What is Our 'State of the Union?'

 Financial FAQs

 

CDC.gov

This is really all we need to know about Americans’ 'state of the union' that President Biden touted last Tuesday in his annual address. Just look how low COVID infection rates have fallen in the CDC’s most recent data graph.

The CDC reported “As of February 23, 2022, the current 7-day moving average of daily new cases (75,208) decreased 37.7% compared with the previous 7-day moving average (120,761).”

Those Americans still holding back from work because they are caring for children or elderly parents, or for a myriad of other reasons due to fears from contagions, need no longer to do so. The Omicron variant has been tamed, and there are no other variants on the horizon at the moment.

The latest initial unemployment claim stats confirm that work is the best place to be now that the US economy is roaring again, wages are rising and almost 11 million job openings beckon.

 

FREDinitialclaims

New applications for unemployment benefits fell by 18,000 to a two-month low of 215,000 in the last week of February, pointing to a pickup in hiring and declining layoffs as the economy rebounded from an omicron-induced lull.

The 10-year FRED graph of initial unemployment claims shows just how normal the claims’ numbers have become. Initial jobless claims declined from a revised 233,000 in the prior week,  the Labor Department said Thursday.

Now that serious sanctions are in place, what will happen? Oil prices will surge

And inflation may be prolonged, which is another reason unemployed workers won’t remain on the sidelines much longer.

And what about the Russian Oligarchs support of Putin’s war with Ukraine? How much longer can they hold out? France just announced the first seizure of an Oligarch’s yacht In Marseille, and Treasury Secretary Yellen just announced she will be doing the same.i

“We have made it a priority to go after oligarchs or Russian elites who are key to President Putin’s corrupt power,” Yellen said. She added that Treasury, along with the Justice Department and U.S. allies, plans to “uncover, freeze and seize their wealth around the world.”

Inflation won’t recede soon with soaring oil prices, but that is also a sign that higher economic growth is in the cards for the New Year, as consumers and business continue to spend their excess savings.

Both Institute of Supply Management surveys for the U.S. service and manufacturing sectors are still in the mid-fifties, signaling that they could even go higher if it wasn’t for the supply and labor shortages.

So let’s see how long Putin’s oligarchs can hold out and support his killing of Ukrainians, which seems to be the only thing that could stop him? My guess is not for long.

Harlan Green © 2022

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Another Roaring Twenties--Part II

 Financial FAQs

UMichSentiment

For another ‘Roaring Twenties’ recovery to happen, Nobel Prize-winner Joe Stiglitz warns in Project-Syndicate that we must pass President Biden’s $1.9 trillion American Rescue Plan.

“Biden’s proposed spending plan is urgently needed. Recently released data show a slowdown in America’s recovery both in terms of GDP and employment. There is overwhelming evidence that the recovery package will provide enormous stimulus to the economy, and that economic growth will generate substantial tax revenues, not just for the federal government but also for the states and municipalities that are now starved of the funds they need to provide essential services.”

The University of Michigan’s early February consumer sentiment survey says much the same. Consumer sentiment edged downward in early February, with the entire loss concentrated in the Expectation Index and among households with incomes below $75,000 (the income brackets targeted by the government cash payouts).

“Households with incomes in the bottom third reported significant setbacks in their current finances, with fewer of these households mentioning recent income gains than anytime since 2014 (see the chart),” said the U. Michigan survey.

When asked to assess their current financial position, the deep divisions become apparent: among those with incomes in the bottom third, just 23 percent reported improved finances, the lowest since 2014; in contrast, among those with incomes in the top third, 54 percent reported their finances had improved. Mentions of income gains fell to just 17 percent among those in the bottom third, compared with 44 percent in the top income third.

The end result is more layoffs - one million-plus applications for unemployment benefits are still being filed each week. Jobless claims total almost 800,000 at state level and 334,524 file though federal emergency program in early February.

BLS.gov

Why won’t the $1.9 trillion in additional government spending cause too high inflation, or some other excess from the fear of too hot economic growth? Because interest rates are in effect at zero, and so is retail (CPI) inflation.

Interest rates measure the cost of money, which in effect is cost-free, at the moment. There is so much money floating around the world’s economy that lenders are begging borrowers to use that surplus, and actually paying borrowers in the case of certain EU countries with negative interest rates.

Now is not the time to hoard what can be used to improve lives—especially the lives of those -such as those police, healthcare essential workers that keep this economy working.

A first priority say leading economists, is to make sure enough funds are available to fight the pandemic, then get children back into schools, as well as allowing state and local governments to provide the essential services we all depend on.

Harlan Green © 2020

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

Are We Having a Double-Dip Recession?

 Popular Economics Weekly

FREDgdp

What if we have a ‘double-dip’ recession; i.e., when and if the US economy returns to negative growth in the fourth quarter, or even in Q1 2021? Notwithstanding the record 33.1% annualized snapback in real gross domestic product growth in the third quarter of this year, the U.S. economy was still 3.5 percent below its previous peak in the fourth quarter of 2019, as I said recently, and the pandemic has to run its course before GDP can return to its previous highs.

Except for the 4 percent peak-to-trough decline during the 2008-09 global financial crisis, the current 3.5 percent gap is as large as that recorded in the depths of every other post-WWII recession.

That is a lot of growth to make up in the midst of this pandemic, and we have had double-dip recessions before; the last in 2008 per the above GDP graph. It happened then because President Obama decided in 2010 that it was more important to begin to pay down the national debt, rather than spend more in basic services to bring the US economy out of the Great Recession, the worst one since the Great Depression.

Economist Stephen Roach in Project Syndicate says, “Consequently, it is ludicrous to speak of a U.S. economy that is already in recovery. The third-quarter snapback was nothing more than the proverbial dead cat bounce—a mechanistic post-lockdown rebound after the steepest decline on record. That is very different than the organic, cumulative recovery of an economy truly on the mend. The U.S. remains in a deep hole.”

