Sunday, May 25, 2014

April’s new and existing home sales, the Russian-Chinese gas deal, the phantom US oil reserves, et al

both of the widely watched releases this week were on April home sales; first on existing home sales from the National Association of Realtors, then on new home sales from the Census Bureau...there was also a "flash" manufacturing report for May from Markit (pdf), based on incomplete survey returns, which reported a tentative PMI (purchasing managers index) of 56.2, up from 55.4 in April, which means more manufacturing purchasing managers were reporting expansion than a month ago, and the May Manufacturing Survey from the Kansas City Fed (pdf), which reported a monthly composite index of 10 in May, up from 7 in April, for the third straight month of expansion at factories in their region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico..

this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for April, a composite index of 85 different economic metrics grouped into four broad categories of data, each constructed to have an average value of zero, such that a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend…the April reading of the CFNAI was at -0.32, down from +0.34 in March, as production related indicators subtracted .37 from the overall index after adding .24 to it in March, for many of the same reasons we covered in the industrial production report of last week...the consumption and housing category of indicators also subtracted .12 from the overall index, a bit more negative than the -.07 deduction in March, as consumption related indicators trended lower...employment related indicators, on the other hand, added .17 to the index, and improvement from March's contribution of .15 mostly, on better top line metrics from the April employment report, while the sales, orders, and inventories was on trend and made no contribution to the composite index, after subtracting .01 in March...the three-month moving average of the index, 'CFNAI-MA3', increased to +0.19 in April from +0.04 in March, its second consecutive positive reading and its highest value since November, as the contraction of the winter months dropped out of the moving average...

Existing Home Sales Increase in April as All–Cash Sales Predominate

according to the National Association of Realtors, April saw the first monthly seasonally adjusted increase in existing home sales this year, as they reported existing-home sales rose 1.3% to a seasonally adjusted annual rate of 4.65 million homes in April, up from a 4.59 million rate in March, but still 6.8% below the 4.99 million unit annual pace homes were selling at in April of last year...that annual rate of sales was extrapolated from reported sales of 421,000 homes in April, up from the unadjusted 355,000 homes sold in March, but down from the 454,000 completed transactions involving single-family homes, townhomes, condominiums and co-ops of April a year ago....seasonally adjusted data (pdf) indicate increases in sales were concentrated in the West, where they rose 4.9% over March, while sales in other regions were little changed.....the median home selling price for all housing types was $201,700, up from $196,700 in March and 5.2% higher than the $191,800 median sales price in April of last year, in home price data that is not seasonally adjusted…the average home sales price was $250,600, up from $244,800 in March and $241,700 a year ago, with the average home prices in the West at $334,600 far above the average $189,500 homes sold for in the Midwest....foreclosed homes, which sold for an average of 16% below the market, accounted for 10% of April sales, while short sales, at 5% of the total, were discounted by an average of 10%...the pie graph below, taken from an NAR graphic summary of April data, shows the percentage of April homes sold in each of several prices ranges; while it’s obvious most homes were sold for below $250,000, those selling for over $500,000 still accounted for a substantial 11% of all sales..

April 2014 existing home prices

  buyers identified as investors accounted for 18% of sales, up from 17% in March but down from 19% a year ago...according to the NAR, all-cash sales accounted for 32% of April transactions, down from 33% in March but unchanged from 32% in April of 2013; the percentage of all cash sales seems to be a matter of some debate, as CoreLogic puts it at 40%, down from 43.7% all cash sales a year ago, whereas RealtyTrac's 1st Quarter Institutional Investor & Cash Sales Report reported that all-cash transactions accounted for 42.7% of all residential property sales, up from 19.1% in the 1st quarter of 2013, while Morgan Stanley puts all cash sales at 39% in the 1st quarter, up from the second half of last year but below the all cash sales percentages in the first quarter of each of the last three years...meanwhile, first time home buyers accounted for just 29% of April sales, unchanged from a year ago, as Freddie Mac reported that the average rate for a conventional 30-year fixed-rate mortgage at 4.34% was unchanged from March...2.29 million homes were available for sale at the end of April, a 5.9 month supply at the current sales pace, up from the 1.99 million homes for sale at the end of March...the interactive FRED graph below shows the seasonally adjusted annual rate of existing home sales monthly since January 1999, or the complete NAR record….since each months sales as reported by the NAR and as shown on the graph are annualized, the numerical sales count shown for any given month is rendered fairly meaningless in the attempt to show the overall trend in home sales over time…

New Home Sales Appear to Have Stabilized Below 500K a Year

the other report on home sales was on New Residential Sales for April (pdf) from the Census bureau, which you'll recall has the largest margin of error and is subject to the largest revisions of any census construction series....as is usually the case with this report, Census did not have sufficient data to determine whether new home sales rose or fell for the month or even over the preceding year when they estimated that "sales of new single-family houses were at a seasonally adjusted annual rate of 433,000 in April, which was 6.4 percent (±15.9%)* above the revised March rate, but 4.2 percent (±14.2%)* below the sales rate of April of last year"...what they're telling us there is that at the rate they estimated new homes were selling in April, it's 90% likely that total new homes sold over a year would range between 364,153 and 501,841...actual estimated sales for April were 41,000, up from 39,000 in March and the highest since an estimated 43,000 new homes were sold in June a year ago, and of course, allowing for rounding in that estimate, a similar ±15.9% margin of error could be applied to one month's unadjusted sales totals...all of the reported increase was in the Midwest, where new home sales were estimated at 8,000, up from 5,000 in March, in a regional figure with a margin of error of ±61.4%...of those homes sold in April, 9,000 were not yet built, 9,000 were completed, and 12,000 were still under construction...along with the estimates for April, the annual rate of new home sales for March were revised from a seasonal;ly adjusted 384,000 rate to 407,000, while February's sales were revised down from an annual rate of 449,000 to a 437,000 rate..

the median new home sales price was $275,800 in April, down from $290,000 in March; while the average sales price was $320,100, down from the previous month's $334,200...even with that April decline, almost 45% of April's new homes sold for over $300,000, while those under $150,000 accounted for less than 5%, in new home prices that are now higher than those during the housing bubble... the Census estimated that a seasonally adjusted 192,000 new homes remained unsold at the end of April, which was a 5.3 month supply at the current sales pace, down from a 5.6 month supply in March....the interactive FRED graph below show the historical data from this Census report, with the monthly sales reported as an annual figure just as the NAR existing home sales graph above...

Russia Deals Its Gas to China; US Shale Oil Reserves Are Cut by More than Half

there were also two major energy stories worth noting this week; first, in a deal almost one-fifth the size of the Russian economy, Russia and China signed a $400-billion agreement for the former to supply 38 billion cubic meters of natural gas annually over 30 years at a price at the low end of what it changes European customers, culminating after almost of decade's worth of negotiations...Russia has also committed to spending $55 billion on pipeline infrastructure for transporting the gas to China, which could be expanded in the future to deliver as much as 61 bcm per year...as Putin himself was in Beijing to close this deal, it seems likely that the concessions he made to China were at least in part precipitated by US and NATO economic sanctions against Russia over the situation in the Ukraine...needless to say, this, and a smaller deal to supply 3 million tons of liquefied natural gas (LNG) annually, reshapes a major part of the global energy map, as China's need for LNG imports from Indonesia and the Mideast will be reduced, while the Russian gas supply to Europe becomes even more tenuous..

of even greater importance to us domestically, the Energy Information Administration cut its original estimate of recoverable oil reserves in California’s Monterey shale by 96%, from the original estimate of 15.4 billion barrels of oil down to 600 million barrels, or only enough to meet current U.S. oil consumption usage for 32 days...this shale play had been expected to yield twice the oil of the Bakken shale in North Dakota, or 5 times as much as the Eagle Ford in Texas, and was said to be nearly two-thirds of the known shale oil reserves in the US....so what happened, and how were they so wrong in their first estimates?  to start with, the Monterey shale is still there, roughly between 6,000 and 15,000 feet below the California surface, depending on the topography...and it's still embedded with as much oil as it ever was, being that it's been the source of most of California's conventionally exploited oil...the trouble with exploiting California that wasn't a problem in the other areas of the country where fracking has been used is that California has been through hundreds of millennia of tectonic upheavals, such that the layers of bedrock under the state are no longer piled one on top of another like a stack of pancakes as they are in other parts of the country...that means that it's simply impossible to exploit most sections of the Monterey shale by horizontal fracturing, aka fracking...to illustrate this, below we have a schematic diagram of a typical horizontally fracked well; you can see that the original well bore typically goes to a depth of a couple thousand feet to a mile or more to reach the oil or gas bearing strata, after which horizontal bores are made through the horizontal shale, often in several directions, from which bores the shale is blasted apart by a high pressure stream of water, sand and chemicals to yield the oil or gas...immediately below that schematic, we have a picture of the Monterey shale from wikipedia...it's pretty obvious that it would be impossible to drill horizontal shafts in that formation to exploit just one oil-bearing strata...so obvious that we have to wonder why no one had pointed out that simple fact before today...anyone want to venture a guess as to how many suckers they got to invest in the Monterey shale before this was made public?

