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Analysis
The recent election in Greece has threatened the existing agreement which was a first pass at a solution regarding EU debt. The party which agreed to cut Greece's deficit as a quid pro quo for support of its debt was voted out. The French Presidential election created another dimension of uncertainty. I do not believe that anyone knows what the precise outcome will be but chances are that this will cause angst driven, flight-to-quality buying of U.S. Treasuries and, consequently, lower home loanrates. We will have another refi wave. Really.
The situation in the EU is complicated by the sheer number of parties involved. To make things worse, politicians are voted out of office for making the agreement and the situation becomes more chaotic.
Fiscal Cliff
If his most recent press conference, Bernanke warned that there was nothing which the Fed could do regarding the "fiscal cliff." Bernanke said, “And I am concerned that if all the tax increases and all the spending cuts that are associated with the current law which would take place, absent any Congressional action, that would occur on January 1st that that would be a significant risk to the recovery. So I am looking and hoping that Congress will take actions that will address ... both requirements of good fiscal policy.”
Bernanke is referring to the fact that under current laws, at the start of 2013 a bunch of things have been legislated to happen. These are 1) the end of the "Bush era" tax cuts the most notable of which is an increase from 15% to 43.5% in the top tier of tax on dividends 2) a 3.8% tax surcharge which combined with the expiration of the "Bush era" tax cuts would move the top capital gains rate from 15% to 23.8% 3) massive spending cuts.
What we have is a formula for disaster. Those tax increases on dividends and capital gains are going to have a very significant negative effect on equities and may also drive interest rates up as investors demand real positive after-tax returns.
Bernanke is making one gigantic point: There is nothing which the monetary policy of the Fed can do in face of insanely irresponsible fiscal policy. Forget everything else. If one increases taxes and decreases spending per what is in place then GDP will take a sizable hit because both consumers and government will be spending less.
I have no idea what anyone is talking about the 1%'ers when we already have in place a great plan to increase their taxes.
The worse part is that there is an election coming and the imbeciles in Congress cannot be bothered with this trivia before mid-November. Reelection is more important to them than the economy. This is, in my mind, the heart of the problem.
Also, I apologize to imbeciles for the politically incorrect act of comparing them to Congressmen.
Rate Watch #826 Inside Another Lousy BLS Jobs Report
May 4 , 2012
Jobs
BLS Employment Situation Report (April 2012)
- Nonfarm jobs were +115,000. Previous was revised to +154,000 from +120,000
- Average Hourly Earnings was flat. (Note for accuracy: it actually went up 1 cent. I am choosing today to call that "flat.")
- Average Workweek was flat.
The Unemployment Rate fell to 8.1% because there were 342,000 fewer people in the civilian labor force. The labor participation percentage (size of the labor force/adult noninstitutionalized population) fell from 58.5% to 58.4%. More attention should be paid to the participation ratio because it is the people working who drive GDP and pay taxes. Cheering for a lower unemployment rate when the labor participation ratio is falling misses the point.
Another disappointing report. There is no mystery. The housing bubble was a borrowed money bubble and the recovery is taking much longer than a typical cyclical recession.
Inside the BLS Employment Situation Report
This is my monthly look inside the BLS Employment Situation Report. Keep in mind that there are two BLS Surveys: the Establishment and the Household. The Establishment surveys about 141,000 businesses and government agencies, representing approximately 486,000 individual worksites. It is taken each month during the week which includes the 12th of the month. The Household Survey is a survey of households taken each month during the week which included the 12th of the month. It is a survey of 60,000 households.
Each item below is suffixed with (H) if it is from the Household Survey and (E) if it is from the Establishment Survey and (B) if it combines the two.
- Headline Nonfarm jobs was +115,000. (E)
- Unemployment Rate was down to 8.1% compared to 8.2% in March 2012 (B)
- Average hourly wage $23.38 up from $23.37 in March 2012 (E)
- Average work week was 34.5 hours the same as March 2012 (E)
- Private jobs were +130,000. Government jobs were -15,000 (E)
Reading beneath the surface:
-Good producing jobs were +14,000. This is important and weak. The 2 previous months were +38,000 and +36,000 . (E)
-The size of the civilian labor force fell from 154,707,000 to 154,365,000 a decline of 342,000. This explains why the Unemployment rate went down. Bad restaurants have no lines.(H)
-The labor participation rate (percent of adult non-institutionalized population who are part of the labor force) fell to 63.6% from 63.8%. It was 64.2% a year ago. This, not the unemployment rate, is the number which should get everyone's attention. Some of this is structural and some is cyclical. (H) In his press conference of last week, Bernanke sidestepped the issue of declining labor participation rate. The employment/population ratio fell from 58.5% to 58.4%. (H)
- the size of the civilian population rose by 180,000 in March. With a labor participation rate of 63.6% 114,480 more jobs were necessary to keep pace with population growth. We had 520 more jobs than that. In other words, 99.8% of the growth in jobs merely kept pace with population growth. (H)
According to the 4 week moving average of Initial Jobless Claims 1,447,000 people lost their jobs in the last 4 weeks. That normalizes to 1,567,500 lost jobs in a calendar month (there are about 13 4 week periods in a 12 month year.) This is down from the previous month's 1,637,000 lost jobs/month.
