What Is American Socialism?

Financial FAQs

What is American Socialism that candidate Bernie Sanders has talked about ever since he has been running for President? In fact, our one and only example of something that represents any definition of Socialism and concerted government planning benefiting all Americans was President Roosevelt’s New Deal.

But there has never been any actual American government ownership of businesses and its profits that is Socialism spelled with a capital ‘S’. Rather, tax revenues of private businesses and individual incomes have always financed government programs and investments.

New Deal-type programs were needed because we were living through the Great Depression with 25 percent of Americans unemployed that required government planning and investments to bring the U.S. economy back to life; and which also enabled the U.S. to win World War II.

There has never been American Socialism or socialist programs as defined by Marx-Engels’ classical definition that communist countries have espoused; that have only worked for a time in dictatorships by a wealthy elite such as rule China, North Korea and Russia.

Why did the New Deal work so well? By directing public investment in both infrastructure and the American people while building up an industrial base that could quickly convert to a war footing by converting automobile and aircraft factories to tank and military aircraft factories in 1941.

The investment in people was firstly creating social security, labor union legislation, Workman’s Compensation and other labor protections to support American workers, while paying Americans to keep working in such as planting trees, building dams, power grids, post offices, and all the public infrastructure we needed to boost the productivity of our economy.

The Roosevelt administration even created the Home Owners Loan Corporation (HOLC) to purchase and refinance more than one million delinquent home mortgages to keep homeowners who had lost jobs in their homes until the Depression was over.

Have we seen any such programs created today that helped US out of the Great Recession and the busted housing bubble? There were one-time spending boosts to public spending and the TARP bank bailout in 2007-08, but no new HOLC program to purchase and refinance delinquent loans and keep homeowners in their homes, which would have mitigated effects of the Great Recession and the tremendous losses for homeowners.

Yet even today, die-hard Republicans (and President Trump) call Bernie’s socialism no different than China’s or North Korea’s, or even Russia’s; where Russia is ‘owned’ by a very wealthy elite controlled by Putin and his oligarchs.

The New Deal was working so well by 1937 that Republicans gained a majority in congress, and convinced Roosevelt to begin to pay back the public debt that had boosted growth. But he had to reverse course in 1938 when the U.S. plunged back into the depression that lasted a total of 10 years, hence came to be called the Great Depression for its repeat performance.

The only reason the Great Recession didn’t become another Great Depression was a proactive Federal Reserve that printed $billions to create more liquidity when it realized government aid and action was necessary to fill the gap vacated by private business.

Why is a new New Deal necessary today? We are ignoring very real crises that could precipitate another Great Depression—maybe not this year or next. One such is looming Climate Change, or Global Warming, that could even create another World War says the U.S. Pentagon in several congressionally-mandated reports, as increasing droughts and rising oceans begin to drown coastal cities and even countries.

Professor James Livingston, a Rutgers University historian, has highlighted the excesses in capitalism responsible for the many post- World War II recessions we have endured (five just since 1980) in a NYTimes Op-ed.

It’s the decline of private sector investment over the past century in anything that continues to grow the American economy for all Americans. Corporations instead began to pay themselves a larger share of their profits in stock buybacks and higher CEO and executive salaries.

“So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.”

In the words of columnists Nicholas Kristoff and wife Sheryl Wudunn via a NYTimes’ Op-ed describing their new book, Tightrope, a chilling portrait of the decline of Kristoff’s tiny rural Oregon home town since the Great Recession, “First, well-paying jobs disappeared, partly because of technology and globalization but also because of political pressure on unions and a general redistribution of power toward the wealthy and corporations.”

Bernie Sanders doesn’t have to call his election platform Socialism, since the New Deal was not really a lesson in socialism, but how governments should work for all Americans in a capitalist, private-ownership economy.

Harlan Green © 2019

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Q2 3% + GDP Growth Confirmed?

Financial FAQs

The best news of last week was the ‘Yuge’ jump in consumer spending and manufacturing, which should signal a Yuge jump in Q2 GDP; perhaps to as much as 4 percent.

Graph: Econoday

 

That’s because consumers spending is up 4 percent YoY, and since it takes up 70 percent of GDP activity, it usually means at least 3 percent plus GDP for the quarter just ended, plus net exports. And manufacturing is now picking up, which is the main driver of exports.
April’s 1.1 percent consumer spending gain was the best monthly gain of the cycle since August 2009. And May's gain of 0.4 percent was the second best since November last year. So April and May together track at 4 percent annualized growth which has lifted outside expectations for 3 percent growth in second-quarter GDP, as we said.

Manufacturing activity also shot up, according to the ISM Manufacturing report. The headline index easily beat expectations at 53.2 for the best reading since February last year. The report's new orders index is especially strong, up 1.3 points in June to 57.0 with export orders now keeping up, gaining 1.0 point to 53.5 for the 4th straight plus-50 showing, says Econoday.

As if to confirm the role of exports in helping to boost GDP, the Q1 GDP third growth estimate was revised upward to 1.1 percent last week, mainly because of higher exports. Net exports added more than 1 tenth to GDP as exports rose slightly in the quarter and imports fell. An upward revision to software helped shave the negative contribution from nonresidential investment by 2 tenths to 6 tenths.

Another telling indicator of future growth is the ISM’s Chicago Purchasing Managers Index, which shows both manufacturing and non-manufacturing business activity.

Volatility is the name of the game when it comes to the Chicago PMI business activity index, which surged in June to a 56.8 level that is far beyond expectations and follows a sub-50 contractionary reading of 49.3 in the May report. And there was no indication in the May report of the strength to come as both new orders and backlog orders were in outright contraction.

But that was for May! For June, new orders are suddenly at their best level since October 2014 while backlog orders are rising at their fastest pace since May 2011.

This has to mean that sudden spring surge in growth, which in past years has surpassed 4 percent in the second quarter ending in June.

Harlan Green © 2016

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Why Slower Q4 Growth?

Gross domestic product — the value of everything a nation produces — expanded at a 0.7 percent annual rate from October to December. That’s a big markdown from 2 percent growth in the fall and 3.9 percent last spring. The economy expanded at a 2.4 percent clip last year, the same as in 2014, the Commerce Department said. Alas, the U.S. hasn’t topped 3 percent growth since 2005.

