by Calculated Risk on 1/02/2015 11:31:00 AM

The Census Bureau reported that overall construction spending decreased in November:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during November 2014 was estimated at a seasonally adjusted annual rate of $975.0 billion, 0.3 percent below the revised October estimate of $977.7 billion.

Private spending increased and public spending decreased in November:

Spending on private construction was at a seasonally adjusted annual rate of $697.7 billion, 0.3 percent above the revised October estimate of $695.7 billion. Residential construction was at a seasonally adjusted annual rate of $352.7 billion in November, 0.9 percent above the revised October estimate of $349.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $345.0 billion in November, 0.3 percent below the revised October estimate of $346.1 billion. ...

In November, the estimated seasonally adjusted annual rate of public construction spending was $277.3 billion, 1.7 percent below the revised October estimate of $282.0 billion.
emphasis added

Note: Non-residential for offices and hotels is increasing, but spending for oil and gas is generally declining (up slightly in November from October). Early in the recovery, there was a surge in non-residential spending for oil and gas (because prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.

As an example, construction spending for lodging is up 11% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014.

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 48% below the peak in early 2006 - but up 54% from the post-bubble low.

Non-residential spending is 18% below the peak in January 2008, and up about 53% from the recent low.

Public construction spending is now 15% below the peak in March 2009 and about 5% above the post-recession low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now unchanged. Non-residential spending is up 5% year-over-year. Public spending is up 3% year-over-year.

Looking forward, all categories of construction spending should increase in 2015. Residential spending is still very low, non-residential is starting to pickup (except oil and gas), and public spending has probably hit bottom after several years of austerity.

This was below the consensus forecast of a 0.5% increase, however there were some upward revisions to spending in September and October.

by Calculated Risk on 1/02/2015 10:00:00 AM

The ISM manufacturing index suggests slower expansion in December than in November. The PMI was at 55.5% in December, down from 58.7% in November. The employment index was at 56.8%, up from 54.9% in November, and the new orders index was at 57.3%, down from 66.0%.

From the Institute for Supply Management: December 2014 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in December for the 19th consecutive month, and the overall economy grew for the 67th 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® (ISM®) Manufacturing Business Survey Committee. "The December PMI® registered 55.5 percent, a decrease of 3.2 percentage points from November’s reading of 58.7 percent. The New Orders Index registered 57.3 percent, a decrease of 8.7 percentage points from the reading of 66 percent in November. The Production Index registered 58.8 percent, 5.6 percentage points below the November reading of 64.4 percent. The Employment Index registered 56.8 percent, an increase of 1.9 percentage points above the November reading of 54.9 percent. Inventories of raw materials registered 45.5 percent, a decrease of 6 percentage points from the November reading of 51.5 percent. The Prices Index registered 38.5 percent, down 6 percentage points from the November reading of 44.5 percent, indicating lower raw materials prices in December relative to November. Comments from the panel are mixed, with some indicating that falling oil prices have an upside while others indicate a downside. Other comments mention the negative impact on imported materials shipment due to the West Coast dock slowdown."
emphasis added

Click on graph for larger image.

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

This was below expectations of 57.5%, but still indicates decent expansion in December.  The West Coast port issue is ongoing.

by Calculated Risk on 1/01/2015 08:47:00 PM

From Nick Timiraos at the WSJ: Housing Market Enters 2015 Facing Affordability Pressures

Some of the price declines were exacerbated by a glut of foreclosures. The subsequent rebound reflected increased investor demand for those bargain-priced properties ...

As foreclosures have faded and investor-purchasers stepped back from the market, price gains have slowed. In October, home prices had increased 4.6% from their year-earlier level, compared to a year-over-year gain of 10.9% in October 2013.

An open question in the coming year is whether price gains stabilize at those lower levels or whether they weaken further. Research firm Zelman & Associates expects price gains of 4% in 2015 and 3% in 2016.

But some market specialists say prices may need to give if sales are to rise. “In a few markets, there will be price declines,” [Glenn Kelman, chief executive of real-estate brokerage Redfin] said, “and maybe in more than a few.”

Friday:
• At 10:00 AM ET, the ISM Manufacturing Index for December. The consensus is for a decrease to 57.5 from 58.7 in November. The ISM manufacturing index indicated solid expansion in November at 58.7%. The employment index was at 54.9%, and the new orders index was at 66.0%.

• Also at 10:00 AM, Construction Spending for November. The consensus is for a 0.5% increase in construction spending.

by Calculated Risk on 1/01/2015 11:24:00 AM

Happy New Year! I did my part last night to help the restaurant index for December :-)

Here is a minor indicator I follow from the National Restaurant Association: Restaurant Performance Index Remains in Positive Territory

Buoyed by positive sales and traffic and an optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) remained in positive territory in November. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.1 in November, down slightly from its October level of 102.8. November marked the 21st consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“The RPI registered a modest decline in November, as sales and customer traffic results were somewhat softer than their solid October levels,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “However, a majority of restaurant operators still reported higher same-store sales in November, and they are increasingly optimistic that business conditions will continue to improve in the months ahead.”

