Sunday, April 29, 2012

1st quarter GDP, the social security annual report, housing price indexes, et al

    Investment Contributions  it was a fairly busy week in the econo-blogosphere, accented by what should have been an uneventful monthly FOMC (Fed Open Market Committee) meeting & Bernanke press conference, that instead turned viral after an NY times reporter questioned Ben about an article penned by paul krugman earlier in the week under the headline "Earth to Ben Bernanke"; basically, krugman had asked why the Fed chairman wasnt following the monetary policy prescriptions he had recommended for Japan in a 2000 paper he authored as a professor at princeton (the back story is that bernanke had hired krugman at princeton, & both had written about Japan)...a number of economists & bloggers weighed in on both sides & tangentially, so if you're interested, you can find the entire play by play at the beginning of this week's global glass onion blogpost, right after the routine Fed coverage...

    the major macroeconomic report out this week was the advance estimate of the 1st quarter GDP from the BEA; you may recall these quarterly reports are revised twice in the months following the first take, often by quite a bit, & then even later in annual revisions, but it's the less accurate first estimate that garners all the headlines & analysis...at any rate, this initial report showed that the “real” gross domestic product -- the country's output of goods and services, adjusted by an inflation "deflator" -- increased at an annual rate of 2.2% in the 1st quarter of this year; the bulk of the increase - about 90% of it - came from increased personal consumption expenditures (PCE); other major positive contributions came from increased private inventories and residential building, which were partly offset by declines in state, local & federal government spending, & nonresidential fixed investment...both imports & exports increased in the quarter, but the net effect of their changes on GDP was negligible...more than half of the PCE contribution came from purchases of durable goods (like cars & appliances); consumer services spending was weakened by decreased utility use in the warmest 1st quarter on record, and despite higher gas prices, spending for fuel subtracted from the quarter's non-durable purchases, as we apparently continued to drive less...in the government sectors, federal spending & investment decreased 5.6% in the 1st quarter, mostly due to decreased defense spending on iraq, which took .46% off the annual GDP increase rate; state & local spending & investment decreased 1.2% and knocked .14% off the gross increase...of the important private investment components, residential investment increased 19% QoQ and added .40% to the annual rate of increase, non-residential investment decreased 2.1% and subtracted .35%, and equipment & software only increased 1.7%, compared with an increase of 7.5% in the 4th quarter, as investment was pulled forward by the expiration of depreciation tax credits...bill mcbride produces an interesting chart of the investment components, included in the upper right corner here; what it shows is a 3 quarter average of the contributions from residential investment (red), non-residential building (blue), and equipment & software (green) to GDP, centered on the middle of the 3 quarters averaged; note that early on in the recovery, that equipment investment anchored GDP growth, but it's now starting to lag as demand has not caught up (recall last week we noted capacity utilization fell to 78.6%)...& if you click on the chart, you should also be able to view the feint dashed line which represents increases or decreases in inventories...

    for the most part, the econo-blogosphere considered this a disappointing report; especially in consideration of the 3.0% annualized growth rate seen in the 4th quarter last year; forecasters had been expecting growth between 2.5% and 2.9%, so it also surprised everyone on the downside…and some – Mish & others – complained the deflator was too small, & that real growth was even less…it’s certainly not a high enough rate of growth to bring unemployment down; economists see a relationship between GDP growth and employment they call “okun’s law”, and though its correspondence is quite inexact, it’s generally believed that it takes 3% GDP growth over a year to bring unemployment down 1%…considering that GDP growth over 2010 just barely averaged over 3%, and last year’s total growth was only 1.7%, we arent doing very well at bring those who dropped out of the labor force back in…and looking ahead, some other reports dont show much promise for the second quarter; March orders for durable goods fell by 4.2%, the largest decline in three years…and confirming the slowdown in manufacturing, all the April regional Fed indexes except Richmond indicated slowing rates of expansion...

    while we're still talking GDP growth, we ought to note that the British economy shrank in the first quarter of 2012, by 0.2%, following a 0.3% fall in their GDP in the final quarter of last year, which according to the formal definition, puts them back into a recession for a second time in this long downturn...so even after two years of conservative austerity, the confidence fairy has failed to materialize…we should also note that the UK, and most eurozone countries, report their growth as quarter over quarter, rather than at an annualized rate such as we do; so if England had reported those two quarters annualized, they'd be shown as contracting at an annual rate over 1.0%; conversely, reporting the US first quarter growth on a quarterly basis would have shown a rate of 0.5%...

