ADP National Employment Report: August 2011

Today, private staffing and business services firm ADP released the latest installment of their National Employment Report indicating that the situation for private employment in the U.S. improved in August as private employers added 91,000 jobs in the month bringing the total employment level 1.52% above the level seen in August 2010.

Looking at the chart (click for full-screen dynamic version) showing ADP’s total private nonfarm payrolls since 2001 as well as the year-over-year and month-to-month percent change, you can see that while the job recovery had been anemic throughout most of 2010, more recently the trend had been picking up momentum.

Although the level of jobs is still far below the peak seen in late 2007 and still near the lows seen during the worst period of the "dot-com" recession, the bottom looks to be clearly defined and the trend is looking comparable to past recoveries.

Perusing the rest of the data in the ADP dataset you can see the the economy is currently showing the most growth for small to mid-sized service providing jobs with goods-producing jobs remaining near trough levels.

Look for Friday’s BLS Employment Situation Report to likely show somewhat similar trends.

Reading Rates: MBA Application Survey – August 31 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage declined 7 basis points to 4.32% since last week while the purchase application volume increased 0.9% and the refinance application volume slumped 12.2% over the same period.

Federal Open Market Committee members appear to be getting more dovish leaning further into a posture of additional quantitative easing.

In all likelihood additional QE will focus on longer term rates possibly working to push down mortgage rates even further.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

S&P/Case-Shiller: June 2011

Note... be sure to bookmark the overall S&P/Case-Shiller Dashboard or the Scary Housing Dashboard of the weakest markets for a real-time view of all the markets tracked by S&P.

Today’s release of the S&P/Case-Shiller (CSI) home price indices for June reported that the non-seasonally adjusted Composite-10 price index increased 1.05% since May while the Composite-20 index increased 1.11% over the same period with both measures continuing to decline notably since last year.

The latest CSI data clearly indicates that the price trends are experiencing a bit of a lift into the typically more active spring season and, as I recently pointed out, the more timely and less distorted Radar Logic RPX data is continuing to capture rising prices driven primarily by seasonality.

It's important to note though that both composite indices are continuing to show notable year-over-year declines, a weak sign indeed.

The 10-city composite index declined 3.84% as compared to June 2010 while the 20-city composite declined 4.52% over the same period.

Topping the list of regional peak decliners was Las Vegas at -59.25%, Phoenix at -55.73%, Miami at -50.35%, Detroit at -48.51% and Tampa at -45.86%.

Additionally, both of the broad composite indices show significant peak declines slumping -31.56% for the 10-city national index and -31.58% for the 20-city national index on a peak comparison basis.

To better visualize today’s results use Blytic.com to view the full release.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as compared to each metros respective price peak set between 2005 and 2007.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a year-over-year basis.

The following chart (click for larger version) shows the percent change to single family home prices given by the Case-Shiller Indices as on a month-to-month basis.

Additionally, in order to add some historical context to the perspective, I updated my “then and now” CSI charts that compare our current circumstances to the data seen during 90s housing decline.

To create the following annual and normalized charts I simply aligned the CSI data from the last month of positive year-over-year gains for both the current decline and the 90s housing bust and plotted the data side-by-side (click for larger version).


The “peak” chart compares the percentage change, comparing monthly CSI values to the peak value seen just prior to the first declining month all the way through the downturn and the full recovery of home prices.

Fannie Mae Delinquencies: June 2011

The latest release of the Fannie Mae Monthly Summary indicated that for data through June, total serious single family delinquency declined while still remaining at distressed levels.

In June, 3.14% of non-credit enhanced loans went seriously delinquent while the level was 9.72% of credit enhanced loans resulting in an overall total single family delinquency of 4.08%.

The following charts (click for larger ultra-dynamic and surf-able chart) show what Fannie Mae terms the count of “Seriously Delinquent” loans as a percentage of all loans on their books.

It’s important to understand that Fannie Mae does NOT segregate foreclosures from delinquent loans when reporting these numbers.

The Federal Reserve Bank of Dallas Texas Manufacturing Outlook Survey: August 2011

Today, the Federal Reserve Bank of Dallas released their latest read on manufacturing in their region indicating that manufacturing activity continued to slow with current production declining to a weak expansion of 1.1 while new orders turned down to a weak expansion 4.8.

Most importantly, general business activity declined to a contraction level of -11.4, the lowest level seen since September of 2010.

Pending Home Sales: July 2011

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for July showing home sales declined with the seasonally adjusted national index dropping 1.3% since June but increasing 14.4% above the level seen in July 2010.

Meanwhile, the NARs chief economist Lawrence Yun suggests that conditions for buying should improve given that buyers can use real estate as an inflation hedge... only catch, that's assuming that home prices stop deflating! In both nominal and real terms home prices are still falling considerably.

