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Thursday, December 02, 2021

Rents Still Increasing Sharply

by Calculated Risk on 12/02/2021 02:12:00 PM

Today, in the Real Estate Newsletter: Rents Still Increasing Sharply Rent increases slowing seasonally

Excerpt:

The Zillow measure is up 11.2% YoY in October, up from 10.3% YoY in September. And the ApartmentList measure is up 17.7% as of November, up from 16.9% in October. Both the Zillow measure (a repeat rent index), and ApartmentList are showing a sharp increase in rents.
...
Clearly rents are increasing sharply, and we should expect this to spill over into measures of inflation in 2022. The Owners’ Equivalent Rent (OER) was up 3.1% YoY in October, from 2.9% in September - and will increase further in the coming months.

November Employment Preview

by Calculated Risk on 12/02/2021 12:00:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for November. The consensus is for 563 thousand jobs added, and for the unemployment rate to decrease to 4.5%.


There were 531 thousand jobs added in October, and the unemployment rate was at 4.6%.

Employment Recessions, Scariest Job ChartClick on graph for larger image.

• First, currently there are still about 4.2 million fewer jobs than in February 2020 (before the pandemic).

This graph shows the job losses from the start of the employment recession, in percentage terms.

The current employment recession was by far the worst recession since WWII in percentage terms.  However, the current employment recession, 20 months after the onset, is now significantly better than the worst of the "Great Recession".

ADP Report: The ADP employment report showed a gain of 534,000 private sector jobs, close to the consensus estimate of 525,000 jobs added.  The ADP report hasn't been very useful in predicting the BLS report, but this suggests the BLS report could be close to expectations.

ISM Surveys: Note that the ISM services are diffusion indexes based on the number of firms hiring (not the number of hires).  The ISM® manufacturing employment index increased in November to 53.3%, up from 52.0% last month.   This would suggest no change in manufacturing employment in November. ADP showed 50,000 manufacturing jobs added.

The ISM® Services employment index will be released tomorrow.

Unemployment Claims: The weekly claims report showed a decline in the number of initial unemployment claims during the reference week (includes the 12th of the month) from 291,000 in October to 270,000 in November. This would usually suggest fewer layoffs in October than in September, although this might not be very useful right now. In general, weekly claims have been falling, and have been below expectations in November.

Year-over-year change employmentPermanent Job Losers: Something to watch in the employment report will be "Permanent job losers". This graph shows permanent job losers as a percent of the pre-recession peak in employment through the June report.

This data is only available back to 1994, so there is only data for three recessions. In October, he number of permanent job losers decreased to 2.126 million from 2.251 million in September. These jobs will likely be the hardest to recover, so it is a positive that the number of permanent job losers is declining rapidly

Seasonal Retail HiringSeasonal Retail Hiring: Typically retail companies start hiring for the holiday season in October, and really increase hiring in November.   But only a few temporary workers are hired in December.  Here is a graph that shows the historical net retail jobs added for October, November and December by year.

Retailers hired 219 thousand workers Not Seasonally Adjusted (NSA) net in October. This was seasonally adjusted (SA) to a gain of 35 thousand jobs in October.

In 2020, retailers hired 356,800 employees (NSA) in November. That translated to a loss of 2,100 jobs SA.

If seasonal retail hiring is around 360,000 this year (NSA) that will translate to around zero jobs added (SA). It is possible that retailers hired for some jobs early (in October), and retail will be a negative in the November report (always difficult to predict).

Conclusion: There is significant optimism concerning the November employment report, and many analysts are expecting a strong report.  We have to be a little cautious because some of the apparent pickup in hiring might be for seasonal retail jobs.

Overall, the ADP report was solid and unemployment claims have been falling quickly. 

As far as the pandemic, the number of daily cases during the reference week in November was around 80,000, down from around 90,000 in October.   New cases per day peaked in early September and didn't start increasing again until the 2nd half of November - so there was some optimism during the November reference week.

My sense is the report will be above consensus expectations.

Hotels: Occupancy Rate Up 5% Compared to Same Week in 2019; Record Thanksgiving Week Occupancy

by Calculated Risk on 12/02/2021 10:44:00 AM

Note: Since occupancy declined sharply at the onset of the pandemic, CoStar is comparing to 2019.

U.S. hotel performance came in higher than any other Thanksgiving week on record, according to STR‘s latest data through November 27.

November 21-27, 2021 (percentage change from comparable week in 2019*):

Occupancy: 53.0% (+4.6%)
• Average daily rate (ADR): $128.41 (+14.3%)
• Revenue per available room (RevPAR): $68.00 (+19.6%)

*Due to the steep, pandemic-driven performance declines of 2020, STR is measuring recovery against comparable time periods from 2019.
emphasis added
The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotel Occupancy RateClick on graph for larger image.

The red line is for 2021, black is 2020, blue is the median, dashed purple is 2019, and dashed light blue is for 2009 (the worst year on record for hotels prior to 2020).

Note: Y-axis doesn't start at zero to better show the seasonal change.