If 1,567,500 people lost their jobs last month and we gained 115,000 jobs, how did that happen? The answers are in the Household Survey. The labor market is highly dynamic. A lot of people move in and out each month for various reasons.
In April 2012 BLS measured 4 sets of people entering or leaving the jobs market:
- Job losers and persons who completed temporary jobs was 6,852,000 down 168,000 from March's Job Losers and down 1,329,000 from April 2011. (H)
-Job leavers was 997,000. This includes anyone who retired or voluntarily left working. This was down 120,000 from previous month and up 53,000 from April 2011. (H)
-Reentrants was 3,341,000. Reentrants are people who were looking for a job a found one. This was +72,000 from previous month and -46,000 from April 2011. (H)
-New entrants were 1,384,000. These are previously unemployed persons who never worked before and who are entering the labor force for the first time. This was -49,000 from previous month and +62,000 from April 2011.
The presentation of the total change in jobs is like looking at the final score of a game. The details tell the story:
- 115,000 more people are working
- 342,000 fewer people are in the civilian labor force
- 168,000 fewer people lost their jobs
- 120,000 fewer people left their jobs
- 72,000 more reentrants obtained jobs.
This very weak report will send rates lower and create another refi wave.
Dick Lepre
dicklepre@rpm-mtg.com
Web site: www.loanmine.com
Blog: economy.typepad.com
Phone: (415) 244-9383 | Fax: (866) 488-2051
1400 Van Ness Avenue, San Francisco, CA 94109
CA DRE # 01143973 | NMLS # 302379
California Department of Real Estate - Real Estate Broker License #01818035, NMLS #9472. Equal Housing Opportunity.
GDP
This anaylsys of GDP is by Rick Davis of Consumer Metrics Institute.
In their "advanced" estimate of the first quarter 2012 GDP, the Bureau of Economic Analysis (BEA) found that the annualized rate of U.S. domestic economic growth was 2.20%, down more than three-quarters of a percent from the fourth quarter of 2011. The vast bulk of the downturn was in commercial activities, with both fixed investments and inventories lowering the headline number substantially. Consumer spending on both goods and services improved slightly, and the ongoing contraction in governmental spending moderated somewhat. The BEA's bottom-line "real final sales" improved about a half-percent to an annualized growth rate of 1.61% -- hardly robust and certainly not the kind of numbers we would expect to see nearly three years into a recovery.
Once again the BEA has used "deflaters" that will strain the credibility of the public, especially if they buy gasoline. To correct the "nominal" data into "real" numbers the BEA assumed that the annualized inflation rate during 1Q-2012 was 1.54%. As a reminder, lower "deflaters" cause the reported "real" growth rates to increase -- and once again very low seasonally adjusted BEA inflation "deflaters" have been the headline number's best friend. If the raw "nominal" numbers were instead "deflated" by using the seasonally corrected CPI-U calculated by the Bureau of Labor Statistics (BLS) for the same time period, nearly the entire headline growth rate vanishes -- and the resulting growth rate would have been a minuscule 0.08% with "real final sales" contracting.
And real per capita disposable income actually shrank during the quarter -- even using the BEA's optimistic "deflaters." Real-world households likely felt the pinch even more.
Among the notable items in the report:
-- The contribution to the annualized growth rate for consumer expenditures for goods improved to 1.47%, up 0.18% from the 1.29% for the fourth quarter of 2011. Although this number remains modest by "recovery" standards, it has been trending upward for the past several quarters.
-- The contribution made by consumer services also improved (to 0.57%), but it also remains anemic by "recovery" standards.
-- The growth rate contribution from private fixed investments dropped to 0.18% -- losing over a half-percent relative to the fourth quarter of 2011 and 1.34% from the third quarter of 2011.
