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 some cases rendered them blank or unreadable... however, you can now 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 is missing, click on the blank space where it had been in order to view it....



Sunday, November 18, 2012

saudi america, sandy’s impacts on retail sales & industrial production, & the MBA’s 3rd quarter delinquency & foreclosure report

once again, the year end fiscal cliff dominated the discussion in the economic blogosphere as well as in the media this past week, resulting in a collection of several dozen links on fiscal policy, deficits, and taxes being included in this week's global glass onion...one option for dealing with the year end conundrum that seems credible is that the lame duck congress may postpone dealing with the most serious elements of it with a two or three month stop gap bill, to give the new congress time arrive at a comprehensive bargain...obama has already insisted that such a bargain must include $1.6 trillion in tax increases over ten years, mostly on the rich, double previous estimates, but its still an open question as to what he'll have to give up to get that much on the revenue side of the budget, especially with republican leadership unwilling to include any tax increases...most assume it will be similar to obama's proposed 2011 deal with speaker Boehner, which fell through due to tea party opposition, which included a $425 billion cut to Medicare & Medicaid, (including a $150 billion premium increase and raising the Medicare eligibility age), a change to limit social security cost of living increases, and cuts to veteran's pensions, health care, and to education...

the release of this year's edition of the World Energy Outlook from the IEA (International Energy Agency) also received quite a bit of media attention, mostly for its forecast that the US will overtake saudi arabia to become the world’s largest oil producer by around 2020...that such would happen shouldnt be much of surprise to anyone who's followed world oil production for any time; the Saudis, Russia and the US have been the world's leading producers for over 40 years (compare historical production for the US, for Russia, and for Saudi Arabia); our problem has always been that we've consumed more than twice our production, while the Saudis, with their smaller population and domestic usage, have been the world's leading exporter and the one country seen as having reserves ample enough to backstop the markets...apparently the IEA feels that even with enhanced recovery methods, the saudi's cant squeeze much more out of their declining Ghawar oil field, which supplies 60% of their production, and for the next few decades US production will increase due to our unconventional recovery techniques, notably fracking; but we should note is that even if this switch in leadership were to come to pass (and there are plenty of skeptics), this near near energy independence will not lower our costs of gasoline for several reasons, the most obvious of which is that crude oil is fungible and prices are determined by worldwide demand & supply; moreover, the IEA figures include natural gas liquids in our expected production, which by 2011 had come to account for 28% our total unconventional production, & you cant produce gasoline from natural gas liquids...the other reason that domestic oil will of necessity stay high priced is the amount of continued investment that is needed to produce oil from shale; the adjacent graph, which comes from a report from the N.Dakota Dept of Resources (pdf), shows the production over time from a typical well in the Bakken shale, which is now the most productive field in the US; what you see here is that unlike conventional oil wells, where you might drill one well that produces decently for 40 years, the typical bakken well production falls by over 80% in just two years, because after the initial oil flow from the pulverized rock, the flow slows to a trickle; so to continue to produce oil from the bakken, or any other shale formation, you have to drill more & more wells, smash more bedrock, truck in millions of gallons more of water & chemicals, all of which is an ongoing capital drain...and even though we are expanding our capacity to tap shale oil considerably, the seven fold increase in oil drilling rigs in the US since 2009 has only produced about a 20% increase in oil production...

there was still a fair amount of news on the continuing impact of hurricane sandy; with several hundred thousand still without power at midweek, many thousands homeless and likely facing months of displacement in areas where salt water has damaged the electrical infrastructure..and the economic impact from the storm suggests we'll probably have to put a Sandy asterisk next to most of the reports that come out over the next few months...this was most evident in this week's stats for first time claims for unemployment rations, which showed that for the week ending November 10th, seasonally adjusted initial claims were at 439,000, an increase of 78,000 from the previous week's 361,000; the unadjusted numbers were even worse; actual new claims were 104,548 higher that a week ago...although there's already a cottage industry of analysts trying to put numbers on the economic impact of the storm, it will probably be months before we see more accurate data than the current advance estimates, and even then, with the storm having impacted 24 states as far inland as wisconsin, the final tallies will be no more than a best guess...
retail sales monthly chg

