by Calculated Risk on 9/07/2014 07:51:00 PM

From Ben Leubsdorf at the WSJ: Services-Spending Report Gains Wider Attention

A quarterly reading from the Commerce Department has quietly emerged as one of the most consequential government reports, with the power to roil estimates for U.S. economic growth and the impact of the Affordable Care Act.

The Quarterly Services Survey, or QSS, measures revenue at service-providing companies including hospitals, day-care centers and law offices. ... Federal Reserve policy makers and private economists are taking a much closer look at the gauge. ...

Consumer spending accounts for more than two-thirds of U.S. economic output, but measuring spending on services is tricky. The government often relies on indirect clues, like payroll growth in certain industries. The QSS offers the best—that is, only—source of timely hard data. It is the basis for roughly one-fifth of the Commerce Department's quarterly calculation of gross domestic product.

June's report led to a steep downgrade for first-quarter GDP.

The Q2 Quarterly Services Report will be released on Thursday, September 11, 2014 at 10AM ET.

Weekend:
• Schedule for Week of September 7th
• Update: Prime Working-Age Population Growing Again
• Research: Much of Recent Decline in Labor Force Participation Rate due to "ongoing structural influences"

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 2 and DOW futures are down 14 (fair value).

Oil prices were down slightly over the last week with WTI futures at $93.48 per barrel and Brent at $100.80 per barrel.  A year ago, WTI was at $109, and Brent was at $116 - so prices are down solidly year-over-year.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.44 per gallon (down almost 15 cents from a year ago).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 9/07/2014 12:23:00 PM

For several years, I've been arguing that "most of the recent decline in the participation rate" was due to demographics and other long term structural trends (like more education). This is an important issue because if most of the decline had been due to cyclical weakness, then we'd expect a significant increase in participation as the economy improved. If the decline was due to demographics and other long term trends, then the participation rate might keep falling (or flatten out) as the economy improves.

 Note: So far this year, the participation rate has moved sideways at 62.8% - probably because demographics and other long term factors are being offset by people returning to the labor force this year.  However, looking forward, the participation rate should continue to decline for the next couple of decades.

From Federal Reserve researchers Stephanie Aaronson, Tomaz Cajner, Bruce Fallick, Felix Galbis-Reig, Christopher L. Smith, and William Wascher: Labor Force Participation: Recent Developments and Future Prospects

The evidence we present in this paper suggests that much of the steep decline in the labor force participation rate since 2007 owes to ongoing structural influences that are pushing down the participation rate rather than a pronounced cyclical weakness related to potential jobseekers’ discouragement about the weak state of the labor market – in many ways a similar message as was conveyed in the 2006 Brookings Paper. Most prominently, the ongoing aging of the babyboom generation into ages with traditionally lower attachment to the labor force can, by itself, account for nearly half of the decline. In addition, estimates from our model, as well as the supplementary evidence on which we report, show persistent declines in participation rates for some specific age/sex categories that appear to have their roots in longer-run changes in the labor market that pre-date the financial crisis by a decade or more.

In particular, participation rates among youths have been declining since the mid-1990s, in part reflecting the higher returns to education documented extensively by other researchers, but also, we believe, some crowding out of job opportunities for young workers associated with the decline in middle-skill jobs and thus greater competition for the low-skilled jobs traditionally held by teenagers and young adults. Such “polarization” effects also appear to have weighed on the participation of less-educated prime-age men and, more recently, prime-age women. In contrast, increasing longevity and better health status, coupled with changes in social security rules and increased educational attainment, have contributed to an ongoing rise in the participation rates of older individuals, but these increases have not been large enough to provide much offset to the various downward influences on the aggregate participation rate.

