by Calculated Risk on 12/06/2013 02:52:00 PM

Still catching up ... the BEA released the Personal Income and Outlays report for October:

Personal income decreased $10.8 billion, or 0.1 percent ... in October, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $32.7 billion, or 0.3 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in October, compared with an increase of 0.1 percent in September. ... The price index for PCE decreased less than 0.1 percent in October, in contrast to an increase of 0.1 percent in September. The PCE price index, excluding food and energy, increased 0.1 percent in October, the same increase as in September.

On inflation, the PCE price index decreased at a 0.4% annual rate in October, and core PCE prices increased at a 0.9% annual rate.  This is very low and far below the Fed's 2% target.

The following graph shows real Personal Consumption Expenditures (PCE) through October 2013 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

This is just one month of Q4, but this suggests an increase in the PCE contribution to growth (compared to Q3).  Also Q4 this year should be better than Q4 2012 (there was essentially no growth in Q4 2012).

I expect the change in private inventories to be a negative in Q4 2013 (inventories subtracted 2.0 percentage points in Q4 2012), but we won't see the large negative contribution from government this year (subtracted 1.3 percentage points in Q4 2012).

by Calculated Risk on 12/06/2013 12:14:00 PM

Catching up ...


Click on graph for larger image.

The preliminary Reuters / University of Michigan consumer sentiment index for December was at 82.5, up from the November reading of 75.1.

This was well above the consensus forecast of 75.5. Sentiment has generally been improving following the recession - with plenty of ups and downs - and one big spike down when Congress threatened to "not pay the bills" in 2011.  The decline in October and early November was probably also due to the government shutdown and another threat to "not pay the bills".

As usual sentiment rebounds fairly quickly following event driven declines, and I expect to see sentiment at post-recession highs very soon.

by Calculated Risk on 12/06/2013 10:13:00 AM

A few key points:

• Most of the employment impact from the government shutdown was reversed in the November report.

• Earlier I noted four items that the Fed would probably be looking at to taper in December. Here were the two related to employment:

1) "If the unemployment rate declines back to 7.2% or so in November (the September rate), then the FOMC might taper." Since the unemployment rate declined to 7.0%, this was met.

2) "If the year-over-year change in employment is still around 2.2 million for November, the FOMC might taper." Employment was up 2.293 million year-over-year in November.

The other two items for the Fed are inflation (core PCE is only up 1.1% year-over-year), and a budget agreement by next week (seems likely).   At this point, inflation is the question mark for the Fed.

• Seasonal retail hiring remained solid. See the first graph below - this is a good sign for the holiday season ("Watch what they do, not what they say")

Seasonal Retail Hiring

Click on graph for larger image.

Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.

This graph really shows the collapse in retail hiring in 2008. Since then seasonal hiring has increased back close to more normal levels. Note: I expect the long term trend will be down with more and more internet holiday shopping.

Retailers hired 471 thousand workers (NSA) net in November.  This was just below the level in 2012, and suggests that retailers expect decent holiday sales. Note: this is NSA (Not Seasonally Adjusted).

Note: There is a decent correlation between seasonal retail hiring and holiday retail sales.

Employment-Population Ratio, 25 to 54 years old

Since the participation rate declined recently due to cyclical (recession) and demographic (aging population) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the employment-population ratio for this group was trending up as women joined the labor force. The ratio has been mostly moving sideways since the early '90s, with ups and downs related to the business cycle.

These numbers declined sharply in October due to the government shutdown, and bounced back in the November report. 

Percent Job Losses During Recessions


This graph shows the job losses from the start of the employment recession, in percentage terms - this time aligned at maximum job losses.  At the recent pace of improvement, it appears employment will be back to pre-recession levels next year (Of course this doesn't include population growth).

In the earlier post, the graph showed the job losses aligned at the start of the employment recession.

This financial crisis recession was much deeper than other post WWII recessions, and the recovery has been slower (the recovery from the 2001 recession was slow too). However, if we compare to other financial crisis recoveries, this recovery has actually been better than most.

Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) fell by 331,000 to 7.7 million in November. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

This more than reversed the increase in part time workers that happened in October due to the government shutdown.

