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Real Estate Sales Collapse in Paris and Ile-de-France; New Home Starts Lowest Since 1998; VAT Hike to Make Matters Much Worse

Mainstream media offers little on the stunning collapse of real estate sales in France, notably Paris and Ile-de-France. Via Google translate, please consider Real Estate November 2012: figures for the month. Here are a few translate-unedited snips.

2012 will remain a very bad year for real estate professionals. In this comprehensive figures on the property market in November 2012, discover the sharp decline in real estate sales in Paris and Ile-de-France.

Even in Paris, it becomes difficult to sell a property

Notaries in Paris / Ile-de-France note that even in their region very attractive it becomes difficult to sell a property . Between June and August 2012, it has sold "only" 35,000 existing homes, or 19% compared to the same period in 2011.

Through the preliminary contracts, that is to say, the sales agreement signed but the sale is not yet final, notaries noted an accentuation of the decrease in sales in September 2012. To believe the figures MeilleursAgents which figure barometer advanced compared to the figures of notaries, there are currently -30 to -40% of sales in Paris and the Ile-de-France.

Borrowing rates are low, borrowers are scarce

The mortgage rates continue to fall slightly in November 2012 . That makes 8 months in a row that interest rates fall. Loans for short periods have the largest declines compared to last month.

On loans granted in October 2012, the average rate is 3.37% and the duration of payments is 207 months.

Despite these cheap rates, mortgage demand plunges more now. The Observatory Housing Credit CSA announces -45.8% in October 2012 compared to the same month of the previous year. This accentuates the fall of -30.5% of mortgages in the first 9 months of 2012.

Starts of new homes in the third quarter of 2012 recorded their lowest level since 1998

Only 66,932 new dwelling units have been started in the third quarter of 2012. This is the lowest level seen since the third quarter of 2012. This represents a decrease of 17.3% compared to the same period in 2011.

VAT at 10% instead of 7% for the building in 2014?

The maintenance and renovation of housing more than two years are subject to reduced VAT under certain conditions. After passage of the VAT rate in the building from 5.5% to 7% in 2012, the government expects an increase in the VAT rate to 10% through.

Blazing Stupidity

Hiking the VAT in face of falling demand is blazing stupidity. Apparently a VAT hike is an expectation rather than a done deal, but given other examples of stunning stupidity from France, including tax hikes and the Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It" one should expect no less from French president Francois Hollande.

For more examples of things about to wreck France, please consider "Google Law" Yet Another Warped Policy by Hollande; Government Motors French Style

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Lagarde Says Greece Deal Should be "Rooted in Reality"; Mish Says Lagarde Should be "Rooted in Reality"

Today's case of the "pot calling the kettle is black" comes from IMF chief Christine Lagarde in a warning to Brussels nannycrats and the ECB Greek deal should be "rooted in reality"

An agreement among Greece's international creditors on reducing its large debt pile should be "rooted in reality and not in wishful thinking," the head of the International Monetary Fund said ahead of a tense meeting with European leaders.

"I am always trying to be constructive but I am driven by two objectives," she said in an interview, "to build and approve a program for Greece that is solid, that is convincing today, that will be sustainable tomorrow, that is rooted in reality and not in wishful thinking.

Objectives in Conflict

The problem for the IMF, Germany, the nannycrats in Brussels, ECB, and Greece is the "objective" of keeping Greece in the eurozone is one of the things destroying Greece.

It is wishful thinking that Greece is going to stay in the eurozone. I am all for a large dose of "reality" but the objectives of the Troika and the nannycrats in Brussels does not permit reality.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Fiscal Cliff Talks Underway Between Obama, House Speaker Boehner; Market Rallies on Talk of "Fluff" Compromise

The SP&P staged a mild (and meaningless) 19-point flagpole rally on news of a possible compromise between House Speaker John Boehner and president Obama as shown by the following chart of S&P Futures.



Market participants hope that Obama and Boehner agree to kick the can down the road. Most likely they will, the question is by how much.

Please consider Obama Opens Fiscal Cliff Talks as Boehner Open to Revenue

House Speaker John Boehner said he offered a “framework” including new revenue to reduce the U.S. budget deficit in his first face-to-face talks today with President Barack Obama and top Congress leaders since the Nov. 6 election.

