Friday, November 20, 2020

The Most Home Sales Since Housing Bubble!

 The Mortgage Corner

Calculated Risk

How can there be a record number of homeless and a booming housing market? It’s almost unbelievable that one sector of our economy is growing like in the good old days of the early 2000s when the housing bubble was formed, while a huge number of foreclosures and evictions are looming by the end of the year due to the pandemic.

There aren’t enough houses on the market or being built to satisfy the incredible demand, as home buyers that can afford to are again moving as they did during the housing bubble into larger homes in what they consider to be suburbs safer from COVID-19 infection.

And conditions are different this time. Builders will have a difficulty building enough housing because of the pandemic that is causing a material and skilled-worker shortage. Hence there is a looming housing shortage for those impacted most by the pandemic.

Existing-home sales grew for the fifth consecutive month in October to a seasonally-adjusted annual rate of 6.85 million – up 4.3 percent from the prior month and 26.6% from one year ago, according to the National Association of Realtors.

  • The median existing-home price was $313,000, almost 16 percent more than in October 2019. Total housing inventory declined from the prior month and one year ago to 1.42 million, enough to last 2.5 months – a record low – at the current sales pace.
  • More than 7 in 10 homes sold in October 2020 – 72 percent – were on the market for less than a month.

NAR chief economist Lawrence Yun made the understatement of the year when he said, "Considering that we remain in a period of stubbornly high unemployment relative to pre-pandemic levels, the housing sector has performed remarkably well this year.”

This is while more than 12 million workers employed before the pandemic are still without work, and almost 20 million still receive unemployment compensation from various government programs that they would not have received during an ordinary recession.

And this isn’t an ordinary recession. Some economists are beginning to fear a continuation of the pandemic-induced recession with the rising coronavirus death toll, as I said yesterday. While the U.S. makes up 4 percent of the world’s population, it has had 20 percent of all COVID-19 cases. As of Wednesday, the U.S. had reported 11 million coronavirus cases and 248,687 COVID-19-related deaths, just ahead of India (8.9 million cases to date), according to Johns Hopkins University.

Covidtrackingproject

Home builders are rushing to fill the demand, with single-family starts up 6.4 percent to a 13-year high and multi-family starts unchanged from an upward-revised September level, according to the National Association of Home Builders (NAHB).  Overall starts rose 4.9 percent and the level of 1.530 million was as expected.

“As seen in the NAHB/Wells Fargo builder confidence index, single-family starts continue to grow off a historic rebound that began in April,” said NAHB Chairman Chuck Fowke. “Current demand is being supported by historically low interest rates and home buyer preferences shifting to the suburbs and exurbs.”

This is the fastest growth in new residential construction since 2007.

It’s almost surreal that parts of the US economy continue to grow during what looks to be a very dark winter for those that may be without jobs or homeless with the expiration of eviction bans and foreclosures scheduled to end in December 31.

The US is currently under a national eviction moratorium that stops landlords from evicting tenants who don't pay rent until at least Dec. 31, 2020. Although the previous eviction ban that was part of the CARES Act only covered certain properties, this current moratorium effectively protects everyone living in one of the nation's roughly 43 million rental households, regardless of the kind of building they live in.

So the housing shortage is more than a lack of inventory for available homebuyers. Conditions will become something much worse if existing homeowners and renters aren’t allowed to remain in their homes until the pandemic ends.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Thursday, November 19, 2020

Retail Sales, Manufacturing Recovering--But What’s Next?

Financial FAQs

FRED

Retail sales jumped 5.1 percent year-over-year in October, which means this recovery is much stronger than forecast. But the question for economists will be, can it continue with the ongoing winter COVID-19 surge? It’s incredible that consumers are spending so much when this winter season has just begun and the worst is yet to come.

Higher home improvement/gardening, electronic, and online sales drove the increase. “The level of real consumer spending entered the fourth quarter well above the Q4 average, but this and other measures suggest that it is leveling out quickly,” said Reuters.

Maybe the public is believing “Yes, we can” again with the looming approval of several COVID-19 vaccines? This is while US manufacturing is also in partial recovery, with the Federal Reserve reporting that that overall industrial production rose 1.1 percent. 

