1. society
2. work
3. unemployment

January 09, 2014
Economics Group
Weekly Economic & Financial Commentary
U.S. Review
Nonfarm Employment Change
Change in Employment, In Thousands
Finishing the Year Strong
 Annual payroll gains in 2014 were the strongest since 1999.
Growth was broad-based across industries, but the labor force
and average hourly earnings declined in December.
600
600
400
400
200
200
0
 Data from the factory sector continue to send mixed signals,
with factory orders dropping for the fourth straight month in
November, while the ISM manufacturing index remains
firmly in expansion territory.
 The trade balance narrowed significantly, thanks to a drop in
imports, mostly related to lower oil prices. Exports also
dropped, taking some of the optimism out of the report.
0
-200
-200
-400
-400
-600
-600
-800
-800
-1,000
-1,000
Monthly Change: Dec @ 252K
12-Month Average Change: Dec @ 246K
-1,200
-1,200
00
Global Review
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Eurozone Real GDP
Bars = Compound Annual Rate
Eurozone: New Year, Old Issues
 The Greek issue is returning to the forefront in a political
process that is threatening to reignite fears of a Eurozone
breakup.
 The question today is the same question the world had four
years ago when this all started: how long can a country or
region wait for economic growth and/or economic
improvement to occur after such a severe contraction in
economic activity and still maintain social stability?
Line = Yr/Yr % Change
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
-8%
-10%
-10%
Compound Annual Growth: Q3 @ 0.6%
Year-over-Year Percent Change: Q3 @ 0.8%
-12%
-14%
2000
-14%
2002
Real Gross Domestic Product
Personal Consumption
Inflation Indicators
PCE Deflator
1
Actual
2012
2013
Forecast
2014
2015
2016
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
-2.1
4.6
5.0
2.8
2.5
2.6
2.8
2.9
2.3
2.2
2.4
3.1
3.0
1.2
2.5
3.2
4.5
2.5
2.6
2.5
2.5
1.8
2.4
2.5
3.0
2.5
1.1
1.6
1.5
1.1
0.8
0.7
0.9
1.4
1.8
1.2
1.3
1.0
2.0
1.4
2.1
1.8
1.2
0.7
0.5
0.8
1.7
2.1
1.5
1.6
0.9
2.4
3.9
5.7
4.0
6.6
6.1
4.9
3.5
3.1
3.8
2.9
4.3
5.2
3.6
-4.8
0.1
1.4
3.2
3.7
3.6
4.1
4.6
11.4
4.2
0.1
4.0
5.2
76.9
75.9
81.3
85.0
83.8
84.8
85.8
86.8
73.5
75.9
78.4
85.3
88.3
2
Consumer Price Index
Industrial Production
1
Corporate Profits Before Taxes
Trade Weighted Dollar Index
Unemployment Rate
Housing Starts
Forecast
2015
2
3
4
Quarter-End Interest Rates 5
Federal Funds Target Rate
2004
2006
2008
2010
6.7
6.2
6.1
5.8
5.7
5.6
5.5
5.4
8.1
7.4
6.2
5.6
5.2
0.93
0.99
1.03
1.03
1.06
1.13
1.21
1.24
0.78
0.92
1.01
1.16
1.26
0.25
0.25
0.25
0.25
0.25
0.50
0.75
1.00
0.25
0.25
0.25
0.63
2.00
Conventional Mortgage Rate
4.34
4.16
4.16
4.00
4.16
4.20
4.30
4.40
3.66
3.98
4.20
4.27
4.95
10 Year Note
2.73
2.53
2.52
2.17
2.40
2.51
2.59
2.66
1.80
2.35
2.54
2.54
3.20
Year-over-Year Percentage C hange
3
Federal Reserve Major C urrency Index, 1973=100 - Quarter End
4
Millions of Units
5
Annual Numbers Represent Averages
2014
U.S. Review
U.S. Outlook
Global Review
Global Outlook
Point of View
Topic of the Week
Market Data
Forecast as of: January 2, 2015
1
C ompound Annual Growth Rate Quarter-over-Quarter
2
2012
Inside
Wells Fargo U.S. Economic Forecast
Actual
2014
-12%
Source: U.S. Department of Commerce, U.S. Department of Labor, Federal Reserve Board, IHS Global Insight and
Wells Fargo Securities, LLC
2
3
4
5
6
7
8
Economics Group
U.S. Review
Wells Fargo Securities, LLC
U.S. Review
Labor Market Up, Oil and Prices Down
With 2,952,000 jobs added in 2014, last year posted the largest
annual job gains since 1999. The labor market continued to
strengthen in December, adding 252,000 jobs and showing
upward revisions for the prior two already-strong months.
