by Calculated Risk on 2/04/2013 11:11:00 AM

I was going to write about this since I'm asked about a "bond bubble" all the time - but Neil Irwin at the WaPo beat me too it: No, there probably isn’t a bond bubble

One peculiar legacy of the financial crisis is that, among the financial commentariat, there is a tendency to see a bubble whenever the market for a particular asset rises.

Yes - people see bubbles everywhere!

[N]o bubble fears are as widespread as the conviction that the markets for government bonds—in the United States in particular, but also in many other nations. It almost passes as a mark of seriousness to argue that Treasuries are the next big bubble to pop, the biggest in a long series that also included the stock market bubble of the late 1990s and the housing and mortgage securities bubble of the 2000s.

That kind of talk particular heats up whenever bond prices start to fall a bit, as they have in the last few weeks. (The phrase “bond bubble” appeared in major world publications included in the Nexis database 28 times in January—up from two in January 2012). And it is true that bonds have been in a remarkable 30 year rally, their prices climbing as interest rates have fallen almost constantly since the early 1980s.

It’s certainly true that bond prices could fall (and, conversely, longer-term interest rates rise). On balance, that is more likely to be for good reasons–because the economy is getting back on track–than for bad reasons, like inflation getting out of control.

But I’m not particularly worried that Treasury bonds are a bubble about to pop. Here’s why.

The first, and simplest reason to be skeptical of the bond bubble story is this: What defines a bubble is people buying an asset at ever-rising prices for speculative reasons, not based on the fundamental value of the asset, but because they are assuming somebody else will buy it at a higher price. I see no evidence of this behavior by buyers of Treasury bonds.

This reminds me of discussions we had back in 2005 about "what is a bubble"? Back then we were discussing the housing bubble (See: Housing: Speculation is the Key). Here is what I wrote about housing in April 2005:

I have taken to calling the housing market a "bubble". But how do I define a bubble?

A bubble requires both overvaluation based on fundamentals and speculation. It is natural to focus on an asset’s fundamental value, but the real key for detecting a bubble is speculation - the topic of this post. Speculation tends to chase appreciating assets, and then speculation begets more speculation, until finally, for some reason that will become obvious to all in hindsight, the "bubble" bursts.

With bonds, I don't see speculation, significant leveraged buying, "storage" or any of the other factors that defined a housing "bubble". I think Irwin is correct - there is no bond bubble, and when bond prices eventually fall (and interest rates rise) it will most likely "be for good reasons–because the economy is getting back on track".

by Calculated Risk on 2/04/2013 09:09:00 AM

CR Note: the following comments and table are from economist Tom Lawler.

This table is for many of the public home builders as of Dec 2012.

This shows that combined net order are up 37% compared to Q4 2011. As Lawler notes, the combined backlog is up 57.1%!

From Tom Lawler:

The combined order backlog of these companies at the end of 2012 was 26,638, up 57.1% from the end of 2011.

While not all builders comment on pricing trends, those that do have reported increased prices, “pricing power,” and/or lower incentives/price concessions.

As one builder noted, “being able to sell homes at a price that is higher than what it costs to build them is ‘sweet’.”

	Net Orders			Settlements			Average Closing Price
Qtr. Ended:	Dec 2012	Dec 2011	% Chg	Dec 2012	Dec 2011	% Chg	Dec 2012	Dec 2011	% Chg
D.R. Horton	5,259	3,794	38.6%	5,182	4,118	25.8%	$236,067	$214,740	9.9%
PulteGroup	3,926	3,084	27.3%	5,154	4,303	19.8%	$287,000	$271,000	5.9%
NVR	2,625	2,158	21.6%	2,788	2,391	16.6%	$331,900	$304,600	9.0%
The Ryland Group	1,502	915	64.2%	1,578	1,040	51.7%	$270,000	$254,000	6.3%
Standard Pacific	983	615	59.8%	973	782	24.4%	$388,000	$374,000	3.7%
Meritage Homes	1,094	749	46.1%	1,240	894	38.7%	$294,000	$275,000	6.9%
MDC Holdings	869	523	66.2%	1,221	792	54.2%	$318,700	$291,300	9.4%
M/I Homes	673	505	33.3%	887	667	33.0%	$273,000	$257,000	6.2%
Total	16,931	12,343	37.2%	19,023	14,987	26.9%	$285,300	$265,785	7.3%

by Calculated Risk on 2/03/2013 10:04:00 PM

Monday:
• At 10:00 AM ET, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for December. The consensus is for a 2.2% increase in orders.

• At 2:00 PM, The January 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve. This might show some slight loosening in lending standards.

Weekend:
• Summary for Week Ending Feb 1st
• Schedule for Week of Feb 3rd

The Asian markets are green tonight with the Nikkei up 0.5%, and the Shanghai Composite index is up 0.4%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are up slightly and DOW futures are up 10.

Oil prices have moved up recently WTI futures at $97.58 per barrel and Brent at $116.62 per barrel. Gasoline prices are up 20 cents over the last couple of weeks.

