by Calculated Risk on 7/05/2012 08:20:00 AM

ADP reports:

According to today‟s ADP National Employment Report, employment in the nonfarm private business sector rose 176,000 from May to June on a seasonally adjusted basis. Employment in the private, service-providing sector rose 160,000 in June, after rising a revised 137,000 in May.

According to Joel Prakken, chairman of Macroeconomic Advisers, LLC, “The gain in private employment is strong enough to suggest that the national unemployment rate may have declined in June. Today‟s estimate, if reinforced by a comparable reading on employment from the Bureau of Labor Statistics tomorrow, likely will ease concerns that the economy is heading into a downturn.”

Prakken added: “There seems little doubt that recent employment gains have been restrained by heightened uncertainty over the European financial crisis and by growing concerns about domestic fiscal policy. However, the acceleration of employment since April does lend credence to the argument that unseasonably warm weather boosted employment during the winter months, with a "payback" spread over April and May.”

This was way above the consensus forecast of an increase of 95,000 private sector jobs in June. The BLS reports on Friday, and the consensus is for an increase of 90,000 payroll jobs in June, on a seasonally adjusted (SA) basis.

ADP hasn't been very useful in predicting the BLS report, but this suggests a stronger than consensus report.

Note - it was rate cutting day too: ECB cuts rates.

China cuts rates.

BOE expands QE.

by Calculated Risk on 7/05/2012 07:00:00 AM

From the MBA: Mortgage Applications Decrease Driven by a Drop in Refinances in Latest MBA Weekly Survey

The Refinance Index was down about 8 percent overall this week, largely driven by a significant drop in refinance applications for government loans. The HARP 2.0 share of refinance applications has been 24 percent over the past two weeks, up slightly from 20 percent three weeks ago. The seasonally adjusted Purchase Index increased less than 1 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.86 percent from 3.88 percent, with points increasing to 0.41 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. This is the lowest 30-year fixed rate since MBA began tracking the series.

Click on graph for larger image.

The decline in refinance activity was from a very high level. This just offset the surge in refinance activity two weeks ago related to the change in FHA streamline refinancing.

The purchase index is mostly moving sideways.

by Calculated Risk on 7/05/2012 01:20:00 AM

Reis reported that the apartment vacancy rate (82 markets) fell to 4.7% in Q2 from 4.9% in Q1 2012. The vacancy rate was at 5.9% in Q2 2011 and peaked at 8.0% at the end of 2009.

From Reuters: US apartment rents rise at highest rate since '07 -Reis

Renting an apartment in the U.S. became even more expensive during the second quarter, as vacancies set a new 10-year low and rents rose at a pace not seen since before the financial crisis, according to real estate research firm Reis Inc. ...

The average U.S. vacancy rate of 4.7 percent was the lowest since the fourth quarter of 2001 ...

Asking rents jumped to $1,091 per month, 1 percent higher than the first quarter and the biggest increase since the third quarter of 2007. Excluding special perks designed to lure tenants, like months of free rent, the average effective rent rose 1.3 percent to $1,041.

"The improvement in rents is pretty pervasive," said Ryan Severino, Senior Economist at Reis.

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 2005.

Reis is just for large cities, but this decline in vacancy rates - and increase in rents - is happening just about everywhere.

by Calculated Risk on 7/04/2012 09:43:00 PM

Back to work ... there are several key economic reports that will be released on Thursday. Also the European Central Bank (ECB) is expected to cut the benchmark interest rate from 1.0% to 0.75%.

• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This report will probably show record low mortgages rates.

• At 8:15 AM: The ADP Employment Report for June will be released. This report is for private payrolls only (no government). The consensus is for 95,000 payroll jobs added in June, down from the 133,000 reported in May.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to be unchanged at 386 thousand.

• At 10:00 AM, the ISM non-Manufacturing Index for June will be released. The consensus is for a decrease to 53.0 from 53.7 in May. Note: Above 50 indicates expansion, below 50 contraction.

• Early: Reis is expected to release their Q2 Apartment vacancy report.

