by Calculated Risk on 10/04/2017 01:58:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for September. A key question is how much hurricanes Harvey and Irma impacted employment in September. Merrill Lynch economists noted this morning:

"While Hurricane Irma made landfall on September 10th, preparations and evacuations began well in advance of the storm which likely impacted business and employment activity to start the month. Moreover, many homes and businesses remained without power throughout the week of September 10th (the BLS’s survey reference week) which could also distort the payroll figures. The unemployment rate should not be materially affected as workers who were not at work due to weather issues would still be counted as employed in the household survey."

In September 2005, following Hurricane Katrina in late August of that year, the BLS initially reported 35,000 jobs lost (later revised up to a gain of 67,000 jobs).   That was a sharp slowdown from prior months - and something similar probably happened this year.

Note: Puerto Rico is not included in the national employment report.

The consensus, according to Bloomberg, is for an increase of 100,000 non-farm payroll jobs in September (with a range of estimates between 0 to 140,000), and for the unemployment rate to be unchanged at 4.4%.

The BLS reported 156,000 jobs added in August.

Here is a summary of recent data:

• The ADP employment report showed an increase of 135,000 private sector payroll jobs in September. This was below consensus 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 below expectations.

• The ISM manufacturing employment index increased in September to 60.3%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll increased about 35,000 in September. The ADP report indicated manufacturing jobs increased 18,000 in September.

The ISM non-manufacturing employment index increased in September to 56.8%. 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 255,000 in September.

Combined, the ISM indexes suggests employment gains of about 290,000.  This suggests employment growth well above expectations.

• Initial weekly unemployment claims averaged 278,000 in September,  up sharply from 237,000 in August. For the BLS reference week (includes the 12th of the month), initial claims were at 260,000, up from 232,000 during the reference week in August.

The increase during the reference week suggests  a weaker employment report in September than in August.

• The final September University of Michigan consumer sentiment index decreased to 95.1 from the August reading of 96.8. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Conclusion: It is difficult to guess the impact of the hurricanes on the employment report.  The ADP report and weekly claims suggest a weaker employment report.  The ISM surveys probably miss the impact of the hurricanes - otherwise those reports would suggest solid employment gains in September.   My guess is the employment report comes in below the consensus forecast.

Note: Any number below 152,000 jobs means the year-over-year gain in employment will fall below 2 million for the first time since early 2013. A negative headline payroll number (not impossible), would break the streak of 83 consecutive months of job gains - by far the longest streak of positive monthly gains in BLS history.

by Calculated Risk on 10/04/2017 10:05:00 AM

The September ISM Non-manufacturing index was at 59.8%, up from 55.3% in August. The employment index increased in September to 56.8%, from 56.2%. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: September 2017 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in September for the 93rd consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee: "The NMI® registered 59.8 percent, which is 4.5 percentage points higher than the August reading of 55.3 percent. This represents continued growth in the non-manufacturing sector at a faster rate. This is the highest reading since August 2005 when the index registered 61.3 percent. The Non-Manufacturing Business Activity Index increased to 61.3 percent, 3.8 percentage points higher than the August reading of 57.5 percent, reflecting growth for the 98th consecutive month, at a faster rate in September. The New Orders Index registered 63 percent, 5.9 percentage points higher than the reading of 57.1 percent in August. The Employment Index increased 0.6 percentage point in September to 56.8 percent from the August reading of 56.2 percent. The Prices Index increased substantially by 8.4 percentage points from the August reading of 57.9 percent to 66.3 percent, indicating prices increased in September for the fourth consecutive month. This is the highest reading since February 2012 when the index registered 67.6 percent. According to the NMI®, 15 non-manufacturing industries reported growth. The non-manufacturing sector has reflected strong growth in the month of September despite the impact on the supply chain from the recent hurricanes. Respondents’ comments indicate a good outlook for business conditions."
emphasis added

Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This suggests faster expansion in September than in August.

by Calculated Risk on 10/04/2017 08:19:00 AM

From ADP:

Private sector employment increased by 135,000 jobs from August to September according to the September 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.
...
“In September, small businesses experienced a dip in hiring,” said Ahu Yildirmaz, vice president and cohead of the ADP Research Institute. “This is in part due to Hurricane’s Harvey and Irma which significantly impacted smaller retailers. “In addition, the continued slow down we have seen in small business hiring could be due to a lack of competitive compensation to attract skilled talent.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Hurricanes Harvey and Irma hurt the job market in September. Looking through the storms the job market remains sturdy and strong.”

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

The BLS report for September will be released Friday, and the consensus is for 95,000 non-farm payroll jobs added in September.

by Calculated Risk on 10/04/2017 07:00:00 AM

From the MBA: Purchase Apps Up, Refi Apps Down in Latest MBA Weekly Survey

Mortgage applications decreased 0.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 29, 2017.

... The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 5 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) increased to 4.12 percent from 4.11 percent, with points increasing to 0.45 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity will not pick up significantly unless mortgage rates fall well below 4%.


The second graph shows the MBA mortgage purchase index.

According to the MBA, purchase activity is up 5% year-over-year.

by Calculated Risk on 10/03/2017 08:55:00 PM

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

• At 8:15 AM, The ADP Employment Report for September. This report is for private payrolls only (no government). The consensus is for 150,000 payroll jobs added in September, down from 237,000 added in August.

