Sunday, July 28, 2013

June’s new and existing home sales and advance report on durable goods

Existing Home Salestwo of the widely watched reports this week were on June sales of houses...the first we'll look at is on sales of previously owned homes from data provided by National Association of Realtors (NAR) and is based on home sales data from a representative sample of 160 MLS Boards; the NAR reported that existing homes sold in June at a seasonally adjusted annual rate of 5.08 million, up 15.2% from the 4.41 million-unit rate of last June but down 1.2% from the 5.14 million rate homes sold at in May, which was revised from the 5.18 million pace originally reported...sans the annualization and adjustments, 501,000 actual home sales were reported for June, down from 514,000 in May, but up from 463,000 homes that sold in June of last year.....completed transactions on single family homes accounted for a seasonally adjusted 4.50 million of the annualized total, and these were also down 1.1% from May but up 14.5% from a year ago...the adjacent graph from Bill McBride shows the annualized sales rate that NAR reports plotted monthly since 1993; you can see that except for the spike in sales caused by the first time home buyer's credit, home sales are still near the post housing bust high…

the median June sales price for all housing types, including townhomes, condominiums and co-ops, was at $214,200 nationally, up from $203,100 in May and 13.5% above the June 2012 median of $188,800; this marked the 16th consecutive month of year over year double digit median sales price gains, which had only occurred previously circa February 2005 to May 2006, at the height of the housing bubble...the national average home sales price was at $261,100 in June, up from $251,100 in May and 9.6% higher than the $238,200 average of a year earlier...the median price for single family homes was at $214,700, up 13.2% from a year earlier, while the average sales price of a single family home was $261,600, 9.5% higher than the average selling price in June 2012…the pie graph below, from the NAR (pdf), shows June’s home sales by price range, with each slice representing the percentage of homes that sold in each price range…43% of homes sold in June for between $100,000 and $250,000, represented by the large violet wedge…

NAR June home prices pieso-called distressed sales, which includes foreclosures and short sales, were only 15% of homes sold in June, down from 18% in May & the lowest since the NAR started tracking this metric in October 2008; foreclosures, which accounted for 8% of all sales, were said to be selling at 16% below market value, whereas the short sales, accounting for 7%, were selling for 13% less than similar properties which were not so distressed...with such discounted sales down from 26% of the total just a year ago, it's clear that the reduction of cut rate distressed homes in the mix of homes sold has gone a long way in increasing both the average and median national home price metrics...

except for a tiny pullback of 0.2% in March, June's sales marked the first seasonally adjusted decrease in home sales since September of last year, as average interest rates on 30 year mortgages rose from 3.54% in May to 4.07% after the Fed's talk of reducing their purchase of mortgage backed securities spooked the markets...it's obviously difficult to quantify how much increasing interest rates influences home buying decisions; it’s even possible that the prospect of higher mortgage rates could temporarily hasten buying, but NAR chief economist Lawrence Yun opined that higher mortgage interest rates are affecting sales in high-cost regions of California, Hawaii and the New York metro area...although the NAR does not report price data on individual cities, median and average home prices in the West were by far the highest in the country, at $282,000 and $325,600 respectively...

all-cash buyers accounted for 31% of home sales in June, down from 33% in May though up from 29% a year ago, while individuals identified as investors accounted for 17% of transactions, down from 18% in May and 19% last June...although the percentage of first time home buyers rose slightly from 28% in May to 29% in June, they still made up less than the the 32% of sales they accounted for last June, and much less than the normal 40% to 45% of the market they had previously accounted for....high home prices are said to be one of the factors holding back first time home purchasers, but anyone who's been paying attention knows there's a number of other reasons limiting new household formation, the most obvious of which is the already high debt load from student loans young people are carrying, even if they should get a decent paying job after graduation...

there were 2.19 million previously owned homes remaining on the market at the June, which NAR reports is a 5.2 month supply at the current sales rate, up from the 5.0 month supply they reported last month...this is a closely watched figure, with some even considering it so important as to report on it weekly, despite the fact that it does not include bank owned foreclosed homes held off the market or any other shadow home inventory...however, this low supply of homes is accelerating sales for those that are offered; the median time homes were on market was 37 days in June, down from 41 days in May...previous NAR releases have consistently blamed tight inventory for lower sales and higher prices, but that rhetoric was absent from this month's press release; rather, this month they present a narrative of previously underwater homeowners wanting to sell out and others waiting for further price appreciation before they sell…

the other June housing report released this week was an estimate of new single family homes sold (pdf) from the Census Bureau, a report which typically has the largest margin of error and is subject to the largest revisions of any census construction series, with the sample data collected from voluntary questionnaires at just a small sampling of permit offices...nonetheless, this and other widely followed census residential series are almost never reported with the caveat that they're inexact and error prone, and since they're believed to influence policy, we must continue to explain what little data they reveal... 

according to the Census, June sales of new single family homes were estimated to be "at a seasonally adjusted annual rate of 497,000, 8.3 percent (±20.5%)* above the revised May annual rate of 459,000", which means that new home sales could have been down 12.2% from May's sales, or up 28.8%; furthermore, that range is the 90% confidence interval, which means that census figures there's even a 1 in ten chance that sales were down more than 12.2% or up more than 28.8% in June...to put numbers on it, it means that census is just 90% confident, that if the pace of new home sales they've estimated in June were to be extrapolated throughout the year, somewhere between 436,366 and 640,136 homes would be sold, and there's a 1 in 10 chance that the annual rate of sales would fall outside that range...the year over year change has a similar wide range of possibilities; at "38.1 percent (±22.0%) above the June 2012 estimate", it means census believes there's a 90% chance that home sales rose between 16.1% and 60.1% since June of last year...policy makers might get better odds at Vegas...

