Monday, May 28, 2012

april home sales & durable goods, the fiscal cliff, major world PMIs, et al

     the "fiscal cliff", aka Taxmageddon, which we will face at year end if all the tax cuts & budget constraints as they are now written into law go into effect as scheduled, became a widely reported & discussed topic this week, probably because the Congressional Budget Office released an analysis of what effects they expected the already legislated policy to have on next year's economy should they all occur without further congressional action; basically, both the bush-obama tax cuts, which largely benefit the wealthiest portion of the population, and the 2% payroll tax cut, which everyone has been seeing in their paycheck over the past year, will expire at the end of this year, federal unemployment rations will end, and the first tranche of across the board spending cuts which were written into law in last years budget control act will be enforced...add to that the dozens of annually renewed tax breaks which we've discussed before, such as the "doc fix", the effects of an election year on the ability of congress to compromise on or accomplish anything & the likelihood that the debt ceiling will again be reached during that lame duck period when some lawmakers are more interested in finding a new feathered abode to nest in rather than to mind the country's business, and you can see we're approaching another critical period where the future economic well being of the country is at stake...according to the CBO's projections, under current law, the GDP for 2013 will be reduced to 0.5%, as compared to what would have otherwise been a robust growth rate of 4.4%; most of the hit will come in the first half,  with the economy projected to contract at an annual rate of 1.3% over the first two quarters before returning to growth during the last half of the year; this contrasts what would otherwise be a growth rate of 5.3% in the first half...this would put us back into an official recession, since two quarters of negative growth is the definition of recession...as mentioned previously, the CBO hasnt been the only one warning about the dangers of the current law; damage estimates run from 3% from Moody's Mark Zandi to 5% from analysts at morgan stanley...included here to the upper right is an updated chart from goldman sachs, much like we've used before to elucidate economic impacts of government policy...the dark grey bars show the effect of federal cuts (or stimulus) on GDP by quarter since 2009; the light grey bar portions are the impact of state & local cuts, & the black line is the overall is the overall impact; if you click on it you'll see the last part of the graph is projections for 2013 with three scenarios; the dashed line represents what goldman believes would be the impact on GDP of everything expiring as legislated; the blue line represents the minor government impact if everything now in effect is extended another year, and the black line is goldman's assumption, that the bush tax cuts will be extended, the payroll tax cut expires, unemployment comp is cut in half, & the sequestered spending cuts do not occur...currently, the proposal on the table from the obama administration is to eliminate the bush tax cuts on those making more than $250,000; however, this week nancy pelosi broke with the administration in attempt to compromise with the tea party contingent in the house, and set the bar higher, at incomes over $1 million, which would leave the tax cuts in place for most members of congress...although the first vote likely wont occur till later this summer, indications are that harry reid in the Senate also leans in this direction...the sequestered spending cuts are also in trouble, since by law half of them are to come out of defense; the House has already passed a bloated defense authorization bill (with support of 77 democrats) which included $8 billion more in defense spending than the debt limit bill called for, and also included a star-wars-like east coast missile shield, which obama has threatened to veto...

