March Payrolls Soaring

Posted on April 5, 2024 by Popular Economics Weekly

Popular Economics Weekly

I said last week I don’t believe Wall Street investors are irrationally exuberant at present, contrary to those that say we are now in a stock market bubble with the record level S&P and DOW indexes.

That’s because March nonfarm payrolls increased 303,000, far above the 200,000 average poll of economists, and the unemployment rate fell slightly from 3.9 percent to 3.8 percent. This may finally put a dent in those pessimists polled that would deny the US economy is continuing its surprising surge.

FREDnonfarmpayrolls

Why? Government employment increased by 71,000, higher than the average monthly gain of 54,000 over the prior 12 months. It was mostly in local government (+49,000) and federal government (+9,000). Construction added 39,000 jobs in March, about double the average monthly gain of 19,000 over the prior 12 months.

This is largely because of President Biden’s New New Deal legislation such as the Infrastructure and Inflation Reduction Acts, but also expanding CHIPS production and a host of health care addons, all government largess that is boosting overall economic growth.

Health care added 72,000 jobs, as Biden has expanded healthcare coverages, while Obamacare enrollment is up 21 million this year.

Will this finally begin to change the irrational pessimism of Main Street, in the main ordinary working adults in the PEW study I’ve been highlighting?

In a poll by PEW Research, “About three-in-ten Americans (28%) currently rate national economic conditions as excellent or good, while a similar share (31%) say they are poor and about four-in-ten (41%) view them as “only fair.”

There’s still the inflation worry, which combined with the 8.5 percent Prime Rate that sets credit card and installment loan interest rates is making consumers nervous.

So the key to trends are short and long term inflation expectations measured in the various surveys. And consumers don’t see inflation improving in the near term, which I maintain is in part due to the too-high Prime Rate.

I highlighted a recent National Bureau of Economic (NBER) working paper that concluded one reason consumers remain unconvinced that economic conditions have improved is because if borrowing costs were included in the inflation data, the inflation rate would be much higher.

The Federal Reserve Bank of New York’s Center for Microeconomic Data released the February 2024 Survey of Consumer Expectations, for instance, which shows that inflation expectations remained unchanged at the short-term horizon, while increasing at the medium- and longer-term horizons. 

The Conference Board is similarly less sanguine about inflation: “Consumers remained concerned with elevated price levels, which predominated write-in responses, said Dana Peterson, its Chief Economist. “March’s write-in responses showed an uptick in concerns about food and gas prices, but in general complaints about gas prices have been trending downward.”

Most Americans are exhausted and still recovering from the pandemic. And they rely on their immediate experience; much of it due to the post-COVID gyrations of the economy.

PEW in the recent poll said, however, expectations for future economic conditions are more positive than they were last spring: Today, roughly a quarter say that they expect economic conditions will be better a year from now (26%) – up from 17% in April 2023.

There is hope, in other words, the pessimists will eventually realize a surging stock market means higher corporate profits, so stocks aren’t yet overvalued. Companies wouldn’t be hiring this many workers if profits weren’t growing, so their jobs are safe.

Harlan Green © 2024

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

Posted in Consumers, COVID-19, Economy, Weekly Financial News | Tagged , , , , | Leave a comment

First Quarter Growth Even Better?

Posted on April 3, 2024 by Popular Economics Weekly

The Mortgage Corner

The post-pandemic recovery is looking better this year, as higher estimates for 2024 economic growth come in.

The job market is still hot, which is why consumers keep shopping until they drop, to use a common expression for their stalwart behavior in the face of sky-high interest rates.

But there are danger signs if the Fed doesn’t begin to drop their short-term rates sooner rather than later, with just three 0.25 percent rate cuts predicted this year. This will not do much to alleviate a looming credit crunch, and effects on borrowers of the current 8.5 percent Wall Street Prime Rate.

But first the good news. The Atlanta Fed’s GDPNow estimate of first quarter GDP growth is updated regularly, and it’s improved again after some fluctuations.

