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Calculated Risk

Finance and Economics

Updated: 2017-12-12T20:32:57.992-05:00


Wednesday: FOMC Announcement, CPI


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

• At 8:30 AM, The Consumer Price Index for November from the BLS. The consensus is for a 0.4% increase in CPI, and a 0.2% increase in core CPI.

• At 2:00 PM, FOMC Meeting Announcement. The FOMC is expected to increase the Fed Funds rate 25 bps at this meeting.

• Also at 2:00 PM, FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

• At 2:30 PM, Fed Chair Janet Yellen holds a press briefing following the FOMC announcement. (image)

LA area Port Traffic Surges in November


Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

From the Port of Long Beach: Port Surges Past 2016 Cargo Volume
With just under one month left in 2017, the Port of Long Beach has already exceeded the cargo total for all of last year, and will handle more than 7 million containers for only the fourth time in its 106-year history....

“U.S. consumers are confident and the economy has been strong,” said Long Beach Harbor Commission President Lou Anne Bynum. “Retailers have been stocking goods as a result and we are nearing cargo levels we have not seen since before the 2008 recession.”
From the Port of Los Angeles: Port of Los Angeles Sets New Record for Highest Monthly Container Volumes
The Port of Los Angeles moved 924,225 Twenty-Foot Equivalent Units (TEUs) in November, the most containerized monthly cargo the Port has processed during its 110-year history. The previous record of 877,564 TEUs was set in November 2016.

Eleven months through 2017, volumes are up 6.3 percent compared to last year’s record-breaking 8.8 million TEUs.
The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

(image) Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 0.9% compared to the rolling 12 months ending in October.   Outbound traffic was up 0.2% compared to the rolling 12 months ending in October.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

(image) Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March depending on the timing of the Chinese New Year.  

Trade has been strong - especially inbound - and setting record volumes most months recently.  This suggests the retailers are optimistic about the Christmas Holiday shopping season.

In general imports have been increasing, and exports are mostly moving sideways to slightly down recently.(image)

Mortgage Equity Withdrawal slightly positive in Q3


Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data (released yesterday) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW" - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).

For Q3 2017, the Net Equity Extraction was a positive $33 billion, or a positive 0.9% of Disposable Personal Income (DPI) .

(image) Click on graph for larger image.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

Note: This data is impacted by debt cancellation and foreclosures, but much less than a few years ago.

MEW has been positive for 6 consecutive quarters, and 8 of the last 9 quarters.  With a slower rate of debt cancellation, MEW will likely be mostly positive going forward.

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $85 billion in Q3.

The Flow of Funds report also showed that Mortgage debt has declined by $0.7 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance.

For reference:

Dr. James Kennedy also has a simple method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).

For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.(image)

Goldman expects "Tax Reform" to be Enacted in the "Next Two Weeks"


A few excerpts from an article by Goldman Sachs economist Alec Phillips:
We continue to expect tax reform to be enacted in the next two weeks. A House-Senate agreement looks likely by the end of this week or over the weekend, with votes on a final package by next week.

A 20% corporate rate continues to look likely, in our view, but we do not expect the cut to take effect until 2019. ...

The estimated revenue gain from limiting state and local tax (SALT) deductibility could be overstated if states adapt to the new restrictions. It is difficult to predict how and when states will adapt to the changes, but they have an incentive to do so.

NFIB: Small Business Optimism Index "Near All-Time High" in November


From the National Federation of Independent Business (NFIB): Small Business Optimism Hits Near All-Time High
The Index of Small Business Optimism gained 3.7 points to 107.5 in November, the second highest reading in the 44-year history of the NFIB surveys (108.0 in July 1983). Eight of the 10 Index components posted a gain and two declined, as Job Openings fell from its record high level and Capital Spending Plans declined 1 point.

