by Calculated Risk on 7/11/2016 07:46:00 PM

Tuesday:
• Early, NFIB Small Business Optimism Index for June.

• At 10:00 AM ET, Job Openings and Labor Turnover Survey for May from the BLS.

• Also at 10:00 AM, Monthly Wholesale Trade: Sales and Inventories for May. The consensus is for a 0.2% increase in inventories.

by Calculated Risk on 7/11/2016 01:17:00 PM

One of the metrics we'd like to follow is a ratio of house prices to incomes. Unfortunately most income data is released with a significantly lag, and there are always questions about which income data to use (the average total income is skewed by the income of a few people).

And for key measures of house prices - like Case-Shiller and CoreLogic - we have indexes, not actually prices.

But we can construct a ratio of the house price indexes to some measure of income.

For this graph I decided to look at house prices and the National Average Wage Index from Social Security.

Click on graph for larger image.

This graph shows the ratio of house price indexes divided by the National Average Wage Index (the Wage index is first divided by 1000).

This uses the annual average CoreLogic and the National Case-Shiller index since 1976.

As of 2015, house prices were somewhat above the median historical ratio - but far below the bubble peak.  Prices have increased further in 2016, but house prices relative to incomes are still below the 1989 peak.

Going forward, I think it would be a positive if wages outpaced, or at least kept pace with house prices increases for a few years.

Notes: The national wage index for 2015 is estimated using the same increase as in 2014.

by Calculated Risk on 7/11/2016 10:45:00 AM

This is a key housing market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

Inventory was up 6.5% year-over-year in June.  This is the fourth consecutive months with a YoY increase in inventory, following fifteen consecutive months of YoY declines in Phoenix.  This could be a significant change.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in June were up 8.6% year-over-year.

2) Cash Sales (frequently investors) were down to 20.9% of total sales.

3) Active inventory is now up 6.5% year-over-year.  

More inventory (a theme in 2014) - and less investor buying - suggested price increases would slow sharply in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

In 2015, with falling inventory, prices increased a little faster -  Prices were up 6.3% in 2015 according to Case-Shiller.

Now inventory is increasing a little again, and - if this trend continues in Phoenix - price increases will probably slow.

June Residential Sales and Inventory, Greater Phoenix Area, ARMLS
	Sales	YoY Change Sales	Cash Sales	Percent Cash	Active Inventory	YoY Change Inventory
June 2008	5,748	---	1,093	19.0%	53,8262	---
June 2009	9,325	62.2%	3,443	36.9%	38,358	---2
June 2010	9,278	-0.5%	3,498	37.7%	41,869	9.2%
June 2011	11,134	20.0%	5,001	44.9%	29,203	-30.3%
June 2012	9,133	-18.0%	4,272	46.8%	19,857	-32.0%
June 2013	8,150	-10.8%	3,055	37.5%	19,541	-1.6%
June 2014	7,239	-11.2%	1,854	25.6%	27,954	43.1%
June 2015	8,273	20.5%	2,005	23.0%	23,377	-16.4%
June 2016	8,986	8.6%	1,875	20.9%	24,898	6.5%
1 June 2008 does not include manufactured homes, ~100 more 2 June 2008 Inventory includes pending

by Calculated Risk on 7/11/2016 08:01:00 AM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for May today. According to BKFS, 4.25% of mortgages were delinquent in May, down from 4.91% in May 2015. BKFS also reported that 1.13% of mortgages were in the foreclosure process, down from 1.59% a year ago.

This gives a total of 5.38% delinquent or in foreclosure.

Press Release: Black Knight’s Mortgage Monitor: Tappable Equity Rose by $260 Billion in Q1 2016, 425,000 Borrowers Out from Underwater on Mortgages

Today, the Data & Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of May 2016. This month, the Mortgage Monitor leveraged data from the Black Knight Home Price Index to revisit the U.S. equity landscape in light of 48 consecutive months of annual home price appreciation (HPA). As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, the impact can be observed in terms of both levels of tappable equity available to borrowers as well as the continuing reduction in the number of borrowers who owe more than their homes are worth.