But those numbers may be revised higher, as more data on imports/exports and inventories for December come in. Hence there are two more revisions to the Q4 GDP estimate put out by Commerce. Softer consumer spending, falling exports and a smaller buildup in business inventories were largely the cause of the fourth-quarter slowdown, fresh government data showed.

Graph: Marketwatch

However, the biggest drag on growth was in industrial production. Though the drop in industrial production in the fourth quarter was concentrated not in manufacturing, per se, but in mining and utilities, mostly due to falling energy prices, says Marketwatch’s Rex Nutting.

“Manufacturing output slowed in the fourth quarter, but it did grow, at an anemic annual rate of 0.5 percent. Meanwhile, mining output (mostly petroleum and other fossil fuels) plunged at a 15.5 percent rate and utilities (hurt by the warmer-than-usual fall) saw seasonally adjusted output drop at a 15.4 percent annual rate.”

On the other hand, spending on services was higher, adding 0.9 percentage points, as was spending on goods, at plus 0.5. Residential investment, another measure of consumer health, rose very solidly once again, contributing 0.3 percentage points. Government purchases added modestly to growth.

Inflation fell again, but personal consumption is holding up, as is consumer sentiment. And next week’s December unemployment report will tell us if January growth might pick up, since strong employment tends to boost consumer spending.

Graph: Econoday

Consumer spending may not be that strong but consumer confidence is solid, at 98.1 in January, says the Conference Board. “Consumer confidence improved slightly in January, following an increase in December,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions held steady, while their expectations for the next six months improved moderately. For now, consumers do not foresee the volatility in financial markets as having a negative impact on the economy.”

The assessment of the current jobs market is favorable with only 23.4 percent describing jobs as hard to get. This is a low percentage for this reading and down more than 1 percentage point from December. But improvement here is offset by a dip in those describing jobs as currently plentiful, down 1.4 percentage points to 22.8 percent.

The bottom line is economic growth has slowed due to a decline in energy and commodity prices that hurts some industrial sectors, but it helps consumers. And consumers account for some 70 percent of economic activity these days. So look for increased government spending (state and national) on public works, as well as more new home construction to keep us out of a recession in 2016. This activity is all domestic, which isn’t affected by what is happening in China, Europe, the Middle East, Russia, and other third world countries.

Harlan Green © 2016 

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

Still Not Enough Jobs!

The economy produced 292,000 jobs in the final month of 2015, the Labor Department said Friday. Pundits had predicted a 200,000 plus increase in nonfarm jobs. And because job creation exceeded their predictions, those pundits and some economists will say the Fed has to continue to raise their rates this year. But in spite of the good jobs numbers over the past 3 months—some 2.7 million jobs were created in 2015—there are still more than 7 million job seekers that can only find part time work or no work.

Employment gains in November and October were also considerably stronger, Labor Department revisions show. Some 252,000 new jobs were created in November instead of 211,000. October’s gain was raised to 307,000 from 298,000, marking the biggest increase of 2015.

Graph: Marketwatch

But continuing to raise interest rates will only hurt economic growth, when real GDP growth is still in the 2 percent range. In fact, annual GDP growth has averaged just 2.21 percent since 2010, and been declining since 2000.

Why the slow growth? A major reason is the decline in household incomes since the 1970s that have barely kept up with inflation. Hourly pay has risen just 2.5 percent in the past 12 months, matching a six-and-a-half-year high—which isn’t very high. And that has hurt personal consumption—i.e., consumer spending—which hasn’t been able to rise enough to offset the other factors holding back growth—such as almost no government investment in R&D, and public infrastructure, seriously hurting economic productivity.

That’s because most jobs were created in the lower-paying service sector, while millions of higher-paying manufacturing jobs have migrated overseas. So most workers aren’t getting big bumps in their paychecks. Hourly pay usually rises at a 3 percent to 4 percent annual pace when the economy is really humming.

And that is the ‘real’ reason we have had almost non-existent inflation. It is the hourly pay of the 80 percent of non-supervisory workers that contribute two-thirds of product costs, and it is the direction of product costs that determine whether prices are rising (or falling).

In fact, the Fed should be signaling it wants inflation to rise to the 3 to 4 percent range, a sign that wages are finally rising beyond inflation.  Because that would raise market interest rates that savers are calling for, without the Fed having to intervene.

Harlan Green © 2016

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

Don’t Count On Inflation Moving Federal Reserve

Popular Economics Weekly

The Federal Reserve didn’t raise interest rates today at the close of their FOMC meeting. In fact the 9-1 vote against raising rates wasn’t even close. So don’t count on inflation to save the day for the deficit hawks demanding that the Fed must raise interest rates.

Inflation is not imminent or even possible in today’s low demand, slow growth, and world-wide economies. It ain’t going to happen. Inflation won’t happen, not only because the Asian tigers are overproducing and under pricing everything—hence China’s problem—or that many economists now believe in the so-called ‘new normal’ of slower economic growth model, due to slowing population and labor productivity growth.

Here is the U.S. CPI, or retail inflation rate. It’s basically zero or negative, and has been since January 2015.

Graph: Trading Economics

The eurozone’s inflation rate is no higher, in spite of their Austerians’ (read German) insistence that it’s right around the corner (if only growth would increase). It experienced its second recession in 2011, and growth hasn’t really recovered with an 11 percent plus average unemployment rate throughout the eurozone, except in Germany.

Graph: Trading Economics

Because it’s as much due to misguided government policies by the modern Austerians that have stopped eurozone growth by demanding draconian cuts in government spending and budget deficits that would create growth. But U.S. austerity advocates have damaged our growth, as well, with measures such as our current sequester agreement that caps government spending.

The result is very little investment in the areas that increase future growth, such as modernizing public infrastructure, increasing educational opportunities, and Research & Development that got us to the moon and created the Internet.

Yes, it is those politicians and the economists supporting them that are destroying our seed corn that nurtures future growth. There is no incipient inflation, nor will there be for years to come. The disinflationary spiral world economies are currently experiencing are due as much to misplaced policies and ideologies that don’t create growth as to slower population growth in the developed economies.

How then will those that want to continue the trickle down economic policies that say only the wealthiest are able to create more growth with their $Trillions, to justify transferring so much of the nation’s wealth to those overpaid CEOs and hedge fund managers?

