by Calculated Risk on 10/05/2015 10:04:00 AM

The September ISM Non-manufacturing index was at 56.9%, down from 59.0% in August. The employment index increased in September to 58.3%, up from 56.0% in August. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: September 2015 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in September for the 68th consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 56.9 percent in September, 2.1 percentage points lower than the August reading of 59 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 60.2 percent, which is 3.7 percentage points lower than the August reading of 63.9 percent, reflecting growth for the 74th consecutive month at a slower rate. The New Orders Index registered 56.7 percent, 6.7 percentage points lower than the reading of 63.4 percent in August. The Employment Index increased 2.3 percentage points to 58.3 percent from the August reading of 56 percent and indicates growth for the 19th consecutive month. The Prices Index decreased 2.4 percentage points from the August reading of 50.8 percent to 48.4 percent, indicating prices decreased in September for the first time since February of this year. According to the NMI®, 13 non-manufacturing industries reported growth in September. There has been a cooling off in the rate of growth during the month of September. Also, the trend of lower costs and little pricing power continues as reflected in the contraction of the pricing index. Overall, respondents continue to remain positive about current business conditions."
emphasis added

Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was below the consensus forecast of 57.7% and suggests slower expansion in September than in August.  Still a solid report.

by Calculated Risk on 10/04/2015 08:17:00 PM

Reading articles this weekend on the payroll report, I'm reminded of a sentence I wrote back in March: Why the Prime Labor Force Participation Rate has Declined

"Complaining about the decline in the overall labor force participation rate is the last refuge of scoundrels."

Still true.

Weekend:
• Schedule for Week of October 4, 2015

Monday:
• Early: Reis Q3 2015 Mall Survey of rents and vacancy rates.

• At 10:00 AM, the Fed will release the monthly Labor Market Conditions Index (LMCI).

• Also at 10:00 AM ET, the ISM non-Manufacturing Index for September. The consensus is for index to decrease to 57.7 from 59.0 in August.

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are down 2 and DOW futures are down 14 (fair value).

Oil prices were down slightly over the last week with WTI futures at $45.29 per barrel and Brent at $47.85 per barrel.  A year ago, WTI was at $90, and Brent was at $91 - so prices are down about 50% year-over-year (It was a year ago that prices started falling sharply).

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.29 per gallon (down about $1.00 per gallon from a year ago).

by Calculated Risk on 10/04/2015 01:11:00 PM

By request, a few more employment graphs ...

Here are the previous posts on the employment report:

• September Employment Report: 142,000 Jobs, 5.1% Unemployment Rate
• Employment Report Comments and more Graphs

Duration of Unemployment
This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

The general trend is down for all categories, and the "less than 5 weeks", "6 to 14 weeks" and "15 to 26 weeks" are all close to normal levels. 

The long term unemployed is close to 1.3% of the labor force, however the number (and percent) of long term unemployed remains elevated.

Unemployment by Education
This graph shows the unemployment rate by four levels of education (all groups are 25 years and older).

Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down.

Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment.

Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".

Construction Employment
This graph shows total construction employment as reported by the BLS (not just residential).

Since construction employment bottomed in January 2011, construction payrolls have increased by 964 thousand.

Construction employment is still far below the bubble peak - and below the level in the late '90s.

Diffusion Indexes
 The BLS diffusion index for total private employment was at 52.9 in September, down from 55.5 in August.

For manufacturing, the diffusion index was at 44.4, up from 39.4 in August.

Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.  Above 60 is very good.  From the BLS:

Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.

Overall private job growth was not very widespread in September.

by Calculated Risk on 10/03/2015 08:11:00 AM

This will be light week for economic data.

----- Monday, October 5th -----
Early: Reis Q3 2015 Mall Survey of rents and vacancy rates.

10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

10:00 AM: the ISM non-Manufacturing Index for September. The consensus is for index to decrease to 57.7 from 59.0 in August.

----- Tuesday, October 6th -----
8:30 AM: Trade Balance report for August from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through July. 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.

The consensus is for the U.S. trade deficit to be at $48.6 billion in August from $41.9 billion in July.

