Why call A Recession Now??

 Popular Economics Weekly

NBER.org

We are at a classic top of the business cycle when the demand for products is sky high and all the factors that restrict supply are causing red hot inflation numbers. The Federal Reserve then must per its mandate to balance employment with price stability step in to restrict credit by raising short-term interest rates, among other measures.

What happens next will determine how high the Fed pushes interest rates to ‘tame’ the inflation tiger, and whether it causes another recession.

What the pundits who predict such things seem not to keep in mind is there are many parts that make a recession, which take a lot of time to happen (see wide spacing between gray bars that indicate recessions in NBER employment graph.).

For instance, there was no recession between 1983 to 1991, and the record 10-year expansion from 1991 to 2001. The expansion from 2009 to 2020 ended by the pandemic also lasted 10+ years.

The National Bureau of Economic (NBER) is the actual arbiter of recessions, and it says: “The determination of the months of peaks and troughs is based on a range of monthly measures of aggregate real economic activity published by the federal statistical agencies.”

And most of the indicators, including employment, consumer spending and industrial production, don’t indicate much of an impending slowdown.

 MarketWatch

The unemployment rate remained unchanged at 3.6 percent and 428,000 more jobs were created in April, according to the US Labor Dept., so no real sign of weakening employment, one of the first signs of a recession. Industrial production and business investments are also high and show little signs of slowing. Consumer spending is red hot and may suffer most from rising interest rates.

But the real test will be if many of the supply chain shortages can be circumvented, from chip makers who failed to predict the soaring demand for motor vehicles, to a war in Ukraine causing food shortages. And we still have the tail end of the coronavirus pandemic affecting China, a supplier of much of the world’s cheap products.

Under Chairman Greenspan, the Fed raised its rates 16 times over two years, after holding rates below the inflation rate for too long in early 2000, causing in part the housing bubble while allowing the negative interest ‘liar’ mortgages that brought down Lehman Brothers and caused the Great Recession.

And the number of job openings is at a series high of 11.5 million on the last business day of March, although little changed over the month, the U.S. Bureau of Labor Statistics reported on Tuesday. Hires, at 6.7 million, were also little changed while total separations edged up to 6.3 million.

So recessions take a long time to happen, in general, and there are much more important priorities now, including aiding Ukraine in its war with Russia and continuing to fight the pandemic.

Harlan Green © 2022

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

Path To Economic Recovery--Part II

 Financial FAQs

 

Calculated Risk

As I said in Part I of this series, there is a path to economic recovery from the worst recession since the Great Recession. Firstly, it means studying what economic policies have worked in past recoveries.

It you use job formation as the most important criteria for success, then the Clinton administration wins with its mix of government and private sector programs that cut military spending with the end of the cold war and increase in public spending at no more than 2 percent per year. The policies resulted in four years of budget surpluses from 1996-2000.

The cold war dividend also resulted in the second longest economic recovery on record—1991-2001—only topped by the Obama-Trump era recoveries cut short in February by the pandemic.

Private sector employment increased by 20,970,000 under President Clinton (light blue) in the excellent Calculated Risk, by 14,714,000 under President Reagan (dark red), 11,849,000 under President Obama (dark blue). 9,039,000 under President Carter (dashed green), and 1,511,000 under President G.H.W. Bush (light purple).

But because of COVID-19 during the 46 months of Mr. Trump's term, the economy has lost 2,128,000 private sector jobs (yellow line) to date.

What happened? Most jobs were created, when government spending kicked in to supplement consumer and business activities. Coincidence doesn’t spell facts, as I’ve said, but we can see what worked and to create jobs.

Public payrolls also grew most also during Democratic administrations with the exception of the Reagan administration that wanted to outspend Russia in their arms race. Payrolls grew during Mr. Carter's term (up 1,304,000), then Mr. Reagan's terms (up 1,414,000), H.G.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 declined significantly while Mr. Obama was in office (down 277,000 jobs), and during the 46 months of Mr. Trump's term, the economy has lost 870,000 public sector jobs.

Calculated Risk

What exactly did Clinton do to create 10 years of prosperity with budget surpluses to boot?? He was not afraid to raise taxes where it was needed to pay for programs that created more jobs, rather than raise the public debt.

He increased taxes with the Omnibus Budget Reconciliation Act of 1993, his first budget. The Deficit Reduction Act raised the top income tax rate from 28 percent to 36 percent for those earning more than $115,000, and 39.6 percent for income above $250,000. It increased the corporate income tax from 34 percent to 36 percent for corporations with incomes over $10 million.

It also ended some corporate subsidies, taxed Social Security benefits for high-income earners, and created the earned income tax credit for incomes under $30,000.

It raised the gas tax by 4.3 cents per gallon. It also limited the ability of corporations to claim entertainment tax deductions.

The +10 years of tepid economic growth since 2010 were caused in part by limiting government programs (e.g., in infrastructure, scientific research) that would have boosted growth, and because President Obama chose to focus on bringing down national debt after the initial $800B ARRA aid package assisting recovery from the Great Recession.

Republicans in particular seem to have been influenced by the rhetoric of anti-tax activist Grover Norquist when he said,  "I'm not in favor of abolishing the government. I just want to shrink it down to the size where we can drown it in the bathtub," which did tremendous to economic growth during that time.

The irony in this history is that economists are already predicting a huge economic recovery next year once enough Americans have been vaccinated, as happened with the recovery from the 1918-19 Spanish flu-induced recession, and which became known as the euphoric “roaring twenties”.

Harlan Green © 2020

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

Another Good Employment Report

 Financial FAQs

FREDunemployment

The U.S. regained 630,000 jobs in October and the unemployment rate fell sharply again to 6.9 percent, said the Bureau of Labor Statistics, reflecting a surprising show of strength for the economy even as coronavirus cases rose to record highs.

“These improvements in the labor market reflect the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic, and efforts to contain it,” the BLS said in its press release. “In October, notable job gains occurred in leisure and hospitality, professional and business services, retail trade, and construction. Employment in government declined.”

There are still 11 million workers without jobs of the 22 million jobs lost due to the pandemic shutdown, so it will take much more time to bring the employment picture back to something like what prevailed before the pandemic, and “dark days” for COVID-19 infection rates when the holidays kick in lie, both Drs. Fauci and Birx said in recent days.

That means a lot more suffering and deaths this winter and into next year for many, before any vaccine can be widely administered.

Private-sector employment rose by a more robust 906,000, but a sharp decline in government employment pulled down the overall total. The number of persons who usually work full time rose by 1.2 million to 123.6 million, and the number who usually work part time increased by 1.0 million to 26.2 million.

