Sunday, June 24, 2012

weakening economic stats, housing starts & sales, & other notes on the week ending june 23rd

ISM PMIit's been another week with additional confirmations of weakening economic conditions both in this country & worldwide.. in europe, the Markit index of euro-region manufacturing fell to 44.8 from 45.1 in May, where below 50 indicates contraction, as output shrank at the fastest pace in three years; a similar index of chinese manufacturing, the HSBC Flash PMI (purchasing managers’ index) fell from 48.4 in May to 48.1 in June – the steepest contraction in 7 months; their subindexes were even worse, as they saw their sharpest decline in new export orders since 2009, while only inventories of finished goods showed an increase...in the US, there were two jobs-related reports released this week that highlight that the new difficulties are spreading to the labor market; the first, from the BLS, was the Job Openings and Labor Turnover Summary for April; this "JOLTS" survey is one report we dont often look at, because it lags the BLS employment report by a month and hence the results are normally captured in the earlier monthly report, but this week it showed the greatest decline in job openings in nearly 4 years and the 6th largest drop in job openings in history, confirming the weakness we saw in the April and May unemployment reports (the JOLTS survey is for the last weekday of april, while the establishment & household employment surveys are conducted during the week of the 12th in each month)...what JOLTS showed was that there were only 3.416 million jobs openings on the last business day of April, down 325,000 from the seasonally adjusted 3.741 million jobs open at the end of March; obviously, as we did not see anything like this level of job creation in the employment reports, this fall in openings is indicative of employers withdrawing openings and reducing their hiring plans...this survey also showed that both hiring and separations were at 3.1% of the labor force, essentially unchanged from the month before, and also has data broken down by industry & region if you want more detail...the other report this week that was worse than expected was the weekly figure for first time unemployment claims from the Dept of Labor; on a seasonally adjusted basis, there were 387,000 workers who filed for unemployment comp for the first time last week, up from the 386,000 reported the prior week, which itself was revised up to 389,000, which brought the closely watched 4 week moving average up to 386,250, the highest level of layoffs this year...taking in the recent bad news, the NYT’s weekly jobs tracker, based on forecasts from Moody’s Analytics, now shows a projected employment gain of only 125,000 jobs in June, down from their forecast of 150,000 last week…another release this week that came in unexpectedly lousy was the Philly Fed's Business Outlook Survey for June, which covers manufacturing business conditions in the mid-atlantic region; the general index fell 10.8 points to a negative 16.6 in June, after falling 14.3 points and turning from positive to negative 5.8 in May, where negative numbers represent contraction; separate indicators for general activity, new orders, shipments, and average work hours were also all negative, while economists surveyed by bloomberg had been expecting improvement…this follows on the heels of a similar regional report from the NY Fed, wherein their June manufacturing index dropped 15 points but remained barely positive at 2.3…as these two regional Fed surveys tend to forecast the trend for the other Fed regional surveys, which in turn set the stage for the national PMI from the ISM (Institute of Supply Management), bill mcbride at calculated risk produces a chart (upper right) which shows how these indexes have tracked historically; the dashed green line is an average of the NY Fed & Philly Fed indexes through June; the blue is a graph of an average of all Fed regional surveys through May, and graphed in red is the ISM PMI through May; note that other than during a recession (the vertical blue bars) the only other time the average of these two Fed surveys fell below zero was last summer, when the economic activity slumped in the face of supply disruptions resulting from the japanese tsunami, european contraction, and uncertainly caused by congressional gridlock over the debt ceiling…

there have been reports that uncertainty caused by congressional inaction of the combination of expiring tax cuts & mandated spending cuts known as the "fiscal cliff" is causing companies to pull back again this year; as we've pointed out, forecasts are that the laws already in place could knock 3% to 5% off GDP in 2013 should congress do nothing by year endin addition to the expiring tax cuts, which would take money out of the broad economy, government contractors are already planning their 2013 budgets contingent on the spending cuts sequestered by the budget control act kicking in; defense contractors, for instance, stand to lose $50 billion in contracts, but no one knows which of the the approximately $530 billion the government spends each year will be cut…since state laws mandate that an employee be given 60 or 90 days notice before a layoff, contractors facing that uncertainty will be obliged to send out around 3 million layoff notices in the fall, which wont bode well for consumer demand going into the holidays…another cloud hanging over companies is uncertainty resulting from the pending Supreme Court ruling on the health care reform act (obamacare), which is expected this week – our coverage is here, if you want to review what outcomes might result…

the Senate did manage to pass a $969 billion, 1000 page farm bill this week, with it’s usual collection of add-on amendments; rather than lower payments for crop insurance, they voted to cut $4.5 billion out of the food stamp program for those who are also on any of the 14 state heat-and-eat initiatives, where those getting utility assistance had automatically been enrolled in the food stamp programs…those cut off will lose an average of $90 a month in food assistance…however, indications are that eric cantor will hold that bill hostage to other demands from the House teaparty contingent...also, as of Friday there had been no definitive action taken on either of the bills that deal with programs that expire on July 1st; there is bipartisan consensus that student loan interest rates should not be allowed to double to 6.8%, as current law has it; the problem is how to “pay for it”…a democratic proposal would change how employer’s private pension contributions are calculated, resulting in lower business tax deductions…and it also appears there will be no surface transportation bill passed in time, which means that highway projects with federal participation will be halted, and the 18-cent a gallon federal gas tax would go uncollected…this expiring transport bill was passed April 1st and was the ninth in a series of stop-gap measures...as we've discussed, infrastructure projects require long-term planning, and not much gets done when only 3 months of funding can be assured...