These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 13.2% in November from 13.8% in October.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 4.066 million workers who have been unemployed for more than 26 weeks and still want a job. This was up slightly from 4.063 million in October. This is generally trending down, but is still very high.  Long term unemployment remains one of the key labor problems in the US.

State and Local Government

This graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years. (Note: Scale doesn't start at zero to better show the change.)

In November 2013, state and local governments added 14,000 jobs, and state and local employment is up 76 thousand so far in 2013.

I think state and local employment has bottomed.  Of course Federal government layoffs are ongoing.

Overall this was a decent employment report.

by Calculated Risk on 12/06/2013 08:30:00 AM

From the BLS:

The unemployment rate declined from 7.3 percent to 7.0 percent in November, and total nonfarm payroll employment rose by 203,000, the U.S. Bureau of Labor Statistics reported today. ...
...
Both the number of unemployed persons, at 10.9 million, and the unemployment rate, at 7.0 percent, declined in November. Among the unemployed, the number who reported being on temporary layoff decreased by 377,000. This largely reflects the return to work of federal employees who were furloughed in October due to the partial government shutdown.
...
The civilian labor force rose by 455,000 in November, after declining by 720,000 in October. The labor force participation rate changed little (63.0 percent) in November. Total employment as measured by the household survey increased by 818,000 over the month, following a decline of 735,000 in the prior month. This over-the-month increase in employment partly reflected the return to work of furloughed federal government employees. The employment-population ratio increased by 0.3 percentage point to 58.6 percent in November, reversing a decline of the same size in the prior month.
...
The change in total nonfarm payroll employment for September was revised from +163,000 to +175,000, and the change for October was revised from +204,000 to +200,000. With these revisions, employment gains in September and October combined were 8,000 higher than previously reported.

The headline number was above expectations of 180,000 payroll jobs added.

Click on graph for larger image.

This graph shows the job losses from the start of the employment recession, in percentage terms, compared to previous post WWII recessions. The dotted line is ex-Census hiring.

This shows the depth of the recent employment recession - worse than any other post-war recession - and the relatively slow recovery due to the lingering effects of the housing bust and financial crisis.

Employment is less than 1% below the pre-recession peak.


NOTE: The second graph is ex-Census meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes.

The third shows the unemployment rate.

The unemployment rate decreased in November to 7.0% from 7.3% in October.

 This increase in the unemployment rate in October was related to the government shutdown - and was reversed in the November employment report.

The fourth graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate increased in November to 63.0% from 62.8% in October (October decline was partially related to shutdown). 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 a significant portion of the recent decline is due to demographics.


The Employment-Population ratio increased in November to 58.6% from 58.3% in October (black line).

I'll post the 25 to 54 age group employment-population ratio graph later.

This was another solid employment report.  Many of the negatives in the October report were related to the government shutdown and were mostly reversed in the November report.  I'll have much more later ...

by Calculated Risk on 12/05/2013 06:57:00 PM

A couple more employment previews, first from David Mericle at Goldman Sachs:

We expect a 175k gain in both nonfarm payrolls and private payrolls in November, a bit below consensus expectations of 185k and a modest slowdown from the 204k gain seen in October. ... We expect that the unemployment rate will decline to 7.1% in November, reflecting both employment gains and the possibility that some of the decline in participation seen in October's distorted household survey will persist this month.

And from Merrill Lynch:

We are looking for job growth of 175,000 in November, a slight slowdown from the 204,000 pace in October. The unemployment rate should fall to 7.2% from 7.3% while the workweek holds steady at 34.4 hours. ... Looking back at the recent history, when Thanksgiving is late in the month, there seems to be a downward bias in retail jobs in November and a reversal in December. The reverse is the case when the Thanksgiving holiday is early in the month, as it was last year. This could account for a swing of as many as 40,000 jobs. ... The household survey was distorted in the October report, leading to a sharp decline in the labor force and in the number of employed workers. This bias will be reversed in November as people returned to work after the shutdown. We therefore expect the participation rate to jump back to 63.1%, nearly returning to the September pace.

Friday:
• At 8:30 AM ET, the Employment Report for November. The consensus is for an increase of 180,000 non-farm payroll jobs in November, down from the 204,000 non-farm payroll jobs added in October. The consensus is for the unemployment rate to decrease to 7.2% in November from 7.3% in October. A key will be if the participation rate increases too, reversing the sharp decline last month.

