Return To Low Interest Rates Boosts Housing

Posted on April 20, 2017 by Popular Economics Weekly

The Mortgage Corner

The conforming 30-year fixed rate mortgage is now 3.50 percent and the so-called Hi-Balance conforming 30-year fixed rate is 3.75 percent these days for a 1 percent origination fee. And this is what has kept the demand for housing on a tear, in spite of tepid economic growth, with GDP still stuck at 2 percent per the Philly Fed Index seen below.

Why? It’s mainly because there is still very little inflation, and the bond market that determines mortgage rates likes low inflation. The low inflation rate may be because there’s still doubt on what growth-inducing legislation may ever get through a weak President and Congress stuck in ideological warfare. So we could see builders’ record profits continue for the rest of this year, and maybe more affordable housing.

Both new-home construction and builder optimism are at post-recession highs, but with normal seasonal fluctuations (such as mid-March Northeast blizzard), says the National Association of Home Builders (NAHB).

Following an elevated February reading, nationwide housing starts fell 6.8 percent in March to a seasonally adjusted annual rate of 1.22 million units, according to the U.S. HUD and the Commerce Department. Still, new housing production in the first quarter of this year is running 8.1 percent above the pace in 2016, reports the NAHB.

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Graph: Econoday

This is why builder confidence in the market for newly-built single-family homes remained solid in April, falling three points to a level of 68 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) after an unusually high March reading, said the NAHB.

”The fact that current sales conditions has been over 70 for five consecutive months shows that there is continued demand for new construction,” said NAHB Chief Economist Robert Dietz. “However, builders are facing several challenges, such as hefty regulatory costs and ongoing increases in building material prices.”

The building industry is doing its share to boost growth as it continues to add jobs, with monthly employment data for February showing that home builder and remodeler employment increased by 18,900. Over the last 12 months, home builders and remodelers have added 136,000 jobs on a net basis and residential construction employment now stands at 2.707 million.

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Graph: Calculated Risk

Where is US manufacturing activity these days? It’s still increasing in most states. The Philadelphia Federal Reserve has released the coincident indexes for the 50 states for February 2017. Over the past three months, the indexes increased in 47 states (green states), decreased in two, and remained stable in one (Michigan), for a three-month diffusion index of 90. In the past month, the indexes increased in 44 states, decreased in four, and remained stable in two, for a one-month diffusion index of 80.

“Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and almost all green now,” says Calculated Risk’s Bill McBride.

So, economic growth continues into the eighth year of this business cycle. And housing is usually a leading indicator of future growth, but that will depend on what looks like lower interest rates, future (lower) inflation trends, actions of the Federal Reserve, and Congress, of course.

Harlan Green © 2017

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Which Trump Economic Proposals Should Fail?

Posted on April 18, 2017 by Popular Economics Weekly

Popular Economics Weekly

It doesn’t look good for two Trump and Republican campaign promises currently working their way through Congress: i.e., to repeal and replace Obamacare, and reform the tax code. They should really be working on what is possible; a $1 Trillion infrastructure spending bill. So the euphoria and expectations generated by the Trump victory might dissipate, and that is what’s needed to generate future growth at the end of an already long business cycle.

Why? There is massive opposition from both Republicans and Democrats to both an Obamacare replacement vehicle and tax reform proposals to date. Whereas the one campaign promise that could succeed is the upgrade and replacement of our aging public infrastructure. Both Republicans and Democrats want it for their home states and districts.

For instance, out of the 614,387 bridges in the US, more than 200,000 are more than 50 years old. The Associated Society of Civil Engineers 2016 report estimates it would cost some $123 billion just to fix the bridges in the US, and many of the one million drinking water pipes have been in use for almost 100 years. The aging system makes water breaks more prevalent, which means there are about two trillion gallons of treated water lost each year.

In fact, most of our highways and bridges were built more than 70 years ago, which is why the ASCE says public infrastructure is now behind more the $4.5 trillion in maintenance alone, such as highways, harbors, wastewater facilities and bridges.

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Graph: CBO

Even more important to our security and economic well-being, is the majority of the transmission and distribution lines were built in the mid-20th century and have a life expectancy of about 50 years, meaning that they are already outdated. So between 2016 to 2025, there’s an investment gap of about $177 billion for infrastructure that supports electricity, like power plants and power lines, reports the ASCE. 

