Wednesday, September 22, 2021

How Do We Provide More Homes?

 The Mortgage Corner

Calculated Risk

The housing market is cooling as is the fall weather. It’s not good news for those needing to live somewhere, given the low for-sale inventory. But interest rates still remain at record lows, with 30-year conforming and super-conforming fixed rates still below 3 percent and affordable for a majority of home buyers.

The construction of multi-family rental housing is also booming, which is good news for renters. It could bring down rental rates, which have been rising as well. Building more rental units may be the best way to cure the present housing shortage, given all the constraints in labor, building materials, and the supply of buildable lots.

Total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 2.0 percent from July to a seasonally adjusted annual rate of 5.88 million in August. Year-over-year, sales dropped 1.5 percent from a year ago (5.97 million in August 2020), reported the NAR.

"Sales slipped a bit in August as prices rose nationwide," said Lawrence Yun, NAR's chief economist. "Although there was a decline in home purchases, potential buyers are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory."

So patience is a virture with the slowing price rises. The median sales price of a single-family home was $356,700, still up 14.9 percent from last August.

Competition among home buyers has been behind the skyrocketing prices, driving the annual growth rate to a high of 23.6% in May. Since June, the rate has been steadily dropping, decelerating to 23.4% in June and 17.8% in July,” said Shaina Mishkin of MarketWatch.

“The housing sector is clearly settling down,” said chief economist Lawrence Yun, who described the surge of home buying in late 2020 and early 2021 as an anomaly.

Total housing inventory2 at the end of August totaled 1.29 million units, down 1.5% from July's supply and down 13.4% from one year ago (1.49 million), said the Realtors. Unsold inventory sits at a 2.6-month supply at the current sales pace, unchanged from July but down from 3.0 months in August 2020.

Total housing starts increased 3.9 percent to a seasonally adjusted annual rate of 1.62 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The second Calculated Risk graph portrays years of supply and YoY inventory changes in red and blue lines, respectively. In January 2021 they reached a bottom of -30 percent below January 2020 and have been rising ever since.

Calculated Risk

So housing construction will have to play catch-up. The good news is single-family housing starts on a year-to-date basis are about 24 percent higher than the same period in 2020, reports the NAHB.

And help is on the way for renters, as I said. The National Association of Home Builders (NAHB) reports strong multifamily production helped push overall housing starts up in August as single-family starts edged lower due to ongoing supply chain issues and labor challenges.

The multifamily sector, which includes apartment buildings and condos, increased 20.6 percent to a 539,000 pace, whereas single-family starts decreased 2.8 percent to a 1.08 million seasonally adjusted annual rate, but are up 23.8 percent year-to-date.

“More inventory is coming for a market that continues to face a housing deficit,” said NAHB Chief Economist Robert Dietz. “The number of single-family homes under construction in August — 702,000 — is the highest since the Great Recession and is 32.7% higher than a year ago. While some building materials, like lumber, have seen easing prices, delivery delays and a lack of skilled labor and building lots continue to hold the market back.”

And though more homes are being built, just 29 percent of sales were for so-called first-timers, the entry-level buyers lowest in age and starting new families. This is the real void looming over an acceptable housing supply.

Unless builders and governments find ways to reduce housing costs, the housing shortage could continue for years and leave a whole generation without the benefits of home ownership.

Harlan Green © 2021

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Tuesday, September 21, 2021

Why So Much Inequality?

Answering Kennedy’s Call

FREDcpi

President Biden hopes to pass the largest piece of social legislation since the New Deal with his upcoming $3.5 trillion social infrastructure bill. But he is finding lots of opposition to such public spending.

The NY Times’ Jim Tankersley summarized President Biden’s bill.  It:

“… combines major initiatives on the economy, education, social welfare, climate change and foreign policy, funded in large part by an extensive rewrite of the tax code, which aims to bring in trillions from corporations and the rich.”

Tankersley maintains the legislation, which Democrats are trying to pass along party lines and without Republican support, contains the bulk of Mr. Biden’s vision to overhaul the rules of the economy, “…in hopes of reducing inequality and building a more vibrant middle class.”

Then why are conservative economists against programs that would help to mitigate such record inequality? Harvard Prof Greg Mankiw recently said “Americans should be wary of their plans —“… not only because of the sizable budgetary cost, but also because of the broader risks to economic prosperity,” in a recent NY times Op-ed.

Doesn’t he want to reduce our record income inequality, the worst in the developed and many underdeveloped countries? It is a major reason for the political polarization of Americans that have made us so vulnerable to the COVID-19 pandemic.

I don’t believe so, because he said Biden’s social infrastructure bill “…also raises larger questions about American values and aspirations, and about what kind of nation we want to be?”

He is in fact repeating conservative’s mantra since the 1980s that higher taxes and more government regulation discourage work. He maintains:

“Economists disagree about why European nations are less prosperous than the United States. But a leading hypothesis, advanced by Edward Prescott, a Nobel laureate, in 2003, is that Europeans work less than Americans because they face higher taxes to finance a more generous social safety net.”

Prescott and Mankiw couldn’t be more mistaken, especially in asserting that prosperity (in the form of higher GDP growth) should be the gold standard for determining whether a populous is happy or willing to work.

The above FRED graph cited by Nobel prize-winning economist Paul Krugman in fact debunks that claim. Europeans, including Denmark and France (red and blue lines in graph), have a higher percentage of working aged adults 25-44 than the US (green line). They also have higher minimum wages, universal health care, and take longer vacations than Americans.

So the natural inference must be that a higher percentage of adult Europeans than Americans work (even though for fewer hours) and enjoy a much more generous social safety net because of their higher tax rates!

This is while most Americans do not have that luxury. Americans work longer hours for less, have a poor social safety net and less leisure time to enjoy.

Even modern economic history refutes the claim that greater prosperity depends on lower taxes and less government. Our modern prosperity has depended mostly on what Government has done: built our modern infrastructure, sent us to the moon, created the Internet, and protected us from environmental harm.

So we should ask ourselves why do conservatives still maintain prosperity for the few and inequality for the many is the American way?

The Kennedy economist John Kenneth Galbraith provides one answer, in speaking of France’s Ancien RĂ©gime that preceded their Revolution: “The privileged feel (also) that their privileges, however egregious, they may seem to others, are a solemn, basic, God-given right.”

Harlan Green © 2021

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Thursday, September 16, 2021

Strong Retail Sales Indicate Good Q3 Growth

Popular Economics Weekly

FRED/Calculated Risk

Retail and Food service sales, ex-gasoline, increased 0.7 percent in a month, and 15.1 percent above August 2020, per the US Census Bureau estimate, which is a sign that economic growth isn’t faltering from the Delta variant.

U.S. retail sales unexpectedly increased in August, likely boosted by back-to-school shopping and child tax credit payments from the government, which could temper expectations for a sharp slowdown in economic growth in the third quarter, said Reuters.