  before the adjustment and extrapolation, the actual estimate of new homes sold in June was 48,000; which was up from the revised May estimate of 43,000, which in turn was reported last month as 45.000 homes sold, resulting in a 17,000 downward revision in the annualized May rate....April's estimated sales were also revised down, from the 46,000 revised figure of last month to 44,000, while March sales were revised down from the earlier estimate of 42,000 to 41,000, meaning the net downward revisions in this report were as great as the headline sales gain, which many trumpeted as the highest level of sales in 5 years ...of the estimated 48,000 homes sold in June, an estimated 18,000 were not yet started, 16,000 were under construction, and 13,000 were completed...after the release of this report, housing economist Tom Lawler poured over the 2nd quarter results of the top seven US homebuilders, and in noting a large number of cancellations, opined that there is a good chance that these home sales estimates for last quarter will be revised downward, and that the bulk of the downward revision would be in June sales...

  census also reports here that the median price of all new homes sold in June was $249,700, which was down from the $263,900 median sales price in May, while the average sales price was $295,000, down from May's average of $307,800; but those figures are also variable and subject to fluctuating revisions; for instance, April's average sales prices was originally reported as $330,800 on the strength of sales of 4000 new homes for over $750,000; that has since been revised to show just 2000 homes in that highest price bracket, but April's average sales price has now been revised upwards to $336,800..

FRED Graph

our FRED graph for this report, above, shows the median monthly new home sales price since 1990 in green, and the monthly track of the average new homes sales price in red...in blue, we've chosen to show the annual rate of new home sales at a the average semiannual rate rather than monthly, to smooth the monthly revisions and eliminate some of the noise in the monthly series...note that the dollar scale for home prices is on the right of the graph, while the annual home sales rate in thousands is on the left...clearly this year-to-date's new home sales are above those of the past 4 years, and according to current census data, at the highest rate for a first half year since 2008...

   the other major report of this past week was the June Advance Report on Durable Goods Shipments, Inventories and Orders, which is usually watched for the forward looking new orders metric, and which showed that new orders for durable goods rose a seasonally adjusted $9.9 billion in June to $244.5 billion, a headline gain of 4.2%, which was better than forecasts...but that's where the positive news ends, because the gain was largely driven by orders for new aircraft, which as we've previously seen, causes large month to month fluctuations in this report as Boeing's order book rises and falls...new orders for non-defense aircraft, which is largely a proxy for Boeing's orders, rose from $20,750 million in May to $27,267 million in June, a gain of 31.4%, while orders for defense aircraft increased 18.7%, from $4,303 million to $5,107 million; these, combined with a small 1.3% increase in orders for motor vehicles and parts from $44,758 million in May to $45,340 million in June meant that orders for transportion equipment were up $9.9 billion all by themselves, meaning excluding transportation equipment, new orders for durable goods were flat...in the first half of 2013, total new durable goods orders were 3.7% ahead of the same period in 2012, while excluding transportation, new orders had gained just 1.6% over last year...like retail sales, these estimates are not adjusted for price changes...

  new orders for capital goods, which includes everything from construction and farm equipment to computers and electromedical instruments, were up 9.0% month over month, from $95,064 million in May to $103,596 million in June, but again this measure of investment grade equipment includes aircraft and total defense industry orders, which by themselves rose 35.2%, from $8,874 million to $11,995 million...orders for what are called core capital goods, or non-defense capital goods excluding aircraft, are considered a fair proxy for business investment plans, and June saw core capital goods orders rise 0.7%, from $69,013 million to $69,526 million...orders for machinery were up 2.4%, from $34,572 million to $35,392 million, but orders for computers and electronic products fell 2.6%, from $22,239 million in May to $21,661 million in June...in addition, new orders for electrical equipment, appliances,and components were off 1.8%, from $10,712 million to in May $10,519 million in June...
FRED Graph
  our FRED graph for this report, which starts in January of last year shows the overall monthly percent change in new orders for durable goods in red, and the percent change without transportation industries in orange; we clearly see the large collapse in overall orders last August, precipitated by the cancellation of a large Boeing order from Quantas, followed by a Boeing orders driven spike in September, while the change in bookings less the volatile transports, shown in orange, have stayed in a narrow range throughout the period…in green, we’re showing the change in new orders less defense orders, another albeit smaller volatile sector…lastly, in blue, we have the change in new orders for non-defense capital goods less aircraft, aka “core capital goods”…we can see that changes in that key investment sector are virtually oblivious to the overall change in new orders…

  in the other metrics covered by this report, seasonally adjusted shipments during June slipped a bit, to $229,757 million, from $229,773 million in May...shipments of machinery fell 1.2% from $34,624 million to $34,217 million and shipments of civilian aircraft and parts fell 6.3% from $12,637 million to 11,840 million, while shipments of vehicles and parts rose 1.3%, from $44,564 million in May to $45,161 million in June....shipments of core capital goods increased from $212.6 billion in the first quarter to $221.4 billion in the 2nd quarter, so that 4.1% increase should make a small contribution to the private investment component of 2nd quarter GDP, which will be released next week....unfilled orders at the end of June increased $21.4 billion or 2.1% to $1,029.4 billion following a 1.2% May increase in unfilled orders. leaving the order books at the highest level since the current durable goods series started in 1992...total inventories of durable goods at month end were up 0.2%, to $377,959 million from $377,274 million at the end of May...with May inventories unchanged and April inventories up a similar 0.2%, the contribution from durables inventories to GDP will be minuscule...

the caveat we should leave you with is like all "advance" reports, this report on durable goods is based on preliminary data and will be subject to revision as soon as next Friday, when the Full report on Manufacturers’ Shipments, Inventories, and Orders will be released, which is a larger survey panel, also known as "Factory Orders", that polls companies representing approximately 60% of manufacturing output...but even that is subject to revision as more complete information becomes available next month, and again in annual benchmark revisions each year...the bottom line is that none of this data is as precise as the given dollar amounts in six significant digits would lead us to believe... 

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

Monday, July 22, 2013

9 Out Of 10 Americans Are Completely Wrong About This Mind-Blowing Fact

I think we've posted this here before, but I just saw it again and it seriously deserves a repeat.

IF WE DON'T BREAK UP THE BIG BANKS...

They Will Manipulate More and More of the Economy … Making Us Poorer and Poorer 

Interest Rates Are Manipulated

Interest rates are rigged:

Derivatives Are Manipulated

The big banks have long manipulated derivatives … a $1,200 Trillion Dollar market.
Indeed, many trillions of dollars of derivatives are being manipulated in the exact same same way that interest rates are fixed: through gamed self-reporting.