“As we approach the 10-year anniversary of the pre-crisis peak in U.S. housing prices, we’re just under 3 percent off that June 2006 peak nationally, and 23 states have already passed their 2006 peaks,” said Graboske. “The result is that equity levels are rising nationwide for the most part. In Q1 2016, 425,000 borrowers who had been underwater on their mortgages regained equity, bringing the national negative equity rate down to just 5.6 percent. That’s a far cry from the nearly 29 percent of borrowers who were underwater at the end of 2012, but still about five times as many as in 2004. The first quarter also saw tappable equity grow by $260 billion – a six percent increase in just the first three months of the year. There are now 38 million borrowers who have at least 20 percent equity in their homes, with an average of $116,000 in tappable equity per borrower. It seems borrowers are still being prudent when it comes to drawing upon that equity, though. Just $20 billion in equity was tapped via cash-out refinances in Q1 2016 -- roughly one-half of one percent of total available equity. Even so, cash-outs still accounted for some 42 percent of all refinance activity in Q1 2016.”
emphasis added

Click on graph for larger image.

This from Black Knight shows the number, and percent of borrowers, with negative equity since 2005.

From Black Knight:

• Home prices rose by two percent in Q1 2016, helping 425K borrowers to regain equity; 2.8 million borrowers remain underwater, nearly 5x as many as in 2004

• The national negative equity rate now stands at 5.6 percent, a 13 percent decrease from last year and down from a high of nearly 29 percent of all borrowers at the end of 2010

• Nevada has the highest negative equity rate at 12 percent, followed by Missouri and Rhode Island at 11 percent each, while Colorado and Texas have the lowest negative equity rates in the country at less than one percent

• Based on research published in the February 2016 Mortgage Monitor MM, at the current rate of recovery, negative equity will return to 2005 levels (~750K borrowers) in late 2018, though it will take over two years longer for the low end of markets across the country to recover than high end homes

There is much more in the mortgage monitor.

by Calculated Risk on 7/10/2016 09:54:00 PM

Weekend:
• Schedule for Week of July 10, 2016

• More Employment Graphs: Duration of Unemployment, Unemployment by Education, Construction Employment and Diffusion Indexes

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

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

Oil prices were down over the last week with WTI futures at $45.01 per barrel and Brent at $46.41 per barrel.  A year ago, WTI was at $53, and Brent was at $58 - so prices are down about 20% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.23 per gallon (down about $0.50 per gallon from a year ago).

by Calculated Risk on 7/10/2016 10:07:00 AM

A few more employment graphs ...

Here are the previous posts on the employment report:

• June Employment Report: 287,000 Jobs, 4.9% Unemployment Rate
• Employment Comments: A Strong Report following a Weak Report
• Public and Private Sector Payroll Jobs: Carter, Reagan, Bush, Clinton, Bush, Obama

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 has been down for all categories, and the "less than 5 weeks", "6 to 14 weeks" and "15 to 26 weeks" are all close to normal levels. 

The long term unemployed is at 1.2% of the labor force, however the number (and percent) of long term unemployed remains elevated.

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 all four groups were generally trending down - although the rate has somewhat flattened out recently.

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 1.22 million.

Construction employment is still below the bubble peak, but close to the level in the late '90s.

Diffusion Indexes
 The BLS diffusion index for total private employment was at 62.4 in June, up from 48.1 in May.

For manufacturing, the diffusion index was at 55.1, up from 39.9 in May.

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 private job growth was widespread in June (after a weak May), and manufacturing employment was somewhat widespread.

by Calculated Risk on 7/09/2016 08:09:00 AM

The key economic reports this week are Retail Sales and the Consumer Price Index (CPI) on Friday.

For manufacturing, Industrial Production, and the July New York Fed manufacturing survey, will be released this week.

----- Monday, July 11th -----
10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

----- Tuesday, July 12th -----
9:00 AM ET: NFIB Small Business Optimism Index for June.

10:00 AM: Job Openings and Labor Turnover Survey for May 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 April to 5.788 million from 5.670 million in March.

