Headlines and data appearing in The Punch Line came from widely available publications including national and international newspapers, trade journals, economic and industrial bulletins and news websites.
On The Front Page:
Have Another Helping…With the start of fall, we have gotten numerous hints of another round of easing in the U.S. Fed officials seem to be ready to unleash Quantitative Easing II (QE II) and buy a horde of more paper and, surely that will set the economy straight. They are likely to buy longer-dated Treasuries to force bond interest rates down even more and somehow revive job creation. And the markets seemed to like this news and have rallied. While everyone was focused on the Fed’s possible move into another round of quantitative easing, the ECB was actually buying bonds last week — ostensibly the only backstop out there for Irish and Portuguese debt. And of course, Japan led off with an announcement of its own… it lowered rates slightly and pronounced that the Bank of Japan would establish a $60 billion facility to buy
JGBs and other assets. The basic problem is that rates have collapsed already, but job growth has gone nowhere fast. Lacking in confidence and getting no return on their savings, the U.S. household remains way overleveraged. As a sign of how tough the consumer sector plight is, recognize that credit reduction is not just a function of households paying off debt. Since the beginning of 2008, bank charge offs on consumer loans have totaled $263 billion, or 56% of the reduction in household debt. The small businesses that need the money don’t seem to qualify easily, and the big guys the government would like to see expanding are rapidly
repositioning their finances are hoarding cash. Perhaps these fresh easing moves and supports will counter some of the new slowing already evident. In total, however, the wide range of troubles seem with no easy or obvious solutions. Businesses will need to change more than they imagined, thereby challenging the growing belief that the business cycle will naturally conquer all its multiple threats. And governments will be shackled for years to come.
From the section entitled: The Return to Normal?!
Criticized assets, which include assets rated special mention, substandard, doubtful, and loss, declined to $448 billion from $642 billion and represented 17.8 percent of the SNC portfolio,
compared with 22.3 percent in 2009. The credit quality of large loan commitments owned by U.S. bank organizations, foreign bank organizations (FBOs), and nonbanks remained weak in
2010, but improved from 2009, according to the Shared National Credits (SNCs) Review for 2010.
The data indicates that big companies are recovering from the downturn faster and more strongly than the overall economy, helping send stock prices higher this year. To achieve that performance, companies laid off hundreds of thousands of workers, closed less profitable units, shifted work to other regions and streamlined processes.
From the section titled: Credit Matters
Massive Herds Move Together or Growing Confidence in the Economy…
Investors in U.S. junk bonds are wagering they’ll be fully repaid for the first time since before the credit market seizure, dismissing concern the economy will go back into recession and trigger a rise in corporate defaults. Average prices on high-yield debt rose above 100 cents on the dollar yesterday for the first time since June 2007 after falling as low as 55 cents in December 2008, Bank of America Merrill Lynch index data show
From the section entitled: Households – Brave New World
U.S. consumer confidence slumps
Americans’ view of the economy turned grimmer in September amid escalating job worries, falling to the lowest point since February. The downbeat report, released last Tuesday, raises more fears about the tenuous U.S. economic recovery. The Conference Board, based in New York, said its monthly Consumer Confidence Index now stands at 48.5, down from the revised 53.2 in August. It takes a reading of 90 to indicate a healthy economy — a level not approached since the recession began in December 2007.
From the section entitled: Real Estate and Construction Outlook
REIS is reporting that the U.S. Office vacancy rate rose to 17.5% in Q3 2010, up from 17.4% in Q2 2010, and up from 16.6% in Q3 2009.
The peak following the previous recession was 16.9%. In a sign that the country’s commercial real-estate market is finally turning the corner, new statistics show that office rents that have been falling throughout the economic downturn are beginning to stabilize. In New York, for example, where rents plummeted 19% in 2009, they were up 0.2% to $43.75, in the most recent quarter, according to Reis. Rents continue to fall in many areas hit hard by the housing bust, including Phoenix, Las Vegas and San Diego.
With rents stabilizing, investors have started to become more active in buying property, such as the Hancock tower, which creditors bought out of foreclosure and then sold to Boston Properties. The purchase price of that property is still far off the roughly $1.3 billion for which it sold during the boom.
U.S. Construction Spending Remains Weak…But Government boosts spending
Construction spending increased 0.4% in August, above expectations for a 0.4% drop. However, the data was revised to show a decline of 1.4% in July versus the previously reported 1.0% drop. The gain was entirely due to a pop in public spending on construction, mostly due to greater
spending on highway construction. This is evidence of the stimulus funds being put to work. Outside of the public sector, private spending declined0.9%. Residential fell 0.3% and nonresidential declined 1.4%. Nonresidential construction spending declined 1.4%, translating to a 24% YoY drop. Two of the sectors most sensitive to changes in demand – commercial real estate and lodging – fell 28% and 1.5%, respectively.
Commercial Real Estate Price Index…
Moody’s reported that the Moody’s All Property Type Aggregate Index declined 3.1% in July. This is a “repeat sales” measure of commercial real estate prices.
Manhattan’s condominium sales cooled over the summer, backtracking in July from a June
surge that was boosted by a tax credit for home buyers. Condo sales declined 34% from the
end of June to the end of July, according to Radar Logic’s RPX Index. It was the largest decline for July since Radar Logic began collecting such data in 2000, the firm said. As sales declined, prices increased by 3% from June to July and 5.4% from a year earlier to an average of $1,019 per square foot. Since most condo sales in New York close in 60 days, April’s deadline for new home buyers to claim federal tax credits had helped boost condo sales in June by 27%. Sales of units under $1 million represented a disproportionate number of condo sales in June, increasing 41%, while sales of units for $1 million or more increased by 9%. In July, sales of units under $1 million fell 44%, while sales for $1 million or more decreased by 17%.