note: all offensive images have been stripped from this report as it’s posted here; to view the entire report, including censored images, go here

with the holiday week over and both congresscritters and econobloggers back in the trenches, the controversy around the year end fiscal cliff reached a new crescendo this past week, with just about everyone now weighing in as to how the various expiring tax cuts and sequestered budget cuts should be resolved; there could well be a hundred linked paragraphs referencing articles opining on it this week on the globalglassonion alone…while tim geithner, who was put in charge of the fiscal cliff negotiations for the administration, has been holding separate one on one negotiations with Boehner, Pelosi, Reid, & McConnell, obama has spent his time negotiating with his top campaign donors and CEOs of 20 leading US corporations; late this week Republicans circulated what they alleged was the white house proposal for a grand bargain, which included increases for the two highest tax brackets, restoration of the estate tax, extension of the payroll tax cut, deferral of the sequestered spending cuts, and an increase in the debt limit, and which the republicans rejected out of hand; Republicans, for their part, are proposing an increase in the Medicare eligibility age and cuts in the cost of living increases for social security recipients…meanwhile, house republicans have made the roughly $80 billion in aid needed for victims of Sandy, some of whom are still without power in below freezing weather, conditional on offsetting cuts in other social programs

 

one major economic release of this week was the second estimate of 3rd quarter GDP from the BEA (Bureau of Economic Analysis) (pdf), revising the “advance” estimate we covered a month ago…based on more complete data than was available at that time, the BEA reported that this measure of all goods and services produced in the US grew at a 2.7% annual rate in the 3rd quarter, not the 2.0% rate originally reported…recall that these GDP reports compute the annual rate of change in C+I+G+(X-M) where C=Consumption, I=Investment, G=Government, X=Exports, M=Imports; thus, there were significant shifts in a couple of the major components that precipitated this revised change; referencing table 2 on page 7 of the pdf, first we see that the increase in personal consumption expenditures contributed at only a .99% annual rate, not at the 1.42% rate originally reported, as spending for non-durable goods and services was less than first estimated; however, the contribution from gross private investment jumped from only a 0.07% addition to the GDP increase to a contribution of .86%, which more than entirely driven by the reversal of inventory data, which was first seen to subtract from the change from the 2nd quarter by .16%, but instead increased at a rate of .77%; non-residential investment and equipment and software were both off around 0.10 while residential investment was virtually unchanged… the increase in government spending and investment remained as originally reported and contributed at a .71% rate in the 3rd quarter, largely driven by the 12.9% jump in defense spending, which added .64% by itself, while net trade became a 0.14% contributor rather than a .18% subtraction from GDP growth, as exports rose .16% instead of falling .23% and imports remained little changed…included here to the right is doug short’s graph of the quarterly changes at an annual rate for the major components of GDP since 2007, with personal consumption expenditures in blue, gross investment in red, net exports in light green, and net exports in purple; the QoQ change is traced by the dashed line…despite what appears to be an upward revision for the 3rd quarter GDP growth, it seems the negatives in this report outweigh the positives; while exports increased, consumer spending was less than thought, government spending was driven by the volatile defense sector, (possibly the pentagon frontrunning the budget sequester), and the gains in investment were entirely inventory accumulation, which will slow future growth if demand for those stockpiled products doesnt materialize

the next report we’ll look at, the release of the October Personal Income and Outlays data from the BEA, should give us the first major insight into 4th quarter GDP, because personal consumption expenditures are roughly 70% of total GDP; however, we should caution that this report is more inexact than normal due to effects of Sandy, as per their footnote: “BEA cannot quantify the total impact of the storm on personal income and outlays because most of the source data used to estimate these components reflect the effects of the storm and cannot be separately identified. However, BEA did make adjustments where source data were not yet available or did not reflect the effects of Sandy..:with that caveat, BEA reported that personal income rose $0.4 billion, from a seasonally adjusted annual rate of $13,434.0 billion in September to a SAAR of $13,434.4 billion in October, which for all practical purposes means it was unchanged; similarly, October disposable personal income (DPI), which is income after taxes. increased just $0.8 billion, or less than 0.1 percent…reflecting work disruptions caused by Sandy, wages decreased $17.1 billion in October, in contrast to an increase of $22.4 billion in September; proprietors’ income decreased $2.1 billion in October, in contrast to the September increase of $11.6 billion, while rental income increased $5.5 billion, dividends and asset gains increased $17.2 billion, and transfer payments (social security, et al) decreased $6.7 billion…September’s income and DPI gains were revised to show gains of $47.8 billion and $42.1 billion respectively, both 0.4% over August’s rate..however, real DPI (adjusted for inflation) was down 0.1% has now contracted for 3 months in a row, and moreover, the month over month percentages do not reflect the loss of $40 billion in personal income resulting from the revision of historical data…meanwhile, october personal consumption expenditures (PCE) showed a decrease $20.2 billion, from $11,217.6 in September to $11,197.4, which is a 0.2% annual rate of decline…of those personal outlays, $7,378.8 were for services, including for items such as rent, utilities and health care, and $3,818.5 billion were for goods, of which $1314.7 were durable goods and $2603.9 were nondurable goods; september’s PCE was revised to show an increase of $84.0 billion…income less outlays yielded $410.1billion in personal savings in october, a bit up from the $391.3 billion saved in october; hence the personal savings rate (as a percentage of DPI) rose from 3.3% to 3.4%…this report also generates a personal consumption expenditures price index, which is measure of inflation preferred by the Fed in determining monetary policy; as reported, the price index for PCE increased 0.1 percent in October, compared with an increase of 0.3 percent in September; doug short computes the year over year change in this index to be 1.74%, an increase from September’s 1.61%, while the core PCE index (less food & energy) decreased to 1.56% from September’s 1.67%..when adjusted for the change in prices, PCE decreased 0.3 percent in October, in contrast to a 0.4% increase in september; as previously mentioned, when adjusting for prices, both real personal income and real disposable income were also down more than 0.1%, all of which are shown on the above FRED chart prepared by ‘economic populist’ robert oak, where real personal income change for each of the last 12 months is shown in red, real DPI is shown in maroon, and real PCE is shown in blue…

another report which received widespread coverage around the econosphere this week was the 3rd Quarter Report on Household Debt and Credit from the NY Fed (pdf), mostly because of the relatively large increase in outstanding student debt, which we’ve been covering monthly by watching the Fed’s G-19 on consumer credit; however, unlike the G19, this report includes mortgage debt, and it has also been watched closely for signs of consumer de-leveraging, which is seen by some as a prerequisite for recovery…if that’s what needed, it will take a while, because while aggregate consumer indebtedness shrank just $74 billion to $11.31 trillion in the 3rd quarter, and that only represented a reduction of 0.7% from the debt levels of the 2nd quarter, and only represents a 10.8% decline from the high-water mark $12.68 trillion household indebtedness at the height of the bubble in the 3rd quarter of 2008…in this quarter’s report, the decline in outstanding debt was attributed to a $120 billion decrease in mortgage debt and a $16 billion decrease in home equity lines of credit, which was partially offset by a $42 billion increase in outstanding student loans, an $18 billion increase in auto loans and a $2 billion increase in credit card balances..despite the fact that mortgage debt still represents around 71% of household debt outstanding, and that it’s the economy’s major burden, the underlying story that drew so much attention to the student debt portion of this report was the spike in delinquent student loans, as shown in the adjacent graph, which shows the percentage of each category of debt that is 90 days or more delinquent…while you can see that delinquent credit card borrowing (blue) and mortgage loans (grey) are slowly curing, 11% of the student loans, shown in red, were over 90 days delinquent, which was up from 8.9% at the end of the last quarter…

  this NY Fed report is loaded with charts on the condition of household debt nationwide, including several that graph credit data by state; if you’re interested and dont want to load the pdf, zero hedge has the entire report embedded as a scribd at the end of a regular post, and it’s very readable there; for now, we’ll include two national charts below; the bar graph on the left, titled “total debt balance and its composition”, shows the evolution of household debt since the first quarter of 2003, which you can clearly see was driven by the buildup of mortgage debt shown in orange; this is gradually being reduced, mostly through foreclosures and short sales (where the balance is forgiven) but we are still far from precrisis levels; home equity in violet still remains high, and you can also see student debt in red build from a sliver to over 8% of total debt outstanding in the current report represented by the bar on the far right…the bar graph on the left, titled “total balance by delinquency status” shows all debt types that are current in repayment in dark green, those that are just 30 days delinquent in light green, those that are 60 days late in blue, those that are 90 days behind in payments in yellow, loans that are 120 days late in being repaid in orange, and “severely derogatory” loans in red…clearly, delinquent debt is still an ongoing problem…

there were also a few housing related reports this past week; we’ll start by looking at the release of the Case-Shiller Home Price Indices for September (pdf), which in addition to the regular 10 and 20 city indexes, also includes the quarterly national index; recall that case-shiller prices indicated for any month actually reflect the three month period that end with that month…Case-Shiller reported that home prices rose for the 6th straight month in September, with the 10 city and the 20 city composites both showing a 0.3% increase over August’s report, with prices in the nuclear 10 cities 2.1% higher than a year ago and the 20 city index showing a 3.0% year over year gain...meanwhile, the national composite price index for the 3rd quarter indicated home prices were 2.2% higher than the 2nd quarter and 3.6% higher than the 3rd quarter last year…of the primary 20 cities covered, 17 saw a month over month home price increase, led by one month gains of 2.1% in detroit and 1.8% in atlanta and phoenix..only dallas and seattle saw small (0.1%) price declines, while home prices in new york were unchanged for the month…phoenix has now shown a 20.4% increase in home prices over the last year, while only houses in new york (-2.3%) and chicago (-1.5%) saw their sales prices decline from last year…with the quarterly release, it would be an appropriate time to check back on bill mcbride’s chart that shows the 3 major home price indexes adjusted for inflation; the blue line graphs the CoreLogic home price index, which has now regained the real price level first reached in February 2001; the yellow traces the Case-Shiller national index, which is back up to mid-1999 price levels, and the red traces the home prices index for the Case-Shiller composite 20 cities, which despite being up 4.7% from the post-bubble low set in January 2012, has still only regained the real price level of June 2000…

another housing report we should look at, if only because it’s widely covered, is the report on new home sales for October from the Census (pdf); as reported, “sales of new single family homes in October were at a seasonally adjusted annual rate of 368,000, 0.3 percent (±18.3%)* below the revised September rate of 369,000, but 17.2 percent (±21.2%)* above October 2011 estimate of 314,000″; see the asterisk?? that directs one to a footnote immediately below which explains quite clearly that these reports are are subject to sampling variability as well as nonsampling error including bias and variance from response, nonreporting, and undercoverage, and that the decline in homes sales when written “0.3 percent (±18.3%)*”  means they are just 90-percent confident that home sales might have risen 18% or fallen 18.6%, and since the range of possibilities contains zero (no change), whatever they’ve reported is not statistically significant…how can anyone read that, all in large print on the first page of the report, and make any judgment other than that this report is inconclusive? yet in reporting on new home sales, no one mentioned that margin of error, and new home sales for October were variously reported to have declined, fallen, dipped, decreased and tumbled from the sales in September…with a margin of error of ±21.2% on reported sales gains from last year, we cant even tell for certain if new home sales are higher than a year ago or not…and since a “sale” is defined by census as a deposit taken or sales agreement signed, which can occur prior to a permit being issued, we dont even know how many of the reported home sales are later cancelled with a house not even being built…

  the last housing report we want to take a quick look at is the First Look at home mortgage delinquencies and foreclosures in October from LPS….LPS reported that the mortgage delinquency rate decreased to 7.03% in October from 7.40% in September, and that it was now 7.19% below the delinquency rate of a year ago; 3,500,000 home mortgages are less than 90 days past due, and 1,543,000 are more than 90 days delinquent but not in foreclosure… furthermore, with 1,800,000​ homes in the foreclosure inventory, the percentage of loans in the foreclosure process declined to 3.61% from 3.87% in September, and is now 15.99% lower than a year ago…normally, the delinquency rate increases seasonally in October, but you may recall August delinquencies had been at 6.87% and there was an unexplained jump to 7.40% delinquent in September; that now appears to have been a one month phenomena, likely caused by the release of the iphone5; and the pattern will likely repeat itself in December, when people regularly forego a month’s mortgage payment so they can buy the latest toys…

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)