Consumers Solvent Much Longer?

 Financial FAQs

I said last month we know why the US economy is still growing. Consumers have kept spending. The second revision of second quarter economic growth confirmed this when Gross Domestic Product growth jumped from 2.4 to 3.0 percent!

BEA.gov

“Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2024, according to the “second” estimate. In the first quarter, real GDP increased 1.4 percent.”

This is huge, but the question remains just how much longer consumers can ‘stay in the game’ before their chips run out, to parrot a well-known remark Roosevelt’s Fed Chairman Marriner Eccles made in testimony during the Great Depression.

Consumer spending was revised up to a 2.9% rate from the initial estimate of a 2.3% gain in the report. Whereas spending was up 1.5% in the first three months of the year, and such activity accounts for two-thirds of US economic activity these days. So, it’s extremely important to track how long they can continue to spend, as well as save.

Consumer confidence is rising again, which should help sustain the rally, as consumers seem to be worrying less about their job, per the Conference Board, even though personal savings have declined to dangerous lows.

“The Conference Board Consumer Confidence Index® rose in August to 103.3 (1985=100), from an upwardly revised 101.9 in July. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—improved to 134.4 from 133.1 in July.”

That’s a small improvement, but far below the 120 to 130 pt. index range prior to the pandemic. It says consumers are still shaking off the effects of the pandemic, for starters.

One reason for their uncertainty is household incomes have fluctuated wildly for decades due to the various recessions. Household income growth plunged to -0.1% at the beginning of the COVID-19 pandemic and was only back up to its +5% pre-pandemic highs in 2022, the last year it was calculated.

Household incomes have barely kept up with inflation, in other words, never able to get ahead of the longer term 2% average inflation rate that has prevailed since the Great Recession.

This in fact highlights the dangers consumers face going forward. They continue to borrow heavily, even with historic high interest rates, to ‘stay in the game’ to maintain their current lifestyles.

EA.gov

Their personal savings rate has just plunged from 3.4 percent to 2.9 percent, according to the BEA. It was lower only once since 1960—to 1.4 percent in July 2005 during the housing bubble and runup to the Great Recession.

Is there any reason to believe things will improve for the majority, when the Fed does cut interest rates? There have been recommendations, such as the child tax credit that both parties want to reinstitute; also lowering taxes on middle incomes and raising it for corporations and the wealthiest; as well as taxing the earnings of hedge fund managers managing $trillions in public monies.

Let us see if more of the economic pie will be distributed to those that have no savings left. Otherwise, we already know what happens when consumers can no longer stay in the game and their chips run out.

Harlan Green © 2024

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

When Will Housing Recover--Part II

 The Mortgage Corner

Federal Reserve Chair Powell has said the Fed is about to cut interest rates, so I’ve been wondering if the housing industry can come out of its self-made recession?

One good sign is that existing-home sales ticked up for the first time in July, after falling steadily since the recent annual rate high of 4.4 million in February 2024.

The NAR said, “Total existing-home sales^[1] – completed transactions that include single-family homes, townhomes, condominiums and co-ops – ascended 1.3% from June to a seasonally adjusted annual rate of 3.95 million in July.” (But) Year-over-year, sales fell 2.5% (down from 4.05 million in July 2023), so that’s not much of an improvement.

This could be the beginning of an upward trend in overall sales, but the question now is not so much about mortgage rates, which will help sales and affordability, but an adequate housing supply to get sales back to the 4-5 million sales that prevailed in decades past and kept a much higher supply of for sale housing on the market.

Cutting interest rates is a start but the building industry for various reasons has been reluctant to build enough new homes for decades—ever since the Great Recession of 2008-09 and busted housing bubble.

This is just one of the ways Americans have been paying for the excesses of the Great Recession since then. The housing shortage may be its most pernicious result.

Calculated Risk

Calculated Risk’s graph of existing sales portrays the damage done by the Great Recession (middle gray bar in graph). Sales had reached a 7 million annual rate in 2005 at the height of the housing bubble, then plunged to 4 million units during the Great Recession and slowly rose to more than 5 million units annually until the COVID-19 pandemic.

More than one million excess units were built during the bubble, as Greenspan’s Federal Reserve attempted to goose sales any way they could to stimulate slowing economic growth while the Bush administration was fighting the Iraq and Afghanistan wars on terror.

The housing supply should be improving in anticipation of the Fed’s rate cuts that would bring down the cost of everything that goes into building new homes.

Sales of newly built homes in the U.S. just increased 10.6% in July to an annual rate of 739,000, up from a revised 668,000 in the prior month, the Commerce Department reported Friday. It was the highest sales rate in more than one year.

For-sale inventories have also edged up some 40 percent this year, as existing homeowners now see a chance to either move to a smaller unit, or into a retirement home now that mortgage rates are declining..

We still have a housing shortage of somewhere between 1-3 million residential dwellings, including owner-occupied and rental units, without considering housing for the homeless.

Another culprit of the housing shortage has been lenders that have become more conservative since the housing bubble. A credit score of 680 was acceptable to Fannie and Freddie for their best conventional mortgage rates prior to the Great Recession, whereas it is above 720 today, which means fewer home buyers are eligible for good loans.

It is really the Fed’s job to require banks to ease their credit standards in this case. Its inaction has only made matters worse for homebuyers (and therefore renters) with the housing shortage.

