Thursday, January 27, 2022

Q4 Economic Growth Soars

Popular Economics Weekly

It looks like the Omicron variant has actually spurred higher growth. The fourth quarter GDP ‘first estimate’ of growth  exploded to 6.9 percent, surpassing most estimates of 5 to 6 percent. 

GDP got a big lift at the end of last year from businesses scrambling to restock empty shelves in time for the holiday season and warehouses hit by disruptions during the pandemic.

Massive government stimulus spending was a big help as GDP increased by 5.7 percent for the full year, before tapering in the final quarter. That’s the biggest gain since 1984.

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

Both businesses and consumers spent more, but the 24.5 percent increase in Q4 exports was the biggest surprise. It means other countries are buying more of our products and services, which is in turn a sign that their economies are recovering as well.

And consumer spending that powers two-thirds of economic activity rose a remarkable 3.3 percent in the fourth quarter, vs. 2 percent in the third quarter.

The value of inventories soared by $240 billion — one of the biggest increases in decades — as companies ramped up production to try to meet higher demand.

What does this tell us? That the main cause of inflation isn’t too many Federal Reserve $$ in circulation that has put pressure on the Fed to raise interest rates sooner rather than later.

The BEA noted that government aid has in fact decreased. Inflation should decline as the shortages of workers and supplies are reduced. Businesses will eventually catch up to the demand that is outstripping the supply of goods and services, in part because of new technologies such as 5G communication services coming online and chip shortages that are crimping the production of vehicles as well as other products dependent on said computer chips.

So although inflation is rising at 6.5 percent in December, according to the Personal Consumption expenditure (PCE) price index used by the Fed to measure inflation, businesses are racing to satisfy sizzling demand.

Will inflation keep rising, squeezing consumers, or return to a more normal range this year?

MarketWatch’s Jeffry Bartash says predictions are,

“…that the U.S. will grow strongly again — around 4% or so — in 2022 despite the end of government stimulus, especially if the coronavirus is kept at bay. The chief obstacles? Ongoing shortages of labor and supplies that have boosted inflation to a nearly 40-year high. Inflation-adjusted incomes actually fell at a 5.8% annual pace in the fourth quarter.”

But surging exports are a sign of a worldwide recovery in demand for American products and services, and that the supply bottlenecks will soon be a thing of the past.

It’s as if the Omicron variant is becoming a mere blip on the screen of future growth.

Harlan Green © 2021

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Wednesday, January 26, 2022

Best Home Sales in Years

 The Mortgage Corner

Home sales are holding up and prices slowly moderating, even with limited inventories. December new-home sales jumped 12 percent in a year, according to the US Census Bureau. Also in 2021, existing-home sales totaled 6.12 million – an increase of 8.5 percent from the prior year and the highest annual level since 2006.

“Sales of new single‐family houses in December 2021 were at a seasonally adjusted annual rate of 811,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 11.9 percent (±20.3 percent) above the revised November rate of 725,000, but is 14.0 percent (±16.6 percent)* below the December 2020 estimate of 943,000. An estimated 762,000 new homes were sold in 2021. This is 7.3 percent (±5.1 percent) below the 2020 figure o 822,000.”

New-home sales have been rising steadily since the end of the Great Recession and housing bubble in 2009, as the Census graph shows. Why not, with so few homes for sale, according to the Realtors?

"Buyer competition alone is unrelenting, but home seekers have also had to contend with the negative impacts of supply chain disruptions and labor shortages this year," said NAR chief economist Lawrence Yun. "These aspects, along with the exorbitant prices and a lack of available homes, have created a much tougher buying season."

The inventory of unsold existing homes fell to an all-time low of 910,000 at the end of December,, which is equivalent to 1.8 months of the monthly sales pace, also an all-time low since January 1999.

This is while last week, on a year-over-year basis, private residential construction spending is up 16.3 percent. Non-residential spending is up 6.7 percent year-over-year. Public spending is down 0.8 percent year-over-year.

That’s why the inventory of homes under construction at 263,000, is the highest since 2007.

