by Calculated Risk on 10/19/2012 02:38:00 PM

From the BLS: Regional and State Employment and Unemployment Summary

Regional and state unemployment rates were generally lower in September. Forty-one states and the District of Columbia recorded unemployment rate decreases, six states posted rate increases, and three states had no change, the U.S. Bureau of Labor Statistics reported today.
...
Nevada continued to record the highest unemployment rate among the states, 11.8 percent in September. Rhode Island and California posted the next highest rates, 10.5 and 10.2 percent, respectively. North Dakota again registered the lowest jobless rate, 3.0 percent.

Click on graph for larger image in graph gallery.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement - obviously Michigan and Ohio have seen the most improvement - New Jersey and New York are the laggards.

The states are ranked by the highest current unemployment rate. Only three states still have double digit unemployment rates: Nevada, Rhode Island, and California. In early 2010, 18 states and D.C. had double digit unemployment rates.

I expect the unemployment rate in California to fall below 10% very soon.

All current employment graphs
Earlier on Existing Home Sales:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales: A few comments and NSA Sales Graph
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 11:36:00 AM

This was a solid report, not because of sales, but because of the level of inventory. Based on historical turnover rates, I think "normal" sales would be in the 4.5 to 5.0 million range. So, existing home sales at 4.75 million are in the normal range.

Of course a "normal" market would have very few distressed sales, so there is still a long ways to go, but the market is headed in the right direction. Note: No one should expect existing home sales to go back to 6 or 7 million per year. Instead the key to returning to "normal" are more conventional sales and fewer distressed sales.

From the NAR this morning:

Distressed homes - foreclosures and short sales sold at deep discounts - accounted for 24 percent of September sales (13 percent were foreclosures and 11 percent were short sales), up from 22 percent in August; they were 30 percent in September 2011

I'm not confident in the NAR distressed sales measurement (it is from an unscientific survey of Realtors), but other sources also suggest distressed sales have fallen in many areas.

Some quick calculations: According to the NAR, existing home sales in September were at a 4.75 million annual rate with 24% distressed sales. That would suggest conventional sales at a 3.61 million annual rate.

In September 2011, sales were at a 4.28 million annual rate with 30% distressed. That would suggest conventional sales were at a 3.0 million annual rate in September 2011. So conventional sales in September 2012 were up about 20% from a year ago.

Also, according to the NAR, the percent of distressed sales peaked in March 2009 at just under 50% when total sales were at a 3.94 million sales rate. That would suggest conventional sales were at a 2.0 million sales rate in March 2009, and that conventional sales are up about 80% from the bottom! If we were confident in the NAR data, this would be the number to watch.

Of course what matters the most in the NAR's existing home sales report is inventory. It is active inventory that impacts prices (although the "shadow" inventory will keep prices from rising). For existing home sales, look at inventory first and then at the percent of conventional sales.

The NAR reported inventory decreased to 2.32 million units in September, down from 2.40 million in August. This is down 20.0% from September 2011, and down 16% from the inventory level in September 2005 (mid-2005 was when inventory started increasing sharply). This is the lowest level for the month of September since 2002.

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Click on graph for larger image.

This graph shows inventory by month since 2004. In 2005 (dark blue columns), inventory kept rising all year - and that was a clear sign that the housing bubble was ending.

This year (dark red for 2012) inventory is at the lowest level for the month of September since 2002, and inventory is below the level in September 2005 (not counting contingent sales). All year I've been arguing months-of-supply would be below 6 towards the end of the year, and months-of-supply fell to 5.9 months in September (a normal range).

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA in September (red column) are only slightly above last year (there were 2 fewer selling days). Sales are well below the bubble years of 2005 and 2006, and also below 2007.

