Unlimited Government!

Listening to a recent Diane Rehm episode entitled "The Politics of Food Stamps" which discussed proposed cuts to the federal food stamps program provides yet another example of how far out of hand and fiscally profligate the statist policy junkies have gotten.

The proposed cut, as stated directly in the opening of the show, would amount to 5% of the program cost, roughly $40 billion, over 10 years or put another way, roughly $4 billion per year for the next 10 years.

Recall from my prior posts that the current monthly cost of funding the federal food stamps program is $6.35 billion with an annual total of roughly $76.2 billion.

So, the proposed annual cut is less than the cost of funding the federal food stamps program for just a single month, spread out over an entire year.

Looking at it another way, the $4 billion annul cut equates to roughly $335 million per month or the equivalent of the cost of providing food stamps benefits to 200K recipients or 100K households per month.

Given the fact that there are currently 47.7 million food stamps recipients, this proposed “cut” is simply a "drop in the bucket", a mere rounding error on a program that has grown far out of bounds in both cost and purpose.

Of course, listening to the Keynesian policy junkies on the Rehm panel though, any cut is too much and completely unacceptable.

No matter that the federal government is effectively insolvent, relying on the Federal Reserve for a $45 billion monthly hit of “stimulation” just to make the ends meet on these programs… “We must not cut these important benefits” the Keynesians opine.

Keep in mind that the proposed cut would simply roll the level of spending back to that seen in mid-2011 with the program still providing benefits to roughly 45.7 million individuals.

At this point, “limited government” as it was traditionally framed is dead philosophy with advocates lucky to simply establish any limits whatsoever over the grotesque expansion of government largesse.  

To that, I say “Bring on the shutdown!”

Pending Home Sales: August 2013

Today, the National Association of Realtors (NAR) released their Pending Home Sales Report for August showing that pending home sales declined with the seasonally adjusted national index falling 1.6% from July but increasing 5.8% above the level seen in August 2012.

Meanwhile, the NARs chief economist Lawrence Yun is suggests rising interest rates (as a  result of the Feds "tapering" debacle) worked to motivate spring buyers but now that the seasonal surge is over, lower home sales are expected:

"Sharply rising mortgage interest rates in the spring motivated buyers to make purchase decisions, culminating in a six-and-a-half-year peak for sales that were finalized last month ... Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead."

The following chart shows the seasonally adjusted national pending home sales index along with the percent change on a year-over-year basis as well as the percent change from the peak set in 2005 (click for larger version).

Extended Unemployment: Initial, Continued and Extended Unemployment Claims September 26 2013

Today’s jobless claims report showed a decrease to initial jobless claims and an increase to continued unemployment claims as seasonally adjusted initial claims climbed back above the 300K level.

Seasonally adjusted “initial” unemployment claims declined by 5,000 to 305,000 claims from 310,000 claims for the prior week while seasonally adjusted “continued” claims increased by 35,000 claims to 2.823 million resulting in an “insured” unemployment rate of 2.2%.

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 1.34 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 2.50 million people that are currently counted as receiving traditional continued unemployment benefits, there are 3.85 million people on state and federal unemployment rolls.

New Home Sales: August 2013

Today, the U.S. Census Department released its monthly New Residential Home Sales Report for August showing a notable increase with sales climbing 7.9% from July and rising 12.6% above the level seen in August 2012 remaining at an historically low level of 421K SAAR units.

It's important to recognize that the inventory of new homes appears to be mounting as unsold units totaled 175K, still though near the lowest level seen in in at least 47 years while the median number of months for sale declined to 3.0.

The monthly supply decreased to 5.0 months while the median selling price increased 0.55% and the average selling price increased 4.39% from the year ago level.

The following chart show the extent of sales decline to date (click for full-larger version).

Reading Rates: MBA Application Survey – September 25 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) declined a notable 15 basis points to 4.47% since last week while the purchase application volume increased 7% and the refinance application volume increased 5% over the same period.

As a result of Fed Chairman Bernanke's abrupt turn-around on the "tapering" issue, rates appear now to be pulling back notably after weeks of explosive increases that saw a rise of over 100 basis points.

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).

S&P/Case-Shiller: July 2013

Today's release of the S&P/Case-Shiller (CSI) home price indices for July reported that the non-seasonally adjusted Composite-10 price index rose a notable 1.86% since June while the Composite-20 index also increased 1.85% over the same period.

The latest CSI data is continuing to demonstrate significant resiliency compared to past years, as prices remained stable through the typically slow winter and early spring period and now appear to be rising notably through the more active late spring period.

