bank run blog

The US Labor Department reported that the jobless rate rose to a four year high last month. Unemployment increased in 45 of 50 states in July with some of the hardest hit states in the sun belt losing between 15 and 20 thousand jobs. Florida alone lost 21,400 jobs as tourism and construction sectors contracted registering heavy job losses.

Mississippi and South Carolina had the biggest increases in unemployment last month, each rising 0.9 percentage point with the joblees rate in Mississippi reaching 7.9 percent and the jobless rate in South Carolina climbing to 7 percent. Bloomberg reports, “Payrolls decreased in 36 states…The tally of individual state figures showed the U.S. lost 111,000 jobs last month.”

In California, where the jobless rate has risen to 7.6 percent, a total of 371,000 people were unemployed in July in Los Angeles County and the jobless rate in San Diego County the highest it has been in thirteen years. The San Diego Union Tribune reports, “job losses were concentrated in the housing sector. Construction, real estate and mortgage companies have lost 14,100 jobs over the past year.”

But the pain has been felt deeper in the community;

“With foreclosures and defaults continuing to rise, San Diegans have less money to spend, meaning less business at local stores. As a result, retailers shed 2,200 jobs, mostly at auto dealerships, furniture stores, home-improvement outlets, clothing boutiques and general merchandisers.”

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Bloomberg : Florida, Georgia Had Biggest Job Losses in July, Labor Says
KNBC News : Gov’t: Local, State Unemployment Rates Increase
San Diego Union Tribune : Experts blame bust in housing market

The Telegraph writes that a Merrill Lynch economist said that US unemployment figures suggest that the US is in a recession.

Although the “official” government reported statistics relate that the US economy has not dropped into recession, Merrill Lynch’s David Rosenberg said that the fact that the unenployment rate has risen for each of the past six months confirms that the US has been and continues to languish in a recession. Rosenberg said, “At no time in the past 50 years has this happened without the economy being in an official recession.”

Merrill Lynch predicts that “massively revised” governemnt data will be released that reveals that the US has been in a recession for perhaps the past 10 months.

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Telegraph UK : US is in recession: Merrill Lynch’s David Rosenberg

The rise in fuel prices and the dramatic drop in the value of suburban homes has ignited a migration of suburbanites out of the far flung developments the construction of which were a large part of the ‘boom’ of the past decade.

Some predict that over time vast numbers of suburban homes will stand vacant others, including the reporter in this segment from CBS News, predict that present day suburban sprawl will be the future’s “slums”.

“By 2025 there will be a surplus of 22 million large lot homes in suburban areas.” -Ben Tracy, CBS News

“The project of suburbia is over.” -Howard Kunstler, author

The nation’s second largest financial instution, JP Morgan, advised thousands of borrowers that they will no longer be able to withdraw money from their home equity lines of credit. Bloomberg reports;

“Most of the clients had properties that have lost value, according to the person, who declined to be identified because the information isn’t public. The New York-based investment bank will review home-equity lines of credit, or HELOCs, monthly from now on.”

Some of Morgan’s more than 150,000 home equity borrowers will have their credit lines reduced and other borrowers will be cut off completely. The American Banker’s association recently reported that as many as 20 percent of homeowners who have HELOCs are behind on their payments, the highest percentage of late-pays in 20 years. Reuters noted;

“In June, the investment bank said its quarterly earnings dropped 57 percent on weak trading, investment losses and a slowdown in investment banking.”

see articles-
Reuters : Morgan Stanley to freeze home-equity credit lines: report
Bloomberg : Morgan Stanley Said to Freeze Home-Equity Credit Withdrawals

The Bush Administration gave details recently on how it intends to raise the billions needed to finance huge spending deficits. The government has to borrow $171 billion for the second fiscal quarter, the amount is the second highest ever borrowed by the US government in a quarter.

The Bush administration predicts that the federal budget deficit for fiscal 2008, which ends on September 30, will be around $389 billion. The figure is up from last years deficit of $161.5 billion. The budget deficit is projected to rise to an all time high of $482 billion in the 2009 budget year.

USA Today reports that the administration plans to raise the funds by, “Raising $17 billion by selling a new 10-year note Aug. 6 and $10 billion by selling a new 30-year bond Aug. 7.”

The Bush administration blamed the deficit on the soft economy and the money that it spent sending “stimulus” checks to American taxpayers earlier this year. USA Today reminds readers;

“That deficit estimate could go even higher. It does not include the expected full cost of funding the wars in Iraq and Afghanistan or costs associated with the housing rescue measure Congress passed last week and President Bush signed into law Wednesday.”

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USA Today - Government announces plans to borrow billions

The Commerce Department reported Monday that consumer spending dipped by 0.2 percent in June, after taking account for the sharp rise in energy prices. The drop in consumer spending is the lowest reported by the Commerce Department since last February. Consumer spending fuels two-thirds of national economic output.

