Tuesday, April 29, 2014

Home Price Strength To Boost Sales

The Mortgage Corner

Data through February 2014, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, show that the annual rates of gain posted 13.1 (in 10-city index) and 12.9 percent (20-city index) in the twelve months ending February 2014. Though some regions had flat or slightly negative readings—e.g., Cleveland and Chicago are still affected by winter weather—it is good news for sales.


Graph: Calculated Risk

“Prices remained steady from January to February for the two Composite indices,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The annual rates cooled the most we’ve seen in some time. The three California cities and Las Vegas have the strongest increases over the last 12 months as the West continues to lead. Denver and Dallas remain the only cities which have reached new post-crisis price peaks.”

California cities San Francisco (22.7 percent), San Diego (19.9 percent), and Los Angeles (18.2 percent) led the way, with Las Vegas (23.1 percent) still the overall leader in annual price increases.

The Northeast with New York, Washington and Boston are seeing some of the slowest year-over-year gains. However, even there prices are above their levels of early 2013. On a month-to-month basis, there is clear weakness. Seasonally adjusted data show prices rose in 19 cities, but a majority at a slower pace than in January.

Another reason for optimism that home sales will increase this year is inventories are increasing again. Housing Tracker (Department of Numbers) has been providing some weekly inventory data for the last several years to Calculated Risk. And inventories are up 8.2 percent already this year.

In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays.  Inventory in 2013 finished up 2.7 percent YoY compared to 2012. But inventory in 2014 (Red) is now 8.2 percent above the same week in 2013.

The median asking price for homes in the US peaked in June 2006 at $319,459 and is now $48,209 (15.1 percent) lower. From a low of $211,844 in January 2011, the median asking price in the US has increased by $59,404 (28.0 percent) to $273,759, says Housing Tracker.


Graph: Calculated Risk

So though the price increases had some effect on slowing sales of new and existing-home over the past several months, the severe winter weather and lower inventories have a larger effect. And don’t forget rising prices also mean rising equity levels, which means more homes are eligible for sale.

Harlan Green © 2014

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

Monday, April 28, 2014

Rising Consumer Confidence To Boost Growth

Popular Economics Weekly

Consumers seem to finally be consuming their normal share of economic growth—which is currently 68.2 percent of GDP, or overall economic activity. We know this because they are spending more, and their confidence numbers are returning to historic levels.


Graph: Reuters-Inside Debt

The April consumer sentiment report is very strong, with the composite index at 84.1 versus the final March reading of 80.0. The latest reading is tied for the third best of the recovery, only 1.0 off from the recovery high of 85.1 in July last year. Perhaps the biggest plus in the report was the current conditions component, at 98.7 for a new recovery best and a very strong 3.0 points above March.

And April retail sales were as good—which is about ½ of personal consumption expenditures. Retail sales grew 1.1 percent in March after rebounding 0.7 percent in February (originally up 0.3 percent). Much of the latest advance came from motor vehicles which jumped 3.1 percent, following a 2.5 percent rebound in February. Excluding motor vehicles, sales increased a still healthy 0.7 percent, following a gain of 0.3 percent in February.


Graph: Econoday

The main reason for all this is the thaw in job creation, with the unemployment rate at 6.7 percent, 197,000 nonfarm payroll jobs created in March, and economists predicting even higher job growth ahead. And the manufacturing sector is growing again, after a winter pause.

"The March PMI® registered 53.7 percent, an increase of 0.5 percentage point from February's reading of 53.2 percent, indicating expansion in manufacturing for the 10th consecutive month,” said Bradley J. Holcomb, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee.

The New Orders Index registered 55.1 percent, an increase of 0.6 percentage point from February's reading of 54.5 percent. The Production Index registered 55.9 percent, a substantial increase of 7.7 percentage points compared to February's reading of 48.2 percent. Employment grew for the ninth consecutive month, but at a lower rate by 1.2 percentage points, registering 51.1 percent compared to February's reading of 52.3 percent. Several comments from the panel reflect favorable demand and good business conditions, with some lingering concerns about the particularly adverse weather conditions across the country.