Most school districts started their 2021-2022 academic year in August, with in-person learning resuming after last year's shift to online classes because of the pandemic.

Economists and several Fed Governors had been predicting a slowdown in the third quarter and beyond because of the Delta variant-caused surge in infections, but consumers aren’t buying that, still flush with cash from the rescue packages.

Sales advanced in almost every major retail category in August, and they rose a much stronger 1.8 percent if autos are excluded, said MarketWatch. A widespread shortage of new cars and trucks has depressed sales at auto dealers due to the ongoing computer chip shortage.

This combined with the huge number of job openings, at a series high of 10.9 million on the last business day of July, means that businesses believe the 2021 economy is just beginning to roar.

BEA.gov 

Predictions of Q3 GDP are all over the map at present because of uncertainty over the Delta variant. The Atlanta Fed’s GDPNow estimate for Q3 growth is 3.6 percent, though a consensus of Blue Chip economists predicts 5 percent Q3 growth. I believe the Conference Board’s forecast is closest to reality. It predicts that US Real GDP growth will slow to 5.5 percent (annualized rate) in Q3 2021, vs. 6.6 percent growth in Q2 2021, and that 2021 annual growth will come in at 5.9 percent (year-over-year).

This is a huge increase, even though its forecast “…is a downgrade from our August outlook and incorporates the larger-than-expected impact that the COVID-19 Delta variant has had on the US economy. Looking further ahead, we forecast that the US economy will grow by 3.8 percent (year-over-year) in 2022 and 3.0 percent (year-over-year) in 2023,” said the Conference Board.

Reuters also reported the National Retail Federation said the rise in sales despite the headwinds reflected the continued strength of the American consumer and the resilience of the nation's retailers.

"We maintain our confidence in the historic strength of consumers and fully expect a record year for retail sales and a strong holiday season for retailers," NRF President Matthew Shay said.

Why? Americans are sitting on at least $2.5 trillion in excess savings accumulated during the pandemic. And wages are rising as companies scrambled to fill a record 10.9 million job openings in July.

Harlan Green © 2021

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Tuesday, September 14, 2021

What Is Real Inflation?

 

Financial FAQs

FREDcpi

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in August on a seasonally adjusted basis after rising 0.5 percent in July, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 5.3 percent before seasonal adjustment.”

The above FRED cpi graph shows the most recent spike in retail inflation, but also its relative insignificance compared to past inflationary surges, especially in the 1970s and 1980s.

Then why so much worry about its recent spike? Because Wall Street investors like cheap money, and bond holders’ low inflation, and they worry that the Federal Reserve might react too soon to such an inflationary surge by tightening credit, when it’s primary goal should be to keep people employed and consumers happy.

Is inflation one of the major problems facing the US economy today? You would think so listening to major commentators and some economists. Zanny Minton Bedoes, Editor in Chief of The Economist, said it was the major problem for sustainable economic growth if prolonged on Fareed Zakaria’s Sunday TV cast recently.

Consumers and businesses also like cheap money to buy homes and things, but they aren’t so worried at present because lots of COVID-19 recovery money is available and in circulation.

Therefore, it’s a little early to be worrying about what I call real inflation—prices rising faster than wages for more than a few months. And the August CPI showed its first decline in 8 months from 5.5 to 5.3 percent August.

Economists have little to say about what causes long term inflation in the US. They only have the 1970s as an example. The FRED cpi graph shows when it really peaked. It was during the 1975 and 1980 recessions largely because the 1973 Arab oil embargo cut off Middle Eastern oil on our very oil dependent, auto-driven economy—before we began switching to renewable energy sources and more energy efficient regulations on homes and businesses.

Labor unions in the 1970s were able to push their wage demands to keep up with skyrocketing prices; oil was more than $100 per barrel, and there were long lines at gas stations—those stations that still had gas to sell. It was a hectic time, but is hardly the problem today, even with fewer workers and disrupted supply chains to meet the surging economic recovery.

The Fed’s Jerome Powell has said they will be vigilant if it remains high for too long, but that would mean labor costs, which are approximately two-thirds of product costs, continue to increase as they have since the end of this pandemic-induced recession in April, 2020.

FREDwagessalaries

Wages and salaries rose 10.1 percent annually in July 2021, per the latest available data on the above FRED graph, an uncomfortable level if prolonged. It reached its highest level in the 1970s, per the FRED graph on wages and salaries that dates from 1960. But as the Federal Reserve tightened inflation controls in 1980 by initially raising interest rates to double digits, and labor lost much of its bargaining clout as union membership declined, inflation began its long descent to the 2 percent average that has pretty much prevailed since the 1990s.

In fact, it has declined so much that the problem since the end of the Great Recession has been how to keep a healthy level of inflation. This was motivated by the fear of a repeat of Japan’s decades long era of deflation when its economy was shrinking.

So what inflation should we worry about? Inflation caused when businesses and government aren’t investing in productive enterprises, which has been the case in recent decades—with a strong safety net that makes consumers feel safe and not on the verge of bankruptcy with every unexpected downturn; such as the Biden administration has proposed; and investments in infrastructure and future technologies that will insure there are good jobs for all of US

Harlan Green © 2021

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Wednesday, September 8, 2021

Where are the Job Openings?

Popular Economics Weekly

Calculated Risk

The number of job openings increased to a series high of 10.9 million on the last business day of July, the U.S. Bureau of Labor Statistics reported today. Job openings increased in several industries, with the largest increases in health care and social assistance (+294,000); finance and insurance (+116,000); and accommodation and food services (+115,000).

Health care job openings surged because the Covid-19 Delta variant is filling hospitals again, while surging consumer spending on leisure and travel is creating a higher demand for jobs in finance, accommodation and food services.

And now we have looming school openings, which could foster even more job openings, if teachers are reluctant to return to work because of conflicting mask mandates in red states, which I reported last week, and induces classroom shutdowns with quarantines affecting those not vaccinated or wearing masks.

As of September 2, over 5 million children have tested positive for COVID-19 since the onset of the pandemic, reports the American Academy of Pediatrics. Although a lower percentage of them are hospitalized, it is putting a burden on school openings.

The number of children and teens suffering from the coronavirus-borne illness COVID-19 exceeded 250,000 for the first time since the start of the pandemic in the week through Sept. 2, a worrying trend coming just as they return to school in person.

The current 7-day moving average of daily new cases (153,246) increased 4.9% compared with the previous 7-day moving average (146,087), said the CDC. The current 7-day moving average is 123.6% higher than the value observed approximately one year ago (68,533 new cases on July 20, 2020).

It really looks like there is too much uncertainty keeping many workers from returning to work. Total hiring slipped for the first time this year. Job hires fell by 160,000 to 6.7 million, with hiring in the retail sector down sharply. This is while separations rose 174,000 to 5.8 million. This includes those fired and those who left the job.

What will bring them back? More vaccinations and mask mandates will be most effective, according to experts, with CNN saying President Joe Biden will push for vaccine mandates and testing programs as part of a revamped approach to ending the pandemic.