Below is a graph from Gasbuddy.com showing the recent increase in gasoline prices.

If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 2/03/2013 02:32:00 PM

From the National Restaurant Association: December RPI declines due to softer sales, traffic

Due in large part to softer same-store sales and customer traffic levels, the National Restaurant Association's Restaurant Performance Index (RPI) declined in December. The RPI stood at 99.7 in December, down 0.2 percent from November, marking the third consecutive month in which the RPI stood below 100, which signifies contraction in the index of key industry indicators.

“Although restaurant operators reported softer same-store sales and customer traffic levels in December, they are cautiously optimistic about sales growth in the months ahead,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “However, operators remain decidedly pessimistic about the overall economy, with only 17 percent saying they expect business conditions to improve in the next six months.”
...
The Current Situation Index stood at 99.1 in December - down 0.7 percent from November and the lowest level in nearly two years. Although restaurant operators reported net positive same-store sales for the 19th consecutive month, December's results were much softer than the November performance.

Click on graph for larger image.

The index declined to 99.7 in December, down from 99.9 in November (below 100 indicates contraction).

Restaurant spending is discretionary, so even though this is "D-list" data, I like to check it every month.

Earlier:
• Summary for Week Ending Feb 1st
• Schedule for Week of Feb 3rd

by Calculated Risk on 2/03/2013 10:20:00 AM

Earlier employment posts:
• January Employment Report: 157,000 Jobs, 7.9% Unemployment Rate
• Employment Report Comments and more Graphs
• All Employment Graphs

A few more employment graphs ...

Duration of Unemployment
This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

The general trend is down for all categories, but only the less than 5 weeks is back to normal levels.

The the long term unemployed is at 3.0% of the labor force - and the number (and percent) of long term unemployed remains a serious problem.

Unemployment by Education
This graph shows the unemployment rate by four levels of education (all groups are 25 years and older).

Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down.

Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment (all four categories are only gradually declining).

Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".

Diffusion Indexes
This is a little more technical. The BLS diffusion index for total private employment was at 59.6 in January, down from 64.5 in December. For manufacturing, the diffusion index decreased to 48.1, down from 54.9 in December.

Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. From the BLS:

Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.

Job growth for total private employment was fairly widespread in January, but not as much for manufacturing.  Still the total private diffusion index is at a reasonable level.

Earlier:
• Summary for Week Ending Feb 1st
• Schedule for Week of Feb 3rd

by Calculated Risk on 2/02/2013 04:21:00 PM

Here is the unofficial problem bank list for Feb 1, 2013.

Changes and comments from surferdude808:

No failures this week as it looks like the FDIC will be watching the Super Bowl instead of determining insured depositors.

There were three removals this week from the Unofficial Problem Bank List. The removals leave the list at 822 institutions with assets of $308 billion. A year ago, the list held 958 institutions with assets of $389.6 billion.

The Federal Reserve terminated actions against Security Financial Bank, Durand, WI ($314 million) and Oregon Community Bank & Trust, Oregon, WI ($161 million). The other removal was Community Bank, Staunton, VA ($490 million Ticker: CFFC), which merged on an unassisted basis. Next week should be as quiet as the OCC will likely wait until the week of February 15th to release its actions through mid-January 2013.

Earlier:
• Summary for Week Ending Feb 1st
• Schedule for Week of Feb 3rd

by Calculated Risk on 2/02/2013 01:11:00 PM

Earlier:
• Summary for Week Ending Feb 1st

This will be a light week for economic data. The key report for this week will be the December trade balance report on Friday.

Also the Fed's January Senior Loan Officer Survey will be released on Monday, and the ISM service index will be released on Tuesday.

----- Monday, Feb 4th -----
10:00 AM: Manufacturers' Shipments, Inventories and Orders (Factory Orders) for December. The consensus is for a 2.2% increase in orders.

2:00 PM: The January 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve.  This might show some slight loosening in lending standards.

----- Tuesday, Feb 5th -----
10:00 AM: ISM non-Manufacturing Index for January. The consensus is for a decrease to 55.0 from 55.7 in December. Note: Above 50 indicates expansion, below 50 contraction.

10:00 AM: Trulia Price Rent Monitors for January. This is the index from Trulia that uses asking prices adjusted both for the mix of homes listed for sale and for seasonal factors.

----- Wednesday, Feb 6th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

----- Thursday, Feb 7th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 360 thousand from 368 thousand last week.

3:00 PM: Consumer Credit for December from the Federal Reserve. The consensus is for credit to increase $14.5 billion in December.

----- Friday, Feb 8th -----
8:30 AM: Trade Balance report for December from the Census Bureau.

Both exports and imports increased in November. US trade has slowed recently.

