by Calculated Risk on 1/13/2015 02:34:00 PM

The Fed's Household Debt Service ratio through Q3 2014 was released two weeks ago: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.

These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013.

The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income.

The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.

This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:

The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only an approximation of the debt service ratio faced by households. Nonetheless, this approximation is useful to the extent that, by using the same method and data series over time, it generates a time series that captures the important changes in the household debt service burden.

Click on graph for larger image.

The graph shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio decreased in Q3, and is near the record low set in Q4 2012.  Note: The financial obligation ratio (FOR) is also near a record low  (not shown)

Also the DSR for mortgages (blue) are near the low for the last 30 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

This data suggests household cash flow is in much better shape than a few years ago.

by Calculated Risk on 1/13/2015 12:32:00 PM

Quick post: I keep hearing how oil is now "cheap" with Brent futures at $46 per barrel. Maybe oil is "cheap" relative to the price of oil over the last few years, but longer term, oil prices have outpaced inflation for some time.

Here is a table comparing the change in headline CPI, Brent oil prices, Food, and Case-Shiller house prices since 1990 and 2000.

CPI is up 40.0% since 2000, but Brent is up 80.4%.

Since 1990, CPI is up 85.9% and Brent is up 116.5%.

Change Since	2000	1990
CPI	40.0%	85.9%
Brent Oil	80.4%	116.5%
Food	47.7%	89.6%
Case-Shiller House Prices	65.7%	116.7%

I also hear how house prices are now "expensive". Since 1990, oil and house prices have increased the same, and oil is up more than house prices since 2000.

 I'd rather own a house than the equivalent number of barrels of oil sitting in storage - a house would provide either rental income or shelter (historically there is a real return to house prices).

So, compared to 1990 and 2000 prices, oil isn't "cheap".

by Calculated Risk on 1/13/2015 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

There were 5.0 million job openings on the last business day of November, little changed from 4.8 million in October, the U.S. Bureau of Labor Statistics reported today. ...
...
Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... There were 2.6 million quits in November, little changed from October.

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

This series 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 November, the most recent employment report was for December.

Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased in November to 4.972 million from 4.830 million in October.

The number of job openings (yellow) are up 21% year-over-year compared to November 2013.

Quits are up 7% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

This is another very positive report.  It is a good sign that job openings are almost to 5 million, and that quits are increasing year-over-year.

by Calculated Risk on 1/13/2015 09:00:00 AM

From the National Federation of Independent Business (NFIB): Small Business Optimism Perks Up in December

The NFIB Small Business Optimism Survey rose 2.3 points to 100.4 in December, its highest level since October of 2006, with positive gains in eight of 10 indices, a strong signal that American small businesses could be finally shaking off the effects of the Great Recession.

“The Index showed strength in November but most of the gains were confined to just two categories. The December Index shows much broader strength led by a significant increase in the number of owners who expect higher sales. This could be a breakout for small business. There’s no question that small business owners are feeling better about the economy. If they continue to feel that way 2015 could be a very good year.” – Bill Dunkelberg, NFIB Chief Economist
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 100.4 in December from 98.1 in November.

by Calculated Risk on 1/12/2015 08:01:00 PM

A decline in oil prices of 5% per day seems routine now.

From the WSJ: Oil Prices Fall to Fresh Lows

After dropping in half in 2014, Brent oil prices are already down 17% for the year, as robust global supply growth continues to outpace demand. ... Brent dropped $2.68, or 5.3%, to $47.43 a barrel on ICE Futures Europe, the lowest settlement since March 2009.

U.S. oil for February delivery settled down $2.29, or 4.7%, at $46.07 a barrel on the New York Mercantile Exchange, the lowest level since April 2009.

For fun ... the financial crisis low for Brent was $33.73 per barrel in 2008.  I doubt prices will fall that far - but at 5% per day, who knows?

Tuesday:
• At 7:30 AM ET, NFIB Small Business Optimism Index for December

• At 10:00 AM, Job Openings and Labor Turnover Survey for November from the BLS. Jobs openings increased in October to 4.834 million from 4.685 million in September. The number of job openings were up 21% year-over-year compared to October 2013, and Quits were up 12% year-over-year.