Recession Watch: September (it goes on, and on, and on...)

[civ_king]

this is bad news

 

[yesboii]

http://news.yahoo.com/s/ap/20090915/ap_on_bi_ge/us_bernanke

WASHINGTON – Federal Reserve Chairman Ben Bernanke said Tuesday the worst recession since the 1930s is probably over, although he cautioned that pain — especially for the nearly 15 million unemployed Americans — will persist.

Bernanke said the economy likely is growing now, but he warned that won't be sufficient to prevent the unemployment rate, now at a 26-year high of 9.7 percent, from rising.

"From a technical perspective, the recession is very likely over at this point," Bernanke said in responding to questions at the Brookings Institution. "It's still going to feel like a very weak economy for some time because many people will still find that their job security and their employment status is not what they wish it was."

The recession, which started in December 2007, has claimed a net total of 6.9 million jobs.

With expectations for a lethargic recovery, the Fed predicts that unemployment will top 10 percent this year. The post-World War II high was 10.8 percent at the end of 1982.

Some economists say it will take at least four years for the jobless rate to drop down to a more normal range of 5 percent.

Even if the economy logs "moderate" growth in 2010, unemployment is likely to stay elevated, Bernanke suggested.

"Unfortunately, unemployment will be slow to come down. It will come down but it may take some time," he said. "Obviously, that's a very serious concern."

Drugmaker Eli Lilly & Co. said Monday that it will cut 5,500 jobs over the next two years, 14 percent of its work force, as it restructures the company into five units.

Still, Bernanke's declaration that the recession likely ended marked his most optimistic assessment yet of the economy. And his remarks came on the same day that the government report that retail sales jumped 2.7 percent in August, the most in more than three years.

All that helped to lift stocks on Wall Street. The Dow Jones industrial averaged gained nearly 57 points to 9,683.41, its highest finish since Oct. 6.

Last month, Bernanke told a Fed conference in Wyoming that economic activity appears to be "leveling out" after declining sharply at the end of last year and into the beginning of this year. He also said that the global economy was just "beginning to emerge" from recession.

Bernanke's speech to at Brookings was identical to the one he delivered at the Fed conference.

Analysts predict the U.S. economy is growing in the current quarter, which ends Sept. 30, at an annual rate of 3 to 4 percent. It shrank at a 1 percent pace in the second quarter, much slower than in previous quarters.

Bernanke said the economy is coping with "ongoing headwinds," including hard-to-get-credit for consumers and businesses, and households saving more, spending less and trimming their debt. Those forces can weigh down the recovery, he said.

Other analysts worry that falling house prices could hamper the broader rebound, especially if they cause consumers to tighten their belts.

While many on Wall Street have been encouraged by early signs of stabilization in U.S. home prices and hope the housing market may have hit bottom, others aren't so sure.

Deutsche Bank analyst Karen Weaver on Tuesday predicted that national home prices won't stop sliding until next summer and likely will fall another 10.5 percent from this summer's levels. Bigger declines are expected in cites like New York, Salt Lake City, Fort Lauderdale, Fla., and Baltimore.

Against that backdrop, Michael Williams, dean of Touro College's Graduate School of Business, disagreed with Bernanke's assessment that the recession probably ended. Williams maintains that troubles in both the residential and commercial real-estate markets are prolonging the downturn.

Williams believes the economy is still shrinking and won't turn around until later next year. "This recession lingers," he said.

Meanwhile, Bernanke said he is optimistic that Congress will enact a revamp of the nation's financial rule book to prevent a future crisis from happening.

"I feel quite confident that a comprehensive reform will be forthcoming," Bernanke said.

President Barack Obama on Monday urged Congress to enact legislation this year.

"This has just been too big a calamity and too serious a problem" over the past year, with the near meltdown of the U.S. financial system, for Congress not to take action, Bernanke added.

He spoke one year after Lehman Brothers filed for bankruptcy, the largest in U.S. history. It's collapse roiled financial markets worldwide, nearly halted the flow of credit and almost brought down the entire U.S. financial system.

Recession is over?

 

[Integral]

Recession is over?

Probably. But unemployment will linger; I don't expect to see the demand for labor shift significantly any time soon.

