by Calculated Risk on 7/01/2011 02:40:00 PM

Note: I'll post a graph of June vehicle sales, probably around 4 PM ET (after all the data is released).

In a research note released today, Goldman Sachs economist Andrew Tilton listed five hopeful signs for the 2nd half of 2011:

First, commodity prices have eased. Using a standard seasonal adjustment procedure, retail gasoline prices are back to end-2010 levels.
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Second, despite the increase in interest rates this week, financial conditions are easier than at any point in 2010. Bank lending standards remain tight, but these too are easing on the margin.
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Third, the decline in house prices may be abating.
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Fourth, vehicle production has rebounded following large disruptions due to the Japanese earthquake and tsunami.
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Fifth, labor market indicators seem to have stabilized after some worrying readings in late April and May, although we’ll have to wait until next Friday’s June employment report for a more definitive assessment. ... We expect an increase of 125,000 payroll jobs, with the unemployment rate dropping back to 9.0%.

CR note: The recent increase in house prices is mostly seasonal, and I expect house prices to decline NSA (Not Seasonally Adjusted) late this year. But it does appear the pace of house price declines has slowed.

The improvement in vehicle production will probably show up as an increase in sales in July and August. Yesterday, from Edmunds.com: Ford: Industry Car Sales to Rise after June "[Ford Motor Co.’s chief sales analyst George] Pipas said July should be improved but it won’t be until at least August before the U.S. industry returns to a 13 million or more SAAR."

I'll post the June auto sales numbers soon, but the real pickup should be in Q3.

I was expecting employment to pickup in July, but Goldman thinks there will be an increase in June to 125,000 payroll jobs added compared to only 54,000 in May. That would be great news.

Earlier:
• ISM Manufacturing index increases in June

by Calculated Risk on 7/01/2011 11:40:00 AM

Catching up ... this morning from the Census Bureau reported that overall construction spending decreased in May:

[C]onstruction spending during May 2011 was estimated at a seasonally adjusted annual rate of $753.5 billion, 0.6 percent (±1.6%)* below the revised April estimate of $757.9 billion. The May figure is 7.1 percent (±1.8%) below the May 2010 estimate of $811.2 billion.

Private construction spending also decreased in May:

Spending on private construction was at a seasonally adjusted annual rate of $477.2 billion, 0.4 percent (±1.4%)* below the revised April estimate of $479.3 billion. Residential construction was at a seasonally adjusted annual rate of $228.9 billion in May, 2.1 percent (±1.3%) below the revised April estimate of $233.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $248.3 billion in May, 1.2 percent (±1.4%)* above the revised April estimate of $245.4 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 40% below the peak in January 2008.

The small increase in non-residential in May was mostly due to power.

Construction spending is still mostly moving sideways (and a little down). I expect some pickup in residential construction spending as more multi-family units are started.

by Calculated Risk on 7/01/2011 10:15:00 AM

PMI was at 55.3% in June, up from 53.5% in May. The employment index was at 59.9%, up from 58.2% and new orders increased to 51.6%, up from 51.0%. All better than in May.

From the Institute for Supply Management: June 2011 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 55.3 percent, an increase of 1.8 percentage points from May, indicating expansion in the manufacturing sector for the 23rd consecutive month. New orders and production were both modestly up from last month, and employment showed continued strength with an increase of 1.7 percentage points to 59.9 percent. The rate of increase in prices slowed for the second consecutive month, dropping 8.5 percentage points in June to 68 percent. This follows a similar reduction of 9 percentage points in the Prices Index in May, and is the lowest figure since August 2010 when the index registered 61.5 percent. While the rate of price increases has slowed and the list of commodities up in price has shortened, commodity and input prices continue to be a concern across several industries.”

Click on graph for larger image in new window.

