by Calculated Risk on 5/07/2012 10:01:00 PM

There are two minor economic indicators schedule for release tomorrow.

• The NFIB Small Business Optimism Index for April will be released at 7:30 AM ET. This index has been moving up, but remains very weak. The consensus is for an increase to 93.0 in April from 92.5 in March.

• At 10:00 AM, the BLS is scheduled to release the Job Openings and Labor Turnover Survey for March. Job openings have generally been trending up, and quits (voluntary separations) have been increasing too.

For the monthly economic question contest, here are two question for later this week (Thursday and Friday):

by Calculated Risk on 5/07/2012 07:30:00 PM

There has been some discussion about the causes of the decline in the participation rate. Here is a post from Catherine Rampell today at the NY Times economix today: Baby Boomers and the Shrinking Work Force

[A]s America ages, its overall labor force participation rate will fall because older people are less likely to work. But even excluding older Americans, labor force participation rates have still fallen sharply over the last few decades, and especially in the last five years.

This is an excuse to update some graphs to look at the long term trends. (update: see Brad Plumer's The incredible shrinking labor force )

The following graph shows the changes in the participation rates for men and women since 1960 (in the 25 to 54 age group - the prime working years).

Click on graph for larger image in graph gallery.

The participation rate for women increased significantly from the mid 30s to the mid 70s and has mostly flattened out this year - the rate increased slightly in April to 74.3%. The participation rate for men has decreased from the high 90s a few decades ago, to 88.7% in April.

There might be some "bounce back" for both men and women (some of the recent decline is probably cyclical), but the long term trend for men is down.

Rampell writes:

You may notice that the labor force participation rate had been climbing from the 1940s through about 1990. That rise reflects the fact that more women entered the labor force as gender roles evolved. Women’s labor force participation rate continued rising through the late 1990s, dropped a couple of percentage points, and then more or less flat-lined.

The main reason the labor force has been declining in the last couple of decades, then, is that men have been dropping out in droves.

There are other key trends. The next graph shows that participation rates for several key age groups.

• The participation rate for the '16 to 19' age group has been falling for some time (red). This was at 33.8% in April.

• The participation rate for the 'over 55' age group has been rising since the mid '90s (purple), although this has stalled out a little recently (perhaps cyclical). This was at 40.3% in April.

• The participation rate for the '20 to 24' age group fell recently too (perhaps more people are focusing on eduction before joining the labor force). This appears to have stabilized - although it was down to 70.6% in April. I expect the participation rate to increase for this cohort as the job market improves.

The third graph shows the participation rate for several over 55 age groups. The red line is the '55 and over' total seasonally adjusted. All of the other age groups are Not Seasonally Adjusted (NSA).

The participation rate is generally trending up for all older age groups.

Eventually the 'over 55' participation rate will start to decline as the oldest baby boomers move into even older age groups.

These trends feed into the overall participation rate. A few weeks ago I posted: Labor Force Participation Rate Projection Update

Here is a repeat of a couple of graphs based on BLS economist Mitra Toossi's projections.

Note that Toossi is expecting a couple of recent trends to continue: lower participation rates for people in the 16 to 24 year age group (I think this decline is mostly due to more people attending college), and an increase in the participation for older age groups (I think this increase is due to several factors including less physically strenuous jobs, and, unfortunately, financial need).

An increase in the participation rate for an age group (like the 60 to 64 group) is just on part of the equation. We also have to recognize that a large cohort is moving from the 55 to 59 age category into the 60 to 64 age group, and the participation rate for that cohort is falling. (this post had a great graph on the age of the population).

The last graph shows the actual annual participation rate and two forecasts based on changes in demographics. Now that the leading edge of the baby boom generation is starting to retire, the participation rate is declining and will probably continue to decline for the next 20 years. Note: the yellow line is from a forecast by Austin State University Professor Robert Szafran in September 2002.

This suggests that any bounceback in the participation rate as the economy recovers will probably be fairly small, and that the decline in the overall participation rate is mostly due to demographic factors.

by Calculated Risk on 5/07/2012 03:58:00 PM

Last week Freddie Mac reported results for Q1 2012. Freddie reported that they acquired 23,805 REO in Q1 2012 (Real Estate Owned via foreclosure or deed-in-lieu); this is down from 24,707 in Q1 2011.