    this week also marked the release of the annual reports on the condition of Social Security and Medicare from the trustees for the trust funds, and as we see every year at this time, they’re greeted with typical doom from the media, ie, the funds are going bankrupt even sooner than expected….then we get the typical pushback from the blogosphere that all we have to do to “fix social security” (which implies its broken) would be to eliminate the income cap on which is it is funded (currently only income under $110,100 is taxed)…so let’s calm down & look at what we know; first, social security ran a surplus of more than $69 billion in 2011 and the trust fund increased even with this high rate of unemployment…the social security trust fund still has $2.86 trillion in US treasury bonds (here’s the list) and it can still pay full benefits until 2033, another 21 years…& at today’s low rate of payroll tax collections & life expectancy, it would still be able to pay 75% of benefits thereafter…Medicare funding is good for all needs until 2024, after which it hits a shortfall similar to social security…as Jared Bernstein, former chief economist for Joe Biden points out, the projected end date for social security full benefits has shortened 8 years entirely due to revenue shortfalls caused by the recession; it was reported fully funded till 2041 in the 2008 report…so again we’re facing a problem that virtually disappears if we get back to full employment…and coberly at angry bear further cites a CBO report that shows increasing payroll taxes just 40 cents per week each year will pay for the whole "shortfall” until 2083; obviously, the same increase in funding could be achieved by raising the minimum wage, and hence the contributions of roughly 25% of the workforce, without even increasing the payroll tax…but what’s even crazier about this entire hullaballoo is that’s predicated on economic projections 20 years and more into the future…who could have predicted today’s economic conditions even 5 years ago, in 2007?….so maybe we should just give the future a rest until it gets here…
    New Home Sales
    there were a number of housing reports this week, including the february case-shiller price index...but lets start with the preliminary report on March new home sales from the census bureau, which like most reports from census, is derived from a small sampling and is subject to later revisions...the headline was that new home sales decreased 7.1% (±20.7%) in March to a seasonally adjusted annual rate of 328,000 units, but that decline resulted entirely from a revision of february's sales to 353,000 units, now reported as an increase of 7.3% from january, which had previously been reported as a decline of 1.6% from the revised january figure...nonetheless, march sales were still 7.5% (±19.6%) above the march 2011 estimate of 305,000, so we do seem to be inching out of a trough that was unmatched in depth & severity (see graph)..the median sales price of the new houses sold was $234,500; the average sales price was $291,200…the estimated seasonally adjusted 144,000 new homes remaining on the market amounted to a 5.3 month supply at the current sale rate...the combined total of completed inventory and new homes under construction is now at the lowest level since census has kept these records....

    according to the february S&P/case-shiller home price index, house prices for both of their composite indexes and nine of the 20 cities they cover hit new lows in february, with both indexes showing an 0.8% decline from the january 3 month report and annual declines of 3.6% and 3.5% for the 10- and 20-city composites, respectively…prices dropped month over month in 16 of the 20 cities the index tracks, with the worst declines being in Atlanta, Chicago and Cleveland; again, prices rose in the hard hit sun-belt cities of Phoenix, San Diego and Miami…the 10 city index is now off 34.2% from its bubble high, and the 20 city composite is off 33.9% from their home price peak…in addition to case-shiller, several other home price indexes have also reported recently; last Friday, FNC, who only reports on non-distressed residences, reported February prices were down 0.8% for the month, a seventh consecutive month-to-month decline, and 3% for the year…on the same day case shiller reported, the FHFA (Federal Housing Finance Agency) reported their price index up 0.3% for the month of February on a seasonally adjusted basis, with a 0.4% increase year over year, the first year over year gain for their index since july 2007; FHFA’s index only includes loans backed by Fannie and Freddie and it’s now 19.4% below it’s 2007 peak...RadarLogic reports an unadjusted 25 city price index based on prices paid per square foot; it showed february prices increasing 1.9% over january but down 3.19% year over year...CoreLogic reports a 3 month repeat sales index similar to case-shiller, but weighted heavier for recent months; they also showed February home prices to have declined by 0.8 percent compared to January, the seventh consecutive monthly decline; they report a 2.0% year-over-year decline for their february index…excluding distressed sales, their month-over-month prices increased 0.7% in february from january, with a year over year decline of only 0.8%…others are getting into the home price reporting as well...according to the NAR (realtors) the median sales price of an existing home increased to $163,800 in March from $155,600 in February...& trulia initiated a home asking price index this month, which showed asking prices in march were up 0.9% after rising 0.6% in february…whether it's spring fever or what, there were more optimistic home price forecasts this week than i've seen all year; everyone is saying prices have bottomed and its time to buy; even the normally reserved bill mcbride got on the bandwagon...but we'd be wise to heed economist Robert Shiller, who's probably studied home price trends more than anyone, & who believes there will be no housing rebound for a generation...

