by Calculated Risk on 10/01/2010 12:30:00 PM

Catching up with all the data this morning ...

The Census Bureau reported overall construction spending increased slightly in August.

[C]onstruction spending during August 2010 was estimated at a seasonally adjusted annual rate of $811.8 billion, 0.4 percent (±1.8%)* above the revised July estimate of $808.6 billion.

However private construction spending declined again:

Spending on private construction was at a seasonally adjusted annual rate of $498.2 billion, 0.9 percent (±1.1%)* below the revised July estimate of $502.6 billion. Residential construction was at a seasonally adjusted annual rate of $238.5 billion in August, 0.3 percent (±1.3%)* below the revised July estimate of $239.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $259.7 billion in August, 1.4 percent (±1.1%) below the revised July estimate of $263.5 billion.

Click on graph for larger image in new window.

This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Both residential and non-residential private construction spending declined in August. Residential spending is 64.7% below the peak early 2006, and 4.7% above the recent low in 2009.

Non-residential spending is 37.3% from the peak in January 2008.

On a year-over-year basis, residential spending has turned slightly negative after the tax credit expired - and this indicates residential investment (RI) will be a drag on Q3 GDP.

Non-residential spending is still off sharply from last year (down 24%), but the rate of decline might be slowing. As major projects are completed, I expect private non-residential spending to fall below residential spending later this year or in early 2011.

by Calculated Risk on 10/01/2010 10:58:00 AM

Note: in September 2009 U.S. light vehicle sales were 9.3 million (SAAR). There was a sharp decline in sales following the "Cash-for-clunkers" program that ended in August 2009, so the year-over-year comparisons look good. The real key is the seasonally adjusted sales rate compared to the last few months (total U.S. light vehicle sales have been mostly flat since March 2010).

From MarketWatch: GM September U.S. sales up 10.5% to 173,155 units

General Motors Co. said Friday that U.S. sales in September rose 10.5% to 173,155 vehicles from 156,673 in September 2009.

I'll add reports from the other major auto companies as updates to this post.

Update1: from MarketWatch: Chrysler U.S. September sales surge 61% to 100,077

Update2: from MarketWatch: Ford U.S. Sept. sales jump 46.3% to 160,873 units

Update3: from MarketWatch: Toyota U.S. Sept. sales rise 16.8% to 147,162

NOTE: Once all the reports are released, I'll post a graph of the estimated total September light vehicle sales (SAAR: seasonally adjusted annual rate) - usually around 4 PM ET. Most estimates are for an increase to 11.6 million SAAR in September from the 11.44 million SAAR in August.

by Calculated Risk on 10/01/2010 10:00:00 AM

PMI at 54.4% in September down from 56.3% in August. The consensus was for a decline to 54.5 percent.

From the Institute for Supply Management: September 2010 Manufacturing ISM Report On Business®

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "While the headline number shows relative strength this month as the PMI reading of 54.4 percent is still quite positive, the overall picture is less encouraging. The growth of new orders continued to slow, as the index is down significantly from its cyclical high of 65.9 percent (January 2010). Production is currently growing at a faster rate than new orders, but it typically lags and would be expected to weaken further in the fourth quarter. Manufacturing has enjoyed a stronger recovery than other sectors of the economy, but it appears that weaker growth is the expectation for the fourth quarter. Both the Inventories and Backlog of Orders Indexes are sending strong negative signals of weakening performance in the sector."

Click on graph for larger image in new window.

Here is a long term graph of the ISM manufacturing index.

In addition to the decrease in the PMI, the ISM's new orders index fell to 51.1 from 53.1 in August, and the production index declined to 56.5 from 59.9.

The employment index declined to 56.5 from 60.4 in August.

And the inventory index was up for the 3rd month in a row to 55.6 from 51.4.

