by Calculated Risk on 5/17/2012 10:11:00 AM

From the Philly Fed: May 2012 Business Outlook Survey

Firms responding to the May Business Outlook Survey indicated that manufacturing growth fell back from the pace of recent months. The survey’s broad indicators for general activity fell into negative territory for the first time in eight months. Indicators for new orders and employment also suggested slight declines from April.
...
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of 8.5 in April to -5.8 in May. The index for new orders fell four points, from 2.7 to -1.2, its first negative reading in eight months.
...
The current employment index, which had been positive for eight consecutive months, decreased 19 points, to -1.3. ... Firms also reported a slight decrease in average hours worked compared with April.

Click on graph for larger image.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through May. The ISM and total Fed surveys are through April.

The NY and Philly Fed surveys went in opposite directions this month. The NY Fed survey showed stronger expansion; the Philly Fed survey indicated contraction. The average of the Empire State and Philly Fed surveys declined in May, and is at the lowest level this year.

by Calculated Risk on 5/17/2012 08:38:00 AM

The DOL reports:

In the week ending May 12, the advance figure for seasonally adjusted initial claims was 370,000, unchanged from the previous week's revised figure of 370,000. The 4-week moving average was 375,000, a decrease of 4,750 from the previous week's revised average of 379,750.

The previous week was revised up from 367,000 to 370,000.

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 decreased to 375,000.

The 4-week average has declined for two consecutive weeks. The average has been between 363,000 and 384,000 all year.

And here is a long term graph of weekly claims:


This was above the consensus of 365,000.

All current Employment Graphs

by Calculated Risk on 5/16/2012 09:55:00 PM

On Thursday:

• The initial weekly unemployment claims report will be released at 8:30 AM. The consensus is for claims to be essentially unchanged at 365 thousand compared to 367 thousand last week. Based on the consensus (and the usual upward revision to the previous week), the 4-week average will probably decline to below 375 thousand.

• At 10:00 AM, the Philly Fed Survey for May is scheduled for release. The consensus is for a reading of 10.0, up from 8.5 last month (above zero indicates expansion). This is the 2nd regional Fed survey for May; the NY Fed (Empire state) survey indicated faster expansion in May.

• Also at 10:00 AM, the Conference Board Leading Indicators for April will be released. The consensus is for a 0.1% increase in this index.

Earlier:
• Housing Starts increase to 717,000 in April
• Industrial Production up in April, Capacity Utilization increases
• MBA: Mortgage Delinquencies decline in Q1
• Q1 MBA National Delinquency Survey Comments

by Calculated Risk on 5/16/2012 07:37:00 PM

Just over two years ago we started discussing how the environment was becoming more favorable for apartment owners. This was based on several factors:

• Favorable demographics: a large cohort was moving into the low 20s to mid-30s age group. (see graph of age groups at "Rents soar")
• There were a record low number of multi-family housing units being started, meaning very few completions in 2010 and 2011.
• A large number of families were losing their homes in foreclosure, or through a short sales, and many of these families were becoming renters. (limited new supply)
• The price-to-rent ratio favored renting.

Sure enough, the vacancy rate for apartments declined sharply over the last two years, and rents have been rising.

Looking forward, the environment will be a little less favorable for apartments owners in a year or two. Demographics will still be favorable for several more years, but it appears completions might start catching up to absorption in a year or two (based on some comments and projections today from Reis director of research Victor Canalog on a webinar).

Below is an update to a graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction are also important for employment).

This graphs use a 12 month rolling total for NSA starts and completions.

Click on graph for larger image.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) has been increasing since mid-2010. The 12 month total for completions (red line) is now following starts up. This suggests that completions (new supply) will increase sharply in 2013 and 2014, although this will still be below the level for the pre-bust period.

Other factors that might make the environment less favorable for apartment owners are:
• More investor buying of single family homes as rentals.
• Fewer foreclosures in 2013 and beyond.
• Wages not keeping up with rent increases.
• House prices are now back to "normal" levels in many areas based on rents. Further rent increases will start pushing more renters to buy (those that can qualify).

These are just some preliminary thoughts - right now conditions remain very favorable for apartment owners as indicated by the recent NMHC apartment survey and Reis quarterly survey.

Earlier:
• Housing Starts increase to 717,000 in April
• Industrial Production up in April, Capacity Utilization increases
• MBA: Mortgage Delinquencies decline in Q1
• Q1 MBA National Delinquency Survey Comments

by Calculated Risk on 5/16/2012 05:37:00 PM

Note: This index is a leading indicator for new Commercial Real Estate (CRE) investment.

From AIA: Architecture Billings Index Reverts to Negative Territory

After five months of positive readings, the Architecture Billings Index (ABI) has fallen into negative terrain. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the April ABI score was 48.4, following a mark of 50.4 in March. This score reflects a decrease in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 54.4, down from mark of 56.6 the previous month.

“Considering the continued volatility in the overall economy, this decline in demand for design services isn’t terribly surprising,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “Also, favorable conditions during the winter months may have accelerated design billings, producing a pause in projects that have moved ahead faster than expected.”

Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 48.4 in April. Anything below 50 indicates contraction in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This is just one month - and as Baker noted, this might be payback for the mild weather earlier in the year - but this suggests CRE investment will stay weak all year (it will be some time before investment in offices and malls increases).


All current Commercial Real Estate graphs