    New Home Sales, NSAof the several economic reports released this week, there were a handful that related to housing, including reports on both new homes sales and sales of previously occupied homes; both showed modest increases...in a joint release by census & HUD (pdf), sales of new single-family houses in April were reported at a seasonally adjusted annual rate of 343,000, which was 3.3% (±12.3%)* above the revised March rate of 332,000 and 9.9% (±14.7%) above the estimate of 312,000 new homes reportedly sold in april last year; the median sales price was reported as $235,700; the average sales price was $282,600; the seasonally adjusted inventory of new homes on the market in various stages of completion was 146,000, or just over a 5 month supply at the current rate of sales...although this sales pace is still only about half of the historical average, sales have averaged around a 340,000 annual rate over the past five months, after a year and a half at a 300,000 annual rate, so it appears that the worst is over...the adjacent graph from bill mcbride shows new home sales since 2005 without the seasonal adjustment; red is this year's sales, blues & green are 2005 thru 2007, while pink, yellow & orange are the past three years; you might note higher than trend sales for march & april 2010 (yellow) - as this was likely the effect of the tax credit, it may have skewed the seasonal adjustment for those months this year, such that they'd be underreported; if that's right, we might see a statistical rebound when May sales are reported...
      the existing homes sales report for April comes from the NAR (National Association of Realtors); total existing-home sales increased to a seasonally adjusted annual rate of 4.62 million homes in April, a 3.4% increase over the revised 4.47 million sold in march, which had originally been reported as 4.48 million; this was the first home sales increase in 3 months, and the 2nd in the past five, so it doesnt appear that the warm winter/spring helped home sales that much; nonetheless, this april's sales are still 10% higher than the 4.20 million-unit sales reported in April 2011; the mix of homes sold has been changing as well, as only 28% of those sold were foreclosures or short sales sold at deep discounts, compared to the 37% distressed sales share in april of last year; hence the NAR was able to report that the national median existing-home price jumped to $177,400, up 10.1% from a year ago...in a normal market, we would expect slightly higher prices in the spring, but the excitement is a bit overdone…with fixed rate mortgage rates again hitting record lows3.78% for the 30 year and 3.04% for the 15 year, understand that even at higher sales prices, home buyers are still committing to a lower monthly payments than were home buyers last year when rates were higher; FNC, a real estate appraiser, released their home price indexes for March this week; their national index was up 0.5% over february; their 3 other MSA indexes each showed an 0.8% gain; with their ‘Composite 100’ index down 2.4% from March 2011; the FHFA (Federal Housing Finance Agency) also released several price indexes; their 1st quarter price index based on Fannie and Freddie loans only showed a 0.6% increase over the 4th quarter, and a 0.5% gain over last year’s first quarter, the first YoY increase they’ve seen since 2007; their expanded index, which includes non GSE loans, showed a 1.3% year over year decline, less than the 3.0% YoY decline they reported in the 4th quarter, Zillow’s April report showed that home prices increased 0.7% to $147,300 from March to April, but they were still down 1.8% from a year ago; and Trulia’s price monitor, covering the largest 100 metro areas, found that asking prices nationally rose 0.2% year-over-year and 1.9% quarter-over-quarter in April…case shiller releases their indices next week, so we’ll take a closer look at other home price reports then…we should also get a closer look at the distressed mortgage situation next week as well; this week LPS released their First Look report for April, and ominously, the number of homeowners who had fallen behind on their house payments rose slightly, for the first time in months, possibly boding another period without improvement such as we saw last year

    Click to Viewwe also another report from the census bureau this week, on new orders for durable goods in april; at a slim gain of only $0.3 billion or 0.2% to $215.5 billion, this report compounded the weakness of the 3.7% retreat seen in March's report; since either the heavy weighting of transport equipment could defense goods in this report tend to make overall durable goods more volatile as those components change, census also reports orders without each; excluding transportation, new orders decreased 0.6%; excluding defense, new orders increased 1.2%; so this report was carried by increases of orders of transport components, & especially by orders of new motor vehicles and parts, which increased $2.3 billion...this report followed and was based on benchmark revisions as previously outlined by census (pdf) which doesnt really effect the month to month comparisons, but gives us an entirely different picture of orders for durables as they have changed throughout the recession; fortunately, doug short has included a graph of durable goods orders both before and after the revision in his report on the benchmark changes, so we can see what happened without getting too bogged down in the numbers; red are the monthly reports before the revisions; blue is the revised reports; if you click on the adjacent chart you can further see in the insert that the depth of the decline, originally reported to be 39.3%, was really 42.0% from the peak, and the recovery from the worst month to the present is now 52.0%, whereas before the revision it appeared to be only 36.3%…doug short further points out and graphs that the lion’s share of the revision was in orders for transport equipment and reminds us that these revisions call into question other previously reported national accounts data, most obviously the reports on the GDP throughout the recession…