The real problem with a possible double-dip recession is that job creation will slow down from its current pace, leaving maybe 20 million still dependent on continuing government support.

So preventing another double dip would mean much more government aid that extends unemployment compensation programs scheduled to end this year, if we have learned anything since 2008. as well as more aid to fight the ongoing pandemic that former FDA Commissioner Scott Gottlieb now says is on track to infect 30 percent of Americans.

Reuters

Though the claims report showed the number of people receiving benefits after an initial week of aid declined 299,000 to 6.071 million in the week ending Nov. 14, that was because many have exhausted their eligibility, which is limited to six months in most states.

In addition, a record 4.509 million workers filed for extended unemployment benefits in the week ending Nov. 7, up 132,437 from the prior week. These benefits as well as those for gig workers and the self-employed will lapse on Dec. 26.

The real problem is the lagging consumer spending and services sector of the economy, where spending is down some 30 percent from January and lockdowns are being re-instituted in many of the largest states.

“Services consumption,” says Roach, “which makes up over 61% of total US consumer spending, is a different matter altogether. Services accounted for fully 72% of the collapse in total consumer spending from January to April. While services have since partly bounced back, as of September, they had recouped just 64% of the lockdown-induced losses earlier this year.”

There are now 93,219 COVID-19 patients in U.S. hospitals, according to the COVID Tracking Project. The U.S. leads the world by cases, at 13.2 million, and fatalities, at 257,920, according to data aggregated by Johns Hopkins University.

How can we know when economic growth will return until sometime next year when the vaccines are available and begin to be administered to all Americans?

Harlan Green © 2020

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

Back to a 'V' Shaped Recovery?

 

Popular Economics Weekly

FREDcontinuedclaims

Richard Clarida, No.2 official at the Federal Reserve said on Wednesday that the U.S. recession begun in March with the coronavirus pandemic may already be over.

“This recession was by far the deepest one in postwar history but it also may go into the record books as the briefest recession in U.S. history,” Clarida said in prepared remarks to an Institute for International Finance conference. The flow of economic data since May has been “surprisingly strong,” he said.

Why? There is much pent up consumer demand with a record personal savings rate double (approximately 14 percent) what it was pre-pandemic because of the March to June business shutdown when they couldn’t spend on anything but essentials.

Meanwhile, initial jobless claims remained worryingly high in the week of October 10.  The seasonally adjusted level of state claims rebounded by 53K to 898K, which is the highest reading since the first half of August, said Reuters’ Wrightson/ICAP data service.  In not seasonally adjusted terms, claims were up 76K, with the increase spread across a range of states:  Indiana was up 19K, Illinois and Massachusetts were each up 10K, Georgia was up 8K, for instance. 

The pace of new layoffs continues to be a source of concern.  “We continue to think it is an open question whether there will be enough new hires and worker call-backs in October to offset the ongoing job losses,” said ICAP.  “The string of positive payroll gains could be interrupted this month.”

FREDunemployment

October’s unemployment report won’t be released until Friday after the November election. September’s unemployment rate fell to 7.9 percent from 8.4 percent in August.

In the continuing claims data, workers continued to fall off the state rolls in the week of October 3 as they exhausted their regular benefits.  The number of beneficiaries slid 1.2 million in seasonally adjusted terms to a level of 10.0 million still collecting some form of unemployment benefits. 

Economists’ consensus is that the economy should rebound at a 31.9 percent annualized rate in the July-September quarter. The economy sank at a record minus -31.4 percent rate in the second quarter.

The Fed vice chairman was not all upbeat though. He said the outlook for the economy was unusually uncertain and depends on the course of the virus. It will take time for the economy to recover all the lost ground in the recession and he said more help from Fed policy and Congressional spending “will be needed.”

I believe a full recovery in the consumer-dependent service sector probably won’t happen until next summer, at least, once a reliable vaccine is developed and widely distributed.

Harlan Green © 2020

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

Best Workers' Wages and Benefits in 11 Years

Financial FAQs

MarketWatch.com

Workers’ wages and benefits are finally rising at a decent clip, said the Labor Department. Total compensation, including health and pension benefits, rose in 2018 2.9 percent, up from 2.8 percent in 2017. That’s the biggest 12-month increase since the fall of 2008, reports MarketWatch.

The BLS just reported that Compensation costs for civilian workers increased 0.7 percent, seasonally adjusted, for the 3-month period ending in December 2018. Wages and salaries (which make up about 70 percent of compensation costs) increased 0.6 percent and benefit costs (which make up the remaining 30 percent of compensation) increased 0.7 percent from September 2018.

And as a prelude to tomorrow’s unemployment report, the weekly initial jobless claims reported by states rose abruptly in the January 26 week, up 53,000 to a 253,000 level that leaves the forecasters, at a consensus 220,000 and a high estimate of 225,000, scratching their heads. This is the highest total in more than a year-and-a-half.

Econoday.com

Was this an anomaly? Furloughed Federal employees from the government shutdown may be some of the answer but not all of it. They did add nearly 15,000 to the headline drop which is down more than 10,000 from the prior week, said Econoday. Contractors tied to the government (who don’t get any back pay) also likely added to the total though there are no specifics available in the data.

This leaves guesses about tomorrow’s January unemployment report up in the air. It’s likely to be much less than the gangbuster’s December report of 317,000 payroll jobs rise. It’s more likely to be around 180,000, which isn’t bad after all the geopolitical problems, such as Trump’s trade wars. Other countries are beginning to retaliate with their own higher tariffs. This doesn’t make for optimistic prognostications about future growth.

The International Monetary Fund is also downgrading worldwide growth due to the growing uncertainties such as whether Brexit will happen and the EU’s slowing growth, along with declining world trade projections.

The 2017 Republicans’ Tax Cut and Jobs Act hasn’t helped, either, which MarketWatch’s Howard Gold has labeled the Shareholder and CEO Enrichment Act of 2017.

