Strong Retail Sales Continue 2020's Recovery

 Financial FAQs

FREDretailsales

Sales at U.S. retailers rose 9.8 percent in March, the government said Thursday, in part because of the additional $1,400 stimulus checks for consumers from the federal government that is accelerating economic growth.

This confirms the 2020’s economic recovery has begun, as more businesses open and consumers grow confident that the worst of the pandemic is over. The sales gain was the second largest on record, exceeded only by an 18 percent spike last May when the U.S. lockdown was first lifted.

Stock market indexes also reached new highs, which does bring back hints of the original roaring 1920’s—excessive exuberance in the financial markets and eight years of prosperity—but then came the 1930s when outmoded economic verities (and few regulations) turned it into the Great Depression.

However, I would compare this recovery to that after World War Two, which necessitated programs enabling government to invest heavily in the future—in infrastructure, education, and housing, as is being proposed today.

We achieved much higher annual GDP growth rates post-WWII, as high as 14 percent (see below graph dating from 1948), which can happen again with the right public and private investments.

FREDgdpgrowth

Retail sales revved up 15 percent in March at car dealers even as automakers struggled to procure enough computer chips to maintain production, per MarketWatch’s Jeffry Bartash. Auto sales account for about 20 percent of all retail sales.

Sales at gas stations also rose nearly 11 percent, reflecting rising oil prices and more Americans taking to the road as government coronavirus restrictions are lifted. If autos and gas are set aside, retail sales still jumped 8.2 percent.

Almost every major retail group shared in the benefits of the federal aid payments. Receipts leaped 13.4 percent for bars and restaurants, 18 percent for clothing stores, 23.5 percent for sporting goods and other recreational items.

What about COVID-19 and future viruses that must be vanquished to continue this recovery? Better public health care spending is also needed and is contained in the just passed American Jobs Act. Hospitalization rates have plateaued at too high a level. The current 7-day average is 36,941, up from 36,257 reported yesterday, and well above the post-summer surge low of 23,000.

So we do need post-WWII-size investments in the future to create a real recovery.

Harlan Green © 2021

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

Equitable Wealth = Equitable Growth

 Answering the Kennedys’ Call

Equitablegrowth.com

We must cure the record income inequality if we are to re-unite the United States into a country that serves Americans in both red and blue states.

The current disunity is a result of whole swaths of the country losing out on economic opportunity. Our modern, tech-based capitalism has raced ahead, rewarding those that can keep up.

The wealth is distributed in a highly unequal fashion, says the Center for Equitable Growth, a progressive think tank, with the wealthiest 1 percent of families in the United States holding about 40 percent of all wealth and the bottom 90 percent of families holding less than one-quarter of all wealth.

The result has been that the top 20 percent of America’s educated class are winning the race with educational opportunities that have enabled them to take advantage of modern technologies.

And what happens to people who feel left behind—in education, good jobs, and adequate housing? They find a way to protest, and Donald Trump became their voice of protest.

They protest against immigrants because they believe their jobs have been stolen. They protest against open borders because they see those jobs fleeing to other countries with cheaper wages.

They are so angry they will believe any theory confirming their suspicions that the educated elites with the best jobs are abridging their freedoms.

That is why President Biden’s plan to return US to full employment by the end of 2022 is so important.

The just passed $1.9 trillion American Rescue Plan will boost benefits of lower and middle income consumers, raising incomes for the poorest 20 percent of families by an average of 20 percent, according to the Tax Policy Center's analysis, and create 7 million jobs by the end of 2021 while top earners would see their income rise less than 1 percent, according to the CBO.

The proposed $2 trillion plus infrastructure bill will create more good jobs by requiring the development of universal broadband, such as 5G networks that China is already building on a grand scale, a major issue in rural communities.

Documents suggest it will also include nearly $1 trillion in spending on the construction of roads, bridges, rail lines, ports, electric vehicle charging stations, and improvements to the electric grid and other parts of the power sector, all requiring higher paying jobs.

