Saturday, July 29, 2017

Why are Americans So Unhealthy?

Financial FAQs

Americans have just avoided a health care disaster in voting down the Senate’s ‘skinny’ Obamacare Repeal and Replace bill. Even though maintaining most of the taxes to pay for the Medicaid portion, it would have made insurance coverage prohibitively expensive for those older and sicker users with the removal of the private and employer mandate requirements that would cause younger and healthier people to leave the insurance markets.

This is really the latest precipice that’s been averted. Americans already have the worst health outcomes in the developed world, precisely because America is the only developed country—in fact, of most of the rest of the undeveloped world—that doesn’t have universal coverage.

The result is one of the highest birth death rates, as well as heart, diabetes, and infectious disease rates—which are diseases usually associated with poorer, undeveloped countries and regions.

Why has this happened in the America? Because Americans have the worst income inequality in the developed world, according to the CIA World Factbook. And studies have shown that those countries with the greatest inequality also rank lowest in healthcare benefits.

The U.S. ranks 106th of the 149 countries in income inequality as ranked by the CIA’s World Factbook; with a Gini inequality index of developing countries like Peru and Cameroon. Whereas Finland and the Scandinavian countries are at the top of equality rankings, as I’ve highlighted in past columns. The higher the index in the graph, the greater the gap between wealthy and poorer citizens of a country’s population.

This is while congress has even been attempting to take away Medicaid benefits for the poor, elderly and infirmed? It doesn’t compute. Just 3 Senators—Lisa Murkowski, Susan Collins and John McCain—were courageous enough to stand up to the conservative lobbies that would only worsen healthcare outcomes.

What if conservatives had succeeded in repealing Obamacare? “Republicans' Obamacare repeal bill would leave 17 million more people uninsured next year, and 32 million more in 2026, the Congressional Budget Office said in an estimate Wednesday. It also said premiums would double by 2026. …By 2026, three quarters of the population would live in areas with no insurers participating in the non-group market, due to upward pressure on premiums and downward pressure on enrollment, the report found.”
On the other hand, a 2016 Commonwealth Club study lists Obamacare’s many benefits. “…evidence indicates that the ACA has likely acted as an economic stimulus, in part by freeing up private and public resources for investment in jobs and production capacity. Moreover, the law’s payment and other cost-related reforms appear to have contributed to the marked slowdown in health spending growth seen in recent years.”
Some of those benefits are:

· Health care spending growth per person—both public and private—has slowed for five years.
· A number of ACA reforms, particularly related to Medicare, have likely contributed to the slowdown in health care spending growth by tightening provider payment rates and introducing incentives to reduce excess costs. 

· Faster-than-expected economic growth and slower-than-expected health care spending have led to multiple downward revisions of the federal deficit and projected deficits.

· These trends have also been a boon to state and local government budgets, as job growth has improved state tax revenues while cost growth in health care programs has slowed. At the same time, expanding insurance to millions of people who were previously uninsured has supported local health systems and enhanced families’ ability to pay for necessities, including health care.

· The accrued savings in health care spending relative to their projected growth prior to the ACA are substantial: Medicare alone is now projected to spend $1 trillion less between 2010 and 2020.

We can thank Senators Merkowski, Collins, and McCain that the so-called ‘freedom’ lobbies behind the Obamacare repeal efforts have not succeeded in making more Americans ill. I don’t even want to imagine the increased death totals due to lack of care of the 32 million aged and infirm that could ultimately lose their coverage.

So now is the time, in Senator McCain’s words, for Republicans and Democrats to work together in “regular order” to craft a truly bipartisan healthcare bill that could actually improve the health of Americans.

Harlan Green © 2017

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Thursday, July 27, 2017

The End of Easy Money?

Popular Economics Weekly

The Fed just completed its July FOMC meeting and said the sale of some of its $4.5 trillion in securities would begin this year. CNBC has predicted the first installment of $300B in sales could begin anytime. This is a mere drop in the bucket and shouldn’t affect interest rates immediately.

Why? There is simply too much easy money in circulation, which is why the 10-year Treasury yield is still in the 2.3 percent range, and 30-year conforming fixed mortgage rates are below 4 percent. Money is cheap, in other words, which hurts savers but helps borrowers, such as homebuyers.

