Where are the Workers?

Posted on May 7, 2019 by Popular Economics Weekly

Popular Economics Weekly

The number of job openings rose to 7.5 million on the last business day of March, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were little changed at 5.7 million and 5.4 million, respectively.

But the miniscule change in hires and separations doesn’t tell us the real employment story. This Calculated Risk graph shows the huge separation between the yellow line (Job openings) and blue line (Hires). It’s now almost 2 million.

image

Calculatedriskblog

The actual difference was because job openings surged 4.8 percent in the month to 7.488 million at the same time that hires fell 0.6 percent to 5.660 million, according to Econoday. “The gap between the two stands at a new record of 1.828 million, signifying a huge demand for workers that isn’t being met.”

Year-on-year, openings are up 8.6 percent vs. only a 0.6 percent rise for hires. The gap between total openings in March relative to the 6.211 million unemployed actively looking for a job in the month was 1.277 million.

This tells us how complex is the hiring process, since it’s becoming ever more difficult to match those looking for work with the advertised job openings. How can we fix the problem from the mismatch?

One hint is we know from last week’s unemployment report that almost 500,000 fewer workers were available for work in the Household Survey, shrinking the labor pool, even though job hirings were up in the seasonally adjusted Establishment Survey that reports actual payroll numbers.

I believe those either leaving the workforce, or still looking for work, are waiting for better job prospects. Most do not want Amazon warehouse or Walmart jobs that pay barely above minimum wages.

The largest hires in the April unemployment report were all in the services sector. Professional services, education and health services led, with Leisure/Hospitality and construction hiring next—all in the lower-paying service sector.

Only 4,000 manufacturing jobs were created, according to the BLS, with the utilities and mining sector losing jobs.

Both the Institute of Supply Management’s (ISM) manufacturing and service sector activity surveys also declined in March, with manufacturing activity the weakest in 2 years. It was mainly due to the decline in new orders, possibly due to the trade uncertainty.

The 3.2 percent increase in the initial Q1 GDP growth estimate was a pleasant surprise, as I said last week, but it was largely because spending by local governments picked up due to the partial federal government shutdown and a “turnaround in investment, most notably in construction of highways and streets,” said the BEA. 

Local and state governments may have been waiting to see if the Trump administration would chip in to boost needed infrastructure upgrades, and since that didn’t happen states decided to implement the needed projects.

The buildup in unsold inventories, and fewer imports also increased GDP numbers. That’s because in the face of the rising tariffs, import prices are rising as the tariff increases are being passed on to the consumer, contrary to what administration officials are saying.

And rising prices will put a cap on growth, as well as future hiring. So we are waiting to see if more are willing to work, or are still waiting for the right job so they can afford to pay for the higher priced goods.

Harlan Green © 2019

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

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

Our Student Debt Problem

Posted on May 6, 2019 by Popular Economics Weekly

Financial FAQs

College students and former students have amassed some $1.5 trillion in student debts, most of it (90 percent) held by the federal government or guaranteed by same. And this is holding back a whole generation of young adults who have to postpone almost everything—marrying, raising a family, buying a home, even finding a desirable job—in order to pay their debts.

Presidential candidates such as Senator Elizabeth Warren Senator are offering a solution to the student debt problem by offering some debt relief based on income. And there are various proposals to reduce student fees for higher education, as well as smaller institutions of higher education that charge little or no fees.

In 1993, the average debt of a bachelor’s degree graduate was approximately $9,000; five years later, it was about $15,000. By 2003, it had jumped to approximately $17,500, according to the Wall Street Journal.

Today, the average outstanding student loan balance per debtor is roughly $30,000, though one recent study by Fidelity Investments put the figure as high as $35,200. Approximately 20 percent of U.S. households currently owe student loan debt, as do 40% of people younger than 35. This means an increase of nearly 200 percent of overall student loan debt (public and private) over the last 20 years.

This is while the wages of middle-class workers have grown just 6 percent since 1979 and low-wage workers’ wages actually dropped 5 percent during that period, according to the Economic Policy Institute, a progressive think tank.

image

Marketwatch.com

It is why Senator Elizabeth’s proposal to cancel most public college or university student debts is so important. In the latest Hill-HarrisX survey, 67 percent of respondents between 18 and 64 said they backed Warren’s idea compared to 53 percent of voters who were older. The proposal was also supported across all age groupings although voters who are 65 years old and up were somewhat less likely to support it.

