by Calculated Risk on 2/02/2017 01:03:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for January. The consensus, according to Bloomberg, is for an increase of 175,000 non-farm payroll jobs in January (with a range of estimates between 155,000 to 195,000), and for the unemployment rate to be unchanged at 4.7%.

The BLS reported 156,000 jobs added in December.

Important note: Friday morning the BLS will also release the annual revision to "reflect the annual benchmark adjustment for March 2016 and updated seasonal adjustment factors." The preliminary estimate of the benchmark revision was for a decrease of 150,000 jobs as of March 2016.

Here is a summary of recent data:

• The ADP employment report showed an increase of 246,000 private sector payroll jobs in January. This was above expectations of 168,000 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 January to 56.1%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll increased 14,000 in January. The ADP report indicated 15,000 manufacturing jobs added in January.

The ISM non-manufacturing employment index for January has not been released yet.

• Initial weekly unemployment claims averaged 248,000 in January, down from 257,000 in December. For the BLS reference week (includes the 12th of the month), initial claims were at 237,000, down from 275,000 during the reference week in December.

The increase during the reference suggests more layoffs during that week in December as compared to November.  This suggests an above consensus employment report.

• The final December University of Michigan consumer sentiment index increased to 98.5 from the December reading of 98.2. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Conclusion: Unfortunately none of the indicators alone is very good at predicting the initial BLS employment report. However the ADP report, ISM manufacturing and weekly unemployment claims all suggest stronger job growth.   So my guess is the January report will be above the consensus forecast.

by Calculated Risk on 2/02/2017 11:02:00 AM

Earlier:
• Lawler: The Household Conundrum, Part I: The CPS/ASEC Data

• Lawler: The Household Conundrum, Part I Continued: The CPS/ASEC Data for 18-29 Year Olds

From housing economist Tom Lawler: The Household Conundrum, Part II: The American Community Survey (ACS) Data

Not including the Decennial Census, the American Community Survey is the largest survey that the Census Bureau administers, and it collects detailed socioeconomic information previously collected in the so-called “long form” of the Decennial Census from about one in every six households. The ACS is also a “mandatory” survey, as opposed to other Census surveys such as the CPS making “non-response” issues less of (though still somewhat of) an issue. Given its substantially larger sample (and in the past more timely sampling frame) than other periodic surveys, the ACS is widely viewed as the most reliable (though far from perfect) source of information on socioeconomic trends in the United States (and more especially for regional data).

From the perspective of certain types of housing analysis, however, the ACS data is of limited usefulness. For one, the ACS has only been fully up and running since 2005, and as such there is not a lot of historical data.

For another, ACS data are only available annually, and annual estimates (which are yearly averages) are based on population and housing units estimates available at the time of that year’s survey, that is, prior year estimates not updated to reflect revisions in historical population and housing unit counts. Stated a different way, the “time series” of ACS estimates is not consistent with the latest historical estimates either of the US population or of the US housing stock. (Time series estimates of households from the CPS/ASEC are also not consistent with revised estimates of population counts.)

There are also a few “technical” issues: e.g., the ACS’ “residence” rule (has the householder lived in the surveyed unit for over two months) is different from that of the Decennial Census (is this home the “usual residence” of the householder). While there is no clear evidence that this “residence rule” results in materially different household estimates, it’s still worth noting.

Having said that, below are comparisons of various household estimates from the ACS, the Decennial Census, and the CPS/ASEC for 2010. I have adjusted the CPS/ASEC estimates to reflect by “best guess” of what the estimates would have been if the CPS/ASEC had used Census 2010 counts. I have also adjusted the ACS estimates to reflect the estimated undercount of the housing unit count form the Decennial Census from the post Census Coverage Measurement Study (almost all of that undercount was in vacant housing units). The Census 2010 household counts are also adjusted to reflect the post-Census Coverage Measurement Study, although that undercount was extremely small. Also shown are homeownership rates estimates.

