Thursday, May 16, 2019

Oh, Oh, Retail Sales Also in Decline?

Popular Economics Weekly

The effects of the Trump administration’s trade wars are already slowing down consumer spending; not a good sign if Trump maintains tariffs for a longer period, as promised.

The US Census Bureau is now reporting a sharp decline in retail sales. A 1.1 percent decline in auto sales (signaled by the prior release of unit sales at manufacturers, says Econoday) is no surprise and neither is a 1.8 percent jump at gasoline stations, due to rising gas prices. A big surprise, however, is the 1.3 percent drop at electronics & appliance stores that follows a 4.3 percent tumble in March.

Weakness here hints at lower prices for consumer electronics and also lower spending on home improvements, reports the Census Bureau. Furniture sales also hint at trouble for residential investment, coming in unchanged following March's 3.1 percent decline, as do sales of building materials which fell 1.9 percent in April following, however, a 1.2 percent rise in March.

Lower Q2 consumer spending is also bringing down the consensus Q2 GDP growth into the 2 percent range, after the 3.1 percent Q1 GDP growth update, says CNBC chief economist Steve Liesman.

 Why? I maintain that Trump’s belligerent trade talks are turning off new investments, as manufacturers also batten down the hatches for a prolonged trade war. Prices are rising everywhere, and the U.S. is just beginning to see the effects of the various trade wars, including a threatened increase in auto tariffs that has unsettled European markets as well.

Industrial production overall is plunging, the Federal Reserve reports, down 0.5 percent in April. Motor vehicles and parts, where consumer sales have been mostly soft this year, fell 2.6 percent in April for a second monthly decline and year-over-year contraction of 4.4 percent. (Note this is a direct effect of higher import tariffs being passed on to vehicle manufacturers.)

Business equipment fell 2.1 percent in the month for yearly growth of only 0.1 percent which doesn't point to acceleration for business investment. Consumer goods also fell, down 1.2 percent in the month with construction supplies up only 0.1 percent that follows March's 1.7 percent dip in readings that don't point to strength for construction in general. Selected hi tech is a positive for April, up 0.6
percent with annual growth here at 3.2 percent. 

Who will put a stop to Trump’s trade war nonsense? Iowa farm state Senator Chuck Grassley, Chairman of the Finance Committee, is just one Republican beginning to sound the alarm on the harm it is already doing to Midwest farmers.
“It’s going to have some impact on the elections, of course,” said Grassley to reporters. “So far, I haven’t seen farmers abandoning Trump, but it’s going to have some impact.”
But Trump isn’t listening to him, he says, so he may have to put his warnings in writing.  (Is that a threat?)  There will be many more Republicans opposing the tariffs. Trump can’t afford to lose the support of those ‘free trade’ Senators or their Midwest supporters, in other words.

Harlan Green © 2019

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Wednesday, May 15, 2019

Do the Trump Trade Wars = Recession?

The Mortgage Corner

There are already signs President Trump’s trade wars are hurting. Right now, it’s mainly his Midwestern farm constituents that have seen their agricultural exports plummet. But what happens when rising prices from the tariffs are passed on to consumers, as well as the manufacturers with their increased costs from higher-priced imported components that go into manufactured products?
China accounted for 50 percent of all soybean exports before Trump began to raise tariffs. But no longer. Last November, Chinese soybean imports from the U.S. fell to zero, said the LATimes. 

“The share of total U.S. agricultural exports to China in value terms is projected to be 6 percent, down sharply, with China falling from the top market in 2017 to fifth place,” U.S. Department of Agriculture Chief Economist Robert Johansson told the agency’s annual forum in Washington on Thursday, Reuters reported. Johansson explained that the amount of soybeans exported this year compared with the same time last year decreased by 13.5 million metric tons.

“Under the trade dispute, exports to China alone have plummeted by 22 million tons, or over 90 percent,” he added. Overall, farm exports were projected to fall to $141.5 billion in 2019, a decrease of about $1.9 billion.

The result is farm bankruptcies in Wisconsin, Minnesota, Montana and the Dakotas have surged in the last two years, reaching 103 in 2018, according to the Federal Reserve Bank of Minneapolis. That’s the highest level since 2010, during the post-recession hangover.

“This trend has not yet seen a peak,” the Minneapolis Fed said in November, per the LATimes’ Michael Hiltzick. “One frustration for farmers and businesses suffering from the tariffs is that Trump appears to have no understanding of how tariffs work. In tweets, he has suggested that they’re paid by the exporting country — i.e., China, in the case of manufactured goods.”
They’re paid either by American importers if they maintain their pre-tariff prices to customers, or by consumers, hit with higher prices for imported goods. Even Trump economic advisor Lawrence Kudlow acknowledged over the weekend that the tariffs are “in effect … a tax increase” on Americans.
“Trump had promised to provide farmers with $15 billion in government relief, on top of the $12 billion he earlier pledged,” said Hiltzick. “But that could mean that American consumers pay twice for what appears to be Trump’s whim of iron on international trade — once in higher prices for foreign-made goods, and again to pay for the bailout for the agricultural sector.”
So manufacturing is another sector that is seeing rising costs. The Commerce Department just reported that both import and export prices are rising. U.S. import prices advanced 0.2 percent in April, after increasing 0.6 percent in March. (It said the April advance was driven by higher fuel prices, which more than offset decreasing prices for nonfuel imports.) But prices for U.S. exports also rose 0.2 percent in April after a 0.6-percent rise in March.

And Economics 101 says rising prices will kill any recovery, if prolonged. The danger of a prolonged trade war Deutsche Bank says in its most recent remarks, means that “aggressive posturing” aimed at getting concessions is often at the core of escalating conflicts such as what we’re seeing between Beijing and Washington.
Deutsche Bank says “The nature of trade wars (like actual wars) is that they foster nationalist sentiment and jingoism. The first shots are fired in the hope of quick victories. And before you know it, both sides are stuck in the trenches, with no obvious and politically feasible way out.”
I seriously doubt that President Trump will go that far in his need to feel like a winner, rather than be perceived as a loser.  But who knows, really, and that’s the problem. 

Harlan Green © 2019

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Tuesday, May 14, 2019

What is the Bully Mentality?

The Mortgage Corner 

The Trump administration and congressional Republicans’ “stonewalling” efforts, as House Majority Leader Nancy Pelosi has put it, are the latest example of the bully mentality, but few pundits or even Democrats seem to understand its exact meaning.

I began to write about the bully mentality, as I called it in 2014, initially in response to Republicans’ bullying tactics, such as House Majority Leader John Boehner’s “no compromise” vow to block any Democratic legislative initiatives, rather than negotiate bills and policies acceptable to both sides of the aisle.

And Republicans have been getting away with using such bully tactics to forward their agenda for years, perhaps even since House Majority Leader Newt Gingrich in 1994 as part of the Contract With America dissolved the congressional joint committee to work out differences in legislation with Democrats, “because I can”.

And Democrats don’t seem even now to want to confront Republican stonewalling in carrying out their constitutionally mandated oversight of the Executive Branch when the White House is attempting to block every attempt to investigate the many possible crimes enumerated in the Mueller Report.

Most people recognize bullying when they encounter it—someone using strong- arm techniques in the school yard, or cyberbullying in social media—but not the bully mentality behind it.
Personnel Today, an organizational management website, provides an easy definition: “Bullying behavior often seems gratuitous, with no obvious motivation other than to cause pain and humiliation and satisfy something in the mind of the bully.”

It lists the characteristics of a bullying mentality:
o Underlying feelings of insecurity, inadequacy and a fear of ‘being found out’
o Fear that their status is based on their position, rather than their own qualities
o Being in the wrong job (fearing that they are ‘not up to it’)
o Authoritarian personality characteristics
o Excessive use of defense mechanisms, such as projection, rationalisation, displacement and denial
o An inability to accept or engage with their own shortcomings
o Trying to ‘right wrongs’ – taking revenge on innocent people for perceived wrongs done to them
o Boosting their own ego by undermining other people
o Feeling a need to crush people whom they perceive as a threat to their precarious status

Most research on bullying has been with schools as they have been battling the rise of bullying in schools.

