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 graphs, and also left us with about half the 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 blank or 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 a graph has gone missing, click on the blank space where it had been in order to view it....


Sunday, September 30, 2012

employment & GDP revisions, August’s incomes & outlays & durable goods, July home price indexes, et al

there were major revisions this past week to a couple of numbers which we've reported previously, so we better review them before we look at the new reports...first, the BLS released a preliminary estimate of the annual benchmark revision to non-farm payrolls which will be applied when the January unemployment report is released on February 1st of next year; we've repeatedly reminded you that "the confidence interval for the monthly change in...employment from the establishment survey is on the order of plus or minus 100,000" monthly, so it shouldn't be a surprise that when the BLS reviewed the state's files of employees actually covered by unemployment insurance that they should discover some major discrepancies; in some years it has approached a million jobs; this year the preliminary estimate shows that there were actually an additional 386,000 more payroll jobs than originally reported as of Mar 2012; 145,000 jobs in trade, transportation & utilities had gone unreported; as did 99,000 jobs in leisure & hospitality and 85,000 in construction; meanwhile, government jobs had been over-reported by 67,000...on net, this revision means that the economy had added about 32,000 more jobs per month between April 2011 and March 2012 than previously believed, meaning that the monthly pace of job creation during that period was about 194,000 jobs a month, rather than the 162,000 jobs a month originally reported...while any improvement over the dismal numbers we have reported is welcome, an extra 32K is nothing to write home about; unfortunately, it's the silly season, and the total 386,000 additional was just enough to put the obama job record in the black by 125,000, and the net positive was seized on by his supporters; so their happy tell had to be deconstructed in a post at naked capitalism, which pointed out that we're still 10.837 million short of full employment, with a jobs deficit of 5.056 million for Obama's time in office alone...

the other revision this week was a major & unexpected reduction to previously reported GDP for the 2nd quarter of this year; based on more complete data than was available for their second estimate issued last month, the BEA (Bureau of Economic Analysis) reported that the economy grew at an annualized rate of 1.3% in the 2nd quarter, down from the 1.7% originally reported; there were downward revisions to all major components, but the lions share of the decrease was attributed to a reduction in farm inventories caused by the Midwest drought, which as we now know became more severe as the summer progressed, so it would not be a surprise to see a similar hit to GDP in the 3rd quarter, which will be released next month...in the revised estimate, BEA contrasts the anemic 2nd quarter to the just weak 1st quarter, when growth was at a 2.0% annual rate; the adjacent graph shows just how slowly we’re recovering compared to recoveries from previous recessions; personal consumption expenditures, which make up 70% of GDP, increased 1.5% in the second quarter, compared with a 2.4% increase in the first, mostly because durable goods purchases decreased 0.2%, in contrast to an increase of 11.5% earlier in the year...exports, nonresidential fixed investment, and residential fixed investment also made positive contributions to 2nd quarter growth, but they were partly offset by the negative contributions from private inventories and state and local government spending; imports, which are subtracted from net GDP, also increased...

