by Calculated Risk on 9/08/2015 04:43:00 PM

More good news ... the budget deficit in fiscal 2015 will probably decline more than 10% compared to fiscal 2014.

From the Congressional Budget Office (CBO) today: Monthly Budget Review for August 2015

The federal government’s budget deficit amounted to $528 billion for the first 11 months of fiscal year 2015, the Congressional Budget Office estimates. That deficit was $61 billion smaller than the one recorded during the same period last year. Revenues and outlays were both higher than last year’s amounts, by 8 percent and 5 percent, respectively. Adjusted for shifts in the timing of certain payments (which otherwise would have fallen on a weekend), the deficit for the 11-month period decreased by $42 billion.

In its most recent budget projections, CBO estimated that the deficit for fiscal year 2015 (which will end on September 30, 2015) would total $426 billion, about $59 billion less than the shortfall in fiscal year 2014. ...

The Treasury will run a surplus in September, and it appears the deficit for fiscal 2015 (ends in September) will be below 2.4% of GDP.

by Calculated Risk on 9/08/2015 01:57:00 PM

This is a key distressed market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.  These key markets hopefully show us changes in trends for sales and inventory.

For the ninth consecutive month, inventory was down year-over-year in Phoenix. This is a significant change from last year.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in August were up 9.2% year-over-year.

2) Cash Sales (frequently investors) were down to 22.6% of total sales.

3) Active inventory is now down 13.7% year-over-year.  

More inventory (a theme in 2014) - and less investor buying - suggested price increases would slow sharply in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

Now, with falling inventory, prices are increasing a little faster in 2015 (something to watch if inventory continues to decline).   Prices are already up 2.5% through June (prices increased more in 6 months in 2015, than all of 2014).

August Residential Sales and Inventory, Greater Phoenix Area, ARMLS
	Sales	YoY Change Sales	Cash Sales	Percent Cash	Active Inventory	YoY Change Inventory
Aug-08	5,660	---	1,004	17.7%	53,5691	---
Aug-09	8,008	41.5%	2,849	35.6%	38,085	-28.9%
Aug-10	7,358	-8.1%	3,129	42.5%	44,307	16.3%
Aug-11	8,712	18.4%	3,953	45.4%	26,983	-39.1%
Aug-12	7,574	-13.1%	3,382	44.7%	20,934	-22.4%
Aug-13	7,055	-6.9%	2,409	34.1%	21,444	2.4%
Aug-14	6,431	-8.8%	1,621	25.2%	26,138	21.9%
Aug-15	7,023	9.2%	1,588	22.6%	22,554	-13.7%
1 August 2008 probably includes pending listings

by Calculated Risk on 9/08/2015 10:42:00 AM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for July today. According to BKFS, 4.71% of mortgages were delinquent in July, down from 4.82% in June. BKFS reported that 1.40% of mortgages were in the foreclosure process, down from 1.85% in July 2014.

This gives a total of 6.11% delinquent or in foreclosure. It breaks down as:

• 1,503,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 886,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 711,000 loans in foreclosure process.

For a total of ​​3,100,000 loans delinquent or in foreclosure in July. This is down from 3,785,000 in July 2014.

Press Release: Black Knight’s July Mortgage Monitor: Total Equity in U.S. Mortgage Market at $7.6 Trillion, Up $825 Billion Year-to-Date; $4.5 Trillion in Equity “Tappable” by Borrowers

Today, the Data and Analytics division of Black Knight Financial Services, Inc. (NYSE: BKFS) released its latest Mortgage Monitor Report, based on data as of the end of July 2015. Looking at the nation’s population of mortgage holders and comparing first and second lien debt against May property values, Black Knight has determined that total home equity in the U.S. has increased by nearly $1 trillion in the past year to the highest level since 2007. As Black Knight Data & Analytics Senior Vice President Ben Graboske explained, this growth in available equity has direct implications for borrowers’ ability to access the equity in their homes.

