by Calculated Risk on 9/04/2012 11:40:00 AM

Catching up ... This morning the Census Bureau reported that overall construction spending decreased in July:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during July 2012 was estimated at a seasonally adjusted annual rate of $834.4 billion, 0.9 percent below the revised June estimate of $842.2 billion. The July figure is 9.3 percent above the July 2011 estimate of $763.5 billion.

Both private construction spending and public spending declined:

Spending on private construction was at a seasonally adjusted annual rate of $558.7 billion, 1.2 percent below the revised June estimate of $565.6 billion. ... In July, the estimated seasonally adjusted annual rate of public construction spending was $275.7 billion, 0.4 percent below the revised June estimate of $276.7 billion.

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 is 61% below the peak in early 2006, and up 19% from the recent low. Non-residential spending is 29% below the peak in January 2008, and up about 30% from the recent low.

Public construction spending is now 15% below the peak in March 2009 and near the post-bubble low.

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

On a year-over-year basis, private residential construction spending is now up 19%. Non-residential spending is also up year-over-year mostly due to energy spending (power and electric). Public spending is still down year-over-year, although it now appears public construction spending is moving sideways.

The slight decline in residential construction spending in July followed several months of solid gains. The solid year-over-year increase in private residential investment is a positive for the economy (the increase in 2010 was related to the tax credit).
All Housing Investment and Construction Graphs

by Calculated Risk on 9/04/2012 10:00:00 AM

This is the third consecutive month of contraction (below 50) in the ISM index since the recession ended in 2009. PMI was at 49.6% in August, down slightly from 49.8% in July. The employment index was at 51.6%, down from 52.0%, and the new orders index was at 47.1%, down from 48.0%.

From the Institute for Supply Management: August 2012 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 49.6 percent, a decrease of 0.2 percentage point from July's reading of 49.8 percent, indicating contraction in the manufacturing sector for the third consecutive month. This is also the lowest reading for the PMI™ since July 2009. The New Orders Index registered 47.1 percent, a decrease of 0.9 percentage point from July, indicating contraction in new orders for the third consecutive month. The Production Index registered 47.2 percent, a decrease of 4.1 percentage points and indicating contraction in production for the first time since May 2009. The Employment Index remained in growth territory at 51.6 percent, but registered its lowest reading since November 2009 when the Employment Index registered 51 percent. The Prices Index increased 14.5 percentage points from its July reading to 54 percent. Comments from the panel generally reflect a slowdown in orders and demand, with continuing concern over the uncertain state of global economies."

Click on graph for larger image.

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

This was below expectations of 50.0%. This suggests manufacturing contracted in August for the third consecutive month.

This was another weak report.

by Calculated Risk on 9/04/2012 08:54:00 AM

Notes: This CoreLogic House Price Index report is for July. The Case-Shiller index released last week was for June. Case-Shiller is currently the most followed house price index, however CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic® July Home Price Index Rises 3.8 Percent Year-Over-Year—Biggest Increase Since 2006

Home prices nationwide, including distressed sales, increased on a year-over-year basis by 3.8 percent in July 2012 compared to July 2011. This was the biggest year-over-year increase since August 2006. On a month-over-month basis, including distressed sales, home prices increased by 1.3 percent in July 2012 compared to June 2012. The July 2012 figures mark the fifth consecutive increase in home prices nationally on both a year-over-year and month-over-month basis.

Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 4.3 percent in July 2012 compared to July 2011. On a month-over-month basis excluding distressed sales, home prices increased 1.7 percent in July 2012 compared to June 2012, also the fifth consecutive month-over-month increase. Distressed sales include short sales and real estate owned (REO) transactions.

The CoreLogic Pending HPI indicates that August home prices, including distressed sales, will rise by 4.6 percent on a year-over-year basis from August 2011 and at least 0.6 percent on a month-over-month basis from July 2012.

“The housing market continues its positive trajectory with significant price gains in July and our expectation of a further increase in August,” said Mark Fleming, chief economist for CoreLogic. “While the pace of growth is moderating as we transition to the off-season for home buying, we expect a positive gain in price levels for the full year.”

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 1.3% in July, and is up 3.8% over the last year.

The index is off 27% from the peak - and is up 9.7% from the post-bubble low set in February (the index is NSA, so some of the increase is seasonal).

The second graph is from CoreLogic. The year-over-year comparison has been positive for five consecutive months.

Excluding the tax credit bump, these are the first year-over-year increases since 2006 - and this is the largest year-over-year increase since 2006.

by Calculated Risk on 9/03/2012 09:31:00 PM

Happy Labor Day!

On Tuesday:
• At 10:00 AM ET, the ISM Manufacturing Index for August is scheduled for release. The consensus is for an increase to 50.0, up from 49.8 in July. (below 50 is contraction).

