by Calculated Risk on 3/03/2011 07:23:00 PM

• Earlier Employment Situation Preview: Some Improvement, but Still Grim. Note: Several analysts have upped their forecasts this afternoon.

Here is the weekly update on hotels from HotelNewsNow.com: STR: Orlando reports strong weekly increases

Overall, the U.S. hotel industry’s occupancy increased 8.4% to 59.9%, ADR was up 3.4% to US$99.38, and RevPAR finished the week up 12.1% to US$59.54.

Note: RevPAR: Revenue per Available Room.
Click on graph for larger image in graph gallery.

This graph shows the seasonal pattern for the hotel occupancy rate.

The occupancy rate really fell off a cliff in the 2nd half of 2008, and then 2009 was the worst year for the occupancy rate since the Great Depression. The occupancy rate started to improve in the Spring of 2010, and was above the 2008 rates later in the year.

The occupancy rate was fairly low in January and February, but appears to be improving recently.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 3/03/2011 04:47:00 PM

The European financial crisis has been simmering in the background, but will probably become front page news again this month. There are several meetings schedule in March, starting tomorrow in Helsinki, and then a special eurozone debt crisis summit on March 11th.

Also the European Banking Authority has now launched the next round of bank stress tests.

The EBA’s Board of Supervisors agreed to launch the 2011 EU-wide stress testing exercise with National Supervisory Authorities on 4 March 2011. The stress test, which will be conducted on a large number of European banks, involves a series of detailed technical steps and, as a consequence, will take several months to run. It will be run against a baseline and an adverse macro economic scenario in order to assess the solvency of the banks involved in the exercise against hypothetical adverse economic events. The adverse macro-economic scenario, designed by the ECB, will incorporate a significant deviation from the baseline forecast and country-specific shocks on real estate prices, interest rates and sovereigns. This is in line with the EBA’s micro-prudential objective of analysing institution-specific prudential soundness

The EBA will provide the banks with details of the scenarios by the end of this week, after which there will be a period of discussion and feedback. The EBA plans to publish the macro-economic scenarios along with the sample of banks involved, on 18 March 2011. ... the EBA anticipates being able to publish the broad principles of the stress test methodology in April. Following a vigorous peer review, the EBA will publish the final results of the exercise in June.

And I should mention that European Central Bank President Jean-Claude Trichet said today "Strong vigilance is warranted with a view to contain upside risks to price stability." and many view that wording as suggesting a rate hike is coming at the next meeting.

Here is a look at European bond spreads from the Atlanta Fed weekly Financial Highlights released today (graph as of March 2nd):

Click on graph for larger image in new window.

From the Atlanta Fed:

Most peripheral European bond spreads (over German bonds) continue to be elevated, particularly those of Greece, Ireland, and Portugal.

Since the January FOMC meeting, the 10-year Greece-to-German bond spread has widened by 102 basis points (bps), through March 1. Similarly, the spread for Ireland is 37 bps higher; it is 39 bps wider for Portugal but has actually declined somewhat for Spain.

Here are the Ten Year yields for Ireland, Portugal, Spain, Greece, and Belgium (ht Nemo) All moving up some more today ...

by Calculated Risk on 3/03/2011 01:00:00 PM

Tomorrow the BLS will release the February Employment Situation Summary at 8:30 AM ET. The consensus is for an increase of 179,000 payroll jobs in February, and for the unemployment rate to increase slightly to 9.1% (from 9.0% in January).

Two quick comments and then a review of recent data:
• Remember that the weak payroll report in January (only 36,000 jobs added) was blamed on the snow. Usually I don't buy the weather excuse, but it did appear weather played a role this time. If there is a bounce back, it will be useful to average the last two months together to estimate the current pace of payroll growth. If there is no bounce back - that would definitely be bad news.

• Even if the payroll report shows improvement, the employment situation remains grim. There are 7.7 million fewer payroll jobs now than before the recession started in 2007 with almost 14 million Americans currently unemployed. Another 8.4 million are working part time for economic reasons, and about 4 million more workers have left the labor force. Of those unemployed, 6.2 million have been unemployed for six months or more.

