by Calculated Risk on 6/04/2015 02:19:00 PM

Some readers have wondered about the accuracy of the monthly BLS employment report. The report is based on a survey of households, and reports from businesses - for differences see: Household vs. Establishment Series - and the establishment report is benchmarked annually to state unemployment insurance tax reports.

On a monthly basis, the establishment report may have a large margin of error, but - with the annual benchmarks - the report should track payroll employment very well over time.

Another public source of employment related data is the initial and continuing weekly unemployment reports.  The initial weekly unemployment claims report shows unemployment claims are near all time lows.

The good news is private sources of employment data are suggesting similar gains in employment (for those who doubt the accuracy of government data).

The most followed private source is from ADP.  However, ADP makes some adjustment based on data from the BLS report and from the Philadelphia Federal Reserve’s Aruoba-Diebold-Scotti Business Conditions Index. So this isn't entirely independent series.

Another private source is the ISM surveys of manufacturing and non-manufacturing companies.   Although these surveys are based on the number of companies hiring (or laying off workers), the index has tracked changes in private BLS employment over time.

For small business, the Intuit index is very useful - and the NFIB monthly surveys also provides information on hiring.  From NFIB: Small Business Hiring Strong for 5th Consecutive Month

“May continued to show solid, but not spectacular hiring, continuing the trend of previous months in 2015. For the second time this year, a high of 29 percent had openings they couldn’t fill; a high we hadn’t seen since April 2006. This is a strong indication that the unemployment rate will decline further.

“Small employers are starting to feel the economy picking up and they are working hard to meet this demand."

Other sources of private data include:
• TrimTabs (based on analysis of daily income tax deposits)

• The Conference Board's labor differential (a spread between the share of households reporting jobs are plentiful versus hard to get).

• The Chicago PMI (a regional survey).

• The Challenger, Gray & Christmas report on planned layoffs. From Reuters today: US job cuts plunged 33% to 41,034 in May: Challenger

Job cuts announced by U.S.-based companies declined sharply in May as the energy sector took another pause following successive rounds of big payroll reductions.

Employers laid off 33 percent fewer workers in May from the previous month, global outsourcing firm Challenger, Gray & Christmas reported Thursday. Companies announced 41,034 cuts in the last four weeks, compared with 61,582 in April.

There are other sources too. The bottom line is all of the data - both private and public - is telling a similar story on employment.

by Calculated Risk on 6/04/2015 10:42:00 AM

Yesterday I discussed several indicators: Preview: Employment Report for May

Some excerpts from a research piece by Goldman Sachs economist Kris Dawsey:

We forecast a 210k gain in nonfarm payrolls in May, a bit below consensus of 226k and down slightly from April's pace of increase. ... the trend in payroll job growth seems to have softened a bit since reaching a high-water mark in late-2014 / early-2015.
...
We expect the unemployment rate to remain unchanged at 5.4%. ...

Average hourly earnings (AHE) for all employees will probably increase 0.3%, in our view. As we have noted in the past, the monthly earnings estimates appear to be influenced by calendar effects. The smaller number of working days in May, combined with relatively late timing of the survey reference week within the month, would historically be consistent with a firm AHE print. Including base effects, we think that the year-on-year change in all-employee AHE is likely to remain stable at 2.2% (with upside risk), while year-on-year growth in production and nonsupervisory AHE will probably rise one-tenth to 2.0%.

And from economists at Nomura:

[W]e forecast a 185k increase in private payrolls, with a 5k increase in government jobs, implying that total nonfarm payrolls will gain 190k. ... We forecast that average hourly earnings for private employees rose by 0.28% m-o-m in May, indicative of our expectation for a gradual pickup in wage growth as a result of the tightening labor market and a rebound after a slight 0.1% increase in April. Last, we expect the household survey to show that the unemployment rate remained unchanged at 5.4%.

by Calculated Risk on 6/04/2015 08:34:00 AM

The DOL reported:

In the week ending May 30, the advance figure for seasonally adjusted initial claims was 276,000, a decrease of 8,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 282,000 to 284,000. The 4-week moving average was 274,750, an increase of 2,750 from the previous week's revised average. The previous week's average was revised up by 500 from 271,500 to 272,000.

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

The previous week was revised to 284,000.

The following graph shows the 4-week moving average of weekly claims since 1971.

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 274,750.

This was at the consensus forecast of 276,000, and the low level of the 4-week average suggests few layoffs.

by Calculated Risk on 6/03/2015 07:18:00 PM

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 276 thousand from 282 thousand.

• Also at 8:30 AM, Productivity and Costs for Q1. The consensus is for a 6.0% increase in unit labor costs.

From Matthew Graham: MBS RECAP: The Real Drama is in Europe, but Little to do with Greece

If you missed it, or are otherwise looking for a recap on why bond markets got crushed today, here it is. Nothing materially changed from that update, and that's no surprise considering the source of the drama was Europe.

