by Calculated Risk on 3/30/2018 12:53:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 24 March

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 18-24 March 2018, according to data from STR.

In comparison with the week of 19-25 March 2017, the industry recorded the following:

• Occupancy: +1.0 at 69.4%
• Average daily rate (ADR): +4.4% to US$133.42
• Revenue per available room (RevPAR): +5.4% to US$92.53

STR analysts note that performance in many major markets was boosted by strong group business, which moved out of the week of 25-31 March due to an earlier Easter.
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Click on graph for larger image.

The red line is for 2018, dash light blue is 2017 (record year due to hurricanes), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate, to date, is third overall - and slightly ahead of the record year in 2017 (2017 finished strong due to the impact of the hurricanes).

Data Source: STR, Courtesy of HotelNewsNow.com

by Calculated Risk on 3/30/2018 09:47:00 AM

Reis reported that the vacancy rate for regional malls was 8.4% in Q1 2018, up from 8.3% in Q4 2017, and up from 7.9% in Q1 2017. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate was 10.0% in Q1, unchanged from 10.0% in Q4, and up from 9.9% in Q1 2017. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis:

Despite continued announcements of store closures, the Neighborhood and Community Shopping Center vacancy rate remained at 10% for the fourth consecutive quarter, up from 9.9% in the first quarter of 2017. The vacancy rate has increased 20 basis points from a low of 9.8% in Q2 2016.

On the national level, both asking and effective rents increased 0.4% in the first quarter. At $20.96 and $18.34 per square foot, the average market and effective rents have increase 1.9% and 2.1% year-over-year, respectively.

Net absorption was 453,000 square feet, the lowest quarterly total in more than five years. Construction was also much lower than average: 712,000 square feet, well below the 3.1 million square feet quarterly average in 2017. The first quarter tends to see the lowest activity; however, this was an unusually slow quarter for retail leasing and construction.

The mall vacancy rate increased to 8.4% in the quarter, up 50 basis points from 7.9% in the first quarter of 2017. The quarterly rent increase of 0.5% shrouds the gap between the higher-end malls, which are thriving, and the increasingly vacant lower-end malls.
...
Although the retail real estate market survived the tsunami of closures in 2017, the closures expected in the second quarter from Toys “R” Us, BI-LO and others will be a true test of the retail sector’s ability to weather the ongoing storm.
emphasis added

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.

Recently both the strip mall and regional mall vacancy rates have increased from an already elevated level.

Mall vacancy data courtesy of Reis

by Calculated Risk on 3/29/2018 06:36:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Unchanged Despite Market Improvements

Mortgage rates were generally unchanged today, although a few lenders offered slight improvements. This stands in contrast to the noticeable improvements in underlying bond markets. As we discussed yesterday, Treasury yields are leading the charge toward lower rates, and while the bonds that underlie mortgages are definitely lagging that move, they're improving nonetheless. But again, you wouldn't really know it based on today's rate sheets. [30YR FIXED - 4.5%]
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 3/29/2018 04:06:00 PM

Here are some excepts from two research reports ... first from Merrill Lynch:

We expect nonfarm payrolls to increase by 195k and private payrolls to increase by 200k in March ...

We expect to see employment activity return back closer to trend after last month’s unexpected gain of 313k which was likely boosted by warmer weather conditions. As such, we could see some softening in goods-producing jobs, such as construction, which were particularly strong in February. Elsewhere, we expect negative payback in government payrolls in March after an outsized gain in February due to strong hiring activity in local government education payrolls. Therefore, we expect the gains in private payrolls to outpace the gains in nonfarm payrolls.

We look for the unemployment rate ... to remain unchanged at 4.1%, which would mark the sixth consecutive month at that level. ...

... note that while the inclement weather likely reduced hours worked in March, it’s unlikely to impact payrolls growth noticeably as the BLS counts the number workers on payroll during the pay period capturing the 12th of the month. The decline in hours worked should result in an upward bias to wage growth, leading us to forecast average hourly earnings to increase by 0.3% mom, pushing up the yoy comparison to 2.8% from 2.6%.

From Nomura:

We expect nonfarm payroll employment in March to increase by 115k, a below-trend reading primarily due to negative payback from February’s weather-related boost. ... According to the San Francisco Fed’s weather payroll model, warmer weather biased up February payroll employment by roughly 90k, largely accounting for the above-consensus print of 313k in February. ...

We forecast a 0.2% m-o-m increase in average hourly earnings (AHE), corresponding to 2.7% on a 12-month basis. ... Finally, we expect the unemployment rate to decline 0.1pp to 4.0% ... However, there is some risk that the unemployment rate declines below 4.0% given an unusual increase in labor force inflows in February

I'll write an employment report preview next week after more data for March is released.

by Calculated Risk on 3/29/2018 01:59:00 PM

From the Chicago PMI: March Chicago Business Barometer Eases to 57.4

The MNI Chicago Business Barometer fell 4.5 points to 57.4 in March, down from 61.9 in February, hitting the lowest level in exactly one year.

Firms’ operations continued to expand in March, but the pace of expansion moderated for a third straight month. Three of the five Barometer components receded on the month, with only Employment and Supplier Deliveries expanding.
...
“The Chicago Business Barometer calendar quarter average had increased for six straight quarters until Q1 2018, with the halt largely due to the recent downward trajectory of orders and output,” said Jamie Satchi, Economist at MNI Indicators.

“Troubles higher up in firms’ supply chains are restraining their productive capacity and higher prices are being passed on to consumers. On a more positive note, firms remain keen to expand their workforce,” he added.
emphasis added

This was well below the consensus forecast of 63.2, but still a decent reading.

by Calculated Risk on 3/29/2018 11:25:00 AM

Reis released their Q1 2018 Office Vacancy survey this morning. Reis reported that the office vacancy rate increased to 16.5% in Q1, from 16.4% in Q4 2017. This is up from 16.3% in Q1 2017, and down from the cycle peak of 17.6%.

From Reis Economist Barbara Denham:

Defying a healthy job market, the office vacancy rate increased in the first quarter to 16.5%, up from 16.4% at year-end 2017 and 16.3% in the first quarter of 2017. The vacancy rate has increased 30 basis points from a low of 16.2% in Q4 2016.

The national average asking rent increased 0.8% in the first quarter while effective rents, which net out landlord concessions, increased 0.9%. At $32.87 and $26.67 per square foot, respectively, the average market and effective rents have both increased 2.2% from the first quarter of 2017.

Net absorption was 6.2 million square feet, which was above the average quarterly absorption level of 2017: 5.9 million square feet. Construction was also higher than average: 10.9 million square feet, above 10.6 million square feet per quarter in 2017. Moreover, the first quarter tends to see the lowest activity; thus, this was a relatively strong quarter given the Nor’easters that plagued the Northeast.
...
Moreover, the market seemed to have stagnated in 2017 as companies had put off making office leasing decisions until a fiscal stimulus was passed. The passing of the Tax Reform and Jobs Act should deliver higher profits and stronger business confidence which should spur stronger office leasing this year.

Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis reported the vacancy rate was at 16.5% in Q1.  The office vacancy rate has been mostly moving sideways at an elevated level, but has increased a little recently.

Office vacancy data courtesy of Reis.

by Calculated Risk on 3/29/2018 08:48:00 AM

The BEA released the Personal Income and Outlays report for February:

Personal income increased $67.3 billion (0.4 percent) in February according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $53.9 billion (0.4 percent) and personal consumption expenditures (PCE) increased $27.7 billion (0.2 percent).

Real DPI increased 0.2 percent in February and Real PCE increased less than 0.1 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.2 percent.

The February PCE price index increased 1.8 percent year-over-year (up from 1.7 percent YoY in January) and the February PCE price index, excluding food and energy, increased 1.6 percent year-over-year (up from 1.5 percent YoY in January).

The following graph shows real Personal Consumption Expenditures (PCE) through February 2018 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was slightly below expectations,  and the increase in PCE was slightly above expectations.

Using the two-month method to estimate Q4 PCE growth, PCE was increasing at a 1.4% annual rate in Q1 2018. (using the mid-month method, PCE was increasing 0.4%). This suggests weak PCE growth in Q1.

by Calculated Risk on 3/29/2018 08:34:00 AM

The DOL reported:

In the week ending March 24, the advance figure for seasonally adjusted initial claims was 215,000, a decrease of 12,000 from the previous week's revised level. This is the lowest level for initial claims since January 27, 1973 when it was 214,000. The previous week's level was revised down by 2,000 from 229,000 to 227,000. The 4-week moving average was 224,500, a decrease of 500 from the previous week's revised average. The previous week's average was revised up by 1,250 from 223,750 to 225,000.

Claims taking procedures in Puerto Rico and in the Virgin Islands have still not returned to normal.
emphasis added

The previous week was revised down.

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 224,500.

This was lower than the consensus forecast. The low level of claims suggest relatively few layoffs.

by Calculated Risk on 3/28/2018 08:12:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 228 thousand initial claims, down from 229 thousand the previous week.

• Also at 8:30 AM, Personal Income and Outlays for February. The consensus is for a 0.4% increase in personal income, and for a 0.2% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:45 AM, Chicago Purchasing Managers Index for March. The consensus is for a reading of 63.2, up from 61.9 in February.

• During the Day, Reis Q1 2018 Office Survey of rents and vacancy rates.

• At 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for February). The consensus is for a reading of 102.0, unchanged from 102.0 in February.

by Calculated Risk on 3/28/2018 04:07:00 PM

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

From Aaron Terrazas at Zillow: January Case-Shiller Results and February Forecast: Prelude to Home Buying Season Already Hot

The continuing inventory pinch helped boost the U.S. national Case Shiller index 6.2 percent in January from a year earlier, down from a 6.3 percent gain in December. Case-Shiller’s 10-City Composite rose 6 percent, while the 20-City Composite climbed 6.4 percent year-over-year.
...
Spring home shopping season will be in full swing soon, and with it we can expect the usual seasonal bump of would-be home buyers competing over a shrinking pool of homes. But in a twist, this year’s buyers may be competing against some buyers who have been unsuccessful in recent months.

Increasingly, the traditional seasonal boundaries around home shopping season – which generally heats up in early spring and cools off by late summer, in time for back-to-school season – are becoming less pronounced.

Limited supply, fierce competition and rising prices are forcing many buyers to stay on the market longer in hopes of finding the right home at the right price. More inventory is really the only cure for those pressures right now, especially for people at the entry-level end of the market, but it has proven frustratingly slow in coming.
...
Right now, the market can barely absorb what current demand there is. It remains to be seen how it adapts to even more buyers, and presumably less inventory, in the months to come.

Zillow predicts the February S&P/Case-Shiller U.S. national index, released April 24, will climb 6 percent year-over year.

The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be slightly less in February than in January.