the supreme court obamacare decision, april’s case-shiller, may’s new homes sales, personal income & outlays, durable goods, et al

  it goes without saying that the major story of the week was the surprise supreme court decision upholding the constitutionality of the ACA (obamacare), which was important not just because of those who will continue to be covered, and the oversized influence it will have on the coming elections, but because health care contributes $2.5 trillion, or nearly 18%, to GDP, which is 141% more per capita than the average of the wealthiest countries.…since several media outlets had reported the decision incorrectly, & even obama heard it wrong, lets see if we can sort out what happened…you’ll recall from our previous discussion that there were essentially two arguments before the court; one addressing the constitutionality of the individual mandate, which requires those with means to purchase health insurance to do so, and the other questioning as to whether the federal government could impose a major expansion of medicaid on the states…the decision to allow the mandate to stand actually sidestepped the arguments that the administration had made; ie, that the congress could use its power to regulate commerce between the states to require everyone to buy health insurance, as only the 4 liberal judges supported the administration on that…the end run around the commerce clause that allowed the mandate, supported by chief justice roberts, the swing vote in this case, was to allow the penalty for not buying insurance as a tax, which would be allowed under congress’s constitutional authority to impose taxes…in thus allowing the mandate to stand, the question as to the constitutionality of the entire law without the mandate did not come into question, so except for the Medicaid challenge, the Patient Protection and Affordable Care Act (PPACA) stands as written…

   the court’s decision on the Medicaid expansion, which was objected to by 26 states, was to throw out the ACA penalty for states refusing that expansion on the grounds that it unconstitutionally coerced state participation…as Medicaid currently works, only families who are at 63% of the poverty level ($12790 a year for a family of three)or below are eligible; the ACA will expand that coverage to those up to 133% of the poverty line, which is about $24,000 for a single parent with two kids, or $30,700 for a family of four…under the ACA as written, the federal government would have provided 90% of the funding for the expansion, and as is currently the case, the states would be charged with running the program…if the states had refused to expand their participation in the Medicaid program as per the ACA, then they would have lost all of their Medicaid funding…so the court decision now allows the states, and especially those with hardline conservative governors, to opt out of the Medicaid expansion & thereby deny coverage to their less fortunate citizens…some in the blogosphere feel that’s still improbable, thinking that a governor is not likely to turn down federal funds, but there were states that turned down less politically charged stimulus money, and there have already been several states that have cut medicaid programs in the face of financial difficultiesdave dayen at firedoglake is reading the tea leaves, and he counts over 9 million of us at risk of losing coverage from possible state Medicaid opt-outs…another question the legal wonks have raised is whether this ruling might have broader implications for other Federal programs; but whether it sets precedents that make many other federal programs vulnerable is a question thats still up in the air…the ruling permitting a penalty tax on refusal to buy health insurance may also still be open to challenge some time in late 2014 or early 2015, when those first impacted might argue that the tax is administered unfairly

Case-Shiller Price Declines

  there were several housing / mortgage crisis related reports out this week; the major of those releases, at least the one the media covers most, was the Case-Shiller home price indexes for April, which cover prices on repeat sales of homes from February thru April…homes in both the 10 city & 20 city composites showed an average nominal price increase of 1.3% over last month’s report, the first increase after 7 consecutive months of falling home prices as measured by both indexes, which is consistent with the normal seasonal fluctuation….on a seasonally adjusted basis, there was a 0.7% increase MoM, not unexpected considering the much warmer than normal year we’ve had to date…seasonally adjusted, it was the 3rd consecutive monthly increase…on a year over year basis, home prices values in the 20 metro areas dropped 1.9 percent in April from the same month in 2011; while the 10 city composite showed prices down 2.2%…on a seasonally adjusted basis, 17 of the 20 cities showed increases, with only detroit (off 2.1%), new york & boston (both off 0.1%) showing declines…phoenix continues to lead cities with higher prices, up 2.3% month over month and 8.6% over last year…Atlanta was the only city to post a double-digit negative annual price decline at 17%; however it saw increases in both monthly and annual prices over march…to see price changes in other cities, the WSJ has a sortable interactive table of city by city data similar to the static data table contained in the April S&P case-shiller PDF…included here is bill mcbride’s updated graph of price changes for all 20 cities in the CaseShiller composite; what he shows here are the price declines from the housing peak for each city at the end of each year starting in 2007, with the current index shown in red; there’s quite a range, with Las Vegas prices down 61.1% from the peak, while Dallas prices are only off 6.2%…if you click the graph for a larger view, you can see that the cities which had the largest declines from the bubble top, las vegas, phoenix, & miami, have rebounded somewhat from their price bottoms, whereas cities that didnt have large home price declines early on, such as atlanta, chicago, & new york, are now experiencing continuing price weakness…bill mcbride also calculates the real inflation adjusted prices of the Case-Shiller 20, the case-shiller national index, & the CoreLogic HPI; in inflation adjusted terms, the CaseShiller 20 prices are at March 2000 levels, the national index prices are now equal to what they were in the 4th quarter of 1998, and CoreLogic index is back to it’s february 2000 level…