--

New York Manufacturing Survey, September 2009:

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved in September, following the upturn first observed in August. The general business conditions index increased 7 points, to 18.9, its highest level since late 2007. The new orders index was positive and higher than last month, while the shipments index dipped. The prices paid index rose several points to its highest level in many months, and the prices received index, while negative, inched close to zero. The index for number of employees remained in negative territory, while the average workweek index moved above zero for the first time in a year. Future indexes remained relatively high and close to their August levels, suggesting that conditions are expected to improve further in the months ahead. Indeed, the future general business conditions index reached its highest level in several years.

In response to a series of supplementary questions about past and prospective changes in the selling prices of their goods, manufacturers indicated that prices had declined by 2.1 percent, on average, over the past twelve months—a sharp contrast with the rise of 4.8 percent reported in an identical survey conducted a year ago (see supplemental report). Looking ahead to the next twelve months, respondents expected prices to rise by 1.9 percent, on average, compared with last year’s expected price rise of 3.6 percent. When asked about the probability of certain specified price changes over the next twelve months, the average respondent estimated a roughly 50 percent chance that prices would remain within 2 percent of their current levels, a 39 percent chance that they would rise 2 percent or more, and a 12 percent chance that they would drop 2 percent or more.

Tomorrow we get to look at CPI and industrial capacity utilization.

 

[Integral]

A bit of a bump, but whatever -

Prices rose 0.4% month over month; inflation y-o-y is negative. Both statistics are largely driven by fluctuations in the price of oil. Source

Industrial capacity utilization rose by 0.6 percent, from 69% to 69.6%. On the one hand, it's nice that cap utilization is up; on the other, it would be difficult for it to fall any further...Source

Finally, the Philadelphia Fed has released its monthly survey.




That's enough news. Now, my Article of the Week (tm):
Krugman's piece earlier this month has generated substantial feedback from the economic community. Some of the responses were trash. A few others were fairly good. The best response is here. It's Prof. N. Kocherlakota from the University of Minnesota; he takes a look at modern macro as it is done by leading young macroeconomists. The basic points:

1. Macroeconomists don't avoid heterogeneity, contra the implications of Krugman's article.

2. Macroeconomists don't ignore frictions. Indeed, the whole story of macro since the 'rational expectations' revolution has been one of introducing various frictions into an underlying neoclassical model.

3. Macroeconomic modelling doesn't ignore bounded rationality. Few models use perfectly rational expectations; most have either bounded rationality or heterogeneous agents in which some agents have rational expectations but some do not. On an interesting empirical point, the ECB's microsimulator does something like that: fully one-third of the agents in its model do not care about the future at all, while the rest care in varying degrees - an example of bounded rationality and heterogeneous agents.

4. Macroeconomic models do incorporate a role for government interventions. This is pretty much guaranteed once you introduce frictions, heterogeneous agents, and imperfect expectations...

5. [A technical point about econometrics]

6. There is no freshwater/saltwater divide, again contra Krugman.

Here's another article where the author (a somewhat heterodox monetary theorist) argues why everyone is wrong about everything, ever, with regards to the financial crisis...

 

[Naskra]

Kocherlakota shouldn't find too much opposition to this point he makes:

Macroeconomic models leave out many possibly important features of the real world. Sometimes, we choose to do so. Far more often, we leave out these aspects of reality because we must: given our computational and conceptual limitations, we simply cannot handle these things in our mathematical models.

 

[Integral]

Kocherlakota shouldn't find too much opposition to this point he makes:

And it's true: many of the things we'd like to model don't have nice mathematical formulations. Heck, we couldn't even model expectations properly until the late 1970s; even now, the model of expectations is not altogether satisfactory.

It's incredibly difficult to incorporate a 'sophisticated' financial market into the usual macro models. Seeing as financial crises have been the leading cause of recession for the past twenty-some years, you'd think someone would get on that...

(I'm not going to defend the state of short-run macroeconomic theory. There is much we know - and much more that we do not. But the failures, or alleged failures, of macro theory are not necessarily those that Krugman emphasizes.)

