by Calculated Risk on 11/06/2014 07:33:00 PM

Yesterday I posted a summary of the monthly October employment related data: Preview: Employment Report for October. Overall the data has been positive.

From Goldman Sachs economist Kris Dawsey:

We forecast nonfarm payroll job growth of 235k in October, in line with consensus and slightly above the three-month average of 224k. On balance, labor market indicators appear consistent with a solid underlying trend on job growth.
...
Back revisions have a strong tendency to be positive in the October report ... over the past five years, the average net two-month back revision has been +89k, the strongest of any month of the year. While we do not necessarily expect a revision of quite that magnitude this year (the average size of the revisions seems to have trended down a bit since 2010), we think the odds favor a substantial upward revision to August and September job growth.
...
we expect the unemployment rate to remain unchanged at 5.9% in October ... This forecast assumes a roughly stable labor force participation rate. We forecast a 0.3% month-on-month gain in average hourly earnings, reflecting some degree of "catch-up" from last month's flat reading. An October increase in line with our forecast would leave the year-on-year rate at a still-subdued 2.1%.

That is an interesting comment on revisions, so here are the two-month revisions released in the last five October employment reports:

2009: Total +91,000 "The change in total nonfarm payroll employment for August was revised from -201,000 to -154,000, and the change for September was revised from -263,000 to -219,000."

2010: Total +110,000 "The change in total nonfarm payroll employment for August was revised from -57,000 to -1,000, and the change for September was revised from -95,000 to -41,000."

2011: Total +98,000 "The change in total nonfarm payroll employment for August was revised from +57,000 to +104,000, and the change for September was revised from +103,000 to +158,000."

2012: Total +84,000 "The change in total nonfarm payroll employment for August was revised from +142,000 to +192,000, and the change for September was revised from +114,000 to +148,000."

2013: Total +60,000 "The change in total nonfarm payroll employment for August was revised from +193,000 to +238,000, and the change for September was revised from +148,000 to +163,000."

Friday:
• At 8:30 AM, the Employment Report for October. The consensus is for an increase of 240,000 non-farm payroll jobs added in October, down from the 248,000 non-farm payroll jobs added in September. The consensus is for the unemployment rate to be unchanged at 5.9% in October. As always, a key will be the change in real wages - and as the unemployment rate falls, wage growth should eventually start to pickup.

• At 3:00 PM, Consumer Credit for September from the Federal Reserve. The consensus is for credit to increase $16.0 billion.

by Calculated Risk on 11/06/2014 05:08:00 PM

From housing economist Tom Lawler:

Fannie Mae reported that GAAP net income in the quarter ended September 30, 2014 was $3.9 billion, while “comprehensive income” was $4.0 billion. As a result, in December Fannie Mae will make a dividend payment to the US Treasury of $4.0 billion, bringing total dividend payments to $134.5 billion, compared to $116.1 billion in previous “draws” from the Treasury. Dividend payments do not reduce the Treasury’s senior preferred stock balance.

Freddie Mac reported that GAAP net income in the quarter ended September 30, 2014 was $2.0 billion, while “comprehensive income” was $2.8 billion. As a result, in December Freddie Mac will make a dividend payment to the US Treasury of $2.8 billion, bringing total dividend payments to $91.0 billion, compared to $71.3 billion in previous “draws” from the Treasury. Dividend payments do not reduce the Treasury’s senior preferred stock balance.

Fannie’s average charged Gfee on new SF acquisitions last quarter was 63.5 bp, up from 25.7 bp in 2010.

Freddie’s average charged Gfee on new SF acquisitions last quarter was 57.2 bp, up from 25 bp in 2010.

Freddie’s regulator instructed the GSEs to raise base fees several times over the last four or so years. In addition, pursuant to the Temporary Payroll Tax Cut Continuation Act of 2011, both Fannie and Freddie increased their guaranty fee on all SF residential mortgages delivered to them on of after April 1, 2012 by 10 basis points, with the incremental revenue being remitted to Treasury.

Click on graph for larger image.

CR Note: Here is a graph of Fannie and Freddie Real Estate Owned (REO).

REO inventory decreased 17% year-over-year in Q3 for Fannie and Freddie combined, and combined REO inventory is at the lowest level since Q3 2009.

