Sunday, March 25, 2012

the ryan budget, february housing, & the March heat wave

except for a wonkish blog debate on the output gap, and whether the recession did permanent damage to the nation's potential (it didnt), the news that garnered the most attention and blogospheric commentary was the release of the 2013 republican budget by congressman paul ryan (pdf), who is the chairman of the house budget committee; although we know this budget is unlikely to be enacted as it stands (fiscal 2013 starts in october), its worth looking at what is being proposed, if only to contrast with the relatively static obama budget proposal from earlier this year...essentially, not much of the general outline has changed from the overall plan that ryan released to similar coverage last year, except that it's been refined to obscure the massive safety net cuts that resulted in the most outrage last year, so without being specific, he calls for $1.9 trillion less discretionary spending than obama’s ten year budget; & since pentagon spending is left untouched, the only way to achieve cuts of that magnitude is to hack the budgets for Medicaid (for the elderly and disabled poor), the dept of agriculture (food stamps), child nutrition, TANF (which we’ve pointed out only supplements needy families to 30% of the poverty level), and unemployment insurance…the plan also kills the tax provisions of obama’s health reform & cuts the top tax bracket to 25%, and combined with other tax reductions for the rich, would result in an average tax cut of $265,000 for those with incomes over a million dollars (obama’s ‘buffett rule’ tax on the rich aint so great, either, since his plan simultaneously cuts the alternative minimum tax, resulting in only a $47 billion revenue increase over 11 years)...Ryan’s new plan now leaves social security and medicare untouched initially, but Medicare would still become a voucher-program in his ten year plan..amazingly, although this plan passed Ryan’s budget committee, two of his own members voted against it because it wasnt conservative enough

Total Housing Starts and Single Family Housing Startsprobably the most significant economic releases of the past week were three reports on February housing; new home starts, new home sales, and home re-sales, referred to as 'existing home sales' in real estate parlance; february is typically a off month for housing activity, but all reports are reported at a seasonally adjusted rate, meaning the actual number is converted into a fiction representing what sales or starts would be if february's rate as compared to previous februarys were converted into an annual number; thus, with this february an exceptionally mild month over most of the US, and both home building and home buying influenced by the weather, one would have expected these reports to be better than average; for the most part, however, that was not the case...the first report we’ll look at is new housing starts from the Census Bureau (pdf), which also includes home completions & building permits for the month...with census reporting a significant margin of error for all numbers in this report, housing starts for February were at a seasonally adjusted annual rate of 698,000, 1.1% below the revised January estimate of 706,000, but still 34.7% above the rate of 518,000 from february of last year; all of the decline was in single-family starts, which declined 9.9% to a 457,000 annual rate, while there was a sharp increase from 181,000 units started to 233,000 units started in apartments of 5 or more units..on an unadjusted basis, 48,100 homes were started in february, up from the 46,500 actually started in january...building permits issued during the month were at a seasonally adjusted annual rate of 717,000, 5.1% over january's rate, indicating a likely improvement in starts for march, over and above the normal seasonal increase...the adjacent seasonally adjusted 45 year chart from calculated risk shows how depressed housing starts have been since the start of the recession; we're now well into the 4th year of total starts (the red line) well below those of any year previously, even though the population has continued to increase; note also that the housing bubble only elevated construction of single family homes (blue), whereas the total units tended to trend between one and two million over that historical record...  