There is another Republican obsession, however that may block even that possibility. It’s Trump’s preoccupation with the Wall, or pseudo Wall, and deportation of millions of undocumented workers—the majority of which have lived in the U.S. for more than 10 years. They have raised families, paid taxes, and held jobs that white and other ethnic groups are either incapable of doing (such as farm work), or refuse the low wages and benefits on this bottom rung of the labor ladder.

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Graph: Business Insider

Any increase in their deportation could cause severe damage to growth, and maybe even end the 8 years of this growth cycle. The Center for American Progress, a liberal policy institute in Washington, is even more blunt. It estimates that a policy of mass deportation would “immediately reduce the nation’s GDP by 1.4% and ultimately by 2.6%.” This is when current GDP growth is just 2 percent.

None other than Fed Chairman Janet Yellen also voiced her concern in a recent speech. “Labor-force growth has been slowing in the United States,” Yellen said. “It’s one of several reasons, along with slow productivity growth, for the fact that our economy has been growing at a slow pace. Immigration has been an important source of labor-force growth. So slowing the pace of immigration probably would slow the growth rate of the economy.”

Her comments are striking because Yellen is usually careful not to discuss topics outside her monetary policy and regulation mandate, lest her remarks be construed as political.

And, “Because capital will adjust downward to a reduction in labor — for example, farmers will scrap or sell excess equipment per remaining worker — the long-run effects are larger and amount to two-thirds of the decline experienced during the Great Recession,” the CAP report says. “Removing 7 million unauthorized workers would reduce national employment by an amount like that experienced during the Great Recession.”

Over 10 years, US output will have fallen $4.7 trillion short of what it might otherwise have been, CAP says. For comparison, US gross domestic product, the nation’s total spending on goods and services, stood at $18.6 trillion at the end of 2016.

Those are very large numbers, which means Republicans and Democrats will have to learn to work together on what is practical and attainable to avoid this next recession.

Harlan Green © 2017

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Is Happiness That Important to Americans?

Posted on April 14, 2017 by Popular Economics Weekly

Popular Economics Weekly

What a strange question to ask Americans! We are the wealthiest country in the world, right? But a recent survey claims to show that wealth accumulation is not the first priority for most of the world. In fact, the 2017 United Nation’s World Happiness Report compiled by Gallup says that Americans’ pre-occupation with wealth gets in the way of being happy.

This conclusion results from a survey of 155 countries, and shows USA is now ranked 19th in being happy, due to our national preoccupation with what money buys now, rather than in the future. Norway is ranked number one; no surprise with its oil wealth. But, “by choosing to produce its oil slowly,” says the survey, “and investing the proceeds for the future rather than spending them in the present, Norway has insulated itself from the boom and bust cycle of many other resource-rich economies. To do this successfully requires high levels of mutual trust, shared purpose, generosity and good governance, all factors that help to keep Norway and other top countries where they are in the happiness rankings.

The USA, however, hasn’t shielded itself from boom and bust cycles. The Great Recession is just the latest in a string of recessions since 1980—two under R Reagan, one during Bush I, and two under son GW Bush. And that has led to the greatest income equality since 1929 that was the beginning of the Great Depression, and also the cause of just-ended Great Recession.

We have not been good at investing in our future, and that has led to a very low savings rate and very little put aside for retirement. This is in part because our social safety net is profoundly inadequate. We have no universal healthcare, for starters, and Republicans are threatening to repeal Obamacare, and maybe even Medicare.

This is while we have a huge public debt because Congress has refused to raise enough taxes to pay for all the spending that has supported the ongoing wars as well as tax loopholes afforded corporations, and high net-worth individuals.

Why has such record income inequality led to recessions? As Marriner Eccles, FDR’s renown Federal Reserve Chairman once said about the Great Depression: “…a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. … The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”

Credit had again run out for most Americans in 2007 due to a failed financial system and busted housing bubble. And it is just that uncertainty that is in the way of happiness. For how can anyone be happy, unless they can count on a predictable future?

