Q1 flow of funds, april consumer credit, april trade, May ISM services, misc housing reports, et al..

there was a palpable mood change in most of the blogosphere & even in some of the news media early this past week, as if the deteriorating data had finally sunk in & denial changed to acceptance that the global economy was heading into a downturn; it’s hard to say what triggered it; certainly the US economists & commentators who’d been holding out for a strong recovery had their hopes dashed by the disastrous unemployment report last friday; but it wasnt just the US; the accumulating negative reports from europe seemed to have also taken their toll and what had bordered on outrage in the foreign press seemed to turn into a morbid gloom…spirits were briefly lifted Thursday when the chinese, facing a slowdown, lowered their benchmark interest rate to 6.31% from 6.56% and their one year rate to 3.25% from 3.5%, their first rate cuts since 2008, but both the ECB and the Bank of England stood pat & Bernanke’s testimony offered no hope to those who believe we’d benefit from even more QE, as he seemed to indicate there’d be no change in policy unless conditions deteriorate even further…international economic news has been generally lousy; with eurozone composite PMIs at 3 year lows attesting to the deepening recession in europe, a slowdown in all the BRICs (brazil, russia, india, china) with india, now the world’s third largest economy, reporting their slowest growth in nine years, the flight to safety turning german interest rates negative & inverting the Treasury TIPS yield curve, a report that growth of the world money supply has dropped to the lowest level since the financial crisis of 08-09, and now BIS (the bank for international settlements, the central central bank) is warning that global lending is contracting at fastest pace since the 2008 Lehman crisis

otherwise, it was a relatively slow week for new US economic data…but one major release of the past week was the 1st quarter “Flow of Funds” report from the Fed; much as its title implies, this tracks changes of assets & liabilities of all sectors of the entire economy, including households, government, companies, & the financial sector, and the forms those assets take, ie, such as real estate, stocks & bonds, etc…most of the media coverage focused on the big jump of  $2.8 trillion in household net worth in the quarter,  the most in over seven years, which was mostly due to the increase in stock prices over the quarter, and what the media covered is probably as far as we’ll get into it today, as the Z1 release itself is a 134pp PDF and its pretty much all statistics; at the end of the quarter, household net worth stood at 62.9 trillion, slightly 4 times US GDP; that compares with the low water mark of $51.3 trillion in at the depth of the recession in the 1st quarter of 2009, yet it has still not recovered to the net worth peak of $67.5 trillion which was reached in the 3rd quarter of 2007; net real estate assets held by households, which were determined from the CoreLogic price index for the first quarter, were at $16.05 trillion, up $372 billion from the 4th quarter of 2011 but still $6.3 trillion below the bubble peak, a 28% net loss of valuation…if you click on the chart above from zero hedge you should be able to see the quarterly changes in the broad categories of household net worth since the beginning of 2004; those above the “0” line are assets, which include real estate, other tangibles, deposits, equities, mutual funds, pension funds and “other”; those below are household liabilities, which include consumer debt, mortgages & “other”; the dark line is net worth, with those numbers on the right…as zero hedge points out, $2.3 trillion of this quarter’s increase came by way of the rise in the market, which impacted 3 of the asset catagories…the average net worth per household is on the order of $200K, so if yours are below that, you aint getting your share..

   as part of this initial flow of funds for 2012, the Fed made revisions to all their balance sheet data back to January 2006; not only did this result in a massive change to the hoard of cash that corporations were allegedly sitting on, from the originally reported $2.23 trillion down to $1.74 trillion, it also made significant changes to the G19 consumer credit reports we’ve been watching, in part due to what had seemed to be fairly large spikes in borrowing…so what we noted as a $21.36 billion increase in consumer borrowing in march, for instance, was revised down to $12.37 billion, and earlier months were revised downward as well…this week the consumer credit report for april was released to include those revisions, and also a change in the reporting methodology to include data on the flow of credit; for the month, consumer credit grew by $6.51 billion from March to $2.551 trillion in April, a 3.1% increase; revolving credit (credit cards), however, decreased by $3.4 billion, or 4.8%; while nonrevolving credit (car, yachts, student loans) increased by $9.96 billion, a 7.1% increase; repeating our monthly exercise to determine where that rise in non-revolving credit is coming from, we’ll scroll down to the middle table in the Fed report, headed “major types of credit, by holder”, we see non-revolving credit from both depository institutions (banks) and finance companies is down, borrowing from credit unions is up slightly, and once again the lion’s share of the increase in consumer borrowing is the $6.1 billion month over month increase in loans from the federal government, which in the context of this report is all student loans