The 10-city composite index increased 12.28% as compared to July 2012 while the 20-city composite increased 12.39% over the same period.

Both of the broad composite indices still show significant peak declines slumping -21.99% for the 10-city national index and -21.32% for the 20-city national index on a peak comparison basis.

To better visualize today’s results use Blytic.com to view the full release.

Can’t? ... Then Don’t!

Watching the economy trend through the last few years has been sort of like watching grass grow except that the ground is more like a dirty sand box and the grass is just some phony Astroturf being slowly pushed up through by a balding academic with a penchant for Keynesian economic claptrap.

What you are witnessing is a "recovery" of sorts but not in the typical sense as the majority of activity is being engineered in one way or another by Fed policy and fiscal stimulus.

This is no creepy conspiracy theory either; it’s totally overt and sanctioned by Keynesian policy junkies, academics and statist alike.

If you fail to truly understand this fact, just go through a simple mental exercise of accounting for the $85 billion in bonds and mortgage securities purchased by the Fed each month.

Does a healthy and "real" economy need its central bank to gift its treasury to the tune of $40 billion a month?

Should a market as vast and supposedly robust as the US residential property market require a central bank injection of $45 billion in mortgage fuel every month just to keep everything moving along?

Is it normal that even just the slightest suggestion that this absurd scheme be "tapered" should cause an immediate loss of confidence in the business community, an abrupt and sustained jump in long rates, and a quick back peddling maneuver by the Fed?

Obviously, the answer to all of these questions is unequivocally "NO", but we don’t even ask these questions anymore… it has been too long… we don’t anymore quake at the thought of these unfortunate circumstances because we have generally become dulled to the insanity of it all.

What’s a few trillion dollars here or there?

But the fact remains, and simple logic should suffice here, you can't simply buy your way out of massive economic crisis by flooding the system with phony money and false confidence.

But rather than beating that dead horse any further, let’s consider a simple principle that we should all be able to agree on.

"If something can’t be done, it shouldn't be done."

This principle seems so stupidly simple as to not even be a principle at all… it almost appears to just restate the same concept twice… but not quite.

Let’s take the idea of jumping over a 30 foot wide ravine filled with molten lava.

You stand there at the edge at first just looking at the wide span and thinking "I might just leap across it!" But something stops you… you can’t do it… no one could as it is simply too far across.

So, you don’t even try since you know ahead of time that there is no way to accomplish the task and that even the best attempt would leave you wishing you had stayed put.

The same rule applies for macroeconomic engineering.

Does anyone truly believe that the Feds can effectively solve real "problems" like stamping out poverty, insuring millions of the unprepared and under-prepared against the "vicissitudes of life", making essential goods and services supposedly "free" or rescuing tens of millions of individuals from their hundreds of millions of bad financial decisions?

The Feds couldn't engineer a "real" recovery, so they shouldn't have even tried but now that we are off the ledge and out over the lava, the more important question is… What’s next?

The Chicago Fed National Activity Index: August 2013

The latest release of the Chicago Federal Reserve National Activity Index (CFNAI) indicated that the national economic activity improved in August with the index climbing to a level of 0.14 from a level of -0.43 in July while the three month moving average improved to a level weak of -0.18.

The CFNAI is a weighted average of 85 indicators of national economic activity collected into four overall categories of “production and income”, “employment, unemployment and income”, “personal consumption and housing” and “sales, orders and inventories”.

The Chicago Fed regards a value of zero for the total index as indicating that the national economy is expanding at its historical trend rate while a negative value indicates below average growth.

A value at or below -0.70 for the three month moving average of the national activity index (CFNAI-MA3) indicates that the national economy has either just entered or continues in recession.

Existing Home Sales Report: August 2013

Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for August showing a  increase in sales with total home sales climbing 1.7% since July rising 13.2% above the level seen in August 2012.

Single family home sales also improved climbing 1.7% from July and rising 12.8% above the level seen in August 2012 while the median selling price increased a notable 14.4% above the level seen a year earlier.

Inventory of single family homes increased from July to 2.01 million units but still remained 5.6% below the level seen in August 2012 which, along with the sales pace, resulted in a monthly supply of 5.0 months.

The following charts (click for full-screen dynamic version) shows national existing single family home sales, median home prices, inventory and months of supply since 2005.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims September 19 2013

Today’s jobless claims report showed an increase to both initial jobless claims and a decline to continued unemployment claims as seasonally adjusted initial claims climbed back above the 300K level.

Seasonally adjusted “initial” unemployment claims increased by 15,000 to 309,000 claims from 294,000 claims for the prior week while seasonally adjusted “continued” claims declined by 28,000 claims to 2.787 million resulting in an “insured” unemployment rate of 2.1%.