  the census bureau also reported on new home sales for february this week; they came in at a seasonally adjusted annual rate of 313,000, down from a revised 318,000 in January (revised down from 321,000); that’s a 1.6% decline, where analysts had expected an increase of a similar magnitude; but its still an increase of 11.4% over february 2011’s total of 281,000, which was the weakest on record...the median sales price for new homes in february was $233,700; the average sales price was $267,700...this report also includes inventory stats for three stages of unsold new homes (p4 pdf); the seasonally adjusted estimate of new houses for sale at the end of february was 150,000, a supply of 5.8 months at the current sales rate...the existing home sales report came from the NAR (National Association of Realtors), and they also report a seasonally adjusted annual rate; by that metric, sales for february were reported to have slipped to an annual rate of 4.59 million from an upwardly revised 4.63 million in january (first reported as 4.57 million); still, this year’s february sales topped last year’s by 8.8%, and the three month total made it the best winter in 5 years; the median sales price for all housing types was $156,600; distressed homes accounted for 34% of sales, first time buyers were 32% of the sales, down from 34% last february, with investors buying 23%, and all-cash transactions accounting for one-third of the totalnational inventory of unsold homes on the market increased to 2.43 million in february from 2.33 million in january, resulting in a supply that would take 6.4 months to sell at the current sales rate; this inventory is considerably improved over last year’s; however, the shadow inventory, which includes homes in foreclosure, owned by the banks or a GSE, and those seriously delinquent and likely to default, hides a problem that will be with us for some time; figures for this vary widely; CoreLogic reports a shadow inventory of 1.6 million units; while LPS reports 2,065,000 in foreclosure and another 1,722,000 over 90 days delinquent; the last time we addressed this housing problem we mentioned a number of reasons young people were unable to obtain a mortgage; as it turns out, a lot of them cant even afford rent; the adjacent map from The National Low Income Housing Coalition shows how many hours one would need to work at minimum wage to afford a 2 bedroom apartment at fair market rent in each state; you can see that in the dark blue states, it would require over 88 hours of minimum wage work to afford rent, in other words, even a young couple living together would be hard pressed to make ends meet…and there is no state in the US where its possible to work a 40 hour per week minimum wage job and afford a two-bedroom unit at fair market rate

we shouldnt leave the news of this week without at least a mention of the exceptionally hot spring weather being experienced in a large part of of the northern US and canada...meteorologist Dr Jeff Masters of the popular wunderblog, writing from michigan, probably expressed it best; "this March started with 12 days of April weather, followed by 10 days of June and July weather, with 9 days of May weather predicted to round out the month"; holland michigan, planning a tulip festival for may, saw their blooms this week...of course, it wasnt just michigan; temps in the 80s were reached in every border state from north dakota to maine, as well as from manitoba to nova scotia in canada, and a reading of 94°F was reported at Winner, S.Dakota on March 18th, a date more commonly associated with blizzards in that part of the country; over the two week period ended march 24th, 2023 record-breaking high temperatures were set in the US, while a low was breached only 58 times...the highlights include 4 locations (one ea in NH, MI & 2 in MN) where the overnight low in a location eclipsed the previous daytime record high (in locations with 100 years of records), several locations where the previous record high temperature for the date was exceeded by more than 30°F, several locations in the US and Canada which also eclipsed previous high temperatures for April, ten record high days in a row at International Falls, MN, the most consecutive records ever set anywhere, and many cities where a new record was set 9 days in a row, including chicago, when observing 7 consecutive record temps at a location is a once in a meteorological blue moon experience…the scale on the adjacent map should be obvious, but just to clarify; those locations shading from yellows to dark reds were above normal by up to 15°F for the 30 day period; the two shades of green in the west represent temps up to 3°F or 6°F below normal, and a map such as this is typically an average of temps taken hourly over 30 days, and it is extremely rare for any temperature anomaly in the range of 15 degrees to persist over a 30 day period...
       while most everyone experiencing this heat wave probably preferred it to the normal frigid and windy march in this part of the country, there are a few caveats; first, fruit crops are at least a month ahead of schedule over most of the area noted, and damaging frosts are still likely into may; secondly, a lot of the western areas that would normally have a snow cover are already starting to dry out, raising the potential for drought during the growing season, & lastly, anecdotal reports from the region indicated that with the entire winter being mild, the ground did not freeze deeply, so the normal winter kill of damaging insects didnt occur; so we can expect a bad year for plant pests and ticks, & the mosquitoes are already flying...

(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…)

Sunday, March 18, 2012

notes on banksters, congresscritters, & economic reports of the week ended March 17th

according to the NY times & at least 2 liberal websites, the House passed a popular bipartisan jobs bill this week, which was also expected to also pass the Senate and be signed by the president; at least that’s what you’d understand its about from reading about it...apparently everyone’s been taken in by the naming of the bill, the “Jumpstart Our Business Startups Act”, aka the JOBS act, & since it doesnt really create any jobs, we oughtta look at what it really would do...the bill actually just loosens regulations so that just about any small business's hairbrained ideas can be pimped as sound investments, and goes so far as to allow sale of unproven penny stocks via ads on the internet, and, as Columbia Law professor John Coffee points out in an article at propublica, it would be better named “the boiler room legalization act.”, as it will allow wall street brokers to directly contact those who they'd like to separate from their money...although it's hit a temporary hitch as the Senate attempts to attach funding for the Export-Import Bank to it, passage seems certain, so you can expect to see IPO pitches for the latest garage startups alongside your email starting this summer, and likely another dot-com bubble shortly thereafter...a more important piece of legislation, however, which would create jobs, has become bogged down in the house...in a bipartisan vote, the senate passed this week a two-year, $109 billion bill to fund highway & infrastructure repairs, which, although far short of whats needed, was about 2/3 of what the president had asked for; however, the House doesnt even plan to take it up before the current funding expires april 1st, so another stopgap bill, the ninth in a multiyear series of fits & starts, is expected to be passed in its stead...it goes without saying that infrastructure projects require long-term planning, and except for the most immediate necessary repair work, not much gets done at the local level while congress jerks around with the longer term funding for new projects...

