by Calculated Risk on 8/02/2012 10:31:00 AM

It is difficult to find good and timely data on the number of household formations in the US, and also for the number of excess vacant housing units. The decennial Census is probably the best measure (and also the ACS), but those two estimates aren't consistent (the Census Bureau is looking into the reasons why). Another Census Bureau survey, the Housing Vacancies and Homeownership (HVS) is clearly flawed. The HVS indicates that the number of occupied households increase by 809 thousand over the last year - and that seems too low.

Jed Kolko, chief economist at Trulia, has been looking at Postal Service data.

From Jed Kolko at Trulia: Housing Glut or Housing Shortage? America’s Got Both

With this post, we present a new measure of vacancies, based on U.S. Postal Service (USPS) monthly data on the number of addresses that are and are not receiving mail. ... Here’s what we found.

Nationally, the number of occupied housing units – that is, those receiving mail – rose by 970,000 in the last year, from mid-July 2011 to mid-July 2012. Over the same period, the total number of housing units – those that could receive mail – rose by 760,000. The difference – 210,000 – is the reduction in the number of vacant units. That’s a 5% drop in the number of vacant units nationally. As a percentage of all units, the vacancy rate declined from 3.6% one year ago to 3.4% now.

In fact, vacancies have declined in 90 of the 100 largest metros.

There is much more in Kolko's post.

This data suggests close to 1 million household formations over the last year. I have less confidence in the count of housing units, since total completions only increased by a little more than 600 thousand last year (single family, multi-family and manufactured homes) - and there were also some demolitions.

Clearly the vacancy rate is falling - and the number of household formations exceeds the number of housing units added to the housing stock.

by Calculated Risk on 8/02/2012 08:30:00 AM

The DOL reports:

In the week ending July 28 the advance figure for seasonally adjusted initial claims was 365,000, an increase of 8,000 from the previous week's revised figure of 357,000. The 4-week moving average was 365,500, a decrease of 2,750 from the previous week's revised average of 368,250.

The following graph shows the 4-week moving average of weekly claims since January 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims declined to 365,500.

The sharp swings over the last few weeks are apparently related to difficulty adjusting for auto plant shutdowns.

And here is a long term graph of weekly claims:

This was below the consensus forecast of 370,000 and is the lowest level for the four week average since March - and is near the post bubble low of 363,000.

All current Employment Graphs

by Calculated Risk on 8/01/2012 09:36:00 PM

From Jon Hilsenrath and Kristina Peterson at the WSJ: Wary Fed Is Poised to Act

The Federal Reserve is heading toward launching a new round of stimulus to buck up the weak economy, but stopped short of doing so right away.

The decision to make what amounted to a conditional promise of action came Wednesday at the end of the central bank's two-day policy meeting. In an uncharacteristically strong statement, the Fed said it will "closely monitor" the economy and "will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions." Translation: The Fed will move if growth and employment don't pick up soon on their own.

The Fed has been saying "soon" for months.

On Thursday:
• At 7:45 AM ET, the European Central Bank (ECB) will announce their decision on rates. The key is the after meeting press conference. From the FT Alphaville:

Any further policy action would be announced during Draghi’s subsequent press conference. To recap, the likeliest options seem to be: another rate cut (note that earlier time), a revived Securities Markets Programme, and then (getting quite a bit less likely) another LTRO, approval of an eventual banking license for the ESM, or a yield targeting framework for bond-buying.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 370 thousand from 353 thousand last week.

• At 10:00 AM, the Manufacturers' Shipments, Inventories and Orders (Factory Orders) for May will be released. The consensus is for a 0.7% increase in orders.

I'll also post an employment preview tomorrow too.

by Calculated Risk on 8/01/2012 06:16:00 PM

The BEA released the underlying details today for the Q2 Advance GDP report.

The first graph shows investment in offices, malls and lodging as a percent of GDP. With the annual revisions, it now appears office, mall and lodging investment has increased slightly - but from a very low level.

Investment in offices is down about 61% from the peak (as a percent of GDP). With the high office vacancy rate, investment will probably not increase significantly (as a percent of GDP) for several years.

Click on graph for larger image.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 59% from the peak (note that investment includes remodels, so this will not fall to zero).

Lodging investment peaked at 0.32% of GDP in Q2 2008 and is down about 75%.

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

Usually the most important components are investment in single family structures followed by home improvement.

Investment in single family structures is finally increasing after mostly moving sideways for almost three years (the increase in 2009-2010 was related to the housing tax credit).

Investment in home improvement was at a $158 billion Seasonally Adjusted Annual Rate (SAAR) in Q2 (just over 1.0% of GDP), significantly above the level of investment in single family structures of $122 billion (SAAR) (or 0.78% of GDP). Eventually single family structure investment will overtake home improvement as the largest category of residential investment.

Brokers' commissions increased slightly in Q2 as a percent of GDP. And investment in multifamily structures increased in Q2. This is a small category, and even though investment is increasing, the positive impact on GDP will be relatively small.

These graphs show there is currently very little investment in offices, malls and lodging. And residential investment is starting to pickup, but from a very low level.

All Housing Investment and Construction graphs

by Calculated Risk on 8/01/2012 03:18:00 PM

Based on an estimate from Autodata Corp, light vehicle sales were at a 14.09 million SAAR in July. That is up 14% from July 2011, and down 1.7% from the sales rate last month (14.33 million SAAR in June 2012).

