april retail sales, industrial production, housing reports & other notes on the week ended May 19th

the newscycle in the economic blogosphere this week was fairly dominated by coverage & opinion on two stories, one being the massive losses by the london office of JP Morgan Chase, the other being another crisis flareup in europe, with the increasing probability of Greece leaving or being forced out of the eurozone after their divisive elections in which the anti-austerity candidates captured a majority; initial reports on the JP Morgan loss, starting with CEO Jamie Dimon’s disclosure of it after hours on thursday the 10th, were of a loss of $2 billion on complex credit derivatives which had been intended to hedge the company’s entire position in europe, but more recent reports put the number closer to $5 billion...since the london investment office oversees a position of some $70 trillion of derivatives (more than 4 times US GDP), the potential for systemic risk is huge, so we should stay tuned to developments here..as Jamie Dimon had been spearheading the efforts to eviscerate Dodd-Frank and especially the Volcker rule (Dimon had actually referred to Paul Volcker as “infantile”), the opposition to financial regulation has lost its spokesman, so there were renewed calls from all corners of the blogosphere and even some Fed presidents to break up the big banks and end “Too Big To Fail”…and even timmy geithner has suggested that jamie dimon should resign from the board of the NY Fed

   what has happened this past week in europe was precipitated by the elections two weeks ago sunday in greece (& to a lesser extent in France, where merkel’s yes-man sarkozy was dumped)…over a period of nine days, each of the top four vote getters in the greek election attempted to form a government, and each of them failed to do so (there were at least 7 parties which garnered enough votes to seat members in the greek parliament, but none had as much as 25% of the popular vote)…so a temporary cabinet was appointed, & new elections will be held on June 17th, with Alexis Tsipras, the leftist anti austerity Syriza party leader, now apparently leading in the polls, & he’s promised to throw the previous agreements with the troika in the trash, so there’s an assumption on both sides & in the financial press that greece will ultimately exit the eurozone (such that it’s widely been dubbed the “grexit”)…facing a return to the drachma, there’s been a slow run on the greek banks, (~€700m per day) which also spread to spain, where the 2nd largest spanish bank also experienced heavy withdrawals…interest rates in italy & spain are back to the crisis levels of december, and the threat of contagion has led Moody’s to downgrade 21 Spanish banks and 26 Italian banks…but if you’re interested at all in a play-by play what has transpired in europe, it would probably be easiest to check last  80 or so linked paragraphs at the end of this week’s globalglassonion

Total Housing Starts and Single Family Housing Startsmost of the economic reports released this week were fairly respectable; both housing starts and industrial production saw decent increases, and although april retail sales only gained 0.1% MoM on a seasonally adjusted basis, that had followed earlier monthly increases of 0.7% in march and 1.0% in february, as warmer weather in those months skewed the seasonal adjustments in their favor…there were a few housing related reports, so we’ll begin by looking at housing starts, as new houses have a disproportionate influence on other related economic activity (ie., services, furnishings)…the report from the census bureau (pdf) covers all phases of home construction, from permits to completions; however, it has a very wide margin of error, so we’ll quote that range as well: housing starts in April were reported at a seasonally adjusted annual rate of 717,000, which was “2.6 percent (±14.8%) above the revised March estimate of 699,000 and 29.9 percent (±15.2%) above the revised April 2011 rate of 552,000; as march starts were revised from 654,000, the increase from previously reported monthly figure was 9.6%, which is quite jump on a monthly basis, but we are coming out of a long & deep trough (red in the adjacent chart from calculated risk) so we have quite a bit of ground to make up to get back to normal; the blue on the graph is single family home starts, which at a seasonally adjusted annual rate of 492,000 in april; the remainder of 158,000 are the number of units in structures started with more than one unit; you can see from the spread that a lot of the recent increase is of multi-family dwellings…building permits were reported at an adjusted annual rate of 715,000, which was “7.0 percent (±1.0%) below the revised March rate of 769,000, but 23.7 percent (±1.9%) above the revised April 2011 estimate of 578,000″….the fall in building permits issued was from a 3½ year high in March, and with the seasonal adjustment & margin of error it’s hard to make much of it… in another housing report, RealtyTrac reported foreclosure activity for april, which showed that 188,780 foreclosure filings were reported during the month, which was 5% less than March, 14% less than a year ago, & the lowest monthly total since July 2007…realtytrac attributes the decline to “sizable decreases in non-judicial foreclosure states (which had) more efficiently processed foreclosures last year“, whereas they note a rise in the number of foreclosures in judicial states…the chart to the left below is from RealtyTrac via zero hedge…blue are default notices preliminary to foreclosure, monthly since Jan 09; green are bank repossessions, also in thousands, and red are foreclosure auctions, which is the number of homes filed in court for a foreclosure auction sale; note that foreclosure actions were running at a rate of 330,000 per month before the systemic servicer fraud was exposed; after the scandal broke, foreclosures dropped to a 224,000 per month average, as banks virtually halted activity in states where activist courts were watching… note also that zero hedge complains that “the foreclosure process has ground to a halt”, because “a deadbeat can occupy a home without payment for an average of 31 months”; however, as we’ve pointed out before, the foreclosure fraud settlement was just signed off on on April 5th, so it’s too soon to judge its impact, and RealtyTrac does indicate a rise in foreclosures in judicial states in april…