“Corporations, big shareholders and top corporate executives reap the lion’s share of the gains from the 2017 tax cut. It didn’t boost economic growth that much, didn’t start a capital spending boom or U.S. manufacturing renaissance, didn’t bring overseas profits back home, and might have led to modest job growth but little discernible wage increases. And we’ll all be stuck with the bill for a long, long time.”

But why focus on the negatives, when American workers are finally benefiting from being fully employed? Job growth has picked up, having risen by 2.6 million in 2018, vs. a gain of 2.2 million in 2017. It’s unclear how much of that can be attributed to the tax cut, as I said, since health care and professional and business services jobs set the pace, as they have for the past 30 years.

Let us see what tomorrow’s unemployment report looks like before we make any rash growth projections for 2019.

Harlan Green © 2019

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

Job Claims Down, GDP Revised Up, And 2017?

Financial FAQs

Initial weekly jobless claims for unemployment benefits, the best predictor of employment trends, continues downward, but with some upward blips of late that are probably due to still severe weather in the northeast (snow) and south (tornadoes). And the revised fourth quarter GDP growth estimate was up slightly, with signs that 2017 could be better.

Wrightson-ICAP says, “The number of unemployment insurance beneficiaries has fallen sharply in recent weeks, from an average of 2.064 million in January and February to 1.990 million in the week of March 11.  The combination of that slide and the dramatic improvement in the job-availability numbers in the Conference Board’s record consumer confidence report earlier this week suggests that the national unemployment rate might slip a notch from February’s 4.7 percent level.”

 Graph: Econoday

So we could finally be approaching full employment, last seen in early 2000 before the Great Recession bust, even though there are still some 7 million adult workers either working part time, or looking for work? Q4 GDP growth rose to 2.1 percent, but down from a 3.5 percent increase in Q3.

“The increase in real GDP in the fourth quarter reflected positive contributions from PCE, private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by negative contributions from exports and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased,” said the BEA report.

This is while corporate profits surged 22.3 percent year-over-year in Q4, another sign that growth should pick up this year. Why? Well, corporations will hopefully want to expand production, which means more jobs and capex investments. But that hasn’t happened yet, as business investment isn’t increasing at present, and hasn’t for more than 1 year.

Graph: Econoday

Capital expenditure among the 1,000 largest companies took a step back last year, declining $74 million from 2015, on average. The decline built on the $11 million average decline in 2015 after four years of spending growth ending in 2014. Much of it is due to the decline in oil and gas production, as there is already a glut of fossil fuel supplies which has kept oil prices at the $50/barrel level or lower for several years now.

What does all this mean for 2017 growth? At risk of sounding too repetitive, I maintain Congress and the Trump administration must be on the same page if they want to get anything done. Trying to push the repeal of Obamacare up front didn’t work. And tax reform may have the same problem if the tax breaks only go to the wealthiest, as would have happened with the repeal of Obamacare.

Nor will cutting back on environmental regulations, gas mileage requirements, scientific research and development spur growth, since most job growth and innovation these days is in the green industries. We know trickle-down economics has never worked. What is needed is more direct job creation with such as an infrastructure bill.

But is that possible with all the senseless bickering of Republicans because their cherished dream of repealing Obamacare didn’t happen?

Harlan Green © 2017

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

Single-Family Construction Exploding

Popular Economics Weekly

Starts on new houses climbed 3 percent in February to the second-highest level since 2007, reflecting pent-up demand in a steadily growing economy that builders are aiming to address. And builder optimism continues to rise to new levels.

In a sign that first-time homebuyers may finally find more affordable housing, the NAHB/Wells Fargo housing market index is up a very sharp 6 points in March to 71 for the best reading of the economic cycle, and a 12-year high. Home builders peg current sales at an index of 78, up 7 points from February, and see future sales also at 78, for a 5 point gain.

Graph: NAHB

“While builders are clearly confident, we expect some moderation in the index moving forward,” said NAHB Chief Economist Robert Dietz. “Builders continue to face a number of challenges, including rising material prices, higher mortgage rates, and shortages of lots and labor.”

The pace of so-called housing starts rose to an annual rate of 1.29 million last month, with construction on single-family homes also hitting the highest level since before the Great Recession. And permits for single-family homes, where building costs and sale prices are the highest, rose 3.1 percent in February to an 832,000 rate that, in good news for a thinly supplied new home market, is up 13.5 percent year-on-year. This is offset, however, by a downturn in multi-family units where permits fell 22 percent in the month to a 381,000 rate that is down a yearly 11.2 percent.

And we will be seeing supply relief for single-family homes even though completions, in a detail that home builders will note, fell 6.5 percent to a 754,000 rate. Nevertheless, new supply is coming as homes under construction rose 1.3 percent to 1.091 million for the highest reading since the great bubble in October 2007, said the NAHB in it press release.

In a sign that job availability is still tight, initial jobless claims remain low. Initial jobless claims are holding at trend, down 2,000 in the March 11 week to 241,000, reports Econoday. The 4-week average, little changed at 237,250, is down nearly 10,000 from mid-February in what offers a favorable signal for the March employment report that comes at the end of the month.

Graph: Econoday

So we have a surging housing market for single-family homes in particular, a sign that homebuyers—including first timers—are feeling more confident about their jobs.  In fact, job openings in the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) came in at 5.626 million in January and remain strong and right at their 2-year trend.

But there was an acceleration is hiring, which rose 2.6 percent in the month to 5.440 million for one of the best readings of the economic cycle. This is while the quits rate, up 1 tenth to 2.2 percent, hints at improved confidence among workers while the layoff rate remains low and unchanged at 1.1 percent.

No wonder the Federal Reserve has turned optimistic as well. Janet Yellen in her latest press release after the Fed raised its fed funds rate another one-quarter percent said we were entering a virtuous cycle of robust growth that was neither too hot (i.e., inflationary), nor too cold (more jobs were being created).

Harlan Green © 2017

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

A return to Goldilocks Growth?

