May unemployment, april’s LPS mortgage monitor & personal income & outlays, march case-shiller, GDP revision, et al

Payroll jobs added per montha dismal employment report ended a week of generally weak economic data; according to the BLS establishment survey, only 69,000 jobs were added on a seasonally adjusted basis in May, which was the slowest pace of job creation in a year, and well below the 125,000 we should add each month just to stay even with the increase in the working age population; private-sector payrolls rose by 82,000 as federal, state & local governments cut 13,000…even worse, april’s figures, which had been 1st reported as 115,000 new jobs, were revised downward to 77,000, and the march report was revised from 154,000 job additions to 143,000..the monthly change in payrolls jobs since the beginning of the downturn is shown in the adjacent chart from calculated risk…the main areas where employment increased in May were in health care & social assistance, up 34,000 jobs, of which 23,000 was ambulatory care services, transportation and warehousing (up 35,600), reversing last months losses in those areas, and wholesale trade (up 15,900), while jobs in construction declined the 4th consecutive month by 28,000... the average workweek for all private nonfarm payrolls was down 0.1 hour to 34.4 hours while the manufacturing workweek declined by 0.3 hour to 40.5 hoursthe average hourly earnings for all employees edged up by 2 cents to $23.41, which is 1.7% above the hourly pay a year ago, but with the drop in hours worked, average weekly earnings fell from $806.96 to $805.30.

Unemployment Durationin the household survey, the number of employed increased by 422,000, but the number of unemployed also increased, by 220,000, to 12,720,000; taking those unemployed as a percentage of the civilian labor force, which grew in May by 642,000 to 155,007,000, gave us an unemployment rate for May of 8.2%, a notch higher than the 8.1% reported in april and the first monthly increase since june of 2011…given the increase of those employed, the employment population ratio increased 0.2%, from 58.4% in april to 58.6% in Maythe labor force participation rate increased in May by 0.2% to 63.8%, reversing its decline to a 31 year record of 63.6% last last month, as “those not in the labor force” declined by 461,000, after increasing 522,000 last month…as reported, these wide fluctuations are indicative of the monthly variability of this small survey of 60,000 households, which nonetheless gives us the headline numbers which determine state eligibility for federal unemployment compensation under the new formula…this becomes a double edged sword working against the unemployed, because those eligible for compensation are required to seek work and thus they are counted in the official stats; once their rations are cut they may no longer count among the officially unemployed, further lowering the “official” rate….and some states have even cut their initial benefits to less than the normal 26 weeks…in May, those unemployed 27 weeks or more increased 310,000 to 5,411,000, as you can see in red on the 44 year chart to the left from calculated risk; also showing are the numbers of unemployed less than 5 weeks, 6 to 14 weeks, and 15 to 26 weeks, which is in purple & had declined by 220,000 in May…

the household survey also counts those who are working part time and who say they’d prefer full time work; their number jumped 245,000 in may to 8,098,000 from the 7,853,000 in that situation in april; hence, the broader U-6 unemployment rate increased by 0.3% to 14.8%, up from 14.5% in April…actually, if those who reported they are working part time in agriculture are included, the total part time employment rose from 18,832,000 to 19,393,000, which means that full time jobs actually declined.…the household survey also reported that 2.4 million people were marginally attached to the labor force, up from 2.2 million a year ago; these are people who had looked for a job sometime in the prior 12 months, but werent counted as unemployed because they hadnt searched for work in the 4 weeks preceding the survey…830,000 of these marginally attached were classified as discouraged, meaning they quit working cause they gave up hope of finding a job; the remaining 1.6 million marginally attached workers had either personal reasons for not looking, such as family sickness, or had returned to school…

looking at the jobs picture going forward, national employment firm Challenger reported that announced firings jumped 67% nationally in May from a year ago, the biggest jump in 8 months, on the heels of a major workforce reduction announced at Hewlett-Packard; the Conference Board reported U.S. job vacancies listed on the internet slipped by 1% from April to 4.72 million, the first decline in 6 months yet still more than any month last year, and the Dept of Labor reported first time applications for unemployment aid rose 10,000 to a seasonally adjusted 383,000, which was the highest in 5 weeks..