The number of job openings (yellow) were up 4% year-over-year, and Quits were up 9% year-over-year.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for May. The consensus is for a 0.2% increase in inventories.

----- Wednesday, July 13th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

2:00 PM: the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

----- Thursday, July 14th -----
8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 265 thousand initial claims, up from 254 thousand the previous week.

8:30 AM: The Producer Price Index for June from the BLS. The consensus is for a 0.3% increase in prices, and a 0.2% increase in core PPI.

----- Friday, July 15th -----
8:30 AM: The Consumer Price Index for June from the BLS. The consensus is for a 0.3% increase in CPI, and a 0.2% increase in core CPI.

8:30 AM ET: Retail sales for June will be released.  The consensus is for retail sales to increase 0.1% in June.

This graph shows retail sales since 1992 through May 2016.

8:30 AM: the New York Fed Empire State manufacturing survey for July. The consensus is for a reading of 5.0, down from 6.0.

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for June.

This graph shows industrial production since 1967.

The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 75.0%.

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

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for July). The consensus is for a reading of 93.5, unchanged from 93.5 in June.

by Calculated Risk on 7/08/2016 03:00:00 PM

By request, here is another update of an earlier post through the June 2016 employment report including all revisions.

NOTE: Several readers have asked if I could add a lag to these graphs (obviously a new President has zero impact on employment for the month they are elected). But that would open a debate on the proper length of the lag, so I'll just stick to the beginning of each term.

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

Important: There are many differences between these periods. Overall employment was smaller in the '80s, however the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is generally declining now.  But these graphs give an overview of employment changes.

First, here is a table for private sector jobs. The top two private sector terms were both under President Clinton.  Reagan's 2nd term saw about the same job growth as during Carter's term.  Note: There was a severe recession at the beginning of Reagan's first term (when Volcker raised rates to slow inflation) and a recession near the end of Carter's term (gas prices increased sharply and there was an oil embargo).

Term	Private Sector Jobs Added (000s)
Carter	9,041
Reagan 1	5,360
Reagan 2	9,357
GHW Bush	1,510
Clinton 1	10,884
Clinton 2	10,082
GW Bush 1	-811
GW Bush 2	415
Obama 1	1,921
Obama 2	8,6611
141 months into 2nd term: 10,140 pace.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s). Presidents Carter and George H.W. Bush only served one term, and President Obama is in the fourth year of his second term.

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble. Mr. Obama (blue) took office during the financial crisis and great recession. There was also a significant recession in the early '80s right after Mr. Reagan (yellow) took office.

There was a recession towards the end of President G.H.W. Bush (purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

The employment recovery during Mr. G.W. Bush's (red) first term was sluggish, and private employment was down 811,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 396,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,510,000 private sector jobs added.

Private sector employment increased by 20,966,000 under President Clinton (light blue), by 14,717,000 under President Reagan (yellow), and 9,041,000 under President Carter (dashed green).

There were only 1,921,000 more private sector jobs at the end of Mr. Obama's first term.  Forty one months into Mr. Obama's second term, there are now 10,582,000 more private sector jobs than when he initially took office.

 A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1980, 1990, 2000, and 2010. 

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 460,000 jobs). This has been a significant drag on overall employment.

And a table for public sector jobs. Public sector jobs declined the most during Obama's first term, and increased the most during Reagan's 2nd term.

Term	Public Sector Jobs Added (000s)
Carter	1,304
Reagan 1	-24
Reagan 2	1,438
GHW Bush	1,127
Clinton 1	692
Clinton 2	1,242
GW Bush 1	900
GW Bush 2	844
Obama 1	-708
Obama 2	2481
141 months into 2nd term, 290 pace

Looking forward, I expect the economy to continue to expand through 2016 (at least), so I don't expect a sharp decline in private employment as happened at the end of Mr. Bush's 2nd term (In 2005 and 2006 I was warning of a coming down turn due to the bursting of the housing bubble - and I predicted a recession in 2007).

