by Calculated Risk on 6/15/2011 06:45:00 PM

The BLS reported this morning: "The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 4.1 percent over the last 12 months to an index level of 222.954 (1982-84=100). For the month, the index rose 0.5 percent ..."

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-W 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.

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.

• 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.

Currently CPI-W is above the Q3 2008 average. CPI-W could be very volatile this year because of energy prices, but if the current level holds, COLA would be around 3.5% for next year (the current 222.954 divided by the Q3 2008 level of 215.495).

This is still early - and oil and gasoline prices are falling - but it appears that COLA will increase this year.

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 increase 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 to $110,000 from the current $106,800.

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

Earlier:
• NAHB Builder Confidence index declines in June
• Industrial Production edged up in May, Capacity Utilization unchanged
• Empire State Survey indicates contraction
• MBA: Mortgage Purchase Application activity increases

by Calculated Risk on 6/15/2011 04:13:00 PM

A few articles:
• From the LA Times: Fighting breaks out in Athens as thousands of Greek workers protest

• From the WSJ: Greek Leader to Seek Vote of Confidence

Greek Prime Minister George Papandreou, facing mounting opposition to his plans for further austerity measures being demanded as a price for a new bailout needed to avoid a debt default, said Wednesday he would shuffle his cabinet and demand a vote of confidence in Parliament.

The vote is likely to herald a further bout of intense uncertainty in financial markets already rattled by the disagreements over a new rescue package.

• From the Financial Times: Greek contagion fears spread to other EU banks

• From the WSJ, a list of banks and countries exposed to the debt of Greece, Ireland and Portugal (ht Pat): Greece, Ireland, Portugal: Who Holds the Debt?. This doesn't include the exposure to CDS that Kash outlined last week.

The yield for Greek 2 year bonds is over 28%; the 10 year yield is close to 18%. Portuguese and Irish yields are up too.

Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 6/15/2011 12:43:00 PM

Earlier today the BLS reported:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.6 percent before seasonal adjustment.

The index for all items less food and energy rose 0.3 percent in May after increasing 0.1 percent in March and 0.2 percent in April. The shelter index rose 0.2 percent in May after increasing 0.1 percent in each of the seven previous months. Both rent and owners' equivalent rent rose 0.1 percent; the acceleration in shelter was due to the index for lodging away from home, which rose 2.9 percent in May after being unchanged in April.

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% (2.1% annualized rate) in May. The 16% trimmed-mean Consumer Price Index increased 0.2% (2.8% annualized rate) during the month.

Over the last 12 months, core CPI has increased 1.5%, median CPI has increased 1.5%, and trimmed-mean CPI increased 1.9%.

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.

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

Although the year-over-year increases are below the Fed's inflation target, the annualized rates were above the target in May. However, with the slack in the system, the year-over-year core measures will probably stay near or be below 2% this year.

Earlier:
• NAHB Builder Confidence index declines in June
• Industrial Production edged up in May, Capacity Utilization unchanged
• Empire State Survey indicates contraction
• MBA: Mortgage Purchase Application activity increases

by Calculated Risk on 6/15/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) declined to 13 in June from 16 in May. This is the lowest level since last September. Any number under 50 indicates that more builders view sales conditions as poor than good.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the June release for the HMI and the April data for starts (May housing starts will be released tomorrow).

Both confidence and housing starts have been moving sideways at a very depressed level for several years.

Click on graph for larger image in new window.

Press release from the NAHB: Builder Confidence Declines Three Points in June

After holding at a low but steady level for the past six months, builder confidence in the market for newly built, single-family homes declined three points in June to a reading of 13 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The last time the index was this low was in September of 2010.
...
"Builder confidence has waned even further as economic growth has stalled, foreclosures have continued to hit the market and the cost of building a home has risen," agreed NAHB Chief Economist David Crowe. "Meanwhile, potential new-home buyers are being constrained by difficulty selling their existing homes, stringent lending requirements, and general uncertainty about the economy.”
...
Every component of the HMI fell in June. The component gauging current sales conditions and the component gauging traffic of prospective buyers each fell two points, to 13 and 12, respectively. The component gauging sales expectations in the next six months fell four points to tie its record low score of 15 set in February and March of 2009.

