by Calculated Risk on 7/04/2014 03:01:00 PM

By request, here is an update on an earlier post through the June employment report.

Important: There are many differences between these periods. Overall employment was smaller in the '80s, so a different comparison might be to look at the percentage change.   Of course the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is 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	10,885
Clinton 2	10,070
GW Bush 1	-841
GW Bush 2	379
Obama 1	1,998
Obama 21	3,477
1Seventeen months into 2nd term

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 second 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 very sluggish, and private employment was down 841,000 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 462,000 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 1,998,000 more private sector jobs at the end of Mr. Obama's first term.  Seventeen months into Mr. Obama's second term, there are now 5,475,000 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 671,000 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	-713
Obama 21	42
1Seventeen months into 2nd term

Looking forward, I expect the economy to continue to expand for the next few years, 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).

A big question is when the public sector layoffs will end.  It appears the cutbacks are over at the state and local levels in the aggregate, but there are ongoing cutbacks at the Federal level.  Right now I'm expecting some increase in public employment in 2014, but nothing like what happened during Reagan's second term.

by Calculated Risk on 7/04/2014 09:25:00 AM

At the end of last year, I posted Ten Economic Questions for 2014. I followed up with a brief post on each question. The goal was to provide an overview of what I expected in 2014 (I don't have a crystal ball, but I think it helps to outline what I think will happen - and then try to understand why I was wrong).

By request, here is a mid-year review. I've linked to my posts from the beginning of the year, with a brief excerpt and a few comments:

10) Question #10 for 2014: Downside Risks

Happily, looking forward, it seems the downside risks have diminished significantly. China remains a key risk ... There are always potential geopolitical risks (war with Iran, North Korea, or turmoil in some oil producing country).  Right now those risks appear small, although it is always hard to tell. ...

When I look around, I see few obvious downside risks for the U.S. economy in 2014. No need to borrow trouble - diminished downside risks are a reason for cheer. 

There are international risks - China remains a downside risk, and the situations in the Ukraine and Iraq are serious, but overall it appears that downside risks have diminished.

9) Question #9 for 2014: How much will housing inventory increase in 2014?

Right now my guess is active inventory will increase 10% to 15% in 2014 (inventory will decline seasonally in December and January, but I expect to see inventory up 10% to 15% year-over-year toward the end of 2014).  This will put active inventory close to 6 months supply this summer.   If correct, this will slow house price increases in 2014.

Right now, through June 30th, inventory is up 14.0% compared to last year according to Housing Tracker. The NAR reported inventory was up 6.0% year-over-year in May.  It looks like a 10% to 15% increase this year might be right based on the NAR reports - but this might be too low based on Housing Tracker. 

8) Question #8 for 2014: Housing Credit: Will we see easier mortgage lending in 2014?

Bottom line: I expect lending standards to loosen a bit in 2014 from the tight level of the last few years.   It will be difficult to measure, but I'll be watching what Mel Watt says, what private lenders say, comments from mortgage brokers, and MEW.

Mel Watt's comments in May suggest some easing this year, but so far there is little evidence of looser lending standards.

7) Question #7 for 2014: What will happen with house prices in 2014?

In 2014, inventories will probably remain low, but I expect inventories to continue to increase on a year-over-year basis. This suggests more house price increases in 2014, but probably at a slow pace.

As Khater noted, some of the "bounce back" in certain areas is probably over, also suggesting slower price increases going forward.  And investor buying appears to have slowed.  A positive for the market will probably be a little looser mortgage credit.

All of these factors suggest further prices increases in 2014, but at a slower rate than in 2013.   There tends to be some momentum for house prices, and I expect we will see prices up mid-to-high single digits (percentage) in 2014 as measured by Case-Shiller.

We only have Case-Shiller data through April (10.8% year-over-year gain for Composite 20), and it appears price increases are slowing, see: The Slow Down in the House Price Indexes. My prediction still seems OK, but if anything, house prices might slow more than I expected.

6) Question #6 for 2014: How much will Residential Investment increase?

New home sales will still be competing with distressed sales (short sales and foreclosures) in some judicial foreclosure states in 2014. However, unlike last year when I reported that some builders were land constrained (not enough finished lots in the pipeline), land should be less of an issue this year. Even with the foreclosures, I expect another solid year of growth for new home sales.

... I expect growth for new home sales and housing starts in the 20% range in 2014 compared to 2013. That would still make 2014 the tenth weakest year on record for housing starts (behind 2008 through 2012 and few other recession lows).

