Friday, March 5, 2021

Employment Surge Boosts Recovery

 Popular Economics Weekly

Another sign of a roaring 2020’s economy just came out, per the Bureau of Labor Statistics (BLS) today. The February employment report added 355,000 jobs just to payrolls in leisure and hospitality — restaurants, hotels, casinos, theaters—all in the service sector.

These industries had lost 500,000 jobs during the pandemic. A total of 379,000 jobs were created with manufacturing, wholesale trade and retail sales adding to the total.

“The rebound in job creation in February is likely the start of a major new cycle of hiring. Warmer weather, falling coronavirus cases, rising vaccinations and another massive increase in federal stimulus are likely to act as jet fuel for the economy in the spring and summer,” says MarketWatch’s Jeffry Bartash.

A rebound in the service sector is what economists have been waiting for. It means more consumer spending on travel, dining out, and visits to public venues like sports and museums.

There is one caveat, however. Dr. Fauci and other health experts are warning that the pandemic fight isn’t over. There could be an infection surge in the spring with new variants of the virus beginning to appear for which the current vaccines are not as effective.


CDC head, Dr. Rochelle Walensky, has repeatedly warned that declining case numbers have stalled at a high level, and urged Americans to stick with the recommended safeguards — frequent hand washing, social distancing and wearing a face mask in public — until it’s their turn to be vaccinated.

"Things are tenuous," Dr. Rochelle Walensky said at a White House briefing. "Now is not the time to relax restrictions." The U.S. is still averaging about 70,000 cases a day and the seven-day average is higher today than it was earlier in the week, she said. "This recent shift in the pandemic must be taken seriously," she said. If the infection rate remains at such a high level, the virus, and new variants of the virus, will continue to spread, she said. "We may be done with the virus, but the virus is not done with us,"

This happened with the Spanish flu pandemic of 100 years ago, which prolonged the original ‘roaring 20’s’ recovery for another year. It is literally a race to vaccinate as many people as possible to limit the spread of these new variants.

Harlan Green © 2021

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Wednesday, March 3, 2021

Manufacturing Boosts Economic Recovery

Financial FAQs

Manufacturing activity is roaring back. It joins construction and housing sales as the main drivers of economic growth at the moment. And we need all the drivers of economic growth to keep this economy in the black with what is coming--more climate unpredictability; the Texas deep-freeze being the latest example.

The ISM Manufacturing Index that measures purchasing managers’ sentiments is at 60.8 percent, a two-year high. This means almost 61 percent of manufacturing purchasing managers see increased activity ahead. Reuters lists its strengths:

  • The headline index hit a new post-pandemic high of 60.8, versus 58.7 last month and a forecast of 59.0.
  • The delivery lead-time index was the largest single contributor to the increase (up 3.8 points to 72.0), which is not entirely a positive development, but the orders and production indexes posted solid gains to 64.8 and 63.2 respectively.
  • The customers’ inventory slipped again to another new 11-year low of 32.5, which implies sustained demand in the months ahead.
  • Sentiment remained upbeat in the anecdotal portion of the survey. The survey managers reported that positive comments outnumbered cautious remarks by five to one this month, up from three to one in both December and January.

Fourth Quarter GDP growth was just revised upward to 4.1 percent from 4.0 percent in the second estimate, and economists are predicting even faster growth this year, but that is only if effects of the pandemic subside and there are no more major climate disasters like the Texas, Alabama, Arkansas, and Louisiana deep freeze in which millions lost power and clean drinking water.

The increase in fourth-quarter GDP reflected both the continued economic recovery from the sharp declines earlier in the year and the ongoing impact of the COVID-19 pandemic, including new restrictions and closures that took effect in some areas of the United States. The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the fourth quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified.

What is the main driver of all this activity? Higher Personal Income and Outlays, also per the U.S. Bureau of Economic Analysis (BEA).

Personal income increased 10.0 percent (monthly rate) while consumer spending increased 2.4 percent in January as pro,visions of the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act enacted on December 27, 2020, began to take effect.

That is a huge jump in personal incomes, thanks to the $900 billion December pandemic aid package.  Much of it is being saved by consumers as they wait for the pandemic to subside before spending more on leisure services like entertainment and travel.

Consumer sentiment had edged downward in early February and is at a six-month low in the U. of Michigan 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 weekHouseholds 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 (see the chart), said the U. Michigan survey.

That is the main reason the $1.9 trillion American Rescue Plan will soon pass with only minor changes, with or without Republican votes. It will go to those that need it the most to survive this once-in-a-century pandemic. It is extremely popular with a 76 percent approval rating per the latest Politico survey.

And why not with upcoming climate changes predicted to cause even more natural disasters?

Harlan Green © 2021

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Friday, February 26, 2021

January Home Sales Exceed Expectations

 The Mortgage Corner

The Calculated Risk/FRED graph shows that new-home sales are approaching the 2000 level at the start of the last housing bubble that ultimately resulted in the Great Recession (blue bars are recessions). But that doesn’t mean we are at the beginning of another housing bubble.

New home sales for January were reported at 923,000 on a seasonally adjusted annual rate basis (SAAR), said US Census Bureau, resulting in the decline to just 4.0 months of supply remaining for sale. That and still record low interest rates are boosting prices. But there is no bubble forming because there is not enough supply to satisfy current demand. Sales for the previous three months were revised up, also.

Existing-home sales are soaring this early in the year as well because last year’s selling season had a delayed fall start due to the pandemic, according to the National Association of Realtors (NAR). We can expect this surge to also continue because of ongoing demand.

Total existing-home sales,, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.6 percent from December to a seasonally-adjusted annual rate of 6.69 million in January. Sales in total climbed year-over-year, up 23.7 percent from a year ago (5.41 million in January 2020).

Demand is so hot that the median existing-home sales price rose to $303,900, 14.1 percent higher from one year ago. And as of the end of January, existing-home inventory fell to a record-low of 1.04 million units, down by 25.7 percent year-over-year – a record decline.

"Home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market," said NAR chief economist Lawrence Yun. "Sales easily could have been even 20% higher if there had been more inventory and more choices."

Residential construction is pushing hard to catch up to demand, as I said last week. Privately-owned housing starts in December were at a huge seasonally adjusted annual rate of 1,669,000, said the Census Bureau. This is 5.8 percent above the revised November estimate of 1,578,000 and is 5.2 percent above the December 2019 rate of 1,587,000.

Home sales are repeating their traditional role as a leading indicator with economic growth predicted to surge this year. Economists are now predicting a ‘V’ shaped recovery with Deutsche Bank increasing its GDP growth forecasts for 2021 and 2022, assuming the final fiscal aid package will be worth $1.6 trillion to $1.7 trillion, reports Reuters. “Their inflation numbers pushed a bit higher too with risks on the upside,” wrote Jim Reid, a strategist at the bank.

Reuters also reports Pimco, one of the world’s largest fixed income managers, said in a research note that the additional stimulus could “contribute to 2021 real GDP growth of over 7%,” a level not seen since “the great inflationary episode of the 1970s-1980s.”

Chief economist Yun expects more jobs to return in his press release, which will spur home buying in the coming months. He predicts existing-home sales will reach at least 6.5 million in 2021, even as he says mortgage rates are likely to inch higher due to the rising budget deficit and higher inflation.

But interest rates are still at recession lows, with the 30-year conforming fixed interest rate currently 2.75 percent with one origination point for the best credit holders.

With housing inventory at the end of January down 25.7 percent from one year ago, the unsold existing-home inventory sits at a record 1.9-month supply at the current sales pace, down from the 3.1-month amount recorded in January 2020.

All this news means the housing revival will continue.  What better sign is there of a consumer spending revival this year?

Harlan Green © 2021

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Wednesday, February 17, 2021

Retail Sales Start Roaring 2020's Boom

 Popular Economics Weekly

It looks like the 2020’s economy is beginning to roar as retail sales jumped 5.3 percent in January 2021, and 7.4 percent since last January. This is just as President Biden’s approximately $1.9 trillion American Rescue Plan is wending its way through congress.

Advance estimates of U.S. retail and food services sales for January 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $568.2 billion, an increase of 5.3 percent from the previous month, and 7.4 percent above January 2020, said the US Census Bureau report.

Pundits and some economists worry that this is too much “untargeted” money sloshing around the economy, including an additional $1400 per person that will supplement the $600 payments made in January to those making less than $75,000 per person.

Nobel laureate Paul Krugman does not think so, he said in a recent Op-ed, because those that need it will spend it immediately, while the less needy will squirrel it away for another rainy day; a good thing given these uncertain times.

And there is little inflation now, as the Consumer Price Index (CPI) retail inflation measure did not increase at all last month and is up just one percent over the past year.

Sales were strong in every category. Department store chains, Internet retailers, electronic stores and home-furnishing outlets all recorded double digit gains in percentage terms.