Currency Markets Are Rigged

Currency markets are massively rigged.

Commodities Are Manipulated

The big banks and government agencies have been conspiring to manipulate commodities prices for decades.
The big banks are taking over important aspects of the physical economy, including uranium mining, petroleum products, aluminum, ownership and operation of airports, toll roads, ports, and electricity.
And they are using these physical assets to massively manipulate commodities prices … scalping consumers of many billions of dollars each year.

Gold and Silver Are Manipulated

The Guardian and Telegraph report that gold and silver prices are “fixed” in the same way as interest rates and derivatives – in daily conference calls by the powers-that-be.

Oil Prices Are Manipulated

Oil prices are manipulated as well.

Everything Can Be Manipulated through High-Frequency Trading

Traders with high-tech computers can manipulate stocks, bonds, options, currencies and commodities. And see this.

Manipulating Numerous Markets In Myriad Ways

The big banks and other giants manipulate numerous markets in myriad ways, for example:
  • Engaging in mafia-style big-rigging fraud against local governments. See this, this and this
  • Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here
  • Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car
  • Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this
  • Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this
  • Participating in various Ponzi schemes. See this, this and this
  • Bribing and bullying ratings agencies to inflate ratings on their risky investments

The Big Picture

The big picture is simple:
  • The big banks manipulate every market they touch
  • The government has given the banks huge subsidies … which they are using for speculation and other things which don’t help the economy. In other words, propping up the big banks by throwing money at them doesn’t help the economy
Get it? Break up the big banks, or they will continue to take over and manipulate more and more of the economy … increasing their profits while making everyone else poorer. HAT TIP WASHINGTON BLOG for the Excellent work up!
 BURN THE BANKERS...DON LARSON Cellist

Sunday, July 21, 2013

June reports on retail sales, consumer prices, industrial production, and new housing starts

this week saw the release of reports on June retail sales and industrial production, both of which are tracked by the NBER business cycle dating committee, who make the official calls on US recessions...real retail sales, adjusted for inflation with the CPI, which was also released this week and covered below, appears to have turned negative in June, while manufacturing looks like it may show negative quarter over quarter comparisons..add these to the surprising downturn in new home construction, declining inventories, and the larger trade deficits in April and May, which appears to have continued in June, and the second quarter GDP is looking pretty weak...

June retail screenshotthe Advance Retail and Food Services Sales Report for June (pdf) from the Census Bureau tells us that seasonally adjusted retail and food service sales were at $422.8 billion for the month, up 0.4 percent (±0.5%)* from the $421.2 billion in seasonally adjusted sales in May; and also up 5.7 percent (±0.7%) from the $399.9 billion of sales in June of last year, in figures that are not adjusted for inflation....this widely followed report is an advance estimate of sales representing 1.8 million firms collected by phone, fax or mail from a sample of approximately 4,900 firms and will be revised when more complete data is available next month...Census tells us in a footnote that since that ±0.5% margin of error in June includes zero, they don't have enough statistical evidence to determine if sales actually rose in June or not, so keep that in mind as we review the seemingly precise figures in this report..unadjusted totals show estimated sales of $420,645 billion in June, up 3.7% from $405,484 billion a year ago but down 5.4% from the $444,572 billion of actual sales in May...May's sales gain was reported as being revised down from 0.6% to 0.5% but the actual change was statistically insignificant, from a gain of .550% to a revised change of 537%....

the June retail sales story was all about automotive sales, wherein sales at vehicle & parts dealers rose from a seasonally adjusted $79,028 million in May to $80,461 million in June, a month over month increase of 1.8%...most sales were apparently of new cars and trucks as well, as two weeks ago Wards Automotive estimated that light vehicle sales for June were at a seasonally adjusted annual rate of 15.89 million, 4% above the May sales rate, a 67 month high and the best June sales since 2006...excluding cars & parts, the aggregate of all other June retail sales increased a statistically insignificant $139 million, or 0.0%...and that was more than covered by the seasonally adjusted increase in gasoline sales, which rose $316 million to $45,491 billion in June, meaning that without sales of cars, parts and fuel for them, retail sales at all other outlets actually fell $177 million for the month, amounting to a decrease in what some call "core retail sales" of less than 0.1%...

other than automotive sales, other retail trade sectors showing better than average adjusted sales increases in June included furniture and home furnishing stores, which saw sales rise from $8,228 million in May to $8,426 million in June, a 2.4% increase which was their best since May 2012, non-store retailers, which are catalog & online outlets, who saw sales rise 2.1% from $37,154 million in May to $37,936 million in June, clothing stores, where sales rose 0.7% from $20,914 in May to $21,061 in June, and  the broad category of stores specializing in sporting goods, books or music, where sales also rose 0.7%, from $7,451 in May to $7,505 million in June..our copy of a table segment from the report showing these seasonally adjusted monthly percentage changes is to the right above, which also shows the year over year change in sales for each of these retail classes…note the June jump in furniture sales more than doubled the year over year sales increase for those stores...also note total "retail trade" includes all retail sales except those at bars and restaurants, which was up 0.6% in June and 6.0% year over year...

retailers who saw seasonally adjusted sales decrease in June included building and garden supply stores, where sales fell to $25,772 million from $26,346 million in May, bars and restaurants, where June's sales of $45,251 million were 1.3% below May's level of $45,821 million and the worst one month drop since February 2008, department stores, where June's adjusted sales of $14,492 million were 1.0% less than May sales of $14,631 million, and a catch all category of miscellaneous store retailers, who saw seasonally adjusted sales fall from $10,668 million to $10,402 in June...smaller sales declines of 0.1% were also seen by food & beverage stores, where sales fell from $53,765 million in May to $53,706 in June, and electronic and appliance stores, where seasonally adjusted June sales of $8,311 million were slightly lower than May sales of $8,319 million..

