by Calculated Risk on 12/06/2018 01:43:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for November. The consensus is for an increase of 190,000 non-farm payroll jobs in November (with a range of estimates between 140,000 to 220,000), and for the unemployment rate to be unchanged at 3.7%.

Last month, the BLS reported 250,000 jobs added in October.

Here is a summary of recent data:

• The ADP employment report showed an increase of 179,000 private sector payroll jobs in November. This was slightly above consensus expectations of 175,000 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 close to expectations.

• The ISM manufacturing employment index increased in November to 58.4%. 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 November. The ADP report indicated manufacturing jobs increased 4,000 in November.

The ISM non-manufacturing employment index decreased in November to 58.4%. 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 well over 200,000 in November.

Combined, the ISM indexes suggest strong employment gains.  This suggests employment growth well above expectations.

• Initial weekly unemployment claims averaged 228,000 in November, up from 214,000 in October. For the BLS reference week (includes the 12th of the month), initial claims were at 225,000, up from 210,000 during the reference week the previous month.

The increase during the reference week suggests a weaker employment report in November.

• The final November University of Michigan consumer sentiment index decreased to 97.5 from the October reading of 98.6. 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 211,000 in November, and this suggests employment growth somewhat above expectations.

• Looking back at the three previous years:

In November 2017, the consensus was for 190,000 jobs, and the BLS reported 228,000 jobs added.

In November 2016, the consensus was for 170,000 jobs, and the BLS reported 178,000 jobs added.

In November 2015, the consensus was for 190,000 jobs, and the BLS reported 211,000 jobs added.

It appears the consensus is frequently a little low for November.

• Conclusion:  These reports suggest a solid employment report in November, except for unemployment claims.     My guess is the report will be at or above the consensus.

by Calculated Risk on 12/06/2018 12:53:00 PM

The Federal Reserve released the Q3 2018 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q3 2018 to $109.0 Trillion, for $106.9 Trillion in Q2 2018:

The net worth of households and nonprofits rose to $109.0 trillion during the third quarter of 2018. The value of directly and indirectly held corporate equities increased $1.2 trillion and the value of real estate increased $0.2 trillion.

The Fed estimated that the value of household real estate increased to $25.4 trillion in Q3. The value of household real estate is now above the bubble peak in early 2006 - but not adjusted for inflation, and this also includes new construction.

Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q3 2018, household percent equity (of household real estate) was at 59.9% - up from Q2, and the highest since 2002. This was because of an increase in house prices in Q3 (the Fed uses CoreLogic).

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 59.9% equity - and about 2.2 million homeowners still have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt increased by $91 billion in Q3.

Mortgage debt has declined by $0.43 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The value of real estate, as a percent of GDP, declined slightly in Q3, and is above the average of the last 30 years (excluding bubble).  However, mortgage debt as a percent of GDP, continues to decline.

by Calculated Risk on 12/06/2018 10:04:00 AM

The November ISM Non-manufacturing index was at 60.7%, up from 60.3% in October. The employment index decreased in November to 58.4%, from 59.7%. Note: Above 50 indicates expansion, below 50 contraction.

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

Economic activity in the non-manufacturing sector grew in November for the 106th 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 60.7 percent, which is 0.4 percentage point higher than the October reading of 60.3 percent. This represents continued growth in the non-manufacturing sector, at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 65.2 percent, 2.7 percentage points higher than the October reading of 62.5 percent, reflecting growth for the 112th consecutive month, at a faster rate in November. The New Orders Index registered 62.5 percent, 1 percentage point higher than the reading of 61.5 percent in October. The Employment Index decreased 1.3 percentage points in November to 58.4 percent from the October reading of 59.7 percent. The Prices Index rose 2.6 percentage points from the October reading of 61.7 percent to 64.3 percent, indicating that prices increased in November for the 33rd consecutive month. According to the NMI®, 17 non-manufacturing industries reported growth. The non-manufacturing sector continued to reflect strong growth in November. However, concerns persist about employment resources and the impact of tariffs. Respondents remain positive about current business conditions and the direction of 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 slightly faster expansion in November than in October.

by Calculated Risk on 12/06/2018 08:52:00 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 $55.5 billion in October, up $0.9 billion from $54.6 billion in September, revised.

