by Calculated Risk on 2/02/2011 08:15:00 AM

ADP reports:

Private-sector employment increased by 187,000 from December to January on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from November to December was revised down by 50,000 to 247,000 from the previously reported increase of 297,000.

This month’s ADP National Employment Report suggests solid growth of private nonfarm payroll employment heading into the New Year. The recent pattern of rising employment gains since the middle of last year appears to be intact, as the average gain over December and January (217,000) is well above the average gain over the prior six months (52,000). Strength was evident within all major industries and across all size business tracked in the ADP Report.
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In January, construction employment dropped 1,000. The total decline in construction employment since its peak in January 2007 is 2,311,000.

Note: ADP is private nonfarm employment only (no government jobs).

This was slightly above the consensus forecast of an increase of about 150,000 private sector jobs in January.

The BLS reports on Friday, and the consensus is for an increase of 150,000 payroll jobs in January, on a seasonally adjusted (SA) basis, and for the unemployment rate to increase slightly to 9.5%.

by Calculated Risk on 2/02/2011 07:26:00 AM

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Refinance Index increased 11.7 percent from the previous week. The seasonally adjusted Purchase Index increased 9.5 percent from one week earlier.
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"Applications increased this week relative to the holiday week [Martin Luther King, Jr Day]," said Michael Fratantoni, MBA's Vice President of Research and Economics. "Looking over the past two weeks, purchase applications are flat, and refinance applications are down about five percent."
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The average contract interest rate for 30-year fixed-rate mortgages increased to 4.81 percent from 4.80 percent, with points decreasing to 1.02 from 1.19 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

The four-week moving average of the purchase index suggests weak existing home sales through the first few months of 2011.

by Calculated Risk on 2/01/2011 11:08:00 PM

From Dina ElBoghdady at the WaPo: Low rates prompting more 'cash-in' refinances

In the fourth quarter, 46 percent of borrowers who refinanced their primary mortgages brought cash to settlement to lower the balance on their loans, Freddie Mac said. That's the highest share of so-called "cash-in" refinances since the company started tracking the numbers in 1985.

Some people are doing 'cash in' refis because they have negative equity, others to avoid PMI, and apparently a large number are bringing cash to closing to meet conforming loan limits:

Among them is Amy Rifkind, an attorney who wrote a check for about $70,000 when she refinanced her home ... By doing that, Rifkind and her husband brought down their loan balance below the $417,000 mark and secured a 4.25 percent rate.

Talk about deleveraging - we've come a long way from the 'cash out' craze.

by Calculated Risk on 2/01/2011 08:45:00 PM

Earlier:
• A little color on the economic data and my current economic outlook.
• U.S. Light Vehicle Sales 12.62 million SAAR in January

Fannie Mae reported that the serious delinquency rate decreased to 4.50% in November from 4.52% in October. Freddie Mac reported that the serious delinquency rate decreased to 3.84% in December from 3.85% in November. (Note: Fannie reports a month behind Freddie).

These are loans that are "three monthly payments or more past due or in foreclosure".
Click on graph for larger image in graph gallery.

Some of the rapid increase over the last couple of years was probably because of foreclosure moratoriums, and also because loans in trial mods were considered delinquent until the modifications were made permanent. As modifications have become permanent, they are no longer counted as delinquent.

The increases for Freddie Mac in October and November were probably related to the new foreclosure moratoriums. Now it appears the rate has started to decrease again.

by Calculated Risk on 2/01/2011 04:47:00 PM

Please see the previous post for a little color on the economic data.

Based on an estimate from Autodata Corp, light vehicle sales were at a 12.62 million SAAR in January. That is up 17.5% from January 2010, and up 1.0% from the sales rate last month (Dec 2010).

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for January (red, light vehicle sales of 12.62 million SAAR from Autodata Corp).

This is the highest sales rate since August 2008, excluding Cash-for-clunkers in August 2009.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate. The current sales rate is still near the bottom of the '90/'91 recession - when there were fewer registered drivers and a smaller population.

This was at the consensus estimate of 12.6 million SAAR.

by Calculated Risk on 2/01/2011 02:41:00 PM

I’ve been writing this blog for over six years now - and there are many people to thank - and I’m still enjoying the process. I use the blog to track economic data and occasionally post some analysis.

Of course I have no crystal ball, and I try to link to the source data, when available, so readers can draw their own conclusions (I'm well aware that many people disagree with my views).

