Sunday, September 30, 2012

employment & GDP revisions, August’s incomes & outlays & durable goods, July home price indexes, et al

there were major revisions this past week to a couple of numbers which we've reported previously, so we better review them before we look at the new reports...first, the BLS released a preliminary estimate of the annual benchmark revision to non-farm payrolls which will be applied when the January unemployment report is released on February 1st of next year; we've repeatedly reminded you that "the confidence interval for the monthly change in...employment from the establishment survey is on the order of plus or minus 100,000" monthly, so it shouldn't be a surprise that when the BLS reviewed the state's files of employees actually covered by unemployment insurance that they should discover some major discrepancies; in some years it has approached a million jobs; this year the preliminary estimate shows that there were actually an additional 386,000 more payroll jobs than originally reported as of Mar 2012; 145,000 jobs in trade, transportation & utilities had gone unreported; as did 99,000 jobs in leisure & hospitality and 85,000 in construction; meanwhile, government jobs had been over-reported by 67,000...on net, this revision means that the economy had added about 32,000 more jobs per month between April 2011 and March 2012 than previously believed, meaning that the monthly pace of job creation during that period was about 194,000 jobs a month, rather than the 162,000 jobs a month originally reported...while any improvement over the dismal numbers we have reported is welcome, an extra 32K is nothing to write home about; unfortunately, it's the silly season, and the total 386,000 additional was just enough to put the obama job record in the black by 125,000, and the net positive was seized on by his supporters; so their happy tell had to be deconstructed in a post at naked capitalism, which pointed out that we're still 10.837 million short of full employment, with a jobs deficit of 5.056 million for Obama's time in office alone...

the other revision this week was a major & unexpected reduction to previously reported GDP for the 2nd quarter of this year; based on more complete data than was available for their second estimate issued last month, the BEA (Bureau of Economic Analysis) reported that the economy grew at an annualized rate of 1.3% in the 2nd quarter, down from the 1.7% originally reported; there were downward revisions to all major components, but the lions share of the decrease was attributed to a reduction in farm inventories caused by the Midwest drought, which as we now know became more severe as the summer progressed, so it would not be a surprise to see a similar hit to GDP in the 3rd quarter, which will be released next month...in the revised estimate, BEA contrasts the anemic 2nd quarter to the just weak 1st quarter, when growth was at a 2.0% annual rate; the adjacent graph shows just how slowly we’re recovering compared to recoveries from previous recessions; personal consumption expenditures, which make up 70% of GDP, increased 1.5% in the second quarter, compared with a 2.4% increase in the first, mostly because durable goods purchases decreased 0.2%, in contrast to an increase of 11.5% earlier in the year...exports, nonresidential fixed investment, and residential fixed investment also made positive contributions to 2nd quarter growth, but they were partly offset by the negative contributions from private inventories and state and local government spending; imports, which are subtracted from net GDP, also increased...

                                                                                 graph note: the y-axis doesn't start at zero to better show the change.
Personal Consumption Expendituresthe major economic release of this past week was on Personal Income and Outlays for August, released by the BEA; the BEA reported small nominal increases - less than 0.1% - of $15.0 billion in personal income and $12.5 billion in disposable personal income (DPI); however, adjusted for inflation, real disposable income fell 0.3% in August, the first monthly decline in DPI since November 2011; in July, personal income had increased $18.5 billion, or 0.1 percent, DPI had increased $15.4 billion, so with that revision we've had a pair of weak months back to back...however, even with stalling increases in income, personal consumption expenditures (PCE) for August increased $57.2 billion, or 0.5%; but real PCE, which is adjusted to remove price changes, only increased 0.1% in August, compared with an increase of 0.4% in July, which bodes for a weak contribution to 3rd quarter GDP from this major component, as you can see suggested on the adjacent graph of monthly PCE results, sectioned quarterly, from Bill McBride (recall that PCE is 70% of GDP)...purchases of durable goods, mostly autos, increased 0.5 percent in August, and higher gas prices also contributed to the increased spending; the increase in outlays for services, which is about 2/3rd of PCE, was a more modest $11.1 billion...of contributions to income, wages and salaries increased an anemic $4.7 billion in August, compared with an increase of $9.3 billion in July, mostly because goods-producing payrolls decreased $6.4 billion, in contrast to an increase of $3.2 billion a month earlier; most of this was because manufacturing payrolls decreased $5.2 billion for the month...although proprietor's income increased $7.3 billion and rental income increased $5.3 billion, those were partially offset by a $1.4 billion decrease in current transfer receipts, in contrast to an increase in transfer payments of $9.5 billion in July...personal saving, which is DPI less personal outlays, was at $444.8 billion in August, compared with $492.2 billion in July..as a percentage of disposable personal income that was 3.7% in August, compared with a savings rate 4.1% in July; the year to date personal savings rate is now the lowest it's been since before the recession started in 2007...this report also generates a PCE price index; despite the fact that the price index increased 0.4% in August, it was largely driven by higher gas prices; the core PCE price index, which excludes fuel & food, was only up 0.1% on the month; july's PCE price index, which wasn't impacted by rising gas prices, was up less than 0.1%...doug short tracks these price indexes, which the Fed has explicitly named in their 2% inflation target, and computes them to two decimal places due to their impact on policy; according to his calcs, the headline August PCE was at 1.49%, up from Julys 1.29%, while the August Core PCE index of 1.58% decreased from July's 1.64% annual rate...