    RealtyTrac was out with it’s first quarter report on foreclosure activity, which showed it had increased in 26 of the 50 large metro areas they reported on, with Pittsburgh showing the largest increase at 49 percent; generally, foreclosure activity was up in states with a foreclosure judicial process, & down in states where court action is unnecessary for banks to repossess a home…LPS (Lender Processing Services) was also out with their “First Look” for March, which gives preliminary details on delinquent mortgage loans and homes currently in foreclosure; LPS reported the mortgage delinquency rate declined to 7.09% from 7.57% in February, which was the lowest delinquency rate since August of 2008; they also reported 2,060,000 homes in the foreclosure process, representing 4.15% of all homes with mortgages, a number only slightly down from the 2,222,000 in foreclosure last year at this time…a separate report from LPS showed short sales (wherein the homeowner sells the house on behalf of the bank for less than the mortgage) accounted for 23.9% of January home sales, compared with 19.7% for foreclosures, which was a 33% increase in short sales over a year ago; the bank servicers are encouraging short sales in lieu of foreclosure because they usually sell for more, the banks dont get saddled with upkeep of foreclosed properties, and by negotiating such a deal with the homeowner, they dont have to produce the paperwork to prove their right to foreclose in court…

    (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, April 22, 2012

    march housing, industrial production, retail sales, et al, week ended April 21st

    FRED Graphexcept for March retail sales, which came in at what was likely a warm weather induced 0.8% month over month gain, the economic reports this week indicated surprising weakness in several sectors, such that a handful of articles appeared wondering if we may be into another spring swoon, like we had last year and the spring before that...one of the points of concern was another week of rising first-time unemployment claims, including the revision of last week's claims to the largest jump in a year...this has been an historically volatile metric which is given far too much attention, and is invariably revised upwards the when the report is released the following week, and, as the entire increase in these recent reports was as the result of seasonal adjustments, it's hard to see why so much is being read into it...taking a long view of the 4 week moving average of initial claims, as you see on the adjacent chart, it's clear that it takes years after a recession (grey bars) for layoffs to stabilize at a lower level, and jobless claims are still falling at a faster rate this time around than they have in the past...our persistent unemployment problem, then, is not so much from new job losses, but rather from the lack of new job formation…

    this week’s housing reports were probably the source of the greatest concern; according to the census bureau, housing starts for March came in at a seasonally adjusted annual rate of 654,000, which was 5.8% below what was estimated for february, although census itself gives the 90% confidence level on that as (±15.6%); most of the decline came in starts of structures with 5 or more units, which fell 19.8% from february’s annual rate; single family starts were virtually unchanged…since housing starts in january and february were also down and we’re now at the lowest level of starts since october, there’s no way we can blame the decline in starts on seasonal construction pulled forward by the warmer than normal winter…however, the same report indicated a 4.5% increase in new building permits authorized, which was skewed heavily towards multifamily units, so we should see a reversal of the decline going forward…the other housing report this week was of existing home sales for march from the National Association of Realtors, and they also skidded for the third time in four months to a seasonally adjusted annual rate of 4.48 million home sales, which was 2.6% below february level…distressed homes, which includes foreclosures and short sales, accounted for 29% of March sales, a decline from the 34 percent distressed that made up february’s sales; first time home buyers accounted for 33% of the transactions, up from 32% in february but unchanged from last year…and all-cash transactions accounted for 32% of sales, with those classified as investors buying 21% of the houses sold in march

    another March report we had this week was Industrial production and Capacity Utilization from the Fed, but the internals of this report werent as bad as they may have looked on the surface; for the 2nd month in a row, industrial production was unchanged on a seasonally adjusted basis, however, it rose 5.4% on a quarter over quarter annual rate for the first three months of this year; also, although manufacturing was down 0.2% for march, it was still up at a 10.4% annualized rate for the quarter; however, the output of utilities dropped at an annual rate of 13.8% for the quarter, largely because of the record warm winter, even though march utility output was up 1.5% on a month over month adjusted rate (could that be abnormal A/C usage in march?)…& output of mining fell 5.4%, which was more than likely related to declining use of coal…overall capacity utilization, which you can think of as the percentage of the total installed industrial base in use, declined in march from 78.7% to 78.6%, which was still 2.1% above its level from a year earlier…this week also saw the release of the first two April regional manufacturing surveys from the NY & Philly Feds; both showed continued expansion, albeit at a more subdued pace; the overall empire state manufacturing index fell to 6.56 from 20.21 in march (wherein positive readings indicate expansion), and the Philly Fed index fell to 8.5, from a previous reading of 12.5…
    Click to View

