Author: Chad Symens

November 10, 2014

The Conference Board Employment Trends Index (ETI) increased in October.  The index now stands at 123.09, up from 121.91 (an upward revision) in September.  This represents a 7.7 percent gain in the ETI compared to a year ago.

“The Employment Trends Index continues to increase rapidly, with all eight components improving in October,” said Gad Levanon, Managing Director of Macroeconomic and Labor Market Research at The Conference Board.  “The index is signaling solid job growth through the winter.  As a result, we could see the unemployment rate reach its natural rate of 5.5 percent by early Spring.”

October’s increase in the ETI was driven by positive contributions from all eight components.  In order from the largest positive contributor to the smallest, these were: Percentage of Firms With Positions Not Able to Fill Right Now, Initial Claims for Unemployment Insurance, Ratio of Involuntarily Part-time to All Part-time Workers, Number of Temporary Employees, Industrial Production, Percentage of Respondents Who Say They Find “Jobs Hard to Get,” Real Manufacturing and Trade Sales, and Job Openings.

The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area.  Aggregating individual indicators into a composite index filters out “noise” to show underlying trends more clearly.

The eight labor-market indicators aggregated into the Employment Trends Index include:

• Percentage of Respondents Who Say They Find “Jobs Hard to Get” (The Conference Board Consumer Confidence Survey)
• Initial Claims for Unemployment Insurance (U.S. Department of Labor)
• Percentage of Firms With Positions Not Able to Fill Right Now (National Federation of Independent Business Research Foundation)
• Number of Employees Hired by the Temporary Help Industry (U.S. Bureau of Labor Statistics)
• Ratio of Involuntarily Part-time to All Part-time Workers (BLS)
• Job Openings (BLS)
• Industrial Production (Federal Reserve Board)
• Real Manufacturing and Trade Sales (U.S. Bureau of Economic Analysis)

Source:The Conference Board

November 7, 2014

The labor market remains resiliently strong, as evidenced by the gain of 214,000 new jobs created in October, close to the average monthly change of 220,000 in the past year.  The combination of strong job growth and only moderate GDP growth suggests that the trend of weak improvement in labor productivity is likely to continue.  The continued drop in the unemployment rate, to 5.8 percent in October, increases the odds that both reaching the natural rate of unemployment and the first Fed rate hike would occur in the first half of 2015.  The decline in the unemployment rate in October occurred for good reasons – strong employment growth and a decline in the number of unemployed – and not due to further departures from the labor force.  However, it remains concerning that despite the tightening of the labor market, the establishment survey has yet to show much acceleration in wage growth.

Source: The Conference Board

November 7, 2014

According to the National Retail Federation, retail industry employment increased by 22,100 jobs in October.  Employment gains were broad and consistent in most retail categories, especially in general merchandise stores, which saw an increase of 11,900 jobs.  NRF figures do not include automobile dealerships, gasoline stations or restaurants.

“Today’s solid employment report is an indication that the economy is on firmer turf heading into the all-important holiday shopping season,” NRF Chief Economist Jack Kleinhenz said.  “Retail employment growth was broad based with marked increases in a cross section of categories and positions.”

“With the labor market steadily improving and hiring increasing, we should witness a corresponding lift in business activity and consumer spending,” Kleinhenz said.  “The economy is progressing toward sustainable growth with employment gains key to improved confidence and self-reinforcing economic growth.”

NRF forecasts that retailers and merchants will hire between 730,000 and 790,000 seasonal workers this holiday season.

Source: National Retail Federation

November 6, 2014

Markets in 59 of the approximately 350 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the third quarter of 2014, according to the National Association of Home Builders/First American Leading Markets Index (LMI), released today.

This represents a year-over-year net gain of seven markets.  The index’s nationwide score moved up slightly from .89 in the second quarter to .90, meaning that based on current permit, price and employment data, the nationwide average is running at 90 percent of normal economic and housing activity.  Meanwhile, 66 percent of markets have shown an improvement year-over-year.

“The markets are recovering at a slow, gradual pace,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Delaware.  “Continued job creation, economic growth and increasing consumer confidence should help spur pent-up demand for housing.”

