009
Open Thread: If S&P drops below 900 and 50DMA, will the Bear Market Rally End? And what happened to SRS's weak performance?
The market struggled a bit today after December Retail results. However, it has been able to finish in the positive territory, and being able to stay above 10, 20, and 50DMA, and stay in the uptrend. Let's see how the market reacts to the government's data on unemployment tomorrow.
The markets wants to rally despite all the bleak economic news. The coming 4Q earnings from companies are going to be horrible too.
The markets wants to rally despite all the bleak economic news. The coming 4Q earnings from companies are going to be horrible too.
Stock Market is Not Cheap!
From Big Picture: Earnings Estimate Fall
Have a look at these estimates for earnings in 2008. They started at $92 (early ‘07) and came down to $48:
Have a look at these estimates for earnings in 2008. They started at $92 (early ‘07) and came down to $48:
On a trailing one-year basis, that puts the Price to Earnings Ratio (P/E) at over 19 as of today. This does not make the market cheap.
And what about 2009? Again, the analysts are in a race to find the bottom.
The current projections are for $42.26 for 2009. That makes the forward P/E 22. That doesn’t look like value at all, when the historical average is closer to 15.
In 2001, as-reported earnings were $24.67. Operating earnings in 2002 were $27.57. Does anyone think the current recession will be milder than the last one? Or shorter?
From Mish: Is the Stock Market Cheap?
For the last two months, we have heard round after round of bottom calls and a consistent message of "stocks are cheap". Some make the claim based on a comparison to treasuries. The reality is it makes no sense to compare stocks to treasuries. What does make sense is to discuss earnings estimates.
Think the stock market is cheap? Let's do the math. The S&P closed at 910. If those earnings estimates hold, the effective PE is 21.53. The historical average PE is about 15. At a PE of 15 the S&P would drop to 634. That is a huge drop of 30% from today's closing price.
What happens if the stock market over shoots as it typically does in bear markets. Assume a PE of 12. At 12, one might expect to see the S&P at 507. That would be an even bigger decline of 44% from here. If:
Earnings PE Target
$25.00 12 300
$35.00 12 420
$45.00 12 540
$55.00 12 660
$25.00 15 375
$35.00 15 525
$45.00 15 675
$55.00 15 825
$25.00 18 450
$35.00 18 630
$45.00 18 810
$55.00 18 990
Looking ahead to 2009, 2010, 2011 there is simply no driver for earnings like we saw in 2002. Enormous leverage, creative financing, and the housing bubble are all gone and are not coming back. The brokerage houses are now under bank rules and leverage will be reduced to 10-1 or possibly 12-1. A reduction in leverage is a reduction in risk, but also potential earnings.
In the immediate future, think about what increasing layoffs are going to do to credit card defaults, foreclosures, commercial real estate, demand for PCs, etc.
Then once the markets bottom, think about how fast those earnings will rise. Here's a hint: It will not be anything remotely like 2002.
Rushing in now on that expectation that stocks are cheap is playing the greater fool's game all over again. Stocks are not cheap, no matter how many pretend otherwise.
Disappoint Retail Sales
From Yahoo! Finance: Retailers report dismal December Sales
As merchants reported their sales figures, confirming fears that the holiday season was the weakest in four decades, the malaise cut through practically all areas from kitchen gadget stores to jewelry purveyors and teen apparel retailers.
As merchants reported their sales figures, confirming fears that the holiday season was the weakest in four decades, the malaise cut through practically all areas from kitchen gadget stores to jewelry purveyors and teen apparel retailers.
The deep discounts that began well before the official start of the holiday season spurred a number of merchants to cut their earnings outlooks on Thursday, fueling more concerns about the health of the industry.
"This suggests that the lower income group is feeling the pinch more than we thought and this is clearly reflected in the lower-than-expected numbers at Wal-Mart," said Ken Perkins, president of research company RetailMetrics LLC. "I think it says the economy is in more dire straits than we thought."
Wal-Mart - Same-store sales, or sales at stores opened at least a year, rose 1.2%. Excluding the impact of declining gasoline prices at the pump, the gain was 1.7%, well below the expected 2.8% increase, excluding fuel.
Costco - 4% decline in same-store sales, but excluding the impact of lower gas prices and currency fluctuations, it actually posted a 4% gain.
Sears - December same-store sales dropped 7.3%, and 12.8% drop at domestic Sears stores.
Macy's - Same-store sales fell 4% percent in December. For the combined November-December period, same-store sales were down 7.5%. Cut its fourth-quarter and full-year earnings outlook due to heavy markdowns and announced plans to close 11 underperforming stores.
Saks Inc. - Same-store sales dropped 19.8% in December.
Limited Brands Inc. - 10% drop in same-store sales, also lowered its fourth-quarter earnings outlook.
Gap Inc. - 14% drop in same-store sales, worse than the 9.3 percent decline that analysts had expected. It also cut its earnings outlook.
Williams-Sonoma Inc. - Same-store sales dropped more than 24 percent for the eight-week period ended Dec. 28 and warned its fourth-quarter profit will likely come in at the low end of expectations.
Continuing Jobless Claims Rise More than Expected
From Yahoo! Finance: Continuing Jobless Claims Rise More Than Expected
The number of people continuing to seek unemployment benefits has risen sharply, indicating that laid-off workers are having a harder time finding new jobs as the recession enters its second year.
The Labor Department also reported that initial applications for unemployment insurance dropped by 24,000 to a seasonally adjusted 467,000 for the week ending Jan. 3. Wall Street economists expected initial claims to increase, but the new figure partly reflects the shortened New Year's holiday week. The four-week average of initial claims, which smooths out fluctuations but also includes the shortened holiday weeks, fell by 27,000 to 525,750.
The number of people continuing to seek unemployment benefits has risen sharply, indicating that laid-off workers are having a harder time finding new jobs as the recession enters its second year.
The Labor Department also reported that initial applications for unemployment insurance dropped by 24,000 to a seasonally adjusted 467,000 for the week ending Jan. 3. Wall Street economists expected initial claims to increase, but the new figure partly reflects the shortened New Year's holiday week. The four-week average of initial claims, which smooths out fluctuations but also includes the shortened holiday weeks, fell by 27,000 to 525,750.
The number of people continuing to claim jobless benefits jumped unexpectedly by 101,000 to 4.61 million. That was above analysts' expectations of 4.5 million and the highest level since November 1982.
Unemployment figures due out Friday are expected to show that the U.S. lost a net total of 500,000 jobs in December. If accurate, that would bring total job losses last year to 2.4 million, the first annual job loss since 2001 and the highest since 1945, though the number of jobs has more than tripled since then. The job cuts are expected to send the unemployment rate to 7 percent in December, up from 6.7 percent the previous month. That would be the highest level since June 1993.
Wednesday, January 7, 2009
Commerical Real Estate Delinquencies Double in 90 Days
From Calculated Risk: Commercial Delinquencies Double in past 90 Days
Delinquencies on mortgages for hotels, shopping malls and office buildings were sharply higher in the fourth quarter. New data from Deutsche Bank show that delinquencies on commercial mortgages packaged and sold as bonds (commercial-mortgage-backed securities, or CMBS), which represent nearly a third of the commercial real-estate debt market, nearly doubled during the past three months, to about 1.2%.
The delinquency rate will likely hit 3% by the end of 2009, its highest point in more than a decade. This is not only a problem for CMBS, but many banks and thrifts have excessive exposure to CRE loans: soured commercial mortgages on banks' books jumped to 2.2% as of the third quarter in 2008, from 1.5% at the end of 2007. The research firm estimates that the rate could rise to 2.6% in the fourth quarter of 2008. Banks and thrifts would suffer in a commercial-real-estate downturn because they own nearly 50% of all commercial mortgages outstanding. As of Sept. 30, 2008, some 1,400 commercial banks and savings institutions had more than 300% of their Tier 1 capital in commercial mortgages.
Back in April 2008: Setting aside the 100 largest banks, the shares of commercial real estate loans in bank loan portfolios nearly doubled over the past 10 years and is approaching 50%. The portfolio share at these banks of residential mortgages and other consumer loans, which are more readily securitized, fell by 20% over the same period.
This is a key point that we've been discussing for a few years - most small to mid-sized institutions were not overexposed to the housing bubble because those loans were mostly securitized. Therefore the housing bust led directly to relatively few bank failures over the last couple of years (although some larger banks like WaMu, Wachovia and National City were heavily exposed to residential loans).
However, many small to mid-sized banks have a heavy concentration in commercial real estate (CRE) loans, and also in construction & development (C&D) loans. Now that CRE is weakening - and the C&D loans are coming due - there will probably be a sharp increase in bank failures over the next couple of years. 100s of small bank failures over the next couple of years is expected due to excessive CRE loan concentrations.
Delinquencies on mortgages for hotels, shopping malls and office buildings were sharply higher in the fourth quarter. New data from Deutsche Bank show that delinquencies on commercial mortgages packaged and sold as bonds (commercial-mortgage-backed securities, or CMBS), which represent nearly a third of the commercial real-estate debt market, nearly doubled during the past three months, to about 1.2%.
The delinquency rate will likely hit 3% by the end of 2009, its highest point in more than a decade. This is not only a problem for CMBS, but many banks and thrifts have excessive exposure to CRE loans: soured commercial mortgages on banks' books jumped to 2.2% as of the third quarter in 2008, from 1.5% at the end of 2007. The research firm estimates that the rate could rise to 2.6% in the fourth quarter of 2008. Banks and thrifts would suffer in a commercial-real-estate downturn because they own nearly 50% of all commercial mortgages outstanding. As of Sept. 30, 2008, some 1,400 commercial banks and savings institutions had more than 300% of their Tier 1 capital in commercial mortgages.
Back in April 2008: Setting aside the 100 largest banks, the shares of commercial real estate loans in bank loan portfolios nearly doubled over the past 10 years and is approaching 50%. The portfolio share at these banks of residential mortgages and other consumer loans, which are more readily securitized, fell by 20% over the same period.
This is a key point that we've been discussing for a few years - most small to mid-sized institutions were not overexposed to the housing bubble because those loans were mostly securitized. Therefore the housing bust led directly to relatively few bank failures over the last couple of years (although some larger banks like WaMu, Wachovia and National City were heavily exposed to residential loans).
However, many small to mid-sized banks have a heavy concentration in commercial real estate (CRE) loans, and also in construction & development (C&D) loans. Now that CRE is weakening - and the C&D loans are coming due - there will probably be a sharp increase in bank failures over the next couple of years. 100s of small bank failures over the next couple of years is expected due to excessive CRE loan concentrations.
More Bad News for Commercial Real Estate
From Calculated Risk: Restaurant Performance Index at Record Low
The outlook for the restaurant industry worsened in November, as the National Restaurant Association’s comprehensive index of restaurant activity fell to a record-low level, stood at 96.7 in November, down 0.4 percent from October and its 13th consecutive month below 100.
A solid majority of restaurant operators reported negative same-store sales and traffic levels in November, while nearly one-half expect their sales in six months to be lower than the same period in the previous year.
From Calculated Risk: The Hotel Bust
Fortunes of the once-highflying hotel industry fell hard at the end of 2008 and the prospects for 2009 look grim as anxious Americans cut travel spending and leave plenty of room at the inn.
Hotel operators have seen room reservations fall drastically as business travelers and vacationers cut down on trips. In 2009, U.S. hotels will suffer one of the greatest annual declines in occupancy and revenue in history.
The report predicts a nearly 8% drop this year in revenue per available room, a key industry measurement of performance typically calculated by multiplying a hotel's average daily room rate by its occupancy rate. That would be the fifth-largest drop in revenue per available room since 1930. The largest recent drop was in 2001, when the measurement slipped 10.3%..
From Calculated Risk: Mall Vacancies Reach 10 Year High
Vacancies at U.S. malls and shopping centers approached 10-year highs in the fourth quarter, and are set to rise further as declining retail sales put more stores out of business. Regional mall vacancies rose to 7.1 percent last quarter from 6.6 percent in the third quarter. It was the highest vacancy rate since tracking regional malls in 2000, as well as the largest quarter-to-quarter jump in vacancies.
At neighborhood and community shopping centers, the vacancy rate rose to 8.9 percent from 8.4 percent in the third quarter, the highest since began publishing quarterly data in 1999. Strip mall vacancy rates are headed for double digits
From Calculated Risk: CRE Crash Spreading
Regional banks may be an even bigger concern. In the last decade, they barreled their way into commercial real estate lending after being elbowed out of the credit card and consumer mortgage business by national players. The proportion of their lending that is in commercial real estate has nearly doubled in the last six years, according to government data. Most regional banks avoided the residential real estate market (because they couldn't compete) and instead focused on CRE lending. Now with CRE imploding, the number of bank failures will probably rise rapidly in 2009.
The outlook for the restaurant industry worsened in November, as the National Restaurant Association’s comprehensive index of restaurant activity fell to a record-low level, stood at 96.7 in November, down 0.4 percent from October and its 13th consecutive month below 100.
A solid majority of restaurant operators reported negative same-store sales and traffic levels in November, while nearly one-half expect their sales in six months to be lower than the same period in the previous year.