Total Housing Starts and Single Family Housing Starts there were several housing related reports this week....the first one we saw was Permits, Starts and Completions for May from the census bureau, which is mostly watched for the new housing starts, which were at a seasonally adjusted annual rate of 708,000, down 4.8% (±12.7%) from the revised April estimate of 744,000, yet still 28.5% (±10.7%) above the May 2011 annual rate of 551,000 starts; building permits, meanwhile, were issued in May at an adjusted annual rate of 780,000, 7.9% above the april rate...there are a few caveats on the apparent weak starts; first, since new housing starts in april had first been reported at 717,000, almost the entire fall in May starts were as a result of the upward revision to april's numbers; so may's seasonally adjusted number is still higher than the revised March estimate of 699,000, when seasonal adjustment had already been skewed by unseasonably warm weather; the other factor was that single family starts at 516,000 were still up from april's 500,000 by 3.2%, so the decline was just in the rather volatile multi-family sector...but starts of both single family and multi-family units continue to run well below historical rates, as you can see on the adjacent 45 year chart from calculated risk (single family starts in blue, total starts in red); with the population continuing to increase, one would expect housing starts to be above the trend; however, a new report from the census bureau showed that the number of households that have doubled up in the face of economic hardship increased by 2.25 million from 2007 to 2010, and that such residence sharing accounted for 22 million households in 2010 — or 18.7% of all U.S. households, and that those between the ages of 25 and 34 made up two-thirds of that increase...so it appears both housing & rentals will continue to suffer until those young people are financially capable of starting their own households...

   another housing report from this past week was from the Nat'l Assoc of Realtors, on sales of previously owned homes in May ("existing homes" in NAR parlance); on a seasonally adjusted basis, these home sales of 4.55 million were down 1.5% from the 4.62 million annual sales rate in April; the NAR blamed the decline on "limited supply of housing inventory", which they listed at "2.49 million existing homes available for sale", which would be a 6.6 month supply at May's annual sales rate; listed inventory was 20.4% below that of a year ago, when there was a 9.1 month supply at last years sales rate of 4.15 million units....shortages of homes for sale in the lower price ranges were reported in the West, and especially in Florida, where you might recall that 11.9% of homes with mortgages were still stuck in the foreclosure process; with the shortage of low priced homes, the median sales price rose 7.9% to $182,600 in May from a year ago, the third consecutive month of year over year price increases; distressed properties accounted for 25% of sales, down from 28% in april and 31% in May of last year; 34% of homes sold in May were bought by first time buyers, compared with 35% in april & 36% a year ago; all cash buyers accounted for 28% of transactions, down slightly from the 30% all cash sales last year, and investors, who accounted for the majority of all-cash buys, bought 17% of the homes sold in May, down from 20% in april and 19% from a year ago...this report includes a period when mortgage interest rates were hitting new all time lows weekly (which they did again this week, with the 30 year at 3.66% and the 15 year at 2.95%), so if there had been pent up demand for housing, it should have been brought to the fore by what would be a record low cost of ownership; instead, what we see here is a housing market treading water, with demand outstripping supply only for the lowest priced properties….

  this week also saw the “first look” at the LPS mortgage monitor for May; LPS reported that delinquent loans increased to 3,542,000, or 7.20% of all mortgages in May, up from the 7.12% that were delinquent in April; this is the second consecutive month that delinquencies have increased, yet no one is giving a possible reason that more people would stop paying on their mortgages at this time…LPS also shows 2,027,000 properties still in the foreclosure process, or 4.12% of loans outstanding, which has remained fairly steady at that level…barry ritholtz, in writing for the washington post, notes that foreclosure starts nationwide have increased on an annual basis after 27 consecutive months of year-over-year declines, but repossessions are still down 18% year over year…he also quotes housing analyst Laurie Goodman noting that 2.8 million Americans are 12 months or more behind on their mortgages, and since 2007, 19% of all borrowers, or almost 1 in 5, have at one time been over 90 days delinquent on their home mortgages; obviously, that percentage includes those who’ve already been through foreclosure & already have had their house taken…

(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, June 17, 2012

the Fed on household finances, May retail sales, inflation reports, industrial production, et al