What happened to put so much of the burden on students and their families to have what was once affordable to children of a middle-class family? Declining state investment in higher education over the past decades has pushed costs up, making it more difficult for students to afford school on shrinking household incomes, while many more students enrolled in higher education, so that almost 50 percent of the student-age population now attends some college or university.

Something had to give. In the late 1980s, public colleges typically got about one-quarter of their revenue from tuition, now that’s up to about 50 percent, according to Michael Mitchell, a senior policy analyst at the Center on Budget and Policy Priorities who studies state funding trends.

But there’s an even deeper reason college and university costs have risen with state-chartered public institutions like the University of California and California’s State College systems.

It began just after I left UC Berkeley in 1964, and the protests against American involvement in the Vietnam War began. President Johnson declared war on Vietnam on August 10, 1964 after the Gulf of Tonkin incident, and the Selective Service then made every able-bodied American male 18 year old eligible for the draft. That is when Berkeley’s campus anti-war protests began in earnest.

My only ‘tuition’ during my six years from 1958-64 was a $150 administration fee for every semester I attended UC Berkeley, and that was the case until Ronald Reagan became California’s Governor in 1966 when he and fellow conservatives on his Board of Regents, which was mostly made up of successful businessmen, decided that Berkeley students were spending too much time on the streets protesting the war, and not enough time in the classroom.

In 1969, Reagan convinced the Regents to begin to charge “education fees” to students for the privilege of attending such a prestigious institution, even though the UC system was a state-funded institution under the federal land grant act; rather than privately-funded Stanford University.

Its University of California system was created in 1868 with the decree that “admission and tuition shall be free to all residents of the state,” and the California State and community-college systems followed suit.

Governor Reagan at his inauguration famously said in reaction to the growing student protests: “Get them out of there, he said. “Throw them out. They are spoiled and don’t deserve the education they are getting. They don’t have a right to take advantage of our system of education.”

All UC students in the 2019 school year who are residents of California now pay $13,500 per year in tuition fees, while non-residents pay $42,500 per year, according to the UC Admissions Office.

U.S. News and World Reports publishes college rankings as well as those institutions of higher learning with little or no tuition fees. These low or tuition-free colleges are in lesser known states and regions, such as the Dakotas, New Hampshire, Arkansas, Illinois, Kentucky and Texas that give the same quality education without ‘name’ professors; that is, if the student seeks an education that will prepare him or her for meaningful work, rather than a degree from a prestigious and expensive institution (such as UC Berkeley) that that will put him or her on a career track that may turn into a well-worn rut. Even Ivy League Cornell University charges no tuition fee to New York state residents with family incomes of less than $100,000 per year.

Senator Warren’s proposal includes cancelling up to $50,000 in student debt for those that make less than $100,000 a year, with the amount of relief getting gradually smaller as income level goes up, and households that make more than $250,000 not eligible for any debt relief.

Altogether, it would wipe out all student debt — including both federal and private loans — for more than 75 percent of Americans with outstanding loans, according to analysis provided by Warren’s campaign.

These are just a few ideas on how to solve the student debt problem. We know the problem is becoming even more serious as a growing number of students want the advantages of a higher education; the question is how to fix it.

Harlan Green © 2019

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

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

A Huge Employment Report

Posted on May 3, 2019 by Popular Economics Weekly

Popular Economics Weekly

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

image

MarketWatch.com

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

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

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

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

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

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

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

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

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

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

Harlan Green © 2019

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

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

Are Consumers Happy, Will Continue to Spend?

Posted on April 29, 2019 by Popular Economics Weekly

Financial FAQs

I mentioned last week the big question remains, with March’s initial estimate of Q1 GDP growth, will consumers continue to maintain their share of consumption and continue to boost economic growth?

Today’s release of February and March Personal Consumption Expenditures tells us that consumer spending has picked up, but consumer (i.e., household) incomes not as much.

A 0.9 percent jump in consumer spending in March is 2 tenths higher than Econoday’s consensus. “Spending on durable goods was a soft spot in last week’s first-quarter GDP report but the monthly sequence looks favorable as spending for this discretionary category jumped 2.3 percent in March after contracting 1.1 and 0.1 percent in February and January.”

image

Econoday.com

Wages and salaries, the key component for judging consumer spending, actually rose to a solid 0.4 percent and follows gains of 0.3 and 0.4 percent in the two prior months, but overall personal incomes rose just 0.1 percent, which include non-wage pension and benefit payments.