    we'll also take a brief look at March retail sales, also from census (pdf); first note that this is a seasonally adjusted advance estimate of retail and food services sales, not adjusted for price changes; as reported, March sales were at $411.1 billion, an increase of 0.8% (±0.5%) from february and 6.5% (±0.7%) above March of last year; february’s estimated sales were also revised to a gain of 1.0%, from the originally reported 1.1% …leading sales in march were building materials & garden supplies, which were up an adjusted 3.0%, gasoline, autos & home furnishings, all up 1.1%, & electronics, up 1.0%…excluding autos, gas, and home supplies, the so-called core sales rose 0.5%…overall, not an unexpected bounce which occurred over the past two warmer than normal months…however, the day after the release, there was a bit of a flap in some corners of the blogosphere, when the report came under attack by Charles Biderman, CEO of TrimTabs, which provides payroll data and and alternate unemployment estimate… his primary objection was that the media reported these numbers as gospel, whereas they came from a subsample of mailed questionnaires sent to about 5000 retail firms a month, which had to be filled in manually by those firms and then mailed back through the postal service…(see the bottom of page 3 for the census description of their methods)…it’s a legitimate gripe, because so much of the small sample government data is reported as is without explanation; but the alternative becomes including a caveat and a (±%) for nearly every number, which would  make reports on it virtually impossible to read…doug short @ advisor perspectives charts retail sales using the census data with a number of different screens, including adjustments for population growth & inflation in the cost of goods; of his charts, the one included here is for real, inflation & population-adjusted retail sales excluding gasoline…if you click on that chart for a larger view, you can see that by that metric, retail sales are still 8.1% below the january 2006 peak, and at the same level as they were in november 1998…

    as you all know, rising gasoline prices have become a political football, with congressional republicans blaming them on the administration's offshore drilling restrictions and the delay of the keystone pipeline; this week Obama tried to shift the blame to energy speculators, who he claimed were manipulating prices by buying up paper oil contracts & hence gouging consumers; in a speech on tuesday, he asked congress to impose civil and criminal penalties on the speculators involved in manipulative practices & asked for more funding for the CFTC's Division of Enforcement…that kicked off a debate in the media and the blogosphere as to whether a ban on oil speculation would have any effect, which is a question we’ve addressed in considerable detail previously; so to recap, those who blame oil speculators for driving up the price of oil often cite the large number of outstanding oil futures contracts as evidence of manipulation; a recent NYT op-ed pointed out that such “paper oil” was more than ten times what existed as physical oil; but as i’ve pointed out, for every long contract, there has to be a short; which means that someone had to have written a contract to sell that imaginary oil to those speculators who were buying it; for every buyer there’s a seller, which means at any point in time, there are an equal number of speculators betting that the price will go down as are betting that the price will go up...sure, it’s just a casino, and prices can be manipulated in the short term by big players to screw the little fish, but over time the bets even out and dont significantly impact prices on the street…as economist jim hamilton pointed out this week, more than 12 times “paper natural gas” was being traded daily than what was being produced, yet adjusted for inflation, natural gas prices were at an all time low….clearly what has driven oil prices up now are the threats associated with the embargo we’ve placed on iran; that has made speculators reluctant to bet on prices going down, despite our more than adequate current supplies...

    obama's buffett rule, which we discussed last week, fell nine votes short of the 60 votes needed to advance in the Senate, largely on a partisan vote, so 'making millionaires pay their fair share' will become the campaign issue it was intended to be from the beginning...meanwhile, in the House, majority leader eric cantor has come out in favor of hiking taxies on the poor, to make sure those with little to start with have "skin in the game"…and both houses of congress continued to develop their budget plans for fiscal 2013 this week, and not unsurprisingly, the House paid no attention to what the Senate was doing and of the need for an eventual reconciliation, as they unilaterally “deemed” their budget, based on the Ryan plan which we’ve mentioned several times, to be reconciled with the Senate so they could start detailed work on it in the 6 committees it would affect...to that end, Republicans on the House Financial Services Committee passed a budget that would cut $35 billion from Dodd-Frank and strip it's resolution authority, or the ability of regulators to orderly liquidate insolvent banks; they also cut the budget for the Consumer Financial Protection Bureau to a mere $200 million for this year and next...and as many of the tea party contingent were unhappy with the depth of cuts to defense made by the budget control act (which came out of the debt ceiling impasse), they targeted a number of domestic programs, including food stamps, for cuts to offset what they intended to replace in defense…and not also not unsurprisingly, obama announced that he wouldnt sign that or any house appropriation bill that violated the agreed budget cuts made by the debt control act…meanwhile, things werent going a whole lot better in the Senate; Democrat Kent Conrad, chair of the Senate Budget Committee, is in the process of resurrecting the bowles-simpson proposals so his committee can put out something that might be bi-partisan enough to eventually be reconciled with the house…you may recall the simpson-bowles deficit commission, which released it's report in Nov of 2010, was widely panned on the left as the "catfood commission" as the cuts to senior programs were thought to be so severe as to leave the elderly eating petfood; everyone considered it impossible & it didnt even pass the vote of the bi-partisan commission at the time, and now we’re seeing it being put forth as a Democratic proposal…& even that isnt going well, as committee republicans are proposing amendments to it such as repeal of health care reform….all for naught, anyhow, because Senate Majority Leader Harry Reid has already said will not be considered by the full Senate…you just cant make this stuff up...

