Tuesday, January 26, 2021

What About Another 'Roaring Twenties'?

 Financial FAQs

Could we be returning to the Roaring 20’s; I mean a Roaring 2020’s as the coronavirus pandemic winds down this summer, leading to an explosion of growth after the worst recession since the Great Depression and worst pandemic since the Spanish Flu pandemic of 1918-19?

The International Monetary Fund is hinting at such with its latest forecast. The IMF World Economic Outlook projects global growth at 5.5 percent, which is higher than their previous forecast in October. Global growth will moderate to 4.2 percent growth in 2022, said the IMF in its latest blog post.

“In our latest World Economic Outlook forecast we project global growth for 2021 at 5.5 percent, 0.3 percentage point higher than our October forecast, moderating to 4.2 percent in 2022. The upgrade for 2021 reflects the positive effects of the onset of vaccinations in some countries, additional policy support at the end of 2020 in economies such as the United States and Japan and an expected increase in contact-intensive activities as the health crisis wanes. However, the positive effects are partially offset by a somewhat worse outlook for the very near term as measures to contain the spread of the virus dampen activity.”

The economy grew 42 percent during the 1920s, and the United States produced almost half the world's output because World War I destroyed most of Europe, say the historians. New construction almost doubled, from $6.7 billion to $10.1 billion. Aside from the economic recession of 1920-21, when by some estimates unemployment rose to 11.7 percent (due to the Spanish flu pandemic lockdowns), unemployment in the 1920s never rose above the natural rate of around 4 percent.

We should see a similar rebound from the damage done by COVID-19. The global economy contracted by 3.5 percent in 2020, the worst peacetime contraction since the Great Depression of the 1930s. But it was a short-lived recession, since the economy was at full employment last February at the onset of the pandemic that has killed 2,143,861 worldwide and 421,670 in the U.S., according to the John Hopkins coronavirus tracking center.

“Much now depends on the outcome of this race between a mutating virus and vaccines to end the pandemic, and on the ability of policies to provide effective support until that happens,” said IMF chief economist Gita Gopinath, in a blog post accompanying the updated forecast.

The Biden administration is making a good start with its program to vaccinate 100 million in the first 100 days by opening mass vaccination sites and mandating the increased production of PPE and vaccines with the Defense Production Act.

But the IMF emphasizes this must be a global effort, as poorer countries don’t have as ready access to the PPE supplies and vaccines, which means they will continue to harbor virus outbreaks that could prolong the pandemic.

“The international community must act swiftly to ensure rapid and broad global access to vaccinations and therapeutics,” says the IMF, “to correct the deep inequity in access that currently exists…The health and economic arguments for this are overwhelming. The new virus strains are a reminder that the pandemic is not over until it is over everywhere, and we estimate that faster progress on ending the health crisis will raise global income cumulatively by $9 trillion over 2020–25, with benefits for all countries, including around $4 trillion for advanced economies.”

Need we say more on what is needed to bring us a  new 'Roaring Twenties’?  Let us hope we can keep the peace as well, since the Great Depression and a second World War followed the original Roaring Twenties.

Harlan Green © 2020

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

Friday, January 22, 2021

Housing Construction Soars

 The Mortgage Corner

Calculated Risk

As much housing is being built today as in 2006 at the height of the housing bubble. What is going on? People want to move away from cities, where fear of COVID-19 contagion is highest, and work from home to replace empty offices as the digital economy takes over for white collar workers at least.

This looks like a more permanent transformation because Fifth Generation, 5G networks begin to kick in with up to 40 times faster transmission speeds for all kinds of AI connections that will ultimately be able to power factories, as well as offices.

Privately-owned housing starts in December were at a huge seasonally adjusted annual rate of 1,669,000, said the Census Bureau. This is 5.8 percent above the revised November estimate of 1,578,000 and is 5.2 percent above the December 2019 rate of 1,587,000.

Building permits were authorized at an even higher rate. Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 1,709,000. This is 4.5 percent (±1.4 percent) above the revised November rate of 1,635,000 and is 17.3 percent (±1.8 percent) above the December 2019 rate of 1,457,000.

This is while total existing-home sales,

This is while total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.7% from November to a seasonally-adjusted annual rate of 6.76 million in December. Sales in total rose year-over-year, up 22.2% from a year ago (5.53 million in December 2019).

"Home sales rose in December, and for 2020 as a whole, we saw sales perform at their highest levels since 2006, despite the pandemic," said Lawrence Yun, NAR's chief economist. "What's even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market."

The demand for more housing will further increase with the expanding 5G networks, as described in a World Economic Forum 2020 White Paper.

“5G will be critical because it will enable unprecedented levels of connectivity, upgrading 4G networks with five key functional drivers: superfast broadband, ultra-reliable low latency communication, massive machine-type communications, high reliability/availability and efficient energy usage. Together, these defining features will transform many sectors, such as manufacturing, transportation, public services and health.”

