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

The latest release of the Federal Reserve Bank of Philadelphia Business Outlook Survey (BOS) for August indicated dramatic weakness in the regions manufacturing activity with the current activity index plunging to a notable contraction level of -30.7 while the future activity index declined to a level of 1.4.

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.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims August 18 2011

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

Seasonally adjusted “initial” unemployment increased 9,000 to 408,000 claims from last week’s revised 399,000 claims while seasonally adjusted “continued” claims increased by 7,000 resulting in an “insured” unemployment rate of 2.9%.

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 3.65 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.58 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.23 million people on state and federal unemployment rolls.

Reading Rates: MBA Application Survey – August 17 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 5 basis points to 4.32% since last week while the purchase application volume dropped a notable 9.0% and the refinance application volume increased 8.0% over the same period.

It's important to note that the average rate for a 15 year fixed rate mortgage is now sitting at the lowest level seen in at least four years.

The surge in refinance applications may have been influenced either by the looming credit downgrade (commonly reported as carrying to potential to increase interest rates) or by the recently publicized GSE loan limit resets or by both.

In any event, the purchase application volume is weak and remains near the lowest level seen in well over a decade while the surge in refinance activity is likely temporary.

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).

Production Pullback: Industrial Production July 2011

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing a notable improvement with total industrial production increasing 0.91% from June and rising 3.70% above the level seen in July 2010.

Capacity utilization increased 0.80% from June climbing 2.95% above the level seen in July of 2010 to stand at 77.52%

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.

New Residential Construction Report: July 2011

Today’s New Residential Construction Report showed that single family permits went flat while single family starts declined notably from last month with both measures continuing to show sight year-over-year declines.

Single family housing permits, the most leading of indicators, remained flat from last month at 404K single family units (SAAR), dropping 1.22% below the level seen in July 2010 and an astonishing 77.53% below the peak in September 2005.

Single family housing starts declined 4.9% to 425K units (SAAR), dropping 0.93% below the level seen in July 2010 and a stunning 76.69% below the peak set in early 2006.

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

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

Today, the University of Hong Kong released their Hong Kong Residential Real Estate Series (HKU-REIS) indicating that, in June, the price of residential properties increased 1.11% since May climbing 28.99% above the level seen in June 2010.

The “Hong Kong Island” index, “Kowloon” and “New Territories” sub-components also showed notable annual increases while the "Hong Kong Island" series indicated that prices declined slightly on the month still far outpacing the prior 1997 peak.

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.

Homebuilder Blues: NAHB/Wells Fargo Home Builder Ratings August 2011

Today, the National Association of Home Builders (NAHB) released their latest Housing Market Index (HMI) showing that measures remained flat in August with the composite HMI index remaining at 15 while the "buyer traffic" index remained near record lows as home builders continue to plod through the weakest activity seen in generations.

It's important to recognize that currently all measures are continuing to show epic weakness with even the strongest sentiment gain only slightly beating the level seen last year.

Clearly the new home market has seen another no-show start to the buying season with the typically strongest selling months (remember Bob Toll's analysis of the seasons) fully behind it.

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

The Empire State Manufacturing Survey: August 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 -7.72 while assessments of future activity worsened with the future activity index dropping to just 8.7.

Current prices paid declined to 28.26 while current new orders weakened to -7.82 and assessments of future new orders plunged to 6.52.

JP Morgan On Food Stamps!

Oh! What a gross and smarmy milieu the policy junkies in Washington D.C. have concocted!

I know I’m reposting this (I missed is the first time around) and probably beating a dead horse at this point, but check out this clip of Bloomberg interviewing a JP Morgan exec about its “public sector benefit payments” division.

Though by outsourcing (thus privatizing) the electronic payment function of the food stamps program, the government is likely just making a (rare) likely efficient business decision, taken in its totality, the fact that some of JP Morgan’s profits are tied to the expansion of this reckless public policy fiasco is somehow just too nasty to accept as legitimate.

Aside from the interviewee not helping the matter (he came off a little strange), the notion that the food stamps “transaction flow” has been completely digitized from government to recipient through to warehouse stores like Costco and Walmart all via the help of JP Morgan just seems off.

Further, can you count how many times the suit mentioned how “important” the business was to JP Morgan? … the volume having gone “through the roof” in recent years is “good news”?!!

The U.S. is just plainly doomed.