The number of persons employed part time for economic reasons increased by 383,000 to 6.7 million in October, after declines totaling 4.6 million over the prior 5 months.

Federal Reserve Chair Powell said yesterday after the conclusion of their latest FOMC meeting that more pandemic relief aid is needed to keep economic growth expanding, to no one’s surprise. The rise in new cases “is particularly concern,” the Fed chairman said.

It also means much more than relief aid is needed to rebuild the American economy for the future. It took 10 years after the Great Recession for the unemployment rate to drop to its pre-pandemic low.

https://twitter.com/cmyeaton

The U.S. counted 107,872 new infections on Wednesday, according to a New York Times tracker, and at least 1,616 Americans died. In the past week, the U.S. has averaged 91,878 cases a day, a 51 percent increase from two weeks ago.

The U.S. leads the world by cases with 9.49 million and deaths with 233,777, according to data aggregated by Johns Hopkins University, and accounts for more than a fifth of global cases and fatalities.

So Powell’s warning of “tragic’ economic risks if another coronavirus aid package isn’t passed by congress seems obvious.

“Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth,” Powell said. “By contrast, the risks of overdoing it seem, for now, to be smaller.”

And those hurt most by any further delay in passing another relief package that would benefit states as well federal government programs are the essential workers most needed to conquer the pandemic.

Employment of those in the bottom rung of the wage distribution scale remains 21 percent below its February level, while it was only 4 percent lower for workers who receive higher wages.

Harlan Green © 2020

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

The Coming Greater Depression?

Economics Weekly

MarketWatch.com

Minnesota Fed Governor Neal Kashkari believes the COVID-19 pandemic doesn’t have to bring on another Great Depression. But it will still take some 18 months to recover, and only if Americans are able to cooperate in protecting themselves and each other.

There were 20.5 million jobs losses in the just released April unemployment report, and the unemployment rate rose from 3.5 percent to a rate of 14.7 percent in just one month. 

“We need to find ways of getting the people who are healthy, who are at lower risk, back to work and then providing the assistance to those who are most at risk, who are going to need to be quarantined or isolated for the foreseeable future,” Kashkari said in a recent CBS Sunday interview.

“This could be a long, hard road that we have ahead of us until we get to either an effective therapy or a vaccine. It’s hard for me to see a V-shaped recovery under that scenario.”

The letter that best describes how long the depression will last can be either a ‘V’, ‘U’, or ‘L’ shape.

Most economists say there will be at least two quarters of negative GDP growth, which means a very steep drop and sudden recovery—the ‘V’ shape. But some economists like Nouriel Roubini, the NY

University economist, see a much more prolonged recovery, the ‘L’ shape, which means no recovery for several years.

Professor Roubini raises the possibility of “mass defaults and bankruptcies. Together with soaring levels of public debt, this all but ensures a more anemic recovery than the one that followed the Great Recession a decade ago.”

Why wouldn’t he believe this, as New York has suffered the most because of its dependence on crowded subways to move its millions of workers and proximity to Europe that probably brought COVID-19 to its shores?

So New York Governor Andrew Cuomo has been exhorting New Yorkers to behave as if “It’s not about you or me, it’s about we,” to bring down their infection rate.

Job losses were heaviest at restaurants, retailers and hotels, but every major industry suffered, per the Labor Department. The health-care sector even lost 1.4 million jobs amid the worst health crisis in American history.

This is the highest rate and the largest over-the-month increase in the history of the series (seasonally adjusted data are available back to January 1948), said the BLS. The number of unemployed persons rose by 15.9 million to 23.1 million in April. The sharp increases in these measures reflect the effects of the coronavirus pandemic and efforts to contain it.

The real question is what Nobel Laureate Robert Shiller predicts will be the resultant anxiety pandemic.

“It is not good news when two pandemics are at work simultaneously. One can feed the other. Business closures, soaring unemployment, and loss of income fuel financial anxiety, which may, in turn, deter people, desperate for work, from taking adequate precautions against the spread of the disease.”

We want to also watch consumer sentiment, since there is no central message coordination from the federal government. Even the CDC, as well as the NIH and other government health agencies have been muzzled by the Trump administration in reporting consistent facts due to Trump’s fear that it hurts his reelection chances in November.

It is truly a sad spectacle to see what years of attempts to discredit scientific knowledge have done to one political party, now that it’s in the White House and faced with a virus that doesn’t differentiate between red and blue states, Democrats and Republicans.

It is an even greater tragedy to see the confusion this engenders among Americans needing to cope with this epic natural disaster that only a belief in scientific knowledge can mitigate.

Harlan Green © 2020

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

Who Is Fully Employed in January?

Financial FAQs

MarketWatch

It looks like everyone is employed in the service sector, but manufacturing is sputtering. There were 44,000 new construction jobs and a whopping 72,000 in Education and health services. But manufacturing lost another 12,000 jobs in January; the same as in December.

That is why average hourly earnings (i.e., wages) are barely rising above inflation, and interest rates and inflation remain so low. This ‘goldilocks’ scenario must be due to the 2-year trade war, and now China’s coronavirus pandemic that the World Health Organization has called a “global public-health emergency.”

In other words, American consumers are scooping up lots of cheap consumers goods from other countries, but manufacturers aren’t exporting enough to create a positive balance of payments;
therefore stock and bond prices are gyrating when the world economy doesn’t seem to know what to make of China’s coronavirus that has now spread to some 23 countries, according to latest reports.

Here are the latest coronavirus numbers, according to the Washington Post, as it is approaching the SARS pandemic totals of 2003, and may turn out to be more deadly as the virus mutates into a possibly more virulent strain:

Chinese health officials say they confirmed more than 31,000 cases of the coronavirus, more than 4,800 of them considered severe. The death toll surpassed 1000, with fatalities almost entirely confined to China.

● An additional 41 people on board the Diamond Princess cruise liner, which has been quarantined in Japan, have tested positive for coronavirus, bringing the total to 61.
● Another cruise ship, the Westerdam, is at sea, and its crew is unsure where to go next, after being denied entry to the Philippines, Japan and South Korea. Passengers blame an ill-advised port stop in Hong Kong, where the boat took on many new passengers.
● Two charter flights carrying about 300 Americans out of the virus-hit city of Wuhan are expected to arrive in the United States on Friday. A flight carrying mainly Canadian evacuees landed in Ontario on Friday morning.

So let us take some comfort that American jobs aren’t yet at risk. In fact, the 2003 SARS pandemic occurred during the housing bubble, and record economic growth during that decade. But what followed was the Great Recession.

That’s why most economists aren’t touting January’s very robust job numbers as a harbinger of a better year just yet. There may be more bad news coming, and interest rates are still at record lows, which mean the financial markets are hedging their bets for another rainy day.

