by Calculated Risk on 7/01/2013 04:21:00 PM

From the Financial Times: US construction hiring poised to explode (says Deutsche)

[A]ccording to economists at Deutsche Bank ... if the volume of housing starts accelerate as they expect, construction industry will need about 300,000 new workers in the second half of the year.
excerpt with permission

Earlier articles on construction employment:

• From Michelle Meyer at Merrill Lynch: Construction Coming Back

• From Kris Dawsey and Hui Shan at Goldman Sachs: Housing Sector Jobs Poised for a Comeback

• From Jed Kolko at Trulia: Here are the “Missing” Construction Jobs

• From Professor Tim Duy at EconomistsView: Employment Report Nothing If Not Consistent

This graph shows total construction employment as reported by the BLS (not just residential).

Since construction employment bottomed in January 2011, construction payrolls have increased by 369 thousand.    Historically there is a lag between an increase in activity and more hiring - and it appears hiring should pickup significant in the 2nd half of 2013 (Merrill estimates 20 thousand construction jobs per month will be added this year, Goldman estimates 25 to 30 thousand jobs per month, Deutsche Bank around 50 thousand jobs per month in the 2nd half).

by Calculated Risk on 7/01/2013 01:31:00 PM

By request, here is an update to four key indicators used by the NBER for business cycle dating: GDP, Employment, Industrial production and real personal income less transfer payments.

Note: The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

These graphs show that most major indicators are still below the pre-recession peaks.

Click on graph for larger image.

This graph is for real GDP through Q1 2013.

Real GDP returned to the pre-recession peak in Q4 2011, and has hit new post-recession highs for six consecutive quarters.

At the worst point - in Q2 2009 - real GDP was off 4.7% from the 2007 peak.

This graph shows real personal income less transfer payments as a percent of the previous peak through the May report.

This measure was off 11.2% at the trough in October 2009.

Real personal income less transfer payments returned to the pre-recession peak in December, but that was due to a one time surge in income as some high income earners accelerated earnings to avoid higher taxes in 2013.   Real personal income less transfer payments declined sharply in January (as expected), and were still 3.3% below the previous peak in May.

Real personal income less transfer payments will probably be the last major indicator to return to pre-recession levels (excluding the spike last December).

The third graph is for industrial production through May 2013 - although production growth has slowed recently.

Industrial production was off over 17% at the trough in June 2009, and has been one of the stronger performing sectors during the recovery.

However industrial production is still 2.1% below the pre-recession peak.  This indicator might return to the pre-recession peak in late 2013 or in 2014.

The final graph is for employment and is through May 2013.  This is similar to the graph I post every month comparing percent payroll jobs lost in several recessions.

Payroll employment is still 1.8% below the pre-recession peak and will probably be back to pre-recession levels in 2014.

All of these indicators collapsed in 2008 and early 2009, and only real GDP is back to the pre-recession peak (personal income returned to the previous peak in December due to a one time increase in income). 

by Calculated Risk on 7/01/2013 11:05:00 AM

The Census Bureau reported that overall construction spending increased in May:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during May 2013 was estimated at a seasonally adjusted annual rate of $874.9 billion, 0.5 percent above the revised April estimate of $870.3 billion. The May figure is 5.4 percent above the May 2012 estimate of $830.4 billion.
...
Spending on private construction was at a seasonally adjusted annual rate of $605.4 billion, nearly the same as the revised April estimate of $605.7 billion. ...

In May, the estimated seasonally adjusted annual rate of public construction spending was $269.5 billion, 1.8 percent above the revised April estimate of $264.7 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 52% below the peak in early 2006, and up 41% from the post-bubble low.

Non-residential spending is 32% below the peak in January 2008, and up about 26% from the recent low.

Public construction spending is now 17% below the peak in March 2009 and was up slightly in May.

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 23%. Non-residential spending is down slightly year-over-year. Public spending is down 4.7% year-over-year.

A few key themes:
1) Private residential construction is usually the largest category for construction spending, and is now the largest category once again.  Usually private residential construction leads the economy, so this is a good sign going forward.

2) Private non-residential construction spending usually lags the economy.  There was some increase this time for a couple of years - mostly related to energy and power - but the key sectors of office, retail and hotels are still at very low levels.  I expect private non-residential to start to increase soon.

