by Calculated Risk on 10/05/2011 01:29:00 PM

On Friday the BLS will release the September Employment Situation Summary at 8:30 AM ET. Bloomberg is showing the consensus is for an increase of 65,000 payroll jobs in September, and for the unemployment rate to increase to 9.2% from 9.1% in August.

Overall the economic data for September was fairly weak, though mostly better than in August. The BLS reported zero jobs added in August, so "better" doesn't mean much. Of course, the Verizon labor dispute subtracted 45,000 payroll jobs in August, and these jobs will be added back in the September report. So better means more than 45,000.

Here is a summary of recent data:

• The ADP employment report showed an increase of 91,000 private sector payroll jobs in September. Unfortunately ADP hasn't been very useful in predicting the BLS report. Also note that government payrolls have been shrinking by about 35,000 on average per month this year. Also the ADP doesn't include the Verizon labor dispute, so this suggests around 91,000 private nonfarm payroll jobs added, plus 45,000 from Verizon, minus 35,000 government workers - or around 101,000 total jobs added in September.

• The ISM manufacturing employment index increased to 53.8% from 51.8% in August. Based on a historical correlation between the ISM index and the BLS employment report for manufacturing, this reading suggests an increase of 2,000 private payroll jobs for manufacturing in September. This is consistent with the regional Fed manufacturing surveys showing some hiring in September.

However, the ISM non-manufacturing employment index decreased 2.9 percentage points to 48.7 percent. According to ISM this means contraction, but a historical correlation suggests this indicates some hiring.

Click on graph for larger image in graph gallery.

This scatter graph compares the ISM non-manufacturing employment index (x-axis) and the BLS report for private service employment (as a percent change per month). This suggests private service employment growth of around 27,000 in September (not including Verizon).

So the ISM surveys suggests 27,000 service jobs added, 2,000 manufacturing jobs added, plus the 45,000 Verizon workers, minus 35,000 government jobs - or about 39,000 jobs added in September.

• Initial weekly unemployment claims averaged about 417,000 per week in September, up from the 411,000 average in August.

However, claims were elevated during the BLS reference week (includes the 12th of the month). For the middle two weeks of September, claims averaged 430,000 per week - suggesting some increase in layoffs mid-month.

• The final September Reuters / University of Michigan consumer sentiment index increased to 59.4 from 55.7 in August. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. This was probably impacted by the debt ceiling debate (it usually take 2 to 4 months from sentiment to recover from an "event"). In in general this low level would suggest a weak labor market.

• And on the unemployment rate from Gallup: Gallup Finds U.S. Underemployment Stuck at 18.5% in Mid-Sept.

Unemployment, as measured by Gallup without seasonal adjustment, is 8.8% in mid-September -- down from 9.1% at the end of August and the same as it was at the end of July. However, the apparent improvement in unemployment from August to mid-September may merely reflect normal seasonal hiring patterns and not be an indication that the employment situation is improving. On the other hand, current unemployment is considerably better than the 9.4% of a year ago.

NOTE: The Gallup poll results are Not Seasonally Adjusted (NSA), so use with caution. Usually the NSA unemployment rate declines in September, so this would suggest little change in the unemployment rate from August.

There always seems to be some randomness to the employment report, but my guess is it will be in the 40,000 to 100,000 range. There were some clear negatives this month - weekly claims were elevated during the reference period, consumer sentiment was very low, and the ISM non-manufacturing employment index declined below 50. Still I'll take the over on the consensus (above 65,000), mostly because of the 45,000 jobs added from Verizon. Caveat: my track record when I take the under has been very good - but recently I've been mostly wrong when I've taken the over!

by Calculated Risk on 10/05/2011 10:00:00 AM

The September ISM Non-manufacturing index was at 53.0%, down from 53.3% in August. The employment index decreased in September to 48.7%, down from 51.6% in August. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: September 2011 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in September for the 22nd 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, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. "The NMI registered 53 percent in September, 0.3 percentage point lower than the 53.3 percent registered in August, and indicating continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased 1.5 percentage points to 57.1 percent, reflecting growth for the 26th consecutive month. The New Orders Index increased by 3.7 percentage points to 56.5 percent. The Employment Index decreased 2.9 percentage points to 48.7 percent, indicating contraction in employment after 12 consecutive months of growth. The Prices Index decreased 2.3 percentage points to 61.9 percent, indicating prices increased at a slower rate in September when compared to August. According to the NMI, nine non-manufacturing industries reported growth in September. Respondents' comments reflect an uncertainty about future business conditions and the direction of the economy."
emphasis added

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.

This was slightly above the consensus forecast of 52.9% and indicates slightly slower expansion in September than in August. However the employment index indicated contraction in September.

by Calculated Risk on 10/05/2011 08:15:00 AM

ADP reports:

According to today’s ADP National Employment Report, employment in the nonfarm private business sector rose 91,000 from August to September on a seasonally adjusted basis. Employment in the private, service-providing sector rose 90,000 in September, up slightly from an increase of 83,000 in August. Employment in the private, goods-producing sector rose a scant 1,000 in September, while manufacturing employment declined by 5,000.