Now that Chairman Powell just announced that rate cuts are in the works—probably to begin at the Fed’s September FOMC meeting—they should use some of the other tools within their powers—such as requiring more affordable loan programs for entry-level homebuyers, as well as easing banks’ credit standards.

"The time has come for policy to adjust. The direction of travel is clear," Powell said in his speech to the central bank's summer retreat in Jackson Hole.

Let’s see if Powell means what he says and the Fed really wants to help cure the housing shortage.

Harlan Green © 2024

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

 Answering Kennedy’s Call

Vice Presidential candidate Kamala Harris made a promise at this year’s Democratic Convention. She would create programs that give every American the opportunity to better themselves.

“I see an America where we hold fast to the fearless belief that built our nation and inspired the world. That here, in this country, anything is possible. That nothing is out of reach. An America where we care for one another, look out for one another and recognize that we have so much more in common than what separates us. That none of us — none of us has to fail for all of us to succeed.”

Equal opportunity hasn’t been available to many Americans, even though it is part of the American Dream—America is the land of opportunity that is taught in schools and heard by immigrants.

Why? Because it is also part of a larger truism that not all Americans have accepted: Equality Is Good for Everyone. It should be self-evident, a statement of common sense. The more equality of opportunity among us, the more we can better ourselves, become more productive citizens, which in turn increases our national wealth (and lowers budget deficits).

It was certainly the dream of immigrants, such as my mother, a British citizen born in Jamaica.

But there are times, such as today, when many Americans don’t believe it is possible, which is why we are living in another Gilded Age with the worst income inequality of the developed world. It is on a par with developing countries in Africa and has been the major cause of recessions, including the Great Recession.

Many have bought the counter narrative by those that don’t like equality, the privileged few at the top of the income ladder who want us to believe they are the most qualified to create greater wealth for the rest of us.

This Gilded Age was formed from supply-side, trickle-down economic policies, because enough Americans believed it, believed government was the problem and cutting taxes the solution, believed that equality is not good for everyone because we live in a zero-sum world with limited resources. What is given to one must be taken from another.

The conservative position espoused by 1970s Economist Arthur Okun, for instance, was that greater equality meant less market efficiencies to produce and so fewer incentives for greater wealth, since leveling the playing field meant leveling out the opportunity for large profits.

But that has never been the case. There has always been copious evidence that the opposite is true; that overly large profits have led to diminished household wealth.

One can measure inequality with such as the CIA’s World Factbook that ranks inequality among nations. Those with the greatest equality also have less violence, greater freedoms, greater health, and guaranteed vacations!

Richard Wilkinson’s TEDx lecture and book with Kate Pickett, “The Spirit Level” is one of the best studies of the dire effects of income inequality on the quality of life. The most important factor, and a sign of dire consequences when inequality has approached the level of the Great Depression, are the US violent crime and incarceration rates, which Wilkinson discusses at length. The U.S. is by far the most violent country in the world—worse than any other developed country with the highest incarceration rates.

Efforts to reverse such inequality have begun on the local levels, even if congressional conservatives have blocked raising the miniscule minimum wage of $7.25 per hour.

I wrote in 2011 that the state of Massachusetts was the first to raise their minimum wage to $10 per hour, California is raising it to $8.25 over 2 years, with New Jersey and other states to follow. It was the beginning of a return to greater equality that has continued.

And there is an increasing awareness of the income disparities, such as the fact that corporate CEOs now earn more than 300 times the income of their employees, and certain hedge fund managers have reported an annual income of $1 billion.

The Center for American Progress launched the Washington Center For Equitable Growth, which aims to deepen the economic critique of inequality. It was set up by Berkeley economist Emmanuel Saez, among others, who is known with his partner Thomas Piketty as the first economists to historically research the history of income distribution over the past 100 years.

As the mission statement of the Center says:
"New research suggests that growing inequality in the United States may have broad social and economic effects -- by reducing stable demand for goods and services, dampening entrepreneurialism, undermining the inclusiveness and responsiveness of political and economic institutions, limiting access to education, and stunting individual development. Yet our understanding of how these mechanisms interact with the broader economy is limited."

Kamala Harris said as much in her acceptance speech: “opportunity is not available to everyone. That’s why we will create what I call an opportunity economy, an opportunity economy where everyone has the chance to compete and a chance to succeed.”

A majority of Americans and a majority of Electoral College votes must agree with her for this to happen in November.

Harlan Green © 2024

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

U.S. Economy Has Landed

 Popular Economics Weekly

GETTY

It’s about time. Fed Chairman Powell has finally admitted in so many words that the U.S. economy has made a ‘soft landing’; economists’ term for inflation to have declined sufficiently that the Fed can begin to ease credit conditions by cutting their interest rates.

This will give a boost to the manufacturing sector that has been in recession, and many other sectors as well. It will most of all aid those consumers who had to borrow heavily just to maintain their lifestyle, and whose savings are exhausted. Most of all, it will avoid a recession that had probably begun in the housing and manufacturing industriesvisio.

"The time has come for policy to adjust. The direction of travel is clear," Powell said in a speech to the central bank's summer retreat in Jackson Hole. "The timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks," he said.

Even more importantly, he said, we will do “everything we can to support a strong labor market.” That was a huge admission that rising wages and excessive consumer demand wasn’t the inflation culprit. It was the pandemic-induced shutdown that made everything more expensive.

