the story of the botched bailout of banks and their bondholders on the eastern Mediterranean island of Cyprus completely dominated the economic news and opinion blogs this past week; even some who’s forte is domestic policy weighed in…and it’s taken so many twists and turns during the week that the best way to get the whole play by play is to follow the sequence of over 100 linked articles at this week’s global glass onion, where the Cyprus story and other Eurozone news fills the last third of the blog post….just scroll down past the posts on energy, china & japan till you get there…to briefly recap, the week began with the news that Eurozone ministers meeting in Brussels had demanded an agreement from Cypriot officials such that for the Troika to continue its cheap loans to insolvent Cyprus banks, depositors in such banks would have to take a hit too, to the tune of 6.75% on savings of less than 100,000 euros and 9.99% for deposit amounts above that…since Cyprus had been party to a Eurozone agreement that had insured deposits up to 100,000 euros ($131,000) in the same manner that US savings accounts are insured, the question was if they could do this to Cyprus, could they not do this to Greece, Spain and Italy as well? and if they could, why leave one’s money in the banks? wouldn’t bank runs be the result? ..while Cypriot banks remained closed all week, that fear of contagion apparently resulted in something of a run into a virtual currency in Spain…
with low tax rates drawing in deposits from Russia and around the eurozone, Cypriot banks had ballooned to eight times the country’s GDP before getting into trouble with due to their large exposure to Greek debt; their largest banks had been carried by low interest loans from the eurozone for well over a year, just like the larger bailed out banking systems of southern Europe…after the outrage of the depositor haircut spread, Cyprus was first forced to close banks till Tuesday, which was extended to Thursday, only to eventually remain closed all week while the parliament overwhelmingly rejected the deal that had been imposed on the country; that in turn brought warnings from Angela Merkel and other Eurozone officials that their banks would be allowed to collapse and would never reopen..since roughly 40% of the large deposits in Cyprus’s banks were from Russian oligarchs, there was some expectation of a Russian bridge loan or asset purchase, as Russia had done previously; but when the Cypriot finance minister came back from Moscow empty handed, they were again forced to come to terms with the demands of the Troika…on Friday, the Cypriot MPs capitulated and voted to undertake a bank restructuring, impose capital controls to prevent deposits from leaving, and impose a “tax” of 20% on bank deposits of over 100,000 euros….
for once, domestic fiscal politics was tranquil by comparison; the Senate and House both passed a continuing resolution to keep the government operating until the end of the fiscal year (September 30), ending the threat of a government shutdown next week…and although the majority of the $85 billion of sequestered spending cuts remain entrenched, amendments were attached to this short term funding bill that alleviated the impact of some of the most egregious of the automatic cuts, and exempted two programs, meat inspection and tuition for military service members, from the sequester altogether…however, now that Congress has dictated the federal spending for the rest of the year, they still have approve raising the debt ceiling to allow the Treasury to issue instruments needed in order to fund that spending they have legislated…while the bill passed to ignore the debt ceiling expires on May 19th, it’s likely the Treasury will be able to pull the same accounting legerdemain they’ve used before to keep the government running until July…
as is typical in the middle of most months, it was a pretty slow week for economic releases…one report we seldom cover is the Regional and State Employment and Unemployment Summary from the BLS, because as this week’s report is for January, it lags the national employment situation’s data by more than month…nonetheless, this report is a bit notable in that January was the first month since the recession began that no state recorded a double digit unemployment rate…as a reference, you might want to recall that January’s employment gains came in pretty close to the statistical average of the last two years, the national unemployment rate rose 0.1% to 7.9%, but the year end benchmark and census revisions called all of that into question…this regional and state report has the unemployment rate up in 25 states and DC, down in 8, and unchanged in 17; Nevada’s unemployment rate, which had started last year above 12% and been in double digits all year, fell to a seasonally adjusted 9.7% in January, leaving California and Rhode Island as the states with the highest unemployment rates at 9.8%; N. Dakota, with it’s influx of oil field workers, again had the lowest unemployment rate at 3.3%..Illinois and Mississippi saw the largest increases in their jobless rates at 0.4%; Illinois’ rate rose to 9% and Mississippi’s rose to 9.3%…regionally, unemployment remained highest on the coasts; the Pacific states registered an unemployment rate of 9.2%, while the Mid-Atlantic jobless rate was at 8.6% and the South Atlantic saw 7.9% unemployed; the West North Central, which is the upper plains region, saw the lowest unemployment rate at 5.5%…in data corresponding to the monthly establishment survey, the states that saw the largest non-farm payroll gains were Michigan with 26,500, Washington with 24,100 and Massachusetts with 16,100…states showing significant job losses included Louisiana, where payrolls were 12,500 lower, Wisconsin, where 6,000 jobs vanished. and Missouri, where companies reported 4,700 less were working…the bar graph below from Bill McBride shows the current unemployment rate for each state in red, and the highest unemployment rate each state has experienced in blue; if you click on it to view it full sized, you’ll see that Michigan, where the jobless rate was once over 14%, has shown the most improvement, with a rate now under 9%, and that New Jersey and New York are still near their high water marks for unemployment….