Meanwhile, every major industry posted a net monthly gain for
the last month of the year, and the unemployment rate dropped
two-tenths of a percent to 5.6 percent. In addition, the number of
part-time workers who would like to be full time, a key metric
watched closely by the Fed, continued its descent.
Although the labor market has clearly shown improvement and
looks strong, not all of the underlying details in the December
report were great. Some of the decline in the unemployment rate
can be attributed to a drop in the labor force, which pushed the
participation rate to its cycle low. In addition, average hourly
earnings declined in December and were revised lower for
November, though some of this weakness can be blamed on a
sharp contraction of earnings in the mining sector.
With the U.S. economy barreling toward full employment, we
maintain that the Fed is poised for liftoff in rates in the middle of
this year and will likely announce its first rate hike during the
June meeting. An earlier rate hike seems even more unlikely after
the release of the minutes to the December meeting, which
revealed that using the word “patient” indicates that the Fed
would hold off raising rates “for at least a couple of months.”
The largest risk to our call for the rate hike in June remains
inflation, or lack thereof. With oil prices plummeting, it comes as
no surprise that headline inflation has fallen considerably and
could seep into core inflation as well. A stronger U.S. dollar is also
keeping prices in check, and December’s decline in average
hourly earnings is not helping. The Fed’s newest inflation
projections have been revised lower for 2015 and were notched
down slightly thereafter, although longer-run inflation was left
unchanged. In her press conference, Chair Yellen indicated that
the Fed could raise rates even if inflation remains below its
2 percent target, as long as inflation appears to be moving toward
that objective. In the minutes, however, “a number” of
participants voiced concern that the persistence of such low
inflation could erode perception of the Fed’s commitment to its
2 percent target. Such concerns could put the Fed on hold for
longer than we expect if inflationary pressures do not materialize.
Oil prices have also had an outsized effect on other parts of the
economy. The U.S. trade deficit narrowed to just $39.0 billion in
November. Imports plunged, thanks to the lower cost of oil, but
exports fell in the month as well. A stronger U.S. economy and
dollar should reverse the narrowing in subsequent months.
Nevertheless, the smaller deficit was unexpected and should act
as a neutral contributor to GDP in Q4, as opposed to the drag we
had originally expected. Falling capex spending from oil-related
business has contributed to weak factory orders, which declined
for the fourth straight month in November. Despite these
declines, the ISM manufacturing index remains firmly in
expansion territory.
Employed Part-Time for Economic Reasons
Non-Agricultural Industries, Millions of Persons
10
10
Part-Time Employees: Dec @ 6.7M
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
PCE Deflator Forecast
Fed Central Tendency Forecast
4.5%
4.5%
Q4-over-Q4
Percent Change
Central Tendency Forecast Range
4.0%
Historical PCE Deflator
FOMC
Dec. Forecast
3.5%
4.0%
3.5%
3.0%
3.0%
2.5%
2.5%
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
0.0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Imports of Petroleum and Non-Petroleum Goods
Billions of Dollars
$60
$180
Petro Goods: Nov @ $23.1 Billion (Left Axis)
Non-Petro Goods: Nov @ $169.9 Billion (Right Axis)
$50
$160
$40
$140
$30
$120
$20
$100
$10
$80
$0
$60
00
02
04
06
08
10
12
14
Source: U.S. Department of Labor, Federal Reserve Board, U.S.
