by Calculated Risk on 4/04/2011 03:22:00 PM

From Dow Jones: Beazer Homes To Form Rental Unit, Starts In Phoenix

Beazer Homes ... is acquiring newer homes in distress--including some it built--and renting them out.

... Builders are unable to compete with bargain-priced foreclosures, some located within walking distance of new homes under construction. ...

The company launched its program in Phoenix, one of the areas hardest hit by the housing crisis. It completed its first home purchases last month and expects to have more than 100 by the end of this fiscal year.

This seems like a dumb idea for a "home builder". The scale is insignificant, and they have no special expertise in being a landlord. I guess they need something to do.

by Calculated Risk on 4/04/2011 12:14:00 PM

Ted Nesi at wpri.com has a follow-up to a story he wrote back in February: Chafee cuts East Side home’s asking price by $60,000

Over the weekend, Gov. Lincoln Chafee and his wife Stephanie reduced by $60,000 the asking price for their 3,900-square-foot home on Providence’s East Side, a decrease of 6.7%.

The Chafees are now seeking $829,000 for the seven-bedroom, three-and-a-half-bathroom property at 54 Barnes St. That’s down from the initial listing price of $889,000 ...

This price cut was predictable - like many sellers, the Chafees had priced their home too high. Nesi notes that the Chafees purchased the house for $939,000 in 2006, so at the current asking price they are looking at a $110,000 loss plus closing costs. Ouch.

by Calculated Risk on 4/04/2011 09:22:00 AM

Reis is expected to release their Q1 Office, Mall and Apartment vacancy rate reports this week. These reports have been showing "stabilizing" vacancy rates for offices and malls, and falling vacancy rates for apartments. So much for "stabilization" in Las Vegas ...

From Buck Wargo at the Las Vegas Sun: Commercial real estate recovery may be two steps forward, one back

Colliers International Las Vegas reported that the office, industrial and retail vacancy rates rose by the end of March just as they had during the fourth quarter of 2010.

Commercial vacancy rates, especially the office sector, had shown some improvement during the third quarter of 2010, but that positive news now appears to be short-lived.
...
In the Las Vegas retail market, the vacancy rate was 11.5 percent, up from 10.6 percent in the fourth quarter and 9.7 percent in the first quarter of 2010—that’s a nearly 20 percent increase.

The office vacancy rate stood at 24.8 percent at the end of the first quarter, up from 24.1 percent in December and 22.7 percent in the first quarter of 2010.

Maybe the title should have been "one step forward, two steps back". I think the national numbers will be somewhat better.

Weekend:
• Summary for Week ending April 1st
• Schedule for Week of April 3rd
• All employment graphs

by Calculated Risk on 4/03/2011 11:48:00 PM

Earlier:
• Summary for Week ending April 1st
• Schedule for Week of April 3rd
• All employment graphs

On 60 Minutes: Really just old news, but you can read the 60 Minutes story here ... or watch the video below.

by Calculated Risk on 4/03/2011 06:10:00 PM

Tracking the participation rate for various age groups monthly is a little like watching grass grow, but the trends are important.

If the Civilian noninstitutional population (over 16 years old) grows by about 2 million per year - and the participation rate stays flat - the economy will need to add about 100 thousand jobs per month to keep the unemployment rate steady at 8.8%.

If the population grows faster (say 2.5 million per year), and/or the participation rate rises, it could take significantly more jobs per month to hold the unemployment rate steady. As an example, if the working age population grows 2.5 million per year and the participation rate rises to 65% (from 64.2%) over the next two years, the economy will need to add 200 thousand jobs per month to hold the unemployment rate steady.

That is why forecasting the participation rate is important - and why reports of the number of jobs needed to hold the unemployment rate steady are all over the place (and can be very confusing - and I'm guilty of using different numbers).

Click on graph for larger image in graph gallery.

Here is a repeat of the graph showing the participation rate, unemployment rate, and employment-to-population ratio.

The Labor Force Participation Rate was unchanged at 64.2% in March (blue line). This is the lowest level since the early '80s. This is the percentage of the working age population in the labor force.

Here is a look at some the long term trends (updating graphs through March 2011):

This graph shows the changes in the participation rates for men and women since 1960 (in the 25 to 54 age group - the prime working years).

