by Calculated Risk on 1/08/2014 09:00:00 PM

From Jeffry Bartash at MarketWatch: What happens when jobless benefits are cut? North Carolina may offer clues

Last summer, North Carolina slashed the amount of cash it gave to people after they lost their jobs and the state also reduced the number of weeks they could receive benefits. Within several months, the unemployment rate fell a few ticks and by November it fell to a five-year low.
...
Government data also shows that more than 22,000 North Carolinians found work since the cutoff and the number of unemployed sank by nearly 73,000 to 344,000.

What the data doesn’t tell us, however, is what happened to all the people no longer classified as unemployed. While some found a job, others may have retired, ended up on welfare, moved in with family members, sought disability payments or fled to a nearby state with better benefits. We just don’t know.

If Congress fails to take action, I expect the national unemployment rate to fall as many people leave the labor force (the wrong reason for a decline in the unemployment rate). Hopefully Congress will extend the benefits as has happened every time before when this many people are suffering from long term unemployment (it is good policy and good economics) ...

Thursday:
• Early: Trulia Price Rent Monitors for December. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decline to 331 thousand from 339 thousand.

by Calculated Risk on 1/08/2014 05:26:00 PM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported GLVAR reports home prices rose in December, up 24 percent in 2013

GLVAR said the total number of existing local homes, condominiums and townhomes sold in December was 2,915, up from 2,694 in November, but down from 3,624 in December 2012....
...
GLVAR has been tracking fewer foreclosures and short sales – which occur when a lender agrees to sell a home for less than what the borrower owes on the mortgage. In December, 20.7 percent of all existing local home sales were short sales, down from 21 percent in November. Another 8.5 percent of all December sales were bank-owned properties, up from 7 percent in November.

Of the 40,242 existing residential properties sold in Southern Nevada during 2013, GLVAR reported that 62 percent were traditional sales. That’s a big jump from 2012, when only 37 percent of all 44,902 sales that year were traditional.

In December, GLVAR reported that 44.4 percent of all existing local homes sold were purchased with cash. That’s up from 43.7 in November but down from a peak of 59.5 percent set in February 2013. ...
The total number of properties listed for sale on GLVAR’s Multiple Listing Service decreased in December, with 13,303 single-family homes listed for sale at the end of the month. That’s down 6.6 percent from 14,240 single-family homes listed for sale at the end of November and down 8.9 percent from one year ago. GLVAR reported a total of 2,903 condos and townhomes listed for sale on its MLS in December, down 19.9 percent from 3,624 listed in November and down 16.5 percent from one year ago.

GLVAR also reported fewer available homes listed for sale without any sort of pending or contingent offer. By the end of December, GLVAR reported 6,587 single-family homes listed without any sort of offer. That’s down 3.6 percent from 6,830 such homes listed in November, but still up 78.6 percent from one year ago.
emphasis added

There are several key trends that we've been following:

1) Sales were up in December, but down about 19.6% year-over-year.

2) Conventional sales are up solidly year-over-year.  In December 2012, only 44.7% of all sales were conventional.  This year, in December 2013, 70.8% were conventional.  That is an increase in conventional sales of about 27% year-over-year.

3) The percent of cash sales is declining (investor buying appears to be declining).

4) and most interesting right now is that non-contingent inventory (year-over-year) is now increasing rapidly.  Non-contingent inventory is up 78.6% year-over-year!

Inventory has clearly bottomed in Las Vegas (A major theme for housing last year).  And fewer distressed sales and more inventory means price increases will slow.

by Calculated Risk on 1/08/2014 02:00:00 PM

From the Fed: Minutes of the Federal Open Market Committee, December 17-18, 2013 . Excerpt:

In their discussion of monetary policy in the period ahead, most members agreed that the cumulative improvement in labor market conditions and the likelihood that the improvement would be sustained indicated that the Committee could appropriately begin to slow the pace of its asset purchases at this meeting. However, members also weighed a number of considerations regarding such an action, including their degree of confidence in prospects for sustained above-potential economic growth, continued improvement in labor market conditions, and a return of inflation to its mandate-consistent level over time. Some also expressed concern about the potential for an unintended tightening of financial conditions if a reduction in the pace of asset purchases was misinterpreted as signaling that the Committee was likely to withdraw policy accommodation more quickly than had been anticipated. As a consequence, many members judged that the Committee should proceed cautiously in taking its first action to reduce the pace of asset purchases and should indicate that further reductions would be undertaken in measured steps. Members also stressed the need to underscore that the pace of asset purchases was not on a preset course and would remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the efficacy and costs of purchases. Consistent with this approach, the Committee agreed that, beginning in January, it would add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month. While deciding to modestly reduce its pace of purchases, the Committee emphasized that its holdings of longer-term securities were sizable and would still be increasing, which would promote a stronger economic recovery by maintaining downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial conditions more accommodative. The Committee also reiterated that it will continue its asset purchases, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. In the view of one member, a reduction in the pace of purchases was premature and, before taking such a step, the Committee should wait for more convincing evidence that economic growth was rising faster than its potential and that inflation would return to the Committee's 2 percent objective.

