Saturday, August 29, 2020

 Popular Economics Weekly


The initial claims for unemployment insurance curve has flattened, rather than continuing to decline as the US economy opens. Not a good sign for future job growth.  Why? The coronavirus infection rate hasn’t declined, in a word, and studies are showing that consumer fears of COVID-19 are hurting the economy more than government decrees to combat the virus.

There were a seasonally adjusted 1.06 million new claims this week, and initial claims have been hovering around the 1 million marker for 3 weeks. The question is when will it decline further, indicating more hiring. But new research posits that may not be happening soon.

The National Bureau of Research (NBER) just put out a Working Paper entitled “Consumers Fear of Virus Outweighs Lockdown…” showing that fear of the effects of COVID-19 outweigh the government restrictions on business operations in causing the “steep drop in business activity.”

This is while CDC director Robert Redfield recently warned in a WebMD interview that America is bracing for “the worst fall, from a public health perspective, we’ve ever had.”

He feared that when the second, or third surge, in the pandemic arrives (depending on who’s counting) with the fall flu season, unemployment might rise again, maybe to levels not seen in recent history. We are still at a 10.2 percent unemployment rate, and next Friday’s August unemployment report might not show any improvement in the rate but may even worsen. 

“By comparing counties with and without restrictions, the NBER researchers conclude that only 7 percentage points of the 60 percentage points overall decline in business activity be attributed to legal restrictions,” said their public summary of the report. “Most of the decline resulted from consumers voluntarily choosing to avoid stores and restaurants.”


And average daily deaths haven’t yet declined from more than 1,000 per day since July and the summer openings. So, any lifting of those restrictions will not have much effect until consumers feel safe enough that the COVID-19 pandemic is under control.

In fact, the researchers’ counter-intuitive conclusion is that lifting lockdowns could have the unintended effect of discouraging consumer spending (which drives 70 percent of economic activity these days), “if repealing lockdowns leads to a fast enough increase in COVID infections and death.”

Retail sales rose 1.2 percent in July, the government said. Economists polled by economists had forecast a 2 percent advance. Receipts have slowed from a 8.4 percent increase in June and a record 18.3 percent gain in May when the economic rebound began. In other words, consumers may be seeing the writing on the wall as we approach the cold season.

There are other more heartening signs that fall economic growth could surge. Real PCE spending rose by 1.6 percent in July.  The combination of the July gains and the upward revisions to May and June puts real spending in July 8 percent above the Q2 average, which guarantees a very large contribution to Q3 GDP from the consumption component. 

The consensus is that GDP growth should spring back some 26 percent from its 32 percent drop in Q2. That could mean an end to the current recession that officially began in February, but no assurance there wouldn’t be a repeat unless consumers feel safer than they do today.

What’s the alternative if consumers still live in fear that COVID-19 hasn’t been controlled, and a safe and effective vaccine isn’t developed for, say, another year that can protect 300 million plus Americans.

Is anyone listening?

Harlan Green © 2020

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Thursday, August 27, 2020

Should the Fed Boost Inflation?

 Financial FAQs


The Federal Reserve is so desperate to support growth in this pandemic that it wants to allow inflation to rise above its 2 percent target range. Why? But inflation and rising prices are usually a sign of economic growth. But inflation is currently running at less than 2 percent--1.81 percent annually--(see below graph).

Money is cheap because interest rates are close to zero, yes zero percent. The current 10-year benchmark Treasury yield is actually minus –1.0 percent after inflation, meaning the U.S. Treasury is paying investors to hold them at present, per the above FRED graph. 

That’s because money isn’t being used in productive enterprises at the moment, such as building infrastructure, or boosting education spending, or environmental protection, or put in the pockets of lower-income folk that spend most or all of it.

Actually all of those enterprises would pay it forward for the benefit of future generations, but that isn’t happening in the private sector, which is why we will need government to do the investing that private commerce will not.

Corporations and the wealthiest of us aren’t investing much in the future because the present is so uncertain. The dangers of another shutdown due to COVID-19 are very real, given that the U.S. is behind every other developed country and many developing countries in conquering this pandemic. We have the highest number of COVID deaths with Brazil, Mexico, and India next in line.


So Fed Chairman Powell’s announcement that the Fed will ease credit conditions even further is an attempt to pry some of the money loose from the savers with the hope it will be actually be spent on more goods and services.

