Tuesday, September 29, 2020

 The Mortgage Corner

 

Calculated Risk

Booming Realtors’ existing-home sales are showing there is a very severe housing shortage with record sales and a record low housing inventory. Calculated Risk says the for-sale inventory is down 18.6 percent year-over-year (YoY) in August. This is the lowest level of inventory for August since at least the early 1990s.

Forbes

Sales continued to climb in August, marking three consecutive months of positive sales gains, according to the National Association of Realtors®. Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.4 percent from July to a seasonally-adjusted annual rate of 6.00 million in August. Sales are up 10.5 percent from a year ago (5.43 million in August 2019).

Reuters said recently, “With single-family building permits extending their uptrend in August, we think new home sales may continue to improve as well.  We do think any further gain in August is likely to be much more modest, and our point estimate calls for an increase of about 2 percent, to an annual rate of 920K.  That would represent a YOY increase of 30 percent, the highest monthly reading since the end of 2006. The YOY increase increase in the median price of a new home stood at 7.2 percent in July, also a new high.

And new-home sales are also booming while builders struggle to catch up to the higher demand. New home sales jumped 14 percent in July to a nearly 14-year high.  It was the third consecutive monthly increase of that magnitude or larger. Can this last?

"Home sales continue to amaze, and there are plenty of buyers in the pipeline ready to enter the market," said Lawrence Yun, NAR’s chief economist. "Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3 percent and with continued job recovery."

What is going on? We know the incredibly low interest rates are a factor. Also the Great Recession caused builders to literally stop building because of so much excess inventory frpom the busted housing bubble (foreclosures, etc.).

Housing construction actually fell some 80 percent over the past 10 years since the end of the Great Recession, and hasn’t yet caught up. We also have the Covid-19 pandemic that has temporarily reduced new household formation. The Federal Reserve said in a research note that from February to June, “This decline is of essentially the same magnitude as that seen over the entire Great Recession, and it corresponds to a drop in the number of occupied housing units—or an increase in the number of vacant units—of roughly 2 million.”

But that hasn’t slowed population growth. Forbes Magazine in a recent article said, “Scarred by the housing bust, homebuilders have been sitting on their hands for the past decade. Census Bureau data shows an average of 1.5 million homes were built each year since 1959. Yet over the past decade, just 900,000 homes have been built per year.”

What’s to be done? It can’t just be up to local governments with exclusionary zoning restrictions that NIMBYs use to restrict affordable housing in their neighborhoods.

In the 1980s, Congress established the Low Income Housing Tax Credit program to incentivize private developers to build affordable apartment homes and communities, reports USA Today. More than 3 million affordable units have been built under the program, and if Congress were to expand this program — as proposed in new bipartisan legislation (Affordable Housing Credit Improvement Act of 2019) — experts estimate that our country could create or preserve an additional 384,500 affordable homes over the next 10 years

There is much more that can be done on the national level. Record income inequality has made home ownership much less affordable for Main Streeters. There has been no movement to cure the problem, such as a national minimum wage, or to strengthen labor laws that would boost the income of working families.

There has to be a concerted national effort so reverse this trend, in other words, or the homeless numbers will continue to rise in everyone’s backyard.

Harlan Green © 2020

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

Tuesday, September 22, 2020

The Cost of a Prolonged Pandemic

 

Popular Economics Weekly 

 

 

COVID Tracking Project

I have been asked many times about my thoughts on the direction of our fall and winter economies, but been hesitant to give specific answers because firstly, it depends on the outcome of the election.

Republican economics have been a disaster, from the multiple trade wars that shrank world trade, even before the coronavirus pandemic did further harm, and the 2017 corporate tax cuts that haven’t fulfilled any of their promises, just given corporations the excess profits to overinflate stock and bond prices while adding $trillions to the national debt.

And secondly, it depends on the pandemic’s outcome, which also depends on the November election, since Trump and his red state Republicans now actively oppose almost all scientific remedies for bringing down the infection and death rates—such as a national mask mandate—in their haste to open the economy before November.

We are now beginning to have a reckoning of the stunning disregard for human life by the Trump administration and Republican Party as we enter the fall season of colder weather when viruses thrive and the COVID-19 deaths in the U.S. have now reached 200,000.

Calculated Risk

The Covid Tracking Project reports that more than 40,000 Americans per day are now infected with the virus, up from 20,000 at its low point in June, as virus testing has risen to almost one million per day with newly available testing procedures.

So the question has to be why such a stunning disregard for the well-being of Americans during the worst natural disaster to hit the world since the 1918 Spanish influenza pandemic, and which now has killed more Americans (200,000) than all the world wars of the past century?

Top that with Trump administration attempts to have the Supreme Court repeal Obamacare that protects Americans with existing illnesses, which would affect more than 20 million Americans’ healthcare, thus allowing insurance companies to once again deny treatment for any after effects of COVID-19 illnesses that would be deemed a pre-existing condition.

Meanwhile, President Donald Trump last week contradicted comments made by his administration’s health experts regarding the timing of when a vaccine might be available, and the Centers for Disease Control and Prevention had to reverse course on new testing guidelines after the New York Times reported that the new guidelines were actually written by the Trump administration and not CDC scientists.

"I wanted to always play it down," Trump told Bob Woodward in his new book, Rage, on March 19, even as he had declared a national emergency over the virus days earlier. "I still like playing it down, because I don't want to create a panic."

If instead of playing down what he knew, Trump had acted decisively in early February with a strict shutdown and a consistent message to wear masks, social distance and wash hands, experts believe that thousands of American lives could have been saved, maybe preventing an inevitable repeat of the 1918 horrors that should never be repeated.

The direction of our economy and who it benefits really boils down to the results of the November election, unfortunately. The most egregious cost to Americans has been the needless suffering caused by the Republicans’ support of President Trump’s policies.