                                                                                 graph note: the y-axis doesn't start at zero to better show the change.
Personal Consumption Expendituresthe major economic release of this past week was on Personal Income and Outlays for August, released by the BEA; the BEA reported small nominal increases - less than 0.1% - of $15.0 billion in personal income and $12.5 billion in disposable personal income (DPI); however, adjusted for inflation, real disposable income fell 0.3% in August, the first monthly decline in DPI since November 2011; in July, personal income had increased $18.5 billion, or 0.1 percent, DPI had increased $15.4 billion, so with that revision we've had a pair of weak months back to back...however, even with stalling increases in income, personal consumption expenditures (PCE) for August increased $57.2 billion, or 0.5%; but real PCE, which is adjusted to remove price changes, only increased 0.1% in August, compared with an increase of 0.4% in July, which bodes for a weak contribution to 3rd quarter GDP from this major component, as you can see suggested on the adjacent graph of monthly PCE results, sectioned quarterly, from Bill McBride (recall that PCE is 70% of GDP)...purchases of durable goods, mostly autos, increased 0.5 percent in August, and higher gas prices also contributed to the increased spending; the increase in outlays for services, which is about 2/3rd of PCE, was a more modest $11.1 billion...of contributions to income, wages and salaries increased an anemic $4.7 billion in August, compared with an increase of $9.3 billion in July, mostly because goods-producing payrolls decreased $6.4 billion, in contrast to an increase of $3.2 billion a month earlier; most of this was because manufacturing payrolls decreased $5.2 billion for the month...although proprietor's income increased $7.3 billion and rental income increased $5.3 billion, those were partially offset by a $1.4 billion decrease in current transfer receipts, in contrast to an increase in transfer payments of $9.5 billion in July...personal saving, which is DPI less personal outlays, was at $444.8 billion in August, compared with $492.2 billion in July..as a percentage of disposable personal income that was 3.7% in August, compared with a savings rate 4.1% in July; the year to date personal savings rate is now the lowest it's been since before the recession started in 2007...this report also generates a PCE price index; despite the fact that the price index increased 0.4% in August, it was largely driven by higher gas prices; the core PCE price index, which excludes fuel & food, was only up 0.1% on the month; july's PCE price index, which wasn't impacted by rising gas prices, was up less than 0.1%...doug short tracks these price indexes, which the Fed has explicitly named in their 2% inflation target, and computes them to two decimal places due to their impact on policy; according to his calcs, the headline August PCE was at 1.49%, up from Julys 1.29%, while the August Core PCE index of 1.58% decreased from July's 1.64% annual rate...

Click to View

the August Report on Durable Goods from the Commerce Department (pdf) was just awful; new orders for long-lived manufactured goods fell $30.1 billion or 13.2% to $198.5 billion, the worst decline since January 2009, the deepest part of the recession; much of the decline was related to the transport sector; as Boeing received only one aircraft order in August, after logging 260 in July, which came on the back of the cancellation of a large order from Qantas which was reported just after last month's report, this left transport equipment down $27.8 billion for the month, a decline of 34.9%, after four consecutive monthly increases previously; but even excluding transport equipment durable goods orders still fell 1.6% for the first time in four months; defense orders, which were expected to be weak in anticipation of the year end budget sequester, did not really fare badly, as they were down 1.7%; ex defense, new orders still decreased 12.4%...probably what was most unsettling in this report was that new orders for non-defense capital goods in August decreased $18.5 billion or 24.3% to $57.7 billion, which tells us that companies have stopped investing in themselves, which suggests they see no opportunity for expansion...included here to the right is doug short's chart that shows us a three-month moving average of real, inflation-adjusted, durable goods, without the volatile defense & transport sectors, on a per capita basis, as the insert shows. the trend  for core durable goods has been down all year; if you click on the chart, it will open in a new window with links above to his other charts on this report...this report also covers durable goods shipments, unfilled orders and inventories for August; shipments decreased $6.8 billion or 3.0% to $222.5 billion, which was also the largest decrease in shipments since January 2009; unfilled orders were down 1.7% following two consecutive monthly increases; the $978.7 billion decrease was the largest since December 2009, while inventories increased $2.2 billion or 0.6%t to $371.6 billion, to the highest level since the series was first published in 1992...

leading up to the national purchasing managers index which we’ll get next week were a few regional reports; the Dallas Fed reported that manufacturing in their region was contracting at a slower pace, as their general business activity index rose to -0.9 in September from -1.6 in August..the July index had plunged to -13.2 so they’ve had 2 months of improving bad conditions in a row; their new orders index rose to 5.3 following a reading of zero last month, a they note a pickup in demand…the Richmond Fed’s manufacturing current business conditions index increased to 4 in September from -9 in August, which had been the 3rd month of contraction (recall positive numbers indicate expanding activity); positive readings for shipments and new orders more than offset the negative reading for employment…and the Kansas City Fed reported Growth in Tenth District Manufacturing Activity Slowed Somewhat, as their month-over-month composite index was 2 in September, down from 8 in August and 5 in July, and the lowest in nine months…in another major business barometer, the Chicago PMI fell below 50 for the first time since 2009, reading a seasonally adjusted 49.7, down from 53.0 in August; their new orders index fell to 47.4 from 54.8 in August, while the employment index fell to 52.0 from 57.1 in August