Click to View

the August Report on Durable Goods from the Commerce Department (pdf) was just awful; new orders for long-lived manufactured goods fell $30.1 billion or 13.2% to $198.5 billion, the worst decline since January 2009, the deepest part of the recession; much of the decline was related to the transport sector; as Boeing received only one aircraft order in August, after logging 260 in July, which came on the back of the cancellation of a large order from Qantas which was reported just after last month's report, this left transport equipment down $27.8 billion for the month, a decline of 34.9%, after four consecutive monthly increases previously; but even excluding transport equipment durable goods orders still fell 1.6% for the first time in four months; defense orders, which were expected to be weak in anticipation of the year end budget sequester, did not really fare badly, as they were down 1.7%; ex defense, new orders still decreased 12.4%...probably what was most unsettling in this report was that new orders for non-defense capital goods in August decreased $18.5 billion or 24.3% to $57.7 billion, which tells us that companies have stopped investing in themselves, which suggests they see no opportunity for expansion...included here to the right is doug short's chart that shows us a three-month moving average of real, inflation-adjusted, durable goods, without the volatile defense & transport sectors, on a per capita basis, as the insert shows. the trend  for core durable goods has been down all year; if you click on the chart, it will open in a new window with links above to his other charts on this report...this report also covers durable goods shipments, unfilled orders and inventories for August; shipments decreased $6.8 billion or 3.0% to $222.5 billion, which was also the largest decrease in shipments since January 2009; unfilled orders were down 1.7% following two consecutive monthly increases; the $978.7 billion decrease was the largest since December 2009, while inventories increased $2.2 billion or 0.6%t to $371.6 billion, to the highest level since the series was first published in 1992...

leading up to the national purchasing managers index which we’ll get next week were a few regional reports; the Dallas Fed reported that manufacturing in their region was contracting at a slower pace, as their general business activity index rose to -0.9 in September from -1.6 in August..the July index had plunged to -13.2 so they’ve had 2 months of improving bad conditions in a row; their new orders index rose to 5.3 following a reading of zero last month, a they note a pickup in demand…the Richmond Fed’s manufacturing current business conditions index increased to 4 in September from -9 in August, which had been the 3rd month of contraction (recall positive numbers indicate expanding activity); positive readings for shipments and new orders more than offset the negative reading for employment…and the Kansas City Fed reported Growth in Tenth District Manufacturing Activity Slowed Somewhat, as their month-over-month composite index was 2 in September, down from 8 in August and 5 in July, and the lowest in nine months…in another major business barometer, the Chicago PMI fell below 50 for the first time since 2009, reading a seasonally adjusted 49.7, down from 53.0 in August; their new orders index fell to 47.4 from 54.8 in August, while the employment index fell to 52.0 from 57.1 in August

Real House Prices

among the week's housing related releases, we'll look at the Case-Shiller Home Price Indices for July first, which actually report a 3 month moving average of prices for homes sold in May, June & July...both indexes rose over the last report; prices as indicated by the 10 city index were 1.5% higher than June's report, and the 20 city composite was up by 1.6%...for the 3rd consecutive month, prices were also up for the month for all  20 individual city indexes on an unadjusted basis, led by price increases of 3.7% in Minneapolis and 3.3% in Detroit; on a seasonally adjusted basis, both composite indexes were up 0.4% for the month, and only Cleveland prices registered a decline; lower priced houses rose in price by 1.0%, will mid-tier houses rose 0.4% and top tier home eked out a 0.1% seasonally adjusted gain....year over year, prices increased 1.2% for the 20 cities in July; 0.6% for the 10 MSA index, and 16 of the 20 cities showed higher prices than a year ago, with only the Atlanta, Chicago, Las Vegas and New York MSAs trending lower...the WSJ has an interactive table of all 20 city indexes; values for each city & the composites are based on year 2000 = 100.0...interest rates on 30 year fixed mortgages averaged 3.55% in July if this year, while they averaged 4.55% in July 2011, so on a monthly payment basis, equally priced homes were 12.8% cheaper this July than last...on the same day that the Case-Shiller index was released, the Federal Housing Finance Agency released it's July home price index based on prices of houses purchased with mortgages backed by Fannie & Freddie; on a seasonally adjusted basis, the FHFA price index was up 0.2% over June's index; and June's index was revised from a gain of 0.7% to a gain of 0.6%; however, home prices were still reported 3.7% higher than a year ago...other July price indexes which have reported recently include FNC, which reports residential property indexes non-distressed housing for 10 MSAs, 20 MSAs, & 30 MSAs, as well as a composite 100 index; all their unadjusted indexes increased 0.8% or 0.9% for July; their 100 city index, which combines appraisals and sales, is up 0.6% from last July; Trulia, which reports an asking price index based on listings, has their index 2.3% higher than a year ago and up in 68 or the 100 metros they cover; and the LPS home price index, which reported a 0.2% price increase for July only as homes in the New England region lagged, a year to date gain of 4.3% (which was obviously seasonally influenced) and a one year july to july gain of 1.8%...the CoreLogic HPI for July was reported much earlier and it will be updated for August next week; in July, it recorded it's biggest year over year jump in 6 years as it reported home prices nationwide increased 3.8%...bill mcbride reminds us that none of these home price indexes are adjusted for inflation and that's it's useful to look at them in real terms; he takes the CoreLogic index, the Case Shiller 20, and the Case Shiller national index and adjusts them for inflation using the CPI less shelter, which you can see in the graph to the right above; in those inflation adjusted terms, prices for the Case Shiller national index in yellow is back to mid-1999 levels, the Case Shiller 20 index (red), despite being up 7.8% from the low, is only back to July 2000 prices, and prices for the CoreLogic index in blue are just back to levels of February 2001...

