Friday, September 18, 2009

Quelle Surprise ???

FDIC May Tap Treasury Line to Bolster Insurance Fund, Bair Says

Thursday, September 17, 2009

Back To Retail Sales: Gas Prices

Please refer to Tuesday's retail sales post:

According to the CPI, Gasoline prices surged 9.1% from July to August.

Therefore, rising prices had a material impact on the "sales at gasoline stations" component of the retail sales report.

Weekly Jobless Claims

With this week's jobless claims numbers in the books, I am forecasting a non-farm payroll tally of:


I think the consensus will be about -205,000.

Incidentally, in order for the non-farm payroll number to hit zero, my model suggests that the weekly jobless claim number needs to be roughly 375,000.

Tuesday, September 15, 2009

The FDIC's Balance Sheet

A few days ago, I made mention of the FDIC's contingent liability for future failures. It was mentioned in a speech by the Chair of the FDIC. I looked into this and came away with the following:

The balance of the Deposit Insurance Fund is kind of like the FDIC's capital. As of 6/30/09, the FDIC held about $64.8 billion in assets. Liabilities (including the one mentioned above) totaled about $54.4 billion. The fund balance was the difference: $10.4 billion.

In an accounting framework: assets = liabilities + capital

It seems to me that the FDIC creates reserves against payout events. The monies shift from the fund balance (capital) to the liability column. As the payouts actually occur, the FDIC decreases the liability and decreases assets.

As of 6/30/09, $32 billion sits in this contingent liability for future failures. The key issue then becomes the amount the FDIC is able to salvage from the banks that collapse. If the payout events are lower than anticipated, I guess that the FDIC can shift part of the balance out of the liability, back into the capital category. Has the FDIC been conservative enough? How likely is this outcome? Based on their past actions, I would say that recoveries will be dwarfed by new events.

In conclusion, we need to monitor both the fund balance and contingent liability to assess the (poor) health of the FDIC.


Of course, this Fund backs over $4.8 trillion in insured deposits. That $4.8 trillion is a low-ball estimate because it is based on the $100,000 limit, not the current $250,000 limit. Let's not forget the other programs & guarantees that the FDIC now provides as well. Your money in the bank is safe, but who will foot the bill? YOU WILL !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! The FDIC has actually promoted high risk taking behavior and needs to be dramatically alerted to fulfill its advertised purpose.

Another Quick Note

The Empire Manufacturing Survey indicated that manufacturing activity in New York State expanded at a considerable rate. The number of firms reporting higher prices paid increased substantially as well. However, the majority of forms reported that the prices they received declined.

Since these are diffusion indices, it is not possible to simply add them up and compute margins, but it seems clear that pricing power continues to elude manufacturers.

Is you paycheck going further because prices are declining or because your buying decisions have changed?

Is your paycheck going further in the first place?

Please leave a comment.

Quick Note

The population of the U.S. of A. has increased by 24.6 million in the last 9 years.

The number of jobs has decreased by 563 thousand in the same time frame.

Does that worry you?

Please leave a comment.

Inside The Data

Retail Sales

Retail sales increased by 2.67% from July to August. This move was considerably higher than economists were predicting. The dollar increase from month to month was $9.138 billion. The important thing to remember is that this retail sales number DOES NOT adjust for price increases. Therefore, if a good increases in price but the quantity sold remains unchanged, this number still rises.

Motor vehicle sales accounted for 67.1% of that $9.138 billion increase. I am not prepared to determine how much was due to the cash for clunkers program, but I would guess it was a considerable amount.

The other major contributor to this report was sales at gasoline stations. The number jumped 5.09% or $1.512 billion from the previous month.

So far in 2009, retail sales are running 8.65% behind last year's pace.


Producer prices increased more than forecast last month. The major culprit in this report was the rise in energy prices. We'll have to wait until the CPI report to see if these increases were passed on to the consumer. This will help us analyze the gasoline component of the retail sales report.

Sunday, September 13, 2009

Bank Failure Update

2009 total hit 92 on Friday, finally including Corus Bank. The Fund drifted further into negative territory, all but insuring another special assessment in early 2010 (there are already plans for a special assessment later this year). As I've noted in the past, this is the worst time to increase bank expenses. How the FDIC saw fit to charge zero premiums for several years is well beyond my ability to comprehend.

Big Week for Data

DateTime (ET)StatisticForActualBriefing ForecastMarket ExpectsPriorRevised From
Sep 158:30 AMCore PPIAug-0.0%0.1%-0.1%-
Sep 158:30 AMPPIAug-1.0%0.8%-0.9%-
Sep 158:30 AMRetail SalesAug-2.1%1.9%-0.1%-
Sep 158:30 AMRetail Sales ex-autoAug-0.1%0.4%-0.6%-
Sep 158:30 AMEmpire ManufacturingSep-13.0015.0012.08-
Sep 1510:00 AMBusiness InventoriesJul--1.2%-0.8%-1.1%-
Sep 168:30 AMCore CPIAug-0.0%0.1%0.1%-
Sep 168:30 AMCPIAug-0.2%0.3%0.0%-
Sep 169:00 AMNet Long-term TIC FlowsJul-NANA-31.2B-
Sep 169:15 AMCapacity UtilizationAug-69.6%69.1%68.5%-
Sep 169:15 AMIndustrial ProductionAug-1.0%0.7%0.5%-
Sep 1610:30 AMCrude Inventories09/11-NANA-5.91M-
Sep 1610:35 AMCrude Inventories09/11-NANANA-
Sep 178:30 AMBuilding PermitsAug-575K596K564K-
Sep 178:30 AMHousing StartsAug-570K580K581K-
Sep 178:30 AMInitial Claims09/12-565K555K550K-
Sep 178:30 AMContinuing Claims09/05-6000K6114K6088K-
Sep 1710:00 AMPhiladelphia FedSep-

Thursday, September 10, 2009

Jobs Data: Weekly Claims

Weekly jobless claims came in a bit better than expectations at 550,000 (initial claims). Continuing claims are still hovering over 6 million, I have noted in past posts that interpreting this number is becoming more difficult because of the expiration of benefits.