Table 1: Various US Household Estimates by Age Group, 2010 (000's)
	Census (Apr. 1)	ACS (Average)	CPS/ASEC (Mar.)
Total	116,752	115,255	118,760
15-24	5,403	4,931	6,325
25-34	17,963	17,901	19,173
35-44	21,298	21,387	21,729
45-54	24,915	24,793	25,113
55-64	21,347	21,220	20,777
65-74	13,509	13,296	13,400
75+	12,319	11,727	12,243

Table 2: Various US Homeownership Rates by Age Group, 2010 (000's)
	Census (Apr. 1)	ACS (Average)	CPS/ASEC (Mar.)
Total	65.1%	65.4%	67.1%
15-24	16.1%	14.7%	22.8%
25-34	42.0%	41.3%	45.0%
35-44	62.3%	61.9%	65.5%
45-54	71.5%	71.7%	73.5%
55-64	77.3%	77.9%	78.6%
65-74	80.2%	81.1%	82.0%
75+	74.5%	75.7%	78.5%

The ACS household counts are derived via a multi-stage process, but in effect the number is “controlled” to estimates of the US housing stock. Since the ACS vacancy rate estimate was higher than the “actuals” from the Decennial Census, the “occupied” housing unit count (or “households) was lower. The CPS/ASEC household estimates, in contrast, are controlled to population count estimates and do not take into account housing unit estimates. Thus even though CPS-based estimates of housing vacancy rates in 2010 were much higher than both Census and ACS estimates, the CPS/ASEC household estimate is higher. (The CPS-based household estimate from the Housing Vacancy Survey, which is controlled to the housing unit estimates, is materially lower than the ACS estimate). It is worth noting that if ACS estimates were controlled solely to population estimates and ignored housing unit count estimates, the household estimate would probably be higher (as was the case in 2005.)

Focusing on Table 1, ACS estimates by age group on balance match those of the Decennial Census better that those from the CPS/ASEC, though the ACS estimates for under 25-year old householders is a bit low (the CPS/ASEC estimates for this age group are way too high), and the same is true for householders 75 years or older.. Interestingly, household estimates for 35-64 year old householders are very similar in all three columns.

On the homeownership front, ACS estimates are significantly closer to Decennial Census results than CPS/ASEC estimates not just in aggregate, but across all age groups.

From the standpoint not just of aggregate household estimates but also household estimates by age and homeownership estimates, the ACS appears to be superior to the CPS/ASEC. It is still true, however, that ACS household estimates vary significantly from Decennial Census estimates.

The major reason the latter is true is that the ACS estimate of the housing vacancy rate in 2010 (13.07%) was well above the Decennial Census estimate adjusted to reflect post-Census coverage measurement (11.88%). (The CPS/HVS housing vacancy rate for all of 2010 was 14.34%).

It appears as if part of the ACS’s higher vacancy rate reflected misclassification of occupancy status (a “matching” of ACS to Decennial Census showed more units misclassified as vacant that units misclassified as occupied), though part may also be related to the different sampling frame (the 2010 ACS for the most part did not use the updated Master Address File compiled as part of the Decennial Census).

(more later)

by Calculated Risk on 2/02/2017 08:33:00 AM

The DOL reported:

In the week ending January 28, the advance figure for seasonally adjusted initial claims was 246,000, a decrease of 14,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 259,000 to 260,000. The 4-week moving average was 248,000, an increase of 2,250 from the previous week's revised average. The previous week's average was revised up by 250 from 245,500 to 245,750.
emphasis added

The previous week was revised up.

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 248,000.

This was below the consensus forecast.

The low level of claims suggests relatively few layoffs.

by Calculated Risk on 2/01/2017 06:37:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 253 thousand initial claims, down from 259 thousand the previous week.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Higher Despite Help From The Fed

Mortgage rates were higher to end the day, but not as high as they might have been without the Fed Statement. The day began with a series of strong economic reports. The ADP Employment Report was much stronger than expected, as was the employment component of the ISM Manufacturing report. Investors connect those dots to increased risk of a strong number in this Friday's all-important Employment Situation Report (the big jobs report). ... The Fed helped push rates back in the other direction this afternoon. While there were numerous minor changes in their verbiage, none of them did anything to accelerate the rate hike timeline or to threaten the Fed's current policy of reinvesting the interest it earns on its portfolio. That's one of the key reasons that rates are still historically low. With that, multiple lenders were able to improve rate sheets this afternoon. The net effect was still a slight move higher for closing costs, but the damage would have been much worse without the Fed.
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 2/01/2017 02:38:00 PM

Based on a preliminary estimate from WardsAuto, light vehicle sales were at a 17.47 million SAAR in January.

That is down about 2% from January 2016, and down 4.5% from the 18.29 million annual sales rate last month.


Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for January (red, light vehicle sales of 17.47 million SAAR from WardsAuto).

This was below the consensus forecast of 17.7 million for January.

After two consecutive years of record sales, it looks like sales will mostly move sideways in 2017.