University of Michigan Survey of Consumers August 2011 (Early)

Today's early release of the Reuters/University of Michigan Survey of Consumers for August indicated a serious plunge in consumer sentiment with a reading of 54.9 falling 20.32% below the level seen last year while one year inflation expectations remained flat at 3.4%.

The Index of Consumer Expectations (a component of the Index of Leading Economic Indicators) dropped to 45.7, and the Current Economic Conditions Index slid to 69.3.

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

Conspicuous Correlation: Retail Sales July 2011

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing an increase of 0.5% since June bringing the total increase since last year to 8.5% 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 declined 0.29% from June but increased 3.47% above the level seen in July 2010 while, adjusting for inflation, “real” discretionary retail sales increased just 0.39% 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.

FUBAR: Food Stamps Gone Wild!

What a horrendous and ruinous program the policy junkies in Washington D.C. have doomed us with.

While many longtime readers are aware that I have been tracking the food stamp program for years and noting the stupendous rise in individual participation from 26 million back in 2007 to roughly 46 million today, the most outrageous take away from observing this disastrous public policy tool is not simply its largess but the fact that it is rife with fraud and abuse.

Quickly perusing the current news provides a clear sample of the types of abuse that are likely occurring all over the country.

Stories like a ring of middle aged government workers in New York City that are being charged with scamming the taxpayers for over $8 million by creating at least a thousand fictitious food stamps recipients and pocketing the funds.

Or a North Carolina woman using a local food mart to misuse her EBT (electronic food stamps credits) credits, buying unauthorized items and receiving cash during the transaction.

Or a similar occurrence in Portland Oregon whereby several food stamps recipients as well as a store owner were charged with felony food stamp fraud after authorities determined that the recipients were selling their benefits at a 50% discount to the store owner (store charges full credit on the card and kicks the recipient back 50% in cash with little or no products actually purchased), a common scheme used by recipients to quickly turn their credits into cash.

Or a ring of recipients and merchants in Arizona using the same scheme to defraud the U.S. taxpayer of about $700,000.

Or even kids in Michigan using their food stamps credits to buy cases of canned soda with the intention of merely emptying the product into the ground so as to trade the cans in for the 10 cent deposit return.

Drug felons in California lobbying state legislators to lift a lifetime ban on participating in the food stamps program (a sensible restriction enacted during the mid-90s cleanup of welfare fraud) while Michigan is finally cutting off college students from automatically qualifying for food stamps eliminating 30,000 entitlement abusers.

One has to wonder if the “war on poverty” policy junkies of past generations would have been as proud of the current outcome of their efforts as they were when they implemented some of the first “free” food stamps pilot programs.

Given that by the mid-1970s you had a clear pattern of abuse and a pristine blueprint for a failed policy tool, one has to wonder how this appalling program has survived so long.

While you wonder, give the video associated with this report a watch to see the senseless anger spewed by irate food stamps recipients in Georgia when a subtle administrative quirk temporarily prevented them from accessing their credits.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims August 11 2011

Today’s jobless claims report showed a 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 7,000 to 395,000 claims from last week’s revised 402,000 claims while seasonally adjusted “continued” claims declined by 60,000 resulting in an “insured” unemployment rate of 2.9%.

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 3.70 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.68 million people that are currently counted as receiving traditional continued unemployment benefits, there are 7.38 million people on state and federal unemployment rolls.

On The Pulse: Ceridian-UCLA Pulse of Commerce Index July 2011

The latest release of the Ceridian-UCLA Pulse of Commerce Index™ (PCI) suggests that economic activity slowed in July with the seasonally adjusted index declining 0.21% from June and only rising 1.0% above the level seen in July 2010.

The three month moving average of the PCI declined slightly from June indicating that the July (released next week) Industrial Production data will likely show a similar trend.

Reading Rates: MBA Application Survey – August 10 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 8 basis points to 4.37% since last week while the purchase application volume declined 0.9% and the refinance application volume jumped a whopping 30.4% over the same period.

It's important to note that the average rate for a 15 year fixed rate mortgage is now sitting at the lowest level seen in at least four years.

The surge in refinance applications may have been influenced either by the looming credit downgrade (commonly reported as carrying to potential to increase interest rates) or by the recently publicized GSE loan limit resets or by both.

In any event, the purchase application volume remains near the lowest level seen in well over a decade while the surge in refinance activity is likely temporary.

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).