the crisis in europe, and it's possible spillover effects worldwide, has dominated the news cycle again this week; for the most part, the focus was on two stories; the aftermath of the bailout of the spanish banking system, and the upcoming greek election (june 17th) which will be over with by the time you read this (the whole play by play, nearly 100 links, covers the last quarter of this week's global glass onion); in spain, after several failed attempts over the last couple of weeks to prop up their banks with financial sleight of hand, the spanish government finally went hat in hand to the eurogroup finance ministers for a bailout, the 4th such eurozone country to do so; & by that time the amount needed had risen from €29bn to €100bn (about $125 B)...instead of a direct bailout of spain’s banks, however, funds came as a loan from the EFSF (or the successor ESM bailout fund) directly to the spanish government, who set up a TARP like structure to bailout their banks, leaving spanish taxpayers on the hook for eventual payback, as spain is now expected to lower salaries, raise the VAT, & end their housing deduction...but the post bailout market euphoria lasted less than a day, however, and after a 3 notch downgrade by moody's, spain's benchmark bonds rose to near 7% by the end of the week & Italy's financial markets panicked in sympathy (Italy is responsible for almost 20% of the spanish bailout, and they're borrowing at almost 5% to loan to spain at 3%)...meanwhile, greeks have been pulling over €800m daily from their banks, or 1/2% of their deposit base per day, in uncertainly over their election results & its repercussions, as much of the country has become dysfunctional, with widespread shortages of necessities & slowdowns of services....meanwhile, the prospect that a euro slave state might actually elect an unapproved leader has the financial markets shaking in their boots; the thinking seems to be that should the left wing syriza party emerge the winner, greece might tell the troika to stuff it & leave the eurozone, precipitating some kind of catastrophe, so the banks have their crisis teams in place, running fire drills on possible Greek outcomes, and the central banks are preparing for worldwide chaos after this weekend's election...but from here it's hard to see it all blowing up tomorrow; watching europe stumble from crisis to crisis for over two years has been more like watching paint dry than anything explosive; the eurozone will certainly break up, but it will more likely be with a long whimper than anything like a bang...

worth.png

on the home front, the major economic news story this past week in the blogosphere and in the media wasnt really news at all; it was about a Fed study of family finances and how they changed between 2007 and 2010; this 80 page study, the Survey of Consumer Finances (pdf), is one the Fed does every three years and has a census like quality to it; where categories of income & wealth are broken down in tables by demographic characteristics of the head of household, such as age, region, race, & by quintile...what attracted all the attention, however, was that the median family net worth fell almost 40% in the three year period; everyone knew the recession has been bad, but this was one hell of a hole; this depression wiped out nearly two decades of our family wealth...in fact, the bar graph to the right from felix salmon’s blog at reuters shows median family net worth is now lower than it was in 1983, with the caveat that those earlier surveys used a different methodology so they’re not directly comparable… the median family net worth fell from $126,400 in 2007 to $77,300 in 2010; however, the average net worth from the survey was still $498,800 in 2010, which is illustrative of how a handful of very wealthy people at the top can pull up the whole national average...of course; much of the drop in household net worth was driven by the housing market’s collapse, which was magnified by leveraged property; recall that net worth is assets less liabilities, so many families went from positive home equity to negative equity over the period; among families that owned homes, their median home equity declined to $75,000 in 2010, down from $110,000 three years earlier; but even if primary residences and the associated mortgage debt are excluded, the median of families’ net worth fell from $42,300 in 2007 to $29,800 in 2010...median family income took a big hit, too; it was at $49,600 in 2007, but by 2010 it was down to $45,800 – a drop of 7.7% in inflation adjusted 2010 dollars -- real average income fell even more; it went down 11.1%...furthermore, if you check figure 1 on page 2, you'll see median income had also fallen slightly in the preceding three-year period, so by 2010 the typical family had been backsliding for 6 years..while the decline in median income was widespread across demographic groups, median incomes moved slightly higher for retirees, while the decline in median income was most pronounced among more highly educated families, families headed by persons aged less than 55, and families living in the South and West regions.

while median net worth fell for most groups in the period, the decline for the median family was almost always larger than the decline in the average, because those at the top held onto a larger percentage of their wealth, because in most cases their wealth was in assets that didnt take as big a hit as houses...generally, the poorer quintiles lost a greater percentage of their wealth than the top 10%, as the wealth of the top 10% was more heavily concentrated in financial assets, which had regained much of their value by year end 2010 (the surveys were conducted in the second half)...those in the top 10% of the wealth distribution had a median wealth of $1,864,000, and an average wealth of $3,716,000 in 2010; the top 10% also had the smallest percentage decline in both the median and the mean from 2007 to 2010, which you can see in the table to the left taken from the report…the numbers also make it clear that families below the 75th percentile of the net worth distribution saw the largest decreases in proportional terms; in fact “the median for the lowest quartile of net worth fell from $1,300 to zero—a 100 percent decline; at the same time, the mean for the group fell from negative $2,300 to negative $12,800” on the other hand, the median wealth for the 75th to 90th percentile group fell 19.7% and the mean fell 14.4%, while for the top 10%, the 11% decline in the mean was actually greater than the 6.4% decline in that group’s average...the table also shows the effect of the housing price collapse, as those in the south experienced a 55.3% decline in their median wealth as compared to the national median decline of 38.9%...you can also see that the median of those households led by someone over 75 years of age actually saw a modest gain in net wealth, while families led by those in the 35-to-44 age group saw a 54.4% decline in median net worth over the 3 years compared in this survey, while their average wealth fell 36.4%...
Click to View

