by Calculated Risk on 5/07/2012 07:30:00 PM

There has been some discussion about the causes of the decline in the participation rate. Here is a post from Catherine Rampell today at the NY Times economix today: Baby Boomers and the Shrinking Work Force

[A]s America ages, its overall labor force participation rate will fall because older people are less likely to work. But even excluding older Americans, labor force participation rates have still fallen sharply over the last few decades, and especially in the last five years.

This is an excuse to update some graphs to look at the long term trends. (update: see Brad Plumer's The incredible shrinking labor force )

The following graph shows the changes in the participation rates for men and women since 1960 (in the 25 to 54 age group - the prime working years).

Click on graph for larger image in graph gallery.

The participation rate for women increased significantly from the mid 30s to the mid 70s and has mostly flattened out this year - the rate increased slightly in April to 74.3%. The participation rate for men has decreased from the high 90s a few decades ago, to 88.7% in April.

There might be some "bounce back" for both men and women (some of the recent decline is probably cyclical), but the long term trend for men is down.

Rampell writes:

You may notice that the labor force participation rate had been climbing from the 1940s through about 1990. That rise reflects the fact that more women entered the labor force as gender roles evolved. Women’s labor force participation rate continued rising through the late 1990s, dropped a couple of percentage points, and then more or less flat-lined.

The main reason the labor force has been declining in the last couple of decades, then, is that men have been dropping out in droves.

There are other key trends. The next graph shows that participation rates for several key age groups.

• The participation rate for the '16 to 19' age group has been falling for some time (red). This was at 33.8% in April.

• The participation rate for the 'over 55' age group has been rising since the mid '90s (purple), although this has stalled out a little recently (perhaps cyclical). This was at 40.3% in April.

• The participation rate for the '20 to 24' age group fell recently too (perhaps more people are focusing on eduction before joining the labor force). This appears to have stabilized - although it was down to 70.6% in April. I expect the participation rate to increase for this cohort as the job market improves.

The third graph shows the participation rate for several over 55 age groups. The red line is the '55 and over' total seasonally adjusted. All of the other age groups are Not Seasonally Adjusted (NSA).

The participation rate is generally trending up for all older age groups.

Eventually the 'over 55' participation rate will start to decline as the oldest baby boomers move into even older age groups.

These trends feed into the overall participation rate. A few weeks ago I posted: Labor Force Participation Rate Projection Update

Here is a repeat of a couple of graphs based on BLS economist Mitra Toossi's projections.

Note that Toossi is expecting a couple of recent trends to continue: lower participation rates for people in the 16 to 24 year age group (I think this decline is mostly due to more people attending college), and an increase in the participation for older age groups (I think this increase is due to several factors including less physically strenuous jobs, and, unfortunately, financial need).

An increase in the participation rate for an age group (like the 60 to 64 group) is just on part of the equation. We also have to recognize that a large cohort is moving from the 55 to 59 age category into the 60 to 64 age group, and the participation rate for that cohort is falling. (this post had a great graph on the age of the population).

The last graph shows the actual annual participation rate and two forecasts based on changes in demographics. Now that the leading edge of the baby boom generation is starting to retire, the participation rate is declining and will probably continue to decline for the next 20 years. Note: the yellow line is from a forecast by Austin State University Professor Robert Szafran in September 2002.

This suggests that any bounceback in the participation rate as the economy recovers will probably be fairly small, and that the decline in the overall participation rate is mostly due to demographic factors.

by Calculated Risk on 5/07/2012 03:58:00 PM

Last week Freddie Mac reported results for Q1 2012. Freddie reported that they acquired 23,805 REO in Q1 2012 (Real Estate Owned via foreclosure or deed-in-lieu); this is down from 24,707 in Q1 2011.

Freddie disposed of 25,033 REO in Q1 2012, down from 31,627 in Q1 2011. Since Freddie disposed of more REO than they acquired, Freddie's REO inventory fell slightly in Q1 2012 to 59,307.