As both sides expressed optimism that a deal is possible, U.S. equity markets rose.

Boehner also said he is serious about including revenue in an agreement if accompanied by significant spending cuts. The framework is “consistent with the president’s call for a fair and balanced approach,” he said after what he called a “constructive” meeting with the president and other congressional leaders in the Roosevelt Room at the White House.

“We’re prepared to put revenue on the table, provided we fix the real problems,” including entitlement costs, said Senate Republican leader Mitch McConnell of Kentucky.

Despite the optimism, the starting points for both sides -- Obama’s insistence on higher taxes for top earners and Republicans’ refusal to raise rates -- leaves negotiators with arithmetically complex and politically fraught choices.

While insisting on taxes, Obama has shown some openness in recent days. He and Geithner said rates must increase without specifying that the top rate must return to the 39.6 percent level in effect when President Bill Clinton left office.

Democrats and some Republicans are also beginning to talk publicly about another alternative: a more modest increase in upper-income tax rates.

One idea would be to raise Obama’s $250,000 income threshold for a tax increase to $500,000 or $1 million and increase the current 35 percent top rate to 37 percent, Peter Orszag, Obama’s former director of the Office of Management and Budget, said today on Bloomberg Television.

“Will John Boehner really blow up a deal for a 1 percent point increase above $1 million?” Orszag said. “The administration has made it clear there has to be at least some increase in marginal tax rates.”

Several congressional aides have suggested that in the event talks fail, both parties in Congress are discussing fallback plans for $60 billion to $100 billion in deficit reduction to replace automatic spending cuts set to take effect in January.

Why the Country is Broke

Read that last paragraph above carefully. No one in either party has the guts to stand up and say "we cannot afford this".

I talked about this earlier today in Ron Paul, American Hero; His Farewell Speech to Congress; Mish Reflections On Why the Country is Broke

Question of the Day

If Republicans are not in favor of deficit spending and Democrats are not either, then how the Hell do we have trillion dollar deficits?

The answer is vast majority of politicians are liars, with no backbone to stand up and tell the truth to US citizens: "the country is broke".

We cannot afford wars. We cannot afford to keep troops in 140 countries. We cannot afford to be the world's policeman.

We also cannot afford Davis-Bacon and prevailing wage laws. We cannot afford the pension promises we have made. We cannot afford collective bargaining of public unions. We cannot afford all kinds of entitlements that have been promised.

How Does It Happen?

We have all of these things because corrupt politicians buy votes of constituents who want to hear the lie that we can afford those things. In the end, that's what it's really all about.

The unions, the warmongers,  the banks, and all the other special interest groups buy votes of  corrupt politicians every step of the way. The "compromise" in Congress is Republican get their wars and Democrats get fiscally unsound social programs.

Expect Fluff Compromise

Look for a compromise to do as little as possible to fix the structural problems in the US. Instead look for Republicans to scale back cuts in military spending and Democrats to scale back revenue increases.

The non-leaders in both parties will stand up and proclaim "we saved the US from the fiscal cliff" or some other self-congratulatory nonsense.

Once again, I am not in favor of tax hikes (unless they come at a steep price such as scrapping Davis-Bacon, ending collective bargaining of public unions, etc., things that will actually fix some structural problems).

However, I don't expect anything but fluff compromises because neither Obama nor Boehner has the courage to tell the truth.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Weak Regional Manufacturing Surveys: Philly Fed, NY Fed, Dallas Fed; Don't Blame Hurricane Sandy

Let's take a look at the latest Fed regional economic surveys to catch a glimpse at current business conditions.

Philly Region Back in Contraction

The November 2012 Philadelphia Business Outlook Survey is back in negative territory.

Indicators Suggest Diminished Activity

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased 16 points, to a reading of ‑10.7. The fallback of the general activity index followed a single positive reading in October that was preceded by five negative monthly readings. Nearly 32 percent of firms reported declines in activity this month, while 21 percent reported increases. The demand for manufactured goods, as measured by the current new orders index, declined 4 points from last month and remains in negative territory. Shipments also fell this month: The current shipments index fell 7 points, to ‑6.7. Declines in inventories were also more widespread this month; 31 percent of firms reported declines compared with 21 percent in October.