"The underlying factors for improving sales are developing, such as rising rents, record high affordability conditions and investors buying real estate as a future inflation hedge. It is now a question of lending standards and consumers having the necessary confidence to enter the market."

The following chart shows the seasonally adjusted national pending home sales index along with the percent change on a year-over-year basis as well as the percent change from the peak set in 2005 (click for larger version).

Bull Trip!: GDP Report Q2 2011 (Second Rough Estimate)

Today, the Bureau of Economic Analysis (BEA) released their second "estimate" of the Q2 2011 GDP report showing that the economy continued to weakly expand with real GDP increasing at an annualized rate of just 1.0% from Q1 2011.

On a year-over-year basis real GDP increased 1.55% while the quarter-to-quarter non-annualized percent change was 0.25%.

The latest quarterly results revealed an notable 5.1% decline in durable goods from Q1 2011 while non-durable goods showed the slowest growth since 2009 and the overall personal consumption expenditures registered the weakest showing in six quarters at 0.4%.

Government spending declined notably with the non-defense spending declining 7.5% from Q1 2011 while state and local spending declining 2.8%.

Non-residential structures supposedly expanded at an annualized rate of 15.7% from Q1 though future revisions will likely revise down this value resulting in an even weaker (possibly sub-1%) growth for the second quarter.

Kansas City Fed Manufacturing Survey: August 2011

The Federal Reserve Bank of Kansas City, like other district FRBs (New York, Philadelphia, Richmond and Dallas), tracks its region’s manufacturing activity by surveying a number of important indicators such as general activity, production, shipments, orders, employment and prices for raw materials and finished products.

The latest results are indicating that the manufacturing expansion remained at a near-contraction level of 3 since last month while the employee index improved slightly to 8 and the prices paid for raw materials declined to 28.

The following chart plots the seasonally adjusted Composite index since 2001 with the solid red line indicating the threshold between expansion and contraction.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims August 25 2011

Today’s jobless claims report showed an increase to initial unemployment claims and a decline to continued unemployment claims as a recent rising trend was called firmly into question for initial claims.

Seasonally adjusted “initial” unemployment increased 5,000 to 417,000 claims from last week’s revised 412,000 claims while seasonally adjusted “continued” claims declined by 80,000 resulting in an “insured” unemployment rate of 2.9%.

Since the middle of 2008 though, two federal government sponsored “extended” unemployment benefit programs (the “extended benefits” and “EUC 2008” from recent legislation) have been picking up claimants that have fallen off of the traditional unemployment benefits rolls.

Currently there are some 3.63 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.55 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.19 million people on state and federal unemployment rolls.

Reading Rates: MBA Application Survey – August 24 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage increased 7 basis points to 4.39% since last week while the purchase application volume dropped a notable 5.7% and the refinance application volume declined 1.7% over the same period.

It's important to note that purchase applications are now sitting at the lowest level seen since 1996 while mortgage rates remain at historic lows.

Federal Reserve Chairman Ben Bernanke is slated to address the current recessionary trends playing out in the macro-economy later this week at the annual Jackson Hole conference where, it is suspected, that he will announce another major round of "quantitative easing".

In all likelihood additional QE will focus on longer term rates possibly working to push down mortgage rates even further.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

The Richmond Fed Survey of Manufacturing Activity: August 2011

Today, the Federal Reserve Bank of Richmond released their Survey of Manufacturing Activity for August showing that the composite index, the broadest measure of manufacturing activity, declined 9 points to a notably weak level of -10.

The most notable component measures also showed similar results with the new orders dropping to -11, shipments declining to -17 and backlog of orders plunging to -25.

The following chart plots the composite index with the red line marking a level of 0, or the threshold between increasing and declining activity.

New Home Sales: July 2011

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for July showing a monthly decline with sales falling 0.7% since June but increasing 6.8% from July 2010 and remaining at an epically low level of 298K SAAR units.

It's important to recognize that the inventory of new homes has now fallen to a new series low at 165K units, lowest level seen in in at least 47 years while the median number of months for sale declined to 9.4.

The monthly supply remained flat at 6.6 months while the median selling price increased 7.15% and the average selling price increased 4.67% from the year ago level.

The following chart show the extent of sales decline to date (click for full-larger version).

The Chicago Fed National Activity Index: July 2011

Today’s release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated notably weak but improving national economic trends for July with the index remaining in contraction territory for the fourth consecutive month at -0.06 while the three month moving average moved up slightly to -0.29.

The CFNAI is a weighted average of 85 indicators of national economic activity collected into four overall categories of “production and income”, “employment, unemployment and income”, “personal consumption and housing” and “sales, orders and inventories”.