Trump has become the “useful idiot”, in the words of Lt. Colonel Alexander Vindman, a decorated Marine veteran and former National Security Council analyst and Russian specialist, who also threatens our national security interests.

The populist counterrevolution espoused by the Trump Party has so weakened American values and institutions that actual law-breaking is now considered a new normal, race-baiting and the scapegoating of minorities official government policies.

These costs are no longer bearable, in part because I and many economist see very dark days ahead until and unless the Republican Party is forced to change its ways, and why would that happen unless they are prevented from causing further harm this November?

Harlan Green © 2020

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

Friday, September 18, 2020

Will We Repeat the 1918-19 Spanish Flu Pandemic?

 Answering the Kennedys’ Call

Early in Bob Woodward’s just released best-seller, Rage, President Trump said he knew by February that COVID-19 could act much like the Spanish influenza pandemic of 1918-19. It was estimated to have killed 675,000 Americans and 50 million worldwide before it was over.

“It’s deadly stuff,” he said to Woodward, “It’s also more deadly than even your strenuous flus…maybe five times as deadly as the flu.”

Yet despite Trump’s confession that he knew early of its horrendous effects, his downplaying of its dangers to Americans and the world may set the stage for a repeat performance.

This is in part because we are not yet at the seasons where it did its greatest damage—the fall and winter. Then combine it with the ordinary flu season that kills from 30,000 to 60,000 every year.

John M Barry’s book, The Great Influenza: The Story of the Deadliest Pandemic in History, first published in 2004 with a 100th anniversary edition reprint in 2018, details the horrors of the Spanish flu pandemic that broke out in the last year of World War One that no one should want repeated.

In a matter of 12 weeks two-thirds of its victims died, from mid-September to mid-December of 1918, said Barry, in as quickly as 24 hours from the onset of symptoms—some symptoms resembling those of the Black Plague. There was a less-deadly surge in the spring of 1919 that sickened even President Woodrow Wilson while he was in Paris negotiating World War One peace terms with Germany.

"I wanted to always play it down," Trump told Woodward on March 19, even as he had declared a national emergency over the virus days earlier. "I still like playing it down, because I don't want to create a panic."

If instead of playing down what he knew, Trump had acted decisively in early February with a strict shutdown and a consistent message to wear masks, social distance and wash hands, experts believe that thousands of American lives could have been saved, maybe preventing an inevitable repeat of the 1918 horrors that should never be repeated.

Why such a stunning disregard for human life by the Trump administration and Republican Party is now the question that needs to be answered.

President Trump is the last vestige of the conservative counterrevolution documented so accurately in Kurt Andersen’s Evil Genius, the Unmaking of America that has so weakened American values and institutions. We have come to a time when disregarding the laws of nature is the new normal, where race-baiting and the scapegoating of minorities have become official government policies.

Doctors Fauci and Redfield seem to believe 1918 may be repeated when they warned recently that the worst is yet to come this winter with a vaccine not generally available to the public before summer or fall of 2021 and the oncoming ordinary flu season that has historically killed 30,000 to 60,000 deaths per year,

Woodward also revealed Trump’s own National Security Advisor Robert O’Brien labeled the new coronavirus pandemic the greatest national security threat he will face as President.

We also now know the national security costs of electing a “useful idiot” to the Oval Office, in the words of Lt. Colonel Alexander Vindman, a decorated Marine veteran and former Russian analyst on the National Security in a recent Atlantic Monthly article.

“President Trump should be considered to be a useful idiot and a fellow traveler, which makes him an unwitting agent of Putin,” Vindman said recently. Useful idiot is a term commonly used to describe dupes of authoritarian regimes; fellow traveler, in Vindman’s description, is a person who shares Putin’s loathing for democratic norms.

He has also been a “useful idiot” for Republicans that have attempted more than 80 times to dismantle our public health system, including the repeal of Obamacare with its preexisting conditions inclusion, which has increased the risks to Americans’ health and well-being during the COVID-19 pandemic.

Even the separation of children from parents seeking asylum from corrupt Central American governments and drug gangs has been revealed to be government policy implemented by the Department of Homeland Security; as documented by the journalist Jacob Soboroff in his new book documenting the horrific Trump policies with immigrant families, Separated: Inside An American Tragedy.

These costs are no longer bearable because they reveal America has come to be governed by the useful idiots of one political party with no real regard for human life, who are determined to hold on to their wealth and power regardless of the consequences.

Harlan Green © 2020

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

Tuesday, September 15, 2020

Where are the Jobs?

 Popular Economics Weekly

 

 Calculated Risk

The number of job openings increased to 6.6 million on the last business day of July, the U.S. Bureau of Labor Statistics reported last week, a good sign. Labor’s JOLTS report will be an important indicator for the last (September) unemployment situation report that comes out just before the November election.

These changes in the labor market reflected an ongoing resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic and efforts to contain it, said the BLS. This release includes estimates of the number and rate of job openings, hires, and separations for the total nonfarm sector, by industry, and by four geographic regions.

It is showing that certain segments of the economy are doing well, in durable goods such as autos and home sales, because the top 20 percent of white collar income earners that stay employed while working from home, but not the 80 percent of essential workers that really make our economy grow.

For instance, the unemployment rate for companies involved in travel, hotels, dining out and other forms of leisure and hospitality stood at a stunning 21.3 percent last month, whereas the unemployment rate among banks, insurers, Wall Street brokerages and other companies involved in the handling of money was just 4.2 percent in August.

The JOLTS report showed hires had decreased to 5.8 million in July from 7 million (blue line in graph). This tallied with other indicators that fewer workers were being hired in July. Total separations were little changed at 5.0 million. Within separations, the quits rate rose to 2.1 percent, a sign more workers were finding better jobs. But where are they?

