by Calculated Risk on 5/06/2011 08:30:00 AM

From the BLS:

Nonfarm payroll employment rose by 244,000 in April, and the unemployment rate edged up to 9.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in several service-providing industries, manufacturing, and mining.
...
The change in total nonfarm payroll employment for February was revised from +194,000 to +235,000, and the change for March was revised from +216,000 to +221,000.

The following graph shows the employment population ratio, the participation rate, and the unemployment rate.

Click on graph for larger image in graph gallery.

The unemployment rate increased to 9.0% (red line).

The Labor Force Participation Rate was unchanged at 64.2% in April (blue line). This is the percentage of the working age population in the labor force. The participation rate is well below the 66% to 67% rate that was normal over the last 20 years, although some of the decline is due to the aging population.

The Employment-Population ratio decreased slightly to 58.4% in April (black line).

The second graph shows the job losses from the start of the employment recession, in percentage terms aligned at maximum job losses. The dotted line is ex-Census hiring.

The current employment recession is by far the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only the early '80s recession with a peak of 10.8 percent was worse).

This was above expectations for payroll jobs, and below expectations for the unemployment rate. I'll have much more soon ...

by Calculated Risk on 5/05/2011 10:07:00 PM

I haven't posted an update for some time. John Glionna and Kenji Hall at the LA Times provide a rough timeline: Workers enter damaged Fukushima reactor

The recovery team began a project to lower radiation levels by installing six ventilation machines that would absorb isotopes from the air in the No. 1 reactor ...

Tomikawa said it should take two or three days to put in the ventilation system. He estimated that the work to install the reactor's new cooling system could begin as soon as May 16.

... The company plans to add cooling equipment for reactors Nos. 2 and 3 sometime in the next two months ...

Under a two-phase plan, the company expects to spend three months cooling the reactors and plugging radiation leaks. ...

During the second phase, which is expected to take about six months, Tepco hopes to put the reactors into a stable state ... but deactivating the reactors could take years to complete.

A long slow process.

Earlier:
• Weekly Initial Unemployment Claims sharply higher
• NMHC Quarterly Apartment Survey: Market Conditions Tighten
• Clear Capital Home Price Index shows Double Dip

by Calculated Risk on 5/05/2011 05:43:00 PM

The National Federation of Independent Business (NFIB) will release their April survey on Tuesday, May 10th. Here is a pre-release of the employment results from NFIB: NFIB Jobs Statement: Hiring Trends Inconsistent and Disappointing

“Four months into 2011, the trajectory for small-business hiring appears inconsistent and disappointing. February and March gave us some hope, but in April, the average number of net new jobs slipped from 0.17 per firm to 0.04. With fewer increases in new hires and more reports of shrinkage in workforces, we can expect the April job numbers to be a disappointment.

Drilling down into the (seasonally adjusted) numbers:
• 8 percent of those surveyed increased employment;
• 15 percent reduced employment; and,
• 14 percent reported unfilled job openings, down 1 point from last month.

“And the outlook for future employment growth remains unchanged from March: Only 16 percent plan to increase employment, and 6 percent plan to reduce their workforce, yielding a seasonally adjusted net 2 percent of owners planning to create new jobs in the next three months.

Click on graph for larger image in graph gallery.

This graph shows the net hiring plans for the next three months.

Hiring plans were unchanged in April and still slightly positive.

Small businesses have a larger percentage of real estate and retail related companies than the overall economy. With the high percentage of real estate (including small construction companies), I expect small business hiring to remain sluggish for some time.

This is another somewhat disappointing employment indicator along with the ISM surveys, the ADP employment report and initial weekly claims.

The consensus for the April employment report is 185,000 with the unemployment rate unchanged at 8.8% (to be released tomorrow at 8:30 AM ET).

by Calculated Risk on 5/05/2011 02:47:00 PM

CR Note: The Census Bureau is releasing the demographic profile data for every state this month. Many analysts use the quarterly Census HVS to track the homeownership rate - and to calculate the excess supply of housing units. Important: Estimates using the HVS appear to overstate the excess supply. When all the data is released (by the end of May), we will probably have a better estimate of the excess supply as of April 1, 2010.

