Tuesday, August 28, 2012

Idea's Draining My Wild Turkey Stash

is a remarkable
technological and commercial
success story, especially considering
that they were developed and marketed
independently by a small country,
and only for civilian uses.

CANDU 6 (EC6) and ACR-1000.
Management of this business has
passed to CANDU Energy Inc., and
Canadians will soon see what private
industry can do with this opportunity
given the current nuclear revival,
which is being led by emerging

The development of the oil sands
has repeatedly faced difficult technical
and economic challenges. While private
industry was the main driver and
investor, public-sector actors played a
significant role, notably the Alberta
Research Council and the Alberta Oil
Sands Technology and Research
Authority (AOSTRA — created in 1974
and wound down in 2000). Backed by
industry consensus and assisted by
economic policy through such measures
as royalty and tax adjustments,
these public-sector champions enabled
the development of the oil industry
that Canada has today: our largest
export earner and a huge wealth generator
for the private and public sectors.

Now, lets follow that $UCKING $OUND:

LINK:  2nd Qtr Earnings = TOILET BOWL 

Sunday, August 26, 2012

July durable goods, home sales & prices, & the CBO on the fiscal cliff…

the year end "fiscal cliff", which we have covered before, was back in the news this week, by virtue of a CBO (Congressional Budget Office) update to the budgetary and economic outlook (pdf) that was released mid-week...while the report from the CBO included projections for this & the next ten years, all the media & blog attention was directed towards their baseline projections for 2013, which were based on the assumption that current laws would generally remain in place, ie, that all the tax cuts & budget cuts as they are now written into law would go into effect as scheduled...in this baseline scenario, the economy would be plunged into a deep recession during the first half of next year which would reduce GDP by 2.9% and cost us 2 million more jobs, increasing the unemployment rate to 9.1%...in addition, the deficit would fall to $641 billion, the equivalent of 4.0% of GDP, from $1.128 trillion, or 7.3% of GDP, that is expected for fiscal 2012 (ends sptember 30)...briefly, what we're facing at year end if congress is gridlocked includes the expiration of the bush tax cuts, the end of the temporary 2% payroll tax cut, and the first tranche of the $1.2 trillion in spending cuts mandated by the default provisions of the budget control act, which as written would come half out of defense and half from medicare & other social programs....in addition, there are dozens of special tax breaks and provisions which are typically renewed annually, such as the "doc fix", which would also have to pass to prevent an immediate 27% reduction in Medicare payment rates for physicians...the CBO report also included an alternate economic scenario for 2013 (and beyond) which assumed that all expiring tax provisions would be extended indefinitely, except for the 2% payroll tax cut, that the AMT would be indexed for inflation, and that the  automatic spending cuts under the budget control act & the Medicare doctor pay cuts would be avoided...under this scenario, economic growth as measured by GDP would still be a weak 1.7%, unemployment would remain near 8% till the end of 2013, and the budget deficit would again hit the trillion dollar mark, coming in around 6.5% of GDP...the CBO has a slide show of budget graphs which is embedded below; we'll also include a graph from credit suisse which includes 4 possible cliff scenarios, each indicating the hit to GDP from various fiscal outcomes; their best case includes just CBO’s “other spending and revenue changes” and the Obamacare tax increases; their "most likely" case also includes the expiration of the payroll tax; the "plausible downside" includes upper income tax hikes, the spending cuts under the sequester, the expiration of all emergency unemployment insurance benefits and the “other expiring provisions”, such as the bonus depreciation allowance, and under their unlikely worst case, congress does nothing, all the bush tax cuts expire, and neither the usual AMT patch or the "doc fix" is enacted…the CBO also attempts to project both scenarios ten years out, as if either fiscal scenario could remain intact that long; under their baseline, the unemployment rate would remain above 8.4% through 2014, and gradually be reduced to 5.7% by the fourth quarter of 2017...and they project that following the alternative fiscal scenario over 10 years "would lead to a level of federal debt that would be unsustainable from both a budgetary and an economic perspective"..

Click to Viewit was a fairly light week for new economic data; probably the most telling economic release was the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for July (pdf) from the Census Bureau, which is most typically watched for new orders for durable goods, which in general are consumer or industrial manufactures with an expected useful life of 3 years or more; the headline looked great, as durable goods orders rose a seasonally adjusted $9.4 billion to $230.7 billion, or 4.2% in July, but it was almost all due to an increase in aircraft orders, which had already been largely reversed the day before the report was released when Quantas cancelled an order for 35 Boeing 787s worth $8.5 billion...excluding the transport sector, which rose $9.9 billion or 14.1% to $80.4 billion, orders fell  0.4%; excluding the also often volatile defense sector, new orders were up 5.7% in july...excluding both defense and transportation equipment gives us what is referred to as 'core capital goods", which were up 1.3% in July, the fist increase in 3 months, as you see in blue on the adjacent chart from doug short....however, business investment, defined as new orders for capital goods excluding aircraft and defense, was particularly weak, falling 3.4% from June....unfilled orders for manufactured durable goods as of july amounted to $996.3 billion, up 0.8% for the second consecutive month; again, transport equipment had the largest increase, up $10.7 billion or 1.9% to $581.0 billion; shipments, up 7 out of the last 8 months, increased $5.9 billion or 2.6% to a seasonally adjusted $231.1 billion...manufactured durable goods inventories, which have been up 30 out of the last 31 months, again increased $2.7 billion,. or 0.7% to $369.3 billion, the highest level since this series was initiated ...

