by Calculated Risk on 8/07/2015 09:19:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Surprisingly Calm After Jobs Report

Most lenders continue to quote conventional 30yr fixed rates of 4.0% on top tier scenarios, but with slightly lower closing costs today. The more aggressive lenders are increasingly able to quote 3.875% after these sorts of moves, though others are still stuck at 4.125% unless bond markets improve a bit further.

As of today, rates have improved for 3 straight weeks. ...
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 8/07/2015 06:05:00 PM

An excerpt from a research piece by Merrill Lynch economist Micheal Hanson:

After the July employment report largely matched expectations, we anticipate that the FOMC should see enough cumulative progress to start the hiking cycle at the September meeting — the chance that liftoff occurs then continues to creep up, in our view. That said, there are still another five weeks until that meeting. With data dependence as the focus of the Fed, unexpected shocks or a broad-based slowdown in the data could still lead the Committee to delay hiking. The bigger question for some Fed officials and market participants is low inflation. We expect continued labor market gains to leave the FOMC “reasonably confident” on the inflation outlook come September — something they should communicate in upcoming speeches.
emphasis added

It seems more and more likely that the Fed will hike in September.

by Calculated Risk on 8/07/2015 01:03:00 PM

By request, here is another update of an earlier post through the July 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	10,884
Clinton 2	10,073
GW Bush 1	-844
GW Bush 2	381
Obama 1	2,018
Obama 2	6,7321
130 months into 2nd term: 10,771 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.  Thirty months into Mr. Obama's second term, there are now 8,750,000 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 656,000 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	461
130 months into 2nd term, 74 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 46 thousand public sector jobs have been added during the first thirty months of Obama's 2nd term (following a record loss of 702 thousand public sector jobs during Obama's 1st term).  This is about 5% 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	10,884	692	11,576
2	Clinton 2	10,073	1,242	11,315
3	Reagan 2	9,357	1,438	10,795
	Obama 21	6,732	46	6,778
	Pace2	10,771	74	10,845
130 Months into 2nd Term 2Current Pace for Obama's 2nd Term

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

Average Jobs needed per month (000s) for remainder of Obama's 2nd Term
to Rank	Private	Total
#1	231	267
#2	186	252
#3	146	223

by Calculated Risk on 8/07/2015 09:52:00 AM

Earlier: July Employment Report: 215,000 Jobs, 5.3% Unemployment Rate

This was a solid employment report with 215,000 jobs added, and employment gains for May and June were revised up slightly.

There was even a little wage growth, from the BLS: "In July, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $24.99. Over the year, average hourly earnings have risen by 2.1 percent." Weekly hours increased slightly in July.

A few more numbers:  Total employment increased 215,000 from June to July and is now 3.7 million above the previous peak.  Total employment is up 12.4 million from the employment recession low.

Private payroll employment increased 210,000 from June to July, and private employment is now 4.2 million above the previous peak. Private employment is up 13.0 million from the recession low.

In July, the year-over-year change was just over 2.9 million jobs.

Note: The unemployment rate at 5.3%, and still little real wage growth - and a higher than normal level of people working part time for economic reasons - indicates slack in the labor market.  My view, partially based on demographics, is that the unemployment rate can fall below 5% without a significant pickup in inflation.

Overall this was a solid report.

Employment-Population Ratio, 25 to 54 years old

Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle.

The 25 to 54 participation rate declined in July to 80.7%, and the 25 to 54 employment population ratio declined to 77.1%.  As the recovery continues, I expect the participation rate for this group to increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s.

Average Hourly Earnings

This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also 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.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth increased 2.1% YoY - and although the series is noisy - it does appear wage growth is trending up a little.  Wages will probably pick up a little more this year.

Note: CPI has been running under 2%, so there has been some real wage growth.

Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in July at 6.3 million. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of persons working part time for economic reasons decreased in July to 6.32 million from 6.51 million in June.  This is the lowest level since Sept 2008 and suggests slack still in the labor market.

These workers are included in the alternate measure of labor underutilization (U-6) that declined to 10.4% in July (lowest level since June 2008).

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 2.18 million workers who have been unemployed for more than 26 weeks and still want a job. This was up slightly from 2.12 million in June.

This is trending down, but is still high.

State and Local Government

This graph shows total state and government payroll employment since January 2007. (Note: Scale doesn't start at zero to better show the change.)

In July 2015, state and local governments added five thousand jobs. State and local government employment is now up 145,000 from the bottom, but still 613,000 below the peak.

State and local employment is now generally increasing - slowly.  And Federal government layoffs appear to have ended (Federal payrolls were unchanged in July, and Federal employment is up 3,000 year-to-date).

Overall this was a solid employment report for July and indicates further improvement in the labor market.

by Calculated Risk on 8/07/2015 08:44:00 AM

From the BLS:

Total nonfarm payroll employment increased by 215,000 in July, and the unemployment rate was unchanged at 5.3 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in retail trade, health care, professional and technical services, and financial activities.
...
The change in total nonfarm payroll employment for May was revised from +254,000 to +260,000, and the change for June was revised from +223,000 to +231,000. With these revisions, employment gains in May and June combined were 14,000 higher than previously reported.
...
In July, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $24.99. Over the year, average hourly earnings have risen by 2.1 percent.
emphasis added

Click on graph for larger image.

The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes).

Total payrolls increased by 215 thousand in July (private payrolls increased 210 thousand).

Payrolls for May and June were revised up by a combined 14 thousand.

This graph shows the year-over-year change in total non-farm employment since 1968.

In July, the year-over-year change was over 2.9 million jobs.

That is a solid year-over-year gain.


The third graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate was unchanged in July at 62.6%. This is the percentage of the working age population in the labor force.   A large portion of the recent decline in the participation rate is due to demographics.

The Employment-Population ratio was unchanged at 59.3% (black line).

I'll post the 25 to 54 age group employment-population ratio graph later.

The fourth graph shows the unemployment rate.

The unemployment rate was unchanged in July at 5.3%.

This was slightly above expectations of 212,000 jobs, and revisions were up, and some wage growth ... a solid report.

I'll have much more later ...