In the week ending May 5, the advance figure for seasonally adjusted initial claims was 367,000, a decrease of 1,000 from the previous week’s revised figure of 368,000. The 4-week moving average was 379,000, a decrease of 5,250 from the previous week’s revised average of 384,250.

The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending April 28, a decrease of 0.1 percentage point from the prior week’s unrevised rate of 2.6 percent.

The advance number for seasonally adjusted insured unemployment during the week ending April 28 was 3,229,000, a decrease of 61,000 from the preceding week’s revised level of 3,290,000. The 4-week moving average was 3,290,000, a decrease of 10,500 from the preceding week’s revised average of 3,300,500.

Today’s seasonally adjusted number came in a tad higher than the Briefing.com consensus estimate of 365K.

As we can see, there’s a good bit of volatility in this indicator, which is why the 4-week moving average (shown in the callouts) is a more useful number than the weekly data.

Occasionally I see articles critical of seasonal adjustment, especially when the non-adjusted number better suits the author’s bias. But a comparison of these two charts clearly shows extreme volatility of the non-adjusted data, and the 4-week MA gives an indication of the recurring pattern of seasonal change in the second chart (note, for example, those regular January spikes).

Because of the extreme volatility of the non-adjusted weekly data, a 52-week moving average gives a better sense of the long-term trends. This metric has now fallen below 400,000 for the first time since late November 2008. I’ve now added a linear regression through the data. We can see that this metric has started to slip below the long-term trend stretching back to 1968.

The Bureau of Labor Statistics provides an overview on seasonal adjustment here (scroll down about half way down). For more specific insight into the adjustment method, check out the BLS Seasonal Adjustment Files and Documentation.

Doug Short Ph.d is the author of dshort.com.

Nonfarm payroll employment rose by 115,000 in April, and the unemployment rate was little changed at 8.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, retail trade, and health care, but declined in transportation and warehousing.

Today’s numbers numbers are well below than the briefing.com consensus, which was for 162K new nonfarm jobs and Briefing.com’s own estimate of 140K nonfarm jobs.

The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948.

Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The inverse pattern becomes clearer when viewed against real (inflation-adjusted) S&P Composite, with its successively lower bear market bottoms. The mirror relationship seems to be repeating itself with the most recent and previous bear markets.

The second chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. The latest number is 3.3% — down from 3.4% last month. This measure gives an alternative perspective on the relative severity of economic conditions. As we readily see, this metric remains significantly higher than the peak in 1983, which came six months after the broader measure topped out at 10.8%.

The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over.

The inverse correlation between the two series is obvious. We can also see the accelerating growth of women in the workforce and two-income households in the early 1980′s. Following the end of the last recession, the employment population has three times bounced at 58.2% — a level that harkens back to the 58.1% ratio of March 1953, when Eisenhower was president of a country of one-income households, the Korean War was still underway, and rumors were circulating that soft drinks would soon be sold in cans. The latest ratio is 0.3% off the interim low and remains in the center of the oscillating ratio of the late 1970s and early 1980s.

The employment-population ratio will be interesting to watch going forward. The first wave of Boomers will be a downward force on this ratio. The oldest of them were eligible for early retirement when the Great Recession began, and the Boomer transition to the retirement will accelerate over the next several years.

What is the average length of unemployment? As the next chart illustrates, we are perhaps seeing a paradigm shift — the result of global outsourcing and efficiencies of technology. The post-recession duration of unemployment has continued to rise, with the latest 39.1 weeks still not far below the 40.9 week all-time high of last November. It had approached a level nearly double the peak in 1983 following the 1981-82 recession.

The last chart is one of my favorites from Bill McBride at Calculated Risk. It shows the job losses from the peak employment month since World War II. Note the addition of the dotted-line alternative for the current cycle, which shows unemployment excluding the temporary census hiring.

The start date of 1948 was determined by the earliest monthly unemployment figures collected by the Bureau of Labor Statistics. The best source for the historic data is the Federal Reserve Bank of St. Louis.

Doug Short Ph.d is the author of dshort.com.

Today, however, interest rates are at or near historic lows. It is the wrong time to issue floating rate debt. This type of debt introduces unneeded funding risk.

Treasury Announcement

Traditional Treasury bonds have a fixed maturity, say 10 years, and a fixed coupon rate, say 2%. When you issue such a bond, you exactly know what the cash flow liabilities are: 1% every six months until maturity. Floating rate notes (FRNs) have a fixed maturity but variable coupon. An example bond might have 10 years to maturity but with a coupon that resets every 6 months to reflect the rate on a short-term Treasury bill. When FRNs are issued, the liability is uncertain – because the future path of interest rates is not known.

Many expected the Treasury to push forward with floating rate notes (FRNs) today (May 2, 2012). They were originally proposed in February 2012. See the original report. While the Treasury still sees benefits in the issuance of floating-rate notes, a decision appears to have been deferred because of “a significant amount of feedback”. See the Policy Statement.

The initiative appears to be coming from an industry group called the Treasury Borrowing Advisory Committee. They stated:

“The Committee reiterated that its main goals in unanimously supporting FRNs were continued diversification of the investor base and average maturity extension through issuing floaters in lieu of shorter dated issuance. Furthermore, FRNs should lead to a reduction of term premium expense over time. While initial issuance should have final maturities of one to two years, eventually the Committee anticipates FRNs of longer final maturities.” Read the TBAC Report.