The consensus is for the U.S. trade deficit to decrease to $46.0 billion in December from $48.7 billion in November.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for December. The consensus is for a 0.3% increase in inventories.

by Calculated Risk on 2/02/2013 08:01:00 AM

The big story of the week was the negative print for Q4 GDP. However the underlying details were better than the headline number and most analyst shrugged off the slight contraction as a combination of "one-off drags". And we are already starting to see upgraded forecasts for Q1 2013. As an example, from Jan Hatzius at Goldman Sachs: 

"We now expect a rebound in real GDP growth to 2.6% in Q1 as the one-off drags unwind."

The headline number for the employment report was a little below expectations, but the upward revisions to previous months more than offset the disappointment. November was revised up from +161,000 to +247,000 jobs added, and December was revised up from +155,000 to +196,000. Over the last 3 months, the economy has averaged 200,000 jobs per month - and that was above expectations.

For manufacturing, the ISM index was solidly above expectations, and the underlying details were also positive.  As an example, the new orders index was at 53.3%, up from 49.7% in December (above 50 is expansion).  This was much better than the regional surveys indicated.

Other positives includes construction spending (up solidly in December with upward revisions for prior months), and January auto sales (off to a solid start in 2013).

Overall the data still suggests sluggish growth.  There will probably be more drag from the payroll tax hike - and possibly the "sequestration" cuts, but it appears the outlook is improving.

And here is a summary of last week in graphs:

• January Employment Report: 157,000 Jobs, 7.9% Unemployment Rate

Click on graph for larger image.

From the BLS:

Total nonfarm payroll employment increased by 157,000 in January, and the unemployment rate was essentially unchanged at 7.9 percent
...
The change in total nonfarm payroll employment for November was revised from +161,000 to +247,000, and the change for December was revised from +155,000 to +196,000

[Benchmark revision:] The total nonfarm employment level for March 2012 was revised upward by 422,000 (424,000 on a not seasonally adjusted basis).

The headline number was below expectations of 185,000. However employment for November and December were revised up sharply.

This graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

This was another sluggish growth employment report, but with strong upward revisions to prior months.

All Employment Graphs
• Real GDP decreased 0.1% Annualized in Q4

The Q4 GDP report was negative, with a 0.1% annualized decline in real GDP, and lower than the expected 1.0% annualized increase. Final demand increased in Q4 as personal consumption expenditures (PCE) increased at a 2.2% annual rate (up from 1.6% in Q3), and residential investment increased at a 15.3% annual rate (up from 13.5% in Q3). 

The slight decline in GDP was related to changes in private inventories (subtracted 1.27 percentage points), less Federal Government spending (subtracted 1.25 percentage points), and a negative contribution from trade (subtracted 0.25 percentage points).

Overall this was a weak report, but with some underlying positives (the increase in PCE and private fixed investment).  I expect the payroll tax increase to slow PCE growth in the first half of 2013 - and for additional government austerity - but I think the economy will continue to grow this year.

The following graph shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.


Residential Investment (RI) made a positive contribution to GDP in Q4 for the seventh consecutive quarter. Usually residential investment leads the economy, but that didn't happen this time because of the huge overhang of existing inventory, but now RI is contributing. The good news: Residential investment has clearly bottomed.

The contribution from RI will probably continue to be sluggish compared to previous recoveries, but the ongoing positive contribution to GDP is a significant story.

Equipment and software investment increased solidly in Q4, after decreasing in Q3. This followed twelve consecutive quarters with a positive contribution.

The contribution from nonresidential investment in structures was slightly negative in Q4. Nonresidential investment in structures typically lags the recovery, however investment in energy and power has masked the ongoing weakness in office, mall and hotel investment (the underlying details will be released next week).

Residential Investment as a percent of GDP is up from the record lows during the housing bust. Usually RI bounces back quickly following a recession, but this time there is a wide bottom because of the excess supply of existing vacant housing units.

In 2011, the increase in RI was mostly from multifamily and home improvement investment. Now the increase is from most categories including single family. I'll break down Residential Investment (RI) into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The key story is that residential investment is continuing to increase, and I expect this to continue. Since RI is the best leading indicator for the economy, this suggests no recession this year or in 2014.

• Case-Shiller: House Prices increased 5.5% year-over-year in November

S&P/Case-Shiller released the monthly Home Price Indices for November (a 3 month average of September, October and November).

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 30.7% from the peak, and up 0.5% in November (SA). The Composite 10 is up 5.3% from the post bubble low set in March (SA).

The Composite 20 index is off 29.8% from the peak, and up 0.6% (SA) in November. The Composite 20 is up 6.0% from the post-bubble low set in March (SA).

The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 4.5% compared to November 2011.

The Composite 20 SA is up 5.5% compared to November 2011. This was the sixth consecutive month with a year-over-year gain since 2010 (when the tax credit boosted prices temporarily).  This was the largest year-over-year gain for the Composite 20 index since 2006.

This was slightly below the consensus forecast for a 5.8% YoY increase.

• ISM Manufacturing index increases in January to 53.1

The ISM manufacturing index indicated expansion in January. PMI was at 53.1% in January, up from 50.2% in December. The employment index was at 54.0%, up from 51.9%, and the new orders index was at 53.3%, up from 49.7% in December.

