Friday, February 04, 2011
Schizophrenic Employment Report
Admittedly, the figures as published would make anyone go "Huh?"
The explanation is in the population control, here:
The population adjustment is necessary; the household survey is a joint product of BLS and Census.
A bad recession produces population effects (less immigration, some emigration, fewer births, some population shifts between areas).
The combination of the decade Census adjustment and the distortions produced an unusually odd-looking report.
The drop in the participation rate is logical given the expected population correction (more working age drops than retired/young.)
If you want a carrying wave, I think the ADP employment report is safe. That showed considerable improvement (187,000, about 100,000 less than January).
The establishment survey is good in terms of hours and so forth, but the weakness of the establishment survey is that it misses turns for the worse and for the better by more than six months. So the very disappointing numbers there I think can be safely discounted.
The next check would be Medicare wages when they are published next week by Treasury. I expect improvement. Look at Table 8's huge drop in part-time for economic reasons. This is very consistent with NACM, Chicago PMI, ADP and the ISM surveys. The wild card here is the establishment average hours in Table B-2, but that really probably reconciles to more hiring to control overtime.
We are having more of a winter than we have had during the time frame used to calculate seasonal adjustments. This necessarily will have an impact, but the impact is probably that the seasonal adjustment is a little too low.
There is one red flag in this report that worries me. It may however be a statistical fluke, so this is one I shunt into the "Watchful Waiting" queue. If you look at Table B-1, notice that the non-durable goods employment numbers are all negatives except for plastics and rubber (which are partly components of durables).
As with my comments on buying patterns in China, this would appear to suggest a weakness in consumer incomes - not a positive indicator. We need to see a trend of a few months before taking this too seriously.
Nonetheless, Teri's recent comment about being unable to understand how the economy can really improve if most consumers are experiencing a real drop in incomes may be lurking in this discrepancy.
My gf is looking at building a 2200 sq ft house on a lot she owns and she cannot get any financing under 9% with 33% down - and I guarantee you there is no lower credit risk on the planet that she. (She has zero debt whatsoever and makes well over 6 figures.)
The hot money is going into commodities and some equities.
I have the same concern as Teri - but the spending of one rich person negates the belt-tightening of 25 middle- and lower-class people so the aggregate figures still look OK. But you dig down to the neighborhood level and you have more dichotomy than ever.
FHA 3 1/2 percent down on loans up to 729K: Historic low interest! Hot money
More then commodities/equity assets to the FED easy money policy.
Long-Term Nonfarm Payroll Growth v.2
I think you are overstating your "hot money" idea. My credit union is stating auto loan rates of 3.5%-12.5% up to 72 months. But, I doubt many are going out the door at 3.5%. The idea of $0 down 0% interest is absurd. Something else is going on like jacking up the price of the car which would mean getting all the interest right up front.
There is a lot of controversy over the FHA program. It looks like Fannie and Freddie all over again. Anybody who takes one of 3.5% down deals is already 2.5% or more under water (commission and closing costs). But, since FHA money is government money, it really can't be considered "hot money".
I think you are confusing state, come on rates with actual rates. You may have notice that the inventory of homes on the market is not declining and that real auto sales have not jumped off the charts, either. There is no "hot money" in consumer stuff. Heck, there is not much "hot money" anywhere except, maybe, commodities.
Absolutely correct. When I was getting quotes recently I was given quotes with both a "cash price" and a "financing price" which was always at least 5% higher. (Also GM financing = Government Money financing.)
That gives average rates for different kinds of loans.
The lowest is new car financing at finance companies (often subsidized or partly owned by the auto companies) with an average rate in November of 4.63%.
But that is for an 82% average LTV. At banks it was 5.87%.
See FHA at Wells Fargo. Note the APR.
FHA is about 4.5%, but usually there is about 50 bps more in the form of insurance.
I searched for GA rates for a 150K FHA refi and the lowest I got was 4.75%, which would be about 5.25% and some points. PA 4.5%.
Freddie's got the average 30 yr rate at 4.81% with 80 bps points.
