by Calculated Risk on 9/08/2013 10:08:00 AM

This is a follow-up to the NAHB survey released a few days ago showing a shortage of buildable lots in many areas.

From Shaila Dewan at the NY Times: Prices Are Rising for New Homes, and the Land They Are Built On

The latest land rush is in full swing, as developers realize that they have failed to feed the zoning, permitting and mapping pipeline, which can take months or years to turn raw fields into buildable lots. ...

After builders across the country spent decades feeding acre after acre of raw land into the maw of demand for single-family homes, the housing crash left them with a land surplus so large that lots were selling for pennies on the dollar. At the peak of supply, in 2009, there were enough lots to last almost eight years, according to MetroStudy, a firm that tracks housing data. Now there is less than four year’s worth, and only about a quarter of that is in the more desirable A- or B-rated locations.

“We have gone from a situation where five years ago everyone was saying, ‘There’s too many lots,’ to today, builders are literally crying on our shoulder saying, ‘There’s not enough lots. We can’t find any,’” said Bradley F. Hunter, the chief economist at MetroStudy.

Several years ago we discussed how, during a housing bust, land prices usually fall faster than house prices (no one wanted land a few years ago).   As an example, back in 2008 I spoke with a buyer who purchased land in the SoCal Inland Empire for $0.15 on the dollar from a homebuilder.  And that was improved land.  Now land prices are rising quickly.

The land developers are scrambling to catch up since it takes time to obtain all the entitlements and this could be an issue for some home buiders next year too.

by Calculated Risk on 9/07/2013 04:57:00 PM

Note: This is an update on an earlier post through the August employment report.

In April, I posted two graphs comparing changes in public and private sector payrolls during the Bush and Obama presidencies. Several readers asked if I could add Presidents Reagan and Clinton (I've also added the single term of President George H.W. Bush).  Below are updates through the August report.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, so a better comparison might be to look at the percentage change, but this gives an overall view of employment changes.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s).  President George H.W. Bush only served one term, and President Obama is in the first year of his second term. 

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble.  Mr. Obama (blue) took office during the financial crisis and great recession.  There was also a significant recession in the early '80s right after Mr. Reagan (yellow) took office.

There was a recession towards the end of President G.H.W. Bush (purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

The employment recovery during Mr. G.W. Bush's (red) first term was very sluggish, and private employment was down 946,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 665,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,490,000 private sector jobs added.

Private sector employment increased by 20,864,000 under President Clinton (light blue) and 14,688,000 under President Reagan (yellow).

There were only 1,933,000 more private sector jobs at the end of Mr. Obama's first term.  At this early point in Mr. Obama's second term, there are now 3,254,000 more private sector jobs than when he initially took office.

 A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1990, 2000, and 2010. 

The public sector grew during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,748,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 752,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment.

Looking forward, I expect the economy to continue to expand for the next few years, so I don't expect a sharp decline in employment as happened at the end of Mr. Bush's 2nd term (In 2005 and 2006 I was warning of a coming recession due to the bursting of the housing bubble).

A big question is when the public sector layoffs will end.  It appears the cutbacks are mostly over at the state and local levels, but there are ongoing cutbacks at the Federal level.

by Calculated Risk on 9/07/2013 12:49:00 PM

The key report this week will be August retail sales to be released on Friday.

----- Monday, September 9th -----
3:00 PM: Consumer Credit for July from the Federal Reserve. The consensus is for credit to increase $12.3 billion in July.

----- Tuesday, September 10th -----
7:30 AM ET: NFIB Small Business Optimism Index for August.

10:00 AM: Job Openings and Labor Turnover Survey for July from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings increased in June to 3.936 million, up from 3.907 million in May. The number of job openings (yellow) is the highest since 2008, but openings are only up 4% year-over-year compared to June 2012. 

Quits were down in June, and quits are up about 1% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

----- Wednesday, September 11th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for July. The consensus is for a 0.3% increase in inventories.