After several solid quarters, job creation slowed in the small business sector as business owners reported a seasonally adjusted average employment change per firm of 0.0 workers.
emphasis added
(image) Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 107.5 in November.(image)

Tuesday: Small Business Index, PPI


From Matthew Graham at Mortgage News Daily: Mortgage Rates Unchanged to Slightly Higher
Mortgage rates moved modestly higher for the 3rd straight business day, making for a moderate correction from the last Wednesday's 1-month lows. In the recent context, talking about "1-month lows" and 3-day losing streaks is actually far too dramatic when it comes to the actual movement in rates. Most prospective borrowers would be seeing the same rates as last week with the only differences being a slight adjustment in the upfront costs. Even then, many lenders are perfectly unchanged over the past 2 days. Point being: rate volatility has been calm with few exceptions. [30YR FIXED - 4.0%].
• At 6:00 AM ET, NFIB Small Business Optimism Index for November.

• At 8:30 AM, The Producer Price Index for November from the BLS. The consensus is a 0.3% increase in PPI, and a 0.2% increase in core PPI.(image)

Prime Working-Age Population nears 2007 Peak


Update through November: The prime working age population peaked in 2007, and bottomed at the end of 2012. As of November 2017, according to the BLS, there were still fewer people in the 25 to 54 age group than in 2007.

At the beginning of this year - based on demographics - it looked like the prime working age (25 to 54) would probably hit a new peak in 2017.   However, since the end of last year, the prime working age population has declined slightly (probably due to annual adjustment).

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story. Here is a graph of the prime working age population (25 to 54 years old) from 1948 through November 2017.

Note: This is population, not work force.

(image) Click on graph for larger image.

There was a huge surge in the prime working age population in the '70s, '80s and '90s.

The prime working age labor force grew even quicker than the population in the '70s and '80s due to the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s!

So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply).

The good news is the prime working age group should start growing at 0.5% per year - and this should boost economic activity.(image)

Duy: "Expect the Fed to Stand By Its 2018 Outlook"


From Tim Duy at Bloomberg: Expect the Fed to Stand By Its 2018 Outlook. A few excerpts:
The Fed is likely to continue to point toward another 75 basis points of tightening in 2018 when it releases the next Summary of Economic Projections. To be sure, the minutes of the last FOMC meeting painted a dovish outlook as participants fretted about the inflation picture. But these concerns need to be weighed against the outlook for growth, which improved throughout 2017, and the implications of that accelerated growth on unemployment.
I anticipate the Fed will largely retain the policy rate forecast for 2018. This may come as a surprise given the dovish Fed minutes, but the recent surge in short-term rates indicates that financial markets are waking up to the reality that solid economic growth will prompt the bank to keep hiking rates despite low inflation. All else equal, the stage will be set for an inversion of the yield curve by the end of next year.

