Q2 GDP Growth Unchanged

Popular Economics Weekly

BEA.gov

In the face of declining consumer confidence, but strong consumer and government spending, the third estimate of second quarter GDP growth was unchanged at 2 percent.

The BEA reported the increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, nonresidential fixed investment and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Consumer spending is increasing at 4.6 percent, while government spending that combines federal, state and local outlays is 4.8 percent higher, while inflation is basically flat for a variety of reasons. The PCE price index increased 2.3 percent, compared with an increase of 0.4 percent in the first quarter. Excluding food and energy prices, the PCE price index increased 1.8 percent, compared with an increase of 1.1 percent.

The ‘other’ shoe to drop was the Conference Board’s consumer confidence index that fell to a three-month low of 125.1 this month from 134.2 in August.

“Consumer confidence declined in September, following a moderate decrease in August,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers were less positive in their assessment of current conditions and their expectations regarding the short-term outlook also weakened. The escalation in trade and tariff tensions in late August appears to have rattled consumers. However, this pattern of uncertainty and volatility has persisted for much of the year and it appears confidence is plateauing. While confidence could continue hovering around current levels for months to come, at some point this continued uncertainty will begin to diminish consumers’ confidence in the expansion.” 

That and other indicators show slowing growth—for instance, consumers are saving more of their incomes. This is one factor holding down inflation that was discussed in earlier columns. Seniors are saving more due to extraordinarily low interest rates on which their fixed incomes are dependent, and perhaps more caution about future growth prospects.

Personal saving was $1.32 trillion in the second quarter, compared with $1.37 trillion in the first quarter. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 8.1 percent in the second quarter, compared with 8.5 percent in the first quarter.

Wholesale inflation has fallen from its high in 2018 as the Trump tax cut stimulus has worn off, though the increase in the core rate of wholesale inflation over the past 12 months rose slightly to 1.9 percent in August from 1.7 percent. Economists prefer core inflation readings because food, gas and trade margins can swing sharply from month to month and mask underlying price trends.

I said last week that six in 10 Americans now say a recession is likely in the next year and as many are concerned about higher prices because of the trade war with China, helping to knock six points off President Donald Trump’s job approval rating in the latest ABC News/Washington Post poll.

This is putting downward pressure on prices, as such fears reduce the demand for goods and services in general. Ratings of the U.S. economy overall, 56 percent positive, are down from 65 percent last fall in this poll, produced for ABC by Langer Research Associates.

Most ominously, 60 percent see a recession as very or somewhat likely in the next year. That’s within sight of the 69 percent who said so in November 2007, one month before the onset of the Great Recession.

Harlan Green © 2019

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

Rising Home Sales Signal Stronger Growth

The Mortgage Corner

It looks like home sales are are defying expectations of an economic slowdown, as both existing and pending home sales are rising. Pending sales measure contracts scheduled to close in 30-60 days, which is a sign that home sales should continue to rise for the rest of this year.

Calculated Risk

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.3 percent from July to a seasonally adjusted annual rate of 5.49 million in August. Overall sales are up 2.6 percent from a year ago (5.35 million in August 2018), said the NAR.

It is the second consecutive monthly increase, which is unusual this late in the selling year.  Since housing is usually a leading indicator of economic trends, this could be a good sign for continued economic growth.

Lawrence Yun, NAR’s chief economist, attributed the increase in sales to falling mortgage rates. “As expected, buyers are finding it hard to resist the current rates,” he said. “The desire to take advantage of these promising conditions is leading more buyers to the market.”

The median existing-home price for all housing types in August was $278,200, up 4.7 percent from August 2018 ($265,600). August’s price increase marks the 90th straight month of year-over-year gains.

“Sales are up, but inventory numbers remain low and are thereby pushing up home prices,” said Yun. “Homebuilders need to ramp up new housing, as the failure to increase construction will put home prices in danger of increasing at a faster pace than income.”

Builders seem to be answering his call, as privately‐owned housing starts in August were at a seasonally adjusted annual rate of 1,364,000. This is 12.3 percent above the revised July estimate of 1,215,000 and is 6.6 percent above the August 2018 rate of 1,279,000 for the strongest residential construction activity in 12 years.

