by Calculated Risk on 2/01/2013 10:00:00 AM

Note: I'll have much more on the employment report soon.

The ISM manufacturing index indicated expansion in January. PMI was at 53.1% in January, up from 50.2% in December. The employment index was at 54.0%, up from 51.9%, and the new orders index was at 53.3%, up from 49.7% in December.

From the Institute for Supply Management: January 2013 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in January for the second consecutive month, and the overall economy grew for the 44th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

Click on graph for larger image.

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

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 53.1 percent, an increase of 2.9 percentage points from December's seasonally adjusted reading of 50.2 percent, indicating expansion in manufacturing for the second consecutive month. The New Orders Index registered 53.3 percent, an increase of 3.6 percent over December's seasonally adjusted reading of 49.7 percent, indicating growth in new orders. Manufacturing is starting out the year on a positive note, with all five of the PMI™'s component indexes — new orders, production, employment, supplier deliveries and inventories — registering above 50 percent in January."

This was above expectations of 50.7% and suggests manufacturing expanded in January.

Final consumer sentiment for January:

The final Reuters / University of Michigan consumer sentiment index for January increased to 73.8 from the preliminary reading of 71.3, and from the December reading of 72.9.

This was above the consensus forecast of 71.5. There are a number of factors that can impact sentiment including unemployment, gasoline prices and other concerns - and, for January, the payroll tax increase and more. The slight improvement might be related to relief that politics didn't damage the economy.

by Calculated Risk on 2/01/2013 08:32:00 AM

From the BLS:

Total nonfarm payroll employment increased by 157,000 in January, and the unemployment rate was essentially unchanged at 7.9 percent
...
The change in total nonfarm payroll employment for November was revised from +161,000 to +247,000, and the change for December was revised from +155,000 to +196,000

[Benchmark revision:] The total nonfarm employment level for March 2012 was revised upward by 422,000 (424,000 on a not seasonally adjusted basis).

Click on graph for larger image.

The headline number was below expectations of 185,000. However employment for November and December were revised up sharply.

The second graph shows the unemployment rate.

The unemployment rate increased slightly to 7.9% from 7.8% in December.

The unemployment rate is from the household report and the household report showed only a small increase in employment.


The third graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate was unchanged at 63.6% in January (blue line. This is the percentage of the working age population in the labor force.

The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although a significant portion of the recent decline is due to demographics.


The Employment-Population ratio was also unchanged at 58.6% in January (black line). I'll post the 25 to 54 age group employment-population ratio graph later.


The fourth graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

This was another sluggish growth employment report, but with strong upward revisions to prior months.  I'll have much more later ...

by Calculated Risk on 1/31/2013 08:56:00 PM

Earlier I posted Employment Situation Preview. I argued some of recent employment indicators suggest a more positive report. Here are some other views:

From CNBC: Market Braces for a Blah Jobs Report as Firms Hold Back

Economists expect 160,000 non-farm payrolls were added in January and the unemployment rate stayed unchanged at 7.8 percent, according to Thomson Reuters.

From Neil Irwin at the WaPo: What to expect from Friday’s jobs report

And an Interesting Anecdote from Tim Duy:

One of the more interesting anecdotes I picked up last week was from a businessman who said that after his firm issued the first paychecks of the year, virtually every employee came to the payroll office and asked why their paychecks were lower, evidently unaware that the payroll tax cut had expired.

If the expiration does come as a surprise to a large proportion of the workforce, perhaps consumer spending in the first quarter will be somewhat softer than current estimates. Something to watch for.

Friday economic releases:
• At 8:30 AM ET, the Employment Report for January will be released. The consensus is for an increase of 185,000 non-farm payroll jobs in January; there were also 155,000 jobs added in December. The consensus is for the unemployment rate to decrease to 7.7% in January.

Note: As usual, the January report will include revisions. From the BLS: "the Current Employment Statistics (CES) survey will introduce revisions to nonfarm payroll employment, hours, and earnings data to reflect the annual benchmark adjustment for March 2012 and updated seasonal adjustment factors. Not seasonally adjusted data beginning with April 2011 and seasonally adjusted data beginning with January 2008 are subject to revision."