“Among the major industrial sectors, the biggest surprise was in motor vehicles and parts manufacturing, which was flat versus our forecast of a moderate increase,” said Reuters.  “Other categories were close to expectations, with non-auto manufacturing up 1.1 percent, mining down 0.6 percent and utilities up 3.9 percent.”

But it is still a tentative recovery with consumers holding back from spending at pre-pandemic levels, in part because only 10 percent have seen an improvement in their finances. It’s become evident that he income/wealth  inequality has only worsened and will damage any recovery unless something is done about it.  Some economists are beginning to fear a second recession may be looming, we well, with the rising coronavirus death toll. While the U.S. makes up 4 percent of the world’s population, it has had 20 percent of all COVID-19 cases. As of Wednesday, the U.S. had reported 11 million coronavirus cases and 248,687 COVID-19-related deaths, just ahead of India (8.9 million cases to date), according to Johns Hopkins University.

 

Covidtrackingproject

Economist James K Galbraith said recently in Project Syndicate, “As for the economic effects, the US has experienced the partial rebound I predicted in March. But I believe now, as then, that this will be followed by a long struggle, for three fundamental reasons, beyond the pandemic itself. First, there is the collapse in global investment, which affects the economy’s advanced sectors. Second, the impulse to save in the face of economic anxiety will devastate services providers, and the jobs and incomes they provide, affecting millions of workers. And, third, unpayable debts are piling up, affecting the entire system.”

What can get us out of a possible second recession? “Progressives should ignore the tired chatter about “excessive” deficits and public debt,” said Professor Galbraith, “and, to tackle inequality, they should vote to increase the top income tax rates and restore the bite of the estate and gift taxes.”

I agree with him—because the wealthiest have not been using their tax savings from the Republicans’ 2017 tax cuts that would boost anything but their stock price, whereas returning some of the 2007 tax cut revenue to Treasury could finance some very necessary recovery spending.

Tackling the record income inequality will also cure some of the discontent that has brought out unhappy populists in the Midwest and South that supported Trump. They are mainly in those red states that have suffered most from job losses, and now the pandemic.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

Thursday, November 12, 2020

Plenty of Available Jobs!

 Financial FAQs

 


Calculated Risk

There were 6.4 million job openings on the last business day of September, ‘little changed” from prior months, the U.S. Bureau of Labor Statistics reported yesterday. But it is below the 7 million job openings in the months before the pandemic.

The Calculated Risk graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS report that gives us the best jobs picture outside the Labor Department’s monthly unemployment report.

And the number of Americans filing claims for unemployment benefits has remained above its 665,000 peak during the 2007-09 Great Recession. At least 21.5 million people were still receiving unemployment benefits in mid-October.

So the JOLTS report shows the spring back in job openings, but fallback in hires as the year end approaches.

How will the new Biden administration bring back those jobs with COVID-19 numbers surpassing last summer and predicted to rise through at least December?

The good news is that the economy was growing and unemployment at record lows before the pandemic hit. There was no housing boom and bust, or overleveraged financial markets and poor credit controls that caused the Great Recession.

But there is still the record income inequality worsened with this pandemic that will slow down any recovery. Consumer demand would be boosted by raising the national minimum wage, which Biden advocates. President Biden could do this for federal contract workers, but congress would have to approve a raise to it nationally.

We could recover quickly, if we regain a national resolve to work together, as this election seems to have mandated, in other words.

The U.S. has already regained 630,000 jobs in October and the unemployment rate fell sharply again to 6.9 percent, said the Bureau of Labor Statistics, reflecting a surprising show of strength for the economy even as coronavirus cases rose to record highs.

“These improvements in the labor market reflect the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic, and efforts to contain it,” the BLS said in its press release. “In October, notable job gains occurred in leisure and hospitality, professional and business services, retail trade, and construction. Employment in government declined.”

Covidtrackingproject

President-elect Biden’s creation of a COVID-19 national task force and implementing national mandates for mask wearing, testing, and vaccinations once he is in the White House should help to control its further spread and shorten the recovery time, bringing consumers back to their shopping ways.