Baton Rouge, Louisiana, continues to top the list of major metros on the LMI, with a score of 1.39 – or 39 percent better than its last normal market level.  Other major metros leading the list include Austin, Texas; Honolulu; Oklahoma City and Houston.  Rounding out the top 10 are Los Angeles; San Jose, California; Salt Lake City; New Orleans and Charleston, South Carolina – all of whose LMI scores indicate that their market activity now equals or exceeds previous norms.

“An uptick in the number of single-family permits, which is currently only 44 percent of normal activity, is the key to a full-fledged housing recovery,” said NAHB Chief Economist David Crowe.  “In the 17 metros where permits are at or above normal, the overall index shows that these markets have fully recovered.”

“Nearly half of all the markets on the Leading Markets Index are up since August, which is a good sign that the ongoing housing recovery will keep moving forward in 2015,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Company, which co-sponsors the LMI report.

Looking at smaller metros, both Midland and Odessa, Texas, boast LMI scores of 2.0 or better, meaning their markets are now at double their strength prior to the recession.  Also leading the list of smaller metros are Grand Forks, North Dakota; Bismarck, North Dakota; and Casper, Wyoming, respectively.

Source: National Association of Home Builders

November 5, 2014

Walgreens reported October sales of $6.8 billion, an increase of 6.9% from the comparable year-ago period.

Prescriptions filled at comparable stores increased by 3.6% in October and increased 4.1% on a calendar day-shift adjusted basis, meeting analyst expectations.  “Script growth for the chain drug stores likely grew in the low-to-mid-single-digit range again in October, but appears to have slowed vs. September,” Ed Kelly, Credit Suisse research analyst, commented in a note last week.  “Average script growth through the first three weeks of October, as reported by IMS, grew approximately 3.2% on a year-over-year basis, below the (approximate) 3.9% level seen in September,” he said.  “Flu activity is modestly higher than it was at this time last year and may provide a modest tailwind to comps.”

Flu shots administered at Walgreens’ pharmacies and clinics season to date were more than 5.7 million versus approximately 4.9 million last year.

October pharmacy sales increased by 9.9%.  Comparable store pharmacy sales increased 7.5% and increased by a calendar day-shift adjusted 8%.  Calendar day-shift adjusted comparable store pharmacy sales were negatively impacted by 190 basis points due to generic drug introductions in the last 12 months, and were positively impacted by 40 basis points due to more flu shots versus last year.  Pharmacy sales accounted for 67.3% of total sales for the month.

Total front-end sales increased 2.7% in October compared with the same month in fiscal 2014, while comparable store front-end sales increased 2%.  Customer traffic in comparable stores decreased 1.9% while basket size increased 3.9%.

Sales in comparable stores increased by 5.6% in October.  Calendar day shifts negatively impacted total comparable sales by 30 basis points, while more flu shots versus last year positively impacted total comparable sales by 30 basis points.  Generic drug introductions in the last 12 months negatively impacted total comparable sales by 130 basis points.

Calendar 2014 year-to-date sales for the first 10 months were $64.2 billion, an increase of 6.1%.  Fiscal 2015 year-to-date sales for the first two months were $13.2 billion, up 7.7%.

Walgreens opened 16 stores during October, including relocations, and closed one.

Source: Retailing Today

November 5, 2014

• Online labor demand continues on a slow growth trend in 2014
• Most states and MSAs showed small gains in October

Online advertised vacancies rose 11,700 to 5,083,600 in October, according to The Conference Board Help Wanted OnLine (HWOL) Data Series, released today.  The September Supply/Demand rate stands at 1.83 unemployed for each advertised vacancy, with a total of 4.2 million more unemployed workers than the number of advertised vacancies.  The number of unemployed was 9.3 million in September.

“U.S. labor demand continues on a steady, slow growth trend, maintaining historically high demand levels with over 5 million ads each month,” said Gad Levanon, Director of Macroeconomics and Labor Markets at The Conference Board.  “The data continue to indicate a strong U.S. labor market.”