AtlantaFederalReserve

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2024 is 2.8 percent on April 1, up from 2.3 percent on March 29. The uptick was mainly due to gains in nowcasts of first-quarter real personal consumption expenditures (PCE) growth and first-quarter real gross private domestic growth.”

The so-called Blue Chip Consensus estimate of GDP growth shaded gray in the graph that ranges from 1 to 2.5 percent has also been trending upward.

And the final reading of Q4 2023 U.S. Gross Domestic Product growth adjusted for inflation (real GDP) was raised slightly to a 3.4% annual pace, reflecting strong consumer spending.

FRED/CalculatedRisk

Why the happier numbers? The US economy keeps creating more jobs, hence the large number of job vacancies in the JOLTS report. This is a gauge of the demand for labor. It changed little from January at 8.8 million job openings employers say they want to fill on the last business day of February, the U.S. Bureau of Labor Statistics reported today.

The Calculated Risk graph of the JOLTS report shows job openings (black line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column). There were 5.8 million hires and 5.6 million separations, so the 200,000 difference approximates the net number of new jobs filled.

This will help us to estimate this Friday’s unemployment rate published by the Bureau of Labor Statistics. Since JOLTS was little changed, the unemployment report should be about the same as last Month’s 225,000 nonfarm payroll jobs increase, though the unemployment rate rose to 3.9 percent.

The University of Michigan sentiment survey also showed consumers see better days ahead.

“Expected business conditions remained substantially higher than last autumn, with short-run expectations now 63% above and long run expectations 46% above November 2023 readings. For all but one index component, readings this month were higher than all values between mid-2021 and the end of 2023.”

Now the bad news. The question is, will the Fed heed the warning of a rising unemployment rate? Fed Governors still seem convinced that the key to reaching their 2 percent inflation target rate is to cool the hot labor market. That means waiting for the unemployment rate to rise even higher than 3.9 percent, and the loss of maybe millions of jobs.

Economists are beginning to stress the urgency of future Fed rate cuts. I mentioned last week that Claudia Sahm a former Federal Reserve economist noted for creating a formula for predicting upcoming recessions, is one such calling for the Fed to cut rates sooner.

“But recessions are like snowballs, Sahm said: They start very small but can grow big enough to trigger avalanches, which can then sweep down on the economy — wiping away jobs, economic growth and income for millions of people.”

The 8.5 percent Prime Rate will eventually begin to toll on consumers pocketbooks, since most rely on some form of credit. The question is not if, but when the recession bell will toll if Fed officials react too slowly to the warnings.

Harlan Green © 2024

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

Posted in Consumers, COVID-19, Economy, Weekly Financial News | Tagged , , , , | Leave a comment

Economic Facts Can Win

Posted on April 1, 2024 by Popular Economics Weekly

Financial FAQs

Here’s another reason we have avoided a recession. Regardless of the looming tax bills due in April that traditionally causes consumers to save more and spend less, consumers are spending more and saving less, per the BEA’s Personal Consumption Expenditure release.

It’s another economic fact that indicates the US economy is doing very well, and that Main Streeters should believe, contrary to what many seem to say per the polls. But will economic facts win out over the irrational pessimism showing up in consumer polls?

In a poll by PEW Research I wrote about last week, “About three-in-ten Americans (28%) currently rate national economic conditions as excellent or good, while a similar share (31%) say they are poor and about four-in-ten (41%) view them as “only fair.”

BEA.gov

Consumers are spending more than they earn because they feel better about their own situation, in spite of what they say about economic conditions. The government’s Personal Consumption Expenditures (PCE) data that the Fed watches closely in February showed consumers’ disposable income (after taxes) increasing 1.0 percent while spending had increased 4.0 percent. The personal savings rate therefore slipped from 4 percent to 3.8 percent.

Fourth quarter economic growth was just upgraded to 3.4 percent from 3.2 percent, and consumer spending, the main engine of the economy, was revised up to a 3.3% increase in the fourth quarter instead of 3% annually as well.