For the Household survey, from the BLS: "Effective with the release of The Employment Situation for January 2013, scheduled for February 1, 2013, new population controls will be used in the monthly household survey estimation process."

• At 9:00 AM, The Markit US PMI Manufacturing Index. The consensus is for an increase to 55.5, up from 54.0.

• At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (final for January) will be released. The consensus is for a reading of 71.5, up from 71.3.

• At 10:00 AM, the ISM Manufacturing Index for January. The consensus is for PMI to be unchanged at 50.7%. (above 50 is expansion).

• Also at 10:00 AM, Construction Spending for December. The consensus is for a 0.8% increase in construction spending.

• All day: Light vehicle sales for January. The consensus is for light vehicle sales to be at 15.3 million SAAR in January (Seasonally Adjusted Annual Rate) unchanged from the December rate. Usually I post a graph around 4 PM ET.

by Calculated Risk on 1/31/2013 05:05:00 PM

LPS released their Mortgage Monitor report for December today. According to LPS, 7.17% of mortgages were delinquent in December, up from 7.12% in November, and down from 7.89% in December 2011.

LPS reports that 3.44% of mortgages were in the foreclosure process, down from 3.51% in November, and down from 4.20% in December 2011.

This gives a total of 10.61% delinquent or in foreclosure. It breaks down as:

• 2,031,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,545,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,716,000 loans in foreclosure process.

For a total of ​​5,292,000 loans delinquent or in foreclosure in December. This is down from 6,192,000 in December 2011.

This following graph from LPS shows the total delinquent and in-foreclosure rates since 1995.

Click on graph for larger image.

Even though delinquencies were up slightly in December, it was mostly seasonal. From LPS:

The December Mortgage Monitor report released by Lender Processing Services and covering performance data for the full 2012 calendar year, found that while mortgage delinquency rates remained at elevated levels, they have shown steady improvement, ending the year 32 percent lower than the January 2010 peak. Additionally, following a year of regional improvement in foreclosure inventories (marked by stark contrasts between judicial and non-judicial foreclosure states), the national foreclosure inventory rate began to decline toward the end of 2012 from historic highs experienced during the crisis.

LPS also reported:

“Though still a long way off from the historic level of originations that preceded the mortgage crisis, 2012 was the strongest full year of originations we’ve seen since 2007,” [LPS Applied Analytics Senior Vice President Herb Blecher] said. “Volumes were up approximately 34 percent year over year, with about 8.6 million new loans originated. And, while the majority of these new loans were government-backed – 84 percent in 2012 as compared to just over 50 percent at the peak – the trend over the last four years does suggest a slowly resurgent non-agency lending market.”

The second graph from LPS shows negative equity. From LPS:

[T]his month’s Mortgage Monitor also found that 2012’s appreciation in home prices has helped to improve the U.S. equity situation and create even more refinance opportunities:

• Overall, negative equity is down 35 percent since the beginning of the year.

• Nearly 4 million loans that were below conforming loan-to-value (LTV) thresholds for refinancing last year would meet those standards today.

• An additional 3.4 million loans that are on the cusp of conforming loan-to-value thresholds stand to benefit, if the home price situation continues to improve.

This means more borrowers can either refinance or sell their homes.

There is much more in the mortgage monitor.

by Calculated Risk on 1/31/2013 02:13:00 PM

CR Note: This is from Trulia chief economist Jed Kolko:

Construction jobs are a big part of how housing recovery lifts the broader economy. But the construction rebound, so far, appears to be jobless. “Residential construction” jobs, as reported by BLS, were up just 1% in December 2012 from their lowest level since the housing bubble burst – even though new home starts in December 2012 were twice as high as their low point in 2009. Overlaying residential construction employment (monthly, in thousands, left axis) and construction starts (monthly, in thousands, right axis) data suggests a jobless housing recovery, with jobs struggling to turn around even as starts climbed sharply in 2012:

Click on graph for larger image.

