by Calculated Risk on 7/03/2019 11:06:00 AM

On Friday at 8:30 AM ET, the BLS will release the employment report for June. The consensus is for an increase of 165,000 non-farm payroll jobs in June, and for the unemployment rate to be unchanged at 3.6%.

Last month, the BLS reported 75,000 jobs added in May.

Here is a summary of recent data:

• The ADP employment report showed an increase of only 102,000 private sector payroll jobs in June. This was below the consensus expectations of 150,000 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 June to 54.5%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll increased 5,000 in June. The ADP report indicated manufacturing jobs increased 7,000 in May.

The ISM non-manufacturing employment index decreased in June to 55.0%. 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 200,000 in June.

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

• Initial weekly unemployment claims averaged 222,000 in June, up from 213,000 in May. For the BLS reference week (includes the 12th of the month), initial claims were at 217,000, up from 211,000 during the reference week the previous month.

The increase during the reference week suggests employment growth below expectations.

• The final May University of Michigan consumer sentiment index decreased to 98.2 from the May reading of 100.0. 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 weak. Opposite readings once again. Also the increase in unemployment claims during the reference week suggests a report below the consensus. Usually I put a little more emphasis on the ISM reports than the ADP report, but that was incorrect last month.    My guess is the report will be below the consensus, but there could be some bounce back from the weak report last month.

by Calculated Risk on 7/03/2019 10:09:00 AM

The June ISM Non-manufacturing index was at 55.1%, down from 56.9% in May. The employment index decreased to 55.0%, from 58.1%. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management: June 2019 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in June for the 113th 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 55.1 percent, which is 1.8 percentage points lower than the May reading of 56.9 percent. This represents continued growth in the non-manufacturing sector, at a slower rate. This is the index’s lowest reading since July 2017, when it registered 55.1 percent. The Non-Manufacturing Business Activity Index decreased to 58.2 percent, 3 percentage points lower than the May reading of 61.2 percent, reflecting growth for the 119th consecutive month. The New Orders Index registered 55.8 percent; 2.8 percentage points lower than the reading of 58.6 percent in May. The Employment Index decreased 3.1 percentage points in June to 55 percent from the May reading of 58.1 percent. The Prices Index increased 3.5 percentage points from the May reading of 55.4 percent to 58.9 percent, indicating that prices increased in June for the 25th consecutive month. According to the NMI®, 16 non-manufacturing industries reported growth. Although the non-manufacturing sector’s growth rate dipped in June, the sector continues to reflect strength. The comments from the respondents reflect mixed sentiment about business conditions and the overall economy. A degree of uncertainty exists due to trade and tariffs.”
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 June than in May.

by Calculated Risk on 7/03/2019 08:47:00 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 $55.5 billion in May, up $4.3 billion from $51.2 billion in April, revised.

May exports were $210.6 billion, $4.2 billion more than April exports. May imports were $266.2 billion, $8.5 billion more than April imports.

Click on graph for larger image.

Exports and imports increased in May.

Exports are 27% above the pre-recession peak and down 1% compared to May 2018; imports are 15% above the pre-recession peak, and up 3% compared to May 2018.

In general, trade had been picking up, but both imports and exports have moved more sideways recently.

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 $60.56 per barrel in May, up from $57.16 in April, and up from $58.38 in May 2018.

The trade deficit with China decreased to $30.2 billion in May, from $33.5 billion in May 2018.

by Calculated Risk on 7/03/2019 08:32:00 AM

The DOL reported:

In the week ending June 29, the advance figure for seasonally adjusted initial claims was 221,000, a decrease of 8,000 from the previous week's revised level. The previous week's level was revised up by 2,000 from 227,000 to 229,000. The 4-week moving average was 222,250, an increase of 500 from the previous week's revised average. The previous week's average was revised up by 500 from 221,250 to 221,750.
emphasis added

The previous week was revised up.

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 increased to 222,250.

This was close to the consensus forecast.

by Calculated Risk on 7/03/2019 08:20:00 AM

From ADP:

Private sector employment increased by 102,000 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.
...
“Job growth started to show signs of a slowdown,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “While large businesses continue to do well, small businesses are struggling as they compete with the ongoing tight labor market. The goods producing sector continues to show weakness. Among services, leisure and hospitality’s weakness could be a reflection of consumer confidence.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market continues to throttle back. Job growth has slowed sharply in recent months, as businesses have turned more cautious in their hiring. Small businesses are the most nervous, especially in the construction sector and at bricks-and-mortar retailers.”

This was below the consensus forecast for 150,000 private sector jobs added in the ADP report. 

The BLS report will be released Friday, and the consensus is for 165,000 non-farm payroll jobs added in June.

by Calculated Risk on 7/03/2019 07:00:00 AM

From the MBA: Mortgage Applications Decreased Slightly in Latest MBA Weekly Survey

Mortgage applications decreased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 28, 2019.

... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 10 percent higher than the same week one year ago.
...
“Purchase applications picked up slightly last week, as conventional and government activity were each up around 1 percent. Furthermore, in continuation of the gradual growth trend seen throughout the first half of 2019, purchase activity was almost 10 percent higher than a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “A still-strong job market, improving affordability and lower mortgage rates continue to support growth.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 4.07 percent from 4.06 percent, with points increasing to 0.36 from 0.35 (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.

Mortgage rates have declined from close to 5% late last year to around 4% now.

Just about anyone who bought or refinanced over the last year or so can refinance now.   But it would take another significant decline in rates for a further large increase in refinance activity.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 10% year-over-year.

by Calculated Risk on 7/02/2019 05:31:00 PM

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

• At 8:15 AM: The ADP Employment Report for June. This report is for private payrolls only (no government). The consensus is for 150,000 payroll jobs added in June, up from 27,000 added in May.

• At 8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 220 thousand initial claims, down from 227 thousand last week.

• At 8:30 AM: Trade Balance report for May from the Census Bureau. The consensus is the trade deficit to be $53.2 billion.  The U.S. trade deficit was at $50.8 Billion the previous month.

• At 10:00 AM: the ISM non-Manufacturing Index for June.   The consensus is for a reading of 55.9, down from 56.9.

by Calculated Risk on 7/02/2019 12:31:00 PM

Reis reported that the office vacancy rate was at 16.8% in Q2, up from 16.7% in Q1 2019. This is up from 16.6% in Q2 2018, and down from the cycle peak of 17.6%.

From Reis Chief Economist Victor Calanog:

The office vacancy rate rose slightly over the quarter to 16.8% from 16.7% in the first quarter and 16.6% a year ago. This represents a 50 basis point increase over the sector’s recent low of 16.3% in Q1 2017.

Average asking and effective rents both increased 0.6% in the quarter. At $33.79 per square foot (asking) and $27.43 per square foot (effective), both measures of rent have increased 2.2% from the second quarter of 2018. These rates are in line with previous quarters.
...
As of July 1 we have entered the 121st month in what is now a record-breaking run of economic growth – the longest period of economic expansion in recorded US history. However, despite a healthy job market and strong overall economy, the office market has moved - and continues to move - at a sluggish pace. With vacancies hovering at just 80 basis points below the sector’s cyclical peak of 17.6% in 2010, there is very little to prompt developers to build. Companies are investing in their own owner-occupied space – but few single- and multi-tenant market rate rentals are receiving financing without proof of robust pre-leasing. The office sector is contending with longer-term trends like mechanization and offshoring that are prompting employers to rethink their need for office space.

With relatively flat national numbers, the widening gap between the stronger markets and weaker ones is particularly noteworthy. The underlying data shows that tech firms are fueling much of the growth in the stronger office markets, particularly in west coast metros, parts of Texas and parts of the east coast.

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 16.8% in Q2.  The office vacancy rate had been mostly moving sideways at an elevated level, but has increased over the last two years.

Office vacancy data courtesy of Reis.

by Calculated Risk on 7/02/2019 11:39:00 AM

According to NBER, the four longest expansions in U.S. history are:

1) From a trough in June 2009 to today, July 2019 (121 months and counting).

2) From a trough in March 1991 to a peak in March 2001 (120 months).

3) From a trough in February 1961 to a peak in December 1969 (106 months).

4) From a trough in November 1982 to a peak in July 1990 (92 months).

So the current U.S. expansion is the longest on record.

As I noted in late 2017 in Is a Recession Imminent? (one of the five questions I'm frequently asked)

Expansions don't die of old age! There is a very good chance this will become the longest expansion in history.

A key reason the current expansion has been so long is that housing didn't contribute for the first few years of the expansion.  Also the housing recovery was sluggish for a few more years after the bottom in 2011.  This was because of the huge overhang of foreclosed properties coming on the market.

by Calculated Risk on 7/02/2019 09:28:00 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: U.S. Home Price Insights Through May 2019 with Forecasts from June 2019

Home prices nationwide, including distressed sales, increased year over year by 3.6% in May 2019 compared with May 2018 and increased month over month by 0.9% in May 2019 compared with April 2019 (revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results).

The CoreLogic HPI Forecast indicates that home prices will increase by 5.6% on a year-over-year basis from May 2019 to May 2020. On a month-over-month basis, home prices are expected to increase by 0.8% from May 2019 to June 2019.

“Interest rates on fixed-rate mortgages fell by nearly one percentage point between November 2018 and this May. This has been a shot-in-the-arm for home sales. Sales gained momentum in May and annual home-price growth accelerated for the first time since March 2018.”, Dr. Frank Nothaft, Chief Economist for CoreLogic
emphasis added

CR Note: The CoreLogic YoY increase had been in the 5% to 7% range for several years, before slowing last year.

The year-over-year comparison has been positive for more than seven years since turning positive year-over-year in February 2012.