Sunday, February 24, 2013

January price indices, existing home sales, & new construction, & the MBA’s 4th quarter delinquency survey…

FRED Graph

it’s been a pretty slow week for economic data, and the major releases of the consumer and producer prices indexes, which were closely watched for inflation a decade ago, were greeted with a collective yawn and very little coverage; probably to be expected when the seasonally adjusted January Consumer Price Index from the BLS showed no change from December, the second unchanged month in a row; while the core CPI, which is the price index of all items less food and energy, was up 0.3% for the month, as the energy index fell 1.7%, led by a 3.0% drop in the price of gasoline and a 1.7% decline in the price of natural increase of 0.2% in the heavily weighted price index for shelter and 0.8% for apparel accounted for much of the increase in the core index,. with increases of 0.3% in the index for recreation, 0.2% for medical care, and 1.1% for airline fares also contributing...the food index was unchanged with food at home, it's major component, also unchanged, and food away from home up just our FRED graph, we have the CPI since 2008 graphed in black, and 5 major component indexes, wherein the index values were set to 100 over the span of 1982 to 1984; you can see that the food at home index in red has barely varied from the CPI over that time span, hardly volatile enough to be excluded from the core statistics, while the gasoline index in blue obviously jumps above and below the overall trend continuously...the shelter index, the largest component of the CPI, is shown in green, and although above the trend for this current period, has not risen at a faster rate, while the personal transportation index in violet, which includes new and used cars and regular scheduled maintenance, has historically lagged the CPI, though of late has approached the long term inflation trend...and it's quite obvious that the medical care index in orange, at 420.687, is nearly double the CPI at 230.280, and continues to rise on a steeper curve than the trend...

Click to View

the Producer Price Indexes for January, also from the BLS, are usually watched for changes in selling prices received by domestic producers for their finished goods, but the release also includes indexes for intermediate goods, such as high fructose corn syrup, and for crude goods, such as the corn itself...the seasonally adjusted producer price index for finished goods rose 0.2% in January, its first gain in four months, after declines of 0.3% in December, 0.4% in November, and 0.2% in October; the Core PPI (less food & energy) also rose 0.2% in January, although it has generally stayed positive in a narrow range between +0.2% and -0.1% over the past six months...most of the increase in producer prices in January could be attributed to the 0.7% increase in the index for finished consumer foods, led by a 39.0% jump in prices for fresh and dry vegetables, although candy and soft drinks also contributed; meanwhile, prices for finished energy goods fell 0.4%, almost all of which was attributable to a 2.1% decline in the wholesale price of gasoline..most of the 0.2% rise in the core PPI can be attributed to a 2.5% increase in the price of drugs, although an increase in communication and related equipment also added to the rise...the producer price index for intermediate materials, supplies, and components was unchanged in January following a 0.1% rise in December and a 0.9% decline in November; a 0.3% rise in intermediate core goods, 30% of which could be attributed to rising prices for organic chemicals, offset declines of 1.3% for the intermediate foods and feeds index, which saw the prepared animal feeds component fall 3.1%, and 0.3% for intermediate energy goods prices, where the index for industrial electric power decreased 6.5%...meanwhile, the producer price index for crude materials showed a gain of 0.8%, the 7th consecutive increase, following gain of 1.4% in December and 0.4% in November...the increase was almost completely driven by a 4.7% increase in the price index for crude energy materials (oil), while a decline of 7.0% in the oilseeds index led to a 0.4% decline in the crude food index, and a 2.3% decline in the price of non-ferrous scrap metals led to a 0.3% decline in the core crude index..the year over year change for finished goods was an increase of 1.4%, while the intermediate goods index was up 0.4% and the crude goods index was up 1.5% from a year ago....the chart, above right, from doug short shows the annual change in the headline and core PPI for finished goods for each month since January 2000....

there were also a few reports on the housing/mortgage situation this week; the first one that we'll look at is the Mortgage Bankers Association’s 4th Quarter National Delinquency Survey; generally, this report covers the same data on delinquencies & foreclosures as the monthly LPS Mortgage Monitor that we cover, except this MBA survey is seasonally adjusted and quarterly only...according to the MBA, the seasonally adjusted delinquency rate for mortgage loans on one-to-four-unit residential properties fell to 7.09% of all loans outstanding by the end of the 4th quarter, down from 7.40% at the end of the 3rd; in addition, those loans in the foreclosure process at the end of the fourth quarter represented 3.74% of all loans, down from 4.08% for the foreclosure actions were started on just .70% of all mortgage loans in the 4th quarter, the lowest since the 2nd quarter of 2007, which we expect will be even lower in the 1st quarter due to a new california foreclosure fraud law which has virtually halted new initiations in that state...the seriously delinquent rate, which includes all those over 90 days past due or in the foreclosure process, fell to 6.78% from 7.03% at the end of the 3rd quarter...the not seasonal adjusted percentage of past-due loans not in foreclosure was 7.51% in the 4th quarter, down from 7.64% 3rd quarter, which the MBA sees as a reversal of the normal seasonal trend where more borrowers fall behind on their mortgage during the holidays; making no note of the unusually large spike in delinquencies at the end of the 3rd quarter co-incident with the release of the i-phone 5...the combined percentage of loans either delinquent or in foreclosure was 11.25% on a non-seasonally adjusted basis, down from 11.71% last quarter and 12.53% at year end 2011...this is quite a bit higher than the total of 10.61% of loans delinquent or in foreclosure reported by LPS in december, and means that more than one in nine homeowners were not paying on their mortgages at year end...the two graphs below serve to illustrate the data from this report..the graph on the left is from bill mcbride and each bar color codes the percentage of loans past due or in foreclosure as reported by the MBA by quarter going back to 2005; in violet are those mortgages at least 30 days but less than 60 days past due; in the 4th quarter such mortgages fell to 3.04% of loans outstanding, down from 3.25% in Q3; in blue are loans more than 60 but less than 90 days past due; such loans decreased from 1.19% to 1.16% over the quarter...yellow marks the percentage of home loans that have been paid on for more than 90 days but are not yet in foreclosure; in the 4th quarter the percentage of those in this situation declined from 2.96% to 2.89%, an improvement from peak over 5% of Q1 of 2010 but still well above the normal 0.8% seriously delinquent but not in foreclosure; and in red are the percentage of mortgages in foreclosure, which as we noted decreased to 3.74% from 4.07% and is now at the lowest level since the end of the graph on the right from the MBA shows the percentage of loans in foreclosure by state, which you'll have to click on to enlarge the view; those states represented by a black bar are those with a judicial foreclosure process, where court proceedings take some time and thus homeowners linger longer in limbo; those states indicated by a red bar have a non-judicial process, meaning the mortgage holder can seize the overdue homes without going to court, thus the foreclosure backlog clears quicker; as of this report, the foreclosure inventory in judicial states is at 6.22% of all mortgages, & it has fallen for two consecutive quarters; meanwhile, the foreclosure inventory in non judicial states has been falling since it peaked in 2009, and now accounts for just 2.13% of all mortgages in those states...on our chart, Florida remains the state with the highest percentage of homes in foreclosure with 12.15%, but that's a significant improvement over the 13.04% ‘in foreclosure’ status of the state at the end of the 3rd quarter; other judicial states with large foreclosure backlogs include New Jersey, with a foreclosure inventory of 8.85%, New York with 6.34% of mortgages are in foreclosure, and Illinois where 6.33% of mortgages are in the process...the only non-judicial state with a foreclosure inventory above 5% is Nevada, fairly visible on the chart as the only high red bar, where 5.87% of home mortgages are in foreclosure....