For those of you who don't click links, suffice it to say that the European Central Bank is not the Federal Reserve. ...

It's actually not too complicated. Europe fought tooth and nail for several years to roll out a QE program. They finally launched it in early 2015 and specified the amount and timing. When markets began speculating that the amount might be less or the timing might be cut short, the head of the European Central Bank provided reassurance that the timing and amounts were predetermined. And now today, he said they weren't. It's really that simple.

For the sake of perspective, he did say that the European economy requires the full program for the full amount of time (Sep 2016). The problem is that he also said that the program could end early if there was a sustained adjustment toward inflation targets. Jeez... To reiterate some of my incredulity from this morning, this is dirty pool. The Fed has been widely criticized, to be sure, but I couldn't imagine the backlash if they pulled a similar move with one of our QE iterations that had a predetermined amount of bond-buying.

It's a surefire way to cause chaos. And that's exactly what it did. German Bunds sold off 20bps today (vs 10bps in US Treasuries).

Here is a table of mortgage rates from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 6/03/2015 03:15:00 PM

Another month, another employment report ...

On Friday at 8:30 AM ET, the BLS will release the employment report for May. The consensus, according to Bloomberg, is for an increase of 220,000 non-farm payroll jobs in May (with a range of estimates between 190,000 and 289,000), and for the unemployment rate to be unchanged at 5.4%.

The BLS reported 223,000 jobs added in April.

Here is a summary of recent data:

• The ADP employment report showed an increase of 201,000 private sector payroll jobs in May. This was at expectations of 200,000 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 at expectations.

• The ISM manufacturing employment index increased in May to 51.7%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs decreased about 10,000 in May. The ADP report indicated a 5,000 decrease for manufacturing jobs.

The ISM non-manufacturing employment index decreased in May to 56.7%. 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 215,000 in May.

Combined, the ISM indexes suggests employment gains of 205,000.  This suggests employment growth slightly below expectations.

• Initial weekly unemployment claims averaged close to 271,000 in May, down from 284,000 in April - and the lowest monthly average since early 2001. For the BLS reference week (includes the 12th of the month), initial claims were at 275,000; down from 296,000 during the reference week in April.

This suggests a lower level of layoffs in May compared to the previous months.

• The final May University of Michigan consumer sentiment index decreased to 90.0 from the April reading of 95.9. Sentiment is frequently coincident with changes in the labor market, but there are other factors too - like gasoline prices.

• On small business hiring: The small business index from Intuit showed a 25,000 increase in small business employment in May, up from 15,000 in March.  From Intuit: Small Businesses Employment Shows Sharp Growth in May

Small business employment rose by 25,000 jobs in May, an increase of 0.13 percent, or an annual rate of 1.6 percent. The hiring rate also continued to rise, showing the fastest increase since the hiring rate began growing for small businesses in July 2009. Hourly employees worked an average of 41 minutes longer than in April.

“Looking back to January 2004, we see only seven months when the change in hours worked was larger than 25 minutes. This is a sign that small businesses are working hard to meet increased demands – and get work done,” said Susan Woodward, the economist who works with Intuit to produce the Small Business Employment and Revenue Indexes.

“Another sign of stronger small business activity is the hiring rate, which rose at nearly twice the rate of any other month since beginning to rise in September 2009. The hiring rate always exceeds the employment increase because hiring reflects replacing workers who leave, as well as added workers,” Woodward said

• Trim Tabs reported that the U.S. economy added 273,000 jobs in May. From  TrimTabs:

TrimTabs Investment Research estimates that the U.S. economy added 273,000 jobs in May, the eleventh consecutive month that employment growth exceeded 200,000 jobs.

“While the Bureau of Economic Analysis’ latest GDP growth estimate has Wall Street worried about a slowdown, our figures paint a different picture,” said David Santschi, chief executive officer of TrimTabs. “Real-time tax data indicates employment growth remains solid.”

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: Unfortunately none of the indicators above is very good at predicting the initial BLS employment report. However it looks like this should be another 200+ month (based on ADP, ISM, unemployment claims, and small business hiring). There is always some randomness to the employment report, but my guess is something close to the consensus this month.

by Calculated Risk on 6/03/2015 02:00:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of Dallas based on information collected on or before May 22, 2015"

Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded during the reporting period from early April to late May. Activity in the Richmond, Chicago, Minneapolis, and San Francisco Districts was characterized as growing at a moderate pace, while the New York, Philadelphia, and St. Louis Districts cited modest growth. Contacts in the Boston District reported mixed conditions, and the Cleveland and Kansas City Districts indicated a slight pace of expansion. Compared to the previous report, the pace of growth slowed slightly in the Dallas District but held steady in the Atlanta District. Outlooks among respondents were generally optimistic, with growth expected to continue at a modest to moderate pace in several districts. ...

