by Calculated Risk on 7/07/2012 01:04:00 PM

Earlier:
• Summary for Week Ending July 6th

The key report this week is the May Trade Balance report.

The FOMC minutes, to be released on Wednesday, will receive extra attention for clues about QE3. Also several regional Fed presidents will speak this week.

----- Monday, July 9th -----
8:45 AM ET: LPS Mortgage Monitor for May.

3:00 PM: Consumer Credit for June. The consensus is for credit to increase $8.5 billion.

----- Tuesday, July 10th -----
7:30 AM: NFIB Small Business Optimism Index for June.

Click on graph for larger image in graph gallery.

The index decreased slightly to 94.4 in May from 94.5 in April.

The consensus is for a decrease to 92.0 in June.

10:00 AM: Job Openings and Labor Turnover Survey for May from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings declined in April to 3.416 million, down from 3.741 million in March. However the number of job openings (yellow) has generally been trending up, and openings are up about 13% year-over-year compared to April 2011.

----- Wednesday, July 11th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index.

8:30 AM: Trade Balance report for May from the Census Bureau.

Exports decreased in April. Imports decreased even more. Exports are 11% above the pre-recession peak and up 4% compared to April 2011; imports are 2% above the pre-recession peak, and up about 6% compared to April 2011.

The consensus is for the U.S. trade deficit to decrease to $48.7 billion in May, down from from $50.1 billion in April. Export activity to Europe will be closely watched due to economic weakness. Also oil prices started to decline in April, and that will probably reduce the value of oil imports in May.

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

2:00 PM: FOMC Minutes, Meeting of June 19-20, 2012.

----- Thursday, July 12th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase slightly to 375 thousand.

8:30 AM: Import and Export Prices for May. The consensus is a for a 1.9% decrease in import prices.

----- Friday, July 13th -----
8:30 AM: Producer Price Index for June. The consensus is for a 0.4% decrease in producer prices (0.2% increase in core).

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for July). The consensus is for sentiment to increase slightly to 73.5 from 73.2 in June.

by Calculated Risk on 7/07/2012 08:01:00 AM

The week started off with the ISM manufacturing index showing contraction for the first time since 2009, and ended with a disappointing employment report. Those were the key reports for the week - and they were dismal.

However, sandwiched in the middle of the week - around the July 4th Holiday - there was a little better news. Auto sales were stronger than expected, initial weekly unemployment claims declined, construction spending increased, and vacancy rates declined for two categories of commercial real estate in Q2 (but not for offices).

I'll have more on the employment report later today.

Here is a summary of last week in graphs:

• June Employment Report: 80,000 Jobs, 8.2% Unemployment Rate

Click on graph for larger image.

This graph shows the employment population ratio, the participation rate, and the unemployment rate. The unemployment rate was unchanged at 8.2% (red line).

The Labor Force Participation Rate was unchanged at 63.8% in June (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 most of the recent decline is due to demographics.

The Employment-Population ratio was unchanged at 58.6% in June (black line).

The second graph shows the job losses from the start of the employment recession, in percentage terms. 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.

The economy has added 902,000 jobs over the first half of the year (952,000 private sector jobs). At this pace, the economy would add around 1.9 million private sector jobs in 2012; less than the 2.1 million added in 2011.

However job growth has really slowed over the last three months with only 225,000 payroll jobs added (a 900,000 annual pace), and only 274,000 private sector jobs (a 1.1 million annual pace). This is very sluggish employment growth.

All Employment Graphs
• ISM Manufacturing index declines in June to 49.7

This is the first contraction in the ISM index since the recession ended in 2009. PMI was at 49.7% in June, down from 53.5% in May. The employment index was at 56.6%, down from 56.9%, and new orders index was at 47.8%, down from 60.1%.

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

This was below expectations of 52.0%. This suggests manufacturing contracted in June for the first time since July 2009.

This was a weak report, and the decline in new orders was especially significant.

• U.S. Light Vehicle Sales at 14.1 million annual rate in June

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.08 million SAAR in June. That is up 22% from June 2011, and up 2.6% from the sales rate last month (13.73 million SAAR in May 2012).

This was above the consensus forecast of 13.9 million SAAR (seasonally adjusted annual rate).

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for June (red, light vehicle sales of 14.08 million SAAR from Autodata Corp).

Sales have averaged a 14.28 million annual sales rate through the first half of 2012, up sharply from the same period of 2011.

• ISM Non-Manufacturing Index declines, indicates slower expansion in June

The June ISM Non-manufacturing index was at 52.1%, down from 53.7% in May. The employment index increased in June to 52.3%, up from 50.8% in May. Note: Above 50 indicates expansion, below 50 contraction.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was below the consensus forecast of 53.0% and indicates slower expansion in June than in May.