probably the most important of the economic release of the past week was the May retail sales report from the census bureau, if only because 70% of our economy is still driven by consumer spending...the headline seasonally adjusted sales decline of 0.2% (±0.5%)* from april to may was the worst in 2 years, but that was mitigated by the impact of falling gasoline prices on overall sales; sans the 2.2% plunge in gas-station receipts, reported sales still fell, but by only 0.1%; the real weakness in this release showed up in the revision of the April report, originally reported as a weak gain of 0.1%, to a loss of 0.2%, again the first back to back sales decline since mid 2010...citing this report, both JP Morgan & BofA Merrill Lynch lowered their forecasts for 2nd quarter GDP growth by a half a percent, with RBS, Barclays & credit suisse also marking down their growth forecasts by lesser fractions...without car sales, the numbers were even worse, down 0.4%; but total May sales of $404.6 billion were still 5.3 percent above May's of 2011; other than cars & car parts, sales of clothing & electronics increased, & sales of building materials & general merchandise showed the biggest decreases... although nominal retail sales are up 22.1% from the low water mark and are now 6.8% higher than the pre-recession peak, when adjusted for inflation and population growth they're still 6.8% below the peak, at a level first reached in november of 1999, as shown on the adjacent chart from doug short...

also released this week were several price indexes for May; led by the 20 cent drop in the price of gas, consumer prices in May fell 0.3%, the most since December of 2008; the gasoline index declined 6.8%, which led to a sharp decrease in the energy index and subsequent decline in the all items index; since last year, prices overall are up 1.7%...core CPI, which is all items less food and energy rose 0.2% in May; for the year, core CPI inflation is at 2.26%; both of the alternate measures of computing inflation from the cleveland Fed designed to strip out volatility, median & trimmed, both showed a 0.1% increase for the month; also for May, the producer price index for finished goods fell 1.0% for the month (seasonally adjusted) and is now only 0.8% above last years level..  led by the cost of oil & food, prices of May imported goods were also down 1.0%, their largest decline in nearly two years; and we're also seeing a virtual collaspe in commodity prices, too, with corn, cocoa, oats, cotton, rubber, coffee, aluminum, silver, zinc and nickel all selling for 20% or less than they were a year ago...

the other May report released this week was Industrial production and Capacity Utilization from the Fed; and again the numbers were negative; the overall production index was down 0.1% month over month, after being up a revised downward 1.0% a month ago; the drag on the index was in factory production, which was off 0.4%, as automakers cut back for the first time in six months; the output of durables fell 1.3% with none of the major categories increasing;  automotive products production was down 1.9%; the output of home electronics was unchanged, while the output of appliances, furniture, and carpeting decreased 0.5%; production of consumer non-durables, on the other hand, were up 0.1%…in the other major production categories, utilities gained 0.8% & mining, including crude oil extraction, gained 0.9%...even with this May slowdown, the industrial production index remains 4.7% above its level of a year ago...capacity utilization, which was also expected to remain flat, fell 0.2%, from 79.2% to 79.0%; again, the weakness was in utilization of factories, which were only 77.6% in use, while "mining" was at 89.2% of capacity and utilities ran at 76.5% of capacity...year over year growth in capacity utilization has been 1.1%

(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, June 10, 2012

Q1 flow of funds, april consumer credit, april trade, May ISM services, misc housing reports, et al..

there was a palpable mood change in most of the blogosphere & even in some of the news media early this past week, as if the deteriorating data had finally sunk in & denial changed to acceptance that the global economy was heading into a downturn; it's hard to say what triggered it; certainly the US economists & commentators who'd been holding out for a strong recovery had their hopes dashed by the disastrous unemployment report last friday; but it wasnt just the US; the accumulating negative reports from europe seemed to have also taken their toll and what had bordered on outrage in the foreign press seemed to turn into a morbid gloom...spirits were briefly lifted Thursday when the chinese, facing a slowdown, lowered their benchmark interest rate to 6.31% from 6.56% and their one year rate to 3.25% from 3.5%, their first rate cuts since 2008, but both the ECB and the Bank of England stood pat & Bernanke's testimony offered no hope to those who believe we'd benefit from even more QE, as he seemed to indicate there'd be no change in policy unless conditions deteriorate even further...international economic news has been generally lousy; with eurozone composite PMIs at 3 year lows attesting to the deepening recession in europe, a slowdown in all the BRICs (brazil, russia, india, china) with india, now the world's third largest economy, reporting their slowest growth in nine years, the flight to safety turning german interest rates negative & inverting the Treasury TIPS yield curve, a report that growth of the world money supply has dropped to the lowest level since the financial crisis of 08-09, and now BIS (the bank for international settlements, the central central bank) is warning that global lending is contracting at fastest pace since the 2008 Lehman crisis...

otherwise, it was a relatively slow week for new US economic data...but one major release of the past week was the 1st quarter "Flow of Funds" report from the Fed; much as its title implies, this tracks changes of assets & liabilities of all sectors of the entire economy, including households, government, companies, & the financial sector, and the forms those assets take, ie, such as real estate, stocks & bonds, etc...most of the media coverage focused on the big jump of  $2.8 trillion in household net worth in the quarter,  the most in over seven years, which was mostly due to the increase in stock prices over the quarter, and what the media covered is probably as far as we'll get into it today, as the Z1 release itself is a 134pp PDF and its pretty much all statistics; at the end of the quarter, household net worth stood at $62.9 trillion, slightly more than 4 times US GDP; that compares with the low water mark of $51.3 trillion in at the depth of the recession in the 1st quarter of 2009, yet it has still not recovered to the net worth peak of $67.5 trillion which was reached in the 3rd quarter of 2007; net real estate assets held by households, which were determined from the CoreLogic price index for the first quarter, were at $16.05 trillion, up $372 billion from the 4th quarter of 2011 but still $6.3 trillion below the bubble peak, a 28% net loss of valuation...if you click on the chart to the left from zero hedge you should be able to see the quarterly changes in the broad categories of household net worth since the beginning of 2004; those above the "0" line are assets, which include real estate, other tangibles, deposits, equities, mutual funds, pension funds and "other"; those below are household liabilities, which include consumer debt, mortgages & "other"; the dark line is net worth, with those numbers on the right...as zero hedge points out, $2.3 trillion of this quarter's increase came by way of the rise in the market, which impacted 3 of the asset catagories...the average net worth per household is on the order of $200K, so if yours are below that, you aint getting your share..

