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Thursday, June 02, 2016

Goldman's May NFP Preview

by Calculated Risk on 6/02/2016 02:08:00 PM

A few excerpts from Goldman Sachs' May Payroll Preview by economists Zach Pandl and Elad Pashtan:

We forecast that nonfarm payroll employment increased by 165,000 in May, close to consensus expectations for a 160,000 increase. Payroll growth should be held back by a strike at Verizon Communications, which BLS figures suggest idled 35,100 workers during the survey period.

We expect the U3 unemployment rate to decline to 4.9%, although risks look tilted to the upside. Average hourly earnings likely rose at a trend-like pace of 0.2% last month, slightly below April’s 0.3% gain.
...
Verizon strike: According to the BLS Strike Report, the ongoing strike at Verizon Communications idled 35,100 workers during the payroll survey reference week (the BLS notes that this estimate could differ from the final total). The strike will affect two line items in the payroll report: specialty trade contractors (a component of the broader construction category) and telecommunications (a component of the information services category). Based on the Verizon strike in August 2011—which also affected employment in these industry groups (as well as others)—most of the impact should show up in the information services category.

The Verizon Strike and the May Employment Report

by Calculated Risk on 6/02/2016 10:56:00 AM

Approximately 40,000 Verizon workers went on strike on April 13th, and returned to work on June 1st.

What will be the impact on the May employment report?

These workers were on strike during the reference period in May and will not be counted as employed.  Since the strike is over, they will be counted as employed in the June 2016 report.

To see the impact, we can look back at the Verizon strike in 2011.  That strike started on Aug 6th and ended on Aug 20th.  Those workers were not employed during the August reference period, and the BLS reported a loss of 48.6 thousand telecommunications workers in August 2011, and a gain of 43.0 thousand workers in September 2011 seasonally adjusted (SA).

The impact from the strike on the May employment report will be obvious in the Information Super Sector under the Telecommunications Industry. This is one of the first items I will check tomorrow morning.

If the employment report shows a loss of 40,000 telecommunications workers (SA), then it will be reasonable to add those to the headline employment number to look at the underlying trend (they will be added back in the June BLS report - and we will need to subtract those workers in June to see the underlying trend).

As an example, if the BLS reports 120,000 jobs added in May, and 40,000 telecommunication jobs lost in May, the underlying trend would be 160,000 (and the reverse in June).

Note: Some of the recent increase in the 4-week average of unemployment claims is probably related to the Verizon strike too.


Weekly Initial Unemployment Claims decrease to 267,000

by Calculated Risk on 6/02/2016 08:33:00 AM

The DOL reported:

In the week ending May 28, the advance figure for seasonally adjusted initial claims was 267,000, a decrease of 1,000 from the previous week's unrevised level of 268,000. The 4-week moving average was 276,750, a decrease of 1,750 from the previous week's unrevised average of 278,500.

There were no special factors impacting this week's initial claims. This marks 65 consecutive weeks of initial claims below 300,000, the longest streak since 1973.
The previous week was unrevised.

The following graph shows the 4-week moving average of weekly claims since 1971.

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 increased to 276,750.

This was at the consensus forecast. The low level of claims suggests relatively few layoffs.

ADP: Private Employment increased 173,000 in May

by Calculated Risk on 6/02/2016 08:18:00 AM

From ADP:

Private sector employment increased by 173,000 jobs from April to May according to the May ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
Goods-producing employment dropped by 1,000 jobs in May after losing a 7,000 (revised) in April. The construction industry added 13,000 jobs, in line with the previous month. Meanwhile, manufacturing lost 3,000 jobs after losing 10,000 the previous month.

Service-providing employment rose by 175,000 jobs in May, a slight increase over April’s upwardly revised 173,000. The ADP National Employment Report indicates that professional/business services contributed 43,000 jobs, up from April’s upwardly revised 38,000. Trade/transportation/utilities grew by 28,000, up a bit from the 24,000 jobs added the previous month. Financial activities added 13,000.
...
Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth has moderated this spring as energy companies and manufacturers shed jobs. Retailers are also more circumspect in their hiring. Despite the recent slowdown, job growth remains strong enough to reduce underemployment.”
This was close to the consensus forecast for 175,000 private sector jobs added in the ADP report. 