Department of Commerce and Wells Fargo Securities, LLC
2
Economics Group
U.S. Outlook
Wells Fargo Securities, LLC
Retail Sales • Wednesday
Retail sales jumped 0.7 percent in November after rising at a
0.5 percent pace in October. Automobile sales helped to lift the
headline reading for November, rising 1.7 percent. Sales growth was
widespread across categories, with only miscellaneous stores and
gasoline station sales posting declines for the month. The pullback
in gasoline station sales likely reflects the ongoing slide in retail gas
prices in the nominally reported number. So far, lower gas prices
have helped to support robust consumer spending in the fourth
quarter, a trend we expect continued in December. We expect that
headline retail sales fell 0.1 percent in December, as consumer
prices weigh on the nominal number. Even with the softer reading,
fourth-quarter real consumer spending should remain robust. We
expect that real spending rose 4.5 percent last quarter which, if it
materializes, would be the strongest rate of real PCE growth since
the first quarter of 2006.
Previous: 0.7%
U.S. Retail Sales
Month-over-Month and Year-over-Year Percent Change
40%
4%
Retail Sales: Nov @ 0.7% (Right Axis)
Year-over-Year Percent Change: Nov @ 5.1% (Left Axis)
30%
3%
20%
2%
10%
1%
0%
0%
-10%
-1%
-20%
-2%
-30%
-3%
Wells Fargo: -0.1%
-40%
Consensus: -0.1% (Month-over-Month)
-4%
07
08
09
10
11
12
13
14
Consumer Price Index • Friday
Headline CPI vs. Core CPI
Year-over-Year Percent Change
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
-2%
-2%
CPI: Nov @ 1.3%
Core CPI: Nov @ 1.7%
-3%
-3%
92
94
96
98
00
02
04
06
08
10
12
14
CPI inflation continued to soften in November as lower energy
prices pulled the headline reading down 0.3 percent for the month.
Excluding the volatile food and energy categories, the measure rose
a slight 0.1 percent. Headline inflation is up just
1.3 percent over last year’s levels, while core prices are up
1.7 percent. While goods prices remain soft, services prices continue
to put upward pressure on core prices. Looking ahead to December,
we expect that the overall CPI fell another 0.4 percent, with core
prices rising 0.1 percent for the month. The dominant story in the
coming months will continue to be the slide in oil prices. We expect
headline CPI inflation to remain tame, sliding from 0.7 percent in
the first quarter to 0.5 percent for Q2. However, we expect core
prices to continue their gradual upward climb, rising around
1.7 percent in the first quarter.
Previous: -0.3%
Wells Fargo: -0.4%
Consensus: -0.4% (Month-over-Month)
Industrial Production • Friday
Industrial production surged 1.3 percent in November, while
October’s previously reported declined was revised to a slight
positive reading. Gains were broad-based across industry sectors.
Manufacturing sector output posted a 1.1 percent increase for the
month, with automobile production rising 5.1 percent. Utilities
output also jumped 5.1 percent for the month as cold weather began
to set in across parts of the country. The slide in oil prices did not
appear to affect output in November, as crude production remained
flat. We expect that December industrial production declined a
slight 0.1 percent for the month. Going forward, we continue to
expect industrial production to remain robust, rising in excess of
6 percent in the first quarter before moderating later in the year,
reflecting the lagged effects of oil price declines on actual
production activity.
Total Industrial Production Growth
Output Growth by Volume
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
-10%
-15%
-15%
-20%
Previous: 1.3%
Wells Fargo: -0.1%
Consensus: 0.0% (Month-over-Month)
-20%
Yr/Yr Percent Change: Nov @ 5.2%
3-Month Annual Rate: Nov @ 9.2%
-25%
-25%
87
89
91
93
95
97
99
01
03
05
07
09
11
13
15
Source: U.S. Dept. of Commerce, U.S. Dept. of Labor, Federal
Reserve Board and Wells Fargo Securities, LLC
3
Economics Group
Global Review
Wells Fargo Securities, LLC
Global Review
European Manufacturing
Eurozone: New Year, Old Issues
As is the case in almost all aspects of life, if problems are not
solved when they become apparent, they come back to haunt you
in the future. This is what seems to be happening today in the
Eurozone, with Greece returning to the forefront in a political
process that is threatening to reignite fears of a Eurozone
breakup.
