Commercial Real Estate Fiasco
Posted on Tuesday, October 20, 2009
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Bloomberg details the fiasco that is the commercial real estate market:Commercial property values in the U.S. declined in August as job losses and the recession cut demand for offices, retail space and rental apartments.The Why (i.e. the double whammy of too much supply from the bubble and no demand):
The Moody's/REAL Commercial Property Price Indices fell 3 percent in August from July, bringing the market's decline to almost 41 percent since its peak in October 2007, Moody's Investors Service said in a statement today. Prices fell 8 percent in both April and May, according to Moody's.
Values are falling as U.S. unemployment climbs and consumers cut spending. Office vacancies rose to a five-year high of 16.5 percent in the third quarter, according to New York-based property research firm Reis Inc. Apartment vacancies hit a 23-year high and mall vacancies were the highest since 1992.The optimist point of view:
"We can't call a bottom at this point, but it's an encouraging sign to see the deceleration in the decline," said Connie Petruzziello, a Moody's analyst and co-author of the commercial property price report.The realist point of view:
Commercial real estate prices are forecast to fall additional 17 percent through the fourth quarter of next year, Goldman Sachs Group Inc. said in a Sept. 30 report, citing scarce credit, rising vacancy rates and the risk of forced sales.The ugly chart through August 2009:
The real fear is what will happen when those properties financed in 2005-2006 need refinancing (a lot of these properties were financed on 5 year'ish loans) and owners realize the asset they have is worth 40-50% less than they paid for it, but still need a loan for that full amount. But, the problems are happening earlier as those same owners are wondering why they should make payments with that type of future (or in many cases can't make payments even i).
Late payments on commercial mortgages jumped sevenfold in September from a year earlier, as installments on $22.4 billion of mortgages were at least 60 days late, Credit Suisse analysts reported Oct. 12. The delinquency rate of commercial mortgage payments bundled into bonds rose to 3.64 percent in September from 0.54 a year earlier, Moody's said Oct. 13.Source: MIT
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Source: http://econompicdata.blogspot.com/2009/10/commercial-real-estate-fiasco.html
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The Rich Get Richer: Median Wage Edition
Posted on Monday, October 19, 2009
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Wages rose! Good news right? Not necessarily. Per the WSJ:There were about 8.2 million fewer full-time wage and salary workers in the third quarter than two years ago; the data doesn't include part-time or self-employed workers. Low-wage workers are hit disproportionally during recessions, and their absence from the tally could cause median wages to rise even if the typical worker isn't getting a raise.Even with the benefit of the "drop out effect" of low-wage workers dropping out of the data, the lower income workers saw their weekly wages rise to a much less extent than higher income workers (i.e. the rich got richer). Here's the change in weekly earnings for quartiles and the top / bottom deciles since the recession began in December 2007.
BUT, part-time workers saw a large jump in pay too you say? Unfortunately, that is mainly due to:
- A large number of these part time workers "should" be / were full-time workers, thus this "jump" in pay were actually pay cuts as they got downsized to part-time
- Young workers were the only age group to see their wages decline over the past two years as there was limited demand for their services (the unemployment rate among young people is an outlier even in this ugly economy), thus a greater percent of the part-time workers were non-young people, who typically earn less
Top decile earners now make more than 5 times the amount that bottom decile earners make, up from 4.4 in March 2000 (as far as this data goes back).
Source: BLS
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Source: http://econompicdata.blogspot.com/2009/10/rich-get-richer-median-wage-edition.html
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On the Attractiveness of Treasuries
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The BadThe ten year treasury bond is yielding 3.4%.
The Good
That yield is 4.7% above the latest year over year CPI print, the highest level in 25 years.
So, are longer dated Treasuries a good investment? Depends on your outlook for interest rates and inflation. That measly 3.4% is still 140 bps higher than December lows should this "rebound" not be all its cracked up to be.
Source: Yahoo / BLS
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Source: http://econompicdata.blogspot.com/2009/10/on-attractiveness-of-treasuries.html
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Consumer Sentiment Sluggish
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Reuters details Friday's Michigan Consumer Sentiment release:U.S. consumer sentiment fell unexpectedly this month on persistent worries that the "dismal" state of personal finances would not recover quickly from the worst recession in decades, a report showed on Friday.