In their discussion of forward guidance about the target federal funds rate, a few members suggested that lowering the unemployment threshold to 6 percent could effectively convey the Committee's intention to keep the target federal funds rate low for an extended period. However, most members wanted to make no change to the threshold and instead preferred to provide qualitative guidance to clarify that a range of labor market indicators would be used when assessing the appropriate stance of policy once the threshold had been crossed. A number of members thought that the forward guidance should emphasize the importance of inflation as a factor in their decisions. Accordingly, almost all members agreed to add language indicating the Committee's anticipation, based on its current assessment of additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments, that it would be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's longer-run objective. It was noted that this language might appear calendar-based rather than conditional on economic and financial developments, and one member objected to having forward guidance that might be seen as relatively inflexible in response to changes in members' views about the appropriate path of the target federal funds rate. However, those concerns generally were seen as outweighed by the benefit of avoiding tying the Committee's decision too closely to the unemployment rate alone, while still being clear about the Committee's intention to provide the monetary accommodation needed to support a return to maximum employment and stable prices.
emphasis added

by Calculated Risk on 1/08/2014 11:41:00 AM

Friday at 8:30 AM ET, the BLS will release the employment report for December. The consensus is for an increase of 200,000 non-farm payroll jobs in December, and for the unemployment rate to be unchanged at 7.0%.

Something to keep in mind - it is possible that the cold weather in December impacted the payroll report. Goldman Sachs economist Kris Dawsey wrote this week:

Adverse weather so far this winter―including record low temperatures set in parts of the country―has focused attention on the potential impact on economic data. For instance, our auto analysts note that disappointing December sales could in some part be attributed to unfavorable weather. Regarding the near-term data calendar, we expect that colder-than-normal weather during the survey period for the December payroll report probably pushed employment growth below its recent trend. (Our preliminary forecast is for a 175,000 gain in total payrolls to be released this Friday.)

Here is a summary of recent data:

• The ADP employment report showed an increase of 238,000 private sector payroll jobs in December. This was above expectations of 205,000 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 above expectations.

• The ISM manufacturing employment index increased in December to 56.9%, from 56.5% in November. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 18,000 in November. The ADP report indicated a 19,000 increase for manufacturing jobs in December.

The ISM non-manufacturing employment index increased in December to 55.8% from 52.5% in November. A historical correlation between the ISM non-manufacturing index and the BLS employment report for non-manufacturing, suggests that private sector BLS reported payroll jobs for non-manufacturing increased by about 227,000 in December.

Taken together, these surveys suggest around 245,000 jobs added in December - above the consensus forecast.

• Initial weekly unemployment claims averaged close to 358,000 in December. This was up sharply from an average of 324,000 in November, but about the same as the 358,000 average in October.   For the BLS reference week (includes the 12th of the month), initial claims were at 380,000; the highest level since March.

This suggests more layoffs, and possibly fewer net payroll jobs added than the consensus forecast.

• The final December Reuters / University of Michigan consumer sentiment index increased to 82.5 from the October reading of 75.1. This is frequently coincident with changes in the labor market, but in this case sentiment is recovering from the government shutdown.

• The small business index from Intuit showed a 20,000 increase in small business employment in December. This is the largest increase in this index since May, and suggests a pickup in small business hiring.

• Conclusion: As usual the data was mixed. The ADP report was higher in December than in November, and the ISM surveys suggest a larger increase in payrolls.  Consumer sentiment increased (recovering from government shutdown).  Also the Intuit small business index showed a pickup in hiring.

However weekly claims for the reference week were at the highest level since March (possibly weather related), and this suggests weather impacted the December employment report.

There is always some randomness to the employment report, but my guess is the report will be under the consensus forecast of 200,000 nonfarm payrolls jobs added in December.

by Calculated Risk on 1/08/2014 09:42:00 AM

Reis reported that the vacancy rate for regional malls declined to 7.9% in Q4, down from 8.2% in Q3. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate was declined to 10.4%, down from 10.5% in Q3. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Senior Economist Ryan Severino:

[Strip Malls] The national vacancy rate for neighborhood and community shopping centers declined by 10 basis points during the fourth quarter. This was a slight improvement versus last quarter when vacancy was unchanged, but more or less in line with the pace of improvement since the market began to recover two years ago. ... Vacancies for neighborhood and community centers now stand at 10.4%, down 30 basis points during 2013, and down 70 basis points from the historical peak vacancy rate of 11.1% which was recorded over two years ago, during the third quarter of 2011. Yet there are some modestly hopeful signs.

Construction during the fourth quarter was the highest since the fourth quarter of 2011 while net absorption was the highest since the fourth quarter of 2007. The fact that net absorption exceeded construction by roughly 2.5 million SF during the quarter is certainly a heartening sign. This indicates that there is some semblance of demand for existing inventory and not simply the addition of pre‐leased space in the market.
...
[Regional] Malls continue to be the outperformers during the retail market recovery. As of the fourth quarter mall vacancies stand at 7.9%, down 30 basis points from the third quarter, down 70 basis points during 2013, and down 150 basis points from the historical high level reached during the third quarter of 2011.

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.

For strip malls, absorption has increased (highest since 2007), but new construction has increased too keeping the overall vacancy rate high.  Some areas of the country are recovering faster than others (malls aren't transportable!), so there are areas with new construction while other areas are still struggling.

Mall vacancy data courtesy of Reis.