Real House Prices

among the week's housing related releases, we'll look at the Case-Shiller Home Price Indices for July first, which actually report a 3 month moving average of prices for homes sold in May, June & July...both indexes rose over the last report; prices as indicated by the 10 city index were 1.5% higher than June's report, and the 20 city composite was up by 1.6%...for the 3rd consecutive month, prices were also up for the month for all  20 individual city indexes on an unadjusted basis, led by price increases of 3.7% in Minneapolis and 3.3% in Detroit; on a seasonally adjusted basis, both composite indexes were up 0.4% for the month, and only Cleveland prices registered a decline; lower priced houses rose in price by 1.0%, will mid-tier houses rose 0.4% and top tier home eked out a 0.1% seasonally adjusted gain....year over year, prices increased 1.2% for the 20 cities in July; 0.6% for the 10 MSA index, and 16 of the 20 cities showed higher prices than a year ago, with only the Atlanta, Chicago, Las Vegas and New York MSAs trending lower...the WSJ has an interactive table of all 20 city indexes; values for each city & the composites are based on year 2000 = 100.0...interest rates on 30 year fixed mortgages averaged 3.55% in July if this year, while they averaged 4.55% in July 2011, so on a monthly payment basis, equally priced homes were 12.8% cheaper this July than last...on the same day that the Case-Shiller index was released, the Federal Housing Finance Agency released it's July home price index based on prices of houses purchased with mortgages backed by Fannie & Freddie; on a seasonally adjusted basis, the FHFA price index was up 0.2% over June's index; and June's index was revised from a gain of 0.7% to a gain of 0.6%; however, home prices were still reported 3.7% higher than a year ago...other July price indexes which have reported recently include FNC, which reports residential property indexes non-distressed housing for 10 MSAs, 20 MSAs, & 30 MSAs, as well as a composite 100 index; all their unadjusted indexes increased 0.8% or 0.9% for July; their 100 city index, which combines appraisals and sales, is up 0.6% from last July; Trulia, which reports an asking price index based on listings, has their index 2.3% higher than a year ago and up in 68 or the 100 metros they cover; and the LPS home price index, which reported a 0.2% price increase for July only as homes in the New England region lagged, a year to date gain of 4.3% (which was obviously seasonally influenced) and a one year july to july gain of 1.8%...the CoreLogic HPI for July was reported much earlier and it will be updated for August next week; in July, it recorded it's biggest year over year jump in 6 years as it reported home prices nationwide increased 3.8%...bill mcbride reminds us that none of these home price indexes are adjusted for inflation and that's it's useful to look at them in real terms; he takes the CoreLogic index, the Case Shiller 20, and the Case Shiller national index and adjusts them for inflation using the CPI less shelter, which you can see in the graph to the right above; in those inflation adjusted terms, prices for the Case Shiller national index in yellow is back to mid-1999 levels, the Case Shiller 20 index (red), despite being up 7.8% from the low, is only back to July 2000 prices, and prices for the CoreLogic index in blue are just back to levels of February 2001...

the Census Bureau reported new home sales for August (pdf) at a seasonally adjusted annual rate of 373,000, which means 31,000 new homes were sold in August; that was 0.3 percent (±9.3%) below the revised July rate of 374,000, but is 27.7 percent (±18.8%) above the estimate of a 292,000 annual rate last August; the median sales price of new houses sold in August 2012 was $256,900, while the average sales price was $295,300, the highest since August 2008; page 3 of the census pdf breaks out the sale prices into $100,000 price ranges; the bureau's seasonally adjusted estimate of new houses for sale at the end of August was 141,000, which be a 4 1/2 month inventory at the current sales rate...another report we follow is the LPS mortgage monitor; this week they released their “first look” at mortgage conditions in August, which reported the mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.87% from 7.03% in July, while the percentage of mortgages in foreclosure fell 1.0% to 4.04% of the total outstanding, as 2,020,000 homes remained in foreclosure…this is still close to the 4.12% that were in the foreclosure process a year ago..the total number of properties that are at  least 30 days delinquent or in foreclosure has fallen slightly to 5,450,000​, but it still means nearly 11% of US homeowners are not paying on their mortgages….

N.B. i had some damage to my own house during the storms last weekend, which will need to be repaired before winter sets in...accordingly, my time spent with blogging and commentary will be less than normal until the real work gets done...

(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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