by Calculated Risk on 10/03/2014 01:05:00 PM

Earlier the Department of Commerce reported:

[T]otal August exports of $198.5 billion and imports of $238.6 billion resulted in a goods and services deficit of $40.1 billion, down from $40.3 billion in July, revised. August exports were $0.4 billion more than July exports of $198.0 billion. August imports were $0.2 billion more than July imports of $238.3 billion.

The trade deficit was smaller than the consensus forecast of $40.7 billion and the trade deficit was revised down slightly for July.

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

Click on graph for larger image.

Imports and exports increased in August.  

Exports are 19% above the pre-recession peak and up 4% compared to August 2013; imports are 3% above the pre-recession peak, and up about 4% compared to August 2013. 

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

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 imports averaged $96.32 in August, down from $97.81 in July, and down from $100.27 in August 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 increased to $30.2 billion in August, from $29.8 billion in August 2013.

by Calculated Risk on 10/03/2014 09:42:00 AM

Earlier: September Employment Report: 248,000 Jobs, 5.9% Unemployment Rate

This was a solid report with 248,000 jobs added and combined upward revisions to July and August of 69,000. As always we shouldn't read too much into one month of data, but at the current pace (through September), the economy will add 2.72 million jobs this year (2.64 million private sector jobs). Right now 2014 is on pace to be the best year for both total and private sector job growth since 1999.

A few other positives:  the unemployment rate declined to 5.9% (the lowest level since July 2008), U-6 (an alternative measure for labor underutilization) was at the lowest level since 2008, the number of part time workers for economic reasons declined slightly (lowest since October 2008), and the number of long term unemployed declined to the lowest level since January 2009.

Unfortunately wage growth is still subdued.   From the BLS: "Average hourly earnings for all employees on private nonfarm payrolls, at $24.53, changed little in September (-1 cent). Over the year, average hourly earnings have risen by 2.0 percent. In September, average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $20.67."

With the unemployment rate at 5.9%, there is still little upward pressure on wages. Wages should pick up as the unemployment rate falls over the next couple of years, but with the currently low inflation and little wage pressure, the Fed will likely remain patient.

A few more numbers:

Total employment increased 248,000 from August to September and is now 1.07 million above the previous peak.  Total employment is up 9.78 million from the employment recession low.

Private payroll employment increased 236,000 from August to September, and private employment is now 1,547,000 above the previous peak (the unprecedented large number of government layoffs has held back total employment). Private employment is up 10.34 million from the low.

Through the first nine months of 2014, the economy has added 2,040,000 payroll jobs - up from 1,736,000 added during the same period in 2013.   My expectation at the beginning of the year was the economy would add between 2.4 and 2.7 million payroll jobs this year.  That still looks about right.

Employment-Population Ratio, 25 to 54 years old

Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) 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 participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle.

The 25 to 54 participation rate decreased in September to 80.7% from 81.1% in August, and the 25 to 54 employment population ratio decreased to 76.7% from 76.8%.  As the recovery continues, I expect the participation rate for this group to increase a little - although the participation rate has been trending down for this group since the late '90s.

Year-over-year Change in Employment

This graph shows the year-over-year change in total non-farm employment since 1968.

In September, the year-over-year change was 2.635 million jobs, and it appears the pace of hiring is increasing.

Right now it looks like 2014 will be the best year since 1999 for both total nonfarm and private sector employment growth.

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) was little changed in September at 7.1 million. These individuals, who would have preferred full-time employment, 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 persons working part time for economic reasons decreased in September to 7.103 million from 7.277 million in August.  This suggests significantly slack still in the labor market.  These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 11.8% in September from 12.0% in August.

This is the lowest level for U-6 since October 2008.

Unemployed over 26 Weeks

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

According to the BLS, there are 2.954 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 2.963 in August. This is trending down, but is still very high.

This is the lowest level for long term unemployed since January 2009.

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 September 2014, state and local governments added 14,000 jobs.  State and local government employment is now up 143,000 from the bottom, but still 601,000 below the peak.

