by Calculated Risk on 7/05/2018 08:20:00 AM

From ADP:

Private sector employment increased by 177,000 jobs from May to June according to the June 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 march towards full employment,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Healthcare led job growth once again and trade rebounded nicely.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Business’ number one problem is finding qualified workers. At the current pace of job growth, if sustained, this problem is set to get much worse. These labor shortages will only intensify across all industries and company sizes.”

This was below the consensus forecast for 188,000 private sector jobs added in the ADP report. 

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

by Calculated Risk on 7/04/2018 10:51:00 PM

Thursday:
• At 8:15 AM ET, The ADP Employment Report for June. This report is for private payrolls only (no government). The consensus is for 188,000 payroll jobs added in June, up from 178,000 added in May.

• At 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 223 thousand initial claims, down from 227 thousand the previous week.

• Early, Reis Q2 2018 Office Survey of rents and vacancy rates.

• At 10:00 AM, the ISM non-Manufacturing Index for June. The consensus is for index to decrease to 58.3 from 58.6 in May.

• At 2:00 PM, FOMC Minutes for the Meeting of June 12-13, 2018

by Calculated Risk on 7/04/2018 07:00:00 AM

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

Mortgage applications decreased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 29, 2018.

... The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index remained unchanged from the previous week and was 1 percent lower 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) decreased to 4.79 percent from 4.84 percent, with points decreasing to 0.41 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 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 down 1% year-over-year.

by Calculated Risk on 7/03/2018 04:55:00 PM

Based on a preliminary estimate from AutoData, light vehicle sales were at a 17.47 million SAAR in June.

That is up 5% year-over-year from June 2017, and up 4% from last month.


Click on graph for larger image.

This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for June (red, light vehicle sales of 17.47 million SAAR  from AutoData).

This was above the consensus forecast for June.

Note that the increase in sales at the end of 2017 was due to buying following the hurricanes.

Sales will probably move sideways or decline in 2018 after setting new sales records in both 2015 and 2016.

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is current estimated sales rate.

This was the highest sales rate this year.

by Calculated Risk on 7/03/2018 09:36:00 AM

"The retail sector suffered its worst quarter in nine years with net absorption of negative 3.8 million square feet."

Reis reported that the vacancy rate for regional malls was 8.6% in Q2 2018, up from 8.4% in Q1 2018, and up from 8.1% in Q2 2017. This is down from a cycle peak of 9.4% in Q3 2011, and up from the cycle low of 7.8% in Q1 2016.

For Neighborhood and Community malls (strip malls), the vacancy rate was 10.2% in Q2, up from 10.0% in Q1, and up from 10.0% in Q2 2017. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011, and the low was 9.8% in Q2 2016.

Comments from Reis:

With 3.8 million square feet of negative net absorption brought on by the Toys “R” Us store closings, the U.S. Retail Vacancy Rate climbed 0.2% to 10.2% in the second quarter. Rent growth was positive at 0.2%.

The Regional Mall vacancy rate also increased 0.2% to 8.6% in the quarter, the average Mall rent increased 0.3%. The Mall vacancy rate has climbed 0.8% from a low of 7.8% at the end of 2016.

After withstanding the hundreds if not thousands of store closings over the last 18 months, the neighborhood and community shopping center industry suffered its worst quarter in nine years with negative net absorption of 3.8 million square feet. This pushed the overall vacancy rate to 10.2% from 10.0 percent where it had held steady for the four previous quarters.

The national average asking rent increased 0.2% in the second quarter as did the effective rent which nets out landlord concessions. At $21.01 per square foot (market) and $18.39 per square foot (effective), the average rents have increased 1.7% and 1.8%, respectively, since the second quarter of 2017.
…
Conclusion
The Toys “R” Us store closings impacted the second quarter statistics more than any other retailer has in any quarter over the last nine years. In the Reis property inventory, we tracked more than 80 total Toys “R” Us store closings in 40+ different metros in the quarter. Moreover, other retailers continued to shut down operations in the quarter including Winn-Dixie with eight closed stores in our inventory, Kmart with seven stores and Harvey with five closed stores. Very few metros saw significant positive net absorption, but a few gyms and trampoline parks opened in some metros along with TJ Maxx, Target, Aldi’s, Gabe’s and Bob Mills.

That said, we believe most of the Toys “R” Us stores are now closed and that most of the negative net absorption is behind us. Although we do not expect the vacancy rate to improve in the near future, it will not increase that much more in the coming quarters.

Oddly, rent growth has remained positive despite the higher vacancy. We suspect that rents will stay flat for some time. Finally, we have a few new construction projects in the pipeline, but have seen a number of older and obsolete shopping centers sold as development sites. We expect any new completions will be few and far between and could get offset by conversions or demolitions.
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 7/03/2018 08:00:00 AM

Notes: This CoreLogic House Price Index report is for May. The recent Case-Shiller index release was for April. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic Reports May Home Prices Increased by 7.1 Percent, Consumers Express Desire to Buy Despite High Prices

CoreLogic® ... today released the CoreLogic Home Price Index (HPI™) and HPI Forecast for May 2018, which shows home prices rose both year over year and month over month. Home prices increased nationally by 7.1 percent year over year from May 2017 to May 2018. On a month-over-month basis, prices increased by 1.1 percent in May 2018 – compared with April 2018 – according to the CoreLogic HPI.