The WEF estimates that significant economic and social value can be generated by enabling cases activated by 5G. “An IHS Markit study estimates that $13.2 trillion in global economic value will be made possible by 2035, generating 22.3 million jobs in the 5G global value chain alone.”

There is another problem that needs to be tackled, however. The upcoming surge in evictions is on temporary hold until March. Low-income renters are most affected, as a UC Berkeley housing study found more than one million renter households in California alone had lost their jobs. And the US Census Bureau estimated that 1.9 million US tenants were behind on their rents last December.

The moratorium does not cancel out owed back rents, however. But California tenants and landlords are in line to receive some $2.6 billion in rental assistance from the coronavirus aid package approved last month, reports the LA Times. That and the additional unemployment benefits and cash aid will do much to cushion the losses incurred by both tenants and landlords due to the pandemic.

Adequate housing will be problem for years to come, in other words, so building new homes will solve only part of the problem.

Harlan Green © 2020

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

Wednesday, January 20, 2021

A 'New' New Deal

 Popular Economics Weekly


Even before his inauguration, the Biden administration announced its ‘new deal’ for a new administration doing government’s business as we recover from the worst recession since the Great Depression of the 1930s. Yes, this is the worst of the worst as the FRED graph dating from 1950 shows. Only government at such a time of need can provide aid to businesses and working Americans.

President Biden’s first priority will be closing the income inequality gap that has persisted since the 1970s when most of the fruits of increased productivity and technology were kept by the owners of capital rather than paid to their employees.

This is when we have just witnessed one of the consequences of that inequality, as I said last week—the storming of the US Capital by extreme-right terrorists bent on overthrowing our duly-elected government that was verifying the electoral victory of President-elect Joe Biden and Vice president-elect Kamala Harris.

Here is what the Biden administration is proposing to Congress:

  • · Direct payments of $1,400 to most Americans, bringing the total relief to $2,000, including December’s $600 payments
  • · Increasing the federal, per-week unemployment benefit to $400 and extending it through the end of September
  • · Increasing the federal minimum wage to $15 per hour
  • · Extending the eviction and foreclosure moratoriums until the end of September
  • · $350 billion in state and local government aid
  • · $170 billion for K-12 schools and institutions of higher education
  • · $50 billion toward Covid-19 testing
  • · $20 billion toward a national vaccine program in partnership with states, localities and tribes
  • · Making the Child Tax Credit fully refundable for the year and increasing the credit to $3,000 per child ($3,600 for a child under age 6)

It is a lot to ask of American taxpayers with more than $3 trillion already appropriated to keep the United States from sinking even deeper into a long term depression. Cash payments and extended unemployment benefits will boost incomes, while raising the minimum wage will double what was a starvation-level minimum wage to $2,580/month with a 40-hour week that barely rectifies the disparity.

Less obvious is the child tax credit that makes childcare more affordable as well as improving K-12 education. A huge income and opportunity gap has yawned between high school and college educated citizens, which has caused an alarming increase in “deaths of despair” from alcohol and drug abuse among high school-educated, unemployed males that have suffered from the pandemic.

Incoming Treasury Secretary Janet Yellen at her confirmation hearing said, “It will be my core focus if I’m confirmed as Treasury secretary to focus on the needs of American workers, those living in cities and rural areas, and to make sure that we have a competitive economy that offers good jobs and good wages.”

The coronavirus pandemic has reinforced the need for an economic science that recognizes the needs of all Americans. As many have said before, we are all poorer if we ignore the plight of the poorest.

Harlan Green © 2020

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

Tuesday, January 19, 2021

Finding Path to Greater Equality


Popular Economics Weekly

Finding the Path to Greater Equality


 Economic theory is finally catching up to political theory in showing policymakers how to right the record income inequality—worst in the developed world—that has plagued working Americans since the 1970s.

It is about time when we have just witnessed one of the consequences of that inequality—the storming of the US Capital by extreme-right terrorists bent on overthrowing our duly-elected government that was in the midst of verifying the electoral victory of President-elect Joe Biden and Vice president-elect Kamala Harris.

Economists are modernizing New Deal Keynesian economics that brought us out of the Great Depression and World War II, the economics that says government must be part of the solution to today’s problems, including the protection of workers’ rights, the environment, and keeping America strong and prosperous for all Americans, not just the 1 percent.

For instance, a recent MIT research project confirmed that Four decades ago, for most U.S. workers, “…the trajectory of productivity growth diverged from the trajectory of wage growth. This decoupling had baleful economic and social consequences: low-paid, insecure jobs held by non-college workers; low participation rates in the labor force; weak upward mobility across generations; and festering earnings and employment disparities among races that have not substantially improved in decades.”

Much of that divergence was caused by trickle-down economics, a political theory from the Reagan era that rationalized making the wealthy wealthier with the teaser that some of that wealth might trickle down to the 80 percent, which are wage and salary earners that power most economic activity.