“I think a package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy,” testified Treasury Secretary Janet Yellen in congressional hearings recently, “and changes in the tax structure will help to pay for those programs (and also reduce income inequality).”

The investments in people is even more important to lift the spirits of the 13 million that still have no jobs or would like full time jobs, including greater access to Obamacare and Medicaid, aid that the Trump administration had been drastically reducing.

Bringing back trust in government will do the most to boost public spirits. And that means spending on programs that make life easier for most Americans.

There is no easy path to a greater equality of opportunity in the richest country in the world, because we must first restore our faith in each other with programs that benefit all Americans.

Harlan Green © 2021

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

March Employment Augers Roaring 2020's

Popular Economics Weekly

MarketWatch.com

It may be difficult for the naysayers that believe too much aid is going into social programs to find fault with the March unemployment report that added 916,000 new nonfarm payroll jobs. It looks like March economic data augers a recovery that may lead to a decade of robust growth in the overall economy.

Companies are already hiring en masse, in spite of a winter that froze Texas and the record floods and tornadoes that have devastated much of the south.

Almost all business sectors are hiring, including a huge jump in the U.S. ISM’s Manufacturing Index to a 38-year high of 64.7, which means some 65 percent of manufacturing businesses surveyed were expanding.

Much of the hiring has come because happy consumers with an additional $1400 checks in their pockets are dining out and traveling more, but also because the housing market is booming—prompting 110,000 new construction hires in March.

The 916,000 new payroll jobs are just the beginning of this hiring boom that must bring back 10 million jobs to return to pre-pandemic levels. That is why Biden’s $3 trillion infrastructure spending will be needed as well.

So thank goodness for the $5 trillion in recovery aid already raised by congress that is encouraging even restaurants and other leisure servicers to hire 280,000 new workers, Education and Health 101,000, and Government 136,000 workers that is just the beginning of what is needed to make this decade this into a roaring 2020's decade.

The official unemployment rate, meanwhile, slipped to 6 percent from 6.2 percent, the Labor Department said Friday. Yet the official rate doesn’t capture nearly 4 million people who lost their jobs last year and weren’t counted in the numbers because they left the labor force.

It is also why Consumer confidence surged in March to a one-year high as more Americans were vaccinated and states began to open up for business. The index of consumer confidence shot up to 109.7 this month from a revised 90.4 in February, the Conference Board said Tuesday.

Confidence may be rising because some 3 million vaccines now administered per day may have 70 percent of American adults vaccinated by July, say the experts.

But new variants of COVID-19 are beginning to pop up, which has epidemiologists worried because it’s causing a plateauing of the infection rates at an unacceptably high level, according to the CDC.

According to the CDC, 153.6 million doses have been administered. 21.7 percent of the population over 18 is fully vaccinated, and 38.4 percent of the population over 18 has had at least one dose (99.6 million people have had at least one dose).

COVID.CDC.gov

Infection rates have plateaued because too many variants Of COVID-19 are popping up in some states. Winning the race between the spreading variants and administering enough vaccinations to stop their spread is the key to a robust recovery.

“I think a package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy,” testified Treasury Secretary Janet Yellen in congressional hearings last week, “and changes in the tax structure will help to pay for those programs.”

Yellen and Fed Chair Jerome Powell said there was no problem with any inflationary bulges that might occur with so much spending because it was spending that would boost productivity as well as employment, generating even more growth.

Harlan Green © 2021

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

Why the Inflation Worries?

Financial FAQs

Reuters.com

There has been too much talk of inflation, as so-called ‘bond vigilantes’ seek to take advantage of the fear that too much pandemic recovery aid will saturate the financial markets with dollars, creating runaway inflation and boosting interest rates.

That makes sense when so many dollars are in play, right? Not really.

