Sunday, March 31, 2013

February’s personal income and expenditures, January’s home prices, & another 4th quarter GDP revision..

the internet has been slow this week; most of us who live out here have noticed slower loading pages, especially for email and those pages with pictures; personally, videos have been practically impossible, with viewing interrupted by long pauses, and even simple .jpg charts pasted into an email draft often take a few seconds to appear, even though there has been no apparent problem with text...this is all apparently the result of the largest distributed denial of service (DDoS) attack ever recorded, and has affected users in most of the US and Europe...the attack has originated with the web hosting firm Cyberbunker, located in the Netherlands, which hosts less than reputable web activities such as spamming and unrestricted access to copy-written materials and is believed to have been the host for Wikileaks; the object of their ire is a anti-spam corporation called Spamhaus, who offers anti-spam software to providers, & who earlier this month blacklisted the Cyberbunker servers, provoking the attack...

FRED Graph

the first economic release we'll look at is the February report on Personal Income and Outlays from the Bureau of Economic Analysis, important because personal spending accounts for 70% of the economy....BEA reported February gross personal income increased $143.2 billion, or 1.1% over January's level, and disposable personal income (DPI), which is income after taxes, increased $127.8 billion, also 1.1% above a January report that saw a 4.0% decline, the largest hit to incomes in 20 years precipitated by the fiscal cliff related tax cuts and reversal of year end tax avoidance schemes...real DPI, which is disposable income adjusted for inflation, rose 0.7%, after also being down 4.0% in January....our adjacent FRED graph shows the monthly changes in real DPI marked by tiny blue triangles; we have now seen real DPI fall 0.2% in October, rise 1.2% in November, when the distortions from the tax related income manipulation and shifting actually began, rise again 2.7% in December, then fall -4.0% in January, and come back up again 0.7% with the current report, yielding us approximately a total 0.4% increase over those 5 months; with any luck, reports going forward should return to a normal, unmanipulated trend...of the gross incomes increase of $143.2 billion in February, $42.4 billion came from wages and salaries (reversing their $42.7 billion decline in January), $12.6 billion was the increase in income to business proprietors, while farmers' income increased $4.8 billion;  $9.9 billion was an increase in rental income, transfer receipts increased $9.0 billion, and $68.9 billion was the increase in dividends and income received on assets...on the spending side of the ledger, personal consumption expenditures (PCE) increased $77.2 billion, or 0.7% in February; real PCE, which is adjusted for inflation, rose 0.3%; the monthly changes for that measure are marked in red on our chart....personal spending on durable goods, such as cars and appliances, slipped from a seasonally adjusted annual rate of $1,277.3 billion in January to $1,276.9 billion in February  spending on non-durable goods, which could include anything from soap to gas, rose from $2,584.6 billion to $2,633.1 billion, and spending on services, which could include everything from a taxi fare to a hospital stay, increased from $7,452.8 billion to a $7,481.8 billion annual personal outlays, which includes PCE, interest and transfer payments, rose $79.4 billion in February, compared with an increase of $42.8 billion in January; personal savings, which is DPI less outlays, were $310.9 billion in February, compared with $262.5 billion in January; the personal saving rate, which is savings as a percentage of DPI, rose to 2.6% in February from the 2.2% rate in January, but was the second lowest monthly savings since November 2007...the price index for personal consumption expenditures, which is the measure targeted by the Fed, increased 0.4% in February, while the Core PCE price index, which omits food & energy, was up just 0.1%; in contrast to the Consumer Price Index and Core CPI, which both showed one year price increases of 2.0%, the PCE price index and Core PCE index are both at 1.3% year over year...

when looking at a report such as this we have to be aware that the totals for personal income are just aggregates, and the purpose of a report such as this is to gauge the impact of the change in those aggregates on the economy; so while the totals for disposable income are in a general uptrend, it doesnt necessarily mean the typical worker is seeing that in his paycheck; for instance, much of the big jump in December DPI was caused by "accelerated and special dividend payments and by accelerated bonus payments"…one way of gauging what the income changes are for the average worker is to divide the aggregate by the population, to give us a per capita figure, which you'll see in the chart to the left below; the red line charts the per capita growth in DPI since 2000, when it was below $26,000, thru this report, where DPI per capita is over $38,000...the blue line adjusts DPI per capita for inflation set to 2005 dollars; by that metric, we're only up 0.2% per capita since this month last year, and still stuck at the real personal income levels per capita first seen in December 2006...but that still doesnt tell us much about how the average worker is making out, cause that per capita average could include a number of those with inflated incomes, such as the top 25 hedge fund mangers who take in $22.07 billion a year; fortunately, we have a few other reports and analysis out this week that will provide a clearer picture; first, the 2013 Economic Report of the President (pdf) gives us an average weekly wages in 1982-84 dollars for production and non-supervisory workers, who comprise about 80% of the private workforce; according to that, real wages for those real workers fell from $295.49 to $294.83 per week in 2012, about 0.2%; but even worse, those wages are down 14% from the 1972 inflation adjusted peak of $341.73 set in 1972...meanwhile, analysts at Sentier Research, who were formerly Census officials and use Census data to produce monthly reports, released their analysis of US median incomes for February (pdf)...they find the median annual income in the US to be down to $51,404 in February, about 1.1% lower than January's $51,994, down 6% since the recovery started, down 7.3% since the beginning of the recession, and down 8.4% since they started keeping records in 2000, all of which you can see on the median household income chart from Sentier to the right below…and in yet another analysis of income growth,by tax analyst and Pulitzer Prize-winning journalist David Cay Johnston, he finds that the adjusted gross income of the bottom 90% of us fell to $30,437 per taxpayer in 2011, only $59 more than the average adjusted gross income in 1966, while the average adjusted gross income for the top 10 percent rose by $116,071 to $254,864; even more spectacularly, the top 1 percent alone collected 81% of all the income gains over those 45 years, and the top 1% of the 1 percent, those 15,837 households making over $7.97 million in 2011, picked up 39% of all the income gains since '66 in the US by themselves...FRED Graph

