Sunday, May 6, 2012

US & EU unemployment, ISM PMIs, the march LPS mortgage monitor, et al, week ended may 5th

the employment situation report for April from the BLS compounded the weakness we saw in the March report; for a second successive month, both of the critical employment statistics worsened on a seasonally adjusted basis; the over 16 employment-population ratio decreased to 58.4% from last months 58.5%, and the labor force participation rate, ie, the percentage of us who are included when the headline percentages are calculated, decreased to 63.6% from 63.8%, which is now the lowest since 1981, ie, since before there was large scale participation by women in the workforce, as shown on the adjacent chart from zero hedge...those who arent seeking work, such as retirees, & those who stopped looking for work last month are considered "not in the labor force"and are not counted as unemployed; their number increased in april by a seasonally adjusted 522,000; and those "not in the labor force" again hit a new record high of 88,419,000...again, on a seasonally adjusted basis, the number of employed fell by 169,000, from 142,034,000 to 141,865,000, and the number of unemployed fell by 173,000, to 12,500,000...combined, that meant the civilian labor force fell by 342,000, & since the civilian labor force is the denominator in BLS percentages, it resulted in a decline of the widely quoted headline unemployment nonsense number from 8.2% to 8.1%...the caveat to these numbers, of course, is that they come from the household survey, which is a relatively small sampling of the population, has a large margin of error, & over time has proven to be quite volatile; & we would be quite willing to ignore these household survey numbers if not for the new formula for cutting off federal unemployment compensation, which was negotiated as part of the payroll tax cut extension early this year...under the new formula, which terminates eligibility for federal rations based on improvement in BLS unemployment rates, 17 states with unemployment rates above 6.5% have been triggered off of their federal extended compensation already this year, including california, which still has an unemployment rate near 11%...to qualify for continued federal extended benefits, your state's average unemployment rate for the past three months must be at least 10 percent higher than the average rate in the same period during one of the last three years; more state specific details are here, here, & here…...obviously, with the official unemployment rate dropping because less people are being counted, it wont be long before the unemployed in most states are triggered off their extra federal rations....

the employment data we can glean from the establishment survey wasnt anything to write home about, either...with the usual caveat that reported totals in this series have a plus or minus 100K level of uncertainly, nonfarm payrolls rose by a seasonally adjusted 115,000 jobs, the least we've seen since last september's report, with 130,000 private jobs offset by 15,000 government job cuts; revisions were a positive; february was revised from 240,000 to a gain of 259,000, and March was revised from  the originally reported 120,000 to 154,000...the average workweek was unchanged at 34.5 hours & the average hourly earnings rose a penny to $23.38....most of the job gains in April came in professional and business services which added 62,000 positions, 21,000 of which were temporary help...retail employment also rose by an adjusted 29,000 over the month; this is one of the job areas where warmer than normal previous months should have skewed the seasonlly adjusted data in favor of those months; instead, the opposite has happened, as march & february had shown retail job losses of 34,000 & 29,000 respectively; the same was true of work in construction; which was unchanged in april, & had a net 15,000 less jobs over february & march...another sector with a seasonal component, work at food services and drinking places, the category which has added the most over the past 2 years at 576000. continued strong, adding 20,000 more jobs, while manufacturing gained just 16,000 jobs, and 19,000 jobs were added in health care fields, both sectors which had been stronger in recent months...the one sector that lost jobs in April was transportation and warehousing, which lost 17,000 jobs, led by declines in ground passenger transportation (-11,000) and couriers and messengers (-7,000); that was widely attributed to school bus driver layoffs, but it's hard to see that...it's also hard to see how this weakness is a result of seasonal employment pulled forward as much of the commentariat has opined; it appears we have just had a strong first two months followed by two somewhat weaker months overall...on net, we've added 803,000 jobs in the first 4 months, about 300,000 more than needed to cover the growth in working age population, but at a painfully slow pace if we want replace the 13 million plus jobs lost since the beginning of the recession...

we can, however, at least say that we're doing better at creating jobs than europe...eurostat, the EU statistics agency, reported that the seasonally-adjusted unemployment rate for the 17 countries that use the euro rose to 10.9% in March from 10.8% in february, which was up from 9.9% a year ago and another record high for the eurozone, as you see on the adjacent chart...youth unemployment is particularly high at 22%, heavily concentrated in the countries that have imposed government spending cuts, with unemployment for those under 25 years old above 50% in spain and greece, and above 36% in italy and portugal (zero hedge has a eurozone youth unemployment chart)...last week we noted that the U.K had reentered a recession; with spain officially declaring the same this week, that's now the case for 10 of the large economies of europe...and euro-zone PMIs (purchasing managers indexes) are almost all contractionary, with only austria's 51.2 above the 50 point mark that indicates expansion....even the german PMI shows significant contraction at 46.2, its lowest level in 33 months...this reversal in europe should serve as a warning to us; at the end of the year, our budget act imposed spending cuts kick at the same time a host of tax cuts expire...warnings about this impending $7 billion dollar year end fiscal cliff are becoming increasingly more common & shrill; Moody's chief economist Mark Zandi estimates that inaction by congress could chop 3% off our GDP next year; others, including David Greenlaw of Morgan Stanley, have estimated it might be as high as a 5% hit to our economy...