although it was a slow week for major headline economic reports, the bankster contingent provided plenty of distraction to keep the econo-blogs humming; the big story of the week was a wednesday“take this job & shove it” op-ed in the NYTimes by Goldman Sach’s London VP Greg Smith, who tendered his resignation due to the firm’s “toxic and destructive” culture, wherein he came to realize that their primary business is ripping off customers; that this could have attracted so much attention (the NYTimes reported his diatribe had received 3 million pageviews in the first 12 hours, & the second-most-viewed story, with 500,000 views, was also about his rant) only suggests that most people havent been paying attention to the ongoing systematic fraud perpetrated by Goldman specifically, & the entire financial sector in more general terms, over the past half dozen years; the US financial sector has become a parasitic casino with with no socially redeeming value; its just a giant rent-seeking zero-sum manipulative bamboozle, producing nothing of value to the rest of us; to paraphrase robert reich, if you took the fraud out of wall street, all you’d have left is pavement…at any rate, this op-ed precipitated a response from goldman, several parodies, & dozens of retrospectives, including an op-ed forum with commentary from 8 analysts in the NYTimes at week's end, & of which several were included on the global glass onion..

another bankster who spoke out this week was jamie dimon, CEO of JPMorgan Chase; you see, the Fed had been conducting stress tests on the nation’s 19 largest TBTF banks, to see how they would perform in a new severe economic downturn (ie, unemployment rate of 13%, a 50% stock market drop, and a 21% further decline in housing), and they planned to release the results after the markets closed on thursday; however, on tuesday afternoon, as the Fed was wrapping up it’s otherwise uneventful monthly FOMC meeting, JPMorgan came out with an announcement of its stress test results, and of resulting dividends and stock buybacks, upstaging the Fed, and forcing a rushed release of the test results for the other 18 banks; as we had expected the Fed to go easy on the banks, 15 of the 19 passed, with Citigroup being the notable failure, along with SunTrust, Ally Financial and MetLife; all of who will be restricted from paying dividends & required to raise more capital...

the first economic reports we’ll look will be those from the transport industry, which should give us a sense of economic activity as it relates to movement of goods; first, the Association of American Railroads reported mixed results for February rail traffic; freight carloads totaled 1,410,992, down 27,555 carloads, or 1.9% less than Feb 2011, mostly due to less shipments of coal, whereas intermodal carloads totaled 1,122,458 containers and trailers, up 26,284 units or 2.4% higher than last year, and near the 2006 peak; port traffic in the Los Angeles area, which handles 40% of US container shipments, declined slightly in February, with inbound traffic down 0.9% and outbound traffic up 0.3% on a rolling 12 month basis…also this week, Ceridian Corp & UCLA released their Pulse of Commerce Index for February, an indicator based on diesel fuel consumption, which showed a 0.7% increase for the month, still not enough to offset the 1.7% decline in january; they also report the three-month period from December to February is lower than the previous three months from September to November 2011 by an annualized rate of 3.2%; the latest report we have for the trucking industry was from January, when the American Trucking Association, reporting for an industry that ships over two-thirds of domestic freight, reported tonnage fell 4.0% in January on a seasonally adjusted basis, after gaining 6.4% in December 2011 with that same seasonal adjustment…we also had the Industrial production and Capacity Utilization report for February from the Fed; industrial production was reported a unchanged on a month over month basis, and 4% higher than last february; whereas capacity utilization by industry edged down a tenth of a percent to 78.7%; since utilities are included in this series, we can surmise the weakness was due to the warmer than normal february…