Freddie disposed of 25,033 REO in Q1 2012, down from 31,627 in Q1 2011. Since Freddie disposed of more REO than they acquired, Freddie's REO inventory fell slightly in Q1 2012 to 59,307.

A few comments from Freddie:

REO operations expense declined to $171 million in the first quarter of 2012, as compared to $257 million in the first quarter of 2011, primarily due to stabilizing home prices in certain geographical areas with significant REO activity, which resulted in gains on disposition of properties as well as lower write-downs of single-family REO inventory during the first quarter of 2012. However, we also experienced lower recoveries on REO properties during the first quarter of 2012, compared to the first quarter of 2011, primarily due to reduced recoveries from mortgage insurers, in part due to the continued weakness in the financial condition of our mortgage insurance counterparties, and a decline in reimbursements of losses from seller/servicers associated with repurchase requests.

Although our servicers have resumed the foreclosure process in most areas, we believe the volume of our single-family REO acquisitions during the first quarter of 2012 was less than it otherwise would have been due to delays in the foreclosure process, particularly in states that require a judicial foreclosure process. The lower acquisition rate, coupled with high disposition levels, led to a lower REO property inventory level at March 31, 2012, compared to March 31, 2011. We expect that the length of the foreclosure process will continue to remain above historical levels.

Click on graph for larger image.

The following graph shows REO inventory for Freddie.

REO inventory for Freddie decreased slightly in Q1, but has mostly been steady over the last year.

A couple of key points:
1) Freddie is seeing "stabilizing home prices in certain geographical areas with significant REO activity".
2) Serviers have resumed foreclosure activity "in most areas", but acquisitions are still slow, especially in judicial foreclosure areas.

by Calculated Risk on 5/07/2012 02:31:00 PM

Another update: I've been using inventory numbers from HousingTracker / DeptofNumbers to track changes in listed inventory. Tom Lawler mentioned this last year.

According to the deptofnumbers.com for (54 metro areas), inventory is off 20.7% compared to the same week last year. Unfortunately the deptofnumbers only started tracking inventory in April 2006.

This graph shows the NAR estimate of existing home inventory through March (left axis) and the HousingTracker data for the 54 metro areas through early May.

Click on graph for larger image.

Since the NAR released their revisions for sales and inventory, the NAR and HousingTracker inventory numbers have tracked pretty well.

Seasonally housing inventory usually bottoms in December and January and then starts to increase again through mid to late summer. So seasonally inventory should increase over the next several months.

The second graph shows the year-over-year change in inventory for both the NAR and HousingTracker.

HousingTracker reported that the early May listings - for the 54 metro areas - declined 20.7% from the same period last year. So far in 2012, there has only been a small seasonal increase in inventory.

The year-over-year decline might start to slow since listed inventory is getting close to normal levels. In March, the NAR reported listed inventory was back to 2004 or 2005 levels. Of course sales are much lower now than in 2004 and 2005, so the months-of-supply is still at 6.3 months.

Also, if there is an increase in foreclosures, this might slow the year-over-year decline - but right now the decline in inventory remains a significant story.

by Calculated Risk on 5/07/2012 12:13:00 PM

From Bloomberg: Ranieri Says Housing Market in U.S. Is Reaching Bottom (ht Brian)

While “broad” concern that home prices have further to fall is restraining sales, “many, myself included, think we are at a bottom,” [Lewis] Ranieri said today at a conference hosted by the Mortgage Bankers Association in New York.

The second or third quarter will prove the nadir, said Ranieri ...

Note: Lewis Ranieri helped create the private MBS market, and Tanta once described him as "a highly-informed participant in the mortgage credit markets".

This is not an appeal to authority, but this year some of the more informed housing bears are now arguing that house prices are at or near a bottom. This includes Ivy Zelman, chief executive of Zelman & Associates, Christopher Thornberg of Beacon Economics, Michelle Meyer, senior economist with Bank of America, Mark Fleming, of CoreLogic, Stan Humphries, Zillow Chief Economist and Mark Kiesel at Pimco.

Even Professor Robert Shiller, without making a prediction and suggesting prices could "overshoot", said last week on CNBC that "[house prices] are back to normal levels".

And of course I argued the housing bottom is here back in February.

Ranieri's view is especially interesting because he looks at housing from the credit market perspective. (here was Ranieri last year: Housing Could Sink Economy)