I still maintain that the housing market is the other sector that will boost employment this year. For instance, pending home sales rose 3.4 percent in March - the first gain in nine months - signaling that sales of existing homes may pick up, the National Association of Realtors reported Monday. The index of pending home sales hit 97.4 in March -- the highest reading since November -- compared with 94.2 in February.

"After a dismal winter, more buyers got an opportunity to look at homes last month and are beginning to make contract offers," said Lawrence Yun, NAR's chief economist. Despite March's gain, the gauge was down 7.9 percent from a year earlier. Low inventory, declining affordability and poor weather have hit the housing market in recent months.

There are other factors that boost consumer confidence, of course. But housing is the largest wealth-creator for middle class wage earners, so the wealth-effect from growing housing equity will boost their confidence as housing prices increase.

Harlan Green © 2014

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

Wednesday, April 23, 2014

T Piketty's Capital in 21st Century

Popular Economics Weekly
All the hullabaloo re Thomas Piketty’s master economic work, Capital in the 21st Century has overlooked its real importance. Economics is finally becoming a science, rather than just social science based more on theories and formulas (such as mathematical models), than empirical research until now.
T Piketty and friends have collected 2 centuries of economic data—such as tax returns—to verify what was suspected but not known. That returns to the owners of capital have historically exceeded that of labor—i.e., wages and salaries—by a margin of 5 percent, vs. just 1.5 percent per year for employees. In other words, the returns on capital have historically grown faster than overall economic growth, which determines the growth rate of employees’ salaries.
Even Piketty’s prescription to level the playing field, a tax on capital, is but one solution. Robert Shiller expounds something much more feasible in his terrific book,  Finance in the 21st Century. He describes a futures market that insures everything from salaries, vocations, to national GDP growth. In other words, putting the financial markets in the business of insuring against failure.
The 2.7 percent median wage growth in the first quarter was the strongest since the fourth quarter of 2009, when wages grew 2.8 percent. Importantly, the wage growth was faster than the 1.4 percent increase in seasonally adjusted consumer prices over the same period. Without adjusting for seasonality, median weekly wages were $796 in the first quarter.
It is important that wages are rising faster than inflation for the first time in 4 years. It means consumer purchasing power is increasing again. Household incomes have actually been stagnant for more than 30 years, only keeping up with inflation, so that most consumers had enough income for necessities.
Year-on-year, overall CPI inflation was 1.5 percent in March, compared to 1.1 percent in February (seasonally adjusted). The core rate increased 1.6 percent year-on-year, matching the rate for February. For March, not seasonally adjusted year-ago percent changes for total and core CPI were 1.5 percent and 1.7 percent, respectively.
Consumer price inflation firmed in March, but it was for just one month—not yet setting a trend. Within the Fed, the hawks likely will point to the stronger numbers while the doves will say it is too early to say that inflation is up to the 2 percent goal. This means driving is cheaper and eating is more expensive.
But Janet Yellen has been saying that interest rates will stay down much longer, even if inflation rises above their 2 percent target. And that can only hearten consumers and homebuyers who don’t want the Federal Reserve raising rates until they see a real jobs recovery and sustained wage increases.
Harlan Green © 2014

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

Tuesday, April 22, 2014

Opposing the Bully Mentality—Part II

Financial FAQs

How does one stop the bullies? Put simply, find a way to stand up to them. Economic bullies behave no differently than individuals when confronted by a person or organization willing to oppose them. But how are the 80 percent that are wage and salary earners to do that whose incomes has been whittled away since the 1970s by anti-union legislation and outright banning of collective bargaining in many of the right to work states?

Popular culture has enshrined the superhuman heroes who have tamed bullies; from Superman and Wonder Woman, to Batman, and now Captain America taming Nazi bullies. But taming economic bullies doesn’t have a popular precedent other than Robin Hood, it seems.

