by Bill McBride on 12/05/2013 06:57:00 PM
Thursday, December 05, 2013
A couple more employment previews, first from David Mericle at Goldman Sachs:
We expect a 175k gain in both nonfarm payrolls and private payrolls in November, a bit below consensus expectations of 185k and a modest slowdown from the 204k gain seen in October. ... We expect that the unemployment rate will decline to 7.1% in November, reflecting both employment gains and the possibility that some of the decline in participation seen in October's distorted household survey will persist this month.And from Merrill Lynch:
We are looking for job growth of 175,000 in November, a slight slowdown from the 204,000 pace in October. The unemployment rate should fall to 7.2% from 7.3% while the workweek holds steady at 34.4 hours. ... Looking back at the recent history, when Thanksgiving is late in the month, there seems to be a downward bias in retail jobs in November and a reversal in December. The reverse is the case when the Thanksgiving holiday is early in the month, as it was last year. This could account for a swing of as many as 40,000 jobs. ... The household survey was distorted in the October report, leading to a sharp decline in the labor force and in the number of employed workers. This bias will be reversed in November as people returned to work after the shutdown. We therefore expect the participation rate to jump back to 63.1%, nearly returning to the September pace.Friday:
• At 8:30 AM ET, the Employment Report for November. The consensus is for an increase of 180,000 non-farm payroll jobs in November, down from the 204,000 non-farm payroll jobs added in October. The consensus is for the unemployment rate to decrease to 7.2% in November from 7.3% in October. A key will be if the participation rate increases too, reversing the sharp decline last month.
• Also at 8:30 AM, Personal Income and Outlays for October. The consensus is for a 0.3% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.1%.
• At 9:55 AM, the Reuter's/University of Michigan's Consumer sentiment index (preliminary for December). The consensus is for a reading of 75.5, up from 75.1 in November.
• At 3:00 PM, Consumer Credit for October from the Federal Reserve. The consensus is for credit to increase $15.0 billion in October.
by Bill McBride on 12/05/2013 02:05:00 PM
The BEA revised up Q3 GDP to 3.6% (from 2.8% in the advance release). The main reason for the upward revision was more investment in inventory (the contribution from "Change in private inventories" was revised up from 0.83 percentage points in the advance release to 1.68 percentage in the second release).
The change in private inventories tends to bounce around, and this will probably be a drag on Q4 GDP.
Note: The BEA provides a summary of revisions Real Gross Domestic Product and Related Measures: Percent Change From Preceding Period and Contributions to Percent Change in Real Gross Domestic Product.
Personal consumption expenditures (PCE) was revised down from a 1.5% annual rate to 1.4%, and residential investment (RI) was revised down from 14.6% to 13.0%. This is weak final demand (PCE and RI contributed 1.34 percentage point to GDP growth in Q3). This is the weakest final demand since Q2 2011.
The good news is PCE will probably increase in 2014 with most of the impact of tax increases and budget cuts ending. But Q4 2013 will probably be another weak quarter impacted by the government shutdown, a negative contribution from private inventories, and still weak final demand.
The following graph shows the contribution to GDP from residential investment, equipment and software, intellectual properties, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.
For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.
The dashed gray line is the contribution from the change in private inventories.
Click on graph for larger image.
Residential Investment (RI) made a positive contribution to GDP in Q3 for the twelfth consecutive quarter. Usually residential investment leads the economy, but that didn't happen this time because of the huge overhang of existing inventory.
Now RI is contributing - a good sign going forward since RI is historically still very low.
Overall this was another weak GDP report, but it does look like GDP will pickup in 2014.
by Bill McBride on 12/05/2013 10:58:00 AM
In October I was looking for an Upside Payroll Surprise. For November, my guess is closer to the consensus forecast of 180,000 payroll jobs added. The consensus is for the unemployment rate to decrease to 7.2% in November from 7.3% in October.
The October employment report was impacted by the government shutdown, and the unemployment rate increased in October to 7.3% from 7.2% in September. Even worse, the participation rate declined sharply in October to 62.8% from 63.2% in September. One of the keys for the November report will be if those ugly October numbers are reversed.
