Friday, June 26, 2020

Job Losses Still Too High

Popular Economics Weekly

The U.S. economy is recovering very slowly, in part because the number filing for first-time unemployment benefits is still too high (see above graph). Why? Businesses are now shedding workers because the COVID-19 pandemic is not under control in the U.S. Total infections are now surpassing April highs, which means some states will have to slow down their re-openings as well as the rehiring of workers.

CDC and NIH experts Drs. Redfield and Fauci testified Tuesday to congress that COVID-19 is surging rather than fading, as President Trump has asserted in recent speeches. In fact, Dr. Fauci said they won’t even have reliable diagnostic tests that will tell them how patients are infected until this fall.

Dr. Fauci said the U.S. is still in the middle of the first wave and the imperative is to “get this outbreak under control over the next couple of months," in his testimony.

It is also affecting world-wide growth. economist Mohamed El-Erian writes in Project-Syndicate: “
The world’s leading international economic institutions – the International Monetary Fund, the OECD, and the World Bank – now warn that it may take at least two years for the global economy to regain what has been lost to COVID-19. If the major economies face additional waves of infections, recovery would take even longer.”
According to World Bank forecasts, the global economy will shrink by 5.2 percent this year. That would represent the deepest recession since the Second World War, with the largest fraction of economies experiencing declines in per capita output since 1870, the World Bank says in its June 2020 Global Economic Prospects.

This in fact mirrors what happened after the world’s last worst pandemic—the 1918-20 Spanish flu outbreak from which the U.S. economy didn’t recover until 1922.

 And growth in the developed countries will be worse where the pandemic has been the most severe and where there is heavy reliance on global trade, tourism, commodity exports, and external financing, says the World Bank.

Guess which country has the worst death toll and infection rates? It is the U.S., which means U.S. GDP growth in predicted to shrink by 5-6 percent this year say all three of the international economic institutions El-Erian highlighted.

In the week ending June 20, the advance figure for seasonally adjusted initial jobless claims was 1,480,000, a decrease of 60,000 from the previous week's revised level. The Labor Department said the advance seasonally adjusted insured unemployment rate was 13.4 percent for the week ending June 13, a decrease of 0.5 percentage point from the previous week's revised rate. The advance number for seasonally adjusted insured unemployment during the week ending June 13 was 19,522,000, a decrease of 767,000 from the previous week's revised level.

And WHO also warned of a new and dangerous phase of the pandemic. Eighty-one nations have seen a growth in new cases over the past two weeks. Only 36 have seen declines.
“Many people are understandably fed up with being at home,” Dr. Tedros Adhanom Ghebreyesus, director general of the WHO, said in a news conference in which he described the new phase of the virus. “Countries are understandably eager to open up their societies and their economies. But the virus is still spreading fast. It is still deadly and most people are still susceptible.”
We said last week that many employers, the including auto and airline sectors, had been hiring back their employees over the past month, hence a surprise jump in employment with the 2.5 million jobs increase in May.

Now both consumer sentiment and retail sales are beginning to recover, but only in those states and counties that listen to the experts, which means this recovery will be uneven at best.

Harlan Green © 2020

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Tuesday, June 23, 2020

Have Home Sales Reached Bottom?

The Mortgage Corner

Why is it important to report on the housing market? Because there is a housing shortage (Forbes says up to 3.8 million unit shortfall to date), and the NY Times, among others, is predicting a record wave of bankruptcies of large and small companies that could put even more than the 20 million unemployed already out of work.

Existing-home sales fell in May, marking a three-month decline in sales as a result of the coronavirus outbreak, according to the National Association of Realtors. Each of the four major regions witnessed dips in month-over-month and year-over-year sales, with the Northeast experiencing the greatest month-over-month drop.

Total existing-home sales,, completed transactions that include single-family homes, townhomes, condominiums and co-ops, slumped 9.7 percent from April to a seasonally-adjusted annual rate of 3.91 million in May, according to the NAR. Overall, sales fell year-over-year, down 26.6 percent from a year ago (5.33 million in May 2019), which shows how deep is this recession.

And the pandemic is reaching “forest fire” proportions according to some experts with no end in sight, so it’s important to ask if existing-home sales have bottomed out their decline in sales in May.

Other indicators, including pending-home future sales, already down 22 percent in April, will be the first indicator that tells us whether sales will drop further and inventories increase from their current lows. It largely depends on how many workers are able to return to work, as I’ve said earlier.