Harlan Green © 2015

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

Construction, Retail Sales Higher

The Mortgage Corner

The strength of the economy right now is in the housing and construction sectors, again areas insulated from global factors, such as China’s slowdown. Construction spending, next to vehicle sales, is perhaps the week's best surprise, rising 0.7 percent for a second straight month, and 13.7 percent annually. Why? Rents are rising fast, which means many householders will start thinking about whether buying with today’s ultra-low mortgage rates as the better alternative.

Graph: Econoday

The Econoday graph shows the slope has steepened nicely in the spring and summer. The latest gain is centered in the most important component of all, single-family homes where construction spending rose 2.1 percent in the month for a year-on-year gain of 15.8 percent. Multi-family homes slowed in the month but the year-on-year rate, reflecting demand tied to high rents, is still outstanding at 21.2 percent.

Graph: Econoday

And auto sales are up a surprising 1.5 percent to a 17.8 million annual rate, with 14.1 million sales of domestic-made vehicles. The gain points to another strong month for retail sales in what would underscore the insulated strength of the domestic economy. It was outsized strength in the auto sector that supported the factory sector in June and July, though August's sales gain was centered in foreign-made vehicles. Still, sales of domestic-made cars and light trucks, which make up 80 percent of all sales, are at very strong levels.

In fact, retail sales just in this morning show a 2.2 percent annual gain, with strong sales in auto and food service. It could ave been above 3 percent if gas prices hadn’t fallen, but then would consumers be buying as much if gas prices were higher? This should mean Q3 GDP growth will again exceed 3 percent, following a revised Q2 reading of 3.7 percent by the BEA.

Graph: Calculated Risk

Will more renters be buying homes this year? The best way to compare rents to housing prices is the price-to-rent ratio. It is leveling off, which means rents are rising as fast as housing prices—some 5 percent of late. Combine that with conforming 30-year fixed mortgage rates of 3.75 percent, and we will have more renters looking to buy a home this year, at least. And the tax advantages of owning vs. renting really mean it’s more advantageous to buy over the longer term, rather than give the tax advantages to a landlord.

Harlan Green © 2015

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

Consumers Lead Growth, and Business Investment

Financial FAQs

The U.S. economy grew at a faster 3.7 percent annual clip in the second quarter, up from the initial estimate of 2.3 percent, the Commerce Department said Thursday. Why was that a surprise to those short sellers afraid of Chinese market contagion, now that the DOW and all stock indexes have soared over the past 2 days?

It’s a repeat performance of the past 2 years. Those severe winters stopped growth in the first quarters of 2014 and 2015, which then snapped back once the Polar Vortex deep freeze melted away. Q1 GDP grew just -0.9 and + 0.6 percent, respectively during those winters. But the Q2s rebounded to 4.6 and 3.7 percent, respectively, once Spring came. So China’s economic ups and downs have had very little effect on U.S. growth.

Graph: Trading Economics

Economists had forecasted gross domestic product would be revised up to 3.3 percent, but business investment was stronger than expected. Business investment helped, but it was consumers, buoyed by low interest rates and inflation boosting their confidence in future jobs and rising incomes that got them spending again. There were no ‘confidence fairies’ worried about budget deficits, in other words.

Consumer spending, always the main engine of U.S. economic activity, led the way. Spending was revised up to 3.1 percent from 2.9 percent in the second quarter after a sluggish 1.8 percent gain in the first three months of the year. No wonder, when eastern and Midwestern shoppers could barely venture from their homes during the deep freeze.

And newly revised figures from the Commerce Department show that businesses invested at a faster rate. Businesses increased investment by 3.2 percent increase instead of a drop of 0.6 percent, with spending on structures such as office buildings rising by 3.1 percent instead of an initial drop of 1.6 percent.

This is huge for real estate, in part due to lower interest rates holding down construction costs. But there was also a large build in retail inventories in anticipation of back to school and holiday shoppers. The value of inventories, which adds to GDP, increased by $121.1 billion in the second quarter instead of a previously estimated $110.0 billion.

In fact, it was real (after inflation) final sales to private domestic purchasers up 3.3 percent, a measure of activity without inventories, that did the most to boost GDP growth.

The bottom line is that consumer confidence is soaring to new heights, as we said yesterday. An enormous improvement in the current labor market (e.g., rock bottom initial unemployment claims) drove the consumer confidence index well beyond expectations, to 101.5 in August for a more than 10 point surge from July. A rare 6.5 percentage point drop to 21.9 percent in those describing jobs as currently hard to get points to outsized gains for the August employment report.

Why is this a surprise? With the unemployment rate down to 5.3 percent, and more than 8 million jobs created since 2008, maybe consumers are finally convinced the U.S. economic growth is for real. The gain for this confidence reading lifts the present situation component, a near term confidence reading, to 115.1 for a more than 11 point increase over July that points to consumer power for August (and maybe September, October, then into the holidays).

Graph: Econoday

With consumer spending soaring, corporate profits continue to surge, hence the increase in business investment. Just reported profits in the second quarter came in at $1.824 trillion, up a year-on-year 7.3 percent.

So let’s not forget that gas prices are closing in on $2 per gallon in many parts of the country, which holds down inflation, which in turn boosts incomes. So consumers are beginning to show they are the real beneficiaries of lower oil-energy prices, no inflation pressures, and rising incomes.

Harlan Green © 2015

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Better Economic Growth Coming?

Popular Economics Weekly

Barron’s economist Gene Epstein forecasts the possibility tomorrow’s Q2 GDP growth could be revised from 2.3 to 3.5 percent. I believe he’s a bit optimistic, but today’s snapback of stocks does mean that emerging market problems may have panicked the day traders that are seldom interested in fundamentals.

Those fundamentals are impressive—durable goods orders are up, and consumer confidence is soaring. New-home sales are advancing due to rock bottom interest rates, thanks in part to plummeting oil prices. And gas prices in some east coast areas are close to $2 per gallon. That is boosting retail sales and Fall season back to school spending.

Consumer confidence is soaring to new heights. Econoday reports “Enormous improvement in the assessment of the current labor market drove the consumer confidence index well beyond expectations, to 101.5 in August for a more than 10 point surge from July. A rare 6.5 percentage point drop to 21.9 percent in those describing jobs as currently hard to get points to outsized gains for the August employment report.”

