by Calculated Risk on 11/03/2013 05:40:00 PM

Every year I track seasonal retail hiring for hints about holiday retail sales.  At the bottom of this post is a graph showing the correlation between seasonal hiring and retail sales.

First, here is the NRF forecast for this year: NRF Forecasts Marginal Sales Gains This Holiday Season

NRF expects sales in the months of November and December to marginally increase 3.9 percent to $602.1 billion, over 2012’s actual 3.5 percent holiday season sales growth. The forecast is higher than the 10-year average holiday sales growth of 3.3 percent.

According to NRF, retailers are expected to hire between 720,000 and 780,000 seasonal workers this holiday season, in line with the actual 720,500 they hired in 2012, which was a 13 percent year-over-year increase from 2011.

Note: NRF defines retail sales as including discounters, department stores, grocery stores, and specialty stores, and exclude sales at automotive dealers, gas stations, and restaurants.

Here is a graph of retail hiring for previous years based on the BLS employment report:

Click on graph for larger image.

This graph shows the historical net retail jobs added for October, November and December by year.

Retailers hired about 750 thousand seasonal workers last year (using BLS data, Not Seasonally Adjusted).  The NRF is expecting retail hiring at about the same rate this year.

The scatter graph is for the years 1993 through 2012 and compares October retail hiring with the real increase (inflation adjusted) for retail sales (Q4 over previous Q4).

In general October hiring is a pretty good indicator of seasonal sales. R-square is 0.72 for this small sample. Note: This uses retail sales in Q4, and excludes autos, gasoline and restaurants.

This suggests retailers would normally have hired around 150 thousand seasonal employees in October.  However this year, with the shutdown, this relationship might not be as useful (we might have to wait for the November data).

by Calculated Risk on 11/03/2013 09:05:00 AM

The consensus seems to be that the FOMC will wait until 2014 to start to taper QE purchases. As an example, from Michael Hanson at Merrill Lynch:

The thresholds to taper are not as high as some think, but we see a relatively low chance that the data will be strong enough to allow tapering in time for the holidays.
...
[T]he Fed needs to see the economy move toward the “tolerable twos” to taper: growth in the upper-2% range, closer to job gains of 200,000 per month, and inflation converging (even if slowly) toward the 2% target. That is a heavy burden by the December meeting, but if the post-shutdown data rebound, January remains possible — as do the next several meetings afterwards. And as we have said before, time will tell.

And analysts at Nomura have put the odds of a "taper" in December at just 15%, and they view March 2014 as the most likely meeting for the FOMC to start reducing asset purchases.

So what would it take for the FOMC to taper in December?

First we have to remember the FOMC was close to tapering in September. From the September FOMC statement:

Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.

Although not mentioned in the FOMC statement, at the September press conference Fed Chairman Ben Bernanke suggested that one of the reasons the Fed didn't taper was that they wanted to see the results of the budget negotiations.   Now those "negotiations" are behinds us (for now), and although the government shutdown was expensive and dumb, at least there wasn't any additional fiscal restraint added.

Here is what I think it would take to taper at the meeting of December 17th and 18th.

1) The unemployment rate probably increased sharply in October (due to the shutdown), but the impact of the shutdown will be reversed in the November report that will be released on Friday December 6th.  If the unemployment rate declines back to 7.2% or so in November (the September rate), then the FOMC might taper.

2) As Merrill's Hanson noted, the FOMC would probably also be looking to see employment growth close to 200,000 in the November report.   If the year-over-year change in employment is still around 2.2 million for November, the FOMC might taper.

3) The FOMC is also concerned that inflation is too low. From the October FOMC statement:

The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.

The PCE price index for October will be released on December 5th (the September PCE index will be released this week).  If PCE prices are moving back towards 2%, the FOMC might taper.  Note: CPI for November will be released on December 17th and might influence the decision.

4) On fiscal policy, the budget conference committee is scheduled to present an agreement on December 13th (just before the FOMC meeting).  The committee is expected to play "small ball", so it is possible an agreement will be reached.  If a reasonable agreement is reached (hopefully reduce the impact of the sequester in 2014), then the FOMC might be more inclined to taper.  If it appears that the House might shutdown the government again, the FOMC will be inclined to wait.

There are many key releases right at the beginning of December, and we know the Fed is "data dependent".  So here is what the FOMC would like to see to start tapering: 1) the unemployment rate fall to 7.2% in the November report, 2) Employment up about 2.2 million year-over-year in November, 3) inflation increasing toward 2% target, and 4) some sort of fiscal agreement by Dec 13th.  All possible.

by Calculated Risk on 11/02/2013 11:06:00 AM

The key reports this week are Q3 GDP on Thursday, and the October employment report on Friday. 

