Two former Census Bureau officials working at Sentier Research have released a new report claiming that median US household income is recovering, but remains 6.5% below its pre-recession level in real (inflation adjusted) terms:
After adjusting for changes in consumer prices, median annual household income declined during the officially-defined recession from $55,480 in December 2007 to $54,478 in June 2009. During the “economic recovery”, as the unemployment rate and the duration of unemployment remained high, median annual household income continued its decline, reaching a low point of $50,722 in August 2011. As of June 2013 median household income had recovered somewhat to $52,098
What is arguably more disturbing is the fact that real median household income is now 7.2% below its January 2000 level:
Compared to January 2000, the beginning point for our monthly statistical series, median annual household income is now lower by 7.2 percent. (All income amounts in this report are before-tax money income and are presented in terms of June 2013 dollars).Moreover, virtually all groups have been adversely affected by the slump:
Based on our data, almost every group is worse off now than it was four years ago, with the exception of households with householders 65 to 74 years old. For some groups of householders—Blacks, men living alone, young and upper-middle age brackets, part-time workers, the unemployed, females with children present, and those with only a high school degree or some college but no degree—the declines have tended to be larger than average. Changes in educational attainment during the economic recovery have played a key role in the findings, as we describe in the report.”So much for the much celebrated US economic recovery.
2---America's Outsourcers to be Reclassified as Manufacturers, economic populist
Don't like the trade deficit, low GDP and the public outrage over the offshore outsourcing? Change the accounting method to make it go away! Such is the agenda of government statisticians it appears. How they are going to incorporate statistical lies into national accounts is shocking. Production location no longer matters, the thing that will count is ownership of the final product
3---Stock Prices Already Vulnerable Even Before Taper Time Starts, Trim Tabs
The financial world altered back on May 21 when Fed Chairman Ben Bernanke said the free money drug will stop flowing at some point. Since then over $110 billion has flowed out of bond funds. Why? Interest rates have surged. A 10 year Treasury was 1.6 percent on May 21 and is closing in on three precent today. ...
Wage and salary growth is puny to non-existent based upon our analysis of the US Treasury’s daily withheld income and employment taxes. Currently wages and salaries are growing at less than 3% year over year before inflation, and the growth rate has been slowing since mid July. The recent slowdown trails the surge in interest rates by six weeks.
All that means is that the housing market has started to slow but the numbers do not yet show that slowdown. Remember mortgage rates spiked early in June. Since closings take place six to 10 weeks after the contract signing, July existing home sales were based on May to early June contracts.
Yes, many Wall Street types are saying that housing will stay strong even if mortgage rates average five percent. After all, five percent is still close to all time lows. Really? That ignores the fact that at today’s 4.9 percent mortgage rate, you need to be making 40 percent more to qualify for the same dollar amount of mortgage then when rates were 3.5 percent. In other words, home affordability has dropped by 40 percent! A 40 percent spike in home costs has to hurt future home sales. And as we get into September, the home sale numbers will be horrendous.
So while higher interest rates are slowing an already slowly growing US economy, stock prices today are virtually unchanged from when Taper Time started May 21. Why are stock prices doing so well as bond plunge in price? Simple. The Fed is still dispensing $4 billion daily in free drug money, $85 billion monthly.
Therefore, the market is unlikely to plunge until the Fed actually starts creating less new money. But any upside growth could be limited as corporate America has turned bearish over the past three weeks. IPOs and new share sales have swamped announced buybacks and cash takeovers since early August. In addition insider selling not only is more than 12 times insider buying but total August insider selling could be the most for any month this year.
Bottom line. Higher interest rates are slowing the US economy. If corporate America remains a seller, then the downside risks to stock prices seem to be much greater than any upside potential. And if the Fed does Taper in September on top of all of the above, watch out below.