    (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, April 15, 2012

    obama’s buffett rule & alternatives, & other notes on the week ended April 14th

    it was a fairly slow week for economic news, with the two major monthly releases, consumer prices & the trade defict, both showing moderation...and half the country's economists were in Berlin at the INET shindig thrown by george soros, so there werent even the normal number of blog posts arguing about how many angels they could fit on the head of a pin, either...being that it was the second week in april there were quite a number of posts critical of our demented tax system, and likely not coincidentally, obama went on the campaign trail to tout his proposed "buffett rule"...so since we’re getting into the season where there's more hot air than substance, maybe we ought to take a look at exactly what that buffett rule tax proposal is really about...you may recall that the idea for such a "millionaire's tax" originated with its namesake, when warren buffett complained in an op-ed that those as rich as he dont pay their fair share, that under our existing tax structure, warren buffett was actually paying taxes at a lower rate than his secretary; this is, as you probably know, because capital gains are only taxed at 15%, whereas the top rate for earned income is 35%...as it's often reported, the buffett rule would set a 30% minimum tax for those earning more than $1 million; but that's really not quite the way it's written in the bill that's to go before congress next week; there is actually a phase in for amounts over a million, such that, for example, someone making $1,000,010 during the first year of the bill's enactment (2013), their tax on the $1 million annually would be the same as it was previously (less whatever deductions & loopholes were applied), and they'd only pay 30% on the $10 in excess of a million, ie, the buffett rule would raise their entire tax $3...so sure, a handful of the ultra rich such as buffett himself may be "paying their fair share" if this is enacted, but the lion's share of the 1% will escape the "buffett rule" relatively unscathed...and as a source of revenue, to reduce those deficits the politicians think are important, it falls way short too; the buffett rule would generate less than $5 billion a year, or less than the cost of 3 stealth bombers...worse than that, according to plans laid out in Obama's budget, the buffett rule would replace the alternate minimum tax, which has run as a parallel tax to the regular income tax to insure that those earning above a certain threshold (changes yearly) pay at least a minimun flat rate; a recent study by the nonpartisan Tax Policy Center shows that repealing the AMT would cost the government roughly $1.2 trillion in revenues over the next decade; so although obama's plan does shift some of the burden from the moderately rich to the super-rich, it does so at a great cost to overall revenues, and likely whatever programs may fall to the budget cutters in the future...but it does make a good campaign speech...  

      obviously, if we're going to tackle the disparity between what the government receives in tax revenue, and what they spend, we're going to have to get if from something other than a "buffett rule"; the easiest & most obvious would be to let the bush tax cuts finally expire at the end of the year; the ongoing costs of the two tranches of bush tax cuts have been estimated at $135 billion & $35 billion, shown as the dark orange wedge on the adjacent chart, but neither party has been willing to incorporate allowing that into their fiscal platforms, and we're now hearing warnings about the "fiscal cliff" we're heading for at year end, as the combination of legislated spending cuts & expiring tax cuts suck $600 billion out of the economy as it heads into 2013, which suggests the push will be on to have the bush cuts extended…another often mentioned target of tax reformers is the excessive number of tax expenditures in the tax code, which include various credits, deductions, deferrals, exclusions, exemptions, and preferential rates, but are really a back door way of spending through the tax code; the mortgage interest deduction is the most often mentioned, but there’s dozens such, which amounted to $1.18 trillion in fiscal 2011 and around $1.3 trillion this year; another possible source of revenue would be to tax wall street speculation; such a financial-transaction tax would deter short term & high frequency trading & encourage longer term investing, & is not without precedence; a transaction tax was in effect during previous periods in our history before 1966, well before wall street was being run as a parasitic casino with no socially redeeming value; estimates are that a financial-transaction tax would raise more than $150 billion a year

    but there's even a better way than raising taxes and cutting spending to get our fiscal house in order, and that's to get everyone who wants to work back to work...we saw last week that only 58.5% of the population is now employed, compared with 64.6% of us at the peak early in the last decade; just getting back to full employment brings 10% more taxpayers on-stream, and eliminates a number of recession-related government costs, such as unemployment compensation... and if we combine that with raising the minimum wage to $10 (or $12, as james galbratih advocates), which will lift the pay of 28 million of us (who as we've seen cant even afford rent), and likely increase half as many working just above the new minimum whose pay will increase as employers adjust their overall pay scales, we'll be increasing the pay, and hence the taxes paid, of another 15% of the workforce...obviously, 11 million new jobs dont appear overnight, so we must start with a federal job guarantee, which has been widely discussed & promoted by MMT & Minskyite economists; such as australian economist bill mitchell, and the economists at UMKC, who blog at new economic perspectives; Dr Randy Wray has an ongoing series of 45 blogposts there detailing such a program...although i'm not as well versed on the mechanics of it as i should be, we can think in terms of something analogous to FDR's CCC as a starting point, getting work done that the country need done anyhow, such as infrastructure...once everyone's working, a virtuous cycle brings the private sector back in to respond to the increased demand & the federal job program would wind down...& this isnt just a wild idea from a handful of fringe economists, either; even conservative economists brad delong & larry summers have recently collaborated on a paper showing that under current conditions, such expansionary fiscal policy would be self-financing; their paper was reviewed by economists at Brookings & they agreed with their math...and getting everyone back to work and contributing solves a number of other problems as well; if we raise the minimum wage (senator Tom Harkin of iowa, chairman of the labor committee, has already introduced a bill to raise it to $9.80) and return to full employment, both social security and medicare will stop drawing down their trust funds, as they will once again be funded entirely out of payroll cashflow; in addition, once the everyone working at a decent wage, young people will be able to move out of their parent's basements, and those who've doubled up will again be in the market for housing, which will ultimately put a floor under falling real estate prices, and may even save the banks from having to mark those depressed loan assets to market...