Calculated Risk

Housing prices are beginning to slow their climb as can be seen in the above Calculated Risk graph. CR’s Bill McBride recently commented on the price moderation:

“The MoM increase in Case-Shiller was at 1.14%; still historically high, but lower than the increases in the 2nd half of 2020 and first half of 2021. House prices started increasing sharply in the Case-Shiller index in August 2020, so the last 16 months have all been historically very strong. But the peak of MoM growth is behind us - and the year-over-price growth is starting to decelerate.”

So let us hope that for sale inventories continue to grow and housing prices continue to moderate in 2022, so that more homes become affordable. The demand for housing is at an all-time high and consumers’ personal savings still at a historic high.

There is no better time to recover from COVID-19’s many variants.

Harlan Green © 2021

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Tuesday, January 25, 2022

Consumers Confident in the New Year

 Financial FAQs

Conference Board

Why are consumers confident of their prospects in January with Omicron still infecting so many, according to the Conference Board’s latest Consumer Confidence survey?

The Omicron variant may be waning, for starters. As of January 19, 2022, the current 7-day moving average of daily new cases (744,616) decreased 5.0% compared with the previous 7-day moving average (783,922).

Covid Tracker

And there are plenty of available jobs with rising salaries. There were 10.6 million job openings at the end of November, reports the Labor Department.

“Reuters said of the Conference Board survey: “The job availability indexes remained near the exceptionally strong levels of recent months, and perceptions about current business conditions in general improved.  Other household sentiment indicators on balance have been softer this month, but that gloom did not extend to the Conference Board survey.”

The share of consumers planning to buy a motor vehicle over the next six months was the largest in six months. Buying intentions for household appliances like television sets and refrigerators also rose, though plans to purchase washing machines and clothes dryers fell, according to the survey.

So, consumers are still in a spending mood. The US Census Bureau reported last week that retail sales were up 14.4 percent YoY in December, seasonally adjusted.

The Omicron variant and high inflation (and rising interest rates) are still worrisome to consumers, however. Inflation as measured by the retail CPI index has risen 7.1 percent in December YoY, its highest rate in 40 years.

And the financial markets are worried about effects of a possible war in Eastern Europe that could slow growth in the European Union.

So what is keeping consumers in the game, from not crawling back into their winter shelters with so much to worry about? Maybe it is fans wanting to attend their favorite athletic events again, such as the upcoming Super Bowl! Why are football stadiums packed, even with freezing temperatures, as in Green Bay with snow on the ground?

Americans seemed to want to return to a more normal way of life, amid growing evidence that the worst of the pandemic is over.

Harlan Green © 2022

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Saturday, January 22, 2022

Has Omicron Slowed Economic Growth?

Popular Economics Weekly

Surprise, surprise, the latest data show that the Omicron variant has done little damage to economic growth.

The latest predictions for fourth quarter growth are 5-6 percent, more than making up for the 2.3 percent Q3 slowdown, as effects from Omicron’s infection rate wane.

The Atlanta Fed just announced that its Q4 GPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 5.1 percent on January 19, up from 5.0 percent on January 14. This is the most up to date prediction.

They attributed the growth adjustment to “…this morning’s housing starts report from the US Census Bureau (a very large increase).”

Privately‐owned housing starts in December were at a seasonally adjusted annual rate of 1,702,000, said the Census Bureau. This is 1.4 percent above the revised November estimate of 1,678,000 and is 2.5 percent (±13.8 percent) * above the December 2020 rate of 1,661,000.

Calculated Risk

As many as 1,800,000 units were authorized at the height of the housing bubble in 2006. And an estimated 1,724,700 housing units were authorized by building permits in 2021, close to the 2006 high, which was 17.2 percent (±0.6 percent) above the 2020 figure of 1,471,100. So, builders are racing to catch up to the soaring demand for housing, which is already boosting economic growth

And the Conference Board Index of Leading Economic Indicators (LEI), made up of 10 economic indicators such as interest rate trends, building permits and manufacturing new orders that purports to predict growth six months ahead, rose 0.8 percent, also a very large number.

“The U.S. LEI ended 2021 on a rising trajectory, suggesting the economy will continue to expand well into the spring,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “For the first quarter, headwinds from the Omicron variant, labor shortages, and inflationary pressures—as well as the Federal Reserve’s expected interest rate hikes—may moderate economic growth.”