Econoday

This reading will have forecasters scratching their heads. The gain for this reading lifts the present situation component to 115.1 for a more than 11 point increase from July that points to consumer power for August.

And consumer spending is consequently soaring. Big upward revisions underscore a very solid and very important retail sales report. Retail sales rose 0.6 percent in July with June revised to unchanged from an initial reading of minus 0.3 percent and with May revised to a jump of 1.2 percent from 1.0 percent. The revisions to June and May point to an upward revision for second-quarter GDP.

Exports have been weak but they didn't hold down July's durable orders which, for a second straight month are strong and strong nearly across the board. New orders rose 2.0 percent in the month which easily beat out top-end Econoday expectations for 1.2 percent. Excluding transportation, orders rose 0.6 percent which is near the top-end forecast for 0.7 percent. Capital goods data show special strength with nondefense ex-aircraft orders up 2.2 percent following June's 1.2 percent gain and with related shipments up 0.6 percent following a gain of 0.9 percent.

Lastly, even new-home sales have picked up, which gives a boost to economic growth within the construction, insurance, and professional occupations. New home sales rose solidly in July from a downdraft in June, up 5.4 percent to a 507,000 annual pace. Year-on-year, sales have surged, up 26 percent. The strength in sales has thinned an already tight market where supply is at 5.2 months, down from 5.3 months in June and compared with 6.1 months a year ago.

Harlan Green © 2015

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Higher Birth Rates Are Here

The Mortgage Corner

The mellennial generation, now aged 18 to 36 years, are beginning to drive higher birth rates. And that means more households being formed, which will ultimately create a higher demand for housing. Actually, a 4 million birth rate was breached in 2007, and births then declined due to the Great Recession. But the millennials are back above the 4 million birth rate again.

And housing construction is surging—no coincidence, given the rising demand for housing of any kind—rental as well as for prospective homeowners. Led by a strong jump in single-family production, nationwide housing starts inched up 0.2 percent to a seasonally adjusted annual rate of 1.206 million units in July, according to newly released data from the U.S. Department of Housing and Urban Development and the Commerce Department. This is the highest level since October 2007.

“This month’s drop in the more volatile multifamily side is a return to trend after an unusually high June,” said NAHB Chief Economist David Crowe. “While multifamily production has fully recovered from the downturn, single-family starts are improving at a slow and sometimes intermittent rate as consumer confidence gradually rebounds. Continued job and economic growth will keep single-family housing moving forward.” 

Births had declined for five consecutive years prior to increasing in 2013. They are about 7.7 percent below the peak in 2007 (births in 2007 were at the all-time high - even higher than during the "baby boom"). “I suspect certain segments of the population were under stress before the recession started,” says Calculated Risk’s Bill McBride, “- like construction workers - and even more families were in distress in 2008 through 2012. And this led to fewer babies.”

Graph: Calculated Risk

The above historical graph dates back to 1909, and the largest dip was before and during the Great Depression. It hit bottom in 1933, before beginning to rise again until it hit the baby boomer bulge of the 1950s and 60s.

This has to be the main reason home builder sentiment is at a 10-year high. The new home sector is increasingly a central source of strength for the economy and builders are increasingly optimistic, says the NAHB. The housing market index rose 1 point to a very strong 61 in August with the future sales component leading the way at 70. Current sales are at 66 with traffic continuing to lag but less so, at 45 for a 2 point gain in the month.

“Today’s report is consistent with our forecast for a gradual strengthening of the single-family housing sector in 2015,” said NAHB Chief Economist David Crowe. “Job and economic gains should keep the market moving forward at a modest pace throughout the rest of the year.”

Single-family starts rose 12.8 percent to a seasonally adjusted annual rate of 782,000 units after an upwardly revised June reading while multifamily production fell 17 percent to 424,000 units. And rising single family starts is another sure sign that more families and households are being formed.

What age group is having the most births? It is women in their 30s. The preliminary birth rate for women aged 30–34 in 2014 was 100.8 births per 1,000 women, up 3 percent from the rate in 2013 (98.0). The rate for this group has increased steadily since 2011. The number of births to women in their early 30s also increased in 2014, by 4 percent.

The rate for women aged 35–39 was 50.9 births per 1,000 women, up 3 percent from 2013 (49.3). The rate for this group has increased steadily since 2010. The number of births to women in their late 30s increased 5 percent in 2014.

Need we say more about the rising birth rate? All signs point to another upsurge in new household formation, needless to say, the main driver of real estate sales and the concomitant sectors that aid and drive RE—jobs in construction, insurance, professional fields, and banking, for starters.

Could it be that the real estate industry will drive 3 percent plus GDP growth for the rest of 2015, even if interest rates rise slightly? Rates are still at record lows with the conforming 30-year fixed rate at 3.625 percent for 1 origination point, and purchase mortgage applications still up 19 percent year over year, reports the Mortgage Bankers Association.

Harlan Green © 2015

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

Iran Agreement Means Low Inflation, Higher Growth

Financial FAQs

Although economists haven’t yet begun to crunch the numbers, Iran’s agreement not to produce atomic weapons or weapon-grade plutonium for at least 10 years will result in much lower oil prices, thus keeping inflation in check and interest rates at their current lows for some time to come, if not years.

This is if Congress approves the deal, of course. But lifting the economic sanctions will enable Iran to begin to sell its oil internationally sometime next year, into a world already flooded with oil products, though there is some uncertainty when this will happen.

Barron's, for instance, believes it will happen slowly, which might not affect oil prices in the short term, at least. When and if sanctions are lifted, Iran's oil production has to be ramped up, facilities upgraded, so that its products will only gradually reach international markets.

Graph: TradingEconomics

This is when retail inflation via the Consumer Price Index is already zero—i.e., retail prices aren’t rising at all. So it will give Janet Yellen’s Federal Reserve room to keep interest rates lower longer, thus boosting consumer spending and housing, which is beginning to show more robust growth with builder confidence at its highest level since 2005.

It will also boost consumer incomes, which are already profiting from the low interest rate environment that has reduced borrowing costs for consumers. Real (after inflation) consumer incomes are now rising at 4 percent.

Graph: Econoday

Wages & salaries rose 0.5 percent in the month. Both proprietors' income and rental income show especially strong gains. Spending was higher for durables, especially to autos, and also strong gains for non-durables, partly because of higher gas prices.