it's probably worth noting that all of those retail store types except for sporting goods, hobby, book and music stores actually saw unadjusted sales decline in June, as May is a higher than average sales month across a broad spectrum of retail categories, and sales always fall in June...the largest unadjusted sales drop was recorded by building material and garden supply stores, where unadjusted sales fell 16.0%, from $34,108 million in May to $28,642 million in June...in a chart that received some distribution, zero hedge purportedly showed that the seasonal adjustment in this June report was an indication of data manipulation to make June sales appear better than the actual data implied; the error in their analysis, however, is that one cannot take the gross seasonal adjustment in any month and compare it to other years, as in arriving at the seasonal adjustment for retail sales, Census adjusts sales for each retail time series separately, and uses those to arrive at the aggregate change...for instance, furniture sales usually decrease in June, but this year they decreased less, boosting their seasonally adjusted sales...

below we’re including two FRED graphs which show the month over month change in millions of dollars in each of the major retail sales groupings since the beginning of 2012; you can click on either for a larger view...the first FRED graph shows the seasonally adjusted monthly change for motor vehicle & parts dealers in blue, the change in sales for food & beverage stores in red, the change in gasoline station sales in orange, the sales change at general merchandise stores in green, the non-store, or online sales change in teal blue and the change in monthly sales at bars and restaurants in grey, in that order for each month...it’s pretty obvious that gasoline sales, influence by price swings, are the volatile element here…in our second FRED graph below, which you’ll note on the left has a smaller scale than the first, has the seasonally adjusted monthly change in millions of dollars at building & garden supply retailers in blue, at electronics and appliance stores in red, the sales change at furniture stores in green, clothing stores sales change in orange, drug stores change in teal blue, and the change in sales at stores specializing in sporting goods, hobbies, books or music in grey, again in that order for each month...note that none of these seasonally adjusted sales changes are adjusted for changes in prices…
FRED Graph
FRED Graph

the next report we'll cover, on consumer prices, is one often used to adjust the retail sales report for inflation, although strictly speaking it should not be, because it includes prices not included in retail sales, such as the cost of housing and medical services...in GDP calculations, the broader component of "personal consumption expenditures", which accounts for 70% of GDP, is deflated using the PCE price index; nonetheless, there is nothing encouraging in a greater increase in June consumer prices than the increase in aggregate retail sales, which arent adjusted for inflation …the Bureau of Labor Statistics (BLS) reported that the seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5% in June, also more than offsetting the average 0.4% June hourly pay gain BLS reported two weeks ago, as the unadjusted index based on prices from 1982 to 1984 = 100 rose 0.2% from 232.945 in May to 233.504 in June...since seasonally adjusted prices increased 0.1% in May, but were down 0.4% in April and 0.2% in March, this increase brings the CPI back approximately to the level of February...

  slightly higher prices for gasoline drove the changes in June, accounting for approximately two-thirds of the entire CPI increase, while also accounting for most of the difference between the seasonally adjusted index and the unadjusted price change...the unadjusted gasoline price index rose 0.6% from 310.352 in May to 312.212 in June, but since Spring gasoline prices normally peak before Memorial Day and fall slightly in June, that small increase this June was projected into a 6.3% seasonally adjusted increase in the gasoline index in this report, driving the energy price index, which accounts for 10% of the CPI, to a 3.4% seasonally adjusted gain...seasonally adjusted price changes in other contributors to the energy index were more subdued; electricity rose 0.2%, while fuel oil fell 0.5% and natural gas fell 0.4% in price...year over year, energy prices are up 3.4%, led by an 11.7% jump in gas utility prices..

food prices, which account for just over 14% of the CPI, increased at a seasonally adjusted 0.2% rate in June, although the unadjusted food index barely changed, moving up from 236.526 in May to 236.792 in June...prices for food away from home rose 0.2%, led by a 1.6% increase in prices for food at work and at schools, while prices for food at home also increased by 0.2%, with cereals and bakery goods and meat, poultry and fish both up 0.4%, while dairy products and fruits and vegetables just saw price increases of 0.1%...the food index saw a 1.4% increase over the year ending June, with prices for food at home up 0.9% and prices for food away from home up 2.2%, with prices for food at work and schools again showing the greatest annual increase at 5.3%, while full service meals were up 2.3% and fast food prices were only up 1.8%...major year over year changes in prices of food at home include an 8.4% increase in bacon prices, a 10.2% increase in fresh whole chicken, a 6.9% increase in egg prices, a 6.8% increase in prices for donuts and sweetrolls, and a 6.7% increase in apple prices, while prices for coffee fell 5.4%, prices for dried beans and peas fell 5.4%, prices for potatoes fell 3.7% and sugar prices fell 6.0%...

the price index for all items except food and energy, otherwise known as the Core CPI, increased 0.2% in June, the same as in May, and is now up 1.64% year over year, compared to last month's 1.68%; shelter, the major component of the CPI at 31.6% of the total index, was up 0.2% in June as both rent and homeowner's equivalent rent both rose by that same amount; year over year, the cost of shelter is up 2.3%, with rent up the same and owner's equivalent rent up 2.2%...the price of new vehicles was up 0.3% in June and 1.2% for the year, while used cars and trucks saw prices decline 0.4% for the month and 2.3% since last June...other factors contributing to the increase in the Core CPI include the cost of medical care, with medical commodities up 0.5% and medical services up 0.4%, apparel, which saw prices rise 0.9%, household services, which were up 0.5%, and furniture and appliances, which both saw price increases of 0.2%...meanwhile, the index for transportation services fell 0.1% as vehicle rentals fell 2.0% and airline fares fell 1.7%, the recreation index slipped 0.1% as prices for video and audio products were down 0.8%, and the price index for education and communication was up less than 0.1% as a 0.5% increase in tuition was partially offset by a 0.2% decline in prices for information technology commodities..