3) Public construction spending increased slightly in May - and it is possible public construction spending is near the bottom.  Public spending has declined to 2006 levels (not adjusted for inflation) and has been a drag on the economy for 4 years. In real terms, public construction spending has declined to 2001 levels.

by Calculated Risk on 7/01/2013 10:00:00 AM

The ISM manufacturing index indicated expansion in June. The PMI was at 50.9% in June, up from 49.0% in May. The employment index was at 48.7%, down from 50.1%, and the new orders index was at 51.9%, up from 48.8% in May.

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

Economic activity in the manufacturing sector expanded in June following one month of contraction, and the overall economy grew for the 49th consecutive month, say the nation's supply executives in the latest 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 50.9 percent, an increase of 1.9 percentage points from May's reading of 49 percent, indicating expansion in the manufacturing sector for the fifth time in the first six months of 2013. The New Orders Index increased in June by 3.1 percentage points to 51.9 percent, and the Production Index increased by 4.8 percentage points to 53.4 percent. The Employment Index registered 48.7 percent, a decrease of 1.4 percentage points compared to May's reading of 50.1 percent. Manufacturing employment contracted for the first time since September 2009, when the index registered 47.8 percent. The Prices Index registered 52.5 percent, increasing 3 percentage points from May, indicating that overall raw materials prices increased from last month. Comments from the panel generally indicate slow growth and improving business conditions."
emphasis added

Click on graph for larger image.

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

This was slightly above expectations of 50.5% and suggests manufacturing expanded in June.

by Calculated Risk on 7/01/2013 09:00:00 AM

From MarkIt: Markit U.S. Manufacturing PMI™ – final data

At 51.9, the final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) signalled only a modest manufacturing expansion in June. Having fallen from 52.3 in May, and dropping below the earlier flash estimate of 52.2, the PMI indicated the slowest rate of growth since last October.
...
Firms generally linked the increase in output to larger volumes of new work, though new order growth was little-changed from May’s modest pace. Much of the increase in new work originated domestically, with new export orders falling for the second month running and dropping at the sharpest rate since August 2009.
...
Employment in the manufacturing sector was broadly unchanged in June. This ended a 40-month sequence of increases. A number of firms commented that higher new order requirements were balanced with attempts to control costs.

“Manufacturing clearly down-shifted a gear between the first and second quarters, and is at risk of losing further momentum as we head into the second half of the year." [said Chris Williamson, Chief Economist at Markit]
...
Domestic demand is far from lively, but it is a deteriorating export scene that is causing the real problems. Export orders are being lost at the fastest rate since the height of the financial crisis in mid-2009."

The ISM PMI for June will be released at 10 AM today.

by Calculated Risk on 6/30/2013 10:14:00 PM

Monday:
• At 9:00 AM ET, the Markit US PMI Manufacturing Index for June will be released. The consensus is for the index to be unchanged at 52.3.

• At 10:00 AM, the ISM Manufacturing Index for June. The consensus is for an increase to 50.5 from 49.0 in May. Based on the regional surveys, a reading above 50 seems likely.

• Also at 10:00 AM, Construction Spending for May. The consensus is for a 0.6% increase in construction spending.

Weekend:
• Schedule for Week of June 30th

The Asian markets are red tonight with the Nikkei down 0.2%, and Shanghai Composite down 0.4%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 5 and DOW futures are down 25 (fair value).

Oil prices have mostly moved sideways recently with WTI futures at $96.07 per barrel and Brent at $101.70 per barrel.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are down to about $3.50 per gallon. Based on Brent prices and the calculator at Econbrowser, I expect gasoline prices to fall a little more.

If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 6/30/2013 06:18:00 PM

This is a common question, and I suggest using the Atlanta Fed's Jobs Calculator tool to estimate how many jobs per month will be needed to reach a certain unemployment level.

As an example, for the unemployment rate to decline to 7.3% in December (the high end of the Fed's forecast), with the participation rate staying steady at 63.4%, would require about 150,000 jobs per month for the next seven months.  This seems very possible.

If the participation rate increases to 63.6%, than the economy would need to add 210,000 jobs per month for the unemployment rate to fall to 7.3% in December (this is just an estimate).

