Paper Money - A US Real Estate Bubble Blog

The Almost Daily 2¢ - Revealing The True Potential

Posted: 15 Jan 2009 08:00 AM CST

I'm certain that anyone would find the depth and breadth of the below list of announced job cuts to be concerning… Knowing that these headlines came from a single 24 hour period is simply shocking.

Banking and Finance, Telcom, Mobile, Health, Pharma, Hardware, Education, Municipal, Manufacturing, Energy, Equipment, Construction, Retail… it's simply across the board and it's everywhere.

The vicious cycle is firmly in place and no state or city will be immune… no industry… no profession.

We are in the early stages of a truly fundamental shakeout that no amount of government intervention can prevent.

The route by which "shovel ready" infrastructure construction jobs puts millions of scientists, hospital workers, analysts, bankers, programmers, mobile and telcom technicians, business managers, energy workers and high-end retailers back to work is tenuous at best, even with a generous "trickle-up" multiplier effect.

No… the government spending will not succeed in stemming this tide.

But, let us pause and draw some confidence from the fact that the economy is not broken.

In fact, that recessionary "sting" is how you know it's working… adjusting, reaching down… deep down to a new, more fundamental equilibrium and, inevitably, a healthy revelation of its true potential.

***

"Telstra mulls thousands of extra job cuts"
"Motorola Announces Another 4000 Job Cuts"
"Mercy Hospital included in Wheaton's plan for job cuts"
"Pfizer to layoff 800 scientists and technicians in research"
"Seagate Cuts 6% of Jobs Globally, Reduces CEO Pay 25%"
"University Of Tennessee Predicts 700 Job Cuts"
"Butler County sheriff plans 20 job cuts"
"Washington County job cuts announced"
"Hill-Rom to restructure, cut 300 jobs"
"Cummins To Cut 800 'Professional' Jobs By End Of Feb"
"71 effected by County School job cuts"
"Job Cuts At Yakima Catholic Diocese"
"Major job cuts in Tulare County to hit health care"
"ING cuts 750 US jobs due to economic slowdown"
"BofA confirms 139 job cuts in Ballantyne"
"2000 jobs to go after bank merger"
"Galveston College to talk about job cuts"
"Barclays plans thousands more job cuts"
"A Higher Estimate of Job Cuts at HMH"
"Cajundome Announces Job Cuts"
"Mount Carmel announces 300 job cuts"
"Dow Chemical to detail Texas job cuts"
"Crown job cuts 'strategic'"
"Hutchinson Tech sheds 1380 workers"
"TeliaSonera makes domestic job cuts"
"Georgia Power to eliminate up to 400 jobs"
"Tiffany cuts forecast, posts holiday-sales decline"
"San Jose Mayor says city should prepare for layoffs"
"Plantronics to layoff 18 percent of global workforce"
"Nortel workers in Richardson brace for layoffs"
"Rensselaer layoffs spark controversy"
"Russellville Plant Lays Off About 30 Workers"
"Google's Loss of Innocence: 100 Jobs Cut"
"Iron City Brewing to move production, lay off staff"
"Boat manufacturer cites poor economy in layoff of 55 workers"
"43 Lincoln City Jobs In Jeopardy"
"Deere & Co. announces layoffs at Dubuque site"
"Paper mill plans temporary layoffs"
"Oral Roberts University begins layoffs"
"Protective vest manufacturer to have temporary layoffs at Grainger County plant"

Conspicuous Correlation: Retail Sales December 2008

Posted: 14 Jan 2009 12:30 PM CST

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing a decline of 2.7% from November 2008 and 9.8% decline from December 2007 on an aggregate of all items including food, fuel and healthcare services.

Discretionary retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales also experienced another significant decline falling 6.87% compared to December 2007.

Further, adjusted for inflation, "real" discretionary retail sales declined 7.48% since December 2007.

On a "nominal" basis, there appeared to be "rough correlation" between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following charts show my initial analysis plotting the year-over-year change to an aggregate series consisting of the primary discretionary retail sales categories that I termed the "discretionary" retail sales series and the year-over-year change to the S&P/Case-Shiller Composite home price index since 1993 and since 2000.

As you can see there was, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

One problem with this initial analysis is that both retail sales and the S&P/Case-Shiller Composite index are reported in "nominal" (i.e. non-inflation adjusted) terms and thus result in a somewhat skewed view especially for the retail sales data.

As you can see from the above charts (click for larger version), adjusted for inflation (CPI for retail sales, CPI "less shelter" for S&P/Case-Shiller Composite) the "rough correlation" between the year-over-year change to the "discretionary" retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

Reading Rates: MBA Application Survey – January 14 2008

Posted: 14 Jan 2009 11:24 AM CST

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 decreased 18 basis points since last week to 4.89% while the purchase application volume declined 14.06% and the refinance application volume jumped 25.6% compared to last week's results.

It's important to note though that although the steady decline in mortgage rates has likely played a significant role in the large increases in refinance application volume, it's also altogether possible that the MBAA has some difficulty in seasonally adjusting their numbers around the November to January periods.

As you can see on the charts below, November through January usually brings some erratic spikes to the volume indices but the cause, at least in some part, is likely the result of troubles seasonally adjusting a noisy weekly series and not an actual spontaneous doubling of refinance activity.

As was noted last year, it's probably sensible to wait until February to draw a final conclusion.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% "rule of thumb") on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).