“Like August, this month’s jobs report continues to show modest job creation,” said Gary C. Butler, Chief Executive Officer of ADP. “The number of jobs added to the private sector in August and September were virtually identical."

Note: ADP is private nonfarm employment only (no government jobs).

This was slightly above the consensus forecast of an increase of 90,000 private sector jobs in September. The BLS reports on Friday, and the consensus is for an increase of 65,000 payroll jobs in September, on a seasonally adjusted (SA) basis.

Of course the ADP report has not been very useful in predicting the BLS report.

by Calculated Risk on 10/05/2011 07:17:00 AM

The MBA reports: Mortgage Applications, except Government Refinances, Decrease in Latest MBA Weekly Survey

Refinance Index decreased 5.2 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.8 percent from one week earlier.
...
"Interest rates continued to fall last week, driven by the latest Federal Reserve actions to invest in longer-term Treasury and mortgage securities, but potential borrowers largely remained on the sidelines, seemingly unimpressed by the lowest (by any measure) mortgage rates since the 1940s," said Mike Fratantoni, MBA's Vice President of Research and Economics. "Refinance application volume declined and purchase volume was little changed. ... Many refinance borrowers are opting to deleverage by moving to a 15-year term, with this product accounting for 27.0 percent of refinance volume last week."
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 4.18 percent from 4.24 percent ... The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.49 percent from 4.53 percent

The following graph shows the MBA Purchase Index and four week moving average since 1990.

Click on graph for larger image in graph gallery.

The purchase index declined in August - although this doesn't include the large number of cash buyers - this suggests fairly weak home sales this fall.

by Calculated Risk on 10/05/2011 12:05:00 AM

From the WSJ: Offices Make Slow Recovery

Overall, the amount of occupied space in U.S. office buildings increased by 6.2 million square feet during the quarter, with the vacancy rate falling by 0.1 percentage point to 17.4%, Reis said.
...
Average asking rents for office space also have been growing slowly this year and rose by 13 cents to $27.85 a square foot in the third quarter. By comparison, they hit a boom-era high of $29.37 in the third quarter of 2008 and a post-recession low of $27.50 in the third quarter of 2010.

Click on graph for larger image in graph gallery.

This graph shows the office vacancy rate starting in 1991.

Reis is reporting the vacancy rate declined to 17.4% in Q3, down from 17.5% in Q2. The vacancy rate was at a cycle high of 17.6% in Q3 2010. It appears the office vacancy rate might have peaked in 2010 - and has only declined slightly since then.

Reis should release the Mall and Apartment vacancy rates over the next few days.

by Calculated Risk on 10/04/2011 06:50:00 PM

From the American Bankruptcy Institute: Consumer Bankruptcy Filings Down 10 Percent Through Nine Months of 2011

U.S. consumer bankruptcy filings totaled 1,044,722 nationwide during the first nine months of 2011 (Jan. 1-Sept. 30), a 10 percent decrease from the 1,165,172 total consumer filings during the same period a year ago, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). September consumer bankruptcies decreased 17 percent nationwide from September 2010 as the data showed that the overall consumer filing total for September reached 108,517 down from the 130,329 consumer filings recorded in September 2010.

“The trend of declining filings has been consistent with consumers continuing to reign in their spending, household debt, and an overall pull back in consumer credit,” said ABI Executive Director Samuel J. Gerdano. “Total consumer filings for 2011 will be less than 2010.”

Click on graph for larger image in graph gallery.

This graph shows the non-business bankruptcy filings by quarter using monthly data from the ABI and previous quarterly data from USCourts.gov.

Note: The spike in 2005 was due to the so-called "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005".

It is possible that consumer bankruptcy filings peaked in 2010, but filings will probably stay elevated for several years.

by Calculated Risk on 10/04/2011 04:00:00 PM

Click on graph for larger image in new window.

The first graph shows the S&P 500 since 1990 (this excludes dividends).

The dashed line is the closing price today. The S&P 500 was first at this level in April 1998; over 13 years ago.

The second graph (click on graph for larger image) from Doug Short shows the sharp decline over the last few weeks.

The S&P dipped into bear market territory (down 20%) within the day, but closed up over 2%. This puts the S&P500 down about 17.5% from the recent peak.

by Calculated Risk on 10/04/2011 12:26:00 PM

The following article makes a few key points that we've been discussing:
• It is very unlikely that the U.S. economy was in a technical recession at the end of Q3. In fact, Goldman revised up their Q3 forecast to 2.5% (Merrill Lynch and others revised up their Q3 forecasts too). The recent data suggests sluggish growth, not recession (examples include the ISM manufacturing survey showing expansion in September, the Chicago PMI increasing, and auto sales back up over 13 million SAAR).

• There are clear downside risks to the U.S. economy mostly from the European financial crisis, the apparent renewed recession in Europe, and from U.S. fiscal tightening. However the potential spillover from Europe is difficult to quantify.

• Since the cyclical sectors in the U.S. remain very depressed, it is difficult for those sectors to fall significantly. Usually these sectors decline prior to a recession in the U.S., and that is not happening now.