This in turn is boosting consumer spirits, with both the Conference Board and U. of Michigan surveys now at pre-recession levels.

Graph: Econoday

Optimism in the closely watched consumer sentiment report from the University of Michigan is as strong as it can get, according to Econoday. The overall index is up sharply this month and well beyond Econoday's high-end forecast. The report's expectations component, reflecting strong optimism for the jobs market, is an absolute standout at 97.8 for a 12-year high and a 13.6 point surge from May. The 13.6 point spread is the largest monthly gain since March 1991 (that's right, 1991).

There is a downside to the agreement, of course. Russia and China will benefit from doing more business with Iran, and Iran could backslide on the agreement. But there is general agreement that Iran's nuclear weapons ban will boost growth throughout developed countries with consumer-driven economies that require low inflation and cheap energy to maintain sustainable economic growth.

Harlan Green © 2015

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

A Good Jobs Report

Financial FAQs

Should we push back the first Fed rate hike to the presidential election year of 2016, because of June's softer-than-expected employment report? Nonfarm payroll growth came in at 223,000 vs expectations for 230,000 and above. It included downward revisions totaling 60,000 to the two prior months (May revised to 254,000 from 280,000 and April to 187,000 from 221,000), said the Bureau of Labor Statistics report.

I doubt the Fed will wait that long, as the most recent economic data shows boom times—from rising home prices, as well as construction spending, and manufacturing activity on the rise again. This could be a temporary softness, in other words, as the US economy approaches full employment.  And it is a good jobs report, given all the uncertainties affecting economic growth these days.

Softness in payroll growth was combined with softness in wage pressures with average hourly earnings unchanged in the month and the year-on-year rate moving down to 2.0 percent from 2.3 percent. But that can be deceptive. Median household wages are now rising 3 percent, which means the income ‘bar’ for 50 percent of the families doing well is rising faster than inflation.

Graph: Marketwatch

But there is still a lot of labor slack in our job market that Fed Chair Yellen has been talking so much about. This is most evidenced by part-timers who would rather work fulltime, according to the BLS. Their numbers are declining, from 6.65 million to 6.51 million in one month, but would still have to drop by one-third to return to the range that prevailed from the 1970s until the start of the Great Recession in this Calculated Risk graph.

Graph: Calculated Risk

And the labor force participation rate just declined to 62.6 percent, from its historical 67 percent in the Calculated Risk graph that dates from 1960. Economists are not sure of the reasons. It may be the working age population is not growing as fast—just 0.5 percent, instead of historical 1 percent, according to the latest census figures, but that shouldn’t affect the participation rate of those actually looking for work.

It could be that while more of the older workers are dropping out, the newest generation aged 16 to 35 years, now the largest segment, is just entering the work force. This is why the actual unemployment rate fell to 5.3 percent. More dropped out of the labor force (432,000 seasonally adjusted) than were newly employed, according to the household survey that also tracks the self-employed.

So look for a Fed rate increase before the end of 2015—but only one—maybe in September. That means 2016 might be a wild year, with both economic growth and politics dependent on so many factors—such as the dollar strength, inflation, the price of oil, the Eurozone, and even geopolitical uncertainty.

Harlan Green © 2015

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

Janet Yellen and Interest Rate Futures

Financial FAQs

The consensus of economists from Fed Chairperson Janet Yellen’s press conference was that the Fed is in no hurry to raise interest rates. Why should they with employment growing, but not wages? Because workers aren’t getting their fair share of the economic pie (i.e., of increases in productivity and profits), and future economic growth still looks dicey.

“I did say when we agreed that labor markets slack has diminished to some extent, in the inter-meeting period and clearly over a longer span of time over the last several years, obviously we have made considerable progress in moving towards our goal of maximum employment,” said Dr. Yellen. “So in spite of the fact that there is some progress on that front the committee wants to see some further progress before feeling that it will be appropriate to raise rates.”

For starters, economic growth is still not sufficient to boost salaries. First quarter U.S. GDP growth was negative -0.7 percent, though it may eventually be revised upward with more data. This is while wage growth in the first quarter was just 2.3 percent, when it is above 3 percent with normal full employment.

Graph: Trading Economics

And there is very little if any inflation because of low wage growth, which takes up two-thirds of product costs. The Consumer Price Index has had zero growth over the past year—yes zero retail inflation, as the Econoday graph makes abundantly clear.

Graph: Econoday

So what is Janet Yellen’s Federal Reserve to do in such a case? It has to continue to wait for a number of economic factors and trends to develop. For instance, Europe is teetering on the edge of its third recession since 2009, and Greece about to exit the Eurozone. The ensuing economic uncertainty can only hurt exports, since Europe accounts for 25 percent of U.S. exports, and our strong dollar is making U.S. exports less competitive everywhere (though it has meant cheaper oil and gas prices, and a lower trade deficit).

Graph: Trading Economics

Europe is definitely hurting, in other words. “The Gross Domestic Product (GDP) In the Euro Area expanded 0.40 percent in the first quarter of 2015 over the previous quarter,” says Trading Economics. “GDP Growth Rate in the Euro Area averaged 0.36 percent from 1995 until 2015, reaching an all-time high of 1.30 percent in the second quarter of 1997 and a record low of -2.90 percent in the first quarter of 2009.”

“We can only do what is in our power to attempt to minimize needless volatility that could have repercussions for other countries or financial stability more generally and that is to attempt to communicate as clearly as we can about our policy decisions, what they will depend on and what we are looking at,” said Yellen.

She couldn’t be clearer on the need to pay attention to what is happening in the rest of the world as well as with US, in other words.

Harlan Green © 2015

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

Still No Signs of Inflation, Or Higher Growth

Financial FAQs

We still see no signs of inflation, in spite of the oil price hikes. The latest sign is the wholesale Producer Price Index (PPI) of wholesale goods. It is down and continuing to fall, in a word. Producer prices for total final demand fell 0.4 percent in April which is far below the Econoday low estimate for minus 0.1 percent. And this isn’t a good omen for higher growth this year.

Graph: Econoday

It also means the Fed may be in no hurry to raise interest rates this year at all. Or, or to sell any of the $4 trillion in securities it has purchased to keep more $$$ in circulation. Unfortunately, these $$$ are going nowhere, since they end up with those that need money the least, the top one percent income earners. The savings rate of the wealthiest is now above 50 percent, whereas that of the poorest 20 percent Quintile among US is basically down to 0 percent—that’s right, they are unable to save at all.

