by Calculated Risk on 6/04/2015 10:42:00 AM

Yesterday I discussed several indicators: Preview: Employment Report for May

Some excerpts from a research piece by Goldman Sachs economist Kris Dawsey:

We forecast a 210k gain in nonfarm payrolls in May, a bit below consensus of 226k and down slightly from April's pace of increase. ... the trend in payroll job growth seems to have softened a bit since reaching a high-water mark in late-2014 / early-2015.
...
We expect the unemployment rate to remain unchanged at 5.4%. ...

Average hourly earnings (AHE) for all employees will probably increase 0.3%, in our view. As we have noted in the past, the monthly earnings estimates appear to be influenced by calendar effects. The smaller number of working days in May, combined with relatively late timing of the survey reference week within the month, would historically be consistent with a firm AHE print. Including base effects, we think that the year-on-year change in all-employee AHE is likely to remain stable at 2.2% (with upside risk), while year-on-year growth in production and nonsupervisory AHE will probably rise one-tenth to 2.0%.

And from economists at Nomura:

[W]e forecast a 185k increase in private payrolls, with a 5k increase in government jobs, implying that total nonfarm payrolls will gain 190k. ... We forecast that average hourly earnings for private employees rose by 0.28% m-o-m in May, indicative of our expectation for a gradual pickup in wage growth as a result of the tightening labor market and a rebound after a slight 0.1% increase in April. Last, we expect the household survey to show that the unemployment rate remained unchanged at 5.4%.

by Calculated Risk on 6/04/2015 08:34:00 AM

The DOL reported:

In the week ending May 30, the advance figure for seasonally adjusted initial claims was 276,000, a decrease of 8,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 282,000 to 284,000. The 4-week moving average was 274,750, an increase of 2,750 from the previous week's revised average. The previous week's average was revised up by 500 from 271,500 to 272,000.

There were no special factors impacting this week's initial claims.

The previous week was revised to 284,000.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 274,750.

This was at the consensus forecast of 276,000, and the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 6/03/2015 07:18:00 PM

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 276 thousand from 282 thousand.

• Also at 8:30 AM, Productivity and Costs for Q1. The consensus is for a 6.0% increase in unit labor costs.

From Matthew Graham: MBS RECAP: The Real Drama is in Europe, but Little to do with Greece

If you missed it, or are otherwise looking for a recap on why bond markets got crushed today, here it is. Nothing materially changed from that update, and that's no surprise considering the source of the drama was Europe.

For those of you who don't click links, suffice it to say that the European Central Bank is not the Federal Reserve. ...

It's actually not too complicated. Europe fought tooth and nail for several years to roll out a QE program. They finally launched it in early 2015 and specified the amount and timing. When markets began speculating that the amount might be less or the timing might be cut short, the head of the European Central Bank provided reassurance that the timing and amounts were predetermined. And now today, he said they weren't. It's really that simple.

For the sake of perspective, he did say that the European economy requires the full program for the full amount of time (Sep 2016). The problem is that he also said that the program could end early if there was a sustained adjustment toward inflation targets. Jeez... To reiterate some of my incredulity from this morning, this is dirty pool. The Fed has been widely criticized, to be sure, but I couldn't imagine the backlash if they pulled a similar move with one of our QE iterations that had a predetermined amount of bond-buying.

It's a surefire way to cause chaos. And that's exactly what it did. German Bunds sold off 20bps today (vs 10bps in US Treasuries).

Here is a table of mortgage rates from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 6/03/2015 03:15:00 PM

Another month, another employment report ...

On Friday at 8:30 AM ET, the BLS will release the employment report for May. The consensus, according to Bloomberg, is for an increase of 220,000 non-farm payroll jobs in May (with a range of estimates between 190,000 and 289,000), and for the unemployment rate to be unchanged at 5.4%.

The BLS reported 223,000 jobs added in April.

Here is a summary of recent data:

• The ADP employment report showed an increase of 201,000 private sector payroll jobs in May. This was at expectations of 200,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth at expectations.