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

This was above expectations of 50.7% and suggests manufacturing expanded in January.

• Construction Spending increased in December

There are a few key themes:
1) Private residential construction is usually the largest category for construction spending, but there was a huge collapse in spending following the housing bubble (as expected).  This is now the largest category once again.  Usually private residential construction leads the economy, so this is a good sign going forward.

2) Private non-residential construction spending usually lags the economy.  There was some increase this time, mostly related to energy and power - but the key sectors of office, retail and hotels are still at very low levels.

3) Public construction spending has declined to 2006 levels (not adjusted for inflation).  This has been a drag on the economy for 3+ years.

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

Private residential spending is 54% below the peak in early 2006, and up 39% from the post-bubble low. Non-residential spending is 26% below the peak in January 2008, and up about 35% from the recent low.

Public construction spending is now 17% below the peak in March 2009 and at the lowest level since 2006 (not inflation adjusted).

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 24%. Non-residential spending is up 8% year-over-year mostly due to energy spending (power and electric). Public spending is down 6% year-over-year.

This was a fairly strong report - except for public construction spending - and this report suggests an upward revision to Q4 GDP.

All Housing Investment and Construction Graphs
• U.S. Light Vehicle Sales at 15.3 million annual rate in January

Based on an estimate from AutoData Corp, light vehicle sales were at a 15.29 million SAAR in January. That is up 10% from January 2012, and down slightly from the sales rate last month.

This was at the consensus forecast of 15.3 million SAAR (seasonally adjusted annual rate).  

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for January (red, light vehicle sales of 15.29 million SAAR from AutoData).

This is a solid start to the new year.    After three consecutive years of double digit auto sales growth, the growth rate will probably slow in 2013 - but this will still be another positive year for the auto industry.

Even if sales average this rate all year, sales would be up about 6% from 2012.

• Weekly Initial Unemployment Claims increased to 368,000

From the DOL "In the week ending January 26, the advance figure for seasonally adjusted initial claims was 368,000, an increase of 38,000 from the previous week's unrevised figure of 330,000. The 4-week moving average was 352,000, an increase of 250 from the previous week's unrevised average of 351,750."

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased slightly to 352,000.

Weekly claims were above the 350,000 consensus forecast, however the 4-week average is near the levels of early 2008.

by Calculated Risk on 2/01/2013 07:05:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined in December to 3.29% from 3.30% in November. The serious delinquency rate is down from 3.91% in December 2011, and this is the lowest level since March 2009.

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Freddie Mac reported that the Single-Family serious delinquency rate was unchanged in December at 3.25%. Freddie's rate is down from 3.58% in December 2011, and this is the lowest level since August 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Click on graph for larger image

In 2009, Fannie's serious delinquency rate increased faster than Freddie's rate. Since then, Fannie's rate has been falling faster - and now the rates are at about the same level.

Although this indicates some progress, the "normal" serious delinquency rate is under 1%.  At the recent pace, it will take a number of years until the rates are back to normal.

by Calculated Risk on 2/01/2013 04:00:00 PM

Based on an estimate from AutoData Corp, light vehicle sales were at a 15.29 million SAAR in January. That is up 10% from January 2012, and down slightly from the sales rate last month.

This was at the consensus forecast of 15.3 million SAAR (seasonally adjusted annual rate).  

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for January (red, light vehicle sales of 15.29 million SAAR from AutoData).

Click on graph for larger image.

This is a solid start to the new year.    After three consecutive years of double digit auto sales growth, the growth rate will probably slow in 2013 - but this will still be another positive year for the auto industry.

Even if sales average this rate all year, sales would be up about 6% from 2012.

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

Note: dashed line is current estimated sales rate.

This shows the huge collapse in sales in the 2007 recession, and that sales have increased significantly from the bottom.

by Calculated Risk on 2/01/2013 02:31:00 PM

Catching up ...

There are a few key themes:
1) Private residential construction is usually the largest category for construction spending, but there was a huge collapse in spending following the housing bubble (as expected).  This is now the largest category once again.  Usually private residential construction leads the economy, so this is a good sign going forward.

2) Private non-residential construction spending usually lags the economy.  There was some increase this time, mostly related to energy and power - but the key sectors of office, retail and hotels are still at very low levels.

3) Public construction spending has declined to 2006 levels (not adjusted for inflation).  This has been a drag on the economy for 3+ years.

The Census Bureau reported that overall construction spending increased in December:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during December 2012 was estimated at a seasonally adjusted annual rate of $885.0 billion, 0.9 percent above the revised November estimate of $876.9 billion. The December figure is 7.8 percent above the December 2011 estimate of $820.6 billion.

The value of construction in 2012 was $850.2 billion, 9.2 percent above the $778.2 billion spent in 2011.

Private construction spending increased, but public construction spending declined:

Spending on private construction was at a seasonally adjusted annual rate of $614.9 billion, 2.0 percent above the revised November estimate of $602.9 billion. ...

