by Calculated Risk on 7/01/2015 02:51:00 PM

Based on an AutoData estimate, light vehicle sales were at a 17.1 million SAAR in June. That is up 1.5% from June 2014, and down 3.5% from the 17.7 million annual sales rate last month.


Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for June (red, light vehicle sales of 17.1 million SAAR from WardsAuto).

This was close to the consensus forecast of 17.2 million SAAR (seasonally adjusted annual rate).

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

This was below the consensus forecast, but another strong month. It appears 2015 will be the best year for light vehicle sales since 2001.

by Calculated Risk on 7/01/2015 01:45:00 PM

Reis released their Q2 2015 Office Vacancy survey this morning. Reis reported that the office vacancy rate was unchanged compared to Q1 at 16.6%. This is down from 16.9% in Q2 2014, and down from the cycle peak of 17.6%.

From Reis:

The national vacancy rate remained unchanged at 16.6% during the second quarter. Vacancy compression stalled this quarter because net absorption was slightly outpaced by new construction. This appears to be just a pause as vacancy compression has been more consistent in recent quarters. With the economy and labor market continuing to improve, demand should outpace new construction by a wider margin over time, resulting in more rapid vacancy compression than has occurred up to this point.
...
Occupied stock increased by 8.154 million square feet during the second quarter. This was an increase versus last quarter. However, more heartening data can be found in the year‐to‐date net absorption figure of 15.607 million SF. This is a 22% increase over 2014’s year‐to‐date absorption and the best midyear performance since before the recession. This provides the strongest evidence yet that greater demand is returning to the office market. Although the pace of improvement has been slower than in previous recoveries, it appears that this recovery is finally gaining momentum. We expect this to continue going forward as ongoing increases in hiring translate into greater space needs for office users.

New construction of 8.303 million SF is a bounce back from the first quarter. Most of the new inventory coming online is preleased. Although it is slowly increasing, there remains little new purely speculative development in the market. This will likely persist until vacancy is far lower – with such an elevated vacancy rate, investors and lenders remain cautious about green lighting construction that does not have a pre‐leased component. When this stringent pre‐leasing prerequisite is finally dropped it will be a clear sign to the market that the recovery is in full swing. However, we have not yet arrived at that juncture.
...
Asking and effective rents both grew by 0.7% during the second quarter, marking the nineteenth consecutive quarter of asking and effective rent growth. These growth rates are a decrease from last quarter when both grew by roughly 1.0%. As we mentioned last quarter, annualized rent growth of closer to 4%, which was observed during the two previous quarters, was going to be difficult to maintain in such a high‐vacancy environment.

Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis reported the vacancy rate was at 16.6% in Q2.

Office vacancy data courtesy of Reis.

by Calculated Risk on 7/01/2015 10:59:00 AM

Earlier today, the Census Bureau reported that overall construction spending increased in May:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during May 2015 was estimated at a seasonally adjusted annual rate of $1,035.8 billion, 0.8 percent above the revised April estimate of $1,027.0 billion. The May figure is 8.2 percent above the May 2014 estimate of $957.6 billion.

Both Private and public spending increased:

Spending on private construction was at a seasonally adjusted annual rate of $752.4 billion, 0.9 percent above the revised April estimate of $745.6 billion. ...

In May, the estimated seasonally adjusted annual rate of public construction spending was $283.4 billion, 0.7 percent above the revised April estimate of $281.5 billion.
emphasis added

Note: Non-residential for offices and hotels is generally increasing, but spending for oil and gas has been declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because oil prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending.

As an example, construction spending for private lodging is up 30% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014 and is down 24% year-over-year.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending has been increasing recently, and is 47% below the bubble peak.

Non-residential spending is only 5% below the peak in January 2008 (nominal dollars).

Public construction spending is now 13% below the peak in March 2009 and about 7% above the post-recession low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 8%. Non-residential spending is up 13% year-over-year. Public spending is up 3% year-over-year.

Looking forward, all categories of construction spending should increase in 2015. Residential spending is still very low, non-residential is starting to pickup (except oil and gas), and public spending has probably hit bottom after several years of austerity.

This was above the consensus forecast of a 0.5% increase, and spending for January through April was revised up.  A solid report.

by Calculated Risk on 7/01/2015 10:06:00 AM

The ISM manufacturing index suggested expansion in June. The PMI was at 53.5% in June, up from 52.8% in May. The employment index was at 55.5%, up from 51.7% in May, and the new orders index was at 56.0%, up from 55.8%.

From the Institute for Supply Management: June 2015 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in June for the 30th consecutive month, and the overall economy grew for the 73rd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. "The June PMI® registered 53.5 percent, an increase of 0.7 percentage point over the May reading of 52.8 percent. The New Orders Index registered 56 percent, an increase of 0.2 percentage point from the reading of 55.8 percent in May. The Production Index registered 54 percent, 0.5 percentage point below the May reading of 54.5 percent. The Employment Index registered 55.5 percent, 3.8 percentage points above the May reading of 51.7 percent, reflecting growing employment levels from May at a faster rate. Inventories of raw materials registered 53 percent, an increase of 1.5 percentage points from the May reading of 51.5 percent. The Prices Index registered 49.5 percent, the same reading as in May, indicating lower raw materials prices for the eighth consecutive month. Comments from the panel indicate mostly stable to improving business conditions, with the notable exception relating to the oil and gas markets. Also noted is the negative effect on egg prices and availability due to the avian flu outbreak."
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 53.2%, and indicates slightly faster expansion in June. Solid internals.

by Calculated Risk on 7/01/2015 08:19:00 AM

From ADP:

Private sector employment increased by 237,000 jobs from May to June according to the June ADP National Employment Report®. ... The 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.
...
Goods-producing employment rose by12,000 jobs in June, after adding 11,000 in May. The construction industry had another solid month in June adding 19,000 jobs, down from 28,000 last month. Meanwhile, manufacturing added 7,000 jobs in June, after losing 2,000 in May.

Service-providing employment rose by 225,000 jobs in June, a strong rise from 192,000 in May. The ADP National Employment Report indicates that professional/business services contributed 61,000 jobs in June, almost double May’s 32,000. Trade/transportation/utilities grew by 50,000, the same as the previous month. The 19,000 new jobs added in financial activities was an increase from last month’s 12,000.
...
Mark Zandi, chief economist of Moody’s Analytics, said, “The U.S. job machine remains in high gear. The current robust pace of job growth is double that needed to absorb the growth in the working age population. The only blemish in the job market is the loss of jobs in the energy sector. Most encouraging is the healthy rate of job growth among the nation’s smallest companies.”

This was above the consensus forecast for 220,000 private sector jobs added in the ADP report. 

The BLS report for June will be released tomorrow, Thursday, and the consensus is for 228,000 non-farm payroll jobs added in June.