Schematic diagram of a horizontal well

Monterey shale:
monterey shale

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)

Sunday, May 18, 2014

April retail sales, price indexes, industrial production, new homes, state jobs; 1st Qtr household debt, mortgage delinquencies, et al

  we've had a full plate over this week with several key monthly economic releases, as well as reports on first quarter household credit and mortgage delinquencies...in addition to the April advance report on retail sales from the Census bureau, there were the two monthly releases on April prices from the BLS, the Producer Price Index and the Consumer Price Index, all of which we'll look at later...then for manufacturing, there was the April report on Industrial Production from the Fed, and two regional Fed Manufacturing Surveys for May; the Empire State Manufacturing Survey from the New York Fed, covering New York and part of New Jersey, which reported their general business conditions index rose to 19.0, up from 1.3 last month, indicating robust expansion by area manufacturers, and the Philadelphia Fed's Business Outlook Survey for May (pdf), covering most of Pennsylvania, southern New Jersey, and Delaware, who saw their most inclusive diffusion index slip slightly from a reading of 16.6 in April to 15.4 in May, also indicating still strong growth, on the Fed survey scale where all positive readings indicate expansion...we also got the March report on Manufacturing and Trade Inventories and Sales (pdf) from the Census Bureau, which is covered in the media as "business inventories" and which showed a seasonally adjusted 1.0% (±0.2%) increase in sales from February and a 0.4% (±0.1%) increase in aggregate inventories for the month... 

for mortgages, we saw the release of the Mortgage Bankers Association's (MBA) National Delinquency Survey for the 1st Quarter,  which, like the March Mortgage Monitor we reviewed last week, gives us a snapshot of mortgages that are in trouble as of the end of March, with the difference here being that the MBA seasonally adjusts mortgage delinquencies and foreclosures, and since historically the 1st quarter is the lowest for mortgage delinquencies, MBA's 1st quarter numbers were adjusted upwards...thus, the MBA reported that 2.56% of all mortgages were in the foreclosure process at the end of the quarter, down from 2.77% at the end of the 4th quarter and down from 3.46% in foreclosure a year earlier...an additional 6.11% of home owners with a mortgage were at least one month overdue on their payments but not in foreclosure, down from a delinquency rate of 6.39% at the end of the 4th quarter and down from 7.25% who were delinquent on their mortgages at the end of the 1st quarter last year...the seriously delinquent rate, which is the percentage of mortgages that are more than 90 days overdue or in the process of foreclosure, was at 5.04%, down from 5.41% last quarter and down from 6.36% who were seriously delinquent a year ago...in contrast to this MBA report, last week the BKFS Mortgage Monitor reported an unadjusted 'in foreclosure rate' of 2.13% of all mortgages, a delinquency rate of 5.52%, and a serious delinquency rate of 4.52%...the MBA also reports that foreclosures were started on 0.45% of mortgages in the quarter, which would not be directly comparable to the 88,113 new foreclosures the Mortgage Monitor indicated for the month of March...the bar graph below, taken from Bill McBride's coverage of this MBA report, is a color coded representation of the percentage of mortgages in foreclosure and delinquent since the 1st quarter of 2005....each bar shows the portion of 30 day delinquencies reported by the MBA for each quarter in violet, the percentage of 60 day delinquent mortgages for each quarter in the blue portion of each bar, the percentage of mortgages more than 90 days late in yellow, and the percentage of homes in foreclosure in each quarter in red...we can see on that graph that the percentage of mortgages in trouble peaked at 14.7% in the first quarter of 2010 and has been trending downward since, although it's still well above the levels of the pre-crisis year of 2005, especially with regards to 90 day delinquencies and homes stuck in foreclosure... 

1st quarter 2014 MBA delinquency survey

also related to housing, we saw the April Report on New Residential Construction (pdf) released Friday by the Census Bureau, which gave us broad estimates of new housing permits, housing starts, and housing completions, based on a survey of a small percentage of permit offices visited by Census field agents...new housing starts were estimated to be at a seasonally adjusted annual rate of 1,072,000, which was 13.2 percent (±13.6%)* above the revised March estimate and 26.4 percent (±11.8%) above the rate of April a year ago...the asterisk tell us that Census is uncertain whether there was an increase or decrease in new housing starts for the month, and the figure in parenthesis indicates that there's a 10% chance that seasonally adjusted housing starts in April could have either been more than 26.8% higher or 0.4% lower than homes started in March...new building permits have a much tighter margin of error; they were issued at a seasonally adjusted annual rate of 1,080,000 in April, 8.0% (±0.7%) above the revised March rate and 3.8% (±0.9%) above the estimate of April a year ago..

Household Debt Increased by 1.1% in the First Quarter While Delinquent Loans Fell

the other quarterly report released this week was the New York Fed’s 1st Quarter Household Debt and Credit Report (pdf),which indicated that total household debt, including real estate debt, rose by $129 billion in the 1st quarter to $11.65 trillion, a 1.1% increase over the 4th quarter debt level...mortgages, the largest component of the aggregate, increased by $116 billion to $8.17 trillion, a 1.4% increase, while home equity lines of credit fell by $3 billion to $526 billion, a 0.6% drop, and non-housing debt rose by 1.4%, with increases of of $12 billion in auto loans and $31 billion in student loan balances only partially offset by declines of $24 billion in credit card balances and $3 billion in other household debt....despite increasing over the past 3 quarters, aggregate household debt still remains 8.1% below the peak of $12.68 trillion reached in the 3rd quarter of 2008...except for the initial 2 page summary, the balance of this 31 page pdf is charts and graphics, equally divided into a national chart section and charts for selected states, covering the 10 largest states by population plus the housing boom/bust states of Nevada and Arizona...the first bar chart below shows the components of total household debt nationally for each quarter since the beginning of 2003, with each bar on the graph representing a quarter of a year, and within each bar is a color coded representation of the amount in trillions of dollars of each type of debt that was outstanding at the end of that given quarter…in each bar, orange represents the amount of mortgage debt that was outstanding at the end of that quarter, violet indicates the amount of home equity loans outstanding, green is the amount of auto loans outstanding, blue is unpaid credit card debt, red are student loans outstanding, and grey is ‘other’ debt outstanding in the quarter...the graph clearly shows the jump in aggregate debt over the last 3 quarters in the 3 bars on the left, driven, and that student loan debt has now expanded to 10% of the total, or one seventh of the amount of mortgage debt...although mortgage debt is considerably lower than at the peak, we should also note that this report and its graphics does not distinguish between mortgage debt that has been paid off and mortgage debt that has been extinguished through a foreclosure or a short sale, and that there's not a good source for such data...

1st quarter 2014 household debt components

the next bar graph following uses the same color coding for the type of loans represented as the graph above and covers the same time period; in this one, each bar has a color coded representation of the amount of newly delinquent loans by type as they first became delinquent in each quarter; here we can see a pretty clear peak with over $400 billion of household debt becoming delinquent for the first time in the last quarter of 2008; we can also see that newly delinquent student debt, or the red in each bar, has become larger as time goes on, and also clearly see how newly delinquent mortgage debt in orange dropped seasonally in the most recent quarter, just as also noted by BKFS and the MBA…

1st quarter 2014 household debt new delinquencies

April Retail Sales Increase 0.1% after February and March Sales Revised Upwards

the important story from the retail sales report for April from the Census Bureau was buried beneath the headlines of a disappointing 0.1% increase, in that March and February sales were revised upwards enough so that on net, the increase in retail sales in April actually beat expectations of a 0.4% increase over previously reported figures; there was also an annual revision based on results from the 2012 Annual Retail Trade Survey which revised totals from January 2011 through March 2014, so the final dollar totals here are not comparable to previously issued reports, but the month over month percentage changes remain generally consistent...the Advance Retail Sales Report for April (pdf) estimated that our total seasonally adjusted retail and food services sales for the month were at $434.6 billion, which was a increase of 0.1 percent (±0.5%)* from March's revised sales of $434.2 billion, and an increase of 4.0 percent (±0.7) from April a year ago...February's seasonally adjusted sales, originally reported at $427.2 billion, have now been revised to $427.554 billion, and the February to March percentage change was revised from +1.2 percent (±0.5) to +1.5 percent (±0.2)...thus, these revisions should boost the next estimate of 1st quarter GDP, while the tiny April sales increase therefrom bodes a slow start for the PCE contribution to second quarter growth ...estimated actual sales, extrapolated from surveys of a sampling of retailers, indicate sales fell to $434,458 million in April from $439,455 million in March, with both month's totals still well ahead of February's revised sales of $384,985 million...

as usual, we'll include below a picture of the table of monthly and yearly percentage changes in sales by business type from the Census pdf, so we can take a look at what types of sales drove the changes ...the first double column gives us the percentage change in sales for each type of retail business type from March to April in the first sub-column, and then the year over year percentage change for those businesses since last April in the 2nd column; the second pair of columns gives us the revision of March's advance estimates (now called "preliminary") as of this report, likewise for each business type, with the February to March percentage change under "Feb 2014 revised" and the revised March 2013 to March 2014 percentage change in the last column shown...our picture of what those March percentages looked like before month's this revision is here, and since there were significant changes, we'll review those after we look at the new April estimates...