Following the 2016 Presidential election, the Southern Poverty Law Center conducted an online survey of 10,000 K-12 teachers, counselors and administrators on the negative impact of the election. Educators reported a skyrocketing of targeting and harassment of students that began last spring, most frequently in majority white schools, including verbal harassment, slurs and derogatory language, and incidents involving Nazi salutes, swastikas and Confederate flags.
“The behavior is directed against immigrants, Muslims, girls, LGBT students, kids with disabilities and anyone who was on the ‘wrong’ side of the election,” reads the SPLC report, The Trump Effect: The Impact of The 2016 Presidential Election on Our Nation’s Schools. “It ranges from frightening displays of white power to remarks that are passed off as ‘jokes.’” Ninety percent of educators say their schools have been negatively impacted for the long-term, while 80 percent said students are increasingly worried about the effect of the election on themselves and their families.”
And a national survey just released by the Human Rights Campaign found that bullying—which has occurred more frequently since the onset of the 2016 presidential campaign—is on the rise since the election.
“The survey of 50,000 young people ages 13-18 is the largest study of its kind, and it tells a disturbing story. Seventy percent of teens said they witnessed bullying, hate messages or harassment during or since the election. Of those incidents, 70 percent were racially motivated, 63 percent were based on sexual orientation, 59 percent were motivated by immigration status, and 55 percent of incidents were related to gender.”
Such behavior cannot be tolerated in a participatory democracy such as ours. The current White House’s behavior is a case in point, and endangers more than our domestic security, but that of our democratic allies as well.

It endangers our warming planet as well, when such a bully mentality prevails in our alliances, including the Paris Accord which many be the world’s best effort to mitigate global warming that even the US Pentagon warns endangers national security.

One vanguishes bullies by standing up to them—in whatever form they manifest, whether a dictator, autocrat, terrorist or gang leader—who we mustn’t forget prey on the weak and defenseless, yet seem to magically disappear when the fear they attempt to engender is opposed by sufficient courage.

Harlan Green © 2019

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Thursday, May 9, 2019

The Art of Negotiation

Financial FAQs

This column comes from a chapter in my forthcoming book, Answering the Kennedys Call to Promote World Peace and Freedom, a history of public service and community building by my own and more recent generations. This chapter documents the importance of cultivating good negotiating skills.

We start with perhaps the best-known example of bad negotiating skills; President Donald Trump of all people, who has called himself “the best negotiator in the world.” But we now know Trump’s deals in Art of the Deal were not good deals, since he lost more than $1.17 billion in ‘deals’ over the 10 years 1985-94, during the time it was written, according to the NYTimes.

So Trump had to know he was hurting when it was published in 2015. Trump’s co-author on The Art of the Deal, Tony Schwartz—who apparently wrote almost the entire book himself—mentioned in a Forbes article that he worked hard to ignore all of the evidence of Trump’s poor deal-making, and “put lipstick on a pig” to create the image of Trump as a great negotiator.

“What’s interesting,” said MarketWatch columnist Paul Brandus in writing about Trump’s tax losses, “is that even with one mild recession, the overall period in question—1985 to 1994—was a boom time for the U.S. economy. GDP grew 43 percent, and the stock market, as measured by the S&P 500 grew 171 percent—not counting dividends.

In fact, a 2016 USA Today investigation mentioned by Brandus that I wrote about at the time revealed Trump over the last three decades has been the target of some 3,500 lawsuits by employees and contractors over alleged non-payment. Many of the people who sued Trump were hard-working blue-collar types like dishwashers, painters and waiters—the very kind of “small guys” that candidate Trump claimed he was always looking out for, said USA Today.

“The president’s alleged cheating continues to the present,” continued Brandus, “Trump has been hit with at least $5 million in unpaid liens by workers at his lavish new hotel here in Washington—just five blocks from the White House.”
It doesn’t take a negotiating genius to know why Trump has repeatedly failed to negotiate successfully. It means he never learned the art of negotiation, which needs to have what we call a “win-win” outcome in which both parties gain in some way—at least in the normal world we live in; if we want to build relationships and have a successful reputation, which Trump singularly lacks.

It means there is a buyer wanting something for a good price, and seller that still needs to make a profit; or negotiating the timing of a meeting; or parents negotiating with children over playtime, allowance, behavior, or whatever. The point being that the negotiation won’t succeed if an agreement isn’t reached that both sides feel is a win in some way.

It really needs to be called the Art of Compromise, since all parties know they will meet somewhere in the middle to be successful. But there is nothing Pollyanna about a successful negotiation, since in high stakes negotiations each side usually probes the other’s weaknesses; who may have a time constraint, or badly needs the money. One side can also threaten to walk away; as has happened in countless labor negotiations with management. There are lots of tricks to the trade, in other words.

But bullies and autocrats, such as President Trump, or politicos who refuse to compromise on their legislation, are doomed to fail in getting what they want, other than a temporary feeling of power.

The dysfunctional federal government is such a case in point at present. Republicans since House Speaker John Boehner have consistently refused to compromise, and the result is almost no legislation has been passed, except for the 2017 Republican tax cuts that benefited only the wealthiest and is highly unpopular.

It doesn’t mean the art of negotiation can’t be learned. But it takes practice and some fortitude to be able to say no, or accept rejection, or even step back when it becomes too one-sided.

Harlan Green © 2019

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Wednesday, May 8, 2019

Where Are the Workers?

Popular Economics Weekly

The number of job openings rose to 7.5 million on the last business day of March, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were little changed at 5.7 million and 5.4 million, respectively.

But the miniscule change in hires and separations doesn’t tell us the real employment story. This Calculated Risk graph shows the huge separation between the yellow line (Job openings) and blue line (Hires). It’s now almost 2 million.

The actual difference was because job openings surged 4.8 percent in the month to 7.488 million at the same time that hires fell 0.6 percent to 5.660 million, according to Econoday. “The gap between the two stands at a new record of 1.828 million, signifying a huge demand for workers that isn’t being met.”

Year-on-year, openings are up 8.6 percent vs. only a 0.6 percent rise for hires. The gap between total openings in March relative to the 6.211 million unemployed actively looking for a job in the month was 1.277 million.

This tells us how complex is the hiring process, since it’s becoming ever more difficult to match those looking for work with the advertised job openings. How can we fix the problem from the mismatch?

One hint is we know from last week’s unemployment report almost 500,000 fewer workers were available for work in the Household Survey, shrinking the labor pool, even though job hirings were up in the seasonally adjusted Establishment Survey that reports actual payroll numbers.

I believe those either leaving the workforce, or still looking for work, are waiting for better job prospects. Most do not want Amazon warehouse or Walmart jobs that pay barely above minimum wages.

The largest hires in the April unemployment report were all in the services sector. Professional services, education and health services led, with Leisure/Hospitality and construction hiring next—all in the lower-paying service sector.

Only 4,000 manufacturing jobs were created, according to the BLS, with the utilities and mining sector losing jobs.

Both the Institute of Supply Management’s (ISM) manufacturing and service sector activity surveys also declined in March, with manufacturing activity the weakest in 2 years. It was mainly due to the decline in new orders, possibly due to the trade uncertainty.

The 3.2 percent increase in the initial Q1 GDP growth estimate was a pleasant surprise, as I said last week, but it was largely because spending by local governments picked up due to the partial federal government shutdown and a “turnaround in investment, most notably in construction of highways and streets,” said the BEA. 

Local and state governments may have been waiting to see if the Trump administration would chip in to boost needed infrastructure upgrades, and since that didn’t happen states decided to implement the needed projects.