What must have added urgency to his announcement was the Bureau of Labor Statistics downward revision of one year’s job formations by -818,000 nonfarm payroll jobs from March 2023 to March 2024. It turns out the labor market wasn’t as strong as originally thought.

It was mostly in the service sector, which had created the most jobs to date—professional and business services, where employment was revised down by 358,000 during the period. Leisure & hospitality had the second-largest downward revision of 150,000.

FREDpce

This is while the Federal Reserve’s preferred Personal Consumption Expenditure (PCE) inflation measure has remained at 2.5 percent ever since January 2024.

I have opined in past columns that inflation won’t go much lower, as long as we have decent economic growth. If prices do in fact turn negative, which is the meaning of deflation, then we will have a recession.

That is as good a definition of recession. One sees this clearly in the FRED graph above where PCE inflation dipped sharply at the 2020 recession (gray bar) and has fallen in every other recession since 1960.

There is little to fear from such an event at the moment, since predictions for third quarter economic growth are in the 2% range. Both the Atlanta Fed and New York Fed’s GDPNow estimates have dropped to 2%, because there is little investment in the housing market due the high cost of money. But that could change and boost third quarter growth with the Fed’s rate cuts.

The 30-year conventional fixed mortgage rate has dropped from 7.8% to 6.4% in less than one year. It didn’t impress the National Association of Home Builders, in part because there is still a 7.8-month buildup of new homes for sales.

There was a sudden bump in new-home sales in July, up 11 percent and 5.6 percent in a year because of the lower mortgage rates.

(But) “Despite the monthly bump in new home sales data, higher rates continue to sideline buyers as housing affordability challenges remain,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kan. “The only sustainable way to ease high housing costs is to implement policies that allow builders to construct more attainable, affordable housing.”

The Fed’s decision is huge on many fronts. Stock and bond prices should be able to regain the highs reached before the Fed began to raise interest rates, for starters.

Lower interest rates should also help to cure the housing shortage.

Harlan Green © 2024

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

Why Is This Election Still a Tossup?

 Answering Kennedy’s Call

What is the reason Republicans have become the party of anti-intellectuals? The danger is that it may drown out any intelligent discourse about the most important issues of our day. It's driving at least one of our political parties into insanely ridiculous positions.

Barack and Michelle Obama warned last night at the Democratic Convention that it will still be an uphill slog to beat Donald Trump and his Republican Party. “Make no mistake, it will still be a fight,” said President Obama last night, even though Trump is now a convicted felon, and showing visible signs of mental deterioration.

This has become blatantly obvious now that a younger and vibrant Kamala Harris has replaced President Biden as his opponent, and Trump is no longer leading in the polls.

But it is still a contest for the same reason Trump won in 2016; when I first wrote about the presidential debates; he is leading a party that has intentionally been dumbed down since the 1970s, at least. And nothing has changed for them.

Huffington Post

We saw in the 2016 CNN Republican candidate debate the results of what seems to be a prolonged campaign to discount almost all scientific facts, as well as intelligent discussion of the most important issues of the day.

Especially scary was Donald Trump saying if we build up our military enough, we won't have to negotiate with anybody. Or Marco Rubio, the seemingly most moderate Republican, endorsing a 1,900 mile fence along our entire border with Mexico (or double fence, says Dr. Ben Carson) over mountains and rivers, or Carli Fiorina saying that Planned Parenthood was aborting live babies to harvest their organs.

Global warming is one of the most important issues today, since there is almost unanimous agreement among scientists that it is man-made and rising alarmingly. Hence the record heatwaves, cold spells and catastrophic storms the world has been experiencing recently. Yet thanks to the funding of multi-billionaires like the Koch Brothers, none of the Republican Presidential candidates said they believe global warming is man-made, or even real.

What is the reason Republicans have become the party of anti-intellectuals--some members even want to abolish the Department of Education, and otherwise defund public education? Journalist Chris Hedges said in a PBS interview President Clinton in coopting moderate Republican positions, such as deregulation of the financial industry, putting 100,000 more cops on the street, and 'reforming' welfare, had driven the Republican Party to "insanity"

But the anti-intellectual, anti-science bias goes much further and deeper. It is in fact an almost totally American phenomenon that Republicans have taken advantage of, dumbing down the electorate to levels that would even deny evolution. Why would anyone not want to support public education, when it educates more than 80 percent of our students? The result is that higher education is also falling behind.

According to the National Research Council, only 28 percent of high school science teachers consistently follow the National Research Council guidelines on teaching evolution, and 13 percent of those teachers explicitly advocate creationism or "intelligent design," said Psychology Today in a very damning 2014 article entitled, Anti-Intellectualism and the Dumbing Down of America:

"After leading the world for decades in 25-34 year olds with university degrees, the U.S. is now in 12th place," said Psychology Today. "The World Economic Forum ranked the U.S. at 52nd among 139 nations in the quality of its university math and science instruction in 2010. Nearly 50 percent of all graduate students in the sciences in the U.S. are foreigners, most of whom are returning to their home countries"

Republican candidates were echoing the Republican platform that advocated the deportation of all illegal aliens, that would abolish or cripple whole government agencies (including the Environmental Protection Agency), shut down the federal government over Planned Parenthood funding, and maintain that a fertilized egg is a viable human being that can't be aborted.

Pundits give other reasons for such a dumbing down of a segment of the electorate--such as social media and television replacing literacy, or education that no longer teaches math and science or even history. Maybe that has enabled the Donald Trumps of the world to shout louder.

