by Calculated Risk on 11/10/2015 09:30:00 AM

From the National Federation of Independent Business (NFIB): Small Business Optimism Flat Lined in October

The Index of Small Business Optimism was unchanged in October, posting no change after a rise of only 0.2 points in September and a gain of only 0.5 points in August. ...

Although the labor market components posted minor declines, they held at historically strong levels ...
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index was unchanged at 96.1 in October.

by Calculated Risk on 11/09/2015 04:41:00 PM

Some more positive news in the employment report.

The BLS diffusion index for total private employment was at 61.8 in October, up from 53.4 in September.

For manufacturing, the diffusion index was at 51.9, up from 37.5 in September.

Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS.  Above 60 is very good.  From the BLS:

Figures are the percent of industries with employment increasing plus one-half of the industries with unchanged employment, where 50 percent indicates an equal balance between industries with increasing and decreasing employment.

Overall private job growth was widespread in October.

by Calculated Risk on 11/09/2015 01:58:00 PM

Here is another graph on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs.

The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).

Prices didn't increase as much early in 2014 (more supply, smaller "surge" in demand).

In 2015, even with the pickup in U.S. housing starts, prices are down year-over-year.  Note: Multifamily starts do not use as much lumber as single family starts, and there was a surge in multi-family starts.

Overall the decline in prices is probably due to more supply, and less demand from China.

Click on graph for larger image in graph gallery.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through October 2015 (via NAHB), and 2) CME framing futures.

Right now Random Lengths prices are down about 12% from a year ago, and CME futures are down around 21% year-over-year.

by Calculated Risk on 11/09/2015 10:49:00 AM

Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

I don't have a crystal ball, but watching inventory helps understand the housing market.   If inventory kept increasing rapidly in certain markets, then we would eventually see price declines.  However it now appears the inventory build is over in some former distressed markets.

The table below shows the year-over-year change for non-contingent inventory in Las Vegas, Phoenix and Sacramento (October 2015 not available yet for Phoenix and Sacramento).  Inventory declined sharply through early 2013, and then inventory started increasing sharply year-over-year.

This makes sense.  Prices increased rapidly in these markets in 2012 and 2013 (bouncing off the bottom with low inventory).  Higher prices attracted more people to list their homes.  Once prices flattened out, potential sellers weren't as motivated to list their homes.  Unlike following the housing bubble, most of these potential sellers probably don't need to sell, so listings didn't grow to the moon!

Now listing are starting to decline, so prices might increase a little quicker.  As an example, according to Case-Shiller, prices in Phoenix only increased 2.4% in 2014, but have increased 3.5% already this year through August.  For Phoenix, the inventory build ended near the end of 2014.

For Las Vegas, the inventory might have just ended a couple of months ago.  If inventory continues to decline, it seems likely price increases will pick up in Las Vegas.

I still expect overall inventory to continue to increase nationally, but this is something to watch.

Year-over-year Change in Active Inventory
Month	Las Vegas	Phoenix	Sacramento
Jan-13	-58.3%	-11.7%	-61.1%
Feb-13	-53.4%	-8.5%	-51.1%
Mar-13	-42.1%	-5.2%	-37.8%
Apr-13	-24.1%	-4.9%	-10.3%
May-13	-13.2%	-2.1%	5.3%
Jun-13	3.7%	-1.6%	18.3%
Jul-13	9.0%	-1.6%	54.3%
Aug-13	41.1%	2.4%	46.8%
Sep-13	60.5%	7.8%	77.3%
Oct-13	73.4%	15.7%	93.2%
Nov-13	77.4%	15.2%	56.8%
Dec-13	78.6%	20.9%	44.2%
Jan-14	96.2%	29.6%	96.3%
Feb-14	107.3%	37.7%	87.8%
Mar-14	127.9%	45.5%	71.2%
Apr-14	103.1%	48.8%	46.3%
May-14	100.6%	47.4%	83.7%
Jun-14	86.2%	43.1%	91.0%
Jul-14	55.2%	35.1%	68.0%
Aug-14	38.8%	21.9%	60.6%
Sep-14	29.5%	13.2%	50.9%
Oct-14	25.6%	5.7%	29.1%
Nov-14	20.0%	2.5%	36.6%
Dec-14	18.0%	-1.8%	32.2%
Jan-15	12.9%	-4.9%	24.8%
Feb-15	15.8%	-8.4%	13.9%
Mar-15	12.2%	-11.7%	25.1%
Apr-15	7.6%	-13.2%	26.0%
May-15	7.8%	-15.4%	-0.1%
Jun-15	4.3%	-16.4%	-10.0%
Jul-15	5.1%	-15.3%	-10.8%
Aug-15	3.5%	-13.7%	-14.9%
Sep-15	-0.8%	-11.7%	-18.5%
Oct-15	-7.1%	NA	NA