With new order growth slowing, and inventory increasing - further declines in the ISM PMI are very likely. Or as Ore noted, these indexes are "sending strong negative signals of weakening performance in the [manufacturing] sector".

by Calculated Risk on 10/01/2010 08:30:00 AM

From the BEA: Personal Income and Outlays, August 2010

Personal income increased $59.3 billion, or 0.5 percent ... Personal consumption expenditures (PCE) increased $41.3 billion, or 0.4 percent.
...
Real PCE increased 0.2 percent, the same increase as in July.
...
Personal saving as a percentage of disposable personal income was
5.8 percent in August, compared with 5.7 percent in July.

Click on graph for large image.

This graph shows monthly real PCE since Q4 2009.  the dashed red lines are the quarterly PCE (note: left scale doesn't start at zero to show the change).

Using the two-month method to estimate PCE, it looks like real PCE growth will be about 2.0% annualized Q3 2010 - or about the same as in the previous two quarters.

This month the saving rate increased slightly ...

This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the July Personal Income report. The saving rate increased to 5.8% in August from 5.7% in July.

I expect the saving rate to rise further - perhaps to 8% or more.

The key in this report is that PCE growth in Q3 will probably be around 2.0% - barring a significant change in September.  This suggests sluggish GDP growth in Q3.

by Calculated Risk on 9/30/2010 11:49:00 PM

A little economics humor ...

by Calculated Risk on 9/30/2010 09:04:00 PM

Hotel occupancy is one of several industry specific indicators I follow ...

From HotelNewsNow.com: STR: Chain scales report strong RevPAR gains

Overall, the U.S. hotel industry rose 7.5% in occupancy to 64.2%, average daily rate was up 2.6% to US$103.09, and RevPAR ended the week up 10.3% to US$66.15.

The following graph shows the four week moving average for the occupancy rate by week for 2008, 2009 and 2010 (and a median for 2000 through 2007).

Click on graph for larger image in new window.

Notes: the scale doesn't start at zero to better show the change. The graph shows the 4-week average, not the weekly occupancy rate.

On a 4-week basis, occupancy is up 6.0% compared to last year (the worst year since the Great Depression) and 5.2% below the median for 2000 through 2007.

The occupancy rate is slightly below the levels of 2008 - and 2008 was a tough year for the hotel industry!

Important: Even though the occupancy rate is close to 2008 levels, 2010 is a much more difficult year. The average daily rate (ADR) is off close to 8% from 2008 levels - so even with the similar occupancy rates, hotel room revenue is off sharply compared to two years ago.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 9/30/2010 06:00:00 PM

Tom Lawler reports that at the end of September, listings on Realtor.com totaled 3,960,417, down 1.2% from 4,007,860 at the end of August. This is 1.7% higher than in September 2009.

The NAR reported inventory at 3.98 million at the end of August, and at 3.71 million in September 2009. So they will probably report inventory at around 3.85 million for September 2010. (NAR does not seasonally adjust inventory and this appears to be a normal seasonal decline. The months-of-supply metric uses seasonally adjusted sales, but NSA inventory.).

Since sales probably only increased slightly in September, the months-of-supply metric will probably still be well into double digits again.

Note: there is a seasonal pattern for existing home inventory. Usually inventory peaks in July and declines slightly through October - and then declines sharply at the end of the year as sellers take their homes off the market for the holidays.

by Calculated Risk on 9/30/2010 03:31:00 PM

This is one of several industry specific indexes I track each month.

Click on graph for larger image in new window.

Same store sales and customer traffic both declined again in August (on a year-over-year basis). Unfortunately the data for this index only goes back to 2002.

Note: Any reading above 100 shows expansion for this index.

