Friday, August 30, 2013

Today's Links

1---Consumer Spending in U.S. Rises Below Forecast on Slow Wage Gain, Bloomberg

Consumer spending in the U.S. rose less than forecast in July as income growth slowed, indicating further job gains are needed to sustain household purchases.

Consumer purchases, which account for about 70 percent of the economy, rose 0.1 percent after a revised 0.6 percent increase the prior month that was larger than previously estimated, the Commerce Department reported today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.3 percent rise. Incomes increased 0.1 percent, down from 0.3 percent the previous month...

Gross domestic product grew at a 2.5 percent annualized rate in the second quarter after a 1.1 percent gain in the first three months of the year, the Commerce Department reported yesterday. Consumer spending in the second quarter climbed at a 1.8 percent annualized rate after a 2.3 percent pace in the first three months of the year, the figures showed.
Adjusting consumer spending for inflation, purchases were unchanged in July compared with a 0.2 percent increase the previous month, according to today’s report.

2---Second Quarter GDP: Strong Growth Ain't What It Used to Be, Dean Baker

The Commerce Department release of revised data showing that GDP grew by more than originally reported in the second quarter was generally reported as very positive news. This is striking since the growth rate was only 2.5 percent. (One fifth of this growth was due to more rapid inventory accumulation.)

Most economists estimate the economy's trend growth rate as 2.2 percent to 2.4 percent. The Congressional Budget Office estimates that the economy is currently operating at almost 6 percentage points below its potential. This means that at the second quarter growth rate it will take between 20 and 60 years to get back to potential GDP.

3---Home-loan applications for purchases have declined 14 percent since the start of May when interest rates surged by the most in two decades, according to the Mortgage Bankers Association, and price appreciation has slowed, albeit from the fastest pace in seven years.

The average rate on a 30-year, fixed-rate purchase loan has risen to 4.51 percent from a record-low 3.31 percent in November, according to McLean, Virginia-based Freddie Mac, as the Federal Reserve said it’s planning to wean the economy from its record stimulus. ....Bloomberg

4---JPM in trouble again: "Is bribery wrong"?, Mark Gongloff

When will Wall Street ever learn? For years it has left evidence of its lawbreaking in emails and instant messages. Now it can't seem to stop documenting its sketchy activity in Excel spreadsheets.
The latest example, allegedly, is JPMorgan Chase, which kept a spreadsheet of all the elite "princelings" it hired in China, along with the deals those princelings were supposed to help the bank win, according to a Bloomberg Businessweek report.
This spreadsheet could be a smoldering gun in the government's probe of whether the biggest U.S. bank violated bribery laws with its hiring practices in Asia

5---Home values rise, but millions still drown in debt, Diana Olick

Currently, 23.8 percent of homeowners with a mortgage, or approximately 12.2 million, owe more than their homes are worth, down from 15.3 million one year ago, according to the report. Some, however, are still so far underwater that even with fast-rising prices, it will take years for them to see any home equity.
 
"Widespread rising home values during the past year have helped chip away at negative equity nationwide, helping many homeowners who were only modestly underwater to come up for air. For those homeowners who are deeply underwater, though, there is still a long row to hoe," said Zillow Chief Economist Dr. Stan Humphries in a release. ....

Negative equity will be a factor in these markets for years to come, constraining the supply of homes for sale and keeping people out of the market who might otherwise get involved," said Humphries.

6---Austerity Test Looms in Australia as Abbott Pledges Cuts, Bloomberg

(More proof that austerity is a global banking coup)

7---Expect Weak Jobs & Housing to End Taper Talk, TrimTabs

the reason I think the August jobs number will be particularly weak is that the BLS sends out its surveys to 140,000 employers – including most government entities and big companies – the week that includes the 12th day of the month, which this year was a Monday. And by the week that began August 12, the slump in wages and salaries was four weeks old. In other words, it took six weeks from the beginning of June for the spike in mortgage rates to slow economic growth by the middle of July.

Remember, I have been saying over the past month, including last week’s video and when I was on with Rick Santelli early August that upcoming real estate data will suck. That’s because the early June spike in mortgage rates ended the two year long bull run in single family housing. Now my view that housing is in trouble seems to be fast becoming conventional wisdom

8--(Repeat) Higher interest rates are slowing the US economy, Trimtabs

Let us start first with the underlying economy. 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.

9---Consumers on the ropes, zero hedge

The drawing down of personal savings and the flattening out of government transfers indicate that real wage gains must accelerate to support the optimistic Bloomberg consensus forecast that the U.S. economy will expand at the long-term trend growth rate of 2.5 percent in the second half of the year. Acceleration in wage gains can only happen if the pace of job gains, which has slowed during the past three months, increases.

Based on current data, it is going to be difficult for consumers to eke out a gain in disposable income in July. Real personal disposable income is up 1.7 on a year-ago basis and has increased just 0.4 percent when adjusted for inflation....

The near 2 percent year-over-year pace of real personal consumption expenditures is due to two factors.
First, government transfers have helped fill the gap in wages and spending since the start of the recession.
Second, households have consistently drawn down savings to support higher levels of spending than their incomes alone can support.

These conditions cannot persist indefinitely....
Meanwhile, the gap between inflation-adjusted per capita disposable income and real personal consumption expenditures shows that households have yet to adjust to reduced incomes. While households have increased spending at a 1.7 percent rate, slightly above the 20-year average rate of inflation, they have seen adjusted per capita income gains of just 0.4 percent.

Thus, the ability to increase spending now rests on either households ramping up leverage and continuing to draw down savings, or on the Federal government expanding transfer payments. Neither appears likely given the increasing probability of another game of budgetary brinksmanship in Washington and the low-wage bias that has been a persistent feature of the economic recovery.