April 2014 retaul table

as you can see from the first column in the above table, an 0.6% increase to $87,084 million in April automotive sales were the major factor in the small seasonally adjusted gain eked out for the month, as without motor vehicle & parts revenues, total retail sales fell by a statistically insignificant $76 million to $347,487 million...similarly, for year over year sales in the second column, vehicle and parts dealers sales were up 9.8%, while all other retail sales had an annual increase of just 2.7%....other business types that saw above trend sales increases in April included clothing stores, where sales were up 1.2% to $21,080 million, gas stations, where sales rose 0.8% to $45,475 million, specialty shops, such as sporting goods, book and music stores, whose sales rose 0.7% to $7,134 million; drug stores, where sales were up 0.6% to $24,367 million, and  building material and garden supply stores, where sales rose 0.4% to $26,463 million...meanwhile, businesses that saw retail sales fall in April included electronic and appliance stores, where sales were off 2.3% to $8,678 million, miscellaneous store retailers, whose sales also fell 2.3% to $9,726 million, nonstore, or mostly online sales, where sales were off 0.9% to $39,293 million, bars and restaurants, where sales were also off 0.9% to $46,390 million, and furniture stores, where sales were off 0.6% to $8,265 million...

as we mentioned, there were also significant revisions to originally reported March sales for most business types...by far the largest revision was seen in sales at electronic and appliance store sales, which were originally reported as shrinking 1.6% and have been revised to a 2.2% increase over February's sales....automotive sales were also one of the major revisions to March retail sales, as sales at vehicle and parts dealers, which were originally reported to have increased 3.1% over February, are now revised to an increase of 3.6% to $86,605 million…other significant revisions to March sales changes include sales at bars and restaurants, which were first reported with a 1.1% increase, are now seen 1.9% over February's sales; furniture stores, originally reported as up 1.0%, are now revised to a 1.7% gain; sales at miscellaneous store retailers, which were first reported with an increase of 1.3%, are now revised to have increased by 2.0%,  sales of non-store online retailers, reported up 1.7%, have been revised to an increase of  2.4%, drugs store sales, originally reported as having risen 0.3%, are now seen as up 0.7%, and March sales at gas stations, reported as down 1.3% in the advance report, have been revised to down 1.0%...on the other hand, March sales at building materials and garden supply stores, which were first reported to have increased 1.8%, are now seen up just 1.0%, and specialty stores, sales including sales at sporting goods, book and music stores, were originally reported up 0.3% over February, and have revised to have seen sales 0.9% lower....

April CPI up 0.3% as Prices Increase Across the Board

the April Consumer Price Index for All Urban Consumers (CPI-U) from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.3%, the most in ten months, on widespread price increases in almost every sector...the unadjusted CPI-U, which was set with prices of the 1982  to 1984 period equal to 100, rose from 236.293 in March to 237.072 in April and was 1.95% above the 232.531 reading of a year earlier….the Core CPI, which tracks prices for all items except volatile food an energy prices, rose 0.2% for the month, with none of its major component price indexes showing a decrease in April...at 237.509, it is remarkably close to the CPI-U even after 20 years of price changes, and up 1.83% from a year earlier...since there was an increase in prices on most of the goods sold at retail in April greater than the increase in retail sales, it implies a negative real change in personal consumption expenditures for durable and non-durable goods for the month, subtracting from the change in real GDP...similarly, in conjunction with this report, the BLS released the April report on real earnings, which indicated that since average hourly earnings were unchanged for the month, real inflation adjusted earnings fell by 0.3% in April, bringing real hourly wages to their first annual decline since October 2012...

April saw the first increase in overall energy prices since January as components of the seasonally adjusted price energy index, which increased by 0.3% for the month and was up 3.3% for the year, were mixed; prices for energy commodities were 1.9% higher on a 2.3% increase in gasoline prices, the largest component, while prices for fuel oil fell 3.0% and prices for other fuels (propane, kerosene, firewood, et al) fell by 7.7%...meanwhile, prices for energy services fell by 1.9% on electricity prices that were 2.6% lower, while utility natural gas rose 0.3% and was up 11.8% since last April, the only energy component with a double digit year over year change..

the seasonally adjusted food price index rose 0.4% in April, the same increase it posted in February and March, and is now 1.9% more than it was a year earlier....prices for food away from home rose 0.3% as meals at full service restaurants were 0.1% higher, prices at fast food restaurants rose 0.4% and prices for food at schools and workplaces rose 1.1%....meanwhile, the price index for food at home rose 0.4% with meat prices leading the increase...prices in the meats, poultry, fish, and eggs group rose 1.5% for the month as beef prices rose 3.0% and pork prices rose 4.1% on 4.9% higher prices for bacon and 6.5% more expensive pork chops, while poutry prices fell 1.6% and seafood prices were unchanged...for the year, beef roasts were 12.7% higher, beef steaks were up 12.1%, ground beef was up 10.0% and pork chops were 11.3% more than a year ago...prices for dairy products were up 0.5% in April as cheese prices rose 1.6% while milk prices rose 0.3% and ice cream prices were unchanged...prices for the fruits and vegetable group were up 0.7% on a 3.9% rise in citrus fruit prices and a 5.0% rise in the prices of lettuce...while citrus prices are now 21.3% above year earlier levels, prices for lettuce remained 9.1% below their prices of last April....prices for cereal and bakery goods group, on the other hand, were unchanged in April and 0.1% below a year ago as flour fell 1.6% for the month, cookies fell 1.3%, and rice and pasta prices were 1.2% lower, while white bread rose 2.2% but was down 0.3% year over year...meanwhile, prices in the beverage group fell 0.1% as carbonated drinks, non-carbonated juices, and coffee prices all fell 0.1%, while over the year beverage prices fell 2.0% with coffee prices 4.5% lower...lastly, prices for other foods at home fell 0.2% as prices for sugar, artificial sweeteners, candy and chewing gum all fell 1.3% while prices for frozen and freeze dried prepared foods rose 0.9%...

among the seasonally adjusted price changes to core CPI components, the cost of shelter, the largest CPI component, rose by 0.2% in April and was up 2.8% for the year as rents rose 0.3%, homeowner's equivalent rent rose 0.2% and prices for lodging away from home rose 0.4%...apparel prices, meanwhile, were the only core component unchanged in April as a 1.0% decline in prices for men's clothing, a 0.5% decrease in prices for women's clothing and a 0.2% decrease in footwear prices offset increases of 2.8% in boy's clothing and 5.1% in girl's apparel.... the aggregate index for medical care was up 0.3% as medical commodities rose 0.3% on 0.4% higher nonprescription drug prices and 0.6% higher prices for medical supplies, while medical services were up 0.3% on a 0.5% increase in prices for hospital services...web wide anecdotes about rising insurance premiums don't show up in the data, however, as the health insurance price component was down 0.2% for both the month and for the year...the seasonally adjusted transportation index indicated a 1.1% price increase in April, but that index includes gasoline; however, the transportation commodity index excluding fuel still rose 0.3% as used car prices rose 0.5% and new car & truck prices rose 0.3%, while the transportation services index rose 0.7% on 2.6% higher airfares, partially offset by 1.8% lower car and truck rentals....in addition, the recreation price index rose 0.2% as recreation commodities were unchanged as 1.6% higher prices for newspapers and magazines and 0.8% higher sporting goods prices were offset by 1.8% lower TV prices and 2.2% lower prices for toys, while prices for recreational services rose 0.3% on a 1.8% higher rentals for video discs and similar media, a 0.9% increase in prices for film processing and a 0.4% increase in pet services... and in the last major component, the aggregate education and communication index rose 0.2% as prices for education and communication commodities rose 0.2% on an 0.8% increase in prices for college textbooks which was partially offset by a 0.2% decrease in personal computer prices, while education and communication services rose 0.2% on a 0.4% increase in college tuitions, a 0.4% increase in internet service charges, which were partially offset by 0.7% lower prices for delivery services...outside of the previously mentioned food and energy components, the only line item among CPI components that showed a one year price change greater than 10% was televisions, which were 11.8% cheaper than last April...

