Market Monitor by Tim McLaughlin

Lackluster Employment Data Keeps Rates Low by Tim McLaughlin

American employers in May added the smallest number of workers in a year and the unemployment rate unexpectedly increased as job-seekers re-entered the workforce, further evidence that the labor-market recovery is stalling.

Payrolls climbed by 69,000 last month, less than the most-pessimistic forecast in a Bloomberg News survey, after a revised 77,000 gain in April that was smaller than initially estimated, Labor Department figures showed today in Washington. The median estimate called for a 150,000 May advance. The jobless rate rose to 8.2% from 8.1%, while hours worked declined.

Bigger job and wage gains are needed to jumpstart a self-sustaining increase in hiring and consumer spending that will boost the expansion. At the same time, a looming recession in the Euro area and slower growth in China and Brazil may prompt American companies to reduce headcount until they see more evidence the US economy isn’t faltering.

“The robust employment growth at the start of the year has clearly waned,” Ellen Zentner, a senior U.S. economist at Nomura Securities International Inc. in New York, said before the report. “Hiring plans may have been put on hold amidst an increasingly uncertain outlook.”

Estimates of the 87 economists surveyed ranged from increases of 75,000 to 195,000 after a previously reported 115,000 rise in April. Revisions subtracted a total of 49,000 jobs to payrolls in March and April.

The figures follow data earlier today showing the global economy is struggling as Europe’s sovereign debt crisis roils financial markets. A measure of manufacturing in the 17-nation euro fell to a three year low, while measures of the industry in China, India, South Korea and Taiwan also weakened.

The jobs data also comes five months before Americans head to the polls to either re-elect President Barack Obama or choose presumptive Republican nominee Mitt Romney, who has said White House policies have prevented a stronger economic recovery. A continued focus on the economy and job gains will no doubt have a substantial impact on this outcome in November.

A Positive Tone Heading into Summer

Tim McLaughlin

Demand for new U.S. homes rose more than forecast in April, indicating residential real estate may contribute to economic growth for the first time in seven years.

Purchases rose to a 343,000 annual rate, up 3.3 percent from a revised 332,000 in March, the Commerce Department reported Thursday in Washington. The median forecast in a Bloomberg News survey of 72 economists was 335,000. Data yesterday showed April sales of previously owned homes rose in every region.

“It’s very clear now that the housing market has turned a corner,” said Richard DeKaser, deputy chief economist at Parthenon Group LLC, who projected sales would increase to a 339,000 pace. “The only question is how strong the rebound is going to be. It bodes well for the broader economy.”

Job growth, improving affordability and record-low interest rates are helping propel sales of both existing and new homes.

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The National Association of Realtors announced that the median price of an existing home climbed about 10% to $177,400 from $161,100 in April 2011, the strongest year-to-year gain since January 2006. The median price in April reached its highest level since July 2010 when it was $182,100.

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There were substantial improvements in delinquency rates during the first quarter of 2012 according to the National Delinquency Survey. Jay Brinkmann, MBA’s Chief Economist and SVP of Research and Education said that the combined percentage of loans in foreclosure or at least one payment past due was roughly 11%, a drop from last quarter and from last year’s first quarter. In fact, this was the lowest that this measure has been since 2008 – mostly due to a decrease in the rate of loans that were 30 days or more delinquent.

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The focus for next week will be a plethora of economic releases, mainly housing and employment data. Equities have taken a big hit in May, and a positive week ahead could be the rebound Equities are looking for. The question is: if Equities do rebound on strong data releases, will Interest Rates take a hit on the rally?

Housing Affordability at an All-Time High by Tim McLaughlin

Housing affordability conditions for all buyers reached a milestone in the first quarter, according to the National Association of Realtors. NAR’s composite quarterly Housing Affordability Index rose to a record high of 205.9 in the first quarter, based on the relationship between median home price, median family income and average mortgage interest rate. This is the first time the quarterly index broke the 200 mark since NAR began record keeping in 1970. Furthermore, NAR’s index shows the median income family, earning just under $61,000, could afford a home costing $325,500 in the first quarter, which is more than double the national median existing single-family home price of $158,100. The median monthly mortgage principal and interest payment for a median-priced home would take only 13.5% of gross income, given the level of where historically low interest rates are. A companion NAR index measuring the ability of first-time buyers to purchase a home also set a record, with the first-time buyer index reaching 135.8 in the first quarter. “For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” says NAR President Moe Veissi. ”

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The US mortgage delinquency rate declined in the first quarter to the lowest level since 2008 as an improving job market and low interest rates aided borrowers.

The share of home loans at least 30 days late dropped to 7.40 percent from 7.58 percent in the previous three months, according to a report from the Mortgage Bankers Association. The rate peaked at 10.10 percent in the first quarter of 2010 and was last lower in the third quarter of 2008, when it was 6.99 percent.

“Delinquencies are clearly continuing to improve,” Michael Fratantoni, the group’s vice president of research and economics, said in a statement. “Newer delinquencies, loans one payment past due as of March 31, are down to the lowest level since the middle of 2007, indicating fewer new problems we will need to deal with in the future.”