We now have 3 of the 4 weeks in for modeling the September non-farm payroll report. The survey period ends on the 12th of each month, so the last 3 weeks of initial claims correspond to that time frame. The average initial claims for the last 3 weeks is 568,000: according to my model, this points to a drop of about 250,000 in non-farm payrolls.

This is a major problem. I know, job losses have slowed. However, could somebody please explain to me where people are going to get money to pay for stuff:

- Home prices are down roughly 18% from last year: no mortgage equity withdrawal

- Unemployment is creeping up on 10%: no jobs & wage pressure crimp income

- Expiration of unemployment insurance: no more weekly help form the government

- Consumer credit is falling: can't roll over debts any longer or borrow additional funds

- Negative wealth effect: equities have rallied since March, but are still below 2008 levels.

Wednesday, September 9, 2009

Keeping It Simple

The above graph tracks the consumer as a share of our economy. The ratio has increased over the years, but i believe that it is safe to say that consumption has been a large part of our economy for quite some time. This ratio topped 70% (70.14% to be exact) for only the second time in 2008.

The Fed's release of consumer credit data garnered considerable attention yesterday. The graph below tracks the last few years of data:

The trend has clearly been broken: 6 consecutive months of declining, declining in 10 of the last 12 months.

Using a simple regression model:

Forecast of consumer credit stabilizing at July's level.

- Personal consumption expenditures drop to $9.44 trillion

- Nominal GDP drops to $13.49 trillion

- Annual decline of 6.6% in Nominal GDP

In conclusion, with rising unemployment, a negative wealth effect (year over year) and falling available credit, I do not see a significant rebound in growth.

Sunday, September 6, 2009

Short Week, Not Much Data

Release Period Prior Median
Indicator Date Value Forecast
Cons. Credit $ Blns 9/8 July -10.3 -4.0
ABC Conf Index 9/8 Sept. 7 -45 -44
MBA Mortgage Applicatio 9/9 Sept. 5 -2.2% n/a
Trade Balance $ Blns 9/10 July -27.0 -27.4
Initial Claims ,000’s 9/10 29-Aug 570 560
Cont. Claims ,000’s 9/10 22-Aug 6234 6200
Import Prices MOM% 9/11 Aug. -0.7% 1.0%
Import Prices YOY% 9/11 Aug. -19.3% -15.9%
U of Mich Conf. Index 9/11 Sept. P 65.7 67.5
Whlsale Inv. MOM% 9/11 July -1.7% -1.0%
Federal Budget $ Blns 9/11 Aug. -111.9 -159.1

Saturday, September 5, 2009

Bank Failure Update

Starting with this post, the failure list will include only 2009 banks gone bust. The file has become too big to fit properly on blogger.

Five more yesterday, bringing the year's total to 89. Bank management and regulation has turned out to be neither a fail-safe or deterrent from greed and speculation. The Deposit Insurance fund is now empty and will require additional assessments to pay off future failures. Of course, the FDIC can always borrow from the Treasury and saddle us with the bill.

The Chair of the FDIC mentioned a contingent reserve fund during a press conference a few weeks back. I'm not sure about what this exactly is, but it seems to be store of funds that the FDIC draws fund. I will research this.

- Deposit Insurance Fund on 6/30/09: $10.368 billion

- Cost of failures since 6/30/09: $11.125 billion

- Current balance (excluding interim income): ($757 million)

Friday, September 4, 2009

Non-Farm Payrolls: Historical

Not a very impressive run for the last few years. Shedding jobs for the sake of increased margins is great for shareholders, not so good for households.

Non-Farm Payrolls

According to the monthly BLS report, the economy lost 216,000 jobs last month. This was better than the consensus loss of 230,000 and certainly better than my guess (loss of 262,000). However, the BLS revised the June number and July number: 20,000 more jobs lost and 29,000 more jobs lost respectively. Oddly enough, that totals 265,000. My gut tells me that my numbers will be close to the revised value.

The cumulative job losses since December, 2007 are essentially the same between the two surveys: 6.8 million for ADP & 6.809 million for BLS.

The last two weekly unemployment claims coincide with the survey period for the September BLS tally. As it stands, I believe we are heading for another loss of at least 200,000 jobs.

Wednesday, September 2, 2009

ADP Jobs Report

ADP reported that businesses cut another 298,000 jobs last month. The data for the previous two months was revised slightly upwards, mitigating this worse than expected report. Forty-nine percent of the job losses were in the service providing sector.

Since & including 12/2007:

- 6.8 million jobs lost

- average monthly job loss of 324,000

- 19 consecutive months of losses

The economy now has the same amount of jobs as it did in December, 2003.

For what it's worth, I am forecasting that the BLS will report a loss of 262,000 on Friday. If my forecast is accurate (and that is a big if...):

Recession Recession Change In
Start End Non-Farm Payrolls
Nov-73 Mar-75 -1.62%
Jan-80 Jul-80 -1.07%
Jul-81 Nov-82 -3.08%
Jul-90 Mar-91 -1.13%
Mar-01 Nov-01 -1.21%
Dec-07 ? -5.01%

This is a recession not like many others. The above table tracks the job loss (according to the BLS) during the last few recessions.