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June 1, 1990
Mortgage discounts are falling this morning in response to weak April and May employment statistics. May NonFarm Payrolls gained only 164,000, and 147,000 of the gain were temporary census jobs.
The bond market had been anxious about this report because labor numbers are prone to large revisions. When we get a weak report, we don't know for a month if the economy is weak, or if the Labor Department forgot to count Cleveland.
The very weak April report was revised, but in the right direction for us: the initial estimate of plus 64,000 was revised this morning to negative 23,000. For the last three months, net, there have been no new jobs at all.
The Purchasing Managers' Index showed a small increase from 50.2% to 50.7%, and Leading Economic Indicators fell .2% in May. The housing and construction industries are in a national recession. There are always exceptions: Hawaii and the Northwest, and offthebottom rebounds in Colorado, Texas, and the Rustbelt.
But the national statistics are grim. New single family home sales fell 1.6% in April, the fifth consecutive decline, and the lowest since December 1982. New construction contracts fell 6% in April to a fouryear low.
Some of the growing real estate trouble can be traced to a regulatorinduced credit panic. In the course of 1988 and 1989, the S&Ls ceased to be major lenders, as pens were removed from the hands of chairmen and names shaved from glass doors. Commercial banks began to fill the void.
Bank regulators got a lot of experience in Texas (where bad real estate loans, not oil credit, killed the banks), and those examiners have been redeployed like fire ants arriving at a picnic.
The regulators denied having tightened up. The Fed, straightfaced, said there was no evidence of a real estate credit shortgage.
Two weeks later, The Fed, the Comptroller of the Currency, and the FDIC invited bankers in for a little chat about the credit shortage that didn't exist. The regulators told the bankers to take risks and keep on lending. The bankers declined, if examiners were to continue to arrive to tell the world that "bad" loans had been made, exactly the same as "good" ones a year ago.
It's a good idea for regulators to tighten up. But no one should pretend that a tightened system, designed to prevent a replay of the S&Ls, will produce as many loans or loans as easy to get.
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