 Click to Viewthe other reports released this week were consumer related; on a seasonally adjusted monthly basis, the census bureau reported (pdf) retail sales were up 1.1% (±0.5%) from January to February and up 6.5% (±0.7%) from a year ago; excluding auto sales, retail sales increased 0.9% for the month; with january sales revised up to 0.6%, census gives a two month increase of 11.2% in gasoline sales to $46.9 billion, with a 10.3% increase in february, but doesnt break gas out as percentage of the $407.8 billion total for the month, nonetheless, it seems clear that a lot of the recent sales gains involves higher gas prices, which AAA reports at over $3.80 a gallon nationally this week; doug short has regular up 60 cents over the past 12 weeks (and charts to go with it), likely the reason the reuters/UofM consumer sentiment index fell to 74.3 in march from 75.3 at the end of february…we also got the February CPI (Consumer Price Index) report from the BLS this week; prices increase 0.4% on a seasonally adjusted basis, with the all items index increasing 2.9% year over year; doug short @ Advisor Perspectives has by far the best inflation coverage on the web, with four chart filled posts this week, including a breakdown of the index into its subcomponents and one separating energy from the transportation component; the one i’m going to include here isolates tuition increases from the education & communication component, relevant to our previous discussions of the predominance of student loan increases in the consumer credit reports; in this chart you can see in light red the unadjusted stepping up as tuition increases are announced each summer, as tuition more than doubled over the past 12 years; you can also see the other major driver of inflation, medical care, in dark red, with prices up over 60% since 2000, and the green transport component, made volatile by fluctuating gas prices (click on it for a larger image)lastly, since gasoline accounted for more than 80% of the rise in consumer prices for the month, i want to again point out the effect rising gas prices may now have on monetary policy; you might recall when i first read the Fed statement that said they were switching their inflation target from using core CPI to the PCE price index, i expressed my concern that this would allow monetary policy to become subjugated to fluctuations in oil prices; yet in reading most analysis elsewhere of Fed policy, i have still been seeing normally careful economists refer to core PCE as the subject of Fed policy, so i started to doubt my reading…but economist Tim Duy, who runs the blog "Fed Watch" at economist's view, has confirmed my initial reading & has repeatedly indicated that Fed policy is now predicated on headline PCE, even stating it unequivocally & quite specifically: "As a point of clarification, the Fed does not target core inflation. Refer to the Fed's freshly printed statement on long-run goals and strategy: [inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve's statutory mandate] That's headline inflation, not core inflation." ...& that sure suggests to me that if rising gas prices drive personal consumption inflation much over a rate of 2%, we could well see a rigid institution like the Fed start to tighten the monetary screws...

(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…)

Sunday, March 11, 2012

february unemployment; january’s consumer credit, trade deficit, & the LPS mortgage monitor

    Percent Job Losses During Recessionsthe employment situation report from the BLS for febraury was delayed till this friday of this week, apparently because february had one less day than most other months...the headline number from the establishment survey showed a seasonally adjusted increase of 227,000 non-farm jobs, based on preliminary responses from about one third of all US businesses and agencies (and which has a 90-percent level of confidence with a confidence interval of plus or minus 100,000)...the December report was revised upward from an increase of 203,000 jobs to 223,000, and the change for January was revised from an increase of 243,000 to up 284,000...private sector jobs grew by 233,000 in february, offset by only 6000 government job losses, the best we've seen for govt totals since the census; strong private sector increases included business services with 82,000 jobs added, more than half of which were temporary help services; health care & social assistance, with 61,000 jobs added, food services and drinking places with a 41,000 increase, and 31,000 in durable goods manufacturing..since seasonally adjusted construction employment declined 13,000, this positive report doesnt seem to have benefited from the much warmer than normal february, although we cant dismiss the overall positive effects of the 4th warmest winter on record on the reports of the past three months...the average workweek for all nonfarm workers was unchanged at 34.5 hours, although the manufacturing workweek edged up by 0.1 hour to 41.0 hours, & average hourly earnings for all employees rose by 3 cents, or 0.1 percent, to $23.31...recall that we get the headline unemployment numbers from the other section of this report, the household survey, which is based on surveys of 60,000 households; again, on a seasonally adjusted basis, this survey showed an increase of 428,000 employed; meanwhile, the civilian labor force rose by 476,000, as those "not in the labor force" decreased by 310,000 and the working age population increased 166,000; thus, even with the large increase in the employed, the U-3 unemployment rate remained unchanged at 8.3%...the broader U-6 measure, which includes those working part-time who want full time work, dropped to 14.9% from 15.1% in january; since anecdotal reports indicate an increase in temporary & part time jobs, this U-6 decline might also be indicative of workers becoming satisfied with less than full time work...notice this reported decrease in those "not in the labor force" indicates that those who hadnt been looking for work are now searching for work once again, accordingly, the labor force participation rate, the metric we've been watching for real signs of improvement, increased from 63.7% to 63.9, & the employment-population ratio also was up from 58.5% to 58.6%...this was the first time we've seen those "not in the labor force" decrease in a while, and if those discouraged workers continue to return en masse, there's the potential for the number of employed to increase significantly yet still have the unemployment rate rise as they join those who are counted...we still have a way to go; for perspective, i've included above a chart from calculated risk showing the job losses from the start of this employment recession, in percentage terms, compared to other post-war recessions; of the 8.8 million net jobs lost between January 2008 and February 2010, 3.5 million nonfarm payroll jobs have been recovered...

