Home Prices Drop in 36 States; Beazer Warns on Orders; 8 Million Foreclosure-Bound Homes to Hit the Market; Prices to Stagnate for a Decade
by ilene - September 15th, 2010 4:38 pm
Home Prices Drop in 36 States; Beazer Warns on Orders; 8 Million Foreclosure-Bound Homes to Hit the Market; Prices to Stagnate for a Decade
Courtesy of Mish
The small upward correction in home prices from multiple tax credit offerings died in July. Worse yet, inventory of homes for sale as well as shadow inventory both soared. 8 million foreclosure-bound homes have yet to hit the market according to Morgan Stanley.
Home Prices Drop in 36 States
CoreLogic reports Growing Number of Declining Markets Underscore Weakness in the Housing Market without Tax-Credit Support
CoreLogic Home Price Index Remained Flat in July
SANTA ANA, Calif., September 15, 2010 – CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, today released its Home Price Index (HPI) that showed that home prices in the U.S. remained flat in July as transaction volumes continue to decline. This was the first time in five months that no year-over-year gains were reported. According to the CoreLogic HPI, national home prices, including distressed sales showed no change in July 2010 compared to July 2009. June 2010 HPI showed a 2.4 percent* year-over-year gain compared to June 2009.
"Although home prices were flat nationally, the majority of states experienced price declines and price declines are spreading across more geographies relative to a few months ago. Home prices fell in 36 states in July, nearly twice the number in May and the highest since last November when national home prices were declining," said Mark Fleming, chief economist for CoreLogic.
Methodology
The CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic industry-leading property information and its securities and servicing databases. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate "constant-quality" view of pricing trends than basing analysis on all home sales. The CoreLogic HPI provides the most comprehensive set of monthly home price indices and median sales prices available covering 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all
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DiggDebating the Flat Earth Society about Hyperinflation
by ilene - September 13th, 2010 5:05 pm
Debating the Flat Earth Society about Hyperinflation
Courtesy of Mish
Over the past few weeks, many people have asked me to comment on John Hussman’s August 23, 2010 post Why Quantitative Easing is Likely to Trigger a Collapse of the U.S. Dollar.
Most wanted to know how that article changed my view regarding deflation. It didn’t.
Several others went so far as to tell me that Hussman was calling for hyperinflation. They were point blank wrong.
Here is the pertinent section from Hussman’s September 6, 2010 post The Recognition Window.
A note on quantitative easing
One of the things I’m increasingly dismayed to learn is that no matter how much detail, data, and qualification I might include in these commentaries, my conclusions will often be summed up by writers or bloggers in a single sentence that often bears no relation to my point. For instance, my view that quantitative easing will trigger a "jump depreciation" in the dollar has evidently placed me among analysts warning of hyperinflation and Treasury default (a club whose card is nowhere in my wallet).
To clarify once again – I emphatically do not anticipate inflationary pressures until the second half of this decade. As I’ve repeatedly emphasized, the primary driver of inflation – historically and across countries – has been growth in government spending for purposes that do not expand the productive capacity of the economy.
Quantitative easing does not pressure the dollar by fueling inflation. It has a much more subtle effect (but one that can be expected to be amplified if fiscal policy is long-run inflationary as it is at present). Normally, equilibrium in capital flows between countries is achieved through changes in interest rates. As a result, countries with greater capital needs or higher long-run inflation tendencies also have higher interest rates. If interest rates can adjust, exchange rates don’t have to. But notice what quantitative easing does: by sitting on long-term bond yields (and creating a negative real interest rate differential versus other countries), quantitative easing prevents bond prices from acting as an adjustment factor, and forces the burden of adjustment on the exchange rate.