That is a good thing in itself, but no guarantee that it will boost inflation or economic activity unless there are well-planned public programs to spend it. There is plenty of excess capacity in our COVID-19 economy, so production could be boosted quickly and in turn boost supplies, which keeps prices and inflation from rising too fast.

This is a truism lost on some economists even. Printing lots of money doesn’t necessarily produce higher prices and inflation, unless there is sufficient demand and/or there are production bottlenecks, hence a supply scarcity.

The only real guarantee that we will invest in the future, in what is essentially the public sector that belongs to all of US, is when government is the good caretaker of those public resources—the air, water, natural resources, public education and health services.

It isn’t socialism, but a more robust capitalist system, a public/private partnership that can benefit all Americans.

Harlan Green © 2020

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Saturday, August 22, 2020

Why the Housing Boom...?


The Mortgage Corner

Calculated Risk

Total existing-home sales,, completed transactions that include single-family homes, townhomes, condominiums and co-ops, are booming.  They jumped 24.7 percent from June to a seasonally-adjusted annual rate of 5.86 million in July. The previous record monthly increase in sales was 20.7 percent in June of this year. Sales as a whole rose year-over-year, up 8.7 percent from a year ago (5.39 million in July 2019).

And residential construction is almost up to the February high that had been nursed by the Fed’s push for record low interest rates that have boosted purchase and refinance mortgage applications to record volumes as well.

Why the housing boom in the middle of a worldwide pandemic that is killing millions?

Interest rates are at record lows, for one thing. And the recession is probably over for a certain segment of our populace. The numbers also show there is also a tremendous pent up demand from the missing spring months due to the pandemic shutdown that normally boosts housing sales.

The conforming 30-year fixed rate is now below 3.0 percent for a one point origination fee, and jumbo conforming is just 1/8th percent higher! In fact, the best lenders are offering 2.75 percent at zero points for the 30-year conforming fixed rate.

“The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days,” said Lawrence Yun, NAR’s chief economist. “With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021.”

Reuters news reports housing starts (i.e., new construction) jumped 23 percent last month versus their forecast of a 3 percent gain, with single-family starts up 8 percent from an upward-revised June level and the more volatile multi-family sector spiking 58 percent. (This had to be because of rising rents and rising demand due to the housing shortage,)

However, overall starts remain 4.5 percent below their February level, with single-family starts down 9 percent since then and multi-family starts up 4 percent.  Single-family permits are up 17 percent and multi-family permits up 22 percent, a very strong sign of future construction activity.  It brought the level of single-family permits to within 1 percent of the February total, while multi-family permits, which bounce around a lot, are up sharply from February.

Construction will have to pick up even more with housing inventories at record lows. Total housing inventory at the end of July totaled 1.50 million units, down from both 2.6 percent in June and 21.1 percent from one year ago (1.90 million). Unsold inventory sits at a 3.1-month supply at the current sales pace, down from 3.9 months in June and down from the 4.2-month figure recorded in July 2019; which is way below the more normal 5-6 month supply.

“Housing has clearly been a bright spot during the pandemic and the sharp rebound in builder confidence over the summer has led NAHB to upgrade its forecast for single-family starts, which are now projected to show only a slight decline for 2020,” said NAHB Chief Economist Robert Dietz. “Single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower density markets.”

The median existing-home price for all housing types in July was $304,100, up 8.5 percent from July 2019 ($280,400), as prices rose in every region. July’s national price increase marks 101 straight months of year-over-year gains. For the first time ever, national median home prices breached the $300,000 level.

This verifies what we are seeing in the financial markets. The recession seems to be over for the top 10 percent of income earners. Many of them have gone back to work, or have white collar jobs and work from home, or don’t have to work because they are so-called ‘rentiers’ that live off their soaring asset values, as seen in the record rise in the S&P 500 index.

What happens next with the inevitable surge in COVID-19 cases this fall, school openings and the ordinary flu season, as I’ve said? Probably not much to the DOW and bonds, or even housing, when all this is over.

However, the rest of the economy not driven by the top 10 percent of income owners, such as actual consumer spending on staples and durable goods, is another story. Nor will corporations see the need to ‘pay it forward’ for future generations, unless we can find a better way to create living wages for the other 90 percent of adult-age workers; most of them still unemployed.

Harlan Green © 2020

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Saturday, August 15, 2020

Happy Consumers Are the Key...


