Wednesday, December 07, 2016

Annual Employment Gains some early thoughts on 2017

by Bill McBride on 12/07/2016 03:00:00 PM

I'm starting to look at my 10 economic questions for 2017 (something I do every year).

Last year I thought the unemployment rate would be 4.5% in December 2016 (the rate fell to 4.6% in November), and that the economy would add around 200,000 jobs per month (down from 2014 and 2015). Through November, the economy has averaged 180,000 per month in 2016.

I'll be looking at several factors for job gains in 2017 - demographics, labor force participation economic growth, fiscal policies, etc. - but my general view is the economy is solid, has room to run, however it is past the peak of the employment gains for this business cycle.  It appears the peak job gains in this cycle was  in 2014.

Annual Employment Gains Click on graph for larger image.

This graph shows the annual job gains for both private and public employment.

In the '80s, annual employment gains peaked at 3.6 million in 1984, however the employment expansion continued for five more years.

In the '90s, employment gains peaked in 1994 at 3.6 million, and gains continued for 6 more years.

In the current cycle, gains peaked at 2.9 million in 2014.

The demographics are very different than from the '80s. The prime working age population was growing very quickly in the '80s, and the prime age population started shrinking starting in 2007 (and bottomed in 2012).  So the peak year of this cycle wasn't as strong.

With current demographics, it only takes 60 to 80 thousand jobs added per month to keep the unemployment rate steady (this is far less than in the '80s or '90s).   Since we are nearing full employment, my initial guess is the economy will add fewer jobs in 2017 than in 2014 or 2015.

I'll post my Ten Questions for 2017 and some guesses for 2017 in a few weeks.

Las Vegas Real Estate in November: Sales up 30% YoY, Inventory down Sharply

by Bill McBride on 12/07/2016 11:49:00 AM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Southern Nevada Home Prices and Sales Increasing Heading into Holidays, GLVAR Housing Statistics for November 2016

The Greater Las Vegas Association of REALTORS® (GLVAR) reported Wednesday that Southern Nevada home prices bucked seasonal trends and increased heading into the holidays while home sales continued to exceed last year’s pace.
According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in November was 3,244. That was up 30.0 percent from one year ago. Compared to the same month one year ago, 31.8 percent more homes, and 31.2 percent more condos and townhomes sold in November.

So far in 2016, Beaudry said Southern Nevada is on pace to sell more existing homes this year than during 2015 and during 2014, but fewer than during each of the previous five years.

He added that inventory remains tight, with less than a three-month supply of homes available for sale, when a six-month supply is considered to be a balanced market.
By the end of November, GLVAR reported 7,252 single-family homes listed for sale without any sort of offer. That’s down 30.3 percent from one year ago. For condos and townhomes, the 1,141 properties listed without offers in November represented a 49.0 percent decrease from one year ago.
emphasis added
1) Overall sales were up 30% year-over-year.

2) Active inventory (single-family and condos) is down sharply from a year ago (A very sharp decline in both single family and condo inventory).

This is the second market (Phoenix reported yesterday) with sales up 30% year-over-year. There might be some seasonal factors (more selling days), but this is a significant increase in these markets.

BLS: Job Openings "little changed" in October

by Bill McBride on 12/07/2016 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings was little changed at 5.5 million on the last business day of October, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were also little changed at 5.1 million and 4.9 million, respectively....
The number of quits was little changed in October at 3.0 million. The quits rate was 2.1 percent. Over the month, the number of quits was little changed for total private, and decreased for government (-26,000).
emphasis added
The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for October, the most recent employment report was for November.

Job Openings and Labor Turnover Survey Click on graph for larger image.

Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings decreased in October to 5.534 million from 5.631 million in September.  Job openings are mostly moving sideways at a high level.

The number of job openings (yellow) are up 2% year-over-year.

Quits are up 7% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

This is another solid report.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 12/07/2016 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 0.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 2, 2016. The prior week’s results included an adjustment for the Thanksgiving holiday.

... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 0.4 percent from one week earlier. The unadjusted Purchase Index increased 36 percent compared with the previous week and was 3 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to its highest level since October 2014, 4.27 percent, from 4.23 percent, with points decreasing to 0.37 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.

The first graph shows the refinance index since 1990.

With the current level of mortgage rates, refinance activity will probably decline further.

Mortgage Purchase Index The second graph shows the MBA mortgage purchase index.

The purchase index was "3 percent higher than the same week one year ago".

Tuesday, December 06, 2016

Wednesday: Job Openings

by Bill McBride on 12/06/2016 07:30:00 PM

• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 10:00 AM, Job Openings and Labor Turnover Survey for October from the BLS. Jobs openings decreased in September to 5.486 million from 5.453 million in August. The number of job openings were up 2% year-over-year in September, and Quits were up 12% year-over-year.

• At 3:00 PM, Consumer credit from the Federal Reserve.  The consensus is for a $19.0 billion increase in credit.

Phoenix Real Estate in November: Sales up 30%, Inventory down 2%

by Bill McBride on 12/06/2016 04:44:00 PM

This is a key housing market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

Inventory was down 2% year-over-year in October.  This followed eight consecutive months with a YoY increase in inventory.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in November were up 30.2% year-over-year.

2) Cash Sales (frequently investors) were down to 23.4% of total sales.

3) Active inventory is now down 1.8% year-over-year.  

More inventory (a theme in 2014) - and less investor buying - suggested price increases would slow sharply in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

In 2015, with falling inventory, prices increased a little faster -  Prices were up 6.3% in 2015 according to Case-Shiller.