“The USA is a story of reduced happiness,” said the Gallup study. “In 2007 the USA ranked 3rd among the OECD countries; in 2016 it became 19th. The reasons are declining social support and increased corruption and it is these same factors that explain why the Nordic countries do so much better.”

And the lack of such social support has resulted in poorer health outcomes for all Americans—such as declining longevities, significantly higher disease rates, and higher infant mortality. The study lists the main factors that support happiness: caring, freedom, generosity, honesty, health, income and good governance.”

In sum, the United States offers a vivid portrait of a country that is looking for happiness “in all the wrong places,” says the study. “The country is mired in a roiling social crisis that is getting worse. Yet the dominant political discourse is all about raising the rate of economic growth. And the prescriptions for faster growth—mainly deregulation and tax cuts—are likely to exacerbate, not reduce social tensions. Almost surely, further tax cuts will increase inequality, social tensions, and the social and economic divide between those with a college degree and those without.”

America has become a less caring and generous country because of its single-minded pursuit of wealth, in other words. How to re-develop those traits that Americans have historically been noted for?

Creating a quality educational system available to all, would be a start. The share of Americans receiving a college Bachelor’s Degree or better is stuck at 36 percent when a more technically savvy workforce is needed more than ever. And the educational divide between Haves and Have-nots has been increasing, which increases the political polarization.

“Clinton won 17 of the top 18 states, while Trump won 29 of the bottom 32 states,” said Gallup. And, “The deep social and economic divisions according to educational attainment seem to be similar to the dynamics of the Brexit vote and other anti-migrant parties in Europe, which find their base among voters with lower educational attainment.”

Why is greater equality, and the concept of a safety net for all Americans taking so long to achieve when it has already been achieved in all other advanced countries and economies?

One hint: Why haven’t we elected a female president when every other major western economy has? And women, because they are used to nurturing and caring for children, are much better at planning for the future

Harlan Green © 2017

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Why the Weak March Employment Report?

Posted on April 8, 2017 by Popular Economics Weekly

The Mortgage Corner

The good news is the unemployment rate fell to 4.5 percent, and number of unemployed persons (i.e., available for work) declined by 326,000 to 7.2 million. Both measures were improved numbers over the year. But just 98,000 payroll jobs were created in March from the Establishment survey that tracks actual payrolls, lower than gains of 219,000 in February and 216,000 in January, reported the Bureau of Labor Statistics on Friday.

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Graph: Marketwatch

The smaller telephone Household survey that measures the actual unemployment rate and included the self-employed found 472,000 more with jobs and 145,000 added to the workforce, which is why the unemployment rate dropped 0.2 percent to 4.5 percent.

The predictions were for much stronger payroll creation in March, as the ADP (a payroll service) private payrolls estimate on Wednesday was 263,000 payroll jobs, and the Labor Department’s estimates usually follow closely. It’s probably because the surveys were taken at different times of the month and the east coast had some serious weather, as I said.

The consensus before ADP’s result was calling for a 170,000 rise in March private payrolls which would follow gains of 227,000 and 221,000 in the two prior months. Details in the ADP report include a strong 49,000 gain for construction and a 30,000 increase for manufacturing.

This was predicted by a very strong ISM manufacturing index of manufacturing activity earlier in the week, with its employment index at 58.9—which means 58.9 percent of respondents to the survey increased hiring for a 4.7 point gain, the best rate since June 2011. Yet there might be a sign of a weather effect in deliveries as delivery times did slow by a moderate 1.1 points to 55.9, says Econoday.

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Graph: Econoday

So, it could be the weather as the Northeast experienced a Category 3 blizzard in March after two very warm months. In any event this is the lowest unemployment rate since the height of the last expansion in April 2007 though there is still very little wage growth. Average hourly earnings rose only 0.2 percent in the month for a year-on-year rate that is down 1 tenth in the month and further away from the 3 percent line, which historically has meant full employment.

Why the fewer payroll jobs, is a good question. Many businesses are probably waiting to see if the Trump tax and infrastructure campaign promises will become realty. The Labor Department said retail trade is down 30,000 in March following February’s 31,000 decline. Trade & transportation payrolls decreased 27,000 following a 16,000 decline. But both manufacturing and mining show gains, at 11,000 each with construction, despite the weather, still rising 6,000.