    two more of the Fed regions reported on manufacturing activity this week; among manufacturers in the central Atlantic region, the Richmond Fed reported a slowing expansion, with the general-business index falling to 4 in May from 14 in April and all the subindexes also deteriorating; on the other hand, the Kansas City Fed’s manufacturing index rebounded from a weak report last month, with their month-over-month composite index at 9 in May, up from 3 in April (recall for these reports that any positive numbers are still expansionary)….a new US manufacturing gauge from Markit also reported that US factory activity is slowing in May; their “flash PMI” dropped to 53.9 in May from 56.0 in April, which is a three month low; for these PMIs, over 50 is expansion, under 50 is contraction…although the ISM PMIs are the most widely followed activity indicators in the US, the Markit reports are most often used in tracking economic activity in europe, and they also reported on economic activity in the eurozone this week; the german May composite showed contraction at 49.6; their manufacturing PMI for May fell to 45.0, from 46.2 in April, a 35 month low, and their services activity remaining unchanged at 52.2; the flash French composite index dropped to 44.7 from 45.9 in April, which is a 37 month low; their manufacturing PMI fell to 44.4 from 46.9 in April, a 36-month low, while their services also remained unchanged at 45.2…so it doesnt look like punishing their customers is working out too good for france or germany; the overall eurozone PMI May composite index came in at 45.9, down from 46.7 in April, a 35-month low; the flash PMI for eurozone manufacturing activity was at 45.0, down from 45.9 in April, also a 35 month low, while eurozone services were at 46.5, a 7 month low…we also saw a widely followed survey of Chinese manufacturing activity this week; the preliminary reading of the Chinese manufacturing PMI from HSBC showed their activity fell to 48.7 in May from 49.3 in April; this was the 6th month of contraction in china, and there are reports that chinese buyers are defaulting on commodity shipments, mostly coal and iron ore, as prices of those industrial commodities are collapsing; India’s growth is slowing as well, with a 3.5 percent YoY contraction reported in March industrial production; it seems that outside of the US, the only positive report was from Japan, where April exports to the US surged 42.9%, the 6th consecutive monthly gain; this of course was led by autos, which were up 317.1% from the depressed levels of last year, caused by disruptions resulting from the earthquake & tsunami….

    i'm going to include one last chart here, since we discussed the bank runs in greece and spain last week; the adjacent widely republished chart originated with a financial times article "The anatomy of the eurozone bank run" - what we see here, in this graph of imbalances on the ECB’s balance sheet, is the picture of a significant number of bank accounts being moved from spanish, italian, greek, irish and portuguese banks, with most ending up in german banks; this isnt because they believe their banks are about to fail; rather it's the threat of their country leaving the euro and having their funds redenominated in their own devalued currency (ie, lira, drachma) that is causing the flight; note that there was considerable flight from ireland (pink) as early as 2009; but when the irish economy later stabilized, most of those funds returned...


    (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…)

    Wednesday, May 23, 2012

    the "fuck-it" point



    [The Fuck-It Point]: When you have had enough. When you decide to take matter into your own hands and don’t care what’s going to happen to you. When you know that from now on you will resist with whatever tactic you think is most effective.

    A film about the dark side of civilization, why we should bring it down and why most civilized people don’t.

    Sunday, May 20, 2012

    april retail sales, industrial production, housing reports & other notes on the week ended May 19th

    the newscycle in the economic blogosphere this week was fairly dominated by coverage & opinion on two stories, one being the massive losses by the london office of JP Morgan Chase, the other being another crisis flareup in europe, with the increasing probability of Greece leaving or being forced out of the eurozone after their divisive elections in which the anti-austerity candidates captured a majority; initial reports on the JP Morgan loss, starting with CEO Jamie Dimon's disclosure of it after hours on thursday the 10th, were of a loss of $2 billion on complex credit derivatives which had been intended to hedge the company's entire position in europe, but more recent reports put the number closer to $5 billion...since the london investment office oversees a position of some $70 trillion of derivatives (more than 4 times US GDP), the potential for systemic risk is huge, so we should stay tuned to developments here..as Jamie Dimon had been spearheading the efforts to eviscerate Dodd-Frank and especially the Volcker rule (Dimon had actually referred to Paul Volcker as "infantile"), the opposition to financial regulation has lost its spokesman, so there were renewed calls from all corners of the blogosphere and even some Fed presidents to break up the big banks and end "Too Big To Fail"...and even timmy geithner has suggested that jamie dimon should resign from the board of the NY Fed...

       what has happened this past week in europe was precipitated by the elections two weeks ago sunday in greece (& to a lesser extent in France, where merkel's yes-man sarkozy was dumped)...over a period of nine days, each of the top four vote getters in the greek election attempted to form a government, and each of them failed to do so (there were at least 7 parties which garnered enough votes to seat members in the greek parliament, but none had as much as 25% of the popular vote)...so a temporary cabinet was appointed, & new elections will be held on June 17th, with Alexis Tsipras, the leftist anti austerity Syriza party leader, now apparently leading in the polls, & he's promised to throw the previous agreements with the troika in the trash, so there's an assumption on both sides & in the financial press that greece will ultimately exit the eurozone (such that it's widely been dubbed the "grexit")...facing a return to the drachma, there's been a slow run on the greek banks, (~€700m per day) which also spread to spain, where the 2nd largest spanish bank also experienced heavy withdrawals...interest rates in italy & spain are back to the crisis levels of december, and the threat of contagion has led Moody's to downgrade 21 Spanish banks and 26 Italian banks...but if you're interested at all in a play-by play what has transpired in europe, it would probably be easiest to check last  80 or so linked paragraphs at the end of this week's globalglassonion...

