by Calculated Risk on 7/07/2024 08:21:00 AM

Note: I covered apartments and offices in the newsletter: Moody's: Apartment Vacancy Rate Unchanged in Q2; Office Vacancy Rate at New Record High

From Moody’s Analytics economists: Apartment Demand Slowly Catching Up, Office Stress Continued to Manifest, Retail Resilient Despite Bankruptcies, And Industrial Cools Down

The Q2 2024 data maintained its familiar trend with the retail vacancy rate holding steady at 10.4%. Both asking and effective rents experienced a marginal increase of 0.2% to $21.79 and $19.07 per square foot respectively. The second quarter consumer spending fell short of expectations: after a 0.2% decline in April, retail sales in May were only up by 0.1%, not meeting the anticipated 0.3% increase. As low-income consumers continued to feel the pinch, those in the middle are now encountering financial challenges while high earners pulled back on luxury item purchases. However, spending has not ground to a halt: consumers plan to travel and attend concerts this summer, indicating a shift in preference towards experiences over goods.

The current trends signal an expectation of relatively subdued construction activity for the rest of the year. In the absence of significant new developments, current shopping and neighborhood centers have taken advantage of companies applying the smaller-yet-smarter model to fill their vacant anchors. This approach involves large retail chains offering a limited selection of their products in more compact locations. The business rationale is to address the decline in revenues by reducing operational costs through lower rental expenses, fewer staff members, and a reduced inventory, culminating in decreased overall overhead and, consequently, higher profit margins. This strategy is helping retail landlords fill vacancies caused by recent bankruptcies and attributing to the stabilized vacancy rate.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). 

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 the vacancy rate has held steady at a high level as online shopping continues to impact brick and mortar stores.

by Calculated Risk on 7/06/2024 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

Click on graph for larger image.

• FHFA’s National Mortgage Database: Outstanding Mortgage Rates, LTV and Credit Scores

• Moody's: Apartment Vacancy Rate Unchanged in Q2; Office Vacancy Rate at New Record High

• ICE Mortgage Monitor: Existing Home Inventory Surges in Florida and Texas

• Asking Rents Mostly Unchanged Year-over-year

• Final Look at Local Housing Markets in May and a Look Ahead to June Sales

This is usually published 4 to 6 times a week and provides more in-depth analysis of the housing market.

by Calculated Risk on 7/06/2024 08:11:00 AM

The key report this week is June CPI.

Fed Chair Powell testifies on the Semiannual Monetary Policy Report to Congress.

----- Monday, July 8th -----
No major economic releases scheduled.

----- Tuesday, July 9th -----
6:00 AM ET: NFIB Small Business Optimism Index for June.

10:00 AM: Testimony, Fed Chair Jerome Powell, Semiannual Monetary Policy Report to Congress, Before the U.S. Senate Committee on Banking, Housing, and Urban Affairs

----- Wednesday, July 10th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

10:00 AM: Testimony, Fed Chair Jerome Powell, Semiannual Monetary Policy Report to Congress, Before the U.S. House Financial Services Committee

----- Thursday, July 11th -----
8:30 AM: The Consumer Price Index for June from the BLS. The consensus is for a 0.1% increase in CPI, and a 0.2% increase in core CPI.  The consensus is for CPI to be up 3.1% year-over-year and core CPI to be up 3.4% YoY.

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 242 thousand initial claims, up from 238 thousand last week.

----- Friday, July 12th -----
8:30 AM: The Producer Price Index for June from the BLS. The consensus is for a 0.1% increase in PPI, and a 0.2% increase in core PPI.

10:00 AM: University of Michigan's Consumer sentiment index (Preliminary for July).

by Calculated Risk on 7/05/2024 08:29:00 PM

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

For deaths, I'm currently using 4 weeks ago for "now", since the most recent three weeks will be revised significantly.

Note: "Effective May 1, 2024, hospitals are no longer required to report COVID-19 hospital admissions, hospital capacity, or hospital occupancy data."  So I'm no longer tracking hospitalizations.

COVID Metrics
	Now	Week Ago	Goal
Deaths per Week✅	283	306	≤3501
1my goals to stop weekly posts, 🚩 Increasing number weekly for Deaths ✅ Goal met.

Click on graph for larger image.

This graph shows the weekly (columns) number of deaths reported.

Weekly deaths have declined from the recent peak of 2,561 and are now below the previous pandemic low of 491 last July.   This week was at the pandemic low.

And here is a graph I'm following concerning COVID in wastewater as of June 27th (no update this week):

This appears to be a leading indicator for COVID hospitalizations and deaths.