Clearly state and local employment is now increasing.  And Federal government layoffs have slowed (payroll decreased by 2 thousand in September), but Federal employment is still down 25,000 for the year.

by Calculated Risk on 10/03/2014 08:30:00 AM

From the BLS:

Total nonfarm payroll employment increased by 248,000 in September, and the unemployment rate declined to 5.9 percent, the U.S. Bureau of Labor Statistics reported today.
...
The change in total nonfarm payroll employment for July was revised from +212,000 to +243,000, and the change for August was revised from +142,000 to +180,000. With these revisions, employment gains in July and August combined were 69,000 more than previously reported.

Click on graph for larger image.

The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes).

Employment is now up 2.63 million year-over-year.

Total employment is now 1.07 million above the pre-recession peak.

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

The Labor Force Participation Rate decreased in September to 62.7% from 62.8% in August. This is the percentage of the working age population in the labor force.   A large portion of the recent decline in the participation rate is due to demographics.

The Employment-Population ratio was unchanged at 59.0% (black line).

I'll post the 25 to 54 age group employment-population ratio graph later.

The third graph shows the unemployment rate.

The unemployment rate decreased in September to 5.9%.

This was above expectations, and the revisions to prior months were strongly positive.  A solid report!

I'll have much more later ...

by Calculated Risk on 10/02/2014 08:54:00 PM

Earlier I posted a preview for the September employment report. I noted that over the last four years, September payrolls have been revised up by an average of 55,000 - so it appears the BLS underestimates employment in September.

But that is nothing compared to the '90s.

As an example, in September 1995 the BLS initially reported an increase of 121,000 payroll jobs. Eventually that was revised up to 241,000.

In September 1996, the BLS initially reported a 40,000 decrease in payrolls jobs. This was eventually revised up to a 225,000 increase!

And in September 1997, the BLS initially reported an increase of 215,000 payroll jobs. This was revised up to 512,000 jobs! Wow.

I think the BLS methods have improved (the revisions tend to be smaller now), but there will still be significant revisions.

Friday:
• Early, Reis Q3 2014 Mall Survey of rents and vacancy rates.

• At 8:30 AM ET, the Employment Report for September. The consensus is for an increase of 215,000 non-farm payroll jobs added in September, up from the 142,000 non-farm payroll jobs added in August. The consensus is for the unemployment rate to be unchanged at 6.1% in September.

• Also at 8:30 AM, the Trade Balance report for August from the Census Bureau. The consensus is for the U.S. trade deficit to be at $40.7 billion in August from $40.5 billion in July.

• At 10:00 AM, the ISM non-Manufacturing Index for September. The consensus is for a reading of 58.8, down from 59.6 in August. Note: Above 50 indicates expansion.

by Calculated Risk on 10/02/2014 05:04:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in August to 1.98% from 2.02% in July. Freddie's rate is down from 2.64% in August 2013, and this is the lowest level since January 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

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

Note: Fannie Mae reported earlier this week that the Single-Family Serious Delinquency rate declined slightly in August to 1.99% from 2.00% in July.

Click on graph for larger image

Although this indicates progress, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.66 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until some time in 2016.

Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed even in 2016 (mostly in judicial foreclosure states).

by Calculated Risk on 10/02/2014 01:45:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for September. The consensus, according to Bloomberg, is for an increase of 215,000 non-farm payroll jobs in September (range of estimates between 185,000 and 289,000), and for the unemployment rate to be unchanged at 6.1%.

The BLS reported 142,000 jobs added in August.

Here is a summary of recent data:

• The ADP employment report showed an increase of 213,000 private sector payroll jobs in September. This was above expectations of 200,000 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 slightly above expectations.

• The ISM manufacturing employment index decreased in September to 54.6%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 6,000 in September. The ADP report indicated a 35,000 increase for manufacturing jobs in September.

The ISM non-manufacturing employment index for September will be released on Friday after the employment report.

• Initial weekly unemployment claims averaged close to 295,000 in September, down from 300,000 in August. For the BLS reference week (includes the 12th of the month), initial claims were at 281,000; this was down from 299,000 during the reference week in August.

The lower reference week reading suggests slightly fewer layoffs in September than in August.

• The final September Reuters / University of Michigan consumer sentiment index increased to 84.6 from the August reading of 82.5. This is frequently coincident with changes in the labor market, but there are other factors too - like lower gasoline prices.

• On small business hiring: The small business index from Intuit showed a 10,000 increase in small business employment in September.