The participation rate for women increased significantly from the mid 30s to the mid 70s and has mostly flattened out. The participation rate for men has decreased from the high 90s to 88.7% in March 2011. (down slightly from February)

There will probably be some "bounce back" for both men and women (some of the recent decline is probably cyclical), but the long term trend for men is down.

This graph shows that participation rates for several key age groups.

There are a few key long term trends:
• The participation rate for the '16 to 19' age group has been falling for some time (red). This increased in March to 34.1% from the record low 33.5% in February.

• The participation rate for the 'over 55' age group has been rising since the mid '90s (purple), although this has stalled out a little recently (perhaps cyclical).

• The participation rate for the '20 to 24' age group fell recently too (perhaps more education before joining the labor force). This appears to have stabilized, and I expect the participation rate to increase for this cohort as the job market improves.

The third graph shows the participation rate for several over 55 age groups. The red line is the '55 and over' total seasonally adjusted. All of the other age groups are Not Seasonally Adjusted (NSA).

The participation rate is generally trending up for all older age groups. The '65 to 69' age group hit a new record high in March!

The increase in participation of older cohorts might push up the overall participation rate over the next few years, however eventually the 'over 55' participation rate will start to decline as the oldest baby boomers move into even older age groups.

I've been expecting some small bounce back in the participation rate, but I don't think the bounce back will be huge - and that means it will take fewer jobs than some expect to lower the unemployment rate. This will be a key number to watch over the next few years.

by Calculated Risk on 4/03/2011 11:55:00 AM

By request, here are a few more employment graphs ...

Duration of Unemployment
Click on graph for larger image in graph gallery.

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.

In general, all four categories are trending down. The less than 5 week category appears to be back to normal (fits with the initial weekly claims data).

Unfortunately the "27 weeks or more" category increased slightly in March to 6.122 million workers (about 4% of the labor force). This remains extremely high, and long term unemployment remains a serious problem.

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

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 now trending down with some month-to-month volatility - although the unemployment rate for the college educated has increased two months in a row.

Diffusion Indexes
This is a little more technical. The BLS diffusion index for total private employment was at 62.4 in March, down from 68.7 in February. For manufacturing, the diffusion index decreased to 63.0 from 66.0 in February.

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. 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.

Even though the diffusion indexes declined in March, the level of both indexes is still fairly high - so hiring is still fairly widespread.

Best to all

Earlier:
• Summary for Week ending April 1st
• Schedule for Week of April 3rd
• All employment graphs

by Calculated Risk on 4/03/2011 08:30:00 AM

Earlier:
• Summary for Week ending April 1st

This will be a light week for economic data.

Note: Reis is expected to release their Q1 Office, Mall and Apartment vacancy rate reports this week. These reports have been showing "stabilizing" vacancy rates for offices and malls, and falling vacancy rates for apartments.

----- Monday, April 4th -----
9:05 AM ET: Atlanta Fed President Dennis Lockhart speaks in Palm Beach, Florida.

7:15 PM ET: Fed Chairman Ben Bernanke, "Clearinghouses and Financial Stability", At the Federal Reserve Bank of Atlanta 2011 Financial Markets Conference, Stone Mountain, Georgia

----- Tuesday, April 5th -----
10:00 AM: ISM non-Manufacturing Index for March. The consensus is for a slight decrease to 59.5 from 59.7 in February.

Click on graph for larger image in graph gallery.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. The February ISM Non-manufacturing index was at 59.7%, up from 59.4% in January. The employment index indicated faster expansion in February at 55.6%, up from 54.5% in January. Note: Above 50 indicates expansion, below 50 contraction.

12:45 PM: Minneapolis Federal Reserve Bank President Narayana Kocherlakota speaks "The impact of, and response to, industry forces on homeownership in Emerging Markets"

2:00 PM: FOMC Minutes, Meeting of March 15, 2011. The minutes might contain hints about the recent disagreements on QE2, and possibly a discussion about the recently announced post-meeting press conferences.

----- Wednesday, April 6th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been very weak over the last couple months suggesting weak home sales through the first few months of 2011.

----- Thursday, April 7th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a decrease to 385,000 from 388,000 last week.

3:00 PM: Consumer Credit for February. The consensus is for a $4.8 billion increase in consumer credit.

----- Friday, April 8th -----
10:00 AM: Monthly Wholesale Trade: Sales and Inventories for February.

