by Calculated Risk on 6/16/2011 12:11:00 PM

Also from the Housing Starts report this morning ...

Although the number of multi-family starts can vary significantly from month to month, apartment owners are seeing falling vacancy rates, and some have started to plan for 2012 and 2013 and will be breaking ground this year. So I've been forecasting a pickup in multi-family starts this year.

However, since it takes over a year on average to complete multi-family projects - and multi-family starts were at a record low last year - there will be a record low, or near record low, number of multi-family completions this year.

The following graph shows the lag between multi-family starts and completions using a 12 month rolling average.

Click on graph for larger image in graph gallery.

The blue line is for multifamily starts and the red line is for multifamily completions. Since multifamily starts collapsed in 2009, completions collapsed in 2010.

The rolling 12 month total for starts (blue line) is now at the same level as the rolling 12 month for completions (red line), but they are heading in opposite directions. Starts are picking up and completions are declining.

It is important to note that even if there is a strong increase in multi-family construction, it is 1) from a very low level, and 2) multi-family is a small part of residential investment (RI). The following table shows RI in Q1 2011:

Residential Investment, Q1 2011
	Dollars (millions) SAAR	Percent of RI
Single-family structures	$106,736	32.9%
Improvements	$151,622	46.8%
Multifamily structures	$12,734	3.9%
Brokers' commissions on sale of structures	$52,152	16.1%
Other	$888	0.3%

Usually investment in single-family structures is over half of RI, but obviously single-family is very depressed right now. A strong pickup in multi-family might only add a couple of percent to residential investment, but it also appears that home improvement is picking up a little. And some increase for both multi-family and home improvement is why I expect RI to make a positive contribution to both GDP and employment (residential construction) in 2011 for the first time since 2005.

Anecdotal evidence: I visited the local planning department yesterday, and I was told that permit activity has picked up over the last couple of months. I went upstairs to chat, and when I came back down the lobby was full - something they haven't seen for some time.

by Calculated Risk on 6/16/2011 10:00:00 AM

From the Philly Fed: June 2011 Business Outlook Survey

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 3.9 in May to -7.7, its first negative reading since last September. [any reading below zero is contraction]. The demand for manufactured goods, as measured by the current new orders index, showed a similar decline: The index fell 13 points and recorded its first negative reading since last October. The current shipments index fell just 3 points but remained slightly positive. Firms reported declines in inventories and unfilled orders, and shorter delivery times.

Firms’ responses suggested little overall improvement in the labor market this month. The current employment index remained positive for the ninth consecutive month ...

This indicates contraction in June for the first time since last September. This was well below the consensus of 7.0.

Click on graph for larger image in graph gallery.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through June. The ISM and total Fed surveys are through May.

This early reading suggests the ISM index could be below 50 in June - is so, this would be the lowest reading since mid-2009.

Earlier:
• Housing Starts increase in May
• Weekly Initial Unemployment Claims decrease to 414,000

by Calculated Risk on 6/16/2011 08:58:00 AM

From the Census Bureau: Permits, Starts and Completions.

Housing Starts:
Privately-owned housing starts in May were at a seasonally adjusted annual rate of 560,000. This is 3.5 percent (±12.4%)* above the revised April estimate of 541,000, but is 3.4 percent (±8.7%)* below the May 2010 rate of 580,000.

Single-family housing starts in May were at a rate of 419,000; this is 3.7 percent (±9.5%)* above the revised April figure of 404,000. The May rate for units in buildings with five units or more was 134,000.

Building Permits:
Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 612,000. This is 8.7 percent (±1.5%) above the revised April rate of 563,000 and is 5.2 percent (±2.4%) above the May 2010 estimate of 582,000.

Single-family authorizations in May were at a rate of 405,000; this is 2.5 percent (±1.1%) above the revised April figure of 395,000. Authorizations of units in buildings with five units or more were at a rate of 190,000 in May.

Click on graph for larger image in graph gallery.

Total housing starts were at 560 thousand (SAAR) in May, up 3.5% from the revised April rate of 541 thousand.

Single-family starts increased 3.7% to 419 thousand in May.

The second graph shows total and single unit starts since 1968.

This shows the huge collapse following the housing bubble, and that housing starts have mostly been moving sideways for over two years - with slight ups and downs due to the home buyer tax credit.

This was above expectations of 547 thousand starts in May. Multi-family starts are beginning to pickup - although from a very low level - but single family starts are still moving sideways.

by Calculated Risk on 6/16/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending June 11, the advance figure for seasonally adjusted initial claims was 414,000, a decrease of 16,000 from the previous week's revised figure of 430,000. The 4-week moving average was 424,750, unchanged from the previous week's revised average of 424,750.

