by Calculated Risk on 7/05/2012 10:23:00 PM

With an 8%+ unemployment rate, every day should be about jobs ...

• At 8:30 AM ET, the Employment Report for June will be released. The consensus is for an increase of 90,000 non-farm payroll jobs in June, up from the 69,000 jobs added in May. Earlier today I wrote Employment Situation Preview. Here are some comments from Goldman Sachs:

We expect a middling June employment report to be released on Friday morning, with a 125,000 gain in nonfarm payrolls and a flat 8.2% unemployment rate. We raised our payroll number from 75,000 earlier today in response to 1) more online help-wanted advertising, 2) fewer layoff announcements, 3) a better ADP, 4) slightly lower initial jobless claims in the latest (post-survey) week, and 5) decent readings in the employment components of the ISM manufacturing and nonmanufacturing survey (despite disappointments in most other components).

If the report broadly matches our expectations, it would probably dampen speculation about an imminent return to balance sheet expansion from the Federal Reserve.

And from Patti Domm at CNBC: June Jobs Report Could Put the Fed in Play

“I think the whisper is closer to 110,000, 120,000," said John Briggs, senior Treasury strategist at RBS. "Anything between 80,000 and 130,000 doesn’t matter. It shouldn’t be a major market mover,” he said. However, Briggs said the equity market is being supported by the idea of Fed easing and a really good number might actually be a negative to some in risk markets.

If the number is better than expected, “I don’t think that would take QE off the table. It would just have us waiting for the July 17 testimony” of Fed Chairman Ben Bernanke before Congress, he said.

• Early: Reis is expected to release their Q2 Mall vacancy report.

by Calculated Risk on 7/05/2012 05:09:00 PM

From the American Bankruptcy Institute: Bankruptcy Filings Fall 14 Percent for the First Half of 2012, Commercial Filings Drop 22 Percent

The 601,184 total noncommercial filings for the first half of 2012 represented a 13 percent drop from the noncommercial filing total of 691,902 for the first half of 2011. Total commercial filings during the first six months of the year were 30,946, representing a 22 percent decrease from the 39,598 filings during the same period in 2011.

“We are on pace for perhaps the lowest total new bankruptcies since before the financial crisis in 2008,” said ABI Executive Director Samuel J. Gerdano. “With sustained low interest rates and weak consumer spending, we expect bankruptcies to stay at relatively low levels through the end of 2012.”

The 99,057 total bankruptcy filings for the month of June represented an 18 percent decrease compared to the 120,698 filings in June 2011.

Click on graph for larger image.

This graph shows the non-business bankruptcy filings by quarter using quarterly data from the ABI.

Note: The spike in 2005 was due to the so-called "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005". (a good example of Orwellian named legislation).

It is possible that consumer bankruptcy filings peaked in 2010, but filings might increase again next year as pre-bankruptcy act filers file bankruptcy again.

Earlier:
• Reis: Apartment Vacancy Rate falls to 4.7% in Q2
• ADP: Private Employment increased 176,000 in June
• Weekly Initial Unemployment Claims decline to 374,000
• ISM Non-Manufacturing Index declines, indicates slower expansion in June
• Employment Situation Preview

by Calculated Risk on 7/05/2012 01:10:00 PM

With only 77,000 payroll jobs added in April, and just 69,000 in May - and evidence that the economy slowed further in June - the June employment report to be released tomorrow is especially important. Another weak report, combined with sluggish Q2 GDP numbers to be released later this month, would increase the likelihood of QE3 being announced on August 1st.

However the weak payroll numbers for the last two months might have been "payback" for the mild weather in January and February. And not all is bleak. Vehicle sales were solid in June, and the sluggish recovery in housing is ongoing.

Bloomberg is showing the consensus is for an increase of 90,000 payroll jobs in June, and for the unemployment rate to remain unchanged at 8.2%.

Here is a summary of recent data:

• The ADP employment report showed an increase of 176,000 private sector payroll jobs in June. This would seem to suggest that the consensus for the increase in total payroll employment is too low, although the ADP report hasn't been very useful in predicting the BLS report for any one month. Also, ADP doesn't include government payrolls, and government payrolls have been shrinking for some time.

• The ISM manufacturing employment index decreased slightly in June to 56.6%, down from 56.9% in May. A historical correlation between the ISM index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing increased about 16,000 in June.

The ISM service employment index increased in June to 52.3%, up from 50.8% in May. Based on a historical correlation between the ISM non-manufacturing employment index and the BLS employment report for service, this reading suggests the gain of around 120,000 private payroll jobs for services in June.

Combined the ISM surveys suggest an employment report above the consensus.

• Initial weekly unemployment claims averaged about 385,000 in June, up slightly from the 380,000 average for April and May. This was the highest average this year, and about the same level as in November and December of last year when the economy added 190,000 jobs per month.

For the BLS reference week (includes the 12th of the month), initial claims were at 392,000; the highest this year.

