Signs of Jobs Surge in 2013

Posted on April 10, 2013 by Popular Economics Weekly

Popular Economics Weekly

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

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Graph: Calculated Risk

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

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

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

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Graph: Calculated Risk

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

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Graph: Econoday

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

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

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

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

Harlan Green © 2013

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Saving Fannie and Freddie Mac

Posted on April 9, 2013 by Popular Economics Weekly

The Mortgage Corner

Fannie Mae (FNMA), or Federal National Mortgage Association, reported a record profit for 2012, a good reason to save the mortgage giant from dissolution, as the banking industry in particular has lobbied for. The government-sponsored enterprise had net income of $17.2 billion for 2012, outpacing profits at S&P 500 companies such as Wal-Mart Stores Inc. (WMT), General Electric Co. and Berkshire Hathaway Inc. (BRK/A).

Fannie Mae’s net income for 2012 compared with a loss of $16.9 billion in 2011, the company said in a statement. Profits totaled $7.6 billion for the three months ended Dec. 31 after accounting for a $4.2 billion dividend payment to the Treasury Department for the government’s stake. So it can begin to payoff the $188 billion borrowed from the U.S. Treasury to keep the mortgage industry—and so housing—afloat.

There is another reason to save Fannie Mae and Freddie Mac from complete dissolution. Their underwriting standards are the highest and have resulted in the lowest default rates of all mortgages. Fannie Mae reported that the Single-Family Serious Delinquency rate declined in February to 3.13 percent from 3.18 percent in January. The serious delinquency rate is down from 3.82 percent in February 2012, and this is the lowest level since February 2009. Its serious delinquency rate peaked in February 2010 at 5.59 percent.

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Graph: Calculated Risk

Fannie Mae serious delinquencies averaged below 1 percent until 2008, the beginning of the housing bubble bust. Whereas the average delinquency rate for all Private Label Mortgages today is 6.8 percent, as many of them are the so-called liar loans that didn’t require either income for asset verification.

Earlier Freddie Mac (FHLMC), or Federal Home Loan Mortgage Corporation, the other GSE under government conservatorship, reported that the Single-Family serious delinquency rate declined in February to 3.15 percent from 3.20 percent in January. Freddie’s rate is down from 3.57 percent in February 2012, and this is the lowest level since July 2009. Freddie’s serious delinquency rate peaked in February 2010 at 4.20 percent.

Banks have been lobbying for years to either downsize or abolish the government-owned GSEs, as we said. But that would be throwing out the baby with the bathwater. For it was subprime lending that created the housing bubble with it minimal or nonexistent qualifying criteria, such as the ‘stated income’, or ‘no income’ verification requirements of so-called Option ARMs that allowed minimal payments for the first 4 years, before payments rose enough to begin to pay down principal balance.

Their argument has been that Fannie and Freddie are taking business away from private banking. They have claimed that the “implicit” government guarantee against default of the GSEs has given them a profit edge. But without Fannie and Freddie, there would be no viable housing market. We know this because of what banks did in the 1980s, when Fed Chairman Paul Volcker raised interest rates into double digits.

Banks then withdrew almost completely from mortgage lending, so the GSEs stepped in by creating a secondary market that packaged and sold mortgages to investors—either to Wall Street, or Main Street pension funds. That enabled the real estate industry to recover from the 1981 and 1983 Reagan recessions.

So the banking industry has been very fickle when it comes to mortgage lending. In fact, the subprime fiasco resulted from overleveraged banks taking advantage of soaring housing prices at the same time that financial markets were deregulating. Banks created the so-called shadow banking system outside of any regulatory oversight, which is responsible for much of the shadow housing inventory still on their books—an estimated 5 million homes either delinquent or with negative equity in their homes in danger of foreclosure.

There is in fact good reason for banks to lend again with interest rates still at record lows and housing prices beginning to rise again. A mortgage banking industry has grown around the secondary market, and as long as banks will adhere to the same gold standard underwriting as Fannie and Freddie, there is no reason they shouldn’t be generating record profits, as well.

Harlan Green © 2013

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David Stockman’s Crony Capitalism

Posted on April 7, 2013 by Popular Economics Weekly

Popular Economics Weekly

Paul Krugman is being too gentle with David Stockman, whose recent New York Times ‘rant’ glorifies the gold standard and denigrates government for standing in the way of putting “free markets and genuine wealth creation back into capitalism”.

“…like so many in his camp, Mr. Stockman misunderstands the meaning of rising debt,” writes Krugman. “Unemployment, not excessive money printing, is what ails us now — and policy should be doing more, not less.”

