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although many of the details of Obama’s Budget for Fiscal Year 2014 were telegraphed well in advance, it nonetheless became the fiscal policy topic du jour when it was released Wednesday, and although chained CPI was only mentioned eleven times in the 244 page budget document, Obama’s plan to use that method of calculating cost of living increases for Social Security and other government programs generated well over half the commentary around the blogosphere…you may recall we’ve discussed chained CPI in this regard previously (here and here, with a chart); the basic difference between using the current consumer price index (CPI-U), and the chained CPI (C-CPI-U) is that the CPI-U compares apples to apples and the C-CPI-U assumes that consumers buy cheaper oranges when the price of apples rise…the most commonly used example suggests that if the price of beef increases, consumers will switch to chicken instead, although this manner of substitution is applied across the index and not just to groceries…so in our example, if the price of beef rises, the currently used CPI-U will allow a cost of living increase to social security and other pensions to reflect the higher price of beef; if the method is changed, chained CPI will assume that the elderly will have switched to the lower cost meat, and only allow a cost of living increase insofar as the cost of the cheaper meat has increased in price….to illustrate the effects of such a change, the adjacent bar graph was constructed by Doug Short using BLS data from 2000, the 1st full year of the C-CPI-U computations, to the present ….in Doug’s chart, the CPI and core-CPI are presented in light blue, the effect of changing to chained-CPI is in the darker blue shade; similarly, each of the 8 major components of the CPI is shown in pale green, with the chained-CPI equivalent the dark green beside each; he also separates the cost of energy, an element in both the housing and transportation indexes, as a red column, and the cost of tuition in purple to the far right is not compared, because a chained CPI figure for tuition is not published by BLS…if you click for a larger version, a few things are immediately apparent; first, there isn’t much substitution for the housing and transportation components, probably because different types of  housing & autos tend to change price in tandem, and there isn’t really a cheaper substitute for gasoline…but there are rather large substitutions for other components…for instance, the CPI recreation price index has increased 13.1% over twelve years, but it only increases 3.3% under chained CPI…apparently the old folks are expected to just play checkers if the cost of going to the movies goes up…and the cost of living allotment for education and communication under chained CPI would have also been less than half of what it is currently with CPI-U, suggesting that chained CPI assumes a lot of substitution & downsizing would take place in spending in those areas as well…

the idea of using a chained CPI is not new; the search for a method to reduce cost of living stipends was suggested by Alan Greenspan and originated in the Senate under Bob Dole, when the then House Speaker Newt Gingrich was pushing for social security “reform”…that a Democratic president should be leading the push to cut signature democratic programs such as like Social Security and Medicare has outraged those on the left, such as Elizabeth Warren, who’s brother David lives on the $13,200 per year he receives in Social Security rations…what’s important to understand is that Social Security doesn’t even impact the federal budget; it’s payments to seniors and others by law must come from the social security trust fund, which as of March held $2.729 trillion in Treasury bonds, and according to the Trustees is capable of making full payments for another 20 years, with a minor shortfall thereafter…so why the push on both sides of the aisle to cut benefits now?  because the obvious solution to the eventual shortfall is to raise the cap on the payroll tax; currently, any income over $113,700 is not taxed to contribute to the trust fund…but  raising the cap would hit all the major political contributors with an additional 6.2% payroll tax; both those making over that $113,700, and those employers cutting the checks for those high paid individuals, who’d also have to contribute a matching amount… Obama & the rest may talk a good game, but at the end of the day they dance to the tunes of the wealthy band that pays their bills, & wont bite the hands that feed them…

retail sales March 2013the major economic release this past week was the Advance Retail Sales Report for March (pdf) from the Census Bureau; much like last week’s employment report, it came in well below expectations, with seasonally adjusted aggregate sales for the month declining 0.4% from the level of February, the largest retreat in 9 months….February’s sales were revised down as well, from +1.1% to a gain of 1.0%, and January’s sales, first reported as up 0.1%, we revised to show a 0.1% decrease; as with most census reports from a small sampling, this one also has a significant enough margin of error to call into question the results; to wit: “estimates of U.S. retail and food services sales for March…were $418.3 billion, a decrease of 0.4 percent (±0.5%)* from the previous month, but 2.8 percent (±0.7%) above March 2012“, which of course means sales could have even been up 0.1%…on an unadjusted basis, March sales were at $427.1 billion, well above February’s $380.2 billionDoug Short at Advisor Perspectives has again studied & charted the revisions to this report from the first to third estimates over the six year period from January 2007 through December 2012 and finds there were 33 upward revisions averaging an an additional 0.30% in sales and 39 downward revisions averaging a sales decline of 0.46%, so this advance estimate isnt anything you want to hang your hat on…in this initial March report, significant sales declines were seen at autos & parts dealers, where sales dropped 0.6%, from a seasonally adjusted $78.3  billion to $77.8 billion, and at gas stations, where sales dropped 2.2%, while prices were 2.7% lower, meaning volume gas sales rose; ex auto and gas, sales for the month were off 0.1%…other than gas, the biggest hits were to electronics & appliance stores, where sales fell 1.6% for the month, from $8.257 billion to $8,122 billion, capping off a quarter where worldwide shipments of PCs fell 13.9%, and general merchandise stores, where March sales fell 1.2%, from $51.8 billion to $ 51.1 billion, apparently continuing to lose volume to nonstore retailers (ie online), where sales rose 0.3% for the month but where sales are now up 13.5% from a year ago…other retail categories that saw strength over the month included home furnishings, where sales rose 0.9%, restaurants and bars, where sales rose 0.7%, and miscellaneous store retailers, where sales rose 0.8%…other than online, the largest year over year sales gains were 6.5% in autos & parts, 4.4% in miscellaneous stores, and 3.9% for sporting goods, hobby, book & music stores…department store sales are down 7.6% year over year, and electronic store sales are down 3.2% since last march…to show the relative magnitude of each of these census retail sales categories, we’re including the pie graph to the right from Robert Oak’s coverage of this report at the Economic Populist; also be aware that although it’s often noted that consumption is 70% of the economy, this report just captures about a third of that; the larger service sector spending is covered in the personal income & expenditures report from the BEA

