note on the graphs used here

sometime during the third week of March, the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our static graphs, and also left us with less options we had available and used before the upgrade...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where an older graph has gone missing, click on the blank space where it had been in order to view it in the new format....





Monday, May 28, 2012

april home sales & durable goods, the fiscal cliff, major world PMIs, et al

     the "fiscal cliff", aka Taxmageddon, which we will face at year end if all the tax cuts & budget constraints as they are now written into law go into effect as scheduled, became a widely reported & discussed topic this week, probably because the Congressional Budget Office released an analysis of what effects they expected the already legislated policy to have on next year's economy should they all occur without further congressional action; basically, both the bush-obama tax cuts, which largely benefit the wealthiest portion of the population, and the 2% payroll tax cut, which everyone has been seeing in their paycheck over the past year, will expire at the end of this year, federal unemployment rations will end, and the first tranche of across the board spending cuts which were written into law in last years budget control act will be enforced...add to that the dozens of annually renewed tax breaks which we've discussed before, such as the "doc fix", the effects of an election year on the ability of congress to compromise on or accomplish anything & the likelihood that the debt ceiling will again be reached during that lame duck period when some lawmakers are more interested in finding a new feathered abode to nest in rather than to mind the country's business, and you can see we're approaching another critical period where the future economic well being of the country is at stake...according to the CBO's projections, under current law, the GDP for 2013 will be reduced to 0.5%, as compared to what would have otherwise been a robust growth rate of 4.4%; most of the hit will come in the first half,  with the economy projected to contract at an annual rate of 1.3% over the first two quarters before returning to growth during the last half of the year; this contrasts what would otherwise be a growth rate of 5.3% in the first half...this would put us back into an official recession, since two quarters of negative growth is the definition of recession...as mentioned previously, the CBO hasnt been the only one warning about the dangers of the current law; damage estimates run from 3% from Moody's Mark Zandi to 5% from analysts at morgan stanley...included here to the upper right is an updated chart from goldman sachs, much like we've used before to elucidate economic impacts of government policy...the dark grey bars show the effect of federal cuts (or stimulus) on GDP by quarter since 2009; the light grey bar portions are the impact of state & local cuts, & the black line is the overall is the overall impact; if you click on it you'll see the last part of the graph is projections for 2013 with three scenarios; the dashed line represents what goldman believes would be the impact on GDP of everything expiring as legislated; the blue line represents the minor government impact if everything now in effect is extended another year, and the black line is goldman's assumption, that the bush tax cuts will be extended, the payroll tax cut expires, unemployment comp is cut in half, & the sequestered spending cuts do not occur...currently, the proposal on the table from the obama administration is to eliminate the bush tax cuts on those making more than $250,000; however, this week nancy pelosi broke with the administration in attempt to compromise with the tea party contingent in the house, and set the bar higher, at incomes over $1 million, which would leave the tax cuts in place for most members of congress...although the first vote likely wont occur till later this summer, indications are that harry reid in the Senate also leans in this direction...the sequestered spending cuts are also in trouble, since by law half of them are to come out of defense; the House has already passed a bloated defense authorization bill (with support of 77 democrats) which included $8 billion more in defense spending than the debt limit bill called for, and also included a star-wars-like east coast missile shield, which obama has threatened to veto...

    New Home Sales, NSAof the several economic reports released this week, there were a handful that related to housing, including reports on both new homes sales and sales of previously occupied homes; both showed modest increases...in a joint release by census & HUD (pdf), sales of new single-family houses in April were reported at a seasonally adjusted annual rate of 343,000, which was 3.3% (±12.3%)* above the revised March rate of 332,000 and 9.9% (±14.7%) above the estimate of 312,000 new homes reportedly sold in april last year; the median sales price was reported as $235,700; the average sales price was $282,600; the seasonally adjusted inventory of new homes on the market in various stages of completion was 146,000, or just over a 5 month supply at the current rate of sales...although this sales pace is still only about half of the historical average, sales have averaged around a 340,000 annual rate over the past five months, after a year and a half at a 300,000 annual rate, so it appears that the worst is over...the adjacent graph from bill mcbride shows new home sales since 2005 without the seasonal adjustment; red is this year's sales, blues & green are 2005 thru 2007, while pink, yellow & orange are the past three years; you might note higher than trend sales for march & april 2010 (yellow) - as this was likely the effect of the tax credit, it may have skewed the seasonal adjustment for those months this year, such that they'd be underreported; if that's right, we might see a statistical rebound when May sales are reported...
      the existing homes sales report for April comes from the NAR (National Association of Realtors); total existing-home sales increased to a seasonally adjusted annual rate of 4.62 million homes in April, a 3.4% increase over the revised 4.47 million sold in march, which had originally been reported as 4.48 million; this was the first home sales increase in 3 months, and the 2nd in the past five, so it doesnt appear that the warm winter/spring helped home sales that much; nonetheless, this april's sales are still 10% higher than the 4.20 million-unit sales reported in April 2011; the mix of homes sold has been changing as well, as only 28% of those sold were foreclosures or short sales sold at deep discounts, compared to the 37% distressed sales share in april of last year; hence the NAR was able to report that the national median existing-home price jumped to $177,400, up 10.1% from a year ago...in a normal market, we would expect slightly higher prices in the spring, but the excitement is a bit overdone…with fixed rate mortgage rates again hitting record lows3.78% for the 30 year and 3.04% for the 15 year, understand that even at higher sales prices, home buyers are still committing to a lower monthly payments than were home buyers last year when rates were higher; FNC, a real estate appraiser, released their home price indexes for March this week; their national index was up 0.5% over february; their 3 other MSA indexes each showed an 0.8% gain; with their ‘Composite 100’ index down 2.4% from March 2011; the FHFA (Federal Housing Finance Agency) also released several price indexes; their 1st quarter price index based on Fannie and Freddie loans only showed a 0.6% increase over the 4th quarter, and a 0.5% gain over last year’s first quarter, the first YoY increase they’ve seen since 2007; their expanded index, which includes non GSE loans, showed a 1.3% year over year decline, less than the 3.0% YoY decline they reported in the 4th quarter, Zillow’s April report showed that home prices increased 0.7% to $147,300 from March to April, but they were still down 1.8% from a year ago; and Trulia’s price monitor, covering the largest 100 metro areas, found that asking prices nationally rose 0.2% year-over-year and 1.9% quarter-over-quarter in April…case shiller releases their indices next week, so we’ll take a closer look at other home price reports then…we should also get a closer look at the distressed mortgage situation next week as well; this week LPS released their First Look report for April, and ominously, the number of homeowners who had fallen behind on their house payments rose slightly, for the first time in months, possibly boding another period without improvement such as we saw last year