And Robin Hood was an English legend. America can only come up with its opposite, reverse Robin Hoodism, or taking from the poor and giving to the rich. That is how Nobelist Paul Krugman characterizes Republican attempts to cut taxes further and oppose raising the minimum wage.

“In the past, Republicans would justify tax cuts for the rich either by claiming that they would pay for themselves or by claiming that they could make up for lost revenue by cutting wasteful spending. But what we’re seeing now is open, explicit reverse Robin Hoodism: taking from ordinary families and giving to the rich. That is, even as Republicans look for a way to sound more sympathetic and less extreme, their actual policies are taking another sharp right turn.”

So the cards seem to be politically stacked against those who oppose the economic bullies. “(But) It wasn’t always this way,” says Marketwatch’s Rex Nutting. “In the 1950s, 1960s and into the 1970s, trade barriers, strong unions and discrimination gave workers (white male workers, that is) more bargaining power to get higher pay. It created the middle class.”

The result of such economic bullyism is that American wages haven’t grown since the 1970s, except for a brief period in the 1990s, when the Federal Reserve allowed the unemployment rate to fall to 4 percent, before beginning to raise interest rates. Thank you, President Clinton (and then Fed Chairman Greenspan during his easy money phase).

The share of national income that goes to labor (including the CEO’s salary and his stock options) has plunged from about 63 percent to 57 percent, says Nutting. The 6 percent of national income that’s going to profits instead of wages amounts to nearly $900 billion a year.


Graph: WSJMarketwatch

“For corporate businesses, after-tax profits are at record levels as a share of national income,” says Nutting. “Since the recession ended, profits are up 65 percent to $1.68 trillion last year. Small businesses aren’t doing quite so spectacularly, but their income is up 13 percent and their net worth is up 33 percent to $8.7 trillion since the recession ended. And the workers? Even after a big gain in the first quarter, median wages are down 3 percent since the recession ended.”

Many commentators and sociologists in particular assert 9/11 brought modern economic bullying to a high point. It’s rationale was the US put on a semi-permanent war footing, so that “Allegiance to the old public virtues—respect of the Bill of Rights, the Geneva Conventions and the rule of domestic and international law—was mocked and dismissed as quaint and soft by our new drill sergeants, according to a recent Canadian study. “From then on a state of emergency replaced the rule of law and set itself up as the norm.”

On a personal, workplace level, “If we are in a constant war-like mode societally, it sounds trivial, it sounds child-like, it sounds naively utopian to say, ‘Can’t we all get along?’” says Gary Namie of the Workplace Bullying Institute. “If you call for civility or a suspension of unmitigated, unfettered aggression, they call you a wimp. They think you are a wimp.”

There is another term for economic bullies, used by Professor Krugman, among others, in his most recent NYTimes column. They are sadomonetarists, or bankers and economists who want to tighten credit even during such tough economic times, as now: “At some level it has to reflect an instinctive identification with the interests of wealthy creditors as opposed to usually poorer debtors. But it’s also driven, I believe, by the desire of many monetary officials to pose as serious, tough-minded people — and to demonstrate how tough they are by inflicting pain.”

That, of course, is the most cogent definition of a bully. They want to demonstrate how tough they are, regardless of the consequences. For instance, the NAACP recently posted a report by Devin Burghart, Leonard Zeskind and the Institute for Research & Education on Human Rights called “Tea Party Nationalism,” exposing what it calls links between various Tea Party organizations and racist hate groups in the United States, such as white-supremacist groups, anti-immigrant organizations and militias, who have by definition, the bully mentality.

The bully mentality manifests in many forms, besides politically. The gun lobby via the NRA, ALEC, and other organizations have succeeded in blocking government study of the causes of gun violence, even though 31,000 gun-related death occur per year, the highest by a factor of 10 of any country in the world. Needless to say that inhibits development of policies and laws that might lower gun violence, whether in the schools or our inner cities.

So it turns out the bully mentality is part of human nature, really, and so part of our culture. It is then up to those employees who want to better themselves to find a way to oppose that culture and mentality. That means pushing back against the fear that such bullying engenders in all of us—against the ‘boss’ mentality, as well. Remember, such fear has to also be felt by those economists and politicians that allow it.

