by Calculated Risk on 3/03/2016 03:31:00 PM

Note: Earlier I wrote: Preview: Employment Report for February

A few excerpts from a research piece by Goldman Sachs economist Daan Struyven:

We expect a 195k gain in nonfarm payroll employment in February, in line with consensus expectations—and a slight downward revision from our forecast at the start of the week. Labor market indicators were mixed in February, with lower jobless claims and a rise in the ISM manufacturing employment component, but declines in the employment components of most non-manufacturing surveys, including the ISM services survey. We expect some rebound from the large declines last month in employment in the private education, temporary help services, and couriers and messengers sectors.

The unemployment rate is likely to remain unchanged at 4.9%. Average hourly earnings are likely to rise just 0.1% month-over-month, due mostly to calendar effects. ... A 0.1% increase in February would still result in a year-on-year rate flat at 2.5% (due to favorable base effects).

by Calculated Risk on 3/03/2016 12:51:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for February. The consensus, according to Bloomberg, is for an increase of 190,000 non-farm payroll jobs in February (with a range of estimates between 168,000 to 217,000), and for the unemployment rate to be unchanged at 4.9%.

The BLS reported 151,000 jobs added in January.

Here is a summary of recent data:

• The ADP employment report showed an increase of 214,000 private sector payroll jobs in February. This was above expectations of 185,000 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 above expectations.

• The ISM manufacturing employment index increased in February to 48.5%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs decreased about 25,000 in February. The ADP report indicated 9,000 fewer manufacturing jobs.  Note: Recently the ADP has been a better predictor for BLS reported manufacturing employment than the ISM survey.

The ISM non-manufacturing employment index decreased in February to 49.7%. A historical correlation  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 65,000 in February.

Combined, the ISM indexes suggests employment gains of 40,000.  This suggests employment growth way below expectations.

• Initial weekly unemployment claims averaged close to 270,000 in February, down from 283,000 in January. For the BLS reference week (includes the 12th of the month), initial claims were at 262,000, down from 294,000 during the reference week in January.

The decrease during the reference suggests fewer layoffs in February as compared to January.

• The final February University of Michigan consumer sentiment index decreased to 91.7 from the January reading of 92.0. Sentiment is frequently coincident with changes in the labor market, but there are other factors too - like lower gasoline prices.

• "TrimTabs Investment Research estimates based on real-time income tax withholdings that the U.S. economy added between 55,000 and 85,000 jobs in February, the lowest monthly job growth since July 2013."

• Conclusion: Unfortunately none of the indicators above is very good at predicting the initial BLS employment report.    The ADP report and unemployment claims suggest job growth in the 200 thousand plus range.

However the ISM surveys and tax withholdings suggest a report way below consensus.

The signals are mixed, but my guess is employment will be below consensus in February.

by Calculated Risk on 3/03/2016 10:04:00 AM

The February ISM Non-manufacturing index was at 53.4%, down from 53.5% in January. The employment index decreased in February to 49.7%, down from 52.1% in January. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: February 2016 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in February for the 73rd 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 53.4 percent in February, 0.1 percentage point lower than the January reading of 53.5 percent. This represents continued growth in the non-manufacturing sector at a slightly slower rate. The Non-Manufacturing Business Activity Index increased to 57.8 percent, 3.9 percentage points higher than the January reading of 53.9 percent, reflecting growth for the 79th consecutive month at a faster rate. The New Orders Index registered 55.5 percent, 1 percentage point lower than the reading of 56.5 percent in January. The Employment Index decreased 2.4 percentage points to 49.7 percent from the January reading of 52.1 percent and indicates contraction after 23 consecutive months of growth. This is the first time the employment index has contracted since February 2014. The Prices Index decreased 0.9 percentage point from the January reading of 46.4 percent to 45.5 percent, indicating prices decreased in February for the fourth time in the last six months. According to the NMI®, 14 non-manufacturing industries reported growth in February. The majority of the respondents' comments continue to be positive about business conditions. The respondents are projecting a slight optimism in regards to the overall economy. There is an increase in the number of industries reflecting growth in both New Orders and Business Activity; however, the NMI® has decreased slightly due to the contraction in the Employment index."
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 above the consensus forecast of 53.1, however suggests slower expansion in February than in January.

by Calculated Risk on 3/03/2016 08:34:00 AM

The DOL reported:

In the week ending February 27, the advance figure for seasonally adjusted initial claims was 278,000, an increase of 6,000 from the previous week's unrevised level of 272,000. The 4-week moving average was 270,250, a decrease of 1,750 from the previous week's unrevised average of 272,000.