“Overall, the RPI topped the 102 level for the second consecutive month in November, the first such occurrence in nearly nine years,” Riehle added.
emphasis added

Click on graph for larger image.

The index decreased to 102.1 in November, down from 102.8 in October. (above 100 indicates expansion).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month. This is another solid reading - and it is likely restaurants are benefiting from lower gasoline prices.

by Calculated Risk on 12/31/2014 07:22:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'm adding some thoughts, and a few predictions for each question. Here is a review of the Ten Economic Questions for 2014.

1) Economic growth: Heading into 2015, most analysts are pretty sanguine. Even with contraction in the first quarter, 2014 was a decent year (GDP will grow around 2.4% in 2014). Will 2015 be the best year of the recovery so far? Could 2015 be the best year since the '90s? Or will 2015 disappoint again?

First, here is a table of the annual change in real GDP since 1999.  Since 2000, the fastest real GDP growth was 3.8% in 2004, and the fastest growth for the recovery was 2.5% in 2010.

Economic activity clearly picked up in 2014 after the first quarter, however - due to severe weather - the economy contracted in Q1 and the economy only grew around 2.4% for the year (estimated).

Perhaps 2015 will be the year with 3%+ growth!

Annual Real GDP Growth
Year	GDP
1999	4.7%
2000	4.1%
2001	1.0%
2002	1.8%
2003	2.8%
2004	3.8%
2005	3.3%
2006	2.7%
2007	1.8%
2008	-0.3%
2009	-2.8%
2010	2.5%
2011	1.6%
2012	2.3%
2013	2.2%
20141	2.4%
1 2014 estimate.

All of the positives that led to the pickup in activity in 2014 are still present - the housing recovery is ongoing, state and local government austerity is over, household balance sheets are in much better shape and household deleveraging is over, and commercial real estate (CRE) investment (ex-energy) and public construction will both probably make positive contributions in 2015.

In addition, the sharp decline in oil prices should be a net positive for the US economy in 2015.  Plus the Federal government austerity is now ending (although there is the risk of more cuts).

A possible negative would be less exports due to the strong dollar.

Lower gasoline prices suggest an increase in personal consumption expenditures (PCE) excluding gasoline. And it seems likely PCE growth will be above 3% in 2015.  Add in some more business investment, the ongoing housing recovery, some further increase in state and local government spending, and 2015 should be the best year of the recovery with GDP growth at or above 3%.

Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?

by Calculated Risk on 12/31/2014 05:22:00 PM

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in November to 1.91% from 1.92% in October. The serious delinquency rate is down from 2.44% in November 2013, and this is the lowest level since October 2008.

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

Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate was unchanged in November at 1.91%. Freddie's rate is down from 2.43% in November 2013, and is at the lowest level since December 2008. 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

The Fannie Mae serious delinquency rate has fallen 0.53 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in late 2016 - although the rate of decline has slowed recently.

Note: The "normal" serious delinquency rate is under 1%.

Maybe serious delinquencies will be close to normal in late 2016.

by Calculated Risk on 12/31/2014 11:28:00 AM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'm adding some thoughts, and a few predictions for each question. Here is a review of the Ten Economic Questions for 2014.

2) Employment:  With one month to go, 2014 is already the best year for employment growth since the '90s.   Will 2015 be as strong?  Or will job creation slow in 2015?

There are some positives for employment heading into 2015. Economic activity has clearly picked up in the US, and there is solid momentum heading into the new year. The decline in oil prices will give a boost to many sectors, construction activity (non-energy related) should increase, and the pace of public hiring will probably increase in 2015.

There are also some negatives. The decline in oil prices will lead to layoffs in the energy sector and have a ripple effect in some communities. The strong dollar will probably impact exporters, and the lower unemployment rate will mean some companies will have difficulty finding qualified candidates.

I've seen estimates of around 50,000 layoffs in the energy sector related to lower oil prices.  There will be a ripple effect too that will probably double that number of job losses (businesses in oil producing areas will also lose employees).

Note: Those expecting 300+ thousand jobs per month in 2015 will probably be disappointed.  Too many people compare to the '80s and '90s, without thinking about changing demographics. The prime working age population (25 to 54 years old) was growing 2.2% per year in the '80s, and 1.3% per year in the '90s.  The prime working age population has actually declined slightly this decade.  Note: The prime working age population is now growing slowly again, and growth will pick up the '20s.

For review, here is a table of the annual change in total nonfarm, private and public sector payrolls jobs since 1997.  For private employment, 2014 was probably the best year since 1997.