Hires increased in federal government (+33,000), largely because of Census hiring. Hires also increased in real estate and rental and leasing (+26,000). But the total number of hires decreased in all four regions.

The job openings were led by the retail sector, with 172,000 new vacancies, reports the Bureau of Labor Statistics (BLS). There were an additional 146,000 jobs in healthcare and social assistance. In the construction industry, job openings increased by 90,000. The job openings rate shot up to 4.5 percent, the highest since October 2019, from 4.2 percent in June.

While schools have opened for the new academic year, many are conducting virtual classes, reports Reuters. Problems securing childcare have forced some workers, mostly women, to resign from their jobs. The labor participation rate for women dropped in April to levels last seen in the late 1980s and has not rebounded much since.

Jobs decreased in a number of industries, with the largest fall in accommodation and food services (-599,000), followed by other services (-143,000), and health care and social assistance (-137,000).

This doesn’t show a very strong job recovery, and there will be many teachers and students opting to stay at home and study online, if they can afford it.

Over the 12 months ending in July, hires totaled 70.2 million and separations totaled 78.5 million, yielding a net employment loss of 8.2 million. These totals include workers who may have been hired and separated more than once during the year.

I don’t believe the picture will change much come November. Those with jobs will spend, but not the majority of wage-earners that will face an uncertain job future without more government aid and a more coordinated effort to control COVID-19 in the coming winter season.

Harlan Green © 2020

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

Wednesday, September 9, 2020

Who Owns America?

 Financial FAQs

seekingalpha.com

Kurt Andersen’s new best seller, Evil Geniuses, The Unmaking of America (2020, Random House), gives a terrific history of the current Gilded Age we are suffering through that has largely benefited Big Business and its enablers.

Just since 1980, Big Business has occasioned the transfer of some $1 trillion per year in income and wealth from salaried workers that comprise 80 percent of our workforce to corporate shareholders and business owners.

“Until 1980, America’s national split of “gross domestic income was around 60-40 in favor of workers, but then it began dropping and is now approaching 50-50. That change amounts to almost $1 trillion a year, an annual average of around $5,000 that each person with a job isn’t being paid,” said Andersen.

We know this wealth transfer to be true from other sources including that of economist Thomas Piketty, sure to be a future Nobel prize-winner in his best-seller, Capital in the Twenty-First Century that documents the history of income inequality from the last Gilded Age in the early 1900s.

Our last period of greatest inequality was at the turn of the 20th century before income taxes were instituted and President Teddy Roosevelt’s trust-busters broke up the likes of Standard Oil.

Piketty showed the growth rate of capital—i.e., by the owners of businesses and financial assets—has historically been more than double that from wages and salaries of employees since the Industrial Revolution; except for a short period between 1914-1945, when major upheavals and “the consequent advent of new regulations and tax policies along with controls on capital reduced capital’s share of income to historically low levels in the 1950s.”

Andersen echoes Professor Piketty’s history, showing the slow rollback of New Deal policies with the election of Margaret Thatcher in 1979 and Ronald Reagan in 1980 that marked the beginning of the conservative counterrevolution.

Andersen wants to answer the question; How can we remake America after the COVID-19 induced recession? Looking at the history of the last great pandemic, the Spanish flu of 1918-19 that killed some 600,000 Americans, will help us to understand what we should do since we know what happened next—a recession that lasted approximately two years, then the ‘roaring twenties’.

The roaring 1920s was a euphoric surge in optimism from the devastation of World War I and that pandemic for Americans. Credit was expanded exponentially and American went on a spending spree, resulting in massive bubbles in household debt and stocks that resulted in the Great Depression.

Inequality was as great then as it is today. It unfortunately took the Great Depression and another World War to level the playing field in the 1950s to 1970s, until the Thatcher and Reagan-induced counterrevolutions.

Who should own what share of the national wealth has been at the center of all revolutions. It has to do with the “respective shares of global income going to labor and capital and on how those shares have changed since the eighteenth century,” in Piketty’s words.

So answering the question of who should own America is answering the question of whether our gross domestic income comes to be shared in a more equitable fashion, if we want to end this Gilded Age and preserve our democracy from future counterrevolutions.

Harlan Green © 2020

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

Friday, September 4, 2020

Employment Picture Improving?

 

Popular Economics Weekly


MarketWatch

It wasn’t as much improvement as expected, and more layoffs are coming with the end of the CARES Act benefits that kept workers on payrolls, or temporarily furloughed.

The Labor Department (BLS) reported the August unemployment rate declined by 1.8 percentage points to 8.4 percent, and the number of unemployed persons fell by 2.8 million to 13.6 million. Both measures have declined for 4 consecutive months but are higher than in February, by 4.9 percentage points and 7.8 million, respectively.

One pundit opined that it could take another 8 months to return to the unemployment rate that prevailed before the pandemic. But that was a record unemployment rate of 3.5 percent in February, which is probably not attainable in the near future since many of the larger businesses and sectors are beginning to let go of their employees with expiration of the benefits from the CARES Act.

Some 29 million were reportedly receiving jobless benefits as of the middle of last month. Also, 238,000 of the new jobs were for temporary Census Workers whose jobs will disappear once the census count is completed.

While millions of these lower-paid employees are now being brought back a whole new wave of layoffs has been building momentum, says the Wolf Street report. “Now it’s well-paid jobs with decent benefits at big companies, including tech companies that are being shed. We got a dose of those big-company layoffs over the past few days.”

Wolf Street also reported that October 1 is the day when airlines are free under the bailout package to lay off people involuntarily. Between American Airlines, United Airlines, and Delta, the additional cuts announced so far could amount to more than 55,000 employees.

And difficulties of the airlines business are translating into layoffs at many other industries, including manufacturers of aircraft, engines, and components. Boeing said at the end of July that it is preparing a second round of buyouts this year. The 10 percent cut of its workforce unveiled in April wasn’t enough, amid a flood of cancellations of its key product, the misbegotten 737 MAX.

