Thursday, October 28, 2021

Home Prices Keep Rising

The Mortgage Corner

Calculated Risk

I said last month the housing market was cooling with the fall weather, but maybe not yet. Because housing prices are still rising in double digits, although they may be leveling off.

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index of single-family, same-home price changes, covering all nine U.S. census divisions, reported a 19.8 percent annual gain in August, remaining the same as the previous month. It’s a 3-month average for 20 metropolitan areas, so in some cities’ prices are rising even faster.

Phoenix led the way with a 33.3 percent year-over-year price increase, followed by San Diego with a 26.2 percent increase and Tampa with a 25.9 percent increase. Eight of the 20 cities reported higher price increases in the year ending August 2021 versus the year ending July 2021.

How about that for some irrational exuberance in the housing market? Are we seeing a repeat of the housing bubble, when prices rose double-digits in the early 2000s and again in 2014 (see above graph)?

I don’t think so. While Fed Chair Greenspan was pushing interest rates close to zero then to finance GW’s wars on terror, credit conditions today are much tighter and lenders no longer offer so-called liar loans that hid the real interest rate.

It’s not good news for those having difficulty in finding affordable housing, given the low for-sale inventory. But interest rates still remain at record lows, with 30-year conforming and super-conforming fixed rates around 3.0 percent.

Will housing prices eventually stabilize? Only when enough residences are built to satisfy the pent-up demand that came from a steep drop in new housing construction since the end of the Great Recession.

The Commerce Department said sales of new single-family homes surged 14.0 percent to a seasonally adjusted annual rate of 800,000 units in September, so there’s some hope for increasing supply. But sales were as high as 1,400,000 per year during the height of the housing bubble.

Unfortunately, Calculated Risk reports that just 36,000 new homes were available for sale in September, while106,000 new homes have yet to be completed. That leaves a 0.5- month inventory, close to a record low, when 3 to 4 months was the norm.

Calculated Risk

Existing-home sales also rebounded in September after seeing sales wane the previous month, according to the National Association of Realtors®. Each of the four major U.S. regions witnessed increases on a month-over-month basis.

The NAR reported total existing-home sales,1, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 7.0 percent from August to a seasonally adjusted annual rate of 6.29 million in September. However, sales decreased 2.3 percent from a year ago (6.44 million in September 2020).

"Some improvement in supply during prior months helped nudge up sales in September," said Lawrence Yun, NAR's chief economist. "Housing demand remains strong as buyers likely want to secure a home before mortgage rates increase even further next year."

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

Home sales last peaked in 2020 at the beginning of the pandemic, but inventories are now at historic lows. Housing prices began their current steep climb at the same time. Unless builders and governments find ways to build more affordable housing, the housing shortage could continue for years and leave a whole generation wanting a home.

Harlan Green © 2021

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Monday, October 25, 2021

No Real Slowdown in US Recovery

 Popular Economics Weekly


The latest survey of US growth shows little diminishment of economic activity in the near future. A survey of senior business executives in service-oriented companies, such as retailers and banks, rebounded to a three-month high of 58.2 from 54.9 in September, IHS Markit said Friday.

A similar survey of manufacturing activity slipped to 59.2 from 60.7, but it was still quite high. Any reading over 50 signals growth and numbers are above 55 are exceptional.

So now pundits and some economists worry about overheating and a prolonged inflation cycle that might short circuit long term growth prospects. But consumers are sensing the danger and acting rationally without the need for the Federal Reserve to raise interest rates prematurely; at least according to recent sentiment surveys.

“U.S. private sector businesses recorded a sharp and accelerated upturn in output led by the service sector during October, with growth the strongest for three months, albeit still much weaker than seen earlier in the year,” said IHS Markit’s press release.

GDP grew,+16.75 percent year-over-year in the second quarter 2021. It had declined -8 percent in Q2 2020 from its pre-pandemic high such was the impact of the pandemic lockdowns.

We have seen nothing like this GDP recovery since 1980; the recovery from the decade of the Arab Oil Embargo; or the 1950s recovery from World War Two, as shown in the above graph.

What does such growth mean for American consumers and businesses? Firstly, it means rising wages and benefits for employees. There are currently two million more job vacancies than workers looking for work because the demand for goods and service has grown so quickly since last summer and the decline in infection rates.

Secondly, it should mean a continued high level of growth for several years as businesses ramp up capital expenditures for a rebuild of the American economy transformed by the pandemic.

Am I being rash in predicting such growth? I don’t think so, since all US economic sectors are not only playing catch up because of the pandemic, but they see good prospects for years to come.

The worry about ongoing labor shortages and supply bottlenecks is actually helping to cool down the red-hot demand that is causing the current inflation surge, thus tempering price increases that would put a break on sustained growth.