MBA Delinquency by PeriodMBA In-foreclosure by state
another major housing report out  this week was from the National Association of Realtors on January Existing-Home Sales; according to seasonal adjusted data from the NAR, sales of existing homes, which includes all forms of single family units, increased 0.4% to an annual rate of 4.92 million in January from a revised 4.90 million in December; December's sales were original reported to be at annual rate of 4.94 million, so one could make the case that the sales rate declined from the previous report; nonetheless, January's sale rate was 9.1% above the 4.51 million-unit rate of home sales in January a year ago...the NAR persists in telling the story that there is a shortage of homes on the market driving up prices, and very few analysts even mention that it's known that as much as 90% of foreclosed properties are being held off the market; some even cite the decrease in the percentage of distressed sales, from 35% of all sales a year ago, to 23% with this report, as a sign of a housing housing inventory is reported to have fallen 4.9% to 1.74 million homes in January, the lowest level since December 1999, when there were 1.71 million homes on the market; at the current sales pace that represents a 4.2 month supply, also at an 8 year low in that housing supply with the restricted supply, the national median home price rose for an 11th consecutive month to $173,600, up 12.3% from January a year ago; the median price for single family homes was $174,100 and the median for condos & co-ops was $169,600...just 14% of January's sales were foreclosures, which sold at an average 20% discount to the market, and 9% were short sales, selling at an average 12% discount...the average rate for a conventional 30 year fixed mortgage was 3.41% in January, up from the record low national average of 3.35% in December, but still more than a half a percent below the 3.92% mortgage rate of a year ago...first time buyers accounted for 30% of homes purchased in January, unchanged from December, but below the 33% of a year ago and still well below the norm (a separate study from Pew this week showed just 34% of young households - under 35 - were homeowners in 2011, down from 40% in 2007)...all-cash sales accounted for 28% of sales in January, down from 29% in December and 31% a year ago; most of those were investors, who bought 19% of all homes sold in January...home sales were up in every region of the country except the West, where sales fell 5.7% MoM in January and were 5.7% below the pace of a year ago...restricted supply drove the median price in the West to $239,800, which was 26.6% above prices of last January..

the last report we'll look at today is on New Residential Construction for January from the Census Bureau, which includes estimate for permits issued, housing starts and home completions, and about which we've previously noted a large margin of error that goes unreported in the media and blog coverage...the building permits data is reported in a fairly close range, however, as they report permits issued at a seasonally adjusted annual rate of 925,000, which was "1.8 percent (±0.9%) above the revised December rate of 909,000" and "35.2 percent (±1.5%) above the January 2012 estimate of 684,000"...however, when we check housing starts, reported at a seasonally adjusted annual rate of 890,000, we see they're also reported as "8.5 percent (±11.3%)* below the revised December estimate of 973,000’, and "23.6 percent (±13.4%) above the January 2012 rate of 720,000", and we're referred by the asterisk to the footnote which explains that since the range for the month contains zero, the results aren't statistically significant, and that the "Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero"...proper reporting on new housing starts for January should read that census is 90% confident that new home starts in January were at a seasonally adjusted annual rate of between 789,430 and 990,570, and although it’s quite clear that new housing starts are well above those of a year ago, census can't say for sure if they’re up a little over 10% or as much as 37%….the adjacent chart from Zero Hedge accompanies their report alleging that the seasonally adjusted census data is on housing starts is showing larger increases over time than the unadjusted data…since they dont link to the data, and monthly archived data is difficult to check, we’re noting it as a curious difference of opinion between ZH and the Census…one possibility that comes to mind that could cause an error like that is that seasonal adjustment algorithms are heavily weighted to data patterns of the past 5 years, and that housing starts peaked in early 2006 at a rate of over 2.2 million and bottomed late in 2009 below 500,000…that would mean that seasonal adjustments in late 2010, where the ZH chart starts, took in much more of the housing starts peak, and seasonal adjustments for recent months are being compared to more of the data from the home construction bust…

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

***************HAPPY BIRTHDAY T.BURCHER**************

Blow out the candles of your cake.
They will not leave you in the dark,
Who round with grace this dusky arc
Of the grand tour which souls must take.