The question today is the same question the world had four years
ago when this all started: how long can a country or region wait
for economic growth and/or economic improvement to occur
after such a severe contraction in economic activity and still
maintain social stability? Although the Greeks were very vocal
and many times violent over the past several years due to the
austerity asked of them, they seem to have taken it in stride.
However, time is running out, and the new political landscape is
again threatening the continuation of Greece in the union.
Having said this, the problem is not only Greece; it is the
Eurozone in general. As it is the case for any state in any union,
states benefit from growth in the rest of that union. However, the
Eurozone is not showing much in terms of economic growth and
this is putting further pressure on the Greek economy, which is
one of, if not the weakest, members of that union.
However, news has not been all bad for the Eurozone. Although
economic growth is very weak, recent events will probably help
the region. The collapse in the price of petroleum and in other
commodities prices will help consumers and will add some
important impetus to economic growth this year, especially if the
drop in petroleum prices stabilizes at current levels. Furthermore,
the depreciation in the euro should help the region increase its
exports and, in turn, generate stronger economic growth.
One of the biggest issues for the Eurozone today is the threat of
deflation. However, for now the recent negative reading in CPI
inflation has been a consequence of the drop in petroleum prices
while the core inflation number came in at 0.8 percent year over
year, a bit higher than the expected 0.7 percent reading. However,
this does not make it much better for policymakers as the ECB
will probably have to take a stance very soon on whether to move
into an enhanced quantitative easing program to try to help the
region in its pursuit of economic growth.
Brazil: No Relief in Sight
Brazil posted another very disappointing industrial production
number for November. Industrial production dropped a morethan-expected 5.8 percent in November versus a year earlier.
Industrial production dropped 0.7 percent from October versus
an expectation of an improvement of 0.5 percent. The only
positive from November’s industrial production report was that
October’s month-over-month and year-over-year numbers were
revised higher, from 0.0 percent to 0.1 percent and from
-3.6 percent to -3.3 percent, respectively. Another positive note
was the improvement in the HSBC manufacturing PMI, which
rose from 48.7 in November to 50.2 in December, barely above
the expansion/contraction demarcation line.
Purchasing Manager Indices
65
65
60
60
55
55
50
50
45
45
40
40
35
35
U.K. Manufacturing: Dec @ 52.5
E.Z. Manufacturing: Dec @ 50.6
30
2000
30
2002
2004
2006
2008
2010
2012
2014
Eurozone Consumer Price Index
Year-over-Year Percent Change
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
CPI: Dec @ -0.2%
-1%
1997
1999
2001
2003
2005
2007
2009
2011
2013
-1%
2015
Brazil HSBC Manufacturing PMI
Index, SA
54
54
Manufacturing PMI: Dec @ 50.2
53
53
52
52
51
51
50
50
49
49
48
48
47
47
1900
2013
2014
2015
Source: IHS Global Insight, Bloomberg LP and
Wells Fargo Securities, LLC
4
Economics Group
Global Outlook
Wells Fargo Securities, LLC
United Kingdom CPI • Tuesday
Like everywhere else in the world, lower oil prices are having an
impact on inflation in the United Kingdom. The year-over-year rate
of CPI inflation in November came in at just 1.0 percent in
November, and the consensus expectation is that when the
December figure hits the wire on Tuesday, the rate will fall well
below 1.0 percent.
Low oil prices are starting to show up in other areas as well, and
combined with recent strengthening in sterling, have resulted in
rather benign core inflation. Core CPI inflation was just 1.2 percent,
year over year, through November.
Just as we have been saying about the FOMC, we expect the
Monetary Policy Committee to look through weaker headline prices
when making any rate change decision and concentrate on core CPI
inflation until oil prices stabilize.
Previous: 1.0% (Year-over-Year)
U.K. Consumer Price Index
Year-over-Year Percent Change
6%
6%
CPI: Nov @ 1.0%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
Wells Fargo: 0.6%
0%
1997
Consensus: 0.7%
1999
2001
2003
2005
2007
2009
2011
2013
0%
2015
Eurozone Industrial Production • Wed.
