Wednesday, March 4, 2009

U3 & Participation Rate Updates

In a post from last December titled "Fighting the Last War," I looked at the vast differences between the initial conditions of the tech bubble recession and the one that the US entered in December of 2007. At this point, if there was any lingering doubt residing in the populace, it should be shaken.

This post then, is not to re-iterate that point but rather just to provide an update of those charts to see just how much worse things have become. First, there was the rather cluttered chart with SPX, U3, and the Fed target rate. U3 has shot up on both the SA and NSA measures to 7.6/8.5%, respectively. Keep in mind my projection of a 7.9-8.1% U3 (SA) rate from early February, so obviously I think this has room to get worse. What is ominous about this number is that JPM had a loss projections for the WM takeover that used 8.0% in its "severe recession" scenario. Obviously, that is going to be overtaken if not this month than the next. Not coincidentally, the banks have not reported their loss sensitivities based on U3 as of late.

The next chart was the U3 values with the participation rate. This make the picture even more bleak when it is noted that the participation rate is about 1% lower than during the bubble recession, even while U3 is itself 1.5 points higher. This does not bode well for consumer spending since now even more households have a single income.

Finally, but on a similar point, the home ATM is now functionally empty. I'm not putting that chart up but the net equity extraction from homes went to a -$64B for Q3/08. (The last data point available.) Suffice to say, this is very bad for anyone that had relied on consumers tapping their houses for big ticket items. I'm looking at you, HOG!

Bottom line: the picture is growing darker.

Update (3/6/09):
U3 (SA) was 8.1% today and the NSA value hit 8.9%.