As American students return to classrooms, battles over masks and vaccine requirements for older children have erupted in school districts around the country, as I’ve said. Health officials say they expect vaccines to be authorized for children under 12 in the next several months, but parents have become frustrated at the pace with which the process is unfolding.

So, although the huge number of job openings show economic activity speeding up, some of the country still needs convincing that the coronavirus pandemic must be vanquished.

Harlan Green © 2021

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

 

Friday, September 3, 2021

A Disappointing Jobs Report

 

Popular Economics Weekly

Calculated Risk

When will they come back to work? That is the question economists are asking with the August unemployment report out today. Although the Calculated Risk graph shows how quickly job creation has recovered in comparison with past recessions (red line) there are still some 5.3 million fewer jobs since February 2020.

Total nonfarm payroll employment rose by 235,000 in August, and the unemployment rate declined by 0.2 percentage point to 5.2 percent, the U.S. Bureau of Labor Statistics reported today. So far this year, monthly job growth has averaged 586,000. In August, notable job gains occurred in professional and business services, transportation and warehousing, private education, manufacturing, and other services. Employment in retail trade declined over the month.

“There was some good news - the decline in the unemployment rate, the decline in permanent job losers, and the decline in long term unemployed - however, there are still 5.3 million fewer jobs than prior to the recession,” said Calculated Risk’s Bill McBride, “and overall this was a disappointing report, probably due to the sharp increase in COVID cases.”

A major reason for the lackluster jobs report is the seasonal adjustment that BLS makes, which means there were just 235,000 more jobs created this time of year than is ‘normal’. In ‘normal’ years there is usually a hiring surge for schools in the fall, but many schools aren’t opening or are slow to open because of the tiff over mask mandates, particularly in the red states.

And the Delta variant of SARS-CoV2 is surging. Mask mandates are a crucial question, because students wearing masks are less likely to have to quarantine under the U.S. Centers for Disease Control and Prevention protocols.

“If a classroom of 25 students is masked and one of them comes down with COVID-19, no one but the sick student has to stay home. If children in the classroom are not masked, anyone in close contact with someone who tests positive must stay home for at least 7 days,” said the Baltimore Sun recently.

It cites several examples: Mississippi has 20,000 students quarantined and South Carolina and Arkansas also had hundreds out of school. Several districts have shut schools down as cases of the virus surged. And by Thursday, five Florida school districts were defying their governor’s order and instituting mask mandates after thousands of their students were quarantined. Hillsborough County alone had sent home about 10,000 students in the first week of school, the Tampa Bay Times reported.

In other words, the unemployment picture is chaotic because red states have chosen to make mask mandates a political issue that will hamper school openings perhaps for months, harming the health of K-12 students unnecessarily. Red-leaning states are doing this really for one reason only—they believe it will rally their troops for the 2022 election.

“The good news is that the change in total nonfarm payroll employment for June was revised up by 24,000, from +938,000 to +962,000, and the change for July was revised up by 110,000, from +943,000 to +1,053,000. With these revisions, employment in June and July combined is 134,000 higher than previously reported,” said McBride.

The BLS reported that in May 2017, 5.5 million teachers and instructors make up 65 percent of employment in elementary, middle, and secondary schools nationwide. There are over 2 million elementary and middle school teachers, representing 24 percent of total school employment. There are nearly 1.1 million secondary school teachers. And add to that 550,000 janitors and school administrators employed.

So it is not good news that the red states are having so much trouble with mask mandates. Do they really believe endangering the health of children is a winning political issue?

Harlan Green © 2021

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

Monday, August 30, 2021

California's NIMBY Problem

 

The Mortgage Corner

Calculated Risk

It’s no secret that California has a housing problem. Its bias for single-family, ‘not-in-my-backyard’ (NIMBY) zoning since the 1960s has finally caught up with reality—in the form of more than 150,000 residents homeless and some 700,000 new homes built last year in California, whereas 1,500,000 new jobs were created.

Where are these people expected to live? It’s no secret that the real problem is affordability. Commuters that work in Silicon Valley, for instance, must travel up to two hours per day to reach their jobs, because homes they can afford are on the farthest outreaches of metropolitan areas, with little mass transit yet planned to speed up the commute.

COVID-19 exacerbates the problem with existing-home inventories dropping to their lowest level in 2020, and annual prices then rising at double-digit rates when consumers came out of their stay-at-home shells looking for too few available to purchase.

The Calculated Risk graph dating from January 2002 shows that existing-home inventories in YoY change (blue line) and months of supply (red line) reached their low in January 2021 and have been rising fairly sharply since then.

Gov. Gavin Newsom, who came into office with bold pronouncements about a “Marshall Plan for Housing,” said he supported plans to increase density near transit, but never endorsed an individual bill that would implement that goal.

California legislators just took a huge step to address the state’s housing crisis by allowing homeowners to double up.  The state assembly passed a bill last week (Aug. 26) that allows for two-unit buildings to be built on lots previously zoned for single-family homes.

It’s a significant reversal of decades of policy built around restrictive single-family zoning. In California, as across the US, allowing for one housing unit to be built per parcel of land has been standard. It’s what gave rise the suburbs as we know them, but has also been used as a tool in racist housing policies that have excluded Black, brown, and Native Americans from homeownership. In recent years, restrictive zoning has been a primary driver of the state’s affordable housing shortage. The median home price in California has risen 27% in the past year alone, and currently sits at more than $800,000.

The bill would allow more building where it’s now illegal, with the intent of reducing California’s fast-rising home prices and increasing access to homeownership through a greater variety of options, according to state Senate leader Toni Atkins, D-San Diego, who introduced the bill and similar versions in the past.

To lessen concerns from more than 100 cities and neighborhood groups that oppose the bill, Atkins on Monday added a few amendments that give local jurisdictions some veto power over units that threaten public health and safety and curtail potential speculation. The bill — approved by the Senate in May and two Assembly policy committees in June — made it out of the Assembly Appropriations Committee Monday and was approved by the full Assembly Thursday on a 45-19 vote.

I reported last week that there is not enough housing to meet soaring demand. The national existing-home housing inventory at the end of July totaled 1.32 million units, up 7.3 percent from June's supply and down 12.0 percent from one year ago (1.50 million) according to the NAR. Unsold inventory sits at a 2.6-month supply at the present sales pace, up slightly from the 2.5-month figure recorded in June but down from 3.1 months in July 2020, a historic low.

The housing market is so hot that individual investors or second-home buyers, who account for many cash sales, purchased 15 percent of homes in July. All-cash sales accounted for 23 percent of transactions in July, and up from 16 percent in July 2020.

But first-time buyers purchased just 30 percent of existing sales, which means most young adults leaving school and/or their parents’ home may find rental housing to a more viable option for the foreseeable future.

