On The Stamp: Food Stamp Participation March 2009

As a logical consequence of the prolonged economic downturn it appears that participation in the federal food stamp program is on the rise.

In fact, household participation has been climbing so steadily that it has surpassed the last peak set as a result of the immediate fallout following hurricane Katrina.

The latest data released by the Department of Agriculture shows that, on a year-over-year basis, household participation has increased a whopping 18.93% while individual participation, as a ratio of the overall population, has increased 17.87%.

The March results confirm that participation is continuing to climb dramatically, likely as a result of the recent jump in total unemployment, driving the nominal benefit costs up 34.17% on a year-over-year basis to $3,775,669,351 for the month.

Looking at the last chart that plots the total unemployment rate (unemployment rate of all traditionally unemployed workers plus all marginally attached and part time workers) and the population adjusted individual program participation rate normalized since 2005, one can plainly see that program participation would be expected to continue its surge.

Not Participating In The Boom or The Bust!

Probably the most significant issues currently plaguing the U.S. economy are posed not by the housing market but by the job market.

In order to recognize the severity of the situation one needs to consider that since 2000, nearly a decade, our labor market has been showing significant and unusual signs of weakness.

This is not a new revelation.

The concept of a “jobless recovery” was spun precisely for the purpose of “explaining” how we could “recover” from our last decline (dot-com bust) but not in typical fashion…. a “recovery” without the jobs.

As I have stated before, I don’t happen to believe that there is such thing as a “jobless recovery”… your economy either grows in a real and meaningful way (at least trend job creation) or it doesn’t.

In the past (see the Envisioning Employment posts) I have plotted the ratio of total and private non-farm payrolls to the civilian non-institutional population (in effect factoring out growth in population) and its quite clear that the run seen since 2000 stands out as the single weakest 10 year period in the post WWII period.

Another way to look at this weakness is the “civilian participation rate” which is essentially the same as my “non-farm payroll population ratio series” except its baked off of the household survey side of the employment situation report (i.e. NOT from the establishment).

Study the interactive chart below (click and install Microsoft Silverlight (like the Flash player) if you haven’t already).

Although the period between late 1956 and late 1962 (scroll over to the left…) looks to have brought a fairly significant 1.8% decline in workforce participation (against the backdrop of a growing population of workforce participants) our current decline appears not only to be about to best that percentage, but possibly more importantly, has been experiencing this declining trend far longer.

On The Margin: Total Unemployment May 2009

Today's Employment Situation report showed that in May “total unemployment” continued its ascent and now stands at 16.4% of the civilian population or 38.61 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 67.35% 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 May 2009

Today’s Employment Situation Report continued to reflect a severely contracting recessionary economy with the unemployment rate jumping to 9.4% while the Establishment survey showed another notable decline of 345,000 non-farm jobs over the same period.

Further, there were considerable revisions to past months resulting in a stunning 6,260,000 private non-farm jobs shed so since the peak in December 2007.

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 29.71% or 1,026,700 jobs since then, appear to be headed lower.

Also note that independently, “residential building” has lost 31.44% of its payrolls or 321,500 jobs since it peaked during September 2006 and that “residential specialty trade contractors” have lost 29.18% of its payrolls or 712,000 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 6.13%) 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.

The Almost Daily 2¢ - The Fed and It's Mortgage Junkies!

Wall Street has weighed in on the future of the U.S. economy and the consensus is a resounding “All Clear!”

Yes, those who couldn’t perceive trouble brewing in the first place… even as late as the fall of 2007 … are giving the high sign … it’s over.. the decline is over.

Ten, fifteen or thirty years in the making (depending on your point of view) and the massive credit-housing-consumption bubble unwind is over in the span of just six to seventeen short months (depending on how you gauge it).

Just a bit of panic… a short and sort of typical decline in stocks… a recession and we’re good.

Sorry folks… we’ve got much more trouble up ahead but for now let’s take look at probably the most crucial trend the government is currently trying to control… and maybe get a sense of how their efforts are both myopic and will likely only result in more trouble.

