by Calculated Risk on 6/04/2014 07:05:00 PM

A few analyst views on the ECB decision tomorrow via the WSJ: The Market Says the ECB Will Act. What to Expect Next. As an example from Credit Agricole economists:

“We do not believe the ECB can afford to do nothing this week after having intentionally raised hopes of further monetary easing. While the maximum impact from an ECB rate cut would come with a negative deposit rate and liquidity-boosting measures, […] there is no guarantee that negative rates alone would boost bank lending. However, credit easing measures are becoming increasingly likely, either indirectly, via LTRO, or directly, via private quantitative easing. Communication will be an important part of the June ‘package’. We expect ECB President Mario Draghi to leave the door open to unconventional action in case inflation fails to pick up by year-end.”

Should be interesting!

Wednesday:
• 7:45 AM ET (1:45 PM CET) the ECB meets in Frankfurt. From Nomura:

We expect the ECB to deliver a package of measures on 5 June to ease monetary policy. We expect a 10bp cut to all key interest rates, taking the refi rate down to 0.15%, the deposit rate negative for the first time to -0.10% and the marginal lending facility rate down to 0.65%. We also expect an extension of the forward guidance on liquidity provisions, with the fixed-rate full-allotment procedure extended by a further 12 months to at least the end of June 2016. We also expect the ECB to launch a targeted LTRO programme in June (60% probability), to address credit weakness and risks to the recovery from this channel.

• Early: the Trulia Price Rent Monitors for May. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 310 thousand from 300 thousand.

• At 12:00 PM, the Q1 Flow of Funds Accounts of the United States from the Federal Reserve.

by Calculated Risk on 6/04/2014 02:07:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of New York and based on information collected on or before May 23, 2014."

All twelve Federal Reserve Districts report that economic activity expanded during the current reporting period. The pace of growth was characterized as moderate in the Boston, New York, Richmond, Chicago, Minneapolis, Dallas, and San Francisco Districts, and modest in the remaining regions. Compared with the previous report, the pace of growth picked up in the Cleveland and St. Louis Districts but slowed slightly in the Kansas City District.

And on real estate:

Residential real estate activity has been mixed since the last report, with a lack of inventory at times cited as a constraining factor. Boston, New York, and Kansas City indicated that existing home sales were being held back due to low or dwindling inventories. Sales rose modestly in the Cleveland, Richmond, Atlanta, Chicago, and Dallas Districts, with inventories described as low in Richmond and Chicago and declining in Cleveland. Sales activity, however, softened in the Philadelphia, St. Louis, Minneapolis, and San Francisco Districts, though Philadelphia did note some signs of improvement in May. San Francisco attributed some of the weakness to severe weather. Home prices continued to increase across most of the Districts; Boston reported some pullback in prices of single-family homes, though condo prices in that District, as well as in New York, rose. New York, Chicago, and Dallas reported strengthening demand for apartment rentals, whereas Boston noted some slackening in demand.

Homebuilders gave mixed reports on new home sales and construction in recent weeks: Residential construction strengthened, to varying degrees in the New York, Richmond, Atlanta, Chicago, Kansas City, and Dallas Districts. However, Philadelphia, St. Louis, and Minneapolis indicated some weakening in new home sales and construction. Overall residential construction activity was mixed across the San Francisco District, though contacts there expect activity will increase over the next year. Both Boston and New York reported a good deal of recent multi-family development at the high end of the market, while Cleveland, Richmond, Atlanta, Chicago, and Dallas noted strength in multi-family construction more generally.

Non-residential construction activity was steady to stronger in most Districts over the latest reporting period, with strengthening reported in the Boston, St. Louis, and Kansas City Districts. Cleveland described pipeline activity as strong, and San Francisco noted that a number of public and commercial high rise projects have been announced or are underway. In contrast, Minneapolis reported a decline in non-residential construction activity, and Philadelphia characterized it as steady at a low level; Chicago described activity as mixed--with office construction weak but industrial and some segments of retail fairly strong. The commercial real estate market was mostly stronger since the last report. Leasing activity and vacancy rates improved in the Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco Districts, and were generally steady in the Boston, New York, Philadelphia, and St. Louis Districts. Dallas described market conditions as robust.
emphasis added

Some more positive comments on commercial real estate.  Residential is mixed.

by Calculated Risk on 6/04/2014 10:00:00 AM

The May ISM Non-manufacturing index was at 56.3%, up from 55.5% in April. The employment index increased in May to 52.4%, up from 51.3% in April. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: May 2014 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in May for the 52nd consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 56.3 percent in May, 1.1 percentage points higher than April are reading of 55.2 percent. This represents continued growth at a faster rate in the Non-Manufacturing sector and is the highest reading for the index since August 2013, when the index registered 57.9 percent. The Non-Manufacturing Business Activity Index increased to 62.1 percent, which is 1.2 percentage points higher than the April reading of 60.9 percent, reflecting growth for the 58th consecutive month at a faster rate. The New Orders Index registered 60.5 percent, 2.3 percentage points higher than the reading of 58.2 percent registered in April. The Employment Index increased 1.1 percentage points to 52.4 percent from the April reading of 51.3 percent and indicates growth for the third consecutive month and at a faster rate. The Prices Index increased 0.6 percentage point from the April reading of 60.8 percent to 61.4 percent, indicating prices increased at a faster rate in May when compared to April. According to the NMI®, 17 non-manufacturing industries reported growth in May. The majority of respondents' comments indicate that that there is steady incremental growth and project a positive outlook on business conditions."
emphasis added

Click on graph for larger image.

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

This was above the consensus forecast of 55.3% and suggests faster expansion in May than in April.

by Calculated Risk on 6/04/2014 08:30:00 AM

The Department of Commerce reported this morning:

[T]otal April exports of $193.3 billion and imports of $240.6 billion resulted in a goods and services deficit of $47.2 billion, up from $44.2 billion in March, revised. April exports were $0.3 billion less than March exports of $193.7 billion. April imports were $2.7 billion more than March imports of $237.8 billion.

The trade deficit was much larger than the consensus forecast of $41.0 billion.

The first graph shows the monthly U.S. exports and imports in dollars through April 2014.

Click on graph for larger image.

Both imports and exports increased in April.  

Exports are 17% above the pre-recession peak and up 3% compared to April 2013; imports are about 4% above the pre-recession peak, and up about 5% compared to April 2013. 

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

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 imports averaged $95.48 in April, up from $93.91 in March, and down from $97.74 in April 2013.  The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012.

The trade deficit with China increased to $27.3 billion in April, from $24.2 billion in April 2013.  More than half of the trade deficit is related to China.

Overall it appears trade is picking up slightly.

by Calculated Risk on 6/04/2014 08:21:00 AM

From ADP:

Private sector employment increased by 179,000 jobs from April to May according to the May ADP National Employment Report®. ... he report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
Mark Zandi, chief economist of Moody’s Analytics, said, "Job growth moderated in May. The slowing in growth was concentrated in Professional/Business Services and companies with 50-999 employees. The job market has yet to break out from the pace of growth that has prevailed over the last three years.”

This was below the consensus forecast for 210,000 private sector jobs added in the ADP report. 

Note: ADP hasn't been very useful in directly predicting the BLS report on a monthly basis, but it might provide a hint. The BLS report for May will be released on Friday.