Archive for November, 2008
Architecture Billings Index Drops to All Time Low
November 21, 2008 7:27 amThe American Institute of Architects reports: Architecture Billings Index Drops to All Time Low
Click on graph for larger image in new window.
On the heels of a six-point drop in September, the Architecture Billings Index (ABI) plummeted to its lowest level since the survey began in 1995. As a leading economic indicator of construction activity, the ABI shows an approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the October ABI rating was 36.2, down significantly from the 41.4 mark in September (any score above 50 indicates an increase in billings). The inquiries for new projects score was 39.9, also a historic low point.
“Until recently, the institutional sector had been somewhat insulated from the deteriorating conditions affecting the commercial and residential markets,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “Now we are seeing that governments and nonprofit agencies are having difficulties getting bonds approved to finance large scale education and healthcare facilities, furthering the weak conditions across the construction industry.”
emphasis added
This is the 2nd leg down for the index this year. There is “an approximate nine to twelve month lag time between architecture billings and construction spending”, so we should expect the first decline in architecture billing to impact non-residential structure investment in Q4 2008, and a further downturn in non-residential construction activity next summer.
Bernanke: Some Signs Credit Markets are Improving
November 20, 2008 8:07 amFrom Federal Reserve Chairman Ben Bernanke’s Testimony to Congress: Troubled Asset Relief Program and the Federal Reserve’s liquidity facilities
There are some signs that credit markets, while still quite strained, are improving. Interbank short-term funding rates have fallen notably since mid-October, and we are seeing greater stability in money market mutual funds and in the commercial paper market. Interest rates on higher-rated bonds issued by corporations and municipalities have fallen somewhat, and bond issuance for these entities rose a bit in recent weeks. The ongoing capital injections under the TARP are continuing to bring stability to the banking system and have reduced some of the pressure on banks to deleverage, two critical first steps toward restarting flows of new credit. However, overall, credit conditions are still far from normal, with risk spreads remaining very elevated and banks reporting that they continued to tighten lending standards through October. There has been little or no bond issuance by lower-rated corporations or securitization of consumer loans in recent weeks.
MIA Me: Here’s Why
November 19, 2008 8:46 amTeam finance, sorry I’ve been MIA for the past two weeks. I’ve been on the road, sick and dealing with some PF issues of my own at home.
On the road: During the past month, I’ve been in Boston for a week, Greensboro, NC, for a week and in Utah (Salt Lake City and Park City) for a weekend. My life has become a never ending rotation of packing and unpacking suitcases. It’s much less glamorous than you might think, and timezone-hopping wears me out! Plus you would absolutely freak out if you saw my credit card statements with hotel rooms, flights and other reimbursable expenses on them. But I’m home for two solid weeks now, time to get my bills settled and spend Turkey Day with the fam, until I go to New York the first week in December for work.
Sick: Ugh. Sinus infection. Doctor’s appointments, antibiotics, nasal sprays, personal steamers, humidifiers and neti pots. Need I say more?
PF issues at home: Not mine, per say, but my bf got laid off from his job, caught in the whirlwind of the financial mess. While I can’t share the specifics, I can say that we’re OK and happy that he started law school before the economy went down the tubes! Chicago seems to be pretty hard hit as a result of the financial crisis/recession, and we have several other smart, talented and professional friends and family members out of work. Life goes on, right?
I hope you’re keeping up with all the news and managing your finances through what seems like it’s going to be a really bad holiday season. More to come on that, but until my next post, remember that time with your loved ones is more valuable than any pricey gift you can buy.
Quote of the Day: Home Improvement
November 18, 2008 9:27 am“Armageddon is here.”
a private comment from a Senior Buyer at a home improvement retailer, Nov 13, 2008
Note: this was private and I can’t reveal the source or company (I have no position in the company)
From a previous post, here are a couple of graphs on two key components of Residential Investment (RI):
Click on graph for larger image in new window.
As everyone knows, investment in single family structures has fallen off a cliff. This is the component of RI that gets all the media attention - although usually from stories about single family starts and new home sales (related to RI in single family structures).
Currently investment in single family structures is at 1.22% of GDP, significantly below the average of the last 50 years of 2.35% - and just above the record low in 1982 of 1.20%.
But what about home improvement?
The second graph shows home improvement investment as a percent of GDP.
Home improvement is at 1.21% of GDP, off the high of 1.3% in Q4 2005 - but still well above the average of the last 50 years of 1.07%. Maybe lenders are boosting home improvement spending fixing up all those damaged REOs!
This would seem to suggest there is significant downside risk to home improvement spending over the next couple of years.
Lowe’s is scheduled to announce results on Monday and Home Depot on Tuesday.
Retail Sales Collapse in October
November 17, 2008 10:05 amThe Census Bureau reports that retail sales collapsed in October:
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $363.7 billion, a decrease of 2.8 percent from the previous month and 4.1 percent below October 2007. Total sales for the August through October 2008 period were down 1.3 percent from the same period a year ago.
Retail trade sales were down 3.1 percent from September 2008 and were 5.0 percent below last year.