the Census Bureau reported new home sales for August (pdf) at a seasonally adjusted annual rate of 373,000, which means 31,000 new homes were sold in August; that was 0.3 percent (±9.3%) below the revised July rate of 374,000, but is 27.7 percent (±18.8%) above the estimate of a 292,000 annual rate last August; the median sales price of new houses sold in August 2012 was $256,900, while the average sales price was $295,300, the highest since August 2008; page 3 of the census pdf breaks out the sale prices into $100,000 price ranges; the bureau's seasonally adjusted estimate of new houses for sale at the end of August was 141,000, which be a 4 1/2 month inventory at the current sales rate...another report we follow is the LPS mortgage monitor; this week they released their “first look” at mortgage conditions in August, which reported the mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.87% from 7.03% in July, while the percentage of mortgages in foreclosure fell 1.0% to 4.04% of the total outstanding, as 2,020,000 homes remained in foreclosure…this is still close to the 4.12% that were in the foreclosure process a year ago..the total number of properties that are at  least 30 days delinquent or in foreclosure has fallen slightly to 5,450,000​, but it still means nearly 11% of US homeowners are not paying on their mortgages….

N.B. i had some damage to my own house during the storms last weekend, which will need to be repaired before winter sets in...accordingly, my time spent with blogging and commentary will be less than normal until the real work gets done...

(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, September 23, 2012

NY & Philly Fed reports, August housing starts and sales, 2nd Q Flow of Funds, BLS & Census on the states, & romney on the moocher class..

it has been a relatively slow week as relates to new economic releases, and most of the economic blogs were still preoccupied with assessing the benefits & damage of QE3 anyway... if you want to see the whole discussion on the direction that US monetary policy is headed in, there's about 5 dozen linked paragraphs on it at the beginning of this week's globalglassonion...otherwise, the political hemisphere of the blogosphere was pretty much focused on romney's remarks at a private fundraiser, in which he claimed 47% of us are moochers who pay no taxes but "who believe that they are victims,  who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it."; he went on to say "my job is is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives."... since we're in the stretch run of the campaign, these comments generated thousands of posts in response (really, google searching for "the 47 percent" over just the past week returns 185,000 links)...briefly, most the 46% of us who dont pay income taxes are either retired (who paid taxes all their working lives), students, unemployed or those making so little at their jobs that the earned income tax credit eliminates their income tax liability; moreover, 61% of those who dont pay income tax do pay payroll tax, which means they have jobs, and when you account for total payroll taxes, their contribution is 15.3% of their income, which is a higher rate than romney himself paid in 2011...

ISM PMI among the few economic releases this week were the first two of the regional Fed reports for September, which give us the first clue as to the direction the September purchasing manager's index will take...the Empire State Manufacturing Survey from the NY Fed, which also covers part of CT & NJ, produced its lowest reading since 2009 as the general business conditions index fell to -10.41 in September, after it dropped more than 13 points into contraction at -5.85 in August (recall that below zero for these indexes indicates contraction)..most of the empire state subindexes also weakened with this report; the new orders index fell nine points to -14.0, its third consecutive negative reading and its lowest reading since late 2010; the unfilled orders index slipped to -14.9, and the shipments index was down slightly for the month at 2.8, while the inventories index rose to zero, suggesting no change in inventory levels; moreover, the important employment index fell to 4.26 in September from 16.47 in August, and the workweek index went negative, falling to -1.06 from 3.53....the September Manufacturing Survey from the Philly Fed (pdf), on the other hand, did show some improvement over previous months, although the general index remained at contractionary levels for the 5th consecutive month; the survey’s broadest measure of district conditions, the diffusion index of current activity, increased 5 points, to a reading of -1.9...the current new orders index rose 6.5 from a negative 5.5 to post a positive 1.0, while the unfilled orders improved by 8 points from a -16.2 to a -8.2... however, september's current shipments index fell nearly 10 points , from  -11.3 to -21.2, and inventories fell from August's -6.9 to a deeply negative -21.7...meanwhile, both employment related indexes improved; number of employees rose from -8.6 to -7.3, meaning less layoffs, and  the average workweek rose from -14.6 to -7.3, which means the reductions in hours worked are slowing...again, we'll include bill mcbride's graph showing these first two september regional Fed surveys with a dashed green line, the composite of all the regional Fed surveys thru august in blue, and the final monthly PMIs as released by ISM as shown in red; the correlation between extended contractions in the series and recessionary periods (the horizontal blue bars) is fairly obvious..