Best wishes to All!

by Calculated Risk on 4/02/2011 08:01:00 PM

Catching up (and feeling much better today) ... the Census Bureau reported yesterday that overall construction spending decreased in February compared to January (seasonally adjusted).

[C]onstruction spending during February 2011 was estimated at a seasonally adjusted annual rate of $760.6 billion, 1.4 percent (±1.4%)* below the revised January estimate of $771.0 billion. The February figure is 6.8 percent (±1.6%) below the February 2010 estimate of $815.8 billion.

Private construction spending also decreased in February:

Spending on private construction was at a seasonally adjusted annual rate of $468.0 billion, 1.4 percent (±1.3%) below the revised January estimate of $474.6 billion. Residential construction was at a seasonally adjusted annual rate of $228.5 billion in February, 3.7 percent (±1.3%) below the revised January estimate of $237.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $239.6 billion in February, 0.9 percent (±1.3%)* above the revised January estimate of $237.4 billion.

Click on graph for larger image in graph gallery.

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

Residential spending is 66% below the peak in early 2006, and non-residential spending is 42% below the peak in January 2008.

As I mentioned in the weekly summary, the story remains the same - manufacturing is expanding and anything housing related is still struggling.

Earlier:
• Summary for Week ending April 1st

by Calculated Risk on 4/02/2011 04:56:00 PM

The National Federation of Independent Business (NFIB) will release their March survey on Tuesday, April 12th, but here is a pre-release of the employment data ... from NFIB: NFIB Jobs Statement: Main Street Adds Jobs for Second Consecutive Month

“The positive job creation observed in February was repeated again in March (sigh of relief here), confirming that the number of net new jobs reported on Main Street was decidedly positive. Employment gains have not been this good since 2007.

“The percent of owners reporting hard to fill job openings was unchanged at 15 percent, supporting the modest reductions in the unemployment rate recently observed. Unfortunately, the net percent of owners planning to create new jobs (increasing the total number of workers employed) lost three points, falling to a net 2 percent of all firms, low, but still 12 points better than the recession low reading of negative 10 percent reached in March 2009.

Click on graph for larger image in graph gallery.

This graph shows the net hiring plans for the next three months.

Hiring plans decreased in March, but are still positive.

Small businesses have a larger percentage of real estate and retail related companies than the overall economy. With the high percentage of real estate (including small construction companies), I expect small business hiring to be slow to recover in this cycle.

Earlier:
• Summary for Week ending April 1st

by Calculated Risk on 4/02/2011 11:42:00 AM

The BLS reported that payroll employment increased 216,000 in March and that the unemployment rate declined to 8.8%. If we average the first three months of 2011, there were 160,000 payroll jobs added per month. That is enough to keep up with the growth in the labor force, but to only reduce the unemployment rate slowly. Private payrolls were a little better with an average of 188,000 per month, as state and local governments continued to lay off workers (something we expect all year).

The decline in the unemployment rate from 8.9% to 8.8% was good news, especially since the participation rate was unchanged at 64.2%. Unfortunately the number of long term unemployed increased, as did the number of part time workers for economic reasons.

More disappointing news was that the average workweek declined slightly to 34.1 hours, and average hourly earnings was flat.

The March employment report was another small step in the right direction, but the overall employment situation remains grim: There are 7.25 million fewer payroll jobs now than before the recession started in 2007 with 13.5 million Americans currently unemployed. Another 8.4 million are working part time for economic reasons, and about 4 million more workers have left the labor force. Of those unemployed, 6.1 million have been unemployed for six months or more.

Most of the other stories remained the same - growth in manufacturing activity continues to be strong, and house prices declined further in January.

A key piece of disappointing news was the sluggish increase in real Personal Consumption Expenditures (PCE) in February. This suggests real PCE growth of only 1.4% in Q1, and has prompted several analysts to downgrade Q1 GDP growth.

Below is a summary of economic data last week mostly in graphs:

• March Employment Report: 216,000 Jobs, 8.8% Unemployment Rate

The first graph shows the employment population ratio, the participation rate, and the unemployment rate.

Click on graphs for larger image in graph gallery.

The unemployment rate decreased to 8.8% (red line).

The Labor Force Participation Rate was unchanged at 64.2% in March (blue line). This is the lowest level since the early '80s. This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although some of the decline is due to the aging population.

