by Calculated Risk on 7/05/2018 12:19:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for June. The consensus is for an increase of 190,000 non-farm payroll jobs in May (with a range of estimates between 144,000 to 212,000), and for the unemployment rate to be unchanged at 3.9%.

The BLS reported 223,000 jobs added in May.

Here is a summary of recent data:

• The ADP employment report showed an increase of 177,000 private sector payroll jobs in June. This was below consensus expectations of 188,000 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 somewhat below expectations.

• The ISM manufacturing employment index decreased in June to 56.0%. 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 13,000 in June. The ADP report indicated manufacturing jobs increased 12,000 in June.

The ISM non-manufacturing employment index decreased in June to 53.6%. 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 170,000 in June.

Combined, the ISM indexes suggests employment gains of about 183,000.  This suggests employment growth slightly below expectations.

• Initial weekly unemployment claims averaged 224,500 in June, slightly higher than in May. For the BLS reference week (includes the 12th of the month), initial claims were at 218,000, down from 223,000 during the reference week in May.

The slight decrease during the reference week suggests a slightly stronger employment report in June than in May.

• The final June University of Michigan consumer sentiment index increased to 98.2 from the May reading of 98.0. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Merrill Lynch has introduced a new payrolls tracker based on private internal BAC data. The tracker suggests private payrolls increased by 203,000 in June, and this suggests employment growth slightly above expectations.

• Looking back at the three previous years:

In June 2017, the consensus was for 170,000 jobs, and the BLS reported 222,000 jobs added. In June 2016, the consensus was for 180,000 jobs, and the BLS reported 287,000 jobs added. In June 2015, the consensus was for 230,000 jobs, and the BLS reported 223,000 jobs added.

• Conclusion:  In general, these reports suggest a solid employment report, and probably close to expectations.  The ADP report and ISM surveys suggests a report slightly below expectations, but the reference week for unemployment claims, and the Merrill payrolls tracker suggest a stronger report.   My guess is that the employment report will be close to the consensus in June.

by Calculated Risk on 7/05/2018 10:59:00 AM

Reis released their Q2 2018 Office Vacancy survey this morning. Reis reported that the office vacancy rate increased to 16.6% in Q2, from 16.5% in Q1 2018. This is up from 16.4% in Q2 2017, and down from the cycle peak of 17.6%.

From Reis Economist Barbara Denham:

Showing mixed signs of the current state of the office market, the office vacancy rate increased for the second straight quarter to 16.6%. Heading into the ninth year of the recovery, the office market has never seen the robust leasing activity of previous expansions, maintaining a steady but low level of absorption despite healthy office job growth. Net absorption, or occupancy growth, trailed previous quarters at 2.817 million square feet, down from an average of 5.78 million square feet absorbed per quarter in 2017. New completions fell to 8.07 million square feet, down from an average of 10.9 million square feet added per quarter in 2017.

Rent growth, in contrast, was healthier in the last two quarters than in the previous seven as a number of metros had rent growth of 1% or more in the quarter and 4% for the year. The national average asking rent increased 0.7% in the second quarter as did the effective rent which nets out landlord concessions. At $33.07 per square foot (asking) and $26.83 per square foot (effective), the average rents have increased 2.5% and 2.6%, respectively, since the second quarter of 2017.
...
In short, the office market statistics reflect the net growth between the haves and the have-nots: larger markets in the West, South Atlantic, Texas, Boston and New York with healthy occupancy and rent growth offset by tepid growth or declines in smaller, suburban markets mostly in less densely populated areas. Much of the growth can be attributed to gains in technology: 9.6% of the added office jobs this year were in the Computer Systems Design industry that should continue to fuel office gains in most of these cities.

The next big question is: What city will Amazon select for its HQ2? The answer to this could come before Reis releases its third quarter statistics. That news will certainly generate considerable discussion not only about the “winning” city but on the reasons why the others lost out.

Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis reported the vacancy rate was at 16.6% in Q2.  The office vacancy rate had been mostly moving sideways at an elevated level, but has increased recently.