While new technologies have contributed to these poor results that promote labor-saving AI and robotics, researchers are now saying these outcomes were not an inevitable consequence of technological change, nor of globalization, nor of market forces. Similar pressures from digitalization and globalization affected most industrialized countries, and yet their labor markets fared better.

It was, “…the decay of unions and collective bargaining, the explicit hardening of business (by the Business Roundtable formed in the 1970s), the popularity of right-to-work laws (mainly in conservative red states), and the fact that the wage lag seems to have begun at about the same time as the Reagan presidency all pointing he same direction: the share of wages in national value added may have fallen because social bargaining power of labor has diminished,” said the MIT study.

And therein lies the solution that only government policymakers and legislators can enact by expanding government healthcare, raising the minimum wage, more progressive taxation, making college education more affordable, and expanding workers’ collective bargaining rights that red state right-to-worker laws have drastically curtailed.

This list of economic can-dos has been obvious to any professional economist that has not been defending the one percent’s right to most of the wealth created by working Americans.  Free market ideologies have held sway for the past 40 years—not based on empirical research—that advocated unfettered economic growth by any means, and enshrined maximized profits as the greatest good, while ignoring business ethics and a morality that promotes caring for our brothers and sisters.

The economic disparities are growing due to the pandemic, as I reported earlier. In April, nearly 12 million low-wage workers were laid off, while some 6 million workers who were earning between $18 to $29 an hour were laid off. By November, all but 400,000 of those workers earning $18 to $29 an hour had returned to work, Raj Chetty, a Harvard economics professor, has said. Meanwhile, some 6 million workers who earned less than $13 an hour have yet to return to work.

Now the coronavirus pandemic has reinforced the need for an economic science that recognizes we are all in this together.  As many have said before now, we are poorer if we ignore the plight of the poorest.

Harlan Green © 2020

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

Thursday, January 14, 2021

Economy Has Room to Expand

Financial FAQs

Calculated Risk

The latest Job Openings and Labor Turnover Survey (JOLTS) report showed that small businesses are hurting the most during this pandemic with even outdoor dining banned in some regions, such as Southern California, while new hires and job openings were basically unchanged in November.

The number of job openings was little changed at 6.5 million on the last business day of November, the U.S. Bureau of Labor Statistics reported today. Hires were little changed at 6.0 million (deep blue line on graph) while total separations increased to 5.4 million. Within separations, the quits rate (yellow line) was unchanged at 2.2 percent while the layoffs and discharges rate (red bar) increased to 1.4 percent.

It looks like most businesses are holding their breath over future plans until there is more certainty about COVID-19 outcomes. But even more will depend on what kind of legislation a Democratic congress will pass—including a higher minimum wage, expanding Obamacare with a public option, and a national reconstruction program that will begin to upgrade our badly obsolescent infrastructure and create millions of good-paying jobs.

Details include the fact that layoffs increased 295,000 to nearly 2.0 million in November. Hiring rose 67,000 to 5.979 million. The hiring rate was steady at 4.2 percent. A separate report showed a sharp decline in confidence among small businesses in December.  Hires increased in professional and business services (+175,000) and mining and logging (+13,000). Hires decreased in accommodation and food services (-73,000), other services (-67,000), and information (-43,000). The number of hires was little changed in all four regions as we said.


What is still missing from this picture? Apple mobility tracks the number of Google map requests, with is a proxy for frequency of travel (except for regular commuters). It confirms people are traveling approximately 50 percent less, another so-called high frequency indicator of economic trends, which is why entertainment, leisure and hospitality jobs have declined as indicated in the most recent unemployment report.

Also, the NFIB Small Business Optimism Index declined 5.5 points in December to 95.9, falling below the average Index value since 1973 of 98. Nine of the 10 Index components declined and only one improved. Owners expecting better business conditions over the next six months declined 24 points to a net negative 16 percent, said the press release.

“This month’s drop in small business optimism is historically very large, and most of the decline was due to the outlook of sales and business conditions in 2021,” said NFIB Chief Economist Bill Dunkelberg. “Small businesses are concerned about potential new economic policy in the new administration and the increased spread of COVID-19 that is causing renewed government-mandated business closures across the nation.”

The beige-book report, prepared by the Federal Reserve on information collected by regional Fed banks on or before Jan. 4, showed modestly higher growth in most parts of the country but found that two districts reported no change in activity (St. Louis and Kansas City) while two noted a decline (New York and Philadelphia).

So there is no inherent reason business and consumer confidence might return to pre-pandemic levels once the vaccinations begin to reach the general population. Most economists predict a rebound by the beginning of fall when schools are scheduled to fully open again.  But it also means more national job-creating programs must be enacted by a Democratic administration that wants government to work for all Americans.

 Harlan Green © 2020

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