FOMC Preview


The consensus is that the Fed will increase the Fed Funds Rate 25bps at the meeting this week. Assuming the expected happens, the focus will be on the wording of the statement, the projections, and Fed Chair Janet Yellen's final press conference to try to determine how many rate hikes to expect in 2018.Here are the September FOMC projections.The projection for GDP in 2017 will likely be revised up.  GDP in Q1 was at 1.2% annualized, Q2 at 3.1%, and Q3 at 3.3%.  Current projections put Q4 GDP at around 2.5% to 2.9%.  This would put GDP (Q4 over Q4) at the high end of the September forecast range.Note: My guess is, as far as the impact of any fiscal stimulus, the Fed will continue to wait and see and not incorporate any tax cuts in their projections for 2018 and beyond.GDP projections of Federal Reserve Governors and Reserve Bank presidentsChange inReal GDP12017201820192020Sept 2017 2.2 to 2.52.0 to 2.3 1.7 to 2.11.6 to 2.0June 2017 2.1 to 2.21.8 to 2.21.8 to 2.0---1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated. The unemployment rate was at 4.1% in both October and November. So the unemployment rate for Q4 2017 will be revised down.  The unemployment rate for 2018 and 2019 will probably be revised down too.Unemployment projections of Federal Reserve Governors and Reserve Bank presidentsUnemploymentRate22017201820192020Sept 2017 4.2 to 4.34.0 to 4.23.9 to 4.44.0 to 4.5June 2017 4.2 to 4.34.0 to 4.34.1 to 4.4---2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. As of October, PCE inflation was up 1.6% from October 2016.  Based on recent readings, PCE inflation will probably be revised up slightly for Q4 2017, and possibly for 2018.Inflation projections of Federal Reserve Governors and Reserve Bank presidentsPCEInflation12017201820192020Sept 2017 1.5 to 1.61.8 to 2.02.0 2.0 to 2.1June 2017 1.6 to 1.71.8 to 2.02.0 to 2.1---PCE core inflation was up 1.4% in October year-over-year.  Core PCE inflation will probably be unchanged or revised down slightly for Q4 2017.Core Inflation projections of Federal Reserve Governors and Reserve Bank presidentsCoreInflation12017201820192020Sept 2017 1.5 to 1.61.8 to to 2.1June 2017 1.6 to 1.71.8 to 2.02.0 to 2.1---In general, it appears GDP will be revised up, the unemployment rate revised down, and inflation is mixed.  The inflation outlook will be key for Fed rate hikes in 2018.[...]

BLS: Job Openings "Little changed" in October


From the BLS: Job Openings and Labor Turnover Summary
The number of job openings was little changed at 6.0 million on the last business day of October, the U.S. Bureau of Labor Statistics reported today. Over the month, hires increased to 5.6 million and separations were little changed at 5.2 million. Within separations, the quits rate and the layoffs and discharges rate were little changed at 2.2 percent and 1.1 percent, respectively. ...

The number of quits was unchanged at 3.2 million in October. The quits rate was 2.2 percent. The number of quits was little changed for total private, for government, and in all industries. In the regions, the number of quits increased in the South and decreased in the Midwest.
emphasis added
The following graph shows job openings (yellow 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 October, the most recent employment report was for November.

(image) Click on graph for larger image.

Note that hires (dark blue) and total separations (red and light blue columns stacked) are 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.

Jobs openings decreased in October to 5.996 million from 6.177 in September.

The number of job openings (yellow) are up 7.3% year-over-year.

Quits are up 3.3% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Job openings are mostly moving sideways at a high level, and quits are increasing year-over-year.  This is a solid report.(image)

Sunday Night Futures


Schedule for Week of Dec 10, 2017

• 10:00 AM ET: Job Openings and Labor Turnover Survey for October from the BLS.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are up 3, and DOW futures are up 23 (fair value).

Oil prices were down over the last week with WTI futures at $57.16 per barrel and Brent at $63.14 per barrel.  A year ago, WTI was at $52, and Brent was at $52 - so oil prices are up solidly year-over-year.

Here is a graph from for nationwide gasoline prices. Nationally prices are at $2.45 per gallon. A year ago prices were at $2.21 per gallon - so gasoline prices are up 24 cents per gallon year-over-year. (image)

Hotel Occupancy Rate Increased Year-over-Year, On Pace for Record Year


From STR: US hotel results for week ending 2 December
The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 26 November through 2 December 2017, according to data from STR.

In comparison with the week of 27 November through 3 December 2016, the industry recorded the following:

Occupancy: +1.3% to 56.6%
• Average daily rate (ADR): +0.2% to US$117.82
• Revenue per available room (RevPAR): +1.5% to US$66.71

Among the Top 25 Markets, Houston, Texas, reported the largest increase in RevPAR (+33.1% to US$74.18), due primarily to the highest rise in occupancy (+25.5% to 68.6%). Performance in the market continues to be boosted by post-Hurricane Harvey demand.

Tampa/St. Petersburg, Florida, posted the highest lift in ADR (+7.9% to US$113.10).