From economist Tom Lawler: The Census Bureau released the “Demographic Profile” from Census 2010 for 12 states and DC today, and the release confirmed several of the biases I have noted in the Census’ quarterly Housing Vacancy Survey. As I’ve shown before, the HVS showed higher homeownership rates than either the 2000 decennial Census or the American Community Survey, and that overstatement continued for 2010. Below is a comparison of the homeownership rate from the decennial Census for April 1, 2010 with the HVS average homeownership for the first half of 2010. (The HVS quarterly data are monthly averages). Also shown are the homeownership rates for April 1, 2000 from Census 2000.

Homeownership Rate (%), Census 2010, Census 2000, and Housing Vacancy Survey
	Census 2010, April 1	HVS, First Half 2010	Census vs. HVS	Census 2000, April 1	Census 2010 vs. Census 2000
DC	42	45.1	-3.1	40.8	1.2
Florida	67.4	70.3	-2.9	70.1	-2.7
Kentucky	68.7	71.3	-2.6	70.8	-2.1
Maine	71.3	73.6	-2.3	71.6	-0.3
Massachusetts	62.3	64.4	-2.1	61.7	0.6
Michigan	72.1	74.5	-2.4	73.8	-1.7
Mississippi	69.6	73.5	-3.9	72.3	-2.7
New Mexico	68.5	68.8	-0.3	70	-1.5
North Dakota	65.4	67.4	-2	66.6	-1.2
Rhode Island	60.7	63.6	-2.9	60	0.7
South Carolina	69.3	74.5	-5.2	72.2	-2.9
Tennessee	68.2	71	-2.8	68.2	0
West Virginia	73.4	79.1	-5.7	75.2	-1.8

As the table shows, the HVS shows higher homeownership rates than Census 2010 in DC and all 12 states for which data have been released, with the HVS homeownership rates MATERIALLY higher in DC and 11 of the 12 states. As I’ve noted in past reports, the HVS appears to be a biased sample of the US housing stock, consistently over-estimating the homeownership rate, and overstating significantly both the gross vacancy rate and the rental vacancy rate.

This early look strongly suggests that there are material sampling problems with the HVS that need to be addressed, and suggests that the HVS data probably should not be used to analyze the US housing stock, or estimate the “excess supply” of housing.

CR Note: A key number for the U.S. economy is the excess supply of vacant housing units. The decennial Census probably provides the best estimate, and that is already over a year out of date.

by Calculated Risk on 5/05/2011 11:29:00 AM

From the National Multi Housing Council (NMHC): Apartment Sector Sets Records In Market Tightness And Equity Availability, NMHC Market Conditions Survey Finds

The Market Tightness Index, which examines vacancies and rents, rose to a record 90 from 78 last quarter. ... Almost four in five respondents (79%) said markets were tighter (lower vacancies and/or higher rents) and—for the first time ever—not a single respondent thought conditions were looser.

“The apartment industry rebounded strongly in 2010 as demand for apartment residences outpaced the sluggish recovery in the job market nationally,” said NMHC Chief Economist Mark Obrinsky. “These results show the apartment industry continues to do well even though the nation’s overall rate of economic growth has slowed. This is driven largely by the increased appeal of renting generally but also by the large number of young people entering the housing market for the first time—and young people are much more likely to rent than buy.”

Click on graph for larger image in graph gallery.

This graph shows the quarterly Apartment Tightness Index.

The index has indicated tighter market conditions for the last five quarters and increased to a record 90 in April. A reading above 50 suggests the vacancy rate is falling and / or rents are rising. This data is a survey of large apartment owners only.