meanwhile, the report on the Producer Price Index for April, which as of this year now includes prices for services, and construction sold for personal consumption, capital investment, government purchases, and export in addition to reporting the standard change in selling prices received by producers for finished, intermediate and raw goods, indicated that the seasonally adjusted composite producer price index for final demand rose by 0.6% for the month after rising 0.5% in March and was now 2.1% above year earlier levels...the index for final demand for services, led by a 1.4% jump in final demand trade, rose 0.6% in April after a 0.7% increase in March, while the price index for final demand goods was also up 0.6% after being unchanged the previous month.....the major factor in the goods increase was a 2.7% increase in the index for final demand for foods, with an 8.4% jump in wholesale meat prices accounting for over one-third of the increase in the final demand goods index...among the largest price gainers, wholesale egg prices rose 15.1% in April and were 44.3% ahead of last year's prices, while wholesale pork prices rose 20.6% and were up 40.3% for the year...core producer prices for final demand goods, which exclude producer prices for food and energy, rose 0.3% in April after a 0.1% increase in March, as prices for final demand energy inched up 0.1%....meanwhile, index for processed goods for intermediate demand was unchanged in April after a 0.2% decline in March, while the index for unprocessed goods for intermediate demand rose 0.4 percent in April after slipping 0.1% in March...prices for processed foods and feeds rose by 2.6%, while prices for all other processed materials fell 0.1%, and unprocessed foodstuffs and feedstuffs rose 3.6% while unprocessed nonfood materials fell 1.6%, led by a 12% decrease in prices for unprocessed natural gas...

April Industrial Production Falls 0.6% on Manufacturing Slowdown and Return to Normal Weather

the Fed's G17 report on Industrial production and Capacity Utilization for April, which reports industrial production by industry and by market group as index values based on 2007 production equal to 100.0 and monthly and annual percentage changes in that index, indicated that total industrial production fell by 0.6% in April as the industrial production index fell to 102.7 from an all time high of 103.3 in March, but was still 3.5% ahead of the year earlier reading of 99.3%...the largest component of the overall index, the manufacturing index, unexpectedly fell 0.4% in April, while the March increase in manufacturing was revised from 0.5% to 0.7%, and at 98.6 was 2.9% ahead of a year earlier..the major drag to April's production was a 5.3% decline in the utility index, which was to be expected, since as we pointed out a month ago, utility output had been growing at an unsustainable double digit annual rate over the preceding 6 months due to abnormal demand resulting from aberrant weather patterns...at 102.0, the utility index is now 0.2% below last year's 102.2 reading...meanwhile, production at 'mines', which includes oil & gas output, increased by 1.4% in April, after a 2.0% increase in March while the mining index at 126.7 was 8.3% higher than a year earlier..

in addition to the breakdown of industrial production into those three industry groups, this release also reports on industrial production by market group...among final products and nonindustrial supplies, which fell by 0.8% in April, seasonally adjusted production of consumer goods fell 1.3% after a revised 0.5% increase in March...production of durable goods was statistically unchanged as a 0.2% decrease in the heavily weighted automotive products sector offset production increases of 0.4% in consumer electronics and 0.8% in appliances, furniture and carpeting...meanwhile, production of non-durable goods fell 1.7% as output of consumer energy products fell 5.5% and non-energy non durables fell 0.3%...of the latter, output of chemical products fell 1.0%, paper products production fell 0.9%, while food and tobacco production rose 0.2%.and clothing production was unchanged...since last April, production of durable goods had increased by 5.6% led by a 7.4% increase in automotive production, production of non-durable goods rose 1.6% on an 8.0% increase in clothing output, while output of consumer energy products increased 2.0%..

seasonally adjusted production of business equipment fell 0.5% in April after rising by a revised 1.0% in March as production of information processing equipment fell 0.6% and production of industrial equipment fell 1.3% while production of transit equipment rose 1.4%...for the year ending April, output of business equipment rose by 4.1%, as output of both industrial production and information processing equipment rose 4.1% while production of transit equipment rose 3.9%...meanwhile, production of defense and space equipment rose by 0.6% in April and grew by 3.6% over the year...in addition, production of supplies for use in construction were unchanged for the month and up 3.5% for the year, while production of business supplies fell by 0.7% in April, reducing annual growth to 2.4%...meanwhile, production of raw and intermediate materials that would input into other production processes fell by 0.3% In April with output of consumer parts, equipment parts, textiles and paper all falling by more than 0.3%, while output of chemicals rose 0.2%...

with industrial production down, capacity utilization, which is the percentage of our plant and equipment that was in use during the month, also fell, from 79.3% in March to 78.6% in April...76.4% of our manufacturing capacity was in use during March, down from 76.9% in March and up less than a percent from the 75.8% factory operating rate of a year earlier...meanwhile, capacity utilization by the 'mining' industry rose from 88.9% to 89.7% as the oil and gas industry continues to add capacity, while the operating rate for utilities fell from 84.7% to 80.1%...over the last year, manufacturers added 2.1% to their plant capacity, the mining industry saw capacity grow by 4.8%, and utilities expanded their plant base by 0.7%....our FRED graph for this report below shows the percentage of capacity utilization for total industry monthly since 2007 in pink, while it shows the the seasonally adjusted industrial production index values for all industry in black, the manufacturing production index in blue, the utility production index in green, and the mining production index in red from the beginning of the index year of 2007, at which time they were all benchmarked to equal 100.0…

last, on Friday the Bureau of Labor Statistics released the April Regional and State Employment and Unemployment Summary, which basically takes the same data that we saw in the national employment report two weeks ago and breaks it down by state and region...so while 43 states reportedly had a lower unemployment rate than March, we already know that wasn't because the unemployed found jobs; rather the decrease in the unemployment rate resulted from the 806,000 who quit looking for work, leaving nearly a million more of us not counted when tallying up April the unemployment rate than those not counted in March....as with the national report, the sections of this report that correspond to the establishment survey are more informative, in that they show the number of jobs added or lost in each state, with Illinois being the biggest loser in the later category with 6,800 less jobs than in March, while Texas added 64,100 payroll slots in April...for a breakdown of payroll employment by job type for each state over the past 3 months, and the change since last April, see the following two BLS tables accompanying this release: Table 5. Employees on nonfarm payrolls by state and selected industry sector, seasonally adjusted and Table 6. Employees on nonfarm payrolls by state and selected industry sector, not seasonally adjusted ...

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)

Sunday, May 11, 2014

March Mortgage Monitor, trade deficit, job openings, et al

the key economic release this past week was the March report on our trade deficit, which despite improvement over February, showed that the BEA's estimate of 1st quarter GDP was overly optimistic and will have to be revised down, indicating the economy actually shrank during the first three months of this year.…other reports this week included the April ISM Report On Non-Manufacturing Business, which reported that their composite non-manufacturing index (NMI) rose 2.1% to 55.2% in April, indicating that more service industry purchasing managers reported expansion in their businesses than did in March; the 1st Quarter report on Labor Productivity and Costs from the Bureau of Labor Statistics, which reported that non-farm labor productivity decreased at a 1.7% annual rate in the quarter, the greatest slowdown in a year, while unit labor costs rose by 4.2%, the most since the 4th quarter of 2012; the Fed's March G-19 on Consumer Credit, which showed total consumer credit increased at a seasonally adjusted annual rate of 6.7% for the month, with revolving credit growing at a 1.6% annual rate, and non-revolving credit, such as car and student loans, growing at a 8.7% rate; the Wholesale Trade Sales and Inventories report for March (pdf) from the Census Bureau, which estimated that seasonally adjusted sales of merchant wholesalers increased by 1.4 percent (+/-0.5) from the revised February level and 6.5 percent (+/-1.6%) from a year ago, while March wholesale inventories were 1.1 percent (+/-0.4%) higher than the revised February level and 5.9 percent (+/-0.9%) higher than March a year ago; and the Job Openings and Labor Turnover Survey for March from the BLS, which indicated there were a seasonally adjusted 4,014,000 jobs open at the end of March, down a bit from the 4,125,000 job openings reported at the end of February...we also saw the release of the Mortgage Monitor for March, the graphics report on mortgage conditions formerly from LPS, which we'll take a look at later in the this commentary..

