On The Margin: Total Unemployment June 2009

Today’s Employment Situation report showed that in June “total unemployment” continued its ascent and now stands at 16.5% of the civilian population or 38.88 million people.

The traditional unemployment rate is calculated from the monthly household survey results using a fairly explicit qualification of “unemployed” (essentially unemployed and currently looking for full time employment) leaving many workers to be considered effectively “on the margin” either employed in part time work when full time is preferred or simply unemployed and no longer looking for work.

The Bureau of Labor Statistics considers “marginally attached” workers (including discouraged workers) and persons who have settled for part time employment to be “underutilized” labor.

The broadest view of unemployment would include both traditionally unemployed workers and all other underutilized workers.

To calculate the “total” rate of unemployment we would simply use this larger group rather than the smaller and more restrictive “unemployed” group used in the traditional unemployment rate calculation.

Below is a chart (click for larger version) showing the “total” unemployment rate versus the “traditional” unemployment rate along with the year-over-year percent change to the “total” unemployment rate.

Notice that the “total” unemployment rate has been skyrocketing as of late showing a 63.37% year-over-year increase and reaching the highest level seen since the government began tracking the many measures of marginalized workers while the spread between the “traditional” and “total” unemployment rates stands at 7%.

The chart below (click for larger) calculates the spread between the “total” unemployment rate and the “traditional” unemployment rate.

Envisioning Employment: Employment Situation June 2009

Today’s Employment Situation Report continued to reflect a severely contracting recessionary economy with the unemployment rate increasing to 9.5% while the Establishment survey showed another notable decline of 467,000 non-farm jobs over the same period.

As I had noted in a prior post, we are quickly approaching the second seasonal unemployment spike for the year (mid-January and mid-July are the typical unemployment spikes) that, in all likeliness, will bring a notable degree of re-acceleration to unemployment.

With the latest news just littered with poor earnings reports and announcements of job cuts and layoffs cutting across all regions and most industries, the recessionary job loss trend now appears to be following a far more severe trend than seen during our prior two recessions.

The following chart combines both the “residential building” and “residential specialty trade contractors” into one payroll series and then plotting the data since 2002.

Notice that, in aggregate, these payrolls, having peaked in February 2006 and declined 30.21% or 1,043,000 jobs since then, appear to be headed lower.

Also note that independently, “residential building” has lost 31.45% of its payrolls or 321,600 jobs since it peaked during September 2006 and that “residential specialty trade contractors” have lost 29.88% of its payrolls or 729,100 jobs since it peaked during February 2006.

Next, let’s take a look a slightly broader set of industry sectors that have been directly impacted both by the housing boom and now the bust (click for larger chart).

Note that I carefully selected sectors that showed either an obvious expansion-to-contraction trend OR a flattening-to-contraction trend and that ALL sectors have both a historical and logical relationship to residential housing as well as recent industry press releases disclosing declining profits as a result of the housing bust.

As you can see, sectors that are now being directly impacted by the current housing decline are numerous and cut across many levels of the job market from construction and materials to manufacturing and finally to retail.

Combining these series into an aggregate of payrolls “directly impacted” by the housing boom and bust cycle and plotting it, along with the S&P/Case-Shiller Composite Home Price Index (click on chart below for larger version) since 1997 provides some pretty solid evidence that a relationship exists.

To expand the analysis a bit look at the following chart that shows percent change on year-over-year basis to BOTH the “directly impacted” payrolls sectors and ALL private non-farm payroll overlaid with the S&P/Case-Shiller Composite Home Price Index.

To get a sense of the relative intensity of the pullback to the “directly impacted” payrolls by plotting both the percentage of overall private non-farm payrolls that the “directly impacted” aggregate represents as well as the contributions it is making to the rate of change of the underlying total private non-farm payrolls.

Notice that at its peak the “directly impacted” payrolls represented over 6.7% (now 6.12%) of Total Private Non-Farm Payrolls and now contracted to a far more significant degree than that seen during the entire course of the 2001-2003 contraction.

Plotting the ratio of overall and private non-farm payroll as well as the payroll of various business sectors to overall non-institutional population (above 16 years old and not in jail or “juvee”), the last eight years seem to pose more questions than answers.

The payroll-population ratio concept simply provides a mechanism for better isolating the changes to payroll rosters by calculating the percentage of population that is employed in a given sector at any given time.

In the following chart (click for larger version) you can see the ratio of overall non-farm payroll and private non-farm payroll to non-institutional population from 1948 overlaid with all U.S. recessions in that period.

As you can see, there is a fairly strong correlation to declining percent of population employed in non-farm and private non-farm endeavors and recession with particularly good peak-trough alignment for all recessions prior to 1990.

During the 2001 recession (and to a far lesser extent in 1990), although there where large declines to the ratio during the official recession period, the economy seemed to be able resume growth while the ratio continued to slide or stayed well below the peak of the prior expansion.