In October, the Services/Production occupational category saw a gain, while the Professional category saw a small loss.  Sales (22,100) and Transportation (23,800) bounced back from large September losses with most other occupational categories showing just small increases/decreases.

Regional and State Highlights

• Fifteen of the 20 largest states posted small gains in October
• Among the 50 states, 31 experienced gains and 16 declined while 3 (Mississippi, Oklahoma, and Montana) remained constant

October Changes for States

In October, online labor demand was up in 31 states, down in 16, and unchanged in 3.  All four regions experienced increases.

Metro Area Highlights

• In October, among the 20 largest metro areas, 15 gained advertisements, 4 lost, and 1 (Boston) remained constant
• Of the 52 metro areas for which Help Wanted OnLine provides monthly data, 36 gained advertisements, 12 lost, and 4 (Boston, Buffalo, Providence, and Indianapolis) remained constant

Metro Area Changes

In October, out of the largest 52 metro areas, online labor demand was up in 36 metro areas and down in 12 while 4 remained constant.  The MSAs with the largest gains in each of the regions were: New York (+11,900) in the Northeast; Seattle-Tacoma (+3,700) and San Francisco (+2,400) in the West; Dallas (+3,300) in the South; and Detroit (+1,600) in the Midwest.

Occupational Highlights

• In October, of the 10 largest online job categories, 7 posted gains and 3 posted declines

Occupational Changes for the Month of October

The largest gain in October was in Transportation ads, which increased 23,800 in October to 336,800 as demand for heavy and tractor-trailer truck drivers increased.  October’s gain offsets the September loss of 22,900.  Sales ads increased 22,100 to 608,400 largely due to a rise in demand for retail salespeople.  This gain mostly offsets the September loss of 32,500.

Source: The Conference Board

November 4, 2014

Tailwinds from specialty pharmacy and increased generic utilization lifted CVS Health up on Tuesday, as the company posted net revenues of $35 billion, representing an increase of 9.7% for the three months ended September 30.

“I’m very pleased with our strong results in the third quarter, which reflect better than expected revenue growth across the enterprise and expanding retail gross margins,” said Larry Merlo, CVS Health president and CEO.  “The 2015 PBM selling season continued to be highly successful with a significant number of new business wins across all lines of business.  We also continued to deliver substantial free cash flow, enabling us to return more than $3.7 billion to our shareholders year to date.  We are well on track to return more than $5 billion to our shareholders through dividends and share repurchases for the full year 2014.

Revenues in the Retail Pharmacy Segment increased 3.1%, or $501 million, to $16.7 billion in the period.  Same-store sales increased 2% versus the third quarter of last year, with pharmacy same store sales up 4.8% and front-end same-store sales down 4.5%.  Front store same store sales would have been approximately 480 basis points higher if tobacco and the estimated associated basket sales were excluded from the period.  Front store same store sales were negatively impacted by approximately 190 basis points from recent generic drug introductions and by approximately 190 basis points from the implementation of Specialty Connect.  Specialty Connect transitioned all specialty prescriptions to the Pharmacy Services Segment, as they are being processed through the Company’s specialty mail order pharmacies.  The implementation of Specialty Connect had a greater effect on revenues than prescription volumes due to the higher dollar value of specialty products.

For the three months ended September 30, the generic dispensing rate increased approximately 180 basis points in both the Pharmacy Services segment and Retail Pharmacy segment, to 82.5% and 83.3%, respectively, compared to the prior year.

Revenues in the Pharmacy Services segment increased 15.7% – or $3.1 billion – to $22.5 billion.  The increase was driven by growth in specialty pharmacy including the acquisition of Coram and the impact of Specialty Connect, as well as increased volume in pharmacy network claims.  Pharmacy network claims processed during the period increased 4.3% to 209.6 million compared to 200.9 million in the prior year.  The increase in the pharmacy network claim volume was primarily due to net new business and growth in Managed Medicaid, partially offset by a decrease in Medicare Part D claims.  Mail choice claims processed during the period decreased 1.3% to 20.7 million, compared to 21 million in the prior year.  The decrease in mail choice claims was driven by a decline in traditional mail volumes, which was partially offset by growth in CVS Health’s Maintenance Choice program.