Let’s remember that it took Fed Chairman Ben Bernanke quite some time to recognize that the housing market decline would have such a major effect on the overall economy.

As late as August 2007 Bernanke was calling the national housing decline “contained”.

But as a preeminent scholar of the “Great Depression” and a protégé of Alan Greenspan … once he recognized the seriousness of the situation he snapped into action slashing rates and cranking up the printing presses.

Specifically the Feds efforts at “quantitative easing” have focused on bringing down conventional mortgage rates… the thinking obviously being that if the housing market heals or at least stops bleeding so too will the overall economy.

A sensible conclusion I suppose yet… rates were already very low.

Our housing markets are in a sense “painted into a corner” or “out on a limb” so to speak… after years of declining interest rates and increasing credit enthusiasm and, of course, dramatically inflated home prices (way too many dollars chasing one asset class) the markets are stuck.

They are like a junky… They NEED low rates or else… a serious case of withdrawal.

They are so fragile and so seriously susceptible to interest rates that even a traditionally low rate of 6% would send them down for the count.

So the Fed is working overtime to give them their fix… bringing rates down and keeping them down until… presumably… they are healthy again?!?!?

To get a sense of the unusual position we have found ourselves in take a look at the following chart (click for dynamic interactive version).

Notice that mortgage rates have been declining for some time AND they are currently about as low as they can possibly go.

Also note that after a massive run up starting in the early 90s, non-revolving consumer debt had been in a declining trend from early 2006 until recently… Is the Fed winning the war?

Is it a war worth fighting? Are they missing the point?

Ticking Prime Bomb!: Fannie Mae Monthly Summary April 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) 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) shows the relative movements of Fannie Mae’s credit and non-credit enhanced (insured and non-insured) “Seriously Delinquent” loans.

Mid-Cycle Meltdown!: Jobless Claims June 04 2009

Today, the Department of Labor released their latest read of Joblessness showing seasonally adjusted “initial” unemployment claims declined 4,000 to 621,000 from last week’s upwardly revised 625,000 claims while “continued” claims declined 15,000 resulting in an “insured” unemployment rate of 5.0%.

It’s important to note that the two most significant periods for job cuts on a non-seasonally adjusted basis is January 15 and July 15 so as July and clearer visibility on H2 quickly approaches it will be interesting to see how initial jobless claims fares.

Also, the continuing claims series is presenting the clearest picture of what is likely to be one of the most problematic aspects of this period of economic crisis namely how to make an immense and growing number of highly specialized (college educated) service/professional service workers productive again.

It’s obvious now that we have reached the first real test of our majority services-based economy.

Unlike the “tech-wreck” of 2000-2002, our current downturn is very broad, leaving no sector and virtually no corner of the country untouched.

With millions of college educated workers now on the market incomes will clearly suffer but moreover, it will be soon all too clear that our prior bubble economy significantly overproduced service workers (particularly professional service workers) for which current employment opportunities will be scant resulting in continued and fundamental vicious-cycle effects.

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.

I have added a chart to the lineup which 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 but as you can see, the pattern is still indicating that recession has arrived.

The following chart (click for larger version) shows “initial” and “continued” claims, averaged monthly, overlaid with U.S. recessions since 1967 and from 2000.

NOTE: The charts below plot a “monthly” average NOT a 4 week moving average so the latest monthly results should be considered preliminary until the complete monthly results are settled by the fourth week of each following month.

As you can see, acceleration to claims generally precedes recessions.


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


In the above charts you can see, especially for the last three post-recession periods, that there has generally been a steep decline in unemployment claims and the unemployment rate followed by a “flattening” period of employment and subsequently followed by even further declines to unemployment as growth accelerated.

This flattening period demarks the “mid-cycle slowdown” where for various reasons growth has generally slowed but then resumed with even stronger growth.

Until late 2007, one could make the case (as Fed chief Ben Bernanke surly did) that we were again experiencing simply a mid-cycle slowdown but now those hopes are long gone.