Source: Sentier Research analysis of Labor Department data. Note that vertical axis does not start at zero to better show the change.

the Bureau of Economic Analysis also released the 3rd and final estimate for 4th quarter GDP, and with it, the last revision to GDP for 2012 and corporate profits for both the quarter and the year as well...the BEA found a 0.4% annual rate of change in the nation's output of goods and service between the 3rd and 4th quarter, not the 0.1% reported last month, nor the 0.1% contraction they reported at the end of January; based on more complete data than available in their earlier reports, the BEA found that nonresidential fixed investment had increased 13.2% in the quarter, more than the 9.7% they first guessed, and exports declined 2.8%, less than the 3.9% they previously estimated; partially offsetting that was a decrease in the gain in personal consumption expenditures from 2.1% to a final estimate of 1.8% higher than the 3rd quarter...the inset table shows how each of the 4 major components of GDP changed from the 2nd estimate last month to the current estimate, and what each contributed or subtracted from 4th quarter mentioned, consumption increased at an annual rate of 1.8%, and, as it's 70% of GDP, added 1.28% to the 4th quarter growth rate; purchases of durable goods rose 13.6%, while spending for non-durables was up at a  rate of just 0.1%, and spending for services was 0.6% higher than the 3rd quarter...of the investment components, nonresidential fixed investment increased 13.2%; structures increased at a rate of 16.7% while investment in equipment and software increased 11.8%, meanwhile, residential fixed investment increased 17.6%; however, the increase in inventories fell to $13.3 billion in the fourth quarter from $60.3 billion in the third and knocked 1.52% off of GDP all by itself...the other major drag on 4th quarter GDP was from government expenditures and investment, which decreased 14.8% in the 4th quarter, driven by a 22.1% decline in defense spending; including stagnant state & local governments, that clipped 1.41% off of the quarter's annual rate of change...and the 2.8% quarter over quarter decline in exports clipped .40% off the GDP, while the greater 4.2% decrease in imports, which are a subtraction from GDP, added 0.73% to make the net exports contributing positive at a 0.33% annual rate...
Real House Prices
we also saw a few reports on housing, as is typical for the last week of the month....on Tuesday, S&P/Case-Shiller released their Home Price Indices for January (pdf), which showed a 7.3% year over year increase in prices of repeat home sales in the 10 city index, and an 8.1% one year jump for the 20 city index,  the greatest year over year price increase since just before the housing bubble burst in June 2006;...for the first time since March 2006, all 20 cities showed a year over year price increase, with 8 cities showing double digit price gains, led by Phoenix's 23.2% price spike, San Francisco 17.5% increase; the 15.3% jump in Las Vegas, Detroit's 13.8% gain, & Atlanta 13.4% increase in prices...annual price gains of this magnitude strongly suggest that the Fed's policy has been successful in reinflating the housing bubble, which is a back-door bail out of the banks who are encumbered by large inventories of REO (real estate owned) and mortgage inventory which has never been marked to market value...but as we saw earlier, the CPI adjusted wages of 90% of us are no better than they were 45 years ago, and without a government prop, housing prices cannot rise any faster nationally than the ability of homeowners to make payments for you may recall, this home price index is really a 3 month average of November, December and January, normally months where you'd see prices slipping, but even so the month over month price change was a gain of 0.1% for the 20 cities, which works out to a full 1.0% seasonally adjusted monthly gain; the greatest unadjusted monthly price increases were seen in LasVegas at 1.6%, Phoenix with 1.1%, and Tampa and Los Angeles at 0.9%...the wall street journal has an interactive table of the 20 Case-shiller cities (no paywall) showing the current price index for each, the monthly change, and the annual change; all Case Shiller price indexes are set with January 2000 = 100.0, so home prices only in Detroit at 80.0 and Atlanta at 96.9 are below the levels of when the index was started...although the indices have rebounded smartly from their all time lows in January last year, the 10 city price index is still off 29.3% from the bubble highs, and the Composite 20 index is still down 28.4% from the peak...currently, both the 10 and 20 city indexes have recovered to the home price levels of late 2003, but these price indexes are not adjusted for inflation; Bill McBride does the calculation and adjusts the prices in Case-Shiller 20 city and national index, and the CoreLogic HPI, using CPI less shelter; he finds the inflation adjusted Composite 20 index prices are at December 2000 levels, which is shown in red on his chart to the right, the Case-Shiller national index, shown in yellow, is at October 1999 levels, and the CoreLogic national index, shown in blue and which omits distressed sales, is at the price level first seen in February 2001...the map below is from the New York Fed, and it shows the annual price change for January registered by the national CoreLogic home price index for the populated counties they track; the scale is below; early this month, CoreLogic reported a 9.7% year over year increase in their HPI, the largest jump since 2006…if you click on that map, you’ll be linked to the NY Fed site where there are links to similar interactive maps created from CoreLogic home price data going back to 2005...