A few comments from Freddie:

REO operations expense declined to $171 million in the first quarter of 2012, as compared to $257 million in the first quarter of 2011, primarily due to stabilizing home prices in certain geographical areas with significant REO activity, which resulted in gains on disposition of properties as well as lower write-downs of single-family REO inventory during the first quarter of 2012. However, we also experienced lower recoveries on REO properties during the first quarter of 2012, compared to the first quarter of 2011, primarily due to reduced recoveries from mortgage insurers, in part due to the continued weakness in the financial condition of our mortgage insurance counterparties, and a decline in reimbursements of losses from seller/servicers associated with repurchase requests.

Although our servicers have resumed the foreclosure process in most areas, we believe the volume of our single-family REO acquisitions during the first quarter of 2012 was less than it otherwise would have been due to delays in the foreclosure process, particularly in states that require a judicial foreclosure process. The lower acquisition rate, coupled with high disposition levels, led to a lower REO property inventory level at March 31, 2012, compared to March 31, 2011. We expect that the length of the foreclosure process will continue to remain above historical levels.

Click on graph for larger image.

The following graph shows REO inventory for Freddie.

REO inventory for Freddie decreased slightly in Q1, but has mostly been steady over the last year.

A couple of key points:
1) Freddie is seeing "stabilizing home prices in certain geographical areas with significant REO activity".
2) Serviers have resumed foreclosure activity "in most areas", but acquisitions are still slow, especially in judicial foreclosure areas.

by Calculated Risk on 5/07/2012 02:31:00 PM

Another update: I've been using inventory numbers from HousingTracker / DeptofNumbers to track changes in listed inventory. Tom Lawler mentioned this last year.

According to the deptofnumbers.com for (54 metro areas), inventory is off 20.7% compared to the same week last year. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through March (left axis) and the HousingTracker data for the 54 metro areas through early May.

Click on graph for larger image.

Since the NAR released their revisions for sales and inventory, the NAR and HousingTracker inventory numbers have tracked pretty well.

Seasonally housing inventory usually bottoms in December and January and then starts to increase again through mid to late summer. So seasonally inventory should increase over the next several months.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the early May listings - for the 54 metro areas - declined 20.7% from the same period last year. So far in 2012, there has only been a small seasonal increase in inventory.

The year-over-year decline might start to slow since listed inventory is getting close to normal levels. In March, the NAR reported listed inventory was back to 2004 or 2005 levels. Of course sales are much lower now than in 2004 and 2005, so the months-of-supply is still at 6.3 months.

Also, if there is an increase in foreclosures, this might slow the year-over-year decline - but right now the decline in inventory remains a significant story.

by Calculated Risk on 5/07/2012 12:13:00 PM

From Bloomberg: Ranieri Says Housing Market in U.S. Is Reaching Bottom (ht Brian)

While “broad” concern that home prices have further to fall is restraining sales, “many, myself included, think we are at a bottom,” [Lewis] Ranieri said today at a conference hosted by the Mortgage Bankers Association in New York.

The second or third quarter will prove the nadir, said Ranieri ...

Note: Lewis Ranieri helped create the private MBS market, and Tanta once described him as "a highly-informed participant in the mortgage credit markets".

This is not an appeal to authority, but this year some of the more informed housing bears are now arguing that house prices are at or near a bottom. This includes Ivy Zelman, chief executive of Zelman & Associates, Christopher Thornberg of Beacon Economics, Michelle Meyer, senior economist with Bank of America, Mark Fleming, of CoreLogic, Stan Humphries, Zillow Chief Economist and Mark Kiesel at Pimco.

Even Professor Robert Shiller, without making a prediction and suggesting prices could "overshoot", said last week on CNBC that "[house prices] are back to normal levels".

And of course I argued the housing bottom is here back in February.

Ranieri's view is especially interesting because he looks at housing from the credit market perspective. (here was Ranieri last year: Housing Could Sink Economy)

by Calculated Risk on 5/07/2012 09:03:00 AM

Oil and gasoline prices have been falling recently. West Texas Intermediate (WTI) futures are down to $97.80, and Brent is down to $112.84 per barrel.

From Bloomberg: U.S. Gasoline Falls to $3.85 a Gallon, Lundberg Survey Shows

The average price for regular gasoline at U.S. filling stations fell 6.75 cents to $3.8452 a gallon, according to Lundberg Survey Inc.