This committee is populated with representives from JP Morgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, etc.

The Case Against Floaters

When I made my testimony to the House Ways and Means Committee in 1993, floating rate issuance made a lot of sense. Interest rates were relatively high (7.5%). See Testimony. Indeed, if the Treasury had funded half of its needs with FRNs, $1.9 trillion would have been saved ($2.3 trillion taking the time value of money into account).

Today is different for two reasons.

§  Interest rates are at historic lows with the 10-year rate at about 2%. FRNs make sense if you think interest rates are heading down. It seems very unlikely that rates will stay at 2% for the next ten years.

§  The U.S. government leverage is significantly higher today than in 1993. The Federal debt is $15.4 trillion and our GDP is $15.5 trillion. When you have high leverage, you do not want to take extra risk on funding (the risk being interest rates going up). We have seen this movie played multiple times already — in Europe.

The Case for Floaters

The TBAC minutes of May 1, 2012 state:

“The Committee again unanimously recommended that Treasury pursue an FRN program, citing the merits of expanding the investor base and providing a cost effective means of extending the average maturity.” Read the Minutes.

There are three issues: bring in new investors, cost effectiveness, and extending maturity. Let me tackle each one.

New Investors

In my opinion, this is a weak argument. Essentially, the FRNs pay a coupon that reflects the Treasury bill rate. So why not just invest in Treasury bills? Treasury bills have been around a long time. The only difference is that you need to roll over the Treasury bills, say every 90 days. However, this is routine and institutionalized. To be clear, there is no economic difference between the cash flows of investing in Treasury bills and investing in FRNs.

In addition, FRNs are not news. It is easy to create a FRN by buying a fixed rate Treasury and entering into a swap agreement (you pay the coupon to an investment bank and they pay you a floating rate). There is a very minor amount of counterparty risk. It is minor because you hold the bond. If there was a problem with the counterparty (which seems unlikely given the history of bailouts), your principal (the bond) is not at risk.

Cost Effectiveness

It is true that the short-term costs are less for FRNs than for fixed rate bonds. The Treasury bill yield is a fraction of one percent — whereas the Treasury bond yield is 2%. So, you save money immediately. However, it is not clear you save money in the end. Consider the choice between a 10-year FRN and a 10-year fixed rate Treasury bond. With the fixed rate bond, you are locked into to 2% for 10 years. With the FRN, the rate fluctuates. Maybe it is 1% but maybe is grows to 8% -it depends on future interest rates and inflation. Who knows? This is exactly what I mean by funding risk.

Let’s take a hypothetical example to get a perspective. Suppose the Treasury decided to fund half the Federal Debt with floaters. Currently, the average interest rate on the Federal debt is 2.8%. This would lead to some immediate savings. However, what happens if rates jump – which is not unreasonable given the Federal Reserve’s balance sheet of $2.8 trillion or 19% of GDP. The savings would be wiped out if rates rose to 2.8 (which by the way, is roughly today’s inflation rate). If rates go to 4%, then the government has to come up with an extra $1 trillion to pay the extra interest they precommitted to. Do you think 4% rates are out of the question? I certainly don’t.

The uncertainty about future interest service is what I call funding risk. The amount of cash needed is unpredictable. If interest rates rise, then extra interest service must come from: 1) higher taxes; 2) spending reductions; 3) more borrowing; or 4) printing money. Note that (4) usually causes rates to increase even more, leading to even higher service costs. (3) can have a similar effect.

Extending Maturity

Yes, FRNs extend maturity – if they are replacing securities that have a shorter maturity. Suppose they replace Treasury bills. In this case, the interest rate risk is identical (both pay the Treasury bill rate). Suppose they replace fixed rate coupons. In this case, the interest rate risk changes. As rates go up, the FRNs become more expensive to service.

The Treasury’s February 2012 document is a good read. They make the case that there could be some cost savings in minimizing the rollover risk. That is, instead of going to market every three months for Treasury bills, you commit for a longer period, say two or five years. They also argue there is a modest term premium that could be captured.

If the FRNs are just 2 years to maturity, then not much additional risk is created. This is especially true today when the Federal Reserve is on record saying that rates will remain low through 2014. However, what makes me nervous is the “eventually the Committee anticipates FRNs of longer final maturities.”

I am in favor of extending maturities. The Treasury has extended the average maturity of the Federal Debt to about 63 months over the last three years. However, this weighted average maturity is no different than the average maturity in the 1990s – when interest rates were much higher. It is best to extend maturity with fixed rate bonds – not floating rate bonds.

Bottom Line

To me, the potential benefits to issuing FRNs are minor. However, the costs could be severe. In a different time, when the Federal Debt was a much smaller fraction of GDP, one could make the case to experiment with FRNs. However, today we face much greater risks.

You don’t need to look far to see the risks created by relying on short-term funding. One of the major reasons that so many financial institutions needed to be bailed out during the crisis was that they were using short term funding. They faced rollover risk as well as very high interest service cost. The same thing happened in peripheral countries in Europe. If they had locked in long term funding at fixed rates a few years ago, the crisis would have been mitigated. Instead, we are facing a €1.5 trillion rollover in 2012 at uncertain costs.

For the Treasury’s plan, there is no roll over risk. However, there is interest service risk. Overall, the costs outweigh the benefits.