You can put in your own assumptions to the calculator.

Another frequent question is when will the unemployment rate fall to 6.5% (the Fed's threshold, but not trigger, for raising the Fed's funds rate). If the participation rate stays steady, the unemployment rate will fall to 6.5% in December 2014 if the economy adds around 185,000 jobs per month.   This is consistent with the Fed not raising rates until 2015 or later.

by Calculated Risk on 6/30/2013 09:54:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for June 28, 2013.

Changes and comments from surferdude808:

With the FDIC releasing its enforcement actions through May 2013, there were many changes to the Unofficial Problem Bank List. For the week, there were seven removals and five additions that leave the at 749 institutions with assets of $273.3 billion. For the month of June, the list fell by a net 12 institutions after seven additions, seven action terminations, six unassisted mergers, five failures, and one voluntary liquidation. Assets fell by $4.02 billion, which is the smallest decline since a $3.99 billion in November 2012. In addition, there was a noticeable slowdown in action terminations, which were last at this level in November 2011.

This week actions were terminated against Farmers Bank, Ault, CO ($232 million); Peoples Bank & Trust Company, Owenton, KY ($64 million); Lakeview Bank, Lakeville, MN ($54 million); Park State Bank, Duluth, MN ($30 million); and Roxbury Bank, Roxbury, KS ($14 million). Also, the FDIC terminated a Prompt Corrective Action order against First Sound Bank, Seattle, WA ($123 million), but it is still subject to a Consent Order. Other removals from finding merger partners include First National Bank of Illinois, Lansing, IL ($374 million) and Community State Bank, Norwalk, WI ($24 million).

Additions this week were Bay Cities Bank, Tampa, FL ($534 million); Oswego Community Bank, Oswego, IL ($194 million); SunSouth Bank, Dothan, AL ($178 million); VistaBank, Aiken, SC ($109 million); and First State Bank of Swanville, Swanville, MN ($30 million).

As promised last week, we have updated the transition matrix with the passage of the second quarter of 2013. Full details may be found in the accompanying table. As depicted, there have been a total of 1,644 institutions with assets of $811.4 billion that have appeared on the list. A little more the 54 percent of the institutions that have appeared on the list have been removed. A total of 895 institutions are no longer on the list. Since the publishing start of this list in 2009, failure has been the primary manner of exit; however, at this point, terminations are now responsible for more removals at 377. Close behind are failures at 363 while finding a merger partner has been responsible for 144 removals. While failures have slipped as the primary form of exit from the list, the amount of assets removed for failure total $292.6 billion, which dwarfs $164.4 billion in assets from institutions where actions were terminated.

As discussed above, there was a discernible slowdown in the pace of action terminations this month and quarter. There were 34 terminations during the quarter, which represented 4.5 percent of the 757 institutions that were on the list at the start of the quarter. During the first quarter of 2013, the termination rate was 6.1 percent. The 34 terminations were the lowest quarterly count since 32 in the first quarter of 2012. There were 108 institutions still hanging around from the original publication at the start of the second quarter of 2013, but only four were removed this quarter because of action termination, which was a much lower termination rate of 3.7 percent. The transition methods of the 389 institutions on the original list in August 2009 does differ significantly from the pool of subsequent additions.

Unofficial Problem Bank List
Change Summary
		Number of Institutions	Assets ($Thousands)
Start (8/7/2009)		389	276,313,429
Subtractions
	Action Terminated	108	(31,933,282)
	Unassisted Merger	27	(4,452,830)
	Voluntary Liquidation	4	(10,584,114)
	Failures	150	(183,316,242)
	Asset Change		(8,734,399)
Still on List at 6/30/2013		100	37,292,562
Additions		649	235,975,860
End (6/30/2013)		749	273,268,422
Intraperiod Deletions1
	Action Terminated	269	132,439,197
	Unassisted Merger	117	55,560,134
	Voluntary Liquidation	7	1,760,816
	Failures	213	109,331,508
	Total	606	299,091,655
1Institution not on 8/7/2009 or 6/30/2013 list but appeared on a weekly list.

by Calculated Risk on 6/29/2013 05:54:00 PM

The WSJ Real Time Economics has an article today on the declining spread between Brent crude oil and West Texas Intermediate (WTI). (note: this is something we discussed a few weeks ago).