The buildup in unsold inventories, and fewer imports also increased GDP numbers. That’s because import prices are rising as the recent tariff increases are being passed on to the consumer, contrary to what administration officials are saying.

And rising prices will put a cap on growth, as well as future hiring. So we are waiting to see if more are willing to work, or are still waiting for the right job so they can afford to pay for those higher prices.

Harlan Green © 2019

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Monday, May 6, 2019

Our Student Debt Problem

Financial FAQs

College students and former students have amassed some $1.5 trillion in student debts, most of it (90 percent) held by the federal government or guaranteed by same. And this is holding back a whole generation of young adults who have to postpone almost everything—marrying, raising a family, buying a home, even finding a desirable job—in order to pay their debts.

Presidential candidates such as Senator Elizabeth Warren Senator are offering a solution to the student debt problem by offering some debt relief based on income. And there are various proposals to reduce student fees for higher education, as well as smaller institutions of higher education that charge little or no fees.

In 1993, the average debt of a bachelor’s degree graduate was approximately $9,000; five years later, it was about $15,000. By 2003, it had jumped to approximately $17,500, according to the Wall Street Journal.

Today, the average outstanding student loan balance per debtor is roughly $30,000, though one recent study by Fidelity Investments put the figure as high as $35,200. Approximately 20 percent of U.S. households currently owe student loan debt, as do 40% of people younger than 35. This means an increase of nearly 200 percent of overall student loan debt (public and private) over the last 20 years.

This is while the wages of middle-class workers have grown just 6 percent since 1979 and low-wage workers’ wages actually dropped 5 percent during that period, according to the Economic Policy Institute, a progressive think tank.

It is why Senator Elizabeth’s proposal to cancel most public college or university student debts is so important. In the latest Hill-HarrisX survey, 67 percent of respondents between 18 and 64 said they backed Warren's idea compared to 53 percent of voters who were older. The proposal was also supported across all age groupings although voters who are 65 years old and up were somewhat less likely to support it.

What happened to put so much of the burden on students and their families to have what was once affordable to children of a middle-class family? Declining state investment in higher education over the past decades has pushed costs up, making it more difficult for students to afford school on shrinking household incomes, while many more students enrolled in higher education, so that almost 50 percent of the student-age population now attends some college or university.

Something had to give. In the late 1980s, public colleges typically got about one-quarter of their revenue from tuition, now that’s up to about 50 percent, according to Michael Mitchell, a senior policy analyst at the Center on Budget and Policy Priorities who studies state funding trends.

But there’s an even deeper reason college and university costs have risen with state-chartered public institutions like the University of California and California’s State College systems.

It began just after I left UC Berkeley in 1964, and the protests against American involvement in the Vietnam War began. President Johnson declared war on Vietnam on August 10, 1964 after the Gulf of Tonkin incident, and the Selective Service then made every able-bodied American male 18 year old eligible for the draft. That is when Berkeley’s campus anti-war protests began in earnest.

A coincidence?  I don't think so.  My only ‘tuition’ during my six years from 1958-64 was a $150 administration fee for every semester I attended UC Berkeley, and that was the case until Ronald Reagan became California’s Governor in 1966 when he and fellow conservatives on his Board of Regents, which was mostly made up of successful businessmen, decided that Berkeley students were spending too much time on the streets protesting the war, and not enough time in the classroom.

In 1969, Reagan convinced the Regents to begin to charge “education fees” to students for the privilege of attending such a prestigious institution, even though the UC system was a state-funded institution under the federal land grant act; rather than privately-funded Stanford University.

Its University of California system was created in 1868 with the decree that “admission and tuition shall be free to all residents of the state,” and the California State and community-college systems followed suit.

Governor Reagan at his inauguration famously said in reaction to the growing student protests: “Get them out of there, he said. “Throw them out. They are spoiled and don't deserve the education they are getting. They don't have a right to take advantage of our system of education.”

All UC students in the 2019 school year who are residents of California now pay $13,500 per year in tuition fees, while non-residents pay $42,500 per year, according to the UC Admissions Office.

U.S. News and World Reports publishes college rankings as well as those institutions of higher learning with little or no tuition fees. These low or tuition-free colleges are in lesser known states and regions, such as the Dakotas, New Hampshire, Arkansas, Illinois, Kentucky and Texas that give the same quality education without ‘name’ professors; that is, if the student seeks an education that will prepare him or her for meaningful work, rather than a degree from a prestigious and expensive institution (such as UC Berkeley) that that will put him or her on a career track that may turn into a well-worn rut. Even Ivy League Cornell University charges no tuition fee to New York state residents with family incomes of less than $100,000 per year.

Senator Warren’s proposal includes cancelling up to $50,000 in student debt for those that make less than $100,000 a year, with the amount of relief getting gradually smaller as income level goes up, and households that make more than $250,000 not eligible for any debt relief.

Altogether, it would wipe out all student debt — including both federal and private loans — for more than 75 percent of Americans with outstanding loans, according to analysis provided by Warren’s campaign.

These are just a few ideas on how to solve the student debt problem. We know the problem is becoming even more serious as a growing number of students want the advantages of a higher education; the question is how to fix it.

Harlan Green © 2019

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Friday, May 3, 2019

A Huge Employment Report

Popular Economics Weekly 

 The U.S. Bureau of Labor Statistics (BLS) reported today that total nonfarm payroll employment increased by 263,000 in April, and the unemployment rate declined to 3.6 percent. It was the lowest unemployment rate in 49 years—since December 1969.

A major reason for the rate drop was almost 500,000 fewer workers were available for work in the Household Survey, shrinking the labor pool, even though job hirings were up in the seasonally adjusted Establishment Survey that reports actual payroll numbers. Notable job gains occurred in professional and business services, construction, health care, and social assistance.

The fact that nonfarm payroll employment increased by 263,000 in April, compared with an average monthly gain of 213,000 over the prior 12 months showed that Fed Chairman Powell and his Board of Governors were correct in not signaling a rate drop anytime soon; maybe not for the rest of the year.

The BLS reported professional and business services added 76,000 jobs in April, with gains in administrative and support services (+53,000) and in computer systems design and related services (+14,000). Over the past 12 months, professional and business services has added 535,000 jobs, a sign that IT services continued to grow.

And construction, hence the real estate industry also showed strong growth, with construction employment up by 33,000, including gains in nonresidential specialty trade contractors (+22,000) and in heavy and civil engineering construction (+10,000). Construction has added 256,000 jobs over the past 12 months.

The construction jobs surge highlights the 3.9 percent increase in spending of state and local governments on infrastructure—such as roads and bridges—in the initial estimate of Q1 GDP growth.

Employment in health care grew by 27,000 in April and 404,000 over the past 12 months. In April, job growth occurred in ambulatory health care services (+17,000), hospitals (+8,000), and community care facilities for the elderly (+7,000).

This means the just reported 3.2 percent jump in Q1 GDP growth was no fluke, though manufacturers added a mere 4,000 jobs after no increase in March. Factory hiring has been very weak this year as companies struggle with stagnant exports and the effects of U.S. trade tensions with China.

Government jobs rose by 27,000, a good thing, as government activity has an important part in maintaining public services. The federal government is already starting to hire workers for the 2020 Census, said the Census Bureau.  Retailers, on the other hand, cut 12,000 jobs as traditional brands continue to lose ground to internet rivals.

But although the economy is still pumping out plenty of new jobs, the rate of hiring has slowed. The U.S. added an average of 169,000 jobs in the past three months, down from a three-year high of 232,000 in January, But that may be a fluke due to the December government shutdown.

So full economic speed ahead, if no more shutdowns! There are still more than 1 million job openings, according to the Labor Department’s JOLTS report, and the U.S. is the world’s largest economy because it actually churns out more than 5 million new jobs per month.

This also gives the Trump administration more incentive to settle its various trade battles, if it wants to have any wins in next year’s Presidential election.