Graph of New One Family Houses Sold: United States

the other major housing report of the week was from the census bureau for new home sales in May (pdf); they reported new sales of new single family houses rose to a seasonally adjusted annual rate of 369,000 homes in May which was 7.6% (±12.2) over April’s upwardly revised adjusted sales rate of 343,000…those sales in May of this year were 19.8 percent (±15.2%) over the reported sales of 308,000 a year ago…the median price of new homes sold in May was $234,500; the average price was $273,900…the seasonally adjusted estimate of new houses for sale at the end of May was 145,000, which would be an inventory of 4.7 months at the current sales ratethe PDF has tables of sales by price range and region if you’re into more detail…although new home sales reported for May are at the highest rate in 2 years, they still have not eclipsed the sales rate of April 2010, achieved under the government’s homebuyer tax credit, and as you can see from the above FRED graph, have barely even reached the lows of the worst housing recessions of the previous 50 years, despite the fact that the population has grown almost 75% in that time…also, in an indicator of future sales of previously occupied homes, the NAR reported the pending home sales index for May, which is an index based on contract signings, showing it rose 5.9 percent to 101.1 in May from 95.5 in April and is 13.3% above May 2011 when it was 89.2..

other housing releases of the past week include the CoreLogic report on completed foreclosures for May; according to CoreLogic, there were 63,000 completed foreclosures in May compared to 62,000 in April; that’s still quite a bit below the level of 77,000 seen in April of last year, despite the administration’s mortgage fraud whitewash which was supposed to free the banks to start throwing people out of their homes…the Fed and other regulators are upset because they believe that state laws enacted to protect homeowners from banks who’ve violated their real estate laws in the past are slowing down the foreclosure process and prolonging the housing slump….CoreLogic also reports that 1.4 million homes, or 3.4% of all homes with a mortgage, were in the foreclosure process as of May 2012, virtually unchanged from April’s level, and just slightly down from the 1.5 million, or 3.5 percent, in May 2011 foreclosure inventory…as we’ve noted before, the number of homes in foreclosure reported by CoreLogic is lower than the 2 million plus reported by LPS or the the Mortgage Bankers Association’s first quarter report, which showed 4.39% of loans in the foreclosure process…also this week, the GSEs reported serious delinquency rates for May, where serious delinquencies are those 3 months behind on house payments or in foreclosure…Fannie Mae reported their single family serious delinquency rate declined in May to 3.57% from 3.63% April; Freddie Mac reported their single family serious delinquency rate declined slightly in May to 3.50%, from 3.51% in April; though off their peaks of 5.59% and 4.39% respectively, delinquency rates for both GSEs are far from their normal, which is less than 1%

there were also a handful of other economic reports this week; lets start with the 3rd estimate of 1st quarter GDP released by the Bureau of Economic Analysis; the headline number was unchanged; “based on more complete source data than was available for the “second” estimate issued last month”, BEA reported GDP increased at an annual rate of 1.9% in the 1st quarter, unchanged from the second estimate…there were however, minor changes in the components which left it farther afield from the 1st estimate of a 2.2% growth rate 2 months agopersonal consumption expenditures (PCE), by far the largest component of GDP, increased less than previous estimates; and imports & exports were both lower than previously reported, while government spending contribution was relatively unchanged; had it not been for upward revisions in fixed investments, structures, & non-residential construction, the 1st quarter GDP growth rate would have slipped to 1.7%; lance roberts of streettalk has more details…but in yet another revision, at the end of the month (july 27), there will be an annual revision of the national income and product accounts from the 1st quarter of 2009 forward, which is expected to change earlier GDP reports considerably & hence is likely to result in even more changes to growth rates in this report..

Personal Consumption Expendituresthe other releases of this week give us something of indication of what the 2nd quarter GDP will look like…this week the BEA released the Personal Income and Outlays report for May: while this report showed that personal income increased $25.4 billion, or 0.2% and disposable personal income (DPI) increased $18.5 billion, also 0.2%, personal consumption expenditures (PCE), the largest component of GDP, decreased $4.7 billion; with DPI up and PCE down, the personal savings rate of 3.9% was the highest since januaryreal PCE, or PCE adjusted for price changes, increased 0.1 percent in May, the same increase as in Aprilthe PCE price index, which is the inflation measure targeted at 2.0% annually by the Fed, decreased 0.2 percent in May compared with an increase of less than 0.1 percent in April.core PCE inflation, which excludes food and energy, increased 0.1 percent in May, the same increase as in April….because of the importance of this price index in setting monetary policy, doug short computes changes in PCE inflation to two decimal places; he finds headline the PCE price index to have increased only 1.52% year-over year, a decrease from the 1.88% reading in April, and the core PCE index to be 1.82%, a decrease from last month’s 1.97%…bill mcbride, with an eye towards PCE’s influence on 3nd quarter GDP, charts PCE monthly by quarter and computes its quarterly growth rate by two methods; by the two month method, he finds PCE to have grown at an annual rate of 1.4% this quarter; by the mid-month method, he has it at a 1.0% growth rate…his chart is included here, above…

the other report of this week, May durable goods orders from the census (pdf), came in higher than expected; with new orders for durable goods, or goods lasting more than 3 years, increasing $2.3 billion to $217.2 billion, or 1.1% in May, following a 0.2% decline in April orders…orders for transportation equipment have been leading this report for the past four months; excluding transportation equipment, new orders increased only 0.4%excluding defense, new orders increased 0.7%; without those defense & transport orders, “core” durable goods orders actually declined 0.1% in Mayinventories of manufactured durable goods, which have been up twenty-eight of the last twenty-nine months, also increased in May  by $1.8 billion to $365.8 billion, or 0.5 percent, and now are at the highest level since Census first published this data in 1992transportation equipment inventories had the largest increase, up $1.5 billion to $108.2 billion, or 1.4%, which is also the highest level since this data was published…

(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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