You who have sounded William Blake,
And the still pool, to Plato's mark,
Blow out the candles of your cake.
They will not leave you in the dark.

Yet, for your friends' benighted sake,
Detain your upward-flying spark;
Get us that wish, though like the lark
You whet your wings till dawn shall break:
Blow out the candles of your cake.
richard wilbur

Tuesday, February 19, 2013

How Climate Change Destroys the Earth
Thanks to extensive research and noticeable changes in weather and storm prevalence, it’s getting harder to turn a blind eye to the reality of climate change. Since the Industrial Age spurred the increasing usage of fossil fuels for energy production, the weather has been warming slowly. In fact, since 1880, the temperature of the earth has increased by 1 degree Celsius.
Although 72% of media outlets report on global warming with a skeptical air, the overwhelming majority of scientists believe that the extreme weather of the last decade is at least partially caused by global warming. Some examples of climate calamities caused partly by global warming include:
  • Hurricane Katrina
  • Drought in desert countries
  • Hurricane Sandy
  • Tornadoes in the Midwest
These storms, droughts, and floods are causing death and economic issues for people all over the world – many of whom cannot afford to rebuild their lives from the ground up after being wiped out by a tsunami or other disaster.
Evidence also indicates that the face of the Earth is changing because of warming trends. The ice caps of the Arctic are noticeably shrinking, the ice cap of Mt. Kilimanjaro alone has shrunk by 85% in the last hundred years, and the sea levels are rising at the rate of about 3 millimeters per year because of all the melting ice. Climate change is also affecting wildlife – for instance, Arctic polar bears are at risk of losing their environment; the Golden Toad has gone extinct; and the most adaptable species are evolving into new versions capable of withstanding warmer water.
Despite some naysayers with alternative theories about why global temperatures are rising – including the idea that the earth goes through natural temperature cycles every few millennia – the dramatic changes in the earth’s atmospheric makeup suggests humans are to blame. In fact, 97% of scientists agree humans are responsible for climate change. Since the Industrial Revolution, carbon dioxide levels increased 38% because of humans, methane levels have increased 148%, nitrous oxide is up 15% – and the list goes on and on, all because of human-instigated production, manufacturing, and organizations and individuals work hard to promote an Earth-friendly existence, resistance to change is rampant and actions are slow. For instance, while the US Environmental Protection Agency is still working on collecting data to support development of greenhouse gas reduction expectations for businesses, most of their efforts feel more like pre-research than actual change. Other countries have made efforts – such as signing to Kyoto Protocol to reduce their 1990 emission levels by 18% by 2020 – but the only solution will require the whole world band together.
Steps anyone can take to reduce global warming include:
  • Driving a car with good gas mileage, or investing in a hybrid or electric car
  • Switching from incandescent light bulbs to CFL or LED
  • Insulating your home and stocking it with energy efficient appliances
  • Recycling
  • Using green power available in your area
Check out the infographic below to see what else the gender wage gap affects.

Sunday, February 17, 2013

January’s retail sales and industrial production, the dramatic increase in arctic methane emissions, et al

there has been no obvious movement towards a resolution of the sequestered budget cuts which are set to go into effect March 1st and which would meat-ax between 5% & 8% from every government program and department except for social security and a few of the safety net programs, and which by the CBO’s reckoning would reduce GDP by 0.6 percent and cost 750,000 jobs by year end...& with congress out for a week long recess, it appears that it will go down to the wire...the House republicans still want to save the Pentagon and eliminate other government programs to replace those planned cuts, while the House Democrat plan includes raising taxes and cutting farm subsidies to replace the sequestered cuts…another plan emerging from the joint armed services committees saves the pentagon by reducing the federal workforce and freezing congressional salaries, and the Senate Democrat's new $110 billion deal which would include a new minimum millionaires tax and further defense spending cuts was called "a total waste of time,” by Senate minority leader Mitch the sequester, which was originally passed so as to be so unpalatable that congress would have to devise a better plan, is still the only alternative on the table with the force of law behind it...

probably the most important economic release of this past week should have been the Advance January Retail Sales Report from the census bureau (pdf), because that should have given us the first indication of how the year end expiration of the 2% payroll tax cuts, which after income taxes reduced the January take-home pay of most US workers by more than 2%, would affect consumer demand...however, with the large margin of error (±0.5%) in this months report, likely coupled with the difficult december to january seasonal adjustment for this data, it's generally inconclusive; the footnote informs us that census does not have sufficient statistical evidence to conclude that the actual change is different than zero...with that caveat, we'll cover the data this report presents...the estimate of January's seasonally adjusted retail and food services sales was at $416.6 billion, which was an increase of 0.1% (±0.5%)* from December and 4.4% (±0.7%) more than a year ago...the actual retail sales for January were estimated to be $382.9 billion, down from the $469.1 billion sales estimate of December...the business types with the largest seasonally adjusted percentage gains in January were general merchandise stores, who saw sales rise 1.1% to a seasonally adjusted $52.6 billion, non-store retailers (online & catalog) who saw sales rise 0.9% to a seasonally adjusted $39.4 billion, sporting, hobby, book & music stores, who saw sales rise 0.6% to an adjusted $20.3 billion, and food and beverage stores, who also saw sales rise 0.6% to an adjusted $53.5 billion...retail sectors that reported a seasonally adjusted decrease in sales included drug & health stores, where sales declined 1.0% to $22.8 billion, clothing stores, where sales declined a seasonal adjusted 0.3% to $20.3 billion, furniture stores, where sales declined 0.2% to $ 8.1 billion, and auto dealers, who saw sales decline 0.1% to a seasonally adjusted $77.7 billion...and so-called core retail sales, which exclude autos, gasoline & building materials, still show a 0.2% gain for the month.. the bar graphs below are from the Census report and show on the left the month over month percentage change in total sales in black, the percentage change in auto sales in light gray, the monthly change in general merchandise stores in dark gray, and total sales change ex autos in white; with the same color coding, the bar graph on the right shows the year change for each of those sales categories...