Why the pessimism by ordinary consumers? Because most economic data is basically unintelligible to Main Street consumers. Duncan Foley, an economics Professor at NYU’s New School maintains that the economics profession has become so complex that economists are “becoming priestly figures, with arcane knowledge and special powers” in his book, Adams Fallacy: A Guide to Economic Theory.

He asserts economics is as much philosophy as a social science, since it attempts to measure financial behavior with economic data and formulas, many of which are understandable only by economists.

More importantly “Thinking like an economist comes hard to many people…the economic way of thinking is just as value laden as any other way of thinking and can foster dangerous mistakes of judgement.”

What is hurting consumer finances the most? The Wall Street Prime Rate has risen to 8.5 percent because the Funds rate is 5.25 percent. Consumers must spend more than they save because borrowing costs have soared for those with credit card debt and installment loans.

FREDprimerate

How much longer can consumers spend as they have, as their personal savings continue to be depleted? A recent National Bureau of Economic (NBER) working paper concludes that one reason consumers remain unconvinced that economic conditions have improved, is because if borrowing costs were included in the inflation data, the inflation rate would be much higher.

“Consumers, unlike modern economists, consider the cost of money part of their cost of living. Interest rates have reached 20-year highs in the wake of the pandemic. With higher rates, mortgage payments, car payments, and other credit payments required to finance everyday purchases have risen as well.”

So that makes the Federal Reserve part of the problem since the Prime Rate is directly keyed to the Fed Funds rate, and why wouldn’t the price of things be controlled by the cost of said things??

That could be why we see so much irrational exuberance, to use former Fed Chair Greenspan’s term, in which decisions are made via hearsay and word of mouth rather than economic facts.

Consumers must deal with the cost of money when they look at their financial condition, which should mean their mood will improve when the Fed finally decides to cut interest rates.

Harlan Green © 2024

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

Posted in Consumers, COVID-19, Economy, Weekly Financial News | Tagged , , , , | Leave a comment

Fourth Quarter Growth Even Better

Posted on March 28, 2024 by Popular Economics Weekly

The Mortgage Corner

Economic growth is picking up and the housing market is following suit, which means the post-pandemic recovery is looking even better this year.

The final reading of Q4 2023 U.S. Gross Domestic Product growth adjusted for inflation (real GDP) was raised slightly to a 3.4% annual pace, reflecting strong consumer spending and a surprisingly resilient economy. The government’s second estimate of GDP had forecast a 3.2% rate in the final three months of last year.

This will no doubt call for a slowdown in the Fed’s rate cuts by those worried about inflation, but will that matter when housing in particular needs to recover? Everyone should be happy, in other words.

Adjusted pretax corporate profits surged in the fourth quarter at an annual 4.1% rate, indicating that businesses are in good shape. Consumer spending, the main engine of the economy, was revised up to a 3.3% increase in the fourth quarter instead of 3%.

And inflation using the personal-consumption expenditure — or PCE — rose at a mild 1.8% annual rate in the fourth quarter, unchanged from the prior estimate. The more closely followed core rate was lowered a tick to a 2.0% annual rate — matching the Fed’s 2% inflation goal.

BEA.gov

Inflation expectations measured by the University of Michigan sentiment survey also showed inflation expectations continue to decline.

“Year-ahead inflation inched down from 3.0% last month to 2.9% this month,” said survey Director Joanne Hsu. “For the third straight month, short-run inflation expectations have fallen within the 2.3-3.0% range seen in 2018 and 2019. Long-run inflation expectations also inched down, from 2.9% to 2.8%, and remain modestly elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.”

Even better news was that the number of Americans who applied for unemployment benefits last week fell slightly to 210,000 and continued to hover at very low levels in a sign of strength for the economy. There were 212,000 unemployment filings, according to government figures.

Jobless claims tend to rise steadily when the economy gets worse. They’ve held fast this year in a narrow range of 194,000 to 225,000 — an extremely low level historically.