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

The previous week was unrevised.

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 270,250.

This was above the consensus forecast of 270,000. The low level of the 4-week average suggests few layoffs.

by Calculated Risk on 3/02/2016 06:44:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Pushing Important Boundary

Mortgage rates continued farther into to the highest levels since early February today. ...

... 10yr Treasury yields ended the day at 1.84% and today's most prevalent conventional 30yr fixed rate quote is right on the edge of a move back up to 3.75% after a stable run at 3.625%.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released.  The consensus is for 270 thousand initial claims, down from 272 thousand the previous week.

• At 10:00 AM, Manufacturers' Shipments, Inventories and Orders (Factory Orders) for January. The consensus is a 2.0% increase in orders.

• Also at 10:00 AM, the ISM non-Manufacturing Index for February. The consensus is for index to decrease to 53.1 in February from 53.5 in January.

by Calculated Risk on 3/02/2016 02:36:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of Kansas City and based on information collected before February 22, 2016."

Reports from the twelve Federal Reserve Districts continued to indicate that economic activity expanded in most Districts since the previous Beige Book report. Economic growth increased moderately in Richmond and San Francisco and at a modest pace in Cleveland, Atlanta, Chicago, and Minneapolis. Philadelphia reported a slight increase in economic activity, and St. Louis described conditions as mixed. Most contacts in Boston cited higher sales or revenues than a year-ago but mixed results since the previous month. New York and Dallas described economic activity as flat, and Kansas City noted a modest decline in activity. Across the nation, business contacts were generally optimistic about future economic growth.

And on real estate:

Residential real estate sales were up since the last report across all Districts, with the exception of New York and Kansas City where sales were somewhat weaker in part due to normal seasonal patterns. The Boston, Cleveland, St. Louis, and San Francisco Districts reported strong growth in sales, and contacts in Boston and Cleveland cited relatively mild winter weather as a positive contribution to growth. Low- to moderately-priced homes sold better than higher-priced homes in Cleveland, Kansas City, and Dallas. ... Residential construction generally strengthened since the previous survey period, with only Philadelphia and Kansas City reporting declines.

Districts characterized nonresidential real estate sales and leasing growth as flat to strong. Contacts in Cleveland cited growth in demand from the healthcare and higher education sectors and to a lesser extent the manufacturing, commercial real estate (excluding office buildings) and multifamily housing sectors. Commercial occupancy rates rose in San Francisco, spurring higher lease rates and additional construction projects. Commercial vacancy rates were nearing or below prerecession levels in Minneapolis despite significant new commercial real estate construction, and St. Paul saw more commercial net absorption in the last year than in the previous ten years combined. Similarly, industrial vacancy rates decreased across the Cleveland, St. Louis, and Dallas Districts. Demand for commercial real estate space grew robustly in Chicago across retail, industrial and office segments, but there was concern that the lack of commercial construction and increased demand would lead to space shortages and price bubbles. Commercial leasing activity in Boston was steady, and fundamentals remained strong. Richmond commercial leasing activity increased moderately for the retail market since the previous report, while activity in the office and industrial markets was tepid. Commercial rents increased in Philadelphia, and contacts in Atlanta noted generally improving rents as well as increased absorption.
emphasis added

Real Estate growth in most districts was decent ...

by Calculated Risk on 3/02/2016 11:22:00 AM

The Case-Shiller house price indexes for December were released last week. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Zillow: January Case-Shiller Forecast: Modestly Slower Growth Expected

The December Case-Shiller indices grew at a pace in line with prior months, with all three headline indices showing annual appreciation above 5 percent per year. Zillow expects all three January Case-Shiller indices to show slower growth, with the 10-City Composite Index expected to register sub-5 percent annual growth for the first time in months.