In fact, Stockman would return us to an earlier era of crony capitalism, before any form of financial regulation, such as by the Federal Reserve. The result then as now is huge income and wealth inequalities that have been the main cause of the Great Depression and major recessions—the last five just since 1980 during administrations that advocated deregulation and a similar opposition to financial regulation.

And then as now, there is an answer to the Oligarchies that ruled Big Business, as corporate monopolies have again concentrated their power today. President Obama gave a speech in Osawatomie, Kansas on December 6, 2011 about that earlier era. Osawatomie was the small town where Teddy Roosevelt gave his now famous “New Nationalism” speech in 1910 that called upon the three branches of the federal government to put the public welfare before the interests of money and property, because we were at a similar historical juncture. Corporate interests again control 2 branches of government—Congress and the Supreme Court—as they had in the early 1900s.

“At the turn of the last century, when a nation of farmers was transitioning to become the world’s industrial giant, we had to decide,” said Obama. “Would we settle for a country where most of the new railroads and factories were being controlled by a few giant monopolies that kept prices high and wages low?… Because there were people who thought massive inequality and exploitation of people was just the price you pay for progress.”

Greater equality of opportunity is what economists such as Nobel Laureate Joseph Stiglitz are calling for today, in renewing the cry that we are all in this together. “There are four major reasons inequality is squelching our recovery,” says Stiglitz. “The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth. While the top 1 percent of income earners took home 93 percent of the growth in incomes in 2010, the households in the middle — who are most likely to spend their incomes rather than save them and who are, in a sense, the true job creators — have lower household incomes, adjusted for inflation, than they did in 1996.”

Yet greater economic opportunity is more than a moral issue of what is fair, or even the core American value of everyone’s right to the pursuit of happiness. It can be inevitable if modern technology is allowed to fulfill its promise for all, rather than have it benefits be monopolized by the few.

For in an era where technology is replacing workers making the necessities of life at an ever accelerating rate, more Americans will have more leisure time to pursue their own interests. And more importantly, the ever increasing productivity of those technologies can lift all boats—that is, provide more necessities, as well as amenities to improve lives—rather than go only to the profit makers.

In giving his Kansas plea for a new nationalism of the common good, President Obama was going back to a time when Robber Barons ruled, having made enormous wealth from the founding of the railroads, banks, oil and steel industries in the 19th century.

It was the beginning of the Industrial Revolution, when most of America was rural and Oligarchs ruled government and business. Sound familiar? That has happened once again with the enormous fortunes created via deregulation and the digital revolution. And once again the majority of American households are suffering from the excesses of this modern revolution that has outdistanced the safeguards that were established to protect householders from those excesses.

“The American people are right in demanding that new Nationalism without which we cannot hope to deal with new problems,” said Roosevelt. “The new Nationalism puts the National need before sectional or personal advantage. It is impatient of the utter confusion that results from local legislatures attempting to treat National issues as local issues. It is still more impatient of the impotence which springs from over-division of governmental powers, the impotence which makes it possible for local selfishness or for legal cunning, hired by wealthy special interests, to bring National activities to a deadlock. This new Nationalism regards the executive power as the steward of public welfare. It demands of the judiciary that it shall be interested primarily in human welfare rather than in property, just as it demands that the representative.”

Actually, much of the Great Recession and slow recovery is due to widespread ignorance of economic fundamentals that depend on the public’s welfare. For no economy can prosper if educational and environmental standards are ignored, which enable social mobility and good health. It is also an ignorance of what is in our national interest. Raising educational and environmental standards, restoring our aging infrastructure, and creating a truly universal health care system make us more competitive globally.

Don’t take my word for it. Lord John Maynard Keynes saw the consequences of increasing abundance in his 1930 essay, Economic Possibilities for our Grandchildren: “Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well. The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.”

And we are beginning to see that abundance, as well as the means to share it more fully, if the Stockman’s of the world would stop glorifying self-interested behavior. Professor Robert Shiller discusses how this can happen in his recent book, “The New Financial Order, Risk in the 21st Century”, in which he lays out what our new information technologies will be able to do, just as the Industrial Revolution ultimately benefited most Americans.

“Right now we are witnessing an explosion of new information systems, payments systems, electronic markets, online personal financial planners, and other technologically induced economic innovations, and consequently much in our economy will be changed within just a few years. Almost all of our economy will be transformed within just a few decades. This new technology can do cheaply what once was expensive by systematizing our approach to risk management and by generating vast new repositories of information that make it possible for us to disperse risk and contain hazard.”

