by Calculated Risk on 3/09/2015 07:06:00 PM

On mortgage rates from Matthew Graham at Mortgage News Daily: Mortgage Rates Recover Tiny Portion of Friday's Losses

Mortgage rates managed to recover only some of Friday's heavy losses. The most prevalent conventional 30yr rate for top tier scenarios remains at its new perch of 4.0%, though a few lenders remain at 3.875%.

CR Note: The Ten Year yield decreased to 2.20% today from 2.24% on Friday.

Tuesday:
• 7:30 AM ET, NFIB Small Business Optimism Index for February.

• At 10:00 AM, Job Openings and Labor Turnover Survey for January from the BLS. Jobs openings increased in December to 5.028 million from 4.847 million in November. The number of job openings were up 28% year-over-year, and Quits were up 12% year-over-year.

• Also at 10:00 AM, Monthly Wholesale Trade: Sales and Inventories for January. The consensus is for a 0.1% decrease in inventories.

by Calculated Risk on 3/09/2015 02:38:00 PM

Complaining about the decline in the overall labor force participation rate is the last refuge of scoundrels. A significant decline in the participation rate was expected based on demographics (there is an ongoing debate about how much is due to demographics, and how much of the decline is cyclical - however, as I've pointed out many time, a careful analysis suggests most of the decline is due to demographics).

But what about the decline in the prime working age labor force participation rate?

Each month I post the following graph of the participation rate and employment-population rate for prime working age (25 to 54 years old) workers.

Click on graph for larger image.

In the earlier period the participation rate for this group was trending up as women joined the labor force. Starting in 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 February to 81.0%, and the 25 to 54 employment population ratio increased to 77.3%.  As the recovery continues, I expect the participation rate for this group to increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s.

A couple of key points:

1) Analyzing and forecasting the labor force participation requires looking at a number of factors. Everyone is aware that there is a large cohort has moved into the 50 to 70 age group, and that that has pushing down the overall participation rate. Another large cohort has been moving into the 16 to 24 year old age group - and many in this cohort are staying in school (a long term trend that has accelerated recently) - and that is another key factor in the decline in the overall participation rate.

2) But there are other long term trends. One of these trends is for a decline in the participation rate for prime working age men (25 to 54 years old).   For some reasons, see: Possible Reasons for the Decline in Prime-Working Age Men Labor Force Participation and on demographics from researchers at the Atlanta Fed: "Reasons for the Decline in Prime-Age Labor Force Participation"

First, here is a graph of the participation rate by 5 year age groups for the years 2000, 2005, 2010, and 2015.


1) the participation rate for the "prime working age" (25 to 54) is fairly flat (the six highest participation rates).

2) However, the lowest participation rate is for the 50 to 54 age group.

3) And notice that the participation rate for EACH prime age group was declining BEFORE the recession.  (Dark blue is January 2000, and light blue is January 2005).

Everyone is aware that there large cohorts moving into retirement - and a large cohort in the 20 to 24 age group - but there has also been in a shift in the prime working age groups.

This graph shows the percent of the prime working age population in each 5 year age group.  Note: Jumps are due to changes in population control.

Since the lowest prime participation is for the 50 to 54 age group (the second lowest is for the 25 to 29 age group), lets focus on those two groups. The 50 to 54 age group is the red line (now the largest percentage of the prime working age) and the 25 to 29 age group is the blue line (now the second largest percentage).  Just these shifts in prime demographics would lead to a somewhat lower prime working age participation rate.    Overall, the impact of this shift is small compared to long term trends.

Lets focus on just one age group and just for men to look at the long term trend.

Click on graph for larger image.

This fourth graph shows the 40 to 44 year old men participation rate since 1976 (note the scale doesn't start at zero to better show the change).

There is a clear downward trend, and a researcher looking at this trend in the year 2000 might have predicted the 40 to 44 year old men participation rate would about the level as today (see trend line).

