What, Another Great Recession?

 Financial FAQs

 “The conflict with Iran has already put fresh stress on the U.S. economy, as businesses are reporting rising prices, fewer orders and a decline in employment. A survey of service-oriented companies — the sector that employs most Americans — fell to an 11-month low of 51.1 in March from 51.7 in the prior month, S&P Global said Tuesday.” MarketWatch

FREDpayrolls

Maybe we shouldn’t be looking at the 1970’s era of stagflation for the kind of economic damage from the Iran War and closing of the Strait of Hormuz to oil shipments. There is a short-term spike in oil prices, though oil from other sources than the Gulf can eventually make up the difference in supplies.

The war’s damage may take longer to materialize but look more like the Great Recession, which we shouldn’t forget was a worldwide recession that occurred in 2008-09, the worst since the Great Depression of the 1930s.

We shouldn’t forget that the Great Recession Bush/Cheney and their oil barons ultimately spawned with the ill-planned invasions of Iraq and Afghanistan was based on lies about the weapons of mass destruction that Saddam Hussein didn’t have.

And now Trump and his Robber Barons are taking the Gilded Age dreams of William Mckinley one step further with lies that Iran is preparing nuclear weapons to justify the ill-prepared war with Iran while aliening the allies that would help them succeed.

This is even though Trump’s just-resigned Counterterrorism czar Joe Kent said Iran posed no imminent threat with nuclear weapons.

The Great Recession was caused by more than the Bush wars on terror, of course. It was caused by putting too many regulation-cutting foxes in the Bush/Cheney hen house that literally resulted in the failure of nonbank banks like Bear Stearns and Lehman Brothers to fail.

Trump is following the same playbook by gutting the government’s regulatory agencies that could prevent the blatant fraud occurring with the Trump administration’s Bitcoin investments that have no regulations or backing with assets.

This time negative GDP growth could come from the faltering labor market, which is frozen in place with almost no net new job creation at all in 2015 as highlighted in the above FRED graph. Fed Chair Powell remarked at his latest press conference that they were torn over whether to cut interest rates or raise them because Trump’s immigrant deportations were causing a labor shortage.

Economic growth ground to a halt as well in 2008, even when Fed Chair Greenspan anxiously began to cut interest rates to prevent the near failure of our banking system.

Powell’s Fed Governors also predicted overall GDP growth of 2.4 percent in 2026, even though Q4 2025 Real GDP growth slowed from 1.4 to just 0.7 percent. So I don’t understand the Fed’s optimism over economic growth.

And history has shown that no job growth will ultimately lead to no economic growth,

The frightening truth is that both Republican administrations have made bad decisions for the same wrong reasons.

Harlan Green © 2026

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

Bidenomics Works--Part II

 Popular Economics Weekly

Calculated Risk

September’s unemployment rate remained at 4.1 percent but reported just 12,000 new payroll jobs due to the hurricanes and Boeing aircraft strike of 30,000 machinists.

Total nonfarm payroll employment was essentially unchanged in October (+12,000), following an average monthly gain of 194,000 over the prior 12 months, said the BLS. In October, employment continued to trend up in health care and government. Temporary help services lost jobs. Employment declined in manufacturing due to strike activity.

That makes it a sure thing the Fed will continue to lower short-term rates at their November FOMC meeting. Also that economic growth will continue into the new year.

Health care added 52,000 jobs in October, in line with the average monthly gain of 58,000 over the prior 12 months. Governments added 40,000 jobs but manufacturing lost 46,000 jobs, which is probably because of the Boeing strike.

Calculated Risk’s graph shows us just how good President Biden’s Bidenomics policies have been. More than 16 million jobs have been created since January 2021 as we returned to work from the brief COVID-19 pandemic shutdown.

But with the Presidential election upon us, our future prosperity is still in doubt. We should take Elon Musk at his word when he said at the Madison Garden rally that he would cut at least $2 trillion from the federal budget if Trump wins, and he is appointed efficiency czar. It would lead to economic disaster, even for his Billionaire supporters.

“After all, it is mathematically impossible to cut taxes for corporations and billionaires, sustain basic programs like defense and Social Security, and lower the deficit simultaneously,” said Nobel Laureate Joseph Stiglitz in Project-Syndicate.

And we should believe what Trump says, according to Mary Trump, his niece, as Trump becomes more irrational, threatening anyone he now perceives as his enemy, including Taylor Swift, so that her boyfriend Kansas City footballer Travis Kelce has told him not to mess with his girl!

“Donald Trump is offering a vision of crony rentier capitalism that has enticed many captains of industry and finance. In catering to their wishes for more tax cuts and less regulation, he would make most Americans’ lives poorer, harder, and shorter,” said Stiglitz.

Timothy Snyder in the introduction of On Freedom, the sequel to his best-selling On Tyranny, tells us why we have a sociopath bordering on psychopathy as the Republican Party candidate for President of the United States of America.

“Deep into a century that was the stuff of dreams in the 1970s, and the subject of confident predictions in the 1990s, we find ourselves at a turning point. Whether we will be free will depend on us—not just on what we do, but on why we do it: our ideals.”

It’s a sad commentary that one of our political parties chose a leader that wants to tear down those institutions that have preserved our democracy; created properity for many; then attack the Capital on January 6 to attempt to overturn the 2020 election,.

Harlan Green © 2024

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

Why Smallest Jobs Increase in 17 months?

Popular Economics Weekly

MarketWatch.com

Is US economy running out of available workers? Just 20,000 nonfarm payroll jobs were created in February, per the Labor Department’s Bureau of Labor Statistics, the lowest total in 17 months. But it may have been because there aren’t enough workers that want to work. That has to be part of the reason for the sharp drop from January’s 311,000 new payroll jobs—that was also revised up from 304,000 jobs!

