notes on the week ended Sept 3rd

not much good to say about most economic reports out this week; you probably all already heard the dismal headline that zero jobs were added in august (actually a net of job losses & gains from the BLS establishment survey) and that the headline percentage of unemployed remained steady at 9.1%…before i get into the reported details, i want to explain a bit about how the unemployment reports are arrived at, since someone tipped me off to the BLS technical notes last month and since no news stories or blogs that i know of cover the background as to how the monthly unemployment numbers are arrived at…as you already know, there are two surveys that are reported each month; the household survey, from which the headline percentage numbers come, and the establishment survey, from which the monthly number of jobs added is taken from…i was surprised to find that the BLS household survey is based on results from only 60,000 households, or about 1 in 2000 nationwide…the questions they ask are here…people thus surveyed are “classified as unemployed if they meet all of the following criteria: they had no employment during the reference week; they were available for work at that time; and they made specific efforts to find employment sometime during the previous 4-weeks” – you can see how some unemployed wouldnt be counted by that yardstick…the establishment survey, at least, seems to be much more thorough; each monthly sample represents employment data collected from 140,000 businesses and government agencies which represent “approximately one-third of all nonfarm payroll employees“…but even with such a large sample, they indicate in those technical notes that due to possible sampling errors “BLS analyses are generally conducted at the 90-percent level of confidence” and “the confidence interval for the monthly change in total nonfarm employment from the establishment survey is on the order of plus or minus 100,000” …i point this out just so you know that when i quote a specific number of “jobs added” any given month it could be inaccurate by that much, and that my giving you any number in 3 significant digits is a bit of a stretch…so with that caveat, we can look at the numbers reported by the BLS & regurgitated by MSM & the blogs:

Unemployment Duration  as i said, the reported jobs added from the establishment survey number was zero; the zero jobs added came from 17,000 private sector job gains and 17,000 government job losses; those numbers were further qualified by the ending of the minnesota state shut down which added back 22,000 government jobs, and the verizon strike which reduced reported private payrolls by 45,000…the earlier july report was revised down by 32,000 to 85,000; the june number was also revised down 26,000 to 20,000 (those revisions result from establishments reporting late); but both the labor force participation rate, at 64.0%, and the employment-population ratio, at 58.2%, which i’ve focused on in past months, were virtually unchanged…the small sampling used by the household survey makes it unusually volatile; this week, it reported an increase in the number employed of 331,000 & an increase in unemployed of 36,000, leaving the ratio unchanged at 9.1%; contrasted with last month, when the establishment survey reported decent job gains, the household survey reported the number of employed fell by 38,000, and the number of unemployed rose by 156,000…the broader measure of underemployment, U-6, which includes those workers who cant find a full time job or whose hours have been cut, rose to 16.2%, the high for this year; but this number has also experienced a downward reporting bias, as workers who once said they wanted a full time job have resigned themselves to working part time, & hence arent looking for full time work anymore, they’re considered satisfied & no longer count in the U-6 number; those working part time who would prefer full-time work now make up only 31% of all part-time workers, according to the BLS…about the only bright spot in this report was that the number of those unemployed more than 26 weeks looking for work declined slightly, with a shift in the mix towards those who were out of work for a shorter period (click adjacent chart)  

looking forward, we’re still seeing reports indicating that unemployment will continue to be a problem for some time to come…Challenger, Gray & Christmas, an national employment agency, keeps track of announced layoffs, & reported they were up 47% to 51,114, over august of last year, led by announced cutbacks in the financial sector….& even the white house budget office, which you would expect to put a cheery spin on their forecasts, now admits that unemployment will stay above 9% throughout 2012 and will not return to the 5% range until 2017, when rick perry will be presiding over a reaganesque morning in america…

  this week also marked the release of the popular case-shiller home price index for june, which averages home prices for the april to june period, and reported that they rose 1.1% over the march to may period…as this index is not seasonally adjusted, such a price rise is normal, and bill mcbride @ calculated risk, who converts the index to a seasonably adjusted version, reports the 10 city version of the index up slightly & 20 city version down slightly; the corelogic price index for july was also released this week, which is a 3 month weighted index (july counts most) which the Fed uses, and it showed a similar unadjusted 0.8% gain over the previous month’s release…