While some observers have noted that the value of the Japanese yen did not deteriorate dramatically over the full course of quantitative easing by the Bank of Japan – from its beginning until it was finally wound down
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The ECRI Weekly Leading Index
by ilene - September 10th, 2010 12:26 pm
The ECRI Weekly Leading Index
Courtesy of Doug Short
The rate of decline from the peak in October 2009 is unprecedented in the Institute’s published data back to 1967. Recently, however, the Institute has disclosed that two earlier decades of data not available to the general public contained comparable declines in WLI growth (in 1951 and 1966) when no recession followed (HT Barry Ritholtz).
The Published Record
The ECRI WLI growth metric has had a respectable (but by no means perfect) record for forecasting recessions. The next chart shows the correlation between the WLI, GDP and recessions.
A significant decline in the WLI has been a leading indicator for six of the seven recessions since the 1960s. It lagged one recession (1981-1982) by nine weeks. The WLI did turn negative 17 times when no recession followed, but 14 of those declines were only slightly negative (-0.1 to -2.4) and most of them reversed after relatively brief periods.
Three of the false negatives were deeper declines. The Crash of 1987 took the Index negative for 68 weeks with a trough of -6.8. The Financial Crisis of 1998, which included the collapse of Long Term Capital Management, took the Index negative for 23 weeks with a trough of -4.5.
The third significant false negative came near the bottom of the bear market of 2000-2002, about nine months after the brief recession of 2001. At the time, the WLI seemed to be signaling a double-dip recession, but the economy and market accelerated in tandem in the spring of 2003, and a recession was avoided.
The Latest WLI Decline
The question, of course, is whether the latest WLI decline is a leading indicator of a recession or a false negative. The published index has never dropped to the current level without the onset of a recession. The deepest decline without a near-term recession was in the…
Weekly Claims Drop to 451,000, 4-Week Moving Average at 478,000; Where to From Here?
by ilene - September 9th, 2010 10:32 pm
Weekly Claims Drop to 451,000, 4-Week Moving Average at 478,000; Where to From Here?
Courtesy of Mish
Weekly Claims fell this week to 451,000 but that number is still consistent with an economy losing jobs.
Please consider the Unemployment Weekly Claims Report for September 9, 2010.
In the week ending Sept. 4, the advance figure for seasonally adjusted initial claims was 451,000, a decrease of 27,000 from the previous week’s revised figure of 478,000. The 4-week moving average was 477,750, a decrease of 9,250 from the previous week’s revised average of 487,000.
Unemployment Claims
The weekly claims numbers are volatile so it’s best to focus on the trend in the 4-week moving average.
4-Week Moving Average of Initial Claims
The 4-week moving average is still near the peak results of the last two recessions. It’s important to note those are raw numbers, not population adjusted. Nonetheless, the numbers do indicate broad, persistent weakness.
4-Week Moving Average of Initial Claims Since 2007
No Lasting Improvement for 8 Months
There has been no lasting improvement since December 2009, eight months ago. The above chart is slightly off, the Fed has not updated the series yet today. The last data point is at 451,000.
To be consistent with an economy adding jobs coming out of a recession, the number of claims needs to fall to the 400,000 level.
At some point employers will be as lean as they can get (and still stay in business). Yet, that does not mean businesses are about to go on a big hiring boom. Indeed, unless consumer spending picks up, they won’t.
Questions on the Weekly Claims vs. the Unemployment Rate
A question keeps popping up in emails: "How can we lose 400,000+ jobs a week and yet have the unemployment rate stay flat and the monthly jobs report show gains?"
The answer is the economy is very dynamic. People change jobs all the time. Note that from 1975 forward, the number of claims was generally above 300,000 a week, yet some months the economy added well over 250,000 jobs.
Also note that the monthly published unemployment rate is from a household survey, not a survey of payroll data from businesses. That is why the monthly "establishment survey" (a sampling of actual payroll data) is not always in alignment with changes in the unemployment rate. At economic turns the discrepancy can…
Consumers Shun Credit Cards – Credit Card Usage Drops, Debit Card Usage Rises
by ilene - September 8th, 2010 10:53 pm
Consumers Shun Credit Cards – Credit Card Usage Drops, Debit Card Usage Rises
Courtesy of Mish
Consumers have had enough of high interest rates on credit cards but its a case of one plastic for another. Bloomberg reports Cardholders Prefer Debit as Credit-Card Use Falls
Americans are shunning their credit cards and using debit to avoid incurring more debt, said Javelin Strategy & Research.
