reports on May employment, the April trade deficit, the April Mortgage Monitor and more

obviously, with the first Friday of month, the most important release this week was the May Employment Situation Summary from the Bureau of Labor Statistics, which we’ll get to shortly…but in addition to the unemployment report, there were also a number of other widely watched reports this week, including the April report on our international trade, which we’ll also cover later in this summary, the Z1, or the 1st Quarter Flow of Funds report from the Fed, which showed our household net worth increased from last quarter’s $80.3 trillion to a new record high of $81.8 trillion, or an average of $668,000 per household, mostly on the increase in the value of our homes and  financial assets, which are now worth $67.2 trillion; the G19 on Consumer Credit for April, also from the Fed, which showed total consumer borrowing rose at a seasonally adjusted annual rate of 10.2% as non-revolving credit, such as car and student loans, rose at a 9.5% rate to $2,302.1 billion and revolving credit rose at a 12.3% rate to $827.3 billion, the fastest run up in credit card debt in almost 13 years; the report on Construction Spending for April from the Census Bureau (pdf), which estimated that our construction spending was at a seasonally adjusted annual rate of $953.5 billion in April, which was 0.2 percent (±1.5%)* higher than the revised March estimate, as private construction was approximately unchanged (±1.2%)* while public construction rose by 0.8 percent (±2.8%)* for the month, and the Full Report on Manufacturers’ Shipments, Inventories, & Orders for April from the Census Bureau (pdf), which showed new factory orders increased by 0.7% to $499.8 billion, factory shipments rose by 0.3% to $497.6 billion, factory inventories rose by 0.2% to a record high $393.7 billion, and unfilled factory orders rose by 0.9% to $1,080.6 billion….in addition, cars and light trucks were estimated to be selling at a seasonally adjusted annual rate of 16.77 million in May, the highest rate of auto sales since early 2007…included below is Bill McBride’s graph of monthly auto sales (at a seasonally adjusted annual rate) since the beginning of 2006, wherein you can clearly see how car sales have finally recovered to pre-recession levels…

May 2014 vehicle sales

   the week started with a major fiasco courtesy of the Institute for Supply Management…at 10:00 AM on Monday they released their widely watched manufacturing Purchasing Manager’s Index for May, a composite of 5 subindexes, with a headline reading of 53.2, down from 54.9 in April, indicating that manufacturing industries were growing slower in May…these results were widely reported  by the news services and covered in depth on several blogs and markets reacted to the downside as they normally do on such an unexpected result…however, about an hour later the ISM contacted the media and reported that they had applied the wrong seasonal adjustment and the corrected reading should have been 56.0, resulting in a 150 point swing in Japanese stocks….but it didn’t end there, because just after noon they announced a second revision to their morning number, showing the headline May PMI at 55.4…so here is the now corrected May 2014 Manufacturing Report On Business which blamed the confusion on a system error…this is not a complex index; the individual subindexes are based on questionnaires sent to 350 purchasing executives on the current conditions in their industry; each response of “better” adds one to the total; each response of “the same” adds a half point, and responses of “worse” are not counted…thus to get each subindex one would add up the responses and divide it by 3.5, and the overall index is a simple average of the 5 subindexes….you’d think a third grader could do that arithmetic and get it right the first time……

Employers add 217,000 Jobs in May in Best Yearly Start Since 2000

the establishment survey conducted for May by the BLS indicated that nonfarm payroll employment increased by a seasonally adjusted 217,000 jobs to 138,463,000 jobs, about in line with consensus forecasts and widely touted as a new all time high for US payroll employment, topping the previous high 77 months ago….of course, that does not account for the nearly 12 million increase in the working age population since then nor the 7 million job shortfall that implies, so we’ll hold our applause….the Labor Department also revised the addition to payroll employment in April from 288,000 to 282,000, while March’s job numbers were unchanged at 203,000, so the net seasonally adjusted increase in payroll jobs from this report was 211,000, with margin of error of +/- 90,000 jobs….the unadjusted establishment data indicates that 920,000 were actually added to non-farm payrolls, to bring the estimated total actually employed by business and government in May to 139,192,000…the FRED bar graph below incorporates the revisions to the April report and shows the seasonally adjusted payroll job change monthly since the beginning of 2008, with job gains above the zero line and job losses below it… the total of all the bars above the zero line is now greater than those below it for the first time since the recession started, and the 1,068,000 jobs added since January is the best start to a year since the turn of the century…

