Sunday, July 04, 2010

Weekly Summary and a Look Ahead

by Bill McBride on 7/04/2010 11:45:00 AM

This will be a light week for US economic data. The US stock markets will be closed on Monday to observe Independence Day.

Sometime this week, Reis will release the Q2 mall, office and apartment vacancy rates. In Q1, Reis reported the strip mall vacancy rate hit 10.8% (highest since 1991), the apartment vacancy rate was at a record 8% (large cities only), and the office vacancy rate rose to rose to 17.2% (highest since the early '90s).

On Tuesday, the June ISM non-manufacturing report will be released. Consensus is for a decrease to 55.0 from 55.4 in the service sector.

On Wednesday, the MBA will release the mortgage purchase applications index. This has been falling sharply after the expiration of the home buyer tax credit. Also on Wednesday, Minneapolis Fed President Narayan Kocherlakota will speak at the Université de Montréal at 3:30 PM ET (Society for Economic Dynamics).

On Thursday, the initial weekly unemployment claims will be released. Consensus is for a decline to 465K from 472K last week. Also on Thursday, the Fed will release Consumer Credit for May at 3 PM ET. Consumer credit has declined sharply since mid-2008, especially revolving debt (credit cards).

Also on Thursday, at 6 PM ET, Professor Robert Hall, the current Chairman of NBER, will speak at the Society for Economic Dynamics: “Reconsidering the Basic Tenets of Macroeconomics in the Light of the Past Two Years”. He might be asked about the possibility of a “double dip” recession.

On Friday the Census Bureau will release Wholesale Inventories for May, and the FDIC will probably get back to work ...

A couple of posts on the 2nd half:

  • 2nd Half: Slowdown or Double-Dip?

  • Recession Dating and a "Double Dip". A discussion of recession dating issues.

    And a summary of last week:

  • June Employment Report: 100K Jobs ex-Census, 9.5% Unemployment Rate

    1) Total nonfarm payroll employment declined by 125,000 in June

    2) Census 2010 hiring decreased 225,000 in June.

    3) So non-farm payroll employment increased 100,000 in June ex-Census. Private-sector payroll employment increased by 83,000.

    4) The unemployment rate declined down to 9.5 percent as the participation rate fell (workers leaving the workforce pushed down the unemployment rate).

    5) Average hourly wages and average hours worked decreased.

    Overall this was a weak report. Here are a few graphs ...

    Percent Job Losses During Recessions, aligned at Bottom

    Percent Job Losses During RecessionsClick on graph for larger image.

    This graph shows the job losses from the start of the employment recession, in percentage terms - aligned at the bottom of the recession.

    The dotted line shows the impact of Census hiring. In June, there were 339,000 temporary 2010 Census workers on the payroll. The number of Census workers will continue to decline - and the gap between the solid and dashed red lines will be mostly closed in three or four months.

    Employment-Population Ratio

    The Employment-Population ratio decreased to 58.5% in June from 58.7% in May. This had been increasing after plunging since the start of the recession, and the recovery in the Employment-Population ratio was considered a good sign - but the ratio has now decreased for two consecutive months.

    Employment Population Ratio This graph shows the employment-population ratio; this is the ratio of employed Americans to the adult population.

    Note: the graph doesn't start at zero to better show the change.

    Also the Labor Force Participation Rate decreased to 64.7% in June from 65.0% in May. This is the percentage of the working age population in the labor force. This decline is very disappointing, and the rate is well below the 66% to 67% rate that was normal over the last 20 years.

    The reason the unemployment rate declined was because people left the workforce - and that is not good news. As the employment picture improves, people will return to the labor force, and that will put upward pressure on the unemployment rate.

    Part Time for Economic Reasons

    Part Time WorkersThe number of workers only able to find part time jobs (or have had their hours cut for economic reasons) was at 8.63 million in June. This was a slight decline from May - and was a little bit of good news.

    The all time record of 9.24 million was set in October.

    These workers are included in the alternate measure of labor underutilization (U-6) that was at 16.5% in June.

    Unemployed over 26 Weeks

    Unemployed Over 26 Weeks The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

    According to the BLS, there are 6.751 million workers who have been unemployed for more than 26 weeks and still want a job. This is a record 4.39% of the civilian workforce. (note: records started in 1948). It does appear the increases are slowing ...

  • U.S. Light Vehicle Sales 11.1 Million SAAR in June

    Vehicle Sales Based on an estimate from Autodata Corp, light vehicle sales were at a 11.08 million SAAR in June. That is up 14% from June 2009 (when sales were very low), and down 4.6% from the May sales rate.

    This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for June (red, light vehicle sales of 11.08 million SAAR from Autodata Corp).

    This was below most forecasts of around 11.4 million SAAR.

  • Case-Shiller: House Prices increased in April due to tax credit

    S&P/Case-Shiller released the monthly Home Price Indices for April (actually a 3 month average).

    Case-Shiller House Prices Indices This graph shows the nominal not seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

    The Composite 10 index is off 29.7% from the peak, and up 0.3% in April (SA).

    The Composite 20 index is off 29.0% from the peak, and up 0.4% in April (SA).

    The next graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

    Case-Shiller Price Declines Prices increased (SA) in 17 of the 20 Case-Shiller cities in April (SA).

    Prices in Las Vegas are off 55.9% from the peak, and prices in Dallas only off 5.2% from the peak.

    Case Shiller is reporting on the NSA data (18 cities up), and I'm using the SA data. As S&P noted, there probably was a small boost to prices from tax credit related buying, but prices will probably fall later this year.

  • Personal Income up 0.4%, Spending Increases 0.2% in May

    From the BEA: Personal Income and Outlays, April 2010

    The following graph shows real Personal Consumption Expenditures (PCE) through May (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

    Personal Consumption Expenditures The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

    Even with no growth in June, PCE growth in Q2 would be 2.5%. Even with the weak June data, it looks like my earlier estimate of 3% PCE growth in Q2 will be about right (maybe a little high).

  • Other Economic Stories ...

  • From the Conference Board: Consumer Confidence Index® Drops Sharply

  • ADP: Private Employment increased 13,000 in June

  • From the NAR: Pending Home Sales Drop

  • From the National Restaurant Association (NRA): Restaurant Industry Outlook Softened in May as Restaurant Performance Index Fell Below 100

  • From the Institute for Supply Management: ISM Mfg index shows slower expansion in June

  • From the Institute for Supply Management – Chicago: Chicago PMI shows expansion in June

  • From the Census Bureau: Construction Spending declined in May

  • From the American Bankruptcy Institute: Consumer Bankruptcy Filings up 14 percent through First Half of 2010

  • From the Chicago Fed: Index shows economic activity continued to expand in May

  • A table summary of Housing Supply Metrics

  • Unofficial Problem Bank List at 798 Institutions

    Best wishes to all.