Harlan Green © 2014

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

Saturday, April 19, 2014

Q1 Wage Growth Highest in 4 Years

Popular Economics Weekly

This may finally be the year when jobs and the economic recovery are for real for most Americans. Median weekly wages grew at the fastest pace in the first quarter in more than four years, according to data released by the Labor Department on Thursday.

Why? Because unemployment rates are falling, and that pushes up wages, needless to say. And almost no wage growth since 2008 has kept consumers from spending more. Unemployment rates in all states had dropped below 9 percent for the first time since 2008. Twenty-one states have unemployment rate decreases, 17 states and the District of Columbia had increases, and 12 states had no change, the U.S. Bureau of Labor Statistics reported today.


Graph: Calculated Risk

Rhode Island had the highest unemployment rate among the states in March, 8.7 percent. The next highest rates were in Nevada and Illinois, 8.5 percent and 8.4 percent, respectively. North Dakota again had the lowest jobless rate, 2.6 percent. California still has the 4th highest unemployment rate at 7.9 percent.


Graph: WSJ Marketwatch

The 2.7 percent median wage growth in the first quarter was the strongest since the fourth quarter of 2009, when wages grew 2.8 percent. Importantly, the wage growth was faster than the 1.4 percent increase in seasonally adjusted consumer prices over the same period. Without adjusting for seasonality, median weekly wages were $796 in the first quarter.

It is important that wages are rising faster than inflation for the first time in 4 years. It means consumer purchasing power is increasing again. Household incomes have actually been stagnant for more than 30 years, only keeping up with inflation, so that most consumers had just enough income for necessities.


Graph: Econoday

Year-on-year, overall CPI inflation was 1.5 percent in March, compared to 1.1 percent in February (seasonally adjusted). The core rate increased 1.6 percent year-on-year, matching the rate for February. For March, not seasonally adjusted year-ago percent changes for total and core CPI were 1.5 percent and 1.7 percent, respectively.

Consumer price inflation firmed in March, but it was for just one month—not yet setting a trend. Within the Fed, the hawks likely will point to the stronger numbers while the doves will say it is too early to say that inflation is up to the 2 percent goal. This means driving is cheaper and eating is more expensive.

But Janet Yellen has been saying that interest rates will stay down much longer, even if inflation rises above their 2 percent target. And that can only hearten consumers and homebuyers who don’t want the Federal Reserve raising rates until they see a real jobs recovery and sustained wage increases.

Harlan Green © 2014

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

Thursday, April 17, 2014

New-Home Sales Answer to RE Recovery?

The Mortgage Corner

Privately-owned housing starts in March were at a seasonally adjusted annual rate of 946,000. This is 2.8 percent above the revised February estimate of 920,000, but is 5.9 percent below the March 2013 rate of 1,005,000. Single-family housing starts in March were at a rate of 635,000; this is 6.0 percent above the revised February figure of 599,000.

We can see from the initial 2008 chart date that multifamily construction (red line) is back to pre-recession levels, but single-family starts are at 75 percent of pre-recession levels (blue line).  This mirrors the surging demand for more rental housing, which still boosts overall growth.

“We see improving signs of new-home construction as we move into the spring buying season,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB).  “The strongest recovery is in the Northeast and Midwest, where builders were hampered by severe winter weather earlier in the year.”

“Today’s report is in line with our forecast of a gradual strengthening in the housing sector in 2014,” said NAHB Chief Economist David Crowe. “However, several uncertainties including tight credit conditions for home buyers and erratic job growth are making builders cautious about getting ahead of demand.”

Single-family construction is the better barometer for home sales, since it also boosts, building design, insurance and mortgage activity, and so economic growth. And it is picking up in the spring thaw. Multifamily starts fell 6.1 percent to 292,000 units.