Delinquencies are falling, but there are still a large number of properties in the foreclosure process with long time lines in judicial foreclosure states.

by Calculated Risk on 11/06/2014 02:55:00 PM

This is a quarterly index from the the National Association of Home Builders (NAHB) and is similar to the overall housing market index (HMI). The NAHB started this index in Q4 2008 (during the housing bust), so the readings were initially very low.  Note that this index is Not Seasonally Adjusted (NSA)

From the NAHB: Builders Gain Confidence in the 55+ Housing Market

Builder confidence in the 55+ housing market was up again in the third quarter, according to the latest release of NAHB’s 55+ Housing Market Index (55+HMI). The 55+ HMI release contains separate indices for single-family homes and multifamily condominiums. Each is a weighted average of three components: present sales, expected sales, and traffic. The numbers are not seasonally adjusted, so they should only be compared year over year. On that basis, both were up in the third quarter.

The single-family 55+ HMI jumped nine points from the third quarter of 2013, to 59—the highest third-quarter reading since the inception of the index in 2008 and the 12th consecutive quarter of year over year improvements. All three components posted year-over-year increases: present sales jumped 13 points to 65, expected sales for the next six months climbed 10 points to 63 and traffic of prospective buyers rose three points to 46.
emphasis added

Click on graph for larger image.

This graph shows the NAHB 55+ HMI through Q3 2014.  The index increased in Q3 to 59 from 56 in Q2, and up from 50 in Q3 2013.  This indicates that more builders view conditions as good than as  poor.

There are two key drivers in addition to the improved economy: 1) there is a large cohort moving into the 55+ group, and 2) the homeownership rate typically increases for people in the 55 to 70 year old age group. So demographics should be favorable for the 55+ market.

by Calculated Risk on 11/06/2014 10:57:00 AM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported GLVAR reports dip in local home prices

According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in October was 2,861, down from 2,982 in September and down from 3,192 one year ago. At the current pace, [GLVAR President Heidi] Kasama said Southern Nevada has about a four-month supply of available properties. REALTORS® consider a six-month supply to be a balanced market.
...
GLVAR said 35.1 percent all local properties sold in October were purchased with cash. That’s up from 34.3 percent in September, but still well short of the February 2013 peak of 59.5 percent, suggesting that fewer investors have been buying homes in Southern Nevada.
...
For nearly two years, GLVAR has reported fewer distressed sales and more traditional home sales, where lenders are not controlling the transaction. That trend generally continued in October, when GLVAR reported that 10.6 percent of all local sales were short sales – which occur when lenders allow borrowers to sell a home for less than what they owe on the mortgage. That’s up from 10.4 percent in September. Another 8.9 percent of all October sales were bank-owned properties, up from 8.8 percent in September and matching the percentage in August.
...
The total number of single-family homes listed for sale on GLVAR’s Multiple Listing Service in October was 14,430, up 4.1 percent from 13,857 in September, but down 3.9 percent from one year ago. ...

By the end of October, GLVAR reported 8,880 single-family homes listed without any sort of offer. That’s up 8.3 percent from 8,196 such homes listed in September and up 25.6 percent from one year ago. For condos and townhomes, the 2,548 properties listed without offers in October represented a 5.5 percent increase from 2,415 such properties listed in September and a 13.4 percent increase from one year ago.
emphasis added

There are several key trends that we've been following:

1) Overall sales were down 10.4% year-over-year.

2) However conventional (equity, not distressed) sales were only down slightly year-over-year.  In October 2013, only 73.0% of all sales were conventional equity.  This year, in October 2014, 80.5% were equity sales. 

3) The percent of cash sales has declined year-over-year from 44.9% in October 2013 to 35.1% in October 2014. (investor buying appears to be declining).

4) Non-contingent inventory is up 25.6% year-over-year. The table below shows the year-over-year change for non-contingent inventory in Las Vegas. Inventory declined sharply through early 2013, and then inventory started increasing sharply year-over-year. It appears the inventory build is slowing (an important change in many areas).

Las Vegas: Year-over-year Change in Non-contingent Inventory
Month	YoY
Jan-13	-58.3%
Feb-13	-53.4%
Mar-13	-42.1%
Apr-13	-24.1%
May-13	-13.2%
Jun-13	3.7%
Jul-13	9.0%
Aug-13	41.1%
Sep-13	60.5%
Oct-13	73.4%
Nov-13	77.4%
Dec-13	78.6%
Jan-14	96.2%
Feb-14	107.3%
Mar-14	127.9%
Apr-14	103.1%
May-14	100.6%
Jun-14	86.2%
Jul-14	55.2%
Aug-14	38.8%
Sep-14	29.5%
Oct-14	25.6%

by Calculated Risk on 11/06/2014 08:50:00 AM

From Trulia chief economist Jed Kolko: What Home Price Slowdown? Some Markets Buck the Trend

Nationally, the month-over-month increase in asking home prices rose to 1.0% in October. Year-over-year, asking prices rose 6.4%, down from the 10.6% year-over-year increase in October 2013. Asking prices rose year-over-year in 91 of the 100 largest U.S. metros.