Much more must be done, in other words. It will take years for this to happen with more multi-family housing amid denser zoning in the cards. And it will be closer to needed public transportation hubs, whether the NIMBYs like it or not.

Harlan Green © 2021

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Wednesday, August 25, 2021

July Home Sales Stay Strong

 

The Mortgage Corner

Calculated Risk

WASHINGTON (August 23, 2021) – Existing-home sales rose in July, marking two consecutive months of increases, according to the National Association of Realtors®. Three of the four major U.S. regions recorded modest month-over-month gains, and the fourth remained level.

New-home sales also increased, signaling that soaring home prices haven’t discouraged buyers who are migrating to the suburbs and hinterlands as more work from home in the new gig economy. We have seen digital workers migrating from their offices in Seattle and other major cities to smaller towns in the Midwest and New England to live in more comfortable surroundings, thanks to the Internet.

FREDCaseShiller

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering existing-home sales in all nine U.S. census divisions, reported a 16.6 percent annual gain in May, up from 14.8 percent in the previous month.

The median existing-home price tallied by the NAR for all housing types in July was $359,900, up 17.8 percent from July 2020 ($305,600), which differs from Case-Shiller because CS uses a 3-month trailing average to make it more statistically valid. Each region saw prices climb. This marks 113 straight months of year-over-year gains, say the Realtors.

Total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 2.0 percent from June to a seasonally adjusted annual rate of 5.99 million in July. Sales inched up year-over-year, increasing 1.5 percent from a year ago (5.90 million in July 2020).

"We see inventory beginning to tick up, which will lessen the intensity of multiple offers," said Lawrence Yun, NAR's chief economist. "Much of the home sales growth is still occurring in the upper-end markets, while the mid- to lower-tier areas aren't seeing as much growth because there are still too few starter homes available."

The months of supply increased in July to 6.2 months from 6.0 months in June, with inventories returning to normal levels. The all-time high was 12.1 months of supply in January 2009. The all-time low was 3.5 months, most recently in October 2020.

There is still not enough housing to meet soaring demand. Total existing-home housing inventory at the end of July totaled 1.32 million units, up 7.3 percent from June's supply and down 12.0 percent from one year ago (1.50 million). Unsold inventory sits at a 2.6-month supply at the present sales pace, up slightly from the 2.5-month figure recorded in June but down from 3.1 months in July 2020, a historic low.

The housing market is so hot that individual investors or second-home buyers, who account for many cash sales, purchased 15 percent of homes in July. All-cash sales accounted for 23 percent of transactions in July, and up from 16 percent in July 2020.

But first-time buyers purchased just 30 percent of existing sales, which means the rest of the young adults leaving school and/or their parents may find rental housing to be a more viable option for the foreseeable future. How long is that—who knows?

Harlan Green © 2021

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

Wednesday, August 18, 2021

Strong July Retail Sales

Financial FAQs

FREDretailsales

The DOW plunged more than 400 points at Tuesday’s opening, because retail sales were “weaker”, per the consensus estimate of pundits. But it was in large part because of lower new car sales, due to a shortage of computer chips.

In fact, the demand for both new and used cars is soaring, and retail sales are holdingup. The average new car price hit a record $38,255 in May, according to JD Power, up 12 percent from the same period a year ago, and the cost of used cars and trucks has soared by 32 percent in the first six months of 2021. By contrast, their prices fell by an average of 0.6 percent a year from 2009 to 2019.which is a better way to look at sales activity, says MarketWatch.

And if the pundits looked just a bit further, they would know that auto manufactures are racing to meet the demand by not taking the normal summer factory shutdown to retool for new models. So it is really good news that demand is running so high for autos, and restaurants and gasoline products, as consumers are traveling more in the summer months.

Overall U.S. industrial production rose a seasonally adjusted 0.9 percent in July, the Federal Reserve reported Tuesday, and manufacturing activity alone rose 1.4 percent in July, boosted by an 11.2 percent jump in output of those motor vehicles and parts.

Even then auto production remains about 3.5 percent below its recent peak in January. It will take several months to play catchup, when additional computer chips used in autos are manufactured. US chip manufacturers such as Intel are part of the chip shortage caught by the surprise surge in demand.

But as the long-term FRED graph shows, retail sales are still far above the historical five percent annual increase.

“Advance estimates of U.S. retail and food services sales for July 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $617.7 billion, a decrease of 1.1 percent from the previous month, but 15.8 percent above July 2020, reported the US Census Bureau.

So market investors in particular should take a step back from the unrelenting news headlines that react to every piece of bad and good news without looking between the lines.

The U.S. economy grew at a blistering pace in the spring and repaired most of the damage caused by the pandemic thanks to widespread coronavirus vaccinations and a nearly full reopening of the economy, as I said recently.

The Q2 GDP report verifies that the American economy is capable of easily accomodating the Biden administration’s proposed infrastructure and American Family plan spending of some $4 trillion in additonal government investments should they be passed in their present form.

We still cannot ignore the soaring hospitalizations from the Delta variant that will slow down some economic activity through the fall. We won’t know until school openings how the Delta variant will affect school children and teaching staff, for starters. And many essential workers are hanging back because of the variant’s surge as well.

Covid Tracker

The CDC says, “The current 7-day moving average of daily new cases (114,190) increased 18.4% compared with the previous 7-day moving average (96,454). The current 7-day moving average is 66.3% higher compared to the peak observed on July 20, 2020 (68,685). (But) The current 7-day moving average is 65.0% lower than the peak observed on January 10, 2021 (254,023).”

So we can only hope that the latest rise in vaccinations and addition of a third booster shot for the most vulnerable that is already widely available in pharmacies will prevent further damage.

Harlan Green © 2021

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

 

Thursday, August 12, 2021

Job Openings At Record High

 Popular Economics Weekly

Calculated Risk

The number of job openings increased to a series high of 10.1 million on the last business day of June (yellow line on CR graph), the U.S. Bureau of Labor Statistics reported on Monday.

It seems many working-age adults aren’t ready to return to work for several reasons, based on early data from Ziprecruiter, an online employment agency. About 13 million Americans are currently receiving unemployment benefits. In some states, they stand to lose them if they don’t actively search for work. That’s because some states have reimposed work search requirements that were waived in the early days of the Covid-19 pandemic.

Ziprecruiter lists which states are terminating unemployment benefits early. “Early indications are that (unemployment) benefits have had some effect on job search,” says Julia Pollak, chief economist at Santa Monica, California-based Ziprecruiter, “but the effect is likely rather small because there are other things that are keeping people out of the labor force,” cited in a MarketWatch article.

She also lists some obvious reasons: The pandemic, which is resurgent in much of the country, and childcare, which has caused droves of workers — largely women — to stop working. Data from the Federal Reserve Bank of Dallas puts this number at 1.3 million.

The Dallas Fed says 31 percent of workers are reluctant, for whatever reason, to return to their previous job. It’s a data point that has increased slowly but steadily for more than a year.