Calculated Risk

The report from the Commerce Department on Wednesday also showed permits for future home construction rose to levels last seen in 2007. It added to upbeat data on retail sales that have pointed to an economy that is continuing to grow moderately rather than flirting with a recession as has been flagged by financial markets, said Reuters.

There is still strong demand for new housing, in other words. Builder confidence in the market for newly-built single-family homes rose one point to 68 in September from an upwardly revised August reading of 67, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released on Tuesday. Sentiment levels have held in the mid- to upper 60s since May and September’s reading matches the highest level since last October.

“Solid household formations and attractive mortgage rates are contributing to a positive builder outlook,” said National Association of Home Builders’ (NAHB) Chief Economist Robert Dietz. “However, builders are expressing growing concerns regarding uncertainty stemming from the trade dispute with China. NAHB’s Home Building Geography Index indicates that the slowdown in the manufacturing sector is holding back home construction in some parts of the nation, although there is growth in rural and exurban areas.”

And we mustn’t forget mortgage rates have remained low, with 30-year conforming fixed rates still as low as 3.25 percent, and super-conforming fixed @ 3.375 percent for a one-point origination fee in California. However, there are hints that such rates may begin to rise with the Treasury bond rally slowing. The yield of 10-year benchmark Treasury bonds has increased 30 basis points in just one week.

In fact, the demand for housings still exceeds supply some 10 years after the housing bubble bust, with existing-home inventories back down to a 4-month supply; which is a sign the housing market hasn’t fully recovered from the ensuing Great Recession.

The Fed lowered its Fed Funds rate another 0.25 percent, which dropped the Prime Rate to 4.75 percent. This will encourage consumers to continue spending, in other words, with slightly reduced confidence in future growth and jobs. So it seems smart to buy a home while interest rates remain low and consumer remain confident into the holidays.

Harlan Green © 2019

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

Why Make America Small Again?

Popular Economics Weekly

ResearchPew

Why make America small again is the question Americans should be asking President Donald Trump whose immigration policies are designed to do just that. He would reduce immigration flows by 50 percent, if he and his conservative supporters have their way.

The result would be stagnating economic growth because of the simple fact that immigrants are the main driver of population growth, due to the low birth rates of native-born Americans.

The U.S. birth rate is 1.8 births per woman, down from 3.65 in 1960, according to the World Bank. Demographers consider 2.1 births per woman as the rate needed to replace the existing population.

Economic 101 theory states that population growth is one-half of the equation for Gross Domestic Product growth (It’s population growth + productivity = GDP growth). Without adequate population growth, U.S. economic growth would stagnate, as it has in Europe and Japan.

In fact, the Japanese population has been shrinking for decades, which has resulted in a record government debt of some 200 percent of GDP. How else can the Japanese invest in their future but use their government to print money, when its own population contributes a shrinking amount to tax revenues?

And a 2017 report from the National Academies of Sciences, Engineering, and Medicine found immigration “has an overall positive impact on the long-run economic growth in the U.S.”

The best evidence of low native-born birth rates is that over the next five decades, the U.S. immigrant population of 45 million is projected to grow to a record 78 million. The growth rate of 74 percent will be more than double that for the U.S.-born population (30 percent), according to the PEW Study.

Then what does President Trump really believe would make “American Great Again,” if he restricts immigrant inflows, which would reduce U.S. population growth rates by more than half?

He and his supporters labor under a very ancient assumption (not based on fact) that resources are limited in a zero-sum game where one can only gain when others lose a share of income or wealth, or influence, or stature.

That was the mentality of the concentration camp that Nobel Prize-winner Eli Wiesal portrayed so graphically in Night, his description of conditions in Nazi death camps as a child.

It is unfortunately a picture that exists today, in which we are imprisoned in a world of declining resources. It also happens to be the mentality of fossil fuel interests that attempt to protect their limited and declining resources—and wealth that are the financial supporters of the Republican Party (such as the Koch Brothers).

They want to protect their very limited resources, whereas renewable energy offers the promise of unlimited energy resources, as does the Information Age and the Internet. This is a world that requires fewer restrictions of people and information across country borders.

American can only be small again in the Trump-Koch Brothers world of the last century, a world that seemed to have limited resources. There’s no part of America that would prosper with 14-foot-high border walls, or trade barriers, or immigration restrictions that are based on win-lose fallacies.