the other widely covered housing report was on New Home Sales for February from the Census Bureau (pdf); Bill McBride has his coverage here and here; we have just a few notes: first, as census reported, sales of new single-family homes were at a seasonally adjusted annual rate of 411,000; the estimated number of homes sold in February was 33,000, 11,000 of which were not yet started, and another 11,000 of which were still under construction; census further says the annual sales rate given is 4.6 percent (±20.4%)* below the revised January rate of 431,000; that 20.4% margin of error means that census is 90% confident that the actual number of homes sold in February was between 26,268 and 39,732, so we're uncomfortable reporting this data as factually reliable...and census also noted that the median sales price of new houses sold in February was $246,800; while the average sales price was $313,700; so it's not like that many of those of us with the median annual incomes noted above are buying these new homes...

(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, March 24, 2013

Cyprus crisis notes, January's state and regional employment, February’s home construction & sales, education cuts & tuition increases, et al

the story of the botched bailout of banks and their bondholders on the eastern Mediterranean island of Cyprus completely dominated the economic news and opinion blogs this past week; even some who's forte is domestic policy weighed in...and it's taken so many twists and turns during the week that the best way to get the whole play by play is to follow the sequence of over 100 linked articles at this week's global glass onion, where the Cyprus story and other Eurozone news fills the last third of the blog post....just scroll down past the posts on energy, china & japan till you get briefly recap, the week began with the news that Eurozone ministers meeting in Brussels had demanded an agreement from Cypriot officials such that for the Troika to continue its cheap loans to insolvent Cyprus banks, depositors in such banks would have to take a hit too, to the tune of 6.75% on savings of less than 100,000 euros and 9.99% for deposit amounts above that...since Cyprus had been party to a Eurozone agreement that had insured deposits up to 100,000 euros ($131,000) in the same manner that US savings accounts are insured, the question was if they could do this to Cyprus, could they not do this to Greece, Spain and Italy as well? and if they could, why leave one's money in the banks? wouldn't bank runs be the result? ..while Cypriot banks remained closed all week, that fear of contagion apparently resulted in something of a run into a virtual currency in Spain...

with low tax rates drawing in deposits from Russia and around the eurozone, Cypriot banks had ballooned to eight times the country’s GDP before getting into trouble with due to their large exposure to Greek debt; their largest banks had been carried by low interest loans from the eurozone for well over a year, just like the larger bailed out banking systems of southern Europe…after the outrage of the depositor haircut spread, Cyprus was first forced to close banks till Tuesday, which was extended to Thursday, only to eventually remain closed all week while the parliament overwhelmingly rejected the deal that had been imposed on the country; that in turn brought warnings from Angela Merkel and other Eurozone officials that their banks would be allowed to collapse and would never reopen..since roughly 40% of the large deposits in Cyprus’s banks were from Russian oligarchs, there was some expectation of a Russian bridge loan or asset purchase, as Russia had done previously; but when the Cypriot finance minister came back from Moscow empty handed, they were again forced to come to terms with the demands of the Troika…on Friday, the Cypriot MPs capitulated and voted to undertake a bank restructuring, impose capital controls to prevent deposits from leaving, and impose a “tax” of 20% on bank deposits of over 100,000 euros….

for once, domestic fiscal politics was tranquil by comparison; the Senate and House both passed a continuing resolution to keep the government operating until the end of the fiscal year (September 30), ending the threat of a government shutdown next week...and although the majority of the $85 billion of sequestered spending cuts remain entrenched, amendments were attached to this short term funding bill that alleviated the impact of some of the most egregious of the automatic cuts, and exempted two programs, meat inspection and tuition for military service members, from the sequester altogether...however, now that Congress has dictated the federal spending for the rest of the year, they still have approve raising the debt ceiling to allow the Treasury to issue instruments needed in order to fund that spending they have legislated...while the bill passed to ignore the debt ceiling expires on May 19th, it's likely the Treasury will be able to pull the same accounting legerdemain they've used before to keep the government running until July...

State Unemployment as is typical in the middle of most months, it was a pretty slow week for economic report we seldom cover is the Regional and State Employment and Unemployment Summary from the BLS, because as this week's report is for January, it lags the national employment situation's data by more than month...nonetheless, this report is a bit notable in that January was the first month since the recession began that no state recorded a double digit unemployment a reference, you might want to recall that January's employment gains came in pretty close to the statistical average of the last two years, the national unemployment rate rose 0.1% to 7.9%, but the year end benchmark and census revisions called all of that into question...this regional and state report has the unemployment rate up in 25 states and DC, down in 8, and unchanged in 17; Nevada's unemployment rate, which had started last year above 12% and been in double digits all year, fell to a seasonally adjusted 9.7% in January, leaving California and Rhode Island as the states with the highest unemployment rates at 9.8%; N. Dakota, with it's influx of oil field workers, again had the lowest unemployment rate at 3.3%..Illinois and Mississippi saw the largest increases in their jobless rates at 0.4%; Illinois' rate rose to 9% and Mississippi's rose to 9.3%...regionally, unemployment remained highest on the coasts; the Pacific states registered an unemployment rate of 9.2%, while the Mid-Atlantic jobless rate was at 8.6% and the South Atlantic saw 7.9% unemployed; the West North Central, which is the upper plains region, saw the lowest unemployment rate at data corresponding to the monthly establishment survey, the states that saw the largest non-farm payroll gains were Michigan with 26,500, Washington with 24,100 and Massachusetts with 16,100...states showing significant job losses included Louisiana, where payrolls were 12,500 lower, Wisconsin, where 6,000 jobs vanished. and Missouri, where companies reported 4,700 less were working...the adjacent bar graph from Bill McBride shows the current unemployment rate for each state in red, and the highest unemployment rate each state has experienced in blue; if you click on it to view it full sized, you'll see that Michigan, where the jobless rate was once over 14%, has shown the most improvement, with a rate now under 9%, and that New Jersey and New York are still near their high water marks for unemployment....

there were also a few reports on housing; the February report on New Housing Construction from the Census Bureau (pdf) was again pretty meaningless on new housing starts due to it's large margin of error; they reported private housing starts in February were at a seasonally adjusted annual rate of 917,000, which was 0.8 percent (±10.6%)* above the revised January estimate of 910,000, which means new home starts could have been up or down 10% for the month; the annual gain of 27.7% (±13.7%) for housing starts at least assures us that new construction is increasing, but the magnitude of that increase - between 14% and 41.4% - is pretty wide...the data for new permits is more reliable; housing units authorized by building permits were reported at a seasonally adjusted annual rate of 946,000, which they describe as "4.6 percent (±0.8%) above the revised January rate of 904,000 and 33.8 percent (±1.4%) above the February 2012 estimate of 707,000"...again, zero hedge has picked apart the seasonally adjusted data and shows that the changes in the adjustment are at least inconsistent over the past few years...small real declines in housing starts over the winters of 2009 and 2010 resulted in positive increases in construction after adjustment. while the real decline in 2010 resulted in an even larger seasonally adjusted decline…and the increase of 200 new homes started this winter resulted in a 76,000 increase in the seasonally adjusted home starts, all of which you can see if you click on their chart to view it full size...since new home starts were 5 times greater during the boom than the bust, it seems reasonable that would throw the seasonal adjustment calculations off by some smaller magnitude.. 

Existing Home Sales NSAmeanwhile, the National Association of Realtors reported that existing homes sales increased in February by a modest 0.8% at a  seasonally adjusted annual rate while year over year home prices rose for the 12th consecutive month; at the rate that realtors reported homes sold in February, 4.98 million homes would sell over a year; that's 10.2% above the 4.52 million-unit pace they were selling at last February, and the briskest annual rate since November 2009, when the homebuyer tax credit had inflated sales... the Calculated Risk bar graph we've included here is from Bill McBride's two post coverage of this report; unlike the seasonally adjusted annual rate that the NAR reports, this graph shows the actual sales for each month going back to the beginning of 2005; each year is color-coded; the bright blues are the boom years of 2005 and 2006, while January and February of this year are coded in red; you can see that even in boom year, these two months barely account for half of the home sales that the summer months do; you can also see the effect of the tax credit on 2009's sales, shown in pale blue, which we were the weakest of all early in the year, then began to grow above trend during the summer after the credit was enacted....February sales of single family homes decreased at a 0.3% annual rate, while condo-& co-op sales were reported to be up 8.8%; real estate economist Tom Lawler questions this statistic; in a detailed post he shows that "excessive rounding" by NAR resulted in a 20.8% one month jump in condo sales in the southeast with no increase in such sales elsewhere...the national median price paid for a single family home sold in February was $173,800 and the median price paid for all housing types, including townhomes, condos and co-ops was $173,600, which was 11.6% above the median price homes sold for last year at this time; the median length of time from listing to sale fell to 74 days from 97 days last year15% of the homes sold in February were sold out of foreclosure, which the NAR reports were discounted 18% from their market value, while 10% were short sales by the owner in lieu of foreclosure which were discounted by 25% these distressed sales increased over January's 23%, but were still below the 34% of sales that were distressed last interest rates are rising again, despite the Fed's monthly buying of MBS; the 30-year fixed-rate mortgage rose to 3.53% from 3.41% in January; first time buyers accounted for 30% of sales, unchanged from February, while those described as investors bought 22% of the homes sold in February, up from the 19% they bought in January...all-cash sales accounted for 32% of all homes sold in February, up from 28% in January but still below the 33% that were all-cash last year at this time...large private equity firms, such as the Blackstone Group, have been fueling the boom, intending to rent the homes they buy, however, the increased rental supply is now stretching the vacancy time, and preventing rents from rising..

lastly, we’re going to add a pair of bar graphs from two separate blog posts (here and here) from the Center on Budget and Policy Priorities that are pretty much self explanatory; over the past 5 years of recession, cash-strapped states have made across the board cuts, but none so severe as to higher education…the result is that public colleges and universities must either cut spending or raise tuitions or both…so below we have both halves of the story, as it applies to each of the states...on the left you have the percentage from education that each state has cut over 5 years, and on the right you have the tuition increases, and likely student debt increases, that have resulted from those cuts over the same time frame..remember, to completely make up a 50% funding cut, tuitions would need to be raised 100%....Higher-Ed-Cuts

(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…)

Monday, March 18, 2013

ooooooooooooooh RJ WHEREFORE ART THOU

war monger

...we'll splatter our verbal napalm
on the economic warriors
of the wall streets of the world
till their bonds are burned
and clobbering men on the head
with the truth
will be the folly
of the new special forces
as i unleash on the world
a multi-million megatonic fury:

