June 3, 2011
No RecoveryBy Hugh de Payns
Recently, we have been hearing talk about the economy, how it is improving. I wish that were the case. For the sake of friends and family who are struggling right now, I wish this were reflective of reality. But the facts say otherwise; there is no real strengthening of the economy. The legacy media, the politicians, they are lying to everyone, and that includes you.
Let's look at a few guideposts we can use to gauge the direction and speed at which things are going.
In fact, the next graph brings us to another point. We see the yellow line roughly follows the dates of the dot.com bubble and the housing bubble. So are we now seeing the start of a government bubble? The signs are there, but time will tell.
"The foreclosure problems in the US and Spain are beyond believability. In the US monthly inventory for sale is normally 4 to 5 months, presently it is 3-1/4 years and should be four plus years by the end of the year." (source)
That is by the way, just the visible inventory, not the shadow inventory which includes many homes which are being rented out and homes where the occupants have not made a payment in months but banks have chosen to not foreclose on.
In case you do not like Case-Shiller, then below is the FHFA data that came out May 25th. In brief they state the following:
WASHINGTON, DC - U.S. house prices fell in the first quarter of 2011 according to the Federal Housing Finance Agency's (FHFA) seasonally adjusted purchase-only house price index (HPI). The HPI, calculated using home sales price information from Fannie Mae- and Freddie Mac-acquired mortgages, was 2.5 percent lower on a seasonally adjusted basis in the first quarter than in the fourth quarter of 2010. The unadjusted national decline was 3.5 percent. Over the past year, seasonally adjusted prices fell 5.5 percent from the first quarter of 2010 to the first quarter of 2011.
If that is not enough, here is the press release dated May 31st from S&P Case Shiller:
New York, May 31, 2011 - Data through March 2011, released today by Standard & Poor's for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index declined by 4.2% in the first quarter of 2011, after having fallen 3.6% in the fourth quarter of 2010. The National Index hit a new recession low with the first quarter's data and posted an annual decline of 5.1% versus the first quarter of 2010. Nationally, home prices are back to their mid-2002 levels.
I have attached a graph that in one image summarizes the entire 42 page May 2011 FHFA report. Any questions? The numbers are still cratering badly and at this rate we can expect more difficulty in the marketplace unless there is a sudden burst in employment. After all, people can't afford a house if they are not working. Four years of unsold inventory seems to be about right.
ADP is confirming the problem with employment. The numbers coming through are so soft that it is going to be hard to put a spin on this mess. To put this into perspective, during the Reagan recovery, we were adding upwards of 600,000 (or more) new jobs each month. These figures barely move the needle, and do not account for growth in population. There is nothing to like here. Nothing at all.
Employment in the nonfarm private business sector rose 38,000 from April to May on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from March 2011 to April 2011 was revised down slightly to 177,000 from the previously reported increase of 179,000.
The ADP National Employment Report suggests that employment growth slowed sharply in May. Employment in the nonfarm private-business sector rose 38,000 from April to May on a seasonally adjusted basis.
MASS LAYOFFS -APRIL 2011
Employers took 1,564 mass layoff actions in April involving 143,927 workers, seasonally adjusted, as measured by new filings for unemployment insurance benefits during the month, the U.S. Bureau of Labor Statistics reported today. Each mass layoff involved at least 50 workers from a single employer. The number of mass layoff events in April increased by 278 from March, and the number of associated initial claims increased by 25,404. In April, 327 mass layoff events were reported in the manufacturing sector, seasonally adjusted, resulting in 35,022 initial claims; both figures increased over the month.
Disposable Income Under Duress
We have a choice: we can believe the BLS, politicians and their mindless shills in the legacy media, economists, and academics... or we can believe the CEO of the nation's largest retailer. A retailer that has its pulse on the health and the pocketbook of most of middle America, a retailer whose customer base numbers over 140 million weekly shoppers. If Walmart says their customers are in trouble, that is trouble writ large.
NEW YORK (CNNMoney) -- Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday.
"We're seeing core consumers under a lot of pressure," Duke said at an event in New York. "There's no doubt that rising fuel prices are having an impact."
Bank failures continue with no end in sight. Last Friday, U.S. regulators closed down three more banks, taking the total number to 43 so far in 2011. Two among the recently failed banks were based in Georgia and the other was in Washington. Looking back, there were 157 bank failures in 2010, 140 in 2009 and 25 in 2008. (source)
While the pace of failures has lessened, it is still significant. 44 banks have been closed since the start of 2011, down from 78 for the same period last year. But that is only part of the story. Many of the banks closed and absorbed into other banks were small, with asset valuations that are not of themselves significant. But recent news says that may soon change.
The housing crisis is impacting the ability of all banks to stay solvent -- not just the local and regional banks. In fact, if assets were marked to current market values, how many of our biggest lending and financial institutions would still be functionally solvent? Apparently, from the news coming out, not as many as we would like. As a point of fact our difficulties are getting worse, as one may argue that not only has the housing market hitting another dip, it might not have ever climbed out of the first one. Furthermore, such softening in real values of assets on their books carry with it terrific costs:
"If we do not see a meaningful recovery in home prices by the end of the year, we may need to contemplate impairment charges on first liens owned by banks and wholesale write-downs of second lien exposures. This implies solvency issues for BAC, WFC, JPM, and C and big losses for the U.S. government and private investors," says Chris Whalen of Institutional Risk Analytics. (source)
Bank of America, JP Morgan...Folks these banks are the big boys, the "too big to fail" crowd, remember?
The reality is this: at best the problem has stabilized, but it has not improved in any significant way.
Ultimately, we need to change the course we are on.
First, these figures tell the reader that serious action needs taken to address these issue. Too many of our citizens are out of work, under employed, or have little hope of gaining new work at respectable wages. Left unchecked, these problems can penetrate into the core of a social and economic structure leading to long term social, political, and economic problems.
Secondly, the debate must begin where we decide what the true and purposeful function of our government ought to be, and what practical limits can it work towards, and what areas it needs to stay out of entirely. That will include shrinking the size of government, shrinking the amount of money siphoned out of the private sector, reducing mindless regulation, placing scarce resources only into those areas needing attention, and shrinking the governmental millstone that is hanging around the necks of the American population.
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