Orlando, Florida, experienced the second-highest increases in occupancy (+9.6% to 72.2%) and RevPAR (+15.7% to US$83.65).
emphasis added
Note: The hurricanes continue to drive demand in Texas and Florida, especially in Houston.

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

(image) The red line is for 2017, dash light blue is 2016, dashed orange is 2015 (best year on record), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate, to date, is ahead of the record year in 2015.  The hurricanes will push the annual occupancy rate to a new record in 2017.

Data Source: STR, Courtesy of

Goldman: FOMC Preview


The FOMC meets on Tuesday and Wednesday, and almost all analysts expect a rate hike this week. Here are a few brief excerpts from a Goldman Sachs research note:
With the FOMC almost certain to deliver the third rate hike of 2017 at its December meeting next week, attention is instead likely to focus on the outlook for 2018 and beyond and in particular on how the Fed will react to a tax reform that now appears likely to become law.

The economic data have improved slightly on net since the FOMC last met in early November. Growth momentum has remained strong, the unemployment rate has fallen further, and the latest inflation data were encouraging. Meanwhile, financial conditions have eased once again, as they have in the aftermath of each Fed tightening action so far in this hiking cycle.

In light of both the stronger growth momentum and the prospect of tax cuts, we expect the Summary of Economic Projections to upgrade GDP growth in 2018 and 2019 and to mark down the unemployment path by two-tenths to 3.9%, offset only partly by a one-tenth reduction in the longer-run unemployment rate to 3.5%. We expect the 2018 inflation projections to remain at 1.9% ... we continue to expect four rate hikes next year
CR Note: I think FOMC members will wait until the tax cuts are passed before including the possible impact in their projections.(image)

Schedule for Week of Dec 10, 2017


The key economic reports this week are November retail sales and the Consumer Price Index (CPI).For manufacturing, November industrial production, and the December New York Fed manufacturing survey will be released this week.The FOMC meets this week and is expected to announce a 25bps increase in the Fed Funds rate.----- Monday, Dec 11th -----10:00 AM ET: Job Openings and Labor Turnover Survey for October from the BLS. This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. Jobs openings increased slightly in September to 6.093 million from 6.090 in August. The number of job openings (yellow) were up 7.5% year-over-year, and Quits were up 3.5% year-over-year.----- Tuesday, Dec 12th -----6:00 AM ET: NFIB Small Business Optimism Index for November.8:30 AM: The Producer Price Index for November from the BLS. The consensus is a 0.3% increase in PPI, and a 0.2% increase in core PPI.----- Wednesday, Dec 13th -----7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.8:30 AM: The Consumer Price Index for November from the BLS. The consensus is for a 0.4% increase in CPI, and a 0.2% increase in core CPI.2:00 PM: FOMC Meeting Announcement. The FOMC is expected to increase the Fed Funds rate 25 bps at this meeting.2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections. 2:30 PM: Fed Chair Janet Yellen holds a press briefing following the FOMC announcement. ----- Thursday, Dec 14th -----8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 239 thousand initial claims, up from 236 thousand the previous week.8:30 AM ET: Retail sales for November be released.  The consensus is for a 0.3% increase in retail sales.This graph shows retail sales since 1992 through October 2017.10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for October.  The consensus is for a 0.1% decrease in inventories.----- Friday, Dec 15th -----8:30 AM: The New York Fed Empire State manufacturing survey for December. The consensus is for a reading of 18.0, down from 19.4. 9:15 AM: The Fed will release Industrial Production and Capacity Utilization for November.This graph shows industrial production since 1967.The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 77.2%.[...]