Labor market conditions at the reporting firms remained weak this month. The current employment index, at ‑6.8, was slightly improved from its negative reading in October (‑10.7) but has remained negative for five consecutive months. The percentage of firms reporting decreases in employment (20 percent) exceeded the percentage reporting increases (13 percent). Firms also indicated fewer hours worked: The average workweek index was virtually unchanged but posted its eighth consecutive negative reading.

Current and Future Business Activity



Don't Blame Sandy

It's tough to pin this all on Hurricane Sandy although many will try.



New York Manufacturing in Contraction Fourth Month

The Federal Reserve Bank of New York Empire State Manufacturing Survey shows manufacturing declines at modest pace.

The November 2012 Empire State Manufacturing Survey indicates that conditions for New York manufacturers declined at a modest pace. The general business conditions index was negative for a fourth consecutive month, but was little changed at -5.2. The new orders index rose above zero for the first time since June, although it was only slightly positive at 3.1.

Labor market conditions were noticeably weaker. The index for number of employees
fell fourteen points to -14.6, a sharp drop to its lowest level since 2009, and the average workweek index drifted down to -7.9.

In a series of supplementary questions, firms were asked about the extent to which their businesses were affected by the “superstorm” Sandy. Among firms based in upstate New York, only 21 percent reported any loss of activity due to the storm—and in most cases, for no more than one day.

Business Conditions Decline Modestly

The general business conditions index was little changed in November and, at -5.2, suggested that activity for New York manufacturers continued to decline at a modest pace. Nineteen percent of respondents reported that conditions had improved over the past month, while 24 percent reported that conditions had worsened.

NY Fed Business Conditions



Expansion Slows in Dallas Region

The Dallas Fed Texas Manufacturing Survey shows manufacturing activity expands at a slower pace.

Texas factory activity increased in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, dipped from 10 to 7.9, indicating slightly slower growth.

Most other measures of current manufacturing activity also suggested growth in October, although new orders declined. The capacity utilization index edged up from 9.3 to 11.4, with more than one-quarter of manufacturers noting an increase. The shipments index held steady at 4.7, suggesting shipments rose at about the same pace as in September. The new orders index fell from 5.3 to –4.5, reaching its lowest level this year and indicating a decrease in demand.

Labor market indicators reflected slow but steady labor demand growth and shrinking workweeks. The employment index was 5.2 in October, largely unchanged from last month but well below the higher levels seen earlier in the year. About 15 percent of firms reported hiring new workers, while 10 percent reported layoffs. The hours worked index fell back into negative territory with a reading of –5.9, down from 2.8 in September.

While not outright horrid, the regional manufacturing surveys show renewed weakness that is tough to pin on Hurricane Sandy. I expect conditions to deteriorate further.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

5 million jobs and counting

The economy has generated about 5 million new jobs since early 2010. The pace of jobs growth has been disappointing, but it has been relatively steady. More importantly—since the market is still very fearful of another recession—there are no signs here of any emerging weakness. Private sector jobs growth is decent, but not strong enough to result in any meaningful decline in the unemployment rate, which remains high. 

This chart shows the total number of jobs according to the Establishment and the Household Surveys. Both are showing a net gain of about 5 million jobs since early 2010. That works out to a little over 150,000 jobs per month on average.

This chart of the labor force (those who are working plus those who are looking for work) shows that it tends to grow about 1% per year. One salient feature of the current recovery is the lack of growth in the labor force—the result of approximately 7 million people apparently deciding to "give up" looking for a job. However, in the past year the labor force has resumed its trend growth rate of 1% per year and has reached a new high. On the margin this is a modest positive, since it reflects increased optimism and a more dynamic workforce.

If the 7 million people who have given up looking for work should decide to get back in the hunt, the unemployment rate would jump to something like 12%. Most of the decline in the unemployment rate during this recovery is due to the unprecedented number of people who have dropped out of the labor force.