FRED Graph

our FRED graph above shows the change in the CPI-U since 2000 in black, and the track of the monthly changes in each of several major components of the CPI since 2000, with each index reset to 2000 = 100 for an apples to apples comparison (some composite indexes are based on 1997, others on 1982)...in blue, we have the track of the change in the price index for food and beverages, which doesn't seem to be as volatile as alleged; in red, we have the change in the price index for housing, which at 41% of the CPI also doesn't reflect the volatility we’ve seen home prices, but rather the more stable homeowners equivalent rent; and in violet, we have the index for apparel, which has been the only index to show a net price decline over the decade…the transportation index, in brown, shows the impact of volatile gas prices on the cost of transportation, while the index for medical care in orange has obviously risen the most over the period…in addition, education and communication prices are tracked in dark green, and the track of the recreation index is shown in light green..

the other key release this week was from the Fed on Industrial production and Capacity Utilization for June, which showed that the seasonally adjusted industrial production index, which is benchmarked to  2007 = 100, rose from 98.7 in May to 99.1 in June, which is identified as a 0.3% increase; of the component indexes, the index for manufacturing rose from 95.5 to 95.7, also indicated as a 0.3% increase, while the mining index rose 0.8% from 116.9 to 117.8 and the utility index slipped 0.1% from 99.3 to 99.2...recall that mining in this context includes oil and gas production, and that the seasonally adjusted utility index is heavily influenced by unseasonable weather, which boosted the March reading to 103.8 and has resulted in negative comparisons since, such that the overall industrial production index just now regained the 99.1 reading first reached in March...nonetheless, the industrial production index is now 2.0% ahead of it's year ago reading, as the manufacturing index increased 1.8% and the mining index increase 4.4% since last June...
FRED Graph

however, for manufacturing, which is over 75% of industrial production, the quarter over quarter comparisons do not bode well for its contribution to 2nd quarter GDP; the manufacturing index slipped at an annual rate of 0.2% in the quarter just completed, after having increased at a 5.1% rate in the 1st quarter and 2.4% in the 4th quarter last year...output of durable goods was up 1.5% in the 2nd quarter after being up 6.5% in the first, with a 9.7% annualized gain in the output of computer and electronic products and a 7.3% increase in motor vehicles and parts, offset by a 7.2% annualized decrease in output of primary metals and a 3.2% decrease in production of electrical machinery and appliances...non-durable manufacturing, on the other hand, decreased at a 1.5% annual rate in the 2nd quarter, after showing a 4.5% annualized gain in the 1st, led by a decline of 8.4% in output of textile and product mills, a 7.1% decrease in output of apparel and leather, and a 7.8% decline in production of petroleum and coal products, offset only by a 4.7% increase in production of plastic and rubber products....meanwhile, mining, which accounts for over 14% of the industrial production index, was up at a 4.6% annual rate in the recent quarter, after being down 0.7% in the first quarter, while utilities, which are less than 10% of the index, saw no gain in the 2nd quarter after being up at a 5.2% annual rate in the first three months of the year...

in addition to the indexes for major industry groups, this report also indexes industrial production by market group; in June, the index for production of consumer goods, which accounts for 27.14% of the total industrial production index, increased 0.5% to 94.6 after falling 0.3% to 94.1 in May; output of consumer durable goods increased 1.1%, led by a 1.4% increase in automotive products production and and a 2.2% increase in output of home electronics, with no durable components showing decreases...meanwhile, the output of nondurable consumer goods rose 0.3% in June, after being down 0.4% in both April and May; foods and tobacco output increased 0.8%, paper products production increased 0.4%, while output of energy decreased 0.3%...

the index for business equipment, which accounts for 9.61% of the industrial production index, advanced 0.5% to 102.6 after falling  0.1% in May and 0.2% in April; production of transit equipment was up 0.5%, while output of IT equipment fell 1.0% and other industrial equipment rose 1.1%; in addition, production of defense and space equipment was up 0.1% in June, its first monthly increase this year, while construction supplies and business supplies, two indexes with no subcomponents, also both showed nominal 0.1% month over month increases...production of materials to be processed further, which accounts for 46.54% of industrial output, increased by 0.2% in June, after gaining 0.2% in May and retreating by the same amount in April; output of durable materials increased by 0.4% as output of equipment parts led the increase with a gain of 0.8%...output of nondurable materials, on the other hand, slipped 0.1%, with a 1.2% decrease in paper output and a 0.3% decrease in output of chemicals more than offsetting a 2.3% increase in production of textiles....and lastly, output of energy materials to be processed further saw a 0.4% increase in June...

capacity utilization for total industry, which is expressed as a percentage of plant and equipment in use during the month, was up 0.1% in June to 77.8% and that was also up just 0.1% from a year earlier...for manufacturing, the factory operating rate was at 76.1%, up 0.1% over May and 0.2% higher than a year earlier, while utilities were running at 77.6% of capacity, down 0.1% from May and at an operating rate 1.2% below a year ago; meanwhile, 87.9% of mining and drilling equipment available was in use, up 0.8% for the month but only 0.2% higher than a year ago...capacity growth was revised with this release and now shows 1.8% greater capacity to produce than a year ago...manufacturing capacity has increased 1.5%, utility capacity has increased 1.2%, and mining capacity is up 4.1%, likely reflecting an increase in gas & oil rigs.... our FRED graph for this release, the the right above, shows capacity utilization for total industry in pink since January 2008, with the scale indicating percentage of capacity in use; it also shows the industrial production indexes, with the same scale for them also on the left based on 2007=100...the production index for all industry is in black, the manufacturing production index is in blue, the utility production index is in green, and the mining production index is in red...

the surprising report of the week was the headline drop in new housing starts during June, from a seasonally adjusted annual rate of 928,000 units in May, to an estimated annual rate of 836,000 in June, a 9.9% decline and the lowest level in a year...but as we know, the census reports on new housing are derived from a small sampling of permits offices and road canvasses by census field reps and hence have the largest margin of error of any widely watched economic releases, so we'd better take a closer look at where the headlines are coming from...