Harlan Green © 2020

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

December Job Formation Slipping

Popular Economics Weekly

MarketWatch

This MarketWatch graph gives an instant picture of December payroll formation. The consumer-driven service sector is booming with more than 154,000 nonfarm payroll jobs created in December, but 19,000 jobs were lost in the Mining and Manufacturing sectors. Average hourly pay growth is slowing as well.

This is worrisome in the sense that plenty of lower-paying jobs are being created in Construction, Retail and Wholesale Trade, Transportation, Professional Services, Education/Health, and Leisure activities; hence the record low unemployment rate; but higher-paying job losses for blue collar workers (-19,000) brought the net job gains down to 145,000.

The Labor Department also reported, “In 2019, payroll employment growth totaled 2.1 million, compared with a gain of 2.7 million in 2018. Incorporating revisions for October and November, which decreased payrolls by 14,000, monthly job gains averaged 184,000 over the past 3 months.”

MarketWatch’s Jeffry Bartash conjectured that skilled workers are so hard to find that companies are afraid to layoff anyone in case the economy does speed up. Hence the job growth is in services, rather than manufactured things made by those blue collar workers.

We now have to look for signs that a signed Phase I tariff agreement with China can keep this economy growing. Estimates for Q4 GDP economic growth are still hovering around just one percent, because companies are not investing in capital investments for future growth. And so manufactured exports that were supposed to expand due to the various trade agreements are also declining.

In fact, this St Louis Federal Reserve-generated graph since 1994 for nondefense capital orders of manufacturing goods excluding aircraft shows that so-called capex expenditure growth was 10 percent during boom periods (Gray bars portray 2001 and 2007-09 recessions). But such investments are currently contracting at 1 percent, not a good sign for future growth.

The growth rate was last at 10 percent from 2010-12 due to a boost in government spending that brought us out of the Great Recession, but Tea Party-led Republicans then decreed spending caps and even a 2013 government shutdown that has limited public investments since then.

Private sector corporations would rather use their record profits from the Great Recession recovery to buy back stock and enhance CEO salaries, as I have been saying, so there has been little investment in public works—like infrastructure, education, the environment, and Research & Development, all spending that would restore our flagging labor productivity.  Hence annual economic growth has slowed to the current crawl of 2 percent since then.

And Iraq is now asking U.S. soldiers to leave Iraq because the U.S. Iraqi Prime Minister Adel Abdul-Mahdi in a late Thursday night phone call to Secretary of State Mike Pompeo also said, “American forces had entered Iraq and drones are flying in its airspace without permission from Iraqi authorities, and this was a violation of the bilateral agreements.”

War is a great distracter from real problems that only better economic growth can solve. How can such hostile behavior help to keep any economy growing, much less ours? That is the question yet to be answered.

Harlan Green © 2019

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

October Employment No Big Deal

Popular Economics Weekly

MarketWatch.com

Total nonfarm payroll employment rose by 128,000 in October, and the unemployment rate was little changed at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in food services and drinking places, social assistance, and financial activities.

But most were not the good-paying jobs that will support a household, or buy a home. Restaurants and bars led the way in hiring by adding 48,000 jobs. Professional jobs rose by 22,000, social-assistance providers added 20,000 jobs, and financial companies increased employment by 16,000.

Payrolls fell by 36,000 in manufacturing that mostly reflected the GM strike, and government employment slipped by 3,000.

Just the 22,000 Professional jobs are considered middle-class, white collar jobs. In fact, most consumers and jobs are stuck with low-paying service sector jobs in retail, warehousing, and even healthcare.

This is a major reason U.S. economic growth is gradually slowing, as many economists reported last week. Hence the uncertainty about an upcoming recession, since consumers are still optimistic about job prospects and flush with earnings from the very low unemployment rate.

But ‘very low’ unemployment has been masking the real problem with this recovery. Wages and salaries have not been rising fast enough, in jobs that support an adequate standard of living, to bring back anything close to boom times again for most Americans.
Why not? We have to look at the history of economic recoveries.

The Obama administration’s one-time American Recovery and Reconstruction Act of 2009 (ARRA) put some $850 billion back into governments to end the Great Recession, which boosted a flurry of infrastructure improvements, and helped to balance some state budgets, but it didn’t even begin to catch up to the $2 trillion plus shortfall in outmoded infrastructure that included not only roads and bridges, but airports, the energy grid, water and sanitation facilities (e.g., Flint, Michigan and Newark, NJ), and a K-12 elementary education system ranked at the bottom in the developed world.

This is what any responsible governance policies should continue to do. The current economic recovery has benefited just the top 10 percent in income-earners, which is the reason for so much discontent among blue collar, working folk.

It was called the New Deal when we had a leader capable of answering the call, as did a President named Roosevelt, who said just prior to his reelection in 1936: "the old enemies of peace: business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism…are unanimous in their hate for me — and I welcome their hatred." 

Livingnewdeal.org

In fact, President Roosevelt did falter in 1937, when Republican’s won a congressional majority and he agreed to attempt to rebalance the federal budget while the Federal Reserve reduced the money supply as it had in 1930; which helped to precipitate the original downturn. The U.S. economy then dropped back into a second recession, which is why it was called the Great Depression; before Roosevelt reinstituted New Deal spending programs that brought growth back to pre-Great Depression levels.

“The New Deal ushered in a Golden Age for public works, as Washington at last took a leading role in funding infrastructure,” said one study of the New Deal. “The federal government, working hand-in-hand with state and local agencies, financed (and provided relief labor for) a huge array of projects. These emphasized the newest forms of technology and infrastructure, including highways, airports, dams, and electric grids, as well as more traditional public works, such as libraries, schools and parks.”

Those same policies need to be enacted today to bring back this recovery from the Great Recession, and keep it from becoming another Great Depression.

Harlan Green © 2019

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

Why the Huge Jobs Report?

Financial FAQS

MarketWatch

The unemployment rate edged up to 3.7 percent from 3.6 percent as more than 300,000 people entered the labor force in search of work, the Labor Department said Friday. That has confounded those that see slowing economic growth in the second quarter, lowering odds the Fed will begin to drop short term interest rates that have boosted credit card and installment loan payments.

Both the unemployment rate, at 3.7 percent, and the number of unemployed persons, at 6.0 million, changed little in June, said the BLS. And the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 4.3 million in June. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.

Why, the ‘huge’ jobs gain?  In fact, these numbers tell us the US economy is still not at full employment, and most of the hiring is in the service sector that depends more on domestic demand than geopolitical and trade uncertainties.

Professional firms hired 51,000 workers; health-care providers added 35,000 jobs and transportation and warehouse companies boosted payrolls by 24,000. Shippers have been steadily adding jobs for years amid a boom in online shopping.