Harlan Green © 2019

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Sunday, April 28, 2019

Q1 GDP Growth Beats Estimates

Popular Economics Weekly

Surprise, surprise, first quarter GDP growth beat the estimates of economists and pundits, but it wasn’t for the usual reasons. Spending at the state and local level jumped 3.9 percent after a 1.3 percent drop in the prior three months. This was the fastest gain in three years, said the Commerce Department.

Spending by local governments probably picked up due to the partial federal government shutdown because of a “turnaround in investment, most notably in construction of highways and streets,” said the BEA.  Local and state governments may have been waiting to see if the Trump administration would chip in to boost needed infrastructure upgrades, and since that didn’t happen states decided to implement the needed projects.

The gain was well above forecasts. Economists polled by Market Watch had forecast a 2.3 percent increase in gross domestic product, and other pundits had it at less than 2 percent, in part because GDP grew 2.2 percent rate in the final three months of 2018.

Consumer spending rose just 1.2 percent, in spite of the last minute surge in March retail sales, up 1.6 percent, which basically cancelled out the prior 3 months declines in retail spending. And business fixed investment decelerated to a relatively slow 2.7 percent gain, down from a 5.4 percent gain in the prior quarter.

Investment in structures fell 0.8 percent, the third straight decline, and investment in new housing was another weak spot, dropping 2.8 percent, the fifth straight quarterly decline, according to the BEA.

Housing construction is picking up, but nowhere near pre-recession levels. For how severe the current spell of under-building has been, take a look at new-home sales in 2000 or 2001, as Market Watch’s Andrea Riquier said last week. During those two years, well before the housing bubble started to inflate, Americans purchased 877,000 and 900,000 newly-constructed homes. In 2018, Americans purchased just 622,000

Inflation, as measured by the personal consumption expenditure price index, fell to a 1.4 percent annual rate in the first quarter from 1.9 percent in the prior three-month period. The decline in core PCE inflation less gas and oil sales was less pronounced, slipping to 1.7 percent from 1.9 percent. The monthly inflation numbers will be released on Monday, but such low inflation also shows lessening demand for goods and services.

And lower inflation means lower interest rates that banks can charge, which means shrinking bank profit margins and less available credit.

So future growth has to once again depend on consumers, and they seem to have mixed feelings about their future. The U. of Michigan sentiment index is still holding above 90, and retail sales were strong in March, as I said.

The index itself is down 1.2 points from March, though the 97.2 result is still well up from the low 90 readings during January and February. Nevertheless, April's month-end slowing in current conditions is not a favorable signal for either the month's retail sales nor perhaps for next week's employment report due on Friday, says Econoday. Inflation expectations are mixed with the year-ahead reading unchanged at 2.5 percent but the 5-year outlook down 2 tenths to 2.3 percent. 

The big question remains will consumers continue to maintain their share of consumption, and so economic growth? The bottom line seems to be that consumers’ incomes are growing slowly, in spite of full employment. There’s too much opposition from corporations and Big Business in general, especially in the right-to-work red states that have opposed a higher minimum wage. There are 21, mostly red states that have the $7.25 per hour federal minimum reached in 2007, when it has risen to as much as $12 in California, Massachusetts and Washington; with Colorado, Arizona, New York and Oregon close behind at $11 per hour.

In fact, Georgia and Wyoming are still at $5.15 per hour for those workers not subject to the federal Fair Labor Standards Act first enacted in 1938, which guarantees a minimum wage for employees who work at least 40 hours per week (other than independent contractors).

Yet how can consumers—that power two-thirds of all economic activity—keep the economy growing, when even the $15 per hour minimum wage goal set my presidential candidates Bernie Sanders and Elizabeth Warren isn’t a living wage?

Harlan Green © 2019

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Wednesday, April 24, 2019

Housing Supply Improves

The Mortgage Corner

Our housing supply is finally improving. New-home sales ran at a seasonally adjusted annual rate of 692,000, the Commerce Department said Tuesday. That was 4.5 percent above February’s total and beat the consensus forecast of a 645,000 rate.

It has taken this long for the housing market to recover from the housing bubble, when one million more homes were built than were needed. It was part of the too easy credit conditions that brought in home buyers that wouldn’t have qualified under more normal circumstances.

For some context on how severe the current spell of under-building has been, take a look at new-home sales in 2000 or 2001. During those two years, well before the housing bubble started to inflate, Americans purchased 877,000 and 900,000 newly-constructed homes. In 2018, Americans purchased just 622,000, said MarketWatch’s Andrea Riquier.
“Sales of newly-constructed homes finally gained momentum after months in the doldrums. March’s selling pace was the strongest since November 2017, the month before the recent tax law changes took effect,” continued Riquier.
Meanwhile, existing-home sales retreated in March, following February’s surge of sales, according to the National Association of Realtors®. Each of the four major U.S. regions saw a drop-off in sales, with the Midwest enduring the largest sales decline last month. 

Total existing-home sales,, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 4.9 percent from February to a seasonally adjusted annual rate of 5.21 million in March. Sales as a whole are down 5.4 percent from a year ago (5.51 million in March 2018), said the NAR.
Lawrence Yun, NAR’s chief economist, anticipated waning in the numbers for March. “It is not surprising to see a retreat after a powerful surge in sales in the prior month. Still, current sales activity is underperforming in relation to the strength in the jobs markets. The impact of lower mortgage rates has not yet been fully realized.”
Rob Dietz, chief economist for the National Association of Home Builders, acknowledges that comparing the current housing economy to the one from two decades ago has some downsides. For one, the population isn’t growing nearly as fast now as back then. Still, the gulf between then and now is stark – and 2018’s anemic pace of construction follows several years of similar underbuilding.
“We think that based on demographic demand, we should probably be building 1.1 million single family homes this year,” Dietz told MarketWatch. “Our forecast is for less than 880,000 starts.” The NAHB prefers to look at starts, or groundbreakings, rather than sales data, to gauge market activity.”
For the first quarter of 2019, new home sales are running 1.7 percent higher than the first quarter of 2018, said Dietz. However, while sales were up 9.6 percent for the quarter in the South (the largest region), sales were down 5.9 percent in the West, 8.1 percent in the Midwest and 17.6 percent in the Northeast.

The March data reveal the challenge of housing affordability however, per Dietz and the NAHB. March sales grew at lower price points. For example, 50 percent of March 2019 new home sales were priced under $300,000. In March of 2018, only 39 percent of sales were priced under $300,000.

Harlan Green © 2019

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Friday, April 19, 2019

Rebound in Retail Sales Sign of Growth Rebound?

Popular Economics Weekly

Sales at U.S. retailers surged in March by the most in a year and a half, the latest in a string of reports suggesting economic growth is picking up after a soft spell of growth earlier in the year. Retail sales soared 1.6 percent last month, the government said Thursday. This beat economists’ expectations.

And the Conference Board reported its Index of Leading Economic Indicators rose 0.4 percent, which is another sign that economic growth is trending back to normal from the Q1 slowdown.
“The US LEI picked up in March with labor markets, consumers’ outlook, and financial conditions making the largest contributions,” said Ataman Ozyildirim, Director of Economic Research at The Conference Board. ”Despite the relatively large gain in March, the trend in the US LEI continues to moderate, suggesting that growth in the US economy is likely to decelerate toward its long term potential of about 2 percent by year end.”
A 2 percent growth rate is still enough to keep consumers happy and the unemployment rate low for the rest of this year.

New car sales and trucks rose 3.1 percent — the best performance this year, reports MarketWatch — to give the broader retail industry a boost. Auto receipts represent about one-fifth of all retail sales. Sales at auto dealers jumped 3.5 percent, as a result, the second big increase in a row.

But Americans also spent more to fill up their gas tanks. The average price of gas nationally rose almost 10 percent in March to $2.62 a gallon, government figures show. The last time prices were that high was in November.