Total payment volume for debit cards surpassed credit-card volume for the first time in 2009 and will continue to eclipse it in 2010, according to a report released today by the Pleasanton, California-based market-research firm that specializes in financial services.
At San Francisco-based Visa Inc., the world’s biggest payments network, the total payment volume for debit cards increased by 7.9 percent in 2009 to $883 billion as credit-card volume declined by 7.3 percent to $764 billion. Volume for debit cards at No. 2 MasterCard Inc. in Purchase, New York, rose by 5.8 percent and 2.8 percent at No. 4 Riverwoods, Illinois-based Discover Financial Services.
Fifty-six percent of consumers said they had used a credit card in the past month compared with 87 percent who said they had in 2007, according to the study, which surveyed 3,294 people in November 2009 for that question. Other findings were based on data collected online from 5,211 respondents in March 2010 and 5,000 consumers in November 2009. If the rate of decline continues, 45 percent of consumers will reach for a credit card in 2010, the study said.
Long-Term Shift
Another cause for reduced credit-card use is financial reform aimed at protecting consumers, which has decreased the number of new cards given and cut available spending limits, the Javelin report said. Federal legislation that limits overdraft fees, caps on fees banks charge merchants for debit-card transactions and credit-card legislation mean banks have to recoup losses and are only giving cards to the most creditworthy borrowers, the study said.
Younger people also favor debit over credit because of the immediate nature of making a payment, which means the shift to debit will be long-term, said Van Dyke. And since younger cardholders favor the convenience of debit cards, they won’t turn to cash or checks, he said.
Purchase transactions generated by credit and debit cards in the U.S. totaled more than 27 billion from Jan. 1 through June 30, according to the Nilson Report, an industry
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Labor Day Insanity from Clinton’s Secretary of Labor
by ilene - September 6th, 2010 4:10 pm
Mish disagrees with Robert Reich’s lessons of Labor Day… – Ilene
Labor Day Insanity from Clinton’s Secretary of Labor
Courtesy of Mish
It’s Labor Day. The markets are closed. Those working for government, banks, schools etc have the day off. All totaled, 17.3 million citizens do not have a job today nor a job they can return to on Tuesday. Another 8.9 million will not work as many hours as they would like, this week, next week, or the week after that.
How NOT to End the Great Recession
In a New York Times Op-Ed, Robert B. Reich, a secretary of labor in the Clinton administration, and professor of public policy at the University of California, Berkeley comes to all the wrong conclusions about where we are, how we got here, and what to do about it. (Robert Reich’s "The Real Lesson of Labor Day" here.)
Please consider How to End the Great Recession
Reich: THIS promises to be the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor — most of the rest of us — are unemployed, underemployed or underwater.
Mish Comment: When organized labor is at 0%, both public and private, we will be on our way to prosperity. Organized labor in conjunction with piss poor management bankrupted GM and countless other manufacturing companies. Now, public unions, in cooperation with corrupt politicians have bankrupted countless cities and states.
Reich: The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, while at least 125,000 are needed to keep up with the growth of the potential work force.
The national economy isn’t escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working: near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package and tax credits for small businesses that hire the long-term unemployed have all failed to do enough.
That’s because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods
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New Job Opportunity – Spitting at the Moon
by ilene - September 5th, 2010 3:00 pm
New Job Opportunity – Spitting at the Moon
Courtesy of Mish
In multiple posts Paul Krugman is saying "I told you so". For example, please consider Nobody Could Have Predicted
Pictures support the view that stimulus worked as long as it lasted, boosting the economy — which is the same conclusion Adam Posen drew from Japan’s experience in the 1990s: Fiscal policy works when it is tried.
