by Calculated Risk on 1/09/2012 12:14:00 AM

From the WSJ: For Malls, Occupancy Firms Up

U.S. malls and shopping centers experienced a slight improvement in occupancy during the fourth quarter ... But data service Reis Inc. cautioned that any recovery remains precarious ... "It's too soon to pronounce a turnaround at this point," said Victor Calanog, chief economist at Reis ...

Malls in the top 80 U.S. markets posted an average vacancy rate of 9.2% in the quarter, down from the 11-year high of 9.4% in the third quarter, according to Reis, which began tracking [regional] mall data in 2000. ... vacancy [for strip malls] remained at 11% ...

Retail landlords also have been helped by a virtual shutdown in new store construction, meaning they face less competition for tenants. Only 4.5 million square feet of shopping-center space opened in 2010, the lowest figure in 31 years, according to Reis. Last year was slightly higher, with only 4.9 million square feet being delivered.

Click on graph for larger image.

The vacancy rate for regional malls is just below the record set last quarter, and the vacancy rate for strip malls is just below the record set in 1990. It is still very ugly for malls ... but the good news is new construction is at very low levels.

Yesterday:
• Summary for Week Ending January 6th
• Schedule for Week of Jan 8th

by Calculated Risk on 1/08/2012 06:36:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2012. I'm trying to add some thoughts, and a few predictions for each question.

4) Economic growth: It appeared GDP growth would increase a little in 2011, but then the economy was hit by a series of shocks including extreme weather (significant snow storms, flooding, hurricane Irene), the oil price increase related to the "Arab Spring", the tsunami in Japan, and the debt ceiling debate in D.C. during late July and early August. Even with all these shocks, 2011 real GDP growth was still positive, but below trend.

Heading into 2012 there are significant downside risks from the European financial crisis and from U.S. fiscal tightening. Will the U.S. economy grow in 2012? Or will there be another recession?

First a look back. Heading into both 2010 and 2011 there were a number of forecasts for a "V-shaped" or strong recovery (4% to 6% real GDP growth range), and also a number of forecasts for a new recession. Both views were wrong for both years.

I took the boring middle ground in 2010 and 2011: sluggish and choppy growth, but no new recession. And once again - for 2012 - I'll take sluggish growth with no recession. There are still plenty of scars from the financial crisis (excessive debt, high unemployment, excess capacity, excess supply of housing, a large number of homeowners with negative equity, and high foreclosure activity), but the economy appears to be slowly healing.

Based on recent data there have been some upgrades to the 2012 forecasts. As an example, from Goldman Sachs on Friday:

In light of better recent data and the renewal (at least through February) of the payroll tax credit and emergency unemployment benefits, we upgraded our first-quarter forecast for real GDP growth to 2% [from 0.5%].

Not much, but still growth.

As predicted, residential investment (RI) made a small positive contribution to GDP growth in 2011 for the first time since 2005. This was mostly due to a significant pickup in multifamily starts and partially due to an increase in home improvement. This trend should continue into 2012, and we will probably see some increase in single family investment this year too. Since RI is the best leading indicator for the economy (although not infallible) this also suggests further growth in 2012.

There are still plenty of downside risks: financial contagion from Europe, the slowdown in China, and falling house prices all could lead to slower U.S. growth. However my guess is growth will be sluggish relative to the slack in the system, but above the 2011 growth rate.

Earlier:
• Question #5 for 2012: Employment
• Question #6 for 2012: Unemployment Rate
• Question #7 for 2012: State and Local Governments
• Question #8 for 2012: Europe and the Euro
• Question #9 for 2012: Inflation
• Question #10 for 2012: Monetary Policy

Yesterday:
• Summary for Week Ending January 6th
• Schedule for Week of Jan 8th

by Calculated Risk on 1/08/2012 02:05:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2012. I'm trying to add some thoughts, and a few predictions for each question.

5) Employment: The U.S. economy added 1.64 million total non-farm jobs or just 137 thousand per month in 2011. There were 1.92 million private sector jobs added in 2011, or about 160 thousand per month. Although this was an improvement from 2010, this was still weak payroll growth for a recovery. How many payroll jobs will be added in 2012?

First a little "good" news. It appears that most of the state and local government job cuts will be over by mid year 2012. Just eliminating the employment drag from these job cuts will help.

Click on graph for larger image.

Here is a graph of the annual change in government payrolls since 1970. Over the last 3 year government employment has decreased significantly (this is a combination of Federal, State and local government). It appears job cuts will slow in the first half of 2012, and government employment might be neutral in the 2nd half of this year.

For 2011, the BLS reported 280 thousand government jobs lost, and my guess is this will slow to around 100 thousand in 2012 and most of the jobs lost will be in the first half of the year.

As predicted a year ago, construction employment increased in 2011. Although the increase was small - just 46 thousand jobs - this was the first increase for construction employment since 2006, and the first increase for residential construction employment since 2005.

I expect construction employment to increase at a faster rate in 2012 - not a boom - but better than in 2011. Unfortunately employment growth will probably slow in some other sectors. As an example, although auto sales will probably continue to increase in 2012, the rate of increase will slow since most of the recovery in auto sales has already happened. This suggests that private job creation will probably be about the same in 2012 as in 2011, even with some pickup in construction.