The latest pending-home sales numbers reveal the greatest decline since NAR begin tracking such transactions in January 2001. However, chief economist LawrenceYun expects that April will be the lowest point for pending contracts. We will know next Monday, June 29, when May pending-home sales are released.

“Sales completed in May reflect contract signings in March and April – during the strictest times of the pandemic lockdown and hence the cyclical low point,” said Yun. “Home sales will surely rise in the upcoming months with the economy reopening, and could even surpass one-year-ago figures in the second half of the year.”
 Yun is surprisingly sunny about the rest of this year. “Given the surprising resiliency of the housing market in the midst of the pandemic, the outlook for the remainder of the year has been upgraded for both home sales and prices, with home sales to decline by only 11 percent in 2020 with the median home price projected to increase by 4 percent,” Yun said. “In the prior forecast, sales were expected to fall by 15 percent and there was no increase in home price.”
 I am not so optimistic after seeing the many ups and downs of housing in recent years. We are really in another Great Recession, at least, and the NY Times says more than 6,800 companies filed for Chapter 11 bankruptcy protection last year.  This year will almost certainly have more, according to NY Times reporter Mary Williams Walsh. The flood of petitions from the worst economic downturn since the Great Depression could swamp the system, making it harder to save the companies that can be rescued, bankruptcy experts said per Walsh.

But rather than be the total pessimist, I can hope that we contain this ‘forest fire’ sooner rather than later, as well as the bankruptcy problem by continued government support that boosts spending in such as infrastructure, spending that has been too long postponed.

It might even now have the attention of congress, as the NY Times pandemic graph above isn't lying.

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Tuesday, June 16, 2020

Economic Recovery Picks Up Steam

Popular Economics Weekly

The head of steam analogy seems to be working for our economic recovery, as consumers let off steam after two months of staying at home with a burst of shopping activity from the re-openings.

We said last week that many employers, including the auto and airline sectors, had been hiring back employees over the past month, hence a surprise jump in employment with the 2.5 million jobs increase in May. Now both consumer sentiment and retail sales are beginning to recover.
Consumer sentiment posted its second monthly gain in early June,” said U. of Michigan survey chief economist Richard Curtin last Friday, “paced by gains in the outlook for personal finances and more favorable prospects for the national economy due to the reopening of the economy. The turnaround is largely due to renewed gains in employment, with more consumers expecting declines in the jobless rate than at any other time in the long history of the Michigan surveys.”


And retail sales jumped 17.7 percent last month, the government said Tuesday, after two months of record declines. Sales had tumbled by a record 14.7 percent in April and 8.2 percent in March. The rebound in sales also reflects the loosening of restrictions on business activity after two months of stay-at-home orders to combat the coronavirus pandemic.

The burst of activity comes from pent-up consumer demand, as we said; i.e., not being able to shop for at least two months. Federal tax payments to families and more generous unemployment benefits also helped stoke higher sales.

Yet even after the rebound in May, sales were still 6 percent lower compared to the same month in 2019, showing the lingering damage caused by the lockdown of the economy. This tells me we will have a U-shaped economic recovery where GDP contraction will bottom in Q2 and GDP begin a gradual rise in Q3, rather than a quick return to normal growth (the V-shaped recovery).
This is because “Few consumers anticipate the reestablishment of favorable economic conditions anytime soon. Bad times financially in the economy as a whole during the year ahead were still expected by two-thirds of all consumers, and a renewed downturn was anticipated by nearly half over the longer term,” said U. Michigan chief economist Curtin.
Sales increased across the board with autos up 44 percent, clothing sales up 188 percent, 90 percent at home-furnishing stores and 88 percent at stores that sell books, music, sporting goods and other hobby items. Receipts also increased 29 percent at bars and restaurants that bore the brunt of the coronavirus lockdowns in March and April, says MarketWatch.

A gradual return to what will be called the ‘new normal’, particularly for consumers that power most economic growth, is really due to the lack of any national coordination of the pandemic response.
The perennially poor and science-denying red states currently have the highest infection rates with the exception of Oregon in second place and purple Florida ranked fourth, according to today’s NPR COVID-19 dashboard.

States that listen to the scientists will recover first and return sooner to a more normal growth, whereas the states and local governments that choose not to listen to experts in their haste to perhaps salvage the November election will continue to suffer from the effects from higher rates of infections and social-isolation.

Harlan Green © 2020

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Friday, June 12, 2020

Recession Has Arrived, No Big Surprise!