the Census report on June New Residential Construction indicates that June housing starts were "9.9 percent (±11.4%)* below the revised May estimate of 928,000", and that asterisk points us to a footnote which says in part that if the range contains zero, which it does, it is uncertain whether there was an increase or decrease in new home starts...reading a bit more we see that range is describing the 90% confidence interval; in other words, what that 9.9% ± 11.4% means is that based on their slim sampling, census is 90% confident that the number of new home starts in June, if seasonally adjusted and projected over an entire year, would result in something between 730,336 and 941,920 residential units being started....their estimate on single family starts has an equally wide range of likely starts; single family home starts are reported down 0.8% (±11.0%)* from the revised May estimate of 596,000; which means there's a one in ten chance that the annual rate of single family starts in June was greater than 656,792 or less than 525,672...similarly, the year over year range of starts, 10.4 percent (±14.9%)* above last year's rate of 757,000, includes zero and an asterisk, meaning that with the data at hand, Census cant even be 90% confident that new home starts actually rose from a year ago...
FRED Graph

the actual monthly estimates of new home starts by census field reps from which these seasonal adjusted annual rates were contrived were 80,400 in June, and 88,100 in May, with single family starts accounting for 59,200 of June starts and 57,800 of units started in May...most of the reported June decline in housing starts came from the a decline in the volatile starts in buildings with 5 or more units, in which fell from 29.400 units in May to just 20,400 units in June, so it's a fair guess that a slowdown in starts of apartment building accounted for most of the apparent pullback reflected in the headline numbers...reported June home completions, which are also estimated at an annualized rate with a wide range of uncertainty (6.3% ±14.1%* higher than May) totaled 65,800, leaving a seasonally adjusted 624,000 homes under construction at the end of June, up from 621,000 at the end of May, suggesting it's doubtful construction employment will be affected by this one month contraction in housing starts...

this report also includes an estimate on new building permits issued during the month, and because they sample about half the permit issuing places in the US for this metric, the margin of error on new permits is small enough that we can get an real idea of the actual monthly activity...in June, new housing units authorized by permits were estimated to be at a seasonally adjusted annual rate of 911,000 (±1.0%), which was 7.5% below the May rate of 985,000 and 16.1% (±1.7%) above the estimate of 785,000 from last June... 624,000 (±1.2%) of those new permits were for single family units, statistically unchanged from May's 620,000 single family permits, and 261,000 units were authorized in apartment buildings of 5 or more units...

above, our FRED graph for this report shows the census monthly estimate of total new home starts at an annual rate in dark blue going back to the beginning of 2006, and the portion of those that were estimated to be single family starts is shown in light blue; you can see that the seasonally adjusted starts are lower over the past three months than they were during the 1st quarter of the year, suggesting that unless starts pick up in coming months, new investment in residential structures may suffer in subsequent GDP comparisons, as it takes an average of 6 months for a single family home to be completed, and an average of 11 months from start to finish for all types of multi-unit building...units of seasonally adjusted new housing construction authorized by permits is shown in red, and though they were at a post bubble high in April, we should have seen more of them turn into higher starts by now, as the average time from permit to start is less than a month for single family homes and less than two months for multi unit residential structures...this suggests that builders may be moving cautiously in the face of higher interest rates…lastly, the green track on our FRED graph is total residential units completed per month, at an annualized rate...as long as the seasonally adjusted rate of starts remains above the rate of completions, construction employment should remain stable, if not increase on a seasonally adjusted basis...

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…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…)

Friday, July 19, 2013

Feds vs. Raisins: Small Farmers Stand Up to the USDA



Reason TV


"They want us to pay for our own raisins that we grew," says Raisin Valley Farms owner Marvin Horne. "We have to buy them back!"

This is but one absurdity that Marvin and his wife Laura have faced during their decade-long legal battle with the United States Department of Agriculture (USDA). Every year, the Hornes plant seeds, tie vines, harvest fruit, and place grapes in paper trays to create sun-dried raisins. And every year, the federal government prevents them from bringing their full harvest to market.

It's called an agriculture marketing order. Depression-era regulations meant to stabilize crop prices endanger the livelihoods of small farmers across the country, but the raisin marketing order is particularly egregious. An elected board of bureaucrats known as the Raisin Administrative Committee decides what the proper yield should be in any given year in order to meet a previously decided-upon price. Once they can estimate the size of the year's harvest, they force every farmer to surrender a percentage of their crop to raisin packers like Sun-Maid. The packers then place the raisins in a "reserve pool," a special holding vat for raisins that cannot be sold in the U.S. Eventually, the packers can sell the reserve pool raisins overseas at highly discounted prices set by the government or funnel them into school lunch programs for next to nothing."

Sunday, July 14, 2013

May’s consumer credit, LPS Mortgage Monitor, and JOLTS

it's been a relatively slow week for economic releases, with only reports on wholesale inventories and prices and an almost unchanged report on May job openings reported, in addition to the regular weekly releases, which can be quite noisy...however, there seems to have been some confusion in the financial press as to the significance of the May report on Consumer Credit from the Fed, which resulted in headlines with as wide ranging differences as "Consumer Borrowing in U.S. Rises $19.6 Billion, Most in Year" to "May 2013 Consumer Credit Growth of 8.25% Is Imaginary"; there's also been some concern that the Fed's seasonal adjustment process may have inflated the reported credit expansion...so maybe we should dig a bit deeper into this release and the historical data available to find out what really happened in May, and how it compares to what was expected...
FRED Graph

let's start by reviewing what was reported; according to the Fed, seasonally adjusted aggregate consumer credit increased by $19.6 billion, from $2,819.7 billion in April to $2,839.3 billion in May, which they figure to be at an annual rate of 8.3%; by the same reckoning, the revolving credit subset, which mostly represents credit card borrowing, rose $6.6 billion from $849.9 billion in April to $856.5 billion in May, which would be at a seasonally adjusted annual rate of 9.3%, while non-revolving credit, which is longer term borrowing for major items such as cars, yachts, and tuition (but not real estate), rose $13 billion from a seasonally adjusted $1,969.8 billion in April to $1,982.8 in May, or at an annual rate of 7.9%...our adjacent FRED graph shows the seasonally adjusted annualized change in revolving credit in red, non-revolving credit in green, and the aggregate monthly change in blue since January 2011...now those increase percentages are annualized, such as we've seen in other reports such as GDP and housing...if the jobs report was reported this way, you'd see a report that 2 million jobs were created in June at an annualized rate...but if we do the math, we see the increase in the aggregate credit from April to May was 0.695%, while revolving credit rose 0.777% over the month, and non-revolving credit increased 0.657% from April to May...