-- The contribution from inventories (0.59% annualized) dropped significantly from the 1.81% reported for 4Q-2011. This drop in inventory building was inevitable, although it still represents nearly a quarter of the headline number.
-- The reported drag on GDP growth from contracting expenditures by governments moderated somewhat at -0.60% (about a quarter of a percent less than the -0.84% reported for 4Q2011).
-- The annualized contribution to the growth rate from exports rose to 0.73% (from 0.37% in the prior quarter).
-- Imports are now removing -0.74% from the growth rate of the overall economy, slightly worse than the -0.63% recorded during 4Q2011.
-- The annualized growth rate of "real final sales of domestic product" rose to 1.61%, but it is still a 1.55% below the +3.16% reported for the third quarter of 2011. If this number is accepted at face value (and not as a consequence of "deflaters" playing havoc with inventory valuations) it still indicates a much weaker economy than is conveyed in the headline number.
-- Real per-capita disposable income shrank at an annualized -0.27% rate during the quarter (from $32,699 per capita to $32,677 per capita) -- and it remains lower than it was 5 quarters ago.
The Numbers
As a quick reminder, the classic definition of the GDP can be summarized with the following equation:
or, as it is commonly expressed in algebraic shorthand:
In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows:
GDP = C + I + G + (X-M) GDP = private consumption + gross private investment + government spending + (exports - imports)
GDP Components Table
| | Total GDP | = 3D | C | + | I | + | G | + | (X-M) |
| Annual $ (trillions) |
$15.5 |
= |
$11.0 |
+ |
$2.0 |
+ |
$3.0 |
+ |
$-0.6 |
| % of GDP |
100.0% |
= |
71.2% |
+ |
13.2% |
+ |
19.6% |
+ |
-4.0% |
| Contribution to GDP Growth % |
2.20% |
= |
2.04% |
+ |
0.77% |
+ |
-0.60% |
+ |
-0.01% |
Quarterly Changes in % Contributions to GDP
The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Finals Sales of Domestic Product" and listed the quarters in columns with the most current to the left:
| | 1Q-2012 | 4Q-2011 | 3Q-2011 | 2Q-2011 | 1Q-2011 | 4Q-2010 | 3Q-2010 | 2Q-2010 | 1Q-2010 | 4Q-2009 | 3Q-2009 | 2Q-2009 | 1Q-2009 |
| Total GDP Growth |
2.20% |
2.97% |
1.81% |
1.34% |
0.36% |
2.36% |
2.50% |
3.79% |
3.94% |
3.81% |
1.69% |
-0.69% |
-6.66% |
| Consumer Goods |
1.47% |
1.29% |
0.33% |
-0.38% |
1.10% |
1.87% |
1.09% |
0.87% |
1.45% |
0.12% |
1.70% |
-0.52% |
0.05% |
| Consumer Services |
0.57% |
0.19% |
0.90% |
0.87% |
0.36% |
0.61% |
0.75% |
1.18% |
0.47% |
0.21% |
-0.04% |
-0.76% |
-1.07% |
| Fixed Investment |
0.18% |
0.78% |
1.52% |
1.07% |
0.15% |
0.88% |
0.28% |
2.12% |
0.15% |
-0.42% |
0.13% |
-2.26% |
-5.09% |
| Inventories |
0.59% |
1.81% |
-1.35% |
-0.28% |
0.32% |
-1.79% |
0.86% |
0.79% |
3.10% |
3.93% |
0.21% |
-0.58% |
-2.66% |
| Government |
-0.60% |
-0.84% |
-0.02% |
-0.18% |
-1.23% |
-0.58% |
0.20% |
0.77% |
-0.26% |
-0.18% |
0.28% |
1.21% |
-0.33% |
| Exports |
0.73% |
0.37% |
0.64% |
0.48% |
1.01% |
0.98% |
1.21% |
1.19% |
0.86% |
2.51% |
1.49% |
-0.02% |
-3.82% |
| Imports |
-0.74% |
-0.63% |
-0.21% |
-0.24% |
-1.35% |
0.39% |
-1.89% |
-3.13% |
-1.83% |
-2.36% |
-2.08% |
2.24% |
6.26% |
| Real Final Sales |
1.61% |
1.16% |
3.16% |
1.62% |
0.04% |
4.15% |
1.64% |
3.00% |
0.84% |
-0.12% |
1.48% |
-0.11% |
-4.00% |
Summary
As lackluster as it may be, the headline number of 2.20% is still likely overstating the health of the economy:
-- The "deflater" used in constructing the reported growth rate (reflecting annualized inflation of 1.54%) will seem patently absurd to anyone who lived in the real world during the first quarter of 2012, especially if they bought gasoline or groceries. Using the CPI-U as a deflater makes the headline growth almost completely vanish.