Where is that moderation most expected? Nobel Laureate Paul Krugman has pointed out several times that red states have lower vaccination rates than in the blue states, where Omicron infection rates are highest among the unvaccinated. It’s Republicans wanting to oppose anything the Biden administration is doing. And in doing so, it will cost more lives and slower job growth among their own constituents.

However, the need to vanquish COVID-19; or at least tame it so that it acts more like a seasonal flu; has united enough Americans to put money where it will do the most good—into infrastructure and family pocketbooks, rather than speculators’ pockets, as was happening before the pandemic.

That said, the $trillions in pandemic aid should mitigate concerns that higher inflation, or the Omicron variant will do much harm to consumers and economic growth in most states. The current inflation numbers are a sign of robust growth, so let’s get everyone vaccinated and the supply chains unclogged.

Harlan Green © 2021

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Wednesday, January 19, 2022

Retail Sales Stay Strong

 Financial FAQs


Sales at U.S. retailers such as Target and Amazon sank 1.9 percent in December — the biggest drop in 10 months — as the Omicron variant spread like wildfire and shoppers confronted higher prices and shortages of some popular products.

Yet retail sales were up 14.4 percent YoY in December, seasonally adjusted, as shown in the FRED graph. Retail sales are still booming, so what should we worry about in 2022?

There are two reasons to worry: the Omicron variant and rising inflation (hence interest rates). Inflation as measured by the retail CPI index has risen 7.1 percent in December YoY, its highest rate in 40 years.

But they are really connected, and curing the Omicron variant will also cure the inflation problem.


And as of January 12, 2022, the current 7-day moving average of daily new COVID cases (782,766) increased 33.2% compared with the previous 7-day moving average (587,723). A total of 63,397,935 COVID-19 cases have been reported in the United States as of January 12, 2022, so the Omicron variant infection rate isn't subsiding.

And the high inflation rate is causing the Fed to begin to tighten credit with the first of its predicted interest rate hikes in March. But not everyone is in agreement with that move.

Chinese President Xi Jinping, of all people, asked Fed Chair Jerome Powell at the Davos Switzerland virtual economic summit to please not lift interest rates just yet!

“If major economies slam on the brakes or take a U-turn in their monetary policies, there would be serious negative spillovers. They would present challenges to global economic and financial stability, and developing countries would bear the brunt of it,” said Xi, according to a transcript of his remarks on Monday.

(China is gearing up for the Winter Olympics and doesn’t want our Federal Reserve rocking the economic boat right now.)

I don’t believe inflation will be as much of a problem this year because experts expect Omicron variant infections to quickly subside by mid-year, so-much-so that it will become more flu-like in its effects and be treated like an annual problem.

Inflation won’t be the problem it was in the 1970s, since it came on so suddenly due to the pandemic and the shortage of goods, rather than from a decade-long wage-price spiral.

The Omicron variant is keeping people from returning to work, and countries from untangling their supply chains.

So no, this isn’t the time to worry about inflation, which is a sign of robust economic growth and consumers with lots of savings from the pandemic aid packages.

Harlan Green © 2022

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Thursday, January 13, 2022

A Softer Landing For Inflation?

 Popular Economics Weekly


Will inflation keep rising, squeezing consumers, or return to a more normal range this year? The Consumer Price Index (CPI) that measures retail goods and services rose to 7.1 percent in December and has forced the Fed to promise to raise interest rates several times to ‘tame’ a rising inflation rate that seems to worry the pundits and bankers more than most consumers.

That’s because once the Fed starts taking money out of circulation by selling the $4 trillion plus in securities it’s holding, the money supply should shrink and thus take away the punch bowl of easy money that has prevailed during the pandemic and pushed the financial markets to record highs.

So, the debate du jour is can the Fed take away the punchbowl without sinking the economy into another recession? There’s a lot of money in circulation, thanks to all the pandemic aid, but what happens when it’s withdrawn? The hope is for what is called a ‘soft landing’, a slowing of economic activity that doesn’t morph into an economic slump.

It would be nice if inflation could tame itself without too much government intervention. Inflation could moderate this year because consumers annually cut back on spending after the holidays to pay down their credit cards and save for the income tax season.

But even so, the Fed must act to look like it’s on the ball by making noises that it’s ready to raise the price of borrowed money by acting preemptively. That is supposed to lower inflation expectations and thus dis-incentivize consumers and businesses from rushing to buy before the next price rise.