And from NFIB: NFIB Jobs Statement: Small Businesses Report Stronger Hiring, But Expectations Remain Muted "NFIB owners increased employment by an average of 0.24 workers per firm in September (seasonally adjusted), the twelfth positive month in a row and the largest gain this year."

• Special circumstance: In August, a strike at Market Basket in New England negatively impacted the employment report. From BLS Commissioner Erica Groshen:

Within retail, employment declined in food and beverage stores (-17,000); this industry was impacted by employment disruptions at a grocery store chain in New England.

The disruption ended quickly, and food and beverage employment should bounce back in September.

• Conclusion: Below is a table showing several employment indicators and the initial BLS report (the first column is the revised employment added). A few key points:

1) Most of the revisions this year have been up (average about 15,000). I expect employment for August will be revised up too (over the last 4 years, August has eventually been revised up an average of 55,000 jobs).

2) Unfortunately none of the indicators below is very good at predicting the initial BLS employment report.  

3) September tends to be revised up sharply (like August, up an average of 55,000 jobs over the last 4 years).  This suggests the BLS might underestimate employment in September again.  However some of the recent initial low estimates for September  might have been because the seasonal factors were skewed by the deep recession (this effect fades over time).

4) In general it looks like this should be another 200+ month (based on ADP, unemployment claims, and small business hiring).

5) As mentioned above, there was a labor disruption in August that was resolved quickly.  So this should boost the September employment report.

So I'll take the over again (above 215,000).  But I sure was wrong last month!

Employment Indicators (000s)
	BLS Revised	BLS Initial	ADP Initial	ISM	Weekly Claims Reference Week1	Intuit Small Business
Jan	144	113	175	236	329	10
Feb	222	175	139	-6	334	0
Mar	203	192	191	153	323	0
Apr	304	288	220	NA	320	25
May	229	217	179	130	327	35
Jun	267	288	281	NA	314	20
Jul	212	209	218	NA	303	15
Aug		142	204	285	299	0
Sep		Friday	213	NA	281	10
1Lower is better for Unemployment Claims

by Calculated Risk on 10/02/2014 10:46:00 AM

Reis reported that the apartment vacancy rate increased in Q3 to 4.2% from 4.1% in Q2.  In Q3 2013 (a year ago), the vacancy rate was at 4.3%, and the rate peaked at 8.0% at the end of 2009.

Some comments from Reis Senior Economist Ryan Severino:

The national vacancy rate increased by 10 basis points to 4.2% during the third quarter. This is the first quarterly increase in vacancy since the fourth quarter of 2009. This is something that we have been warning about for some time. The national vacancy rate has been below 5.5% since the third quarter of 2011, a virtually unprecedented run. Ultimately, market conditions that tight were going to serve as a catalyst for new construction activity. Although the surge in construction occurred a bit late, due to the fallout from the Great Recession, it is now arriving. New construction continues to increase over time and will likely reach a post‐recession high this year. Meanwhile, demand has clearly declined from levels observed during 2010 and 2011. This type of slowing is expected, but demand should remain robust. The number of 20‐ to 30‐year olds, the prime rental cohort, will not peak until 2018 which should keep demand rather stout. However, the apartment market, like virtually all property types, is cyclical, and has a propensity to overbuild, even when things are booming. With construction anticipated to outpace net absorption over the next four years, we expect the national vacancy rate to slowly drift upward. However, we do not foresee a massive expansion in vacancy rates of the sort that accompanies recessions.
...
Nonetheless, 4.2% is still an incredibly tight market environment. Even as vacancy drifts slowly higher in the coming years, we do not anticipate that it will not surpass 5% by the end of the forecast horizon in 2018.

Construction overtook demand by a relatively wide margin during the third quarter, with a difference of 8,822 units. The 46,055 units delivered were just behind the fourth quarter of 2013's 47,950 units which are a post‐recession high. Moreover, completions this quarter were higher than completions for all of 2011 at construction's trough. In retrospect, the pullback in completions during the early stages of this year was at least partially attributable to the inclement weather experienced throughout much of the country. Once the weather improved, construction levels accelerated quickly. The market remains posed to deliver the highest level of new completions since 1999 when the economy was booming. That stands in contrast to today when economic growth is accelerating, but hardly booming.