Earlier:
• Existing Home Sales in September: 4.75 million SAAR, 5.9 months
• Existing Home Sales graphs

by Calculated Risk on 10/19/2012 10:00:00 AM

The NAR reports: September Existing-Home Sales Down but Prices Continue to Improve

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 1.7 percent to a seasonally adjusted annual rate of 4.75 million in September from an upwardly revised 4.83 million in August, but are 11.0 percent above the 4.28 million-unit pace in September 2011.
...
Total housing inventory at the end September fell 3.3 percent to 2.32 million existing homes available for sale, which represents a 5.9-month supply at the current sales pace, down from a 6.0-month supply in August. Listed inventory is 20.0 percent below a year ago when there was an 8.1-month supply.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in September 2012 (4.75 million SAAR) were 1.7% lower than last month, and were 11.0% above the September 2011 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory declined to 2.32 million in September down from 2.40 million in August. Inventory is not seasonally adjusted, and usually inventory increases from the seasonal lows in December and January to the seasonal high in mid-summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 20.0% year-over-year in September from September 2011. This is the 19th consecutive month with a YoY decrease in inventory.

Months of supply declined to 5.9 months in September.

This was at expectations of sales of 4.75 million. For existing home sales, the key number is inventory - and the sharp year-over-year decline in inventory is a positive for housing. I'll have more later ...

All current Existing Home Sales graphs

by Calculated Risk on 10/19/2012 08:36:00 AM

Each year I track seasonal retail hiring during October, November and December. This usually provides an early clue on holiday retail sales. Currently the NRF is forecasting about the same level of seasonal hiring as last year.

From the National Retail Federation: Expect Solid Growth This Holiday Season

Tempered by political and fiscal uncertainties but supported by signs of improvement in consumer confidence, holiday sales this year will increase 4.1 percent to $586.1 billion. NRF’s 2012 holiday forecast is higher than the 10-year average holiday sales increase of 3.5 percent.
...
According to NRF, retailers are expected to hire between 585,000 and 625,000 seasonal workers this holiday season, which is comparable to the 607,500 seasonal employees they hired last year.

Last year was the highest level of seasonal hiring since 2007 (seasonal hiring was especially weak in 2008, and then improved some in 2009). There is also a shift towards online buying that is keeping down seasonal hiring.

by Calculated Risk on 10/18/2012 08:37:00 PM

The most important numbers in the existing home sales report, to be released Friday morning, are inventory and percent conventional sales - not total sales (although that will be the focus of most of the media).

Inventory is important because this is "visible inventory" (as opposed to "shadow inventory"), and visible inventory that has the largest impact on prices. The percent of conventional sales is important because this gives a hint as to the health of the overall market.

Imagine if sales move mostly sideways for the next few years, but the number of distressed sales steadily declines. That would be a sign of an improving market.

Unfortunately I'm not very confident in the NAR methodology for estimating the percent of distressed sales. This data comes from a monthly survey for the Realtors® Confidence Index and is an unscientific sample. However the regional data Tom Lawler and I have been tracking suggests the percent of conventional sales is increasing.

In August 2012, the NAR reported "Distressed homes ... accounted for 22 percent of August sales (12 percent were foreclosures and 10 percent were short sales), down from 24 percent in July and 31 percent in August 2011" and last year, the NAR reported "Distressed homes ... accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from ... 35 percent in September 2010." 

So it appears the percent of distressed sales is declining (the percent of conventional sales is increasing), and I'd expect the NAR to report distressed sales in the low 20 percent range.

Housing economist Tom Lawler estimates the NAR will report sales of 4.70 million and a monthly decline in the inventory of existing homes for sale of about 3.2% in September.

On Friday:
• At 10:00 AM, the National Association of Realtors (NAR) will releases Existing Home Sales for September. The consensus is for sales of 4.75 million on seasonally adjusted annual rate (SAAR) basis. Sales in August 2012 were 4.82 million SAAR.

• Also at 10:00 AM, the BLS will release the Regional and State Employment and Unemployment report for September 2012.


Another question for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 10/18/2012 03:18:00 PM

Freddie Mac reported earlier today: Mortgage Rates Near Record Lows As Home Construction Builds Up Steam

Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed mortgage rates edging slightly lower with the 30-year fixed averaging 3.37 percent, just above its all-time record low of 3.36 percent, and the average 15-year fixed dipping to a new all-time record low at 2.66 percent.