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

3:00 PM: Consumer Credit for August from the Federal Reserve. The consensus is for an increase of $20.5 billion in credit.

----- Thursday, October 8th -----
8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 271 thousand initial claims, down from 275 thousand the previous week.

2:00 PM: The Fed will release the FOMC Minutes for the Meeting of September 16-17, 2015

----- Friday, October 9th -----
10:00 AM: Monthly Wholesale Trade: Sales and Inventories for August. The consensus is for a 0.1% increase in inventories.

by Calculated Risk on 10/02/2015 08:33:00 PM

First, a second failure today from the FDIC that makes eight in 2015: Twin City Bank, Longview, Washington, Assumes All of the Deposits of Hometown National Bank, Longview, Washington

As of June 30, 2015, Hometown National Bank had approximately $4.9 million in total assets and $4.7 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $1.6 million. ... Hometown National Bank is the eighth FDIC-insured institution to fail in the nation this year, and the first in Washington.

Click on graph for larger image.

The first graph shows the number of bank failures per year since the FDIC was founded in 1933.

Typically about 7 banks fail per year, so the 8 failures this year is close to normal.

Note: There were a large number of failures in the '80s and early '90s. Many of these failures were related to loose lending, especially for commercial real estate.  A large number of the failures in the '80s and '90s were in Texas with loose regulation.

Even though there were more failures in the '80s and early '90s, the recent financial crisis was much worse (large banks failed and were bailed out).

The second graph includes pre-FDIC failures. In a typical year - before the Depression - 500 banks would fail and the depositors would lose a large portion of their savings.

Then, during the Depression, thousands of banks failed. Note that the S&L crisis and recent financial crisis look small on this graph.

by Calculated Risk on 10/02/2015 05:43:00 PM

It has been some time since a bank failed ...

From the FDIC: Fidelity Bank, Atlanta, Georgia, Assumes All of the Deposits of the Bank of Georgia, Peachtree City, Georgia

As of June 30, 2015, The Bank of Georgia had approximately $294.2 million in total assets and $280.7 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $23.2 million. ... The Bank of Georgia is the seventh FDIC-insured institution to fail in the nation this year, and the second in Georgia.

by Calculated Risk on 10/02/2015 04:12:00 PM

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

NOTE: Several readers have asked if I could add a lag to these graphs (obviously a new President has zero impact on employment for the month they are elected). But that would open a debate on the proper length of the lag, so I'll just stick to the beginning of each term.

Note: We frequently use Presidential terms as time markers - we could use Speaker of the House, or any other marker.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, however the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is generally declining now.  But these graphs give an overview of employment changes.

First, here is a table for private sector jobs. The top two private sector terms were both under President Clinton.  Reagan's 2nd term saw about the same job growth as during Carter's term.  Note: There was a severe recession at the beginning of Reagan's first term (when Volcker raised rates to slow inflation) and a recession near the end of Carter's term (gas prices increased sharply and there was an oil embargo).

Term	Private Sector Jobs Added (000s)
Carter	9,041
Reagan 1	5,360
Reagan 2	9,357
GHW Bush	1,510
Clinton 1	10,884
Clinton 2	10,073
GW Bush 1	-844
GW Bush 2	381
Obama 1	2,018
Obama 2	6,9261
132 months into 2nd term: 10,389 pace.

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 third 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 sluggish, and private employment was down 844,000 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 463,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,510,000 private sector jobs added.

Private sector employment increased by 20,955,000 under President Clinton (light blue), by 14,717,000 under President Reagan (yellow), and 9,041,000 under President Carter (dashed green).

There were only 2,018,000 more private sector jobs at the end of Mr. Obama's first term.  Thirty two months into Mr. Obama's second term, there are now 8,944,000 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 1980, 1990, 2000, and 2010. 

The public sector grew during Mr. Carter's term (up 1,304,000), 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 1,744,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 550,000 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.

And a table for public sector jobs. Public sector jobs declined the most during Obama's first term, and increased the most during Reagan's 2nd term.