The company narrowed its earnings guidance range for the full year 2014.  CVS Health now expects to deliver Adjusted EPS of $4.47 to $4.50, from $4.43 to $4.51, excluding the $0.27 per share loss on early extinguishment of debt.  GAAP diluted EPS from continuing operations is expected to be $3.93 to $3.96, including the loss on the early extinguishment of debt.  The company raised its 2014 free cash flow guidance range to $5.7 billion to $6 billion, from $5.5 billion to $5.8 billion, and raised the 2014 cash flow from operations range to $7.4 billion to $7.7 billion, from $7.2 billion to $7.5 billion.  The company expects to deliver Adjusted EPS of $1.18 to $1.21 and GAAP diluted EPS from continuing operations of $1.12 to $1.15 in the fourth quarter.

During the three months ended September 30, CVS Health opened 45 new and acquired 33 retail drugstores, and closed four retail drugstores.  In addition, the company relocated 13 retail drugstores.  As of September 30, the company operated 7,935 locations in 47 states, the District of Columbia, Puerto Rico and Brazil.  These locations included 7,779 retail drugstores, 936 health care clinics, 17 onsite pharmacies, 26 retail specialty pharmacy stores, 11 specialty mail order pharmacies, four mail service dispensing pharmacies, and 84 branches and six centers of excellence for infusion and enteral services.

Source: Retaililng Today 

November 4, 2014

Sales continued to decline at Office Depot in the third quarter, but CEO Roland Smith said excellent execution allowed operating profits to more than double.

Total company sales on a pro-forma basis to reflect the merger of Office Depot and Office Max declined 3% to $4.1 billion during the period ended September 27.  The top line decline was steeper at the company’s 1,851 unit North American retail division where sales declined 7% to $1.7 billion due to store closures and a 3% same store sales decline driven by a reduced transaction volume.

Smith said challenging market trends and store closures would continue to negatively affect sales in the fourth quarter, but the executive noted merger related synergies are allowing the company to exceed profitability expectations.

“Our third quarter results reflect excellence in execution against our critical priorities and merger integration objectives, and we are very pleased to have more than doubled our adjusted operating income from last year’s combined pro forma results,” Smith said.  “We continue to make significant progress on merger integration and have exceeded our synergy targets for the quarter.  Accordingly, we are raising our 2014 outlook for adjusted operating income to a range of $255 million to $265 million, which is more than 150% higher than pro forma 2013.  Looking ahead, our preliminary estimate for 2015 adjusted operating income is approximately $475 million, which is an 80% increase from our 2014 outlook.”

Source: Retailing Today

November 4, 2014

U.S. households plan to spend an average of $538 on gifts this holiday season, up slightly from $528 last year, The Conference Board reports today.  About 8 percent of consumers say they plan to spend more this year on holiday gifts, while approximately 32 percent plan to spend less.  The remaining 60 percent plan to spend the same as last year.

“The recent improvements in consumer confidence – along with robust job growth and declines in gas prices – have consumers approaching the holiday season in better spirits than last year,” said Lynn Franco, Director of Economic Indicators at The Conference Board.  “However, despite the improved holiday cheer, consumers will once again seek out bargains and incentives when making their purchases.”

About one in three holiday shoppers say they expect over half of their purchases to be on sale or discounted.  An increasing number of consumers will be clicking and shipping.  Nearly seven out of ten expect to purchase at least some of their holiday gifts online, while about one out of four say more than half of their gifts will be purchased online.

Source: The Conference Board

October 31, 2014

A growing economy, rising household formations, low mortgage rates and pent-up demand will help single-family housing production to rev up in 2015, while a growth in renters will keep the multifamily market at cruising altitude or higher, according to economists who participated in yesterday’s National Association of Home Builders (NAHB) 2014 Fall Construction Forecast Webinar.

“Single-family builders are feeling good.  They are not overly confident, but confident enough to keep moving forward,” said NAHB Chief Economist David Crowe.

He added that the single-family sector will finish out the year much stronger than it began and set the stage for a robust 2015.

