by Calculated Risk on 4/07/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending April 2, the advance figure for seasonally adjusted initial claims was 382,000, a decrease of 10,000 from the previous week's revised figure of 392,000. The 4-week moving average was 389,500, a decrease of 5,750 from the previous week's revised average of 395,250.

Click on graph for larger image in graph gallery.

This graph shows the 4-week moving average of weekly claims for the last 40 years. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 389,500.

This is the 6th consecutive week with the 4-week average below the 400,000 level. This is still elevated, and we'd like to see the number of initial claims continue to decline (and hiring pickup too). But this is a small positive step in the right direction.

by Calculated Risk on 4/06/2011 08:23:00 PM

As I mentioned this morning, the sharp decline in the rental vacancy rate, to 6.2% in Q1 2011, suggests that the excess supply of housing is being absorbed. Here is a graph of the Reis apartment vacancy rate:

Click on graph for larger image in graph gallery.

The vacancy rate is back to early 2008 levels, and is not far above the rate of 2006 (around 5.7%). As the vacancy rate falls, rents will rise and this will help support house prices. See this post on the price-to-rent ratio.

Housing economist Tom Lawler predicted this afternoon: 'Rising rents combined with a substantial reduction in the “excess supply” of housing (single family as well) will also help stem the recent “renewed” downturn in US home prices well before the end of this year.'

I think prices might fall for another year or two in real terms (inflation adjusted), but I agree that it is likely that nominal house prices will bottom this year.

by Calculated Risk on 4/06/2011 03:52:00 PM

It was just a matter of when ...

From Reuters: Portugal's Finance Minister: We Now Need EU Aid After All

"In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework," said Finance Minister Fernando Teixeira dos Santos.

Here is the 10 year bond yield from Bloomberg for Portugal. Everyone expected Portugal to ask for a bailout, but is this the last EU country to ask for help? That is a key quesiton.

by Calculated Risk on 4/06/2011 02:30:00 PM

• As I noted back in January, the deficit and the debt are real issues, but the "debt ceiling" debate is political posturing. (If you follow the links back a few years, this was originally making fun of Democrats).

I still believe a shutdown will be averted, but if not, here is an article from Michael Shear at the NY Times on the possible consequences: White House Says Shutdown Would Harm the Economy (pay wall)

Administration officials said that nearly 800,000 federal workers would probably be told to stop working if a deal was not reached in the next two days. Small business loans would stop. Tax returns filed on paper would not be processed. Government Web sites would go dark. And federal loan guarantees for new mortgages would become unavailable.

Speaking to reporters on a morning conference call, a senior administration official said the cumulative impact of the shutdown “would have a significant impact on our economic momentum.”

This is a real concern, but I don't believe anyone in Congress is THAT stupid.

• Unfortunately the Paul Ryan budget plan is riddled with errors. Here are the original projections (they have been changed without changing the plan - not a good sign). The plan has many unrealistic projections (unemployment, residential investment, and more). Bad math ruins the whole plan, and it isn't even a starting point for discussion.

Also, as I noted earlier in the comments, I'm in the "over 55" group that will not see a change to Medicare under Ryan's plan. I object to this vote buying scheme (older people vote). Whatever plan is good enough for those 25 years old, 35 years old and 45 years old - is good enough for me. I believe in shared sacrifice, and I refuse to ask younger workers to take less while I get more. I understand this plan is DOA if it applies to older workers, then so be it.

Aren't there any leaders in America who can talk shared sacrifice to solve a problem?

by Calculated Risk on 4/06/2011 11:48:00 AM

By request, here is an update to a graph I posted just over a year ago on construction employment. Last year the outlook for construction employment was grim. This year will be a little better - but not much.

Click on graph for larger image in graph gallery.

This graph shows the number of construction payroll jobs (blue line), and the number of construction jobs as a percent of total non-farm payroll jobs (red line).

Construction employment is down 2.2 million jobs from the peak in April 2006, but up 16 thousand jobs so far this year.

Note: Unfortunately this graph is a combination of both residential and non-residential construction employment. The BLS only started breaking out residential construction employment fairly recently (residential building employees in 1985, and residential specialty trade contractors in 2001). Usually residential investment (and residential construction) lead the economy out of recession, and non-residential construction usually lags the economy. Because this graph is a blend, it masks the usually pickup in residential construction for previous recessions. Of course residential investment didn't lead the economy this time because of the huge overhang of existing housing units.

This table below shows the annual change in construction jobs (total, residential and non-residential).

	Annual Change in Payroll jobs (000s)
Year	Total Construction Jobs	Residential Construction Jobs	Non-Residential
2002	-85	88	-173
2003	127	161	-34
2004	290	230	60
2005	416	268	148
2006	152	-62	214
2007	-198	-273	75
2008	-787	-510	-277
2009	-1053	-431	-622
2010	-149	-113	-36
March 2011	16	8	8

In 2011, for the first time since 2005, I expect residential construction employment to increase - mostly because of multi-family construction. I also expect residential investment to make a small positive contribution to GDP growth this year - also for the first time since 2005.

by Calculated Risk on 4/06/2011 08:55:00 AM

From Reuters: U.S. apartment vacancies fall in Q1, rents edge up

Reis Inc's quarterly report showed the vacancy rate dropped to 6.2 percent in the first three months of the year, down from 6.6 percent in the fourth quarter. It was the steepest fall since the commercial real estate research firm began tracking the market in 1999.
[CR note: the vacancy rate was 8 percent in Q1 2010].

And from Bloomberg: Apartment Vacancies in U.S. Fall to Lowest in Almost Three Years

Apartment owners had a net increase in occupied space of more than 44,000 units, the most for a first quarter since 1999 and almost double the number from a year earlier, Reis said. The first quarter tends to be a slow period for rentals since more leases are signed in the warmer months, the company said.

About 6,000 units came to market during the first quarter, the fewest since Reis began compiling data in 1999.

This is a very large decline from the record vacancy rate set a year ago at 8%. This decline fits with the recent survey from the NMHC that showed lower apartment vacancies. Reis is just for large cities, but this decline in vacancy rates is happening just about everywhere.

A few key points we've been discussing:
• Vacancy rates are falling fast (the excess supply is being absorbed). Note: The excess housing supply includes both apartments and single family homes.

• A record low number of multi-family units will be completed this year (2011). Only 6,000 apartments came on the market in Q1 (in the Reis survey area).

• This will push up effective rents. Via Bloomberg:

Effective rents, or what tenants actually pay, increased in 75 of the 82 markets Reis tracks, to an average $991 a month from $967 a year earlier and $986 in the fourth quarter.

However, when I was at the NMHC conference earlier this year, it sounded like rent growth is mostly coming from reductions in concessions and not from the top line (i.e. not from rent increases). (my short notes from conference here and here). Still, any increase in effective rents will push down the price-to-rent ratio for homes.

• Multi-family starts are increasing, and that will help both GDP and employment growth this year. These new starts will not be completed until 2012 at the earliest, so vacancy rates will probably decline all year.