Who are the so-called bond vigilantes that worry about inflation and bond prices? They are usually the most highly leveraged funds that have been buying assets with borrowed money at the record low interest rates that have prevailed since the pandemic and have pushed up some stock prices to stratospheric levels.

A great example is what happened on Monday to a highly leveraged hedge fund investor, reports MarketWatch:

“U.S. stocks pared losses Monday afternoon despite jitters tied to reports that a large investment fund recently was forced to sell massive holdings ($30B) in stocks, causing prices to tumble. Investors were monitoring news reports that former Tiger Asia manager Bill Hwang’s Archegos Capital Management had unwound big bets late last week after facing margin calls.”

We know that margin calls are because banks require investors to sell the underlying assets that were bought on margin when said asset prices have fallen significantly.

So where is the runaway inflation they speak of? The Fed says they want moderate inflation but have the tools to prevent runaway inflation, and will keep a close-to-zero percent short term rate policy through at least 2002.

There is lots of precedence for the Fed holding real interest rates below inflation rates. It helped to finance World War Two, and GW Bush’s invasions of Iraq and Afghanistan. This is when the real cost of money is close to zero and borrowing needs high during such exigencies.

And we are fighting a world war against COVID-19 that is disrupting economies and killing more people than all the other wars.

Another problem with bond vigilantes’ thesis is the root cause of most inflation—higher demand than existing supply. But the demand for products and services has not exceeded supply for decades—since globalization and lower trade tariffs have made goods in particular cheaper to produce and more plentiful.

There has been little problem with the supply-side of the equation in recent decades, in other words, unless we have major disruptions such as this pandemic that creates temporary bottlenecks in the delivery of said products.

There hasn't been a problem with inflation since the 1980s, either.

“Even before the coronavirus crisis, central banks globally were struggling with sluggish inflation, and the pandemic-induced downturn has only made the challenge worse,” said Reuter’s Ann Saphir.

“Too-low inflation is typically a sign of a weak economy. It also tends to drag on interest rates and makes it difficult for central banks to fight recessions with their usual tools that focus on the cost of money.”

That is why several European countries are struggling with what amounts to negative interest rates, such as Denmark where even mortgage interest rates are less than zero.

The above Reuters graph shows that inflation has barely budged (light blue and red lines), even as average hourly earnings are rising at a 5.3 percent clip. One can call this another goldilocks economy with neither too hot nor too cold growth at the moment.

So those most fearful of soaring inflation and borrowing costs are those that are highly leveraged. And we will see that leveraging disappear soon enough as business activity returns to a new normal the Fed is wanting—holding interest rates at or below inflation; thus stimulating a higher demand for goods and services that stimulates a robust recovery.

Harlan Green © 2021

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

We Need A Green Infrastructure Plan

 Popular Economics Weekly

Washington Post

The Biden administration’s $3 trillion infrastructure plan is next on their agenda to boost economic growth. And it will need a tax raise to pay for it.

“I think a package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy,” testified Treasury Secretary Janet Yellen in congressional hearings this week, “and changes in the tax structure will help to pay for those programs.”

Yellen and Fed Chair Jerome Powell said there was no problem with any inflationary bulges that might occur with so much spending because it was spending that would boost productivity as well as employment, generating even more growth.

“Our best view is that the effect on inflations will be neither particularly large nor persistent,” said Powell during the same hearings.

The circa $3 trillion infrastructure bill President Biden is proposing should really be treated as if we are fighting another world war, as we treated spending during world War Two. This war to overcome the coronavirus pandemic has killed more people than all prior world wars.

So why even worry about inflation or budget deficits? In fact, rising inflation during WWII created negative real interest rates at the time because the Fed kept rates low to finance the war, just as it is doing now, which really means it is interest-free money (That is, real interest rates less than zero as it was during WWII).

And the infrastructure bill must be a green, environmentally friendly bill because much of it has to mitigate the damage to infrastructure from global warming. Need we be reminded of the recent breakdowns in power grids that can leave millions without water and electricity for days, as demonstrated by the Texas power crisis this year?

