by Calculated Risk on 6/07/2019 04:00:00 PM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data (released last week) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW" - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).

For Q1 2019, the Net Equity Extraction was a negative $28 billion, or a -0.7% of Disposable Personal Income (DPI) .

Click on graph for larger image.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

Note: This data is impacted by debt cancellation and foreclosures, but much less than a few years ago.

MEW has been positive for 10 of the last 12 quarters. With a slower rate of debt cancellation, MEW will likely be mostly positive going forward - but nothing like during the housing bubble.

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $25 billion in Q1.

The Flow of Funds report also showed that Mortgage debt has declined by $0.34 trillion since the peak.

For reference:

Dr. James Kennedy also has a simple method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).

For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.

by Calculated Risk on 6/07/2019 02:11:00 PM

By request, here is another update of tracking employment during Presidential terms.  We frequently use Presidential terms as time markers - we could use Speaker of the House, Fed Chair, or any other marker.

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.

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.

The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s). Presidents Carter and George H.W. Bush only served one 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 (dark blue) took office during the financial crisis and great recession. There was also a significant recession in the early '80s right after Mr. Reagan (dark red) took office.

There was a recession towards the end of President G.H.W. Bush (light 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.

Mr. Trump is in Orange (28 months).

The employment recovery during Mr. G.W. Bush's (red) first term was sluggish, and private employment was down 821,000 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 382,000 private sector jobs lost during Mr. Bush's two terms. 

Private sector employment increased by 20,979,000 under President Clinton (light blue), by 14,714,000 under President Reagan (dark red), 9,039,000 under President Carter (dashed green), 1,511,000 under President G.H.W. Bush (light purple), and 11,890,000 under President Obama (dark blue).

During the first 28 months of Mr. Trump's term, the economy has added 5,196,000 private sector jobs.

 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 declined significantly while Mr. Obama was in office (down 269,000 jobs).

During the first 28 months of Mr. Trump's term, the economy has added 204,000 public sector jobs.

The third graph shows the progress towards the Trump goal of adding 10 million jobs over his 4 year term.

After 28 months of Mr. Trump's presidency, the economy has added 5,400,000 jobs, about 433,000 behind the projection.

by Calculated Risk on 6/07/2019 12:59:00 PM

From Merrill Lynch:

The data added 0.2pp to 2Q GDP tracking up to 2.1% qoq saar, while 1Q remained at 3.2% [June 6 estimate]
emphasis added

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at 1.0% for 2019:Q2 and 1.3% for 2019:Q3. [June 7 estimate].

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2019 is 1.4 percent on June 7, down from 1.5 percent on June 6. The nowcast of second-quarter real government expenditures growth decreased from 2.0 percent to 1.7 percent after this morning's employment report from the U.S. Bureau of Labor Statistics. [June 7 estimate]

CR Note: These early estimates suggest real GDP growth will be in the 1% to 2% range annualized in Q2.

by Calculated Risk on 6/07/2019 10:11:00 AM

The headline jobs number at 75 thousand for May was well below consensus expectations of 180 thousand, and the previous two months were revised down 75 thousand, combined. The unemployment rate was unchanged at 3.6%. Overall this was a weak report.

Earlier: May Employment Report: 75,000 Jobs Added, 3.6% Unemployment Rate

In May, the year-over-year employment change was 2.350 million jobs. That is decent year-over-year growth.

Average Hourly Earnings

Wage growth was below expectations. From the BLS:

"In May, average hourly earnings for all employees on private nonfarm payrolls increased by 6 cents to $27.83. Over the year, average hourly earnings have increased by 3.1 percent."

This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth was at 3.1% YoY in May.

Wage growth has generally been trending up, but has weakened recently.

Prime (25 to 54 Years Old) Participation

Since the overall participation rate has declined due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old.

In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle.

The 25 to 54 participation rate was declined in May to 82.1% from 82.2% in April, and the 25 to 54 employment population ratio was unchanged at 79.7%.

Part Time for Economic Reasons

From the BLS report:

"The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) declined by 299,000 in May to 4.4 million. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs."

The number of persons working part time for economic reasons decreased in May to 4.355 million from 4.654 million in April.   The number of persons working part time for economic reason has been generally trending down.

These workers are included in the alternate measure of labor underutilization (U-6) that declined to 7.1% in May. This is the lowest level for U-6 since the year 2000.

Unemployed over 26 Weeks

This graph shows the number of workers unemployed for 27 weeks or more.

According to the BLS, there are 1.230 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 1.305 million in March.

Summary:

The headline jobs number was well below expectations, and the previous two months were revised down.  The headline unemployment rate was unchanged at 3.6%, although U-6 declined to the lowest level since the year 2000.

Wage growth was also a little disappointing.

Overall this was a weak jobs report.   The economy added 820 thousand jobs through May 2019, down from 1,149 thousand jobs during the same period in 2018.   So job growth has slowed.

by Calculated Risk on 6/07/2019 08:41:00 AM

From the BLS:

Total nonfarm payroll employment edged up in May (+75,000), and the unemployment rate remained at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in professional and business services and in health care.
...
The change in total nonfarm payroll employment for March was revised down from +189,000 to +153,000, and the change for April was revised down from +263,000 to +224,000. With these revisions, employment gains in March and April combined were 75,000 less than previously reported.
...
In May, average hourly earnings for all employees on private nonfarm payrolls increased by 6 cents to $27.83. Over the year, average hourly earnings have increased by 3.1 percent.
emphasis added

Click on graph for larger image.

The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes).

Total payrolls increased by 75 thousand in May (private payrolls increased 90 thousand).

Payrolls for March and April were revised down 75 thousand combined.

This graph shows the year-over-year change in total non-farm employment since 1968.

In May, the year-over-year change was 2.350 million jobs.

