Thursday, July 26, 2018

Housing Market Slows

The Mortgage Corner

Existing-home sales decreased for the third straight month in June, as declines in the South and West exceeded sales gains in the Northeast and Midwest, reports the National Association of Realtors. The ongoing supply and demand imbalance helped push June’s median sales price to an existing-home new all-time high.
“Total existing-home sales,, said the NAR, “which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 0.6 percent to a seasonally adjusted annual rate of 5.38 million in June from a downwardly revised 5.41 million in May. With last month’s decline, sales are now 2.2 percent below a year ago.

Pending home sales that measure future sales also decreased modestly in May and have fallen on an annualized basis for the fifth straight month, according to the NAR. This seems to show a slowing of demand for housing, though the Realtors' economist Yun believes it’s more due to lack of supply, and fewer entry-level homes available.

Lawrence Yun, NAR chief economist, said closings inched backwards in June and fell on an annual basis for the fourth straight month. “There continues to be a mismatch since the spring between the growing levels of homebuyer demand in most of the country in relation to the actual pace of home sales, which are declining,” he said.
“The root cause is without a doubt the severe housing shortage that is not releasing its grip on the nation’s housing market. What is for sale in most areas is going under contract very fast and in many cases, has multiple offers. This dynamic is keeping home price growth elevated, pricing out would-be buyers and ultimately slowing sales.”
Why do we still have a housing shortage 9 years after the Great Recession? For the first half of 2018, a steady job market and a shortage of existing homes for sale has bolstered housing starts, said the Commerce Department. New home construction has climbed 7.8 per cent year-to-date.

And homebuilders are also relatively confident that the expansion will continue. The National Association of Home Builders/Wells Fargo builder sentiment index declined slightly to a reading of 68 in June, but any reading above 50 signals growth.

So another ‘root cause’ has to be affordability, as prices continue to climb. The report was mixed good news, as prices continue to rise, up 4.5 percent for the median to $276,900, while buyers saw a 4.3 percent rise in the number of homes on the market, at 1.950 million relative to sales, a gain to 4.3 months from 4.1 months.

It was thought new-home sales would give a boost to housing, but even new- homes sales are slower in June. The Calculated Risk graph shows new-home sales lagging historically from other recoveries, when sales reached 800,000 units annually.
“Sales of new single-family houses in June 2018 were at a seasonally adjusted annual rate of 631,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.3 percent below the revised May rate of 666,000, but is 2.4 percent above the June 2017 estimate of 616,000."
The sales slowdown has to be from after-effects of the Great Recession, what was also the Great Housing Bust when so many homeowners lost their home and life-savings. It’s a combination of lenders being much more cautious and consumers earning much less these days. For instance, first-time buyers totaled just 31 percent of existing homebuyers, vs. the 40 percent long term average.

Household incomes have been stagnant since the 1980s after inflation, and both incomes and net worth have actually declined since the Great Recession, so we are seeing the results in the housing market, as the costs of home-building continue to climb with inflation.

For example, the just enacted Canadian lumber tariffs are adding $9,000 on average to building costs, according to the National Association of Home Builders. "Not only are consumers and builders concerned about the current lumber tariffs, but also the next round of proposed tariffs on a number of goods and services," said NAHB Chair Randy Noel.

In fact, there has not been a concerted effort to boost consumers’ incomes at all since the Great Recession. Rather, the effort has been to suppress wages, with more states restricting collective bargaining rights of both union and non-union employees. There are now 28 right-to-work states that restrict the amount of dues unions can collect, and even the Supreme Court has just rescinded a 40-year old precedent that allowed public employee unions to collect dues from non-union members that enjoy the same benefits.

Do we need any more reasons to understand the slowdown in home buying?

Harlan Green © 2018

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Tuesday, July 24, 2018


In a new Economic Policy Institute report entitled The New Gilded Age, income inequality has risen in every state since the 1970s, and in most states it has continued to grow in the post–Great Recession era.

Why should we care? The most dire economic consequences of income inequality are recessions, including the Great Depression when inequality was as high as it is now. And since 1980, such inequality has resulted in 5 recessions, including the Great Recession.

