by Calculated Risk on 12/29/2014 07:08:00 PM

Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.

Here is a review of the Ten Economic Questions for 2014.

6) Real Wage Growth: Last month I listed a few economic "words of the year" for the last decade. I finished with: "2015: Wages (Just being hopeful - maybe 2015 will be the year that real wages start to increase)". Will real wages increase in 2015?

Jared Bernstein wrote an excellent article today on the labor market at the NY Times The Upshot: Signs of a Tightening Labor Market, but Still Room for Improvement. He mentioned wages:

For all the actual tightening in the 2014 job market, what is perhaps the most important indicator from the perspective of working families — wage growth — has hardly budged. Though commentators made a big deal out of the bump in pay from the last jobs report, the yearly trend in nominal hourly wage growth remains at about 2 percent, where it has been since 2010.

Bernstein is referring to “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report, .

Click on graph for larger image.

The blue line shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  As Bernstein noted, nominal wage growth has been running close to 2% since 2010.

The red line is real wage growth (adjusted using headline CPI).  Real wages increased during the crisis because CPI declined sharply.   CPI has been running under 2%, so there has been some real wage growth - and some of the recent increase in real wages is due to falling oil prices (CPI declined in November).

There are two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. All three data series are different, and most of the focus recently has been the CES series (used in the graph above).


The second graph shows the year-over-year change using the quarterly wage data from the Employment Cost Index (data starts in 2001). Once again this shows nominal wages have increasing about 2% per year, and real wages have been mostly unchanged. In the future I'll post a graph including benefits (benefits generally have risen faster than wages).

For this post the key point is that nominal wages have been only increasing about 2% per year. As the labor market tightens, we should start seeing some wage pressure as companies have to compete more for employees. Whether real wages start to pickup in 2015 - or not until 2016 or later - is a key question. I expect to see some increase in both real and nominal wage increases this year. I doubt we will see a significant pickup, but maybe another 0.5 percentage points for both, year-over-year.

Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?

by Calculated Risk on 12/29/2014 01:49:00 PM

A few related articles on oil  ...

From Bloomberg: Oil Falls to 5-Year Low as Supply Glut Seen Lingering

Oil fell to the lowest level in more than five years amid speculation that a global supply glut that’s driven crude into a bear market will continue through the first half of 2015.
...
WTI for February delivery fell 96 cents, or 1.8 percent, to $53.77 a barrel at 12:25 p.m. on the New York Mercantile Exchange.

Currently WTI is at $53.21, and Brent futures are at $57.79.

From Bloomberg: Oil Rigs in U.S. Drop by 37 to Lowest Level Since April

Rigs targeting oil declined by 37 to 1,499 in the week ended Dec. 26, Baker Hughes Inc. (BHI) said on its website today. The number of oil rigs has slipped by 76 in three weeks. ... The number of rigs targeting U.S. oil is down from a record 1,609 following a $55-a-barrel drop in global prices since June, threatening to slow the shale-drilling boom that’s propelled domestic production to the highest in three decades.
...
While the U.S. rig count has dropped, domestic production continues to surge, with the yield from new wells in shale formations including North Dakota’s Bakken and Texas’s Eagle Ford projected to reach records next month, Energy Information Administration data show.

Although new exploration will slow sharply, I expect domestic producers to continue to produce at most existing wells at current prices.

And less exploration will lead to layoffs.  From the WSJ: Oil Jobs Squeezed as Prices Plummet

Tom Runiewicz, a U.S. industry economist at IHS Global Insight, forecasts companies providing support services to oil and gas companies could lose 40,000 jobs by the end of 2015, about 9% of the category’s total, if oil stays around $56 a barrel through the second quarter of next year. Equipment manufacturers could shed 5,000 to 6,000 jobs, or about 6% of total employment for such companies.

There will be winners and losers with the decline in oil prices, however, since the US is a large net importer of oil (despite the myth reported by some in the media), overall the decline in oil prices should be a positive for the economy.

by Calculated Risk on 12/29/2014 10:35:00 AM

From the Dallas Fed: Texas Manufacturing Activity Picks Up Pace

Texas factory activity increased again in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose strongly from 6 to 15.8, indicating output grew at a faster pace in December.

Other measures of current manufacturing activity reflected continued growth during the month. The capacity utilization index rose from 9.8 to 12.4, due to a higher share of respondents noting an increase in December than in November. The shipments index climbed to 19.6, its highest reading in five months. The new orders index moved down from 5.6 to 1.3, suggesting moderating demand growth, but more than a quarter of firms noted increases in new orders over November levels.