You seem to be talking adjustable rates, but who the heck wants an ARM? If rates go anywhere, they go up. The only reason to take an adjustable is for affordability, but in reality, that means you probably can't afford it.
The alternative is that you can and will pay the loan down much faster so that a 5/1 at the lower rate is going to allow you to make extra principal payments.
Freddie Mac weekly surveys.
Also good rates are accomplished with real downpayments. All during 2010, good home sales periods corresponded with rapidly dropping Large Time Deposits at banks. See H.8 Liabilities.
Hot money is either brokered short-term jumbo CDs brokered (banker terminology) or money offered with lax underwriting at favorable rates.
Underwriting standards are tightening even at FHA.
And take a look at the current FannieLLPA (loan pricing guide. I really cracked up over the 25 basis point bump for loans at a 75<80% LTV. It's cheaper to go 80-85%; that's because Fannie doesn't trust the valuation, thinking it was "bumped" a bit to avoid mortgage insurance.
Hot money this ain't. With rates this low, risk is paramount. If you have a credit score over 740, things are great. Between 700 and 740, it's aaah we'll do business. Below that, it's BOHICA.
2011 RL 6 Speed Automatic with Technology Package Featured Special Lease - Zero Due at Lease Signing
$0 down payment, $0 security deposit, $0 first month's payment, $0 due at lease signing
Excludes taxes, titles and fees. $620.00 a month for 35 months thereafter. For well-qualified buyers.
Cadillac,Chevrolet 0% APR financing for up to 60 months on many models. 2010 models available with 0% APR or cash back up to $4,500, depending on model and region.
Chrysler, Dodge, Jeep 0% APR for up to 72 months; availability depends on model, year and region.
Ford, Lincoln 0 % APR financing for up to 60 months on many 2011 models; some 2010 models available with cash back, depending on region.
Toyota 1.9% financing on many 2011 models in most regions.
Mazda 0% APR financing for up to 60 months on some 2010 models. 0/9% APR financing on some 2011 models
Nissan 0% APR financing for up to 60 months, depending on region.
FHA buyers are higher quality FICO but very low downs at 3 1/2 per cent, creating an immediate negative equity homeowner based on normal selling cost. The buyer of these bonds, the FED Q2. Without government guarantee's nobody would buy these bonds. Everybody that purchased with FHA since 2007 in Calif is deeper in negative territory and a good candidate for future foreclosure or short sale.
Last year's leap into FHA-financed apartment sales in NYC may have changed things temporarily, but probably not for that long.
As for credit scoring, FHA recently raised its requirements:
Generally speaking, to get maximum financing on typical new home purchases, applicants should have a credit score of 580 or better. Those with credit scores between 500 and 579 are, according the the FHA guidelines, "limited to 90 percent LTV".
Applicants who have a minimum decision credit score of less than 500 are not eligible for FHA mortgages.
Contrast that to the LLPA Fannie matrix I linked earlier.
Another notable thing is that they did not have a mortgage. Can you imagine what happens to those who do?
High property taxes are going to throw far more houses on the market than anyone believes.
I did see this in the article:
"In order to qualify for accounting posts, she is taking an online training course in QuickBooks, a popular accounting software used by small businesses. She recently signed up for a tax course at an H&R Block tax preparation office in Seattle."
To some degree Reid is looking to become qualified for temporary work in tax preparation. But, at least from the article, she is does not seem to be considering parlaying the Quickbooks into self employment. I think we are going to be seeing a lot more self employment in the future. In the 60's (when I graduated from high school and college) no one ever talked about self employment. It was all "Organization Man" stuff. But, that is just no viable any more. Pensions are now 40K's. Social Security is on it last legs. Lifetime employment is a mirage. We need less focus on a job and more focus on earning money.
The second point is one Karl Denninger (at Market-Ticker) has made. You never really own a house because of property taxes. Failure to pay those taxes leads to the seizure of your house. The best you can do is reduce the cost of ownership, but never actually own the place.
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