The NAR reported that existing home sales, including single-family, townhomes, condos and co-ops, increased 2.0% in May to a seasonally adjusted annual rate of 4.99 million units. Sales remain 15.9% below the 5.93 million-unit pace in May of last year. The Association believes that better-than-expected sales last month were a result of buyers wading back into the market because of recent price declines and more affordable mortgage products. Regionally, sales rose in all areas by varying degrees except for the South where they declined 0.5%. Stronger sales activity resulted in a slight decline in inventory levels. The inventory of homes on the market fell 1.4% to 4.49 million which represents a 10.8 month-supply at the current sales pace. Prices continued to decline amid rising foreclosures and short sales. The median price for an existing hom e nationwide fell 6.3% over the last year to $208,600 as average prices declined 6.5% to $253,100. The improvement in home sales is welcomed; however, the housing market remains weak as evidenced by sky-high inventories and declining sales prices. Weakness is expected to continue going forward.
Jobless claims were unchanged at a level of 384k for the week ending June 21. Claims remain elevated indicating sluggish labor market conditions at best. Expect the employment report for June, due out next Thursday to probably showing a larger decline in payrolls than in May.
The final revision to Q1 GDP showed the economy grew at a 1.0% rate, as expected. Economy-wide inflation increased slightly to 2.7% from 2.6% in the previous estimates. The data released so far in April and May suggest that Q2 growth will continue to be very soft.
Friday, June 27, 2008
Tuesday, June 24, 2008
Report Sees Illegal Hiring Practices at Justice Department
WASHINGTON -- Justice Department officials over the last six years illegally used “political or ideological” factors to hire new lawyers into an elite recruitment program, tapping law school graduates with conservative credentials over those with liberal-sounding resumes, a new report found Tuesday.
The blistering report, prepared by the Justice Department’s inspector general, is the first in what will be a series of investigations growing out of last year’s scandal over the firings of nine United States attorneys. It appeared to confirm for the first time in an official examination many of the allegations from critics who charged that the Justice Department had become overly politicized during the Bush administration.
“Many qualified candidates” were rejected for the department’s honors program because of what was perceived as a liberal bias, the report found. Those practices, the report concluded, “constituted misconduct and also violated the department’s policies and civil service law that prohibit discrimination in hiring based on political or ideological affiliations.”
The shift began in 2002, when advisers to then-Attorney General John Ashcroft restructured the honors program in response to what some officials saw as a liberal tilt in recruiting young lawyers from elite law schools like Harvard and Yale. While the recruitment was once controlled largely by career officials in each section who would review applications, political officials in the department began to assume more control, rejecting candidates with liberal or Democratic affiliations “at a significantly higher rate” than those with Republican or conservative credentials, the report said.
The shift appeared to accelerate in 2006, under then-Attorney General Alberto R. Gonzales, with two aides on the screening committee — Michael Elston and Esther Slater McDonald — singled out for particular criticism. The blocking of applicants with liberal credentials appeared to be a particular problem in the Justice Department’s civil rights division, which has seen an exodus of career employees in recent years as the department has pursued a more conservative agenda in deciding what types of cases to bring.
Applications that contained what were seen as “leftist commentary” or “buzz words” like environmental and social justice were often grounds for rejecting applicants, according to e-mails reviewed by the inspector general’s office. Membership in liberal organizations like the American Constitution Society, Greenpeace, or the Poverty and Race Research Action Council were also seen as negative marks.
Affiliation with the Federalist Society, a prominent conservative group, was viewed positively.
Representative John Conyers Jr., the Michigan Democrat who heads the House Judiciary Committee, saw the report as affirmation that the Justice Department had crossed the line in “putting politics where it doesn’t belong.”
“When it comes to the hiring of nonpartisan career attorneys,” Mr. Conyers said, “our system of justice should not be corrupted by partisan politics. It appears the politicization at Justice was so pervasive that even interns had to pass a partisan litmus test. ‘’
The inspector general is still investigating other issues related to alleged politicization of the Justice Department, including the central question of why nine United States attorneys were fired in late 2006. Those findings have not been made public.
Thursday, June 5, 2008
WASHINGTON - Home foreclosures and late payments set records over the first three months of the year and are expected to keep rising, stark signs of the housing crisis' mounting damage to homeowners and the economy.
