According to Fitch Ratings, a global rating agency committed to providing the world’s credit markets with independent and prospective credit opinions, research, and data, serious delinquencies on jumbo mortgages rose for the 32nd straight month in January.  Serious delinquencies are payments at least 60 days late and jumbo mortgages are  loans larger than Fannie Mae or Freddie Mac can finance.

For most states, loans larger than Fannie Mae or Freddie Mac can finance is $417,000.  Alaska and Hawaii, however, reach up to $625,000.

The increase in delinquencies was the 32nd straight monthly increase and neared 10% - some forecasters predict the rate to reach 10% by next month.

The Bureau of Labor Statistics released its employment numbers today - a drop from 10% in December to a 9.7% unemployment rate in January.  A large section of the increase in jobs came from temporary and contract workers sector, which added 52,000 jobs last month.  Factories added 11,000 workers, their first increase since January 2007 and biggest increase since April 2006.  However, the factories increase was largely due to an increase in temporary workers.

Manufacturing may lead the labor-market rebound as it brings in workers to push inventory levels up to a balance, but an increase in temporary workers is not all positive news.  The firms’ decision to take on temporary workers, instead of more permanent ones, is a clear tell on their hand - they don’t have confidence in the future.  Although, it is likely factories will continue to take on workers to approach normal inventory levels, pullbacks are still possible.  If the firms thought it was likely that they would have a continued need for these workers, meaning demand would continue steadily, then they would’ve taken on permanent employees.

President Obama stated this morning, ”These numbers, while positive, are a cause for hope, but not celebration, because far too many of our neighbors and friends and family are still out of work.”  He added the numbers were also likely to fluctuate - touching on the same thought manufacturing firms have, a lack of stability.

Automatic Data Processing (ADP), a payroll processing company, released their employment report today.  ADP’s employment report is a measure of employment derived from an anonymous subset of ADP’s roughly 500,000 U.S. business clients.  The ADP National Employment Report  indicated a decrease of 22,000 jobs in non-farm private employment.  Is the ADP report an indicator of what the Bureau of Labor Statistics employment number will look like on Friday?  Below is a representation of how the ADP report has performed as a leading indicator for the BLS report.

If past results are an indication of future results, in this case they probably are, then it would seem the ADP is typically off from the BLS.  Lately, ADP’s results have been overly pessimistic - indicating more jobs lost than gained.  If this holds true through Friday then we at least know that BLS shouldn’t be reporting jobs lost to be greater than 22,000.

The Institute for Supply Chain Management released data on the service sector as well today.  The ISM nonmanufacturing index increased to 50.5 from 49.8 in December.  A number above 50 in the index indicates expansion in activity.  The services sector is still lagging way behind manufacturing as its index rose to a high of 58.4 in January.

This morning President Obama announced a proposal for the financial reform of commercial banks.

The proposal is named “The Volcker Rule” after Paul Volcker, chairman of the Economic Advisory Board.  The Volcker rule addresses banks straying too far from their central mission of serving customers.  In the credit crisis it was realized banks were putting too much customer money at risk.  It would be fine for the banks to take risk, but because banks benefit from government financial privileges unique to banks such as, FDIC deposit insurance, the risk is taken on by taxpayers.

The rule states: “Banks will no longer be allowed to own, invest or sponsor, hedge funds, private equity funds, or proprietary trading operations for their own profit unrelated to seriving their own customers.”

Proprietary trading is actively trading stocks, bonds, currencies, or commodities using the firm’s money to make a profit for itself.

Is this rule good or bad?  Hard to say.  Without proprietary trading banks like Citi would’ve recently posted losses as most of their recent profits came from trading on the market’s upswing.

Warren Buffett commented that big investment banks such as Goldman Sachs Group are likely to split off government-chartered banking operations if regulations proposed by President Obama take effect. “It would be logical that they would do so,” said Buffett.  Buffett also said he never had any problems with the old Glass-Steagall rules which largely kept commerical banks out of investment operations.

The Glass-Steagall Act was passed in 1933 by Congress.  Glass-Steagall prohibited commercial banks from collaborating with brokerage firms or participating in investment banking activities - parts of it were similar to the Volcker Rule.  In 1999, however, Glass-Steagall was repealed.

The Volcker Rule still needs to pass in Congress to become law.

“We don’t know when the recovery is,” Chief Executive of JP Morgan Jamie Dimon said on a conference call with investors this morning.  JP Morgan is the first of major banks to report its fourth quarter earnings for 2009.  The report exceeded expectations as analysts consensus for JPM shares was $.61 per share and actual earnings for the fourth quarter of 2009 were $.74.   There are 3.95 billion shares outstanding of JPM.

Is JPM’s success a sign of how other banks will fare, is it a sign of a recovery?  Maybe, maybe not.  The earnings for JPM were largely fueled by employee compensation - or the lack of compensation.  Usually investment bankers are compensated 45-50%, but JPM compensated their investment bankers only 33%.  When examining JPM’s actual business of commercial banking the earnings don’t look as strong.  JPM suffered losses on loans and credit cards, essentially consumer credit.  Does that mean consumer credit is down?  Let’s take a look.

Clearly credit has taken a hit in this last recession.  Zooming in we can see how severe a hit.

Obviously there has been a huge pull back in the credit markets, even with the governments infusion of capital.  We’ve already began to see the effects, wholesale and consumer loan banks shrank twenty-two and eleven percent compared to the fourth quarter last year.  It will be interesting to see if the rest of the big banks post losses in consumer credit as JP Morgan did or if they found a way to turn a profit off of it.

CPI numbers were also released today showing a .1 percent rise from November, analysts had forecast .2 percent.  This signals that the inflation feared by the Fed’s credit expansion and low interest rates policy has not yet taken hold.