4---The New Housing Market "Recovery" – Fact V. Fiction , Testosterone Pit
New home sales reported by the Commerce Department this morning came in with a headline number of 394,000 versus the consensus of economists’ guesses of 475,000. As a result of the huge miss, the market was shocked, not by the incompetence of economic forecasters, but by the news release itself. Apparently most investors still believe that economists have a clue, which is unfortunate. As a result of the surprise. Treasury yields cratered, with the 10 year yield dropping from 2.91 just before the announcement to 2.83 45 minutes later. As bonds rallied sharply, stocks began to rally as well. We’re back to the idea that bad news is good because it means maybe the Fed won’t cut the market’s heroin.
The actual numbers (not seasonally adjusted) behind the seasonally adjusted headline number showed that the drop in sales last month was larger than typical for July, so to that extent, the big miss in the headline number wasn’t all that misleading. The average monthly decline for July over the previous 10 years is 6%. Last year the drop was just 2.9%. This year, July saw a drop of 18.6%. It was the biggest July drop of the past 11 years. Buyers apparently stopped buying after mortgage rates surged.
Regardless of whether the current trend is still rising or not, it’s important to keep this in perspective. In the context of historical norms, this is not a recovery. Sales remain extremely depressed relative to the normal levels of the past couple of decades. Housing may no longer be a drag on US economic growth, but its contribution to overall economic activity relative to its past share is minuscule.
Most of the “recovery” in housing construction has come from the multifamily sector. Single family construction is barely off its all time lows
5---New Home Sales Plunged 13.4%, Previous Months Revised Down, economic populist
The real bad news on new home sales are the revisions, although large revisions should be no surprise with this large of a error margin, along with the fact data is presented annualized. Below is a graph showing single family new home sales levels as reported in July, in red, against the against June's reported figures in blue. April through June were all revised significantly lower, with June's single family annualized sales now at 455,000, a far cry from the 497,000 originally reported....
Prices are just getting to be absurd and note how increasing prices are not being recognized for a slow down in sales by the press. The average home sale price was $322,700, a 14.3% increase from a year ago. These prices are still clearly outside the range of what most wages can afford, even with low mortgage rates In July 2012, the average home sale price was $282,300. Just recently it was reported the average home price in Silicon valley is now over $1 million. Imagine working in that area and trying to live without being a millionaire...
The median time a house was completed and on the market for sale to the time it sold was 3.9 months. The median time a house was completed and then sold has also plunged as an overall trend. The median time a home was on the market in July 2012 was 6.4 months
6--Housing: The bifurcated market, CNBC
What we're learning about the housing market over here is that it's really bifurcated in that you have a lot of private-equity type money and more leveraged-type money buying up some of the older houses that have been in foreclosure, short sales," said Yra Harris, partner at Praxis Trading.
This sizable investment has propped up sales of existing homes in the U.S. to their highest level in more than three years. But homes fresh to the market aren't faring nearly as well, new data showed on Friday, casting a shadow over the country's housing recovery.
"The new housing market where they're not as involved is showing a different pattern," Harris said.
7--McBride's admission, economists view
Important: Any impact from rising mortgage rates would show up in the New Home sales report before the existing home sales report. New home sales are counted when contracts are signed, and existing home sales when the transactions are closed - so the timing is different. For existing home sales, I think there was a push to close before the mortgage interest rate lock expired - so closed existing home sales in July were strong - and I expect a decline in existing home sales in August.
8--For the Fed: It's all about the propaganda, Bloomberg
U.S. central bankers have $3 trillion of losses reminding them they had better get their communications right should they decide to taper their bond purchases.
That’s how much global equity markets declined in the five days after Federal Reserve Chairman Ben S. Bernanke’s June 19 remarks that he may reduce his $85 billion in monthly securities buying this year and halt it altogether by mid-2014. His comments pushed the yield on the benchmark 10-year Treasury to a 22-month high.
Since then, he and his colleagues have sought to convince investors that paring stimulus doesn’t signal a tightening of monetary policy. They will need to reinforce that message to prevent another premature interest-rate rise if the Federal Open Market Committee goes ahead with the move, said Ward McCarthy, chief financial economist at Jefferies LLC in New York.