This is indeed helping homeowners, as June new-home sales just jumped 0.8 percent and are 11 percent higher this year. Should the Fed begin to sell securities they bought via the various Quantitative Easing securities purchases, it will take some of that excess money out of the economy, but should not slow down home buying.

This is because interest rates only go up if inflation rises, and the Fed’s preferred inflation gauge, the Personal Consumption Expenditures index, has tapered off to 1.4 percent growth over 12 months from a five-year high of 2.1 percent. That is not a good sign for future demand and hence growth, as I’ve been saying. But it’s good for borrowers and homebuyers.

“The month’s (new-home) sales report is consistent with our forecast, and we should see further gains throughout the year as the labor market continues to strengthen,” said NAHB Senior Economist Michael Neal. “While new home inventory rose slightly in June, it remains tight as builders face lot and labor shortages and increases in building material costs.”
The assessment of both current and future business conditions is also strong with more describing them as good. Buying plans for homes is also a positive, up a sharp 7 tenths to 6.7 percent with buying plans for autos also up, 1 tenth higher to 12.7 percent.

Graph: Econoday

So the expected rise in interest rates is just not happening. Inflation is really a gauge of present and future demand and the demand by consumers, even for so-called capital expenditures by businesses that would expand production, isn’t happening. Capex spending jumped slightly earlier this year, but has slowed and manufacturing activity is still in a positive but narrow range.

However, consumer confidence continues to soar. The Conference Board’s index is back to its highest level this year. The index rose nearly 4 points in July to 121.1. Confidence has risen about 20 points following the November election, hitting a 17-year peak of 124.9 in March. Is this due to the Trump election? We haven’t yet seen higher retail sales and other indicators of greater consumer spending that would boost GDP growth to 3 percent as Republicans have promised.

So what are consumers up to? They seem to want to save most of their earnings at present, which is a sign that consumers are not yet convinced higher economic growth is in the cards, in spite of the availability of so much easy money.

Harlan Green © 2017

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Tuesday, July 25, 2017

Home Sales Disappoint

The Mortgage Corner

Existing-home sales were at a 5.52 million seasonally adjusted annual rate in June, the National Association of Realtors said Monday. That was 0.7 percent above the year-ago rate, but 1.8 percent lower than in May and marked the second-lowest monthly total of 2017.

Why? There’s a severe housing shortage with inventories down to a 4.3-month supply at the current sales rate. It is so bad that Zillow Chief Economist Svenja Gudell in a Marketwatch interview said, “There are about as many homes for sale now as there were in 1994 (1.96m), except there are about 63 million more people in this country now than there were then.”

The supply imbalance continues to push prices higher. The median sales price was $263,800 nationally, a 6.5 percent increase compared with the year-earlier period. The median price in California is now $500,000. That sets a fresh record and marks the 64th consecutive month of yearly price gains, with housing prices growing at roughly double the rate of wage gains.

It’s hard to understand why builders aren’t answering the call with demand so high and interest rates still at record lows. Part of the problem is that there are so few entry-level homes being built.
“Closings were down in most of the country last month because interested buyers are being tripped up by supply that remains stuck at a meager level and price growth that's straining their budget," said NAR economist Lawrence Yun. "The demand for buying a home is as strong as it has been since before the Great Recession. Listings in the affordable price range continue to be scooped up rapidly, but the severe housing shortages inflicting many markets are keeping a large segment of would-be buyers on the sidelines."
First-time buyers were 32 percent of sales in June, which is down from 33 percent both in May and a year ago. The longer-term average is 40 percent for first-timers as a percentage of all buyers, which are mainly younger buyers.

Graph: Apartment List

CNBC reports new data from Apartment List  that shows, although 80 percent of millennials would like to purchase real estate, very few are in a good position to buy, largely because they have nothing saved. According to the report, "68 percent of millennials said they have saved less than $1,000 for a down payment. Almost half, or 44 percent, of millennials said they have not saved anything for a down payment."