I’m going to add a daily summary and analysis post, usually around 4 PM ET, although sometimes earlier, like today because the vehicle sales data will be available around 4 PM, and sometimes later because – well, sometimes I’m especially lazy.

For the U.S. economy, there have been two huge stories over the last 5 or 6 years. The first was the housing / credit bubble, followed by the housing bust and financial crisis ... and everything related. The second has been the sluggish and choppy recovery that started in the 2nd half of 2009 and is ongoing. Hopefully I’ve gotten both stories mostly right.

Some people question whether it is a real “recovery” with significant fiscal and monetary support, and with the unemployment rate at 9.4%. I understand. This is definitely a fragile recovery, but it does appear both GDP and employment (finally) are improving.

This will be a difficult transition from life support to a self-sustaining recovery, but it does appear that GDP and employment growth will be better in 2011 than in 2010. Here is my current economic outlook:

• GDP growth better in 2011 than in 2010, but still not strong recovery given the slack in the system. I expect real GDP growth of 3.5% to 4.0% this year.

• Similarly, I expect employment growth to be better in 2011 than in 2010. I’m forecasting something close to 200 thousand private sector jobs on average per month this year.

• I think the inflation rate (by the core measures) will stay below the Fed's 2% target throughout 2011.

• Also I don't think the Fed will raise rates in 2011. I do think the Fed will buy the entire $600 billion of LSAP (or QE2). As I mentioned yesterday, I think there is a good possibility that the Fed will taper off the QE2 program instead of ending it abruptly in June. I think the size will remain the same, but the purchase program will be decreased gradually over a few additional months (like through the end of Q3).

• There are several downside risks: European issues, state and local government budget cuts and some possible defaults, housing issues (falling house prices, more foreclosures), and rising commodity / oil prices.

For more, see the The Brighter Outlook (and the Ten Questions for 2011 at the bottom).

The data this morning is consistent with this outlook.

• ISM Manufacturing Index increases in January

This was a strong report and above expectations. The new orders and employment indexes were especially strong. Here is the graph of the ISM index.

• Private Construction Spending decreases in December

This was weak as expected. However the story with construction spending is that residential investment will probably pick up in 2011, adding to both GDP and employment for the first time since 2005. This is most obvious in the multi-family sector.

And non-residential investment will probably bottom mid-year, and the drag on GDP and employment is almost over from this sector. Earlier this morning I posted:

• Q4 Investment: Office, Mall, Lodging and Residential Components

Those graphs show that office, mall and lodging investment are probably near a bottom – I don’t think investment will fall much further. The second graph shows residential investment, and I expect both multi-family and single family to increase in 2011 (although single family growth will be sluggish because of the overhang of existing vacant homes). That is why the data from the Census Bureau yesterday is important:

• Q4 2010: Homeownership Rate Falls to 1998 Levels

It appears the number of excess housing units is declining. Finally, it takes over a year, on average, to complete a multi-family building. So even though investment will pick up in 2011, the number of units completed will be at record lows this year – and that will help absorb the excess units.

by Calculated Risk on 2/01/2011 12:45:00 PM

Catching up ... the Census Bureau reported this morning that overall construction spending decreased in December compared to November.

[C]onstruction spending during December 2010 was estimated at a seasonally adjusted annual rate of $787.9 billion, 2.5 percent (±1.3%) below the revised November estimate of $807.8 billion.

Private construction spending also decreased in December:

Spending on private construction was at a seasonally adjusted annual rate of $486.9 billion, 2.2 percent (±1.1%) below the revised November estimate of $498.0 billion. Residential construction was at a seasonally adjusted annual rate of $226.4 billion in December, 4.1 percent (±1.3%) below the revised November estimate of $236.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $260.5 billion in December, 0.5 percent (±1.1%)* below the revised November estimate of $261.9 billion.

Click on graph for larger image in graph gallery.

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

Both private residential and non-residential construction spending decreased in December.

Residential spending is 66.5% below the peak in early 2006, and non-residential spending is 37% below the peak in January 2008.