Nationally, year-over-year price gains have slowed from a year ago. In some markets, this price slowdown has been precipitous. In the most extreme case, Las Vegas prices rose 10.1% in October 2014 versus 31.9% in October 2013, a drop of 21.8 percentage points. Price gains have slowed by almost 20 percentage points in both Northern California (Sacramento, Oakland) and Southern California (Riverside-San Bernardino, San Diego) markets. Among the 10 markets with the largest price slowdowns, only one – Warren-Troy-Farmington Hills, next to Detroit – is outside California or the Southwest.

Nationally, price gains have slowed in 60 of the 100 largest metros, although prices are actually falling year-over-year in only nine metros.

Nationally, rents rose 6.2% year-over-year in October. But in the markets where renters are stretched thinnest, rents are rising even faster. In Miami, Los Angeles, and New York, the median rent on a 2-bedroom unit equals more than half of the average monthly wage, and it’s nearly that much in Oakland and San Francisco. In all five of these least-affordable markets, rents rose 7.8% or more year-over-year.
emphasis added

Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and although year-over-year price increases have slowed, the month-to-month increase suggests further house price increases over the next few months on a seasonally adjusted basis.

There is much more in the article.

by Calculated Risk on 11/06/2014 08:34:00 AM

The DOL reported:

In the week ending November 1, the advance figure for seasonally adjusted initial claims was 278,000, a decrease of 10,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 287,000 to 288,000. The 4-week moving average was 279,000, a decrease of 2,250 from the previous week's revised average. This is the lowest level for this average since April 29, 2000 when it was 273,000. The previous week's average was revised up by 250 from 281,000 to 281,250.

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

The previous week was revised up to 288,000.

The following graph shows the 4-week moving average of weekly claims since January 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 279,000.

This was lower than the consensus forecast and suggests few layoffs.

by Calculated Risk on 11/05/2014 09:47:00 PM

From NDD: A little post-election-day economic balm

If Washington can simply manage to do absolutely nothing to the economy in the next two years, except to agree to pay already incurred debts (a/k/a lift the debt ceiling), then we are in the best position we have been in for nearly a decade for the economy by itself to improve the lot of the working and middle class appreciably.

Here's why:

• there is nothing in the long leading indicators to suggest that we are going to enter an economic downturn at any point in at least the next 9 months. If interest rates continue to drift lower and housing starts improve as a result, you can extend that forecast into 2016.

• continuing economic growth means continuing positive monthly jobs reports

• so long as there is positive jobs growth, and initial jobless claims stay at or near their current levels, the unemployment rate is going to continue to decline -- and that's not just the usual rate, but all the other variations on the unemployment rate as well.

• Because the unemployment rate should remain below 6.5% for the foreseeable future, that means that nominal wage growth, which has been improving for the last 18 months, will continue to improve further - i.e., to 2.5% YoY or 3.0% YoY.

• Also, incremental tightness in the labor market is going to mean that better paying jobs become an increasing share of employment - my hypothesis is that this recovery is no different from previous recoveries, where low wage jobs get added first, and higher wage jobs get added later. Like the expansion after the deep 1982 recession, there was so much slack that it took a long time for those higher paying jobs to show up. There is evidence from the last few jobs reports that it is beginning to happen.

• Unless there is a reversal in gas prices, this is going to mean significant real wage growth to the average working family.

In short, simply leaving the economy alone for the next 2 years is likely to mean a continued improvement in the jobs picture, and a significant improvement on the wage front. Or, if ever there was a time when laissez faire might be a perfectly decent policy, this point in the cycle is it.

Since Senator McConnell has already ruled out defaulting (Congress will raise the "debt ceiling") and another government shutdown, then doing next to nothing will probably be OK.

Thursday:
• Early: Trulia Price Rent Monitors for October. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 283 thousand from 287 thousand.

by Calculated Risk on 11/05/2014 03:01:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for October. The consensus, according to Bloomberg, is for an increase of 240,000 non-farm payroll jobs in October (range of estimates between 200,000 and 282,000), and for the unemployment rate to be unchanged at 5.9%.

The BLS reported 248,000 jobs added in September.

Here is a summary of recent data:

• The ADP employment report showed an increase of 230,000 private sector payroll jobs in October. This was above expectations of 212,000 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 slightly above expectations.