Change in Payroll Jobs per Year (000s)
	Total, Nonfarm	Private	Public
1997	3,408	3,213	195
1998	3,003	2,734	313
1999	3,177	2,716	461
2000	1,946	1,682	264
2001	-1,735	-2,286	551
2002	-508	-741	233
2003	105	147	-42
2004	2,033	1,886	147
2005	2,506	2,320	186
2006	2,085	1,876	209
2007	1,140	852	288
2008	-3,576	-3,756	180
2009	-5,087	-5,013	-74
2010	1,058	1,277	-219
2011	2,083	2,400	-317
2012	2,236	2,294	-58
2013	2,331	2,365	-34
20141	2,900	2,810	90
1 2014 is estimated.

In 2014, public employment added to total employment, but at a fairly low level. Public hiring will probably pick up to 150,000+ in 2015.

The second table shows the change in construction payrolls starting in 2006.

	Construction Jobs (000s)
2006	152
2007	-195
2008	-789
2009	-1,047
2010	-192
2011	144
2012	114
2013	156
20141	215

Energy related construction hiring will decline in 2015, but I expect other areas of construction to be solid.

As I mentioned above, in addition to layoffs in the energy sector, exporters will have a difficult year - and more companies will have difficulty finding qualified candidates.  Even with the overall boost from lower oil prices - and some additional public hiring, I expect total jobs added to be lower in 2015 than in 2014.

So my forecast is for gains of about 200,000 to 225,000 payroll jobs per month in 2015.  Lower than 2014, but another solid year for employment gains given current demographics.

Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?

by Calculated Risk on 12/31/2014 10:02:00 AM

From the NAR: Pending Home Sales Show Modest Gain in November

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.8 percent to 104.8 in November from a slightly downwardly revised 104.0 in October and is now 4.1 percent above November 2013 (100.7) – the highest year-over-year gain since August 2013 (5.6 percent).
...
The PHSI in the Northeast rose 1.4 percent to 89.1 in November, and is now 7.0 percent above a year ago. In the Midwest the index decreased 0.4 percent to 100.0 in November, and is now 0.5 percent below November 2013.

Pending home sales in the South rose 1.3 percent to an index of 119.7 in November, and are 5.1 percent above last November. The index in the West increased 0.4 percent in November to 98.5, and is now 4.9 percent above a year ago.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in December and January.

by Calculated Risk on 12/31/2014 08:34:00 AM

The DOL reported:

In the week ending December 27, the advance figure for seasonally adjusted initial claims was 298,000, an increase of 17,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 280,000 to 281,000. The 4-week moving average was 290,750, an increase of 250 from the previous week's revised average. The previous week's average was revised up by 250 from 290,250 to 290,500.

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

The previous week was revised up slightly.

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 slightly to 290,750.

This was higher than the consensus forecast of 286,000, and the level suggests few layoffs.

by Calculated Risk on 12/30/2014 09:02:00 PM

Wednesday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 286 thousand from 280 thousand.

• At 9:45 AM ET, Chicago Purchasing Managers Index for December. The consensus is for a reading of 59.0, down from 60.8 in November.

• At 10:00 AM ET, Pending Home Sales Index for November. The consensus is for a 0.5% increase in the index.

The Case-Shiller house price indexes for October were released earlier today. Zillow has started forecasting Case-Shiller a month early - now including the National Index - and I like to check the Zillow forecasts since they have been pretty close.

From Zillow: Nov. 2014 Case-Shiller Forecast: Home Price Changes Slowing, But Still Growing

The October S&P/Case-Shiller (SPCS) data released this morning showed more slowing in the housing market, with annual growth in national home prices falling to 4.6 percent. Annual appreciation in home values has been below 5 percent for the past two months, and we anticipate this trend to continue into the future. The 10- and 20-City Indices also saw annual growth rates decline in October; the 10-City index rose 4.4 percent, while the 20-City Index rose 4.5 percent – down from rates of 4.5 percent and 4.7 percent, respectively, in September.

Our forecast for November SPCS indicates that the slowing in home price gains will continue into November. Zillow predicts the national SPCS to rise 4.5 percent on an annual basis.

The non-seasonally adjusted (NSA) 20-City index fell 0.1 percent from September to October, and we expect it to decrease 0.2 percent in November. We also expect a monthly decline in the 10-City Composite Index next month, falling 0.2 percent from October to November (NSA).

All forecasts are shown in the table below. These forecasts are based on the October SPCS data release and the November 2014 Zillow Home Value Index (ZHVI), released Dec. 19. Officially, the SPCS Composite Home Price Indices for November will not be released until Tuesday, Jan. 27.

So the Case-Shiller index will probably show a lower year-over-year gain in November than in October.

Zillow November 2014 Case-Shiller Forecast
	Case-Shiller Composite 10		Case-Shiller Composite 20		Case-Shiller National
	NSA	SA	NSA	SA	NSA	SA
YoY	4.2%	4.2%	4.4%	4.4%	4.5%	4.5%
MoM	-0.2%	0.5%	-0.2%	0.5%	-0.2%	0.6%