by Calculated Risk on 7/08/2016 08:44:00 AM

From the BLS:

Total nonfarm payroll employment increased by 287,000 in June, and the unemployment rate rose to 4.9 percent, the U.S. Bureau of Labor Statistics reported today. Job growth occurred in leisure and hospitality, health care and social assistance, and financial activities. Employment also increased in information, mostly reflecting the return of workers from a strike.
...
The change in total nonfarm payroll employment for April was revised from +123,000 to +144,000, and the change for May was revised from +38,000 to +11,000. With these revisions, employment gains in April and May combined were 6,000 less, on net, than previously reported. Over the past 3 months, job gains have averaged 147,000 per month.
...
In June, average hourly earnings for all employees on private nonfarm payrolls edged up (+2 cents) to $25.61, following a 6-cent increase in May. Over the year, average hourly earnings have risen by 2.6 percent.
emphasis added

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 - mostly in 2010 - to show the underlying payroll changes).

Total payrolls increased by 287 thousand in June (private payrolls increased 265 thousand).

Payrolls for April and May were revised down by a combined 6 thousand.

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

In June, the year-over-year change was 2.45 million jobs.  A solid gain.


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

The Labor Force Participation Rate increased in June to 62.7%. 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 decreased to 59.6% (black line).

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

The fourth graph shows the unemployment rate.

The unemployment rate increased in June to 4.9%.

This was way above expectations of 180,000 jobs.

I'll have much more later ...

by Calculated Risk on 7/07/2016 08:31:00 PM

Earlier my employment preview (I took the under) and Goldman's NFP forecast (Goldman took the over).

Friday:
• At 8:30 AM ET, Employment Report for June. The consensus is for an increase of 180,000 non-farm payroll jobs added in June, up from the 38,000 non-farm payroll jobs added in May. The consensus is for the unemployment rate to increase to 4.8%. A key will be the change in wages.

• At 3:00 PM, Consumer credit from the Federal Reserve.  The consensus is for a $16.0 billion increase in credit.

by Calculated Risk on 7/07/2016 04:45:00 PM

A few excerpts from Goldman Sachs' June Payroll Preview by economist Zach Pandl:

We forecast that nonfarm payroll growth rebounded to +210k in June from just +38k in May. In part the pickup reflects the conclusion of a strike at Verizon Communications—this alone accounts for 70k of the month-over-month swing. However, we also see scope for improvement beyond Verizon, as other labor market data have generally looked encouraging.

We expect that the U3 unemployment rate increased by one tenth to 4.8%, following its three tenths decline in May.
...
Average hourly earnings for all workers likely rose 0.1% (mom) in June, following a 0.2% gain in May. ... Although we believe that wage growth has turned higher, this month the calendar quirks point to a smaller gain.

by Calculated Risk on 7/07/2016 02:11:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for June. The consensus, according to Bloomberg, is for an increase of 180,000 non-farm payroll jobs in June (with a range of estimates between 135,000 to 233,000, and for the unemployment rate to increase to 4.8%.

The BLS reported 38,000 jobs added in May.

Verizon Strike Note: See my earlier post. The resolution of the strike will increase the NFP total by about 35,100 jobs in June. These jobs were lost in May, but are now back.

Here is a summary of recent data:

• The ADP employment report showed an increase of 172,000 private sector payroll jobs in June. This was above expectations of 150,000 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 above expectations.

• The ISM manufacturing employment index increased in June to 50.4%. 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 17,000 in June. The ADP report indicated 21,000 fewer manufacturing jobs.

The ISM non-manufacturing employment index increased in June to 52.7%. A historical correlation  between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 145,000 in June.

Combined, the ISM indexes suggests employment gains of about 130,000.  This suggests employment growth below expectations.

• Initial weekly unemployment claims averaged 265,000 in June, down from 276,000 in May. For the BLS reference week (includes the 12th of the month), initial claims were at 258,000, down from 278,000 during the reference week in May.

The decrease during the reference suggests fewer layoffs in June as compared to May, however some of the change might be due to the resolution of the Verizon strike.