And number of long-term unemployed has dropped 526,000 over the past year, while the number of part-time workers who want a full-time jobs is down 567,000 in a year. Also the government hiring freeze put in place in late January didn’t hurt March payrolls as government payrolls rose 9,000.

But the huge drop in retail jobs could mean online buying is cutting into storefront businesses. Macy’s is closing many of its stores and Sears and Roebuck could soon declare bankruptcy or breakup with its $1billion annual negative cashflow.

So was March an aberration? Long term rates are falling at the moment, with the 10-year Treasury yield back to 2.30 percent, while the Fed just raised their short term, overnight fed funds rate to 0.75 to 1.0 percent. Hence there is now a smaller difference between short and long term rates that I’ve mentioned before. This will squeeze bank profits and so the availability of credit at a time when we still have an economy growing just enough at 2 percent.

That’s not enough growth to put the 5.6 million back to full-time work who keep searching.

Harlan Green © 2017

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Consumers Too Optimistic?….Then Watch Out Below!

Posted on April 4, 2017 by Popular Economics Weekly

Popular Economics Weekly

Consumer confidence has risen to what might be unsustainable levels—the highest in 16 years. That was in 2000, which was at the end of a 10-year economic recovery, the longest recovery since WWII. The Conference Board’s index is now at its strongest level since those dotcom boom days of December 2000 before that market crashed and the 9/11 attack occurred, says Econoday.

Stronger savings and rising wages are the main reason for the 9.5 point surge in the consumer confidence index to 125.6. Much of the optimism is after Donald Trump’s campaign promises, which, if enacted could mean higher growth, though such growth depends more on factors outside of such campaign promises as higher import taxes and any change in tax policies It actually depends much more on a faster growing workforce, and higher labor productivity—goals that will be difficult to achieve in today’s polarized political climate.

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Studies have shown that to even reach a 3 percent annual GDP growth, 2.8 million workers must be added to the US workforce every year, and just 600,000 native born workers currently reach working age because of a shrinking US birth rate. That and a very poor average productivity rate of 1.2 percent from 2010-2014 have constrained growth.

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Consequently, the Trump administration’s draconian attempts to cut back on immigration will only damage growth. The Trump administration is proposing as much as a 50 percent reduction in immigration.

Boosting job creation can be a two-edged sword, in that two-thirds of the jobs are in the service sector. Manufacturing has been making a comeback of late, but that has more to do with a recovery in the rest of the world, and lower dollar exchange rates, rather than the imposition of tariffs that are subject to retaliation.

Mexico, for instance, has threatened to either ban or raise taxes on the importation of US corn, a staple in Mexico that has driven many Mexican corn-growers out of business.

Econoday reports in the latest ISM Manufacturing Survey that “the new orders index is still, outside of February, the second strongest reading since December 2013. And new export orders are very strong, up 4.0 points to 59.0 for the best showing since November 2013. Backlog orders are understandably piling up, 1/2 point higher to a 57.5 rate of monthly growth that was last matched in March 2014 and last exceeded in April 2011.”

So confidence is a good thing, if it encourages businesses and the economy to grow and create more jobs. But businesses act on hard facts, such as increased demand for their goods and services, rather than hope.

Harlan Green © 2017

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A Greater Lawlessness—On Tyranny

Posted on April 3, 2017 by Popular Economics Weekly

Financial FAQs

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Have we elected a tyrant as President? It’s hard to believe the clownish behavior and blatant lies of President Donald Trump could make him a tyrant, but author and history Professor Timothy Snyder says he has all the makings of a tyrant in On Tyranny, a pamphlet-size book making the rounds of talk shows.

It has 20 valuable lessons on how to avoid tyrannical governments, such as is happening now in Washington with one political party possibly controlling all three branches of government, if Supreme Court nominee Neil Gorsuch is confirmed—and why this is leading to the greatest lawlessness in our history with the Trump administrations and a Republican Party that is not only quiescent to his blatant law breaking, but in some ways has aided and abetted it.

“As they know,” Snyder begins in his Prologue, “Aristotle warned that inequality brought instability, while Plato believed that demagogues exploited free speech to install themselves as tyrants.”