Claudia Sahm a former Federal Reserve economist noted for creating a formula that predicted upcoming recessions, is bucking the trend of economists worried about inflation by calling for the Fed to cut rates sooner.

In a series of conversations with MarketWatch over the past month, Sahm said she wants the Fed to ease rates — which are currently in the range of 5.25% to 5.5% — ASAP, according to MarketWatch’s Greg Robb. She’s not advocating for a dramatic cut but says the Fed needs to get the ball rolling on easing the tight monetary policy it has implemented over the past two years to help cool the economy and quash out-of-control inflation. 

“But recessions are like snowballs, Sahm said: They start very small but can grow big enough to trigger avalanches, which can then sweep down on the economy — wiping away jobs, economic growth and income for millions of people.”

There’s another reason to begin to cut interest rates ASAP. The housing market needs a boost. Existing-home sales jumped in February and a survey of future home sales is also increasing, but might not last long if the sky-high mortgage rates don’t decline.

Pending home sales in February grew 1.6%, according to the National Association of Realtors®. The Midwest and South posted monthly gains in transactions while the Northeast and West recorded losses. All four U.S. regions registered year-over-year decreases.

The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – increased to 75.6 in February. Year over year, pending transactions were down 7.0%. An index of 100 is equal to the level of contract activity in 2001.

“While modest sales growth might not stir excitement, it shows slow and steady progress from the lows of late last year,” said NAR Chief Economist Lawrence Yun. “Ongoing job gains are clearly increasing demand along with more inventory.”

Could economic growth be firing on all cylinders this year if the housing market recovers? It would be for the first time and a sign that we are finally over the COVID pandemic.

Harlan Green © 2024

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

Posted in Consumers, COVID-19, Economy, Housing, housing market, Weekly Financial News | Tagged , , , , | Leave a comment

Irrational Exuberance vs. Irrational Pessimism?

Posted on March 26, 2024 by Popular Economics Weekly

Popular Economics Weekly

I don’t believe Wall Street investors are irrationally exuberant at present, contrary to those that say we are now in a stock market bubble with the record level S&P and DOW indexes.

It’s as easy to be irrationally pessimistic about the future as are many Main Streeters that don’t feel so good about themselves or the US economy.

The indexes are high because corporations show record profits, in part thanks to the $trillions in pandemic aid, but also because of the excessive profit-taking by major retailers that took advantage of the product shortages caused by the COVID pandemic shutdowns, which has been confirmed by the FTC.

Large grocery store chains exploited product shortages during the pandemic by raising prices significantly more than needed to cover their added costs and they continue to reap excessive profits, according to a Federal Trade Commission report.

Much of Main Street, ordinary working adults in the main, have become the opposite, irrationally pessimistic, in my opinion. Surveys such as a recent PEW Research survey I highlighted last week show this is so.

In a poll by PEW Research, “About three-in-ten Americans (28%) currently rate national economic conditions as excellent or good, while a similar share (31%) say they are poor and about four-in-ten (41%) view them as “only fair.”

PEW

Why such divergent opinions when we are fully employed and have surging economic growth? The most recent Conference Board’s Consumer Confidence survey helps to explain it.

Right and left wing partisans are now controlling the debate. Middle-income Americans, which are most working Americans, as I said, are exhausted and pay little attention to economic data, which is difficult to understand even by economists.

Most consumers remain concerned about high inflation, the contentious budget debate, and partisan bickering of the Presidential election campaign.

“Consumers remained concerned with elevated price levels, which predominated write-in responses, said Dana Peterson, its Chief Economist. “March’s write-in responses showed an uptick in concerns about food and gas prices, but in general complaints about gas prices have been trending downward. Indeed, average 12-month inflation expectations came in at 5.3 percent—barely changed from February’s four-year low of 5.2 percent.”