    Total Housing Starts and Single Family Housing Startsmost of the economic reports released this week were fairly respectable; both housing starts and industrial production saw decent increases, and although april retail sales only gained 0.1% MoM on a seasonally adjusted basis, that had followed earlier monthly increases of 0.7% in march and 1.0% in february, as warmer weather in those months skewed the seasonal adjustments in their favor...there were a few housing related reports, so we'll begin by looking at housing starts, as new houses have a disproportionate influence on other related economic activity (ie., services, furnishings)...the report from the census bureau (pdf) covers all phases of home construction, from permits to completions; however, it has a very wide margin of error, so we'll quote that range as well: housing starts in April were reported at a seasonally adjusted annual rate of 717,000, which was "2.6 percent (±14.8%) above the revised March estimate of 699,000 and 29.9 percent (±15.2%) above the revised April 2011 rate of 552,000; as march starts were revised from 654,000, the increase from previously reported monthly figure was 9.6%, which is quite jump on a monthly basis, but we are coming out of a long & deep trough (red in the adjacent chart from calculated risk) so we have quite a bit of ground to make up to get back to normal; the blue on the graph is single family home starts, which at a seasonally adjusted annual rate of 492,000 in april; the remainder of 158,000 are the number of units in structures started with more than one unit; you can see from the spread that a lot of the recent increase is of multi-family dwellings...building permits were reported at an adjusted annual rate of 715,000, which was “7.0 percent (±1.0%) below the revised March rate of 769,000, but 23.7 percent (±1.9%) above the revised April 2011 estimate of 578,000"....the fall in building permits issued was from a 3½ year high in March, and with the seasonal adjustment & margin of error it's hard to make much of it... in another housing report, RealtyTrac reported foreclosure activity for april, which showed that 188,780 foreclosure filings were reported during the month, which was 5% less than March, 14% less than a year ago, & the lowest monthly total since July 2007...realtytrac attributes the decline to "sizable decreases in non-judicial foreclosure states (which had) more efficiently processed foreclosures last year", whereas they note a rise in the number of foreclosures in judicial states...the chart to the left below is from RealtyTrac via zero hedge…blue are default notices preliminary to foreclosure, monthly since Jan 09; green are bank repossessions, also in thousands, and red are foreclosure auctions, which is the number of homes filed in court for a foreclosure auction sale; note that foreclosure actions were running at a rate of 330,000 per month before the systemic servicer fraud was exposed; after the scandal broke, foreclosures dropped to a 224,000 per month average, as banks virtually halted activity in states where activist courts were watching… note also that zero hedge complains that “the foreclosure process has ground to a halt”, because “a deadbeat can occupy a home without payment for an average of 31 months”; however, as we’ve pointed out before, the foreclosure fraud settlement was just signed off on on April 5th, so it’s too soon to judge its impact, and RealtyTrac does indicate a rise in foreclosures in judicial states in april…

