June’s employment situation, May’s trade deficit and Mortgage Monitor, et al

the two key reports this week, on the June employment situation and on our international trade for May, were both released on Thursday due to the holiday on Friday…other widely watched reports released earlier in the week included several sentiment diffusion indexes, starting with the June Chicago Purchasing Manager’s Index (pdf), which slipped back to 62.6 in June, from a seven month high of 65.5 in May, but was up from a year ago reading of 52.0,  in an index where values over 50 means more Chicago area purchasing managers saw ongoing expansion than saw contraction in their businesses…that was followed on Tuesday by the release of the national manufacturing purchasing manager index (PMI) from the Institute of Supply Management (ISM), which reported their PMI was at 55.3% in June, down from 55.4% in May, as the production index fell from 61.0% to 60.0%, the employment index was unchanged at 52.8%, and the new orders index rose from 56.9% in May to 58.9% in June…on Tuesday we also saw the Texas Area Manufacturing Survey for June from the Dallas Fed, which saw it’s broadest general business activity index rise from 8 to 11.4, in a diffusion index where positive numbers are indicative of expansion…then on Thursday, the ISM released their June Non-Manufacturing Report which saw their composite non manufacturing index (NMI) for service industries slip to 56.0%, down from 56.3% in May, suggesting slightly slower expansion in June than in May…the hard data on manufacturing this week came by way of the Full Report on Manufacturers’ Shipments, Inventories, & Orders for April from the Census Bureau (pdf), which showed new factory orders fell by $2.6 billion or 0.5% to $497.7 billion, factory shipments rose by $0.3 billion or 0.1% to a record $498.3 billion, factory inventories rose by $5.0 billion or 0.8% to a record high at $651.5 billion, and unfilled factory orders rose by $6.7 billion or 0.65 to $1,087.4 billion, which was also the highest level value of unfilled orders on record….

in other releases, the Census report on Construction Spending for May (pdf) estimated that our seasonally adjusted construction spending for the month would work out to an annual rate of $956.1 billion in spending, 0.1 percent (±1.6%)* above the revised April estimate of $955.1 billion annualized and 6.6 percent (±2.1%) above last years level of construction spending…private construction spending was at a seasonally adjusted annual rate of $682.8 billion, 0.3 percent (±1.2%)* lower than the revised April estimate, with residential spending falling 1.5 percent (±1.3%) and non-residential construction rising 1.1 percent (±1.2%)*, while public construction spending was estimated at $273.3 billion, 1.0 percent (±3.0%)* above the revised April estimate. with school construction 0.6 percent (±5.1%)* below the revised April estimate and highway construction 0.7 percent (±8.1%)* above April’s level…earlier, the National Association of Realtors released their Pending Home Sales Index, which is based on contract signings and which increased to 103.9 in May from 97.9 in April, indicating higher existing home sales will likely be closed in June and July…finally, Ward’s Automotive estimated that cars and light trucks were selling at a seasonally adjusted annual rate of 16.92 million in May, the highest rate of auto sales since early July 2009…an unadjusted 1.41 million light vehicles sold over the 24 selling days in June, actually down from the 1.60 million vehicles that sold over the 27 selling days in May…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 see how new car sales are now approaching pre-recession record levels…

June 2014 vehicle sales

Employers add 288,000 Jobs in June in Best First Half Since 1999

the June survey of business establishments and government agencies conducted by the BLS found that nonfarm payroll employment increased by a seasonally adjusted 288,000 jobs to 138,780,000 jobs in June, well above consensus forecasts of between 200,000 and 220,000 new jobs…in addition, April’s count of new payroll jobs was revised from 282,000 to 304,000, and the increase in May’s non farm payroll employment was revised from 217,000 to 224,000, meaning that this report added 317,000 to the total seasonally adjusted employment figures, and furthermore meant the 1,385,000 jobs added in the first six months of 2014 the best annual start to new payroll jobs numbers in any year since 1999….the unadjusted establishment data indicates that 582,000 were actually added to non-farm payrolls in June, for a 3 month hiring total of 2,654,000 new spring jobs before seasonal adjustments, bringing the estimated total actually employed by business and government in June to 139,761,000…the FRED bar graph below incorporates the revisions to the April & May reports 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…