The National Resources Defense Council (NRDC) in a 2008 report said, “New research shows that if present trends continue, the total cost of global warming will be as high as 3.6 percent of gross domestic product (GDP). Four global warming impacts alone—hurricane damage, real estate losses, energy costs, and water costs—will come with a price tag of 1.8 percent of U.S. GDP, or almost $1.9 trillion annually (in today’s dollars) by 2100.”

This means an 80 percent reduction in U.S. greenhouse gases alone to meet Paris Accord goals, phasing out most uses of fossil fuels and replacing them with electric energy sources such as wind and solar power.

“Mr. Biden’s infrastructure plan will deal with the meat-and-potato issues that Republicans and Democrats agree are an urgent need,” say NYTimes reporters Jim Tankersley and Anni Karney. “It seeks to rebuild roads, bridges, transit, rail and ports, while also improving power grids and increasing the number of electric vehicle charging stations.”

The plan also requires the development of universal broadband, such as 5G networks that China is already building on a grand scale, a major issue in rural communities. Documents suggest it will include nearly $1 trillion in spending on the construction of roads, bridges, rail lines, ports, electric vehicle charging stations, and improvements to the electric grid and other parts of the power sector, according to Tankersley

There is much more to Biden’s infrastructure plan that will be detailed as we get more particulars. Any delays in passing it will only increase the costs from damage caused by the increasing frequency of hurricanes, tornadoes, wildfires, power failures; so much so that even the U.S. Pentagon says climate change has become a national security threat.

Over the past decade, the Pentagon has consistently, repeatedly cited climate change as a serious threat to America’s national security in official public documents.

“Climate change is a threat in their eyes because it’s going to degrade their ability to deal with conventional military problems, said Michael Klare in an Vox interview about his new book about the Pentagon’s role in combatting global warming, titled All Hell Breaking Loose: The Pentagon’s Perspective on Climate Change. “It’s going to create chaos, violence, mass migrations, pandemics, and state collapse around the world, particularly in vulnerable areas like Africa and the Middle East.”

“It is difficult to put a price tag on many of the costs of climate change: loss of human lives and health, species extinction, loss of unique ecosystems, increased social conflict, and other impacts extend far beyond any monetary measure, says the NRDC report. “But by measuring the economic damage of global warming in the United States, we can begin to understand the magnitude of the challenges we will face if we continue to do nothing to push back against climate change.”

If we can protect ourselves from COVID-19, then we surely can protect ourselves from a warming planet.

Harlan Green © 2021

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

We Can Pay For American Rescue Plan

 Popular Economics Weekly

“Consumer sentiment rose in early March to its highest level in a year due to the growing number of vaccinations as well as the widely anticipated passage of Biden's relief measures,” said the University of Michigan sentiment survey. “The gains were widespread across all socioeconomic subgroups and all regions, although the largest monthly gains were concentrated among households in the bottom third of the income distribution as well as those aged 55 or older (dark blue and gray lines in graph).”

Sentiments are soaring because the just passed American Rescue Plan (AMR) will boost benefits of lower and middle income consumers, raising incomes for the poorest 20 percent of families by an average of 20 percent, according to the Tax Policy Center's analysis, while top earners would see their income rise less than 1 percent in an NPR interview.

NPR

America can pay for the $1.9 trillion tab because it does not substantially raise the cost of the public debt over the long term if we look at the average annual budget deficit to GDP ratio that hasn’t varied substantially since WWII—the major exceptions being the need to finance recoveries from the Great Recession, and now the coronavirus pandemic.

USGov

The cost of financing public debt has averaged little more than 3 percent, historically because economic growth that followed that spending brought the public debt back down to manageable levels, whatever interest rates prevailed at the time.

Financing the $5 trillion in debt that congress has passed since the onset of the coronavirus pandemic should follow the same trajectory. For example, the new $1.9 trillion from the American Rescue will create 7 million new jobs by December, according to the Congressional Budget Office.