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

This was above expectations of 51.7%. Earlier in the month it looked like the ISM was going to be weak, but recent regional reports indicated improvement towards the end of June.

by Calculated Risk on 7/01/2011 09:55:00 AM

The final June Reuters / University of Michigan consumer sentiment index decreased to 71.5 from the preliminary reading of 71.8. This is down from 74.3 in May.


Click on graph for larger image in graphic gallery.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices. However, even with gasoline prices falling, consumer sentiment is mostly moving sideways at a low level.

This was below the consensus forecast of 72.0.

by Calculated Risk on 7/01/2011 08:31:00 AM

From the WSJ: Eurogroup to Approve Greek Aid on Saturday. The WSJ reports the euro zone Finance ministers will hold a conference call tomorrow and are expected to approve the disbursement of the next tranche of aid (€12 billion). They are also expected to discuss the next bailout.

The yield for Greek 2 year bonds is down to 26.4%, and the 10 year yield is down to 16.3%. Portuguese and Irish 10 year yields are down too (11.6% for Ireland, 10.8% for Portugal).

by Calculated Risk on 6/30/2011 11:09:00 PM

From Edmunds.com: Ford: Industry Car Sales to Rise after June

Ford Motor Co.’s chief sales analyst predicts June car sales will be level with or somewhat better than those in May, but after June, the sales rate will begin to rise through year-end. “There are some indications that May and June could be the slowest sales rates of the year,” George Pipas told media Wednesday. “There are positive signs in June’s results that suggest at some point in the second half, we’ll return to a sales rate of the first half or better.”
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Pipas said July should be improved but it won’t be until at least August before the U.S. industry returns to a 13 million or more SAAR due to inventory shortages of Japanese automakers caused by the March 11 earthquake.

June sales will be announced tomorrow and no one expects a huge rebound. A few estimates:

• From Bloomberg: Auto Sales at 12 Million Rate Slowed by Missing Inventory: Cars

June light-vehicle deliveries, to be released tomorrow, may have run at a 12 million seasonally adjusted annual rate, the average estimate of 12 analysts surveyed by Bloomberg. That would be an increase from 11.8 million in May

• From Edmunds.com:

The estimated sales volume translates to a Seasonally Adjusted Annualized Rate (SAAR) of 11.9 million in June, according to Edmunds.com analysts

• From TrueCar.com:

The June 2011 forecast translates into a Seasonally Adjusted Annualized Rate (SAAR) of 12.17 million new car sales, up from 11.83 million in May 2011 and up from 11.16 million in June 2010

• From J.D. Power and Associates:

[The] forecast by J.D. Power would mean a seasonally adjusted annualized rate ... for total light vehicles of 12 million

The rebound - according to Ford - should show up in July and August.

by Calculated Risk on 6/30/2011 07:59:00 PM

Here is the weekly update on hotels from HotelNewsNow.com: Orlando posts weekly decreases in all three key metrics

Overall, the U.S. hotel industry’s occupancy rose 2.8% to 71.6%, ADR increased 3.3% to US$102.33, and RevPAR finished the week up 6.2% to US$73.30.

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The following graph shows the seasonal pattern for the hotel occupancy rate using a four week average for the occupancy rate.

Click on graph for larger image in graph gallery.

The summer leisure travel season is now starting, and the occupancy rate will increase over the next few of months. Right now the occupancy rate is tracking closer to 2008 than to 2010 - and well above 2009.

A reminder: the occupancy rate started to fall off in the summer of 2008, and really fell off a cliff in the fall of 2008. Who can forget the ruckus following the AIG post-bailout party at the St. Regis Monarch Beach Resort?

Travel was already declining, and then that scandal lead to a collapse in corporate travel ... so I expect the occupancy rate in 2011 to be above 2008 pretty soon.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

Earlier today ...
• Kansas City Manufacturing Survey: Manufacturing activity rebounded solidly in June
• Weekly Initial Unemployment Claims decline slightly to 428,000
• CoreLogic: May Home Price Index increased 0.8%

by Calculated Risk on 6/30/2011 04:15:00 PM

The restaurant index is one of several industry specific indexes I track each month. The following report is for May.