    Unemployment Duration looking at other numbers from the household survey, the number of long-term unemployed (ie, those jobless for 27 weeks or more) was nearly unchanged at 5.4 million in february; these individuals accounted for 42.6 percent of the total number of unemployed, barely down from a peak far greater than at any time in our recent history, as is illustrated in red on the second chart to the right, which also shows the number of unemployed less than 5 weeks (orange), 6 to 14 weeks(blue), and 15 to 26 weeks (purple)...the household survey also breaks out unemployed by race, sex and age in table A-2; noteworthy from that table is youth unemployment at 21.3%, with the rate for white youth at 14.1% and for black youth at 34.7% -- remember, by BLS methodology, these young people arent counted as unemployed unless they are actively seeking work, so the actual numbers of idle teens are likely much higher....BLS also notes that among those not counted as being in the labor force (& hence not counted as unemployed) there were another 2.6 million people who they call "marginally attached" to the labor force, ie, that they had looked for work sometime during the past year, but not during the 4 week timeframe referenced by this month's report; of those, 1.6 million reported they wanted & were available for work, and another million were classified as "discouraged", meaning they were not currently looking for work because they believed that no jobs were available for them - again, remember, none of these "marginally attached" workers count as unemployed...

    the other reports released this week were not as encouraging as the unemployment report; the one we're going to look at first is the consumer credit report for january...you may recall we first started looking at this report a few months ago, when contrary to the "consumer deleveraging" meme, we saw an 9.9% seasonally adjusted surge in borrowing, which was the biggest surge in consumer borrowing in 11 years; december's borrowing was high as well, which was when we first noticed it was being driven by escalating borrowing for student loans; this month's report show more of the same; the top line growth of consumer borrowing in january rose by $17.8 billion, an annual rate of 8.6%, but while some of the media is reporting this as credit card driven, revolving credit (ie credit card borrowing) actually decreased 4.4%, while non-revolving credit (cars, yachts, mobile homes, student loans etc, but not mortgages) jumped by 14.7%; this compares to rates of increase for revolving credit of below 1.5% for the 3 year period between 2008 & 2010...if you look at consumer credit outstanding, the second table in the Fed report, you see that of this non-revolving credit, the increase coming from banks was less than 1%, with no increase from finance companies, yet the increase in consumer borrowing from the federal government was $27.9 billion; that means that ex-student loans, all other consumer borrowing actually fell by more that $10 billion dollars...and federal student loans, which were a small part of consumer borrowing at $316.4 billion in the 4th quarter of 2010, have ballooned to $453.0, a 43% increase in less than a year & a half...this has drawn the attention of the NY Fed, which has a new report out on student debt (“Grading Student Loans”); they show total student debt to be about $870 billion—more than credit card balances ($693 billion) and auto loans ($730 billion); and furthermore, most of student loan borrowers were not paying down their balances...the chart i'm including here, which shows the growth of student loans compared to other consumer credit since 1999, is from an article on student loans at zero hedge, which alleges, among other things, that many people are now taking out student loans just to live; that the loans have become essentially a form of welfare that must be paid back...

