by Calculated Risk on 5/03/2018 12:34:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for April. The consensus, according to Bloomberg, is for an increase of 191,000 non-farm payroll jobs in April (with a range of estimates between 145,000 to 255,000), and for the unemployment rate to decline to 4.0%.

The BLS reported 103,000 jobs added in March.

Here is a summary of recent data:

• The ADP employment report showed an increase of 204,000 private sector payroll jobs in April. This was above consensus expectations of 193,000 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.

However, the ADP report tends to be too low in April. In 2017, the ADP report showed an increase of 177,000 jobs, and the BLS report showed an increase of 211,000 jobs.    In 2016, the ADP report showed an increase of 156,000 jobs, and the BLS report showed 160,000 jobs added.  In 2015, the ADP report showed an increase of 169,000 jobs, and the BLS report showed 223,000. And in 2014, the ADP report showed 220,000 private sector jobs added, and the BLS report showed 288,000 jobs added.

• The ISM manufacturing employment index decreased in April to 54.2%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll increased about 3,000 in April. The ADP report indicated manufacturing jobs increased 10,000 in April.

The ISM non-manufacturing employment index decreased in April to 53.6%. 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 170,000 in April.

Combined, the ISM indexes suggests employment gains of about 173,000.  This suggests employment growth below expectations.

• Initial weekly unemployment claims averaged 222,000 in April, down from 228,000 in March. For the BLS reference week (includes the 12th of the month), initial claims were at 233,000, up from 227,000 during the reference week in March.

The slight increase during the reference week suggests a slightly weaker employment report in April than in March.   (Note: Employment in March was negatively impacted by payback for the nice weather in February.  Excluding the weather impacts, March employment was probably close to 190,000.  So this suggests weaker than March ex-weather).

• The final April University of Michigan consumer sentiment index decreased to 98.8 from the March reading of 101.4. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Merrill Lynch has introduced a new payrolls tracker based on private internal BAC data. The tracker suggests private payrolls increased by 208,000 in April, and this suggests employment growth slightly above expectations.

• Looking back at the three previous years:

In April 2017, the consensus was for 185,000 jobs, and the BLS reported 211,000 jobs added. In April 2016, the consensus was for 200,000 jobs, and the BLS reported 160,000 jobs added. In April 2015, the consensus was for 220,000 jobs, and the BLS reported 223,000 jobs added.

• Conclusion:  In general, these reports suggest a solid employment report, and probably close to expectations.  The ADP report tends to be lower than the BLS report in April, but the ISM surveys and the reference week for unemployment claims suggests a weaker report.   My guess is that the employment report will be close to the consensus in April.

by Calculated Risk on 5/03/2018 10:03:00 AM

The April ISM Non-manufacturing index was at 56.8%, down from 58.8% in March. The employment index decreased in April to 53.6%, from 56.6%. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: April 2018 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in April for the 99th 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., A.P.P., CFPM, Chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee: "The NMI® registered 56.8 percent, which is 2 percentage points lower than the March reading of 58.8 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 59.1 percent, 1.5 percentage points lower than the March reading of 60.6 percent, reflecting growth for the 105th consecutive month, at a slower rate in April. The New Orders Index registered 60 percent, 0.5 percentage point higher than the reading of 59.5 percent in March. The Employment Index decreased 3 percentage points in April to 53.6 percent from the March reading of 56.6 percent. The Prices Index increased by 0.3 percentage point from the March reading of 61.5 percent to 61.8 percent, indicating that prices increased in April for the 26th consecutive month. According to the NMI®, all 18 non-manufacturing industries reported growth. There was a slowing in the rate of growth that was mostly attributed to the decline in the Employment and Supplier Deliveries indexes. The respondents have expressed concern regarding the uncertainty about tariffs and the effect on the cost of goods. Overall, the respondents remain positive about business conditions and the economy."
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 suggests slower expansion in April than in March.

by Calculated Risk on 5/03/2018 08:53:00 AM

From the Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $49.0 billion in March, down $8.8 billion from $57.7 billion in February, revised. ... March exports were $208.5 billion, $4.2 billion more than February exports. March imports were $257.5 billion, $4.6 billion less than February imports.

Click on graph for larger image.

Exports increased and imports decreased in March.

Exports are 26% above the pre-recession peak and up 9% compared to March 2017; imports are 11% above the pre-recession peak, and up 9% compared to March 2017.

In general, trade has been picking up.

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

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 $54.00 in March, down slightly from $54.61 in February, and up from $46.26 in March 2017.

