by Calculated Risk on 9/06/2018 02:52:00 PM

A few brief excerpts from a note by Goldman Sachs economist Spencer Hill:

We estimate that nonfarm payrolls increased 175k in August ... While continued strength in employment surveys and jobless claims data suggest underlying labor demand remains solid, we expect a drag of around 40k from negative residual seasonality. ...

We estimate the unemployment rate fell one tenth to 3.8% … we expect average hourly earnings to increase 0.2% month over month and 2.7% year over year ...
emphasis added

by Calculated Risk on 9/06/2018 01:07:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for August. The consensus is for an increase of 195,000 non-farm payroll jobs in August (with a range of estimates between 150,000 to 237,000), and for the unemployment rate to decline to 3.8%.

The BLS reported 157,000 jobs added in July.

Here is a summary of recent data:

• The ADP employment report showed an increase of 163,000 private sector payroll jobs in August. This was below consensus expectations of 182,000 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 August to 58.5%. 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 25,000 in August. The ADP report indicated manufacturing jobs increased 19,000 in August.

The ISM non-manufacturing employment index increased in August to 56.7%. 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 250,000 in August.

Combined, the ISM indexes suggests employment gains of about 275,000.  This suggests employment growth well above expectations.

• Initial weekly unemployment claims averaged 209,500 in August down from 214,500 in July. For the BLS reference week (includes the 12th of the month), initial claims were at 210,000, up slightly from 208,000 during the reference week in July.

The slight increase during the reference week suggests a solid employment report in August.

• The final August University of Michigan consumer sentiment index decreased to 96.2 from the July reading of 97.9. 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 245,000 in August, and this suggests employment growth above expectations.

• Looking back at the three previous years:

In August 2017, the consensus was for 180,000 jobs, and the BLS reported 156,000 jobs added.

In August 2016, the consensus was for 175,000 jobs, and the BLS reported 151,000 jobs added.

In August 2015, the consensus was for 223,000 jobs, and the BLS reported 173,000 jobs added.

In general it looks like the consensus is frequently too high for the month of August.

• Conclusion:  These reports suggest a solid employment report in August.  The ADP report suggests employment growth below expectations, however, the ISM reports, and the Merrill payrolls tracker suggest a report above expectations.   Since the consensus has been too high for August over the last few years, my guess is that the employment report will be below expectations (usually these indicators give a decent indication, however last month I took the "over", and the actual was "under").

by Calculated Risk on 9/06/2018 11:33:00 AM

This is a key former distressed market to follow since Las Vegas saw the largest price decline, following the housing bubble, of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Southern Nevada home prices hovering this summer, GLVAR housing statistics for August 2018

After climbing steadily since 2012, local home prices have been hovering this summer, with a report released today by the Greater Las Vegas Association of REALTORS® (GLVAR) showing prices back to where they were in May.
...
The total number of existing local homes, condos and townhomes sold during August was 3,881. Compared to one year ago, August sales were down 6.4 percent for homes, but up 11.0 percent for condos and townhomes. Overall, he said sales so far this year remain behind last year’s pace.
...
Meanwhile, Bishop said the housing supply increased in August, which he called good news for potential buyers. However, he said Southern Nevada still has less than a two-month supply of existing homes available for sale when a six-month supply would be a balanced market. By the end of August, GLVAR reported 5,818 single-family homes listed for sale without any sort of offer. That’s up from July and up 12.8 percent from one year ago. For condos and townhomes, the 1,184 properties listed without offers in August represented a 73.4 percent increase from one year ago.
...
The number of so-called distressed sales continues to drop. GLVAR reported that short sales and foreclosures combined accounted for just 2.5 percent of all existing local home sales in August, down from 6.1 percent of all sales one year ago.
emphasis added

1) Overall sales were down 3.3% year-over-year from 4,012 in August 2017 to 3,881 in August 2018.

2) Active inventory (single-family and condos) is up from a year ago, from a total of 5,840 in August 2017 to 7,002 in August 2018. Note: Total inventory was up 19.9% year-over-year.   This is a significant change in inventory.

3) Fewer distressed sales.

by Calculated Risk on 9/06/2018 10:04:00 AM

The August ISM Non-manufacturing index was at 58.5%, up from 55.7% in July. The employment index increased in August to 56.7%, from 56.1%. Note: Above 50 indicates expansion, below 50 contraction.

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

Economic activity in the non-manufacturing sector grew in August for the 103rd 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 58.5 percent, which is 2.8 percentage points higher than the July reading of 55.7 percent. This represents continued growth in the non-manufacturing sector at a faster rate. The Non-Manufacturing Business Activity Index increased to 60.7 percent, 4.2 percentage points higher than the July reading of 56.5 percent, reflecting growth for the 109th consecutive month, at a faster rate in August. The New Orders Index registered 60.4 percent, 3.4 percentage points higher than the reading of 57 percent in July. The Employment Index increased 0.6 percentage point in August to 56.7 percent from the July reading of 56.1 percent. The Prices Index decreased by 0.6 percentage point from the July reading of 63.4 percent to 62.8 percent, indicating that prices increased in August for the 30th consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. There was a strong rebound for the non-manufacturing sector in August after growth ‘cooled off’ in July. Logistics, tariffs and employment resources continue to have an impact on many of the respective industries. Overall, the respondents remain positive about business conditions and the economy.”
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 August than in July.

by Calculated Risk on 9/06/2018 08:33:00 AM

The DOL reported:

In the week ending September 1, the advance figure for seasonally adjusted initial claims was 203,000, a decrease of 10,000 from the previous week's unrevised level of 213,000. This is the lowest level for initial claims since December 6, 1969 when it was 202,000. The 4-week moving average was 209,500, a decrease of 2,750 from the previous week's unrevised average of 212,250. This is the lowest level for this average since December 6, 1969 when it was 204,500.
emphasis added

The previous week was unrevised.