The following graph shows the year-over-year change in nominal and real retail sales since 1993. 
Click on graph for larger image in new window.
To calculate the real change, the monthly PCE price index from the BEA was used (October PCE prices were estimated based on the increases for the last 3 months).
Although the Census Bureau reported that nominal retail sales decreased 5.0% year-over-year (retail and food services decreased 4.1%), real retail sales declined by 8.8% (on a YoY basis). This is the largest YoY decline since the Census Bureau started keeping data.
Retail sales are a key portion of consumer spending and real retail sales have fallen off a cliff.
Trade Deficit Declines to $56.5 Billion in September
November 16, 2008 10:44 amA few points from the trade report:
The Census Bureau reports:
[T]otal September exports of $155.4 billion and imports of $211.9 billion resulted in a goods and services deficit of $56.5 billion, down from $59.1 billion in August, revised. September exports were $9.9 billion less than August exports of $165.3 billion. September imports were $12.5 billion less than August imports of $224.4 billion.
Click on table for larger image in new window.
This graph from the Census Bureau shows that both imports and exports are declining.
Although the trade deficit is declining - and will decline more in coming months because of the decline in oil prices - growth in export related business will probably no longer be a positive for the U.S. economy as the global economy slides into recession too.
This graph shows the U.S. trade deficit through September. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. The current recession is marked on the graph.
The oil deficits is starting to decline and will decline much further in October and November. Note that the trade deficit ex-petroleum is really a China problem now (the trade deficit with China was a record $27.8 billion in September).
ABX and CMBX Cliff Diving
November 15, 2008 11:24 amCheck out the ABX-HE-AAA- 07-2 close today. More Cliff Diving!
Note: The ABX indices are based on credit default swaps (CDS) for various tranches of subprime mortgage-backed securities (MBS). For some background, here is a post at the Cleveland Fed back in March, 2007.
All of the CMBX indices are setting new record lows again.
Check out the CMBX-NA-BB-4 close today. To the moon, Alice!
The CMBX is a CMBS (Commercial Mortgage-Backed Securities) credit default index just like the ABX - except up is down for the CMBX indices. The CMBX is quoted as spreads, whereas ABX is quoted as bond prices. When the spreads increase - chart going up - the bond prices are going down.
Credit Crisis Indicators: A little Progress
November 14, 2008 12:04 pmAs economic activity falls off a cliff, here is the daily look at a few credit indicitors …
The 3-month Libor rate fell to 2.13% from 2.18%, according to Dow Jones, the lowest level for the rate since Oct. 27, 2004.
The three-month LIBOR was 2.18% yesterday. The rate peaked at 4.81875% on Oct. 10. (Better)
With the effective Fed Funds rate at 0.27% (as of yesterday), this is probably somewhat in the right range. At some point, I’d like to see the effective Fed funds rate close to the target rate (currently 1.0%).
The TED spread is under 2.0, but still too high. The peak was 4.63 on Oct 10th. I’d like to see the spread move back down to 1.0 or lower. A normal spread is about 0.5.
Here is a list of SFP sales. It has been a few days without an announcement from the Treasury… (no progress).
So far the Federal Reserve assets are still increasing rapidly. It will be a good sign - sometime in the future - when the Fed assets start to decline.
This is the spread between high and low quality 30 day nonfinancial commercial paper.
The Fed is buying higher quality commercial paper (CP) and this is pushing down the yield on this paper (0.65% yesterday!) - and increasing the spread between AA and A2/P2 CP. So this indicator has been a little misleading. Also the recession is creating concern for lower rated paper. Still, if the credit crisis eases, I’d expect a significant decline in this spread.
The LIBOR is down and the TED spread is slightly lower - so there is a little progress today, but there is still a long way to go.
LIBOR Declines to 2.18%
November 13, 2008 12:43 pmFrom Bloomberg: Libor for Dollars Falls as Central Banks Provide Cash Funding
The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars slid 6 basis points to 2.18 percent today, the 22nd consecutive decline and the lowest level since Oct. 29, 2004, according to British Bankers’ Association data.
The three-month LIBOR was at 2.24% yesterday and the rate peaked at 4.81875% on October 10th.
The U.S. bond market is closed today for Veterans Day so many of the other indicators are not available.
“A microcosm” of CRE in New York
November 12, 2008 1:22 pmCharles Bagli at the NY Times provides some details for one building in New York: Market’s Collapse Echoes in a Manhattan Tower
The first sign of trouble came over the summer when iStar Financial, a real estate finance company, decided not to move into the 100,000 square feet of space …
Several weeks later, Metropolitan Life Insurance … quietly began shopping for tenants to sublease 100,000 square feet …
And last month, Centerline Capital Group, a suddenly struggling commercial property finance and investment company, confirmed that it would not be moving into its 100,000 square feet …
The companies signed leases for as much as $132 a square foot … many brokers say they would be lucky to get $95 a square foot today.
Sublease space really hurt the NY office market in previous downturns, and it appears to be happening again.