That is not to say that all of the decline in labor force participation reflects structural influences. Our cohort-based model suggests that cyclical weakness was depressing the participation rate by about ¼ percentage point in 2014:Q2, while evidence from cross-state regressions suggests that the contribution of cyclical weakness could be as much as 1 percentage point. The greater cyclicality evidenced in the cross-state regressions could be capturing some of the features of the current labor market we discussed outside the context of the model, such as the unusually high level of those out of the labor force who want a job, or any unusual cyclicality in youth participation or retirement.

Looking ahead, demographics will likely continue to play a prominent role in determining the future path of the aggregate labor force participation rate. The youngest members of the baby-boom generation are still in their early fifties, and thus the effects of population aging will continue to put downward pressure on the participation rate for some time. Indeed, on our estimates, the continued aging of the population alone will subtract 2½ percentage points from the aggregate participation rate over the next ten years. And the overall downtrend could be even larger if some of the negative trends evident for particular age-sex groups persist.

by Calculated Risk on 9/06/2014 06:06:00 PM

This is an update to a previous post through August.

Earlier this year, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group and The Future is still Bright!

I pointed out that "even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon."

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through August 2014.

Click on graph for larger image.

There was a huge surge in the prime working age population in the '70s, '80s and '90s - and the prime age population has been mostly flat recently (even declined a little).

The prime working age labor force grew even quicker than the population in the '70s and '80s due the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s!

So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply).

The prime working age population peaked in 2007, and appears to have bottomed at the end of 2012.  The good news is the prime working age group has started to grow again, and should be growing solidly by 2020 - and this should boost economic activity in the years ahead.

by Calculated Risk on 9/06/2014 01:12:00 PM

The key report this week is August retail sales on Friday.

----- Monday, September 8th -----
3:00 PM: Consumer Credit for July from the Federal Reserve.  The consensus is for credit to increase $17.4 billion.

----- Tuesday, September 9th -----
7:30 AM ET: NFIB Small Business Optimism Index for August.

10:00 AM: Job Openings and Labor Turnover Survey for July 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 increased in June to 4.671 million from 4.577 million in May.   This was the highest level since February 2001.

The number of job openings (yellow) were up 18% year-over-year compared to June 2013. Quits were up 15% year-over-year.

----- Wednesday, September 10th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for July. The consensus is for a 0.5% increase in inventories.

----- Thursday, September 11th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 300 thousand from 302 thousand.

10:00 AM: The Q2 Quarterly Services Report from the Census Bureau.

2:00 PM ET: The Monthly Treasury Budget Statement for August.

----- Friday, September 12th -----
8:30 AM ET: Retail sales for August will be released.

This graph shows retail sales since 1992 through July 2014. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). On a monthly basis, retail sales were unchanged from June to July (seasonally adjusted), and sales were up 3.7% from July 2013.

The consensus is for retail sales to increase 0.4% in August, and to increase 0.3% ex-autos.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (preliminary for September). The consensus is for a reading of 83.1, up from 82.5 in August.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for July.  The consensus is for a 0.5% increase in inventories.

by Calculated Risk on 9/05/2014 09:40:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Sept 5, 2014.

Changes and comments from surferdude808:

The Federal Reserve terminating two actions were the only changes to the Unofficial Problem Bank List this week. After removal, the list holds 437 institutions with assets of $138.9 billion. A year ago, the list held 704 institutions with assets of $249.8 billion.

The Fed terminated actions against Commercial Bank, Harrogate, TN ($771 million) and American Bank, Bozeman, MT ($313 million). With these terminations, there are only 44 or 5.1 percent of the 858 banks supervised by the Fed operating under a formal enforcement action. In comparison, 6.2 percent of the state non-member banks supervised by the FDIC and 10.5 percent of the national banks supervised by the OCC are operating under a formal agreement.

Next week should be as quiet as the OCC will likely not provide an update on its enforcement action activity until September 19th.

CR Note: The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public. (CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.)

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

When the list was increasing, the official and "unofficial" counts were about the same. Now with the number of problem banks declining, the unofficial list is lagging the official list. This probably means regulators are changing the CAMELS rating on some banks before terminating the formal enforcement actions.