>June 2014 payroll jobs

seasonally adjusted payroll jobs increased in all major sectors in June, led by the increase of 67,000 jobs in the  broad professional and business services category, with 18,100 of those in employment services and another 9,600 in services to buildings and dwellings…an additional 40,200 slots were added in retail trade, with 12,100 of those in vehicle and parts dealers and 7,600 in building material and garden supply stores, and another 39,000 jobs were added by leisure and hospitality establishments, with 32,800 of those newly employed in bars and restaurants…there were also 26,000 additional government paid jobs, with 22,000 of those at the local level and 18,000 of those in education….the health care sector added 21,000 jobs, with 5,700 of those in nursing and residential care facilities, while 12,700 were added in social assistance, including 8,100 in child care services…employment in transportation and warehousing increased by 17,000 in June, including 5,500 more couriers and messengers, while the financial sectors also added 17,000 new positions, with the 8,500 added in insurance carriers and 8,500 in real estate predominating…in addition, 16,000 jobs were added in manufacturing, all in durable goods manufacturing, and 15,100 were added in wholesale trade, with 8,900 of those involved in distribution of durable goods…in addition, 9,000 were added in information services, 6,000 in construction, and 4,000 in resource extraction…

again, the average workweek for all payroll employees was unchanged at 34.5 hours for the 4th month in a row, with a three tenths of an hour shorter workweek in the wholesale trade sector offsetting slightly longer workweeks elsewhere, with the manufacturing workweek at 41.1 hours and factory overtime at 3.5 hours both unchanged….the average workweek for production and nonsupervisory employees was also unchanged at 33.7 hours, with the average retail nonsupervisory employees seeing their workweek increase a tenth of an hour to 30.1 hours…the average hourly pay for all workers rose by a 6 cents an hour to $24.45 an hour bringing the year over year increase to 47 cents, or less than 2%, while the average pay for nonsupervisory workers increased by 4 cents to $20.58, with their year over average hourly pay rising 48 cents, a 2.3% average annual pay increase..

Unemployment Rate Drops to 6.1% with Those Not Counted at a Record High

individual employment data extrapolated from the June survey of 60,000 households took a bit of the bloom off the results of the survey of employers, as the households report that most of those new jobs appear to be part time…with the margin of error in the count of the unemployed in this volatile report at +/- 300,000, however, we’d caution to wait to see if trends shown here don’t reverse in successive surveys…June saw the seasonally adjusted count of the employed rise by 407,000 to 146,221,000 while the count of the unemployed fell by 325,000 to 9,474,000, leaving the unemployment rate, or the percentage of the total, at 6.1% in June, down from 6.3% in May and down from 7.5% in June of 2013…with the labor force thus growing by 81,000 while the working age noninstitutional population rose by 192,000, another 110,000 of us were thus not in the labor force in June, and the count of those not counted rose to another record high at 92,120,000…that left the labor force participation rate statistically unchanged at 62.8% for the third month in a row, matching the 36 year low set in October…however, the increase in the employed vis-a-vis the population was enough to raise the employed to population ratio by 0.1% to 59.0%, the first time it has topped 59% since August 2009…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; as an interactive at FRED, you can view the monthly metrics of this entire graph by running your cursor across it, just as the June data is shown in the screenshot below…