It will do all this by leveling the playing field in order to create a greater transparency of markets, as financial information in particular will be available to all. Therefore much of the risk in one’s profession, or housing value, or even health, will be able to be insured against unexpected events, such as recessions, or loss of career, or debilitating illnesses because of the new information technologies.

That is the real revolution happening today. Who will benefit from such modern information technologies–the few or the many? Because it will become more difficult for those who profit from such ignorance to accumulate excessive power. Stockman is wrong in believing we should turn back the clock. Or, as Teddy Roosevelt knew, we will continue to repeat past history.

Harlan Green © 2013

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Higher Home Prices Driving Construction

Posted on April 3, 2013 by Popular Economics Weekly

The Mortgage Corner

CoreLogic just reported home prices nationwide, including distressed sales, increased 10.2 percent on a year-over-year basis in February 2013 over February 2012. And it is boosting construction, as for sale inventories are barely increasing in the new selling season. This price change represents the biggest year-over-year increase since March 2006 and the 12th consecutive monthly increase in home prices nationally.

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Graph: Calculated Risk

“The rebound in prices is heavily driven by western states. Eight of the top ten highest appreciating large markets are in California, with Phoenix and Las Vegas rounding out the list,” said Dr. Mark Fleming, chief economist for CoreLogic.

And the Department of Commerce U.S. Census Bureau announced that construction spending during February 2013 rose 1.2 percent above the revised January estimate of $874.8 billion, and is 7.9 percent above the February 2012 estimate of $820.7 billion.

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Graph: Calculated Risk

This is huge, and will boost employment and Gross Domestic Product growth. Though private residential spending is 55 percent below the peak in early 2006 at the height of the housing bubble, it is up 36 percent from the post-bubble low. Non-residential spending is 25 percent below the peak in January 2008, and up about 37 percent from the recent low, said Calculated Risk.

Meanwhile housing inventories have increased 6.5 percent through April 1 (red line in graph), reports Department of Numbers, a housing tracking service, though not enough to prevent housing prices from soaring. For 2011 and 2012, inventory only increased about 5 percent at the peak and then declined for the remainder of the year.

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Graph: Calculated Risk

Let us hope this continues as the so-called shadow inventory of homes in default continue to shrink, thus increasing the housing supply available for sale. According to Lender Processing Services (LPS), the inventory of homes in default decreased in February compared to January and declined about 6.5 percent year-over-year. Also the percent of loans in the foreclosure process declined further in February and were down significantly over the last year.

LPS also reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.80 percent from 7.03 percent in January. Note: the normal rate for delinquencies is around 4.5 to 5 percent, as we’ve said in past columns.

Construction employment is coming back, in other words. The construction industry employed some 7.5 million workers in 2006, whereas it is now 5.8 million, according to the Associated General Contractors of America. So we know it will contribute significantly to the 3 million shortfall in payroll jobs still to be made up this year and next to bring us back to normal employment levels as housing and the real estate market in general continue to recover.

Harlan Green © 2013

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The Decline of the West

Posted on March 31, 2013 by Popular Economics Weekly

Popular Economics Weekly

Berkeley Prof Brad Delong has posted a very sobering essay on his website. Because the deficit hawks and austerity advocates now hold sway in both Europe and North America, we could be in for a very prolonged “Lesser Depression”, as he calls it.

“I had always thought that policy makers well understood the basic principle of macroeconomic management,” said this Economics Professor. “It was that the government’s proper role was…to tweak asset supplies so that there were sufficient liquid assets, enough safe assets, and enough financial savings vehicles that the economy as a whole did not feel under pressure to deleverage, and so push production below potential output.”

 

“This principle has gone out the window. The working majority of the Federal Reserve believes it has extended its aggressive expansionary policies to if not beyond the bounds of prudence. The working majority in the U.S. Congress is taking its cues from the Saturday Night Live character “Theodoric of York, Medieval Barber”. It believes that what the economic patient needs is another good bleeding of rigorous austerity, and that is putting further downward pressure on employment and production.”

Why do not policymakers in the West understand that it is in our best interests to prod economic activity enough to create robust growth, until enough revenues are generated to pay for keeping up with the rest of the world? Who are the deficit hawks that choose not to understand basic economics? Paul Krugman has called them out countless times.

“And why are we shortchanging the future so dramatically and inexcusably? Blame the deficit scolds,” said Krugman, “…whose constant inveighing against the risks of government borrowing, by undercutting political support for public investment and job creation, has done far more to cheat our children than deficits ever did.”