“The unemployment rate declined by 0.2 percentage point to 3.8 percent in February, said the BLS, and the number of unemployed persons decreased by 300,000 to 6.2 million. Among the unemployed, the number of job losers and persons who completed temporary jobs (including people on temporary layoff) declined by 225,000. This decline reflects, in part, the return of federal workers who were furloughed in January due to the partial government shutdown.”

Note that workers returning from the “partial government shutdown” accounted for some of the 300,000 decrease in unemployment, but that was in the Household Survey, a telephone survey of a smaller number of respondents that includes the self-employed.

The larger and generally more accurate Establishment survey of actual business payrolls showed a much larger decrease of 31,000 fewer construction workers (vs. 53,000 hired in January), with smaller drops in retail and government employment as well. So the two surveys don’t usually match.

That rate fell because of a sharp rise in the number of those employed (up 255,000) and a sharp fall in the number of unemployed, as I said, which makes for an unexpected 2 tenths dip in the unemployment rate to 3.8 percent.

The bottom line is there aren’t enough willing workers for hire. The number of job openings reached a series high of 7.3 million on the last business day of December due to the looming scarcity of hires. This means businesses must find more creative ways to hire and hold their employees—such as continue to raise salaries.

Wages in today's report are another indication of the labor shortage, jumping 0.4 percent in the month which is outside expectations for a year-on-year rate of 3.4 percent that is at the high end of expectations.

It should also mean more job creation this year, since many of those 6 million still out of work are simply waiting for wages to return to pre-recession levels, according to various sources. This is measured by the voluntary ‘Quits’ component of the Job Openings and Labor Survey that has been rising. Many of those having to work during and after the Great Recession had to take steep reductions in pay.

Wrightson-ICAP

So getting back to an equivalent breakeven for those workers holding out means taking into account the pay losses from the downturn even with a fully employed economy.  The gap between openings and hires is now 1.428 million, a new record and up from 1.304 million in November. It’s a very good number for growth prospects in 2019, as employers don’t look for this many

new employees while continuing to raise wages, unless they see a better future. 

Harlan Green © 2019

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

A Gangbusters December Employment Report

Popular Economics Weekly

MarketWatch.com

Total nonfarm payroll employment increased by 312,000 in December, and the unemployment rate rose to 3.9 percent, reported the U.S. Bureau of Labor Statistics last Friday. Job gains occurred in health care, food services and drinking places, construction, manufacturing, and retail trade.

It looks like the U.S. economy isn’t slowing as much as feared, contrary to the pessimists that have been driving down stock prices, while driving up bond prices, so that the 10-year Treasury bond yield is now 2.65 percent, and conforming 30-year fixed mortgage rates are at 3.875 percent with a 1 point origination fee for the best credit holders.

Health-care providers hired 50,000 people, professional firms filled 43,000 positions, manufacturers added 32,000 jobs, construction firms’ payrolls rose by 32,000 and restaurants hired 41,000 additional workers.

The unemployment rate, meanwhile, rose to 3.9 percent from a 49-year low of 3.7 percent. The percentage of working-age Americans in the labor force climbed to a one-and-a-half-year high as more people looked for jobs. That is a good sign since it means people think more jobs are available.

Strong hiring has also given workers more bargaining power. The amount of money the average worker earns climbed 11 cents or 0.4 percent to $27.48 an hour last month.

Who says the housing market is dead, as well? These low interest rates will stimulate more borrowing and home buying. And Fed Chairman Jerome Powell said the Fed would be flexible about raising interest rates this year at a recent conference. “We will be patient as we watch to see how the economy evolves,” given the low inflation outlook, he said.

The employment report contradicted yesterday’s December ISM Manufacturing Index that showed a slowdown in manufacturing hiring, falling more than 5 points to a 54.1 level. This is the lowest showing for this index since November 2016. Especially new orders slowed by 10 points to a 51.1 level that is suddenly very close to breakeven 50. It means approximately half of the supply managers surveyed saw an order slowdown.

This is the lowest showing for new orders since August 2016. Weakness is entirely on the domestic side, says Econoday, as one of the few positives in December's data is a 6 tenth rise in new export orders to 52.8 which is respectable for this particular reading.

Econoday.com

The real question is what will economic growth look like in 2019. It will depend largely on a favorable outcome of the trade talks, which means a lowering of the Trump tariffs that do little for American interests, or American consumers.

That’s because higher tariff fees get passed on to consumers, ultimately, which pushes up inflation, then Federal Reserve interest rates; which cuts into consumer spending. And we have to worry about the soaring federal deficits, which means new taxes will be enacted sometime down the road.

However, this doesn’t worry Nobelist Paul Krugman at the moment in a recent NYTimes Op-ed: “…there are things government should be spending money on even when jobs are plentiful—things like fixing our deteriorating infrastructure and helping children get education, healthcare and adequate nutrition. Such spending has big long-run payoff, even in purely monetary terms.”

The bottom line is money is cheap at the moment with the very low interest rates, so this isn’t the time to worry about budget deficits. It’s much more important to be investing public monies into future growth and productivity that could even prolong this business cycle, now in its tenth year of continuous growth.

Harlan Green © 2019

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

A 17-year Low Jobless Rate

Popular Economics Weekly

Graph: Market.com

Total nonfarm payroll employment increased by 164,000 in April, and the unemployment rate edged down to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, manufacturing, health care, and mining, with manufacturing contributing an oversize 24,000 to payrolls.

The unemployment rate slipped to 3.9 percent—a 17-year low—after holding at 4.1 percent, for six months in a row, said the BLS. The decline owed to a shrinking labor force and fewer people saying they were unemployed instead of an increase in how many people found work. The labor force actually shrank by 236,000, while the number of unemployed dropped by 236,000 in the Establishment (payrolls) survey.