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 decreased to 209,500.

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

by Calculated Risk on 9/06/2018 08:19:00 AM

From ADP:

Private sector employment increased by 163,000 jobs from July to August according to the August 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.
...
“Although we saw a small slowdown in job growth the market remains incredibly dynamic,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Midsized businesses continue to be the engine of growth, adding nearly 70 percent of all jobs this month, and remain resiliant in the current economic climate.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is hot. Employers are aggressively competing to hold onto their existing workers and to find new ones. Small businesses are struggling the most in this competition, as they increasingly can’t fill open positions.”

This was below the consensus forecast for 182,000 private sector jobs added in the ADP report. 

The BLS report for August will be released Friday, and the consensus is for 198,000 non-farm payroll jobs added in August.

by Calculated Risk on 9/05/2018 05:55:00 PM

From Goldman Sachs:

The details of the trade balance report were similar to our previous assumptions, and we left our Q3 GDP tracking estimate unchanged on a rounded basis at +3.0% (qoq ar).

Thursday:
• At 8:15 AM ET, The ADP Employment Report for August. This report is for private payrolls only (no government). The consensus is for 182,000 payroll jobs added in August, down from 219,000 added in July.

• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 213 thousand initial claims, unchanged from 213 thousand the previous week.

• At 10:00 AM, the ISM non-Manufacturing Index for August. The consensus is for index to increase to 56.8 from 55.7 in July.

by Calculated Risk on 9/05/2018 12:50:00 PM

The BEA released their estimate of August vehicle sales. The BEA estimated sales of 16.596 million SAAR in August 2018 (Seasonally Adjusted Annual Rate), down 0.6% from the July sales rate, and up 0.9% from August 2017 (August was the weakest sales month last year due to the impact of the hurricanes).

Through August, light vehicle sales are on pace to be down slightly in 2018 compared to 2017.

This would make 2018 the sixth best year on record after 2016, 2015, 2000, 2017 and 2001.

My guess is vehicle sales will finish the year with sales lower than in 2017 (sales in late 2017 were boosted by buying following the hurricanes), and will probably be below 17 million for the year (the lowest since 2014).

A small decline in sales this year isn't a concern - I think sales will move mostly sideways at near record levels.

As I noted last year, this means the economic boost from increasing auto sales is over (from the bottom in 2009, auto sales boosted growth every year through 2016).


Click on graph for larger image.

This graph shows annual light vehicle sales since 1976.   Source: BEA.

Sales for 2018 are estimated based on the pace of sales during the first eight months.

The second graph below shows the mix of sales since 1976 (Blue is cars, Red is light trucks and SUVs).

The mix has changed significantly. Back in 1976, most light vehicles were passenger cars - however car sales have trended down over time.

Note that the big dips in sales are related to economic recessions (early '80s, early '90s, and the Great Recession of 2007 through mid-2009).

The second graph shows the percent of light vehicle sales between passenger cars and trucks / SUVs.

Over time the mix has changed toward more and more light trucks and SUVs.

Only when oil prices are high, does the trend slow or reverse.

Recently oil prices have been fairly low (now increasing), and the percent of light trucks and SUVs is just over 70% for the first time ever.

by Calculated Risk on 9/05/2018 10:56:00 AM

Based on a preliminary estimate from AutoData, light vehicle sales were at a 16.7 million SAAR in August.

Note: All other data from the BEA (the BEA will report this month's sales soon).

That is up 1.5% year-over-year from August 2017, and unchanged 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 16.7 million SAAR  from AutoData).

Note that this was an easy comparison to last August, since sales in August 2017 were negatively impacted by hurricanes.  The increase in sales at the end of 2017 was due to buying following the hurricanes.

Sales will probably 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 below the consensus forecast for August.

by Calculated Risk on 9/05/2018 08:42:00 AM

From the Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $50.1 billion in July, up $4.3 billion from $45.7 billion in June, revised. … July exports were $211.1 billion, $2.1 billion less than June exports. July imports were $261.2 billion, $2.2 billion more than June imports.

Click on graph for larger image.

Exports decreased and imports increased in July.

Exports are 28% above the pre-recession peak and up 8% compared to July 2017; imports are 12% above the pre-recession peak, and up 9% compared to July 2017.

In general, trade has been picking up.

The second graph shows the U.S. trade deficit, with and without petroleum.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil imports averaged $64.63 in July, up from $62.42 in June, and up from $43.13 in July 2017.

The trade deficit with China increased to $36.8 billion in July, from $33.6 billion in July 2017.