COVID in wastewater is increasing - especially in the West and South - and unfortunately this suggest weekly deaths will likely start increasing again. 

by Calculated Risk on 7/05/2024 01:55:00 PM

What this means: On a weekly basis, Realtor.com reports the year-over-year change in active inventory and new listings. On a monthly basis, they report total inventory. For April, Realtor.com reported inventory was up 35.2% YoY, but still down almost 34% compared to April 2017 to 2019 levels. 

 Now - on a weekly basis - inventory is up 38.1% YoY.

Realtor.com has monthly and weekly data on the existing home market. Here is their weekly report: Weekly Housing Trends View—Data for Week Ending June 29, 2024

• Active inventory increased, with for-sale homes 38.1% above year-ago levels

For the 34th week in a row, the number of for-sale homes grew compared with one year ago. This past week, the inventory of homes for sale grew by 38.1% compared with last year, increasing the gap compared with recent weeks and notching the largest annual increase since April 2023.

Despite nearly eight months of building inventory, buyers still see more than 30% fewer homes for sale compared with before the pandemic. Limited home supply has kept upward pressure on home prices, which, combined with still-high mortgage rates, means many buyers remain on the sidelines.

• New listings–a measure of sellers putting homes up for sale–were up this week, by 10.8% from one year ago

Seller activity picked up momentum this week. New listing activity increased annually, climbing by more than in any week back to late April. Recently falling mortgage rates might be encouraging more homeowners to list their homes for sale.

Here is a graph of the year-over-year change in inventory according to realtor.com. 

Inventory was up year-over-year for the 34th consecutive week.  

However, inventory is still historically low.

New listings remain below typical pre-pandemic levels although up year-over-year.

by Calculated Risk on 7/05/2024 10:52:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Moody's: Apartment Vacancy Rate Unchanged in Q2; Office Vacancy Rate at New Record High

A brief excerpt:

From Moody’s:

The office sector set a record vacancy rate at 20.1%, breaking the 20% barrier for the first time in history. The slow bleed occurring in the office sector has led to a steady rise in the vacancy rate as permanent shifts in working behavior have outlasted the initial wave of the pandemic four years ago. Q2’s record rate of 20.1% is up from 19.8% the previous quarter and represents the third straight record-breaking quarter beyond our previous historic peaks of 19.3% set in 1986 and 1991.

Moody’s Analytics reported that the office vacancy rate was at 20.1% in Q2 2024, up from 19.8% in Q1 2024. This is a new record high, and above the 19.3% during the S&L crisis.

There is much more in the article.

by Calculated Risk on 7/05/2024 09:14:00 AM

The headline jobs number in the June employment report was above expectations, however April and May payrolls were revised down by 111,000 combined.   The participation rate increased, the employment population ratio was unchanged, and the unemployment rate increased to 4.1%.

Construction employment increased 27 thousand and is now 630 thousand above the pre-pandemic level. 

Manufacturing employment decreased 8 thousand and is now 170 thousand above the pre-pandemic level.

Earlier: June Employment Report: 206 thousand Jobs, 4.1% Unemployment Rate

Prime (25 to 54 Years Old) Participation

Since the overall participation rate is impacted by both 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.

The 25 to 54 years old participation rate increased in June to 83.7% from 83.6% in May to the highest level since 2001.

The 25 to 54 employment population ratio was unchanged at 80.8% from 80.8% the previous month.

Both are above pre-pandemic levels and near the highest level this millennium.

Average Hourly Wages

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees from the Current Employment Statistics (CES).  

There was a huge increase at the beginning of the pandemic as lower paid employees were let go, and then the pandemic related spike reversed a year later.

Wage growth has trended down after peaking at 5.9% YoY in March 2022 and was at 3.9% YoY in June.   

Part Time for Economic Reasons

From the BLS report:

"The number of people employed part time for economic reasons, at 4.2 million, changed little in June. 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 June to 4.22 million from 4.42 million in May.  This is lower than pre-pandemic levels.

These workers are included in the alternate measure of labor underutilization (U-6) that was unchanged at 7.4% from 7.4% in the previous month. This is down from the record high in April 2020 of 23.0% and up from the lowest level on record (seasonally adjusted) in December 2022 (6.5%). (This series started in 1994). This measure is above the 7.0% level in February 2020 (pre-pandemic).

Unemployed over 26 Weeks

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

According to the BLS, there are 1.515 million workers who have been unemployed for more than 26 weeks and still want a job, up from 1.350 million the previous month.

This is down from post-pandemic high of 4.174 million, and up from the recent low of 1.050 million.

This is above pre-pandemic levels.

Job Streak

Through June 2024, the employment report indicated positive job growth for 42 consecutive months, putting the current streak in 5th place of the longest job streaks in US history (since 1939).