Are there more on the horizon in this ninth year of this long-in-the-tooth recovery from the Great Recession? The Economic Policy Institute map shows the income disparities in the U.S. today. In Alaska the top 1 percent earns 12.7 times the 99 percent, whereas New York has the highest multiple, at 44.4 percent.

From 2009 to 2015, the incomes of the top 1 percent grew faster than the incomes of the bottom 99 percent in 43 states and the District of Columbia. The top 1 percent captured half or more of all income growth in nine states. In 2015, a family in the top 1 percent nationally received, on average, 26.3 times as much income as a family in the bottom 99 percent.

Today, the top 1 percent has garnered 24 percent of national income once again, as happened in 1928 just prior to the Great Depression, and which today is $1.3m. The 99 percent rest of us have an average annual income of $50,000 per year. And now we have to worry that the current geopolitical uncertainties—a Trump trade war, breaking up of western treaties (TPP, NAFTA, NATO), global warming that is causing mass migrations, the threats of more terrorism, or ongoing regional military conflicts—could plunge us into another recession or worse.

There is a way out of this mess, other than another recession or war. We could shift the balance of power to those that want to rebalance the income equation by rescinding those tax cuts that only benefit the 1 percent longer term.

Or, we could shift more spending away from the military’s $600B budget that just increases the likelihood of war to badly needed infrastructure improvements, boosting educational opportunities of the disenfranchised blue collar workers, or more R&D to create the next generation of innovators and entrepreneurs.

There are countless ways we can use those revenues, in other words, that would benefit 99 percent of Americans, instead of the 1 percent.

Harlan Green © 2018

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Monday, July 23, 2018

Is US Economic Self-Destruction Imminent?

Financial FAQs

The International Monetary Fund has just warned that President Trump’s trade wars could cost the world’s economies some $430B in lost growth. The Washington-based organisation said the current threats made by the US and its trading partners risked lowering global growth by as much as 0.5 percent by 2020 in worldwide Gross National Product.

And NYU economist Nouriel Roubini has now jumped on the critics’ bandwagon contra the Trump tariffs with his contention that trade wars will cause rising inflation and economic uncertainty at the wrong time.
Last year was a time of ideal growth conditions, but this year? “The combination of strong growth, low inflation, and easy money implied that market volatility was low,” said Professor Roubini about 2017. “And with the yields on government bonds also very low, investors’ animal spirits were running high, boosting the price of many risky assets…Many commentators even argued that the decade of the “new mediocre” and “secular stagnation” was giving way to a new “goldilocks” phase of steady, stronger growth.”

But this year, says Roubini, for the first time in a decade the biggest risks are now stagflationary (slower growth and higher inflation). “These risks include the negative supply shock that could come from a trade war; higher oil prices, owing to politically motivated supply constraints; and inflationary domestic policies in the U.S.”

It is while President Trump has abandoned the Trans Pacific Partnership with 11 other Asian countries and Australia (who are forming their own trade partnership), and is attempting to bust up our trade alliances with the EU, Canada, and Mexico.

Although all economies would suffer from further tariff escalations, the US would find itself “as the focus of global retaliation” with a relatively higher share of its exports taxed in global markets. “It is therefore especially vulnerable,” says the IMF.

Trump’s trade wars have escalated from $3.6 million in tariffs first imposed in January against 18 types of Chinese solar panels and washing machines to more than 10,000 products worth some $362 billion, as China, Canada and the European Union has retaliated with their own tariffs, according to the New York Times.

The Guardian says the European commission, the EU’s executive arm, warned the White House recently it would be prepared to use tariffs against as much as $300bn(£228bn) of US products should Donald Trump slap higher taxes on European automotive imports to America. The president had threatened last month to impose tariffs of 20% on imports of cars from the EU after Brussels carried through plans to tax American consumer goods – such as whiskey, cigars and Harley-Davidson motorcycles – in retaliation against US tariffs on European steel and aluminum.

This is not how to practice “The Art of the Deal”, if President Trump ever did know how. His past record of lawsuits, bankruptcies, and links to Mafia figures and Russian Oligarchs belies this. Conflating friends with enemies now pits the whole world against the US in trade matters.

Harlan Green © 2018

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Wednesday, July 18, 2018

Is 4% GDP Growth Real?