Office vacancy data courtesy of Reis.

by Calculated Risk on 7/05/2018 10:05:00 AM

The June ISM Non-manufacturing index was at 59.1%, up from 58.6% in May. The employment index decreased in June to 53.6%, from 54.1%. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: June 2018 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in June for the 101st 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 59.1 percent, which is 0.5 percentage point higher than the May reading of 58.6 percent. This represents continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 63.9 percent, 2.6 percentage points higher than the May reading of 61.3 percent, reflecting growth for the 107th consecutive month, at a faster rate in June. The New Orders Index registered 63.2 percent, 2.7 percentage points higher than the reading of 60.5 percent in May. The Employment Index decreased 0.5 percentage point in June to 53.6 percent from the May reading of 54.1 percent. The Prices Index decreased by 3.6 percentage points from the May reading of 64.3 percent to 60.7 percent, indicating that prices increased in June for the 28th consecutive month. According to the NMI®, 17 non-manufacturing industries reported growth. Respondents continue to be optimistic about business conditions and the overall economy. There is a continuing concern relating to tariffs, capacity constraints and delivery.”
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 June than in May.

by Calculated Risk on 7/05/2018 08:32:00 AM

The DOL reported:

In the week ending June 30, the advance figure for seasonally adjusted initial claims was 231,000, an increase of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 227,000 to 228,000. The 4-week moving average was 224,500, an increase of 2,250 from the previous week's revised average. The previous week's average was revised up by 250 from 222,000 to 222,250.
emphasis added

The previous week was revised up.

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 increased to 224,500.

This was higher than the consensus forecast. The low level of claims suggest few layoffs.

by Calculated Risk on 7/05/2018 08:20:00 AM

From ADP:

Private sector employment increased by 177,000 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.
...
“The labor market continues to march towards full employment,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Healthcare led job growth once again and trade rebounded nicely.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Business’ number one problem is finding qualified workers. At the current pace of job growth, if sustained, this problem is set to get much worse. These labor shortages will only intensify across all industries and company sizes.”

This was below the consensus forecast for 188,000 private sector jobs added in the ADP report. 

The BLS report for June will be released Friday, and the consensus is for 190,000 non-farm payroll jobs added in June.

by Calculated Risk on 7/04/2018 10:51:00 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 188,000 payroll jobs added in June, up from 178,000 added in May.

• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 223 thousand initial claims, down from 227 thousand the previous week.

• Early, Reis Q2 2018 Office Survey of rents and vacancy rates.

• At 10:00 AM, the ISM non-Manufacturing Index for June. The consensus is for index to decrease to 58.3 from 58.6 in May.

• At 2:00 PM, FOMC Minutes for the Meeting of June 12-13, 2018

by Calculated Risk on 7/04/2018 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 29, 2018.

... 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 remained unchanged from the previous week and was 1 percent lower than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased to 4.79 percent from 4.84 percent, with points decreasing to 0.41 from 0.42 (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 50 bps or more from the recent level.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 1% year-over-year.

by Calculated Risk on 7/03/2018 04:55:00 PM

Based on a preliminary estimate from AutoData, light vehicle sales were at a 17.47 million SAAR in June.

That is up 5% year-over-year from June 2017, and up 4% 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 June (red, light vehicle sales of 17.47 million SAAR  from AutoData).

This was above the consensus forecast for June.

Note that the increase in sales at the end of 2017 was due to buying following the hurricanes.

Sales will probably move sideways or decline in 2018 after setting new sales records in both 2015 and 2016.

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

Note: dashed line is current estimated sales rate.

This was the highest sales rate this year.

by Calculated Risk on 7/03/2018 09:36:00 AM

"The retail sector suffered its worst quarter in nine years with net absorption of negative 3.8 million square feet."

Reis reported that the vacancy rate for regional malls was 8.6% in Q2 2018, up from 8.4% in Q1 2018, and up from 8.1% in Q2 2017. This is down from a cycle peak of 9.4% in Q3 2011, and up from the cycle low of 7.8% in Q1 2016.