Through May, new home sales were up slightly over 2013, and housing starts were only up 6.5%  year-over-year.  There was a slow start to 2014 mostly due to higher mortgage rates, higher prices and supply constraints in some areas - and a little bit due to the weather. I still think fundamentals support a higher level of starts, and the comparisons to 2013 are easier going forward, so I still expect starts and new home sales to pick up this year (but not as much as I initially expected).

5) Question #5 for 2014: Monetary Policy: Will the Fed end QE3 in 2014?

[E]ven though the Fed is data-dependent, I currently expect the Fed to reduce their asset purchases by $10 billion per month (or so) at each meeting this year and conclude QE3 at the end of the 2014.

So far right on schedule.

4) Question #4 for 2014: Will too much inflation be a concern in 2014?

[C]urrently I think inflation (year-over-year) will increase a little in 2014 as growth picks up, but too much inflation will not be a concern in 2014.

Inflation has picked up a little, but it is still not a concern.

3) Question #3 for 2014: What will the unemployment rate be in December 2014?

My guess is the participation rate will stabilize or only decline slightly in 2014 (less than in 2012 and 2013) ... it appears the unemployment rate will decline to the low-to-mid 6% range by December 2014.

The unemployment rate was 6.1% in June and it looks like I was too pessimistic.

2) Question #2 for 2014: How many payroll jobs will be added in 2014?

Both state and local government and construction hiring should improve further in 2014.  Federal layoffs will be a negative, but most sectors should be solid.  So my forecast is somewhat above the previous three years, and I expect gains of about 200,000 to 225,000 payroll jobs per month in 2014.

Through June 2014, the economy has added 1,385,000 jobs, or 231,000 per month.  So far this is on pace just above the top end of my prediction.

1) Question #1 for 2014: How much will the economy grow in 2014?

I expect PCE to pick up again into the 3% to 4% range, and this will give a boost to GDP.   This increase in consumer spending should provide an incentive for business investment.  Add in the ongoing housing recovery, some increase in state and local government spending, and 2014 should be the best year of the recovery with GDP growth at or above 3%

The first quarter was very disappointing, but I expect economic activity to pick up in the last three quarters of the year.  Unless there is a significant upward revision to Q1, growth will probably be closer to 2% again this year.  Oh well - but Q1 GDP does seem to be out of step with most other data.

by Calculated Risk on 7/03/2014 09:42:00 PM

For fun, here is an incorrect graph on wages from the WSJ today: U.S. Jobs Report: 288,000 Positions Added


Click on graph for larger image.

This graph just looked wrong (one on the right). If wages had to increase from $22.15 per hour to $26.99 per hour to track inflation over the last 5 years, then inflation must of been 4% per year!  That isn't correct.

So I pulled up the actual wage and CPI data.

Month	Total Private Average Hourly Earnings of All Employees	CPI	Inflation Adjusted
June 2009	$22.15	214.79
June 2014	$24.45	237.0831	$24.45
1CPI is for May 2014 (per WSJ).

The wage data is from the BLS and is correct on the graph. But instead of multiplying $22.15 times the increase in inflation, they must have multiplied the June 2014 wages times inflation. Oops!

The correct story is that real wages have gone nowhere for 5 years (the BLS has a series on real hourly wages, and of course the series shows essentially no change from June 2009 to May 2014).  The article actually had the story correct: "The average hourly wage for private-sector workers rose six cents to $24.45. That's up just 2% from a year earlier, basically in line with consumer-price inflation."

by Calculated Risk on 7/03/2014 05:54:00 PM

Black Knight Financial Services (BKFS, formerly the LPS Data & Analytics division) released their Mortgage Monitor report for May today. According to BKFS, 5.62% of mortgages were delinquent in May, unchanged from April. BKFS reports that 1.91% of mortgages were in the foreclosure process, down from 3.05% in May 2013.

This gives a total of 7.53% delinquent or in foreclosure. It breaks down as:

• 1,670,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,169,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 966,000 loans in foreclosure process.

For a total of ​​3,805,000 loans delinquent or in foreclosure in May. This is down from 4,569,000 in May 2013.

Click on graph for larger image.

This graph from BKFS shows percent of loans delinquent and in the foreclosure process over time.

Delinquencies and foreclosures are moving down - and might be back to normal levels in a couple of years. 

The second graph from BKFS shows the mortgage origination activity for both refinance and purchase loans.

From Black Knight:

Though refinance activity is still down significantly from the levels seen in 2012 and early last year, it has increased 21 percent since January 2014. Black Knight also found that seasonal purchase activity has picked up, with approximately 897,000 purchase originations through April, a level on par with 2013 (898,000 over the same period), and better than 2012 (847,000). Overall, credit standards do not seem to be easing, as both average loan-to-value (LTV) ratios and credit scores on both purchase and refinance originations remain relatively strict and essentially unchanged.
emphasis added

This fits with the NAR data showing standard equity purchases up slightly this year even as distressed sales decline sharply (many distressed sales are cash buyers). However this doesn't fit with the MBA purchase index.