That is probably why mortgage lenders are now offering more exotic products, such as a 1 percent down payment for the conforming 30-year fixed rate with the lender chipping in another 2 percent, so that it satisfies the minimum 3 percent minimum down payment requirement for conforming loans.

Lenders are also offering high end buyers a 40-year fixed rate program for super jumbo loan amounts with the first 10 years at interest only payments. Payments then become standard 30 year principal and interest payments for the rest of the 30-year term.

Meanwhile the standard 30-year conforming fixed rate is 3.50 percent for 1 origination point in California, as it has been for months. There are still many buyers out there, in other words, but the most important population segment is the millennials, who marry later and have those student debt problems.

Harlan Green © 2017

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Thursday, July 20, 2017

Financial FAQs

The Bureau of Labor Statistic’s JOLTS Job Openings and Labor Turnover Survey out Tuesday showed a huge boost in hiring and shrinkage of available jobs. What to make of it with almost nonexistent inflation, and the Fed’s Janet Yellen still making noises about raising interest rates?

Job openings fell back 5.0 percent to 5.666 million in May from 6 million, and hiring shot up 8.3 percent at 5.472 million from 5 million in April. So the number of net new job openings shrank from 1 million to a mere 194,000, while more than 400,000 new jobs were created! This is big news, and sets a record for this series while the number of job openings are the second lowest of the year.

Meanwhile, Janet Yellen can’t seem to make up her mind on the direction of economic growth in her latest congressional testimony. So she won’t commit to further rate hikes at the moment, which without growing inflation would slow growth, rather than be a sign of inflation (and growth) ahead.
“As I’ve said on many occasions, the new normal with respect to what level of interest rates is neutral appears to be rather low, so we have raised the federal-funds rate target. I believe policy remains accommodative.”
In what is one of the very weakest 4-month stretch in 60 years of records, says the Census Bureau, core consumer prices could manage only a 0.1 percent increase in June. This is the third straight 0.1 percent showing for the core (ex food & energy) that was preceded by the very rare 0.1 percent decline in March. Total prices were unchanged in the month with food neutral and energy down 1.6 percent.

The JOLTS report looks like employers’ job openings are finally catching up with their hiring. Other movement in this report is a 1 tenth rise in the quits rate to 2.2 percent which hints perhaps at worker confidence and willingness to switch jobs which may be a positive for wage.

Such a strong jobs report should mean wages are about to rise. At least the Fed believes so, but it ain’t yet happening, no matter what Dr. Yellen says. Wages have been at 2.5 percent over the past 2 years; just enough to pay current bills, but not to boost retail sales, a major component consumer spending, hence GDP growth.

Retail sales fell an unexpected 0.2 percent in June. This follows a revised 0.1 percent decline in May and a revised 0.3 percent gain for April which proved to be the quarter's only respectable showing.
Econoday says it “…shows wide weakness with vehicle sales coming in with a marginal 0.1 percent increase, the same for furniture and also electronics & appliances. Declines include food & beverage stores, down a sharp 0.4 percent, and department stores down 0.7 percent following the prior month's 0.8 percent plunge.”
So where is the inflation? Economic growth is still weak because demand is weak and maybe declining. This is worrisome.

Today’s CPI retail inflation report should convince Dr. Yellen that no further Fed rate hikes are warranted. Annual inflation has increased just 1.6 percent; 1.7 percent without volatile food and energy prices. And we have June’s unemployment report with 222,000 new payroll jobs, another sign of full employment. (It is seasonally adjusted, which is why it differs from the JOLTS numbers.)

Then there is the fact that interest rates aren't rising.  The 10-year Treasury yield is still at 2.26 percent, which would normally signal an incoming recession.  Let us hope not, since there are still jobs available and we have to first see wages rising!

Harlan Green © 2017

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Housing Construction Rebounds, For How Long?

The Mortgage Corner

The Conference Board’s Index of Leading Indicators (LEI) that predicts future growth says it is being boosted by a rebound in housing starts, which means more badly needed new homes being built. Its June report posted a 0.6 percent gain. Permits had been soft through most of the spring before gaining sharply in this week's housing starts report.

But there’s concern over how long this might last, though I predict full employment and the prospect of low interest rates for the rest of this year could prolong the trend.