Even if gas and autos are set aside, retail sales still rose a robust 0.9 percent. Among the big winners: Internet retailers, clothing stores, home-furnishing outlets and grocers. Sales rose between 1 and 2 percent in those segments.

In fact, sales rose in every category except for stores that sell books, musical instruments and hobby items. Traditional brick-and-mortar department stores were also laggards with flat sales.

But the 1.6 percent rise in March retail sales just recoups the -1.6 percent decline in December, while January and February showed miniscule growth, so we are back to 4 percent annual sales growth when 5 to 6 percent was the norm in 2017-18, in terms of overall sales—another sign of slowing growth this year from last year.

The Conference Board’s leading indicators also showed strength in manufacturing and lower jobless claims, but the yield curve, or so-called interest rate spread between long and short term Treasury bonds, continues to narrow, pointing to a greater possibility of shrinking bank profits and credit availability later this year.

Yet both the Conference Board and U. of Michigan measures of consumer confidence also show consumers are happy at the moment, in part because the Fed says it won’t be raising their interest rates anytime soon and there are still more than 7 million job openings, according to the Labor Department’s latest JOLTS report.

All this means retail sales should continue to perk up on this Good Friday with the financial markets closed. We have to remember that as long as consumers are happy, the US economy will continue to grow, regardless of government missteps and geopolitical uncertainty.

Harlan Green © 2019

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Wednesday, April 17, 2019

What’s Wrong With Capitalism—Part II?

Financial FAQs

Pete Buttigieg, Mayor of South Bend, Indiana and Presidential candidate, said to NBC’s Chuck Todd, “of course I’m a capitalist and America is a capitalist society, but it’s got to be democratic capitalism,” per the NYTimes’ Michael Tomasky.

But that hasn’t always been the case in America. Today we are approaching a very undemocratic form of capitalism—oligarchism, where a small percentage of Americans control most of the wealth and benefit from its laws—particularly since the end of the Great Recession.

Corporations and their stockholders have garnered 96 percent of the wealth generated since it ended in June 2009. Why? Because the busted housing bubble caused many in the middle class to either lose the equity in their homes, or their homes outright. The damage was so great that median household wealth has declined 30 percent since 2017, according to the Federal Reserve.

And taxes have been drastically cut that would fund public spending to restore some of that lost wealth—on badly deteriorated infrastructure, higher educational standards (US student test scores are now below that of other developed countries), research in new technologies, healthcare, and the environment.

These programs would help to restore some of the record income and wealth inequality that has resulted, and made America a world power in decline. A super majority of economists say public spending programs boost economic growth for the simple reason that it redistributes tax revenues where they will do the most good—to the 99 percent that have lost the most from the Great Recession.

Buttigieg has made some vague proposals to right the inequality that, after all, was the major cause of both the Great Depression and Great Recession. So why wouldn’t we want to bring back a democratic capitalism that works for all Americans?

But there is an even more important ingredient that nurtures democratic capitalism, besides public investments. It is healthy local community involvement in civic activities. Ball State, Indiana economist Michael J Hicks reports in an assessment of Mayor Pete’s accomplishments, a major component of his South Bend’s success has been local civic involvement in community organizations, such as their very active Rotary Club. “It was more like an interdisciplinary research colloquium, combined with an interfaith conference and millennial business forum,” said Hicks.

There are many studies that show positive results of what is a little known field of study—community development, also known as community organizing—that was first put into practice in the US in the 1930s with New Deal legislation as a way to counteract effects of the Great Depression that boosted the formation of labor unions.

The National Industrial Recovery Act (1933) provided for collective bargaining. The 1935 National Labor Relations Act (also known as the Wagner Act) required businesses to bargain in good faith with any union supported by a majority of its employees. 

The United Nations defines community development broadly as "a process where community members come together to take collective action and generate solutions to common problems."
One of its best-known practitioners was Saul Alinsky, based in Chicago, who is credited with originating the term community organizer during this time period. Alinsky wrote Reveille for Radicals, published in 1946, and Rules for Radicals, published in 1971. With these books, Alinsky was the first person in America to codify key strategies and aims of community organizing.
Wikipedia cites the International Association for Community Development (, the global network of community development practitioners and scholars, as "a practice-based profession and an academic discipline that promotes participative democracy, sustainable development, rights, economic opportunity, equality and social justice, through the organisation, education and empowerment of people within their communities, whether these be of locality, identity or interest, in urban and rural settings".
Community development has today taken on a new popularity, as communities torn apart by globalization and loss of manufacturing jobs, particularly in the rust belt, seek to rebuild themselves.
Sociologists like Robert Putnam, author of Bowling Alone, the Collapse and Revival of American Community, have been vocal in calling for a revival of local civic participation in the rebuilding of American communities.
He says in Bowling Alone, “Financial capital - the wherewithal for mass marketing - has steadily replaced social capital - that is, grassroots citizen networks - as the coin of the realm.”
Then the problem becomes how to restore the social capital of civic engagement into its rightful place in the community? It has to begin with putting public capital back into the public sector as was done with the New Deal, in order to restore democratic capitalism, a capitalism that can work for all Americans.

Harlan Green © 2019

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Thursday, April 11, 2019

What's Wrong With Capitalism?

Financial FAQs

Winston Churchill once said, “No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.”

What about capitalism? Has it survived because it is the most imperfect economic system, except for all the others?

Hedge fund billionaire Ray Dalio has been sounding the alarm of late that the western, free market, American model of capitalism is no longer working for most Americans.
In a recent Linked In commentary he said, “I think that most capitalists don’t know how to divide the economic pie well and most socialists don’t know how to grow it well, yet we are now at a juncture in which either a) people of different ideological inclinations will work together to skillfully re-engineer the system so that the pie is both divided and grown well or b) we will have great conflict and some form of revolution that will hurt most everyone and will shrink the pie.”
Dalio was talking about the 1930s collapse of markets and Great Depression—when Roosevelt’s New Deal came to the rescue, employed millions of the unemployed and helped US win WWII. It was the last time income inequality had increased to the level it is today as shown in this well-known graph, and the last time “people of different ideological inclinations” worked together.

In the words of Marriner Eccles, Roosevelt’s Federal Reserve Chairman during the Great Depression, “As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth ... to provide men with buying power. ... Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. ... The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”
We have the same situation today; partly as a result of the just-ended Great Recession, which was comparable to the Great Depression because of the $trillions in American households’ lost wealth yet to be recovered.

The Great Recession was a market failure caused by the housing bubble, but also by government policies that kept employees’ wages from rising with the increases in productivity—hence the return to record income inequality. For instance, collective bargaining labor laws were weakened in the 1980s. Today there are 26 so called ‘right-to-work’ states that restrict workers rights and union collective bargaining in some way.

This was accompanied by deregulation of whole industries in the name of globalization that loosened oversight and regulations controlling corporate behavior, unleashing the worst form of capitalism—cutthroat capitalism where the profit motive overrode all social obligations to take care of those less fortunate, which made it more difficult for ordinary Americans to climb the success ladder.

Dalio’s graph portrays who benefited from the 2001 and 2007 Great Recession. It wasn’t the employees, as employees’ share of US corporate sales plummeted from almost 76 percent of corporate revenues to 68 percent in 2017. Employees lost the most, in other words, and have yet to climb back above the 70 percent that prevailed from the 1970s to 2000.
And hence comes Ray Dalio’s dire threat: “The previously described income/wealth/opportunity gap and its manifestations pose existential threats to the US because these conditions weaken the US economically, threaten to bring about painful and counterproductive domestic conflict, and undermine the United States’ strength relative to that of its global competitors.”
So we need to find ways to escape repeating the history of the 1930’s and World War II that followed. Put another way, how do we rebalance the power structure that skewed incomes and wealth upward, and put the US at the bottom rankings of developed countries in services provided to its citizens—like educational opportunities, health outcomes, and chance for upward mobility?