Graph: Calculated Risk

Lower mortgage rates are helping, as refinance mortgage applications jumped 7 percent, and purchase applications are up 1 percent in the latest MBA applications survey. It’s because the 30-yr conforming fixed rate has again dipped to as low as 3.875 percent for 1 origination point in California.


Graph: Calculated Risk

But applications are still at post-recession lows. They have returned to 1997-98 levels, and have dropped from early 2013 levels when fixed mortgage interest rates were in the 3 percent range. It seems that QE3 did bring down interest rates sufficiently to help the housing recovery, but now applications are stuck at the low level as QE3 is being ‘tapered’. The Fed is predicted to end QE3 purchases by the end of 2014.

That leaves uncertainty about the direction interest rates into the fall and winter.  They have recently plunged because of uncertainty over the confrontation in the Ukraine, and how much sanctions might damage economic activity.  The US is saying it can’t hurt domestic growth, and the IMF has predicted a pickup in worldwide growth, but what if Putin decides to invade the Ukraine?

Then all bets are off.  But at the very least it would keep interest rates at the current low level, and so help the housing market, in particular.  It also means middle income consumers still lack the means to boost their housing purchases when rates are much higher.

Harlan Green © 2014

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

Tuesday, April 15, 2014

The Bully Mentality

Popular Economics Weekly

Why does the USA have such a problem with bullies? Whether in the schools, in politics, or on Internet social media? The result has been teenage suicides, horrendous school shootings by students who felt bullied or belittled, and now a whole political party that opposes anything that smacks of aiding the poorest, seniors, and less educated.

Paul Ryan’s latest budget proposal, is one such example of Republican bullying tactics. It is a repeat of past years’ proposal that would cut $5 trillion from government spending, 69 percent of the cuts in the Ryan budget come from programs that benefit people with low or moderate incomes, according to the Center on Budget and Policy Priorities. Why pick on the poor?

Economist Paul Krugman can’t understand it either. “…while supposed Obamacare horror stories keep on turning out to be false, it’s already quite easy to find examples of people who died because their states refused to expand Medicaid. According to one recent study, the death toll from Medicaid rejection is likely to run between 7,000 and 17,000 Americans each year.

“But nobody expects to see a lot of prominent Republicans declaring that rejecting Medicaid expansion is wrong, that caring for Americans in need is more important than scoring political points against the Obama administration. As I said, there’s an extraordinary ugliness of spirit abroad in today’s America, which health reform has brought out into the open.”

The “ugliness” is really a bully mentality. Bullies prey on those weaker than them, and so they have tried every trick in the book to oppose any programs that smack of aiding those most in need. Why? Because it would empower the less fortunate so they are not so easily bullied. The Republican-dominated red states are the best example of the bully mentality.

If Republicans can’t keep their constituents poor and less educated, then they would lose their hold over them, and so their power. Conservatives oppose expanding educational opportunities such as Head Start and pre-school aid because it would encourage rational thinking, and an appreciation of science. Their constituents would then begin to understand global warming, and maybe evolution.

Republicans opposition to expanding voters’ rights; even social security and Medicare; is because Repubs fear being outvoted by those very same immigrants, minorities and seniors that depend on those services to improve their circumstances, and would enhance economic growth, by the way. Republicans only answer is to restrict voting hours and pass draconian voter ID laws in the red states. It is restricting citizens’ voting rights, even though sacrosanct and protected by the constitution.

In fact, the bully mentality requires such ignorance of facts about economic growth as well. The slow recovery from the Great Recession has mainly been because private businesses have been reluctant to hire due to slack demand, and governments have been unable to spend more on public services. Yet Republicans have opposed any form of government stimulus spending, even on badly outmoded infrastructure that will only cost more to repair and replace in the future.

Not all Republicans are bullies, and not all Democrats enlightened progressives, of course. But the bully mentality of House Speaker John Boehner’s “no compromise” tactics, or Senator Mitch McConnell’s filibustering of even the most innocuous Obama Administration appointments have been the reason recovery from the Great Recession hasn’t been stronger.