Eurozone Industrial Production
Month-over-Month Percent Change
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
-2%
-2%
-3%
-3%
-4%
Bond yields could be volatile again next week when industrial
production figures print on Wednesday. Back in September, when
the August IP report hit the wire showing a large drop, the yield on
German bunds hit a then-record low.
With PMIs close to the break-even 50, most market participants
expect no change in production figures for November.
-4%
Previous: 0.1% (Month-over-Month)
Industrial Production: Oct @ 0.1%
-5%
2007
Sovereign bond yields in Europe this week plumbed new record
lows. Fixed income investors were reacting to more dovish
comments by ECB Governor Draghi as well as the December CPI
report and are betting that with outright deflation taking hold,
direct purchases of sovereign bonds by the ECB is more likely.
-5%
2008
2009
2010
2011
2012
2013
2014
Consensus: 0.0%
Australian Unemployment Rate • Thursday
With commodities under pressure and growth in Australia’s two
largest trading partners either slowing (China) or turning negative
(Japan), Australia’s resilient economy is under pressure.
Reflecting these growing pains overseas, the unemployment rate
has been grinding slowly, but relentlessly, higher over the past
couple of years. In fact, the jobless rate is higher today than it was
during the global downturn in 2009.
A 42.7K surge in November payrolls halted the climb in the
unemployment rate, but it bears noting that most of the gains
(40.8K) were in part-time jobs. The December jobs report due out
on Thursday will provide a more current assessment of the state of
the labor market in Australia.
Australian Unemployment Rate
Seasonally Adjusted
8.5%
8.5%
7.5%
7.5%
6.5%
6.5%
5.5%
5.5%
4.5%
4.5%
Previous: 6.3%
Consensus: 6.3%
Unemployment Rate: Nov @ 6.3%
3.5%
1998
3.5%
2000
2002
2004
2006
2008
2010
2012
2014
Source: IHS Global Insight, Bloomberg LP and
Wells Fargo Securities, LLC
5
Economics Group
Point of View
Wells Fargo Securities, LLC
Interest Rate Watch
Credit Market Insights
Payrolls Solid, What About Wages?
Payroll gains over the past three months
have reinforced the outlook for steady
economic growth in the fourth quarter and
for the first half of 2015. Jobless claims and
consumer
confidence,
both
leading
indicators, support this view. For economic
growth, we estimate a gain of 2.6 percent in
the first half of 2015.
Along with this growth, there is the
anticipation
of
a
drop
in
the
unemployment rate. In December, the rate
dipped to 5.6 percent, in part due to a drop
in the participation rate, but also due to the
solid gain in jobs. We expect a further drop
in the unemployment rate going forward
that will dip the rate into the “full
employment” area, in our view.
The State of Wages
From this growth perspective, there is the
case for the Federal Open Market
Committee (FOMC) to raise the fed funds
rate in June. However, the average hourly
wage number declined in December. The
FOMC watches wages closely. To declare
an interest, we do not favor the wage series
here as useful in tracking the overall
behavior of the consumer (for more
information, see our recent report, “Hourly
Earnings Underperform”). Yet, to the
extent the FOMC weighs the wage number,
then the case could be made for the Fed to
delay.
On Net, a Flatter Yield Curve
Our outlook for a flatter yield curve
remains in place. This will be a significant
change from the behavior of the past few
years. While Fed actions will increase the
short end of the curve, the continued
moderate pace of inflation, limited pace of
Federal debt issuance and the flight to
safety from foreign investors will serve to
put a lid on long-term rates.
However, we have seen a turn in credit
quality, which may give rise to a wider
spread on private versus public debt. Auto
loan delinquencies are up and profit
growth is slowing. These are signals that
the credit cycle is deteriorating despite the
improvement in the economy. Credit and
economic growth diverge—as they do every
cycle.
Central Bank Policy Rates
7.5%
Low Mortgage Rates to Help Refis?