“We’ve seen total home equity in the mortgage market expand by $825 billion in just the first five months of this year,” said Graboske. “At $7.6 trillion, total net equity is nearly 2.5 times more than it was at the end of 2011, and is at the highest level it’s been since the start of the housing crisis. To put this growth in perspective, consider that the average American homeowner with a mortgage has about $19,000 more equity in his or her home today than a year ago."

Click on graph for larger image.

From Black Knight:

Second lien HELOC delinquency rates are currently at 1.9 percent, the lowest level seen since April 2007

Delinquency rates on second lien HELOCs have declined by over 11 percent so far in 2015, slightly behind the 16 percent reduction on first lien mortgage delinquencies

There is much more in the mortgage monitor.

by Calculated Risk on 9/08/2015 09:18:00 AM

From the National Federation of Independent Business (NFIB): NFIB Small Business Optimism Index increased only 0.5 points last month

The Index of Small Business Optimism went nowhere in August, so the good news is it did not fall. Two Index components, job openings and earnings trends both posted a solid 4 point gain, but there was not much action in the remaining components ...

On balance, owners added a net 0.13 workers per firm in recent months, better than July’s 0.05 but historically a solid reading.
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 95.9 in August from 95.4 in July.

by Calculated Risk on 9/07/2015 08:15:00 PM

Weekend:
• Schedule for Week of September 6, 2015

Tuesday:
• At 9:00 AM ET, the NFIB Small Business Optimism Index for August.

• At 10:00 AM, the Fed will release the monthly Labor Market Conditions Index (LMCI).

• At 3:00 PM, Consumer Credit for July from the Federal Reserve. The consensus is for an increase of $18 billion in credit.

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are up 20 and DOW futures are up 150 (fair value).

Oil prices were down over the last week with WTI futures at $44.61 per barrel and Brent at $47.63 per barrel.  A year ago, WTI was at $97, and Brent was at $100 - so prices are down over 50% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.39 per gallon (down more than $1.00 per gallon from a year ago).  Gasoline prices will probably continue to decline over the next month (follow oil prices down).

by Calculated Risk on 9/07/2015 11:06:00 AM

An update: Last year, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group, Decline in the Labor Force Participation Rate: Mostly Demographics and Long Term Trends, and The Future's so Bright ...

I pointed out that "even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon."

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through August 2015.

Click on graph for larger image.

There was a huge surge in the prime working age population in the '70s, '80s and '90s - and the prime age population has been mostly flat recently (even declined a little).

The prime working age labor force grew even quicker than the population in the '70s and '80s due to the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s!

So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply).

See: Demographics and GDP: 2% is the new 4%

The prime working age population peaked in 2007, and appears to have bottomed at the end of 2012.  The good news is the prime working age group has started to grow again, and is now growing at 0.5% per year - and this should boost economic activity.

Demographics are now improving in the U.S.!

by Calculated Risk on 9/06/2015 11:43:00 AM

Last year, in 2014, the BLS initially reported job gains in August at 142,000. Douglas Holtz-Eakin wrote "Disaster!". I couldn't help myself and made fun of Holtz-Eakin.

Not only wasn't the initial August 2014 report a "disaster", but it has since been revised up to 213,000.  And 2014 was the best year for employment gains since the '90s.  Some "disaster"!

Here is a table of revisions for August since 2005.  Note that most of the revisions have been up.   This doesn't mean that the August 2015 revision will be up, but it does seem likely.   I'm not sure why the BLS has underestimated job growth in August (possibly because of the timing of end of the summer job changes).

Overall I think the August employment report was decent and indicates further improvement in the labor market.

August Employment Report (000s)
Year	Initial	Revised	Revision
2005	169	196	27
2006	128	185	57
2007	-4	-17	-13
2008	-84	-259	-175
2009	-216	-217	-1
2010	-54	-39	15
2011	0	128	128
2012	96	188	92
2013	169	256	87
2014	142	213	71
2015	173	---	---

Note: In 2008, the BLS significantly under reported jobs losses. That wasn't surprising since the initial models the BLS used missed turning points (something I wrote about in 2007). The BLS has since improved this model.

by Calculated Risk on 9/05/2015 08:11:00 AM

This will be light week for economic data.