Looking ahead, the CoreLogic HPI Forecast indicates that the national home-price index is projected to continue to increase by 5.1 percent on a year-over-year basis from May 2018 to May 2019. On a month-over-month basis, home prices are expected to rise 0.3 percent in June 2018. The CoreLogic HPI Forecast is a projection of home prices that is calculated using the CoreLogic HPI and other economic variables. Values are derived from state-level forecasts by weighting indices according to the number of owner-occupied households for each state.

“The lean supply of homes for sale is leading to higher sales prices and fewer days on market, and the supply shortage is more acute for entry-level homes,” said Dr. Frank Nothaft, chief economist for CoreLogic. “During the first quarter, we found that about 50 percent of all existing homeowners had a mortgage rate of 3.75 percent or less. May’s mortgage rates averaged a seven-year high of 4.6 percent, with an increasing number of homeowners keeping the low-rate loans they currently have, rather than sell and buy another home that would carry a higher interest rate.”
emphasis added

CR Note: The CoreLogic YoY increase has been in the 5% to 7% range for the last few years.  This is at the top end of that range.  The year-over-year comparison has been positive for over six consecutive years since turning positive year-over-year in February 2012.

by Calculated Risk on 7/02/2018 06:54:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Slightly Higher After Mid-Day Change

Mortgage rates began the day in decent shape relative to last week. The average lender's rate/fee combo was at least as low as it had been on Friday. As the day progressed, however, underlying bond markets continued to weaken. For many lenders, it was enough to make mid-day changes to rate sheets. Affected lenders ended up slightly worse off compared to last Friday. [30YR FIXED - 4.625% - 4.75%]
emphasis added

Tuesday:
• At 8:00 AM ET, Corelogic House Price index for May.

• Early: Reis Q2 2018 Mall Survey of rents and vacancy rates.

• All day: Light vehicle sales for June. The consensus is for light vehicle sales to be 17.0 million SAAR in June, up from 16.8 million in May (Seasonally Adjusted Annual Rate).

by Calculated Risk on 7/02/2018 01:21:00 PM

Here is another monthly update on framing lumber prices.   Current prices are well above the bubble highs.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through June 15, 2018 (via NAHB), and 2) CME framing futures.

Click on graph for larger image in graph gallery.

Right now Random Lengths prices are up 44% from a year ago, and CME futures are up about 52% year-over-year.

There is a seasonal pattern for lumber prices. Prices frequently peak around May, and bottom around October or November - although there is quite a bit of seasonal variability.

Tariffs on lumber, steel and aluminum are impacting housing costs.   And rising costs - both material and labor - will be headwinds for the building industry this year.

by Calculated Risk on 7/02/2018 11:58:00 AM

Earlier today, the Census Bureau reported that overall construction spending increased in May:

Construction spending during May 2018 was estimated at a seasonally adjusted annual rate of $1,309.5 billion, 0.4 percent above the revised April estimate of $1,304.5 billion. The May figure is 4.5 percent above the May 2017 estimate of $1,253.6 billion.

Both Private and public spending increased:

Spending on private construction was at a seasonally adjusted annual rate of $1,005.4 billion, 0.3 percent above the revised April estimate of $1,002.3 billion. ...

In May, the estimated seasonally adjusted annual rate of public construction spending was $304.1 billion, 0.7 percent above the revised April estimate of $302.1 billion.
emphasis added

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending has been increasing, but is still 18% below the bubble peak.

Non-residential spending is 9% above the previous peak in January 2008 (nominal dollars).

Public construction spending is now 7% below the peak in March 2009, and 16% above the austerity low in February 2014.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 7%. Non-residential spending is up 2% year-over-year. Public spending is up 5% year-over-year.

This was below the consensus forecast of a 0.6% increase for May.

by Calculated Risk on 7/02/2018 10:05:00 AM

The ISM manufacturing index indicated expansion in June. The PMI was at 60.2% in June, up from 58.7% in May. The employment index was at 56.0%, down from 56.3% last month, and the new orders index was at 63.5%, down from 63.7%.

From the Institute for Supply Management: June 2018 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in June, and the overall economy grew for the 110th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee: “The June PMI® registered 60.2 percent, an increase of 1.5 percentage points from the May reading of 58.7 percent. The New Orders Index registered 63.5 percent, a decrease of 0.2 percentage point from the May reading of 63.7 percent. The Production Index registered 62.3 percent, a 0.8 percentage point increase compared to the May reading of 61.5 percent. The Employment Index registered 56 percent, a decrease of 0.3 percentage point from the May reading of 56.3 percent. The Supplier Deliveries Index registered 68.2 percent, a 6.2 percentage point increase from the May reading of 62 percent. The Inventories Index registered 50.8 percent, an increase of 0.6 percentage point from the May reading of 50.2 percent. The Prices Index registered 76.8 percent in June, a 2.7 percentage point decrease from the May reading of 79.5 percent, indicating higher raw materials prices for the 28th consecutive month.
…
Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 58.3%, and suggests manufacturing expanded at a faster pace in June than in May.

A solid report.