• Also at 10:00 AM, Construction Spending for July will be released. The consensus is for a 0.4% increase in construction spending.

• All day: Light vehicle sales for August. The consensus is for light vehicle sales to increase to 14.3 million SAAR in August from 14.1 million in July. The SAAR estimate is usually available around 4 PM ET.

The Asian markets are mostly green tonight, with the Nikkei up slightly and the Shanghai Composite up 0.6%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P future are up 1, and the DOW futures up 16 points.

Oil prices are still moving up with WTI futures are at $97.22 and Brent is at $116.09 per barrel. Using the calculator at Econbrowser suggests national gasoline prices at about $3.74 per gallon.

Weekend:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd

Here are the first week questions for the September contest. You can now enter with Facebook, Twitter, or OpenID logins:

by Calculated Risk on 9/03/2012 06:08:00 PM

From the WSJ: ECB Chief Hints at Bond Purchases

The president of the European Central Bank dropped more hints about how the bank could support struggling countries, suggesting the bank was free to buy government bonds maturing in three years or less.

The comments by Mario Draghi in a closed hearing at the European Parliament on Monday came ahead of the ECB's monthly policy meeting Thursday.
...
Mr. Draghi indicated Monday that the ECB would be open to buying bonds with a maturity of two to three years, stressing that such purchases wouldn't break European Union treaties, according to several lawmakers present at the hearing.

Paul Murphy at Alphaville has the market reaction: A Draghi leak ...

It will an interesting week!

by Calculated Risk on 9/03/2012 11:55:00 AM

From CNBC: Europe Shares Close Higher on Asset Purchase Hopes

Traders are hoping the ECB will cut rates and detail a new bond-buying plan to ease the funding pressures on Spain and Italy. All eyes will be on the European Central Bank on Thursday as investors await news on its next policy move.

The ECB Governing Council meets on Thursday in Frankfurt with a press conference to follow. Analysts at Nomura are expecting a rate cut, but no bond buying yet for Spain and Italy. From Nomura:

• Having failed to cut in August, we now expect the ECB to cut the refi rate 25bp in September and leave the deposit rate at zero.

• We also expect the ECB to announce on 6 September that it is ready to intervene but only when help has been requested.

• We expect Spain and Italy to resist calling for help, prompting renewed market deterioration.

And from Jack Ewing at the NY Times: In Pivotal Week for Euro Zone, a Test for the Central Bank’s Leader

[T]his Thursday, when the central bank meets again, Mr. Draghi, the bank’s president, could have a far harder time reconciling the expectations of twitchy financial markets with the limitations of his power. Although investors are counting on bold action, analysts say the bank probably needs more time to resolve internal differences and deliver on a promise to use its financial clout to tame runaway borrowing costs for the most troubled euro zone countries.
...
Some analysts do expect the central bank to cut the benchmark interest rate to 0.5 percent on Thursday, from its already record low level of 0.75 percent.
...
In any case, actual bond buying by the central bank is probably at least several weeks away. Mr. Draghi said in August that the bank would intervene in bond markets only in concert with the new European Union rescue fund, the European Stability Mechanism, or E.S.M.

Countries would need to ask the rescue fund for help, Mr. Draghi said, and the fund would take the lead in bond buying, with the central bank providing backup financial support. But the fund, meant to replace a temporary bailout fund, is in legal limbo at least until the German constitutional court rules Sept. 12 on a challenge to the country’s participation.

by Calculated Risk on 9/03/2012 09:20:00 AM

For the economic question contest in August, the leaders were (Congratulations all!):

1st: Richard Plaster
2nd tie: Bill Dawers, Lance Leger, Jeffrey McNamee, Jeremy Strouse, Bill (CR)

Weekend:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd

Here are the first week questions for the September contest. You can now enter with Facebook, Twitter, or OpenID logins:

by Calculated Risk on 9/02/2012 05:55:00 PM

Two of the key U.S. economic trends I expected this year were 1) a recovery in residential investment, and 2) that most of the drag from state and local governments would be over by mid-year 2012. Just eliminating the drag from state and local governments would help GDP and employment growth.

I've written extensively about the housing recovery, and it is time to take another look at state and local government spending. In early August, the Rockefeller Institute of Government put out a report on state and local government revenue through Q1. From the press release:

Overall state tax revenues are now above pre-recession levels, as well as above peak levels that came several months into the Great Recession. In the first quarter of 2012, total state tax revenues were 4.8 percent higher than during the same quarter of 2008.

