by Calculated Risk on 5/13/2011 07:15:00 PM

The BLS reported this morning: "The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 3.6 percent over the last 12 months to an index level of 221.743 (1982-84=100). For the month, the index rose 0.8 percent prior to seasonal adjustment ..."

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is an explanation ...

The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W¹ for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and not seasonally adjusted.

• In 2008, the Q3 average of CPI-W was 215.495. In the previous year, 2007, the average in Q3 of CPI-W was 203.596. That gave an increase of 5.8% for COLA for 2009.

• In 2009, the Q3 average of CPI-W was 211.013. That was a decline of 2.1% from 2008, however, by law, the adjustment is never negative so the benefits remained the same in 2010.

• In 2010, the Q3 average of CPI-W was 214.136. That was an increase of 1.5% from 2009, however the average was still below the Q3 average in 2008, so the adjustment was zero.

Click on graph for larger image in graph gallery.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

The COLA adjustment is based on the increase from Q3 of one year from the highest previous Q3 average. So a 2.3% increase was announced in 2007 for 2008, and a 5.8% increase was announced in 2008 for 2009.

In Q3 2009, CPI-W was lower than in Q3 2008, so there was no change in benefits for 2010. And CPI-W in Q3 2010 was also lower than in Q3 2008, so once again there was no change in benefits.

Currently CPI-W is above the Q3 2008 average. The recent increase is mostly because of the surge in oil prices. CPI-W could be very volatile this year - and will depend on energy prices - but if the current level holds, COLA would be around 2.9% for next year (the current 221.743 divided by the Q3 2008 level of 215.495).

This is very early - if oil prices fall sharply, COLA could still be zero again.

Contribution and Benefit Base

The law prohibits an increase in the contribution and benefit base if COLA is not greater than zero. However if the there is even a small increase in COLA, the contribution base will be adjusted using the National Average Wage Index.

From Social Security: Cost-of-Living Adjustment Must Be Greater Than Zero

... ... any amount that is directly dependent for its value on the COLA would not increase. For example, the maximum Supplemental Security Income (SSI) payment amounts would not increase if there were no COLA.

... if there were no COLA, section 230(a) of the Social Security Act prohibits an increase in the contribution and benefit base (Social Security's maximum taxable earnings), which normally increases with increases in the national average wage index. Similarly, the retirement test exempt amounts would not increase ...

This is based on a one year lag. The National Average Wage Index is not available for 2010 yet, but wages probably didn't change much from 2009. If wages increased back to the 2008 level in 2010, and COLA is positive (seems likely right now), then the contribution base next year will be increased to around $109,000 from the current $106,800.

Remember - this is an early look. What matters is CPI-W during Q3 (July, August and September).

⁽¹⁾ CPI-W usually tracks CPI-U (headline number) pretty well. From the BLS:

The Bureau of Labor Statistics publishes CPIs for two population groups: (1)the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) ... which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self- employed, short-term workers, the unemployed, and retirees and others not in the labor force.

by Calculated Risk on 5/13/2011 04:39:00 PM

The first graph shows the rolling 12 month average of loaded inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported - and possible hints about the trade report for April. LA area ports handle about 40% of the nation's container port traffic.

Click on graph for larger image in graph gallery.

To remove the strong seasonal component for inbound traffic, this graph shows the rolling 12 month average.

On a rolling 12 month basis, inbound traffic is up 16% and outbound up 8%.

The 2nd graph is the monthly data (with strong seasonal pattern).

For the month of April, loaded inbound traffic was up 7% compared to April 2010, and loaded outbound traffic was up 8% compared to April 2010. Even with the decline in April, exports are near the pre-recession peak.

This suggests the trade deficit with China (and other Asians countries) probably increased in April.

by Calculated Risk on 5/13/2011 01:31:00 PM

Earlier today the BLS reported:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.2 percent before seasonal adjustment.
...
The index for all items less food and energy rose 0.2 percent in April after increasing 0.1 percent in March. The shelter index, and its rent and owners' equivalent rent components, all repeated their March increases of 0.1 percent.

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.8% annualized rate) in April. The 16% trimmed-mean Consumer Price Index increased 0.3% (3.3% annualized rate) during the month.