This was slightly above the consensus forecast of 14.0 million SAAR (seasonally adjusted annual rate).

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for July (red, light vehicle sales of 14.09 million SAAR from Autodata Corp).

Click on graph for larger image.

The year-over-year increase was fairly large because the auto industry was still recovering from the impact of the tsunami and related supply chain issues in 2011.

Sales have averaged a 14.12 million annual sales rate through the first seven months of 2012, up sharply from the same period of 2011.

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

Note: dashed line is current estimated sales rate.

This shows the huge collapse in sales in the 2007 recession.

In 2012, sales are mostly moving sideways suggesting auto sales will probably not add significantly to GDP.

by Calculated Risk on 8/01/2012 02:15:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year. Growth in employment has been slow in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed. Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate.

Here is the previous FOMC Statement for comparison.

by Calculated Risk on 8/01/2012 11:31:00 AM

Catching up ... This morning the Census Bureau reported that overall construction spending increased in June:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during June 2012 was estimated at a seasonally adjusted annual rate of $842.1 billion, 0.4 percent above the revised May estimate of $838.3 billion. The June figure is 7.0 percent above the June 2011 estimate of $786.8 billion.

Private construction spending increased while public spending was flat:

Spending on private construction was at a seasonally adjusted annual rate of $567.9 billion, 0.7 percent above the revised May estimate of $564.2 billion. ... In June, the estimated seasonally adjusted annual rate of public construction spending was $274.2 billion, nearly the same as the revised May estimate of $274.1 billion.

Click on graph for larger image.

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

Private residential spending is 61% below the peak in early 2006, and up 19.4% from the recent low. Non-residential spending is 27% below the peak in January 2008, and up about 33% from the recent low.

Public construction spending is now 16% below the peak in March 2009 and near the post-bubble low.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, both private residential and non-residential construction spending are positive, but public spending is down on a year-over-year basis. The year-over-year improvements in private non-residential is mostly related to energy spending (power and electric).

The solid year-over-year increase in private residential investment is a positive for the economy (the increase in 2010 was related to the tax credit). However the recent improvement in residential construction is being somewhat offset by declines in public construction spending.
All Housing Investment and Construction Graphs

by Calculated Risk on 8/01/2012 10:00:00 AM

This is the second consecutive month of contraction (below 50) in the ISM index since the recession ended in 2009. PMI was at 49.8% in July, up slightly from 49.7% in June. The employment index was at 52.0%, down from 56.6%, and new orders index was at 48.0%, up slightly from 47.8%.

From the Institute for Supply Management: June 2012 Manufacturing ISM Report On Business®

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The PMI registered 49.8 percent, an increase of 0.1 percentage point from June's reading of 49.7 percent, indicating contraction in the manufacturing sector for the second consecutive month, following 34 consecutive months of expansion. The New Orders Index registered 48 percent, an increase of 0.2 percentage point from June and indicating contraction in new orders for the second consecutive month, but at a slightly slower rate. Both the Production Index and the Employment Index remained in growth territory, registering 51.3 percent and 52 percent, respectively. The Prices Index for raw materials registered 39.5 percent, an increase of 2.5 percentage points from the June reading of 37 percent, indicating lower prices on average for the third consecutive month. A growing number of comments from the panel this month reflect a slowdown in their businesses and general concern over increasing economic uncertainty."

Click on graph for larger image.

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

This was below expectations of 50.1%. This suggests manufacturing contracted in July for the second consecutive month.

This was another weak report.

by Calculated Risk on 8/01/2012 08:20:00 AM

ADP reports:

Employment in the U.S. nonfarm private business sector increased by 163,000 from June to July, on a seasonally adjusted basis. The estimated gain from May to June was revised down slightly, from the initial estimate of 176,000 to 172,000.

Employment in the private, service-providing sector expanded 148,000 in July after rising a revised 151,000 in June. The private, goods-producing sector added 15,000 jobs in July. Manufacturing employment rose 6,000 this month, following a revised increase of 9,000 in June.

This was above the consensus forecast of an increase of 120,000 private sector jobs in July. The BLS reports on Friday, and the consensus is for an increase of 100,000 payroll jobs in July, on a seasonally adjusted (SA) basis.

ADP hasn't been very useful in predicting the BLS report, but this suggests a stronger than consensus report.

by Calculated Risk on 8/01/2012 07:00:00 AM

From the MBA: Refinance Applications Increase Again to Three-Year High in Latest MBA Weekly Survey

The Refinance Index increased 0.8 percent from the previous week to its highest level since the week ending April 17, 2009. The slight increase in refinance activity was muted by a 6 percent drop in government refinance applications, while conventional refinance activity increased about 2 percent over the week. The seasonally adjusted Purchase Index decreased about 2 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.75 percent from 3.74 percent, with points increasing to 0.51 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate increased from last week.

Click on graph for larger image.

The first graph shows the MBA mortgage purchase index. The purchase index has been mostly moving sideways over the last two years.

Note: Yesterday Zillow reported record low mortgage rates in their survey: "The 30-year fixed mortgage rate on Zillow(R) Mortgage Marketplace is currently 3.34 percent, down one basis point from 3.35 percent at the same time last week."

The second graph shows the refinance index.

The refinance index is at the highest level in three years.