But the stimulus wasn’t nearly big enough to restore full employment — as I warned from the beginning. And it was set up to fade out in the second half of 2010.
So what was supposed to happen? The invisible cavalry were supposed to ride to the rescue.
I never understood why the Obama administration thought this would happen so soon; history tells us that the effects of a financial crisis on private spending are normally protracted. And sure enough, the cavalry has not arrived.
Stimulus and Full Employment
The idea we can stimulate the economy to full employment is about as silly as silly gets. Krugman wanted double the stimulus we got. Well, we got zero benefit unemployment-wise from the stimulus and in my book infinity times zero is still zero.
Yes, unemployment fell from 10.1% to 9.5% but all of that decrease, if not more than all of that decrease, was a result of a falling participation rate. The bottom line is neither the Fed increasing its balance sheet by $trillions nor a $1.4 trillion deficit did a thing to lower unemployment.
Of course the Keynesian clowns will holler things would have been worse in the absence of stimulus. Really?! Would banks be lending more? Would small businesses be hiring?
Full Employment Made Easy
Krugman wants full employment. I suppose the government could easily employ everyone who does not have a job. Then again, didn’t we effectively do just that?
Here is a snip from "Contained Depression" that suggests we did.
We are certainly in a depression. However, 40 million people on food stamps as of August 2010, masks that depression. The cost of the food stamp program is on schedule to exceed $60 billion in fiscal 2010. For comparison purposes, there was just over 11 million on food stamps in 2005.
Please note there are 14.6 million unemployed, but of them 4.5 million of them are receiving regular unemployment
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Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface
by ilene - September 4th, 2010 3:13 am
Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface
Courtesy of Mish
This morning the BLS reported a decrease of 64,000 jobs. However, that reflects a decrease of 114,000 temporary census workers.
Excluding the census effect, government lost 7,000 jobs. Were the trend to continue, this would be a good thing because Firing Public Union Workers Creates Real Jobs.
Unfortunately, politicians and Keynesian clown economists will not see it that way. Indeed there is a $26 billion bill giving money to the states to keep bureaucrats employed. This is unfortunate because we need to shed government jobs.
Birth-Death Model
Hidden beneath the surface the BLS Black Box – Birth Death Model added 115,000 jobs, a number likely to be revised lower in coming years. Please note you cannot directly subtract the number from the total because of the way the BLS computes its overall number.
Participation Rate Effects
The civilian labor force participation rate (64.7 percent) and the employment-population ratio (58.5 percent) were essentially unchanged from last month’s report. However, these measures have declined by 0.5 percentage points and 0.3 points, respectively, since April.
The drop in participation rate this year is the only reason the unemployment rate is not over 10%. The drop in participation rates is not that surprising because some of the long-term unemployed stopped looking jobs, or opted for retirement.
Nonetheless, I still do not think the top in the unemployment rate is in and expect it may rise substantially later this year as the recovery heads into a coma and states are forced to cut back workers unless Congress does substantially more to support states.
Employment and Recessions
Calculated Risk has a great chart showing the effects of census hiring as well as the extremely weak hiring in this recovery.
click on chart for sharper image
The dotted lines tell the real story about how pathetic a jobs recovery this has been. Bear in mind it has taken $trillions in stimulus to produce this.
June, July Revisions
The change in total nonfarm payroll employment for June was revised from -221,000 to -175,000, and the change for July was revised from -131,000 to -54,000.
Those revisions look good but it is important to note where the revisions comes from. The loss of government jobs in June was revised from…
Understanding Reality – You Don’t Know What You’ve Lost Till Its Gone
by ilene - September 4th, 2010 1:34 am
Understanding Reality – You Don’t Know What You’ve Lost Till Its Gone
Courtesy of Mish
As everyone should know by now, my main concern with unions is specifically with public unions. While I do not care for unions at all, and never have, at least with private unions, someone other than corrupt politicians buying votes is bargaining at the other end of the table.