The danger is that it may drown out any intelligent discourse. It's driving at least one of our political parties into insanely ridiculous positions.

Harlan Green © 2024

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

Consumers Are Still Solvent?

 Popular Economics Weekly

FREDretailfoodservices

My recent blogs have been questioning how long consumers can keep shopping for good reason; their debts have been piling up, which seems to mean they have been able to borrow enough to stay in the game.

I occasionally quote Roosevelt’s very smart Federal Reserve Chairman Marriner Eccles who made an apocryphal statement on debt during the Great Depression—which in essence explained why it became the ‘Great’ Depression and explains every recession since then.

“The United States economy is like a poker game where the chips have become concentrated in fewer and fewer hands, and where the other fellows can stay in the game only by borrowing. When their credit runs out the game will stop.”

The credit of most Americans ran out when their banks failed in the 1930s because they didn’t yet have federal deposit insurance or today’s capital requirements, and 25% were jobless.

It was also the end of the last Gilded Age, when the Morgans, Rockefellers, and Vanderbilts held most of the wealth and labor unions were much weaker.

We may not be in as much danger today though four large banks have already failed that carried too many deposits not insured by the FDIC, or other guarantors. And cracks are appearing in the credit markets where the loan default rates of lower income folk are rising who tend to spend most or all their incomes.

We are living in another Gilded Age with record income inequality and ordinary Americans having to pay higher tax rates that most of the millionaires and billionaires since the 1980s.

Retail and food sales are a good indicator of consumer health, and is subject to large fluctuations. That’s why just reported July retail sales jumped +1.0%, up from a -0.2% decline in June. (It also plunged -1.1% earlier this year in January.)

I  believe the current and sudden jump in sales might be because of consumers’ hubris, a bit of irrational exuberance, because they feel their jobs remain safe and the US economy has been fully employed for the past two years, so they are saving very little of their income.

But full employment may not last much longer, and consumers might be sensing this in consumer confidence surveys. Consumer sentiment picked up slightly for the first time in five months, say the latest headlines.

But according to the latest University of Michigan survey, “For the second straight month, consumer sentiment is essentially unchanged. July’s reading was a statistically insignificant 2 index points below last month, well within the margin of error. Although sentiment is more than 30% above the trough from June 2022, it remains stubbornly subdued.”

The Conference Board’s confidence survey said as much: “Compared to last month, consumers were somewhat less pessimistic about the future. Expectations for future income improved slightly, but consumers remained generally negative about business and employment conditions ahead.”

So, the question remains how much longer can consumers keep spending as they have?

The unemployment rate has been steadily rising from its low in January 2023 of 3.4 percent to 4.3 percent in July 2024. And annual hourly wage increases have declined to 3.6 percent.

I said of last month’s unemployment report that it was alarming because most new jobs were in the lower paying service sector that had 80,000 of the 114,000 jobs total, mostly in Leisure activities, Education & health care.

This is where consumers spend most of their Dollars and so it means job growth is still dependent on consumer spending, and consumers have had to borrow like crazy to keep spending, which can’t go on forever.

That is why financial markets are now betting the Fed will begin to cut interest rates at its September FOMC meeting.

Retail inflation has dropped below 3 percent for the first time since 2022 as measured by the U.S. Consumer Price Index (CPI). It has had two months of zero price increases, which could have been predicted because consumers have known for months that stores were discounting and shopped more at big box retailers like Target, Walmart and Costco.

So there seems to be some cognitive dissonance between what consumers are doing (i.e., continuing to spend) and what they are saying in confidence polls. Is that a danger sign? Might they suddenly stop spending, because “the game will stop” in Fed Chair Eccles words?

It depends on the health of our banking system as well. We’ll have to wait and see.

Harlan Green © 2024

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

Is This Another Upswing?

 Answering Kennedy’s Call

Something is going on in the American culture and psyche, a change that I believe will return us to a more optimistic era of hope and possibilities.

I see what Pulitzer prize-winner and Political Scientist Robert Putnam (author of Bowling Alone) and co-author Shaylyn Romney Garrett describe in their new book, The Upswing; How America Came Together a Century Ago and How WE Can Do It Again, as a return to a more progressive “We” era, a societal coming together with less divisiveness than we have experienced in recent decades.

Simon&Shuster

“Americans Hate Divisiveness, We Need to Demand More,” is the headline of a recent PEW Research poll, in which: “57 percent of Americans believe that partisan conflicts receive too much attention these days. And 78 percent say there is too little focus on important issues facing the country. But if we want something different in the political dialogue, we the people need to demand it by rejecting divisive rhetoric and rewarding substance and solutions.”

I have called recent decades the Age of Narcissism. It was a time when “what’s in it for me” topped “what’s in it for us.”

Putnam and Garrett describe American history over the past 125 years with the “I-We-I” curve, using a series of bell-shaped curves to evidence the history of “a gradual climb into greater interdependence and cooperation, followed by a steep descent into greater independence and egoism.”

There is mounting evidence we have begun such a change that resembles earlier, more progressive eras. Putnam and Garrett have called it “The Upswing”, a return to the “We” era that we last experienced in the 1960s, before the Vietnam War and killings of the Kennedy brothers and Martin Luther King Jr., tore our country apart in a de facto civil war of red states vs. blue states.

The Kennedys and MLK, Jr. were the upholders of the last “We” era before we descended into our dark ages, accompanied by a greater lawlessness and distrust of our laws and institutions.