Starts for all homes jumped 8.3 percent in June to a 1.215 million annualized rate with permits up 7.4 percent to a 1.254 million rate. As weak as the details were in the prior report, is how strong they are in the latest. Single-family permits rose a huge 4.1 percent to an 811,000 rate with multi-family permits up 13.9 percent to 443,000. Permits are strongest in the Midwest followed by the West and South.

Actual starts for single-family homes rose 6.3 percent in June's report to 849,000 with multi-family up 13.3 percent to 366,000. The Northeast is in front followed by the Midwest. Starts in the West are up slightly and are down noticeably in the South, probably due to all the errant weather, including floods and a few tornadoes.

The LEI tracks 12 indicators of growth, including interest rates spreads and hours worked. The fact that housing permits provided the biggest boost to the LEI means that housing is probably a leading indicator of future growth as it has been in past recoveries. So why has it taken so long for housing construction and sales to catch fire? The busted housing bubble left millions of vacant homes first had to be reabsorbed into the housing market.

Then all those homeowners that lost their homes had to reestablish their credit bonafides. This is while Fannie Mae and Freddie Mac haven’t sufficiently lowered their credit and loan qualifying requirements that would add some 1 million prospective homebuyers to the list of eligibles, according to the Urban Institute.

Then there is the millennial generation saddled with all that student debt that the current administration doesn’t want to forgive or amend terms. The list goes on and on, in other words, for what needs to be done to make housing more affordable.

The NAHB, or National Association of Home Builders, also puts out a builder sentiment index that attempts to predict future activity, but which may lag housing starts data. The report cites the effects of high lumber costs on home builders in showing construction, for instance, but shows slower activity evenly divided among the 3 components in its index.

Higher future sales still lead for 73 percent of respondents with higher present sales at 70 percent of those polled. But only 48 percent report higher traffic, which is below the breakeven 50 percent for the 2nd month in a row. Regionally, the West remains the strongest for homebuilders followed by the Midwest and South and the Northeast far behind. So is optimism leading reality, if fewer buyers are lookng?

These are still terrific numbers, however, and it looks like lower interest rates are here for the rest of this year, with the conforming 30-year fixed rate holding at 3.50 percent for one origination point in California.

Why are rates still at such record lows with the Fed having already raised their overnight rate 3 times to 1.25 percent? Consumers aren’t borrowing more, which would increase loan rates.

Graph: Econoday

For instance, retail sales are still stuck below what is considered to be a robust demand for more goods and services. Annual sales are under 3 percent for the first time since August last year with the 3-month average below 4 percent. And 6 percent annual sales increases have been the norm during past recoveries.

This really means a certain middle and upper segment of income earners are doing well, but not the rest of US. The boosting of the minimum wage in the more prosperous cities and states is a start, but that is happening in only a handful of states, as I’ve said.

Much more needs to be done, in other words, to help the still record income inequality that haunts this laggard recovery from the Greatest Recession since the Great Depression.

Harlan Green © 2017

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Wednesday, July 12, 2017

Minimum Wage Raises Should Boost Spending, Employment

Financial FAQs

Minimum wages are about to rise in several cities, and eventually states. San Francisco and Los Angeles minimums are rose last weekend to $14 and $12 per hour, respectively, and ultimately to $15 per hour by 2021. But Seattle, Washington, Washington D.C., Chicago, Maryland, and New York will be raising their minimum wages, as well.

This should finally boost incomes, and maybe consumption for the rest of 2017. Central Banks are beginning to raise their rates, as well, which means they see stronger growth ahead.

But this all depends on the consumer, as businesses won’t spend and boost hiring until they see consumers spending more. Friday’s unemployment report told us we see growing demand ahead. The various QE programs and extremely low inflation have kept long term rates below 3 percent for several years because consumer incomes have been trending down lately, as I’ve said.
Graph: Econoday

For instance, personal income has been struggling, posting only a 3.5 percent year-on-year rate the last two months with the trend line pointing to just under 3 percent, reports Econoday. And that has kept spending in a narrow 4-5 percent range, as well.