Popular Economics Weekly

Many economists, including Trump economic advisor Larry Kudlow, are predicting up to 4 percent economic growth over the next few quarters. Why? Full employment is enticing consumers to buy more, with booming retail sales and consumer confidence.
“Sales at health & personal care stores were unusually strong in June, up 2.2 percent following a series of very strong gains in the 1 percent range,” reports Econoday. “Nonstore retailers, in a sign of e-commerce strength, rose 1.3 percent in June and continue to make ground compared to other components. Gasoline stations, boosted by high gas prices, saw a 1.0 percent rise in June sales following a 3.0 percent spike in May. Building materials, at plus 0.8 percent in June, and furniture store sales, up 0.6 percent, are both positive indications for residential investment.”
The problem with understanding the significance of retail sales is that they aren’t corrected for inflation, and consumer (CPI) inflation is approaching 3 percent, so 6 percent nominal annual retail sales is closer to 3 percent in real sales. And that is probably the high end, as consumers’ real average paychecks are increasing 2.7 percent, so any increase in buying is limited by the amount consumers can borrow with rising interest rates, as I’ve been saying.

Is 4 percent GDP growth possible for the next several quarters, as Kudlow, et. al. are predicting? It depends on how long can this business expansion continues, says Brookings economist Robert Shapiro.
“Trump’s middling record on GDP and investment raises the question of how much longer the current expansion, now just two months shy of entering its tenth year, can last,” says Shapiro. “Developed economies move in business cycles, and so they weaken eventually as a matter of course. That’s where the United States is today. This late in any economic expansion, the pool of available workers for new jobs is modest, most attractive investment opportunities have been taken, and any pent-up consumer demand for large durable purchases has been exhausted.”

In fact, wages are falling after inflation by another measure. According to the Labor Department, median weekly earnings fell 0.6 percent in inflation-adjusted dollars in the second quarter, compared to the same time period of 2017. That’s the third straight quarter where inflation has outpaced wage growth, according to MarketWatch’s Steve Goldstein.

This is an important statistic because real personal income growth is one of the four pillars that measure the onset of a recession. Nonfarm employment, industrial production and real retail sales are the other three pillars. All four indicators must peak for a recession to begin. So far, median weekly earnings show weakness, but the other three still show growth.

A more public sign of recession is when there are two consecutive quarters of GDP decline. So to be clear, weakness is showing in just one of the four legs, and there are predictions of at least two more quarters of positive GDP growth.

But then there is the looming trade war. The International Monetary Fund has just warned that President Trump’s trade wars with everyone could cost the world’s economies some $430B in lost growth. The Washington-based organisation said the current threats made by the US and its trading partners risked lowering global growth by as much as 0.5 percent by 2020, or about $430bn in lost GDP worldwide.

It has escalated from $3.6 million in tariffs first imposed in January against 18 types of Chinese solar panels and washing machines to more than 10,000 products worth some $362 billion, as China, Canada and the European Union have retaliated with their own tariffs, according to the latest New York Times estimate.

And 2020 is the year of our next presidential election. So investors can gamble that President Trump won’t continue to double down on his trade wars, if he wants to be re-elected. But it is a very high-stakes gamble.
Harlan Green © 2018

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Monday, July 16, 2018

Inflation on the Rise

The Mortgage Corner

Inflation is finally rising enough to bite into consumers’ paychecks. It is also a sign that economic growth is increasing at least temporarily, as consumers borrow more to buy more. But the bottom 50 percent of income earners have seen no real average annual income growth since 1980, which means at least one-half of all consumers have to eventually stop buying and start paying back those loans as interest rates rise as well.

Retail inflation is up 2.9 percent annually, which has to begin to hurt the heavily indebted consumer, as I said. But enthusiasm over the full employment numbers and job availability are keeping consumers buying for the moment. It is because there are more available job openings than jobs being created at the moment—almost 1 million, a huge gap —which is why more workers are quitting their current jobs, reports the Labor Department’s JOLTS survey.

The rising so-called Quits rate is big news because it means workers are moving to better job opportunities; a sign of rising incomes as well. Americans quit their jobs in May at the fastest rate since 2001, showing that employees feel so good about the economy they are willing to leave one company for another.

