by Calculated Risk on 6/07/2015 12:33:00 PM

An update: Last 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, Decline in the Labor Force Participation Rate: Mostly Demographics and Long Term Trends, and The Future's so 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 May 2015.

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 to 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).

See: Demographics and GDP: 2% is the new 4%

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 is now growing close to 0.4% per year - and this should boost economic activity.

by Calculated Risk on 6/06/2015 06:39:00 PM

This is a key distressed market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.  These key markets hopefully show us changes in trends for sales and inventory.

For the sixth consecutive month, inventory was down year-over-year in Phoenix. This is a significant change from last year.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in May were up 11.4% year-over-year.

2) Cash Sales (frequently investors) were down to 24.0% of total sales.

3) Active inventory is now down 15.4% year-over-year.  

More inventory (a theme in 2014) - and less investor buying - suggested price increases would slow sharply in 2014.  And prices increases did slow.

Now, with falling inventory, prices might increase a little faster in 2015 (something to watch if inventory continues to decline).

May Residential Sales and Inventory, Greater Phoenix Area, ARMLS
	Sales	YoY Change Sales	Cash Sales	Percent Cash	Inventory	YoY Change Inventory
May-08	5,6371	---	1,062	18.8%	54,1611	---
May-09	9,284	64.7%	3,592	38.7%	39,902	-26.3%
May-10	9,067	-2.3%	3,341	36.8%	41,326	3.6%
May-11	9,811	8.2%	4,523	46.1%	31,661	-23.4%
May-12	8,445	13.5%	3,907	46.3%	20,162	-36.3%
May-13	9,440	11.8%	3,669	38.9%	19,734	-2.1%
May-14	7,442	-21.2%	2,193	29.5%	29,091	47.4%
May-15	8,293	11.4%	1,988	24.0%	24,616	-15.4%
1 May 2008 does not include manufactured homes, ~100 more

by Calculated Risk on 6/06/2015 08:41:00 AM

The key economic report this week is May Retail sales on Thursday.

----- Monday, June 8th -----
At 10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

----- Tuesday, June 9th -----
9:00 AM: NFIB Small Business Optimism Index for May.

10:00 AM: Job Openings and Labor Turnover Survey for April 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 decreased in March to 4.994 million from 5.144 million in February.

The number of job openings (yellow) were up 19% year-over-year, and Quits were up 14% year-over-year.

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

10:00 AM: The Q1 Quarterly Services Report from the Census Bureau.

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

----- Thursday, June 11th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 276 thousand from 275 thousand.

8:30 AM ET: Retail sales for May will be released.

This graph shows retail sales since 1992 through April 2015. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). On a monthly basis, retail sales were unchanged from March to April (seasonally adjusted), and sales were up 0.9% from April 2014.

The consensus is for retail sales to increase 1.3% in May, and to increase 0.8% ex-autos.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for April.  The consensus is for a 0.2% increase in inventories.

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

----- Friday, June 12th -----
8:30 AM ET: The Producer Price Index for May from the BLS. The consensus is for a 0.4% increase in prices, and a 0.1% increase in core PPI.

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for June). The consensus is for a reading of 91.2, up from 90.7 in May.

by Calculated Risk on 6/05/2015 09:09:00 PM

More good news ... the budget deficit in fiscal 2015 will probably be lower than the recent CBO March forecast.

From the Congressional Budget Office (CBO) today: Monthly Budget Review for May 2015

The federal government ran a budget deficit of $368 billion for the first eight months of fiscal year 2015, CBO estimates. That deficit was $68 billion smaller than the one recorded during the same period last year. Revenues and outlays were both higher than the amounts recorded during the same period in fiscal year 2014—by 9 percent and 4 percent, respectively. If not for shifts in the timing of certain payments (which otherwise would have fallen on a weekend), the deficit for the eight-month period would have been $33 billion less this year than it was in fiscal year 2014. ...

And for May 2015:

The federal government recorded a deficit of $85 billion in May 2015, CBO estimates—$45 billion less than the deficit in May 2014. If not for the effects of timing shifts that occurred in May 2014, the deficit in May 2015 would have been $9 billion (or 10 percent) smaller than it was in the same month last year.
emphasis added

The consensus was the deficit for May would be around $97 billion, and it appears the deficit for fiscal 2015 will be smaller than the CBO currently expects (less than 2.7% of GDP).

by Calculated Risk on 6/05/2015 05:21:00 PM

By request, here is an update on an earlier post through the April employment report.