two data-sets on home sales were also released this week; the first was on July Existing Home Sales from the NAR (National Association of Realtors); according to the NAR, sales of previously owned homes increased 2.3% in July to a seasonally adjusted annual rate of 4.47 million from the 4.37 million annual rate in June , which was 10.4% greater than the sales rate of a year earlier, but still below the 4.62 million seasonally adjusted rate of home sales in May; the NAR again complained that sales were constrained by unnecessarily tight lending standards and shrinking home inventory, despite indications that 90% of REO ("real estate owned" by banks or agencies) is being held off the market in order to keep prices from crashing...with less such distressed homes in the mix of homes being sold, the median existing-home price for all housing types sold in July was up for the 5th straight month to $187,300, 9.4% higher than NAR reported a year ago, as foreclosures and short sales only accounted for 24% of homes sales in July, compared to 25% in July and 29% a year ago (foreclosures sold for 17% below market, while short sales were discounted 15%)...2.40 million existing homes were on the market & available for sale at the end of July, a 1.3% increase over June's housing inventory, which represented a 6.4 month supply at the July sales pace; this inventory was down 23.8% from a year previously, when there was a 9.3 month supply of homes available...first time home buyers accounted for 34% of July sales, up from the 32% in June and 32% a year ago; NAR says "under normal conditions", they should account for 40%...all cash buyers accounted for 27% of home transactions in July, down from 29% in June and 29% a year ago; real estate investors, who account for the bulk of cash sales, purchased 16% of the homes sold in July, down from 19% in June and 18% of homes sold a year ago..,there was quite a bit of regional variation, especially in price; in the northeast, sales rose 7.4% in july over june and the median price was $254,200; in the midwest, where sales rose 2.0%, the median sales price was $154,100; in the south, sales rose 2.3% and the median price in the region was $162,600, and in the west, where the sales pace was unchanged,  the median price jumped to $238,600, up 24.5% from a year ago...

Distressing Gap   the other report on home sales was for new home sales for July from the census bureau (pdf); census reported sales of new single-family houses in July were estimated at a seasonally adjusted annual rate of 372,000, 3.6% (±14.1%) above the revised June rate of 359,000 and 25.3% (±18.2%) above the July 2011 estimate of 297,000...note the wide margin of error this report; which means revisions are often significant; indeed, the decrease in sales in the june report was significantly revised up, from a sales decline of 8.4% to a decline of just 3.6% from May's revised number...the seasonally adjusted estimate of new houses on the market at the end of July was 142,000, which is an inventory of 4.6 months at the current sales rate...the median sales price of new houses sold was $224,200 and the average sales price was $263,200, which was the lowest average new home price this year...regional stats in this report display even more uncertainly than the headline, since these annualized numbers reflect a relatively smaller number of monthly sales; only 30,000 homes were sold in the northeast at an annual rate (actual 3000), for instance, which census reports as a 76.5% monthly gain for the region; however, the margin of error is ±145.9% (see table 1, p2 pdf), rendering the figures virtually useless...but while new homes sold monthly have been considerably less than the number of existing home sales, they are arguably more important economically in that building new homes increases employment in materials & construction, stimulates purchase of new durable goods (furniture, appliances) & adds to the local tax base; they are also included in the investment component of GDP; whereas sales of existing homes only generates sales commissions and income accruing to bankers, as they were already added to growth at the time they were built & sold... traditionally, the ratio of existing home sales to new home sales has been 5 or 6 to 1; however, in this post bubble bust, the ratio has been around 12 or 14 to one, which means the economy isnt getting its usual boost from new housing...bill mcbride attributes this to the influence of the large number of distressed sales on the housing market, and graphs the two sales totals together, showing what he calls the "distressing gap", which is included here to the right; the chart shows existing home sales in blue, scale left, and new home sales in red, scale right, with that “distressing gap” between them obvious since 2008; the obvious aberrations shown in late 09 & early 2010 were due to the homebuyer tax credit…

in addition to the median home price rise reported by the NAR, which we saw was due to the change in the mix of home sold, there have been a few home price indexes which have shown year over year price improvement...FNC, which reports residential price indexes for 10, 20, 30 and 100 MSAs using a blend of sold homes and real-time appraisals, showed a 1.1% price increase in their national composite index in June, with increases in the same range for their smaller RPIs; their year over year index is now down only 0.2%, the least YoY decline they’ve shown since 2007…and the Federal Housing Finance Agency (FHFA) reported a seasonally adjusted purchase-only house price index with price information gleaned from Fannie & Freddie, which showed a 0.7% increase in June from May, a 1.8% increase from the 1st quarter to the 2nd quarter, and a 3.0% increase in prices from the 2nd quarter of 2011 to the 2nd quarter of 2012…and then Zillow, which has been fairly accurate in prognosticating the Case-Shiller index, has forecast that it will show it’s first year over year increase when it is reported on tuesday…so there has been a tendency among real estate analysts to expect a return to rising prices…however, the same analysts who panned the homebuyer tax credits as temporary market distortions are ignoring the temporary distortion in home prices caused by Fed-induced record low interest rates, which effectively reduces the amount a buyer pays for a home even as the list price rises…in large part due to the Fed's "operation twist", the average interest rate on fixed rate 30 year mortgages in July was 3.55%, a full percentage point lower than Freddie Mac's had the 30 year mortgage rate at a year ago...a simple mortgage calculation shows that the monthly cost per $100,000 on a 30 year mortgage in july of 2012 was $451.84, compared to the $509.66 per $100K one would have paid monthly on a 30 year mortgage last July; that means to buy the same house a year ago would have cost a potential homeowner 12.8% more in payments monthly than it would cost under current interest rate regimes...so even should July's home price indexes show a 2.8% year over year gain in the principal price of the house, it would still mean that potential home buyers are still only willing to commit 10% less to homeownership than they were a year ago...the so-called housing recovery is merely a fiction of manipulated interest rates, which will not stay this low forever...indeed, although they remain low, in the past 4 weeks mortgage rates have already increased 17 basis points from their record lows