... The price is 15.49 cents lower than a year earlier, when the average was $3.9998. The highest average this year was $3.9671, during the period ended April 6.

“It is crude oil that has delivered this retail gasoline price decline,” Trilby Lundberg, president of Lundberg Survey, said yesterday in a telephone interview.

The following graph shows the decline in gasoline prices. Gasoline prices are down from the peak in early April, and are down year-over-year.

Note: The graph shows oil prices for WTI; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 5/07/2012 01:25:00 AM

There are no major US economic releases scheduled for Monday (consumer credit for March will be released at 3 PM ET). The discussion on Monday will mostly be about the elections in France and Greece, and what they means for the euro zone economy. The politicians in Greece will try to form a coalition government, and if that is not successful, there will be a new election.

The Asian markets are all red tonight. The Nikkei is down about 2.5%, Hang Seng is down 2.7%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 futures are down 13 points, and Dow futures are down 120.

Oil: WTI futures are down to $97.10 and Brent is down to $112.34 per barrel.

Yesterday:
• Summary for Week Ending May 4th
• Schedule for Week of May 6th

Employment posts on Friday:
• April Employment Report: 115,000 Jobs, 8.1% Unemployment Rate
• April Employment Summary and Discussion
• More Graphs: Construction Employment, Duration of Unemployment, Unemployment by Education and Diffusion Indexes
• All Current Employment Graphs

by Calculated Risk on 5/06/2012 06:49:00 PM

From Alejandro Lazo at the LA Times: Rents soar as foreclosure victims, young workers seek housing

The foreclosure mess has pushed millions of former homeowners with tarnished credit into a competitive apartment market across the U.S. Add fresh demand from young workers, few new units and tight standards for home loans, and the result is rental sticker shock not seen in years.

Rents are surging from New York to Los Angeles. The average monthly U.S. rent for apartments hit $1,008 in the first quarter, pushing past the all-time high set in the third quarter of 2008, according to the data firm RealFacts. USC's Lusk Center for Real Estate forecasts a 10% jump in Los Angeles County rents over the next two years. In certain markets, it is now cheaper to own a home than rent. ... Rob Magnotta, a real estate agent, recently listed his two-bedroom Irvine condominium for rent on Craigslist for $2,300. He had six applicants within 24 hours, including one who wrote a poignant letter about losing a home to foreclosure.

"It was almost too easy," said Magnotta, who chose another renter. "I know the rental market was strong. But until you are actually renting the place, I think you are surprised it is that strong."

A big driver of rent increases has been demand from young workers who are striking out on their own after doubling up with family members during the worst of the economic downturn.

It makes sense that rental demand has been increasing: Demographics are favorable for rentals right now (see graph below: a large cohort is moving into the 25 to 35 year old age group), people who have lost their homes to foreclosure (or short sales) are turning to renting, and some people have probably stopped "doubling up".

The house price-to-rent ratio is back to normal, and further rent hikes will provide support for house prices. Although, as Lazo notes, only people in "good shape financially" are able to buy.

Click on graph for larger image.

This graphic is from the Census Bureau and shows the number of people by age and sex in the US based on the 2000 and 2010 Census. See: Age and Sex Composition: 2010

The baby boom generation is obvious, but there is also a fairly large cohort moving into the key renting age groups. Note that this graph is from two years ago.

by Calculated Risk on 5/06/2012 01:33:00 PM

Update: 2 PM ET from Le Monde: François Hollande élu président de la République

From the WSJ: Hollande Wins French Runoff, Early Polls Show

French Socialist candidate François Hollande won Sunday's presidential runoff ... according to estimates of preliminary results seen by The Wall Street Journal.

Mr. Sarkozy's defeat makes him the 11th euro-zone leader swept away in the sovereign-debt crisis.

The polls close at 2 PM ET, so this is just preliminary. Hollande is an experienced politician and will push for some growth initiatives as opposed to just austerity.