now, those are also seasonally adjusted numbers, as computed by a program which adjusts each month's data from the actual month to month changes to what it would be versus the historical change for that month, something that's done with every economic report, because otherwise seasonal factors would render the data useless for comparison purposes (ie, every year there'd be job growth in November before the holidays & job losses in January)… so what are the actual month over month changes in consumer credit? as shown in the excerpt from table 2 from the report included below, the unadjusted change in revolving credit was from $807.6 billion in April to $816.6 billion in May, a $9.0 billion increase, while the unadjusted increase in non-revolving credit was from $1,968.6 billion in April to $1,979.1 billion in May, a $10.5 billion increase; what this means is that the seasonal adjustment decreased the reported revolving credit change, and increased the non-revolving credit change, suggesting that May is historically an above average month for credit card use, and below average for longer term borrowing for such auto & student loans; however, the change in total credit is virtually the same as the reported $19.6 billion seasonally adjusted increase; so the overall change in May consumer credit was not altered significantly by the seasonal adjustment process...

now note that the unadjusted total of $2795.7 billion of consumer credit outstanding at the end of May is $43.6 billion lower than the reported seasonally adjusted total of $2,839.3 billion, but the 2012 year end total of $2768.1 billion is identical in both the seasonally adjusted totals and the unadjusted totals; that means that seasonally adjustment process boosted reported credit expansion for the first four months of the year; we can see most of the reason why in the unadjusted decrease from $845.8 billion year end revolving credit outstanding to the 1st quarter revolving credit total of $804.9 billion; the seasonal adjustment process boosted the real number by $44.2 billion to $849.1 billion, $3.3 billion higher than the year end total.  What the seasonal adjustment is allowing for here is the normal fall off of credit card use during the first three months of the year, when many consumers are already overextended from holiday shopping.  What that seasonal adjustment process will continue to do between now and the end of the year will be to reduce the reported borrowing during those months where it is above normal, most likely when student borrowing peaks in the fall, and during the November and December shopping seasons..

May G19 screenshot #3

now, let's compare the historical change in adjusted and unadjusted credit expansion from April to May over the past few years...the seasonally adjusted increase from April to May 2012 was $19.9 billion; for 2011 it was $8.4 billion, and for 2010 it was a decrease of $10.1 billion; the actual, unadjusted change in consumer credit outstanding from April to May for those years was + $19.8 billion in 2012, + $8.6 billion in 2011, and minus $9.2 billion in 2010...since seasonal adjustment algorithms give a heavier weighting to more recent years, that contraction of consumer credit in May of 2010 may have slightly inflated subsequent May reports, but judging by the differences noted, not by much...

Graph of Total Consumer Loans Owned by Federal Government, Outstanding

since we have that table of unadjusted consumer credit above, let's check out a few other trends that we can glean from it...note we have year end totals for both revolving and non-revolving credit; it's obvious that outstanding revolving credit, or credit card debt, shrunk from $1005.2 billion in 2008 to $840.7 billion in 2010 and has barely recovered since....meanwhile, non revolving credit has increased from $1520.7 billion in 2008 to $1979.1 billion in the recent month; but look at each of the line items under non-revolving credit, which represent the major holders of that debt, and you'll note that longer term borrowing from banks, finance companies, and credit unions has barely budged; it's only borrowing from the federal government, in the form of student loans, which has driven credit expansion over the last five years...indeed, over the four years from year end 2008 to year end 2012, consumer debt held by the federal government has increased more than fivefold, from $104.3 billion in 2008 to $526.8 billion in 2012, and is now the largest asset on the government balance sheet; more importantly, were it not for the $422.5 billion in student loans doled out by the federal government over those four years, net consumer credit would have contracted by $180.3 billion over the period..we’ve inserted a small FRED graph showing the historical growth of consumer loans owned by the Federal government; no need to enlarge that to see the trajectory…

….

the Mortgage Monitor for May (pdf) from LPS (Lender Processing Services) is a monthly report we continue to cover, even though it's rarely mentioned in the financial press, because it's really the only report that gives us an accurate picture of the condition of all the mortgages in the US and of the ongoing mortgage crisis on a monthly basis...note that although the Mortgage Delinquency Survey from the Mortgage Bankers Association covers some of that same data, it's only issued quarterly, but since the comparisons are very close (MBA shows slightly higher delinquencies), it confirms the verity of the monthly LPS data...
May LPS delinquent & foreclosure monthly

according to LPS, ​​4,469,000 mortgages, or 9.13% of all first lien mortgage loans, were at least one payment delinquent at the end of May; that's down from of ​​4,699,000 that were delinquent at the end of April, and down from the 11.08% of mortgages that were past due a year earlier...of those overdue mortgages, 1,525,000 mortgages were in the foreclosure process, another 1,335,000 mortgages were 90 or more days delinquent, but not in foreclosure, and 1,708,000 more loans were over 30 days and less than 90 days past due, but not in foreclosure...the 3.05% of mortgages in foreclosure at the end of May was down from 3.17% at the end of April and down from the 4.17% in foreclosure a year earlier, while the 6.08% who were delinquent but not in foreclosure was down from April's 6.21% and the 6.91% delinquency rate of May a year ago...116,812 foreclosures were started in May, compared to 127,496 in April and in contrast with the 218,900 foreclosure starts in May of 2012...this slowdown in foreclosure activity was confirmed in another release this week from RealtyTrac, who reported a total of 801,359 U.S. properties with foreclosure filings of all types in the first half of 2013, 19% lower than the last half of 2012 and the lowest since 2006...

since most of the data in this 31 page pdf report is graphically presented, we'll select a few to include below with explanations; click any for an enlargement...our first graph above, from page 4 of the mortgage monitor pdf, shows in green the percentage of active home loans that have been in the foreclosure process from 1995 to the present; these are those mortgages against which the servicer has initiated the foreclosure process but has not yet seized the home through a foreclosure sale, which typically transfers the ownership of the property to the bank...although this foreclosure inventory is at the lowest of the crisis at 3.05% of all mortgages, it's still 5.7 times greater than the average foreclosure inventory of the 1995 to 2005 period....this graph also tracks the percentage of loans that have been delinquent monthly over the same period in red...although the delinquency rate of 6.08% of active loans has fallen from a crisis high of 10.57%, its still 1.4 times the average delinquency rate of the '95 to '05 period...also note the seasonally of delinquencies in that red track; typically, some homeowners forgo a house payment or two as children return to school or as the holidays approach (or when a new iphone is released); then start to catch up on mortgage payments after the holidays, so invariably the delinquency rate falls over the first 3 months of each year, which it did even at the height of the crisis...although the 15% year to date decline in delinquencies this year is the largest year to date seasonal decline since 2002, we would not be surprised to see delinquencies increase again in the coming months...