Such walls can only exist for those that still believe they are imprisoned in a past that no longer exists, or has any basis in fact.

Harlan Green © 2019

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

Retail Sales Rising Again

Popular Economics Weekly

Calculated Risk

Retail sales were strong in August from motor vehicle sales, mainly. On a monthly basis, retail sales increased 0.4 percent from July to August (seasonally adjusted), and sales were up 4.1 percent from August 2018, but there was no gain if auto sales are excluded.

We can say this is good news for maintaining some economic growth this year with manufacturing declining and no end in sight for the trade wars.  But how long can consumers flush with cash from rising incomes continue to spend? 

The retail sails boost comes from falling interest rates, as the Fed is scheduled to drop their overnight rate 0.25 percent for a second time this year. It controls the rate on most consumer loans. But should interest rates be pushed down further to keep consumers in the game that are the sole engine of growth these days?

Avi Tiomkin in a very prescient Barron’s article, believes interest rates should be rising and governments spending more, if we want to prevent another Great Recession.

“The primary cause of the deflationary process of the past decade is expansionary monetary policy and ultralow (and negative) interest rates,” he said. “In modern times, monetary policy has been the main instrument used to fight recessions, including the Great Recession that followed the financial crisis of 2008. Central banks lowered rates and infused capital into the markets, but this strategy has exhausted its usefulness and should no longer be applied.”

The result has been near-zero or negative interest rates that exist in many EU countries and Japan, which not only fail to contribute to healthy economic activity but are also causing “omnipresent damages,” said Tiomkin.

The EU and Japan are examples of what happens when interest rates turn negative as their populations age and spend less. This suppresses the overall demand for goods and services. Seniors spend less and save more because of their static savings/pensions when they retire. Lower interest rates lower incomes, in their case, causing them to save more to maintain their income level.

Another way to describe “the deflationary process of the past decade” is the austerity policies initiated after the Great Recession that cut government spending across the board while cutting taxes. It ended up benefitting the one percent, but no one else.

In fact, it led to a second mini-recession in the EU, whereas the U.S. dodged a second recession bullet with the ARRA—The American Reconstruction and Recovery Act of 2010 that momentarily boosted growth with an initial $787 billion put into economic growth that kept many states solvent and boosted infrastructure spending.

But not in the EU, as Germany and the Nordic countries cut back on their spending while penalizing Greece and other heavily-indebted southern EU members for their spending excesses.  So Europe became infected with “austerity mania” rather than formulating a modern Marshall Plan to speed a recovery because of what Nobel economist Paul Krugman described as the “confidence fairy” at the time.

In 2011, the Nobel laureate economist Paul Krugman characterised conservative discourse on budget deficits in terms of “bond vigilantes” and the “confidence fairy.” Unless governments cut their deficits, the bond vigilantes will put the screws to them by forcing up interest rates. But if they do cut, the “confidence fairy” will reward them by stimulating private spending more than the cuts depress it.

However, “Econ 101 said that slashing spending in a depressed economy was a terrible idea,” said Krugman.

Following several years and nearly four trillion euros ($4.4 trillion) of monetary expansion, and negative interest rates, Europe now finds itself on the verge of a recession and a potential political crisis, says Tiomkin. “Persistent deflation, economic weakness, and inequality fomented by a low-rate regime invariably lead to political and social extremism.”

To stem and reverse these trends, governments, led by the U.S., the European Union, and the United Kingdom, must increase spending aggressively in the next few years to spur growth, directing outlays to infrastructure and public services, defense, domestic security, and more.

This prescription for our aging economics has been recommended by other economic giants such as former Harvard President Larry Summers, and Nobelist Joe Stiglitz, who have been lamented the stagnated thinking prevailing among current policymakers.

Old and supposedly sacrosanct budget-deficit ratios—limiting budget deficits to 3% of gross domestic product, for instance—must be ignored, said Tiomkin. They are archaic and detrimental in light of today’s reality.

It took such government programs to recover from the Great Depression and World War II. How else should we behave after the Greatest Recession, since the Great Depression?

Even consumers have limits on what they can spend to keep this recovery alive.