Campbell R. Harvey is the J. Paul Sticht Professor of International Business at the Fuqua School of Business, Duke University and a Research Associate of the National Bureau of Economic Research in Cambridge, Massachusetts. He is also Editor of the Journal of Finance.

Let’s now review the same data with two adjustments. In the charts below the red line shows the goods orders divided by the Census Bureau’s monthly population data, giving us durable goods orders per capita. The blue line goes a step further and adjusts for inflation based on the Producer Price Index, chained in today’s dollar value. This gives us the “real” durable goods orders per capita. The snapshots below offer a quite sobering corrective to the standard reports on the nominal monthly data (which itself was significantly below expectations).

Here is the same chart, this time ex Transportation.

Now we’ll exclude Defense orders.

And finally we’ll exclude both Transportation and Defense for a better look at core durable goods orders.

As these charts illustrate, when we study durable goods orders in the larger context of population growth and also adjust for inflation, the data becomes a coincident macro-indicator of a major shift in demand within the U.S. economy. It correlates with a decline in real household incomes, as illustrated in my analysis of the most recent Census Bureau household income data:

• U.S. Household Incomes: A 43-Year Perspective
• U.S. Household Incomes by Age Bracket: A Disappointing 21st Century So Far

The secular trend in durable goods orders also helps us understand the trend of declining GDP that I’ve illustrated elsewhere. See especially the most recent update on GDP.

By all four of the metrics above, the real per-capita demand for durable goods has increased substantially since the trough at the end of the last recession. But orders remain far below their respective peaks near the turn of the century and earlier.

Doug Short Ph.d is the author of dshort.com.

Although the financial crisis feels over, we’re still in the heart of the aftermath. What really happened? Was it the greatest heist ever? Or, simply the perfect storm of black swans?

In the following documentary, PBS does a great job continuing to shine a light on this complicated yet historical set of events. Definitely take the time to watch the documentaries below. If you can’t watch in one sitting, scribble down where you leave off and bookmark this page so you can finish up later. It’s worth it.

Watch Money, Power and Wall Street: Part One on PBS. See more from FRONTLINE.

From the report:

“While there might be pieces of good news in this report, such as some improvement in many annual rates of return, February 2012 data confirm that, broadly-speaking, home prices continued to decline in the early months of the year,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Nine MSAs — Atlanta, Charlotte, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle and Tampa — and both Composites hit new post-crisis lows. Atlanta continued its downward spiral, posting its lowest annual rate of decline in the 20-year history of the index at -17.3%. The 10-City Composite declined 3.6% and the 20-City was down 3.5% compared to February 2011.

“Due to delays in reporting for Mecklenburg County, we did not publish a January index level for Charlotte, North Carolina last month. With this month’s report we have enough data to publish data points for both January and February. The unfortunate news is that it confirms that Charlotte is one of the cities that is still reaching new lows.

Charting the monthly change:

And the 5-month drop in house prices is its highest since mid 2009…

The Fed justified the previous round of quantitative easing “to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate” (full text). In effect, the Fed has been trying to increase inflation, operating at the macro level. But what does an increase in inflation mean at the micro level — specifically to your household?

Let’s do some analysis of the Consumer Price Index, the best known measure of inflation. The Bureau of Labor Statistics BLS divides all expenditures into eight categories and assigns a relative size to each. The pie chart below illustrates the components of the Consumer Price Index for Urban Consumers, the CPI-U, which I’ll refer to hereafter as the CPI.

The slices are listed in the order used by the BLS in their tables, not the relative size. The first three follow the traditional order of urgency: food, shelter, and clothing. Transportation comes before Medical Care, and Recreation precedes the lumped category of Education and Communication. Other Goods and Services refers to a bizarre grab-bag of odd fellows, including tobacco, cosmetics, financial services, and funeral expenses. For a complete breakdown and relative weights of all the subcategories of the eight categories, see the link to table 1 near the bottom of the BLS’s monthly Consumer Price Index Summary.

The chart below shows the cumulative percent change in price for each of the eight categories since 2000.

Not surprisingly, Medical Care has been the fastest growing category. At the opposite end, Apparel has actually been deflating since 2000. The latest Apparel number is the first fractional nudge above zero in about nine years. Another unique feature of Apparel is the obvious seasonal volatility of the contour.

Transportation is the other category with high volatility — much more dramatic and irregular than the seasonality of Apparel. Transportation includes a wide range of subcategories. The volatility is largely driven by the Motor Fuel subcategory. For example, the spike in gasoline above $4-a-gallon in 2008 is readily apparent in the chart, and, according to my weekly gasoline updates, we’re once again approaching that territory.

The Ominous Shadow Category of Energy

The BLS does not lump energy costs into an expenditure category, but it does include energy subcategories in Housing in addition to the fuel subcategory in Transportation. Also, energy costs are indirectly reflected in expenditure changes for goods and services across the CPI.

The BLS does track Energy as a separate aggregate index, which in recent years has been assigned a relative importance of 9.679 out of 100. In other words, Uncle Sam calculates inflation on the assumption that energy in one form or another constitutes about 9.68% of total expenditures, over half of which (5.46%) goes to transportation fuels — mostly gasoline. The next chart overlays the highly volatile Energy aggregate on top of the eight expenditure categories. We can immediately see the impact of energy costs on transportation.

The next chart will come as no surprise to families footing the bill for college tuition. Here I’ve separately plotted the College Tuition and Fees subcategory of the Education and Communication expenditure category. Note that the steady staircase in this cost matches the annual cost increases in late summer for each academic year.