There is much more in the mortgage monitor.

by Calculated Risk on 7/03/2014 03:35:00 PM

Catching up ... the Department of Commerce reported this morning:

[T]otal May exports of $195.5 billion and imports of $239.8 billion resulted in a goods and services deficit of $44.4 billion, down from $47.0 billion in April, revised. May exports were $2.0 billion more than April exports of $193.5 billion. May imports were $0.7 billion less than April imports of $240.5 billion.

The trade deficit was smaller than the consensus forecast of $45.1 billion.

The first graph shows the monthly U.S. exports and imports in dollars through April 2014.

Click on graph for larger image.

Imports  decreased and exports increased in May.  

Exports are 18% above the pre-recession peak and up 4% compared to May 2013; imports are about 4% above the pre-recession peak, and up about 3% compared to May 2013. 

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

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.

Oil imports averaged $96.12 in May, up from $95.48 in April, and down from $96.74 in May 2013.  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 increased to $28.8 billion in May, from $27.9 billion in May 2013. 

by Calculated Risk on 7/03/2014 01:03:00 PM

Reis reported that the vacancy rate for regional malls was unchanged at 7.9% in Q2 2014. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate declined slightly to 10.3% from 10.4% in Q1. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Senior Economist Ryan Severino:

[Strip Malls] The national vacancy rate for neighborhood and community shopping centers declined by 10 basis points to 10.3% during the second quarter. This was a marginal improvement over the first quarter when the national vacancy rate did not change. The national vacancy is now down 80 basis points from its historical peak during the third quarter of 2011. However, that translates into a less than 10 basis points per quarter compression in the vacancy rate.
...
[Regional] Vacancy during the second quarter was 7.9%, unchanged from the first quarter and down 40 basis points from the second quarter of 2013. Vacancy is also down 150 basis points from the historical‐high level of 9.4% reached during the third quarter of 2011. Asking rents grew by 0.4% in the second quarter and 1.8% during the last twelve months. This is the thirteenth consecutive quarter of rent increases at the national level for regional malls. While the mood surrounding malls at industry events continues to brighten, the data in recent quarters has become a bit less optimistic. The vacancy rate for malls has been unchanged over the last three quarters, although rent growth continues to accelerate. Even though the economy is recovering, the mall sector is grappling with the fallout surrounding store closures and retailers going out of business. This is putting upward pressure on vacancy at a time when improvement in the economy and labor market is gradually translating into slow increases in demand and net absorption.

Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

Mall vacancy data courtesy of Reis.

by Calculated Risk on 7/03/2014 10:46:00 AM

Earlier: June Employment Report: 288,000 Jobs, 6.1% Unemployment Rate

Total employment increased 288,000 from May to June, and is now 415,000 above the previous peak. Private payroll employment increased 262,000 from May to June, and private employment is now 895,000 above the previous peak (the unprecedented large number of government layoffs has held back total employment).

Through the first half of 2014, the economy has added 1,385,000 payroll jobs - up from 1,221,000 added during the same period in 2013 - even with the severe weather early this year.   My expectation at the beginning of the year was the economy would add between 2.4 and 2.7 million payroll jobs this year, and that still looks about right.

Hopefully - now that the unemployment rate has fallen to 6.1% - wage growth will start to pick up.

Overall this was another solid employment report.

Employment-Population Ratio, 25 to 54 years old

Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, an important graph is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate has mostly moved sideways (with a downward drift started around '00) - and with ups and downs related to the business cycle.

The 25 to 54 participation rate increased in June to 80.9%, and the 25 to 54 employment population ratio increased to 76.7% from 76.4%.  As the recovery continues, I expect the participation rate for this group to increase. 

Year-over-year Change in Employment

This graph shows the year-over-year change in total non-farm employment since 1968.

In June, the year-over-year change was 2.495 million jobs, and it appears the pace of hiring is increasing.

Right now it looks possible that 2014 will be the best year since 1999 for both total nonfarm and private sector employment growth.

Part Time for Economic Reasons

From the BLS report:

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 275,000 in June to 7.5 million. The number of involuntary part-time workers is down over the year but has shown no clear trend in recent months. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

The number of persons working part time for economic reasons increased in June to 7.544 million from 7.269 million in May.  This suggests significantly slack still in the labor market.  These workers are included in the alternate measure of labor underutilization (U-6) that decreased to 12.1% in June from 12.2% in May. This is the lowest level for U-6 since October 2008.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 3.081 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 3.374 in May. This is trending down, but is still very high.  This is the lowest level for long term unemployed since February 2009.