There are more reports coming out this week that will clarify whether consumers continue to carry the growth ball, but there is nothing else on the horizon to keep growth at the current 3 percent level, since business fixed investment decelerated to a relatively slow 2.7 percent gain, down from a 5.4 percent gain in the prior quarter. Corporations should be spending their profits on such capital expenditures to boost productivity and wages, rather than using it to boost stock prices.

Upcoming consumer confidence, construction spending, ISM manufacturing and non-manufacturing surveys this week, will give us a better picture of consumers’ financial state. They all lead up to Friday’s March unemployment report, and whether the very robust jobs market continues.

But the real boost in Friday’s GDP report was the unexpected boost to state and local government spending, as they ramped up infrastructure spending on roads and bridges, as Republicans have cut back on government expenditures to favor of tax cuts.

Bloomberg News reported as part of the GDP report, “The Commerce Department on Friday said state and local government spending increased at an annual rate of 3.9 percent in the first quarter, the most since the start of 2016, because of a “turnaround in investment, most notably in construction of highways and streets.”

That contributed to a better-than-expected jump in the nation’s gross domestic product that Trump was quick to trumpet, yet it happened because local government budgets have recovered and they wouldn’t wait longer for the promised federal infrastructure spending that has never materialized.

image

Bloomberg.com

Once again, the bottom line is employment must grow at the current level for consumers to continue to spend. Friday’s report will also tell us if workers’ wages can continue to top 3 percent annual growth, something also presaged in last week’s GDP report.

Harlan Green © 2019

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

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

First Quarter GDP Growth Beats Estimates

Posted on April 26, 2019 by Popular Economics Weekly

Popular Economics Weekly

Surprise, surprise, first quarter GDP growth beat the estimates of economists and pundits, but it wasn’t for the usual reasons. Spending at the state and local level jumped 3.9 percent after a 1.3 percent drop in the prior three months. This was the fastest gain in three years, said the Commerce Department.

Spending by local governments probably picked up due to the partial federal government shutdown because of a “turnaround in investment, most notably in construction of highways and streets,” said the BEA.  Local and state governments may have been waiting to see if the Trump administration would chip in to boost needed infrastructure upgrades, and since that didn’t happen states decided to implement the needed projects.

The gain was well above forecasts. Economists polled by Market Watch had forecast a 2.3 percent increase in gross domestic product, and other pundits had it at less than 2 percent, in part because GDP grew 2.2 percent rate in the final three months of 2018.

image

Econoday.com

Consumer spending rose just 1.2 percent, in spite of the last minute surge in March retail sales, up 1.6 percent, which basically cancelled out the prior 3 months declines in retail spending. And business fixed investment decelerated to a relatively slow 2.7 percent gain, down from a 5.4 percent gain in the prior quarter.

Investment in structures fell 0.8 percent, the third straight decline, and investment in new housing was another weak spot, dropping 2.8 percent, the fifth straight quarterly decline, according to the BEA.

Housing construction is picking up, but nowhere near pre-recession levels. For how severe the current spell of under-building has been, take a look at new-home sales in 2000 or 2001, as Market Watch’s Andrea Riquier said last week. During those two years, well before the housing bubble started to inflate, Americans purchased 877,000 and 900,000 newly-constructed homes. In 2018, Americans purchased just 622,000

Inflation, as measured by the personal consumption expenditure price index, fell to a 1.4 percent annual rate in the first quarter from 1.9 percent in the prior three-month period. The decline in core PCE inflation less gas and oil sales was less pronounced, slipping to 1.7 percent from 1.9 percent. The monthly inflation numbers will be released on Monday, but such low inflation also shows lessening demand for goods and services.

And lower inflation means lower interest rates that banks can charge, which means shrinking bank profit margins and less available credit.

So future growth has to once again depend on consumers, and they seem to have mixed feelings about their future. The U. of Michigan sentiment index is still holding above 90, and retail sales were strong in March, as I said.

image

Econoday

The index itself is down 1.2 points from March, though the 97.2 result is still well up from the low 90 readings during January and February. Nevertheless, April’s month-end slowing in current conditions is not a favorable signal for either the month’s retail sales nor perhaps for next week’s employment report due on Friday, says Econoday. Inflation expectations are mixed with the year-ahead reading unchanged at 2.5 percent but the 5-year outlook down 2 tenths to 2.3 percent. 