From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Cautious as Restaurant Performance Index Was Essentially Flat in August

As a result of continued soft sales and traffic levels, the National Restaurant Association’s comprehensive index of restaurant activity remained below 100 for the fourth consecutive month in August. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 99.5 in August, essentially unchanged from the previous three months. In addition, the RPI stood below 100 for the fourth consecutive month, which signifies contraction in the index of key industry indicators.
...
Restaurant operators reported a net decline in same-store sales for the fifth consecutive month in August ... Restaurant operators also continued to report a net decline in customer traffic levels in August..
emphasis added

Restaurants are a discretionary expense, and this contraction could be because of the sluggish recovery or might suggest further weakness in consumer spending in the months ahead.

by Calculated Risk on 9/30/2010 01:34:00 PM

From The Economist: Cramped quarters: As children postpone their departure, households get larger

Image credit: The Economist

[A]fter shrinking for decades, households have started to grow. Last year the average household had 2.59 people, up from 2.56 two years earlier, marking the first increase since 1993.
...
Much of this is almost certainly a response to the recession and the surge in unemployment. For young people who have lost their job or cannot find their first one, living with their parents becomes more attractive.

Note: This data comes from the 2009 American Community Survey, and many caveats apply.

As Greg Ip noted, the overall U.S. population is still growing, and at the current growth rate that would usually mean the demand for over 1 million additional housing units per year. However since many people are doubling up (or as we always joke - have moved into their parent's basement), this keeps the demand for housing units down.

This might seem like a small increase in the number of people per household (from 2.56 to 2.59), however that has a significant impact on the number of housing units needed.

Some rough numbers: If we assume a population of 300 million, the slight increase in household size would suggest about 1.3 million fewer housing units were needed. (300 million divided 2.56) minus (300 million divided by 2.59) equals about 1.3 million. This is more than offset by the growing population over this two year period, but this shows why the excess inventory has remained very high even with a series low number of new housing units being completed.

We all expected this during the recession, but it will be important to watch if the household size starts to decline again.

by Calculated Risk on 9/30/2010 11:13:00 AM

Usually I don't post all the regional manufacturing surveys, but it appears manufacturing is slowing right now - and the regional surveys provide early clues ...

From the Kansas City Fed:

Tenth District manufacturing activity rebounded in September, and producers’ expectations for future activity also improved.
...
The net percentage of firms reporting month-over-month increases in production in September was 14, up from 0 in August and equal to 14 in July ... The shipments, new orders, and order backlog indexes jumped back into positive territory.
...
The employment index was unchanged [at -2].

Here is an update to the graph comparing the regional Fed surveys with the ISM manufacturing survey, including the Kansas City survey released this morning:

Click on graph for larger image in new window.

For this graph I averaged the New York and Philly Fed surveys (dashed green, through September), and averaged five surveys including New York, Philly, Richmond, Dallas and Kansas City (blue).

The Institute for Supply Management (ISM) PMI (red) is through August (right axis).

The ISM Manufacturing index will be released tomorrow and the consensus is for a decline to 54.5 in September from 56.3 in August.

by Calculated Risk on 9/30/2010 09:45:00 AM

From the Institute for Supply Management – Chicago:

The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER improved in September to chalk up a full twelve months of expansion.

The overall index increased to 60.4 vs. 56.7. Note: any number above 50 shows expansion.

Employment index declined to 53.4 from 55.5 in August.

The new orders index increased to 61.4 from 55.0.

Overall this was a positive report. The national ISM manufacturing index will be released tomorrow.

by Calculated Risk on 9/30/2010 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Sept. 25, the advance figure for seasonally adjusted initial claims was 453,000, a decrease of 16,000 from the previous week's revised figure of 469,000. The 4-week moving average was 458,000, a decrease of 6,250 from the previous week's revised average of 464,250.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week by 6,250 to 458,000.

The 4-week moving average has been moving sideways at an elevated level for about 10 months - and that suggests a weak job market.

by Calculated Risk on 9/29/2010 09:26:00 PM

Here are two stories we've been discussing in the comments ...

From David Streitfeld at the NY Times: JPMorgan Suspending Foreclosures

JPMorgan Chase, said it was halting 56,000 foreclosures because some of its employees might have improperly signed court documents. All of the suspensions are in the 23 states where foreclosures must be approved by a court, including New York, New Jersey, Connecticut, Florida and Illinois.