Builders are very depressed, and the HMI has been below 25 for forty-eight consecutive months - 4 years!

by Calculated Risk on 6/15/2011 09:15:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production edged up 0.1 percent in May, the second consecutive month with little or no gain. Revisions to total industrial production in months before May were small. In May, manufacturing production rose 0.4 percent after having fallen 0.5 percent in April. The output of motor vehicles and parts has been held down in the past two months because of supply chain disruptions following the earthquake in Japan. Excluding motor vehicles and parts, manufacturing output advanced 0.6 percent in May and edged down 0.1 percent in April; the decrease in April in part reflected production lost because of tornadoes in the South at the end of the month. ... At 93.0 percent of its 2007 average, total industrial production in May was 3.4 percent above its year-earlier level. Capacity utilization for total industry was flat at 76.7 percent, a rate 3.7 percentage points below its average from 1972 to 2010.

Click on graph for larger image in graph gallery.

This graph shows Capacity Utilization. This series is up 9.5 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 76.7% is still "3.7 percentage points below its average from 1972 to 2010" - and below the pre-recession levels of 81.2% in November 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production edged up slightly in May to 93.0.

Both industrial production and capacity utilization have stalled recently. The was below the consensus of a 0.2% increase in Industrial Production in May, and an increase to 77.0% for Capacity Utilization.

by Calculated Risk on 6/15/2011 08:30:00 AM

• From the NY Fed: Empire State Manufacturing Survey

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated in June. The general business conditions index slipped below zero for the first time since November of 2010, falling twenty points to -7.8.

The new orders and shipments indexes also posted steep declines and fell below zero. The index for number of employees dropped fifteen points to 10.2.

This was well below expectations of a reading of 13.0. This is the first regional survey released for June and shows that manufacturing is contracting.

• From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. ... The index for all items less food and energy increased 0.3 percent in May, its largest increase since July 2008.

Even though the rate of inflation slowed, it was still higher than expected. The pickup in core inflation is bad news - I'll have more on inflation later.

• From the NY Times: Moody's to Review French Banks Over Greece Exposure

French banks were punished Wednesday for their exposure to the Greece after Moody’s Investors Service placed three of the largest on review for a possible downgrade.

Moody’s cited “concerns” about the exposure of BNP Paribas, Société Générale and Crédit Agricole to the Greek economy ...

by Calculated Risk on 6/15/2011 07:18:00 AM

The MBA reports: MMortgage Applications Increase in Latest MBA Weekly Survey

The Refinance Index increased 16.5 percent from the previous week. The seasonally adjusted Purchase Index increased 4.5 percent from one week earlier.
...
"Mortgage rates have declined for 8 of the past 9 weeks. Coming off of the Memorial Day holiday, refinance application volume increased significantly, as borrowers jumped to lock in the lowest mortgage rates since last November," said Michael Fratantoni, MBA's Vice President of Research and Economics. "The volume of refinance applications still remains 28 percent below levels seen at that time, as borrowers with an incentive to refinance remain constrained from doing so by lack of equity in their homes."
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.51 percent from 4.54 percent, with points increasing to 1.05 from 0.94 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year average rate since November 19, 2010.

The following graph shows the MBA Purchase Index and four week moving average since 1990.

Click on graph for larger image in graph gallery.

The four week average of purchase activity is still at about 1997 levels. Of course there is a very high percentage of cash buyers right now, but this suggests weak existing home sales through mid-year (not counting cash buyers). Note that mortgage rates have fallen to the lowest level since last November and refinance activity has increased.

by Calculated Risk on 6/14/2011 11:02:00 PM

The BuildFax Residential Remodeling Index was at 109.7 in April, up from 98.0 in March. This is based on the number of properties pulling residential construction permits in a given month.

From BuildFax:

The Residential BuildFax Remodeling Index rose 15% year-over-year—and for the eighteenth straight month—in April to 109.7, the highest April number in the index to date.
...
In April, all regions posted month-over-month gains, and only the Midwest posted a year-over-year loss.
...
According to Joe Masters Emison, vice president of research and development at BuildFax, “April traditionally sets a baseline for the rest of the year in residential remodeling activity, and April 2011 is the best we’ve seen since the beginning of the index in April 2004.”