Sometime this year (in 2011), residential construction spending will probably pass non-residential spending. Although I expect the recovery in residential spending to be sluggish, residential investment will probably make a positive contribution to GDP and employment growth in 2011 for the first time since 2005. And that is one of the reasons I think growth (both GDP and employment) will be better in 2011 than in 2010.

by Calculated Risk on 2/01/2011 11:09:00 AM

Note: The real key is the seasonally adjusted annual sales rate (SAAR) compared to the last few months, not the year-over-year comparison provided by the automakers. But this is a strong increase for GM ...

From MarketWatch: GM's January U.S. sales jump 21.8%

[GM] said January U.S. sales rose 21.8% to 178,896 cars and trucks. Excluding discontinued brands, sales of GM's four core nameplates rose 23%.

Once all the reports are released, I'll post a graph of the estimated total January light vehicle sales (SAAR) - usually around 4 PM ET. Most estimates are for an increase to 12.6 million SAAR in January from the 12.5 million SAAR in December. Sales in December 2009 were at a 10.7 million SAAR.

I'll add reports from the other major auto companies as updates to this post.

Update from MarketWatch: Ford January U.S. sales rise 13.3%

Update from MarketWatch: Chrysler U.S. January sales up 22.7% to 70,118

by Calculated Risk on 2/01/2011 10:00:00 AM

PMI at 60.8% in January, up from 58.5% in December. The consensus was for a reading of 57.9%.

From the Institute for Supply Management: January 2011 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 at a faster rate in January as the PMI registered 60.8 percent, which is its highest level since May 2004 when the index registered 61.4 percent. The continuing strong performance is highlighted as January is also the sixth consecutive month of month-over-month growth in the sector. New orders and production continue to be strong, and employment rose above 60 percent for the first time since May 2004. Global demand is driving commodity prices higher, particularly for energy, metals and chemicals."
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ISM's New Orders Index registered 67.8 percent in January, which is an increase of 5.8 percentage points when compared to the seasonally adjusted 62 percent reported in December. This is the 19th consecutive month of growth in the New Orders Index.
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ISM's Employment Index registered 61.7 percent in January, which is 2.8 percentage points higher than the seasonally adjusted 58.9 percent reported in December. This is the 16th consecutive month of growth in manufacturing employment. An Employment Index above 50.1 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Click on graph for larger image in new window.

Here is a long term graph of the ISM manufacturing index.

This was a strong report and above expectations. The new orders and employment indexes were especially strong.

by Calculated Risk on 2/01/2011 08:30:00 AM

The advance Q4 GDP report released last Friday showed a small annualized real increase of 0.8% for investment in non-residential structures. This broke a streak of nine straight quarterly declines. Note: this gain might be revised away.

With the release of underlying detail data yesterday - we can see that the reported small gain for non-residential structure investment in Q4 was mostly for power and petroleum mining structures.

If we look at just office, mall and lodging investment, non-residential structure investment continued to decline in Q4.

Click on graph for larger image in new graph gallery.

This graph shows investment in offices, malls and lodging as a percent of GDP. Office investment as a percent of GDP peaked at 0.46% in Q1 2008 and has declined sharply to a new series low as a percent of GDP (data series starts in 1959).

Investment in multimerchandise shopping structures (malls) peaked in 2007 and has fallen by two-thirds (note that investment includes remodels, so this will not fall to zero). Mall investment is also at a series low (as a percent of GDP).

The bubble boom in lodging investment was stunning. Lodging investment peaked at 0.32% of GDP in Q2 2008 and has fallen by over 70% already.

Notice that investment for all three categories typically falls for a year or two after the end of a recession, and then usually recovers very slowly (flat as a percent of GDP for 2 or 3 years). Something similar will probably happen again, and there will not be a recovery in these categories until the vacancy rates fall significantly.

The second graph is for Residential investment (RI) components. According to the Bureau of Economic Analysis (BEA), includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

This graph shows the various components of RI as a percent of GDP for the last 50 years. Usually the most important components are investment in single family structures followed by home improvement.

Investment in home improvement was at a $151.6 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.0% of GDP), significantly above the level of investment in single family structures of $106.2 billion (SAAR) (or 0.7% of GDP).

Brokers' commissions increased slightly in Q4, but are near the lowest level (as a percent of GDP) since the early '80s. In dollar terms, brokers' commissions are back to the 1998 / 1999 levels.

And investment in multifamily structures has been bouncing along at a series low for the last few quarters, although this is expected to increase in 2011.

These graphs show there is currently very little investment in offices, malls and lodging - and also very little investment in most components of residential investment.