by Calculated Risk on 4/05/2013 10:55:00 AM

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

The Department of Commerce reported:

[T]otal February exports of $186.0 billion and imports of $228.9 billion resulted in a goods and services deficit of $43.0 billion, down from $44.5 billion in January, revised. February exports were $1.6 billion more than January exports of $184.4 billion. February imports were $0.1 billion more than January imports of $228.9 billion.

The trade deficit was below the consensus forecast of $44.8 billion.

The first graph shows the monthly U.S. exports and imports in dollars through January 2013.

Click on graph for larger image.

Exports increased in February, and imports were essentially flat, so the deficit declined.

Exports are 12% above the pre-recession peak and up 3.2% compared to February 2012; imports are slightly below the pre-recession peak, and up 2% compared to February 2012.

The second graph shows the U.S. trade deficit, with and without petroleum, through February.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The decrease in the trade deficit in February was mostly due to a decrease in the volume of petroleum imports.

Oil averaged $95.96 per barrel in February, up from $94.08 in January, but down from $103.63 in February 2012.

The trade deficit with China increased to $23.4 billion in February, up from $19.4 billion in February 2012. Most of the trade deficit is still due to oil and China.

The trade deficit with the euro area was $8.1 billion in January, up from $5.8 billion in February 2012.  This is another sign of weakness in the euro area.

by Calculated Risk on 4/05/2013 08:30:00 AM

From the BLS:

Nonfarm payroll employment edged up in March (+88,000), and the unemployment rate was little changed at 7.6 percent, the U.S. Bureau of Labor Statistics reported today. ...
...
The change in total nonfarm payroll employment for January was revised from +119,000 to +148,000, and the change for February was revised from +236,000 to +268,000.

The headline number was well below expectations of 193,000 payroll jobs added.  However employment for January and February were revised higher.

Click on graph for larger image.

NOTE: This graph is ex-Census meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes.

The second graph shows the unemployment rate.

The unemployment rate decreased to 7.6% from 7.7% in February.

The unemployment rate is from the household report and the household report showed a sharp decline in the labor force - and that meant a lower unemployment rate.

The labor force (household survey) declined from 155.524 million to 155.028 million - a decline of 496 thousand.

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

The Labor Force Participation Rate decreased to 63.3% in March (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 declined to 58.5% in March (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 a disappointing employment report and worse than expectations. I'll have much more later ...

by Calculated Risk on 4/04/2013 09:06:00 PM

First, from CNBC: Nikkei Surges Past 13,000 on BOJ Surprise

Japan's benchmark Nikkei index traded nearly 4 percent higher on Friday while the yen plunged to a three-and-a-half-year low against the greenback ... The BOJ's shock therapy program to meet its 2 percent inflation target includes doubling the monetary base and purchasing long-dated government bonds. It plans to inject $1.4 trillion into the economy in less than two years.

And from the WSJ: Money Spigot Opens Wider

The Bank of Japan's new leaders delivered on their pledge to radically overhaul its strategy to revive Japan's economy, unveiling a package of easy-money policies Thursday so aggressive in scale and tactics that it surprised investors.

... "This is an entirely new dimension of monetary easing, both in terms of quantity and quality,'' the Bank of Japan's new governor, Haruhiko Kuroda, said Thursday. The BOJ said the programs would continue at least two years.

The strategy seeks to broadly change Japanese behavior and attitudes that have contributed to depressed spending, wages and prices over the past two decades.

"I will not use my fighting power in an incremental manner," Mr. Kuroda said at a news conference following the central bank's two-day meeting. "Our stance is to take all the policy measures imaginable at this point to achieve the 2% target in two years."

Friday economic releases:
• 8:30 AM ET, the Employment Report for March will be released. The consensus is for an increase of 193,000 non-farm payroll jobs in March; the economy added 236,000 non-farm payroll jobs in February. The consensus is for the unemployment rate to be unchanged at 7.7% in March.

