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Tuesday, January 03, 2012

Construction Spending increased in November

by Calculated Risk on 1/03/2012 11:39:00 AM

Catching up ... This morning the Census Bureau reported that overall construction spending increased in November:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during November 2011 was estimated at a seasonally adjusted annual rate of $807.1 billion, 1.2 percent (±1.6%)* above the revised October estimate of $797.4 billion. The November figure is 0.5 percent (±1.9%)* above the November 2010 estimate of $803.0 billion.
Private construction spending increased in November:
Spending on private construction was at a seasonally adjusted annual rate of $522.3 billion, 1.0 percent (±1.0%)* above the revised October estimate of $517.3 billion. Residential construction was at a seasonally adjusted annual rate of $243.7 billion in November, 2.0 percent (±1.3%) above the revised October estimate of $238.9 billion. Nonresidential construction was at a seasonally adjusted annual rate of $278.6 billion in November, nearly the same as (±1.0%)* the revised October estimate of $278.5 billion.
Private Construction Spending Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 64% below the peak in early 2006, and non-residential spending is 33% below the peak in January 2008.

Public construction spending is now 12% below the peak in March 2009.

Private Construction SpendingThe second graph shows the year-over-year change in construction spending.

On a year-over-year basis, both private residential and non-residential construction spending have turned positive, but public spending is now falling on a year-over-year basis as the stimulus spending ends. The year-over-year improvements in private non-residential are mostly due to energy spending (power and electric).

Earlier:
ISM Manufacturing index indicates faster expansion in December

ISM Manufacturing index indicates faster expansion in December

by Calculated Risk on 1/03/2012 10:00:00 AM

PMI was at 53.9% in December, up from 52.7% in November. The employment index was at 55.1%, up from 51.8%, and new orders index was at 57.6%, up from 56.7%.

From the Institute for Supply Management: December 2011 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in December for the 29th consecutive month, and the overall economy grew for the 31st consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 53.9 percent, an increase of 1.2 percentage points from November's reading of 52.7 percent, indicating expansion in the manufacturing sector for the 29th consecutive month. The New Orders Index increased 0.9 percentage point from November to 57.6 percent, reflecting the third consecutive month of growth after three months of contraction. Prices of raw materials continued to decrease for the third consecutive month, with the Prices Index registering 47.5 percent, which is 2.5 percentage points higher than the November reading of 45 percent. Manufacturing is finishing out the year on a positive note, with new orders, production and employment all growing in December at faster rates than in November, and with an optimistic view toward the beginning of 2012 as reflected by the panel in this month's survey."
ISM PMIClick on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 53.2%, and suggests manufacturing expanded at a faster rate in December than in November. It appears manufacturing employment expanded in December with the employment index at 55.1%. New orders were up, and prices declined.

A few key dates for Europe

by Calculated Risk on 1/03/2012 08:51:00 AM

Via Bloomberg (ht Mike_in_Long Island)

Jan 6th: Euro-region November unemployment from Eurostat.
Jan 9th: German Chancellor Angela Merkel and French President Nicolas Sarkozy meet in Berlin.
Jan 24th: EU finance ministers meet in Brussels.
Jan 30th: European Union leaders meet in Brussels on debt crisis.

Feb 9th: ECB holds rate meeting.
Feb 19th: Proposed date for Greek general election.
Feb 20th: Euro-area finance ministers meet in Brussels.
Feb 29th to March 1st: Italy redeems 46.5 billion euros of bonds.

March 1st and 2nd: EU leaders meet in Brussels.
March 8th: ECB holds rate meeting
March 12th: Euro-area finance ministers meet in Brussels
March 20th: Greece redeems 14.4 billion euros of bonds.
March 30th: Euro-area finance ministers meet in Copenhagen.

April 22nd: France holds a presidential election.

Monday, January 02, 2012

Question #8 for 2012: Europe and the Euro

by Calculated Risk on 1/02/2012 09:40:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2012. I'll try to add some thoughts, and maybe some predictions for each question.

