Extended Unemployment: Initial, Continued and Extended Unemployment Claims May 20 2010

Today’s jobless claims report showed a notable jump to initial claims and a decline to continued claims with a subtle flattening continuing to shape up for both series while total continued claims including federal extended benefits appear to also be flattening.

Seasonally adjusted “initial” unemployment claims increased by 25,000 to 471,000 claims from last week’s revised 446,000 claims while “continued” claims declined by 40,000 resulting in an “insured” unemployment rate of 3.6%.

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 5.34 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 4.55 million people that are currently counted as receiving traditional continued unemployment benefits, there are nearly 10 million people on state and federal unemployment rolls.

The following chart shows the recent trend in initial non-seasonally adjusted initial jobless claims with the year-over-year percent change acting as a rough equivalent of a seasonally adjustment.

Historically, unemployment claims both “initial” and “continued” (ongoing claims) are a good leading indicator of the unemployment rate and inevitably the overall state of the economy.

The following chart shows “population adjusted” continued claims (ratio of unemployment claims to the non-institutional population) and the unemployment rate since 1967.

Adjusting for the general increase in population tames the continued claims spike down a bit.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967.

Also, acceleration and deceleration of unemployment claims has generally preceded comparable movements to the unemployment rate by 3 – 8 months (click for larger version).

Commercial Cataclysm!: Moody’s/REAL Commercial Property Price Index March 2010

The latest release of the Moody’s/REAL Commercial Property Index showed another notable monthly decline of 0.5% since February suggesting that the nation’s commercial property markets are continuing to experience a tremendous downturn with prices down some 24.94% on a year-over-year basis and a stunning 42.18% since the peak set in October 2007.

The Moody’s/REAL CPPI data series is produced by the MIT/CRE but is noted to be “complimentary” to their alternative transaction based index (TBI) as it is published monthly and is formulated from a completely different dataset supplied by Real Capital Analytics, Inc and Real Estate Analytics LLC.

How Low Can You Go?

This week the Bureau of Labor Statistics (BLS) released their latest read on producer (PPI) and consumer (CPI) prices indicating that, despite the Feds near zero interest rates and unprecedented levels of government stimulus, prices appear to be following a more deflationary trend than inflationary.

Of course, there are numerous disputes over the formulation and interpretation of these measures particularly for CPI (owner’s equivalent rent, quality substitutions, etc.) but be that as it may, both measures are continuing to trend lower with on a year-over-year basis.

The PPI for finished goods less food and energy edged up just slightly rising 0.23% since March and remaining just 1.05% above the level seen in April 2009 while CPI less food and energy increased only 0.05% since March climbing just 0.84% above the level seen April 2009.

Hong Kong Bubble?: Hong Kong Residential Property Prices March 2010

There has been much speculation recently about an ongoing price bubble occurring in the Hong Kong residential property market.

The University of Hong Kong’s Residential Real Estate Series (HKU-REIS) indicated that, in March, the price of residential properties continued to rise increasing 2.49% since February and 34.99% since March 2009.

The “Hong Kong Island” index, “Kowloon” and “New Territories” sub-components also showed notable year-over-year increases.

The HKU-REIS is a set of property price indices constructed monthly using a “modified” repeat-sale methodology similar to that of the S&P/Case-Shiller indices yet suited to the Hong Kong property market.

The Seven Faces of Malaise

The following is a run-down of seven of the most important trends currently playing out for individuals and households.

Any durable recovery must include an easing of all of these measures though some may lead while others lag.

Total Unemployment represents the broadest measure of unemployment and includes the “traditional” unemployment measure combined with all “marginally attached” and otherwise “underutilized” workers (including discouraged workers).

Persons unemployed for 27 or more weeks represents the total of all long term unemployed individuals who have yet to exhaust their unemployment benefits.

Total extended unemployment claims represents the total of all individual receiving traditional continued unemployment benefits as well as participating in both of the federal extended benefit programs (the “extended benefits” and “EUC 2008” from recent legislation).

The S&P/Case-Shiller Composite 10 home price index represents the general price movement of residential real estate nationally.

The Fannie Mae seriously delinquent series captures the severity of the foreclosure wave currently washing over the nation as well as discloses a serious conundrum for Washington as it seeks to “prop” the housing market at the expense of the solvency of these colossal government sponsored boondoggles.

The number of households participating in the federally sponsored food stamps program has been dramatically increasing over the past two years and clearly reflects the tremendously weak economic times for a large percentage of the U.S. population.

As expected total non-business bankruptcies, including Chapter 7, 11 and 13 across all regions, have increased significantly throughout the economic crisis.

Note: the dramatic surge and decline in 2005 was a result of a surge of filings in advance of the 2005 legislative changes to the process of personal bankruptcy.

Reading Rates: MBA Application Survey – May 19 2010

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 decreased 13 basis points since the last week to 4.83% while the purchase application volume plunged 27.1% while the refinance application volume jumped 14.5% over the same period.

It's important to note that with the final expiration of the governments massive housing tax credit subsidy home purchase activity is dropping precipitously even with plunging interest rates.

The purchase application volume is now at the lowest level seen in over a decade.

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).

New Residential Construction Report: April 2010

Today’s New Residential Construction Report suggested a possible slowdown of the tepid recovery seen recently in the new home construction market with a notable drop off in permitting activity since March.

Single family housing permits, the most leading of indicators, dropped 11.5% on a month-to-month basis to 606K single family units (SAAR) while remaining 15.9% above the level seen in April 2009 and still remaining an astonishing 73.08% below the peak in September 2005.