Financial FAQs

The Dow plunged 1,862 points on Thursday, as the Business Cycle Dating Committee of the National Bureau of Economic Research, which maintains a chronology of the peaks and troughs in economic activity in the United States, had just determined that a peak in monthly US economic activity occurred in February 2020.
The NBER press release said, “…The peak marks the end of the expansion that began in June 2009 and the beginning of a recession. The expansion lasted 128 months, the longest in the history of U.S. business cycles dating back to 1854. The previous record was held by the business expansion that lasted for 120 months from March 1991 to March 2001.”
And Fed Chairman Jerome Powell gave some further bad news. The Federal Reserve on Wednesday slashed its estimate for U.S. gross domestic product this year to -6.5 percent, yes minus 6.5 percent, when many economists were predicting a return to growth by the end of the year. It also raised its median forecast for 2020 unemployment to 9.3 percent.

Powell and the Fed Governors are saying we could have several years of very slow growth. This is exactly what happened from the 1918-20 Spanish flu pandemic, the only real historical comparison. That recession lasted from 1920-22 before growth resumed and became what is known as the “Roaring Twenties”, as I’ve said.

However, just reported initial claims for unemployment was better news as it is continuing to decline per the above graph. It fell to 355K to 1.542 million in the week of June 6 in seasonally adjusted terms, another sign that the work shutdown is ending, which could shorten the recession. 
Reuters ICAP news says “Our guess is that employment will rise again on a net basis in June as more workers are called back from temporary layoffs, but at the same time there continues to be a heavy flow of new job losses as the corporate sector re-evaluates the post-pandemic outlook.” 

And lastly, we have the just released the JOLTS report (Job Openings and Labor Turnover Survey - above graph) that counts the number of hires and layoffs each month confirming that hiring tumbled 1.6 million to a record low 3.5 million in April. Job openings declined 965,000 to 5.0 million on the last business day of April, the lowest since December 2014 when six to seven million job openings had been the norm for the past several years.

How do we make sense of all this news? Firstly, ignore the stock market for now as worthy of any prediction of future prosperity. It’s attempting to parse discounted earnings at least six months from now. And who knows what earnings will be even in one year?

Also, if a vaccine in developed by the end of this year or early next year, as Dr. Fauci keeps hoping, how will it be distributed to most of the earth’s now 8 billion in population? Because no one will be safe until we all are safe, if we want to resume normal economic activity, which has no borders.

So I am maintaining it will be at least two years before consumers or producers return to what would be normal activity.  BTW, what will be the ‘new normal’ everyone is talking about when people can safely gather again in large shopping mall or stadium crowds, for instance? The health care experts are saying mask wearing and social-distancing must be part of it.

 Harlan Green © 2020

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Saturday, June 6, 2020

Employment Rise is Big Surprise!

Financial FAQs

What happened? American workers are suddenly going back on the job; at least 2.5 million of them, according to the Labor Department. That knocks down the number of unemployed to maybe 20 million, and surprised economists.

A private payroll survey (ADP) that precedes the government’s had said on Thursday their estimate of -2.8 million jobs lost had caused them to lower their guess for the official BLS number (on Friday) to the -4 million to -5 million range, versus an earlier forecast of -8 million. 
“These improvements in the labor market reflected a limited resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it,” said the Bureau of Labor Statistics (BLS). “In May, employment rose sharply in leisure and hospitality, construction, education and health services, and retail trade. By contrast, employment in government continued to decline sharply.”
In fact, American businesses have been going back to work for more than one month, especially in the airline, automobile, leisure and hospitality industries, per the BLS.

American Airlines said Thursday that it expects to fly in July about 55 percent of the domestic capacity that was flown during July 2019, as load factor improved 55 percent at the end of May from 15 percent for the month of April.
“We’re seeing a slow but steady rise in domestic demand,” said Vasu Raja, senior vice president of network strategy. “After a careful review of data, we’ve built a July schedule to match.”
Airline travel has picked up substantially, in other words. On Wednesday, the International Air Transport Association (IATA) said daily flights increased by 30 percent between April 21 and May 27. The IATA said the improvement in the data suggests “the industry has seen the bottom of the crisis, provided there is no recurrence.”

And tens of thousands of autoworkers started streaming back into car and truck plants across the South and Midwest in May, “a critical step toward bringing the nation’s largest manufacturing industry back to life,” according to the NYTimes.

Ford, General Motors, and Fiat Chrysler restarted, after Toyota, Honda and Tesla began reopening plants. Hyundai restarted a plant in Alabama on May 4, according to the NYTimes.

The manufacturing sector lost 1.32 million jobs in April, but gained 225,000 jobs back in May. The so-called underemployment rate that includes part timers and those who have stopped looking for a job recently fell to 21.2 percent from 22.8 percent in April. But it was just 7 percent in February, so the latest payroll numbers are nothing to crow about.