March Trade Deficit Falls by $1.5 Billion, Less Than Expected

the March report on our International Trade in Goods and Services from the Commerce Department indicated that our seasonally adjusted trade deficit in goods and services was at $40.4 billion in March, down from a revised $41.9 billion in February, as our exports rose $3.9 billion to $190.0 billion on a $3.7 billion increase to $135.1 billion in goods exports and a $0.2 billion increase to $58.8 billion in services exports, while our imports rose $2.5 billion to $231.8 billion on a $3.1 billion increase to $195.8 billion in goods imports and a $0.7 billion reduction of imports of services to $38.4 billion, as we were no longer paying for rights to the Olympic Games...since last March, our trade deficit has risen by $3.8 billion on a $9.2 billion or 5.0% increase in exports and a $13.0 billion, or 5.9 percent increase in imports...you'll recall that we noted in our coverage of 1st quarter GDP last week that the BEA assumed an increase in exports and a decrease in imports in March, and hence the large increase in imports implies a downward revision to GDP; since GDP was reported nearly flat, the combination of this report and other revisions previously noted has led to estimates that our economy actually shrank by as much as 0.8% in the first quarter...  

the screenshot of our FRED bar graph below shows the monthly change in exports in blue and the monthly change in imports in red since January 2012, with the net of them resulting in the change in the monthly balance of trade, which is shown in brown...each group of three bars represents one month’s of trade data, with positive changes above the ‘0’ line and negative changes below it; note that when exports (blue) increase in a given month, they add to the trade balance change in brown; and when exports decrease, they subtract from the brown change in the trade balance, while the action of imports on the balance is just the reverse, ie, when imports increase in a given month, they subtract from the brown trade balance for the month, but when imports decrease, the balance of trade rises as a result…in March, both exports and imports increased, but exports increased more, so the trade balance improved by the difference... the interactive version of this bar graph at FRED loads with 20 years of trade data, which you can view monthly by moving your cursor across the graph, or use the sliders across the bottom of the graph to adjust the time period viewed...

March 2014 trade balance

end use categories of exports that saw seasonally adjusted February to March increases included capital goods, exports of which rose by $2,114 million to $45,859 million on a $1,261 increase in exports of civilian aircraft, a $273 million increase in exports of aircraft engines, and a $236 million increase in exports of generators...exports of industrial supplies and materials rose $888 million to $41,865 million on $419 million greater exports of fuel oil and a $354 million increase in natural gas exports, and exports of automotive vehicles, parts, and engines rose $579 million to $12,796 million...in addition, our exports of other goods not categorized by end use rose $266 million to $5,126 million, and our exports of foods, feeds, and beverages increased by $97 million to $12,098 million on $278 million higher exports of corn, $103 million greater dairy exports, and $103 more exports of animal feeds while our exports of soybeans fell by $499 million.....meanwhile, our exports of consumer goods fell by $304 million to $16,348 million in March on a $365 million decrease in exports of pharmaceuticals and a $168 million decrease in exports of cell phones and similar household goods while our exports of toiletries and cosmetics rose by $93 million...

end use categories of imports that saw seasonally adjusted increases for the month were led by consumer goods, of which we imported goods valued at $45,439 million in March, $1,157 million more than February, on a $1,076 million increase in imports of cellphones and similar goods, $276 million more pharmaceutical imports, and $251 million more gem diamonds, while our footwear imports decreased by $223 million...we also imported $10,622 million in foods, feeds, and beverages in March, $1,032 million more than February, on $203 more fish and shellfish imports, with every food category seeing an increase in imports except fruits and juices, which saw an $11 million decline...we also imported $47,399 million in capital goods, $850 million more than in February, with a $431 million increase in imports of semiconductors, a $391 million increase in civilian aircraft imports, and increases in most other capital goods imports except computers, imports of which fell by $669 million....in addition, imports of other goods not categorized by end use rose by $820 million to $6,675 million and imports of automotive vehicles, parts, and engines were up by $20 million to $25,811 million...meanwhile, imports of industrial supplies and materials were down by $481 million to $57,318 million on a $2,135 million drop in imports of crude oil, while imports of fuel oil rose by $448 million and imports of other petroleum products rose by $756 million...

Job Openings Fall 111,000 in March

as we mentioned in opening, the Job Openings and Labor Turnover Survey for March showed that seasonally adjusted job openings fell by 111,000 from the February six year high to 4,014,000 jobs left unfilled at the end of March...as a result, the number of unemployed per job opening rose to 2.6 from February's 2.5...job openings as a percentage of the employed labor force fell to 2.8% from 2.9%, with the 819,000 openings in professional and business services, which could be anything from managers to janitors, accounting for the largest of number in any sector, while openings in retail trade fell from 477,000 in February to 454,000 in March and construction job openings fell from 127,000 to 104,000..

the same release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'others', which include retirements and death...in March, seasonally adjusted new hires totaled 4,625,000, which was down 74,000 from the 4,699,000 hired or rehired in February, while the hiring rate as a percentage of all employed was unchanged at 3.4%, but up from 3.2% a year earlier...seasonally adjusted hiring increases were strongest in health care and social assistance, where hiring rose by 30,000 workers to 478,000, while hiring in retail fell by 31,000 to 691,000....total separations were also down a bit, from 4,459,000 in February to 4,431,000 in March, while the separations rate as a percentage of total employment was unchanged at 3.2%...thus hires minus separations would work out to an increase of 194,000 payroll jobs, 9,000 less than the revised March total of 203,000 jobs reported in last week's April jobs report...

breaking down the seasonally adjusted job separations, we find 2,476,000 quit their jobs in March, virtually unchanged from the number who quit in February, as the quits rate, an indication of worker confidence, also remained unchanged at 1.8% of total employment...quitting rose slightly in several sectors, while those who quit jobs in accommodation and food services fell by 31,000 in February to 460,000 in March....another 1,574,000 were either laid off, fired or otherwise discharged in March, down from 1,596,000 in February, while the discharges rate fell to 1.1% of all those employed from 1.2% in February…meanwhile, other separations, which includes retirement and death, were at 381,000 in March, down from 388,000 in February, for an ‘other separations’ rate of 0.3%.... 

our interactive FRED graph for this report below shows job openings in blue in thousands monthly since January 2006, and monthly hires in orange and monthly separations in violet over the same span…note that when separations in purple were above orange hires we were losing jobs...also, of the two major components of separations, the count of layoffs and firings is tracked in red, while the number of those quitting their jobs monthly is shown in green....

March Mortgage Monitor Shows Foreclosure Starts, Mortgage Delinquencies, and New Mortgages All at New Lows

the March Mortgage Monitor (pdf) from Black Knight Financial Services (BKFS, formerly the LPS Data & Analytics division) revealed that a number of new monthly mortgage benchmarks were set; the number of new foreclosures in March fell to the lowest since late 2006; the number of homes remaining in the foreclosure process fell to the lowest since October 2008; the number of homeowners who were delinquent on their mortgage payments fell to the lowest level since October 2007, and the number of new mortgage originations were at all time low for the 14 years of LPS records...according to BKFS, 88,113 new foreclosures were started in March, down from 91,993 in February and well below the 121,012 foreclosures that were started in March a year ago...roughly 1,070,000 home loans, or 2.13% of all mortgages, were in the foreclosure process in March, that is, they had received at least the first legal notice of foreclosure but their homes had not yet been seized; that was down from 1,115,000 who were in foreclosure in February and 1,689,000, or 3.38% of all active mortgages in foreclosure a year ago...another 2,770,000 home owners, or 5.52% of all homes with a mortgage, were at least one payment late on their mortgage in March but not in foreclosure; of those, 1,199,000 mortgages were 'seriously delinquent' or more than 90 days delinquent but not in foreclosure...combining those seriously delinquent with those homeowners who were in foreclosure, we find that 4.52% of all homeowners remained in serious trouble at the end of the month, down from 4.70% in February and down from 6.34% in March 2013...

the first graph below, from page 5 of the Mortgage Monitor (pdf) shows the percentage of mortgages that were either in foreclosure or delinquent monthly since the beginning of 2005...the dark orange shading represents the history of those mortgages that were in foreclosure monthly, which peaked at 4.29% of all mortgages in October 2011 and has trended down since, to the March level at 2.13%, as indicated by the small print on the graph...the light orange shading adds those mortgages that were at least 30 days delinquent to the total each month, to yield the top line which represents the total non-current mortgages monthly; the peak for that metric occurred in January 2010, as also marked in small print on the graph, at which time over 3.8% of mortgages were in foreclosure and another 10.57% of mortgages were delinquent but not in foreclosure, meaning more than 1 in 7 homeowners were not paying on their mortgages at that time....this contrasts to what BKFS indicates as normal percentages of non-current home loans in December of 2005, when just 0.5% of homes were being foreclosed on, while another 4.3% were delinquent but not in foreclosure...in the inset box on the graph, BKFS also shows the last dates that both foreclosures and those delinquent but not in foreclosure were lower than March's percentages; foreclosures, at 2.07% in October 2008, and delinquent mortgages, at 5.37% in October 2007, when the housing bust was just getting underway...

