When the Return to Normal?

 Financial FAQs

Calculated Risk

When will most American workers return to work, and the U.S. economy return to normal? The Calculated Risk-FRED graph since 1992 tells us that retail sales have historically never varied substantially from a 5 percent annual increase, except during the blue bar recession periods indicated in the graph, and consumers and businesses have spent most of their pandemic aid. It could take another year.

The U.S. Census Bureau reported “Advance estimates of U.S. retail and food services sales for May 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $620.2 billion, a decrease of 1.3% from the previous month, but 28.1% above May 2020.”

Altogether, the number of people reportedly still receiving jobless benefits from eight separate state and federal programs totaled 14.8 million as of May 29, reports MarketWatch’s Greg Robb. It is down about 560,000 from the prior week. Last year, 30 million Americans were receiving these extra benefits, while the historical range receiving claims is in the mid-200,000s, so one can see why it might take another year for economic activity to return to normal.

Retail sales began to rebound last April with the first aid checks, and really took off this January with the additional recovery dollars going to individuals. Clothing and accessory sales are up 200 percent from May 2020, while food service and drinking places surged 71 percent and electronic and appliance stores gained 91 percent.

This sudden prosperity is creating many bottlenecks, raising all prices and shrinking the housing supply, with builders struggling to meet the increased demand.

Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,572,000. This is 50.3 percent above the May 2020 rate of 1,046,000, but is not enough construction to satisfy the soaring demand for more housing—new or used.

NAR chief economist Lawrence Yun commented on the May starts: “Despite the month-to-month trend, or even year-to-year changes, America is facing a massive housing shortage due to multiple years of underproduction in relation to population growth. We estimate around 5.5 to 6.8 million additional housing units need to be built. America is on track for only 1.6 million and 1.7 million new housing units this year and next, respectively. That would represent the best two-year performance in 15 years, yet it would still be inadequate. Therefore, expect both rents and home prices to outpace overall consumer price inflation in the upcoming years."

Calculated Risk

Where is this housing supply to come from? Estimates of population growth, demographic change, and demolitions suggest about 1.3 million households will form annually for the next few years, Goldman Sachs analysts said in a May note cited by Business Insider.

“Millennials are just reaching peak homebuying age and set to keep demand strong for the foreseeable future. Elevated lumber prices and lot shortages will continue to drag on construction even as starts accelerate. And while mortgage rates have risen from their pandemic-era floor, they still sit at historically low levels and should keep demand robust, the bank said.”

In 2021, the Mortgage Bankers Association (MBA) forecasts single-family housing starts to be around 1.134 million. And that could just be the beginning, as projections going forward are even rosier: 1.165 million single-family homes in 2022 and 1.210 million in 2023.

And we should see more entry-level homes under construction in 2021, says Joel Kan, associate vice president economic and industry forecasting at the MBA. That could help a potential pinch point, as too many entry-level buyers are helping to push up prices, making those homes unaffordable for that very group.

“We’ll see more affordable homes come onto the market as builders try to meet demand for these homes,” Kan says.

“Some 5.16 million people who have exhausted state compensation were also getting extra $300 a week in federal benefits as of May 29, down about 75,000 from the prior week,” says Robb. “The federal program ends in September and more than two dozen states are going to end the program early starting in the middle of this month.”

We know that will slow down the return to normal growth in those 25 states that are coercing their lower-paid workers to return to jobs they might not like. And that is on top of the need to find adequate housing.

Harlan Green © 2021

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

Who Lost Their Jobs?

 Popular Economics Weekly

MarketWatch.com

This would be a good jobs report at any other time. Total nonfarm payroll employment rose by 559,000 in May, from a revised 278,000 jobs in May, and the unemployment rate declined by 0.3 percentage point to 5.8 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in leisure and hospitality, in public and private education, and in health care and social assistance.

Employers are crying labor shortage because they were surprised by the sudden 6.4 percent Q1 GDP growth pickup, so they were hoping for more new hires in the May report.

But maybe there is another reason for some workers not taking new jobs as quickly as employers would like—the businesses that employed them may be permanently closed, hence the large number still receiving unemployment benefits.

The WSJ reported that the pandemic resulted in the permanent closure of roughly 200,000 U.S. establishments above historical levels during the first year of the viral outbreak, according to a study released Thursday by economists at the Fed. In recent years, about 600,000 establishments have permanently closed per year, or about 8.5 percent, according to the study, so the total number could be upwards of 800,000 businesses permanently closed during the first pandemic year.

Then why would those losing permanent jobs, permanently, want to return to work quickly? Why shouldn’t they be given time to get over their loss? Have sociologists and psychologists even studied such traumas in detail?

We know something about the hurt from permanent job losses in the Rust Belt—soaring drug use and suicide rates in studies by Nobelist Angus Deaton and Anne Case.

The Federal Reserve gives a preliminary estimate of jobs permanently lost, and as of May it was 3.234 million from 3.529 million permanently lost in April. The calculated Risk graph shows the percentage losses over all recessions since WWII, and the time it took to return to normal levels; 5 years in 2001 (light blue line), 8 years in 2007 Great Recession (dark blue line) and is still below par just 15 months from the current pandemic (red line).

Calculated Risk

Individual companies account for about two-thirds—or roughly 130,000—of the extra business closures if historical patterns hold, according to the Fed economists who examined businesses with employees, cited by WSJ. Other closed establishments are units of major companies—say, a Gap or Pizza Hut—that closed some locations while remaining in businesses.

The service sector was hardest hit and is roaring back with 292,000 jobs in Leisure and hospital, followed by Education and health, and government. More women will return to the workforce, particularly mothers when schools are fully open in the fall. Other service-oriented businesses such as hotels, museums, parks and entertainment venues also added a flush of new jobs.