At the same time, the cost of consumer products jumped more than 4 percent over last year at this time, the biggest rise in prices since 1981. The Commerce Department’s inflation gauge rose 0.8% in the June, which was the biggest increase since February 1981’s reading of 1.0%. Government figures also show that American’s after-tax incomes fell by 1.9 percent in June.

While US Consumers confronted rising prices and falling incomes, the Commerce Department said the orders to US factories were up reflecting a heavy demand for military hardware and increases in petroleum products.

Associated Press : Rising prices beat down consumer spending in June
Reuters : June inflation jumps as incomes barely rise
BBC News : Prices hit US consumer spending

The Labor Department said that employers cut more than 50,000 jobs in July. The unemployment rate climbed to 5.7 percent last month, up from 5.5 percent in June and up a full percentage point over last year at this time. The total number of jobs lost so far in 2008 is estimated at 463,000.

The Labor Department counted 8.8 million people unemployed in July, which is up from 7.1 million last year at the same time. The Los Angeles Times reported;

“Job losses in July were the heaviest in industries hard hit by the slow housing market, the clampdown on credit and the shaky financial sector. Manufacturers cut 35,000 jobs, construction companies 22,000 and retailers 17,000.”

The Commerce Department reported that construction spending declined by 0.4 percent in June and the unemployment rate for teens rose to 20.3 percent, the highest since 1992. Temporary employment agencies, often seen as an indicator of demand for future hiring, eliminated 29,000 jobs. The Times wrote that “analysts predict a half-million more jobs could disappear over the rest of this year and say unemployment could climb to 6.5 percent by the middle of next year.”

Bloomberg reported that, combined with the drop in payrolls, the total number of hours worked in July declined by 0.4 percent. Bloomberg wrote;

“Businesses are broadening efforts to trim labor expenses as surging fuel bills hurt profits…Americans labored an average 33 hours and 36 minutes per week, six minutes less than in June and matching the shortest workweek since records began in 1964. In terms of the impact on gross domestic product, every tenth of an hour drop in the workweek is equivalent to a loss of 300,000 to 350,000 jobs.”

The job losses are expected to reverberate through the economy resulting in even less consumer spending which has alrediy been impacted by rising food and energy prices. The Times quotes an economist from Argus Research who said, “People will absolutely shut off the spending spigots given the soured jobs market.”

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Los Angeles Times : Unemployment rate rises as 51,000 jobs disappear in July; nearly half-million lost in ‘08
Bloomberg : Employers in U.S. Cutting Jobs, Hours, Signaling Slower Growth

The Associated Press reports that more and more college students are turning to local food banks seeking handouts. The AP quotes the creator of the Facebook website “I ain’t afraid to be on food stamps” Terry Capleton, who said, “Right now, the way things are, a lot of students just can’t afford to eat.”

The AP reports that food banks in Seattle, Denver and New Hampshire all report rising numbers of college students seeking assistance. Larry Brickner-Wood who runs the Cornucopia Food Pantry at the University of New Hampshire told the AP;

“More and more, its just the typical traditional college student, 18 to 22, that’s feeling the crunch…We’re seeing more and more students that have never used the pantry before.”

With the price of groceries climbing by 5 percent over the past year and some food staples rising by 30 percent and more, states like Washington have seen a rise in the number of students applying for food stamp relief. Currently 18 to 25 year-olds make up 8 percent of Washington’s food stamp users. The AP says that college students are eligible for the food stamp program if they qualify for a state or federally funded work-study program, work at least 20 hours per week or have a child under the age of 12.

Associated Press : Struggling college students turn to food banks

In this segment, CBS News explains the Texas ratio formula, an indication of the financial stability of banks, and gives the ratios of some banks with wildly lopsided ratios.

“Some Wall Street analysts using a little known formula known as the Texas ratio say as many as 150 financially strapped institutions could fail over the next 18 months.”- Pryia David, CBS News

The Labor Department reported that jobless claims by recently laid off workers rose last week by 18,000 requests for benefits. The new figure, 366,000 workers seeking benefits, is the highest weekly number of new claims filed since last month and higher than a year ago by about 50,000.

The number of people continuing to draw unemployment benefits stood at 3.1 million for the week ending July 5, which is compared with 2.6 million people last year at this time. The number of jobs lost this year in the US is 438,000, according to government figures.

Bloomberg writes, “Housing-related companies and carmakers are leading the cutbacks in staff as costs of fuel and raw materials have surged and consumer demand has waned,” and reminds readers of the recent announcements of anticipated job cuts at GM and Northwestern Airlines. CNN notes that the Tribune company, Pfizer and American Airlines also announced lay offs this month.

Bloomberg provides this analysis and prediction;

“The biggest U.S. housing recession in a generation, tightening credit and slowing consumer spending are inhibiting economic growth. A softening labor market means consumer spending may retrench, threatening to extend the slump.”

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Bloomberg : U.S. Initial Jobless Claims Rose to 366,000 Last Week
CNN Money : Jobless claims up