Popular Economics Weekly


Are we heading for a fall in the Fall when the ordinary flu season begins? The chickens may be coming home to roost, as the saying goes, because the US economy opened to soon.

Retail sales rose 1.2 percent in July, the government said Friday. Economists polled by economists had forecast a 2 percent advance. Receipts have slowed from a 8.4 percent increase in June and a record 18.3 percent gain in May when the economic rebound began. In other words, consumers may be seeing the writing on the wall as we approach the cold season.

And CDC director Robert Redfield just warned in a WebMD interview on Wednesday that America is bracing for “the worst fall, from a public health perspective, we’ve ever had.”

This is not because cooler weather somehow makes the coronavirus worse, or that the summer’s heat kills the virus, which has been a common misconception about the coronavirus causing the disease COVID-19. Rather, fall and winter become influenza’s time to shine.

We are stuck at the highest unemployment rate achieved during the Great Recession (10 percent) that ended in 2009 in July’s unemployment report. But it took until 2018 to return to anything resembling full employment (4 percent), another 8 years, as I said last week.


So will it take this long to return to full employment again? So far we have only restored about 9.3 million jobs, leaving more than half of the Americans who lost their jobs still unemployed, and the flu season is about to start that historically kills between 12,000 and 61,000 deaths a year.

“We’re going to have COVID in the fall, and we’re going to have flu in the fall. And either one of those by themselves can stress certain hospital systems,” Redfield said, noting that many hospitals have already been overwhelmed by the number of coronavirus patients. There have also been reports of hospitals in New York, Texas and Arizona calling in refrigerated trucks to serve as temporary morgues to handle the number of dead bodies during the pandemic. And the ordinary flu has seen between 140,000 and 810,000 people hospitalized each year since 2010.”

Retailers have been on a roller-coaster ride since the pandemic began, sinking in March and April and recovering rapidly in the following two months as the economy reopened. The more mild increase in sales in July (+1.2%) might be a sign of what lays ahead, however.

And consumer sentiment has stagnated; another sign that consumers are becoming more cautious as the flu season hits at the same time as schools normally open. The preliminary reading of the consumer sentiment survey in August edged up to 72.8 from 72.5 in July, but it’s still just barely above the pandemic low, the University of Michigan also said Friday.

And we know what can happened next, since children will bring those virus bugs home to parents and grandparents as schools re-open. Economists such as Nobelist Paul Krugman are becoming ever more worried that this could turn what, to date, has been a mild recession into a Great Depression.

Harlan Green © 2020

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Tuesday, August 11, 2020

What Future Job Growth?

 Financial FAQs


 Calculated Risk

The Job Openings and Labor Turnover Survey (JOLTS) put out by the Labor Department (BLS) probably only makes sense to economists, because it gives a picture of the job market in coming months, as well as the present.

It literally measures the number of job openings (yellow line in graph) vs. hires (blue line) for a month; June in this case; enabling economist to measure whether the demand for new jobs is rising or falling. And though hires decreased slightly to 6.7 million from 7.2 million, it “was still the highest level in series history,” per the BLS.

Job openings rose 518,000 to 5.9 million in June, according to the Labor Department on Monday. That’s above the median forecast of 5.3 million jobs in an Econoday survey of economists. However, the number of jobs available was running around 7 million before the pandemic.

Job openings, another measure of demand, increased in June to 5.889 million from 5.371 million in May, so the number of hires was almost one million higher than vacancies (6.7 hires -5.9 vacancies), meaning there is large number of unfilled jobs to be filled.

So this statistic probably gives the best monthly picture of where the jobs market is headed. The number of job openings (yellow) is still down 18 percent year-over-year, and quits were down 25 percent year-over-year, says Calculated Risk.

Quits are voluntary separations. (see light blue columns at bottom of graph for trend for "quits") that tells us whether employees are moving on to better paying jobs. More workers are therefore hanging on to their current jobs at the moment, due no doubt to the uncertainty of the pandemic outcome.

In the words of the BLS, “These changes 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. This release includes estimates of the number and rate of job openings, hires, and separations for the total nonfarm sector, by industry, and by four geographic regions.”

The largest gains in openings came from accommodation and food service, other service and arts. The biggest declines were in construction and state and local government education, per Marketwatch.

Why are stocks and bonds continuing to rally in the face of the worst infection and death rates in developed countries,? It’s really the record low interest rates with the benchmark 10-year Treasury bond yield down to almost zero (0.58%) at times that are keeping stock and bond prices at record highs (and bond yields at comparable lows).