Conference Board

Hence the recent decline in consumer confidence.

“Consumer confidence dropped in September as the spread of the Delta variant continued to dampen optimism,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Concerns about the state of the economy and short-term growth prospects deepened, while spending intentions for homes, autos, and major appliances all retreated again.”

This is while actual retail sales are up a huge 12 percent in a year, and home prices are rising in double digits annually. It might be a good thing if consumers retreat slightly, as an antidote to the irrational exuberance that is currently infecting the financial and real estate markets.

Fed Chair Janet Yellen just reported that she sees inflation returning to a more normal level next year.

When asked by CNN’s Jake Tapper when inflation would fall back to around the 2 percent, longer-term target area, Yellen said: “Well, I expect that to happen next year …  On a 12-month basis, the inflation rate will remain high into next year because of what’s already happened. But I expect improvement … by the middle to end of next year, second half of next year.”

Consumers are in fact acting rationally if they pause and allow the markets to cool down. By preventing prolonged overheating (and possible asset bubbles forming), it will prolong this growth cycle.

Harlan Green © 2021

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Wednesday, October 20, 2021

Booming Retail Sales Confirm Holiday Rally

 Financial FAQs



September retail sales and food services presage a holiday season worth celebrating, despite supply shortages, worker shortages, and the pandemic. Seasonally adjusted retail sales are up 12 percent over last September, which means that the demand for goods and some services is at a historic high.

So the shortages are due to consumers and businesses buying more than ever, more than last year and all the years before, in spite of the supply shortages.

There’s little evidence of production shortages, per se, as much as a slowdown in getting to their destinations in ports such as Los Angeles and Long Beach, where more than half of all imports to the U.S. arrive.

NY Times Paul Krugman put up a FRED graph that illustrates the huge surge in the demand for durable goods—goods like appliances and vehicles that last more than three years. It tells us that said demand can continue above the average dotted trend line into the year end holidays.


The demand for services such as leisure activities and travel is lagging because the pandemic has kept many consumers at home. But that will pick up as well once the Pandemic is subdued.

And what if the Infrastructure and Build Back Better bills pass would add additional $ trillions to programs that boost businesses and improve consumers’ lives? Then the boost in demand for goods and services could be prolonged for…years.

Should we worry about inflation because too much money is in circulation, driving up prices? Not if it’s put to productive uses, as I’ve been saying. Both physical and so-called social infrastructure spending go into increasing productivity, hence a greater supply of goods and services, not excessive speculation in the financial markets as have past tax cuts from which the wealthiest most benefited.

Studies have shown that parents in such states as California that have some of the social infrastructure proposals in President Biden’s Build Back Better Act, such as paid family leave and child care, allow them more family time and resources to raise their children, thus reducing the number of children trapped in a cycle of poverty.

And better physical infrastructure will help to cure the supply bottlenecks. “In the longer run, investments in infrastructure could help much more: U.S. ports, rail lines and so on are shabby compared with their counterparts in other countries and could be much improved.” says Krugman.

So we really need to grow what one political scientist has termed our social capital as much as physical infrastructure, if we want a sustainable recovery. It can be done by improving people’s lives.

Harlan Green © 2021

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Friday, October 15, 2021

JOLTS Report Confirms Strong Job Market

 Financial FAQs

Calculated Risk

Job openings are plentiful as ever in the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) report for September. It gives the best picture of job growth, better than last Friday’s punk unemployment report (with just 194,000 new nonfarm payroll jobs), because it reports actual numbers rather than seasonally adjusted figures reporting changes that deviate from a typical month.

There were 10.5 million job openings (yellow line) in September, and employers are begging for workers because they see a rising demand for goods and services.

There were actually 6.3 million new hires, and 6 million separations, which means workers are leaving their current job in droves to find a better job. The so-called (voluntary) Quits rate, for instance, is up 43 percent YoY, an all time high.

The Calculated Risk graph shows that there was a slight drop in job openings and Hires, but because Quits and Layoffs are increasing (light blue and red bars), it’s a sign of an improving jobs market, says the BLS:

“Total separations includes quits, layoffs and discharges, and other separations. Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs.”

Much has been written about workers not returning to work, but that number is slowly declining as the vaccine mandates kick in that have brought down the infection rate.

As evidence, weekly jobless benefit claims sank to a new pandemic low and fell below 300,000 for the first time in a year and a half, amid a frantic effort by companies to hire more workers. New jobless claims sank by 36,000 to 293,000 in the seven days ended Oct. 9 from a revised 329,000 in the prior week, the government said Thursday.