Core Inflation

Economists and policy makers (e.g., the Federal Reserve) pay close attention to Core Inflation, which is the overall inflation rate excluding Food and Energy. Now this is a somewhat peculiar metric in that one of the exclusions, Energy, is an aggregate that combines specific pieces of two consumption categories: 1) Transportation fuels and 2) Housing fuels, gas, and electricity. The other, Food, is the major part of the Food and Beverage category. I should explain that “beverage” for the BLS means alcoholic beverages. So coffee and Coca Colas are excluded from Core Inflation, but Budweiser and Jack Daniels aren’t.

The next chart shows us the annualized rate of change (solid lines) and the cumulative change (dotted lines) in CPI and Core CPI since 2000.

Consumers, especially those who’ve managed expenses over several years, are most closely attuned to the top line.

Inflation and Your Household

The universal response is to moan over price increases and take delight when prices are cheaper. But in reality, households vary dramatically in the impact that inflation has upon them. When gasoline prices skyrocket, a two-earner suburban family with long car commutes suffers far more than the metro family with short subway commutes or retirees with no commute. And the pain is even more extreme for low income households whose grocery money shinks with gas prices rise. And remember, Uncle Sam excludes energy costs from Core Inflation.

Households with high medical costs are significantly more vulnerable than comparable households with low expenses in this category.

The BLS weights College Tuition and Fees at 1.678% of the total expenditures. But for households with college-bound children, the relentless growth of tuition and fees can cripple budgets. Often those costs get bundled into loans that saddle degree recipients with exorbitant debt burdens. Consider the following numbers from the CollegeBoard.com website:

• Public four-year colleges charge, on average, $8,244 per year in tuition and fees for in-state students.
• Public four-year colleges charge, on average, $20,770 per year in tuition and fees for out-of-state students.
• Private nonprofit four-year colleges charge, on average, $28,500 per year in tuition and fees.

Of course, Mr. Bernanke would point out that, with a healthy dose of Core Inflation (extended of course to wages), those debt-burdened college grads will pay down the loans with inflated dollars.

Which brings us back to the Fed’s efforts to manage the level of Core Inflation. At the macro level, Mr. Bernanke and his Federal Reserve team can doubtless make a theoretical argument for playing puppet master with inflation. But will their efforts — ZIRP and Quantitative Easing — achieve the desired goal?

The one thing we can be certain about is this: An increase in inflation will have a painful effect on lower income households, those on fixed incomes, those with higher ratios of transportation costs, and any household whose discretionary spending is more dream than reality.

Doug Short Ph.d is the author of dshort.com.

See the chart below for a long-term perspective on this widely watched index. Because the sentiment index has trended upward since its inception in 1978, I’ve added a linear regression to help understand the pattern of reversion to the trend. I’ve also highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

To put today’s report into the larger historical context since its beginning in 1978, consumer sentiment is about 11% below the average reading (arithmetic mean), 10% below the geometric mean, and 11% below the regression line on the chart above. The current index level is at the 26.7 percentile of the 412 monthly data points in this series.

The Michigan average since its inception is 85.4. During non-recessionary years the average is 88.1. The average during the five recessions is 69.3. So the March final sentiment number of 75.7 keeps us above the recession average but well below the average for non-recessionary periods.

The indicator can be somewhat volatile. For a visual sense of the volatility here is a chart with the monthly data and a three-month moving average.

For the sake of comparison here is a chart of the Conference Board’s Consumer Confidence Index (monthly update here). The Conference Board Index is the more volatile of the two, but the broad pattern and general trends are remarkably similar to the Michigan Index.

And finally, the prevailing mood of the Michigan survey is also similar to the mood of small business owners, as captured by the NFIB Business Optimism Index (monthly update here).

The trend in sentiment since the Financial Crisis lows had been one of slow improvement, but it topped out in February of last year at 77.5 and plunged to an interim low of 55.7 in August. The steady rise since the August trough is encouraging. However, in the larger historical context, as a quick look at the first chart above illustrates, the April preliminary number from the Michigan survey remains at a level more commonly associated with recessions.

Doug Short Ph.d is the author of dshort.com.

The March numbers show a fractional crossover of the YoY rates for Headline and Core, something that last occurred in late 2008.

Here is a snippet from the news release:

Finished core: The index for finished goods less foods and energy moved up 0.3 percent in March, the fifth consecutive increase. Over one-third of the March advance can be attributed to prices for light motor trucks, which rose 0.7 percent. Increases in the indexes for passenger cars and for soaps and other detergents also contributed to higher finished core prices. (See table 2.)

Finished foods: Prices for finished consumer foods moved up 0.2 percent in March, the first increase since November 2011. Leading the March advance, the index for fresh and dry vegetables jumped 12.8 percent. Higher prices for pork also contributed to the rise in the finished foods index.

Finished energy: Prices for finished energy goods fell 1.0 percent in March after rising 1.3 percent a month earlier. This decrease was led by the gasoline index, which declined 2.0 percent, seasonally adjusted. (On an unadjusted basis, the gasoline index climbed 7.5 percent.) Lower prices for diesel fuel and residential electric power also were factors in the decline in the finished energy goods index.   More…

Now let’s visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, Core PPI declined significantly during 2009 and increased modestly in 2010. The rate of increase moved higher in 2011.