I've been stuck on #8, probably because I'm suffering from European crisis fatigue. It is very disturbing when a key policymaker like German Finance Minister Wolfgang Schaeuble says "This is not a euro crisis, it is a debt crisis in some euro states". Not only is that incorrect, but it is a reminder that the current policy is all stick and no carrot. Where is the growth agenda? The current path of endless austerity, slow wage deflation, and high unemployment in several countries seems politically unsustainable. Much of Europe is probably already in recession, and it could get much worse.

It seems only a serious event, what many analysts are calling a "Lehman moment", will shock policymakers into more effective action. But maybe that is too pessimistic. There has been some discussion of a "roadmap" for the issuance of eurobonds (this will probably be discussed on January 9th). And apparently a growth agenda will be discussed at the next summit meeting on January 30th. That sounds like small carrots. A little more inflation would help with adjustments too, but no policymaker will say that openly.

A key short term issue is the haircuts for private creditors of Greek debt. This is expected to be resolved very soon. No agreement probably means default, and possibly an exit from the euro. So I expect an agreement to be reached at the last minute.

And all year there will be significant bond auctions for Italy, Spain, Belgium and France. More market stress is guaranteed.

Here is what I wrote a year ago:

I think:
• The euro will somehow survive another year without losing any countries.
• The next blowup will be in the first couple of months. ...
• There are two main channels that could impact the U.S. economy: trade, and financial spillover / credit tightening. The impact on trade will probably be minimal, even if the euro falls sharply against the dollar (a small percentage of U.S. GDP is from exports to Europe). The financial channel is much more of an unknown, and there is significant downside risk.
If the Greek debt deal is reached, and some sort of carrot (growth agenda, eurobond roadmap) is offered to the suffering countries, maybe Europe and the euro will make it through 2012. So once again my guess is the euro will survive another year without losing any countries (Assuming a Greek debt deal). There will be plenty of blowups along the way, but I think the impact on the US economy will be fairly minimal.

There is a strong commitment by policymakers to the euro, but at some point, without some perceived carrots, the political consensus will eventually disintegrate, and Europe will come apart. Then the impact on the US would be significant.

Earlier:
Question #10 for 2012: Monetary Policy
Question #9 for 2012: Inflation

Misc: Only one office building under construction in Inland Empire, Vegas sees an increase in visitors

by Calculated Risk on 1/02/2012 03:58:00 PM

Two unrelated stories:

• From an LA Times story on commercial real estate:

One of Riverside's oldest law firms ... has agreed to rent 35,000 square feet in the Citrus Tower office building being built there.

The domed, six-story tower at 3390 University Ave. is the only office building under construction in Riverside and San Bernardino counties, according to Lee & Associates. ... Citrus Tower is expected to be complete by April.
So I guess, as of April, there will be no office buildings under construction in the Inland Empire. The good news is office construction can't fall much further than zero!

• During the recession, Las Vegas visitor traffic declined, and convention attendance declined sharply. Here is an update ...

Las Vegas Visitors Click on graph for larger image.

According to data from the Las Vegas Convention and Visitors Authority, visitor traffic is almost at the pre-recession peak of just over 39 million, but convention attendance is still very low (estimated using traffic through October). Convention attendance really collapsed (off 24%) in 2009, declined slightly in 2010, and only increased about 6% in 2011.

Weekend:
Summary for Week Ending December 30th
Schedule for Week of Jan 1, 2012

Comments on the Housing Vacancies and Homeownership Survey

by Calculated Risk on 1/02/2012 12:15:00 PM

This morning Dean Baker wrote about the Housing Vacancies and Homeownership Survey: Robert Samuelson Oversells the Case for Economic Optimism (ht Joe)

[W]e are still far from making up for the overbuilding of the bubble years as indicated by the fact that the vacancy rate remains at near record levels.

