Light At the End of the Tunnel?

Perhaps not an oncoming train after all. Employment figures released this morning by the Bureau of Labor Statistics have everyone excited. The U.S. economy shed only 11,000 jobs in November. One must go back to December 2007 to find a better number than that. Moreover, job losses for September and October were revised lower by 159,000. The average work-week rose from 33.0 to 33.2 hours last month, while the unemployment rate dropped from 10.2% to 10.0%. These are all good signs.

Caution is still warranted, however. David Rosenberg of Gluskin Sheff points out that the raw number (not seasonally adjusted) was 80,000 jobs lost, coming in a month when traditionally 300,000+ jobs are added (holiday hiring and all that). Private-sector jobs dipped by 18,000 last month (and 4.7 million year-over-year), more than offsetting a gain in government jobs of 7,000. Since the former ultimately pay for the latter, we can deduce that government borrowing (how sustainable is that?) mitigated the overall erosion. The adjusted household survey showed a bleaker number: 109,000 jobs lost. And remember, the true "break-even" number for employment is not zero, but roughly +100,000. The economy must add that many jobs monthly to accommodate the growing workforce. Any fewer reduce hours worked per capita and, presumably, our collective standard of living.

Bank of America to repay TARP loan. Yesterday's headline, at first glance, suggests that things in the financial sector are getting back to normal. Don't be fooled. Sure, taxpayers are getting their $45 billion back, plus interest, which is cool for them. But risk has not been eliminated, just transferred back to BofA creditors and shareholders. The latter face further dilution with a new $19.3 billion stock offering, which, if you do the math, is not enough to replace the cash going back to Uncle Sam. The reduced Tier I capital ratio is not comforting news to bondholders.

Let's face it, the company had to repay Uncle Sam in order to create some wiggle room for executive compensation. With the TARP overhang, BofA's Board was simply unable to hire a replacement for CEO Ken Lewis, who wants to leave at the end of this month. Remember, the Adminstration's pay czar docked Lewis his entire salary for 2009. Who wants to take a job sparring with regulators, bankrupt customers, antsy bondholders, and aggrieved shareholders--all represented by legions of lawyers--for no pay?

How about the FDIC's Q3 Banking Profile? Released last week, the report revealed that the number of "problem" banks rose by 136 in the third quarter to a 16-year high of 552, with total assets at risk rising by 15% to $345.9 billion. Additionally, 50 banks failed during the quarter and are no longer counted. Think about it. For every bank that failed, nearly four more were added to the "problem" list (kind of like that mythological serpent Hydra with the nine heads: cut one off, and two grow back). Today is Friday, so we'll get to see how many more heads roll.

[update, 8 p.m.--Six more banks bite the dust, three in Georgia, one each in Virginia, Ohio, and Illinois. That makes a total of 130 in 2009, with three weeks to go.]

Also reported by the FDIC was a 10.5% increase in noncurrent loans and leases (90 or more days past due) to $366.6 billion, or nearly 5% of all loans and leases--the highest noncurrent rate in the 26 years that insured institutions have reported. Data from other sources detail the tenuous state of the union:

One in 7: home mortgages that are 30 days past due or in foreclosure.

One in 3: home mortgages with negative equity.

One in 5: mall storefronts that are vacant.

One in 8: Americans receiving food stamps.

One in 6: workers who are unemployed or under-employed.

One in 5: Americans eligible for Medicaid.