Starting at the end of 2008 and extending through 2009, states suffered five straight quarters of decline in tax revenues. They now have enjoyed nine consecutive periods of growth, and the second quarter of 2012 will likely extend the string to 10. Overall collections in 45 early-reporting states showed growth of 5.8 percent in the months of April and May of 2012 compared to the same months of 2011.

After adjusting for inflation, however, state tax revenues are still 1.6 percent lower compared to the same quarter four years ago, in 2008.

That is a little encouraging, but the news isn't as positive for local governments:

While state tax revenues have been recovering, many localities face significant fiscal challenges, according to the report’s author, Senior Policy Analyst Lucy Dadayan.

“The Great Recession led to a growing divergence between state and local government tax performance,” Dadayan said. “State tax revenues collapsed steeply from 2008 to 2010 while local tax revenues continued to grow. Such trends have reversed since 2010, and state tax revenues started trending upward while local tax revenues have been mostly heading downward. Fiscal pressures are continuously mounting for local governments, and depressed housing prices are now causing declines in local property taxes.”

The problem is local governments are mostly funded by property taxes, and property taxes react slowly to falling house prices - and property taxes are still declining. From the report:

Collections from local property taxes made up 81.6 percent of such receipts during the first quarter of 2012. Local property tax revenues showed a decline of 0.9 percent in nominal terms in the first quarter of 2012 compared to the same quarter of 2011. Moreover, local property taxes were 4.6 and 1.3 percent lower than during the same quarters of 2009 and 2010, respectively.

This suggests some further local cutbacks, although I still expect the drag to be less than the last few years.

Here is a graph showing the contribution to percent change in GDP for residential investment and state and local governments since 2005.

Click on graph for larger image.

The blue bars are for residential investment (RI), and RI was a significant drag on GDP for several years. Now RI has added to GDP growth for the last 5 quarters (through Q2 2012).

However the drag from state and local governments is ongoing. State and local governments have been a drag on GDP for eleven consecutive quarters. Although not as large a negative as the worst of the housing bust (and much smaller spillover effects), this decline has been relentless and unprecedented.

In real terms, state and local government spending is now back to Q4 2001 levels, even with a larger population.

The next graph is for state and local government employment. So far in 2012 - through July - state and local governments have lost 42,000 jobs (7,000 jobs were lost in July). In the first seven months of 2011, state and local governments lost 205,000 payroll jobs - and 230,000 for the year. So the layoffs have slowed.

This graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 230,000 in 2011.

Note: Some of the stimulus spending from the American Recovery and Reinvestment Act probably kept state and local employment from declining faster in 2009.

Note: Of course the Federal government is still losing workers (38,000 over the last 12 months and another 2,000 in July), but it looks like state and local government employment losses might be slowing - but the job losses haven't stopped yet - and with property tax revenue still falling, more local jobs will probably be lost.

Yesterday:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd

by Calculated Risk on 9/02/2012 12:03:00 PM

From HotelNewsNow.com: STR: US results for week ending 25 August

In year-over-year comparisons, occupancy ended the week with a 4.9-percent increase to 65.7 percent, average daily rate was up 5.3 percent to US$105.43 and revenue per available room ended the week with an increase of 10.5 percent to US$69.30.

The 4-week average is above the pre-recession levels (the occupancy rate for the same week in 2007 was 64.2 percent).

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.

Click on graph for larger image.

The red line is for 2012, yellow is for 2011, blue is "normal" and black is for 2009 - the worst year since the Great Depression for hotels.

The occupancy rate will decline over the next month as the summer travel season ends. The next key period is for fall business travel.

The recovery in the occupancy rate has helped hotel profitability, from HotelNewsNow.com: Hotel profitability bouncing back

The U.S. hotel industry achieved a net income of approximately $33 billion, or 21.4% of total revenues, during 2011—a healthy increase of 15.7% over 2010 levels, according to STR through its Hotel Operating Statistics, or HOST, program. STR is the parent company of HotelNewsNow.com.

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

Yesterday:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd

by Calculated Risk on 9/02/2012 09:06:00 AM

From the National Restaurant Association: Uncertainty Over Future Business Conditions Dampens Restaurant Performance Index

The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.2 in July, down 1.1 percent from June and the lowest mark since a reading of 100.0 in October. However, July still represented the ninth consecutive month that the RPI stood above 100, which signifies continued expansion in the index of key industry indicators.

“Although restaurant operators reported positive same-store sales for the 14th consecutive month in July, their economic outlook for the months ahead continued to soften,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Only 22 percent of restaurant operators expect economic conditions to improve in the next six months, the lowest level in 10 months.”

Click on graph for larger image.

The index decreased to 100.2 in July, down from 101.4 in June (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month.

Yesterday:
• Summary for Week Ending Aug 31st
• Schedule for Week of Sept 2nd