Clearly there are other factors than "economic weakness" causing this downward trend.   I listed some reasons a few months ago, and new research from Pew Research suggests stay-at-home dads is one of the reasons: Growing Number of Dads Home with the Kids

This graph shows the trends for each prime working age men 5-year age group.

Note: This is a rolling 12 month average to remove noise (data is NSA), and the scale doesn't start at zero to show the change.

Clearly there is a downward trend for all 5 year age groups. When arguing about the decline in the prime participation rate, we need to take these long term trends into account.

And this graph shows the same data but with the full scale (0% to 100%).  The trend is still apparent, but the decline has been gradual.

The bottom line is that the participation rate was declining for prime working age workers before the recession, there the key is understand and adjusting for the long term trend..

Here is a look at the participation rate of women in the prime working age groups over time.

The graph shows the trends for each prime working age women 5-year age group.

Note: This is a rolling 12 month average to remove noise (data is NSA), and the scale doesn't start at zero to show the change.

For women, the participation rate increased significantly until the late 90s, and then started declining slowly.  This is a more complicated story than for men, and that is why I used prime working age men to show the gradual downward decline in participation that has been happening for decades (and is not just recent economic weakness).

The second graph shows the same data for women but with the full scale (0% to 100%).  The upward participation until the late 80s is very clear, and the decline since then has been gradual.

The bottom line is that the participation rate was declining for prime working age workers before the recession, there are several reasons for this decline (not just recent "economic weakness") and the prime working age participation rate is probably close to expected without the recession.

by Calculated Risk on 3/09/2015 11:15:00 AM

The Congressional Budget Office (CBO) released their new Updated Budget Projections: 2015 to 2025

Under the assumption that current laws will generally remain unchanged, the budget deficit is projected to decline in 2016, to $455 billion, or 2.4 percent of GDP, and then to hold roughly steady relative to the size of the economy through 2018. Beyond that time, however, the gap between spending and revenues is projected to grow faster than GDP: The deficit in 2025 is projected to reach $1.0 trillion, or 3.8 percent of GDP ...

CBO’s estimate of the deficit for 2015 is $18 billion greater than the shortfall it projected in January, mostly because the agency has increased estimated outlays for student loans, Medicare, and Medicaid. In contrast, the projected deficits for the 2016–2025 period total $431 billion less than the cumulative deficit that CBO projected in January. The largest factor underlying that reduction is a downward revision to projected growth in private health insurance spending, which is estimated to lower the net cost of the provisions of the Affordable Care Act (ACA) that are related to insurance coverage and to increase overall revenues from income and payroll taxes (because a larger share of employees’ compensation over the coming decade is now projected to be paid in the form of taxable wages and salaries).
emphasis added

The CBO projects the deficit will decline further in 2015, 2016 and 2017, and be below 3% of GDP for the next five years.

This is a significant improvement from the previous forecast.  As an example, last year, the CBO forecast the deficit to be 2.9% in 2016; now the CBO is forecasting the deficit will be 2.4% in 2016.

Click on graph for larger image.

This graph shows the actual budget deficit each year as a percent of GDP, and an estimate for the next ten years based on estimates from the CBO.

After 2017, the deficit will start to increase again according to the CBO.

From a policy perspective and using these projections, further short term deficit reduction is not a priority.

by Calculated Risk on 3/09/2015 07:30:00 AM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for January today. According to BKFS, 5.56% of mortgages were delinquent in January, down from 5.64% in December. BKFS reported that 1.61% of mortgages were in the foreclosure process, down from 2.35% in January 2014.

This gives a total of 7.17% delinquent or in foreclosure. It breaks down as:

• 1,701,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,112,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 815,000 loans in foreclosure process.

For a total of ​​3,628,000 loans delinquent or in foreclosure in January. This is down from 4,315,000 in January 2014.

Click on graph for larger image.

From Black Knight:

The month’s data showed that both first-time and repeat foreclosure starts reached 12-month highs, although there was clear separation in the levels of increase between the two. According to Trey Barnes, Black Knight’s senior vice president of Loan Data Products, separation also continues to be seen between judicial and non-judicial foreclosure states across multiple performance indicators.