the first report released this week that most analysts felt was influenced by Sandy was the Advance Estimate of Retail Sales for October from the Census Bureau (pdf); so while we look at the data we can speculate as to what and how much of it might have been altered by the effects of the late october storm, which first started affecting florida on October 25th, although at that time it had weakened to a tropical storm after transversing Cuba...according to the report, seasonally adjusted retail and food sales for October were $411.6 billion, a decrease of 0.3% (±0.5%) from September, but still 3.8% (±0.7%) higher than october sales a year ago; the August to September 2012 gain was revised from the originally reported 1.1% to 1.3% with this report...however, most of the October decline came as a result of a 1.5% drop in sales of autos & parts; without that volatile segment, sales were unchanged month over month; the largest month over months sales gains were logged by gas stations, up 1.4% over september's sales (that's even though the price of gasoline fell - this report is not adjusted for inflation), and food stores, up 0.8% for the month, but even those increases could reflect stocking up before the storm...other than auto dealers, the biggest declines were registered by building matls and garden centers, where sales fell 1.9% month over month (remember, the seasonal adjustment means sales fell that much more than normal for this time of year) and non-store retailers, (which is catalog & online), whose sales fell 1.8% over september's; the month over month percentage change for the major retail groupings is illustrated by the adjacent graph from robert oak at the economic populist...while we can see that some near the east coast may have deferred purchases of new cars with the storm approaching (& remember, it didnt regain hurricane strength till the 28th) it's hard to draw a logical connection between the approaching storm and declining online sales, which even with this month's decline are still up 7.2% over last year, especially in light of a small 0.3% sales gain at department stores...and we also note a 1.0% sales decline in a close bricks and mortar equivalent, the appliance & electronic stores, which had risen 4.5% in september on the strength of the iphone 5 release...so it appears at least a significant portion of the October retail sales decline may have been just a reversal of unusual and inordinately large jump in september sales...

Industrial Production
the other major report considered to have been influenced by Sandy was that on Industrial production and Capacity Utilization for October from the Fed; as reported, industrial production declined at a seasonally adjusted rate of 0.4% in October after an increase of 0.2% in September; the Fed estimated that hurricane Sandy reduced the rate of change in total output by nearly 1 percentage point, mostly due to reductions in the output of utilities, chemicals, food, transportation equipment, and computers and electronic products...manufacturing production was off 0.9% for the month after a 0.1% gain in september, utility output fell 0.1% after having been unchanged in september, and the output of "mines" which includes all resource extraction, was up 1.5%, after having increased 0.9% in september, as the extraction of crude oil rose significantly in both months..the Fed estimates that manufacturing output would have been unchanged were it not for Sandy; but they dont include an estimate on the impact of 8 million without power on utility production, which was affected not just by the transmission failures, but by the shutdown of several power facilities in the region...even with October's weakness, industrial production was still up 1.7% over last year's level, although it still remained more than 3.5% below the 2007 average...among what the Fed refers to as market groups, the output of consumer durables edged down 0.2%, while production of consumer non-durables slumped 1.2%; the output of business equipment also fell 1.2%, with all three of its components, transit equipment, information processing, and industrial all registering similar declines...capacity utilization for total industry, which is the measure of how much of our plant and equipment was in use, also fell 0.4% in October, and is now at 77.8%, which is only 0.2% above the year ago level...manufacturing capacity utilization fell from 76.7% in september to 75.9% in october and is now only 0.1% above last year's level, which you might be able to make out if you click on the adjacent graph from bill mcbride, which shows manufacturing capacity in use in red, and total capacity utilization in blue...utilization for utilities fell 0.2% month over month, to 75.2%, and is now 1.4 percentage points lower than the year ago 76.6% usage; meanwhile, mining utilization, which includes the aforementioned oil rigs, rose 1.1% in october over september's level and is now at 90.4% of capacity, which is coincidentally also 1.1% above the year ago level...in reading these numbers, it's important to note that US manufacturing has increased its capacity by 1.4% over a year ago, while utilities have added 2.3% to their plant base, and mining, or extractive industries, have increased their capacity by 2.1%...

coincidentally, the two regional Fed manufacturing surveys for November which would have been most impacted by the hurricane were also released late this past week, and unsurprisingly, they both showed contraction...the November Empire State Manufacturing Survey from the NY Fed showed contraction for a fourth consecutive month, with their general business conditions index at -5.2%, little changed from October; however, their new orders index was up 12 points to 3.1, which was first positive new orders reading since June, but the employment index fell 14 points to -14.6, its lowest level since mid 2009...the NY Fed included a set of supplementary questions about the storm in this month's polling of manufacturing firms; only 21% of upstate firms reported disruptions due to the storm, virtually all of them limited to one day; however, 100 percent of firms in the New York City area reported some reduction in activity, with 70% losing power or communications or both...the November Business Outlook Survey from the Philadelphia Fed covers those areas of New Jersey not included in the NY Fed survey, as well as Delaware and the hard hit areas of eastern pennsylvania; its index of general manufacturing business activity fell back into contraction at -10.7, from October’s 5.7, which had been the first expansionary reading from the region in 6 months; their current new orders index fell 4 points from last month and remained contractionary, while their current shipments index fell 7 points; and their current employment index remained negative for the 5th consecutive month, although it improved slightly from october's -10.7 to -6.8...a supplemental questionnaire found that the average number of days on which firms experienced reduced activity was 2.2, with a third of their area experiencing business disruptions for 3 days or more...