-- Even the BEA's optimistic "deflaters" couldn't keep the per capita disposable income from shrinking during the quarter.
-- Governments continued to shrink their spending, and they sucked -0.60% from the headline number. That trend is unlikely to reverse anytime soon.
-- "Real final sales" and factory production continued to be supported by inventory building -- which is unsustainable and must ultimately reverse (even if the cost of carrying the inventories has been kept artificially low by the Fed).
Our bottom line for the economy has always been the health of households. This report shows per capita disposable income is shrinking and that any improvements in consumer spending are likely unsustainable. We suspect that the softening seen in this report the harbinger of a collapsing "recovery" that will continue to unfold during 2012.
Rate Watch #823 Federal Income Taxes - Who Pays What?
April 13, 2012
Income Taxes
Since it is that time of year and there is so much talk about who should pay what let's see who paid what in the most recent year for which we have data.
Federal Income Tax Paid by Percentile 2009 ("AGI"= Adjusted Gross Income)
| |
Number of Returns |
AGI ($ millions)
|
Income Taxes Paid ($ millions) |
Group's Share of Total AGI |
Group's Share of Income Taxes |
Average Tax Rate |
| |
|
|
|
|
|
|
| All Taxpayers |
137,982,203
|
$7,825,389 |
$865,863 |
100.00% |
100.00% |
11.06% |
| Top 1% |
1,379,822 |
$1,324,572 |
$318,043 |
16.9% |
36.7% |
24.01% |
| Top 1-5% |
5,519,288 |
$1,157,918 |
$189,864 |
14.8% |
22.0% |
16.40% |
| Top 5% |
6,899,110 |
$1,960,676 |
$507,907 |
31.7% |
58.7% |
20.46% |
| Top 5-10% |
6,899,110 |
$897,241 |
$102,249 |
11.5% |
11.8% |
11.4% |
| Top 10% |
13,798,220 |
$3,379,731 |
$610,249 |
43.2% |
70.5% |
18.05% |
| Top 10-25% |
20,697,331 |
$1,770,140 |
$145,747 |
22.60% |
17.0% |
8.23% |
| Top 25% |
34,495,551 |
$5,149,871 |
$755,903 |
65.8% |
87.3% |
14.68% |
| Top 25-50% |
34,495,551 |
$1,620,303 |
$90,449 |
20.7% |
11.0% |
5.68% |
| Top 50% |
68,991,102 |
$6,770,174 |
$846,352 |
86.5% |
97.7% |
12.5% |
| Bottom 50% |
68,991,102 |
$1,055,215 |
$19,511 |
13.5% |
2.3% |
1.85% |
AGI = Adjusted Gross Income
Source: Internal Revenue Service
IRS changed the format of the presentation of this data. I find that it is better presented in this clear table at Tax Foundation.
The 1%'ers
Lately there has been a gigantic amount of political and media talk about the top 1% of income earners, how much they make, how much they pay and how much they should pay.
Comparing the 2009 data with 2008 and 2007 the total AGI of the top 1% dropped significantly. In 2007 the 1%'ers earned a total of $2,008 billion. In 2008 they earned a total of $1,685 billion. In 2009 they earned a total of $1,326 billion. The total AGI of the 1%'ers fell 34% from 2007-2009. These folks have a lot of capital gains and interest income and it is likely that decrease in capital gains and low interest rates were responsible for the decline in their income.
The populist narrative about the 1% making a larger percentage of total AGI is not supported by recent IRS data. The year-by-year breakdown is in Table 3 of this page.
If you have something to add to this discussion please post a comment on the blog.
Dick Lepre
dicklepre@rpm-mtg.com
Web site: www.loanmine.com
Blog: economy.typepad.com
Phone: (415) 244-9383 | Fax: (866) 488-2051
1400 Van Ness Avenue, San Francisco, CA 94109
CA DRE # 01143973 | NMLS # 302379
California Department of Real Estate - Real Estate Broker License #01818035, NMLS #9472. Equal Housing Opportunity.
This is my monthly look inside the BLS Employment Situation Report.
- Headline Nonfarm jobs was +120,000.
- Unemployment Rate was down at 8.2% in compared to 8.3% in February 2012
- Average hourly wage $23.39 up from $23.34 in February 2012
- Average work week was 34.5 hours down from 34.6 in February 2012
- Private jobs were +121,000. Government jobs were -1,000
Reading beneath the surface:
-Good producing jobs were +31,000. The 3 previous months were +20,000, +78,000 and +48,000.