The big question remains will consumers continue to maintain their share of consumption, and so economic growth? The bottom line seems to be that consumers’ incomes are growing slowly, in spite of full employment. There’s too much opposition from corporations and Big Business in general, especially in the right-to-work red states that have opposed a higher minimum wage. There are 21, mostly red states that have the $7.25 per hour federal minimum reached in 2007, when it has risen to as much as $12 in California, Massachusetts and Washington; with Colorado, Arizona, New York and Oregon close behind at $11 per hour.

In fact, Georgia and Wyoming are still at $5.15 per hour for those workers not subject to the federal Fair Labor Standards Act first enacted in 1938, which guarantees a minimum wage for employees who work at least 40 hours per week (other than independent contractors).

Yet how can consumers—that power two-thirds of all economic activity—keep the economy growing, when even the $15 per hour minimum wage goal set my presidential candidates Bernie Sanders and Elizabeth Warren isn’t a living wage?

Harlan Green © 2019

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

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

Laffernomics and Tomorrow’s GDP Estimate

Posted on April 25, 2019 by Popular Economics Weekly

Financial FAQs

The decline of so-called Laffernomics, an economic theory first proposed by conservative economist Arthur Laffer in 1974, posited in so many words that lower tax rates of the wealthiest, in particular, would increase overall tax revenues as well as economic growth. It has been Republicans’ economic doctrine since then.

Yet it hasn’t worked in numerous examples of what has also been called ‘trickle-down’ or Reaganomics since the 1980s, at least. And we will see further evidence of this in tomorrow’s initial estimate of first quarter GDP growth. First estimates were that it would be less than 1 percent.

image

FRED/Tradingeconomics.com

Considering full 2018, the economy advanced 2.9 percent, the most since 2015 and above 2.2 percent in 2017. In reality, growth has been trending down since the 1980s. However, GDP Growth Rate in the United States averaged 3.22 percent from 1947 until 2018, reaching an all-time high of 16.70 percent in the first quarter of 1950 and a record low of -10 percent in the first quarter of 1958,” which illustrates the uncertainty of predicting growth for any quarter, per the graph.

Tomorrow’s initial estimate of Q1 GDP growth will tell us just why Laffernomics in the guise of a one-time slashing of tax rates via the 2017 Republican Tax Cut and Jobs Act for the wealthiest and corporations doesn’t work for most Americans.

image 

BEA.gov

Consumer can’t spend what they don’t earn and the average household income (that means for most Americans) has barely risen since the 1980s, after inflation is factored in.

As economic blogger VOX put it last December, “The 2017 tax bill cut taxes for most Americans, including the middle class, but it heavily benefits the wealthy and corporations. It slashed the corporate tax rate from 35 percent to 21 percent, and its treatment of “pass-through” entities — companies organized as sole proprietorships, partnerships, LLCs, or S corporations — will translate to an estimated $17 billion in tax savings for millionaires this year. American corporations are showering their shareholders with stock buybacks, thanks in part to their tax savings.”

Some commentators are saying Q1 GDP growth might look better, due to higher consumer spending (retail sales just shot up), and One of Wall Street’s top forecasters, Macroeconomic Advisers, has lifted its GDP estimate to 2.8 percent from just a little over 1 percent a month ago. Other Wall Street firms have done the same, says MarketWatch.

But there are many caveats. “The increase in spending by consumers looks to have been the weakest in a year and business investment appears to have been flat,” contended Scott Anderson, chief economist at Bank of the West. “A festering U.S. trade dispute with China, a weak global economy and uncertainty stemming from the government shutdown all had a negative effect on investment. The U.S. economy isn’t out of the woods yet.”

There is one other leg to any economic recovery—government investment, yet what can the government spend when the Republican tax bill reduced almost $1.5 trillion of its revenues, and decided to pay for it with almost $1.5 trillion in cuts to Medicare and Medicaid benefits over the next 10 years?