In December, the estimated seasonally adjusted annual rate of public construction spending was $270.1 billion, 1.4 percent below the revised November estimate of $274.1 billion.

Click on graph for larger image.

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

Private residential spending is 54% below the peak in early 2006, and up 39% from the post-bubble low. Non-residential spending is 26% below the peak in January 2008, and up about 35% from the recent low.

Public construction spending is now 17% below the peak in March 2009 and at the lowest level since 2006 (not inflation adjusted).

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 24%. Non-residential spending is up 8% year-over-year mostly due to energy spending (power and electric). Public spending is down 6% year-over-year.

This was a fairly strong report - except for public construction spending - and this report suggests an upward revision to Q4 GDP.

All Housing Investment and Construction Graphs

by Calculated Risk on 2/01/2013 12:25:00 PM

First, here is a table of the change in payroll employment on an annual basis including the benchmark revision released today. For private employment, 2011 was the best year this decade (2012 was the 3rd best year), but public payrolls have seen a four year decline:

Annual Change Payroll Employment (000s)
	Private	Public	Total
2001	-2,308	551	-1,757
2002	-765	233	-532
2003	104	-42	62
2004	1,872	147	2,019
2005	2,298	186	2,484
2006	1,862	209	2,071
2007	827	288	1,115
2008	-3,797	180	-3,617
2009	-4,976	-76	-5,052
2010	1,235	-213	1,022
2011	2,420	-317	2,103
2012	2,247	-77	2,170

The headline number for January (157 thousand jobs added) was below expectations, and the unemployment rate was higher than expected.  However the revisions (benchmark and new seasonal factors) were positive.  The unemployment rate is from the household survey, and the household survey was weak - but that survey is very volatile. 

Hopefully employment growth will pick up some in 2013, although austerity probably means another year of sluggish growth.  Below are a several more graphs ... The first graph below shows the employment-population ratio for the 25 to 54 age group. This has been moving sideways lately, and that shows the labor market is still weak.

Employment-Population Ratio, 25 to 54 years old

Click on graph for larger image.

Since the participation rate has declined recently due to cyclical (recession) and demographic (aging population) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the employment-population ratio for this group was trending up as women joined the labor force. The ratio has been mostly moving sideways since the early '90s, with ups and downs related to the business cycle.

This ratio should probably move close to 80% as the economy recovers. The ratio decreased in January to 75.7% from 75.7% in December. This has generally been trending up - although the improvement stalled in 2012 - and the ratio is still very low.

Percent Job Losses During Recessions


This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses.

In the earlier post, the graph showed the job losses aligned at the start of the employment recession.

This financial crisis recession was much deeper than other post WWII recessions, and the recovery has been slower (the recovery from the 2001 recession was slow too). However, if we compare to other financial crisis recoveries, this recovery has actually been better than most.

Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons, at 8.0 million, changed little in January. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of part time workers increased in January to 7.97 million from 7.92 million in December.

These workers are included in the alternate measure of labor underutilization (U-6) that was unchanged at 14.4% in December.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 4.71 million workers who have been unemployed for more than 26 weeks and still want a job. This was down slightly from 4.77 million in December, and is at the lowest level since June 2009. This is generally trending down, but is still very high. Long term unemployment remains one of the key labor problems in the US.

State and Local Government

This graph shows total state and government payroll employment since January 2007. State and local governments lost 129,000 jobs in 2009, 262,000 in 2010, and 239,000 in 2011. In 2012, state and local government employment declined by 32,000 jobs.

In January 2013, state and local governments lost another 4,000 jobs.

It appears most of the state and local government layoffs are over, however state and local government employment is still trending down slightly.

Of course the Federal government layoffs are ongoing with another 5,000 jobs lost in January.

Overall this report suggests sluggish employment growth in the private sector.

All Employment Graphs

by Calculated Risk on 2/01/2013 10:00:00 AM

Note: I'll have much more on the employment report soon.

The ISM manufacturing index indicated expansion in January. PMI was at 53.1% in January, up from 50.2% in December. The employment index was at 54.0%, up from 51.9%, and the new orders index was at 53.3%, up from 49.7% in December.

From the Institute for Supply Management: January 2013 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in January for the second consecutive month, and the overall economy grew for the 44th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

Click on graph for larger image.

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

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI™ registered 53.1 percent, an increase of 2.9 percentage points from December's seasonally adjusted reading of 50.2 percent, indicating expansion in manufacturing for the second consecutive month. The New Orders Index registered 53.3 percent, an increase of 3.6 percent over December's seasonally adjusted reading of 49.7 percent, indicating growth in new orders. Manufacturing is starting out the year on a positive note, with all five of the PMI™'s component indexes — new orders, production, employment, supplier deliveries and inventories — registering above 50 percent in January."

This was above expectations of 50.7% and suggests manufacturing expanded in January.