“Overall foreclosure starts hit a 12-month high in January, and that held true when looking at both first-time and repeat foreclosure starts individually,” said Barnes. “Repeat foreclosure starts made up 51 percent of all foreclosure starts and increased 11 percent from December. In contrast, first-time foreclosure starts were up just a fraction of a percent from the month prior. Similarly, Black Knight found that January foreclosure starts jumped about 10 percent from December in judicial states as compared to just a 1.7 percent increase in non-judicial states. Judicial states are also seeing higher levels of both new problem loans and serious delinquencies (loans 90 or more days delinquent, but not yet in foreclosure) than non-judicial states, although volumes are down overall in both categories.

This is still mostly clearing out the backlog.

by Calculated Risk on 3/08/2015 07:54:00 PM

From Bloomberg: Greek Tensions Revived as Creditors Reject Reform List

The list of measures Greece’s government sent to euro region finance ministers last Friday, including the idea of hiring non-professional tax collectors such as tourists, is “far” from complete and the country probably won’t receive an aid disbursement this month, Eurogroup chairman Jeroen Dijsselbloem said on Sunday.

Ouch.

Monday:
• Early, Black Knight Mortgage Monitor for January

• At 10:00 AM ET, the Fed will release the monthly Labor Market Conditions Index (LMCI).

Weekend:
• Schedule for Week of March 8, 2015

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are unchanged and DOW futures are up 12 (fair value).

Oil prices were mixed over the last week with WTI futures at $49.47 per barrel and Brent at $59.26 per barrel.  A year ago, WTI was at $102, and Brent was at $108 - so prices are down around 50% year-over-year.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are up to $2.45 per gallon (down about $1.00 per gallon from a year ago).   Prices in California have risen significantly due to a refinery fire in February and a strike.

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 3/08/2015 11:49:00 AM

An update: Last year, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group, Decline in the Labor Force Participation Rate: Mostly Demographics and Long Term Trends, and The Future's so Bright ...

I pointed out that "even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon."

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through February 2015.

Click on graph for larger image.

There was a huge surge in the prime working age population in the '70s, '80s and '90s - and the prime age population has been mostly flat recently (even declined a little).

The prime working age labor force grew even quicker than the population in the '70s and '80s due to the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s!

So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply).

The prime working age population peaked in 2007, and appears to have bottomed at the end of 2012.  The good news is the prime working age group has started to grow again, and should be growing solidly by 2020 - and this should boost economic activity in the years ahead.

by Calculated Risk on 3/07/2015 08:04:00 PM

By request, a few more employment graphs ...

Here are the previous posts on the employment report:

• February Employment Report: 295,000 Jobs, 5.5% Unemployment Rate
• Employment Report Comments and Graphs

Duration of Unemployment
This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

The general trend is down for all categories, and both the "less than 5 weeks" and 6 to 14 weeks" are close to normal levels. 

The long term unemployed is close to 1.7% of the labor force - the lowest since December 2008 - however the number (and percent) of long term unemployed remains a serious problem.

Unemployment by Education
This graph shows the unemployment rate by four levels of education (all groups are 25 years and older).

Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down.

Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment.

Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".

Construction Employment
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 921 thousand.

Diffusion Indexes
 The BLS diffusion index for total private employment was at 65.4 in February, up from 62.0 in January.

For manufacturing, the diffusion index was at 64.4, up from 61.3 in January.

Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.  Above 60 is very good.  From the BLS:

Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.

Overall job growth was widespread in February - another good sign.

by Calculated Risk on 3/07/2015 10:00:00 AM

The key economic report this week is February retail sales on Thursday.

Also the Census Bureau will release the Q4 Quarterly Services Report on Wednesday, and the Fed will release the Q4 Flow of Funds report on Thursday.

----- Monday, March 9th -----
At 10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

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

10:00 AM: Job Openings and Labor Turnover Survey for January 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 December to 5.028 million from 4.847 million in November.