Term	Public Sector Jobs Added (000s)
Carter	1,304
Reagan 1	-24
Reagan 2	1,438
GHW Bush	1,127
Clinton 1	692
Clinton 2	1,242
GW Bush 1	900
GW Bush 2	844
Obama 1	-702
Obama 2	1521
132 months into 2nd term, 228 pace

Looking forward, I expect the economy to continue to expand through 2016 (at least), so I don't expect a sharp decline in private 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).

For the public sector, the cutbacks are clearly over at the state and local levels, and it appears cutbacks at the Federal level might also be over.  Right now I'm expecting some increase in public employment during Obama's 2nd term, but nothing like what happened during Reagan's second term.

Below is a table of the top three presidential terms for private job creation (they also happen to be the three best terms for total non-farm job creation).

Clinton's two terms were the best for both private and total non-farm job creation, followed by Reagan's 2nd term.

Currently Obama's 2nd term is on pace to be the 2nd best ever for private job creation.  However, with very few public sector jobs added, Obama's 2nd term is only on pace to be the fourth best for total job creation.

Note: Only 118 thousand public sector jobs have been added during the first thirty one months of Obama's 2nd term (following a record loss of 702 thousand public sector jobs during Obama's 1st term).  This is less than 10% of the public sector jobs added during Reagan's 2nd term!

Top Employment Gains per Presidential Terms (000s)
Rank	Term	Private	Public	Total Non-Farm
1	Clinton 1	10,884	692	11,576
2	Clinton 2	10,073	1,242	11,315
3	Reagan 2	9,357	1,438	10,795
	Obama 21	6,926	152	7,078
	Pace2	10,389	183	10,617
132 Months into 2nd Term 2Current Pace for Obama's 2nd Term

The last table shows the jobs needed per month for Obama's 2nd term to be in the top three presidential terms.

Average Jobs needed per month (000s) for remainder of Obama's 2nd Term
to Rank	Private	Total
#1	247	281
#2	197	265
#3	152	232

by Calculated Risk on 10/02/2015 12:49:00 PM

This was a disappointing employment report with 142,000 jobs added, and employment gains for July and August were revised down.

Also wages declined slightly, from the BLS: "In September, average hourly earnings for all employees on private nonfarm payrolls, at $25.09, changed little (-1 cent), following a 9-cent gain in August. Hourly earnings have risen by 2.2 percent over the year."

There is always some variability in the month-to-month employment reports, and my general reaction is R-E-L-A-X.  Jobs gains are still solid year-over-year, and I expected some slowdown in job gains this year - also recent gains are still large enough to push down the unemployment rate.

Earlier: September Employment Report: 142,000 Jobs, 5.1% Unemployment Rate

A few more numbers:  Total employment is now 4.0 million above the previous peak.  Total employment is up 12.7 million from the employment recession low.

Private payroll employment increased 118,000 from August to September, and private employment is now 4.4 million above the previous peak. Private employment is up 13.2 million from the recession low.

In September, the year-over-year change was 2.75 million jobs.

Employment-Population Ratio, 25 to 54 years old

Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle.

The 25 to 54 participation rate declined in September to 80.6%, and the 25 to 54 employment population ratio was unchanged at 77.2%.  The participation rate for this group might increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s.

Average Hourly Earnings

This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth was unchanged at 2.2% YoY - and although the series is noisy - it does appear wage growth is trending up a little.  Wages will probably pick up a little more this year.

Note: CPI has been running under 2%, so there has been some real wage growth.

Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) declined by 447,000 to 6.0 million in September. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of persons working part time for economic reasons decreased in September to 6.04 million from 6.48 million from in August.  This is the lowest level since August 2008, however the level suggests slack still in the labor market.

These workers are included in the alternate measure of labor underutilization (U-6) that declined to 10.0% in September (lowest level since May 2008).

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 2.10 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 2.19 million in August and is the lowest level since September 2008.

This is generally trending down, but is still high.

State and Local Government

This graph shows total state and government payroll employment since January 2007. (Note: Scale doesn't start at zero to better show the change.)