October exports were $211.0 billion, $0.3 billion less than September exports. October imports were $266.5 billion, $0.6 billion more than September imports.

Click on graph for larger image.

Exports decreased and imports increased in October.

Exports are 28% above the pre-recession peak and up 6% compared to October 2017; imports are 15% above the pre-recession peak, and up 9% compared to October 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 $61.23 in October, down from $61.35 in September, and up from $47.27 in October 2017.

The trade deficit with China increased to $43.1 billion in October, from $35.2 billion in October 2017.

by Calculated Risk on 12/06/2018 08:33:00 AM

The DOL reported:

In the week ending December 1, the advance figure for seasonally adjusted initial claims was 231,000, a decrease of 4,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 234,000 to 235,000. The 4-week moving average was 228,000, an increase of 4,250 from the previous week's revised average. The previous week's average was revised up by 500 from 223,250 to 223,750.
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 228,000.

This was higher than the consensus forecast, and initial claims have increased recently. However the low level of claims suggest few layoffs.

by Calculated Risk on 12/06/2018 08:19:00 AM

From ADP:

Private sector employment increased by 179,000 jobs from October to November according to the November 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 the labor market performed well, job growth decelerated slightly,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. ”Midsized businesses added nearly 70 percent of all jobs this month. This growth points to the midsized businesses’ ability to provide stronger wages and benefits. It also suggests they could be more insulated from the global challenges large enterprises face.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is strong, but has likely peaked. This month’s report is free of significant weather effects and suggests slowing underlying job creation. With very tight labor markets, and record unfilled positions, businesses will have an increasingly tough time adding to payrolls.”

This was close to the consensus forecast for 175,000 private sector jobs added in the ADP report. 

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

by Calculated Risk on 12/06/2018 08:00:00 AM

From CoreLogic: CoreLogic Reports Homeowners with Negative Equity Declines by Only 81,000 in the Third Quarter of 2018

CoreLogic … today released the Home Equity Report for the third quarter of 2018. The report shows that U.S. homeowners with mortgages (which account for roughly 63 percent of all properties) have seen their equity increase by 9.4 percent year over year, representing a gain of nearly $775.2 billion since the third quarter of 2017.

Additionally, the average homeowner gained $12,400 in home equity between the third quarter of 2017 and the third quarter of 2018. While home equity grew in almost every state in the nation, western states experienced the most significant increases. California homeowners gained an average of approximately $36,500 in home equity, and Nevada homeowners experienced an average increase of approximately $32,600 in home equity.

From the second quarter of 2018 to the third quarter of 2018, the total number of mortgaged homes in negative equity decreased 4 percent to 2.2 million homes or 4.1 percent of all mortgaged properties. Year over year, the number of mortgaged properties in negative equity fell 16 percent from 2.6 million homes – or 5 percent of all mortgaged properties – in the third quarter of 2018.

“On average, homeowners saw their home equity increase again this quarter but not nearly as much as in previous quarters,” said Dr. Frank Nothaft, chief economist for CoreLogic. “During the third quarter, homeowners gained an average of $12,400 compared to the second quarter when the average home equity wealth increase was more than $16,000. This lower year-over-year gain reflects the slowing in appreciation we’ve seen in the CoreLogic Home Price Index.”

Negative equity, often referred to as being underwater or upside down, applies to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in a home’s value, an increase in mortgage debt or both. Negative equity peaked at 26 percent of mortgaged residential properties in the fourth quarter of 2009, based on the CoreLogic equity data analysis which began in the third quarter of 2009.

The national aggregate value of negative equity was approximately $281.6 billion at the end of the third quarter of 2018. This is down quarter over quarter by approximately $1.1 billion, from $280.5 billion in the second quarter of 2018 and down year over year by approximately $2.7 billion, from $279 billion in the third quarter of 2017.