by Calculated Risk on 11/09/2015 08:01:00 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 Report on Local Housing Market Shows Stable is the New Normal

According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in October was 3,020, up from 2,861 one year ago. Compared to October 2014, 4.7 percent more homes and 9.2 percent more condos and townhomes sold this October. Lynam said local home sales in 2015 remain ahead of last year’s sales pace.

For more than two years, GLVAR has been reporting fewer distressed sales and more traditional home sales, where lenders are not controlling the transaction. In October, 6.7 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 down from 10.6 percent one year ago. Another 7.5 percent of October sales were bank-owned, down from 8.9 percent one year ago.
...
By the end of October, GLVAR reported 8,252 single-family homes listed without any sort of offer. That’s down 7.1 percent from one year ago. For condos and townhomes, the 2,314 properties listed without offers in October represented a 9.2 percent decrease from one year ago.
emphasis added

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

1) Overall sales were up 5.6% year-over-year.

2) Conventional (equity, not distressed) sales were up 13% year-over-year.  In Oct 2014, 80.5% of all sales were conventional equity.  In Oct 2015, 85.8% were standard equity sales.

3) The percent of cash sales has declined year-over-year from 35.1% in Oct 2014 to 30.9% in Oct 2015. (investor buying appears to be declining).

4) Non-contingent inventory is down 7.1% year-over-year. This was the second YoY decline in inventory since 2013.  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 over.

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%
Nov-14	20.0%
Dec-14	18.0%
Jan-15	12.9%
Feb-15	15.8%
Mar-15	12.2%
Apr-15	7.6%
May-15	7.8%
Jun-15	4.3%
Jul-15	5.1%
Aug-15	3.5%
Sep-15	-0.8%
Oct-15	-7.1%

by Calculated Risk on 11/08/2015 07:54:00 PM

Goldman Sachs chief economist Jan Hatzius as quoted in Business Insider:

"The October employment report was solidly better­-than-­expected, and we now see a rate increase from the FOMC at the December meeting as very likely."

More from Hatzius as quoted by Bloomberg's Matthew Boesler:

[Hatzius wrote] "our baseline view of the economy now implies a clear need for higher rates before long"

Weekend:
• Schedule for Week of November 8, 2015

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

Oil prices were down over the last week with WTI futures at $44.37 per barrel and Brent at $47.48 per barrel.  A year ago, WTI was at $78, and Brent was at $83 - so prices are down about 40% year-over-year (It was a year ago that prices were falling sharply).

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.21 per gallon (down over $0.70 per gallon from a year ago).

by Calculated Risk on 11/08/2015 09:40:00 AM

Towards the end of each year I collect some housing forecasts for the following year, and it looks like analysts are optimistic for 2016 (many more forecasts will be added).

First a review of the previous three years ...

Here is a summary of forecasts for 2015. In 2015, new home sales will probably be just over 500 thousand, and total housing starts will be something over 1.1 million.  It is early, but CoreLogic, Zillow and the MBA were very close on New Home sales, and CoreLogic, MetroStudy, MBA and Zillow were all close on starts.

Here is a summary of forecasts for 2014. In 2014, new home sales were 437 thousand, and total housing starts were 1.003 million. No one was close on New Home sales (all way too optimistic), and Michelle Meyer (Merrill Lynch) and Fannie Mae were the closest on housing starts (about 10% too high). In 2014, many analysts underestimated the impact of higher mortgage rates and higher new home prices on new home sales and starts.

Here is a summary of forecasts for 2013. In 2013, new home sales were 429 thousand, and total housing starts were 925 thousand.  Barclays were the closest on New Home sales followed by David Crowe (NAHB).  Fannie Mae and the NAHB were the closest on housing starts.

The table below shows a few forecasts for 2016 (I'll add many more of the next several weeks).