FRED Graph

another important economic release this week was on Industrial production and Capacity Utilization for January from the Fed; with a 0.2 % increase in output expected, the headline print that industrial production had slipped 0.1% was disappointing; however since the November and December production indexes combined were revised upwards 0.6% to 98.7, the January industrial production index at 98.6 now stands 0.5% higher than December's was originally reported; nonetheless, this report will depress 1st quarter GDP, while the revisions will result in another upward revision to 4th quarter 2012 GDP...underlying the January production revisions were major changes to the earlier reported results on manufacturing, which you might recall were impacted by Sandy; manufacturing gains for November and December had been originally reported at 1.3% and 0.8%; they were revised with this report to show a 1.7% increase in November and a 1.1% increase in December, which thus left January's manufacturing output 0.4% lower than December's revision...however, US temperatures close to normal in January compared to a warmer than normal December resulted in a seasonally adjusted 3.5% increase in gas & electric utility production , and mining output declined 1.0% for the month, as oil & gas well drilling showed a seasonally adjusted 0.4% decline...the FRED graph we have included here shows the industrial production index in black, the manufacturing production index in blue, the utility index in green, and the mining index in red since Jan 2006'; the grey shade area circa 2008-2009 marks the official dates of the recession….at 98.6 percent of the 2007 average (on which the index is based), total industrial production in January was 2.1% higher than that of a year ago; manufacturing was up 1.7% year over year, mining showed a 1.8% annual gain, and output of utilities was 5.9% higher than last January...within manufacturing, the production of consumer goods declined 0.2% in January, with the index for consumer durables falling 2.0% while the index for non-durables rose 0.4%...durable goods production was dragged down by a decline of 3.9% in the production of automotive products, partially offset by a gain of 2.0% in the production of appliances, furniture, and carpeting...with industrial production down for the month and our industrial capabilities increasing slightly, the capacity utilization rate for total industry decreased in January 0.2% to 79.1%; capacity utilization for manufacturing was at 77.6% of possible output, utilities were being used at 74.8% of capacity, and 90.8% of US mining equipment, which includes drilling rigs was in use in January...the production capacity of US manufacturing has increased 1.6% since last year, while capacity growth for both utilities and mining sector was at 2.3% YoY...

we also want to make note of an interesting development in the arctic during January...below we have 3 images of methane concentrations above the Arctic Ocean from 3 ten day periods in january (January 1-10, January 11-20, and January 21-31) from Russian physicist Dr. Leonid Yurganov...the methane concentration scale, with darker reds being the highest, can be viewed by clicking on the image to enlarge it; quite obviously there's been a sudden increase in atmospheric methane in an area of the arctic ocean north of eastern europe and western shown in a post at Arctic News, that area where the methane concentrations are highest coincides with the area of the arctic ocean that is still relatively ice-free...this dramatic increase in atmospheric methane seems to be similar to an arctic event that we covered a little over a year ago that occurred in November 2011; at that time Russian scientists had observed vast plumes of methane bubbling to the surface of the arctic ocean off the coast of eastern siberia, which they described as "powerful and impressive seeping structures more than 1,000 metres in diameter"; at the time we figured that since that east siberian area was one of the shallowest areas of the arctic, it had warmed enough that fall to thaw the vast quantities of frozen methane hydrates known to be locked up by high pressure and cold temperatures on the ocean floor, and they were melting and rising to the this case it appears that a branch of the warm gulf stream current is causing enough warming to destabilize the frozen methane on the ocean floor in the areas between Norway and Svalbard and points east, a scenario that was warned about in a study in the journal Nature in October...what happens next is anyone's guess, but Dr Yurganov's records indicate that higher levels of arctic methane emissions have been increasing over time (US scientists must now rely on Canadian & European monitoring of greenhouse gas emissions because NOAA’s monitoring of Arctic methane and CO2 was halted last week by budget cuts)....we've pointed out before that atmospheric methane hit a new high of about 1813 parts per billion (ppb) in 2011, which was at 259% of the pre-industrial level, that 40% of the increase was coming from natural sources such as this and that methane is 25 times as potent a heat-trapping gas as CO2 over a 100 year time horizon, but 72 times as potent over 20 years, and that methane's heat trapping effect is now roughly one-third that of CO2...further thoughts on the potential impact of large abrupt release of methane in the Arctic are here; suffice it to say that if all the ancient carbon were to be released from the arctic it would be enough to raise global temperatures 3C on top of the 4C temperature rise from human activities predicted by the recent World Bank study…our awareness of this comes the same week that the European Space Agency’s CryoSat-2 probe has confirmed the conclusion of the Pan-Arctic Ice Ocean Modeling and Assimilation System (PIOMAS) at the University of Washington’s Polar Science Center that not only is the extent of the arctic ice receding, but it's thickness has diminished considerably as well; the combined result has been a collapse in total arctic ice volume to one fifth the minimum ice volume of as recently as 1980...