The number of job openings (yellow) were up 28% year-over-year, and Quits were up 12% year-over-year.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for January. The consensus is for a 0.1% decrease in inventories.

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

10:00 AM: The Q4 Quarterly Services Report from the Census Bureau.

4:30 PM: The Federal Reserve will release the Comprehensive Capital Analysis and Review Results (Stress Test)

----- Thursday, March 12th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 309 thousand from 320 thousand.

8:30 AM ET: Retail sales for February will be released.

This graph shows retail sales since 1992 through January 2015. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). On a monthly basis, retail sales decreased 0.8% from December to January (seasonally adjusted), and sales were up 3.3% from January 2014.

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

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for January.  The consensus is for a 0.1% increase in inventories.

12:00 PM: Q4 Flow of Funds Accounts of the United States from the Federal Reserve.

2:00 PM ET: The Monthly Treasury Budget Statement for February.

----- Friday, March 13th -----
8:30 AM: The Producer Price Index for February from the BLS. The consensus is for a 0.3% increase in prices, and a 0.1% increase in core PPI.

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for March). The consensus is for a reading of 95.5, up from 95.4 in February.

by Calculated Risk on 3/06/2015 06:00:00 PM

From Tim Duy at Fed Watch: "Patient" is History

The February employment report almost certainly means the Fed will no longer describe its policy intentions as "patient" at the conclusion of the March FOMC meeting. And it also keep a June rate hike in play. But for June to move from "in play" to "it's going to happen," I still feel the Fed needs a more on the inflation side. ...

Bottom Line: "Patient" is out. Tough to justify with unemployment at the top of the Fed's central estimates of NAIRU. Pressure to begin hiking rates will intensify as unemployment heads lower. The inflation bar will fall, and Fed officials will increasingly look for reasons to hike rates rather than reasons to delay. They may not want to admit it, but I suspect one of those reasons will be fear of financial instability in the absence of tighter policy. June is in play.
emphasis added

CR Note: Based on Yellen's testimony last week, it seemed likely that "patient" would be dropped from the March FOMC statement.  June might be in play, but like Duy, I think the FOMC will wait until it is clear inflation is moving towards 2% before raising rates.

by Calculated Risk on 3/06/2015 03:33:00 PM

Last month, I mentioned that private job creation was on pace for the best ever during a presidential term. I received a few emails asking if that was correct.  The answer is "yes".

Note: We frequently use Presidential terms as time markers - we could use Speaker of the House, or any other marker.

Here is a table of the top three presidential terms for private job creation (they also happen to be the three best terms for total non-farm job creation).

Note: Overall employment was smaller in the '80s, however the participation rate was increasing in the '80s.  The prime working age labor force was growing more than 3% per year in the '80s with a surge in younger workers and women joining the labor force. Now, the overall population is larger, but the prime working age population has declined this decade and the participation rate is generally declining now.

Clinton's two terms were the best for both private and total non-farm job creation, followed by Reagan's 2nd term.  Public sector job creation increased the most during Reagan's 2nd term.

Currently Obama's 2nd term is on pace to be the best ever for private job creation.  However, with very few public sector jobs added, Obama's 2nd term is only on pace to be the third best for total job creation.

Note: Only 34 thousand public sector jobs have been added during the first twenty five months of Obama's 2nd term (following a record loss of 702 thousand public sector jobs during Obama's 1st term).  This is just 2% of the public sector jobs added during Reagan's 2nd term!

Top Employment Gains per Presidential Terms (000s)
Rank	Term	Private	Public	Total Non-Farm
1	Clinton 1	10,885	692	11,577
2	Clinton 2	10,070	1,242	11,312
3	Reagan 2	9,357	1,438	10,795
	Obama 21	5,799	34	5,833
	Pace2	11,134	65	11,199
125 Months into 2nd Term 2Current Pace for Obama's 2nd Term

The second table shows the jobs need per month for Obama's 2nd term to be in the top three presidential terms.

Jobs needed per month (average) for Obama's 2nd Term
to Rank	Private	Total
#1	221	250
#2	186	238
#3	155	216