Outstanding Contraction!: Commercial Paper Outstanding January 2011

The Commercial Paper (CP) market is essentially a private debt market used by corporations as a generally cheaper means of funding typical recurring operations than drawing on a line of bank credit.

Commercial paper, as financial instrument, is by no means a recent innovation and, in fact, you can read about how the CP market was affected by the many historic financial shocks experienced by the U.S. (read Panic on Wall Street: A History of America’s Financial Disasters)

Although the Federal Reserve was able to artificially bring CP rates down significantly since the shocking 615 basis point spread blowout (A2/P2 spread) of late 2008, they have apparently not been successful in preventing an overall contraction in the CP market.

The Federal Reserve calculates and published the total amount of CP outstanding every week and by mid-January commercial paper outstanding had fallen to a new series low (data tracked back as far as 2001) though in recent weeks the trend has moderated a bit dropping 11.27% on a year-over-year basis to $996.20 billion, a level that is still notably lower than even the worst periods of the last two recessions.

Envisioning Employment: Employment Situation January 2011

Today’s Employment Situation Report showed that in January, net nonfarm payrolls increased by just 36,000 while private nonfarm payrolls added just 50,000 as the unemployment rate declined to 9.0%.

It's important to note that with today's release and in accordance with typical policy, the BLS has revised all months of 2010 resulting in a generally weaker trend than had been previously published with eight months being revised lower.

In fact, while both January and February of 2010 were originally reported to have seen net job gains now they show notable declines.

As for January though, net private sector jobs increased 0.05% since last month remaining a whopping 6.53% below the peak level of employment seen in December 2007 though, on a year-over-year basis, private jobs showed a notable increase of 1.16%.

Full Time Workers Fully Under Pressure: January 2011

Today’s employment situation report showed that the full time unemployment rate declined to 9.7% of the civilian workforce remaining very near the highest rate seen in 41 years.

The Bureau of Labor Statistics considers full time workers to be those “who have expressed a desire to work full time (35 hours or more per week) or are on layoff from full-time jobs”.

Full time jobless workers currently account for roughly 88.5% of all unemployed workers.

Recovery-less Recovery: Unemployment Duration January 2011

Be sure to bookmark the "Scary Unemployment Dashboard"... it's live.

Today's employment situation report showed that conditions for the long term unemployed was mixed in January while remaining epically distressed by historic standards.

Workers unemployed 27 weeks or more declined to 6.210 million or 43.8% of all unemployed workers while the median number of weeks unemployed declined to 21.8 weeks and the average stay on unemployment jumped to 36.9 weeks, a new high for the series.

Looking at the charts below (click for super interactive versions) you can see that today’s sorry situation far exceeds even the conditions seen during the double-dip recessionary period of the early 1980s, long considered by economists to be the worst period of unemployment since the Great Depression.

On The Margin: Total Unemployment January 2011

Today’s Employment Situation report showed that in January “total unemployment” including all marginally attached workers declined to 16.1% while the traditionally reported unemployment rate declined to 9.0%.

The traditional unemployment rate is calculated from the monthly household survey results using a fairly explicit definition of “unemployed” (essentially unemployed and currently looking for full time employment) leaving many workers to be considered effectively “on the margin” either employed in part time work when full time is preferred or simply unemployed and no longer looking for work.

The Bureau of Labor Statistics considers “marginally attached” workers (including discouraged workers) and persons who have settled for part time employment to be “underutilized” labor.

The broadest view of unemployment would include both traditionally unemployed workers and all other underutilized workers.

To calculate the “total” rate of unemployment we would simply use this larger group rather than the smaller and more restrictive “unemployed” group used in the traditional unemployment rate calculation.

ISM Non-Manufacturing Report on Business: January 2011

Today, the Institute for Supply Management released their latest Non-Manufacturing Report on Business indicating that service related economic activity continued to expand notably throughout January.

At 64.6 the business activity index strengthened from December climbing 23.75% above the level seen a year earlier.

It’s important to note though that only 2 of the 11 indicators cited in the report showed slowing growth since December while the "inventories" component actually contracted.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims February 03 2011

Today’s jobless claims report showed notable declined to both initial unemployment claims and continued unemployment claims as a declining trend continued to shape up for both initial and traditional continued claims.

Seasonally adjusted “initial” unemployment dropped by a whopping 42,000 to 415,000 claims from last week’s revised 457,000 claims while seasonally adjusted “continued” claims declined by 84,000 resulting in an “insured” unemployment rate of 3.1%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 4.55 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.61 million people that are currently counted as receiving traditional continued unemployment benefits, there are 9.16 million people on state and federal unemployment rolls.

The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

The following chart shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967.

Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).

On The Stamp: Food Stamp Participation November 2010

As a logical consequence of the prolonged economic downturn it appears that participation in the federal food stamp program is continuing to rise.

In fact, household participation has been climbing so steadily that it has far surpassed the last peak set as a result of the immediate fallout following hurricane Katrina.

The latest data released by the Department of Agriculture shows that in November, an additional 394,957 new recipients were added to the food stamps program, an increase of 14.17% on a year-over-year basis, while household participation increased 16.49%.

Individual participation as a ratio of the overall civilian non-institutional population has increased 13.23% over the same period.

These results confirm that participation is continuing it's explosive climb, likely as a result of the jump in total unemployment, driving the nominal benefit costs up an lofty 13.86% on a year-over-year basis to $5,814,900,059 for the month.

Prime Time: Hudson City Bancorp Non-Performance Q4 2010

Hudson City Bancorp (NYSE:HCBK) has become an icon of traditionally run, prime-only, safe and sound regional banks.

Some time ago I took exception with the PR that Hudson City was spinning as it’s CEO, Ronald Hermance, appeared on a multitude of business and non-business media (Mad Money, CNBC, Bloomberg, Barron’s… even NPR) speaking of the merits of his banks “old fashioned” sound traditional lending practices which included never making subprime loans or other toxic affordability products.

Of course, Hermance downplayed his banks non-performing loan ratio which as of Q4 2010 stands at a not-so-respectful 2.82% of total loans, preferring instead to project the picture of a safe bank with only high quality loans and growing deposits.

While Hermance was making the rounds of media outlets and dropping talking points his banks big mortgages were going bad at a progressively higher rates.

Granted, the current 2.82% non-performing loan ratio is relatively low but the ratio has jumped over 42% since Q4 2009 on an alarming delinquent loan total of $871.3 million.

Although it is true that Hudson City did not participate in subprime lending, the bank originated jumbo loans in a market (primarily the New York, New Jersey metro area) that was as overheated as any during the housing boom.

Big prime loans, even with low loan to values go bust in down economies and our current housing driven bust with significant declines to home prices makes matters worse.

I’ve been arguing for the better part of three years that although the traditional media and apparently general consensus has focused on subprime and other “toxic” mortgage products as the source for the credit tumult, the historic deterioration would by no means be limited to these “bleeding edge” products.

Before this massive housing and general economic contraction is complete, I expect to see new records set for prime defaults, be they prime-Jumbo ARM loans, prime-Jumbo fixed rate loans, prime-conforming ARM loans or prime-conforming fixed rate loans… we will see historic defaults across the entire spectrum of mortgage products.

ADP National Employment Report: January 2011

Today, private staffing and business services firm ADP released the latest installment of their National Employment Report indicating that the situation for private employment in the U.S. improved notably in January as private employers added 187,000 jobs in the month bringing the total employment level 0.85% above the level seen in January 2010.

Looking at the chart (click for full-screen dynamic version) showing ADP’s total private nonfarm payrolls since 2001 as well as the year-over-year and month-to-month percent change, you can see that the so-called “recovery” has been anemic.