 

[Naskra]

There is much we know - and much more that we do not

I see more danger in what we believe we know than in what we don't know. Keynes was right in one thing - that we are all the slaves of some defunct economist. I would prefer that he was not the dominant defunctee.

 

[Stolen Rutters]

In other news, Michigan's unemployment is now 15.2%... job hunting is rough around here! Anyone need a competent Mechanical Engineer? ...Anyone?

 

[Cutlass]

In other news, Michigan's unemployment is now 15.2%... job hunting is rough around here! Anyone need a competent Mechanical Engineer? ...Anyone?

Sorry. A friend of mine lost a mechanical engineer job at an aerospace company here in Connecticut, and he's had no luck finding anything either. Just a suggestion, but check out the companies in green energy equipment manufacture and design for an engineering field with some growth potential.

 

[Rashiminos]

http://www.businesswire.com/portal/...d=news_view&newsId=20090923005709&newsLang=en

September 23, 2009 09:30 AM Eastern Daylight Time
Federal Reserve Admits Hiding Gold Swap Arrangements, GATA Says
MANCHESTER, Conn.--(BUSINESS WIRE)--The Federal Reserve System has disclosed to the Gold Anti-Trust Action Committee Inc. that it has gold swap arrangements with foreign banks that it does not want the public to know about.

The disclosure, GATA says, contradicts denials provided by the Fed to GATA in 2001 and suggests that the Fed is indeed very much involved in the surreptitious international central bank manipulation of the gold price particularly and the currency markets generally.

The Fed's disclosure came this week in a letter to GATA's Washington-area lawyer, William J. Olson of Vienna, Virginia (http://www.lawandfreedom.com/), denying GATA's administrative appeal of a freedom-of-information request to the Fed for information about gold swaps, transactions in which monetary gold is temporarily exchanged between central banks or between central banks and bullion banks. (See the International Monetary Fund's treatise on gold swaps here: http://www.imf.org/external/bopage/pdf/99-10.pdf.)

The letter, dated September 17 and written by Federal Reserve Board member Kevin M. Warsh (see http://www.federalreserve.gov/aboutthefed/bios/board/warsh.htm), formerly a member of the President's Working Group on Financial Markets, detailed the Fed's position that the gold swap records sought by GATA are exempt from disclosure under the U.S. Freedom of Information Act.

Warsh wrote in part: "In connection with your appeal, I have confirmed that the information withheld under Exemption 4 consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of Exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you."

When, in 2001, GATA discovered a reference to gold swaps in the minutes of the January 31-February 1, 1995, meeting of the Federal Reserve's Federal Open Market Committee and pressed the Fed, through two U.S. senators, for an explanation, Fed Chairman Alan Greenspan denied that the Fed was involved in gold swaps in any way. Greenspan also produced a memorandum written by the Fed official who had been quoted about gold swaps in the FOMC minutes, FOMC General Counsel J. Virgil Mattingly, in which Mattingly denied making any such comments. (See http://www.gata.org/node/1181.)

The Fed's September 17 letter to GATA confirming that the Fed has gold swap arrangements can be found here:

http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

While the letter, GATA says, is far from the first official admission of central bank scheming to suppress the price of gold (for documentation of some of these admissions, see http://www.gata.org/node/6242 and http://www.gata.org/node/7096), it comes at a sensitive time in the currency and gold markets. The U.S. dollar is showing unprecedented weakness, the gold price is showing unprecedented strength, Western European central banks appear to be withdrawing from gold sales and leasing, and the International Monetary Fund is being pressed to take the lead in the gold price suppression scheme by selling gold from its own supposed reserves in the guise of providing financial support for poor nations.

GATA will seek to bring a lawsuit in federal court to appeal the Fed's denial of our freedom-of-information request. While this will require many thousands of dollars, the Fed's admission that it aims to conceal documentation of its gold swap arrangements establishes that such a lawsuit would have a distinct target and not be just a fishing expedition.