AAR: Rail Carloads decreased, Intermodal Solid in November


From the Association of American Railroads (AAR) Rail Time Indicators. Graphs and excerpts reprinted with permission. In November 2017, like in October 2017, U.S. rail traffic had both a glass-is-half-empty and a glass-is-half-full feel to it. It’s half empty because total carloads were down 0.9% (11,442 carloads) in November, their fifth straight year-over-year monthly decline after eight straight monthly increases. Railroads, of course, are concerned with their total level of business, not just particular commodities, so total carloads matter. Eight of the 20 categories the AAR tracks had carload declines in November, but three of these were especially important: coal (down 22,560 carloads, or 5.0%), grain (down 16,311 carloads, or 12.7%), and petroleum and petroleum products (down 3,877 carloads, or 7.2%). All three of these categories saw carload declines in November for reasons that don’t have much to do with the state of the economy. So, the half-full feel comes from the fact that many traffic categories that are more sensitive to the economy did relatively well in November (e.g., steel, up 6.9%; stone, clay, and glass products, up 6.0%; chemicals up 3.6%). That’s a good sign for the economy going forward. The fact that intermodal originations were up 3.8% (50,029 containers and trailers) in November and will almost certainly set a new annual record in 2017 is a good sign as well. Click on graph for larger image.This graph from the Rail Time Indicators report shows U.S. average weekly rail carloads (NSA).  Dark blue is 2017. Rail carloads have been weak over the last decade due to the decline in coal shipments.Originated carloads on U.S. railroads totaled 1,307,521 in November 2017, down 0.9% (11,442 carloads) from November 2016 thanks mainly to big declines in carloads of coal, grain, and petroleum products. Total carloads averaged 261,504 per week in November 2017, ahead of November 2015 (260,453) but otherwise the lowest weekly average for November since sometime prior to 1988, when our data begin.The second graph is for intermodal traffic (using intermodal or shipping containers):U.S. intermodal originations totaled 1.37 million containers and trailers in November 2017. That’s 3.8%, or 50,029 units, higher than in November 2016 and the tenth straight monthly increase. Weekly volume in November 2017 averaged 273,832 units, the eighth largest weekly average for any month on record and the fourth highest for any month this year.[...]

Public and Private Sector Payroll Jobs: Carter, Reagan, Bush, Clinton, Bush, Obama, Trump


Here is another update of tracking employment during Presidential terms.  We frequently use Presidential terms as time markers - we could use Speaker of the House, Fed Chair, or any other marker.NOTE: Several readers have asked if I could add a lag to these graphs (obviously a new President has zero impact on employment for the month they are elected). But that would open a debate on the proper length of the lag, so I'll just stick to the beginning of each term.Important: There are many differences between these periods. Overall employment was smaller in the '80s, however the participation rate was increasing in the '80s (younger population and women joining the labor force), and the participation rate is generally declining now.  But these graphs give an overview of employment changes.The first graph shows the change in private sector payroll jobs from when each president took office until the end of their term(s). Presidents Carter and George H.W. Bush only served one term.Mr. G.W. Bush (red) took office following the bursting of the stock market bubble, and left during the bursting of the housing bubble. Mr. Obama (dark blue) took office during the financial crisis and great recession. There was also a significant recession in the early '80s right after Mr. Reagan (dark red) took office.There was a recession towards the end of President G.H.W. Bush (light purple) term, and Mr Clinton (light blue) served for eight years without a recession. Click on graph for larger image.The first graph is for private employment only.Mr. Trump is in Orange (just ten months).The employment recovery during Mr. G.W. Bush's (red) first term was sluggish, and private employment was down 811,000 jobs at the end of his first term.   At the end of Mr. Bush's second term, private employment was collapsing, and there were net 396,000 private sector jobs lost during Mr. Bush's two terms.  Private sector employment increased by 20,966,000 under President Clinton (light blue), by 14,717,000 under President Reagan (dark red), 9,041,000 under President Carter (dashed green), 1,510,000 under President G.H.W. Bush (light purple), and 11,756,000 under President Obama (dark blue).During the first ten months of Mr. Trump's term, the economy has added 1,670,000 private sector jobs. A big difference between the presidencies has been public sector employment.  Note the bumps in public sector employment due to the decennial Census in 1980, 1990, 2000, and 2010.  The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).  However the public sector declined significantly while Mr. Obama was in office (down 268,000 jobs). During the first ten months of Mr. Trump's term, the economy has added 30,000 public sector jobs.The third graph shows the progress towards the Trump goal of adding 10 million jobs over the next 4 years.After ten months of Mr. Trump's presidency, the economy has added 1,700,000 jobs, about 383,000 behind the projection.[...]

