Recovery and Reinvestment Act 2

The Obama administration is clearly in over its head.

Anyone expecting revolutionary proposals to come out of Thursday's joint session of Congress ought to set their expectations very low.

Like all "insane" (the Einstein definition) central planners and policy junkies, the Obama administration appears bent on proposing the same initiatives over and over again in hopes that somehow a different outcome will materialize.

Remember the "cash for clunkers" and "first time homebuyer tax credit" policy scams?  

How many of those ridiculous make-work road projects with the "Project Funded by the American Recovery and Reinvestment Act" signs do you estimate that you have driven by in the last couple of years? 10? 20?... More?  

What about the nearly $300 billion of Recovery and Reinvestment (remember recovery.gov) funds that have already been doled out to numerous government contractors in hopes of "saving or creating" jobs?

It should be perfectly clear from looking at measures like real GDP (particularly the recent benchmark revisions), the U6 unemployment rate, the length of stay on unemployment and food stamps participation that the Keynsian multiplier effect has been grossly overstated and that our "leaders" have only lead us further down an abyss of economic malaise, insolvency and likely default.

While there are whisper numbers of another $300 billion in proposals to be outlined by Obama on Thursday, you can bet that it will come in the form of more lame ideas and possibly a few temporary tax cuts.

It's important to recognize the point that we have now reached in this epic economic unwind.

The Federal Reserve, while bluffing about additional "policy tools", has all but tapped out while fiscal policy has clearly hit a wall with the administration similarly attempting to bluff it's way through to the next election.

So the feel-good proppers and liquidity pumpers have effectively lost all credibility having gained very little traction on the economy at the cost of trillions of dollars and the loss of our AAA credit rating while confidence on the part of the populace has taken a dramatic turn for the worse as a new recession looms on the horizon.

Is a new recession near?  Maybe... some sensitive economic indicators seem to signal so but in any event, it's clear that we are worse off and that policy action is fast becoming irrelevant.

Economic Jolt: Job Openings and Labor Turnover July 2011

Yesterday, the Bureau of Labor Statistics released their latest monthly read of job availability and labor turnover (JOLT) showing that private non-farm job “openings” increased 2.29% since June climbing 15.26% above the level seen in July 2010 while private non-farm job “hires” declined 2.03% from June remaining 1.92% above the level seen in July 2010

Job “layoffs and discharges” declined 3.65% from June falling 6.82% below the level seen last year while quitting activity increased 2.02% from June and 8.91% above the level seen in July 2010.

It’s important to understand that job “quits” are included as a component of the “separations” data series as “quitting” is a valid means of workers “separating” from employers but their inclusion tends to create an overall procyclical trend in what would otherwise be logically thought of as a countercyclical process (i.e. downturn leads to increase in separations not decrease).

Reading Rates: MBA Application Survey – September 07 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 9 basis points to 4.23% since last week while the purchase application volume declined 0.2% and the refinance application volume slumped 6.3% over the same period.

With rates at or near generational lows (including the 10-year T-Bill) and the FOMC members becoming more dovish by the day, it will be interesting to see where rates will go once clear details of QE3, purported to be focused more on long term rates, are revealed.

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).

ISM Non-Manufacturing Report on Business: August 2011

Today, the Institute for Supply Management released their latest Non-Manufacturing Report on Business indicating that overall service related economic activity remained weak throughout August while the business activity component declined on the month.

At 55.6 the business activity index declined 0.89% since July while sliding 0.36% below the level seen a year earlier.

Like the ISM Manufacturing index released earlier this month, the non-manufacturing sector respondents are raising some concern over a sluggish economy, pricing pressure and hesitant customers:

"Overall prices paid are increasing, while sales are still slightly behind projections." (Public Administration)

"This month we have seen a downward trend in sales activities due to weather and economic conditions." (Construction)

"Customer traffic is trending lower, but spending per person continues to increase. Labor cost savings realized through attrition, as fewer replacements are hired. The outlook for the remainder of 2011 is cautiously optimistic, with increased investment in marketing. 'Sticky prices' are keeping operating expenses elevated even as commodity supply eases." (Arts, Entertainment & Recreation)

"Business is holding, but looking weaker toward fourth quarter." (Professional, Scientific & Technical Services)

"Business climate uncertainty is increasing." (Management of Companies & Support Services)

Fannie Mae Delinquencies: July 2011

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

In June, 3.14% of non-credit enhanced loans went seriously delinquent while the level was 9.69% 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.

On The Stamp: Food Stamp Participation June 2011

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

In fact, household participation has been climbing so steadily that it has far 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 in June, 226,752 recipients were removed from the food stamps program (latest several months effected by disaster assistance), while participation continued to increased 9.47% on a year-over-year basis and household participation increased 11.76%.

Individual participation as a ratio of the overall civilian non-institutional population has increased 8.65% over the same period.

Participation continues to increase with nominal benefit costs climbing a lofty 9.74% on a year-over-year basis to $6.03 billion for the month.

Envisioning Employment: Employment Situation August 2011

Today’s Employment Situation Report showed that in August, net nonfarm payrolls went flat from July while private nonfarm payrolls added a mere 17,000 and the unemployment rate also went flat at 9.1% over the same period.

Net private sector jobs increased 0.02% since last month climbing 1.59% above the level seen a year ago but but remained a whopping 5.57% below the peak level of employment seen in December 2007.

Full Time Workers Fully Under Pressure: August 2011

Today’s employment situation report showed that in August the full time unemployment rate declined slightly to 9.7% of the civilian workforce remaining near the highest rate seen in 41 years.

The Bureau of Labor Statistics considers full time workers to be those “who have expressed a desire to work full time (35 hours or more per week) or are on layoff from full-time jobs”.

Full time jobless workers currently account for roughly 88.5% of all unemployed workers.

Recovery-less Recovery: Unemployment Duration August 2011

Be sure to bookmark the "Scary Unemployment Dashboard"... it's live.

Today's employment situation report showed that conditions for the long term unemployed went mixed in August while remaining epically distressed by historic standards.

Workers unemployed 27 weeks or more declined to 6.03 million or 42.9% of all unemployed workers while the median number of weeks unemployed increased to 21.8 weeks and the average stay on unemployment declined slightly to 40.3 weeks, a new high for the series.

Looking at the charts below (click for super interactive versions) you can see that today’s sorry situation far exceeds even the conditions seen during the double-dip recessionary period of the early 1980s, long considered by economists to be the worst period of unemployment since the Great Depression.

On The Margin: Total Unemployment July 2011

Today’s Employment Situation report showed that in August “total unemployment” including all marginally attached workers increased slightly rising to 16.2% from the prior month's level of 16.1% while the traditionally reported unemployment rate went flat at 9.1%.

The traditional unemployment rate is calculated from the monthly household survey results using a fairly explicit definition 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.

Constuction Spending: July 2011

Today, the U.S. Census Bureau released their July read of construction spending showing near-cycle low levels of spending for residential construction while indicating a slight improvement for single family residential and a decline for total non-residential spending.

On a month-to-month basis, total residential spending declined 1.4% but increased 4.44% above the level seen in July 2010 while remaining a whopping 63.31% below the peak level seen in 2006.

Single family construction spending increased 0.06% since June falling 8.67% since July 2010 and whopping 77.65% below it's peak in 2006.

Non-residential construction spending declined 0.35% since June but increased 5.56% since July 2010 remaining a whopping 37.52% below the peak level reached in October 2008.

The following charts (click for larger dynamic 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, month-to-month and peak percent change to each since 1994 and 2000 – 2005.

ISM Manufacturing Report on Business: August 2011

Today, the Institute for Supply Management released their latest Report on Business for the manufacturing sector indicating that economic activity continued to weaken in August with assessments of many measures slowing.

At 50.6 the purchasing manager’s composite index (PMI) declined 0.59% since July sliding 8.33% below the level seen a year earlier.

Some respondents indicated sluggish domestic sales, slowing trends and headwinds coming from customers unwillingness to commit to purchases:

"Business is soft, confidence is down, and we are cutting inventory and expenses." (Machinery)

"Exports continue to be strong — domestic weak." (Computer & Electronic Products)

"Current headwinds in the national and international economic environment have increased uncertainty, and are affecting our customers' willingness to commit to high-dollar equipment purchases." (Transportation Equipment)

"We continue to post solid numbers, but the situation seems tenuous." (Plastics & Rubber Products)

"Automotive business (represents 52 percent of our sales portfolio) continues to be strong. Core business has pulled back slightly." (Apparel, Leather & Allied Products)

"Sales continue to be sluggish." (Furniture & Related Products)

Extended Unemployment: Initial, Continued and Extended Unemployment Claims September 01 2011

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

Seasonally adjusted “initial” unemployment declined 12,000 to 409,000 claims from last week’s revised 421,000 claims while seasonally adjusted “continued” claims declined by 18,000 resulting in an “insured” unemployment rate of 3.0%.

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 3.67 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 7.23 million people on state and federal unemployment rolls.

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).