Other key reports include the ISM service index on Tuesday, and the October Personal Income and Outlays report on Friday.

The Fed's October Senior Loan Officer Survey will be released on Monday.

----- Monday, November 4th -----
Early: The LPS September Mortgage Monitor report. This is a monthly report of mortgage delinquencies and other mortgage data.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for both August and September. The consensus is for a 0.3% increase in August orders, and a 1.7% increase in September orders.

2:00 PM ET: The October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve.  This might show some slight loosening in lending standards.

----- Tuesday, November 5th-----
10:00 AM: ISM non-Manufacturing Index for October. The consensus is for a reading of 54.5, up slightly from 54.4 in September. Note: Above 50 indicates expansion, below 50 contraction.

10:00 AM: Trulia Price Rent Monitors for October. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

10:00 AM: Q3 Housing Vacancies and Homeownership report from the Census Bureau. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't track with other measures (like the decennial Census and the ACS).

----- Wednesday, November 6th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: Conference Board Leading Indicators for September. The consensus is for a 0.7% increase in this index.

----- Thursday, November 7th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 335 thousand from 340 thousand last week.

8:30 AM: Q3 GDP (advance estimate). This is the advance estimate of Q3 GDP from the BEA. The consensus is that real GDP increased 2.0% annualized in Q3.

3:00 PM: Consumer Credit for September from the Federal Reserve. The consensus is for credit to increase $12.0 billion in September.

----- Friday, November 8th -----
8:30 AM: Employment Report for October. The consensus is for an increase of 120,000 non-farm payroll jobs in October, down from the 148,000 non-farm payroll jobs added in September.

The consensus is for the unemployment rate to increase to 7.3% in October, although the rate could spike higher to 7.4% or 7.5% due to the government shutdown based on the BLS method.  Any sharp increase in the unemployment rate due to the shutdown should be reversed in the November report.

The following graph shows the percentage of payroll jobs lost during post WWII recessions through September.

The economy has added 7.6 million private sector jobs since employment bottomed in February 2010 (7.0 million total jobs added including all the public sector layoffs).

There are still 1.3 million fewer private sector jobs now than when the recession started in 2007.

8:30 AM ET: Personal Income and Outlays for October. The consensus is for a 0.3% increase in personal income, and for a 0.2% increase in personal spending. And for the Core PCE price index to increase 0.1%.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for November). The consensus is for a reading of 75.0, up from 73.2 in October.

by Calculated Risk on 11/02/2013 08:15:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for November 1, 2013.

Changes and comments from surferdude808:

Other than an unusual bank closing on Wednesday, the week was fairly routine for the Unofficial Problem Bank list with seven other removals. After the removals, the list holds 662 institutions with assets of $229.4 billion. A year ago, the list had 861 institutions with assets of $328.4 billion.

This Wednesday, the state of Florida and the FDIC closed Bank of Jackson County, Graceville, FL ($25 million). Apparently, the bank's board of directors had made a legal filing delaying the closing. An appeal period lapsed on Wednesday, which allowed the closing to proceed.

Actions were terminated against Hudson Valley Bank, National Association, Stamford, CT ($2.98 billion Ticker: HVB); Advantage Bank, Cambridge, OH ($756 million Ticker: CAFI); and First Community Bank, Glasgow, MT ($231 million).

Four banks found merger partners including Security Savings Bank, SSB, Southport, NC ($220 million); Diamond Bank, FSB, Schaumburg, IL ($164 million); United Commerce Bank, Bloomington, IN ($128 million); and Bank of Indiana, National Association, Dana, IN ($91 million).

There is nothing new to pass along on Capitol Bancorp, Ltd.

by Calculated Risk on 11/01/2013 09:11:00 PM

By request, here is an update on an earlier post through the September employment report.

In April, I posted two graphs comparing changes in public and private sector payrolls during the Bush and Obama presidencies. Several readers asked if I could add Presidents Reagan and Clinton (I've also added the single term of President George H.W. Bush).  Below are updates through the September report.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, so a better comparison might be to look at the percentage change, but this gives an overall view of employment changes.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s).  President George H.W. Bush only served one term, and President Obama is in the first year of his second term. 

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble.  Mr. Obama (blue) took office during the financial crisis and great recession.  There was also a significant recession in the early '80s right after Mr. Reagan (yellow) took office.

There was a recession towards the end of President G.H.W. Bush (purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

The employment recovery during Mr. G.W. Bush's (red) first term was very sluggish, and private employment was down 946,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 665,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,490,000 private sector jobs added.

