by Calculated Risk on 12/11/2012 08:52:00 PM

The FOMC will probably announce additional bond buying tomorrow that will start in January after the conclusion of Operation Twist. I don't expect the Fed to announce tomorrow a change to thresholds (using the unemployment rate and inflation) for the timing of the first Fed Funds rate hike.

On Sunday I posted a preview, and the September economic projections for review. The unemployment rate is lower than previously expected, but the other indicators are close.

Wednesday economic releases:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. Recently the Purchase Index has been showing more purchase activity.

• At 8:30 AM, Import and Export Prices for November. The consensus is a 0.4% decrease in import prices.

• At 12:30 PM, the FOMC statement will be released. With Operation Twist ending in a few weeks, the FOMC will probably announce additional policy accommodation that will start in January.

• At 2:00 PM, The Federal Open Market Committee (FOMC) participants' quarterly economic projections.

• At 2:15 PM, Fed Chairman Ben Bernanke holds a press briefing following the FOMC announcement.

by Calculated Risk on 12/11/2012 07:17:00 PM

We are still waiting for a strong increase in construction employment, but we know it is coming (I expect construction employment will be revised up in the annual revision).

Michelle Meyer at Merrill Lynch wrote about this today (and more on housing): The housing market in 2013

We believe 2012 will go down in history as a year of transition for the housing market. Housing starts are on track to be up 25% and home prices are set to rise 5% over 2012. We believe the recovery will continue into 2013 for several reasons. Most importantly, household formation has started to turn higher, reflecting the shortfall of household creation over the prior five years. In addition, listed inventory is low, owing to extraordinarily slow construction and only a gradual reduction of the distressed pipeline. And specifically for prices, there has been a shift toward short sales as a means of disposing distressed properties. Moreover, investor demand is strong, particularly for distressed inventory.

We forecast housing starts to increase another 25% to an average of 975,000 and home prices to increase 3% in 2013.
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The housing market is turning into an engine of growth once again. Housing construction will likely add 0.3pp to GDP growth in 2012 and 0.4pp to 2013 growth. ... The gain in homebuilding will support related sectors such as furniture, building material sales and financial companies. Moreover, construction jobs will finally come back, allowing some of the 2 million people who lost construction jobs to find employment in the field again.

There will also be a jolt to the economy from the gain in home prices. An increase in home values lifts household net worth and boosts consumer confidence. If consumers perceive the gain in wealth to be permanent, they will increase their current consumption. But the rise in home prices can do something even more vital for the economy – it can spur credit creation, which then fuels housing demand and reinforces the gain in home prices. We are seeing the very early stages of a positive feedback loop between the housing market, credit market and real economy, which can be quite powerful in time.

I've wrote about the positive impact of prices early this year, see The economic impact of stabilizing house prices?

We are probably already seeing the impact of stabilizing prices on housing inventory. If potential sellers think prices will fall further, then they will rush to sell and list their homes right away. But if potential sellers think prices are stabilizing, and may even increase, they are more willing to wait for a better market or to sell when it is most convenient. I think we are seeing that right now.

More importantly, I think stabilizing prices will give hope to some “underwater” homeowners and we will probably see mortgage default rates fall quicker. And over time, buyers will gain confidence that prices have stopped falling, and I expect demand to increase – and also for more private lenders to reenter the mortgage market and help support that demand.

And this demand will also boost homebuilding and new home sales – since homebuilders will have a better idea of the pricing needed to compete in a market (falling prices makes it hard to plan).

And on construction employment: Back to work we go

There are several ways that the recovery in the housing market multiplies through the economy. One of the key channels is to create jobs in the construction industry and related fields. However, despite the 25% gain in housing starts this year, the construction sector has not added workers. Looking back at prior cycles, it appears that it is normal for construction jobs to lag output by about a year. We think we are on the verge of construction hiring.
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As demand for housing continues to improve, construction companies will likely become more comfortable expanding their workforce. In addition, construction workers do not just focus on new construction; they can also find employment for renovations. Renovation spending has been on the rise and will likely receive a boost from Hurricane Sandy rebuilding. We think the future looks brighter for construction workers.

I also expect a pickup in construction employment in 2013.

by Calculated Risk on 12/11/2012 03:59:00 PM

Economist Tom Lawler sent me an update today of short sales and foreclosures for a few selected cities in November.

Note: Reno was corrected (the table yesterday used October numbers instead of November). There will be more cities added soon.

For all of these cities, the percentage of foreclosures is down from a year ago.   The percentage of short sales is up in Las Vegas and Reno, but down in Phoenix and in the mid-Atlantic area.

Look at the overall percent of distressed sales (combined foreclosures and short sales).  There is a large year-over-year decline in distressed sales in all of these cities. 

The two key numbers for real estate markets are 1) inventory, and 2) the percent of conventional sales (non-distressed sales).  Inventory is falling, and the percent of conventional sales is increasing - and those are positive signs.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	12-Nov	11-Nov	12-Nov	11-Nov	12-Nov	11-Nov
Las Vegas	41.2%	26.8%	10.7%	46.0%	51.9%	72.8%
Reno	41.0%	36.0%	9.0%	35.0%	50.0%	71.0%
Phoenix	23.2%	29.6%	12.9%	29.8%	36.1%	59.4%
Mid-Atlantic (MRIS)	11.9%	13.7%	8.7%	14.2%	20.6%	27.9%
Memphis*			24.3%	31.3%
Metro Detroit			33.6%	38.7%
*share of existing home sales, based on property records

by Calculated Risk on 12/11/2012 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings in October was 3.7 million, essentially unchanged from September.
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The level of total nonfarm job openings in October was up from 2.4 million at the end of the recession in June 2009.
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In October, the quits rate was unchanged for total nonfarm and total private, and little changed for government. The number of quits was 2.1 million in October compared to 1.8 million at the end of the recession in June 2009.

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

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for October, the most recent employment report was for November.

Click on graph for larger image.

Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased in October to 3.675 million, up from 3.547 million in September. The number of job openings (yellow) has generally been trending up, and openings are up about 8% year-over-year compared to October 2011.

Quits increased in October, and quits are up 4% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

The trend suggests a gradually improving labor market.

All current employment graphs

by Calculated Risk on 12/11/2012 08:30:00 AM

The Department of Commerce reported:

[T]otal October exports of $180.5 billion and imports of $222.8 billion resulted in a goods and services deficit of $42.2 billion, up from $40.3 billion in September, revised. October exports were $6.8 billion less than September exports of $187.3 billion. October imports were $4.9 billion less than September imports of $227.6 billion.

The trade deficit was smaller than the consensus forecast of $42.8 billion.

The first graph shows the monthly U.S. exports and imports in dollars through October 2012.

Click on graph for larger image.

Both exports and imports decreased in October. US trade has slowed recently.

Exports are 9% above the pre-recession peak and up 1.0% compared to October 2011; imports are 4% below the pre-recession peak, and down 0.8% compared to October 2011.

The second graph shows the U.S. trade deficit, with and without petroleum, through October.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil averaged $99.75 in October, up from $98.88 per barrel in September. The trade deficit with China increased to $29.5 billion in October, up from $28.1 billion in October 2011. Most of the trade deficit is still due to oil and China.

The trade deficit with the euro area was $8.9 billion in October, up from $7.1 billion in October 2011. It appears the eurozone recession is impacting trade.