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion, 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, February 15, 2013





Sunday, February 10, 2013

CBO’s outlook, December’s trade, factory orders, & consumer credit, & ISM’s January NMI

US Federal Government Budget Surplus Deficit there was quite a bit of buzz this week with the release of the CBO's (Congressional Budget Office) latest annual tome "The Budget and Economic Outlook: Fiscal Years 2013 to 2023" (77pp pdf; html summary here); there's always a notable disconnect in the blogosphere with these releases, as the inaccuracy of previous forecasts is put aside and what's now forecast 10 years out is discussed as if it were gospel...but it's still worth noting some of the main points, as long as we stay aware that it's all likely to change with the next drop of a congressional hat...for starters, CBO assumes that all laws affecting government spending and revenues remain in place, including the $1.2 trillion of sequestered spending cuts over ten years that we looked at 2 weeks ago, and which are now scheduled to kick in on March 1st; so far, that seems likely, as there has been little movement in the House to delay or change them, despite pressure from defense hawks in the Senate to restore at least part of that department's large budget any rate, the CBO forecasts which garnered the most attention were the expectation of a decline in the federal budget deficit from 7% of GDP in 2012 to 5.3% this year, and then as a recovery takes hold in fiscal 2014, further declines to 3.7% of GDP, and then to 2.4% of GDP in fiscal 2015, at which time the economy will be growing faster than 4% per annum and revenues will be 25% higher than currently...they then expect deficits as a percentage of GDP to start to creep up over the remaining years, as the economy slows and the health care costs for baby boomers increase, which we can see graphed in blue on the adjacent chart from bill mcbride, which also shows in purple deficits by that same metric back to 1980.....CBO also expects the unemployment rate to stagnate under the weight of budget cuts and tax increases at 8% for the remainder of this year, adding just enough jobs monthly to keep up with population growth, and only gradually improve to average 7 1/2 percent through 2014, making 6 years the longest period of unemployment that high in the past 70 years..

 U.S. Trade Deficit there were also a handful of monthly economic reports that we should take a look at. too...we'll start with the surprisingly lower trade deficit in goods & services for December from the Dept of Commerce, because with the much better than expected results, it seems likely that the 4th quarter GDP reported last week as negative will be revised to show modest growth when the next GDP estimate is released at the end of this month...the goods and services trade deficit for December came in at $38.5 billion, down from $48.6 billion in November, as December's exports of $186.4 billion were $3.9 billion more than November exports of $182.5 billion, while December's imports of $224.9 billion were $6.2 billion less than November's imports of $231.1 billion...exports of goods increased $3.3 billion to $132.6 billion, and imports of goods decreased $6.1 billion to $188.8 billion, resulting in a goods deficit of $56.2 billion, $9.4 billion less than the November goods deficit...the real change in exported goods for the 4th quarter is now an increase of 5.9% at an annual rate, in contrast to the estimated decline of goods exports at 7.9% annualized rate as reported by the BEA last week,. while goods imported fell at a rate of 3.5% rather than the estimated rate of 2.7% from BEA; this unexpected improvement is expected to boost 4th quarter GDP by between 0.3% and 0.6%...
   the largest boost to December exports came from a $3.8 billion month over month increase in sales of industrial supplies and materials, which was partially offset by a decrease of $0.4 billion in exports of capital goods, a $0.3 billion decrease in exports of automotive vehicles, parts, and engines, and a $0.2 billion decrease in exports of consumer goods...the largest monthly decrease in imports was a $4.24 billion decline in the broad industrial supplies and materials category, as crude oil imports alone dropped -$3.3 billion, partially due to a decline in the average price of oil from $97.45 per barrel in November to $95.16 in December, but also due to a decline in the volume of oil imports to 1997 levels; it's clear on bill mcbride's above chart that the smaller oil deficit in black is driving the improvement in the overall trade figures shown in blue ..we also imported $0.9 billion less cars, parts, and engines, $0.3 billion less capital goods, and $0.6 billion less miscellaneous...exports of services increased $0.6 billion from November to December, while imports of services decreased $0.1 has been the case for quite some time, our largest bilateral trade deficit in December was again with China, at $24.5 billion; other sizable deficits were with the European Union at $8.7 billion; Japan at $5.7 billion; Germany at $5.4 billion; Mexico at $3.9  billion; Canada at $3.6 billion; and OPEC at $3.4 billion; the only countries we ran surpluses greater than a billion were Hong Kong at $4.0 billion, Australia at $1.7 billion, & Singapore at $1.1. billion....these bilateral trade deficits and surpluses are not seasonally adjusted...

FRED Graphthe next release we'll look at also involves a revision, albeit minor, of a report we looked at last week; the "Full Report on Manufacturers' Shipments, Inventories, and Orders" for December from the Dept of Commerce, most often referred to as "factory orders" includes and updates last week's report on durable goods, and like the report on durable goods, is mostly watched for the forward looking new factory orders, which were up 1.8% from November to $484.76 billion (see FRED graph)...although that was less than expected, it still beat the decline of 0.3% in November and the modest 0.8% gain in orders for durable goods, reported to have gained 4.6% last week, were modestly pared back to a $9.4 billion, 4.3% gain to $230.0 billion, while new orders for manufactured non-durable goods slipped $0.8 billion to $254.8 billion, a decline of 0.3%...again, the month over month gain was driven mostly by the subset durable goods categories of transportation equipment and defense capital goods; orders for transportation equipment were up by 9.7 billion to $75.6 billion, a gain of 11.7%, while orders for defense capital goods showed a 110.3% increase, from a depressed $7.8 billion in November to $16.4 billion in December...without transport orders, factories orders were up only 0.2%, ex defense, the monthly increase would have been but 0.3%...other December data from this report include the value of manufactured goods shipped, which increased $1.8 billion or 0.4% to $484.9 billion, the 5th increase in the last 6 months, the value of unfilled orders outstanding, which increased $7.9 billion or 0.8% to $991.7 billion, and inventories, which increased $0.5 billion or 0.1% to $615.5 billion following a November decrease of the same magnitude... the inventories-to-shipments ratio was 1.27, unchanged from November, and the unfilled orders-to-shipments ratio was 6.12, down from 6.13 in November..