Long term unemployment remains one of the key labor problems in the US.

State and Local Government

This graph shows total state and government payroll employment since January 2007. State and local governments lost jobs for four straight years. (Note: Scale doesn't start at zero to better show the change.)

In June 2014, state and local governments added 24,000 jobs.  State and local government employment is now up 138,000 from the bottom, but still 606,000 below the peak.

It is pretty clear that state and local employment is now increasing.  Federal government layoffs have slowed (actually added 2,000 in June), but Federal employment is still down 23,000 for the year.

by Calculated Risk on 7/03/2014 10:00:00 AM

The June ISM Non-manufacturing index was at 56.0%, down from 56.3% in May. The employment index increased in June to 54.4%, up from 52.4% in May. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: June 2014 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in June for the 53rd 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 percent in June, 0.3 percentage point lower than the May reading of 56.3 percent. This represents continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 57.5 percent, which is 4.6 percentage points lower than the May reading of 62.1 percent, reflecting growth for the 59th consecutive month at a slower rate. The New Orders Index registered 61.2 percent, 0.7 percentage point higher than the reading of 60.5 percent registered in May. The Employment Index increased 2 percentage points to 54.4 percent from the May reading of 52.4 percent and indicates growth for the fourth consecutive month and at a faster rate. The Prices Index decreased 0.2 percentage point from the May reading of 61.4 percent to 61.2 percent, indicating prices increased at a slightly slower rate in June when compared to May. According to the NMI®, 14 non-manufacturing industries reported growth in June. Respondents' comments vary by industry and company; however, the majority indicate that steady economic growth is continuing."
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 56.2% and suggests slightly slower expansion in June than in May.

by Calculated Risk on 7/03/2014 08:30:00 AM

From the BLS:

Total nonfarm payroll employment increased by 288,000 in June, and the unemployment rate declined to 6.1 percent, the U.S. Bureau of Labor Statistics reported today.
...
The change in total nonfarm payroll employment for April was revised from +282,000 to +304,000, and the change for May was revised from +217,000 to +224,000. With these revisions, employment gains in April and May were 29,000 higher than previously reported.

Click on graph for larger image.

The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed to show the underlying payroll changes).

This was the fifth month in a row with more than 200 thousand jobs added, and employment is now up 2.495 million year-over-year.

Total employment is now 415 thousand above the pre-recession peak.

The second graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate was unchanged in June at 62.8%. This is the percentage of the working age population in the labor force.   A large portion of the recent decline in the participation rate is due to demographics.

The Employment-Population ratio increased in June to 59.0% (black line).

I'll post the 25 to 54 age group employment-population ratio graph later.

The third graph shows the unemployment rate.

The unemployment rate declined in June to 6.1%.

This was another solid employment report, and 2014 is on pace to be the best year for employment gains since 1999.

I'll have much more later ... 

by Calculated Risk on 7/02/2014 07:35:00 PM

Thursday will feel like a Friday  - all day!

Thursday:
• Early, Reis Q2 2014 Mall Survey of rents and vacancy rates.

• At 8:30 AM ET, the Employment Report for June. The consensus is for an increase of 211,000 non-farm payroll jobs added in June, down from the 217,000 non-farm payroll jobs added in May. The consensus is for the unemployment rate to be unchanged at 6.3% in May.

• Also at 8:30 AM, the Trade Balance report for May from the Census Bureau. The consensus is for the U.S. trade deficit to be at $45.1 billion in May from $47.2 billion in April.

• Also at 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 314 thousand from 312 thousand.

• At 10:00 AM, ISM non-Manufacturing Index for June. The consensus is for a reading of 56.2, down from 56.3 in May. Note: Above 50 indicates expansion.

Here is a table of the annual change in total nonfarm and private sector payrolls jobs since 1999.  The last three years have been near the best since 1999 (2005 was the best year for total nonfarm, and 2011 the best for private jobs).

Note: "2014" shows the annualized pace through May.

It is possible that 2014 will be the best year since 1999 for both total nonfarm and private sector employment.

Change in Payroll Jobs per Year (000s)
	Total, Nonfarm	Private
1999	3,177	2,716
2000	1,946	1,682
2001	-1,735	-2,286
2002	-508	-741
2003	105	147
2004	2,033	1,886
2005	2,506	2,320
2006	2,085	1,876
2007	1,140	852
2008	-3,576	-3,756
2009	-5,087	-5,013
2010	1,058	1,277
2011	2,083	2,400
2012	2,236	2,294
2013	2,331	2,365
20141	2,563	2,527
1 2014 is the hiring pace through May.