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 1.45 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 2.51 million people that are currently counted as receiving traditional continued unemployment benefits, there are 3.97 million people on state and federal unemployment rolls.

New Residential Construction Report: August 2013

Today’s New Residential Construction Report showed mixed results in August with an 3.8% decline to total housing permits while single family permits total and single family starts improved on the month.

Single family housing permits, the most leading of indicators, increased 3.0% from July to 627K single family units (SAAR), and  increased 20.6% above the level seen in August 2012 but still remained well below levels seen at the peak in September 2005.

Single family housing starts increased 7.0% from July to 628K units (SAAR), and rose 16.9% above the level seen in August 2012 but still remained well below the peak set in early 2006.

Reading Rates: MBA Application Survey – September 18 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 7 basis points to 4.68% since last week while the purchase application volume declined 3% and the refinance application volume declined 20% over the same period.

Rates appear to be continuing to rise after some settling and following weeks of explosive increases that saw a rise of over 100 basis points seemingly directly correlated with the Feds recent suggestion that they may start to "taper" the GSE and treasury purchases later this year.

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).

Production Pullback: Industrial Production August 2013

Today, the Federal Reserve released their monthly read of industrial production and capacity utilization showing an increase in August with total industrial production climbing 0.41% since July and rising 2.66% above the level seen in August 2012.

Capacity utilization also improved climbing 0.25% from July and rising 0.83% above the level seen in August 2012 to stand at 77.84%

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.

Extended Unemployment: Initial, Continued and Extended Unemployment Claims September 12 2013

Today’s jobless claims report showed notable declines to both initial and continued unemployment claims as seasonally adjusted initial claims dropped below 300K for the first time since mid-2007 though this steep drop appears to have come as a result of under-reporting and is likely to be revised upward next week.

Seasonally adjusted “initial” unemployment claims dropped by 31,000 to 292,000 claims from 323,000 claims for the prior week while seasonally adjusted “continued” claims declined by 73,000 claims to 2.871 million resulting in an “insured” unemployment rate of 2.2%.

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 1.45 million people receiving federal “extended” unemployment benefits.

Taken together with the latest 2.74 million people that are currently counted as receiving traditional continued unemployment benefits, there are 4.19 million people on state and federal unemployment rolls.

Reading Rates: MBA Application Survey – September 11 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 7 basis points to 4.68% since last week while the purchase application volume declined 3% and the refinance application volume declined 20% over the same period.

Rates appear to be continuing to rise after some settling and following weeks of explosive increases that saw a rise of over 100 basis points seemingly directly correlated with the Feds recent suggestion that they may start to "taper" the GSE and treasury purchases later this year.

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).

Beveridge Curve Balancing Act: July 2013

Looking deeper at today’s Job Openings and Labor Turnover report you can see that the rate of job hires continues to outpace the rate of job separations while job openings steadily improve resulting ( ... measured indirectly) in the gradual declining of the overall unemployment rate.

The latest data indicates that private job hires are occurring at a rate of 3.6% of total employment while private job separations occurs at a rate of 3.4%.

It's important to note that today's data is very preliminary and volatile and that a more sustained and sustained spread between the rate of hires and separations would be required to make a significant dent in our current structurally weak job market.

Economic Jolt: Job Openings and Labor Turnover July 2013

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 5.06% since June but remained 2.27% above the level seen in July 2012 while private non-farm job “hires” rose 2.40% from June remaining 3.61% above the level seen in July 2012.

Job “layoffs and discharges” declined 5.19% from June falling 3.85% below the level seen last year while quitting activity increased 3.64% from June remaining 5.16% above the level seen in July 2012.

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).

Outstanding Contraction!: Commercial Paper Outstanding August 2013

The Commercial Paper (CP) market is essentially a private debt market used by corporations as a generally cheaper means of funding typical recurring operations than drawing on a line of bank credit.

Commercial paper, as financial instrument, is by no means a recent innovation and, in fact, you can read about how the CP market was affected by the many historic financial shocks experienced by the U.S. (read Panic on Wall Street: A History of America’s Financial Disasters)

Although the Federal Reserve was able to artificially bring CP rates down significantly since the shocking 615 basis point spread blowout (A2/P2 spread) of late 2008, they have not been successful in preventing an overall contraction in the CP market.

The Federal Reserve calculates and published the total amount of CP outstanding every week and as of late August commercial paper continues to slump on a monthly basis while still rising 1.59% on a year-over-year basis to $1004.10 billion, a level that is still substantially lower than even the worst periods of the last two recessions.