This fits with the recent Reis data showing apartment vacancy rates fell in Q1 2011 to 6.2%, down from 6.6% in Q4 2010, and 8% in the Q1 2010.

Two key points I've made over and over are 1) with falling vacancy rates and rising rents, the number of multi-family starts will pick up sharply this year (but still be well below normal), and 2) this pickup will lead to a positive contribution to GDP and payroll jobs for construction in 2011, the first positive contribution for either since 2005. This survey reinforces both points.

A final note: This index helped me call the bottom for effective rents (and the top for vacancy rate) a year ago.

by Calculated Risk on 5/05/2011 09:41:00 AM

This is one of several house prices indexes I follow in addition to Case-Shiller and CoreLogic. This is especially interesting this month for two reasons: 1) the index is showing a double dip in house prices, and 2) the graph showing house prices and REO saturation.

From Clear Capital: Clear Capital® Reports National Double Dip

Clear Capital (www.clearcapital.com) today released its monthly Home Data Index™ (HDI) Market Report, and reports prices have double dipped nationally 0.7 percent below prior lows experienced in March 2009.
...
“The latest data through April shows a continued increase in the proportion of distressed sales that are taking hold in markets nationwide,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “With more than one-third of national home sales being REO, market prices are being weighed down ..."

Click on graph for larger image in new window.

These graphs from Clear Capital show their home price index and the percent REO saturation.

We know that a higher percentage of distress sales put downward pressure on house prices, and these graphs make that relationship pretty clear.

Note: REO saturation usually peaks early in the year - so some of the recent increase is seasonal.

From Clear Capital:

This comparison leads to concern over home price declines through the rest of 2011. The trends of 2008 were quickly reversed with the introduction of stimulus measures. However, home prices today are already down nearly 25 percent since the 2008 period, creating increasing home affordability, in addition to gradually improving employment measures. Unlike the 2008 period where the downward trend ended in the winter, we're now heading into the home buying seasons of spring and summer. Regardless, the housing market still faces many challenges that will only be solved through increased buying activity or a reduction in the distressed segment―neither of which is assured in 2011.

by Calculated Risk on 5/05/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending April 30, the advance figure for seasonally adjusted initial claims was 474,000, an increase of 43,000 from the previous week's revised figure of 431,000. The 4-week moving average was 431,250, an increase of 22,250 from the previous week's revised average of 409,000.

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 increased this week to 431,250.

Note: There were special circumstances last week, via MarketWatch:

A Labor official attributed much of the increase to temporary layoffs in the auto sector and in the state of New York, where workers in the educational field such as bus drivers are eligible for compensation during the week of spring break.

Even without the special reasons, weekly claims have been increasing in recent weeks.

by Calculated Risk on 5/04/2011 09:10:00 PM

The WSJ has an update on the charade: GOP, White House Talk Deal on Debt

GOP leaders and the White House are discussing a deal that would enact strict deficit targets and some spending cuts ... The deal would defer contentious decisions about Medicare, Medicaid and taxes until after the 2012 elections.
...
Targets that would aim to bring the deficit below 3% of gross domestic product by 2015 ...

I find this amusing. First the current CBO projection shows the deficit at 3% of GDP in 2015 - so this is a big yawn, plus a future congress can change the rules. Of course the 3% includes the expiration of the tax cuts at the end of 2012, but that just means another battle after the election. (Note: the tax cuts were really "tax shifts" since they shifted the burden to future taxpayers).

Of course there is a huge battle ahead over the budget for the next fiscal year (the fiscal year starts on October 1st), but the debt ceiling debate is all a charade - although it allows Congress to force Treasury to do some extra work. The only smart vote would be to eliminate the debt ceiling vote in the future, and let the annual budget process automatically set the debt limit. But then there wouldn't be as much camera time ...