However, net absorption has not ground to a halt. Though down from levels during 2010 and 2011, year to date, net absorption is actually tracking ahead of last year's pace, demonstrating just how strong demand remains ‐ despite the fact that the recovery in demand began four and a half years ago. Demographics are supporting demand. The most common age in the United States is 22, followed closely by 23, and then 21. There are a lot of young people in the market that are predominantly renters and not homeowners. This will continue to provide significant demand, even as new supply growth accelerates.
...
Asking and effective rents both grew by 1.0% during the third quarter. This is an increase from the second quarter and reflective of the seasonality often observed in the apartment market. Rents tend to grow the fastest during warmer months which are more conducive to moving and greater demand for apartment units, all else being equal. Year‐over‐year growth in rents appears to have stalled a bit this quarter. The 12‐month change in rent growth for asking and effective rents is 3.2% and 3.4%, respectively.
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 10/02/2014 08:35:00 AM

The DOL reports:

In the week ending September 27, the advance figure for seasonally adjusted initial claims was 287,000, a decrease of 8,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 293,000 to 295,000. The 4-week moving average was 294,750, a decrease of 4,250 from the previous week's revised average. The previous week's average was revised up by 500 from 298,500 to 299,000.

There were no special factors impacting this week's initial claims.

The previous week was revised up to 295,000.

The following graph shows the 4-week moving average of weekly claims since January 1971.

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 decreased to 294,750.

This was below the consensus forecast of 297,000 and in the normal range for an economic expansion.

by Calculated Risk on 10/01/2014 08:56:00 PM

An interesting article on foreign buyers of U.S. real estate from Dionne Searceyoct at the NY Times: Indians Join the Wave of Investors in Condos and Homes in the U.S.

Foreign buyers now make up 7 percent of total existing-home sales ... Of those, Indians represent 6 percent of the purchases, spending $5.8 billion, up from $3.9 billion over the same period a year ago and on par with buyers from Britain.

Canadians have long bought American property and still do so in big numbers, with purchases centered for the most part in Arizona, Florida and more recently in Las Vegas. Canada still accounts for the largest share of buyers, but China is the fastest-growing source of clients, according to the realtors’ group.

And Chinese buyers are bigger spenders. Their real estate purchases in the United States nearly doubled from last April to last March, increasing to $22 billion from the previous period. They accounted for nearly a quarter of all international sales in the current period.

Thursday:
• Early, Reis Q3 2014 Apartment Survey of rents and vacancy rates.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 297 thousand from 293 thousand.

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for August. The consensus is for a 9.4 decrease in August orders.

by Calculated Risk on 10/01/2014 06:01:00 PM

The Case-Shiller house price indexes for July were released yesterday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close. Note: Hopefully Zillow will start estimating the National Index.

From Zillow: Find Out Next Month’s Case-Shiller Numbers Today

The July S&P/Case-Shiller (SPCS) data out this morning indicated continued slowing in the housing market with the annual change in the 20-city index falling to 6.7 percent from 8.1 percent the prior month. Our current forecast for SPCS next month indicates further slowing with the annual increase in the 20-City Composite Home Price Index falling to 5.7 percent in August.

The non-seasonally adjusted (NSA) monthly increase in July for the 20-City index was 0.6 percent, and we expect it to fall to 0.3 percent next month.

All forecasts are shown in the table below. These forecasts are based on the July SPCS data release this morning and the August 2014 Zillow Home Value Index (ZHVI), released September 18. Officially, the SPCS Composite Home Price Indices for August will not be released until Tuesday, October 28.

So the Case-Shiller index will probably show a lower year-over-year gain in August than in July (6.7% year-over-year for the Composite 20 in July, 5.6% year-over-year for the National Index).

Zillow August 2014 Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	August 2013	178.71	174.56	164.49	160.57
Case-Shiller (last month)	July 2014	188.29	184.50	173.34	169.67
Zillow Forecast	YoY	5.8%	5.8%	5.7%	5.7%
	MoM	0.4%	0.1%	0.3%	0.1%
Zillow Forecasts1		189.1	184.7	173.9	169.8
Current Post Bubble Low		146.45	149.90	134.07	137.12
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		29.1%	23.2%	29.7%	23.8%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts