Thursday, October 11, 2018

What Is ‘New Normal’ U.S. Growth?

Popular Economics Weekly


There is a current debate whether the U.S. will escape the ‘new normal’ of slower economic growth since the Great Recession, when American households lost a collective $9 trillion in value and consumers cut back on their spending to make up for the losses.

It is part of the debate among economists whether the U.S. and other so-called ‘mature’ economies are locked into what is called secular stagnation, an era where markets can no longer expand enough to boost economic growth that benefits all segments of the population.

The answer, alas, is slower growth in the U.S. for the foreseeable future, unless the 80 percent of wage-earning consumers find a way to bring back their lost incomes that have barely kept up with inflation since the 1970s, or governments find a way to raise enough taxes to make up for the shortfall in household incomes by funding more public sector benefits, such as increasing the social safety net and public investments in education, infrastructure, and basic research that increase future productivity.

Why have workers’ wages and household incomes remained stagnant for so long? There has been a sharp shift of incomes and wealth away from the working classes to rentiers, or the owners of capital and their managers.

There was a sharp decline in labor productivity since 2007, for the same reason. Along with the Great Recession, businesses invested even more of their profits to enhance their own stock prices (and CEO salaries), rather than in new equipment and factories that would expand labor’s productivity, which is the preferred way to boost workers’ standard of living.

Economists also postulate that economic growth is the sum of the growth rates of labor productivity and population—the working-age population, in particular. The working-age population began its decline as baby boomers began to retire in 2001, and another six million of those workers have elected not to return to work since the Great Recession.

Graph: Seeking Alpha

The above graph illustrates that equation. When the worker population increased—particularly when women and baby boomers entered the workforce from the 1970s onward—the U.S. had 3 percent plus economic growth. But in 2001 the boomers began to retire and we have the current worker shortage.


Real vs. Potential GDP charts as above show the departure from what would be its potential—when GDP growth averaged 3.25 percent, historically. Consumer spending makes up roughly two-thirds of aggregate demand, which is the economic term for total dollars spent for goods and services that make up U.S. Gross Domestic Product. When its other elements—net exports, capital investments, and government expenditures—also decline, we have slower growth, which has been the case since 2007.

Today we have an even worse labor problem—the current White House wants to cut back immigration quotas by 50 percent and deport as many undocumented workers, as possible—including Dreamer children who have grown up in the U.S.—when only immigrants and their offspring will provide enough working age adults to make up for the loss of the baby boomer workforce.

Harlan Green © 2018

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

Tuesday, October 9, 2018

ANSWERING THE KENNEDYS CALL


Yes, an excellent, tuition-free college education is possible. In fact, it’s become a movement supported by non-profit organizations, as well as cities and states that support their institutions of higher learning with taxpayer monies. Nationally, the College Promise Campaign is making news with its message and outreach stated on its website, CollegePromise.org.
“The College Promise Campaign is a national, non-partisan initiative to build broad public support for funding the first two years of higher education for hard-working students, starting in America’s community colleges. We want the first two years of college to become as universal, free, and accessible as high school has been for nearly a century,” said College Promise on it website.
That’s a start. College students have borrowed some $1.5 trillion to date with an average debt load of $35,000 per student. This wasn’t always the case for public colleges and universities. Until the 1960s, taxpayers paid most of the cost for state-run higher education, such as at the University of California system of nine UC universities and the 23 California State college campuses created to take in all eligible students that weren’t accepted to the nine UC campuses.

The programs vary, from scholarships that pay for 2 years of community college, to grants and scholarships that pay for all four years. But many of those colleges and universities are in smaller, out of the way locations, where educational costs are cheaper, and said institutions are eager to lure students away from the major metropolitan centers.

The above MarketWatch graph shows the huge cost disparities between public and private colleges, and many studies confirm that a public college or university education breeds as much success on reaching student life goals as do private schools.

The College Promise Campaign, a clearinghouse and advocacy organization for free-college initiatives, counts more than 200 programs across the country offering some version of a promise program. But that is hardly enough, when most other developed countries offer a tuition-free higher education.

In fact, most EU and non-EU Nordic countries offer tuition-free college education to foreigners, as well as their own citizens. They can be found on the Top Universities website, and include France, Germany, Norway, Iceland, Finland, Denmark, and Sweden. Even South American countries, such as Argentina offer a tuition-free college education to foreign students.

These countries put the American educational system to shame. They seem to understand the importance of higher education in improving the productivity and prosperity of their citizens. What could be more important that educating our workforce in an ever-changing world, where a college degree becomes even more important?

Cornell University is the only major U.S. land-grant institution that is tuition-free for students from low and middle-income families earning less than $60,000 annually. Its description is heartening—if only other large, public universities would follow:
“Established in 1865, Cornell University is a privately endowed research university and a partner of the State University of New York. As the federal land-grant institution in New York State, Cornell has a responsibility—unique within the Ivy League—to make contributions in all fields of knowledge in a manner that prioritizes public engagement to help improve the quality of life in New York state, the nation, the world. Cornell is located in Ithaca, New York and enrolls nearly 22,000 students. With an acceptance rate of over 10%, Cornell is the Ivy League institution with the highest acceptance rate.”
America needs more such education programs, if we are to compete in the modern world.

Harlan Green © 2018

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

Friday, October 5, 2018

A Weak Jobs Report?

Popular Economics Weekly

“The unemployment rate declined to 3.7 percent in September, and total nonfarm payroll employment increased by 134,000, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, in health care, and in transportation and warehousing.”
Why fewer jobs this month? A special mention of Hurricane by the BLS attempted to explain the low job formation number, said the survey. “Hurricane Florence affected parts of the East Coast during the September reference periods for the establishment and household surveys. Response rates for the two surveys were within normal ranges.”

It is possible the east coast hurricane affected Leisure and hospitality and Retail trade, which lost -37,000 jobs cumulatively. White-collar firms added 54,000 job and health-care providers filled 26,000 positions. Builders hired 23,000 workers and manufacturers 18,000.Pundits and economists are saying this happened during prior bad weather episodes as well.
“We have seen this time and time again after big hurricanes (last September being a very good example after Hurricane Harvey, when payrolls fell 33K in the initial print),” said Thomas Simons, senior money market economist, Jefferies LLC as cited by MarketWatch. “So, ignore the weakness in payrolls.”
A lack of skilled workers is holding back more job gains, particularly in construction. The number of people working in construction was 315,000 higher compared to a year earlier. But there were 273,000 open construction jobs at the end of July, according to a separate Labor Department report. And the pay is better, with average hourly wages now $30.18 per hour vs. $27.24 for all hourly workers.

The smaller Household Data survey that calculates the unemployment rate was more upbeat. “The unemployment rate declined by 0.2 percentage point to 3.7 percent in September, and the number of unemployed persons decreased by 270,000 to 6.0 million. The unemployment rate and the number of unemployed persons declined by 0.5 percentage points and 795,000, respectively, over the year,” per the BLS.

We could be reaching the lower limits of the unemployment rate, now at 3.7 percent, in other words, the lowest in 48 years. This could in itself prevent further GDP growth as hiring stagnates and more than 6 million job opening go unfilled, per U.S. Labor’s JOLTS report.
“The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.4 million over the month; these individuals accounted for 22.9 percent of the unemployed. In September, the labor force participation rate remained at 62.7 percent, and the employment-population ratio, at 60.4 percent, was little changed,” said the BLS.
“The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 263,000 to 4.6 million in September. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs."
There will also be workers either unable or unwilling to return to work, in part because of our aging workforce. The baby boomers are retiring en masse, and the native-born U.S. population isn’t growing fast enough to replace them. So it will be up to newly arrived immigrants or the children of immigrants to continue economic growth, as I said in my last blog.