Who is building all these new homes? If starts are now twice their lowest level, why aren’t residential building jobs also twice their lowest level, instead of up just 1%? The answer: this is the wrong way to look at construction jobs. It turns out that construction employment is approximately where it should be for the current level of construction activity. Here are three reasons why:

“Starts” aren’t the right measure of current construction activity. Units “under construction” is more relevant – especially now. The amount of construction activity this month depends not only on this month’s construction starts but also on construction starts in previous months. That’s because single-family construction takes 4-6 months between start and completion, and multi-unit-building construction takes 10-14 months, on average. Therefore, construction starts indicate what will happen to construction activity in the coming months – not necessarily where it is today. And, in this recovery, multi-unit buildings are an unusually high share of overall construction activity, so the typical new unit is under construction for longer, making starts an even-worse-than-usual proxy for current construction activity. Instead of starts, units “under construction” – also reported monthly by the Census – is the right measure of construction activity to compare with jobs. This changes the picture dramatically: while monthly starts in December 2012 were up 100% (that is, have doubled) since the bottom, monthly units under construction were up 32% from the bottom.

The “residential building” jobs category understates growth in residential construction jobs. The BLS “residential building” category covers general contractors and construction management firms but not subcontractors, which are covered under another category the BLS tracks, “residential specialty trade contractors.” Importantly, residential construction jobs have been shifting steadily from general contractors to specialty trade contractors throughout the boom, bust, and recovery, so the narrower “residential building construction” category understates recent growth in construction jobs. “Residential building” jobs in December 2012 were up just 1% from the bottom, while “residential specialty trade contractor” jobs were up 4%. The combined series is up 3% from the bottom. Of course, some construction workers might not be officially counted if they’re off the books, and others might work on both residential and non-residential projects and not fit neatly into one reporting category. Still, looking at both the “residential building” and “residential specialty trade contractors” gives a clearer picture than looking only at “residential building.”

Construction jobs do not move one-for-one with construction activity. Looking at the right measures over time – units under construction and the sum of the two jobs categories – jobs move up and down less than construction activity does. For every 10% increase (or decrease) in the number of units under construction, construction employment increases (or decreases) by a little more than 4%. One reason might be what economists call “labor hoarding” – firms hold onto more workers than they need in temporary downturns if the cost of firing and re-hiring is high relative to keeping them on. Therefore, firms might increase or reduce workers’ hours instead of hiring or firing. Another reason is other construction activities, like remodeling, might move differently with the business cycle than new construction and possibly even soften the ups and downs of demand for construction workers.

Overlaying these two series – “units under construction” (Census) and the sum of “residential building construction” and “residential specialty trade contractors” (BLS), we get:

Using these measures, jobs track construction activity pretty closely, with a slight lag. Taking this lag into account, a simple time-series model suggests that construction employment is now just 2% lower than it should be for the current level of construction activity.

The picture might change tomorrow in the January jobs report. As part of tomorrow’s report, the BLS will release its annual benchmark revision of previously reported employment figures. The preliminary revision announced in September suggested that employment for construction overall (including non-residential) would be revised up 1.6% for the benchmark month (March 2012). If tomorrow’s official revision to residential employment is in that range, the jobless construction recovery might not be missing any jobs at all.

What does this mean for construction employment in 2013? Suppose starts rise another 20% in 2013 relative to 2012 – a bit slower than the 28% increase in 2012 relative to 2011. Recent trends suggest that the number of units under construction should be a hair over 20% higher in December 2013 than in December 2012. Even though units under construction didn’t grow as fast as starts in 2012, much of the effect of the increase in starts in 2012 will be on construction activity in 2013, not in 2012. As a result, construction jobs – residential building plus residential specialty trade contractors – could grow 8% in 2013. The sharp increase in construction starts in 2012 should mean more construction jobs in 2013.

by Calculated Risk on 1/31/2013 11:28:00 AM

On Friday, at 8:30 AM ET, the BLS will release the employment report for January. The consensus is for an increase of 185,000 non-farm payroll jobs in January, up from the 155,000 jobs added in December. The consensus is for the unemployment rate to decline to 7.7% from 7.8% last month.