The CBO estimates that implementing the Act would add an estimated $2.289 trillion to the national debt over ten years, or about $1.891 trillion after taking into account macroeconomic feedback effects, in addition to the $9.8 trillion increase forecast under the current policy baseline and existing $20 trillion national debt.

Harlan Green © 2019

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

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

Housing Supply Improving

Posted on April 23, 2019 by Popular Economics Weekly

The Mortgage Corner

Our housing supply is finally improving. New-home sales ran at a seasonally adjusted annual rate of 692,000, the Commerce Department said Tuesday. That was 4.5 percent above February’s total and beat the consensus forecast of a 645,000 rate.

It has taken this long for the housing market to recover from the housing bubble, when one million more homes were built than were needed. It was part of the too easy credit conditions that brought in home buyers that wouldn’t have qualified under more normal circumstances.

image

NAHB.org

For some context on how severe the current spell of under-building has been, take a look at new-home sales in 2000 or 2001. During those two years, well before the housing bubble started to inflate, Americans purchased 877,000 and 900,000 newly-constructed homes. In 2018, Americans purchased just 622,000, said MarketWatch’s Andrea Riquier.

“Sales of newly-constructed homes finally gained momentum after months in the doldrums. March’s selling pace was the strongest since November 2017, the month before the recent tax law changes took effect,” continued Riquier.

Meanwhile, existing-home sales retreated in March, following February’s surge of sales, according to the National Association of Realtors®. Each of the four major U.S. regions saw a drop-off in sales, with the Midwest enduring the Existing-home sales retreated in March, following February’s surge of sales, according to the National Association of Realtors®. Each of the four major U.S. regions saw a drop-off in sales, with the Midwest enduring the largest decline last month.

Total existing-home sales1, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 4.9% from February to a seasonally adjusted annual rate of 5.21 million in March. Sales as a whole are down 5.4% from a year ago (5.51 million in March 2018), said the NAR.

Lawrence Yun, NAR’s chief economist, anticipated waning in the numbers for March. “It is not surprising to see a retreat after a powerful surge in sales in the prior month. Still, current sales activity is underperforming in relation to the strength in the jobs markets. The impact of lower mortgage rates has not yet been fully realized.”

Rob Dietz, chief economist for the National Association of Home Builders, acknowledges that comparing the current housing economy to the one from two decades ago has some downsides. For one, the population isn’t growing nearly as fast now as back then. Still, the gulf between then and now is stark – and 2018’s anemic pace of construction follows several years of similar underbuilding.

“We think that based on demographic demand, we should probably be building 1.1 million single family homes this year,” Dietz told MarketWatch. “Our forecast is for less than 880,000 starts.” The NAHB prefers to look at starts, or groundbreakings, rather than sales data, to gauge market activity.”

For the first quarter of 2019, new home sales are running 1.7 percent higher than the first quarter of 2018, said Dietz. However, while sales were up 9.6 percent for the quarter in the South (the largest region), sales were down 5.9 percent in the West, 8.1 percent in the Midwest and 17.6 percent in the Northeast.

The March data reveal the challenge of housing affordability however, per Dietz and the NAHB. March sales grew at lower price points. For example, 50 percent of March 2019 new home sales were priced under $300,000. In March of 2018, only 39 percent of sales were priced under $300,000.

Harlan Green © 2019

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

Posted in Economy, Housing, housing market, Weekly Financial News | Tagged , , , , | Leave a comment

Retail Sales Rebound Sign of Higher Growth?

Posted on April 19, 2019 by Popular Economics Weekly

Popular Economics Weekly

Sales at U.S. retailers surged in March by the most in a year and a half, the latest in a string of reports suggesting economic growth is picking up after a soft spell of growth earlier in the year. Retail sales soared 1.6 percent last month, the government said Thursday. This beat economists’ expectations.

image

Econoday.com

And the Conference Board reported its Index of Leading Economic Indicators rose 0.4 percent, which is another sign that economic growth is trending back to normal from the Q1 slowdown.

“The US LEI picked up in March with labor markets, consumers’ outlook, and financial conditions making the largest contributions,” said Ataman Ozyildirim, Director of Economic Research at The Conference Board. ”Despite the relatively large gain in March, the trend in the US LEI continues to moderate, suggesting that growth in the US economy is likely to decelerate toward its long term potential of about 2 percent by year end.”

A 2 percent growth rate is still enough to keep consumers happy and the unemployment rate low for the rest of this year.