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

Saturday, August 25, 2012

Monday, August 20, 2012

**************** MEN ON A WALL ****************

By J.D. Alt

I recently saw a newspaper photo of ten or twelve men sitting on a crumbling stone wall beside a dirt road. It was somewhere in Africa, but the location doesn’t matter. What matters is that the men, as the caption made clear, were sitting on the wall because they had nothing else to do: they had no land to farm, there was no local job or employment available to them, they had no savings or credit with which to start some venture. So they sat. Presumably there was some place of charity they trudged off to at the end of each day, where they got some food and water and a place to sleep; but when they awoke, there was nothing really to do except go back and sit on the wall.
What is interesting to consider is the Conservative and Progressive positions with respect to these men. The Conservative believes the only thing that can improve their daily plight is the “free market”: Until some local or regional entrepreneur organizes a tranche of capital and starts a venture that requires the men’s labor, there is nothing to be done except let them sit.
The Progressive believes that, in absence of the free market coming along and giving the men something to do, the sovereign government ought to hire them to do something—anything really, like, for example, getting off the wall and restacking the fallen stones so the wall is tall and straight again. The Progressive argues that hiring the men to do something—even if it’s just stacking stones in an orderly fashion—puts into motion a virtuous cycle of benefits:
  1. The men receive a wage which they will then spend in the local economy.
  2. The new spending in the local economy will allow merchants to expand their businesses and hire more employees.
  3. The pressure on charity to provide for people without income will be reduced.
  4. The men will grow healthier, because they will be getting exercise and eating better, and so fewer of them will end up on the steps of the hospital begging for aid.
  5. The men will be learning a skill—even if it just the stacking of stones—and will be acquiring the daily habit of working for a living.
  6. The nation’s roads will improve—if only because the stone walls alongside them are more orderly and pleasant to look at.
  7. Because the men begin to create a viable work-force in a growing local economy, “free-market” entrepreneurs will now be attracted to come in and start ventures which can then hire the men away from their stone-stacking, and grow the economy further.
The Conservative response to this Progressive’s strategy is built completely upon a single question: How are you going to pay for it? Where is the money going to come from to pay the men to get off the wall and start stacking stones? This is the pivotal question where the partisan debate becomes suddenly clouded with confusion. Implicit in the Conservative’s question is the unspoken assumption that the financial resources of the sovereign government come from the Private Sector—either through taxes or borrowing. If the sovereign government is going to spend on something—like, say, paying men a working wage for stacking stones—then it must either tax or borrow to do so. The confusion is created because both the Conservative and the Progressive believe this to be an absolute, uncontested truth—a veritable “law of nature.” Money for public spending comes from the Private Sector. Where else could it possibly come from?
From the Conservative perspective, this incontrovertible belief means the following things with respect to the Progressive’s strategy:
  1. Working people (and, even worse, wealthy entrepreneurs) must be penalized for their efforts by being taxed in order to pay idle men to stack stones.
  2. Alternatively, the sovereign government must borrow the money for the men’s wages from the Private Sector, an act which will (a) drive up interest rates (b) reduce the capital available for private investment and entrepreneurship, and (c) saddle future generations with an enormous debt they’ll have to somehow repay.
  3. Hence the fairer and better approach of doing nothing, minimizing tax burdens (especially on the wealthy entrepreneurs who are going to be starting new ventures), and NOT sucking investment capital out of the Private Sector by borrowing money our grandchildren will have to make good on.
Given the options (taxing or borrowing from the Private Sector) accepted by all, the Progressive can only respond to these Conservative assertions with a few meek rejoinders:
  1. Paying the men to stack stones has “social” benefits that wealthy citizens ought to be willing to invest in.
  2. It is fair for people who have been blessed, and lucky enough to be successful, to be taxed in order to help those less fortunate pull themselves up.
  3. As long as the borrowing remains below a certain percentage of GDP, it is a reasonable and good “investment” that will expand the economy and pay dividends in the long run.
Together, the Conservative assertions and the Progressive rejoinders, create a self-deceiving and self-defeating dialog that has devolved into nothing more than a shouting match: The building is burning, but since we have agreed we don’t have enough water to put it out, we can only argue about whether we’ll douse a little over there or a bit over here. If I say it we ought to douse here, you scream that’s not fair—we ought to be dousing over there instead. At what point in this futile effort, I am wondering, will we stop shouting at each other and realize the fundamental, almost silly, error in our thinking? Oh, look! We actually do have all the water we need to put the fire out completely. Look! Over there! You see that great big water spigot? What have we been thinking?
In other words, what if it turns out the original, pivotal assumption the Conservative assertions and Progressive rejoinders are built upon is simply untrue? What if it turns out the sovereign government doesn’t need to collect taxes, or borrow from the Private Sector, to pay the men? What if the sovereign government, all by itself, can issue the currency required to put them to work stacking stones? What then?
I will not attempt here to outline the basics of Modern Monetary Theory. I’ll leave that to the MMT economists who can do it admirably—though, to date, their explanations seem mostly to fall on deaf ears. (This is likely because everyone else is shouting so loud.) What I’m interested in is how this new “reality”(if it were accepted by each side) would alter the Conservative and Progressive positions regarding the men on the wall.
It’s reasonable to suppose the original basic positions would be unchanged: The Conservatives will still believe—with legitimate merit—that the “free market” should come along and create jobs for the men; that until that happens the men don’t really have “jobs”, and the economy hasn’t really been expanded. The Progressives have no need to refute this; in fact, they can happily and whole-heartedly agree with it. Since they no longer have to defend the need to increase taxes or borrowing from the Private Sector, they are free to both agree with the Conservatives and to focus on the original virtuous cycle of their strategy, which is now worth repeating. If the sovereign government hires the men to get off the wall and start rebuilding it:
  1. The men receive a wage which they will then spend in the local economy.
  2. The new spending in the local economy will allow merchants to expand their businesses and hire more employees.
  3. The pressure on charity to provide for people without income will be reduced.
  4. The men will grow healthier, because they will be getting exercise and eating better, and so fewer of them will end up on the steps of the hospital begging for aid.
  5. The men will be learning a skill—even if it just the stacking of stones—and will be acquiring the daily habit of working for a living.
  6. The nation’s roads will improve—if only because the stone walls alongside them are more orderly and pleasant to look at.
  7. Because the men begin to create a viable work-force in a growing local economy, “free-market” entrepreneurs will now be attracted to come in and start ventures which can then hire the men away from their stone-stacking, and grow the economy further.
The final “target” outcome of the Progressive strategy is identical to the fundamental Conservative goal. If the Conservatives really want to achieve this basic goal, how could they now argue against the Progressive strategy? The only argument they could level is that the strategy would be inflationary. The MMT economists, I believe, have a plausible rejoinder to that. The bottom line is there is no reason we have watch the building burn down: there is no need for men to sit idly on a wall when it is possible to start a virtuous cycle that will attract “free-market” entrepreneurs who will create jobs for them. Is it possible that—except for this confusion about where sovereign public money comes from—there is really no difference at all between the Conservative and Progressive positions?