    as i mentioned in opening, the BLS released consumer price data for March this week; the consumer price index for urban consumers (CPI-U) increased 0.3% in March on a seasonally adjusted basis, with rising gasoline prices offsetting a decline in household energy prices leading to an 0.9% increase in the energy index; the food index rose 0.2%, led by price increases for meats, poultry, fish, and eggsyear over year headline CPI came in at 2.65%, and the year over year core-CPI (which excludes food & energy) increased 2.26%; this core inflation index was once more important, because it had been used by the Fed in setting monetary policy; however, early this year the Fed switched to using the the annual change in the price index for personal consumption expenditures as its inflation gauge, so this index is now more of interest to consumers…wholesale prices for march were also reported this week, & the producer price index also rose a seasonally adjusted 0.3% over last month’s reading; one third of the increase was attributed to prices for light motor trucks; increased prices for soaps & detergents were also mentioned in the release as driving wholesale prices…the Dept of Commerce also reported the trade deficit for february; exports of $181.2 billion and imports of $227.2 billion resulted in a deficit of $46.0 billion, down from $52.5 billion in january, which was below economists expectations; the decline in imports was a combination of less oil imports and less imports from China, as oil averaged $103.63 per barrel, down a tad from january’s $103.81oil import costs have already been reported to have increased 4.3% in March, so we’re likely to see this trade deficit increase again with the next report…also of note this week, freddie mac reported that the 15 year fixed rate mortgage set a new all-time record low of 3.11%, and the 30 year fixed-rate mortgage came close to a record with an average of 3.88%…interesting, because just a couple weeks ago, after interest rates on long treasuries had risen weekly for about a month, we saw all the inflation & debt bears come out of the woodwork with their typical “they're going to the sky & we’re all gonna die” posts…

    March 2012 Statewide Temperature Ranks Map

    the final returns on our March heatwave came in this week, and needless to say, it was the warmest March in US recorded history, and smashed a plethora of other records as well; over 15,000 high temperature records were set, with 7,755 record high day temps and 7,517 record high overnight lows; at 21 weather stations, the overnight low topped the previous daytime high for the date & location, & high temperature records for the entire country outnumbered lows for the month 35 to 1...NOAA has a day by day animation showing how & where the records were set... temperatures for the month averaged 8.6F degrees above normal over the entire country; in 118 years of weather record keeping, only january 2006 had a greater departure from normal...the 25 states you see in red on the adjacent map from NOAA all set new 118 year high records, additionally, the states on the map indicated in orange had monthly temperatures ranking among their 10 warmest in that 118 year national record; only the three west coast states did not experience a warmer than normal march, with washington alone recording below normal temperatures…this month also capped the warmest, or one of the warmest, winters in US history, depending on how you measure it; the 3 month period ending march was by far the warmest 1st quarter in history, 6F above normal for the quarter, but take out the march heat, and even the december thru february period came in as the 4th warmest winter on record, which followed on the heels of a 2011 summer which was the second warmest on record…& even though april's temperatures to date have been above normal, & record high temperatures for april have been running two to one over lows, the average temperatures over these past two weeks have yet to surpass the highs set during the middle two weeks of march…

    (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…)

    Monday, April 9, 2012

    notes on march unemployment, february’s LPS mortgage monitor, et al, week ended Apr 7th