In pursuit of such a lawsuit and its general objective of liberating the precious metals markets and making them fair and transparent, GATA again asks for financial support from the public and from all gold and silver mining companies that are not at the mercy of market-manipulating governments and banks. GATA is recognized by the U.S. Internal Revenue Service as a non-profit educational and civil rights organization and contributions to it are federally tax-exempt in the United States. For information on donating to GATA, please visit here:

http://www.gata.org/node/16

People also can help GATA by bringing this information to the attention of financial news organizations and urging them to investigate the Fed's involvement in gold swaps particularly and the gold (and silver) price suppression generally.

Meaningful?

 

[Cutlass]

If the Fed is trading gold, they should admit it. Nothing is gained by hiding the information.

It caught my eye and, I'm curious though, why the dateline is MANCHESTER, Conn. A town with no notable connection to financial services.

 

[Naskra]

Manchester, Conn is the location of GATA (i.e. it is where one of the Gatoids live). The article is a press release from GATA, which is apparently a goldbuggers org. -- scratch a goldbug and you'll find a conspiracy theorist. The Fed, of course, resents and resists any attempt to expose its workings.

 

[Cutlass]

Ah. Thanks for that bit of info. They get no notice locally. And by locally, I mean the town is within walking distance of me.

 

[Integral]

The Fed has begun winding down TAF:

September 25, 2009
Fed Reducing 2 Programs for Emergency Lending
By THE ASSOCIATED PRESS

WASHINGTON (AP) — The Federal Reserve said on Thursday that it was further scaling back two emergency lending programs as the economy improved.

The Fed will reduce the amount of money available to banks in short-term loans under a program called the Term Auction Facility.

For 84-day loans, the Fed will provide a total of $50 billion in loans in October, and $25 billion each in November and December. For 28-day loans, the Fed will continue to make $75 billion available monthly through January.

The Fed also is cutting back on a program in which investment firms can temporarily swap risky securities for Treasury securities.

The Fed said $50 billion worth of Treasury securities would be made available for October, down from the current $75 billion. Operations in November and December will be trimmed to $25 billion each.

The actions respond to “continued improvements in financial market conditions,” the Fed said in a statement. The Fed announced earlier steps in late June to pare down the two programs.

With the economy moving from recession into recovery, the Fed is pulling back on some of the extraordinary support it has provided to banks and other companies to cope with the worst financial crisis since the 1930s.

The Fed chairman, Ben S. Bernanke, and his colleagues decided on Wednesday to slow the pace of a $1.45 trillion program intended to force down mortgage rates and shore up the housing market. And in August, the Fed signaled that it would wind down a $300 billion government debt-buying program aimed at lowering rates on all kinds of consumer debt.

The Fed’s support has caused its balance sheet to jump to just over $2 trillion, more than double the level before the crisis struck.

Weaning companies and the economy off the support will be a high-wire act for the central bank. Fed policy makers need to leave the special programs intact long enough to support the recovery — but not so long as to fuel inflation later.

NYT

 

[innonimatu]

Seeing as people here favor posting news about the US economy:

MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS
August 2009 - Released 8:30 A.M. EDT September 25, 2009
http://www.census.gov/indicator/www/m3/

New Orders
New orders for manufactured durable goods in August decreased $4.0 billion or 2.4 percent to $164.4 billion, the U.S. Census Bureau announced today. This was the second decrease in the last three months. This followed a 4.8 percent July increase. Excluding transportation, new orders were down slightly. Excluding defense, new orders decreased 2.4 percent.

Shipments
Shipments of manufactured durable goods in August, down following two consecutive monthly increases, decreased $2.4 billion or 1.4 percent to $171.3 billion. This followed a 2.2 percent July increase.

Unfilled Orders
Unfilled orders for manufactured durable goods in August, down eleven consecutive months, decreased $2.8 billion or 0.4 percent to $737.1 billion. This was the longest streak of consecutive monthly decreases since the series was first published on a NAICS basis in 1992 and followed a 0.1 percent July decrease.

Inventories
Inventories of manufactured durable goods in August, down eight consecutive months, decreased $4.2 billion or 1.3 percent to $308.9 billion. This followed a 1.1 percent July decrease.

Capital Goods Industries
Nondefense
Nondefense new orders for capital goods in August decreased $4.0 billion or 7.1 percent to $52.7 billion.