• The ISM manufacturing employment index increased in October to 55.5%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 10,000 in October. The ADP report indicated a 15,000 increase for manufacturing jobs in October.

The ISM non-manufacturing employment index increased in October to 59.6%. A historical correlation (linear) 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 330,000 in October.  Note: There are only a couple of previous readings this high for the ISM non-manufacturing employment index - so this might be high.

Combined, the ISM indexes suggests employment gains of 340,000.

• Initial weekly unemployment claims averaged close to 287,000 in October, down from 295,000 in September. For the BLS reference week (includes the 12th of the month), initial claims were at 284,000; this was up from 281,000 during the reference week in September.

This suggests about the same low level of layoffs in October as in September.

• The final October Reuters / University of Michigan consumer sentiment index increased to 86,9 from the September reading of 84.6. This is frequently coincident with changes in the labor market, but there are other factors too - like sharply lower gasoline prices.

• On small business hiring: The small business index from Intuit showed a 15,000 increase in small business employment in October (up from 10,000 in September).

• Trim Tabs reported:

TrimTabs Investment Research estimates that the U.S. economy added 314,000 jobs in October, up from 206,000 in September. ... TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 140 million U.S. workers subject to withholding.

• Conclusion: Below is a table showing several employment indicators and the initial BLS report (the first column is the revised employment). A few key points:

1) All but one of the revisions this year have been up (average about 21,000).

2) Unfortunately none of the indicators below is very good at predicting the initial BLS employment report.  

3) In general 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.  And we have to remember that September employment was boosted by a one time factor (returning workers from a strike in August).
The consensus forecast is pretty strong, but I'll take the over again (above 240,000).

Employment Indicators (000s)
	BLS Revised	BLS Initial	ADP Initial	ISM	Weekly Claims Reference Week1	Intuit Small Business
Jan	144	113	175	236	329	10
Feb	222	175	139	-6	334	0
Mar	203	192	191	153	323	0
Apr	304	288	220	NA	320	25
May	229	217	179	130	327	35
Jun	267	288	281	NA	314	20
Jul	243	209	218	NA	303	15
Aug	180	142	204	285	299	0
Sep		248	213	NA	281	10
Oct		Friday	230	340	284	15
1Lower is better for Unemployment Claims

by Calculated Risk on 11/05/2014 12:23:00 PM

From the US Court: Fiscal Year Bankruptcy Filings Lowest in Seven Years

Bankruptcy cases filed in federal courts for the fiscal year 2014—the 12-month period ending September 30, 2014—totaled 963,739, down 13 percent from the 1.1 million bankruptcy filings in FY 2013, according to statistics released today by the Administrative Office of the U.S. Courts. This is the lowest number of bankruptcy filings for any 12-month period since 2007.

The number of filings for the fiscal year ending Sept 2014 were the lowest since 2007.

Click on graph for larger image.

This graph shows the business and non-business bankruptcy filings by year since 1987.

The sharp decline in 2006 and 2007 was due to the so-called "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005". (a good example of Orwellian named legislation since this was more a "Lender Protection Act").

Other than 2007, this was the lowest level for filings since 1995. This is another indicator of an economy mostly recovered from the housing bust and financial crisis.

by Calculated Risk on 11/05/2014 10:00:00 AM

The October ISM Non-manufacturing index was at 57.1%, down from 58.6% in September. The employment index increased in October to 59.6%, up from 58.5% in September. Note: Above 50 indicates expansion, below 50 contraction.

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

Economic activity in the non-manufacturing sector grew in October for the 57th 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 57.1 percent in October, 1.5 percentage points lower than the September reading of 58.6 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 60 percent, which is 2.9 percentage points lower than the September reading of 62.9 percent, reflecting growth for the 63rd consecutive month at a slower rate. The New Orders Index registered 59.1 percent, 1.9 percentage points lower than the reading of 61 percent registered in September. The Employment Index increased 1.1 percentage points to 59.6 percent from the September reading of 58.5 percent and indicates growth for the eighth consecutive month. The Prices Index decreased 3.1 percentage points from the September reading of 55.2 percent to 52.1 percent, indicating prices increased at a slower rate in October when compared to September. According to the NMI®, 16 non-manufacturing industries reported growth in October. The majority of the respondents’ comments reflect favorable business conditions; however, there is an indication that there continues to be a leveling off from the strong rate of growth of the preceding months."
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 58.0% and suggests slightly slower expansion in October than in September.

However a reading of 57.1 still suggests solid expansion in October, and the employment index, at 59.6, was especially strong.