by Calculated Risk on 1/09/2014 09:25:00 PM

The forecasts for the employment report have been moving up all week, although there is some concern about adverse weather in December, especially during the BLS reference week. We will know soon ...

Jon Hilsenrath has an interesting Q&A at the WSJ: Q&A: Fed’s Williams on Upbeat 2014 Outlook and What Keeps Him up at NightSome excerpts:

WSJ: WHAT WOULD IT TAKE FOR YOU TO START MOVING YOUR FORECASTS UP FOR THIS YEAR?

WILLIAMS: Investment spending is an interesting question. One of the things that still is surprisingly weak is business investment spending. Normally our macro models tell us that business investment tracks the economy pretty well. Yet right now business investment spending still seems pretty weak. I could see some upside surprises occurring. I’m not predicting them obviously. But a potential development would be seeing more business investment or a faster return on housing construction. I think the risks to our forecast are pretty balanced. I could easily think of scenarios where growth picked up to be well above 3%, as well as downside surprises.
...
WSJ: DO YOU WORRY ABOUT THE RISK OF REPEATING WHAT MIGHT OR MIGHT NOT HAVE BEEN A MISTAKE IN 2004 AND 2005, OF KEEPING RATES TOO LOW FOR TOO LONG? IF WE DON’T KNOW THE ANSWER TO WHAT CAUSES BUBBLES, HOW DOES IT AFFECT YOUR THINKING AS A POLICY MAKER NOW?

WILLIAMS: It is something that keeps me up at night and probably others too. Think about the asymmetry of risks. For the last few years I think we’ve been correctly focused on tail risks to the downside, like deflation or the economy getting stuck in a low growth or stagnating situation. My view now is there are some potential risks to the upside, growth picking up much faster than we expect. We have a lot of accommodation in place. We should always keep that in mind. The funds rate is zero. We have a balance sheet of trillions and trillions in dollars. That’s all in place. Whether we cut purchases by 10 billion a month or not, we still have a very accommodative stance of policy and that is going to stay with us for quite some time. That is where I worry. If the economy really picks up or inflation or risks to financial stability really do start to emerge in a serious way, we need to be able to move policy back to normal, or adjust policy appropriately, in a timely manner. It’s always a difficult issue. This time it is just a much greater risk because we’re in a much more accommodative stance of policy.

Friday:
• At 8:30 AM ET, the Employment Report for December. The consensus is for an increase of 200,000 non-farm payroll jobs in December, down from the 203,000 non-farm payroll jobs added in November. The consensus is for the unemployment rate to be unchanged at 7.0% in December.

• At 10:00 AM, the Monthly Wholesale Trade: Sales and Inventories for November. The consensus is for a 0.5% increase in inventories.

by Calculated Risk on 1/09/2014 03:54:00 PM

Yesterday I posted an employment preview. Even though the ISM indexes suggest around 245,000 payroll jobs added in December, and the ADP employment report was above expectations at 238,000 private sector jobs added - I still took the "under" (under the consensus forecast of 200,000). My key reason for a little pessimism was that unemployment claims spiked higher during the BLS reference week, possibly due to weather factors.

Here are a couple more positive outlooks:

From Tim Duy at Economist's View: Next Up: Employment Report

Since it worked well last time, my quick-and-dirty estimate is a 245k gain for nonfarm payrolls in December ... Use with caution, usual caveats apply. Forecasting the preliminary nonfarm payroll gain is akin to throwing darts. And my prior is that something that worked well last month probably will not work well this month. That said, while this technique might not predict the exact number, I think it tells us that:

   1. The labor market is improving modestly.
   2. Any large deviation from a gain of 245k - either positive or negative - is likely not indicative of the underlying trend in labor markets.

For comparison, this is a decidedly above consensus forecast. Consensus is for 200k with a range of 120k to 225k. 245k would be a large upward surprise.

From Kris Dawsey at Goldman Sachs (revised up from 175,000):

We forecast a gain of 200,000 nonfarm payroll jobs in December. Factors arguing for a solid print include the recent trend, an improvement in most employment indicators already released for the month, the compressed holiday hiring period, and a potential "couriers and messengers effect." On the negative side, cold weather is a downside risk.

From Deutsche Bank economist Carl Riccadonna (via Business Insider):

We now look for +250K on nonfarm payrolls and 6.8% on the unemployment rate. It is worth noting that in our employment scorecard, there was really only one component which materially weakened last month — Chicago PMI employment. We are dismissing the signals from both initial and continuing jobless claims, because both series displayed erratic behavior throughout December. ...

As always during the winter months, we will pay close attention to workers who could not work or worked reduced hours due to inclement weather. We do not anticipate a significant weather distortion in December, based on utility statistics, but if the payroll print is unusual this series could provide clues.

Overall the trend is positive, but it is difficult to predict any one month.

by Calculated Risk on 1/09/2014 01:27:00 PM

From the Association of American Railroads (AAR): Freight Rail Traffic for 2013 Saw Record Intermodal Growth, Slight Dip in Carloads

The Association of American Railroads (AAR) today reported that U.S. rail traffic for 2013 saw record intermodal growth with a slight full year decrease in carloadings. U.S. rail intermodal volume totaled a record 12.8 million containers and trailers in 2013, up 4.6 percent or 564,276 units, over 2012. Carloads totaled 14.6 million in 2013, down 0.5 percent or 76,784 carloads, from 2012. Intermodal volume in 2013 was the highest on record, surpassing the record high totals of 2006 by 549,471 units.