The scolds are mostly Republicans, in this case, who have become the protectors of the wealthiest among US, as they siphon ever more public funds away from public investments to their own profits.

Professor Krugman continues, “Fiscal policy is, indeed, a moral issue, and we should be ashamed of what we’re doing to the next generation’s economic prospects. But our sin involves investing too little, not borrowing too much — and the deficit scolds, for all their claims to have our children’s interests at heart, are actually the bad guys in this story.”

How do we escape the political gridlock that has trapped US between the past the the future? Part of the answer can lie in history. We had a similar situation at the beginning of the 20th century when robber barons ruled, and we needed a JP Morgan to finance World War I.

Teddy Roosevelt came along with an answer, which he called the “New Nationalism”. He made sure more wealth flowed to the less wealthy by busting monopolies that ruled the new industries of that day, and advocated laws and institutions to regulate them.

We are now at the beginning of the Digital Revolution, where technology is replacing workers making the necessities of life at an ever accelerating rate. So more Americans will have more leisure time to pursue their own interests. And more importantly, the ever increasing productivity of those machines will be able to lift all boats—that is, provide more necessities, as well as amenities to improve lives—rather than go only to the profit makers.

That is to say, more Americans will be able to live off the fruits of technology, if policymakers will listen to our smartest economists. Much of the Great Recession and slow recovery is due to widespread ignorance of economic fundamentals that actually depend on social welfare, as Professor Delong says. For no economy can prosper if educational and environmental standards are ignored, which enable greater social mobility and good health. It is also an ignorance of what is in our national interest. Raising educational and environmental standards, restoring our aging infrastructure, and creating a truly universal health care system make us more competitive globally.

Don’t take my word for it. Lord John Maynard Keynes saw the consequences of increasing abundance in his famous 1930 essay, Economic Possibilities for our Grandchildren: “Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well. The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.”

Professor Robert Shiller also discusses its consequences in his recent book, “The New Financial Order, Risk in the 21st Century”, in which he lays out what our new information technologies will be able to do. In it, “Shiller describes six fundamental ideas for using modern information technology and advanced financial theory to temper basic risks that have been ignored by risk management institutions–risks to the value of our jobs and our homes, to the vitality of our communities, and to the very stability of national economies”, says the publisher, Princeton University Press.

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It will do all this by leveling the playing field in order to create a greater transparency of markets, as financial information in particular will be available to all. Therefore much of the risk in one’s profession, or housing value, or even health, will be able to be insured against unexpected events, such as recessions, or loss of career, or debilitating illnesses because of the new information technologies.

So the Digital, ‘Big Data’ Revolution that is upon us gives no reason to be ignorant of how the modern world works. It will become more difficult for those who profit from such ignorance to accumulate excessive wealth. Or, as Teddy Roosevelt knew, we will continue to repeat the mistakes of past centuries.

Harlan Green © 2013

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

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2013 Home Prices Soaring

Posted on March 26, 2013 by Popular Economics Weekly

The Mortgage Corner

Housing prices are soaring, with both the S&P Case-Shiller Home Price Index 3-month average (for November, December and January) and FHFA conforming loan indexes accelerating. Mortgage delinquencies also continue to decline, which should help depleted inventories.

The S&P/Case-Shiller Home Price Indices showed average home prices increased 7.3 percent for the 10-City Composite and 8.1 percent for the 20-City Composite in the 12 months ending in January 2013.

“The two headline composites posted their highest year-over-year increases since summer 2006,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “This marks the highest increase since the housing bubble burst.”

In January 2013, nine cities — Atlanta, Charlotte, Las Vegas, Los Angeles, Miami, New York, Phoenix, San Francisco and Tampa — and both Composites posted positive monthly returns. Dallas was the only Metro Area where the level remained flat.

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Graph: Calculated Risk

The FHFA price index for January increased 0.6 percent, following a rise of 0.5 percent the prior month.  The January gain was led by the Pacific region, increasing 1.6 cent.  The weakest region was New England, down 0.7 percent for the month. But the index is up 6.5 percent year-over-year.

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Graph: Econoday

More good news was the continuing decline in mortgage delinquencies, according to LPS lenders’s services, as reported by Calculated Risk. LPS reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.80 percent from 7.03 percent in January. The percent of loans in the foreclosure process declined to 3.38 percent in February in January. 