Graph: Business Insider

So now we know why the easy money Fed policies haven’t had more effect on boosting our GDP growth rate above 2 percent. In the last two decades, like that of many other developed nations, US growth rates have been decreasing. In the 50’s and 60’s the average growth rate was above 4 percent, in the 70’s and 80’s dropped to around 3 percent. In the last ten years, the average rate has been below 2 percent, in large part because household incomes have declined for most Americans that now spend more than they save to even maintain their current standard of living.

Graph: Trading Economics

Excluding food & energy, PPI producer prices fell 0.2 percent which is below the low estimate for no change. The overall year-on-year reading is at a record low of minus 1.3 percent. So there is little US demand for the raw materials that make up PPI components, including oil and gas, at the moment. So called Final energy demand fell a steep 2.9 percent in April with the year-on-year rate at minus 24.0 percent. Gasoline prices fell 4.7 percent in the month.

Final demand for food extended its long negative run, at minus 0.9 percent with the year-on-year rate at minus 4.2 percent. Final demand for services is down 0.1 percent with the year-on-year rate one of the few readings in the plus column, at 0.9 percent which nevertheless is well below the Fed's general inflation target of 2.0 percent.

Is this just from the winter freeze and tornadoes that have hit the South and Midwest? Or, will it be necessary to find other ways to put some of those savings to work to repair our ageing infrastructure that would boost our growth rate, and keep government solvent?

Harlan Green © 2015

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

5.4 Percent Unemployment--223,000 New Jobs in April

Popular Economics Weekly

Today’s unemployment report is gangbusters, as I predicted, with employment returning to pre-recession levels. The U.S. churned out 223,000 new nonfarm payroll jobs in April, which means the US economy’s winter deepfreeze was temporary, but we are still not out of the Great Recession woods.

This is because rising inflation will become a factor as business activity picks up, and that will call for a premature rise in interest rates that Chairwoman Yellen and her Fed Governors have to resist. For history shows that a sustained and historic GDP growth rate of 3 percent and higher can only be achieved with inflation above 2 percent, the Fed’s target inflation rate. The “target rate” is a rather meaningless term, since it merely means the Fed has to begin to consider when it may have to raise interest rates as a hedge against future inflation.

Why do we need 3 percent GDP growth? It has been just 2 percent on average really since 2000. We can’t even approach full employment; much less raise wages enough to bring back some semblance of a middle class, otherwise. In fact, there is very little of the middle class left in terms of earning power, with average household incomes still stuck at 1970’s levels when inflation is accounted for.

Graph: Marketwatch

Most major segments of the economy except for the energy industry added workers last month, with government finally beginning to hire back some of the 600,000 jobs lost during the Great Recession. The unemployment rate sank to 5.4 percent from 5.5 percent, the lowest level since mid-2008.

And stocks are rallying with the DOW up more than 200 points, so fears of slowing growth from last month’s ultra-low job creation numbers were overstated. What’s more, the number of people who entered the labor force in search of work also rose, a sign jobs are easier to find. The Labor Department’s separate JOLTS report also showed 5.13 million job openings in February, an all-time high.

American workers hourly pay barely rose above inflation, however. The average pay of employees rose 0.1 percent in April to $24.87 an hour, and rose 2.2 percent over the past 12 months. But this still isn’t enough to boost GDP growth higher. Wages and salaries have to rise to 3 percent annually to bring back a historical growth rate of 3 percent plus that economists are predicting for the rest of 2015.

Graph: Trading Economics

The CPI inflation Rate in the United States averaged 3.33 percent from 1914 until 2015, says Trading Economics, reaching an all-time high of 23.70 percent in June of 1920 and a record low of -15.80 percent in June of 1921. And it has to reach the historical average to bring back historical growth.

That is most crucial. For it will take a very accommodative Fed policy under Chairwoman Yellen to make that happen. It also means the inflation rate itself will have to rise to at least 3 percent for wages to rise faster. And the bond vigilantes will begin to scream as soon as inflation even reaches 2 percent.

So Yellen and the Fed Governors must continue to maintain low enough interest rates to allow for a higher inflation rate. The greatest fear from the current slow growth seems to be that of small businesses that comprise some 50 percent of private sector jobs, as reported by the National Federation of Independent Business.

“Overall the economy will keep moving forward, but more like a turtle than a hare. Bad weather was certainly depressing and Washington politics remains focused on issues that have little bearing on the current economy,” said Bill Dunkelberg, NFIB Chief Economist

The bottom line is there are more available job openings than ever, and wages and salaries are beginning to grow above the inflation rate. This is a sure sign of a virtuous circle. But policy makers have to allow prices to rise enough to increase business profits above and beyond the inflation rate. This is how economies growth, as I said in our last column.

Harlan Green © 2015

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

More Jobs On the Way

Popular Economics Weekly

It looks like the April unemployment report out on Friday could be gangbusters. Not only because U.S. winters have been so severe of late, and job formation abnormally low. But because manufacturing jobs in particular are returning to US.

Sixty thousand manufacturing jobs were added in the U.S. in 2014, versus 12,000 in 2003, reports Marketwatch, either through so-called reshoring, in which American companies bring jobs back to the U.S., or foreign direct investment, in which foreign companies move production to the U.S., according to a study from the Reshoring Initiative. In contrast, as many as 50,000 jobs were “offshored” last year, a decline from about 150,000 in 2003.

One reason is our increased cost competitiveness, with lower oil and gas prices reducing energy costs, and wages rising in Asia as their consumers move into the middle class. Also our booming service sector—April’s ISM non-manufacturing index just rose to 57.8 from 56.5 percent—has increased our demand for goods and services. These are service sector products and services that can only be consumed domestically, and so durable goods made for them would be cheaper if produced closer to home, with the aforementioned factors.

Graph: Econoday

New Orders are very strong, at 59.2, as are backlog orders, at 54.5 which is unusually strong for this reading. Strong orders point to future hiring which is already very strong, at 56.7. The percentages are a measure of optimism or pessimism. When more than 50 percent of respondents report positive results in all these areas, then service sector is expanding.