    Click to Viewwe also another report from the census bureau this week, on new orders for durable goods in april; at a slim gain of only $0.3 billion or 0.2% to $215.5 billion, this report compounded the weakness of the 3.7% retreat seen in March's report; since either the heavy weighting of transport equipment could defense goods in this report tend to make overall durable goods more volatile as those components change, census also reports orders without each; excluding transportation, new orders decreased 0.6%; excluding defense, new orders increased 1.2%; so this report was carried by increases of orders of transport components, & especially by orders of new motor vehicles and parts, which increased $2.3 billion...this report followed and was based on benchmark revisions as previously outlined by census (pdf) which doesnt really effect the month to month comparisons, but gives us an entirely different picture of orders for durables as they have changed throughout the recession; fortunately, doug short has included a graph of durable goods orders both before and after the revision in his report on the benchmark changes, so we can see what happened without getting too bogged down in the numbers; red are the monthly reports before the revisions; blue is the revised reports; if you click on the adjacent chart you can further see in the insert that the depth of the decline, originally reported to be 39.3%, was really 42.0% from the peak, and the recovery from the worst month to the present is now 52.0%, whereas before the revision it appeared to be only 36.3%…doug short further points out and graphs that the lion’s share of the revision was in orders for transport equipment and reminds us that these revisions call into question other previously reported national accounts data, most obviously the reports on the GDP throughout the recession…

    two more of the Fed regions reported on manufacturing activity this week; among manufacturers in the central Atlantic region, the Richmond Fed reported a slowing expansion, with the general-business index falling to 4 in May from 14 in April and all the subindexes also deteriorating; on the other hand, the Kansas City Fed’s manufacturing index rebounded from a weak report last month, with their month-over-month composite index at 9 in May, up from 3 in April (recall for these reports that any positive numbers are still expansionary)….a new US manufacturing gauge from Markit also reported that US factory activity is slowing in May; their “flash PMI” dropped to 53.9 in May from 56.0 in April, which is a three month low; for these PMIs, over 50 is expansion, under 50 is contraction…although the ISM PMIs are the most widely followed activity indicators in the US, the Markit reports are most often used in tracking economic activity in europe, and they also reported on economic activity in the eurozone this week; the german May composite showed contraction at 49.6; their manufacturing PMI for May fell to 45.0, from 46.2 in April, a 35 month low, and their services activity remaining unchanged at 52.2; the flash French composite index dropped to 44.7 from 45.9 in April, which is a 37 month low; their manufacturing PMI fell to 44.4 from 46.9 in April, a 36-month low, while their services also remained unchanged at 45.2…so it doesnt look like punishing their customers is working out too good for france or germany; the overall eurozone PMI May composite index came in at 45.9, down from 46.7 in April, a 35-month low; the flash PMI for eurozone manufacturing activity was at 45.0, down from 45.9 in April, also a 35 month low, while eurozone services were at 46.5, a 7 month low…we also saw a widely followed survey of Chinese manufacturing activity this week; the preliminary reading of the Chinese manufacturing PMI from HSBC showed their activity fell to 48.7 in May from 49.3 in April; this was the 6th month of contraction in china, and there are reports that chinese buyers are defaulting on commodity shipments, mostly coal and iron ore, as prices of those industrial commodities are collapsing; India’s growth is slowing as well, with a 3.5 percent YoY contraction reported in March industrial production; it seems that outside of the US, the only positive report was from Japan, where April exports to the US surged 42.9%, the 6th consecutive monthly gain; this of course was led by autos, which were up 317.1% from the depressed levels of last year, caused by disruptions resulting from the earthquake & tsunami….

    i'm going to include one last chart here, since we discussed the bank runs in greece and spain last week; the adjacent widely republished chart originated with a financial times article "The anatomy of the eurozone bank run" - what we see here, in this graph of imbalances on the ECB’s balance sheet, is the picture of a significant number of bank accounts being moved from spanish, italian, greek, irish and portuguese banks, with most ending up in german banks; this isnt because they believe their banks are about to fail; rather it's the threat of their country leaving the euro and having their funds redenominated in their own devalued currency (ie, lira, drachma) that is causing the flight; note that there was considerable flight from ireland (pink) as early as 2009; but when the irish economy later stabilized, most of those funds returned...


    (the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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