In September 2015, state and local governments added 26 thousand jobs. State and local government employment is now up 252,000 from the bottom, but still 506,000 below the peak.

State and local employment is now increasing.  And Federal government layoffs appear to have ended (Federal payrolls decreased in September, and Federal employment is up 9,000 year-to-date).

Overall this was a disappointing employment report for September.

by Calculated Risk on 10/02/2015 10:01:00 AM

Reis reported that the apartment vacancy rate increased in Q3 2015 to 4.3%, up from 4.2% in Q2, and unchanged from 4.3% in Q3 2014. The vacancy rate peaked at 8.0% at the end of 2009.

A few comments from Reis Senior Economist and Director of Research Ryan Severino:

It appears as if the market has finally reached its inflection point during the third quarter. Although the national vacancy increase of 10 basis points was slight, it was actually a slight acceleration of a trend that began during the second quarter of 2014. That’s when vacancy technically started rising. While not a steady upward trend (vacancy declined slightly earlier this year), vacancy continues to generally inch higher as construction outpaces net absorption. Importantly, this rise in vacancy has occurred without the deluge of new supply that is in the pipeline but has not yet hit the market. When that occurs, likely in the next few quarters, vacancy increases are sure to accelerate because the market will not be able to digest that much new product.

Vacancy increased by 10 basis points to 4.3% during the quarter with construction slightly outpacing net absorption once again. Although vacancy has appeared to skip off of the bottom, vacancy has been largely unchanged over the last two years as supply and demand have been roughly in balance. However, slowly but surely construction is overtaking net absorption by a wider and wider margin and is nudging the national vacancy rate slightly higher. Although vacancy is unchanged over the last year, this is largely due to a weather‐induced pullback in construction during the first quarter of 2015. Without that, vacancy would likely be even higher now. Given the robust pipeline, further vacancy rate increases should be expected.

Asking and effective rents both grew by 1.3% during the third quarter. This was roughly in line with last quarter’s performance.
...
Even without the tsunami of new supply hitting the market, vacancy is on the way up. This does not portend goods things for the next couple of years as new completions increase and flood the market. ... That said, vacancy expansion will not be dramatic – there is far too much demand to prevent that from happening – so vacancy will marginally drift higher. Still‐low vacancy rates, coupled with new properties coming online with above‐average rents, should keep asking and effective rent growth around 4% for 2015 which would be the best calendar‐year performance since 2007.
emphasis added

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

The vacancy rate has been mostly moving sideways for the last few years.  As completions catch-up with starts, the vacancy rate will probably start increasing.

Apartment vacancy data courtesy of Reis.

by Calculated Risk on 10/02/2015 08:42:00 AM

From the BLS:

Total nonfarm payroll employment increased by 142,000 in September, and the unemployment rate was unchanged at 5.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care and information, while mining employment fell.
...
The change in total nonfarm payroll employment for July was revised from +245,000 to +223,000, and the change for August was revised from +173,000 to +136,000. With these revisions, employment gains in July and August combined were 59,000 less than previously reported.
...
In September, average hourly earnings for all employees on private nonfarm payrolls, at $25.09, changed little (-1 cent), following a 9-cent gain in August. Hourly earnings have risen by 2.2 percent over the year.
emphasis added

Click on graph for larger image.

The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes).

Total payrolls increased by 142 thousand in September (private payrolls increased 118 thousand).

Payrolls for July and August were revised down by a combined 59 thousand.

This graph shows the year-over-year change in total non-farm employment since 1968.

In September, the year-over-year change was 2.75 million jobs.

That is a solid year-over-year gain.


The third graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate declined in September to 62.4%. This is the percentage of the working age population in the labor force.   A large portion of the recent decline in the participation rate is due to demographics.

The Employment-Population ratio declined to 59.2% (black line).

I'll post the 25 to 54 age group employment-population ratio graph later.

The fourth graph shows the unemployment rate.

The unemployment rate was unchanged in September at 5.1%.

This was well below expectations of 203,000 jobs, and revisions were down, and there was no wage growth ... a weak report.

I'll have much more later ...