Adding a little more data shows that in the early 2000s we experienced a period of economic growth unlike the past several post-recession periods.

Look at the following chart (click for larger version) showing “initial” and “continued” unemployment claims, the ratio of non-farm payrolls to non-institutional population and single family building permits since 1967.

The most notable feature of the post-“dot com” recession era that is, unlike other recent post-recession eras, job growth has been very weak, not succeeding to reach trend growth as had minimally accomplished in the past.

Another feature is that housing was apparently buffeted by the response to the last recession, preventing it from fully correcting thus postponing the full and far more severe downturn to today.

It is now completely clear that the potential “mid-cycle” slowdown that appeared to be shaping up in late 2007, had been traded for a less severe downturn in the aftermath of the “dot-com” recession, and now has we have fully entered, instead, a mid-cycle meltdown.

Going Organic!: Organic Home Sales March 2009

With all the speculation of a quick end to the economic decline and numerous “bottom” calls for the nation’s housing markets it’s almost possible to forget the severity of our current predicament.

One notable development that appears to be boosting hopes has been the recent trends in new and existing home sales.

As I have noted in prior posts, I don’t believe that any flattening to existing home sales (i.e. rate of decline slowing) or the brief historic low for new home sales earlier in the year (followed by sequential increases) equates to a bottom in any way shape or form.

Both markets have elevated inventory, obviously declining prices and commonly occurring distressed products all working to suppress any real substantive turn around.

But what would be indicative of a “real substantive” turn around anyway?

I would argue that probably the most important indicator of real healing to the housing markets would be to see a trend, as “Mr. Mortgage” Mark Hanson puts it, “Organic” sales.

These would be sales between real typical home buyers and sellers… not “in the family” sales, “investor sales”, “quick flips” or “condo-izations”… or as S&P/Case-Shiller (CSI) puts it… “Arms Length” transactions.

So, a key to methodology of the CSI is that only “arms length” transactions are included in the formulation and S&P (or actually Fiserv) specifically vets each transaction to ensure that the “arms length” criteria has been met.

To that end, we can get a very good sense of real “organic” sales by looking at the “Sale Pair Counts” published by S&P for each of the metro areas.

I think you can see quite clearly from the charts below (click for super cool interactive charts!) that although the National Association of Realtors existing home sales (fraught with foreclosure and distressed sales) is registering a flattening to overall home sales, “organic” home sales are STILL in sharp decline in many markets.

Reading Rates: MBA Application Survey – June 03 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 increased a whopping 44 basis points since last week to 5.25% while the purchase application volume increased 4.33% and the refinance application volume slumped 24.08% compared to last week’s results.

It’s important to recognize that the Federal Reserve’s “quantitative easing” measures have clearly pushed mortgage rates down spurring increased re-finance activity yet the rate reductions have yet to impact purchase activity, arguably the more important goal.

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).

Pending Home Sales: April 2009

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for April showing a 3.2% year-over-year increase in pending home sales nationally and a surprisingly weak -2.9% 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 sing the praises of the latest results government funded handouts for his industry.

“Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market, … Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.”

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 April seasonally adjusted pending home sales results and draw your own conclusion:

• Nationally the index increased 3.2% as compared to April 2008.
• The Northeast region increased 0.8% as compared to April 2008.
• The Midwest region increased 11.1% as compared to April 2008.
• The South region increased 3.5% as compared to April 2008.
• The West region decreased 2.9% as compared to April 2008.

Construction Spending: April 2009

Today, the U.S. Census Bureau released their April 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 a tepid increase.

With the tremendous weakening trend continuing, total residential construction spending fell 35.03% as compared to April 2008 and a whopping 63.16% from the peak set in March 2006.

Worse off though was private single family residential construction spending which declined 53.02% as compared to April 2008 and a truly grotesque 79.39% 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 increase of 1.99% but likely remains in a contraction trend as vacancy rates continue to soar while rents and prices decline.

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.