7.5%
US Federal Reserve: Jan - 9 @ 0.25%
ECB: Jan - 9 @ 0.05%
Bank of Japan: Jan - 9 @ 0.10%
Bank of England: Jan - 9 @ 0.50%
6.0%
6.0%
4.5%
4.5%
3.0%
3.0%
1.5%
1.5%
0.0%
0.0%
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Yield Curve
U.S. Treasuries, Active Issues
4.5%
4.5%
4.0%
4.0%
3.5%
3.5%
3.0%
3.0%
2.5%
2.5%
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
December 12, 2014
0.5%
January 10, 2014
0.0%
In addition, the portion of total
applications that are for adjustable rate
mortgages (ARM) has decreased over 2014.
In fact, the ARM share fell to 5.9 percent on
a three-month moving average basis from
8.1 percent at the beginning of 2014. This
trend will likely continue, as historical
trends show that borrowers prefer fixed
rate mortgages during tightening cycles by
the Federal Reserve.
0.0%
Bank Lending
Assets at U.S. Commercial Banks, YoY Percent Change
15%
10%
15%
10%
5%
5%
0%
0%
-5%
It will be interesting to see if this
materializes. Refinancing activity since the
recession
has
been
quite
strong.
Historically low interest rates led many
people to refinance and lock in low rates.
Fearing rising rates on the horizon, it
would seem the majority of households that
desired to, and were able to, refinance their
mortgages likely already did so. Some
individuals who were previously unable to
refinance their homes because they did not
qualify may now be able to access the lower
rates, possibly supporting demand for
refinancing activity.
Preference for Fixed Rate Mortgages
January 9, 2015
0.5%
Once again, mortgage rates have fallen and
reached their lowest level since mid-2013.
In theory, this should lead to increased
refinancing activity, as borrowers seek to
reduce payments or shorten the length of
their loans.
-5%
C&I: Dec-24 @ 13.6%
Real Estate: Dec-24 @ 2.9%
Consumer: Dec-24 @ 4.9%
-10%
2011
-10%
2012
2013
2014
Source: IHS Global Insight, Bloomberg LP and Wells Fargo Securities, LLC
Credit Market Data
Mortgage Rates
30-Yr Fixed
15-Yr Fixed
5/1 ARM
1-Yr ARM
Bank Lending
Commercial & Industrial
Revolving Home Equity
Residential Mortgages
Commerical Real Estate
Consumer
Week
4 Weeks
Current
Ago
Ago
Ago
3.73%
3.05%
2.98%
2.39%
3.87%
3.15%
3.01%
2.40%
3.80%
3.09%
2.95%
2.38%
4.51%
3.56%
3.15%
2.56%
1-Week
4-Week
Year-Ago
Current Assets
(Billions)
$1,793.0
$456.9
$1,573.7
$1,601.8
$1,198.6
Change (SAAR) Change (SAAR)
25.74%
-4.99%
0.30%
20.76%
5.98%
16.37%
-2.91%
2.21%
12.48%
2.50%
Year
Change
13.64%
-3.38%
0.86%
6.99%
4.93%
Source: Freddie Mac, Federal Reserve Board and Wells Fargo Securities, LLC
6
Economics Group
Topic of the Week
Wells Fargo Securities, LLC
Topic of the Week
Household Formations
Making Sense of Household Formations
Household formation fell markedly in the wake of the
housing bust and has remained low due to a variety of
factors including the sluggish labor market, weak
income growth, rising enrollment at colleges and trade
schools and increased student loan debt. More recently,
however, the Current Population Survey Annual Social
and Economic Supplement (CPS/ASEC) data show
household formations rebounding back to their long-run
level. This apparent improvement looks suspicious, as
income and labor conditions have only recently
improved in a significant way. On the other hand, other
measures of household formations, including the
American Community Survey (ACS), the monthly CPS
and Housing Vacancy Survey (CPS/HVS) remain at
historically low levels and actually show a downward
trend. With contradicting results, what is the best way to
gauge household formations?
Millions of Households Formed
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
0.0
CPS/ASEC: 2013 @ 1.38 Million
ACS: 2013 @ 0.32 Million
-1.0
-1.0
CPS (Monthly): 2013 @ 0.52 Million
CPS/HVS: 2013 @ 0.52 Million
Which Measure Works Best?