March 2014 LPS delinquencies and foreclosures

the next graphic, from page 8 of the Mortgage Monitor pdf, is a map showing the percentage of mortgages that are not current on their payments in each state, with the states with the highest percentage of non-current mortgages shown in the darkest reds and those with the least percentage of non-current mortgages shown in darkening shades of green…as you see below, there is a wide difference between those states with the most troubled mortgages and those with the least, running from highs of 13.4% non current mortgages in Mississippi and 12.9% non-current in New Jersey to a low of just 2.5% who are non-current in North Dakota..

March 2014 LPS non current

in the following table we have a further breakdown of non-current mortgages by state, taken from page 29 of the pdf...listed for each state and the District of Columbia are the percentage of home loans that were delinquent (Del%) in March, the percentage of mortgages that are in foreclosure (FC%), the total mortgages that weren't current with their payments (NonCurr%) and the year over year change in the number of non-current mortgages...note that states that have a judicial foreclosure process, where the bank must prove their right to foreclose on a homeowner in court, are marked by a red asterisk, as the industry has a long history of focusing on this factor as a reason that foreclosures have been delayed so long....notice that all the states that still have more than 4% of their mortgaged homes in foreclosure are all judicial states; led by New Jersey with 6.5%,  Florida with 6.0%, New York with 5.1%, Hawaii with 4.8%, and Maine with 4.3%...also note that Mississippi, with 13.4% of their mortgages delinquent, is an outlier here, and it has long been a state with one of the highest mortgage delinquency rates in the country, as even in January 2005, before the mortgage crisis began, Mississippi's mortgage delinquency rate was already at 11.3% (see 2005 map, p 7)

March 2014 LPS non current state table

another focus of this month's Mortgage Monitor was the record low number of new mortgages taken out during the month...the graph below, from page 17 of the pdf, shows the number of new mortgage originations monthly since January 2003 tracked with a red line...also shown, with a black line, are the monthly interest rates for 30 year fixed mortgages over the same span... although BKFS does not give the exact count, it's clear from the chart that new mortgages have fallen from as high as 2,300,000 before the crisis to below 250,000 as of March...note that though the headline says they're at the lowest level in ten years, they are in fact at the lowest in the 14 years LPS has tracked this metric...

March 2014 LPS origninations

also highlighted over pages 24 to 26 in this month's Mortgage Monitor is the question of mortgage affordability, which they define as a ratio of the average monthly payment on a 30 year fixed rate mortgage to the average household income, with average home prices determined by their own home price index, which most recently showed a 7.6% year over year home price increase nationally....the map below shows the percentage of their income the average home buyer would have to commit to mortgage payments in each of the lower 48 states, with the darkest green indicating states with the most affordable homes, while homes in the states shaded the darkest red are the most expensive...again, there's quite a range, from cheaper homes in Michigan, where the average home price requires 13% of the average household income in monthly payments, to California and New York, where the average home price necessitates average mortgage mortgage payments at 33% of average income...

March 2014 LPS 4 payment to income ratio

finally, for an overview of how the mortgage crisis has played out from the beginning, we’ll also include, from page 30 of the pdf, the Mortgage Monitor table showing the monthly count of active home mortgage loans, the number of mortgages delinquent by 30, 60 and by more than 90 days, the monthly count of those mortgages in the foreclosure process, the number of foreclosure starts, and the average days delinquent for those who are in the “foreclosure pipeline”, going back to January 2008 with monthly data since January 2013…after the columns for the date and the active loan count for that month, the the next three columns show the total loan counts of delinquent mortgages by number of days delinquent, the number of mortgages in foreclosure (FC) and the foreclosure starts for each month listed...in the last two columns, we see the average length of time those who’ve been more than 90 days delinquent have remained in that status, and then the average number of days those in foreclosure have been stuck in that process because of the long pipelines…we can see that for those 90 days delinquent, the length of time remaining in that status without foreclosure has risen again to 496 days as new foreclosure starts have stalled, while the length of time for those who’ve been in foreclosure without a resolution has lengthened to a record average 966 days…with that average approaching 3 years, it's almost certain that a significant percentage of homeowners in judicial states with large backlogs have been in foreclosure for over 5 years..

March 2014 LPS loan count buckets

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)

Sunday, May 4, 2014

April employment, 1st Quarter GDP, March income and spending, February Case-Shiller home prices, et al

the economic releases came fast and furious this past week, as it was one of those odd weeks where month end reports, such as the S&P Case Shiller Home Price Index, quarterly GDP, and the Income and Outlays report fell into the same week as the employment reports and the ISM indexes, which are typically released in the first week of the month....widely watched reports from this past week that we wont cover in this summary include the March Pending Home Sales Report from the National Association of Realtors, which saw their index up 3.4% in its first increase in 9 months, the March report on Construction Spending (pdf) from the Census Bureau, which saw private construction increase by 0.5 percent (±1.0%)* to $679.6 billion while public construction fell 0.6 percent (±2.1%)* to $262.9 billion, the lowest since 2006, the Dallas Fed Survey of Texas area manufacturing for April, which saw it's general business activity index increase  from 4.9 to 11.7, the April Chicago Purchasing Managers Index for Midwest manufacturing, which rose 7.1 points to 63.0, the Institute for Supply Management's report on April manufacturing, which saw the composite purchasing manager's index (PMI) increase from 53.7% to 54.9%, the Full Report on  Manufacturers' Shipments, Inventories and Orders for March (pdf) from the Census Bureau, which saw new orders for manufactured goods increase by 1.1%, shipments of manufactured goods increase by 0.3%, inventories of manufactured goods increase by 0.1%, and unfilled orders for manufactured goods increase by 0.6%, and the April ADP National Employment Report (pdf), which indicated that private sector employment increased by 220,000 jobs, with 197,000 of those in service industries...

Employers Add 288,000 Jobs in April

on its face, the Employment Situation Summary for April from the Bureau of Labor Statistics appeared to be one of the better employment reports we've seen in some time...the establishment survey indicated that non-farm payrolls grew by a seasonally adjusted 288,000 jobs in April, the largest one month increase since January 2012...in addition, the increase in non-farm payroll employment for February was revised from 197,000 to 222,000, while the change for March was revised from from an increase of 192,000 to an increase of 203,000 jobs....on net, that left the seasonally adjusted payroll job count at 138,252,000, 324,000 higher than the last report...even better, the unadjusted establishment data indicates that non-farm payrolls increased by 1,152,000 to 138,288,000 in April, 2,377,000 more than April a year ago....the FRED bar graph below incorporates the revisions to the February and March reports and shows the seasonally adjusted payroll job change monthly since the beginning of 2008....the 713,000 payroll jobs added over the past three months is the strongest 3 months of job creation since the 829,000 jobs added in the first three months of 2012...

seasonally adjusted payroll jobs increased in most sectors in April, with only information services showing a net reduction of 3,000 jobs as motion picture and sound recording payrolls shrunk by 7,300...75,000 jobs were added within the  broad professional and business services category, with 24,000 of those in temporary services, 11,900 in management services, and 8,900 in computer systems design; another 34,500 jobs were added in retail, with clothing stores adding 10,500 while electronics and appliance stores cut the same number....seasonally adjusted construction employment rose by 32,000 with gains of more than 10,000 each in building construction, specialty trade contractors and heavy and civil engineering construction; note that actual job growth in the sector was 212,000 before the seasonal adjustment...employment in the leisure and hospitality sector increased by 28,000 as 32,600 more jobs opened up in restaurants and bars while jobs in amusements, gambling, and recreation fell by 8,700...the health care and social assistance sector added another 27,900, with 12,600 of those in ambulatory health care services and 9,200 in social assistance...another 15,700 jobs were added in wholesale trade, with 8,200 of those involved in distribution of non-durable goods...government employment increased by 15,000 with the addition of 12,000 employees at the local school district level while private education services also added another 12,400...manufacturing industries also added 12,000 slots, with 11,000 of those in durable goods manufacturing, led by the 4,200 added by machinery manufacturers...another 11,300 jobs were added in transportation and warehousing with the addition of 6,800 jobs in trucking while the mining category, which includes oil and gas exploitation workers, added 9,600 jobs, with 7,300 of those in support activities...a net of 6,000 more were on payrolls in financial activities, as the addition of 8,100 in real estate and leasing offset the loss of 5,500 in credit intermediation...and "other services", such as membership associations and personal and laundry services, added another 15,000 more...