Construction companies hired 21,000 workers, while manufacturers' employment increased by 17,000. Both industries had grown more slowly this year and added relatively few workers because of the skilled labor shortage. Transportation and warehousing added another 17,000 jobs.

Because most of the hiring was in the service sector that has lower-paying, less skilled jobs, wage growth and inflation are still tame. The average wage paid to American workers rose just 6 cents to $27.90 an hour. The 12-month rate of hourly wage gains was unchanged at 3.1 percent, which is a low rate of gain at this stage of a recovery.

“Wage growth has tapered off recently despite the tightest labor market in decades, suggesting most workers have gained limited power in wresting higher pay from employers,” said MarketWatch. “Firms are also resorting to more automation to speed up production, keep costs down and get around a shortage of skilled labor.”

And state governments continue to hire as they ramp up their own infrastructure projects without waiting for the federal government to act. State and local government hiring brought on a 33,000 surge in public-sector payrolls.

So who knows when this business cycle will end—meaning when will US economic activity begin a downward slope? It hasn’t yet, in spite of the ongoing tariff wars and geopolitical uncertainties that have mainly hurt the manufacturing sector with the sharp cutbacks in exports and decline in world trade, as I mentioned in an earlier column.

But it hasn't yet affected the service sector, where consumers earn and spend most of their money.  This growth cycle won't end as long as consumers continue to spend, in other words.

Harlan Green © 2019

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May employment Not Looking So Good

Popular Economics Weekly

MarketWatch

Total nonfarm payroll employment edged up in May (+75,000), and the unemployment rate remained at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in professional and business services and in health care.

This MarketWatch graph tells it all. Mostly lower-paying businesses in the service-sector; Leisure/Hospitality, Education/Health, and Professional Services gained 76,000 jobs; whereas those in higher-paying construction, manufacturing, wholesale trade, retail and government lost 75,000 jobs.

And since annual wages are barely rising above inflation—now 3.1 percent vs. 3.4 percent in earlier reports—some 5.8 million workers choose either part time work or no work at all, which is basically unchanged for months and means the labor participation rate has probably peaked, prior to the next slowdown (or recession).

The economy has now created an average of 151,000 new jobs in the past three months, down from as high as 238,000 at the start of the year.

So what happened to the consensus for BLS numbers of 180-200k+ payroll growth in May? It certainly looks like the manufacturing industries in particular are losing growth per the ISM manufacturing and non-manufacturing indexes, as I said yesterday. Guess why, with how many trade wars going on, and Midwest farmers now drowning in mud as well as debt? Manufacturers are affected because they have to either import or export most of their parts and products, whereas the service industry is mostly domestic industries (though computer software is exported).

As an example, the factory sector is a listing vessel based on the ISM manufacturing index for May which came in on the low side of estimates at only 52.1. This is the weakest score since October 2016 and shows modest-to-moderate rates of growth for production (51.2), new orders (52.7) and employment (53.7). Backlogs are sharply lower and in contraction, down 6.7 points in May to 47.2 for an unfavorable indication on June employment. But it still shows positive growth.

Econoday

Whereas today’s ISM non-manufacturing index showed how strong the service sector is, and where most of the lower-paying jobs are created. Employment jumped 4.4 points to 58.1 in the best showing since October last year. New orders are also up 5 tenths to a very strong 58.6 which points to gains for the business activity index (production) in future months. Business activity in May was already very strong, over 60 at 61.2 for a 1.7 point gain.

The real issue will be how to fill the more than 7.5 million vacancies in the earlier JOLTS report. The March Job Openings and Labor Turnover Summary really showed how many more of those lower-paying jobs remain unfilled; and which a rising number of workers are refusing to fill. It’s why wages have risen so slowly for years and inflation has dropped to almost deflationary levels.

It also explains why housing hasn’t taken off during this recovery from the housing bubble. The median income of young adults in the 25–34 year-old age group that are the majority of new homebuyers was up just 5 percent from 1988 to 2016, according to the 2018 report from Harvard’s Joint Center for Housing Studies.

Meanwhile, gross domestic product per capita, a measure of total economic gains, increased some 52 percent from 1988–2017. If incomes had kept pace more broadly with the economy’s growth over the past 30 years, they would have easily matched the rise in housing costs—underscoring how income inequality has helped to fuel today’s housing affordability challenges, as well as economic growth in general.

Harlan Green © 2019

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

A Huge Employment Report

Popular Economics Weekly 

 MarketWatch.com

 The U.S. Bureau of Labor Statistics (BLS) reported today that total nonfarm payroll employment increased by 263,000 in April, and the unemployment rate declined to 3.6 percent. It was the lowest unemployment rate in 49 years—since December 1969.

A major reason for the rate drop was almost 500,000 fewer workers were available for work in the Household Survey, shrinking the labor pool, even though job hirings were up in the seasonally adjusted Establishment Survey that reports actual payroll numbers. Notable job gains occurred in professional and business services, construction, health care, and social assistance.

The fact that nonfarm payroll employment increased by 263,000 in April, compared with an average monthly gain of 213,000 over the prior 12 months showed that Fed Chairman Powell and his Board of Governors were correct in not signaling a rate drop anytime soon; maybe not for the rest of the year.

The BLS reported professional and business services added 76,000 jobs in April, with gains in administrative and support services (+53,000) and in computer systems design and related services (+14,000). Over the past 12 months, professional and business services has added 535,000 jobs, a sign that IT services continued to grow.

And construction, hence the real estate industry also showed strong growth, with construction employment up by 33,000, including gains in nonresidential specialty trade contractors (+22,000) and in heavy and civil engineering construction (+10,000). Construction has added 256,000 jobs over the past 12 months.

The construction jobs surge highlights the 3.9 percent increase in spending of state and local governments on infrastructure—such as roads and bridges—in the initial estimate of Q1 GDP growth.

Employment in health care grew by 27,000 in April and 404,000 over the past 12 months. In April, job growth occurred in ambulatory health care services (+17,000), hospitals (+8,000), and community care facilities for the elderly (+7,000).

This means the just reported 3.2 percent jump in Q1 GDP growth was no fluke, though manufacturers added a mere 4,000 jobs after no increase in March. Factory hiring has been very weak this year as companies struggle with stagnant exports and the effects of U.S. trade tensions with China.

Government jobs rose by 27,000, a good thing, as government activity has an important part in maintaining public services. The federal government is already starting to hire workers for the 2020 Census, said the Census Bureau.  Retailers, on the other hand, cut 12,000 jobs as traditional brands continue to lose ground to internet rivals.