So, while the report tomorrow will hopefully suggest “improvement”, many of the unemployed and marginally employed will not see it, at least not yet, and probably not for some time.

Here is a look at a few of the recent employment related reports:

• The ISM non-manufacturing (service) employment index increased to 55.6 in February, up from 54.5 in January.

Click on graph for larger image in graph gallery.

This graph shows the relationship between the ISM non-manufacturing employment index and the change in BLS private service employment (as a percent of the previous month employment).

There is plenty of noise (R-squared is 0.68), but a reading of 55.6 suggests a fairly strong increase in service sector employment (blue dot on graph). This is about a 0.23% increase or around 200,000 service sector jobs.

• The ISM manufacturing employment index increased to 64.5 in February, up from 61.7 in January. This was the highest level since January 1973, however manufacturing employment is a much smaller percentage of overall U.S. employment now - so the impact on overall employment is less.

This graph shows the relationship between the ISM manufacturing employment index and the change in BLS manufacturing employment (as a percent of the previous month employment).

The two yellow dots are for January 2011 (61.7 ISM and 49,000 jobs), and a forecast for February based on the ISM employment reading of 64.5. The ISM survey suggests manufacturing employment grew close to 60,000 in February.

• ADP reported Private Employment increased by 217,000 from January to February on a seasonally adjusted basis, and has averaged 217,000 over the last three months.

• Weekly initial unemployment claims were down significantly in February.

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

The average in February was 388,500 initial claims per week, down sharply from the October average of 456,000.

• All of the Regional Fed manufacturing surveys reported employment expansion in February.

• The Federal Reserve’s “Beige Book” reported that "Labor market conditions continued to strengthen modestly, with all Districts reporting some degree of improvement."

• Consumer Sentiment increased in February (frequently coincident with improvements in the labor market). The final February Reuters / University of Michigan consumer sentiment index increased to 77.5, the highest level in three years.

• However on unemployment: Gallup Finds U.S. Unemployment Hitting 10.3% in February NOTE: The Gallup poll results are Not Seasonally Adjusted (NSA), so use with caution. But this does suggest a much larger increase in the unemployment rate than the consensus.

My guess is we see the opposite of January when payroll employment was weak, but the unemployment rate dropped sharply. I expect payroll employment was up sharply in February, but the unemployment rate probably increased too.

by Calculated Risk on 3/03/2011 10:11:00 AM

The February ISM Non-manufacturing index was at 59.7%, up from 59.4% in January. The employment index indicated faster expansion in February at 55.6%, up from 54.5% in January. Note: Above 50 indicates expansion, below 50 contraction.

Click on graph for larger image in graph gallery.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

From the Institute for Supply Management: January 2011 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in February for the 15th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. "The NMI registered 59.7 percent in February, 0.3 percentage point higher than the 59.4 percent registered in January, and indicating continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased 2.3 percentage points to 66.9 percent, reflecting growth for the 19th consecutive month and at a faster rate than in January. The New Orders Index decreased 0.5 percentage point to 64.4 percent, and the Employment Index increased 1.1 percentage points to 55.6 percent, indicating growth in employment for the sixth consecutive month and at a faster rate. The Prices Index increased 1.2 percentage points to 73.3 percent, indicating that prices increased at a faster rate in February. According to the NMI, 13 non-manufacturing industries reported growth in February. Respondents' comments overall are mostly positive about business conditions and the direction of the economy."
emphasis added

This was a solid report, except for prices, and slightly above expectations of 59.5%. And this is another report suggesting an improvement in the labor market.

by Calculated Risk on 3/03/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Feb. 26, the advance figure for seasonally adjusted initial claims was 368,000, a decrease of 20,000 from the previous week's revised figure of 388,000. The 4-week moving average was 388,500, a decrease of 12,750 from the previous week's revised average of 401,250.

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 by 12,750 to 388,500 - the first time under 400,000 since July 2008.

There is nothing magical about the 400,000 level, but breaking below 400,000 is a good sign. The sharp drop in weekly claims suggests improvement in the labor market.