Over the last 12 months, core CPI has increased 1.3%, median CPI has increased 1.4%, and trimmed-mean CPI increased 1.7%.

Note: The Cleveland Fed has a discussion of a number of measures of inflation: Measuring Inflation

Click on graph for larger image in graph gallery.

This graph shows these three measure of inflation on a year-over-year basis.

These measures all show that year-over-year inflation is still low, but increasing lately.

Note: You can see the median CPI details for April here.

Although the year-over-year increases are below the Fed's inflation target, the annualized rates were above the target in April. Core CPI increased at an annualized rate of 2.2%, median CPI 2.8% annualized, and trimmed-mean CPI increased 3.3% annualized.

However, with the slack in the system, I expect the year-over-year core measures to stay below 2% this year.

by Calculated Risk on 5/13/2011 12:47:00 PM

The preliminary May Reuters / University of Michigan consumer sentiment index increased to 72.4 from 69.8 in April.

Click on graph for larger image in graphic gallery.

This was slightly above the consensus forecast of 70.0.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices.

This is still a low reading, but sentiment will probably improve later this month if gasoline prices fall.

by Calculated Risk on 5/13/2011 12:37:00 PM

A quick note ... Google's blogger has been down since yesterday afternoon.

I'll have some posts up shortly. The posts from yesterday are apparently being restored. (Yahoo mail was down too, but is back up now). The wonders of technology. Best to all

by Calculated Risk on 5/12/2011 03:54:00 PM

Mostly I focus on the housing numbers: inventory of homes for sale, homes sold, house prices, foreclosures, mortgage delinquencies, price-to-rent and price-to-income ratios and more.

Recently I've noticed a shift in sentiment - what I've been calling "hate for housing". I saw this change in sentiment during previous housing busts too, and although it doesn't mean prices have bottomed, it suggests we are getting close (the "hate" can last for a few years).

Here are two earlier posts on this shift in sentiment: Housing: Feeling the Hate and More "Hate" for Housing

And here are a couple more articles:

• From Bloomberg: Apartment Rents and Occupancies Are Poised to Rise in U.S., Economists Say

The decrease in [house] prices has turned homeownership from a source of financial security to a burden for many people, said speakers at [a conference in Vancouver].

“Now it’s the source of risk,” said Karl Case, professor emeritus of economics at Wellesley College and co-creator of the Standard & Poor’s/Case-Shiller home-price indexes.

And from David Leonhardt at the NY Times Economix: Building Wealth Through Renting

You have probably heard a version of the idea that renting a house is tantamount to flushing money down the toilet, while buying a home is building equity for your future. Well, it’s wrong, at least much of the time.

You don’t have to listen only to me on this point. Here is Jordan Rappaport, a senior economist at the Federal Reserve Bank of Kansas City, in a paper published last year:

Conventional wisdom has long suggested that homeownership is an effective way to build household wealth. Consistent with this belief, homeownership is often considered to be a key part of the American Dream ...

[Yet the] analysis in this article shows that while homeownership often builds more household wealth than renting and investing the saved cash flow, it also often does not. More specifically, for most ten-year occupancies beginning during the 1970s and 1990s, homeownership unambiguously built more wealth. In contrast, for most occupancies beginning during the 1980s, renting and investing unambiguously built more wealth. Renting and investing is also likely to build more wealth than homeownership for many of the occupancies that started in 2000 through 2009. These results suggest that either homeownership or renting and investing can be reasonable strategies for building household wealth.

In other words, the conventional wisdom that homeownership is usually the better strategy is probably too strong. For many households in many years, renting and investing the saved cash flow has built more wealth than homeownership ...

[Emphasis added.]

by Calculated Risk on 5/11/2011 04:23:00 PM

Victor Calanog, VP Research & Economics at Reis, Inc presented their quarterly briefing on commercial property sectors today. A few highlights:

• Apartments: Vacancy rates are falling and rents rising (see: Reis: Apartment Vacancy Rates fell sharply in Q1, Lowest in almost three years). Calanog expects rents to increase 4%+ in 2011 and 2012, and for the apartment vacancy rate to fall to 5.5% this year (the lowest since 2001). Note that the Reis survey is just for large cities, but this decline in vacancy rates is happening just about everywhere.