May LPS days seriously delinquent

our next graphic is from page 6 of the mortgage monitor pdf, and it illustrates the ongoing lengthening of the seriously delinquent and foreclose pipelines...the violet line starts in 2005 and tracks the number of days seriously delinquent properties have remained more than 90 days past due without foreclosure action....as of May, the average length of time that a seriously delinquent mortgage has gone without making current house payments is now at 511 days, up from 503 last month (the data for this chart is on page 20 of the mortgage monitor, and also here)..the red line tracks the number of days that homes in the foreclosure process have remained in limbo without being seized, and that's now up to 852 days...obviously, as we've seen, the total foreclosure inventory has declined over the past two years, but for some of those homeowners that have entered the process, especially in judicial states where the right to foreclose must be established in court, the process continues to drag on with no end in sight...since the average of 852 days in foreclosure includes at least several hundred thousand that have entered into foreclosure in the past year, it's a safe guess there are at least as many that have been in foreclosure for over four years...

May LPS non current by year

the third graphic we'll look at is from page 16 of the mortgage monitor pdf and it shows the percentage of home mortgage loans that became delinquent within 12 months of purchase by year, and the weighted average credit score for mortgages originated in each year...although not included on this bar graph, LPS notes that the weighted average credit score for 2013 originations is 754...while LPS includes this graphic to show how recent vintage mortgages with pristine credit quality have continued to perform, what is surprising here is the percentage of new homeowners that were already behind on their house payments in 2006 and 2007, before the serious housing bust and higher unemployment rates took hold...it's clear that late in the housing boom, a significant number of people were being put into mortgages that they were apparently unable to keep up with payments on...you can click on this graph, or any graphic here, for a larger view...

the final plate from the mortgage monitor that we’ll include here is from page 19, and it is a table of non-current mortgage percentages in all 50 states and the District of Columbia; the first column is the delinquency rate for each state, or the percentage of mortgages in each state that are at least one month behind and not yet in foreclosure...the second column is the percentage in each state that are in foreclosure, and the third column is the total non-current percentage, or sum of the first two...the last column is the year over year percentage change in non current mortgages in each state...note that judicial states, where banks must establish their right to foreclose in court, are marked with a red asterisk...these states have the highest percentages in foreclosure, led by Florida, where one in ten mortgaged homes are in foreclosure..other judicial states with a foreclosure inventory greater than 5% include New Jersey at 7.1%, New York and Hawaii at 5.8%, and Maine at 5.4%, whereas Mississippi's presence high on the non current list is mostly due to the 11.9% of their residents who are one or more than one payment behind on their mortgages...

May LPS states


FRED Graphlet's also take a look at some of the innards of the Job Openings and Labor Turnover Summary for May from the BLS, which uses the phrase "little changed" four times and "essentially unchanged" once in the first three paragraphs...in one of those little changed metrics, seasonally adjusted job openings rose from 3,800,000 in April to 3,828,000 in May; that's 2.7% as a percentage of total employment and that is unchanged...there were 3.1 officially unemployed for every job opening in May, and that was also unchanged, and if you include those who are part time who want a full time job, the ratio is 5.7 workers for each job opening...job openings in retail rose from 455,000 to 537,000 while job openings in professional and business services fell from 731,000 to 628,000...job openings in the Midwest rose from 805,000 to 886,000, increasing openings as percentage of total employment in the region from 2.5% to 2.8%, while job openings in the West declined to 789,000 from 831,000, resulting in a 0.1% downtick to 2.6% in the openings rate...

labor turnover consists of hires and job separations, and the difference between them should be equal to the total change in non-farm payrolls as reported by the establishment survey of the jobs report...there were 4,441,000 hired to start new jobs in May, which was up slightly from 4.395,000 million hired in April, while the hiring rate as a percentage of all employed rose from 3.2% to 3.3%...jobs in retail saw the largest increase in hiring, from 598,000 to 625,000, while hiring in professional and business services slipped from 912,000 in April to 870.000 in May...hires, which include rehires and callbacks from layoffs, rose from 952,000 in April to 1,027,000 in May in the Midwest while they fell from 981.000 to 945,000 in the West...total separations in May were also up a bit, to 4,323,000 from 4,287,000 in April, while the separations rate as a percentage of total employment remained unchanged at 3.2%...hires minus separations equals 118,000, far short of the revised 195,000 non-farms payroll figure for May reported last week, so one of these BLS reports is off by a bunch...the greatest increase in separations was seen in manufacturing, where 247,000 were either fired, laid off, quit or retired, vs 224,000 manufacturing workers separated from their jobs in April...separations increased in the Midwest, from 924,000 to 987,000, increasing the separations rate from 3.0% to 3.2%, while separations fell in the west, from 1021,000 to 934,000, reducing their separations rate from 3.4% to 3.1%..

of May job separations, 2,203,000 quit their jobs, up from 2,185,000 in April, leaving the quits rate unchanged at 1.6%; the only increase in quits was in the South, where 945,000 left their jobs in May vs 918,000 in April...the quits rate is watched as a sign of worker confidence, and it's been "little changed" all year...another 1,549,000 were either laid off, fired or otherwise discharged in May, for a layoffs and firings rate of 1.3%…356,000 of those were in professional and business services, but discharges were down from 467,000 in April in those jobs...other separations, which includes retirement and death, numbered 382,000, for an ‘other separations’ rate of 0.3%….our FRED graph for this report, above, shows monthly job openings in blue since January 2007…total hires monthly is shown in in orange, while the track of total separations is shown in purple…of the two major components of separations, layoffs and firings are tracked in red, while the number of those quitting their jobs monthly is shown in green..

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…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…)