• The final June Reuters / University of Michigan consumer sentiment index declined to 73.2, down from the May reading of 79.3. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. Gasoline prices have been falling, so this decline suggests a weaker labor market.

• The small business index from Intuit showed 70,000 payroll jobs added, up from 40,000 in May.

• And on the unemployment rate from Gallup: U.S. Unadjusted Unemployment Unchanged in June

U.S. unemployment, as measured by Gallup without seasonal adjustment, was 8.0% in June, unchanged from May, but significantly better than the 8.7% from a year ago. Gallup's seasonally adjusted number, based on applying an estimate of the government's June adjustment, is 7.8%, an improvement from 8.3% in May, and down considerably from 8.5% in June 2011. Both the unadjusted and the adjusted numbers are at least tied for the lowest Gallup has recorded since it began collecting employment data in 2010.

Note: Gallup only recently has been providing a seasonally adjusted estimate for the unemployment rate, so use with caution (Gallup provides some caveats). Note: So far the Gallup numbers haven't been useful in predicting the BLS unemployment rate.

• Conclusion: The overall feeling is that the economy weakened further in June, and that would seem to suggest another weak employment report this month. However, if the "payback" is over (as several analysts have argued), the number of payroll jobs could be better than the last couple of months.

Recently I've taken the "under" on the employment report, but looking at these data points surprised me a little. The combined ISM reports suggest a number in the 130,000+ range, and the ADP report (private only), suggest the consensus is too low. And the Intuit numbers improved sharply. Note: The ISM survey is conducted all month, with most respondents replying at the end of the month - so the timing doesn't line up with the BLS reference week.

On the negative side, weekly claims increased in June to the highest level this year, and consumer sentiment declined - even with falling gasoline prices.

There always seems to be some randomness to the employment report, but this month I'll take the over (over 90,000 payroll jobs).

For the economic contest in July:

by Calculated Risk on 7/05/2012 10:07:00 AM

The June ISM Non-manufacturing index was at 52.1%, down from 53.7% in May. The employment index increased in June to 52.3%, up from 50.8% in May. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: May 2012 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in June for the 30th 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, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee. "The NMI registered 52.1 percent in June, 1.6 percentage points lower than the 53.7 percent registered in May. This indicates continued growth this month at a slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index registered 51.7 percent, which is 3.9 percentage points lower than the 55.6 percent reported in May, reflecting growth for the 35th consecutive month. The New Orders Index decreased by 2.2 percentage points to 53.3 percent, and the Employment Index increased by 1.5 percentage points to 52.3 percent, indicating continued growth in employment at a faster rate. The Prices Index decreased 0.9 percentage point to 48.9 percent, indicating lower month-over-month prices for the second consecutive month. According to the NMI, 12 non-manufacturing industries reported growth in June. Respondents' comments are mixed and vary by industry and company."

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 53.0% and indicates slower expansion in June than in May.

by Calculated Risk on 7/05/2012 08:37:00 AM

The DOL reports:

In the week ending June 30, the advance figure for seasonally adjusted initial claims was 374,000, a decrease of 14,000 from the previous week's revised figure of 388,000. The 4-week moving average was 385,750, a decrease of 1,500 from the previous week's revised average of 387,250.

The previous week was revised up from 386,000 to 388,000.

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 declined slightly to 385,750.

This is just off the high for the year.

And here is a long term graph of weekly claims:

This was below the consensus forecast of 386,000. This is just one week of improvement, and the four week average suggests some renewed weakness in the labor market.

All current Employment Graphs

by Calculated Risk on 7/05/2012 08:20:00 AM

ADP reports:

According to today‟s ADP National Employment Report, employment in the nonfarm private business sector rose 176,000 from May to June on a seasonally adjusted basis. Employment in the private, service-providing sector rose 160,000 in June, after rising a revised 137,000 in May.

According to Joel Prakken, chairman of Macroeconomic Advisers, LLC, “The gain in private employment is strong enough to suggest that the national unemployment rate may have declined in June. Today‟s estimate, if reinforced by a comparable reading on employment from the Bureau of Labor Statistics tomorrow, likely will ease concerns that the economy is heading into a downturn.”

Prakken added: “There seems little doubt that recent employment gains have been restrained by heightened uncertainty over the European financial crisis and by growing concerns about domestic fiscal policy. However, the acceleration of employment since April does lend credence to the argument that unseasonably warm weather boosted employment during the winter months, with a "payback" spread over April and May.”

This was way above the consensus forecast of an increase of 95,000 private sector jobs in June. The BLS reports on Friday, and the consensus is for an increase of 90,000 payroll jobs in June, on a seasonally adjusted (SA) basis.

ADP hasn't been very useful in predicting the BLS report, but this suggests a stronger than consensus report.

Note - it was rate cutting day too: ECB cuts rates.

China cuts rates.