“So this is now a mix of new job cuts, and temporary furloughs becoming permanent layoffs. Goldman Sachs estimated that nearly a quarter of US workers that were temporarily furloughed probably won’t be called back. That’s millions of people,” says Wolf Street.

Over the past four weeks, nearly 7 million people filed initial unemployment claims under state and federal unemployment insurance programs. This means that over the past four weeks, nearly 7 million people, who were eligible for state or federal unemployment insurance, got newly laid off. That’s a huge and catastrophic number.

And we still have no agreement on another congressional rescue package. The Fed’s so-called Beige Book, a regular survey of the economy, reported “Continued uncertainty and volatility related to the pandemic, and its negative effect on consumer and business activity, was a theme echoed across the country.”

The pickup in activity seen in May and June has slowed over the past couple of months Cleveland Federal Reserve President Loretta Mester said in a separate speech on Wednesday. She and other senior Fed officials are urging Congress to provide more help to the economy, indicating urgency on the part of a the central bank that historically has shied away from offering advice to lawmakers.

USA Today reports House Speaker Pelosi and Treasury Secretary Steven Mnuchin came to the agreement Tuesday during a phone call about the two sides' stalled efforts to pass another COVID-19 relief package, a source familiar with the call said. The deal would extend government funding at the same levels they are currently operating at and will likely allow both sides of the aisle to avoid a high-stakes series of negotiations before voters cast their ballots in November.

Let us hope so. I said in a recent blog that before the pandemic the U.S. counted 30 million workers in the categories we now consider essential: grocery clerks, nurses, cleaners, line cooks, warehouse workers, bus drivers and more. But according to data from the Kaiser Family Foundation published in early May, 1 in 4 essential workers report having difficulties affording basic household expenses, and 1 in 7 are uninsured.

Harlan Green © 2020

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


Wednesday, September 2, 2020

What is This Election Really About?

 Answering the Kennedys’ Call

#eisenhower

Now is the time to cure our record income and wealth inequality, since it’s not only adversely affecting the most vulnerable during this pandemic—including our mostly low-income essential health care and public safety workers—but overall economic growth, and hence any chance of a robust recovery from the current pandemic-induced recession.

According to the Center for Economic Policy and Research cited in an LA Times Op-ed, before the pandemic the U.S. counted 30 million workers in the categories we now consider essential: grocery clerks, nurses, cleaners, line cooks, warehouse workers, bus drivers and more. According to data from the Kaiser Family Foundation published in early May, 1 in 4 essential workers report having difficulties affording basic household expenses, and 1 in 7 are uninsured.

President Eisenhower’s admonition that corporations must pay their fair share to support economic growth is part of the solution to those problems.

I’ve written before about the growing income and wealth inequality that puts America’s distribution of family income ranking closer to Cameroon and Mozambique than the developed countries, according to the CIA World Factbook.

But the coronavirus pandemic has made returning to some degree of income equality that last prevailed in the 1970s more urgent than ever. Our record income and wealth inequality is a major reason for the growth in low-income workers.

U.S. economic growth has been anemic since the Great Recession—even with Republicans’ spectacular 2017 tax cut bill that mostly benefited Wall Street and corporations. The tax cuts were designed to benefit corporations, whose tax rate was cut to a rock bottom 21 percent from 36 percent, giving corporations a profit windfall.

So the upcoming presidential election is really about reversing the huge transfer of wealth (currently $1 trillion per year, per NY Times David Leonhardt) since 1980 when President Reagan’s so-called trickle-down economics program that advocated lower taxes and fewer government regulations took hold.

President Eisenhower’s simple explanation for the 90 percent maximum corporate tax rate that prevailed in the 1950s and 1960s was to encourage corporations to grow and develop “new locations, new hires, new equipment, new product research and development” that would grow the country, rather than “hoard it and pay Uncle Sam.”

But something happened in the 1970s to make taxes and big government unpopular, says Kurt Andersen in his new book, Evil Geniuses, The Unmaking of America (2020, Random House).

Higher marginal tax rates that squeezed growing middle class incomes was certainly part of it, but anti-government, anti-labor sentiments and policies enacted during the 1980s that lowered maximum tax rates put the finishing touches on any possibility of income equality for the 80 percent of salaried workers that no longer shared in the productivity gains from government-financed Research & Development (e.g., Internet, AI, space exploration).

Rutgers University economic historian James Livingston sounded the alarm in a well-known NY Times Op-ed: It’s Consumer Spending, Stupid, some years ago when he showed that corporations for the most part have been using their profits to speculate rather than invest in their future. With lower tax rates they no longer had the incentive to invest in the public good (and America’s future), in other words.

“Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent,” said Professor Livingston. “Meanwhile, net business investment declined 70 percent as a share of G.D.P...Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.”

In other words, this election is not only about choosing a government that can vanquish COVID-19 with effective health care policies, it’s about improving the lives of most Americans. We know there are many programs that would improve income inequality—beginning with a higher minimum wage, enhanced public spending on a better social safety net.

Raising corporate taxes back to historical levels is a start that would enable government to finance some of those necessary changes; or corporations could again heed President Eisenhower’s admonition and spend their monies where it will do the most public good.

Harlan Green © 2020

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

Saturday, August 29, 2020

 Popular Economics Weekly

FREDinitialclaims

The initial claims for unemployment insurance curve has flattened, rather than continuing to decline as the US economy opens. Not a good sign for future job growth.  Why? The coronavirus infection rate hasn’t declined, in a word, and studies are showing that consumer fears of COVID-19 are hurting the economy more than government decrees to combat the virus.