In 2013, 11 of the 20 carload commodity categories tracked annually by AAR saw increases on U.S. railroads compared with 2012. The categories with sizable gains were: petroleum and petroleum products, up 167,868 carloads or 31.1 percent; crushed stone, gravel and sand, up 81,023 carloads or 8.3 percent; motor vehicles and parts, up 41,166 carloads or 5.1 percent, and waste and nonferrous scrap, up 14,472 carloads or 9.1 percent.

The commodities with the largest carload declines in 2013 compared with 2012 were: coal, down 256,751 carloads or 4.3 percent; grain, down 81,309 carloads or 8 percent, and metallic ores, down 37,068 carloads or 9.9 percent. However, excluding coal and grain, those U.S. rail carloads which are reflective of the economy were up 261,276 carloads or 3.4 percent in 2013 over 2012.

“2013 ended the way it began — strong intermodal, weak coal, and mixed performance for other commodities, resulting in a year for rail traffic that could have been much better but also could have been much worse,” said AAR Senior Vice President John T. Gray. “A variety of indicators seem to be saying that the economy is slowly strengthening; a trend we expect to continue in 2014.”
emphasis added

Click on graph for larger image.

This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Green is 2013.

In December 2013, U.S. railroads originated a total of 1,078,903 carloads, down 0.9% (9,978 carloads) from December 2012 and an average of 269,726 per week. That’s the lowest weekly average for a December since 2009 and the third lowest (behind 2008 and 2009) since 1988. ...

Blame coal. U.S. railroads originated 423,218 carloads of coal in December 2013, down 5.2% (23,159 carloads) from December 2012. For more on coal, see page 15. Excluding coal, U.S. carloads were up 2.1% (13,181 carloads) in December 2013

Graphs and excerpts reprinted with permission.

The second graph is for intermodal traffic (using intermodal or shipping containers):

Intermodal traffic set a record in 2013 and finished strong in December:

U.S. railroads originated 958,778 intermodal containers and trailers in December 2013, up 70,742 units (8.0%) over December 2012 and an average of 239,695 per week. That’s by far the highest weekly average for any December in history and is a fitting end to a great year for intermodal.

For all of 2013, U.S. rail intermodal volume totaled a record 12,831,692 containers and trailers, up 4.6% (564,276 units) over 2012 and 549,471 units more than the previous record set in 2006.

Rail traffic and the economy usually grow together, so this is a good sign for the overall economy.

by Calculated Risk on 1/09/2014 09:47:00 AM

From Trulia chief economist Jed Kolko: The Post-Crash Rebound, Not Job Growth, Drove 2013 Price Gains

In 2013, the housing markets with the biggest increases in asking prices were all rebounding from severe price drops in the housing bust. Home prices are still in rebound mode, but this effect will weaken in 2014. Job growth, in contrast, mattered little for price gains in 2013 but helped drive rent increases.

In December, the year-over-year increase in asking home prices slowed for the first time since the price recovery began in early 2012: prices rose 11.9% year-over-year in December, compared with November’s 12.2% year-over-year increase. Asking prices rose 0.4% month-over-month, seasonally adjusted, the third straight month of gains less than 1%.
...
Overall, regression analysis shows that recent price gains are most strongly associated with the severity of the local housing bust. Markets where prices fell most during the bust (roughly 2006 to 2011, but varies by metro) offered bargains for investors and other buyers who have helped bid prices back up over the past two years. A second important factor is foreclosures: adjusting for other factors, metros with a higher foreclosure inventory today – including many in Florida – have slower price growth. Job growth, however, had little impact on local home price gains in 2013: the relationship between job growth and price gains was positive but not statistically significant.

Therefore, year-over-year price gains in December 2013 are still primarily a reaction to the housing bust, but this rebound effect is fading as we enter 2014. Looking at the quarter-over-quarter price changes throughout 2013, the relationship between the severity of the housing bust and the recent price recovery was stronger earlier in the year than later in the year. More specifically, the correlation between peak-to-trough price change (FHFA) and the Trulia Price Monitor quarter-over-quarter change was -.59 in March; -.45 in June; -.43 in September; and -.33 in December. This correlation is moving closer to zero, which signifies that the rebound effect is fading.

As the housing market continues to recover, factors other than the rebound effect – like job growth – will matter more for price gains. That means slower but more sustainable price increases. emphasis added

Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases, but at a slower rate, over the next few months on a seasonally adjusted basis.

by Calculated Risk on 1/09/2014 08:34:00 AM

The DOL reports:

In the week ending January 4, the advance figure for seasonally adjusted initial claims was 330,000, a decrease of 15,000 from the previous week's revised figure of 345,000. The 4-week moving average was 349,000, a decrease of 9,750 from the previous week's revised average of 358,750.

The previous week was revised up from 339,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.

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 349,000.

Weekly claims are frequently volatile during the holidays because of the seasonal adjustment.  The four-week should decline further next week.