Hires rose to 6.7 million and total separations edged up to 5.6 million in the JOLTS report, which tells us there were one million new hires in July, which then is seasonally adjusted to give the actual unemployment report. Within separations, the quits rate increased to 2.7 percent. The layoffs and discharges rate was unchanged at 0.9 percent, matching the series low reached last month, which tells us that employers are reluctant to lay off anybody with the current labor shortage.

Could record high consumer confidence be another reason employees are reluctant to return to work during the ongoing pandemic? They feel flush with all the $4 trillion in pandemic aid already flowing through the economy, so they can afford to look for better job choices with higher pay and benefits.

The Conference Board’s jobs-plentiful index increased to a 21-year high of 54.9, for starters, and wages and salaries at the bottom end of salaried workers are rising at the fastest clip since the pandemic.

“Consumers’ appraisal of present-day conditions held steady, suggesting economic growth in Q3 is off to a strong start,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve.”

American workers are perhaps in the best place in decades to take advantage of this economic recovery.

Harlan Green © 2021

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

Friday, August 6, 2021

Another Strong Jobs Report

 Popular Economics Weekly

MarketWatch.com

This was another very strong unemployment report by the Bureau of Labor Statistics (BLS) with 943,000 new nonfarm payroll jobs added in July and most of it in the service industries. Leisure/Hospitality, Government, Education/Health, and Professional/Business added 767,000 of those jobs.

“The unemployment rate declined by 0.5 percentage point to 5.4 percent in July, and the number of unemployed persons fell by 782,000 to 8.7 million,” said the BLS Household Survey. “These measures are down considerably from their highs at the end of the February-April 2020 recession. However, they remain well above their levels prior to the coronavirus (COVID-19) pandemic (3.5 percent and 5.7 million, respectively, in February 2020.”

This is why consumers remain so optimistic, even with alarm bells ringing that economic activity may slow due to the pandemic’s latest surge, as I said last week. Because July’s unemployment report confirms it’s not hurting the jobs market with the 6 million plus job vacancies and employers practically begging their employees to return to work.

Another reason for consumers’ optimism is that average hourly pay rose 4.0 percent and is now above the pre-pandemic level. No wonder, with the 8.7 million still unemployed, many of which may be holding out for better pay and working conditions!

“At the current rate of hiring, the U.S. won’t regain all the lost jobs at least until early 2021 — and it could even take a lot longer than that,” says MarketWatch’s Jeffry Bartash.

How much longer it will take might depend on COVID-19, and the Delta Variant, which is causing a fourth surge in infections, overwhelming some hospitals in Texas, Florida, and other red states that aren’t enforcing a mask mandate.

CDC

“The current 7-day moving average of daily new cases (66,606) increased 64.1% compared with the previous 7-day moving average (40,597),” reports the CDC. “The current 7-day moving average is 73.8% lower than the peak observed on January 10, 2021 (254,063) and is 480.1% higher than the lowest value observed on June 19, 2021 (11,483). A total of 34,722,631 COVID-19 cases have been reported as of July 28.”

That is huge, folks, and even throws into doubt just when and how schools will open this fall. To see the level of community transmission in your county, visit COVID Data Tracker.

Harlan Green © 2021

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Monday, August 2, 2021

Can We Make a Soft Landing?

 The Mortgage Corner

CBO

Fed Chair Alan Greenspan in early 2000 convinced GW Bush that he could finance GW’s war on terror without raising taxes by borrowing money at ultra-low interest rates. America’s sovereign debt had AAA credit rating at the time, and still does with two of the three major accreditation agencies. Greenspan maintained we could have a “soft landing” if the US economy overheated by tightening credit gradually without causing a recession.

Problem was the Fed under Greenspan held rates down too long with too easy credit as inflation began to rise and the economy overheated, resulting in too much irrational exuberance by banks and lenders that resulted in the Great Recession.

Does that sound familiar? Economists are beginning to wonder if the Fed under Jerome Powell to making the same mistake in financing our recovery from the COVID-19 pandemic.

However, the US economy is in a much better place now to tame economic activity—i.e., can create a soft landing without causing an ensuing recession—if the Biden administration and congress will pay for the investments we are making in our public improvements with the current infrastructure and family plan bills working through congress.

This is in addition to the already passed $trillions to pay for the pandemic. The new legislation will increase productivity by giving Americans earning wages and salaries better working conditions, and families a better education, including paid childcare and family leave that will lift many families with young children out of poverty.

The benefits of putting Americans back on a footing with other developed countries in the 38-member Organization of Economic Co-operation and Development (OECD) are almost incalculable, most of whose citizens work fewer hours for the same or better pay while producing the same amount of goods and services.

The bipartisan infrastructure deal reached by President Joe Biden and a group of senators would not only add to economic growth, but also lower the national debt, according to a new study from the University of Pennsylvania’s Wharton School.

“Over time, as the new spending declines, IRS enforcement continues, and revenue grows from higher output, the government debt declines relative to baseline by 0.4 percent and 0.9 percent in 2040 and 2050 respectively,” said Wharton team as cited by CNBC in June.

The problem has never been what policies would improve the lives on America’s Main Street, but how to pay for them, and it will take additional legislation under the budget reconciliation process to boost taxes. Over the past 40-odd years government-is-the-problem policies instigated in 1980 by conservative Democrats and Republicans had cut taxes and whittled down government programs that would benefit Main Street.

The solution is more progressive taxation enacted that would divert profits from corporations and investors not investing in America’s future to where it will do the most good—in our sadly neglected infrastructure and social safety net.

There are many more safeguards in place that should cushion a soft landing if inflation becomes worrisome because of safeguards put in place since the Great Recession; such as requiring banks and other lending institutions to maintain higher reserves.

The Biden administration wants to pay for future, more equitable economic growth by raising taxes on the wealthiest and corporations, rather than borrowing more that would increase the federal debt. The problem will be to refute the reigning economic orthodoxy that says higher taxes inhibit growth and investment.

However, the lower tax rates since 1980 have increased income inequality rather than boosted long term growth rates,

The best ways to deal with inflation and any possible overheating is to invest in the health and economic security of future generations rather than those of past generations that haven’t done enough to pay for the future.

Harlan Green © 2021

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Thursday, July 29, 2021

Second Quarter Economic Growth Explodes

 Financial FAQs

BEA.gov

The U.S. economy grew at a blistering pace in the spring and repaired most of the damage caused by the pandemic thanks to widespread coronavirus vaccinations and a nearly full reopening of the economy.

The Q2 GDP report verifies that the American economy is capable of easily accommodating the Biden administration’s proposed infrastructure and American Family plan spending of some $4 trillion in additional government investments, should they be passed in their present form.

“Real gross domestic product (GDP) increased at an annual rate of 6.5 percent in the second quarter of 2021, reflecting the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic,” according to the Bureau of Economic Analysis (BEA).

This is huge after the first quarter’s 6.3 percent growth and shows both consumers and businesses are spending enough to boost GDP growth past the pre-pandemic level.