    much more stunning was the LPS mortgage monitor report for july that was released this week; it’s showing a continuing complete breakdown in the process of foreclosing on delinquent homes, with the average loan in the foreclosure process now being there for a record 599 days; this means that the 2.16 million homeowners who are being foreclosed on manage to live in their house rent free for an average of nearly 20 months; this suggests to me that either the banks dont want to own anymore homes, or, in the case of judicial foreclosure states, the banks are unable to show they have the right to foreclose, which would be mostly due to loss of clear chain of title during the frantic housing boom years when the MERS electronic tracking broke down, giving rise to the robosigning of fraudulently created documents…in some states, it’s broken down completely, Mish ran the story with the headline “Foreclosure Pipeline in NY is 693 months and 621 Months in NJ“, meaning that at the rate foreclosures are moving through the courts in those states, it would take 57 and 51 years respectively for each to clear the backlog…the LPS report also showed significant delays in moving delinquent homeowners into foreclosure; of the 1.9 million loans that were reported 90 or more days delinquent but not yet in foreclosure, 42% have not made a payment in more than a year, with an average delinquency of 397 days, which was also a new record…LPS also reported 2.48 million loans that were less than 90 days delinquent; those are the ones most like to “cure”, ie, the missed payments may be made up before foreclosure can be initiated…the total of 6.54 million loans in trouble gives us a total of 12.45% of mortgages delinquent or in foreclosure; in other words, more than one in 8 homeowners with mortgages arent making payments on them…tells you a lot about how consumer spending could rise another .8% in july in the face of stagnant income growth…

  of course, this mess is the reason the banks are in trouble as well; this week we’ve had several lawsuits filed against them for their shoddy bundled securities, the big one was initiated by the FHFA (Federal Housing Finance Agency), acting on behalf of Fannie & Freddie…they have sued 17 major banks, including BofA & JPMorgan, in an attempt to recoup losses on $196 billion the GSEs spent on mortgage-backed securities bought from the banks, alleging that the mortgages included in the securities were misrepresented as being more creditable than the banks knew them to be, and accusing them of “violations of federal securities laws and common law in the sale of residential private-label mortgage-backed securities”; in addition to that federal suit, Bank of America was hit with a lawsuit by the Nevada attorney general, alleging that BofA “misrepresented, both in communications…and in documents they recorded and filed, that they had authority to foreclose (and) knew that they had never properly transferred…these mortgages to those trusts, failing to deliver properly endorsed or assigned mortgage notes as required by the relevant legal contracts and state law.(they) never became holders of these mortgages, (and) lacked authority to collect or foreclose on their behalf and never should have represented they could”…moreover, evidence is starting to turn up that fraudulent robosigning was going on as early as 1998, tainting title to tens of thousands of homes, and document fabrication by BofA & other servicers is still going on now after the banks swore off the practice in a settlement earlier this year…as if those two mentioned suits alone werent enough to put an end to “50 state” attorney generals settlement, the FDIC has weighed in on the side of the objecting AGs, Schneiderman of NY and Biden of delaware, as owners of some of the covered securities by virtue of their being receiver for failed banks, saying they lack sufficient information to tell if the settlement is appropriate; also, the National Consumer Law Center, representing homeowners, is also objecting to provisions in that settlement that would put foreclosures on a fast tack…needless to say, Bank of America is reeling despite warren buffett’s cash infusion; this week they’ve sold their share of the China Construction Bank and have put their Countrywide lending unit up for sale; moreover, the Federal Reserve has asked them to provide contingency plans for a breakup or spinoff of their merrill lynch unit…and in the “you cant make this stuff up” department, S&P has rated the first tranche of 48.85% from a bundle of 5,629 performing subprime loans as AAA, a better rating than they give the US, the country the houses borrowed on are sitting in….


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

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