• At 10:00 AM, the ISM non-Manufacturing Index for September. The consensus is for index to increase to 55.4 from 55.3 in August.

• At 3:15 PM, Speech by Fed Chair Janet Yellen, Brief welcoming remarks, At the Community Banking in the 21st Century Research and Policy Conference, hosted by the Federal Reserve System and the Conference of State Bank Supervisors, St. Louis, Missouri

by Calculated Risk on 10/03/2017 03:08:00 PM

Based on a preliminary estimate from WardsAuto (ex-Porsche and Hyundai), light vehicle sales were at a 18.4 million SAAR in September.

That is up 4% from September 2016, and up 14.8% from last month.


Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for August (red, light vehicle sales of 18.4 million SAAR mostly from WardsAuto).

This was well above the consensus forecast of 16.7 million for September (Note: Hurricane Harvey pushed down sales at the end of August - and this was part of the bounce back).

Still, after two consecutive years of record sales, vehicle sales will be down in 2017.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

by Calculated Risk on 10/03/2017 11:54:00 AM

A few excerpts from a research piece by Merrill Lynch economist Michelle Meyer: The hurricanes and housing

The housing market this year has shown stronger-than-expected home price appreciation but weaker home sales and construction. An increase in prices despite tepid sales is indicative of a housing market with restrictive supply. The data support this theory with low levels of months supply and fast turnover of the housing stock. However, the narrative has become more complicated of late, in part due to the impact of Hurricanes Harvey and Irma.

The recent home sales data have received attention given that existing home sales have declined for the past three months while new home sales have fallen sharply over the prior two months. This follows a generally weak trend which began in the spring, after the strong showing in 1Q. We suspect this is partly a weather story as the unseasonably warm temperatures this winter pulled forward activity from the spring and summer. Looking ahead, Hurricanes Harvey and Irma threaten to continue to weigh on activity. Texas and Florida are particularly important states when it comes to housing activity – nearly 25% of housing starts in the nation are in those two states. The risk is that starts and sales remain weak in the coming months before rebounding as rebuilding efforts get underway.

We are revising our forecasts for home sales to reflect the latest data and impact from the hurricanes. We now look for existing home sales of 5.475 million this year which marks a meager increase of 0.6% from last year. We look for a stronger recovery next year with sales up nearly 1.5% to 5.55 million. Similarly, we took down our new home sales forecast to 595,000 this year, which is an increase of 6%, and look for 650,000 next year.
emphasis added

CR Note: This is a key point: With the heavy concentration of starts and new home sales in Texas and Florida, the data will probably be weak, due to the hurricanes, over the next few months.

by Calculated Risk on 10/03/2017 09:48:00 AM

Notes: This CoreLogic House Price Index report is for August. The recent Case-Shiller index release was for July. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic US Home Price Report Shows Prices Up 6.9 Percent in August 2017

CoreLogic® ... today released its CoreLogic Home Price Index (HPI™) and HPI Forecast™ for August 2017, which shows home prices are up strongly both year over year and month over month. Home prices nationally increased year over year by 6.9 percent from August 2016 to August 2017, and on a month-over-month basis, home prices increased by 0.9 percent in August 2017 compared with July 2017, according to the CoreLogic HPI.
...
While growth in home sales has stalled due to a lack of inventory during the last few months, the tight inventory has actually helped stabilize price growth,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Over the last three years, price growth in the CoreLogic national index has been between 5 percent and 7 percent per year, and CoreLogic expects home prices to increase about 5 percent by this time next year.”
emphasis added

Click on graph for larger image.

This graph from Corelogic shows the YoY change in the national CoreLogic HPI data since 2002.

The YoY increase had been moving sideways over the last two years, but might have picked up recently (the recent pickup could be revised away).

The year-over-year comparison has been positive for over five consecutive years since turning positive year-over-year in February 2012.

by Calculated Risk on 10/02/2017 07:00:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Mixed, but Higher on Average

Mortgage rates were lower today for a few lenders, but higher for most others, dragging the average 0.01% higher in terms of effective rates.  Note rates (which don't factor in the upfront costs associated with a loan quote), on the other hand, haven't changed much in recent days, with 4.0% being the most prevalent for top tier 30yr fixed scenarios. [30YR FIXED - 3.875-4.0%]

Tuesday:
• All day: Light vehicle sales for September. The consensus is for light vehicle sales to be 16.7 million SAAR in September, up from 16.1 million in August (Seasonally Adjusted Annual Rate).

• At 10:00 AM ET, The CoreLogic House Price index for August.

by Calculated Risk on 10/02/2017 04:11:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for August 2017. Over the past three months, the indexes increased in 37 states, decreased in 11, and were unchanged in two, for a three-month diffusion index of 52. In the past month, the indexes increased in 27 states, decreased in 18, and remained stable in five, for a one-month diffusion index of 18.
emphasis added

Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In August, 30 states had increasing activity (including minor increases).

The downturn in 2015 and 2016, in the number of states increasing, was mostly related to the decline in oil prices.  

The reason for the recent sharp decrease in the number of states with increasing activity is unclear - and might be revised away.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and all or mostly green during most of the recent expansion.

Recently several states have turned red.

Source: Philly Fed. Note: For complaints about red / green issues, please contact the Philly Fed.