With all four measures showing their biased results
based on its underlying methodology (weights based on
population or housing units), we find that averaging the
CPS/ASEC and CPS/HVS provides the best estimate of
household formations. That said, the level of household
formations is still below its long-run trend (bottom
graph), a finding that also makes intuitive sense given
the ongoing concerns, by policymakers and the public in
general, about job growth and the quality of jobs in
particular.
However, the recent pick up in nonfarm employment
growth and the drop in the unemployment rate suggest
that brighter days are ahead. Based on the trend in
population and the headship rate (the share of adults
that head a household), especially for individuals aged
25–34, we expect the pace of household formation to
pick up in the coming years. This would put net new
households formed at 1.2 million in 2014. Given current
trends, household formation should rise to 1.5 million in
2015, which is well above most current forecasts for
housing starts for 2015. For a more detailed analysis, see
“Making Sense of Household Formations,” available on
our website or by request.
-2.0
-2.0
90
92
94
96
98
00
02
04
06
08
10
12
Household Formations
Average of CPS/ASEC and CPS/HVS, In Millions
3.0
3.0
Survey Averages: 2013 @ 950K
1948 to 2013 Average
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
60
64
68
72
76
80
84
88
92
96
00
04
08
12
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Subscription Info
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And for those with permission at www.wellsfargoresearch.com
7
Economics Group
Market Data
Wells Fargo Securities, LLC
Market Data  Mid-Day Friday
U.S. Interest Rates
Foreign Interest Rates
Friday
1 Week
1 Year
Friday
1 Week
1/9/2015
Ago
Ago
1/9/2015
Ago
Ago
3-Month T-Bill
0.02
0.02
0.04
3-Month Euro LIBOR
0.05
0.06
0.26
3-Month LIBOR
0.25
0.26
0.24
3-Month Sterling LIBOR
0.56
0.56
0.52
1-Year Treasury
0.22
0.24
0.14
3-Month Canada Banker's Acceptance
1.30
1.30
1.28
2-Year Treasury
0.55
0.66
0.43
3-Month Yen LIBOR
0.10
0.11
0.15
5-Year Treasury
1.42
1.61
1.75
2-Year German
-0.12
-0.11
0.21
10-Year Treasury
1.96
2.11
2.97
2-Year U.K.
0.40
0.42
0.57
30-Year Treasury
2.55
2.69
3.88
2-Year Canadian
0.95
1.00
1.10
Bond Buyer Index
3.42
3.56
4.68
2-Year Japanese
-0.03
-0.02
0.09
10-Year German
0.49
0.50
1.92
10-Year U.K.
1.60
1.72
2.98
1 Year
10-Year Canadian
1.67
1.74
2.69
10-Year Japanese
0.28
0.33
0.70
1 Year
Foreign Exchange Rates
Friday
1 Week
1 Year
1/9/2015
Ago
Ago
Euro ($/€)
1.184
1.200
1.361
British Pound ($/₤)
1.515
1.533
1.648
British Pound (₤/€)
0.781
0.783
0.826
Friday
1 Week
118.630 120.500 104.820
1/9/2015
Ago
Ago
47.51
52.69
91.66
Japanese Yen (¥/$)
Commodity Prices
Canadian Dollar (C$/$)
1.186
1.179
1.084
WTI Crude ($/Barrel)
Swiss Franc (CHF/$)
1.015
1.002
0.907
Gold ($/Ounce)
Australian Dollar (US$/A$)
0.819
0.809
0.890
Hot-Rolled Steel ($/S.Ton)
597.00
605.00
675.00
14.576
14.838
13.092
Copper (¢/Pound)
275.75
281.75
329.90
10.39
10.14
13.06
2.96
3.00
Mexican Peso (MXN/$)
Chinese Yuan (CNY/$)
6.209
6.208
6.055
Indian Rupee (INR/$)
62.325
63.295
62.078
Brazilian Real (BRL/$)
2.641
2.694
2.391
91.999
91.080
81.005
U.S. Dollar Index
1216.43 1189.23 1227.95
Soybeans ($/Bushel)
Natural Gas ($/MMBTU)
Nickel ($/Metric Ton)
CRB Spot Inds.