May 2014 payroll jobs

most of May’s seasonally adjusted payroll job creation was in the private service sector, with the broad professional and business services category accounting for a net 55,000 more paychecks, as 20,200 more were employed by employment services while 6,800 were added in management and technical consulting services…another 54,900 new jobs were added within health care services, with 23,100 of those in ambulatory care services such as home health care services and hospitals, while another 21,300 were added in social assistance…the leisure and hospitality sector added another 39,000 jobs in May, with 31,700 of those working in restaurants and bars, while the transportation and warehousing sector added another 16,400, including 5,500 in support activities for transportation..other service sectors that increased payrolls in May included retail trade, which added 12,500 jobs, 6,800 of which were in auto dealerships, wholesale trade, which added 9,900 jobs, with 6,500 of those in durable goods trade, education services, which added 7,600, and financial activities, where a net of 3,000 jobs were added, while the information sector employed 5,000 less…of the goods producing sectors, manufacturers added 10,000 jobs, with 6,400 added by transport equipment makers while food manufacturing shed 4,900; the construction trades employed 6,000 more, while the resource extraction industries added a net of 2,000, 1,600 of which were in oil & gas extraction…meanwhile, there was a net gain of 1,000 government jobs, as the federal as state governments each shed 5,000 workers, while 11,000 more were employed by local governments..

once again, the average workweek for all payroll employees was unchanged at 34.5 hours, with a tenth of an hour shorter workweek in the wholesale and retail trades while the workweek in financial and professional and business services lengthening by the same fraction, while the manufacturing workweek at 41.1 hours regained the 0.2 hours lost in April, and factory overtime was unchanged at 3.5 hours….the average workweek for production and nonsupervisory employees was also unchanged at 33.7 hours, with the average retail nonsupervisory employees seeing their workweek fall a tenth of an hour to 29.9 hours…the average hourly pay for all workers rose by a nickel an hour to $24.38 an hour as increases of a dime a hour in professional and business services pay and 17 cents an hour in mining and logging pay led the increase, while the average pay for nonsupervisory workers increased by 3 cents an hour to $20.54, with those in the mining sector again seeing the largest increase of .34 cents an hour to $26.89…

May Household Survey Metrics Mostly Unchanged

the results extrapolated from the May survey of 60,000 households were a little weaker than the survey of employers, but at least they weren’t as bad as the unmitigated disaster of April…understanding that with such a small sampling, the margin of error in the count of the unemployed is +/- 300,000, May saw the count of the employed rise by 145,000 to 145,814,000 while the count of the unemployed rose by 46,000 to 9,799,000…since the working age noninstitutional population rose by 183,000, that resulted in a statistically insignificant drop of 9,000 from the record high in April of those uncounted as “not in the labor force”, who now number 92,009,000…that left the labor force participation rate statistically unchanged at 62.8%, matching the 36 year low set in October and April, although to two decimal places it was at 62.84%, fractionally off the actual low of 62.76%…similarly, the small increase in the employed vis-a-vis the population was not enough to lower the employed to population ratio by a significant factor, as it also remained unchanged at 58.9%…our FRED graph below shows the employment to population ratio, which we could think of as the employment rate, in blue and the labor force participation rate in red back to the turn of the century…

May 2014 household survey metrics

the small change in the count of the unemployed compared to the 192,000 increase in the civilian labor force also left the May unemployment rate unchanged at 6.3%…however, the broader unemployment rate, U-6, which includes those just working part time for economic reasons, fell 0.1% to 12.2%, as those of us working part time who indicated they wanted to be working full time fell by 192,000 to 7,269,000….the total number of employed working part time however only fell by 9,000 as those who indicated they were working part time of their own volition increased by 183,000 to 19,040,000; part of that may be because the count of those now holding two part time jobs rose by 80,000 to 1,345,000…meanwhile, the count of those unemployed for more than 27 weeks fell by another 78,000 to 3,374,000, as many probably stopped looking for work because they’re no longer eligible for unemployment rations, and hence they were no longer counted…that in turn likely contributed to a reduction of the average duration of unemployment from 35.1 weeks in April to 34.5 weeks in May…among those not officially in the labor force and hence not counted as unemployed, 7,031,000 reported that they still wanted a job even though they hadn’t searched for one during the month, up from 6,088,000 in April but down from 7,193,000 the same month last year…of those, 2,130,000 were categorized as “marginally attached to the labor force” because they had looked for work sometime during the last year, but not during the 30 day period covered by the May survey…697,000 of those were further characterized as “discouraged workers”, because they reported that they haven’t looked for work because they believe there are no jobs available to them…

