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THE LATEST ANALYTICS The Case-Shiller Index and Employment: A Closer Look Consumers Stay Conservative as P billion in the month, according to the Labor Department. The increase in income—0.5 percent—topped expectations of a 0.4 percent boost, but the 0.01 percent decline in spending fell short of the 0.1 percent increase economists had expected. The numbers were consistent ersonal income rose $61.8 billion in June but consumers held on to it as personal spending fell $1.3 Our Five Star Institute economist, Mark Lieberman, on the trends recorded in Case- Shiller's most recent Home Price Index. W Personal Income Soars Summer statistics indicate that rising income levels around the U.S. aren't prompting consumer activity. payments fell $.7 billion in May, the sixth straight month-over- month decline—reflecting congres- sionally mandated reductions. The drop in personal con- sumption came primarily in spending on non-durable goods, which dropped $14.6 billion, while spending on durable goods—often a sign of consumer confidence—fell $1.3 billion. Spending on services rose $14.6 with a recent report of tepid gross domestic product growth for the second quarter. Disposable per- sonal income—essentially after-tax income—rose $52.4 billion in June. Personal savings as a percentage hile the month-over-month Case-Shiller Home Price Index shot up in May—a record-high increase (2.2 percent) in the 20-city index and a near-record (2.2 percent increase) in the narrower 10-city index—it also suggested employ- ment has less to do with the change in home prices than might otherwise have been thought. A comparison of the year-to- year and month-to-month change in unemployment rates in the cities that make up the Case-Shiller database showed little relationship with the price changes. New York was the only one of the 20 cities in the Case-Shiller survey to see its unemployment rate increase from May 2011 to May 2012, the period of the latest Case-Shiller survey. The index value of home prices in New York City dropped 2.8 percent in that same 12-month period. The city that recorded the great- billion. The month-over-month drop in spending on goods was the third consecutive period of declines. The Personal Consumption counted for more than half the increase in income, improv- ing $32.6 billion in June after increasing just $8.9 billion in May. Unemployment insurance 64 | THE M REPORT of disposable (after tax) income rose to 4.4 percent in June from 4 percent in May. With continuing low interest rates, personal interest payments (non-mortgage interest) fell to $169.3 billion in June from $173 billion in May. Wages and salaries ac- Expenditure (PCE) Price Index—of- ten considered the Federal Reserve's favored measure of inflation—rose 0.1 percent in June but remained at 1.5 percent above its year-ago level. In April, the year-over-year increase was 1.9 percent. Meanwhile, the Core PCE Index—excluding food and energy—rose 0.2 percent in June and was up 1.8 percent in the last year, compared with a 0.1 percent increase in May producing a 1.8 percent year-over-year increase. The core inflation rate in April was 1.9 percent. est price index drop—Atlanta, 14.5 percent—also saw a 0.8 percent de- cline in its unemployment rate, albeit to a higher-than-national 11 percent. The other six cities that saw price index declines in from May 2011 to May 2012—Boston, Chicago, Cleveland, Las Vegas, Los Angeles, and San Diego—all saw an improvement in their unemployment rates of 0.9 percent- age points (San Diego, Cleveland) to 1.7 percentage points (Chicago). The cities with the slower im- provements in unemployment rates— less than 1 percentage point—(Denver, Charlotte, and Portland) all saw price index improvements from May 2011 to May 2012: Denver, 3.7 percent; Charlotte, 0.9 percent; and Portland, 0.4 percent. Phoenix saw the greatest price index gain in the 12-month period, 11.5 percent, while its unemployment rate fell 1 percent to 7.3 percent (com- pared with 8.2 percent nationally). Month-over-month data are simi- larly inconclusive. The four cities with the greatest improvement in their price index from April to May—Chicago (4.5 percent), Atlanta (4 percent), San Francisco (3.9 percent), and Minneapolis (3.1 per- cent)—saw inconsistent change in local unemployment rates down 0.3 percent- age points in Chicago and Minneapolis (to 9.8 percent and 5.3 percent, respectively), up 0.3 percentage points in Atlanta (to 11 percent) and no change in San Francisco (at 7.4 percent). The city with the greatest improvement in its unemployment rate in May was Detroit, which saw a jobless rate drop by 1.9 percentage points to a still-staggering 17.7 per- cent. The home price index still rose 0.4 percent—the slowest gain of all the cities in the Case-Shiller survey. Indeed, the jobless rate fell in only two other survey cities: Chicago and Minneapolis. The unemployment rate jumped by 0.8 percent in New York dur- ing May—high among the 20 cities surveyed—but the price index gained 1.4 percent. Seattle trailed New York with an increase of 0.7 percentage points in unemployment during May, with the city's rate reacing 6.4 percent. The unemployment rate, to be sure, is an imprecise measure since it excludes individuals out of work but not looking or available for work. A better measure might be em- ployment since employed individuals are more likely to look for a home and qualify for a mortgage, driving prices up with improved demand. Four cities in the survey group saw a drop in employment in May— Charlotte, Cleveland, Detroit, and Washington, D.C.—yet all four cities saw an increase in price index values in the month. Year-over-year, only two cities— Detroit and New York—saw employ- ment levels dip, while price index values went up in Detroit and down in New York. SECONDARY MARKET ANALYTICS SERVICING ORIGINATION