    MBA In-foreclosure by statethis week also saw another report which tracks the delinquency & foreclosure condition of US mortgages, the first quarter MBA delinquency survey; MBA (Mortgage Bankers Assn) covers essential the same area as the LPS mortgage monitor which we've covered for a while (ie, see March, a few weeks ago) but the numbers of both delinquencies & those in foreclosure are a bit higher here, possibly because of the time frame (entire quarter), possibly seasonal (a number of homeowners stop paying on their mortgage at christmas but catch up by March) or maybe because this MBA report covers other residential properties of under four-units; at any rate, the MBA reported that 11.79% of mortgage loans were either delinquent or in the foreclosure process in the 1st quarter on a seasonally adjusted basis, which was down from 11.96% in the 4th quarter of 2011, and that's now the lowest number of homeowners in trouble since late 2008; of that, the serious delinquency rate, or the percentage of loans more than 90 days past due (including those in foreclosure) was 7.44%, down from 7.73% in the 4th quarter of last year...foreclosure actions were started on 0.96% of all mortgages in the first quarter, compared with 0.99% of loans which had foreclosure actions start in the 4th quarter last year...the greatest improvement was in new delinquencies, those one payment past due at the end of the quarter, which were at their lowest level since mid 2007; this contributed to the largest quarter-to-quarter drop in delinquencies in history of the MBA survey (on an unadjusted basis); improvement was widespread: only four states (Maryland, Delaware, New Jersey and Washington) experienced increases in their serious 90 day delinquency rates, while 41 states had decreases in foreclosure starts and 22 states had decreases in the percentage of loans in foreclosure...the graph included to the right is from the MBA via calculated risk; it shows the percentage of loans in the foreclosure process by state, and has somewhat different totals than the similar LPS table (on page 9 of the March LPS pdf) the top states shown here are Florida (14.31% in foreclosure), New Jersey (8.37%), Illinois (7.46%), Nevada (6.47%), and New York (6.17%); the corresponding totals from the March LPS mortgage monitor were Florida (14.0%), New Jersey (7.7%), Illinois (7.1%), Nevada (5.3%), and New York (5.9%)...note the dark grey bars represent those states with a judicial foreclosure process, the light grey bars being those where court action is unnecessary for foreclosure, and that such states which have had high numbers of foreclosures, like california and arizona, have been, as RealtyTrac would put it, "more efficient" at throwing people out of their homes...

    Click to Viewthe retail sales report for april from the census bureau  is also important, if only because personal consumption expenditures still make up about 70% of our GDP; as noted earlier, retail sales were up 0.1% from March to April on a seasonally adjusted basis; census reports this as 6.4 percent (±0.7%) above April a year ago, and also that total sales for the february through april period were up 6.6% (±0.5%) from the same period a year ago, after sales for March were revised down to a 0.7% increase from the 1st reported 0.8%, and February was revised down to 1.0% from 1.1%...sales ex-gasoline were up 0.2%, as gasoline prices declined 2.6% for the month; sales ex-autos were up 0.1%.. illustrative of the distortions due to the seasonal adjustment, census reports seasonal adjusted garden & building center sales at $25,147,000 in april, down from $25,598,000 in march, while the actual unadjusted totals were $27,703,000 in april and $25,323,000 in march, both of which were roughly 10% above the total for the same category a year earlier...doug short covers retail sales with a series of monthly charts; the one included here has four parallel 20 year charts; the top one in red is nominal retail sales as reported; they're up 148.7% over the period; next is adjusted for population growth, reducing the increase to 102.4%; then light blue is adjusted for inflation, showing a 20 year increase of 50.1%, and the lowest graph adjusts for both population & price inflation, which reduces the total real growth in retail sales per capita to 22.1%, or roughly 1% compounded annually...in a somewhat related report, the BLS released the consumer price index for april this week, which showed consumer inflation (CPI-U) unchanged from march on a seasonally adjusted basis; this was largely because the gasoline component of the index fell by 2.6% after rising in each previous months this year, as gasoline price increases have more than offset price decreases in natural gas in the energy index; the index for all items less food and energy (core CPI) rose 0.2% in april, the same as in March, and both the core CPI and the total index were up 2.3% year over year...

    the other major economic report out this week was Industrial production and Capacity Utilization for April from the Fed; industrial production was up a solid 1.1% in April—the biggest monthly rise since december 2010; previous months which had been reported unchanged were revised to a decrease of 0.6% in March and and increase of 0.4 percent in February; again, there’s a seasonal component; the output of utilities was up 4.5% in april after seasonal adjustments had reduced reported output for the previous months; on an annual basis, industrial production increased by 5.2%; the largest annual increases came from business equipment (up 12%), motor vehicles and parts (up 27.1%) and manufacturing (5.8%)capacity utilization increased to 79.2%, which is now 3.1% above the utilization of plant and equipment we saw a year agomotor vehicle assemblies of 10.67 million units in april were the highest since August 2007; the only caveat to that is that there’s a large inventory on dealer lots; GM, for instance, reports a 79 day supply of cars and a 121 day supply of full sized pickups…we also have received the first two regional manufacturing reports for May from the Fed; the Empire State manufacturing index from the NY Fed was up 11 points to 17.1 in May, largely reversing the losses of the month before, when the index fell to just 6.6 (note that positive numbers are still expansionary); on the other hand, the Philly Fed's Manufacturing Survey, reporting for the mid-atlantic region, showed contraction in May; the broad index fell from a reading of 8.5 in April to -5.8 in May, which was the worst reading in eight months; of the sub-indexes, the hiring index fell to -1.3 after it had jumped to 17.9 in April, and the workweek index fell to -5.4