April Trade Deficit Rises 17% Above Originally Reported March Deficit in Another Hit to GDP

the April report on our International Trade in Goods and Services from the Commerce Department indicated that our seasonally adjusted trade deficit in goods and services was at $47.2 billion, up from revised $44.2 billion in March, as our exports fell $0.3 billion to $193.3 billion on a $0.6 billion decrease to $135.1 billion in goods exports and a $0.3 billion increase to $58.2 billion in services exports, while our imports rose $2.7 billion to $240.6 billion on a $2.7 billion increase to $200.9 billion in goods imports and less than a $0.1 billion increase in imports of services to $39.7 billion…the March trade deficit was revised from the previously reported $40.4 billion, making April the 5th increase in the trade deficit in a row, a bad start for 2nd quarter GDP and implying yet another writedown of our first quarter GDP…since last April, our goods and services deficit has increased by $6.8 billion, as our exports increased by $5.6 billion, or 3.0%, but our imports rose even more, by $12.4 billion, or 5.4% above last April’s level…

among the end use categories of exports that saw seasonally adjusted March to April decreases were capital goods, exports of which fell by $303 million to $45,811 million on a $255 million decrease in exports of civilian aircraft and a $228 million decrease in exports of uncategorized industrial machines; we also saw a $262 million decrease in our $11,890 million of April exports of foods, feeds, and beverages, as our soybean exports decreased by $664 million while our corn exports rose $235 million; a $173 million decrease in exports of automotive vehicles, parts, and engines to $12,713 million, and a $87 million decrease in exports of consumer goods to $16,326 million as our jewelry exports fell by $295 million, our gem diamond exports fell by $216 million, while exports of several other consumer goods categories rose marginally, led by a $135 million increase in exports of pharmaceuticals…meanwhile, our exports of industrial supplies and materials rose by $237 million to $42,018 million in April on a $632 million increase in exports of fuel oil and a $343 million increase in exports of organic chemicals which were partially offset by a $348 million decrease in our exports of other petroleum products, while our exports of other goods not categorized by end use rose $119 million to $5,203 million…

end use categories of imports that saw seasonally adjusted increases for the month were topped by consumer goods, where our imports rose by $1,118 million to $47,505 million as our imports of cell phones rose by $1,243 million….at $27,167 million, we also imported $887 million more vehicles, parts, and engines in April, and our capital goods imports rose by $839 million to $48,636 million on $619 million more computer imports and $400 million more imports of telecommunications equipment…we also imported $10,791 million of foods, feeds, and beverages, $201 million higher than March, on a $105 million increase in imports of green coffee beans, and our imports of other goods not categorized by end use rose $324 million to $6,953 million…imports of industrial supplies and materials was the only import category with a decrease as they fell by $332 million to $57,671 million on $451 million less imports of fuel oil…

we’ll include Bill McBride’s graph from his coverage of this report below because it best shows how our trade deficit suddenly spiked over the past 5 months after 2 years of gradual improvement…reading from the top $0 line down, the black graph line tracks our deficit in petroleum trade only in billions of dollars since 1998; over the same span, the red graph shows our trade deficit for everything else except oil; combined together, those two are of course our total trade deficit, which Bill has graphed in blue…it’s pretty clear that even though our oil deficit has been falling (ie, going up towards zero on this chart), our deficit in everything else had been gradually increasing until December, when the recent spike started…

April 2014 McBride trade deficit

Mortgage Delinquencies Rise 1.8% in April in First Increase This Year

this week also saw the release of the April Mortgage Monitor (pdf) from Black Knight Financial Services (BKFS, formerly the LPS Data & Analytics division)…as of the end of April, BKFS reported that 1,016,287 home mortgages, or 2.02% of all mortgages outstanding, remained in the foreclosure process, which was down from 1,069,791, or 2.13% of all active loans in March and down from 3.41% in April of last year….these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and April’s “foreclosure inventory” was the lowest percentage of homes in foreclosure since 2008…new foreclosure starts were also at a post crisis low in April, falling to 78,796 from 88,113 in March; in April a year ago,127,496 homes saw foreclosure proceedings begin against them..in addition to homes in foreclosure, April data showed that 2,821,000​ mortgage loans, or 5.62% of all mortgages, were at least one mortgage payment overdue but not in foreclosure, up from the 2,770,000 homeowners, or 5.52% of those with a mortgage, who were more than 30 days behind in March, but down from the total delinquency rate of 6.21% a year earlier…of those who were delinquent in April, 1,187,019 home owners were considered seriously delinquent, which means they were 90 or more days behind on mortgage payments, but not in foreclosure at the end of the month…thus, of the 7.64% of homeowners with a mortgage who were either late in paying or in foreclosure, 4.39% of them remained in serious trouble at the end April…the bar graph below, from the data summary on page 24 of the Mortgage Monitor, shows total delinquencies as a percentage of mortgages outstanding for each month over the past year…you can see the seasonal spikes typical of June, September and November, and how mortgage delinquencies fell as homeowners caught up with bills after the holidays…last week TransUnion reported that homeowners had just returned to paying their mortgages ahead of their credit cards for the first time since the crisis began; the jump in April might not be a reversal, because as we noted earlier, credit card debt also grew at a 12.3% rate during the month…