The Asian markets are mostly green tonight. The Nikkei is up slightly.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 are down 3 and Dow futures are down 30.


Oil: WTI futures are up to $86.85 (this is down from $109.77 in February, but up last week) and Brent is up to $99.89 per barrel.

Professor Hamilton has a new post on gasoline prices: Update on U.S. gasoline prices

Two weeks ago, I commented on the tendency of U.S. retail gasoline prices to follow the price of Brent crude oil, anticipating on the basis of the price of Brent, then at $91.50, that we might expect to see average U.S. retail gasoline prices, then at $3.47, to fall an additional 35 cents/gallon. The gasoline price has since come down about 11 cents. But with Brent now surging back up near $100, this is about all we can expect.

See his post for several charts.

by Calculated Risk on 7/04/2012 04:33:00 PM

I was going to write about this, but economist Josh Lehner beat me to it.

From Lehner: The Handoff – Manufacuturing to Housing

As you may have heard, the latest reading on the ISM Manufacturing index declined in June to a level of 49.7. The index is designed such that values of over 50 indicate expansion while values below 50 indicate contraction. This marked the first time since July 2009 that the index registered in contraction territory ...

Now, does that mean the economy is doomed? Not neccessarily. Even after a slowdown in manufacturing, the industry can and likely will continue to grow in the coming years, just that the growth is and was not expected to remain consistently strong. Second and more importantly ... is the transition from manufacturing to housing as a major economic driver. ... Residential Investment (new home construction) is now growing nearly 10% year-over-year while the manufacturing cycle is slowing.

In the recovery so far, beyond personal consumer expenditures, exports and investment – largely the manufacturing cycle – have been significant contributors, while the housing downturn continued to languish. Now, housing growth has returned but the industry is not yet doing the heavy lifting. The much stronger growth in housing is not expected until 2013 and 2014 in our forecast ...

Lehner has a couple of graphs showing the "handoff".

As I noted yesterday in Manufacturing vs. Housing, housing is usually a better leading indicator for the US economy than manufacturing. Manufacturing is more coincident. So the ISM index suggests some weakness now - mostly abroad - whereas housing suggests an ongoing sluggish recovery.

by Calculated Risk on 7/04/2012 12:52:00 PM

Happy 4th!

Here is another update using inventory numbers from HousingTracker / DeptofNumbers to track changes in listed inventory. Tom Lawler mentioned this last year.

According to the deptofnumbers.com for (54 metro areas), inventory is off 24.2% compared to the same week last year. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through May (left axis) and the HousingTracker data for the 54 metro areas through early July.

Click on graph for larger image.

Since the NAR released their revisions for sales and inventory last year, the NAR and HousingTracker inventory numbers have tracked pretty well.

On a seasonal basis, housing inventory usually bottoms in December and January and then starts to increase again through the summer. So inventory might still increase a little over the next month or two, but the forecasts for a "surge" in inventory this summer were incorrect. In fact inventory might have already peaked for the year!

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the early July listings, for the 54 metro areas, declined 24.2% from the same period last year. So far in 2012, the NAR has reported only a small seasonal increase in inventory - and the housing tracker numbers are lower in early July than for January!

This decline in active inventory remains a huge story, and the lower level of inventory is helping stabilize house prices.

All current Existing Home Sales graphs

by Calculated Risk on 7/04/2012 09:55:00 AM

Martin Wolf has been a consistent critic of eurozone policymakers ...

From Martin Wolf at the Financial Times: A Step At Last in the Right Direction and here at CNBC.

The 19th crisis summit was better than many of its disappointing predecessors. But the game has not yet changed. Helpful steps were taken.

Wolf provides an overview of the steps taken, and concludes:

Let us not be too grudging: the decision to allow the ESM to recapitalize banks directly is possibly very important, both in itself and for what it portends.

... Nevertheless, the biggest danger is that the economics of the euro zone are deteriorating fast. Joblessness reached 11.1 percent in May, the highest on record for the zone.

Worse ... the ECB is hopelessly late in taking necessary monetary action. ...