As the next chart shows, the Core Producer Price Index is more volatile than the Core Consumer Price Index. For example, during the last recession producers were unable to pass cost increases to the consumer. Likewise in 2010 the Core PPI generally rose while Core CPI generally fell. But over the past year these two core metrics have been moving in tandem.

Tomorrow will bring us the more widely followed CPI inflation indicator.

Doug Short Ph.d is the author of dshort.com.

The bill is aimed at helping fast-growing operations like biotech and tech companies, but smaller shops may benefit as well. It allows a company to use crowd funding for seeking investors, and can raise up to $1 million this way.

It also eases the process for publicly selling stock, as well as lifts a ban on advertising to the general public about investment opportunities.

The Securities and Exchange Commission has several months to pass regulations fully implementing the law.

To contact the reporter on this story: Patricia Lee at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

Seasonally Adjusted

Non-Seasonally Adjusted

And from the report:

Data through January 2012, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed annual declines of 3.9% and 3.8% for the 10- and 20-City Composites, respectively. Both composites saw price declines of 0.8% in the month of January. Sixteen of 19 MSAs also saw home prices decrease over the month; only Miami, Phoenix and Washington DC home prices went up versus December 2011. (Due to delays in data reporting, the January 2012 index values for Charlotte are not included in this month’s release). Eight MSAs and both Composites posted new index lows in January. The 10- and 20-City Composites recorded marginal improvements in annual returns over December 2011 when they each posted -4.1%. In addition to the Composites, Dallas, Denver, Miami, Minneapolis, New York, Phoenix, San Diego, Seattle, Tampa and Washington DC saw their annual rates improve compared to December; while nine of the MSAs saw their annual returns worsen compared to what was reported for December 2011. Denver, Detroit and Phoenix were the only cities to post positive annual growth rates of +0.2%, +1.7% and +1.3%, respectively. Atlanta again posted the lowest annual (and only double-digit negative) return at -14.8%.

“Despite some positive economic signs, home prices continued to drop. The 10- and 20- City Composites and eight cities – Atlanta, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle and Tampa – made new lows,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Detroit and Phoenix, two cities that have suffered massive price declines, plus Denver, saw increasing prices versus January 2011. The 10-City Composite was down 3.9% and the 20-City was down 3.8% compared to January 2011.

“Due to delays in reporting for Mecklenburg County, we did not publish a January index level for Charlotte, North Carolina. There was not enough January data to publish an accurate index level this month. We are not sure of the reasons for the delays, but do expect to see the data with next month’s release. We did include data we received from Gaston County, NC, and York County, SC, in the calculation of the 20-City Composite.

“Atlanta continues to stand out in terms of recent relative weakness. It was down 2.1% over the month, and has fallen by a cumulative 19.7% over the last six months. It also posted the worst annual return, down 14.8%. Seven of the cities were down by 1.0% or more over the month. With the new lows, both Composites are now 34.4% off their relative 2006 peaks.”

In January 2012, Denver, Detroit and Phoenix were the only MSAs to post positive annual returns. Month-over-month, Miami, Phoenix and Washington DC were the only cities that recorded positive gains — up 0.6%, 0.9% and 0.7% in January 2012, respectively. Both the 10-City and 20-City Composites were down 0.8% from their December 2011 levels. Eights MSAs (Atlanta, Chicago, Cleveland, Las Vegas, New York, Portland, Seattle and Tampa) and both Composites posted new index lows in January 2012. Atlanta, Cleveland, Detroit and Las Vegas continue to have average home prices below their January 2000 levels.

Tyler Durden is the author of Zero Hedge.

To contact the reporter on this story: Tyler Durden at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

The most highly audited group in 2011 was comprised of those who reported income greater than $10 million. Nearly one-third of filers in this bracket were audited in 2011, a significant increase from their 18 percent audit rate the previous year.

The Global High Wealth Industry Group, a recently-created division of the agency, focuses on individuals and companies with high incomes in order to ensure that their tax reduction strategies are legal. For the year ended September 30, the IRS audited 5.4 percent of Americans with incomes between $500,000 and $1 million, up from 3.4 percent the year earlier. Audits of those with income between $1 million and $5 million nearly doubled for the year to 12 percent, up from 6.7 percent. In the $5 million to $10 million bracket, 21 percent were audited, compared to 12 percent the previous year.

According to the IRS, the agency audited only 1.1 percent of individual returns and 1.5 percent of corporate returns last year. In 2011 the agency collected $2.4 trillion in taxes and processed 234 million returns compared with a collection of $2.3 trillion and 230 million processed returns the prior year. Despite the significant increase in high-income audits, the agency collected $31.1 billion in enforcement revenue for 2011, an increase of only 6.9 percent from the year earlier.

To contact the reporter on this story: Gillian White at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

Principal write-downs allow for a portion of a loan to be forgiven for someone who’s having trouble making payments. Democrats favor such a change, while most Republicans are opposed, but it’s a key federal regulator that is blocking Fannie and Freddie from adopting the approach.

Some economists and many Democratic lawmakers consider principal reductions as a means of aiding the housing market. Financial executives at Fannie and Freddie have made presentations to their regulator in recent days trying to convince them that reductions for many homeowners would prevent larger losses and keep people in their homes.

Fannie and Freddie guarantee and control most of the home loans in the United States. According to Mark Zandi, chief economist of Moody’s Analytics, if Fannie and Freddie “fully committed to the idea of doing more principal reduction [modifications],” several hundred thousand write-offs would likely be made over the course of the next several years. “And that would make a substantive difference,” said Zandi.