despite the widespread hiring in higher paying sectors, there wasn't much improvement in average paychecks...the average workweek for all payroll employees was unchanged at 34.5 hours, with the sectors seeing the heaviest hiring,  professional and business services and retail, slipping a tenth of an hour to 36.2 hours and 32.1 hours respectively, while the manufacturing workweek shortened by 0.2 hours to 40.8 hours, and factory overtime was unchanged at 3.5 hours, and only construction, transportation and education workers saw their workweeks increase...in addition, the average workweek for production and nonsupervisory employees was unchanged at 33.7 hours, with retail nonsupervisory workers seeing their workweek increase a tenth of an hour to 30.0 hours...the average hourly pay for all workers was also unchanged at $24.31 an hour as 2 cent an hour lower pay in goods producing industries offset a penny an hour increase in the service industry average...only the average pay for nonsupervisory workers, which was down 2 cents an hour to $20.47 an hour in March, saw a rebound as the April average pay improved 3 cents to $20.50 an hour, with non-supervisory personnel in the information sector seeing the largest increase of 16 cents an hour to $28.89...

Those "Not in Labor Force” Top 92 Million for the First Time

in contrast to the relatively decent returns from the survey of employers, the results of the household survey were a disaster...the only saving grace with this survey is that since it's extrapolated from a tiny telephone sampling of 60,000 households, the margin of error in the count of the unemployed is +/- 300,000 and it's tended to be so volatile that discouraging results in one month are typically reversed the next...despite the 288K increase in payroll job count, this survey indicates that 73,000 less of us were employed in April than in March...and even though the count of those unemployed fell 733,000 to 9,753,000, it wasn't because they found jobs; instead, it was simply because they quit looking for work during the month and hence weren't counted, as the civilian labor force fell by 806,000, despite a 181,000 increase in the working age population...that meant that the number of us "not in the labor force" rose by 988,000 to a new record high of 92,018,000 non-participants...as a result, the labor force participation rate fell by 0.4% to 62.8%, matching the 36 year low for this metric that was set in October, when the government shutdown resulted in what we thought at the time was a one time aberration in the labor force count...our FRED graph below shows the labor force participation rate in red going all the way back to January 1978, in order to include February 1978, the last time the participation rate was below today's at 62.7%, a time when most women did not need to work outside of their home...this graph also shows the employment to population ratio in blue, which was statistically unchanged at 58.9% in April, despite the decline in employment and increase in population...bizarrely, with less of us counted as unemployed because they dropped out of the labor force in April, the widely watched unemployment rate also dropped by 0.4% to 6.3%, the lowest unemployment rate since September 2008...

in like manner, with the number of unemployed depressed because of labor force drop outs, other metrics from this survey were correspondingly reduced...the broader unemployment rate, U-6, which includes those just working part time for economic reasons, also fell by 0.4%, from 12.7% to a new post-recession low at 12.3%, even though the number of us who were stuck working part time who indicated they wanted to be working full time, or those who had their hours cut, rose by 54,000 to 7,465,000....and the number of us unemployed for more than 27 weeks, who are no longer eligible for unemployment rations, also fell by 287,000 to 3,452,000, which could account for a lot of the labor force drop outs...that in turn contributed to a reduction of the average duration of unemployment from 35.6 weeks in March to 35.1 weeks in April...but among those not officially in the labor force and hence not counted, 6,088,000 reported that they still wanted a job even though they hadn't searched for one during the month, up from 5,891,000 in March....of those, 2,160,000 were categorized as "marginally attached to the labor force" because they had looked for work sometime during the last year, but not during the 30 day period covered by the April survey...783,000 of those were further characterized as "discouraged workers", because they reported that they haven't looked for work because they believe there are no jobs available to them...and discouraged workers also increased by 85,000 from the March count of 698,000....

Except for Health Care and Heating, Economy Contracts in 1st Quarter

the Advance Estimate of 1st Quarter GDP from the Bureau of Economic Analysis indicated that the output of goods and services produced in the US grew at a bare minimum 0.1% annual rate in the first three months of this year when compared to the 4th quarter of 2013, against expectations of a 1.0% or greater growth rate in the quarter....in current dollars, our 1st quarter GDP would extrapolate to $17,149.6 billion annually, up from the $17,089.6 billion annualized figure of the 4th quarter...however, since the change in GDP being reported here is not a measure of the change in the dollar value of our GDP but a measure of the change in our output, it's adjusted for inflation using chained 2009 dollars, from which all percentage calculations in this report are based...the adjustment used in the first quarter, aka the "GDP deflator" would suggest annual inflation at a 1.3% rate, down from 1.6% in the 4th quarter...also recall that all quarter over quarter percentage changes reported here are given at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period...as is always the case with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions which average +/-0.7% in either direction for nominal GDP, and +/- 0.6% for real (inflation adjusted) GDP before the third estimate is released, which will be two months from now...note that March trade and inventory data have yet to be reported, and BEA assumed an increase in exports and a decrease in imports, and that wholesale and retail inventories and nondurable manufacturing inventories had also increased in March...also note that revised construction data released the day after this report suggests that our GDP actually contracted during the first quarter...

real personal consumption expenditures grew at a 3.0% seasonally adjusted annual rate in the first quarter, but much of that increase was due to larger outlays for home heating and Obamacare related increases in health care spending....real consumption of goods was up at a 0.4% rate, with unit consumer purchases of durable goods growing at a 0.8% rate and adding 0.06% to GDP on the strength of a 3.0% real growth rate in recreational goods and vehicles, while real outlays for furnishings and durable household equipment fell at a 1.7% rate...a major factor in the real growth of durables was a 2.5% negative deflator, greater than we had estimated, which turned lower dollars sales of durables in the 1st quarter into a positive GDP contribution….consumption of non-durable goods was up a tiny 0.1%, as a annualized 4.3% drop in consumption of clothing and footwear offset small gains in consumption of food, gasoline, and other non-durable goods...but it was the growth of services at a 4.4% annual rate, the largest jump since 2000, that taken alone would have indicated a GDP growth rate of 1.96% for the quarter, that certainly saved us from contraction, as household consumption expenditures for health care grew at a 9.9% annual rate and the housing and utilities component grew at a 6.0% rate while real outlays for recreation services and food services and accommodation fell and other services consumption only grew marginally...

seasonally adjusted gross private domestic investment, which had been growing at a 2.5% annual rate in the 4th quarter of 2013, fell at a 6.1% annual rate in the first three months of the new year and subtracted 1.01% from the GDP growth rate...real gross private fixed investment fell at a 2.8% rate as nonresidential fixed investment fell at a 2.1% rate on a 5.5% reduction in outlays for equipment, with a contraction in business spending on transportation equipment and computers leading the decline, while investment in intellectual property products grew at a 1.5% rate and investment in non-residential structures barely grew at all...on net. fixed investment subtracted from GDP at a 0.44% annual rate, with contraction in equipment subtracting 0.32% and intellectual property adding 0.6%, while real residential investment contracted at a 5.7% annual rate and subtracted 0.18% from the quarter's growth rate...meanwhile, real private inventories shrunk by $24.3 billion in chained 2009 dollars and subtracted 0.57% from the quarter's growth rate...since lower inventories indicate less produced goods have not been shipped or sold, their reduction by that amount means real final sales of GDP rose at a 0.68% in the first quarter…

our increasing trade deficit in the 1st quarter also subtracted from GDP as the result of a negative change to our net exports....recall that exports add to gross domestic product because they represent that part of our production that is not consumed or added to investment in our country, while imports subtract from GDP because they represent either consumption or investment that was not produced here, but that it's the quarter over quarter change in each that affects the quarterly change in GDP...in the 1st quarter, our exports of goods fell at a 12.0% rate leading our real exports of goods and services to decrease at a 7.6% annual rate in contrast to export growth at a 9.5% rate in the 4th quarter, thus subtracting 1.07% from the quarterly growth rate, while while real imports of goods and services decreased at a 1.4% rate, and because imports are a subtraction from GDP, the reduction of imports from the 4th quarter to the 1st added .24% to the quarter over quarter growth rate...