With the substantial headwinds of rising unemployment, epic levels of foreclosure and delinquency, mounting bankruptcies, contracting consumer credit, and falling wages, an overhang of inventory and still falling home prices, the environment for “organic” home sales remains weak and likely very fragile.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings May 2010

Yesterday, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing increasing results for all measures.

It's important to recognize that although each sentiment index has now shown notable year-over-year increases, their levels still remain near the worst levels seen in over 20 years.

The new home market will likely not resume any significant form of healthy function until the considerable overhang of inventory is cleared.

Radar Watching

Over the last two years now that I have been tracking regional home prices using the data supplied by Radar Logic, I have come to recognize the superiority of this data over other competitive home price series.

Radar Logic provides daily data series for 25 metro housing markets (as well as a host of NYC series) that seek to track the price per square foot of all residential real estate (single family, condo, coop).

The data is superior to other home price data (S&P/Case-Shiller, FHFA, NAR median, etc.) because of its timeliness (daily), its quality (unique price per square foot methodology) and for the fact that each data series goes completely unadjusted.

In this way you get a real-time sense of the precise price movement for a particular metro market without the distortions that are commonly introduced by the mix of sales (median) or data smoothing techniques (S&P/Case-Shiller, FHFA).

Until last week Radar Logic had offered all its metro data series for free allowing industry professionals (and others) to download the full dataset daily.

Now though, the full dataset will be available on a subscription basis while the 25-MSA Composite series will remain free and published daily.

While I will surely miss perusing the metros every morning, Radar Logic goes to great expense to formulate their data and certainly deserves compensation for their efforts.

On that note, I would strongly urge any real estate or finance industry professional (or anyone else for that matter) to compare the quality of the Radar Logic data to other vendors and consider subscribing.

As for the latest trends, it’s important to note that the 25-MSA Composite is showing some of the first (albeit tepid) year-over-year increases in over two years.

This price movement has been, of course, strongly influenced by the tremendous government subsidy of housing so we will need to see how this series trends out over the remainder of 2010 in order to determine the true price movement.

Production Pullback: Industrial Production April 2010

Today, the Federal Reserve released their monthly read of industrial production showing continued growth with total industrial production increasing 0.8% from March and 5.18% since April 2009.

While this report appears to argue favorably for a continued recovery, it's important to note that massive government stimulus played an important role in generating this trend.

With the the stimulus now waning, it will be important to watch the trend in industrial production to see how sustained the growth truly is.

“Final product” consumer durable goods declined 0.05% on a month-to-month basis while jumping some 11.84% above the level seen just one year ago.

It’s important to note that the home appliances, furniture and carpeting component of durable consumption showed its first year-over-year increase in 53 consecutive months increasing 0.62% compared to April 2009.

Construction supply production now shows the first year-over-year increase seen in 43 consecutive months increasing 2.91% while wood products increased 2.44% over the same period.

The motor vehicle and business vehicle components are indicating that the government sponsored bounce and residual effects provided by the "cash for clunkers" policy appears to have now possibly peaked out.

Finally, HVAC (heating ventilation and air conditioning) increased notably in jumping 4.25% on a year-over-year basis.

The following charts (click for larger) show the overall consumer durable component along with the Home Appliances, Furniture and Carpeting sub-component on both a time series and year-over-year basis, construction supply production with the wood products sub-component, and general and business related vehicle production all overlaid with the last two recessions for comparisons purposes.

Conspicuous Correlation: Retail Sales April 2010

Today, the U.S. Census Bureau released its latest nominal read of retail sales (with all components revised running back to 2000) showing an increase of 0.4% from March and an 8.8% increase from April 2009 on an aggregate of all items including food, fuel and healthcare services.

Discretionary retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales increased 6.12% compared to April 2009 while, adjusting for inflation, “real” discretionary retail sales increased 3.73% since April 2009.

While the latest data appears to indicate that the consumer is on the mend, it's important to note that retail spending is still far below the peak levels of 2006 and, in real terms, on par with the level seen in 1994.

On a “nominal” basis, there had appeared to be “rough correlation” between strong home value appreciation and strong retail spending preceding the housing bust and an even stronger correlation when home values started to decline.

The following chart shows the year-over-year change discretionary retail sales and the year-over-year change to the S&P/Case-Shiller Composite home price index since 1993 and since 2000.

As you can see there is, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust, but as home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

Looking at the chart below (click for full-screen dynamic version), adjusted for inflation (CPI for retail sales, CPI “less shelter” for S&P/Case-Shiller Composite) the “rough correlation” between the year-over-year change to the “discretionary” retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.

On The Pulse: Ceridian-UCLA Pulse of Commerce Index April 2010

The latest release of the Ceridian-UCLA Pulse of Commerce Index™ (PCI) suggests that the economic activity slowed slightly in April with the seasonally adjusted index declining 0.32% as compared to March but remaining 6.54% above the level seen in April 2009.

Further, the three month moving average registered another significant year-over-year increase indicating that the April Industrial Production data (released on Friday) will likely show a similar annual gain.

As cited in the release, the PCI is closely correlated to the industrial production series but given the broad nature of the series it’s not surprising to see that it correlates well with other macro data.

Looking at the chart below (click for full-screen dynamic version) you can see that while a pretty reasonable correlation exists between the PCI and the S&P/Case-Shiller Composite-10 Home Price Index (CSI), the CSI reached its peak roughly a year before the PCI.

Could the latest easing of home prices foretell a general slowing trend in the economy or is the Ceridian index forecasting increasing home prices?

We will have to wait some months to find out which trend is leading.