Dalio’s answer is to identify leaders who believe greater equality of opportunity is the way to save capitalism, and who will in turn form public-private partnerships that include businesses, philanthropists (such as Dalio) and government to coordinate the planning of such partnerships via recommendations of a “bipartisan commission to bring together skilled people from different communities to come up with a plan to reengineer the system to simultaneously divide and increase the economic pie better.”

But who are those leaders? Philanthropists such as Bill Gates, Warren Buffett, and Dalio are already participating. And there are enlightened corporate leaders that don’t belong to ALEC, the right wing American Legislative Exchange Council lobby responsible for crafting the right-to-work laws that currently suppress both voter rights and worker salaries in many of the red states.

Princeton’s Nobelist Angus Deacon, author of Bowling Alone, the Collapse and Revival of American Community, doubts that American communities fragmented in the 1970s as a result of another ‘revolution’, the ICT revolution (in information and communications technologies), can be easily reconstituted. He says good luck in bringing together those ‘different communities’ Dalio talks about: “I think that community is a casualty of an elite minority’s capture of both markets and the state…The genie of meritocracy cannot be put back in the bottle.”

And Nobel economist Paul Krugman once joked it may take another extremely dire event, maybe an alien invasion, before Americans will unite again in a common cause as they did with the New Deal and WWII.

Where will we find the political leaders? He doesn’t mention large ideas like the Green New Deal, which some of our younger leaders—and even Presidential candidates—are proposing. The bottom line is it will take very big ideas to tackle such  “existential threats”.  Let’s not forget global warming that the US Pentagon had said is already endangering our national security.

Harlan Green © 2019

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Sunday, April 7, 2019

March Job Creation Still Exceeds Population Growth

Popular Economics Weekly

Stanford economist and Former Chief Economic Advisor Ed Lezear said last week on CNBC that job creation still exceeds population growth, which is a sign the US economy continues to expand, but at a slower rate, as shown in the BLS March unemployment report on Friday.
“Total nonfarm payroll employment increased by 196,000 in March, and the unemployment rate was unchanged at 3.8 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in health care and in professional and technical services.”
February was revised slightly up to 33,000 instead of the 20,000 initial nonfarm payroll total, also an encouraging gain that hints growth in the economy might be picking up again. Hiring increased in most major segments of the economy, most notably health care and white-collar firms. The flush of new jobs kept the unemployment rate near a 50-year low, the Labor Department said.

Health-care and Educational Service providers led the way again, adding 70,000 jobs. Health-care has boosted hiring by almost 400,000 in the past year. Professional and technical firms hired 34,000 workers, restaurants increased staff by 27,000 and construction companies took on 16,000 new workers. A month earlier, builders cut employment by the most in a year and a half during a spell of severe cold and heavy snowfall.

But manufacturers trimmed 6,000 jobs after barely any gain in February. And retailers eliminated 12,000 jobs. The manufacturing losses seem to be coming from uncertainty over the prolonged trade negotiations with multiple countries. Manufacturers are complaining about the rising price of imported parts from tariffs that make their finished products more expensive.

Another sign of a manufacturing activity slowdown was the decline in February Durable Goods Orders reported earlier this week. There was a cooling for aircraft orders, so that durable goods orders fell -1.6 percent with the ex-transportation reading very low at just a 0.1 percent gain.

Orders for core capital goods also fell -0.1 percent (ex-aircraft and autos), which are factory-produced tools, buildings, vehicles, machinery and equipment that increase future growth and productivity. The fact that orders have dropped below 5 percent annually when maintaining more than 6 percent annual growth the past 2 years is a definite sign of slowing activity.

But the 3-month 180,000 payroll hiring average is more than needed to employ the lower number of working-age adults entering the workforce. The workforce participation rate of 60.6 percent is also healthy, and governments have helped by adding 19,000 jobs since January.
MarketWatch reports another plus for economic growth. “Motor vehicle sales reached a seasonally adjusted annual rate of 17.45 million in March, up from 16.57 million in February, according to data from Autodata. That’s the highest reading in three months and represents a recovery from a downbeat start to the year. The MarketWatch-compiled consensus expectation was for a 16.8 million rate.”
What’s not to like about the unemployment report? Employers are paying more, and even willing to retrain workers to fill the skilled-worker void. The housing market has also picked up with record-low interest rates holding. The Mortgage Bankers Association reports refinance applications jumped 39 percent last week.

Harlan Green © 2019

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Thursday, April 4, 2019

ANSWERING THE KENNEDYS CALL: Birth of a 'Livable' City

It is extremely difficult to form a new city in California, or any other US State for that matter. The studies required to justify taking jurisdiction away from a county government really means taking it away from what is in essence state control, since county governments were originally set up under state jurisdictions, and controlled by state laws and regulations.

This is evidenced by the financial strings state and county governments hold over cities; mainly in terms of its planning and zoning regulations, but also the share of tax revenues to various local services, such water and sanitary districts.

The birth of a new city in the Goleta valley was a vision that took years to realize, and huge amount of patience and persistence to bring together a unique admixture of its citizens—from Mexican immigrants to hi tech engineers, to university-educated environmentalists, and Defense Department employees; from supporters that wanted more municipal improvements such as flood and highway improvements, to those that wanted it to remain a sleepy bedroom community serving the adjacent City of Santa Barbara.

Forming a brand new city was the most challenging example of community building I experienced in my life because it meant bringing together enough of its residents in a common vision of their community. Seasonal farm workers that harvested large lemon and avocado groves lived side-by-side with University of California Santa Barbara students and their professors in the unincorporated valley.

Because of this diversity there were an almost equal number for and against the formation of a new city. But it finally happened on the fourth try—February 1, 2002. The high crime rate in Goleta’s Old Town—the historical center of the Goleta Valley since it was settled more than 100 years earlier—was documented in the Redevelopment District Agency study commissioned by Santa Barbara County. There were more bars than restaurants and it was home to several gangs. There were also serious environmental concerns, as high traffic totals were causing air pollution, and successive floods during the 1990s following an earlier drought required greater flood controls.

Just the fact that it became a city enabled Goleta to contract with the County Sheriff to provide a neighborhood police service accountable solely to Goleta residents. This resulted in Goleta being listed as one of the 50 safest American cities in 2017, eleven years after its formation, according to a survey by Safewise, a security firm.

The re-design of Old Town Goleta also seemed an ideal location to practice some of those precepts of True Urbanism, or New Urban Design, all labels attached to what is now a worldwide movement that sought to make cities more citizen friendly.

How hard could that be, though we didn’t realize the state’s Environmental Quality Report (CEQA) would require flood improvements before anything else was done. We didn’t realize in a word what an effort it would take, and continuing struggle it still is, to bring together so much diversity of opinion and conviction into a well-functioning and sustainable community that epitomized what pro-city residents wanted in a new city.

First step was to organize a design conference to provide design and planning alternatives for the future—something county planners supported after three failed Goleta cityhood elections. It was obvious that without a community effort to create a town center with a unique identity that contrasted with neighboring Big Sister city Santa Barbara, Goleta’s cityhood might never succeed.

The American Institute of Architects was co-sponsoring eight simultaneous design charrettes across the country and in Hawaii at the time, in an attempt to create design outcomes using these new urban planning techniques. All were retreats that brought design professionals such as architects, designers, and urban planners together to envision and help to re-design a project area—such as a district or town center.

The Goleta Old Town design charrette, a French term for a gathering of designers and interested parties to create an innovative atmosphere in which a diverse group of stakeholders can collaborate to "generate visions for the future" to use Wikipedia’s description, was also hooked via Internet to the seven other design charrettes so we could share ideas and outcomes. All were weekend-long marathon sessions that began early and went late into each evening of those two days, creating a feverish intensity that only an assembly of very creative individuals can foment.