Watch interest rates, as the Fed has pumped extra $trillions into the economy and held short term interest rates also close to zero. There is really too much unused money not being put into useful endeavors, because corporations are reluctant to invest in an uncertain future,and the federal government won’t do more than provide pandemic relief rather than investing in future growth—e.g., in public works projects like infrastructure, education, and the environment.

So there is no plan for post-pandemic growth right now, or maybe until November. Democrats are thinking of the future with the Biden campaign’s “Biden Plan for Leading the Democratic World,” while Republicans are still obsessed with trade wars and ignoring the Wuhan virus that is hurting us much more than China.

The bottom line is there are 13 million fewer jobs than before the pandemic, and still no national plan for combating the pandemic and therefore putting them back to work.

Harlan Green © 2020

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Friday, August 7, 2020

Employment Picture Still Unclear


Popular Economics Weekly

The official unemployment rate fell for the third month in a row to 10.2 percent from 11.1 percent, the government said Friday. The hot pace of U.S. employment growth in the late spring gave way in July to a sharp slowdown in hiring as the economy added back just 1.76 million jobs, “underscoring the fragile nature of a recovery with the coronavirus still running rampant in many states,” said Marketwatch’s Jeff Bartash.

We have merely returned to the highest unemployment rate achieved during the Great Recession (10 percent) that ended in 2009. But it took until 2018 to return to anything resembling full employment (4 percent), another 8 years. Even then many millions were still either working part time that couldn’t find full time work, or had given up looking for work.

Will that happen again? So far we have only restored about 9.3 million, leaving more than half of the Americans who lost their jobs still unemployed.

The Bureau of Labor Statistics said today, “These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic and efforts to contain it. In July, notable job gains occurred in leisure and hospitality, government, retail trade, professional and business services, other services, and health care.”

What’s more, an even larger 31 million people were collecting unemployment benefits in mid-July based on the most recent numbers available. And the divided Congress still hasn’t agreed to extend a $600 federal unemployment bonus that expired at the end of July, we know at this writing, which is another potential roadblock for the recovery, .

It’s a decided mixed picture, in other words, with most sectors adding workers at this moment, except for Mining/Logging and the Information services.

Overall business activity has been picking up in both the manufacturing and service sectors, according to surveys by the Institute of Supply Managers (ISM) released earlier in the week. But said surveys are also deceptive, since they tell us whether there is an increase or decrease in activity, but not actual numbers.

The service sector supply managers’ index rose to 58.1 percent with any number above 50 signifying expansion; 67.2 percent said business activity had ramped up and 67.7 percent had new orders. They included Health Care & Social Assistance; Retail Trade; Transportation & Warehousing; Wholesale Trade; Educational Services; and Construction among the 15 businesses that make up the survey, just as do the jobs’ numbers in the unemployment report.

“This reading represents growth in the services sector for the second straight month after contraction in April and May, preceded by a 122-month period of expansion,” said the ISM non-manufacturing report.

Manufacturing also did well in the ISM manufacturing survey.

“The July PMI® registered 54.2 percent,” said the report, “up 1.6 percentage points from the June reading of 52.6 percent. This figure indicates expansion in the overall economy for the third month in a row after a contraction in April, which ended a period of 131 consecutive months of growth.”


And lastly, new applications for unemployment benefits, a rough gauge of layoffs, fell by 249,000 in early August to 1.19 million, touching the lowest level since the coronavirus pandemic began more than four months ago.

It was a surprising decline that also suggests some improvement in the labor market despite another surge in coronavirus cases in many U.S. states, as we said.

So it’s probably safe to say that congress has to get its act together and provide more recovery assistance if we want actual positive economic growth in the fall. The Fed’s easy money policy that has driven short-term interest rate to essentially zero can’t prevent an even deeper recession that began in February without more congressional aid.

That was the lesson we learned in the Great Recession. A divided congress that won’t act will create a divided country.

Harlan Green © 2020

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Wednesday, August 5, 2020

Alas, The Recovery That Was....

Financial FAQs

Because the deadline has passed to renew unemployment benefits enacted by the CARES Act, it looks like there will be no quick economic recovery in the fall. I am supposing the recovery could ultimately be shaped like a ‘W’—sporadic spurts of growth and declines in growth with new COVID-19 surges, given there is no coordinated national response to the pandemic.