From Calculated Risk: The Hotel BustFortunes of the once-highflying hotel industry fell hard at the end of 2008 and the prospects for 2009 look grim as anxious Americans cut travel spending and leave plenty of room at the inn.
Hotel operators have seen room reservations fall drastically as business travelers and vacationers cut down on trips. In 2009, U.S. hotels will suffer one of the greatest annual declines in occupancy and revenue in history.
The report predicts a nearly 8% drop this year in revenue per available room, a key industry measurement of performance typically calculated by multiplying a hotel's average daily room rate by its occupancy rate. That would be the fifth-largest drop in revenue per available room since 1930. The largest recent drop was in 2001, when the measurement slipped 10.3%..
From Calculated Risk: Mall Vacancies Reach 10 Year High
Vacancies at U.S. malls and shopping centers approached 10-year highs in the fourth quarter, and are set to rise further as declining retail sales put more stores out of business. Regional mall vacancies rose to 7.1 percent last quarter from 6.6 percent in the third quarter. It was the highest vacancy rate since tracking regional malls in 2000, as well as the largest quarter-to-quarter jump in vacancies.
At neighborhood and community shopping centers, the vacancy rate rose to 8.9 percent from 8.4 percent in the third quarter, the highest since began publishing quarterly data in 1999. Strip mall vacancy rates are headed for double digits
From Calculated Risk: CRE Crash SpreadingRegional banks may be an even bigger concern. In the last decade, they barreled their way into commercial real estate lending after being elbowed out of the credit card and consumer mortgage business by national players. The proportion of their lending that is in commercial real estate has nearly doubled in the last six years, according to government data. Most regional banks avoided the residential real estate market (because they couldn't compete) and instead focused on CRE lending. Now with CRE imploding, the number of bank failures will probably rise rapidly in 2009.
Readings for the Day
From Bonddad: The "Paradox of Savings"
From Bonddad: Translating FED Speak
From Mish: 44 States Face Huge Budge Shortfalls
From Mish: Massive Jobs Contraction in Small and Medium Sized Businesses
Nonfarm Private Employment Highlights:
• Total employment: -693,000
• Small businesses: -281,000
• Medium businesses: -321,000
• Large businesses: -91,000
• Goods-producing sector: -220,000
• Service-providing sector: -473,000
• Manufacturing industry: -120,000
From Bonddad: Translating FED Speak
From Mish: 44 States Face Huge Budge Shortfalls
From Mish: Massive Jobs Contraction in Small and Medium Sized Businesses
Nonfarm Private Employment Highlights:
• Total employment: -693,000
• Small businesses: -281,000
• Medium businesses: -321,000
• Large businesses: -91,000
• Goods-producing sector: -220,000
• Service-providing sector: -473,000
• Manufacturing industry: -120,000
Intel lowers its 4th Quarter Earning Again
From Calculated Risk: Intel Business Deteri0ates Rapidly
On Oct 14th, Intel projected revenue for Q4 2008: Revenue: Between $10.1 billion and $10.9 billion. Then Intel warned on November 12th and lowered their revenue projection to $8.7 billion to $9.3 billion. Today Intel reported a significant miss.
Intel says its fourth-quarter revenue fell 23 percent from the same period a year earlier, missing its previous outlook because of ongoing weak demand and inventory reductions by its PC maker customers.
The Santa Clara-based chip maker also announced a fourth-quarter impairment charge of about $950 million related to its investment in Clearwire Corp.
Intel estimated quarterly revenue of $8.2 billion, below the $8.74 billion forecast by analysts polled by Thomson Reuters.
Intel Corp., which ships about 80 percent of the world's microprocessors -- the brains of personal computers -- also says its gross margin was at the bottom of its earlier expectation of 55 percent plus or minus a few percentage points.
In November, the company slashed its sales expectations by more than $1 billion, to $9 billion, plus or minus $300 million.
The company now expects to record a loss from equity investments of $1.1 billion to $1.2 billion due to the charge from Clearwire. Previously the company forecast a loss of $50 million from equity investments.
ADP: Private Sector slashed 693,000 jobs in December
From Yahoo! Finance: Private Job Losses Mount in December
U.S. private employers shed 693,000 jobs in December, up sharply from the revised 476,000 jobs lost in November and far more than economists estimated, a report by ADP Employer Services said on Wednesday.