June 2014 household survey metrics

>of the seasonally adjusted total of 146,221,000 of us who counted as being employed in June, 118,204,000 reported they were working full time, 523,000 less than in May, while 28,018,000 reported they were working part time, or less than 34 hours in the reference week, an increase of 799,000 part time workers over May’s count…of those, the count of those working part time who would rather work full time rose by 275,000 to 7,544,000, while the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, slipped by another 0.1% to 12.1%…meanwhile, the number of us unemployed for more than 27 weeks who were still looking for work fell by 293,000 in June to 3,081,000 and the average length of time of unemployment for those counted as unemployed fell from 34.5 weeks to 33.5 weeks, as the long term employed no longer receive unemployment rations and hence have no incentive to search for work monthly and thus be counted…among the 92,120,000 of us not officially in the labor force and hence not counted as unemployed, 6,694,000 reported that they still want a job, down from 7,031,000 in May; of those, 2,028,000 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 June survey…676,000 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…

May Trade Deficit Improves to $44.4 billion but Still 2nd Worst in a Year

the May 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 $44.4 billion, down from the revised trade deficit of $47.0 billion in April, as our exports rose $2.0 billion to $195.5 billion on a $1.6 billion increase to $136.7 billion in our goods exports and a $0.3 billion increase to $58.8 billion in our services exports, while our imports fell $0.7 billion to $239.8 billion on a $0.7 billion decrease to $200.0 billion in our imports of goods while our imports of services were virtually unchanged at $39.9 billion…the April trade deficit was revised down from the previously reported $47.2 billion…even though May’s trade deficit was down from April’s, it was still higher than the $44.2 billion deficit of March, the highest monthly trade deficit in the first quarter, and you may recall the 1st quarter trade deficit rose by 15.2% over the 4th quarter and subtracted 1.53% from 1st quarter GDP…currently, the average of the April and May trade deficit is 10.8% higher than the average first quarter trade deficit and is on track to subtract roughly 1.09% from second quarter GDP…

a major factor in our increase in May exports was an increase in our exports of automotive vehicles, parts, and engines, which rose by $778 million to $13,494 million, reversing the contraction in our automotive exports over the first four months this year…other end use categories of exports that saw seasonally adjusted monthly increases in May included consumer goods, which rose by $421 million to 16,758 million on a $418 million increase in our exports of gem diamonds, and industrial supplies and materials, which rose by $170 million to $42,149 million as a decrease of $328 million in our exports of organic chemicals was more that offset by increases of $113 million in our exports of crude oil, $154 million in our exports of fuel oil, and $973 million in our exports of other petroleum products…our exports of foods, feeds, and beverages rose by $69 million to $11,961 million as an increase of $134 million in our exports of fish and shellfish more than offset a decrease of $86 million in our exports of animal feeds; in addition, our exports of goods not categorized by end use rose by $498 million to $5,656 million…the only end use category of exports to see a decrease in May was capital goods, exports of which fell by $168 million to $45,639 million on a $464 million decrease in exports of civilian aircraft, which was partially offset by an increase of $267 million in our exports of engines for civilian aircraft..

end use categories of imports that saw seasonally adjusted decreases in May included industrial supplies and materials, imports of which fell by $1,723 million to $55,965 million on a $2,090 million decrease in imports of crude oil which was partially offset by a $448 million increase in imports of other petroleum products, and consumer goods, of which our imports fell by $456 million to $46,944 million, mostly because we imported $460 million less cell phones and similar household products…with May imports of $10,554 million, we also imported $198 million less foods, feeds, and beverages than in April, on decreases of $87 million in cocoa bean imports, $56 million less meat imports, and $51 billion lower imports of fruits and frozen juices; in addition, our imports of goods not categorized by end use also fell by $697 million to $6,231 million…import categories that saw increases in May included automotive vehicles, parts, and engines, which rose by $1,332 million to $28,499 million, and capital goods, which rose by $1,025 million to $49,656 million on $371 million more imports of industrial machines not otherwise listed separately, $232 million more imports of oilfield drilling equipment, $173 million more imports of computer accessories, $144 million more imports of medical equipment and $106 more imports of electrical apparatuses..