• The ISM manufacturing employment index increased in May to 51.7%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs decreased about 10,000 in May. The ADP report indicated a 5,000 decrease for manufacturing jobs.

The ISM non-manufacturing employment index decreased in May to 56.7%. A historical correlation  between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 215,000 in May.

Combined, the ISM indexes suggests employment gains of 205,000.  This suggests employment growth slightly below expectations.

• Initial weekly unemployment claims averaged close to 271,000 in May, down from 284,000 in April - and the lowest monthly average since early 2001. For the BLS reference week (includes the 12th of the month), initial claims were at 275,000; down from 296,000 during the reference week in April.

This suggests a lower level of layoffs in May compared to the previous months.

• The final May University of Michigan consumer sentiment index decreased to 90.0 from the April reading of 95.9. Sentiment is frequently coincident with changes in the labor market, but there are other factors too - like gasoline prices.

• On small business hiring: The small business index from Intuit showed a 25,000 increase in small business employment in May, up from 15,000 in March.  From Intuit: Small Businesses Employment Shows Sharp Growth in May

Small business employment rose by 25,000 jobs in May, an increase of 0.13 percent, or an annual rate of 1.6 percent. The hiring rate also continued to rise, showing the fastest increase since the hiring rate began growing for small businesses in July 2009. Hourly employees worked an average of 41 minutes longer than in April.

“Looking back to January 2004, we see only seven months when the change in hours worked was larger than 25 minutes. This is a sign that small businesses are working hard to meet increased demands – and get work done,” said Susan Woodward, the economist who works with Intuit to produce the Small Business Employment and Revenue Indexes.

“Another sign of stronger small business activity is the hiring rate, which rose at nearly twice the rate of any other month since beginning to rise in September 2009. The hiring rate always exceeds the employment increase because hiring reflects replacing workers who leave, as well as added workers,” Woodward said

• Trim Tabs reported that the U.S. economy added 273,000 jobs in May. From  TrimTabs:

TrimTabs Investment Research estimates that the U.S. economy added 273,000 jobs in May, the eleventh consecutive month that employment growth exceeded 200,000 jobs.

“While the Bureau of Economic Analysis’ latest GDP growth estimate has Wall Street worried about a slowdown, our figures paint a different picture,” said David Santschi, chief executive officer of TrimTabs. “Real-time tax data indicates employment growth remains solid.”

TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 141 million U.S. workers subject to withholding.

• Conclusion: Unfortunately none of the indicators above is very good at predicting the initial BLS employment report. However it looks like this should be another 200+ month (based on ADP, ISM, unemployment claims, and small business hiring). There is always some randomness to the employment report, but my guess is something close to the consensus this month.

by Calculated Risk on 6/03/2015 02:00:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of Dallas based on information collected on or before May 22, 2015"

Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded during the reporting period from early April to late May. Activity in the Richmond, Chicago, Minneapolis, and San Francisco Districts was characterized as growing at a moderate pace, while the New York, Philadelphia, and St. Louis Districts cited modest growth. Contacts in the Boston District reported mixed conditions, and the Cleveland and Kansas City Districts indicated a slight pace of expansion. Compared to the previous report, the pace of growth slowed slightly in the Dallas District but held steady in the Atlanta District. Outlooks among respondents were generally optimistic, with growth expected to continue at a modest to moderate pace in several districts. ...

Manufacturing activity generally held steady or increased over the reporting period, except for in the Dallas District where it was slightly weaker and in the Kansas City District where it fell markedly.

And on real estate:

Residential real estate activity and construction expanded in most districts since the prior report, and outlooks were largely positive. Homes sales rose strongly in the Minneapolis District on a year-over-year basis, while more modest to moderate gains were reported by all of the remaining districts, except for Philadelphia where builders reported mixed conditions for new home sales and brokers noted slightly slower existing-home sales in April on a year-over-year basis. ... Residential construction was flat to up during the reporting period, although a few districts reported a slower pace of homebuilding activity due to financing and capacity constraints and severe weather.

Commercial real estate leasing and construction activity improved in most districts, and outlooks were optimistic.
emphasis added