The current administration seems to know very little of basic economics, if they don’t understand this basic fact—economic growth largely mirrors population growth. Labor productivity is the other part of the economic equation for GDP growth, but labor productivity has been declining steadily since 2000, mostly because corporations have used their record profits for increased stock buybacks and stockholder dividends rather than boosting labor productivity—even after the latest corporate tax cuts.

This is not a formula for the prosperity of future generations.

Harlan Green © 2018

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

Wednesday, October 3, 2018

Housing Supply Still Lacking

The Mortgage Corner


Most of the construction activity is in the commercial sector, at the moment, though sales of newly-constructed homes rose 3.5 percent compared to July. The pace of new-home sales in August was 12.7 percent higher than a year ago. But large revisions to prior months were all downward, a reminder that the housing recovery still can’t satisfy the demand for single-family housing, in particular.

Economists at Freddie Mac that analyzed the pace of new housing construction found that years of underbuilding has left the U.S. with a cumulative shortfall — that is, supply compared to historical averages — of 4.6 million housing units in the years since 2000. That number is especially stark considering that builders constructed a 1 million unit surplus of homes in the bubble years of the last decade.

The median selling price in August was $320,200, 1.9 percent higher than year-ago prices. Year to date, sales were 6.9 percent higher than the same period last year. The year-to-date comparison has declined over the course of the year, a sign of flagging momentum, as higher mortgage rates and home prices are discouraging some buyers and pushing up the supply of available homes to 6.1 months at the current sales rate.
Commercial construction held most of the action. “In August, the estimated seasonally adjusted annual rate of public construction spending was $316.7 billion,” said the Census Bureau, “2.0 percent (±2.8 percent) above the revised July estimate of $310.5 billion, with much of it in education, a good sign that states are spending on their public infrastructure.”
Strongest in the report was highways & streets, up 1.7 percent in the month. Educational spending was also strong with a 1.0 percent gain. Government spending was also very active in August, up 5.9 percent at the Federal level and up 1.7 percent for state & local, reported the Census Bureau.

The Fed made good on its promise to raise their overnight rate one-quarter percent to 2.25 percent, boosting the Prime Rate used in most revolving credit to 5.25 percent. This hasn’t dampened consumer enthusiasm yet, as consumer spending is rising at 3.8 percent in the latest revision to Q2 GDP growth, which held at 4.2 percent. Maybe it’s one last holiday fling before reality and higher inflation set in from the tariff wars?
Fed Chair Powell said in his announcement after the latest FOMC meeting: “I see the current path of gradually raising interest rates as the FOMC's approach to taking seriously both of these risks. While the unemployment rate is below the Committee's estimate of the longer-run natural rate, estimates of this rate are quite uncertain. The same is true of estimates of the neutral interest rate. We therefore refer to many indicators (my bold) when judging the degree of slack in the economy or the degree of accommodation in the current policy stance. We are also aware that, over time, inflation has become much less responsive to changes in resource utilization.”
It’s good to see commercial construction making a comeback, even with congress seemingly unable to pay its fair share of infrastructure spending that will be needed just to upgrade the federal highway system, as well as our energy grid that is being seriously threatened by Russian cyber attacks, according to our spy agencies.

Housing starts are attempting to catch up, as starts ran at a 1.282 million seasonally adjusted annual rate in August, the Commerce Department said Wednesday. That was 9.2 percent higher than July’s pace, and 9.4 percent higher than a year ago. But that still won’t be enough to satisfy demand.
Stephen Stanley, chief economist at Amherst Pierpont, Securities interviewed by MarketWatch’s Andria Riquier, was more blunt: “To be clear, there is fundamental softness in housing. Industry sources suggest that the relentless torrid home price appreciation in recent years has finally reached a point that numerous prospective buyers are balking. In addition, high-end homes in high-tax states are starting to see some effect from tax law changes implemented in December. On top of that, new home construction has been impacted by a run-up in materials costs this year, squeezing builders in a vice between rising costs and a diminishing appetite of prospective buyers to pay up.”
Add to that we will be soon entering the tenth year of this boom cycle, which would put it on a par with the 1991 to 2001 boom years that paid down our national debt. If only that were the case today, instead of the surging federal deficit and debt that is squeezing future public sector investments and growth.
Harlan Green © 2018

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

America's Concentration Camps for Children

ANSWERING THE KENNEDYS CALL 


There should no longer be any doubt that the Trump administration is pursuing policies last used in Nazi Germany—concentration camps that now house up to 13,000 young Hispanic refugees—mostly unaccompanied minors who are seeking asylum in America.

