by Calculated Risk on 10/04/2012 09:15:00 PM

Gasoline prices in California are up 21 cents from one week ago. From the O.C. Register: O.C. gas prices jump 9 cents overnight

A series of problems at some of the state's most important refineries has tightened supplies and driven up prices, the analysts said. In Orange County, that contributed to an overnight jump of 9 cents in the cost of an average gallon of regular unleaded, to $4.33 on Thursday.

That was 21 cents more than it cost one week earlier, according to the AAA auto club.
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The trouble began in August, when fire broke out at one of the biggest refineries in the state, a Chevron facility in the bay area; its production still has not fully recovered. Then, earlier this week, a power outage slowed production at an Exxon Mobil refinery in Torrance that, though smaller, produces 10 percent of the state's gasoline.

A pipeline that carries oil through the Central Valley also shut down when contaminants were found in it, further crimping gasoline inventories, experts said.

We could see $5 per gallon. Ouch!

On Friday:
• At 8:30 AM ET, the BLS will release the Employment Report for September. The consensus is for an increase of 113,000 non-farm payroll jobs in September; there were 96,000 jobs added in August. The consensus is for the unemployment rate to be unchanged at 8.1% in September.

• At 3:00 PM, Consumer Credit for August will be released by the Federal Reserve. The consensus is for credit to increase $7.8 billion in August.

Two more questions for the October economic prediction contest (Note: You can now use Facebook, Twitter, or OpenID to log in).

by Calculated Risk on 10/04/2012 03:47:00 PM

On Friday, at 8:30 AM ET, the BLS will release the employment report for September. The consensus is for an increase of 113,000 non-farm payroll jobs in September, slightly more than the 96,000 payroll jobs added in August. The consensus is for the unemployment rate to be unchanged at 8.1%.

Note: Last week analysts at Nomura pointed a possible one time issue: "We expect the Chicago teacher strike to reduce local government payrolls by roughly 25k in September ...". If that is correct, those jobs will be added back in October.

Also, there is a strong possibility that the seasonal factors are still a little distorted by the deep recession and financial crisis - this is the third year in a row we've some late spring weakness. In 2010, payrolls picked up in October following a weak period (looking at the data ex-Census), in 2011, payrolls picked up in September. If there is a seasonal distortion, the next few months will probably see some increase too.

Here is a summary of recent data:

• The ADP employment report showed an increase of 162,000 private sector payroll jobs in September. Over the last four months, the ADP report has averaged 170,000 private sector payroll jobs added per month compared to only 109,000 private sector jobs added per month in the BLS report over the same period (September not released). This would seem to suggest that the consensus for the increase in total payroll employment is too low. However the ADP report hasn't been very useful in predicting the BLS report for any one month.

• The ISM manufacturing employment index increased in September to 54.7%, up from 51.6% in August. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing increased about 6,000 in September.

The ISM non-manufacturing (service) employment index decreased in September to 51.1%, down from 53.8% in August. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for services, suggests that private sector BLS reported payroll jobs for services increased about 94,000 in September.

Added together, the ISM reports suggests about 100,000 jobs added in September.

• Initial weekly unemployment claims averaged about 373,000 in September, up slightly from the August average - but below the 382,000 average for April, May and June. This was about the same level as in the January, February and March period when the BLS reported an average of 226,000 payroll jobs added per month.

For the BLS reference week (includes the 12th of the month), initial claims were at 385,000; up from 374,000 during the reference week in August.

• The final September Reuters / University of Michigan consumer sentiment index increased to 79.2, up from the August reading of 74.3. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. This might suggest some increase in employment, but the level still suggests a weak labor market.

• The small business index from Intuit showed 40,000 payroll jobs added, down from 50,000 in August.

• And on the unemployment rate from Gallup: U.S. Unadjusted Unemployment Rate at 7.9% in September

U.S. unemployment, as measured by Gallup without seasonal adjustment, was 7.9% for the month of September, unchanged from 7.9% measured in mid-September but down slightly from 8.1% for the month of August. Gallup's seasonally adjusted September unemployment rate was 8.1%, unchanged from August.

Note: Gallup only recently has been providing a seasonally adjusted estimate for the unemployment rate, so use with caution (Gallup provides some caveats). Last September, the BLS reported the unemployment rate at 9.0%, and Gallup's seasonally adjusted rate was 8.9%. Note: So far the Gallup numbers haven't been very useful in predicting the BLS unemployment rate.