~ rjs / 1965 ~

  in these times
too few warriors 
devour darkness 
with a brighter torch
than you 

you are earths cry heavens smile
and dearest friend to me, thank you so much

happy birthday buddy
(hehehee suck it can clobber me over the head later hehehee)

Sunday, March 17, 2013

balanced budget nonsense, February’s retail sales, CPI, & industrial production

sectoral balancesthere was quite a bit of unwarranted buzz around the blogosphere about a number of budget plans that were introduced early this week, all of which were likely an outgrowth of the requirements imposed on both houses of Congress by the debt-ceiling postponement, that budget resolutions be passed by mid April or the member's pay would be suspended; two primary proposals were put on the table by Patty Murray, chair of the Senate Budget Committee, for the Democrats, and by Paul Ryan, republican chair of the similar committee in the House, as the template for the Republican plan; there was also a budget proposal by the progressive caucus entitled The Back to Work Budget (pdf), although it was the Ryan plan that garnered all the attention...but here's the thing; there was really nothing new in this Ryan budget plan that wasnt in his first plan that was introduced two years ago, or the Ryan budget as it was proposed last year; sure, the baseline numbers changed, the sequester and some tax changes are already in effect, but the nuts and bolts of the proposed budget are still the same old same old; repeal Obamacare and Dodd-Frank, convert Medicare into a voucher program, restore the defense budget, cut Medicaid and other safety net programs, and cut top personal and corporate tax rates to 25%...and even Ryan himself didn't seem to take it seriously ...nonetheless, all the usual suspects weighed in as if this was a new serious plan that had to be rebutted...but having this plan, which suggests that we should balance the federal budget, around all week did bring to the fore what seems to be a widespread misunderstanding about our fiscal long as the US continues to run trade deficits, it is impossible for the federal government to balance its budget while the private sector is deleveraging...every dollar of private sector surplus is always offset by a government sector deficit, and vice versa; its an accounting identity...therefore reducing government deficits will of necessity reduce private sector surpluses accordingly...this can best be seen on the adjacent chart from Goldman's chief economist Jan Hatzius...what you see here is that the financial balance of three sectors (private, government, and foreign) always and must net out to zero; because one sector’s income is always another sector’s spending...thus the only time the Federal budget can come close to balance is when the private sector is going into debt in a substantial way, such as we saw during the boom years early last decade...most other times, government borrowing, issuing notes bills and bonds, is just the Treasury's equivalent of monetary expansion, creating the money needed for the economy to grow...and any attempt to reduce government deficits risks inducing a worse recession...

February retail volume 2013

the reported 1.1% increase in retail sales in February was quite a surprise, considering the 4% drop in real disposable personal income in January and the incessant warnings about the economic damage that would be done by the sequester that persisted throughout the month; nonetheless the Advance Retail Sales Report for February from the Census Bureau estimated that seasonally adjusted retail and food services sales for February came in at $421.4 billion, which was an increase of 1.1% (±0.5%) from January and 4.6%(±0.7%) above February of last year; a major part of the story was the 5.0% increase in gasoline sales, from $45,356 million to $47,642 million, due entirely to higher prices (which this report does not adjust for) as gas prices were up 54c over the first two months of this year and vehicle miles driven has continued to fall; retail sales of everything but gas were only up 0.6%...other types of businesses showing sales strength in February were and cars and parts dealers, which saw seasonally adjusted sales increase 1.1% to $78,466 million from January's $77,600 million, and building and garden supply stores, which also saw a 1.1% sales increase, from January's $25,314 million of sales to $25,603 million in February...declining month over month sales were seen at furniture stores, where sales fell 1.6% from $8,146 to $8,019 , at department stores, where sales fell 1.0% to $14,888 million from $15,032 million; at restaurants where sales were down 0.7% to $45,065 million  from $45,367 million , at electronics stores where sales slipped 0.2% to $8,290 million from January's $8,309 million, and at sporting, music and book stores, where sales fell 0.9% from $7,825 million  to $7,751 million...we've included the adjacent bar graph from Robert Oak at the Economic Populist to give a visualization of the size of each retail category; note that general merchandise includes both big box department stores and discount chains...all these sales totals are the reported seasonally adjusted totals, and all reported February sales were increased from actual sales by the seasonal adjustment algorithm; if we check table 1 in the census report (pdf), we see that actual unadjusted sales for February fell to $381,015 million from $382,361 million in January; that adjustment has been called into question by both zero hedge, who points out that this was the first time since 2009 in which a drop in actual February sales resulted in an increase in adjusted sales, and by Lance Roberts writing at Advisor Perspectives who also questions  first sequential decline in the data in the last three's hard to say what might have happened here, since we dont have access to the seasonal adjustment algorithm nor the computing power to work through it...but there is a weighting of the most recent 5 years in making that adjustment, and therefore, the earlier year's seasonal adjustment would have included conditions in years prior to the recession, and this years would have just included early 2008, when the economy was already heading south, and subsequent years, when economic conditions have been less than that might generate a bias in the adjustment process that understated earlier years and overstates seasonal adjustments in this year and beyond...