The Employment-Population ratio was increased slightly to 58.5% in March (black line).

The second graph shows the job losses from the start of the employment recession, in percentage terms aligned at maximum job losses. The dotted line is ex-Census hiring.

The current employment recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only the early '80s recession with a peak of 10.8 percent was worse).

The third graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at the start of the recession.

Here are the employment posts yesterday with graphs:
March Employment Report: 216,000 Jobs, 8.8% Unemployment Rate

Employment Summary and Part Time Workers, Unemployed over 26 Weeks

Employment Graph Gallery

• Case Shiller: Home Prices Off to a Dismal Start in 2011

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 31.4% from the peak, and down 0.2% in January (SA) (really a three month average of November, December and January). The Composite 10 is still 2.2% above the May 2009 post-bubble bottom.

The Composite 20 index is also off 31.3% from the peak, and down 0.2% in January (SA). The Composite 20 is only 0.7% above the May 2009 post-bubble bottom and will probably be at a new post-bubble low soon.

The next graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices in Las Vegas are off 58% from the peak, and prices in Dallas only off 7.3% from the peak.

From S&P (NSA):

Continuing the trend set late last year, we witnessed 11 MSAs posting new index level lows in January 2011, from their 2006/2007 peaks. These cities are Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, New York, Phoenix, Portland (OR), Seattle and Tampa. These same 11 cities had posted lows with December’s report, as well.

Both composite indices are still slightly above the post-bubble low (SA), but the indexes will probably be at new lows in early 2011.

• Personal Income and Outlays Report for Feburary

The following graph shows real Personal Consumption Expenditures (PCE) through February (2005 dollars).

PCE increased 0.7% in February, but real PCE only increased 0.3% as the price index for PCE increased 0.4 percent in February.

Personal income growth was slightly below expectations. Note: Core PCE - PCE excluding food and energy - increased 0.2 percent in February.

Even though PCE growth was at expectations, real PCE was low - and this suggests analysts will downgrade their forecasts for Q1 GDP. Using the two month estimate for PCE growth (averaging the growth of January and February over the first two months of the previous quarter) suggests PCE growth of around 1.4% in Q1 (down sharply from 4.0% in Q4).

• ISM Manufacturing Index increases in March

PMI at 61.2%, slightly above expectations.

From ISM: Economic activity in the manufacturing sector expanded in March for the 20th consecutive month ... The recent trend of rapid growth in the manufacturing sector continued in March, as the PMI registered above 60 percent for the third consecutive month. The component indexes of the PMI remain at very positive levels and signal strong sector performance in the first quarter. While manufacturers are benefiting from strength in new orders and production, there is significant concern with regard to commodity prices. Many manufacturers indicate the prices they have to pay for inputs are rising, and there is concern about the impact of higher prices on their margins." [said Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee]

• U.S. Light Vehicle Sales 13.1 million SAAR in March

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

Note: dashed line is current estimated sales rate. The current sales rate is finally off the bottom of the '90/'91 recession - and there were fewer registered drivers and a smaller population back then.

This was slightly below the consensus estimate of 13.2 million SAAR, possibly because of rising oil prices. I don't think the Japanese supply disruptions had any impact on sales.

• CoreLogic: Shadow Inventory Declines Slightly

From CoreLogic "the current residential shadow inventory as of January 2011 declined to 1.8 million units, representing a nine months’ supply. This is down slightly from 2.0 million units, also a nine months’ supply, from a year ago."

This graph from CoreLogic shows the breakdown of "shadow inventory" by category. For this report, CoreLogic estimates the number of 90+ day delinquencies, foreclosures and REOs not currently listed for sale. Obviously if a house is listed for sale, it is already included in the "visible supply" and cannot be counted as shadow inventory.

This report provides a couple of key numbers: 1) there are 1.8 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale, and 2) there are about 2 million current negative equity loans that are more than 50 percent “upside down”.

• Other Economic Stories ...
• Restaurant Performance Index increases in February
• Kansas City Manufacturing Survey at Record High, Chicago PMI Strong in March
• ADP: Private Employment increased by 201,000 in March
• From the Dallas Fed: Texas Manufacturing Activity Strengthens Further
• From the NAR: February Pending Home Sales Rise
• Unofficial Problem Bank List at 985 Institutions, Correction for Capitol Bancorp

Best wishes to all!