• Also at 8:30 AM, Trade Balance report for February from the Census Bureau. The consensus is for the U.S. trade deficit to increase to $44.8 billion in February from $44.4 billion in January.

• At 3:00 PM, Consumer Credit for February from the Federal Reserve. The consensus is for credit to increase $16.0 billion in February.

by Calculated Risk on 4/04/2013 05:55:00 PM

Fed Vice Chair Janet Yellen gave an overview about the importance of communication in monetary policy today: Communication in Monetary Policy. Here are a few excerpts related to the eventual exit plan:

The Federal Reserve's ongoing asset purchases continually add to the accommodation that the Federal Reserve is providing to help strengthen the economy. An end to those purchases means that the FOMC has ceased augmenting that support, not that it is withdrawing accommodation. When and how to begin actually removing the significant accommodation provided by the Federal Reserve's large holdings of longer-term securities is a separate matter. In its March statement, the FOMC reaffirmed its expectation that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the current asset purchase program ends and the economic recovery has strengthened. Accordingly, there will likely be a substantial period after asset purchases conclude but before the FOMC starts removing accommodation by reducing asset holdings or raising the federal funds rate.

To guide expectations concerning the process of normalizing the size and composition of the Federal Reserve's balance sheet, at its June 2011 meeting, the FOMC laid out what it called "exit principles." [Note: see below for "exit principles"] In these principles, the FOMC indicated that asset sales would likely follow liftoff of the federal funds rate. It also noted that, in order to minimize the risk of market disruption, the pace of asset sales during this process could be adjusted up or down in response to changes in either the economic outlook or financial conditions. For example, changes in the pace or timing of asset sales might be warranted by concerns over market functioning or excessive volatility in bond markets. While normalization of the Federal Reserve's portfolio is still well in the future, the FOMC is committed to clear communication about the likely path of the balance sheet.

There will come a time when the FOMC begins the process of returning the federal funds rate to a more normal level. In their individual projections submitted for the March FOMC meeting, 13 of the 19 FOMC participants saw the first increase in the target for the federal funds rate as most likely to occur in 2015, and another expected it to occur in 2016. But the course of the economy is uncertain, and the Committee added the thresholds for unemployment and inflation, in part, to help guide the public if economic developments warrant liftoff sooner or later than expected. As the time of the first increase in the federal funds rate moves closer, in my view it will be increasingly important for the Committee to clearly communicate about how the federal funds rate target will be adjusted.
emphasis added

Here are the "exit principles" that Yellen discussed from the June 2011 minutes: Exit Strategy Principles.

by Calculated Risk on 4/04/2013 02:13:00 PM

On Friday, at 8:30 AM ET, the BLS will release the employment report for March. The consensus is for an increase of 193,000 non-farm payroll jobs in March, and for the unemployment rate to be unchanged at 7.7%.

Here is a summary of recent data:

• The ADP employment report showed an increase of 158,000 private sector payroll jobs in March. This was below expectations of 205,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, although the methodology changed last year. In general this suggests employment growth below expectations.

• The ISM manufacturing employment index increased in March to 54.2%, up from 52.6% in February. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing increased by a few thousand in March.

The ISM non-manufacturing (service) employment index decreased in March to 53.3%, down from 57.2% in February. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for services, suggests that private sector BLS reported payroll jobs for services increased almost 150,000 in March.

Added together, the ISM reports suggests about 150,000 jobs added in March.

• Initial weekly unemployment claims averaged about 354,000 in March. This was about the same as in February.

For the BLS reference week (includes the 12th of the month), initial claims were at 341,000; down from 366,000 in February.   The recent increase in claims (probably due to the sequestration budget cuts) was probably before the reference week (when the BLS conducts the employment surveys).