And many work sites are relaxing restrictions on masks or customer occupancy with coronavirus cases falling to the lowest levels since the first month of the crisis. 

MarketWatch’s Jeffry Bartash reports the global tally for the coronavirus-borne illness climbed above 172 million on Friday, while the death toll rose to 3.7 million, according to data aggregated by Johns Hopkins University. The U.S. remained in the lead globally in cases with 33.3 million and deaths with 596,434, JHUniv data show, but the seven-day average for cases has fallen 48 percent from two weeks ago, according to a New York Times tracker, for deaths has dropped 28 percent and for hospitalizations has declined 22 percent as vaccinations continue to increase.

This all points to labor participation rates continuing to rise in the fall, though it could depend in part on those workers that lost permanent jobs working through the debilitating effects of their losses.

Who is willing to help them, other than the Biden administration that is extending jobless benefits through September, and the 25 states that have not cut off their benefits too early?

Harlan Green © 2021

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

Some Workers Reluctant to Return to Jobs

 Financial FAQs

CNBC.com

“In the week ending May 15, the advance figure for seasonally adjusted initial (jobless) claims was 444,000, a decrease of 34,000 from the previous week's revised level. This is the lowest level for initial claims since March 14, 2020 when it was 256,000,” says the US Bureau of Economic Analysis.

Most of the decline came from a decrease in those getting benefits through pandemic-related emergency programs. States showing the largest declines included Georgia (-8,216), Kentucky (-7,175) and Texas (-4,828), according to unadjusted data. New Jersey showed the biggest gain, with 4,384.

Along with the steady slide in the headline number, the total of those receiving various government benefits tumbled by nearly 900,000 to just shy of 16 million, according to BEA data through May 1.

The high number still receiving benefits has caused 23 states to back out of the $300 weekly federal bonus checks as soon as June, with Florida being the latest state to announce it is canceling extended federal unemployment benefits. That'll cut off more than 3.6 million people from getting enhanced benefits related to the pandemic that Congress has authorized to expire in September..

State governors claim that this unemployment coverage discourages workers from taking jobs, citing labor shortages. Some economists and analysts disagree, noting that several factors are preventing people from finding suitable work, including lack of child care and fear of contracting COVID-19.

The 2 million person gap between Job Openings and actual Hires in the government’s latest JOLTS report is growing evidence that there is a red-hot demand for workers after what I call the pandemic recession, even with the high number out of work and still receiving benefits.

Why the record number of job openings at the same time so many are still receiving benefits? It will take time for workers to find suitable jobs, while employers need to raise their minimum wages for essential workers in the service sector (that are the lowest paid) to attract them back to work.

Service sector employers such as Amazon say they are raising their minimum wage to $15 per hour, while Bank of America is raising the minimum wage from $20 to $25 per hour for its clerical workers.

It is perhaps why a record number of small businesses said they could not fill open jobs in April, adding to a growing national controversy over whether extra unemployment benefits are keeping scores of people from re-entering the labor force.

Some 44 percent of small businesses reported job openings went unfilled, according to the National Federation of Independent Business. The NFIB is the nation’s largest small-business lobbying group.

It is less understandable why the red states are the first to terminate extra aid to their own lowest-paid workers before September, maintaining that it is keeping them from working in jobs that probably pay less than the weekly benefits (aid that is also free $$ to the states), as I said.

It not such a good idea because cutting off the additional benefits is exacerbating the income inequality that has been a major cause of record drug use and suicide rate among high school-educated white males that have lost formerly high-paying jobs in the rust belt.

It also tells us that red states governors, (such as Arkansas Governor Asa Hutchinson in a recent NPR interview), think little of the plight of Arkansas’ own essential workers that fill most of the lower-paying jobs after having weathered one year of pandemic hell.

The good news is that workers are now getting to pick and choose what jobs they would prefer. That is just one of the changes we are seeing as the 2020’s economy begins to roar.

Harlan Green © 2021

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

When Will Growth Return?

Financial FAQs

FRED-MarketWatch

The headline decline in Q2 GDP growth only touches the surface of what economic growth to expect this fall and winter. The drop of minus -32.9 percent was inevitable with the pandemic lockdowns, but not the severity of any recovery.

Q2 plunged this much because consumer spending plunged -35 percent during this period. And since consumers power some 70 percent of economic activity—i.e., GDP growth—it will only recover when consumers feel safe enough venture out of their rabbit holes.

And when can that happen with new record COVID-19 death rates in California, Idaho, Florida, N. Carolina, Texas and Arizona? The infection and death rate curves are still rising, rather than even plateauing.

As NY Times columnist and pandemic authority Don McNeil, Jr. put it today, “One or several vaccines may be available by year’s end…But by then the virus may have in its grip virtually every village and city on the globe.”

And so consumers will not be happy, but begin to hunker down again, even without new stay-in-home mandates. It’s just too dangerous out there when there’s not even a national mandate to wear masks, much less keeping safe distances, or getting quick testing results, as I said yesterday.

That is why consumer confidence fell to 92.6 this month from a revised 98.3 in June, the Conference Board said Tuesday, which is a major indicator of future consumer behavior.

Initial jobless claims also rose last week to 1.43 million, when it should be declining. Continuing claims of those receiving benefits for more than one week now total 17 million. It is not a good sign for any fall or winter revival.

The saddest fact of this pandemic is that science doesn’t lie, but politicians do about the efficacy of mask-wearing and social-isolation, in particular. Why would they? Even asking the question flies in the face of common sense. Infected populations with such a highly transmittable disease facing possible death or even lifelong debilitation from COVID-19, will not be in any hurry to resume normal activities.

It’s as simple as that.

Harlan Green © 2020

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