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

Note: dashed line is current estimated sales rate.

by Calculated Risk on 2/01/2017 02:01:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate stayed near its recent low. Household spending has continued to rise moderately while business fixed investment has remained soft. Measures of consumer and business sentiment have improved of late. Inflation increased in recent quarters but is still below the Committee's 2 percent longer-run objective. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will rise to 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1/2 to 3/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Jerome H. Powell; and Daniel K. Tarullo.
emphasis added

by Calculated Risk on 2/01/2017 11:34:00 AM

Earlier today, the Census Bureau reported that overall construction spending decreased in December:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during December 2016 was estimated at a seasonally adjusted annual rate of $1,181.5 billion, 0.2 percent below the revised November estimate of $1,184.4 billion. The December figure is 4.2 percent above the December 2015 estimate of $1,133.7 billion.

The value of construction in 2016 was $1,162.4 billion, 4.5 percent above the $1,112.4 billion spent in 2015.

Private spending increased, however public spending decreased in December:

Spending on private construction was at a seasonally adjusted annual rate of $897.0 billion, 0.2 percent above the revised November estimate of $894.8 billion. ...

In December, the estimated seasonally adjusted annual rate of public construction spending was $284.5 billion, 1.7 percent below the revised November estimate of $289.6 billion.
emphasis added

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 generally increasing, and is still 31% below the bubble peak.

Non-residential spending is now 4% above the previous peak in January 2008 (nominal dollars).

Public construction spending is now 13% below the peak in March 2009, and 8% above the austerity low in February 2014.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 4%. Non-residential spending is up 9% year-over-year. Public spending is down 2% year-over-year.

Looking forward, all categories of construction spending should increase in 2017.

This was below the consensus forecast of a 0.2% increase for December, however the previous months were revised up.

by Calculated Risk on 2/01/2017 10:03:00 AM

The ISM manufacturing index indicated expansion in January. The PMI was at 56.0% in January, up from 54.5% in December. The employment index was at 56.1%, up from 52.8% last month, and the new orders index was at 60.4%, up from 60.3%.

From the Institute for Supply Management: January 2017 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in January, and the overall economy grew for the 92nd 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 January PMI® registered 56 percent, an increase of 1.5 percentage points from the seasonally adjusted December reading of 54.5 percent. The New Orders Index registered 60.4 percent, an increase of 0.1 percentage point from the seasonally adjusted December reading of 60.3 percent. The Production Index registered 61.4 percent, 2 percentage points higher than the seasonally adjusted December reading of 59.4 percent. The Employment Index registered 56.1 percent, an increase of 3.3 percentage points from the seasonally adjusted December reading of 52.8 percent. Inventories of raw materials registered 48.5 percent, an increase of 1.5 percentage points from the December reading of 47 percent. The Prices Index registered 69 percent in January, an increase of 3.5 percentage points from the December reading of 65.5 percent, indicating higher raw materials prices for the 11th consecutive month. The PMI®, New Orders, and Production Indexes all registered their highest levels since November of 2014, and comments from the panel are generally positive regarding demand levels and business conditions.”
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 as faster pace in January than in December.

Another solid report.

by Calculated Risk on 2/01/2017 08:32:00 AM

From ADP:

Private sector employment increased by 246,000 jobs from December 2016 to January 2017 according to the January 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.
...
“The U.S. labor market is hitting on all cylinders and we saw small and midsized businesses perform exceptionally well,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Further analysis shows that services gains have rebounded from their tepid December pace, adding 201,000 jobs. The goods producers added 46,000 jobs, which is the strongest job growth that sector has seen in the last two years.”

Mark Zandi, chief economist of Moody’s Analytics said, “2017 got off to a strong start in the job market. Job growth is solid across most industries and company sizes. Even the energy sector is adding to payrolls again.”

This was well above the consensus forecast for 168,000 private sector jobs added in the ADP report. 

The BLS report for January will be released Friday, and the consensus is for 175,000 non-farm payroll jobs added in January.

by Calculated Risk on 2/01/2017 07:00:00 AM

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

Mortgage applications decreased 3.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 27, 2017. The previous week’s results included an adjustment for the MLK Day holiday.

... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index increased 12 percent compared with the previous week and was 2 percent higher than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,000 or less) increased to its highest level since December 2016, 4.39 percent, from 4.35 percent, with points increasing to 0.34 from 0.30 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

It would take a substantial decrease in mortgage rates to see a significant increase in refinance activity - although we might see more cash-out refis.


The second graph shows the MBA mortgage purchase index.

Even with the recent increase in mortgage rates, purchase activity is still holding up.

However refinance activity has declined significantly.