Private sector employment increased by 20,864,000 under President Clinton (light blue) and 14,688,000 under President Reagan (yellow).

There were only 1,933,000 more private sector jobs at the end of Mr. Obama's first term.  At this early point in Mr. Obama's second term, there are now 3,362,000 more private sector jobs than when he initially took office.

 A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1990, 2000, and 2010. 

The public sector grew during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,748,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 703,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment.

Looking forward, I expect the economy to continue to expand for the next few years, so I don't expect a sharp decline in employment as happened at the end of Mr. Bush's 2nd term (In 2005 and 2006 I was warning of a coming recession due to the bursting of the housing bubble).

A big question is when the public sector layoffs will end.  It appears the cutbacks are mostly over at the state and local levels, but there are ongoing cutbacks at the Federal level.

by Calculated Risk on 11/01/2013 05:12:00 PM

From housing economist Tom Lawler:

The Ryland Group reported that net home orders in the quarter ended September 30, 2013 totaled 1,592, up 5.6% from the comparable quarter of 2012 (which included 7 net orders in areas where operations had been discontinued). The company’s sales cancellation rate, expressed as a % of gross orders, was 23.0% last quarter, compared to 19.9% a year ago. The company’s community count at the end of September was up 20.9% from a year ago, and the company’s average sales absorption rate per community last quarter was down about 13% from the comparable quarter of 2012. Home closings totaled 1,883 last quarter, up 42.4% from the comparable quarter of 2012, at an average sales price of $298,000, up 12.9% from a year ago. The company’s order backlog at the end of September was 3,376, up 36.5% from last September. Ryland said that its controlled lots at the end of September totaled 39,698, up 49.1% from last September.

Standard Pacific Homes reported that net home orders (ex jvs) in the quarter ended September 30, 2013 totaled 1,110, up 12.2% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, was 19.7% last quarter, compared to 14.0% a year ago. The company’s average community count last quarter was up 7.7% from a year ago. Home deliveries last quarter totaled 1,217, up 41.3% from the comparable quarter of 2012, at an average sales price of $420,000, up 13.8% from a year ago. The company’s order backlog at the end of September was 2,165, up 55.3% from last September. The company controlled 35,643 lots (including jvs) at the end of September, up 18.2% from a year ago.

Here is a summary of selected stats released so far by large, publicly-traded builders.

	Net Orders			Settlements			Average Closing Price
Qtr. Ended:	9/30/13	9/30/12	% Chg	9/30/13	9/30/12	% Chg	9/30/13	9/30/12	% Chg
Pulte Group	3,781	4,544	-16.8%	4,817	4,418	9.0%	$310,000	$279,000	11.1%
NVR	2,381	2,558	-6.9%	3,342	2,656	25.8%	$349,200	$321,700	8.5%
The Ryland Group	1,592	1,507	5.6%	1,883	1,322	42.4%	$298,000	$264,000	12.9%
Standard Pacific	1,110	989	12.2%	1,217	861	41.3%	$420,000	$369,000	13.8%
Meritage Homes	1,300	1,204	8.0%	1,418	1,197	18.5%	$341,000	$280,000	21.8%
MDC Holdings	924	1,008	-8.3%	1,257	1,039	21.0%	$345,000	$320,647	7.6%
M/I Homes	869	757	14.8%	937	746	25.6%	$284,000	$266,000	6.8%
Total	11,957	12,567	-4.9%	14,871	12,239	21.5%	$330,568	$295,818	11.7%

The YOY % change in net orders for the above seven builders for the quarter ended June 30, 2013 was +11.5%. Net orders for the latest quarter were down 25.0% from the previous quarter, compared to a sequential quarterly decline of 12.1% a year ago.

Builder results so far strongly indicate that the combination of higher mortgage rates and aggressive home price increases resulted in a significant slowdown in new home sales last quarter. While the relationship between large builder results and Census estimates for new home sales is far from perfect (partly reflecting market-share changes but also reflecting methodological and timing differences), these builder results suggest that Census estimates for new SF home sales for September (re-scheduled for release, along with estimates for October, on December 4th), could be down sharply from August.
emphasis added

by Calculated Risk on 11/01/2013 02:59:00 PM

Based on an estimate from WardsAuto, light vehicle sales were at a 15.17 million SAAR in October. That is up 5.9% from October 2012, and down slightly from the sales rate last month. Some of the weakness in October was related to the government shutdown.

This was below the consensus forecast of 15.4 million SAAR (seasonally adjusted annual rate).

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for October (red, light vehicle sales of 15.17 million SAAR from WardsAuto).


Click on graph for larger image.

This was the lowest sales rate since April, and was probably related to the government shutdown.