The increase in real GDP in the second quarter reflected increases in personal consumption expenditures (PCE), nonresidential fixed investment, exports, and state and local government spending that were partly offset by decreases in private inventory investment, residential fixed investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

Such growth should continue in the third quarter with agreement being reached on the $1 trillion national infrastructure plan after weeks of fits and starts, once the White House and a bipartisan group of senators agreed on major provisions of the package that’s key to President Joe Biden’s agenda.

The package includes $110 billion for highways, $65 billion for broadband and $73 billion to modernize the nation’s electric grid, according to a White House fact sheet. Additionally, there’s $25 billion for airports, $55 billion for waterworks and more than $50 billion to bolster infrastructure against cyber attacks and climate change. There’s also $7.5 billion for electric vehicle charging stations.

Government assistance payments in the form of loans to businesses and grants to state and local governments increased in Q2, while social benefits to households, such as the direct economic impact payments, declined. In the first quarter of 2021, real GDP increased 6.3 percent (revised), as I said.

“The $1.2 trillion Bipartisan Infrastructure Framework is a critical step in implementing President Biden’s Build Back Better vision,” said the White House fact sheet. “The Plan makes transformational and historic investments in clean transportation infrastructure, clean water infrastructure, universal broadband infrastructure, clean power infrastructure, remediation of legacy pollution, and resilience to the changing climate. Cumulatively across these areas, the Framework invests two-thirds of the resources that the President proposed in his American Jobs Plan.”

Inflation is running hot, as was expected from the sudden surge in demand that has GDP growth exceeding its pre-pandemic level. The PCE price index that the Fed prefers to measure inflation increased 6.4 percent, compared with an increase of 3.8 percent (revised). Excluding food and energy prices, the PCE price index increased 6.1 percent, compared with an increase of 2.7 percent (revised).

This level of inflation is worrisome if prolonged, but the Federal Reserve believes supply bottlenecks are causing the price rises that should subside once industry activity returns to normal and the 7 million workers still unemployed due to the pandemic return to work.

This is the biggest investment in America’s future since the Eisenhower and Kennedy days more than two generations ago when our tax monies were spent on real things; like our interstate highway system, moon landings, and development of the Internet.

These new government spending initiatives will find new ways to benefit workers in this new economy as other developed countries are doing—i.e., with governments working to pay it forward for future generations.

Harlan Green © 2021

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Wednesday, July 28, 2021

Why Are Consumers So Confident?

 Popular Economics Weekly

Conference Board

“Rather than retreating mildly this month as expected, the Conference Board’s consumer confidence index edged up slightly from an upward-revised June level to stand at 129.1,” said Reuters.  That was a new pandemic-era high, although still slightly below the pre-pandemic (February 2020) level of 132.6.”

Why are consumers so optimistic with alarm bells ringing that economic activity may slow due to the pandemic’s latest surge in the Conference Board's latest survey? Because it’s not hurting the jobs market with the 6 million plus job vacancies and employers practically begging their employees to return to work.

The Conference Board’s jobs-plentiful index increased to a 21-year high of 54.9, for starters, and wages and salaries at the bottom end of salaried workers are rising at the fastest clip since the pandemic.

“Consumers’ appraisal of present-day conditions held steady, suggesting economic growth in Q3 is off to a strong start,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve.”

Consumers have been spending like there’s no tomorrow since January, as I’ve said. The question remains just how long can that continue with the coronavirus Delta variant causing infection rates to soar among the unvaccinated, but rising prices aren’t fazing consumers with so much disposable income at their disposal to spend.

“Short-term inflation expectations eased slightly but remained elevated.,” continued Franco. “Spending intentions picked up in July, with a larger percentage of consumers saying they planned to purchase homes, automobiles, and major appliances in the coming months. Thus, consumer spending should continue to support robust economic growth in the second half of 2021.”

The IMF among other authorities believes worldwide GDP will expand 6 percent this year. That is huge, up from 2-3 percent in recent years.

Households are still buying plenty of goods, but they have shifted their spending toward services they avoided during the pandemic, “dining out, entertainment, travel, vacation trips and so forth,” reported MarketWatch in last week’s retail sales report.

And this is where any future super-spreader events will occur. It is why the US Surgeon General is saying masks should again be worn in crowded indoor locations with poor ventilation—such as bars and restaurants. This may certainly cause consumers to take notice, but not yet per consumer confidence surveys.

COVIDTracker

Take bars and restaurants, the only category in the monthly retail report that involves services. Retail sales jumped 2.3 percent in June, the government said Friday, and rose sharply for the fourth month in a row. And through the first six months of 2021 receipts are up almost 38 percent.

We know consumers also would have bought more new cars and trucks last month, but automakers cannot produce enough of them because of a shortage of computer chips. Semiconductors are now a critical component in modern vehicles.

There is still a reluctance for some workers to return to work. I reported last week that the job-listing site Indeed did a 5,000 person survey that gave an additional reason why workers are reluctant to return to work.

“Among the unemployed, concern about COVID-19 is the most commonly cited reason for a lack of urgency in looking for work,” wrote Nick Bunker, the economic research director for North America at the Indeed Hiring Lab, in a blog post on the survey results. Some 23% of unemployed people said fear of the virus was keeping their job search “non-urgent.”

This doesn’t seem to have dimmed consumer confidence or spending habits now. But the current 7-day moving average of daily new cases (40,246) increased 46.7% compared with the previous 7-day moving average (27,443), says the CDC (see graph). The current 7-day moving average is 84.2% lower than the peak observed on January 10, 2021 (254,052) and is 250.6% higher than the lowest value observed on June 19, 2021 not(11,480).

Although pundits some economists are concerned about the Delta variant and rising prices, it has not dented consumers’ confidence in their future.

Harlan Green © 2021

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

Monday, July 26, 2021

Can We Fix the Housing Shortgage--Part II?

 The Mortgage Corner

Calculated Risk

WASHINGTON (July 22, 2021) – Existing-home sales increased in June, snapping four consecutive months of declines, according to the National Association of Realtors®.

But it’s not enough to bridge the supply-demand gap, especially for those entry-level homebuyers in their thirties with families that have lower incomes and credit scores. Lenders haven’t reduced the very stringent credit standards in place since the Great Recession and busted housing bubble that would allow more first-time homebuyers to take advantage of record-low interest rates.

“Total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 1.4% from May to a seasonally adjusted annual rate of 5.86 million in June. Sales climbed year-over-year, up 22.9% from a year ago (4.77 million in June 2020).”

Will housing construction be able to bridge the huge gap between what is needed and what is available? Not in the near term, as there are too many labor and material shortages, say the homebuilders. Demand is so hot for housing with a limited supply that homes typically sold within 17 days (24 days one year ago), say the Realtors in the NAR’s most recent Buyer Traffic Index.

U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.64 million in June, representing a 6.3 percent increase from the previous month’s downwardly-revised figure, the U.S. Census Bureau reported this week. Compared with June 2020, housing starts were up 29 percent, though the year-over-year comparison is skewed somewhat by the effects of the COVID-19.

FREDhousestarts

But that is nowhere near the 2 million residential units under construction in the mid-2000s (see FRED graph), which brought on the housing bubble. But times are much different today, as housing construction almost ground to a halt from the housing bubble and Great Recession that followed. Population growth continued, however, so growth today’s builders are playing catchup.

The June reading of 1.64 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months, says the National Association of Home Builders. Within this overall number, single-family starts increased 4.2 percent to a 1.10 million seasonally adjusted annual rate. The multifamily sector, which includes apartment buildings and condos, increased 2.4 percent to a 474,000 pace.

So how can we increase production? “We’ll need to do something dramatic to close this gap,” said Yun in a press release. And that gap is mainly affordability, as housing prices are increasing in double-digits, while real personal income has averaged some five percent per year.

First-time buyers accounted for just 31 percent of sales in June, also even with May but down from 35 percent in June 2020. This is far below past history when 40 percent were first-timers. Part of the problem is that entry-level buyers tend to have lower credit scores when lenders have maintained very high credit score criteria, averaging above 750 at last report, whereas homebuyers with scores between 680-720 were considered good credit borrowers before the Great Recession and housing bubble.

Realtors have proposed increasing the housing supply by creating or expanding tax credits, loans or grants for builders who renovate or build new housing in low-income areas and who convert old malls and factories into homes. They also asked for incentives for cities to allow denser zoning, an approach that President Biden included in his infrastructure proposal, Reuters reported, as I said last week.

But pressure has to be put on lenders to reduce their sky-high credit standards, as well, to allow those entry-level homebuyers with less available cash and slightly lower credit scores back into the housing market.

Harlan Green © 2021

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Tuesday, July 20, 2021

How Do We Ease our Workload?

 Financial FAQs

occupydemocrats.com

Why do Americans worker harder with longer hours than in other developed countries? And why is America’s income inequality the worst in the developed world?

Both questions can be quickly encapsulated by NY Times’ columnists Bret Stephens and Gail Collins in a back and forth Q&A opinion column.

To Gail Collins question whether Stephens was still enthusiastic about Joe Biden’s big spending initiatives, he said he liked most of them, but:

“…the program I most oppose is the child tax credit, which sounds like liberal nirvana but would be difficult to administer and has no work requirements, which effectively reverses the gains the country made after Bill Clinton’s welfare reform. I’m also not too fond of the huge Medicare expansion, another noble-sounding effort that will further push a financially strained program toward insolvency.”

Stephens in this case repeats the conservative mantra that government-paid benefits strain the taxpayers’ coffers, and discourage work. But in reality, he is parroting conservatives’ opposition to any public spending that grows government programs, which is the reason Americans have been deprived of the welfare benefits of other developed countries—e.g., universal health care, paid family leave, a livable minimum wage, and nationally mandated paid vacations.

Denmark is probably the best example of what modern technology has enabled to ease the workloads of working folk, with its $20 per hour minimum wage and 33-hour average work week.

Whereas, according to NY Times guest columnist Bryce Covert, “Prepandemic, nearly a third of Americans clocked 45 hours or more every week, with around 8 million putting in 60 or more. While Europeans have decreased their work hours by about 30 percent over the past half century, ours have steadily increased.”

EPI.org

There is no secret where the increased wealth generated by modern technology has gone in the US; to the owners of capital—stock holders, CEOs, and financial entities that hold their debt—rather than wage-earning employees.

Why? It has been outright wage suppression since the 1980s, at least, as the Federal Reserve under Paul Volcker fought any form of incipient inflation by tightening credit, which largely suppressed wage growth while Big Business began its lobbying campaigns to enact anti-labor legislation that weakened unions’ collective bargaining efforts.

Much of the anti-government rhetoric came under the guise that government was less efficient in producing overall wealth than the private sector. The pandemic is also bringing another problem to light that requires more government oversight—more work from home in an expanded ‘gig’ economy.

Steven Hill in an article for Project Syndicate, says “According to an April 2020 survey in the United States, 74% of companies are planning to “shift some employees to remote work permanently.” Similarly, a May 2020 analysis by researchers at the Federal Reserve Bank of Atlanta found that companies expect the share of working days spent at home to increase threefold, with many employees operating remotely 1-3 days per week.”

Working from home or other sites away from the office will hurt employees in so many ways without a government that clearly defines these new working conditions—because it blurs the line between regularly employed workers with clearly defined benefits and independent contractors that must provide their own safety net (e.g., healthcare, hours worked), for starters.

What does all this ultimately lead to? More work will be performed by algorithms and robots, of course, which can easily be trained to perform repetitive, predictable tasks.

“Historically, researchers have found that automation is adopted faster during economic downturns, and the COVID-19 recession was no exception. At the height of the crisis in advanced economies, the bots appeared to be making major advances,” says Hill.

“The net effect of this technological adoption over time will be to render more humans obsolete. Yes, some experts predict that new jobs will be created to service the robots and artificial-intelligence (AI) systems. But whether those jobs will be as numerous, pay as much, or be of the same quality as previous jobs remain open questions.“

So we have it in a nutshell. America will have to find new ways to benefit workers in this new economy, as other developed countries are doing—i.e., with the help of their governments working for them, rather than for Big Business.

Harlan Green © 2021

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

Monday, July 19, 2021

Retail Sales Splurge Won't Last

 Popular Economics Weekly

Calculated Risk

“Advance estimates of U.S. retail and food services sales for June 2021, adjusted for seasonal variation and holiday and trading-day differences, according to the US Census Bureau, but not for price changes, were $621.3 billion, an increase of 0.6 percent from the previous month, and 18.0 percent above June 2020.”

Consumers have been spending like there’s no tomorrow since January, but how long can that continue with the coronavirus Delta variant causing infection rates to soar among the unvaccinated?

COVIDTracker

Retail sales should continue to decline from current nosebleed levels, since surveys show that consumers are most worried about a COVID-19 resurgence.

The CDC reports that “the current 7-day moving average of daily new cases (26,306) increased 69.3% compared with the previous 7-day moving average (15,541). The current 7-day moving average is 89.6% lower than the peak observed on January 10, 2021 (251,880) and is 129.3% higher than the lowest value observed on June 20, 2021 (11,472). A total of 33,797,400 COVID-19 cases have been reported as of July 14.”

Households are still buying plenty of goods, but they have shifted their spending toward services they avoided during the pandemic, “dining out, entertainment, travel, vacation trips and so forth,” reported MarketWatch.

And this is where any future super-spreader events will occur. That is why the US Surgeon General is saying masks should again be worn in crowded indoor locations with poor ventilation—such as bars and restaurants. This will certainly cause consumers to take notice.