• Also at 8:30 AM, Personal Income and Outlays for October. The consensus is for a 0.3% increase in personal income, and for a 0.3% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 9:55 AM, the Reuter's/University of Michigan's Consumer sentiment index (preliminary for December). The consensus is for a reading of 75.5, up from 75.1 in November.

• At 3:00 PM, Consumer Credit for October from the Federal Reserve. The consensus is for credit to increase $15.0 billion in October.

by Calculated Risk on 12/05/2013 02:05:00 PM

The BEA revised up Q3 GDP to 3.6% (from 2.8% in the advance release). The main reason for the upward revision was more investment in inventory (the contribution from "Change in private inventories" was revised up from 0.83 percentage points in the advance release to 1.68 percentage in the second release).

The change in private inventories tends to bounce around, and this will probably be a drag on Q4 GDP.

Note: The BEA provides a summary of revisions Real Gross Domestic Product and Related Measures: Percent Change From Preceding Period and Contributions to Percent Change in Real Gross Domestic Product.

Personal consumption expenditures (PCE) was revised down from a 1.5% annual rate to 1.4%, and residential investment (RI) was revised down from 14.6% to 13.0%. This is weak final demand (PCE and RI contributed 1.34 percentage point to GDP growth in Q3).  This is the weakest final demand since Q2 2011.

The good news is PCE will probably increase in 2014 with most of the impact of tax increases and budget cuts ending.  But Q4 2013 will probably be another weak quarter impacted by the government shutdown, a negative contribution from private inventories, and still weak final demand.

The following graph shows the contribution to GDP from residential investment, equipment and software, intellectual properties, and nonresidential structures (3 quarter centered average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

For the following graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Click on graph for larger image.

Residential Investment (RI) made a positive contribution to GDP in Q3 for the twelfth consecutive quarter. Usually residential investment leads the economy, but that didn't happen this time because of the huge overhang of existing inventory.

Now RI is contributing - a good sign going forward since RI is historically still very low.

Overall this was another weak GDP report, but it does look like GDP will pickup in 2014.

by Calculated Risk on 12/05/2013 10:58:00 AM

In October I was looking for an Upside Payroll Surprise. For November, my guess is closer to the consensus forecast of 180,000 payroll jobs added.   The consensus is for the unemployment rate to decrease to 7.2% in November from 7.3% in October.

The October employment report was impacted by the government shutdown, and the unemployment rate increased in October to 7.3% from 7.2% in September.  Even worse, the participation rate declined sharply in October to 62.8% from 63.2% in September.  One of the keys for the November report will be if those ugly October numbers are reversed. 

Here is a summary of recent data:

• The ADP employment report showed an increase of 215,000 private sector payroll jobs in November. This was above expectations of 185,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month. But in general, this suggests employment growth above expectations.

• The ISM manufacturing employment index increased in November to 56.5%, from 53.2% in October. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 15,000 in November. The ADP report indicated a 18,000 increase for manufacturing jobs in November.

The ISM non-manufacturing employment index decreased in November to 52.5% from 56.2% in October. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing increased by about 140,000 in November.

Taken together, these surveys suggest around 155,000 jobs added in November - below the consensus forecast.

• Initial weekly unemployment claims averaged close to 322,000 in November. This was down sharply from an average of 358,000 in October, but up from the 305,000 average in September.  However there were some computer problems in California, and claims in October were probably too high, and claims in September were probably too low. 

This was below the level in August (when the BLS reported 238,000 payroll jobs added), and far below the level of November 2012 when the BLS reported 247,000 jobs added (after revisions).  This suggests fewer layoffs, and possibly more net payroll jobs added than the consensus forecast.

• The final November Reuters / University of Michigan consumer sentiment index increased to 75.1 from the October reading of 73.2. This is frequently coincident with changes in the labor market, but in this case sentiment is recovering from the government shutdown.

• The small business index from Intuit showed a 10,000 increase in small business employment in November. This is the largest increase in this index since May and June, and suggests a pickup in small business hiring.