There were a seasonally adjusted 1.06 million new claims this week, and initial claims have been hovering around the 1 million marker for 3 weeks. The question is when will it decline further, indicating more hiring. But new research posits that may not be happening soon.

The National Bureau of Research (NBER) just put out a Working Paper entitled “Consumers Fear of Virus Outweighs Lockdown…” showing that fear of the effects of COVID-19 outweigh the government restrictions on business operations in causing the “steep drop in business activity.”

This is while CDC director Robert Redfield recently warned in a WebMD interview that America is bracing for “the worst fall, from a public health perspective, we’ve ever had.”

He feared that when the second, or third surge, in the pandemic arrives (depending on who’s counting) with the fall flu season, unemployment might rise again, maybe to levels not seen in recent history. We are still at a 10.2 percent unemployment rate, and next Friday’s August unemployment report might not show any improvement in the rate but may even worsen. 

“By comparing counties with and without restrictions, the NBER researchers conclude that only 7 percentage points of the 60 percentage points overall decline in business activity be attributed to legal restrictions,” said their public summary of the report. “Most of the decline resulted from consumers voluntarily choosing to avoid stores and restaurants.”

COVIDtrackingproject

And average daily deaths haven’t yet declined from more than 1,000 per day since July and the summer openings. So, any lifting of those restrictions will not have much effect until consumers feel safe enough that the COVID-19 pandemic is under control.

In fact, the researchers’ counter-intuitive conclusion is that lifting lockdowns could have the unintended effect of discouraging consumer spending (which drives 70 percent of economic activity these days), “if repealing lockdowns leads to a fast enough increase in COVID infections and death.”

Retail sales rose 1.2 percent in July, the government said. Economists polled by economists had forecast a 2 percent advance. Receipts have slowed from a 8.4 percent increase in June and a record 18.3 percent gain in May when the economic rebound began. In other words, consumers may be seeing the writing on the wall as we approach the cold season.

There are other more heartening signs that fall economic growth could surge. Real PCE spending rose by 1.6 percent in July.  The combination of the July gains and the upward revisions to May and June puts real spending in July 8 percent above the Q2 average, which guarantees a very large contribution to Q3 GDP from the consumption component. 

The consensus is that GDP growth should spring back some 26 percent from its 32 percent drop in Q2. That could mean an end to the current recession that officially began in February, but no assurance there wouldn’t be a repeat unless consumers feel safer than they do today.

What’s the alternative if consumers still live in fear that COVID-19 hasn’t been controlled, and a safe and effective vaccine isn’t developed for, say, another year that can protect 300 million plus Americans.

Is anyone listening?

Harlan Green © 2020

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

Thursday, August 27, 2020

Should the Fed Boost Inflation?

 Financial FAQs

FRED10yrInflation

The Federal Reserve is so desperate to support growth in this pandemic that it wants to allow inflation to rise above its 2 percent target range. Why? But inflation and rising prices are usually a sign of economic growth. But inflation is currently running at less than 2 percent--1.81 percent annually--(see below graph).

Money is cheap because interest rates are close to zero, yes zero percent. The current 10-year benchmark Treasury yield is actually minus –1.0 percent after inflation, meaning the U.S. Treasury is paying investors to hold them at present, per the above FRED graph. 

That’s because money isn’t being used in productive enterprises at the moment, such as building infrastructure, or boosting education spending, or environmental protection, or put in the pockets of lower-income folk that spend most or all of it.

Actually all of those enterprises would pay it forward for the benefit of future generations, but that isn’t happening in the private sector, which is why we will need government to do the investing that private commerce will not.

Corporations and the wealthiest of us aren’t investing much in the future because the present is so uncertain. The dangers of another shutdown due to COVID-19 are very real, given that the U.S. is behind every other developed country and many developing countries in conquering this pandemic. We have the highest number of COVID deaths with Brazil, Mexico, and India next in line.

FREDcpiInflation

So Fed Chairman Powell’s announcement that the Fed will ease credit conditions even further is an attempt to pry some of the money loose from the savers with the hope it will be actually be spent on more goods and services.

That is a good thing in itself, but no guarantee that it will boost inflation or economic activity unless there are well-planned public programs to spend it. There is plenty of excess capacity in our COVID-19 economy, so production could be boosted quickly and in turn boost supplies, which keeps prices and inflation from rising too fast.

This is a truism lost on some economists even. Printing lots of money doesn’t necessarily produce higher prices and inflation, unless there is sufficient demand and/or there are production bottlenecks, hence a supply scarcity.

The only real guarantee that we will invest in the future, in what is essentially the public sector that belongs to all of US, is when government is the good caretaker of those public resources—the air, water, natural resources, public education and health services.

It isn’t socialism, but a more robust capitalist system, a public/private partnership that can benefit all Americans.

Harlan Green © 2020

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

Saturday, August 22, 2020

Why the Housing Boom...?

 

The Mortgage Corner

Calculated Risk

Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, are booming.  They jumped 24.7 percent from June to a seasonally-adjusted annual rate of 5.86 million in July. The previous record monthly increase in sales was 20.7 percent in June of this year. Sales as a whole rose year-over-year, up 8.7 percent from a year ago (5.39 million in July 2019).

And residential construction is almost up to the February high that had been nursed by the Fed’s push for record low interest rates that have boosted purchase and refinance mortgage applications to record volumes as well.

Why the housing boom in the middle of a worldwide pandemic that is killing millions?

Interest rates are at record lows, for one thing. And the recession is probably over for a certain segment of our populace. The numbers also show there is also a tremendous pent up demand from the missing spring months due to the pandemic shutdown that normally boosts housing sales.

The conforming 30-year fixed rate is now below 3.0 percent for a one point origination fee, and jumbo conforming is just 1/8th percent higher! In fact, the best lenders are offering 2.75 percent at zero points for the 30-year conforming fixed rate.