U.S. private employers shed 693,000 jobs in December, up sharply from the revised 476,000 jobs lost in November and far more than economists estimated, a report by ADP Employer Services said on Wednesday.
Separate data also showed planned layoffs at U.S. firms eased in December from the previous month's seven-year high but were up an astounding 275 percent annually as the year-old recession cut a huge swathe of destruction through job market.
Worse yet, he said he still expected a little more than 2 million U.S. job losses over the next year.
He added that the U.S. economy probably contracted at a 5.5 percent annualized rate in the fourth quarter and would shrink 3.5 percent in the first quarter of this year.
Job cuts announced in December totaled 166,348, down 8.4 percent from November's 181,671, Challenger, Gray & Christmas said. Despite the monthly decline, layoffs were up from just 44,416 in the year-ago period.
Overall, employers announced 1,223,993 job cuts in 2008, the largest annual total since 2003, when there were 1,236,426 job cuts.
The American Bankers Association said late payments on U.S. consumer loans rose in the third quarter to their highest level since 1980, with late payments on indirect auto loans and home equity lines of credit hitting the highest ever during that period.
The ABA said it expected delinquencies on all types of U.S. consumer loans to rise in coming quarters.
Tuesday, January 6, 2009
Pending Home Sales Index Declines Again in November
From Calculated Risk: Pending Home Sales Index Declines in November
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 4.0 percent to 82.3 from a downwardly revised reading of 85.7 in October, and is 5.3 percent below November 2007 when it was 86.9. The current index is the lowest since the series began in 2001.
Existing home sales have been boosted by all the distress sales in low priced areas. Over time, as foreclosure activity shifts to middle and upper income areas, existing home sales will probably decline. Existing home sales are reported at the close of escrow, pending home sales are reported when contracts are signed. The Pending Home Sales index leads existing home sales by about 45 days, so this suggests existing home sales will decline from December 2008 to January 2009.
From Big Picture: Pending Home Sales Index Collapsed
The Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 4.0 percent to 82.3 from a downwardly revised reading of 85.7 in October, and is 5.3 percent below November 2007 when it was 86.9. The current index is the lowest since the series began in 2001.
Existing home sales have been boosted by all the distress sales in low priced areas. Over time, as foreclosure activity shifts to middle and upper income areas, existing home sales will probably decline. Existing home sales are reported at the close of escrow, pending home sales are reported when contracts are signed. The Pending Home Sales index leads existing home sales by about 45 days, so this suggests existing home sales will decline from December 2008 to January 2009.
From Big Picture: Pending Home Sales Index Collapsed
Alcoa Cut Jobs and Capital Spending
From Calculated Risk: Alcoa to eliminate jobs, cuts capital spending plans
Alcoa Inc. announced deeper work-force cuts, more plant closures and a 50% reduction in capital expenditures. By the end of this year, there will be 15,000 fewer positions at the company, or roughly 14.5% of its current employees and contractors.
The moves raise the question of whether other companies that have cut costs also will feel the need to dig deeper. Alcoa, the world's largest aluminum producer, announced a round of cost cutting in October when demand for commodities and the availability of credit began to fall.
International Business Machines Corp., the biggest technology employer, may cut 16,000 jobs this month amid the global economic slowdown.
Alcoa Inc. announced deeper work-force cuts, more plant closures and a 50% reduction in capital expenditures. By the end of this year, there will be 15,000 fewer positions at the company, or roughly 14.5% of its current employees and contractors.
The moves raise the question of whether other companies that have cut costs also will feel the need to dig deeper. Alcoa, the world's largest aluminum producer, announced a round of cost cutting in October when demand for commodities and the availability of credit began to fall.
International Business Machines Corp., the biggest technology employer, may cut 16,000 jobs this month amid the global economic slowdown.
December FED Meeting Minutes and a Long Recession
From Big Picture: Long Recession
The current U.S. recession, with no end in sight, threatens to be the longest since 1933, and that helps explain why investors are having so much trouble gauging the stock market.
Models developed in the more normal times of the past few decades, based on things like corporate-profit forecasts, the interest-rate environment or the length of the average recession, have failed in the current, exceptional economy. Many have signaled that stocks were cheap and it was time to buy, but stocks kept falling and got cheaper.
The Fed projects GDP to decline in 2009 "as a whole", and unemployment to "rise significantly into 2010". The Fed also expects disinflationary pressures to continue into 2010.
The information reviewed at the December meeting pointed to a significant contraction in economic activity in the fourth quarter. Conditions in the labor market deteriorated considerably in recent months as most major industry groups shed jobs.