Job openings slipped back but still remain very abundant, at 6.638 million in May vs. an upward revised and record 6.840 million in April. Openings are up 16.7 percent compared to May last year and are far above hiring, at 5.754 million in May for comparatively distant 4.9 percent year-on-year gain.

But watch out, the University of Michigan consumer sentiment index fell in July to a reading of 97.1, below June’s level of 98.2, which is an indication that the trade war bombast is beginning to worry consumers. That’s the lowest level since January. Prices are on the rise, yet interest rates haven’t yet followed.

Why? Part of the reason is that longer-term interest rates are stuck at a very low level, while the Fed is pushing up short term rates, so there is little difference between the 2 and 10-year Treasury yield, a sign that many bond investors don’t trust the predictions for higher growth. It’s a flight-to-quality syndrome when investors flock to a safe haven from future uncertainty with lower, but safer yielding investments, such as government-guaranteed sovereign bonds.

So we are seeing a growing unease in investors and consumers about the future, with consumers’ personal savings rate barely above zero (2.8 percent), with no cushion to fall back on should there be either a market crash, or full-blown trade war that lifts prices for everyone, or an actual war.

Harlan Green © 2018

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Thursday, July 12, 2018


We are announcing a new blog series—ANSWERING THE KENNEDYS CALL. It will report on what is being done today to address the problems that deal with record income inequality, immigration and civil rights, environment protection, and the rebuilding of local communities both at home and abroad that we cover in a forthcoming book, ANSWERING the KENNEDYS CALL: Inspiring Lessons in Public Service and Community Building from the Sixties for the Future.

It is a book about the cultural and social revolution of the Sixties carried forward by newer generations that is healing our broken communities and a dysfunctional government.  The Sixties created many of the benefits we enjoy today—environmental protection, civil rights for minorities, scientific research that brought us moon landings, the Internet, modern commerce, and a greater openness to other peoples and countries. 

By portraying the history of community development via the experiences of the Sixties’ generations, and practices of M. Scott Peck, Cesar Chavez and sociologist Robert Putnam in community organizing, we will show we have never really left that hopeful spirit that is creating new forms of a healthy, functioning, participatory democracy.

The efforts of those generations in making the world a better place is finding a response among younger generations today in countering the rampant pessimism and sense of limited possibilities prevalent in much of our society, due in large part to the economic uncertainty and successive recessions that have impoverished a majority of Americans since the 1980s.

President Obama is now mounting a campaign with a similar goal to inspire our youth to a life of service; and the youth he talks about are my target audience:
“The only folks who are going to be able to solve that problem are going to be young people, the next generation,” said President Obama. “And I have been encouraged everywhere I go in the United States, but also everywhere around the world to see how sharp and astute and tolerant and thoughtful and entrepreneurial our young people are. A lot more sophisticated than I was at their age. And so the question then becomes what are the ways in which we can create pathways for them to take leadership, for them to get involved?”
We begin with this recent headline from the United Farmworkers Union: Salinas, Calif.-based D’Arrigo Bros. of California has just signed a new contract with the United Farm Workers union that will cover more than 1,500 farm workers, according to this press release from The Packer, “the fresh fruit and vegetable industry's leading source for news, information and analysis.”

The agreement provides family medical, dental and vision benefits for the farm workers that will be paid for by D’Arrigo. Health insurance will be provided by the Robert F. Kennedy Medical Plan, a plan established in 1968 specifically for farm workers and their families.
“Both parties have come to a new era of a working relationship and realize the agricultural workers need to be taken care of,” President John D’Arrigo said in the release. “That investment will hopefully translate into people wanting to work here the whole season,”
Employees also receive hourly and productivity pay increases. The incentive and box pay rate will increase by 3 percent in the first year, 3 percent in the second year and 2.5 percent in the third year. Workers will also receive six paid holidays a year, and loaders and machine operators who use their personal vehicles will be paid 50 cents per mile for travel time.

“To be willing to put that much investment in their employees really demonstrates the value that John D’Arrigo is placing on his employees,” UFW president Arturo Rodriguez said in the release.

Why the realization from a major Salinas, California grower that union workers are important to his business? There is a growing scarcity of seasonal farmworkers due to the ICE sweeps and “zero tolerance policy” of the Trump administration that is decimating America’s agricultural industry. Growers are beginning to look to the UFW to supply those seasonal workers that labor contractors formally provided, but were mainly undocumented workers.