This is an interesting situation in that, although increases in population have been steady and could have replenished the literal number of jobs lost during the downdraft of 2000-2003, the 2000s expansion of payrolls was not strong (jobless recovery).

The following chart (click for larger version), on the other hand, the payroll ratio related to construction has remained above even the peak set in the 90s expansion but has dropped significantly below trend.

Ticking Prime Bomb!: Fannie Mae Monthly Summary May 2009

Decades from now the summer of 2008 will likely be remembered to mark the turning point where legislative blundering took an otherwise serious financial crisis and molested it into an epic financial collapse.

By fully assuming the liabilities of Fannie Mae and Freddie Mac, the two colossal and corrupt (and conduit of corruptness funneling junk Countrywide Financial loans onto the implied balance sheet of the federal government) government sponsored enterprises, the federal government, led by Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke, has thrust taxpayers into an abyss of insolvency with one mighty shove.

Given the sheer size of these government sponsored companies, with loan guarantee obligations recently estimated by Federal Reserve Bank of St. Louis President William Poole of totaling $4.47 Trillion (That’s TRILLION with a capital T… for perspective ALL U.S. government debt held by the public totals roughly $4.87 Trillion) this legislative reversal making certain the “implied” government guarantee is reckless to say the least.

The following chart (click for larger ultra-dynamic and surf-able chart) shows 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 and that should they report the delinquent results as a percentage of the unpaid principle balance, things might likely look a lot worse.

Finally, the following chart (click for larger ultra-dynamic and surf-able chart) shows the relative movements of Fannie Mae’s credit and non-credit enhanced (insured and non-insured) “Seriously Delinquent” loans.

Pending Home Sales: May 2009

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for May showing a 6.7% year-over-year increase in pending home sales nationally but a surprisingly weak 0.7% year-over-year decline in pending sales seen in the heavily foreclosure laden markets of the west region.

Meanwhile, the NARs chief economist Lawrence Yun continues to setup the context by which the NAR (or specifically RPAC, their political action committee…) lobbies congress more lenient (and likely fraudulent) rules governing the home appraisal process.

“Rises in contract activity show buyers are becoming more active even as they face much more stringent loan underwriting standards. Speedy clarification of the appraisal rules could smooth a housing market recovery and support the overall economy.”

The following chart shows the 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).

Look at the May seasonally adjusted pending home sales results and draw your own conclusion:

• Nationally the index increased 6.7% as compared to May 2008.
• The Northeast region increased 6.8% as compared to May 2008.
• The Midwest region increased 11.4% as compared to May 2008.
• The South region increased 7.9% as compared to May 2008.
• The West region increased 0.8% as compared to May 2008.

Construction Spending: May 2009

Today, the U.S. Census Bureau released their May read of construction spending again demonstrating the significant extent to which private residential construction is contracting particularly for single family structures which appears to have worsened significantly in recent months while non-residential spending continues to show weakness.

With the tremendous weakening trend continuing, total residential construction spending fell 33.91% as compared to May 2008 and a whopping 64.48% from the peak set in March 2006.

Worse off though was private single family residential construction spending which declined 54.06% as compared to May 2008 and a truly grotesque 80.37% from the peak set in February 2006.

Non-residential construction spending, currently accounting for just under half of all private construction spending, posted another year-over-year decline (note: the Census Bureau recently revised the last few years of non-res data erasing many of the recent months YOY increases) of 3.25%.

The following charts (click for larger versions) show private residential construction spending, private residential single family construction spending and private non-residential construction spending broken out and plotted since 1993 along with the year-over-year and peak percent change to each since 1994 and 2000 – 2005.

Beantown Bust: Boston CSI and RPX April 2009

Subtitle: Spring Bounce is Underway… Or More Precisely … Over!

The S&P/Case-Shiller (CSI) Home Price index together with the Radar Logic (RPX) for Boston represent the most accurate indicators of the true price movement for both single family homes and the entire residential real estate market as a whole (singles, multi and condos).

For April, both the CSI and RPX showed the typical spring bounce in price movement with a month-to-month increase of 0.43% to the CSI and a 7.06% gain on the RPX while on a year-over-year basis the CSI declined 7.71% while the RPX dropped 10.82% over the same period.

Further, both reports indicate that area home prices have suffered significant peak declines with the Boston CSI showing a decline of 19.73% since the peak set in September 2005 while the Boston RPX shows a 29.47% price decline since its peak of June 2005.

It’s important to note that while the spring bounce is just now showing up in the data, the data is two months old.

This means currently we are near or at the seasonal peak for pricing for 2009 and soon the overarching declining trend will resume.

Typically, prices will reach the peak in June and remain close to peak (over or under) for July but as August nears (when the typical 45 day schedule puts closings beyond the start of the school year as well as just general vacation activity impact house buying activity) so too does slumping pricing and a resumption of the overarching declining trend.

In all likeliness, this year will be no different.

Looking at the seasonally adjusted data its easy to see that Boston is far from any real change in the overall declining trend.