Harlan Green © 2019

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

JOLTS Survey Reports Increase in Hiring

Financial FAQs

Calculated Risk

This Calculated Risk graph for the Labor Department’s Job Openings and Labor Turnover Survey says (almost) all of it. The yellow line signifying job openings is still soaring far above hires (blue line); so much so that there were still 1.2 million job openings left unfilled in July, the last month surveyed.

Yes, the U.S. economy is so big that there were 5.95 million hires, an increase of 237,000 jobs, and 5.8 million separations that were for a variety of reasons. Many of the separations were voluntary because those employees probably found better jobs.

It’s important to note that the blue columns in the graph show that Quits, or the number of voluntary separations, have been rising since 2010 and are at post-recession highs. Quits are up 3 percent in just the last 12 months.

So we are seeing a very strong job market with that substantial gap between 7.2 million job openings and 5.8 million hires. Hires are still increasing in this 11^th year of the recovery from the 2017-19 Great Recession. I.e., there are no signs of weakening job growth that could mean a contraction.

NFIB.com

Another jobs indicator showed strength as well. The NFIB Small Business Optimism Index, fell 1.6 points to 103.1, remaining within the top 15 percent of readings, per Calculated Risk, which is important because small businesses create some 80 percent of new jobs.

However, the NFIB reported job creation picked up in August, with an average addition of 0.19 workers per firm compared to 0.12 in July. The problem is finding qualified workers is becoming more and more difficult with a record 27 percent reporting finding qualified workers as their number one problem (up 1 point).

“If the widely discussed slowdown occurs, a significant contributor will be the unavailability of labor–hard to call that a “recession” when job openings still exceed job searchers,” said the NFIB.

A further caveat to continued job growth was the Challenger, Gray & Christmas staffing report, which said U.S.-based employers ramped up the pace of downsizing in August, as companies announced plans to cut 53,480 jobs from their payrolls. This is up 37.7 percent from July’s total of 38,845, according to the latest report on job cuts released Thursday.

“Employers are beginning to feel the effects of the trade war and imposed tariffs by the U.S. and China. In fact, trade difficulties were cited as the reason for over 10,000 job cuts in August," said Andrew Challenger, Vice President of Challenger, Gray & Christmas, Inc.

July was a good month for job formation, in other words, as well as the August unemployment report that showed 130,000 new payroll jobs. However, optimism is slipping among the small business owners that are saying they don’t expect better business conditions and real sales volumes in the coming months.

Harlan Green © 2019

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

Weaker Employment Report in August

Popular Economics Weekly

MarketWatch

The economy adding just 130,000 new jobs in August, marking the smallest increase in three months and offering more evidence that hiring has slowed amid a broadening trade dispute with China that’s disrupted the U.S. and global economies, is the ‘lede’ story this Friday.

There were also downward revisions to the last 2 months, the BLS said. The change in total nonfarm payroll employment for June was revised down by 15,000 from +193,000 to +178,000, and the change for July was revised down by 5,000 from +164,000 to +159,000.

The weak job total is from more than the trade wars.  Though wages and salaries are rising, it’s not as much as in earlier recoveries, when average wages rose closer to 4 percent.  But the Fed has been so proactive in preventing any sign of inflation that it boosted interest rates too soon in December, which slowed both consumer buying and investing that depend on lower short term rates.

This tends to nip any substantial wage increases in the bud that would really jump-start further economic growth into the 11th year of this record-breaking recovery.

The good news is that Friday’s soft employment figures should keep the Federal Reserve on track to cut interest rates later this month, even after another sharp increase in wages.

Average hourly earnings for all employees on private nonfarm payrolls rose by 11 cents to $28.11, following 9-cent gains in both June and July. Over the past 12 months, average hourly earnings have increased by 3.2 percent, said the Bureau of Labor Statistics (BLS), also.

Longer term interest rates are already plunging and there is speculation that rates might even trend lower, particularly if the Fed continues to lower short term rates. It could boost home sales and prices, as well, if no recession looms due to the other factors (trade war?).

Harvard economics Professor Kenneth Rogoff said recently that it isn’t out of realm of possibility that more Central Banks might introduce negative interest rate yields to prevent another recession as is already the case in the EU and Japan.