we’ll again include Bill McBride’s graph from his coverage of this report below to illustrate how our trade deficit continues to grow despite our lower oil imports….reading from the top $0 line down, the black graph line tracks our deficit in petroleum trade only as a negative in billions of dollars since 1998; over the same span, the red graph shows our trade deficit for everything else except oil, also as a negative from the $0 line; combined together, those two sum to our total trade deficit, which Bill has graphed in blue…it’s pretty clear that even though our oil deficit has generally been falling (ie, going up towards zero on this chart), our deficit in everything else in red has spiked this year, pushing our overall trade deficit further into negative territory…so while our deficit with OPEC fell from $6.7 billion in April to $4.2 billion in May, our goods deficit with China rose from $27.3 billion to $28.8 billion over the same span…

May 2014 trade deficit

Mortgage Delinquencies Unchanged in May as Foreclosure Starts Tick Up

we also want to take a quick look at the Mortgage Monitor for May (pdf) from Black Knight Financial Services (BKFS, formerly the LPS Data & Analytics division), which was also released Thursday…according to BKFS data, 966,000 home mortgages, or 1.91% of all mortgages outstanding, remained in the foreclosure process at the end of May, which was down from 1,016,287, or 2.02% of all active loans in April and down from 3.05% of all mortgages in May of last year…these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and May’s so-called “foreclosure inventory” was the lowest percentage of homes in foreclosure since 2008…however, new foreclosure starts rose in May for the first time in 8 months, as the 86,258 homes foreclosed on in May was 9.5% higher than the 78,796 foreclosures started in April; nonetheless, new foreclosures are still well off the pace of last year, as year-to-date foreclosure starts were at their lowest since 2007 and down 32% from a year ago…

in addition to homes in foreclosure, May data showed that 2,839,000​ mortgage loans, or 5.62% of all mortgages, were at least one mortgage payment overdue but not in foreclosure, statistically unchanged from the 2,821,000 homeowners, also 5.62% of those with a mortgage, who were more than 30 days behind in April, but down from the total delinquency rate of 6.08% a year earlier…of those who were delinquent in May, 1,169,000  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, with 7.53% of homeowners with a mortgage who were either late in paying or in foreclosure, a 4.22% portion of them remained in serious trouble, aka “seriously delinquent” at the end May…

the graph below, from page 18 of the Mortgage Monitor pdf, shows the percentage of active home loans that were delinquent monthly since 1995 in red, and the percentage of mortgages that had been in the foreclosure process monthly in green over the same period…we can see that the percentage of homes in foreclosure in green has been falling fairly steadily over the last two years and at 1.91% in May is now well below the October 2011 peak of 4.29% of mortgages in the foreclosure process…but notice they’re still more than 4 times the pre-crisis foreclosure inventory of 0.44% from December 2005 that’s highlighted on the graph, so the percentage of homes in foreclosure is still a long way from normal …similarly, with delinquent mortgages shown in red at 5.62% of all mortgage outstanding in May, that count is nearly down to half of the 10.57% of mortgages that were delinquent but not in foreclosure at the peak of the mortgage crisis in January of 2010, but still somewhat above the December 2005 delinquency percentage of 4.27% noted on the graph…negative equity is a factor; while 8.9% of all homes are underwater based on the BKFS home price index, a full 80% of seriously delinquent homeowners remain underwater…also note the seasonality of mortgage delinquencies apparent in the track of the red graph, wherein they usually begin to increase at the beginning of the school year and peak during the holidays, and then decline at the beginning of the year as homeowners catch up on all their bills after holiday shopping…in the face of higher heating bills this winter, we were surprised that the decline in mortgage delinquencies continued on the same seasonal downward trend…