Consumer Price Index Components

the rising price of gasoline also contributed the greatest jump in consumer prices since June of 2009; the Bureau of Labor Statistics reported that the Urban Consumers Price Index (CPI-U) increased  0.7% in February on a seasonally adjusted basis; this brought the year over year increase to 1.98%, which the BLS rounds to 2.0%...a 9.0% increase in the price of gasoline contributed to a 5.4% increase in the energy price index and accounted for nearly 3/4ths of the increase in the CPI by itself; other energy components were higher too; fuel oil was up 3.1%, electricity rose 0.3%, and the price of piped natural gas was 1.2% higher than in January...the food index also increased slightly; which was attributed in the release to a sharp increase in the fruits and vegetables index, which was up 1.4% on a seasonally adjusted basis, but virtually unchanged for the month according to the unadjusted index which rose from 293.714 to 293.742.....we might ask did the price of fresh produce really go up month over month if the only change was in the seasonal adjustment of the price, but not at the grocers? however we answer that, the Core CPI, which is the index for all items less food and energy increased 0.2% for the month, as seasonally adjusted price increases of 0.2% for shelter, 0.8% for used cars and trucks, 0.3% for recreation, and 0.3% for medical care more than offset declines in the prices indexes of 0.3% for new vehicles, 0.1% for apparel, and 0.3% for airline fares, and which resulted in a year over year increase of 2.0% for the Core CPI; contrast that with the 1.8% year over year increase in the chained CPI, which the president is advocating be used to compute cost of living increases for social security and other programs...the chart to the right that we're including here comes from the BLS via a post this week at the Atlanta Fed's macroblog, which explains how the cost of shelter, or “owners’ equivalent rent” enters into the CPI; although the chart is year to date before this week's release, it does give an excellent picture of both the weighting of each component and how much the price changes for each has influenced the overall CPI; note the red dashed line was they year over year change in the CPI as of last month's release, and that the price of energy, which contributes to price changes in every component, especially transportation, is not separated out...also note a table of price changes for CPI components by detailed expenditure category is here; note the relative importance column for each category, as it shows the actual weighting of each individual item..

FRED Graphanother report that surprised to the upside, albeit slightly, was on Industrial production and Capacity Utilization for February from the Fed; industrial production rose at a seasonally adjusted rate of 0.7% for the month whereas consensus expectations were for a 0.5% increase; the January reading was revised to unchanged from the previously reported 0.1% contraction, and the index is up 2.5% over a year ago and now reads 99.5, based on 2007=100...manufacturing output led the increase, rising 0.8% to bring that index to 96.5, utility output rose 1.6% on near normal weather to bring that index to 101.4, while mining & drilling production declined 0.3%, the 3rd decrease in a row, while the index still stands well above prerecession levels at 114.7...the manufacturing increase was widespread through most industry and market groups; production of consumer goods increased 0.7 percent, with durables manufacturing up 1.7% led by increases of 2.1% of automotive products and 1.7% in electronic, while non-durable manufacturing was up 0.4%, with a 0.5% fall in chemical products production a drag on the average...other groups seeing production gains in February included business equipment, up 2.5%, led by a jump of 4.7% in transit equipment, construction supplies, up a seasonally adjusted 1.5%, and business supplies, up 0.8%; the only industry group to see a decline was defense and space equipment which saw production fall 0.6% for the month...capacity utilization, the measure of of how much of our industrial plant was in use during the month, also saw decent gains, rising from a revised 79.2% in January to 79.6% in February, the highest since March 2008 when it was at 80.1%....capacity utilization for manufacturing rose 0.5% to 78.3%, utilities were running at 75.4% of capacity, up 1.1% from January's rate, while utilization of drilling rigs and mining equipment fell 0.6 percentage points to 90.2%...our graph shows the production index for all industry in black, the manufacturing production index in blue, the utility production index in green, and the mining production index in red from the beginning of the index year of can see the overall index closely tracks the heavily weighted manufacturing production index, which makes up 75.65% the total; utilities accounts for just 9.64% of all production, while mining accounts for 14.71%..

(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, March 10, 2013

February’s employment; January’s trade deficit, consumer credit and the LPS Mortgage Monitor

Percent Job Losses During Recessions on the the face of it, the Employment Situation report for February from the BLS was better than what we've been seeing; payroll employment increased by a seasonal adjusted 236,000, and the unemployment rate fell to 7.7% from January's 7.9%, the lowest headline rate in over 4 years..and while the 236,000 jobs added was not even up to the average 250K jobs added each month during the Clinton years, when we were already at full employment, it's the most added in a year save November, when the final job number was boosted to 247,000 by the massive adjustments in January...this month's revisions were slightly negative overall; January's payroll jobs increase was revised down to 119,000 from 157,000, while December's jobs total was revised up to 219,000 from 196,000...lest we start to think that we're making some kind of progress, included to the right is Bill McBride's chart comparing job losses from the previous employment peak for all post war recessions; you can see that job losses were more than twice as bad as any recessions other that 1948 and 1957, and that the duration is already over twice as long as all but the 2001 recession, & there's still more than 2% less jobs - 3,200,000 in fact - than there were 61 months ago, even though the population has increased by 13,000,000 over that span...