Financial FAQs

We could be back in the ‘goldilocks’ economy that was talked about several years ago. Growth is not too hot or too cold as we near full employment with very little inflation. It means the U.S. economy isn’t yet close to over-heating. In fact, the reason there is such low inflation is because GDP growth hasn’t been able to break out of the 2 percent range. And what will happen if it does?

For starters, weekly initial jobless claims keep falling. “In the week ending August 6, the advance figure for seasonally adjusted initial claims was 266,000, a decrease of 1,000 from the previous week's revised level. The previous week's level was revised down by 2,000 from 269,000 to 267,000, according to the Labor Department.” There were no special factors impacting this week's initial claims. This marks 75 consecutive weeks of initial claims below 300,000, the longest streak since 1970, said the Labor Department.

Graph: Calculated Risk

And we are seeing almost no inflation. The retail Consumer Price Index is sticking to a 1 percent inflation rate of late and has been close to zero in the past year—which is scary. At any other time, it would be a sign of impending recession, but not in a economy close to full employment with more than 7 million still looking for full time work, and a BLS JOLTS report that says there are 5.6 million job openings.

Graph: Trading Economics

Why so little inflation with so many jobs being created? Low commodity prices, such as for oil, still at post-recession lows, are hurting the mining and energy sectors, which have laid off workers. The latest Producer Price Index for final demand has fallen to -0.2 percent year-over-year, and is up just 0.7 percent over the past year, even excluding food and energy prices.

Though most product costs come from labor costs, and the so-called Employment Cost Index has been barely rising. Compensation costs for civilian workers increased 2.3 percent for the 12-month period ending in June 2016, vs. 2.0 percent in June 2015, reports the Bureau of Labor Statistics. Wages and salaries increased 2.5 percent for the current 12-month period, vs. 2.1 percent for the 12-month period ending in June 2015.

Graph: Calculated Risk

Lastly, the so-called JOLTS report shows employment still expanding. The number of job openings was at 5.624 million on the last business day of June, up slightly from 5.514 million in May, the U.S. Bureau of Labor Statistics reported last week.

This is huge, with a total 5.1 million new jobs being created last month. The number of job openings is up 9 percent YoY, and the number of ‘Quits’ (those leaving their job voluntarily) is up 6 percent YoY, usually because they were able to find a better job, or are retiring.

So a goldlilocks-type economy is really a two-edged sword. Such low inflation means we aren’t able to return to the 3.2 percent average growth rate that has prevailed since WWII.

And we know why. Labor costs, which account for two-thirds of product costs, aren’t rising much above the inflation rate as most business profits are either saved or go to stockholders, rather than the employees who would spend it, thus putting the money back into circulation. It also means a large segment of the working population still lives at or below the poverty line.

Harlan Green © 2016

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

The Real Economy Trumps Republicans' Dark Ages

Popular Economics Weekly

Marketwatch’s Jeff Bartash is just one economic journalist busting the Donald’s ‘Disstopian’ views (Maureen Dowd’s term, not mine). Our economy is doing incredibly well for most people, including the bottom of the economic ladder—whose incomes are being helped by the rise of minimum wages in many cities and states, and maybe nationally if Hillary takes the White House

Graph: FRED

Then why does The Donald keep harping on the doom and gloom?  Because he has no other issue, or economic policy, that can refute the last 8 years of prosperity under President Obama.

The number of Americans who applied for unemployment benefits last week fell by 1,000 to 253,000, matching the second lowest level of a seven-year-old economic expansion that shows no signs of flagging, says Bartash.

Claims have been below the key 300,000 benchmark for 72 weeks — the longest such stream since 1973 — and show no sign of rising. The weekly report has a track record of being one of the best indicators at predicting several months in advance if the economy is headed toward expansion or recession, says Bartash.

Barron’s free market economist Gene Epstein doesn’t see any economic trouble on the near horizon, either. “I share the view that the government does far more to destabilize the economy than stabilize it,” he said. “With all that said, however…Armageddon is not about to happen. In fact, economic growth in 2016 could even show a pickup from 2015’s dismal rate.”

Actually, it’s because of government action, in the face of congressional inaction, that we are doing so much better than most of the rest of the developed world. It’s because of the stabilizing influence of our United States of American government. For instance, we are doing much better than the Eurozone because our centralized government and financial system enables retirement income and other benefits—so-called government transfer payments—to flow to the poorest states (almost all red and Republican leaning, by the way) from the wealthiest, thus preventing a Greek-style financial debacle.

So who is the Donald talking to that would believe his Disstopia? It is basically his angry, white primary supporters that continue to fight the US Civil War, as I’ve said. For to generate such fear and loathing of minorities and ‘other’ ethnic groups and races, Donald has to offer them up as scapegoats, much as Hitler’s Germany did to harness and heighten their anger—to which he has added Hillary and the Washington establishment.

Even banking giant Morgan Stanley, part of the Wall Street establishment sees no coming Disstopia. Their economists believe this economic recovery could last until 2020—that is 13 years from the official end of the Great Recession in June, 2009, which would bust Bill Clinton’s record 10-year recovery.

Some of the reasons given are the U.S. added about 200,000 jobs a month in 2015, its second-best year of employment gains since 1999. And such labor strength and is buoying consumer confidence, a powerful force in an economy that is mostly driven by consumer spending. The University of Michigan's consumer sentiment index averaged 92.9 last year, the highest since 2004. That's a big improvement from the 2008 low of 55, says Morgan Stanley.

And home sales are soaring, with existing plus new-home sales now topping 6 million units, a nine-year high. Also, consumers have been hard at work fixing their balance sheets. Morgan Stanley notes that the amount of debt relative disposable income has come down a lot. It currently stands at about 106 percent, down from 135 percent in 2008.

The flip side is that corporations are hoarding their record profits, instead of spending much towards future growth. Morgan Stanley expects the ratio of capital spending-to-sales at S&P 1,500 companies to slip to 4.6 percent by the end of 2016, excluding energy and utilities. Whereas capital expenditures stood at 6 percent and 9 percent before the last two recessions.