• Construction Spending in May: Private spending increases, Public Spending declines

This week the Census Bureau reported that overall construction spending increased in May:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during May 2012 was estimated at a seasonally adjusted annual rate of $830.0 billion, 0.9 percent above the revised April estimate of $822.5 billion. The May figure is 7.0 percent above the May 2011 estimate of $775.8 billion.

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

Private residential spending is 61% below the peak in early 2006, and up 17% from the recent low. Non-residential spending is 28% below the peak in January 2008, and up about 30% from the recent low.

Public construction spending is now 17% below the peak in March 2009 and at a new post-bubble low.

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

On a year-over-year basis, both private residential and non-residential construction spending are positive, but public spending is down on a year-over-year basis. The year-over-year improvements in private non-residential is mostly related to energy spending (power and electric).

The year-over-year improvement in private residential investment is an important change (the positive in 2010 was related to the tax credit). Construction is now the "bright spot" for the economy, however the improvement in residential construction is being somewhat offset by declines in public construction spending.
All Housing Investment and Construction Graphs
• Reis: Office, Mall and Apartment Vacancy Rates for Q2

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis is reporting the vacancy rate was unchanged at 17.2% in Q2, and down from 17.5% in Q2 2011. The vacancy rate peaked in this cycle at 17.6% in Q3 and Q4 2010.

As Reis noted, there are very few new office buildings being built in the US, and new construction will probably stay low for several years.

Reis reported that the apartment vacancy rate (82 markets) fell to 4.7% in Q2 from 4.9% in Q1 2012. The vacancy rate was at 5.9% in Q2 2011 and peaked at 8.0% at the end of 2009.

This graph shows the apartment vacancy rate starting in 2005.

Reis is just for large cities, but this decline in vacancy rates - and increase in rents - is happening just about everywhere.

Reis also reported a strong increase in apartment rents.

Reis reported that the vacancy rate for regional malls declined slightly to 8.9% in Q2 from 9.0% in Q1. This is down from a cycle peak of 9.4% in Q3 of last year.

For Neighborhood and Community malls (strip malls), the vacancy rate declined to 10.8% in Q2, from 10.9% in Q1. For strip malls, the vacancy rate peaked at 11.0% in Q2 of last year.


This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The yellow line shows mall investment as a percent of GDP. This isn't zero because this includes renovations and improvements. New mall investment has essentially stopped following the financial crisis.

• Weekly Initial Unemployment Claims decline to 374,000

The DOL reports:

In the week ending June 30, the advance figure for seasonally adjusted initial claims was 374,000, a decrease of 14,000 from the previous week's revised figure of 388,000. The 4-week moving average was 385,750, a decrease of 1,500 from the previous week's revised average of 387,250.

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

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims declined slightly to 385,750.

This is just off the high for the year.

• Other Economic Stories ...
• ADP: Private Employment increased 176,000 in June
• AAR: Rail Traffic "mixed" in June, Intermodal at Record Level
• CoreLogic: House Price Index increases in May, Up 2.0% Year-over-year

by Calculated Risk on 7/06/2012 08:49:00 PM

From the FDIC: Ameris Bank, Moultrie, Georgia, Assumes All of the Deposits of Montgomery Bank & Trust, Ailey, Georgia

As of March 31, 2012, Montgomery Bank & Trust had approximately $173.6 million in total assets and $164.4 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $75.2 million. Compared to other alternatives, Ameris Bank's acquisition was the least costly resolution for the FDIC's DIF. Montgomery Bank & Trust is the 32nd FDIC-insured institution to fail in the nation this year, and the sixth in Georgia.

That is a pretty high loss rate!

Update: From Bill Dawers at the Peach Pundit:

Some folks might have seen this closure coming. From the AJC a couple days ago:

The Securities and Exchange Commission said Monday it has received a federal court order to freeze the assets of Aubrey Lee Price, and several associated businesses.

In a 22-page letter to investors, Price allegedly admitted he made false statements to conceal losses of $20 million to $23 million.

Regulators said Price told clients he was investing their money in traditional stocks, but he also put money into “illiquid” bets including South American real estate and shares of Montgomery Bank & Trust.
...
William P. Hicks, associate director of the SEC in Atlanta, said Price “made woeful financial transactions” that he hid from his investors.

“Now both the money and Price are missing,” Hicks said.