• Conclusion: The ISM manufacturing and service reports suggest a gain of around 100,000 payroll jobs, and the ADP report (private only) was at 162,000. The ISM is below the consensus, and the ADP is above. Initial weekly unemployment claims were near the low for the year during August, but the reference week was higher.

Another negative is the weak small business numbers from Intuit. Also the Chicago teacher strike probably reduced government employment.

As I mentioned above, there is some chance the seasonal factors have been distorted by the severe recession, and that might mean a higher than expected payroll number.

Merrill Lynch analysts are taking the under:

We expect yet another soft payroll report with job growth of only 90,000 in September and an increase in the unemployment rate to 8.2%.

Tim Duy is taking the over, see: Fed Watch: Data Update

I tend to think that attempting to forecast the monthly change in payrolls is a fool's game. Simply too much month-to-month noise. With that caveat in mind, my quick and dirty estimate (and quite wrong last month) for tomorrow is 139k; the consensus forecast is 113k.

I could make an argument for either the over or the under, but I think I'll take the under this month (under 113,000 payroll jobs added).

by Calculated Risk on 10/04/2012 02:10:00 PM

From the Fed: Minutes of the Federal Open Market Committee, September 12-13, 2012 . Excerpt:

Participants again exchanged views on the likely benefits and costs of a new large-scale asset purchase program. Many participants anticipated that such a program would provide support to the economic recovery by putting downward pressure on longer-term interest rates and promoting more accommodative financial conditions. A number of participants also indicated that it could lift consumer and business confidence by emphasizing the Committee's commitment to continued progress toward its dual mandate. In addition, it was noted that additional purchases could reinforce the Committee's forward guidance regarding the federal funds rate. Participants discussed the effectiveness of purchases of Treasury securities relative to purchases of agency MBS in easing financial conditions. Some participants suggested that, all else being equal, MBS purchases could be preferable because they would more directly support the housing sector, which remains weak but has shown some signs of improvement of late. One participant, however, objected that purchases of MBS, when compared to purchases of longer-term Treasury securities, would likely result in higher interest rates for many borrowers in other sectors. A number of participants highlighted the uncertainty about the overall effects of additional purchases on financial markets and the real economy. Some participants thought past purchases were useful because they were conducted during periods of market stress or heightened deflation risk and were less confident of the efficacy of additional purchases under present circumstances. A few expressed skepticism that additional policy accommodation could help spur an economy that they saw as held back by uncertainties and a range of structural issues. In discussing the costs and risks that such a program might entail, several participants reiterated their concern that additional purchases might complicate the Committee's efforts to withdraw monetary policy accommodation when it eventually became appropriate to do so, raising the risk of undesirably high inflation in the future and potentially unmooring inflation expectations. One participant noted that an extended period of accommodation resulting from additional asset purchases could lead to excessive risk-taking on the part of some investors and so undermine financial stability over time. The possible adverse effects of large purchases on market functioning were also noted. However, most participants thought these risks could be managed since the Committee could make adjustments to its purchases, as needed, in response to economic developments or to changes in its assessment of their efficacy and costs.

Participants also discussed issues related to the provision of forward guidance regarding the future path of the federal funds rate. It was noted that clear communication and credibility allow the central bank to help shape the public's expectations about policy, which is crucial to managing monetary policy when the federal funds rate is at its effective lower bound. A number of participants questioned the effectiveness of continuing to use a calendar date to provide forward guidance, noting that a change in the calendar date might be interpreted pessimistically as a downgrade of the Committee's economic outlook rather than as conveying the Committee's determination to support the economic recovery. If the public interpreted the statement pessimistically, consumer and business confidence could fall rather than rise. Many participants indicated a preference for replacing the calendar date with language describing the economic factors that the Committee would consider in deciding to raise its target for the federal funds rate. Participants discussed the benefits of such an approach, including the potential for enhanced effectiveness of policy through greater clarity regarding the Committee's future behavior. That approach could also bolster the stimulus provided by the System's holdings of longer-term securities. It was noted that forward guidance along these lines would allow market expectations regarding the federal funds rate to adjust automatically in response to incoming data on the economy. Many participants thought that more-effective forward guidance could be provided by specifying numerical thresholds for labor market and inflation indicators that would be consistent with maintaining the federal funds rate at exceptionally low levels. However, reaching agreement on specific thresholds could be challenging given the diversity of participants' views, and some were reluctant to specify explicit numerical thresholds out of concern that such thresholds would necessarily be too simple to fully capture the complexities of the economy and the policy process or could be incorrectly interpreted as triggers prompting an automatic policy response. In addition, numerical thresholds could be confused with the Committee's longer-term objectives, and so undermine the Committee's credibility. At the conclusion of the discussion, most participants agreed that the use of numerical thresholds could be useful to provide more clarity about the conditionality of the forward guidance but thought that further work would be needed to address the related communications challenges.