• Conclusion: As usual the data was mixed. The ADP report was higher in November than in October, however the ISM surveys suggest a slower increase in payrolls. Weekly claims for the reference week were at the lowest level this year excluding September when there were computer issues (the reference week includes the 12th of the month), and consumer sentiment increased (recovering from government shutdown).  Also the Intuit small business index showed a pickup in hiring.

There is always some randomness to the employment report.   My guess is the report will be close to the consensus forecast of 180,000 nonfarm payrolls jobs added in November.

by Calculated Risk on 12/05/2013 08:39:00 AM

The BEA reports:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.6 percent in the third quarter of 2013 (that is, from the second quarter to the third quarter), according to the "second" estimate released by the Bureau of Economic Analysis. ... The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.8 percent

The upward revision to the percent change in real GDP primarily reflected upward revisions to private inventory investment and to nonresidential fixed investment that were partly offset by an upward revision to imports and a downward revision to exports

The DOL reports:

In the week ending November 30, the advance figure for seasonally adjusted initial claims was 298,000, a decrease of 23,000 from the previous week's revised figure of 321,000. The 4-week moving average was 322,250, a decrease of 10,750 from the previous week's revised average of 333,000.

The previous week was up from 316,000.

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 decreased to 322,250.

The level of weekly claims suggests an improving labor market.

by Calculated Risk on 12/04/2013 09:05:00 PM

On the MBA Purchase Index: This morning I mentioned a WSJ article Smaller Mortgage Lenders Lead Field. This suggests that the MBA Purchase Index might be understating purchase activity if smaller lenders (not in the survey) are gaining share.  MBA's Mike Fratantoni told me today:

[I]n the last couple of years ... independent mortgage bankers have accounted for a fast growing share of the purchase market ... We have actively recruited independents and smaller banks to get better coverage of the purchase market. ... It is likely that many of the lenders not in the survey have a higher purchase share and lower refi share.

It appears these small independent lenders are focusing on the purchase market (probably marketing through real estate agents - and selling the loans to Fannie and Freddie).  A result of this change in market share is the Purchase Index is probably understating the increase in purchase activity.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 322 thousand from 316 thousand last week.

• Also at 8:30 AM, the is the second estimate of Q3 GDP from the BEA. The consensus is that real GDP increased 3.1% annualized in Q3, revised up from the advance estimate of 2.8%.

• At 10:00 AM, the Manufacturers' Shipments, Inventories and Orders (Factory Orders) for October. The consensus is for a 1.2% decrease in October orders.

by Calculated Risk on 12/04/2013 06:04:00 PM

From Trulia this morning: Trulia Price Monitor: Hottest Housing Markets Cool, While Warm Markets Heat Up

In November, asking home prices rose 12.1 percent year-over-year (Y-o-Y), increasing in 98 of the 100 largest U.S. metro areas. Regaining a bit of steam since the slowdown began in July, asking prices rose 1.0 percent month-over-month (M-o-M) and 3.0 percent quarter-over-quarter (Q-o-Q). In fact, the quarterly increase is the fastest in five months, though still lower than in the spring.
...
The slowing of asking home price gains is most apparent in the housing markets with the biggest price rebounds. The slowdown – measured as the difference in the Q-o-Q price changes between November and August – was more than two percentage points in Las Vegas, Oakland, Atlanta, Phoenix, Detroit, and Los Angeles.

The price slowdown happening nationally is really a sharp deceleration in price gains in the hottest markets. Among the 100 U.S. largest metros, the quarterly price increase in the 10 metros where prices rose more than 20 percent Y-o-Y fell from 6.1 percent in August to 3.7 percent in November. But in the 56 markets where prices rose by less than 10 percent Y-o-Y, price gains actually accelerated in the most recent quarter, rising 1.6 percent in November compared with 1.3 percent in August. Prices accelerated in Philadelphia, Pittsburgh, and Miami, for instance.

“The price slowdown – like everything about housing – is all local,” said Jed Kolko, Trulia’s Chief Economist. “Price gains are cooling in 2013’s hottest markets, like Las Vegas and Oakland, but heating up in markets that haven’t been in the limelight.” emphasis added

Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases over the next few months on a seasonally adjusted basis.

More from Kolko: Hottest Housing Markets Cool, But Warm Markets Heat Up