   as part of this initial flow of funds for 2012, the Fed made revisions to all their balance sheet data back to January 2006; not only did this result in a massive change to the hoard of cash that corporations were allegedly sitting on, from the originally reported $2.23 trillion down to $1.74 trillion, it also made significant changes to the G19 consumer credit reports we've been watching, in part due to what had seemed to be fairly large spikes in borrowing...so what we noted as a $21.36 billion increase in consumer borrowing in march, for instance, was revised down to $12.37 billion, and earlier months were revised downward as well...this week the consumer credit report for april was released to include those revisions, and also a change in the reporting methodology to include data on the flow of credit; for the month, consumer credit grew by $6.51 billion from March to $2.551 trillion in April, a 3.1% increase; revolving credit (credit cards), however, decreased by $3.4 billion, or 4.8%; while nonrevolving credit (car, yachts, student loans) increased by $9.96 billion, a 7.1% increase; repeating our monthly exercise to determine where that rise in non-revolving credit is coming from, we’ll scroll down to the middle table in the Fed report, headed "major types of credit, by holder", we see non-revolving credit from both depository institutions (banks) and finance companies is down, borrowing from credit unions is up slightly, and once again the lion's share of the increase in consumer borrowing is the $6.1 billion month over month increase in loans from the federal government, which in the context of this report is all student loans

U.S. Trade Deficit the other economic reports released this week were something of a mixed bag; the Commerce Dept reported a smaller trade deficit for April of $50.1 billion, down from the revised deficit of $52.6 billion in March, but that was on the back of both lower exports of $182.9 billion and lower imports of $233.0, showing that the global slowdown had already impacted trade over a month ago; as US shipments to the euro zone already dropped 9.8%; the March to April decrease in exports were from declines in exports of capital goods ($1.5 billion); industrial supplies and materials ($1.0 billion); and other goods ($0.6 billion)…although we imported less oil, what we did import cost more; it averaged $109.94 per barrel in April, up from $107.95 in March...included to the right is the calculated risk chart showing our trade deficit in oil (black), ex-oil (red) and total deficit (blue)...our major trade deficit continues to be with China, & it was up to $24.6 billion in April, from $21.6 billion in April a year ago...other deficits are with OPEC ($11.5 billion), the european union ($9.8 billion), japan ($6.1 B) and mexico ($5.5 B), while we had small surpluses with hong kong ($3.0 B) australia ($2.0 B), & singapore ($0.9 B)... also this week, the census reported April factory orders for manufactured goods (pdf), showing they fell in April for the third time in four months, decreasing $2.9 billion, or 0.6%, to $466.0 billion, orders for core capital goods, seen as an indicator of business investment plans, fell 2.1% in April after a 2.3% decline in March; and wholesale inventories of capital goods increased by 0.6% from March level to a seasonally adjusted $483.50 billion, which was somewhat expected given the inventory decrease indicated by the revised first quarter GDP... the ISM non-manufacturing index reported slightly faster expansion in service related businesses in May; the overall index was at 53.7%, up from 53.5% in April, but ominously the services employment index was at 50.8 in May, down 3.4 points from April (you'll recall readings above 50 indicate expansion)… this is the second consecutive month the employment index was down, & it resulted in the biggest two-month drop in this index since december 2008; not a good sign as services employ roughly 90 percent of the work force