“Between 1946 and 2019,” says the CBO, “the deficit as a share of GDP has been larger than that only twice. In CBO’s projections, annual deficits relative to the size of the economy generally continue to decline through 2027 before increasing again in the last few years of the projection period, reaching 5.3 percent of GDP in 2030. They exceed their 50-year average of 3.0 percent in each year through 2030.”

Predictions of real GDP growth are soaring since the AMR’s passage. The Organization for Economic Cooperation and Development projects the U.S. economy will grow by 6.5 percent this year, according to NPR. That's more than twice the growth rate it was projecting in December — thanks in large part to more robust federal aid.

And employment is already surging, thanks to the prior pandemic aid packages. The February employment report added 465,000 private payroll jobs, with 355,000 of those jobs in leisure and hospitality — restaurants, hotels, casinos, theaters—all in the service sector.

All signs point to a robust recovery, in other words, which is why I don’t see any problem with managing a ‘new’ New Deal spending bill when it benefits so many Americans at a time of greatest need, the need to recover from a pandemic that has cost more American lives than our combined wars.

Harlan Green © 2021

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

Why the American Rescue Plan Is So Important

 Financial FAQs

There are several good reasons for passing the American Rescue Plan (ARP). Firstly, it abolishes once-and-for-all the Reagan-era myth that ‘government is the problem’.

With the thinnest of Democratic majorities, the Biden administration is getting things done; from speeding up of vaccine deliveries, to expanding Obamacare coverage, to requiring masks on interstate and international travel and re-joining the Paris Accord on climate change—all this enabling a speedier economic recovery.

And it benefits so many Americans—more than 60 percent, according to economist Steven Ratner on Morning Joe, in comparing the American Rescue Plan to Trump’s Tax Cuts and Jobs Act that transferred $1.9 trillion in tax cuts to the wealthiest 10 percent of income earners with none of it supporting public spending, whereas the $1.75 trillion in spending from the ARP will benefit programs for more than 60 percent of Americans.

 MorningJoe

This will include the poorest among US, including minorities and immigrants, according to the PEW Research Center’s latest survey:

“About six-in-ten White (60%) and Asian adults (58%) currently say their personal financial situation is in excellent or good shape. In contrast, a majority of Black (66%) and Hispanic (59%) Americans say their finances are in only fair or poor shape.“

The Congressional Budget Office has said that it could take five years for employment to reach levels prior to the pandemic without the American Rescue Plan.

The ARP’s main objective is to put people back to work as soon as possible, according to Fed Chairperson Janet Yellen.

““I think we should want a rapid recovery,” she said in a recent PBS Newshour interview. “We have a large number of workers who are long-term unemployed, and we have to make sure they’re not scarred to the point where this pandemic has a permanent impact on their lives.”

And speaking of the latest strong unemployment report that created 379,000 more payroll jobs, “at that pace it would take us more than two years to get to full employment,” Yellen said in the same interview. The “real” unemployment rate, after factoring in 4 million who dropped out of the labor force after losing their jobs, was more like 10 percent.

The PEW report said that income differences are particularly pronounced, with a gap of 60 percentage points between the shares of upper-income (86%) and lower-income (26%) adults who rate their financial situation as excellent or good. “About six-in-ten adults with middle incomes (58%) say their finances are in excellent or good shape.”

The ARP should also boost consumer sentiment now at a six-month low in the U. of Michigan February sentiment survey, with the entire loss concentrated in the Expectation Index and among households with incomes below $75,000 (the income brackets targeted by the government cash payouts), as I said last week.

“Households with incomes in the bottom third reported significant setbacks in their current finances, with fewer of these households mentioning recent income gains than anytime since 2014,” said the U. Michigan survey.

Need we say more? This is why the American Rescue Plan is so popular with a 76 percent approval rating per the latest Politico survey.

Harlan Green © 2021

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