From Ben Casselman at the WSJ: Number of the Week: U.S. Oil Boom Affecting Global Prices

The U.S. pumped 6.5 million barrels a day of oil last year, according to the Energy Information Administration, the most since the mid-1990s, and production has continued to surge; April’s figure of 7.4 million barrels per day marked the best month in more than two decades.
...
The industry wasn’t expecting the huge surge in production from North Dakota, so companies didn’t have the pipelines in place to handle all the new oil. So rather than flow into the global market, much of the oil stayed in the middle of the U.S.

Now, however, the gap between WTI and Brent is starting to narrow, as a new report from the Energy Information Administration makes clear. The industry has expanded pipeline capacity and found other ways, such as rail cars, to get oil from the middle of the country to major demand centers on the coasts. Meanwhile, coastal refineries are shifting to use more domestic crudes, leading to lower demand for Brent. The result: The gap between the two prices has narrowed to under $10 per barrel.

But, until the gap disappears completely, we still need to use Brent crude prices to forecast U.S. gasoline prices.

Click on graph for larger image.

Here is an update to the graph in the previous post that shows the divergence between Brent and Cushing starting in 2011.

Recently the spread has been closing. At one point Brent was selling for about 25% more than WTI (even though they are comparable quality). Now the difference is under 7% (and less than $7 per barrel).

by Calculated Risk on 6/29/2013 08:05:00 AM

Happy Independence Day! The key report this week is the June employment report on Friday.

Other key reports include the ISM manufacturing index on Monday, auto sales on Tuesday, the Trade Balance report on Wednesday, and the ISM service index also on Wednesday.

Also Reis will release their Q2 2013 Mall vacancy rate survey this week.

----- Monday, July 1st -----
9:00 AM: The Markit US PMI Manufacturing Index for June. The consensus is for the index to be unchanged at 52.3.

10:00 AM ET: ISM Manufacturing Index for June. The consensus is for an increase to 50.5 from 49.0 in May.  Based on the regional surveys, a reading above 50 seems likely.

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

The ISM manufacturing index indicated contraction in May at 49.0%. The employment index was at 50.1%, down from 50.2%, and the new orders index was at 48.8%, down from 52.3% in April.

10:00 AM: Construction Spending for May. The consensus is for a 0.6% increase in construction spending.

----- Tuesday, July 2nd -----
All day: Light vehicle sales for June. The consensus is for light vehicle sales to increase to 15.5 million SAAR in June (Seasonally Adjusted Annual Rate) from 15.3 million SAAR in May.

This graph shows light vehicle sales since the BEA started keeping data in 1967. The dashed line is the May sales rate.

10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for May. The consensus is for a 2.0% increase in orders.

----- Wednesday, July 3rd -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:15 AM: The ADP Employment Report for June. This report is for private payrolls only (no government). The consensus is for 165,000 payroll jobs added in June.  

8:30 AM: Trade Balance report for May from the Census Bureau.

The graphs shows both exports and imports increased in April, but have mostly been moving sideways.

The consensus is for the U.S. trade deficit to increase to $40.8 billion in May from $40.3 billion in April.

8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a decrease to 345 thousand from 346 thousand last week.

10:00 AM: ISM non-Manufacturing Index for June. The consensus is for a reading of 54.5, up from 53.7 in May. Note: Above 50 indicates expansion, below 50 contraction.

10:00 AM: Trulia Price Rent Monitors for June. 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.

Early: Reis Q2 2013 Mall Survey of rents and vacancy rates.

----- Thursday, July 4th -----
All US markets are closed in observance of the Independence Day holiday.

----- Friday, July 5th -----
8:30 AM: Employment Report for June. The consensus is for an increase of 161,000 non-farm payroll jobs in June; the economy added 175,000 non-farm payroll jobs in May.

The consensus is for the unemployment rate to decrease to 7.5% in June.

The following graph shows the percentage of payroll jobs lost during post WWII recessions through May.

The economy has added 6.9 million private sector jobs since employment bottomed in February 2010 (6.3 million total jobs added including all the public sector layoffs).

There are still 1.9 million fewer private sector jobs now than when the recession started in 2007.