after at least three years of running the US government on short term continuing resolutions, it appears we have the first actual government budget since early in the Obama presidency and the first budget passed by any divided Congress in 27 years...the 'Bipartisan Budget Act of 2013' (pdf) negotiated by Senator Patty Murray representing Democrat interests and Rep. Paul Ryan representing the Republicans passed the House on a vote of 332-94 on Thursday and is expected to pass the Senate next week...
that said, there's not a lot more here than the symbolism of cooperation on a budget agreement, with a little redistribution of how less money will eventually be spent...this budget deal rolls back $63 billion of the $1,200 billion in automatic sequestered spending cuts specified by the 2011 Budget Control Act, with that split evenly between defense and non-defense programs over the 2014 and 2015 fiscal years...in fiscal year 2014, which started October 1, defense discretionary spending would be set at $520.5 billion, and non-defense discretionary spending would be capped at $491.8 billion, up from $498.1 billion and 469.4 billion respectively under current law...however, since Congress is still operating under the misguided policy that any previously unbudgeted spending increase must be paid for, the act provides for additional revenue and spending cuts amounting to $85 billion elsewhere in the budget; thus there will be a net contractionary impact of nearly $23 billion over the 10 years that this budget addresses..
among the provisions in this Act to pay for the sequester rollback in fiscal 2014 and 2015 is an extension of the sequester at the same percentage of mandatory cuts to Medicare in 2022 and 2023 as would be sequestered in 2021 under current law (2%), which they figure is worth $28 billion in current savings, an increase to 4.4% for the retirement contribution for new federal hires, five times what older workers currently pay, a cut of 1% annually from the cost of living adjustments for military pensions for armed forces members under 62 years old to be applied retroactively on service members reaching that age, and an increase of passenger fees to $5.60 per one way plane ticket to defray TSA costs now paid for by the Federal government...in addition, this Act approves the U.S.–Mexico Transboundary Agreement, opening up the western Gulf of Mexico to oil drilling, defunds the Ultra-Deepwater and Unconventional Natural Gas Research Program and rescinds all available funds in the Strategic Petroleum Reserve account, at a savings of $3.2 billion..
although it's not mentioned in the summary of the budget agreement provided by the House, press accounts indicate that this agreement will include a 3 month extension of the "doc fix", which reverses the provision of a 15 year old budget cutting agreement that would have slashed Medicare doctor's fees by over 24% by now if it hadn't been rescinded annually since...notably absent from the budget deal is an extension of expiring unemployment rations for the long term jobless; should the democrats be unable to pull that rabbit out of a hat this coming week, that means 1.3 million workers will have their stipends cut off at the end of this month, and another 850,000 workers will cut off over the first quarter of 2014...also not mentioned are more than 60 expiring tax provisions known as tax extenders that seem to get renewed every year; these include everything from regular tax breaks such as the research and development tax credit and the wind energy tax credit to such gems in the code as tax breaks specifically written for NASCAR and for Disney films..
November Retail Sales Rise 0.7% on Autos
the key economic release of the past week was the Advance Report on Retail and Food Service Sales for November (pdf) from the Census Bureau, which estimated that seasonally adjusted retail sales were at $432.3 billion in November, an increase of 0.7 percent (±0.5%) from October, and 4.7 percent (±0.7%) above sales of last November...October's seasonally adjusted sales were revised to $429.4 billion, an increase of 0.6% (±0.3%) over September's further revised $426.8 billion, which was up from the originally reported month over month gain of 0.4% (±0.5%), with the ± parenthesis in each estimate representing the 90% confidence range...total unadjusted November sales were estimated to be at $434,119 million, up from October's revised $422,953 million and unadjusted revised sales of $403,043 million in September...the table below from the census report breaks out the monthly and annual seasonally adjusted percentage change in retail sales by business type; the first column shows the percentage change in sales from October to November, while the second column shows the year over year sales percentage change as of this report, while in the third and fourth columns, we have those same metrics for October's report based on the revisions to it from this month...
as you can see by the above table, a 1.8% increase in sales at auto and other motor vehicle dealers again drove the overall increase, as those sales did in October...sales at motor vehicle & parts dealers rose to a seasonally adjusted $83,287 million in November from $81,779 million in October and accounted for 19.3% of November sales; without these automotive businesses, retail sales rose just 0.4%...we should note that unadjusted vehicle & parts sales, extrapolated from a small sampling of dealer reports, reportedly fell from $79,298 million in October to $75,871 in November, so the increase seen here was only in the seasonal adjustment...other businesses seeing greater than 1% seasonal increases in November sales included non-store retailers (which are mostly online sellers), where monthly sales rose 2.2% from $38,172 million to $39,011 million, building material and garden supply stores, where adjusted sales rose 1.8%, from $25,933 million in October to $26,391 million in November, restaurants and bars, where normalized sales rose 1.3% from $46,699 million to $47,283 million, furniture stores, where seasonality adjusted sales of $8,895 were 1.2% above October's sales of $8,792 million, and electronic and appliance stores, where adjusted sales rose 1.1% from $8,894 million to $8,989 million...the only retail businesses that saw sales decline in November were gasoline stations, where sales fell 1.1% to $44,752 million from $45,271 million on lower gas prices, grocery stores, where sales fell 0.3% from $48,594 million in October to $48,450 million, dragging the food & beverage retailing group down 0.1% to $54,555 million, and the small grouping of miscellaneous stores where sales fell 1.3% to $10,530 million...