The Reuters/University of Michigan Surveys of Consumers said its preliminary index of sentiment for October fell to 69.4, from September's 73.5. That was below economists' median expectation of a steady reading of 73.5, according to a Reuters poll.
The report said diverging prospects for the general economy and personal finances would have a negative impact on the pace of the recovery, with consumers eager to increase their savings and pay down debts.
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Source: http://econompicdata.blogspot.com/2009/10/consumer-sentiment-sluggish.html
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Japanese Tertiary Index Shows Strength
Posted on Sunday, October 18, 2009
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RTT News details:An index measuring tertiary industrial activity in Japan was up 0.3 percent in August compared to the previous month, the Ministry of Economy, Trade and Industry said on Monday, posting an index score of 97.1.The largest jump in the index was in professional services, led by civil engineering and architectural services (of which geological survey services jumped a massive 46%) offset by continued weakness on the consumer side.
That beat analyst expectations for a 0.1 percent monthly increase following the revised 0.7 percent increase in July - which was originally reported higher by 0.6 percent.
The index incorporates data from firms involved with wholesale and retail trade, financial services, health care, real estate, leisure, and utilities.
Source: Meti
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Source: http://econompicdata.blogspot.com/2009/10/japanese-tertiary-index-shows-strength.html
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Output Gap and Inflation
Posted on Friday, October 16, 2009
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Marketwatch details:Output of the nation's factories, mines and utilities rose 0.7% in September after an upwardly revised 1.2% gain in August and a 0.9% increase in July, the Fed said. The 0.7% increase in output in September was stronger than the 0.4% gain expected by economists surveyed by MarketWatch. Manufacturing output rose 0.9% in September. Capacity utilization rose to 70.5% in September from a revised 69.9% in August.
Looking at the chart below, we see an improvement in the year over year decline in capacity utilization, which indicates less disinflationary pressure in the system.
BUT, Macro-man details why inflation may tick up before the level of capacity utilization increases:
However, it's probably worth touching on some small aspect of the debate, as behind the scenes it seems as if the same is happeneing at the Fed. Don Kohn's recent speech highlighted the large size of the output gap, a view largely echoed in last night's FOMC minutes. Yet at a recent St. Louis Fed conference, Bank president James Bullard offered a somewhat contrary view-namely that the collapse of the bubble has eradicated some of the productive capacity of the economy, thus rendering the output gap smaller than commonly believed.
And an example of how a decrease in the value of a dollar may play into the inflation/deflation debate (i.e. a weak dollar will make it more difficult to import disinflation from overseas):
While it's certainly the case that import prices from China are still down year-on-year, intriguingly, the quarterly change in import prices has returned to zero. In other words, there is no marginal deflationary trend in US import prices from China. If (or rather, when) domestic inflation in China starts to rise, courtesy of PBOC's helicopter money-drop, it seems reasonable to posit that US import prices from China will begin to rise.
Source: BLS
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Source: http://econompicdata.blogspot.com/2009/10/output-gap-and-inflation.html
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Philly Fed Shows Strength, But Less
Posted on Thursday, October 15, 2009
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Unlike the strength shown in the Empire Manufacturing Survey, the Philadelphia Fed Survey showed the recovery may not be one direction in nature. Bloomberg details: Manufacturing in the Philadelphia region expanded at a slower pace this month, a reminder that the recovery from the deepest recession since the 1930s will be gradual.
The Federal Reserve Bank of Philadelphia's general economic index dropped to 11.5, lower than forecast, from a September reading of 14.1 that was the highest since June 2007, figures from the bank showed today.
Factories have been slow to rev up output as excess capacity, mounting joblessness and the wind-down of stimulus measures such as "cash-for-clunkers" point to an uneven rebound in demand. Even so, inventories near record-low levels set the stage for an eventual pickup in production when consumer spending strengthens.
Manufacturers were less upbeat about the future, today's report showed. Expectations for the next six months fell to 39.8 from 47.8. Factory activity nationwide accounts for about 12 percent of the U.S. economy, the world's largest.
Source: Philly Fed
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Source: http://econompicdata.blogspot.com/2009/10/philly-fed-shows-strength-but-less.html
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