From Fannie Mae: Housing Forecast: October 2015

From NAHB: housing and economic forecast.

UCLA Ziman Center.

Note: For comparison, new home sales in 2015 will probably be just over 500 thousand, and total housing starts over 1.1 million.

I haven't worked up a forecast yet for 2016, however I think the NAHB forecast for new home sales is too high - as is the UCLA forecast for housing starts.

Housing Forecasts for 2016
	New Home Sales (000s)	Single Family Starts (000s)	Total Starts (000s)	House Prices1
Fannie Mae	562	827	1,224	4.9%2
NAHB	642	877	1,255
UCLA Ziman Center			1,420
1Case-Shiller unless indicated otherwise 2FHFA Purchase-Only Index

by Calculated Risk on 11/07/2015 08:11:00 AM

The key economic report this week is October retail sales on Friday.

----- Monday, November 9th -----
10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).

----- Tuesday, November 10th -----
9:00 AM ET: NFIB Small Business Optimism Index for October.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for August. The consensus is for a 0.1% increase in inventories.

----- Wednesday, November 11th -----
The Federal Government and Banks will be closed in observance of Veterans Day. The market will be open.

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

----- Thursday, November 12th -----
8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 266 thousand initial claims, down from 276 thousand the previous week.

10:00 AM: Job Openings and Labor Turnover Survey for September 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 August to 5.370 million from 5.668 million in July.

The number of job openings (yellow) were up 9% year-over-year, and Quits were up 9% year-over-year.

2:00 PM: The Monthly Treasury Budget Statement for October.

6:00 PM: Speech by Fed Vice Chairman Stanley Fischer, The Transmission of Exchange Rate Changes to Output and Inflation, At the Conference on Monetary Policy Implementation and Transmission in the Post-Crisis Period, Washington, D.C.

----- Friday, November 13th -----
8:30 AM: The Producer Price Index for October from the BLS. The consensus is for a 0.2% increase in prices, and a 0.1% increase in core PPI.

8:30 AM ET: Retail sales for October will be released.

This graph shows retail sales since 1992 through September 2015. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). On a monthly basis, retail sales were up 0.1% from August to September (seasonally adjusted), and sales were up 2.4% from September 2014.

The consensus is for retail sales to increase 0.3% in October, and to increase 0.4% ex-autos.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for September.  The consensus is for no change in inventories.

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for November). The consensus is for a reading of 92.0, up from 90.0 in October.

by Calculated Risk on 11/06/2015 04:41:00 PM

This is a quarterly index that was released last week by the the National Association of Home Builders (NAHB). This index 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

From the NAHB: 55+ Housing Market Remains Strong in Third Quarter

uilder confidence in the single-family 55+ housing market remains strong in the third quarter of 2015 with a reading of 60, up three points from the previous quarter, according to the National Association of Home Builders' (NAHB) 55+ Housing Market Index (HMI) released today. This is the sixth consecutive quarter with a reading above 50.

“Builders have a positive outlook on the 55+ housing market,” said Timothy McCarthy, chairman of NAHB's 55+ Housing Industry Council and managing partner of Traditions of America in Radnor, Pa. “In fact, the markets for single-family, apartments and condos are all doing quite well, and we expect that trend to continue.”
...
“Like the overall housing market, we continue to see steady, positive growth in the 55+ market,” said NAHB Chief Economist David Crowe. “With the economy and job growth continuing to improve gradually, many consumers are now able to sell their current homes at a suitable price, enabling them to buy or rent in a 55+ community.”
emphasis added

Click on graph for larger image.

This graph shows the NAHB 55+ Single Family HMI through Q3 2015.  And reading above 50 indicates that more builders view conditions as good than as  poor.  The index increased to 60 in Q3 up from 57 in Q2.

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 11/06/2015 01:31:00 PM

By request, here is another update of an earlier post through the October 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	7,2501
133 months into 2nd term: 10,545 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 three months into Mr. Obama's second term, there are now 9,268,000 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 591,000 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	1111
133 months into 2nd term, 161 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 are 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 fourth best for total job creation.

Note: Only 111 thousand public sector jobs have been added during the first thirty three 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 8% 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	7,250	111	7,361
	Pace2	10,545	161	10,707
133 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	242	281
#2	188	264
#3	140	229