Bars and restaurants also registered a nearly 7 percent increase in sales after receipts had fallen three months in a row. Cold weather and new business restrictions imposed after a record increase in coronavirus cases, slammed restaurants toward the end of 2020, but states started to lift restrictions early in the new year as the pandemic began to wane again, reports MarketWatch’s Jeffry Bartash.

“The increase in spending last month was fueled in part by $600 federal stimulus checks for millions of Americans and more generous unemployment benefits. What also helped were loosened state restrictions on business brought on by a sharp decline in coronavirus cases,” said Bartash.

Now is not the time to worry about inflation, in other words. Rising prices increase profits and wages, especially in the recovery stage of this recession. Slow real personal income growth portrayed in this FRED graph has been one reason for slow economic growth since the Great Recession ended some 11 years ago and kept US from spending more on upgrading our deteriorating infrastructure.

Personal income has fluctuated between 2 to 3 percent since then, which is not enough to boost household incomes above the long-term inflation rate. In fact, household income has not risen enough for most Americans to weather such natural disasters as this pandemic, and what is to come with global warming and future geopolitical uncertainty that accompanies a changing climate (droughts, immigration woes, increasing wildfires, hurricanes, etc.)

The Texas freezes and power outages from the current Polar Vortex episode that could last through this weekend are but one example. As reported in the LA Times by a Houston reporter, “Extreme weather events are becoming more frequent and more severe as the climate crisis worsens. And the U.S. power grid is not prepared to handle the hotter heat storms, more frigid cold snaps and stronger hurricanes of a changing planet.”

What better time is there to prepare for such future emergencies?

Harlan Green © 2021

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Tuesday, February 16, 2021

Another Roaring Twenties--Part II

 Financial FAQs

For another ‘Roaring Twenties’ recovery to happen, Nobel Prize-winner Joe Stiglitz warns in Project-Syndicate that we must pass President Biden’s $1.9 trillion American Rescue Plan.

“Biden’s proposed spending plan is urgently needed. Recently released data show a slowdown in America’s recovery both in terms of GDP and employment. There is overwhelming evidence that the recovery package will provide enormous stimulus to the economy, and that economic growth will generate substantial tax revenues, not just for the federal government but also for the states and municipalities that are now starved of the funds they need to provide essential services.”

The University of Michigan’s early February consumer sentiment survey says much the same. Consumer sentiment edged downward in early February, 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).

“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 (see the chart),” said the U. Michigan survey.

When asked to assess their current financial position, the deep divisions become apparent: among those with incomes in the bottom third, just 23 percent reported improved finances, the lowest since 2014; in contrast, among those with incomes in the top third, 54 percent reported their finances had improved. Mentions of income gains fell to just 17 percent among those in the bottom third, compared with 44 percent in the top income third.

The end result is more layoffs - one million-plus applications for unemployment benefits are still being filed each week. Jobless claims total almost 800,000 at state level and 334,524 file though federal emergency program in early February.

Why won’t the $1.9 trillion in additional government spending cause too high inflation, or some other excess from the fear of too hot economic growth? Because interest rates are in effect at zero, and so is retail (CPI) inflation.

Interest rates measure the cost of money, which in effect is cost-free, at the moment. There is so much money floating around the world’s economy that lenders are begging borrowers to use that surplus, and actually paying borrowers in the case of certain EU countries with negative interest rates.

Now is not the time to hoard what can be used to improve lives—especially the lives of those -such as those police, healthcare essential workers that keep this economy working.

A first priority say leading economists, is to make sure enough funds are available to fight the pandemic, then get children back into schools, as well as allowing state and local governments to provide the essential services we all depend on.

Harlan Green © 2020

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Thursday, February 11, 2021

The American Rescue Plan Must Pass

 Popular Economics Weekly

The number of job openings was little changed at 6.6 million on the last business day of December, the U.S. Bureau of Labor Statistics reported yesterday. Job growth slowed in January with just 49,000 net payroll jobs created, which is why even Fed Chair Janet Yellen maintains the American Rescue Plan currently in debate must pass.

Janet Yellen said on Sunday the country was still in a “deep hole” with millions of lost jobs, but that President Joe Biden’s $1.9 trillion relief plan could generate enough growth to restore full employment by next year.

“There’s absolutely no reason why we should suffer through a long, slow recovery,” she said.

Otherwise, the Congressional Budget Office projects the unemployment rate could remain elevated for years to come and take until 2025 to get unemployment back to 4 percent, in a recent CBO analysis done on the effects of raising the national minimum wage to $15 per hour by 2025. The jobless rate stood at a half-century low of 3.9 percent a year ago before the pandemic.

Barron’s reports retailers, warehousing, construction, durable-goods manufacturing, and healthcare lost a combined 110,000 jobs in January—all for the first time since last April.