• The final February Reuters / University of Michigan consumer sentiment index increased to 78.6, up from the February reading of 77.6. This is frequently coincident with changes in the labor market and stock market, but also strongly related to gasoline prices and other factors. This might suggest a stronger employment report, but the level still suggests a weak labor market.   Note: the preliminary index dipped suggests some weakness mid-month.

• The small business index from Intuit showed 10,000 payroll jobs added, the same as in February. This index remains disappointing.

• And on the unemployment rate from Gallup: Seasonally Unadjusted Unemployment Unchanged in March

Gallup's unadjusted unemployment rate for the U.S. workforce was 8.0% for the month of March, the same as in February, but a modest improvement from 8.4% in March 2012.

Gallup's seasonally adjusted U.S. unemployment rate for March was 7.8%, a slight uptick from 7.6% in February, but down since March 2012.

Note: So far the Gallup numbers haven't been very useful in predicting the BLS unemployment rate.

• Conclusion: The employment related data was mixed in March.  The ADP and ISM reports suggest a decrease in hiring, the small business index was weak, but weekly claims for the reference week were lower in March than in February when the BLS reported 236,000 payroll jobs were added.  There is always some randomness to the employment report, but my guess is the BLS will report somewhat below the consensus of 193,000 jobs added in March.

by Calculated Risk on 4/04/2013 12:02:00 PM

Reis reported that the vacancy rate for regional malls declined to 8.3% in Q1, down from 8.6% in Q4 2012. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate declined slightly to 10.6% in Q1, down from 10.7% in Q4 2012. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Senior Economist Ryan Severino:

[Strip Malls] Yet again, vacancy declined by only 10 bps during the first quarter. Although it is welcome that vacancy continues to decline on an almost quarterly basis, there is still no acceleration in vacancy compression. On a year‐over‐year basis, the vacancy rate declined by only 30 bps. Net absorption continues to outpace new construction, marginally pushing vacancy rates downward. With only 873,000 square feet delivered, even moderate demand for space would result in meaningful declines in the national vacancy rate. Yet despite the dearth of new completions, demand remains insufficient to make a meaningful dent in what is still an elevated vacancy rate.
...
[New construction] With retail sales struggling to recover and muted demand for space, new construction remained near record‐low levels during the quarter. 873,000 square feet were delivered during the first quarter, versus 1.231 million square feet during the fourth quarter. However, this is a slowdown compared to the 2.051 million square feet of retail space that were delivered during the first quarter of 2012. In fact, 873,000 square feet is the fourth‐lowest figure on record since Reis began tracking quarterly data in 1999. With demand for space remaining at abject levels, there exists virtually no incentive to develop new projects. 873,000 square feet is the equivalent of one or two medium‐sized properties.
...
[Regional] Once again, malls outperformed their neighborhood and community shopping center brethren. The national vacancy rate declined by another 30 basis points during the quarter. This is the sixth consecutive quarter with a vacancy decline. Asking rent growth accelerated versus last quarter, growing by another 0.4%. This was the eighth consecutive quarter of asking rent increases. The improvement in mall subsector picked up some pace during the first quarter. The thirty basis point compression in vacancy is the largest since the first quarter of 2003 and the 0.4% asking rent increase is the largest since the first quarter of 2008. However, as we have stated in quarters past, the recovery in the mall subsector is being driven by Dominant/Class A malls, which typically boast luxury retailers and cater to affluent consumers. This belies the fact that the remainder of the mall sector continues to struggle.

Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

The yellow line shows mall investment as a percent of GDP through Q4. This has increased from the bottom because this includes renovations and improvements. New mall investment has essentially stopped.

The good news is, as Severino noted, new square footage is near a record low, and with very little new supply, the vacancy rate will probably continue to decline slowly.

Mall vacancy data courtesy of Reis.

by Calculated Risk on 4/04/2013 10:00:00 AM

Press Release: Trulia Reports Rents for Single-family Homes Flatten Nationwide

Heading into the spring house hunting season, asking home prices rose 7.2 percent year-over-year (Y-o-Y) nationally in March. Seasonally adjusted, prices rose 1.1 percent month-over-month and 3.5 percent quarter-over-quarter. Regionally, prices rose in 91 of the 100 largest metros.