It is amazing that the servicers haven't reviewed all their procedures already ...

And from Fed Chairman Ben Bernanke: Regulatory Reform Implementation

A final element of the Federal Reserve's efforts to implement the Dodd-Frank Act relates to the transparency of our balance sheet and liquidity programs. Well before enactment, we were providing a great deal of relevant information on our website, in statistical releases, and in regular reports to the Congress. Under a framework established by the act, the Federal Reserve will, by December 1, provide detailed information regarding individual transactions conducted across a range of credit and liquidity programs over the period from December 1, 2007, to July 20, 2010. This information will include the names of counterparties, the date and dollar value of individual transactions, the terms of repayment, and other relevant information. On an ongoing basis, subject to lags specified by the Congress to protect the efficacy of the programs, the Federal Reserve also will routinely provide information regarding the identities of counterparties, amounts financed or purchased and collateral pledged for transactions under the discount window, open market operations, and emergency lending facilities.

Apparently disclosure isn't a problem now.

by Calculated Risk on 9/29/2010 05:01:00 PM

Click on graph for larger image in new window.

Fannie Mae reported today that the rate of serious delinquencies - at least 90 days behind - for conventional loans in its single-family guarantee business decreased to 4.82% in July, down from 4.99% in June - and up from 4.17% in July 2009.

"Includes seriously delinquent conventional single-family loans as a percent of the total number of conventional single-family loans."

The second graph is for the delinquency rate for Freddie Mac. The rate declined to 3.83% in August (Freddie reports a month quicker than Fannie), from 3.89% in July.

Some of the rapid increase last year was probably because of foreclosure moratoriums, and distortions from modification programs because loans in trial mods were considered delinquent until the modifications were made permanent.

More modifications have become permanent and no longer counted as delinquent, and Fannie Mae and Freddie Mac are foreclosing again (they have a record number of REOs) - so there has been a decline in the delinquency rate.

by Calculated Risk on 9/29/2010 01:31:00 PM

I cautioned that today was Fed speech day! Boston Fed president Eric Rosengren is currently a voting member of the FOMC ...

From Rosengren: How Should Monetary Policy Respond to a Slow Recovery?

I’ve called this talk “How Should Monetary Policy Respond to a Slow Recovery?” My answer to that question is: vigorously, creatively, thoughtfully, and persistently, as long as we have options at our disposal. And we do have options, despite having pushed short-term rates to the zero lower bound.

On unemployment:

[T]he most recent recession is far less a reflection of dislocation in a few industries but rather reflects a general decline in almost all industries. ... in this recession there has been a peak to trough loss of employment of 5 percent or greater in construction, manufacturing, retail trade, wholesale trade, transportation, information technology, financial activities, and professional and business services. To me, this does not suggest that the driver is structural change in the economy increasing job mismatches – although no doubt some of that exists – but instead I see here a widespread decline in demand across most industries.

And on QE2:

Now I’d like to make a few observations on Fed purchases of Treasury securities.

First, the positives: Purchases of long-term Treasury securities are likely to push down long-term interest rates on Treasury bonds, but also are likely to reduce rates on other long-term securities. Some have argued that it would be difficult to reduce Treasury rates further, but Figure 13 highlights, importantly, that U.S. Treasury rates are still well above the zero bound, roughly equivalent to rates in Germany, and well above long-term rates in Japan.

Now some concerns: While purchases of Treasury securities have the advantage of not directly “allocating credit” to a particular industry, they have the disadvantage of only indirectly affecting the private borrowing rates that more directly affect private investment spending. In addition, Treasury purchases raise for some a concern that the Fed intends to monetize the federal debt, using monetary policy to accommodate the financing of fiscal policy. I can assure you that we have no desire or intention whatsoever to do so.