Calculated Risk cites yesterday’s CDC report on the decline in infection rates: “…14 states and D.C. have achieved 60% of total population fully vaccinated: Connecticut at 69.6%, Maine, Rhode Island, Massachusetts, New Jersey, Maryland, New York, New Mexico, New Hampshire, Washington, Oregon, Virginia, District of Columbia,  Colorado, and California at 60.0%.”

Inflation has peaked at the moment with the Consumer Price Index above 5%, but U.S. wholesale prices rose in September at the slowest pace in ninth months, which means the supply-chain slowdown that has caused the spike in raw materials could be easing.

This reinforces my belief that we are about to enter a decade of very good growth with plenty of good, available jobs.

Some say that there could be a temporary slowdown if the Democrats can’t get their act together over the twin infrastructure and build back better social bills, or even a longer-term debt ceiling agreement past December.

But that’s hard to believe when it means so much for the party and our country; whatever the final dollar cost.

Harlan Green © 2021

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Monday, October 11, 2021

Why Weak Jobs Report?

 Popular Economics Weekly

Is hiring cooling off with the cooler weather? We really don’t know, in spite of the punk employment number. Economists don’t agree on why employers added just 194,000 jobs in September, according to the Labor Department’s unemployment report. There is too much mystery in the jobs number.

The NY times’ Ben Casselman posits, “The pandemic’s resurgence delayed office reopenings, disrupted the start of the school year and made some people reluctant to accept jobs requiring face-to-face interaction. At the same time, preliminary evidence suggests that the cutoff in unemployment benefits has done little to push people back to work.”

Also, figures are seasonally adjusted, which means that although government payrolls shrank by -123,000 jobs on an unadjusted basis, mostly in education, federal, state and local government employment actually grew by close to 900,000 workers in September. Because that’s fewer than in a typical September, the seasonal adjustment formula interprets it as a loss in jobs.

Schools are just now re-opening and not yet hiring enough teachers and staff; which has kept more mothers at home; and the Delta variant has cut back on leisure and hospitality services.

And Most people (7 in 8) who lost federal aid in June were not reemployed by early August, according to a paper authored by researchers at Columbia University, Harvard University, the University of Massachusetts Amherst and the University of Toronto last month, cited by CNN.

Census surveys show the number of people who aren't working because they have kids at home has dropped from nearly 8 million in midsummer to about 5 million today.

That's far below the hiring rate earlier in the summer when employers were adding around a million jobs a month, says NPR. And their graph shows we are still five million jobs below the job level at the start of the pandemic in February 2020.

The endurance of the pandemic is still the elephant in the room. A full recovery depends on it being vanquished. The U.S. has been slow to institute vaccine mandates, whereas Canadian federal employees will be required to declare their full vaccination status through an online portal by Oct. 29.

"These travel measures, along with mandatory vaccination for federal employees, are some of the strongest in the world," Canadian Prime Minister Trudeau told reporters recently. "If you've done the right thing and gotten vaccinated, you deserve the freedom to be safe from COVID."

And Canada is back to pre-pandemic employment levels in September, writes David Rosenberg of Rosenberg Research, because 90 percent of eligible Canadians have at least one shot and 82 percent are fully vaccinated.

The CDC reports the current 7-day moving average of daily new cases (95,448) decreased 11.6 percent compared with the previous 7-day moving average (107,953). A total of 43,997,504 COVID-19 cases have been reported as of October 6, 2021.

The bottom line is that a full jobs recovery and success of President Biden’s Build Back Better agenda now hinge on a full recovery from COVID-19.


Harlan Green © 2021

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Thursday, October 7, 2021

Why Have a Debt Ceiling Debate?

 Financial FAQs


We might have just been saved from an immediate default on the national debt with all of its consequences. Senate Minority Leader Mitch McConnell late on Wednesday made a new offer to the Democratic-run Senate as lawmakers struggled to end a standoff over the federal borrowing limit.

Republicans will “allow Democrats to use normal procedures to pass an emergency debt limit extension at a fixed dollar amount to cover current spending levels into December,” McConnell, a Kentucky Republican, said in a statement.

But that only kicks the debt ceiling can down the road. Why should there be a congressionally mandated debt ceiling? If the U.S. congress was serious about putting a cap on public spending, then it would require that any new spending be paid for, as has been done in the past.

It is beyond silly to have have a debt ceiling, otherwise. Because the debt incurred is from past spending. But, alas, congress has not been able to agree on an acceptable formula for reinstituting what has been called pay-to-play budget resolutions.

The above FRED graph shows the amount of public debt as a percentage of GDP owed by the federal government is today. The largest growth in U.S. public debt occurred because of the last two recessions (gray columns in graph)—the Great Recession caused by lax regulation of Wall Street lenders that led to the housing bubble, and the COVID-19 pandemic, respectively.

