University of Michigan Survey of Consumers September 2011 (Early)

Today's early release of the Reuters/University of Michigan Survey of Consumers for September indicated continued weakness in consumer sentiment with a reading of 54.9 falling 15.25% below the level seen last year while one year inflation expectations climbed to 3.7%.

The Index of Consumer Expectations (a component of the Conference Board's Index of Leading Economic Indicators) dropped to 47, and the Current Economic Conditions Index climbed to 74.5.

It's important to recognize that consumer sentiment has seriously eroded over the past few months with the current results remaining at levels not seen since 1980, a major indication that consumers are in the process of tightening even further on spending.

Production Pullback: Industrial Production August 2011

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing a slight improvement with total industrial production increasing 0.18% from July and rising 3.35% above the level seen in August 2010.

Capacity utilization increased 0.08% from July climbing just 2.45% above the level seen in August of 2010 to stand at 77.29%

It's important to recognize that though the "recovery" is well over two years old, both industrial production and capacity utilization are notably below the peaks set in late 2007.

Philadelphia Feeling: Federal Reserve Bank of Philadelphia Business Outlook Survey September 2011

The latest release of the Federal Reserve Bank of Philadelphia Business Outlook Survey (BOS) for September continued to indicate dramatic weakness in the regions manufacturing activity with the current activity index remaining at a notable contraction level of -17.5 while the future activity index improved to a level of 21.4.

The current activity index along with most of the other "current" data points (new orders, unfilled orders, delivery time and inventories) are now indicating significant recessionary weakness in manufacturing activity with the size and breadth of the latest pullback clearly demanding that closer scrutiny be paid to these series in future releases.

The following chart shows the current and future activity indexes both with their corresponding 3-month moving averages. The red line marks the threshold between contraction and expansion for these diffusion indexes.

The Empire State Manufacturing Survey: September 2011

The Empire State Manufacturing Survey consists of a series of diffusion indices distilled from a monthly survey of New York regional manufacturing executives and seeks to identify trends across 22 different current and future manufacturing related activities.

Today’s report showed continued notable weakness and again indicated contraction for current manufacturing activity with the current activity index declining further below zero at -8.82 while assessments of future activity improved slightly with the future activity index climbing to just 13.04.

Current prices paid increased to 32.61 while current new orders weakened to -8 and assessments of future new orders improved to 13.04.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims September 15 2011

Today’s jobless claims report showed an increase to initial unemployment claims and a decline to continued unemployment claims as a slight rising trend began to materialize for initial claims.

Seasonally adjusted “initial” unemployment increased 11,000 to 428,000 claims from last week’s revised 417,000 claims while seasonally adjusted “continued” claims declined by 12,000 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 3.60 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.43 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.04 million people on state and federal unemployment rolls.

Hong Kong Bubble?: Hong Kong Residential Property Prices July 2011

Today, the University of Hong Kong released their Hong Kong Residential Real Estate Series (HKU-REIS) indicating that, in July, the price of residential properties declined 0.65% since June but climbed 25.97% above the level seen in July 2010.

It appears that after a stunning run of monthly increases that saw prices increase dramatically, prices are beginning to show a pullback of sorts with the most measures declining on the month while the Island component showed the largest monthly pullback since 2008.

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.

Conspicuous Correlation: Retail Sales August 2011

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing very little change since July but but increasing 7.2% on a year-over-year basis on an aggregate of all items including food, fuel and healthcare services.

Nominal discretionary retail sales including home furnishings, home garden and building materials, consumer electronics and department store sales increased 0.33% from July and increased 3.28% above the level seen in August 2010 while, adjusting for inflation, “real” discretionary retail sales declined 0.09% over the same period.

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 to nominal discretionary retail sales and the year-over-year change to nominal 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.

Reading Rates: MBA Application Survey – September 14 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 6 basis points to 4.17% since last week while the purchase application volume increased 7.0% and the refinance application volume increased 6.0% 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).

Radar Watching: July 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 and then rising throughout the spring/summer selling season, now trends appear to be topping out as the peak summer activity draws to a close.


The latest data shows that as of mid-July, prices have declined 4.70% below the level seen in July 2010 while turning down from a seasonal peak reached in mid-June.

With the spring/summer selling season now complete there is nowhere for prices to go but down. Look for a declining trend to continue to materialize and likely run into March or April of 2012.

OECD Composite Leading Indicators: July 2011

Note... be sure to bookmark the OECD Dashboard for a real-time view of all the OECD composite indices.

The Organization for Economic Co-Operation and Development (OECD) publishes a wealth of data tracking the fundamental economic dynamics of the world’s largest economies.

The OECD leading indicator, industrial production, business confidence and consumer confidence series all disclose important and timely clues to the state of each respective economy or group of economies.

The latest monthly results indicate that economic conditions in the global economy generally weakened with the total leading index declining 0.20% since June falling 0.07% below the level seen in July 2010 while a more timely indicator of business confidence weakened notably.