MBA In-foreclosure by statethis week also saw another report which tracks the delinquency & foreclosure condition of US mortgages, the first quarter MBA delinquency survey; MBA (Mortgage Bankers Assn) covers essential the same area as the LPS mortgage monitor which we’ve covered for a while (ie, see March, a few weeks ago) but the numbers of both delinquencies & those in foreclosure are a bit higher here, possibly because of the time frame (entire quarter), possibly seasonal (a number of homeowners stop paying on their mortgage at christmas but catch up by March) or maybe because this MBA report covers other residential properties of under four-units; at any rate, the MBA reported that 11.79% of mortgage loans were either delinquent or in the foreclosure process in the 1st quarter on a seasonally adjusted basis, which was down from 11.96% in the 4th quarter of 2011, and that’s now the lowest number of homeowners in trouble since late 2008; of that, the serious delinquency rate, or the percentage of loans more than 90 days past due (including those in foreclosure) was 7.44%, down from 7.73% in the 4th quarter of last year…foreclosure actions were started on 0.96% of all mortgages in the first quarter, compared with 0.99% of loans which had foreclosure actions start in the 4th quarter last year…the greatest improvement was in new delinquencies, those one payment past due at the end of the quarter, which were at their lowest level since mid 2007; this contributed to the largest quarter-to-quarter drop in delinquencies in history of the MBA survey (on an unadjusted basis); improvement was widespread: only four states (Maryland, Delaware, New Jersey and Washington) experienced increases in their serious 90 day delinquency rates, while 41 states had decreases in foreclosure starts and 22 states had decreases in the percentage of loans in foreclosure…the graph included to the right is from the MBA via calculated risk; it shows the percentage of loans in the foreclosure process by state, and has somewhat different totals than the similar LPS table (on page 9 of the March LPS pdf) the top states shown here are Florida (14.31% in foreclosure), New Jersey (8.37%), Illinois (7.46%), Nevada (6.47%), and New York (6.17%); the corresponding totals from the March LPS mortgage monitor were Florida (14.0%), New Jersey (7.7%), Illinois (7.1%), Nevada (5.3%), and New York (5.9%)…note the dark grey bars represent those states with a judicial foreclosure process, the light grey bars being those where court action is unnecessary for foreclosure, and that such states which have had high numbers of foreclosures, like california and arizona, have been, as RealtyTrac would put it, “more efficient” at throwing people out of their homes…

Click to Viewthe retail sales report for april from the census bureau  is also important, if only because personal consumption expenditures still make up about 70% of our GDP; as noted earlier, retail sales were up 0.1% from March to April on a seasonally adjusted basis; census reports this as 6.4 percent (±0.7%) above April a year ago, and also that total sales for the february through april period were up 6.6% (±0.5%) from the same period a year ago, after sales for March were revised down to a 0.7% increase from the 1st reported 0.8%, and February was revised down to 1.0% from 1.1%...sales ex-gasoline were up 0.2%, as gasoline prices declined 2.6% for the month; sales ex-autos were up 0.1%.. illustrative of the distortions due to the seasonal adjustment, census reports seasonal adjusted garden & building center sales at $25,147,000 in april, down from $25,598,000 in march, while the actual unadjusted totals were $27,703,000 in april and $25,323,000 in march, both of which were roughly 10% above the total for the same category a year earlier…doug short covers retail sales with a series of monthly charts; the one included here has four parallel 20 year charts; the top one in red is nominal retail sales as reported; they’re up 148.7% over the period; next is adjusted for population growth, reducing the increase to 102.4%; then light blue is adjusted for inflation, showing a 20 year increase of 50.1%, and the lowest graph adjusts for both population & price inflation, which reduces the total real growth in retail sales per capita to 22.1%, or roughly 1% compounded annually…in a somewhat related report, the BLS released the consumer price index for april this week, which showed consumer inflation (CPI-U) unchanged from march on a seasonally adjusted basis; this was largely because the gasoline component of the index fell by 2.6% after rising in each previous months this year, as gasoline price increases have more than offset price decreases in natural gas in the energy index; the index for all items less food and energy (core CPI) rose 0.2% in april, the same as in March, and both the core CPI and the total index were up 2.3% year over year

the other major economic report out this week was Industrial production and Capacity Utilization for April from the Fed; industrial production was up a solid 1.1% in April—the biggest monthly rise since december 2010; previous months which had been reported unchanged were revised to a decrease of 0.6% in March and and increase of 0.4 percent in February; again, there’s a seasonal component; the output of utilities was up 4.5% in april after seasonal adjustments had reduced reported output for the previous months; on an annual basis, industrial production increased by 5.2%; the largest annual increases came from business equipment (up 12%), motor vehicles and parts (up 27.1%) and manufacturing (5.8%)capacity utilization increased to 79.2%, which is now 3.1% above the utilization of plant and equipment we saw a year agomotor vehicle assemblies of 10.67 million units in april were the highest since August 2007; the only caveat to that is that there’s a large inventory on dealer lots; GM, for instance, reports a 79 day supply of cars and a 121 day supply of full sized pickups…we also have received the first two regional manufacturing reports for May from the Fed; the Empire State manufacturing index from the NY Fed was up 11 points to 17.1 in May, largely reversing the losses of the month before, when the index fell to just 6.6 (note that positive numbers are still expansionary); on the other hand, the Philly Fed’s Manufacturing Survey, reporting for the mid-atlantic region, showed contraction in May; the broad index fell from a reading of 8.5 in April to -5.8 in May, which was the worst reading in eight months; of the sub-indexes, the hiring index fell to -1.3 after it had jumped to 17.9 in April, and the workweek index fell to -5.4

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

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