“The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days,” said Lawrence Yun, NAR’s chief economist. “With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021.”

Reuters news reports housing starts (i.e., new construction) jumped 23 percent last month versus their forecast of a 3 percent gain, with single-family starts up 8 percent from an upward-revised June level and the more volatile multi-family sector spiking 58 percent. (This had to be because of rising rents and rising demand due to the housing shortage,)

However, overall starts remain 4.5 percent below their February level, with single-family starts down 9 percent since then and multi-family starts up 4 percent.  Single-family permits are up 17 percent and multi-family permits up 22 percent, a very strong sign of future construction activity.  It brought the level of single-family permits to within 1 percent of the February total, while multi-family permits, which bounce around a lot, are up sharply from February.

Construction will have to pick up even more with housing inventories at record lows. Total housing inventory at the end of July totaled 1.50 million units, down from both 2.6 percent in June and 21.1 percent from one year ago (1.90 million). Unsold inventory sits at a 3.1-month supply at the current sales pace, down from 3.9 months in June and down from the 4.2-month figure recorded in July 2019; which is way below the more normal 5-6 month supply.

“Housing has clearly been a bright spot during the pandemic and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020,” said NAHB Chief Economist Robert Dietz. “Single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower density markets.”

The median existing-home price for all housing types in July was $304,100, up 8.5 percent from July 2019 ($280,400), as prices rose in every region. July’s national price increase marks 101 straight months of year-over-year gains. For the first time ever, national median home prices breached the $300,000 level.

This verifies what we are seeing in the financial markets. The recession seems to be over for the top 10 percent of income earners. Many of them have gone back to work, or have white collar jobs and work from home, or don’t have to work because they are so-called ‘rentiers’ that live off their soaring asset values, as seen in the record rise in the S&P 500 index.

What happens next with the inevitable surge in COVID-19 cases this fall, school openings and the ordinary flu season, as I’ve said? Probably not much to the DOW and bonds, or even housing, when all this is over.

However, the rest of the economy not driven by the top 10 percent of income owners, such as actual consumer spending on staples and durable goods, is another story. Nor will corporations see the need to ‘pay it forward’ for future generations, unless we can find a better way to create living wages for the other 90 percent of adult-age workers; most of them still unemployed.

Harlan Green © 2020

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Saturday, August 15, 2020

Happy Consumers Are the Key...

 

Popular Economics Weekly

FREDretailsales

Are we heading for a fall in the Fall when the ordinary flu season begins? The chickens may be coming home to roost, as the saying goes, because the US economy opened to soon.

Retail sales rose 1.2 percent in July, the government said Friday. Economists polled by economists had forecast a 2 percent advance. Receipts have slowed from a 8.4 percent increase in June and a record 18.3 percent gain in May when the economic rebound began. In other words, consumers may be seeing the writing on the wall as we approach the cold season.

And CDC director Robert Redfield just warned in a WebMD interview on Wednesday that America is bracing for “the worst fall, from a public health perspective, we’ve ever had.”

This is not because cooler weather somehow makes the coronavirus worse, or that the summer’s heat kills the virus, which has been a common misconception about the coronavirus causing the disease COVID-19. Rather, fall and winter become influenza’s time to shine.

We are stuck at the highest unemployment rate achieved during the Great Recession (10 percent) that ended in 2009 in July’s unemployment report. But it took until 2018 to return to anything resembling full employment (4 percent), another 8 years, as I said last week.

CDC

So will it take this long to return to full employment again? So far we have only restored about 9.3 million jobs, leaving more than half of the Americans who lost their jobs still unemployed, and the flu season is about to start that historically kills between 12,000 and 61,000 deaths a year.

“We’re going to have COVID in the fall, and we’re going to have flu in the fall. And either one of those by themselves can stress certain hospital systems,” Redfield said, noting that many hospitals have already been overwhelmed by the number of coronavirus patients. There have also been reports of hospitals in New York, Texas and Arizona calling in refrigerated trucks to serve as temporary morgues to handle the number of dead bodies during the pandemic. And the ordinary flu has seen between 140,000 and 810,000 people hospitalized each year since 2010.”

Retailers have been on a roller-coaster ride since the pandemic began, sinking in March and April and recovering rapidly in the following two months as the economy reopened. The more mild increase in sales in July (+1.2%) might be a sign of what lays ahead, however.

And consumer sentiment has stagnated; another sign that consumers are becoming more cautious as the flu season hits at the same time as schools normally open. The preliminary reading of the consumer sentiment survey in August edged up to 72.8 from 72.5 in July, but it’s still just barely above the pandemic low, the University of Michigan also said Friday.

And we know what can happened next, since children will bring those virus bugs home to parents and grandparents as schools re-open. Economists such as Nobelist Paul Krugman are becoming ever more worried that this could turn what, to date, has been a mild recession into a Great Depression.

Harlan Green © 2020

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Tuesday, August 11, 2020

What Future Job Growth?

 Financial FAQs

 

 Calculated Risk

The Job Openings and Labor Turnover Survey (JOLTS) put out by the Labor Department (BLS) probably only makes sense to economists, because it gives a picture of the job market in coming months, as well as the present.

It literally measures the number of job openings (yellow line in graph) vs. hires (blue line) for a month; June in this case; enabling economist to measure whether the demand for new jobs is rising or falling. And though hires decreased slightly to 6.7 million from 7.2 million, it “was still the highest level in series history,” per the BLS.

Job openings rose 518,000 to 5.9 million in June, according to the Labor Department on Monday. That’s above the median forecast of 5.3 million jobs in an Econoday survey of economists. However, the number of jobs available was running around 7 million before the pandemic.

Job openings, another measure of demand, increased in June to 5.889 million from 5.371 million in May, so the number of hires was almost one million higher than vacancies (6.7 hires -5.9 vacancies), meaning there is large number of unfilled jobs to be filled.