But while Zandi says hundreds of thousands of mortgage write-offs could do a lot to tip the housing market toward recovery, other economists disagree, and Fannie and Freddie’s regulator has so far refused to allow this approach. Ed DeMarco, head of the Federal Housing Finance Agency, has controlled Fannie and Freddie since they were bailed out by the federal government. While DeMarco has said he wants to prevent foreclosures, he believes “we need to do so in a way that we are meeting our mandate to protect the taxpayers.”

DeMarco said both Fannie and Freddie told him they didn’t support principal reductions, but it seems they’ve since changed their tune, most likely because the Obama administration recently tripled the incentives offered to lenders to do these principal write-downs. With the new program, a lender forgiving $50,000 in mortgage debt will be reimburse $25,000 by the federal government, which means taxpayers will be left footing the bill.

Furthermore, many economists worry that consumers who are perfectly able to make their mortgage payments will stop doing so in order to get a principal reduction, which could create a cataclysmic mess. But the private sector has already jumped on the write-down bandwagon — roughly 15 percent of all recent loan modifications were down by private lenders.

For now, DeMarco says his agency is reconsidering its prior analysis of principal reduction. Meanwhile, political pressure is building, with more than 100 lawmakers having already signed a letter asking him to allow principal reduction.

To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

In the week ending March 17, the advance figure for seasonally adjusted initial claims was 348,000, a decrease of 5,000 from the previous week’s revised figure of 353,000. The 4-week moving average was 355,000, a decrease of 1,250 from the previous week’s revised average of 356,250.

The advance seasonally adjusted insured unemployment rate was 2.6 percent for the week ending March 10, a decrease of 0.1 percentage point from the prior week’s revised rate of 2.7 percent.

The advance number for seasonally adjusted insured unemployment during the week ending March 10 was 3,352,000, a decrease of 9,000 from the preceding week’s revised level of 3,361,000. The 4-week moving average was 3,385,750, a decrease of 13,000 from the preceding week’s revised average of 3,398,750.

Today’s seasonally adjusted number came in slightly below the Briefing.com consensus estimate of 355K.

As we can see, there’s a good bit of volatility in this indicator, which is why the 4-week moving average (shown in the callouts) is a more useful number than the weekly data.

Occasionally I see articles critical of seasonal adjustment, especially when the non-adjusted number better suits the author’s bias. But a comparison of these two charts clearly shows extreme volatility of the non-adjusted data, and the 4-week MA gives an indication of the recurring pattern of seasonal change in the second chart (note, for example, those regular January spikes).

Because of the extreme volatility of the non-adjusted weekly data, a 52-week moving average gives a better sense of the long-term trends. This metric has now fallen below 400,000 for the first time since late November 2008. I’ve now added a linear regression through the data. We can see that this metric has started to slip below the long-term trend stretching back to 1968.

The Bureau of Labor Statistics provides an overview on seasonal adjustment here (scroll down about half way down). For more specific insight into the adjustment method, check out the BLS Seasonal Adjustment Files and Documentation.

Doug Short Ph.d is the author of dshort.com.

To contact the reporter on this story: Doug Short at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

The Dow Jones Industrial Average fell 0.1 percent to 13,551.31 and S&P 500 index lost 0.8 percent or 1.11 points to be at 1,404.50 at 10:28 EDT. The Nasdaq composite was up 0.1 percent.

Energy stocks and basic materials were hit. Exxon Mobil (NYSE:XOM) shares dropped 0.4 percent to $86.22, Chevron (NYSE:CVX) fell 1 percent to $107.97, and Schlumberger (NYSE:SLB) fell 2.4 percent to $73.91. United States Steel (NYSE:X) dropped 1.4 percent to $30.92 early on Wednesday.

Existing-home sales fell 0.9 percent in February to a 4.59 million annual rate from a revised 4.63 million pace in January, the National Association of Realtors reported. Home sales dropped in two out of four regions. Sales in the Northeast were down 3.3 percent and fell 3.2 percent in the West. Sales in the Midwest were up 1 percent. Sales in the South were up, too, by 0.6 percent.

However, last month’s sales were 8.8 percent above the same month a year earlier, and it was the strongest February in five years. “The market is trending up unevenly,” Lawrence Yun, the chief economist for the Realtors group, told Forbes.

Building permits rose by 5.1 percent, showing potential for future growth.

To contact the reporter on this story: Aabha Rathee at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

The manifesto, written by House Budget Committee Chairman Paul Ryan (R-Wis.) and Senator Ron Wyden (R-Ore.), plans to reduce the deficit by $3.3 trillion through $5.3 trillion in spending cuts to be partially offset by $2 trillion lost to lower tax rates.

Almost half of the spending cuts come from the $2.5 trillion in proposed cuts to federal healthcare programs, which President Barack Obama has made his identifying measure and which the GOP considers wasteful.

The GOP manifesto cuts Medicaid, food stamps, and Pell Grants, among other programs. It also proposes to switch the Medicare program for those under 55 today from a traditional “fee for service” system where the government pays doctor and hospital bills to a “premium support” system where health insurance is subsidized by the government.

“If you want to save Medicare and keep it from going bankrupt, you must reform the program, and that’s what we intend to do,” Ryan said.

