by Calculated Risk on 1/05/2023 09:49:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Rents Continue to Decline More than Seasonally Normal

A brief excerpt:

OER and rent of primary residence have mostly moved together. The Zillow index started in 2014, the ApartmentList index started in 2017, and CoreLogic in 2004.

Here is a graph of the year-over-year (YoY) change for these measures since January 2015. Most of these measures are through November 2022, except CoreLogic is through October and Apartment List is through December 2022.

Note that new lease measures (Zillow, Apartment List) dipped early in the pandemic, whereas the BLS measures were steady. Then new leases took off, and the BLS measures are picking up.

The CoreLogic measure is up 8.8% YoY in October, down from 10.2% in September, and down from a peak of 13.9% in April 2022.

The Zillow measure is up 8.4% YoY in November, down from 9.6% YoY in October, and down from a peak of 17.1% YoY in February 2022.

The ApartmentList measure is up 3.9% YoY as of December, down from 4.5% in November, and down from a peak of 18.1% YoY November 2021.

There is much more in the article. You can subscribe at https://calculatedrisk.substack.com/

by Calculated Risk on 1/05/2023 08:52:00 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 $61.5 billion in November, down $16.3 billion from $77.8 billion in October, revised.

November exports were $251.9 billion, $5.1 billion less than October exports. November imports were $313.4 billion, $21.5 billion less than October imports
emphasis added

Click on graph for larger image.

Exports and imports decreased in November.

Exports are up 10% year-over-year; imports are up 2% year-over-year.

Both imports and exports decreased sharply due to COVID-19 and then bounced back.  Both have decreased 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.

Note that net, exports of petroleum products are slightly positive.

The trade deficit with China decreased to $21.3 billion in November, from $32.5 billion a year ago.

The trade deficit was much smaller than the consensus forecast.

by Calculated Risk on 1/05/2023 08:33:00 AM

The DOL reported:

In the week ending December 31, the advance figure for seasonally adjusted initial claims was 204,000, a decrease of 19,000 from the previous week's revised level. The previous week's level was revised down by 2,000 from 225,000 to 223,000. The 4-week moving average was 213,750, a decrease of 6,750 from the previous week's revised average. The previous week's average was revised down by 500 from 221,000 to 220,500.
emphasis added

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 213,750.

The previous week was revised down.

Weekly claims were well below the consensus forecast.

by Calculated Risk on 1/05/2023 08:20:00 AM

From ADP: ADP National Employment Report: Private Sector Employment Increased by 235,000 Jobs in December; Annual Pay was Up 7.3%

Private sector employment increased by 235,000 jobs in December and annual pay was up 7.3 percent year-over-year, according to the December ADP® National Employment ReportTM produced by the ADP Research Institute® in collaboration with the Stanford Digital Economy Lab (“Stanford Lab”).
...
“The labor market is strong but fragmented, with hiring varying sharply by industry and establishment size,” said Nela Richardson, chief economist, ADP. “Business segments that hired aggressively in the first half of 2022 have slowed hiring and in some cases cut jobs in the last month of the year.”
emphasis added

This was well above the consensus forecast of 145,000.  The BLS report will be released Friday, and the consensus is for 200 thousand non-farm payroll jobs added in December.

by Calculated Risk on 1/04/2023 09:01:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Thursday:
• At 8:15 AM ET, The ADP Employment Report for December. This report is for private payrolls only (no government). The consensus is for 145,000, up from 127,000 jobs added in November.

• At 8:30 AM, Trade Balance report for November from the Census Bureau. The consensus is the trade deficit to be $76.1 billion.  The U.S. trade deficit was at $78.2 billion in October.

• Also at 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 230 thousand initial claims, up from 225 thousand last week.

by Calculated Risk on 1/04/2023 07:01:00 PM

Wards Auto released their estimate of light vehicle sales for December: Fullsize Trucks Lift December U.S. Light-Vehicle Sales Above Expectations; Calendar 2022 Ends at 11-Year Low (pay site).

Wards Auto estimates sales of 13.31 million SAAR in December 2022 (Seasonally Adjusted Annual Rate), down 5.9% from the November sales rate, and up 4.7% from December 2021. 

Click on graph for larger image.

This graph shows light vehicle sales since 2006 from the BEA (blue) and Wards Auto's estimate for December (red).

The impact of COVID-19 was significant, and April 2020 was the worst month.  After April 2020, sales increased, and were close to sales in 2019 (the year before the pandemic).  However, sales decreased late last year due to supply issues.  It appears the "supply chain bottom" was in September 2021.

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

Sales in December were above the forecast.

by Calculated Risk on 1/04/2023 02:08:00 PM

From the Fed: Minutes of the Federal Open Market Committee, December 13–14, 2022. Excerpt:

In discussing the policy outlook, participants continued to anticipate that ongoing increases in the target range for the federal funds rate would be appropriate to achieve the Committee's objectives. In determining the pace of future increases in the target range, participants judged that it would be appropriate to take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. With inflation staying persistently above the Committee's 2 percent goal and the labor market remaining very tight, all participants had raised their assessment of the appropriate path of the federal funds rate relative to their assessment at the time of the September meeting. No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time. In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy.

In light of the heightened uncertainty regarding the outlooks for both inflation and real economic activity, most participants emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance. Participants generally noted that the Committee's future decisions regarding policy would continue to be informed by the incoming data and their implications for the outlook for economic activity and inflation, and that the Committee would continue to make decisions meeting by meeting.

