by Calculated Risk on 3/05/2015 08:34:00 AM

The DOL reported:

In the week ending February 28, the advance figure for seasonally adjusted initial claims was 320,000, an increase of 7,000 from the previous week's unrevised level of 313,000. The 4-week moving average was 304,750, an increase of 10,250 from the previous week's unrevised average of 294,500.

There were no special factors impacting this week's initial claims.

The previous week was unrevised.

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 increased to 304,750.

This was above the consensus forecast of 300,000, however the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 3/04/2015 07:01:00 PM

From Greg Ip at the WSJ: Janet Yellen, Forecasting Ace

Her forecasts as a Fed official have been strikingly accurate, as the release of 2009 transcripts to the Fed’s deliberations make clear. If she worked on Wall Street, she’d be a “hot hand.” This does not mean as chairwoman she is necessarily right; but it does suggest her forecasts deserve the benefit of the doubt.
...
A Wall Street Journal study of her public comments concluded that she consistently hit the mark more often from 2009 to 2012 than other members of the Federal Open Market Committee.

Transcripts of FOMC meetings in 2009, released Wednesday, reinforce this point. Ms Yellen is repeatedly more gloomy about the outlook, less worried about inflation, and more in favor of forceful monetary stimulus than her colleagues.

Her foresight on inflation is especially noteworthy. Discussing its outlook in January, 2009, she said: “We could see a prolonged period in which inflation falls well below the level consistent with our dual goals of price stability and maximum sustainable employment.” That, of course, is what has happened: inflation has consistently run below the Fed’s 2% target.

Yellen has no crystal ball - she just paid close attention to the data and drew the correct conclusions.  This is one reason I argued for Yellen as Fed Chair.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 300 thousand from 313 thousand.

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for January. The consensus is for no change in January orders.

• At 4:30 PM, Dodd-Frank Act Stress Test Results

by Calculated Risk on 3/04/2015 03:28:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for February. The consensus, according to Bloomberg, is for an increase of 230,000 non-farm payroll jobs in February (with a range of estimates between 200,000 and 252,000), and for the unemployment rate to decline to 5.6%.

The BLS reported 257,000 jobs added in January.

Here is a summary of recent data:

• The ADP employment report showed an increase of 212,000 private sector payroll jobs in February. This was below expectations of 220,000 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 slightly below expectations.

• The ISM manufacturing employment index decreased in February to 51.4%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs declined by 10,000 in February. The ADP report indicated a 3,000 increase for manufacturing jobs in February.

The ISM non-manufacturing employment index decreased in January to 56.4%. A historical correlation between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 245,000 in February.

Combined, the ISM indexes suggests employment gains of 235,000.  This suggests growth close to expectations.

• Initial weekly unemployment claims averaged close to 295,000 in January, down from 298,000 in January. For the BLS reference week (includes the 12th of the month), initial claims were at 282,000; this was down from 308,000 during the reference week in January.

Generally this suggests slightly fewer layoffs, seasonally adjusted, in February compared to January.

• The final February University of Michigan consumer sentiment index decreased to 95.4 from the January reading of 98.1.  Sentiment is frequently coincident with changes in the labor market, but this decrease is probably mostly due to an increase in gasoline prices in February.

• Trim Tabs reported that the U.S. economy added between 215,000 and 245,000 jobs in February. This was up from their 190,000 to 220,000 range last month. "TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 141 million U.S. workers subject to withholding".

• Conclusion: There is always some randomness to the employment report, but most indicators suggest an employment number close to the consensus.

Note: Last February, the economy added 188,000 jobs according to the BLS, so anything above 188,000 (including revisions) will increase the year-over-year change (already highest since the '90s).

by Calculated Risk on 3/04/2015 02:00:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of St. Louis and based on information collected on or before February 23, 2015. "

Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand across most regions and sectors from early January through mid-February. Six Districts noted that the local economy expanded at a moderate pace since the prior reporting period. Activity rose modestly in Philadelphia and Cleveland, while it increased slightly in Kansas City. Dallas noted a similar pace of growth as in the previous period, while Richmond reported that activity slowed from the modest pace seen in the prior period. Boston noted that business contacts were fairly upbeat this period, notwithstanding the severe weather....