----- Thursday, September 12th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 330 thousand from 323 thousand last week.

2:00 PM ET: Monthly Treasury Statement for August.

----- Friday, September 13th -----
8:30 AM ET: Retail sales for August will be released.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail Retail sales are up 28.1% from the bottom, and now 12.2% above the pre-recession peak (not inflation adjusted)

The consensus is for retail sales to increase 0.5% in August, and to increase 0.3% ex-autos.

8:30 AM: Producer Price Index for August. The consensus is for a 0.2% increase in producer prices (0.1% increase in core).

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for September). The consensus is for a reading of 82.0, down from 82.1 in August.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for July.  The consensus is for a 0.3% increase in inventories.

by Calculated Risk on 9/07/2013 08:15:00 AM

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

Here is the unofficial problem bank list for September 6, 2013.

Changes and comments from surferdude808:

Quiet week for changes to the Unofficial Problem Bank List with only three removals. After the changes, the list has 704 institutions with assets of $249.8 billion. A year ago, the list held 887 institutions with assets of $330.7 billion.

Actions were terminated against Midwest Independent Bank, Jefferson City, MO ($342 million) and Idaho First Bank, McCall, ID ($87 million) while The Foster Bank, Chicago, IL ($380 million) found a merger partner.

There is nothing new of significance to report on the status of banks controlled by Capitol Bancorp, Ltd. Next week will likely be as quiet as it will be too early for the OCC to release its actions through mid-August 2013.

CR Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. Less than two years later the list peaked at 1,002 institutions. Now, more than two years after the peak, the list is down to 704 (the list increased faster than it is decreasing - but it is steadily decreasing as regulators terminate actions).

by Calculated Risk on 9/06/2013 06:01:00 PM

A quick note: I'm watching housing inventory very closely this year. I think that inventory bottomed earlier this year, and that the NAR will report a year-over-year increase in inventory very soon (probably for September). As more inventory comes on the market, buyer urgency will wane and price increases will slow and even decline seasonally in many areas this winter. IMO this will be another step towards a more normal housing market.

We are starting to see more and more local areas report year-over-year increases in inventory. Housing economist Tom Lawler frequently sends out data on different areas across the country. In today's note, Lawler wrote:

The Arizona Regional MLS reported that residential home sales by realtors in the Greater Phoenix, Arizona area totaled 7,055 in August, down 6.9% from last August’s pace. Lender-owned properties were 8.9% of last month’s sales, down from 14.0% last August, while last month’s short-sales share was 10.3%, down from 29.4% a year ago. Active listings in August totaled 21,382, up 6.6% from July and up 2.1% from a year ago. The median home sales price last month was $180,200, up 23.4% from last August.

The Greater Nashville Association of Realtors reported that residential home sales by realtors in the Nashville, Tennessee area totaled 2,895 in August, up 16.9% from last August’s pace. Active listings in August totaled 11,371, down 4.9% from July and down 10.2% from a year ago. The median SF home sales price last month was $194,000, up 10.9% from last August. The number of sales pending at the end of August was up 12.3% from a year ago.

The Mid-Hudson MLS reported that residential home sales by realtors in Dutchess County, New York totaled 238 in August, up 32.2% from last August’s pace. Active listings in August totaled 2,386, up 3.0% from July and up 2.5% from a year ago. The median SF home sales price last month was $255,000, up 3.0% from last August.
emphasis added

Two out of three areas in today's note reported year-over-year increases. I'm seeing year-over-year increases in more and more areas - and soon the national numbers will reflect this change.

by Calculated Risk on 9/06/2013 03:26:00 PM

From Jon Hilsenrath at the WSJ: Fed Officials Face Cliffhanger September Meeting After Mixed Jobs Report

Fed officials want to start scaling back their $85 billion-per-month bond-buying program this year and could take a small step in that direction at their policy meeting Sept. 17-18. But the economic data in recent months have been ambiguous and new threats to the economy and markets loom, which could prompt officials to wait longer before acting.
...
Many officials believe it matters little in theory whether they start pulling back the program in September or later this year. ... But in reality, officials have concluded ... it matters immensely what signal investors take from their actions.
...
Yields on the benchmark 10-year Treasury notes have jumped from 1.6% in May to nearly 3%