“The number of homes in a negative equity position have remained around 2.2 million for two consecutive quarters this year,” said Frank Martell, president and CEO of CoreLogic. “Without equity, those homeowners are unable to sell their homes and are more likely to transition from delinquency to foreclosure if they face financial distress.”
emphasis added

CR Note: A year ago, in Q3 2017, there were 2.6 million properties with negative equity - now there are 2.2 million.

by Calculated Risk on 12/05/2018 07:30:00 PM

Thursday:
• At 8:15 AM ET, The ADP Employment Report for November. This report is for private payrolls only (no government).  The consensus is for 175,000 jobs added, down from 227,000 in October.

• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 225 thousand initial claims, down from 234 thousand the previous week.

• At 8:30 AM, Trade Balance report for October from the Census Bureau. The consensus is the trade deficit to be $54.9 billion.  The U.S. trade deficit was at $54.0 billion in September.

• At 10:00 AM, the ISM non-Manufacturing Index for November.  The consensus is for a decrease to 59.0 from 60.3.

• At 12:00 PM, Q3 Flow of Funds Accounts of the United States from the Federal Reserve.

by Calculated Risk on 12/05/2018 02:06:00 PM

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of Philadelphia based on information collected on or before November 26, 2018."

Most of the twelve Federal Reserve Districts reported that their economies expanded at a modest or moderate pace from mid-October through late November, though both Dallas and Philadelphia noted slower growth compared with the prior Beige Book period. St. Louis and Kansas City noted just slight growth. On balance, consumer spending held steady – District reports on growth of nonauto retail sales appeared somewhat weaker while auto sales tended to improve, particularly for used cars. Tourism reports varied but generally kept pace with the economy. Tariffs remained a concern for manufacturers, but a majority of Districts continued to report moderate growth in the sector. All Districts reported growth in nonfinancial services – ranging from slight to strong. New home construction and existing home sales tended to decline or hold steady, while construction and leasing of nonresidential structures tended to rise or remain flat. Overall, lending volumes grew modestly, although a few Districts noted some slowing. Agricultural conditions and farm incomes were mixed; some Districts noted impacts from excessive rainfall and from tariffs, which have constrained demand. Most energy sectors saw little change or modest growth. Most Districts reported that firms remained positive; however, optimism has waned in some as contacts cited increased uncertainty from impacts of tariffs, rising interest rates, and labor market constraints.

Labor markets tightened further across a broad range of occupations. Over half of the Districts cited firms for which employment, production, and sometimes capacity expansion had been constrained by an inability to attract and retain qualified workers. In fact, several Chicago firms reported that some employees have simply quit – with no notice nor means of contact. Partly as a consequence of labor shortages, most Districts reported that employment growth leaned to the slower side of a modest to moderate pace. Conversely, most Districts reported that wage growth tended to the higher side of a modest to moderate pace. In addition to raising wages, most Districts noted examples of firms enhancing nonwage benefits, including health benefits, profit-sharing, bonuses, and paid vacation days.
emphasis added

by Calculated Risk on 12/05/2018 11:42:00 AM

CR Note: The summary paragraph is key. Demographics are worse than they appeared a few years ago.

From housing economist Tom Lawler: US Death Rate Up, Life Expectancy Down in 2017

The National Center for Health Statistics (NCHS) reported that there were 2,813,503 US deaths in 2017, 69,255 higher than in 2016. The “age-adjusted” death rate (per 100,000) increased to 731,9 in 2017 from 728.8 in 2016, while the estimated life expectancy at birth declined to 78.6 in 2017 from 78.7 in 2016.

Below is a table showing some historical death rates for selected age groups.

What is especially striking about this table is the sharp increase in death rates among 25-44 year old over the last five years.

