…The center cannot hold.
Negative indicators in the economy are falling and doing so at an increasing rate.
Job numbers are out today and they are a bloody reminder that despite all the happy talk, the real question is not “Are we in a recession?” but “When did the recession begin?”
The U.S. lost jobs for a third consecutive month in March and the unemployment rate rose to the highest since September 2005, pointing to an economy that may already be in a recession.
Payrolls shrank by 80,000, more than forecast, after a decrease of 76,000 in February that was more than initially reported, the Labor Department said today in Washington. The jobless rate rose to 5.1 percent, the highest since September 2005, from 4.8 percent.
Job losses have shaken consumer confidence, contributing to a weakening in spending that has almost stalled growth. The report reinforces forecasts that the Federal Reserve, whose Chairman Ben S. Bernanke this week acknowledged the economy may face a recession, will need to do more to prevent further deterioration.
“The odds of a recession are now very high,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “It will be a miracle if the economy is able to keep growing as the lack of a paycheck will put a brake on consumer spending. The Fed still has its work cut out for it.”
Treasuries climbed after the release, with 10-year note yields falling to 3.53 percent at 8:34 a.m. in New York, from 3.59 percent late yesterday.
Economists had projected payrolls would fall by 50,000 following a previously reported 63,000 drop in February, according to the median of 79 forecasts in a Bloomberg News survey. Economists’ forecasts ranged from a decline of 150,000 to a gain of 65,000.
Keep in mind that we need to be averaging 100,000+ jobs a month or more just to keep up with the growth of our working age population. It’s the third straight month of job losses and things aren’t going to turn around anytime soon…there will be more losses in the future.
Even America’s most darling companies are cutting jobs.
In the first sizable layoffs in its history, Google is cutting about 300 jobs from the American operations of DoubleClick, the advertising technology company that it acquired recently, according to a person with direct knowledge of Google’s plans.
The cuts represent about a quarter of DoubleClick’s American work force of about 1,200. The company has about 1,500 employees worldwide, and the chief executive of Google, Eric E. Schmidt, has suggested that job cuts would also affect DoubleClick’s overseas operations at a later date.
Google declined to confirm the number of layoffs.
If even a company worth $450 a common share is laying people off, we’re in trouble. But the truth of the matter is we’ve been in trouble for a long time now. We’ve increasingly become a service economy rather than a manufacturing one. Now demand for services is drying up.
This is different from the post 9/11 “jobless recovery” that we had from January 2002 to mid 2003. This is a jobless recession and there is no sign of a bottom.
The Fed has no clue what to do other than to throw money at the situation. The only weapons they have are giving away cash and cutting rates.
Federal Reserve officials signaled the central bank will keep lowering interest rates because financial markets remain distressed even after the fastest reduction of borrowing costs in two decades.
Fed Chairman Ben S. Bernanke told lawmakers yesterday that the central bank is “ready to respond to whatever situation evolves,” and cited “considerable stress” in markets. New York Fed President Timothy Geithner said policy makers must “continue to act forcefully.”
The remarks, along with Bernanke’s acknowledgment for the first time two days ago that a recession is possible, indicate policy makers are concerned that a cut-off of credit to homeowners and companies will cause a protracted slump. Government figures today may show the U.S. lost jobs for a third straight month in March.
Bernanke “painted a pretty dismal picture,” said Peter Kretzmer, senior economist at Bank of America Corp. in New York, who used to work as an economist at the New York Fed and Fed Board in Washington. “This credit crisis is different and the credit condition problems are fairly severe,” he added, forecasting a half-point rate cut this month.
Traders now see a one-in-five chance of a half-point reduction in the benchmark rate, to 1.75 percent, at the April 29-30 Fed meeting. That’s up from 12 percent odds two days ago, while today’s Labor Department report will offer investors fresh clues on future Fed actions.
We may be at a zero Fed rate before the end of the year if these cuts keep up. Meanwhile, more and more banks are turning to Helicopter Ben’s Cheap Cash Emporium as not the lender of last resort, but lender of both first and only resort.
Bank borrowing from the Federal Reserve’s discount window surged in recent days, as primary dealers continued to draw still larger amounts of cash from their new emergency finance facility, figures released by the US central bank showed on Thursday.
The Fed said bank borrowing from the discount window averaged $7bn in the week to April 2 – a $6.5bn jump from the previous week. The total amount outstanding on April 2 was $10.3bn.
Meanwhile borrowing from the new emergency finance facility for primary dealers – including investment banks that do not have access to the discount window – rose $5.2bn to average $38.1bn over the week, though the amount outstanding dipped to $34.4bn on April 2.
Michael Feroli, an economist at JPMorgan Chase, said the discount window borrowing was the highest since data began in 1961, with the exception of the week after the terror attacks of September 11 2001. But he said this should not be seen as negative for the financial system.