The sixties was the decade of greater voting and civil rights, income equality, and equal opportunities in education and the workplace with the enactment of anti-discrimination laws.

I came of age when President Kennedy promised a New Frontier of peace and end to the cold war that I also believed would happen after listening to him as a student and then volunteering for the Peace Corps. Kennedy instilled a ‘can do’ spirit that anything and everything was possible when he said there were better ways to serve the country than war: “Ask not what your country can do for you, ask what you can do for your country.”

Sarge Shriver, the Peace Corps first director, then adopted Rotary’s motto for PC Volunteers, “Service Above Self.”

The descent into darkness was also a time when many Americans were in the throes of “Deaths of Despair…” said Nobel Prize-winner Angus Deaton and Anne Case, who uncovered the damage done by drug use and suicides among the rust-belt workers who had lost their industrial age jobs.

Maybe the change from the darkness to light was first noticeable during the COVID-19 pandemic, when the weaknesses of excessive individualism became evident in the partisan divide over the treatment of its victims—when literal survival required cooperation over competition, regardless of the politics or religion.

Positive changes also occurred with modern technologies such as the Internet that enabled Americans to talk to each other more freely. This may sound counter-intuitive with the ‘anything goes’ frontier mentality of its abusers and propagandists, but it has enabled the younger generations to be seen and heard much more than older generations.

Pollsters have seen the changes in our younger generations towards more communality. They are the Internet generations that communicate and get their news via cell phones and laptops, are more ethnically diverse, and less intolerant.

PEW reported in 2020, “Generation Z represents the leading edge of the country’s changing racial and ethnic makeup. A bare majority (52%) are non-Hispanic white – significantly smaller than the share of Millennials who were non-Hispanic white in 2002 (61%). One-in-four Gen Zers are Hispanic, 14% are black, 6% are Asian and 5% are some other race or two or more races.”

The earliest era of great change described by Putnam and Garrett was when citizens and parties come closer together in the turn of the last century, the Progressive era, which gained full force when Vice President Teddy Roosevelt became the President with the assassination of William McKinley in 1901.

“The Progressive movement did not eliminate polarization, to be sure, but in reflecting reformist, egalitarian, and even communitarian sentiments among leaders of both major parties, it laid the groundwork for decades of declining polarization,” they said.

There is something else bringing people together, much of it involuntary—the growing threat of climate change. The overheating and droughts in major regions of planet Earth have caused massive migrations from areas of famine and overpopulation that is creating a more global population mix.

There’s a consequent backlash that is creating anti-immigrant policies such as Brexit, but it is being countered with the so-called DEI policies (Diversity, Equity, Inclusion) policies created by progressives that increase egalitarianism, which is another way of saying it means to reduce the record wealth and income inequality fostered during the dark ages.

It will require more egalitarianism among developed countries with labor shortages such as the U.S. as we become even more ethnically and racially diverse. We have no choice but to welcome immigrants to maintain economic growth.

In fact, we see it already happening with the younger generations.

“A recent online survey found that younger generations are more optimistic than older generations about becoming wealthy in the future.  Fully 69 percent of Gen Zers and 54 percent of millennials who don’t consider themselves wealthy now said that they think that they will be wealthy someday, a survey by Lending Tree revealed, as opposed to 41 percent overall. The survey, conducted by Question Pro in early September was taken by 2,000 U.S. consumers ages 18 to 77.”

I have listed just a few of the changes for good that are coming. It’s happened in the past and WE are doing it again!

Harlan Green © 2024

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

Make Healthcare More Equal!

 Answering Kennedy’s Call

Healthcare is back in the news, and Republicans still don’t get its importance as an election issue in its continuing efforts to repeal Obamacare, the 2010 Affordable Care Act (ACA), enacted that I wrote about in 2017 in the Huffington Post.

The Republican Party is now Trump’s party, and nothing has changed. Trump’s failed effort in 2017 to repeal the health-care law was blasted at the time over the prospect of millions of Americans losing their health insurance. Senator John McCain killed Republican’s last attempt in 2017 when I first wrote about it.

“Americans have just avoided another health care disaster in voting down the Senate’s ‘skinny’ Obamacare Repeal and Replace bill,” I said then. “Even though maintaining most of the taxes to pay for the Medicaid portion, it would have made insurance coverage prohibitively expensive for those older and sicker users with the removal of the private and employer mandate requirements that would cause younger and healthier people to leave the insurance markets.”

“Republicans' Obamacare repeal bill would leave 17 million more people uninsured next year, and 32 million more in 2026, the Congressional Budget Office said in a 2017 estimate. Premiums would double by 2026…By 2026, three quarters of the population would live in areas with no insurers participating in the non-group market, due to upward pressure on premiums and downward pressure on enrollment, the report found.”

This is even “Although overshadowed in the national political discourse by discussions about the importance of the economy, immigration, or abortion, voters have expressed that health care continues to be one of their highest priorities,” said a recent Brookings commentary.

“In fact, a May 2024 poll by Pew found that health care was the third-highest issue priority for voters, garnering a robust 57% from respondents”, continued Brookings.

Yet former President Donald Trump on the 2024 campaign trail said once again that he is “seriously looking at alternatives” to the Affordable Care Act if he returns to the White House, reports the NYTimes, “reigniting his longstanding crusade against former President Barack Obama’s signature health-care law.”