Private payrolls continued to fall at a faster pace than earlier in the year, and the unemployment rate rose to 6.7 percent…The housing market weakened again as construction activity, new home sales, and home prices declined further.
In the business sector, investment in equipment and software appeared to continue to contract. Industrial production fell markedly in November after sizable declines in the preceding two months. The recent contraction in industrial output was broadly based…
Real personal consumption expenditures (PCE) fell for the fifth straight month in October, with the slowdown evident in nearly all broad spending categories.
Sales of light motor vehicles, which slumped in October, fell further in November, but the available information on retail sales suggested a small increase in real outlays for other consumer goods…
Real construction activity continued to decline in November. Single-family housing starts and permit issuance fell further…
In the business sector, investment in equipment and software appeared to be contracting at a faster rate in the fourth quarter than during the third quarter…
The current U.S. recession, with no end in sight, threatens to be the longest since 1933, and that helps explain why investors are having so much trouble gauging the stock market.
Models developed in the more normal times of the past few decades, based on things like corporate-profit forecasts, the interest-rate environment or the length of the average recession, have failed in the current, exceptional economy. Many have signaled that stocks were cheap and it was time to buy, but stocks kept falling and got cheaper.
Since the Great Depression, only two recessions have run longer than this one, the first ending in 1975 and the other in 1982. Each lasted 16 months.
The Fed projects GDP to decline in 2009 "as a whole", and unemployment to "rise significantly into 2010". The Fed also expects disinflationary pressures to continue into 2010.
The information reviewed at the December meeting pointed to a significant contraction in economic activity in the fourth quarter. Conditions in the labor market deteriorated considerably in recent months as most major industry groups shed jobs.
Private payrolls continued to fall at a faster pace than earlier in the year, and the unemployment rate rose to 6.7 percent…The housing market weakened again as construction activity, new home sales, and home prices declined further.
In the business sector, investment in equipment and software appeared to continue to contract. Industrial production fell markedly in November after sizable declines in the preceding two months. The recent contraction in industrial output was broadly based…
Real personal consumption expenditures (PCE) fell for the fifth straight month in October, with the slowdown evident in nearly all broad spending categories.
Sales of light motor vehicles, which slumped in October, fell further in November, but the available information on retail sales suggested a small increase in real outlays for other consumer goods…
Real construction activity continued to decline in November. Single-family housing starts and permit issuance fell further…
In the business sector, investment in equipment and software appeared to be contracting at a faster rate in the fourth quarter than during the third quarter…
As financial market conditions worsened over the intermeeting period, investors seemed to become more concerned about the likelihood of a deep and prolonged recession…
From Calculated Risk: Fed's Yellen: Recession Long and Deeper than "Garden Variety"
Readings for the Day
From Big Picture: WSJ Video:: End of Wall Street
From Calculated Risk: Foreclosure Moving On Up
From Calculated Risk: New Home sales and Unemployment
Usually New Home sales are declining before a recession.
Usually New Home sales bottom during the recession and start to increase 3 to 6 months before the recession ends. Therefore New Home sales are usually a good leading indicator of an economic recovery.
The unemployment rate usually starts increasing just before the recession begins.
The unemployment rate peaks after the recession ends. During the last two recessions, the unemployment rate didn't peak until over a year after the recession ended.
The unemployment rate typically lags New Home sales.
From Bonddad: Treasury Tuesday's: Why there is a Treasury Bubble?
From Mish: Factory Orders Tumble, Retail Sales Fall, Foreclosure Sales Triple
From Calculated Risk: Foreclosure Moving On Up
From Calculated Risk: New Home sales and Unemployment
From Bonddad: Treasury Tuesday's: Why there is a Treasury Bubble?
From Mish: Factory Orders Tumble, Retail Sales Fall, Foreclosure Sales Triple
Monday, January 5, 2009
Terrible Car Sales Report
From Big Picture: Car Sales in 2008 Were Horrific
• General Motors U.S. sales plunged to a 49-year low in 2008. December was another poor month, down 31%;
• Toyota U.S. deliveries plummeted 37% percent; Auto sales in Japan dropped 5 percent in December and finished the year at a 28-year low.