Oil and natural gas drilling declined in the Cleveland, Minneapolis, Kansas City, and Dallas Districts. In contrast, the Richmond District reported that natural gas production was unchanged. The number of drilling rigs for oil and natural gas declined sharply in the Cleveland, Minneapolis, and Kansas City Districts. Oil and gas producers in the Cleveland, Kansas City, and Dallas Districts anticipate cuts in capital expenditures during 2015. Coal production was unchanged in both the Cleveland and Richmond Districts, while it increased modestly in the St. Louis District. Both the Cleveland and Richmond Districts reported lower coal prices.

And on real estate:

Residential real estate conditions were mixed across the Districts. Home sales and prices increased in most Districts; construction activity was mixed, with some Districts reporting disruptions due to severe weather. Residential sales increased in Boston, Philadelphia, Richmond, St. Louis, Dallas, and San Francisco. Sales fell in Cleveland and Kansas City. Contacts in New York, Philadelphia, and Cleveland partially attributed lower construction to inclement weather conditions. Contacts in Boston noted low levels of inventory due, in part, to inclement weather. Reports noted that low levels of inventory and lack of desirable lots continue to slow the market: Contacts in Boston, Cleveland, Kansas City, and San Francisco cited a lack of available inventory, while contacts in Cleveland and Richmond noted a lack of available lots. Single-family building permits increased in St. Louis and San Francisco. Contacts in Cleveland, Atlanta, Kansas City, and Minneapolis reported flat to declining real estate construction.

Commercial real estate market conditions were stable or improving in most Districts. Commercial vacancy rates declined in Boston, Chicago, St. Louis, and Kansas City. In Dallas, contacts reported that commercial real estate had steadied or slowed since the previous report. The apartment market remained strong in most Districts. Apartment rental rates rose in New York, Chicago, and San Francisco. Contacts in Cleveland noted an increased demand for multifamily housing. Contacts in Dallas noted that apartment demand remains strong. Commercial construction increased in most Districts. Contacts in New York, Richmond, Atlanta, St. Louis, and San Francisco noted stable to strong multifamily construction. Contacts in Chicago reported moderate growth in commercial real estate, driven mainly by industrial buildings. In Boston, contacts noted that speculative construction remains limited due to high construction costs.
emphasis added

by Calculated Risk on 3/04/2015 10:40:00 AM

The Federal Reserve released the transcripts for the 2009 FOMC meetings today. Here is SF Fed President Janet Yellen in June 2009:

Thank you, Mr. Chairman. At our meeting in late April, we had begun to see hopeful signs of impending economic recovery, and subsequent economic and financial developments have strengthened the view that the economy is bottoming out. Even so, the outlook over the next several years remains disturbing. My modal forecast shows economic growth resuming next quarter, but I expect the recovery to be quite gradual. The output and employment gaps are, at a minimum, quite large, so it will take a long time to regain full employment under current monetary and fiscal policy settings. Although downside risks have diminished, I remain concerned that the recovery is still fragile.
...
And, of course, labor markets continue to deteriorate badly. It’s a sign of how bad things really are that near euphoria broke out with the announcement of 345,000 nonfarm jobs lost in May. The unemployment rate is soaring month by month, and, even worse, it appears to understate the true extent of the deterioration, given the unusually high incidence of permanent, as opposed to temporary, layoffs, and the unprecedented increase in involuntary part-time work. ...

My forecasts for output and employment are similar to the Greenbook’s, so I won’t go into the details. I do want to emphasize that I anticipate a rather sluggish recovery, not the rapid V-shaped recovery we have frequently seen following deep recessions in the past. The process of balance sheet repair that households and financial institutions are undergoing will result in subdued spending for an extended period, and monetary policies here and abroad are not able to play as big a role as usual in promoting recovery because of the constraint of the zero lower bound on short-term interest rates.

... [E]ven under the typical recovery simulation, which has much stronger growth than in the baseline, the unemployment rate remains well above the 5 percent NAIRU by the end of 2011, and inflation hovers around 1 percent. This outcome reflects the large unemployment and GDP gaps estimated for the first quarter. ...

So, to conclude, if the recovery is as slow as the Greenbook and I expect, it will take quite a number of years to get back to potential output. As a result, I expect core inflation to drift lower over the next few years, falling below the 2 percent rate that seems best to me.