May 2014 LPS delinquencies and foreclosures

as usual, this month’s mortgage monitor is a 31 page graphic presentation of mortgage conditions with only 3 pages of summary data in table form (pages 25 through 27 of this pdf); the topics covered graphically in the May mortgage monitor include originations and prepayments, ie, new mortgages, and homeowners who are paying off their mortgage ahead of its term, foreclosure starts and foreclosure inventory, and home prices and negative equity; since our concern in following this report has been homeowners who are in trouble, we’ll include a few graphics below to expand on that…

the next graph below, from page 11 of the pdf, focuses on foreclosure starts; which are indicated for the month that the loan servicer refers a delinquent mortgage to its attorneys for foreclosure, and are usually initiated with an official notice of delinquency or foreclosure, depending on state regulations…the red line tracks the count of new foreclosures started monthly since the beginning of 2008, with the count of new foreclosures obviously falling steadily since the peak years of 2009 and 2010, when between 200,000 and 300,000 foreclosures were started each month…the May increase in new foreclosures, evident at the right end of that red line, appears to be a normal occasional uptick in a generally downward trend…the blue line on the same graph tracks the number of new 90 day delinquencies each month over the same time period…note the bullet points; over half of new foreclosures are against those who’d been in foreclosure previously, caught up on their payments and got out of foreclosure, and have now fallen behind again, to have foreclosure proceedings restarted once more; also that 79% of new foreclosures are against those who bought their homes before the housing bust in 2008…

May 2014 LPS foreclosure starts

the next graph below, from page 15 of the pdf, shows the number of foreclosure starts in blue and foreclosure sales in red monthly since the beginning of 2005…a foreclosure sale is the legal auction wherein the bank acquires the title after the foreclosure completes; after a foreclosure sale, the home moves into the bank’s property inventory, also known as REO (Real Estate Owned – definitions are on page 30 of the pdf)….here we can see that foreclosure starts peaked at 316,000 in March 2009 and remained elevated until recently, with starts in both November and December in the 105,000 range, while completed foreclosures peaked at 124,000 in September 2010 and dropped rapidly after the foreclosure fraud scandals…what the two graphs together show is that for the duration of the mortgage crisis, foreclosure starts have been running far in excess of foreclosures completed, which results in that large ongoing foreclosure inventory of homes and homeowners stuck in the foreclosure process, which as we noted earlier, is still more than 4 times the pre-crisis level…this also means that homeowners are marooned in the foreclosure process for extremely long periods of time; as of May, the average home in the foreclosure process has been delinquent for 993 days, up from 985 in April (see table, pg 27 of the pdf)

May 2014 LPS foreclosure starts vs sales

nonetheless, even though foreclosures which have been started are not being completed, the aggregate foreclosure inventory continues to decline because of the diminishing number of new foreclosure starts…the next graphic is a map from page 17 of the Mortgage Monitor which shows the year over year percentage change in foreclosure inventory inventory for each state; those with the lightest shading have seen the largest decline of the percentages of homes that remain in foreclosure over the past year, while those in the darkest red shades are states where the percentage in foreclosure has declined the least…the non-judicial states of Arizona and Nevada, where foreclosures are being completed quickly, have seen declines of homes in foreclosure of 53% and 54% respectively…meanwhile, the percentage in foreclosure in New York is down 18% year over year, and New Jersey has only seen a 13% decline…

May 2014 LPS foreclosure inventories YoY change

finally, we’ll include the updated table that we’ve often featured in coverage of this report which shows the breakdown of non-current mortgages by state, taken from page 26 of the pdf…shown below for each state and the District of Columbia are the percentage of home loans that were delinquent (Del%) in May, the percentage of mortgages that are in the foreclosure process (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…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, and BKFS gives this as a reason that foreclosures have been delayed so long….there are now only 4 states that still have more than 4% of their mortgaged homes in the foreclosure process, and all are judicial states: New Jersey at 6.1%,  Florida with 5.2%, New York with 4.7%, and Hawaii with 4.3% of their homes with mortgages in foreclosure..

May 2014 LPS non current state table

(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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