While lower long-term rates are likely the primary channel through which asset purchases would influence the economy, purchases of Treasury or mortgage-backed securities also expand the Federal Reserve’s balance sheet and increase the amount of reserves in the financial system. This expansion of reserves might serve as an effective signal that highlights the determination of the Federal Reserve to reduce disinflationary pressures.

Certainly, views on securities purchases differ within the ranks of policymakers and all manner of observers. I would just reiterate that it is important to keep firmly in mind the goal of such purchases: to stimulate the economy by reducing long-term interest rates to a level that is more consistent with where they would be, were we able to further reduce the federal funds rate.

And his conclusion:

While the economy is growing, it is currently growing too slowly to significantly reduce the unemployment rate or stem disinflationary pressures created by the high degree of slack in the economy. While fiscal policies may be the most effective way to stimulate the economy when short-term interest rates approach the zero bound, unconventional monetary policies provide additional policy options. Of course, policymakers need to carefully weigh the benefits and costs of unconventional monetary policy – some of which I have tried to share with you today. Yet all in all, my firm view is that it is important that policymakers be open to implementing policies consistent with achieving full employment, and an appropriate level of inflation, within a reasonable time frame.

There is much more in this speech.

by Calculated Risk on 9/29/2010 12:49:00 PM

With QE2 arriving on November 3rd - barring an upside surprise in the economic data - it is interesting to hear the views of the Fed presidents.

From Philadelphia Fed President Charles Plosser: Economic Outlook. On QE2:

[I]t is difficult, in my view, to see how additional asset purchases by the Fed, even if they move interest rates on long-term bonds down by 10 or 20 basis points, will have much impact on the near-term outlook for employment. Sending a signal that monetary policymakers are taking actions in an attempt to directly affect the near-term path of the unemployment rate, and then for those actions to have no demonstrable effects, would hurt the Fed’s credibility and possibly erode the effectiveness of our future actions to ensure price stability. It also risks leading the public to believe that the Fed is seeking to monetize the deficit and make it more difficult to return to normal policy when the time comes.

And on the outlook:

While the near-term outlook has softened a bit, I expect growth in the national economy to be around 3 to 3½ percent over the next two years, with stronger business spending on equipment and software, moderate growth of consumer spending, and gradual improvement in household balance sheets.

The unemployment rate continues to be one of the biggest challenges our economy faces. Although unemployment will begin to decline gradually, it will take some time for it to return to its long-run level. As the economy strengthens and firms become convinced that the recovery is sustainable, hiring will pick up over the rest of this year and in 2011. But it may take even longer to address the sectoral, geographic, and skill imbalances that seem to plague the labor markets.

I expect inflation to remain subdued. As long as inflation expectations remain well anchored, I see little risk of a period of sustained deflation.

Although I agree that there will be some geographic and skill mismatches going forward because of the housing bubble - I don't think that is the main problem impacting the labor markets right now. There are many highly skilled people currently unemployed in many sectors - so Plosser's view appears incorrect.

I'm surprised that Plosser is sticking with his optimistic (so far wrong) economic outlook. Right now Plosser is an alternate member of the FOMC and next year he will be a voting member (along with several other Fed presidents with similar views).

by Calculated Risk on 9/29/2010 10:31:00 AM

Minneapolis Federal Reserve President Narayana Kocherlakota spoke in London today. He has been one of more optimistic Fed presidents, and he revised down his forecast today ...

From Kocherlakota: Economic Outlook and the Current Tools of Monetary Policy

Our September estimates are distinctly lower than our August estimates. I now expect GDP growth to be around 2.4 percent in the second half of 2010 and around 2.5 percent in 2011.
...
From the fourth quarter of 2009 through the second quarter of 2010, the change in the PCE price level was just over 0.5 percent, which works out to an annual rate of just over 1 percent. ... I expect inflation to remain at about this level during the rest of this year. However, our Minneapolis forecasting model predicts that it will rise back into the more desirable 1.5-2 percent range in 2011.
...
To summarize: GDP is growing, but more slowly than I expected or than we would like. Inflation is a little low, but only temporarily. The behavior of unemployment is deeply troubling.