Do such expectations of future inflation really affect consumers’ behavior? That’s still an open question among economists.

And the answer is much more complicated today because this inflation is caused by a serious shortage—of goods, services, and employees to manufacture and distribute them.

So all of this is in turn dependent on the course of the ongoing COVID-19 pandemic that is keeping workers away from work, and causing the supply chain bottlenecks.

As a side note, a recent study by two UC Davis Labor economists in — Labor Shortages and the Immigration Shortfall, posits that part of the labor shortage is due to a shortfall in immigrants over the past two years—some 2 million working age adults—due to restrictions placed on immigration from the pandemic.

And approximately 1 million are college-educated, which could impact productivity and employment over the longer term.

They cite other causes for the labor shortage, such as increased retirement and increased bargaining power of workers as playing an important role.

The authors also contend, “While more generous unemployment and welfare benefits introduced during the crisis may have discouraged workers from taking low-paying jobs in 2020 and early 2021, they do not seem to be the cause of current shortages, since most of those benefits expired by mid-2021. Recent anecdotal and preliminary evidence finds a push by workers for more job-flexibility, safety and, generally, better conditions causing resignations and contributing to unfilled job openings.”

So the labor shortage could last for years, unless Washington and Congress get their immigration act together. Immigration has historically been a major source of U.S. population and job growth.

In fact, we shouldn’t forget that we are a nation of immigrants that has always been dependent on immigrants, and the effect of the immigration shortfall is much more worrisome than inflation because studies show they bring a high level of skills that are good for economic growth.

So even speeding up approval of a backlog of 460,000 entry visas cited by the State Department as still unprocessed could make this a softer landing.

Harlan Green © 2022

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Friday, January 7, 2022

We Are So Close to Full Employment

 Popular Economics Weekly


It is uncanny that just 199,000 nonfarm payroll jobs were created in one Labor Department establishment survey, while a separate and smaller household survey showed that 651,000 people found jobs in December after a 1.1 million gain in November.

This kind of variability is typical when the U.S. economy is nearing full employment. That and the soaring inflation rate (6.8 percent of late) show that the demand for goods and services is far outstripping supply at the moment.

The unemployment rate dropped to 3.9 percent from 4.2 percent—just above the fully employed 3.6 percent level before COVID-19 shut down the economy. So, the American economy is close to full employment even with the Omicron variant still scaring workers from returning to work.

The other question is when will producers catch up to soaring demand because the U.S. economy is showing a classic case of overheating at the moment.

Calculated Risk

The above Calculated Risk graph shows how quickly we have closed in on full employment—much faster than the 2001 and 2007 recessions (blue and brown lines in graph), for instance.

Supply will have a chance to catch up to demand and tame inflation when the Omicron variant is tamed.

The U.S. economy regained 6.5 million jobs in 2021, but employment is still short of the pre-pandemic peak by almost 4 million jobs. The U.S. employed 152.5 million people just before the pandemic erupted. Total employment rose to 148.9 million at the end of last year

Average hourly pay has risen 4.7 percent in 2021, which tells us that companies will pay whatever it takes to hire more workers.

Where are they hiring? Leisure and hospitality added 53,000 jobs, which means more people are eating out and traveling over the holidays. Professional businesses hired 43,000 people, manufacturers added 26,000 jobs, construction employment rose by 22,000 and transportation and warehouse firms beefed up payrolls by 19,000.

It’s good news that Americans are continuing to return to work and the economy is nearing full capacity. Please Fed Governors, let that picture sink in before you begin to raise interest rates, which would slow down this recovery from the worst pandemic in more than 100 years.

So, we should begin to enjoy the fact that this economic recovery has just begun, rather than worry about its growing pains.

Harlan Green © 2022

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Thursday, January 6, 2022

Are Home Prices Moderating?

 The Mortgage Corner

There are small signs of a slowdown in the rise of housing prices. Core Logic, a real estate data provider, sees some moderation in this New Year.

“As we close 2021, housing market indicators, including S&P CoreLogic Case-Shiller Index, suggest that the housing market will have another strong year in 2022. While the expected slowing of home price growth suggests overall annual appreciation in 2022 will fall shorter than that of 2021, the annual average of 7% is still higher than the average 5% seen between 2010 and 2020.”