This suggests that the Fed will likely set QE3 targets for unemployment and inflation. As an example, Chicago Fed President Charles Evans has suggested that QE3 purchases should continue until the unemployment rate is below 7% or inflation at 3%.

by Calculated Risk on 10/04/2012 11:42:00 AM

Reis reported that the vacancy rate for regional malls declined to 8.7% in Q3 from 8.9% in Q2. 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 was unchanged at 10.8% in Q3. For strip malls, the vacancy rate peaked at 11.0% in Q2 of last year.

Comments from Reis Senior Economist Ryan Severino:

[Strip mall] Vacancy was unchanged during the third quarter. This is slightly worse than the second quarter when the vacancy rate declined by 10 basis points. On a year-over-year basis, the vacancy rate declined by a scant 20 bps. While demand slightly outpaced new construction during the quarter, it was insufficient to cause the vacancy rate to decline. With only 569,000 square feet delivered, any semblance of demand would have caused the vacancy rate to decline. The fact that it did not speaks volumes about the continued struggles that the retail sector must countenance.

Asking and effective rents both grew by 0.1% during the quarter. This represents a slowdown from the already paltry 0.2% growth in asking and effective rents during the second quarter. It was the fourth consecutive quarter that asking and effective rents have increased. Although positive, rent growth remains at dazzlingly low levels.
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[New construction] With the ongoing weakness in the sector, new construction declined near record‐levels during the quarter. 569,000 square feet were delivered during the third quarter, versus 805,000 square feet during the second quarter. However, this is a slowdown compared to the 2.008 million square feet of retail space that were delivered during the third quarter of 2011. In fact, 569,000 square feet is the second‐lowest figure on record since Reis began tracking quarterly data in 1999, bested only by the minuscule 261,000 square feet that were delivered in the first quarter of 2011. With demand for space at depressed levels, there is little to no impetus to develop new projects.
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[Regional] Malls continue to outperform their neighborhood and community shopping center brethren. The vacancy rate declined by another 20 basis points during the quarter. This is the fourth consecutive quarter with a vacancy decline. Asking rent growth was in line with last quarter, growing by another 0.3%. This was the sixth consecutive quarter of asking rent increases. Overall the improvement in the mall subsector is not accelerating, but it is not faltering either. However, underlying these trends there remains a strong diverge in the performance between dominant Class A malls, which typically boast luxury retailers and cater to affluent consumers, and inferior malls which sport more mainstream retailers and cater to more typical consumers.

Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

The yellow line shows mall investment as a percent of GDP. This has been increasing a little recently because this includes renovations and improvements. New mall investment has essentially stopped.

The good news is, as Severino noted, new square footage is near a record low, and with very little new supply, the vacancy rate will probably continue to decline slowly.

Mall vacancy data courtesy of Reis.

by Calculated Risk on 10/04/2012 10:00:00 AM

Press Release: Asking Prices On Track To Rise 4 Percent Nationally in 2012

Trulia today released the latest findings from the Trulia Price Monitor and the Trulia Rent Monitor ... Based on the for-sale homes and rentals listed on Trulia, these monitors take into account changes in the mix of listed homes and reflect trends in prices and rents for similar homes in similar neighborhoods through September 30, 2012.
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In September, asking prices on for-sale homes–which lead sales prices by approximately two or more months – increased 2.5 percent year over year (Y-o-Y). Excluding foreclosures, Y-o-Y asking prices rose 3.5 percent. Meanwhile, asking prices rose nationally 1.6 percent quarter over quarter (Q-o-Q), seasonally adjusted, and 0.5 percent month over month (M-o-M), seasonally adjusted.
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Nationally, rent gains continue to outpace home price increases in September, rising by 4.8 percent Y-o-Y. Among the largest 25 rental markets, Y-o-Y rents rose the most in Houston and Miami, where they climbed more than 10 percent
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”As asking prices continue to climb, 2012 will almost surely be the first year of rising home prices since 2006,” said Jed Kolko, Trulia’s Chief Economist. “Right now, prices are recovering across the country, with few local markets left behind. While some of these increases are a bounceback from the huge price declines during the recession, price gains are strongest where job growth has boosted housing demand and where declining inventories lead to tighter supply.”

These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases over the next few months on a SA basis.

More from Jed Kolko, Trulia Chief Economist: Asking Prices Rise Year over Year in 6 out of 7 Election Swing States