This was the first week with an increase over the same week in 2019.

The occupancy rate will now decline seasonally into the new year.

Weekly Initial Unemployment Claims Increase to 222,000

by Calculated Risk on 12/02/2021 08:34:00 AM

The DOL reported:

In the week ending November 27, the advance figure for seasonally adjusted initial claims was 222,000, an increase of 28,000 from the previous week's revised level. The previous week's level was revised down by 5,000 from 199,000 to 194,000. The 4-week moving average was 238,750, a decrease of 12,250 from the previous week's revised average. This is the lowest level for this average since March 14, 2020 when it was 225,500. The previous week's average was revised down by 1,250 from 252,250 to 251,000
emphasis added
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 decreased to 238,750.

The previous week was revised down.

Regular state continued claims decreased to 1,956,000 (SA) from 2,063,000 (SA) the previous week.

Weekly claims were well below the consensus forecast.

Wednesday, December 01, 2021

November Vehicles Sales decreased to 12.9 million SAAR

by Calculated Risk on 12/01/2021 06:28:00 PM

Wards Auto released their estimate of light vehicle sales for November. Wards Auto estimates sales of 12.86 million SAAR in November 2021 (Seasonally Adjusted Annual Rate), down 1.0% from the October sales rate, and down 19.0% from November 2020. 


This was below the consensus estimate of 13.2 million SAAR.

Vehicle SalesClick on graph for larger image.

This graph shows light vehicle sales since 2006 from the BEA (blue) and Wards Auto's estimate for November (red).

The impact of COVID-19 was significant, and April 2020 was the worst month.

After April 2020, sales increased, and were close to sales in 2019 (the year before the pandemic).  

However, sales decreased earlier this year due to supply issues. It appears the "supply chain bottom" was in September, but sales in November were disappointing.

December 1st COVID-19: Holiday Impacted Data

by Calculated Risk on 12/01/2021 05:00:00 PM

The CDC is the source for all data.

According to the CDC, on Vaccinations.  Total doses administered: 462,263,845.

COVID Metrics
 TodayWeek
Ago
Goal
Percent fully Vaccinated59.4%---≥70.0%1
Fully Vaccinated (millions)197.4---≥2321
New Cases per Day382,84694,368≤5,0002
Hospitalized3🚩47,00444,061≤3,0002
Deaths per Day3816990≤502
1 Minimum to achieve "herd immunity" (estimated between 70% and 85%).
2my goals to stop daily posts,
37-day average for Cases, Currently Hospitalized, and Deaths
🚩 Increasing 7-day average week-over-week for Cases, Hospitalized, and Deaths
✅ Goal met.

IMPORTANT: For "herd immunity" most experts believe we need 70% to 85% of the total population fully vaccinated (or already had COVID).  Note: COVID will probably stay endemic (at least for some time).

KUDOS to the residents of the 5 states that have achieved 70% of total population fully vaccinated: Vermont at 73.0%, Rhode Island, Connecticut, Maine, and Massachusetts at 71.3%.

KUDOS also to the residents of the 16 states and D.C. that have achieved 60% of total population fully vaccinated: New York at 68.6%, New Jersey, Maryland, Washington, Virginia, New Hampshire, Oregon, District of Columbia, New Mexico, Colorado, California, Minnesota, Pennsylvania, Illinois, Delaware, Florida, and Hawaii at 61.0%.

The following 19 states have between 50% and 59.9% fully vaccinated: Wisconsin at 59.6%, Nebraska, Iowa, Utah, Michigan, Texas, Kansas, Arizona, Nevada, South Dakota, North Carolina, Alaska, Ohio, Kentucky, Montana, Oklahoma, South Carolina, Missouri and Indiana at 50.6%.

Next up (total population, fully vaccinated according to CDC) are Georgia at 49.7%, Tennessee at 49.6%, Arkansas at 49.4%, Louisiana at 48.9% and North Dakota at 48.9%.

COVID-19 Positive Tests per DayClick on graph for larger image.

This graph shows the daily (columns) and 7-day average (line) of positive tests reported.

Fed's Beige Book: "Economic activity grew at a modest to moderate pace"

by Calculated Risk on 12/01/2021 02:10:00 PM

Fed's Beige Book "This report was prepared at the Federal Reserve Bank of Chicago based on information collected on or before November 19, 2021."