The following graph shows the 4-week moving average of weekly claims for the last 40 years.

Click on graph for larger image in graph gallery.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims was unchanged this week at 424,750.

This is the tenth straight week with initial claims above 400,000, and the 4-week average is at about the same the level as in January. This suggests the labor market weakness in May continued into early June.

by Calculated Risk on 6/15/2011 10:39:00 PM

• Catherine Rampell at the NY Times Economix writes: The Great Growth Disappointment

Second verse, same as the first: The quarter when the economy was supposed to stage its comeback is looking just as bad as its disappointing predecessor.

... after a major bummer of an inflation report, Macroeconomic Advisers, the highly respected forecasting firm, lowered its annualized second quarter G.D.P. forecast to 1.9 percent.

For reference, when the quarter began, Macroeconomic Advisers was expecting 3.5 percent growth

Rampell provides a graph that shows Q2 estimates are tracking the same downward path as Q1 projections. Now it is all about the 2nd half ...

• Oil prices fell sharply today. WTI futures are down to $95.31 per barrel and Brent is down to $113.92.

Gasbuddy.com shows gasoline prices are now down almost 30 cents per gallon nationally from the recent peak at the beginning of May, and prices are still falling.

• In Q1, Fannie and Freddie were foreclosing at record levels - and selling REO (Real Estate Owned) even faster - so their REO inventory actually declined.

However, the FHA was apparently having REO inventory problems and the FHA's REO inventory increased in Q1. Apparently the problem has been solved since the FHA reported 7,410 Conveyances (REO acquired) in April, about the recent pace, but REO sales surged to 11,375 (an all time record). So the FHA's REO inventory declined in April - and will probably decline in Q2.

Just something to remember - the F's (Fannie, Freddie and the FHA) are now foreclosing and selling REO at a record pace. The REOs are not "piling up" at the lenders. This increase in REO selling is why distressed sales are a high percentage of sales again.

Earlier:
• NAHB Builder Confidence index declines in June
• Industrial Production edged up in May, Capacity Utilization unchanged
• Empire State Survey indicates contraction
• MBA: Mortgage Purchase Application activity increases

by Calculated Risk on 6/15/2011 06:45:00 PM

The BLS reported this morning: "The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 4.1 percent over the last 12 months to an index level of 222.954 (1982-84=100). For the month, the index rose 0.5 percent ..."

CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). Here is an explanation ...

The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and not seasonally adjusted.

Click on graph for larger image in graph gallery.

This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.

• In 2008, the Q3 average of CPI-W was 215.495. In the previous year, 2007, the average in Q3 of CPI-W was 203.596. That gave an increase of 5.8% for COLA for 2009.

• In 2009, the Q3 average of CPI-W was 211.013. That was a decline of 2.1% from 2008, however, by law, the adjustment is never negative so the benefits remained the same in 2010.

• In 2010, the Q3 average of CPI-W was 214.136. That was an increase of 1.5% from 2009, however the average was still below the Q3 average in 2008, so the adjustment was zero.

Currently CPI-W is above the Q3 2008 average. CPI-W could be very volatile this year because of energy prices, but if the current level holds, COLA would be around 3.5% for next year (the current 222.954 divided by the Q3 2008 level of 215.495).

This is still early - and oil and gasoline prices are falling - but it appears that COLA will increase this year.

Contribution and Benefit Base

The law prohibits an increase in the contribution and benefit base if COLA is not greater than zero. However if the there is even a small increase in COLA, the contribution base will be adjusted using the National Average Wage Index.

From Social Security: Cost-of-Living Adjustment Must Be Greater Than Zero

... ... any amount that is directly dependent for its value on the COLA would not increase. For example, the maximum Supplemental Security Income (SSI) payment amounts would not increase if there were no COLA.

... if there were no COLA, section 230(a) of the Social Security Act prohibits an increase in the contribution and benefit base (Social Security's maximum taxable earnings), which normally increases with increases in the national average wage index. Similarly, the retirement test exempt amounts would not increase ...

This is based on a one year lag. The National Average Wage Index is not available for 2010 yet, but wages probably didn't increase much from 2009. If wages increased back to the 2008 level in 2010, and COLA is positive (seems likely right now), then the contribution base next year will be increased to around $109,000 to $110,000 from the current $106,800.

Remember - this is an early look. What matters is CPI-W during Q3 (July, August and September).

Earlier:
• NAHB Builder Confidence index declines in June
• Industrial Production edged up in May, Capacity Utilization unchanged
• Empire State Survey indicates contraction
• MBA: Mortgage Purchase Application activity increases