Take bars and restaurants, the only category in the monthly retail report that involves services. Sales jumped 2.3 percent in June, the government said Friday, and rose sharply for the fourth month in a row. And through the first six months of 2021 receipts are up almost 38 percent.

We know consumers also would have bought more new cars and trucks last month, but automakers cannot produce enough of them because of a shortage of computer chips. Semiconductors are now a critical component in modern vehicles.

Another hit to higher retail sales could be a reluctance for more workers to return to work. I reported last week that the job-listing site Indeed did a 5,000 person survey that gave an additional reason why workers are reluctant to return to work.

“Among the unemployed, concern about COVID-19 is the most commonly cited reason for a lack of urgency in looking for work,” wrote Nick Bunker, the economic research director for North America at the Indeed Hiring Lab, in a blog post on the survey results. Some 23% of unemployed people said fear of the virus was keeping their job search “non-urgent.”

So it may be that retail sales return to the five percent average that has prevailed since the early 1990s (see Calculated Risk graph), as the pandemic stimulus payments subside.

Retail sales comprise roughly 50 percent of consumer spending, so its trend may mirror how long this post-pandemic prosperity will last, which in turn depend on how quickly product shortages end, and future job prospects in an economy that is vastly changed since January of last year.

Harlan Green © 2021

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

Thursday, July 15, 2021

Why Keep Interest Rates This Low?

 Financial FAQs

FREDPersavings

Inflation isn’t yet a problem, but are very low interest rates becoming a problem? Interest rates have been at record lows for years, thanks to the Federal Reserve that has been buying up enough bonds and mortgage securities to hold down longer-term rates as well. Is that good for most of US, or just the wealthy?

Fed chair Jerome Powell has stated it is to encourage a return to full employment by keeping the cost of borrowed money as low as possible. But this policy has mostly boosted assets owned by higher-income earners rather than wage-earners.

A recent NYTimes Op-ed by banking analyst Karen Petrou says just 10 percent of Americans own most stock assets that have benefited from the cheap money and approximately 60 percent of households own homes with values rising in double digits over the past year from record low mortgage rates.

The rest of US with less cash to spare must rely on accumulating unspent income in less risky, federally insured savings accounts that do not ride the boom-and-bust cycles of American-style capitalism.

The personal saving rate has spiked of late (see FRED graph) because consumers had little to buy until now, but that is transitory with the sudden re-opening of businesses causing inflation indicators to rise sharply.

Such an inflation spike is also transitory, said Fed Chair Powell in his latest congressional testimony.

“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell said, in testimony delivered to the House Financial Services panel.

Ms. Petrou wants the Fed to raise interest rates sooner to encourage savings that would benefit wage-earners, she says, and mitigate some of the inflation that dampens consumer demand. She uses the example of investing $10,000 in stocks vs. saving money conventionally since 2007. Savers would have lost money after inflation with just a savings account.

I must say this Fed is doing a welcome about face from the Paul Volcker led Fed of the 1980s and 90s that raised interest rates at the slightest hint of inflation, thus tamping down wage growth while benefiting Wall Street investors. It was trickle-down economics on a tear.

“These corporate and policy decisions had the most adverse consequences for low- and middle-wage workers,” said a recent EPI labor think-tank research paper on the roots of inequality, “who are disproportionately women and minorities, the groups whose legacy of being discriminated against in labor markets means that they especially need low unemployment, unions, strong labor standards, and policy supports for leverage when bargaining with employers.”

It is difficult to credit Ms. Petrou with much insight into what benefits ordinary wage-earners. Higher interest rates will certainly deflate stock and bond values that rely on cheap borrowed money to reach today’s highs (stocks) and lows (bond yields) and increase the propensity to save, but how much can wage-earners save without higher incomes?

She is a bank analyst, after all, who will want to buttress lenders’ bottom line that increases profits with rising interest rates. And American’s historical savings’ rates of 5-10 percent should continue that have been in line with that in other developed countries.

The best way to increase the wealth of wage-earners, vs. wealth-owners is to boost their incomes, which in turn would increase wage-earners' wealth. Use governmental policy to increase labor’s collective bargaining position that has been severely weakened and rescind much of the anti-labor legislation that has created some 26 right to work states that do not require workers to pay dues to the union shop that benefits them.

The same credit tightening debate happened in 1937 when there was as much unemployment, by the way. President Roosevelt caved to Republicans that wanted to re-balance the federal budget after so much New Deal spending. But in cutting back on government support and raising borrowing costs prematurely, the 1930’s economy went  into a second recession, and became the Great Depression.

Harlan Green © 2021

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Thursday, July 8, 2021

Too Many Jobs to Fill?

 Popular Economics Weekly

 Calculated Risk

There are too many job vacancies at the moment, per the Labor Department’s JOLTS report; though it actually signals that  businesses seem to want workers back for the same old jobs, but there’s now a mismatch.

Many workers no longer want the ‘same old’ jobs, and are using the pandemic break to find work more to their liking.

“The number of job openings (yellow line in graph) was little changed at 9.2 million on the last business day of May, the U.S. Bureau of Labor Statistics reported today. Hires (dark blue line) were little changed at 5.9 million. Total separations decreased to 5.3 million. Within separations, the quits rate decreased to 2.5 percent. The layoffs and discharges rate (red column), while little changed over the month, hit a series low of 0.9 percent.”

Quits (light blue column) are generally voluntary separations initiated by the employee, says the BLS. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. Layoffs and discharges are involuntary separations initiated by the employer.

Although the U.S. created 850,000 new jobs in June, it would take more than a year at that rate to restore employment to pre-pandemic trends, says MarketWatch’s Jeffry Bartash.

“The competition for workers has given jobseekers the upper hand. A record 4 million people quit two months ago — most to take a better or better-paying job. That’s nearly double the number of people quitting a year earlier.”

White House chair of economic advisors Cecilia Rouse summarized the jobs picture. Employment remains 6.8 million jobs below our pre-pandemic level, she says. Looking at the three-month average, most of the jobs are going to leisure and hospitality, adding 326,000 jobs on average over the last three months. Government has added about 100,000 jobs on average.

White House

And the job-listing site Indeed did a 5,000 person survey that gave an additional reason why workers are reluctant to return to work.

“Among the unemployed, concern about COVID-19 is the most commonly cited reason for a lack of urgency in looking for work,” wrote Nick Bunker, the economic research director for North America at the Indeed Hiring Lab, in a blog post on the survey results. Some 23% of unemployed people said fear of the virus was keeping their job search “non-urgent.”

The unemployed workers said they will be more interested in getting back to work after they see certain milestones happen, such as more job opportunities, more vaccinations, and school starting up in the fall, the Indeed survey found. 

This will mean a huge shift in the job market: More jobs in the service sector (see White House graph)—in government, professionals services and in leisure and hospitality—and fewer new job in the remaining higher-paying manufacturing and even white collar administrative jobs when AI and 5G networks really kick in.

Harlan Green © 2021

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