The January Case-Shiller National Index is expected to gain another 0.6 percent in January from December, down from 0.8 percent growth in December from November. We expect the 10-City Index to grow 4.9 percent year-over-year, and the 20-City Index to grow 5.6 percent over the same period. The National Index looks set to begin 2016 up 5.6 percent year-over-year, the only instance in which monthly or annual growth next month is expected to surpass this month’s pace.

All SPCS forecasts are shown in the table below. These forecasts are based on [the] December Case-Shiller data release and the January 2016 Zillow Home Value Index (ZHVI), also released [last week]. The January Case-Shiller Composite Home Price Indices will not be officially released until Tuesday, March 29.

Although the 10-city and 20-city indexes will probably show modestly slower growth, this suggests the year-over-year change for the Case-Shiller National index will be slightly higher in January than in the December report.

by Calculated Risk on 3/02/2016 08:21:00 AM

From ADP:

Private sector employment increased by 214,000 jobs from January to February according to the February ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
Goods-producing employment rose by 5,000 jobs in February, just over a quarter of January’s upwardly revised 19,000. The construction industry added 27,000 jobs, which was slightly above January’s upwardly revised 26,000. Meanwhile, manufacturing lost 9,000 jobs, the second largest drop in five years.

Service-providing employment rose by 208,000 jobs in February, up from a downwardly revised 174,000 in January.
...
Mark Zandi, chief economist of Moody’s Analytics, said, “Despite the turmoil in the global financial markets, the American job machine remains in high gear. Energy and manufacturing remain blemishes on the job market, but other sectors continue to add strongly to payrolls. Full-employment is fast approaching.

This was above the consensus forecast for 185,000 private sector jobs added in the ADP report. 

The BLS report for February will be released Friday, and the consensus is for 190,000 non-farm payroll jobs added in February.

by Calculated Risk on 3/02/2016 07:00:00 AM

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey

Mortgage applications decreased 4.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 26, 2016. The previous week’s results included an adjustment for the President’s Day holiday.
...
The Refinance Index decreased 7 percent from the previous week, reaching its lowest levels since January 2016. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 14 percent compared with the previous week and was 27 percent higher than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.83 percent from 3.85 percent, with points decreasing to 0.39 from 0.42 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000.

Refinance activity has picked up recently as rates have declined.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 27% higher than a year ago.

by Calculated Risk on 3/01/2016 07:01:00 PM

CR Note: Oops - lost a day somewhere ... corrected for Wednesday (HT Craig)

From Tim Duy: Dudley the Dove

The beleaguered manufacturing sector saw an uptick in February, at least according to the ISM report ... this information builds on the stronger consumer spending and inflation numbers we saw last week. Not to mention solid auto sales for February. The news is sufficiently good that Torsten Sløk of Deutsche Bank argues (via Business Insider) that the Fed should raise rates ...

I don't think the Fed will raise in March, nor do I think they should raise in March. I think the financial markets signaled fairly clear that further tightening now would be a mistake. The Fed would be wise to heed that call.

And, if New York Federal Reserve President William Dudley is any indication, they will heed that call. Indeed, he goes even further than me. Whereas yesterday I raised the possibility of a "hawkish pause" at the March meeting where the Fed revives the balance of risks with an upside bias, he opens the door to the opposite.
...
Bottom Line: The Fed will take a pass on the March meeting. Whether the statement is dovish, neutral, hawkish is the key question. Dudley opens up the possibility of a not just a neutral statement, but a dovish one. My sense is that this is shaping up to be a very contentious meeting as participants struggle with the question of exactly which data are they dependent upon.

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

• At 8:1`5 AM, the ADP Employment Report for February. This report is for private payrolls only (no government). The consensus is for 185,000 payroll jobs added in February, down from 206,000 in January.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.