finally, real net government consumption and investment decreased at a 0.5% annual rate, as Federal government consumption and investment only grew at a 0.7% rate over the shutdown depressed fourth quarter, while state and local consumption and investment fell at a 1.3% rate....federal spending for defense fell at a 2.4% rate and subtracted 0.11% from GDP, while all other Federal consumption and investment rose at a 5.9% rate and added 0.16% to GDP...note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services...meanwhile, state and local government investment and consumption expenditures, which fell at a 1.3% annual rate, subtracted 0.14% from the quarter's growth rate, as state and local consumption spending rose at a 0.6% rate while state and local investment fell at a 10.6% rate...

the picture of our FRED graph below shows the change, in billions of chained 2009 dollars, in each of the major components of GDP, over each quarter over the past 2 years, in order to give us a visualization of the magnitude of the impact of each on the quarterly change.…within each quarterly grouping of seven bars, the quarterly change in real personal consumption expenditures is shown in blue, the change in gross private investment, including structures, equipment and intangibles, is shown in red, the change in imports is shown as a negative in green, the change in exports are shown in purple, the change in private inventories is in yellow, the change in state and local government spending and investment is shown in pink, while the change in Federal government spending and investment is shown in grey....those components of GDP that contracted in a given quarter are shown below the zero line and subtracted from GDP in that quarter, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so when imports shrink, they will appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they'll appear below the zero line...you can see how consumer spending in blue and business investment in red that have been driving economic growth over the previous two years, but that the contraction of the investment and export components almost totally offset above trend personal consumption in the first quarter of this year...as usual, this graph can be viewed as an interactive at the FRED website, where the quarterly change to three decimal places in each component appears as you move your cursor across the graph....

1st quarter 2014 Advance GDP

Personal Spending Rises 0.9% in March as Disposable Personal Income Rises 0.5%

another important release from the BEA this week was on Personal Income and Outlays for March, which in addition to the data on personal incomes, also includes the March data for personal consumption expenditures (PCE) that was included in the GDP report we just looked at...note like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; so the reported monthly dollar changes are actually on the order of one twelfth of the reported amounts... however, the percentage changes are expressed as a month over month change and are used within the report as if they refer to the annualized amounts, often leading to confusion and misreporting,.despite their recently added footnote to this report clarifying that standard...we'll try to express what the numbers actualy indicate..

In March, total personal income increased by a seasonally adjusted and annualized $78.4 billion to a $14,496.2 billion a year rate, which was 0.5% higher than in greater than the annualized personal income in February, when income rose by 0.4%...disposable personal income (DPI), which is income after taxes, increased at an annualized rate of $68.0 billion to $12,789.1 billion, which was also 0.5% increase over February, when DPI also rose by 0.4%...but in contrast to January and February, when most of the income gains were from the increase in Medicaid benefits associated with expanded coverage under Obamacare, private wages and salaries accounted for the lion's share of the March income gain, as they increased at a $42.3 billion annual rate...increased supplements to wages and salaries, such as employer contributions to pension plans, accounted for another $4.8 billion of the annualized increase...increases in personal transfer payments from government programs accounted for $15.5 billion of the increase, with Medicaid accounting for just $6.5 billion in March, in contrast to the $11.4 billion Medicaid added to annualized incomes in February and the $19.3 billion it added in January...in addition, total proprietor's income rose at a $9.3 billion rate, of which was a $2.5 billion annualized increase in farm owner's income, while rents paid to individuals increased at a $4.6 billion rate and personal interest and dividend income increased at a $6.9 billion rate...taking all these sources into account, per capita disposable personal income topped $40,000 for the first time in March, rising to $40,045 from $39,782 in February...

meanwhile, seasonally adjusted personal consumption expenditures (PCE), which were included in the GDP data we reviewed earlier, rose at a $107.2 billion annual rate in March to $11,880.5 billion, 0.9% higher than February and the largest one month jump in PCE in 5 years...the March increase included a $32.8 billion annualized increase to $1,296.6 billion in outlays for durable goods, a $20.2 billion increase to $2,676.2 billion annualized in spending for non-durable goods, and an annualized $54.2 billion increase to an annual rate of $7,907.7 billion in spending for services...total personal outlays for March, which includes interest payments, and personal transfer payments in addition to PCE, increased by an annualized $109.7 billion to $12,301.4 billion, which left personal savings, which is disposable personal income less total outlays, at $487.7 billion for the month, which was the lowest monthly savings since January 2013, when disposable personal incomes collapsed 4.0% after the fiscal cliff brought the expiration of the payroll tax cut... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 3.8% in March, down from 4.2% in February and except for January of 2013, the lowest savings rate since August 2008...

while personal consumption expenditures were more than 68.4% of 1st quarter GDP, before they were included in that GDP computation they had to be adjusted for inflation using the PCE price indices, which are based on prices in 2009 equal to 100.0...in March, the PCE index for durable goods fell another 0.1% to 93.243, continuing a 2 year string of falling prices for durable goods, while the PCE price index for non-durable goods also fell 0.1% to 109.574 after being statistically unchanged for the first two months this year, meanwhile, the PCE price index for services rose 0.3% to 109.451, leading to a 0.2% overall increase in the March PCE price index... as a result, real personal consumption expenditures rose by 0.7% in March, after rising 0.4% in February...adjusting disposable personal income with the same PCE price index, we find that real inflation adjusted DPI rose by 0.3% in March after a 0.5% increase in February...on a annual basis, the PCE price index has risen 1.15%, with the Core PCE price index 1.21% above a year ago, still well below the 2.50% PCE inflation target the Fed has allegedly been trying to hit.....

our FRED graph below, which can also be viewed as an interactive, shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the scale in chained 2009 dollars for both on the left; also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale of savings as a percentage of disposable income on the right...the spike in income and savings at the end of 2012 was a result of bonuses and income manipulation before the aforementioned fiscal cliff; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush….although it may appear from the graph that real disposable income has been accelerating over the past 13 years, real DPI below is not adjusted for increases in the population; on a per capita basis, real DPI is up just 19.5% over the span of this graph

Case Shiller: February Home Price Index Unchanged

the last Tuesday of the month brought the release of the widely watched S&P/Case-Shiller home index for February, which compares the 3 month average of December, January and February home sales prices to the historical record of sales prices of those same homes in each of 20 US metro areas...the Composite 20 index, which is formulated so that home prices in the 20 metro areas equaled 100.00 in 2000, was at 165.35, essentially unchanged from the 165.50 reading in the January release...home prices in 13 of the 20 cities fell in February, which is typical for the winter months, with home prices in the snow bound cities of Cleveland down 1.6% and Minneapolis and Chicago both down 0.9% showing the worst declines, while Portland and Seattle home prices, up 0.8% and 0.6% respectively, saw the largest monthly price gains...on an annual basis, the Case-Shiller index was 12.9% higher than last February; Las Vegas, up 23.1% and SanFrancisco, up 22.7%, saw the largest one year home price increases, while Cleveland, up 3.0% and New York, up 6.1%, lagged...

it appears that the differences between FRED and S&P/Case-Shiller have been resolved, as the notice that FRED will discontinue carrying data from S&P has been removed, and the pair of interactive FRED graphs we created to show the historical track of home prices in each of the cities in the 20 city index have been updated with the latest data, so we'll include pictures of them below... in the first FRED graph, we have the tracks of home price indexes for Atlanta in bright blue, Boston in bright red, Charlotte in dark green, Chicago in orange, Cleveland in purple, Dallas in grey, Detroit in mauve, Denver in mustard, Las Vegas in dull blue, and Los Angeles in beet red….and for the larger interactive view of this graph at FRED, click here; where you can move your cursor across the graph and view the monthly price history of the changes in the price indices for all 10 cities shown below..

the second FRED graph shows the the historical price track of each of the metro home price indexes for Miami in bright blue, Minneapolis in bright red, New York in dark green, Phoenix in orange, Portland in violet, San Diego in grey, San Francisco in mauve, Seattle in mustard, Tampa in dull blue and Washington DC in beet red; in addition, this second chart includes the track of the Case-Shiller Composite 20 shown as a heavier black line…the S&P Case-Shiller index is not seasonally adjusted, but notice that the seasonal home price swings have become more pronounced since the housing bust…/again, you can click here for the larger 1000 pixel interactive version of this graph at the St Louis Fed web site, where all the lines can be easily traced and index values viewed with their interactive tool…

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)