Cities such as Detroit have also announced that hundreds of its employees are returning to work. Detroit Mayor Mike Duggan revealed to Detroit Regional Chamber President and CEO Sandy K. Baruah that the city is preparing “to send hundreds back to work in areas like cutting grass, road work, and construction.”

The DOW Jones is up more than 900 at this writing, and S&P 500 up more than 90 points on the surprise news. It looks like many companies called back their workers at the earliest opportunity with either emails or texts after two months of layoffs, thus escaping the notice of statisticians.

Is this improvement just a blip, as COVID-19 infection rates continue to climb in most of the country? We have to assume this will continue as more of the economy opens this summer, and demonstrations against police brutality continue.

Any real improvements will also depend on how returning workers are treated at their job places. Will they follow CDC guidelines of workers safety with appropriate disinfection protocols, including the continued wearing of masks and social-distancing?

Today’s financial market euphoria smacks of an irrational exuberance based in the belief that further disruptions due to the pandemic and street protests will  not last long, when it's better to act rationally in such times.

Harlan Green © 2020

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Thursday, June 4, 2020

Was there ever any doubt?

Why Has U.S. Made Such a Mess of It?

Popular Economics Weekly

Private sector employment decreased by - 2,760,000 jobs from April to May according to the May ADP National Employment Report®, much less than the original estimate of –8 million jobs. It precedes Friday’s official government unemployment report for May.

Should we be thankful it wasn’t worse when the U.S. recovery from COVID-19 has been more damaging than in most other developed countries?

From Japan to Australia to Germany, the April unemployment rates were no more than 6.2 percent in April vs. our 14.8 percent, because they hadn’t mishandled the pandemic as had the U.S. Friday’s unemployment report is predicted to show the U.S. May unemployment rate rising from 14.8 percent to about 19 percent.

We weren’t prepared, in other words, and with the George Floyd killing and protests, there will be even more chaos as angry protestors precipitate higher COVID-19 infection rates and shut down businesses that are just opening.

It didn’t have to be this way. President Obama had set up a commission to study police violence and policing policies, but the Trump administration abolished it as they abolished the National Security Council commission that advised the White House on how to prepare US for pandemics.

Nothing was done to prepare Americans for either of the long predicted events, in other words. It was more important for President Trump to want to abolish President Obama’s accomplishments, rather than build on them.

Such is the cost of one political party’s single-minded focus on maintaining power and what amounts to an apartheid policy—discriminating against darker-skinned people, including immigrants—that Republicans risk taking down American democracy itself.

Nobel Laureate economist Paul Krugman lamented this in a recent opinion column.
“Every day, it seems, brings another indicator of our decline: the can-do nation has become a land that can’t deal with a pandemic, the leader of the free world has become a destroyer of international institutions, the birthplace of modern democracy is ruled by would-be authoritarians. How can everything be going so wrong, so fast?”
“Well, we know the answer,” he said. “As Joe Biden put it, “the original sin of slavery stains our country today.”

What have most other developed countries done to control COVID-19? They were prepared. Australian Prime Minister Scott Morrison, a staunch conservative, listened to the scientists that predicted the oncoming pandemic early.
According to the NYTimes,“Scientists, whom Mr. Morrison’s party has derided for over a decade, were respectfully asked for their views about the novel coronavirus and, more remarkable still, these views were acted on and amplified. Mr. Morrison dismissed the idea of trying to build herd immunity among the population, calling it a “death sentence.”
Angela Merkel, Germany’s Prime Minister had a scientific background as a former research scientist with a doctorate in quantum chemistry who once co-authored a paper on the “influence of spatial correlations on the rate of chemical reactions”, according to the Guardian.
She was able to explain why abandoning the lockdown early was so dangerous to Germans, as did New York Governor Andrew Cuomo at his daily briefings.
“If the reproduction number (infection rate) of one were to go up to 1.1, Merkel explained, the German health system could be overwhelmed by October. If it were to go up to 1.2, hospitals could reach a crisis point in July, and if it went up to 1.3 the crisis point would come in June.”
Why would Republicans discount science and scientists such as Dr. Fauci, director of the Institute of Allergies and Infectious Diseases, and demote Dr, Rick Bright, former director of the Biomedical Advanced Research and Development Authority (BARDA) at HHS?

It’s very sad to see one of our two political parties be so oblivious to what has happened and is about to happen.