U.S. Trade Deficit the other economic reports released this week were something of a mixed bag; the Commerce Dept reported a smaller trade deficit for April of $50.1 billion, down from the revised deficit of $52.6 billion in March, but that was on the back of both lower exports of $182.9 billion and lower imports of $233.0, showing that the global slowdown had already impacted trade over a month ago; as US shipments to the euro zone already dropped 9.8%; the March to April decrease in exports were from declines in exports of capital goods ($1.5 billion); industrial supplies and materials ($1.0 billion); and other goods ($0.6 billion)…although we imported less oil, what we did import cost more; it averaged $109.94 per barrel in April, up from $107.95 in March…included to the right is the calculated risk chart showing our trade deficit in oil (black), ex-oil (red) and total deficit (blue)...our major trade deficit continues to be with China, & it was up to $24.6 billion in April, from $21.6 billion in April a year ago…other deficits are with OPEC ($11.5 billion), the european union ($9.8 billion), japan ($6.1 B) and mexico ($5.5 B), while we had small surpluses with hong kong ($3.0 B) australia ($2.0 B), & singapore ($0.9 B)… also this week, the census reported April factory orders for manufactured goods (pdf), showing they fell in April for the third time in four months, decreasing $2.9 billion, or 0.6%, to $466.0 billion, orders for core capital goods, seen as an indicator of business investment plans, fell 2.1% in April after a 2.3% decline in March; and wholesale inventories of capital goods increased by 0.6% from March level to a seasonally adjusted $483.50 billion, which was somewhat expected given the inventory decrease indicated by the revised first quarter GDP... the ISM non-manufacturing index reported slightly faster expansion in service related businesses in May; the overall index was at 53.7%, up from 53.5% in April, but ominously the services employment index was at 50.8 in May, down 3.4 points from April (you’ll recall readings above 50 indicate expansion)… this is the second consecutive month the employment index was down, & it resulted in the biggest two-month drop in this index since december 2008; not a good sign as services employ roughly 90 percent of the work force


there were a few housing reports of note in the news this week as well…CoreLogic was out with the first repeat sales home price index for April, which as we’ve noted before is a 3 month index adjusted to give the most recent sales more weight; they reported home sales prices nationwide, including sales of distressed homes, increased 1.1% over last april; on a month-over-month basis, prices including distressed sales increased 2.2% over march prices, not seasonally adjusted; on the same basis & excluding distressed sales, home prices rose 2.6% over the march report…they also showed that year over year prices rose 1.9% if distressed sales arent included…this is the second successive month over month increase in the CoreLogic HPI, & except for the tax credit period, the first year-over-year increase since 2006; corelogic prices remain 32% off their peak…Trulia reported that home asking prices were flat in May on a seasonally adjusted basis, following 3 months of increases; asking prices in May rose nationally 1.6 percent quarter over quarter, also seasonally adjusted; they also report that 41 out of the 100 largest metros had year over year price increases…despite these spring home price increases, Radar Logic says this is due to temporary forces, & they expect the home price slide to resume; also, Fitch Ratings expects prices to decline by another 7.8% and not reach their bottom until late next year, as the foreclosure liquidation begins in earnest; states hardest hit will be those with a large foreclosure backlog, such as new york & new jersey…in another report, the online housing site Zillow reported on mortgages that were “underwater” in the 1st quarter of 2012; ie, where the homeowner owes more than the market value of the house; they found that 15.7 million US mortgages were in this condition, or 31.4% of all homeowners with a mortgage; that was little changed from the 32.4% who were underwater in the 1st quarter last year; furthermore, they found 2.4 million of those, or 1 in 20, owed more than twice what their houses were worth, and about 1 in 8 owed 40% or more than what their houses would sell for…they also reported that 40% of those homes with negative equity are less than 20% underwater, and that more than one in 10 homeowners are three months or more behind on their house payments…the areas worst off are where the home-price bubble was greatest; in 5 of those metro areas, more than half of the homeowners still owe more than their houses were worth: Phoenix (55.5%), Atlanta (55.2%), Orlando (53.9%), Riverside County (53.4%) and Sacramento (51.2%)….another more general economic report this week had a heavy focus on housing; “The Aftermath of the Housing Bubble”, by St Louis Fed president James Bullard (pdf); as part of his presentation of this to the bipartisan policy center he included a slide show on deteriorating mortgage conditions since 2006 based on data from LPS, whose april mortgage monitor we covered briefly last week; the map generated for march 2012 data was the last of his slides and is included to the upper right; interesting because it breaks down the distressed mortgage statistics by county, something not even included in the LPS public reports…in those counties in green, less than 10% of homeowners are in arrears; in yellow, 10% to 15% of homeowners are delinquent, and in those counties in orange, more than 20% of homeowners were not paying on their mortgages in march (note: this map is linked to a WSJ slide of the same, but if you want to view it close-up, go to page 34 of bullard’s pdf & use the PDF tools to zoom in)…also included inline below is the LPS table (from page 4 of the LPS pdf) of mortgages delinquent & in foreclosure by state, which also shows improvement over last year; you can see florida still has the highest percentage of non current mortgages at 21.3%, while 13.9% of all mortgages in that state are in foreclosure, followed by mississippi, where 16.8% of homeowners were not paying on their mortgages as of april…
LPS states April

(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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