Perusing the rest of the data in the ADP dataset you can see the the economy is currently showing the most growth for small to mid-sized service providing jobs with goods-producing jobs remaining near trough levels.

Look for Friday’s BLS Employment Situation Report to likely show somewhat similar trends.

Reading Rates: MBA Application Survey – February 02 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages, 1 year ARMs as well as application volume for both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage increased 1 basis point to 4.81% since last week while the purchase application volume increased 9.5% and the refinance application volume jumped 11.7% over the same period.

It's important to note that rates have been, more or less, trending up for about three months now and coincidentally somewhat in-line with the Fed making QE2 official.

While early scuttlebutt about QE2 measures worked to depress mortgage rates earlier this year, it appears that the actual implementation of the measures is not currently working to force them down any lower resulting in continued poor trends for purchase and refinance activity.

The purchase application volume remains near the lowest level seen in well over a decade while refinance activity continues to slow.

Could the Fed have reached a limit on the long end of the rate curve? We will have to wait to find out.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages as well as one year ARMs since 2006 (click for larger dynamic full-screen version).

The following dynamic charts show the Purchase Index, Refinance Index and Market Composite Index since 2006 (click for larger versions).

The Globe of Bubbles!?: U.K. vs U.S. Home Prices January 2011

One of the more interesting and most dramatic features of the housing bubble days was how pervasive and broad the mania was, encompassing a multitude of regional housing markets across the United States and around the globe.

Today, post-housing crash, we are still seeing property markets continuing to move together somewhat as governments around the globe scramble to prop up quickly deflating housing assets with boondoggles that quickly reveal themselves as being mere temporary distortions to a trend the remains "organically" in decline.

Comparing the S&P/Case-Shiller (CSI) index to that of the two popular U.K. home prices indices you can see that now all three indices are showing some significant signs of deceleration.

The following chart (click for dynamic full-screen version) shows S&P/Case-Shiller Composite-10 series along with the Nationwide and Halifax U.K. series.

U.K. Home Prices: Halifax and Nationwide January 2011

The latest release of the two most prominent home price indices for the United Kingdom are continuing to signal that the recent up-trend seen in U.K. home prices appears to be drawing to a close.

The “Nationwide” series, indicated that U.K. home prices declined 0.71% from December falling 1.15% below the level seen in January 2010 while the “Halifax” series (slightly less timely) declined 0.67% from November and fell a notable 3.60% below the level seen a year earlier.

Both indices are similar to our own S&P/Case-Shiller data series in that they both implement a methodology that seeks to standardize the quality homes included as source data and track the price changes occurring between sales instead of simply tracking the distorted average or median sales price.

The following chart (click for full-screen dynamic chart) show the price movement since 1991 to each index.

ISM Manufacturing Report on Business: January 2011

Today, the Institute for Supply Management released their latest Report on Business for the manufacturing sector indicating that economic activity continued to expand in January with an increase from December and an indication that most measures are in expansion.

At 60.8 the purchasing manager’s composite index (PMI) increased a whopping 3.93% since December climbing 4.11% above the level seen a year earlier.

Constuction Spending: December 2010

Today, the U.S. Census Bureau released their December read of construction spending showing near-cycle low levels of spending for residential construction while indicating a continued and notable decline for non-residential spending.

On a month-to-month basis, total residential spending declined 4.12% from November remaining 10.79% below the level seen in December 2009 and a whopping 66.53% below the peak level seen in 2006 while single family construction spending increased 0.50% since November but declined 6.37% since December 2009 and whopping 77.18% below it's peak in 2006.

Also, non-residential spending declined 0.53% since November, dropping 17.53% since December 2009 and a whopping 38.90% below the peak level reached in October 2008.

The following charts (click for larger dynamic versions) show private residential construction spending, private residential single family construction spending and private non-residential construction spending broken out and plotted since 1993 along with the year-over-year, month-to-month and peak percent change to each since 1994 and 2000 – 2005.