Total Housing Starts and Single Family Housing Starts there were a few reports on housing data for August this week...the first one we'll look at is Permits, Starts and Completions from the Census Bureau (pdf); you may recall these reports from the census have a large margin of error; nonetheless, by looking at the revisions and taking the long view we can see how housing is recovering - or not...in August, privately-owned housing starts were at a seasonally adjusted annual rate of 750,000, which was 2.3% (±10.2%)* above the revised July estimate of 733,000; starts for July had been reported at 746,000, so the initial estimates for the two months were pretty close; however, August housing starts were 29.1 percent (±12.8%) above the August 2011 rate of 581,000, so we're clearly off the bottom, as you can see on bill mcbride's chart, which shows overall starts in red, and single family starts in blue, going back to 1968...single-family housing starts in August were at a rate of 535,000; up 5.5% (±10.4%) from july, while the start rate for units in buildings with five units or more was 208,000...new building permits authorized in August were at a seasonally adjusted annual rate of 803,000, 1.0% (±1.2%) below the revised July rate of 811,000, but  still 24.5% (±1.7%) above annual rate of 645,000 permits last august...of August permits, 512,000 were for single family structures and 263,000 represented units in building of more than 5 units...housing completions in August were at a seasonally adjusted annual rate of 689,000, 0.7% (±18.8%) above the july rate and 11.7% (±17.5%) above annual rate of 617,000 last august...this report also gives housing starts, permits, under construction & completion data by region in the tables pages 2 to 6 of the pdf, but since the 90% confidence intervals on them run between ± 25% and ± 50%, they're really only a curiosity...

on the same day as census released the new home data, the NAR (National Association of Realtors) reported on August Existing-Home Sales and Prices; according to the NAR, total existing-home sales, which includes completed sales of single-family homes, condos, et al, rose 7.8% to a seasonally adjusted annual rate of 4.82 million in  August from 4.47 million in July; this total was also 9.3% above the 4.41 million annual sales rate of last august and the highest rate of home sales since the early 2010 spike in sales caused by the homebuyer tax credit...the median sales price for all home types sold in August was $187,400 in August, a 9.5% increase over last August's sales prices, and the 6th month in a row that the NAR showed year over year median price increases, the first time they've shown a string of six price increases since May 2006; as we've pointed out, average & median sales prices have been increasing in part due to the large inventory of foreclosed homes being kept off the market; distressed homes, which includes foreclosures and short sales sold at a discount, accounted for 22% of August sales, compared to the 31% of sales they accounted for in August 2011; foreclosed homes, which were only 12% of the total, sold for an average of 19% less than others on the market, while short sales were discounted 13%...there were 2.47 million previously owned homes listed for sale in August, which was 18.2% less homes on the market a year earlier; at the current sales rate this represents 6.1 months of supply...the median time on market for homes sold in August was 70 days, down 23.9% from the 92 day median a year earlieer; 32% of homes sold in August were on the market for less than a month, while 19% were on the market for six months or longer (a separate report from Realtor.com:puts the August inventory at.1.84 million units in August, down -18.68% from their year earlier report) ..according to Freddie Mac, the average rate on a 30-year fixed-rate mortgage in August was a near record low 3.60%, up from the 4.27% average rate of a year earlier; thus, the monthly commitment for such a home buyer would have been 8.5% less than a year earlier...but even with lower outlays, first time home buyers accounted for 31% of home sales in August, down from 34% in July and 32% a year earlier, while cash buyers bought 27% of those homes sold in both August & July, less than their 29% year ago clip...NAR labels most of those buying with cash as investors, and says they counted for 18% of all purchases, up from 16% in July but down from 22% in August of last year...regionally, sales in the northeast rose at a rate of 8.6% and sold at a median price of $245,200, barely up from a year ago; sales in the South rose at an annual pace of 7.3%, with a median sales price of 160,100, 6.5% hgiher than last year, while existing-home sales in the Midwest increased 7.7% to a level of 1.12 million, while the  median price in the Midwest was $152,400, up 7.8% from August 2011...and in the West, sales increased 8.3% to an annual level of 1.17 million in August but were unchanged from a year ago....the median price in the West was $242,000, which is 16.3% higher than last year, largely due to a shortage of homes being offered for sale..

there was another major quarterly release this week, the Second Quarter 2012 Flow of Funds from the Fed (134 pp pdf), a report heavy on statistics and tables covering financial & non-financial sectors, credit markets and borrowing by type of financial instrument, but it's mostly watched for and reported on for data on household balance sheets...according to the Fed, household net worth was at $62.7 trillion at the end of the second quarter, down $300 billion from the net worth of $63.0 trillion at the end of the first quarter; mostly due to a $600 billion decline in the value of stocks & mutual funds owned by households, which was partially offset by an increase of $355 billion in the value of household real estate (the CoreLogic HPI is used by the Fed for home values here)...household financial assets were valued at $51.9 trillion in the 2nd quarter, while tangible assets, such as homes, cars, & other durable equipment were worth $24.4 trillion; these were offset by liabilities of $9.6 of mortgage debt and $2.7 trillion in consumer credit...if there was a bright spot in this report it was that total household debt as a percentage of after tax income (DPI) fell to 113.2%, the lowest level since 2003...and with increasing home prices, household's net equity in their real estate increased to 43.1%, the highest since the 2nd quarter of 2008....the adjacent bar graph from zero hedge shows how components of household's balance sheets have changed since Q1 of 2004; with assets above the zero line and liabilities below; reading bar segments from the bottom up is easier if you click on the graph for a new window; consumer credit is chartreuse, mortgage debt is pink, real estate is blue, durable goods and other tangibles are red, deposits are green, corporate equities are violet, mutual funds are teal, pension funds are orange, and all other assets are light blue...note that household net worth, the black line transversing the bars, is not adjusted for inflation, so in real, inflation adjusted terms our household's net worth still remains 16.4% below the Q1 of 2007 peak...

State Unemployment echoing the August unemployment report from a few weeks back, the BLS released the Regional and State Employment and Unemployment Summary for August this week; despite the fact that the national unemployment rate fell, the jobless rate increased in 26 of the states during the month, was unchanged in 12, with the 12 other states and DC showing declines in the unemployment rate...Nevada continued with the highest unemployment rate in August, at 12.1%, with Rhode Island and California being the only other states with double digit rates, 10.7 and 10.6 percent, respectively...and North Dakota was again the state with the lowest jobless rate, at 3.0%...the biggest jump in joblessness was in Connecticut, where the rate rose from 8.5% to 9.0%, followed by Michigan, where unemployment was again rising, from 9.0% to 9.4%...the adjacent chart from bill mcbride has each state represented by a vertical bar, arranged from the current worst jobless rates on the left, shown in red, declining to lower unemployment states moving right; the blue extension on each bar indicates the recession unemployment high for each state (thus, new york and new jersey are now at their highest jobless rate yet)....the WSJ also has an interactive graphic whereby you can graph the unemployment rate changes in up to 5 states at a time since the beginning of the recession... reflecting returns from the establishment survey portion of the monthly report, BLS reports payroll employment increased in 28 states, decreased in 21 states and the District of Columbia, and was unchanged in Colorado...the largest month over month increase in employment occurred in Texas, which gained 38,000 jobs, followed by Florida (+23,200) and Missouri (+17,900), while the largest monthly decreases in August employment were in Virginia, which lost 12,400 jobs, the District of Columbia, which reported 11,200 less jobs and Washington, which showed 8,800 fewer jobs than in July...

  on the heels of last week's census report on incomes, poverty and health insurance, the census broke out that same data into state by state information in a supplemental report called the 2011 American Community Survey; it showed median household income ranged from a low of $36,919 in Mississippi to a high of $70,004 in Maryland, and that between 2010 and 2011, inflation-adjusted median household income either fell or stayed the same in every state except Vermont, which major declines shown by Nevada, whose state median income fell 6%, California ( down 3.8 percent), Georgia (-3.5 percent), and Hawaii (-5.2 percent)...twenty states saw a significant increases in income inequality as measured by the Gini index: Arkansas, California, Florida, Georgia, Illinois, Louisiana, Maine, Michigan, Nebraska, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Tennessee, Texas, West Virginia, and Wisconsin, while income inequality did not decrease in any states nationwide…the chart included here is of the percentage in poverty by state, prepared from the data in this survey by the Economic Policy Institute…poverty rates range from a high of 22.6% in Mississippi at the far left, to a low of 8.6% in New Hampshire on the right…the largest increases in poverty between 2010 and 2011 occurred in Louisiana (+1.7%), Oregon (+1.6%), and Arizona (+1.5%), while Vermont was the only state where the poverty rate declined.

(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…)

The Bears Explain Where Money Comes From

As posted on Naked Capitalism by Yves Smith on Friday, 9/21/12.  I just love the bears.


Catherine Austin Fitts' Quote Of The Day

"With QE3, we are essentially being bought out with our own money...and unemployment is being used to facilitate this process in a very clever manner. Monetary inflation is currently being offset by labor deflation. The way you avoid collapse is by printing money and stealing assets. The way you avoid inflation is with labor deflation."
– Catherine Austin Fitts

An older video you may have seen before but well worth looking at again.  I have a pretty nice beard too.  Can I getin on this deal?

Catherine Austine Fitts' Quote Of The Day

Saturday, September 22, 2012

Microsoft, HP skirted taxes via offshore units: Senate panel

I'm shocked!  Shocked!

Yet the contention is that the middle class isn't paying it's fair share, and tax rates for them need to rise while the 1%'s needs to be cut because they pay more than their fair share.

Microsoft, HP skirted taxes via offshore units: Senate panel

By Kim DixonPosted 2012/09/20 at 4:08 pm EDT [News Daily]

WASHINGTON, Sep. 20, 2012 (Reuters) — Technology giants Microsoft Corp and Hewlett-Packard Co used offshore units to shield billions of dollars from U.S. taxes by taking advantage of loopholes and stretching the limits of the tax code, a Senate panel said on Thursday.