mortgages

there were a few housing reports of note in the news this week as well...CoreLogic was out with the first repeat sales home price index for April, which as we've noted before is a 3 month index adjusted to give the most recent sales more weight; they reported home sales prices nationwide, including sales of distressed homes, increased 1.1% over last april; on a month-over-month basis, prices including distressed sales increased 2.2% over march prices, not seasonally adjusted; on the same basis & excluding distressed sales, home prices rose 2.6% over the march report...they also showed that year over year prices rose 1.9% if distressed sales arent included…this is the second successive month over month increase in the CoreLogic HPI, & except for the tax credit period, the first year-over-year increase since 2006; corelogic prices remain 32% off their peak...Trulia reported that home asking prices were flat in May on a seasonally adjusted basis, following 3 months of increases; asking prices in May rose nationally 1.6 percent quarter over quarter, also seasonally adjusted; they also report that 41 out of the 100 largest metros had year over year price increases...despite these spring home price increases, Radar Logic says this is due to temporary forces, & they expect the home price slide to resume; also, Fitch Ratings expects prices to decline by another 7.8% and not reach their bottom until late next year, as the foreclosure liquidation begins in earnest; states hardest hit will be those with a large foreclosure backlog, such as new york & new jersey…in another report, the online housing site Zillow reported on mortgages that were "underwater" in the 1st quarter of 2012; ie, where the homeowner owes more than the market value of the house; they found that 15.7 million US mortgages were in this condition, or 31.4% of all homeowners with a mortgage; that was little changed from the 32.4% who were underwater in the 1st quarter last year; furthermore, they found 2.4 million of those, or 1 in 20, owed more than twice what their houses were worth, and about 1 in 8 owed 40% or more than what their houses would sell for...they also reported that 40% of those homes with negative equity are less than 20% underwater, and that more than one in 10 homeowners are three months or more behind on their house payments...the areas worst off are where the home-price bubble was greatest; in 5 of those metro areas, more than half of the homeowners still owe more than their houses were worth: Phoenix (55.5%), Atlanta (55.2%), Orlando (53.9%), Riverside County (53.4%) and Sacramento (51.2%)....another more general economic report this week had a heavy focus on housing; "The Aftermath of the Housing Bubble", by St Louis Fed president James Bullard (pdf); as part of his presentation of this to the bipartisan policy center he included a slide show on deteriorating mortgage conditions since 2006 based on data from LPS, whose april mortgage monitor we covered briefly last week; the map generated for march 2012 data was the last of his slides and is included to the upper right; interesting because it breaks down the distressed mortgage statistics by county, something not even included in the LPS public reports…in those counties in green, less than 10% of homeowners are in arrears; in yellow, 10% to 15% of homeowners are delinquent, and in those counties in orange, more than 20% of homeowners were not paying on their mortgages in march (note: this map is linked to a WSJ slide of the same, but if you want to view it close-up, go to page 34 of bullard’s pdf & use the PDF tools to zoom in)…also included inline below is the LPS table (from page 4 of the LPS pdf) of mortgages delinquent & in foreclosure by state, which also shows improvement over last year; you can see florida still has the highest percentage of non current mortgages at 21.3%, while 13.9% of all mortgages in that state are in foreclosure, followed by mississippi, where 16.8% of homeowners were not paying on their mortgages as of april…
LPS states April

(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, June 3, 2012

May unemployment, april’s LPS mortgage monitor & personal income & outlays, march case-shiller, GDP revision, et al

Payroll jobs added per montha dismal employment report ended a week of generally weak economic data; according to the BLS establishment survey, only 69,000 jobs were added on a seasonally adjusted basis in May, which was the slowest pace of job creation in a year, and well below the 125,000 we should add each month just to stay even with the increase in the working age population; private-sector payrolls rose by 82,000 as federal, state & local governments cut 13,000...even worse, april's figures, which had been 1st reported as 115,000 new jobs, were revised downward to 77,000, and the march report was revised from 154,000 job additions to 143,000..the monthly change in payrolls jobs since the beginning of the downturn is shown in the adjacent chart from calculated risk...the main areas where employment increased in May were in health care & social assistance, up 34,000 jobs, of which 23,000 was ambulatory care services, transportation and warehousing (up 35,600), reversing last months losses in those areas, and wholesale trade (up 15,900), while jobs in construction declined the 4th consecutive month by 28,000... the average workweek for all private nonfarm payrolls was down 0.1 hour to 34.4 hours while the manufacturing workweek declined by 0.3 hour to 40.5 hours...the average hourly earnings for all employees edged up by 2 cents to $23.41, which is 1.7% above the hourly pay a year ago, but with the drop in hours worked, average weekly earnings fell from $806.96 to $805.30.

Unemployment Durationin the household survey, the number of employed increased by 422,000, but the number of unemployed also increased, by 220,000, to 12,720,000; taking those unemployed as a percentage of the civilian labor force, which grew in May by 642,000 to 155,007,000, gave us an unemployment rate for May of 8.2%, a notch higher than the 8.1% reported in april and the first monthly increase since june of 2011...given the increase of those employed, the employment population ratio increased 0.2%, from 58.4% in april to 58.6% in May...the labor force participation rate increased in May by 0.2% to 63.8%, reversing its decline to a 31 year record of 63.6% last last month, as "those not in the labor force" declined by 461,000, after increasing 522,000 last month...as reported, these wide fluctuations are indicative of the monthly variability of this small survey of 60,000 households, which nonetheless gives us the headline numbers which determine state eligibility for federal unemployment compensation under the new formula...this becomes a double edged sword working against the unemployed, because those eligible for compensation are required to seek work and thus they are counted in the official stats; once their rations are cut they may no longer count among the officially unemployed, further lowering the "official" rate....and some states have even cut their initial benefits to less than the normal 26 weeks...in May, those unemployed 27 weeks or more increased 310,000 to 5,411,000, as you can see in red on the 44 year chart to the left from calculated risk; also showing are the numbers of unemployed less than 5 weeks, 6 to 14 weeks, and 15 to 26 weeks, which is in purple & had declined by 220,000 in May...