The BLS report for May will be released Friday, and the consensus is for 160,000 non-farm payroll jobs added in May.

Wednesday, June 01, 2016

Thursday: ADP Employment, Unemployment Claims

by Calculated Risk on 6/01/2016 09:06:00 PM

Thursday:
• At 8:15 AM ET, The ADP Employment Report for May. This report is for private payrolls only (no government). The consensus is for 175,000 payroll jobs added in May, up from 156,000 added in April.

• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 267 thousand initial claims, down from 268 thousand the previous week.

From Tim Duy: Waiting For The Employment Report. A short excerpt:

Two of the last three monthly readings on the core were just above 2 percent annualized, something that will also give confidence to Fed hawks that their inflation forecast will play out (they will assume headline will head in that direction). Compared to a year ago, however, core inflation continues to languish below target.
...
The Verizon strike likely negatively impacted the headline nonfarm payrolls numbers in the May employment report, so adjust your expectations accordingly. I would pay special attention to the unemployment rate and metrics of underemployment; the Fed would be more inclined to hike rates if progress on these from resumed.

Bottom Line: Nothing here suggests to me that the Fed will soon reject their expectation of a rate hike in the "coming months."

U.S. Light Vehicle Sales increase to 17.4 million annual rate in May

by Calculated Risk on 6/01/2016 04:03:00 PM

Based on a preliminary estimate from WardsAuto, light vehicle sales were at a 17.37 million SAAR in May (Preliminary estimate excluding Jaguar Land Rover and Volvo).

That is down about 1.5% from May 2015, and up slightly from the 17.32 million annual sales rate last month.

Vehicle Sales
Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for May (red, light vehicle sales of 17.37 million SAAR from WardsAuto).

This was above the consensus forecast of 17.2 million SAAR (seasonally adjusted annual rate).

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

Vehicle SalesNote: dashed line is current estimated sales rate.

Sales for 2016 - through the first five months - are up about 2% from the comparable period last year.

Fed's Beige Book: "Modest economic growth" in most Districts

by Calculated Risk on 6/01/2016 02:03:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of Minneapolis and based on information collected before May 23, 2016. "

Information received from the 12 Federal Reserve Districts mostly described modest economic growth since the last Beige Book report. Economic activity in April through mid-May increased at a moderate pace in the San Francisco District, while modest growth was reported by Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, and Minneapolis. Chicago noted that the pace of growth slowed, as did Kansas City. Dallas reported that economic activity grew marginally, while New York characterized activity as generally flat since the last report. Several Districts noted that contacts had generally optimistic outlooks, with firms expecting growth either to continue at its current pace or to increase.
And on real estate:
Construction and real estate activity generally expanded since the last report, and the overall outlook among contacts remained positive. Commercial construction activity increased in Philadelphia, Richmond, and Minneapolis. Strong project pipelines were reported in Cleveland, and some contractors in Atlanta noted one- to two-year backlogs. An uptick in industrial construction was cited in St. Louis, while activity was varied across markets in Boston. Residential construction increased in most Districts but was mixed in Richmond and Dallas, where some markets saw a decline in single-family construction. In Chicago, a slight increase in residential construction was concentrated in single-family and suburban markets. St. Louis contacts reported an uptick in residential construction, and many contacts expected a similar increase next quarter. Multifamily construction continued to grow in many Districts, including New York, St. Louis, and Dallas, but a slowing was noted in Atlanta. In San Francisco, construction of multifamily units continued to outpace single-family units. In Boston, apartment construction remained very active, but related lending slowed among smaller banks.