Final consumer sentiment for January:

The final Reuters / University of Michigan consumer sentiment index for January increased to 73.8 from the preliminary reading of 71.3, and from the December reading of 72.9.

This was above the consensus forecast of 71.5. There are a number of factors that can impact sentiment including unemployment, gasoline prices and other concerns - and, for January, the payroll tax increase and more. The slight improvement might be related to relief that politics didn't damage the economy.

by Calculated Risk on 2/01/2013 08:32:00 AM

From the BLS:

Total nonfarm payroll employment increased by 157,000 in January, and the unemployment rate was essentially unchanged at 7.9 percent
...
The change in total nonfarm payroll employment for November was revised from +161,000 to +247,000, and the change for December was revised from +155,000 to +196,000

[Benchmark revision:] The total nonfarm employment level for March 2012 was revised upward by 422,000 (424,000 on a not seasonally adjusted basis).

Click on graph for larger image.

The headline number was below expectations of 185,000. However employment for November and December were revised up sharply.

The second graph shows the unemployment rate.

The unemployment rate increased slightly to 7.9% from 7.8% in December.

The unemployment rate is from the household report and the household report showed only a small increase in employment.


The third graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate was unchanged at 63.6% in January (blue line. This is the percentage of the working age population in the labor force.

The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although a significant portion of the recent decline is due to demographics.


The Employment-Population ratio was also unchanged at 58.6% in January (black line). I'll post the 25 to 54 age group employment-population ratio graph later.


The fourth graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

This was another sluggish growth employment report, but with strong upward revisions to prior months.  I'll have much more later ...

by Calculated Risk on 1/31/2013 08:56:00 PM

Earlier I posted Employment Situation Preview. I argued some of recent employment indicators suggest a more positive report. Here are some other views:

From CNBC: Market Braces for a Blah Jobs Report as Firms Hold Back

Economists expect 160,000 non-farm payrolls were added in January and the unemployment rate stayed unchanged at 7.8 percent, according to Thomson Reuters.

From Neil Irwin at the WaPo: What to expect from Friday’s jobs report

And an Interesting Anecdote from Tim Duy:

One of the more interesting anecdotes I picked up last week was from a businessman who said that after his firm issued the first paychecks of the year, virtually every employee came to the payroll office and asked why their paychecks were lower, evidently unaware that the payroll tax cut had expired.

If the expiration does come as a surprise to a large proportion of the workforce, perhaps consumer spending in the first quarter will be somewhat softer than current estimates. Something to watch for.

Friday economic releases:
• At 8:30 AM ET, the Employment Report for January will be released. The consensus is for an increase of 185,000 non-farm payroll jobs in January; there were also 155,000 jobs added in December. The consensus is for the unemployment rate to decrease to 7.7% in January.

Note: As usual, the January report will include revisions. From the BLS: "the Current Employment Statistics (CES) survey will introduce revisions to nonfarm payroll employment, hours, and earnings data to reflect the annual benchmark adjustment for March 2012 and updated seasonal adjustment factors. Not seasonally adjusted data beginning with April 2011 and seasonally adjusted data beginning with January 2008 are subject to revision."

For the Household survey, from the BLS: "Effective with the release of The Employment Situation for January 2013, scheduled for February 1, 2013, new population controls will be used in the monthly household survey estimation process."

• At 9:00 AM, The Markit US PMI Manufacturing Index. The consensus is for an increase to 55.5, up from 54.0.

• At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (final for January) will be released. The consensus is for a reading of 71.5, up from 71.3.

• At 10:00 AM, the ISM Manufacturing Index for January. The consensus is for PMI to be unchanged at 50.7%. (above 50 is expansion).

• Also at 10:00 AM, Construction Spending for December. The consensus is for a 0.8% increase in construction spending.

• All day: Light vehicle sales for January. The consensus is for light vehicle sales to be at 15.3 million SAAR in January (Seasonally Adjusted Annual Rate) unchanged from the December rate. Usually I post a graph around 4 PM ET.

by Calculated Risk on 1/31/2013 05:05:00 PM

LPS released their Mortgage Monitor report for December today. According to LPS, 7.17% of mortgages were delinquent in December, up from 7.12% in November, and down from 7.89% in December 2011.

LPS reports that 3.44% of mortgages were in the foreclosure process, down from 3.51% in November, and down from 4.20% in December 2011.

This gives a total of 10.61% delinquent or in foreclosure. It breaks down as:

• 2,031,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,545,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 1,716,000 loans in foreclosure process.

For a total of ​​5,292,000 loans delinquent or in foreclosure in December. This is down from 6,192,000 in December 2011.

This following graph from LPS shows the total delinquent and in-foreclosure rates since 1995.

Click on graph for larger image.

Even though delinquencies were up slightly in December, it was mostly seasonal. From LPS:

The December Mortgage Monitor report released by Lender Processing Services and covering performance data for the full 2012 calendar year, found that while mortgage delinquency rates remained at elevated levels, they have shown steady improvement, ending the year 32 percent lower than the January 2010 peak. Additionally, following a year of regional improvement in foreclosure inventories (marked by stark contrasts between judicial and non-judicial foreclosure states), the national foreclosure inventory rate began to decline toward the end of 2012 from historic highs experienced during the crisis.