So this statistic probably gives the best monthly picture of where the jobs market is headed. The number of job openings (yellow) is still down 18 percent year-over-year, and quits were down 25 percent year-over-year, says Calculated Risk.

Quits are voluntary separations. (see light blue columns at bottom of graph for trend for "quits") that tells us whether employees are moving on to better paying jobs. More workers are therefore hanging on to their current jobs at the moment, due no doubt to the uncertainty of the pandemic outcome.

In the words of the BLS, “These changes in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it. This release includes estimates of the number and rate of job openings, hires, and separations for the total nonfarm sector, by industry, and by four geographic regions.”

The largest gains in openings came from accommodation and food service, other service and arts. The biggest declines were in construction and state and local government education, per Marketwatch.

Why are stocks and bonds continuing to rally in the face of the worst infection and death rates in developed countries,? It’s really the record low interest rates with the benchmark 10-year Treasury bond yield down to almost zero (0.58%) at times that are keeping stock and bond prices at record highs (and bond yields at comparable lows).

FRED

Watch interest rates, as the Fed has pumped extra $trillions into the economy and held short term interest rates also close to zero. There is really too much unused money not being put into useful endeavors, because corporations are reluctant to invest in an uncertain future,and the federal government won’t do more than provide pandemic relief rather than investing in future growth—e.g., in public works projects like infrastructure, education, and the environment.

So there is no plan for post-pandemic growth right now, or maybe until November. Democrats are thinking of the future with the Biden campaign’s “Biden Plan for Leading the Democratic World,” while Republicans are still obsessed with trade wars and ignoring the Wuhan virus that is hurting us much more than China.

The bottom line is there are 13 million fewer jobs than before the pandemic, and still no national plan for combating the pandemic and therefore putting them back to work.

Harlan Green © 2020

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Friday, August 7, 2020

Employment Picture Still Unclear

 

Popular Economics Weekly

Marketwatch.com

The official unemployment rate fell for the third month in a row to 10.2 percent from 11.1 percent, the government said Friday. The hot pace of U.S. employment growth in the late spring gave way in July to a sharp slowdown in hiring as the economy added back just 1.76 million jobs, “underscoring the fragile nature of a recovery with the coronavirus still running rampant in many states,” said Marketwatch’s Jeff Bartash.

We have merely returned to the highest unemployment rate achieved during the Great Recession (10 percent) that ended in 2009. But it took until 2018 to return to anything resembling full employment (4 percent), another 8 years. Even then many millions were still either working part time that couldn’t find full time work, or had given up looking for work.

Will that happen again? So far we have only restored about 9.3 million, leaving more than half of the Americans who lost their jobs still unemployed.

The Bureau of Labor Statistics said today, “These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic and efforts to contain it. In July, notable job gains occurred in leisure and hospitality, government, retail trade, professional and business services, other services, and health care.”

What’s more, an even larger 31 million people were collecting unemployment benefits in mid-July based on the most recent numbers available. And the divided Congress still hasn’t agreed to extend a $600 federal unemployment bonus that expired at the end of July, we know at this writing, which is another potential roadblock for the recovery, .

It’s a decided mixed picture, in other words, with most sectors adding workers at this moment, except for Mining/Logging and the Information services.

Overall business activity has been picking up in both the manufacturing and service sectors, according to surveys by the Institute of Supply Managers (ISM) released earlier in the week. But said surveys are also deceptive, since they tell us whether there is an increase or decrease in activity, but not actual numbers.

The service sector supply managers’ index rose to 58.1 percent with any number above 50 signifying expansion; 67.2 percent said business activity had ramped up and 67.7 percent had new orders. They included Health Care & Social Assistance; Retail Trade; Transportation & Warehousing; Wholesale Trade; Educational Services; and Construction among the 15 businesses that make up the survey, just as do the jobs’ numbers in the unemployment report.

“This reading represents growth in the services sector for the second straight month after contraction in April and May, preceded by a 122-month period of expansion,” said the ISM non-manufacturing report.

Manufacturing also did well in the ISM manufacturing survey.

“The July PMI® registered 54.2 percent,” said the report, “up 1.6 percentage points from the June reading of 52.6 percent. This figure indicates expansion in the overall economy for the third month in a row after a contraction in April, which ended a period of 131 consecutive months of growth.”

FRED

And lastly, new applications for unemployment benefits, a rough gauge of layoffs, fell by 249,000 in early August to 1.19 million, touching the lowest level since the coronavirus pandemic began more than four months ago.

It was a surprising decline that also suggests some improvement in the labor market despite another surge in coronavirus cases in many U.S. states, as we said.

So it’s probably safe to say that congress has to get its act together and provide more recovery assistance if we want actual positive economic growth in the fall. The Fed’s easy money policy that has driven short-term interest rate to essentially zero can’t prevent an even deeper recession that began in February without more congressional aid.

That was the lesson we learned in the Great Recession. A divided congress that won’t act will create a divided country.

Harlan Green © 2020

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Wednesday, August 5, 2020

Alas, The Recovery That Was....

Financial FAQs

Reuters.com

Because the deadline has passed to renew unemployment benefits enacted by the CARES Act, it looks like there will be no quick economic recovery in the fall. I am supposing the recovery could ultimately be shaped like a ‘W’—sporadic spurts of growth and declines in growth with new COVID-19 surges, given there is no coordinated national response to the pandemic.

And what about school openings when 60 percent of the major elementary school districts will have at-home schoolings this school year, according to a CNN survey, and no national guidance on what constitutes safe re-openings?

This has to be why Republicans are pushing for the full re-opening of schools, regardless of the dangers to children. It keeps at least one parent at home who isn’t working when they want to speed up the reopening of businesses.