“Recession fears continued to trend downward both in write-in responses and as measured by consumers’ Perceived Likelihood of a US Recession over the Next 12 Months,” he continued. “Meanwhile, consumers expressed more concern about the US political environment compared to prior months.”

The PEW survey chart above shows the tug-of-war between extreme right and left political factions controlling the debate, while 41% of the Americans surveyed viewed economic conditions as “only fair”.

Why? Most Americans are exhausted and still recovering from the pandemic. There is a divergence between those experiencing irrational exuberance vs. irrational pessimism because most of those polled aren’t as knowledgeable about real economic data and business cycles that are published by the government and private providers. So they must rely on their immediate experience; much of it due to the trauma caused by the COVID pandemic that killed one million Americans.

PEW said, however, expectations for future economic conditions are more positive than they were last spring: Today, roughly a quarter say that they expect economic conditions will be better a year from now (26%) – up from 17% in April 2023.

There is hope, in other words, because of a resurgent US economy, the strongest economy in the world, that they will eventually realize their jobs are safe and secure in such an environment.

Harlan Green © 2024

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

Posted in Consumers, COVID-19, Economy, Weekly Financial News | Tagged , , , , | Leave a comment

New Home Sales Boost Housing Market

Posted on March 25, 2024 by Popular Economics Weekly

The Mortgage Corner

The sale of new homes is boosting housing and the economy at a very opportune time—the beginning of a New Year when it’s still uncertain when the Fed will begin to cut their interest rates.

This is a heartening sign that consumers are not waiting longer for mortgage rates to fall. So far, 30-year conventional fixed rates are staying close to their high of 7 percent, so that some one-third of sales are all cash transactions.

Sales of new single‐family houses in February 2024 were at a seasonally adjusted annual rate of 662,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.3 percent (±16.2 percent)* below the revised January rate of 664,000, but is 5.9 percent (±14.3 percent)* above the February 2023 estimate of 625,000.

USCensusBureau

The median sales price of a new home sold in February fell to $400,500 from $414,900 in the prior month. The seasonally‐adjusted estimate of new-home supply was 8.4 months at the current sales rate. The growing supply of new homes is bringing down prices.

Overall, home buying demand for newly built homes remains strong because resale home inventory is still low, though existing home sales are also rising.

Sales are likely to pick up further as mortgage rates are expected to decline through the rest of the year. Fannie Mae expects the 30-year mortgage to end the year at 6.4%, versus the 6.87% as of March 21, per Freddie Mac data.

This must be why builder confidence rose for the fourth month in row in March, in line with growing buyer demand.

The expectations of a jump in demand in the coming months pushed the National Association of Home Builders’ (NAHB) monthly confidence index up 3 points to 51 in March, the trade group said on Monday.

That’s also why housing starts jumped in February as well, I said last week. Construction of new U.S. homes rebounded 10.7% in February to an annual pace of 1.52 million units, reported the Commerce Department last Tuesday. Single Family Starts are up 35% Year-over-year in February; though Multi-Family Starts were down sharply, said the NAHB. That is the biggest gain in nine months.

“The solid level of single-family production in February tracks closely with rising builder sentiment, and with mortgage rates expected to moderate further this year, this will provide an added boost for single-family building,” said Carl Harris, chairman of the National Association of Home Builders (NAHB). “But policymakers need to help the industry’s supply-chains in order to protect housing affordability and add much needed supply to boost inventory.”

Might a proposed settlement by the National Association of Realtors (NAR) to bring down the standard commission paid by Sellers speed up home sales this year by reducing sale costs?

The settlement proposed by the National Association of Realtors, which will go into effect in mid-July if it’s approved, would require that listings on the NAR-run Multiple Listing Service — a database of homes for sale — no longer have a field showing how much buyer’s agents will earn in commissions on the sale.

Although fees for real-estate agents are technically negotiable, they typically run from 4% to 6% of a home’s sale price, depending on local market customs. Home sellers traditionally pay these commissions, which are then typically split between the buyer’s and seller’s agents. 