15,486
490.24
15,074
492.11
4.01
13,464
529.05
Source: Bloomberg LP and Wells Fargo Securities, LLC
Next Week’s Economic Calendar
Tuesday
Wednesday
Thursday
12
13
14
15
16
NFIB Sm a l l Bu sin ess Opt im ism
Ret a il Sa l es (MoM)
PPI (MoM)
CPI (MoM)
Nov em ber 9 8 .1
Nov em ber 0 .7 %
Nov em ber -0 .2 %
Nov em ber -0 .3 %
Decem ber 9 8 .5 (C)
Decem ber 0 .0 % (W )
Decem ber -0 .4 % (W )
Decem ber -0 .4 % (W )
Global Data
U.S. Data
Monday
Friday
Im por t Pr ice In dex (MoM)
In du st r ia l Pr odu ct ion (MoM)
Nov em ber -1 .5 %
Nov em ber 1 .3 %
Decem ber -2 .7 % (W )
Decem ber -0 .1 % (W )
In dia
Un it ed Kin godm
Eu r ozon e
A u st r a l ia
In du st r ia l Pr odu ct ion (YoY)
CPI (YoY)
In du st r ia l Pr odu ct ion
Un em pl oy m en t Ra t e
Pr ev iou s (Oct ober ) -4 .2 %
Pr ev iou s (Nov em ber ) 1 .0 %
Pr ev iou s (Oct ober ) 0 .1 %
Pr ev iou s (Nov em ber ) 6 .3 %
Ja pa n
PPI (YoY)
Pr ev iou s (Nov em ber ) 2 .7 %
Not e: (W ) = W ells Fa r g o Est im a t e (C) = Con sen su s Est im a t e
Source: Bloomberg LP and Wells Fargo Securities, LLC
8
Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg
Global Head of Research,
(704) 410-1801
diane.schumaker@wellsfargo.com
Economics & Strategy
(212) 214-5070
John E. Silvia, Ph.D.
Chief Economist
(704) 410-3275
john.silvia@wellsfargo.com
Mark Vitner
Senior Economist
(704) 410-3277
mark.vitner@wellsfargo.com
Jay H. Bryson, Ph.D.
Global Economist
(704) 410-3274
jay.bryson@wellsfargo.com
Sam Bullard
Senior Economist
(704) 410-3280
sam.bullard@wellsfargo.com
Nick Bennenbroek
Currency Strategist
(212) 214-5636
nicholas.bennenbroek@wellsfargo.com
Eugenio J. Alemán, Ph.D.
Senior Economist
(704) 410-3273
eugenio.j.aleman@wellsfargo.com
Anika R. Khan
Senior Economist
(704) 410-3271
anika.khan@wellsfargo.com
Azhar Iqbal
Econometrician
(704) 410-3270
azhar.iqbal@wellsfargo.com
Tim Quinlan
Economist
(704) 410-3283
tim.quinlan@wellsfargo.com
Eric Viloria, CFA
Currency Strategist
(212) 214-5637
eric.viloria@wellsfargo.com
Sarah Watt House
Economist
(704) 410-3282
sarah.house@wellsfargo.com
Michael A. Brown
Economist
(704) 410-3278
michael.a.brown@wellsfargo.com
Michael T. Wolf
Economist
(704) 410-3286
michael.t.wolf@wellsfargo.com
Zachary Griffiths
Economic Analyst
(704) 410-3284
zachary.griffiths@wellsfargo.com
Mackenzie Miller
Economic Analyst
(704) 410-3358
mackenzie.miller@wellsfargo.com
Erik Nelson
Economic Analyst
(704) 410-3267
erik.f.nelson@wellsfargo.com
Alex Moehring
Economic Analyst
(704) 410-3247
alex.v.moehring@wellsfargo.com
Donna LaFleur
Executive Assistant
(704) 410-3279
donna.lafleur@wellsfargo.com
Cyndi Burris
Senior Admin. Assistant
(704) 410-3272
cyndi.burris@wellsfargo.com
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