by Calculated Risk on 7/01/2015 05:49:00 PM

Bold prediction: Tomorrow will feel like a Friday!

On Thursday at 8:30 AM ET, the BLS will release the employment report for June. The consensus, according to Bloomberg, is for an increase of 230,000 non-farm payroll jobs in June (with a range of estimates between 202,000 to 252,000), and for the unemployment rate to decline to 5.4%.

The BLS reported 280,000 jobs added in May.

Here is a summary of recent data:

• The ADP employment report showed an increase of 237,000 private sector payroll jobs in June. This was above expectations of 220,000 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 slightly above expectations.

• The ISM manufacturing employment index increased in June to 55.5%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 10,000 in June. The ADP report indicated a 7,000 increase for manufacturing jobs.

The ISM non-manufacturing index for June will be released next Monday.

• Initial weekly unemployment claims averaged close to 271,000 in June, about the same as in May - and the lowest monthly average since early 2001. For the BLS reference week (includes the 12th of the month), initial claims were at 268,000; down from 275,000 during the reference week in May.

This suggests a lower level of layoffs in June.

• The final June University of Michigan consumer sentiment index increased to 96.1 from the May reading of 90.0. 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 June, the same as in May.  From Intuit: Small Businesses Employment Increases in June

Small business employment rose by 25,000 jobs in June, an increase of 0.13 percent, matching the gains seen in May. Although the hiring rate fell slightly, it should not be regarded as a reversal of the upward trend that began in June 2009.

“Small business employment remains 500,000 below the peak of 21.2 million people employed by small businesses in March 2007,” said Woodward. “Part of this continuing shortfall is because housing construction has failed to return to pre-crisis or even normal levels.”

“A sign of stronger small business activity is the hiring rate, which has been rising slowly but steadily since 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 190,000 jobs in June. From  TrimTabs:

TrimTabs Investment Research estimates that the U.S. economy added 190,000 jobs in June, the lowest level in 12 months.

“Job growth last month broke a streak of eleven consecutive monthly gains exceeding 200,000,” said David Santschi, chief executive officer of TrimTabs. “The economy seems to have lost some momentum heading into the dog days of summer.”

TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 142 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 manufacturing, unemployment claims, and small business hiring). There is always some randomness to the employment report, but my guess is in the low 200s.

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.