In the case of public unions, if politicians strike a bad deal, taxpayers foot the bill. In the case of private corporations, if management strikes a bad deal, the company goes bankrupt, shareholders take a hit, or the jobs move elsewhere, as soon as the contract is up.
Except in few cases every now and again, private unions just cannot seem to understand this simple economic fact.
Machinists Union Pickets Cessna Aircraft
The Kansas Wichita Eagle highlights the typical union response, public or private, in Cessna’s initial offer to Machinists includes wage cut
Machinist union members at Cessna Aircraft picketed near the company’s plant in southwest Wichita on Thursday to protest jobs being sent outside the city.
Members fought strong, gusty afternoon winds and carried signs that read "Keep it Made in Wichita," "Outsourcing is Treason" and "We built the Air Capital," as they picketed at K-42 and Hoover roads. Some carried American flags.
Cessna and the Machinists union are in the midst of contract negotiations. The current contract expires Sept. 19. About 2,300 hourly workers at Cessna are covered by the agreement. Hawker Beechcraft also has reopened negotiations with the union as it considers sending work to Louisiana, Mississippi and outside the country.
Cessna’s initial proposal is for a 10-year agreement that cuts wages 4.2 percent, weakens job security, replaces the pension plan with a 401(k) plan and increases the share of the cost of health insurance paid by the workers to 30 percent, said union spokesman Bob Wood.
"There’s no job security in the current proposal," Wood said.
"Wichita is based on aircraft," said Cynthia Hise. "If you don’t get a good contract…." Darren Hise finished her sentence. "It’s going to hurt the whole economy in Wichita."
Reflections on Job Security
Here’s the deal. The Hise’s and the union in general, appears ready willing and able to "hurt the whole Wichita economy" if they do not get what they want.
I have to ask "How stupid is…
State Tax Revenues Slowly Rebound … But
by ilene - September 2nd, 2010 2:21 pm
State Tax Revenues Slowly Rebound … But
Courtesy of Mish
The Nelson Rockefeller Institute reports State Tax Revenues Are Slowly Rebounding. However, as always, the devil is in the details. Let’s take a look.
Preliminary tax collection data for the April-June quarter of 2010 show improvement in overall state tax collections as well as for personal income tax and sales tax revenue. However, revenue collections remain significantly below peak levels and are still weak in a number of states.
The Rockefeller Institute’s compilation of data from 47 early reporting states shows collections from major tax sources increased by 2.2 percent in nominal terms compared to the second quarter of 2009, but was 17.2 percent below the same period two years ago.
State Tax Collections
Gains were widespread, with 30 states showing an increase in revenues compared to a year earlier. After adjusting for inflation, tax revenues increased by 1.4 percent in the second quarter of 2010 compared to the same quarter of 2009.
In terms of dollars, California reported the largest increase in personal income tax collections in the second quarter of 2010, where revenue collections rose by $1.6 billion or 11.5 percent. Such increase is mostly attributable to legislated changes. Without California, personal income tax collections for the second quarter of 2010 show a 1.1 percent decline nationally in the April-June quarter, compared to the same period of 2009.
Sales tax collections increased by 5.9 percent in the second quarter of 2010 compared to the same quarter of 2009, but were still 5.4 percent lower than two years ago. With 42 of 45 sales-tax states reporting so far, only seven states reported declines in sales tax collections compared with the same quarter last year.
Among the corporate income tax states, 19 of 43 early reporting states reported declines for the second quarter compared to the same quarter of the previous year, while 24 showed gains. Fourteen states reported double-digit declines, while seventeen states reported double-digit growth in corporate income tax collections in the second quarter of 2010. The large variation among states’ corporate income tax revenues is due to volatility in corporate profits and in the timing of tax payments.
Among individual states, California reported the largest decline in corporate income tax collections in the second quarter of 2010, where revenue collections declined by $2.7 billion or 42.3 percent. California’s corporate income tax
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