We now have the greatest income inequality since 1929, and it led to the Great Recession and political polarization we have today. President Donald Trump would not have been possible, if incomes hadn’t declined so drastically for those dissatisfied white voters from the rust-belt.

And then there was the Russian meddling in our media with thousands of bots sending out fake social media news, Tweets, and Wikileaks exploiting the hacked Democrat’s emails, not to speak of Breitbart propaganda campaign of inflaming the alt-right, all white nationalists.

Professor Snyder listed three of the most important lessons on HBO’s Bill Maher show.

#1) “Don’t obey in advance—Most of the power of authoritarianism is freely given. In times like these, individuals think ahead about what a more repressive government will want, and then offer themselves without being asked.”

How could that happen? How could West Virginians in the heart of what was formerly coal country vote more than 2 to 1 for Donald Trump over Hillary Clinton in a historically Democratic state?

And this is leading to the acquiescence in the rollback of environmental laws that will allow more and dirtier coal mining, as well as coal-powered plants, when more than 250 coal plants have already closed, with cheaper natural gas replacing coal.

It is mainly out of ignorance of what was in their best interests. Coal now occupies but a minor position in W Virginia’s economy with natural gas and renewable energies having replaced it since 1980, according to Nobel Economist Paul Krugman.

#2) “Defend Institutions—It is institutions that help us to preserve decency. So choose an institution you care about—a court, a newspaper, a law, a labor union—and take its side.”

Sound familiar? What has Donald Trump been attacking—the courts, the media (“enemies of the people”), laws that prevent conflicts of interest, and labor union laws that protect worker safety. I might add scientific facts, as he has said he believes global warming a “hoax”. So in effect Trump is attacking all of the institutions that preserve decency and a functioning democracy.

“Institutions do not protect themselves. They fall one after the other unless each is defended from the beginning,” said Snyder.

#3) “Above all believe in truth,” as without truth there is no trust, and without trust there are no effective laws, which leads to tyranny. And candidate, now President Donald Trump, has made a point of blatant lying, meaning he wants his followers to believe whatever he says rather than objective facts such as global warming, or size of the audience that attended his inauguration.

This can only be because his followers have acquiesced in advance, either out of ignorance of the actual facts, or because they will follow him regardless of the consequences to themselves and the nation.

We can only preserve democracy and defeat tyranny in all its forms—including fascism, racism, discrimination, propaganda, oligarchies, if we learn from history. “History does not repeat, but it does instruct,” says Professor Snyder in On Tyranny, a must read for anyone wanting to understand the rise of President Trump.

Harlan Green © 2017

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Job Claims Down, GDP Revised Up, And 2017?

Posted on March 31, 2017 by Popular Economics Weekly

Financial FAQs

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

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

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Graph: Econoday

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

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

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

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Graph: Econoday

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

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

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

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

Harlan Green © 2017

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A Greater Lawlessness—Part II, The Trump Presidency

Posted on March 29, 2017 by Popular Economics Weekly

Populareconomics

Popular Economics Weekly

Rachel Maddow on last night’s MSNBC show provided evidence that the Trump White House has been lying from day-one of the Trump Presidency. The White House had denied it asked that tanks and other armaments be included in the inauguration parade, when Freedom of Information Pentagon documents surfaced recently that showed Trump officials had requested that military weapons be included in the parade.

This is but more evidence that the Trump campaign is determined to cover up and/or deny culpability for any of their misdeeds, whether real or imagined.

Rachel then concluded that the Trump White House could not be counted on to provide truthful information on any subject to the media, whom Trump had declared were “enemies of the people”, after all. So it is up to the public media to look for the facts elsewhere.

And now we know the Trump campaign, and possibly Trump himself, had done much more than that in its misinformation campaign during the run up to the November election, which in some ways puts Russia’s kompromat campaign of slander and fake news against Hillary Clinton to shame.

More-and-more evidence is surfacing that it was the compromising of FBI Director Comey that led to Hillary’s downfall. The so-called conspiracy that was one of the misdeeds being investigated by South Manhattan Attorney General Preete Bahara when he was suddenly fired. It was about the collusion of Trump campaign officials with the NYPD, and Manhattan FBI officials that had possession of Anthony Weiner’s laptop in their investigation of his internet sexting escapades with women.