Commercial real estate activity increased in most Districts that reported. Absorption of space increased in Atlanta and Kansas City, while Dallas reported healthy demand for office space. A decline in vacancy rates and a rise in rents were noted in Chicago and Minneapolis. Contacts in San Francisco said demand for commercial real estate expanded further, particularly in urban areas with robust technology and health care industries. Residential real estate activity increased moderately across most Districts. Home sales were strong in Boston, Cleveland, Kansas City, and San Francisco. Residential sales were positive but somewhat lower in other Districts. Sales for entry-level and other lower-priced homes were particularly strong, according to Chicago and Dallas contacts. Lower inventories of homes were reported by contacts in New York, Cleveland, Atlanta, St. Louis, and Minneapolis and have led to bidding wars in the Richmond District and constrained home sales in Philadelphia. Home prices were reported higher overall; Cleveland contacts said that home prices rose 3 percent year over year. In Philadelphia, home prices were mixed across markets and price categories.
emphasis added
Decent Real Estate growth in most districts ...

Construction Spending decreased 1.8% in April

by Calculated Risk on 6/01/2016 12:18:00 PM

Earlier today, the Census Bureau reported that overall construction spending decreased 1.8% in April compared to March:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during April 2016 was estimated at a seasonally adjusted annual rate of $1,133.9 billion, 1.8 percent below the revised March estimate of $1,155.1 billion. The April figure is 4.5 percent above the April 2015 estimate of $1,085.0 billion.
Private and public spending decreased in April:
Spending on private construction was at a seasonally adjusted annual rate of $843.1 billion, 1.5 percent below the revised March estimate of $855.9 billion ...

In April, the estimated seasonally adjusted annual rate of public construction spending was $290.8 billion, 2.8 percent below the revised March estimate of $299.2 billion
emphasis added
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 has been increasing, but is 35% below the bubble peak.

Non-residential spending is only 3% below the peak in January 2008 (nominal dollars).

Public construction spending is now 11% 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, private residential construction spending is up 8%. Non-residential spending is up 3% year-over-year. Public spending is up 1% year-over-year.

Looking forward, all categories of construction spending should increase in 2016. Residential spending is still very low, non-residential is increasing (except oil and gas), and public spending is also increasing after several years of austerity.

This was well below the consensus forecast of a 0.6% increase for April, however construction spending for February and March were revised up.

ISM Manufacturing index increased to 51.3 in May

by Calculated Risk on 6/01/2016 10:04:00 AM

The ISM manufacturing index indicated expansion for the third consecutive month in May, following five months of contraction. The PMI was at 51.3% in May, up from 50.8% in April. The employment index was at 49.2%, unchanged from 49.2% in April, and the new orders index was at 55.7%, down from 55.8% in April.

From the Institute for Supply Management: May 2016 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in May for the third consecutive month, while the overall economy grew for the 84th 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® (ISM®) Manufacturing Business Survey Committee. "The May PMI® registered 51.3 percent, an increase of 0.5 percentage point from the April reading of 50.8 percent. The New Orders Index registered 55.7 percent, a decrease of 0.1 percentage point from the April reading of 55.8 percent. The Production Index registered 52.6 percent, 1.6 percentage points lower than the April reading of 54.2 percent. The Employment Index registered 49.2 percent, the same reading as in April. Inventories of raw materials registered 45 percent, a decrease of 0.5 percentage point from the April reading of 45.5 percent. The Prices Index registered 63.5 percent, an increase of 4.5 percentage points from the April reading of 59 percent, indicating higher raw materials prices for the third consecutive month. Manufacturing registered growth in May for the third consecutive month, as 14 of our 18 industries reported an increase in new orders in May (down from 15 in April), and 12 of our 18 industries reported an increase in production in May (down from 15 in April)."
emphasis added
ISM PMIClick on graph for larger image.

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

This was above expectations of 50.6%, and suggests manufacturing expanded at a slightly faster pace in May than in April.

MBA: "Mortgage Applications Decrease in Latest MBA Weekly Survey"

by Calculated Risk on 6/01/2016 08:05:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 4.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 27, 2016.
...
The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. ... The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 28 percent higher than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 3.85 percent, with points decreasing to 0.36 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000.

Refinance activity increased a little this year when rates declined.


Mortgage Purchase Index The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 28% higher than a year ago.