    FRED Graph  the employment report for March, released this week by the BLS, was worse in its internals than the headline numbers would lead you to believe; the two important metrics, for which we had been seeing progress in over recent months, both retreated on a seasonally adjusted basis: the employment-population ratio, ie, the percentage of us employed, decreased to 58.5% from february's 58.6% (see adjacent graph), & the labor force participation rate, ie, the percentage of the noninstitutional population who meet the criteria to be counted in the BLS stats, decreased to 63.8% in march from february's 63.9%, which is mostly indicative of those gave up looking for work this month...the number of people 'not in the labor force' is now at an all time high of 87,897,000; none of these people are counted in the headline percentages...preliminary numbers from the establishment survey, which you'll recall covers one-third of the country's businesses & government agencies, indicates that 121,000 private non-farm jobs were added in March, with only 1000 government jobs eliminated; revisions of previous reports were a virtual wash; total jobs added in feruary were revised to 240,000 from 227,000, while january was revised to 275,000 from 284,000; amazingly, a number of news media outlets finally noted that there is a large (100,000) margin of error in these reports, with the Economist even producing an alternate report expressing the numbers in a range of possibilities; considering that we thought seasonal adjustments might have produced inflated numbers earlier in the year due to abnormally warm weather, we have to consider the possibility that unwinding seasonality might have weakened this report (and may also weaken next months, since the reference week for this survey was during the March heatwave), but that wasnt apparent in retail, which lost jobs in both february (-29,000) and march (-34,000) on a seasonally adjusted basis, nor construction, which lost 13,000 jobs last month and was unchanged in this report; the strong sectors were manufacturing, which added 37,000 jobs, food services and drinking places, which also added 37,000 (and may have a seasonal component), and health care, which added 26,000 jobs...

    the average workweek for all employees fell by 0.1 hour to 34.5 hours in march, while the manufacturing workweek fell by 0.3 hour to 40.7 hours, with factory overtime unchanged at 3.4 hours...reported average hourly earnings for all payrolls rose by 5 cents to $23.39, bringing the gain since last march to 1.7%, a record YoY low...the adjacent chart from “Behind the Decline in Labor’s Share of Income” by analysts at the Cleveland Fed shows how compensation that workers have received in return for their labor has grown at a much slower rate than the output that they contributed to producing since the year 2000...

    the headline percentage of unemployed fell from 8.3% to 8.2%; you'll recall this comes from the household survey, which is based on a midmonth survey of 60,000 households, about twice as many as gallup surveys...in that household survey, the number of employed fell by 31,000, but the number of unemployed fell even more, by 133,000, as job seekers gave up & hence were no longer counted as unemployed; thus, with 333,000 of the jobless no longer counted in the labor force, the percentage of those counted as unemployed fell...additionally, 7.7 million employed workers were categorized as in part time jobs who said they wanted full time work; this was down from the seasonally adjusted 8.1 million who were so catagorized last month, thus the U-6 unemployment rate dropped sharply to 14.5% from 14.9% in february...of the 12.7 million who still counted as being unemployed, 5.3 million, or 42.5% had been looking for work for over 27 weeks, which is longer than the typical length of state-funded unemployment rations...

    State Unemploymenthowever, because of the improving unemployment rates in several states, Federal extended rations will now be cut off in 15 states; Kansas, Kentucky, Massachusetts. Missouri, Ohio, Oregon, South Carolina, Tennessee and Wisconsin, as of April 7th; and Indiana, Alabama, Delaware, Georgia, Maryland and Washington by April 21st...the BLS reports state and regional unemployment stats in a separate report in the last week of the month following the reference month, so last week we saw the Regional and State Employment and Unemployment Summary for Febraury; month over month, 29 states showed unemployment rate decreases, 8 states showed jobless rate increases, and 13 states and DC had no change; forty-nine states and DC registered unemployment rate decreases from a year earlier, while only new york state experienced an increase, largely due to job losses in new york city, whose unemployment rate increased from 8.8% to 9.6% over the past year...bill mcbride produced the adjacent state unemployment chart from the data from this state summary; the red bars indicate the unemployment rate in each state as of february; the blue bars represents the high water mark for unemployment in the respective state; you can see jobless rates have declined in each state, with only nevada at 12.3%, rhode island at 11.0%, and california at 10.9% still having state unemployment rates above 10% by the BLS methods; north dakota registers the lowest jobless rate at 3.1% due to the oil boom in the bakken shale; unfortunately, the well paid roughnecks & drivers working up there have a shortage of housing, which is something the rest of the country has in surplus...(click on any chart for a larger view)

    before we look at other economic reports from this week, we're going to catch up on what our congresscritters have done been up to over the past couple of weeks, or rather, what theyve failed to do...in shenanigans late last week the House took up a number of budget proposals for fiscal year 2013 and put each to a vote, passing only the ryan budget, which we discussed a couple weeks ago; a hard line faction of conservatives, the "Republican Study Group", introduced a budget which slashed social spending & Medicaid even more severely than the Ryan plan; it was defeated on a 136 to 285 vote; House democrats released their own alternative, by ranking budget committee member Van Hollen, which which would cut programs more slowly than the Republican plan, which failed last Thursday on a 163 to 262 vote, a separate bipartisan group, not having prepared a budget of their own, resurrected the proposals from the simpson-bowles catfood commission to take to the floor as an alternative, but it garnered only their 38 votes, & the progressive caucus budget, which was built around a $2.9 trillion front-loaded stimulus package and a repeal of the Budget Control act, which got 78 votes...additionally, Rep. Mulvaney of S.Carolina introduced a shell of the Obama budget, which was defeated by a 414-0 vote, a tactic designed both to embarrass the president & to shelve his plan for the remainder of the year...the 2013 Ryan budget, which passed on a 228 to 191 vote, with 10 Republicans opposed, slashes long-term mandatory spending to below the discretionary spending targets set by the debt limit deal, reduces taxes for the rich and corporations, changes Medicare to a voucher program, eliminates student Pell grants, and cuts food stamps by $133.5 billion, or 17 percent…
      however, attempts to arrive at a compromise on a comprehensive surface transportation bill failed as the House rejected the Senate version and vice-versa, so they passed another 90 day extension of the 4 year 2005 bill, the 9th such stop gap measure since 2009, which means they'll try again in June or pass a 10th extension…as we’ve mentioned before, without a guarantee that federal funding will stay in place through the life of a project, state & local infrastructure proposals remain shelved