The Positive Housing Tone Continues by Tim McLaughlin

According to the results of Fannie Mae’s April 2012 National Housing Survey, Americans’ attitudes about homeownership, the economy and personal finances “continue to move incrementally in a positive direction.” “This month’s survey shows a continued gradual improvement in consumer sentiment and outlook for home prices,” says Doug Duncan, vice president and chief economist of Fannie Mae. “After flat-lining at depressed levels for over a year, a growing share of consumers indicate that it is a good time to sell, suggesting rising optimism for the housing market and for prospective purchasers.” On average, Americans expect home prices to increase 1.3% over the next year, and the percentage of Americans who say it is a good time to sell their home continued to rise to 15% in April (up from low, flat levels during 2011). In turn, confidence in the economy’s direction rose to a survey all-time high in April, hitting 37%. Another positive trend, according to Fannie Mae, is the increased share of those who reported their income as “significantly higher” from 12 months ago, which is now at the highest level recorded over the past year and seven percentage points higher than those who reported income as “significantly lower.”

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WFIF Economic team suggest that early reports show that the critical spring home buying season has gotten off to its best start in five years. “Sales of new single-family homes totaled 83,000 units during the first quarter, up 16 percent from a year ago, while sales of existing single-family homes rose 7.2 percent, marking the best combined pace for first quarter home sales since 2007. The rise in existing home sales has generated a little excitement, as news is spreading that homes sold outside the foreclosure process are often receiving multiple bids and selling above the asking price.”

“The first quarter is typically the slowest quarter of the year, with March being the only busy month. Inventories of existing homes have fallen to just a 6.3-months’ supply, and the inventory of unsold vacant homes has fallen by 353,000 units over the past year. Inventories of new homes continue to decline and are now at a paltry 144,000 units nationwide. Only about one-third of those homes are actually completed. With inventories dwindling, home prices have improved a bit.”

Keying in on the Monthly Employment Report by Tim McLaughlin

The U.S. added a seasonally adjusted 115,000 jobs in April, the government said Friday, as private employers added 130,000 jobs. The unemployment rate ticked down to 8.1%, the lowest rate since January, 2009.

Some of the slowdown may have been the result of an unusually warm winter, which likely caused some companies to hire workers earlier in the year than they otherwise would have. Indeed, the Labor Department revised upward its estimates for job growth in February and March by a combined 53,000 jobs. With the revisions, the U.S. has added an average of just over 200,000 jobs per month over the past four months, a marked improvement from last summer, when job growth nearly stalled out.

The jobs report likely won’t change the Fed’s stance on QE3. Market watchers say at least one more jobs report and maybe another GDP number are needed before the Bernanke and the Fed decide their next move.

Other signs have been more encouraging. A measure of manufacturing activity this week showed the fastest pace of growth in nearly a year, and layoffs slowed last week after picking up earlier this spring.

“We interpret this as consolidation, not the start of a prolonged slowdown,” said Jay Feldman, economist at Credit Suisse. “Job growth ran too far too fast ahead of private sector final demand for a period of time, perhaps due to the warmest winter in a century, and is now coming back to earth.”

Federal Reserve officials have said that they expect only gradual improvement in the labor market the rest of this year. The Fed last week forecast that the unemployment rate would fall to somewhere between 7.8% and 8.0% by the end of 2012.

If the labor market stalls, the Fed could reconsider measures to stimulate the economy. “If unemployment looks like it’s no longer making progress, that will be an important consideration in thinking about policy options,” Fed Chairman Ben Bernanke said last week.

Friday’s report showed that private companies again fueled the growth, adding 130,000 jobs in April. Governments, meanwhile, cut payrolls by 15,000.

The FOMC and Positive Housing Headlines by Tim McLaughlin

The FOMC statement release Wednesday was welcome news as compared to last month’s statement in as much as it didn’t say anything unexpected or shocking.

If you remember the March 13th announcement, there were numerous changes and a headline comment stating that unemployment declined “notably” and the inference at that time was that QE3 was all but off the table.

In Wednesday announcement, benign/Fixed Income positive comments such as “strains in the global financial markets still exist” clarified that things were not as rosy in April as they appeared in March, giving fuel and stability to the Fixed Income sector.

 

Based on the announcement, it is clear that concerns in Europe have not subsided as much as initially thought and the Fed continues to stand ready ”˜if more stimulus is needed’ (Bernanke). Additionally, they stated that the central bank will maintain its reinvestments of principal payments from agency mortgage backed securities and debt holdings into new agency MBS.

 

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Two positive housing valuation metrics in the news:

 

1) US home values rose 0.5% from February to March, according to new data from Zillow. This marks the largest monthly increase in the Value Index since May 2006, when home values also rose 0.5%.

 

2) U.S. house prices rose 0.3% on a seasonally adjusted basis from January to February, according to the Federal Housing Finance Agency’s (FHFA) monthly house price index (HPI).

 

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Terrific article in today’s Wall Street Journal entitled “Stunned Home Buyers Find the Bidding Wars Are Back”. The main takeaways are that inventory is declining, housing appears to have hit bottom, and more people are interested in procuring the “right house” in this spring market and are less tempted to wait and test fate when they find what they want then the last few years.