The states reported 1.2 million tests and 131k cases, the highest single-day total since the pandemic started on Tuesday, reports the Covid Tracking Project. There are 62k people currently hospitalized with COVID-19. The death toll was 1,347, and now totals 231,659 Americans since the beginning of the pandemic.

So I see sunnier days ahead if we can prevent even worse consequences from the current phase two or three surge in infections and deaths. That means convincing most Americans to follow the science. President-elect Biden will have the bully pulpit to do so.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Monday, November 9, 2020

When Will The Economic Civil War End?

 Answering the Kennedys’ Call

@WIL_inequality

When Joe Biden becomes our new President in January 2021 and signals an ambitious ‘new’ new deal to rebuild America, the economic civil war that reached a high point with this presidential election has to end.

Americans must reach agreement on what needs to be done to vanquish the worst disease since the 1918-19 Spanish flu pandemic that killed an estimated 675,000 Americans, for starters. The COVID-19 pandemic has infected 10 million Americans and 50 million worldwide at this writing.

And how do we then rebuild from this recession, the worst since the Great Depression (yes, the Great Depression) with 11 million jobs lost and many more unemployed? What tends to be forgotten is the 1932 depression only became the Great Depression when the US economy plunged back into negative growth in 1937. And we are in a second pandemic-induced recession begun in February this year after barely recovering from the 2017-19 Great Recession.

If this economic war isn’t resolved because of what could be an intransigent Republican-majority Senate in 2021, it will be more difficult to implement any new deal that will revitalize the American economy as did the original New Deal that brought us out of the Great Depression and a horrific WWII.

This election is more than a battle over states vs. federal government rights, in other words, as was the civil war with poorer southern states fighting the industrial north to preserve private property rights that included holding slaves—also private property in their eyes.

This modern economic war is also about nostalgia for an illusory past with modern Republicans’ attempts to privatize as much as they can and limit public welfare and social policies by repealing Obamacare and cutting taxes that would support more spending on public projects—our outmoded infrastructure, public K-12 education system (that is ranked last in the developed countries), more R&D support to keep US a leader in scientific research and environmental protection—all battles over who owns and benefits from the role of governments in our capitalist system.

The modern version of this economic civil war is also being fought over a false economic theory first popularized with Adam Smith’s The Wealth of Nations, written in 1776. He said low taxes and regulations on businesses and their profits created higher productivity and greater wealth for all.

At its core this has meant to most modern conservatives maximizing profits should be the sole goal of corporations; that making sure the owners of industries and the owners of capital receive most of the profits from their businesses. Enough of their wealth will then ‘trickle down’ to workers to satisfy their wants and needs as well.

The problem highlighted with this laissez-faire economic policy by economists like Lord John Maynard Keynes in the 1930s and Thomas Piketty more recently is the historical fact that owners’ rate of profit growth from their capital ownership (5 percent historically) has been more than twice that of workers’ incomes (approximately 2 percent). Hence there is an inherent inequality built into capitalism if not regulated via progressive taxes and regulations to level the playing field.

So it was a shockingly new idea when Henry Ford first realized that his workers could only buy more of his cars when he raised their salaries to $5 per day. Their demand for more cars would only increase with an increase in their salaries and benefits. Hence the recognition that only by increasing workers’ incomes and benefits would there be sustainable economic growth with less booms and busts, such as occurred during the Great Depression and more recent recessions—both caused in large part by the record income inequality.

What if we could learn from history? Would there still be an ongoing economic civil war?

The federal government has the means to pay it forward for future generations by funding projects that are too risky for private enterprise. Would we have gone to the moon, built our modern infrastructure of dams, energy grids, established the Internet, or built our freeway system otherwise?

Of course not. The economic civil war of states vs. federal rights, lower vs. higher taxes, less vs. more regulations, does not have to continue, if President-elect Biden is the negotiator and compromiser he is touted to be. But that can only happen if there is agreement on the mechanisms that create a more level playing field.

The world of Adam Smith’s free market, low tax and regulation world that prevailed in England’s early industrial towns and cities, and that Republicans attempted to resurrect with trickle-down economic theories in the 1980s, hasn’t worked today because of the essential role governments play to fight pandemics, or advance scientific research to protect us from many future unknowns.