job losses gainsaccording to the jobs data gleaned by the establishment survey, private sector job gains were pretty much across the board; only the government sector continued to shed workers, employing 10,000 less than january...sectors showing the most job gains were professional and business services, which added 73,000 jobs, 44,000 of which were in administrative and support services, including services to buildings, and 11,000 of which were in accounting and bookkeeping...employment in construction also increased by 48,000, with most of the growth in specialty trades, split nearly evenly between residential and non-residential; unlike last year, that doesnt seem to be an aberration caused by unusually warm weather...the health care sector also gained 32,000 jobs, split between 14,000 in ambulatory health care services, 9.000 in residential care facilities, and 9000 in hospitals...other sectors with decent gains included retail trade with 24,000 new jobs, and information processing with 20,000...average earnings for all private payroll employees rose by 4 cents to $23.82, while average earnings non supervisory employees rose 5 cents...there was a rebound in hours worked as well; the average workweek for all employees on private nonfarm payrolls was up 0.1 hour to 34.5 hours, while the manufacturing workweek rose 0.2 hours to 40.9 hours...factory overtime also increased by 0.1 hour to 3.4 hours…but even though the averages may be up, most middle class jobs that could support a household are not being replaced; the chart to the left from a slide presentation by the San Francisco Fed shows that the lion’s share of jobs lost during the recession have been middle income jobs paying $13.84 to $21.13 an hour, while the majority of new jobs created during this recovery have been low paying jobs from $7.69 to $13.83; mid-wage jobs have made up just 27% of new jobs since 2008

  FRED Graph the jobs data gathered by the February Household survey was not as encouraging as the headline decline in the unemployment rate would lead you to believe, and it includes some details that lead us question the apparent positive results from the establishment survey...with the caveat that the seasonally adjusted numbers posted in this series are extrapolated from questionnaires of just 60,000 households and have a margin of error on the order of ±400,000, we'll first take a look at how that lower unemployment rate was arrived at...the number of those who reported they were employed rose by 170,000, while the number of those reported as unemployed declined by an even greater 300,000, indicating a net 130,000 people stopped looking for work over the month, and thus weren't counted....this meant a 130,000 decline in those in the labor force to 155,524,000, off of which unemployment rates are calculated...the lower number of unemployed (12,032,000) is 7.7% of that, our lowest calculated unemployment rate since Obama took office; however, due to the accompanying decline in the labor force, the labor force participation rate actually fell by 0.1% to 65.6%, a scant 0.1% from the recent low, seen in red on our chart...and with the working age population of those not in jail or the army increasing by 165,000; the employed to population barely budged, and was statistically unchanged at 58.6%, graphed in blue...combined with the increase in population, the total number of us considered "not in the labor force" increased by 269,000 in February….other data in the household survey revealed more disturbing trends; the number of the long-term unemployed, those of us out of work for 27 weeks or longer, rose to 4.797 million from 4.708 million and now account for 40.2% of those counted as unemployed; the number of part time jobs rose 459,000, and 444,000 of those working at them didn't even indicate they were looking for full time work; thus the alternate unemployment rate, U-6, also dropped from 14.4% to 14.3%...part of the reason for that may be that there were 340,000 more of us reporting that we were working more than one job to make ends meetMIsh attributes the loss of full time jobs to the obamacare mandate, wherein employees who work 30 hours or more must be covered by their employers, and there has been acedotal evidence some of this is taking place...

U.S. Trade Deficit another important release of the past week was on our International Trade in Goods and Services for January from the Dept of Commerce; we saw how a surprising lower trade deficit improved our 4th quarter GDP, but we're off to a bad start in the new year with a major reversal as our goods and services trade deficit hit a seasonally adjusted $44.4 billion in January, up 16.5% from the adjusted deficit of $38.1 billion in December; January's exports of $184.5 billion were $2.2 billion less than December exports of $186.6 billion, while January's imports of $228.9 billion were $4.1 billion more than December imports of $224.8 billion; roughly two thirds of the increase in the January deficit was due to an increase in oil imports, despite the fact that the US recently became the world's top oil producer, surpassing Saudi Arabia, and despite the fact that oil averaged $94.08 per barrel in January, down 1.1% from $95.16 in December...changes contributing to our decrease in goods exports included a $2.6 billion decrease in industrial supplies and materials, of which the major contributor was a decline in fuel oil exports of $1.721 billion, and a $1.0 billion decrease in so called "other goods"; which was partial offset by increases in exports of $0.678 billion of capital goods, $0.362 billion of foods, feeds and beverages (all of which was accounted for by a $371 million increase in soybean exports), $0.267 billion of consumer goods, and $0.175 billion of autos, parts, and engines...changes contributing to our increase in imports included  an increase in industrial supplies and materials: to the tune of $4,040 billion, of which $2.956 billion was the aforementioned oil, -$0.875 billion of consumer goods, $0.659 billion of autos, parts and engines, and $0.690 billion of other imports...all these totals are seasonally adjusted and further itemization of exports and imports are on pages 12-15 of the full release and tables (pdf)...our largest bilateral trade deficits were with $27.8 billion with China, $8.6 billion with the European Union, $6.4 billion with OPEC, $6.1 billion with Japan, $4.9 billion with Canada, $4.2 billion with Germany, and $3.6 billion with Mexico $3.6...small surpluses were recorded with Hong Kong at $2.7 billion, Australia at $1.2 billion, Brazil at $0.9 billion, and Singapore at $0.7 billion...these country totals are not seasonally adjusted, so they wont necessarily add up to the match the other data in this report...since China has already reported a 22% percent increase in its February exports and a 15% decrease in imports, it's fair to project that our February deficit is likely to be even larger...we have again included Bill McBride's chart showing the overall trade deficit in blue, the petroleum deficit in black, and the trade deficit without oil in red...if you click to enlarge it, you'll see that January's deficit in oil (negative from the chart top) has erased all the improvement of the last half of last year...