From Jeff Cox at CNBC: Recession Chance 40% in 2012, Jobless Rate to 9.5%: Goldman

Jan Hatzius, Goldman's chief US economist, pegged recession chances at 40 percent and said the jobless rate is likely to surge to the mid-9 percent range in 2012.

While that still jibes with the firm's forecast that a recession — or two consecutive quarters of negative growth — is not the most likely scenario, the warning signs flashed Tuesday underscore concerns about European debt contagion on an already fragile US economy.

Here are the upside and downside risks from the research note:

The upside risk is that either financial stresses ease--with the most likely cause of this a more aggressive and coordinated move by European policymakers to turn the tide--or that the spillovers from those financial stresses into US credit and financial conditions prove relatively limited. The quickest and easiest way to gauge the former is the behavior of borrowing spreads for sovereigns in the European periphery, and banks in the Eurozone as a whole. ... Without a clear pass-through into domestic financial or credit conditions, the base-case outlook would revert to our previous forecast of trend or slightly-below trend growth in 2012. (The "hard data" on the economy have held up sufficiently well in the third quarter that we now expect 2.5% growth in Q3, from 2.0% previously.)

The downside risk is of course that these financial spillovers--or conceivably some other shock, perhaps greater fiscal tightening in 2012 than we now anticipate--prove sufficient to push the US economy into recession; both a quantitative model and our subjective assessment put recession risk in the neighborhood of 40% at this point. For now, we still think the base case is that the US economy avoids this outcome. The cyclical sectors of the economy are already quite depressed--in particular, homebuilding is barely above the depreciation rate of housing--so downside looks more limited.

by Calculated Risk on 10/04/2011 10:00:00 AM

Fed Chairman Ben Bernanke's testimony, "Economic Outlook and Recent Monetary Policy Actions", Before the Joint Economic Committee, United States Congress, Washington, D.C.

Here is the CSpan feed

Prepared testimony: Economic Outlook and Recent Monetary Policy Actions

Recent revisions of government economic data show the recession as having been even deeper, and the recovery weaker, than previously estimated; indeed, by the second quarter of this year--the latest quarter for which official estimates are available--aggregate output in the United States still had not returned to the level that it had attained before the crisis. Slow economic growth has in turn led to slow rates of increase in jobs and household incomes.

The pattern of sluggish growth was particularly evident in the first half of this year, with real gross domestic product (GDP) estimated to have increased at an average annual rate of less than 1 percent. Some of this weakness can be attributed to temporary factors. Notably, earlier this year, political unrest in the Middle East and North Africa, strong growth in emerging market economies, and other developments contributed to significant increases in the prices of oil and other commodities, which damped consumer purchasing power and spending; and the disaster in Japan disrupted global supply chains and production, particularly in the automobile industry. With commodity prices having come off their highs and manufacturers' problems with supply chains well along toward resolution, growth in the second half of the year seems likely to be more rapid than in the first half.

However, the incoming data suggest that other, more persistent factors also continue to restrain the pace of recovery. Consequently, the Federal Open Market Committee (FOMC) now expects a somewhat slower pace of economic growth over coming quarters than it did at the time of the June meeting, when Committee participants most recently submitted economic forecasts.

And on policy:

One crucial objective is to achieve long-run fiscal sustainability. The federal budget is clearly not on a sustainable path at present. ...

A second important objective is to avoid fiscal actions that could impede the ongoing economic recovery. These first two objectives are certainly not incompatible, as putting in place a credible plan for reducing future deficits over the longer term does not preclude attending to the implications of fiscal choices for the recovery in the near term.
...
In view of the deterioration in the economic outlook over the summer and the subdued inflation picture over the medium run, the FOMC has taken several steps recently to provide additional policy accommodation.
...
Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy. Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector. Fiscal policy is of critical importance, as I have noted today, but a wide range of other policies--pertaining to labor markets, housing, trade, taxation, and regulation, for example--also have important roles to play. For our part, we at the Federal Reserve will continue to work to help create an environment that provides the greatest possible economic opportunity for all Americans.

by Calculated Risk on 10/04/2011 08:45:00 AM

From the NY Times: Rescue Aid to Greece Delayed as Pressure Rises for Reforms

Meeting in Luxembourg, the finance ministers made it clear that Greece was now unlikely to receive 8 billion euros ($10.6 billion) before November.

Greece has said it could default on its debt within weeks without the aid — an outcome with potentially disastrous consequences for the euro zone.

From the WSJ: Greece: Finances Can Withstand Delay

Greece's government has enough cash to continue operating until the middle of November, the country's finance minister said Tuesday, after euro-zone finance ministers delayed the disbursement of the next tranche of promised aid for the debt-stricken country.

"Until mid-November there is no problem," Finance Minister Evangelos Venizelos said at a news conference. "We have done a cash-flow forecast and our estimates are secure."

Meanwhile, on approving the expanded European Financial Stability Facility (EFSF), Slovakia’s will vote sometime between October 11th and October 14th, there will be a vote in Malta tomorrow (Wednesday), and the Dutch vote on October 12th. The goal is to have full ratification before the EU summit on October 17th.