    U.S. Trade Deficit another report we should look at this week is for the US trade deficit for january (pdf), which jumped to the widest imbalance in more than three years as our imports hit an all-time high...exports of $180.8 billion and imports of $233.4 billion resulted in a deficit for the month of $52.6 billion, an increase from a revised $50.4 billion in december and the biggest trade gap since october 2008...part of the problem was that our exports to europe fell while our imports of oil and of cars & computers from asia rose, with imports from china alone rising 4.7 percent to $34.4 billion; and it's accelerating as well, as the 3 month rise in the deficit is the largest ever on record, with a $9.4bn increase over that period...i'm including another calculated risk chart (to the left) because it illustrates it the best; blue is the total trade deficit; black is oil imports, and red is the trade-deficit-ex petroleum...oil averaged $103.81 per barrel in january, so this looks to be getting worse…& this trade deficit was considered bad enough that even with the decent jobs report out on the same day, goldman sachs lowered their first quarter GDP forecast from 2.0% to 1.8%, as did Macroadvisors, and J.P. Morgan Chase economists lowered their forecast for first-quarter GDP to 1.5% from 2%

    Foreclosure Starts and Sales the Mortgage Monitor for January (pdf) was also finally released this week by LPS (Lender Processing Services); according to this report there was a sharp increase in both foreclosure starts and completions in january; they reported that 2.08 million loans, or 4.15% of all outstanding mortgages, were in the foreclosure process in january, which was up from 4.11% in December, and an additional 7.97% of all mortgages were delinquent in January, which was down from 8.15% in december, and down from 8.90% in January 2011; of those 4 million mortgage loans that were delinquent, 2.23 million were less than 90 days delinquent and 1.77 million loans were over 90 days delinquent, meaning a total of 6.08 million homeowners, or 12.12% of all homeowners with mortgages, were not making payments on their home loans in january...LPS reports that 203,458 foreclosure actions were started in january, up 28% from december (some banks had holiday moratoriums), and 91,086 foreclosures were completed in january, which was up 29% from december...the adjacent graph from LPS Applied Analytics (from p8 of the pdf) shows foreclosure starts and completions by month going back to the beginning of 2008; you'll note that in every month over the 4 year period that foreclosure starts (blue) far exceeded the completions (red); accordingly, from the bar graph on page 9 of the pdf, we can see that in non-judicial states, the average length of time a home has been in the foreclosure process has been 17.2 months, and in judicial states, where banks have to prove ownership of the mortgage in court, homes have remained in the foreclosure process 24.1 months, or over two years; nationally, over 40% of all homes in foreclosure have been there over 2 years without making a payment (see that graphic p 19 of the pdf)...the foreclosure process is expected to accelerate with the completion of the foreclosure fraud settlement, which as of the latest still hasnt been inked…if you have any interest in further details as to the condition of home mortgages in this country, the LPS Mortgage Monitor is a 34 pp pdf, which includes state by state tables and graphics which will explain it all...
    LPS also has a home price index which they reported on this week; it’s for prices in december so it appears to lag other reports, however, they report closings, whereas other indexes report recorded sales, so they’re actually in front of the pack; they reported home sale prices, now down for 6 months in a row, accelerated their decline by 1% in december, with their early data suggesting a further 1.2% drop in home prices took place in january, with prices increasing in only 8.0 percent of the ZIP codes they cover…CoreLogic also reported their home price index for january, which is a weighted 3 month average of Nov thru Jan prices; they show national home prices declined on a year-over-year basis by 3.1% in january and 1% when compared to december’s report, also their sixth consecutive monthly decline; however, excluding distressed sales, year-over-year prices only declined by 0.9% in january and without distressed sales, january home prices actually increased 0.7% from december

    (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…)