To deal with the surging shelter populations, which have hovered near 90 percent of capacity since May, according to the New York Times, mass reshuffling is underway and shows no signs of slowing. Hundreds of children are being shipped from shelters to Tornillo in West Texas each week—mostly in the middle of the night to escape publicity--totaling more than 1,600 so far.
“Roughly 100 shelters that have, until now, been the main location for housing detained migrant children are licensed and monitored by state child welfare authorities, who impose requirements on safety and education as well as staff hiring and training,” said the NYTimes.
“The tent city in Tornillo, on the other hand, is unregulated, except for guidelines created by the Department of Health and Human Services. For example, schooling is not required there, as it is in regular migrant children shelters.
“The number of detained migrant children has spiked even though monthly border crossings have remained relatively unchanged, in part because harsh rhetoric and policies introduced by the Trump administration have made it harder to place children with sponsors.”
Does the Trump administration have no shame? What made America great is the fact that we are a land of immigrants, yet President Trump and his white-nationalist supporters want to restrict immigration to 50 percent of what it was historically—“to more like those from Norway,” he has said.
“Traditionally, most sponsors have been undocumented immigrants themselves, and have feared jeopardizing their own ability to remain in the country by stepping forward to claim a child. The risk increased in June, when federal authorities announced that potential sponsors and other adult members of their households would have to submit fingerprints, and that the data would be shared with immigration authorities.”
There is a reason America and Americans have always welcomed immigrants. America has been a nation whose innovation and new industries have outdistanced its labor workforce, historically, hence been always been in need of a new influx of workers.

For most of the past half-century, baby boomers — those born after World War Two and before 1965 — have been the main driver of the nation’s expanding workforce, but now that they’re heading into retirement only two groups of workers are projected to grow over the next two decades: immigrants and those whose parents are first-generation immigrants, a new report by the Pew Research Center, a nonprofit think tank in Washington, D.C., concluded. “The most important component of the growth in the working-age population over the next two decades will be the arrival of future immigrants,” it said.


Which is why it is so important to find a path to citizenship for the 11 million undocumented workers that fulfill jobs very few America citizens will take. And there have been several bills to give a path to those undocumented workers employed in agriculture, construction, and the hospitality industries. But, alas, congress has not been able to pass any of them.

Roughly 36 percent of plasterers and stucco masons were undocumented workers in 2014, the highest share of any occupation, according to a report released recently by the Pew Center. Some 30 percent of miscellaneous agricultural workers, 31 percent of drywall and ceiling tile installers and 28 percent of graders and sorters of agricultural products and 23 percent of sewing machine operators were also undocumented. Also 12 percent of miscellaneous personal appearance workers — manicurists and pedicurists and makeup artists — were undocumented.

Chart: PEW

More than 43.7 million immigrants resided in the United States in 2016, accounting for 13.5 percent of the total U.S. population of 323.1 million, according to American Community Survey (ACS) data.
And a recent CNBC report mentioned America’s chronic labor shortages, as the ongoing recovery from the Great Recession is now highlighting. “A report Thursday from ADP and Moody’s Analytics cast an even sharper light on what is becoming one of the most important economic stories of 2018: the difficulty employers are having in finding qualified employees to fill a record 6.7 million job openings,” said CNBC.

But chronic labor shortages have always been the case, and are part of our history. Trump’s, racist, anti-immigration policies are only making matters worse, not to speak of what can only be called his de-facto ethnic cleansing of non-Eurocentric populations.

Harlan Green © 2018

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