Calling tax avoidance rampant in the technology sector, the Senate's Permanent Subcommittee on Investigations said tech companies used intellectual property, royalties and license fees in overseas tax havens to skirt U.S. taxes.

The panel subpoenaed internal documents from the companies and interviewed Microsoft and HP officials to compile its report, which uses the companies as case studies.

"The tax practices and gimmicks range from egregious to dubious validity," Democratic Senator Carl Levin, chairman of the panel, said at a news conference.

Officials at HP and Microsoft strongly denied any wrongdoing and noted that tax officials had not objected to the structures.

Levin has been investigating offshore tax evasion for years and often issues reports calling attention to the issue.

Senator Tom Coburn, the top Republican on the panel, signed onto the new report, but he blamed Congress.

"Tax avoidance is not illegal. Congress has created this situation," Coburn said, criticizing the complex tax code and the 35 percent corporate tax rate, among of the world's highest, though few companies pay the statutory rate.

The subcommittee said that from 2009 to 2011, Microsoft shifted $21 billion offshore, almost half its U.S. retail sales revenue, saving up to $4.5 billion in taxes on goods sold in the United States.

This was accomplished, the panel report said, by aggressive transfer pricing, where companies put values on intra-company movement of assets. Corporate units are supposed to use a fair market price to value such transfers, but critics say they are manipulated to minimize tax.

Continued.....http://www.newsdaily.com/stories/bre88j0vy-us-usa-taxes-offshore/

Sunday, September 16, 2012

QE3, the census on income, poverty & health insurance, the state of working america, July consumer credit & LPS Mortgage Monitor, et al

by now you all probably know that the Fed initiated a third round of quantitative easing this week, which distinguishes itself from the first two rounds of QE by having no planned end date; rather, as per the Thursday statement from the FOMC meeting, "the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability"...furthermore, "the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens"...it seems fairly clear from just those phrases that the Fed is in this for the long haul, and that "exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015"...basically, their intention is to keep short term interest rates near zero for another 3 years, also to buy $40 billion of agency mortgage debt each month for the foreseeable future, continue their ongoing "operation twist", whereby they sell short term treasuries and buy long term in order to lower long term interest rates, and re-invest proceeds from their current holdings back into additional long term agency mortgage debt, which will together increase the Fed's net long term bond position by $85 billion monthly...this is still smaller in terms of new money creation monthly than QE1, which added $1.25 trillion to the Fed's balance sheet in the opening 8 months of the crisis, or QE2, which bought $600 billion of long term treasuries over 8 months starting Nov 2010...the $40 billion of new agency MBS they'll be buying each month has been variously estimated to be 40% to more than 50% of all new agency mortgage debt issued monthly...so if you want to bet that the Fed doesnt intend to take a loss, this might be a good time to buy a house..  

QE Timeline as is obvious by from the chart to the left, the market has historically performed well while QE was in effect, and retreated when it terminated; which is only rational given that the Fed is taking a large amount of assets out of circulation, and that money moves elsewhere…and commodities have similarly gone up in price; after the Fed announcement the price of oil hit $100 for the first time since May…those on fixed incomes who are dependent on a return on their bonds or CDs for day to day expenses and pension funds, most which are still funded with the expectation of a 7.5% return, will be the worst hurt by an extend period of low rates…ostensibly, the reason given by the Fed and it's defenders for taking this action is consistent with their mandate to create jobs, but as you can see by the above chart from the Economist, easy money since mid 2008 from the Fed (red), the Bank of England (green), & the ECB (blue) has had no discernible impact of the corresponding countries unemployment rates (similar colors, elevated lines)...clearly, by buying around half of the new mortgage bonds they will continue to keep mortgage interest rates near of at their current record lows, which as we have shown, allows homeowners to commit to a nearly 13% greater home purchase price than a year ago, so they're quite directly going to be re-inflating the housing price bubble, so if that spills into more home building it would have a minor effect on employment, as will other trickle down effects...but we've seen the banks and agencies have been sitting on a large inventory of foreclosed homes which has yet to reach the market, so mortgage bond buying certainly looks from here like no more than another stealth bank bailout (we showed how QE1 & low interest rates were initiated to bail out the banking system here)...during that first year of QE there were a considerable number of posts on potential exit policies, discussing methods the Fed would use to unwind QE and shrink their balance sheet back to prerecession levels below $800 billion…we dont see any of those discussions anymore…