The tight labor market is especially evident in what’s often called the “real” unemployment rate. The so-called U6 rate includes people who can only find part-time work and those who’ve gotten so discouraged they recently stopped looking. It fell to 7.8. percent in April to drop below 8 percent for the first time since 2006. The labor market is almost back to normal, in other words.

All signs say we are nearing the end of the second-longest growth cycle since the Clinton era’s 10-year 1991-2001 boom years I said yesterday; and once again a huge amount of debt has accumulated that ultimately has to be paid for.

Are we dangerously close to the end of this growth cycle, as the Fed tightens credit after years of easy money and consumers then cut back on their spending that powers some 70 percent of GDP growth?

The Fed passed on raising interest rates in this week’s FOMC meeting, mainly because there were few signs of inflation, which was backed up by today’s unemployment report. Hourly pay rose just 0.1 percent to $26.84. The 12-month increase in pay was flat at 2.6 percent for the third month in a row. But prior months were revised upward, at a net 30,000 gain in March and February. Payroll growth includes a solid and slightly better-than-expected 24,000 gain in manufacturing with construction up 17,000, mining up 8,000, and professional business services up a sizable 54,000.

The good news there are still 5.0 million job seekers working part time that want to work full time, and an additional 1.4 million that have looked for work in the past 12 months, but not in the past 4 weeks. The private service-sector contributed the most jobs as usual—119,000, with professional and business services up 54,000 jobs, and education and healthcare contributing an additional 31,000 to the total.

Business investment and exports are rising, but should be rising faster with the new tax bill, according to New York Times Paul Krugman:

“Anything that increases the budget deficit should, other things being the same,” says Krugman, “lead to higher overall spending and a short-run bump in the economy (although there’s no indication of such a bump in the first-quarter numbers, which were underwhelming). But if you want to boost overall spending, you don’t have to give huge tax breaks to corporations. You could do lots of other things instead — say, spend money on fixing America’s crumbling infrastructure, an issue on which Trump keeps promising a plan but never delivers.”

So what is normal at this late stage of the business cycle? Wages aren’t yet rising fast enough to warrant a more hawkish inflation watch by the Fed, but they ultimately will as even fewer new workers are available, so that companies have to pay more for skilled workers, as well as invest more in automation to keep growing.

But we still have all that new public debt to worry about, so interest rates will continue to rise to finance the additional debt, until it crimps further business expansion; as always happens at this stage of a business cycle. So stay tuned!

Harlan Green © 2018

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

A Gangbuster Employment Report

Popular Economics Weekly

The U.S. added 313,000 new jobs in February, the biggest gain in a year and a half and clear evidence that a strong economy has plenty of room to keep expanding, said Marketwatch. The unemployment rate of 4.1 percent remained at a 17-year low.

And despite the big increase in hiring, wage growth did not keep up. Hourly pay rose 4 cents to $26.75 an hour, but the yearly increase in wages tapered off. The 12-month increase in pay slipped to 2.6 percent from a revised 2.8 percent in January.
 

Graph: Marketwatch

Construction companies hired 61,000 people to mark the biggest increase in 11 years. Retailers added 50,000 jobs, as did professional-oriented businesses. And manufacturers filled 31,000 positions. Workers also put more time in on the job, reversing a weather-induced decline in the first month of the year.

What’s more, the economy added 54,000 more jobs in January and December than previously reported. Altogether, the economy has gained an average of 242,000 new jobs in the past three months. That’s much stronger than the 182,000 monthly average in 2017.

Hourly pay is still not rising fast enough to cause inflation. We have to watch the 10-year T Bill for any signs of future inflation. Its yield is still below 3 percent, so the Fed might not raise their rate as quickly. The Chicago Fed’s Charles Evans just suggested the Fed could wait until mid-year before hiking short term rates.

But effects of the steel and aluminum tariff hikes will be the big unknown for inflation. If this initiates a trade war with the EU and China, in particular, all bets are off for continued high growth as rising primary metal prices will boost inflation with a vengeance, and endanger the jobs of those 6 million workers that make products from those metals.

Graph: Marketwatch

There is also a problem with our national savings rate. Marketwatch’s Rex Nutting points out it has sunk to a post-WWII low, which means more foreign investment than ever is needed to fund our balance of payments problem; something better trade agreements won’t cure. Because Americans still like to import more consumer goods than they export manufacturing goods and services, as I said yesterday.

Consumer products and automobiles are the primary drivers of the current $566 billion trade deficit. In 2017, the United States imported $602 billion in generic drugs, televisions, clothing, and other household items. It only exported $198 billion of consumer goods. The imbalance added $404 billion to the deficit. America imported $359 billion worth of automobiles and parts, while only exporting $158 billion.

So there are many caveats to continued strong jobs growth in 2018. Firstly we can’t have a trade war, and secondly, foreign investors still must buy enough US stocks, bonds, and Treasury securities to keep long term interest rates stable.

Harlan Green © 2018

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

4.6% Unemployment--178,000 Payroll Jobs In November

Popular Economics Weekly

Nonfarm payrolls rose 178,000 in November to just beat out expectations with revisions no factor, says Econoday. A sharp downward revision to October, now at 142,000, was offset by a nearly as sharp upward revision to September, now at 208,000. And the unemployment rate fell a very sharp 3 tenths to 4.6 percent for the lowest reading in nine years, since August 2007.

Graph: Marketwatch

But the dip in the unemployment rate is tied, not to greater growth in employment, but to a dip in the participation rate, down 1 tenth to 62.7 percent, and drop in the labor force of 226,000 (I.e., that many quit or stopped looking for work.)