Capital spending is down for governments, as well, which is why we have a deteriorating infrastructure that is at least 75 years old. Government hasn’t stepped up to the line to fill the void, as it did during the New Deal. Millions of new jobs would be created when and if those deferred public works’ projects will be done.

And many of Donald’s blue collar supporters would benefit. The bottom line is without someone to blame, Disstopian Donald has no issue. We could even have the longest economy recovery on record, longer than Bill Clinton’s 10 years from 1991 to 2001 that resulted in 4 years of budget surpluses.

Harlan Green © 2016

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Big Surge In Vehicle Sales, Service Sector, ADP Employment

Popular Economics Weekly

Why start with motor vehicle sales? “Consumers weren't holding back in May when it came to buying cars and trucks which sold at a 17.8 million annual rate for a whopping 7.9 percent gain from April,” said Econoday re Tuesday’s motor vehicle report. Because it’s a sign consumers are more confident, ergo they must be feeling better about their jobs, ergo tomorrow’s U.S. Labor Department employment report should be very strong.

It’s the strongest vehicle sales since July 2005, believe it or not. And not due just to incentives and 100 percent financing offers, which have been available really since the end of the Great Recession. Until now consumers haven’t been spending what they are earning. April retail sales were punk. But the huge jump in vehicle sales should mean the start of the buying season for consumers, at last. Vehicle sales had declined four times over the past 6 months, as have sales in almost every economic sector.

Another hint at stronger employment growth ahead is the monthly ADP private sector employment report out yesterday. Automatic Data Processing estimates that private payrolls rose a moderate 201,000 in May. For comparison, the consensus for private payroll growth in Friday's BLS employment report is a bit higher, at 215,000 with the low estimate at 185,000. It is another sign of employment growth that anticipates Friday’s more ‘official’ Labor Department unemployment report, in other words, which includes government as well as private sector jobs.

Graph: Econoday

And perhaps the best indicator of future growth is the ISM non-manufacturing, or service sector index, which came in at 55.7, down from last month’s 57.8 percent, but showed improvement in exports and future hiring. New orders at 57.9 and business activity at 59.5 were particularly strong. Employment also slowed, down 1.4 points to 55.3 but it still points to employment growth.

Exports were up 6.5 points to 55.0 in a reading that highlights yesterday’s big service-sector surplus in the April trade report. Second-quarter GDP looks to be getting a lift by a decline in imports, which are a negative number in the GDP report since they are subtracted from exports. Exports are a positive measure that indicates how much is domestically produced. Imports fell 3.3 percent in April to $230.8 billion at the same time that exports were up 1.0 percent to $189.9 billion.

Note there was special strength for arts/entertainment/recreation and management & support services in the ISM report said Econoday, the latter one of the strongest export industries for the nation. And, both real estate and construction show strength. The only one of 18 industries to contract in the month was, once again, mining which is being hurt by low commodity prices (meaning cheaper gas and oil).

Another indicator of improved hiring was in the government sector, often overlooked. Gallup's U.S. Job Creation Index reached a new high of plus 32 in May, up from plus 31 in April. And “perceived” job creation in the government sector was at a new high, when government job creation has been the lagging indicator holding back overall employment. Within the government sector, the Job Creation Index score reached plus 25 in May. This is up from plus 22 in April and the previous high of plus 23 in August 2014.

Graph: Calculated Risk

This is extremely important, because the Obama administration has the worst record in recent history of government job creation (blue line in graph).  The loss of some 800,000 government jobs is the major reason employment has grown so slowly post-Great Recession (though Obama is now second-best in overall private sector job creation, according to Calculated Risk).

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 688,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment, as we said.

Lastly, Jobless claims continue to run very low, down 8,000 in the May 30 week to 276,000 which is right at the Econoday consensus. The 4-week average is up slightly to 274,750 and is running about 5,000 lower than the month-ago comparison.

All these readings are at or near 15-year lows and indicate that the unemployment side of the labor market is very favorable.  So look for a gangbusters employment report tomorrow, dare we say?

Harlan Green © 2015

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

Housing Construction Surge—Sign of Better Times?

The Mortgage Corner

U.S. housing starts jumped to their highest level in nearly 7-1/2 years in April and permits soared, hopeful signs for an economy that is struggling to regain strong momentum after a dismal first quarter. And that is exciting economists that say it could mean better economic growth ahead.

The strength in housing stands out from the weakness in consumption, business spending and manufacturing, which have prompted economists to lower their second-quarter growth estimates and raised doubts that the Federal Reserve will raise interest rates before the end of the year.

Of course lower interest rates were the main factor, as housing affordability has been increasing this year, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI).

In all, 66.5 percent of new and existing homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $65,800, said the report. “This is up from the 62.8 percent of homes sold that were affordable to median-income earners in the fourth quarter.

Groundbreaking for new construction surged 20.2 percent to a seasonally adjusted annual pace of 1.14 million units, the highest since November 2007, the Commerce Department said on Tuesday. The percent increase was the biggest since February 1991. March's starts were revised up to a 944,000 unit rate instead of the previously reported 926,000 unit rate.

Graph: Calculated Risk

And privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,143,000. This is 10.1 percent above the revised March rate of 1,038,000 and is 6.4 percent above the April 2014 estimate.

"The rebound in permits points to solid starts and construction in the months ahead. After the weather-related weakness in starts during Q1, we think the April data are consistent with housing activity returning to normal," wrote Barclays economists.

For the second straight quarter, Syracuse, N.Y. remained the nation’s most affordable major housing market, as 95.6 percent of all new and existing homes sold in the first quarter of 2015 were affordable to families earning the area’s median income of $68,500. Whereas San Francisco-San Mateo-Redwood City, Calif. was the nation’s least affordable major housing market. Just 14.1 percent of homes sold in the first quarter were affordable to families earning the area’s median income of $103,400.

So where are the signs of higher economic growth ahead? The one statistic showing strength, with the latest downturns in consumer confidence, industrial production, and retail sales is Weekly Initial Unemployment claims. These state reports aren’t guesses or projections, but actual reports from state unemployment departments.