The Chicago Fed regards a value of zero for the total index as indicating that the national economy is expanding at its historical trend rate while a negative value indicates below average growth.

A value at or below -0.70 for the three month moving average of the national activity index (CFNAI-MA3) indicates that the national economy has either just entered or continues in recession.

Radar Watching: June 2011

As I have noted in the past, since the home price index data provided by Radar Logic is more timely, unadjusted and un-smoothed it is particularly useful for gaining deeper visibility over our housing markets.

As for the latest trends, it’s important to note that the 25-MSA Composite is continuing to show significant year-over-year declines and after having broken well below the low set in March of 2009 (double-dipping) earlier this year, continues to come off the low as the typical spring and early summer transactions continue to mount.

The latest data shows that as of mid-June, prices have declined 4.56% below the level seen in June 2010 while turning up quite a bit since the lows seen this February.

It will be interesting to see how far the spring buying can push prices but it's important to note that this seasonal lift likely began to wane in early July (as will be reported in September) when transactions begin to trail off into the deep summer months.

Recession Redux?: August 2011

With the economy weakening significantly over the last few months and the growing threat of an "double-dip" recession, let’s take a closer look at two particularly sensitive and typically accurate leading indicators of our economic health to see if we can tease out the future trends.

First, the Federal Reserve Bank of New York is known to use the yield curve (or more specifically the spread between the 10 year and the 3 month treasury yields) to calculate a probability of recession.

This method appears to have been spearheaded by Professor Arturo Estrella of the Rensselaer Polytechnic Institute and Professor Frederic Mishkin of the Columbia Business School as outlined in the June 1996 issue of Current Issues in Economic and Finance, a journal published by the Federal Reserve Bank of New York.

The yield curve probability method is said to have a nearly perfect track record at predicting recessions some two to six quarters ahead with only one false positive, a period in 1967 that many economists, most notably the late Milton Friedman, considered to have been a credit crunch/mini-recession even though the NBER does not officially recognize it as such.

Another important leading indicator with a solid track record is the Economic Cycle Research Institutes (ECRI) weekly leading indicator (WLI).

When the growth component of the WLI turns strongly negative (less then -6) it generally means a notable slowdown or recession is in the offing.

So what are these two important indicators saying about our current economic situation?

The yield curve spread indicator is indicating that the probability of recession is has climbed slightly to about 1% while the ECRI leading index is showing some weakening signs with the growth component declining to a slight negative value of -0.1.

It’s Beginning to Look a Lot Like Recession

Given today’s numerous bits of lousy economic data, I thought now might be as good a time as any to recap all the most recent data points that are beginning to tilt strongly in favor of recession.

First, housing seriously disappointed this year with sales remaining weak while prices clearly double-dipped making the government housing tax gimmicks of 2009 and 2010 look as ridiculous as “cash for clunkers”.

Although housing’s decline packs less of a negative punch to GDP (through declining residential investment) as it did during the worst years of the housing bust, its slow maturing unwind appears to be keeping homeowners under serious pressure thereby depressing consumption and leading to an overall loss of confidence as witnessed by the recent dramatic plunge to the University of Michigan’s Consumer Sentiment Index.

On that note, Real “Discretionary” Retail Sales looks terrible with consumers purchasing at a level first seen in 1993.

The Philadelphia Fed Business Outlook Survey, the Empire State Manufacturing Survey and the Richmond Fed Manufacturing Survey all are clearly singling contraction for regional manufacturing activity with the Philly Feds numbers plunging to a level that has historically been associated with the start of recession.

The latest installment of the Chicago Fed National Activity Index appears to be picking up this weakness with the 3-month moving average sitting ever so slightly above the level that the Fed considers to be the start (or continuation) of recession while the underlying index spent it’s third month in contraction territory.

The most recent GDP report dramatically revised the data for all quarters from 2007 on leaving the current estimate of real GDP significantly below the peak level seen prior to the Great Recession, a notable change in the perception of the “recovery” as well as the outlook going forward.

Finally, all of the above was, more or less, confirmed by the latest outlook issued by the Federal Reserve leading the FOMC to promise to hold rates at the zero bound for at least another two years, a clear sign that there is widespread agreement that the economy has weakened notably.

Existing Home Sales Report: July 2011

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for July showing continued weakness with slumping sales and an elevated monthly supply.

Single family home sales declined a notable 4.0% from June but rose notably compared to the level seen last year's post-tax scam weakness while the median selling price declined 4.5% below the level seen in July 2010.

Further, inventory of single family homes declined 5.4% from June and 8.6% below the level seen in July 2010 which, combined with the relatively slow pace of sales, resulted in an still elevated monthly supply of 8.9 months.

The following charts (click for full-screen dynamic version) shows national existing single family home sales, median home prices, inventory and months of supply since 2005.