And a headline negative in the report is a slight drop of 0.1 percent decline in average hourly earnings, the first negative reading of the year and more than reversing October's very strong 0.4 percent gain and driving down the year-on-year rate from a cycle high of 2.8 percent back down to 2.5 percent where it last was in August. But Wrightson-ICAP believes this was due to a shorter work month, whereas December’s longer month will probably boost it up to 3.0 percent.

Payrolls growth was led in November by another major gain for professional & services, up 63,000, and a 14,000 gain for the temporary help subcomponent. Gains in these readings point to demand for short-term labor in lieu of finding full-time labor. Construction is another positive, up 19,000 and reflecting strength in residential building. Construction over the past 3 months added 59,000 jobs, largely in residential construction.

This highlights the boost in new-home construction I wrote about in an earlier column. Housing starts surged 25.5 percent in October to a 1.323 million annualized rate. This is the best rate of the cycle since August 2007 with the monthly percentage gain the strongest since 1982. It and other recent good news, such as much higher retail sales, could mean something like a 4 percent GDP growth rate in Q4 this year.

As a side note, housing construction is booming because housing prices are accelerating, according to Zillow and the S&P Housing Price Index. The September Case-Shiller national index is expected to grow 5.7 percent year-over-year and 0.8 percent month-to-month (seasonally adjusted), even with the pace of monthly growth and up from 5.5 percent annual growth pace set in September.

Graph: Calculated Risk

And in the payrolls report, the so-called U-6 component of those that work part time but want to work fulltime declined to 5.7 million, the lowest total since 2008. And governments also added 22,000 payroll jobs, another sign of hiring strength, as governments haven’t yet made the 700,000 jobs lost in the Great Recession.

A negative is an 8,000 decline in retail which indicates that retailers are not gearing up much for the holidays. But that may be because of higher online retail sales. Thus far in 2016, employment growth has averaged 180,000 per month, compared with an average monthly increase of 229,000 in 2015.

The pundits are saying we now can expect the Fed to raise their short term rates at least 0.25 percent this month. Stay tuned for their next and last FOMC meeting this year, on December 13-14, or it may even be sooner, in the coming week?

Harlan Green © 2016

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

Is U.S. Approaching Full Employment?

Popular Economics Weekly

Are we approaching full employment will be the debate raging within the Federal Reserve and beyond this year. That’s because, “Total nonfarm payroll employment rose by 215,000 in March, and the unemployment rate was little changed at 5.0 percent,” the U.S. Bureau of Labor Statistics reported today. “Employment increased in retail trade, construction, and health care. Job losses occurred in manufacturing and mining, only.”

It does look like the U.S. is approaching full employment, the holy grail of most economists and the Fed’s overriding mandate? This is even though the unemployment rate rose a notch to 5 percent from 4.9 percent. But it was because more Americans joined the labor force, said the Labor Department. The size of the labor force has increased by 2 million people in the past five months, a clear sign that jobs are easier to find.

Those new workers and job seekers, particularly since last fall, pushed the so-called labor force participation rate up to 63 percent. That’s the highest level in two years, reversing at least for now a sharp decline that kicked in after the onset of the Great Recession, said the Bureau of Labor Statistics.

Graph: Marketwatch

And this is with the mini job-recession in the energy and manufacturing sectors that lost 12,000 and 29,000 jobs, respectively. The household survey measure of employment shows a very good 246,000 gain in March, it is just that the labor force increased by an even bigger 396,000. That means the labor force has now increased by more than two million in the past five months alone. The participation rate has jumped from a low of 62. percent last September to a two-year high of 63.0 percent this March.

“This is a remarkable turnaround in terms of both its speed and magnitude,” said Marketwatch’s Jeff Bartash.

And the manufacturing drop may be temporary as its component of the industrial production report posted a surprising 2 tenths gain in February last week, which came on top of January's ‘stunning’ gain of 0.5 percent.

In fact, the March just released ISM Manufacturing Report showed a big surge in ISM new orders, which is certain to shake up what has been a very downbeat outlook for the manufacturing sector, said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management^® (ISM^®).

"The March PMI^® registered 51.8 percent, an increase of 2.3 percentage points from the February reading of 49.5 percent. The New Orders Index registered 58.3 percent, an increase of 6.8 percentage points from the February reading of 51.5 percent. The Production Index registered 55.3 percent, 2.5 percentage points higher than the February reading of 52.8 percent.”
“Manufacturing registered growth in March for the first time since August 2015, as 12 of our 18 industries reported sector growth, and 13 of our 18 industries reported an increase in new orders in March,” said Holcomb.

Then what will full employment actually look like? Even In March, 1.7 million persons were marginally attached to the labor force, says the Labor Department, down by 335,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

But, the number of persons employed part time for economic reasons (also referred to as involuntary part-time workers) was about unchanged in March at 6.1 million and has shown little movement since November. These individuals, who would have preferred full-time employment, were working part-time because their hours had been cut back or because they were unable to find a full-time job.

So, eh, we are approaching full employment, but are still not there. Our Fed Chairwoman Janet is right. Let’s allow more of those part timers, and marginally attached folks to find work that can fully support them and their families, before the Fed tightens the credit screws any further.

Harlan Green © 2016

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

Unemployment Report Misleading

Financial FAQs

Today’s lower than predicted payroll creation of 173,000 jobs doesn’t change my prediction of higher jobs growth ahead. My prediction yesterday was for 250,000 payroll jobs in August, but downward seasonal adjustments reduced payrolls by -800,000. In other words 800,000 jobs were stricken from the unadjusted numbers, because it’s the end of summer and lots of summer jobs normally disappear with the back-to-schoolers this month (but -800,000?..I don’t think so.).

In fact, -293,000 construction jobs were subtracted in the seasonal adjustment, because fewer jobs were added in past years. Yet real estate construction is booming in both residential and non-residential sectors this year, so instead of -10,000 fewer seasonally adjusted construction jobs in the report, later adjustments could add some of the -293,000 jobs back.