Solid Seasonal Retail Hiring in November


According to the BLS employment report, retailers hired seasonal workers in October and November at a higher pace than last year.

(image) Typically retail companies start hiring for the holiday season in October, and really increase hiring in November. Here is a graph that shows the historical net retail jobs added for October, November and December by year.

This graph really shows the collapse in retail hiring in 2008. Since then seasonal hiring has increased back close to more normal levels. Note: I expect the long term trend will be down with more and more internet holiday shopping.

Retailers hired 595 thousand workers (NSA) net in October and November, this is up from just over 509 thousand for the same period last year, and about the same level as the previous four years.   Note: this is NSA (Not Seasonally Adjusted).

This suggests retailers are optimistic about the holiday season, even though some retailers are probably having trouble finding seasonal hires.(image)

Comment on Employment Report: Some Additional Hurricane Bounce Back


The headline jobs number was strong at 228  thousand, probably somewhat due to an additional bounce back from the hurricanes, and above expectations.  The previous two months were revised up slightly by a combined 3 thousand jobs.The September jobs report was revised up again (now up to 38 thousand), and that keeps the record job streak alive, now at 86 consecutive months (93 months if we remove the decennial Census hiring and firing).Earlier: November Employment Report: 228,000 Jobs Added, 4.1% Unemployment RateIn November, the year-over-year change was 2.07 million jobs. This is still generally trending down.Average Hourly EarningsClick on graph for larger image.This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation.The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth was at 2.5% YoY in November. Wage growth had been trending up, although the acceleration in wage growth stalled this year.Part Time for Economic Reasons From the BLS report:The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 4.8 million, was essentially unchanged in November but was down by 858,000 over the year. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find full-time jobs.The number of persons working part time for economic reasons increased slightly in November. The number working part time for economic reasons suggests a little slack still in the labor market. These workers are included in the alternate measure of labor underutilization (U-6) that increased to 8.0% in November. Unemployed over 26 WeeksThis graph shows the number of workers unemployed for 27 weeks or more. According to the BLS, there are 1.58 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 1.62 million in OctoberThis is the lowest level since June 2008.This is trending down, but still a little elevated.The headline jobs number was solid and the unemployment rate unchanged at a low level - both positive signs and a continuation of multi-year trends.  However wage growth was disappointing again.[...]

November Employment Report: 228,000 Jobs Added, 4.1% Unemployment Rate


From the BLS: Total nonfarm payroll employment increased by 228,000 in November, and the unemployment rate was unchanged at 4.1 percent, the U.S. Bureau of Labor Statistics reported today. ... The unemployment rate held at 4.1 percent in November, and the number of unemployed persons was essentially unchanged at 6.6 million.... The change in total nonfarm payroll employment for September was revised up from +18,000 to +38,000, and the change for October was revised down from +261,000 to +244,000. With these revisions, employment gains in September and October combined were 3,000 more than previously reported....In November, average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents to $26.55. Over the year, average hourly earnings have risen by 64 cents, or 2.5 percent.emphasis added Click on graph for larger image.The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes).Total payrolls increased by 228 thousand in November (private payrolls increased 221 thousand).Payrolls for September and October were revised up by a combined 3 thousand.This graph shows the year-over-year change in total non-farm employment since 1968.In November the year-over-year change was 2.07 million jobs. The third graph shows the employment population ratio and the participation rate.The Labor Force Participation Rate was unchanged in November at 62.7%. This is the percentage of the working age population in the labor force.   A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio decreased to 60.1% (black 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 was unchanged in October at 4.1%.  This was above expectations of 185,000 jobs, and the previous two months combined were revised up slightly.I'll have much more later ...[...]