Both numbers are still high, with 4.25 percent being the long term delinquency rate and 1 to 2 percent the historical foreclosure rate. This decline is already showing up in increasing for sale inventories, with Calculated Risk also reporting that through March 25th – inventory is increasing faster than in 2011 and 2012. But Housing Tracker reports inventory is down -21.2 percent compared to the same week in 2012—still a rapid year-over-year decline (2013 is red line in graph).

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Graph: Calculated Risk

What does all this mean? As delinquency/foreclosure rates continue to decline, inventory should continue to increase, which means more housing sales. Although new-home sales declined slightly in February, sales are still 12.3 percent higher than February 2012.

And February existing home sales rose 0.8 percent to an annualized pace of 4.98 million units.  January was revised to up 0.8 percent from the initial estimate of 0.4 percent. Low supply had been holding down sales but that appears to be changing as higher prices are bringing more homes into the market.  Supply jumped 9.6 percent to 1.94 million units.  Months’ supply rose to 4.7 months from 4.3 months in January.

Harlan Green © 2013

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What Inflation?

Posted on March 23, 2013 by Popular Economics Weekly

Financial FAQs

We have seen this before during past budget battles. How much spending is necessary to create future economic growth, and jobs? A corollary is whether the Federal Reserve’s current easy credit policy will create runaway future inflation with its Quantitative Easing programs that inject massive amounts of money into the economy.

So is inflation rising or falling? Is it a danger, or is inflation necessary for growth? This is what the whole deficit-debt debate is really about. How much inflation hurts economic growth by eroding spending power (and the value of debt), vs. how much inflation is needed for companies to raise their prices, hence profits.

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Graph: WSJ Marketwatch

The Federal Reserve prefers the Personal Consumption Expenditure inflation index, because it measures the widest basket of goods and services purchased by consumers when the Commerce Department calculates the total amount of their personal expenditures.

And it has been less than 2 percent for more than one year. Why? Because consumers cannot afford to spend more when household incomes have barely kept up with inflation. Wages and salaries have become stagnant, in other words, as household earning power has eroded.

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Graph: Econoday

And since consumers power 70 percent of economic activity, and two-thirds of product costs, their spending power is the main determinate of overall prices. But what about raw material costs, such as for oil? Those costs are also dependent on the demand for the finished products they make, whether it is gasoline or animal feed, or plastics.

The inflation debate is really about Federal Reserve policy for the moment. The Fed has said that as long as inflation remains moderate, then it can keep interest rates at record lows. This in turn increases the demand for loans, since cheap money encourages borrowing, and borrowing encourages both spending and investment.

This has boosted vehicle sales, in particular, and brought back Detroit. Motor vehicle sales have been very strong the last four months, above a 15 million annual unit rate compared to low 14 million rates through much of last year.

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Graph: Econoday

So we don’t have to worry much about much inflation, or the Fed tightening credit soon. This is why they have focused on the unemployment rate being 6.5 percent or lower before tightening begins. Another historical correlation of inflation has been full employment, and historical unemployment fell to between 4 to 5 percent before that happened.

In fact, past administrations have tolerated up to 8 percent inflation rates in order to bring back full employment.  Today, 5-6 percent unemployment could be tolerated without much damage to consumers’ spending power.  And it should be tolerated, if that gets US back to full employment.

Harlan Green © 2013

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Spring Housing Inventories Too Low

Posted on March 20, 2013 by Popular Economics Weekly

The Mortgage Corner

The spring home buying season is already here, reports Realtor.com. In February, the total number of single-family homes, condos, townhomes and co-ops for sale in the U.S. (1,494,218) increased by 1.15 percent month-over-month. On an annual basis, however, inventory was down by 15.97 percent.

“As we enter the busiest time of the year for home buyers and sellers, our latest housing trend data shows just how competitive the market is with a significant national housing recovery well underway,” said Steve Berkowitz, chief executive officer of parent company Move, Inc. “Looking ahead, we can expect the amount of inventory to increase this spring along with higher list prices as sellers become more comfortable with the market conditions.”

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Graph: Calculated Risk

Nearly all of the markets with the largest year-over-year declines in February for sale inventories were in California, where declines averaged 48 percent. The list includes Sacramento, Stockton, Oakland, San Jose, Orange County, Los Angeles, Seattle, San Francisco, Riverside and Ventura. These markets also experienced a dramatic decline in the median age of inventory, falling to an average of just 31 days, or 53 percent lower than it was one year ago.

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Graph: DataQuick

The result is sharply rising prices. Six-county Southern California saw the February median home price rise nearly 21 percent over the year, while remaining essentially flat compared with January, said real estate information provider DataQuick last week.