And confirming this are past months’ revisions. The pace of hiring in July and June was stronger than initially reported, according to a survey of business establishments (i.e., the payroll survey). The Labor Department said 245,000 new jobs were created in July instead of 215,000. June’s gain was revised up to 245,000 from 231,000 for a total of 44,000 jobs added back from the seasonal adjustment figure.

Graph: Marketwatch

The good news was that governments mostly at the local level added 33,000 payroll jobs, and wages are rising. The nation’s unemployment rate fell to 5.1 percent from 5.3 percent, marking the lowest level since April 2008 just as the Great Recession was beginning.

The jobless rate is determined by a separate survey of households that showed a sharp 237,000 drop in the number of people who said they were unemployed. Only a smattering of people dropped out of the labor force.

The improvement in the labor market also appears to be forcing more companies to increase pay to attract or maintain workers. The average hourly wage paid to American workers rose 8 cents, or 0.3 percent, in August to $25.09 an hour. From August 2014 to August 2015 hourly wages rose 2.2 percent, matching the best gain of the past four years.

Harlan Green © 2015

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

Home Prices Increase With Jobs

The Mortgage Corner

The S&P Case-Shiller Home Price Index is the bell weather for real estate and home prices these days. It not only reports housing prices, but what affects those prices, and jobs have to be the most important indicator of housing health. So it’s probably not surprising that cities in the Case-Shiller 20-city index that have the fastest job growth also have the highest price growth.

Graph: S&P

For instance, Dallas, San Francisco, Tampa and Denver all had approximately 9-10 percent annual price increases and 3 percent plus annual job growth. Before seasonal adjustment, the 10-City and 20-City Composites posted gains of 1.0 percent and 1.1 percent month-over-month, respectively.

Graph: Calculated Risk

But after seasonal adjustment, the 10- and 20-city composites were up just 0.3 percent and 0.4 percent. This is a far less meaningful statistic, as the ‘seasonal adjustment’ means above what is normal for that time of year. So prices actually rose 1 to 1.1 percent on average, a huge increase and why housing in cities such as San Francisco is becoming so expensive. That’s why all 20 cities reported increases in April before seasonal adjustment; but after seasonal adjustment, 12 were up and eight were down, said Calculated Risk.

Graph: Econoday

Bottom line is that all depends on the job market, which is still growing robustly. The Labor Department’s JOLTS report said job openings are up and employers are holding onto the employees that they have. Job openings rose 0.5 percent in May to a record 5.363 million vs 5.334 million in April. The separations rate dipped 2 tenths to 3.3 percent with the quits rate unchanged at 1.9 percent but with the layoff rate down slightly.

The hiring rate also dipped 1 tenth to 3.5 percent perhaps reflecting the increasing difficulty of finding qualified employees. The unemployment rate is down to 5.3 percent, but that’s because more workers stopped looking for work than were added to payrolls.

So where is the housing market this selling season? Pending-home sales are booming at the highest rate in 9 years, which means good sales for the rest of 2015, since we believe interest rates can’t climb much more this year. Why? The Fed’s Janet Yellen said so in her most recent press conference. The 30-year fixed conforming rate even dropped briefly to 3.625 percent for 1 origination Pt. last week.

Harlan Green © 2015

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

More Jobs On the Way

Popular Economics Weekly

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

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

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

Graph: Econoday

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

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

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

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

Graph: Calculated Risk

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

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

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

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

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

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

Harlan Green © 2015

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December Unemployment Report Sets Record

Financial FAQs

Friday’s Labor Dept. nonfarm payrolls report has just set a record for annual job creation. The U.S. added 252,000 new jobs in December to extend the strongest streak of hiring since the mid-1990s, but wages fell and more people dropped out of the labor force to slightly tarnish an otherwise excellent employment report.

Graph: WSJ

The economy has added at least 200,000 jobs for 11 straight months, the longest streak in almost 20 years. In 2014, the U.S. created 2.95 million new jobs to mark the largest gain since a 3.18 million increase in 1999.

In December, President Obama noted that the economy had created 10.9 million jobs over the past 57 months. The number is now 11.2 million with December added in plus an additional 50,000 jobs added to the past 2 months. This streak of growth is improving the net job creation over which Mr. Obama has presided, which now puts him in fourth place among the last 10 presidents in terms of job creation.

Graph: WSJ

The economy has 6.1 million more jobs today than when Mr. Obama took office in January of 2009. That puts his total job creation ahead of presidents John Kennedy, Gerald Ford, and George H.W. Bush, who each served one term or less. It also puts him well ahead of President George W. Bush, whose final year in office also comprised the beginning to the longest and deepest recession since the Great Depression.

The nation’s unemployment rate also continued to tumble, falling to 5.6 percent from 5.8 percent and hitting the lowest level since June 2008, the Labor Department said Friday. The fall in the jobless rate stemmed partly from the increase in the number of people working, but more Americans also dropped out of the labor force. As a result, the percentage of working-age Americans 16 or older fell again to match a postrecession low of 62.7 percent — a level last seen in 1978.

That may be why wages aren’t rising above 2 percent annually, when 3 to 4 percent annual wage increases are the norm during economic recoveries. Wage gains have ranged from 1.7 percent to 2.1 percent since 2010, just two-third as fast as they normally grow. Economists predict a tightening labor market will spur higher wages but so far earnings haven’t budged much.

Graph: WSJ

And Chicago Fed President Charles Evans has speculated that the Fed won’t have to raise interest rates until 2016, if inflation doesn’t pick up to the 2 percent target of stated Fed policy.

Private payrolls increased 240,000 after rising 345,000 in November. Goods-producing jobs jumped in December, led by construction which advanced 67,000 in December after a 20,000 increase the month before. Manufacturing employment increased 17,000, following a jump of 29,000 in November. Mining rose 3,000 in December, following a 1,000 boost the prior month.