LPS also reported:

“Though still a long way off from the historic level of originations that preceded the mortgage crisis, 2012 was the strongest full year of originations we’ve seen since 2007,” [LPS Applied Analytics Senior Vice President Herb Blecher] said. “Volumes were up approximately 34 percent year over year, with about 8.6 million new loans originated. And, while the majority of these new loans were government-backed – 84 percent in 2012 as compared to just over 50 percent at the peak – the trend over the last four years does suggest a slowly resurgent non-agency lending market.”

The second graph from LPS shows negative equity. From LPS:

[T]his month’s Mortgage Monitor also found that 2012’s appreciation in home prices has helped to improve the U.S. equity situation and create even more refinance opportunities:

• Overall, negative equity is down 35 percent since the beginning of the year.

• Nearly 4 million loans that were below conforming loan-to-value (LTV) thresholds for refinancing last year would meet those standards today.

• An additional 3.4 million loans that are on the cusp of conforming loan-to-value thresholds stand to benefit, if the home price situation continues to improve.

This means more borrowers can either refinance or sell their homes.

There is much more in the mortgage monitor.

by Calculated Risk on 1/31/2013 02:13:00 PM

CR Note: This is from Trulia chief economist Jed Kolko:

Construction jobs are a big part of how housing recovery lifts the broader economy. But the construction rebound, so far, appears to be jobless. “Residential construction” jobs, as reported by BLS, were up just 1% in December 2012 from their lowest level since the housing bubble burst – even though new home starts in December 2012 were twice as high as their low point in 2009. Overlaying residential construction employment (monthly, in thousands, left axis) and construction starts (monthly, in thousands, right axis) data suggests a jobless housing recovery, with jobs struggling to turn around even as starts climbed sharply in 2012:

Click on graph for larger image.

Who is building all these new homes? If starts are now twice their lowest level, why aren’t residential building jobs also twice their lowest level, instead of up just 1%? The answer: this is the wrong way to look at construction jobs. It turns out that construction employment is approximately where it should be for the current level of construction activity. Here are three reasons why:

“Starts” aren’t the right measure of current construction activity. Units “under construction” is more relevant – especially now. The amount of construction activity this month depends not only on this month’s construction starts but also on construction starts in previous months. That’s because single-family construction takes 4-6 months between start and completion, and multi-unit-building construction takes 10-14 months, on average. Therefore, construction starts indicate what will happen to construction activity in the coming months – not necessarily where it is today. And, in this recovery, multi-unit buildings are an unusually high share of overall construction activity, so the typical new unit is under construction for longer, making starts an even-worse-than-usual proxy for current construction activity. Instead of starts, units “under construction” – also reported monthly by the Census – is the right measure of construction activity to compare with jobs. This changes the picture dramatically: while monthly starts in December 2012 were up 100% (that is, have doubled) since the bottom, monthly units under construction were up 32% from the bottom.

The “residential building” jobs category understates growth in residential construction jobs. The BLS “residential building” category covers general contractors and construction management firms but not subcontractors, which are covered under another category the BLS tracks, “residential specialty trade contractors.” Importantly, residential construction jobs have been shifting steadily from general contractors to specialty trade contractors throughout the boom, bust, and recovery, so the narrower “residential building construction” category understates recent growth in construction jobs. “Residential building” jobs in December 2012 were up just 1% from the bottom, while “residential specialty trade contractor” jobs were up 4%. The combined series is up 3% from the bottom. Of course, some construction workers might not be officially counted if they’re off the books, and others might work on both residential and non-residential projects and not fit neatly into one reporting category. Still, looking at both the “residential building” and “residential specialty trade contractors” gives a clearer picture than looking only at “residential building.”

Construction jobs do not move one-for-one with construction activity. Looking at the right measures over time – units under construction and the sum of the two jobs categories – jobs move up and down less than construction activity does. For every 10% increase (or decrease) in the number of units under construction, construction employment increases (or decreases) by a little more than 4%. One reason might be what economists call “labor hoarding” – firms hold onto more workers than they need in temporary downturns if the cost of firing and re-hiring is high relative to keeping them on. Therefore, firms might increase or reduce workers’ hours instead of hiring or firing. Another reason is other construction activities, like remodeling, might move differently with the business cycle than new construction and possibly even soften the ups and downs of demand for construction workers.

Overlaying these two series – “units under construction” (Census) and the sum of “residential building construction” and “residential specialty trade contractors” (BLS), we get:

Using these measures, jobs track construction activity pretty closely, with a slight lag. Taking this lag into account, a simple time-series model suggests that construction employment is now just 2% lower than it should be for the current level of construction activity.