NOTE: Several readers have asked if I could add a lag to these graphs (obviously a new President has zero impact on employment for the month they are elected). But that would open a debate on the proper length of the lag, so I'll just stick to the beginning of each term.

Note: We frequently use Presidential terms as time markers - we could use Speaker of the House, or any other marker.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, however the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is generally declining now.  But these graphs give an overview of employment changes.

First, here is a table for private sector jobs. The top two private sector terms were both under President Clinton.  Reagan's 2nd term saw about the same job growth as during Carter's term.  Note: There was a severe recession at the beginning of Reagan's first term (when Volcker raised rates to slow inflation) and a recession near the end of Carter's term (gas prices increased sharply and there was an oil embargo).

Term	Private Sector Jobs Added (000s)
Carter	9,041
Reagan 1	5,360
Reagan 2	9,357
GHW Bush	1,510
Clinton 1	10,885
Clinton 2	10,070
GW Bush 1	-844
GW Bush 2	381
Obama 1	2,018
Obama 2	6,3221
128 months into 2nd term: 10,838 pace.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s). President George H.W. Bush only served one term, and President Obama is in the third year of his second term.

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble. Mr. Obama (blue) took office during the financial crisis and great recession. There was also a significant recession in the early '80s right after Mr. Reagan (yellow) took office.

There was a recession towards the end of President G.H.W. Bush (purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

The employment recovery during Mr. G.W. Bush's (red) first term was sluggish, and private employment was down 844,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 463,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,510,000 private sector jobs added.

Private sector employment increased by 20,955,000 under President Clinton (light blue), by 14,717,000 under President Reagan (yellow), and 9,041,000 under President Carter (dashed green).

There were only 2,018,000 more private sector jobs at the end of Mr. Obama's first term.  Twenty eight months into Mr. Obama's second term, there are now 8,340,000 more private sector jobs than when he initially took office.

 A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1980, 1990, 2000, and 2010. 

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 638,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment.

And a table for public sector jobs. Public sector jobs declined the most during Obama's first term, and increased the most during Reagan's 2nd term.

Term	Public Sector Jobs Added (000s)
Carter	1,304
Reagan 1	-24
Reagan 2	1,438
GHW Bush	1,127
Clinton 1	692
Clinton 2	1,242
GW Bush 1	900
GW Bush 2	844
Obama 1	-702
Obama 2	641
128 months into 2nd term, 110 pace

Looking forward, I expect the economy to continue to expand through 2016 (at least), so I don't expect a sharp decline in private employment as happened at the end of Mr. Bush's 2nd term (In 2005 and 2006 I was warning of a coming recession due to the bursting of the housing bubble).

For the public sector, the cutbacks are clearly over at the state and local levels, and it appears cutbacks at the Federal level might also be over.  Right now I'm expecting some increase in public employment during Obama's 2nd term, but nothing like what happened during Reagan's second term.

Here is a table of the top three presidential terms for private job creation (they also happen to be the three best terms for total non-farm job creation).

Clinton's two terms were the best for both private and total non-farm job creation, followed by Reagan's 2nd term.

Currently Obama's 2nd term is on pace to be the 2nd best ever for private job creation.  However, with very few public sector jobs added, Obama's 2nd term is only on pace to be the third best for total job creation.

Note: Only 64 thousand public sector jobs have been added during the first twenty eight months of Obama's 2nd term (following a record loss of 702 thousand public sector jobs during Obama's 1st term).  This is less than 8% of the public sector jobs added during Reagan's 2nd term!

Top Employment Gains per Presidential Terms (000s)
Rank	Term	Private	Public	Total Non-Farm
1	Clinton 1	10,885	692	11,577
2	Clinton 2	10,070	1,242	11,312
3	Reagan 2	9,357	1,438	10,795
	Obama 21	6,322	64	6,386
	Pace2	10,838	110	10,948
128 Months into 2nd Term 2Current Pace for Obama's 2nd Term

The second table shows the jobs need per month for Obama's 2nd term to be in the top three presidential terms.

Average Jobs needed per month (000s) for Obama's 2nd Term
to Rank	Private	Total
#1	228	260
#2	187	246
#3	152	220