Private service-providing jobs gained 173,000 after a 294,000 jump in October. The latest increase was led by professional & business services. Government jobs increased 12,000 after rising 8,000 in November.

Harlan Green © 2014

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

New-Home Construction, Builders’ Optimism Still Rising

The Mortgage Corner

Home builders’ optimism is still high, though builder confidence in the market for newly built single-family homes fell one point in December to a level of 57 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), following a four-point uptick last month.

Graph: Calculated Risk

“After a sluggish start to 2014, the HMI has stabilized in the mid-to-high 50s index level trend for the past six months, which is consistent with our assessment that we are in a slow march back to normal,” said NAHB Chief Economist David Crowe. “As we head into 2015, the housing market should continue to recover at a steady, gradual pace.”

What is helping new-home demand is the lack of existing-home inventory. Total housing inventory at the end of October fell 2.6 percent to 2.22 million existing homes available for sale, which represents a 5.1-month supply at the current sales pace – the lowest since March (also 5.1 months).

Meanwhile, new-home construction that would replenish housing inventories is advancing in fits and starts, largely due to uncertain weather conditions and still tough mortgage qualification standards that lenders have only recently begun to ease. Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,028,000. This is 1.6 percent below the revised October estimate of 1,045,000 and is 7.0 percent below the November 2013 rate of 1,105,000.

Single-family housing starts in November were at a rate of 677,000; this is 5.4 percent below the revised October figure of 716,000, but double the number of multiple units being started. The November rate for units in buildings with five units or more was 340,000.

Graph: Calculated Risk

Another reason for builders’ optimism and healthy new-home construction is the pickup in U.S. employment. Private non-farm payrolls increased 321,000 in November and the jobless rate held at 5.8 percent. The competition for jobs is also dropping, with just 1.9 unemployed workers looking for work per job opening, when it was as much as 4 workers per job opening just after the Great Recession.

Also, prospective borrowers may find it easier to get a loan in 2015 as some lenders, encouraged by federal regulators, ease standards. In addition, mortgage rates are still low, enabling qualified borrowers to get relatively cheap loans. For example, 30-year fixed rate conforming mortgage rates with as little as 5 percent down have dropped to 3.50 percent in California.

Another reason for the better job numbers is industrial production increased 1.3 percent in November after edging up in October. In November, manufacturing output increased 1.1 percent, with widespread gains among industries. The rise in factory output was well above its average monthly pace of 0.3 percent over the previous five months and was its largest gain since February. It is up 13.2 percent from its low point in 2009, according to Calculated Risk.

NAR also recently released its economic and housing forecast for 2015 and 2016. NAR chief economist Lawrence Yun is forecasting existing-home sales this year to fall slightly below 2013 (5.1 million) to 4.9 million, and then increase to 5.3 million next year and 5.4 million in 2016. Yun expects the national median existing-home price to rise 4 percent both next year and in 2016.

Harlan Green © 2014

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Will 2014 Be Best Employment Year Since 1999?

Popular Economics Weekly

Calculated Risk’s Bill McBride has just come out with a noteworthy prediction. This could be the best year for private employment since 1999.

“The consensus is the economy will add another 220 thousand jobs in November (215 thousand private sector jobs).   If that happens, 2014 will be the best year for private employment since 1999.”

Well, that benchmark has already been broken with the November payrolls increase of 321,000 just out, making 2014 already the best jobs year since the 1990s. The best news was that hourly wages rose 0.9 percent and the part time, looking for work crowd shrank to 11.4 million, a big number but declining at last, as more workers found full time work.

Graph: Calculated Risk

The change in total nonfarm payroll employment for September was revised upwards to 271,000, and the change for October was revised to 243,000, so that employment gains in September and October combined were 44,000 more than previously reported.

Why such a jump in payrolls? It could be the looming rise in interest rates. The Fed has said they will begin to raise their record low interest rates sometime next year, given that wages and salaries show more life than the current 2.1 percent per annum increases that just keep up with inflation.

That means there will be a rush to invest and build more housing and some public infrastructure before higher interest rates kick in. And it’s already starting. Construction spending just surged 1.1 percent.

Graph: Calculated Risk

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during October 2014 was estimated at a seasonally adjusted annual rate of $971.0 billion, 1.1 percent above the revised September estimate of $960.3 billion. And more public construction projects are kicking in, which has been a drag on construction until now. But state and the federal government revenue coffers are filling again, which gives them the latitude to fix what hasn’t been fixed since 1009, the end of the Great Recession.

Spending on private construction was a seasonally adjusted 0.6 percent above the revised September estimate of $688.0 billion. Residential construction was 1.3 percent above the revised September estimate of $349.1 billion when seasonally adjusted. Nonresidential construction sank 0.1 percent below the revised September estimate of $338.9 billion, but that should be temporary, as businesses get the message that interest rates will be up next year.

And look at public construction. In October, the estimated seasonally adjusted annual rate of public construction spending was $278.6 billion, 2.3 percent above the revised September estimate of $272.3 billion.

And Bill McBride’s prediction was right on. “At the current pace (through November), the economy will add 2.89 million jobs this year (2.80 million private sector jobs),” he says.  “This is the best year since 1999 (and, for private employment, this might be the best year since 1997).”

The year 1997 was the best year with 3,408,000 jobs created, but the top 4 years were all in President Clinton’s last term, 1996 to 1999, when he also created 4 consecutive years of budget surpluses.

We therefore see the looming interest rate rises pushing more job formation (and wage rises), which will continue to boost GDP growth. This is when GDP has already risen an average 4.25 percent over the last 2 quarters. Therefore economic growth could be climbing to dizzying heights the next few quarters, so stay tuned!