there were also some substantial revisions made to the delayed advance retail sales data which we reviewed 3 weeks ago; which are included in the 3rd column of the above table....although the increase in overall sales for October has been revised from 0.4% to 0.6%, sales at auto and other motor vehicle dealers, originally reported to have increased 1.4% in October, are now seen to have increased by just 1.1%; that meant October sales excluding the automotive group rose 0.5% rather than the 0.2% originally reported....this was due to rather large revisions in the September to October sales change for several retail categories: sales at electronics & appliance stores, originally reported up 1.4%, were revised to an increase of 2.6%; the increase in sales at furniture stores was revised from 1.0% to 1.8%; October sales at clothing stores, reported 3 weeks ago as up 1.4%, are now seen to be up 2.6%; non store retailers saw a 0.8% increase rather than the 0.4% increase first reported, and sales at restaurants and bars were revised from a gain of 1.0% to one of 1.4%; in addition, the 1.9% decrease in sales at building material and garden supply stores was reduced to -1.5%, and the sales change at miscellaneous stores went from a decrease of 0.1% to an increase of 0.4%...
if you recall, we computed real retail sales for that advance October report at ~.75 by adjusting each of the retail groups for inflation with their respective CPI component; we got a confirmation of the accuracy of our method last Friday when the Incomes and Outlays report for October showed that real durable goods personal consumption expenditures were up 0.8% and real non-durable personal consumption expenditures were up 0.7%...(see full pdf, table 7)…without undergoing such an involved computation this time, we'd estimate that these revisions to October suggest a real retail sales gain on the order of ~.95%, which is close to an annualized gain of 12%....if price changes for retail commodities are similarly moderate or negative when the CPI is released next week, we might see the two month annualized gain in real consumption of durable and non-durable goods reach double digits...since these retail sales represent roughly a third of PCE, or 23% of GDP, this report suggests that most early estimates of 4th quarter GDP will have to be revised upward...
our FRED bar graph below shows the monthly percentage sales change for each of the 12 major retail sales categories since last November....each of the past 13 months is represented by a grouping of 12 bars, with the percentage change in each type of retail sales represented by its own color code within each bar group, wherein a monthly increase in sales for that business appears above the ‘0’ line and a decrease below it…from left to right in each group is a dark blue bar representing the percentage change in motor vehicles and parts sales, a red bar indicating the change at general merchandise stores, followed by the percentage change at food and beverage stores in green, the sales change restaurants and bars in mauve, the change at gas stations in orange, the change non-store or online retailers in sky blue, the change at building and garden supply stores in light green, the percentage change at drug stores in mustard, the change in sales at clothing stores in pink , the change at electronics and appliance stores in purple, the change at furniture stores in yellow, and the percentage change in sales at stores specializing in sporting goods, books or music in pale blue…(click to enlarge)
October Mortgage Delinquencies Fall 2.8% While Foreclosure Starts Rise 9.1%
another report released this week we regularly review is the Mortgage Monitor for October (pdf) from LPS (Lender Processing Services) which gives us the most detailed monthly look at the condition of US mortgages, whether new, current or in trouble; noteworthy in this month's report was that the percentage of home loans in the foreclosure process declined from 2.63% in September to 2.54% in October, the lowest foreclosure inventory since late 2008; at the end of October, 1,276,000 homes remained in foreclosure, down from 1,328,000 at month end September and 1,939,000 in October last year...new foreclosures started in October were the highest since April, however, as they rose to 118,837 from 108,953 foreclosure starts in September...in addition, there were 3,152,000 home loans that were more than 30 days past due for a mortgage delinquency rate of 6.28%, down from 6.46% in September and 7.03% from October of last year; of those, 1,283,000 mortgages were seriously delinquent, ie, 90 or more days behind on their house payments but not yet in foreclosure; so on net, a total of 4,427,000 mortgage loans were 30 or more days delinquent or in foreclosure at the end of October, at 8.80% the first time that mortgages in trouble dipped below 9% since 2008...the bar graph below is take from the data summary page (p 24) of the pdf; it shows the mortgage delinquency rate for each month over the past year…note that while the delinquency rate was down to 6.28% in October, its was still above the 6.20% rate in August and the even lower 6.08% delinquency rate in May; we can expect a seasonal increase the next two months as homeowners defer mortgage payments during the holiday shopping season…
a major focus of this month's report was to raise concern about the large percentage of outstanding second lien home equity lines of credit (HELOCs) that originated between originated between 2004 and 2006, most of which have draw periods of ten years, during which time only interest is due on the amounts borrowed, and after which either a balloon payment is due or the loan is amortized and payments increase...according to LPS, they've found that among the HELOCs originated prior to 2004 (ie, those that have already begun amortizing), there has been an increase in problem loans, indicating an increased risk of more delinquencies ahead...and like a mortgage or any loan where the home is used as collateral, failure to pay the amounts due in a timely manner can result in foreclosure...the rather crude graphic below from LPS shows the distribution of the principle types of home equity loans by year of origination; clearly, over three fourths of them originated between 2004 and 2009, which means they’ll start coming due in droves starting next year…although LPS doesn't indicate the quantities involved, we can get an idea of what they are from the 3rd quarter report on household debt which we reviewed 4 weeks ago, which showed that there was $535 billion in HELOCs outstanding, as contrasted to $7.90 trillion in regular mortgage debt…
another focus point of the October Mortgage Monitor was that due to rising home prices, both the quantity of mortgages that are underwater (wherein the homeowner owes more than the house is worth) is and the amount of negative equity in those loans is declining....using their own Home Price Index, they find that home prices are up 9.0% year over year, although the price gain had slowed to 0.2% in September...as a result, distressed property discounts had fallen to 24.5% for short sales and to 25.9% for REO (real estate owned by banks after foreclosure)....after applying these distressed property discounts, they find that just 11.6% of loans are underwater, compared to the 18.8% that were underwater at the beginning of the year...the map below, from page 12 of the mortgage monitor, indicates the percentage of homes that were underwater as of October in each county in the lower 48 with a color code; with the darkest green counties indicating 0% of homes underwater and the darkest red counties indicating that over 20% of the properties in those locales have mortgages greater than the value of the property...presumably there is inadequate data to score the lower population counties colored white...
a regular focus of the monthly mortgage monitor is comparisons between mortgage conditions in judicial states, where a court proceeding is necessary to complete a foreclosure, and non-judicial states, where such a proceeding isn't necessary for the banks to have the local sheriff put you out...the next graph compares the historical rate of foreclosure starts in judicial states in blue and the rate of new foreclosures in non-judicial states in red...in October, foreclosure starts were up 12% vis a vis September in judicial states, and up 5% in non-judicial states over the month...while foreclosures were started on 0.24% of all mortgages in October, it's clear from the graph that the foreclosure start rate in the judicial states was above 0.3% in October while the foreclosure rate in the non-judicial states was below 0.2%...LPS doesn't offer an explanation, but notes that new seriously delinquent mortgages are higher in judicial states and the gap is growing...
the next graph shows that the pipeline ratio for the judicial states continues to fall as those states process foreclosures more efficiently; as the graphic indicates, the pipeline ratio is computed by adding those homes that are seriously delinquent to those already in foreclosure and dividing that by the average number of completed foreclosures per month over the previous 6 months; that results in the average number of months a problem loan would be in the "foreclosure pipeline" before the foreclosure process is completed; for judicial states, it was once as high as 118 months, or nearly ten years; as of October, at the current pace that foreclosures are proceeding, it would now take 47 months to clear the foreclosure backlog in judicial states, and 39 months to process all the foreclosures in non-judicial states..
the table below, from page 26 of the pdf, provides us with a data snapshot of the progress, or lack thereof, in unwinding the mortgage crisis…after the columns for the date and the active loan count for that month, the the next three columns show the total loan counts of delinquent mortgages by number of days delinquent, the number of mortgages in foreclosure (FC) and the foreclosure starts for each January since 2008 and each month since January 2012...in the last two columns, we see the average length of time those who’ve been more than 90 days delinquent have remained in that status, and then the average number of days those in foreclosure have been stuck in that process because of the long pipelines…generally, when foreclosure starts rise, those who’ve been delinquent the longest are moved from that 90 days delinquent column to the average days in foreclosure column…according to LPS, those in foreclosure in October have now been in that process for an average of 900 days…
last, we'll include this month's table show the percentages of non-current (NC) mortgages for each state and the District of Columbia (from page 25 of the pdf); shown for each state are the percentage of home loans that are delinquent (Del%), the percentage of mortgages that are in foreclosure (FC%), the total mortgages that aren't current with their payments (NonCurr%) and the year over year change in the number of non-current mortgages; also note that states that have a judicial foreclosure process, where the bank must prove their right to foreclose on a homeowner in court, are marked by a red asterisk...what is notable as of this report is that the non-judicial state of Mississippi, with 15.1%, now has the highest percentage of non current mortgages, replacing Florida which had been at the center of the mortgage crisis since it started…also note that all the states that still have more than 4% of their mortgaged homes in foreclosure are all judicial states; led by Florida with 7.7%, New Jersey with 7.2%, New York with 5.5%, Hawaii with 5.3%, Maine with 4.9%, and Connecticut with 4.2%…also note that being in a judicial state doesn't necessarily imply mortgage difficulties, as LPS seems to imply, as the judicial state of North Dakota has the lowest percentage of non-current mortgages at 2.8%, while every other state has 4.0% or more mortgages that are behind on their payments…
(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)