A January Huffington Post article documented what was a “domestic conspiracy” to elect Donald Trump. It in effect said information presently public and available confirms that Erik Prince, Rudy Giuliani, and Donald Trump conspired to intimidate FBI Director James Comey into interfering in, and thus directly affecting, the 2016 presidential election. This conspiracy was made possible with the assistance of officers in the New York Police Department and agents within the New York field office of the Federal Bureau of Investigation.

The report went on to say, “As reported by the New York Times, FBI Director James Comey released his now-infamous October 27th letter in substantial part because he had determined that “word of the new emails [found on Anthony Weiner’s computer]…was sure to leak out.” Comey worried that if the leak occurred at a time when the nature and evidentiary value of the “new” emails was unknown, he “risked being accused of misleading Congress and the public ahead of an election.”

By October 27th, the FBI had had access to Weiner’s computer—which it originally received from NYPD—since October 3rd, during which interval the Bureau had both the time and IT know-how to determine that the “new” emails in its possession were in fact duplicate emails from accounts already revealed to the Bureau by Clinton, her aide Huma Abedin, and the State Department.

However, when Comey was briefed on the case by agents from the New York field office on October 26th, he discovered that not only had this IT work not been done, but in fact no warrant to seize the full emails had been sought, no permission to read the emails had been requested from cooperating witnesses Weiner and Abedin, and indeed nothing but a summary of the emails’ “meta-data” (non-content header information) had been prepared by his agents.”

And when they discovered there were emails from Hillary to her aid Huma Abedin and Weiner’s wife that were also included on the laptop, they immediately began pushing Comey to reveal the links that might possibly be material evidence in his probe of Hillary’s use of a private email server.

And both polling, poll analysis, and internet meta-data (see below) confirm that the Comey Letter was sufficient to hand Trump the 77,143 combined votes in Wisconsin, Michigan, and Pennsylvania that won him the election. We know from the statements made by Giuliani, and from numerous statements made by Trump on the campaign trail, that both men believed the Clinton email server case could be leveraged to ensure Clinton’s defeat in November. It turns out they were correct.

I first began writing about the greater lawlessness among Republicans wanting to maintain power in the face of a declining party membership in 2002, when it became obvious that the GW Bush administration was cooking the CIA findings on Iraq’s weapons of mass destruction to justify their invasion and coopting of Iraq’s oil fields. The underlying reason was once again greed, led by Vice President Cheney’s oil company friends who thought they would be able to control Iraq’s vast oil reserves.

Then they turned the Iraqi economy into a conservative dream, a tariff-less free enterprise entity that allowed cheaper US imports to put many Iraqi companies out of business, and was a major reason for the Sunni-led uprising and civil war that ensued.

We now know that on January 12th, the DOJ announced that the Inspector General would be investigating the sequence of events comprising the Prince-Giuliani-Trump conspiracy. Inspector General Horowitz noted that within his brief was investigation of the series of leaks that occurred between the NYPD, the FBI, and outside entities—including, we can surmise based on context, the Trump campaign.

Harlan Green © 2017

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Consumer Confidence Highest In 16 Years

Posted on March 28, 2017 by Popular Economics Weekly

Financial FAQs

The Conference Board’s Consumer Confidence Index soared to its highest level in 16 years. Its Consumer Confidence Index®, which had already increased in February, improved again in March. The Index now stands at 125.6 (1985=100), up from 116.1 in February. The Present Situation Index rose from 134.4 to 143.1 and the Expectations Index increased from 103.9 last month to 113.8.

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Graph: Econoday

“Consumer confidence increased sharply in March to its highest level since December 2000 (Index, 128.6),” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current business and labor market conditions improved considerably. Consumers also expressed much greater optimism regarding the short-term outlook for business, jobs and personal income prospects. Thus, consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months.”

But the survey was completed before Republicans pulled the Obamacare repeal bill. And if Congress can’t agree on passage of tax reform legislation, which will be just as controversial, then such optimism could turn into pessimism that has haunted past deadlocked Congresses.