It took the first-term election of California’s Democratic Governor Jerry Brown in 1975 to give farmworkers bargaining rights with his enactment of the California Agricultural Labor Relations Act that legalized the union organization of farmworkers.

Today’s suppression of employee bargaining rights is little different, even though there is a National Labor Relations Board to enforce union collective bargaining rights. The problem is 28 so-called right-to-work states under Republican control allow private sector nonunion employees off the dues hook who work in a job that benefits from union bargaining.

And just recently the US Supreme Court overturned a 40-year precedent in Janus v. AFSCME that nonunion government workers cannot be forced to pay fees to public sector unions if they chose not to belong to them. Those fees, approved by the court in the 1977 case Abood v. Detroit Board of Education, cover collective bargaining costs such as contract negotiations, but are meant to exclude political advocacy.

SCOTUS’s Chief Justice Alito stated in his majority opinion that taking the side of governments in such labor disputes saves governments money. Really? Justice Alito is admitting that weakening government unions’ ability to collect dues will also weaken employees’ ability to bargain for their pay and benefits.

We don’t buy his argument that he wants to help governments with their finances. He as a good conservative is only interested in downsizing government in any way he (and probably his 4 fellow SCOTUS conservatives) can, which includes downsizing the standard of living of both union and nonunion government employees.

Harlan Green © 2018

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Wednesday, July 11, 2018

Consumers “Another Day Older and Deeper in Debt...”

Popular Economics Weekly

“Ya load sixteen tons, whaddya get, another day older and deeper in debt…”, the famous folksong sung by Burl Ives and Tennessee Ernie Ford describes today’s consumers who are still spending huge amounts of borrowed money at the end of this second longest business cycle since the end of WWII. And it can’t last much longer since consumers’ average incomes have barely risen since the 1970s in real terms.

Consumer borrowing picked up in May, according to the Federal Reserve on Monday. Total consumer credit increased $24.6 billion in May to a seasonally adjusted $3.9 trillion. That’s an annual growth rate of 7.6 percent, which is the fastest credit growth since November.

What are the numbers? Economists has been expecting half that gain; $12.4 billion, according to Econoday. Credit grew a revised $10.3 billion in April, up from the prior estimate of $9.3 billion. When we compare the 7.6 percent annual credit growth rate with consumers’ personal income growth rate of 2.7 percent, we see why consumers have become so indebted.

This borrowing binge cannot last. As noted in the World Inequality Report 2018, in both Europe and the US the top 1 percent of adults earned around 10 percent of national income in 1980. In Europe that has risen today to 12 percent, but in the US it has reached 20 percent. In the same time period in the US annual income earnings for the top 1 percent have risen by 205 percent, while for the top 0.001 percent the figure is 636 percent. By comparison, the average annual wage of the bottom 50 percent has stagnated since 1980.

Interest rates are also on the rise, with the Fed having raised their short term rates (mostly tied to the Prime Rate) 1.75 percent, and making noises about 2 more raises this year. Why? Inflation is growing with the fears of a Trump trade war giving boost to prices in those affected by retaliatory tariffs on imports US companies depend on. The Prime Rate has risen from its bottom of 3.25 percent in 2008 during the Great Recession to 5 percent today—also a 1.75 percent rise.

The wholesale Producer Price Index for final demand of materials that go into finished products rose 0.3 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. On an unadjusted basis, the final demand index moved up 3.4 percent for the 12 months ended in June, the largest 12-month increase since climbing 3.7 percent in November 2011.

Any further raises in either interest rates or inflation could tap out those consumers that are most heavily indebted.

Harlan Green © 2018

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Monday, July 9, 2018

Trumpcare is Killing US!

Financial FAQs
Makes Us
Sick Black T-Shirt Front

It took 4 hours to coax Patricia Okoumou, a Congolese immigrant, down from the Statue of Liberty while wearing a t-shirt that said, “Trumpcare Makes Us Sick.” It was serendipitous timing. She was part of a group wanting the abolition of ICE, but her t-shirt also brought attention to Republican and Trump administration’s efforts to abolish Obamacare, when a just released HHS report states that  Obamacare is doing better than ever for those in most need of health insurance.