there were two major reports on our collective condition loaded with charts & statistics released this week; the one that received heavy & widespread media coverage was "Income, Poverty and Health Insurance Coverage in the US", an annual report based on information collected by the current population surveys of the Census Bureau...starting with income, this report found that the median household income, adjusted for inflation, fell 1.5% between 2010 and 2011, to $50,054...and it's now 8.1% lower than 2007 and 8.9% lower than in 1999, the year the high water mark for real US household incomes was set....the median family household income was lower by 1.7% at $62,273, and the median for non-family household's was essentially unchanged...households in cities fared worse; central city median incomes declined by 3.7%, while the overall metropolitan median incomes fell by 2.2%...generally, this report breaks out household medians by quintiles, or 20% segments of the population; with a separate category for the top 5%; on page 8 of the pdf we see that adjusted income for the middle quintile fell 1.9% in 2011, while the adjusted income for the top five percent rose 5.3% over the year...the median earnings of women who worked full time the entire year was $37,118, while men working full time, year-round earned $48,202; both lost 2.5% in real terms between 2010 and 2011, but the median for women has increased from the $28,699 figure of 1973, while full time men saw their median income decrease from $50,622 over that period; over the decade, the median real income for black households took the biggest hit, losing $6,518, or 16.8% of their $38,747 median income in 2000, to show a median of $32,229 in 2011...a sharp increase in our inequality was the major tale of this years report; our Gini index, a commonly used measure of inequality, rose 1.6% in 2011 to read .477, which makes us now more unequal than Argentina or Bangladesh & on a par with Kenya; (a country with equal incomes would have a zero Gini ratio; a country where one individual had all the income would have a reading of one; although the gini index is figured by a complex calculation, a reading near .50 suggests half get all of the income while the other half get nothing...how we've changed over the period that our inequality was measured by this report is illustrated in the adjacent bar graph from the Center on Budget and Policy Priorities; the top 20% now receive 51.1% of our national income,, with 22.3% going to the top 5%, while the middle 20% now receive only 14.3 of the national income...census notes that all of the percentage gains by the top 20% in 2011 came from the 3rd and 4th quintiles, while "changes in the shares of aggregate income for the lowest two quintiles were not statistically significant"

this report also covered the demographics of poverty in the US, and for 2011 there was a slight numeric improvement over 2010, as just 46,200,000 of us were statistically in poverty in 2011, or earning below $22,811 for a family of four with 2 children, which is a measure which varies by size of household; that's 15% of the population, a decline from the 15.1% figure of last year...sadly, 16,100,000 of those in poverty are children under 18, which means 21.9% of all american kids, or more than one in five, are living below the poverty line ... moreover, of those in poverty, 44% are considered in "deep poverty" which means their annual income is less than half the poverty threshold...figures would be much worse were it not for the safety net programs; an additional 21,400,000 senior citizens would be in poverty were it not for Social Security, and census estimates that 2.3 million were kept out of poverty by unemployment rations; on the other hand; the earned income tax credit is not included in income, which might have been cause to count 5.7 million less in the total...census admits there are a number of problems with they way they've measured poverty since 1969; for instance, non-cash benefits such as food stamps are also not included, and they intend to have a revised measure of these poverty numbers out in November...

Source: The State of Working America, 12th edition, Economic Policy Institute (http://stateofworkingamerica.org/chart/swa-jobs-figure-5f-good-jobs-share-total/)

the last part of this census report, the percentage of us covered by health insurance, showed some decent gains, which the commentariat largely attributed to obamacare....47.9 million of us were without health care coverage in 2011, down from the 49.2 million who were uninsured in 2010; employer sponsored health care plans cover 14.2 million less of us, while government health care plans like Medicare & Medicaid covered 25 million more than the previous year..most of the gains were in coverage were by young people aged 19-25, who by provisions of the ACA were now covered under their parent's employer sponsored plans...and while we're on the topic, Romney now says he likes parts of 'obamacare' and wont support a wholesale repeal, which shouldnt be a surprise since much of obama's original program was modeled on the state health care plan then in effect in Massachusetts... 

the other major report out this week was the 12th editon of The State of Working America, an ongoing analysis published since 1988 by the Economic Policy Institute, a widely respected liberal think tank, which includes a wide variety of data and charts on family incomes, wages, jobs, unemployment, wealth, and poverty....the chart from that report that we’ll include here shows the decline in good jobs despite a rising output per worker, where EPI defines a good job as one paying over $18.50 hour, having a retirement plan, and providing health care coverage…showing selected years since 1979, the bars represent the percentage of men, women and all workers with a good job, and the elevated dots are the output per worker…only 28% of men now hold good jobs, compared to the 37% who had good jobs in 1979 (light blue bars)…while the percentage of women holding good jobs improved from 12% in 1979, the number of new good jobs for women has stagnated since 2000….the chart links to a larger view on the page describing it

there were also several monthly economic releases out this week; we'll start with the July report on Consumer Credit from the Fed, which showed that consumer credit shrunk by a seasonally adjusted $3.28 billion to $2.705 trillion this July, a 1.45% decline, & the first overall decline in consumer borrowing since a 3.95% decrease in August of 2011...as has been the norm with this report, the nonrevolving credit portion of the total, which we've characterized as longer term loans for cars, yachts, and education (but not mortgages) continued to increase, rising by a seasonally adjusted $1.55 billion to $1.854 trillion, a 1.0% increase in July over June; it was the volatile revolving credit segment of this report that dragged the total down, as credit card borrowing in July again fell by $4.82 billion to $850.73 billion, a 6.8% month over month decline...government issued student loans, which we've been following because of their exponential growth (see Fed chart right), only rose $1.1 billion in July to $471.8 billion...