On the "downside risks", Ethan Harris at Merrill Lynch wrote today:

Perhaps the strongest case for tapering is reduced downside risks. The economy has weathered a fairly big fiscal shock—by our estimates, more than 2% of GDP—with just two bad quarters—0.1% growth in 4Q and 1.1% growth in 1Q. Moreover, stripping out inventories and trade—the two wildcards of GDP accounting—final sales to domestic purchasers follow a similar pattern, bottoming in 1Q, when the tax and spending shock hit. Unfortunately, when Congress returns from its summer siesta on September 9, three major policy risks loom: Syria, the 2014 budget and the debt ceiling. We don’t expect a major shock to the economy, but the Fed will not be sure when it meets September 17-18.

A few months ago I thought the Fed would wait until December, but the upward revisions to GDP and the decline in the unemployment rate has made it less clear.  I don't know how much the Fed will weigh the decline in the participation rate.

by Calculated Risk on 9/06/2013 01:59:00 PM

With the release of the August employment report we can update the unemployment rate chart that I'm using to track when the Fed will start tapering the QE3 purchases.

The September FOMC meeting is on the 17th and 18th. The employment report was the last key data that will be released before the September FOMC meeting.

At the June FOMC press conference, Fed Chairman Ben Bernanke said:

"If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year. And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around midyear. In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains, a substantial improvement from the 8.1% unemployment rate that prevailed when the committee announced this program."

Click on graph for larger image.

The first graph is for the unemployment rate.

The current forecast is for the unemployment rate to decline to 7.2% to 7.3% in Q4 2013.

We only have data through August, and so far the unemployment rate is tracking at the bottom of the forecast (lower is better). 

However, in July, Bernanke said that the unemployment rate "probably understates the weakness of the labor market." He suggested he is watching other employment indicators too, and I think the decline in the participation rate offsets the decline in the unemployment rate.

The second graph is for GDP.

The current forecast is for GDP to increase between 2.3% and 2.6% from Q4 2012 to Q4 2013.

Combined the first and second quarter were below the FOMC projections. GDP would have to increase at a 2.8% annual rate in the 2nd half to reach the FOMC lower projection, and at a 3.3% rate to reach the higher projection.

The third graph is for PCE prices.


The current forecast is for prices to increase 0.8% to 1.2% from Q4 2012 to Q4 2013.

So far PCE prices are close to this projection - however this projection is significantly below the FOMC target of 2%. Clearly the FOMC expects inflation to pickup, and a key is if the recent decline in inflation is "transitory".

PCE prices wouldn't have to increase much over the next five months to reach the upper FOMC projection.

The fourth graph is for core PCE prices

The current forecast is for core prices to increase 1.2% to 1.3% from Q4 2012 to Q4 2013.

So far core PCE prices are below this projection - and, once again, this projection is significantly below the FOMC target of 2%.

It now looks the year-end data might be "broadly consistent" with the June FOMC projections.  However I think the decline in the participation rate will factor into the discussions.

by Calculated Risk on 9/06/2013 10:30:00 AM

Overall this was a weak employment report.  Although the headline number of 169,000 jobs added was just a little below the consensus forecast, the downward revisions to the June and July estimates were significant (74,000 fewer jobs than previously reported).  Disappointing.

The decline in the unemployment rate to 7.3% in August, from 7.4% in July, was due to a decline in the participation rate (not good news). If the participation rate had held steady, the unemployment rate would have increased to 7.5% instead of declining to 7.3%.

However if we look at the year-over-year change in employment - to minimize the monthly volatility - total nonfarm employment is up 2.206 million from August 2012, and private employment is up 2.300 million. That is essentially the same year-over-year gain as in July (2.202 million total, 2.279 million private year-over-year in July).  