Federal Reserve Chairman Jerome Powell said Friday afternoon that the most recent monthly gauge of the U.S. labor market fit into an overall picture of a healthy jobs market and economy.
In a question-and-answer session in Zurich, Powell said the outlook for the economy remains favorable, describing the future as one likely to reflect continued moderate economic expansion.

Then why the downward trend in hiring? Nobel economist Paul Krugman says that Trump’s trade policies are bad for productive business, in particular, which are businesses that must plan for the longer term. That excludes extractive businesses, like oil and coal mining that only think short term; which means until the oil and coal reserves run out.

“Trump’s trade war isn’t just that tariffs raise costs and prices,” said Krugman, “while foreign retaliation is cutting off access to important markets. It is that businesses can’t make plans when policy zigzags in response to the president’s whims.”

The gain in new jobs was even weaker if hiring tied to the upcoming U.S. Census is stripped out. In August, employment in federal government rose, largely reflecting the hiring of temporary workers for the 2020 Census. Private-sector employment was up by 96,000, with notable job gains in health care and financial activities and a job loss in mining.

There are other factors slowing job growth to consider, also. No national infrastructure bill has been passed, when that would be the surest way to jump-start employment in productive businesses. But it means spending government money, and the Trump administration only wants to spend taxpayers’ money on border walls; even attempting to take away some $3.4 billion from the defense budget to do so.

This could just be the beginning of slower job growth, if the trade wars aren’t resolved soon, as I and many others have been saying. But who will resolve them in time to prevent that R word from surfacing, once again?

Harlan Green © 2019

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

Answering the Kennedys’ Call

Noozhawk.com

I recently attended the 10^th anniversary of the Goleta Dam Dinner held at Lake Los Carneros, on a dam built long before the City of Goleta, California was formed.

Here in this relatively new and still small city, founded in 2002 and nestled beside its famous neighbor, Santa Barbara, were families of all ages and stages happily celebrating not only their sense of community spirit, but the natural beauty of its surroundings that is a unique blend of mountains and ocean located on the central California coast.

This made me realize how successful was the formation of this new, very livable, California city, where I had been privileged to live and help establish, in spite of the many obstacles to the formation of new governmental entities in recent years.

It was a successful community because of the attention paid to both the environment and safety concerns of its citizens—especially the children.

I know Goleta won’t make the list of The Economist Intelligence Unit’s annual Global Liveability Index that really only pays attention to larger cities, where we don’t see this community spirit and camaraderie.

Vienna was the top city on The Economists’ list, with Australia and Canada each having three cities in its top 10 listing of the better-known cities that made The Economists’ Liveability Index. .

1. 1. Vienna, Austria
2. 2. Melbourne, Australia
3. 3. Sydney, Australia
4. 4. Osaka, Japan
5. 5. Calgary, Canada
6. 6. Vancouver, Canada
7. 7. Toronto, Canada
8. 8. Tokyo, Japan
9. 9. Copenhagen, Denmark
10. 10. Adelaide, Australia

No U.S. city was in the top 20, with Honolulu ranking highest at No. 22. Atlanta came in 33rd place; Pittsburgh, 34th; and Seattle, 36th. New York was all the way down in the 58th spot, in part because of low scores for infrastructure, stability and possible crime issues.

That could be because it’s easier for the residents of smaller cities to confront city councils with their concerns—at least in the U.S. of A. It has to be why the City of Goleta became one of the 50 safest American cities in 2017, fifteen years after its formation, according to a survey by Safewise, a security firm.

What then does “liveability” mean? The Economist is a UK Magazine, which might serve as a bias for a more European civic viewpoint, perhaps. But the issue of safety is certainly at the forefront of making any community livable—especially for children.

And the rising tide of violence in American cities—so much so that in 1992 U.S. Surgeon General Everett Koop declared violence a public health emergency—means the situation in American cities hasn’t improved.
 
And now even more so when U.S. Surgeon General Vivek Murthy was fired by President Trump in 2017 after he spoke against gun violence, calling it a public health issue that needs public investment, and stood in support of the victims in Orlando, Florida, where one of the worst mass shootings in American history had just occurred.

It also has much to do with so-called Smart Urban Planning. Architect Suzanne Lennard, and Psychiatrist Henry L. Lennard have written extensively on what makes communities livable in books such as The Forgotten Child (2000, Gondolier Press, Carmel, CA).