Defense
Defense new orders for capital goods in August increased $0.1 billion or 1.1 percent to $9.9 billion.

The depression goes on. Do notice that companies keep investing less on capital goods, a clear sign of how they're doing.

 

[really]

http://www.irishtimes.com/newspaper/weekend/2009/0926/1224255266080.html

Migration in numbers:

57,300

Immigrants (in year to April 2009)

65,1000

Emigrants (in year to April 2009)

Emigrants made up of:

30,100 citizens of new EU member states

18,400 Irish citizens

8,300 from outside the EU

Immigrants from new EU member states:

April 2008 33,700

April 2009 13,500

At the moment it looks like recent arrivals are leaving but the numbers of Irish leaving is picking up. I know two couple who have left because one half of them couldn't get work.

I'm thinking of moving back to London myself.

 

[civ_king]

California's unemployment was 12.2% in August

 

[Snorrius]

Seems like world is moving according to my predictions: Ukraine's state gas&oil company defaults.

Let's wait for Treasuries' collapse - probably, it is not that far away already .

 

[Integral]

From the IMF:

IMF Annual Meetings – Key reports out
Posted on October 1, 2009 by iMFdirect

The IMF has just published its latest forecast for the global economy, the World Economic Outlook. After a deep recession, global economic growth has turned positive, driven by wide-ranging, coordinated public intervention that has supported demand and reduced uncertainty and systemic risk in financial markets, according to the report.

“The recovery has started. Financial markets are healing,” says IMF Chief Economist Olivier Blanchard. But he warned the recovery will be slow. “The current numbers shuld not fool governments into thinking that the crisis is over,” he said.

The Fund also published its Global Financial Stability Report. It also sees a recovery, but much more needs to be done to heal the international financial system, including repairing bank balance sheets. Read the IMF Survey story.

Lots of links at the source. I remain unconvinced that public spending has done much to prop up aggregate demand...more likely, the main positive effect of fiscal stimulus was in dampening uncertainty.




From BEA, the final 2009Q2 GDP report. Nothing too exciting -

EMBARGOED UNTIL RELEASE AT 8:30 A.M. EDT, WEDNESDAY, SEPTEMBER 30, 2009

GROSS DOMESTIC PRODUCT: SECOND QUARTER 2009 (THIRD ESTIMATE)
CORPORATE PROFITS: SECOND QUARTER 2009 (REVISED ESTIMATE)


Real gross domestic product -- the output of goods and services produced by labor and property
located in the United States -- decreased at an annual rate of 0.7 percent in the second quarter of 2009,
(that is, from the first quarter to the second quarter), according to the "third" estimate released by the
Bureau of Economic Analysis. In the first quarter, real GDP decreased 6.4 percent.

The GDP estimate released today is based on more complete source data than were available for
the "second" estimate issued last month. In the second estimate, the decrease in real GDP was 1.0
percent (see "Revisions" on page 3).

The decrease in real GDP in the second quarter primarily reflected negative contributions from
private inventory investment, nonresidential fixed investment, residential fixed investment, personal
consumption expenditures (PCE), and exports that were partly offset by positive contributions from
federal government spending and state and local government spending. Imports, which are a subtraction
in the calculation of GDP, decreased.

The much smaller decrease in real GDP in the second quarter than in the first primarily reflected
much smaller decreases in nonresidential fixed investment and in exports, an upturn in federal
government spending, a smaller decrease in private inventory investment, an upturn in state and local
government spending, and a smaller decrease in residential fixed investment that were partly offset by a
much smaller decrease in imports and a downturn in PCE.

The revisions show slightly less contraction than the advance or preliminary estimate; in all likelihood, real GDP growth will be positive in the third quarter. Barring any major new crisis, the NBER will likely date the recession from December 2007 to about June 2009.

 

[Whomp]

The company is not in default it's the bond in question which will be converted from 8.125% to 9.5% and the maturity extended five years.

In the meantime, treasuries have continued to rally from 4% yields in June to 3.18% today. Blowing through the 50 day trendline as well today.

Good thing people didn't listen to you or else they'd be broke from all their misplaced shorts. Typical behavioral bias that should always be avoided by those that actually put their money where their mouth is.