“They want to get back to a neutral balance-sheet policy but that doesn’t mean they want rates to skyrocket here,” said McCarthy, a former Richmond Fed economist. “The market is hypersensitive,” and the taper represents “the beginning of the end” of unprecedented monetary stimulus
Webman said he expects the Fed will taper by $10 billion because that would avoid sending “a more pessimistic view of the economy” to investors, even though “it’s hard to argue the economy is accelerating.” Barring “fantastic data,” it would be “very risky” to cut purchases by more than that, he said. “The market would be pretty disturbed by the Fed doing more than a token taper in September.”
Yields on the 10-year Treasury note have climbed to a two-year high on speculation the FOMC will slow its purchases next month. Benchmark 10-year yields were little changed yesterday at 2.88 percent after climbing to 2.93 percent, the most since July 2011. That’s up from 1.63 percent on May 2, according to Bloomberg Bond Trader prices. ....
Part of the problem in May and June was that it was really hard to decipher what their message was,” McCarthy said. “They will be very careful to try to communicate what they’re doing, when they’re doing it and why they’re doing it.” (Huh? Investors knew exactly what the message was, and acted accordingly. If you reduce purchases, we're gonna sell our stocks. That's the message "loud and clear"!)
9---'Abysmal' Dutch economy threatens euro zone recovery, CNBC
(Another housing crash; What d'ya know?...Same bank cartel, same basic blueprint...everywhere)
10--From the Big Picture
Household Income’s Slow Climb Back
11----New Home sale; It IS a big deal, CEPR
The Census Bureau reported a 13.4 percent drop in new home sales in July. This could be a really big deal.
House prices had been rising rapidly in many parts of the country and there was a real basis for concern about bubbles in many markets. While these bubbles were not driving the national economy, as they had been in the years 2002-2007, there was a real risk that many homebuyers would again buy into seriously over-valued markets and face large losses on their homes.
It appears that the interest rate hikes in May-June curbed the enthusiasm of investors for real estate, thereby taking the air out of the bubble. The reason why the July new home sales data is important information on this point is that it is giving us data on contracts signed in July. Most other data sources are about sales which reflect contracts that were typically signed 6-8 weeks earlier. The July data sales data strongly reinforce realtor accounts of a weakening market in the last two months.
11----Did Fed’s Forward Guidance Backfire? Paper Says Probably (Fed debates the merits of lying to public), WSJ
Mr. Landau lays a lot of the blame for the bond-market turbulence on the Fed itself. The paper notes that current Fed guidance on the policy outlook eliminates the cost of leverage, and creates “strong incentives” to increase and even overextend investment exposures.
In turn, “this makes financial intermediaries very sensitive to ‘news,’” whatever that may be, he wrote. In this case, the catalyst for the market tumult is the Fed’s statements about possibly scaling back the bond program this year. Once that view was conveyed to markets, it drove a big shift in market positions, to a degree that was very surprising to many observers.
12---India's banks lead way to crisis, wsws
While the rupee’s plummet has been triggered by the expectation that the US Federal Reserve Board will soon curtail its “cheap credit” policies, the more fundamental cause is the sharp decline in India’s growth rate and the interrelated fall in long-term foreign investment. With exports hard hit by the recession in Europe and anemic growth in the US, India’s economic growth rate fell to just 5 percent in the 2012-13 fiscal year, the lowest in a decade. Foreign investors have soured on India, with a crescendo of complaints about poor infrastructure and the government’s reputed lack of resolve in imposing unpopular “pro-market policies,” including gutting restrictions on the layoff of workers.
The government has tried to project a public image of calm in the face of the rupee’s plummet. But behind the scenes fear, if not outright panic, prevails. The Indian press has been full of warnings that India could soon face a current accounts crisis, due to a mammoth trade deficit and a huge increase in short-term corporate and government debt....
The threat of a current accounts crisis is real and mounting, but it is far from the only threat looming over the Indian economy. India’s banking system is burdened by a growing number of “non-performing loans.” Moreover, many of these loans are to corporations that have borrowed money in the US and European markets, where interest rates have been much lower than in India. With the plummet in the value of the rupee, these dollar-denominated loans have suddenly become a major liability, threatening to wreak havoc with corporate balance sheets and those of India’s banks.