• Offices: Vacancy rates are falling and rents rising, but the recovery will be more gradual for offices than apartment. Calanog is expecting rents to rise slightly this year, and about 2.5% in 2012. He expects the vacancy rate to fall to 17.1% this year from the 17.5% in Q1 (see: Reis: Office Vacancy Rate declines slightly in Q1)

• Malls: Malls are still under pressure and Calanog expects vacancy rates at neighborhood and community shopping centers to rise slightly and rents to fall slightly this year. (see: Reis: Mall Vacancy rates increase in Q1). Reis reported that malls are seeing an echo effect from the loss of anchor tenants earlier in the cycle as smaller tenants leave malls with no anchor tenant (either by contract or when their lease expires).

by Calculated Risk on 5/11/2011 12:02:00 PM

This is the new UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce Index^TM

Click on graph for larger image in graph gallery.

This graph shows the index since January 2000.

Press Release: Pulse of Commerce Index Falls 0.5 percent in April

The Ceridian-UCLA Pulse of Commerce Index™ (PCI), issued today by the UCLA Anderson School of Management and Ceridian Corporation fell 0.5 percent on a seasonally and workday adjusted basis in April, marking a continuation of the see-saw economic performance experienced over the past twelve months.

“Though down in April, the decline offset only a fraction of the exceptional 2.7 percent gain posted in March, which was sufficient to drive continued growth in the three month moving average of the PCI,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “However, the disappointing 1.8 percent growth of real GDP in the first quarter remained consistent with the pattern of modest, fitful economic growth reflected by the PCI since the first quarter of 2010. The most recent report reinforces our long held cautious, below consensus outlook for growth in GDP and employment.”

“Until we see acceleration in the PCI, we expect monthly employment gains to remain range bound between 150,000 and 200,000 new jobs,” Leamer continued.
...
“Over time, the PCI has shown a substantial correlation with industrial production,” explained Craig Manson, senior vice president and Index expert for Ceridian. “... Based on the relatively weak April result, the PCI is calling for growth of 0.25 percent in industrial production when the government reports its number on May 17.”
...
The Ceridian-UCLA Pulse of Commerce Index™ is based on real-time diesel fuel consumption data for over the road trucking ...

This index was useful in tracking the slowdown last summer.

Note: This index does appear to track Industrial Production over time (with plenty of noise) and this suggests a weaker reading for April. Industrial Production for April will be released on May 17th.

by Calculated Risk on 5/11/2011 10:20:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings in March was 3.1 million, up from 3.0 million in February. This marks the first time since November 2008 that job openings have been at or above 3.0 million for two consecutive months. The job openings level has trended up since the end of the recession in June 2009 (as designated by the National Bureau of Economic Research) but remains well below the 4.4 million openings when the recession began in December 2007.

The following graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Unfortunately this is a new series and only started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for March, the most recent employment report was for April.

Click on graph for larger image in graph gallery.

Notice that hires (purple) and total separations (red and blue columns stacked) are pretty close each month. When the purple line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

In general job openings (yellow) has been trending up - and are up 16% from March 2010. However the overall turnover remains low.

by Calculated Risk on 5/11/2011 08:40:00 AM

The Department of Commerce reports:

[T]otal March exports of $172.7 billion and imports of $220.8 billion resulted in a goods and services deficit of $48.2 billion, up from $45.4 billion in February, revised. March exports were $7.7 billion more than February exports of $165.0 billion. March imports were $10.4 billion more than February imports of $210.4 billion.

Click on graph for larger image.

The first graph shows the monthly U.S. exports and imports in dollars through March 2011.

Both imports and exports increased in March (seasonally adjusted). Exports are well above the pre-recession peak, but imports are now increasing at a faster rate - mostly because of oil prices.

The second graph shows the U.S. trade deficit, with and without petroleum, through March.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The petroleum deficit increased sharply in March as both the quantity and price increased - prices averaged $93.76 per barrel in March, up from $87.17 in February. Prices will be even higher in April.

The trade deficit was larger than the expected $47 billion.