Nearly 4 million more single-family homes have been added to the rental market since 2005 . This new supply has fully caught up with the increased rental demand during the housing crisis – causing single-family home rents to flatten nationwide. Nationally, rents rose 2.4 percent Y-o-Y. For apartments only rents rose 2.9 percent Y-o-Y, while rents for single-family homes were flat, rising just 0.1 percent Y-o-Y. In Las Vegas, Orange County, Los Angeles, Atlanta, and Phoenix, where investors have actively bought and rented out single-family homes, rents are either falling or flat.
...
“Investors bought up cheap houses in hard-hit markets and rented them out to people who lost their homes to foreclosure or delayed first-time homeownership,” said Jed Kolko, Trulia’s Chief Economist. “With four million more rental homes now than during the bubble, supply has expanded to meet demand, and rents are flat or falling in markets where investors are most active.”

On rents, this is similar to the Reis report yesterday on apartments. It appears that rent increases are slowing.

Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases over the next few months on a seasonally adjusted basis.

by Calculated Risk on 4/04/2013 08:37:00 AM

The DOL reports:

In the week ending March 30, the advance figure for seasonally adjusted initial claims was 385,000, an increase of 28,000 from the previous week's unrevised figure of 357,000. The 4-week moving average was 354,250, an increase of 11,250 from the previous week's unrevised average of 343,000.

The previous week was unrevised at 357,000.

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 354,250 - the highest level since February.

Weekly claims were above the 350,000 consensus forecast.  Note: This appears to be the beginning of the impact of the "sequestration" budget cuts.

by Calculated Risk on 4/03/2013 10:28:00 PM

On the March employment report from economist Sven Jari Stehn at Goldman Sachs:

Our forecast for the March employment report is a 175,000 gain in nonfarm payrolls (below the current Bloomberg consensus of a 195,000 gain), a stable 7.7% unemployment rate (in line with the consensus), and a 0.1% gain in average hourly earnings (below the consensus of 0.2%). The reasoning for our below-consensus payroll forecast is threefold.

1. The tone of the March US labor market indicators has, on balance, softened. ...

2. Special factors are likely to weigh on March payrolls. We expect a small hit of roughly 10,000 from sequestration in Friday's report. ... Separately, a negative contribution from the normalization of February's outsized employment gain in motion picture and sound recording industries appears likely. ...

3. Payrolls have outpaced broader labor market measures. ... While actual payroll growth has averaged around 200,000 over the last four months, the broader labor market dataflow has only been consistent with payroll growth of around 150,000 during this period.

I'll post an employment preview tomorrow.

Thursday economic releases:
• 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 350 thousand from 357 thousand last week. The "sequester" budget cuts appear to be impacting weekly claims.

• Early, Reis Q1 2013 Mall Survey of rents and vacancy rates will be released.

• At 10:00 AM, Trulia House Price Rent Monitors for March. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

• At 5:00 PM, Speech by Fed Vice Chair Janet Yellen, Communication in Monetary Policy, At the 50th Anniversary Conference of the Society of American Business Editors and Writers, Washington, D.C.

by Calculated Risk on 4/03/2013 05:18:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in February to 3.13% from 3.18% in January. The serious delinquency rate is down from 3.82% in February 2012, and this is the lowest level since February 2009.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Earlier Freddie Mac reported that the Single-Family serious delinquency rate declined in February to 3.15% from 3.20% in January. Freddie's rate is down from 3.57% in February 2012, and this is the lowest level since July 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

Although this indicates some progress, the "normal" serious delinquency rate is under 1%.  At the recent pace of improvement, it will take several years until the rates are back to normal. At the recent rate of improvement, the serious delinquency rate will be under 1% in 2017 or so.