Production Pullback: Industrial Production January 2013

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing a decline in January with total industrial production falling 0.10% since December but rising 2.10% above the level seen in January 2012.

Capacity utilization also declined dropping 0.27% from December but still climbing a slight 0.46% above the level seen in January of 2012 to stand at 79.06%

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.

Conspicuous Correlation: Retail Sales January 2013

Today, the U.S. Census Bureau released its latest nominal read of retail sales showing an increase of 0.1% from December and an increase of 4.4% 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 also increased 0.41% from December climbing 1.19% above the level seen in January 2012 while, adjusting for inflation, “real” discretionary retail sales declined 0.33% 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 – February 13 2013

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 (from FHA and conforming GSE data) increased 1 basis point to 3.64% since last week while the purchase application volume declined a notable 10% and the refinance application volume declined 6% over the same period.

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).

Economic Jolt: Job Openings and Labor Turnover December 2012

Today, the Bureau of Labor Statistics released their latest monthly read of job availability and labor turnover (JOLT) showing that private non-farm job “openings” declined 4.96% since November but remained 2.16% above the level seen in December 2011 while private non-farm job “hires” declined a notable 4.77% from November remaining just 0.67% above the level seen in December 2011.

Job “layoffs and discharges” declined 8.17% from November falling 6.30% below the level seen last year while quitting activity declined 0.64% from November remaining 8.25% above the level seen in December 2011.

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).

SNAP Into Reality!

Part of today’s Kojo Nnamdi show on WAMU was dedicated to a nonsensical, “immense-government” era propaganda event currently taking the country by storm termed “SNAP the Silence” or “The SNAP Challenge” whereby participants show solidarity with the poor by attempting to live on roughly $5 a day, the equivalent of the daily stipend for a typical Food Stamps recipient.

Formally the Food Stamps program, the Supplemental Nutrition Assistance Program (SNAP for short) function, as its new name directly implies, is to “assist” low income individuals and families in getting basic nutrition.

Given the simple fact that recipients are explicitly NOT expected to actually live on the assistance, what is the purpose of attempting to meet such a challenge?

Keep in mind that there are federal representatives from around the country (look up yours here) supposedly taking up this challenge and various groups participating and even producing videos that seek to strategize living on such a small sum.

For a hilarious example, watch this video of a guy who while first drawing the viewers attention to the plight of the poor and the small $5 a day stipend then goes on to suggest that he’s so far making it through the challenge “unscathed” due mostly to the fact that his “nutrition coach” has made him up a menu of “healthy and interesting meals” including such delights as “sweetened quinoa and berries”, a “tuna fish and hummus sandwich and a side salad”, and a “whole bunch” of “carrot ginger soup” which along with a diet soda came in at $4.75.

Again, the stated purpose of the SNAP program is only to provide “assistance” and is specifically not intended as the sole source of a recipient’s nutritional requirements.

With over 47 million Americans (23 million households) receiving SNAP assistance at an average individual monthly benefit of $135.72 ($281.21 per recipient household), the burn rate for just this one assistance program comes to $6.47 billion/month or $77.64 billion/year, but listening to these propagandists, you would think our country was providing little to nothing.

On The Stamp: Food Stamp Participation November 2012

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

In fact, household participation has been climbing so steadily that it has dwarfed the last peak (which looks like a minor blip by comparison) set as a result of the immediate fallout following hurricane Katrina.

The latest data released by the Department of Agriculture indicated that in November, 141,067 recipients were added to the food stamps program with the current total increasing 3.04% on a year-over-year basis.

Individuals receiving food stamp benefits increased to 47.69 million which, as a ratio of the overall civilian non-institutional population, increased 1.46% on the month to now stand at a whopping 19.53% of the population.

Households receiving food stamps benefits increased by 73,952 to 23.01 million with the current total rising 4.50% above the level seen a year earlier

As participation continues to swell, so too has the total nominal benefit cost climbing 4.26% on a year-over-year basis to $6.47 billion for the month.

On The Stamp: Food Stamp Participation October 2012

Extended Unemployment: Initial, Continued and Extended Unemployment Claims February 07 2013

Today’s jobless claims report showed a decline to both initial unemployment claims and an increase to continued jobless claims as initial claims trended well below the closely watched 400K level.

Seasonally adjusted “initial” unemployment claims declined by 5,000 to 366,000 claims from 371,000 claims for the prior week while seasonally adjusted “continued” claims increased by 8,000 claims to 3.224 million resulting in an “insured” unemployment rate of 2.5%.

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 1.82 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.67 million people that are currently counted as receiving traditional continued unemployment benefits, there are 5.50 million people on state and federal unemployment rolls.

Reading Rates: MBA Application Survey – February 05 2013

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 (from FHA and conforming GSE data) increased 5 basis point to 3.63% since last week while the purchase application volume increased 2% and the refinance application volume increased 4% over the same period.