A majority of Americans in this election—five million and counting—have said that the income and wealth inequality resulting from owners garnering the lion’s share of income and wealth will no longer be tolerated. It has taken natural or human-made catastrophes—like wars and disease pandemics—to bring Americans together in past times. Let US not lose this opportunity the COVID-19 pandemic has presented to end the economic civil war once and for all, and begin a lasting economic peace.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Saturday, November 7, 2020

Another Good Employment Report

 Financial FAQs

FREDunemployment

The U.S. regained 630,000 jobs in October and the unemployment rate fell sharply again to 6.9 percent, said the Bureau of Labor Statistics, reflecting a surprising show of strength for the economy even as coronavirus cases rose to record highs.

“These improvements in the labor market reflect the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic, and efforts to contain it,” the BLS said in its press release. “In October, notable job gains occurred in leisure and hospitality, professional and business services, retail trade, and construction. Employment in government declined.”

There are still 11 million workers without jobs of the 22 million jobs lost due to the pandemic shutdown, so it will take much more time to bring the employment picture back to something like what prevailed before the pandemic, and “dark days” for COVID-19 infection rates when the holidays kick in lie, both Drs. Fauci and Birx said in recent days.

That means a lot more suffering and deaths this winter and into next year for many, before any vaccine can be widely administered.

Private-sector employment rose by a more robust 906,000, but a sharp decline in government employment pulled down the overall total. The number of persons who usually work full time rose by 1.2 million to 123.6 million, and the number who usually work part time increased by 1.0 million to 26.2 million.

The number of persons employed part time for economic reasons increased by 383,000 to 6.7 million in October, after declines totaling 4.6 million over the prior 5 months.

Federal Reserve Chair Powell said yesterday after the conclusion of their latest FOMC meeting that more pandemic relief aid is needed to keep economic growth expanding, to no one’s surprise. The rise in new cases “is particularly concern,” the Fed chairman said.

It also means much more than relief aid is needed to rebuild the American economy for the future. It took 10 years after the Great Recession for the unemployment rate to drop to its pre-pandemic low.

https://twitter.com/cmyeaton

The U.S. counted 107,872 new infections on Wednesday, according to a New York Times tracker, and at least 1,616 Americans died. In the past week, the U.S. has averaged 91,878 cases a day, a 51 percent increase from two weeks ago.

The U.S. leads the world by cases with 9.49 million and deaths with 233,777, according to data aggregated by Johns Hopkins University, and accounts for more than a fifth of global cases and fatalities.

So Powell’s warning of “tragic’ economic risks if another coronavirus aid package isn’t passed by congress seems obvious.

“Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth,” Powell said. “By contrast, the risks of overdoing it seem, for now, to be smaller.”

And those hurt most by any further delay in passing another relief package that would benefit states as well federal government programs are the essential workers most needed to conquer the pandemic.

Employment of those in the bottom rung of the wage distribution scale remains 21 percent below its February level, while it was only 4 percent lower for workers who receive higher wages.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Wednesday, November 4, 2020

How Will US Economy Survive COVID-19?

 Popular Economics Weekly

FREDpersonalconsumption

The US economy must first survive this pandemic before it will benefit most Americans. Some sectors are doing better but ignore the financial market swings, which benefit 401(k)s, but not most Americans.

Advance estimates of U.S. retail and food services sales for September 2020, adjusted for seasonal variation and holiday and trading-day differences, show an increase of 1.9 percent from the previous month, and 5.4 percent above September 2019 as an example.

This is a huge bump in spending as consumers left their confined spaces in July, which is mainly why GDP growth rose 33 percent in Q3 from its second quarter pandemic low, since consumers account for most GDP activity.

But it was mostly in so-called durable goods—autos, planes, appliances that last more than three years. The majority of services businesses, such as restaurants, lodgings and travel, will be suffering through much of next year until most Americans are vaccinated and feel it’s safe enough to re-engage with the larger world. Appliance sales are booming, for instance, because most of us remain at home during the pandemic out of caution.

The real question will be how much more will Americans suffer this winter due to the pandemic.

ADP

As a prelude to Friday’s official unemployment report, payroll data processor ADP reports a smaller increase of 365,000 new nonfarm payroll jobs in October, mostly in the service industries and down from 753,000 the prior month.