Job Openings and Labor Turnover Survey we got a bit of better news from the BLS in their Job Openings and Labor Turnover Summary for February than we got last week in the unemployment report for March; according to the BLS, seasonally adjusted job openings rose 8.7% from January to February to show 3.925 million job postings unfilled at month end; the most since May 2008, the month this recession’s job losses started in earnest; the largest number of openings were in the broad BLS categories of  professional and business services, which saw a total of 722,000 openings, up from January’s seasonally adjusted 690,000, and education and health services, where there were 673,000 openings, up from 579,000 in January; although 617,000 of those were in health care and social assistance… accommodation and food service job openings also increased, from 401,000 in January to 458,000 in February, as did openings working for state and local governments, from 340.000 to 370,000…openings in construction and manufacturing also increased modestly, to 116,000 and 259,000 respectively, while the only area to see openings fall in February was the rather broad job category of trade, transportation, and utilities, where openings slipped from 645,000 to 608.000; the largest subcomponent of that, job openings in retail, fell from 390,000 to 378,000…this report also includes labor turnover for the month, with data for hires and separations by each of of those broad job classifications, and the difference between them should correspond to the revised non-farm payrolls total from the establishment survey; in February, there were 4,418,000 were hired to start new jobs, more than the 4,298,000 hired in January, while at the same time another 4,202,000 either quit or were laid off, fired or had their job terminated; expressed as a percentage of those employed, the hires rate rose from 3.2% to 3.3% but was still lower than last year’s 3.4%; the separations rate was unchanged at 3.1%; separations is further divided into quits, or those who separated of their own volition,  at a rate of 1.7% and layoffs and other discharges, at a rate of 1.2%; the following two tables break hires & separations into components as listed: Table 2. shows hires levels and rates by industry and region, seasonally adjustedTable 3. shows total separations levels and rates by industry and region, seasonally adjusted in the adjacent chart, Bill McBride manages to get all the data since Jan 2001 onto one graph…the bar portions of the graph indicate separations for each month; each bar is further divided to show quits in blue and layoffs, discharges and others separations in red…the blue line tracks monthly hires; obviously slightly more than total separations over the last few years, and atop all of that the yellow line indicates the number of job openings for each month…

the February Mortgage Monitor from LPS (pdf), a report we cover monthly as a proxy for the ongoing mortgage crisis, was also released this week; February saw the normal seasonal decline in delinquencies, as those who fell behind on house payments over the holidays were starting to get caught up, while the number of mortgages in the foreclose process remained little changed…according to LPS, 1,927,000 mortgages were over 30 but less than 90 days past due at the end of February, another 1,483,000 homeowners were more than 90 days past due on their mortgage but not yet in foreclosure, meaning 6.80% of mortgages in the LPS database were delinquent in February, down from the 7.03% of homeowners who were behind on their house-payments in January; in addition, another 1,694,000 homes were in the foreclosure process, which was 3.38% of mortgages outstanding in February, down from 3.41% in foreclosure in January; hence,10.18%, or more than one in ten homeowners, were behind at least one payment at the end of the month; nonetheless, this is an improvement from the 11.44% who were either delinquent or in foreclosure at this time last year….foreclosure starts were at 132,000 during February, down 10.7% from January, while completed foreclosures numbered 56,000, down 15.0%, suggesting that nearly 80,000 of homeowners who were in foreclosure at the beginning of the month exited the process either through a mod of short sale..most of the Mortgage Monitor (pdf) itself is mostly graphs with very little text; the data summary for this report is on page 22 of the pdf, the glossary is on page 28, and the updated state delinquency and foreclosure table, which we featured last month, is on page 23; Florida remains the state with the most non-current mortgages at 18.5%, but mortgages in new jersey continue to deteriorate and they’re now second worst with 16.3% not current as of February…below, we have selected two charts from this month’s monitor; on the left we have a graph of those mortgages that have “cured” each month, or that were behind but got caught up on their payments; the red line tracks the monthly “cures” that were one or two months behind as of the previous month – the scale is on the right axis; you can see February’s cures from such mortgages is on the order of  ~500,000; the violet line, with the scale of the left, tracks each month’s cures that were 3 to 5 months behind previously, while the blue line tracks cures that had been more than 6 months behind; the yellow line indicates the number of mortgages that had foreclosure proceedings ongoing at the time the homeowner was able to exit foreclosure, either by a mod, a short sale, or by catching up on payments…the bar graph on the right shows the number of serious delinquencies by the number of months delinquent; within each monthly bar, blue represents the count of those 3 to 6 months behind on mortgage payments, red are those 7 or 8 months behind, green are those 9 to 11 months behind, and the violet in each monthly bar represents mortgages which are over 12 months behind in payments…what you can see indicated in the text on the graph, at the peak of the crisis in January of 2010, 2.9 million homeowners were behind on their mortgage payments, but just 22% were behind by more than a year, and the average length delinquency was 252 days; as of February, the total number of delinquencies had fallen to 1.5 million homeowners, but the percentage delinquent more than a year had risen to 42%, and the average length of delinquency had widened to 474 days…

LPS Feb cures

LPS Feb serious delinquent

(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 which 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…)