The trade deficit with China increased to $25.8 billion in February, from $24.6 billion in March 2017.  Note: The timing of the Chinese New Year pushed up the trade deficit with China in February, and probably reduced the deficit slightly in March.

by Calculated Risk on 5/03/2018 08:33:00 AM

The DOL reported:

In the week ending April 28, the advance figure for seasonally adjusted initial claims was 211,000, an increase of 2,000 from the previous week's unrevised level of 209,000. The 4-week moving average was 221,500, a decrease of 7,750 from the previous week's unrevised average of 229,250. This is the lowest level for this average since March 3, 1973 when it was 221,250.

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

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 221,500.

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

by Calculated Risk on 5/02/2018 07:04:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Uninspired by Fed or Economic Data

Mortgage rates were flat to slightly higher today, depending on the lender. The average lender was quoting the same rates as yesterday, but with slightly higher upfront costs (or a lower credit, depending on your scenario). That said, if you could only choose one word to describe the movement, it would be "flat." [30YR FIXED - 4.625%-4.75%]
emphasis added

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 220 thousand initial claims, up from 209 thousand the previous week.

• Also at 8:30 AM, Trade Balance report for March from the Census Bureau. The consensus is for the U.S. trade deficit to be at $50.0 billion in March from $57.6 billion in February.

• At 10:00 AM, the ISM non-Manufacturing Index for April. The consensus is for index to decrease to 58.5 from 58.8 in March.

by Calculated Risk on 5/02/2018 03:54:00 PM

A few excerpts from Tim Duy at Fed Watch: Fed Holds Rates Steady

The most important news from the FOMC statement was the hint that the Fed would not overreact with substantial policy changes in response to inflation readings modestly above 2 percent. ...

... Most notable was the addition of “symmetric” in this line:

Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term.

Inflation is now very near the Fed’s target and it is reasonable to expect some overshooting of that target. Central bankers are reminding market participants that the inflation target is symmetric such that they will tolerate reasonable short-run deviations from target in the near term. In other words, don’t freak out if inflation exceeds 2 percent as that alone will not drive the Fed to change policy.

And from Merrill Lynch:

As was widely expected, the FOMC kept the fed funds target range unchanged at 1.50-1.75%. The most significant change in the statement came in the second paragraph where the Committee included the word "symmetric" in characterizing its inflation target. This is consistent with the March SEP which showed that the median forecast was expecting core inflation to hit 2.1% in 2019-2020, allowing for inflation to rise slightly above its target in the medium run. The inclusion of the word "symmetric" helped offset the more hawkish tone in the prior paragraph which highlighted that core inflation is moving closer to 2%. In our view, the FOMC's balanced tone reemphasizes its expectations to adjust the path of policy gradually throughout the current hiking cycle.
emphasis added

by Calculated Risk on 5/02/2018 02:01:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Recent data suggest that growth of household spending moderated from its strong fourth-quarter pace, while business fixed investment continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data. Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.
emphasis added

by Calculated Risk on 5/02/2018 10:54:00 AM

The BEA released their estimate of April vehicle sales this morning. The BEA estimated sales of 17.07 million SAAR in April 2018 (Seasonally Adjusted Annual Rate), down 1.7% from the March sales rate, and up slightly from April 2017.

Through April, light vehicle sales are on pace to be unchanged in 2018 compared to 2017.

This would still make 2018 tied with 2017 for the fourth best year on record after 2016, 2015, and 2000.

My guess is vehicle sales will finish the year with sales lower than in 2017. A small decline in sales this year isn't a concern - I think sales will move mostly sideways at near record levels.

As I noted last year, this means the economic boost from increasing auto sales is over (from the bottom in 2009, auto sales boosted growth every year through 2016).


Click on graph for larger image.

This graph shows annual light vehicle sales since 1976.   Source: BEA.

Sales for 2018 are estimated based on the pace of sales during the first four months.

by Calculated Risk on 5/02/2018 08:18:00 AM

From ADP:

Private sector employment increased by 204,000 jobs from March to April according to the April 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.
...
“The labor market continues to maintain a steady pace of strong job growth with little sign of a slowdown,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “However, as the labor pool tightens it will become increasingly difficult for employers to find skilled talent. Job gains in the highskilled professional and business services industry accounted for more than half of all jobs added this month. The construction industry, which also relies on skilled labor, continued its six month trend of steady job gains as well.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Despite rising trade tensions, more volatile financial markets, and poor weather, businesses are adding a robust more than 200,000 jobs per month. At this pace, unemployment will soon be in the threes, which is rarified and risky territory, as the economy threatens to overheat.”

This was above the consensus forecast for 193,000 private sector jobs added in the ADP report. 

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

by Calculated Risk on 5/02/2018 07:00:00 AM

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

Mortgage applications decreased 2.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 27, 2018.

... The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 5 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest level since September 2013, 4.80 percent, from 4.73 percent, with points increasing to 0.53 from 0.49 (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 will not pick up significantly unless mortgage rates fall 50 bps or more from the recent level.



The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 5% year-over-year.