(There have been some questions raised about the accuracy of the Census Department's data, claiming that it overstates the number of housing units in the country. Those raising the issue fail to note that measures of housing starts do not include housing units that were created by conversion of commercial or industrial property, such as an old warehouse being turned into condos. The rehabilitation of dilapidated units would also not be included in housing start numbers. There were many cases of both ways of adding to the housing stock during the bubble years. Also, it is important to note that the Census data is giving the percentage of units that are vacant. The critics of this measure must show how the Census methodology would lead it to overstate the share of units that are vacant.)
First, the main criticism of the HVS is it doesn't match the decennial Census results. The Census Bureau has acknowledged this and promised to investigate the differences. Here are some recent comments from the Census Bureau:
The most recent research has shown that the CPS/HVS and the 2010 census produced significant differences for vacancy characteristics. The rental vacancy rate from the April 2010 census was 9.2 percent, whereas the CPS/HVS reported the rental vacancy rate of 10.6 percent for the first half of 2010. The April 2010 census had a homeowner vacancy rate of 2.4 percent, while the CPS/HVS had a vacancy rate of approximately 2.6 percent for the first half of 2010. For occupied housing, the April 2010 census produced a homeownership rate of 65.1 percent, while for the first half of 2010, the CPS/HVS produced a rate of 67.0 percent.
It is important to note that the HVS is benchmarked to the decennial Census, so the most recent vintage for housing inventory was benchmarked to the 2010 Census. So clearly the Census Bureau thinks that is a better estimate of the total housing inventory.

Although the HVS is probably useful in showing the trends for the vacancy and homeownership rates, I wouldn't rely on the absolute numbers - and I look forward to the investigation by the Census Bureau on the differences. Unfortunately this report is commonly used by analysts to estimate the excess vacant supply for housing, but - because the vacancy rates do not match the Census data (or the much larger ACS data) - it doesn't appear to be useful for that purpose.

Here are some previous posts about some of the HVS issues by economist Tom Lawler:
Lawler to Census on Housing Data: "Splainin" Needed Not Just on Vacancy Rate
Census Bureau on Homeownership Rate: We've got “Some 'Splainin' to Do”
Be careful with the Housing Vacancies and Homeownership report
Lawler: Census 2010 and the US Homeownership Rate
Lawler: Census 2010 Demographic Profile: Highlights, Excess Housing Supply Estimate, and Comparison to HVS
Lawler: The “Excess Supply of Housing” War
Lawler: Census Releases Demographic Profile of 12 States and DC: Confirms Bias of HVS
Lawler: Census 2010 and Excess Vacant Housing Units
Lawler: On Census Housing Stock/Household Data
Lawler: Housing Vacancy Survey appears to massively overstate number of vacant housing units
Lawler: US Households: Why Researchers / Analysts are “Confused”

Europe Update

by Calculated Risk on 1/02/2012 09:01:00 AM

Europe is probably already in a new recession and the next meeting between Merkel and Sarkozy is on Jan 9th.

From the WSJ: Euro-Zone Manufacturing Activity Falls for Fifth Month

Manufacturing activity in the euro zone declined for the fifth straight month in December, although less sharply than earlier in the fourth quarter, according to a survey of purchasing managers released Monday.

The survey is consistent with other indicators of recent activity, and together the numbers suggest the euro-zone economy contracted during the final three months of the year.

Markit Economics said its Purchasing Managers Index for the sector rose to 46.9 from 46.4 in November ...
And from Bloomberg: Germany Says Greek Debt Talks Near End
Germany’s government declined to comment on a report that it may push for creditors to accept bigger losses on Greek debt than previously agreed upon, saying only that talks on lowering Greece’s debt level may end soon.

Germany is studying a proposal to write down 75 percent of Greek government bonds held by private creditors as part of a planned debt swap to ensure greater debt sustainability, Greek news website Euro2day.gr reported today ...
And the next key dates from the NY Times: Austerity Reigns Over Euro Zone as Crisis Deepens
The Continent’s economic outlook will take center stage on Jan. 9, when Mrs. Merkel and President Nicolas Sarkozy of France will discuss a new fiscal treaty intended to impose stringent budget requirements on European Union nations. Then on Jan. 30, European Union leaders will gather in Brussels to discuss ways to spur growth.
...
The first test for the Continent will come this Thursday, when France is expected to raise as much as 8 billion euros. On Jan. 12, Spain plans to auction 3 billion euros worth of euro debt, followed by Italy the next day with 9 billion euros.
Weekend:
Summary for Week Ending December 30th
Schedule for Week of Jan 1, 2012

Sunday, January 01, 2012

Merkel: 2012 "more difficult than 2011"

by Calculated Risk on 1/01/2012 06:36:00 PM

Not much of a "happy new year" in Europe ...