Among the world’s top 10 export economies, the U.S. last year ranked No. 2 — behind only China — for cost competitiveness, according to the Boston Consulting Group, with real estate and natural gas and other energy prices tending to apply downward cost pressure in the U.S.

CEO Jeff Immelt of GE has said the U.S., on a relative basis, has never been more competitive. For instance, he’s said it takes three hours or less to make a refrigerator, so the total cost can be lower to have it made domestically versus in China or Mexico when factoring in other costs including transportation.

Secondly, the Labor Department’s latest JOLTS report showed the highest number of job openings since January 2001. The latest Job Openings and Labor Turnover Survey reported 5.13 million job openings in February,

Graph: Calculated Risk

The number of job openings (yellow) is up 23 percent year-over-year compared to February 2014. Quits are up 10 percent year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). It means an improving jobs market, since workers are increasingly willing to leave their current jobs for better jobs elsewhere.

The employment picture is also better with small business that creates a majority of domestic jobs, as the NFIB, National Federation of Independent Businesses, have reported steadily increased employment in 2014, though 2015 is showing a slight drop in business optimism, probably due again to winter.

The net percent of owners reporting an increase in employment fell 5 percentage points to a net negative 1 percent of owners, said the NFIB, down substantially from the recent high of 9 percent in December 2014. Fifty percent reported hiring or trying to hire (down 3 points), but 42 percent reported few or no qualified applicants for the positions they were trying to fill. 

Ten percent reported using temporary workers, down 2 points. Twenty-four percent of all owners reported job openings they could not fill in the current period, down 5 points from February which was the highest reading since March, 2006. A net 10 percent planning to create new jobs, down 2 points but a solid reading.

“Overall the economy will keep moving forward, but more like a turtle than a hare. Bad weather was certainly depressing and Washington politics remains focused on issues that have little bearing on the current economy,” said Bill Dunkelberg, NFIB Chief Economist

The bottom line is there are more available job openings than ever, and wages and salaries are beginning to grow above the inflation rate. This is a sure sign of a virtuous circle. Increased household incomes means more demand for products, which creates more jobs, which in turn creates even more demand. This is how economies growth.

Harlan Green © 2015

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

Fannie Says Better Growth For Rest of 2015

Popular Economics Weekly

“Economic activity was suppressed in the first quarter due largely to the West Coast port disruptions and difficult weather patterns across the Northeast, but the economy is expected to gain momentum throughout the spring and reach previously anticipated levels by year-end,” said a just released Fannie Mae’s Economic & Strategic Research Group report.

Is this a repeat of 2014, when growth surged for the rest of the year? It is what happened in 2014, due to last year’s deep freeze. In fact, it should be a repeat, as consumers aren’t spending much in Q1, the weather is as bad—whether blizzard, flood, or drought in the west—and Congress may be as gridlocked in ideological warfare as ever, and is therefore unable to do more harm to growth that it has in the past.

Graph: Trading Economics

We started out 2014 with a negative GDP growth rate of minus -2.1 percent. But it jumped to 4.6 and 5 percent in Q2 and Q3, such was the pent up demand from those very good jobs numbers. Just in the last 12 months 3.1 million jobs have been created, and consumers are in an almost ebullient mood. But consumers have to stop saving so much of their increased earnings, if that is to happen.

Fannie believes there’s also another ingredient to boost growth. An improved housing market as incomes improve and interest rates stay near record lows. “Our forecast calls for an increase in economic growth to 2.9 percent for 2015, which is a slight downward adjustment from our prior forecast but solid improvement nonetheless,” said Fannie Mae Chief Economist Doug Duncan

.

Graph: Econoday

Stronger retail sales gave an indication of the future. Sales of goods and services in March rebounded 0.9 percent after dropping 0.5 percent in February. The market consensus for March was for a 1.1 percent boost. Excluding autos, sales gained 0.4 percent, following no change in February. Expectations were for a 0.6 percent increase. Gasoline sales dipped 0.6 percent after a 2.3 percent increase in February. Excluding both autos and gasoline, sales rebounded 0.5 percent after declining 0.3 percent in February.

 

Graph: Econoday

However, the Conference Board’s Index of Leading Indicators is not so optimistic about future growth. Its 12 components predicted slower growth over the next 6 months. “In the negative column are building permits which, Thursday's disappointing housing starts report, fell sharply,” said Econoday.” This is a reminder that housing, despite some hopeful signs, has yet to boost economic growth. And declines in the factory workweek and for factory orders are reminders that the manufacturing sector, due in part to weak exports (and strong dollar), may now be pulling down economic growth.”

Let’s hope Fannie Mae is right. “Although we are beginning this year at a more modest pace compared to the above-trend numbers seen at mid-year 2014,” says the report, “the country’s aggregate income has benefitted from the improving labor market, which, combined with low gasoline prices, should help drive higher auto sales and overall consumer spending throughout 2015.”

So it may just be the gloom of winter’s cold that has been holding back economic growth in Q1, especially housing, and that more buyers will enter the housing market this selling season.

Harlan Green © 2015

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Celebrating Our Great Society

Popular Economics Weekly

We are in the midst of celebrating the 50^th anniversary of President Johnson’s Great Society, enacted for the most part from 1964-66, perhaps the greatest legislative achievement of any president since FDR and the New Deal.

We know how FDR’s New Deal improved the lives of millions, literally preventing tens of thousands from starving to death during the Great Depression, and giving millions more a useful and productive public service job when there were none to be had in the private sector.

But the results of the Great Society are perhaps more mixed. That’s only if we wonder what might have happened if the U.S. economy was an ideological utopia, which didn’t go through its cycles of boom and bust, or the Vietnam War, or an Arab Oil Embargo, or 5 recession since 1980—the housing bubble and Great Recession being the latest examples.

Many of the programs were stymied by those events that took money away from social programs; in particular the Office of Economic Opportunity that funded many public programs similar to the Depression’s WPA. Conservatives’ ire is particularly directed at the spending for anti-poverty programs that were supposed to eliminate poverty, but were in fact meant to give the poorest a ‘leg up’ in their race to escape poverty.

Spending to help the poor doubled from 1965-68, and within 10 years the percentage of Americans living below the poverty line declined to 12 percent from 20 percent. Those were also the years of highest economic growth of the middle class. The rate has fluctuated greatly in the past 50 years. According to the census, 15.9 percent of Americans lived in poverty in 2012, which is just a couple of points lower than where the Census estimates it stood in 1965.