the next release we'll look at is the August retail sales report from the Census (pdf); they estimated. that the seasonally adjusted retail and food services sales for August were at $406.7 billion, an increase of 0.9% (±0.5%)  from July and 4.7 percent (±0.7%) above the sales of August 2011...the June to July retail sales gain was also revised downward, from 0.8% to 0.6%; totals ex autos and parts were at $332.5 billion in August, up from $329,9 billion in July, and gasoline sales rose from $43.4 billion to $45.8 billion, a 5.5% increase reflecting higher fuel prices; without the gains in the auto and gas categories, retail sales would have only been up 0.1% in August...

both the consumer price index and the producer price index for August were also released by the BLS this week…on a seasonally adjusted basis, prices for all urban consumers (CPI-U) increased 0.6& in August, the largest gain since June 2009, mostly due to higher gas prices..year over year price increases were still subdued; doug short computes (and graphs) the price indexes to two decimal places and has the year over year headline CPI at !.69%, while the year over year core CPI (ex food & energy) came in at 1.91%…rising gas prices also drove up wholesale prices in August; the producer price index jumped 1.7% over its level of july, which was also its largest jump since June of 2009…the energy component of this index was up 6.4% for the month..

the Fed reported on Industrial production and Capacity Utilization for August; industrial production fell 1.2% for the month, which the Fed attributed to the disruptive effects of hurricane Issac on production in the gulf coast region…nonetheless, this was still the biggest drop in industrial production since March of 2009; although the hurricane contributed to a drop of 1.8% in the output of “mines” as oil & gas rigs were shut down, manufacturing output also decreased 0.7% in August after having risen 0.4% in both June and July…and capacity utilization for total industry was off a full percentage point to 78.2%, so we still had a lot of plant & equipment idle…

the department of commerce also reported on our balance of trade in goods and services for July (pdf)...exports of $183.3 billion and imports of $225.3 billion resulted in a trade deficit of $42.0 billion, up slightly from $41.9 billion in June...even though our oil imports declined during july, as oil averaged $93.83, down from $100.13 per barrel average in June, our exports to europe, brazil and india were off by a comparable amount...our trade deficit with the euro area increased to $10.2 billion (compared to the $7.7 billion of a year ago) and our trade deficit with China remained elevated at $29.4 billion...bill mcbride has the charts for retail sales, industrial production and the trade deficit in his weekly summary...

FHA Vintageone report we try to look at in depth when it's released each month is the Mortgage Monitor from LPS, this for July (pdf); the data summary, on slide 2 of the pdf, shows that 4.08% of mortgages were in the foreclosure process in July, nearly unchanged from the 4.09% in foreclosure in June, and only down slightly from 4.11% of July last year; they also show a slight improvement in the percentage of home loans that were delinquent for the first time in four months; according to LPS, 7.03% of mortgages were delinquent in July, which was down from the 7.14% reported delinquent in June, and down even more from the year ago delinquency rate of 7.80%...the breakdown on the homeowners not paying on their mortgages in July include 1,960,000 loans that were less than 90 days delinquent, 1,560,000 loans that were more than 90 days delinquent, and 2,042,000 loans that were in the foreclosure process...the total of ​5,562,000 loans that are delinquent or in foreclosure represent 11.12% of all mortgage loans, which means that one in nine homeowners did not make a current house payment in July...looking at the delinquencies and foreclosures by state on page 4 of the pdf, we continue to see florida, the hotbed of the robosigning scandal, leading the country with the most mortgages in trouble; fully 13.4% of mortgaged homes in florida remain mired in the foreclosure process, while another 7.7% of mortgages are delinquent, meaning a total of 21.1% of homeowners are not making payments on their loans; mississippi has the worst delinquency-only problem; with 13.1% of the loans in that state in delinquency but not yet foreclosed on...that LPS state table also marks the judicial states, where court proof is required to seize a house, with a red asterisk; you can see they lead the rest with loans stuck in the foreclosure process, other than florida, the worst include new jersey, where 7.6% of home loans are in foreclosure, illinois, where 6.6% are stuck in the process, new york, where there's 6.3% in foreclosure, a 69 year backlog at current court processing rates, and maryland, where 5.1% or loans remained mired in the process...maps separating the judicial states from the non-judicial, with changes in foreclosure rates for each, are on page 5 of the pdf...much of this month's report, as well as the audio presentation (mp3), focuses on the effect negative equity has on homeowners, drawing a relationship between negative equity and the tendency on homeowners to quit paying on their mortgage; the adjacent map, taken from page 8 of the pdf, shows negative equity by state, about which LPS notes "in Nevada and Florida, two of the states with the highest percentage of underwater borrowers, more than three percent of borrowers who were up to date on their payments are 60 or more days delinquent six months later", which seems all the more reason for the Fed to keep a floor under home prices...

one caveat we should add to that LPS report is that CoreLogic also reported on homes with negative equity for the 2nd quarter of 2012; they showed that 10.8 million homes, or 22.3% of all residential properties with a mortgage were in negative equity at the end of the second quarter of 2012...the differences in these private reports has been observed before; for instance, the quarterly reports from the mortgage bankers association typically show a fractional percent more homeowners delinquent than does LPS...

(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…)