by Calculated Risk on 10/01/2009 10:26:00 AM

We started the year looking for two key construction spending stories: a likely bottom for residential construction spending, and the collapse in private non-residential construction. This report shows further evidence of both stories.

Click on graph for larger image in new window.

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

Residential construction spending increased in August, and nonresidential spending continued to decline.

Private residential construction spending is now 63.1% below the peak of early 2006. Although it appears residential construction spending may have bottomed, any growth in spending will probably be sluggish until the large overhang of existing inventory is reduced.

Private non-residential construction spending is still only 12.6% below the peak of last September.

The second graph shows the year-over-year change for private residential and nonresidential construction spending.

Nonresidential spending is off 10.5% on a year-over-year basis, and will turn strongly negative as projects are completed. Residential construction spending is still declining YoY, although the negative YoY change will get smaller going forward.

From the Census Bureau: August 2009 Construction at $941.9 Billion Annual Rate

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during August 2009 was estimated at a seasonally adjusted annual rate of $941.9 billion, 0.8 percent (±1.8%) above the revised July estimate of $934.6 billion. The August figure is 11.6 percent (±1.8%) below the August 2008 estimate of $1,066.1 billion.

by Calculated Risk on 10/01/2009 10:00:00 AM

PMI at 52.6% in September down from 52.9% in August.

From the Institute for Supply Management: September 2009 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in September for the second consecutive month, and the overall economy grew for the fifth consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The manufacturing sector grew for the second consecutive month in September. While the rate of growth moderated slightly when compared to August, the recovery broadened as the number of industries reporting growth increased from 11 to 13. Both new orders and production are growing, but at a slower rate when compared to August. It appears the fundamentals for continuing recovery are still at work as inventories and sales are gaining balance."
...
ISM's New Orders Index registered 60.8 percent in September, 4.1 percentage points lower than the 64.9 percent registered in August. This is the third consecutive month of growth in the New Orders Index. A New Orders Index above 48.8 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).
emphasis added

As noted, any reading above 50 shows expansion.

Also, from the NAR: Record Streak Continues for Pending Home Sales

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in August, rose 6.4 percent to 103.8 from a reading of 97.6 in July, and is 12.4 percent above August 2008 when it was 92.4. The index is at the highest level since March 2007 when it was 104.5.

by Calculated Risk on 10/01/2009 08:53:00 AM

Note: A large portion of the increase in durable goods consumption in August was due to cash-for-clunkers, however there was also a significant increase in non-durable goods.

From the BEA: Personal Income and Outlays, August 2009

Personal income increased $19.3 billion, or 0.2 percent, and disposable personal income (DPI) increased $15.5 billion, or 0.1 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $129.6 billion, or 1.3 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.9 percent in August, compared with an increase of 0.2 percent in July. Purchases of durable goods increased 5.8 percent, compared with an increase of 1.8 percent. Reflecting the impact of the federal CARS program (popularly called "cash for clunkers"), purchases of motor vehicles and parts accounted for most of the August increase in purchases of durable goods and more than accounted for the July increase.
...
Personal saving -- DPI less personal outlays -- was $324.1 billion in August, compared with $436.0 billion in July. Personal saving as a percentage of disposable personal income was 3.0 percent in August, compared with 4.0 percent in July.

Click on graph for large image.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the August Personal Income report. The saving rate was 3.0% in August.

This decline in the saving rate was probably temporary, and I expect the saving rate to continue to rise.

The following graph shows real Personal Consumption Expenditures (PCE) through August (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

The July and August numbers suggest PCE will grow at over 3% (annualized rate) in Q3, however I expect September to be much lower. So I expect a 2% increase in Q3 PCE.

Note that PCE declined sharply in Q3 and Q4 2008 - the cliff diving - and was been relatively flat in Q1 and Q2 2009. Auto sales gave a boost to PCE in Q3, but in general PCE will probably remain weak into 2010 as households continue to repair their balance sheets.

by Calculated Risk on 10/01/2009 08:30:00 AM

The DOL reports weekly unemployment insurance claims increased to 551,000:

In the week ending Sept. 26, the advance figure for seasonally adjusted initial claims was 551,000, an increase of 17,000 from the previous week's revised figure of 534,000. The 4-week moving average was 548,000, a decrease of 6,250 from the previous week's revised average of 554,250.
...
The advance number for seasonally adjusted insured unemployment during the week ending Sept. 19 was 6,090,000, a decrease of 70,000 from the preceding week's revised level of 6,160,000.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since 1971.

The four-week average of weekly unemployment claims decreased this week by 6,250 to 548,000, and is now 110,750 below the peak in April.

Initial weekly claims have peaked for this cycle, however the continuing high level of weekly claims indicates significant weakness in the job market. The four-week average of initial weekly claims will probably have to fall below 400,000 before total employment stops falling.

And in other employment news ... from Reuters: Challenger, Gray reports planned layoffs declined in Sept.

Planned job cuts announced by U.S. employers fell to 66,404 last month, down 13 percent from 76,456 in August, according to a report released Thursday by global outplacement consultancy Challenger, Gray & Christmas.

September's layoff tally was 30 percent lower than the 95,094 job cuts during the same time last year. This brought the figure for the July-September quarter to 240,233, the lowest since the first quarter of 2008 and marking the fourth consecutive quarter in which job cuts declined from the year prior level.

But a big part of the problem is lack of hiring, not firings. From Monster.com:

The Monster Employment Index edged downward in September after a significant rise in late summer recruitment activity during August. Over the year, the Index fell 25 percent largely unchanged from last month’s pace.

The BLS report will be released tomorrow.

by Calculated Risk on 9/30/2009 09:40:00 PM

A quick summary and a look ahead ...

The OCC and OTS Q2 Mortgage Metrics Report showed rising mortgage delinquencies and foreclosures. There is also a huge backlog of foreclosures in process. Also see: Modification Re-Default Rates

The Chicago PMI report showed declining business activity in the Chicago region.

ADP reported nonfarm private employment decreased 254,000. The BLS report for September will be released on Friday.

From the WSJ: CIT Draws Up Bankruptcy Option

CIT Group Inc. upped the ante with its creditors by drawing up a prepackaged bankruptcy plan, two people familiar with the matter said Wednesday. ... Another person familiar with the matter said CIT likely wouldn't roll out the debt-exchange offer and prepackaged bankruptcy solicitation until late Thursday night.

CIT would be the fifth largest bankruptcy in U.S. history behind Lehman Brothers, Washington Mutual, WorldCom and General Motors.

Tomorrow

More employment reports: Challenger & Gray corporate layoffs, and weekly initial jobless claims.

Personal income and Outlays for August.

Auto Sales for September

ISM Manufacturing Index

Construction Spending

Pending Home Sales Index

And Bernanke testifies on financial reform.

So I apologize in advance for all the posts.