But although the economy is still pumping out plenty of new jobs, the rate of hiring has slowed. The U.S. added an average of 169,000 jobs in the past three months, down from a three-year high of 232,000 in January, But that may be a fluke due to the December government shutdown.

So full economic speed ahead, if no more shutdowns! There are still more than 1 million job openings, according to the Labor Department’s JOLTS report, and the U.S. is the world’s largest economy because it actually churns out more than 5 million new jobs per month.

This also gives the Trump administration more incentive to settle its various trade battles, if it wants to have any wins in next year’s Presidential election.

Harlan Green © 2019

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

March Job Creation Still Exceeds Population Growth

Popular Economics Weekly

Stanford economist and Former Chief Economic Advisor Ed Lezear said last week on CNBC that job creation still exceeds population growth, which is a sign the US economy continues to expand, but at a slower rate, as shown in the BLS March unemployment report on Friday.

“Total nonfarm payroll employment increased by 196,000 in March, and the unemployment rate was unchanged at 3.8 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains occurred in health care and in professional and technical services.”

February was revised slightly up to 33,000 instead of the 20,000 initial nonfarm payroll total, also an encouraging gain that hints growth in the economy might be picking up again. Hiring increased in most major segments of the economy, most notably health care and white-collar firms. The flush of new jobs kept the unemployment rate near a 50-year low, the Labor Department said.

MarketWatch.com

Health-care and Educational Service providers led the way again, adding 70,000 jobs. Health-care has boosted hiring by almost 400,000 in the past year. Professional and technical firms hired 34,000 workers, restaurants increased staff by 27,000 and construction companies took on 16,000 new workers. A month earlier, builders cut employment by the most in a year and a half during a spell of severe cold and heavy snowfall.

But manufacturers trimmed 6,000 jobs after barely any gain in February. And retailers eliminated 12,000 jobs. The manufacturing losses seem to be coming from uncertainty over the prolonged trade negotiations with multiple countries. Manufacturers are complaining about the rising price of imported parts from tariffs that make their finished products more expensive.

us.econoday.com

Another sign of a manufacturing activity slowdown was the decline in February Durable Goods Orders reported earlier this week. There was a cooling for aircraft orders, so that durable goods orders fell -1.6 percent with the ex-transportation reading very low at just a 0.1 percent gain.

Orders for core capital goods also fell -0.1 percent (ex-aircraft and autos), which are factory-produced tools, buildings, vehicles, machinery and equipment that increase future growth and productivity. The fact that orders have dropped below 5 percent annually when maintaining more than 6 percent annual growth the past 2 years is a definite sign of slowing activity.

But the 3-month 180,000 payroll hiring average is more than needed to employ the lower number of working-age adults entering the workforce. The workforce participation rate of 60.6 percent is also healthy, and governments have helped by adding 19,000 jobs since January.

MarketWatch reports another plus for economic growth. “Motor vehicle sales reached a seasonally adjusted annual rate of 17.45 million in March, up from 16.57 million in February, according to data from Autodata. That’s the highest reading in three months and represents a recovery from a downbeat start to the year. The MarketWatch-compiled consensus expectation was for a 16.8 million rate.”

What’s not to like about the unemployment report? Employers are paying more, and even willing to retrain workers to fill the skilled-worker void. The housing market has also picked up with record-low interest rates holding. The Mortgage Bankers Association reports refinance applications jumped 39 percent last week.

Harlan Green © 2019

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Very Strong January Employment

Popular Economics Weekly

MarketWatch.com

Total nonfarm payroll employment increased by 304,000 in January, and the unemployment rate edged up to 4.0 percent, the Bureau of Labor Statistics reported today. Job gains occurred in several industries, including leisure and hospitality, construction, health care, and transportation and warehousing.

This is an unusually high jobs number for January, especially after the robust December payroll numbers, which were downgraded to 222,000 private payroll jobs from the original 312,000 jobs total.

The big mystery is with average hourly wages rising at 3.2 percent, there are still no signs of inflation. And that is keeping both short and long term interest rates extremely low. The 10-year Treasury yield has now sunk to 2.65 percent; very unusual for this late in a recovery cycle. It means mortgage rates for a 30-year conforming fixed rate are now 3.75 percent with a one point origination fee for the most credit-worthy borrowers, which is a rate last seen during the Fed’s Quantitative Easing cycles that pushed down long term rates to near post-WWII lows.

And it is keeping the Fed from raising short term rates further, as well, which is boosting consumers’ spending, who are fully-employed and flush with cash from the best wage and benefit increases in 11 years.

The Labor Department said the impact of the partial federal government shutdown contributed to the uptick in both the unemployment rate, at 4.0 percent, and the number of unemployed persons, at 6.5 million. Among the unemployed, the number who reported being on temporary layoff increased by 175,000. This figure includes furloughed federal employees who were classified as unemployed on temporary layoff under the definitions used in the household survey.

Companies that provide leisure and hospitality — hotels, restaurants, gambling, recreation — added 74,000 jobs in a surprisingly strong gain, reports the BLS. Construction firms took on 52,000 new workers, particularly in fields geared toward commercial building. Health-care providers hired 42,000 workers. Transportation and delivery companies beefed up payrolls by 27,000. And retailers increased staffing by 21,000.

Why such low inflation and interest rate numbers? Macro-economists are saying there is a huge amount of liquid assets sloshing around the world from extremely high savings rates by individuals and central banks. Central banks have not really begun to tighten their purse strings, even 10 years into the recovery from the Great Recession. The EU is worried about slowing economic growth, for one, while China is also showing signs of lower growth.

So the American Fed cannot afford to be in a crediting tightening mode, which would put a damper on U.S. growth. Multi-national U.S. corporations aren’t repatriating much of the $2.4 trillion in overseas profits, either, which means most of their profits aren’t being put to work to improve American productivity or future growth.

In fact, even the 2017 Republicans’ Tax Cut and Jobs Act hasn’t helped, as I said yesterday, which MarketWatch’s Howard Gold has labeled the “Shareholder and CEO Enrichment Act of 2017.”

The bottom line seems to be the U.S. is back in the goldilocks growth mode; growth is neither too hot (because of low inflation), nor too cold (with full employment), which is a conundrum of sorts, as former Fed Chair Alan Greenspan was wont to say. It doesn’t fit some economic models.

But many major economists—such as Harvard economist Larry Summers, IMF’s Olivier Blanchard, Nobelists Paul Krugman and Joe Stiglitz—believe it’s a perfect time to put some of that excess cash to better use than boosting stockholder and CEO incomes. Why not use it to begin to build for future growth in all the sectors that would secure a better future—education, infrastructure, R&D, healthcare? All that’s lacking is the political will.