Friday: Employment Report


My November Employment Preview

and Goldman: November Payrolls Preview

• At 8:30 AM ET, Employment Report for November. The consensus is for an increase of 185,000 non-farm payroll jobs added in November, down from the 261,000 non-farm payroll jobs added in October. The consensus is for the unemployment rate to be unchanged at 4.1%.

• At 10:00 AM, University of Michigan's Consumer sentiment index (preliminary for December). The consensus is for a reading of 98.8, up from 98.5 in November.(image)

Leading Index for Commercial Real Estate "Remains Strong" in November


Note: This index is possibly a leading indicator for new non-residential Commercial Real Estate (CRE) investment, except manufacturing.

From Dodge Data Analytics: Dodge Momentum Index Remains Strong in November
The Dodge Momentum Index surged again in November, climbing 13.9% to 149.5 (2000=100) from the revised October reading of 131.3. The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The November increase was the second month of strong gains after a four-month period of softness. November’s advance was the result of healthy gains in both the commercial and institutional sectors. From October to November, the commercial portion of the Momentum Index advanced 19.6%, while the institutional portion grew 5.5%. On a year-over-year basis, the Momentum Index is now nearly 21% higher, with the commercial portion up 24% and the institutional side up 17%. The turnaround in October and November suggest that building activity should continue to expand in 2018.
emphasis added
(image) Click on graph for larger image.

This graph shows the Dodge Momentum Index since 2002. The index was at 149.6 in November, up from 131.3 in October.

The index is up 21% year-over-year.

According to Dodge, this index leads "construction spending for nonresidential buildings by a full year". This suggests further growth into 2018.(image)

Goldman: November Payrolls Preview


A few brief excerpts from a note by Goldman Sachs economist Spencer Hill:
We estimate that nonfarm payrolls increased 225k in November, above consensus of +195k. In addition to a firm pace of underlying job growth, our forecast reflects some additional normalization in hurricane-affected regions, as well as above-trend retail job growth associated with the early Thanksgiving. The arrival of over 200k Puerto Ricans in Florida may also boost payroll growth this month.

We estimate the unemployment rate remained unchanged at 4.1%, as the brisk downtrend in recent months seems due a pause. For average hourly earnings, we estimate +0.3% month-over-month (+2.7% yoy) with risks skewed to the upside, reflecting a boost from unwinding hurricane distortions and somewhat favorable calendar effects.
emphasis added

November Employment Preview


On Friday at 8:30 AM ET, the BLS will release the employment report for November. Merrill Lynch economists expect the following: We forecast that nonfarm payrolls increased by an above-trend 210k in November. While nonfarm payrolls rebounded ... in October, it was well short of offsetting the decline seen in September and therefore we expect a further rebound in job growth in November. ... Elsewhere, we expect the unemployment rate to tick up to 4.2% from 4.1%. The unemployment rate declined in October as the labor force participation rate and household employment dropped sharply, potentially due to noise in the household survey. On wages, with labor market conditions continuing to tighten, we look for average hourly earnings growth to rebound to 0.3% mom in November after a flat reading in October. If realized, the yoy rate should jump to 2.7% from 2.4%, previously. The consensus, according to Bloomberg, is for an increase of 190,000 non-farm payroll jobs in November (with a range of estimates between 153,000 to 250,000), and for the unemployment rate to be unchanged at 4.1%.The BLS reported 261,000 jobs added in October.Here is a summary of recent data:• The ADP employment report showed an increase of 190,000 private sector payroll jobs in November. This was above consensus expectations of 186,000 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 close to or above expectations.• The ISM manufacturing employment index decreased in November to 59.7%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll increased about 34,000 in October. The ADP report indicated manufacturing jobs increased 40,000 in November.The ISM non-manufacturing employment index decreased in November to 55.3%. 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 jobs increased about 215,000 in November. Combined, the ISM indexes suggests employment gains of about 249,000.  This suggests employment growth above expectations.• Initial weekly unemployment claims averaged 241,500 in November,  up from 232,000 in October. For the BLS reference week (includes the 12th of the month), initial claims were at 240,000, up from 223,000 during the reference week in October.The increase during the reference week suggests a weaker employment report in November than in October.• The final November University of Michigan consumer sentiment index decreased to 98.5 from the October reading of 10000.7. 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 suggest a strong report.  The ADP report and weekly claims suggest a an employment report close to expectations.   My guess is the employment report will be above the consensus.[...]