    Sunday, March 4, 2012

    notes on housing prices and other econ news of the week ended Mar 3rd

    Real House Priceswe'll start today by looking at the case shiller home price index for december, noteworthy because all three of their composite indexes ended the year at new post bubble lows, both seasonally adjusted and in absolute terms...again, the case shiller reports encompass unweighted home prices reported over 3 months, so these reports also includes october & november; both the 10 city & 20 city composite indexes fell 1.1% from the november level, and were down 3.9% and 4.0%, respectively, against the price readings of december 2010...the case shiller national index, which is only reported quarterly, was down 3.8% in the 4th quarter from the 3rd quarter, and down 4.0% from the 4th quarter of 2011...according to these C/S indexes, home prices are now nearly 34% off their early 2006 peak and nominally back to price levels of the 3rd quarter of 2002; although on a seasonally adjusted basis, the 20 city index is still at the january 2003 price level...for the 20 ciites covered, only the depressed cities of phoenix & miami posted a gain in december over november's prices, and only detroit's home prices were higher than a year ago, reflecting a recovery in the auto industry...the WSJ produces an interactive sortable table of the 20 cities in the index, should anyone want more details...since home prices reported by case shiller & the other real estate services are in nominal terms, it's useful to take a look at what home prices would be in real, inflation adjusted terms, which is what bill mcbride at calculated risk does; his adjacent graph shows the seasonally adjusted case shiller national index in yellow, the C/S 20 city index, also seasonally adjusted, in red, & the corelogic index december price index in blue, each adjusted for inflation using the CPI less the shelter component; in those terms, the national index is back to the last quarter of '98 levels, the 20 city index is back to march 2000 prices, and the CoreLogic index back to levels of december 1999; note the corelogic index is not seasonally adjusted, so by clicking on the graph you can see the distinct seasonal pattern, whereas even as prices are falling overall, they still rise during the warm months...that may account for the reason that home prices in southern cities like phoenix & miami dont move in step with those in the rest of the country...

    CoreLogic, Negative Equity by Statesince case shiller is the last of the monthly home price indices to report, and since their unweighted 3 month index tends to lag current transactions even more, it's useful to take a look at some of the other price indices which have reported previous to this week to get a complete & currrent picture; the CoreLogic national index, which is represented in the chart above, also covers the same three months, but it's weighted to give more recent home sales greater representation in the result, and also covers more zip codes than case shiller's national index; hence, its the home price index the Fed follows...the December corelogic report, which was out early february, showed that national home prices, including distressed sales, decreased 1.4 % on a month-over-month basis, the fifth consecutive monthly decline; their prices for the entire year were down 4.7%; on the other hand, the FHFA (Federal Housing Finance Agency) reported prices for the 4th quarter on Fannie & Freddie acquired mortgages to be down on 0.1% from the 3rd quarter on a seasonally adjusted basis; over the year, prices on those homes declined 2.4%; they also reported that as an inflation-adjusted price decline of approximately 6.2 percent...FNC reported single-family home prices in their national index fell in December at a seasonally unadjusted rate of 0.7%; their MSA index, which excludes foreclosure sales, also reported a decline of1.1% in the nation’s top 10 housing markets; and Zillow, shadowing the Case Shiller index, reported a 4.0% annual home price decline...

    CoreLogic also reported on negative home equity for the 4th quarter this week; 11.1 million residential loans, or 22.8 percent, of all such properties with a mortgage were in negative equity at the end of the fourth quarter of 2011; put simply, these are the homeowners who owe $715 billion more on their mortgages than their home is worth at today’s prices; an additional 2.5 million borrowers had less than 5% equity, which they referred to as near-negative equity; the report also broke out the negative equity situation by state, which is what the 2nd chart to the right shows…click on the graph to open a larger image; you’ll see those spikes at the end represent nevada, where 61% of homes are “underwater”, arizona, with 48% underwater, and florida, with 44% underwater…

      there was a lot of blog talk this week as to when housing would "recover"; some of it undoubtedly sprung from warren buffett’s annual shareholder letter (pdf), where he laid out his predictions, even though he’s been wrong about a housing recovery more times than most can count; this week he made headlines with his view that “hormones” would help spark a housing recovery; the problem, as buffett and even some wonks see it, is that young people, at the normal household formation and home buying ages of 25 to 34, are still living in doubled up rentals or at home with their parents, and they represent a large potential pent-up demand for houses, as soon as they move out & start raising families…unfortunately, these potential home buyers can’t use their hormones as a down payment, and for the most part, as dave dayen at FDL points out, they’re still saddled with significant student debt; matt stoller further notes that even college grads with 6 figure incomes cant qualify for a mortgage because of student debt liabilities, and as i’ve noted previously, the BLS projects that 4 out of 5 of the new jobs in greatest demand this decade will be low paying, low skilled positions that dont even require a high school diploma, hardly the type that can qualify for a large mortgage…furthermore, there was a new report out this week from the center for housing policy that nearly one in four working households already spends more than 50 percent of its income on housing; renters have seen their rents rise 4% as their incomes declined, while the annual median income for working homeowners fell from $43,570 to $41,413 over two years, about a 5% decline…furthermore, there's been a trend in new hires to only open temporary or part-time positions so employers dont have to pay benefits...so until such time as more people are back to work full time at decent wages, and young people get out from under their debt load, the housing glut will persist and home prices will have no where to go but down...