Last month’s US payrolls reported by the Labor Department increased by 661,000 nonfarm payroll jobs last month with an unemployment rate of 7.9 percent, so job creation may be declining in the government’s official report this Friday.

“The labor market continues to add jobs, yet at a slower pace,” said Ahu Yildirmaz, vice president and cohead of ADP Research Institute. “Although the pace is slower, we’ve seen employment gains across all industries and sizes.”

But that still begs the question of what will happen with coronavirus infections now reaching 100,000 per day and the infection rate rising to 9.3 percent, which means a faster community spread.

According to the Washington Post, Deborah Birx, one of the White House's most senior coronavirus advisers, issued her warning in an internal memo on November 2, saying that "We are entering the most concerning and most deadly phase of this pandemic ... leading to increasing mortality." And the White House, she wrote, is not doing enough: "This is not about lockdowns -- it hasn't been about lockdowns since March or April. It's about an aggressive balanced approach that is not being implemented."

The U.S. counted 92,660 new cases on Tuesday, according to a New York Times tracker, and at least 1,130 fatalities. In the past week, the U.S. has averaged 88,168 cases a day, up 46% from the average two weeks ago.

Does anyone believe things can get any better before this pandemic is controlled?

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Friday, October 30, 2020

Q3 Real GDP Jumps +33.1 Percent

 Popular Economics Weekly

Calculated Risk

We are not really out of the COVID recession, per Calculated Risk graph, even though the US Bureau of Economic Analysis (BEA) “advance” estimate of third quarter GDP growth increased +33.1 percent from Q2. But it’s still 3.5 percent below last year’s fourth quarter growth rate.

The blue bars portray past recessions, so the graph also tells us how severely this pandemic has affected economic growth. Real GDP had declined -31.4 percent in Q2.

The main driver of the rebound was consumption spending, which rose at a 40.7 percent growth rate.  Consumers bought new cars and trucks in September, purchased new clothes for the start of the school year and cooler fall weather, and spent more on recreation such as gym memberships and park fees. They also visited their doctors and dentists more often.

The biggest surprises were weakness in government spending and a very large rebound in inventories, as businesses stocked up for the holidays. 

“We had thought federal spending would grow enough to keep overall public spending positive,” says Reuters, “but reported spending was down at both the federal and state levels, subtracting 0.7 percentage points from growth.” 

This is precisely why congress’s inaction on passing another pandemic relief package is so maddening. It’s now declining state and local spending that is suppressing growth and additional job creation.

Positive economic growth for the rest of this year is also in doubt, as initial unemployment claims haven’t fallen fast enough to stay ahead of COVID-19, since more consumers are staying home because COVID-19 infection rates are already rising with the fall season and we haven’t even reached the holidays, when families and friends tend to gather.

Altogether, the number of people receiving benefits from eight separate state and federal programs fell by 415,727 to an unadjusted 22.7 million as of Oct. 10, the latest data available, which means 22 million of the formerly employed haven’t yet found another job.

Economists are concerned that rising coronavirus cases will lead people to stay home and cause service industries to begin another round of layoffs. Adding to the sense of unease, Congress went home for the presidential election without passing addition coronavirus financial relief.

COVID Tracking Project

There are now more than 70,000 positive tests per day, surpassing the former 68,000 peak in August, not a good sign. Infection rates have risen above 7 percent (red line in graph), also a sign of faster community spreading of the virus in the long expected third surge in virus infections.

So consumers that drive 70 percent of economic activity are in a quandary. Will the pandemic surge continue and so require consumers to stay at home, as in already happening in France and Germany with their new lockdowns from rising infection rates?

The Conference Board’s latest consumer confidence report was a mixed bag.

“Consumer confidence declined slightly in October, following a sharp improvement in September,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved while expectations declined, driven primarily by a softening in the short-term outlook for jobs. There is little to suggest that consumers foresee the economy gaining momentum in the final months of 2020, especially with COVID-19 cases on the rise and unemployment still high.”

Senior Director Franco sums up consumers’ current forebodings; what might happen for the rest of this year, and maybe into much of next year, until consumers have some confidence in an effective COVID-19 vaccine.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen