by Calculated Risk on 4/03/2014 03:15:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for March. The consensus, according to Bloomberg, is for an increase of 206,000 non-farm payroll jobs in March (range of estimates between 175,000 and 275,000), and for the unemployment rate to decline to 6.6%.

Note: It is difficult to predict how much hiring will be a "bounce back" related to the severe weather in December, January and February.   The economy only added an average of 129 thousand per month over the last three months, significantly below the trend of close to 200 thousand per month.   We might see some upward revisions to prior months, and not all of the missing jobs will return in March, but there will probably be some hiring related to better weather.

Here is a summary of recent data:

• The ADP employment report showed an increase of 191,000 private sector payroll jobs in February. This was close to expectations of 190,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth close to expectations.

• The ISM manufacturing employment index declined in March to 51.1%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs decreased about 14,000 in March. The ADP report indicated a 5,000 increase for manufacturing jobs in March.

The ISM non-manufacturing employment index increased in March to 53.6% from 47.5% in February. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing increased 167,000 in March.

Taken together, these surveys suggest around 153,000 jobs added in March - below the consensus forecast.

• Initial weekly unemployment claims averaged close to 320,000 in March. This was down from an average of 338,000 in February.   For the BLS reference week (includes the 12th of the month), initial claims were at 323,000; this was down from 330,000 during the reference week in February.

This suggests layoffs mostly in line with the consensus forecast.

• The final March Reuters / University of Michigan consumer sentiment index decreased to 80.0 from the February reading of 81.6. This is frequently coincident with changes in the labor market, but there are other factors too.

• The small business index from Intuit showed no change in small business employment in March.

• Conclusion: The ADP report was higher in March compared to the February report - and probably in line with most forecasts, the Intuit small business index showed no net hiring, and the ISM surveys suggest an increase but below the consensus.  However there will probably be some bounce back from the below trend employment reports over the last three months (weather related).

There is always some randomness to the employment report - and the timing and survey methods are different than for some other reports - but my guess is the BLS report will be close to the consensus forecast of 206,000 nonfarm payrolls jobs added in March.

by Calculated Risk on 4/03/2014 01:05:00 PM

Reis reported that the vacancy rate for regional malls were unchanged at 7.9% in Q1 2014. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate was also unchanged at 10.4%. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Senior Economist Ryan Severino:

[Strip Malls] The national vacancy rate for neighborhood and community shopping centers was unchanged during the first quarter. Though this was slightly worse than the 10 basis points decline from last quarter, it is still on par with the pace of improvement since the market began to recover roughly two years ago. The national vacancy rate remains down 70 basis points from the historical peak vacancy rate of 11.1% which was recorded over two years ago, during the third quarter of 2011. Although we continue to see improvement in both the economy and the labor market, gains are not yet sufficient to translate into more meaningful declines in the national vacancy rate.

Construction during the first quarter was the lowest since the first quarter of 2011 while net absorption was the lowest since the second quarter of 2011. Inclement weather across much of the country undoubtedly had an impact on construction during the first quarter, delaying projects. Because demand remains tied to new construction, net absorption figures were also muted this quarter. Nonetheless, construction activity remains on an upward trend as the economy recovers.
...
[Regional] Malls continue to perform better than neighborhood and community centers, but their recovery also remains challenging. Vacancy as of the first quarter was 7.9%, unchanged from the fourth quarter and down 40 basis points from the first quarter of 2013. Vacancy is also down 150 basis points from the historical high level reached during the third quarter of 2011. Asking rents grew by 0.5% in the first quarter and 1.7% during the last twelve months. This is the twelfth consecutive quarter of rent increases at the national level for regional malls.

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.

Mall vacancy data courtesy of Reis.

by Calculated Risk on 4/03/2014 10:00:00 AM

The March ISM Non-manufacturing index was at 53.1%, up from 51.6% in February. The employment index increased in March to 53.6%, up from 47.5% in February. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: March 2014 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in March for the 50th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 53.1 percent in March, 1.5 percentage points higher than February's reading of 51.6 percent. The Non-Manufacturing Business Activity Index decreased to 53.4 percent, which is 1.2 percentage points lower than the reading of 54.6 percent reported in February, reflecting growth for the 56th consecutive month but at a slower rate. The New Orders Index registered 53.4 percent, 2.1 percentage points higher than the reading of 51.3 percent registered in February. The Employment Index increased 6.1 percentage points to 53.6 percent from the February reading of 47.5 percent and indicates substantial growth after one month of contraction. The Prices Index increased 4.6 percentage points from the February reading of 53.7 percent to 58.3 percent, indicating prices increased at a faster rate in March when compared to February. According to the NMI®, 13 non-manufacturing industries reported growth in March. Despite the affects of weather on many of the respective businesses, the majority of respondents indicate that business conditions are improving. The respondents also project better business activity and economic conditions as weather conditions continue to improve."
emphasis added

Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was slightly below the consensus forecast of 53.5% and indicates faster expansion in March than in February.

by Calculated Risk on 4/03/2014 08:54:00 AM

The Department of Commerce reported this morning:

[T]otal February exports of $190.4 billion and imports of $232.7 billion resulted in a goods and services deficit of $42.3 billion, up from $39.3 billion in January, revised. February exports were $2.0 billion less than January exports of $192.5 billion. February imports were $1.0 billion more than January imports of $231.7 billion.

The trade deficit was above the consensus forecast of $39.1 billion.

The first graph shows the monthly U.S. exports and imports in dollars through January 2014.

Click on graph for larger image.

Imports increased and exports decreased in February.  

Exports are 15% above the pre-recession peak and up 2% compared to February 2013; imports are at the pre-recession peak, and up about 1% compared to February 2013. 

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

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.

Oil averaged $91.53 in February, up from $90.21 in January, and down from $95.96 in February 2013.  The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012.

The trade deficit with China declined to $20.86 billion in February, from $23.41 billion in February 2013.  About half of the trade deficit is related to China.

Overall it appears trade is picking up slightly.

by Calculated Risk on 4/03/2014 08:30:00 AM

The DOL reports:

In the week ending March 29, the advance figure for seasonally adjusted initial claims was 326,000, an increase of 16,000 from the previous week's revised figure of 310,000. The 4-week moving average was 319,500, an increase of 250 from the previous week's revised average of 319,250.

The previous week was revised down from 311,000.

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 319,500.

This was above the consensus forecast of 320,000.  The 4-week average is close to normal levels during an expansion.

by Calculated Risk on 4/02/2014 08:25:00 PM

Thursday:
• Early: Reis Q1 2014 Mall Survey of rents and vacancy rates.

• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 320 thousand from 311 thousand.

• Also at 8:30 AM, the Trade Balance report for February from the Census Bureau. The consensus is for the U.S. trade deficit to decrease to $38.5 billion in February from $39.1 billion in January.

• At 10:00 AM, the ISM non-Manufacturing Index for March. The consensus is for a reading of 53.5, up from 51.6 in February. Note: Above 50 indicates expansion, below 50 contraction.

by Calculated Risk on 4/02/2014 05:15:00 PM

From NFIB: Small Business Job Creation Better Than February But...

“NFIB owners increased employment by an average of 0.18 workers per firm in March (seasonally adjusted), an improvement over February’s 0.11 reading and the sixth positive month in a row. Seasonally adjusted, 11 percent of the owners (down 1 point) reported adding an average of 2.6 workers per firm over the past few months. Offsetting that, 12 percent reduced employment (up 2 points) an average of 2.1 workers, producing the seasonally adjusted net gain of 0.18 workers per firm overall. While there could still be lingering winter effects in the data, some of the best job producing areas, the Southwest, West and Florida, did not have weather problems and still delivered mediocre growth ratings.

Click on graph for larger image.

This graph from NFIB shows the change in number of employees per firm.

Small businesses have a larger percentage of real estate and retail related companies than the overall economy. With the high percentage of real estate (including small construction companies), I expect small business hiring to be slow to recover in this cycle.

by Calculated Risk on 4/02/2014 03:24:00 PM

From Margaret Jacobson and Filippo Occhino at the Cleveland Fed: The Overhang of Structures before and since the Great Recession

The economic recovery in the US has been atypically weak, and one reason for this weakness is the failure of investment to rebound as strongly as it has in previous recoveries. We are four and a half years into the recovery, and yet the real level of investment spending by businesses, households, and nonprofits on structures, equipment, and software is still below its pre-recession peak.

In turn, the current low level of investment is mainly the result of an exceptionally large and persistent drop in one of its key components, investment in structures. Structures include both residential buildings, such as homes and apartment buildings, and nonresidential buildings, such as factories, office buildings, stores, and hospitals. After peaking in early 2006, investment in residential and nonresidential structures dropped by an unprecedented 45 percent, and it began to recover late, two years after the official beginning of the recovery. Currently, it is still 29 percent below its pre-recession peak. By comparison, investment in equipment dropped by 31 percent during the recession, but it began to pick up right when the recovery started and is now above its previous peak ...

Why is investment in structures so low? One reason that is often cited is overhang, the idea that the excess, or overhang, of structures that have been built in the past is now holding investment down. Using a new indicator of the optimal level of structures—the level that would be warranted by economic conditions—we measure the level of overhang before, during, and since the recession. We find evidence that investment in structures was too high in the years leading up to the recession and that an overhang of structures has held down investment growth during the recovery.
...
According to our measure, structure overhang in the private sector increased in the first half of the 2000s, peaking at 21 percent in 2006. It remained elevated throughout 2009, and then declined rapidly during the recovery, reaching 11 percent in 2012. This suggests that overhang built up because of excessive investment before the crisis, rather than resulting from the unanticipated drop in economic activity during the Great Recession.

CR Note: I think most of the "overhang" has been absorbed for residential, although there is still an overhang for office and retail (vacancy rates are still high).

by Calculated Risk on 4/02/2014 10:11:00 AM

Reis reported that the apartment vacancy rate declined in Q1 to 4.0% from 4.2% in Q4 2013.  In Q1 2013 (a year ago) the vacancy rate was at 4.4%, and the rate peaked at 8.0% at the end of 2009.

Some data and comments from Reis Senior Economist Ryan Severino:

Vacancy declined by 20 basis points during first quarter to 4.0%, a slight improvement over last quarter’s 10 basis point decline. Over the last twelve months the national vacancy rate has declined by 40 basis points, more or less the same pace as the last few quarters. Demand for apartments remains strong four years after the recovery began while inclement weather had a negative impact on construction activity. The national vacancy rate now stands 400 basis points below the cyclical peak of 8.0% observed right after the recession concluded in late 2009.

Resilient demand continued to shrug off seasonal weakness with a strong showing in the first quarter. The sector absorbed 41,570 units, down slightly versus last quarter’s 48,546 but nonetheless the largest figure for a first quarter since 2011. Moreover, the market is displaying incredible strength, continuing to absorb this many units four years after the advent of the recovery. Meanwhile, completions during the first quarter totaled 25,135 units. This is a pullback from last quarter’s 45,073, though inclement weather surely had some impact on this. As we have been warning, construction is clearly on an upswing, and bad weather is only likely to delay, not cancel projects. For 2014, we still expect roughly 162,000 units to be delivered so we should expect significant completions figures during the subsequent quarters of 2014.

Asking and effective rents grew by 0.5% and 0.6%, respectively, during the first quarter. This is a minor decrease from the fourth quarter and the lowest figure since the first quarter of 2013. Rent growth remains relatively weak given the fact that the apartment market is at a miniscule 4.0% vacancy rate. Normally at such a low vacancy rate, rent growth is at least 100 basis points above current growth rates on an annual basis. Rent growth is being held back by the fact that rents (on a nominal basis) are at record‐high levels and the labor market is still relatively weak, generating little compensation increases for many workers. The marriage of these two factors is making it difficult for landlords in many markets to increase rents at a faster pace.
...
Demand for apartments is seemingly insatiable. Although the labor market got off to sluggish start in 2014, we still expect the recovery to accelerate which should support ongoing demand for apartment units. However, the slight pullback in construction this quarter was due to seasonal factors and construction remains on pace for roughly 162,000 new units to be completed this year. This is above the long‐term historical average of roughly 125,000 units/year and this will make it difficult for demand to keep exceeding completions. Therefore, we anticipate that for the first time since 2009 the national vacancy rate will not fall in 2014. We anticipate that vacancy will be more or less flat this year. However, our general position on 2014 has not been altered ‐ still low vacancy, an improving economy and labor market, and lots of newly completed Class A properties coming online with rents higher than the market average will all conspire to push asking and effective rents up by roughly 3.3% next year.
emphasis added

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.


Apartment vacancy data courtesy of Reis.

by Calculated Risk on 4/02/2014 08:21:00 AM

From ADP:

Private sector employment increased by 191,000 jobs from February to March according to the March ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
Mark Zandi, chief economist of Moody’s Analytics, said, "The job market is coming out from its deep winter slumber. Job gains are consistent with the pace prior to the brutal winter. The gains are broad based across industries and business size classes. Even better numbers are likely in coming months as the weather warms.”

This was at the consensus forecast for 190,000 private sector jobs added in the ADP report. 

Note: ADP hasn't been very useful in directly predicting the BLS report on a monthly basis, but it might provide a hint. The BLS report for March will be released on Friday.