Then why do Republicans continue to attack Obamacare when it is so popular? It’s total self-interest, the hubris of the entitled, now in stark relief. Republicans have opposed almost any government-run social welfare legislation. Remember Bush II’s attempts to privatize social security, which would have raised its cost astronomically and given his Wall Street backers a multi-billion-dollar windfall?

This first became evident in Ronald Reagan’s 1980 original campaign slogan, “government is the problem”, which was a ploy to divert at least $1 trillion from wage earners to the holders of capital by busting the labor unions and cutting taxes for the wealthiest. It was the start of a new Gilded Age that created great wealth for the top 10 percent and the great inequality we have today.

America now has the worst income inequality in the developed world, according to the CIA World Factbook. And studies have shown that those countries with the most inequality also rank lowest in healthcare benefits.

The U.S. was in 106th place of the 149 countries in income inequality as ranked by the CIA’s World Factbook; with a Gini inequality index of developing countries like Peru and Cameroon in 2017. Whereas Finland and the Scandinavian countries are at the top of equality rankings, Germany and France are 12th and 20th, respectively, as I’ve highlighted in past columns. The higher the index, the greater the gap between wealthy and poorer citizens of a country’s population.

Another June 2024 Hart Research And Protect Our Care Poll cited by Protect Our Care, a social welfare nonprofit, found that over 60 percent of voters view Obamacare favorably.

Its many features include pre-existing condition coverage and no-cost preventive care, as well as allowing young adults on parents’ insurance. There is also broad support (82% favor, 47% strongly favor) for permanently lowering the cost of premiums for people who buy insurance through the ACA.

ProtectOurHealth.org

A recent NY Times article reported that more than 45 million people are enrolled in Affordable Care Act-related coverage, according to a recent report from the Department of Health and Human Services. A record number of people — more than 20 million — have signed up for plans on the act’s marketplaces this year, according to the Biden administration.”

What would happen if Republicans return Donald Trump to power? Americans already have the worst health outcomes in the developed world, precisely because America is the only developed country—in fact, even of undeveloped countries—that doesn’t have universal coverage.

The result is one of the highest birth death rates, as well as diabetes, heart and other infectious disease rates—which are diseases usually associated with poorer, undeveloped countries and regions.

On the other hand, a 2016 Commonwealth Club study lists Obamacare’s benefits:

“…evidence indicates that the ACA has likely acted as an economic stimulus, in part by freeing up private and public resources for investment in jobs and production capacity. Moreover, the law’s payment and other cost-related reforms appear to have contributed to the marked slowdown in health spending growth seen in recent years.”

The accrued savings in health care spending relative to their projected growth prior to the ACA are substantial: Medicare alone is now projected to spend $1 trillion less between 2010 and 2020.

The lobbies behind the Obamacare repeal effort have succeeded in making more Americans ill. I don’t even want to imagine what percentage of the 32 million would ultimately lose their coverage, if Trump keeps his promise to repeal Obamacare.

Senator McCain said back then that now is the time for Republicans and Democrats to work together in “regular order” to craft something better, maybe a universal healthcare bill that insures all Americans?

That would truly make Americans healthier.

Harlan Green © 2024

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

Consumers Keep Shopping

 Financial FAQs

It’s no secret why the US economy is still growing and fully employed. Consumers have kept spending, and such activity accounts for two-thirds of US economic activity these days. So, it’s extremely important to track how long consumers will continue to spend.

The best read on spending is how much they borrow, and they are borrowing less. It’s because the Fed has upped their borrowing costs with the Prime Rate now 8.5% and credit card borrowing rates above 20%.

FREDconsumercredit

The St Louis Fed’s consumer credit graph shows the sharp drop in borrowing since consumers’ post-pandemic spending splurge. It sends a warning signal that consumers are becoming tapped out and may begin to save more. Recessions begin when that happens.

Borrowing turned negative during the Great Recession of 2008-09 and after the brief two-month post-pandemic recession (gray bar) in the above graph, for instance.

FREDpersonalsavings

Consumers also began to save more during those recessions. This graph portrays the large uptick in personal savings in 2020 after the same post-pandemic recession. But it has returned to a post-pandemic low since. The question then becomes how much longer can consumers live with depleted savings and begin to save more in such uncertain times?

In fact, a British Lord JM Keynes was the first to identify the cause of modern recessions in 1936 during the Great Depression, when he wanted to understand what had caused it.

He said it was when citizens spirits were low; he called it their “animal spirits”; and they began to save more and spend less. It’s just an economic way of saying consumers were saving more of their income for the bad times; when the unemployment rate ultimately reached 25 percent.

Keynes said, “Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits — of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”

Modern economic theory has evolved into what is now termed behavioral economics, because consumers’ confidence in their future must be taken into account. And it is easily shaken, as Nobel Prize Laureates such as Robert Shiller have explicated in books such as Irrational Exuberance, where many actions to buy and sell—“the spontaneous urge to action”—are not dependent on research, or news that they may not be able to adequately access, but hearsay and rumors.

That is perhaps a harsh judgement on how consumers behave, and also why consumer confidence has been down of late, even though second quarter economic growth doubled to 2.8 percent from 1.4 percent in Q1 in its first reading.

It’s probably also why the Conference Board’s latest Consumer Confidence Index is showing growing pessimism, per Conference Board Chief Economist Dana Peterson, in its latest release:

“The proportion of consumers predicting a forthcoming recession ticked up in July but remains well below the 2023 peak. Consumers’ assessments of their Family’s Financial Situation—both currently and over the next six months—was less positive. Indeed, assessments of familial finances have deteriorated continuously since the beginning of 2024.”