Housing’s annual price appreciation is slowing in part because new construction is making up some of the housing shortage.

Calculated Risk reports that on a year-over-year basis, private residential construction spending is up 16.3% (red line in graph). Non-residential spending is up 6.7% year-over-year. Public spending is down 0.8% year-over-year.

This is resulting in single‐family housing starts in November to jump 11.3 percent above the revised October figure of 1,054,000.

But inventories are still at rock bottom, with unsold inventory at a 2.1-month supply in November, the lowest since January. That’s even lower than 2.3 months in the same month last year, and a 4-to-6-month supply of homes for sale during more normal times.

That is making NAR chief economist Lawrence Yun cautious about affordability in the New Year:

"Buyer competition alone is unrelenting, but home seekers have also had to contend with the negative impacts of supply chain disruptions and labor shortages this year," he said. "These aspects, along with the exorbitant prices and a lack of available homes, have created a much tougher buying season."

How long could it take for the supply of homes available to purchase catch up the demand? It depends on when more working age adults return to the workforce and suppply chains become unchained.

The labor shortages may improve this New Year. As a predictor of Friday’s unemployment report private payrolls rose by 807,000 in December, according to the ADP National Employment Report released Wednesday. That’s the strongest gain since May.

Service sector providers added 669,000 jobs in December. Leisure and hospitality added 246,000 workers. Meanwhile, goods producers added 138,000 jobs, the strongest gain of the year. Manufacturing added 74,000 jobs.

This could begin to improve the housing supply.

Then we must wait for the supply-chains to recover as countries ramp up production and the various trade tariffs are reduced that have driven up the cost of building materials, with lumber prices still higher than in pre-pandemic times.

Harlan Green © 2022

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Tuesday, January 4, 2022

More Hires in November JOLTS Report

 Financial FAQs

Calculated Risk

The Bureau of Labor Statistics reported that job openings decreased in November to 10.6 million from 11.1 million in October (yellow line in above graph).

It’s a sign that more workers are returning to work. So huge is the U.S. job market that hiring rose by 191,000 jobs to 6.7 million in November. The hiring rate rose to 4.5 percent from 4.4 percent in the prior month.

The BLS said:

“On the last business day of November, the number and rate of job openings decreased to 10.6 million (-529,000) and 6.6 percent, respectively. Job openings decreased in several industries with the largest decreases in accommodation and food services (-261,000); construction (-110,000); and nondurable goods manufacturing (-66,000). Job openings increased in finance and insurance (+83,000) and in federal government (+25,000). The number of job openings decreased in the South and Midwest.”

This suggests that hiring in both the service and manufacturing sectors is picking up, a good sign for continuing job growth in 2022.

The number of job openings (yellow) were up 56 percent year-over-year. Quits were up 37 percent, year-over-year. The JOLTS report showed that people quitting their jobs rose by 370,000 to 4.5 million in November.  The quits rate rose to 3 percent from 2.8 percent in October, matching the highest quits rate of the pandemic era.

The U.S. unemployment reports comes out this Friday and will give a better picture of the New Year, but the JOLTS report gives a preliminary indication, though it lags almost one month behind the unemployment report.

Another indicator of future job prospects is the decline in weekly initial jobless claims for unemployment as unemployment benefits expire.


Weekly claims are down from their high of 6 million during the pandemic to 198,000 in the latest week. Salaried employees can’t wait much longer to return in greater numbers in the New Year after spending the excess savings accumulated during the pandemic.

Nobel laureate Paul Krugman has the last word this week in a recent NY Times column, in comparing the swiftness of this jobs recovery to President Reagan’s 1982 recovery which Reagan called “morning in America” that boosted his 1984 reelection.

“Yes, by this measure (and many others) we’re in the middle of another morning in America, despite the drag caused by a lingering pandemic and supply-chain disruptions,” said Professor Krugman.

With this kind of a jobs recovery, what should economic growth look like going forward?

The Atlanta Federal Reserve’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 7.4 percent on January 4, down from 7.6 percent on December 23, says their press release.

So overall, 2021 real GDP growth could be upwards of 5 percent. The last time it reached this height was in the 1980s. And since this is the beginning of another year, we can call it the morning of a successful 2022 New Year.

Harlan Green © 2022

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