Here is a summary of recent data:
• The ADP employment report showed an increase of 215,000 private sector payroll jobs in November. This was above expectations of 185,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month. But in general, this suggests employment growth above expectations.
• The ISM manufacturing employment index increased in November to 56.5%, from 53.2% in October. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 15,000 in November. The ADP report indicated a 18,000 increase for manufacturing jobs in November.
The ISM non-manufacturing employment index decreased in November to 52.5% from 56.2% in October. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing increased by about 140,000 in November.
Taken together, these surveys suggest around 155,000 jobs added in November - below the consensus forecast.
• Initial weekly unemployment claims averaged close to 322,000 in November. This was down sharply from an average of 358,000 in October, but up from the 305,000 average in September. However there were some computer problems in California, and claims in October were probably too high, and claims in September were probably too low.
This was below the level in August (when the BLS reported 238,000 payroll jobs added), and far below the level of November 2012 when the BLS reported 247,000 jobs added (after revisions). This suggests fewer layoffs, and possibly more net payroll jobs added than the consensus forecast.
• The final November Reuters / University of Michigan consumer sentiment index increased to 75.1 from the October reading of 73.2. This is frequently coincident with changes in the labor market, but in this case sentiment is recovering from the government shutdown.
• The small business index from Intuit showed a 10,000 increase in small business employment in November. This is the largest increase in this index since May and June, and suggests a pickup in small business hiring.
• Conclusion: As usual the data was mixed. The ADP report was higher in November than in October, however the ISM surveys suggest a slower increase in payrolls. Weekly claims for the reference week were at the lowest level this year excluding September when there were computer issues (the reference week includes the 12th of the month), and consumer sentiment increased (recovering from government shutdown). Also the Intuit small business index showed a pickup in hiring.
There is always some randomness to the employment report. My guess is the report will be close to the consensus forecast of 180,000 nonfarm payrolls jobs added in November.
by Bill McBride on 12/05/2013 08:39:00 AM
The BEA reports:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.6 percent in the third quarter of 2013 (that is, from the second quarter to the third quarter), according to the "second" estimate released by the Bureau of Economic Analysis. ... The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.8 percentThe DOL reports:
The upward revision to the percent change in real GDP primarily reflected upward revisions to private inventory investment and to nonresidential fixed investment that were partly offset by an upward revision to imports and a downward revision to exports
In the week ending November 30, the advance figure for seasonally adjusted initial claims was 298,000, a decrease of 23,000 from the previous week's revised figure of 321,000. The 4-week moving average was 322,250, a decrease of 10,750 from the previous week's revised average of 333,000.The previous week was up from 316,000.
The following graph shows the 4-week moving average of weekly claims since January 2000.
Click on graph for larger image.
The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 322,250.
The level of weekly claims suggests an improving labor market.
Wednesday, December 04, 2013
by Bill McBride on 12/04/2013 09:05:00 PM
On the MBA Purchase Index: This morning I mentioned a WSJ article Smaller Mortgage Lenders Lead Field. This suggests that the MBA Purchase Index might be understating purchase activity if smaller lenders (not in the survey) are gaining share. MBA's Mike Fratantoni told me today:
[I]n the last couple of years ... independent mortgage bankers have accounted for a fast growing share of the purchase market ... We have actively recruited independents and smaller banks to get better coverage of the purchase market. ... It is likely that many of the lenders not in the survey have a higher purchase share and lower refi share.It appears these small independent lenders are focusing on the purchase market (probably marketing through real estate agents - and selling the loans to Fannie and Freddie). A result of this change in market share is the Purchase Index is probably understating the increase in purchase activity.
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 322 thousand from 316 thousand last week.
• Also at 8:30 AM, the is the second estimate of Q3 GDP from the BEA. The consensus is that real GDP increased 3.1% annualized in Q3, revised up from the advance estimate of 2.8%.
• At 10:00 AM, the Manufacturers' Shipments, Inventories and Orders (Factory Orders) for October. The consensus is for a 1.2% decrease in October orders.