Fostering a culture of fear and ignorance is not the way to run a political party, or a country. Such tactics that attempt to suppress the rights of those that disagree, as well as the willful denial of scientific and economic facts are a danger to our democracy, not to speak of the US position as a leader of democratic nations. That is the ugliness that has crept into American politics. It is a complete denial of greater opportunity for all but Republicans’ most conservative constituents, and disregard for the most basic human rights.

Harlan Green © 2014

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

Thursday, April 10, 2014

Yellen’s Federal Reserve To Keep Rates Low

The Mortgage Corner

The Fed’s FOMC minutes of their last meeting were just released, and they show the Fed intends to keep interest rates low for as long as possible, until the unemployment rate drops substantially. And the Fed’s maintenance of low interest rates will do the most to boost housing sales this year.

In fact, they are dropping the 6.5 percent unemployment rate bar that former Fed Chair Bernanke had said was the point at which they would consider beginning to raise interest rates. That’s because the 6.5 percent rate has almost been reached without any improvement in the long term unemployed. It’s at 6.7 percent in March and the Labor Department’s JOLTS report says that with 4.2 million job openings (blue line in graph), the 6.5 percent rate could happen anytime.


Calculated Risk

Jobs openings increased in February to 4.173 million from 3.874 million in January. The number of job openings (yellow) is up 4 percent year-over-year compared to February 2013, while the number of hires (blue line) hasn’t been rising as fast. So it seems reasonable that the hire numbers will pick up as more jobs become available. Meanwhile, the number of Quits and Layoffs (blue and red bars in graph) has been declining, another sign of improving job opportunities.

The Fed minutes also mentioned that there were other obstacles to higher employment—excess savings by both consumers and business that weren’t being productively invested—that could slow also down job formation.

In fact, the minutes for the first time stated that ‘lowflation’ was a problem holding back demand, and so hiring. Why? Because too low inflation—just above 1 percent at present—was a sign there wasn’t enough demand for goods and services to yet warrant additional hiring.

“Participants observed that a number of factors were likely to have contributed to a persistent decline in the level of interest rates consistent with attaining and maintaining the Committee's objectives”, said the FOMC minutes. “In particular, participants cited higher precautionary savings by U.S. households following the financial crisis, higher global levels of savings, demographic changes, slower growth in potential output, and continued restraint on the availability of credit.”

This is basic macroeconomic theory that Fed Chair Yellen has researched, and the reason she is now the Fed Chairperson. She understands economics, and why job opportunities have been growing so slowly. Both consumers and businesses are holding on to their savings. So the Fed would have to see improvement in these factors, as well, leading to slightly higher inflation, before beginning to raise interest rates.
Real estate will also benefit from the Fed’s decision. One sign of better sales is that inventories continue to improve. Housing Tracker reports that 2014 existing-home inventories (red line) are slightly above last year and improving, due to fewer foreclosures and short sales.


Graph: Calculated Risk

“As of April 07 2014 there were about 745,168 single family and condo homes listed for sale in the 54 metro areas we track, said Housing Tracker. “The median asking price of these homes was estimated to be $269,029. Since this time last year, the inventory of homes for sale has increased by 7.7 percent and the median price has increased by 11.1 percent.”

This in itself will improve sales, but the continued prospect of lower interest rates will do the most to boost home sales this year.

Harlan Green © 2014

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

Saturday, April 5, 2014

Jobs Recession Finally Over?

Financial FAQs

Is the jobs recession finally over? It’s taken this long to bring employment back to pre-Great Recession levels. Overall employment is still slightly below the pre-recession peak (437 thousand fewer total jobs).  But private employment is now above the pre-recession peak by 110 thousand and at a new all-time high.


Calculated Risk

Total nonfarm payroll jobs rose 192,000 in March after a 197,000 boost in February and a 144,000 increase in January. The net revision for the prior two months was up 37,000. Expectations for March were for 206,000. Private payrolls gained 192,000, following an increase of 188,000 in February. Analysts projected 215,000 for March.

