Once a quarter, the Federal Reserve surveys Senior Loan Officers at Commercial Banks to see if they are tightening or loosening lending standards.  The survey results covering lending standards to small business are an especially good predictor of Commerical and Industrial (C&I) loan growth at Banks. 

Due to 8 straight quarters of loosening lending standards, C&I loan growth has been rising at an accelerating pace over the past year.  The double digit C&I loan growth should continue for at least the next year.  The picture is very clear, there is not a credit "crunch" on the horizon in the United States. Anyone expecting a decceleration in the Private Sector due to a slowdown in private credit creation is going to be sorely dissappointed.

Kevin Spires, CFA, FRM

Last week I ranked my favorite Employment Indicators and promised to circle back and use these indicators to predict the jobs added in the April Jobs Report due out Friday.  This first preview will cover the Federal Reserve's Senior Loan Officer Survey on Bank Lending Practices and the Temporary Employment data series from last month's Employment Situation (Jobs) report.  Both of these indicators tend to lead Employment growth by a quarter, so the kind of job growth they are predicting allows a broader context around Friday's report.  For instance, if the Jobs Report comes outside the expectations of the leading employment indicators, one could look for a mean reversion of the data over the coming months.

I have been struggling to say anything germane about the U.S. Employment Outlook.  I would even settle for something witty.  What I have finally come up with is a boring, albeit non-orthodox treatment of a few of the main employment indicators.  Over the past year I have come to believe that the Weekly Initial Jobless Claims data is mostly noise and does not have much use in predicting U.S. Employment growth over the coming months.  (You can click on the charts to follow along)

In my ranking of the Employment Indicators, I have Initial Claims well down my list as you can see..._

1. Federal Reserve Senior Loan Officer Survey:  Topping my list is a fairly new survey published by the Federal Reserve.  This Survey is conducted quarterly and is available for the Federal Reserve meetings once a quarter.  The data is released to the public the Monday following the Fed meeting.  The next release of this data is on Monday, April 30th 2012.  A combination of the Net Percentage of Respondents tightening lending standards to Small Businesses and the Net Percentage of Respondents increasing Credit Spreads to Small Businesses is an excellent leading indicator of Employment Growth over the following 2 quarters.  A tip of the hat to Maury Harris at UBS for putting this in his regular Employment preview - and this is where I first learned of this indicator.
2. Temporary Help Workers:  In the Monthly Employment Situation Report released on the First Friday of the month is a count of Temporary Workers.  The change in Temp Employment tends to lead overall Employment by an average of 3 months.
3. ADP Employment Report:  Released on the Wednesday before the Jobs Report, the ADP Employment estimate is the single best estimate of how many jobs were added in the previous month.  I would think the ADP estimate is actually a better count than the government's.  ADP actually has a count of payroll jobs added in different industries and can than extrapolate their count to the total economy.  The government must rely on individual firms to fill out a form and submit the form to the government.  The government then extrapolates this sample to the whole economy.  ADP counts their complete roll of clients while the government only counts a partial sample of companies.
4. ISM Non-Manufacturing Employment Sub-Component:  A decent coincident indicator for job growth is the ISM Survey's Employment sub-component.  The problem is that its best correlation is with a one month lag - and it often is released after the Jobs report.  
5. Manufacturing Workers Overtime Hours Worked:  Another decent coincident indicator of job growth is amount of overtime hours worked by Manufacturing Workers.  This series is smoother than the headline job growth numbers with the highest correlation being the current month's data. 
6. Initial Jobless Claims:  Falling in last place on my list is the Weekly Initial Jobless Claims data.  Initial Claims do a good job of predicting turning points, but in the midst of an expansion, they actually lag changes in Employment Growth.  Overall, the predictive power of the claims data is less powerful due to the choppiness of the data from week to week and month to month.

So when I am prepping for the Jobs Report, I would first look at the Senior Loan Officer's Survey and the Temp Workers Charts.  Then I would wait for the ADP report and ISM reports to refine the current month's expectation.  If the Economy is near a turning point, then one would check the more frequent Weekly Claims data to see if a turning point has been reached.  Finally, after the report has been released, check the Manufacturing overtime hours to see if the headline number is confirmed by the overtime hours as the overtime hours are a smoother data point.  Let me know what you think...

While I have called (been calling?)  a bottom in the Housing Market, this call only extends to the bottom in activity.  Specifically, home construction has clearly bottomed.  But, the "Shadow" inventory of foreclosures and homes under water are still putting severe downward pressure on Home Prices.  Until we see the NAHB/Wells Fargo Housing Market indicator above 40 expect continued downward pressure on home prices.  In this chart, we can see the close historical relationship between Builders Sentiment (as represented by the HMI) and home prices (Case-Shiller Home Price Index).