Here is a graph of the annual change in private payrolls since 1970.

Last year was disappointing given the high level of unemployment, but it was still the 2nd best year for private job creation since the 1990s.

My guess is private employment will increase around 150 to 200 thousand per month on average in 2012; about the same rate as in 2011.

With over 13 million unemployed workers - and 5.6 million unemployed for more than 26 weeks - adding 2 million private sector jobs will not seem like much of job recovery for many Americans. Hopefully I'm too pessimistic.

Earlier:
• Question #6 for 2012: Unemployment Rate
• Question #7 for 2012: State and Local Governments
• Question #8 for 2012: Europe and the Euro
• Question #9 for 2012: Inflation
• Question #10 for 2012: Monetary Policy

Yesterday:
• Summary for Week Ending January 6th
• Schedule for Week of Jan 8th

by Calculated Risk on 1/08/2012 10:13:00 AM

It appears there are several major housing policy changes coming in the next two to three months, and that the overall goal will be to reduce the large backlog of seriously delinquent loans while, at the same time, not flood the housing market with distressed homes.

Currently, according to LPS, there are 1.81 million loans 90+ days delinquent and an additional 2.21 million loans in the foreclosure process.

• HARP Refinance: Back in October, the FHFA announced some changes to HARP to allow homeowners with GSE loans and with negative or near negative equity - and who are current on their mortgages - to refinance into lower interest rate loans.

The key to this program for the lenders was that the lender was not responsible for any of the representations and warranties associated with the original loan (this is huge for the lenders). The elimination of Reps and warrants for the original loans applies to Desktop Underwriter® (DU) and that will not be updated until March.

So I expect HARP refinance activity to pickup significantly in March.

• Mortgage Settlement: It sounds like this will be announced in late January or possibly in February (if at all). Some of the details have leaked, and there will probably be some mortgage modifications that include principal reduction. It is possible that there will be a refinance program for non-GSEs borrowers with negative equity (similar to HARP), although this hasn't been announced.

• REO to Rental Program: This rental program for Fannie and Freddie REO is being pushed by several agencies, and was discussed last week in the Fed white paper "The U.S. Housing Market: Current Conditions and Policy Considerations" and by NY Fed President William Dudley: Housing and the Economic Recovery

This program could include bulk REO sales to investors, but might also include Fannie and Freddie renting out more REOs. (Fannie and Freddie already have a program to keep tenants in place if they foreclose on a rented property).

There will be a similar effort for non-GSE properties. From the Fed white paper:

In light of the current unusually difficult circumstances in many housing markets across the nation, the Federal Reserve is contemplating issuing guidance to banking organizations and examiners to clarify supervisory expectations regarding rental of residential REO properties by such organizations while such circumstances continue (and within relevant federal and statutory and regulatory limits). If finalized and adopted, such guidance would explain how rental of a residential REO property within applicable holding-period time limits could meet the supervisory expectation for ongoing good faith efforts to sell that property. Relatedly, if a successful model is developed for the GSEs to transition REO properties to the rental market, banks may wish to participate in such a program or adopt some of its features.

Look for this guidance to be issued soon, and to relax the rules on how banks can manage rented REOs.

There are some minor programs too (like the Freddie Mac program to allow 12 months of forbearance for unemployed borrowers) and there could be more programs coming. But the key policy changes will probably be 1) the mortgage settlement, 2) the HARP refinance program, and 3) the REO to rental program.

It sounds like all of these program will be in place by the end of Q1.

by Calculated Risk on 1/07/2012 08:25:00 PM

The graph below shows the number of total construction payroll jobs in the U.S. including both residential and non-residential since 1969.

Construction employment increased by 17 thousand jobs in December, and is now down 2.18 million jobs from the peak in April 2006.

Total construction employment increased by 46 thousand jobs in 2011. This was the first increase for construction employment since 2006, and the first increase for residential construction employment since 2005.

Unfortunately this graph is a combination of both residential and non-residential construction employment. The BLS only started breaking out residential construction employment fairly recently (residential specialty trade contractors in 2001).

Click on graph for larger image.

Usually residential investment (and residential construction) lead the economy out of recession, and non-residential construction usually lags the economy. Because this graph is a blend, it masks the usual pickup in residential construction following previous recessions. Of course there was no pickup for residential construction this time because of the large excess supply of vacant homes.

Construction employment is mostly moving sideways, but at least it was not a drag on employment and GDP in 2011.

This table below shows the annual change in construction jobs (total, residential and non-residential) and through 2011.

	Annual Change in Payroll jobs (000s)
Year	Total Construction Jobs	Residential Construction Jobs	Non-Residential
2002	-85	88	-173
2003	127	161	-34
2004	290	230	60
2005	416	268	148
2006	152	-62	214
2007	-198	-273	75
2008	-787	-510	-277
2009	-1053	-431	-622
2010	-149	-113	-36
2011	46	20	26

After five consecutive years of job losses for residential construction (and four years for total construction), construction employment increased in 2011.

In addition residential investment has made a small positive contribution to GDP in 2011 - also for the first time since 2005.

Earlier:
• Summary for Week Ending January 6th
• Schedule for Week of Jan 8th