the household survey also counts those who are working part time and who say they'd prefer full time work; their number jumped 245,000 in may to 8,098,000 from the 7,853,000 in that situation in april; hence, the broader U-6 unemployment rate increased by 0.3% to 14.8%, up from 14.5% in April...actually, if those who reported they are working part time in agriculture are included, the total part time employment rose from 18,832,000 to 19,393,000, which means that full time jobs actually declined....the household survey also reported that 2.4 million people were marginally attached to the labor force, up from 2.2 million a year ago; these are people who had looked for a job sometime in the prior 12 months, but werent counted as unemployed because they hadnt searched for work in the 4 weeks preceding the survey...830,000 of these marginally attached were classified as discouraged, meaning they quit working cause they gave up hope of finding a job; the remaining 1.6 million marginally attached workers had either personal reasons for not looking, such as family sickness, or had returned to school...

looking at the jobs picture going forward, national employment firm Challenger reported that announced firings jumped 67% nationally in May from a year ago, the biggest jump in 8 months, on the heels of a major workforce reduction announced at Hewlett-Packard; the Conference Board reported U.S. job vacancies listed on the internet slipped by 1% from April to 4.72 million, the first decline in 6 months yet still more than any month last year, and the Dept of Labor reported first time applications for unemployment aid rose 10,000 to a seasonally adjusted 383,000, which was the highest in 5 weeks..

as mentioned, this week brought us a slew of weak reports, so we might as well move on to some of the others....we'll start with the ISM (Institute for Supply Management) manufacturing index, which is obtained from a survey of the nation's purchasing managers, hence its called a PMI; the May manufacturing PMI was at 53.5%, down from 54.8% in april, which indicates a slowing expansion (below 50 is contraction); of the major subindexes, the employment index was at 56.9%, down from 57.3%, the new orders index was at 60.1%, up from 58.2%; and prices for raw materials fell to 47.5%, down 13.5% from april, which was the first price decline since december; of the 18 manufacturing industries covered, 13 were reporting growth in May; only plastics & rubber, petroleum & coal, food & beverage, & transport equipment reported contraction...among regional reports, the Dallas Fed reported its general business activity index fell to -5.1 in May from -3.4 in april, where negative numbers indicate contraction; the Chicago Fed reported that its 5 state Midwest Manufacturing Index rose 3.4% in april to 94.2, reversing a 0.3% decline in March, and the Chicago PMI declined to 52.7 in May from 56.2 in April…we also had an initial estimate of auto sales from Autodata for May, which were at a seasonally adjusted annual rate of 13.78 million vehicles, down 4.1% from april, below all estimates & the weakest month this year, although the annual sales rate of 14.43 million through the first five months of 2012 is well above last year’s pace…and despite the slower growth here, we're still in better shape than other major world economies, who's PMI are mostly indicating contraction...

also on Friday, we saw the release of the Personal Income and Outlays report for April from the BEA; personal income increased $31.7 billion, or 0.2%, and disposable personal income (DPI) (ie, after taxes) also increased 0.2% to $22.0 billion in April, personal consumption expenditures (PCE) increased 0.3% $31.8 billion, or 0.3 percent...march numbers were revised to show a 0.4% increase in DPI and a 0.2% increase in PCE...personal saving, which is DPI less personal outlays, was $403.4 billion in April, compared with $411.7 billion in March; the personal saving rate, which is personal saving as a percentage of disposable personal income, was 3.4%...real DPI (DPI adjusted for price changes) increased 0.2% in april the same increase as in march; the real PCE increased 0.3% in april, as the PCE price index, which you'll recall is the inflation gauge the Fed is now using, rose less than 0.1% for the month; doug short computes the PCE price indexes to two decimals; he finds the headline PCE price index at 1.81% year over year, and the core PCE price index at 1.89% year over year, both below the Feds inflation targets…also this week, the NY Fed issued its first quarter consumer credit report, much of what we've seen in the monthly reports; they report that student loan debt reached $904 billion in the first quarter of 2012, a $30 billion increase from the previous quarter, but overall consumer indebtedness declined to $11.44 trillion, about $100 billion (0.9 percent) less than in the fourth quarter of 2011; unlike the monthly reports we've covered, this report includes mortgage debt...

this week also brought a downward revision to 1st quarter GDP; as we've duly noted, the 1st GDP estimate gets all the press coverage, but the later revisions to include more accurate data are given short shrift by the media...according to the release from the BEA, the real gross domestic product increased at an annual rate of 1.9% in the first quarter of 2012, not the 2.2% increase originally reported...the reasons for the downward revisions were declines in inventory investment, nonresidential fixed investment and an increase in imports, which were partially offset by higher exports and personal consumption expenditures (PCE); carrying the components out to two decimals, we see that PCE actually accounted for the entirely of the first quarter growth in the economy by itself; the contribution of 1.90% for PCE was greater than the 1.86 real GDP; the 0.81 positive contribution from private investment was more than cancelled out by the subtractions of 0.08% from net exports and 0.78% from government...even before the ink was dry on that revision, JPMorgan Chase released revisions to their GDP forecasts for the second half of this year; lowering their projected growth for the 3rd quarter from a 3.0% rate to 2.0% and their year end GDP projections from 2.3% to 2.1% on the heels of slowing labor momentum, the global growth slowdown, and fiscal policy uncertainties..