And what about school openings when 60 percent of the major elementary school districts will have at-home schoolings this school year, according to a CNN survey, and no national guidance on what constitutes safe re-openings?

This has to be why Republicans are pushing for the full re-opening of schools, regardless of the dangers to children. It keeps at least one parent at home who isn’t working when they want to speed up the reopening of businesses.

The huge jump in consumer spending in May and June highlights what could have been if benefits had been renewed with the additional $600 per week boost to unemployment compensation, and which Republicans don’t want to renew.

The above Reuters graph highlights the record 7.1 percent boost given by the additional benefits since the CARES Act was implemented.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 5.6 percent last month after a record 8.5 percent jump in May as more businesses reopened, the Commerce Department said. But most of the spending was due to the $600 boost to low-income service workers that tend to spend more of their incomes.

Consumers boosted purchases durable goods such as auto and appliances that last more than three years, as well as clothing and footwear. They also spent more on healthcare, dining out and on hotel and motel accommodation, though outlays on services remained lackluster because of caution sparked by the virus.

Q2 economic growth had plunged 32.9 percent because consumer spending fell minus -35 percent during this period. So growth will only recover when consumers feel safe enough venture out of their rabbit holes, I said last week. They will instead choose to save more—currently a huge 25 percent of their personal incomes vs. more normal 3-6 percent—and spend less.


That is why Friday’s upcoming unemployment report is so important. Dallas Fed President Robert Kaplan on Monday said he now expected an unemployment rate in a range of 9 -10 percent at the end of the year. Ten percent was the highest unemployment rate during the Great Recession when some 8 million jobs were lost.

The June unemployment rate was 11.1 percent and estimates are for July to show a 10.5 percent rate, according to an average estimate of economists. It took more than eight years, from October 2009 at the end of the Great Recession until March 2018, for the unemployment rate to drop from 10 to 4 percent, which is considered full employment.

How long might this depression last with today’s political polarization?

Harlan Green © 2020

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Monday, August 3, 2020

Consumers Losing Confidence

Popular Economics Weekly


There are a number of reasons that consumers are becoming more fearful after that initial boost of spending with the spring holidays. It’s not only the prospect of a COVID-19 resurgence in the fall when we are still in the first surge, but the added oncoming flu season.

And so consumers will not be happy, but begin to hunker down again, even without new stay-in-home mandates. It’s just too dangerous out there when there’s not even a national mandate to wear masks, much less keeping safe distances, or getting quick testing results, and they will spend less, thus slowing the economic recovery.

So the index of consumer confidence fell to 92.6 this month from a revised 98.3 in June, the Conference Board said Tuesday.

“Consumer Confidence declined in July following a large gain in June,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index improved, but the Expectations Index retreated. Large declines were experienced in Michigan, Florida, Texas and California, no doubt a result of the resurgence of COVID-19.”

Consumer spending soared in June with Retail Sales up 6.4 percent in June, whereas it shrank a negative -12.4 percent in April during the shutdown.

What do we expect with the “Whac-A-Mole” recovery I’ve been talking about? No sooner than it being ‘whacked’ down in some states, the virus pops up in others. Trump’s conflicting comments say it all in this Invictus graph—as he rides the infection curve higher.

The first second quarter GDP growth estimate comes out July 30, and look for as much as a minus -30 percent drop, after Q1’s -5 percent decline. So activity in the July-September quarter will tell us if we recover quickly, or not.

Dr. Fauci just sent out new warnings today that infection rates are rising in more states—Kentucky, Tennessee, Ohio and Indiana—and they need to “get ahead of the curves”, or they will experience the soaring infections rates in many southern states, as well as California and Arizona.

Fed Chairman Powell ended the FOMC meeting with the not surprising announcement that the rising infection rates are slowing growth.

“On balance, it looks like the data are pointing to a slowing in the pace of the recovery,” he said. He gave as evidence that hotel vacancy rates have flattened out, and Americans are not going to restaurants, gas stations as much as they had earlier in the summer.

All in all, we should know something in the July unemployment report, after the May and June reports showed 7.5 million had returned to work. But that leaves at least 13 million still out of work due to the shutdowns, and the service industries will be the slowest to recover—hotels, travel, restaurants, and the like—that employ all the low-wage earners hurt most by this pandemic.

Harlan Green © 2020

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