The idea of a design charrette was exciting in itself. It is a well-known architectural concept first adopted by students of Paris’s Ecole des Beaux Arts, Frances’s major design school, in the 1800s. They were used to cramming for exams at the last minute while riding in a charrette, or horse cart to the exams. So this was an exciting chance for local students, environmentalists, and some developers that wanted to participate in what Goleta might become for future generations.

These retreats were co-sponsored by the American Institute of Architects, or AIA, and included Honolulu and Charlottesville, Virginia, home of the Jefferson designed University of Virginia and Jefferson’s nearby Monticello home, of course. I remember Charlottesville was surrounded by a rusting industrial belt needing resuscitation that could benefit from mixed-use design concepts of the new urban planning, just as Old Town was surrounded by auto-dependent suburban malls and shopping centers with few pedestrian conveniences.

We were able to assemble 100 design professionals and civic activists such as myself. It was a vehicle to begin the process of envisioning, or re-visioning a future for Old Town and the Goleta valley community.

We basically locked ourselves into a large industrial building and broke into eight committees, each tasked to come up with a different design concept for that weekend. The eight results covered the gamut of ideas for Old Town, an area of no more than 20 city blocks and population of ­­­­5,000. The designs ranged from a totally pedestrian environment only accessible to public transportation with room for pedestrian-oriented businesses and entertainment to draw them out of their autos, to one that permitted automobile access, (which local small businesses badly wanted to sustain their small businesses), but with more off street parking and lots of green landscaping.

Margaret Connell, a recent Goleta city council member who supported the Old Town revitalization plan and wanted Old Town to be part of a new city center, voiced some of her concerns because much of the work has remained undone since cityhood: “…So Goleta Old Town feels more embedded than the more recent housing and worksites, and it also suffers from some disadvantages of being “old.” It lacks sidewalks through much of the older residential areas, though the city is taking steps to remedy this. There are many children who live here, but there are very few parks — a pocket park on Nectarine, a larger one on Armitos Avenue, and a four-acre, active-recreation park on Kellogg Street, which is still being developed,” said former council woman Connell.

The major environmental concerns were a lack of alternative transportation (such as busses and bike lanes) to manage traffic flow during peak rush hour that could still service Old Town residents and businesses. Flooding was also a major concern, in spite of periodic droughts, since Santa Barbara and the south coast had suffered several devastating floods during the 1990’s that ended a prior eight-year drought.

The flood that broke the 1993 drought was called the March miracle because 11 inches of rain fell that month, even closing the Santa Barbara Municipal Airport for several days that had been formed from a saltwater estuary.

Old Town’s main street was flooded as well one night with at least a foot of water from a torrential rainfall that overflowed the two creeks bracketing Old Town’s boundaries. That is why flood control improvements, such as an enlarged and channelized creek bed, were required in the CEQA (California Environmental Quality Act) report as the first step in any redevelopment effort.

The droughts and consequential flooding also made everyone aware of the limited water supplies in California, even though some areas that year had experienced the greatest rainfall totals since the 1880s.

This is why the work of the new city of Goleta has just begun. The community plan balances environmental with livable concerns, but there was a casualty of the 2007-2009 Great Recession that caused an unexpected disruption of Goleta’s future infrastructure upgrades; especially in Old Town, which is adjacent to Santa Barbara’s municipal airport with its own accessibility problems.

California, to solve its budget problems from the Great Recession, dissolved all 404 Redevelopment District Agencies in 2011, which removed the tax financing that Old Town was counting on to fix some of those transportation problems and relieve the traffic congestion. That has put many of the planned improvements on hold until alternative financing is found.

So has Goleta become a more livable city? Its residents think so, though affordable housing will always be a problem. Local Historian Walker Thompkins’ description of the Goleta valley as a pastoral paradise is immortalized in his book, Goleta, the Good Land that is still available on Amazon’s website.

The livable cities movement, which is what it has become as cities now compete to attract the best and the brightest people and best jobs, has evolved into a ranking contest. The annual rankings of the most livable cities are published by several well-known lifestyle publications and organizations, including the AARP Livability Index, Monocle's "Most Liveable Cities Index", the Economist Intelligence Unit's "Global Liveability Ranking", and "Mercer Quality of Living Survey". 

Unfortunately, not a single US city on the Economist’s list makes the top 10 in a study of the world’s 140 major cities. Melbourne, Australia topped it in 2016, with Perth and Adelaide Australia also in the top ten. Honolulu, Hawaii is the only American city mentioned at all. It makes the top ten list of most improved cities over the past 5 years.

Is their bias showing? A ranking released by the Economist Intelligence Unit, attempts to quantify the world’s most “livable” cities—that is, which locations around the world provide the best or the worst living conditions. The index, measured out of 100, considers 30 factors related to safety, health care, educational resources, infrastructure and the environment to calculate scores for 140 cities.

“Those that score best tend to be mid-sized cities in wealthier countries,” said the Economist survey. “Melbourne tops the list for the sixth year in a row, and six of the top ten cities are in Australia or Canada. But Sydney, Australia’s largest city, drops out of the top ten due to fears over terrorism.”

So the safety of its residents and the threat of violence and terrorism seems to have knocked American cities off the list, and put Australia at the top of most livable cities rankings. How do we solve the increasing dangers from violent extremism and domestic violence that make so many American and European cities unsafe?

Goleta's Old Town revitalization is still a work in progress, in other words. Goleta became a city in 2002, but is still wrestling with the idea of putting a new City Hall in Old Town rather than continue to rent space in an industrial complex farther to the west in the midst of malls and office complexes. It remains to be seen just what the new city of Goleta will look like 15 years after its formation, and whether it is able to embody the livable planning principles we envisioned in the design charrette.

And what are other institutions that might bring us more peace and freedom in the world with its droughts, mass migrations, inequality and civil unrest in so many countries? How can we nurture more viable communities and neighborhoods? There are modern social movements and community development tools that can bring this about. We will describe some of them in the next chapters.

Harlan Green © 2019

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Tuesday, April 2, 2019

Ignore the Bad News-Goldilocks Is Back!

Financial FAQs

Why has the Fed stopped raising their interest rates? Because this is the lowest inflation rate for ‘core’ consumption expenditures in three decades, as this FRED graph from 1980 onward portrays.

“We are almost 10 years deep into this expansion and inflation is still not clearly meeting our target,” said Fed Chairman Jerome Powell in the press conference ending last Wednesday’s FOMC meeting. “That’s one of the reasons we are being patient.”
“Despite the lowest unemployment rate since the late 1960s and the fastest increase in wages in a decade,” he continued, “the rate of inflation actually fell slightly in the second half of 2018. Conventional wisdom says that’s not supposed to happen when the labor market is what economists describe as “tight.”
Right, that’s not supposed to happen but regardless, it has put consumers back into the sweet spot of a Goldilocks, not-too-hot, not-to-cold economy with unemployment at a 50-year low and incomes rising at the fastest rate in 10 years, according to MarketWatch. This is not supposed to happen, per conventional wisdom.

Rather than attempting to fathom what “conventional wisdom” means, it’s more productive to understand why the Goldilocks scenario is happening again. Consumers want to spend more with their rising incomes, but the incomes of a majority of consumers aren’t rising fast enough to keep up with production of those goods, which now largely come from other countries that can produce them more cheaply.

Hence Personal Consumption Expenditures (PCE) continue to fall, in line with more slowly rising personal incomes (for the 99 percent) and inflation. This FRED graph shows that PCE consistently grew at more than 5 percent until 2000, when it began to plunge to as low as -3.7 percent during the Great Recession, and finishing up +2.5 percent in Q4 2018.


It tells us several things. Firstly, most American workers have not yet recovered from the Greatest Recession since the Great Depression, which took WWII to get US out of that funk. So this hasn’t been enough consumption to boost inflation or interest rates, which is why we continue in the 2 percent GDP growth path, and retail sales were punk during the holidays and slow to recover.