Participants reaffirmed their strong commitment to returning inflation to the Committee's 2 percent objective. A number of participants emphasized that it would be important to clearly communicate that a slowing in the pace of rate increases was not an indication of any weakening of the Committee's resolve to achieve its price-stability goal or a judgment that inflation was already on a persistent downward path. Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee's reaction function, would complicate the Committee's effort to restore price stability. Several participants commented that the medians of participants' assessments for the appropriate path of the federal funds rate in the Summary of Economic Projections, which tracked notably above market-based measures of policy rate expectations, underscored the Committee's strong commitment to returning inflation to its 2 percent goal.

Participants discussed a number of risk-management considerations related to the conduct of monetary policy. Many participants highlighted that the Committee needed to continue to balance two risks. One risk was that an insufficiently restrictive monetary policy could cause inflation to remain above the Committee's target for longer than anticipated, leading to unanchored inflation expectations and eroding the purchasing power of households, especially for those already facing difficulty making ends meet. The other risk was that the lagged cumulative effect of policy tightening could end up being more restrictive than is necessary to bring down inflation to 2 percent and lead to an unnecessary reduction in economic activity, potentially placing the largest burdens on the most vulnerable groups of the population. Participants generally indicated that upside risks to the inflation outlook remained a key factor shaping the outlook for policy. A couple of participants noted that risks to the inflation outlook were becoming more balanced. Participants generally observed that maintaining a restrictive policy stance for a sustained period until inflation is clearly on a path toward 2 percent is appropriate from a risk-management perspective. emphasis added

by Calculated Risk on 1/04/2023 10:35:00 AM

(Posted with permission). The ISM manufacturing index indicated contraction. The PMI® was at 48.4% in December, down from 49.0% in November. The employment index was at 51.4%, up from 48.4% last month, and the new orders index was at 45.2%, down from 47.2%.

From ISM: Manufacturing PMI® at 48.4% December 2022 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector contracted in December for the second consecutive month following a 29-month period of growth, 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 December Manufacturing PMI® registered 48.4 percent, 0.6 percentage point lower than the 49 percent recorded in November. Regarding the overall economy, this figure indicates contraction after 30 straight months of expansion. The Manufacturing PMI® figure is the lowest since May 2020, when it registered 43.5 percent. The New Orders Index remained in contraction territory at 45.2 percent, 2 percentage points lower than the 47.2 percent recorded in November. The Production Index reading of 48.5 percent is a 3-percentage point decrease compared to November’s figure of 51.5 percent. The Prices Index registered 39.4 percent, down 3.6 percentage points compared to the November figure of 43 percent; this is the index’s lowest reading since April 2020 (35.3 percent). The Backlog of Orders Index registered 41.4 percent, 1.4 percentage points higher than the November reading of 40 percent. The Employment Index returned to expansion territory (51.4 percent, up 3 percentage points) after contracting in November (48.4 percent). The Supplier Deliveries Index reading of 45.1 percent is 2.1 percentage points lower than the November figure of 47.2 percent; this is the index’s lowest reading since March 2009 (43.2 percent). The Inventories Index registered 51.8 percent, 0.9 percentage point higher than the November reading of 50.9 percent. The New Export Orders Index reading of 46.2 percent is down 2.2 percentage points compared to November’s figure of 48.4 percent. The Imports Index continued in contraction territory at 45.1 percent, 1.5 percentage points below the November reading of 46.6 percent.”
emphasis added

This suggests manufacturing contracted in December.  This was close to the consensus forecast.  Note that prices are falling quickly.

by Calculated Risk on 1/04/2023 10:24:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings was little changed at 10.5 million on the last business day of November, the U.S. Bureau of Labor Statistics reported today. Over the month, the number of hires and total separations changed little at 6.1 million and 5.9 million, respectively. Within separations, quits (4.2 million) and layoffs and discharges (1.4 million) changed little.
emphasis added

The following graph shows job openings (black line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for November the employment report this Friday will be for December.

Click on graph for larger image.

Note that hires (dark blue) and total separations (red and light blue columns stacked) are usually pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

The spike in layoffs and discharges in March 2020 is labeled, but off the chart to better show the usual data.

Jobs openings decreased in November to 10.458 million from 10.512 million in October.

The number of job openings (black) were down 4% year-over-year. 

Quits were down 7% year-over-year. These are voluntary separations. (See light blue columns at bottom of graph for trend for "quits").

by Calculated Risk on 1/04/2023 08:27:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Moody's: National Multifamily Supply and Demand at Lowest Levels since 2009

A brief excerpt:

The big story here is that demand for apartments fell off a cliff in Q4 2022, but that new supply was also very low, even though there are a large number of apartments currently under construction.

First, from Moody’s Analytics Senior Economist Lu Chen and economist Xiaodi Li: Apartment struck a balance, Office demand plummeted, and Retail remains flat

National multifamily supply and demand both cooled to their lowest levels since 2009. Net absorption and new construction leveled off at just around 10,000 units in Q4, keeping the national multifamily vacancy flat at 4.4%. … Total construction delivery and net absorption only reached 100,470 units and 135,472 units for the year respectively, the weakest record over the past decade.

...Moody’s Analytics (Reis) reported that the apartment vacancy rate was at 4.4% in Q4 2022, unchanged from 4.4% in Q3, and down from a pandemic peak of 5.4% in both Q1 and Q2 2021.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999).  Note: Moody’s Analytics is just for large cities.

There is more in the article. You can subscribe at https://calculatedrisk.substack.com/