Prime Minister Morrison, as much an ideological opportunist as Trump, was smart enough to listen to his scientists. “That’s the advice we have taken.” Mr. Morrison went so far as to declare: “Today is not about ideologies. We checked those at the door.”

But I see hope.  The Republicans’ modern history of denigrating anything scientific that doesn’t preserve the status quo or forward their ideological agenda to maintain power is their vain attempt to defeat Mother Nature, and it won’t work. 

Harlan Green © 2020

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Tuesday, June 2, 2020

Why the Housing Shortage?

The Mortgage Corner

We are now beginning to feel the recession in housing caused by the Coronavirus pandemic. What can we say with so many living on the edge because of the loss, or temporary hiatus, of their jobs? There’s still a housing shortage, for starters.

Some homeowners are falling behind on their mortgage payments.The majority are protected from default proceedings for at least one year, if their mortgages were guaranteed by any of the government-guaranteed GSEs like Fannie, Freddie, FHA, and VA. So no one is expecting defaults to raise the number of homes available for sale.

Forbes Magazine reported on a January NAR survey that America’s housing shortage is long lasting. According to their analysis, the market needs a whopping 3.8 million additional new homes to fully meet consumer demand.
“Since 2012, nearly 10 million new households were formed in the U.S. Only 5.92 million single-family homes were built in that same period, leaving what Javier Vivas,’s director of economic research, calls “a nearly insatiable appetite from potential buyers, especially in the lower end of the market.”
Why? Builders were so badly burned by the housing bubble and Great Recession and lack of entry-level homebuyers that suffered most from the Great Recession that they haven’t really begun to catch up to demand.

The recovery in home sales and construction is now largely dependent on how many jobs remain after the pandemic, which in part depends on whether the Senate agrees to more financial aid to state and local governments that employ most of the “essential” workers taking care of our health and safety.
NAR’s chief economist Lawrence Yun is surprisingly optimistic about the housing market. “Given the surprising resiliency of the housing market in the midst of the pandemic, the outlook for the remainder of the year has been upgraded for both home sales and prices, with home sales to decline by only 11 percent in 2020 with the median home price projected to increase by 4%,” Yun said. “In the prior forecast, sales were expected to fall by 15 percent and there was no increase in home price.”
Why does he know this? Mortgage application volumes have been picking up in spite of the stay-in-home orders. Home owners and buyers have been been taking advantage of the still record-low interest rates to improve their overhead costs.

The Mortgage Bankers Association (MBA) Market Composite Index, a measure of mortgage loan application volume, increased 2.7 percent on a seasonally adjusted basis from one week earlier.
"The housing market is continuing its path to recovery as various states reopen, leading to more buyers resuming their home search. Purchase applications increased 9 percent last week - the sixth consecutive weekly increase and a jump of 54 percent since early April. Additionally, the purchase loan amount has increased steadily in recent weeks and is now at its highest level since mid-March," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.
Both pending home sales and existing-home sales are falling during the pandemic, but maybe not for long given the need for more housing..

The Pending Home Sales Index (PHSI),*, a forward-looking indicator of home sales based on contract signings, fell 21.8 percent to 69.0 in April. Year-over-year, contract signings shrank 33.8 percent. An index of 100 is equal to the level of contract activity in 2001, according to the National Association of Realtors (NAR).

Total existing-home sales,, completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 17.8 percent from March to a seasonally-adjusted annual rate of 4.33 million in April, said the NAR, also not a surprise, and are down 17.2 percent from a year ago (5.23 million in April 2019).

More surprising was that housing prices are still rising, signaling there is still a strong demand because we still have that housing shortage in many markets. The median existing-home price for all housing types in April was $286,800, up 7.4 percent from April 2019 ($267,000), as prices increased in every region. April’s national price increase marks 98 straight months of year-over-year gains.

We also know that existing-home inventories are historically low. Total homes for sale at the end of April totaled 1.47 million units, down 1.3 percent from March, and down 19.7 percent from one year ago (1.83 million). Unsold inventory sits at a 4.1-month supply at the current sales pace, up from 3.4-months in March and down from the 4.2-month figure recorded in April 2019, when 6 months is the historical norm.

How many will lose their homes before this recession ends? That is the $64 question. Housing is being remarkably resilient with so many uncertainties. The majority of home owners or whannabe owners are in the top 10-20 percent income brackets not as affected by the pandemic.

Alas, it has be be because lower-income households that have suffered the most from this pandemic are mostly renters not in any position to own a home. That’s a problem politicians are not yet willing to face, but beware what the “I cannot breathe...” rioters are telling them.

Harlan Green © 2020

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