Note that Yellen correctly forecast that the recovery was starting (this was June 2009), but that the recovery would be sluggish - not V-shaped - because of the need for "balance sheet repair" (I made the same argument in mid-2009), and that inflation would be low for some time. Many analysts were forecasting a strong recovery (ignoring the reasons for the recessions) and high inflation.

by Calculated Risk on 3/04/2015 10:00:00 AM

The February ISM Non-manufacturing index was at 56.9%, up from 56.7% in January. The employment index increased in February to 56.4%, up from 51.6% in January. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: February 2015 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in February for the 61st 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, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 56.9 percent in February, 0.2 percentage point higher than the January reading of 56.7 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 59.4 percent, which is 2.1 percentage points lower than the January reading of 61.5 percent, reflecting growth for the 67th consecutive month at a slower rate. The New Orders Index registered 56.7 percent, 2.8 percentage points lower than the reading of 59.5 percent registered in January. The Employment Index increased 4.8 percentage points to 56.4 percent from the January reading of 51.6 percent and indicates growth for the 12th consecutive month. The Prices Index increased 4.2 percentage points from the January reading of 45.5 percent to 49.7 percent, indicating prices contracted in February for the third consecutive month. According to the NMI®, 14 non-manufacturing industries reported growth in February. Comments from respondents have increased in regards to the affects of the reduction in fuel costs and the impact of the West Coast port labor issues on the continuity of supply. Overall, supply managers feel mostly positive about the direction of the economy."
emphasis added

Click on graph for larger image.

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

This was close to the consensus forecast of 56.5% and suggests slightly faster expansion in February than in January.  Overall this was a solid report.

by Calculated Risk on 3/04/2015 08:19:00 AM

From ADP:

Private sector employment increased by 212,000 jobs from January to February according to the February ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
Goods-producing employment rose by 31,000 jobs in February, down from 45,000 jobs gained in January. The construction industry added 31,000 jobs, the same number as last month. Meanwhile, manufacturing added 3,000 jobs in February, well below January’s 15,000.

Service-providing employment rose by 181,000 jobs in February, down from 206,000 in January. ...

Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is strong, but slowing from the torrid pace of recent months. Job gains remain broad-based, although the collapse in oil prices has begun to weigh on energy-related employment. At the current pace of growth, the economy will return to full employment by mid-2016.”

This was below the consensus forecast for 220,000 private sector jobs added in the ADP report. 

The BLS report for February will be released on Friday and the consensus is for 230,000 non-farm payroll jobs added in February.

by Calculated Risk on 3/04/2015 07:00:00 AM

From the MBA: Mortgage Applications Little Changed in Latest MBA Weekly Survey

Mortgage applications increased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 27, 2015. ...

The Refinance Index increased 1 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.2 percent from one week earlier.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.96 percent from 3.99 percent, with points decreasing to 0.30 from 0.33 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

2014 was the lowest year for refinance activity since year 2000.

2015 will probably see more refinance activity than in 2014, but not a large refinance boom.

The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is essentially unchanged from a year ago.

by Calculated Risk on 3/03/2015 07:11:00 PM

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:15 AM, the ADP Employment Report for February. This report is for private payrolls only (no government). The consensus is for 220,000 payroll jobs added in February, up from 213,000 in January.

• At 10:00 AM, the ISM non-Manufacturing Index for February. The consensus is for a reading of 56.5, down from 56.7 in January. Note: Above 50 indicates expansion.

• At 2:00 PM, Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

by Calculated Risk on 3/03/2015 02:36:00 PM

Based on a WardsAuto estimate, light vehicle sales were at a 16.16 million SAAR in February. That is up 5.4% from February 2014, and down 2.4% from the 16.55 million annual sales rate last month.  The comparison to February 2014 was easy (sales were impacted by the severe weather last year).

From John Sousanis at Wards Auto: February 2015 U.S. LV Sales Thread: SAAR Falls to 10-Month Low

U.S. automakers sold 1.252 million light vehicles in February, a 5.4% increase in daily sales that left the seasonally adjusted annual sales rate (SAAR) at a 10-month low of just 16.16 million-units.
...
Historic cold in parts of the country likely played a role in the shortfall, along with lower than expected fleet sales and some inventory shortages of key models.

GM was the No.1 auto seller in February, accounting for 18.5% of sales, followed by Toyota (14.4%) and Ford (14.1%).

Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for February (red, light vehicle sales of 16.16 million SAAR from WardsAuto).

This was below the consensus forecast of 16.7 million SAAR (seasonally adjusted annual rate).

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

Note: dashed line is current estimated sales rate.

Although below consensus, this was the tenth consecutive month with a sales rate over 16 million.