Instead, the increased borrowing by banks appears to reflect the reduction in the penalty rate payable on the discount window, which has made it an increasingly competitive source of funds for financial institutions.
Pay attention to the bold text there. It means that the stigma of borrowing from the Fed’s “emergency” window to stay afloat has vanished. Instead, it has now become standard operating procedure. The moral hazard of rewarding greed has now come home to roost for the immediate future.
Banks borrow at the dirt cheap Fed window for incoming cash and continue to toughen up credit lending standards on outgoing cash. Banks can now fatten up their bottom lines at will, at the cost of the American taxpayer on both ends of the scale. As long as the “credit crisis” remains, banks can grab the cash while the grabbing is good.
You and I are now funding the financial industry to the tune of billions every week at a time when we can collectively least afford to do so. The Fed has no clue how to stop the bleeding, much less solve the problem. If three months of rate cuts still is unable to stave off job losses in the tens of thousands, falling equity prices and plummeting demand, what will?
Nothing, really. It may very well be too late. Things will continue like this until the Fed runs out of money. When that happens, the real pain begins. Do everything you can to keep your current job. Make yourself indispensable to the boss. If you’re your own boss, make yourself indispensable to your customers.
We went over the falls in the first quarter of 2008. Now begins the long downward journey until we find the bottom, and that may take year, or years to find. From this point on, it’s a question of how far we fall.
Be prepared.
Update [2008-4-4 13:32:55 by Zandar1]: This story is nothing short of completely astonishing. Please read the whole thing.
Banks are so overwhelmed by the U.S. housing crisis they’ve started to look the other way when homeowners stop paying their mortgages.
The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on.
Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody’s Economy.com, a unit of New York-based Moody’s Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.
“We don’t have a sense of the magnitude of what’s really going on because the whole process is being delayed,” Zandi said in an interview. “Looking at the data, we see the problems, but they are probably measurably greater than we think.”
Lenders took an average of 61 days to foreclose on a property last year, up from 37 days in the year earlier, according to RealtyTrac Inc., a foreclosure database in Irvine, California. Sales of foreclosed homes rose 4.4 percent last year at the same time the supply of such homes more than doubled, according to LoanPerformance First American CoreLogic Inc., a real estate data company based in San Francisco.
This is horrendous news. Literally everything that has gone wrong in the economy in the last 18 months can be tracked either directly or indirectly back to the current housing depression and falling home prices. Now we have evidence that this depression and its results are possibly far worse now than anyone really considered. Banks are dragging their feet on foreclosures because a foreclosure right now is a 100% sure thing of a loss right now that would go on the bank’s books. By the time you factor in the paperwork costs, the bank actually comes out ahead by giving the delinquent homeowners time to come up with the cash and keep the home rather than foreclose right away.
“Some people stay in their houses until someone comes to kick them out,” said Angel Gutierrez, owner of Dallas-based Metro Lending, which buys distressed mortgage debt. “Sometimes no one comes to kick them out.”
Banks are reluctant to foreclose on homeowners for a variety of reasons that include the cost, said Peter Zalewski, real estate broker and owner of Condo Vultures Realty LLC, a property consulting firm in Bal Harbour, Florida.
Legal fees and maintaining a vacant property while paying the mortgage, insurance and taxes can add up to as much as 15 percent of the value of the home, and it may take months for the foreclosure to work through the legal system, he said.
“The end result is taking back a property that the bank will have to manage, rent out and or sell,” Zalewski said.
In many cases, lenders also have to foot the bill for fixing up vacant homes that have been vandalized.
The article continues, and it’s probably the most truly frightening article I’ve read on the situation in some time. This is not a what if scenario. This is reality, and it is happening now and will continue to happen. Again, I urge you to read the whole thing.
Keep in mind as more of these ghost homes continue to pile up, eventually the banks will have no choice but to foreclose in an effort to try to recover their losses, if only to try to rent the home. Millions of homeowners are going to either walk away from their homes or squat and not pay the mortgage. Either way, the bank loses. And if the bank loses enough, it goes under. There will be a tidal wave of foreclosures in late 2008, and it will start to drown the financial industry in a sea of blood-red ink. By election day the landscape could truly be surreal. Bush’s legacy as worst President in history is all but assured now. The nastiest predictions that I’ve seen from 3-6 months ago are starting to become daily news articles today.
Just as the actual number on the unemployed don’t reflect the millions that have simply stopped looking for work, the numbers on foreclosures, as bad as they have been, don’t reflect the true number of people in arrears on their home payments. The reckoning on those folks will come in over the next several months.
We may be in for a much faster fall than even I anticipated. More than ever, be prepared.