Click on the following ultra-cool zoom-able dynamic chart showing the three seaonally adjusted price tiers S&P provides for Boston as well as the 12 month moving average of the Boston area "sale pair counts" a near-organic single family home sales series also provided by S&P.

The most obvious difference between the 90s housing bust and today is that during the 90s the home price decline occurred mostly in-line with the larger macroeconomic decline.

Today though, all of the home price decline seen prior to mid-2008 occurred within a backdrop of an (more or less) expanding economy.

Now that the economy has firmly taken a turn for the worse (particularly our local Boston area economy), home prices will suffer to the greatest degree seen in this cycle.

The following two charts compares the Boston CSI to the Massachusetts unemployment rate during the 90s bust and today.

Notice how early we are in the unemployment cycle today… there is lots more pain to go.


Recently S&P introduced a new line of data series that specifically track condominium prices in five select markets including Boston which showed that in April Boston condo prices declined 5.45% on a year-over-year basis and 15.42% on a peak decline basis (see chart below).

In all likelihood the still low consumer confidence and substantial increases in unemployment will work to place significant downward pressure on property prices, particularly condo prices, for the foreseeable future.

To better illustrate the drop-off in home prices and the potential length and depth of the current housing decline, I have compared BOTH the normalized price movement, annual and peak percentage changes to the Boston CSI home price index from the 80s-90s housing bust to today’s bust.

Notice that with today’s release, Boston has now exceeded the number of months of annual declines seen in the 90s bust as well as fallen further on a peak percentage basis.



The “normalized” chart compares the normalized Boston price index from the peak of the 80s-90s bust to the peak of today’s bust.

Notice that during the 80s-90s bust prices took roughly 46 months (3.8 years) to bottom out.

The “annual” chart compares the percentage change, on a year-over-year basis, to the Boston CSI from the last positive value through the decline to the first positive value at the end of the decline.
In this way, this chart captures only the months that showed monthly “annual declines”.

The “peak” chart compares the percentage change, comparing monthly Boston index 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.

In this way, this chart captures ALL months of the downturn from the peak to trough to peak again.

As you can see the last downturn lasted 105 months (almost 9 years) peak to peak including 34 months of annual price declines during the heart of the downturn.

The final chart shows that the Boston housing market has been, in a sense, declining steadily since early 2001 when annual home price appreciation peaked and the intensity of the housing expansion began to wane (click on following chart for larger version).

It appears that that the main thrust of the housing expansion occurred “in-line” with the wider economic expansion that was fueled primarily by the dot-com bubble and that since the dot-com bust, the housing market has never been quite the same.

A Tale of Seven Cities... and Some Condos

Yesterday’s S&P/Case-Shiller housing market data revealed some notable differences in the trends from one metro market to the next.

It’s important to recognize that while our current national residential real estate decline is truly historic and unprecedented, a near simultaneous decline of one or more major metro markets is not.

During the 1980s/1990s boom and bust both West Coast and East Coast metro markets experienced the boom and bust cycle but while metros on the east coast, such as Boston, shook off the decline, cleared and started to climb somewhat by 1993 with the period between late 1996 and early 1997 marking the point where many markets recovered their nominal pre-bust peak levels, west coast metros generally continued to decline well into the mid-90s.

West coast metros such as San Francisco lumbered along and didn’t breach their pre-bust nominal peak level until well into 1998 in-line with the wider economic boom of the dot-com era.

Today, as in the 1990s, we see significant differences from one metro market to the next the only difference this time around is both the extent of the boom and bust and the fact that this cyclical shock has touched every market, not just a select few.

In the dynamic Blytic charts below I have arranged the three price tiers as well as a 12 month simple moving average of the “sale pair counts” for each of a selection of seven of the twenty metro markets that S&P tracks.

Notice that while some markets are showing an up-trend in sales, most are still experiencing significant price declines.

Also, metros such as New York and Atlanta appear to only now be tipping into the level of decline seen during 2007 and 2008 in some of the bubbliest markets of Phoenix, Miami and San Francisco.

Further, notice that while the nation’s major condo markets held fairly steady though 2008, they are now declining to a comparable extent to the single family markets.

Reading Rates: MBA Application Survey – July 01 2009

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, 1 year ARMs as well as application volume for 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 slightly dropping 10 basis points since last week to 5.34% while the purchase application volume declined 4.5% and the refinance application volume plunged 29.96% compared to last week’s results.

It’s important to recognize that while the Federal Reserve’s “quantitative easing” measures held down rates for a time and spurred a notable boom in refinance activity, the energy appears to have come to a close.

Even with historically low lending rates both refinance and purchase application volume look to be headed back to the lows of the fall of 2008 and an overall declining trend.

The following chart shows how the principle and interest cost and estimated annual income required to cover the PITI (using the 29% “rule of thumb”) on a $400,000 loan has changed since November 2006.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages over the last number of weeks (click for larger version).


The following charts show the Purchase Index, Refinance Index and Market Composite Index since November 2006 (click for larger versions).