“This is mostly due to a significant pent-up demand and steady job and economic growth that will allow trade-up buyers who have delayed home purchases due to job insecurity to enter the marketplace,” said Crowe.

A Bright Outlook

NAHB is forecasting 991,000 total housing starts in 2014, up 6.6 percent from 930,000 units last year.

Single-family production is expected to rise 2.5 percent this year to 637,000 units, increase an additional 26 percent next year to 802,000 and reach 1.1 million in 2016.

Multifamily starts, which Crowe said are now at a normal level of production, are projected to increase 15 percent in 2014 to 356,000 units and hold steady next year.

Meanwhile, the NAHB Remodeling Market Index, which averages ratings of current remodeling activity with indicators of future activity, matched its all-time high of 57 in the third quarter of 2014 and has been above 50 for six consecutive quarters.  A reading above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower.

NAHB is forecasting that residential remodeling will post a 3.4 percent decline in 2014 over last year, due in large part to slow activity in the first quarter caused by an unusual harsh winter throughout much of the nation.  Residential remodeling activity is expected to rise 2.7 percent in 2015 and an additional 1.3 percent in 2016.

Housing Will Soon Be Undersupplied

Taking an even more bullish outlook, Mark Zandi, chief economist at Moody’s Analytics, said that prospects are good for continued gains in overall economic and housing activity.

“The reason is that job growth is quite strong,” said Zandi.  “Currently, we are creating about 225,000 jobs per month, or 2.75 million per year.  That is double the pace necessary to reduce unemployment and under employment, which augers very, very well for housing demand and the housing market more broadly.”

With the current supply of housing running just over 1 million units on an annualized basis, Zandi said that this figure is well below what is needed for the longer run.

In the aftermath of the Great Recession, new household formations were depressed as the number of Millennials living with their parents or doubling or tripling up in apartments soared to about 3 to 4 million above normal, according to Zandi.  As the economy continues to improve and these 18-to-34 year-olds begin to form their own households, this will boost overall demand for new housing construction.

“In a normal year, there should be demand for 1.7 million units,” he said, adding that each single-family home generates about 3.5 jobs over the course of a year and every multifamily unit produces 1.5 jobs over the same period.

Taking this one step further, Zandi said that increasing the housing stock by 700,000 units to meet this unmet demand would create 2.1 million jobs, which “would reduce unemployment by 1.5 percentage points.”

By the end of 2017, Zandi expects mortgage rates to rise from their current rate of about 4 percent back to their “equilibrium” of 6 percent, which he noted would be very consistent with a solid job market and solid housing market.

“The housing market will be fine because of better employment, higher wages and solid economic growth, which will trump the effect of higher mortgage rates,” he said.

He added that single-family starts could be closing in on 1 million units by the end of 2015 and multifamily production could go as high as 500,000 units.

Housing and Jobs Go Hand-in-Hand

Delving beneath the national numbers, Robert Denk, NAHB’s assistant vice president for forecasting and analysis, noted the housing recovery will vary by state and region.

“We are getting back to the point where economic conditions are dictating the strength of local housing markets,” said Denk.  “It is very clear that those states with higher levels of payroll employment or labor market recovery are associated with healthier housing markets.”

Energy-producing states – North Dakota, Texas, Louisiana, Montana and Wyoming – where job growth is strong are also at the forefront of the housing recovery while Iowa and other farm belt states supported by agricultural commodities are also running above the nationwide average.

Meanwhile, states such as Nevada, Arizona, New Mexico, Alabama, Rhode Island and New Jersey that are coping with weak labor markets are also struggling to get their housing activity back on track.

Housing nationwide bottomed out at an average of 27 percent of normal production in early 2009 and the gradual and steady housing recovery now underway across the land will bring nationwide single-family housing starts to 68 percent of normal by the fourth quarter of 2015 and 90 percent of normal by the end of 2016.

In another way of looking at the long road back to normal, by the end of 2016 the top 40 percent of states will be back to normal production levels, compared to the bottom 20 percent, which will still be below 75 percent.

Source:  National Association of Home Builders