MBA In-foreclosure by statethere were also a few quarterly reports relating to the mortgage crisis that were released this week; in one area we've seen fit to watch closely, the MBA (Mortgage Bankers Association) released its Mortgage Delinquency and Foreclosure Report for the 3rd quarter, which showed that the seasonally adjusted mortgage delinquency rate for 1 to 4 unit housing in the 3rd quarter was at 7.40% of all loans outstanding, down from the delinquency rate of 7.58% in the second quarter; however, their actual unadjusted delinquency rate for the quarter was at 7.64% in the 3rd quarter, .29% higher than the 7.35% actual delinquency rate in the 2nd quarter; they report that delinquency rates typically increase between the second and third quarters, which was evident in the September Mortgage Monitor from LPS we covered last week, but not so much in the 2 previous LPS reports; we've noted in the past that MBA data on foreclosures and delinquencies are fractionally higher that the numbers reported by LPS, but the headline delinquency rate reported by the MBA in this report happens to be identical to the 7.40% rate reported by LPS for september; echoing what LPS noted, MBA also says all the increase in delinquencies is being seen in the 30 day bucket, while there's been a significant decline in loans that are 90 days or more delinquent; however, the MBA reports 4.07% of loans were in the foreclosure process at the end of the third quarter; while LPS reported that loans in the foreclosure process declined to 3.87% of loans outstanding at the end of september, so the MBA continues to show higher numbers overall... that means a total of 11.47% of home loans were either one payment delinquent or in the foreclosure process in the 3rd quarter on a seasonally adjusted basis, a decrease from the 11.85% rate in the 2rd quarter...the actual unadjusted combined percentage of loans in foreclosure or at least one payment past due was 11.71%, which was .09% higher than the second quarter...however you slice it, it still means that more than one in nine homeowners were not paying on their mortgage at the end of the third quarter...if we include the more than 4 million Americans who have already lost their homes to foreclosure since the crisis began, it's evident that nearly 20% of us have had some trouble paying their mortgage during this recession... FHA Mortgage Loans Delinquent 

like LPS, the MBA provides data on delinquencies and foreclosures by state, the chart to the above right shows the percentage of homes remaining in the foreclosure process by state; states where the foreclosure process is judicial (must go through the courts) are shown in dark grey, while the non judicial states are light grey; the states showing the greatest percentages in foreclosure as of the 3rd quarter are Florida at 13.04% (down from 13.70% in the 2nd quarter), New Jersey at 8.87% (up from 7.65%), Illinois at 6.83% (down from 7.11%), and New York at 6.46%...corresponding percentages for those states from the LPS Mortgage Monitor (p19, pdf) are 12.7%, 8.3%, 6.2%, & 6.2%....however, two of the hardest hit non-judicial states are well below the national average; California has but 2.63% of mortgages in foreclosure, and Arizona has only 2.51%... the MBA national delinquency survey also breaks out mortgage delinquencies by loan type; prime, subprime, FHA, and VA; bill mcbride covers them all, but since the FHA has been in the news this week (they reported a $16.3 billion dollar shortfall, indicating they made need a taxpayer bailout), we'll include his 10 year chart of FHA loans that are either delinquent or in foreclosure; in each quarterly bar you see the percentage of loans in foreclosure (red), more than 90 days delinquent (yellow), 60 to 90 days delinquent (dark blue) and 30 to 60 days delinquent (light blue)...although the number of delinquent loans is at the lowest in a decade, the number of FHA loans in trouble remains at over 15% of the total…the other quarterly report mentioned earlier comes from Zillow, who reported that 1.3 million US homeowners saw improved home equity such that they were no longer underwater28.2% of all homeowners owed more than their homes were worth in the 3rd quarter, down from 30.9% in the second quarter…Zillow also provides an interactive map of the 3rd quarter negative equity data, which gives you a breakdown of negative equity by county…since the 30-year fixed mortgage set an all-time low of 3.34 percent this past week, we should not be surprised to see higher list prices quoted for homes, thus reducing this negative equity even further... 

(the above is my weekly commentary that accompanied my sunday morning links emailing, 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…)

1 comment:

  1. ty rj! excellent workup


    small is beautiful...E.F.Schumacher

    pg14
    the illusion of unlimited powers, nourished by astonishing scientific and technological achievements, has produced the concurrent illusion of having solved the problem of production. the latter illusion is based on the failure to distinguish between Income and Capital which man has Not made, but simply Found, and without which he can do Nothing.

    a businessman would not consider a firm to have solved its problems of production and to have achieved viability if he saw that it was rapidly consuming its capital. how, then, could we overlook this vital fact when it comes to that very big firm, the economy of spaceship earth and in particular, the economies of its rich passengers?

    ReplyDelete