New car sales and trucks rose 3.1 percent — the best performance this year, reports MarketWatch — to give the broader retail industry a boost. Auto receipts represent about one-fifth of all retail sales. Sales at auto dealers jumped 3.5 percent, as a result, the second big increase in a row.

But Americans also spent more to fill up their gas tanks. The average price of gas nationally rose almost 10 percent in March to $2.62 a gallon, government figures show. The last time prices were that high was in November.

Even if gas and autos are set aside, retail sales still rose a robust 0.9 percent. Among the big winners: Internet retailers, clothing stores, home-furnishing outlets and grocers. Sales rose between 1 and 2 percent in those segments.

Sales rose in every category except for stores that sell books, musical instruments and hobby items. Traditional brick-and-mortar department stores were also laggards: sales were flat.

But the 1.6 percent rise in March retail sales just recoups the -1.6 percent decline in December, while January and February showed miniscule growth, so we are back to 4 percent annual sales growth when 5 to 6 percent was the normal in 2017-18, in terms of overall sales—another sign of slowing growth this year.

The Conference Board’s leading indicators also showed strength in manufacturing and lower jobless claims, but the yield curve, or so-called interest rate spread between long and short term Treasury bonds, continues to narrow, pointing to a greater possibility of shrinking bank profits and credit availability later this year.

Yet both the Conference Board and U. of Michigan measures of consumer confidence also show consumers are happy at the moment, in part because the Fed says it won’t be raising their interest rates anytime soon and there are still more than 7 million job openings, according to the Labor Department’s latest JOLTS report.

All this means retail sales should continue to perk up on this Good Friday with the financial markets closed. We have to remember that as long as consumers are happy, the US economy will continue to grow, regardless of government missteps and geopolitical uncertainty.

Harlan Green © 2019

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

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

First-Time Homebuyers Are Back

Posted on April 18, 2019 by Popular Economics Weekly

The Mortgage Corner

MarketWatch’s Andrea Riquier says first-time homebuyers aren’t doing so bad, if we look at more than the NARealtor’s existing-home sales data. First-timers’ sales data is important because they usually choose so-called “entry-level” homes that are affordable to moderate income households, which is important because moderately-priced housing for young adults is always in short supply.

Ms. Riquier reports the New York Fed might have a more accurate way to track first time homebuyers via their credit records, because the NYFed doesn’t rely on mortgage application data that is self-reported and hasn’t yet been confirmed during the formal application process.

image

MarketWatch.com

Their result shows that the first-time segment of buyers is back to 46 percent in 2016, from its low of 43 percent. The NAR has consistently reported first-timers’ percentage of sales at no more than 40 percent since the Great Recession.

The NYFed intones the importance of tracking borrowers on their website. “The large increases in consumer debt and defaults—of mortgage debt in particular—during the Great Recession highlighted the importance of understanding the liabilities reflected on household balance sheets.

“To that end, one of the CMD’s large data collection projects is the New York Fed Consumer Credit Panel, which is constructed from a nationally representative random sample of Equifax credit report data.”

image

LibertyStreet-NYFed

First-time homebuyers are younger and borrow less than repeat buyers, says the NYFed. And because they weren’t homeowners at the time, they didn’t suffer as much as repeat buyers in the ups and downs of the housing bubble. So the median age of first-time buyers actually declined from 35 in 2000 to 32 in 2016, while the median age of repeat buyers increased from 43 in 2000 to 46 in 2016, as housing prices recovered from the busted housing bubble. 

I reported in an earlier column that a major reason for the jump in first-time buyers was their increase in household formation. The millennial generation is forming more new households, and at least 50 percent have historically wanted to buy a home. Researchers at the San Francisco Federal Reserve have been finding such an increase. 

“The shares of young adults heading households now are similar to rates seen at the start of the housing boom,” said SF Fed researchers. “Moreover, while more young adults are living at home longer, data suggest they are continuing to transition to higher headship rates as they get older…Given current 12-month annual headship rates by age group, the Census Bureau projections imply household formations averaging on the order of 1.4 to 1.5 million per year through 2020. That is much better than an average of a little less than 900,000 annually over the past five years.”