Real House Pricesthere were also a few important housing related reports this week; first, we saw the case-shiller release of its home price indexes for March (pdf), actually all three month averages of january, february, & march, which showed that all three headline composites ended the first quarter at new post-bubble lows...there was little change from the february report in the widely watched 20 city index, & the longer running 10 city index saw a small 0.1% one month price decline;& year over year, the 20 and 10 city composites posted declines of 2.6% & 2.8% respectively...this being the end of a quarter, this release also included the quarterly case shiller national home price index, which showed a price decline for single-family homes nationwide of 2.0% from the fourth quarter and 1.9% from the 1st quarter a year ago...in constructing their indexes, case-shiller measures repeat sales on the same property over time & they reflect prices contracted for as much as two months earlier, so this isnt the most timely data; in fact, of all the major home price indexes, this is the last to report, and as we saw last week, some more recent home price reports are starting to show the typical seasonal upturns...it's probably best to just look at year over year changes when comparing them, though, since the various home price indexes often report different data and/or different months or combinations of them, so we'll run through them without much detail...typically the first repeat sales house price index to report is the CoreLogic national HPI, & its likely the most important, as its also used by the Fed to value national real estate assets in it's quarterly Flow of Funds report; reporting their weighted index for March early last month, corelogic showed a 0.6% year over year decline; taking distressed sales out of their index, they found a 0.9 year over year increase...shortly after core logic reported, RadarLogic reported its 25 MSA price index for march, which showed prices in those metros down 2.71% below a year earlier...also early in May, LPS (Lender Processing Services) reported a home price index on February closings, which is roughly the equivalent of the other march indexes, which showed a 2.5% decline from prices a year earlier...other year over year comparisons which we saw last week include the FHFA expanded index, which reported a 1.3% decline, the FNC "Composite 100" cities, where a 2.4% decline from march of 2011 was reported, Trulia, also reporting price on 100 cities, found a YoY 0.2% increase, and Zillow's April report, which showed a 1.8% year over year price decline...every month, with the release of the case-shiller home price index, bill mcbride adjusts that index and the CoreLogic index for inflation, using the CPI less it's shelter component, yielding real house price based on those indexes; his chart showing those results is included to the right here; by that inflation adjusted metric, the case-shiller composite 20 prices (in red) are now back to the level of january 2000, the case-shiller national prices (yellow) are back to the levels last seen in the 4th quarter of 1998, and the CoreLogic index's prices (blue) are at the level of prices in May of 1999....in general, the year over year price comparisons have been narrowing, & we are now coming into the time of year when we should see small price increases in houses on a month to month basis, just as we did last summer...there continues to be a lot of blog-talk about a price bottom, but it's still anyone's guess if that bottom will be this year or not; we may stabilize at these levels, or there may be another leg down as the foreclosure inventory backlog is cleared...but we should eventually get into a natural pattern where changes in annual house payments on the same property come close to but do not exceed annual changes in disposable personal income per capita; anything beyond that is unsustainable...

Foreclosure starts the other important housing report issued this week was the LPS Mortgage Monitor for April, which gives us some insight into the condition of household finances by tracking the number of homeowners who are not paying on their  mortgage loans; their snapshot of month end data showed that mortgage delinquencies had increased for the first time in nine months, while the number of homeowners in the foreclosure process was relatively unchanged; a total of 2,048,000 US home mortgages were in foreclosure, ie, proceedings had started but the homes had not yet been seized; this represents 4.14% of all mortgages outstanding as was essentially unchanged from the numbers of a year ago; homeowners had missed at least one payments on another 3,522,000 homes; or 7.12% of home with mortgages; of those, 1,595,000 had not made a housepayment in over 90 days (and had not yet been foreclosed); this gives a total of 5,570,000, or more than one in nine homeowners who were not making payments on their homes at the end of april...as noted, this was an increase of 0.3% in the total number of homeowners delinquent from the march levels...a major highlight of this report was a 73% increase in FHA foreclosure starts, driven by mortgages originating in 2008 and 2009...when home sales collapsed in 2008, FHA stepped in to fill the financing gap left by the bank pullback; & of course, with prices continuing to collapse since, most of those FHA-financed homeowners are now underwater; the adjacent chart, from page 8 of the LPS pdf, shows that FHA foreclosure spike, while new private & portfolio foreclosures, & foreclosures by the GSEs (Fannie & Freddie) have continued to decline…

separately, the GSEs also reported their delinquency rates for april this week; Fannie Mae reported that their single family serious delinquency rate declined in April to 3.63%, down from 3.67% in March; wherein serious delinquencies are those where the homeowner has missed 3 payments; that rate is down from 4.19% in April last year, and is at the lowest level since April 2009...Freddie Mac reported hat their single family serious delinquency rate was unchanged at 3.51% in April, but down from 3.67% in April 2011…in another report, CoreLogic reported that 66,000 foreclosures were completed national in April, unchanged from the rate in March; they report national foreclosure inventory as of April of 1.4 million homes, or 3.4% of all homes with a mortgage, considerably less than the 4.14% reported by LPS…and in yet another report, Trepp reported the delinquency rate for commercial mortgage-backed securities breached 10% for the first time in history at 10.04%; they further report multi-family sector is in the worst shape of the commercial loans, as 15.17% of its loans are delinquent...but lest you think that's really bad, Moody's reports 79% of commercial landlords in Europe were failing to make payments on their loans in the first quarter...Europe is in a world of hurt...

(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…)