Consumers shouldn’t be blamed for their pessimism, despite being fully employed. Prices are still 20 percent higher on average than before the pandemic. But their moods should considerably improve if and when the Fed finally begins to cut interest rates, and their fears of an upcoming recession lessen.

Harlan Green © 2024

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

When Will Housing Recover?

 The Mortgage Corner

With the Federal Reserve saying it's about to cut rates, will the housing sector finally come out of its own recession? All the indicators of housing health—existing-home sales, new-home sales, construction, and for sale inventories—are at multiyear lows, mainly because the Fed believes its only inflation fighting tool is restricting credit via higher interest rates.

FREDexistinghomesales

For-sale inventories have edged up some 40 percent this year, as existing homeowners now see a chance to either move to a smaller unit, or into a retirement home now that mortgage rates are plunging. But existing-home sales are currently just 3.89 million units, per the FRED graph, far from its longer-term 4-5 million unit average—as much as 7 million during the 2005 housing bubble.

We now have a housing shortage of between 1-3 million residential dwellings, including owner-occupied and rental units, without considering housing for the homeless.

But what happens if the Fed waits too long to ease up on the brakes, job losses continue to climb and the overall economy goes into recession? That seems to be happening with last week’s bummer of an unemployment report, and financial market interest rates are reacting after more than two years of sky-high mortgage rates, for starters.

Mortgage rates decreased across the board last week and mortgage application volume reached its highest level since January of this year, according to the Mortgage Bankers Association (MBA).

“The 30-year fixed rate fell to 6.55 percent, reaching its lowest level since May 2023, following doveish communication from the Federal Reserve and a weak jobs report, which added to increased concerns of an economy slowing more rapidly than expected,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

FRED30yrfixed

The average rate for a 30-year mortgage backed by the Federal Housing Administration for entry-level and first-time homebuyers was 6.49% (that are backed by government-insured bonds), down from 6.69% the previous week, the 15-year was down to 6.03% from 6.27% the week before, and the rate for adjustable-rate mortgages was down to 5.91% from 6.22%, according to FNMA.

Most of the mortgage activity was in refinance, up 60 percent in a year, says the MBA. Homeowners have waited this long for the opportunity of a lower interest rate. Home purchases have barely budged; the MBA’s purchase index is down 11 percent in a year, mainly because home prices are still increasing 4-5 percent per year, and only the highest credit scores—upwards of 760—get the best rates.

Credit standards have barely eased, in a word. A score of 680 was acceptable to Fannie and Freddie for their best conventional mortgage rates prior to the Great Recession. The Fed’s inaction has only made matters worse for homebuyers (and therefore renters) due to the housing shortage.

What do I see for the rest of this year? It depends on the Fed’s actions. If it drops rates, then more homes become affordable, and more homes can be built because construction costs are controlled by the Fed’s short-term rates.

Fixed conventional 30-year mortgage rates set by Fannie Mae and Freddie Mac that guarantee most conventional loans (i.e., not government insured or privately held by banks) had been at or below 5 percent since the Great Recession of 2008-09 (gray bar in 30yrfixed graph is pandemic recession), before they began their upward spike in 2022.

It’s a long way back down that interest rate mountain for housing to become affordable again and many more homes built to ease the housing shortage. A Fed-engineered recession will bring down interest rates and housing prices sooner, but that also means fewer working folk can afford them, so who will it benefit?

Harlan Green © 2024

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

Is Federal Reserve Behind the Curve?

 Popular Economics Weekly

FREDunemploymentrate

Well, now it has happened. Powell’s Federal Reserve may have waited too long to begin the rate cuts. The financial markets think so, at least, as a stock selloff has begun and bonds are rallying in a flight to quality, as fears of a looming recession are now in the air.

It’s understandable, as the unemployment rate has been steadily rising from its low in January 2023 of 3.4 percent—a total of 19 months—to 4.3 percent in July 2024. Average hourly wage increases have declined to 3.6 percent, falling in line with the declining inflation figures that we reported last week.

It is the first time since July 2022 that retail inflation as measured by the U.S. Consumer Price Index (CPI) has turned negative.

The Consumer Price Index has now had two months of zero price increases. It could have been predicted because consumers have known for months that stores were discounting and shopped more at big box retailers like Target, Walmart and Costco.

Most alarming isn’t the lower job creation total, though, but that most new jobs were in the lower paying service sector that had 80,000 of the 114,000 jobs total, mostly in Leisure activities, Education & health care. That means job growth is still dependent on consumer spending, and consumers have had to borrow like crazy to keep spending, which can’t go on forever.

The manufacturing sector, which depends on capital expenditures (i.e., investments), added just 1,000 jobs. The Institute for Supply Management’s manufacturing index slid to 46.8% last month from 48.5% in June. Numbers below 50% signal the manufacturing sector is shrinking.

“U.S. manufacturing activity entered deeper into contraction,” said Timothy Fiore, chairman of the ISM survey. “Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions.”

Those remarks tell us exactly what is on the line. The Fed now must play catch up once again because of its fixation on theories that are not applicable to a post-pandemic economy which had a temporary inflation bulge due to COVID-19 caused supply shortages.

And U.S. factory orders fell 3.3% in June mostly because of weaker demand for passenger plans and military aircraft, but the ongoing slump in manufacturing showed no sign of ending.