This still seems too optimistic, but he is moving in the right direction.

And on the coming QE2:

My own guess is that further uses of QE would have a more muted effect on Treasury term premia. Financial markets are functioning much better in late 2010 than they were in early 2009. As a result, the relevant spreads are lower, and I suspect that it will be somewhat more challenging for the Fed to impact them.

Kocherlakota is currently an alternate member of the FOMC and will be a voting member next year. It is interesting that certain Fed presidents are now revising down their overly optimistic forecasts - all but guaranteeing QE2 (even if he thinks it will have little impact).

by Calculated Risk on 9/29/2010 10:02:00 AM

The Census Bureau released the weekly payroll data for the week ending September 18th today (ht Bob_in_MA).

If we subtract the number of temporary 2010 Census workers in the week containing the 12th of the month, from the same week for the previous month - this provides a close estimate for the impact of the Census hiring on payroll employment.

The Census Bureau releases the actual number with the employment report.

Click on graph for larger image in new window.

This graph shows the number of Census workers paid each week. The red labels are the weeks of the BLS payroll survey.

The Census payroll decreased from 83,955 for the week ending August 14th to 6,038 for the week ending September 18th.

So my estimate for the impact of the Census on September payroll employment is minus 78 thousand (this will probably be close). The employment report will be released on October 8th, and the headline number for September - including Census numbers - will probably be close to zero. But a key number will be the hiring ex-Census (so we will add back the Census workers again this month).

The following table compares the weekly payroll report estimate to the monthly BLS report on Census hiring - this shows the estimate is usually very close:

	Payroll, Weekly Pay Period	Payroll, Monthly BLS	Change based on weekly report	Actual Change (monthly)
Jan	25	24
Feb	41	39	16	15
Mar	96	87	55	48
Apr	156	154	61	67
May	574	564	418	410
Jun	344	339	-230	-225
Jul	200	196	-144	-143
Aug	84	82	-116	-114
Sep	6		-78
All thousands

There are very few temporary decennial workers left on the payroll, and this month marks the end of the weekly payroll report from the Census Bureau: "These data will continue through the end of September with the last release of data being the week of Sept. 26-Oct. 2."

I'll have more on the September employment report (due Oct 8th) this Sunday in the weekly schedule.

by Calculated Risk on 9/29/2010 07:34:00 AM

The MBA reports: Mortgage Refinance Applications Decrease Despite Decline in Rates in Latest MBA Weekly Survey

The Refinance Index decreased 1.6 percent from the previous week, which is the fourth straight weekly decrease. The seasonally adjusted Purchase Index increased 2.4 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.38 percent from 4.44 percent, with points increasing to 1.01 from 0.81 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The 30-year contract rate is a new low for this survey. The previous low was 4.43 percent for the week ending August 27, 2010.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Purchase applications have increased slightly from the lows in July and are at about the same level is in 1996 or 1997. This suggests existing home sales (closed transactions) in September, October, and even November will not be much above the August sales rate.

by Calculated Risk on 9/28/2010 07:56:00 PM

From the American Trucking Association: ATA Truck Tonnage Index Plunged 2.7 Percent in August

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 2.7 percent in August, which was the largest month-to-month decrease since March 2009. The latest drop lowered the SA index from 110 (2000=100) in July to 106.9 in August.
...
Compared with August 2009, SA tonnage climbed 2.9 percent, which was well below July’s 7.4 percent year-over-year gain. Year-to-date, tonnage is up 6.2 percent compared with the same period in 2009.

ATA Chief Economist Bob Costello said that August’s data highlights that the economy, while still growing, is slowing. “We fully anticipate sluggish economic growth for the remainder of this year and the latest tonnage numbers are reflecting that slowdown.”

This graph from the ATA shows the Truck Tonnage Index since Jan 2006 (no larger image).