For the public sector, the cutbacks are clearly over.  Right now I'm expecting some increase in public employment during the remainder of Obama's 2nd term, but nothing like what happened during Reagan's second term.

Below 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).

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

Currently Obama's 2nd term is on pace to be the 2nd 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 fourth best for total job creation.

Note: Only 248 thousand public sector jobs have been added during the first forty one months of Obama's 2nd term (following a record loss of 708 thousand public sector jobs during Obama's 1st term).  This is about 17% 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	10,884	692	11,576
2	Clinton 2	10,082	1,242	11,312
3	Reagan 2	9,357	1,438	10,795
	Obama 21	8,385	205	8,590
	Pace2	10,140	290	10,430
141 Months into 2nd Term 2Current Pace for Obama's 2nd Term

The last table shows the jobs needed per month for Obama's 2nd term to be in the top three presidential terms. Right now it looks like Obama's 2nd term will be in the top 3 for private employment, but not for total employment.

Average Jobs needed per month (000s) for remainder of Obama's 2nd Term
to Rank	Private	Total
#1	318	381
#2	203	345
#3	99	269

by Calculated Risk on 7/08/2016 12:54:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Southern Nevada Housing Market Stays Hot, GLVAR Housing Statistics for June 2016

“It’s shaping up to be a strong summer for our local housing market, and I think most of our members are optimistic that we can continue this momentum in the coming months,” said 2016 GLVAR President Scott Beaudry, a longtime local REALTOR®. “As we’ve been saying all year, we’re still concerned about our limited housing supply, which is about half of what we’d like it to be. But overall, the housing market seems to be moving in a positive direction and avoiding the volatility we experienced in past years.”

According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in June was 3,957, up from 3,693 total sales in June of 2015. Compared to the same month one year ago, 6.3 percent more homes, and 11.3 percent more condos and townhomes sold in June.
...
At the current sales pace, Beaudry said Southern Nevada has been dealing with less than a three-month supply of homes available for sale, when a six-month supply is considered to be a balanced market.
...
GLVAR continued to track declines in distressed sales and a corresponding increase in traditional home sales, where lenders are not controlling the transaction. In June, 4.4 percent of all local sales were short sales – when lenders allow borrowers to sell a home for less than what they owe on the mortgage. That’s down from 6.7 percent of all sales one year ago. Another 5.9 percent of all June sales were bank-owned, down from 7.6 percent one year ago.
...
GLVAR said 27 percent of all local properties sold in June were purchased with cash, down from 28.4 percent one year ago. That cash buyer percentage has stabilized in recent months. It’s still less than half of the February 2013 peak of 59.5 percent, suggesting that cash buyers and investors remain more active in Southern Nevada than in most markets, but that their influence continues to wane.
emphasis added

1) Overall sales were up 7.1% year-over-year.

2) The exact number of listings - and homes listed without offers - is not currently available.

by Calculated Risk on 7/08/2016 10:04:00 AM

The headline jobs number was very strong, however there were small downward revisions to job growth for prior months.  The key positives were the number of jobs added in June (287,000), a decline in U-6, and a pickup in wage growth.

Earlier: June Employment Report: 287,000 Jobs, 4.9% Unemployment Rate

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

Average Hourly Earnings

This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth was at 2.6% YoY in June.  This series is noisy, however overall wage growth is trending up.

Note: CPI has been running under 2%, so there has been real wage 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) decreased by 587,000 to 5.8 million in June, offsetting an increase in May. 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 sharply in June - reversing the sharp increase in May. This level suggests slack still in the labor market.

These workers are included in the alternate measure of labor underutilization (U-6) that declined to 9.6% in June - the lowest level since April 2008.

Unemployed over 26 Weeks

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

According to the BLS, there are 1.979 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 1.885 million in May.

This is generally trending down, but is still high.

There are still signs of slack (as example, elevated level of part time workers for economic reasons and U-6), but there also signs the labor market is tightening.

Overall this was a strong report.  However it is just one report and follows a weak report in May (only 11,000 jobs added).  Job growth only averaged 149,000 over the last two months, and 172,000 per month this year.