Bad News Bites

• Tax collections by 44 states fell by 11 percent in the third quarter, according to the Nelson A. Rockefeller Institute. The impact on residents: Jobs and hours are being cut, while school taxes are going up, because municipalities are getting less state aid.

• The continuing housing crisis is hurting even the Federal Housing Administration. An audit shows that its capital reserves have fallen far below the minimum level it is supposed to have. One Congressman introduced a bill to raise down payments on home purchases.

• The Labor Department reported that the unemployment rate for October rose to 10.2 percent. A rate that high was not expected until 2010.

• The Bureau of Labor Statistics launched the fourth quarter with a report that unemployment is a lot worse than previously stated: From when the recession started in December, 2007, the economy has lost roughly 8 million jobs, not 7 million. The rate of unemployment is 10.2 percent. And in the 12 months ended In March, 5.6 million jobs were lost, not the 4.8 million previously reported.

• According to the Federal Reserve, capacity utilization in the U.S. was about 70 percent. The unused capacity will slow the recovery, because companies will want to use nearly all their current capacity before they think about buying anything new—or hiring more workers.

• The Agriculture Department reports that the number of people receiving food stamps rose to 35 million in June, the latest month for which figures are available. The figure represents a 22 percent increase from June 2008.

• According to the Federal Reserve, consumer credit fell at an annual of 10.5%. Revolving credit (mostly credit cards) dropped by 8 percent, and nonrevolving credit (mostly auto and education loans) dropped by 12 percent—all this in July, the latest month for which figures are available. Likely result: a hefty drop in consumer spending, which accounts for 70 percent of gross domestic product.

• Data released by the New York Attorney General show that nine banks which received $175 billion of taxpayer money through the Troubled Asset Relief Program paid out almost $33 billion in bonuses last year. (Ed. note: Does this mean taxpayers can deduct that money as charity?)

• States squeezed for cash: In the first quarter of 2009, state tax revenue fell by nearly 12 percent—and the drop is getting worse. Pre-summer results for 45 states showed a drop of 20 percent, compared with a year ago. Across the country, states are curtailing services, closing agencies, and cutting the hours of employees. One result: More peope with less money.

• The Chairman of the Joint Chiefs of Staff has called for an additional 40,000 troops in Afghanistan, which would raise the total to 102,000, approaching the total in Iraq. Outlook: The surge would cost billions of dollars more per month, pulling the U.S. even deeper into debt. (Ed. note: The surge may be good for U.S. and global security, but our focus is financial.)

• According to a Wall Street Journal analysis published in late July, the volume of loans held by 15 big banks fell by 2.8 percent in the second quarter—and more than half of that volume came from refinancing, not new loans. This is bad news for the economy, because a lack of new loans hampers growth.

• By the end of the first quarter, the rising U.S. federal deficit had set a new record—over $1 trillion. That big a spread between receipts and outlay could damage the dollar and drive up interest rates. Another possible result: It could scare off tentative supporters of the administration’s proposals to fix the economy and health care. Main cause of the gap: falling tax receipts and spending on stimulus and social safety-net programs.

• A cash crisis has forced Philadelphia to stop paying businesses that sold the city goods and services. The mayor cited a drop in tax revenues and rising pension payments as main causes of the crisis. Many cities across the country are in a similar position, though few have stopped paying vendors.

• In the early stages of the recession, the vast majority of foreclosed loans were for low-priced homes. In terms of resales, nearly 50 percent was driven by foreclosures on low-end homes. No longer. Now loans for higher-priced homes are also being foreclosed, and at a rising rate.

• Other countries may not like us much, but they like our currency even less. In 2000, 70 percent of foreign currency reserves were held in dollars. Now the figure is down to 64 percent, according to the IMF. One effect could be the higher interest rates Uncle Sam may have to pay to entice other countries to hold dollars.

Pump prices up: The price of regular-grade gasoline fell during the second quarter to a national average of around $2.43 per gallon. But the outlook is for higher prices this summer and fall—and an increasing drag on the economy, as drivers scale back other purchases to pay for gas.

Mortgage rates up: The rate on 30-year, fixed rate mortgages has reached 5.5 percent, up sharply from a low of 4.85 percent in the first quarter.

Interest rates up: The yield on 10-year Treasury bonds has jumped to around 3.8 percent. That’s not historically high, but coming in the midst of a recession, it’s bad news: Higher rates mean large segments of the economy will have to pay more to borrow—federal and state governments, credit card holders, home buyers, car buyers, and companies trying to survive. The higher cost of money could hold back buying and business expansion, slowing the recovery.

Bottom-up suppliers: It’s not just General Motors and Chrysler that have gone bankrupt. Viseton, largest supplier to Ford, and Metaldyne, largest supplier to Chrysler, filed for bankruptcy at the end of May. Delphi, largest supplier to General Motors, went bankrupt over three years ago.

Unused people: The Labor Department reported that the number of people receiving unemployment benefits had risen to 5.5 million, raising the unemployment rate to over 9 percent. Economists say the job picture is likely to stay dim into 2010. Over 700,000 employed workers have only part-time jobs, but would like to work full time.

Unused capacity: One-third of U.S. manufacturing stood idle at the end of the first quarter, the lowest use rate since 1948.

Unused rail cars: The Union Pacific Railroad announced that 25 percent of its carrying capacity was idle. It has parked over 50,000 of its freight cars.

Unused homes: The U.S. Census Bureau reported a record 19.1 million vacant homes at the end of the first quarter. Empty homes tend to stifle new home construction and push down prices.

Gloomy forecast: The World Trade Organization predicted that global trade would drop by 9 percent in 2009. This was the most negative forecast in the WTO’s 62-year history.

Budget blues: The non-partisan Congressional Budget Office said that federal spending plans for 2009 may result in deficits that average $1 trillion a year for the next 10 years. Deficits tend to increase the cost of money and stoke inflation.

Over 35 banks closed: The Federal Deposit Insurance Corporation has taken over more than 35 banks so far this year. 

Copyright © 2009 Richard Evans and Andrew Bromberg