President Trump has to be aware that most Americans want to keep Obamacare, even with the latest Republican tax cut bill that also abolishes the Obamacare mandate in 2019 requiring Americans not covered to pay a penalty if they have no health care coverage. The result has been higher premiums for those above the federal poverty level not subsidized by the federal government.

The reason Obamacare is popular with a majority of Americans is that the alternative Trumpcare bills attempted by Republicans last year wouldn’t just make Americans sicker, they will kill more people. Approximately 17,000 people could have died if a House Republican health proposal endorsed by the Trump administration had become law in 2018, who otherwise would have lived. By 2026, the number of people killed by Trumpcare could have grown to approximately 29,000 in that year alone, according to ThinkProgress, progressive think tank.  It is backed up by a CBO estimate that 24 million more Americans could lose health insurance by 2026 under Trumpcare.

Trump’s assertion that he has “gutted” Obamacare in his attempt to sicken and kill more Americans simply isn’t true. In fact, those in most need of health care coverage, those earning less than the federal poverty line, $48,500 for an individual, and $100,400 for a family of four, are doing quite well, according to the latest assessment from the Centers for Medicare and Medicare Services that administers Obamacare.
Overall, according to the figures released by the agency, 10.6 million Americans had signed up for ACA coverage by February and paid their first month’s premium, according to the Los Angeles Times. That was about 3 percent ahead of the 10.3-million enrollment at the same moment in 2017, the agency sai

Unsubsidized customers responded to the challenge of higher premiums by abandoning their health coverage in droves, HHS reported. The trend began in 2017, after Trump’s inauguration. That year, subsidized enrollments fell by about 223,000, or 3 percent. But unsubsidized enrollments fell by 1.3 million, or 20 percent.

This is while subsidized enrollment (those receiving Advanced Premium Tax Credits, or APTC) was 23 percent larger than unsubsidized (non-APTC) in 2014 and 32 percent larger in 2016 — and reached 61 percent in 2017.

Trump’s answer to the premium increases caused by his own policies has been to undercut the law even further by eliminating the consumer protections that make health insurance worth buying. These include requirements that all policies cover essential health benefits such as maternity care, hospitalization and prescription drugs, and opening the marketplace further to short-term junk insurance that carries lower premiums but offers substandard coverage.

We are not even mentioning Trump’s efforts to abolish the exemption for existing illnesses, and take away the federal payments meant to subsidize states’ Medicaid programs, which will result in even higher health insurance premiums for everyone.

Who are President Trump and his Republican synchophants really killing with their heartlessness?  Those now above the poverty line—the increasing number of unsubsidized in the middle class.  And they can and will vote, on what has become the number one issue for voters in November.

A new Pew Research Center survey reports 60 percent of Americans say the government should be responsible for ensuring health care coverage for all Americans, compared with 38 percent who say this should not be the government’s responsibility. The share saying it is the government’s responsibility has increased from 51 percent last year and now stands at its highest point in nearly a decade.

So, Trump and your Republican supporters of big business, please go right ahead and keep up your efforts to repeal and replace Obamacare if you want to become irrelevant.  Voters in November will know what this means.

Harlan Green © 2018

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Saturday, July 7, 2018

June Employment Robust For How Long?

The Mortgage Corner

More workers are being hired in manufacturing and professional services in June’s unemployment report. But this is before the trade war now taking hold with at least 5 allies and trading partners.
Washington's 25 percent duties on Chinese imports went into effect at midnight EDT and affected products such as water boilers, X-ray machine components, airplane tires and various other industrial parts. China immediately retaliated with tariffs on its $34 billion list of goods issued last month, including soybeans, pork and electric vehicles.

We know that manufacturing will also be hurt by the tariffs on imported steel and aluminum that go into the finished products the US exports, so the 36,000 new hires in manufacturing may be a temporary blip as manufacturers attempt to get ahead of already occurring price rises.
Even more hurt will be put on Midwestern farmers, as China, the EU, Canada, and maybe even Mexico will be targeting their produce with higher tariffs in response to Trump’s levies.