another monthly report that we've been following is the Fed's G19 Release, Consumer Credit for January...this month's results reverted back to the pattern that caught our attention originally, wherein most of the monthly increase in credit in the economy was in the form of student loans from the Federal January, aggregate consumer credit rose $16.15 billion to $2,795.3 billion, increasing at an annual rate of 7% from December's $2,779.2 billion; revolving credit, or credit cards and the like, was nearly unchanged, rising from $850.8 billion to $850.9 billion yet still below the $851.8 billion of the second quarter 2012 and barely above the $847.3 billion at year end 2011, while non-revolving credit, which is long term loans for such as cars, yachts, and education but not real estate, rose from $1,928.4 billion in december to $1,944.4 billion in January which was a 10% annual rate of increase…again, what we want to see is how much of that is loans issued by the federal government, and since this report doesn't include real estate, all of those loans would be for education...checking the 3rd table in the release, under the heading "Consumer Credit Outstanding", which is not seasonally adjusted, we go to the subheading "Major types of credit, by holder" and see that non-revolving credit held by the federal government rose from $526.8 billion in December to $552.7 billion in January, a one month increase of $25.9 billion...that means in January, student debt was increasing at an annual rate of 73%, with the only caveat being seasonal factors that may alter any annualized computation...the adjacent bar graph is from Zero Hedge, who calls this month's student loan increase "the fifth highest US government consumer credit injection in history" illustrates the monthly change in revolving credit in blue and non revolving credit in red, with the black line tracking the aggregate monthly change...

another report we have to look at is the Mortgage Monitor for January from LPS (Lender Processing Services) (pdf); which showed that 1,703,000 home loans, or 3.41% of all mortgages, were in the foreclosure process at the end of January, an additional 1,531,000 mortgages were 90 or more days delinquent, but not in foreclosure, and 1,974,000 more homeowners were more than 30 and less than 90 days past due, which gives us a total of ​​5,208,000 loans delinquent or in foreclosure in January...this means 10.44% of homeowners were at least one house-payment late in January, which was down from 11.90% in January of last is typical for January, the delinquency rate fell to 7.03%, down from 7.17% in December, as homeowners who fall behind on house-payments during the holidays typically get current in the first 3 months of the year...the news briefing accompanying the Mortgage Monitor release made special note of the increasing length of time those who have been foreclosed on remain in their homes before their homes are seized; expressed as the number of months that it would take a given state to foreclose on all homeowners more than 90 days delinquent at the current rate that foreclosures are being processed, this is known as the "pipeline ratio" for that state; while some of this delay is due to large work backlogs at the banks and their own reluctance to own a significantly larger amount of homes than they already do, the complaint voiced by LPS VP Herb Blecher is about homeowners rights laws passed by Nevada, Massachusetts, and California, previously states where banks did not have to go court to seize a imposing penalties on fraudulent documents and other unfair bank practices, these states have seen their foreclosure rates drop 75% or a result, the pipeline ratios in these formerly non-judicial states is approaching that of some  judicial states, which require that the banks prove they have the right to foreclose in court before they change the locks and seize the homes…this can be seen in chart to the left below, taken from page 7 of the mortgage monitor (pdf), which shows pipeline ratios for selected states (red are non judicial states, blue are judicial)...if you click on it to enlarge, you'll see that the pipeline ratio for Massachusetts, which was at 75 months in June of 2012, has now risen to 171 months, and the pipeline ratio for Nevada, which was 27 month in Jan 2012, has now risen to 57 months...this means that at the rate foreclosures are proceeding in Nevada, it would take 4 years and 9 months to clear the backlog, and at the rate they're proceeding in Massachusetts, it would take over 14 years to clear the backlog...on the judicial side, two states stand out with particularly long pipelines; the pipeline ratio in New Jersey is 483 months, which means it would take over 40 years to finish the foreclosure process on all homes in the process at the current rate, while the pipeline ratio in New York is 607 months, which means at the current rate that foreclosures are moving through the courts, it would take over 50 years to complete all of them...because of long pipeline ratios, 5.69% of all mortgages in judicial states remain mired in foreclosure; contrast that with 1.79% of mortgages in non-judicial states; 58% of all mortgages in foreclosure in judicial state have been in limbo for more than 2 years, while foreclosure inventory in judicial states is 3 times that of non-judicial states (see page 5, pdf)
Delinquency Rate

LPS pipeline

we'll include a few more panels from the Mortgage Monitor while we're here...above on the right, we have a graph from page 4 of the pdf showing that both foreclosure starts and home seizures, which had been going down, moved up in January...148,000 foreclosure proceedings were started in January, up 8.3% from December, while 66,000 foreclosures were completed in January, up 14.7% over december...note that "foreclosure sales" does not mean that the bank sold the house; it's a peculiar nomenclature that mortgage services use to indicate a foreclosed house has finally been seized...and below we have a table from page 23 of the pdf which shows the percentage of mortgages delinquent but not in foreclosure, the percentage in foreclosure, the total percent of non-current mortgages, and the year over year change in non-current mortgages for each state…judicial states are marked with a red asterisk; their problem mortgage rate has declined 7.0% since last year, while non-judicial states have seen an 11.8% decline…

LPS january state table

(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…)