US Death Rates (deaths per 100,000 population), Total and Selected Age Groups (NCHS)
Yr	Total	15-24	25-34	35-44	45-54	55-64	65-74	75-84	85+	Age Adj.
2000	854	80	101	199	426	992	2399	5667	15524	869
2005	828	81	107	195	432	899	2110	5252	14982	815
2010	800	68	103	171	407	852	1875	4790	13934	747
2011	807	68	105	172	410	849	1846	4753	13779	741
2012	810	66	105	171	405	854	1803	4675	13679	733
2013	822	65	106	172	406	860	1802	4648	13660	732
2013	824	66	108	175	405	870	1786	4564	13408	725
2015	824	66	108	175	405	870	1786	4564	13408	725
2016	844	75	129	192	406	884	1789	4475	13392	729
2017	864	74	133	195	402	886	1791	4473	13574	732

The NCHS also reported that there were 70,237 drug overdose deaths in 2017, up from 63,632 in 2016. Here is a table showing some historical drug overdose deaths for selected age groups.

Drug Overdose Deaths by Selected Age Groups
Year	15-24	25-34	35-44	45-54	55-64	65+	Total
2000	1,435	3,169	6,469	4,389	1,013	854	17,415
2005	2,918	5,340	8,506	8,968	2,761	1,203	29,813
2010	3,571	7,572	8,546	11,299	5,486	1,722	38,329
2011	3,762	8,445	9,130	11,933	6,060	1,892	41,340
2012	3,518	8,508	8,948	11,895	6,423	2,094	41,502
2013	3,664	8,947	9,320	12,045	7,551	2,344	43,982
2014	3,798	10,055	10,134	12,263	8,122	2,568	47,055
2015	4,235	11,880	11,505	12,974	8,901	2,760	52,404
2016	5,376	15,443	14,183	14,771	10,632	3,075	63,632
2017	5,455	17,400	15,949	15,996	11,747	3,529	70,237

The NCHS did note that provisional data for the first four months of 2018 suggest that drug overdose death rates declined very slightly from last year’s alarmingly high rates.

According to the NCHS, there were 47,143 suicides in the US last year, up from 44,965 in 2016.

	US Suicide Deaths			US Drug Overdose Deaths
Year	Total	Men	Women	Total	Men	Women
1999	29,199	23,458	5,741	16,849	11,258	5,591
2016	44,965	34,727	10,238	63,632	41,558	22,074
2017	47,173	36,782	10,391	70,237	46,552	23,685

The NCHS death data highlight some serious issues facing the US. They also highlight the serious issues associated with the latest medium- and long-term population projections from Census. Below is a table comparing the so-called “Census 2017” Population Projections for deaths compared to the NCHS data.

US Deaths: Census 2017 Projections Vs. Actuals
	Census 2017 Projections			NCHS	Census Avg.
	12 months ended:			Calendar Year	Vs.
	6/30/2017	6/30/2018	Average	2017	NCHS
Total	2,688,802	2,717,297	2,703,050	2,813,503	-110,454
<1	39,741	39,250	39,496	22,335	17,161
1-14	13,787	13,688	13,738	9,580	4,158
15-24	23,543	22,804	23,174	32,025	-8,852
25-34	43,981	43,340	43,661	60,215	-16,555
35-44	62,599	61,705	62,152	79,796	-17,644
45-54	151,976	145,945	148,961	170,142	-21,182
55-64	330,420	327,584	329,002	372,006	-43,004
65-74	493,422	500,663	497,043	531,610	-34,568
75-84	619,610	638,667	629,139	657,759	-28,621
85+	909,723	923,651	916,687	878,035	38,652

First, there is obvious “mistake” in the Census 2017 projections for “infant” deaths. Second, the Census 2017 death projections for 15-84 year olds for calendar year 2017 (approximated in the above table) were a whopping 170,424 below actual deaths for this broad age group. The Census 2017 death projections for subsequent years have the same “issues,” overstating infant, child, and 85+ deaths and significantly understating likely deaths for all other age groups. These “issues” make the Census 2017 population projections of little use for those who use population projections to forecast key economic variables such as labor force growth, household growth, etc.