Headline Jobs, Top 10 Streaks
	Year Ended	Streak, Months
1	2019	100
2	1990	48
3	2007	46
4	1979	45
5	20241	42
6 tie	1943	33
6 tie	1986	33
6 tie	2000	33
9	1967	29
10	1995	25
1Currrent Streak

Summary:

The headline jobs number in the June employment report was above expectations, however, April and May payrolls were revised down by 111,000 combined. The participation rate increased, the employment population ratio was unchanged, and the unemployment rate increased to 4.1%.  

Another decent report, however, the three-month average employment growth has slowed to 177 per month.

by Calculated Risk on 7/05/2024 08:30:00 AM

From the BLS: Employment Situation

Total nonfarm payroll employment increased by 206,000 in June, and the unemployment rate changed little at 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in government, health care, social assistance, and construction.
...
The change in total nonfarm payroll employment for April was revised down by 57,000, from +165,000 to +108,000, and the change for May was revised down by 54,000, from +272,000 to +218,000. With these revisions, employment in April and May combined is 111,000 lower than previously reported.
emphasis added

Click on graph for larger image.

The first graph shows the jobs added per month since January 2021.

Total payrolls increased by 206 thousand in June.  Private payrolls increased by 136 thousand, and public payrolls increased 70 thousand.

Payrolls for April and May were revised down 111 thousand, combined.

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

In June, the year-over-year change was 2.61 million jobs.  Employment was up solidly year-over-year.

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

The Labor Force Participation Rate increased to 62.6% in June, from 62.5% in May. This is the percentage of the working age population in the labor force.

The Employment-Population ratio was unchanged at 60.1% from 60.2% in May (blue 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 increased to 4.1% in June from 4.0% in May.

This was above consensus expectations; however, April and May payrolls were revised down by 111,000 combined.  

I'll have more later ...

by Calculated Risk on 7/04/2024 09:47:00 AM

On Friday at 8:30 AM ET, the BLS will release the employment report for June. The consensus is for 180,000 jobs added, and for the unemployment rate to be unchanged at 4.0%.

There were 272,000 jobs added in May, and the unemployment rate was at 4.0%.

From Goldman Sachs:

Big Data measures ... indicate a soft pace of spring hiring, and we expect an additional drag from residual seasonality in the official payroll figures this Friday. We left our forecast for June nonfarm payroll unchanged at +140k (mom sa).
emphasis added

From BofA:

We forecast nonfarm payrolls rose by a solid 200k in June, a 72k decline from the 272k print in May and about 50k lower than the trailing three-month average. ... A slight slowdown in hiring is likely to result in the unemployment rate remaining at 4.0, while wage growth moderates a tenth to 0.3% m/m.

• ADP Report: The ADP employment report showed 150,000 private sector jobs were added in June.  This was below consensus forecasts and suggests job gains below consensus expectations, however, in general, ADP hasn't been very useful in forecasting the BLS report.

• ISM Surveys: Note that the ISM indexes are diffusion indexes based on the number of firms hiring (not the number of hires).  The ISM® manufacturing employment index decreased to 49.3%, down from 51.1% the previous month.   This would suggest about 20,000 jobs lost in manufacturing. The ADP report indicated 5,000 manufacturing jobs lost in June.

The ISM® services employment index decreased to 46.1%, from 47.1%. This would suggest 30,000 jobs lost in the service sector. Combined this suggests 50,000 jobs lost in June, far below consensus expectations.

• Unemployment Claims: The weekly claims report showed more initial unemployment claims during the reference week at 239,000 in June compared to 216,000 in May.  This suggests more layoffs in June compared to May.

• Conclusion: My guess is employment gains will be below consensus expectations.

by Calculated Risk on 7/03/2024 07:27:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Move Lower After Weak Service Sector Report

"Data dependent" is one of the most common phrases heard from the Federal Reserve these days when it comes to rate-setting policy. And while the Fed doesn't directly dictate mortgage rates, the bond market tends to trade the same data that the Fed cares about.

Today's key report, the ISM Services index, isn't quite at the top of the Fed's list, but it's a longstanding market mover when it comes to bonds and, thus, rates. Today's installment was much weaker than expected. Weak data correlates with lower rates, all other things being equal.

Bonds improved immediately after the release. This allowed mortgage lenders to set lower rates today. Some lenders had already published their initial rates for the day and several of them ended up issuing positive reprices before the end of the day.

The bond market is closed tomorrow for the holiday, but will be back to digest an even more important economic report on Friday morning: the big jobs report. [30 year fixed 7.08%]
emphasis added

Thursday:
• All US markets will be closed in observance of Independence Day