Manufacturing Jobs Down 1.67 MILLION Since Beginning Of Recession (Part-time Employment UP 60.5%)

America has never recovered from The Great Recession, particularly if you were in the manufacturing sector. The U.S. is down 1.67 MILLION manufacturing jobs since the beginning of The Great Recession in Q1 2008.


Similarly, part-time employment for economic reasons rose 60.5% from the beginning of the recession to today. So, it is no great surprise that real median household income and real hourly earnings for Americans has slumped making it more difficult to qualify for a residential mortgage.


NOW FOR THE BAD NEWS! According to the Heritage Foundation, our tax code and entitlement system has created a “low reward” zone for low-income workers (often service and part-time employees).


Black Swan? Coincidental Lagging Index Falls to 88.6 (Like Everything Else)

The Conference Board’s Coincidental Lagging Index was released yesterday and it fell to 88.6 for February. Strangely, the S&P 500 index keeps rising as the coincidental lagging index keeps falling.


If we examine economic indicators from 1997-1999 (real median household income, M2 Money Velocity and Labor Force Participation Rate), we can see the decline in ALL variables since 1997-1999.


But at least investors are happy since the equities markets keep sailing along.


The infamous Hindenburg Omen is not flashing, but there still seems to be a large disconnect in the market.


I hope this doesn’t mean a Black Swan event is imminent!


Wells Fargo profit beats estimates, helped by one-time gains (Despite Mortgage Originations Being Down)

According to an excellent article in Reuters, Wells Fargo profit beat estimates, helped by one-time gains.

Of particular note in the article is:

The bank, the most profitable in the United States in 2013, has been hurt in recent quarters by declining demand for mortgage refinancing, as lending rates have risen.

Income from mortgage banking fell by 46 percent to $1.5 billion from the same quarter last year. Wells Fargo’s new home loans fell by two-thirds to $36 billion in the quarter from $109 billion a year earlier, the lowest since the third quarter of 2008, when the housing market was under heavy stress.

But a series of one-time items this quarter helped offset much of the decline in the mortgage business. Wells Fargo recorded $847 million in gains on its equity investments, about 7.5 times the $113 million it earned a year earlier.


You can see why Wells Fargo is suffering a loss in income from their mortgage banking operations. Mortgage purchase applications are flat-lined along with real median household income. But the S&P500 has been a saving grace. Along with The Federal Reserve.


U.S. Dollar Has Been Declining Since 2001 Along With The U.S. Economy – Food Prices Up, Purchasing Power Down

As I discussed yesterday, the US has been in a recession since 1997-1999, at least in terms of real median household income, M2 money velocity and labor force participation.


It turns out the U.S. dollar has been declining since 2001 while the economy has been in a prolonged recession.


Of course, the CRB Foodstuffs Index is going the opposite direction of real median household income. Reduced consumer purchasing power, rising food prices and a stagnant recovery are not good news for the average American.


“Say, can I buy a pound of Wagyu beef? Will this cover it?”




Confidence Among U.S. Homebuilders Increases To 2006 Levels (Fed Helps)

Homebuilders are surprisingly confident given the lower real wage growth and real median household income since the housing bubble burst. The Fed’s zero-interest rate policy seems to be helping homebuilders, not the average citizen.

April 15 (Bloomberg) — Confidence among U.S. homebuilders rose less than forecast in April as sales and prospective buyer traffic stagnated, showing the residential real estate market struggled to improve after a harsh winter.

The National Association of Home Builders/Wells Fargo builder sentiment gauge climbed to 47 this month from a revised 46 in March that was weaker than initially reported, figures from the Washington-based group showed today. Readings greater than 50 mean more respondents report good market conditions. The median forecast in a Bloomberg survey called for 49.

Tight credit for some home buyers and limited availability of lots are restraining builder sentiment months after snow storms and freezing temperatures held back construction. At the same time, historically low mortgage rates and hiring gains helped drive an increase in the outlook for sales, the report showed.

Tight credit? Actually, there is plenty of credit if the borrower has sufficient income and assets as well as a good credit score.


Ah, could it be that The Fed’s Quantitative Easing is swelling homebuilder expectations? Hiring gains are going to have to be at higher wages than this economy is seeing.


Face it. The US economy hits its peak in 1997-1999 can has been asset bubbles ever since rather than wage and salary growth.


Surprise! April New York Fed Empire Report Falls to 1.29, Est. 8

Well, the weather outside is delightful, but the Empire Report is spiteful. Despite the return of beautiful Spring weather in the New York area, the Empire Manufacturing index fell to 1.2. And the employee workweek printed at only 2.04.

April 15 (Bloomberg) — Forecast range 3.5 to 10 from 51 estimates
• General business conditions were 5.61 in the prior month, according to the New York Fed
• Prices paid rose to 22.45 vs 21 last month
• New orders fell to -2.77 vs 3.13 last month
• Number of employees rose to 8.16 vs 5.88 last month
• Work hours fell to 2.04 vs 4.71 last month
• Inventory fell to -3.06 vs 7 last month
• Six-month general business conditions rose to 38.23 vs 33.21 last month


Some economic recovery. Note that the levels since the end of the recession in June 2009 are lower than the 2003-2007 period.

Why The Consumer Financial Protection Bureau Is Ineffective At Controlling Mortgage Risk

The much heralded Consumer Financial Protection Bureau (CFPB), of which Elizabeth Warren (D-MA) was the architect, is largely ineffective. Why?

1. Elizabeth Warren and Richard Cordray misunderstood the problem facing mortgage borrowers and lenders.

Essentially, the world that Warren and Cordray wish that existed (1999) when real median household income was at its max and mortgage foreclosures were just above 1% doesn’t exist anymore. The tidal wave of mortgage foreclosures wiped out AT LEAST 5% of mortgage borrowers from the pool of eligible borrowers (or nearly 10% for serious delinquencies). But the decline in real median household income means that millions of borrowers cannot meet the income test for borrowing.


If we add other confounding economic variables that have deteriorated after 1999 (such as M2 Velocity and Employment-to-population ratio) to the mix, one can see why it is so difficult to jumpstart mortgage purchase applications REGARDLESS OF CFPB RULES. And despite the zero interest rate policies (ZIRP) by The Fed.


In fact, the remaining borrower pool is fewer in numbers and weak compared to 1999 that lenders struggle to find borrowers even if they expand their credit box (loosen underwriting standards). And CFPB will be forced to relax or undo their promised ironclad rules for safety.

2. The alleged iron-clad QM rules have more leaks than The Titanic.

The Consumer Financial Protection Bureau recently issued the Qualified Mortgage (QM) rules. Originally, QM status required the meeting of strict underwriting standards, including a 20 percent down payment and a 28 percent housing-cost-to-income ratio. Those provisions are no longer in place. A loan can obtain QM status without that down payment, and the debt-to-income ratio was raised to 43 percent. In addition, the QM rules allow for so many exemptions from the standards that the standards are virtually worthless.

So, the Consumer Financial Protection Bureau is almost irrelevant thanks to their misunderstanding of mortgage risk and where the economy sits today. Not to mention that their ironclad rules are as porous as The Titanic.

In other words, Adam Smith’s invisible foot has taken over and made the CFPB irrelevant.

But remember, we got into this mess in the first place thanks, in part, to the Clinton Administration’s “National Homeownership Strategy: Blueprint for the American Dream.” Read it and weep. nhsdream2