Manufacturing activity generally held steady or increased over the reporting period, except for in the Dallas District where it was slightly weaker and in the Kansas City District where it fell markedly.

And on real estate:

Residential real estate activity and construction expanded in most districts since the prior report, and outlooks were largely positive. Homes sales rose strongly in the Minneapolis District on a year-over-year basis, while more modest to moderate gains were reported by all of the remaining districts, except for Philadelphia where builders reported mixed conditions for new home sales and brokers noted slightly slower existing-home sales in April on a year-over-year basis. ... Residential construction was flat to up during the reporting period, although a few districts reported a slower pace of homebuilding activity due to financing and capacity constraints and severe weather.

Commercial real estate leasing and construction activity improved in most districts, and outlooks were optimistic.
emphasis added

by Calculated Risk on 6/03/2015 10:04:00 AM

The May ISM Non-manufacturing index was at 55.7%, down from 57.8% in April. The employment index decreased in May to 55.3%, down from 56.7% in April. Note: Above 50 indicates expansion, below 50 contraction.

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

Economic activity in the non-manufacturing sector grew in May for the 64th 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 55.7 percent in May, 2.1 percentage points lower than the April reading of 57.8 percent. This represents continued growth in the non-manufacturing sector although at a slower rate. The Non-Manufacturing Business Activity Index decreased to 59.5 percent, which is 2.1 percentage points lower than the April reading of 61.6 percent, reflecting growth for the 70th consecutive month at a slower rate. The New Orders Index registered 57.9 percent, 1.3 percentage points lower than the reading of 59.2 percent registered in April. The Employment Index decreased 1.4 percentage points to 55.3 percent from the April reading of 56.7 percent and indicates growth for the 15th consecutive month. The Prices Index increased 5.8 percentage points from the April reading of 50.1 percent to 55.9 percent, indicating prices increased in May for the third consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth in May. Overall there has been a slight slowing in the rate of growth for the non-manufacturing sector. Respondents’ comments are mostly positive about business conditions and indicate economic growth will continue."
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 below the consensus forecast of 57.2% and suggests slower expansion in May than in April. Overall this was a decent report.

by Calculated Risk on 6/03/2015 08:46:00 AM

The Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $40.9 billion in April, down $9.7 billion from $50.6 billion in March, revised. April exports were $189.9 billion, $1.9 billion more than March exports. April imports were $230.8 billion, $7.8 billion less than March imports.

The trade deficit was smaller than the consensus forecast of $43.9 billion.

The first graph shows the monthly U.S. exports and imports in dollars through April 2015.

Click on graph for larger image.

Imports decreased and exports increased in April. Note: Imports surged in March due to the resolution of the West Coast port slowdown and the unloading of waiting ships, so a decrease in imports was expected in April.

Exports are 14% above the pre-recession peak and down 3% compared to April 2014; imports are at the pre-recession peak, and down 3% compared to April 2014. 

The second graph shows the U.S. trade deficit, with and without petroleum.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products (wild swings over last few months due to port slowdown.

Oil imports averaged $46.52 in April, up slightly from $46.47 in March, and down from $95.00 in April 2014.  The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012.

The trade deficit with China decreased to $26.5 billion in April, from $27.3 billion in April 2014. The deficit with China is a large portion of the overall deficit.

by Calculated Risk on 6/03/2015 08:18:00 AM

From ADP:

Private sector employment increased by 201,000 jobs from April to May according to the May 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 9,000 jobs in May, after adding just 1,000 in April. The construction industry had another good month in May adding 27,000 jobs, up from 24,000 last month. Meanwhile, manufacturing lost 5,000 jobs in May, after losing 8,000 in April.

Service-providing employment rose by 192,000 jobs in May, a strong rise from 164,000 in April. The ADP National Employment Report indicates that professional/business services contributed 28,000 jobs in May, down from April’s 35,000. Trade/transportation/utilities grew by 56,000, up from April’s 41,000. The 12,000 new jobs added in financial activities is double last month’s 6,000.
...
Mark Zandi, chief economist of Moody’s Analytics, said, “The job market posted a solid gain in May. Employment growth remains near the average of the past couple of years. At the current pace of job growth the economy will be back to full employment by this time next year. The only blemishes are the decline in mining jobs due to the collapse in oil prices and the decline in manufacturing due to the strong dollar.”

This was at the consensus forecast for 200,000 private sector jobs added in the ADP report. 

The BLS report for May will be released on Friday and the consensus is for 220,000 non-farm payroll jobs added in May.

by Calculated Risk on 6/03/2015 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 7.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 29, 2015. This week’s results include an adjustment to account for the Memorial Day holiday. ...

The Refinance Index decreased 12 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 14 percent compared with the previous week and was 14 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.02 percent from 4.07 percent, with points decreasing to 0.33 from 0.35 (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.

It would take much lower rates - below 3.5% - to see a significant refinance boom this year.

The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 14% higher than a year ago.