We can now see where many of the missing jobs remain—in governments. Although state governments added 8,000 net jobs in March, the federal government shed another 9,000 jobs, according to the just released Bureau of Labor Statistics report. Over the past year, employment in the federal government has fallen by 85,000, so we know the major reason we are barely back to the 2007 level of employment. In fact, some 700,000 state and federal jobs were lost during the Great Recession.

Unfortunately, political gridlock has caused so many essential government, or government-sponsored jobs to be lost.  There shouldn’t be a debate over what federal, state and local government expenditures are necessary to maintain decent economic growth. Can one imagine what it would do to economic growth if the $2.2 trillion in deferred infrastructure building—in roads, bridges, electrical and energy distribution networks had been done, not to speak of the additional jobs created?

Or, instead of losing 300,000 teachers and the lost education opportunities to students, education spending had been expanded? A good comparison is with the GW Bush administration, when Republicans were in power. Then they were for much more government spending.

The public sector grew during GW Bush's term (up 1,748,000 jobs), but the public sector has declined since Obama took office (down 718,000 jobs). These job losses have mostly been at the state and local level, but they are still a significant drag on overall employment.

The private sector is the main jobs provider, of course.  The single area that could provide the most bang for the buck is the construction industry. Since construction employment bottomed in January 2011, construction payrolls have increased by 532 thousand - but there are still 1.76 million fewer construction jobs now than at the peak in 2006, per an excellent analysis by Calculated Risk.

That also means the building-construction industry and all its ancillary services—such as mortgages, insurance, home furnishings—has much more room to grow. Private residential construction is returning to normal levels at last, but not public (which has fallen since ‘shovel-ready’ ARRA stimulus money ran out in 2010, which created or saved some 3 million jobs) and non-residential spending.


Calculated Risk

The bottom line is that all construction sectors have to improve to bring enough jobs back. These are mainly blue collar workers that lost badly during the Great Recession, due to the housing bubble. The good news is that professional and business services jobs grew double any of the other job categories in the March payroll survey.

Professional and business services added 57,000 jobs in March, in line with its average monthly gain of 56,000 over the prior 12 months. Within the industry, employment increased in March in temporary help services (+29,000), in computer systems design and related services (+6,000), and in architectural and engineering services (+5,000).

This should give a large boost to construction jobs this year and next.

Harlan Green © 2014

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

Thursday, April 3, 2014

The Ryan Budget Myth and Obamacare

Popular Economics Weekly

Representative Paul Ryan has come up with his latest Republican budget proposal, and it changes nothing. It neither promotes economic growth, nor reduces the budget deficit, as with past Republican budget proposals. That’s because its real target is to win some Senate seats by targeting Obamacare, for starters. And it can’t do that without telling some whoppers, including the claim that it can balance the federal budget by 2024.

Why do Ryan Repubs keep insisting on repealing Obamacare, even though they are conceding that with 7.1 million now enrolled as of March 31, it won’t be repealed? Because with fall midterm elections coming up and the prospect of winning some Democratic Senate seats looming, Ryan, et. al., want to keep up the myth that government supported programs can’t work, including health insurance, even though the Affordable Care Act, aka Obamacare will be a success.

We know this because Massachusetts’ Romneycare plan has been working for both young and old, as well as employers. Employers haven’t cut and run, but instead opted to insure more of their employees, not less. For instance, the percentage of small businesses with more than 3 employees have increased their coverage from 70 to 76 percent.

Ryan has to cling to the Republican myth that cutting government spending—either by weakening the social safety net of pensions and health care, or weakening environmental protection and educational programs—will cause the wealthiest among us to invest in more jobs and growth, because that’s what the wealthy will do with the lower taxes and increased income that results from smaller government expenditures.

But we know that’s not what the 1 percent, and those who are paid by and support the 1 percent do. They have instead used those excess profits to speculate—in the financial markets, mainly. And that in turn has provoked the huge overinvestments in dot-com infrastructure and housing that brought on the last two recessions, which in turn has slowed job creation and overall economic growth.