The above graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS. The sharp spike in red columns showed how severe were last year’s job losses, with 20 million jobs lost last April and May 2020. Layoffs and Discharges were back down the 5.5 million in January.

In December, the number of hires decreased to 5.5 million (-396,000), per the BLS. Hires decreased in accommodation and food services (-221,000); transportation, warehousing, and utilities (-133,000); and arts, entertainment, and recreation (-82,000). Hires increased in retail trade (+94,000).

The NFIB Small Business Optimism Index also declined in January to 95.0, down 0.9 from December and three points below the 47-year average of 98. Owners expecting better business conditions over the next six months declined seven points to a net negative 23%, the lowest level since November 2013, said the report.

Small business owners are just as excited as consumers in seeing more economic aid from the congress, in part because a separate survey from the NFIB showed a third of small businesses reported in January that they had vacancies they could not fill, with 28% of those for skilled workers.

“As Congress debates another stimulus package, small employers welcome any additional relief that will provide a powerful fiscal boost as their expectations for the future are uncertain,” said NFIB Chief Economist Bill Dunkelberg. “The COVID-19 pandemic continues to dictate how small businesses operate and owners are worried about future business conditions and sales.”

There is some concern that it could be too much aid on top of the recently passed $900 trillion aid package. But how else do we get the 10 million that lost their jobs back to work that want to work? There is an additional 4 million that have stopped looking for work.

The task at hand must bring back a US and world economy under attack by an enemy that has inflicted far more casualties than any war.

Harlan Green © 2020

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Friday, February 5, 2021

January Employment Disappoints

Popular Economics Weekly

Calculated Risk

The unemployment rate fell by 0.4 percentage point to 6.3 percent in January, while nonfarm payroll employment changed little (+49,000), the U.S. Bureau of Labor Statistics reported today. The US labor market continued to reflect the impact of the (COVID-19) pandemic, which means much more economic aid is needed to offset the damage.

The Calculated Risk red line in graph portrays the damage done by the pandemic in the 10th month of this recession vs. earlier recessions, with 10 million jobs still lost and almost 20 million receiving unemployment benefits of some kind.

In fact, BLS reports the jobs picture began to worsen in November and December. The change in total nonfarm payroll employment for November was revised down by 72,000, from +336,000 to +264,000, and the change for December was revised down by 87,000, from -140,000 to -227,000. With these revisions, employment in November and December combined was 159,000 lower than previously reported.

The report also showed where most of the damage was done and why unemployment benefits must be extended past March for those in the lower-income brackets. Leisure and hospitality lost 61,000 jobs in January due to the pandemic.  In March and April of 2020, leisure and hospitality lost 8.2 million jobs, and then gained about 60 percent of those jobs back.  However, leisure and hospitality lost jobs in December and January, and is now down 3.9 million jobs since February 2020.

But professional firms in tech, science and so forth added 93,000 employees last month to lead the way in hiring. And 23 percent of the employed “teleworked” from home, a sign of future job trends. These data refer to employed persons who teleworked or worked at home for pay at some point in the last 4 weeks specifically because of the pandemic, said the BLS.

Employment fell in almost every other part of the economy. Jobs in leisure and hospitality — restaurants, hotels, casinos, theaters and the like — dropped by 61,000 in January after a massive 536,000 decline in December.

States began to lift business restrictions last month as coronavirus cases began to recede again, but not enough to give a big boost to employment. Retailers shed 38,000 jobs, health-care providers cut 30,000 positions and firms in warehousing and transportation cut payrolls by 28,000.

COVIDtrackingproject-Calculated Risk

Are we through the worst of this pandemic? The COVID Tracking Project (CTP) reports both COVID positive tests and hospitalizations are down sharply in January.

“The good news in COVID-19 data continued this week, as new cases, hospitalizations, and deaths all dropped,” said the CTP. “For the seven-day period running January 28 to February 3, weekly new cases were down more than 16 percent over the previous week, and dropped below one million for the first time since the week of November 5.

“This is still an astonishing number of new cases per week, but far better than the nearly 1.8 million cases reported on the week of January 14. Tests also declined nationally, but by less than 3 percent, nowhere near enough to explain the steep drop in cases,” reported CTP.

Part of the Biden rescue package being debated in congress is $70 billion for COVID-19 testing and a national vaccine program, and increasing the federal, per-week unemployment benefit to $400 while extending it through the end of September.

All of this aid is necessary and more, as I have reported, if we want the recovery everyone is hoping for.

Harlan Green © 2020

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