From the National Restaurant Association: Restaurant Industry Outlook Softened in May as the Restaurant Performance Index Fell Below 100 for First Time in Six Months

The National Restaurant Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 99.9 in May, down 1.0 percent from April’s level. May represented the first time in six months that the RPI stood below 100, which signifies contraction in the index of key industry indicators.
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“Like the economy as a whole, the restaurant industry’s recovery hit a speed bump in May, with same-store sales and traffic levels softening from recent months,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “However, the overall economic fundamentals of the restaurant industry remain positive, which will likely lead to stronger performances in the months ahead.”
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Restaurant operators reported softer same-store sales results in May. ... Restaurant operators also reported a net decline in customer traffic in May.

Click on graph for larger image in graph gallery.

The index decreased to 99.9 in May (above 100 indicates expansion).

Unfortunately the data for this index only goes back to 2002.

The economy clearly slowed in May, so a decline was expected. This is a minor report (really not even "D-List" data), but I'd expect discretionary spending to slow sharply if consumers become really worried - and that doesn't seem to be happening.

by Calculated Risk on 6/30/2011 01:40:00 PM

Fannie Mae reported that the serious delinquency rate decreased to 4.14% in May, down from 4.19% in April. This is down from 5.15% in May of 2010. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate decreased to 3.53% in May from 3.57% in April. This is down from 4.06% in May 2010. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image in graph gallery.

Some of the rapid increase in 2009 was probably because of foreclosure moratoriums, and also because loans in trial mods were considered delinquent until the modifications were made permanent.

Now the serious delinquency rate is falling as Fannie and Freddie work through the backlog of loans and either modify the loan, foreclose, short sale, or the loan cures.

The normal serious delinquency rate is under 1%, so this is still very high. At the current pace of improvement, it will take 3 or 4 years to get back to "normal".

Earlier today ...
• Kansas City Manufacturing Survey: Manufacturing activity rebounded solidly in June
• Weekly Initial Unemployment Claims decline slightly to 428,000
• CoreLogic: May Home Price Index increased 0.8%

by Calculated Risk on 6/30/2011 11:14:00 AM

From the Kansas City Fed: Manufacturing Sector Shows Rebound After Last Month's Slowdown

The Federal Reserve Bank of Kansas City released the June Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity rebounded solidly in June after a brief slowdown last month, and producers remained generally optimistic about future activity.

“Factories in the region basically resumed their solid pace of growth from earlier in the year, following some disruptions in May,” said Wilkerson. “Also, hiring plans remain fairly solid for the second half of the year.”
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The month-over-month composite index was 14 in June, up from 1 in May and equal to 14 in April. ... Most other month-over-month indicators also improved in June. The production index jumped from -2 to 22, and the shipments, new orders, and order backlog indexes also posted solid gains. The employment index increased from 9 to 17, and the new orders for exports index also edged higher.

This was a solid rebound from May.

Earlier, the Chicago PMI indicated a rebound in June with the index at 61.1 (SA), up from 56.6 in May. New orders were up sharply from 53.5 to 61.2, although employment was down a little to 60.8 from 58.7 (above 50 is expansion).

This is the last of the regional Fed surveys for June. The regional surveys provide a hint about the ISM manufacturing index - and the regional surveys were fairly weak this month as the following graph shows.

Click on graph for larger image in graph gallery.

The New York and Philly Fed surveys are averaged together (dashed green, through June), and five Fed surveys are averaged (blue, through June) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through May (right axis).

The regional surveys suggest the ISM manufacturing index will fall to the low 50s or so in June. After the NY and Philly Fed surveys were released, it seems that a reading below 50 was possible (and could still happen).

However the more recent surveys (Richmond, Dallas, Kansas City and Chicago PMI) all showed expansion in June. The ISM index for June will be released tomorrow, July 1st, and expectations are for a decrease to 51.7 from 53.5 in May.