For Neighborhood and Community malls (strip malls), the vacancy rate was 10.2% in Q2, up from 10.0% in Q1, and up from 10.0% in Q2 2017. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011, and the low was 9.8% in Q2 2016.

Comments from Reis:

With 3.8 million square feet of negative net absorption brought on by the Toys “R” Us store closings, the U.S. Retail Vacancy Rate climbed 0.2% to 10.2% in the second quarter. Rent growth was positive at 0.2%.

The Regional Mall vacancy rate also increased 0.2% to 8.6% in the quarter, the average Mall rent increased 0.3%. The Mall vacancy rate has climbed 0.8% from a low of 7.8% at the end of 2016.

After withstanding the hundreds if not thousands of store closings over the last 18 months, the neighborhood and community shopping center industry suffered its worst quarter in nine years with negative net absorption of 3.8 million square feet. This pushed the overall vacancy rate to 10.2% from 10.0 percent where it had held steady for the four previous quarters.

The national average asking rent increased 0.2% in the second quarter as did the effective rent which nets out landlord concessions. At $21.01 per square foot (market) and $18.39 per square foot (effective), the average rents have increased 1.7% and 1.8%, respectively, since the second quarter of 2017.
…
Conclusion
The Toys “R” Us store closings impacted the second quarter statistics more than any other retailer has in any quarter over the last nine years. In the Reis property inventory, we tracked more than 80 total Toys “R” Us store closings in 40+ different metros in the quarter. Moreover, other retailers continued to shut down operations in the quarter including Winn-Dixie with eight closed stores in our inventory, Kmart with seven stores and Harvey with five closed stores. Very few metros saw significant positive net absorption, but a few gyms and trampoline parks opened in some metros along with TJ Maxx, Target, Aldi’s, Gabe’s and Bob Mills.

That said, we believe most of the Toys “R” Us stores are now closed and that most of the negative net absorption is behind us. Although we do not expect the vacancy rate to improve in the near future, it will not increase that much more in the coming quarters.

Oddly, rent growth has remained positive despite the higher vacancy. We suspect that rents will stay flat for some time. Finally, we have a few new construction projects in the pipeline, but have seen a number of older and obsolete shopping centers sold as development sites. We expect any new completions will be few and far between and could get offset by conversions or demolitions.
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.

Recently both the strip mall and regional mall vacancy rates have increased from an already elevated level.

Mall vacancy data courtesy of Reis

by Calculated Risk on 7/03/2018 08:00:00 AM

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

From CoreLogic: CoreLogic Reports May Home Prices Increased by 7.1 Percent, Consumers Express Desire to Buy Despite High Prices

CoreLogic® ... today released the CoreLogic Home Price Index (HPI™) and HPI Forecast for May 2018, which shows home prices rose both year over year and month over month. Home prices increased nationally by 7.1 percent year over year from May 2017 to May 2018. On a month-over-month basis, prices increased by 1.1 percent in May 2018 – compared with April 2018 – according to the CoreLogic HPI.

Looking ahead, the CoreLogic HPI Forecast indicates that the national home-price index is projected to continue to increase by 5.1 percent on a year-over-year basis from May 2018 to May 2019. On a month-over-month basis, home prices are expected to rise 0.3 percent in June 2018. The CoreLogic HPI Forecast is a projection of home prices that is calculated using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.

“The lean supply of homes for sale is leading to higher sales prices and fewer days on market, and the supply shortage is more acute for entry-level homes,” said Dr. Frank Nothaft, chief economist for CoreLogic. “During the first quarter, we found that about 50 percent of all existing homeowners had a mortgage rate of 3.75 percent or less. May’s mortgage rates averaged a seven-year high of 4.6 percent, with an increasing number of homeowners keeping the low-rate loans they currently have, rather than sell and buy another home that would carry a higher interest rate.”
emphasis added

CR Note: The CoreLogic YoY increase has been in the 5% to 7% range for the last few years.  This is at the top end of that range.  The year-over-year comparison has been positive for over six consecutive years since turning positive year-over-year in February 2012.