So the story mostly remains the same: slow and steady job growth.

A few more graphs ...

Employment-Population Ratio, 25 to 54 years old

Click on graph for larger image.

Since the participation rate declined recently due to cyclical (recession) and demographic (aging population) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the employment-population ratio for this group was trending up as women joined the labor force. The ratio has been mostly moving sideways since the early '90s, with ups and downs related to the business cycle.

The ratio was unchanged at 75.9% in August.  This ratio should probably move close to 80% as the economy recovers, but that also requires an increase in the 25 to 54 participation rate.

The participation rate for this group declined to 81.0% in August.  The decline in the participation rate for this age group is probably mostly due to economic weakness (as opposed to demographics) and this suggests the labor market is still very weak.

Percent Job Losses During Recessions


This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses.  At the recent pace of improvement, it appears employment will be back to pre-recession levels next year (Of course this doesn't include population growth).

In the earlier post, the graph showed the job losses aligned at the start of the employment recession.

This financial crisis recession was much deeper than other post WWII recessions, and the recovery has been slower (the recovery from the 2001 recession was slow too). However, if we compare to other financial crisis recoveries, this recovery has actually been better than most.

Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) declined by 334,000 to 7.9 million in August. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of part time workers declined in August to 7.911 million.

These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 13.7% in August from 14.0% in July. This is the lowest level for U-6 since December 2008.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 4.290 million workers who have been unemployed for more than 26 weeks and still want a job. This was up slightly from 4.246 million in July. This is generally trending down, but is still very high.  Long term unemployment remains one of the key labor problems in the US.

State and Local Government

This graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years. (Note: Scale doesn't start at zero to better show the change.)

In August 2013, state and local governments added 17,000 jobs, and state and local employment is up 17 thousand so far in 2013 (basically flat).

I think most of the state and local government layoffs are over.  Of course Federal government layoffs are ongoing - and with many more layoffs expected.

Overall this was a weak report - especially with the downward revisions to June and July employment and the sharp decline in the participation rate (the reason the unemployment rate declined).  The labor market is still weak and millions of people are unemployed or underemployed.

by Calculated Risk on 9/06/2013 08:30:00 AM

From the BLS:

Total nonfarm payroll employment increased by 169,000 in August, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today. ...
...
The change in total nonfarm payroll employment for June was revised from +188,000 to +172,000, and the change for July was revised from +162,000 to +104,000. With these revisions, employment gains in June and July combined were 74,000 less than previously reported.

The headline number was slightly below expectations of 175,000 payroll jobs added.  However employment for June and July were also revised lower.

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 declined in August to 7.3% from 7.4% in July.

This is the lowest level for the unemployment rate since November 2008.

The unemployment rate is from the household report and the sharp decline in the participation rate helped lower the unemployment rate.

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

The Labor Force Participation Rate decreased to 63.2% in August (blue line) from 63.4% in July. 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 declined in August at 58.6% from 58.7% in July  (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.

With the revisions, this report was well below expectations.  I'll have much more later ...

by Calculated Risk on 9/05/2013 09:19:00 PM

Earlier: Employment Situation Preview

And an employment preview from Goldman Sachs:

We expect a 200k gain in nonfarm payrolls in August, modestly above consensus expectations of 180k and in line with the 6- and 12-month moving averages. We expect that the unemployment rate held steady at 7.4% after a two-tenths decline in July, with some risk of a further decline to 7.3%.

Most labor market indicators point to strong employment gains in August. Initial jobless claims have continued to fall, the employment component of the ISM non-manufacturing index posted a large gain, and household reports of job availability improved. In addition, we expect only a small sequester impact. Our forecast of 200k is also broadly in line with our labor market tracker, which summarizes 24 labor market indicators.

Friday:
• 8:30 AM ET, the Employment Report for August. The consensus is for an increase of 175,000 non-farm payroll jobs in August; the economy added 162,000 non-farm payroll jobs in June. The consensus is for the unemployment rate to be unchanged at 7.4 in August.