Harlan Green © 2019

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U.S. Wages At 9-Year High

Popular Economics Weekly

MarketWatch.com

Total nonfarm payroll employment rose by 250,000 in October, and the unemployment rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in manufacturing, in construction, and in transportation and warehousing—in basically all sectors of the U.S. economy.

“The rapidly growing economy generated a sizzling 250,000 new jobs in October, keeping the unemployment rate at a 48-year low and pushing the increase in worker pay to the highest level in more than nine years,” said MarketWatch’s Jeffery Bartash.

The large increase in worker pay highlighted the unemployment report, as did government reports such as the BLS Job Openings and Labor Turnover Survey (JOLTS) that showed more than 7 million job openings, and a high Quits rate of voluntary separations that usually means workers are finding better jobs.

“The number of job openings reached a series high of 7.1 million on the last business day of August, the U.S. Bureau of Labor Statistics reported in October. Over the month, hires and separations were little changed at 5.8 million and 5.7 million, respectively. Within separations, the quits rate was unchanged at 2.4 percent and the layoffs and discharges rate was little changed at 1.2 percent.”

The 5.8 million hires really highlights the incredible jobs turnover rate each month in the $20.7 trillion U.S. economy. A major component of the unemployment report was the 32,000 new manufacturing jobs created in October that was highlighted in the BEA’s report on new factory orders.

Econoday.com

“Up a higher-than-expected 0.7 percent, factory orders in October added to September's very strong gain which is now revised 3 tenths higher to 2.6 percent,” said Econoday. “October's increase for durable goods, also at 0.7 percent, is revised 1 tenth lower from last week's advance report with orders for non-durable goods, which are the fresh data in today's report, up 0.6 percent reflecting gains for petroleum and chemical products.”

Why the lowest unemployment rate in many years? A major reason is the percentage of able-bodied Americans in the labor force from the ages 25 to 54 rose to 82.3 percent in October from 81.8 percent in the prior month. That marks the highest level since April 2010.

How about interest rates? The 10-year Treasury Bond yield rose to 3.15 percent once again, and the Fed is sure to raise their Fed Funds rate another one-quarter percent in December to 2.25 to 2.50 percent, which means the Prime rate will go to 5.50 percent. That hasn’t dented consumer spending yet, but it might in the New Year.

What with the election uncertainty, trade wars, jittery financial markets, and an administration fearful of its own survival, we don’t see how 2019 can be as good.

Harlan Green © 2018

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

A Weak Jobs Report?

Popular Economics Weekly

Graph: MarketWatch

“The unemployment rate declined to 3.7 percent in September, and total nonfarm payroll employment increased by 134,000, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, in health care, and in transportation and warehousing.”

Why fewer jobs this month? A special mention of Hurricane by the BLS attempted to explain the low job formation number, said the survey. “Hurricane Florence affected parts of the East Coast during the September reference periods for the establishment and household surveys. Response rates for the two surveys were within normal ranges.”

It is possible the east coast hurricane affected Leisure and hospitality and Retail trade, which lost -37,000 jobs cumulatively. White-collar firms added 54,000 job and health-care providers filled 26,000 positions. Builders hired 23,000 workers and manufacturers 18,000.Pundits and economists are saying this happened during prior bad weather episodes as well.

“We have seen this time and time again after big hurricanes (last September being a very good example after Hurricane Harvey, when payrolls fell 33K in the initial print),” said Thomas Simons, senior money market economist, Jefferies LLC as cited by MarketWatch. “So, ignore the weakness in payrolls.”

A lack of skilled workers is holding back more job gains, particularly in construction. The number of people working in construction was 315,000 higher compared to a year earlier. But there were 273,000 open construction jobs at the end of July, according to a separate Labor Department report. And the pay is better, with average hourly wages now $30.18 per hour vs. $27.24 for all hourly workers.

The smaller Household Data survey that calculates the unemployment rate was more upbeat. “The unemployment rate declined by 0.2 percentage point to 3.7 percent in September, and the number of unemployed persons decreased by 270,000 to 6.0 million. The unemployment rate and the number of unemployed persons declined by 0.5 percentage points and 795,000, respectively, over the year,” per the BLS.

We could be reaching the lower limits of the unemployment rate, now at 3.7 percent, in other words, the lowest in 48 years. This could in itself prevent further GDP growth as hiring stagnates and more than 6 million job opening go unfilled, per U.S. Labor’s JOLTS report.

“The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.4 million over the month; these individuals accounted for 22.9 percent of the unemployed. In September, the labor force participation rate remained at 62.7 percent, and the employment-population ratio, at 60.4 percent, was little changed,” said the BLS.
“The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 263,000 to 4.6 million in September. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs."

There will also be workers either unable or unwilling to return to work, in part because of our aging workforce. The baby boomers are retiring en masse, and the native-born U.S. population isn’t growing fast enough to replace them. So it will be up to newly arrived immigrants or the children of immigrants to continue economic growth, as I said in my last blog.

The current administration seems to know very little of basic economics, if they don’t understand this basic fact—economic growth largely mirrors population growth. Labor productivity is the other part of the economic equation for GDP growth, but labor productivity has been declining steadily since 2000, mostly because corporations have used their record profits for increased stock buybacks and stockholder dividends rather than boosting labor productivity—even after the latest corporate tax cuts.

This is not a formula for the prosperity of future generations.

Harlan Green © 2018

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October Unemployment Highest Hourly Earnings in Recovery

Popular Economics Weekly

Graph: MarketWatch

Total nonfarm payroll employment increased by 201,000 in August, and the unemployment rate was unchanged at 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, wholesale trade, transportation and warehousing, and mining.

Very little happened with the August Unemployment report. Average hourly wages rose slightly, and more service sector jobs were created, but fewer new jobs were created in the more highly-skilled manufacturing and high tech sectors.

White-collar professional firms filled 53,000 positions, bringing the total created over the past 12 months to more than half a million, which includes both the professional and business services, and health care. These are the fastest growing jobs in the country. Health-care providers hired 33,000 people, transport firms added 20,000 jobs and construction companies hired 23,000 workers.

Employment fell by 3,000 in manufacturing, the first decline in 13 months. U.S. tariffs and a scarcity of (higher paid) skilled laborers may finally being felt by employers. And gains for July and June were revised down by a combined 50,000, the Labor Department said Friday.

This could be a sign that economic activity is peaking, although wholesale trade, transportation and warehousing job growth was robust.

The (other) Household Survey that actually measures the unemployment rate—a smaller telephone survey of households that is slightly less accurate—held steady at 3.9 percent though the labor participation rate slipped 2 tenths to 62.7 percent.