BOE expands QE.

by Calculated Risk on 7/05/2012 07:00:00 AM

From the MBA: Mortgage Applications Decrease Driven by a Drop in Refinances in Latest MBA Weekly Survey

The Refinance Index was down about 8 percent overall this week, largely driven by a significant drop in refinance applications for government loans. The HARP 2.0 share of refinance applications has been 24 percent over the past two weeks, up slightly from 20 percent three weeks ago. The seasonally adjusted Purchase Index increased less than 1 percent from one week earlier.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) decreased to 3.86 percent from 3.88 percent, with points increasing to 0.41 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. This is the lowest 30-year fixed rate since MBA began tracking the series.

Click on graph for larger image.

The decline in refinance activity was from a very high level. This just offset the surge in refinance activity two weeks ago related to the change in FHA streamline refinancing.

The purchase index is mostly moving sideways.

by Calculated Risk on 7/05/2012 01:20:00 AM

Reis reported that the apartment vacancy rate (82 markets) fell to 4.7% in Q2 from 4.9% in Q1 2012. The vacancy rate was at 5.9% in Q2 2011 and peaked at 8.0% at the end of 2009.

From Reuters: US apartment rents rise at highest rate since '07 -Reis

Renting an apartment in the U.S. became even more expensive during the second quarter, as vacancies set a new 10-year low and rents rose at a pace not seen since before the financial crisis, according to real estate research firm Reis Inc. ...

The average U.S. vacancy rate of 4.7 percent was the lowest since the fourth quarter of 2001 ...

Asking rents jumped to $1,091 per month, 1 percent higher than the first quarter and the biggest increase since the third quarter of 2007. Excluding special perks designed to lure tenants, like months of free rent, the average effective rent rose 1.3 percent to $1,041.

"The improvement in rents is pretty pervasive," said Ryan Severino, Senior Economist at Reis.

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 2005.

Reis is just for large cities, but this decline in vacancy rates - and increase in rents - is happening just about everywhere.

by Calculated Risk on 7/04/2012 09:43:00 PM

Back to work ... there are several key economic reports that will be released on Thursday. Also the European Central Bank (ECB) is expected to cut the benchmark interest rate from 1.0% to 0.75%.

• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This report will probably show record low mortgages rates.

• At 8:15 AM: The ADP Employment Report for June will be released. This report is for private payrolls only (no government). The consensus is for 95,000 payroll jobs added in June, down from the 133,000 reported in May.

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to be unchanged at 386 thousand.

• At 10:00 AM, the ISM non-Manufacturing Index for June will be released. The consensus is for a decrease to 53.0 from 53.7 in May. Note: Above 50 indicates expansion, below 50 contraction.

• Early: Reis is expected to release their Q2 Apartment vacancy report.

The Asian markets are mostly green tonight. The Nikkei is up slightly.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 are down 3 and Dow futures are down 30.


Oil: WTI futures are up to $86.85 (this is down from $109.77 in February, but up last week) and Brent is up to $99.89 per barrel.

Professor Hamilton has a new post on gasoline prices: Update on U.S. gasoline prices

Two weeks ago, I commented on the tendency of U.S. retail gasoline prices to follow the price of Brent crude oil, anticipating on the basis of the price of Brent, then at $91.50, that we might expect to see average U.S. retail gasoline prices, then at $3.47, to fall an additional 35 cents/gallon. The gasoline price has since come down about 11 cents. But with Brent now surging back up near $100, this is about all we can expect.

See his post for several charts.

by Calculated Risk on 7/04/2012 04:33:00 PM

I was going to write about this, but economist Josh Lehner beat me to it.

From Lehner: The Handoff – Manufacuturing to Housing

As you may have heard, the latest reading on the ISM Manufacturing index declined in June to a level of 49.7. The index is designed such that values of over 50 indicate expansion while values below 50 indicate contraction. This marked the first time since July 2009 that the index registered in contraction territory ...

Now, does that mean the economy is doomed? Not neccessarily. Even after a slowdown in manufacturing, the industry can and likely will continue to grow in the coming years, just that the growth is and was not expected to remain consistently strong. Second and more importantly ... is the transition from manufacturing to housing as a major economic driver. ... Residential Investment (new home construction) is now growing nearly 10% year-over-year while the manufacturing cycle is slowing.

In the recovery so far, beyond personal consumer expenditures, exports and investment – largely the manufacturing cycle – have been significant contributors, while the housing downturn continued to languish. Now, housing growth has returned but the industry is not yet doing the heavy lifting. The much stronger growth in housing is not expected until 2013 and 2014 in our forecast ...

Lehner has a couple of graphs showing the "handoff".

As I noted yesterday in Manufacturing vs. Housing, housing is usually a better leading indicator for the US economy than manufacturing. Manufacturing is more coincident. So the ISM index suggests some weakness now - mostly abroad - whereas housing suggests an ongoing sluggish recovery.