A recent report by Credit Suisse found that ten major Indian business houses, including such stars of India Inc. as Reliance Industries and Vedanta, have total debts of around $100 billion, a 15 percent increase from last year. “Many companies’ loans are 40-70 percent foreign-currency dominated,” observed the report, “therefore, the sharp depreciation of the rupee is adding to their debt burden.”
India’s banks have extended these same ten companies loans equal to 13 percent of all the loans on their books—meaning they threaten to be caught in the same vise.
With these and other major Indian companies struggling due to the world economic crisis, India’s state banks, with the RBI’s blessing, have systematically “restructured” corporate loans by extending the period of the loan, reducing the interest rate, or by even taking a “haircut.”
Whereas the banks must put aside funds equivalent to 15 percent of “non-performing” loans, they are required to have reserves equivalent to just 2.75 percent of “restructured” loans. According to one banking analyst this amounts to a “giant Ponzi scheme” through which India’s banks have hidden huge potential losses.
Even so, the State Bank of India, India’s largest bank, reported that its non-performing loans for the April to June quarter increased to 5.6 percent of total loans, a steep increase from 4.8 percent at the end of the previous quarter. This statistic is symptomatic of the whole banking sector, whose “asset-quality” has progressively decreased as the economic growth rate has taken a nosedive
13---New home sales plunge 13.4%, USA Today
Sales of new homes plunged in July. The seasonally adjusted annual sales pace of 394,000 missed analysts' expectations of 487,000.
New home sales plunged 13.4% in July, in one of the first signs that higher mortgage rates may be cutting into home demand.
Sales fell to a seasonally adjusted rate of 394,000 a year, from 497,000 in June, the Census Bureau reported Friday. Analysts' consensus estimate was 487,000.
``I think we can chalk it up to higher rates,'' Moody's Analytics economist Greg Bird said. ``This was going to be the month you would see it.''
The drop in sales appears to be coming from weaker demand, rather than tighter supplies, especially because inventories of homes for sale rose, Kolko said.
Next month's report on sales of existing-home sales will help make clear whether rates are curbing buyers' appetites, he said. Existing home sales beat expectations in July, but they reflect closed deals that were made earlier, because of the time needed to arrange mortgages and other details.
Last month's new home sales figures are based on contracts signed in July so the impact of recent interest rate increases shows up sooner.
Interest rates on 30-year mortgages have risen more than a percentage point since May, though they remain very low by historical standards. Freddie Mac said Thursday that the average fixed-rate, 30-year mortgage carries a 4.58% interest rate, up from 3.35% before Federal Reserve Chairman Ben Bernanke hinted that the central bank would slow down its $85 billion in monthly bond purchases, which have pushed down rates.
But the jump since May means the monthly payment on the average new home, which cost $322,700 last month, has risen more than $180 to $1,327, according to Bankrate.com. Payments on the median-priced house are $146 higher than they would be at rates from early May.
These estimates assume a 20% down payment, the average and median new-home prices reported for July, and use the national average interest rate for May and for last week....
Housing construction has been held down by tight credit and by people delaying forming new households because of the economy, and the gradual easing of those problems has been leading to more homes being built, Moody's said
Monthly home salesNew home sales are reported when a contract is signed. Sales of existing homes are reported upon closing, usually 30-60 days after signing. Sales are seasonally adjusted annual rates -- what a year's sales would be if the monthly pace continued for 12 months.
1,389,000 July 2005 dropped to 394,000 July 2013 (seasonally adjusted)
14---QE: Just the facts, please, sober look
It is worth mentioning that this forecast does not bode well for the success of the Fed's latest round of monetary easing:
- Including the current quarter and Goldman's forecast above, the 4 quarters since the start of QE3 have generated 1.2% average annualized GDP growth in the US.
- The 4 quarters immediately prior to QE3 have generated 3.2% annualized GDP growth.