This was because the number of people in the labor force went down by a half of million, to 161.8 million from 162.3 million reflecting a decrease in the number of employed which in this survey, in contrast to the BLS Establishment survey, includes the self-employed.

The big news was the 2.9 percent rise in average hourly earnings, the highest since December 2007 and the beginning of the Great Recession, according to Econoday.

The Labor Department also reported the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 4.4 million, changed little over the month but down by 830,000 over the year. “These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs,” said Labor.

The fall in part-time employment tells us why wages are finally rising above the inflation rate—most have found full-time work. This may cause the inflation rate to rise, since workers’ salaries are about two-thirds of product costs. Inflation is still tame, however, with the Fed’s preferred ‘core’ PCE inflation index holding at 2 percent. We believe the Fed will raise short term interest rates by another 1/8 percent at its next FOMC meeting, anyway, in spite of President Trump’s tendency to berate Fed Governors in an effort to hold interest rates down; because higher interest rates make imported goods more expensive for consumers.

Inflation, in other words, is only this low because of the slow rise in hourly wages. It means a majority of new jobs being created are either in those warehousing and transportation sectors, or leisure services that still pay barely subsistence wages.

There was nothing else of note in the August jobs report. Consumers seem to be happy, with consumer confidence and retail spending at their highest levels in years, which should mean continued high GDP growth for the rest of this year.

That’s because neither consumers nor investors seem to be taking rising import and export prices from the new tariffs very seriously, yet.

Harlan Green © 2018

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

Is 4% GDP Growth Real?

Popular Economics Weekly

Graph: Econoday

Many economists, including Trump economic advisor Larry Kudlow, are predicting up to 4 percent economic growth over the next few quarters. Why? Full employment is enticing consumers to buy more, with booming retail sales and consumer confidence.

“Sales at health & personal care stores were unusually strong in June, up 2.2 percent following a series of very strong gains in the 1 percent range,” reports Econoday. “Nonstore retailers, in a sign of e-commerce strength, rose 1.3 percent in June and continue to make ground compared to other components. Gasoline stations, boosted by high gas prices, saw a 1.0 percent rise in June sales following a 3.0 percent spike in May. Building materials, at plus 0.8 percent in June, and furniture store sales, up 0.6 percent, are both positive indications for residential investment.”

The problem with understanding the significance of retail sales is that they aren’t corrected for inflation, and consumer (CPI) inflation is approaching 3 percent, so 6 percent nominal annual retail sales is closer to 3 percent in real sales. And that is probably the high end, as consumers’ real average paychecks are increasing 2.7 percent, so any increase in buying is limited by the amount consumers can borrow with rising interest rates, as I’ve been saying.

Is 4 percent GDP growth possible for the next several quarters, as Kudlow, et. al. are predicting? It depends on how long can this business expansion continues, says Brookings economist Robert Shapiro.

“Trump’s middling record on GDP and investment raises the question of how much longer the current expansion, now just two months shy of entering its tenth year, can last,” says Shapiro. “Developed economies move in business cycles, and so they weaken eventually as a matter of course. That’s where the United States is today. This late in any economic expansion, the pool of available workers for new jobs is modest, most attractive investment opportunities have been taken, and any pent-up consumer demand for large durable purchases has been exhausted.”

Graph: MarketWatch

In fact, wages are falling after inflation by another measure. According to the Labor Department, median weekly earnings fell 0.6 percent in inflation-adjusted dollars in the second quarter, compared to the same time period of 2017. That’s the third straight quarter where inflation has outpaced wage growth, according to MarketWatch’s Steve Goldstein.

This is an important statistic because real personal income growth is one of the four pillars that measure the onset of a recession. Nonfarm employment, industrial production and real retail sales are the other three pillars. All four indicators must peak for a recession to begin. So far, median weekly earnings show weakness, but the other three still show growth.

A more public sign of recession is when there are two consecutive quarters of GDP decline. So to be clear, weakness is showing in just one of the four legs, and there are predictions of at least two more quarters of positive GDP growth.

But then there is the looming trade war. The International Monetary Fund has just warned that President Trump’s trade wars with everyone could cost the world’s economies some $430B in lost growth. The Washington-based organisation said the current threats made by the US and its trading partners risked lowering global growth by as much as 0.5 percent by 2020, or about $430bn in lost GDP worldwide.

It has escalated from $3.6 million in tariffs first imposed in January against 18 types of Chinese solar panels and washing machines to more than 10,000 products worth some $362 billion, as China, Canada and the European Union have retaliated with their own tariffs, according to the latest New York Times estimate.

And 2020 is the year of our next presidential election. So investors can gamble that President Trump won’t continue to double down on his trade wars, if he wants to be re-elected. But it is a very high-stakes gamble.

Harlan Green © 2018

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

Where is the Inflation, and Higher Growth?

Financial FAQs

The drumbeat for a higher inflation target is picking up. The Chicago Fed’s Charles Evans recently advocated a less hawkish Fed stanch on maintaining the 2 percent inflation target with few signs of inflation even on the horizon.

Elizabeth Sawhill, a Senior Fellow at Brookings in a New York Times Op-ed, on the heels of February’s almost record 313,000 job creation number, is also saying that higher inflation would be desirable after many years of too low inflation.

“In fact, a high-pressure economy, with wages and prices a little higher than we’ve become used to, might actually do a lot of good for the people who need it most,” said Sawhill. “Working families need a tight labor market — and higher wages — to get ahead. It would be a costly mistake to raise rates too much or too soon.”

I have been saying this for years, as we know that higher growth and higher inflation go hand-in-hand, which in turn boosts wages. The Fed’s preferred PCE and retail CPI indexes have remained below 2 percent since 2008, while the GDP growth rate has also averaged just 2 percent.

Graph: tradingeconomics.com

Why don’t we have higher growth? Because higher GDP growth requires corporate profits reach those that will invest or spend them, including governments, working folk, and corporations have been better at buying back their own stock rather than investing their profits, as I’ve also been saying in past columns. While governments have been living on austerity budgets since the Great Recession.

“We are in the midst of a big fiscal and monetary experiment, says Sawhill. “And as with any experiment, the consequences are unknown. What we do know is that the costs of the Great Recession were enormous — at least $4 trillion in lost income, or about $30,000 per household, according to my calculations. The biggest losses were experienced by those in the bottom and middle portions of the income distribution who lost jobs and saw much of the equity in their homes destroyed.”

What is the best way to boost growth and wages? It is to boost labor productivity, which is a measure of the amount produced per hours worked, and largely depends on capital investment.  The productivity chart above portrays it’s fluctuations over the years with Q4 2017 showing no change in labor productivity at all.

