by Calculated Risk on 5/02/2011 04:19:00 PM

From Bloomberg: New Households Forming at Fastest Rate Since ’07

Millions of young adults like Webb are starting to leave their parents’ homes, creating households at the fastest rate since 2007.
...
Between 750,000 and 1 million new households will be created in 2011, predict UBS Securities LLC’s Maury Harris and IHS Global Insight’s Patrick Newport. That compares with just 357,000 added in the year ended March 2010, the lowest on record, according to the Census Bureau.

First, the 357,000 number is probably based on the Census Bureau's HVS (or perhaps the ACS) and those surveys are not designed to track household formation in real time. However I agree that household formation will probably increase sharply this year.

“On the personal ego thing, you don’t want to be 24 and living in your parents’ house,” said [Jesse Hipp, 24, who graduated from the University of Arkansas in 2009, still lives with his parents in Fayetteville, Arkansas]
...
“Most guys who live at home beyond some young age walk around with a great big L on their forehead. It is just not acceptable. As soon as these young adults get a job and keep it for some reasonable period, they are gone. As more young people feel they will be able to keep a job, bingo, they are gone.” [said demographic-trends analyst Peter Francese].

Many people doubled up or moved in to their parents' basements during the recession, and this is pent up demand for housing - well, once these people find jobs. Note: housing includes both apartments and owner occupied units, and most of these people will rent will they move out.

This reminds us that what we would like to know is 1) the number of excess housing units, 2) the rate of household formation, and 3) the net number of housing units being added to the stock.

As I mentioned on Saturday, we will get a better feel for the number of excess household units this month as the Census bureau releases more Census 2010 data (as of April 1, 2010). We already know the net number of housing units added to the stock will be at or near a record low this year. With a million new households formed this year, the excess supply of vacant housing units will be reduced significantly (but will still be high).

by Calculated Risk on 5/02/2011 02:25:00 PM

From the Fed April 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices:

The April survey indicated that, on net, bank lending standards and terms generally had eased somewhat further during the first quarter of this year, and that the demand for commercial and industrial loans (C&I) and for commercial mortgages increased, while that for residential mortgages continued to decrease.
...
Regarding changes in standards and terms on loans to households, several large banks eased lending policies on credit card and auto loans, and the net fraction of banks that reported having become more willing to make consumer installment loans rose to its highest level since the first half of 1994. Moderate net fractions of banks reported a net easing of the spreads of auto loan rates over their own cost of funds, and roughly similar fractions of large banks also eased several other terms on such loans.

Standards are still tight, but banks are more willing to make consumer loans - and C&I loan demand continues to increase.

by Calculated Risk on 5/02/2011 11:39:00 AM

The Census Bureau reported this morning that overall construction spending increased in March compared to February (seasonally adjusted).

[C]onstruction spending during March 2011 was estimated at a seasonally adjusted annual rate of $768.9 billion, 1.4 percent (±1.6%)* above the revised February estimate of $758.6 billion. The March figure is 6.7 percent (±1.8%) below the March 2010 estimate of $824.0 billion.

Private construction spending also increased in March:

Spending on private construction was at a seasonally adjusted annual rate of $476.1 billion, 2.2 percent (±1.4%) above the revised February estimate of $466.0 billion. Residential construction was at a seasonally adjusted annual rate of $229.1 billion in March, 2.6 percent (±1.3%) above the revised February estimate of $223.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $247.0 billion in March, 1.8 percent (±1.4%) above the revised February estimate of $242.7 billion.

Click on graph for larger image in graph gallery.

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

Residential spending is 66% below the peak in early 2006, and non-residential spending is 40% below the peak in January 2008.

I expect residential spending to pick up a little this year (mostly multifamily) - and residential will probably be above non-residential spending by the end of the year.

by Calculated Risk on 5/02/2011 10:00:00 AM

PMI at 60.4% in April, down from 61.2% in March. The employment index was at 62.7 and new orders at 61.7. All slightly slower than in March, but still very strong.

From the Institute for Supply Management: April 2011 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. "The recent trend of rapid growth in the manufacturing sector continued in April as the PMI registered above 60 percent for the fourth consecutive month. The New Orders and Production Indexes continue to drive the PMI, as they have both exceeded 60 percent for five consecutive months. Manufacturing employment appears to have developed significant momentum, as the Employment Index readings for the first four months of 2011 are the highest readings in the last 38 years. Inventory growth also took place in April after two months of destocking; however, the inventory restocking would appear to be necessitated by the strong performance in new orders. While the manufacturing sector is definitely performing above most expectations so far in 2011, manufacturers are experiencing significant cost pressures from commodities and other inputs."

Click on graph for larger image in new window.

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

This was a strong report and above expectations of 59.5%.

by Calculated Risk on 5/02/2011 08:40:00 AM

From the NY Times: Survey Says Small-Business Lending Is Surging (ht Sebastian)

In the third quarter of 2010, five percent of the small companies surveyed [by Greenwich Associates] applied for a loan, a share that tripled in the last three months of the year. In the first three months of 2011, the figure leaped to 29 percent. Loan demand is typically highest at the end of the year, according to Marc Bernstein, the head of small-business banking for Wells Fargo. That would make the jump in applicants in the first months of 2011 especially notable.

The Federal Reserve is expected to release the April 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices later today. The January survey indicated some slight easing of standards and more demand for commercial and industrial (C&I), but not for other businesses. It will be interesting to see if the Fed survey for April saw any increase in demand from small firms.

Weekend:
• Summary for Week ending April 29th
• Goldman estimates 3.5 million Excess Vacant Housing Units.
• Schedule for Week of May 1st