This might make a difference in prices for entry-level homes, where the profit margins are lower, and buyers more price-conscious. Anything that reduces costs is welcome in a reviving housing market.

New-home construction is an important segment of our economy because it employs many in sectors other than construction, such as finance, insurance, and advertising. So when positive and growing it boosts overall economic growth as well.

Harlan Green © 2024

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

Posted in Consumers, COVID-19, Economy, Housing, housing market, Weekly Financial News | Tagged , , , , | Leave a comment

Too Much Irrational Exuberance?

Posted on March 23, 2024 by Popular Economics Weekly

Popular Economics Weekly

Are Wall Street investors irrationality exuberant? Former Bond King and CEO of the PIMCO bond fund Bill Gross thinks so.

Irrational exuberance is a term coined by former Fed Chairman Alan Greenspan in 1996 to describe the stock rallies of that decade that pushed stock prices so high that they earned less than one percent annually in capital gains and dividends by 2000, the year his warning come to roost when the Dot-com bubble burst.

Gross has been maintaining that today’s stock market rally that has pushed the S&P and DOW Jones indexes to record highs is due to a similar irrational exuberance.

“It tells me that fiscal deficit spending and AI enthusiasm have been overriding factors and momentum and ‘irrational’ exuberance have dominated markets since 2022,” he said in said in a recent MarketWatch interview.

All this exuberance has been due to several reasons; among them the US government stimulus spending that has pushed growth higher than in all other developed countries.

Americans have now been fully employed for more than two years, with more than 20 million new jobs created during that time. And real GDP growth is surging, as are corporate profits.

Irrational Exuberance may also explain the divergence of Wall Street investors with the current irrational pessimism among Main Street voters that is at odds with actual economic events.

In polls, such as by PEW Research, “About three-in-ten Americans (28%) currently rate national economic conditions as excellent or good, while a similar share (31%) say they are poor and about four-in-ten (41%) view them as “only fair.”

PEW

The polls are saying there has been a marked divergence not only between how Main Streeters feel about the economy, but also about their own financial circumstances. Overall, most Americans feel good about their personal finances but not about where the US economy is heading.

PEW added expectations for future economic conditions are more positive than they were last spring: Today, roughly a quarter say that they expect economic conditions will be better a year from now (26%) – up from 17% in April 2023.

I maintain this divergence between irrational exuberance and irrational pessimism is because most of the polled aren’t as knowledgeable about real economic data and business cycles that are published by the government and private providers, so they must rely on their immediate and experience; much of it is due to the trauma caused by the COVID pandemic that killed one million Americans.

Nobel Laureate Robert Shiller won the Nobel Prize in 2013 for his research on the causes of irrational exuberance.

Dr. Shiller said irrational exuberance is about “How errors of human judgment can infect even the smartest people, thanks to overconfidence, lack of attention to details, and excessive trust in the judgments of others, stemming from a failure to understand that others are not making independent judgments but are themselves following still others—the blind leading the blind.”

Can we blame those still hurting from the pandemic, as well as loss of blue-collar jobs in major parts of the Midwest, for not believing how quickly this economy has recovered?

Harlan Green © 2024

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

Posted in Consumers, COVID-19, Economy, Politics, Weekly Financial News | Tagged , , , , | Leave a comment

Strong Growth Will Continue

Posted on March 21, 2024 by Popular Economics Weekly

Financial FAQs

There’s a good reason we have avoided a recession, I said last week. Consumers’ personal financial conditions have improved, so they continue to shop, and they are responsible for 70 percent of economic activity.

Now the Conference Board’s Index of Leading Economic Indicators (LEI) is agreeing with them for the first time in six months. It is one of the few indexes that attempts to predict future growth but has been stagnant for two years and showed negative GDP growth since August 2023.