This slight decrease in inventory followed eight monthly YoY increases.  This might be a change in trend - something to watch.

November Residential Sales and Inventory, Greater Phoenix Area, ARMLS
1 November 2008 probably includes pending listings

EIA: "Retail gasoline prices are forecast to average $2.30/gal in 2017"

by Bill McBride on 12/06/2016 01:43:00 PM

The EIA released the Short-Term Energy Outlook today. From the STEO:

• U.S. crude oil production averaged 9.4 million barrels per day (b/d) in 2015, and it is forecast to average 8.9 million b/d in 2016 and 8.8 million b/d in 2017.

EIA forecasts Brent crude oil prices to average $43 per barrel (b) in 2016 and $52/b in 2017. West Texas Intermediate (WTI) crude oil prices are forecast to average about $1/b less than Brent prices in 2017. The values of futures and options contracts indicate significant uncertainty in the price outlook. The NYMEX contract values for March 2017 delivery traded during the five-day period ending December 1 suggest that a range from $34/b to $71/b encompasses the market expectation of WTI prices in March 2017 at the 95% confidence level.

• Lower crude oil prices contributed to U.S. average retail regular gasoline prices in November averaging $2.18 per gallon (gal), a decline of 7 cents/gal from the October level. EIA expects gasoline prices to fall to an average of $2.10/gal in January. Retail gasoline prices are forecast to average $2.14/gal in 2016 and $2.30/gal in 2017.

• Global oil inventory builds are forecast to average 0.7 million b/d in 2016 and 0.4 million b/d in 2017.
emphasis added
WTI is currently at $50.69 per barrel, and Brent at $53.86 per barrel. So the EIA isn't expecting any further increase in 2017 (on average).

CoreLogic: House Prices up 6.7% Year-over-year in October

by Bill McBride on 12/06/2016 10:30:00 AM

Notes: This CoreLogic House Price Index report is for October. The recent Case-Shiller index release was for September. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic US Home Price Report Shows Prices Up 6.7 Percent in October 2016

Home prices nationwide, including distressed sales, increased year over year by 6.7 percent in October 2016 compared with October 2015 and increased month over month by 1.1 percent in October 2016 compared with September 2016, according to the CoreLogic HPI.
“While national home prices increased 6.7 percent, only nine states had home price growth at the same rate of growth or higher than the national average because the largest states, such as Texas, Florida and California, are experiencing high rates of home price appreciation,” said Dr. Frank Nothaft, chief economist for CoreLogic.

“Home prices are continuing to soar across much of the U.S. led by major metro areas such as Boston, Los Angeles, Miami and Denver. Prices are being fueled by a potent cocktail of high demand, low inventories and historically low interest rates,” said Anand Nallathambi, president and CEO of CoreLogic. “Looking forward to next year, nationwide home prices are expected to climb another 5 percent in many parts of the country to levels approaching the pre-recession peak.”
emphasis added
CoreLogic House Price Index Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 1.1% in October (NSA), and is up 6.7% over the last year.

This index is not seasonally adjusted, and this was another solid month-to-month increase.

The index is still 4.6% below the bubble peak in nominal terms (not inflation adjusted).

CoreLogic YoY House Price IndexThe second graph shows the YoY change in nominal terms (not adjusted for inflation).

The YoY increase had been moving sideways over the last two years.

The year-over-year comparison has been positive for fifty seven consecutive months since turning positive year-over-year in February 2012.

Trade Deficit at $42.6 Billion in October

by Bill McBride on 12/06/2016 08:42:00 AM

From the Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $42.6 billion in October, up $6.4 billion from $36.2 billion in September, revised. October exports were $186.4 billion, $3.4 billion less than September exports. October imports were $229.0 billion, $3.0 billion more than September imports.
The trade deficit was close to the consensus forecast.

The first graph shows the monthly U.S. exports and imports in dollars through October 2016.

U.S. Trade Exports Imports Click on graph for larger image.

Imports increased and exports decreased in October.

Exports are 13% above the pre-recession peak and up slightly compared to October 2015; imports are up 1% compared to October 2015. 

It appears trade might be picking up a little.

The second graph shows the U.S. trade deficit, with and without petroleum.

U.S. Trade Deficit The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil imports averaged $40.01 in October, up from $39.02 in September, and down from $40.12 in October 2015.  The petroleum deficit has generally been declining  (but has increased recently with the decline in oil prices) and is the major reason the overall deficit has declined a little since early 2012.

The trade deficit with China decreased to $31.1 billion in October, from $32.9 billion in October 2015. The deficit with China is a substantial portion of the overall deficit, but the deficit with China has been declining.

Monday, December 05, 2016

Tuesday: Trade Deficit

by Bill McBride on 12/05/2016 07:19:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Begin Week Higher

Mortgage rates were slightly higher today relative to last Friday's levels, leaving them near the 2-year highs seen last Thursday. Volatility continues to run much higher than normal, with lots of intraday reprices (lenders changing rates in the middle of the business day) over the past 2 weeks, and generally big changes from day to day.
Most lenders are quoting conventional 30yr fixed rates between 4.125 and 4.25% on top tier scenarios.
emphasis added
• At 8:30 AM ET, Trade Balance report for October from the Census Bureau. The consensus is for the U.S. trade deficit to be at $42.0 billion in October from $36.4 billion in September.

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for October. The consensus is a 2.7% increase in orders.