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    there were a number of economic reports out this week, but it was hard to draw anything conclusive about our direction from them; we'll start by looking at the second estimate of 4th quarter GDP, which was revised upwards to an annual growth rate of 3% from the first estimate last month of a 2.8% annual growth rate; there wasnt a great change in any GDP component, rather, the change was accounted for by incremental changes in several areas; the largest component, personal consumption was revised up to have increased 1.52% from 1.45% in the advance estimate, largely on strength in auto sales; investment growth contributed 2.42% rather than the 1st reported 2.35%, mostly on growth of private inventories; government spending continued to contract, taking .89% off the quarter's growth, and both exports and imports were slightly less than first reported, and on balance knocked .06% off the growth rate rather than the .11% first reported...the report on new orders for durable goods for january was released by the census bureau (pdf) this week; orders decreased $8.6 billion or 4.0 percent to $206.1 billion, the largest drop in 3 years; transport equipment had the largest decrease, $3.6 billion or 6.1% to $55.2 billion, mostly because of weakness in nondefense aircraft and parts; excluding transportation, new orders decreased 3.2%; excluding defense, new orders decreased 4.5%; generally, the collapse in orders was attributed to the Jan 1st expiration of tax incentives for equipment purchases…doug short, who posts an extensive series of graphs on durable goods components, also produces a series of graphs with durable goods adjusted for inflation and per capita, which gives us a much clearer picture than the monthly census reports which just give nominal growth as influenced by inflation and population growth; im including here to the right his adjusted chart for durable goods excluding defense; the red track is durable goods per capita, typically cyclical; the blue graph line adjusts durable goods orders per capita for inflation; you can see the obvious precipitous decline; by that metric, durable goods orders are 41.2% below the level of january 2000…

    the cycle of regional Fed manufacturing surveys, most of which reported last week, completed this week with both the Dallas Fed and the Richmond Fed reporting stronger expansion in February, and with the Chicago PMI (purchasing managers index) accelerating to a reading of 64.0% in February from 60.2% in January, expectations were for a strong ISM (Institute of Supply Management) report; however, the ISM PMI was reported at 52.4% in February, down from 54.1% in January (where over 50 still indicates expansion), prompting Goldman to cut it’s estimate of first quarter GDP for the second time in the same day, from an original 2.3% annual growth rate to a new forecast of 1.9%…the Fed also released it's "beige book", which is a summary of economic conditions from each of the 12 Fed districts on January 31st, and they reported economic improvement characterized as "modest" or "moderate" in every district; the NY Times has a graphic showing all 12 Fed districts with a paragraph on conditions in each as gleaned from the Fed report…

    Vehicle Salesanother important economic report out this week was the Personal Income and Outlays for January from the BEA, which showed that personal income increased $37.4 billion, or 0.3%, and disposable personal income, which is income less taxes, increased $14.1 billion, or 0.1 percent, while consumption expenditures (spending) increased $23.2 billion, or 0.2 percent; this had been forecast to be higher after weakness in december, and adjusted for inflation, we essentially have almost no growth in both income and spending over the past three months; important because consumer spending still accounts for roughly 70% of our economic activity; doug short again further refines this report by computing disposable personal income per capita; by that metric, we have no growth over 20 months and are still at the same level as we were in November 2006…this BEA report also includes a personal consumption expenditures price index, which is the measure of inflation the Fed is now watching and attempting to hold at 2%; the headline PCE price index registered 2.36% year over year; the core PCE price index, excluding food & fuel, came in at 1.88% over last year; both measures were down slightly from last month’s report; in contrast, the core consumer price index from the BLS, which the Fed had been targeting until a few months ago, was last reported at 2.28%…finally, probably the best piece of economic news we had this week was the Autodata estimate for light vehicle sales for February, which were estimated to be at annual rate of 15.1 million, which would be up from the reported 14.13 annual rate last month, and a similar 14.1 annual rate a year ago…you can see that we’ve even beaten the aberrant spike in car sales resulting from the “cash for clunkers” program of 2009 by clicking on the adjacent chart; the blue bars, official numbers from the BEA, are distinguished from the red Autodata estimate…the only caveat we can attach to that number was the warmer than normal february, which may have brought more shoppers into the dealers lots…and we’ll also have to watch for the potential impact of higher gas prices, now up 49c over 10 weeks, on car sales going forward as well...

    (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…)