----- Monday, September 7th -----
All US markets will be closed in observance of the Labor Day holiday.

----- Tuesday, September 8th -----
9:00 AM ET: NFIB Small Business Optimism Index for August.

10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

3:00 PM: Consumer Credit for July from the Federal Reserve. The consensus is for an increase of $18 billion in credit.

----- Wednesday, September 9th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: Job Openings and Labor Turnover Survey for July from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings decreased in June to 5.249 million from 5.357 million in May.

The number of job openings (yellow) were up 11% year-over-year, and Quits were up 1% year-over-year.

10:00 AM: The Q2 Quarterly Services Report from the Census Bureau.

----- Thursday, September 10th -----
8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 275 thousand initial claims, down from 282 thousand the previous week.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for July. The consensus is for a 0.3% increase in inventories.

----- Friday, September 11th -----
8:30 AM ET: The Producer Price Index for August from the BLS. The consensus is for a 0.2% decrease in prices, and a 0.1% increase in core PPI.

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for September). The consensus is for a reading of 91.0, down from 91.9 in August.

2:00 PM ET: The Monthly Treasury Budget Statement for August.

by Calculated Risk on 9/04/2015 07:22:00 PM

Economist are uncertain whether the Fed will increase the Fed Funds rate in September ...

From Neil Irwin at the NY Times The Upshot: A Positive Jobs Report Keeps the Fed in a Tricky Spot

Nothing about the latest numbers is likely to tip the balance for the Fed one way or the other. The unemployment rate is now down to 5.1 percent, its lowest since April 2008, when the Great Recession was a mere toddler. The 173,000 payroll jobs added in August were a little below analyst expectations, but revisions to earlier months were positive. Average hourly earnings rose a healthy 0.3 percent.

From the WSJ: Blurry Job Picture Poses Test for Fed

Friday’s report, the last major gauge of job-market health before the Fed’s Sept. 16-17 meeting, leaves the central bank with a difficult decision as it ponders raising short-term interest rates this month for the first time since 2006: Has the U.S. economy improved enough to absorb higher rates, or does the fragile state of the world economy and the financial markets call for more patience?

The key sentence in the July FOMC statement was

"The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."

Since that statement, the economy added 245 thousand jobs in July and 173 thousand jobs in August (and frequently August is revised up).  The unemployment rate declined from 5.3% in June to 5.1% in August.  My view is this is probably the "some further improvement" in the labor market that the FOMC mentioned in the July statement.

So the focus at the FOMC meeting will probably be on inflation.  Is the FOMC "reasonably confident that inflation will move back to its 2 percent objective over the medium term" (emphasis added).

Fed Vice Chairman Stanley Fischer said last week:

As I have discussed, given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further. While some effects of the rise in the dollar may be spread over time, some of the effects on inflation are likely already starting to fade. The same is true for last year's sharp fall in oil prices, though the further declines we have seen this summer have yet to fully show through to the consumer level. And slack in the labor market has continued to diminish, so the downward pressure on inflation from that channel should be diminishing as well.
emphasis added

Although inflation may be low over the next few months (lower oil prices), it sounds like Fischer is "reasonably confident" that inflation will move higher in the "medium term". So my guess right now (with less than two weeks until the meeting) is the FOMC will raise rates at the September meeting.

Note: It is a different question if the Fed "should" raise rates in September.  Clearly the risks are asymmetrical (hiking too soon poses much larger risks than waiting too long), and that argues for waiting a little longer.  Also I've argued for some time (based partly on demographics) that the unemployment rate could fall further without inflation picking up.

by Calculated Risk on 9/04/2015 02:02:00 PM

By request, here is another update of an earlier post through the August employment report.

NOTE: Several readers have asked if I could add a lag to these graphs (obviously a new President has zero impact on employment for the month they are elected). But that would open a debate on the proper length of the lag, so I'll just stick to the beginning of each term.

Note: We frequently use Presidential terms as time markers - we could use Speaker of the House, or any other marker.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, however the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is generally declining now.  But these graphs give an overview of employment changes.