Earlier:
• ISM Non-Manufacturing Index indicates sharply slower expansion in April
• ISM Indexes and BLS Payroll Employment

by Calculated Risk on 5/04/2011 05:53:00 PM

Martin Marietta Materials, Inc. released their Q1 results today, and this statement caught the eye of several analysts:

"The residential end-use market volume grew 15% compared with the prior-year quarter, reflecting increased multi-family construction activity."

From the Q&A: (ht Brian)

Analyst: In the press release you talked about your residential business being up 15% on multi-family construction. I'm surprised that that's skewing the number that much given the size of the market. What exactly is going on?

MLM CEO: Well, I guess the big thing I would say to you is it's been a market that has been dead for so long that when any degree of activity comes back to it, it tends to have a remarkable swing in it. ... [W]hen we step back and take a look at what's going on broadly in multi-family ... My recollection is that we were looking in February last year at around 400 different permits that had been handed out for multi-family construction [in portions of Texas] - and during the same time this year, over 2,000.

This reinforces several themes we've been discussing ...

• There will be a record (or near record) low number of housing units completed this year, and there will be a record low number of multi-family completions this year.

• With falling vacancy rates and rising rents, the number of multi-family starts will pick up sharply (but still be well below normal). It takes over a year on average to complete a multi-family building, so these units will start to be delivered in 2012 - but the impact on construction starts this year. As the MLM CEO said: "a market that has been dead for so long ... any degree of activity ... tends to have a remarkable swing".

• This pickup will lead to a positive contribution to GDP and payroll jobs for construction in 2011, the first positive contribution for either since 2005. As ADP noted this morning: "In April, employment in the construction industry increased 9,000, only the second monthly increase since June 2007. Since December 2010, however, construction employment has, on balance, risen, suggesting that finally employment in this sector has bottomed out. The total decrease in construction employment since its peak in January 2007 is 2,115,000." Nine thousand jobs added compared to over 2 million jobs lost is just a drop in the bucket, but it is a start ...

by Calculated Risk on 5/04/2011 03:30:00 PM

This is San Francisco Fed President John Williams' first policy speech: Maintaining Price Stability in a Global Economy. Excerpt on inflation:

[W]e’ve seen a very substantial pickup in prices for many energy, food, and industrial commodities. For example, in the past year, copper prices have risen 26 percent, crude oil 35 percent, and corn 75 percent.3 This is cause for serious concern. Sharply higher prices for many raw materials are driving up the prices of a range of consumer goods and services, including gas and food, and are pushing readings of overall inflation noticeably higher. The measure of prices that we at the Fed tend to watch most closely—the personal consumption expenditures price index—increased at a 3.8 percent annual rate in the first quarter of this year. This figure is well above the longer-term inflation objective of 2 percent, or a bit less, that most participants in our policymaking body, the Federal Open Market Committee, prefer.

This brings me to the second question: What is driving inflation so high? Well, as I mentioned, rising commodity prices, especially for food and energy, have been the culprit. Indeed, so-called core inflation, which strips out food and energy prices, was only 1.5 percent in the first quarter and averaged only 0.9 percent over the past four quarters. Now I know that core inflation has come under a lot of criticism. After all, people need to put food on the table and fill the tanks of their cars. I totally agree. It is the price of the entire household consumption basket of goods and services that we at the Fed care about in terms of our inflation goal, and that certainly includes food and energy. But, we find it useful to look at various measures of underlying inflation, including core inflation, to help us disentangle the various elements in the overall inflation picture. And statistical analysis shows that, over recent decades, measures of underlying inflation, such as core inflation, have been helpful in predicting the future course of overall inflation.

That brings us back to the question of why commodity prices have risen so much. Some commentators have suggested that the Fed itself has contributed to the run-up by keeping in place excessive monetary stimulus. According to this argument, the Fed’s policy of very low interest rates and sizable securities holdings are fueling speculation in commodities. Economic theory teaches us that lower interest rates will boost asset prices, including commodity prices, all else equal. But it is unlikely that this effect can explain more than a very small portion of the huge increase in commodity prices that we have witnessed. Economists at the San Francisco Fed recently looked at how commodity prices reacted when the Fed announced new policy actions to stimulate the economy. If Fed policies were responsible for the commodity price boom, then we should have seen those prices jump when the Fed announced more monetary stimulus. In fact, the researchers found that, if anything, commodity prices fell after new policy announcements and were not pushed higher by news about Fed policy. So, I don’t see any convincing evidence that monetary policy has played a significant role in the huge surge in commodity prices.