We really don’t know, for instance, how many jobs were created by the Office of Economic Opportunity. Those were also boom years when President Johnson dropped the top marginal tax rate from 91 to 71 percent. More than 4 years of 6 and 7 percent Gross National Product growth followed, employing anyone that wanted a job. The U.S. Gross National Product (Since 1991 the U.S. has used Gross Domestic Product as a more accurate measure of US output.) rose 10 percent in the first year of the tax cut, and economic growth averaged a rate of 4.5 percent from 1961 to 1968, says Wikipedia.

Johnson's tax cut measure triggered what one historian described as "the greatest prosperity of the postwar years," according to the Washington Post. GNP increased by 7, 8 and 9 percent in 1964 to 1966, respectively. The unemployment rate fell below 5 percent. But the OEO did much more, as did most of the Great Society programs.

Do we really have to be reminded of the Clear Air and Water Acts that have kept our water and air cleaner than they would have been otherwise?  Or the Civil and Voting Rights Acts that banned discrimination and abolished the blatant ban on African Americans voting in the South?  Or the enactment of Medicare and Medicaid that has reduced the poverty rate of seniors from 1 in 7 living below the poverty line in 1965 to 1 out of 3 in 2013? 

We also now have consumer protection laws such as the Cigarette Labeling and Advertising Act requiring labeling of dangerous chemicals in cigarettes, and the National Highway Safety Administration setting safety standards for our highways.  Almost all of the Great Society programs have saved or improved the lives of millions of Americans.

That is something that can only be measured in non-economic ways. Head Start, for instance, has served more than 31 million children from birth to age 5 since 1965. In 2012-13, 1.13 million children and pregnant women were served by Head Start, according to the program. The vast majority – 82 percent – were children ages 3 and 4.

And how do we measure the value of its cultural contributions, such as PBS, the Public Broadcasting System that has 987 stations nationwide – most locally owned and operated – that broadcast NPR programming?

The Great Society also led to the fruition of the John F. Kennedy Center for the Performing Arts in Washington and created the National Endowment for the Humanities, which is one of the largest arts and culture funders in the United States.

These institutions and programs of the Great Society have in fact given a national voice to our hopes and dreams, because a nation that doesn’t care for its citizens’ hopes and dreams is a nation that has no future.

Harlan Green © 2015

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Will 2015 Interest Rates Remain This Low?

The Mortgage Corner

Record low interest rates are holding, in spite of the latest stock market selloffs, and may remain low throughout 2015. Why? Oil prices are still below $50/barrel, and overall prices are falling throughout the developed world. The Eurozone in particular has fallen into such deflationary times that some euro bonds have negative interest rates. That means holders of those bonds have to literally pay interest to hold them (i.e., government issued bonds), believe it or not.

Graph: Trading Economics

This is while the U.S. inflation rate has fallen to 1.3 percent, below the Fed’s 2 percent target that would mean prices are rising enough to sustain economic growth—in part because of those plunging oil prices. And because low oil prices will probably be sustained for at least 2 years, according to energy analysts, Janet Yellen’s Fed shouldn’t be tempted to raise their rates until later this year, if at all.

Oil prices are likely to stay at $60 a barrel or lower for the next two years as US shale extraction continues to suppress prices, according to the International Energy Agency’s latest report. After plunging from $115 a barrel in June to little more than $45 in January, the price of Brent crude has rallied recently, but the IEA said price pressures could have further to go.

“Despite expectations of tightening balances by end-2015, downward market pressures may not have run their course just yet,” the IEA, which advises mainly developed economies on the oil market, said in a monthly report.

There’s another reason for the Fed not to raise rates anytime soon, even though the so-called “confidence fairies” (P Krugman’s term) demand it; which are mainly deficit hawks that see inflation right around the corner, even when there’s none.

Graph: P Krugman

Because we are still not close to full employment, in spite of February’s 5.5 percent unemployment rate. Annual household median incomes after inflation have plunged 7.42 percent since the Great Recession, from $68,931 to $63,815. And history both here and in Europe has shown that tightening credit when household incomes haven’t recovered (either by raising interest rates, or otherwise restricting credit) can stop an economic recovery in its tracks.

That also means today’s long term mortgage rates, such as for the conforming 30-year fixed rate—should remain at or below 4 percent for the rest of 2015. Today, the 30-year conforming rate is 3.75 percent, still a very affordable mortgage.

Harlan Green © 2015

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

What Will February Employment Report Be?

Popular Economics Weekly

We are already getting predictions on the upcoming (Friday) U.S. unemployment report. If in line with last year’s 3 million total, it works out to 250,000 nonfarm payroll jobs (i.e., excluding the self-employed) per month. The Bureau of Labor Stats payroll report is considered the more accurate of the 2 reports—Establishment (payrolls only) vs. Household (includes self-employed) surveys—since the Establishment sample of businesses surveyed is much larger.

Graph: Calculated Risk

Some 257,000 jobs were added to payrolls in January, a surprising total, considering it was in mid-winter. All sectors were hiring, and higher personal incomes and expenditures are the result.

Personal incomes are rising at a healthy 4.6 percent annual clip, and expenditures are rising 3.5 percent per annum. Whereas the so-called PCE price deflator showed just 1.3 percent annual inflation, and it is the preferred Federal Reserve inflation indicator.

So we have once again a goldilocks economy—not too hot or cold—with low prices fueling robust consumption. That is why consumers are remaining confident of their financial future, as the latest confidence and sentiment surveys confirm.

Buttressing that optimism is a little noticed Misery Index that only pops up when there is an economic inflection point, such as now with the uncertainty as to when the Fed will begin to raise interest rates. The Misery Index that combines unemployment and inflation rates is at an all-time low, at the moment. The last time it was this low is 2006, during the housing bubble.

It is the sum of the unemployment + inflation rates, which today are 5.7 percent + 1.3 percent, respectively, which equals 7 percent! Less misery is less spending pain felt by the consumer. And less pain means shopping becomes more pleasurable, hence fuels higher profits and more job formation.

We therefore see solid job formation in 2015, even if interest rates begin to rise sometime later in the year.

Harlan Green © 2015

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