• Honda fell 35%;
• Ford Motor fell 32%
• Nissan was down 31% percent;
• Chrysler dived 53%;
• Mercedes-Benz was off 24;
•Audi sales fell 9.3%
• BMW sales fell 36%
• Subaru sales were down 7.7%;
• Volkswagen AG said its December sales fell 14%;
• This was the worst annual volume since 1992;
• 2008 will be the first year in which the U.S. automakers combined market share was less than 50%;
• This was the first drop in sales for Japanese automakers for Toyota since (1995) and Honda (1993)
From Calculated Risk: Hamilton on December Auto Sales
The big difference is in early 2008, the primary problem for U.S. auto manufactures was the sharp hike in gasoline prices, which explains the collapse of sales of SUVs at the same time that imports of smaller cars were on the way up. By contrast, the current problems for the auto sector resulted from the broad collapse in overall consumer spending.
• General Motors U.S. sales plunged to a 49-year low in 2008. December was another poor month, down 31%;
• Toyota U.S. deliveries plummeted 37% percent; Auto sales in Japan dropped 5 percent in December and finished the year at a 28-year low.
• Honda fell 35%;
• Ford Motor fell 32%
• Nissan was down 31% percent;
• Chrysler dived 53%;
• Mercedes-Benz was off 24;
•Audi sales fell 9.3%
• BMW sales fell 36%
• Subaru sales were down 7.7%;
• Volkswagen AG said its December sales fell 14%;
• This was the worst annual volume since 1992;
• 2008 will be the first year in which the U.S. automakers combined market share was less than 50%;
• This was the first drop in sales for Japanese automakers for Toyota since (1995) and Honda (1993)
From Calculated Risk: Hamilton on December Auto Sales
The big difference is in early 2008, the primary problem for U.S. auto manufactures was the sharp hike in gasoline prices, which explains the collapse of sales of SUVs at the same time that imports of smaller cars were on the way up. By contrast, the current problems for the auto sector resulted from the broad collapse in overall consumer spending.
Construction Spending Declines in November
From Calculated Risk: Construction Spending Declines in November
Spending on private construction was at a seasonally adjusted annual rate of $756.4 billion, 1.5 percent (±1.1%) below the revised October estimate of $767.7 billion. Residential construction was at a seasonally adjusted annual rate of $328.3 billion in November, 4.2 percent (±1.3%) below the revised October estimate of $342.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $428.2 billion in November, 0.7 percent (±1.1%)* above the revised October estimate of $425.1 billion.
Residential spending fell at a 4.1% rate in November to $336.3 billion, 22.8% lower than November 2007. Despite the credit crunch and worsening economy, nonresidential spending showed surprising resilience, rising 1% during the month to $742.1 billion, up 9.2% from the previous year. But how long can Non-residential spending keep up?
From Calculated Risk: Non-residential Structure Investment vs. Residential Investment
Typically non-residential investment in structures trails residential investment by about 5 quarters. Although a 5 quarter lag is the best fit, non-residential investment typically trails residential investment by 3 to 8 quarters.
Spending on private construction was at a seasonally adjusted annual rate of $756.4 billion, 1.5 percent (±1.1%) below the revised October estimate of $767.7 billion. Residential construction was at a seasonally adjusted annual rate of $328.3 billion in November, 4.2 percent (±1.3%) below the revised October estimate of $342.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $428.2 billion in November, 0.7 percent (±1.1%)* above the revised October estimate of $425.1 billion.
Residential spending fell at a 4.1% rate in November to $336.3 billion, 22.8% lower than November 2007. Despite the credit crunch and worsening economy, nonresidential spending showed surprising resilience, rising 1% during the month to $742.1 billion, up 9.2% from the previous year. But how long can Non-residential spending keep up?
From Calculated Risk: Non-residential Structure Investment vs. Residential InvestmentTypically non-residential investment in structures trails residential investment by about 5 quarters. Although a 5 quarter lag is the best fit, non-residential investment typically trails residential investment by 3 to 8 quarters.
Sunday, January 4, 2009
Economic News Next Week
Economy News:
Monday: Motor Vehicle Sales Report, Construction Spending
Tuesday: Goldman Store Sales, Factory Orders, ISM Non-Manufacturing Index, Pending Home Sales Index
Wednesday: MBA Purchase Applications, Challenger Job-Cut Report, ADP Employment Report
Thursday: Chain Store Sales, Jobless Claims, Consumer Credit
Friday: Employment Situation, Wholesale Trade
Earnings:
Thursday: Chevron
Friday: KB Home
Monday: Motor Vehicle Sales Report, Construction Spending
Tuesday: Goldman Store Sales, Factory Orders, ISM Non-Manufacturing Index, Pending Home Sales Index
Wednesday: MBA Purchase Applications, Challenger Job-Cut Report, ADP Employment Report
Thursday: Chain Store Sales, Jobless Claims, Consumer Credit
Friday: Employment Situation, Wholesale Trade
Earnings:
Thursday: Chevron
Friday: KB Home
For tech investors, the annual Macworld trade show kicks off Tuesday with a keynote speech by a top Apple official -- but not Apple CEO Steve Jobs. The announcement last month that Jobs would forego his traditional opening remarks sent Apple's stock tumbling as worries resurfaced about Jobs' health. This is also the last Macworld Apple plans to attend.