Economic activity grew at a modest to moderate pace in most Federal Reserve Districts during October and early November. Several Districts noted that despite strong demand, growth was constrained by supply chain disruptions and labor shortages. Consumer spending increased modestly; low inventories held back sales of some items, notably light vehicles. Leisure and hospitality activity picked up in most Districts as the spread of the Delta variant ebbed in many areas. Construction activity generally increased but was held back by scarce materials and labor. Nonresidential real estate activity increased widely, while residential real estate activity grew in some Districts but declined in others. Manufacturing growth was solid across Districts, though materials and labor shortages limited expansion. High freight volumes continued to strain distribution systems. Energy activity was generally higher, growth in professional and business services varied widely, and demand for education and health services was largely unchanged. Loan demand increased in almost all Districts, though some reported declines in residential mortgages. Agriculture saw improved financial conditions overall and rising land values. The outlook for overall activity remained positive in most Districts, but some noted uncertainty about when supply chain and labor supply challenges would ease.
...
Employment growth ranged from modest to strong across Federal Reserve Districts. Contacts reported robust demand for labor but persistent difficulty in hiring and retaining employees. Leisure and hospitality and manufacturing contacts reported an uptick in employment, but many were still limiting operating hours due to a lack of workers. Contacts in several other sectors also noted labor-related constraints on meeting demand. Childcare, retirements, and COVID safety concerns were widely cited as sources that limited labor supply. Many Districts noted concerns that the federal vaccination mandate could exacerbate existing hiring difficulties. Nearly all Districts reported robust wage growth. Hiring struggles and elevated turnover rates led businesses to raise wages and offer other incentives, such as bonuses and more flexible working arrangements.
emphasis added

Real House Prices, Price-to-Rent Ratio and Affordability in September

by Calculated Risk on 12/01/2021 11:53:00 AM

Today, in the Real Estate Newsletter: Real House Prices, Price-to-Rent Ratio and Price-to-Median Income in September; And a look at "Affordability"

Excerpt (there is much more):

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

House Price Median IncomeHere is a similar graph using the Case-Shiller National and Composite 20 House Price Indexes. This graph shows the price to rent ratio (January 2000 = 1.0). The price-to-rent ratio had been moving more sideways but picked up significantly recently.

On a price-to-rent basis, the Case-Shiller National index is back to January 2006 levels, and the Composite 20 index is back to March 2005 levels.

Construction Spending Increased 0.2% in October

by Calculated Risk on 12/01/2021 10:18:00 AM

From the Census Bureau reported that overall construction spending increased 0.2%:

Construction spending during October 2021 was estimated at a seasonally adjusted annual rate of $1,598.0 billion, 0.2 percent above the revised September estimate of $1,594.8 billion. The October figure is 8.6 percent above the October 2020 estimate of $1,471.7 billion.
emphasis added
Private spending decreased and public spending increased:
Spending on private construction was at a seasonally adjusted annual rate of $1,245.0 billion, 0.2 percent below the revised September estimate of $1,247.9 billion....

In October, the estimated seasonally adjusted annual rate of public construction spending was $353.0 billion, 1.8 percent above the revised September estimate of $346.8 billion.
Construction Spending 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.

Residential spending is 14% above the bubble peak (in nominal terms - not adjusted for inflation).

Non-residential spending is 13% above the bubble era peak in January 2008 (nominal dollars), but has been soft recently.

Public construction spending is 8% above the peak in March 2009.

Year-over-year Construction SpendingThe second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 16.7%. Non-residential spending is up 3.1% year-over-year. Public spending is up 0.4% year-over-year.

Construction was considered an essential service during the early months of the pandemic in most areas, and did not decline sharply like many other sectors.  However, some sectors of non-residential have been under pressure. For example, lodging is down 32.4% YoY.

This was below consensus expectations of a 0.4% increase in spending; however, construction spending for the previous two months was revised up.

ISM® Manufacturing index increased to 61.1% in November

by Calculated Risk on 12/01/2021 10:04:00 AM

(Posted with permission). The ISM manufacturing index indicated expansion in November. The PMI® was at 61.1% in November, down from 60.8% in October. The employment index was at 53.3%, up from 52.0% last month, and the new orders index was at 61.5%, up from 59.8%.

From ISM: Manufacturing PMI® at 61.1% November 2021 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector grew in November, with the overall economy achieving an 18th consecutive month of growth, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee:

The November Manufacturing PMI® registered 61.1 percent, an increase of 0.3 percentage point from the October reading of 60.8 percent. This figure indicates expansion in the overall economy for the 18th month in a row after a contraction in April 2020. The New Orders Index registered 61.5 percent, up 1.7 percentage points compared to the October reading of 59.8 percent. The Production Index registered 61.5 percent, an increase of 2.2 percentage points compared to the October reading of 59.3 percent. The Prices Index registered 82.4 percent, down 3.3 percentage points compared to the October figure of 85.7 percent. The Backlog of Orders Index registered 61.9 percent, 1.7 percentage points lower than the October reading of 63.6 percent. The Employment Index registered 53.3 percent, 1.3 percentage points higher compared to the October reading of 52 percent. The Supplier Deliveries Index registered 72.2 percent, down 3.4 percentage points from the October figure of 75.6 percent. The Inventories Index registered 56.8 percent, 0.2 percentage point lower than the October reading of 57 percent. The New Export Orders Index registered 54 percent, a decrease of 0.6 percentage point compared to the October reading of 54.6 percent. The Imports Index registered 52.6 percent, a 3.5-percentage point increase from the October reading of 49.1 percent.”
emphasis added
This was at expectations, and this suggests manufacturing expanded at a slightly faster pace in November than in October.