The huge jump in consumer spending in May and June highlights what could have been if benefits had been renewed with the additional $600 per week boost to unemployment compensation, and which Republicans don’t want to renew.

The above Reuters graph highlights the record 7.1 percent boost given by the additional benefits since the CARES Act was implemented.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 5.6 percent last month after a record 8.5 percent jump in May as more businesses reopened, the Commerce Department said. But most of the spending was due to the $600 boost to low-income service workers that tend to spend more of their incomes.

Consumers boosted purchases durable goods such as auto and appliances that last more than three years, as well as clothing and footwear. They also spent more on healthcare, dining out and on hotel and motel accommodation, though outlays on services remained lackluster because of caution sparked by the virus.

Q2 economic growth had plunged 32.9 percent because consumer spending fell minus -35 percent during this period. So growth will only recover when consumers feel safe enough venture out of their rabbit holes, I said last week. They will instead choose to save more—currently a huge 25 percent of their personal incomes vs. more normal 3-6 percent—and spend less.


FREDunemploymentrate

That is why Friday’s upcoming unemployment report is so important. Dallas Fed President Robert Kaplan on Monday said he now expected an unemployment rate in a range of 9 -10 percent at the end of the year. Ten percent was the highest unemployment rate during the Great Recession when some 8 million jobs were lost.

The June unemployment rate was 11.1 percent and estimates are for July to show a 10.5 percent rate, according to an average estimate of economists. It took more than eight years, from October 2009 at the end of the Great Recession until March 2018, for the unemployment rate to drop from 10 to 4 percent, which is considered full employment.

How long might this depression last with today’s political polarization?

Harlan Green © 2020

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

Monday, August 3, 2020

Consumers Losing Confidence

Popular Economics Weekly

FRED

There are a number of reasons that consumers are becoming more fearful after that initial boost of spending with the spring holidays. It’s not only the prospect of a COVID-19 resurgence in the fall when we are still in the first surge, but the added oncoming flu season.

And so consumers will not be happy, but begin to hunker down again, even without new stay-in-home mandates. It’s just too dangerous out there when there’s not even a national mandate to wear masks, much less keeping safe distances, or getting quick testing results, and they will spend less, thus slowing the economic recovery.

So the index of consumer confidence fell to 92.6 this month from a revised 98.3 in June, the Conference Board said Tuesday.

“Consumer Confidence declined in July following a large gain in June,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index improved, but the Expectations Index retreated. Large declines were experienced in Michigan, Florida, Texas and California, no doubt a result of the resurgence of COVID-19.”

Consumer spending soared in June with Retail Sales up 6.4 percent in June, whereas it shrank a negative -12.4 percent in April during the shutdown.

https://twitter.com/TBPInvictus

What do we expect with the “Whac-A-Mole” recovery I’ve been talking about? No sooner than it being ‘whacked’ down in some states, the virus pops up in others. Trump’s conflicting comments say it all in this Invictus graph—as he rides the infection curve higher.

The first second quarter GDP growth estimate comes out July 30, and look for as much as a minus -30 percent drop, after Q1’s -5 percent decline. So activity in the July-September quarter will tell us if we recover quickly, or not.

Dr. Fauci just sent out new warnings today that infection rates are rising in more states—Kentucky, Tennessee, Ohio and Indiana—and they need to “get ahead of the curves”, or they will experience the soaring infections rates in many southern states, as well as California and Arizona.

Fed Chairman Powell ended the FOMC meeting with the not surprising announcement that the rising infection rates are slowing growth.

“On balance, it looks like the data are pointing to a slowing in the pace of the recovery,” he said. He gave as evidence that hotel vacancy rates have flattened out, and Americans are not going to restaurants, gas stations as much as they had earlier in the summer.

All in all, we should know something in the July unemployment report, after the May and June reports showed 7.5 million had returned to work. But that leaves at least 13 million still out of work due to the shutdowns, and the service industries will be the slowest to recover—hotels, travel, restaurants, and the like—that employ all the low-wage earners hurt most by this pandemic.

Harlan Green © 2020

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Thursday, July 30, 2020

When Will Growth Return?

Financial FAQs

FRED-MarketWatch

The headline decline in Q2 GDP growth only touches the surface of what economic growth to expect this fall and winter. The drop of minus -32.9 percent was inevitable with the pandemic lockdowns, but not the severity of any recovery.

Q2 plunged this much because consumer spending plunged -35 percent during this period. And since consumers power some 70 percent of economic activity—i.e., GDP growth—it will only recover when consumers feel safe enough venture out of their rabbit holes.

And when can that happen with new record COVID-19 death rates in California, Idaho, Florida, N. Carolina, Texas and Arizona? The infection and death rate curves are still rising, rather than even plateauing.

As NY Times columnist and pandemic authority Don McNeil, Jr. put it today, “One or several vaccines may be available by year’s end…But by then the virus may have in its grip virtually every village and city on the globe.”

And so consumers will not be happy, but begin to hunker down again, even without new stay-in-home mandates. It’s just too dangerous out there when there’s not even a national mandate to wear masks, much less keeping safe distances, or getting quick testing results, as I said yesterday.

That is why consumer confidence fell to 92.6 this month from a revised 98.3 in June, the Conference Board said Tuesday, which is a major indicator of future consumer behavior.

Initial jobless claims also rose last week to 1.43 million, when it should be declining. Continuing claims of those receiving benefits for more than one week now total 17 million. It is not a good sign for any fall or winter revival.

The saddest fact of this pandemic is that science doesn’t lie, but politicians do about the efficacy of mask-wearing and social-isolation, in particular. Why would they? Even asking the question flies in the face of common sense. Infected populations with such a highly transmittable disease facing possible death or even lifelong debilitation from COVID-19, will not be in any hurry to resume normal activities.

It’s as simple as that.

Harlan Green © 2020

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