Men on a Wall

Sunday, August 19, 2012

July retail sales, CPI, industrial production, new housing starts, state unemployment rates, et al

the first economic release that we’ll cover this week is the advance estimate of retail sales for july from the census bureau, which showed the first monthly increase in seasonally adjusted sales in 4 months, with the headline reading up 0.8% in july over june...as reported, total retail and food services sales for July, not for adjusted for price changes, were $403.9 billion, an increase of 0.8 percent (±0.5%) from june and 4.1 percent (±0.7%) over last year... in addition, the May to June change was revised from minus 0.5% (±0.5%) to a decrease of 0.7% (±0.2%)....since autos & parts typically amount to around 20% of the total, census also quotes sales ex-auto, which were also up 0.8 for july...the largest gains were in sporting, hobby, book & music stores, which registered a 1.6% MoM gain, and non-store retailers (catalog & online) which had sales increase 1.5% for the month; they also registered among the largest year over year gains, with nonstore retailers sales up 11.8% (±3.1%) and sporting goods, hobby, book and music stores up 10.6 percent (±4.3%) from last year, while home furnishings sales also increased 9.3% YoY...all sectors posted a positive sales for the month, with food & beverage stores, up 0.3% and gas stations. up 0.5%, showing the weakest sales gains for the month...given the volatile nature of gasoline prices, retail sales ex-gas are also often quoted; as of July, total sales ex-gas were up 5.0% over last year...there were some who questioned this month's report; zero hedge, for instance, noted that retail sales in July actually declined by 0.9% from $405.8 to $402 billion, but was only shown as an increase due to the first upward july seasonal adjustment in the 10 years of census data (see their graph, above right, which shows with pink highlight the $1.9 billion seasonal adjustment that was added this july)...this drew a response from analysts at morgan stanley, who defended census methodology, noting that adjustments were unusual this year in that the 4th fell on a wednesday (hence no holiday weekend) and that there were only 4 shopping weekends this past July...to test this theory, we can try adding june & july unadjusted sales together, encompassing 9 weekends, which shows a total of $807,808 billion sales for those months this year, and compare them to last years unadjusted sales (p 2, pdf) of $388,749B and $392,888B, a total of $781,637B, which means actual year over sales for the two months increased only 3.35%, less than the seasonally adjusted annual increase of 4.1% which census gives, but still within the ±0.7% margin of error…another complaint came from Mish, who noticed a discrepancy between reported retail sales and reported state sales tax collections, which were down 40% from last july in california; this has been an unresolved ongoing inconsistency in the two reported data sets we first noticed in 2009