“The U.S. LEI rose in February 2024 for the first time since February 2022,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Strength in weekly hours worked in manufacturing, stock prices, the Leading Credit Index™, and residential construction drove the LEI’s first monthly increase in two years…Despite February’s increase, the Index still suggests some headwinds to growth going forward. The Conference Board expects annualized US GDP growth to slow over the Q2 to Q3 2024 period, as rising consumer debt and elevated interest rates weigh on consumer spending.”

It uses indicators such as the direction of interest rates and workers’ hours to gauge future trends. The LEI is still lagging real GDP growth, per the below graph of both.

Conference Board

Because the main contributors to manufacturing’s current growth are a roaring stock market and increased working hours in manufacturing, will manufacturing finally come to life this year?

Preliminary S&P indexes for manufacturing and the service sector are both ‘flashing’ green lights. The flash U.S. manufacturing purchasing managers index climbed to a 22-month high of 52.5 this month from 52.2 in February. The S&P flash U.S. services PMI slipped to a three-month low of 51.7 in March from 52.3 in the prior month, but numbers above 50 signal growth in the economy.

The Atlanta Fed puts out another predictor of future growth. Its GDPNow Q1 estimate is 2.1 percent on March 19, down from 2.3 percent from March 14 after slowing first-quarter personal consumption expenditures growth and first-quarter real gross private domestic investment growth.

This may be temporary, however, as consumers and businesses are usually cautious at this time of the year while they attempt to assess their future.

The good news is that Wall Street is booming and even the housing market seems to be recovering, in spite of the Fed’s inaction on interest rates.

Stock indexes are at record highs, and existing-home sales surged 9.5% in February to a seasonally adjusted annual rate of 4.38 million, the largest monthly increase since February 2023. And the inventory of unsold existing homes increased 5.9% from one month ago to 1.07 million at the end of February, or the equivalent of 2.9 months’ supply at the current monthly sales pace, which will further boost sales.

Federal Reserve Chairman Powell said they are in no hurry to cut interest rates because the US economy is meeting the Fed’s twin mandates of stabile price and maximum employment in his latest congressional testimony.

This should reassure Americans that strong growth will continue.

Harlan Green © 2024

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

Posted in Consumers, COVID-19, Economy, housing market, Keynesian economics, Weekly Financial News | Tagged , , , , | Leave a comment

Consumers Want More Stability

Posted on March 20, 2024 by Popular Economics Weekly

The Mortgage Corner

More consumers, and most Americans, are deciding they want calm after the instability of the Pandemic era. They are craving fewer economic disruptions for starters, such as the partisan wars that have stymied budget negotiations.

“Nearly three-quarters of Americans (73%) rate strengthening the economy as a top priority. That is considerably larger than the shares citing any other policy goal,” reports a recent PEW Research poll.

With Americans fully employed for more than two years and average wages rising faster than inflation, it is boosting consumer confidence and hence consumer spending. This is in turn boosting economic growth.

The US economy averaged 2.5 percent real GDP growth last year, and predictions are for 2-3 percent average GDP growth this year.

The latest University of Michigan sentiment survey highlights their wish for stability.

“Consumer sentiment moved little this month with a 0.4 index point decrease that is well within the margin of error, and thus sentiment has been steady and essentially unchanged since January 2024…After strong gains between November 2023 and January 2024, consumer views have stabilized into a holding pattern; consumers perceived few signals that the economy is currently improving or deteriorating. Indeed, many are withholding judgment about the trajectory of the economy, particularly in the long term, pending the results of this November’s election.”

Conferenceboard.org

The other Conference Board confidence survey was similar with overall inflation remaining the main preoccupation of consumers, and are a bit less concerned about food and gas prices, which have eased in recent months. But they still concerned about the labor market situation and the US political environment.

Stability is what Americans crave after COVID and two ongoing wars. Americans reacted similarly once before, during the Great Depression in the 1930s that resulted in 25 percent of working Americans unemployed.

FDR was then elected that brought in a New Deal. This time it’s the Biden creating the bipartisan new, New Deal that is spending $billions on renewing our infrastructure, manufacturing with the CHIPS Act, in social services, and combating climate change with the Inflation Reduction Act. It will boost economic growth for the rest of this decade.