Click on graph for larger image in graph gallery.

This is the highest level for the month of April since the index was started in 2004 - and even slightly above the levels for May in 2005 and 2006 (during the home equity and remodel boom).

Note: permits are not adjusted by value, so this doesn't mean there is more money being spent, just more permit activity. Also some smaller remodeling projects are done without permits and the index will miss that activity.

Since there is a strong seasonal pattern for remodeling, the second graph shows the year-over-year change from the same month of the previous year.

The remodeling index is up 15% from April 2010.

As I mentioned earlier today in Key Question: Is the slowdown temporary?, Residential Investment (RI) is a leading indicator for the economy, and RI will will probably make a positive contribution to the economy this year for the first time since 2005. Even though new home construction is still moving sideways, it appears that two other components of residential investment will increase in 2011: multi-family construction and home improvement.

Data Source: BuildFax, Courtesy of Index.BuildFax.com

by Calculated Risk on 6/14/2011 07:46:00 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 May. LA area ports handle about 40% of the nation's container port traffic.

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

Click on graph for larger image in graph gallery.

On a rolling 12 month basis, inbound traffic is up 0.4% from April, and outbound traffic also up 0.4%.

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

For the month of May, loaded inbound traffic was up 5% compared to May 2010, and loaded outbound traffic was also up 5% compared to May 2010.

Exports are near the pre-recession peak in 2008, although imports in May were still below the levels of May 2006 and May 2007.

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

by Calculated Risk on 6/14/2011 04:11:00 PM

From economist Tom Lawler:

Based on my tracking of regional MLS that have reported data so far (not as large a sample as I would like), I estimate that existing home sales, as estimated by the National Association of Realtors, ran at a seasonally adjusted annual rate of 4.8 million in May, down about 5% from April’s pace, and down 15.5% from last May’s pace. Unadjusted sales should show a smaller YOY decline, as this May had one more business day than last May.

On the inventory front, active listings appeared to have increased modestly from April to May nationwide, but were down from a year ago in the vast majority of places – in some cases by a lot, in aggregate in the 7-8% range. What that means for the NAR’s inventory estimate, however, is not clear. Over the last several years the NAR’s existing home inventory estimate has shown MASSIVELY larger gains from March to April than have other listings sources (including realtor.com), but then showed either smaller gains or larger declines than other sources from April to May. In addition, NAR’s YOY inventory decline in April seemed materially lower than other data listing sources suggested.

Based on limited historical data I’d estimate that the NAR’s methodology will result in a reported 2.5% monthly decline in existing home inventory. That combination of sales and inventories would produce a NAR-defined “month’s supply” of 9.4 months, up from 9.2 months in April.

Shifting to pending sales, April’s seasonally adjusted 11.6% drop was surprisingly sharp and only partly explainable by “questionable” seasonal factors. Looking at the limited number of regional realtor associations/MLS/boards that report on “new” pending sales, it appears as if pending sales in aggregate showed a significant rebound from April to May. I estimate that the NAR’s Pending Home Sales Index will show a seasonally adjusted gain from April to May of around 11% -- suggesting that weather, flooding, oil prices, and “other stuff” may have had a temporarily negative impact on contract signings in April and closed sales in May, as well as a temporarily negative impact on other economic data for May.

CR Notes: The NAR reported existing home sales at a 5.05 million seasonally adjusted annual rate (SAAR) in April and inventory of 3.87 million units.

Click on graph for larger image in graph gallery.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis through April. Sales in April 2011 (5.05 million SAAR) were 0.8% lower than in March, and were 12.9% lower than in April 2010.

Based on Tom Lawler's estimate, this will be the lowest level of inventory in May since 2006 and sales will decline 15.5% YoY. Of course sales in 2010 were boosted by the homebuyer tax credit.

No word yet on when the NAR will release their benchmark revision (expected this summer - and expected to show significant downward revisions to sales and inventory for the last several years).