as noted, retail sales are reported unadjusted for inflation; however, there hasnt been much inflation to adjust for, in that the BLS reported that the consumer price index was unchanged in July for the second consecutive month and 3rd time in the past four months on a seasonally adjusted basis...(we should note, though, that CPI shouldnt be used to adjust retail sales, as we have cited such done in the past, as the CPI includes non-retail expenses such as rent, medical & education)...of the CPI sub-indexes, the 0.3% monthly decline in the energy index offset the 0.1% increase the core index, which is all items less food & energy; overall energy prices declined despite a 0.3% month over month increase in gasoline prices due to a 1.3% monthly decline in the price of electricity, as more utilities passed on savings resulting from conversions to cheaper gas for generation...the energy index is now down 5.0% year over year while the composite CPI has risen 1.4%....annual CPI core inflation, ex food & energy was up 2.22% in July, which the BLS rounds to 2.2%, however it is the slightly less volatile PCE inflation which was reported two weeks ago as up 1.80% that the Fed now cites...housing, the largest component of the CPI at 41% of the total, was up 2.1% for the year as rents increased 2.8%, and medical care services with a 4.4% price increase were again the component up the most year over year...the BLS also released the Producer Price Index data for July, which showed that prices for finished goods rose at a seasonally adjusted rate of 0.3% for the month...at earlier stages of processing. earlier stages of processing, prices received by manufacturers of intermediate goods were down 0.9% in July, and the crude goods index advanced 1.8%...the finished goods core index (again, ex food & energy) was up 0.4% for the month, the largest price increase since january's 0.6%, driven by a 1.6% increase in the price of light trucks..

another major economic release this week was the July Industrial production and Capacity Utilization from the Fed, and again, the numbers were better than they've been recently...industrial production increased at a seasonally adjusted rate of 0.6% in July after having risen 0.1% in both May & June, after revisions from the previously reported -0.1% and 0.4% respectively...from a year ago, industrial production is now up 4.4%, but it's still 2.0% below prerecession levels...this report is divided into three industry groups: manufacturing, which makes up about 3/4ths of total production, rose 0.5% for a second consecutive month, as the production index for durable goods increased 0.8%, led by production increases of more than 1% in primary metals, computers and electronics, automotive products & aerospace, with only wood products, nonmetallic products, and machinery posting declines...defense aerospace was up 2.8% for the month, reflecting the end of a strike at an aircraft manufacturing plant...the mining industry, which includes oil & gas, increased 1.2%, while utilities, which had retreated 3.3% in june, rebounded & were up 1.3%...year over year, manufacturing production was up 5.0%, mining was up 6.0%, and utility output printed as down 2.4%, (with electric usage showing down 1.9%), which must be an error considering the record heat in july.ISM PMI..overall capacity utilization increased 0.4% to 79.3%, which was still below the long run average; the factory operating rate rose 0.2% to 77.8%, which was 1.2% greater than a year ago...capacity utilization for durable goods manufacturing was at 78.6%, up 5.1% from a year ago; capacity utilization for non durable goods was at 78.2%, which was unchanged...capacity utilization for "mining" increased 0.9% to 90.4%, 2.1% above a year ago, while the operating rate for utilities rose 0.8% in July to 75.7%, which was 2.3% above a year ago and inconsistent with the reported production decline...

while the industrial production report from the Fed gives us hard data as to what has actually been produced in the month just past, the regional Fed banks also conduct real time surveys of manufacturing business conditions in their districts, where manufacturers are queried as to the direction of change in various measures of activity at their plants: employment, working hours, new and unfilled orders, shipments, inventories, prices, et al...we have the results of the first two regional Fed surveys for August, and the outlook isnt good; the Empire State Manufacturing Survey from the NY Fed (pdf), which includes part of new jersey & connecticut in its area, saw its overall index go negative for the first time since october 2011, as it fell 13 points to read -5.9, with numbers below zero indicating contraction...its new orders index was negative for the 2nd month, at a -5.5, unfilled orders declined 3 points to -13.6 and the shipments index fell 6 points but remained positive at 4.1...the NY Fed employment index, however, remained solidly positive, down only 2 to 16.5, suggesting there was still room to add employeesthe Philly Fed's Business Outlook Survey for August (pdf) also came in negative, the 4th consecutive month that the 3rd Fed district, which includes PA, delaware & the rest of New Jersey, showed contraction…the overall reading for August was –7.1, not as severe as the readings of -12.9 in July and -16.6 in June but still definitively contracting nonetheless; indexes for new orders and shipments remained negative; new orders improved one point to –5.5 while the shipments index fell 3 points to 11.3Philly area firms also reported slight decreases in employment and shorter work hours, dropping their employment index to -8.6, the lowest since September 2009…Bill McBride at calculated risk produces a graph, included here to the right, showing the correlation between these first two regional Fed surveys, shown as dashed green including august, the composite of all the regional Fed surveys, in blue and only up to July, the final monthly PMI as released by ISM, shown in red, and the recessionary periods marked by vertical blue bars...as we noted two weeks ago, our national PMI has shown contraction for the past two months for the first time since 2009, and clearly these regional Fed surveys have led the way...
New Home Sales and Housing Starts by Intent

the Census bureau also released a couple reports on housing this week...the monthly report for July on Housing Permits, Starts and Completions is one we're familiar with; it's usually reported in the media as just new housing starts...the headline, that housing starts fell 1.1% to 746,000 in July, was a disappointment to housing analysts, but with the margin of error at ±9.6%, we cant confidently says whether starts decreased or not for the month...for the year, however, census reports this July's starts 21.5% (±14.2%) above the July 2011 rate of 614,000, so although the upturn may not be smooth, home construction is slowly increasing from a very depressed level...for july, single family starts were at a rate of 502,000, 6.5%  (±8.7%) below June's revised 537,000, and the start rate for units in buildings with five units or more was 229,000...building permits authorized in July were at a seasonally adjusted annual rate of 812,000, which was 6.8% (±1.5%) above the revised June rate of 760,000 and 29.5% (±1.6%) above the estimate of 627,000 last July; 513,000 of permits issued in July were for single family homes, 4.5% (±0.8%) above the revised June figure of 491,000...home completions in July were at a seasonally adjusted annual rate of 668,000, 7.1% (±15.9%) above the revised June estimate of 624,000 and 5.4% (±15.8%) above the July 2011 total of 634,000....in addition to this report, Census also released a quarterly report on New Housing Units Started by Intent and Design for the 2nd Quarter (pdf); breaking out homes built for sale, by owner & by contractor, & the covers the same categories for multiple unit housing starts...the tables in this report are rather difficult, but bill mcbride covers it in plain english...he has charted the 38 years of data in this report, and we've included it here; in red are single family homes which were built for sale - this would be the category in this report comparable to the monthly new home sales report we'll see next week...in blue are housing units built for rent, in yellow are homes built or contracted to be built by the intended occupier, and violet shows the currently very depressed rate of condos being built for sale…

State Unemployment we normally dont cover the Regional and State Employment and Unemployment Summary from the BLS, since it tends to echo the national unemployment report, which is released roughly two weeks earlier each month, but the July regional report produced some depressing numbers that are worth taking an extra look at...the bleak headline was that unemployment rates increased in 44 of our states this past month, strangely co-incidental with the recent termination of the additional weeks of emergency federal unemployment rations, which had been wound down because every state's unemployment rate had fallen enough to be triggered off the program; as a result, ongoing jobless claims are falling rapidly, as the number of us receiving any type of jobless ration has fallen by 4.3 million over the last two years...only Idaho, Rhode Island, and the District of Columbia reported lower unemployment rates in Friday's report, while two states had half point increases in their jobless rate; Alabama's rate jumped to 8.3% from 7.8% while Alaska's rate climbed from 7.2% to 7.7%...the highest jobless rates were recorded by Nevada, with 12.0% unemployed, Rhode Island with 10.8% jobless, and California, with 10.7% of those able & looking for work unable to find even part time jobs....other states with unemployment rates above 9.0% were New Jersey at 9.8%, North and South Carolina, both at 9.6%, New York, at 9.1%, and Georgia at 9.3%...and even North Dakota, the state with the lowest jobless rate, saw an increase from 2.9% to 3.0%...for a complete picture of all 50 states, we'll include bill mcbride's updated graph of unemployment rate by state, which shows the current jobless rate in red, and the recession maximum for each state in blue...note that New York and New Jersey are now both at their all time high jobless rates..

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

Friday, August 17, 2012


Following the conviction of Pussy Riot in Russia, Mark Knopfler has issued the following statement:

"Whenever a political regime or religious establishment refuses to tolerate criticism, it advertises itself as repressive, backward and insecure. This verdict will diminish Russia in the eyes of the world. I condemn the prison sentences given to these young people and support the right to protest for everyone."
- MK



May they never
Return home at night...

May you have no part of eventide,
May you have no room of your own,
Nor road, nor return.
May your days be all exactly the same,
Five Fridays in a row,
Always an unlucky Tuesday,
No Sunday,
May you have no more little worries,
Tears or inspiration,
For you yourself are the greatest worry on earth:

~Visar Zhiti~

Thursday, August 16, 2012

“Some people feel the rain. Others just get wet.”

Bob Marley“Only once in your life, I truly believe, you find someone who can completely turn your world around. You tell them things that you’ve never shared with another soul and they absorb everything you say and actually want to hear more. You share hopes for the future, dreams that will never come true, goals that were never achieved and the many disappointments life has thrown at you. When something wonderful happens, you can’t wait to tell them about it, knowing they will share in your excitement. They are not embarrassed to cry with you when you are hurting or laugh with you when you make a fool of yourself. Never do they hurt your feelings or make you feel like you are not good enough, but rather they build you up and show you the things about yourself that make you special and even beautiful. There is never any pressure, jealousy or competition but only a quiet calmness when they are around. You can be yourself and not worry about what they will think of you because they love you for who you are. The things that seem insignificant to most people such as a note, song or walk become invaluable treasures kept safe in your heart to cherish forever. Memories of your childhood come back and are so clear and vivid it’s like being young again. Colours seem brighter and more brilliant. Laughter seems part of daily life where before it was infrequent or didn’t exist at all. A phone call or two during the day helps to get you through a long day’s work and always brings a smile to your face. In their presence, there’s no need for continuous conversation, but you find you’re quite content in just having them nearby. Things that never interested you before become fascinating because you know they are important to this person who is so special to you. You think of this person on every occasion and in everything you do. Simple things bring them to mind like a pale blue sky, gentle wind or even a storm cloud on the horizon. You open your heart knowing that there’s a chance it may be broken one day and in opening your heart, you experience a love and joy that you never dreamed possible. You find that being vulnerable is the only way to allow your heart to feel true pleasure that’s so real it scares you. You find strength in knowing you have a true friend and possibly a soul mate who will remain loyal to the end. Life seems completely different, exciting and worthwhile. Your only hope and security is in knowing that they are a part of your life.”  Bob Marley

Sunday, August 12, 2012

LPS & MBA on June mortgage delinquencies & foreclosure inventory, June’s trade balance & consumer credit, July’s heat & drought records, et al

  except for the ongoing kerfuffles over Romney's unrevealed tax returns, his mathematically impossible tax reform plan, and his team's white paper on economic policy (which was quickly & widely refuted by the economists it cited), it was a comparatively quiet week in the blogosphere, with few headline economic releases...perhaps his early naming of paul ryan, he of the medicaid block grant and medicare voucher plans, was intended to deflect criticism from his own numerically challenged efforts, as mr ryan has had a history of same: here, for instance, are the original Ryan plan projections (pdf), via bill mcbride, which have since disappeared from the public record elsewhere after they proved to be such an embarrassment (ie, see the 2.8% unemployment projection)..or, for more background on that plan, you might want to check my April 2011 aggregation on the original Ryan plan in a guest post at Angry Bear...