    Delinquency Rateamong the other economic releases we saw this week was the LPS Mortgage Monitor report for February; you'll recall that LPS (Lender Processing Services) interfaces with over 50 of the largest banks & thus provides a good overview of the condition of home loans nationally; as of febraury, 7.57% of mortgage loans were delinquent, down quite a bit from january's 7.97%, and down from 8.80% in february 2011; of the delinquent loans, 2,059,000 loans were less than 90 days delinquent, and 1,722,000 loans were over 90 days delinquent; in addition, 2,065,000 loans were in the foreclosure process, or 4.13% of mortgages nationally, little changed from the levels of january or february last year; both foreclosure starts & completions declined in february after rising in january, with completed foreclosures down 22% in judicial states & 19% overall; the chart that's included here from page 3 of the 30 page PDF shows both delinquencies & foreclosures as a percentage of active loans since 1995; you can see the declining in the number of new delinquencies has resumed after a rough year last year; as this report is for february, we are not yet seeing an increase in the number of completed foreclosures expected as a result of the administration's mortgage fraud whitewash...nationally, what LPS calls the "foreclosure pipeline ratio" is at 84 months for judicial states, compared to 33 months in non-judicial states; what that means is at the current rate that foreclosures are being completed, it will take 6 years for the backlog to clear in judicial states, and almost 3 years even where court action is unnecessary; the states with the largest backlog of homes in the foreclosure process continued to be New York and New Jersey, where backlogs remain at 846 and 772 months respectively (ie, over 60 years for both; see p 17 of pdf for the foreclosure pipeline bar graph)... only 1.9% of the homes in foreclosure in judicial states were completed in february, compared with 6.82% in states where a court action is unnecessary (see p 12 of pdf)...p 5 of the pdf provides a table of percentage of non-current loans by state, if you want to check yours, as of february, loans in florida were still in the worst shape, with 22.1% of homeowners not paying on their mortgages...also note that CoreLogic reported its house price index for February this week; recall last week’s case shiller index was for january; according to CoreLogic, february’s home prices declined by 0.8% compared to January, and were 2% lower than february 2011; these prices are at a post bubble low for CoreLogic, which is a weighted average of the previous three months and not seasonally adjusted…Moody’s Analytics forecasts that sales of repossessed properties will probably will rise 25 percent this year in the wake of the foreclosure fraud settlement, which they expect will reduce US housing prices by another 10%

    other than employment, the two ISM (Institute for Supply Management) reports were the major economic releases this week; for the March ISM manufacturing index, the PMI (purchasing managers index) rose 1 percent to 53.4%, indicating accelerating expansion (over 50 is expansion); the production index was up 3% to 58.3%, and 15 of the 18 industries reported overall growth…the March ISM non-manufacturing index was at 56.0%, down from 57.3% in february, indicating slower expansion; the employment component  increased in March to 56.7%, up from 55.7% in february, while the new orders index decreased by 2.4% to 58.8 percent…census also released Manufacturers' Shipments, Inventories, and Orders for Febraury, typically called factory orders by the press, this covers both durable and non-durable manufacturing orders; new orders were reported to have increased 1.3% from January…we also had an estimate from Autodata of light vehicle sales, as reported, they were at a 14.37 million seasonally adjusted annual rate; this was down from the post recession high over 15 million in february, which you might recall we speculated might have been caused by abnormally warm weather spiking the seasonal adjustment; we’ll have to wait for april on a number of these seasonally adjusted reports to get a clearer picture of how much demand was pulled forward by the weather…& lastly, we’ll note the consumer credit report for febraury; you’ll recall we’ve watched this rather closely over the last 3 months as record near double digit increases in borrowing, mostly for student loans, were being reported; this month, seasonally adjusted borrowing moderated to an overall 4.2% increase, with a 3.3% decline in revolving credit, offset by a 7.7% increase in non-revolving credit, which was mostly driven by car and student loans....

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    (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…)