The growth rate will probably slow in 2013 - compared to the previous three years - but this will still be another solid year for the auto industry.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

Unlike residential investment, auto sales bounced back fairly quickly following the recession and are still a key driver of the recovery.    Looking forward, growth will slow for auto sales.  If sales average the recent pace for the entire year, total sales will be up almost 9% from 2012, not quite double digit but still strong.

by Calculated Risk on 11/01/2013 12:40:00 PM

Back in January I wrote: The Future's so Bright .... I started by writing that "It looks like economic growth will pickup over the next few years", although for 2013, I was expecting "another year of sluggish growth" due to fiscal policy.

My guess was "we can expect another year of sluggish growth in 2013 probably in the 2% range again".  Fiscal austerity probably subtracted 1.5% to 2.0% from GDP growth in 2013, and the foolish government shutdown probably subtracted a little more.

But even with contractionary fiscal policy, it looks like the US economy will grow in the 2% range this year. Ex-austerity (and ex-shutdown), we'd probably be looking at a decent year - maybe this would have been the best year since Clinton was President!

Right now it looks like 2014 will be a better than 2013 for a number of reasons:

1) The housing recovery should continue.

2) Household balance sheets are in much better shape.  See: NY Fed: Household Debt declined in Q2 as Deleveraging Continues and Fed: Household Debt Service Ratio near lowest level in 30+ years

3) State and local government austerity is over (in the aggregate).

4) There will be less Federal austerity in 2014 (hopefully the sequester cuts will be minimized). And a government shutdown is unlikely. From Ethan Harris at Merrill Lynch:

There was also a major silver lining with the shutdown: it gave the general public and moderate politicians a chance to clearly state their views on using a shutdown as a negotiating tactic. Public opinion polls strongly rejected the shutdown as a way to force changes in the Affordable Care Act (ACA) and the favorability rating of the Republican Party fell sharply.
...
All of this makes a shutdown next year unlikely. Our hope and expectation is that business and household confidence will slowly rebound as Washington falls off the radar screen. Of course, some headwinds remain, including uncertainty about the rollout of the Affordable Care Act, but with no new austerity and no major brinkmanship moments, the economy should improve.

5) And demographics are favorable going forward.

We will still some disappointing numbers related to the shutdown (I expect the unemployment rate to spike higher for October, but to be reversed in the November report). But right now, 2014 is looking solid.

by Calculated Risk on 11/01/2013 10:00:00 AM

The ISM manufacturing index indicated faster expansion in October. The PMI was at 56.4% in October, up from 56.2% in September. The employment index was at 53.2%, down from 55.4%, and the new orders index was at 60.6%, up from 60.5% in September.

From the Institute for Supply Management: October 2013 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in October for the fifth consecutive month, and the overall economy grew for the 53rd 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 56.4 percent, an increase of 0.2 percentage point from September's reading of 56.2 percent. The PMI™ has increased progressively each month since June, with October's reading reflecting the highest PMI™ in 2013. The New Orders Index increased slightly in October by 0.1 percentage point to 60.6 percent, while the Production Index decreased by 1.8 percentage points to 60.8 percent. Both the New Orders and Production Indexes have registered above 60 percent for three consecutive months. The Employment Index registered 53.2 percent, a decrease of 2.2 percentage points compared to September's reading of 55.4 percent. The panel's comments are generally positive about the current business climate; however, there are mixed responses on whether the government shutdown and potential default have had any effect on October's results."
emphasis added

Click on graph for larger image.

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

This was above expectations of 55.0% and suggests manufacturing expanded at a faster pace in October.

by Calculated Risk on 11/01/2013 09:00:00 AM

The Markit PMI is at 51.8 (above 50 is expansion). This was down from 52.8 in September, and up from the October flash reading of 51.1.

From MarkIt: PMI at one-year low, as output growth eases sharply

The U.S. manufacturing sector grew at its slowest rate for a year in October, according to the final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™). At 51.8, down from 52.8 in September, but above the earlier flash estimate of 51.1, the PMI suggested that the rate of expansion was only modest.
...
Manufacturing employment in the U.S. rose for the fourth consecutive month in October. Overall, the rate of job creation accelerated to a moderate pace, but was nonetheless weaker than at the start of the year.

“While better than the earlier flash reading, the final PMI data indicate that the U.S. manufacturing sector ground to a near standstill in October. [said Chris Williamson, Chief Economist at Markit]

“Encouragingly, it looks like companies are expecting the slowdown to be temporary, most likely linked to the government shutdown, as indicated by an upturn in the rate of job creation."
emphasis added

The ISM PMI for October will be released at 10 AM ET today.