10---A decade of flat wages, smirking chimp

The wage and benefit growth of the vast majority ... has stagnated, as the fruits of overall growth have accrued disproportionately to the richest households."

As Mishel and Shierholz note, "The wage-setting mechanism has been broken for a generation but has particularly faltered in the last 10 years ..." Corporate profits have reached historic levels and the top one percent of earners have captured virtually all income growth.
We don't have a problem of inadequate wealth. The problem is inadequate wealth distribution. For 99 percent of Americans, wage growth has lagged significantly behind increases in productivity. As the authors note, this is true "regardless of occupation, gender, race/ethnicity, or education level." Since the Great Recession productivity has grown by 7.7 percent, while wages have actually fallen for the bottom 70 percent of earners.

What's more, as Mishel and Shierholz observe, "This lost decade for wages comes on the heels of decades of inadequate wage growth." Between 2001 and 2012 productivity grew by 22.2 percent, while wages grew only 0.8 percent. This was "the norm in white-collar, blue-collar, and service jobs, with little variation among occupational categories."
These figures challenge the traditional assumption that increased productivity helps everyone. They suggest that something has fundamentally changed, that the wealthiest among us are winning more of our nation's riches than ever before.

The Roots of Crisis
A companion report from EPI, The State of Working America, 12th Edition, identifies some of the causes: Growing inequality. Policy inaction which eroded the value of the minimum wage. The weakening of employees' rights. Tax policy. Wall Street deregulation.

11---Experts become confident Treasury will taper first, Housingwire

MBS acquisitions have positive effect on rates...

In response to the study presented at the Jackson Hole conference, Goldman Sachs conducted its own analysis.
“We continue to expect that Fed officials will adjust the mix of instruments somewhat away from QE towards forward guidance at the September meeting and focus most if not all of the tapering on Treasury purchases rather than (current coupon) MBS purchases,” Goldman Sachs said in its analysis.
“We expect the FOMC to taper its asset purchases at the September meeting mostly if not entirely in Treasurys,” said Jari Stehn of Goldman Sachs.

12---UK Parliament rejects serial warmongers, RT

People are sick and tired of being told by elitist neo-con pundits sitting in comfy offices in London, New York or Washington that 'something must be done' as its a record that we've all heard many times before. Iraq lies in ruins after the invasion of 2003 and Libya is in chaos too. Yet despite the disastrous record of US-led military interventions in recent years, and the lies told to justify them, we plebs were still expected to obediently fall into line and support the latest instalment of the neo-cons' Permanent War- an attack on Syria. Its been truly nauseating to see the people who destroyed Iraq and Libya pose as concerned humanitarians in Syria, but now more people than ever before are seeing through the charade. ....

These serial warmongers told us that 'something must be done' in response to an alleged chemical weapons attack in Syria, producing no evidence to back up their claims that the Syrian government was responsible. But this time- unlike in the cases of Kosovo, Iraq and Libya- they've not been listened to. And the neo-cons and 'liberal interventionists', who trumpet so loudly their commitment to spreading 'democracy' around the globe, are not very happy at this wonderful and long overdue sign of a democratic resurgence in Britain. A newspaper poll showed that just 8% of Britons wanted immediate weapons strikes on Syria, but despite that the 'Democracy by Bombs' brigade are condemning yesterday's vote as a black day for democracy. Oh, the irony!

The vote is a huge blow to the tiny but powerful British neo-conservative clique who must have been confident that they'd get their way once again. But things have changed a lot since 2003, and even since 2011, when the neocons got their 'intervention' against Libya.
The Rupert Murdoch media empire, at the forefront for propagandising for the US-led wars of the last two decades, is now isolated in its obsessive screeching for military action and the facts that MPs ignored bellicose pro-'intervention' editorials in Murdoch papers shows us how much they are declining in influence.

13--Triumph of the 1 percent; Personal Income, Spending Miss; Employee Compensation Plunges, zero hedge

On the surface, today's Personal Income and Savings data was not pretty: with Incomes and Spending both rising at 0.1% in July, both missed the expected growth rate of 0.2% and 0.3% respectively. This also meant that the US consumer's savings rate was unchanged at 4.4% in the month, and the downtrend from recent highs continues as more and more of the savings buffer has to be depleted.



But it was once again below the headlines that the truly ugly data lay. A quick look at the components of income showed something very disturbing. After holding relatively firm for the past five months (excluding the violent swings surrounding the 2012 year end accelerated bonus payouts), compensation of employees - the core component of personal income - tumbled by $21.9 billion. This was the biggest monthly slide since May 2012, and as the chart below shows, the downtrend in sequential wage growth has now resulted in a sequential decline in wages.



We eagerly wait to hear how collapsing wages are spun in the context of the "recovery

14---Actor Matt Damon defends whistle-blower Edward Snowden, wsws

Hooray for Damon

15---Amnesty International; A tool for western militarism, a promoter of foreign intervention

From Amnesty blog UK: The international community also needs to take urgent steps to ease the crippling humanitarian situation inside the country, where more than 4.25 million people are believed to be displaced. In particular, it should ensure that all parties to the armed conflict in Syria allow unfettered access to humanitarian organisations and agencies to provide assistance to a civilian population desperate for relief. As for the Syrian government, they really need to allow cross-border access, as well as cross-line access, and they need to do that quickly.

As my colleague Cilina Nasser recently said, "We are beyond hand-wringing on Syria. Civilians continue to be targeted or killed indiscriminately. The time for action is now." That action must include actively prioritising the human rights of all Syrians.



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