And the MBA reported yesterday that refinance activity decreased last week, but is still near the highest level since early 2009.

Here is a graph comparing mortgage rates from the Freddie Mac Primary Mortgage Market Survey® (PMMS®) and the refinance index from the Mortgage Bankers Association (MBA).

UPDATE: left axis is MBA refinance index, 1990=100.

Click on graph for larger image.

It usually takes around a 50 bps decline from the previous mortgage rate low to get a huge refinance boom - and that is what we are seeing!

There has also been an increase in refinance activity from borrowers with negative equity and loans owned or guaranteed by Fannie or Freddie (see The HARP Refinance Boom Continued in August) .

The second graph shows the 15 and 30 year fixed rates from the Freddie Mac survey.

The Primary Mortgage Market Survey® started in 1971 (15 year in 1991). The 30 year rate is near a record low for the Freddie Mac survey, and rates for 15 year fixed loans is at a now low this week.

by Calculated Risk on 10/18/2012 12:12:00 PM

Occasionally, over the last several years, I've posted a list of downside risks to economic growth - and here is another one. Currently my forecast is still for sluggish and choppy growth, but I think there are reasons to expect US economic growth to pickup in the next year or two, perhaps to trend growth. As I noted last month in Two Reasons to expect Economic Growth to Increase, residential investment is now a tailwind for the economy, and the drag from state and local government cutbacks is mostly behind us.

There are always many downside risks (meteor strikes, major terrorist attack, war somewhere - possibly with Iran), but I think these are the most probable downside risks:

• The European financial crisis. The European crisis has been threatening to spill over into the US for several years. Looking back, I was writing about Greece, Ireland and Spain sovereign debt issues in 2009. This year the recession in Europe is hitting US exports, but so far there is little financial contagion.

The European situation could spin out of control at any time. Currently the unemployment rate is 25.1% in both Spain and Greece, and that is political unsustainable. There are decisions to made soon regarding Greece (another round of financial help) and Spain (when will they ask for a bailout?) - and also about fiscal union and easing back on austerity.

• The economic slowdown in China. The recession in Europe has spilled over into China, and has led to fears of a sharp slowdown. From the WSJ: China's Growth Continues to Slow

Growth in China's gross domestic product fell to 7.4% in the third quarter compared with a year earlier, China's National Bureau of Statistics said Thursday, down from 7.6% in the second quarter and the weakest since the beginning of 2009. The seventh consecutive deceleration reflected a combination of weak demand from abroad, flagging investment at home, and insufficient spending by China's households to pick up the slack.

Data for September showed some signs of stabilization. Industrial output growth rose to 9.2% year-over-year, from 8.9% in August. Exports also bounced back, up 9.9% year-over-year in September, after 2.7% in the previous month. And Chinese refineries processed a record high amount of crude oil, 7% more than a year earlier.

China reports GDP on a year-over-year basis (the US reports an annualized rate quarterly). A sharp slowdown in China might lead to a higher trade deficit with the US - and also might reveal some financial issues in China. As Warren Buffett said "It's only when the tide goes out that you learn who's been swimming naked."

Of course a slowdown in China might lead to lower commodity prices, and that would help many sectors in the US.

• The Fiscal Slope. This is commonly called the "fiscal cliff", but it is more of a slope. This refers to several federal tax increases and spending cuts that are scheduled to happen at the beginning of 2013. This includes ending the Bush-era tax cuts, ending the temporary payroll tax reduction, ending extended unemployment benefits, and some large budget cuts mostly for defense spending. No one expect this to be resolved before the election, but after the election this could become a significant issue. This doesn't have to be resolved immediately - policymakers could wait a few months - but this probably has to be resolved fairly early next year.

My assumption is that some sort of reasonable agreement will be reached and the fiscal slope will only have a minor impact on economic growth in 2012. My guess could be wrong, and policymakers might not be able to reach a deal.