Graph: Econoday

Jobless claims are way down and are easily sending out the strongest positive signals of any indicator, employment or otherwise, claims Econoday. Claims data go all the way back to 1948 and have rarely been this low. Initial claims were last this low back in March and April 2000 when they averaged 272,500.

The current 4-week average out to May 9 is at 271,750, this at a time when the civilian labor force, at 157.1 million, is 10 percent larger than it was back in 2000. Continuing claims tell the same story, at a 15-year low of 2.229 million. The unemployment rate for insured workers is very low, at only 1.7 percent, and overall unemployment rate for nonfarm payroll workers has fallen to 5.4 percent.

So consumers have to be saving more of their increased earnings, at present. And since stocks and bond returns seem to have topped out from their multi-year rally with little room for more growth, housing has to be the one area that can play catchup.

One sign of this is evidenced by investors making more all cash purchases, of late.

And Canaccord Genuity equity strategist Tony Dwyer made a similar point Tuesday in a note to clients, writing that the "acceleration in the number of millennials turning 30 over the next six years,” in a recent CNBC interview. “... could ramp household formations," particularly given the "positive employment outlook" and "low household debt service ratio."

What is the catalyst? Housing formation is recovering, which is largely due to Millennials moving out of their parents homes, or higher education venues. Based on unusually low household formation numbers, "there's a ton of people living in basements," Fundstrat Global Advisors' Tom Lee said in a recent interview with CNBC's "Trading Nation." "Two quarters of pretty decent household formation isn't getting everybody out of the basement. I think this means we have multiple years where household formations are well over 1.3 million, 1.4 million."

Graph: CNBC

Household formation had dipped as low as 360,000 per annum in recent years, due to the housing bust. Is this another sign that the housing market is finally into a sustainable growth pattern? This selling season should tell.

Harlan Green © 2015

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

Employment Up, Interest Rates Falling Again

Popular Economics Weekly

We are still in the Goldilocks economy—it’s not too hot or too cold. In fact, there is enough geopolitical unrest (now it’s the Hong Kong youth protests against China’s hardliners) to drive down interest rates, and boost U.S. growth. We seem to be the island of calm in a world of storms, where investors are looking for safe havens.

The Automatic Data Processing (ADP) report just out showed private sector payroll employment increased by 213,000 jobs from August to September according to the August ADP National Employment Report. This is the precursor to this Friday’s Bureau of Labor Statistics ‘official’ September unemployment report for both private and public employment, which is expected to be in the same range.

Mark Zandi, chief economist of Moody’s Analytics that puts out the report, said, "Job gains remain strong and steady. The pace of job growth has been remarkably similar for the past several years. Especially encouraging most recently is the increasingly broad base nature of those gains. Nearly all industries and companies of all sizes are adding consistently to payrolls.”

And initial jobless claims continue downward, another sign that the unemployment rate should fall further tomorrow. There are fewer and fewer workers drawing unemployment benefits which points solidly at improvement underway in the labor market. Initial claims fell 8,000 in the September 27 week to 287,000, pulling down the 4-week average by a sizable 4,250 to 294,750 which is nearly 10,000 below the month-ago comparison.

Graph: Econoday

This is while interest rates are plunging due to investor flight-to-quality from the worldwide unrest. Conforming 30-year fixed rates are back down to 3.625 percent for a 1 pt. origination fee, 3.75 percent for 0 pts. in origination fees.

It may bring more of the record millennial generation of echo boomers (i.e., children of baby boomers) that outnumber their baby boomer parents into the housing market.

Marketwatch’s Amy Hoak, for one, believes this will happen sooner. Reporting on a National Association of Business Economist conference, she said,“In August 2014, only 29 percent of all buyers of existing homes were first-timers, according to National Association of Realtors data. For comparison, between October 2008 and October 2010, an average 41 percent of all buyers of existing homes were first-timers, David Crowe, chief economist for the National Association of Home Builders, pointed out during the panel discussion.

Still, the purchase activity of home buyers younger than 30 who bought with a mortgage (with the intent to live in the home) rose 8 percent, year over year, in 2012, according to a Zelman & Associates analysis. Purchase activity for this group rose 10 percent, year over year, in 2013. And purchase activity rose 19 percent, year over year, in both 2012 and 2013 for those between the ages of 30 and 39.

The key will be an improving rate of household formation for the millennials.

Graph: Business Insider

The improving labor market is helping U.S. household formation among young adults, according to Michael Gapen at Barclays. The employment-to-population ratio for 16-24-year-olds has climbed to 47.7 percent in May, from an average of 46.5 percent in 2013.

In particular, data from the Current Population Survey, which includes extensive information on both the number and characteristics of US households over time, suggest that more young adults are now finding it feasible to move out, said Gapen.

While the employment-to-population ratio for those in the 25-34 bracket has also ticked up, they are already less likely to live at home with their parents. "Only 18.8 percent and 8.9 percent of 25-29 year olds and 30-34 year olds, respectively, live with parents," writes Gapen.

In 2013, 55.3 percent of 18-24-year-olds lived at home, compared with 56.2 percent in 2012. Since there were estimated to be 30 million 18-24-year-olds in the U.S. last year, according to Current Population Survey estimates, the one percentage point decline suggests that 300,000 young adults were looking to move out.

Tomorrow’s BLS unemployment report should tell us more, but the youngest adults look like they are ready to be on their own.

Harlan Green © 2014

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

Signs of Jobs Surge in 2013

Popular Economics Weekly

There are signs the jobs picture will be much improved in 2013, even thought the March unemployment report was disappointing.  The U.S. Bureau of Labor Statistics (BLS) reported in the just released Job Openings and Labor Turnover Survey (JOLTS), the number of job openings in February was 3.925 million, up sharply from January’s 3.611 million. This was the highest number of job openings since May 2008. The number of openings rose in health care and social assistance, accommodation and food services, and state and local government. Construction added 19,000 hires and manufacturing 9,000 for the month.