Delinquency Rate we're going to start our coverage this week by looking at two reports that cover home mortgages that are past due or in foreclosure, the MBA 2nd Quarter Survey and the LPS Mortgage Monitor for June (pdf)..echoing their "first look",  which we mentioned a few weeks back, LPS (Lender Processing Services) reported that approximately 5,663,000 homeowners, or 11.23% of those with a mortgage, did not make a housepayment in June; of those, 2,012,000 home loans were less than 90 days delinquent, another 1,590,000 loans were over 90 days delinquent but had not yet received a delinquency or foreclosure notice, and 2,061,000 mortgages, or 4.09% of all mortgages, were in some stage of the foreclosure process...although the percentage of homes in the foreclosure process fell from 4.17% in May, it was still not significantly different than the 4.13% that LPS reported were in foreclosure a year ago...the total mortgages delinquent but not yet in foreclosure in June represented 7.14% of all mortgages, which was up from 6.91% in May, making it the 3rd month in a row that LPS reported an increase in delinquencies...nonetheless, the percentage of homeowners missing one or more house payments was still down from the 7.71% delinquent in June of 2011, and far down from the peak of 10.57% delinquent in January 2010, which you can see on the adjacent chart taken from page 3 of the pdf...this chart, which covers 17 years, also shows that the pre-crisis level of delinquencies trended between 4% and 5%, and the pre-crisis percentage of homes in foreclosure was generally below 0.5%, so there is quite an abnormal unresolved backlog in foreclosure...as we've noted before, homes in non-judicial states continue to be seized at a more rapid clip than those in states where documents must be presented in court;  as of June, nearly 60 percent of borrowers with loans in foreclosure in judicial states had not made a payment in at least two years; the chart on page 11 of the mortgage monitor pdf shows foreclosure inventory in judicial states at 6.42% of all mortgages, vs the 2.41% in non judicial states, although such inventory in now declining under both types of states...

MBA In-foreclosure by state

both the percentage of foreclosure inventory and the mortgage delinquency rates were slightly higher in the 2nd quarter MBA (Mortgage Bankers Association) National Delinquency Survey, but direct comparisons to LPS's mortgage monitor will be difficult because MBA gives both seasonally and unadjusted percentages in their press release, while the complete detailed survey "is available for purchase"...the MBA survey reports the seasonally adjusted delinquency rate at the end of the 2nd quarter was 7.58% of all loans outstanding, which was up from 7.40% of all loans at the end of the 1st quarter and down from the 8.44% of all loans that were delinquent (but not yet in foreclosure) at the end of the 2nd quarter of 2011...since delinquency rates normally increase in the 2nd quarter, the difference between the first & second is greater on an unadjusted basis, where the MBA shows delinquency increasing from 6.94% in Q1 to 7.35% in Q2; this would correspond to the unadjusted 7.14% delinquency rate LPS reported...MBA also reports that 4.27% of home loans were in the foreclosure process at the end of the 2nd quarter, down from 4.39% in the 1st quarter and from 4.45% a year ago...taken together, the combined percentage of loans in foreclosure or at least one payment past due was 11.62% in the 2nd quarter, up from 11.33% in the 1st quarter; so whichever report we look at we find that more than 1 in 9 homeowners are not making payments on their mortgages...MBA also reports foreclosure actions (which could include anything from notices to repossessions) were initiated on 0.96% of all loans during the second quarter...this report also gives a serious delinquency rate, which is described as "the percentage of loans that are 90 days or more past due or in the process of foreclosure" of 7.31%, which was down from 7.44% in the first quarter...the adjacent graph from this MBA report shows the percentage of loans in foreclosure by state; with judicial states shown with a darker bar; it corresponds with the state data in table form on page 4 of the LPS pdf, where judicial states are asterisked...according to the MBA, 13.7% of homes in florida, shown by the bar on the far left, are in foreclosure, which is almost 1 in 7 and is obviously far more than any state; next is new jersey, with 7.7% of homes in foreclosure, followed by illinois with 7.1%, then new york at 6.5%, and nevada, the only non-judicial state among the top 12, with 6%...corresponding numbers from the LPS table, which also shows percentage in delinquency by state, are 13.5% for florida, 7.0% for new jersey, 6.6% for illinois, 6.7% for new york, and 5.7% for nevada...two hard hit states which are non-judicial, arizona and california, show only 3.2% and 3.1% of loans respectively remaining in foreclosure...