This is no secret to most Americans. The wealthiest spend a smaller percentage of their income on necessities, and in doing so reduce the demand for the most essential goods and services. But Republican-dominated states would have their constituents believe the wealthiest are their benefactors, when in fact those Red states are most dependent on government aid because they are also the poorest states.

Ryan proposes to trim $5 trillion from government spending. He said it would bring federal spending and taxes into balance by 2024, through steep cuts to Medicaid and food stamps, and the total repeal of the Affordable Care Act just as millions are reaping the benefits of the law, according to the New York Times.

But with current programs the deficit would increase just 1 percent to 4 percent of GDP over the next 10 years, according to the Congressional Budget Office. So why cut the social welfare programs that benefit so many, including our seniors and retirees, when it isn’t necessary?

Raising doubts about the effectiveness of Obamacare is the real target of Ryan’s plan, as we said. That’s the real reason Republicans continue to make these unpassable proposals. They want to keep their majorities in the Red states, without which they couldn’t continue the transfer of wealth from those most in need to those least in need, and which perpetuates the growing inequality of the socioeconomic classes.

In fact, we already know the result of such policies. Under GW Bush, when the Republican agenda of lower taxes and increased defense spending was in full flower, fewer jobs were created and the budget deficit ballooned. And that led to the Great Recession.

Harlan Green © 2014

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

Tuesday, April 1, 2014

Fed Chair Yellen Is the Workers’ Best Friend

Financial FAQs

We have just heard from new Federal Reserve Chairperson Janet Yellen in her first official speech entitled, What the Federal Reserve is Doing to Promote a Stronger Job Market. Her speech not only boosted the financial markets, but confirms the Fed will do all in its power to boost employee incomes by keeping interest rates low for as long as possible.

Why? Because she is one of the ordinary worker’s best friendsi.e., those 80 percent of the workforce that are wage and salary earners. It is really the wage and salary earners that determine the strength or weakness of any economy, because they power most consumer spending. And more jobs mean more tax revenues, hence less budget deficits and all the ills that go with deficit spending.  It should have been first and foremost on President Obama's agenda from Day One of his administration--but it wasn't.

“By keeping interest rates low, we are trying to make homes more affordable and revive the housing market. We are trying to make it cheaper for businesses to build, expand, and hire. We are trying to lower the costs of buying a car that can carry a worker to a new job and kids to school, and our policies are also spurring the revival of the auto industry. We are trying to help families afford things they need so that greater spending can drive job creation and even more spending, thereby strengthening the recovery…There is little doubt that without these actions, the recession and slow recovery would have been far worse.”

She is in fact the first modern Federal Reserve Chairman that is unequivocally committed to promote real job growth. How can I say that? Firstly, because she is a top macro economist, who along with husband and Nobelist George Akerlof, have done much of the major research on the labor market.

So she understands what policies create more jobs, which until now has not been the top priority of either Congress or the Obama administration, sad to say. It should be obvious that job creation has to be the first and foremost priority of all policy makers to bring the US economy back from the worst downturn since the Great Depression.

The Federal Reserve during the 1930s understood this under then Fed Chairman Marriner Eccles, which is why we had FDR’s New Deal. But until now, even ex-Chairman Bernanke seemed to be more focused on reducing debt, the result of the Great Recession, than putting enough people back to work, in order to pay down that debt.

And Paul Krugman has been writing about the need for more job-friendly policies, including in his latest New York Times Op-ed:

He said, “Instead of focusing on the way disastrously wrongheaded fiscal policy and inadequate action by the Federal Reserve have crippled the economy and demanding action, important people piously wring their hands about the failings of American workers.

“Moreover, by blaming workers for their own plight, the skills myth shifts attention away from the spectacle of soaring profits and bonuses even as employment and wages stagnate. Of course, that may be another reason corporate executives like the myth so much.”

Dr. Yellen obviously understands this, so let us hope the Board of Governors will continue to support her effort to bring back jobs and so the middle class.

Harlan Green © 2014

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