The pandemic recession lasted just two months, and public debt soared mainly because of the $trillions in emergency spending passed by congress during the Trump and Biden administrations that wasn’t paid for. In fact, the Trump administration pushed through massive tax cuts on corporations and lowered the maximum tax rate on personal income in 2017. Some $7.8 trillion was added to the public debt during his term.

Even the current level of public debt ($22.7 trillion) is less of a danger to growth than the debate over raising the debt ceiling.

This is because as Josh Bivens of the Economic Policy Institute points out, and I have discussed in past columns, over the past 25 years debt service payments (required interest payments on debt) shrank almost in half, from 3.0 percent of GDP to 1.8 percent, as the nominal federal debt rose from $5 trillion to $22.7 trillion. And it has averaged 3 percent of GDP, historically.

The main danger to economic growth is that a debt ceiling exists at all. Fed Chairwoman Janet Yellen just warned that the U.S.could fall into a recession if the debt ceiling isn’t raised in congress by October 18.

“It is utterly essential that this be done,” Yellen said, in recent congressional testimony. She called Oct. 18 “the deadline.”

In fact, we are at the beginning of a new growth cycle. Doubts about the direction of growth after the pandemic arise from outdated economic models—models that can be lumped under supply-side, or more derisively, trickle-down economic theories.

Conservative economists tend to be stuck in what has been called the golden years of Reaganomics—or supply-side economics--when stimulating the supply of ever more goods and services by lowering government oversight and reducing taxes was the ticket to prosperity.

But explained simply, having excess aggregate demand, or effective demand, which we have today, stimulates greater growth rather than an excess of supply. And businesses are following that formula with record amounts of private and public investments in capital goods. Total capital expenditures in the second quarter are up 25 percent from a year ago, per the Federal Reserve Bank of St. Louis (FRED).

Lord JM Keynes understood this in the 1930s, which is why he thought it more important to stimulate greater demand with public investments when private investment disappeared during recessions. That was the lesson we learned from the Great Depression.

And it is the lesson we need to carry forward with the current infrastructure legislation winding its tortured way through congress that will stimulate a longer lasting growth cycle.

Then our debt will pay for itself.

Harlan Green © 2021

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Monday, October 4, 2021

U.S. Manufacturing Surging

 Financial FAQs



Growth in the U.S. manufacturing sector is exploding, according to the Institute for Supply Managers Report on Business. Output is up 17 percent in Q2 2021 YoY (per FRED graph). It is a  sign of good economic growth for the rest of this year, in spite of supply shortages and higher prices for raw materials.

Reporting growth in September were 16 of the 17 manufacturing industries. The top seven — in the following order — were: Furniture & Related Products; Petroleum & Coal Products; Machinery; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Chemical Products.

“The orders index was unchanged at the prior month’s very high level of 66.7 and the supplier delivery index rebounded by four points to 73.4.  The overall result was a 1.2-point increase to 61.1.  Any number over 50 percent indicates that a majority of those surveyed saw increases, and reaching 60 for any length of time is highly unusual,” according to the ISM survey announcement.

“There have been 15 ISM composite index readings of 60 or more in the past thirty years.  Seven of them have come in the past ten months,” said Reuters. This is in spite of the supply-chain delays and soaring product prices. The ISM Prices Index registered 81.2 percent. In September, 17 of 18 industries reported paying increased prices for raw materials.


Even better news is that consumer spending is holding up, which powers some two-thirds of economic activity. This may be because consumers are paying less attention to the pandemic as the infection rate falls and the third Pfizer booster shot becomes available.

This is while Consumer spending grew at a robust 12.0 percent rate in the April-June quarter. The Commerce Department also said construction spending increased 8.9 percent on a year-on-year basis in August. Separately, the University of Michigan's Consumer Sentiment Index rose to a final reading of 72.8 in September from 70.3 in August.

Another sign of robust future growth (as shown in the Reuters graph) is that Disposable income was $2 trillion higher than Personal outlays--$18 billion vs. $16 billion, respectively—which is why the personal savings rate is holding at a high 9.4 percent.

And the NY Times just reported drug maker Merck announced Friday that its pill to treat Covid-19 was shown in a key clinical trial to halve the risk of hospitalization or death when given to high-risk people early in their infections. It probably won’t be available until late next year, however.

The supply-chain delays and healthy consumer pocketbooks show there is a very strong demand for goods and services that should last, even with the ongoing uncertainty over the coronavirus pandemic.

Now let us see what congress will do with the Biden administration proposals for infrastructure and social investments, no matter the final Dollar amount. If passed, I see a very prosperous decade for Americans.

Harlan Green © 2021

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