Further signs of a strengthening economy are in the housing industry. Builder confidence rose for the fourth month in row in March, as buyer demand remained strong.

The expectations of a jump in demand in the coming months pushed the National Association of Home Builders’ (NAHB) monthly confidence index up 3 points to 51 in March, the trade group said on Monday.

Calculated Risk

Housing starts jumped in February as well. Construction of new U.S. homes rebounded 10.7% in February to an annual pace of 1.52 million units, the Commerce Department reported Tuesday. Single Family Starts are up 35% Year-over-year in February; Multi-Family Starts Down Sharply, said the NAHB. That is the biggest gain in nine months.

“The solid level of single-family production in February tracks closely with rising builder sentiment, and with mortgage rates expected to moderate further this year, this will provide an added boost for single-family building,” said Carl Harris, chairman of the National Association of Home Builders (NAHB). “But policymakers need to help the industry’s supply-chains in order to protect housing affordability and add much needed supply to boost inventory.”

That means interest rates must come down this year to continue to support housing affordability, in particular. Housing has traditionally led economic recoveries, so it is an important indicator of when we will break out of the current holding pattern.

Congress has just reached final agreement on the federal budget for the rest of this year, which will further enhance economic stability during the election season.

Harlan Green © 2024

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

Posted in Consumers, COVID-19, Economy, Housing, housing market, Politics, Weekly Financial News | Tagged , , , , | Leave a comment

Retail Inflation Is the Problem

Posted on March 14, 2024 by Popular Economics Weekly

Popular Economics Weekly

There is a reason the Biden administration wants to prevent the merger of Kroger and Albertsons Supermarket chains. It lowers competition at a time when the largest retailers are now responsible for much of the inflation that has fueled the Fed’s reluctance to lower interest rates.

How do we know that? Retail companies such as Walmart, Home Depot, Costco, Lowes, CVS, and Target have reported record profits since the Pandemic, according to a recent report by Accountable.us, a nonpartisan 501(c)3 organization that reports on “special interests that too often wield unchecked power and influence in Washington and beyond.”

It reports that “a new analysis of earnings data of the ten largest U.S. retailers by market capitalization finding that they all raised consumer prices while collectively reporting $24.6 billion in increased profits during their most recent fiscal years. These same companies also ramped up spending on shareholder handouts by nearly $45 billion year-over-year for a total of $79.1 billion.”

FREDppi

This is while wholesale PPI price inflation for the raw materials that go into retail products is close to zero. The PPI approached zero percent in June 2023 and has remained below 2 percent annually since then. Supply may become oversupply, in other words, continuing to bring down wholesale prices.

This is opposed to the most recent Consumer Price Index of retail prices that is still hot, with annual inflation rate up slightly from 3.1 to 3.2 percent in February, and core inflation less food and energy prices is now 3.8 percent.

It highlights the chasm between wholesale and retail prices that must factor in labor and capital costs. But those costs remain largely constant, so much of the difference must come from higher profit margins of retailers.

Voices are now growing louder for an earlier rate cut than in June that markets have currently predicted, in part because retail sales are faltering. Retail sales rose 0.6% in February from the previous month, according to Census Bureau data, but January retail sales previously posted a surprise -1.1% decrease. They have been trending downward since September 2023.

FREDretailsales

Retail inflation is largely due to corporate greed, which is out of the Fed’s control.

So there are now voices saying the Fed should pay less attention to its target rate of 2 percent and reduce interest rates sooner. “Given that the labor market is tight, the economy is running well and corporate fundamentals are looking pretty good, I’m not sure we need 2% inflation,” said another economist in a MarketWatch interview.

The chorus for rate cuts will grow louder as further weaknesses in retail sales appear in coming months.

Harlan Green © 2024

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

Posted in Consumers, COVID-19, Economy, Weekly Financial News | Tagged , , , , | Leave a comment