This chart shows only private sector employment, by excluding the 20-22 million people who are employed by various levels of the public sector. Note how much more volatile the household survey is. On average, both surveys are saying the same thing, and they are consistent with an economy that is growing at a 2-3% pace. That growth rate can be decomposed into 1.5-2% jobs growth and 1% productivity growth. Nothing to write home about, but neither is it something to disparage.

This chart compares private sector to public sector jobs. This recovery has seen a substantial decline in public sector jobs (about 600K), but the declining trend appears to have stalled. Public sector jobs are flat year to date. This suggests that state and local governments have managed to bring their expenses more into line with their revenues, and that is another positive change on the margin.

Construction spending still weak, but improving

Construction spending in September was up 0.6%, and in line with expectations. As these charts show, construction spending on both nonresidential and residential structures is up 14% from last year's low. After years of a disastrous decline, construction is now expanding faster than the overall economy. The sector is still very weak, but on the margin things are getting better.

Layoff activity remains relatively low

New claims for unemployment have been relatively flat this year, down about 8% or so from year-ago levels. This is consistent with continued, albeit sluggish, economic growth. The Challenger tally of announced corporate layoffs (second chart above) tells a similar story. Nothing much happening here, but at least there's no sign of any deterioration in the economy.

If there is one bright spot in the labor market, it is the ongoing decline in the number of persons receiving unemployment insurance: 20% fewer people today (1.3 million) are receiving unemployment checks than were a year ago. This motivates people to find and accept a new job, even one paying less than they would have liked. In a slow-growing economy, this is unfortunately the only way that excess labor can be absorbed: the price of labor has to decline. Extended unemployment insurance payments only serve to slow that process.

ADP employment report only modestly positive

ADP has revised its methodology, and this appears to have improved the ability of its estimate of private sector jobs growth to predict the BLS establishment survey of jobs growth. This suggests that tomorrow's private sector jobs number could be modestly higher than expected (158K vs. 124K).

The first chart above is from last month (September data), before ADP changed its reporting and forecasting methodology. The second chart uses the new and revised data through October. To my eye, the new ADP series more closely tracks the BLS data, especially in the past year or so. If this holds up, then it means that tomorrow's jobs report should be somewhat better than expected. Even so, jobs growth of 160K is only enough to absorb new entrants to the labor market, and far short of what it would take to bring about a meaningful reduction in the unemployment rate. So I wouldn't expect another decline in the unemployment rate, and I note that expectations call for it to rise from last month's 7.8% to 7.9%.

The outlook for economic growth remains uninspiring, but the good news is that there is no sign of deterioration. But since the market remains braced for bad news, this dull news ends up being good news.

Manufacturing doesn't deteriorate, and that is the good news

The ISM manufacturing report came in slightly better than expectations, but remains lackluster. 

As the chart above suggests, the ISM manufacturing index is consistent with real GDP growth of 2 or maybe 3%. It's steady as she goes, and she isn't going very fast. Nothing new to see here.

Export orders continue to show some weakness, which is not surprising given the struggles in the Eurozone and the slowdown in China that have been widely remarked. Still, the recent readings are not weak enough to point to any serious problems, and the latest news from China—where the purchasing managers' index has been around 50 for the past several months—suggests that the slowdown has not worsened.

The prices paid index points to mild inflation pressures, nothing unusual.

The employment index has been only mildly positive for the past year. This suggests that manufacturing is not likely to pick up meaningfully nor deteriorate in coming months.

Add it all up, and it looks like the producers and risk-takers of the world have pulled in their horns in an attempt to brace for the uncertainty of the looming fiscal cliff. As a supply-sider I strongly reject the notion that the problem we have today is one of insufficient demand. On the contrary, the problem is insufficient "supply:" a dearth of new investment, risk-taking and work. Those are the things that create new jobs, and new jobs are the things that result in increased demand.

These facts do not paint a rosy picture of the future, but neither do they point to any meaningful deterioration on the margin. And that is the good news, since the market remains braced for bad news. 10-yr Treasury yields of 1.7% only make sense in a world where markets hold out very little hope for meaningful growth and indeed fear that another recession is practically unavoidable. As long as the economy avoids a recession, risk assets are going to continue to rise, albeit slowly.