The sector gets a doubly whammy of product news next week as Microsoft Corp., Cisco Systems and other tech heavyweights head to Las Vegas for the annual International Consumer Electronics Show.
S&P 500 Jumps to 2-Month High on the first trading day of 2009
From Bloomberg: U.S. Stocks Advance, S&P 500 Jumps to 2-Month High; GM Rallies
The S&P 500 rose 3.2 percent to 931.8, capping its first three-day gain in five weeks and best start to a year since 2003. The Dow Jones Industrial Average increased 258.3 points, or 2.9 percent, to 9,034.69. Both the S&P 500 and Dow climbed to their highest closes since the first week of November. About 7.2 billion shares changed hands on all U.S. exchanges, 29 percent fewer than the three-month daily average as trading slowed at the end of the holiday-shortened week.
The S&P 500 rose 3.2 percent to 931.8, capping its first three-day gain in five weeks and best start to a year since 2003. The Dow Jones Industrial Average increased 258.3 points, or 2.9 percent, to 9,034.69. Both the S&P 500 and Dow climbed to their highest closes since the first week of November. About 7.2 billion shares changed hands on all U.S. exchanges, 29 percent fewer than the three-month daily average as trading slowed at the end of the holiday-shortened week.
The S&P 500 decreased 38.5 percent in 2008, the most since the 38.6 percent plunge in 1937, and sank to an 11-year low on Nov. 20. Volatility increased, with the index rising or falling at least 5 percent in a single day 18 times during the year.
Majority analyst believes the worst has been seen, and the market has been holding very well after bad news since November 20, this is a sign of a bottom. Majority believes we are going to see a rebound in both the economy and the stock market in the 2nd half of 2009. 2009 will not be a super year, but it will be better than 2008. Investors should be cautioned against reading too much into Friday's advance due to the light volume. The first full week of the new year
should provide insight into investor sentiment for 2009. Expectations are extremely low for the economy, for corporate earnings and for the stock market itself. We need to see how the market reacts to the economy news and corporate earnings in January, whether a lot of bad news is priced in, and we might see some sell offs.
The S&P 500 climbed 6.8 percent this week, its best week since November, and extended its rebound from Nov. 20 to 24 percent. At its lowest closing level of 2008 on Nov. 20, the S&P 500 was down 49 percent for the year and 52 percent from its Oct. 9, 2007, record of 1,565.15. The plunge came as more than $1 trillion in credit-related losses at global financial companies triggered the first simultaneous recessions in the U.S., Europe and Japan since World War II.
Semiconductor Sales Plunged 9.8% in November
From CNBC: Semiconductor sales plunged 9.8% in November
Semiconductor sales plunged nearly 10 percent in November from a year ago, led by a steep decline in revenue from memory chips.
The news marks the second monthly sales decline for chip companies, whose stocks were battered in 2008 as the recession sapped demand for consumer electronics and prices declined dramatically in some markets.
Semiconductor sales plunged nearly 10 percent in November from a year ago, led by a steep decline in revenue from memory chips.
The news marks the second monthly sales decline for chip companies, whose stocks were battered in 2008 as the recession sapped demand for consumer electronics and prices declined dramatically in some markets.
Sales in November totaled $20.8 billion, down 9.8 percent from the same month a year ago and 7.2 percent from October. Excluding memory chips, the worst hit by falling prices, sales declined by 4.8 percent to $17.3 billion.
Chip sales during the first 11 months of 2008 inched 0.2 percent higher to $232.7 from the year-ago period. Excluding memory products, sales rose 5.6 percent.
Pegging November's revenue decline as the worst since 2002, JPMorgan analyst Christopher Danely cut his sales estimate for the full year 2008 to a 2 percent drop, from a previous forecast of 1 percent growth. In 2009, Danely now expects a 20 percent decline, instead of a 17 percent drop, with a price decline of 9 percent.
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