• The final June University of Michigan consumer sentiment index decreased to 93.5 from the May reading of 94.7. Sentiment is frequently coincident with changes in the labor market, but there are other factors too - like gasoline prices.

• Conclusion: Unfortunately none of the indicators alone is very good at predicting the initial BLS employment report.    The ADP report and unemployment claims suggest stronger job growth. The ISM reports suggests stronger job growth than in May, but a below consensus report.

My guess is the June report will be below the consensus forecast.

by Calculated Risk on 7/07/2016 11:01:00 AM

Reis reported that the vacancy rate for regional malls was increased to 7.9% in Q2 2016 from 7.8% in Q1, and unchanged from Q2 2015. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate declined to 9.9% in Q2 2016 from 10.0% in Q1, and down year-over-year from 10.1% in Q2 2015. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Senior Economist and Director of Research Ryan Severino:

The national vacancy rate for neighborhood and community shopping declined by 10 basis points to 9.9% during the second quarter. Although the rate of improvement is not yet accelerating, net absorption once again outpaced new construction. The vacancy rate for malls increased by 10 basis points to 7.9%.
...
Asking and effective rents grew by 0.4% and 0.5% respectively during the second quarter. Although this is a minor pullback from recent quarters, it is only noteworthy because rents have been growing so slowly. On a year-over-year basis, asking and effective rents having grown by just 2.0% and 2.1% respectively. These growth rates are just a tad slower than core inflation. That is weak by historical standards, but is certainly reflective of a market with an elevated vacancy rate. It is highly unlikely that vacancy will fall sufficiently low enough to engender more meaningful rent growth before the onset of the next recession.
emphasis added

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.

Currently the strip mall vacancy rate is declining slowly and remains at an elevated level.  The regional mall vacancy rate is moving sideways, also at an elevated level.

Mall vacancy data courtesy of Reis.

by Calculated Risk on 7/07/2016 08:35:00 AM

The DOL reported:

In the week ending July 2, the advance figure for seasonally adjusted initial claims was 254,000, a decrease of 16,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 268,000 to 270,000. The 4-week moving average was 264,750, a decrease of 2,500 from the previous week's revised average. The previous week's average was revised up by 500 from 266,750 to 267,250.

There were no special factors impacting this week's initial claims. This marks 70 consecutive weeks of initial claims below 300,000, the longest streak since 1973.

The previous week was revised up by 2,000.

The following graph shows the 4-week moving average of weekly claims since 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 declined to 264,750.

This was lower than the consensus forecast. The low level of claims suggests relatively few layoffs.

by Calculated Risk on 7/07/2016 08:19:00 AM

From ADP:

Private sector employment increased by 172,000 jobs from May to June according to the June 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.
...
Goods-producing employment was down by 36,000 jobs in June after an additional loss of 5,000 jobs in May. The construction industry lost 5,000 jobs, offsetting May’s gain of 9,000 jobs. Meanwhile, manufacturing lost 21,000 jobs after losing 3,000 the previous month.

Service-providing employment rose by 208,000 jobs in June, a stronger increase when compared to May’s 173,000 jobs. The ADP National Employment Report indicates that professional/business services contributed 51,000 jobs, up from May’s 47,000. Trade/transportation/utilities grew by 55,000, nearly twice that of the 27,000 jobs added the previous month. Financial activities added 2,000, down from last month’s gain of 13,000 jobs.
...
Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth revived last month from its spring slump. Job growth remains healthy except in the energy and trade-sensitive manufacturing sectors. Large multinationals are struggling a bit, and Brexit won’t help, but small- and mid-sized companies continue to add strongly to payrolls.”

This was above the consensus forecast for 150,000 private sector jobs added in the ADP report. 

The BLS report for June will be released Friday, and the consensus is for 180,000 non-farm payroll jobs added in June.

by Calculated Risk on 7/06/2016 08:25:00 PM

Thursday:
• At 8:15 AM ET, The ADP Employment Report for June. This report is for private payrolls only (no government). The consensus is for 150,000 payroll jobs added in June, down from 173,000 added in May.