Clearly, the Federal Reserve's QE3 announcement and implementation has had a notable effect on mortgage rates in recent weeks continuing to lift refinance application activity and possibly helping to establish a base of sorts to purchase applications.

The question is though, if the Fed is stimulating this activity by forcing artificially low rates, what would these trends look like if prevailing rates were based on a more fundamental market function?

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: January 2013

Today, the Institute for Supply Management released their latest Non-Manufacturing Report on Business indicating that service related business activity continued to expand in January but assessments were slightly lower than last month with the business activity component declining and the overall non-manufacturing index edging down slightly to 55.2 from 55.7.

At 56.4 the business activity index declined a notable 7.24% since December falling 5.21% below the level seen a year earlier.

This month, service industry respondents are sounding mixed reporting some cautious optimism as well as "soft" assessments of conditions:


"Sales are up slightly compared to this same period last year. This is offset by slight increases in costs for personnel benefits, fuel and other operating costs." (Public Administration)

"Business is good, but we find ourselves in a very competitive environment." (Construction)

"No change in business levels since prior month, but optimism growing that commercial and industrial construction will experience growth in 2013." (Real Estate, Rental & Leasing)

"Healthcare reform causing continued slowdown and less investment." (Health Care & Social Assistance)

"Seeing increasing prices on services and goods — some not substantiated. Business outlook continues to show small signs of improvement in parts of our business, but other parts are lagging behind." (Professional, Scientific & Technical Services)

"There seems to be some stabilization in recent months. Business seems a little more confident, and consumers are participating once again." (Retail Trade)

"Business is slightly softer than this time last year, but there are a lot of projects on the horizon which gives us confidence." (Wholesale Trade)

Recession Watch 2013: Piger Probability Series

Last year I reported on a relatively new recession probability indicator (… the “markov switching” series recently introduced to the Fed FRED/Blytic) that was giving a pretty clear, though preliminary, indication of probable recession.

While I noted that the series was highly revised, I pointed out that even taking into account the revisions, the series was giving a recession signal since using just the "maximum" reported values (values that had been all been revised lower) the reporting 20% probability was very unusual and typically associated to oncoming trouble.

In the latest release, the November data (... there is a reporting lag) indicates that the probability of recession has declined to .22% while the standout August value (that initially peaked interest in this series) has now been revised to 1.7%.

It's important to note though that the point of my prior post was to highlight just the "maximum" reported values and while the latest release revises down August's 19.6% and reports an additional low probability for the latest month, it makes no difference... the fact remains that this series has NOT given such a significant over estimate of recession without there being a probable recession ahead.

Now clearly, there could always be a first time... this is just estimated data... but the prior 19.6% reported figure clearly argues for following this series very closely in the coming months.  

Constuction Spending: December 2012

Today, the U.S. Census Bureau released their latest read of construction spending showing notably better results in December with total construction spending, the residential component and the non-residential component improving since November. 

On a month-to-month basis, total residential spending increased 2.16% from November climbing 24.99% above the level seen in December 2011 while still remaining a whopping 54.44% below the peak level seen in 2006.

Single family construction spending climbed 0.77% since November rising 30.75% since December 2011 but remained a whopping 69.22% below it's peak in 2006.

Non-residential construction spending increased 1.83% since November climbing 5.04% above the level seen in December 2011 and remained a whopping 28.05% 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.

Envisioning Employment: Employment Situation January 2013

Today’s Employment Situation Report indicated that in January, net non-farm payrolls increased adding 157,000 jobs overall with the private non-farm payrolls sub-component adding 166,000 jobs while the civilian unemployment rate increased slightly to 7.9% over the same period.

Net private sector jobs increased 0.15% since last month climbing 1.89% above the level seen a year ago but remained 2.29% below the peak level of employment seen in December 2007.

Recovery-less Recovery: Unemployment Duration January 2013

Today's employment situation report showed that conditions for the long term unemployed improved notably in January while still remaining distressed by historic standards.

Workers unemployed 27 weeks or more decreased to 4.708 million or 38.1% of all unemployed workers (the lowest level seen since November 2009) while the median term of unemployment dropped to 16.0 weeks and the average stay on unemployment declined to 35.3 weeks.

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 January 2013

Today’s Employment Situation report showed that in January “total unemployment” including all marginally attached workers went flat at 14.4% while the traditionally reported unemployment rate also ticked up slightly to 7.9%.

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.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims January 31 2013

Today’s jobless claims report showed a notable jump to both initial and continued jobless claims as initial claims trended well below the closely watched 400K level.

Seasonally adjusted “initial” unemployment claims increased by 38,000 to 368,000 claims from 330,000 claims for the prior week while seasonally adjusted “continued” claims increased by 22,000 claims to 3.197 million resulting in an “insured” unemployment rate of 2.5%.

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 2.11 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 3.71 million people that are currently counted as receiving traditional continued unemployment benefits, there are 5.82 million people on state and federal unemployment rolls.