The latest snapshot of the mortgage market showed that the proportion of mortgages that fell into foreclosure soared to 0.99 percent in the January-through-March period. That surpassed the previous high of 0.83 percent over the last three months in 2007.
The report by the Mortgage Bankers Association also found that more homeowners slipped behind on their monthly payments.
The delinquency rate jumped to 6.35 percent in the first quarter, compared with 5.82 percent for the three months earlier. Payments are considered delinquent if they are 30 or more days past due.
Both the rate of new foreclosures and late payments were the highest on record going back to 1979.
Jay Brinkmann, the association's vice president of research and economics, told The Associated Press that the slump in house prices was the biggest factor for rising foreclosures and late payments.
With prices expected to keep dropping, foreclosures and late payments "are going to continue to go up" in the months ahead, he said.
Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers also swelled to all-time highs in the first quarter.
The percentage of subprime adjustable-rate mortgages that started the foreclosure process climbed to 6.35 percent. The rate was 5.29 percent in fourth quarter, the previous high.
Late payments rose to 22.07 percent from 20.02 percent, the previous high.
The association's survey covers just over 45 million home loans.
More problems also cropped up with loans to more creditworthy borrowers.
The percentage of such loans falling into foreclosure was 0.54 percent, compared with 0.41 percent at the end of last year. Late payment rose to 3.71 percent, compared with 3.24 percent.
The numbers were higher for prime borrowers with adjustable rate mortgages. The proportion of those loans falling into foreclosures jumped to 1.55 percent from 1.06 percent. The delinquency rate rose to 6.78 percent, compared with 5.51 percent.
"The number one problem is the drop in home prices," Brinkmann said. Declining prices, especially in newer built areas, "are hurting people's ability to recover when they run into trouble — a divorce or loss of job," he said. "In other days, you could sell the home. But because home prices have fallen so much, in many of those cases, the homes are going into foreclosure."
California, Florida, Nevada and Arizona accounted for 89 percent of the total increase in new home foreclosures, he said. Those are places where prices have fallen sharply and there was a lot of home building, creating too much supply, Brinkmann said.
The housing crisis is at the center of the country's economic troubles.
After a five-year boom, the market fell into a deep slump two years ago. That dragged down sales, and prices with it. As the value of homes plummeted, many newer homeowners found themselves owing more on their mortgages than their homes were worth.
Homeowners with adjustable-rate mortgages were clobbered when their initially low rates reset to much higher ones. That made it difficult, if not impossible, to keep up with monthly mortgage payments.
As foreclosures and late payments climbed, financial companies took multibillion losses when their investments in mortgage-backed securities soured. A credit crisis erupted and spread, crimping other types of financing. The fallout plunged Wall Street in turmoil, disrupting the normal functioning of markets.
All those troubles have pushed the economy to the brink of a recession, if the country isn't already in one. Consumers and business have tightened their spending. Employers have cut more than a quarter-million jobs in the first four months of this year.
To bolster the economy, the Federal Reserve made aggressive interest rate cuts. That has helped homeowners facing rate resets on their adjustable-rate mortgages. But with inflation on the rise, Fed Chairman Ben Bernanke this week sent his strongest signal yet that the central bank's rate-cutting campaign started that started in September is coming to an end.
The Bush administration has taken steps to help distressed homeowners. It has urged lenders to freeze rates for some homeowners and encouraged lenders to rework mortgage terms so troubled borrowers can stay in their homes.
Congress is considering giving government-backed mortgages to thousands of strapped borrowers. The White House has expressed some concerns.
Wednesday, June 4, 2008
By Neil Irwin
Washington Post Staff Writer
Wednesday, June 4, 2008; A01
Prices have been soaring long enough and fast enough, economists say, that the nation is at risk of a self-reinforcing cycle of inflation like that experienced in the 1970s.
It is a risk Federal Reserve Chairman Ben S. Bernanke highlighted in a speech yesterday, saying that the falling value of the dollar can feed into inflation expectations, and that rapid price escalation, if sustained, "might lead the public to expect higher long-term inflation rates, an expectation that ultimately could become self-confirming."
For some businesses that already is the reality. Many companies making long-term investments are assuming that prices will rise at a pace well above that of the past 20 years, as they pencil in larger price increases for the supplies they buy and the prices they charge. Consumers are coming to take rapidly escalating food and energy prices for granted. And labor unions are starting to push harder for across-the-board wage increases, though overall wages are still climbing slowly.