And interest rates are falling, even with the Federal Reserve predicting it might continue to boost short term rates. For instance, the 10-year Treasury yield has dropped to 2.35 percent, unheard of except when economic growth has slowed to a crawl, or a recession is looming.

This is what happens when the so-called Treasury yield curve flattens. Then there is less room for banking profits, since short term rates the Fed controls are basically banks’ cost of doing business, and longer term rates are what they earn when they lend money.

Consumers were significantly more optimistic about the short-term outlook. The percentage of consumers expecting business conditions to improve over the next six months increased from 23.9 percent to 27.1 percent, while those expecting business conditions to worsen declined from 10.5 percent to 8.4 percent.

Consumers’ outlook for the labor market was also more upbeat. The proportion expecting more jobs in the months ahead increased from 20.9 percent to 24.8 percent, while those anticipating fewer jobs declined from 13.6 percent to 12.2 percent. The percentage of consumers expecting their incomes to increase improved from 19.2 percent to 21.5 percent, while the proportion expecting a decrease declined from 8.1 percent to 7.0 percent.

But these heightened expectations can only be fulfilled with a Trump team that knows what it is doing, which President Trump will eventually realize requires skilled and knowledgeable people to run the various government agencies, rather than the ideologues he has been appointing to date that are intent on “de-constructing” government, to use the words of Breitbart’s Steve Bannon, now his chief White House strategist.

Harlan Green © 2017

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New Home Sales Surge, Existing Sales Not So Much

Posted on March 27, 2017 by Popular Economics Weekly

The Mortgage Corner

New home sales shot 6.1 percent higher in February to a 592,000-annualized rate and is near the 600,000 top estimate of economists. Sales appeared to have gotten a boost from builder concessions as the median price fell a monthly 3.9 percent to $296,200 for a year-on-year rate that’s suddenly in the negative column at minus 4.9 percent.

And existing home sales were down 3.7 percent in February to a 5.480 million annualized rate, below January’s 5.55 million rate. Details are mostly weak including a 3.0 percent decline for single-family sales to a 4.890 million rate and a sharp 9.2 percent drop for condos to a 590,000 rate. But that could be the end-of-winter blahs, as year-on-year, single-family sales are up 5.8 percent with condos not up so much at 1.7 percent.

 

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Graph: Econoday

Strength in new-home sales was centered in the Midwest where the sales rate surged 21,000 to 89,000 and easily surpassing 11,000 gains for the both the West, at 157,000, and the South at 313,000. Sales in the Northeast fell sharply in last week’s existing home sales report and are down 9,000 to a very low 33,000 annualized rate in today’s new-home report.

But that could also be due to the month’s severe storms, including at least one Nor’easter that brought up to 2 feet of snow to some parts of New England.

What is happening with some conforming prices from FHFA not rising at all in February? In a note by Econoday, the Federal Housing Finance Authority’s house price index came in unchanged in January with year-on-year appreciation falling a steep 5 tenths to 5.7 percent. This is the weakest month-to-month result in more than 4 years and the weakest year-on-year rate since August 2015, and at a time when supply is pointing to very strong conditions, at only 3.8 months for resales which is down 6 weeks from this time last year.

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And days on the market are very tight, at 45 vs 59 days a year ago. A highlight of the coming week will be Case-Shiller’s report which tracks resale prices and which, in another housing puzzle, now appears to be violently converging with FHFA.

Another indicator of housing sales, the Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 2.8 percent to 106.4 in January from an upwardly revised 109.5 in December 2016. Although last month’s index reading is 0.4 percent above last January, it is the lowest since then.

It was insufficient supply levels that led to a lull in contract activity in the Midwest and West, which dragged down pending home sales in January to their lowest level in a year, according to the National Association of Realtors.

Lawrence Yun, NAR chief economist, says home shoppers in January faced numerous obstacles in their quest to buy a home. “The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay,” he said. “Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it’s not uncommon to see a home come off the market within a month.”

All this means that rather than a housing bubble, we are still in a housing shortage with affordable housing the main victim. And any improvement in supply largely depends on mortgage rates remaining low, despite further Federal Reserve rate hikes and a Trump administration spending spree. So I predict we have no more than a one year window for such low rates to remain.

Harlan Green © 2017

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