-The size of the civilian labor force fell from 154,871,000 to 154,707,000 a decline of 164,000. This explains why the Unemployment rate went down.
-The labor participation rate (percent of adult non-institutionalized population who are part of the labor force) fell to 63.8% from 63.9%. It was 64.2% a year ago. This, not the unemployment rate, is the number which should get everyone's attention. Some of this is structural and some is cyclical.
- the size of the civilian population rose by 179,000 in March. With a labor participation rate of 63.8% 108,000 more jobs were necessary to keep pace with population growth. We had 12,000 more jobs than that.
According to the 4 week moving average of Initial Jobless Claims 1,447,000 people lost their jobs in the last 4 weeks. That normalizes to 1,567,500 lost jobs in a calendar month (there are about 13 4 week periods in a 12 month year.) This is down from the previous month's 1,637,000 lost jobs/month.
If 1,567,500 people lost their jobs last month and we gained 121,000 jobs, how did that happen? The answers are in the Household Survey.
In March 2012 BLS measured 4 sets of people entering or leaving the jobs market:
- Job losers and persons who completed temporary jobs was 7,080,000 down 189,000 from February's Job Losers and down 1,224,000 from February 2012.
-Job leavers was 1,117,000. This includes anyone who retired or voluntarily left working. This was up 86,000 from previous month and up 227,000 from February 2011.
-Reentrants was 3,269,000. Reentrants are people who were looking for a job a found one. This was -92,000 from previous month and -9,000 from February 2011.
-New entrants were 1,433,000. These are unemployed persons who never worked before and who are entering the labor force for the first time. This was +41,000 from previous month and +98,000 from February 2011.
The presentation of the total change in jobs is like looking at the final score of a game. The details tell the story:
- 120,000 more people are working
- 164,000 fewer people are in the civilian labor force
- 189,000 fewer people lost their jobs
- 86,000 more people left their jobs
- 92,000 fewer reentrants obtained jobs.
Dick Lepre
dicklepre@rpm-mtg.com
Web site: www.loanmine.com
Blog: economy.typepad.com
Phone: (415) 244-9383 | Fax: (866) 488-2051
1400 Van Ness Avenue, San Francisco, CA 94109
CA DRE # 01143973 | NMLS # 302379
California Department of Real Estate - Real Estate Broker License #01818035, NMLS #9472. Equal Housing Opportunity.
Inside the BLS Employment Situation Report
This is my monthly look inside the BLS Employment Situation Report.
- Headline Nonfarm jobs was +227,000.
- Unemployment Rate was unchanged at 8.3% in January 2012
- Average hourly wage $23.31 up from $23.29 in January 2012
- Average work week was 34.5 hours the same as 34.5 in January 2012
- Private jobs were +233,000. Government jobs were -6,000
Reading beneath the surface:
-Good producing jobs were +24,000.
-The size of the civilian labor force rose/fell from 154,395,000 to 154,871,000.
-The labor participation rate (percent of adult non-institutionalized population who are part of the labor force) rose to 63.9% from 63.7%. It was 64.2% a year ago.
According to the 4 week moving average of Initial Jobless Claims 1,420,000 people lost their jobs in the last 4 weeks. That normalizes to 1,538,000 lost jobs in a month (there are about 13 4 week periods in a 12 month year.) This is down from the previous month's 1,637,000 lost jobs/month.
If 1,538,000 people lost their jobs last month and we gained 227,000 jobs, how did that happen? The answers are in the Household Survey.
In February 2012 BLS measured 4 sets of people entering or leaving the jobs market:
- Job losers and persons who completed temporary jobs was 7,209,000 down 112,000 from January's Job Losers and down 1,128,000 from February 2012.
-Job leavers was 1,031,000. This includes anyone who retired or voluntarily left working. This was up 92,000 from previous month and up 127,000 from February 2011.
-Reentrants was 3,361,000. Reentrants are people who were looking for a job a found one. This was +36,000 from previous month and -+7,000 from February 2011.
-New entrants were 1,392,000. These are unemployed persons who never worked before and who are entering the labor force for the first time. This was +139,000 from previous month and +77,000 from February 2011.
In summary: It appears that we are part the worst part of the jobs market cycle. People are not losing their jobs at the same rate as a year ago partly because temps are not getting dismissed at the same rate. However, 84% of the headline gain is only to keep pace with population growth. Considering how far we are into recovery and how much has been spent, I find this data disappointing.
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