 

Graph: Calculated Risk

So-called ‘Quits’ were unchanged in February, but quits are up 7 percent year-over-year, the highest level since 2008. These are voluntary separations. (see light blue columns at bottom of graph for trend for "Quits") in the Calculated Risk graph. The rise in voluntary separations is another sign of an improving jobs market, as it means employees are increasingly able to find better job opportunities elsewhere.

The March unemployment report was worrying, because just 88,000 nonfarm payroll jobs were created, when seasonally adjusted. But more than 729,000 jobs were actually created before the seasonal adjustment, but because most of the increases were normal for this time of year, the BLS calculated just 88,000 were above normal.

However, January and February’s totals were revised upward by 61,000 and the unemployment rate fell to 7.6 percent, though mostly because some 496,000 stopped looking for work. So March could also be revised upward in coming months, as more state initial unemployment claims are reported.

Graph: Calculated Risk

Another sign of strength is personal income rebounded 1.1 percent in February after a drop of 3.7 percent in January and a 2.6 percent jump in December.    The wages & salaries component gained 0.6 percent after declining 0.6 percent in January.  Strength in February was in wages & salaries, dividend income and in a sharp reduction in the change in contributions for government social insurance (a negative for personal income).  Payroll taxes spiked in January but the rates held steady in February.  This was a fiscal cliff issue as was partially the dividend income.  Too a notable degree dividend income that would have been seen in January was accelerated to December to avoid higher taxes for some income brackets.

Graph: Econoday

Despite the increase in payroll taxes, consumer spending is holding up—and it is not just due to higher gasoline prices. Personal spending jumped 0.7 percent after rising 0.4 percent in January.  Strength was in nondurable goods, reflecting higher gasoline prices.  Still, real spending was up 0.3 percent, matching the January pace.  Consumer outlays are relatively strong and point to a healthy Q1 GDP number.

There are many other signs of a growing U.S. economy in both the manufacturing and service sectors. But the most heartening signs are in real estate where new-home construction is growing strongly and housing prices surging. Construction outlays rebounded 1.2 percent in February after dropping 2.1 percent in January. Private residential construction jumped 2.2 percent after slipping 0.1 percent the month before.

New one-family component was particularly strong, gaining 4.3 percent, following a 3.6 percent boost in January. The new multifamily component fell back 2.2 percent but followed a robust 6.1 percent jump the prior month. Public construction gained 0.9 percent, following a 0.2 percent rise in January. On a year-ago basis, overall construction was up 7.9 percent in February compared to 6.1 percent in January.

And this is boosting construction employment, which is now up some 161,000 since last fall, as well as the so-called ‘wealth effect’ on household spending. As households feel wealthier, they tend to spend more. We therefore see a much improved employment picture for 2013. There are still doubters, as the sequester spending cuts have only begun to take effect. But the U.S. is now the engine of growth with Europe suffering from its austerity woes, and Asia in slower growth mode. Thursday’s upcoming retail sales report, which makes up some half of all consumer spending, should confirm or deny whether consumers are feeling wealthier.

Harlan Green © 2013

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

Higher Retail Sales Point to Consumer Health

Popular Economics Weekly

Consumers are buying more, a reflection of improving incomes and the jobs market. The U.S. Census Bureau announced Wednesday that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences but not for price changes, were $421.4 billion, an increase of 1.1 percent from the previous month and 4.6 percent above February 2012

Graph: Calculated Risk

This is the best we can expect with less than full employment, when retail sales increased at 8 percent per annum. Strength was mainly motor vehicle sales, which rebounded a huge 1.1 percent following a 0.3 percent dip in January. Ex-auto sales in February increased 1.0 percent, following boost of 0.4 percent the month before (originally up 0.2 percent). Gasoline sales were also up significantly, but core strength was widely scattered with increases seen in building materials & garden equipment, food & beverage stores, clothing & apparel, general merchandise, miscellaneous store retailers, and nonstore retailers.

Graph: Econoday

Though January personal income dropped a monthly 3.6 percent, following a 2.6 percent surge in December, December was boosted by attempts to avoid January income and payroll tax increases.  The wages & salaries component declined 0.6 percent in January after a 0.7 percent jump the month before.  But most of the weakness was led by a monthly 34.8 percent plunge in dividend income after a 32.8 percent spike in December to avoid the January tax hikes from the fiscal cliff agreement. We believe overall personal incomes will grow strongly this year, thanks in part to a tighter labor market.

Graph: Calculated Risk

This is why the latest weekly initial jobless claims are showing a growing jobs market that bolsters last week’s drop in unemployment. Initial jobless claims fell 10,000 in the March 9 week to 332,000. The week's total is the second lowest of the recovery.

The four-week average is now at its lowest level of the recovery, down 2,750 from the prior week to a 346,750 level that is a bit below the 350,000 trend of the month-ago comparison in what is an early positive indication for the March employment report, says Econoday.

You can’t ask for much more at this stage of the recovery, as we said. Both the Federal Reserve’s Chairman Bernanke and Vice-Chair (and probable future Chairwoman Janet Yellen, should Bernanke not continue) are in a strong position to maintain easy credit conditions through 2013 at least.

If they are able to maintain such conditions, in spite of inflation hawks, then the unemployment rate might reach their stated goal of 6.5 percent in 2014. And we might begin to see the possibility of full employment again, which historically has been 5 percent and below.

Harlan Green © 2013

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

2013 U.S. Economy Finally In Recovery

Popular Economics Weekly

With tax rates returning to more normal levels from the rollback of Bush era tax cuts, and Republicans giving up on denying debt ceiling increases until April that would force more cuts in government spending, there seem to be very few domestic factors to hold back more robust growth in 2013.

The “No Budget, No Pay-Act” bill could also open a path to a longer term increase: It would require the House and Senate to each agree by April 15 to a budget resolution for fiscal year 2014. And such a measure, which is intended to set spending and revenue levels for the next five to ten years, might include debt ceiling increases, say congressional staffers.

