by Calculated Risk on 4/05/2011 08:30:00 AM

From Bloomberg: Office Market in U.S. Begins Recovery as Vacancy Rate Declines

Office vacancies in the U.S. dropped for the first time in more than three years in the most recent quarter and rents climbed ... The national vacancy rate fell to 17.5 percent in the first quarter from 17.6 percent in the previous three months, Reis Inc. said in a report today.

“This is the first quarter, at least on a national basis, where the change is strong enough to qualify it as the first quarter of a recovery,” Ryan Severino, an economist at Reis, said in an interview. ...

Click on graph for larger image in graph gallery.

This graph shows the office vacancy rate starting in 1991.

Reis is reporting the vacancy rate was at 17.5% in Q1 2011, down slightly from 17.6% in Q4 2010, and up from 17.3% in Q1 2010. This was a small decline in the vacancy rate - but it was the first decline since 2007.

Reis should release the Mall and Apartment vacancy rates over the next few days.

by Calculated Risk on 4/04/2011 10:22:00 PM

From Dow Jones: Fed's Bernanke Downplays Inflation Fears

Federal Reserve Chairman Ben Bernanke Monday downplayed inflation fears ... Bernanke said the rise in global commodity prices is likely to be temporary and shouldn't translate into a broader inflation problem. ...

"I think the increase in inflation will be transitory," Bernanke said ... He attributed the strong gain in global energy and food prices to supply and demand conditions, adding he reckons these prices "will eventually stabilize."

The Fed chief's remarks, which came in response to audience questions...

Bernanke pointed to continued weakness in the economy, saying the housing sector is one reason why the recovery is not stronger. He said the Fed expects the high rate of foreclosures to continue, and noted this will hurt consumer wealth and confidence.

Here is the full quote on inflation from CNBC:

"I think the increase in inflation will be transitory. Our expectation at this point is that in the medium term inflation, if anything, will be a bit low. We will monitor inflation and inflation expectations very closely." [Bernanke said]

CR: I also think inflation will be transitory. With the sluggish recovery - and the view that inflation will be transitory - it is very unlikely that the Fed will end QE2 early (as some have suggested) and it is also unlikely the Fed will raise rates this year.

by Calculated Risk on 4/04/2011 07:15:00 PM

From Fed Chairman Ben Bernanke: Clearinghouses, Financial Stability, and Financial Reform

This is a historical review of clearinghouses (some of the financial system "plumbing"), and a discussion of the impact of Dodd-Frank. There is no discussion of current monetary policy.

"Tonight I would like to discuss post-crisis reform as it relates to a prominent part of our financial market infrastructure--namely, clearinghouses for payments, securities, and derivatives transactions. This audience, I know, recognizes the importance of what is often called the "plumbing" of the financial system--a set of institutions that very safely and efficiently handles, under most circumstances, enormous volumes of financial transactions each day. Because clearinghouses and other parts of the financial infrastructure fared relatively well during the crisis--despite moments of significant stress--the public debate on financial reform has understandably focused on the risks posed by so-called too-big-to-fail financial firms, whose dramatic failures or near failures put our financial system and economy in dire jeopardy. Nevertheless, the smooth operation and financial soundness of clearinghouses and related institutions are essential for financial stability, and we must not take them for granted."

by Calculated Risk on 4/04/2011 04:24:00 PM

From the American Bankruptcy Institute: First Quarter Consumer Bankruptcy Filings Fall 6 Percent from 2010

Consumer bankruptcies for the first quarter of 2011 (Jan. 1 – March 31) decreased 6 percent nationwide from the same time period in 2010, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). The data showed that the overall consumer filing total for the first three months of 2011 (Jan. 1-March 31) reached 340,012, down from the 363,215 consumer filings recorded for the first quarter of 2010.

“Though bankruptcy filings are still elevated, consumers continue to take steps to reduce debt levels and shore up their finances,” said ABI Executive Director Samuel J. Gerdano. “As a result, we now expect that consumer bankruptcy filings will dip below the 1.5 million filings recorded last year.”

Click on graph for larger image in graph gallery.

This graph shows the non-business bankruptcy filings by quarter using monthly data from the ABI and previous quarterly data from USCourts.gov.

Note: The spike in 2005 was due to the so-called "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005". (a good example of Orwellian named legislation).

It is possible that consumer bankruptcy filings peaked in 2010, but they will probably stay elevated for some time.

by Calculated Risk on 4/04/2011 03:22:00 PM

From Dow Jones: Beazer Homes To Form Rental Unit, Starts In Phoenix

Beazer Homes ... is acquiring newer homes in distress--including some it built--and renting them out.

... Builders are unable to compete with bargain-priced foreclosures, some located within walking distance of new homes under construction. ...

The company launched its program in Phoenix, one of the areas hardest hit by the housing crisis. It completed its first home purchases last month and expects to have more than 100 by the end of this fiscal year.

This seems like a dumb idea for a "home builder". The scale is insignificant, and they have no special expertise in being a landlord. I guess they need something to do.

by Calculated Risk on 4/04/2011 12:14:00 PM

Ted Nesi at wpri.com has a follow-up to a story he wrote back in February: Chafee cuts East Side home’s asking price by $60,000

Over the weekend, Gov. Lincoln Chafee and his wife Stephanie reduced by $60,000 the asking price for their 3,900-square-foot home on Providence’s East Side, a decrease of 6.7%.

The Chafees are now seeking $829,000 for the seven-bedroom, three-and-a-half-bathroom property at 54 Barnes St. That’s down from the initial listing price of $889,000 ...