Early: Reis Q2 2016 Mall Survey of rents and vacancy rates.

• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 269 thousand initial claims, up from 268 thousand the previous week.

by Calculated Risk on 7/06/2016 02:31:00 PM

From the Fed: Minutes of the Federal Open Market Committee, June 14-15, 2016. Excerpts:

Almost all participants judged that the surprisingly weak May employment report increased their uncertainty about the outlook for the labor market. Even so, many remarked that they were reluctant to change their outlook materially based on one economic data release. Participants generally expected to see a resumption of monthly gains in payroll employment that would be sufficient to promote continued strengthening of the labor market. However, some noted that with labor market conditions at or near those consistent with maximum employment, it would be reasonable to anticipate that gains in payroll employment would soon moderate from the pace seen over the past few years.
...
Global financial conditions had improved since earlier in the year, and recent data on net exports suggested that the drag on domestic economic activity from the external sector had abated somewhat. Still, participants generally agreed that global economic and financial developments should continue to be monitored closely. Some participants indicated that prospects for economic activity in many foreign economies appeared to be subdued, that global inflation and interest rates remained very low by historical standards, and that recurring bouts of global financial market instability remained a risk. Most participants noted that the upcoming British referendum on membership in the European Union could generate financial market turbulence that could adversely affect domestic economic performance. Some also noted that continued uncertainty regarding the outlook for China's foreign exchange policy and the relatively high levels of debt in China and some other EMEs represented appreciable risks to global financial stability and economic performance.

In light of participants' updates to their economic projections, they discussed their current assessments of the appropriate trajectory of monetary policy over the medium term. Most still expected that the appropriate target range for the federal funds rate associated with their projections of further progress toward the Committee's statutory objectives would rise gradually in coming years. However, some noted that their forecasts were now consistent with a shallower path than they had expected at the time of the March meeting. Many participants commented that the level of the federal funds rate consistent with maintaining trend economic growth--the so-called neutral rate--appeared to be lower currently or was likely to be lower in the longer run than they had estimated earlier. While recognizing that the longer-run neutral rate was highly uncertain, many judged that it would likely remain low relative to historical standards, held down by factors such as slow productivity growth and demographic trends. Several noted that in the prevailing circumstances of considerable uncertainty about the neutral federal funds rate, the Committee could better gauge the effects of increases in the federal funds rate on the economy if it proceeded gradually in adjusting policy.
emphasis added

by Calculated Risk on 7/06/2016 01:01:00 PM

Reis reported that the apartment vacancy rate was at 4.5% in Q2 2016 to 4.5%, unchanged from Q1, and up from 4.2% in Q2 2015. The vacancy rate peaked at 8.0% at the end of 2009, and bottomed at 4.2% in 2014 and early 2015.

A few comments from Reis Senior Economist and Director of Research Ryan Severino:

The national vacancy rate was unchanged at 4.5% during the second quarter. However, this was merely due to rounding as demand simply cannot keep pace with the volume of new construction hitting the market. Given the trend over time for increased construction volume and limited demand, vacancy should increase steadily over time. This increase in vacancy is heavily concentrated in the newer properties that are coming online which are having a more difficult time securing tenants, either from the pool of new renters or from the pool of renters in other buildings. The vacancy rate for newly completed properties has been increasing dramatically over the last 12 to 18 months. This is a far cry from just a couple of years ago when the majority of new properties were arriving on the market stabilized or fully occupied.
...
Asking and effective rents both grew by 0.9% during the second quarter. This is a rebound from the significant pullback that occurred in quarterly growth rates during the first quarter, though that was likely due to seasonal effects. However, the rising vacancy rate is clearly taking the wind out of landlords' sails, especially for the new completed properties. Concessions are slowly creeping back into the market and newly completed properties are struggling to hit pro forma rents. As vacancy continues to inch higher, it will put continued downward pressure on rent growth.
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.

The vacancy rate had been mostly moving sideways for the last few years.  Now that completions are catching up with starts, the vacancy rate has started to increase.

This suggests rent growth - and multi-family starts - will slow.

Apartment vacancy data courtesy of Reis.