another report that we've been tracking is the G19 on Consumer Credit for December from the Fed; this covers borrowing by credit card (revolving credit), and longer term "non-revolving" credit, such as car and student loans, but not mortgage or home equity December, total borrowing increased by a seasonally adjusted $14.59 billion, or at a 6.3% annual rate over November's adjusted borrowing...however, revolving credit declined by $3.63 billion, a 5.1% decrease, meaning non-revolving credit rose by $18.22 billion, which was 11.4% above November's adjusted annual rate and the largest jump since November 2001; however, unlike some other months we've checked this, it wasnt all just student borrowing form the Federal government; borrowing from depository institutions (aka banks) was up $3.2 billion, while credit outstanding at credit unions rose $2.3 billion and finance companies also saw credit increase by a bit, which you can see on the second table under "Major types of credit, by holder" in the G19...for the quarter ending December, consumer credit increased at a seasonally adjusted annual rate of 6.5%; non-revolving credit increased at an annual rate of 9.4% while revolving credit only saw outstanding credit balances increase by 0.1%...for the entire year, total credit outstanding was up 5.8%, revolving credit was up 0.3%, from $847.3 billion to $849.8 billion, while non revolving credit rose from $1,780.1 billion to $1.928.4 billion, or 8.4%; of that, student loans held by the federal government rose from $417.4 billion at year end 2011 to $526.8 billion at the end of 2012; a 26.2% increase for 2012; this was not the largest annual student loan increase in either absolute or percentage terms; over 2010, federally funded student loans rose $130.2 billion, from $178.6 billion to $308.8 billion, which was a 72.9% increase for that year...the bar graph from zero hedge we have included here goes back to the latest major revision and shows the monthly change in revolving credit in blue, the monthly change in non-revolving credit in red, and tracks the monthly change in total credit outstanding with a black line; increases are above the middle line, decreases are below it, and the correct scale is on the left..

FRED Graph

the last release we'll make note of was that of the January Non-Manufacturing Report On Business from the Institute for Supply Management; which we usually cover in conjunction with their manufacturing report, which was released on Friday last week...the overall January non-manufacturing index (NMI) was at 55.2%, down from 55.7% in December, where being above 50 still indicates expansion, albeit at a slightly slower pace; the non-manufacturing business activity index slipped 4.4%, from 60.8% in December to 56.4% in January, but still showing growth for the 42nd consecutive month, while the new orders index decreased by 3.9 percentage points to 54.4%...the employment index increased in January to 57.5%, up from 55.3% in December, and the highest reading since February 2006, which is important since services provide the lion's share of US jobs...inventories showed contraction, slipping from 50.0 to 47.0, as did the order backlog, falling from 49.5 to 49.0, but suppliers deliveries gained 4 points to turn expansionary at 52.5...of the 18 service industries covered by ISM, 8 showed expansion in January: agriculture and related; company management and support; construction; public administration; finance and insurance, technical and professional support, real estate and mining...our FRED chart included here shows the NMI Composite Index since it's inception in January of 2000, and the ISM PMI composite for manufacturing going back 10 years…

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

Sunday, February 3, 2013

4th qtr GDP, January employment and PMI, December’s income and outlays, LPS mortgage monitor, and durable goods, and November Case-Shiller

the major economic news of the week was that the US economy shrunk in the 4th quarter for the first time since the second quarter of 2009, albeit by a minuscule tenth of a percent at an annual rate; according to the first estimate of GDP for the 4th quarter of 2012 from the BEA, the output of goods and services produced in the US decreased at an annual rate of 0.1% from the 3rd quarter to the 4th quarter; a contraction in the 4th quarter was totally unexpected, a WSJ survey of fifty economists who estimated Q4 growth at 1.6% was typical of expectations elsewhere; of course, this is the first estimate based on less than complete data and as we've seen several times before the revisions can be substantial; nonetheless, with the impact of the payroll tax expiration hitting consumers who are just now discovering their paychecks are 2% short, the possibility that reduced personal consumption could turn the 1st quarter negative also, technically putting us into a new recession, looms large…

there is something of a silver lining in the underlying reasons for the reversal, however; the greatest component of GDP shrinkage was a quarter over quarter decrease in federal government spending and investment at a 15% rate, which reduced GDP by 1.28%, as defense spending fell at a 22.2% clip in the 4th quarter after rising 12.9% in the 3rd; when the department was closing out their fiscal 2012 budget; while factors relating to the looming debt ceiling and potential large cuts from the sequester caused government agencies to pull back in the 4th quarter (the 1st quarter of the federal fiscal year)...another large hit came from the declining increase in business inventories, from $60.3 billion in the 3rd quarter to $20.0 billion in the fourth quarter, which clipped another 1.27 percentage points from the fourth-quarter change in real GDP and which also could have been impacted by the effect of the fiscal cliff negotiations on business decisions...the only real bad news in this 4th quarter report was the 5.7% decline in real exports after their increase of 1.9% in the 3rd quarter, although that was partially offset by a 3.2% decline in imports (which added to GDP because gross imports subtract from it); that resulted in a .25% hit to GDP from net exports, which you can see on the adjacent table compiled by doug short for his in-depth coverage of this release, which computes changes to two decimal places to better show the change; understand, this table shows how much each component of GDP in each quarter influenced that's quarter's change and not the growth or contraction of the component; for instance, personal consumption expenditures, which accounts for around 70% of GDP, increased by 2.2% in the 4th quarter; thus that added 1.52% to Q4 GDP...also note all figures represent a quarterly change at an annual rate, ie, such that Q1 growth at a  2.0% rate is actually on the order of 0.5% growth over 3 months...

   at least the changes in the other components of GDP werent that bad; nonresidential fixed investment increased at a 8.4% rate in the 4th quarter after it had contracted at a 1.8% rate in the 3rd; investment in equipment and software also rebounded, from a decline at a 2.6% rate in Q3 to an increase at a 12.4% clip in Q4, and residential investment increased at a 15.3% rate, even better than the 13.5% rate of the 3rd quarter...and the lion's share of the increase in personal consumption expenditures was in purchases of durable goods, such as cars and appliances, which increased at a 13.9% rate, after a decent 8.9% rate of increase in the 3rd quarter...