The polls have closed in Greece and preliminary results will be released soon. The Athens News has a live blog of the results. The big surprise - so far - is it looks like Syriza will finish 2nd with Pasok 3rd. Here are some exit poll numbers (any party with 3% or more of the vote will receive seats):

Public Issue for Skai

(min-max, in %)

New Democracy 20.5-24.5
Radical Left Coalition (Syriza) 14-18
Pasok 13-17
Communist Party 7-10.5
Independent Greeks 7-10
Democratic Left 6-9
Golden Dawn 5-8
Ecogreens 2-4
Popular Orthodox Rally (Laos) 2-4
Drasi 1-3
Democratic Alliance 1-3

The 1st place party gets a 50 seat bonus (out of 300 total seats) and the parties split the remaining seats by the percent of the vote. So New Democracy will probably have around 110 to 120 seats (if I understand correctly), and they need a coalition partner to form a majority (probably Pasok). It is a mess.

by Calculated Risk on 5/06/2012 10:44:00 AM

First, on a sad note, from Mish: My Wife Joanne Has ALS, Lou Gehrig's Disease

Today I'm going to share a personal struggle with you. This is news I've largely kept to a small circle of close friends over the past few years and is difficult to talk about. The time has now come to enlist the support of a wider community, and perhaps together, we can make a difference.

Running this site and publishing commentary as frequently as I do demands a tremendous amount of my attention. However, my blog is not the #1 focus of my life. That would be my wife, Joanne.

Joanne has ALS, more commonly known as Lou Gehrig's disease. More specifically, she has Progressive Bulbar Palsy a particularly aggressive form of the disease.

I've known Mish for years, and he has kept me updated on Joanne's condition. As Mish notes, this is an "extremely cruel" disease. A few years ago, a close friend of mine - Ernie - one of my hiking and climbing partners, died from ALS. In a just a few short years, Ernie went from being a strong climber – we climbed a peak together in a winter white out just before he was diagnosed with the disease (a great adventure) - to barely being able to walk on the beach, and then being confined to a well chair, and finally passing away. Very sad.

For those interested, Mish is sponsoring a raffle for the benefit of ALS research.

Today Mish writes: New American Dream is Renting; Reflections on Renting Houses, Cars, Books, Clothes; Will Rentership Fuel the Next Boom? What About Home Prices?

Housing has now gone full circle. President Bush's "Ownership Society" has morphed into the "Rentership Society". The attitude applies to more than houses as noted in the Wall Street Journal article Renting Prosperity by Daniel Gross.

Americans are getting used to the idea of renting the good life, from cars to couture to homes. Daniel Gross explores our shift from a nation of owners to an economy permanently on the move—and how it will lead to the next boom. ...

Renting cars and textbooks is the start of a trend that makes perfect economic sense. However, Zipcars, textbooks, clothes, and electronics are one thing, and housing is another.

When sentiment on houses reaches the widespread belief "It's Better to Rent", prices are bottoming. I expressed that thought on numerous occasions since 2005.

This is how I currently see things.

Note: The graph was originally for Japan, but Mish is using it to show how sentiment changes. Mish thinks we are now in the lower right "purple" zone and back to "It's better to rent".

by Calculated Risk on 5/06/2012 08:38:00 AM

Note: The Greek polls will be open until noon ET Sunday, and the French polls will be open until 2 PM ET.

Here are a few articles:

From the Athens News: Angry Greeks vote in cliffhanger election

Greeks enraged by economic hardship voted on Sunday in a deeply uncertain election ... Leaders from all sides emphasised the importance of the vote - which pollsters say is impossible to call - for the future of Greece, now suffering one of the worst recessions in postwar Europe.

From the WSJ: Greeks Head to Polls Amid Anger, Doubts Over Euro Future

The highly contested vote is expected to reflect the public's widespread anger with the political establishment after years of painful austerity and potentially usher in a prolonged period of unstable administrations and successive elections. ... anti-incumbent sentiment high and the country struggling through a fifth year of recession

From the Financial Times: France votes in presidential election

Millions of voters are casting their ballots in the second and final round of France’s presidential election with François Hollande favourite to win in what would be the first victory for a socialist candidate for 17 years.
excerpt with permission

From the WSJ: France Heads to Polls in Key Election for Euro Zone

From Le Monde: Scrutin présidentiel : Sarkozy et Hollande suspendus au vote des Français