How do we improve productivity?  It is very basic economic theory--improve capital investment. Taxing those that don’t invest their profits in productive uses—the wealthiest among us and corporations—would allow governments to spend more on education, infrastructure, environmental protection, R&D, health care; need I go on? By doing so, we boost extremely low labor productivity, and even a slight boost in productivity can boost everyone’s standard of living.

So it really means reversing the politics du jour in Washington that is paid for by Big Business lobbyists, and the Fed policy of raising interest rates before there are any real signs of inflation.

Harlan Green © 2018

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

A Decent Employment Report

Financial FAQs

The Bureau of Labor Statistics reported that 156,000 additional nonfarm payroll jobs were created in August, which was less than expected, but will be enough to keep markets happy. And the unemployment rate edged up to 4.4 percent from July’s 4.3 percent as more workers began looking for work (77,000), but weren’t yet absorbed into the workforce. Almost all the job gains occurred in manufacturing, construction, professional and technical services, health care, and mining.

Graph: Marketwatch

A major positive in the report is a 36,000 surge in manufacturing payrolls that includes a 10,000 upward revision to July to a 26,000 increase and a 9,000 upgrade to June to a gain of 21,000. It’s a positive sign because manufacturing jobs pay higher wages.

Construction payrolls are also solid, up 28,000 in August following a 3,000 decline in July, which mirrors the surging housing market. The new-home construction rate is now above 1 million annual units, which helps replenish depleted housing stocks (and helps to slow price growth).

But retail hiring has declined for six straight months as retail stores continue to close. This is while Amazon has announced plans to hire an additional 50,000 employees to work in its distribution centers.

This was a good jobs report, in other words, and suggests the ongoing recovery, now in its eighth year, shows no signs of weakening. Wages aren’t rising any faster than 2.5 percent; which is a mystery because manufacturing and construction jobs pay higher wages. Is that because there are still 5.6 million part time workers that would rather work fulltime? They earn less, so that may be what is holding down wage growth.

But real (inflation adjusted) Disposable Income is rising again after going negative in 2016.  Disposable income measures income from rents and the self-employed, as well as wages, which may give a boost to employees’ wages. It is the major reason consumer spending rose 3.3 percent in second quarter’s GDP report, and probably will boost third quarter growth as well. Wages and salaries have now risen 0.5 percent for two consecutive months.

The combination of good unemployment and rising incomes are boosting consumer confidence. The Conference Board reported on Tuesday that its consumer confidence index is now at 122.9, which is its highest value since December 2000.

“Consumer confidence increased in August following a moderate improvement in July,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ more buoyant assessment of present-day conditions was the primary driver of the boost in confidence, with the Present Situation Index continuing to hover at a 16-year high (July 2001, 151.3). Consumers’ short-term expectations were relatively flat, though still optimistic, suggesting that they do not anticipate an acceleration in the pace of economic activity in the months ahead.”

Manufacturing payrolls are surging in part because factory orders are rising again. Factory orders fell in July 3.3 percent because of a drop in aircraft orders, but there was a 6 tenths upward revision to core capital goods orders (nondefense ex-air) to a 1.0 percent gain and a 2 tenths upward revision to core shipments, now at 1.2 percent. These numbers point to accelerating strength for third-quarter business investment, which along with consumer spending are the main drivers of GDP growth.

Another boost to Q3 growth will be the recovery efforts for Hurricane Harvey. Damage estimates range up to $100 billion, and governments (as well as insurance) companies will be spending most of that money.  This is what governments need to do, even if the U.S. congress can’t pass a substantial infrastructure bill this year.

And what about the estimated 6 million damaged autos that will be replaced? That give’s another boost to the manufacturing sector, and Q3 economic growth!

Harlan Green © 2017

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Yuge Payroll Jobs Gain Today

Popular Economics Weekly

The U.S. created 227,000 new jobs in January to mark the largest gain in four months, revealing an economy that has plenty of stamina nearly eight years into a recovery that shows little sign of ending. Retailers, construction firms, financial companies and restaurants led the way in hiring in January, the government said Friday.

Graph: Marketwatch

The unemployment rate rose slightly to 4.8 percent last month, mostly because more people were looking for work, but there is a skills gap with most of the unemployed blue collar workers needing job retraining, rather than additional coal and manufacturing jobs the Trump team has promised and is hoping to generate. This is with job openings ear their record high (5.5 million) and that’s drawing a larger share of Americans back into the labor force.

And a tighter labor market is also forcing firms to pay more to workers, an emerging trend that’s likely to further underpin the recovery. In January, hourly wages rose 0.1 percent to $26 an hour. Over the past 12 months wages have climbed 2.5 percent—faster than the less than 2 percent annual gains that prevailed through most of the recovery.

What does this mean? Maybe some of those unfilled 5.5 million job openings will be filled. But only if the courts lift the immigration ban that will discourage the influx of skilled workers to fill those jobs, as the Trump administration seems caught in the grips of white nationalist wall-builders, at the moment (such as Breitbart’s Steven Bannon), who are very unskilled at writing Executive Orders, it seems.

One example is the chaos reigning over the immigration ban at the moment. The global confusion that has since erupted is the story of a White House that rushed to enact, with little regard for basic governing, a core campaign promise that Mr. Trump made to his most fervent supporters, reports the New York Times.

In his first week in office, Mr. Trump signed other executive actions with little or no legal review, but his order barring refugees has had the most explosive implications. Passengers were barred from flights to the United States, customs and border control officials got instructions at 3 a.m. Saturday and some arrived at their posts later that morning still not knowing how to carry out the president’s orders.

In the jobs report, there was a huge surge in retail payrolls (46,000), professional services (39,000), and construction jobs (36,000), signaling blue collar jobs are strong, with interest rates still near their record lows.

Graph: Econoday

More big news was that the service sector is booming, though it dropped slightly in January. The ISM non-manufacturing, or service sector index "The NMI^® registered 56.5 percent which is 0.1 percentage point lower than the seasonally adjusted December reading of 56.6.

Both prices and employment jumped 2.9 and 2.0 percent, respectively, again signaling a tighter labor market. The sector that includes Health Care & Social Assistance; Finance & Insurance; Public Administration; Accommodation & Food Services; Retail Trade; Construction; still reflects strong growth.

“This represents continued growth in the non-manufacturing sector at a slightly slower rate,” said Anthony Nieves, chair of the Institute for Supply Management^® (ISM^®) Non-Manufacturing Business Survey Committee. “Respondents' comments are mixed indicating both optimism and a degree of uncertainty in the business outlook as a result of the change in government administration."

So this uncertainty is another reason to cancel or modify Trump’s immigration ban, as it hurts more than the seven Muslim countries. Scientists worldwide are now cancelling their participation in US scientific conferences in protest.

Harlan Green © 2017

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