  in a related report, thr BEA also released the Personal Income and Outlays report for December; this report gives us data on personal consumption expenditures (PCE), the major component of GDP, the amount of income we're all earning & from what sources, the percentage of that income that we're saving, and also generates a PCE price index, which provides the Fed's chosen measure of inflation in the overall economy...the December report was something of a one time aberration, as personal income increased $352.4 billion, or 2.6% above November's level, and disposable personal income (DPI), which is income after taxes, rose  $331.3 billion, or 2.7% month over month;  BEA tells us in a footnote that the jump in personal income was caused by "accelerated and special dividend payments and by accelerated bonus payments" and other manipulation of wages & salaries to avoid the year end upper income tax hikes related to the fiscal cliff; without those factors, December DPI would have increased by just $44.1 billion, or 0.4%, following an increase of $66.5 billion, or 0.6%, in November; not much of that shifted income was spent, however, as personal consumption expenditures rose just $22.6 billion, 0.2% above November's level; this is best shown on the adjacent bar graph by j picerno at the capital speculator, which shows changes in DPI in black & PCE in red monthly since last December; also note some of that income shifting started in November, so we could well guess that January DPI will show a reversal...the difference between DPI and personal outlays, $805.2 billion, was saved; that brought the personal savings rate for December to 6.5%, the highest since May 2009, when our spending was depressed by the depth of the recession...BEA also reports that the price index for all personal consumption expenditures decreased less than 0.1% in December, which brought the increase in real DPI up to 2.8% above November, when real DPI rose 1.3%...real PCE (adjusted for price changes) increased 0.2%in December, compared with an increase of 0.6% in November; doug short computes the PCE price index to 2 decimal places for clues to the Fed's outlook; he finds the headline PCE price index to have increase 1.35% and the core PCE price index to have increased 1.32%

the other major release of the week was the Employment Situation Report for January from the BLS, which came in about as close to average as it can get; the establishment survey showed that total non farm payroll employment increased by 157,000, right in line with the average of 153,000 a month that was originally reported for all of 2011 and 2012...however, as with all january reports, it wasnt that clean; first, the annual benchmark revisions were applied to all historical Current Employment Statistics data, which, as we discussed when the preliminary estimates for these revisions were released, revised the payroll employment up to and including March of 2012 based on comprehensive examination of state unemployment insurance tax records at that time; netting a 422,000 increase in payroll jobs over what was originally addition, a revision to allow for the creation of new payroll establishments and closing of old ones, called the "birth death model", subtracted 314,000 jobs in January...and then there was another revision based on census population data which revised reported payrolls again…the net effect of these changes to government and private payrolls for every year going back to 2001 is shown in the table to the left below...and after all these revisions to prior months and years were applied, that resulted in changes to the previous months off of which the seasonal adjustment algorithms  are computed; that again changed the reported seasonally adjusted addition to payroll jobs added for every month in 2012, as is shown in the zero hedge chart to the right below, (from BLS table A) where red bars are non-farm payrolls as first reported, and blue bars are NFP as revised, and the black line shows cumulative jobs added…the net effect of these changes is a sudden jump of a seasonally adjusted 647,000 jobs in january which did not exist in previous reports…but even with those additions, we still have 3.2 million fewer jobs than we did at the employment peak in December 2007


Annual Change Payroll Employment (000s)
Private Public Total
2001 -2,308 551 -1,757
2002 -765 233 -532
2003 104 -42 62
2004 1,872 147 2,019
2005 2,298 186 2,484
2006 1,862 209 2,071
2007 827 288 1,115
2008 -3,797 180 -3,617
2009 -4,976 -76 -5,052
2010 1,235 -213 1,022
2011 2,420 -317 2,103
2012 2,247 -77 2,170
        so, after all that statistical magic had been applied to the months up to and including December, BLS reports January's numbers just as if nothing had changed, except now employment growth for 2012 has averaged 181,000 a month and January's reported 157,000 new payroll jobs looks weak in comparison...retail, with 33,000 new jobs, was the sector gaining the most jobs January, but only by virtue of the seasonal adjustment; obviously, there were post holiday layoffs, but because there were 33,000 less cut than normal, the seasonal adjustment counts that as a payroll jobs increase; employment in construction was reported to have increased by 28,000, some of which is also likely a result of the seasonal adjustment algorithm; other sectors gaining jobs in January include health care, with 23,000 jobs added (with ambulatory services gaining 28,000 and other areas losing a few thousand), wholesale trade, where jobs increased by 15,000, and "mining", which added 6,000 mostly oil & gas jobs...on the other hand, couriers and messengers lost 19,000 jobs (and likely more were it not for seasonal adjustments) and air transportation employment decreased by 5,000...employment in other sectors, including manufacturing, financial activities, professional and businesses services, leisure and hospitality, and government, showed little or no change...the average workweek for all employees on private payrolls was unchanged at 34.4 hours in January, while the factory workweek declined a tenth of an hour to 40.6 hours...non-supervisory employees also saw their hours slip by 0.1 hours to 33.6 hours; average earnings for all employees was up 4 cents over december to $23.78; while production and non-supervisory employees saw their pay rise by 5 cents to $19.97...