First, here is a table for private sector jobs. The top two private sector terms were both under President Clinton.  Reagan's 2nd term saw about the same job growth as during Carter's term.  Note: There was a severe recession at the beginning of Reagan's first term (when Volcker raised rates to slow inflation) and a recession near the end of Carter's term (gas prices increased sharply and there was an oil embargo).

Term	Private Sector Jobs Added (000s)
Carter	9,041
Reagan 1	5,360
Reagan 2	9,357
GHW Bush	1,510
Clinton 1	10,884
Clinton 2	10,073
GW Bush 1	-844
GW Bush 2	381
Obama 1	2,018
Obama 2	6,8171
131 months into 2nd term: 10,648 pace.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s). President George H.W. Bush only served one term, and President Obama is in the third year of his second term.

Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble. Mr. Obama (blue) took office during the financial crisis and great recession. There was also a significant recession in the early '80s right after Mr. Reagan (yellow) took office.

There was a recession towards the end of President G.H.W. Bush (purple) term, and Mr Clinton (light blue) served for eight years without a recession.

Click on graph for larger image.

The first graph is for private employment only.

The employment recovery during Mr. G.W. Bush's (red) first term was sluggish, and private employment was down 844,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 463,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased slightly under President G.H.W. Bush (purple), with 1,510,000 private sector jobs added.

Private sector employment increased by 20,955,000 under President Clinton (light blue), by 14,717,000 under President Reagan (yellow), and 9,041,000 under President Carter (dashed green).

There were only 2,018,000 more private sector jobs at the end of Mr. Obama's first term.  Thirty one months into Mr. Obama's second term, there are now 8,895,000 more private sector jobs than when he initially took office.

 A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1980, 1990, 2000, and 2010. 

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 584,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment.

And a table for public sector jobs. Public sector jobs declined the most during Obama's first term, and increased the most during Reagan's 2nd term.

Term	Public Sector Jobs Added (000s)
Carter	1,304
Reagan 1	-24
Reagan 2	1,438
GHW Bush	1,127
Clinton 1	692
Clinton 2	1,242
GW Bush 1	900
GW Bush 2	844
Obama 1	-702
Obama 2	1181
131 months into 2nd term, 183 pace

Looking forward, I expect the economy to continue to expand through 2016 (at least), so I don't expect a sharp decline in private employment as happened at the end of Mr. Bush's 2nd term (In 2005 and 2006 I was warning of a coming recession due to the bursting of the housing bubble).

For the public sector, the cutbacks are clearly over at the state and local levels, and it appears cutbacks at the Federal level might also be over.  Right now I'm expecting some increase in public employment during Obama's 2nd term, but nothing like what happened during Reagan's second term.

Below is a table of the top three presidential terms for private job creation (they also happen to be the three best terms for total non-farm job creation).

Clinton's two terms were the best for both private and total non-farm job creation, followed by Reagan's 2nd term.

Currently Obama's 2nd term is on pace to be the 2nd best ever for private job creation.  However, with very few public sector jobs added, Obama's 2nd term is only on pace to be the third best for total job creation.

Note: Only 118 thousand public sector jobs have been added during the first thirty one months of Obama's 2nd term (following a record loss of 702 thousand public sector jobs during Obama's 1st term).  This is less than 10% of the public sector jobs added during Reagan's 2nd term!

Top Employment Gains per Presidential Terms (000s)
Rank	Term	Private	Public	Total Non-Farm
1	Clinton 1	10,884	692	11,576
2	Clinton 2	10,073	1,242	11,315
3	Reagan 2	9,357	1,438	10,795
	Obama 21	6,817	118	6,995
	Pace2	10,648	183	10,831
131 Months into 2nd Term 2Current Pace for Obama's 2nd Term

The last table shows the jobs needed per month for Obama's 2nd term to be in the top three presidential terms.

Average Jobs needed per month (000s) for remainder of Obama's 2nd Term
to Rank	Private	Total
#1	236	269
#2	188	254
#3	146	224