Perceptions of broader economic conditions remained positive this month. The general business activity index fell from 10.5 to 4.1. The company outlook index was almost unchanged at 8.4, with 21 percent of respondents noting an improved outlook.

Labor market indicators reflected unchanged workweeks but continued employment increases. The December employment index held steady at a solid reading of 9.2
emphasis added

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (dashed green, through December), and five Fed surveys are averaged (blue, through December) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through November (right axis).

It seems likely the ISM index will be solid, but show slower expansion in December. The ISM Manufacturing Index for December will be released on Friday, January 2nd, and the consensus is for a decrease to 57.5 from 58.7 in November.

by Calculated Risk on 12/29/2014 08:33:00 AM

Note: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight, Zillow, FHFA, FNC and more). The timing of different house prices indexes; Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From Black Knight: U.S. Home Prices Up 0.1 for the Month; Up 4.5 Percent Year-Over-Year

Today, the Data and Analytics division of Black Knight Financial Services​ released its latest Home Price Index (HPI) report, based on October 2014 residential real estate transactions. The Black Knight HPI combines the Company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.

The Black Knight HPI increased 0.1% percent in October, and is off 10.2% from the peak in June 2006 (not adjusted for inflation).

The year-over-year increases have been getting steadily smaller for the last year - as shown in the table below:

Month	YoY House Price Increase
Jan-13	6.7%
Feb-13	7.3%
Mar-13	7.6%
Apr-13	8.1%
May-13	7.9%
Jun-13	8.4%
Jul-13	8.7%
Aug-13	9.0%
Sep-13	9.0%
Oct-13	8.8%
Nov-13	8.5%
Dec-13	8.4%
Jan-14	8.0%
Feb-14	7.6%
Mar-14	7.0%
Apr-14	6.4%
May-14	5.9%
June-14	5.5%
July-14	5.1%
Aug-14	4.9%
Sep-14	4.6%
Oct-14	4.5%

The press release has data for the 20 largest states, and 40 MSAs.

Black Knight shows prices off 41.0% from the peak in Las Vegas, off 34.0% in Orlando, and 31.7% off from the peak in Riverside-San Bernardino, CA (Inland Empire). Prices are at new highs in Colorado and Texas (Denver, Austin, Dallas, Houston and San Antonio metros). Prices are also at new highs in Honolulu, HI, and Nashville, TN.

Note: Case-Shiller for October will be released tomorrow.

by Calculated Risk on 12/28/2014 08:25:00 PM

From the WSJ: Need a Raise in 2015? Try Changing Jobs

In an economic recovery weighed down by subdued income growth for most Americans, a Kansas City Fed paper suggests those who are moving on to new jobs are better able to negotiate pay increases.

By focusing on job “switchers,” Kansas City Fed economist José Mustre-del-Río says he is able to get a better sense of present wage conditions.

“Unlike wages of stayers, wages of switchers are much more cyclically sensitive, as contracts signed with new employers are more likely to reflect current economic conditions,” he writes in a research note. “We find that switchers’ wage growth has been quite strong the past several quarters as the labor market continues to tighten.”

For instance, job switchers’ average wage growth rose from around 4.3% per quarter in the first quarter of 2013 to 5.6% in the third quarter of 2014, the study found. Those changing jobs in leisure and hospitality experienced average wage growth of 7.7%, well above a the 2% experience by the average worker last year and that has kept consumers barely keeping pace with inflation.

Monday:
• At 10:30 AM ET, the Dallas Fed Manufacturing Survey for December. This is the last of the regional Fed surveys for December.

Weekend:
• Schedule for Week of December 28th

• Question #7 for 2015: What about oil prices in 2015?

• Question #8 for 2015: How much will Residential Investment increase?

• Question #9 for 2015: What will happen with house prices in 2015?

• Question #10 for 2015: How much will housing inventory increase in 2015?

From CNBC: Pre-Market Data and Bloomberg futures: currently the S&P futures are up 3 and DOW futures are up 30 (fair value).

Oil prices were down over the last week with WTI futures at $55.48 per barrel and Brent at $60.01 per barrel.  A year ago, WTI was at $99, and Brent was at $112 - so prices are down 44% and 46% year-over-year respectively.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $2.29 per gallon (down about $1.00 per gallon 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