Harlan Green © 2014

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Consumer Confidence Soaring, Case-Shiller Home Prices Unchanged

Popular Economics Weekly

Why are stock prices rallying?  Maybe it’s because though housing price increases have slowed, consumer confidence is soaring for the holidays.  The prospect for future job and income growth looks good, in other words

Home prices contracted for a 4th straight month in August in Case-Shiller 20-city data, down 0.1 percent vs expectations for a gain of 0.1 percent. This is while consumer confidence rose to a post-recession high, a good sign for increased holiday spending.

Month-to-month prices declined in just 3 of the 20 cities, monthly—Charlotte, NC, San Diego, and San Francisco—with San Francisco, Las Vegas and Miami prices up the most year-over-year.

So though the 20-city monthly average fell sharply, annual year-on-year overall prices are still a plus 5.6 percent from plus 6.7 and 8.0 percent in the two prior months for the 20-city index. The 5.6 percent rate is the lowest since November, says Econoday.

Graph: Econoday

This is while the Conference Board’s Consumer Confidence Index for October is at a new recovery high of 94.5, up from an upwardly revised 89.0 in September and surpassing the previous recovery high of 93.4 in August. The last time the index reached this level was in October 2007, right at the beginning of the Great Recession.

Graph: Econoday

October's gain is concentrated almost entirely in the expectations component, which jumped 8.6 points to 95.0 in a reading that is close to February 2011's 97.5. The strength in expectations reflects optimism in the outlook for both jobs and income, both of which show convincing gains in this month's report.

Despite improved housing conditions and low interest rates (as low as 3.625 percent for the conforming 30-yr fixed rate today), tight credit conditions continue to be a barrier for some buyers, as we have said in past columns. Of the reasons for not closing a sale, about 15 percent of Realtors in September reported having clients who could not obtain financing, reports the NAR.

Graph: Calculated Risk

Lastly, the so-called price-to-rent ratio tells us that prices are again rising faster than rents, and are above the long term ratio of 1:1. This means that housing prices are growing faster than rents again. Ergo, prices cannot continue this trend for long, since rent increases mirror actual income increases, whereas prices rise or fall for a number of reasons. This includes the perception that housing prices will continue to rise (due to irrational exuberance, which is an early sign of housing inflation) and perhaps ultra-low interest rates, which must eventually rise to more normal levels.

On a price-to-rent basis, the Case-Shiller National index is back to February 2003 levels, the Composite 20 index is back to September 2002 levels, and the CoreLogic index is back to July 2003, reports Calculated Risk.

So are we at the beginning of another housing bubble? Probably not, because the main cause of the current price increases is inadequate new home construction to meet the demand for housing (which is rental housing, at the moment), rather than oversupply of new homes that caused the housing bubble.

Harlan Green © 2014

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Where is the Inflation?

Financial FAQs

Stocks and bonds are rallying, as it looks like inflation is still falling, rather than rising. This is good news for investors, but prices aren’t rising enough to boost economic growth yet. Boosting inflation seems to be the central challenge for both US and Europe, in particular, as they attempt to recover from the Great Recession.

 

Graph: Reuters

Though prices are no longer falling, they are not yet rising overall, either. And the reason is clear. Household incomes aren’t yet rising above the current low inflation level of 1.9 percent, which means they are barely keeping up with rising food, housing and services prices. If the CPI consumer price index seems suspect, then we can look at the various other indexes, including the Personal Consumption Expenses deflator followed by the Fed.

Graph: Calculated Risk

This Calculated Risk graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the Cleveland Fed’s median CPI (yellow line) rose 2.2 percent, the trimmed-mean CPI rose 1.9 percent, and the CPI less food and energy rose 1.9 percent. Core PCE (green line) is for June and increased just 1.5 percent year-over-year.

One can see from the graph that inflation has struggled to even reach 2 percent, the Fed’s stated goal. Whereas during the 1990s, and the longest growth cycle in our history, it remained closer to 3 percent.

So we know that low inflation is a sign of slow growth, just as in Europe. Yet policy makers know how to boost inflation—raise household incomes by supporting policies that create more jobs, of course. Yet Republicans and conservative Demos resist any kind to government expenditures that would create jobs—such as public infrastructure maintenance and repairs.

This is when government expenditures are at an all-time low as a percentage of GDP, while some $10.8 trillion in cash and cash equivalents sit in financial institutions driving up stock and bond prices. Private businesses should benefit from this cash hoard, but aren’t investing sufficiently in new plants and equipment domestically. They are investing overseas, of course, where costs are lower.

That leaves governments and consumers to boost economic growth, and as during President Roosevelt’s New Deal, consumers can’t spend more if they can’t find jobs. It’s a pity, since the long term unemployment rate is still 12 percent, including part time workers. And there is still plenty of work to be done if we want to pay forward our economic growth to future generations.

Harlan Green © 2014

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What is Employment Like in 2014?

Popular Economics Weekly

Jobless claims fell sharply in the May 24 week, down 27,000 to 300,000. The 4-week average is down a very sharp 11,250 to a new recovery low of 311,500. It should mean we will see a further drop in the May unemployment rate out this Friday from 6.3 percent to 6 percent or below. This is huge and could mean continuing debate on the wisdom of the Fed holding down short term interest rate into 2015, when the US might already be at full employment.

The conventional wisdom is that a rate in the 5 percent range means all that are looking for work should be able to find decent paying jobs. But because so many have dropped out of the workforce—some 2 million at last count—they aren’t included in the numbers. In fact, including those working part time or that have left the workforce but are still able to work, would boost the unemployment rate to some 11 percent.

Graph: Calculated Risk

Continuing claims are also down, falling 17,000 in lagging data for the May 17 week to a new recovery low of 2.631 million. The 4-week average is down 33,000 to 2.655 million, also a recovery low. The unemployment rate for insured workers, also at a recovery low, held steady at 2.0 percent.