Earlier on employment:
• June Employment Report: 80,000 Jobs, 8.2% Unemployment Rate
• Employment: Another Weak Report (more graphs)
• All Employment Graphs

by Calculated Risk on 7/06/2012 04:34:00 PM

Once again rail traffic was "mixed". This was mostly due to the year-over-year decline in coal traffic. Building related commodities were up such as lumber and crushed stone, gravel, sand. Lumber was up 11.4% from June 2011.

From the Association of American Railroads (AAR): AAR Reports Mixed Rail Traffic for June

The Association of American Railroads (AAR) today reported U.S. rail carloads originated in June 2012 totaled 1,140,271, down 1.3 percent compared with June 2011. Intermodal volume in June 2012 totaled 996,022 containers and trailers, up 49,168 units or 5.2 percent compared with June 2011. The June 2012 average weekly intermodal volume of 249,006 units is the highest average for any June on record and the third highest for any month, behind August and October 2006.
...
“U.S. intermodal originations in 2012 through June are slightly ahead of 2006’s record pace, setting up the very real possibility that 2012 will be the highest-volume intermodal year ever for U.S. railroads,” said AAR Senior Vice President John T. Gray. “The recovery in intermodal traffic since the recession has been remarkable and is due in large part to railroads’ huge investments in their intermodal business that have improved rail intermodal’s reliability and efficiency.”

Click on graph for larger image.

This graph shows U.S. average weekly rail carloads (NSA).

U.S. rail carload traffic in June 2012 wasn’t as encouraging as intermodal traffic, but it was better than it’s been lately. U.S. freight railroads originated 1,140,271 carloads in June, an average of 285,068 carloads per month and down 1.3% from June 2011.

That’s the lowest percentage decline in five months, mainly because coal carloads weren’t as lousy as they have been. Coal carloads in June 2012 averaged 114,485 per week, the highest weekly average in four months and down just 6.2% from June 2011. Normally, a 6.2% year-over year decline is terrible, but compared to the 11% to 17% declines in the previous four months, it’s not so bad.

Grains are down due to fewer exports.

The second graph is for intermodal traffic (using intermodal or shipping containers):

Graphs reprinted with permission.

Intermodal traffic is now at peak levels.

U.S. railroads originated 996,022 intermodal containers and trailers in June 2012, up 5.2% (49,168 units) over June 2011 and an average of 249,006 units per week. That’s the highest average for any June in history and the third highest average for any month in history

The top months for intermodal are usually in the fall, and it looks like intermodal traffic will be at record levels this year.

Earlier on employment:
• June Employment Report: 80,000 Jobs, 8.2% Unemployment Rate
• Employment: Another Weak Report (more graphs)
• All Employment Graphs

by Calculated Risk on 7/06/2012 02:21:00 PM

Back in 2006, I predicted we'd see construction job losses in the seven figures. All through 2006 and into 2007, I was constantly asked: "Where are the construction job losses you predicted?"

And then it started ... and the BLS reported construction employment fell 2.27 million from peak to trough. No one asks that question any more.

There were several reasons why construction jobs didn't decline at the same time as housing starts. First, construction includes residential, commercial and other construction (like roads). Even after housing starts began to collapse, commercial real estate was still booming and workers shifted from residential to commercial (many commercial projects have long time frames - and many developers remained in denial). Also some construction workers are paid in cash (illegal immigrants), and these workers weren't counted on the BLS payrolls.

Now people are asking "Where are the construction jobs?"

Oh, Grasshopper ... the construction jobs are coming.

The graph below shows the number of total construction payroll jobs in the U.S. including both residential and non-residential since 1969 compared to housing starts. Unfortunately the BLS only started breaking out residential construction employment fairly recently (residential specialty trade contractors in 2001).

Right away we can see that construction employment isn't just tied to housing starts. There are other categories that have been generally increasing over the decades.

Click on graph for larger image.

Notice that housing starts collapsed in 2006, but construction employment didn't start falling until 2007 - and didn't collapse until 2008. Some people will look at the sub-categories for construction, but there are two problems: 1) construction workers shift between categories, and 2) the BLS hasn't been tracking these categories for very long.

Even though construction is down since the beginning of the year, and only increased by 2,000 jobs in June, construction employment appears to have bottomed, and should add to both GDP and employment growth in 2012.

Other construction indicators - housing starts, new home sales, construction spending, builder comments - are all improving (although public construction spending is decreasing), and construction employment will follow.

A little Kung Fu:

Young Caine: "Old man, how is it that you hear these things?"

Master Po: "Young man, how is it that you do not?"

The housing recovery is here. The construction jobs are coming.

Earlier on employment:
• June Employment Report: 80,000 Jobs, 8.2% Unemployment Rate
• Employment: Another Weak Report (more graphs)
• All Employment Graphs