From the Financial Times: Europe’s leaders warn of tough 2012

... Nicolas Sarkozy, president of France, said the gravest crisis Europe has faced since the second world war “is not over” and Angela Merkel, German chancellor, told German voters “next year will no doubt be more difficult than 2011”.
excerpt with permission
More quotes from Reuters: EU Officials Begin New Year With Calls to Save the Euro

And some more unfortunate comments from German Finance Minister Wolfgang Schaeuble:
German Finance Minister Wolfgang Schaeuble called the euro "a clear success story" and pledged the currency would remain stable ... "This is not a euro crisis, it is a debt crisis in some euro states," Schaeuble told German newspaper Bild ...
Yesterday:
Summary for Week Ending December 30th
Schedule for Week of Jan 1, 2012

Some Housing Forecasts

by Calculated Risk on 1/01/2012 01:15:00 PM

One plus in 2011 was that residential investment made a small positive contribution to GDP growth for the first time since 2005 (mostly due to apartments). And construction employment probably added a few jobs in 2011, for the first time since 2006.

Now there is a growing consensus that new home sales and housing starts will increase in 2012. I think a small increase is likely, even with the large number of distressed homes, and I will be writing about the reasons soon.

Here is a forecast from Wells Fargo Friday:

"Even with continued worries about competition from foreclosure sales, we expect single-family construction to rise 7 percent in 2012. Sales of new homes should rise nearly 15 percent. Strong demand for apartments should help boost multi-family starts by at least 25 percent in 2012. Overall starts should rise to 690,000 units, which would be the best year since 2008."
From Goldman Sachs:
"We believe that housing starts have probably bottomed already, while nominal house prices are likely to bottom in the course of 2012."
And Doug Duncan at Fannie Mae is forecasting new home sales of 336 (edit) thousand in 2012.

A 15 per cent increase for new home sales would be to about 350 thousand. That would help, but it would still be third worst year since the Census Bureau started tracking new home sales in 1963. Doug Duncan's forecast of 336 thousand would be the 3rd worst year since 1963. Here are the worst years:

Worst Years for New Home Sales
RankYearSales (000s)
12011 est305
22010323
32009375
41982412
51981436

Sales were really low in 1981 and 1982, and then bounced back strongly in 1983 to 623 thousand. That will not happen this time because the dynamics are very different - interest rate had been very high in '81 and '82 and declined sharply in '83 to 13%. And there wasn't a huge backlog of distressed homes in 1983. So don't expect a huge increase for new home sales, but we might see some increase in 2012.

Yesterday:
Summary for Week Ending December 30th
Schedule for Week of Jan 1, 2012

Vehicle Miles Driven Decline: A possible contributing factor

by Calculated Risk on 1/01/2012 08:11:00 AM

Earlier this week I noted that vehicle miles driven had declined in October. Most of the decline is probably due to high gasoline prices and the sluggish economy, but reader Dave sent me this article by Lisa Hymas: Driving has lost its cool for young Americans

In 2008, just 31 percent of American 16-year-olds had their driver's licenses, down from 46 percent in 1983, according to a new study in the journal Traffic Injury Prevention. The numbers were down for 18-year-olds too, from 80 percent in 1983 to 65 percent in 2008, and the percentage of twenty- and thirtysomethings with driver's licenses fell as well. And even those with driver's licenses are trying to drive less; a new survey by car-sharing company Zipcar found that more than half of drivers under the age of 44 are making efforts to reduce the time they spend packed like lemmings into shiny metal boxes.

The decline in driving by younger Americans is fed by many factors: the high cost of gas and insurance at a time of economic insecurity; tighter restrictions on teen drivers in many states; and roads that are more congested than ever, making driving less fun than ever.

But the impact of the internet is big too. "It is possible that the availability of virtual contact through electronic means reduces the need for actual contact among young people," says Michael Sivak, research professor at the University of Michigan Transportation Research Institute and coauthor of the study on driver's licenses. "Furthermore, some young people feel that driving interferes with texting and other electronic communication."

"American youth have fallen out of love with automobiles" because of the rising cost of driving and the fact that they are "living their lives online," says Wall Street Journal auto columnist Dan Neil.
Cruising is out. Facebook is in!

Earlier:
Summary for Week Ending December 30th
Schedule for Week of Jan 1, 2012