as mentioned, this week brought us a slew of weak reports, so we might as well move on to some of the others….we’ll start with the ISM (Institute for Supply Management) manufacturing index, which is obtained from a survey of the nation’s purchasing managers, hence its called a PMI; the May manufacturing PMI was at 53.5%, down from 54.8% in april, which indicates a slowing expansion (below 50 is contraction); of the major subindexes, the employment index was at 56.9%, down from 57.3%, the new orders index was at 60.1%, up from 58.2%; and prices for raw materials fell to 47.5%, down 13.5% from april, which was the first price decline since december; of the 18 manufacturing industries covered, 13 were reporting growth in May; only plastics & rubber, petroleum & coal, food & beverage, & transport equipment reported contraction…among regional reports, the Dallas Fed reported its general business activity index fell to -5.1 in May from -3.4 in april, where negative numbers indicate contraction; the Chicago Fed reported that its 5 state Midwest Manufacturing Index rose 3.4% in april to 94.2, reversing a 0.3% decline in March, and the Chicago PMI declined to 52.7 in May from 56.2 in April…we also had an initial estimate of auto sales from Autodata for May, which were at a seasonally adjusted annual rate of 13.78 million vehicles, down 4.1% from april, below all estimates & the weakest month this year, although the annual sales rate of 14.43 million through the first five months of 2012 is well above last year’s pace…and despite the slower growth here, we’re still in better shape than other major world economies, who’s PMI are mostly indicating contraction

also on Friday, we saw the release of the Personal Income and Outlays report for April from the BEA; personal income increased $31.7 billion, or 0.2%, and disposable personal income (DPI) (ie, after taxes) also increased 0.2% to $22.0 billion in April, personal consumption expenditures (PCE) increased 0.3% $31.8 billion, or 0.3 percent…march numbers were revised to show a 0.4% increase in DPI and a 0.2% increase in PCE…personal saving, which is DPI less personal outlays, was $403.4 billion in April, compared with $411.7 billion in March; the personal saving rate, which is personal saving as a percentage of disposable personal income, was 3.4%…real DPI (DPI adjusted for price changes) increased 0.2% in april the same increase as in march; the real PCE increased 0.3% in april, as the PCE price index, which you’ll recall is the inflation gauge the Fed is now using, rose less than 0.1% for the month; doug short computes the PCE price indexes to two decimals; he finds the headline PCE price index at 1.81% year over year, and the core PCE price index at 1.89% year over year, both below the Feds inflation targets…also this week, the NY Fed issued its first quarter consumer credit report, much of what we’ve seen in the monthly reports; they report that student loan debt reached $904 billion in the first quarter of 2012, a $30 billion increase from the previous quarter, but overall consumer indebtedness declined to $11.44 trillion, about $100 billion (0.9 percent) less than in the fourth quarter of 2011; unlike the monthly reports we’ve covered, this report includes mortgage debt…

this week also brought a downward revision to 1st quarter GDP; as we’ve duly noted, the 1st GDP estimate gets all the press coverage, but the later revisions to include more accurate data are given short shrift by the media…according to the release from the BEA, the real gross domestic product increased at an annual rate of 1.9% in the first quarter of 2012, not the 2.2% increase originally reported…the reasons for the downward revisions were declines in inventory investment, nonresidential fixed investment and an increase in imports, which were partially offset by higher exports and personal consumption expenditures (PCE); carrying the components out to two decimals, we see that PCE actually accounted for the entirely of the first quarter growth in the economy by itself; the contribution of 1.90% for PCE was greater than the 1.86 real GDP; the 0.81 positive contribution from private investment was more than cancelled out by the subtractions of 0.08% from net exports and 0.78% from government…even before the ink was dry on that revision, JPMorgan Chase released revisions to their GDP forecasts for the second half of this year; lowering their projected growth for the 3rd quarter from a 3.0% rate to 2.0% and their year end GDP projections from 2.3% to 2.1% on the heels of slowing labor momentum, the global growth slowdown, and fiscal policy uncertainties..

Real House Pricesthere were also a few important housing related reports this week; first, we saw the case-shiller release of its home price indexes for March (pdf), actually all three month averages of january, february, & march, which showed that all three headline composites ended the first quarter at new post-bubble lows…there was little change from the february report in the widely watched 20 city index, & the longer running 10 city index saw a small 0.1% one month price decline;& year over year, the 20 and 10 city composites posted declines of 2.6% & 2.8% respectively…this being the end of a quarter, this release also included the quarterly case shiller national home price index, which showed a price decline for single-family homes nationwide of 2.0% from the fourth quarter and 1.9% from the 1st quarter a year ago…in constructing their indexes, case-shiller measures repeat sales on the same property over time & they reflect prices contracted for as much as two months earlier, so this isnt the most timely data; in fact, of all the major home price indexes, this is the last to report, and as we saw last week, some more recent home price reports are starting to show the typical seasonal upturns…it’s probably best to just look at year over year changes when comparing them, though, since the various home price indexes often report different data and/or different months or combinations of them, so we’ll run through them without much detail…typically the first repeat sales house price index to report is the CoreLogic national HPI, & its likely the most important, as its also used by the Fed to value national real estate assets in it’s quarterly Flow of Funds report; reporting their weighted index for March early last month, corelogic showed a 0.6% year over year decline; taking distressed sales out of their index, they found a 0.9 year over year increase…shortly after core logic reported, RadarLogic reported its 25 MSA price index for march, which showed prices in those metros down 2.71% below a year earlier…also early in May, LPS (Lender Processing Services) reported a home price index on February closings, which is roughly the equivalent of the other march indexes, which showed a 2.5% decline from prices a year earlier…other year over year comparisons which we saw last week include the FHFA expanded index, which reported a 1.3% decline, the FNC “Composite 100” cities, where a 2.4% decline from march of 2011 was reported, Trulia, also reporting price on 100 cities, found a YoY 0.2% increase, and Zillow’s April report, which showed a 1.8% year over year price decline…every month, with the release of the case-shiller home price index, bill mcbride adjusts that index and the CoreLogic index for inflation, using the CPI less it’s shelter component, yielding real house price based on those indexes; his chart showing those results is included to the right here; by that inflation adjusted metric, the case-shiller composite 20 prices (in red) are now back to the level of january 2000, the case-shiller national prices (yellow) are back to the levels last seen in the 4th quarter of 1998, and the CoreLogic index’s prices (blue) are at the level of prices in May of 1999….in general, the year over year price comparisons have been narrowing, & we are now coming into the time of year when we should see small price increases in houses on a month to month basis, just as we did last summer…there continues to be a lot of blog-talk about a price bottom, but it’s still anyone’s guess if that bottom will be this year or not; we may stabilize at these levels, or there may be another leg down as the foreclosure inventory backlog is cleared…but we should eventually get into a natural pattern where changes in annual house payments on the same property come close to but do not exceed annual changes in disposable personal income per capita; anything beyond that is unsustainable…

Foreclosure starts the other important housing report issued this week was the LPS Mortgage Monitor for April, which gives us some insight into the condition of household finances by tracking the number of homeowners who are not paying on their  mortgage loans; their snapshot of month end data showed that mortgage delinquencies had increased for the first time in nine months, while the number of homeowners in the foreclosure process was relatively unchanged; a total of 2,048,000 US home mortgages were in foreclosure, ie, proceedings had started but the homes had not yet been seized; this represents 4.14% of all mortgages outstanding as was essentially unchanged from the numbers of a year ago; homeowners had missed at least one payments on another 3,522,000 homes; or 7.12% of home with mortgages; of those, 1,595,000 had not made a housepayment in over 90 days (and had not yet been foreclosed); this gives a total of 5,570,000, or more than one in nine homeowners who were not making payments on their homes at the end of april…as noted, this was an increase of 0.3% in the total number of homeowners delinquent from the march levels…a major highlight of this report was a 73% increase in FHA foreclosure starts, driven by mortgages originating in 2008 and 2009…when home sales collapsed in 2008, FHA stepped in to fill the financing gap left by the bank pullback; & of course, with prices continuing to collapse since, most of those FHA-financed homeowners are now underwater; the adjacent chart, from page 8 of the LPS pdf, shows that FHA foreclosure spike, while new private & portfolio foreclosures, & foreclosures by the GSEs (Fannie & Freddie) have continued to decline…

separately, the GSEs also reported their delinquency rates for april this week; Fannie Mae reported that their single family serious delinquency rate declined in April to 3.63%, down from 3.67% in March; wherein serious delinquencies are those where the homeowner has missed 3 payments; that rate is down from 4.19% in April last year, and is at the lowest level since April 2009…Freddie Mac reported hat their single family serious delinquency rate was unchanged at 3.51% in April, but down from 3.67% in April 2011…in another report, CoreLogic reported that 66,000 foreclosures were completed national in April, unchanged from the rate in March; they report national foreclosure inventory as of April of 1.4 million homes, or 3.4% of all homes with a mortgage, considerably less than the 4.14% reported by LPS…and in yet another report, Trepp reported the delinquency rate for commercial mortgage-backed securities breached 10% for the first time in history at 10.04%; they further report multi-family sector is in the worst shape of the commercial loans, as 15.17% of its loans are delinquent…but lest you think that’s really bad, Moody’s reports 79% of commercial landlords in Europe were failing to make payments on their loans in the first quarter...Europe is in a world of hurt…

(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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