Note: There is also the possibility of stronger than expected growth next year. This could lead to the Federal Reserve slowing or even stopping QE3 - but I think that would be considered a strong positive. Right now, sluggish growth with some pickup in 2013, seems most likely.

by Calculated Risk on 10/18/2012 10:00:00 AM

The Philly Fed manufacturing index showed expansion in October after five consecutive months of contraction. From the Philly Fed: October Manufacturing Survey

Firms responding to the October Business Outlook Survey reported a modest improvement in business activity this month. The survey’s indicators for general activity returned to positive territory, while new orders and shipments recorded levels near zero. But firms reported continuing declines in employment and hours worked. Indicators for the firms’ expectations over the next six months remained positive.

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased 8 points, to 5.7, marking the first positive reading since April.

Labor market conditions at the reporting firms remained weak this month. The current employment index dipped 3 points, to ‐10.7, its lowest reading since September 2009.
emphasis added

Earlier in the week, the NY Fed reported:

The October Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to decline for a third consecutive month. The general business conditions index increased four points but remained negative at -6.2.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through October. The ISM and total Fed surveys are through September.

The average of the Empire State and Philly Fed surveys increased in October but was still slightly negative.  This suggests another weak reading for the ISM manufacturing index.

by Calculated Risk on 10/18/2012 08:30:00 AM

The DOL reports:

In the week ending October 13, the advance figure for seasonally adjusted initial claims was 388,000, an increase of 46,000 from the previous week's revised figure of 342,000. The 4-week moving average was 365,500, an increase of 750 from the previous week's revised average of 364,750.

The previous week was revised up from 339,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.



Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 365,500. This is just above the cycle low for the 4-week average of 363,000 in March.

Weekly claims were higher than the consensus forecast of 365,000.



And here is a long term graph of weekly claims:

Mostly moving sideways this year, but near the cycle bottom. The large swings over the last two weeks were related to timing and technical factors, and is a reason to use the 4-week average.

All current Employment Graphs

by Calculated Risk on 10/17/2012 08:24:00 PM

A couple of articles on housing:

An interesting comment via Nick Timiraos at the WSJ: Why Housing Construction Is Rebounding

Gains in construction should lift the economy. Glenn Kelman, chief executive of real-estate brokerage Redfin, writes in an op-ed at Quartz that builders have been completing “half-built projects” with “skeleton crews” for much of the past year. That hasn’t done too much for job growth. “It takes fewer cooks to prepare leftovers for dinner,” he writes.

This could be part of the reason that construction employment is lagging, but I also think we will see upward revisions (the preliminary benchmark revision indicated a fairly large upward revision for construction employment). The construction jobs are coming ...

And from Neil Irwin at the WaPo: September figures may provide signs of a housing recovery

First, it helps to understand how deep, and sustained, this housing depression has been. Residential investment — essentially, housing construction and sales activity — has been below 3 percent of gross domestic product every quarter since the fourth quarter of 2008, closing in on four years. Before this downturn, it had never fallen below 3 percent for even a single quarter (the data go back to 1947).
...
Here’s the thing, however: The overbuilding of houses during the boom years, while real, was not extraordinary by historical standards. The underbuilding of houses has been far greater than the excess housing construction during the boom relative to demographic trends.

... other factors are probably major culprits in the housing weakness of the past four years: A terrible job market that has made people unwilling or unable to get a mortgage, an overhang of foreclosures that has kept the market for houses from clearing and extreme caution by banks and other lenders that has made it hard to get mortgages.

Now each of those trends seems to be healing.

Here is a graph to go along with Irwin's article:

Click on graph for larger image.

Here is a graph of residential investment (RI) as a percent of GDP. Currently RI is 2.4% of GDP; just above the record low. I expect RI to recover back towards 4% of GDP over the next few years giving a boost to GDP and employment.

On Thursday:
• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 365 thousand from 339 thousand. Look for a larger than normal upward revision to last week's report (apparently one large state was late with their quarterly filing).

• At 10:00 AM, the Philly Fed Survey for October will be released. The consensus is for a reading of 0.5, up from minus 1.9 last month (above zero indicates expansion).

• Also at 10:00 AM, the Conference Board Leading Indicators for September will be released. The consensus is for a 0.2% increase in this index.


Another question for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).