The real reason the Labor Department’s unemployment rate isn’t accurate shows up best in the labor participation rate. The percentage of population working has dropped to the lowest level in more than 20 years.

Graph: Calculated Risk

The Labor Force Participation Rate (blue line in graph) was decreased in April to 62.8 percent. This is the percentage of the working age population in the labor force.  The participation rate is well below the 66 percent to 67 percent rate that was normal since 1978, really, although a significant portion of the recent decline is due to demographics.

April’s nonfarm payrolls rose 288,000 jobs, and that is the number looked at by most economists. It is based on an Establishment survey of actual companies, whereas the unemployment rate is a much small telephone survey of workers, which therefore includes the self-employed.

So whether it’s due to more retiring workers, or a shrinking population of eligible workers, or getting the discouraged workers back to work, it’s going to be more difficult to achieve real full employment in this recovery. And that is why I am predicting we will have low interest rates and a housing market still in recovery mode for a long time to come.

Harlan Green © 2014

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Why Low Interest Rates Are Here to Stay

Financial FAQs

Some have called it a Putin bond rally. Or it might be new Fed Chairperson Yellen’s determination to keep interest rates as low as possible, until economic prosperity returns to Main Street. It might as well be because our employment rate is still above 6 percent, with many millions of the long term unemployed out of work.

In fact, for all of these reasons, interest rates are returning to their Great Recession lows. This will certainly boost housing sales and prices, as it has for motor vehicle sales, as well as shorter-term borrowing that small businesses need, in particular.

For instance, the 30-year fixed conforming mortgage rate has dropped to 3.875 percent with a 1 point origination fee for some lenders in California. The US 10-year Treasury bond yield is back down to 2.61 percent as of this writing, and Italy and Spain’s 10-year bond yields have dropped below 3 percent for the first time since their recessions.

Graph: S&P

One can see from the accompanying chart that rates are at historic lows, as low as the wartime 1940s. Why such low rates? The latest rate downturn is probably because of a flight to quality by jittery investors, that see bonds as the safer investment during such uncertain times. It happened with Putin’s invasion of Eastern Ukraine and the US and European threat of serious sanctions that could bring an already weak Russian economy to a period of severe deprivation.

The 18-member Organization for Economic Co-operation and Development (OECD) just reported that 2014 Russian economic growth has probably slowed to 0.5 percent from its earlier forecast of 2.8 percent growth, in spite of Russia’s tremendous oil and gas reserves.

"The moderate recovery that was under way at the end of 2013 has been halted by the turbulence related to the events in Ukraine," said the OECD. "Associated increased uncertainties and capital flight are now weighing on investor confidence. Consumption growth will weaken as real income growth slows and consumer credit becomes more expensive."

And the OECD doesn’t see worldwide economic growth picking up anytime soon. It’s almost a truism that uncertain times mean hoarding of monies. US corporations are hoarding some $2 to $3 trillion in liquid assets, depending on whom you ask, banks more than $1 trillion in excess reserves. That means they see no markets to invest their record profits, and so would rather pay their executives excessive salaries and shareholders higher dividends.

Graph: Econoday

Another reason for such low interest rates is of course the low inflation rate, which affects interest rates even more directly. This is because bond interest rates are usually fixed (except for the Treasury’s inflation-indexed bonds), so any increase in the inflation rate reduces the value of their bonds.

The Personal Consumption Expenditures Index has been below 2 percent since the end of the Great Recession, except for a period in 2011 when expectations of growth were higher. It is now just 1.1 percent, which is what enables the Fed to keep their short term rates so low.

And lastly, Q1 2014 GDP growth came in at just 0.1 percent, with some pundits predicting it could become negative with the next revision. All this is certainly enough to keep both short and long term interest rates low for a long time.

Harlan Green © 2014

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

288,000 Payroll Jobs Created

Financial FAQs

Is the Great Recession finally over? It would seem so with total nonfarm payroll employment up by 288,000, and the unemployment rate down by 0.4 percentage point to 6.3 percent in April, the U.S. Bureau of Labor Statistics reported today.

And the change in total nonfarm payroll employment for February was revised from +197,000 to +222,000, and the change for March was revised from +192,000 to +203,000. Need we say more about the jobs recovery? In fact, private employment is now above the pre-recession peak by 406 thousand, but we are still 113,000 jobs below the overall pre-recession peak because governments lost so many jobs—such as 300,000 teachers.

Graph: Calculated Risk

It’s been the cutbacks in state, local and federal spending that has kept US from a full-blown recovery. This graph that compares government hiring under GW Bush (red line) with Obama (blue line) tells us the damage such a loss of government jobs has done to employment. So there is still much work needed to bring everyone back to work. A real shocker was that the labor force fell by 803,000 in the Household survey, which is why the unemployment rate plunged from 6.7 to 6.3 percent.

Graph: Calculated Risk

In fact, some economists are predicting there might be a labor shortage in 10 years, since so many are either dropping out of the labor force, or just not entering it in sufficient numbers as the baby boomers retire. There is no question that some of the damage was self-inflicted, what with the partisan budget battles and downgrading of US sovereign debt by S&P.

Other factors that kept growth and employment low were soaring corporate profits that weren’t reinvested, while workers’ wages and salaries remained stagnant, so that consumers spent less. The just released first quarter 2014 GDP grew 0.1 percent, in part because of the winter, but also because businesses didn’t order more goods to restock their shelves.

Some of the employment increase was also due to the end of a very severe winter, so we don’t know if such job creation can be sustained. It will be in part up to Janet Yellen’s Fed to keep interest rates down as long as possible, and not be fooled by the artificially low unemployment rate that is due more to workers leaving the workforce than entering it.

Harlan Green © 2014

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