It is conceivable that the euro zone will struggle through this economic trench warfare over the next several years. However, the costs – not just economic but also political – are likely to be enormous.

This is the least pessimistic I've seen Wolf, and his view is still very grim. Note: The ECB is expected to cut rates tomorrow.

by Calculated Risk on 7/03/2012 08:50:00 PM

Goldman Sachs put out a research note today: House Prices Finding a Bottom. This isn't a strong call, and is only a slight upward revision to their previous forecast. As they note, there are many factors adding to the "noise" in the house price indexes (distressed sales, foreclosure moratorium, recent warm weather), and a 0.2% increase in prices over the next year isn't much.

A few brief excerpts:

[O]ur model projects a nominal house price gain of 0.2% from 2012Q1 to 2013Q1 and another 1.4% from 2012Q1 to 2013Q1. Taken literally, this would imply that the bottom in nominal house prices is now behind us.

While the recent house price news is encouraging, we would not yet sound the "all clear" for the housing market or the broader economy. First, the instability in the seasonal factors over the past few years is a potential source of noise in the recent house price indicators, and also in our model. ... In addition, the seasonal factors can be also distorted by one-off items ... All of these complications ... adds to the uncertainty as to whether the better recent numbers indicate a true turnaround in the US housing market.

Second, even if the market is gradually turning, as our model implies, the difference between a slightly declining and a slightly increasing national average for home prices is minor, especially given the wide variation between stronger and weaker markets. Our broad view remains that national home prices will remain close to flat over the next 1-2 years, or at a minimum that the recovery will remain very "U-shaped."

by Calculated Risk on 7/03/2012 03:52:00 PM

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.08 million SAAR in June. That is up 22% from June 2011, and up 2.6% from the sales rate last month (13.73 million SAAR in May 2012).

This was above the consensus forecast of 13.9 million SAAR (seasonally adjusted annual rate).

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for June (red, light vehicle sales of 14.08 million SAAR from Autodata Corp).

Click on graph for larger image.

June was the weakest month this year, and the year-over-year increase was large because of the impact of the tsunami and related supply chain issues in May 2011.

Sales have averaged a 14.28 million annual sales rate through the first half of 2012, up sharply from the same period of 2011.

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

Note: dashed line is current estimated sales rate.

This shows the huge collapse in sales in the 2007 recession.

Sales will probably increase some more, but most of the recovery from the depth of the recession has already happened.

by Calculated Risk on 7/03/2012 01:28:00 PM

Note on Auto Sales: I should have an estimate for the June Seasonally Adjusted Annual Rate (SAAR) around 4 PM ET.

A note on manufacturing vs. housing: The ISM manufacturing index dropped below 50 for the first time since July 2009 (below 50 indicates contraction). And the JPMorgan Global Manufacturing PMI also fell below 50.

Meanwhile, in the US, housing is picking up. Housing starts have been increasing, residential construction spending is up 17% from the recent low, and new home sales have averaged 353 thousand on an annual rate basis over the first 5 months of 2012, after averaging under 300 thousand for the previous 18 months.

If someone looked at just manufacturing, they might think the US is near a recession. And if they just looked at housing, they'd think the economy is recovering. Which is it?

First, the decline in the ISM index was partially driven by exports (no surprise given the problems in Europe and slowdown in China). The ISM export index declined to 47.5 in June from 53.5 in May, the lowest level since early 2009. However some of this export weakness will probably be offset by lower oil and gasoline prices.

Second, the current ISM reading of 49.7 isn't all that weak. Goldman Sachs analysts noted yesterday: "A reading such as this has historically been associated with just under 2% real GDP growth--very near our current second-quarter tracking estimate of 1.6%."

Third, housing is usually a better leading indicator for the US economy than manufacturing. Historically housing leads the economy both into and out of recessions (not out of the recession this time because of the excess supply in 2009). Manufacturing is more coincident. So the ISM index suggests some weakness now - mostly abroad - whereas housing suggests an ongoing sluggish recovery.

Who ya gonna call? Housing.