Fed's Flow of Funds: Household Net Worth increased in Q3


The Federal Reserve released the Q3 2017 Flow of Funds report today: Flow of Funds.According to the Fed, household net worth increased in Q3 2017 compared to Q2 2017:The net worth of households and nonprofits rose to $96.9 trillion during the third quarter of 2017. The value of directly and indirectly held corporate equities increased $1.1 trillion and the value of real estate increased $0.4 trillion. The Fed estimated that the value of household real estate increased to $24.2 trillion in Q3. The value of household real estate is now above the bubble peak in early 2006 - but not adjusted for inflation, and this also includes new construction. Click on graph for larger image.The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak. This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.This graph shows homeowner percent equity since 1952. Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008. In Q3 2017, household percent equity (of household real estate) was at 58.5% - up from Q3, and the highest since Q1 2006. This was because of an increase in house prices in Q3 (the Fed uses CoreLogic). Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 58.5% equity - and about 2.5 million homeowners still have negative equity. The third graph shows household real estate assets and mortgage debt as a percent of GDP. Mortgage debt increased by $85 billion in Q3. Mortgage debt has declined by $0.7 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).The value of real estate, as a percent of GDP, was up in Q3, and  is above the average of the last 30 years (excluding bubble).  However, mortgage debt as a percent of GDP, continues to decline.[...]

CoreLogic: "2.5 million Homes still in negative equity" at end of Q3 2017


From CoreLogic: CoreLogic Reports Homeowner Equity Increased by Almost $871 Billion in Q3 2017
CoreLogic® ... today released its Q3 2017 home equity analysis which shows that U.S. homeowners with mortgages (roughly 63 percent of all homeowners*) have collectively seen their equity increase 11.8 percent year over year, representing a gain of $870.6 billion since Q3 2016.

Additionally, homeowners gained an average of $14,888 in home equity between Q3 2016 and Q3 2017. Western states led the increase, while no state experienced a decrease. Washington homeowners gaining an average of approximately $40,000 in home equity and California homeowners gaining an average of approximately $37,000 in home equity.

On a quarter-over-quarter basis, from Q2 2017 to Q3 2017, the total number of mortgaged homes in negative equity decreased 9 percent to 2.5 million homes, or 4.9 percent of all mortgaged properties. Year over year, negative equity decreased 22 percent from 3.2 million homes, or 6.3 percent of all mortgaged properties, from Q3 2016 to Q3 2017.

“Homeowner equity increased by almost $871 billion over the last 12 months, the largest increase in more than three years,” said Dr. Frank Nothaft, chief economist for CoreLogic. “This increase is primarily a reflection of rising home prices, which drives up home values, leading to an increase in home equity positions and supporting consumer spending.”
emphasis added
(image) Click on graph for larger image.

This graph shows the distribution of home equity in Q3 2017 compared to Q2 2017.

For reference, about five years ago, in Q3 2012, almost 10% of residential properties had 25% or more negative equity.

A year ago, in Q3 2016, there were 3.2 million properties with negative equity - now there are 2.5 million.  A significant change.(image)