(This is the plan to mop up $2.4 trillion in excess reserves??? More levity from the central bank)
16---Consumer sentiment in the US has peaked , sober look
With a sharp rise in interest rates (see chart) and with gasoline prices still elevated after a spike this summer (see chart), it is increasingly important to track the US consumer sentiment. Given the anemic post-recession growth, additional weakness in consumer spending could be bad news for the economy. And while confidence remains near multi-year highs, a number of sentiment measures seem to indicate that American consumer confidence has peaked earlier this summer. Here are three measures that seem to support that thesis:
1. The Thomson Reuters/University of Michigan consumer confidence, the most broadly tracked consumer sentiment index, showed a surprising drop in August.
The Guardian: - Consumer confidence in the US fell unexpectedly in August as higher interest rates and a dip in the rate of economic growth appeared to sap optimism.
The Thomson Reuters/University of Michigan's preliminary reading of consumer sentiment slipped from a six-year high of 85.1 in July to 80.0. The figure was well below the 85.5 reading expected by economists.
17--Obama worries about asset bubbles, Bloomberg
(He's so worried that he sat on his hands while Bernanke pumped $2.4 trillion into financial assets)
President Barack Obama, who took office amid an epic financial collapse, wants to make sure the economic recovery he’s helped engineer doesn’t set the stage for the next bubble. While the president has frequently talked about the need to move beyond what former White House economic adviser Jared Bernstein called a “shampoo economy” (as in lather, rinse, repeat), the topic of overheated markets has moved front and center once again. Obama this month spoke four times in five days of the need to avoid what he called “artificial bubbles,” even though the economy grew at just a 1.7 percent rate in the second quarter and employment and factory usage remain below pre-recession highs. “We have to turn the page on the bubble-and-bust mentality that created this mess,” he said in his Aug. 10 weekly radio address.
Six years after the housing meltdown ignited the worst recession since the 1930s and vaporized $16 trillion in American household wealth, real estate and equity markets are roaring again. Home prices are surging in places such as Las Vegas and Phoenix. U.S. stocks are near record highs, with the Standard & Poor’s 500-stock index up about 16 percent this year. In the past year investors’ use of borrowed money to buy stocks is up about one-third, to a near record. American companies have issued about $240 billion in junk bonds this year, more than twice the amount during the same period in 2007. “Clearly, this is a growing concern both in the administration and at the Fed,” says Adam Posen, a former member of the Bank of England’s monetary policy committee.
The 2010 Dodd-Frank financial sector overhaul created a Financial Stability Oversight Council, which is supposed to act as an early warning system for financial system risks. Despite the existence of this new watchdog, the administration and its appointees have turned up the volume in recent months on the need to stay alert to any imbalances that may be building. “Asset bubbles are a feature of our financial landscape,” said Sarah Bloom Raskin, a Fed governor nominated by Obama to be deputy Treasury secretary, at a Washington luncheon in July. “What happened before could happen again.” Bernanke told a Senate committee on July 18 that Fed officials are watching for signs of deteriorating credit standards, such as weaker loan covenants, that could signal destabilizing financial imbalances.
Some investors are also troubled by market frothiness. “We see artificial pricing in virtually every asset class,” says Mohamed El-Erian, Pimco’s chief executive officer. Others are more sanguine. “It’s a legitimate concern from an economic perspective,” says Roberto Perli, a partner in Cornerstone Macro, a Washington economic research firm, and a former Fed official. “But I don’t think it’s motivated by consideration of imminent risk.”
Posen, who currently serves as president of the Peterson Institute for International Economics, says he’s concerned that premature bubble worries may play too big a role in what may be the president’s most important economic decision of his second term: picking Bernanke’s successor. Obama may be inclined to select a replacement who’d be less likely to aggressively use monetary policy tools, says Posen, which could compromise the economic recovery. Even while the U.S. has rebounded more strongly than Europe, growth in the past four quarters has remained below the historical trend, as measured by the Chicago Federal Reserve Bank’s National Activity Index, a blend of 85 indicators. Says Posen: “There is a real danger if the president gets caught up chasing this ghost.”