 And, there was a 35-day government shutdown in December, which further depressed incomes and sales. Retail sales picked up slightly in January, but February isn’t looking so good with sales negative for the second time in 3 months, per the FRED graph.

Lastly, the final revision of Q4 GDP growth dropped to 2.2 percent from its 2.6 percent initial estimate, which has to be another casualty of the stupidest government shutdown ever.

So though inept government policies and the record income equality keep the economy from growing faster, it enables consumers to stay in the game; and keeps the US economy from overheating; which is a good thing, right?

Harlan Green © 2019

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Tuesday, March 26, 2019

Near-Record Home Sales Combine with Record Low Interest Rates

The Mortgage Corner

Existing-home sales rebounded strongly in February, experiencing the largest month-over-month gain since December 2015, according to the National Association of Realtors. Three of the four major U.S. regions saw sales gains, while the Northeast remained unchanged from last month.

Total existing-home sales,, completed transactions that include single-family homes, townhomes, condominiums and co-ops, shot up 11.8 percent from January to a seasonally adjusted annual rate of 5.51 million in February. However, sales are still down 1.8 percent from a year ago (5.61 million in February 2018).

This tells us several things. Firstly, record-low interest rates are bringing more home buyers into the housing market. Many are first-time millennial generation buyers now in their 30’s, as I said last week. But it’s also a sign of optimism--that consumers see decent job and economic growth ahead.

Single-family resales, up 13.3 percent to a 4.940 million rate, were especially strong in the month which is good news for the housing sector in general. Condo sales were flat at a rate of 570,000.
“And supply is coming into the market which is more good news, up 2.5 percent in the month to 1.630 million. Yet given the surge in sales, supply relative to sales actually fell sharply to a very low 3.5 months from January's 3.9 months. Hopefully the pickup in sales will drive new resales into the market,” said the NAR.
But more importantly, it should drive more new-home construction, which surged 14 percent in January, reversing a 28 percent drop in December because of rising interest rates.
Lawrence Yun, NAR's chief economist, credited a number of aspects to the jump in February sales. "A powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence is driving the sales rebound."
And interest rates in general are even lower at this writing. The 10-year Benchmark Treasury yield has dropped below 2.50 percent—its post-WWII low in the 1950s. The 30-year conforming fixed rate for loans guaranteed by the GSEs Fannie, Freddie, FHA and VA, are now back to 3.50-3.625 percent, last seen at the end of the Great Recession.

It will continue to boost home sales and refinances for the foreseeable future, as even former Fed Chair Janet Yellen sees no more Fed rates hikes this year, even the possibility of a rate cut, if economic growth doesn’t pick up this year, when speaking at the Credit Suisse Asian Investment conference in Hong Kong.

Present growth forecasts for Q1 are between 0.8 to 1.5 percent at the highest. Yellen was attempting to dispel the likelihood of a looming recession this year that some pundits are forecasting. But not responsible economists, as businesses are still looking for more the one million new workers, the highest total in decades, according to the Commerce Department’s latest JOLTS report. Job vacancies and quits (voluntary leaves because workers are finding better jobs) are already up 15 percent this year.

Bottom line is this does not translate to a looming recession, but the same steady growth that prevailed before the Republicans’ December 2017 tax cuts, and should now return to the post-recession, 2 percent average GDP growth.

Harlan Green © 2019

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Saturday, March 23, 2019

Why Are Trade Wars So Damaging?

Popular Economics Weekly

Why cannot the Trump administration make $1 + $1 = $2? It’s obvious to all major economists and anyone with basic arithmetic skills that foreign tariffs not only raise the prices of those imports to US, which lowers the demand for those products, but also causes the affected countries to counter by raising their tariffs, which reduces the demand for American products sold to them. It may also reduce US employment in those sectors, though the jury is still out on how it affects US employment.

Suffice to say that attempting to change incredibly complex balance of trade policies between countries that depend on each other for parts as well as finished products takes real negotiating skills, rather than bullying tactics in one-on-one confrontations and unilateral withdrawals from existing trade agreements, which could very well slow growth enough to cause a mild recession—or worse.

In 2018, for instance, the country's trade gap widened to a 10-year high, with the goods gap with China jumping to a record high despite tariffs on USD 250 billion worth of Chinese imports in the first year of Trump’s attempts to reorder the perceived trade imbalance.

The effects of fighting with friends as well as foes is already evident in the Boeing 737-Max 8 fiasco, in which allies chose to ban its flights even before analyzing the Black Boxes. And the ballooning trade deficit after one year of these trade wars is other evidence that allies are as willing to retaliate with tariffs, as foes.
“In the first two volleys of U.S. tariffs on China, which covered $50 billion worth of imports, only $1 billion were products where China had a dominant market position, according to a calculation by Deutsche Bank AG,” said Bloomberg’s Peter Coy, “In the latest round, which took effect on Sept. 24, American consumers are more vulnerable to price increases: Almost half of the $200 billion worth of products subject to the 10 percent duties come mainly from China. Things will get even worse for consumers if Trump makes good on his threat to place tariffs on the rest of Chinese imports, because for about 80 percent of the products, China is the majority supplier.”
And Harley-Davidson is transferring manufacturing to the EU of motorcycles sold in Europe, because of EU retaliatory tariffs on its US-manufactured Harleys. And now GM is also announcing some 14,000 layoffs in five US plants because it can produce its cheaper cars, such as the Chevy, overseas.

Why? Ask GM CEO Mary Barra. Trump’s tariffs on steel and aluminum have cost Ford and GM about $1 billion each. GM Chief Executive Officer Mary Barra cited the tariffs in November when she announced the 14,000 job cuts that included the Lordstown plant’s shuttering. Potentially making things even worse, Trump is now weighing new tariffs on foreign automobiles that could threaten hundreds of thousands of additional U.S. jobs.

So the fact tariffs that target trading allies as well as adversaries has only increased the trade deficit is not a sign that such a policy is working, especially with China that Trump has chosen as the poster boy of unfairness.

What is most shocking is the continuing decline of the US monthly trade balance (in above graph), though only partly due to the trade wars, since American consumers flush with case have widened the deficit by continuing to buy more imports than we export. But it could get worse if Trump continues to raise tariffs on China, in particular.

Labor think tank Economic Policy Institute (EPI) reports the U.S. goods trade deficit with China reached a new record of $419.2 billion in 2018, up from $375.6 billion in 2017, an increase of $43.6 billion (11.6 percent). United States trade with China is dominated by the deficit in manufactured products.
“Although the United States has imposed tariffs of 10 to 25 percent on $250 billion in imports from China (about half of total U.S. imports from that country),” says EPI, “China has played its ‘ace-in-the-hole’ by allowing it’s currency to fall by roughly 10 percent against the dollar. As a result, the U.S. trade deficit with China increased faster (11.6 percent) than the U.S. deficit with the world as a whole (10.4 percent).”
This is not bringing more jobs back to the US. In fact, studies are beginning to show a neutral to net loss of jobs from the tariffs, as sales lost through increased production costs from tariffs hasn’t yet been offset by promised jobs created from industries bringing jobs back to the US that haven’t yet materialized.

The IMF predicts that the U.S. current account deficit—the broadest measure of U.S. trade in goods, services, and income—will nearly double between 2016 and 2022. Unless these trends are offset by a rapid decline in the value of the U.S. dollar, rapidly rising trade deficits could be devastating for U.S. manufacturing, likely giving rise to massive job loss on the scale experienced in the 2000–2007 period, when 3.5 million U.S. manufacturing jobs were lost.

$1 + $1 doesn’t = $2 when there is no rhyme or reason for such tariffs without a well thought out plan to achieve results. Negotiating with confusion rather than clarity can only mean an uncertain trading future, which increases the certainty of a recession.

Harlan Green © 2019

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