Proposed cuts are double those in last year’s GOP manifesto on food stamps, student loans, welfare, and farm subsidies. Under the plan, the deficit in 2013 would drop to $797 billion in fiscal year 2013, as opposed to $977 billion under Obama’s budget.

The government criticized the manifesto and said it only gave tax breaks to the rich. “The House budget once again fails the test of balance, fairness, and shared responsibility,” White House Communications Director Dan Pfeiffer said in a written statement.

“What’s worse is that all of these tax breaks would be paid for by undermining Medicare and the very things we need to grow our economy and the middle class—things like education, basic research, and new sources of energy,” he said.

The Senate will not hear debate on the budget and will instead go by last year’s bipartisan budget.

To contact the reporter on this story: Aabha Rathee at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

Saudi Oil Minister Ali al-Naimi said at a press conference on Tuesday that the country was prepared to raise oil output to 12.5 million barrels per day, if needed. “I want to assure you that there is no shortage of supply in the market,” Naimi said in Doha, Qatar. “We are ready and willing to put more oil on the market, but you need a buyer.”

Impending Western sanctions on Iran, coupled with Iran’s threats to further cut of supplies by blocking access to the Strait of Hormuz, through which roughly one-fifth of the world’s oil must travel, have been sending crude oil prices above $120 a barrel. On Tuesday, brent crude fell $1.56 to $124.15 a barrel at 10:59 a.m. EDT. U.S. crude fell $1.67 to $106.42 a barrel.

U.S. Treasury Secretary Timothy Geithner welcomed the Saudi comments. “I want to welcome very much the statements made by the Saudi authorities over the last couple of days that they will take further action to increase the supply of oil in global markets,” Geithner told a House of Representatives Financial Services Committee hearing.

Kuwait also calmed some fears by announcing that Iran had assured them that the Strait of Hormuz would not be shut down. Almost 35 percent of the world’s crude sea shipments pass through the strait that connects the Arabian Peninsula and the Persian Gulf.

To contact the reporter on this story: Aabha Rathee at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

“The IRS is confronted with the same challenges as every major financial institution in preventing and detecting identity theft,” Miller said. “We cannot stop all identity theft. However, we are better than we were, and we will get better still.”

Last year, the agency prevented the issuance of $14 billion in fraudulent refunds, Miller said. This year the IRS improved its efforts, adding hundreds of employees dedicated to anti-fraud, and has implemented new filters that flag questionable returns.

When the IRS takes additional time reviewing returns before issuing refunds, legitimate refunds are delayed, said Nina Olson, the national taxpayer advocate. When the IRS tries to expedite returns, fraudulent refunds are issued. “There is no way around these trade-offs.”

To contact the reporter on this story: Lindsey Grossman at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

Residential construction was up 34.7 percent in February compared to last year, but an oversupply of unsold homes continues to depress prices in the housing market and discourage builders. Housing starts last month were pulled down by a 9.9 percent drop in the construction of single-family homes, which account for a large portion of the market.

Still, residential construction is expected to add to economic growth this year for the first time since 2005. Groundbreaking for multi-family housing projects soared 21.1 percent last month, benefiting from rising demand for rental apartments as falling prices discouraged some from owning a home.

Builder sentiment held a near five-year high in March, a survey showed on Monday, and home builders were optimistic about sales over the next six months.

Permits to build single-family homes jumped 4.9 percent to a 472,000-unit rate, the highest since April 2010, while permits for multi-family homes rose 5.6 percent to a 245,000-unit pace.

To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

A failing economy forced Greece to restructure its sovereign debt earlier this month, resulting in losses for private creditors. However, those who bought the insurance-like credit default swap will now be paid because of the protection they hold. Credit default swap holders usually receive 100 cents on the dollar minus the recovery value assigned to the debt.

Greek investors were forced to write off more than 100 billion euros ($132 billion) of debt in return for new bonds worth 31.5 percent of their original investment, according to Bloomberg. Without insurance, investors would only receive compensation valued at about 22-23 cents in the forced bond exchange. But Monday’s auction fixed payouts at 78.5 cents for every dollar of credit-default swap protection sold.

The credit default swap only kicked in because the International Swaps and Derivatives Association, the regulatory body for the credit derivatives market, ruled that Greece had forced its creditors into a debt restructuring and declared it a “credit event.”

“It’s a tried and tested method,” Gavan Nolan of Markit, which ran the auction along with Creditex, told the Wall Street Journal. “There have been nearly a hundred auctions for corporate entities and they always worked pretty well. Protection buyers are supposed to end up square.”

The success of Monday’s credit default swaps auction was good news for other struggling economies and their investors. “Triggering CDS might have more positive than negative implications for European government bond markets,” Ioannis Sokos, a fixed-income strategist at BNP Paribas, told Bloomberg. “It’s a clear demonstration that there is a functioning hedging tool out there for holders of other peripheral bonds.”

To contact the reporter on this story: Aabha Rathee at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

The Treasury had purchased about $225 billion worth of mortgage-backed securities under a Federal Reserve program to support a rapidly collapsing housing market and to prop up financial markets with near-zero interest rates. The sales of these bonds commenced a year ago, and the profits earned are the largest among various such programs that relate to the financial meltdown.

“The successful sale for these securities marks another important milestone in the wind-down of the government’s emergency financial crisis response efforts,” said Mary Miller, the Treasury’s assistant secretary for financial markets, in a statement.