Here is a summary of recent data:

• The ADP employment report showed an increase of 198,000 private sector payroll jobs in January. This was above expectations. The ADP report hasn't been very useful in predicting the BLS report for any one month, although the methodology changed recently. In general this suggests employment growth in line or above expectations.

• The ISM manufacturing and non-manufacturing (service) indexes for January will not be released until after the employment report.  However the Chicago PMI employment index increased sharply in January to 58.0 from 46.8 in December (above 50 is expansion) and this might suggest some upside for employment.

• Initial weekly unemployment claims averaged about 351,000 in January. This is the lowest level for unemployment claims since early 2008.

For the BLS reference week (includes the 12th of the month), initial claims were at 335,000; the lowest for a reference week since January 2008.  This is positive for employment.

• The preliminary January Reuters / University of Michigan consumer sentiment index declined to 71.3, down from the December reading of 72.9. This is frequently coincident with changes in the labor market, stock market, gasoline prices and other factors such as budget uncertainty. This might suggest some decrease in employment, but I think the recent declines were related to budget threats.

• The January small business index from Intuit showed 20,000 payroll jobs added, the same number as in December. This is still very low.

• And on the unemployment rate from Gallup: Gallup finds seasonally unadjusted unemployment unchanged at 7.8%

Gallup's unadjusted unemployment rate for the U.S. workforce was 7.8% for the month of January, statistically unchanged from 7.7% at the end of December, but down from 8.6% a year ago. Gallup's seasonally adjusted unemployment rate for January was 7.3%, a 0.6-percentage-point decline from 7.9% in December.

Note: Gallup only recently has been providing a seasonally adjusted estimate for the unemployment rate, so use with caution. So far the Gallup numbers haven't been very useful in predicting the BLS unemployment rate, but this does suggest a decrease in the unemployment rate in January.

• Conclusion: Most of the employment related data was stronger in January than in December (or most of last year).  There is always some randomness to the employment report - and there are large seasonal factors for January - but I'd take the over on the headline payroll jobs number.

by Calculated Risk on 1/31/2013 09:08:00 AM

Note: Personal income jumped in December as many high income earners accelerated income into 2012 to avoid higher 2013 taxes. This pushed up personal income sharply, and also increased the savings rate. This will be reversed in the January report, and there will be a large decline in personal income on a month-to-month basis.

The BEA released the Personal Income and Outlays report for December:

Personal income increased $352.4 billion, or 2.6 percent ... in December, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $22.6 billion, or 0.2 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in December, compared with an increase of 0.6 percent in November. ... The price index for PCE decreased less than 0.1 percent in December, compared with a decrease of 0.2 percent in November. The PCE price index, excluding food and energy, increased less than 0.1 percent in December, the same increase as in November.
...
Personal saving -- DPI less personal outlays -- was $436.7 billion in November, compared with $404.6 billion in October. The personal saving rate -- personal saving as a percentage of disposable personal income -- was $805.2 billion in December, compared with $495.0 billion in November. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 6.5 percent in December, compared with 4.1 percent in November.

The following graph shows real Personal Consumption Expenditures (PCE) through December (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE.   PCE for both October and November was revised up slightly.

PCE will probably be a little weak in Q1 because of the payroll tax increase, however, I still expect PCE to increase between 1.5% to 2.0% annualized in Q1.

by Calculated Risk on 1/31/2013 08:30:00 AM

The DOL reports:

In the week ending January 26, the advance figure for seasonally adjusted initial claims was 368,000, an increase of 38,000 from the previous week's unrevised figure of 330,000. The 4-week moving average was 352,000, an increase of 250 from the previous week's unrevised average of 351,750.

The previous week was unrevised.

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 slightly to 352,000.

Weekly claims were above the 350,000 consensus forecast, however the 4-week average is near the levels of early 2008.

by Calculated Risk on 1/30/2013 08:45:00 PM

In general the media covered the GDP report correctly. Even though the headline number was slightly negative, the underlying details were in line with expectations (except the sharp drop in Federal government spending for defense). As an example, from the NY Times: Economy Contracted Unexpectedly in Fourth Quarter

The drop in gross domestic product was driven by a plunge in military spending, as well as fewer exports and a steep slowdown in the buildup of inventories by businesses. ...