U.S. Trade Deficit the major release from the Dept of Commerce this week, on our June Balance of Trade in goods and services (pdf) was one of the better economic reports we've seen in a while, in that our trade deficit fell to it's lowest level in 18 months, largely due to increasing exports, even with most of the world contracting....total June exports of goods and services of $185.0 billion offset by imports of $227.9 billion resulted in a trade deficit of $42.9 billion....our exports to the euro area were valued at $17.4 billion in June, up from $16.4 billion a year ago, despite their recession, which suggests at least our trade will not be seriously impacted by the crisis in europe; of major export goods categories, industrial materials and supplies increased $603 million over last month, automotive vehicles and parts were up $695 million, consumer goods increased $865 million, pharmaceuticals increased by $459 million and petroleum products increased by $508 million, while  foods & beverages decreased $792 million and soybean exports fell $660 million; there also seems to be some media fascination that we exported $248 million more in gem diamonds...on the import side, the major decrease was in crude oil, imports of which fell $2.653 billion to $27.295 billion, as oil averaged $100.13 in June, down from $107.91 per barrel in May..but we also imported less industrial supplies and materials, which declined $2.279 billion, less capital goods at $1.286 billion, and less consumer goods, imports of which slipped $569 millionthe chart from bill mcbride included here to the right graphs our total trade deficit in blue, our trade deficit in oil in black, and our deficit less oil in red…since our trade deficit with China was at $27.4 billion in June, it’s clear that our deficit in oil and with that country alone more than account for our total deficit…

another release of this past week that we usually cover is the Fed's report on Consumer Credit for June, even though the recent reports have been somewhat less exceptional than when they first drew our attention...in June, growth of consumer credit was at it's slowest in 8 months, as it grew by $6.46 billion, a seasonally adjusted annual rate of 3%...the change in revolving credit, (ie, credit cards) which grew at a 5 year high revised annual  rate of 10.5% in May, reversed and  shrank by $3.7 billion, or at a 5.1% rate in June, it's greatest contraction since April 2011, which turned the quarterly expansion in revolving credit negative at 0.5%...non-revolving credit, which you'll recall includes typically longer term borrowing for such items as cars, yachts, & education, continued to expand in June by $10.2 billion to $1,712.8 billion, which is increasing 7.2% at an annual rate...looking at "Major types of credit, by holder" in the 3rd table as we normally do, we see that $5.8 billion of that increase was borrowed from the federal government, and thus it is again student loans that accounts for the majority of the June credit expansion...

Year to Date Horserace Graph for Contiguous U.S. it probably wont come as much of a surprise to those of you east of the Rockies that July has gone into the record books as the hottest month in US history, eclipsing July 1936, the worst month of the Dustbowl, by 0.2°F...the average temperature for the contiguous 48 states over the month was 77.6°F, 3.3°F above the 20th century average, contributing to the record warmest year to date on record, and making the 12 months ending July the warmest 12 months since national recordkeeping began in 1895; in fact, the last four 12-month periods have each successively established a new record for the warmest year long period...Virginia had its hottest July on record, with temps 4° F above average statewide, 7 other states (NC, KY, DE, IL, ND, SD, & WY) had their second hottest month ever, and 32 states had July temperatures among their ten hottest in the 118 year record history...July also had 3,135 new daily high temperature records set, 17 times the low temperature records for the month...on August 5th, we recorded our 27,042nd high temp record of the year, surpassing the total of all of 2011 ..the adjacent chart, which comes to us via NOAA's National Climatic Data Center, is illustrative of just how unusual this year to date has been temperature-wise; it shows the year-to-date temperature anomaly for 2012 in graphed in red, and similar data graphed for the other 117 years on record, with the 5 warmest years in orange, and the 5 coolest in blue, which you can see clearly if you click on the chart...while it's obvious january & february were above normal, there is nothing in history that comes near this year since, which is even more remarkable in that we started in a La Nina year, which tend to be cooler and drier than normal in most of the US...

on friday, the USDA released its monthly World Agricultural Supply and Demand Estimates report (pdf), widely awaited for its projections on the drought damaged corn and soybean crops, and it was worse than expected; USDA cut its forecast for the US corn crop by 17%, to 10.779 billion bushels, with an estimated yield of 123.4 bushels per acre, down from the last report’s estimated per acre yield of 146 bu, which itself was down from the earlier 166 bu/acre estimate; this would mean a corn crop 13% less than the flood ravaged crop of last year, and the lowest average yield per acre since 1995…the soybean forecasts were cut as well, from 3.05 billion bushels to 2.69 billion bushels, which would be 12% off last year’s total…due to the expected lower corn yield, the UN has called on the US to reduce it’s conversion of corn to ethanol, but as of yet there has been no movement from the administration…based on earlier estimates of the corn crop, kay macdonald at big picture agriculture computed that 48% of this year’s national corn crop will be required to fulfill the US ethanol mandate

while the total area of drought coverage has not grown much since we last looked at it (it shrank slightly last week) the intensity of the drought in those areas of the central plains that have been dry has continued to intensify almost weekly throughout the summer, as you can see in the large 12 week animation of the USDA drought monitor embedded below...during the 7 days ending on August 7, extreme drought (in red) and exceptional (in brown) drought continue to expand or intensify over parts of Missouri, Arkansas, Oklahoma, Kansas, Nebraska, and Illinois, and new areas of exceptional drought have been introduced from east central Kansas to west central Missouri, while there was some improvement was seen in portions of South Dakota and Wyoming, even though drought in those areas still registered extreme...and although most parts of Ohio, Indiana, & lower Michigan received above normal rainfall over the past week, it's past the stage where it can be of much benefit to the corn crop...

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