That is the main reason February housing construction soared. Privately-owned housing starts in February were at a seasonally adjusted annual rate of 917,000. This is 0.8 percent above the revised January estimate of 910,000 and is 27.7 percent above the February 2012 rate of 718,000, according to the National Association of Home Builders.

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Graph: Calculated Risk

Single-family starts (blue) increased to 618,000 thousand in February and are at the highest level since June 2008. “Today’s report indicates that, despite some bumps in the road, overall housing production continues on the solid upward trend that we saw throughout 2012,” noted NAHB Chief Economist David Crowe. “Moreover, further gains in permit issuance are a positive sign that home construction will continue to drive economic and job growth in the coming months, albeit at a slower pace than would be possible without certain limiting factors.”

Gary Wood’s Santa Barbara MLS listings plunged 18.7 percent in February for South Coast, while the median price soared $100,000, from $842,490 to $935,000. The lower-priced inventories are disappearing, in other words. Year over year sales are up about 15 percent with the median sales price up at about the same rate to roughly $890,000.

The lack of lower-priced inventory is apparent with the average sales price way up, going from just over $1 million in 2012 to approximately $1.5 million in 2013. The numbers of escrows are also up about 15 percent with the median list price on those escrows up almost 20 percent. That is putting even more pressure on prices. Through the end of February sales and prices for both the Home Estate/PUD and Condo markets are up with about 35 percent of the homes going for over the asking price and about 15 percent of the condos also selling for over list prices.

Harlan Green © 2013

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Higher Retail Sales Point to Consumer Health

Posted on March 15, 2013 by Popular Economics Weekly

Popular Economics Weekly

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

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Graph: Calculated Risk

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

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Graph: Econoday

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

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Graph: Calculated Risk

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

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

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

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

Harlan Green © 2013

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

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Ryan’s 19th Century Budget Plan

Posted on March 13, 2013 by Popular Economics Weekly

Financial FAQs

Republican Paul Ryan’s 2011 budget plan is being trotted out by House Republicans once again. In spite of the sequester cuts and a declining budget deficit, Ryan wants to create even more economic austerity. Representative Ryan and House Republicans have to still be living in 19th century rural America to believe this budget plan would work.

Its purpose is obvious—to cut government spending by abolishing Obamacare, or the Affordable Care Act, as well as downsizing Medicare to a private voucher program, and cutting taxes for the wealthiest even further by simplifying tax brackets to 10 and 25 percent. And he maintains this will balance the budget in 10 years!

Yet balancing the budget isn’t the problem, as many economists have pointed out, including Paul Krugman. The annual deficit that is the source of federal debt is in fact dropping too quickly, thanks to the sequester agreement, 2011 spending cuts, and the year-end income and payroll tax increases. Any further cuts will cost tens of thousands of public and private sector jobs that depend on government contracts. This will in turn strangle government revenues that would further increase the deficits and so overall debt.

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Graph: CBPP

It is a vicious circle that those who still espouse 18th Century economics do not want to recognize. It is being tried in Europe and has precipitated a second, and third recession in the case of Great Britain. As so many, including the Center For Budget and Policy Priorities (CBPP) have pointed out, most of the debt was accumulated by wars and the Bush tax cuts. Just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for nearly $6 trillion in deficits in 2009 through 2019 (including associated debt-service costs of $1.4 trillion).  By 2019, CBPP estimates that these two policies will account for almost half — over $8 trillion — of the $17 trillion in debt that will be owed under current policies.

Rather the focus needs to be on creating more demand, and Ryan doesn’t give us a plan to do that. Instead he maintains that downsizing government at a time when the private sector has been holding back on job creation will magically cause the private sector to create more jobs.

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Graph: Calculated Risk

The problem is really a lack of demand, due to fallen household incomes, as the graph makes clear. If the private sector saw a greater demand for its products and services, they would be hiring more. Most of the benefits of the huge increase in labor productivity since the 1970s has either gone to Wall Street, record high corporate profits, or its wealthiest executives.

Money has to be returned to those who produce it, not those who manage its profits if we want to create the demand that causes economic growth. The Ryan Plan sets us back to a 19th century regulatory environment, with its huge wealth disparities, dependence on fossil fuel use, and a less safe safety net.

Harlan Green © 2013

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

Posted in Consumers, Economy, Keynesian economics, Macro Economics, Politics, Weekly Financial News | Tagged , , , , , , , , , | Leave a comment