The third graph shows the employment population ratio and the participation rate.

The Labor Force Participation Rate was unchanged in May at 62.8%. This is the percentage of the working age population in the labor force.   A large portion of the recent decline in the participation rate is due to demographics and long term trends.

The Employment-Population ratio was unchanged at 60.6% (black line).

I'll post the 25 to 54 age group employment-population ratio graph later.

The fourth graph shows the unemployment rate.

The unemployment rate was unchanged in May at 3.6%.

This was well below the consensus expectations of 180,000 jobs added, and March and April were revised down by 75,000 combined.  A weak report.

I'll have much more later ...

by Calculated Risk on 6/06/2019 09:10:00 PM

My May Employment Preview

Goldman: May Payrolls Preview

Friday:
• At 8:30 AM, Employment Report for May.   The consensus is for 180,000 jobs added, and for the unemployment rate to increase to 3.7%.

by Calculated Risk on 6/06/2019 04:02:00 PM

A few brief excerpts from a note by Goldman Sachs economist Spencer Hill:

We estimate nonfarm payrolls increased 195k in May (vs. consensus of 178k), as employment surveys remain at healthy levels and the payroll survey period largely preceded the recent trade war escalation. …

We expect an unchanged unemployment rate in tomorrow’s report (3.6%) … We estimate a 0.2% rise in average hourly earnings (mom sa) that lowers the year-over-year rate a tenth to 3.1%
emphasis added

by Calculated Risk on 6/06/2019 03:07:00 PM

On Friday at 8:30 AM ET, the BLS will release the employment report for May. The consensus is for an increase of 180,000 non-farm payroll jobs in May, and for the unemployment rate to increase to 3.7%.

Last month, the BLS reported 263,000 jobs added in April.

Here is a summary of recent data:

• The ADP employment report showed an increase of only 27,000 private sector payroll jobs in May. This was well below the consensus expectations of 175,000 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 below expectations.

• The ISM manufacturing employment index increased in May to 53.7%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll was mostly unchanged in May. The ADP report indicated manufacturing jobs decreased 3,000 in May.

The ISM non-manufacturing employment index increased in May to 58.1%. 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 increased 290,000 in May.

Combined, the ISM surveys suggest employment gains above the consensus expectations.

• Initial weekly unemployment claims averaged 213,000 in May, up slightly from April. For the BLS reference week (includes the 12th of the month), initial claims were at 211,000, up from 193,000 during the reference week the previous month.

The increase during the reference week suggests a weaker employment report in May than in April.

• The final April University of Michigan consumer sentiment index increased to 100.0 from the April reading of 97.2. Sentiment is frequently coincident with changes in the labor market, but there are other factors too like gasoline prices and politics.

• Conclusion:  The ISM reports combined were strong, however the ADP was very weak.   Almost opposites!   Both reports suggested manufacturing employment was weak.   Also the increase in unemployment claims during the reference week suggests a weaker report in May than in April.   Usually I put a little more emphasis on the ISM reports than the ADP report, so I'm going to ignore the weak ADP report (could be a mistake), and my guess is the employment report will be close to the consensus.

by Calculated Risk on 6/06/2019 12:24:00 PM

The Federal Reserve released the Q1 2019 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth increased in Q1 2019 to $108.6 trillion, from $104.0 trillion in Q4 2018.

The Fed estimated that the value of household real estate increased to $26.1 trillion in Q1. The value of household real estate is now above the bubble peak in early 2006 - but not adjusted for inflation, and this also includes new construction.

Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q1 2019, household percent equity (of household real estate) was at 60.4% - up from Q4, and the highest since 2002. This was because of an increase in house prices in Q1 (the Fed uses CoreLogic).

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 60.4% equity - and about 2 million homeowners still have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt increased by $25 billion in Q1.

Mortgage debt has declined by $0.34 trillion from the peak, and, as a percent of GDP is at 49.2%, down from a peak of 73.5% of GDP during the housing bubble.

The value of real estate, as a percent of GDP, increased slightly in Q1, and is above the average of the last 30 years (excluding bubble).  However, mortgage debt as a percent of GDP, continues to decline.

by Calculated Risk on 6/06/2019 10:18:00 AM

This is a key former distressed market to follow since Las Vegas saw the largest price decline, following the housing bubble, of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Local home prices stuck at $300,000, with more homes on the market, GLVAR housing statistics for May 2019

For the third straight month, the Greater Las Vegas Association of REALTORS® (GLVAR) reported that local home prices are hovering at $300,000 while the number of homes on the market continues to increase.
...
The total number of existing local homes, condos and townhomes sold during May was 4,045. Compared to one year ago, May sales were up 4.5% for homes and up 1.9% for condos and townhomes.
...
At the current sales pace, Carpenter said Southern Nevada still has less than a three-month supply of homes available for sale. The housing supply is up from one year ago, but still below what would normally be considered a balanced market.

By the end of May, GLVAR reported 7,855 single-family homes listed for sale without any sort of offer. That’s up 90.7% from one year ago. For condos and townhomes, the 1,876 properties listed without offers in May represented a 134.8% jump from one year ago.
...
The number of so-called distressed sales remains near historically low levels. GLVAR reported that short sales and foreclosures combined accounted for just 2.0% of all existing local property sales in May. That compares to 2.6% of all sales one year ago and 6.8% two years ago.
emphasis added

1) Overall sales were up 4.0% year-over-year from 3,890 in May 2018 to 4,045 in May 2019.

2) Active inventory (single-family and condos) is up sharply from a year ago, from a total of 4,917 in May 2018 to 9,731 in May 2019. Note: Total inventory was up 98% year-over-year.   This is a significant increase in inventory, although months-of-supply is still somewhat low.

3) Low level of distressed sales.