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Texas made the news last week as it was the site of some of the more flamboyant tea parties and its governor, Rick Perry, suggested seceding from the Union. But the real story seems to be the resilient economy in the state.
As unemployment rises in the rest of the country, Texas joblessness is much less dramatic, with the state boasting a 6.7% unemployment rate compared to the national rate of 8.5%. Austin was the only city in the state to add jobs in March, with 3300 new positions filled on a year over year basis. Dallas led the state in losses with over 30,000 for the month on a year to year comparison.
San Antonio, where we spent the weekend, offered some interesting observation, clearly providing a mixed picture. Hotels seemed quite busy with the usual gathering of conventions, as well as school band trips, sports tournaments, and sales meetings/workshops, especially for self-employed multiple level marketing outfits.
Retailing was mixed with restaurants at all levels ranging from fast food to casual dining showing steady activity but no waiting lines. Convenience stores, such as those owned by Valero (NYSE: VLO), by comparison were quite busy, buyoed by regular gasoline below $2 per gallon.
The hotel where we stayed, a Hilton property, was nearly sold out, but its restaurant, which offers hotel inflated prices was not as full as the TGI Friday's accross the street. Both Hilton and TGI Friday's are privately held, with the latter being part of the Carlson family of businesses that includes the Radisson, Regent and country Inn hotel brands.
Other retailing showed lots of mall traffic, but not necessarily lots of sales.
Gasoline demand, desptie IEA and other recent forecasts, seemed to be steady normal, given the amount of traffic on the I-35 corridor, especially south of Austin on the way to San Antonio, both North and South bound. In the cities, both Austin and San Antonio were crowded. On the drive to San Antonio on Friday, despite foul weather, the road was packed, and the usual 32nd Street underpass traffic jam was in full splendor.
In comparison to Maui, where we reported from last Monday, the Texas economy is faring better through this economy. And that makes sense, given the below national average employment rate.
Banking Data Source For Concern
Despite beating earnings expectations and making noise about returning TARP funds, U.S. banks are lending a lot less these days. According to The Wall Street Journal, citing an analysis of Treasury Department data: "the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program."
To be sure, the data is from February, but it does put up a red flag, unless March data changes the trend dramatically.
As the Journal points out, its method of analyzing the data "paints a starker picture of the lending environment than the monthly snapshots released by the government" as the Treasury "crunches the data in a way that some experts say understates the lending decline."
According to the Journal, the government is under a lot of pressure to revive the banking system, given the size of the bailout and the fact that most of the money has already been spent. As a result, it will present the data in as favorable a manner as possible.
Here's an example. According to The Journal: "The Treasury analyzed the monthly percentage change in the amount of new loans at each of the top 21 recipients of taxpayer funds. It then calculated the median change in lending at the 21 banks. (The median is the figure that falls directly in the middle of a string of numbers.) By that measure, the Treasury said, lending dropped 2.2% in February compared with the prior month."
But when the data was examined differently, the results were worse. "Using the same raw data, the Journal's analysis focused on the total amount of new loans by the 21 banks, a more comprehensive measure. In February, that total fell 4.7% from January, more than double the government's estimate of the decline in the median."
There may be more to the story, though. According to the Journal: "Banks defend their lending, saying they're eager to issue new loans, refinance existing ones and modify those in danger of default. Complicating their efforts, bank executives say, is a decline in demand among consumers and businesses." In fact: "The lending data indicate that consumer loans, especially mortgage refinancings, are accounting for an increasing portion of bank lending. In February, nearly half of lending by the 21 banks was to consumers, up from about one-quarter in October. But excluding mortgage refinancings, consumer lending dropped by about one-third between October and February. Commercial lending slumped by about 40% over that period, the data indicates."
Conclusion
The Texas economy has been holding up better than the national economy. But news on the banking sector's loaning practices and the potential for government to increase its control of the banking system is clearly sobering.
The most significant part of the latest information is the potential for the government to increase its equity stakes in banks to which it has lent money, as it as one source called it a "back door nationalization."
This news, combined with a market that has come a long way in a short time, sets up the potential for a pullback in the stock market, something that we may be seeing already, unless the market manages to shake off what looks to be a big bout of early selling.
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