The transaction reflects the extent of the government’s efforts, and the costs incurred, to achieve financial stability after the crisis.

To contact the reporter on this story: Alex Capel at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

“What we do not want is for financial activities and entities to circumvent existing and foreseen rules, allowing new sources of risk to accumulate in the financial sector,” said Michel Barnier, the EU Internal Market and Services Commissioner. “That is why we need to better understand what shadow banking actually is and does, and what regulation and supervision may be appropriate.”

Shadow banking operations mirror the standard banking model, but have until now differed in one important aspect: government regulation. Hedge funds, private equity funds, and money-market funds are often considered to come under the purview of shadow banking, as do the activities of firms of lending government bonds to banks.

Suggested regulations include reviewing the quality of collateral and liquidity behind securities lending and derivatives transactions between exchange-traded fund providers and their counter-parties, according to the Wall Street Journal.

The EU is not the only governing body concerned about shadow banking operations. U.S. Treasury Secretary Timothy Geithner earlier offered a warning as well. “A large shadow banking system had developed without meaningful regulation, using trillions of dollars in short-term debt to fund inherently risky financial activity,” Geithner told WSJ.

The EU will hold a conference in Brussels in April to discuss the regulations. The European Commission’s suggestions are voted on by the bloc’s 27 member states and the European Parliament before they become law.

To contact the reporter on this story: Aabha Rathee at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

In contrast, the more profitable oil rig count rose to a 25-year high of 1,317, up 21 this week. The figure is 57 percent higher than the 839 oil rigs in the U.S. last year.

The week’s total count for rigs actively exploring for oil or natural gas was up by 11 to 1,984. This week last year, there were 1,720 active rigs. Oklahoma gained 12 rigs, Colorado added four, and Alaska and North Dakota reported one new rig each each.

Natural gas has suffered from low demand and record high output, forcing big production cuts. The American Chesapeake (NYSE:CHK) and Canada’s EnCana (NYSE:ECA) have announced cuts that total more than 1 billion cubic feet per day, or nearly 2 percent of estimated annual production, according to Reuters.

Domestic oil production, on the other hand, increased by an estimated 120,000 barrels a day last year, compared to 2010, according to a U.S. government report from earlier this week. The current production of 5.6 million barrels a day is the highest since 2003. Horizontal drilling rigs used in shale drilling numbered 1,180, rising by 16 this week.

To contact the reporter on this story: Aabha Rathee at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell this month 74.3, from 75.3 in February. The mark is the lowest for the year and falls short of expectations — analysts had pegged it to rise to 76.

The survey found one-year inflation expectations rose to their highest reading since last May, at 4 percent this month, from 3.3 percent in February. With job markets improving, rising gas prices may be contributing to the souring mood. The average cost of a gallon of regular gasoline was up to $3.83 on March 15, according to the AAA.

However, consumers do not expect the run-up in gasoline prices to last very long. “Overall, the data indicate that $4 gasoline has lost its shock value, although the drain on discretionary income will still affect spending, mostly among lower-income households,” survey director Richard Curtintold Reuters. “If gasoline prices approach $5 per gallon, however, a widespread and substantial impact is likely.”

The index of current economic conditions was up at 84.2 from 83.0 last month, while a measure of consumer expectations for six months from now fell to 68.0 from 70.3. Thirty-eight percent of those surveyed said they believe employment to be improving. The national unemployment rate stayed at 8.3 percent this month, a three-year low.

To contact the reporter on this story: Aabha Rathee at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

Cameron said a release was worth considering when meeting with students in New York. “We didn’t make any decision, this has to be discussed broadly. We’ve got to look at this issue carefully, it’s something worth looking at. Short-term should we look at reserves? Yes, we should,” Cameron said. “We’d both like to see global oil prices at a lower level than they are.”

A detailed agreement is expected by summer, one of the sources said, but so far the timing, volume, and duration of an emergency drawdown have yet to be settled. Whether other countries might participate also remains unknown. Another source said Japan might be considering similar measures to prevent high fuel prices from choking economic growth.

White House spokesman Jay Carney confirmed that Obama and Cameron discussed rising oil prices, but declined on comment on whether they discussed a release of reserves.

Gas prices have risen sharply in the U.S., threatening to stall the economic recovery. Brent crude prices are up more than 15 percent since January to a peak of over $128 a barrel. U.S. crude has been flirting with $106 for weeks.

Previous emergency oil releases have been coordinated by the International Energy Agency, but the IEA has declined to take the lead this time around. The IEA did say that countries may legitimately decide to release oil unilaterally. Top U.S. officials, including Energy Secretary Steven Chu and Treasury Secretary Timothy Geithner, have said publicly in recent weeks that a U.S. oil release is among the options the government is considering.

Though there are currently no significant disruptions of world oil supplies as of yet, sanctions on Iran are expected to cut its output when a European Union embargo takes effect in July. Minor stoppages in South Sudan, Yemen, and Syria have also contributed to the rise in oil prices.

“At the moment there is no need to use it,” IEA executive director Maria van der Hoeven said of the reserves at an industry conference in Kuwait this week. “There is more supply coming to the market from OPEC countries. There is no price trigger for the stocks release, the trigger is a disruption in physical supplies.”

Saudi Arabia, OPEC’s biggest and only producer with any spare capacity, has said it is prepared to fill a supply gap, but will only do so to meet additional demand, rather than as a preventative measure.

To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com