Total Business confidence plunged 0.72% since July (more timely data) falling 1.31% below the level seen in August 2010.

Total Consumer confidence increased with the total index climbing 0.18% since July (more timely data) and climbing 0.77% above the level seen in August 2010.

China's Engine: July 2011

Looking at the latest release of the OECD economic indicators for China, it appears that the massive jump in economic activity seen since the panicky period of late 2008 took a notable pause throughout most of 2010 and after having shown some growth into late 2010, is now back on the decline (note... this is a highly revised series that has been swinging between expansion to contraction with each monthly release).

China’s leading economic indicator suggests that economic activity slowed in July showing a month-to-month decline of 0.10% bringing the latest level just 0.41% below the level seen in July 2010.

The Fall of Greece: July 2011

Looking at the most recent OECD economic indicators, Greece makes by far the weakest showing in all the Eurozone as it continues to plod through tremendously difficult economic times.

Industrial production is collapsing further into severe contraction territory, consumer confidence remains distressed, business confidence remains depressed and the leading index is turning down fast dropping 0.4% since June and 6.84% below the level seen in July 2010.

For August (more timely data), consumer confidence rose a meager 0.18% from July but dropped 5.17% below the level seen in August 2010 while business confidence increased a slight 0.28% from July climbing 0.86% above the level seen in August 2010.

Industrial production remains epically weak plunging a stunning 3.97% between May and June 2011 (less timely data) remaining near the lowest levels seen since the late 1990s.

Welcome To the Zero Credibility Bound

Last night’s “job bill” speech was nothing short of a travesty, a decisive and freakish reminder that America has been taken deeply down the worst possible path.

While somewhat surprising, I suppose it just makes sense that both the Federal Reserve and the Federal Government have simultaneously lost all credibility and that both are seemingly exhausted of policy tools.

When the window of reality opened briefly in 2008 with colossal failures and crisis in every direction, many Americans got a brief and uncomfortable sense of what it feels like to be truly concerned about their current wealth and future prosperity… a sharp contrast to the heyday of the housing boom era where levering up on residential real estate was all the rage.

With a host of broken, deteriorating and dysfunctional markets, stocks down over 50%, a few notable public bank runs and several earth shaking “buck breaking” money market events, the Feds panicked and abruptly snapped into a mode of propping and bailing using creative accounting trickery, blanket guarantees and boat loads of massive Keynesian boondoggles.

What we are now seeing, I believe, is the clear recognition that the propping and stimulus action was an unmitigated failure and further that the political process and institutions that brought us these “solutions” are as weak and phony as the “recovery” they attempted to manufacture.

Bernanke’s speech yesterday at the Economic Club of Minneapolis revealed this somewhat in his recounting of events of the past few years and his recognition that the massive housing slump has made all the difference to the severity of the recession and the lackluster “recovery”, a fact that the Federal Reserve appears to have underestimated at every turn.

With a litany of platitudes and talk of the “enduring strength” of the American economy, Bernanke concluded his speech by assuring listeners that the long term prospects of the U.S. economy does not have to be materially affected by the ongoing financial crisis so long as we take the necessary steps to “secure that outcome”.

President Obama did no better last night when he outlined a list of futile fiscal policy gimmicks that could have been borrowed right from the “American Recovery and Reinvestment Act” a 2009 policy action carrying over twice the supposed Keynesian punch that we all know did little to nothing to build a durable long term recovery.

It’s over folks… By hook or crook the Feds did their best to reassemble our Humpty Dumpty economy but it can’t be done… you can’t paper over the serious mistakes made by millions of households or the bad policy created by generations of Washington DC vote peddling hucksters.

Outstanding Contraction!: Commercial Paper Outstanding August 2011

The Commercial Paper (CP) market is essentially a private debt market used by corporations as a generally cheaper means of funding typical recurring operations than drawing on a line of bank credit.

Commercial paper, as financial instrument, is by no means a recent innovation and, in fact, you can read about how the CP market was affected by the many historic financial shocks experienced by the U.S. (read Panic on Wall Street: A History of America’s Financial Disasters)

Although the Federal Reserve was able to artificially bring CP rates down significantly since the shocking 615 basis point spread blowout (A2/P2 spread) of late 2008, they had not been successful in preventing an overall contraction in the CP market.

The Federal Reserve calculates and published the total amount of CP outstanding every week and for August commercial paper outstanding presented a serious pullback dropping from a recent high set back in July and expanding at a meager rate of 3.16% on a year-over-year basis to $1097.80 billion, a level that is still notably lower than even the worst periods of the last two recessions.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims September 08 2011

Today’s jobless claims report showed an incline 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 2,000 to 414,000 claims from last week’s revised 412,000 claims while seasonally adjusted “continued” claims declined by 30,000 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 3.59 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.47 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.07 million people on state and federal unemployment rolls.