A sharp rise in the number of unemployed actively looking for a job, to 6.564 million from 6.065 million in May, lifted the unemployment rate 2 tenths to 4.0 percent from 3.8 percent in May, and also lifted the participation rate 2 tenths to 62.9 percent.

It’s because for the first time in nearly 20 years of existing records,  the number of job openings in April at 6.698 million in the Labor Department’s JOLTS report exceeded the number of unemployed actively looking for work, at 6.346 million. It suggests employers are having a hard time finding people to fill the jobs. That is the understatement of the year.

The gap between openings and hires in the JOLTS report was 1.120 million, the second largest on record next only to March's 1.147 million. It also gives a picture of why employers are having finally to raise their workers’ pay.
The Bureau of Labor Statistics reported “The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed in June at 4.7 million. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs."
But add the 1.5 million that want to work but haven’t worked in the past 26 weeks, and we still have a decent labor pool to draw from. It all adds up to 7.8 percent that are the “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force,” per the BLS.
So is the June jobs report just an attempt to get ahead of the inevitable jump in prices and job losses that a trade war causes? Such a war has to seriously hurt all business, not just US businesses.

Harlan Green © 2018

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Thursday, July 5, 2018

What are Corporations Doing With Their Tax Cut?

Popular Economics Weekly

Economists are predicting second quarter GDP growth of as much as 3.8 percent, up from 2.2 percent in Q1 2018. But it may be a one-time surge, as all indications are the massive 2017corporate tax cut that lowered their nominal tax rate from 35 to 21 percent won’t create any more jobs than are normal in a fully-employed economy by investing, say, in more production capacity (i.e., in capital expenditures).

Instead, corporations are returning their one-time windfall of up to $300 billion to the stockholders, part of their already $2.1 trillion cash hoard that corporations haven’t been able to find a use for. So stock buybacks are the preferred use of their cash, or more M&A acquisitions like the AT&T purchase of Time Warner.

Graph: FRED

This isn’t helping the ordinary tax payer, as Medicare and Medicaid spending cuts of up to $1 trillion over the next ten years had to be enacted to pay for the corporate windfall and consequent addition of $1.5 trillion to the national debt. Federal tax revenues are plunging in consequence, as shown in the FRED Graph.

It isn’t boosting the stock market very much, either; just keeping the DOW and S&P indexes from falling further after the first-quarter selloff, with a 1.6 percent S&P 500 decline in the first quarter offset by a 3 percent gain in the second quarter, reports CNBC, leaving the index barely up about 1.4 percent for the year.
“Stocks right now are hanging by a thread, boosted by a bonanza of corporate buying unrivaled in market history and held back by a burst in investor selling that also has set a new record,” said CNBC.
Companies announced $433.6 billion in share repurchases during the period, nearly doubling the previous record of $242.1 billion in the first quarter, according to market research firm TrimTabs, per CNBC.

At the same time, investors dumped $23.7 billion in stock market-focused funds in June, also a new record. For the full quarter, the brutal June brought global net equity outflows to $20.2 billion, the worst performance since the third quarter of 2016, just before the presidential election. The selling is particularly acute in mutual funds, which saw $52.9 billion in outflows during the quarter and are typically more the purview of the retail side.

Why the selloff in stocks? Much of it has to do with the misinformation campaign of Trump officials, who literally maintain the opposite of reality. The Republican’s tax cut orthodoxy has always maintained that tax cuts create more jobs—that repatriating some $300B in overseas’ profits will be spent at home. But that’s only when corporations choose to invest in future growth, as I said, rather than enriching their CEOs and stockholders with higher dividends, or M&As that usually dilute shareholder equity,.

The national debt is on track to approach 100 percent of gross domestic product (GDP) by 2028, said the nonpartisan CBO, which analyzes legislation for Congress. That amount is far greater than the debt in any year since just after World War II when it was 120 percent of GDP, which paid for WWII.

The numbers don’t lie. Tax revenues are in fact declining, which means those tax cuts aren’t paying for themselves. It also means a larger share of the tax revenue pie will have to be spent on interest payments, and therefore less on the programs that benefit most Americans—on healthcare, education, R&D, environmental protection, workplace protection, and poverty programs like food stamps—anything that would boost the standard of living for those living on the edge.

Harlan Green © 2018

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