April 2014 Mortgage Monitor Summary 2

in the following table we have a further breakdown of non-current mortgages by state, taken from page 29 of the pdf…the percentage of home loans that were delinquent (Del%) in April, the percentage of mortgages that are in foreclosure (FC%), the total mortgages that weren’t current with their payments (NonCurr%) and the year over year change in the number of non-current mortgages are listed for each state and the District of Columbia…note that states that have a judicial foreclosure process, where the bank must prove their right to foreclose on a homeowner in court, are marked by a red asterisk, as the industry has a long history of focusing on this factor as a reason that foreclosures have been delayed so long….notice that all the states that still have more than 4% of their mortgaged homes in the foreclosure process are all judicial states; led by New Jersey with 6.5%,  Florida with 5.6%, New York with 5.0%, Hawaii with 4.5%, and Maine with 4.1%…

April 2014 Mortgage Monitor states table

the next graphic below, from page 17 of the pdf, shows the pipeline ratios, a measure of how long mortgages have remained mired in the foreclosure process, over the history of the mortgage crisis…as the sidebar on the graphic indicates, the pipeline ratio is computed by adding those homes that are seriously delinquent to those already in foreclosure and dividing that by the average number of completed foreclosures per month over the previous 6 months…what that results in is the average number of months a problem home loan would be in the “foreclosure pipeline” at the current pace of foreclosure in each state before the foreclosure process on all seriously delinquent homes is completed…again, BKFS distinguished between judicial states shown in blue, where a court proceeding is necessary to complete a foreclosure, and non-judicial states in red, where such a proceeding isn’t necessary for the banks to have the the home seized….obviously, early on in the crisis, the foreclosure process was much longer for judicial states, with their average reaching 118 months and the foreclosure pipeline ratios for New York and New Jersey reaching 50 years, but as we can see on the graph, the difference has closed as judicial states have moved to speed the court process…now the pipeline ratio now averages more than 4 years and rising for both types of processes; 52 months for judicial states and 48 months for non-judicial states…the reason for the increase in the foreclosure pipelines recently is more likely procrastination on the part of the mortgage servicers and banks rather than court delays, possibly because they’ve experienced quite a bit of deterioration in the properties they’ve seized, and would rather leave the homes occupied by delinquent homeowners than have them destroyed by vandals…as of April, seriously delinquent homeowners have averaged 495 days in their homes since first becoming seriously delinquent, while those in the foreclosure process have been delinquent on their mortgages for an average of 985 days without a foreclosure sale…  

April 2014 Mortgage Monitor pipeline ratio

you may recall that in addition to monthly data on new mortgages, mortgage prepayments, delinquencies and foreclosures, each Mortgage Monitor includes a few bullet points which they illustrate with graphs…a major focus of this month’s Mortgage Monitor was those mortgage loans that have had an interest rate modification sometime during the crisis that are now facing a reset of those interest rates; their analysis of modified loans found that nearly 2 million such loans are now in the facing interest rate resets, which in most cases would cause their monthly mortgage payment to spike…furthermore, 40% of those who face such a reset are “underwater” on their mortgage, meaning that they owe more on their house than it is currently valued at based on the BKFS proprietary home price index; in addition, another 18% of those modified loans facing resets have less than 9 percent equity in their homes…previous research by LPS has found that those with such negative equity or near negative equity are more likely to stop paying on their mortgage in a crisis than those who have solid positive equity…hence the coming resets have the potential of setting off another wave of increasing mortgage delinquencies….the bar graph below shows the count of those mortgages that had a reduced interest rate modification to their home loans each quarter since the beginning of 2008…the red on each of several of the bars representing modifications in the earlier years represents the tiny portion of such loans that have already seen a reset…clearly, the large majority of modified mortgages are still facing such an interest rate reset and subsequent higher mortgage payments…

April 2014 Mortgage Monitor mods to reset

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)

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