The picture might change tomorrow in the January jobs report. As part of tomorrow’s report, the BLS will release its annual benchmark revision of previously reported employment figures. The preliminary revision announced in September suggested that employment for construction overall (including non-residential) would be revised up 1.6% for the benchmark month (March 2012). If tomorrow’s official revision to residential employment is in that range, the jobless construction recovery might not be missing any jobs at all.

What does this mean for construction employment in 2013? Suppose starts rise another 20% in 2013 relative to 2012 – a bit slower than the 28% increase in 2012 relative to 2011. Recent trends suggest that the number of units under construction should be a hair over 20% higher in December 2013 than in December 2012. Even though units under construction didn’t grow as fast as starts in 2012, much of the effect of the increase in starts in 2012 will be on construction activity in 2013, not in 2012. As a result, construction jobs – residential building plus residential specialty trade contractors – could grow 8% in 2013. The sharp increase in construction starts in 2012 should mean more construction jobs in 2013.

by Calculated Risk on 1/31/2013 11:28:00 AM

On Friday, at 8:30 AM ET, the BLS will release the employment report for January. The consensus is for an increase of 185,000 non-farm payroll jobs in January, up from the 155,000 jobs added in December. The consensus is for the unemployment rate to decline to 7.7% from 7.8% last month.

Here is a summary of recent data:

• The ADP employment report showed an increase of 198,000 private sector payroll jobs in January. This was above expectations. The ADP report hasn't been very useful in predicting the BLS report for any one month, although the methodology changed recently. In general this suggests employment growth in line or above expectations.

• The ISM manufacturing and non-manufacturing (service) indexes for January will not be released until after the employment report.  However the Chicago PMI employment index increased sharply in January to 58.0 from 46.8 in December (above 50 is expansion) and this might suggest some upside for employment.

• Initial weekly unemployment claims averaged about 351,000 in January. This is the lowest level for unemployment claims since early 2008.

For the BLS reference week (includes the 12th of the month), initial claims were at 335,000; the lowest for a reference week since January 2008.  This is positive for employment.

• The preliminary January Reuters / University of Michigan consumer sentiment index declined to 71.3, down from the December reading of 72.9. This is frequently coincident with changes in the labor market, stock market, gasoline prices and other factors such as budget uncertainty. This might suggest some decrease in employment, but I think the recent declines were related to budget threats.

• The January small business index from Intuit showed 20,000 payroll jobs added, the same number as in December. This is still very low.

• And on the unemployment rate from Gallup: Gallup finds seasonally unadjusted unemployment unchanged at 7.8%

Gallup's unadjusted unemployment rate for the U.S. workforce was 7.8% for the month of January, statistically unchanged from 7.7% at the end of December, but down from 8.6% a year ago. Gallup's seasonally adjusted unemployment rate for January was 7.3%, a 0.6-percentage-point decline from 7.9% in December.

Note: Gallup only recently has been providing a seasonally adjusted estimate for the unemployment rate, so use with caution. So far the Gallup numbers haven't been very useful in predicting the BLS unemployment rate, but this does suggest a decrease in the unemployment rate in January.

• Conclusion: Most of the employment related data was stronger in January than in December (or most of last year).  There is always some randomness to the employment report - and there are large seasonal factors for January - but I'd take the over on the headline payroll jobs number.

by Calculated Risk on 1/31/2013 09:08:00 AM

Note: Personal income jumped in December as many high income earners accelerated income into 2012 to avoid higher 2013 taxes. This pushed up personal income sharply, and also increased the savings rate. This will be reversed in the January report, and there will be a large decline in personal income on a month-to-month basis.

The BEA released the Personal Income and Outlays report for December:

Personal income increased $352.4 billion, or 2.6 percent ... in December, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $22.6 billion, or 0.2 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in December, compared with an increase of 0.6 percent in November. ... The price index for PCE decreased less than 0.1 percent in December, compared with a decrease of 0.2 percent in November. The PCE price index, excluding food and energy, increased less than 0.1 percent in December, the same increase as in November.
...
Personal saving -- DPI less personal outlays -- was $436.7 billion in November, compared with $404.6 billion in October. The personal saving rate -- personal saving as a percentage of disposable personal income -- was $805.2 billion in December, compared with $495.0 billion in November. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 6.5 percent in December, compared with 4.1 percent in November.

The following graph shows real Personal Consumption Expenditures (PCE) through December (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE.   PCE for both October and November was revised up slightly.

PCE will probably be a little weak in Q1 because of the payroll tax increase, however, I still expect PCE to increase between 1.5% to 2.0% annualized in Q1.

by Calculated Risk on 1/31/2013 08:30:00 AM

The DOL reports:

In the week ending January 26, the advance figure for seasonally adjusted initial claims was 368,000, an increase of 38,000 from the previous week's unrevised figure of 330,000. The 4-week moving average was 352,000, an increase of 250 from the previous week's unrevised average of 351,750.

The previous week was unrevised.

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


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 slightly to 352,000.

Weekly claims were above the 350,000 consensus forecast, however the 4-week average is near the levels of early 2008.