We are already seeing signs higher growth is happening—maybe even approaching 3 percent GDP growth in 2013. The Conference Board’s Index of Leading Economic Indicators (LEI) just jumped 0.5 percent in December, industrial production is rising again, and retail sales are surging. This and increased housing production are sure to increase hiring. Weekly initial jobless claims have already fallen to 330,000, close to the longer term average.

Graph: Calculated Risk

The drop in jobless claims was the biggest factor in the LEI increase that predicts future growth. Conference Board economist Ken Goldstein said: “The latest data suggest that a pickup in domestic growth is now more likely, compared to a few months ago. Housing, which has long been a drag, has turned into a positive for growth, and will help improve consumer balance sheets and strengthen consumption. However, for growth to gain more traction we also need to see better performance on new orders and an acceleration in capital spending.”

What will help capital spending is surprising strong industrial production, with the manufacturing component up 0.8 percent following an increase of 1.3 percent the prior month.  Motor vehicle production was strong with a 2.6 percent rise after a 5.8 percent boost in November, along with other sectors.  Excluding motor vehicles, manufacturing output increased 0.7 percent after a 0.9 percent rebound in November.

Graph: Econoday

And retail sales are increasing 5 percent per year, almost back to early 2000 levels. Gains were led by furniture & home furnishings, food services & drinking places, and health & personal care.  A decline was seen in electronics & appliance stores. Overall consumer spending was moderately healthy in December and likely will lead many economists to bump up their fourth quarter GDP forecast (which had been nudged down last week from a negative international trade report).

Graph: Econoday

More housing construction in particular will boost growth this year, as it leads directly to new construction jobs, as well as boosts the financial sector. The jump in December housing starts was led by the multifamily component although single-family starts also were up notably.  Multifamily starts jumped 20.3 percent after a 6.3 percent decline in November.  The single-family component gained 8.1 percent in December after decreasing 3.2 percent the prior month.

The lesson seems to be that for all the political quarreling, there are fundamental factors driving growth. Increased hiring is driving up the demand for goods and services. Record low interest rates are boosting housing and stimulating exports due to the weaker dollar. The U.S. economy seems finally to be out of intensive care, and government is now aiding, rather than obstructing better growth.

Harlan Green © 2013

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

It’s the Consumers Turn

Popular Economics Weekly

We know that consumers will continue to push economic growth this fall and winter for several reasons. Firstly, the Bureau of Labor Statistics monthly JOLTS report showed 3.6 million job openings (yellow line), and more than 4 million hires (blue line), which is slightly more than the red and blue blocks that show total layoffs and quits. That is why payrolls are increasing some 157,000 per month in 2012, according to the BLS.

Graph: Calculated Risk

And consumers know this, which is why they are spending more. Another big increase in student loans drove consumer credit higher, up $11.4 billion vs. August's very large revised gain of $18.4 billion. The non-revolving component, home to the student loan category, rose $14.3 billion in the month on top of August's $14.1 billion gain. Revolving credit card debt actually fell $2.9 billion for the third decrease in four months.

Graph: Calculated Risk

And in spite of Hurricane Sandy, the advance figure for seasonally adjusted initial jobless claims was down to 355,000 for the week ending November 3, a decrease of 8,000 from the previous week's unrevised figure of 363,000. The 4-week moving average was 370,500, an increase of 3,250 from the previous week's unrevised average of 367,250, according to Calculated Risk. Claims may spike up, though, if Sandy causes many jobs to be lost in coming weeks. But the recovery—reconstruction efforts should more than make up for the losses.

Graph: Calculated Risk

If we look at the long term in this graph that goes back to the 1970s, with gray shaded areas showing recessions, we see that claims are following normal trends. The lows seem to be 300,000 claims per week in each business cycle. So as long as the trend is downward, employment is increasing and consumers will feel more secure about their finances.

Harlan Green © 2012

Consumers Back on Track?

Financial FAQs

The one sector of the economy that can revive growth—consumers—look to finally believe the Great Recession is over. Consumer sentiment unexpectedly rose to its highest in five years in October as consumers became more optimistic about the economy in a possible boost to President Obama's reelection hopes, said Thomson Reuters Inside Debt Blog.

Graph: Inside Debt

The Thomson Reuters/University of Michigan's preliminary October reading on the overall index on consumer sentiment came in at 83.1, up from 78.3 the month before, and the highest since September 2007, the survey showed.

There are several reasons for their revival—the first being the drop to a 7.8 percent unemployment rate, with both hours worked and salaries rising. Consumers felt better about the economy in both the long and the short term, the compilers of the Thomson Reuters/University of Michigan survey said. The survey's gauge of consumer expectations jumped to 79.5 from 73.5, well above an expected reading of 74. The survey's barometer of current economic conditions rose to 88.6 from 85.7 and was above a forecast of 86.

Graph: Econoday

Weekly initial jobless claims also plunged, a sign that employment should continue to improve. Claims fell to 339,000 in the October 6 week for a 30,000 decline that's the biggest since July. The 339,000 level is the best reading of the recovery, said Econoday. The four-week average is down 11,500 to 364,000 and is now trending more than 10,000 below the month-ago comparison in what points to improvement for both payroll growth and the unemployment rate.

Graph: Econoday

Lastly, September’s unemployment report showed rising incomes. Average hourly earnings growth improved to 0.3 percent in September, following no change in August.  Analysts forecast a 0.2 percent rise.  The average workweek nudged up to 34.5 hours in September from 34.4 hours in August.  Expectations were for 34.4 hours.

And, the latest payroll data includes semi-annual benchmark revisions, as we have said. According to more complete data, payrolls were reportedly undercounted by 386,000 over the April 2011 through March 2012 period, resulting in an average 32,000 higher gain per month than earlier estimated.

So we know why consumers are feeling more confident about their future prospects, a merrier holiday season, and an improving economy. They power 70 percent of all domestic (GDP) activity.

Harlan Green © 2012