Children are safest where there are neighborhood adults with ‘eyes on the streets’ that watch over them, as in many densely-packed European cities with their public squares. Children are also safer where streets are designed and neighborhoods zoned to allow children to roam and explore, rather than be dependent on the auto to transport them to school, for instance, as is the case in many poorly-planned American suburbs.

Such concerns were incorporated into the City of Goleta—that made it such a close-knit, ‘liveable’ community, in my opinion. It was also why attending the Goleta Dam Dinner’s 10^th anniversary was such a special event.

Harlan Green © 2019

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

What Happens When % Rates Go Even Lower?

The Mortgage Corner

FRED

The NAR’s pending home sales index was softer than expected in July, thereby reversing nearly all of its June increase.  That left the index with a slight YOY decline of 0.3 percent.  Those results probably mean at least part of the July rebound in existing home sales will be reversed in August, though any drop in August resales may be milder than the July decline in the pending index, says market observer ICAP, a Reuters subsidiary.

Interest rates are down and they may go even lower, if no recession looms due to other factors (trade war?). Harvard economics Professor Kenneth Rogoff said recently that it isn’t out of realm of possibility that more Central Banks might introduce negative interest rate yields to prevent another recession as is already the case in the EU and Japan.

But lower interest rates also boost the value of housing, increasing the demand for housing because more borrowers become eligible to buy; unless builders are able to increase production. But that isn’t certain with the 25 percent increase in the Canadian lumber tariff, which has increased construction costs $8,000, according to estimates, and the severe construction labor shortage.

The Guardian reports Jyske Bank, Denmark’s third largest, has begun offering borrowers a 10-year deal at -0.5 percent, while another Danish bank, Nordea, says it will begin offering 20-year fixed-rate deals at 0 percent and a 30-year mortgage at 0.5 percent.

There’s also another effect of lower rates. Barron’s economist Matthew Klein states the precipitous drop in interest rates “should have a big impact on refinancing activity. U.S. households owe roughly $9.4 trillion in mortgage debt, and a bit more than half of that takes the form of conventional home loans that conform to standards set by Fannie Mae and Freddie Mac. More than 90 percent of those 30-year mortgages have an interest rate above the current market rate.”

Not all will choose to refinance, of course. Black Knight, a mortgage research firm, calculates about 10 million mortgages would be candidates for refinancing, based on today’s market rate (3.6 percent), interest rates on existing mortgages (at least 4.25 percent), credit score (above 720), and loan-to-value ratios (below 80 percent).

Should market rates drop to 3.4 percent, Klein quotes Black Knight estimates that the number of potential refinancing candidates would jump to 13 million. Mortgage rates of 3 percent, which would represent a sharp decline from current levels, would translate into 20 million refi candidates.

This is now looking like a real possibility. We know what happened the last time there was a precipitous drop in interest rates; the housing bubble. Rates had dropped sharply after the 2001 recession, and then Fed Chair Alan Greenspan labored to keep interest rates too far below existing inflation rates to finance the War on Terror that frittered away 4 years of budget surpluses inherited by GW Bush.

It led to double-digit home price increases for several years, hence the housing bubble; which in turn led to immense overbuilding and the liar-loans pushed by lenders to sell as many homes as possible.

Today the biggest difference is that we don’t have inflation rates of 3-5 percent that existed in the early 2000s, therefore not as much fuel to boost housing prices. Values are currently on the down trend and in the 3 percent range, per the Case-Shiller Index as we speak.

“The economic impact would be noticeable under any of these scenarios,” says Klein. “According to Freddie Mac, households that refinanced in April through June, when mortgage rates averaged 4%, already have saved about $140 each month, or roughly $1,700 a year. For perspective, the typical U.S. homeowner with a mortgage spends $5,000 per year on groceries. Evercore estimates that the average borrower could save about $4,560 annually by refinancing into a new mortgage at 3.5%.”

Lower interest rates could give a big boost to the longest economic recovery on record, putting more money in consumers’ pockets, should the downward interest rate spiral that Professor Rogoff predicts become a reality. It could also create another housing bubble; take your pick!

Harlan Green © 2019

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