there were also a few reports on housing; the February report on New Housing Construction from the Census Bureau (pdf) was again pretty meaningless on new housing starts due to it’s large margin of error; they reported private housing starts in February were at a seasonally adjusted annual rate of 917,000, which was 0.8 percent (±10.6%)* above the revised January estimate of 910,000, which means new home starts could have been up or down 10% for the month; the annual gain of 27.7% (±13.7%) for housing starts at least assures us that new construction is increasing, but the magnitude of that increase – between 14% and 41.4% – is pretty wide…the data for new permits is more reliable; housing units authorized by building permits were reported at a seasonally adjusted annual rate of 946,000, which they describe as “4.6 percent (±0.8%) above the revised January rate of 904,000 and 33.8 percent (±1.4%) above the February 2012 estimate of 707,000”…again, zero hedge has picked apart the seasonally adjusted data and shows that the changes in the adjustment are at least inconsistent over the past few years…small real declines in housing starts over the winters of 2009 and 2010 resulted in positive increases in construction after adjustment. while the real decline in 2010 resulted in an even larger seasonally adjusted decline…and the increase of 200 new homes started this winter resulted in a 76,000 increase in the seasonally adjusted home starts, all of which you can see if you click on their chart to view it full size…since new home starts were 5 times greater during the boom than the bust, it seems reasonable that would throw the seasonal adjustment calculations off by some smaller magnitude..
meanwhile, the National Association of Realtors reported that existing homes sales increased in February by a modest 0.8% at a seasonally adjusted annual rate while year over year home prices rose for the 12th consecutive month; at the rate that realtors reported homes sold in February, 4.98 million homes would sell over a year; that’s 10.2% above the 4.52 million-unit pace they were selling at last February, and the briskest annual rate since November 2009, when the homebuyer tax credit had inflated sales… the Calculated Risk bar graph we’ve included here above is from Bill McBride’s two post coverage of this report; unlike the seasonally adjusted annual rate that the NAR reports, this graph shows the actual sales for each month going back to the beginning of 2005; each year is color-coded; the bright blues are the boom years of 2005 and 2006, while January and February of this year are coded in red; you can see that even in boom year, these two months barely account for half of the home sales that the summer months do; you can also see the effect of the tax credit on 2009’s sales, shown in pale blue, which we were the weakest of all early in the year, then began to grow above trend during the summer after the credit was enacted….February sales of single family homes decreased at a 0.3% annual rate, while condo-& co-op sales were reported to be up 8.8%; real estate economist Tom Lawler questions this statistic; in a detailed post he shows that “excessive rounding” by NAR resulted in a 20.8% one month jump in condo sales in the southeast with no increase in such sales elsewhere…the national median price paid for a single family home sold in February was $173,800 and the median price paid for all housing types, including townhomes, condos and co-ops was $173,600, which was 11.6% above the median price homes sold for last year at this time; the median length of time from listing to sale fell to 74 days from 97 days last year…15% of the homes sold in February were sold out of foreclosure, which the NAR reports were discounted 18% from their market value, while 10% were short sales by the owner in lieu of foreclosure which were discounted by 15%…at 25% these distressed sales increased over January’s 23%, but were still below the 34% of sales that were distressed last February…mortgage interest rates are rising again, despite the Fed’s monthly buying of MBS; the 30-year fixed-rate mortgage rose to 3.53% from 3.41% in January; first time buyers accounted for 30% of sales, unchanged from February, while those described as investors bought 22% of the homes sold in February, up from the 19% they bought in January…all-cash sales accounted for 32% of all homes sold in February, up from 28% in January but still below the 33% that were all-cash last year at this time…large private equity firms, such as the Blackstone Group, have been fueling the boom, intending to rent the homes they buy, however, the increased rental supply is now stretching the vacancy time, and preventing rents from rising..
lastly, we’re going to add a pair of bar graphs from two separate blog posts (here and here) from the Center on Budget and Policy Priorities that are pretty much self explanatory; over the past 5 years of recession, cash-strapped states have made across the board cuts, but none so severe as to higher education…the result is that public colleges and universities must either cut spending or raise tuitions or both…so below we have both halves of the story, as it applies to each of the states…on the top you have the percentage from education that each state has cut over 5 years, and below you have the tuition increases, and likely student debt increases, that have resulted from those cuts over the same time frame..remember, to completely make up a 50% funding cut, tuitions would need to be raised 100%….
(the above is my weekly commentary that accompanied my sunday morning links emailing, 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…)