FRED Graph

   with updated population estimates from the census being applied to household survey data for the first time in January, it would seem some data isnt directly comparable to December, which is not so altered (note the "change from" column is left blank)...however, BLS reports most of the data as little changed in January, so we'll note the usual metrics we get from this survey; first, the household survey shows an employment increase of 17,000 and an in those unemployed of 126,000, which results in an increase in the unemployment rate from 7.8% to 7.9%; the population appears to have jumped 313,000, but the employment-population ratio remained unchanged at 58.6%, stuck the same range its been in sicne 2009, as you can see in blue on our FRED chart...55,000 more were among those working part time who wanted full time work, yet the U-6 unemployment rate with includes those involuntarily part time was unchanged at 14.4%...the labor force rose by 143,000, while those not in the labor force rose by 169,000 to over 89 million, yet the labor force participation rate was unchanged at 63.6%, which is shown on our chart in red...the number of those jobless for 27 weeks or more and still searching for work was down a bit from 4,766,000 million to 4,708.000 but still accounted for 38.1 percent of those unemployed...another 2.4 million of us were counted as "marginally attached to the labor force" in January, which was down by 366,000 from last January...these are those of us who are not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months, but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey...

there were also a couple of major releases on the manufacturing sector of the economy this past week; on Monday the Commerce Dept released the December Report on Durable Goods Shipments, Inventories, and Orders (pdf) which is typically watched for new orders for durable goods, and more specifically, durable goods less the volatile defense and aircraft orders; overall monthly durables orders for December rose to a seasonally adjusted $230.7 billion from November's $220.7 billion, increasing at a rather strong 4.6% monthly pace, but much of the gain was due to a sharp rise in aircraft orders, which boosted the monthly gain in transportation equipment orders $8.1 billion to $75.9 billion, an 11.9% rate of increase, following 2 monthly decreases...excluding this big jump in transport orders, durable goods orders were up 1.3% in December...there was also a big jump of $8.7 billion in new orders for defense capital goods, to $16.5 billion, a monstrous increase of 110% over November's order level; excluding defense, orders were up just 1.2%...however, excluding defense and transports, orders for capital goods, which represents business investment in new equipment, was up only 0.2% for the month...on a year over year basis, new orders for durables were up 4.1% for 2012; however, excluding transportation and defense orders, durable goods orders were down 3.9%, and core capital goods orders are down 9.8%, which you can see on the adjacent chart from zero hedge...

Vehicle Salesthe other manufacturing report this week was the January 2013 Manufacturing Survey of Purchasing Managers from the Institute for Supply Management, which produced quite a surprise to the upside, after the dismal run of similat surveys conducted by the regional Fed banks last week; the headline composite PMI (purchasing managers index) came in at 53.1%, up from 50.2% in December and the highest reading in nine months; the PMI and other subindexes had also gone through an annual revision that left the readings for most of 2012 mostly lower; December's PMI had originally been reported as 50.7%;...the expansionary readings in January included an increase in the new orders index of 3.6, from 49.7 to 53.3, growth in the production index, which moved up a point to 53.6, and a 2.1 point increase in the employment index to 54.0; customers inventories were indicated as being too low at 48.5, leaving room for restocking...13 of the 18 industries covered are reporting growth in january, led by plastics and rubber products, textile mills, furniture production, printing, and apparel...

and in yet another Friday report, light vehicle sales for January were estimated to have been at a 15.29 million seasonally adjusted annual rate, up 10 from a year ago but down a tad from last month; Ford reported deliveries of cars and trucks rose 22% over last year, whiile Chrysler and GM report sales rose 16%…the chart included to the above right here from Bill McBride shows light vehicle sales since the BEA started keeping car sales data in 1967….
case shiller index levels SA November 2012 SA

earlier in the week Case-Shiller released their monthly home price indices for November (pdf), which you'll recall is a 3 month average of prices for completed transactions in September, October and November; on a month over month basis, the ten city composite showed a 0.2% decline in prices while the more widely watched 20 city index declined just 0.1%; on a seasonally adjusted basis, the Composite 20 would be up 0.6% for the month...the 20 city index is 5.5% higher that it was a year ago, and the 10 city index is up 4.5% on that same basis; this brings average home prices across the country back to their autumn 2003 levels for both the 10-city and 20-city Composites...cities showing the greatest monthly home price gains in November were Phoenix and San Francisco, which were both up 1.4%, while Chicago home prices showed a 1.3% decline...the greatest year over year price increases were seen in Phoenix, where prices were up 22.8%, in San Francisco, where home prices rose 12.7%, Detroit, where prices are up 11.9%, and Minneapolis, where prices rose 11.1%...only New York City shows declining home prices on a year over year basis; prices there are down 1.2%...the WSJ provides an interactive sortable table of the 20 cities in the Case Shiller home price index, where you can view the month over month and annual price change for each city; note that the city index given for each is on the basis of January 2000 = 100.0; this is also shown in the bar graph to the right from robert oak's excellent coverage of this report at the economic populist... 

  also late this week, LPS released their Mortgage Monitor for December (pdf); according to this report, 7.17% of mortgages were delinquent in December, up from 7.12% in November, and down from 7.89% a year ago; mortgage delinquencies were further divided into 2,031,000 home loans that were more than 30 days and less than 90 days past due, but not in foreclosure, and 1,545,000 home mortgages that were 90 or more days delinquent, but not in foreclosure...LPS also reported that 3.44% of home mortgages were in the foreclosure process in December, which was down from 3.51% in foreclosure in November and 4.20% in foreclosure a year ago; this still leaves us with 10.61% of home loans delinquent or in foreclosure at the end of 2012...the state table, which shows delinquencies and foreclosures by state, is on page 20 of the pdf; florida continues to show the highest percentage of non-current mortgages  at 19.3%, followed by Mississippi with 16.9%, New Jersey with 16.7% non-current, Neveda with 14.7%, and New York state, where 13.8% of homeowners are not currently paying on their mortgages... this report also includes data on home loans that are underwater, where the homeowner owes more on the property than it is worth; at year end, 9.8 million homeowners nationwide were still showing negative equity on their properties; this was down 35% from the 15.5 million showing negative equity a year ago; roughly 4 million loans are well below conforming loan-to-value thresholds, meaning they would not qualify for refinancing, but an additional 3.4 million loans are on the cusp of conforming loan-to-value thresholds and stand to benefit if home prices continue to rise...

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