This price cut was predictable - like many sellers, the Chafees had priced their home too high. Nesi notes that the Chafees purchased the house for $939,000 in 2006, so at the current asking price they are looking at a $110,000 loss plus closing costs. Ouch.

by Calculated Risk on 4/04/2011 09:22:00 AM

Reis is expected to release their Q1 Office, Mall and Apartment vacancy rate reports this week. These reports have been showing "stabilizing" vacancy rates for offices and malls, and falling vacancy rates for apartments. So much for "stabilization" in Las Vegas ...

From Buck Wargo at the Las Vegas Sun: Commercial real estate recovery may be two steps forward, one back

Colliers International Las Vegas reported that the office, industrial and retail vacancy rates rose by the end of March just as they had during the fourth quarter of 2010.

Commercial vacancy rates, especially the office sector, had shown some improvement during the third quarter of 2010, but that positive news now appears to be short-lived.
...
In the Las Vegas retail market, the vacancy rate was 11.5 percent, up from 10.6 percent in the fourth quarter and 9.7 percent in the first quarter of 2010—that’s a nearly 20 percent increase.

The office vacancy rate stood at 24.8 percent at the end of the first quarter, up from 24.1 percent in December and 22.7 percent in the first quarter of 2010.

Maybe the title should have been "one step forward, two steps back". I think the national numbers will be somewhat better.

Weekend:
• Summary for Week ending April 1st
• Schedule for Week of April 3rd
• All employment graphs

by Calculated Risk on 4/03/2011 11:48:00 PM

Earlier:
• Summary for Week ending April 1st
• Schedule for Week of April 3rd
• All employment graphs

On 60 Minutes: Really just old news, but you can read the 60 Minutes story here ... or watch the video below.

by Calculated Risk on 4/03/2011 06:10:00 PM

Tracking the participation rate for various age groups monthly is a little like watching grass grow, but the trends are important.

If the Civilian noninstitutional population (over 16 years old) grows by about 2 million per year - and the participation rate stays flat - the economy will need to add about 100 thousand jobs per month to keep the unemployment rate steady at 8.8%.

If the population grows faster (say 2.5 million per year), and/or the participation rate rises, it could take significantly more jobs per month to hold the unemployment rate steady. As an example, if the working age population grows 2.5 million per year and the participation rate rises to 65% (from 64.2%) over the next two years, the economy will need to add 200 thousand jobs per month to hold the unemployment rate steady.

That is why forecasting the participation rate is important - and why reports of the number of jobs needed to hold the unemployment rate steady are all over the place (and can be very confusing - and I'm guilty of using different numbers).

Click on graph for larger image in graph gallery.

Here is a repeat of the graph showing the participation rate, unemployment rate, and employment-to-population ratio.

The Labor Force Participation Rate was unchanged at 64.2% in March (blue line). This is the lowest level since the early '80s. This is the percentage of the working age population in the labor force.

Here is a look at some the long term trends (updating graphs through March 2011):

This graph shows the changes in the participation rates for men and women since 1960 (in the 25 to 54 age group - the prime working years).

The participation rate for women increased significantly from the mid 30s to the mid 70s and has mostly flattened out. The participation rate for men has decreased from the high 90s to 88.7% in March 2011. (down slightly from February)

There will probably be some "bounce back" for both men and women (some of the recent decline is probably cyclical), but the long term trend for men is down.

This graph shows that participation rates for several key age groups.

There are a few key long term trends:
• The participation rate for the '16 to 19' age group has been falling for some time (red). This increased in March to 34.1% from the record low 33.5% in February.

• The participation rate for the 'over 55' age group has been rising since the mid '90s (purple), although this has stalled out a little recently (perhaps cyclical).

• The participation rate for the '20 to 24' age group fell recently too (perhaps more education before joining the labor force). This appears to have stabilized, and I expect the participation rate to increase for this cohort as the job market improves.

The third graph shows the participation rate for several over 55 age groups. The red line is the '55 and over' total seasonally adjusted. All of the other age groups are Not Seasonally Adjusted (NSA).

The participation rate is generally trending up for all older age groups. The '65 to 69' age group hit a new record high in March!

The increase in participation of older cohorts might push up the overall participation rate over the next few years, however eventually the 'over 55' participation rate will start to decline as the oldest baby boomers move into even older age groups.

I've been expecting some small bounce back in the participation rate, but I don't think the bounce back will be huge - and that means it will take fewer jobs than some expect to lower the unemployment rate. This will be a key number to watch over the next few years.

by Calculated Risk on 4/03/2011 11:55:00 AM

By request, here are a few more employment graphs ...

Duration of Unemployment
Click on graph for larger image in graph gallery.

This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more.

In general, all four categories are trending down. The less than 5 week category appears to be back to normal (fits with the initial weekly claims data).

Unfortunately the "27 weeks or more" category increased slightly in March to 6.122 million workers (about 4% of the labor force). This remains extremely high, and long term unemployment remains a serious problem.

Unemployment by Education
This graph shows the unemployment rate by four levels of education (all groups are 25 years and older).

This data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are now trending down with some month-to-month volatility - although the unemployment rate for the college educated has increased two months in a row.

Diffusion Indexes
This is a little more technical. The BLS diffusion index for total private employment was at 62.4 in March, down from 68.7 in February. For manufacturing, the diffusion index decreased to 63.0 from 66.0 in February.

Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. From the BLS:

Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.

Even though the diffusion indexes declined in March, the level of both indexes is still fairly high - so hiring is still fairly widespread.

Best to all

Earlier:
• Summary for Week ending April 1st
• Schedule for Week of April 3rd
• All employment graphs