The one bright spot in the report, according to MarketWatch’s Jeffry Bartash: So-called core orders, a measure of business investment, rose by a healthy 0.9%. Investment has barely risen in the past year, however.

The weak factory shipments in the past year reflect an ongoing slump among manufacturers due to high interest rates and lukewarm consumer demand for big-ticket items such as new cars.

But part of the car problem was a cyber-attack on car sales. Sales of new cars and trucks rebounded in July after auto dealers fixed their computer systems following a major cyberattack and were able to complete thousands of delayed purchases.

So auto sales increased at an annual rate of 15.8 million last month, up from 15.2 million in June, according to Ward’s Intelligence. An estimated 600,000 sales in June were affected by a criminal attack on dealers’ computer networks as part of an attempt at extortion, though sales of new cars and trucks in the U.S. are still being depressed by high interest rates.

The bottom line is that no country was exempted from the effects of the COVID-19 pandemic that killed 6-7 million people.

Harlan Green © 2024

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

Let's Make America More Equal Again!-Part 2

 Answering Kennedy’s Call

Piketty-Saez

Why did our record income inequality begin to worsen in 1980, as can be seen from the above graph? The Arab-OPEC oil embargo of 1973 was the first indication that Big Business under the newly created Business Roundtable of corporate executives wanted more of the national income pie.

No one liked the long gas station lines and fears America could run out of oil, so it was relatively easy for fear mongers to push through economic changes that lessened the incomes of working folk and increased the incomes of Big Business.

The fossil fuel industry needed more money to find new oil sources, and create new technologies such as fracking, so they wanted a larger income share of the national income, which was achieved by suppressing wages and cutting taxes without cutting spending. and it became a national security priority with the ongoing cold war and arms race that followed.

The Reagan administration ran up the first $400 billion federal budget deficit during his eight years in part because tax rates for the wealthiest were slashed. The highest personal income tax rate was first reduced from 70 to 50 percent in 1981, then down to a 28 percent maximum personal tax rate in 1986 when he was re-elected.

Because most of the income gain went to the top 10 percent, the Reagan tax cuts became known as ‘trickle-down” economics. It could also be called “stealth economics,” because Wikipedia cites at the time, “people weren't substantially informed about the tax cuts, as an ABC News Poll in September 1986 showed that 63% of Americans didn't know enough about the Tax Reform Act of 1986 to say if it was good or bad.”

Republicans sold it to the public with an unproven theory. A Doctoral student named Arthur Laffer in the 1970s had convinced conservative Republicans with a diagram on a napkin (the so-called Laffer Curve) that lower taxes gave people the incentive to work harder and earn more, whereas higher taxes discouraged work.

It's hard to believe such a theory today because the federal budget deficit only grew under the Republicans’ trickle-down theory. GW Bush created the first $1 trillion deficit, and Donald Trump’s added another $5 trillion to the federal budget deficit with his tax cuts. That’s as good proof as any that lower taxation rates didn’t increase tax revenues enough to pay down the extra debt as promised.

Perhaps the most shameful result of the redistribution of Americans’ wealth, the richest country in the world, was we now had the worst income inequality of developed countries, as measured by the CIA’s authoritative World Factbook.

It measures the income inequality of countries with what is called the Gini Index coefficient of families that calculated the percentage of wealth held by a country’s different socio-economic brackets. A higher percentage means a larger share of a nation’s income is held by the wealthier segment of its population.

“The more nearly equal a country's income distribution, the lower its Gini index, e.g., a Scandinavian country with an index of 25,” says the World Factbook. “The more unequal a country's income distribution, the higher its Gini index, e.g., a Sub-Saharan country with an index of 50. If income were distributed with perfect equality the index would be zero; if income were distributed with perfect inequality, the index would be 100.”

The latest US Gini index Coefficient of family income was 39.8 percent, which is even higher than Russia’s, and close to that of African and South American Third World countries, whereas the European Union averaged 30.8 percent in its most up-to-date report.

That is why two out of three Americans are dissatisfied with the way income and wealth are currently distributed in the U.S. This includes three-fourths of Democrats and 54 percent of Republicans, according to a Gallup poll, I said last week.

It is also why much of that inequality is in the Midwestern rust belt states that lost blue-collar manufacturing jobs during the globalization and multi-nationalization of US corporations that President Trump promised to bring back again.

It is also why an election-denier even won one term as President and can endanger our Democracy with a Supreme Court majority now giving him a helping hand.

The most efficient way to right the inequality is to bring back tax rates that prevailed during Americans’ most prosperous times, the 1950s to 1970s when the maximum personal tax rate was 70 percent, or even higher.

The maximum tax rate was 92 percent during President Eisenhower’s administration because we were building the nation’s post-WWII infrastructure and modern technologies, as well as going to the moon.

President Eisenhower was reputed to have said, “Because high corporate tax rates create incentives for big business to spend on things like new locations, new hires, new equipment and product research and development which are deducted from taxable earnings, in other words, it’s better to spend a majority of earnings on expansion than to horde it and pay Uncle Sam 90% of it.”

No one likes higher taxes, of course. And much of the middle class bought into Reagan’s myth of trickle-down economics that brought on its demise and poverty levels we have today. But if Americans won’t pay the bill for modernizing the US economy, rather than put off payment with more borrowing, America’s record income inequality will not improve.

Harlan Green © 2024

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