Last week’s ISM service sector activity report could mean more hiring ahead, since the service sector employs roughly two-thirds of American workers. Its non-manufacturing survey continues to report extending strength with the index up 5 tenths in June to 57.4. New orders, at 60.5, remain unusually strong with backlog orders, at 52.0, also rising in the month. New orders for export, at 55.0, are also up solidly though to a lesser degree than domestic orders.
“The non-manufacturing sector continued to reflect strength for the month of June. The majority of respondent’s comments are positive about business conditions and the overall economy," said Anthony Nieves, Chair of the Institute for Supply Management Non-Manufacturing Business Survey Committee.
But this is anecdotal evidence only, and actual government statistics don’t reveal increased activity yet. Factory orders show manufacturing activity still rising at 5 percent, but autos and aircraft orders are down now, after surging earlier this year.

Manufacturing was once known to have high paying jobs. That's old history with pay, now at about $26.50, only 25 cents above the average. And payroll growth has also been slow with this trend also fighting to stay above zero.
“Backlogs are the bottom line and, despite all the confidence in all the private surveys, they are still under water, says Econoday. “Until unfilled orders pile up, gains for factory payrolls and wage will be limited. Despite a big jump in ISM's employment index, actual factory payrolls rose only 1,000 in Jun
So while jobs continue to be filled, wages aren’t rising in tandem, and that is another sign that there are still 6 million workers looking for jobs. Until that happens we cannot say we have reached full employment.

Harlan Green © 2017

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Tuesday, July 11, 2017

Great Employment Report

Popular Economics weekly

The U.S. created 222,000 new jobs in June as hiring accelerated in the spring, showing that companies are still finding ways to add staff despite a growing shortage of skilled workers.

The increase in new jobs was the largest in four months and second biggest increase of the year. Hiring was also stronger in May and April than previously reported, said the Bureau of Labor Statistics.

The most important take from the labor report was that a total of 361,000 new workers entered the labor force, which is why the unemployment rate ticked up slightly from 4.3 to 4.4 percent.

Also good news was that governments hired 35,000 more workers. It was a sign that state governments are financially healthy again, and beginning to spend on needed infrastructure repairs. How are they doing this?

California is one of seven states raising gas taxes (since the federal government won’t) to pay for the backlog of work that needs to be done, and at a time of record low gas prices. It will also boost economic growth. They aren’t waiting for congress and the White House to make up their minds on spending priorities, in other words.

California Gov. Jerry Brown just signed into law its increase in higher fuel taxes and vehicle fees, which gives the state an estimated $52 billion more money to help cover the state’s transportation needs for the next decade.

The money comes largely from a 12-cent increase in the base gasoline excise tax and a new transportation improvement fee based on vehicle value. Other money will come from paying off past transportation loans, Caltrans savings, and new charges on diesel fuel and zero-emission vehicles.

“The bulk of the revenue raised will go to various state and local road programs, as well as public transit, goods movement and traffic congestion,” said the Sacramento Bee announcement.

Seven states raising the gas taxes, according to The Institute on Taxation and Economic Policy (ITEP). Indiana, Montana and Tennessee lead the raises. California’s increase just kicked in July 1. Iowa and Nebraska, meanwhile, are the only states to lower their gas taxes.

April and May employment were also revised higher by 47,000 jobs, in the BLS unemployment report, “which signals that the apparent weakness in past months was just a blip due in part to late data reporting,” said Danielle Hale, managing director of housing research at the National Association of Realtors, as reported by Marketwatch.

It is, all in all, a very optimistic employment report. Government spending is the biggest plus, as that has been the most significant lack in the eight years of this recovery from the Great Recession. All those infrastructure upgrades are needed, right?

I have cited several times that of the more than 600,000 bridges in the U.S., at least 200,000 are more than 70 years old and need immediate repairs, not to speak of our electrical grid that is as old. In fact, not much has been done to our transportation network, in general. Most of our highways are more than 70 years old, as well.

This should be a no-brainer. Productivity and hence economic growth depends on these repairs and upgrades. Washington has been unable to do the needed work because it is locked in political gridlock, so it’s great news that the states want to take up the slack.

Conservatives can certainly agree on that.

Harlan Green © 2017

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