I see the real culprit as being global supply and demand. Rising commodity prices can be traced to the rapid rebound in the global economy in the past year and a half, led by robust growth in emerging market economies, which display a ravenous appetite for raw materials. For example, Chinese automakers sold some 18 million vehicles last year, a third more than in 2009 and more than any other country in history, including the United States. At the same time, as demand is rising, we’ve seen supplies of some commodities curtailed by weather or political disruptions. In recent months, turmoil in North Africa and the Middle East has reduced the global supply of oil and likely added a substantial risk premium to the price of a barrel of crude as well.

What do these fast-rising commodity prices mean for inflation for the rest of the year and beyond? I believe that the inflation rate will reach a peak around the middle of this year and then edge back downward. In other words, we are seeing a temporary bulge in inflation before we return to an underlying level of about 1¼ to 1½ percent annually. There are several reasons for thinking the inflation bulge will be short-lived.

First, commodity prices are not likely to keep increasing indefinitely at a rapid rate. Indeed, in recent weeks, prices for a number of commodities, including sugar and cotton, have fallen sharply. In addition, the prices of contracts for certain key commodities in the futures markets, such as crude oil, indicate that traders believe these prices won’t keep rising at double-digit rates. For example, the numerous supply disruptions that have pushed up prices of some foodstuffs, such as poor harvests in Russia and China, are not likely to be repeated. So even if commodity prices remain elevated, they won’t keep pushing up inflation.

A second reason for believing that inflation will peak and then trend down is that higher commodity prices generally represent only a small proportion of the cost of the finished goods American consumers buy. For example, corn and sugar make up only a fraction of the cost of a box of Frosted Flakes. Most of the cost comes from the labor involved in manufacturing, distributing, and selling the breakfast cereal, including paying for air time for Tony the Tiger. This means that large percentage increases in commodity prices typically translate into relatively small percentage increases in consumer prices. Of course, some goods, such as gasoline, have very high commodity input shares. But, in today’s economy, these are more the exception than the rule.

The stability of longer-term inflation expectations is a third factor that leads me to expect that inflation will start to ease later this year. It’s true that surveys show that consumers expect moderately high inflation over the next year. Households see gasoline prices going up and up and up, and, not surprisingly, they get worried about near-term inflation prospects. But medium-term measures of inflation expectations have barely budged. In other words, ordinary Americans agree that we are seeing a transitory rise in inflation. Those survey results reflect the fact that inflation has remained low and relatively steady for several decades and that the public believes the Fed is committed to keeping inflation under control. As long as household, business, and investor inflation expectations remain stable, then it’s unlikely that an inflationary dynamic will become established or that underlying inflation will jump sharply.

This leads directly to a fourth reason for thinking inflationary pressures will ease. The structural and institutional factors that led to a runaway inflationary spiral in the 1970s are largely absent today. Four decades ago, many labor contracts provided for automatic cost-of-living adjustments, or COLAs, which meant that higher prices fed into higher wages in a self-reinforcing feedback loop. Today, COLA clauses are mostly things of the past. Meanwhile, measures of wages and labor compensation, such as the employment cost index or average hourly earnings, have been increasing at an annual rate of only around 2 percent. When you factor in productivity gains, the unit labor cost of producing goods and services has been close to flat. These wage trends, which reflect the high level of unemployment in the economy, act as a powerful brake on inflation.

Before becoming the San Francisco Fed president, John Williams was a key economist at the Fed and his views on inflation will carry weight with other policymakers.