    (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, May 13, 2012

    March consumer credit, student loans, & the labor force participation rate..

    probably the most interesting report out this past week was that on March consumer credit from the Fed...you might recall we started following this with last november's report, when after months of modest month over month increases, it suddenly spiked 9.9%, and subsequently we determined that almost the entirety of these recent increases was as a result of borrowing from the federal government for student loans, which has been growing at a compound annualized growth rate of 56%...this week we had yet another spike in consumer borrowing, a 10.2% annualized increase, which was the biggest jump in borrowing since November 2001 (note: this report does not include home loans)...and although student loan borrowing continued to contribute to the outstanding credit increase, what was notable in March was a sudden increase of 7.8% in revolving credit (credit cards), which had decreased in january & february and had been trending down over most of the last three years...let's break it down: you can see in the first table on the Fed report that total credit outstanding increased $21.3 billion, or at a 10.2% annualized rate, to $2.542 trillion; of that, revolving credit was up $5.2 billion to $803.6 billion, and non revolving credit, which includes longer term loans for cars, yachts, & education, rose $16.2 billion to $1.739 trillion…the monthly change in revolving credit is represented by the blue bar portion in the adjacent graph from zero hedge, the non-revolving change is in red, and the net annualized monthly change is represented by the black line...as we know that most of the revolving credit is credit cards, lets see what the makeup of the non-revolving credit is by scrolling to the last table in the Fed report, headed "major types of credit, by holder"; you can easily see that borrowing from commercial banks and finance companies was up by less than 1%, and borrowing from credit unions was down; so again, the only non-revolving consumer credit outstanding that was up substantially was that from the federal government, which rose to $460.2 billion in March from $453.3 billion in february...yet this credit surge was widely reported in the media - even the financial times - as also being driven by a surge in auto loans, which might be a clue that the financial reporters aren't digging too deeply...

    while we're mentioning federal student loans, we should take note of the debate that took place, and went nowhere, in the senate this week...first, some background; in 2007, when the interest rate on federally subsidized student loans was at 6.8%, congress passed a bill to cut that rate in half to reduce the burden on young people wanting to go to college; however, the Act had just a five year window and it expires July 1st...so unless that Act is extended, the 7.4 million students who are currently paying on student loans will see their interest rate double...the hitch, however, is that under rules of the budget control act, everything congress does must now be "paid for"; the Senate democrats proposed to do that by closing tax loopholes for partnerships and S Corps; the republicans countered with a proposal to eliminate a preventive health program that was part of obamacare; although the vote was 52-45 in favor of starting debate on the Democratic legislation, it was short of the 60 votes needed, and there's no sign of a compromise...a similar debate looms over the expiration of the temporary forbearance on taxes on mortgage debt forgiven in home loan modifications...you might recall that prior to 2007, any cancelled debt or loan forgiveness had to be reported as income and was taxed; in 2007, in the face of declining home prices, congress passed a “mortgage debt forgiveness act” which ensured that those who took a loss on their homes wouldnt have to pay taxes on their loss…however, that act expires at the end of this year, and since bank of america has already begun to modify home loans by reducing a portion of the principal balance on mortgages under the provisions of the mortgage fraud settlement, those who have their home loans reduced may well face a tax bill on the amounts forgiven...conservatives in congress have already voiced opposition to a bailout of homeowners, so what would seem the logical move to extend this debt forgiveness will likely to turn into another protracted battle...