Despite the overall contraction, there was underlying data in the report suggesting the economy is not on the brink of a recession or an extended slump. Residential investment jumped 15.3 percent, a sign that the housing sector continues to recover, for one. Similarly, investment in equipment and software by businesses rose 12.4 percent, an indicator that companies are still spending.
...
The 22.2 percent drop in military spending – the sharpest quarterly drop in more than four decades – along with the drop in inventories and exports overwhelmed more positive indicators in the private sector, [Michael Feroli, chief United States economist at JPMorgan] said.

That is similar to my post this morning: Comments on Q4 GDP and Investment

Thursday economic releases:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 350 thousand from 330 thousand last week.

• Also at 8:30 AM, Personal Income and Outlays for December. The consensus is for a 0.7% increase in personal income in December, and for 0.3% increase in personal spending. And for the Core PCE price index to increase 0.1%. Personal income was boosted by some high income earners accelerating income to avoid higher taxes in 2013.

• At 9:45 AM, the Chicago Purchasing Managers Index for January will be released. The consensus is for a decrease to 50.5, down from 51.6 in December.

by Calculated Risk on 1/30/2013 04:32:00 PM

From economist Tom Lawler:

D. R. Horton, the nation’s largest home builder, reported that net home orders in the quarter ended December 31, 2012 totaled 5,259, up 38.6% from the comparable quarter of 2012. The company’s sales cancellation rate, expressed as a % of gross orders, was 22%, down from 26% a year ago. Home deliveries last quarter totaled 5,182, up 25.8% from the comparable quarter of 2012, at an average sales price of $236,067, up 9.9% from a year ago. The company’s order backlog at the end of 2012 totaled 7,317, up 61.5% from a year ago, with an average order price of $240,358, up 11.7% from a year earlier.

Here is an excerpt from the company’s press release.

Donald R. Horton, Chairman of the Board, said, “This quarter was our most profitable first quarter since 2007, with $107.9 million of pre-tax income, a 270% increase from the year-ago quarter. We experienced substantial increases in the number of homes sold, closed and in backlog compared to the year-ago quarter. At the same time, our average sales price has increased due to pricing power, geographic mix and larger average home size. As a result, we achieved dollar value increases in homes sold of 60%, homes closed of 38% and backlog of 80%.

“We experienced broad improvement in demand in most of our markets this quarter, and we significantly increased our investments in homes under construction, finished lots, land and land development to capture this increasing demand. D.R. Horton is the best positioned it has been in its 35 year history. We are looking forward to the spring selling season with optimism.”

The Ryland Group, the 8th largest US home builder in 2011, reported that net home orders in the quarter ended December 31, 2012 (including discontinued operations) totaled 1,502, up 64.2% from the comparable quarter of 2011. The company’s sales cancellation rate, expressed as a % of gross orders, was 17.9%, down from 21.4% a year ago. Home closings last quarter totaled 1,578, up 51.7% from the comparable quarter of 2011, at an average sales price of $270,000, up 6.2% from a year ago. Ryland said that “sales incentives and price concessions” totaled 8.7% last quarter, compared to 10.7% during the same period in 2011. The company’s order backlog at the end of December totaled 2,398, up 58.4% from a year earlier, at an average order price of $278,000, up 8.2% from a year ago.

Here is a summary of builder results reported so far.

	Net Orders			Settlements			Average Closing Price
Qtr. Ended:	Dec 2012	Dec 2011	% Chg	Dec 2012	Dec 2011	% Chg	Dec 2012	Dec 2011	% Chg
D.R. Horton	5,257	3,794	38.6%	5,182	4,118	25.8%	$236,067	$214,740	9.9%
NVR	2,625	2,158	21.6%	2,788	2,391	16.6%	$331,900	$304,600	9.0%
The Ryland Group	1,502	915	64.2%	1,578	1,040	51.7%	$270,000	$254,000	6.3%
Total	9,384	6,867	36.7%	9,548	7,549	26.5%	$269,658	$248,610	8.5%