both of our major PMIs were also reported this week; the ISM (Institute for Supply Management) manufacturing PMI indicated accelerating expansion in April over March, as the the PMI rose to 54.8%, up from 53.4% last month; 16 of the 18 industries reported growth, with the new orders, production and employment sub-indexes all also increasing, with the employment index at 57.3%, up from 56.1%…there was a bit of confusion among the MSM headline writers over this, as some reported “factory growth best in 10 months”, referring to the manufacturing PMI, and others reported “factory orders fell the most in 3 years”, which referred to a separate commence dept report for march factory orders…the ISM also reported slower growth in services this week; the ISM Non-Manufacturing index for April was at 53.5%, down from 56.0% in March; the employment sub-index decreased to 54.2, from 56.7 in March, important as the service sector accounts for the lion’s share of US employment…again, all these readings over 50 still indicate expansion...

one other government report that was released this week was the Personal Income and Outlays for March from the BEA; personal income increased $50.3 billion, or 0.4%; personal consumption expenditures (PCE) increased $29.6 billion, or 0.3 percent, and the savings rate was up slightly from a 4 year low at 3.8%, reflecting the first month in several where incomes increased at a faster rate than expenditures…the PCE price index, on which the Fed determines monetary policy with respect to inflation, was reported to have increased 0.2% in March, compared with an increase of 0.3% in february; doug short computes the PCE price index data to two decimals and shows an annual inflation rate of 2.32%, a decrease from last month's annual rate of 2.41%…

Foreclosure Starts and Sales

a couple of reports which serve to track the mortgage delinquency / foreclosure situation were also released this week...one of them, a national foreclosure report from CoreLogic, is relatively new, but it basically covers much of the same terrain as the LPS report which you should all be familiar with by now...according to CoreLogic, 7.0% of mortgages nationally were over 90 days delinquent, basically unchanged from the percentage delinquent in february, but down from the 7.5% 90 day delinquency rate reported in february 2011...1.4 million homes, or 3.4% of the homes with a mortgage, were included in the "foreclosure inventory" which means proceedings had started but the homes had not yet been seized...they also reported there were 69,000 completed foreclosures in March compared to 66,000 in february, compared to 85,000 foreclosures completed in the same month last year; so it's apparent that march foreclosures were still being suppressed by the incompleted foreclosure fraud settlement, which wasnt officially signed off on by a federal judge until the first week in april...for the year ending March, five states accounted for 49.1% of all completed foreclosures nationally; california, florida, new york, new jersey, & arizona; florida was reported to have the highest foreclosure rate at 12.1%, while wyoming, alaska & n.dakota all had rates of less than 1%...also released this week was the monthly Mortgage Monitor for March from LPS (lender processing services, pdf); their delinquency numbers are a bit higher than CoreLogic's estimates; they report 1,643,000 loans over 90 days delinquent, 1,888,000 loans less than 90 days delinquent, and 2,060,000 loans, or 4.14%, in the foreclosure process, giving us a total of 5,591,000 home loans nationally which were not being paid on in March; this is down from 6,333,000 delinquent or in foreclosure home loans a year ago, so we're seeing some slow improvement here...delinquencies, at 7.09% of mortgages, were also down quite a bit from february's 7.57%; LPS indicates this is a seasonal pattern, as some homeowners who fall behind at christmas usually catch up by March (see pp 3 & 4, pdf)...a wide disparity remains between conditions in judicial states, where the banks must "show the note" in court, and non-judicial states, where banks can foreclose without written proof; in non-judicial states, 2.45% of homes are in the foreclosure inventory (ie, notice has been served but the home has not been seized); in judicial states, 6.51% of homes are in that limbo (pp11, pdf), and only 1.91% of foreclosures in judicial states were completed in march, compared with 6.82% completed in non-judicial states (p 20, pdf)...pipeline ratios, or the length of time it would take for the foreclosure inventory to clear at the current rate, are at 33 months for non-judicial states, compared with 79 months for judicial states, with new york & new jersey still having backlogs greater than 60 years (pp 22, pdf) ...a table with state delinquencies & foreclosure inventories as a percentage of their total are shown on page 9 of the pdf; again, florida is shown to have the most homes in the foreclosure process at 14.0%, with a total of 21.5% of homeowners in that state not current on their home loans...mississippi, whose foreclosure rate is at the national average, has the highest rate of those delinquent but not in foreclosure at 12.5%...the chart included here above is from page 19 of the pdf; it shows that 186,446 foreclosures were started in March, and only 67,890 were completed...note that they euphemistically refer to foreclosure completions, or house seizures, as "foreclosure sales", but this in no way indicates that the house is sold; it is merely moving the house into the the banks REO (real estate owned) inventory...also note that for the entire span of this mortgage crisis, the number of foreclosure starts has consistently exceeded the completions, leaving us with this massive pipeline of homes remaining in the process...

  Fannie Mae & Freddie Mac also reported delinquency rates for single family homes in march; as these loans met higher standards to be insured by these GSEs, their rates of failure are significantly les than the privately held loans (note that they are included in LPS industry totals); Fannie Mae reported a single-family serious delinquency rate in March of 3.67%, down from 3.82% in february; this is their lowest delinquency rate since April 2009; Freddie Mac reported its single-family serious delinquency rate at 3.51%, down from 3.57% in february and 3.63 a year ago, where the “serious delinquency” category for both GSEs is one where 3 or more home loan payments have been missed, and also includes those homes in foreclosure…

(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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