First-timers’ ownership rate will no doubt continue to fluctuate, as many of them are still burdened by education debts, and a lower wage structure for those just entering the workforce. But home owning is the main wealth aggregator for middle class households and so will continue to incentivize young adults to buy rather than rent, but only if builders will construct more affordable housing, with loan programs and interest rates that make this possible.

Harlan Green © 2019

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

Posted in Consumers, Housing, housing market, Weekly Financial News | Tagged , , , | Leave a comment

Part II—What’s Wrong With Capitalism?

Posted on April 17, 2019 by Popular Economics Weekly

Financial FAQs

Pete Buttigieg, Mayor of South Bend, Indiana and Presidential candidate, said to NBC’s Chuck Todd, “of course I’m a capitalist and America is a capitalist society, but it’s got to be democratic capitalism,” per the NYTimes’ Michael Tomasky.

But that hasn’t always been the case in America. Today we are approaching a very undemocratic form of capitalism—oligarchism, where a small percentage of Americans control most of the wealth and benefit from its laws—particularly since the end of the Great Recession.

Corporations and their stockholders have garnered 96 percent of the wealth generated since it ended in June 2009. Why? Because the busted housing bubble caused many in the middle class to either lose the equity in their homes, or their homes outright. The damage was so great that median household wealth has declined 30 percent since 2017, according to the Federal Reserve.

image

And taxes have been drastically cut that would fund public spending to restore some of that lost wealth—on badly deteriorated infrastructure, higher educational standards (US student test scores are now below that of other developed countries), research in new technologies, healthcare, and the environment.

These programs would help to restore some of the record income and wealth inequality that has resulted, and made America a world power in decline. A super majority of economists say public spending programs boost economic growth for the simple reason that it redistributes tax revenues where they will do the most good—to the 99 percent that have lost the most from the Great Recession.

Buttigieg has made some vague proposals to right the inequality that, after all, was the major cause of both the Great Depression and Great Recession. So why wouldn’t we want to bring back a democratic capitalism that works for all Americans?

But there is an even more important ingredient that nurtures democratic capitalism, besides public investments. It is healthy local community involvement in civic activities. Ball State, Indiana economist Michael J Hicks reports in an assessment of Mayor Pete’s accomplishments, a major component of his South Bend’s success has been local civic involvement in community organizations, such as their very active Rotary Club. “It was more like an interdisciplinary research colloquium, combined with an interfaith conference and millennial business forum,” said Hicks.

There are many studies that show positive results of what is a little known field of study—community development, also known as community organizing—that was first put into practice in the US by unions in the 1930s with New Deal legislation as a way to counteract effects of the Great Depression by boosting the formation of labor unions.

The National Industrial Recovery Act (1933) provided for collective bargaining. The 1935 National Labor Relations Act (also known as the Wagner Act) required businesses to bargain in good faith with any union supported by a majority of its employees. 

The United Nations defines community development broadly as “a process where community members come together to take collective action and generate solutions to common problems.”

One of its best-known practitioners was Saul Alinsky, based in Chicago, who is credited with originating the term community organizer during this time period. Alinsky wrote Reveille for Radicals, published in 1946, and Rules for Radicals, published in 1971. With these books, Alinsky was the first person in America to codify key strategies and aims of community organizing.

Wikipedia cites the International Association for Community Development (www.iacdglobal.org), the global network of community development practitioners and scholars, as “a practice-based profession and an academic discipline that promotes participative democracy, sustainable development, rights, economic opportunity, equality and social justice, through the organisation, education and empowerment of people within their communities, whether these be of locality, identity or interest, in urban and rural settings”.

Community development has today taken on a new popularity, as communities torn apart by globalization and loss of manufacturing jobs, particularly in the rust belt, seek to rebuild themselves.

Sociologists like Robert Putnam, author of Bowling Alone, the Collapse and Revival of American Community, have been vocal in calling for a revival of local civic participation in the rebuilding of American communities.

He says in Bowling Alone, “Financial capital – the wherewithal for mass marketing – has steadily replaced social capital – that is, grassroots citizen networks – as the coin of the realm.”

Then the problem becomes how to restore the social capital of civic engagement into its rightful place in the community? It has to begin with putting public capital back into the public sector as was done with the New Deal, in order to restore democratic capitalism, a capitalism that can work for all Americans.

Harlan Green © 2019

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

Posted in Consumers, Economy, Keynesian economics, Macro Economics, Politics | Tagged , , , , , | 2 Comments