U.S. consumers expect prices to rise 7.7 percent in the coming year, according to the Conference Board, a research company. Investors expect inflation over the coming decade to average 3.4 percent based on bond market data analyzed by the Cleveland Fed. That is well above the Fed's unofficial target of about 2 percent.
When the price of food or gasoline goes up, economists generally think of it as a one-time bump. For the past four years, it hasn't been. The last time there were sharp and sustained increases in those prices, in the 1970s, a wage and price spiral developed that was so severe that the Fed had to engineer the deepest downturn since the Great Depression to end it.
"We're at the edge of the cliff right now," said Scott Anderson, senior economist at Wells Fargo. "It's still at an embryonic stage, like where we were in 1973 or 1974, not as bad as things were in 1979. But it could move in that direction if the Fed isn't aggressive."
Ordinary businesspeople, especially those in industries in which energy costs figure heavily, are responding as if that is the direction the economy is heading.
"We are assuming that prices will continue to go up, not that they're going to level off anytime soon," said John Benko, president of Manko Delivery Systems, a Tampa company that offers ground freight, logistics and other services. His company has been able to pass on about three-quarters of the higher fuel costs to customers in the form of higher prices, with the rest cutting into his firm's profit.
Ryder System has reduced the maximum speed on its fleet of trucks from 65 to 63 miles per hour, and many of its clients are making fewer shipments of goods with fuller trucks.
But these decisions are a logical response to higher fuel prices -- not necessarily signs that expectations for future inflation are coming unhinged. The best way to get a sense of those long-term expectations is through what executives assume as they make longer-term choices.
If a manufacturer expects energy prices to keep rising, it would be more inclined to pay extra for a more efficient machine, or choose to set up many small warehouses close to customers rather than one massive one that is far away.
That's what's happening, said Thomas L. Jones, a general manager for Ryder. "People are assuming prices have got nowhere to go but up," he said.
"Almost unilaterally our customers are expecting prices to continue rising," said Bob Strle, a vice president of Countermind, a Colorado firm that sells technology to help shipping firms plan their routes more efficiently -- an investment that offers a higher payoff when gasoline prices rise.
The big question is whether those expectations of higher fuel prices feed into a wage and price spiral like that of the 1970s, in which workers demanded -- and received -- double-digit wage increases to keep up with higher prices, which then fueled further inflation.
There are huge differences between now and the 1970s. In the past year, the average weekly wage for private sector non-managerial workers rose only 1.9 percent. A soft U.S. economy could continue to leave workers little leverage with which to demand pay hikes to match higher prices.
Moreover, fewer workers are unionized, fewer of those have automatic cost-of-living adjustments, and unions have less clout with which to negotiate wage increases. Finally, many of the most heavily unionized industries, such as the automakers, are in such dire financial straits that raises of any sort are unlikely.
"There is no evidence that wages have started to spiral up," Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, said in a recent speech.
But there are signs that higher prices are changing the dynamic of labor negotiations, at least in certain sectors. For most of the past 20 years, wage negotiations have centered on various pay-for-performance schemes. With higher inflation, unions in a position to do so are now pushing for higher across-the-board raises, said David B. Lipsky, a professor at Cornell's School of Industrial and Labor Relations.
"The pendulum had swung away from across-the-board wage increases, now we're seeing it swing back the other way," said Lipsky, citing recent contracts among public-sector workers and some in the hotel and casino businesses.
In a four-year contract for 40,000 janitors agreed to at the end of last year, for example, the Service Employees International Union managed to get annual raises of 4 percent, not the 3 percent during the time when inflation was lower (the raises were even higher in more recently organized cities, including Washington).
"The high inflation has adjusted our thinking of what kind of dollars we would ask for at the bargaining table," said Mike Fishman, president of SEIU Local 32BJ, who said the union worked from the assumption that inflation in the years ahead will continue at a similar pace as it has recently.
Bernanke, in his speech yesterday delivered by satellite to a group of central bankers in Barcelona, also made clear that the dropping value of the dollar creates a risk of heightened inflation expectations.
Bernanke, Harvard Class of '75, will have a chance to address whether he sees any similarities between the current situation and those when he was a college senior in a speech today for the university's graduation exercises. Its title is "Economic Challenges: 1975 and Now."