    Labor Force Participation Rates, Selected Age Groups Labor Force Participation rates over 55 age groupsafter last week's unemployment report showed the massive increase in the numbers of those considered "not in the labor force" - over half a million - and the record lowest labor force participation rate in over 3 decades, a number of economists & analysts went beyond the normal one line writeoff of those who dont count in an attempt to discover the makeup of that large part of the population who had somehow been slipping through the cracks...those who've tried to play down the severity of the unemployment situation have usually dismissed the non-partcipants as mostly due to increases in newly retired baby boomers and young people going back to school, so a number of bloggers attempted to deconstruct the figures to see who it was that made up that record 88,419,000 of us who were either non-participants due to their own choice, or who had dropped out of the labor force due to market conditions...were going to look at a few of those, and a few graphs from them, and see if we can put together a cohesive picture of what's going on...we'll start with a few graphs from a post by bill mcbride at calculated risk, who himself was responding to other posts in the blogosphere, and specifically to one by catherine rampell at the NY Times economix blog; this first graph, to the left simply shows the labor force participation rate by age group; you can see that teenager participation in red has been in a long decline since 2000 & before, falling most recently to near 33%; similarly, young adult participation in orange has been declining, but not as severely...but the participation rate of the over 55 contingent in purple started growing in the mid 1990s and continued to grow throughout the recession; holding at over 40% throughout; the chart to the right shows it's not just the old boomers who are working longer; all of the 5 year groupings of elderly are showing increasing participation, but especially those older than boomers, those 65-69 (purple) and 70 to 74 (teal)...and according to projections by BLS economist Mitra Toossi, graphed in that same post, participation rates for every age group over 55 are expected to accelerate even more over the next decade...
    Change in Age Distribution of U.S. Civilian Workforce From November 2006 to November 2011
    next we're going to look at a chart from 'ironman' at political calculations, from part two of his 3 post seriesAre Baby Boomers Stealing Jobs from the Young?”; but rather than those “not in the labor force”, he's showing the change in the civilian workforce (those who DO count) between november 2006 (chosen to capture the last year of expansion) and november 2011 (chosen to eliminate seasonality); here again we see increases in all the age groups over 50, greatest in the old boomers 60-64, the big decrease in teens & young adults in the civilian workforce, but even clearer is the picture that most of the decreases in the workforce in this recession are in the age groups 35-39, 40-44, & 45-49…so, without even asking why those who arent in the labor force have dropped out, it seems fairly clear just from these demographic charts that the decline in the labor force participation rate is not being caused by a sudden wave of early retirements; but on the other hand, with the long term trend of less participation by those younger than 25, there seems to be a strong likelihood that young people may be staying in school longer, and possibly borrowing to do so…but there is nothing yet to suggest a permanent change to the labor force participation rate or the employed to population ratios caused by changes in demographics; rather, we see that almost all of those not employed now are at an age where they'd be expected to be employed in the future...

    120511b  there were other posts this week that attempted to unravel labor force participation from angles other than age demographics; in the aforementioned post by catherine rampell, she charts all adults in prime working years, finds the recession-related decline in overall LFPR, but then notes a decline in participation rate by men that seems to have started in the 50s, when 98% of men aged 25-54 were in the labor force, to the present male participation rate of 88%; on the other hand, new deal editor bryce covert, writing at the nation and citing a kansas city Fed paper covered in a long post on LFPR by Rortybomb's Mike Konczal, says the recession has been pushing women out of the labor force (because the trend for men to quit working was already underway); in the second of two posts on LFPR at Atlanta Fed's macroblog, research economist julie hotchkiss looks at the actual responses people give to the BLS household survey as to why they are no longer looking for work; she finds only 1.1% of responses are the widely touted “discouraged workers”; 41% had looked for work during the preceding year but not during the reference month, and the rest were nonparticipants because of retirement, disability, going to school, caring for household members, or other reasons (her 12/97 to 6/11 chart of those dropouts aged 25-54 is to the left)…also, Mish noted a 2.2 million increase in disability claims and said disability fraud explains the falling unemployment rate, and American Enterprise Institute economist mark perry says there’s less there than meets the eye; move right along, it’s mostly demographics

    for a summary of this week's other economic reports not covered above, including the march trade deficit with 2 charts, see bill mcbride's summary at calculated risk; he also notes a seasonal 0.6% month-over-month increase in the March CoreLogic home price index, but neglects to mention that the LPS home price index also rose month over month by 0.2% on sales volume 30% lower than any month since 1998; although the LPS report is only for february, it roughly corresponds to the CoreLogic three month report for 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…)


    Sunday, May 6, 2012

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

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

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

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

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

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

    Foreclosure Starts and Sales

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

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

    (the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)